Prudential Standards for Large Foreign Banking Organizations; Revisions to Proposed Prudential Standards for Large Domestic Bank Holding Companies and Savings and Loan Holding Companies, 21988-22036 [2019-07895]

Download as PDF 21988 Federal Register / Vol. 84, No. 94 / Wednesday, May 15, 2019 / Proposed Rules FEDERAL RESERVE SYSTEM 12 CFR Parts 217, 225, 238, and 252 [Regulations Q, Y, LL, and YY; Docket No. R–1658; RIN 7100–AF45] Prudential Standards for Large Foreign Banking Organizations; Revisions to Proposed Prudential Standards for Large Domestic Bank Holding Companies and Savings and Loan Holding Companies Board of Governors of the Federal Reserve System (Board). ACTION: Notice of proposed rulemaking with request for public comment. AGENCY: The Board is requesting comment on a proposed rule that would revise the framework for applying the enhanced prudential standards applicable to foreign banking organizations under section 165 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, as amended by the Economic Growth, Regulatory Relief, and Consumer Protection Act. The proposal would establish categories that would be used to tailor the stringency of enhanced prudential standards based on the risk profile of a foreign banking organization’s operations in the United States. The proposal also would amend certain enhanced prudential standards, including standards relating to liquidity, risk management, stress testing, and single-counterparty credit limits, and would make corresponding changes to reporting forms. The proposal would make clarifying revisions and technical changes to the Board’s October 31, 2018, proposal for large U.S. bank holding companies and certain savings and loan holding companies relating to the Board’s internal liquidity stress testing requirements and GSIB surcharge rule. Separately, the Board, the Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corporation (FDIC) (together, the agencies) are requesting comment on a proposal to revise the applicability of the agencies’ capital and liquidity requirements for foreign banking organizations based on the same categories, and the Board is requesting comment on whether it should impose standardized liquidity requirements on the U.S. branch and agency network of a foreign banking organization, as well as possible approaches for doing so. In addition, the Board and the FDIC are separately requesting comment on a proposal to revise the applicability of the resolution planning requirements applicable to large U.S. banking organizations and foreign banking jbell on DSK3GLQ082PROD with PROPOSALS2 SUMMARY: VerDate Sep<11>2014 19:09 May 14, 2019 Jkt 247001 organizations, using a category approach that is broadly consistent with the one set forth in this proposal. DATES: Comments on the proposal, including elements of the proposal that would be applied to domestic banking organizations and foreign banking organizations, and other clarifying revisions and technical changes discussed in section II.G of the Supplementary Information Section, must be received by June 21, 2019. ADDRESSES: You may submit comments, identified by Docket No. R–1658 and RIN 7100–AF45, by any of the following methods: • Agency Website: https:// www.federalreserve.gov. Follow the instructions for submitting comments at https://www.federalreserve.gov/apps/ foia/proposedregs.aspx. • 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 website at https:// www.federalreserve.gov/generalinfo/ foia/ProposedRegs.cfm as submitted, unless modified for technical reasons or to remove sensitive personally identifiable information at the commenter’s request. Public comments may also be viewed electronically or in paper form in Room 146, 1709 New York Avenue, Washington, DC 20006 between 9:00 a.m. and 5:00 p.m. on weekdays. FOR FURTHER INFORMATION CONTACT: Constance Horsley, Deputy Associate Director, (202) 452–5239; Elizabeth MacDonald, Manager, (202) 475–6316; Brian Chernoff, Lead Financial Institution Policy Analyst, (202) 452– 2952; Mark Handzlik, Lead Financial Institution Policy Analyst, (202) 475– 6636, J. Kevin Littler, Lead Financial Institution Policy Analyst, (202) 475– 6677; Matthew McQueeney, Senior Financial Institution Policy Analyst II, (202) 452–2942; or Christopher Powell, Senior Financial Policy Analyst II, (202) 452–3442, Division of Banking Supervision and Regulation; or Laurie Schaffer, Associate General Counsel, (202) 452–2272; Benjamin McDonough, Assistant General Counsel (202) 452– 2036; Asad Kudiya, Counsel, (202) 475– 6358; Jason Shafer, Counsel (202) 728– 5811; Mary Watkins, Senior Attorney, (202) 452–3722; or Alyssa O’Connor, PO 00000 Frm 00002 Fmt 4701 Sfmt 4702 Attorney, (202) 452–3886, Legal Division. Board of Governors of the Federal Reserve System, 20th and C Streets NW, Washington, DC 20551. SUPPLEMENTARY INFORMATION: Table of Contents I. Introduction A. Background B. Considerations in Tailoring Enhanced Prudential Standards for Foreign Banking Organizations II. Overview of the Proposal A. Scope of Application B. Scoping Criteria for Proposed Categories 1. Size 2. Other Risk-Based Indicators a. Cross-Jurisdictional Activity b. Nonbank Assets c. Off-Balance Sheet Exposure d. Weighted Short-Term Wholesale Funding 3. Alternative Scoping Criteria 4. Determination of Applicable Category of Standards C. Enhanced Prudential Standards for Foreign Banking Organizations 1. Category II Standards 2. Category III Standards 3. Category IV Standards D. Single-Counterparty Credit Limits E. Risk-Management and Risk Committee Requirements F. Enhanced Prudential Standards for Foreign Banking Organizations With a Smaller U.S. Presence G. Technical Changes to the Regulatory Framework for Foreign Banking Organizations and Domestic Banking Organizations III. Proposed Reporting Changes IV. Impact Assessment A. Liquidity B. Capital Planning and Stress Testing C. Single-Counterparty Credit Limits V. Administrative Law Matters A. Solicitation of Comments and Use of Plain Language B. Paperwork Reduction Act Analysis C. Regulatory Flexibility Act Analysis I. Introduction The Board of Governors of the Federal Reserve System (Board) is requesting comment on a proposed rule (the proposal) that would revise the framework for applying enhanced prudential standards to foreign banking organizations with total consolidated assets of $100 billion or more.1 1 Foreign banking organization means a foreign bank that operates a branch, agency, or commercial lending company subsidiary in the United States; controls a bank in the United States; or controls an Edge corporation acquired after March 5, 1987; and any company of which the foreign bank is a subsidiary. See 12 CFR 211.21(o); 12 CFR 252.2(k). An agency is place of business of a foreign bank, located in any state, at which credit balances are maintained, checks are paid, money is lent, or, to the extent not prohibited by state or federal law, deposits are accepted from a person or entity that is not a citizen or resident of the United States. A branch is a place of business of a foreign bank, located in any state, at which deposits are received E:\FR\FM\15MYP2.SGM 15MYP2 Federal Register / Vol. 84, No. 94 / Wednesday, May 15, 2019 / Proposed Rules Specifically, the proposal would revise the thresholds for application of enhanced prudential standards to foreign banking organizations and tailor the stringency of those standards based on the U.S. risk profiles of these firms. The proposal generally would align with the framework the Board proposed for large U.S. bank holding companies and certain savings and loan holding companies on October 31, 2018 (the domestic proposal).2 The proposal also is consistent with the Board’s ongoing efforts to assess the impact of its regulations while exploring alternatives that achieve regulatory objectives and improve upon the regulatory framework’s simplicity, transparency, and efficiency. Under the proposal, a foreign banking organization with $100 billion or more in total consolidated assets and a significant U.S. presence would be subject to Category II, Category III, or Category IV 3 enhanced prudential standards depending on the size of its U.S. operations and the materiality of the same risk-based indicators that were included in the domestic proposal: Cross-jurisdictional activity, nonbank assets, off-balance sheet exposure, and weighted short-term wholesale funding, as discussed below.4 Foreign banking organizations with $100 billion or more in total consolidated assets that do not meet the thresholds for application of Category II, Category III, or Category IV standards due to their limited U.S. presence would be subject to requirements that largely defer to compliance with similar home-country standards at the consolidated level, with the exception of certain riskmanagement standards. jbell on DSK3GLQ082PROD with PROPOSALS2 A. Background The financial crisis revealed significant weaknesses in resiliency and risk management in the financial sector, and demonstrated how the failure or distress of large, leveraged, and interconnected financial companies, including foreign banking organizations, could pose a threat to U.S. financial stability. Certain foreign banking organizations with the largest, most and that is not an agency. See 12 CFR 211.21(b) and (e). 2 Prudential Standards for Large Bank Holding Companies and Savings and Loan Holding Companies, 83 FR 61408 (November 29, 2018). 3 Category I standards would apply only to U.S. global systemically important bank holding companies. See infra note 28. 4 As explained further in this SUPPLEMENTARY INFORMATION section, cross-jurisdictional activity would be measured (a) excluding intercompany liabilities; and (b) would allow recognition of financial collateral in calculating intercompany claims. VerDate Sep<11>2014 19:09 May 14, 2019 Jkt 247001 complex U.S. subsidiary operations maintained insufficient capital in the United States and were not appropriately positioned to support losses among those operations. Accordingly, these firms were forced to significantly reduce assets in the United States to address capital deficiencies. In addition, the funding models of many foreign banking organizations presented unique vulnerabilities, as they relied on dollar-denominated short-term wholesale funding obtained in the United States to fund their global investment activities. Disruptions in the U.S. wholesale funding market limited the ability of these firms to satisfy liquidity demands, as some of them lacked adequate risk-management practices to account for the liquidity stresses of individual products or business lines, had not adequately accounted for draws from off-balance sheet exposures, or had not adequately planned for a disruption in funding sources. As a result, many experienced significant distress and required unprecedented liquidity support from U.S. and home-country authorities.5 For example, analysis using Federal Reserve Board data on Term Auction Facility usage in 2008 and 2009 finds that approximately 40 percent of foreign banking organizations borrowed from the facility during the financial crisis. Furthermore, on average, U.S. branches of foreign banking organizations that used the facility funded approximately 10 percent of their assets through the Term Auction Facility during this period. Section 165 of the Dodd-Frank Act was enacted in response to the financial crisis and directed the Board to establish enhanced prudential standards for foreign banking organizations with total consolidated assets of $50 billion or more.6 These standards must include enhanced risk-based capital and leverage requirements, liquidity requirements, risk-management requirements, and stress test requirements, among others.7 These standards also must increase in stringency based on certain statutory considerations in section 165.8 In applying section 165 to foreign banking 5 See, e.g., Goldberg and Skeie, 2011, ‘‘Why did U.S. branches of foreign banks borrow at the discount window during the crisis?’’, Liberty Street Economics Blog, Federal Reserve Bank of New York. 6 12 U.S.C. 5365. 7 In addition, the Dodd-Frank Act authorizes the Board to establish additional enhanced prudential standards relating to contingent capital, public disclosures, short-term debt limits, and such other prudential standards as the Board determines appropriate. 8 See 12 U.S.C. 5365(a)(1), (b)(3). PO 00000 Frm 00003 Fmt 4701 Sfmt 4702 21989 organizations, the Dodd-Frank Act also directs the Board to give due regard to the principles of national treatment and equality of competitive opportunity and to take into account the extent to which a foreign banking organization is subject, on a consolidated basis, to home-country standards that are comparable to those applied to financial companies in the United States.9 The Board’s enhanced prudential standards implement section 165 of the Dodd-Frank Act and strengthen capital, liquidity, risk-management, and other prudential standards for banking organizations.10 In applying section 165 to foreign banking organizations, the Board has tailored enhanced prudential standards based, in part, on the size and complexity of a foreign banking organization’s activities in the United States. The standards applicable to foreign banking organizations with a more limited U.S. presence largely rely on compliance with comparable homecountry standards applied at the consolidated foreign parent level. In comparison, a foreign banking organization with a significant U.S. presence is subject to enhanced prudential standards and supervisory expectations that apply to its combined U.S. operations.11 A foreign banking organization with U.S. non-branch assets of $50 billion or more 12 also must form a U.S. intermediate holding company 13 that must calculate riskbased and leverage capital ratios, create a risk-management structure (including for the management of liquidity risk), and engage in stress testing in a manner comparable to a similarly situated U.S. bank holding company.14 The presence of foreign banking organizations in the United States brings competitive and countercyclical benefits to U.S. markets, as these firms serve as an important source of credit to U.S. households and businesses and contribute materially to the strength and liquidity of U.S. financial markets. Post9 12 U.S.C. 5365(b)(2). CFR part 252. 11 The combined U.S. operations of a foreign banking organization include any U.S. subsidiaries (including any U.S. intermediate holding company, which would reflect on a consolidated basis any U.S. depository institution subsidiaries thereof), U.S. branches, and U.S. agencies. 12 U.S. non-branch assets are defined in Regulation YY. See 12 CFR 252.152(b)(2). 13 Risk-management and liquidity standards, as well as single-counterparty credit limits, apply to a foreign banking organization at the level of its combined U.S. operations. Capital standards apply to a U.S. intermediate holding company, but they do not apply to U.S. branches and agencies, which are not required to maintain regulatory capital separately from the foreign banks of which they are a part. 14 12 CFR 252.153 et seq. 10 12 E:\FR\FM\15MYP2.SGM 15MYP2 21990 Federal Register / Vol. 84, No. 94 / Wednesday, May 15, 2019 / Proposed Rules jbell on DSK3GLQ082PROD with PROPOSALS2 crisis financial regulations have resulted in substantial gains in resiliency for individual firms and the financial system as a whole. Foreign banking organizations’ U.S. operations have become less fragmented and maintain more capital and liquidity in the United States.15 In addition, the U.S. operations of foreign banking organizations subject to enhanced prudential standards generally have made significant improvements in risk identification and management, data infrastructure, and controls. These improvements have helped to build a more resilient financial system that is better positioned to provide American consumers, businesses, and communities access to the credit they need, even under challenging economic conditions. The U.S. operations of foreign banking organizations vary in their complexity and systemic significance, and can present significant risks to U.S. financial stability. As shown in the financial crisis, disproportionate use of dollar-denominated short-term wholesale funding relative to more stable, insured deposits presents significant risks to U.S. financial stability and the safety and soundness of an individual firm; some foreign banking organizations remain heavily reliant on this source of funding. Among all foreign banking organizations with combined U.S. assets 16 of $100 billion or more, short-term wholesale funding is equivalent to approximately 30 percent of their U.S. assets, ranging from 10 percent to as much as 60 percent.17 U.S. branches of these firms tend to have particularly high reliance on shortterm wholesale funding because they generally lack access to retail deposits. In addition, some foreign banking organizations engage in complex activities through broker-dealers in the United States, which are highly interconnected to U.S. and foreign financial intermediaries. Among foreign banking organizations with combined U.S. assets of $100 billion or more, U.S. broker-dealer subsidiaries comprise approximately 25 percent of these firms’ U.S. assets in aggregate, with a range of zero to 50 percent at individual firms.18 Overall, total nonbank assets, including broker-dealer subsidiaries, in aggregate 15 Sources: Consolidated Financial Statements for Holding Companies (FR Y–9C) and Complex Institution Liquidity Monitoring Report (FR 2052a). 16 See, infra note 18. 17 Source: FR 2052a, as of June 30, 2018. 18 Sources: Parent Company Only Financial Statements for Large Holding Companies (FR Y– 9LP), The Capital and Asset Report for Foreign Banking Organizations (FR Y–7Q), and the Securities Exchange Commission’s Financial and Operational Combined Uniform Single Report, as of September 30, 2018. VerDate Sep<11>2014 19:09 May 14, 2019 Jkt 247001 comprise approximately 25 percent of the combined U.S. assets of these firms, with a range of zero to 70 percent at individual firms.19 The crisis experience demonstrated that nonbank activities could exacerbate the effects of a banking organization’s distress or failure, due to the business and operational complexities associated with these activities. The U.S. operations of some foreign banking organizations also exhibit greater complexity and face risks due to significant levels of cross-jurisdictional activity and off-balance sheet exposure. Among foreign banking organizations with combined U.S. assets of $100 billion or more, cross-jurisdictional activity (excluding cross-jurisdictional liabilities to non-U.S. affiliates) 20 is equivalent to approximately 30 percent of those assets, ranging from 13 to as much as 81 percent, whereas off-balance sheet exposure is equivalent to approximately 30 percent of those assets, ranging from 10 to as much as 51 percent.21 As discussed below, both cross-jurisdictional activity and offbalance sheet exposure provide a measure of a banking organization’s interconnectedness, as well as other risks. The Board is proposing to modify the enhanced prudential standards framework applicable to foreign banking organizations in a manner commensurate with the risks such organizations pose to U.S. financial stability, based on the risk-based indicators set forth in this proposal. B. Considerations in Tailoring Enhanced Prudential Standards for Foreign Banking Organizations The Board conducts periodic reviews of its rules to update, reduce unnecessary costs associated with, and streamline regulatory requirements based on its supervisory experience and consistent with the effective implementation of its statutory responsibilities. These efforts include assessing the impact of regulations as well as exploring alternative approaches that achieve regulatory objectives while improving the regulatory framework’s simplicity, transparency, and efficiency. The proposal is the result of this practice, and reflects amendments to 19 Id. 20 See section II.B.2.a of this SUPPLEMENTARY section. In addition, while the proposal would allow recognition of financial collateral in calculating intercompany claims, recognition of financial collateral is not reflected in this analysis. 21 This analysis was based on data compiled from the FR Y–7Q, as well as information collected from certain foreign banking organizations supervised by the Board as of September 30, 2018. INFORMATION PO 00000 Frm 00004 Fmt 4701 Sfmt 4702 section 165 of the Dodd-Frank Act under the Economic Growth, Regulatory Relief, and Consumer Protection Act (EGRRCPA).22 The proposal would raise the asset size threshold for the application of enhanced prudential standards to foreign banking organizations, consistent with EGRRCPA, and is designed to more precisely address the risks presented by foreign banking organizations to U.S. financial stability in a manner that broadly aligns with the domestic proposal. The proposal builds upon the Board’s practice of tailoring enhanced prudential standards applied to foreign banking organizations based on the risk profile of their combined U.S. operations. By applying standards that are broadly consistent with the standards that would apply to U.S. bank holding companies of a similar risk profile under the domestic proposal, this proposal would take into account the principles of national treatment and equality of competitive opportunity between foreign and domestic banking organizations. The proposal would distinguish the manner in which a foreign banking organization determines its applicable category of capital standards as compared to its applicable category for all other standards. For riskmanagement standards, liquidity standards, and single-counterparty credit limits, a foreign banking organization would determine the applicable category based on the risk profile of its combined U.S. operations. This approach is consistent with the current enhanced prudential standards framework and recognizes that certain risks are more appropriately regulated across the combined U.S. operations of a foreign banking organization to prevent or mitigate risks to U.S. financial stability. For example, funding vulnerabilities at a U.S. branch can expose a foreign banking organization’s other U.S. operations to heightened liquidity risk because their customers and counterparties may not distinguish liquidity stress at one component of the U.S. operations from the liquidity position of another part of the U.S. operations. As a result, liquidity stress among the combined U.S. operations of a foreign banking organization can manifest rapidly and simultaneously, regardless of the source of that risk. Similarly, single-counterparty credit limits that are based on and apply only to one aspect of a foreign banking organization’s operations in the United States can create an incentive to 22 Public E:\FR\FM\15MYP2.SGM Law 115–174, 132 Stat. 1296 (2018). 15MYP2 Federal Register / Vol. 84, No. 94 / Wednesday, May 15, 2019 / Proposed Rules concentrate risk elsewhere in the organization’s U.S. operations. More generally, the tendency of market participants to take a more holistic view of the financial strength and resilience of a foreign banking organization’s U.S. operations underscores the importance of applying enhanced prudential standards comprehensively across those operations. Accordingly, consistent with the current enhanced prudential standards framework, the proposal would apply risk-management and liquidity standards, as well as single- counterparty credit limits, to a foreign banking organization at the level of its combined U.S. operations. For capital standards, a foreign banking organization would determine the applicable category based on the risk profile of its U.S. intermediate holding company, if any,23 and not the combined U.S. operations of the foreign banking organization.24 Capital standards under the proposed categories would apply to a foreign banking organization at the U.S. intermediate holding company level. This approach is consistent with the current enhanced BILLING CODE 6210–01–C assets of $100 billion or more, based on the risk profile of their U.S. operations. The proposal broadly aligns with the framework set forth in the domestic proposal,25 with modifications, for example, to address the fact that foreign banking organizations may operate in the United States directly through U.S. branches and agencies or through subsidiaries. Specifically, the proposal would establish three categories of standards to address risk-management, liquidity, and single-counterparty credit limits for foreign banking organizations subsidiary of the foreign banking organization would continue to be subject to the generally applicable capital requirements under the agencies’ regulatory capital rule. 24 See supra note 9. 25 See also Proposed Changes to Applicability Thresholds for Regulatory Capital and Liquidity Requirements, 83 FR 66024 (December 21, 2018) (domestic interagency proposal). The proposal would revise the framework for determining the applicability of enhanced prudential standards for foreign banking organizations with total consolidated 23 A foreign banking organization with no U.S. intermediate holding company would be subject to requirements that defer largely to compliance with home-country capital standards. Any U.S. bank holding company or depository institution VerDate Sep<11>2014 19:09 May 14, 2019 Jkt 247001 PO 00000 Frm 00005 Fmt 4701 Sfmt 4702 prudential standards framework and recognizes that U.S. branches and agencies do not maintain regulatory capital separately from their foreign parents. The visual below provides a simplified illustration of a how a foreign banking organization may structure its U.S. operations, and depicts the portion of those operations that would comprise its combined U.S. operations for purposes of the proposal. BILLING CODE 6210–01–P E:\FR\FM\15MYP2.SGM 15MYP2 EP15MY19.000</GPH> II. Overview of the Proposal jbell on DSK3GLQ082PROD with PROPOSALS2 21991 jbell on DSK3GLQ082PROD with PROPOSALS2 21992 Federal Register / Vol. 84, No. 94 / Wednesday, May 15, 2019 / Proposed Rules with $100 billion or more in total consolidated assets and a significant U.S. presence (i.e., combined U.S. assets of $100 billion or more). The proposal would also establish three categories of capital standards for a U.S. intermediate holding company with total consolidated assets of $100 billion or more, which would apply only to a U.S. intermediate holding company. The requirements under each category would be based on the risk profile of a foreign banking organization’s combined U.S. operations or U.S. intermediate holding company, as measured by their size and the materiality of the following risk-based indicators: Cross-jurisdictional activity, nonbank assets, off-balance sheet exposure, and weighted short-term wholesale funding. For foreign banking organizations with $100 billion or more in total consolidated assets and a limited U.S. presence (i.e., less than $100 billion in combined U.S. assets), the proposal would not apply the category framework, and instead would continue to rely largely on compliance with similar home-country standards at the consolidated, foreign-parent level. In addition, foreign banking organizations with $50 billion or more in total consolidated assets would continue to be required to meet U.S. risk management requirements. The proposal also would implement reporting requirements that are necessary to accommodate the use of the risk-based indicators for the combined U.S. operations of a foreign banking organization, and make certain technical amendments to the Board’s enhanced prudential standards framework related to the organization of the framework, certain clarifying revisions, and the removal of outdated transitional provisions. Concurrently with this proposal, the agencies separately are seeking comment on a proposal that would amend the agencies’ capital and liquidity requirements to introduce consistent categories for tailoring those standards based on the risk profile of foreign banking organizations’ U.S. operations (the interagency foreign banking organization capital and liquidity proposal). As part of that proposal, the Board is requesting comment on, but is not proposing, whether it should impose standardized liquidity requirements to address the liquidity risks of the U.S. branches and agencies of a foreign banking organization with significant U.S. operations, as well as potential approaches to do so. In addition, the Board, together with the FDIC, separately is seeking comment on a VerDate Sep<11>2014 19:09 May 14, 2019 Jkt 247001 proposal that would address the applicability of resolution planning requirements to large U.S. banking organizations and foreign banking organizations based on a category approach that is broadly consistent with the categories set forth in this proposal. A. Scope of Application Consistent with the domestic proposal and EGRRCPA’s amendments to section 165 of the Dodd-Frank Act, this proposal generally would increase the asset size threshold for application of the enhanced prudential standards framework to foreign banking organizations from $50 billion to $100 billion in total consolidated assets.26 Under the proposal, such a foreign banking organization with $100 billion or more in combined U.S. assets 27 would be subject to Category II, Category III, or Category IV enhanced prudential standards.28 The category of standards that would apply to a foreign banking organization would be based on the risk profile of its U.S. operations, as measured by size, cross-jurisdictional activity, nonbank assets, off-balance sheet exposure, and weighted short-term wholesale funding. The most stringent requirements would apply to a foreign banking organization subject to Category II standards. Requirements under this category would apply to a foreign banking organization with very large U.S. operations or those with significant cross-jurisdictional activity, and generally would remain unchanged from existing requirements. In comparison, requirements applicable to foreign banking organizations would become increasingly less stringent under Category III and Category IV, respectively, commensurate with the reduced sizes and risk profiles of their U.S. operations. Category III standards would apply to a foreign banking organization with U.S. operations that are significant in size or have elevated 26 Under the proposal, the threshold for application of risk-management requirements would increase from $10 billion to $50 billion in total consolidated assets. 27 Combined U.S. assets means the sum of the consolidated assets of each top-tier U.S. subsidiary of a foreign banking organization (excluding any section 2(h)(2) company, if applicable) and the total assets of each U.S. branch and U.S. agency of a foreign banking organization, as reported by the foreign banking organization on the Annual Report of Foreign Banking Organizations (FR Y–7Q). 28 This proposal would not apply the most stringent Category I standards to foreign banking organizations because, under the domestic proposal, Category I standards would apply only to U.S. global systemically important bank holding companies. Under Board regulations, only a top-tier U.S. bank holding company can be identified as a U.S. global systemically important bank holding company. See 12 CFR 217.11(d); 12 CFR part 217, subpart H. PO 00000 Frm 00006 Fmt 4701 Sfmt 4702 U.S. risk profiles, measured based on the levels of nonbank assets, off-balance sheet exposure, and weighted short-term wholesale funding among those operations. The least stringent prudential standards would apply under Category IV to a foreign banking organization with combined U.S. assets of at least $100 billion that is not subject to Category III or Category II standards based on its U.S. risk profile. Section II.B. of this SUPPLEMENTARY INFORMATION section discusses the proposed criteria for determining which category of standards would apply to a foreign banking organization, and Sections II.C. through II.E. of this SUPPLEMENTARY INFORMATION section discuss the standards that would apply under each category. Section II.F. of this SUPPLEMENTARY INFORMATION section discusses the standards that would apply to foreign banking organizations with total consolidated assets of $100 billion or more, but a U.S. presence that does not meet the criteria for the application of prudential standards under the categories described in this proposal and that presents lesser risk to U.S. financial stability. Other than U.S. risk-management requirements, the proposal would not apply enhanced prudential standards to foreign banking organizations with total consolidated assets of less than $100 billion, consistent with EGRRCPA. B. Scoping Criteria for Proposed Categories Under the proposal, the three categories for determining the enhanced prudential standards that apply to foreign banking organizations with combined U.S. assets of $100 billion or more would be defined based on the following criteria, measured based on the combined U.S. operations of a foreign banking organization: • Category II standards, including risk-management standards, liquidity requirements, and single-counterparty credit limit requirements, would apply to foreign banking organizations the combined U.S. operations of which have $700 billion or more in assets, or $75 billion or more in cross-jurisdictional activity.29 In addition, under the interagency foreign banking organization capital and liquidity proposal, the most stringent standardized liquidity requirements would apply to the foreign banking organization at the level of any U.S. intermediate holding company and 29 Cross-jurisdictional activity would be measured excluding cross-jurisdictional liabilities to non-U.S. affiliates and cross-jurisdictional claims on non-U.S. affiliates to the extent that these claims are secured by financial collateral. E:\FR\FM\15MYP2.SGM 15MYP2 Federal Register / Vol. 84, No. 94 / Wednesday, May 15, 2019 / Proposed Rules jbell on DSK3GLQ082PROD with PROPOSALS2 certain of its depository institution subsidiaries. • Category III standards, including risk-management standards, liquidity requirements, and single-counterparty credit limit requirements, would apply to foreign banking organizations that are not subject to Category II standards and the combined U.S. operations of which have $250 billion or more in assets or $75 billion or more in any of the following indicators: Nonbank assets, weighted short-term wholesale funding, or off-balance sheet exposure. Standardized liquidity requirements 30 (applicable at the level of its U.S. intermediate holding company (and certain of its depository institution subsidiaries), if any) would vary in stringency based on a foreign banking organization’s level of weighted shortterm wholesale funding, as described in the interagency foreign banking organization capital and liquidity proposal. • Category IV risk-management standards and liquidity requirements would apply to foreign banking organizations with at least $100 billion in combined U.S. assets that do not meet any of the thresholds proposed for Categories II and III. In addition, as discussed in the interagency foreign banking organization capital and liquidity proposal, standardized liquidity requirements would apply to a foreign banking organization with $50 billion or more in weighted short-term wholesale funding at its combined U.S. operations, at the level of its U.S. intermediate holding company (and certain of its depository institution subsidiaries), if any. Capital standards, including stress testing and capital planning, would apply to a U.S. intermediate holding company that meets the thresholds for Categories II, III and IV described above, based on its total consolidated assets or the materiality of the risk-based indicators. The stress testing and capital planning requirements would increase in stringency commensurate with the risk profile of a U.S. intermediate holding company. The use of a multi-category approach would align the enhanced prudential standards applicable to foreign banking organizations with those set forth in the domestic proposal for U.S. firms with 30 The specific standardized liquidity requirements that would apply under Categories III and IV based on weighted short-term wholesale funding levels of $75 billion and $50 billion, respectively, are discussed in the interagency foreign banking organization capital and liquidity proposal. Proposed changes to the liquidity data reporting requirements under FR 2052a are discussed later in this proposal. VerDate Sep<11>2014 19:09 May 14, 2019 Jkt 247001 similar risk profiles. Such an approach would allow firms and the public to identify what requirements apply to a foreign banking organization’s U.S. operations and predict what requirements would apply if the risk profile of those operations were to change. By taking into consideration the materiality of each risk indicator that would be used to determine the applicability of Category II, Category III, or Category IV standards, the proposal would provide a basis for assessing the extent to which a foreign banking organization’s U.S. operations present U.S. financial stability and safety and soundness risks. The proposed thresholds would apply based on the level of each indicator averaged over the preceding four calendar quarters, as described further below, in order to capture significant changes in a foreign banking organization’s U.S. risk profile, rather than temporary fluctuations. In general, the proposed categories of standards align with the categories that would apply under the domestic proposal to U.S. banking organizations. The domestic proposal includes an additional category of standards— Category I—that would apply to U.S. global systemically important bank holding companies (U.S. GSIBs), identified using the methodology under the Board’s U.S. GSIB surcharge rule.31 Because the U.S. GSIB surcharge rule would not identify a foreign banking organization or U.S. intermediate holding company as a U.S. GSIB, Category I standards would not apply to any foreign banking organization or U.S. intermediate holding company under this proposal. Question 1: What would be the advantages and disadvantages of including enhanced prudential standards that are more stringent than those in Category II, comparable to those of Category I under the domestic proposal, and applying them to a U.S. intermediate holding company or the combined U.S. operations of a foreign banking organization with a comparable systemic risk profile to that of a U.S. GSIB? What differences in enhanced prudential standards would be appropriate to apply to such a U.S. intermediate holding company or foreign banking organization with respect to its combined U.S. operations, relative to the standards that would apply under the proposal? 31 See 12 CFR part 217 subpart H; see also Regulatory Capital Rules: Implementation of RiskBased Capital Surcharge for Global Systemically Important Bank Holding Companies, 80 FR 49082 (August 14, 2015). PO 00000 Frm 00007 Fmt 4701 Sfmt 4702 21993 1. Size Section 165 of the Dodd-Frank Act, as amended by EGRRCPA, requires the Board to apply enhanced prudential standards to foreign banking organizations based on their total consolidated asset size. The proposal would consider total consolidated asset size for determining whether a foreign banking organization is subject to the enhanced prudential standards framework, and tailor the application of those standards based on the combined U.S. assets of a foreign banking organization 32 or, with respect to the application of capital standards, the total consolidated assets of a foreign banking organization’s U.S. intermediate holding company.33 This approach is similar to the current enhanced prudential standards framework. The Board believes a size threshold based on a foreign banking organization’s U.S. presence is appropriate for differentiating among foreign banking organizations in view of the statutory purpose of the enhanced prudential standards framework, which is to prevent or mitigate risk to U.S. financial stability.34 In addition, a size threshold based on the combined U.S. operations or U.S. intermediate holding company of a foreign banking organization would more closely align the application of enhanced prudential standards to both domestic and foreign banking organizations. The asset size thresholds set forth in this proposal are generally consistent with those that would apply to large U.S. banking organizations under the domestic proposal for Categories II through IV. In developing the asset size thresholds for the domestic proposal, the Board considered the requirements of section 165 of the Dodd-Frank Act, as amended by EGRRCPA, together with historical examples of large U.S. banking organizations that experienced 32 Combined U.S. assets are reported on the FR Y– 7 or FR Y–7Q. Total consolidated assets of a U.S. intermediate holding company are reported on the Consolidated Statements for Holding Companies, under Form FR Y–9C. Consistent with the existing prudential standards framework, the combined U.S. assets of a foreign banking organization would continue to be calculated as the sum of the consolidated assets of each top-tier U.S. subsidiary of the foreign banking organizations (excluding any section 2(h)(2) company, if applicable) and the total assets of each U.S. branch and U.S. agency of the foreign banking organization. 33 All U.S. intermediate holding companies are required to file Form FR Y–9C, regardless of whether they control a bank. If the U.S. intermediate holding company has not filed an FR Y–9C for each of the four most recent consecutive quarters, it must use the most recent quarter or consecutive quarters as reported on FR Y–9C. 34 12 U.S.C. 5365(a)(1). E:\FR\FM\15MYP2.SGM 15MYP2 jbell on DSK3GLQ082PROD with PROPOSALS2 21994 Federal Register / Vol. 84, No. 94 / Wednesday, May 15, 2019 / Proposed Rules significant distress or failure during the financial crisis. The Board’s analysis found that the crisis experience of domestic banking organizations with total consolidated assets of $100 billion, $250 billion, and $700 billion presented materially different risks to U.S. financial stability and the U.S. economy more broadly, which would support the differentiation of enhanced prudential standards for firms included within those size thresholds.35 In addition, size thresholds of these orders of magnitude reflected observed differences in structural and operational complexity, and in the range and scale of financial services a firm provides. The Board recognizes that the U.S. operations of foreign banking organizations are structured differently than domestic firms; nevertheless, the risks to U.S. financial stability and safety and soundness that stem from size are present regardless of structure. Because foreign banking organizations operate through both branches and agencies as well as U.S. subsidiaries, the proposal would establish categories based on the foreign banking organization’s combined U.S. assets. The size of a foreign banking organization’s U.S. operations provides a measure of the extent to which U.S. customers or counterparties may be exposed to a risk of loss or suffer a disruption in the provision of services in the United States.36 For example, during the financial crisis some large foreign banking organizations rapidly deleveraged their U.S. operations to address capital deficiencies, leaving commercial borrowers without a primary source of funding and contributing to large-scale asset fire sales. For foreign banking organizations with the largest U.S. operations, rapid deleveraging among those operations could disrupt U.S. markets and thereby present significant risks to U.S. financial stability in the same way as similarly sized domestic firms, due to the materiality of their presence in the United States. Question 2: What are the advantages and disadvantages of using size thresholds to tailor prudential standards for foreign banking organizations? In what ways, if any, does the inclusion of asset size thresholds in prudential standards drive changes in foreign banking organizations’ business models and risk profiles in ways that differ from the effects of thresholds based on other 35 83 FR 61408, 61413–14 (November 29, 2018). 36 For domestic banking organizations, categories of standards are defined based on total consolidated assets, including the U.S. banking organization’s international operations. VerDate Sep<11>2014 19:09 May 14, 2019 Jkt 247001 risk-based indicators? To what extent can other factors adequately differentiate among the risk profiles of foreign banking organizations and serve as tools to tailor prudential standards? 2. Other Risk-Based Indicators Consistent with the domestic proposal, this proposal also would consider the level of cross-jurisdictional activity, nonbank assets, off-balance sheet exposure, and weighted short-term wholesale funding levels of a foreign banking organization’s U.S operations to determine the applicable category of standards. The Board is proposing to apply a uniform threshold of $75 billion for each of these risk-based indicators. A threshold of $75 billion would represent at least 30 percent and as much as 75 percent of the size of the U.S. operations of a foreign banking organization or a U.S. intermediate holding company with combined U.S. assets or total consolidated assets, respectively, of between $100 billion and $250 billion. The agencies also proposed a $75 billion threshold for these indicators in the domestic interagency proposal. Under this proposal and the domestic proposal, setting the thresholds for these riskbased indicators at $75 billion would ensure that domestic banking organizations and the U.S. operations of foreign banking organizations that account for the vast majority—over 70 percent—of the total amount of each risk-based indicator would be subject to enhanced prudential standards. To the extent the levels and distribution of an indicator substantially change in the future, the Board may consider modifications, if appropriate. In addition to foreign banking organizations with $700 billion or more in combined U.S. assets, Category II standards would apply to a foreign banking organization with (1) $100 billion or more in combined U.S. assets and (2) combined U.S. operations with $75 billion or more in crossjurisdictional activity. Similarly, in addition to foreign banking organizations with $250 billion or more in combined U.S. assets, Category III standards would apply to foreign banking organization with (1) $100 billion or more in combined U.S assets and (2) combined U.S. operations with at least $75 billion in weighted shortterm wholesale funding, nonbank assets, or off-balance sheet exposure.37 37 For capital standards, in addition to U.S. intermediate holding companies with $700 billion or more in total assets, Category II would apply to a U.S. intermediate holding company with (1) total consolidated assets of $100 billion or more and (2) $75 billion or more in cross-jurisdictional activity. PO 00000 Frm 00008 Fmt 4701 Sfmt 4702 a. Cross-Jurisdictional Activity Foreign banking organizations with U.S. operations that engage in significant cross-jurisdictional activity present complexities that support the application of more stringent standards. For example, significant cross-border activity of the U.S. operations of a foreign banking organization may require more sophisticated risk management to appropriately address the heightened interconnectivity and complexity of those operations and the diversity of risks across all jurisdictions in which the foreign banking organization provides financial services. In addition, cross-jurisdictional activity may present increased challenges in resolution because there could be legal or regulatory restrictions that prevent the transfer of financial resources across borders where multiple jurisdictions and regulatory authorities are involved. The use of a threshold based on crossjurisdictional activity to differentiate prudential standards applicable to foreign banking organizations is also intended to maintain consistency with the thresholds proposed for large U.S. banking organizations under the domestic proposal. The Board’s capital and liquidity regulations currently use total on-balance sheet foreign exposure, as reported on the Country Exposure Report (FFIEC 009), to determine the application of certain requirements for depository institution holding companies and certain of their depository institution subsidiaries, such as the supplementary leverage ratio and countercyclical capital buffer.38 For purposes of determining the application of prudential standards under the proposal, a foreign banking organization would measure crossjurisdictional activity as the sum of the cross-jurisdictional assets and liabilities of its combined U.S. operations or its U.S. intermediate holding company, as applicable, excluding intercompany liabilities and collateralized intercompany claims. Measuring crossjurisdictional activity taking into In addition to U.S. intermediate holding companies with $250 billion or more in total assets, Category III capital standards would apply to a U.S. intermediate holding company with (1) $100 billion or more in total consolidated assets and (2) $75 billion or more in weighted short-term wholesale funding, nonbank assets, or off-balance sheet exposure. 38 See 12 CFR 217.10 (requiring advanced approaches Board-regulated institutions to maintain a supplementary leverage ratio); 217.11(b) (requiring advanced approaches Board-regulated institutions to maintain a countercyclical capital buffer); 217.100(b)(1) (describing the size and onbalance sheet foreign exposure thresholds for determining an advanced approaches Boardregulated institution). E:\FR\FM\15MYP2.SGM 15MYP2 Federal Register / Vol. 84, No. 94 / Wednesday, May 15, 2019 / Proposed Rules jbell on DSK3GLQ082PROD with PROPOSALS2 account both assets and liabilities— instead of just assets—would provide a broader gauge of the scale of crossborder operations and associated risks, as it includes both borrowing and lending activities outside of the United States.39 The proposal would adjust the measurement of cross-jurisdictional activity to exclude intercompany liabilities and to recognize collateral in calculating intercompany claims in order to reflect the structural differences between foreign banking organizations’ operations in the United States and domestic holding companies. Specifically, the proposed crossjurisdictional activity indicator would exclude liabilities of the combined U.S. operations or U.S. intermediate holding company that reflect transactions with non-U.S. affiliates. Intercompany liabilities generally represent funding from the foreign banking organization to its U.S. operations and, in the case of certain long-term debt instruments, may be required by regulation.40 The proposed exclusion recognizes the benefit of the foreign banking organization providing support to its U.S. operations. Short-term funding from affiliates, which may pose heightened liquidity risks to the U.S. operations, would be captured in the proposal’s measure of weighted shortterm wholesale funding. Foreign banking organizations’ U.S. operations often intermediate transactions between U.S. clients and foreign markets, including by facilitating access for foreign clients to U.S. markets, and clearing and settling U.S. dollar-denominated transactions. In addition, they engage in transactions to manage enterprise-wide risks. In these roles, they engage in substantial and regular transactions with non-U.S. affiliates. In recognition that the U.S. operations have increased crossjurisdictional activity as a result of these activities, the proposal would include in cross-jurisdictional claims only the net exposure (i.e., net of collateral value subject to haircuts) of all secured transactions with non-U.S. affiliates to the extent that these claims are collateralized by financial collateral.41 The proposed recognition of financial collateral would apply to all types of 39 The Basel Committee on Banking Supervision (BCBS) recently amended its measurement of crossborder activity to more consistently reflect derivatives, and the Board anticipates it will separately propose changes to the FR Y–15 in a manner consistent with this change. Any related changes to the proposed cross-jurisdictional activity indicator would be updated through those separately proposed changes to the FR Y–15. 40 See 12 CFR 252.162 and 12 CFR 252.165. 41 See the definition of ‘‘financial collateral’’ at 12 CFR 217.2. VerDate Sep<11>2014 19:09 May 14, 2019 Jkt 247001 claims, including repurchase agreements and securities lending agreements. Specifically, claims on nonU.S. affiliates would be reduced by the value of any financial collateral in a manner consistent with the Board’s capital rule,42 which permits, for example, banking organizations to recognize financial collateral when measuring the exposure amount of repurchase agreements and securities borrowing and securities lending transactions (together, repo-style transactions).43 The capital rule recognizes as financial collateral certain types of high-quality collateral, including cash on deposit and securities issued by the U.S. government, as well as certain types of equity securities and debt. With the exception of cash on deposit, the banking organization also is required to have a perfected, firstpriority interest in the collateral or, outside of the United States, the legal equivalent thereof.44 Permitting the reduction of certain claims on non-U.S. affiliates if the collateral meets the definition of financial collateral would ensure that the collateral is liquid, while the use of supervisory haircuts would also limit risk associated with price volatility. In addition, relying on the capital rule’s definition of financial collateral would provide clarity regarding the types of collateral eligible to reduce the amount of crossjurisdictional claims under this approach. 42 See 12 CFR 217.37. the definition of ‘‘repo-style transaction’’ at 12 CFR 217.2. 44 See 12 CFR 217.2. The proposal would differ from the FFIEC 009, on which U.S. intermediate holding companies report cross-border claims, in two respects. The FFIEC 009 uses different rules to recognize collateral, using the term ‘‘eligible collateral,’’ which includes cash as well as investment grade debt or marketable equity securities. In addition, the FFIEC 009 requires reporting of repurchase agreements, securities lending agreements and other similar financing agreements at the value of the outstanding claim, regardless of the amount of collateral provided. See Instructions for the Preparation of the Country Exposure Report (FFIEC 009) at 12–13 (effective September 2016). The proposal would use the concept of financial collateral from the capital rule and would recognize collateral for any claim, including claims to which the collateral haircut approach applies under the capital rule. In addition, the FFIEC 009 measures crossjurisdictional activity on an ultimate-risk basis, whereby claims are allocated based on the country of residence of the ultimate obligor, which, in certain cases, can mean the country or residence of the collateral provided (ultimate-risk basis). Securities lending agreements and repurchase agreements, however, are allocated based on the residence of the counterparty, without taking into consideration features of the collateral. The proposal would require allocation of exposures on an ultimate-risk basis (subject to the netting described above). 43 See PO 00000 Frm 00009 Fmt 4701 Sfmt 4702 21995 As an example of how the proposed financial collateral recognition would operate, if the U.S. operations of a foreign banking organization placed cash with the parent foreign banking organization through a reverse repurchase agreement, and the parent foreign banking organization provided securities that qualified as financial collateral, the exposure of the U.S. operations would be reduced by the value of the securities in a manner consistent with the capital rule’s collateral haircut approach. If the value of the claim exceeds the value of the financial collateral after taking into account supervisory haircuts, then the uncollateralized portion of the claim would be included in the foreign banking organization’s measure of crossjurisdictional activity. Conversely, if the value of the collateral after taking into account supervisory haircuts exceeds the value of the claim, the exposure to the non-U.S. affiliate would be excluded from the measure of cross-jurisdictional activity. In addition to the proposal to exclude intercompany liabilities and certain collateralized intercompany claims from the measure of cross-jurisdictional activity, the Board is requesting comment on alternatives to adjusting the measure for cross-jurisdictional activity to recognize that the U.S. intermediate holding company or combined U.S. operations engage in substantial and regular transactions with non-U.S. affiliates. Under the first alternative, the Board would exclude all transactions with non-U.S. affiliates from the computation of the cross-jurisdictional activity of a U.S. intermediate holding company or the combined U.S. operations of a foreign banking organization. This alternative would focus only on thirdparty assets and liabilities and may be a less burdensome way to account for the structural differences between foreign banking organizations’ operations in the United States and large domestic holding companies. Under the second alternative, the Board would adjust the $75 billion threshold for the cross-jurisdictional activity indicator. For example, the Board could apply a threshold of $100 billion for cross-jurisdictional activity such that the U.S. intermediate holding company or combined U.S. operations of a foreign banking organization would be subject to Category II capital or liquidity standards if it exceeded this threshold. This alternative would recognize the flows between a foreign banking organization’s U.S. operations and its foreign affiliates without making any additional adjustments to address E:\FR\FM\15MYP2.SGM 15MYP2 jbell on DSK3GLQ082PROD with PROPOSALS2 21996 Federal Register / Vol. 84, No. 94 / Wednesday, May 15, 2019 / Proposed Rules intercompany liabilities or collateralized intercompany claims. This alternative would not require a foreign banking organization to monitor collateral transfers or calculate supervisory haircuts in measuring its cross-jurisdictional activity. Question 3: What are the advantages and disadvantages of recognizing the value of collateral for certain transactions with non-U.S. affiliates in the computation of the crossjurisdictional activity of a U.S. intermediate holding company or the combined U.S. operations of a foreign banking organization? How would this recognition align with the objectives of the proposed indicator as a measure of operational complexity, scope, and risks associated with operations and activities in foreign jurisdictions and with principles of national treatment and equality of competitive opportunity? Question 4: What would be the advantages and disadvantages of excluding from the measure of crossjurisdictional activity liabilities to nonU.S. affiliates? How would this exclusion align with the objectives of the proposed indicator as a measure of operational complexity, scope, and risks associated with operations and activities in foreign jurisdictions and with principles of national treatment and equality of competitive opportunity? Question 5: What are the advantages and disadvantages of recognizing collateral for all repo-style transactions and other collateralized positions? To what extent should the type of transaction determine whether collateral is recognized? Question 6: What are the advantages and disadvantages of relying on the definition of financial collateral in the capital rule and applying supervisory haircuts in calculating the amount of cross-jurisdictional claims? What are the burdens associated with this approach and how do these burdens compare with the benefits? Are there other criteria that the Board should consider in addition to this approach (e.g., the amount of time that would be needed to monetize the collateral) and why? Question 7: What would be the advantages and disadvantages of other ways to define eligible collateral, such relying on the definition of high-quality liquid assets (HQLA) in the liquidity coverage ratio rule (LCR rule)? 45 Under 45 See Liquidity Coverage Ratio: Liquidity Risk Measurement Standards, 79 FR 61440, 61450 (Oct. 10, 2014), codified at 12 CFR part 50 (OCC), 12 CFR part 249 (Board), and 12 CFR part 329 (FDIC). For VerDate Sep<11>2014 19:09 May 14, 2019 Jkt 247001 this alternative approach, collateral would be recognized in the calculation of the exposure if the collateral is HQLA. Would relying on the definition of HQLA help ensure the collateral is liquid and provide greater clarity on the types of collateral that could be recognized? What are the burdens associated with this approach and how do these burdens compare with the benefits? Question 8: As discussed above, measuring cross-jurisdictional activity on an ultimate risk basis takes into consideration both the type of collateral, and the location of the collateral or issuer. On the FFIEC 009, if collateral is in the form of investment grade debt or marketable securities, risk is allocated based on the residence of the issuer of the security, while cash collateral is allocated based on the residence of the legal entity where the cash is held. What would be the advantages and disadvantages of allocating crossjurisdictional claims based on the location of the entity holding the collateral for securities and cash? Question 9: On the FFIEC 009, repurchase agreements, securities lending agreements, and other similar financial transactions cannot be reallocated or ‘‘transferred’’ to a different jurisdiction based on the location of the collateral or issuer. What would be the advantages and disadvantages of allowing repurchase agreements, securities financing transactions, and other similar agreements to be excluded from the measure of cross-jurisdictional activity if the collateral was issued by a U.S. entity or, for cash collateral, located in the United States? How would such treatment align with the objectives of the proposed indicator as a measure of operational complexity, scope, and risks associated with operations and activities in foreign jurisdictions and with principles of national treatment and equality of competitive opportunity? Question 10: What are the advantages and disadvantages of measuring crossjurisdictional activity on an immediatecounterparty basis (i.e., on the basis of the country of residence of the borrower) rather than on an ultimate-risk basis? What, if any, clarifications could be made to the measurement of crossjurisdictional activity on an ultimaterisk basis to ensure consistency across banking organizations and more accurate assessment of risk? Question 11: What is the most appropriate way in which the proposed cross-jurisdictional activity indicator the definition of HQLA under the Board’s LCR rule, see 12 CFR 249.20. PO 00000 Frm 00010 Fmt 4701 Sfmt 4702 could account for the risk of transactions with a delayed settlement date, and why? What are the advantages and disadvantages of the use of settlement-date accounting versus tradedate accounting for purposes of the cross-jurisdictional activity indicator? Question 12: What are the advantages or disadvantages of the alternative approaches to measuring non-U.S. affiliate transactions for purposes of the cross-jurisdictional activity indicator? How do these alternatives compare to the proposal? Question 13: What other positions, if any, should be excluded from or included in the cross-jurisdictional activity indicator for purposes of determining prudential standards, and why? How would excluding from the cross-jurisdictional activity measure a broader or narrower set of intercompany assets and liabilities align with the objectives of the proposed indicator as a measure of operational complexity, scope, and risks associated with operations and activities in foreign jurisdictions and with principles of national treatment and equality of competitive opportunity? Question 14: What would be the advantages and disadvantages of including in or excluding from the proposed cross-jurisdictional activity indicator positions of the U.S. branches and agencies of a foreign banking organization with the parent foreign banking organization or other non-U.S. affiliates? For example, what would be the advantages or disadvantages of including or excluding reported gross due from and gross due to the parent foreign banking organization or other non-U.S. affiliates? Question 15: What modifications to the proposed cross-jurisdictional activity measure should the Board consider to better align it with the proposed treatment for U.S. banking organizations under the domestic proposal and promote consistency in the measurement of assets and liabilities across the Board’s prudential standards framework and applicable accounting standards, and why? How would any such modification more appropriately account for the risks of cross-jurisdictional activity for foreign banking organizations and mitigate risks to U.S. financial stability? Question 16: To what extent would using a particular measure of crossjurisdictional activity create incentives for foreign banking organizations to restructure relationships between U.S. subsidiaries, U.S. branches and agencies, and non-U.S. affiliates? Question 17: What alternative indicators should the Board consider to E:\FR\FM\15MYP2.SGM 15MYP2 Federal Register / Vol. 84, No. 94 / Wednesday, May 15, 2019 / Proposed Rules the proposed cross-jurisdictional activity indicator as a measure of crossborder activity of a foreign banking organization? How would any alternative indicator align with the proposed cross-jurisdictional activity measure for U.S. banking organizations under the domestic interagency proposal? Question 18: What are the advantages and disadvantages of the proposal or the alternatives in combination with other potential changes to the measurement and reporting of crossjurisdictional activity discussed above (e.g., ultimate-risk basis)? How would changes to the measurement and reporting of cross-jurisdictional activity in combination with the proposal or alternatives align with the objectives of the proposed indicator as a measure of operational complexity, scope, and risks associated with operations and activities in foreign jurisdictions and with principles of national treatment and equality of competitive opportunity? Question 19: Data reported on the Banking Organization Systemic Risk Report (FR Y–15) is used to measure the systemic risk of large banking organizations, including to identify and calibrate surcharges applied to U.S. GSIBs. The Board may amend the FR Y– 15 in this context, and would seek comment on the effect of any changes on the U.S. GSIB surcharge framework as well as on the advantages and disadvantages of incorporating these changes into the calculation of risk indicators. The Board also may separately amend the FR Y–15 in the context of the calculation of risk indicators. What are the advantages and disadvantages of the risk-based indicator definitions tracking the inputs to the U.S. GSIB surcharge framework? jbell on DSK3GLQ082PROD with PROPOSALS2 b. Nonbank assets The level of a banking organization’s investment in nonbank subsidiaries provides a measure of the organization’s business and operational complexity. Specifically, banking organizations with significant investments in nonbank subsidiaries are more likely to have complex corporate structures, interaffiliate transactions, and funding relationships. A banking organization’s complexity is positively correlated with the impact of the organization’s failure or distress. Through its U.S. intermediate holding company, a foreign banking organization can maintain significant investments in nonbank subsidiaries, and therefore may present structural, funding, and resolution concerns analogous to those VerDate Sep<11>2014 19:09 May 14, 2019 Jkt 247001 presented by domestic banking organizations. Nonbank activities also may involve a broader range of risks than those associated with banking activities, and can increase interconnectedness with other financial market participants, requiring sophisticated risk management and governance, including capital planning, stress testing, and liquidity risk management. If not adequately managed, the risks associated with nonbanking activities could present significant safety and soundness concerns and increase financial stability risks. The distress or failure of a nonbank subsidiary could be destabilizing to the U.S. operations of a foreign banking organization and the foreign banking organization itself, and cause counterparties and creditors to lose confidence in the organization’s global operations. Nonbank assets also reflect the degree to which a foreign banking organization and its U.S. operations may be engaged in activities through legal entities that are not subject to separate capital requirements or to the direct regulation and supervision applicable to a regulated banking entity. The proposed nonbank assets indicator would align with the measure of nonbank assets currently used in the capital plan rule to tailor certain requirements as well as with the nonbank assets indicator in the domestic proposal.46 c. Off-Balance Sheet Exposure Off-balance sheet exposure complements the measure of size by taking into consideration financial and banking activities not reflected on the balance sheet of a foreign banking organization with respect to its U.S. operations. Like size, off-balance sheet exposure provides a measure of the extent to which customers or counterparties may be exposed to a risk of loss or suffer a disruption in the provision of services. In addition, offbalance sheet exposure can lead to significant future draws on liquidity, particularly in times of stress. During the financial crisis, for example, vulnerabilities among the U.S. operations of foreign banking organizations were exacerbated by 46 The capital plan rule defines ‘‘average total nonbank assets’’ as the average of the total nonbank assets of a U.S. intermediate holding company subject to the capital plan rule, calculated in accordance with the instructions to the FR Y–9LP, for the four most recent consecutive quarters or, if the intermediate holding company has not filed the FR Y–9LP, for each of the four most recent consecutive quarters, for the most recent quarter or consecutive quarters, as applicable. See 12 CFR 225.8(d)(2). PO 00000 Frm 00011 Fmt 4701 Sfmt 4702 21997 margin calls on derivative exposures and draws on commitments. These exposures can be a source of safety and soundness risk, as organizations with significant off-balance sheet exposure may have to fund these positions in the market in a time of stress. These risks also may affect financial stability because they can manifest rapidly and with less transparency to other market participants, in comparison to the risks associated with on-balance sheet positions. In addition, because draws on off-balance sheet exposures such as committed credit and liquidity facilities tend to increase in times of stress, they can exacerbate the effects of stress conditions.47 Off-balance sheet exposure may also serve as a measure of interconnectedness. Some off-balance sheet exposures, such as derivatives, are concentrated among the largest financial firms.48 The distress or failure of one party to a financial contract, such as a derivative or securities financing transaction, can trigger disruptive terminations of these contracts that destabilize the defaulting party’s otherwise solvent affiliates.49 Such a default also can lead to disruptions in other financial markets, for example, by causing market participants to rapidly unwind trading positions.50 In this way, the effects of one party’s failure or distress can be amplified by its offbalance sheet connections with other financial market participants. Under the proposal, off-balance sheet exposure would be measured as the difference between total exposure and 47 See William F. Bassett, Simon Gilchrist, Gretchen C. Weinbach, Egon Zakrajsˇek, ‘‘Improving Our Ability to Monitor Bank Lending,’’ in Risk Topography: Systemic Risk and Macro Modeling 149–161 (Markus Brunnermeier and Arvind Krishnamurthy, eds. 2014), available at: https:// www.nber.org/chapters/c12554. 48 See, e.g., Sheri M. Markose, Systemic Risk from Global Financial Derivatives: A Network Analysis of Contagion and its Mitigation with SuperSpreader Tax, IMF Working Papers (Nov. 30, 2012), available at: https://www.imf.org/en/Publications/ WP/Issues/2016/12/31/Systemic-Risk-from-GlobalFinancial-Derivatives-A-Network-Analysis-ofContagion-and-Its-40130. 49 To address these risks, the agencies have established restrictions relating to the qualified financial contracts of U.S. GSIBs, the insured depository institution subsidiaries of U.S. GSIBs, and the U.S. operations of systemically important foreign banking organizations. See 12 CFR part 252, subpart I (Board); 12 CFR part 47 (OCC); and 12 CFR part 382 (FDIC). That rule does not apply to savings and loan holding companies, to the U.S. operations of other large foreign banking organizations, or to other large bank holding companies. 50 See e.g., The Orderly Liquidation of Lehman Brothers Holdings Inc. under the Dodd-Frank Act, 5 FDIC Quarterly No. 2, 31 (2011), https:// www.fdic.gov/bank/analytical/quarterly/2011-vol52/article2.pdf. E:\FR\FM\15MYP2.SGM 15MYP2 21998 Federal Register / Vol. 84, No. 94 / Wednesday, May 15, 2019 / Proposed Rules on-balance sheet assets.51 Total exposure includes on-balance sheet assets plus certain off-balance sheet exposures, including derivative exposures, repo-style transactions, and other off-balance sheet exposures (such as commitments). jbell on DSK3GLQ082PROD with PROPOSALS2 d. Weighted Short-Term Wholesale Funding The proposed weighted short-term wholesale funding indicator would provide a measure of the liquidity risk presented by the U.S. operations of a foreign banking organization, as reliance on short-term, generally uninsured funding from more sophisticated counterparties can make those operations vulnerable to large-scale funding runs. In particular, foreign banking organizations with U.S. operations that fund long-term assets with short-term liabilities from financial intermediaries such as investment funds may need to rapidly sell less liquid assets to meet withdrawals and maintain their operations in a time of stress, which they may be able to do only at ‘‘fire sale’’ prices. Asset fire sales can cause rapid deterioration in a foreign banking organization’s financial condition and adversely affect U.S. financial stability by driving down asset prices across the market. As a result, the use of weighted short-term wholesale funding presents both safety and soundness and financial stability risks. Short-term wholesale funding also provides a measure of interconnectedness among market participants, including other financial sector entities, which can provide a mechanism for transmission of distress. The proposed short-term wholesale funding indicator would measure the extent to which the U.S. operations of a foreign banking organization rely on short-term wholesale funding sources.52 Weighted short-term wholesale funding would include exposures between the U.S. operations of a foreign banking organization and its non-U.S. affiliates, as reliance on short-term wholesale 51 In connection with extending the applicability of the FR Y–15 reporting requirements to U.S. branches and agencies of a foreign banking organization (discussed below), the proposal would add this measure of off-balance sheet exposure to the FR Y–15 reporting form as a separate line item. 52 Specifically, short-term wholesale funding is the amount of a firm’s funding obtained from wholesale counterparties or retail brokered deposits and sweeps with a remaining maturity of one year or less. Categories of short-term wholesale funding are then weighted based on four residual maturity buckets; the asset class of collateral, if any, backing the funding; and characteristics of the counterparty. See, 12 CFR 217.406 and Regulatory Capital Rules: Implementation of Risk-Based Capital Surcharges for Global Systemically Important Bank Holding Companies, 80 FR 49082 (August 14, 2015). VerDate Sep<11>2014 19:09 May 14, 2019 Jkt 247001 funding from affiliates can contribute to a firm’s funding vulnerability in times of stress. Weighted short-term wholesale funding levels would serve as both a threshold for the general application of Category III standards, as well as a separate threshold for applying enhanced liquidity requirements to foreign banking organizations whose combined U.S. operations reflect heightened liquidity risk profiles. A foreign banking organization whose combined U.S. operations have weighted short-term wholesale funding of at least $75 billion would be subject to the general application of Category III standards, which would include daily liquidity data reporting under this proposal and full standardized liquidity requirements applicable to a U.S. intermediate holding company and certain depository institution subsidiaries, if any, under the interagency foreign banking organization capital and liquidity proposal. By contrast, a foreign banking organization subject to Category III standards whose combined U.S. operations have less than $75 billion of weighted short-term wholesale funding would be subject to a monthly liquidity data reporting requirement under this proposal and reduced standardized liquidity requirements applicable to a U.S. intermediate holding company and certain depository institution subsidiaries, if any, under the interagency foreign banking organization capital and liquidity proposal.53 Question 20: What are the advantages and disadvantages of the proposed riskbased indicators? What different indicators should the Board use, and why? Question 21: The Board is considering whether Category II standards should apply based on weighted short-term wholesale funding, nonbank assets, and off-balance sheet exposure, using a higher threshold than the $75 billion threshold that would apply for Category III standards, in addition to the thresholds discussed above based on 53 In addition, as discussed in more detail in the interagency foreign banking organization capital and liquidity proposal, domestic and foreign banking organizations subject to Category IV standards that have weighted short-term wholesale funding levels of at least $50 billion would be subject to reduced standardized liquidity requirements, which would apply to its U.S. intermediate holding company and certain of its depository institution subsidiaries, if any. The Board is requesting comment on whether it should impose standardized liquidity requirements on the U.S. branch and agency network of a foreign banking organization, as well as possible approaches for doing so, which would be proposed through a future rulemaking. PO 00000 Frm 00012 Fmt 4701 Sfmt 4702 asset size and cross-jurisdictional activity. For example, a foreign banking organization or U.S. intermediate holding company could be subject to Category II standards if one or more of these indicators equals or exceeds a level such as $100 billion or $200 billion. A threshold of $200 billion would represent at least 30 percent and as much as 80 percent of total assets for the U.S. operations of a foreign banking organization with between $250 billion and $700 billion in combined U.S. assets. If the Board were to adopt additional indicators for purposes of identifying foreign banking organizations with U.S. operations that should be subject to Category II standards, at what level should the threshold for each indicator be set, and why? Commenters are encouraged to provide data supporting their recommendations. 3. Alternative Scoping Criteria An alternative approach for tailoring the application of enhanced prudential standards to a foreign banking organization would be to use a single, comprehensive score to assess the risk profile and systemic footprint of a foreign banking organization’s combined U.S. operations or U.S. intermediate holding company. The Board uses such an identification methodology (scoring methodology) to identify a U.S. bank holding company as a U.S. GSIB and apply risk-based capital surcharges to these firms. As an alternative in the domestic proposal, the Board described a scoring methodology that could be used to tailor prudential standards for domestic banking organizations. The scoring methodology in the Board’s regulations is used to calculate a U.S. GSIB’s capital surcharge under two methods.54 The first method is based on the sum of a bank holding company’s systemic indicator scores reflecting its size, interconnectedness, cross-jurisdictional activity, substitutability, and complexity (method 1). The second method is based on the sum of these same measures of risk, except that the substitutability measures are replaced with a measure of the bank holding company’s reliance on short-term wholesale funding (method 2).55 Consistent with the domestic 54 Application of a U.S. GSIB’s capital surcharge is determined based on an annual calculation. Similarly, the alternative scoping criteria under this proposal would be based on an annual calculation. See 12 CFR part 217, subpart H. 55 For more discussion relating to the scoring methodology, please see the Board’s final rule establishing the scoring methodology. See Regulatory Capital Rules: Implementation of Risk- E:\FR\FM\15MYP2.SGM 15MYP2 Federal Register / Vol. 84, No. 94 / Wednesday, May 15, 2019 / Proposed Rules jbell on DSK3GLQ082PROD with PROPOSALS2 proposal and as an alternative to the threshold approach under this proposal, the Board is seeking comment on use of the scoring methodology to tailor the application of enhanced prudential standards to the U.S. operations of foreign banking organizations. The scoring methodology was designed to identify and assess the systemic risk of a large banking organization, and similarly can be used to measure the risks posed by the U.S. operations of foreign banking organizations.56 The component measures of the scoring methodology identify banking organizations that have heightened risk profiles and provide a basis for assessing risk to safety and soundness and U.S. financial stability. Size, interconnectedness, crossjurisdictional activity, substitutability, complexity, and short-term wholesale funding are indicators of risk for both foreign and domestic banking organizations. Similar to the thresholdsbased approach set forth in this proposal, the indicators used in the scoring methodology closely align with the risk-based factors specified in section 165 of the Dodd-Frank Act. Because this information would be reported publicly, use of the scoring methodology would promote transparency in the application of such standards to foreign banking organizations. The Board has previously used the scoring methodology and global methodology 57 to identify and apply enhanced prudential standards to U.S. subsidiaries and operations of foreign global systemically important banking organizations (foreign GSIBs). For example, the Board’s restrictions on qualified financial contracts and total loss-absorbing capacity requirements apply to U.S. GSIBs and the U.S. operations of foreign GSIBs, with the latter identified under the Board’s scoring methodology or the global methodology.58 Accordingly, use of the scoring methodology would promote Based Capital Surcharges for Global Systemically Important Bank Holding Companies, 80 FR 49082 (Aug. 14, 2015). 56 See infra note 41. 57 Global methodology means the assessment methodology and the higher loss absorbency requirement for global systemically important banks issued by the BCBS, as updated from time to time. See 12 CFR 252.2. 58 See 12 CFR 252.82(b) (definition of ‘‘covered entity’’ with regard to restrictions on qualified financial contracts); 12 CFR 252.160 (definition of ‘‘covered IHC’’ with regard to total loss-absorbing capacity requirements). See also 12 CFR 252.153(b) (identification of foreign GSIBs in the enhanced prudential standards rule; 12 CFR 252.170(a)(2)(ii) (definition of ‘‘major foreign banking organization’’ in single counterparty credit limits rule). VerDate Sep<11>2014 19:09 May 14, 2019 Jkt 247001 consistency with the Board’s existing regulations. Under the alternative scoring approach, the size of a foreign banking organization’s combined U.S. assets, together with the method 1 or method 2 score of its U.S. operations under the scoring methodology, would be used to determine which category of standards would apply. Consistent with the proposal, most enhanced prudential standards would be based on the method 1 or method 2 score applicable to a foreign banking organization’s combined U.S. operations. The application of capital standards, however, would apply based on the method 1 or method 2 score of a foreign banking organization’s U.S. intermediate holding company. U.S. intermediate holding companies already report information required to calculate method 1 and method 2 scores, and in connection with this proposal, those reporting requirements would be extended to include a foreign banking organization’s combined U.S. operations.59 To determine which category of standards would apply under the alternative scoring methodology, the Board considered the distribution of method 1 and method 2 scores of the U.S. operations of foreign banking organizations, U.S. intermediate holding companies, domestic bank holding companies and certain savings and loan holding companies with at least $100 billion in total consolidated assets.60 As discussed below, the Board is providing ranges of scores for the application of Category II and Category III standards. If the Board adopts a final rule that uses the scoring methodology to establish tailoring thresholds, the Board would set a single score within the listed ranges for the application of Category II and Category III standards. Category II. In selecting the ranges of method 1 or method 2 scores that could define the application of Category II standards, the Board considered the potential of a firm’s material distress or failure to disrupt the U.S. financial system or economy. The Board estimated method 1 and method 2 scores for domestic banking organizations with more than $250 billion in total consolidated assets, and foreign banking organizations with more than $250 billion in combined U.S. assets. To this sample, the Board added 59 As discussed below, under the proposal, the FR Y–15 would be amended to collect risk-indicator data for the combined U.S. operations of foreign banking organizations. 60 In conducting its analysis, the Board considered method 1 and method 2 scores as of September 30, 2018. PO 00000 Frm 00013 Fmt 4701 Sfmt 4702 21999 estimates of method 1 and method 2 scores for a banking organization whose distress impacted U.S. financial stability during the crisis (Wachovia), and estimated method 1 and method 2 scores assuming significant growth in operations (e.g., if one or more U.S. intermediate holding companies each had $700 billion in assets). The Board also considered the outlier method 1 and method 2 scores for domestic and foreign banking organizations with more than $250 billion in total consolidated assets that are not U.S. GSIBs.61 Based on this analysis and to maintain comparability to the domestic proposal, under the alternative scoring approach the Board would apply Category II standards to any foreign banking organization with at least $100 billion in combined U.S. assets whose combined U.S. operations have (a) a method 1 score that meets or exceeds a minimum score between 60 and 80, or (b) a method 2 score that meets or exceeds a minimum score between 100 and 150. These same size thresholds and score ranges would apply to U.S. intermediate holding companies for the application of capital standards. Category III. Under the proposal, the Board would apply Category III standards to a foreign banking organization with combined U.S. assets of $250 billion or more, or for capital standards, a U.S. intermediate holding company with total consolidated assets of $250 billion or more, that does not meet the criteria for Category II. This reflects, among other things, the crisis experience of domestic banking organizations with total consolidated assets of $250 billion or more, which presented materially different risks to U.S. financial stability relative to firms with less than $250 billion in assets. Similarly, under the domestic proposal, the Board would at a minimum apply Category III standards to a firm with assets of $250 billion or more, reflecting the threshold above which the Board must apply enhanced prudential standards under section 165. The domestic proposal seeks comment on an alternative scoring approach under which a firm with total consolidated assets between $100 billion and $250 billion that has a method 1 or method 2 score within a specified range would be subject to 61 Outliers can be determined by a number of statistical methods. For these purposes, the Board computed an outlier as the third quartile plus three times the interquartile range of method 1 and method 2 scores of U.S. bank holding companies, certain U.S. savings and loan holding companies, U.S. intermediate holding companies, and the combined U.S. operations of foreign banking organizations. E:\FR\FM\15MYP2.SGM 15MYP2 jbell on DSK3GLQ082PROD with PROPOSALS2 22000 Federal Register / Vol. 84, No. 94 / Wednesday, May 15, 2019 / Proposed Rules Category III standards. Specifically, the Board proposed selecting a minimum score for application of Category III standards between 25 and 45 under method 1, or between 50 and 85 under method 2. The maximum score for application of the Category III standards would be one point lower than the minimum score selected for application of Category II standards. In selecting these ranges, the Board compared the scores of domestic firms with total consolidated assets of between $100 billion and $250 billion with those of firms with total consolidated assets greater than $250 billion. The Board performed a similar analysis including the scores of foreign banking organizations and found similar results. The Board is therefore considering the same thresholds for application of Category III standards to foreign banking organizations under the alternative scoring approach. Use of these thresholds would maintain comparable treatment between domestic firms and the U.S. operations of foreign banking organizations under the alternative scoring approach. Specifically, under the alternative scoring approach, Category III standards would apply to a foreign banking organization with combined U.S. assets between $100 billion and $250 billion with a method 1 score that meets or exceeds a minimum score between 25 and 45 or a method 2 score that meets or exceeds a minimum score between 50 and 85, and in either case is below the score threshold for Category II standards. These same size thresholds and score ranges would apply to U.S. intermediate holding companies for the application of capital standards. Category IV: Under the alternative scoring approach, Category IV standards would apply to a foreign banking organization with at least $100 billion in combined U.S. assets whose method 1 or method 2 score for its combined U.S. operations is below the minimum score threshold for Category III. Likewise, Category IV capital standards would apply to a foreign banking organization with a U.S. intermediate holding company that has at least $100 billion in total assets and does not meet the minimum score threshold for Category III. Question 22: What are the advantages and disadvantages to the use of the alternative scoring approach and category thresholds described above instead of the proposed thresholds for foreign banking organizations? Question 23: If the Board were to use the alternative scoring approach to differentiate foreign banking organizations’ U.S. operations for VerDate Sep<11>2014 19:09 May 14, 2019 Jkt 247001 purposes of tailoring prudential standards, should the Board use method 1 scores, method 2 scores, or both? What are the challenges of applying the alternative scoring approach to the combined U.S. operations or U.S. intermediate holding company of a foreign banking organization? What modifications to the alternative scoring approach, if any, should the Board consider and why (e.g., should intercompany transactions be reflected in the calculation of indicators)? Question 24: If the Board adopted the alternative scoring approach, what would be the advantages or disadvantages of requiring scores to be calculated for the U.S. operations of a foreign banking organization at a frequency greater than annually, including, for example, requiring scores to be calculated on a quarterly basis? Question 25: With respect to each category of standards described above, at what level should the method 1 or method 2 score thresholds be set and why? Commenters are encouraged to provide data supporting their recommendations. Question 26: What other approaches should the Board consider in setting thresholds for tailored prudential standards for foreign banking organizations and why? How would any such approach affect the comparability of requirements across domestic banking organizations and foreign banking organizations? 4. Determination of Applicable Category of Standards Under the proposal, a foreign banking organization with combined U.S. assets of $100 billion or more would be required to determine the category of standards that would apply to its combined U.S. operations or U.S. intermediate holding company, as applicable. In order to capture significant changes, rather than temporary fluctuations, in a foreign banking organization’s U.S. risk profile, a category of standards would apply to a foreign banking organization’s U.S. operations or its U.S. intermediate holding company based on a fourquarter average of the levels for each indicator.62 A foreign banking organization would remain subject to a category of standards until it no longer meets the indicators for that category in 62 With respect to a foreign banking organization that has reported an indicator for less than four quarters, the proposal would refer to the average of the most recent quarter or quarters. The measurement approach discussed in this section would apply to all standards within a given category, including regulatory and reporting requirements for a foreign banking organization. PO 00000 Frm 00014 Fmt 4701 Sfmt 4702 each of the four most recent calendar quarters, or until the foreign banking organization met the criteria for another category of standards based on an increase in the value of one or more indicators, averaged over the preceding four calendar quarters. This approach would be consistent with the existing applicability and cessation requirements of the enhanced prudential standards rule.63 If a foreign banking organization becomes subject to a different category of standards, the standards under that category would be effective on the first day of the second quarter following the date on which the foreign banking organization met the criteria for that category of standards. For example, a foreign banking organization that changes from Category IV to Category III standards based on an increase in the value of a risk-based indicator averaged over the first, second, third, and fourth quarters of a calendar year would be subject to Category III standards beginning on April 1 (the first day of the second quarter) of the following year. Under the proposal, a foreign banking organization could be subject to different categories of standards for its combined U.S. operations and U.S. intermediate holding company. Consider, for example, a foreign banking organization with combined U.S. assets of $400 billion, cross-jurisdictional activity of $80 billion at its combined U.S. operations, and a U.S. intermediate holding company with consolidated total assets of $260 billion and $45 billion of cross-jurisdictional activity. In this example, the combined U.S. operations of the foreign banking organization would be subject to Category II liquidity and riskmanagement standards as well as singlecounterparty credit limits 64 because together, the U.S. intermediate holding company and branch and agency network have more than $75 billion in cross-jurisdictional activity. However, the U.S. intermediate holding company would be subject to Category III capital standards based on its total consolidated assets (which exceed $250 billion) and lower level of cross-jurisdictional activity. Question 27: What are the advantages and disadvantages of determining the category of standards applicable to a foreign banking organization’s combined U.S. operations or U.S. intermediate holding company on a quarterly basis? Would making this 63 See e.g., 12 CFR 252.150. credit limits are discussed in section II.D. of this SUPPLEMENTARY INFORMATION section. 64 Single-counterparty E:\FR\FM\15MYP2.SGM 15MYP2 Federal Register / Vol. 84, No. 94 / Wednesday, May 15, 2019 / Proposed Rules determination on an annual basis would be more appropriate and why? Question 28: What are the advantages and disadvantages of the proposed transition period for foreign banking organizations that meet the criteria for a different category of standards due to changes in its U.S. risk profile? What would be the advantages or disadvantages of providing additional time to conform to new requirements? jbell on DSK3GLQ082PROD with PROPOSALS2 C. Enhanced Prudential Standards for Foreign Banking Organizations 1. Category II Standards Category II standards would apply to a foreign banking organization with $700 billion or more in combined U.S. assets, or $75 billion or more in crossjurisdictional activity. In view of its complexity, interconnectedness, and the materiality of its U.S. presence, the distress or failure of a foreign banking organization with U.S. operations that would be subject to Category II standards could impose substantial costs on the U.S. financial system and economy. As discussed in section II.B. of this SUPPLEMENTARY INFORMATION section, foreign banking organizations with the largest U.S. operations typically have more complex operational and management structures and provide financial services in the United States on a broader range and scale than smaller firms. In addition, foreign banking organizations with U.S. operations that engage in heightened levels of cross-jurisdictional activity present operational complexities and interconnectivity concerns, and are exposed to a greater diversity of risks as a result of the multiple jurisdictions in which they provide financial services. The risks and operational complexities associated with cross-jurisdictional activity can present significant challenges to the recovery and resolution process. To address these risks and maintain consistency with the domestic proposal, under this proposal a U.S intermediate holding company subject to Category II capital standards would continue to submit an annual capital plan, and the Federal Reserve would conduct an assessment of the company’s capital plan according to the capital plan rule.65 The proposal also would maintain annual supervisory stress testing for these U.S. intermediate holding companies and require company-run stress testing on an annual basis.66 In 65 12 CFR 225.8. 66 The proposal would remove the mid-cycle company-run stress testing requirement for a U.S. intermediate holding company subject to Category II standards. In the Board’s experience, the VerDate Sep<11>2014 19:09 May 14, 2019 Jkt 247001 addition, U.S. intermediate holding companies subject to Category II capital standards would continue to report the information required under the existing FR Y–14 reporting forms to inform the Board’s supervisory stress test and facilitate review of the firm’s capital plan, as well as the ongoing monitoring and supervision of these companies. The proposal would maintain the enhanced prudential standards rule’s existing liquidity risk-management, monthly internal liquidity stress testing, and liquid asset buffer requirements for a foreign banking organization with combined U.S. operations subject to Category II liquidity standards. Daily liquidity data reporting under Form FR 2052a also would apply to a foreign banking organization with combined U.S. operations subject to Category II standards. These requirements help to ensure that a foreign banking organization has effective governance and risk management processes to measure and estimate liquidity needs, and sufficient liquid assets to cover risks and exposures and to support activities through a range of conditions. In particular, internal liquidity stress testing, liquidity buffer, and liquidity risk-management requirements help to ensure that a foreign banking organization with large U.S. operations can appropriately manage liquidity risk and withstand disruptions in funding sources.67 Consistent with current requirements, for foreign banking organizations with both a U.S. intermediate holding company and a U.S. branch or agency, the foreign banking organization would conduct internal liquidity stress tests separately for each of its U.S. intermediate holding company, the U.S. branch or agency network, and the combined U.S. operations.68 mandatory mid-cycle stress test provided modest risk-management benefits and limited incremental information to market participants beyond what the annual company-run stress test provides. 67 As discussed in the interagency foreign banking organization capital and liquidity proposal, the implementation of standardized liquidity requirements to complement a firm’s own internal liquidity stress testing and buffer requirements would help address liquidity risk. 68 The proposal would revise the FR 2052a reporting requirements to require all foreign banking organizations subject to Category II standards to report the FR 2052a on a daily basis (daily reporting requirements would also apply to foreign banking organizations subject to Category III standards that have weighted short-term wholesale funding of $75 billion or more in respect of their combined U.S. operations). Some foreign banking organizations that would be subject to Category II standards currently report FR 2052a data on a monthly basis. For these firms, the proposal would increase the frequency of reporting requirements under the FR 2052a. PO 00000 Frm 00015 Fmt 4701 Sfmt 4702 22001 The proposal would make changes to the Board’s single-counterparty credit limits to align the thresholds for application of these requirements with the proposed thresholds for other enhanced prudential standards and to tailor further the requirements applicable to U.S. intermediate holding companies. Under the proposal, singlecounterparty credit limits would apply to the combined U.S. operations of a foreign banking organization subject to Category II or Category III standards. The proposed revisions to the singlecounterparty credit limits rule are discussed in section II.D. of this SUPPLEMENTARY INFORMATION section. Question 29: What modifications, if any, should the Board consider to the proposed Category II prudential standards for foreign banking organizations, and why? 2. Category III Standards Category III standards would apply to a foreign banking organization with combined U.S. assets of $250 billion or more, or a heightened risk profile as measured based on the level of weighted short-term wholesale funding, nonbank assets, and off-balance sheet exposure among its combined U.S. operations.69 A foreign banking organization with U.S. operations of this size or risk profile heightens the need for sophisticated capital planning and more intensive oversight through stress testing, as well as sophisticated measures to monitor and manage liquidity risk. For example, U.S. intermediate holding companies that engage in heightened levels of nonbank activities may be exposed to a relatively broader range of risks, and the application of more sophisticated capital planning and stress testing requirements would be appropriate to support those activities. Similarly, a foreign banking organization with heightened levels of off-balance sheet exposure among its combined U.S. operations may be required to fulfill substantial draws on commitments and margin calls on derivatives during times of stress. Rigorous risk management and liquidity monitoring would appropriately support risks associated with these exposures. The Board’s current prudential standards framework generally applies the same capital standards to all U.S. intermediate holding companies with $250 billion or more in total 69 Category III capital standards would apply to a U.S. intermediate holding company with total consolidated assets of $250 billion or more, or a heightened risk profile based on its level or weighted short-term wholesale funding, nonbank assets, and off-balance sheet exposure. E:\FR\FM\15MYP2.SGM 15MYP2 22002 Federal Register / Vol. 84, No. 94 / Wednesday, May 15, 2019 / Proposed Rules jbell on DSK3GLQ082PROD with PROPOSALS2 consolidated assets.70 The proposed framework would further differentiate among foreign banking organizations with $250 billion or more in combined U.S. assets, consistent with the domestic proposal. In particular, Category II would include standards generally consistent with those developed by the BCBS that are appropriate for very large or complex firms, whereas Category III would include less stringent standards, based on the relatively lower U.S. risk profiles of foreign banking organizations that would be subject to Category III standards. The proposal would largely maintain the existing capital planning and stress testing standards under the capital plan and enhanced prudential standards rules for U.S. intermediate holding companies that would be subject to Category III capital standards, but would remove the mid-cycle company-run stress testing requirement and require public disclosure of company-run stress test results every other year rather than annually. The Board would continue to conduct supervisory stress testing of these U.S. intermediate holding companies on an annual basis. In regard to capital planning, a U.S. intermediate holding company subject to Category III capital standards would continue to submit confidential data to the Board using the existing schedule for FR Y–14 reports. Such a U.S. intermediate holding company also would submit an annual capital plan and report the information required under the FR Y–14A. The FR Y–14 and Y–14A reports are inputs into the supervisory stress test and inform the Board’s review of the firm’s capital plan, as well as the ongoing monitoring and supervision of these companies. In addition, as part of the internal stress test, a U.S. intermediate holding company must establish and maintain internal processes for assessing capital adequacy under expected and stressful conditions, which represent an important risk management capability for a U.S. intermediate holding company of this size or risk profile. A U.S. intermediate holding company subject to Category III capital standards would publicly disclose the results of company-run stress tests only once 70 For example, the supplementary leverage ratio, countercyclical capital buffer, and requirement to recognize most elements of accumulated other comprehensive income (AOCI) in regulatory capital generally apply to U.S. intermediate holding companies with $250 billion or more in total consolidated assets or $10 billion or more in onbalance sheet foreign exposure. In addition, if a U.S. intermediate holding company that meets this threshold has an insured depository institution subsidiary, the U.S. intermediate holding company also is subject to the LCR rule. VerDate Sep<11>2014 19:09 May 14, 2019 Jkt 247001 every two years, rather than annually.71 Because such a U.S. intermediate holding company would continue to submit an annual capital plan (including the results of an internal capital stress test) and would be subject to annual supervisory stress testing, a reduction in the frequency of disclosures related to the company-run stress test should reduce compliance costs without a material increase in safety and soundness or financial stability risks.72 Public disclosure of supervisory stress test results would continue to be made on an annual basis. For the reasons described under the discussion of Category II standards, the proposal would maintain existing liquidity risk management, monthly internal liquidity stress testing, and liquidity buffer requirements for the combined U.S. operations of a foreign banking organization subject to Category III liquidity standards. The proposal also would include liquidity data reporting requirements under FR 2052a for a foreign banking organization subject to Category III liquidity standards, and tailor those requirements based on the level of weighted shortterm wholesale funding. Some foreign banking organizations that would be subject to Category III standards currently report FR 2052a data for their combined U.S. operations on a monthly basis. However, under the proposal, if the combined U.S. operations of a foreign banking organization have $75 billion or more in weighted short-term wholesale funding, FR 2052a data would be submitted for each business day.73 Daily reporting is appropriate for 71 The company-run stress testing requirement under the enhanced prudential standards rule includes a mandatory public disclosure component, whereas the capital plan rule does not. Compare 12 CFR 252.58 with 12 CFR 225.8. The proposal would maintain the annual internal stress test requirement under the capital plan rule, but reduce the required frequency of company-run stress testing under the enhanced prudential standards rule to every other year. As a result, in the intervening year between company-run stress tests under the enhanced prudential standards rule, the proposed Category III standards would require a U.S. intermediate holding company to conduct an internal capital stress test only as part of its annual capital plan submission, without required public disclosure. 72 Consistent with the domestic proposal, a U.S. intermediate holding company of a foreign banking organizations subject to Category II capital standards would conduct and publicly report the results of a company-run stress test more frequently (annually) than U.S. intermediate holding companies of foreign banking organizations subject to Category III standards (every two years), based on the differences in size, cross-jurisdictional activity, complexity, and risk profile indicated by the scoping criteria for each of these categories. 83 FR 66024 (December 21, 2018). 73 FR 2052a data would be submitted on a monthly basis for combined U.S. operations of a foreign banking organization subject to Category III PO 00000 Frm 00016 Fmt 4701 Sfmt 4702 a foreign banking organization with heightened levels of weighted shortterm wholesale funding, because a firm that relies more on unsecured, lessstable funding relative to deposits typically must rollover liabilities in order to fund its routine activities. Accordingly, short-term wholesale funding can be indicative of a firm that has heightened liquidity risk. Question 30: What modifications, if any, should the Board consider to the proposed Category III prudential standards for foreign banking organizations, and why? Question 31: What are the advantages and disadvantages of reducing the frequency of the company-run stress test and related disclosures to every other year for a U.S. intermediate holding company subject Category III standards? 3. Category IV Standards Under the proposal, Category IV standards would apply to foreign banking organizations with combined U.S. assets of $100 billion or more that do not meet the criteria for Categories II or III with respect to their combined U.S. operations or U.S. intermediate holding companies (as applicable). Based on an analysis of the crisis experience of large domestic banking organizations, the Board found that the failure or distress of a U.S. banking organization that meets or exceeds the thresholds for Category IV standards, while not likely to have as great of an impact on U.S. financial stability as the failure or distress of a firm subject to Category II or III standards, could nonetheless have an amplified negative effect on economic growth and employment relative to the failure or distress of smaller firms. Notwithstanding structural differences between the U.S. operations of foreign banking organizations and domestic firms, the size and risk profile of such U.S. operations could present similar risk to financial stability and safety and soundness as those presented by U.S. firms. Relative to current requirements under the enhanced prudential standards rule, the proposed Category IV standards would maintain core elements of the capital and liquidity standards, and tailor these requirements to reflect the lower risk profile and lesser degree of complexity of a foreign banking organization subject to this category of standards. The proposal would tailor the application of capital standards for U.S. intermediate holding companies subject standards with less than $75 billion in weighted short-term wholesale funding. E:\FR\FM\15MYP2.SGM 15MYP2 Federal Register / Vol. 84, No. 94 / Wednesday, May 15, 2019 / Proposed Rules to Category IV capital standards, consistent with the domestic proposal. Specifically, the proposal would reduce the frequency of supervisory stress testing to every other year, and eliminate the requirement to conduct and publicly report the results of a company-run stress test. A supervisory stress test cycle of this frequency would be consistent with the domestic proposal and appropriate for the risk profile of a U.S. intermediate holding company subject to this category of standards. The proposal would maintain the existing FR Y–14 reporting for these U.S. intermediate holding companies in order to provide the Board with the data it needs to conduct supervisory stress testing and inform the Board’s ongoing monitoring and supervision of these companies.74 The Board continues to expect a U.S. intermediate holding company of a foreign banking organization subject to Category IV capital standards to have a sound capital position and sound capital planning practices. Capital is central to the ability of a U.S. intermediate holding company to absorb unexpected losses and continue to lend to creditworthy businesses and consumers. To be resilient under a range of conditions, a U.S. intermediate holding company must maintain sufficient levels of capital to support the risks associated with its exposures and activities. As a result, processes for managing and allocating capital resources are critical to a company’s financial strength and resiliency, and also to the stability and effective functioning of the U.S. financial system. In April 2018, the Board issued a proposal to apply stress buffer requirements to large bank holding companies and U.S. intermediate holding companies.75 As part of a future capital plan proposal, the Board intends to propose that the stress buffer requirements under Category IV would be calculated in a manner that aligns with the proposed two-year supervisory stress testing cycle. Specifically, the Board plans to propose that the stress buffer requirements would be updated annually to reflect planned distributions, but only every two years to reflect stress loss projections.76 jbell on DSK3GLQ082PROD with PROPOSALS2 74 The Board plans to separately propose reductions in FR Y–14 reporting requirements for firms subject to Category IV standards as part of the capital plan proposal at a later date, to align with changes the Board would propose to the capital plan rule. 75 See Amendments to the Regulatory Capital, Capital Plan, and Stress Test Rules, 83 FR 18160 (proposed April 25, 2018). 76 Under the capital plan rule, the Board may require a U.S. intermediate holding company to resubmit its capital plan if there has been, or will VerDate Sep<11>2014 19:09 May 14, 2019 Jkt 247001 As part of the capital plan proposal, the Board intends to maintain the requirement that the firm submit an annual capital plan, but provide greater flexibility to U.S. intermediate holding companies to develop their annual capital plans. Under such an approach, Category IV standards could require a capital plan to include estimates of revenues, losses, reserves, and capital levels based on a forward-looking analysis, taking into account the U.S. intermediate holding company’s idiosyncratic risks under a range of conditions; however, it would not require submission of the results of company-run stress tests on the FR Y– 14A. This change would align with the proposal to remove company-run stress testing requirements from Category IV standards under this proposal. The Board also intends at a future date to revise its guidance relating to capital planning to align with the proposed categories of standards and to allow more flexibility in how all firms subject to Category IV standards perform capital planning. Category IV liquidity standards would include liquidity risk management, stress testing, and buffer requirements. The combined U.S. operations of a foreign banking organization that would be subject to Category IV standards typically do not present the risks to U.S. financial stability that are associated with size, cross-jurisdictional activity, nonbank assets, and off-balance sheet exposure. Accordingly, the proposal would reduce the frequency of required internal liquidity stress testing to at least quarterly, rather than monthly.77 Under the proposed Category IV standards, a foreign banking organization would continue to be required to maintain a liquidity buffer at its U.S. intermediate holding company that is sufficient to meet the projected net stressed cash-flow need over the 30day planning horizon under the internal liquidity stress test and a liquidity buffer at its U.S. branches and agencies that is sufficient to meet projected needs over the first fourteen days of a stress test with a 30-day planning horizon. The proposal also would modify certain liquidity risk-management likely be, a material change in the firm’s risk profile, financial condition, or corporate structure. See 12 CFR 225.8(e)(4). In the event of a resubmission, the Board may conduct a quantitative evaluation of that capital plan. As noted in the April 2018 proposal, the Board may recalculate a firm’s stress buffer requirements whenever the firm chooses or is required to resubmit its capital plan. 83 FR 18171. 77 Combined U.S. operations of a foreign banking organization subject to Category IV standards would remain subject to monthly FR 2052a liquidity reporting requirements. PO 00000 Frm 00017 Fmt 4701 Sfmt 4702 22003 requirements under Category IV. First, the combined U.S. operations of a foreign banking organization subject to this category of standards would calculate collateral positions on a monthly basis, rather than weekly. Second, the proposal would clarify that risk limits established to monitor sources of liquidity risk must be consistent with the established liquidity risk tolerance for the combined U.S. operations a foreign banking organization and appropriately reflect their risk profile. Importantly, limits established in accordance with the proposal would not need to consider activities or risks that are not relevant to the combined U.S. operations of a foreign banking organization. Third, while the proposal would continue to require a foreign banking organization subject to Category IV standards to establish and maintain procedures for monitoring intraday risk that are consistent with the risk profile of its combined U.S. operations, Category IV standards would not specify any required elements of those procedures. Question 32: What modifications, if any, should the Board consider to the proposed Category IV standards, and why? Question 33: What are the advantages and disadvantages of conducting a supervisory stress test every other year, rather than annually, and eliminating the company-run stress testing requirement for purposes of Category IV standards? What would be the advantages or disadvantages of the Board conducting supervisory stress tests for these U.S. intermediate holding companies on a more frequent basis? How should the Board consider providing U.S. intermediate holding companies with additional flexibility in their capital plans? D. Single-Counterparty Credit Limits Section 165(e) of the Dodd-Frank Act requires the Board to establish singlecounterparty credit limits for large U.S. and foreign banking organizations in order to limit the risks that the failure of any individual firm could pose to other firms subject to such requirements.78 Under the Board’s enhanced prudential standards framework, single-counterparty credit limits apply to the combined U.S. operations of a foreign banking organization with $250 billion or more in total consolidated assets, and separately to any subsidiary U.S. intermediate holding company of such a 78 12 E:\FR\FM\15MYP2.SGM U.S.C. 5365(e). 15MYP2 22004 Federal Register / Vol. 84, No. 94 / Wednesday, May 15, 2019 / Proposed Rules firm with total consolidated assets of $50 billion or more.79 The single-counterparty credit limits that apply to those foreign banking organizations and their U.S. intermediate holding companies increase in stringency in a manner commensurate with their size and risk profile. All foreign banking organizations are subject to an aggregate net credit exposure limit to any single counterparty equal to 25 percent of tier 1 capital. In addition, if a foreign banking organization has the characteristics of a ‘‘major foreign banking organization,’’ 80 it also is subject to an aggregate net credit exposure limit to any ‘‘major counterparty’’ 81 equal to 15 percent of tier 1 capital.82 These requirements apply to the combined U.S. operations of a foreign banking organization and are determined with respect to the foreign banking organization’s tier 1 capital. Alternatively, a foreign banking organization may comply with these requirements by certifying that it meets, on a consolidated basis, standards established by its home country supervisor that are consistent with the BCBS large exposure standard.83 For those foreign banking organizations’ U.S. intermediate holding companies, the Board’s singlecounterparty credit limits apply a similar approach. For a U.S. intermediate holding company with total consolidated assets of at least $50 billion and less than $250 billion, its aggregate net credit exposure to a single counterparty cannot exceed 25 percent of total regulatory capital plus the balance of its allowance for loan and lease losses that is not includable in tier 2 capital.84 In comparison, a U.S. intermediate holding company with total consolidated assets of at least $250 billion and less than $500 billion is subject to an aggregate net credit exposure limit of 25 percent of tier 1 CFR 252.72(a). foreign banking organization’’ means a top-tier foreign banking organization that has the characteristics of a global systemically important banking organization under the global methodology, or is identified by the Board as a major foreign banking organization. 12 CFR 252.171(z). 81 ‘‘Major counterparty’’ means a U.S. GSIB, a foreign banking organization that is a global systemically important banking organization, and any nonbank financial company supervised by the Board. 12 CFR 252.171(y). 82 12 CFR 252.172(c). 83 12 CFR 252.172(d). See also BCBS, Supervisory Framework for Measuring and Controlling Large Exposures (April 2014). The large exposures standard establishes an international singlecounterparty credit limit framework for internationally active banks. 84 12 CFR 252.172(a). capital.85 For ‘‘major U.S. intermediate holding companies,’’ the rule applies the same aggregate limits that apply to a major foreign banking organization— (i) an aggregate net credit exposure limit to any single counterparty equal to 25 percent of tier 1 capital,86 and (ii) an aggregate net credit exposure limit to a ‘‘major counterparty’’ equal to 15 percent of tier 1 capital.87 Other provisions of the singlecounterparty credit limits apply only to U.S. intermediate holding companies with total consolidated assets of $250 billion or more. Specifically, the current rule sets forth requirements for the treatment of exposures to securitization vehicles, investment funds, and other special purpose vehicles (collectively, SPVs),88 and the application of economic interdependence and control relationship tests to aggregate connected counterparties 89 for U.S. intermediate holding companies that meet or exceed this asset size threshold. In addition, U.S. intermediate holding companies with $250 billion or more in total consolidated assets must comply with the rule on a daily basis as of the end of each business day and submit a quarterly report to demonstrate its compliance.90 The proposal would revise the Board’s single-counterparty credit limits to align the thresholds for application of these requirements with the proposed thresholds for other enhanced prudential standards. Under the proposal, single-counterparty credit limits would apply to the combined U.S. operations of a foreign banking organization subject to Category II or Category III standards or of a foreign banking organization with $250 billion or more in total consolidated assets. A foreign banking organization would continue to be able to comply with the single-counterparty credit limits by certifying to the Board that it meets comparable home-country standards that apply on a consolidated basis. 79 12 jbell on DSK3GLQ082PROD with PROPOSALS2 80 ‘‘Major VerDate Sep<11>2014 19:09 May 14, 2019 Jkt 247001 85 Id. at 252.172(b)(1). 86 Id. 87 Id. at 252.172(c)(1). at 252.175. For a discussion of the treatment of exposures to SPVs under the single-counterparty credit limit rule, see ‘‘Single-Counterparty Credit Limits for Bank Holding Companies and Foreign Banking Organizations,’’ 83 FR 38460, 38480–82 (Aug. 6, 2018). 89 12 CFR 252.176. For a discussion of the economic interdependence and control relationship tests to aggregate connected counterparties under the single-counterparty credit limit rule, see id. at 38482–84. 90 12 CFR 252.178(a)(1) and (a)(3). A U.S. intermediate holding company with less than $250 billion in total consolidated assets must comply with single-counterparty credit limits as of the end of each quarter. See 12 CFR 252.178(a)(2). 88 Id. PO 00000 Frm 00018 Fmt 4701 Sfmt 4702 The proposal also would apply singlecounterparty credit limits separately to a U.S. intermediate holding company of a foreign banking organization subject to Category II or Category III standards but would modify the requirements currently applicable to those U.S. intermediate holding companies. First, the proposal would eliminate the requirements applicable to major U.S. intermediate holding companies and instead subject all U.S. intermediate companies to a uniform aggregate net credit exposure limit to a single counterparty equal to 25 percent of tier 1 capital. In addition, the proposal would remove the bifurcated treatment under the current rule regarding exposures to SPVs and the application of the economic interdependence and control relationship tests, as well as compliance requirements. Under the proposal, these requirements would apply to all U.S. intermediate holding companies as they apply currently to U.S. intermediate holding companies with $250 billion or more in total consolidated assets. These revisions are intended to more appropriately balance the single-counterparty credit limits that apply to U.S. intermediate holding companies by maintaining the core aggregate net credit exposure limit and extending the applicability of other requirements that are integral to the framework. While these revisions would increase the compliance burden relative to the single-counterparty credit limits currently applicable to certain U.S. intermediate holding companies with less than $250 billion in assets, they are consistent with the focus of the postcrisis reform framework as it relates to reducing interconnectivity within the financial system and the maintenance of higher-quality forms of capital and, therefore, could help to mitigate risks to U.S. financial stability. In particular, the Board has stated that basing singlecounterparty credit limits on tier 1 capital sets the limits relative to the company’s ability to absorb losses on a going-concern basis and acknowledges market participants’ focus on higherquality capital during the financial crisis.91 The proposal would not apply singlecounterparty credit limits to the combined U.S. operations of foreign banking organizations subject to Category IV standards unless such a foreign banking organization has $250 billion or more in total consolidated assets, as required by federal law.92 In addition, the proposal only would apply single-counterparty credit limits to U.S. 91 See 92 See E:\FR\FM\15MYP2.SGM 83 FR 38460, 38471 (Aug. 6, 2018). supra note 71. 15MYP2 Federal Register / Vol. 84, No. 94 / Wednesday, May 15, 2019 / Proposed Rules jbell on DSK3GLQ082PROD with PROPOSALS2 intermediate holding companies of foreign banking organizations subject to Category II or Category III standards. As discussed above, the proposed indicators for Category II and Category III represent measures of vulnerability to safety and soundness and financial stability risks, which may be exacerbated if a foreign banking organization has combined U.S. operations with outsized credit exposure to a single counterparty. Accordingly, application of these limits would help to mitigate this risk. In addition, foreign banking organizations with combined U.S. operations that have high reliance on weighted shortterm wholesale funding or a significant concentration of nonbank assets or offbalance sheet exposure often also have a high degree of interconnectedness with other market participants and may be likely to transmit their distress or failure to those participants. Singlecounterparty credit limits may reduce the extent of that transmission.93 Foreign banking organizations with combined U.S. operations that would be subject to Category IV standards typically do not present these risks. Question 34: What are the advantages and disadvantages of the proposed revisions to the applicability requirements for single-counterparty credit limits and the removal of aggregate net credit exposure limits applicable to major U.S. intermediate holding companies? Question 35: What are the advantages and disadvantages of extending to U.S. intermediate holding companies with less than $250 billion in total consolidated assets that are subject to Category II or Category III standards the requirements under the singlecounterparty credit limits framework regarding the treatment of exposures to SPVs and the application of the economic interdependence and control relationship tests, as well as heightened compliance requirements? E. Risk-Management and RiskCommittee Requirements Sound enterprise-wide risk management supports the safe and sound operation of banking organizations and reduces the likelihood of their material distress or failure, and thus promotes U.S. financial stability. Section 165(h) of the DoddFrank Act requires certain publicly traded bank holding companies, which includes foreign banking organizations, 93 The limitation on a U.S. intermediate holding company’s exposure to a single counterparty also may reduce the likelihood that distress at another firm would be transmitted to the U.S. intermediate holding company. VerDate Sep<11>2014 19:09 May 14, 2019 Jkt 247001 to establish a risk committee that is ‘‘responsible for the oversight of the enterprise-wide risk management practices’’ that meets other statutory requirements.94 EGRRCPA raised the threshold for mandatory application of the risk-committee requirement from publicly traded bank holding companies with $10 billion in total consolidated assets to publicly traded bank holding companies with $50 billion or more in total consolidated assets. Additionally, the Board has discretion to apply riskcommittee requirements to publicly traded bank holding companies with under $50 billion in total consolidated assets if the Board determines doing so is necessary or appropriate to promote sound risk management practices. Under the current enhanced prudential standards rule, all foreign banking organizations with total consolidated assets of $50 billion or more, and publicly traded foreign banking organizations with at least $10 billion in total consolidated assets, must maintain a risk committee that meets specified requirements.95 These requirements vary based on a foreign banking organization’s total consolidated assets and combined U.S. assets. Foreign banking organizations with at least $10 billion but less than $50 billion in total consolidated assets, as well as foreign banking organizations with total consolidated assets of $50 billion or more but less than $50 billion in combined U.S. assets, must annually certify to the Board that they maintain a qualifying committee that oversees the risk management policies of the combined U.S. operations of the foreign banking organization. In contrast, foreign banking organizations with total consolidated assets of $50 billion or more and $50 billion or more in combined U.S. assets are subject to more detailed risk-committee and riskmanagement requirements, including the requirement to appoint a U.S. chief risk officer.96 Consistent with EGRRCPA, the proposal would raise the total consolidated asset threshold for application of the risk-committee requirement to foreign banking organizations and would not change the substance of the risk-committee requirement for these firms. Maintaining these risk-committee requirements for foreign banking organizations with total consolidated assets of $50 billion or more would help support the safety and soundness of a foreign banking organization’s U.S. operations in a 94 12 U.S.C. 5363(h). 12 CFR 252.144, 252.155, and subpart M. 96 12 CFR 252.155. 95 See PO 00000 Frm 00019 Fmt 4701 Sfmt 4702 22005 manner commensurate with its U.S. risk profile. Under the proposal, foreign banking organizations with at least $50 billion but less than $100 billion in total consolidated assets, as well as foreign banking organizations with total consolidated assets of $100 billion or more but less than $50 billion in combined U.S. assets, would be required to maintain a risk committee and make an annual certification to that effect. Additionally, foreign banking organizations with total consolidated assets of $100 billion or more and $50 billion or more in combined U.S. assets would be required to comply with the more detailed risk-committee and riskmanagement requirements in the Board’s enhanced prudential standards rule (Regulation YY), which include the chief risk officer requirement. The proposal would eliminate the riskcommittee requirements that apply for foreign banking organizations with less than $50 billion in total consolidated assets. Similar to its approach for domestic banking organizations, the Board historically has assessed the adequacy of risk management of foreign banking organizations through the examination process as informed by supervisory guidance; the requirements in section 165(h) of the Dodd-Frank Act supplement, but do not replace, the Board’s existing risk management guidance and supervisory expectations.97 Given the activities and risk profiles of foreign banking organizations with less than $50 billion in total consolidated assets, the Board expects to review these firms’ risk management practices through the supervisory process. The Board would continue to expect foreign banking organizations with less than $50 billion in total consolidated assets to establish risk management processes and procedures commensurate with their risks. F. Enhanced Prudential Standards for Foreign Banking Organizations With a Smaller U.S. Presence The current regulatory framework for foreign banking organizations tailors the application of enhanced prudential standards based on the size and complexity of a foreign banking organization’s U.S. operations. Under the Board’s current enhanced prudential standards rule, foreign banking organizations with at least $10 billion but less than $50 billion in total consolidated assets are subject to 97 See Enhanced Prudential Standards for Bank Holding Companies and Foreign Banking Organizations, 79 FR 17239, 17247 (Mar. 27, 2014). E:\FR\FM\15MYP2.SGM 15MYP2 22006 Federal Register / Vol. 84, No. 94 / Wednesday, May 15, 2019 / Proposed Rules company-run stress testing requirements in subpart L and the risk-management and risk-committee requirements in subpart M, the latter of which is described above.98 Additionally, foreign banking organizations with at least $50 billion in total consolidated assets but less than $50 billion in combined U.S. assets are subject to risk-based and leverage capital, risk-management and risk-committee, liquidity risk management, and capital stress testing requirements in subpart N of the Board’s enhanced prudential standards rule.99 The Board largely requires the foreign banking organization’s compliance with home-country capital and liquidity standards at the consolidated level, and imposes certain risk-management requirements that are specific to the U.S. operations of a foreign banking organization. The proposal generally adopts this approach for foreign banking organizations with a limited U.S. presence; however, it would also implement targeted changes to reduce the stringency of certain requirements applicable to these firms, as described below. It would also maintain certain risk-management and capital requirements for a U.S. intermediate holding company of a foreign banking organization that does not meet the thresholds under the proposal for the application of Category II, Category III or Category IV standards. jbell on DSK3GLQ082PROD with PROPOSALS2 1. Enhanced Prudential Standards for Foreign Banking Organizations With Less Than $50 Billion in Total Consolidated Assets The proposal would eliminate riskcommittee and risk-management requirements for foreign banking organizations with less than $50 billion in total consolidated assets, as described above. In addition, consistent with EGRRCPA, the proposal would eliminate subpart L of the Board’s enhanced prudential standards rule, which currently prescribes companyrun stress testing requirements for foreign banking organizations with more than $10 billion but less than $50 billion in total consolidated assets.100 EGRRCPA raised the threshold for mandatory application of company-run stress testing requirements from 98 The company-run stress testing requirements in subpart L also currently apply to foreign savings and loan holding companies with at least $10 billion in total consolidated assets. See 12 CFR 252.120 et seq. 99 12 CFR 252.140 et seq. 100 Subpart L also currently applies to foreign savings and loan holding companies with more than $10 billion in total consolidated assets. Id. VerDate Sep<11>2014 19:09 May 14, 2019 Jkt 247001 financial companies with more than $10 billion in total consolidated assets to financial companies with more than $250 billion in total consolidated assets. As a result, foreign banking organizations with less than $50 billion in total consolidated assets would no longer be required to be subject to a home-country capital stress testing regime, or if the foreign banking organization was not subject to qualifying home country standards, additional stress testing requirements in subpart L.101 2. Enhanced Prudential Standards for Foreign Banking Organizations With $100 Billion or More in Total Consolidated Assets but Less Than $100 Billion in Combined U.S. Assets Under the Board’s existing enhanced prudential standards rule, subpart N applies to foreign banking organizations with $50 billion or more in total consolidated assets but less than $50 billion in combined U.S. assets. Currently, the standards in subpart N— which include risk-based and leverage capital, liquidity risk management, and capital stress testing requirements— largely require compliance with homecountry standards. Consistent with EGRRCPA, the proposal would raise the threshold for application of subpart N to foreign banking organizations with $100 billion or more in total consolidated assets but less than $100 billion in combined U.S. assets. Under the proposed rule, the requirements under subpart N would continue to largely defer to homecountry standards and remain generally unchanged from the requirements that apply currently to a foreign banking organization with a limited U.S presence, including liquidity risk management requirements, risk-based and leverage capital requirements, and capital stress testing requirements. However, consistent with the proposed stress testing frequency for smaller and less complex domestic holding companies, the proposal would require foreign banking organizations with total 101 For foreign savings and loan holding companies, the proposal would apply company-run stress testing requirements to foreign savings and loan holding companies with more than $250 billion in total consolidated assets. These requirements would be the same as those that currently apply in subpart L of the enhanced prudential standards rule. See id. Raising the asset size threshold for application of company-run stress testing requirements for foreign savings and loan holding companies to more than $250 billion in total consolidated assets would be consistent with section 165(i)(2) of the Dodd-Frank Act, as amended by EGRRCPA. Under this proposal, company-run stress test requirements for foreign savings and loan holding companies would be in the new subpart R of Regulation LL. PO 00000 Frm 00020 Fmt 4701 Sfmt 4702 consolidated assets of less than $250 billion that do not meet the criteria for application of Category II, Category III, or Category IV standards to be subject to a home-country supervisory stress test on a biennial basis, rather than annually as under the current framework. As mentioned above in section II.E. of this Supplementary Information, riskcommittee requirements in subpart N would be further differentiated based on combined U.S. assets. Under the proposal, foreign banking organizations with $100 billion or more in total consolidated assets but less than $50 billion in combined U.S. assets would be required to certify on an annual basis that they maintain a qualifying risk committee that oversees the risk management policies of the combined U.S. operations of the foreign banking organization. In contrast, foreign banking organizations with $100 billion or more in total consolidated assets, and at least $50 billion but less than $100 billion in combined U.S. assets would be subject to more detailed riskcommittee and risk-management requirements, which include the chief risk officer requirement. These more detailed risk-committee requirements would be the same requirements that apply to foreign banking organizations with $100 billion or more in combined U.S. assets. The proposal would not revise the $50 billion U.S. non-branch asset threshold for the U.S. intermediate holding company formation requirement. This requirement has resulted in substantial gains in the resilience and safety and soundness of foreign banking organizations’ U.S. operations. Therefore, a foreign banking organization subject to subpart N (i.e., one with less than $100 billion in combined U.S. assets) may have or could be required to form a U.S. intermediate holding company. A U.S. intermediate holding company of such a foreign banking organization would not be subject to Category II, Category III, or Category IV capital standards, but it would remain subject to the risk-based and leverage capital requirements that apply to a U.S. bank holding company of a similar size and risk profile under the Board’s capital rule.102 Similarly, a U.S. intermediate holding company of a foreign banking organization subject to subpart N would be required to comply with risk-management and riskcommittee requirements. As under the 102 12 CFR part 217. As discussed in the interagency foreign banking organization capital and liquidity proposal, such a U.S. intermediate holding company would be subject to the generally applicable risk-based and leverage capital requirements. E:\FR\FM\15MYP2.SGM 15MYP2 Federal Register / Vol. 84, No. 94 / Wednesday, May 15, 2019 / Proposed Rules jbell on DSK3GLQ082PROD with PROPOSALS2 current rule, under the proposal the risk committee of the U.S. intermediate holding company may also serve as the U.S. risk committee for the foreign banking organization’s combined U.S. operations. G. Technical Changes to the Regulatory Framework for Foreign Banking Organizations and Domestic Banking Organizations The proposal would make several technical changes and clarifying revisions to the Board’s enhanced prudential standards rule. In addition to any defined terms described previously in this Supplementary Information section, the proposal would add defined terms for foreign banking organizations with combined U.S. operations subject to Category II, III, or IV standards, defined as ‘‘Category II foreign banking organizations’’, ‘‘Category III foreign banking organizations’’, or ‘‘Category IV foreign banking organizations’’, respectively. Similarly, the proposal would add defined terms for ‘‘Category II U.S. intermediate holding companies’’, ‘‘Category III U.S. intermediate holding companies’’, and ‘‘Category IV U.S. intermediate holding companies’’. The addition of these terms would facilitate the requirements for application of enhanced prudential standards under the category framework set forth in this proposal. The proposal would revise the requirements for establishment of a U.S. intermediate holding company to eliminate the requirement to submit an implementation plan. The implementation plan requirement was intended to facilitate initial compliance with the U.S. intermediate holding company requirement. To assess compliance with the U.S. intermediate holding company requirement under the proposal, information would be requested through the supervisory process. Such information could include information on the U.S. subsidiaries of the foreign banking organization that would be transferred, a projected timeline for the structural reorganization, and a discussion of the firm’s plan to comply with the enhanced prudential standards that would be applicable to the U.S. intermediate holding company. The proposal also would make conforming amendments to the process for requesting an alternative organizational structure for a U.S. intermediate holding company, as well as clarify that a foreign banking organization may submit a request for an alternative organizational structure in the context of a reorganization, anticipated acquisition, or prior to VerDate Sep<11>2014 19:09 May 14, 2019 Jkt 247001 formation of a U.S. intermediate holding company. In light of the requests received under this section following the initial compliance with the U.S. intermediate holding company requirement, the time period for the Board’s expected action would be shortened from 180 days to 90 days. These amendments would apply to a U.S. intermediate holding company formed under subpart N or subpart O. As discussed above, capital requirements would apply to a U.S. intermediate holding company based on its risk profile, while other requirements would be based on the risk profile of the combined U.S. operations of a foreign banking organization. Subpart O of Regulation YY currently provides that a foreign banking organization that forms two or more U.S. intermediate holding companies would meet any threshold governing applicability of particular requirements by aggregating the total consolidated assets of the U.S. intermediate holding companies. The proposal would not change this aggregation requirement, but would amend the requirement to consider the risk-based indicators discussed above. In addition, the proposal would provide a reservation of authority to permit a foreign banking organization to comply with the requirements of Regulation YY through a subsidiary foreign bank or company of the foreign banking organization. In making this determination, the Board would take into consideration the ownership structure of the foreign banking organization, including (1) whether the foreign banking organization is owned or controlled by a foreign government; (2) whether the action would be consistent with the purposes of this part; and (3) any other factors that the Board determines are relevant. For example, if top-tier foreign banking organization is a sovereign wealth fund that controls a U.S. bank holding company, with prior approval of the Board the U.S. bank holding company could comply with the requirements established under Regulation YY instead of the sovereign wealth fund, provided that doing so would not raise significant supervisory or policy issues and would be consistent with the purposes of section 165. The reservation of authority is intended to provide additional flexibility to address certain foreign banking organization structures, as well as to provide clarity and reduce burden for these institutions. The proposal also would amend Regulation YY to eliminate transition and initial applicability provisions that were relevant only for purposes of the initial adoption and implementation of PO 00000 Frm 00021 Fmt 4701 Sfmt 4702 22007 the enhanced prudential standards framework. For both foreign and domestic banking organizations, the Board is soliciting comment on whether to more closely align the assets that qualify as highly liquid assets in the enhanced prudential standards rule 103 with HQLA under the current LCR rule.104 Specifically, the enhanced prudential standards rule requires certain large foreign and domestic banking organizations to hold buffers of highly liquid assets. The rule defines highly liquid assets to include cash, certain securities issued or guaranteed by the U.S. government or a U.S. governmentsponsored enterprise, and other assets that a firm demonstrates to the Board’s satisfaction meet specific liquidity criteria.105 The LCR rule describes assets that are HQLA that may be used by a firm to meets its net cash outflow amount.106 HQLA are expected to be easily and immediately convertible into cash with little or no expected loss of value during a period of stress.107 Certain HQLA are subject to additional, asset-specific requirements, including, for example, that the assets be liquid and readily marketable.108 When the Board adopted the enhanced prudential standards rule in 2014, the Board stated that HQLA under the then-proposed LCR rule would be liquid under most scenarios, but a covered company would still be required to demonstrate to the Board that these assets meet the criteria for highly liquid assets set forth in the enhanced prudential standards rule.109 After several years of supervising firms that are subject to the enhanced prudential standards rule and LCR rule, the Board is considering whether it would be appropriate to expand the list of enumerated highly liquid assets to include certain assets that are HQLA (potentially reflecting operational requirements of the LCR rule), or otherwise adjust the definition of highly liquid assets to align with the LCR rule. Under this approach, a banking organization would no longer be required to obtain a determination from 103 12 CFR 252.35(b) and 12 CFR 252.157(c). Liquidity Coverage Ratio: Liquidity Risk Measurement Standards, 79 FR 61440, 61450 (Oct. 10, 2014), codified at 12 CFR part 50 (OCC), 12 CFR part 249 (Board), and 12 CFR part 329 (FDIC). For the definition of HQLA under the Board’s LCR rule, see 12 CFR 249.20. 105 Id. 106 12 CFR 50.20 (OCC), 12 CFR 249.20 (Board), and 12 CFR 329.20 (FDIC). 107 See 79 FR at 61450. 108 12 CFR 50.20 (OCC), 12 CFR 249.20 (Board), and 12 CFR 329.20 (FDIC). 109 See 79 FR 17259–60 (Oct. 10, 2014). 104 See E:\FR\FM\15MYP2.SGM 15MYP2 jbell on DSK3GLQ082PROD with PROPOSALS2 22008 Federal Register / Vol. 84, No. 94 / Wednesday, May 15, 2019 / Proposed Rules the Board for assets that are HQLA, as those assets would be enumerated as highly liquid assets in Regulation YY. Question 36: How, if at all, should the Board adjust the current definition of highly liquid assets in 12 CFR 252.35(b)(3) and 252.157(c)(7) of the enhanced prudential standards rule to improve alignment with the definition of HQLA? Should the enumerated list of highly liquid assets be expanded to include any or all of certain categories of HQLA (e.g., level 1 liquid assets, all level 1 and level 2A liquid assets, certain level 1 liquid assets, certain level 2A liquid assets, etc.) or certain assets that are HQLA (e.g., sovereign bonds that are assigned a zero percent risk weight under the Board’s capital regulation)? Should ‘‘cash’’ in the enhanced prudential standards rule be clarified to mean Reserve Bank balances and foreign withdrawable reserves, to more closely align with the enumerated list of level 1 liquid assets that are not securities in the LCR rule? Question 37: What are the advantages and disadvantages of incorporating into the definition of highly liquid assets other requirements of the LCR rule related to HQLA, including, for example, the requirements for an asset to be ‘‘eligible HQLA,’’ the haircuts applied to HQLA, or the quantitative limits on the composition of the HQLA amount? 110 Question 38: If a firm’s HQLA satisfy the requirements in the LCR rule to be eligible HQLA,111 what are the advantages and disadvantages of requiring the firm to separately demonstrate that the HQLA meet the other requirements in the enhanced prudential standards rule for highly liquid assets? 112 What would be the advantages and disadvantages of adding other requirements for highly liquid assets in the enhanced prudential standards rule, including a requirement that a firm take into account potential conflicts to a business or risk management strategy stemming from the monetization of these assets? In addition, the proposal would amend the internal liquidity stress testing requirements to provide a banking organization with notice and an opportunity to respond if the Board determined that the banking organization must change the frequency of its internal liquidity stress testing. The proposed procedures would allow a banking organization to respond to the Board’s determination before such 110 12 CFR 249.21 and 249.22. 12 CFR 50.22 (OCC); 12 CFR 249.22 (Board); 12 CFR 329.50 (FDIC). 112 12 CFR 252.35(b)(3) and 252.157(c)(7). 111 See VerDate Sep<11>2014 19:09 May 14, 2019 Jkt 247001 requirement takes effect. The proposed procedures are consistent with other similar notice procedures in Regulation YY. The proposed changes would help ensure that the internal liquidity stress tests conducted by a banking organization are consistent with that banking organization’s liquidity risk profile.113 For domestic bank holding companies, the proposal would amend the Board’s GSIB surcharge rule to require a bank holding company subject to Category III standards to compute its method 1 score on an annual basis to determine whether it is a U.S. GSIB. Currently, the Board’s GSIB surcharge rule applies only to a domestic bank holding company that is an advanced approaches Board-regulated institution (a bank holding company with $250 billion or more in total consolidated assets or $10 billion or more in onbalance sheet foreign exposure), as a bank holding company that does not meet these thresholds is less likely to pose heightened risks to U.S. financial stability.114 In the domestic interagency proposal, the Board proposed to revise the definition of advanced approaches Board-regulated institution to include a bank holding company that is identified as a U.S. GSIB or a bank holding company that has either $700 billion in total consolidated assets or $75 billion in cross-jurisdictional activity. The Board did not address whether a Category III banking organization would need to calculate its method 1 score in the domestic proposal or the domestic interagency proposal. As noted by the Board in the domestic proposal, Category III standards would apply to domestic bank holding companies that could pose heightened risks to U.S financial stability and would further the safety and soundness of a bank holding company of such size and risk profile.115 Accordingly, because of the risk profile of these firms, the Board is proposing to revise the GSIB surcharge rule to require Category III banking organizations to calculate their method 1 scores annually. The proposed change would not increase the number of firms that currently calculate their method 1 GSIB score annually, as all proposed Category III domestic bank holding companies are advanced approaches 113 The proposed procedures would not limit the authority of the Board under any other provision of law or regulation to take supervisory or enforcement action, including action to address unsafe or unsound practices or conditions, deficient liquidity levels, or violations of law. 114 See 12 CFR 217.400(b)(1). See 80 FR 49082 (August 14, 2015). 115 83 FR 61408, 61413 (November 29, 2018). PO 00000 Frm 00022 Fmt 4701 Sfmt 4702 Board-regulated institutions under the Board’s existing GSIB surcharge rule. Question 39: How could the Board further improve the structure of the enhanced prudential standards framework in Regulation YY and proposed prudential standards in Regulation LL? For example, would providing all definitions under one section facilitate compliance with the framework? Are there other structural or technical changes to Regulation YY and Regulation LL the Board should consider and, if so, why? Are there other clarifications to Regulation YY that the Board should consider and, if so, how and why? For example, are there defined terms that could be further clarified? Question 40: What are the advantages or disadvantages of providing foreign banking organizations additional flexibility in complying with the Board’s risk-committee requirements? What, if any, additional flexibility should the Board provide to foreign banking organizations with $50 billion or more in combined U.S. assets to maintain their risk committees at entities other than at the top-tier foreign banking organization or at the foreign banking organization’s U.S. intermediate holding company? What alternative structures should the Board consider? What factors should the Board consider in determining whether to provide foreign banking organizations with additional flexibility or permit an alternative structure in complying with the riskcommittee requirements? In particular, to what extent should the Board consider (a) the scope of the risk committee’s oversight of the combined U.S. operations of the foreign banking organization; and (b) the reporting lines from the risk committee to the global board of directors of the foreign banking organization? Question 41: What are the advantages or disadvantages of requiring a domestic bank holding company subject to Category III standards to compute its method 1 score? What would be the advantages or disadvantages of the Board, instead of the bank holding companies subject to the GSIB surcharge rule, computing the method 1 scores for all, or some, bank holding companies subject to the GSIB surcharge rule? III. Proposed Reporting Changes To accommodate the proposed revisions to the framework for determining the applicability of enhanced prudential standards to foreign banking organizations, the proposal would make various changes to related reporting forms. Specifically, E:\FR\FM\15MYP2.SGM 15MYP2 jbell on DSK3GLQ082PROD with PROPOSALS2 Federal Register / Vol. 84, No. 94 / Wednesday, May 15, 2019 / Proposed Rules the proposal would amend the FR Y–7, FR Y–7Q, FR Y–9C, FR Y–14, FR Y–15, and FR 2052a. The Board is proposing to revise Item 5 on the FR Y–7, Regulation YY Compliance for the Foreign Banking Organization (FBO), to align the reporting form with the applicability thresholds set forth in this proposal and other regulatory changes that are consistent with the Board’s July 2018 statement concerning EGRRCPA.116 Specifically, Item 5(a) would be amended to apply only to foreign savings and loan holding companies with more than $250 billion in total consolidated assets, and would assess compliance with the capital stress testing requirements under proposed section 238.162 of the Board’s Regulation LL, as revised under this proposal. Items 5(b) and 5(c) would continue to assess compliance with the risk committee requirements in sections 252.132(a) and 252.144(a) of the Board’s Regulation YY, respectively, but the descriptions for each Item would be updated to conform to the asset size thresholds under this proposal. For Item 5(b), the description would also eliminate language referring to foreign banking organizations that are publicly traded, as that distinction would be eliminated under this proposal. Similarly, the Board is proposing to revise Items 5(d) and 5(e) to align the descriptions of the requirements with the asset size thresholds under this proposal. These Items would continue to assess compliance with the capital stress testing requirements in sections 252.146(b) and 252.158(b) of the Board’s Regulation YY. The proposal would amend the FR Y– 7Q to align with revisions to Regulation YY. Currently, top-tier foreign banking organizations with $50 billion or more in total consolidated assets must report Part 1B—Capital and Asset Information for Top-tier Foreign Banking Organizations with Consolidated Assets of $50 billion or more. The proposal would now require top-tier foreign banking organizations that are subject to either sections 252.143 or 252.154 of the Board’s Regulation YY to report Part 1B. Section 252.143 outlines risk-based and leverage capital requirements for foreign banking organizations with total consolidated assets of $250 billion or more but combined U.S. assets of less than $100 billion, while section 252.154 describes risk-based and leverage capital requirements for foreign banking 116 See Board statement regarding the impact of the Economic Growth, Regulatory Relief, and Consumer Protection Act, July 6, 2018, available at https://www.federalreserve.gov/newsevents/ pressreleases/bcreg20180706b.htm. VerDate Sep<11>2014 19:09 May 14, 2019 Jkt 247001 organizations with $100 billion or more in total consolidated assets and combined U.S. assets of $100 billion or more. The Board is proposing to amend the FR Y–9C to further clarify requirements for U.S. intermediate holding companies subject to Category III capital standards. In the domestic proposal, the Board proposed to amend the FR Y–9C to clarify that Category III Board-regulated institutions would not be included in the proposed definition of ‘‘advanced approaches banking organizations’’ but would be required to comply with the supplementary leverage ratio and countercyclical capital buffer requirements. Specifically, the domestic proposal would require line item 45 to be completed by ‘‘advanced approaches banking organizations and Category III Board-regulated institutions.’’ This proposal would make additional changes to line item 45 to further clarify that the supplementary leverage ratio and countercyclical capital buffer apply to Category III U.S. intermediate holding companies. Accordingly, line item 45 would be amended to apply to ‘‘advanced approaches holding companies, Category III bank holding companies, Category III savings and loan holding companies or Category III U.S. intermediate holding companies.’’ The instructions for the FR Y–9C also would be amended in this proposal to align with the proposed revisions to line item 45. Under the domestic proposal, the instructions for Schedule HC–R of the FR Y–9C would be clarified to indicate that Category III Boardregulated institutions are not subject to the advanced approaches rule but are subject to the supplementary leverage ratio and countercyclical capital buffer. This proposal would amend those instructions to further clarify that the supplementary leverage ratio and countercyclical capital buffer also apply to Category III bank holding companies, Category III savings and loan holding companies, and Category III U.S. intermediate holding companies. Consistent with EGRRCPA and the Board’s July 2018 statement relating to EGRRCPA, the proposal would revise the FR Y–14A, Y–14M, and Y–14Q to revise the threshold for U.S. intermediate holding companies that would be required to submit these forms, by increasing it to U.S. intermediate holding companies with $100 billion or more in total consolidated assets. U.S. intermediate holding companies below this size threshold would no longer be required to submit these forms. The proposal would also make technical changes to the definitions of ‘‘large and complex’’ PO 00000 Frm 00023 Fmt 4701 Sfmt 4702 22009 and ‘‘large and noncomplex’’ bank holding company to align with proposed changes in § 225.8(d)(9). The Board is proposing to modify the FR Y–15 report to require a foreign banking organization to report data for its combined U.S. operations that are related to the criteria for determining the applicability of enhanced prudential standards under this proposal. Currently, only U.S. intermediate holding companies are required to the FR Y–15. Extending FR Y–15 reporting requirements to the combined U.S. operations of a foreign banking organization would allow the Board to determine the applicable category of standards, as well as monitor the risk profile of those operations, consistent with the scope of application of this proposal. Specifically, foreign banking organizations would be required to report the information required under new schedules H through N of the FR Y–15, which would replicate schedules A through G of the current FR Y–15 for domestic holding companies (with the exception of cross-jurisdictional activity, as discussed below).117 Schedules H through N would be structured to include three columns, in which a foreign banking organization would report the information request for each item for (i) its U.S. intermediate holding company, (ii) its U.S. branch and agency network, and (iii) its combined U.S. operations. In calculating an item for its U.S. branch and agency network, a foreign banking organization would not be required to reflect transactions between its individual branches and agencies; such transactions would be treated as if they were transactions between affiliates under generally accepted accounting principles, and thus eliminated in consolidation. Similarly, in calculating an item for its combined U.S. operations, a foreign banking organization would not be required to reflect transactions between entities that comprise the combined U.S. operations of the foreign banking organization. Consistent with the domestic proposal, the proposal would add two line items to Schedule H of the FR Y–15 to calculate total off-balance sheet exposure. New line item M4 (total consolidated assets) would report the total consolidated on-balance sheet assets for the respondent, as calculated under Schedule HC, item 12 (total consolidated assets) on the FR Y–9C. New line item M5 (total off-balance sheet exposures) would be total 117 U.S. intermediate holding companies would no longer be required to report on schedules A through G of the FR Y–15. E:\FR\FM\15MYP2.SGM 15MYP2 jbell on DSK3GLQ082PROD with PROPOSALS2 22010 Federal Register / Vol. 84, No. 94 / Wednesday, May 15, 2019 / Proposed Rules exposure, as currently defined on the FR Y–15, minus line item M4. For purposes of reporting cross-jurisdictional activity, the FR Y–15 would require foreign banking organizations to report assets and liabilities of the U.S. intermediate holding company and U.S. branch and agency network, excluding crossjurisdictional liabilities to non-U.S. affiliates and cross-jurisdictional claims on non-U.S. affiliates to the extent that these claims are secured by eligible financial collateral. To effectuate this change, the proposal would add new line items to proposed Schedule L and amend the instructions accordingly. Finally, the proposed changes to the FR Y–15 would make a number of additional edits to the form’s instructions to clarify reporting requirements given the new scope of reporting for foreign banking organizations, and further align the form with the proposed categorization framework (e.g., amending references to ‘‘advanced approaches’’ institutions). The Board is proposing to revise the FR 2052a report to modify the current reporting frequency as described previously in this Supplementary Information section. Consistent with EGRRCPA, the revisions would remove foreign banking organizations with less than $100 billion in combined U.S. assets from the scope of FR 2052a reporting requirements. Additionally, the proposal would require foreign banking organizations with combined U.S. assets of $100 billion or more to report the FR 2052a on a daily basis if they are: (i) Subject to Category II standards, or (ii) have $75 billion or more in weighted short-term wholesale funding. This would increase the frequency of reporting for foreign banking organizations subject to Category II standards with less than $700 billion in combined U.S. assets and foreign banking organizations subject to Category III standards with $75 billion or more in weighted shortterm wholesale funding; these foreign banking organizations currently report the FR 2052a liquidity data on a monthly basis. Reporting daily liquidity data would facilitate enhanced supervisory monitoring based on these firms’ liquidity risk profile, as indicated by their size, level of weighted shortterm wholesale funding or crossjurisdictional activity. The proposal to require daily FR 2052a liquidity data based on whether a foreign banking organization is subject to Category II standards or has weighted short-term wholesale funding (among its combined U.S. operations) of $75 billion or more would replace the existing criteria for VerDate Sep<11>2014 19:09 May 14, 2019 Jkt 247001 determining whether a foreign banking organization is required to submit FR 2052a liquidity data on a daily basis, which is whether a foreign banking organizations is subject to supervision within the Board’s Large Institution Supervision Coordinating Committee (LISCC) portfolio.118 All other foreign banking organizations with combined U.S. assets of $100 billion or more would be subject to monthly filing requirements. The proposal also would clarify reporting transition periods if a change in category or level of short-term wholesale funding alters a firm’s FR 2052a reporting frequency. Question 42: What are the challenges, if any, of reporting the information required under the FR Y–15 for the combined U.S. operations of a foreign banking organization? Question 43: What are the costs and benefits of the proposed changes to the FR 2052a, including the advantages and disadvantages of the proposed reporting frequency for firms subject to Category II and III standards? Question 44: What changes should the Board consider to the proposed reporting requirements to alleviate burden? Commenters are encouraged to explain how any such changes would allow the Board to effectively monitor and supervise foreign banking organizations subject to the proposed reporting requirements, as appropriate to prevent or mitigate risks to U.S. financial stability. Question 45: What systems modifications would be required to report the information that would be required under the FR Y–15 in connection with this proposal? How much time would be required to implement any such modifications? Question 46: As a part of this proposal, the Federal Reserve has released proposed Y–15 forms that would add Schedules H–N to be reported by foreign banking organizations. As an alternative, the Federal Reserve could add two new columns to Schedules A–G instead of creating new schedules for these firms. What are the advantages and disadvantages of these two approaches? What other approaches should the Board consider for collecting the Y–15 data from the U.S. branches and agencies, as well as the combined U.S. operations for foreign banking organizations? 118 See SR Letter 12–17, ‘‘Consolidated Supervision Framework for Large Financial Institutions’’ (December 17, 2012). PO 00000 Frm 00024 Fmt 4701 Sfmt 4702 IV. Impact Assessment In general, the Board expects the proposed adjustments to the capital and liquidity enhanced prudential standards would reduce aggregate compliance costs for foreign banking organizations with $100 billion or more in combined U.S. assets, with minimal effects on the safety and soundness of these firms and U.S. financial stability.119 With respect to reporting burden, certain foreign banking organizations with weighted short-term wholesale funding of $75 billion or more that previously filed the FR 2052a on a monthly basis may experience a minor increase in compliance costs due to the increase in reporting frequency of the FR 2052a to daily. For additional impact information, commenters should also review the interagency foreign banking organization capital and liquidity proposal. A. Liquidity The proposed changes to liquidity requirements are expected to reduce compliance costs for firms that would be subject to Category IV standards by reducing the required frequency of internal liquidity stress tests and tailoring the liquidity risk management requirements to the risk profiles of these firms. The Board does not expect these proposed changes to materially affect the liquidity buffer levels held by these firms or these firms’ exposure to liquidity risk. B. Capital Planning and Stress Testing First, while the Board expects the proposed changes to capital planning and stress testing requirements to have no material impact on the capital levels of U.S. intermediate holding companies with $100 billion or more in total consolidated assets, the proposal would reduce compliance costs for U.S. intermediate holding companies subject to Category III or IV capital standards. These firms currently must conduct company-run stress tests on a semiannual basis. For U.S. intermediate holding companies that would be subject to Category III standards, the 119 Foreign banking organizations with less than $100 billion in combined U.S. assets (and U.S. intermediate holding companies with less than $100 billion in total consolidated assets) would have significantly reduced compliance costs, as these firms would no longer be subject to subpart O of the enhanced prudential standards rule or the capital plan rule, and would no longer be required to file FR Y–14, FR Y–15, or FR 2052a reports. While these foreign banking organizations would no longer be subject to internal liquidity stress testing and buffer requirements with respect to their U.S. operations, these firms’ U.S. operations currently hold HLA well in excess of their current liquidity buffer requirements. E:\FR\FM\15MYP2.SGM 15MYP2 Federal Register / Vol. 84, No. 94 / Wednesday, May 15, 2019 / Proposed Rules proposal would reduce this frequency to every other year. For U.S. intermediate holding companies that would be subject to Category IV standards, the proposal would remove this requirement altogether.120 In addition, under the proposal the Board would conduct supervisory stress tests of U.S. intermediate holding companies subject to Category IV standards on a two-year, rather than annual, cycle. For U.S. intermediate holding companies subject to Category III or Category IV standards, the proposed changes would reduce the compliance costs associated with capital planning and stress testing. C. Single-Counterparty Credit Limits jbell on DSK3GLQ082PROD with PROPOSALS2 The proposed changes to the singlecounterparty credit limits framework are not expected to increase risks to U.S. financial stability. The proposal would remove U.S. intermediate holding companies of a foreign banking organization subject to Category IV standards (as measured based on the combine U.S. operations of the foreign banking organization) from the applicability of single-counterparty credit limits. While these U.S. intermediate holding companies would recognize reductions in compliance costs associated with these requirements, they typically do not present the risks that are intended to be addressed by the single-counterparty credit limits framework. In addition, the proposal would remove the singlecounterparty credit limits applicable to major U.S. intermediate holding companies; however, there currently are no U.S. intermediate holding companies that meet or exceed the asset size threshold for these requirements. The proposal would increase the costs of compliance for U.S. intermediate holding companies with less than $250 billion in total consolidated assets and that are subject to Category II or Category III standards, as determined based on the combined U.S. operations of a foreign banking organization. The proposal would extend the applicability of certain provisions under the singlecounterparty credit limits framework to these U.S. intermediate companies, which currently apply only to those with $250 billion or more in total consolidated assets. 120 Although the proposal would not modify the requirement for a U.S. intermediate holding company that would be subject to Category IV standards to conduct an internal capital stress test as part of its annual capital plan submission, the Board intends to propose changes in the future capital plan proposal to align with the proposed removal of company-run stress testing requirements for these firms. See section IV.D of this Supplementary Information section. VerDate Sep<11>2014 19:09 May 14, 2019 Jkt 247001 V. Administrative Law Matters A. Solicitation of Comments and Use of Plain Language Section 722 of the Gramm-LeachBliley 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 proposal 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 it present the proposal more clearly? • Are the requirements in the proposal clearly stated? If not, how could the proposal 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? • 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? B. Paperwork Reduction Act Analysis Certain provisions of the proposed rule contain ‘‘collections of information’’ within the meaning of the Paperwork Reduction Act of 1995 (PRA) (44 U.S.C. 3501–3521). The Board may not conduct or sponsor, and a respondent is not required to respond to, an information collection unless it displays a currently valid Office of Management and Budget (OMB) control number. The Board reviewed the proposed rule under the authority delegated to the Board by OMB. The proposed rule contains reporting requirements subject to the PRA. To implement these requirements, the Board proposes to revise the (1) Complex Institution Liquidity Monitoring Report (FR 2052a; OMB No. 7100–0361), (2) Annual Report of Foreign Banking Organizations (FR Y–7; OMB No. 7100–0297), (3) Capital and Asset Report for Foreign Banking Organizations (FR Y–7Q; OMB No. 7100–0125), (4) Consolidated Financial Statements for Holding Companies (FR Y–9C; OMB No. 7100–0128), (5) Capital Assessments and Stress Testing (FR Y– 14A/Q/M; OMB No. 7100–0341), and (6) PO 00000 Frm 00025 Fmt 4701 Sfmt 4702 22011 Banking Organization Systemic Risk Report (FR Y–15; OMB No. 7100–0352). The proposed rule also contains reporting and recordkeeping requirements subject to the PRA. To implement these requirements, the Board proposes to revise reporting and recordkeeping requirements associated with Regulations Y, LL and YY: (7) Reporting and Recordkeeping Requirements Associated with Regulation Y (Capital Plans) (FR Y–13; OMB No. 7100–0342), (8) Reporting Requirements Associated with Regulation LL (FR LL; OMB No. 7100– NEW), and (9) Reporting, Recordkeeping, and Disclosure Requirements Associated with Regulation YY (FR YY; OMB No. 7100– 0350). This document contains Paperwork Reduction Act burden estimates for the proposed changes to Regulations Y, LL and YY for this proposed rule, as well as the burden estimates for the proposed reporting and recordkeeping requirements in Regulations Y, LL and YY in the proposal issued by the Board for domestic banking organizations on October 31, 2018 (83 FR 61408). Foreign banking organizations do not currently report all of the data for the measure of cross-jurisdictional activity and, accordingly, the burden estimates rely on firm categorizations using best available data. Comments are invited on: (a) Whether the proposed collections of information are necessary for the proper performance of the Board’s functions, including whether the information has practical utility; (b) The accuracy of the estimates of the burden of the proposed information collections, including the validity of the methodology and assumptions used; (c) Ways to enhance the quality, utility, and clarity of the information to be collected; (d) Ways to minimize the burden of the information collections on respondents, including through the use of automated collection techniques or other forms of information technology; and (e) Estimates of capital or 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 proposed rule that may affect reporting, recordkeeping, or disclosure requirements and burden estimates should be sent to Ann E. Misback, Secretary, Board of Governors of the Federal Reserve System, 20th Street and Constitution Avenue NW, Washington, DC 20551. A copy of the comments may E:\FR\FM\15MYP2.SGM 15MYP2 22012 Federal Register / Vol. 84, No. 94 / Wednesday, May 15, 2019 / Proposed Rules jbell on DSK3GLQ082PROD with PROPOSALS2 also be submitted to the OMB desk officer to the Office of Information and Regulatory Affairs, Office of Management and Budget, New Executive Office Building, Room 10235, 725 17th Street NW, Washington, DC 20503 or by fax to 202–395–6974. Proposed Revision, With Extension, of the Following Information Collections (1) Report title: Complex Institution Liquidity Monitoring Report. Agency form number: FR 2052a. OMB control number: 7100–0361. Frequency: Monthly, each business day (daily). Affected Public: Businesses or other for-profit. Respondents: U.S. bank holding companies, U.S. savings and loan holding companies, and foreign banking organizations with U.S. assets. Estimated number of respondents: Monthly: 25; Daily: 17. Estimated average hours per response: Monthly: 120; Daily: 220. Estimated annual burden hours: 971,000. General description of report: The FR 2052a is used to monitor the overall liquidity profile of institutions supervised by the Board. These data provide detailed information on the liquidity risks within different business lines (e.g., financing of securities positions, prime brokerage activities). In particular, these data serve as part of the Board’s supervisory surveillance program in its liquidity risk management area and provide timely information on firm-specific liquidity risks during periods of stress. Analyses of systemic and idiosyncratic liquidity risk issues are then used to inform the Board’s supervisory processes, including the preparation of analytical reports that detail funding vulnerabilities. Legal authorization and confidentiality: The FR 2052a is authorized pursuant to section 5 of the Bank Holding Company Act (12 U.S.C. 1844), section 8 of the International Banking Act (12 U.S.C. 3106), section 10 of HOLA (12 U.S.C. 1467a), and section 165 of the Dodd-Frank Act (12 U.S.C. 5365) and is mandatory. Section 5(c) of the Bank Holding Company Act authorizes the Board to require bank holding companies (BHCs) to submit reports to the Board regarding their financial condition. Section 8(a) of the International Banking Act subjects foreign banking organizations to the provisions of the Bank Holding Company Act. Section 10(b)(2) of HOLA authorizes the Board to require savings and loan holding companies (SLHCs) to file reports with the Board concerning VerDate Sep<11>2014 19:09 May 14, 2019 Jkt 247001 their operations. Section 165 of the Dodd-Frank Act requires the Board to establish prudential standards, including liquidity requirements, for certain BHCs and foreign banking organizations. Financial institution information required by the FR 2052a is collected as part of the Board’s supervisory process. Therefore, such information is entitled to confidential treatment under exemption 8 of the Freedom of Information Act (FOIA) (5 U.S.C. 552(b)(8)). In addition, the institution information provided by each respondent would not be otherwise available to the public and its disclosure could cause substantial competitive harm. Accordingly, it is entitled to confidential treatment under the authority of exemption 4 of the FOIA (5 U.S.C. 552(b)(4), which protects from disclosure trade secrets and commercial or financial information. Current Actions: To implement the reporting requirements of the proposed rule, the Board is proposing to modify the current FR 2052a reporting frequency. Consistent with EGRRCPA’s changes, the revisions would remove foreign banking organizations with less than $100 billion in combined U.S. assets from the scope of FR 2052a reporting requirements. Additionally, the proposal would require foreign banking organizations with combined U.S. assets of $100 billion or more to report the FR 2052a on a daily basis if they are (1) subject to Category II standards or (2) have $75 billion or more in weighted short-term wholesale funding. All other foreign banking organizations with combined U.S. assets of $100 billion or more would be subject to monthly filing requirements. The Board estimates that proposed revisions to the FR 2052a would decrease the respondent count by 6. Specifically, the Board estimates that the number of monthly filers would decrease from 36 to 25, but the number of daily filers would increase from 12 to 17. The Board estimates that proposed revisions to the FR 2052a would increase the estimated annual burden by 259,160 hours. The draft reporting forms and instructions are available on the Board’s public website at https:// www.federalreserve.gov/apps/ reportforms/review.aspx. (2) Report title: Annual Report of Holding Companies; Annual Report of Foreign Banking Organizations; Report of Changes in Organizational Structure; Supplement to the Report of Changes in Organizational Structure. Agency form number: FR Y–6; FR Y– 7; FR Y–10; FR Y–10E. OMB control number: 7100–0297. PO 00000 Frm 00026 Fmt 4701 Sfmt 4702 Frequency: Annual and eventgenerated. Affected Public: Businesses or other for-profit. Respondents: Bank holding companies (BHCs), savings and loan holding companies (SLHCs), securities holding companies (SHCs), and intermediate holding companies (IHCs) (collectively, holding companies (HCs)), foreign banking organizations (FBOs), state member banks (SMBs) unaffiliated with a BHC, Edge Act and agreement corporations, and nationally chartered banks that are not controlled by a BHC (with regard to their foreign investments only). Estimated number of respondents: FR Y–6: 4,079; FR Y–7: 257; FR Y–10: 4,269; FR Y–10E: 4,269. Estimated average hours per response: FR Y–6: 5.5; FR Y–7: 4.5; FR Y–10: 2.5; FR Y–10E: 0.5. Estimated annual burden hours: FR Y–6: 22,435; FR Y–7: 1,157; FR Y–10: 32,018; FR Y–10E: 2,135. General description of report: The FR Y–6 is an annual information collection submitted by top-tier domestic HCs and FBOs that are non-qualifying. It collects financial data, an organization chart, verification of domestic branch data, and information about shareholders. The Federal Reserve uses the data to monitor HC operations and determine HC compliance with the provisions of the BHC Act, Regulation Y (12 CFR part 225), the Home Owners’ Loan Act (HOLA), Regulation LL (12 CFR part 238), and Regulation YY (12 CFR part 252). The FR Y–7 is an annual information collection submitted by FBOs that are qualifying to update their financial and organizational information with the Federal Reserve. The FR Y–7 collects financial, organizational, shareholder, and managerial information. The Federal Reserve uses the information to assess an FBO’s ability to be a continuing source of strength to its U.S. operations and to determine compliance with U.S. laws and regulations. The FR Y–10 is an event-generated information collection submitted by FBOs; top-tier HCs; securities holding companies as authorized under Section 618 of the Dodd-Frank Act (12 U.S.C. 1850a(c)(1)); state member banks unaffiliated with a BHC; Edge and agreement corporations that are not controlled by a member bank, a domestic BHC, or an FBO; and nationally chartered banks that are not controlled by a BHC (with regard to their foreign investments only) to capture changes in their regulated investments and activities. The Federal Reserve uses the data to monitor E:\FR\FM\15MYP2.SGM 15MYP2 jbell on DSK3GLQ082PROD with PROPOSALS2 Federal Register / Vol. 84, No. 94 / Wednesday, May 15, 2019 / Proposed Rules structure information on subsidiaries and regulated investments of these entities engaged in banking and nonbanking activities. The FR Y–10E is an event-driven supplement that may be used to collect additional structural information deemed to be critical and needed in an expedited manner. Legal authorization and confidentiality: These information collections are mandatory as follows: FR Y–6: Section 5(c)(1)(A) of the Bank Holding Company Act (BHC Act) (12 U.S.C. 1844(c)(1)(A)); sections 8(a) and 13(a) of the International Banking Act (IBA) (12 U.S.C. 3106(a) and 3108(a)); sections 11(a)(1), 25, and 25A of the Federal Reserve Act (FRA) (12 U.S.C. 248(a)(1), 602, and 611a); and sections 113, 165, 312, 618, and 809 of the DoddFrank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) (12 U.S.C. 5361, 5365, 5412, 1850a(c)(1), and 5468(b)(1)). FR Y–7: Sections 8(a) and 13(a) of the IBA (12 U.S.C. 3106(a) and 3108(a)); sections 113, 165, 312, 618, and 809 of the Dodd-Frank Act (12 U.S.C. 5361, 5365, 5412, 1850a(c)(1), and 5468(b)(1)). FR Y–10 and FR Y–10E: Sections 4(k) and 5(c)(1)(A) of the BHC Act (12 U.S.C. 1843(k), and 1844(c)(1)(A)); section 8(a) of the IBA (12 U.S.C. 3106(a)); sections 11(a)(1), 25(7), and 25A of the FRA (12 U.S.C. 248(a)(1), 321, 601, 602, 611a, 615, and 625); sections 113, 165, 312, 618, and 809 of the Dodd-Frank Act (12 U.S.C. 5361, 5365, 5412, 1850a(c)(1), and 5468(b)(1)); and section 10(c)(2)(H) of the Home Owners’ Loan Act (HOLA) (12 U.S.C. 1467a(c)(2)(H)). Except as discussed below, the data collected in the FR Y–6, FR Y–7, FR Y– 10, and FR Y–10E are generally not considered confidential. With regard to information that a banking organization may deem confidential, the institution may request confidential treatment of such information under one or more of the exemptions in the Freedom of Information Act (FOIA) (5 U.S.C. 552). The most likely case for confidential treatment will be based on FOIA exemption 4, which permits an agency to exempt from disclosure ‘‘trade secrets and commercial or financial information obtained from a person and privileged and confidential’’ (5 U.S.C. 552(b)(4)). To the extent an institution can establish the potential for substantial competitive harm, such information would be protected from disclosure under the standards set forth in National Parks & Conservation Association v. Morton, 498 F.2d 765 (DC Cir. 1974). In particular, the disclosure of the responses to the certification questions on the FR Y–7 may interfere with home VerDate Sep<11>2014 19:09 May 14, 2019 Jkt 247001 country regulators’ administration, execution, and disclosure of their stress test regime and its results, and may cause substantial competitive harm to the FBO providing the information, and thus this information may be protected from disclosure under FOIA exemption 4. Exemption 6 of FOIA might also apply with regard to the respondents’ submission of non-public personal information of owners, shareholders, directors, officers and employees of respondents. Exemption 6 covers ‘‘personnel and medical files and similar files the disclosure of which would constitute a clearly unwarranted invasion of personal privacy’’ (5 U.S.C. 552(b)(6)). All requests for confidential treatment would need to be reviewed on a case-by-case basis and in response to a specific request for disclosure. Current Actions: The Board is proposing to revise item 5 on the FR Y– 7, Regulation YY Compliance for the Foreign Banking Organization (FBO), to align the reporting form with the applicability thresholds set forth in this proposal and other regulatory changes that are consistent with the Board’s July 2018 statement concerning EGRRCPA. The Board estimates that proposed revisions to the FR Y–7 would not impact the respondent count, but the estimated average hours per response would decrease from 6 hours to 4.5 hours. The Board estimates that proposed revisions to the FR Y–7 would decrease the estimated annual burden by 385 hours. The draft reporting forms and instructions are available on the Board’s public website at https:// www.federalreserve.gov/apps/ reportforms/review.aspx. (3) Report title: Financial Statements of U.S. Nonbank Subsidiaries Held by Foreign Banking Organizations, Abbreviated Financial Statements of U.S. Nonbank Subsidiaries Held by Foreign Banking Organizations, and Capital and Asset Report for Foreign Banking Organizations. Agency form number: FR Y–7N, FR Y–7NS, and FR Y–7Q. OMB control number: 7100–0125. Frequency: Quarterly and annually. Affected Public: Businesses or other for-profit. Respondents: Foreign banking organizations (FBOs). Estimated number of respondents: FR Y–7N (quarterly): 35; FR Y–7N (annual): 19; FR Y–7NS: 22; FR Y–7Q (quarterly): 130; FR Y–7Q (annual): 29. Estimated average hours per response: FR Y–7N (quarterly): 7.6; FR Y–7N (annual): 7.6; FR Y–7NS: 1; FR Y–7Q (quarterly): 2.25; FR Y–7Q (annual): 1.5. Estimated annual burden hours: FR Y–7N (quarterly): 1,064; FR Y–7N PO 00000 Frm 00027 Fmt 4701 Sfmt 4702 22013 (annual): 144; FR Y–7NS: 22; FR Y–7Q (quarterly): 1,170; FR Y–7Q (annual): 44. General description of report: The FR Y–7N and the FR Y–7NS are used to assess an FBO’s ability to be a continuing source of strength to its U.S. operations and to determine compliance with U.S. laws and regulations. FBOs file the FR Y–7N quarterly or annually or the FR Y–7NS annually predominantly based on asset size thresholds. The FR Y–7Q is used to assess consolidated regulatory capital and asset information from all FBOs. The FR Y–7Q is filed quarterly by FBOs that have effectively elected to become or be treated as a U.S. financial holding company (FHC) and by FBOs that have total consolidated assets of $50 billion or more, regardless of FHC status. All other FBOs file the FR Y–7Q annually. Legal authorization and confidentiality: With respect to FBOs and their subsidiary IHCs, section 5(c) of the BHC Act, in conjunction with section 8 of the International Banking Act (12 U.S.C. 3106), authorizes the board to require FBOs and any subsidiary thereof to file the FR Y–7N reports, and the FR Y–7Q. Information collected in these reports generally is not considered confidential. However, because the information is collected as part of the Board’s supervisory process, certain information may be afforded confidential treatment pursuant to exemption 8 of FOIA (5 U.S.C. 552(b)(8)). Individual respondents may request that certain data be afforded confidential treatment pursuant to exemption 4 of the FOIA if the data has not previously been publically 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)). Additionally, individual respondents may request that personally identifiable information be afforded confidential treatment pursuant to exemption 6 of the FOIA if the release of the information would constitute a clearly unwarranted invasion of personal privacy (5 U.S.C. 552(b)(6)). The applicability of FOIA exemptions 4 and 6 would be determined on a case-bycase basis. Current Actions: The proposal would amend the FR Y–7Q to align with revisions to the enhanced prudential standards rule. Currently, top-tier foreign banking organizations with $50 billion or more in total consolidated assets must report Part 1B—Capital and Asset Information for Top-tier Foreign Banking Organizations with Consolidated Assets of $50 billion or more. The proposal would now require top-tier foreign banking organizations E:\FR\FM\15MYP2.SGM 15MYP2 jbell on DSK3GLQ082PROD with PROPOSALS2 22014 Federal Register / Vol. 84, No. 94 / Wednesday, May 15, 2019 / Proposed Rules that are subject to either sections 252.143 or 252.154 of the enhanced prudential standards rule to report Part 1B. The Board estimates that proposed revisions to the FR Y–7Q would not impact the respondent count, but the estimated average hours per response would decrease from 3 hours to 2.25 hours. The Board estimates that proposed revisions to the FR Y–7Q would decrease the estimated annual burden by 390 hours. The draft reporting forms and instructions are available on the Board’s public website at https://www.federalreserve.gov/apps/ reportforms/review.aspx. (4) Report title: Consolidated Financial Statements for Holding Companies. Agency form number: FR Y–9C, FR Y– 9LP, FR Y–9SP, FR Y–9ES, and FR Y– 9CS. OMB control number: 7100–0128. Frequency: Quarterly, semiannually, and annually. Affected Public: Businesses or other for-profit. Respondents: Bank holding companies (BHCs), savings and loan holding companies (SLHCs), securities holding companies (SHCs), and U.S. Intermediate Holding Companies (IHCs) (collectively, holding companies (HCs)). Estimated number of respondents: FR Y–9C (non-advanced approaches holding companies): 292; FR Y–9C (advanced approached holding companies): 19; FR Y–9LP: 338; FR Y– 9SP: 4,238; FR Y–9ES: 82; FR Y–9CS: 236. Estimated average hours per response: FR Y–9C (non-advanced approaches holding companies): 46.34; FR Y–9C (advanced approached holding companies): 47.59; FR Y–9LP: 5.27; FR Y–9SP: 5.40; FR Y–9ES: 0.50; FR Y– 9CS: 0.50. Estimated annual burden hours: FR Y–9C (non advanced approaches holding companies): 54,125; FR Y–9C (advanced approached holding companies): 3,617; FR Y–9LP: 7,125; FR Y–9SP: 45,770; FR Y–9ES: 41; FR Y– 9CS: 472. General description of report: The FR Y–9 family of reporting forms continues to be the primary source of financial data on HCs on which examiners rely between on-site inspections. Financial data from these reporting forms is used to detect emerging financial problems, review performance, conduct preinspection analysis, monitor and evaluate capital adequacy, evaluate HC mergers and acquisitions, and analyze an HC’s overall financial condition to ensure the safety and soundness of its operations. The FR Y–9C, FR Y–9LP, and FR Y–9SP serve as standardized VerDate Sep<11>2014 19:09 May 14, 2019 Jkt 247001 financial statements for the consolidated holding company. The Board requires HCs to provide standardized financial statements to fulfill the Board’s statutory obligation to supervise these organizations. The FR Y–9ES is a financial statement for HCs that are Employee Stock Ownership Plans. The Board uses the FR Y–9CS (a free-form supplement) to collect additional information deemed to be critical and needed in an expedited manner. HCs file the FR Y–9C on a quarterly basis, the FR Y–9LP quarterly, the FR Y–9SP semiannually, the FR Y–9ES annually, and the FR Y–9CS on a schedule that is determined when this supplement is used. Legal authorization and confidentiality: The FR Y–9 family of reports is authorized by section 5(c) of the Bank Holding Company Act (12 U.S.C. 1844(c)), section 10(b) of the Home Owners’ Loan Act (12 U.S.C. 1467a(b)), section 618 of the DoddFrank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) (12 U.S.C. 1850a(c)(1)), and section 165 of the Dodd-Frank Act (12 U.S.C. 5365). The obligation of covered institutions to report this information is mandatory. With respect to FR Y–9LP, FR Y–9SP, FR Y–ES, and FR Y–9CS, the information collected would generally not be accorded confidential treatment. If confidential treatment is requested by a respondent, the Board will review the request to determine if confidential treatment is appropriate. With respect to FR Y–9C, Schedule HI’s item 7(g) ‘‘FDIC deposit insurance assessments,’’ Schedule HC–P’s item 7(a) ‘‘Representation and warranty reserves for 1–4 family residential mortgage loans sold to U.S. government agencies and government sponsored agencies,’’ and Schedule HC–P’s item 7(b) ‘‘Representation and warranty reserves for 1–4 family residential mortgage loans sold to other parties’’ are considered confidential. Such treatment is appropriate because the data is not publicly available and the public release of this data is likely to impair the Board’s ability to collect necessary information in the future and could cause substantial harm to the competitive position of the respondent. Thus, this information may be kept confidential under exemptions (b)(4) of the Freedom of Information Act, which exempts from disclosure ‘‘trade secrets and commercial or financial information obtained from a person and privileged or confidential’’ (5 U.S.C. 552(b)(4)), and (b)(8) of the Freedom of Information Act, which exempts from disclosure information related to examination, operating, or condition reports prepared PO 00000 Frm 00028 Fmt 4701 Sfmt 4702 by, on behalf of, or for the use of an agency responsible for the regulation or supervision of financial institutions (5 U.S.C. 552(b)(8)). Current Actions: To implement the reporting requirements of the proposed rule, the Board is proposing to amend the FR Y–9C to further clarify requirements for U.S. intermediate holding companies subject to Category III capital standards. This proposal would amend those instructions to further clarify that the supplementary leverage ratio and countercyclical buffer also apply to Category III bank holding companies, Category III savings and loan holding companies, and Category III U.S. intermediate holding companies. The Board estimates that proposed revisions to the FR Y–9C would increase the respondent count by 1. The draft reporting forms and instructions are available on the Board’s public website at https://www.federalreserve.gov/apps/ reportforms/review.aspx. (5) Report title: Capital Assessments and Stress Testing. Agency form number: FR Y–14A/Q/ M. OMB control number: 7100–0341. Frequency: Annually, semiannually, quarterly, and monthly. Affected Public: Businesses or other for-profit. Respondents: The respondent panel consists of any top-tier bank holding company (BHC) that has $100 billion or more in total consolidated assets, as determined based on (1) the average of the firm’s total consolidated assets in the four most recent quarters as reported quarterly on the firm’s FR Y–9C or (2) the average of the firm’s total consolidated assets in the most recent consecutive quarters as reported quarterly on the firm’s FR Y–9Cs, if the firm has not filed an FR Y–9C for each of the most recent four quarters. The respondent panel also consists of any U.S. intermediate holding company (IHC). Reporting is required as of the first day of the quarter immediately following the quarter in which the respondent meets this asset threshold, unless otherwise directed by the Board. Estimated number of respondents: 35. Estimated average hours per response: FR Y–14A: Summary, 887; Macro Scenario, 31; Operational Risk, 18; Regulatory Capital Instruments, 21; Business Plan Changes, 16; and Adjusted Capital Plan Submission, 100. FR Y–14Q: Retail, 15; Securities, 13; PPNR, 711; Wholesale, 151; Trading, 1,926; Regulatory Capital Transitions, 23; Regulatory Capital Instruments, 54; Operational Risk, 50; MSR Valuation, 23; Supplemental, 4; Retail FVO/HFS, 15; Counterparty, 514; and Balances, 16. E:\FR\FM\15MYP2.SGM 15MYP2 jbell on DSK3GLQ082PROD with PROPOSALS2 Federal Register / Vol. 84, No. 94 / Wednesday, May 15, 2019 / Proposed Rules FR Y–14M: 1st Lien Mortgage, 516; Home Equity, 516; and Credit Card, 512. FR Y–14: Implementation, 7,200; Ongoing Automation Revisions, 480. FR Y–14 Attestation—Implementation, 4,800; Attestation On-going Audit and Review, 2,560. Estimated annual burden hours: FR Y–14A: Summary, 62,090; Macro Scenario, 2,170; Operational Risk, 630; Regulatory Capital Instruments, 735; Business Plan Changes, 560; and Adjusted Capital Plan Submission, 500. FR Y–14Q: Retail, 2,100; Securities, 1,820; Pre-Provision Net Revenue (PPNR), 99,540; Wholesale, 21,140; Trading, 92,448; Regulatory Capital Transitions, 3,220; Regulatory Capital Instruments, 7,560; Operational risk, 7,000; Mortgage Servicing Rights (MSR) Valuation, 1,380; Supplemental, 560; Retail Fair Value Option/Held for Sale (Retail FVO/HFS), 1,500; Counterparty, 24,672; and Balances, 2,240. FR Y–14M: 1st Lien Mortgage, 204,336; Home Equity, 167,184; and Credit Card, 79,872. FR Y–14: Implementation, and On-going Automation Revisions, 16,800. FR Y–14 Attestation On-going Audit and Review, 33,280. General description of report: These collections of information are applicable to top-tier BHCs with total consolidated assets of $100 billion or more and U.S. IHCs. This family of information collections is composed of the following three reports: 1. The FR Y–14A collects quantitative projections of balance sheet, income, losses, and capital across a range of macroeconomic scenarios and qualitative information on methodologies used to develop internal projections of capital across scenarios either annually or semi-annually. 2. The quarterly FR Y–14Q collects granular data on various asset classes, including loans, securities, and trading assets, and PPNR for the reporting period. 3. The monthly FR Y–14M is comprised of three retail portfolio- and loan-level schedules, and one detailed address-matching schedule to supplement two of the portfolio and loan-level schedules. The data collected through the FR Y– 14A/Q/M reports provide the Board with the information and perspective needed to help ensure that large firms have strong, firm-wide risk measurement and management processes supporting their internal assessments of capital adequacy and that their capital resources are sufficient given their business focus, activities, and resulting risk exposures. The annual CCAR exercise complements other Board supervisory efforts aimed at VerDate Sep<11>2014 19:09 May 14, 2019 Jkt 247001 enhancing the continued viability of large firms, including continuous monitoring of firms’ planning and management of liquidity and funding resources, as well as regular assessments of credit, market and operational risks, and associated risk management practices. Information gathered in this data collection is also used in the supervision and regulation of these financial institutions. To fully evaluate the data submissions, the Board may conduct follow-up discussions with, or request responses to follow up questions from, respondents. Respondent firms are currently required to complete and submit up to 18 filings each year: Two semi-annual FR Y–14A filings, four quarterly FR Y–14Q filings, and 12 monthly FR Y–14M filings. Compliance with the information collection is mandatory. Legal authorization and confidentiality: The Board has the authority to require BHCs to file the FR Y–14A/Q/M reports pursuant to section 5 of the Bank Holding Company Act (BHC Act) (12 U.S.C. 1844), and to require the U.S. IHCs of FBOs to file the FR Y–14 A/Q/M reports pursuant to section 5 of the BHC Act, in conjunction with section 8 of the International Banking Act (12 U.S.C. 3106). The Board has authority to require SLHCs to file the FR Y–14A/Q/M reports pursuant to section 10 of HOLA (12 U.S.C. 1467a). 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 Actions: To implement the reporting requirements of the proposed rule, the Board proposes to revise the FR Y–14 threshold for U.S. intermediate holding companies that would be required to submit these forms, by increasing it to apply only U.S. intermediate holding companies with $100 billion or more in total consolidated assets. U.S. intermediate holding companies below this size threshold would no longer be required to submit these forms. The Board estimates that proposed revisions to the PO 00000 Frm 00029 Fmt 4701 Sfmt 4702 22015 FR Y–14 would decrease the reporting panel by 1 respondent. The draft reporting forms and instructions are available on the Board’s public website at https://www.federalreserve.gov/apps/ reportforms/review.aspx. (6) Report title: Banking Organization Systemic Risk Report. Agency form number: FR Y–15. OMB control number: 7100–0352. Frequency: Quarterly. Affected Public: Businesses or other for-profit. Respondents: U.S. bank holding companies (BHCs), covered savings and loan holding companies (SLHCs), and U.S. intermediate holding companies (IHCs) of foreign banking organizations with $100 billion or more in total consolidated assets, and any BHC designated as a global systemically important bank holding company (GSIB) that does not otherwise meet the consolidated assets threshold for BHCs. Estimated number of respondents: 42. Estimated average hours per response: 408.01. Estimated annual burden hours: 68,546. General description of report: The FR Y–15 quarterly report collects systemic risk data from U.S. bank holding companies (BHCs), covered savings and loan holding companies (SLHCs), and U.S. intermediate holding companies (IHCs) with total consolidated assets of $50 billion or more, and any BHC identified as a global systemically important banking organization (GSIB) based on its method 1 score calculated as of December 31 of the previous calendar year. The Board uses the FR Y– 15 data to monitor, on an ongoing basis, the systemic risk profile of institutions that are subject to enhanced prudential standards under section 165 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act). In addition, the FR Y–15 is used to (1) facilitate the implementation of the GSIB surcharge rule, (2) identify other institutions that may present significant systemic risk, and (3) analyze the systemic risk implications of proposed mergers and acquisitions. Legal authorization and confidentiality: The mandatory FR Y–15 is authorized by sections 163 and 165 of the Dodd-Frank Act (12 U.S.C. 5463 and 5365), the International Banking Act (12 U.S.C. 3106 and 3108), the Bank Holding Company Act (12 U.S.C. 1844), and HOLA (12 U.S.C. 1467a). Most of the data collected on the FR Y–15 is made public unless a specific request for confidentiality is submitted by the reporting entity, either on the FR Y–15 or on the form from which the data item is obtained. Such information E:\FR\FM\15MYP2.SGM 15MYP2 jbell on DSK3GLQ082PROD with PROPOSALS2 22016 Federal Register / Vol. 84, No. 94 / Wednesday, May 15, 2019 / Proposed Rules will be accorded confidential treatment under exemption 4 of the Freedom of Information Act (FOIA) (5 U.S.C. 552(b)(4)) if the submitter substantiates its assertion that disclosure would likely cause substantial competitive harm. In addition, items 1 through 4 of Schedule G of the FR Y–15, which contain granular information regarding the reporting entity’s short-term funding, will be accorded confidential treatment under exemption 4 for observation dates that occur prior to the liquidity coverage ratio disclosure standard being implemented. To the extent confidential data collected under the FR Y–15 will be used for supervisory purposes, it may be exempt from disclosure under Exemption 8 of FOIA (5 U.S.C. 552(b)(8)). Current Actions: To implement the reporting requirements of the proposed rule, the Board is proposing to modify the FR Y–15 report to require a foreign banking organization to report data for its combined U.S. operations that are related to the criteria for determining the applicability of enhanced prudential standards under this proposal. Foreign banking organizations would be required to report the information required under new schedules H through N of the FR Y–15, which would replicate schedules A through F of the current FR Y–15 for domestic holding companies (with the exception of crossjurisdictional activity, as discussed below).121 Schedules H through N would be structured to include three columns, in which a foreign banking organization would report the information request for each item for (i) its U.S. intermediate holding company, (ii) its U.S. branch and agency network, and (iii) its combined U.S. operations. Consistent with the domestic proposal, the proposal would add two line items to Schedule H of the FR Y–15 to calculate total off-balance sheet exposure. New line item M4 (total consolidated assets) would report the total consolidated on-balance sheet assets for the respondent, as calculated under Schedule HC, item 12 (total consolidated assets) on the FR Y–9C. New line item M5 (total off-balance sheet exposures) would be total exposure, as currently defined on the FR Y–15, minus line item M4. For purposes of reporting cross-jurisdictional activity, the FR Y–15 would require foreign banking organizations to report assets and liabilities of the U.S. intermediate holding company and U.S. branch and agency network, excluding cross121 U.S. intermediate holding companies would no longer be required to report on schedules A through G of the FR Y–15. VerDate Sep<11>2014 19:09 May 14, 2019 Jkt 247001 jurisdictional liabilities to non-U.S. affiliates and cross-jurisdictional claims on non-U.S. affiliates to the extent that these claims are secured by eligible financial collateral. To effectuate this change, the proposal would add new line items to proposed Schedule L and amend the instructions accordingly. The proposal would clarify that Line Item 2(a) should be completed only with respect to the U.S. intermediate holding company’s liabilities to its foreign subsidiaries, if any, and not liabilities to non-U.S. affiliates of the foreign banking organization not held by the U.S. intermediate holding company. Line Item 2(a) would be left blank for the U.S. branch or agency. The Board estimates that the proposed changes to the FR Y–15 would increase the respondent count by 5 respondents. The Board also estimates that proposed revisions to the FR Y–15 would increase the estimated average hours per response by 7.01 hours and would increase the estimated annual burden by 9,198 hours. The draft reporting forms and instructions are available on the Board’s public website at https:// www.federalreserve.gov/apps/ reportforms/review.aspx. (7) Report title: Reporting and Recordkeeping Requirements Associated with Regulation Y (Capital Plans). Agency form number: FR Y–13. OMB control number: 7100–0342. Frequency: Annually. Affected Public: Businesses or other for-profit. Respondents: BHCs and IHCs. Estimated number of respondents: 36. Estimated average hours per response: Annual capital planning reporting (225.8(e)(1)(ii)), 80 hours; data collections reporting (225.8(e)(3)), 1,005 hours; data collections reporting (225.8(e)(4)), 100 hours; review of capital plans by the Federal Reserve reporting (225.8(f)(3)(i)), 16 hours; prior approval request requirements reporting (225.8(g)(1), (3), & (4)), 100 hours; prior approval request requirements exceptions (225.8(g)(3)(iii)(A)), 16 hours; prior approval request requirements reports (225.8(g)(6)), 16 hours; annual capital planning recordkeeping (225.8(e)(1)(i)) (LISCC and large and complex firms), 11,920 hours; annual capital planning recordkeeping (225.8(c)(1)(i)) (large and noncomplex firms), 8,920 hours; annual capital planning recordkeeping (225.8(e)(1)(iii)), 100 hours. Estimated annual burden hours: Annual capital planning reporting (225.8(e)(1)(ii)), 2,720 hours; data collections reporting (225.8(e)(3)), 25,125 hours; data collections reporting PO 00000 Frm 00030 Fmt 4701 Sfmt 4702 (225.8(e)(4)), 1,000 hours; review of capital plans by the Federal Reserve reporting (225.8(f)(3)(i)), 32 hours; prior approval request requirements reporting (225.8(g)(1), (3), & (4)), 2,300 hours; prior approval request requirements exceptions (225.8(g)(3)(iii)(A)), 32 hours; prior approval request requirements reports (225.8(g)(6)), 32 hours; annual capital planning recordkeeping (225.8(e)(1)(i)) (LISCC and large and complex firms), 214,560 hours; annual capital planning recordkeeping (225.8(c)(1)(i)) (large and noncomplex firms), 142,720 hours; annual capital planning recordkeeping (225.8(e)(1)(iii)), 3,400 hours. General description of report: Regulation Y (12 CFR part 225) requires large bank holding companies (BHCs) to submit capital plans to the Federal Reserve on an annual basis and to require such BHCs to request prior approval from the Federal Reserve under certain circumstances before making a capital distribution. Current Actions: This proposal and the Board’s proposal on prudential standards for domestic banking organizations (83 FR 61408) would make various changes to the Board’s capital plan rule. First, the threshold for application of § 225.8 would be raised from bank holding companies with $50 billion or more in total consolidated assets to bank holding companies with $100 billion or more in total consolidated assets. Second, the proposals would amend the definition of ‘‘large and noncomplex bank holding company’’ to be Category IV banking organizations, pursuant to 12 CFR 252.5. The proposed changes would reduce the panels for various provisions in § 225.8. (8) Title of Information Collection: Reporting Requirements Associated with Regulation LL. Agency Form Number: FR LL. OMB control number: 7100–NEW. Frequency: Biennial. Affected Public: Businesses or other for-profit. Respondents: Savings and loan holding companies. Description of the Information Collection: Section 252.122(b)(1)(iii) of the Board’s Regulation YY currently requires, unless the Board otherwise determines in writing, a foreign savings and loan holding company with more than $10 billion in total consolidated assets that does not meet applicable home-country stress testing standards to report on an annual basis a summary of the results of the stress test to the Board. Current Actions: The Board proposes to move the requirement for foreign savings and loan holding companies currently in § 252.122(b)(1)(iii) of E:\FR\FM\15MYP2.SGM 15MYP2 jbell on DSK3GLQ082PROD with PROPOSALS2 Federal Register / Vol. 84, No. 94 / Wednesday, May 15, 2019 / Proposed Rules Regulation YY into the proposed § 238.162(b)(1)(ii) of Regulation LL. In doing so, the Board proposes to amend the frequency of the reporting requirement in proposed § 238.162(b)(1)(ii) from annual to at least biennial. The Board also proposes to raise the threshold for applicability of section 238.162 from more than $10 billion in total consolidated assets to more than $250 billion in total consolidated assets. 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: 1.122 Estimated average hours per response: 80. Estimated annual burden hours: 40. (8) Title of Information Collection: Reporting, Recordkeeping, and Disclosure Requirements Associated with Regulation YY (Enhanced Prudential Standards). Agency Form Number: FR YY. OMB Control Number: 7100–0350. Frequency of Response: Annual, semiannual, 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 saving and loan holding companies, and foreign nonbank financial companies supervised by the Board. Number of respondents: 24 U.S. bank holding companies with total consolidated assets of $50 billion or more, 46 U.S. bank holding companies with total consolidated assets over $10 billion and less than $50 billion, 21 state member banks with total consolidated assets over $10 billion, 39 savings and loan holding companies with total consolidated assets over $10 billion, 24 foreign banking organizations with total consolidated assets of $50 billion or more and combined U.S. assets of $50 billion or more, 17 U.S. intermediate holding companies, and 102 foreign banking organizations with total consolidated assets of more than $10 billion and combined U.S. assets of less than $50 billion. 122 Currently, there are no foreign savings and loan holding companies in existence. For PRA purposes, ‘‘1’’ is used as a placeholder. VerDate Sep<11>2014 19:09 May 14, 2019 Jkt 247001 Description of the Information Collection: Section 165 of the DoddFrank Act, as amended by EGRRCPA, requires the Board to implement enhanced prudential standards for bank holding companies and foreign banking organizations with total consolidated assets of $250 billion or more, and provides the Board with discretion to apply enhanced prudential standards to certain bank holding companies and foreign banking organizations with $100 billion or more, but less than $250 billion, in total consolidated assets. The enhanced prudential standards include risk-based and leverage capital requirements, liquidity standards, requirements for overall risk management (including establishing a risk committee), stress test requirements, and debt-to-equity limits for companies that the Financial Stability Oversight Council has determined pose a grave threat to financial stability. Current Actions: As described below, the Board is amending reporting, recordkeeping and disclosure requirements in Regulation YY to be consistent with EGRRCPA’s changes to section 165 of the Dodd-Frank; the Board’s proposal to amend prudential standards for domestic banking organizations (83 FR 61408); and the proposal described in this Federal Register document, which amends prudential standards for foreign banking organizations and foreign savings and loan holding companies. Subpart D—The domestic proposal proposed to change applicability thresholds for application of subpart D from bank holding companies with $50 billion or more in total consolidated assets to bank holding companies with $100 billion or more in total consolidated. In doing so, the number of respondents for collections of information in §§ 252.34 and 252.35 would decrease. Additionally, the burden hours for compliance with §§ 252.34(h)(1) and (3) would be reduced. Section 252.34(h)(1) would require a bank holding company with total consolidated assets of $100 billion or more to establish and maintain policies and procedures to monitor assets that have been, or are available to be, pledged as collateral in connection with transactions to which it or its affiliates are counterparties and sets forth minimum standards for those procedures. Category IV bank holding companies would be required to calculate their collateral positions on a monthly basis; all other bank holding companies subject to the section would be required to calculate their collateral positions on a weekly basis. Currently, PO 00000 Frm 00031 Fmt 4701 Sfmt 4702 22017 all bank holding companies subject to this provision must calculate collateral positions weekly (or more frequently, as directed by the Board). Section 252.34(h)(3) would require a bank holding company with total consolidated assets of $100 billion or more to establish and maintain procedures for monitoring intraday liquidity risk exposure that are consistent with the bank holding company’s capital structure, risk profile, complexity, activities, and size. If the bank holding company is a global systemically important bank holding company, Category II bank holding company, or a Category III bank holding company, these procedures must address how the management of the bank holding company will: (1) Monitor and measure expected daily gross liquidity inflows and outflows; (2) manage and transfer collateral to obtain intraday credit; (3) identify and prioritize time-specific obligations so that the bank holding company can meet these obligations as expected and settle less critical obligations as soon as possible; (4) manage the issuance of credit to customers where necessary; and (5) consider the amounts of collateral and liquidity needed to meet payment systems obligations when assessing the bank holding company’s overall liquidity needs. Category IV bank holding companies would not be subject to the proscriptive language. Subpart L—The proposal would eliminate subpart L. In doing so, the proposal would eliminate § 252.122(b)(1)(iii), which currently requires, unless the Board otherwise determines in writing, a foreign banking organization with total consolidated assets of more than $10 billion but less than $50 billion or a foreign savings and loan holding company with total consolidated assets of more than $10 billion that does not meet the homecountry stress testing standards set forth in the rule to report on an annual basis a summary of the results of the stress test to the Board. This requirement would continue to exist for foreign banking organizations with total consolidated assets of more than $100 billion in proposed §§ 252.146 and 252.158 of Regulation YY, and for a foreign savings and loan holding company with total consolidated assets of more than $250 billion in proposed § 238.162 of Regulation LL. Subpart M—The proposal would change the applicability thresholds for application of subpart M from foreign banking organizations with between $10 and $50 billion in total consolidated assets to foreign banking organizations with between $50 and $100 billion in E:\FR\FM\15MYP2.SGM 15MYP2 jbell on DSK3GLQ082PROD with PROPOSALS2 22018 Federal Register / Vol. 84, No. 94 / Wednesday, May 15, 2019 / Proposed Rules total consolidated assets. In doing so, the number of respondents for collections of information in § 252.132 would decrease. Subpart N—The proposal would change the applicability thresholds for application of subpart N from foreign banking organizations with $50 billion or more in total consolidated assets but combined U.S. assets of less than $50 billion to foreign banking organizations with $100 billion or more in total consolidated assets but combined U.S. assets of less than $100 billion. In doing so, the number of respondents for collections of information in §§ 252.143, 252.144, 252.145, 252.146, 252.154, 252.157, and 252.158 would decrease. Moreover, some of the requirements in subpart N would only apply to foreign banking organizations with $250 billion or more in total consolidated assets. These provisions include §§ 252.143(a) and 252.145(a). Subpart O—The proposal would change the applicability thresholds for application of subpart O from foreign banking organizations with $50 billion or more in total consolidated assets and combined U.S. assets of $50 billion or more to foreign banking organizations with $100 billion or more in total consolidated assets and combined U.S. assets of $100 billion or more. In doing so, the number of respondents for collections of information in §§ 252.153, 252.156, and 252.157 would decrease. The proposal would also eliminate implementation plans in § 252.153(d), which would result in a reduction of annual burden hours. The burden hours for compliance with § 252.156(g)(1) and (3) also would be reduced. Section 252.156(g)(1) would require a foreign banking organization with combined U.S. assets of $100 billion or more to establish and maintain policies and procedures to monitor assets that have been or are available to be pledged as collateral in connection with transactions to which entities in its U.S. operations are counterparties. Previously, all foreign banking organizations subject to this provision were required to calculate collateral positions on a weekly basis (or more frequently, as directed by the Board). As proposed, Category IV foreign banking organizations companies would calculate all of the collateral positions for its combined U.S. operations on a monthly basis; all other foreign banking organizations with at least $100 billion in combined U.S. assets would calculate on a weekly basis. Section 252.156(g)(3) would require a foreign banking organization with combined U.S. assets of $100 billion or VerDate Sep<11>2014 19:09 May 14, 2019 Jkt 247001 more to establish and maintain procedures for monitoring intraday liquidity risk exposure for its combined U.S. operations that are consistent with the capital structure, risk profile, complexity, activities, and size of the foreign banking organization and its combined U.S. operations. If the foreign banking organization is a Category II foreign banking organization or a Category III foreign banking organization, these procedures must address how the management of the combined U.S. operations will: (1) Monitor and measure expected gross daily inflows and outflows; (2) manage and transfer collateral to obtain intraday credit; (3) identify and prioritize timespecific obligations so that the foreign banking organizations can meet these obligations as expected and settle less critical obligations as soon as possible; (4) manage the issuance of credit to customers where necessary; and (5) consider the amounts of collateral and liquidity needed to meet payment systems obligations when assessing the overall liquidity needs of the combined U.S. operations. Category IV foreign banking organizations would not be subject to the proscriptive language. Current estimated annual burden: 41,619 hours. Proposed revisions estimated annual burden: (11,238) hours. Total estimated annual burden: 30,381 hours. C. Regulatory Flexibility Act Analysis 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.123 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 banking organization).124 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 number of small banking organizations As discussed in the SUPPLEMENTARY INFORMATION section, the Board is proposing to adopt amendments to Regulations Q,125 Y,126 LL,127 and YY 128 that would affect the regulatory requirements that apply to foreign banking organizations and foreign savings and loan holding companies with more than $10 billion in total consolidated assets and U.S. depository institution holding companies with $100 billion or more in total consolidated assets. Therefore, companies that are affected by the proposal substantially exceed the $550 million asset threshold at which a banking entity is considered a ‘‘small entity’’ under SBA regulations. Because the proposal is not likely to apply to any company with assets of $550 million or less if adopted in final form, the proposal is not expected to affect any small entity for purposes of the RFA. 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. Nonetheless, the Board seeks comment on whether the proposal would impose undue burdens on, or have unintended consequences for, small banking organizations, and whether there are ways such potential burdens or consequences could be minimized in a manner consistent the purpose of the proposal. List of Subjects 12 CFR Part 217 Administrative practice and procedure, Banks, Banking, Capital, Federal Reserve System, Holding companies, Reporting and recordkeeping requirements, Risk, Securities. 12 CFR Part 225 Administrative practice and procedure, Banks, Banking, Capital planning, Holding companies, Reporting and recordkeeping requirements, Securities, Stress testing. 12 CFR Part 238 Administrative practice and procedure, Banks, Banking, Federal Reserve System, Reporting and recordkeeping requirements, Securities. 12 CFR Part 252 Administrative practice and procedure, Banks, Banking, Capital planning, Federal Reserve System, 125 12 CFR part 217. CFR part 225. 127 12 CFR part 238. 128 12 CFR part 252. 126 12 123 See 124 See PO 00000 5 U.S.C. 603, 604, and 605. 13 CFR 121.201. Frm 00032 Fmt 4701 Sfmt 4702 E:\FR\FM\15MYP2.SGM 15MYP2 Federal Register / Vol. 84, No. 94 / Wednesday, May 15, 2019 / Proposed Rules Holding companies, Reporting and recordkeeping requirements, Securities, Stress testing. Authority and Issuance For the reasons stated in the Supplementary Information, 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) 1. 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–1, 1831w, 1835, 1844(b), 1851, 3904, 3906–3909, 4808, 5365, 5368, 5371. Subpart H—Risk-based Capital Surcharge for Global Systemically Important Bank Holding Companies 2. Amend § 217.400 by: a. Revising paragraph (b)(1); b. Removing the text to paragraph (b)(2) introductory text; ■ c. Revising paragraph (b)(2)(i); and ■ d. Removing paragraph (b)(3). The revisions read as follows: ■ ■ ■ § 217.400 Purpose and applicability. * * * * (b) * * * (1) General. This subpart applies to a bank holding company that: (i) Is an advanced approaches Boardregulated institution or a Category III Board-regulated institution; (ii) Is not a consolidated subsidiary of a bank holding company; and (iii) Is not a consolidated subsidiary of a foreign banking organization. (2) * * * (i) A bank holding company identified in § 217.400(b)(1) is subject to § 217.402 of this part and must determine whether it qualifies as a global systemically important BHC beginning the year immediately following the year in which the bank holding company becomes an advanced approaches Board-regulated institution or a Category III Board-regulated institution; * * * * * jbell on DSK3GLQ082PROD with PROPOSALS2 * PART 225—BANK HOLDING COMPANIES AND CHANGE IN BANK CONTROL (REGULATION Y) 3907, and 3909; 15 U.S.C. 1681s, 1681w, 6801 and 6805. Subpart A—General Provisions 4. In § 225.8, as proposed to be amended at 83 FR 61408 (November 29, 2018), is further amended by revising paragraph (c) and paragraph (d)(9) to read as follows: ■ § 225.8 Capital planning. * * * * * (c) Transitional arrangements— Transition periods for certain bank holding companies. (1) A bank holding company that meets the $100 billion asset threshold (as measured under paragraph (b) of this section) on or before September 30 of a calendar year must comply with the requirements of this section beginning on January 1 of the next calendar year, unless that time is extended by the Board in writing. (2) A bank holding company that meets the $100 billion asset threshold after September 30 of a calendar year must comply with the requirements of this section beginning on January 1 of the second calendar year after the bank holding company meets the $100 billion asset threshold, unless that time is extended by the Board in writing. (3) The Board or the appropriate Reserve Bank with the concurrence of the Board, may require a bank holding company described in paragraph (c)(1)(i) or (ii) of this section to comply with any or all of the requirements in paragraphs (e)(1), (e)(3), (f), or (g) of this section if the Board or appropriate Reserve Bank with concurrence of the Board, determines that the requirement is appropriate on a different date based on the company’s risk profile, scope of operation, or financial condition and provides prior notice to the company of the determination (d) * * * (9) Large and noncomplex bank holding company means any bank holding company subject to this section that, as of December 31 of the calendar year prior to the capital plan cycle, is identified as a Category IV banking organization pursuant to 12 CFR 252.5. * * * * * PART 238—SAVINGS AND LOAN HOLDING COMPANIES (REGULATION LL) ■ 5. The authority citation for part 238 continues to read as follows: Authority: 12 U.S.C. 1817(j)(13), 1818, 1828(o), 1831i, 1831p-1, 1843(c)(8), 1844(b), 1972(1), 3106, 3108, 3310, 3331–3351, 3906, 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. ■ 3. The authority citation for part 225 continues to read as follows: VerDate Sep<11>2014 19:09 May 14, 2019 Jkt 247001 PO 00000 Frm 00033 Fmt 4701 Sfmt 4702 22019 Subpart N—Risk Committee, Liquidity Risk Management, and Liquidity Buffer Requirements for Covered Savings and Loan Holding Companies With Total Consolidated Assets of $100 Billion or More 6. Section 238.124, as proposed to be added at 83 FR 61408 (November 29, 2018), is further amended by adding paragraph (a)(8) to read as follows: ■ § 238.124 Liquidity stress testing and buffer requirements (a) * * * (8) Notice and Response. (i) If the Board determines that a savings and loan holding company must conduct liquidity stress tests according to a frequency other than the frequency provided in paragraphs (a)(2)(i) and (ii) of this section, the Board will notify the savings and loan holding company before the change in frequency takes effect, and describe the basis for its determination. Within 14 calendar days of receipt of a notification under this paragraph, the savings and loan holding company may request in writing that the Board reconsider the requirement. The Board will respond in writing to the company’s request for reconsideration prior to requiring the company conduct liquidity stress tests according to a frequency other than the frequency provided in paragraphs (a)(2)(i) and (ii) of this section. * * * * * ■ 7. Add subpart R to read as follows: Subpart R—Company-Run Stress Test Requirements for Foreign Savings and Loan Holding Companies With Total Consolidated Assets Over $250 Billion Sec. 238.160 Definitions. 238.161 Applicability. 238.162 Capital stress testing requirements. Subpart R—Company-Run Stress Test Requirements for Foreign Savings and Loan Holding Companies With Total Consolidated Assets Over $250 Billion § 238.160 Definitions. For purposes of this subpart, the following definitions apply: (a) Foreign savings and loan holding company means a savings and loan holding company as defined in section 10 of the Home Owners’ Loan Act (12 U.S.C. 1467a(a)) that is incorporated or organized under the laws of a country other than the United States. (b) Pre-provision net revenue means revenue less expenses before adjusting for total loan loss provisions. (c) Stress test cycle has the same meaning as in subpart O of this part. (d) Total loan loss provisions means the amount needed to make reserves E:\FR\FM\15MYP2.SGM 15MYP2 22020 Federal Register / Vol. 84, No. 94 / Wednesday, May 15, 2019 / Proposed Rules adequate to absorb estimated credit losses, based upon management’s evaluation of the loans and leases that the company has the intent and ability to hold for the foreseeable future or until maturity or payoff, as determined under applicable accounting standards. § 238.161 Applicability. (a) Applicability for foreign savings and loan holding companies with total consolidated assets of more than $250 billion—(1) General. A foreign savings and loan holding company must comply with the stress test requirements set forth in this section beginning on the first day of the ninth quarter following the date on which its total consolidated assets exceed $250 billion. (2) Total consolidated assets. Total consolidated assets of a foreign savings and loan holding company for purposes of this subpart are equal to the average of total assets for the four most recent calendar quarters as reported by the foreign savings and loan holding company on its applicable regulatory report. If the foreign savings and loan holding company has reported total consolidated assets for the four most recent calendar quarters, total consolidated assets are equal to the average of total consolidated assets as reported for the most recent quarter or quarters, or most recent year. (3) Cessation of requirements. A foreign savings and loan holding company will remain subject to requirements of this subpart until the date on which the foreign savings and loan holding company’s total consolidated assets are below $250 billion for each of four most recent calendar quarters. (b) [Reserved] jbell on DSK3GLQ082PROD with PROPOSALS2 § 238.162 Capital stress testing requirements. 19:09 May 14, 2019 Jkt 247001 PART 252—ENHANCED PRUDENTIAL STANDARDS (REGULATION YY) 8. The authority citation for part 252 continues to read as follows: ■ (a) In general. (1) A foreign savings and loan holding company with total consolidated assets of more than $250 billion must: (i) Be subject on a consolidated basis to a capital stress testing regime by its home-country supervisor that meets the requirements of paragraph (a)(2) of this section; and (ii) Conduct such stress tests or be subject to a supervisory stress test and meet any minimum standards set by its home-country supervisor with respect to the stress tests. (2) The capital stress testing regime of a foreign savings and loan holding company’s home-country supervisor must include: (i) A supervisory capital stress test conducted by the relevant home-country supervisor or an evaluation and review VerDate Sep<11>2014 by the home-country supervisor of an internal capital adequacy stress test conducted by the foreign savings and loan holding company, conducted on at least a biennial basis; and (ii) Requirements for governance and controls of stress testing practices by relevant management and the board of directors (or equivalent thereof). (b) Additional standards. (1) Unless the Board otherwise determines in writing, a foreign savings and loan holding company that does not meet each of the requirements in paragraphs (a)(1) and (2) of this section must: (i) Conduct an annual stress test of its U.S. subsidiaries to determine whether those subsidiaries have the capital necessary to absorb losses as a result of adverse economic conditions; and (ii) Report on at least a biennial basis a summary of the results of the stress test to the Board that includes a description of the types of risks included in the stress test, a description of the conditions or scenarios used in the stress test, a summary description of the methodologies used in the stress test, estimates of aggregate losses, preprovision net revenue, total loan loss provisions, net income before taxes and pro forma regulatory capital ratios required to be computed by the homecountry supervisor of the foreign savings and loan holding company and any other relevant capital ratios, and an explanation of the most significant causes for any changes in regulatory capital ratios. (2) An enterprise-wide stress test that is approved by the Board may meet the stress test requirement of paragraph (b)(1)(ii) of this section. 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. Subpart A—General Provisions 9. Amend § 252.1 by adding paragraph (c) to read as follows: ■ § 252.1 Authority and purpose. * * * * * (c) Reservation of authority. The Board may permit a foreign banking organization to comply with the requirements of this part through a subsidiary foreign bank or company of the foreign banking organization. In making this determination, the Board shall consider: PO 00000 Frm 00034 Fmt 4701 Sfmt 4702 (1) The ownership structure of the foreign banking organization, including whether the foreign banking organization is owned or controlled by a foreign government; (2) Whether the action would be consistent with the purposes of this part; and (3) Any other factors that the Board determines are relevant. ■ 10. Revise § 252.2 to read as follows: § 252.2 Definitions. Unless otherwise specified, the following definitions apply for purposes of this part: Affiliate has the same meaning as in section 2(k) of the Bank Holding Company Act (12 U.S.C. 1841(k)) and § 225.2(a) of this chapter. Applicable accounting standards means U.S. generally accepted accounting principles, international financial reporting standards, or such other accounting standards that a company uses in the ordinary course of its business in preparing its consolidated financial statements. Average combined U.S. assets means the average of combined U.S. assets for the four most recent calendar quarters or, if the banking organization has not reported combined U.S. assets for each of the four most recent calendar quarters, the average of combined U.S. assets for the most recent calendar quarter or quarters, as applicable. Average cross-jurisdictional activity means the average of cross-jurisdictional activity for the four most recent calendar quarters or, if the banking organization has not reported crossjurisdictional activity for each of the four most recent calendar quarters, the average of cross-jurisdictional activity for the most recent calendar quarter or quarters, as applicable. Average off-balance sheet exposure means the average of off-balance sheet exposure for the four most recent calendar quarters or, if the banking organization has not reported total exposure and total consolidated assets for each of the four most recent calendar quarters, the average of off-balance sheet exposure for the most recent calendar quarter or quarters, as applicable. Average total consolidated assets means the average of total consolidated assets for the four most recent calendar quarters or, if the banking organization has not reported total consolidated assets for each of the four most recent calendar quarters, the average of total consolidated assets for the most recent calendar quarter or quarters, as applicable. Average total nonbank assets means the average of total nonbank assets for E:\FR\FM\15MYP2.SGM 15MYP2 jbell on DSK3GLQ082PROD with PROPOSALS2 Federal Register / Vol. 84, No. 94 / Wednesday, May 15, 2019 / Proposed Rules the four most recent calendar quarters or, if the banking organization has not reported or calculated total nonbank assets for each of the four most recent calendar quarters, the average of total nonbank assets for the most recent calendar quarter or quarters, as applicable. Average weighted short-term wholesale funding means the average of weighted short-term wholesale funding for each of the four most recent calendar quarters or, if the banking organization has not reported weighted short-term wholesale funding for each of the four most recent calendar quarters, the average of weighted short-term wholesale funding for the most recent quarter or quarters, as applicable. Bank holding company has the same meaning as in section 2(a) of the Bank Holding Company Act (12 U.S.C. 1841(a)) and § 225.2(c) of this chapter. Banking organization means: (1) A bank holding company that is a U.S. bank holding company, which means a bank holding company that is: (i) Incorporated in or organized under the laws of the United States or in any State; and (ii) Not a consolidated subsidiary of a bank holding company that is incorporated in or organized under the laws of the United States or in any State; (2) A U.S. intermediate holding company; or (3) A foreign banking organization. Board means the Board of Governors of the Federal Reserve System. Category II bank holding company means a U.S. bank holding company identified as a Category II banking organization pursuant to § 252.5. Category II foreign banking organization means a foreign banking organization identified as a Category II banking organization pursuant to § 252.5. Category II U.S. intermediate holding company means a U.S. intermediate holding company identified as a Category II banking organization pursuant to § 252.5. Category III bank holding company means a U.S. bank holding company identified as a Category III banking organization pursuant to § 252.5. Category III foreign banking organization means a foreign banking organization identified as a Category III banking organization pursuant to § 252.5. Category III U.S. intermediate holding company means a U.S. intermediate holding company identified as a Category III banking organization pursuant to § 252.5. Category IV bank holding company means a U.S. bank holding company VerDate Sep<11>2014 19:09 May 14, 2019 Jkt 247001 identified as a Category IV banking organization pursuant to § 252.5. Category IV foreign banking organization means a foreign banking organization identified as a Category IV banking organization pursuant to § 252.5. Category IV U.S. intermediate holding company means a U.S. intermediate holding company identified as a Category IV banking organization pursuant to § 252.5. Combined U.S. assets means the sum of the consolidated assets of each toptier U.S. subsidiary of the foreign banking organization (excluding any section 2(h)(2) company, if applicable) and the total assets of each U.S. branch and U.S. agency of the foreign banking organization, as reported by the foreign banking organization on the FR Y–7Q. Combined U.S. operations means: (1) The U.S. branches and agencies of the foreign banking organization, if any; and (2) The U.S. subsidiaries of the foreign banking organization (excluding any section 2(h)(2) company, if applicable) and subsidiaries of such U.S. subsidiaries. Company means a corporation, partnership, limited liability company, depository institution, business trust, special purpose entity, association, or similar organization. Control has the same meaning as in section 2(a) of the Bank Holding Company Act (12 U.S.C. 1841(a)), and the terms controlled and controlling shall be construed consistently with the term control. Council means the Financial Stability Oversight Council established by section 111 of the Dodd-Frank Act (12 U.S.C. 5321). Credit enhancement means a qualified financial contract of the type set forth in section 210(c)(8)(D)(ii)(XII), (iii)(X), (iv)(V), (v)(VI), or (vi)(VI) of Title II of the Dodd-Frank Wall Street Reform and Consumer Protection Act (12 U.S.C. 5390(c)(8)(D)(ii)(XII), (iii)(X), (iv)(V), (v)(VI), or (vi)(VI)) or a credit enhancement that the Federal Deposit Insurance Corporation determines by regulation is a qualified financial contract pursuant to section 210(c)(8)(D)(i) of Title II of the act (12 U.S.C. 5390(c)(8)(D)(i)). Cross-jurisdictional activity. (1) The cross-jurisdictional activity of a U.S. bank holding company is equal to the sum of its cross-jurisdictional claims and cross-jurisdictional liabilities, as reported on the FR Y–15. (2) The cross-jurisdictional activity of a U.S. intermediate holding company is equal to the sum of cross-jurisdictional claims and cross-jurisdictional PO 00000 Frm 00035 Fmt 4701 Sfmt 4702 22021 liabilities of the U.S. intermediate holding company, as reported on the FR Y–15. (3) The cross-jurisdictional activity of a foreign banking organization is equal to the sum of cross-jurisdictional claims and cross-jurisdictional liabilities of the combined U.S. operations of the foreign banking organization, as reported on the FR Y–15. Depository institution has the same meaning as in section 3 of the Federal Deposit Insurance Act (12 U.S.C. 1813(c)). DPC branch subsidiary means any subsidiary of a U.S. branch or a U.S. agency acquired, or formed to hold assets acquired, in the ordinary course of business and for the sole purpose of securing or collecting debt previously contracted in good faith by that branch or agency. Foreign banking organization has the same meaning as in § 211.21(o) of this chapter, provided that if the top-tier foreign banking organization is incorporated in or organized under the laws of any State, the foreign banking organization shall not be treated as a foreign banking organization for purposes of this part. FR Y–7 means the Annual Report of Foreign Banking Organizations reporting form. FR Y–7Q means the Capital and Asset Report for Foreign Banking Organizations reporting form. FR Y–9C means the Consolidated Financial Statements for Holding Companies reporting form. FR Y–9LP means the Parent Company Only Financial Statements of Large Holding Companies. FR Y–15 means the Systemic Risk Report. Global methodology means the assessment methodology and the higher loss absorbency requirement for global systemically important banks issued by the Basel Committee on Banking Supervision, as updated from time to time. Global systemically important banking organization means a global systemically important bank, as such term is defined in the global methodology. Global systemically important BHC means a bank holding company identified as a global systemically important BHC pursuant to 12 CFR 217.402. Global systemically important foreign banking organization means a top-tier foreign banking organization that is identified as a global systemically important foreign banking organization under § 252.153(b)(4). E:\FR\FM\15MYP2.SGM 15MYP2 jbell on DSK3GLQ082PROD with PROPOSALS2 22022 Federal Register / Vol. 84, No. 94 / Wednesday, May 15, 2019 / Proposed Rules GAAP means generally accepted accounting principles as used in the United States. Home country, with respect to a foreign banking organization, means the country in which the foreign banking organization is chartered or incorporated. Home country resolution authority, with respect to a foreign banking organization, means the governmental entity or entities that under the laws of the foreign banking organization’s home county has responsibility for the resolution of the top-tier foreign banking organization. Home-country supervisor, with respect to a foreign banking organization, means the governmental entity or entities that under the laws of the foreign banking organization’s home county has responsibility for the supervision and regulation of the toptier foreign banking organization. Nonbank financial company supervised by the Board means a company that the Council has determined under section 113 of the Dodd-Frank Act (12 U.S.C. 5323) shall be supervised by the Board and for which such determination is still in effect. Non-U.S. affiliate means any affiliate of a foreign banking organization that is incorporated or organized in a country other than the United States. Off-balance sheet exposure. (1) The off-balance sheet exposure of a U.S. bank holding company or U.S. intermediate holding company is equal to: (i) The total exposure of such banking organization, as reported by the banking organization on the FR Y–15; minus (ii) The total consolidated assets of such banking organization for the same calendar quarter. (2) The off-balance sheet exposure of a foreign banking organization is equal to: (i) The total exposure of the combined U.S. operations of the foreign banking organization, as reported by such foreign banking organization on the FR Y–15; minus (ii) The combined U.S. assets of the foreign banking organization for the same calendar quarter. Publicly traded means an instrument that is traded on: (1) Any exchange registered with the U.S. Securities and Exchange Commission as a national securities exchange under section 6 of the Securities Exchange Act of 1934 (15 U.S.C. 78f); or (2) Any non-U.S.-based securities exchange that: VerDate Sep<11>2014 19:09 May 14, 2019 Jkt 247001 (i) Is registered with, or approved by, a non-U.S. national securities regulatory authority; and (ii) Provides a liquid, two-way market for the instrument in question, meaning that there are enough independent bona fide offers to buy and sell so that a sales price reasonably related to the last sales price or current bona fide competitive bid and offer quotations can be determined promptly and a trade can be settled at such price within a reasonable time period conforming with trade custom. (3) A company can rely on its determination that a particular nonU.S.-based securities exchange provides a liquid two-way market unless the Board determines that the exchange does not provide a liquid two-way market. Section 2(h)(2) company has the same meaning as in section 2(h)(2) of the Bank Holding Company Act (12 U.S.C. 1841(h)(2)). State means any state, commonwealth, territory, or possession of the United States, the District of Columbia, the Commonwealth of Puerto Rico, the Commonwealth of the Northern Mariana Islands, American Samoa, Guam, or the United States Virgin Islands. Subsidiary has the same meaning as in section 3 of the Federal Deposit Insurance Act (12 U.S.C. 1813). Top-tier foreign banking organization, with respect to a foreign bank, means the top-tier foreign banking organization or, alternatively, a subsidiary of the toptier foreign banking organization designated by the Board. Total consolidated assets. (1) Total consolidated assets of a U.S. bank holding company or a U.S. intermediate holding company is equal to the total consolidated assets of such banking organization, as reported on the FR Y– 9C. (2) Total consolidated assets of a foreign banking organization is equal to the total consolidated assets of the foreign banking organization, as reported on the FR Y–7Q. Total nonbank assets. (1) Total nonbank assets of a U.S. bank holding company or U.S. intermediate holding company is equal to the total nonbank assets of such banking organization, as reported on the FR Y–9LP. (2) Total nonbank assets of a foreign banking organization is equal to: (i) The sum of the assets of the foreign banking organization’s nonbank U.S. subsidiaries, including the total nonbank assets of any U.S. intermediate holding company, excluding the assets of any section 2(h)(2) company; plus PO 00000 Frm 00036 Fmt 4701 Sfmt 4702 (ii) The sum of the foreign banking organization’s equity investments in unconsolidated U.S. subsidiaries, excluding equity investments in any section 2(h)(2) company. U.S. agency has the same meaning as the term ‘‘agency’’ in § 211.21(b) of this chapter. U.S. branch has the same meaning as the term ‘‘branch’’ in § 211.21(e) of this chapter. U.S. branches and agencies means the U.S. branches and U.S. agencies of a foreign banking organization. U.S. government agency means an agency or instrumentality of the United States whose obligations are fully and explicitly guaranteed as to the timely payment of principal and interest by the full faith and credit of the United States. U.S. government-sponsored enterprise means an entity originally established or chartered by the U.S. government to serve public purposes specified by the U.S. Congress, but whose obligations are not explicitly guaranteed by the full faith and credit of the United States. U.S. intermediate holding company means the top-tier U.S. company that is required to be established pursuant to § 252.147 or § 252.153. U.S. subsidiary means any subsidiary that is incorporated in or organized under the laws of the United States or in any State, commonwealth, territory, or possession of the United States, the Commonwealth of Puerto Rico, the Commonwealth of the North Mariana Islands, the American Samoa, Guam, or the United States Virgin Islands. Weighted short-term wholesale funding means the weighted short-term wholesale funding of a banking organization, as reported on the FR Y– 15. ■ 11. In § 252.5, as proposed to be added at 83 FR 61408 (November 29, 2018), is revised to read as follows: § 252.5 Categorization of banking organizations. (a) General. (1) A U.S. bank holding company with average total consolidated assets of $100 billion or more must determine its category among the four categories described in paragraphs (b) through (e) of this section at least quarterly. (2) A U.S. intermediate holding company with average total consolidated assets of $100 billion or more must determine its category among the three categories described in paragraphs (c) through (e) of this section at least quarterly. (3) A foreign banking organization with total consolidated assets of $100 billion or more and average combined U.S. assets of $100 billion or more must E:\FR\FM\15MYP2.SGM 15MYP2 jbell on DSK3GLQ082PROD with PROPOSALS2 Federal Register / Vol. 84, No. 94 / Wednesday, May 15, 2019 / Proposed Rules determine its category among the three categories described in paragraphs (c) through (e) of this section at least quarterly. (b) Global systemically important BHC. A banking organization is a global systemically important BHC if it is identified as a global systemically important BHC pursuant to 12 CFR 217.402. (c) Category II. (1) A banking organization is a Category II banking organization if the banking organization: (i) Has: (A)(1) For a U.S. bank holding company or a U.S. intermediate holding company, $700 billion or more in average total consolidated assets; (2) For a foreign banking organization, $700 billion or more in average combined U.S. assets; or (B)(1) Has $75 billion or more in average cross-jurisdictional activity; and (2)(i) For a U.S. bank holding company or a U.S. intermediate holding company, $100 billion or more in average total consolidated assets; or (ii) For a foreign banking organization, $100 billion or more in average combined U.S. assets; and (ii) Is not a global systemically important BHC. (2) After meeting the criteria in paragraph (c)(1) of this section, a banking organization continues to be a Category II banking organization until the banking organization: (i) Has: (A)(1) For a U.S. bank holding company or a U.S. intermediate holding company, less than $700 billion in total consolidated assets for each of the four most recent calendar quarters; or (2) For a foreign banking organization, less than $700 billion in combined U.S. assets for each of the four most recent calendar quarters; and (B) Less than $75 billion in crossjurisdictional activity for each of the four most recent calendar quarters; (ii)(A) For a U.S. bank holding company or a U.S. intermediate holding company, less than $100 billion in total consolidated assets for each of the four most recent calendar quarters; (B) For a foreign banking organization, less than $100 billion in combined U.S. assets for each of the four most recent calendar quarters; or (iii) Meets the criteria in paragraph (b) to be a global systemically important BHC. (d) Category III. (1) A banking organization is a Category III banking organization if the banking organization: (i) Has: (A)(1) For a U.S. bank holding company or a U.S. intermediate holding company, $250 billion or more in average total consolidated assets; or VerDate Sep<11>2014 19:09 May 14, 2019 Jkt 247001 (2) For a foreign banking organization, $250 billion or more in average combined U.S. assets; or (B)(1)(i) For a U.S. bank holding company or a U.S. intermediate holding company, $100 billion or more in average total consolidated assets; or (ii) For a foreign banking organization, $100 billion in average combined U.S. assets; and (2) At least: (i) $75 billion in average total nonbank assets; (ii) $75 billion in average weighted short-term wholesale funding; or (iii) $75 billion in average off-balance sheet exposure; (ii) Is not a global systemically important BHC; and (iii) Is not a Category II banking organization. (2) After meeting the criteria in paragraph (d)(1) of this section, a banking organization continues to be a Category III banking organization until the banking organization: (i) Has: (A)(1) For a U.S. bank holding company or a U.S. intermediate holding company, less than $250 billion in total consolidated assets for each of the four most recent calendar quarters; or (2) For a foreign banking organization, less than $250 billion in combined U.S. assets for each of the four most recent calendar quarters; (B) Less than $75 billion in total nonbank assets for each of the four most recent calendar quarters; (C) Less than $75 billion in weighted short-term wholesale funding for each of the four most recent calendar quarters; and (D) Less than $75 billion in offbalance sheet exposure for each of the four most recent calendar quarters; or (ii) Has: (A) For a U.S. bank holding company or a U.S. intermediate holding company, less than $100 billion in total consolidated assets for each of the four most recent calendar quarters; or (B) For a foreign banking organization, less than $100 billion in combined U.S. assets for each of the four most recent calendar quarters; (iii) Meets the criteria in paragraph (b) of this section to be a global systemically important BHC; or (iv) Meets the criteria in paragraph (c)(1) of this section to be a Category II banking organization. (e) Category IV. (1) A banking organization is a Category IV banking organization if the banking organization: (i) Is not global systemically important BHC; (ii) Is not a Category II banking organization; PO 00000 Frm 00037 Fmt 4701 Sfmt 4702 22023 (iii) Is not a Category III banking organization; and (iv) Has: (A) For a U.S. bank holding company or a U.S. intermediate holding company, average total consolidated assets of $100 billion or more; or (B) For a foreign banking organization, average combined U.S. assets of $100 billion or more. (2) After meeting the criteria in paragraph (e)(1), a banking organization continues to be a Category IV banking organization until the banking organization: (i) Has: (A) For a U.S. bank holding company or a U.S. intermediate holding company, less than $100 billion in total consolidated assets for each of the four most recent calendar quarters; (B) For a foreign banking organization, less than $100 billion in combined U.S. assets for each of the four most recent calendar quarters; (ii) Meets the criteria in paragraph (b) of this section to be a global systemically important BHC; (iii) Meets the criteria in paragraph (c)(1) of this section to be a Category II banking organization; or (iv) Meets the criteria in paragraph (d)(1) of this section to be a Category III banking organization. ■ 12. Revise the heading of subpart D to read as follows: Subpart D—Enhanced Prudential Standards for Bank Holding Companies With Total Consolidated Assets of $100 Billion or More 13. Section 252.35 is amended by adding paragraph (a)(8) to read as follows: (a) * * * (8) Notice and Response. If the Board determines that a bank holding company must conduct liquidity stress tests according to a frequency other than the frequency provided in paragraphs (a)(2)(i) and (ii) of this section, the Board will notify the bank holding company before the change in frequency takes effect, and describe the basis for its determination. Within 14 calendar days of receipt of a notification under this paragraph, the bank holding company may request in writing that the Board reconsider the requirement. The Board will respond in writing to the company’s request for reconsideration prior to requiring the company conduct liquidity stress tests according to a frequency other than the frequency provided in paragraphs (a)(2)(i) and (ii) of this section. * * * * * ■ 14. Revise the heading of subpart E to read as follows: ■ E:\FR\FM\15MYP2.SGM 15MYP2 22024 Federal Register / Vol. 84, No. 94 / Wednesday, May 15, 2019 / Proposed Rules 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 15. Section 252.43 is amended by revising paragraph (a)(2) to read as follows: ■ § 252.43 Applicability. (a) * * * (2) Ongoing applicability. A bank holding company or U.S. intermediate 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 its total consolidated assets fall below $100 billion for each of four consecutive quarters, as reported on the FR Y–9C and, effective on the asof date of the fourth consecutive FR Y– 9C. * * * * * ■ 16. Section 252.44, as proposed to be amended at 83 FR 61408 (November 29, 2018), is further amended by revising paragraph (c) to read as follows: § 252.44 Analysis conducted by the Board. * * * * * (c) Frequency of analysis conducted by the Board. (1) Except as provided in paragraph (c)(2) of this section, the Board will conduct its analysis of a covered company on an annual basis. (2) The Board will conduct its analysis of a Category IV bank holding company or a Category IV U.S. intermediate holding company on a biennial basis and occurring in each year ending in an even number. ■ 17. In § 252.53, republish paragraphs (a)(1)(i) through (iii) and as proposed to be revised in 83 FR 61408 (November 29, 2018) further revise paragraphs (a)(1)(iv) through (vi) to read as follows: jbell on DSK3GLQ082PROD with PROPOSALS2 § 252.53 Applicability. (a) Scope—(1) Applicability. Except as provided in paragraph (b) of this section, this subpart applies to any covered company, which includes: (i) A global systemically important BHC; (ii) Any Category II bank holding company; (iii) Any Category III bank holding company; (iv) Any Category II U.S. intermediate holding company subject to this section pursuant to § 252.153; (v) Any Category III U.S. intermediate holding company subject to this section pursuant to § 252.153; and (vi) Any nonbank financial company supervised by the Board that is made VerDate Sep<11>2014 19:09 May 14, 2019 Jkt 247001 subject to this section pursuant to a rule or order of the Board. (2) Ongoing applicability. (i) A bank 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 bank holding company: (A) Is not a global systemically important BHC; (B) Is not a Category II bank holding company; and (C) Is not a Category III bank holding company. (ii) A U.S. intermediate 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 U.S. intermediate holding company: (A) Is not a Category II U.S. intermediate holding company; and (B) Is not a Category III U.S. intermediate holding company. * * * * * ■ 18. Section 252.54, as proposed to be amended at 83 FR 61408 (November 29, 2018), is further amended by revising paragraph (a) to read as follows: § 252.54 Stress test. (a) Stress test—(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 Category III bank holding company or a Category III U.S. intermediate holding company 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. * * * * * § 252.55 [Removed and Reserved] 19. Section 252.55 is removed and reserved. ■ 20. Section 252.56 is amended by revising paragraphs (a) introductory text, (b) introductory text, and (c)(1) to read as follows: ■ § 252.56 Methodologies and practices. (a) Potential impact on capital. In conducting a stress test under § 252.54, for each quarter of the planning horizon, PO 00000 Frm 00038 Fmt 4701 Sfmt 4702 a covered company must estimate the following for each scenario required to be used: * * * * * (b) Assumptions regarding capital actions. In conducting a stress test under § 252.54, a covered company is required to make the following assumptions regarding its capital actions over the planning horizon: * * * * * (c) * * * (1) In general. The senior management of a covered company must establish and maintain a system of controls, oversight, and documentation, including policies and procedures, that are designed to ensure that its stress testing processes are effective in meeting the requirements in this subpart. These policies and procedures must, at a minimum, describe the covered company’s stress testing practices and methodologies, and processes for validating and updating the company’s stress test practices and methodologies consistent with applicable laws and regulations. * * * * * ■ 21. Section 252.57 is amended by revising paragraph (a) to read as follows: § 252.57 Reports of stress test results. (a) Reports to the Board of stress test results. A covered company must report the results of the stress test required under § 252.54 to the Board in the manner and form prescribed by the Board. Such results must be submitted by April 5 of the calendar year in which the stress test is performed pursuant to § 252.54, unless that time is extended by the Board in writing. * * * * * ■ 22. Section 252.58 is amended by revising paragraph (a)(1) to read as follows: § 252.58 Disclosure of stress test results. (a) Public disclosure of results—(1) In general. A covered company must publicly disclose a summary of the results of the stress test required under § 252.54 within the period that is 15 calendar days after the Board publicly discloses the results of its supervisory stress test of the covered company pursuant to § 252.46(c), unless that time is extended by the Board in writing. * * * * * Subpart L—[Removed and Reserved] 23. Remove and reserve subpart L, consisting of §§ 252.120 through 252.122. ■ 24. Revise the heading for subpart M to read as follows. ■ E:\FR\FM\15MYP2.SGM 15MYP2 Federal Register / Vol. 84, No. 94 / Wednesday, May 15, 2019 / Proposed Rules Subpart M—Risk Committee Requirement for Foreign Banking Organizations With Total Consolidated Assets of at Least $50 Billion but Less Than $100 Billion 25. In § 252.131, revise paragraphs (a) and (c) to read as follows: ■ § 252.131 Applicability. (a) General applicability. A foreign banking organization with total consolidated assets of at least $50 billion but less than $100 billion must comply with the risk-committee requirements set forth in this subpart beginning on the first day of the ninth quarter following the date on which its total consolidated assets equal or exceed $50 billion. * * * * * (c) Cessation of requirements. A foreign banking organization will remain subject to the risk-committee requirements of this section until the earlier of the date on which: (1) Its reported total consolidated assets on the FR Y–7 are below $50 billion for each of four consecutive calendar quarters; and (2) It becomes subject to the requirements of subpart N or subpart O of this part. * * * * * ■ 26. In § 252.132 revise the section heading, paragraph (a) introductory text, and paragraph (d) to read as follows: jbell on DSK3GLQ082PROD with PROPOSALS2 § 252.132 Risk-committee requirements for foreign banking organizations with total consolidated assets of $50 billion or more but less than $100 billion. (a) U.S. risk committee certification. A foreign banking organization with total consolidated assets of at least $50 billion but less than $100 billion, must, on an annual basis, certify to the Board that it maintains a committee of its global board of directors (or equivalent thereof), on a standalone basis or as part of its enterprise-wide risk committee (or equivalent thereof) that: * * * * * (d) Noncompliance with this section. If a foreign banking organization does not satisfy the requirements of this section, the Board may impose requirements, conditions, or restrictions relating to the activities or business operations of the combined U.S. operations of the foreign banking organization. The Board will coordinate with any relevant State or Federal regulator in the implementation of such requirements, conditions, or restrictions. If the Board determines to impose one or more requirements, conditions, or restrictions under this paragraph, the Board will notify the VerDate Sep<11>2014 19:09 May 14, 2019 Jkt 247001 organization before it applies any requirement, condition or restriction, and describe the basis for imposing such requirement, condition, or restriction. Within 14 calendar days of receipt of a notification under this paragraph, the company may request in writing that the Board reconsider the requirement, condition, or restriction. The Board will respond in writing to the organization’s request for reconsideration prior to applying the requirement, condition, or restriction. Subpart N—Enhanced Prudential Standards for Foreign Banking Organizations With Total Consolidated Assets of $100 Billion or More but Combined U.S. Assets of Less Than $100 Billion 27. Revise the heading of subpart N to read as set forth above. ■ 28. Revise § 252.140 to read as follows: ■ § 252.140 Scope. This subpart applies to foreign banking organizations with total consolidated assets of $100 billion or more, but combined U.S. assets of less than $100 billion. ■ 29. In § 252.142, revise paragraph (a), add paragraph (b)(3), and revise paragraph (c) to read as follows: § 252.142 Applicability. (a) General applicability. A foreign banking organization with total consolidated assets of $100 billion or more and combined U.S. assets of less than $100 billion must: (1) Comply with the capital stress testing, risk-management and risk committee requirements set forth in this subpart beginning no later than on the first day of the ninth quarter the date on which its total consolidated assets equal or exceed $100 billion; and (2) Comply with the risk-based and leverage capital requirements and liquidity risk-management requirements set forth in this subpart beginning no later than on the first day of the ninth quarter following the date on which its total consolidated assets equal or exceed $250 billion; and (3) Comply with the U.S. intermediate holding company requirement set forth in § 252.147 beginning no later than on the first day of the ninth quarter following the date on which its U.S. non-branch assets equal or exceed $50 billion. (b) * * * (3) U.S. non-branch assets. U.S. nonbranch assets are equal to the sum of the consolidated assets of each top-tier U.S. subsidiary of the foreign banking organization (excluding any section PO 00000 Frm 00039 Fmt 4701 Sfmt 4702 22025 2(h)(2) company and DPC branch subsidiary, if applicable). (i) For purposes of this subpart, U.S. non-branch assets of a foreign banking organization are calculated as the average of the sum of the total consolidated assets of the top-tier U.S. subsidiaries of the foreign banking organization (excluding any section 2(h)(2) company and DPC branch subsidiary) for the four most recent calendar quarters, as reported to the Board on the FR Y–7Q, or, if the foreign banking organization has not reported this information on the FR Y–7Q for each of the four most recent calendar quarters, the average for the most recent quarter or consecutive quarters as reported on the FR Y–7Q. (ii) In calculating U.S. non-branch assets, a foreign banking organization must reduce its U.S. non-branch assets calculated under this paragraph by the amount corresponding to balances and transactions between a top-tier U.S. subsidiary and any other top-tier U.S. subsidiary (excluding any 2(h)(2) company or DPC branch subsidiary) to the extent such items are not already eliminated in consolidation. (iii) U.S. non-branch assets are measured on the as-of date of the most recent FR Y–7Q used in the calculation of the average. (c) Cessation of requirements—(1) Enhanced prudential standards applicable to the foreign banking organization. A foreign banking organization will remain subject to the requirements set forth in this subpart until its reported total consolidated assets on the FR Y–7Q are below $100 billion for each of four consecutive calendar quarters, or it becomes subject to the requirements of subpart O of this part. (2) Intermediate holding company requirement. A foreign banking organization will remain subject to the U.S. intermediate holding company requirement set forth in § 252.147 until the sum of the total consolidated assets of the top-tier U.S. subsidiaries of the foreign banking organization (excluding any section 2(h)(2) company and DPC branch subsidiary) is below $50 billion for each of four consecutive calendar quarters, or it becomes subject to the U.S. intermediate holding company requirements of subpart O of this part. ■ 30. In § 252.143, revise the section heading and paragraphs (a)(1) introductory text, (b), and (c) to read as follows: E:\FR\FM\15MYP2.SGM 15MYP2 22026 Federal Register / Vol. 84, No. 94 / Wednesday, May 15, 2019 / Proposed Rules jbell on DSK3GLQ082PROD with PROPOSALS2 § 252.143 Risk-based and leverage capital requirements for foreign banking organizations with total consolidated assets of $250 billion or more but combined U.S. assets of less than $100 billion. (a) * * * (1) A foreign banking organization with total consolidated assets of $250 billion or more and combined U.S. assets of less than $100 billion must certify to the Board that it meets capital adequacy standards on a consolidated basis established by its home-country supervisor that are consistent with the regulatory capital framework published by the Basel Committee on Banking Supervision, as amended from time to time (Basel Capital Framework). * * * * * (b) Reporting. A foreign banking organization with total consolidated assets of $250 billion or more and combined U.S. assets of less than $100 billion must provide to the Board reports relating to its compliance with the capital adequacy measures described in paragraph (a) of this section concurrently with filing the FR Y–7Q. (c) Noncompliance with the Basel Capital Framework. If a foreign banking organization does not satisfy the requirements of this section, the Board may impose requirements, conditions, or restrictions, including risk-based or leverage capital requirements, relating to the activities or business operations of the U.S. operations of the organization. The Board will coordinate with any relevant State or Federal regulator in the implementation of such requirements, conditions, or restrictions. If the Board determines to impose one or more requirements, conditions, or restrictions under this paragraph, the Board will notify the organization before it applies any requirement, condition or restriction, and describe the basis for imposing such requirement, condition, or restriction. Within 14 calendar days of receipt of a notification under this paragraph, the organization may request in writing that the Board reconsider the requirement, condition, or restriction. The Board will respond in writing to the organization’s request for reconsideration prior to applying the requirement, condition, or restriction. ■ 31. Revise § 252.144 to read as follows: § 252.144 Risk-management and risk committee requirements for foreign banking organizations with total consolidated assets of $100 billion or more but combined U.S. assets of less than $100 billion. (a) Risk-management and riskcommittee requirements for foreign VerDate Sep<11>2014 19:09 May 14, 2019 Jkt 247001 banking organizations with combined U.S. assets of less than $50 billion—(1) U.S. risk committee certification. Each foreign banking organization with combined U.S. assets of less than $50 billion must, on an annual basis, certify to the Board that it maintains a committee of its global board of directors (or equivalent thereof), on a standalone basis or as part of its enterprise-wide risk committee (or equivalent thereof) that: (i) Oversees the risk management policies of the combined U.S. operations of the foreign banking organization; and (ii) Includes at least one member having experience in identifying, assessing, and managing risk exposures of large, complex firms. (2) Timing of certification. The certification required under paragraph (a) of this section must be filed on an annual basis with the Board concurrently with the FR Y–7. (b) Risk-management and risk committee requirements for foreign banking organizations with combined U.S. assets of more than $50 billion but less than $100 billion—(1) U.S. risk committee—(i) General. Each foreign banking organization with combined U.S. assets of more than $50 billion but less than $100 billion must maintain a U.S. risk committee that approves and periodically reviews the risk management policies of the combined U.S. operations of the foreign banking organization and oversees the riskmanagement framework of such combined U.S. operations. (ii) Risk-management framework. The foreign banking organization’s riskmanagement framework for its combined U.S. operations must be commensurate with the structure, risk profile, complexity, activities, and size of its combined U.S. operations and consistent with its enterprise-wide risk management policies. The framework must include: (A) Policies and procedures establishing risk-management governance, risk-management procedures, and risk-control infrastructure for the combined U.S. operations of the foreign banking organization; and (B) Processes and systems for implementing and monitoring compliance with such policies and procedures, including: (1) Processes and systems for identifying and reporting risks and riskmanagement deficiencies, including regarding emerging risks, on a combined U.S. operations basis and ensuring effective and timely implementation of actions to address emerging risks and risk-management deficiencies; PO 00000 Frm 00040 Fmt 4701 Sfmt 4702 (2) Processes and systems for establishing managerial and employee responsibility for risk management of the combined U.S. operations; (3) Processes and systems for ensuring the independence of the riskmanagement function of the combined U.S. operations; and (4) Processes and systems to integrate risk management and associated controls with management goals and the compensation structure of the combined U.S. operations. (iii) Placement of the U.S. risk committee. (A) A foreign banking organization that conducts its operations in the United States solely through a U.S. intermediate holding company must maintain its U.S. risk committee as a committee of the board of directors of its U.S. intermediate holding company (or equivalent thereof). (B) A foreign banking organization that conducts its operations through U.S. branches or U.S. agencies (in addition to through its U.S. intermediate holding company, if any) may maintain its U.S. risk committee either: (1) As a committee of the global board of directors (or equivalent thereof), on a standalone basis or as a joint committee with its enterprise-wide risk committee (or equivalent thereof); or (2) As a committee of the board of directors of its U.S. intermediate holding company (or equivalent thereof), on a standalone basis or as a joint committee with the risk committee of its U.S. intermediate holding company required pursuant to § 252.147(e)(3). (iv) Corporate governance requirements. The U.S. risk committee must meet at least quarterly and otherwise as needed, and must fully document and maintain records of its proceedings, including riskmanagement decisions. (v) Minimum member requirements. The U.S. risk committee must: (A) Include at least one member having experience in identifying, assessing, and managing risk exposures of large, complex financial firms; and (B) Have at least one member who: (1) Is not an officer or employee of the foreign banking organization or its affiliates and has not been an officer or employee of the foreign banking organization or its affiliates during the previous three years; and (2) Is not a member of the immediate family, as defined in § 225.41(b)(3) of the Board’s Regulation Y (12 CFR 225.41(b)(3)), of a person who is, or has been within the last three years, an executive officer, as defined in § 215.2(e)(1) of the Board’s Regulation O E:\FR\FM\15MYP2.SGM 15MYP2 jbell on DSK3GLQ082PROD with PROPOSALS2 Federal Register / Vol. 84, No. 94 / Wednesday, May 15, 2019 / Proposed Rules (12 CFR 215.2(e)(1)) of the foreign banking organization or its affiliates. (2) [Reserved] (c) U.S. chief risk officer—(1) General. A foreign banking organization with combined U.S. assets of more than $50 billion but less than $100 billion or its U.S. intermediate holding company, if any, must appoint a U.S. chief risk officer with experience in identifying, assessing, and managing risk exposures of large, complex financial firms. (2) Responsibilities. (i) The U.S. chief risk officer is responsible for overseeing: (A) The measurement, aggregation, and monitoring of risks undertaken by the combined U.S. operations; (B) The implementation of and ongoing compliance with the policies and procedures for the foreign banking organization’s combined U.S. operations set forth in paragraph (b)(1)(ii)(A) of this section and the development and implementation of processes and systems set forth in paragraph (b)(1)(ii)(B) of this section; and (C) The management of risks and risk controls within the parameters of the risk-control framework for the combined U.S. operations, and the monitoring and testing of such risk controls. (ii) The U.S. chief risk officer is responsible for reporting risks and riskmanagement deficiencies of the combined U.S. operations, and resolving such risk-management deficiencies in a timely manner. (3) Corporate governance and reporting. The U.S. chief risk officer must: (i) Receive compensation and other incentives consistent with providing an objective assessment of the risks taken by the combined U.S. operations of the foreign banking organization; (ii) Be employed by and located in the U.S. branch, U.S. agency, U.S. intermediate holding company, if any, or another U.S. subsidiary; (iii) Report directly to the U.S. risk committee and the global chief risk officer or equivalent management official (or officials) of the foreign banking organization who is responsible for overseeing, on an enterprise-wide basis, the implementation of and compliance with policies and procedures relating to risk-management governance, practices, and risk controls of the foreign banking organization, unless the Board approves an alternative reporting structure based on circumstances specific to the foreign banking organization; (iv) Regularly provide information to the U.S. risk committee, global chief risk officer, and the Board regarding the nature of and changes to material risks undertaken by the foreign banking VerDate Sep<11>2014 19:09 May 14, 2019 Jkt 247001 organization’s combined U.S. operations, including risk-management deficiencies and emerging risks, and how such risks relate to the global operations of the foreign banking organization; and (v) Meet regularly and as needed with the Board to assess compliance with the requirements of this section. (d) Responsibilities of the foreign banking organization. The foreign banking organization must take appropriate measures to ensure that its combined U.S. operations implement the risk management policies overseen by the U.S. risk committee described in paragraphs (a) or (b) of this section, and its combined U.S. operations provide sufficient information to the U.S. risk committee to enable the U.S. risk committee to carry out the responsibilities of this subpart. (e) Noncompliance with this section. If a foreign banking organization does not satisfy the requirements of this section, the Board may impose requirements, conditions, or restrictions relating to the activities or business operations of the combined U.S. operations of the foreign banking organization. The Board will coordinate with any relevant State or Federal regulator in the implementation of such requirements, conditions, or restrictions. If the Board determines to impose one or more requirements, conditions, or restrictions under this paragraph, the Board will notify the organization before it applies any requirement, condition, or restriction, and describe the basis for imposing such requirement, condition, or restriction. Within 14 calendar days of receipt of a notification under this paragraph, the organization may request in writing that the Board reconsider the requirement, condition, or restriction. The Board will respond in writing to the organization’s request for reconsideration prior to applying the requirement, condition, or restriction. ■ 32. In § 252.145, revise the section heading and paragraph (a) to read as follows: § 252.145 Liquidity risk-management requirements for foreign banking organizations with total consolidated assets of $250 billion or more but combined U.S. assets of less than $100 billion. (a) A foreign banking organization with total consolidated assets of $250 billion or more and combined U.S. assets of less than $100 billion must report to the Board on an annual basis the results of an internal liquidity stress test for either the consolidated operations of the foreign banking organization or the combined U.S. PO 00000 Frm 00041 Fmt 4701 Sfmt 4702 22027 operations of the foreign banking organization. Such liquidity stress test must be conducted consistently with the Basel Committee principles for liquidity risk management and must incorporate 30-day, 90-day, and one-year stress-test horizons. The ‘‘Basel Committee principles for liquidity risk management’’ means the document titled ‘‘Principles for Sound Liquidity Risk Management and Supervision’’ (September 2008) as published by the Basel Committee on Banking Supervision, as supplemented and revised from time to time. * * * * * ■ 33. In § 252.146, revise the section heading and paragraphs (b)(1) introductory text, (b)(2)(i), and (c)(1)(ii) and (iii) to read as follows: § 252.146 Capital stress testing requirements for foreign banking organizations with total consolidated assets of $100 billion or more but combined U.S. assets of less than $100 billion. * * * * * (b) In general. (1) A foreign banking organization with total consolidated assets of more than $100 billion and combined U.S. assets of less than $100 billion must: * * * * * (2) * * * (i) A supervisory capital stress test conducted by the foreign banking organization’s home-country supervisor or an evaluation and review by the foreign banking organization’s homecountry supervisor of an internal capital adequacy stress test conducted by the foreign banking organization, according to the frequency specified in the following paragraphs (b)(2)(i)(A) and (B): (A) If the foreign banking organization has total consolidated assets of $250 billion or more, on at least an annual basis; or (B) If the foreign banking organization has total consolidated assets of less than $250 billion, at least biennially; and * * * * * (c) * * * (1) * * * (ii) Conduct a stress test of its U.S. subsidiaries to determine whether those subsidiaries have the capital necessary to absorb losses as a result of adverse economic conditions, according to the frequency specified in the following paragraphs (c)(1)(ii)(A) and (B): (A) If the foreign banking organization has total consolidated assets of $250 billion or more, on at least an annual basis; or (B) If the foreign banking organization has total consolidated assets of less than $250 billion, at least biennially; and E:\FR\FM\15MYP2.SGM 15MYP2 22028 Federal Register / Vol. 84, No. 94 / Wednesday, May 15, 2019 / Proposed Rules (iii) Report a summary of the results of the stress test to the Board that includes a description of the types of risks included in the stress test, a description of the conditions or scenarios used in the stress test, a summary description of the methodologies used in the stress test, estimates of aggregate losses, preprovision net revenue, total loan loss provisions, net income before taxes and pro forma regulatory capital ratios required to be computed by the homecountry supervisor of the foreign banking organization and any other relevant capital ratios, and an explanation of the most significant causes for any changes in regulatory capital ratios. * * * * * ■ 34. Add § 252.147 to read as follows: jbell on DSK3GLQ082PROD with PROPOSALS2 § 252.147 U.S. intermediate holding company requirement for foreign banking organizations with combined U.S. assets of less than $100 billion but U.S. non-branch assets of $50 billion or more. (a) Requirement to form a U.S. intermediate holding company. (1) Formation. A foreign banking organization with U.S. non-branch assets of $50 billion or more must establish a U.S. intermediate holding company, or designate an existing subsidiary that meets the requirements of paragraph (a)(2) of this section, as its U.S. intermediate holding company. (2) Structure. The U.S. intermediate holding company must be: (i) Organized under the laws of the United States, any one of the fifty states of the United States, or the District of Columbia; and (ii) Be governed by a board of directors or managers that is elected or appointed by the owners and that operates in an equivalent manner, and has equivalent rights, powers, privileges, duties, and responsibilities, to a board of directors of a company chartered as a corporation under the laws of the United States, any one of the fifty states of the United States, or the District of Columbia. (3) Notice. Within 30 days of establishing or designating a U.S. intermediate holding company under this section, a foreign banking organization must provide to the Board: (i) A description of the U.S. intermediate holding company, including its name, location, corporate form, and organizational structure; (ii) A certification that the U.S. intermediate holding company meets the requirements of this section; and (iii) Any other information that the Board determines is appropriate. (b) Holdings and regulation of the U.S. intermediate holding company—(1) VerDate Sep<11>2014 19:09 May 14, 2019 Jkt 247001 General. Subject to paragraph (c) of this section, a foreign banking organization that is required to form a U.S. intermediate holding company under paragraph (a) of this section must hold its entire ownership interest in any U.S. subsidiary (excluding each section 2(h)(2) company or DPC branch subsidiary, if any) through its U.S. intermediate holding company. (2) Reporting. Each U.S. intermediate holding company shall submit information in the manner and form prescribed by the Board. (3) Examinations and inspections. The Board may examine or inspect any U.S. intermediate holding company and each of its subsidiaries and prepare a report of their operations and activities. (4) Global systemically important banking organizations. For purposes of this part, a top-tier foreign banking organization with U.S. non-branch assets that equal or exceed $50 billion is a global systemically important foreign banking organization if any of the following conditions are met: (i) The top-tier foreign banking organization determines, pursuant to paragraph (b)(6) of this section, that the top-tier foreign banking organization has the characteristics of a global systemically important banking organization under the global methodology; or (ii) The Board, using information available to the Board, determines: (A) That the top-tier foreign banking organization would be a global systemically important banking organization under the global methodology; (B) That the top-tier foreign banking organization, if it were subject to the Board’s Regulation Q, would be identified as a global systemically important BHC under 12 CFR 217.402 of the Board’s Regulation Q; or (C) That the U.S. intermediate holding company, if it were subject to 12 CFR 217.402 of the Board’s Regulation Q, would be identified as a global systemically important BHC. (5) Notice. Each top-tier foreign banking organization that controls a U.S. intermediate holding company shall submit to the Board by January 1 of each calendar year through the U.S. intermediate holding company: (i) Notice of whether the homecountry supervisor (or other appropriate home country regulatory authority) of the top-tier foreign banking organization of the U.S. intermediate holding company has adopted standards consistent with the global methodology; and (ii) Notice of whether the top-tier foreign banking organization prepares or PO 00000 Frm 00042 Fmt 4701 Sfmt 4702 reports the indicators used by the global methodology to identify a banking organization as a global systemically important banking organization and, if it does, whether the top-tier foreign banking organization has determined that it has the characteristics of a global systemically important banking organization under the global methodology pursuant to paragraph (b)(6) of this section. (6) Global systemically important banking organization under the global methodology. A top-tier foreign banking organization that controls a U.S. intermediate holding company and prepares or reports for any purpose the indicator amounts necessary to determine whether the top-tier foreign banking organization is a global systemically important banking organization under the global methodology must use the data to determine whether the top-tier foreign banking organization has the characteristics of a global systemically important banking organization under the global methodology. (c) Alternative organizational structure—(1) General. Upon a written request by a foreign banking organization, the Board may permit the foreign banking organization to establish or designate multiple U.S. intermediate holding companies; use an alternative organizational structure to hold its combined U.S. operations; or not transfer its ownership interests in certain subsidiaries to a U.S. intermediate holding company. (2) Factors. In making a determination under paragraph (c)(1) of this section, the Board may consider whether applicable law would prohibit the foreign banking organization from owning or controlling one or more of its U.S. subsidiaries through a single U.S. intermediate holding company, or whether circumstances otherwise warrant an exception based on the foreign banking organization’s activities, scope of operations, structure, or similar considerations. (3) Request—(i) Contents. A request submitted under this section must include an explanation of why the request should be granted and any other information required by the Board. (ii) Timing. The Board shall act on a request for an alternative organizational structure within 90 days of receipt of a complete request, unless the Board provides notice to the company that it is extending the period for action. (4) Conditions. The Board may grant relief under this section upon such conditions as the Board deems appropriate, including, but not limited to, requiring the U.S. operations of the E:\FR\FM\15MYP2.SGM 15MYP2 jbell on DSK3GLQ082PROD with PROPOSALS2 Federal Register / Vol. 84, No. 94 / Wednesday, May 15, 2019 / Proposed Rules foreign banking organization to comply with additional enhanced prudential standards, or requiring the foreign banking organization to enter into supervisory agreements governing such alternative organizational structure. (d) Modifications. The Board may modify the application of any section of this subpart to a foreign banking organization that is required to form a U.S. intermediate holding company or to such U.S. intermediate holding company if appropriate to accommodate the organizational structure of the foreign banking organization or characteristics specific to such foreign banking organization and such modification is appropriate and consistent with the capital structure, size, complexity, risk profile, scope of operations, or financial condition of each U.S. intermediate holding company, safety and soundness, and the financial stability mandate of section 165 of the Dodd-Frank Act. (e) Enhanced prudential standards for U.S. intermediate holding companies— (1) Capital requirements for a U.S. intermediate holding company. (i)(A) A U.S. intermediate holding company must comply with 12 CFR part 217, other than subpart E of 12 CFR part 217, in the same manner as a bank holding company. (B) A U.S. intermediate holding company may choose to comply with subpart E of 12 CFR part 217. (ii) A U.S. intermediate holding company must comply with capital adequacy standards beginning on the date it is required to established under this subpart, or if the U.S. intermediate holding company is subject to capital adequacy standards on the date that the foreign banking organization becomes subject to § 252.142(a)(3), on the date that the foreign banking organization becomes subject to this subpart. (2) Risk-management and risk committee requirements—(i) General. A U.S. intermediate holding company must establish and maintain a risk committee that approves and periodically reviews the risk management policies and oversees the risk-management framework of the U.S. intermediate holding company. The risk committee must be a committee of the board of directors of the U.S. intermediate holding company (or equivalent thereof). The risk committee may also serve as the U.S. risk committee for the combined U.S. operations required pursuant to § 252.144(b). (ii) Risk-management framework. The U.S. intermediate holding company’s risk-management framework must be commensurate with the structure, risk VerDate Sep<11>2014 19:09 May 14, 2019 Jkt 247001 profile, complexity, activities, and size of the U.S. intermediate holding company and consistent with the risk management policies for the combined U.S. operations of the foreign banking organization. The framework must include: (A) Policies and procedures establishing risk-management governance, risk-management procedures, and risk-control infrastructure for the U.S. intermediate holding company; and (B) Processes and systems for implementing and monitoring compliance with such policies and procedures, including: (1) Processes and systems for identifying and reporting risks and riskmanagement deficiencies at the U.S. intermediate holding company, including regarding emerging risks and ensuring effective and timely implementation of actions to address emerging risks and risk-management deficiencies; (2) Processes and systems for establishing managerial and employee responsibility for risk management of the U.S. intermediate holding company; (3) Processes and systems for ensuring the independence of the riskmanagement function of the U.S. intermediate holding company; and (4) Processes and systems to integrate risk management and associated controls with management goals and the compensation structure of the U.S. intermediate holding company. (iii) Corporate governance requirements. The risk committee of the U.S. intermediate holding company must meet at least quarterly and otherwise as needed, and must fully document and maintain records of its proceedings, including riskmanagement decisions. (iv) Minimum member requirements. The risk committee must: (A) Include at least one member having experience in identifying, assessing, and managing risk exposures of large, complex financial firms; and (B) Have at least one member who: (1) Is not an officer or employee of the foreign banking organization or its affiliates and has not been an officer or employee of the foreign banking organization or its affiliates during the previous three years; and (2) Is not a member of the immediate family, as defined in § 225.41(b)(3) of the Board’s Regulation Y (12 CFR 225.41(b)(3)), of a person who is, or has been within the last three years, an executive officer, as defined in § 215.2(e)(1) of the Board’s Regulation O (12 CFR 215.2(e)(1)) of the foreign banking organization or its affiliates. PO 00000 Frm 00043 Fmt 4701 Sfmt 4702 22029 (v) The U.S. intermediate holding company must take appropriate measures to ensure that it implements the risk management policies for the U.S. intermediate holding company and it provides sufficient information to the U.S. risk committee to enable the U.S. risk committee to carry out the responsibilities of this subpart; (vi) A U.S. intermediate holding company must comply with risk committee and risk management requirements beginning on the date that it is required to established under this subpart or, if the U.S. intermediate holding company is subject to risk committee and risk management requirements on the date that the foreign banking organization becomes subject to § 252.147(a)(3), on the date that the foreign banking organization becomes subject to this subpart. Subpart O—Enhanced Prudential Standards for Foreign Banking Organizations With Total Consolidated Assets of $100 Billion or More and Combined U.S. Assets of $100 Billion or More 35. Revise § 252.150 to read as follows: ■ § 252.150 Scope. This subpart applies to foreign banking organizations with total consolidated assets of $100 billion or more and combined U.S. assets of $100 billion or more. ■ 36. Revise § 252.152 to read as follows: § 252.152 Applicability. (a) General applicability. (1) A foreign banking organization must: (i) Comply with the requirements of this subpart (other than the U.S. intermediate holding company requirement set forth in § 252.153) beginning on the first day of the ninth quarter following the date on which its combined U.S. assets equal or exceed $100 billion; and (ii) Comply with the requirement to establish or designate a U.S. intermediate holding company requirement set forth in § 252.153(a) beginning on the first day of the ninth quarter following the date on which its U.S. non-branch assets equal or exceed $50 billion or, if the foreign banking organization has established or designated a U.S. intermediate holding company pursuant to § 252.147, beginning on the first day following the date on which the foreign banking organization’s combined U.S. assets equal or exceed $100 billion. (2) Changes in requirements following a change in category. A foreign banking E:\FR\FM\15MYP2.SGM 15MYP2 jbell on DSK3GLQ082PROD with PROPOSALS2 22030 Federal Register / Vol. 84, No. 94 / Wednesday, May 15, 2019 / Proposed Rules organization that changes from one category of banking organization described in § 252.5(c) through (e) to another of such categories must comply with the requirements applicable to the new category under this subpart no later than on the first day of the second quarter following the change in the foreign banking organization’s category. (b) Asset measures—(1) Combined U.S. assets. Combined U.S. assets of a foreign banking organization are equal to the sum of the consolidated assets of each top-tier U.S. subsidiary of the foreign banking organization (excluding any section 2(h)(2) company, if applicable) and the total assets of each U.S. branch and U.S. agency of the foreign banking organization. For purposes of this subpart, ‘‘combined U.S. assets’’ are calculated as the average of the total combined assets of U.S. operations for the four most recent consecutive quarters as reported by the foreign banking organization on the FR Y–7Q, or, if the foreign banking organization has not reported this information on the FR Y–7Q for each of the four most recent consecutive quarters, the average of the combined U.S. assets for the most recent quarter or consecutive quarters as reported on the FR Y–7Q. Combined U.S. assets are measured on the as-of date of the most recent FR Y–7Q used in the calculation of the average. (2) U.S. non-branch assets. U.S. nonbranch assets are equal to the sum of the consolidated assets of each top-tier U.S. subsidiary of the foreign banking organization (excluding any section 2(h)(2) company and DPC branch subsidiary, if applicable). (i) For purposes of this subpart, U.S. non-branch assets of a foreign banking organization are calculated as the average of the sum of the total consolidated assets of the top-tier U.S. subsidiaries of the foreign banking organization (excluding any section 2(h)(2) company and DPC branch subsidiary) for the four most recent consecutive quarters, as reported to the Board on the FR Y–7Q, or, if the foreign banking organization has not reported this information on the FR Y–7Q for each of the four most recent consecutive quarters, the average for the most recent quarter or consecutive quarters as reported on the FR Y–7Q. (ii) In calculating U.S. non-branch assets, a foreign banking organization must reduce its U.S. non-branch assets calculated under this paragraph by the amount corresponding to balances and transactions between a top-tier U.S. subsidiary and any other top-tier U.S. subsidiary (excluding any 2(h)(2) company or DPC branch subsidiary) to VerDate Sep<11>2014 19:09 May 14, 2019 Jkt 247001 the extent such items are not already eliminated in consolidation. (iii) U.S. non-branch assets are measured on the as-of date of the most recent FR Y–7Q used in the calculation of the average. (3) Total consolidated assets. (i) Total consolidated assets of a foreign banking organization are equal to the consolidated assets of the foreign banking organization. For purposes of this subpart, ‘‘total consolidated assets’’ are calculated as the average of the foreign banking organization’s total assets for the four most recent calendar quarters as reported by the foreign banking organization on the FR Y–7Q. If the foreign banking organization has not filed the FR Y–7Q for the four most recent calendar quarters, the Board shall use an average of the foreign banking organization’s total consolidated assets reported on its most recent two FR Y– 7Qs. Total consolidated assets are measured on the as-of date of the most recent FR Y–7Q used in the calculation of the average. (ii) Total consolidated assets of a U.S. intermediate holding company purposes of this subpart are equal to its consolidated assets, calculated based on the average of the holding company’s total consolidated assets in the four most recent quarters as reported quarterly on the FR Y–9C. If the holding company has not filed the FR Y–9C for each of the four most recent calendar quarters, total consolidated assets means the average of its total consolidated assets, as reported on the FR Y–9C, for the most recent quarter or quarters, as applicable. Total consolidated assets are measured on the as-of date of the most recent FR Y–9C used in the calculation of the average to its total consolidated assets, as reported on the FR Y–9C; (c) Cessation of requirements—(1) Enhanced prudential standards applicable to the foreign banking organization. Subject to paragraph (c)(2) of this section, a foreign banking organization will remain subject to the applicable requirements of this subpart until its reported combined U.S. assets on the FR Y–7Q are below $100 billion for each of four consecutive calendar quarters. (2) Intermediate holding company requirement. A foreign banking organization will remain subject to the U.S. intermediate holding company requirement set forth in § 252.153 until the sum of the total consolidated assets of the top-tier U.S. subsidiaries of the foreign banking organization (excluding any section 2(h)(2) company and DPC branch subsidiary) is below $50 billion for each of four consecutive calendar quarters, or until the foreign banking PO 00000 Frm 00044 Fmt 4701 Sfmt 4702 organization is subject to subpart N of this part and is in compliance with the U.S. intermediate holding company requirements as set forth in § 252.147. ■ 37. In § 252.153, revise paragraphs (a)(1) and (3) and (c) through (e) to read as follows: § 252.153 U.S. intermediate holding company requirement for foreign banking organizations with U.S. non-branch assets of $50 billion or more. (a) * * * (1) A foreign banking organization with U.S. non-branch assets of $50 billion or more must establish a U.S. intermediate holding company, or designate an existing subsidiary that meets the requirements of paragraph (a)(2) of this section, as its U.S. intermediate holding company. * * * * * (3) Notice. Within 30 days of establishing or designating a U.S. intermediate holding company under this section, a foreign banking organization must provide to the Board: (i) A description of the U.S. intermediate holding company, including its name, location, corporate form, and organizational structure; (ii) A certification that the U.S. intermediate holding company meets the requirements of this section; and (iii) Any other information that the Board determines is appropriate. * * * * * (c) Alternative organizational structure—(1) General. Upon a written request by a foreign banking organization, the Board may permit the foreign banking organization to establish or designate multiple U.S. intermediate holding companies; use an alternative organizational structure to hold its combined U.S. operations; or not transfer its ownership interests in certain subsidiaries to a U.S. intermediate holding company. (2) Factors. In making a determination under paragraph (c)(1) of this section, the Board may consider whether applicable law would prohibit the foreign banking organization from owning or controlling one or more of its U.S. subsidiaries through a single U.S. intermediate holding company, or whether circumstances otherwise warrant an exception based on the foreign banking organization’s activities, scope of operations, structure, or similar considerations. (3) Request—(i) Contents. A request submitted under this section must include an explanation of why the request should be granted and any other information required by the Board. (ii) Timing. The Board shall act on a request for an alternative organizational E:\FR\FM\15MYP2.SGM 15MYP2 jbell on DSK3GLQ082PROD with PROPOSALS2 Federal Register / Vol. 84, No. 94 / Wednesday, May 15, 2019 / Proposed Rules structure within 90 days of receipt of a complete request, unless the Board provides notice to the company that it is extending the period for action. (4) Conditions. (i) The Board may grant relief under this section upon such conditions as the Board deems appropriate, including, but not limited to, requiring the U.S. operations of the foreign banking organization to comply with additional enhanced prudential standards, or requiring the foreign banking organization to enter into supervisory agreements governing such alternative organizational structure. (ii) If the Board permits a foreign banking organization to form two or more U.S. intermediate holding companies under this section, each U.S. intermediate holding company must determine its category pursuant to section 252.5 of this part as though the U.S. intermediate holding companies were a consolidated company. (d) Modifications. The Board may modify the application of any section of this subpart to a foreign banking organization that is required to form a U.S. intermediate holding company or to such U.S. intermediate holding company if appropriate to accommodate the organizational structure of the foreign banking organization or characteristics specific to such foreign banking organization and such modification is appropriate and consistent with the capital structure, size, complexity, risk profile, scope of operations, or financial condition of each U.S. intermediate holding company, safety and soundness, and the financial stability mandate of section 165 of the Dodd-Frank Act. (e) Enhanced prudential standards for U.S. intermediate holding companies— (1) Capital requirements for a U.S. intermediate holding company. (i)(A) A U.S. intermediate holding company must comply with 12 CFR part 217, other than subpart E of 12 CFR part 217, in the same manner as a bank holding company. (B) A U.S. intermediate holding company may choose to comply with subpart E of 12 CFR part 217. (ii) A U.S. intermediate holding company must comply with capital adequacy standards beginning on the date that it is required to established under this subpart or, if the U.S. intermediate holding company is subject to capital adequacy standards on the date that the foreign banking organization becomes subject to section 252.153(a)(1)(ii), on the date that the foreign banking organization becomes subject to this subpart. (2) Capital planning. (i) A U.S. intermediate holding company with VerDate Sep<11>2014 19:09 May 14, 2019 Jkt 247001 total consolidated assets of $100 billion or more must comply with 12 CFR 225.8 in the same manner as a bank holding company. (ii) A U.S. intermediate holding company with total consolidated assets of $100 billion or more must comply with 12 CFR 225.8 in accordance with the transition provisions of 12 CFR 225.8 of Regulation Y. (3) Risk-management and risk committee requirements—(i) General. A U.S. intermediate holding company must establish and maintain a risk committee that approves and periodically reviews the risk management policies and oversees the risk-management framework of the U.S. intermediate holding company. The risk committee must be a committee of the board of directors of the U.S. intermediate holding company (or equivalent thereof). The risk committee may also serve as the U.S. risk committee for the combined U.S. operations required pursuant to § 252.155(a). (ii) Risk-management framework. The U.S. intermediate holding company’s risk-management framework must be commensurate with the structure, risk profile, complexity, activities, and size of the U.S. intermediate holding company and consistent with the risk management policies for the combined U.S. operations of the foreign banking organization. The framework must include: (A) Policies and procedures establishing risk-management governance, risk-management procedures, and risk-control infrastructure for the U.S. intermediate holding company; and (B) Processes and systems for implementing and monitoring compliance with such policies and procedures, including: (1) Processes and systems for identifying and reporting risks and riskmanagement deficiencies at the U.S. intermediate holding company, including regarding emerging risks and ensuring effective and timely implementation of actions to address emerging risks and risk-management deficiencies; (2) Processes and systems for establishing managerial and employee responsibility for risk management of the U.S. intermediate holding company; (3) Processes and systems for ensuring the independence of the riskmanagement function of the U.S. intermediate holding company; and (4) Processes and systems to integrate risk management and associated controls with management goals and the PO 00000 Frm 00045 Fmt 4701 Sfmt 4702 22031 compensation structure of the U.S. intermediate holding company. (iii) Corporate governance requirements. The risk committee of the U.S. intermediate holding company must meet at least quarterly and otherwise as needed, and must fully document and maintain records of its proceedings, including riskmanagement decisions. (iv) Minimum member requirements. The risk committee must: (A) Include at least one member having experience in identifying, assessing, and managing risk exposures of large, complex financial firms; and (B) Have at least one member who: (1) Is not an officer or employee of the foreign banking organization or its affiliates and has not been an officer or employee of the foreign banking organization or its affiliates during the previous three years; and (2) Is not a member of the immediate family, as defined in § 225.41(b)(3) of the Board’s Regulation Y (12 CFR 225.41(b)(3)), of a person who is, or has been within the last three years, an executive officer, as defined in § 215.2(e)(1) of the Board’s Regulation O (12 CFR 215.2(e)(1)) of the foreign banking organization or its affiliates. (v) The U.S. intermediate holding company must take appropriate measures to ensure that it implements the risk management policies for the U.S. intermediate holding company and it provides sufficient information to the U.S. risk committee to enable the U.S. risk committee to carry out the responsibilities of this subpart. (vi) A U.S. intermediate holding company must comply with risk committee and risk management requirements beginning on the date that it is required to established under this subpart or, if the U.S. intermediate holding company is subject to risk committee and risk management requirements on the date that the foreign banking organization becomes subject to § 252.153(a)(1)(ii), on the date that the foreign banking organization becomes subject to this subpart. (4) Liquidity requirements. (i) A U.S. intermediate holding company must comply with the liquidity riskmanagement requirements in § 252.156 and conduct liquidity stress tests and hold a liquidity buffer pursuant to § 252.157. (ii) A U.S. intermediate holding company must comply with liquidity risk-management, liquidity stress test, and liquidity buffer requirements beginning on the date that it is required to established under this subpart. (5) Stress test requirements. (i)(A) A U.S. intermediate holding company E:\FR\FM\15MYP2.SGM 15MYP2 22032 Federal Register / Vol. 84, No. 94 / Wednesday, May 15, 2019 / Proposed Rules with total consolidated assets of $100 billion or more must comply with the requirements of subpart E of this part in the same manner as a bank holding company; (B) A U.S. intermediate holding company must comply with the requirements of subpart E beginning the later of: (1) The stress test cycle of the calendar year after the calendar year in which it becomes subject to regulatory capital requirements; or (2) In accordance with the transition provisions of subpart E. (ii)(A) A Category II U.S. intermediate holding company and a Category III U.S. intermediate holding company must comply with the requirements of subpart F of this part in the same manner as a bank holding company; (B) A U.S. intermediate holding company must comply with the requirements of subpart F beginning the later of: (1) The stress test cycle of the calendar year after the calendar year in which it becomes subject to regulatory capital requirements; or (2) In accordance with the transition provisions of subpart F. ■ 38. In § 252.154 revise the section heading and paragraphs (a)(1), (b), and (c) to read as follows: jbell on DSK3GLQ082PROD with PROPOSALS2 § 252.154 Risk-based and leverage capital requirements for foreign banking organizations with combined U.S. assets of $100 billion or more. (a) * * * (1) A foreign banking organization with combined U.S. assets of $100 billion or more must certify to the Board that it meets capital adequacy standards on a consolidated basis established by its home-country supervisor that are consistent with the regulatory capital framework published by the Basel Committee on Banking Supervision, as amended from time to time (Basel Capital Framework). * * * * * (b) Reporting. A foreign banking organization with combined U.S. assets of $100 billion or more must provide to the Board reports relating to its compliance with the capital adequacy measures described in paragraph (a) of this section concurrently with filing the FR Y–7Q. (c) Noncompliance with the Basel Capital Framework. If a foreign banking organization does not satisfy the requirements of this section, the Board may impose requirements, conditions, or restrictions relating to the activities or business operations of the U.S. operations of the foreign banking organization. The Board will coordinate VerDate Sep<11>2014 19:09 May 14, 2019 Jkt 247001 with any relevant State or Federal regulator in the implementation of such requirements, conditions, or restrictions. If the Board determines to impose one or more requirements, conditions, or restrictions under this paragraph, the Board will notify the organization before it applies any requirement, condition or restriction, and describe the basis for imposing such requirement, condition, or restriction. Within 14 calendar days of receipt of a notification under this paragraph, the company may request in writing that the Board reconsider the requirement, condition, or restriction. The Board will respond in writing to the organizations request for reconsideration prior to applying the requirement, condition, or restriction. ■ 39. In § 252.155 revise the section heading and paragraphs (a)(1) and (3) and (b)(1) to read as follows: of its U.S. intermediate holding company required pursuant to § 252.153(e)(3). * * * * * (b) * * * (1) General. A foreign banking organization with combined U.S. assets of $100 billion or more or its U.S. intermediate holding company, if any, must appoint a U.S. chief risk officer with experience in identifying, assessing, and managing risk exposures of large, complex financial firms. * * * * * ■ 40. In § 252.156, revise the section heading and paragraphs (a)(1), (b)(1) and (2), (b)(3)(i), (b)(4) through (6), (c)(1), (c)(2)(ii), (d)(1), (e)(1), (e)(2)(i)(A) and (C), (e)(2)(ii)(A), (f), (g) introductory text, (g)(1) introductory text, (g)(1)(i), (g)(3) introductory text, (g)(3)(i), (ii) and (iv), and republish (g)(3)(v) to read as follows: § 252.155 Risk-management and riskcommittee requirements for foreign banking organizations with combined U.S. assets of $100 billion or more. § 252.156 Liquidity risk-management requirements for foreign banking organizations with combined U.S. assets of $100 billion or more. (a) * * * (1) General. Each foreign banking organization with combined U.S. assets of $100 billion or more must maintain a U.S. risk committee that approves and periodically reviews the risk management policies of the combined U.S. operations of the foreign banking organization and oversees the riskmanagement framework of such combined U.S. operations. The U.S. risk committee’s responsibilities include the liquidity risk-management responsibilities set forth in § 252.156(a). * * * * * (3) Placement of the U.S. risk committee. (i) A foreign banking organization that conducts its operations in the United States solely through a U.S. intermediate holding company must maintain its U.S. risk committee as a committee of the board of directors of its U.S. intermediate holding company (or equivalent thereof). (ii) A foreign banking organization that conducts its operations through U.S. branches or U.S. agencies (in addition to through its U.S. intermediate holding company, if any) may maintain its U.S. risk committee either: (A) As a committee of the global board of directors (or equivalent thereof), on a standalone basis or as a joint committee with its enterprise-wide risk committee (or equivalent thereof); or (B) As a committee of the board of directors of its U.S. intermediate holding company (or equivalent thereof), on a standalone basis or as a joint committee with the risk committee (a) * * * (1) The U.S. risk committee established by a foreign banking organization pursuant to § 252.155(a) (or a designated subcommittee of such committee composed of members of the board of directors (or equivalent thereof)) of the U.S. intermediate holding company or the foreign banking organization, as appropriate must: * * * * * (b) * * * (1) Liquidity risk. The U.S. chief risk officer of a foreign banking organization with combined U.S. assets of $100 billion or more must review the strategies and policies and procedures established by senior management of the U.S. operations for managing the risk that the financial condition or safety and soundness of the foreign banking organization’s combined U.S. operations would be adversely affected by its inability or the market’s perception of its inability to meet its cash and collateral obligations (liquidity risk). (2) Liquidity risk tolerance. The U.S. chief risk officer of a foreign banking organization with combined U.S. assets of $100 billion or more must review information provided by the senior management of the U.S. operations to determine whether the combined U.S. operations are operating in accordance with the established liquidity risk tolerance. The U.S. chief risk officer must regularly, and, at least semiannually, report to the foreign banking organization’s U.S. risk committee and enterprise-wide risk committee, or the equivalent thereof (if any) (or a PO 00000 Frm 00046 Fmt 4701 Sfmt 4702 E:\FR\FM\15MYP2.SGM 15MYP2 jbell on DSK3GLQ082PROD with PROPOSALS2 Federal Register / Vol. 84, No. 94 / Wednesday, May 15, 2019 / Proposed Rules designated subcommittee of such committee composed of members of the relevant board of directors (or equivalent thereof)) on the liquidity risk profile of the foreign banking organization’s combined U.S. operations and whether it is operating in accordance with the established liquidity risk tolerance for the U.S. operations, and must establish procedures governing the content of such reports. (3) * * * (i) The U.S. chief risk officer of a foreign banking organization with combined U.S. assets of $100 billion or more must approve new products and business lines and evaluate the liquidity costs, benefits, and risks of each new business line and each new product offered, managed or sold through the foreign banking organization’s combined U.S. operations that could have a significant effect on the liquidity risk profile of the U.S. operations of the foreign banking organization. The approval is required before the foreign banking organization implements the business line or offers the product through its combined U.S. operations. In determining whether to approve the new business line or product, the U.S. chief risk officer must consider whether the liquidity risk of the new business line or product (under both current and stressed conditions) is within the foreign banking organization’s established liquidity risk tolerance for its combined U.S. operations. * * * * * (4) Cash-flow projections. The U.S. chief risk officer of a foreign banking organization with combined U.S. assets of $100 billion or more must review the cash-flow projections produced under paragraph (d) of this section at least quarterly (or more often, if changes in market conditions or the liquidity position, risk profile, or financial condition of the foreign banking organization or the U.S. operations warrant) to ensure that the liquidity risk of the foreign banking organization’s combined U.S. operations is within the established liquidity risk tolerance. (5) Liquidity risk limits. The U.S. chief risk officer of a foreign banking organization with combined U.S. assets of $100 billion or more must establish liquidity risk limits as set forth in paragraph (f) of this section and review the foreign banking organization’s compliance with those limits at least quarterly (or more often, if changes in market conditions or the liquidity position, risk profile, or financial condition of the U.S. operations of the foreign banking organization warrant). VerDate Sep<11>2014 19:09 May 14, 2019 Jkt 247001 (6) Liquidity stress testing. The U.S. chief risk officer of a foreign banking organization with combined U.S. assets of $100 billion or more must: (i) Approve the liquidity stress testing practices, methodologies, and assumptions required in § 252.157(a) at least quarterly, and whenever the foreign banking organization materially revises its liquidity stress testing practices, methodologies or assumptions; (ii) Review the liquidity stress testing results produced under § 252.157(a) of this subpart at least quarterly; and (iii) Approve the size and composition of the liquidity buffer established under § 252.157(c) of this subpart at least quarterly. (c) * * * (1) A foreign banking organization with combined U.S. assets of $100 billion or more must establish and maintain a review function that is independent of the management functions that execute funding for its combined U.S. operations to evaluate the liquidity risk management for its combined U.S. operations. (2) * * * (ii) Assess whether the foreign banking organization’s liquidity risk management function of its combined U.S. operations complies with applicable laws and regulations, and sound business practices; and * * * * * (d) * * * (1) A foreign banking organization with combined U.S. assets of $100 billion or more must produce comprehensive cash-flow projections for its combined U.S. operations that project cash flows arising from assets, liabilities, and off-balance sheet exposures over, at a minimum, shortand long-term time horizons. The foreign banking organization must update short-term cash-flow projections daily and must update longer-term cashflow projections at least monthly. * * * * * (e) * * * (1) A foreign banking organization with combined U.S. assets of $100 billion or more must establish and maintain a contingency funding plan for its combined U.S. operations that sets out the foreign banking organization’s strategies for addressing liquidity needs during liquidity stress events. The contingency funding plan must be commensurate with the capital structure, risk profile, complexity, activities, size, and the established liquidity risk tolerance for the combined U.S. operations. The foreign banking organization must update the PO 00000 Frm 00047 Fmt 4701 Sfmt 4702 22033 contingency funding plan for its combined U.S. operations at least annually, and when changes to market and idiosyncratic conditions warrant. (2) * * * (i) * * * (A) Identify liquidity stress events that could have a significant impact on the liquidity of the foreign banking organization or its combined U.S. operations; * * * * * (C) Identify the circumstances in which the foreign banking organization would implement its action plan described in paragraph (e)(2)(ii)(A) of this section, which circumstances must include failure to meet any minimum liquidity requirement imposed by the Board on the foreign banking organization’s combined U.S. operations; * * * * * (ii) * * * (A) Include an action plan that clearly describes the strategies that the foreign banking organization will use to respond to liquidity shortfalls in its combined U.S. operations for identified liquidity stress events, including the methods that the organization or the combined U.S. operations will use to access alternative funding sources; * * * * * (f) Liquidity risk limits—(1) Liquidity risk limits for Category II and III foreign banking organizations. A Category II foreign banking organization or Category III foreign banking organization must monitor sources of liquidity risk and establish limits on liquidity risk, including limits on: (A) Concentrations in sources of funding by instrument type, single counterparty, counterparty type, secured and unsecured funding, and as applicable, other forms of liquidity risk; (B) The amount of liabilities that mature within various time horizons; and (C) Off-balance sheet exposures and other exposures that could create funding needs during liquidity stress events. (ii) Each limit established pursuant to paragraph (g)(1) of this section must be consistent with the company’s established liquidity risk tolerance and must reflect the organization’s capital structure, risk profile, complexity, activities, and size. (2) Liquidity risk limits for Category IV foreign banking organizations. A Category IV foreign banking organization must monitor sources of liquidity risk and establish limits on liquidity risk that are consistent with the organization’s established liquidity E:\FR\FM\15MYP2.SGM 15MYP2 jbell on DSK3GLQ082PROD with PROPOSALS2 22034 Federal Register / Vol. 84, No. 94 / Wednesday, May 15, 2019 / Proposed Rules risk tolerance and that reflect the organization’s capital structure, risk profile, complexity, activities, and size. (g) Collateral, legal entity, and intraday liquidity risk monitoring. A foreign banking organization with combined U.S. assets of $100 billion or more must establish and maintain procedures for monitoring liquidity risk as set forth in this paragraph. (1) Collateral. The foreign banking organization must establish and maintain policies and procedures to monitor assets that have been or are available to be pledged as collateral in connection with transactions to which entities in its U.S. operations are counterparties. These policies and procedures must provide that the foreign banking organization: (i) Calculates all of the collateral positions for its combined U.S. operations according to the frequency specified in paragraphs (g)(1)(i)(A) and (B) or as directed by the Board, specifying the value of pledged assets relative to the amount of security required under the relevant contracts and the value of unencumbered assets available to be pledged: (A) If the foreign banking organization is not a Category IV foreign banking organization, on a weekly basis; or (B) If the foreign banking organization is a Category IV foreign banking organization, on a monthly basis; * * * * * (3) Intraday exposure. The foreign banking organization must establish and maintain procedures for monitoring intraday liquidity risk exposure for its combined U.S. operations that are consistent with the capital structure, risk profile, complexity, activities, and size of the foreign banking organization and its combined U.S. operations. If the foreign banking organization is a Category II foreign banking organization or a Category III foreign banking organization these procedures must address how the management of the combined U.S. operations will: (i) Monitor and measure expected gross daily inflows and outflows; (ii) Manage and transfer collateral to obtain intraday credit; * * * * * (iv) Manage the issuance of credit to customers where necessary; and (v) Consider the amounts of collateral and liquidity needed to meet payment systems obligations when assessing the overall liquidity needs of the combined U.S. operations. ■ 41. Amend § 252.157 by: ■ a. Revising the section heading and paragraphs (a)(1)(i) introductory text, (a)(1)(ii) through (iv), (a)(2), and (a)(7)(i) and (ii); VerDate Sep<11>2014 19:09 May 14, 2019 Jkt 247001 b. Adding paragraph (a)(8); and c. Revising paragraphs (b) and (c)(1). The revisions and addition read as follows: ■ ■ § 252.157 Liquidity stress testing and buffer requirements for foreign banking organizations with combined U.S. assets of $100 billion or more. (a) * * * (1) * * * (i) A foreign banking organization with combined U.S. assets of $100 billion or more must conduct stress tests to separately assess the potential impact of liquidity stress scenarios on the cash flows, liquidity position, profitability, and solvency of: * * * * * (ii) Each liquidity stress test required under this paragraph (a)(1) must use the stress scenarios described in paragraph (a)(3) of this section and take into account the current liquidity condition, risks, exposures, strategies, and activities of the combined U.S. operations. (iii) The liquidity stress tests required under this paragraph (a)(1) must take into consideration the balance sheet exposures, off-balance sheet exposures, size, risk profile, complexity, business lines, organizational structure and other characteristics of the foreign banking organization and its combined U.S. operations that affect the liquidity risk profile of the combined U.S. operations. (iv) In conducting a liquidity stress test using the scenarios described in paragraphs (a)(3)(i) and (iii) of this section, the foreign banking organization must address the potential direct adverse impact of associated market disruptions on the foreign banking organization’s combined U.S. operations and the related indirect effect such impact could have on the combined U.S. operations of the foreign banking organization and incorporate the potential actions of other market participants experiencing liquidity stresses under the market disruptions that would adversely affect the foreign banking organization or its combined U.S. operations. (2) Frequency. The foreign banking organization must perform the liquidity stress tests required under paragraph (a)(1) according to the frequency specified in paragraphs (a)(2)(i) and (ii) or as directed by the Board: (i) If the foreign banking organization is not a Category IV foreign banking organization, at least monthly; or (ii) If the foreign banking organization is a Category IV foreign banking organization, at least quarterly. * * * * * (7) * * * PO 00000 Frm 00048 Fmt 4701 Sfmt 4702 (i) Stress test function. A foreign banking organization with combined U.S. assets of $100 billion or more, within its combined U.S. operations and its enterprise-wide risk management, must establish and maintain policies and procedures governing its liquidity stress testing practices, methodologies, and assumptions that provide for the incorporation of the results of liquidity stress tests in future stress testing and for the enhancement of stress testing practices over time. (ii) Controls and oversight. The foreign banking organization must establish and maintain a system of controls and oversight that is designed to ensure that its liquidity stress testing processes are effective in meeting the requirements of this section. The controls and oversight must ensure that each liquidity stress test appropriately incorporates conservative assumptions with respect to the stress scenario in paragraph (a)(3) of this section and other elements of the stress-test process, taking into consideration the capital structure, risk profile, complexity, activities, size, and other relevant factors of the combined U.S. operations. These assumptions must be approved by U.S. chief risk officer and subject to independent review consistent with the standards set out in § 252.156(c). * * * * * (8) Notice and response. If the Board determines that a foreign banking organization must conduct liquidity stress tests according to a frequency other than the frequency provided in paragraphs (a)(2)(i) and (ii) of this section, the Board will notify the foreign banking organization before the change in frequency takes effect, and describe the basis for its determination. Within 14 calendar days of receipt of a notification under this paragraph, the foreign banking organization may request in writing that the Board reconsider the requirement. The Board will respond in writing to the organization’s request for reconsideration prior to requiring the foreign banking organization to conduct liquidity stress tests according to a frequency other than the frequency provided in paragraphs (a)(2)(i) and (ii) of this section. (b) Reporting of liquidity stress tests required by home-country regulators. A foreign banking organization with combined U.S. assets of $100 billion or more must make available to the Board, in a timely manner, the results of any liquidity internal stress tests and establishment of liquidity buffers required by regulators in its home jurisdiction. The report required under E:\FR\FM\15MYP2.SGM 15MYP2 Federal Register / Vol. 84, No. 94 / Wednesday, May 15, 2019 / Proposed Rules this paragraph must include the results of its liquidity stress test and liquidity buffer, if required by the laws or regulations implemented in the home jurisdiction, or expected under supervisory guidance. (c) * * * (1) General. A foreign banking organization with combined U.S. assets of $100 billion or more must maintain a liquidity buffer for its U.S. intermediate holding company, if any, calculated in accordance with paragraph (c)(2) of this section, and a separate liquidity buffer for its U.S. branches and agencies, if any, calculated in accordance with paragraph (c)(3) of this section. * * * * * ■ 42. In § 252.158, revise the section heading and paragraphs (b)(1) introductory text, (b)(2)(i), (c)(1) introductory text and (c)(2) introductory text to read as follows: § 252.158 Capital stress testing requirements for foreign banking organizations with combined U.S. assets of $100 billion or more. jbell on DSK3GLQ082PROD with PROPOSALS2 * * * * * (b) * * * (1) A foreign banking organization with combined U.S. assets of $100 billion or more and that has a U.S. branch or U.S. agency must: * * * * * (2) * * * (i) A supervisory capital stress test conducted by the foreign banking organization’s home-country supervisor or an evaluation and review by the foreign banking organization’s homecountry supervisor of an internal capital adequacy stress test conducted by the foreign banking organization, according to the frequency specified in paragraphs (b)(2)(A) and (B): (A) If the foreign banking organization is not a Category IV foreign banking organization, on at least an annual basis; or (B) If the foreign banking organization is a Category IV foreign banking organization, at least biennially; and * * * * * (c) * * * (1) In general. A foreign banking organization with combined U.S. assets of $100 billion or more must report to the Board by January 5 of each calendar year, unless such date is extended by the Board, summary information about its stress-testing activities and results, including the following quantitative and qualitative information: * * * * * (2) Additional information required for foreign banking organizations in a VerDate Sep<11>2014 19:09 May 14, 2019 Jkt 247001 net due from position. If, on a net basis, the U.S. branches and agencies of a foreign banking organization with combined U.S. assets of $100 billion or more provide funding to the foreign banking organization’s non-U.S. offices and non-U.S. affiliates, calculated as the average daily position over a stress test cycle for a given year, the foreign banking organization must report the following information to the Board by January 5 of each calendar year, unless such date is extended by the Board: * * * * * Subpart Q—Single-Counterparty Credit Limits 43. Revise § 252.170 to read as follows: ■ § 252.170 Applicability and general provisions. (a) In general. (1) This subpart establishes single counterparty credit limits for a covered foreign entity. (2) For purposes of this subpart: (i) Covered foreign entity means: (A) A Category II foreign banking organization; (B) A Category III foreign banking organization; (C) A foreign banking organization with total consolidated assets that equal or exceed $250 billion with respect to its combined U.S. operations; and (D) Any U.S. intermediate holding company of a Category II foreign banking organization or a Category III foreign banking organization. (ii) Major foreign banking organization means a foreign banking organization that is a covered foreign entity and meets the requirements of § 252.172(c)(3) through (5). (b) Credit exposure limits. (1) Section 252.172 establishes credit exposure limits for covered foreign entities and major foreign banking organizations. (2) A covered foreign entity is required to calculate its aggregate net credit exposure, gross credit exposure, and net credit exposure to a counterparty using the methods in this subpart. (c) Applicability of this subpart—(1) Foreign banking organizations. (i) A foreign banking organization that is a covered foreign entity as of October 5, 2018, must comply with the requirements of this subpart, including but not limited to § 252.172, beginning on July 1, 2020, unless that time is extended by the Board in writing. (ii) Notwithstanding paragraph (c)(1)(i) of this section, a foreign banking organization that is a major foreign banking organization as of October 5, 2018, must comply with the PO 00000 Frm 00049 Fmt 4701 Sfmt 4702 22035 requirements of this subpart, including but not limited to § 252.172, beginning on January 1, 2020, unless that time is extended by the Board in writing. (iii) A foreign banking organization that becomes a covered foreign entity subject to this subpart after October 5, 2018, must comply with the requirements of this subpart beginning on the first day of the ninth calendar quarter after it becomes a covered foreign entity, unless that time is accelerated or extended by the Board in writing. (2) U.S. intermediate holding companies. (i) A U.S. intermediate holding company that is a covered foreign entity as of October 5, 2018, must comply with the requirements of this subpart, including but not limited to § 252.172, beginning on July 1, 2020, unless that time is extended by the Board in writing. (ii) [Reserved] (iii) A U.S. intermediate holding company that becomes a covered foreign entity subject to this subpart after October 5, 2018, must comply with the requirements of this subpart beginning on the first day of the ninth calendar quarter after it becomes a covered foreign entity, unless that time is accelerated or extended by the Board in writing. (d) Cessation of requirements—(1) Foreign banking organizations. (i) Any foreign banking organization that becomes a covered foreign entity will remain subject to the requirements of this subpart unless and until: (A) The covered foreign entity is not a Category II foreign banking organization; (B) The covered foreign entity is not a Category III foreign banking organization; and (C) Its total consolidated assets fall below $250 billion for each of four consecutive quarters, as reported on the covered foreign entity’s FR Y–7Q, effective on the as-of date of the fourth consecutive FR Y–7Q. (ii) A foreign banking organization that is a covered foreign entity and that has ceased to be a major foreign banking organization for purposes of § 252.172(c) is no longer subject to the requirements of § 252.172(c) beginning on the first day of the calendar quarter following the reporting date on which it ceased to be a major foreign banking organization; provided that the foreign banking organization remains subject to the requirements of this subpart, unless it ceases to be a foreign banking organization that is a covered foreign entity pursuant to paragraph (d)(1)(i) of this section. E:\FR\FM\15MYP2.SGM 15MYP2 22036 Federal Register / Vol. 84, No. 94 / Wednesday, May 15, 2019 / Proposed Rules (2) U.S. intermediate holding companies. (i) Any U.S. intermediate holding company that becomes a covered foreign entity will remain subject to the requirements of this subpart unless and until: (A) The covered foreign entity is not the subsidiary of a Category II foreign banking organization; (B) The covered foreign entity is not the subsidiary of a Category III foreign banking organization; or (C) The covered foreign entity’s total consolidated assets fall below $50 billion for each of four consecutive quarters, as reported on the covered foreign entity’s FR Y–9C, effective on the as-of date of the fourth consecutive FR Y–9C. ■ 44. Amend § 252.171 by; ■ a. Revising paragraph (f)(1); ■ b. Removing paragraph (aa); and ■ c. Redesignating paragraphs (bb) through (ll) as (aa) through (kk) respectively. The revision reads as follows: § 252.171 Definitions. * * * * * (f) * * * (1) With respect to a natural person, the natural person, and, if the credit exposure of the covered foreign entity to such natural person exceeds 5 percent of its tier 1 capital, the natural person and members of the person’s immediate family collectively; * * * * * ■ 45. Amend § 252.172 by: ■ a. Removing and reserving paragraph (a); ■ b. Revising paragraph (b); ■ c. Removing and reserving paragraph (c)(1); and ■ d. Revising paragraph (c)(2). The revisions read as follows: § 252.172 Credit exposure limits. * * * * (b) Limit on aggregate net credit exposure for covered foreign entities. (1) No U.S. intermediate holding company that is a covered foreign entity may have an aggregate net credit exposure to any counterparty that exceeds 25 percent of the tier 1 capital of the U.S. intermediate holding company. (2) No foreign banking organization that is a covered foreign entity may permit its combined U.S. operations to jbell on DSK3GLQ082PROD with PROPOSALS2 * VerDate Sep<11>2014 19:09 May 14, 2019 Jkt 247001 have aggregate net credit exposure to any counterparty that exceeds 25 percent of the tier 1 capital of the foreign banking organization. (c) * * * (2) No major foreign banking organization may permit its combined U.S. operations to have aggregate net credit exposure to any major counterparty that exceeds 15 percent of the tier 1 capital of the major foreign banking organization. * * * * * ■ 46. Amend § 252.173 by removing and reserving paragraph (b)(1) and revising paragraph (b)(2) to read as follows: § 252.173 Gross credit exposure. * * * * * (b) * * * (2) A covered foreign entity must calculate pursuant to § 252.175 its gross credit exposure due to any investment in the debt or equity of, and any credit derivative or equity derivative between the covered foreign entity and a third party where the covered foreign entity is the protection provider and the reference asset is an obligation or equity security of, or equity investment in, a securitization vehicle, investment fund, and other special purpose vehicle that is not an affiliate of the covered foreign entity. * * * * * § 252.175 [Amended] 47. In § 252.175, remove and reserve paragraph (a)(1) to read as follows: ■ 48. In § 252.176 remove and reserve paragraph (a)(1) and revise paragraph (a)(2)(i) to read as follows: ■ § 252.176 Aggregation of exposures to more than one counterparty due to economic interdependence or control relationships. (a) * * * (2)(i) If a covered foreign entity has an aggregate net credit exposure to any counterparty that exceeds 5 percent of its tier 1 capital, the covered foreign entity must assess its relationship with the counterparty under paragraph (b)(2) of this section to determine whether the counterparty is economically interdependent with one or more other counterparties of the covered foreign entity and under paragraph (c)(1) of this section to determine whether the PO 00000 Frm 00050 Fmt 4701 Sfmt 9990 counterparty is connected by a control relationship with one or more other counterparties. * * * * * ■ 49. Amend § 252.178 by: ■ a. Revising paragraph (a)(1); ■ b. Removing and reserving paragraph (a)(2); and ■ c. Revising paragraph (c)(2). The revisions read as follows: § 252.178 Compliance. (a) * * * (1) Using all available data, including any data required to be maintained or reported to the Federal Reserve under this subpart, a covered foreign entity must comply with the requirements of this subpart on a daily basis at the end of each business day. * * * * * (c) * * * (2) A covered foreign entity may request a special temporary credit exposure limit exemption from the Board. The Board may grant approval for such exemption in cases where the Board determines that such credit transactions are necessary or appropriate to preserve the safety and soundness of the covered foreign entity or U.S. financial stability. In acting on a request for an exemption, the Board will consider the following: (i) A decrease in the covered foreign entity’s tier 1 capital; (ii) The merger of the covered foreign entity with another covered foreign entity; (iii) A merger of two counterparties; or (iv) An unforeseen and abrupt change in the status of a counterparty as a result of which the covered foreign entity’s credit exposure to the counterparty becomes limited by the requirements of this section; or (v) Any other factor(s) the Board determines, in its discretion, is appropriate. * * * * * By order of the Board of Governors of the Federal Reserve System. Ann Misback, Secretary of the Board. [FR Doc. 2019–07895 Filed 5–14–19; 8:45 am] BILLING CODE 6210–01–P E:\FR\FM\15MYP2.SGM 15MYP2

Agencies

FEDERAL RESERVE SYSTEM

[Federal Register Volume 84, Number 94 (Wednesday, May 15, 2019)]
[Proposed Rules]
[Pages 21988-22036]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-07895]



[[Page 21987]]

Vol. 84

Wednesday,

No. 94

May 15, 2019

Part III





Federal Reserve System





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12 CFR Parts 217, 225, 238, et al.





Prudential Standards for Large Foreign Banking Organizations; Revisions 
to Proposed Prudential Standards for Large Domestic Bank Holding 
Companies and Savings and Loan Holding Companies; Proposed Rule

Federal Register / Vol. 84, No. 94 / Wednesday, May 15, 2019 / 
Proposed Rules

[[Page 21988]]


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FEDERAL RESERVE SYSTEM

12 CFR Parts 217, 225, 238, and 252

[Regulations Q, Y, LL, and YY; Docket No. R-1658; RIN 7100-AF45]


Prudential Standards for Large Foreign Banking Organizations; 
Revisions to Proposed Prudential Standards for Large Domestic Bank 
Holding Companies and Savings and Loan Holding Companies

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

ACTION: Notice of proposed rulemaking with request for public comment.

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SUMMARY: The Board is requesting comment on a proposed rule that would 
revise the framework for applying the enhanced prudential standards 
applicable to foreign banking organizations under section 165 of the 
Dodd-Frank Wall Street Reform and Consumer Protection Act, as amended 
by the Economic Growth, Regulatory Relief, and Consumer Protection Act. 
The proposal would establish categories that would be used to tailor 
the stringency of enhanced prudential standards based on the risk 
profile of a foreign banking organization's operations in the United 
States. The proposal also would amend certain enhanced prudential 
standards, including standards relating to liquidity, risk management, 
stress testing, and single-counterparty credit limits, and would make 
corresponding changes to reporting forms. The proposal would make 
clarifying revisions and technical changes to the Board's October 31, 
2018, proposal for large U.S. bank holding companies and certain 
savings and loan holding companies relating to the Board's internal 
liquidity stress testing requirements and GSIB surcharge rule. 
Separately, the Board, the Office of the Comptroller of the Currency 
(OCC) and the Federal Deposit Insurance Corporation (FDIC) (together, 
the agencies) are requesting comment on a proposal to revise the 
applicability of the agencies' capital and liquidity requirements for 
foreign banking organizations based on the same categories, and the 
Board is requesting comment on whether it should impose standardized 
liquidity requirements on the U.S. branch and agency network of a 
foreign banking organization, as well as possible approaches for doing 
so. In addition, the Board and the FDIC are separately requesting 
comment on a proposal to revise the applicability of the resolution 
planning requirements applicable to large U.S. banking organizations 
and foreign banking organizations, using a category approach that is 
broadly consistent with the one set forth in this proposal.

DATES: Comments on the proposal, including elements of the proposal 
that would be applied to domestic banking organizations and foreign 
banking organizations, and other clarifying revisions and technical 
changes discussed in section II.G of the Supplementary Information 
Section, must be received by June 21, 2019.

ADDRESSES: You may submit comments, identified by Docket No. R-1658 and 
RIN 7100-AF45, by any of the following methods:
     Agency Website: https://www.federalreserve.gov. Follow the 
instructions for submitting comments at https://www.federalreserve.gov/apps/foia/proposedregs.aspx.
     Email: [email protected]. 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 website at 
https://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm as 
submitted, unless modified for technical reasons or to remove sensitive 
personally identifiable information at the commenter's request. Public 
comments may also be viewed electronically or in paper form in Room 
146, 1709 New York Avenue, Washington, DC 20006 between 9:00 a.m. and 
5:00 p.m. on weekdays.

FOR FURTHER INFORMATION CONTACT: Constance Horsley, Deputy Associate 
Director, (202) 452-5239; Elizabeth MacDonald, Manager, (202) 475-6316; 
Brian Chernoff, Lead Financial Institution Policy Analyst, (202) 452-
2952; Mark Handzlik, Lead Financial Institution Policy Analyst, (202) 
475-6636, J. Kevin Littler, Lead Financial Institution Policy Analyst, 
(202) 475-6677; Matthew McQueeney, Senior Financial Institution Policy 
Analyst II, (202) 452-2942; or Christopher Powell, Senior Financial 
Policy Analyst II, (202) 452-3442, Division of Banking Supervision and 
Regulation; or Laurie Schaffer, Associate General Counsel, (202) 452-
2272; Benjamin McDonough, Assistant General Counsel (202) 452-2036; 
Asad Kudiya, Counsel, (202) 475-6358; Jason Shafer, Counsel (202) 728-
5811; Mary Watkins, Senior Attorney, (202) 452-3722; or Alyssa 
O'Connor, Attorney, (202) 452-3886, Legal Division. Board of Governors 
of the Federal Reserve System, 20th and C Streets NW, Washington, DC 
20551.

SUPPLEMENTARY INFORMATION:

Table of Contents

I. Introduction
    A. Background
    B. Considerations in Tailoring Enhanced Prudential Standards for 
Foreign Banking Organizations
II. Overview of the Proposal
    A. Scope of Application
    B. Scoping Criteria for Proposed Categories
    1. Size
    2. Other Risk-Based Indicators
    a. Cross-Jurisdictional Activity
    b. Nonbank Assets
    c. Off-Balance Sheet Exposure
    d. Weighted Short-Term Wholesale Funding
    3. Alternative Scoping Criteria
    4. Determination of Applicable Category of Standards
    C. Enhanced Prudential Standards for Foreign Banking 
Organizations
    1. Category II Standards
    2. Category III Standards
    3. Category IV Standards
    D. Single-Counterparty Credit Limits
    E. Risk-Management and Risk Committee Requirements
    F. Enhanced Prudential Standards for Foreign Banking 
Organizations With a Smaller U.S. Presence
    G. Technical Changes to the Regulatory Framework for Foreign 
Banking Organizations and Domestic Banking Organizations
III. Proposed Reporting Changes
IV. Impact Assessment
    A. Liquidity
    B. Capital Planning and Stress Testing
    C. Single-Counterparty Credit Limits
V. Administrative Law Matters
    A. Solicitation of Comments and Use of Plain Language
    B. Paperwork Reduction Act Analysis
    C. Regulatory Flexibility Act Analysis

I. Introduction

    The Board of Governors of the Federal Reserve System (Board) is 
requesting comment on a proposed rule (the proposal) that would revise 
the framework for applying enhanced prudential standards to foreign 
banking organizations with total consolidated assets of $100 billion or 
more.\1\

[[Page 21989]]

Specifically, the proposal would revise the thresholds for application 
of enhanced prudential standards to foreign banking organizations and 
tailor the stringency of those standards based on the U.S. risk 
profiles of these firms. The proposal generally would align with the 
framework the Board proposed for large U.S. bank holding companies and 
certain savings and loan holding companies on October 31, 2018 (the 
domestic proposal).\2\ The proposal also is consistent with the Board's 
ongoing efforts to assess the impact of its regulations while exploring 
alternatives that achieve regulatory objectives and improve upon the 
regulatory framework's simplicity, transparency, and efficiency.
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    \1\ Foreign banking organization means a foreign bank that 
operates a branch, agency, or commercial lending company subsidiary 
in the United States; controls a bank in the United States; or 
controls an Edge corporation acquired after March 5, 1987; and any 
company of which the foreign bank is a subsidiary. See 12 CFR 
211.21(o); 12 CFR 252.2(k). An agency is place of business of a 
foreign bank, located in any state, at which credit balances are 
maintained, checks are paid, money is lent, or, to the extent not 
prohibited by state or federal law, deposits are accepted from a 
person or entity that is not a citizen or resident of the United 
States. A branch is a place of business of a foreign bank, located 
in any state, at which deposits are received and that is not an 
agency. See 12 CFR 211.21(b) and (e).
    \2\ Prudential Standards for Large Bank Holding Companies and 
Savings and Loan Holding Companies, 83 FR 61408 (November 29, 2018).
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    Under the proposal, a foreign banking organization with $100 
billion or more in total consolidated assets and a significant U.S. 
presence would be subject to Category II, Category III, or Category IV 
\3\ enhanced prudential standards depending on the size of its U.S. 
operations and the materiality of the same risk-based indicators that 
were included in the domestic proposal: Cross-jurisdictional activity, 
nonbank assets, off-balance sheet exposure, and weighted short-term 
wholesale funding, as discussed below.\4\ Foreign banking organizations 
with $100 billion or more in total consolidated assets that do not meet 
the thresholds for application of Category II, Category III, or 
Category IV standards due to their limited U.S. presence would be 
subject to requirements that largely defer to compliance with similar 
home-country standards at the consolidated level, with the exception of 
certain risk-management standards.
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    \3\ Category I standards would apply only to U.S. global 
systemically important bank holding companies. See infra note 28.
    \4\ As explained further in this Supplementary Information 
section, cross-jurisdictional activity would be measured (a) 
excluding intercompany liabilities; and (b) would allow recognition 
of financial collateral in calculating intercompany claims.
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A. Background

    The financial crisis revealed significant weaknesses in resiliency 
and risk management in the financial sector, and demonstrated how the 
failure or distress of large, leveraged, and interconnected financial 
companies, including foreign banking organizations, could pose a threat 
to U.S. financial stability. Certain foreign banking organizations with 
the largest, most complex U.S. subsidiary operations maintained 
insufficient capital in the United States and were not appropriately 
positioned to support losses among those operations. Accordingly, these 
firms were forced to significantly reduce assets in the United States 
to address capital deficiencies. In addition, the funding models of 
many foreign banking organizations presented unique vulnerabilities, as 
they relied on dollar-denominated short-term wholesale funding obtained 
in the United States to fund their global investment activities. 
Disruptions in the U.S. wholesale funding market limited the ability of 
these firms to satisfy liquidity demands, as some of them lacked 
adequate risk-management practices to account for the liquidity 
stresses of individual products or business lines, had not adequately 
accounted for draws from off-balance sheet exposures, or had not 
adequately planned for a disruption in funding sources. As a result, 
many experienced significant distress and required unprecedented 
liquidity support from U.S. and home-country authorities.\5\ For 
example, analysis using Federal Reserve Board data on Term Auction 
Facility usage in 2008 and 2009 finds that approximately 40 percent of 
foreign banking organizations borrowed from the facility during the 
financial crisis. Furthermore, on average, U.S. branches of foreign 
banking organizations that used the facility funded approximately 10 
percent of their assets through the Term Auction Facility during this 
period.
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    \5\ See, e.g., Goldberg and Skeie, 2011, ``Why did U.S. branches 
of foreign banks borrow at the discount window during the crisis?'', 
Liberty Street Economics Blog, Federal Reserve Bank of New York.
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    Section 165 of the Dodd-Frank Act was enacted in response to the 
financial crisis and directed the Board to establish enhanced 
prudential standards for foreign banking organizations with total 
consolidated assets of $50 billion or more.\6\ These standards must 
include enhanced risk-based capital and leverage requirements, 
liquidity requirements, risk-management requirements, and stress test 
requirements, among others.\7\ These standards also must increase in 
stringency based on certain statutory considerations in section 165.\8\ 
In applying section 165 to foreign banking organizations, the Dodd-
Frank Act also directs the Board to give due regard to the principles 
of national treatment and equality of competitive opportunity and to 
take into account the extent to which a foreign banking organization is 
subject, on a consolidated basis, to home-country standards that are 
comparable to those applied to financial companies in the United 
States.\9\
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    \6\ 12 U.S.C. 5365.
    \7\ In addition, the Dodd-Frank Act authorizes the Board to 
establish additional enhanced prudential standards relating to 
contingent capital, public disclosures, short-term debt limits, and 
such other prudential standards as the Board determines appropriate.
    \8\ See 12 U.S.C. 5365(a)(1), (b)(3).
    \9\ 12 U.S.C. 5365(b)(2).
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    The Board's enhanced prudential standards implement section 165 of 
the Dodd-Frank Act and strengthen capital, liquidity, risk-management, 
and other prudential standards for banking organizations.\10\ In 
applying section 165 to foreign banking organizations, the Board has 
tailored enhanced prudential standards based, in part, on the size and 
complexity of a foreign banking organization's activities in the United 
States. The standards applicable to foreign banking organizations with 
a more limited U.S. presence largely rely on compliance with comparable 
home-country standards applied at the consolidated foreign parent 
level. In comparison, a foreign banking organization with a significant 
U.S. presence is subject to enhanced prudential standards and 
supervisory expectations that apply to its combined U.S. 
operations.\11\ A foreign banking organization with U.S. non-branch 
assets of $50 billion or more \12\ also must form a U.S. intermediate 
holding company \13\ that must calculate risk-based and leverage 
capital ratios, create a risk-management structure (including for the 
management of liquidity risk), and engage in stress testing in a manner 
comparable to a similarly situated U.S. bank holding company.\14\
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    \10\ 12 CFR part 252.
    \11\ The combined U.S. operations of a foreign banking 
organization include any U.S. subsidiaries (including any U.S. 
intermediate holding company, which would reflect on a consolidated 
basis any U.S. depository institution subsidiaries thereof), U.S. 
branches, and U.S. agencies.
    \12\ U.S. non-branch assets are defined in Regulation YY. See 12 
CFR 252.152(b)(2).
    \13\ Risk-management and liquidity standards, as well as single-
counterparty credit limits, apply to a foreign banking organization 
at the level of its combined U.S. operations. Capital standards 
apply to a U.S. intermediate holding company, but they do not apply 
to U.S. branches and agencies, which are not required to maintain 
regulatory capital separately from the foreign banks of which they 
are a part.
    \14\ 12 CFR 252.153 et seq.
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    The presence of foreign banking organizations in the United States 
brings competitive and countercyclical benefits to U.S. markets, as 
these firms serve as an important source of credit to U.S. households 
and businesses and contribute materially to the strength and liquidity 
of U.S. financial markets. Post-

[[Page 21990]]

crisis financial regulations have resulted in substantial gains in 
resiliency for individual firms and the financial system as a whole. 
Foreign banking organizations' U.S. operations have become less 
fragmented and maintain more capital and liquidity in the United 
States.\15\ In addition, the U.S. operations of foreign banking 
organizations subject to enhanced prudential standards generally have 
made significant improvements in risk identification and management, 
data infrastructure, and controls. These improvements have helped to 
build a more resilient financial system that is better positioned to 
provide American consumers, businesses, and communities access to the 
credit they need, even under challenging economic conditions.
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    \15\ Sources: Consolidated Financial Statements for Holding 
Companies (FR Y-9C) and Complex Institution Liquidity Monitoring 
Report (FR 2052a).
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    The U.S. operations of foreign banking organizations vary in their 
complexity and systemic significance, and can present significant risks 
to U.S. financial stability. As shown in the financial crisis, 
disproportionate use of dollar-denominated short-term wholesale funding 
relative to more stable, insured deposits presents significant risks to 
U.S. financial stability and the safety and soundness of an individual 
firm; some foreign banking organizations remain heavily reliant on this 
source of funding. Among all foreign banking organizations with 
combined U.S. assets \16\ of $100 billion or more, short-term wholesale 
funding is equivalent to approximately 30 percent of their U.S. assets, 
ranging from 10 percent to as much as 60 percent.\17\ U.S. branches of 
these firms tend to have particularly high reliance on short-term 
wholesale funding because they generally lack access to retail 
deposits.
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    \16\ See, infra note 18.
    \17\ Source: FR 2052a, as of June 30, 2018.
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    In addition, some foreign banking organizations engage in complex 
activities through broker-dealers in the United States, which are 
highly interconnected to U.S. and foreign financial intermediaries. 
Among foreign banking organizations with combined U.S. assets of $100 
billion or more, U.S. broker-dealer subsidiaries comprise approximately 
25 percent of these firms' U.S. assets in aggregate, with a range of 
zero to 50 percent at individual firms.\18\ Overall, total nonbank 
assets, including broker-dealer subsidiaries, in aggregate comprise 
approximately 25 percent of the combined U.S. assets of these firms, 
with a range of zero to 70 percent at individual firms.\19\ The crisis 
experience demonstrated that nonbank activities could exacerbate the 
effects of a banking organization's distress or failure, due to the 
business and operational complexities associated with these activities.
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    \18\ Sources: Parent Company Only Financial Statements for Large 
Holding Companies (FR Y-9LP), The Capital and Asset Report for 
Foreign Banking Organizations (FR Y-7Q), and the Securities Exchange 
Commission's Financial and Operational Combined Uniform Single 
Report, as of September 30, 2018.
    \19\ Id.
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    The U.S. operations of some foreign banking organizations also 
exhibit greater complexity and face risks due to significant levels of 
cross-jurisdictional activity and off-balance sheet exposure. Among 
foreign banking organizations with combined U.S. assets of $100 billion 
or more, cross-jurisdictional activity (excluding cross-jurisdictional 
liabilities to non-U.S. affiliates) \20\ is equivalent to approximately 
30 percent of those assets, ranging from 13 to as much as 81 percent, 
whereas off-balance sheet exposure is equivalent to approximately 30 
percent of those assets, ranging from 10 to as much as 51 percent.\21\ 
As discussed below, both cross-jurisdictional activity and off-balance 
sheet exposure provide a measure of a banking organization's 
interconnectedness, as well as other risks.
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    \20\ See section II.B.2.a of this Supplementary Information 
section. In addition, while the proposal would allow recognition of 
financial collateral in calculating intercompany claims, recognition 
of financial collateral is not reflected in this analysis.
    \21\ This analysis was based on data compiled from the FR Y-7Q, 
as well as information collected from certain foreign banking 
organizations supervised by the Board as of September 30, 2018.
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    The Board is proposing to modify the enhanced prudential standards 
framework applicable to foreign banking organizations in a manner 
commensurate with the risks such organizations pose to U.S. financial 
stability, based on the risk-based indicators set forth in this 
proposal.

B. Considerations in Tailoring Enhanced Prudential Standards for 
Foreign Banking Organizations

    The Board conducts periodic reviews of its rules to update, reduce 
unnecessary costs associated with, and streamline regulatory 
requirements based on its supervisory experience and consistent with 
the effective implementation of its statutory responsibilities. These 
efforts include assessing the impact of regulations as well as 
exploring alternative approaches that achieve regulatory objectives 
while improving the regulatory framework's simplicity, transparency, 
and efficiency. The proposal is the result of this practice, and 
reflects amendments to section 165 of the Dodd-Frank Act under the 
Economic Growth, Regulatory Relief, and Consumer Protection Act 
(EGRRCPA).\22\
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    \22\ Public Law 115-174, 132 Stat. 1296 (2018).
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    The proposal would raise the asset size threshold for the 
application of enhanced prudential standards to foreign banking 
organizations, consistent with EGRRCPA, and is designed to more 
precisely address the risks presented by foreign banking organizations 
to U.S. financial stability in a manner that broadly aligns with the 
domestic proposal. The proposal builds upon the Board's practice of 
tailoring enhanced prudential standards applied to foreign banking 
organizations based on the risk profile of their combined U.S. 
operations. By applying standards that are broadly consistent with the 
standards that would apply to U.S. bank holding companies of a similar 
risk profile under the domestic proposal, this proposal would take into 
account the principles of national treatment and equality of 
competitive opportunity between foreign and domestic banking 
organizations.
    The proposal would distinguish the manner in which a foreign 
banking organization determines its applicable category of capital 
standards as compared to its applicable category for all other 
standards. For risk-management standards, liquidity standards, and 
single-counterparty credit limits, a foreign banking organization would 
determine the applicable category based on the risk profile of its 
combined U.S. operations. This approach is consistent with the current 
enhanced prudential standards framework and recognizes that certain 
risks are more appropriately regulated across the combined U.S. 
operations of a foreign banking organization to prevent or mitigate 
risks to U.S. financial stability. For example, funding vulnerabilities 
at a U.S. branch can expose a foreign banking organization's other U.S. 
operations to heightened liquidity risk because their customers and 
counterparties may not distinguish liquidity stress at one component of 
the U.S. operations from the liquidity position of another part of the 
U.S. operations. As a result, liquidity stress among the combined U.S. 
operations of a foreign banking organization can manifest rapidly and 
simultaneously, regardless of the source of that risk. Similarly, 
single-counterparty credit limits that are based on and apply only to 
one aspect of a foreign banking organization's operations in the United 
States can create an incentive to

[[Page 21991]]

concentrate risk elsewhere in the organization's U.S. operations.
    More generally, the tendency of market participants to take a more 
holistic view of the financial strength and resilience of a foreign 
banking organization's U.S. operations underscores the importance of 
applying enhanced prudential standards comprehensively across those 
operations. Accordingly, consistent with the current enhanced 
prudential standards framework, the proposal would apply risk-
management and liquidity standards, as well as single-counterparty 
credit limits, to a foreign banking organization at the level of its 
combined U.S. operations.
    For capital standards, a foreign banking organization would 
determine the applicable category based on the risk profile of its U.S. 
intermediate holding company, if any,\23\ and not the combined U.S. 
operations of the foreign banking organization.\24\ Capital standards 
under the proposed categories would apply to a foreign banking 
organization at the U.S. intermediate holding company level. This 
approach is consistent with the current enhanced prudential standards 
framework and recognizes that U.S. branches and agencies do not 
maintain regulatory capital separately from their foreign parents.
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    \23\ A foreign banking organization with no U.S. intermediate 
holding company would be subject to requirements that defer largely 
to compliance with home-country capital standards. Any U.S. bank 
holding company or depository institution subsidiary of the foreign 
banking organization would continue to be subject to the generally 
applicable capital requirements under the agencies' regulatory 
capital rule.
    \24\ See supra note 9.
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    The visual below provides a simplified illustration of a how a 
foreign banking organization may structure its U.S. operations, and 
depicts the portion of those operations that would comprise its 
combined U.S. operations for purposes of the proposal.
BILLING CODE 6210-01-P
[GRAPHIC] [TIFF OMITTED] TP15MY19.000

BILLING CODE 6210-01-C

II. Overview of the Proposal

    The proposal would revise the framework for determining the 
applicability of enhanced prudential standards for foreign banking 
organizations with total consolidated assets of $100 billion or more, 
based on the risk profile of their U.S. operations. The proposal 
broadly aligns with the framework set forth in the domestic 
proposal,\25\ with modifications, for example, to address the fact that 
foreign banking organizations may operate in the United States directly 
through U.S. branches and agencies or through subsidiaries. 
Specifically, the proposal would establish three categories of 
standards to address risk-management, liquidity, and single-
counterparty credit limits for foreign banking organizations

[[Page 21992]]

with $100 billion or more in total consolidated assets and a 
significant U.S. presence (i.e., combined U.S. assets of $100 billion 
or more). The proposal would also establish three categories of capital 
standards for a U.S. intermediate holding company with total 
consolidated assets of $100 billion or more, which would apply only to 
a U.S. intermediate holding company. The requirements under each 
category would be based on the risk profile of a foreign banking 
organization's combined U.S. operations or U.S. intermediate holding 
company, as measured by their size and the materiality of the following 
risk-based indicators: Cross-jurisdictional activity, nonbank assets, 
off-balance sheet exposure, and weighted short-term wholesale funding. 
For foreign banking organizations with $100 billion or more in total 
consolidated assets and a limited U.S. presence (i.e., less than $100 
billion in combined U.S. assets), the proposal would not apply the 
category framework, and instead would continue to rely largely on 
compliance with similar home-country standards at the consolidated, 
foreign-parent level. In addition, foreign banking organizations with 
$50 billion or more in total consolidated assets would continue to be 
required to meet U.S. risk management requirements.
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    \25\ See also Proposed Changes to Applicability Thresholds for 
Regulatory Capital and Liquidity Requirements, 83 FR 66024 (December 
21, 2018) (domestic interagency proposal).
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    The proposal also would implement reporting requirements that are 
necessary to accommodate the use of the risk-based indicators for the 
combined U.S. operations of a foreign banking organization, and make 
certain technical amendments to the Board's enhanced prudential 
standards framework related to the organization of the framework, 
certain clarifying revisions, and the removal of outdated transitional 
provisions.
    Concurrently with this proposal, the agencies separately are 
seeking comment on a proposal that would amend the agencies' capital 
and liquidity requirements to introduce consistent categories for 
tailoring those standards based on the risk profile of foreign banking 
organizations' U.S. operations (the interagency foreign banking 
organization capital and liquidity proposal). As part of that proposal, 
the Board is requesting comment on, but is not proposing, whether it 
should impose standardized liquidity requirements to address the 
liquidity risks of the U.S. branches and agencies of a foreign banking 
organization with significant U.S. operations, as well as potential 
approaches to do so. In addition, the Board, together with the FDIC, 
separately is seeking comment on a proposal that would address the 
applicability of resolution planning requirements to large U.S. banking 
organizations and foreign banking organizations based on a category 
approach that is broadly consistent with the categories set forth in 
this proposal.

A. Scope of Application

    Consistent with the domestic proposal and EGRRCPA's amendments to 
section 165 of the Dodd-Frank Act, this proposal generally would 
increase the asset size threshold for application of the enhanced 
prudential standards framework to foreign banking organizations from 
$50 billion to $100 billion in total consolidated assets.\26\ Under the 
proposal, such a foreign banking organization with $100 billion or more 
in combined U.S. assets \27\ would be subject to Category II, Category 
III, or Category IV enhanced prudential standards.\28\ The category of 
standards that would apply to a foreign banking organization would be 
based on the risk profile of its U.S. operations, as measured by size, 
cross-jurisdictional activity, nonbank assets, off-balance sheet 
exposure, and weighted short-term wholesale funding. The most stringent 
requirements would apply to a foreign banking organization subject to 
Category II standards. Requirements under this category would apply to 
a foreign banking organization with very large U.S. operations or those 
with significant cross-jurisdictional activity, and generally would 
remain unchanged from existing requirements. In comparison, 
requirements applicable to foreign banking organizations would become 
increasingly less stringent under Category III and Category IV, 
respectively, commensurate with the reduced sizes and risk profiles of 
their U.S. operations. Category III standards would apply to a foreign 
banking organization with U.S. operations that are significant in size 
or have elevated U.S. risk profiles, measured based on the levels of 
nonbank assets, off-balance sheet exposure, and weighted short-term 
wholesale funding among those operations. The least stringent 
prudential standards would apply under Category IV to a foreign banking 
organization with combined U.S. assets of at least $100 billion that is 
not subject to Category III or Category II standards based on its U.S. 
risk profile.
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    \26\ Under the proposal, the threshold for application of risk-
management requirements would increase from $10 billion to $50 
billion in total consolidated assets.
    \27\ Combined U.S. assets means the sum of the consolidated 
assets of each top-tier U.S. subsidiary of a foreign banking 
organization (excluding any section 2(h)(2) company, if applicable) 
and the total assets of each U.S. branch and U.S. agency of a 
foreign banking organization, as reported by the foreign banking 
organization on the Annual Report of Foreign Banking Organizations 
(FR Y-7Q).
    \28\ This proposal would not apply the most stringent Category I 
standards to foreign banking organizations because, under the 
domestic proposal, Category I standards would apply only to U.S. 
global systemically important bank holding companies. Under Board 
regulations, only a top-tier U.S. bank holding company can be 
identified as a U.S. global systemically important bank holding 
company. See 12 CFR 217.11(d); 12 CFR part 217, subpart H.
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    Section II.B. of this Supplementary Information section discusses 
the proposed criteria for determining which category of standards would 
apply to a foreign banking organization, and Sections II.C. through 
II.E. of this Supplementary Information section discuss the standards 
that would apply under each category. Section II.F. of this 
Supplementary Information section discusses the standards that would 
apply to foreign banking organizations with total consolidated assets 
of $100 billion or more, but a U.S. presence that does not meet the 
criteria for the application of prudential standards under the 
categories described in this proposal and that presents lesser risk to 
U.S. financial stability. Other than U.S. risk-management requirements, 
the proposal would not apply enhanced prudential standards to foreign 
banking organizations with total consolidated assets of less than $100 
billion, consistent with EGRRCPA.

B. Scoping Criteria for Proposed Categories

    Under the proposal, the three categories for determining the 
enhanced prudential standards that apply to foreign banking 
organizations with combined U.S. assets of $100 billion or more would 
be defined based on the following criteria, measured based on the 
combined U.S. operations of a foreign banking organization:
     Category II standards, including risk-management 
standards, liquidity requirements, and single-counterparty credit limit 
requirements, would apply to foreign banking organizations the combined 
U.S. operations of which have $700 billion or more in assets, or $75 
billion or more in cross-jurisdictional activity.\29\ In addition, 
under the interagency foreign banking organization capital and 
liquidity proposal, the most stringent standardized liquidity 
requirements would apply to the foreign banking organization at the 
level of any U.S. intermediate holding company and

[[Page 21993]]

certain of its depository institution subsidiaries.
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    \29\ Cross-jurisdictional activity would be measured excluding 
cross-jurisdictional liabilities to non-U.S. affiliates and cross-
jurisdictional claims on non-U.S. affiliates to the extent that 
these claims are secured by financial collateral.
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     Category III standards, including risk-management 
standards, liquidity requirements, and single-counterparty credit limit 
requirements, would apply to foreign banking organizations that are not 
subject to Category II standards and the combined U.S. operations of 
which have $250 billion or more in assets or $75 billion or more in any 
of the following indicators: Nonbank assets, weighted short-term 
wholesale funding, or off-balance sheet exposure. Standardized 
liquidity requirements \30\ (applicable at the level of its U.S. 
intermediate holding company (and certain of its depository institution 
subsidiaries), if any) would vary in stringency based on a foreign 
banking organization's level of weighted short-term wholesale funding, 
as described in the interagency foreign banking organization capital 
and liquidity proposal.
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    \30\ The specific standardized liquidity requirements that would 
apply under Categories III and IV based on weighted short-term 
wholesale funding levels of $75 billion and $50 billion, 
respectively, are discussed in the interagency foreign banking 
organization capital and liquidity proposal. Proposed changes to the 
liquidity data reporting requirements under FR 2052a are discussed 
later in this proposal.
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     Category IV risk-management standards and liquidity 
requirements would apply to foreign banking organizations with at least 
$100 billion in combined U.S. assets that do not meet any of the 
thresholds proposed for Categories II and III. In addition, as 
discussed in the interagency foreign banking organization capital and 
liquidity proposal, standardized liquidity requirements would apply to 
a foreign banking organization with $50 billion or more in weighted 
short-term wholesale funding at its combined U.S. operations, at the 
level of its U.S. intermediate holding company (and certain of its 
depository institution subsidiaries), if any.
    Capital standards, including stress testing and capital planning, 
would apply to a U.S. intermediate holding company that meets the 
thresholds for Categories II, III and IV described above, based on its 
total consolidated assets or the materiality of the risk-based 
indicators. The stress testing and capital planning requirements would 
increase in stringency commensurate with the risk profile of a U.S. 
intermediate holding company.
    The use of a multi-category approach would align the enhanced 
prudential standards applicable to foreign banking organizations with 
those set forth in the domestic proposal for U.S. firms with similar 
risk profiles. Such an approach would allow firms and the public to 
identify what requirements apply to a foreign banking organization's 
U.S. operations and predict what requirements would apply if the risk 
profile of those operations were to change. By taking into 
consideration the materiality of each risk indicator that would be used 
to determine the applicability of Category II, Category III, or 
Category IV standards, the proposal would provide a basis for assessing 
the extent to which a foreign banking organization's U.S. operations 
present U.S. financial stability and safety and soundness risks. The 
proposed thresholds would apply based on the level of each indicator 
averaged over the preceding four calendar quarters, as described 
further below, in order to capture significant changes in a foreign 
banking organization's U.S. risk profile, rather than temporary 
fluctuations.
    In general, the proposed categories of standards align with the 
categories that would apply under the domestic proposal to U.S. banking 
organizations. The domestic proposal includes an additional category of 
standards--Category I--that would apply to U.S. global systemically 
important bank holding companies (U.S. GSIBs), identified using the 
methodology under the Board's U.S. GSIB surcharge rule.\31\ Because the 
U.S. GSIB surcharge rule would not identify a foreign banking 
organization or U.S. intermediate holding company as a U.S. GSIB, 
Category I standards would not apply to any foreign banking 
organization or U.S. intermediate holding company under this proposal.
---------------------------------------------------------------------------

    \31\ See 12 CFR part 217 subpart H; see also Regulatory Capital 
Rules: Implementation of Risk-Based Capital Surcharge for Global 
Systemically Important Bank Holding Companies, 80 FR 49082 (August 
14, 2015).
---------------------------------------------------------------------------

    Question 1: What would be the advantages and disadvantages of 
including enhanced prudential standards that are more stringent than 
those in Category II, comparable to those of Category I under the 
domestic proposal, and applying them to a U.S. intermediate holding 
company or the combined U.S. operations of a foreign banking 
organization with a comparable systemic risk profile to that of a U.S. 
GSIB? What differences in enhanced prudential standards would be 
appropriate to apply to such a U.S. intermediate holding company or 
foreign banking organization with respect to its combined U.S. 
operations, relative to the standards that would apply under the 
proposal?
1. Size
    Section 165 of the Dodd-Frank Act, as amended by EGRRCPA, requires 
the Board to apply enhanced prudential standards to foreign banking 
organizations based on their total consolidated asset size. The 
proposal would consider total consolidated asset size for determining 
whether a foreign banking organization is subject to the enhanced 
prudential standards framework, and tailor the application of those 
standards based on the combined U.S. assets of a foreign banking 
organization \32\ or, with respect to the application of capital 
standards, the total consolidated assets of a foreign banking 
organization's U.S. intermediate holding company.\33\ This approach is 
similar to the current enhanced prudential standards framework.
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    \32\ Combined U.S. assets are reported on the FR Y-7 or FR Y-7Q. 
Total consolidated assets of a U.S. intermediate holding company are 
reported on the Consolidated Statements for Holding Companies, under 
Form FR Y-9C. Consistent with the existing prudential standards 
framework, the combined U.S. assets of a foreign banking 
organization would continue to be calculated as the sum of the 
consolidated assets of each top-tier U.S. subsidiary of the foreign 
banking organizations (excluding any section 2(h)(2) company, if 
applicable) and the total assets of each U.S. branch and U.S. agency 
of the foreign banking organization.
    \33\ All U.S. intermediate holding companies are required to 
file Form FR Y-9C, regardless of whether they control a bank. If the 
U.S. intermediate holding company has not filed an FR Y-9C for each 
of the four most recent consecutive quarters, it must use the most 
recent quarter or consecutive quarters as reported on FR Y-9C.
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    The Board believes a size threshold based on a foreign banking 
organization's U.S. presence is appropriate for differentiating among 
foreign banking organizations in view of the statutory purpose of the 
enhanced prudential standards framework, which is to prevent or 
mitigate risk to U.S. financial stability.\34\ In addition, a size 
threshold based on the combined U.S. operations or U.S. intermediate 
holding company of a foreign banking organization would more closely 
align the application of enhanced prudential standards to both domestic 
and foreign banking organizations. The asset size thresholds set forth 
in this proposal are generally consistent with those that would apply 
to large U.S. banking organizations under the domestic proposal for 
Categories II through IV.
---------------------------------------------------------------------------

    \34\ 12 U.S.C. 5365(a)(1).
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    In developing the asset size thresholds for the domestic proposal, 
the Board considered the requirements of section 165 of the Dodd-Frank 
Act, as amended by EGRRCPA, together with historical examples of large 
U.S. banking organizations that experienced

[[Page 21994]]

significant distress or failure during the financial crisis. The 
Board's analysis found that the crisis experience of domestic banking 
organizations with total consolidated assets of $100 billion, $250 
billion, and $700 billion presented materially different risks to U.S. 
financial stability and the U.S. economy more broadly, which would 
support the differentiation of enhanced prudential standards for firms 
included within those size thresholds.\35\ In addition, size thresholds 
of these orders of magnitude reflected observed differences in 
structural and operational complexity, and in the range and scale of 
financial services a firm provides.
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    \35\ 83 FR 61408, 61413-14 (November 29, 2018).
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    The Board recognizes that the U.S. operations of foreign banking 
organizations are structured differently than domestic firms; 
nevertheless, the risks to U.S. financial stability and safety and 
soundness that stem from size are present regardless of structure. 
Because foreign banking organizations operate through both branches and 
agencies as well as U.S. subsidiaries, the proposal would establish 
categories based on the foreign banking organization's combined U.S. 
assets. The size of a foreign banking organization's U.S. operations 
provides a measure of the extent to which U.S. customers or 
counterparties may be exposed to a risk of loss or suffer a disruption 
in the provision of services in the United States.\36\ For example, 
during the financial crisis some large foreign banking organizations 
rapidly deleveraged their U.S. operations to address capital 
deficiencies, leaving commercial borrowers without a primary source of 
funding and contributing to large-scale asset fire sales. For foreign 
banking organizations with the largest U.S. operations, rapid 
deleveraging among those operations could disrupt U.S. markets and 
thereby present significant risks to U.S. financial stability in the 
same way as similarly sized domestic firms, due to the materiality of 
their presence in the United States.
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    \36\ For domestic banking organizations, categories of standards 
are defined based on total consolidated assets, including the U.S. 
banking organization's international operations.
---------------------------------------------------------------------------

    Question 2: What are the advantages and disadvantages of using size 
thresholds to tailor prudential standards for foreign banking 
organizations? In what ways, if any, does the inclusion of asset size 
thresholds in prudential standards drive changes in foreign banking 
organizations' business models and risk profiles in ways that differ 
from the effects of thresholds based on other risk-based indicators? To 
what extent can other factors adequately differentiate among the risk 
profiles of foreign banking organizations and serve as tools to tailor 
prudential standards?
2. Other Risk-Based Indicators
    Consistent with the domestic proposal, this proposal also would 
consider the level of cross-jurisdictional activity, nonbank assets, 
off-balance sheet exposure, and weighted short-term wholesale funding 
levels of a foreign banking organization's U.S operations to determine 
the applicable category of standards. The Board is proposing to apply a 
uniform threshold of $75 billion for each of these risk-based 
indicators. A threshold of $75 billion would represent at least 30 
percent and as much as 75 percent of the size of the U.S. operations of 
a foreign banking organization or a U.S. intermediate holding company 
with combined U.S. assets or total consolidated assets, respectively, 
of between $100 billion and $250 billion. The agencies also proposed a 
$75 billion threshold for these indicators in the domestic interagency 
proposal. Under this proposal and the domestic proposal, setting the 
thresholds for these risk-based indicators at $75 billion would ensure 
that domestic banking organizations and the U.S. operations of foreign 
banking organizations that account for the vast majority--over 70 
percent--of the total amount of each risk-based indicator would be 
subject to enhanced prudential standards. To the extent the levels and 
distribution of an indicator substantially change in the future, the 
Board may consider modifications, if appropriate.
    In addition to foreign banking organizations with $700 billion or 
more in combined U.S. assets, Category II standards would apply to a 
foreign banking organization with (1) $100 billion or more in combined 
U.S. assets and (2) combined U.S. operations with $75 billion or more 
in cross-jurisdictional activity. Similarly, in addition to foreign 
banking organizations with $250 billion or more in combined U.S. 
assets, Category III standards would apply to foreign banking 
organization with (1) $100 billion or more in combined U.S assets and 
(2) combined U.S. operations with at least $75 billion in weighted 
short-term wholesale funding, nonbank assets, or off-balance sheet 
exposure.\37\
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    \37\ For capital standards, in addition to U.S. intermediate 
holding companies with $700 billion or more in total assets, 
Category II would apply to a U.S. intermediate holding company with 
(1) total consolidated assets of $100 billion or more and (2) $75 
billion or more in cross-jurisdictional activity. In addition to 
U.S. intermediate holding companies with $250 billion or more in 
total assets, Category III capital standards would apply to a U.S. 
intermediate holding company with (1) $100 billion or more in total 
consolidated assets and (2) $75 billion or more in weighted short-
term wholesale funding, nonbank assets, or off-balance sheet 
exposure.
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a. Cross-Jurisdictional Activity
    Foreign banking organizations with U.S. operations that engage in 
significant cross-jurisdictional activity present complexities that 
support the application of more stringent standards. For example, 
significant cross-border activity of the U.S. operations of a foreign 
banking organization may require more sophisticated risk management to 
appropriately address the heightened interconnectivity and complexity 
of those operations and the diversity of risks across all jurisdictions 
in which the foreign banking organization provides financial services. 
In addition, cross-jurisdictional activity may present increased 
challenges in resolution because there could be legal or regulatory 
restrictions that prevent the transfer of financial resources across 
borders where multiple jurisdictions and regulatory authorities are 
involved. The use of a threshold based on cross-jurisdictional activity 
to differentiate prudential standards applicable to foreign banking 
organizations is also intended to maintain consistency with the 
thresholds proposed for large U.S. banking organizations under the 
domestic proposal. The Board's capital and liquidity regulations 
currently use total on-balance sheet foreign exposure, as reported on 
the Country Exposure Report (FFIEC 009), to determine the application 
of certain requirements for depository institution holding companies 
and certain of their depository institution subsidiaries, such as the 
supplementary leverage ratio and countercyclical capital buffer.\38\
---------------------------------------------------------------------------

    \38\ See 12 CFR 217.10 (requiring advanced approaches Board-
regulated institutions to maintain a supplementary leverage ratio); 
217.11(b) (requiring advanced approaches Board-regulated 
institutions to maintain a countercyclical capital buffer); 
217.100(b)(1) (describing the size and on-balance sheet foreign 
exposure thresholds for determining an advanced approaches Board-
regulated institution).
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    For purposes of determining the application of prudential standards 
under the proposal, a foreign banking organization would measure cross-
jurisdictional activity as the sum of the cross-jurisdictional assets 
and liabilities of its combined U.S. operations or its U.S. 
intermediate holding company, as applicable, excluding intercompany 
liabilities and collateralized intercompany claims. Measuring cross-
jurisdictional activity taking into

[[Page 21995]]

account both assets and liabilities--instead of just assets--would 
provide a broader gauge of the scale of cross-border operations and 
associated risks, as it includes both borrowing and lending activities 
outside of the United States.\39\ The proposal would adjust the 
measurement of cross-jurisdictional activity to exclude intercompany 
liabilities and to recognize collateral in calculating intercompany 
claims in order to reflect the structural differences between foreign 
banking organizations' operations in the United States and domestic 
holding companies.
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    \39\ The Basel Committee on Banking Supervision (BCBS) recently 
amended its measurement of cross-border activity to more 
consistently reflect derivatives, and the Board anticipates it will 
separately propose changes to the FR Y-15 in a manner consistent 
with this change. Any related changes to the proposed cross-
jurisdictional activity indicator would be updated through those 
separately proposed changes to the FR Y-15.
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    Specifically, the proposed cross-jurisdictional activity indicator 
would exclude liabilities of the combined U.S. operations or U.S. 
intermediate holding company that reflect transactions with non-U.S. 
affiliates. Intercompany liabilities generally represent funding from 
the foreign banking organization to its U.S. operations and, in the 
case of certain long-term debt instruments, may be required by 
regulation.\40\ The proposed exclusion recognizes the benefit of the 
foreign banking organization providing support to its U.S. operations. 
Short-term funding from affiliates, which may pose heightened liquidity 
risks to the U.S. operations, would be captured in the proposal's 
measure of weighted short-term wholesale funding.
---------------------------------------------------------------------------

    \40\ See 12 CFR 252.162 and 12 CFR 252.165.
---------------------------------------------------------------------------

    Foreign banking organizations' U.S. operations often intermediate 
transactions between U.S. clients and foreign markets, including by 
facilitating access for foreign clients to U.S. markets, and clearing 
and settling U.S. dollar-denominated transactions. In addition, they 
engage in transactions to manage enterprise-wide risks. In these roles, 
they engage in substantial and regular transactions with non-U.S. 
affiliates. In recognition that the U.S. operations have increased 
cross-jurisdictional activity as a result of these activities, the 
proposal would include in cross-jurisdictional claims only the net 
exposure (i.e., net of collateral value subject to haircuts) of all 
secured transactions with non-U.S. affiliates to the extent that these 
claims are collateralized by financial collateral.\41\
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    \41\ See the definition of ``financial collateral'' at 12 CFR 
217.2.
---------------------------------------------------------------------------

    The proposed recognition of financial collateral would apply to all 
types of claims, including repurchase agreements and securities lending 
agreements. Specifically, claims on non-U.S. affiliates would be 
reduced by the value of any financial collateral in a manner consistent 
with the Board's capital rule,\42\ which permits, for example, banking 
organizations to recognize financial collateral when measuring the 
exposure amount of repurchase agreements and securities borrowing and 
securities lending transactions (together, repo-style 
transactions).\43\ The capital rule recognizes as financial collateral 
certain types of high-quality collateral, including cash on deposit and 
securities issued by the U.S. government, as well as certain types of 
equity securities and debt. With the exception of cash on deposit, the 
banking organization also is required to have a perfected, first-
priority interest in the collateral or, outside of the United States, 
the legal equivalent thereof.\44\ Permitting the reduction of certain 
claims on non-U.S. affiliates if the collateral meets the definition of 
financial collateral would ensure that the collateral is liquid, while 
the use of supervisory haircuts would also limit risk associated with 
price volatility. In addition, relying on the capital rule's definition 
of financial collateral would provide clarity regarding the types of 
collateral eligible to reduce the amount of cross-jurisdictional claims 
under this approach.
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    \42\ See 12 CFR 217.37.
    \43\ See the definition of ``repo-style transaction'' at 12 CFR 
217.2.
    \44\ See 12 CFR 217.2. The proposal would differ from the FFIEC 
009, on which U.S. intermediate holding companies report cross-
border claims, in two respects. The FFIEC 009 uses different rules 
to recognize collateral, using the term ``eligible collateral,'' 
which includes cash as well as investment grade debt or marketable 
equity securities. In addition, the FFIEC 009 requires reporting of 
repurchase agreements, securities lending agreements and other 
similar financing agreements at the value of the outstanding claim, 
regardless of the amount of collateral provided. See Instructions 
for the Preparation of the Country Exposure Report (FFIEC 009) at 
12-13 (effective September 2016). The proposal would use the concept 
of financial collateral from the capital rule and would recognize 
collateral for any claim, including claims to which the collateral 
haircut approach applies under the capital rule.
    In addition, the FFIEC 009 measures cross-jurisdictional 
activity on an ultimate-risk basis, whereby claims are allocated 
based on the country of residence of the ultimate obligor, which, in 
certain cases, can mean the country or residence of the collateral 
provided (ultimate-risk basis). Securities lending agreements and 
repurchase agreements, however, are allocated based on the residence 
of the counterparty, without taking into consideration features of 
the collateral. The proposal would require allocation of exposures 
on an ultimate-risk basis (subject to the netting described above).
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    As an example of how the proposed financial collateral recognition 
would operate, if the U.S. operations of a foreign banking organization 
placed cash with the parent foreign banking organization through a 
reverse repurchase agreement, and the parent foreign banking 
organization provided securities that qualified as financial 
collateral, the exposure of the U.S. operations would be reduced by the 
value of the securities in a manner consistent with the capital rule's 
collateral haircut approach. If the value of the claim exceeds the 
value of the financial collateral after taking into account supervisory 
haircuts, then the uncollateralized portion of the claim would be 
included in the foreign banking organization's measure of cross-
jurisdictional activity. Conversely, if the value of the collateral 
after taking into account supervisory haircuts exceeds the value of the 
claim, the exposure to the non-U.S. affiliate would be excluded from 
the measure of cross-jurisdictional activity.
    In addition to the proposal to exclude intercompany liabilities and 
certain collateralized intercompany claims from the measure of cross-
jurisdictional activity, the Board is requesting comment on 
alternatives to adjusting the measure for cross-jurisdictional activity 
to recognize that the U.S. intermediate holding company or combined 
U.S. operations engage in substantial and regular transactions with 
non-U.S. affiliates.
    Under the first alternative, the Board would exclude all 
transactions with non-U.S. affiliates from the computation of the 
cross-jurisdictional activity of a U.S. intermediate holding company or 
the combined U.S. operations of a foreign banking organization. This 
alternative would focus only on third-party assets and liabilities and 
may be a less burdensome way to account for the structural differences 
between foreign banking organizations' operations in the United States 
and large domestic holding companies.
    Under the second alternative, the Board would adjust the $75 
billion threshold for the cross-jurisdictional activity indicator. For 
example, the Board could apply a threshold of $100 billion for cross-
jurisdictional activity such that the U.S. intermediate holding company 
or combined U.S. operations of a foreign banking organization would be 
subject to Category II capital or liquidity standards if it exceeded 
this threshold. This alternative would recognize the flows between a 
foreign banking organization's U.S. operations and its foreign 
affiliates without making any additional adjustments to address

[[Page 21996]]

intercompany liabilities or collateralized intercompany claims. This 
alternative would not require a foreign banking organization to monitor 
collateral transfers or calculate supervisory haircuts in measuring its 
cross-jurisdictional activity.
    Question 3: What are the advantages and disadvantages of 
recognizing the value of collateral for certain transactions with non-
U.S. affiliates in the computation of the cross-jurisdictional activity 
of a U.S. intermediate holding company or the combined U.S. operations 
of a foreign banking organization? How would this recognition align 
with the objectives of the proposed indicator as a measure of 
operational complexity, scope, and risks associated with operations and 
activities in foreign jurisdictions and with principles of national 
treatment and equality of competitive opportunity?
    Question 4: What would be the advantages and disadvantages of 
excluding from the measure of cross-jurisdictional activity liabilities 
to non-U.S. affiliates? How would this exclusion align with the 
objectives of the proposed indicator as a measure of operational 
complexity, scope, and risks associated with operations and activities 
in foreign jurisdictions and with principles of national treatment and 
equality of competitive opportunity?
    Question 5: What are the advantages and disadvantages of 
recognizing collateral for all repo-style transactions and other 
collateralized positions? To what extent should the type of transaction 
determine whether collateral is recognized?
    Question 6: What are the advantages and disadvantages of relying on 
the definition of financial collateral in the capital rule and applying 
supervisory haircuts in calculating the amount of cross-jurisdictional 
claims? What are the burdens associated with this approach and how do 
these burdens compare with the benefits? Are there other criteria that 
the Board should consider in addition to this approach (e.g., the 
amount of time that would be needed to monetize the collateral) and 
why?
    Question 7: What would be the advantages and disadvantages of other 
ways to define eligible collateral, such relying on the definition of 
high-quality liquid assets (HQLA) in the liquidity coverage ratio rule 
(LCR rule)? \45\ Under this alternative approach, collateral would be 
recognized in the calculation of the exposure if the collateral is 
HQLA. Would relying on the definition of HQLA help ensure the 
collateral is liquid and provide greater clarity on the types of 
collateral that could be recognized? What are the burdens associated 
with this approach and how do these burdens compare with the benefits?
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    \45\ See Liquidity Coverage Ratio: Liquidity Risk Measurement 
Standards, 79 FR 61440, 61450 (Oct. 10, 2014), codified at 12 CFR 
part 50 (OCC), 12 CFR part 249 (Board), and 12 CFR part 329 (FDIC). 
For the definition of HQLA under the Board's LCR rule, see 12 CFR 
249.20.
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    Question 8: As discussed above, measuring cross-jurisdictional 
activity on an ultimate risk basis takes into consideration both the 
type of collateral, and the location of the collateral or issuer. On 
the FFIEC 009, if collateral is in the form of investment grade debt or 
marketable securities, risk is allocated based on the residence of the 
issuer of the security, while cash collateral is allocated based on the 
residence of the legal entity where the cash is held. What would be the 
advantages and disadvantages of allocating cross-jurisdictional claims 
based on the location of the entity holding the collateral for 
securities and cash?
    Question 9: On the FFIEC 009, repurchase agreements, securities 
lending agreements, and other similar financial transactions cannot be 
re-allocated or ``transferred'' to a different jurisdiction based on 
the location of the collateral or issuer. What would be the advantages 
and disadvantages of allowing repurchase agreements, securities 
financing transactions, and other similar agreements to be excluded 
from the measure of cross-jurisdictional activity if the collateral was 
issued by a U.S. entity or, for cash collateral, located in the United 
States? How would such treatment align with the objectives of the 
proposed indicator as a measure of operational complexity, scope, and 
risks associated with operations and activities in foreign 
jurisdictions and with principles of national treatment and equality of 
competitive opportunity?
    Question 10: What are the advantages and disadvantages of measuring 
cross-jurisdictional activity on an immediate-counterparty basis (i.e., 
on the basis of the country of residence of the borrower) rather than 
on an ultimate-risk basis? What, if any, clarifications could be made 
to the measurement of cross-jurisdictional activity on an ultimate-risk 
basis to ensure consistency across banking organizations and more 
accurate assessment of risk?
    Question 11: What is the most appropriate way in which the proposed 
cross-jurisdictional activity indicator could account for the risk of 
transactions with a delayed settlement date, and why? What are the 
advantages and disadvantages of the use of settlement-date accounting 
versus trade-date accounting for purposes of the cross-jurisdictional 
activity indicator?
    Question 12: What are the advantages or disadvantages of the 
alternative approaches to measuring non-U.S. affiliate transactions for 
purposes of the cross-jurisdictional activity indicator? How do these 
alternatives compare to the proposal?
    Question 13: What other positions, if any, should be excluded from 
or included in the cross-jurisdictional activity indicator for purposes 
of determining prudential standards, and why? How would excluding from 
the cross-jurisdictional activity measure a broader or narrower set of 
intercompany assets and liabilities align with the objectives of the 
proposed indicator as a measure of operational complexity, scope, and 
risks associated with operations and activities in foreign 
jurisdictions and with principles of national treatment and equality of 
competitive opportunity?
    Question 14: What would be the advantages and disadvantages of 
including in or excluding from the proposed cross-jurisdictional 
activity indicator positions of the U.S. branches and agencies of a 
foreign banking organization with the parent foreign banking 
organization or other non-U.S. affiliates? For example, what would be 
the advantages or disadvantages of including or excluding reported 
gross due from and gross due to the parent foreign banking organization 
or other non-U.S. affiliates?
    Question 15: What modifications to the proposed cross-
jurisdictional activity measure should the Board consider to better 
align it with the proposed treatment for U.S. banking organizations 
under the domestic proposal and promote consistency in the measurement 
of assets and liabilities across the Board's prudential standards 
framework and applicable accounting standards, and why? How would any 
such modification more appropriately account for the risks of cross-
jurisdictional activity for foreign banking organizations and mitigate 
risks to U.S. financial stability?
    Question 16: To what extent would using a particular measure of 
cross-jurisdictional activity create incentives for foreign banking 
organizations to restructure relationships between U.S. subsidiaries, 
U.S. branches and agencies, and non-U.S. affiliates?
    Question 17: What alternative indicators should the Board consider 
to

[[Page 21997]]

the proposed cross-jurisdictional activity indicator as a measure of 
cross-border activity of a foreign banking organization? How would any 
alternative indicator align with the proposed cross-jurisdictional 
activity measure for U.S. banking organizations under the domestic 
interagency proposal?
    Question 18: What are the advantages and disadvantages of the 
proposal or the alternatives in combination with other potential 
changes to the measurement and reporting of cross-jurisdictional 
activity discussed above (e.g., ultimate-risk basis)? How would changes 
to the measurement and reporting of cross-jurisdictional activity in 
combination with the proposal or alternatives align with the objectives 
of the proposed indicator as a measure of operational complexity, 
scope, and risks associated with operations and activities in foreign 
jurisdictions and with principles of national treatment and equality of 
competitive opportunity?
    Question 19: Data reported on the Banking Organization Systemic 
Risk Report (FR Y-15) is used to measure the systemic risk of large 
banking organizations, including to identify and calibrate surcharges 
applied to U.S. GSIBs. The Board may amend the FR Y-15 in this context, 
and would seek comment on the effect of any changes on the U.S. GSIB 
surcharge framework as well as on the advantages and disadvantages of 
incorporating these changes into the calculation of risk indicators. 
The Board also may separately amend the FR Y-15 in the context of the 
calculation of risk indicators. What are the advantages and 
disadvantages of the risk-based indicator definitions tracking the 
inputs to the U.S. GSIB surcharge framework?
b. Nonbank assets
    The level of a banking organization's investment in nonbank 
subsidiaries provides a measure of the organization's business and 
operational complexity. Specifically, banking organizations with 
significant investments in nonbank subsidiaries are more likely to have 
complex corporate structures, inter-affiliate transactions, and funding 
relationships. A banking organization's complexity is positively 
correlated with the impact of the organization's failure or distress. 
Through its U.S. intermediate holding company, a foreign banking 
organization can maintain significant investments in nonbank 
subsidiaries, and therefore may present structural, funding, and 
resolution concerns analogous to those presented by domestic banking 
organizations.
    Nonbank activities also may involve a broader range of risks than 
those associated with banking activities, and can increase 
interconnectedness with other financial market participants, requiring 
sophisticated risk management and governance, including capital 
planning, stress testing, and liquidity risk management. If not 
adequately managed, the risks associated with nonbanking activities 
could present significant safety and soundness concerns and increase 
financial stability risks. The distress or failure of a nonbank 
subsidiary could be destabilizing to the U.S. operations of a foreign 
banking organization and the foreign banking organization itself, and 
cause counterparties and creditors to lose confidence in the 
organization's global operations. Nonbank assets also reflect the 
degree to which a foreign banking organization and its U.S. operations 
may be engaged in activities through legal entities that are not 
subject to separate capital requirements or to the direct regulation 
and supervision applicable to a regulated banking entity.
    The proposed nonbank assets indicator would align with the measure 
of nonbank assets currently used in the capital plan rule to tailor 
certain requirements as well as with the nonbank assets indicator in 
the domestic proposal.\46\
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    \46\ The capital plan rule defines ``average total nonbank 
assets'' as the average of the total nonbank assets of a U.S. 
intermediate holding company subject to the capital plan rule, 
calculated in accordance with the instructions to the FR Y-9LP, for 
the four most recent consecutive quarters or, if the intermediate 
holding company has not filed the FR Y-9LP, for each of the four 
most recent consecutive quarters, for the most recent quarter or 
consecutive quarters, as applicable. See 12 CFR 225.8(d)(2).
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c. Off-Balance Sheet Exposure
    Off-balance sheet exposure complements the measure of size by 
taking into consideration financial and banking activities not 
reflected on the balance sheet of a foreign banking organization with 
respect to its U.S. operations. Like size, off-balance sheet exposure 
provides a measure of the extent to which customers or counterparties 
may be exposed to a risk of loss or suffer a disruption in the 
provision of services. In addition, off-balance sheet exposure can lead 
to significant future draws on liquidity, particularly in times of 
stress. During the financial crisis, for example, vulnerabilities among 
the U.S. operations of foreign banking organizations were exacerbated 
by margin calls on derivative exposures and draws on commitments. These 
exposures can be a source of safety and soundness risk, as 
organizations with significant off-balance sheet exposure may have to 
fund these positions in the market in a time of stress. These risks 
also may affect financial stability because they can manifest rapidly 
and with less transparency to other market participants, in comparison 
to the risks associated with on-balance sheet positions. In addition, 
because draws on off-balance sheet exposures such as committed credit 
and liquidity facilities tend to increase in times of stress, they can 
exacerbate the effects of stress conditions.\47\
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    \47\ See William F. Bassett, Simon Gilchrist, Gretchen C. 
Weinbach, Egon Zakraj[scaron]ek, ``Improving Our Ability to Monitor 
Bank Lending,'' in Risk Topography: Systemic Risk and Macro Modeling 
149-161 (Markus Brunnermeier and Arvind Krishnamurthy, eds. 2014), 
available at: https://www.nber.org/chapters/c12554.
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    Off-balance sheet exposure may also serve as a measure of 
interconnectedness. Some off-balance sheet exposures, such as 
derivatives, are concentrated among the largest financial firms.\48\ 
The distress or failure of one party to a financial contract, such as a 
derivative or securities financing transaction, can trigger disruptive 
terminations of these contracts that destabilize the defaulting party's 
otherwise solvent affiliates.\49\ Such a default also can lead to 
disruptions in other financial markets, for example, by causing market 
participants to rapidly unwind trading positions.\50\ In this way, the 
effects of one party's failure or distress can be amplified by its off-
balance sheet connections with other financial market participants.
---------------------------------------------------------------------------

    \48\ See, e.g., Sheri M. Markose, Systemic Risk from Global 
Financial Derivatives: A Network Analysis of Contagion and its 
Mitigation with Super-Spreader Tax, IMF Working Papers (Nov. 30, 
2012), available at: https://www.imf.org/en/Publications/WP/Issues/2016/12/31/Systemic-Risk-from-Global-Financial-Derivatives-A-Network-Analysis-of-Contagion-and-Its-40130.
    \49\ To address these risks, the agencies have established 
restrictions relating to the qualified financial contracts of U.S. 
GSIBs, the insured depository institution subsidiaries of U.S. 
GSIBs, and the U.S. operations of systemically important foreign 
banking organizations. See 12 CFR part 252, subpart I (Board); 12 
CFR part 47 (OCC); and 12 CFR part 382 (FDIC). That rule does not 
apply to savings and loan holding companies, to the U.S. operations 
of other large foreign banking organizations, or to other large bank 
holding companies.
    \50\ See e.g., The Orderly Liquidation of Lehman Brothers 
Holdings Inc. under the Dodd-Frank Act, 5 FDIC Quarterly No. 2, 31 
(2011), https://www.fdic.gov/bank/analytical/quarterly/2011-vol5-2/article2.pdf.
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    Under the proposal, off-balance sheet exposure would be measured as 
the difference between total exposure and

[[Page 21998]]

on-balance sheet assets.\51\ Total exposure includes on-balance sheet 
assets plus certain off-balance sheet exposures, including derivative 
exposures, repo-style transactions, and other off-balance sheet 
exposures (such as commitments).
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    \51\ In connection with extending the applicability of the FR Y-
15 reporting requirements to U.S. branches and agencies of a foreign 
banking organization (discussed below), the proposal would add this 
measure of off-balance sheet exposure to the FR Y-15 reporting form 
as a separate line item.
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d. Weighted Short-Term Wholesale Funding
    The proposed weighted short-term wholesale funding indicator would 
provide a measure of the liquidity risk presented by the U.S. 
operations of a foreign banking organization, as reliance on short-
term, generally uninsured funding from more sophisticated 
counterparties can make those operations vulnerable to large-scale 
funding runs. In particular, foreign banking organizations with U.S. 
operations that fund long-term assets with short-term liabilities from 
financial intermediaries such as investment funds may need to rapidly 
sell less liquid assets to meet withdrawals and maintain their 
operations in a time of stress, which they may be able to do only at 
``fire sale'' prices. Asset fire sales can cause rapid deterioration in 
a foreign banking organization's financial condition and adversely 
affect U.S. financial stability by driving down asset prices across the 
market. As a result, the use of weighted short-term wholesale funding 
presents both safety and soundness and financial stability risks. 
Short-term wholesale funding also provides a measure of 
interconnectedness among market participants, including other financial 
sector entities, which can provide a mechanism for transmission of 
distress.
    The proposed short-term wholesale funding indicator would measure 
the extent to which the U.S. operations of a foreign banking 
organization rely on short-term wholesale funding sources.\52\ Weighted 
short-term wholesale funding would include exposures between the U.S. 
operations of a foreign banking organization and its non-U.S. 
affiliates, as reliance on short-term wholesale funding from affiliates 
can contribute to a firm's funding vulnerability in times of stress.
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    \52\ Specifically, short-term wholesale funding is the amount of 
a firm's funding obtained from wholesale counterparties or retail 
brokered deposits and sweeps with a remaining maturity of one year 
or less. Categories of short-term wholesale funding are then 
weighted based on four residual maturity buckets; the asset class of 
collateral, if any, backing the funding; and characteristics of the 
counterparty. See, 12 CFR 217.406 and Regulatory Capital Rules: 
Implementation of Risk-Based Capital Surcharges for Global 
Systemically Important Bank Holding Companies, 80 FR 49082 (August 
14, 2015).
---------------------------------------------------------------------------

    Weighted short-term wholesale funding levels would serve as both a 
threshold for the general application of Category III standards, as 
well as a separate threshold for applying enhanced liquidity 
requirements to foreign banking organizations whose combined U.S. 
operations reflect heightened liquidity risk profiles. A foreign 
banking organization whose combined U.S. operations have weighted 
short-term wholesale funding of at least $75 billion would be subject 
to the general application of Category III standards, which would 
include daily liquidity data reporting under this proposal and full 
standardized liquidity requirements applicable to a U.S. intermediate 
holding company and certain depository institution subsidiaries, if 
any, under the interagency foreign banking organization capital and 
liquidity proposal. By contrast, a foreign banking organization subject 
to Category III standards whose combined U.S. operations have less than 
$75 billion of weighted short-term wholesale funding would be subject 
to a monthly liquidity data reporting requirement under this proposal 
and reduced standardized liquidity requirements applicable to a U.S. 
intermediate holding company and certain depository institution 
subsidiaries, if any, under the interagency foreign banking 
organization capital and liquidity proposal.\53\
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    \53\ In addition, as discussed in more detail in the interagency 
foreign banking organization capital and liquidity proposal, 
domestic and foreign banking organizations subject to Category IV 
standards that have weighted short-term wholesale funding levels of 
at least $50 billion would be subject to reduced standardized 
liquidity requirements, which would apply to its U.S. intermediate 
holding company and certain of its depository institution 
subsidiaries, if any. The Board is requesting comment on whether it 
should impose standardized liquidity requirements on the U.S. branch 
and agency network of a foreign banking organization, as well as 
possible approaches for doing so, which would be proposed through a 
future rulemaking.
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    Question 20: What are the advantages and disadvantages of the 
proposed risk-based indicators? What different indicators should the 
Board use, and why?
    Question 21: The Board is considering whether Category II standards 
should apply based on weighted short-term wholesale funding, nonbank 
assets, and off-balance sheet exposure, using a higher threshold than 
the $75 billion threshold that would apply for Category III standards, 
in addition to the thresholds discussed above based on asset size and 
cross-jurisdictional activity. For example, a foreign banking 
organization or U.S. intermediate holding company could be subject to 
Category II standards if one or more of these indicators equals or 
exceeds a level such as $100 billion or $200 billion. A threshold of 
$200 billion would represent at least 30 percent and as much as 80 
percent of total assets for the U.S. operations of a foreign banking 
organization with between $250 billion and $700 billion in combined 
U.S. assets. If the Board were to adopt additional indicators for 
purposes of identifying foreign banking organizations with U.S. 
operations that should be subject to Category II standards, at what 
level should the threshold for each indicator be set, and why? 
Commenters are encouraged to provide data supporting their 
recommendations.
3. Alternative Scoping Criteria
    An alternative approach for tailoring the application of enhanced 
prudential standards to a foreign banking organization would be to use 
a single, comprehensive score to assess the risk profile and systemic 
footprint of a foreign banking organization's combined U.S. operations 
or U.S. intermediate holding company. The Board uses such an 
identification methodology (scoring methodology) to identify a U.S. 
bank holding company as a U.S. GSIB and apply risk-based capital 
surcharges to these firms. As an alternative in the domestic proposal, 
the Board described a scoring methodology that could be used to tailor 
prudential standards for domestic banking organizations.
    The scoring methodology in the Board's regulations is used to 
calculate a U.S. GSIB's capital surcharge under two methods.\54\ The 
first method is based on the sum of a bank holding company's systemic 
indicator scores reflecting its size, interconnectedness, cross-
jurisdictional activity, substitutability, and complexity (method 1). 
The second method is based on the sum of these same measures of risk, 
except that the substitutability measures are replaced with a measure 
of the bank holding company's reliance on short-term wholesale funding 
(method 2).\55\ Consistent with the domestic

[[Page 21999]]

proposal and as an alternative to the threshold approach under this 
proposal, the Board is seeking comment on use of the scoring 
methodology to tailor the application of enhanced prudential standards 
to the U.S. operations of foreign banking organizations.
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    \54\ Application of a U.S. GSIB's capital surcharge is 
determined based on an annual calculation. Similarly, the 
alternative scoping criteria under this proposal would be based on 
an annual calculation. See 12 CFR part 217, subpart H.
    \55\ For more discussion relating to the scoring methodology, 
please see the Board's final rule establishing the scoring 
methodology. See Regulatory Capital Rules: Implementation of Risk-
Based Capital Surcharges for Global Systemically Important Bank 
Holding Companies, 80 FR 49082 (Aug. 14, 2015).
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    The scoring methodology was designed to identify and assess the 
systemic risk of a large banking organization, and similarly can be 
used to measure the risks posed by the U.S. operations of foreign 
banking organizations.\56\ The component measures of the scoring 
methodology identify banking organizations that have heightened risk 
profiles and provide a basis for assessing risk to safety and soundness 
and U.S. financial stability. Size, interconnectedness, cross-
jurisdictional activity, substitutability, complexity, and short-term 
wholesale funding are indicators of risk for both foreign and domestic 
banking organizations. Similar to the thresholds-based approach set 
forth in this proposal, the indicators used in the scoring methodology 
closely align with the risk-based factors specified in section 165 of 
the Dodd-Frank Act. Because this information would be reported 
publicly, use of the scoring methodology would promote transparency in 
the application of such standards to foreign banking organizations.
---------------------------------------------------------------------------

    \56\ See infra note 41.
---------------------------------------------------------------------------

    The Board has previously used the scoring methodology and global 
methodology \57\ to identify and apply enhanced prudential standards to 
U.S. subsidiaries and operations of foreign global systemically 
important banking organizations (foreign GSIBs). For example, the 
Board's restrictions on qualified financial contracts and total loss-
absorbing capacity requirements apply to U.S. GSIBs and the U.S. 
operations of foreign GSIBs, with the latter identified under the 
Board's scoring methodology or the global methodology.\58\ Accordingly, 
use of the scoring methodology would promote consistency with the 
Board's existing regulations.
---------------------------------------------------------------------------

    \57\ Global methodology means the assessment methodology and the 
higher loss absorbency requirement for global systemically important 
banks issued by the BCBS, as updated from time to time. See 12 CFR 
252.2.
    \58\ See 12 CFR 252.82(b) (definition of ``covered entity'' with 
regard to restrictions on qualified financial contracts); 12 CFR 
252.160 (definition of ``covered IHC'' with regard to total loss-
absorbing capacity requirements). See also 12 CFR 252.153(b) 
(identification of foreign GSIBs in the enhanced prudential 
standards rule; 12 CFR 252.170(a)(2)(ii) (definition of ``major 
foreign banking organization'' in single counterparty credit limits 
rule).
---------------------------------------------------------------------------

    Under the alternative scoring approach, the size of a foreign 
banking organization's combined U.S. assets, together with the method 1 
or method 2 score of its U.S. operations under the scoring methodology, 
would be used to determine which category of standards would apply. 
Consistent with the proposal, most enhanced prudential standards would 
be based on the method 1 or method 2 score applicable to a foreign 
banking organization's combined U.S. operations. The application of 
capital standards, however, would apply based on the method 1 or method 
2 score of a foreign banking organization's U.S. intermediate holding 
company. U.S. intermediate holding companies already report information 
required to calculate method 1 and method 2 scores, and in connection 
with this proposal, those reporting requirements would be extended to 
include a foreign banking organization's combined U.S. operations.\59\
---------------------------------------------------------------------------

    \59\ As discussed below, under the proposal, the FR Y-15 would 
be amended to collect risk-indicator data for the combined U.S. 
operations of foreign banking organizations.
---------------------------------------------------------------------------

    To determine which category of standards would apply under the 
alternative scoring methodology, the Board considered the distribution 
of method 1 and method 2 scores of the U.S. operations of foreign 
banking organizations, U.S. intermediate holding companies, domestic 
bank holding companies and certain savings and loan holding companies 
with at least $100 billion in total consolidated assets.\60\ As 
discussed below, the Board is providing ranges of scores for the 
application of Category II and Category III standards. If the Board 
adopts a final rule that uses the scoring methodology to establish 
tailoring thresholds, the Board would set a single score within the 
listed ranges for the application of Category II and Category III 
standards.
---------------------------------------------------------------------------

    \60\ In conducting its analysis, the Board considered method 1 
and method 2 scores as of September 30, 2018.
---------------------------------------------------------------------------

    Category II. In selecting the ranges of method 1 or method 2 scores 
that could define the application of Category II standards, the Board 
considered the potential of a firm's material distress or failure to 
disrupt the U.S. financial system or economy. The Board estimated 
method 1 and method 2 scores for domestic banking organizations with 
more than $250 billion in total consolidated assets, and foreign 
banking organizations with more than $250 billion in combined U.S. 
assets. To this sample, the Board added estimates of method 1 and 
method 2 scores for a banking organization whose distress impacted U.S. 
financial stability during the crisis (Wachovia), and estimated method 
1 and method 2 scores assuming significant growth in operations (e.g., 
if one or more U.S. intermediate holding companies each had $700 
billion in assets). The Board also considered the outlier method 1 and 
method 2 scores for domestic and foreign banking organizations with 
more than $250 billion in total consolidated assets that are not U.S. 
GSIBs.\61\
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    \61\ Outliers can be determined by a number of statistical 
methods. For these purposes, the Board computed an outlier as the 
third quartile plus three times the interquartile range of method 1 
and method 2 scores of U.S. bank holding companies, certain U.S. 
savings and loan holding companies, U.S. intermediate holding 
companies, and the combined U.S. operations of foreign banking 
organizations.
---------------------------------------------------------------------------

    Based on this analysis and to maintain comparability to the 
domestic proposal, under the alternative scoring approach the Board 
would apply Category II standards to any foreign banking organization 
with at least $100 billion in combined U.S. assets whose combined U.S. 
operations have (a) a method 1 score that meets or exceeds a minimum 
score between 60 and 80, or (b) a method 2 score that meets or exceeds 
a minimum score between 100 and 150. These same size thresholds and 
score ranges would apply to U.S. intermediate holding companies for the 
application of capital standards.
    Category III. Under the proposal, the Board would apply Category 
III standards to a foreign banking organization with combined U.S. 
assets of $250 billion or more, or for capital standards, a U.S. 
intermediate holding company with total consolidated assets of $250 
billion or more, that does not meet the criteria for Category II. This 
reflects, among other things, the crisis experience of domestic banking 
organizations with total consolidated assets of $250 billion or more, 
which presented materially different risks to U.S. financial stability 
relative to firms with less than $250 billion in assets. Similarly, 
under the domestic proposal, the Board would at a minimum apply 
Category III standards to a firm with assets of $250 billion or more, 
reflecting the threshold above which the Board must apply enhanced 
prudential standards under section 165.
    The domestic proposal seeks comment on an alternative scoring 
approach under which a firm with total consolidated assets between $100 
billion and $250 billion that has a method 1 or method 2 score within a 
specified range would be subject to

[[Page 22000]]

Category III standards. Specifically, the Board proposed selecting a 
minimum score for application of Category III standards between 25 and 
45 under method 1, or between 50 and 85 under method 2. The maximum 
score for application of the Category III standards would be one point 
lower than the minimum score selected for application of Category II 
standards. In selecting these ranges, the Board compared the scores of 
domestic firms with total consolidated assets of between $100 billion 
and $250 billion with those of firms with total consolidated assets 
greater than $250 billion. The Board performed a similar analysis 
including the scores of foreign banking organizations and found similar 
results. The Board is therefore considering the same thresholds for 
application of Category III standards to foreign banking organizations 
under the alternative scoring approach. Use of these thresholds would 
maintain comparable treatment between domestic firms and the U.S. 
operations of foreign banking organizations under the alternative 
scoring approach.
    Specifically, under the alternative scoring approach, Category III 
standards would apply to a foreign banking organization with combined 
U.S. assets between $100 billion and $250 billion with a method 1 score 
that meets or exceeds a minimum score between 25 and 45 or a method 2 
score that meets or exceeds a minimum score between 50 and 85, and in 
either case is below the score threshold for Category II standards. 
These same size thresholds and score ranges would apply to U.S. 
intermediate holding companies for the application of capital 
standards.
    Category IV: Under the alternative scoring approach, Category IV 
standards would apply to a foreign banking organization with at least 
$100 billion in combined U.S. assets whose method 1 or method 2 score 
for its combined U.S. operations is below the minimum score threshold 
for Category III. Likewise, Category IV capital standards would apply 
to a foreign banking organization with a U.S. intermediate holding 
company that has at least $100 billion in total assets and does not 
meet the minimum score threshold for Category III.
    Question 22: What are the advantages and disadvantages to the use 
of the alternative scoring approach and category thresholds described 
above instead of the proposed thresholds for foreign banking 
organizations?
    Question 23: If the Board were to use the alternative scoring 
approach to differentiate foreign banking organizations' U.S. 
operations for purposes of tailoring prudential standards, should the 
Board use method 1 scores, method 2 scores, or both? What are the 
challenges of applying the alternative scoring approach to the combined 
U.S. operations or U.S. intermediate holding company of a foreign 
banking organization? What modifications to the alternative scoring 
approach, if any, should the Board consider and why (e.g., should 
intercompany transactions be reflected in the calculation of 
indicators)?
    Question 24: If the Board adopted the alternative scoring approach, 
what would be the advantages or disadvantages of requiring scores to be 
calculated for the U.S. operations of a foreign banking organization at 
a frequency greater than annually, including, for example, requiring 
scores to be calculated on a quarterly basis?
    Question 25: With respect to each category of standards described 
above, at what level should the method 1 or method 2 score thresholds 
be set and why? Commenters are encouraged to provide data supporting 
their recommendations.
    Question 26: What other approaches should the Board consider in 
setting thresholds for tailored prudential standards for foreign 
banking organizations and why? How would any such approach affect the 
comparability of requirements across domestic banking organizations and 
foreign banking organizations?
4. Determination of Applicable Category of Standards
    Under the proposal, a foreign banking organization with combined 
U.S. assets of $100 billion or more would be required to determine the 
category of standards that would apply to its combined U.S. operations 
or U.S. intermediate holding company, as applicable. In order to 
capture significant changes, rather than temporary fluctuations, in a 
foreign banking organization's U.S. risk profile, a category of 
standards would apply to a foreign banking organization's U.S. 
operations or its U.S. intermediate holding company based on a four-
quarter average of the levels for each indicator.\62\ A foreign banking 
organization would remain subject to a category of standards until it 
no longer meets the indicators for that category in each of the four 
most recent calendar quarters, or until the foreign banking 
organization met the criteria for another category of standards based 
on an increase in the value of one or more indicators, averaged over 
the preceding four calendar quarters. This approach would be consistent 
with the existing applicability and cessation requirements of the 
enhanced prudential standards rule.\63\
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    \62\ With respect to a foreign banking organization that has 
reported an indicator for less than four quarters, the proposal 
would refer to the average of the most recent quarter or quarters. 
The measurement approach discussed in this section would apply to 
all standards within a given category, including regulatory and 
reporting requirements for a foreign banking organization.
    \63\ See e.g., 12 CFR 252.150.
---------------------------------------------------------------------------

    If a foreign banking organization becomes subject to a different 
category of standards, the standards under that category would be 
effective on the first day of the second quarter following the date on 
which the foreign banking organization met the criteria for that 
category of standards. For example, a foreign banking organization that 
changes from Category IV to Category III standards based on an increase 
in the value of a risk-based indicator averaged over the first, second, 
third, and fourth quarters of a calendar year would be subject to 
Category III standards beginning on April 1 (the first day of the 
second quarter) of the following year.
    Under the proposal, a foreign banking organization could be subject 
to different categories of standards for its combined U.S. operations 
and U.S. intermediate holding company. Consider, for example, a foreign 
banking organization with combined U.S. assets of $400 billion, cross-
jurisdictional activity of $80 billion at its combined U.S. operations, 
and a U.S. intermediate holding company with consolidated total assets 
of $260 billion and $45 billion of cross-jurisdictional activity. In 
this example, the combined U.S. operations of the foreign banking 
organization would be subject to Category II liquidity and risk-
management standards as well as single-counterparty credit limits \64\ 
because together, the U.S. intermediate holding company and branch and 
agency network have more than $75 billion in cross-jurisdictional 
activity. However, the U.S. intermediate holding company would be 
subject to Category III capital standards based on its total 
consolidated assets (which exceed $250 billion) and lower level of 
cross-jurisdictional activity.
---------------------------------------------------------------------------

    \64\ Single-counterparty credit limits are discussed in section 
II.D. of this Supplementary Information section.
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    Question 27: What are the advantages and disadvantages of 
determining the category of standards applicable to a foreign banking 
organization's combined U.S. operations or U.S. intermediate holding 
company on a quarterly basis? Would making this

[[Page 22001]]

determination on an annual basis would be more appropriate and why?
    Question 28: What are the advantages and disadvantages of the 
proposed transition period for foreign banking organizations that meet 
the criteria for a different category of standards due to changes in 
its U.S. risk profile? What would be the advantages or disadvantages of 
providing additional time to conform to new requirements?

C. Enhanced Prudential Standards for Foreign Banking Organizations

1. Category II Standards
    Category II standards would apply to a foreign banking organization 
with $700 billion or more in combined U.S. assets, or $75 billion or 
more in cross-jurisdictional activity. In view of its complexity, 
interconnectedness, and the materiality of its U.S. presence, the 
distress or failure of a foreign banking organization with U.S. 
operations that would be subject to Category II standards could impose 
substantial costs on the U.S. financial system and economy. As 
discussed in section II.B. of this Supplementary Information section, 
foreign banking organizations with the largest U.S. operations 
typically have more complex operational and management structures and 
provide financial services in the United States on a broader range and 
scale than smaller firms. In addition, foreign banking organizations 
with U.S. operations that engage in heightened levels of cross-
jurisdictional activity present operational complexities and 
interconnectivity concerns, and are exposed to a greater diversity of 
risks as a result of the multiple jurisdictions in which they provide 
financial services. The risks and operational complexities associated 
with cross-jurisdictional activity can present significant challenges 
to the recovery and resolution process.
    To address these risks and maintain consistency with the domestic 
proposal, under this proposal a U.S intermediate holding company 
subject to Category II capital standards would continue to submit an 
annual capital plan, and the Federal Reserve would conduct an 
assessment of the company's capital plan according to the capital plan 
rule.\65\ The proposal also would maintain annual supervisory stress 
testing for these U.S. intermediate holding companies and require 
company-run stress testing on an annual basis.\66\ In addition, U.S. 
intermediate holding companies subject to Category II capital standards 
would continue to report the information required under the existing FR 
Y-14 reporting forms to inform the Board's supervisory stress test and 
facilitate review of the firm's capital plan, as well as the ongoing 
monitoring and supervision of these companies.
---------------------------------------------------------------------------

    \65\ 12 CFR 225.8.
    \66\ The proposal would remove the mid-cycle company-run stress 
testing requirement for a U.S. intermediate holding company subject 
to Category II standards. In the Board's experience, the mandatory 
mid-cycle stress test provided modest risk-management benefits and 
limited incremental information to market participants beyond what 
the annual company-run stress test provides.
---------------------------------------------------------------------------

    The proposal would maintain the enhanced prudential standards 
rule's existing liquidity risk-management, monthly internal liquidity 
stress testing, and liquid asset buffer requirements for a foreign 
banking organization with combined U.S. operations subject to Category 
II liquidity standards. Daily liquidity data reporting under Form FR 
2052a also would apply to a foreign banking organization with combined 
U.S. operations subject to Category II standards. These requirements 
help to ensure that a foreign banking organization has effective 
governance and risk management processes to measure and estimate 
liquidity needs, and sufficient liquid assets to cover risks and 
exposures and to support activities through a range of conditions. In 
particular, internal liquidity stress testing, liquidity buffer, and 
liquidity risk-management requirements help to ensure that a foreign 
banking organization with large U.S. operations can appropriately 
manage liquidity risk and withstand disruptions in funding sources.\67\ 
Consistent with current requirements, for foreign banking organizations 
with both a U.S. intermediate holding company and a U.S. branch or 
agency, the foreign banking organization would conduct internal 
liquidity stress tests separately for each of its U.S. intermediate 
holding company, the U.S. branch or agency network, and the combined 
U.S. operations.\68\
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    \67\ As discussed in the interagency foreign banking 
organization capital and liquidity proposal, the implementation of 
standardized liquidity requirements to complement a firm's own 
internal liquidity stress testing and buffer requirements would help 
address liquidity risk.
    \68\ The proposal would revise the FR 2052a reporting 
requirements to require all foreign banking organizations subject to 
Category II standards to report the FR 2052a on a daily basis (daily 
reporting requirements would also apply to foreign banking 
organizations subject to Category III standards that have weighted 
short-term wholesale funding of $75 billion or more in respect of 
their combined U.S. operations). Some foreign banking organizations 
that would be subject to Category II standards currently report FR 
2052a data on a monthly basis. For these firms, the proposal would 
increase the frequency of reporting requirements under the FR 2052a.
---------------------------------------------------------------------------

    The proposal would make changes to the Board's single-counterparty 
credit limits to align the thresholds for application of these 
requirements with the proposed thresholds for other enhanced prudential 
standards and to tailor further the requirements applicable to U.S. 
intermediate holding companies. Under the proposal, single-counterparty 
credit limits would apply to the combined U.S. operations of a foreign 
banking organization subject to Category II or Category III standards. 
The proposed revisions to the single-counterparty credit limits rule 
are discussed in section II.D. of this Supplementary Information 
section.
    Question 29: What modifications, if any, should the Board consider 
to the proposed Category II prudential standards for foreign banking 
organizations, and why?
2. Category III Standards
    Category III standards would apply to a foreign banking 
organization with combined U.S. assets of $250 billion or more, or a 
heightened risk profile as measured based on the level of weighted 
short-term wholesale funding, nonbank assets, and off-balance sheet 
exposure among its combined U.S. operations.\69\ A foreign banking 
organization with U.S. operations of this size or risk profile 
heightens the need for sophisticated capital planning and more 
intensive oversight through stress testing, as well as sophisticated 
measures to monitor and manage liquidity risk. For example, U.S. 
intermediate holding companies that engage in heightened levels of 
nonbank activities may be exposed to a relatively broader range of 
risks, and the application of more sophisticated capital planning and 
stress testing requirements would be appropriate to support those 
activities. Similarly, a foreign banking organization with heightened 
levels of off-balance sheet exposure among its combined U.S. operations 
may be required to fulfill substantial draws on commitments and margin 
calls on derivatives during times of stress. Rigorous risk management 
and liquidity monitoring would appropriately support risks associated 
with these exposures.
---------------------------------------------------------------------------

    \69\ Category III capital standards would apply to a U.S. 
intermediate holding company with total consolidated assets of $250 
billion or more, or a heightened risk profile based on its level or 
weighted short-term wholesale funding, nonbank assets, and off-
balance sheet exposure.
---------------------------------------------------------------------------

    The Board's current prudential standards framework generally 
applies the same capital standards to all U.S. intermediate holding 
companies with $250 billion or more in total

[[Page 22002]]

consolidated assets.\70\ The proposed framework would further 
differentiate among foreign banking organizations with $250 billion or 
more in combined U.S. assets, consistent with the domestic proposal. In 
particular, Category II would include standards generally consistent 
with those developed by the BCBS that are appropriate for very large or 
complex firms, whereas Category III would include less stringent 
standards, based on the relatively lower U.S. risk profiles of foreign 
banking organizations that would be subject to Category III standards.
---------------------------------------------------------------------------

    \70\ For example, the supplementary leverage ratio, 
countercyclical capital buffer, and requirement to recognize most 
elements of accumulated other comprehensive income (AOCI) in 
regulatory capital generally apply to U.S. intermediate holding 
companies with $250 billion or more in total consolidated assets or 
$10 billion or more in on-balance sheet foreign exposure. In 
addition, if a U.S. intermediate holding company that meets this 
threshold has an insured depository institution subsidiary, the U.S. 
intermediate holding company also is subject to the LCR rule.
---------------------------------------------------------------------------

    The proposal would largely maintain the existing capital planning 
and stress testing standards under the capital plan and enhanced 
prudential standards rules for U.S. intermediate holding companies that 
would be subject to Category III capital standards, but would remove 
the mid-cycle company-run stress testing requirement and require public 
disclosure of company-run stress test results every other year rather 
than annually. The Board would continue to conduct supervisory stress 
testing of these U.S. intermediate holding companies on an annual 
basis.
    In regard to capital planning, a U.S. intermediate holding company 
subject to Category III capital standards would continue to submit 
confidential data to the Board using the existing schedule for FR Y-14 
reports. Such a U.S. intermediate holding company also would submit an 
annual capital plan and report the information required under the FR Y-
14A. The FR Y-14 and Y-14A reports are inputs into the supervisory 
stress test and inform the Board's review of the firm's capital plan, 
as well as the ongoing monitoring and supervision of these companies. 
In addition, as part of the internal stress test, a U.S. intermediate 
holding company must establish and maintain internal processes for 
assessing capital adequacy under expected and stressful conditions, 
which represent an important risk management capability for a U.S. 
intermediate holding company of this size or risk profile.
    A U.S. intermediate holding company subject to Category III capital 
standards would publicly disclose the results of company-run stress 
tests only once every two years, rather than annually.\71\ Because such 
a U.S. intermediate holding company would continue to submit an annual 
capital plan (including the results of an internal capital stress test) 
and would be subject to annual supervisory stress testing, a reduction 
in the frequency of disclosures related to the company-run stress test 
should reduce compliance costs without a material increase in safety 
and soundness or financial stability risks.\72\ Public disclosure of 
supervisory stress test results would continue to be made on an annual 
basis.
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    \71\ The company-run stress testing requirement under the 
enhanced prudential standards rule includes a mandatory public 
disclosure component, whereas the capital plan rule does not. 
Compare 12 CFR 252.58 with 12 CFR 225.8. The proposal would maintain 
the annual internal stress test requirement under the capital plan 
rule, but reduce the required frequency of company-run stress 
testing under the enhanced prudential standards rule to every other 
year. As a result, in the intervening year between company-run 
stress tests under the enhanced prudential standards rule, the 
proposed Category III standards would require a U.S. intermediate 
holding company to conduct an internal capital stress test only as 
part of its annual capital plan submission, without required public 
disclosure.
    \72\ Consistent with the domestic proposal, a U.S. intermediate 
holding company of a foreign banking organizations subject to 
Category II capital standards would conduct and publicly report the 
results of a company-run stress test more frequently (annually) than 
U.S. intermediate holding companies of foreign banking organizations 
subject to Category III standards (every two years), based on the 
differences in size, cross-jurisdictional activity, complexity, and 
risk profile indicated by the scoping criteria for each of these 
categories. 83 FR 66024 (December 21, 2018).
---------------------------------------------------------------------------

    For the reasons described under the discussion of Category II 
standards, the proposal would maintain existing liquidity risk 
management, monthly internal liquidity stress testing, and liquidity 
buffer requirements for the combined U.S. operations of a foreign 
banking organization subject to Category III liquidity standards. The 
proposal also would include liquidity data reporting requirements under 
FR 2052a for a foreign banking organization subject to Category III 
liquidity standards, and tailor those requirements based on the level 
of weighted short-term wholesale funding. Some foreign banking 
organizations that would be subject to Category III standards currently 
report FR 2052a data for their combined U.S. operations on a monthly 
basis. However, under the proposal, if the combined U.S. operations of 
a foreign banking organization have $75 billion or more in weighted 
short-term wholesale funding, FR 2052a data would be submitted for each 
business day.\73\ Daily reporting is appropriate for a foreign banking 
organization with heightened levels of weighted short-term wholesale 
funding, because a firm that relies more on unsecured, less-stable 
funding relative to deposits typically must rollover liabilities in 
order to fund its routine activities. Accordingly, short-term wholesale 
funding can be indicative of a firm that has heightened liquidity risk.
---------------------------------------------------------------------------

    \73\ FR 2052a data would be submitted on a monthly basis for 
combined U.S. operations of a foreign banking organization subject 
to Category III standards with less than $75 billion in weighted 
short-term wholesale funding.
---------------------------------------------------------------------------

    Question 30: What modifications, if any, should the Board consider 
to the proposed Category III prudential standards for foreign banking 
organizations, and why?
    Question 31: What are the advantages and disadvantages of reducing 
the frequency of the company-run stress test and related disclosures to 
every other year for a U.S. intermediate holding company subject 
Category III standards?
3. Category IV Standards
    Under the proposal, Category IV standards would apply to foreign 
banking organizations with combined U.S. assets of $100 billion or more 
that do not meet the criteria for Categories II or III with respect to 
their combined U.S. operations or U.S. intermediate holding companies 
(as applicable). Based on an analysis of the crisis experience of large 
domestic banking organizations, the Board found that the failure or 
distress of a U.S. banking organization that meets or exceeds the 
thresholds for Category IV standards, while not likely to have as great 
of an impact on U.S. financial stability as the failure or distress of 
a firm subject to Category II or III standards, could nonetheless have 
an amplified negative effect on economic growth and employment relative 
to the failure or distress of smaller firms. Notwithstanding structural 
differences between the U.S. operations of foreign banking 
organizations and domestic firms, the size and risk profile of such 
U.S. operations could present similar risk to financial stability and 
safety and soundness as those presented by U.S. firms.
    Relative to current requirements under the enhanced prudential 
standards rule, the proposed Category IV standards would maintain core 
elements of the capital and liquidity standards, and tailor these 
requirements to reflect the lower risk profile and lesser degree of 
complexity of a foreign banking organization subject to this category 
of standards.
    The proposal would tailor the application of capital standards for 
U.S. intermediate holding companies subject

[[Page 22003]]

to Category IV capital standards, consistent with the domestic 
proposal. Specifically, the proposal would reduce the frequency of 
supervisory stress testing to every other year, and eliminate the 
requirement to conduct and publicly report the results of a company-run 
stress test. A supervisory stress test cycle of this frequency would be 
consistent with the domestic proposal and appropriate for the risk 
profile of a U.S. intermediate holding company subject to this category 
of standards. The proposal would maintain the existing FR Y-14 
reporting for these U.S. intermediate holding companies in order to 
provide the Board with the data it needs to conduct supervisory stress 
testing and inform the Board's ongoing monitoring and supervision of 
these companies.\74\
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    \74\ The Board plans to separately propose reductions in FR Y-14 
reporting requirements for firms subject to Category IV standards as 
part of the capital plan proposal at a later date, to align with 
changes the Board would propose to the capital plan rule.
---------------------------------------------------------------------------

    The Board continues to expect a U.S. intermediate holding company 
of a foreign banking organization subject to Category IV capital 
standards to have a sound capital position and sound capital planning 
practices. Capital is central to the ability of a U.S. intermediate 
holding company to absorb unexpected losses and continue to lend to 
creditworthy businesses and consumers. To be resilient under a range of 
conditions, a U.S. intermediate holding company must maintain 
sufficient levels of capital to support the risks associated with its 
exposures and activities. As a result, processes for managing and 
allocating capital resources are critical to a company's financial 
strength and resiliency, and also to the stability and effective 
functioning of the U.S. financial system.
    In April 2018, the Board issued a proposal to apply stress buffer 
requirements to large bank holding companies and U.S. intermediate 
holding companies.\75\ As part of a future capital plan proposal, the 
Board intends to propose that the stress buffer requirements under 
Category IV would be calculated in a manner that aligns with the 
proposed two-year supervisory stress testing cycle. Specifically, the 
Board plans to propose that the stress buffer requirements would be 
updated annually to reflect planned distributions, but only every two 
years to reflect stress loss projections.\76\
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    \75\ See Amendments to the Regulatory Capital, Capital Plan, and 
Stress Test Rules, 83 FR 18160 (proposed April 25, 2018).
    \76\ Under the capital plan rule, the Board may require a U.S. 
intermediate holding company to resubmit its capital plan if there 
has been, or will likely be, a material change in the firm's risk 
profile, financial condition, or corporate structure. See 12 CFR 
225.8(e)(4). In the event of a resubmission, the Board may conduct a 
quantitative evaluation of that capital plan. As noted in the April 
2018 proposal, the Board may recalculate a firm's stress buffer 
requirements whenever the firm chooses or is required to resubmit 
its capital plan. 83 FR 18171.
---------------------------------------------------------------------------

    As part of the capital plan proposal, the Board intends to maintain 
the requirement that the firm submit an annual capital plan, but 
provide greater flexibility to U.S. intermediate holding companies to 
develop their annual capital plans. Under such an approach, Category IV 
standards could require a capital plan to include estimates of 
revenues, losses, reserves, and capital levels based on a forward-
looking analysis, taking into account the U.S. intermediate holding 
company's idiosyncratic risks under a range of conditions; however, it 
would not require submission of the results of company-run stress tests 
on the FR Y-14A. This change would align with the proposal to remove 
company-run stress testing requirements from Category IV standards 
under this proposal. The Board also intends at a future date to revise 
its guidance relating to capital planning to align with the proposed 
categories of standards and to allow more flexibility in how all firms 
subject to Category IV standards perform capital planning.
    Category IV liquidity standards would include liquidity risk 
management, stress testing, and buffer requirements. The combined U.S. 
operations of a foreign banking organization that would be subject to 
Category IV standards typically do not present the risks to U.S. 
financial stability that are associated with size, cross-jurisdictional 
activity, nonbank assets, and off-balance sheet exposure. Accordingly, 
the proposal would reduce the frequency of required internal liquidity 
stress testing to at least quarterly, rather than monthly.\77\ Under 
the proposed Category IV standards, a foreign banking organization 
would continue to be required to maintain a liquidity buffer at its 
U.S. intermediate holding company that is sufficient to meet the 
projected net stressed cash-flow need over the 30-day planning horizon 
under the internal liquidity stress test and a liquidity buffer at its 
U.S. branches and agencies that is sufficient to meet projected needs 
over the first fourteen days of a stress test with a 30-day planning 
horizon.
---------------------------------------------------------------------------

    \77\ Combined U.S. operations of a foreign banking organization 
subject to Category IV standards would remain subject to monthly FR 
2052a liquidity reporting requirements.
---------------------------------------------------------------------------

    The proposal also would modify certain liquidity risk-management 
requirements under Category IV. First, the combined U.S. operations of 
a foreign banking organization subject to this category of standards 
would calculate collateral positions on a monthly basis, rather than 
weekly. Second, the proposal would clarify that risk limits established 
to monitor sources of liquidity risk must be consistent with the 
established liquidity risk tolerance for the combined U.S. operations a 
foreign banking organization and appropriately reflect their risk 
profile. Importantly, limits established in accordance with the 
proposal would not need to consider activities or risks that are not 
relevant to the combined U.S. operations of a foreign banking 
organization. Third, while the proposal would continue to require a 
foreign banking organization subject to Category IV standards to 
establish and maintain procedures for monitoring intraday risk that are 
consistent with the risk profile of its combined U.S. operations, 
Category IV standards would not specify any required elements of those 
procedures.
    Question 32: What modifications, if any, should the Board consider 
to the proposed Category IV standards, and why?
    Question 33: What are the advantages and disadvantages of 
conducting a supervisory stress test every other year, rather than 
annually, and eliminating the company-run stress testing requirement 
for purposes of Category IV standards? What would be the advantages or 
disadvantages of the Board conducting supervisory stress tests for 
these U.S. intermediate holding companies on a more frequent basis? How 
should the Board consider providing U.S. intermediate holding companies 
with additional flexibility in their capital plans?

D. Single-Counterparty Credit Limits

    Section 165(e) of the Dodd-Frank Act requires the Board to 
establish single-counterparty credit limits for large U.S. and foreign 
banking organizations in order to limit the risks that the failure of 
any individual firm could pose to other firms subject to such 
requirements.\78\ Under the Board's enhanced prudential standards 
framework, single-counterparty credit limits apply to the combined U.S. 
operations of a foreign banking organization with $250 billion or more 
in total consolidated assets, and separately to any subsidiary U.S. 
intermediate holding company of such a

[[Page 22004]]

firm with total consolidated assets of $50 billion or more.\79\
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    \78\ 12 U.S.C. 5365(e).
    \79\ 12 CFR 252.72(a).
---------------------------------------------------------------------------

    The single-counterparty credit limits that apply to those foreign 
banking organizations and their U.S. intermediate holding companies 
increase in stringency in a manner commensurate with their size and 
risk profile. All foreign banking organizations are subject to an 
aggregate net credit exposure limit to any single counterparty equal to 
25 percent of tier 1 capital. In addition, if a foreign banking 
organization has the characteristics of a ``major foreign banking 
organization,'' \80\ it also is subject to an aggregate net credit 
exposure limit to any ``major counterparty'' \81\ equal to 15 percent 
of tier 1 capital.\82\ These requirements apply to the combined U.S. 
operations of a foreign banking organization and are determined with 
respect to the foreign banking organization's tier 1 capital. 
Alternatively, a foreign banking organization may comply with these 
requirements by certifying that it meets, on a consolidated basis, 
standards established by its home country supervisor that are 
consistent with the BCBS large exposure standard.\83\
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    \80\ ``Major foreign banking organization'' means a top-tier 
foreign banking organization that has the characteristics of a 
global systemically important banking organization under the global 
methodology, or is identified by the Board as a major foreign 
banking organization. 12 CFR 252.171(z).
    \81\ ``Major counterparty'' means a U.S. GSIB, a foreign banking 
organization that is a global systemically important banking 
organization, and any nonbank financial company supervised by the 
Board. 12 CFR 252.171(y).
    \82\ 12 CFR 252.172(c).
    \83\ 12 CFR 252.172(d). See also BCBS, Supervisory Framework for 
Measuring and Controlling Large Exposures (April 2014). The large 
exposures standard establishes an international single-counterparty 
credit limit framework for internationally active banks.
---------------------------------------------------------------------------

    For those foreign banking organizations' U.S. intermediate holding 
companies, the Board's single-counterparty credit limits apply a 
similar approach. For a U.S. intermediate holding company with total 
consolidated assets of at least $50 billion and less than $250 billion, 
its aggregate net credit exposure to a single counterparty cannot 
exceed 25 percent of total regulatory capital plus the balance of its 
allowance for loan and lease losses that is not includable in tier 2 
capital.\84\ In comparison, a U.S. intermediate holding company with 
total consolidated assets of at least $250 billion and less than $500 
billion is subject to an aggregate net credit exposure limit of 25 
percent of tier 1 capital.\85\ For ``major U.S. intermediate holding 
companies,'' the rule applies the same aggregate limits that apply to a 
major foreign banking organization--(i) an aggregate net credit 
exposure limit to any single counterparty equal to 25 percent of tier 1 
capital,\86\ and (ii) an aggregate net credit exposure limit to a 
``major counterparty'' equal to 15 percent of tier 1 capital.\87\
---------------------------------------------------------------------------

    \84\ 12 CFR 252.172(a).
    \85\ Id. at 252.172(b)(1).
    \86\ Id.
    \87\ Id. at 252.172(c)(1).
---------------------------------------------------------------------------

    Other provisions of the single-counterparty credit limits apply 
only to U.S. intermediate holding companies with total consolidated 
assets of $250 billion or more. Specifically, the current rule sets 
forth requirements for the treatment of exposures to securitization 
vehicles, investment funds, and other special purpose vehicles 
(collectively, SPVs),\88\ and the application of economic 
interdependence and control relationship tests to aggregate connected 
counterparties \89\ for U.S. intermediate holding companies that meet 
or exceed this asset size threshold. In addition, U.S. intermediate 
holding companies with $250 billion or more in total consolidated 
assets must comply with the rule on a daily basis as of the end of each 
business day and submit a quarterly report to demonstrate its 
compliance.\90\
---------------------------------------------------------------------------

    \88\ Id. at 252.175. For a discussion of the treatment of 
exposures to SPVs under the single-counterparty credit limit rule, 
see ``Single-Counterparty Credit Limits for Bank Holding Companies 
and Foreign Banking Organizations,'' 83 FR 38460, 38480-82 (Aug. 6, 
2018).
    \89\ 12 CFR 252.176. For a discussion of the economic 
interdependence and control relationship tests to aggregate 
connected counterparties under the single-counterparty credit limit 
rule, see id. at 38482-84.
    \90\ 12 CFR 252.178(a)(1) and (a)(3). A U.S. intermediate 
holding company with less than $250 billion in total consolidated 
assets must comply with single-counterparty credit limits as of the 
end of each quarter. See 12 CFR 252.178(a)(2).
---------------------------------------------------------------------------

    The proposal would revise the Board's single-counterparty credit 
limits to align the thresholds for application of these requirements 
with the proposed thresholds for other enhanced prudential standards. 
Under the proposal, single-counterparty credit limits would apply to 
the combined U.S. operations of a foreign banking organization subject 
to Category II or Category III standards or of a foreign banking 
organization with $250 billion or more in total consolidated assets. A 
foreign banking organization would continue to be able to comply with 
the single-counterparty credit limits by certifying to the Board that 
it meets comparable home-country standards that apply on a consolidated 
basis.
    The proposal also would apply single-counterparty credit limits 
separately to a U.S. intermediate holding company of a foreign banking 
organization subject to Category II or Category III standards but would 
modify the requirements currently applicable to those U.S. intermediate 
holding companies. First, the proposal would eliminate the requirements 
applicable to major U.S. intermediate holding companies and instead 
subject all U.S. intermediate companies to a uniform aggregate net 
credit exposure limit to a single counterparty equal to 25 percent of 
tier 1 capital. In addition, the proposal would remove the bifurcated 
treatment under the current rule regarding exposures to SPVs and the 
application of the economic interdependence and control relationship 
tests, as well as compliance requirements. Under the proposal, these 
requirements would apply to all U.S. intermediate holding companies as 
they apply currently to U.S. intermediate holding companies with $250 
billion or more in total consolidated assets. These revisions are 
intended to more appropriately balance the single-counterparty credit 
limits that apply to U.S. intermediate holding companies by maintaining 
the core aggregate net credit exposure limit and extending the 
applicability of other requirements that are integral to the framework. 
While these revisions would increase the compliance burden relative to 
the single-counterparty credit limits currently applicable to certain 
U.S. intermediate holding companies with less than $250 billion in 
assets, they are consistent with the focus of the post-crisis reform 
framework as it relates to reducing interconnectivity within the 
financial system and the maintenance of higher-quality forms of capital 
and, therefore, could help to mitigate risks to U.S. financial 
stability. In particular, the Board has stated that basing single-
counterparty credit limits on tier 1 capital sets the limits relative 
to the company's ability to absorb losses on a going-concern basis and 
acknowledges market participants' focus on higher-quality capital 
during the financial crisis.\91\
---------------------------------------------------------------------------

    \91\ See 83 FR 38460, 38471 (Aug. 6, 2018).
---------------------------------------------------------------------------

    The proposal would not apply single-counterparty credit limits to 
the combined U.S. operations of foreign banking organizations subject 
to Category IV standards unless such a foreign banking organization has 
$250 billion or more in total consolidated assets, as required by 
federal law.\92\ In addition, the proposal only would apply single-
counterparty credit limits to U.S.

[[Page 22005]]

intermediate holding companies of foreign banking organizations subject 
to Category II or Category III standards. As discussed above, the 
proposed indicators for Category II and Category III represent measures 
of vulnerability to safety and soundness and financial stability risks, 
which may be exacerbated if a foreign banking organization has combined 
U.S. operations with outsized credit exposure to a single counterparty. 
Accordingly, application of these limits would help to mitigate this 
risk. In addition, foreign banking organizations with combined U.S. 
operations that have high reliance on weighted short-term wholesale 
funding or a significant concentration of nonbank assets or off-balance 
sheet exposure often also have a high degree of interconnectedness with 
other market participants and may be likely to transmit their distress 
or failure to those participants. Single-counterparty credit limits may 
reduce the extent of that transmission.\93\ Foreign banking 
organizations with combined U.S. operations that would be subject to 
Category IV standards typically do not present these risks.
---------------------------------------------------------------------------

    \92\ See supra note 71.
    \93\ The limitation on a U.S. intermediate holding company's 
exposure to a single counterparty also may reduce the likelihood 
that distress at another firm would be transmitted to the U.S. 
intermediate holding company.
---------------------------------------------------------------------------

    Question 34: What are the advantages and disadvantages of the 
proposed revisions to the applicability requirements for single-
counterparty credit limits and the removal of aggregate net credit 
exposure limits applicable to major U.S. intermediate holding 
companies?
    Question 35: What are the advantages and disadvantages of extending 
to U.S. intermediate holding companies with less than $250 billion in 
total consolidated assets that are subject to Category II or Category 
III standards the requirements under the single-counterparty credit 
limits framework regarding the treatment of exposures to SPVs and the 
application of the economic interdependence and control relationship 
tests, as well as heightened compliance requirements?

E. Risk-Management and Risk-Committee Requirements

    Sound enterprise-wide risk management supports the safe and sound 
operation of banking organizations and reduces the likelihood of their 
material distress or failure, and thus promotes U.S. financial 
stability. Section 165(h) of the Dodd-Frank Act requires certain 
publicly traded bank holding companies, which includes foreign banking 
organizations, to establish a risk committee that is ``responsible for 
the oversight of the enterprise-wide risk management practices'' that 
meets other statutory requirements.\94\ EGRRCPA raised the threshold 
for mandatory application of the risk-committee requirement from 
publicly traded bank holding companies with $10 billion in total 
consolidated assets to publicly traded bank holding companies with $50 
billion or more in total consolidated assets. Additionally, the Board 
has discretion to apply risk-committee requirements to publicly traded 
bank holding companies with under $50 billion in total consolidated 
assets if the Board determines doing so is necessary or appropriate to 
promote sound risk management practices.
---------------------------------------------------------------------------

    \94\ 12 U.S.C. 5363(h).
---------------------------------------------------------------------------

    Under the current enhanced prudential standards rule, all foreign 
banking organizations with total consolidated assets of $50 billion or 
more, and publicly traded foreign banking organizations with at least 
$10 billion in total consolidated assets, must maintain a risk 
committee that meets specified requirements.\95\ These requirements 
vary based on a foreign banking organization's total consolidated 
assets and combined U.S. assets. Foreign banking organizations with at 
least $10 billion but less than $50 billion in total consolidated 
assets, as well as foreign banking organizations with total 
consolidated assets of $50 billion or more but less than $50 billion in 
combined U.S. assets, must annually certify to the Board that they 
maintain a qualifying committee that oversees the risk management 
policies of the combined U.S. operations of the foreign banking 
organization. In contrast, foreign banking organizations with total 
consolidated assets of $50 billion or more and $50 billion or more in 
combined U.S. assets are subject to more detailed risk-committee and 
risk-management requirements, including the requirement to appoint a 
U.S. chief risk officer.\96\
---------------------------------------------------------------------------

    \95\ See 12 CFR 252.144, 252.155, and subpart M.
    \96\ 12 CFR 252.155.
---------------------------------------------------------------------------

    Consistent with EGRRCPA, the proposal would raise the total 
consolidated asset threshold for application of the risk-committee 
requirement to foreign banking organizations and would not change the 
substance of the risk-committee requirement for these firms. 
Maintaining these risk-committee requirements for foreign banking 
organizations with total consolidated assets of $50 billion or more 
would help support the safety and soundness of a foreign banking 
organization's U.S. operations in a manner commensurate with its U.S. 
risk profile. Under the proposal, foreign banking organizations with at 
least $50 billion but less than $100 billion in total consolidated 
assets, as well as foreign banking organizations with total 
consolidated assets of $100 billion or more but less than $50 billion 
in combined U.S. assets, would be required to maintain a risk committee 
and make an annual certification to that effect. Additionally, foreign 
banking organizations with total consolidated assets of $100 billion or 
more and $50 billion or more in combined U.S. assets would be required 
to comply with the more detailed risk-committee and risk-management 
requirements in the Board's enhanced prudential standards rule 
(Regulation YY), which include the chief risk officer requirement. The 
proposal would eliminate the risk-committee requirements that apply for 
foreign banking organizations with less than $50 billion in total 
consolidated assets.
    Similar to its approach for domestic banking organizations, the 
Board historically has assessed the adequacy of risk management of 
foreign banking organizations through the examination process as 
informed by supervisory guidance; the requirements in section 165(h) of 
the Dodd-Frank Act supplement, but do not replace, the Board's existing 
risk management guidance and supervisory expectations.\97\ Given the 
activities and risk profiles of foreign banking organizations with less 
than $50 billion in total consolidated assets, the Board expects to 
review these firms' risk management practices through the supervisory 
process. The Board would continue to expect foreign banking 
organizations with less than $50 billion in total consolidated assets 
to establish risk management processes and procedures commensurate with 
their risks.
---------------------------------------------------------------------------

    \97\ See Enhanced Prudential Standards for Bank Holding 
Companies and Foreign Banking Organizations, 79 FR 17239, 17247 
(Mar. 27, 2014).
---------------------------------------------------------------------------

F. Enhanced Prudential Standards for Foreign Banking Organizations With 
a Smaller U.S. Presence

    The current regulatory framework for foreign banking organizations 
tailors the application of enhanced prudential standards based on the 
size and complexity of a foreign banking organization's U.S. 
operations. Under the Board's current enhanced prudential standards 
rule, foreign banking organizations with at least $10 billion but less 
than $50 billion in total consolidated assets are subject to

[[Page 22006]]

company-run stress testing requirements in subpart L and the risk-
management and risk-committee requirements in subpart M, the latter of 
which is described above.\98\ Additionally, foreign banking 
organizations with at least $50 billion in total consolidated assets 
but less than $50 billion in combined U.S. assets are subject to risk-
based and leverage capital, risk-management and risk-committee, 
liquidity risk management, and capital stress testing requirements in 
subpart N of the Board's enhanced prudential standards rule.\99\ The 
Board largely requires the foreign banking organization's compliance 
with home-country capital and liquidity standards at the consolidated 
level, and imposes certain risk-management requirements that are 
specific to the U.S. operations of a foreign banking organization.
---------------------------------------------------------------------------

    \98\ The company-run stress testing requirements in subpart L 
also currently apply to foreign savings and loan holding companies 
with at least $10 billion in total consolidated assets. See 12 CFR 
252.120 et seq.
    \99\ 12 CFR 252.140 et seq.
---------------------------------------------------------------------------

    The proposal generally adopts this approach for foreign banking 
organizations with a limited U.S. presence; however, it would also 
implement targeted changes to reduce the stringency of certain 
requirements applicable to these firms, as described below. It would 
also maintain certain risk-management and capital requirements for a 
U.S. intermediate holding company of a foreign banking organization 
that does not meet the thresholds under the proposal for the 
application of Category II, Category III or Category IV standards.
1. Enhanced Prudential Standards for Foreign Banking Organizations With 
Less Than $50 Billion in Total Consolidated Assets
    The proposal would eliminate risk-committee and risk-management 
requirements for foreign banking organizations with less than $50 
billion in total consolidated assets, as described above.
    In addition, consistent with EGRRCPA, the proposal would eliminate 
subpart L of the Board's enhanced prudential standards rule, which 
currently prescribes company-run stress testing requirements for 
foreign banking organizations with more than $10 billion but less than 
$50 billion in total consolidated assets.\100\ EGRRCPA raised the 
threshold for mandatory application of company-run stress testing 
requirements from financial companies with more than $10 billion in 
total consolidated assets to financial companies with more than $250 
billion in total consolidated assets. As a result, foreign banking 
organizations with less than $50 billion in total consolidated assets 
would no longer be required to be subject to a home-country capital 
stress testing regime, or if the foreign banking organization was not 
subject to qualifying home country standards, additional stress testing 
requirements in subpart L.\101\
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    \100\ Subpart L also currently applies to foreign savings and 
loan holding companies with more than $10 billion in total 
consolidated assets. Id.
    \101\ For foreign savings and loan holding companies, the 
proposal would apply company-run stress testing requirements to 
foreign savings and loan holding companies with more than $250 
billion in total consolidated assets. These requirements would be 
the same as those that currently apply in subpart L of the enhanced 
prudential standards rule. See id. Raising the asset size threshold 
for application of company-run stress testing requirements for 
foreign savings and loan holding companies to more than $250 billion 
in total consolidated assets would be consistent with section 
165(i)(2) of the Dodd-Frank Act, as amended by EGRRCPA. Under this 
proposal, company-run stress test requirements for foreign savings 
and loan holding companies would be in the new subpart R of 
Regulation LL.
---------------------------------------------------------------------------

2. Enhanced Prudential Standards for Foreign Banking Organizations With 
$100 Billion or More in Total Consolidated Assets but Less Than $100 
Billion in Combined U.S. Assets
    Under the Board's existing enhanced prudential standards rule, 
subpart N applies to foreign banking organizations with $50 billion or 
more in total consolidated assets but less than $50 billion in combined 
U.S. assets. Currently, the standards in subpart N--which include risk-
based and leverage capital, liquidity risk management, and capital 
stress testing requirements--largely require compliance with home-
country standards.
    Consistent with EGRRCPA, the proposal would raise the threshold for 
application of subpart N to foreign banking organizations with $100 
billion or more in total consolidated assets but less than $100 billion 
in combined U.S. assets. Under the proposed rule, the requirements 
under subpart N would continue to largely defer to home-country 
standards and remain generally unchanged from the requirements that 
apply currently to a foreign banking organization with a limited U.S 
presence, including liquidity risk management requirements, risk-based 
and leverage capital requirements, and capital stress testing 
requirements. However, consistent with the proposed stress testing 
frequency for smaller and less complex domestic holding companies, the 
proposal would require foreign banking organizations with total 
consolidated assets of less than $250 billion that do not meet the 
criteria for application of Category II, Category III, or Category IV 
standards to be subject to a home-country supervisory stress test on a 
biennial basis, rather than annually as under the current framework.
    As mentioned above in section II.E. of this Supplementary 
Information, risk-committee requirements in subpart N would be further 
differentiated based on combined U.S. assets. Under the proposal, 
foreign banking organizations with $100 billion or more in total 
consolidated assets but less than $50 billion in combined U.S. assets 
would be required to certify on an annual basis that they maintain a 
qualifying risk committee that oversees the risk management policies of 
the combined U.S. operations of the foreign banking organization. In 
contrast, foreign banking organizations with $100 billion or more in 
total consolidated assets, and at least $50 billion but less than $100 
billion in combined U.S. assets would be subject to more detailed risk-
committee and risk-management requirements, which include the chief 
risk officer requirement. These more detailed risk-committee 
requirements would be the same requirements that apply to foreign 
banking organizations with $100 billion or more in combined U.S. 
assets.
    The proposal would not revise the $50 billion U.S. non-branch asset 
threshold for the U.S. intermediate holding company formation 
requirement. This requirement has resulted in substantial gains in the 
resilience and safety and soundness of foreign banking organizations' 
U.S. operations. Therefore, a foreign banking organization subject to 
subpart N (i.e., one with less than $100 billion in combined U.S. 
assets) may have or could be required to form a U.S. intermediate 
holding company. A U.S. intermediate holding company of such a foreign 
banking organization would not be subject to Category II, Category III, 
or Category IV capital standards, but it would remain subject to the 
risk-based and leverage capital requirements that apply to a U.S. bank 
holding company of a similar size and risk profile under the Board's 
capital rule.\102\ Similarly, a U.S. intermediate holding company of a 
foreign banking organization subject to subpart N would be required to 
comply with risk-management and risk-committee requirements. As under 
the

[[Page 22007]]

current rule, under the proposal the risk committee of the U.S. 
intermediate holding company may also serve as the U.S. risk committee 
for the foreign banking organization's combined U.S. operations.
---------------------------------------------------------------------------

    \102\ 12 CFR part 217. As discussed in the interagency foreign 
banking organization capital and liquidity proposal, such a U.S. 
intermediate holding company would be subject to the generally 
applicable risk-based and leverage capital requirements.
---------------------------------------------------------------------------

G. Technical Changes to the Regulatory Framework for Foreign Banking 
Organizations and Domestic Banking Organizations

    The proposal would make several technical changes and clarifying 
revisions to the Board's enhanced prudential standards rule. In 
addition to any defined terms described previously in this 
Supplementary Information section, the proposal would add defined terms 
for foreign banking organizations with combined U.S. operations subject 
to Category II, III, or IV standards, defined as ``Category II foreign 
banking organizations'', ``Category III foreign banking 
organizations'', or ``Category IV foreign banking organizations'', 
respectively. Similarly, the proposal would add defined terms for 
``Category II U.S. intermediate holding companies'', ``Category III 
U.S. intermediate holding companies'', and ``Category IV U.S. 
intermediate holding companies''. The addition of these terms would 
facilitate the requirements for application of enhanced prudential 
standards under the category framework set forth in this proposal.
    The proposal would revise the requirements for establishment of a 
U.S. intermediate holding company to eliminate the requirement to 
submit an implementation plan. The implementation plan requirement was 
intended to facilitate initial compliance with the U.S. intermediate 
holding company requirement. To assess compliance with the U.S. 
intermediate holding company requirement under the proposal, 
information would be requested through the supervisory process. Such 
information could include information on the U.S. subsidiaries of the 
foreign banking organization that would be transferred, a projected 
timeline for the structural reorganization, and a discussion of the 
firm's plan to comply with the enhanced prudential standards that would 
be applicable to the U.S. intermediate holding company.
    The proposal also would make conforming amendments to the process 
for requesting an alternative organizational structure for a U.S. 
intermediate holding company, as well as clarify that a foreign banking 
organization may submit a request for an alternative organizational 
structure in the context of a reorganization, anticipated acquisition, 
or prior to formation of a U.S. intermediate holding company. In light 
of the requests received under this section following the initial 
compliance with the U.S. intermediate holding company requirement, the 
time period for the Board's expected action would be shortened from 180 
days to 90 days. These amendments would apply to a U.S. intermediate 
holding company formed under subpart N or subpart O.
    As discussed above, capital requirements would apply to a U.S. 
intermediate holding company based on its risk profile, while other 
requirements would be based on the risk profile of the combined U.S. 
operations of a foreign banking organization. Subpart O of Regulation 
YY currently provides that a foreign banking organization that forms 
two or more U.S. intermediate holding companies would meet any 
threshold governing applicability of particular requirements by 
aggregating the total consolidated assets of the U.S. intermediate 
holding companies. The proposal would not change this aggregation 
requirement, but would amend the requirement to consider the risk-based 
indicators discussed above.
    In addition, the proposal would provide a reservation of authority 
to permit a foreign banking organization to comply with the 
requirements of Regulation YY through a subsidiary foreign bank or 
company of the foreign banking organization. In making this 
determination, the Board would take into consideration the ownership 
structure of the foreign banking organization, including (1) whether 
the foreign banking organization is owned or controlled by a foreign 
government; (2) whether the action would be consistent with the 
purposes of this part; and (3) any other factors that the Board 
determines are relevant. For example, if top-tier foreign banking 
organization is a sovereign wealth fund that controls a U.S. bank 
holding company, with prior approval of the Board the U.S. bank holding 
company could comply with the requirements established under Regulation 
YY instead of the sovereign wealth fund, provided that doing so would 
not raise significant supervisory or policy issues and would be 
consistent with the purposes of section 165. The reservation of 
authority is intended to provide additional flexibility to address 
certain foreign banking organization structures, as well as to provide 
clarity and reduce burden for these institutions.
    The proposal also would amend Regulation YY to eliminate transition 
and initial applicability provisions that were relevant only for 
purposes of the initial adoption and implementation of the enhanced 
prudential standards framework.
    For both foreign and domestic banking organizations, the Board is 
soliciting comment on whether to more closely align the assets that 
qualify as highly liquid assets in the enhanced prudential standards 
rule \103\ with HQLA under the current LCR rule.\104\
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    \103\ 12 CFR 252.35(b) and 12 CFR 252.157(c).
    \104\ See Liquidity Coverage Ratio: Liquidity Risk Measurement 
Standards, 79 FR 61440, 61450 (Oct. 10, 2014), codified at 12 CFR 
part 50 (OCC), 12 CFR part 249 (Board), and 12 CFR part 329 (FDIC). 
For the definition of HQLA under the Board's LCR rule, see 12 CFR 
249.20.
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    Specifically, the enhanced prudential standards rule requires 
certain large foreign and domestic banking organizations to hold 
buffers of highly liquid assets. The rule defines highly liquid assets 
to include cash, certain securities issued or guaranteed by the U.S. 
government or a U.S. government-sponsored enterprise, and other assets 
that a firm demonstrates to the Board's satisfaction meet specific 
liquidity criteria.\105\
---------------------------------------------------------------------------

    \105\ Id.
---------------------------------------------------------------------------

    The LCR rule describes assets that are HQLA that may be used by a 
firm to meets its net cash outflow amount.\106\ HQLA are expected to be 
easily and immediately convertible into cash with little or no expected 
loss of value during a period of stress.\107\ Certain HQLA are subject 
to additional, asset-specific requirements, including, for example, 
that the assets be liquid and readily marketable.\108\
---------------------------------------------------------------------------

    \106\ 12 CFR 50.20 (OCC), 12 CFR 249.20 (Board), and 12 CFR 
329.20 (FDIC).
    \107\ See 79 FR at 61450.
    \108\ 12 CFR 50.20 (OCC), 12 CFR 249.20 (Board), and 12 CFR 
329.20 (FDIC).
---------------------------------------------------------------------------

    When the Board adopted the enhanced prudential standards rule in 
2014, the Board stated that HQLA under the then-proposed LCR rule would 
be liquid under most scenarios, but a covered company would still be 
required to demonstrate to the Board that these assets meet the 
criteria for highly liquid assets set forth in the enhanced prudential 
standards rule.\109\ After several years of supervising firms that are 
subject to the enhanced prudential standards rule and LCR rule, the 
Board is considering whether it would be appropriate to expand the list 
of enumerated highly liquid assets to include certain assets that are 
HQLA (potentially reflecting operational requirements of the LCR rule), 
or otherwise adjust the definition of highly liquid assets to align 
with the LCR rule. Under this approach, a banking organization would no 
longer be required to obtain a determination from

[[Page 22008]]

the Board for assets that are HQLA, as those assets would be enumerated 
as highly liquid assets in Regulation YY.
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    \109\ See 79 FR 17259-60 (Oct. 10, 2014).
---------------------------------------------------------------------------

    Question 36: How, if at all, should the Board adjust the current 
definition of highly liquid assets in 12 CFR 252.35(b)(3) and 
252.157(c)(7) of the enhanced prudential standards rule to improve 
alignment with the definition of HQLA? Should the enumerated list of 
highly liquid assets be expanded to include any or all of certain 
categories of HQLA (e.g., level 1 liquid assets, all level 1 and level 
2A liquid assets, certain level 1 liquid assets, certain level 2A 
liquid assets, etc.) or certain assets that are HQLA (e.g., sovereign 
bonds that are assigned a zero percent risk weight under the Board's 
capital regulation)? Should ``cash'' in the enhanced prudential 
standards rule be clarified to mean Reserve Bank balances and foreign 
withdrawable reserves, to more closely align with the enumerated list 
of level 1 liquid assets that are not securities in the LCR rule?
    Question 37: What are the advantages and disadvantages of 
incorporating into the definition of highly liquid assets other 
requirements of the LCR rule related to HQLA, including, for example, 
the requirements for an asset to be ``eligible HQLA,'' the haircuts 
applied to HQLA, or the quantitative limits on the composition of the 
HQLA amount? \110\
---------------------------------------------------------------------------

    \110\ 12 CFR 249.21 and 249.22.
---------------------------------------------------------------------------

    Question 38: If a firm's HQLA satisfy the requirements in the LCR 
rule to be eligible HQLA,\111\ what are the advantages and 
disadvantages of requiring the firm to separately demonstrate that the 
HQLA meet the other requirements in the enhanced prudential standards 
rule for highly liquid assets? \112\ What would be the advantages and 
disadvantages of adding other requirements for highly liquid assets in 
the enhanced prudential standards rule, including a requirement that a 
firm take into account potential conflicts to a business or risk 
management strategy stemming from the monetization of these assets?
---------------------------------------------------------------------------

    \111\ See 12 CFR 50.22 (OCC); 12 CFR 249.22 (Board); 12 CFR 
329.50 (FDIC).
    \112\ 12 CFR 252.35(b)(3) and 252.157(c)(7).
---------------------------------------------------------------------------

    In addition, the proposal would amend the internal liquidity stress 
testing requirements to provide a banking organization with notice and 
an opportunity to respond if the Board determined that the banking 
organization must change the frequency of its internal liquidity stress 
testing. The proposed procedures would allow a banking organization to 
respond to the Board's determination before such requirement takes 
effect. The proposed procedures are consistent with other similar 
notice procedures in Regulation YY. The proposed changes would help 
ensure that the internal liquidity stress tests conducted by a banking 
organization are consistent with that banking organization's liquidity 
risk profile.\113\
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    \113\ The proposed procedures would not limit the authority of 
the Board under any other provision of law or regulation to take 
supervisory or enforcement action, including action to address 
unsafe or unsound practices or conditions, deficient liquidity 
levels, or violations of law.
---------------------------------------------------------------------------

    For domestic bank holding companies, the proposal would amend the 
Board's GSIB surcharge rule to require a bank holding company subject 
to Category III standards to compute its method 1 score on an annual 
basis to determine whether it is a U.S. GSIB. Currently, the Board's 
GSIB surcharge rule applies only to a domestic bank holding company 
that is an advanced approaches Board-regulated institution (a bank 
holding company with $250 billion or more in total consolidated assets 
or $10 billion or more in on-balance sheet foreign exposure), as a bank 
holding company that does not meet these thresholds is less likely to 
pose heightened risks to U.S. financial stability.\114\
---------------------------------------------------------------------------

    \114\ See 12 CFR 217.400(b)(1). See 80 FR 49082 (August 14, 
2015).
---------------------------------------------------------------------------

    In the domestic interagency proposal, the Board proposed to revise 
the definition of advanced approaches Board-regulated institution to 
include a bank holding company that is identified as a U.S. GSIB or a 
bank holding company that has either $700 billion in total consolidated 
assets or $75 billion in cross-jurisdictional activity. The Board did 
not address whether a Category III banking organization would need to 
calculate its method 1 score in the domestic proposal or the domestic 
interagency proposal. As noted by the Board in the domestic proposal, 
Category III standards would apply to domestic bank holding companies 
that could pose heightened risks to U.S financial stability and would 
further the safety and soundness of a bank holding company of such size 
and risk profile.\115\ Accordingly, because of the risk profile of 
these firms, the Board is proposing to revise the GSIB surcharge rule 
to require Category III banking organizations to calculate their method 
1 scores annually. The proposed change would not increase the number of 
firms that currently calculate their method 1 GSIB score annually, as 
all proposed Category III domestic bank holding companies are advanced 
approaches Board-regulated institutions under the Board's existing GSIB 
surcharge rule.
---------------------------------------------------------------------------

    \115\ 83 FR 61408, 61413 (November 29, 2018).
---------------------------------------------------------------------------

    Question 39: How could the Board further improve the structure of 
the enhanced prudential standards framework in Regulation YY and 
proposed prudential standards in Regulation LL? For example, would 
providing all definitions under one section facilitate compliance with 
the framework? Are there other structural or technical changes to 
Regulation YY and Regulation LL the Board should consider and, if so, 
why? Are there other clarifications to Regulation YY that the Board 
should consider and, if so, how and why? For example, are there defined 
terms that could be further clarified?
    Question 40: What are the advantages or disadvantages of providing 
foreign banking organizations additional flexibility in complying with 
the Board's risk-committee requirements? What, if any, additional 
flexibility should the Board provide to foreign banking organizations 
with $50 billion or more in combined U.S. assets to maintain their risk 
committees at entities other than at the top-tier foreign banking 
organization or at the foreign banking organization's U.S. intermediate 
holding company? What alternative structures should the Board consider? 
What factors should the Board consider in determining whether to 
provide foreign banking organizations with additional flexibility or 
permit an alternative structure in complying with the risk-committee 
requirements? In particular, to what extent should the Board consider 
(a) the scope of the risk committee's oversight of the combined U.S. 
operations of the foreign banking organization; and (b) the reporting 
lines from the risk committee to the global board of directors of the 
foreign banking organization?
    Question 41: What are the advantages or disadvantages of requiring 
a domestic bank holding company subject to Category III standards to 
compute its method 1 score? What would be the advantages or 
disadvantages of the Board, instead of the bank holding companies 
subject to the GSIB surcharge rule, computing the method 1 scores for 
all, or some, bank holding companies subject to the GSIB surcharge 
rule?

III. Proposed Reporting Changes

    To accommodate the proposed revisions to the framework for 
determining the applicability of enhanced prudential standards to 
foreign banking organizations, the proposal would make various changes 
to related reporting forms. Specifically,

[[Page 22009]]

the proposal would amend the FR Y-7, FR Y-7Q, FR Y-9C, FR Y-14, FR Y-
15, and FR 2052a.
    The Board is proposing to revise Item 5 on the FR Y-7, Regulation 
YY Compliance for the Foreign Banking Organization (FBO), to align the 
reporting form with the applicability thresholds set forth in this 
proposal and other regulatory changes that are consistent with the 
Board's July 2018 statement concerning EGRRCPA.\116\ Specifically, Item 
5(a) would be amended to apply only to foreign savings and loan holding 
companies with more than $250 billion in total consolidated assets, and 
would assess compliance with the capital stress testing requirements 
under proposed section 238.162 of the Board's Regulation LL, as revised 
under this proposal. Items 5(b) and 5(c) would continue to assess 
compliance with the risk committee requirements in sections 252.132(a) 
and 252.144(a) of the Board's Regulation YY, respectively, but the 
descriptions for each Item would be updated to conform to the asset 
size thresholds under this proposal. For Item 5(b), the description 
would also eliminate language referring to foreign banking 
organizations that are publicly traded, as that distinction would be 
eliminated under this proposal. Similarly, the Board is proposing to 
revise Items 5(d) and 5(e) to align the descriptions of the 
requirements with the asset size thresholds under this proposal. These 
Items would continue to assess compliance with the capital stress 
testing requirements in sections 252.146(b) and 252.158(b) of the 
Board's Regulation YY.
---------------------------------------------------------------------------

    \116\ See Board statement regarding the impact of the Economic 
Growth, Regulatory Relief, and Consumer Protection Act, July 6, 
2018, available at https://www.federalreserve.gov/newsevents/pressreleases/bcreg20180706b.htm.
---------------------------------------------------------------------------

    The proposal would amend the FR Y-7Q to align with revisions to 
Regulation YY. Currently, top-tier foreign banking organizations with 
$50 billion or more in total consolidated assets must report Part 1B--
Capital and Asset Information for Top-tier Foreign Banking 
Organizations with Consolidated Assets of $50 billion or more. The 
proposal would now require top-tier foreign banking organizations that 
are subject to either sections 252.143 or 252.154 of the Board's 
Regulation YY to report Part 1B. Section 252.143 outlines risk-based 
and leverage capital requirements for foreign banking organizations 
with total consolidated assets of $250 billion or more but combined 
U.S. assets of less than $100 billion, while section 252.154 describes 
risk-based and leverage capital requirements for foreign banking 
organizations with $100 billion or more in total consolidated assets 
and combined U.S. assets of $100 billion or more.
    The Board is proposing to amend the FR Y-9C to further clarify 
requirements for U.S. intermediate holding companies subject to 
Category III capital standards. In the domestic proposal, the Board 
proposed to amend the FR Y-9C to clarify that Category III Board-
regulated institutions would not be included in the proposed definition 
of ``advanced approaches banking organizations'' but would be required 
to comply with the supplementary leverage ratio and countercyclical 
capital buffer requirements. Specifically, the domestic proposal would 
require line item 45 to be completed by ``advanced approaches banking 
organizations and Category III Board-regulated institutions.'' This 
proposal would make additional changes to line item 45 to further 
clarify that the supplementary leverage ratio and countercyclical 
capital buffer apply to Category III U.S. intermediate holding 
companies. Accordingly, line item 45 would be amended to apply to 
``advanced approaches holding companies, Category III bank holding 
companies, Category III savings and loan holding companies or Category 
III U.S. intermediate holding companies.'' The instructions for the FR 
Y-9C also would be amended in this proposal to align with the proposed 
revisions to line item 45. Under the domestic proposal, the 
instructions for Schedule HC-R of the FR Y-9C would be clarified to 
indicate that Category III Board-regulated institutions are not subject 
to the advanced approaches rule but are subject to the supplementary 
leverage ratio and countercyclical capital buffer. This proposal would 
amend those instructions to further clarify that the supplementary 
leverage ratio and countercyclical capital buffer also apply to 
Category III bank holding companies, Category III savings and loan 
holding companies, and Category III U.S. intermediate holding 
companies.
    Consistent with EGRRCPA and the Board's July 2018 statement 
relating to EGRRCPA, the proposal would revise the FR Y-14A, Y-14M, and 
Y-14Q to revise the threshold for U.S. intermediate holding companies 
that would be required to submit these forms, by increasing it to U.S. 
intermediate holding companies with $100 billion or more in total 
consolidated assets. U.S. intermediate holding companies below this 
size threshold would no longer be required to submit these forms. The 
proposal would also make technical changes to the definitions of 
``large and complex'' and ``large and noncomplex'' bank holding company 
to align with proposed changes in Sec.  225.8(d)(9).
    The Board is proposing to modify the FR Y-15 report to require a 
foreign banking organization to report data for its combined U.S. 
operations that are related to the criteria for determining the 
applicability of enhanced prudential standards under this proposal. 
Currently, only U.S. intermediate holding companies are required to the 
FR Y-15. Extending FR Y-15 reporting requirements to the combined U.S. 
operations of a foreign banking organization would allow the Board to 
determine the applicable category of standards, as well as monitor the 
risk profile of those operations, consistent with the scope of 
application of this proposal. Specifically, foreign banking 
organizations would be required to report the information required 
under new schedules H through N of the FR Y-15, which would replicate 
schedules A through G of the current FR Y-15 for domestic holding 
companies (with the exception of cross-jurisdictional activity, as 
discussed below).\117\ Schedules H through N would be structured to 
include three columns, in which a foreign banking organization would 
report the information request for each item for (i) its U.S. 
intermediate holding company, (ii) its U.S. branch and agency network, 
and (iii) its combined U.S. operations. In calculating an item for its 
U.S. branch and agency network, a foreign banking organization would 
not be required to reflect transactions between its individual branches 
and agencies; such transactions would be treated as if they were 
transactions between affiliates under generally accepted accounting 
principles, and thus eliminated in consolidation. Similarly, in 
calculating an item for its combined U.S. operations, a foreign banking 
organization would not be required to reflect transactions between 
entities that comprise the combined U.S. operations of the foreign 
banking organization. Consistent with the domestic proposal, the 
proposal would add two line items to Schedule H of the FR Y-15 to 
calculate total off-balance sheet exposure. New line item M4 (total 
consolidated assets) would report the total consolidated on-balance 
sheet assets for the respondent, as calculated under Schedule HC, item 
12 (total consolidated assets) on the FR Y-9C. New line item M5 (total 
off-balance sheet exposures) would be total

[[Page 22010]]

exposure, as currently defined on the FR Y-15, minus line item M4. For 
purposes of reporting cross-jurisdictional activity, the FR Y-15 would 
require foreign banking organizations to report assets and liabilities 
of the U.S. intermediate holding company and U.S. branch and agency 
network, excluding cross-jurisdictional liabilities to non-U.S. 
affiliates and cross-jurisdictional claims on non-U.S. affiliates to 
the extent that these claims are secured by eligible financial 
collateral. To effectuate this change, the proposal would add new line 
items to proposed Schedule L and amend the instructions accordingly. 
Finally, the proposed changes to the FR Y-15 would make a number of 
additional edits to the form's instructions to clarify reporting 
requirements given the new scope of reporting for foreign banking 
organizations, and further align the form with the proposed 
categorization framework (e.g., amending references to ``advanced 
approaches'' institutions).
---------------------------------------------------------------------------

    \117\ U.S. intermediate holding companies would no longer be 
required to report on schedules A through G of the FR Y-15.
---------------------------------------------------------------------------

    The Board is proposing to revise the FR 2052a report to modify the 
current reporting frequency as described previously in this 
Supplementary Information section. Consistent with EGRRCPA, the 
revisions would remove foreign banking organizations with less than 
$100 billion in combined U.S. assets from the scope of FR 2052a 
reporting requirements. Additionally, the proposal would require 
foreign banking organizations with combined U.S. assets of $100 billion 
or more to report the FR 2052a on a daily basis if they are: (i) 
Subject to Category II standards, or (ii) have $75 billion or more in 
weighted short-term wholesale funding. This would increase the 
frequency of reporting for foreign banking organizations subject to 
Category II standards with less than $700 billion in combined U.S. 
assets and foreign banking organizations subject to Category III 
standards with $75 billion or more in weighted short-term wholesale 
funding; these foreign banking organizations currently report the FR 
2052a liquidity data on a monthly basis. Reporting daily liquidity data 
would facilitate enhanced supervisory monitoring based on these firms' 
liquidity risk profile, as indicated by their size, level of weighted 
short-term wholesale funding or cross-jurisdictional activity. The 
proposal to require daily FR 2052a liquidity data based on whether a 
foreign banking organization is subject to Category II standards or has 
weighted short-term wholesale funding (among its combined U.S. 
operations) of $75 billion or more would replace the existing criteria 
for determining whether a foreign banking organization is required to 
submit FR 2052a liquidity data on a daily basis, which is whether a 
foreign banking organizations is subject to supervision within the 
Board's Large Institution Supervision Coordinating Committee (LISCC) 
portfolio.\118\ All other foreign banking organizations with combined 
U.S. assets of $100 billion or more would be subject to monthly filing 
requirements. The proposal also would clarify reporting transition 
periods if a change in category or level of short-term wholesale 
funding alters a firm's FR 2052a reporting frequency.
---------------------------------------------------------------------------

    \118\ See SR Letter 12-17, ``Consolidated Supervision Framework 
for Large Financial Institutions'' (December 17, 2012).
---------------------------------------------------------------------------

    Question 42: What are the challenges, if any, of reporting the 
information required under the FR Y-15 for the combined U.S. operations 
of a foreign banking organization?
    Question 43: What are the costs and benefits of the proposed 
changes to the FR 2052a, including the advantages and disadvantages of 
the proposed reporting frequency for firms subject to Category II and 
III standards?
    Question 44: What changes should the Board consider to the proposed 
reporting requirements to alleviate burden? Commenters are encouraged 
to explain how any such changes would allow the Board to effectively 
monitor and supervise foreign banking organizations subject to the 
proposed reporting requirements, as appropriate to prevent or mitigate 
risks to U.S. financial stability.
    Question 45: What systems modifications would be required to report 
the information that would be required under the FR Y-15 in connection 
with this proposal? How much time would be required to implement any 
such modifications?
    Question 46: As a part of this proposal, the Federal Reserve has 
released proposed Y-15 forms that would add Schedules H-N to be 
reported by foreign banking organizations. As an alternative, the 
Federal Reserve could add two new columns to Schedules A-G instead of 
creating new schedules for these firms. What are the advantages and 
disadvantages of these two approaches? What other approaches should the 
Board consider for collecting the Y-15 data from the U.S. branches and 
agencies, as well as the combined U.S. operations for foreign banking 
organizations?

IV. Impact Assessment

    In general, the Board expects the proposed adjustments to the 
capital and liquidity enhanced prudential standards would reduce 
aggregate compliance costs for foreign banking organizations with $100 
billion or more in combined U.S. assets, with minimal effects on the 
safety and soundness of these firms and U.S. financial stability.\119\ 
With respect to reporting burden, certain foreign banking organizations 
with weighted short-term wholesale funding of $75 billion or more that 
previously filed the FR 2052a on a monthly basis may experience a minor 
increase in compliance costs due to the increase in reporting frequency 
of the FR 2052a to daily. For additional impact information, commenters 
should also review the interagency foreign banking organization capital 
and liquidity proposal.
---------------------------------------------------------------------------

    \119\ Foreign banking organizations with less than $100 billion 
in combined U.S. assets (and U.S. intermediate holding companies 
with less than $100 billion in total consolidated assets) would have 
significantly reduced compliance costs, as these firms would no 
longer be subject to subpart O of the enhanced prudential standards 
rule or the capital plan rule, and would no longer be required to 
file FR Y-14, FR Y-15, or FR 2052a reports. While these foreign 
banking organizations would no longer be subject to internal 
liquidity stress testing and buffer requirements with respect to 
their U.S. operations, these firms' U.S. operations currently hold 
HLA well in excess of their current liquidity buffer requirements.
---------------------------------------------------------------------------

A. Liquidity

    The proposed changes to liquidity requirements are expected to 
reduce compliance costs for firms that would be subject to Category IV 
standards by reducing the required frequency of internal liquidity 
stress tests and tailoring the liquidity risk management requirements 
to the risk profiles of these firms. The Board does not expect these 
proposed changes to materially affect the liquidity buffer levels held 
by these firms or these firms' exposure to liquidity risk.

B. Capital Planning and Stress Testing

    First, while the Board expects the proposed changes to capital 
planning and stress testing requirements to have no material impact on 
the capital levels of U.S. intermediate holding companies with $100 
billion or more in total consolidated assets, the proposal would reduce 
compliance costs for U.S. intermediate holding companies subject to 
Category III or IV capital standards. These firms currently must 
conduct company-run stress tests on a semi-annual basis. For U.S. 
intermediate holding companies that would be subject to Category III 
standards, the

[[Page 22011]]

proposal would reduce this frequency to every other year. For U.S. 
intermediate holding companies that would be subject to Category IV 
standards, the proposal would remove this requirement altogether.\120\ 
In addition, under the proposal the Board would conduct supervisory 
stress tests of U.S. intermediate holding companies subject to Category 
IV standards on a two-year, rather than annual, cycle. For U.S. 
intermediate holding companies subject to Category III or Category IV 
standards, the proposed changes would reduce the compliance costs 
associated with capital planning and stress testing.
---------------------------------------------------------------------------

    \120\ Although the proposal would not modify the requirement for 
a U.S. intermediate holding company that would be subject to 
Category IV standards to conduct an internal capital stress test as 
part of its annual capital plan submission, the Board intends to 
propose changes in the future capital plan proposal to align with 
the proposed removal of company-run stress testing requirements for 
these firms. See section IV.D of this Supplementary Information 
section.
---------------------------------------------------------------------------

C. Single-Counterparty Credit Limits

    The proposed changes to the single-counterparty credit limits 
framework are not expected to increase risks to U.S. financial 
stability. The proposal would remove U.S. intermediate holding 
companies of a foreign banking organization subject to Category IV 
standards (as measured based on the combine U.S. operations of the 
foreign banking organization) from the applicability of single-
counterparty credit limits. While these U.S. intermediate holding 
companies would recognize reductions in compliance costs associated 
with these requirements, they typically do not present the risks that 
are intended to be addressed by the single-counterparty credit limits 
framework. In addition, the proposal would remove the single-
counterparty credit limits applicable to major U.S. intermediate 
holding companies; however, there currently are no U.S. intermediate 
holding companies that meet or exceed the asset size threshold for 
these requirements.
    The proposal would increase the costs of compliance for U.S. 
intermediate holding companies with less than $250 billion in total 
consolidated assets and that are subject to Category II or Category III 
standards, as determined based on the combined U.S. operations of a 
foreign banking organization. The proposal would extend the 
applicability of certain provisions under the single-counterparty 
credit limits framework to these U.S. intermediate companies, which 
currently apply only to those with $250 billion or more in total 
consolidated assets.

V. Administrative Law Matters

A. Solicitation of Comments and Use of 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 proposal 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 it present the proposal more clearly?
     Are the requirements in the proposal clearly stated? If 
not, how could the proposal 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?
     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?

B. Paperwork Reduction Act Analysis

    Certain provisions of the proposed rule contain ``collections of 
information'' within the meaning of the Paperwork Reduction Act of 1995 
(PRA) (44 U.S.C. 3501-3521). The Board may not conduct or sponsor, and 
a respondent is not required to respond to, an information collection 
unless it displays a currently valid Office of Management and Budget 
(OMB) control number. The Board reviewed the proposed rule under the 
authority delegated to the Board by OMB.
    The proposed rule contains reporting requirements subject to the 
PRA. To implement these requirements, the Board proposes to revise the 
(1) Complex Institution Liquidity Monitoring Report (FR 2052a; OMB No. 
7100-0361), (2) Annual Report of Foreign Banking Organizations (FR Y-7; 
OMB No. 7100-0297), (3) Capital and Asset Report for Foreign Banking 
Organizations (FR Y-7Q; OMB No. 7100-0125), (4) Consolidated Financial 
Statements for Holding Companies (FR Y-9C; OMB No. 7100-0128), (5) 
Capital Assessments and Stress Testing (FR Y-14A/Q/M; OMB No. 7100-
0341), and (6) Banking Organization Systemic Risk Report (FR Y-15; OMB 
No. 7100-0352).
    The proposed rule also contains reporting and recordkeeping 
requirements subject to the PRA. To implement these requirements, the 
Board proposes to revise reporting and recordkeeping requirements 
associated with Regulations Y, LL and YY: (7) Reporting and 
Recordkeeping Requirements Associated with Regulation Y (Capital Plans) 
(FR Y-13; OMB No. 7100-0342), (8) Reporting Requirements Associated 
with Regulation LL (FR LL; OMB No. 7100-NEW), and (9) Reporting, 
Recordkeeping, and Disclosure Requirements Associated with Regulation 
YY (FR YY; OMB No. 7100-0350). This document contains Paperwork 
Reduction Act burden estimates for the proposed changes to Regulations 
Y, LL and YY for this proposed rule, as well as the burden estimates 
for the proposed reporting and recordkeeping requirements in 
Regulations Y, LL and YY in the proposal issued by the Board for 
domestic banking organizations on October 31, 2018 (83 FR 61408). 
Foreign banking organizations do not currently report all of the data 
for the measure of cross-jurisdictional activity and, accordingly, the 
burden estimates rely on firm categorizations using best available 
data.
    Comments are invited on:
    (a) Whether the proposed collections of information are necessary 
for the proper performance of the Board's functions, including whether 
the information has practical utility;
    (b) The accuracy of the estimates of the burden of the proposed 
information collections, including the validity of the methodology and 
assumptions used;
    (c) Ways to enhance the quality, utility, and clarity of the 
information to be collected;
    (d) Ways to minimize the burden of the information collections on 
respondents, including through the use of automated collection 
techniques or other forms of information technology; and
    (e) Estimates of capital or 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 proposed rule that may affect reporting, recordkeeping, 
or disclosure requirements and burden estimates should be sent to Ann 
E. Misback, Secretary, Board of Governors of the Federal Reserve 
System, 20th Street and Constitution Avenue NW, Washington, DC 20551. A 
copy of the comments may

[[Page 22012]]

also be submitted to the OMB desk officer to the Office of Information 
and Regulatory Affairs, Office of Management and Budget, New Executive 
Office Building, Room 10235, 725 17th Street NW, Washington, DC 20503 
or by fax to 202-395-6974.

Proposed Revision, With Extension, of the Following Information 
Collections

    (1) Report title: Complex Institution Liquidity Monitoring Report.
    Agency form number: FR 2052a.
    OMB control number: 7100-0361.
    Frequency: Monthly, each business day (daily).
    Affected Public: Businesses or other for-profit.
    Respondents: U.S. bank holding companies, U.S. savings and loan 
holding companies, and foreign banking organizations with U.S. assets.
    Estimated number of respondents: Monthly: 25; Daily: 17.
    Estimated average hours per response: Monthly: 120; Daily: 220.
    Estimated annual burden hours: 971,000.
    General description of report: The FR 2052a is used to monitor the 
overall liquidity profile of institutions supervised by the Board. 
These data provide detailed information on the liquidity risks within 
different business lines (e.g., financing of securities positions, 
prime brokerage activities). In particular, these data serve as part of 
the Board's supervisory surveillance program in its liquidity risk 
management area and provide timely information on firm-specific 
liquidity risks during periods of stress. Analyses of systemic and 
idiosyncratic liquidity risk issues are then used to inform the Board's 
supervisory processes, including the preparation of analytical reports 
that detail funding vulnerabilities.
    Legal authorization and confidentiality: The FR 2052a is authorized 
pursuant to section 5 of the Bank Holding Company Act (12 U.S.C. 1844), 
section 8 of the International Banking Act (12 U.S.C. 3106), section 10 
of HOLA (12 U.S.C. 1467a), and section 165 of the Dodd-Frank Act (12 
U.S.C. 5365) and is mandatory. Section 5(c) of the Bank Holding Company 
Act authorizes the Board to require bank holding companies (BHCs) to 
submit reports to the Board regarding their financial condition. 
Section 8(a) of the International Banking Act subjects foreign banking 
organizations to the provisions of the Bank Holding Company Act. 
Section 10(b)(2) of HOLA authorizes the Board to require savings and 
loan holding companies (SLHCs) to file reports with the Board 
concerning their operations. Section 165 of the Dodd-Frank Act requires 
the Board to establish prudential standards, including liquidity 
requirements, for certain BHCs and foreign banking organizations.
    Financial institution information required by the FR 2052a is 
collected as part of the Board's supervisory process. Therefore, such 
information is entitled to confidential treatment under exemption 8 of 
the Freedom of Information Act (FOIA) (5 U.S.C. 552(b)(8)). In 
addition, the institution information provided by each respondent would 
not be otherwise available to the public and its disclosure could cause 
substantial competitive harm. Accordingly, it is entitled to 
confidential treatment under the authority of exemption 4 of the FOIA 
(5 U.S.C. 552(b)(4), which protects from disclosure trade secrets and 
commercial or financial information.
    Current Actions: To implement the reporting requirements of the 
proposed rule, the Board is proposing to modify the current FR 2052a 
reporting frequency. Consistent with EGRRCPA's changes, the revisions 
would remove foreign banking organizations with less than $100 billion 
in combined U.S. assets from the scope of FR 2052a reporting 
requirements. Additionally, the proposal would require foreign banking 
organizations with combined U.S. assets of $100 billion or more to 
report the FR 2052a on a daily basis if they are (1) subject to 
Category II standards or (2) have $75 billion or more in weighted 
short-term wholesale funding. All other foreign banking organizations 
with combined U.S. assets of $100 billion or more would be subject to 
monthly filing requirements. The Board estimates that proposed 
revisions to the FR 2052a would decrease the respondent count by 6. 
Specifically, the Board estimates that the number of monthly filers 
would decrease from 36 to 25, but the number of daily filers would 
increase from 12 to 17. The Board estimates that proposed revisions to 
the FR 2052a would increase the estimated annual burden by 259,160 
hours. The draft reporting forms and instructions are available on the 
Board's public website at https://www.federalreserve.gov/apps/reportforms/review.aspx.
    (2) Report title: Annual Report of Holding Companies; Annual Report 
of Foreign Banking Organizations; Report of Changes in Organizational 
Structure; Supplement to the Report of Changes in Organizational 
Structure.
    Agency form number: FR Y-6; FR Y-7; FR Y-10; FR Y-10E.
    OMB control number: 7100-0297.
    Frequency: Annual and event-generated.
    Affected Public: Businesses or other for-profit.
    Respondents: Bank holding companies (BHCs), savings and loan 
holding companies (SLHCs), securities holding companies (SHCs), and 
intermediate holding companies (IHCs) (collectively, holding companies 
(HCs)), foreign banking organizations (FBOs), state member banks (SMBs) 
unaffiliated with a BHC, Edge Act and agreement corporations, and 
nationally chartered banks that are not controlled by a BHC (with 
regard to their foreign investments only).
    Estimated number of respondents: FR Y-6: 4,079; FR Y-7: 257; FR Y-
10: 4,269; FR Y-10E: 4,269.
    Estimated average hours per response: FR Y-6: 5.5; FR Y-7: 4.5; FR 
Y-10: 2.5; FR Y-10E: 0.5.
    Estimated annual burden hours: FR Y-6: 22,435; FR Y-7: 1,157; FR Y-
10: 32,018; FR Y-10E: 2,135.
    General description of report: The FR Y-6 is an annual information 
collection submitted by top-tier domestic HCs and FBOs that are non-
qualifying. It collects financial data, an organization chart, 
verification of domestic branch data, and information about 
shareholders. The Federal Reserve uses the data to monitor HC 
operations and determine HC compliance with the provisions of the BHC 
Act, Regulation Y (12 CFR part 225), the Home Owners' Loan Act (HOLA), 
Regulation LL (12 CFR part 238), and Regulation YY (12 CFR part 252).
    The FR Y-7 is an annual information collection submitted by FBOs 
that are qualifying to update their financial and organizational 
information with the Federal Reserve. The FR Y-7 collects financial, 
organizational, shareholder, and managerial information. The Federal 
Reserve uses the information to assess an FBO's ability to be a 
continuing source of strength to its U.S. operations and to determine 
compliance with U.S. laws and regulations.
    The FR Y-10 is an event-generated information collection submitted 
by FBOs; top-tier HCs; securities holding companies as authorized under 
Section 618 of the Dodd-Frank Act (12 U.S.C. 1850a(c)(1)); state member 
banks unaffiliated with a BHC; Edge and agreement corporations that are 
not controlled by a member bank, a domestic BHC, or an FBO; and 
nationally chartered banks that are not controlled by a BHC (with 
regard to their foreign investments only) to capture changes in their 
regulated investments and activities. The Federal Reserve uses the data 
to monitor

[[Page 22013]]

structure information on subsidiaries and regulated investments of 
these entities engaged in banking and nonbanking activities.
    The FR Y-10E is an event-driven supplement that may be used to 
collect additional structural information deemed to be critical and 
needed in an expedited manner.
    Legal authorization and confidentiality: These information 
collections are mandatory as follows:
    FR Y-6: Section 5(c)(1)(A) of the Bank Holding Company Act (BHC 
Act) (12 U.S.C. 1844(c)(1)(A)); sections 8(a) and 13(a) of the 
International Banking Act (IBA) (12 U.S.C. 3106(a) and 3108(a)); 
sections 11(a)(1), 25, and 25A of the Federal Reserve Act (FRA) (12 
U.S.C. 248(a)(1), 602, and 611a); and sections 113, 165, 312, 618, and 
809 of the Dodd-Frank Wall Street Reform and Consumer Protection Act 
(Dodd-Frank Act) (12 U.S.C. 5361, 5365, 5412, 1850a(c)(1), and 
5468(b)(1)).
    FR Y-7: Sections 8(a) and 13(a) of the IBA (12 U.S.C. 3106(a) and 
3108(a)); sections 113, 165, 312, 618, and 809 of the Dodd-Frank Act 
(12 U.S.C. 5361, 5365, 5412, 1850a(c)(1), and 5468(b)(1)).
    FR Y-10 and FR Y-10E: Sections 4(k) and 5(c)(1)(A) of the BHC Act 
(12 U.S.C. 1843(k), and 1844(c)(1)(A)); section 8(a) of the IBA (12 
U.S.C. 3106(a)); sections 11(a)(1), 25(7), and 25A of the FRA (12 
U.S.C. 248(a)(1), 321, 601, 602, 611a, 615, and 625); sections 113, 
165, 312, 618, and 809 of the Dodd-Frank Act (12 U.S.C. 5361, 5365, 
5412, 1850a(c)(1), and 5468(b)(1)); and section 10(c)(2)(H) of the Home 
Owners' Loan Act (HOLA) (12 U.S.C. 1467a(c)(2)(H)).
    Except as discussed below, the data collected in the FR Y-6, FR Y-
7, FR Y-10, and FR Y-10E are generally not considered confidential. 
With regard to information that a banking organization may deem 
confidential, the institution may request confidential treatment of 
such information under one or more of the exemptions in the Freedom of 
Information Act (FOIA) (5 U.S.C. 552). The most likely case for 
confidential treatment will be based on FOIA exemption 4, which permits 
an agency to exempt from disclosure ``trade secrets and commercial or 
financial information obtained from a person and privileged and 
confidential'' (5 U.S.C. 552(b)(4)). To the extent an institution can 
establish the potential for substantial competitive harm, such 
information would be protected from disclosure under the standards set 
forth in National Parks & Conservation Association v. Morton, 498 F.2d 
765 (DC Cir. 1974). In particular, the disclosure of the responses to 
the certification questions on the FR Y-7 may interfere with home 
country regulators' administration, execution, and disclosure of their 
stress test regime and its results, and may cause substantial 
competitive harm to the FBO providing the information, and thus this 
information may be protected from disclosure under FOIA exemption 4. 
Exemption 6 of FOIA might also apply with regard to the respondents' 
submission of non-public personal information of owners, shareholders, 
directors, officers and employees of respondents. Exemption 6 covers 
``personnel and medical files and similar files the disclosure of which 
would constitute a clearly unwarranted invasion of personal privacy'' 
(5 U.S.C. 552(b)(6)). All requests for confidential treatment would 
need to be reviewed on a case-by-case basis and in response to a 
specific request for disclosure.
    Current Actions: The Board is proposing to revise item 5 on the FR 
Y-7, Regulation YY Compliance for the Foreign Banking Organization 
(FBO), to align the reporting form with the applicability thresholds 
set forth in this proposal and other regulatory changes that are 
consistent with the Board's July 2018 statement concerning EGRRCPA. The 
Board estimates that proposed revisions to the FR Y-7 would not impact 
the respondent count, but the estimated average hours per response 
would decrease from 6 hours to 4.5 hours. The Board estimates that 
proposed revisions to the FR Y-7 would decrease the estimated annual 
burden by 385 hours. The draft reporting forms and instructions are 
available on the Board's public website at https://www.federalreserve.gov/apps/reportforms/review.aspx.
    (3) Report title: Financial Statements of U.S. Nonbank Subsidiaries 
Held by Foreign Banking Organizations, Abbreviated Financial Statements 
of U.S. Nonbank Subsidiaries Held by Foreign Banking Organizations, and 
Capital and Asset Report for Foreign Banking Organizations.
    Agency form number: FR Y-7N, FR Y-7NS, and FR Y-7Q.
    OMB control number: 7100-0125.
    Frequency: Quarterly and annually.
    Affected Public: Businesses or other for-profit.
    Respondents: Foreign banking organizations (FBOs).
    Estimated number of respondents: FR Y-7N (quarterly): 35; FR Y-7N 
(annual): 19; FR Y-7NS: 22; FR Y-7Q (quarterly): 130; FR Y-7Q (annual): 
29.
    Estimated average hours per response: FR Y-7N (quarterly): 7.6; FR 
Y-7N (annual): 7.6; FR Y-7NS: 1; FR Y-7Q (quarterly): 2.25; FR Y-7Q 
(annual): 1.5.
    Estimated annual burden hours: FR Y-7N (quarterly): 1,064; FR Y-7N 
(annual): 144; FR Y-7NS: 22; FR Y-7Q (quarterly): 1,170; FR Y-7Q 
(annual): 44.
    General description of report: The FR Y-7N and the FR Y-7NS are 
used to assess an FBO's ability to be a continuing source of strength 
to its U.S. operations and to determine compliance with U.S. laws and 
regulations. FBOs file the FR Y-7N quarterly or annually or the FR Y-
7NS annually predominantly based on asset size thresholds. The FR Y-7Q 
is used to assess consolidated regulatory capital and asset information 
from all FBOs. The FR Y-7Q is filed quarterly by FBOs that have 
effectively elected to become or be treated as a U.S. financial holding 
company (FHC) and by FBOs that have total consolidated assets of $50 
billion or more, regardless of FHC status. All other FBOs file the FR 
Y-7Q annually.
    Legal authorization and confidentiality: With respect to FBOs and 
their subsidiary IHCs, section 5(c) of the BHC Act, in conjunction with 
section 8 of the International Banking Act (12 U.S.C. 3106), authorizes 
the board to require FBOs and any subsidiary thereof to file the FR Y-
7N reports, and the FR Y-7Q.
    Information collected in these reports generally is not considered 
confidential. However, because the information is collected as part of 
the Board's supervisory process, certain information may be afforded 
confidential treatment pursuant to exemption 8 of FOIA (5 U.S.C. 
552(b)(8)). Individual respondents may request that certain data be 
afforded confidential treatment pursuant to exemption 4 of the FOIA if 
the data has not previously been publically 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)). Additionally, 
individual respondents may request that personally identifiable 
information be afforded confidential treatment pursuant to exemption 6 
of the FOIA if the release of the information would constitute a 
clearly unwarranted invasion of personal privacy (5 U.S.C. 552(b)(6)). 
The applicability of FOIA exemptions 4 and 6 would be determined on a 
case-by-case basis.
    Current Actions: The proposal would amend the FR Y-7Q to align with 
revisions to the enhanced prudential standards rule. Currently, top-
tier foreign banking organizations with $50 billion or more in total 
consolidated assets must report Part 1B--Capital and Asset Information 
for Top-tier Foreign Banking Organizations with Consolidated Assets of 
$50 billion or more. The proposal would now require top-tier foreign 
banking organizations

[[Page 22014]]

that are subject to either sections 252.143 or 252.154 of the enhanced 
prudential standards rule to report Part 1B. The Board estimates that 
proposed revisions to the FR Y-7Q would not impact the respondent 
count, but the estimated average hours per response would decrease from 
3 hours to 2.25 hours. The Board estimates that proposed revisions to 
the FR Y-7Q would decrease the estimated annual burden by 390 hours. 
The draft reporting forms and instructions are available on the Board's 
public website at https://www.federalreserve.gov/apps/reportforms/review.aspx.
    (4) Report title: Consolidated Financial Statements for Holding 
Companies.
    Agency form number: FR Y-9C, FR Y-9LP, FR Y-9SP, FR Y-9ES, and FR 
Y-9CS.
    OMB control number: 7100-0128.
    Frequency: Quarterly, semiannually, and annually.
    Affected Public: Businesses or other for-profit.
    Respondents: Bank holding companies (BHCs), savings and loan 
holding companies (SLHCs), securities holding companies (SHCs), and 
U.S. Intermediate Holding Companies (IHCs) (collectively, holding 
companies (HCs)).
    Estimated number of respondents: FR Y-9C (non-advanced approaches 
holding companies): 292; FR Y-9C (advanced approached holding 
companies): 19; FR Y-9LP: 338; FR Y-9SP: 4,238; FR Y-9ES: 82; FR Y-9CS: 
236.
    Estimated average hours per response: FR Y-9C (non-advanced 
approaches holding companies): 46.34; FR Y-9C (advanced approached 
holding companies): 47.59; FR Y-9LP: 5.27; FR Y-9SP: 5.40; FR Y-9ES: 
0.50; FR Y-9CS: 0.50.
    Estimated annual burden hours: FR Y-9C (non advanced approaches 
holding companies): 54,125; FR Y-9C (advanced approached holding 
companies): 3,617; FR Y-9LP: 7,125; FR Y-9SP: 45,770; FR Y-9ES: 41; FR 
Y-9CS: 472.
    General description of report: The FR Y-9 family of reporting forms 
continues to be the primary source of financial data on HCs on which 
examiners rely between on-site inspections. Financial data from these 
reporting forms is used to detect emerging financial problems, review 
performance, conduct preinspection analysis, monitor and evaluate 
capital adequacy, evaluate HC mergers and acquisitions, and analyze an 
HC's overall financial condition to ensure the safety and soundness of 
its operations. The FR Y-9C, FR Y-9LP, and FR Y-9SP serve as 
standardized financial statements for the consolidated holding company. 
The Board requires HCs to provide standardized financial statements to 
fulfill the Board's statutory obligation to supervise these 
organizations. The FR Y-9ES is a financial statement for HCs that are 
Employee Stock Ownership Plans. The Board uses the FR Y-9CS (a free-
form supplement) to collect additional information deemed to be 
critical and needed in an expedited manner. HCs file the FR Y-9C on a 
quarterly basis, the FR Y-9LP quarterly, the FR Y-9SP semiannually, the 
FR Y-9ES annually, and the FR Y-9CS on a schedule that is determined 
when this supplement is used.
    Legal authorization and confidentiality: The FR Y-9 family of 
reports is authorized by section 5(c) of the Bank Holding Company Act 
(12 U.S.C. 1844(c)), section 10(b) of the Home Owners' Loan Act (12 
U.S.C. 1467a(b)), section 618 of the Dodd-Frank Wall Street Reform and 
Consumer Protection Act (Dodd-Frank Act) (12 U.S.C. 1850a(c)(1)), and 
section 165 of the Dodd-Frank Act (12 U.S.C. 5365). The obligation of 
covered institutions to report this information is mandatory.
    With respect to FR Y-9LP, FR Y-9SP, FR Y-ES, and FR Y-9CS, the 
information collected would generally not be accorded confidential 
treatment. If confidential treatment is requested by a respondent, the 
Board will review the request to determine if confidential treatment is 
appropriate.
    With respect to FR Y-9C, Schedule HI's item 7(g) ``FDIC deposit 
insurance assessments,'' Schedule HC-P's item 7(a) ``Representation and 
warranty reserves for 1-4 family residential mortgage loans sold to 
U.S. government agencies and government sponsored agencies,'' and 
Schedule HC-P's item 7(b) ``Representation and warranty reserves for 1-
4 family residential mortgage loans sold to other parties'' are 
considered confidential. Such treatment is appropriate because the data 
is not publicly available and the public release of this data is likely 
to impair the Board's ability to collect necessary information in the 
future and could cause substantial harm to the competitive position of 
the respondent. Thus, this information may be kept confidential under 
exemptions (b)(4) of the Freedom of Information Act, which exempts from 
disclosure ``trade secrets and commercial or financial information 
obtained from a person and privileged or confidential'' (5 U.S.C. 
552(b)(4)), and (b)(8) of the Freedom of Information Act, which exempts 
from disclosure information related to examination, operating, or 
condition reports prepared by, on behalf of, or for the use of an 
agency responsible for the regulation or supervision of financial 
institutions (5 U.S.C. 552(b)(8)).
    Current Actions: To implement the reporting requirements of the 
proposed rule, the Board is proposing to amend the FR Y-9C to further 
clarify requirements for U.S. intermediate holding companies subject to 
Category III capital standards. This proposal would amend those 
instructions to further clarify that the supplementary leverage ratio 
and countercyclical buffer also apply to Category III bank holding 
companies, Category III savings and loan holding companies, and 
Category III U.S. intermediate holding companies. The Board estimates 
that proposed revisions to the FR Y-9C would increase the respondent 
count by 1. The draft reporting forms and instructions are available on 
the Board's public website at https://www.federalreserve.gov/apps/reportforms/review.aspx.
    (5) Report title: Capital Assessments and Stress Testing.
    Agency form number: FR Y-14A/Q/M.
    OMB control number: 7100-0341.
    Frequency: Annually, semiannually, quarterly, and monthly.
    Affected Public: Businesses or other for-profit.
    Respondents: The respondent panel consists of any top-tier bank 
holding company (BHC) that has $100 billion or more in total 
consolidated assets, as determined based on (1) the average of the 
firm's total consolidated assets in the four most recent quarters as 
reported quarterly on the firm's FR Y-9C or (2) the average of the 
firm's total consolidated assets in the most recent consecutive 
quarters as reported quarterly on the firm's FR Y-9Cs, if the firm has 
not filed an FR Y-9C for each of the most recent four quarters. The 
respondent panel also consists of any U.S. intermediate holding company 
(IHC). Reporting is required as of the first day of the quarter 
immediately following the quarter in which the respondent meets this 
asset threshold, unless otherwise directed by the Board.
    Estimated number of respondents: 35.
    Estimated average hours per response: FR Y-14A: Summary, 887; Macro 
Scenario, 31; Operational Risk, 18; Regulatory Capital Instruments, 21; 
Business Plan Changes, 16; and Adjusted Capital Plan Submission, 100. 
FR Y-14Q: Retail, 15; Securities, 13; PPNR, 711; Wholesale, 151; 
Trading, 1,926; Regulatory Capital Transitions, 23; Regulatory Capital 
Instruments, 54; Operational Risk, 50; MSR Valuation, 23; Supplemental, 
4; Retail FVO/HFS, 15; Counterparty, 514; and Balances, 16.

[[Page 22015]]

FR Y-14M: 1st Lien Mortgage, 516; Home Equity, 516; and Credit Card, 
512. FR Y-14: Implementation, 7,200; Ongoing Automation Revisions, 480. 
FR Y-14 Attestation--Implementation, 4,800; Attestation On-going Audit 
and Review, 2,560.
    Estimated annual burden hours: FR Y-14A: Summary, 62,090; Macro 
Scenario, 2,170; Operational Risk, 630; Regulatory Capital Instruments, 
735; Business Plan Changes, 560; and Adjusted Capital Plan Submission, 
500. FR Y-14Q: Retail, 2,100; Securities, 1,820; Pre-Provision Net 
Revenue (PPNR), 99,540; Wholesale, 21,140; Trading, 92,448; Regulatory 
Capital Transitions, 3,220; Regulatory Capital Instruments, 7,560; 
Operational risk, 7,000; Mortgage Servicing Rights (MSR) Valuation, 
1,380; Supplemental, 560; Retail Fair Value Option/Held for Sale 
(Retail FVO/HFS), 1,500; Counterparty, 24,672; and Balances, 2,240. FR 
Y-14M: 1st Lien Mortgage, 204,336; Home Equity, 167,184; and Credit 
Card, 79,872. FR Y-14: Implementation, and On-going Automation 
Revisions, 16,800. FR Y-14 Attestation On-going Audit and Review, 
33,280.
    General description of report: These collections of information are 
applicable to top-tier BHCs with total consolidated assets of $100 
billion or more and U.S. IHCs. This family of information collections 
is composed of the following three reports:
    1. The FR Y-14A collects quantitative projections of balance sheet, 
income, losses, and capital across a range of macroeconomic scenarios 
and qualitative information on methodologies used to develop internal 
projections of capital across scenarios either annually or semi-
annually.
    2. The quarterly FR Y-14Q collects granular data on various asset 
classes, including loans, securities, and trading assets, and PPNR for 
the reporting period.
    3. The monthly FR Y-14M is comprised of three retail portfolio- and 
loan-level schedules, and one detailed address-matching schedule to 
supplement two of the portfolio and loan-level schedules.
    The data collected through the FR Y-14A/Q/M reports provide the 
Board with the information and perspective needed to help ensure that 
large firms have strong, firm-wide risk measurement and management 
processes supporting their internal assessments of capital adequacy and 
that their capital resources are sufficient given their business focus, 
activities, and resulting risk exposures. The annual CCAR exercise 
complements other Board supervisory efforts aimed at enhancing the 
continued viability of large firms, including continuous monitoring of 
firms' planning and management of liquidity and funding resources, as 
well as regular assessments of credit, market and operational risks, 
and associated risk management practices. Information gathered in this 
data collection is also used in the supervision and regulation of these 
financial institutions. To fully evaluate the data submissions, the 
Board may conduct follow-up discussions with, or request responses to 
follow up questions from, respondents. Respondent firms are currently 
required to complete and submit up to 18 filings each year: Two semi-
annual FR Y-14A filings, four quarterly FR Y-14Q filings, and 12 
monthly FR Y-14M filings. Compliance with the information collection is 
mandatory.
    Legal authorization and confidentiality: The Board has the 
authority to require BHCs to file the FR Y-14A/Q/M reports pursuant to 
section 5 of the Bank Holding Company Act (BHC Act) (12 U.S.C. 1844), 
and to require the U.S. IHCs of FBOs to file the FR Y-14 A/Q/M reports 
pursuant to section 5 of the BHC Act, in conjunction with section 8 of 
the International Banking Act (12 U.S.C. 3106). The Board has authority 
to require SLHCs to file the FR Y-14A/Q/M reports pursuant to section 
10 of HOLA (12 U.S.C. 1467a).
    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 Actions: To implement the reporting requirements of the 
proposed rule, the Board proposes to revise the FR Y-14 threshold for 
U.S. intermediate holding companies that would be required to submit 
these forms, by increasing it to apply only U.S. intermediate holding 
companies with $100 billion or more in total consolidated assets. U.S. 
intermediate holding companies below this size threshold would no 
longer be required to submit these forms. The Board estimates that 
proposed revisions to the FR Y-14 would decrease the reporting panel by 
1 respondent. The draft reporting forms and instructions are available 
on the Board's public website at https://www.federalreserve.gov/apps/reportforms/review.aspx.
    (6) Report title: Banking Organization Systemic Risk Report.
    Agency form number: FR Y-15.
    OMB control number: 7100-0352.
    Frequency: Quarterly.
    Affected Public: Businesses or other for-profit.
    Respondents: U.S. bank holding companies (BHCs), covered savings 
and loan holding companies (SLHCs), and U.S. intermediate holding 
companies (IHCs) of foreign banking organizations with $100 billion or 
more in total consolidated assets, and any BHC designated as a global 
systemically important bank holding company (GSIB) that does not 
otherwise meet the consolidated assets threshold for BHCs.
    Estimated number of respondents: 42.
    Estimated average hours per response: 408.01.
    Estimated annual burden hours: 68,546.
    General description of report: The FR Y-15 quarterly report 
collects systemic risk data from U.S. bank holding companies (BHCs), 
covered savings and loan holding companies (SLHCs), and U.S. 
intermediate holding companies (IHCs) with total consolidated assets of 
$50 billion or more, and any BHC identified as a global systemically 
important banking organization (GSIB) based on its method 1 score 
calculated as of December 31 of the previous calendar year. The Board 
uses the FR Y-15 data to monitor, on an ongoing basis, the systemic 
risk profile of institutions that are subject to enhanced prudential 
standards under section 165 of the Dodd-Frank Wall Street Reform and 
Consumer Protection Act (Dodd-Frank Act). In addition, the FR Y-15 is 
used to (1) facilitate the implementation of the GSIB surcharge rule, 
(2) identify other institutions that may present significant systemic 
risk, and (3) analyze the systemic risk implications of proposed 
mergers and acquisitions.
    Legal authorization and confidentiality: The mandatory FR Y-15 is 
authorized by sections 163 and 165 of the Dodd-Frank Act (12 U.S.C. 
5463 and 5365), the International Banking Act (12 U.S.C. 3106 and 
3108), the Bank Holding Company Act (12 U.S.C. 1844), and HOLA (12 
U.S.C. 1467a).
    Most of the data collected on the FR Y-15 is made public unless a 
specific request for confidentiality is submitted by the reporting 
entity, either on the FR Y-15 or on the form from which the data item 
is obtained. Such information

[[Page 22016]]

will be accorded confidential treatment under exemption 4 of the 
Freedom of Information Act (FOIA) (5 U.S.C. 552(b)(4)) if the submitter 
substantiates its assertion that disclosure would likely cause 
substantial competitive harm. In addition, items 1 through 4 of 
Schedule G of the FR Y-15, which contain granular information regarding 
the reporting entity's short-term funding, will be accorded 
confidential treatment under exemption 4 for observation dates that 
occur prior to the liquidity coverage ratio disclosure standard being 
implemented. To the extent confidential data collected under the FR Y-
15 will be used for supervisory purposes, it may be exempt from 
disclosure under Exemption 8 of FOIA (5 U.S.C. 552(b)(8)).
    Current Actions: To implement the reporting requirements of the 
proposed rule, the Board is proposing to modify the FR Y-15 report to 
require a foreign banking organization to report data for its combined 
U.S. operations that are related to the criteria for determining the 
applicability of enhanced prudential standards under this proposal. 
Foreign banking organizations would be required to report the 
information required under new schedules H through N of the FR Y-15, 
which would replicate schedules A through F of the current FR Y-15 for 
domestic holding companies (with the exception of cross-jurisdictional 
activity, as discussed below).\121\ Schedules H through N would be 
structured to include three columns, in which a foreign banking 
organization would report the information request for each item for (i) 
its U.S. intermediate holding company, (ii) its U.S. branch and agency 
network, and (iii) its combined U.S. operations. Consistent with the 
domestic proposal, the proposal would add two line items to Schedule H 
of the FR Y-15 to calculate total off-balance sheet exposure. New line 
item M4 (total consolidated assets) would report the total consolidated 
on-balance sheet assets for the respondent, as calculated under 
Schedule HC, item 12 (total consolidated assets) on the FR Y-9C. New 
line item M5 (total off-balance sheet exposures) would be total 
exposure, as currently defined on the FR Y-15, minus line item M4. For 
purposes of reporting cross-jurisdictional activity, the FR Y-15 would 
require foreign banking organizations to report assets and liabilities 
of the U.S. intermediate holding company and U.S. branch and agency 
network, excluding cross-jurisdictional liabilities to non-U.S. 
affiliates and cross-jurisdictional claims on non-U.S. affiliates to 
the extent that these claims are secured by eligible financial 
collateral. To effectuate this change, the proposal would add new line 
items to proposed Schedule L and amend the instructions accordingly. 
The proposal would clarify that Line Item 2(a) should be completed only 
with respect to the U.S. intermediate holding company's liabilities to 
its foreign subsidiaries, if any, and not liabilities to non-U.S. 
affiliates of the foreign banking organization not held by the U.S. 
intermediate holding company. Line Item 2(a) would be left blank for 
the U.S. branch or agency. The Board estimates that the proposed 
changes to the FR Y-15 would increase the respondent count by 5 
respondents. The Board also estimates that proposed revisions to the FR 
Y-15 would increase the estimated average hours per response by 7.01 
hours and would increase the estimated annual burden by 9,198 hours. 
The draft reporting forms and instructions are available on the Board's 
public website at https://www.federalreserve.gov/apps/reportforms/review.aspx.
---------------------------------------------------------------------------

    \121\ U.S. intermediate holding companies would no longer be 
required to report on schedules A through G of the FR Y-15.
---------------------------------------------------------------------------

    (7) Report title: Reporting and Recordkeeping Requirements 
Associated with Regulation Y (Capital Plans).
    Agency form number: FR Y-13.
    OMB control number: 7100-0342.
    Frequency: Annually.
    Affected Public: Businesses or other for-profit.
    Respondents: BHCs and IHCs.
    Estimated number of respondents: 36.
    Estimated average hours per response: Annual capital planning 
reporting (225.8(e)(1)(ii)), 80 hours; data collections reporting 
(225.8(e)(3)), 1,005 hours; data collections reporting (225.8(e)(4)), 
100 hours; review of capital plans by the Federal Reserve reporting 
(225.8(f)(3)(i)), 16 hours; prior approval request requirements 
reporting (225.8(g)(1), (3), & (4)), 100 hours; prior approval request 
requirements exceptions (225.8(g)(3)(iii)(A)), 16 hours; prior approval 
request requirements reports (225.8(g)(6)), 16 hours; annual capital 
planning recordkeeping (225.8(e)(1)(i)) (LISCC and large and complex 
firms), 11,920 hours; annual capital planning recordkeeping 
(225.8(c)(1)(i)) (large and noncomplex firms), 8,920 hours; annual 
capital planning recordkeeping (225.8(e)(1)(iii)), 100 hours.
    Estimated annual burden hours: Annual capital planning reporting 
(225.8(e)(1)(ii)), 2,720 hours; data collections reporting 
(225.8(e)(3)), 25,125 hours; data collections reporting (225.8(e)(4)), 
1,000 hours; review of capital plans by the Federal Reserve reporting 
(225.8(f)(3)(i)), 32 hours; prior approval request requirements 
reporting (225.8(g)(1), (3), & (4)), 2,300 hours; prior approval 
request requirements exceptions (225.8(g)(3)(iii)(A)), 32 hours; prior 
approval request requirements reports (225.8(g)(6)), 32 hours; annual 
capital planning recordkeeping (225.8(e)(1)(i)) (LISCC and large and 
complex firms), 214,560 hours; annual capital planning recordkeeping 
(225.8(c)(1)(i)) (large and noncomplex firms), 142,720 hours; annual 
capital planning recordkeeping (225.8(e)(1)(iii)), 3,400 hours.
    General description of report: Regulation Y (12 CFR part 225) 
requires large bank holding companies (BHCs) to submit capital plans to 
the Federal Reserve on an annual basis and to require such BHCs to 
request prior approval from the Federal Reserve under certain 
circumstances before making a capital distribution.
    Current Actions: This proposal and the Board's proposal on 
prudential standards for domestic banking organizations (83 FR 61408) 
would make various changes to the Board's capital plan rule. First, the 
threshold for application of Sec.  225.8 would be raised from bank 
holding companies with $50 billion or more in total consolidated assets 
to bank holding companies with $100 billion or more in total 
consolidated assets. Second, the proposals would amend the definition 
of ``large and noncomplex bank holding company'' to be Category IV 
banking organizations, pursuant to 12 CFR 252.5. The proposed changes 
would reduce the panels for various provisions in Sec.  225.8.
    (8) Title of Information Collection: Reporting Requirements 
Associated with Regulation LL.
    Agency Form Number: FR LL.
    OMB control number: 7100-NEW.
    Frequency: Biennial.
    Affected Public: Businesses or other for-profit.
    Respondents: Savings and loan holding companies.
    Description of the Information Collection: Section 
252.122(b)(1)(iii) of the Board's Regulation YY currently requires, 
unless the Board otherwise determines in writing, a foreign savings and 
loan holding company with more than $10 billion in total consolidated 
assets that does not meet applicable home-country stress testing 
standards to report on an annual basis a summary of the results of the 
stress test to the Board.
    Current Actions: The Board proposes to move the requirement for 
foreign savings and loan holding companies currently in Sec.  
252.122(b)(1)(iii) of

[[Page 22017]]

Regulation YY into the proposed Sec.  [thinsp]238.162(b)(1)(ii) of 
Regulation LL. In doing so, the Board proposes to amend the frequency 
of the reporting requirement in proposed Sec.  238.162(b)(1)(ii) from 
annual to at least biennial. The Board also proposes to raise the 
threshold for applicability of section 238.162 from more than $10 
billion in total consolidated assets to more than $250 billion in total 
consolidated assets.
    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.\122\
---------------------------------------------------------------------------

    \122\ Currently, there are no foreign savings and loan holding 
companies in existence. For PRA purposes, ``1'' is used as a 
placeholder.
---------------------------------------------------------------------------

    Estimated average hours per response: 80.
    Estimated annual burden hours: 40.
    (8) Title of Information Collection: Reporting, Recordkeeping, and 
Disclosure Requirements Associated with Regulation YY (Enhanced 
Prudential Standards).
    Agency Form Number: FR YY.
    OMB Control Number: 7100-0350.
    Frequency of Response: Annual, semiannual, 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 saving and loan holding companies, and foreign nonbank 
financial companies supervised by the Board.
    Number of respondents: 24 U.S. bank holding companies with total 
consolidated assets of $50 billion or more, 46 U.S. bank holding 
companies with total consolidated assets over $10 billion and less than 
$50 billion, 21 state member banks with total consolidated assets over 
$10 billion, 39 savings and loan holding companies with total 
consolidated assets over $10 billion, 24 foreign banking organizations 
with total consolidated assets of $50 billion or more and combined U.S. 
assets of $50 billion or more, 17 U.S. intermediate holding companies, 
and 102 foreign banking organizations with total consolidated assets of 
more than $10 billion and combined U.S. assets of less than $50 
billion.
    Description of the Information Collection: Section 165 of the Dodd-
Frank Act, as amended by EGRRCPA, requires the Board to implement 
enhanced prudential standards for bank holding companies and foreign 
banking organizations with total consolidated assets of $250 billion or 
more, and provides the Board with discretion to apply enhanced 
prudential standards to certain bank holding companies and foreign 
banking organizations with $100 billion or more, but less than $250 
billion, in total consolidated assets. The enhanced prudential 
standards include risk-based and leverage capital requirements, 
liquidity standards, requirements for overall risk management 
(including establishing a risk committee), stress test requirements, 
and debt-to-equity limits for companies that the Financial Stability 
Oversight Council has determined pose a grave threat to financial 
stability.
    Current Actions: As described below, the Board is amending 
reporting, recordkeeping and disclosure requirements in Regulation YY 
to be consistent with EGRRCPA's changes to section 165 of the Dodd-
Frank; the Board's proposal to amend prudential standards for domestic 
banking organizations (83 FR 61408); and the proposal described in this 
Federal Register document, which amends prudential standards for 
foreign banking organizations and foreign savings and loan holding 
companies.
    Subpart D--The domestic proposal proposed to change applicability 
thresholds for application of subpart D from bank holding companies 
with $50 billion or more in total consolidated assets to bank holding 
companies with $100 billion or more in total consolidated. In doing so, 
the number of respondents for collections of information in Sec. Sec.  
252.34 and 252.35 would decrease. Additionally, the burden hours for 
compliance with Sec. Sec.  252.34(h)(1) and (3) would be reduced. 
Section 252.34(h)(1) would require a bank holding company with total 
consolidated assets of $100 billion or more to establish and maintain 
policies and procedures to monitor assets that have been, or are 
available to be, pledged as collateral in connection with transactions 
to which it or its affiliates are counterparties and sets forth minimum 
standards for those procedures. Category IV bank holding companies 
would be required to calculate their collateral positions on a monthly 
basis; all other bank holding companies subject to the section would be 
required to calculate their collateral positions on a weekly basis. 
Currently, all bank holding companies subject to this provision must 
calculate collateral positions weekly (or more frequently, as directed 
by the Board).
    Section 252.34(h)(3) would require a bank holding company with 
total consolidated assets of $100 billion or more to establish and 
maintain procedures for monitoring intraday liquidity risk exposure 
that are consistent with the bank holding company's capital structure, 
risk profile, complexity, activities, and size. If the bank holding 
company is a global systemically important bank holding company, 
Category II bank holding company, or a Category III bank holding 
company, these procedures must address how the management of the bank 
holding company will: (1) Monitor and measure expected daily gross 
liquidity inflows and outflows; (2) manage and transfer collateral to 
obtain intraday credit; (3) identify and prioritize time-specific 
obligations so that the bank holding company can meet these obligations 
as expected and settle less critical obligations as soon as possible; 
(4) manage the issuance of credit to customers where necessary; and (5) 
consider the amounts of collateral and liquidity needed to meet payment 
systems obligations when assessing the bank holding company's overall 
liquidity needs. Category IV bank holding companies would not be 
subject to the proscriptive language.
    Subpart L--The proposal would eliminate subpart L. In doing so, the 
proposal would eliminate Sec.  252.122(b)(1)(iii), which currently 
requires, unless the Board otherwise determines in writing, a foreign 
banking organization with total consolidated assets of more than $10 
billion but less than $50 billion or a foreign savings and loan holding 
company with total consolidated assets of more than $10 billion that 
does not meet the home-country stress testing standards set forth in 
the rule to report on an annual basis a summary of the results of the 
stress test to the Board. This requirement would continue to exist for 
foreign banking organizations with total consolidated assets of more 
than $100 billion in proposed Sec. Sec.  252.146 and 252.158 of 
Regulation YY, and for a foreign savings and loan holding company with 
total consolidated assets of more than $250 billion in proposed Sec.  
238.162 of Regulation LL.
    Subpart M--The proposal would change the applicability thresholds 
for application of subpart M from foreign banking organizations with 
between $10 and $50 billion in total consolidated assets to foreign 
banking organizations with between $50 and $100 billion in

[[Page 22018]]

total consolidated assets. In doing so, the number of respondents for 
collections of information in Sec.  252.132 would decrease.
    Subpart N--The proposal would change the applicability thresholds 
for application of subpart N from foreign banking organizations with 
$50 billion or more in total consolidated assets but combined U.S. 
assets of less than $50 billion to foreign banking organizations with 
$100 billion or more in total consolidated assets but combined U.S. 
assets of less than $100 billion. In doing so, the number of 
respondents for collections of information in Sec. Sec.  252.143, 
252.144, 252.145, 252.146, 252.154, 252.157, and 252.158 would 
decrease. Moreover, some of the requirements in subpart N would only 
apply to foreign banking organizations with $250 billion or more in 
total consolidated assets. These provisions include Sec. Sec.  
252.143(a) and 252.145(a).
    Subpart O--The proposal would change the applicability thresholds 
for application of subpart O from foreign banking organizations with 
$50 billion or more in total consolidated assets and combined U.S. 
assets of $50 billion or more to foreign banking organizations with 
$100 billion or more in total consolidated assets and combined U.S. 
assets of $100 billion or more. In doing so, the number of respondents 
for collections of information in Sec. Sec.  252.153, 252.156, and 
252.157 would decrease. The proposal would also eliminate 
implementation plans in Sec.  252.153(d), which would result in a 
reduction of annual burden hours.
    The burden hours for compliance with Sec.  252.156(g)(1) and (3) 
also would be reduced. Section 252.156(g)(1) would require a foreign 
banking organization with combined U.S. assets of $100 billion or more 
to establish and maintain policies and procedures to monitor assets 
that have been or are available to be pledged as collateral in 
connection with transactions to which entities in its U.S. operations 
are counterparties. Previously, all foreign banking organizations 
subject to this provision were required to calculate collateral 
positions on a weekly basis (or more frequently, as directed by the 
Board). As proposed, Category IV foreign banking organizations 
companies would calculate all of the collateral positions for its 
combined U.S. operations on a monthly basis; all other foreign banking 
organizations with at least $100 billion in combined U.S. assets would 
calculate on a weekly basis.
    Section 252.156(g)(3) would require a foreign banking organization 
with combined U.S. assets of $100 billion or more to establish and 
maintain procedures for monitoring intraday liquidity risk exposure for 
its combined U.S. operations that are consistent with the capital 
structure, risk profile, complexity, activities, and size of the 
foreign banking organization and its combined U.S. operations. If the 
foreign banking organization is a Category II foreign banking 
organization or a Category III foreign banking organization, these 
procedures must address how the management of the combined U.S. 
operations will: (1) Monitor and measure expected gross daily inflows 
and outflows; (2) manage and transfer collateral to obtain intraday 
credit; (3) identify and prioritize time-specific obligations so that 
the foreign banking organizations can meet these obligations as 
expected and settle less critical obligations as soon as possible; (4) 
manage the issuance of credit to customers where necessary; and (5) 
consider the amounts of collateral and liquidity needed to meet payment 
systems obligations when assessing the overall liquidity needs of the 
combined U.S. operations. Category IV foreign banking organizations 
would not be subject to the proscriptive language.
    Current estimated annual burden: 41,619 hours.
    Proposed revisions estimated annual burden: (11,238) hours.
    Total estimated annual burden: 30,381 hours.

C. Regulatory Flexibility Act Analysis

    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.\123\ 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 banking 
organization).\124\ 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 number of small banking 
organizations
---------------------------------------------------------------------------

    \123\ See 5 U.S.C. 603, 604, and 605.
    \124\ See 13 CFR 121.201.
---------------------------------------------------------------------------

    As discussed in the Supplementary Information section, the Board is 
proposing to adopt amendments to Regulations Q,\125\ Y,\126\ LL,\127\ 
and YY \128\ that would affect the regulatory requirements that apply 
to foreign banking organizations and foreign savings and loan holding 
companies with more than $10 billion in total consolidated assets and 
U.S. depository institution holding companies with $100 billion or more 
in total consolidated assets. Therefore, companies that are affected by 
the proposal substantially exceed the $550 million asset threshold at 
which a banking entity is considered a ``small entity'' under SBA 
regulations.
---------------------------------------------------------------------------

    \125\ 12 CFR part 217.
    \126\ 12 CFR part 225.
    \127\ 12 CFR part 238.
    \128\ 12 CFR part 252.
---------------------------------------------------------------------------

    Because the proposal is not likely to apply to any company with 
assets of $550 million or less if adopted in final form, the proposal 
is not expected to affect any small entity for purposes of the RFA. 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. Nonetheless, the Board seeks comment on 
whether the proposal would impose undue burdens on, or have unintended 
consequences for, small banking organizations, and whether there are 
ways such potential burdens or consequences could be minimized in a 
manner consistent the purpose of the proposal.

List of Subjects

12 CFR Part 217

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

12 CFR Part 225

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

12 CFR Part 238

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

12 CFR Part 252

    Administrative practice and procedure, Banks, Banking, Capital 
planning, Federal Reserve System,

[[Page 22019]]

Holding companies, Reporting and recordkeeping requirements, 
Securities, Stress testing.

Authority and Issuance

    For the reasons stated in the Supplementary Information, 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
1. 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-1, 1831w, 1835, 1844(b), 1851, 3904, 
3906-3909, 4808, 5365, 5368, 5371.

Subpart H--Risk-based Capital Surcharge for Global Systemically 
Important Bank Holding Companies

0
2. Amend Sec.  217.400 by:
0
a. Revising paragraph (b)(1);
0
b. Removing the text to paragraph (b)(2) introductory text;
0
c. Revising paragraph (b)(2)(i); and
0
d. Removing paragraph (b)(3).
    The revisions read as follows:


Sec.  217.400   Purpose and applicability.

* * * * *
    (b) * * *
    (1) General. This subpart applies to a bank holding company that:
    (i) Is an advanced approaches Board-regulated institution or a 
Category III Board-regulated institution;
    (ii) Is not a consolidated subsidiary of a bank holding company; 
and
    (iii) Is not a consolidated subsidiary of a foreign banking 
organization.
    (2) * * *
    (i) A bank holding company identified in Sec.  217.400(b)(1) is 
subject to Sec.  217.402 of this part and must determine whether it 
qualifies as a global systemically important BHC beginning the year 
immediately following the year in which the bank holding company 
becomes an advanced approaches Board-regulated institution or a 
Category III Board-regulated institution;
* * * * *

PART 225--BANK HOLDING COMPANIES AND CHANGE IN BANK CONTROL 
(REGULATION Y)

0
3. The authority citation for part 225 continues to read as follows:

    Authority:  12 U.S.C. 1817(j)(13), 1818, 1828(o), 1831i, 1831p-
1, 1843(c)(8), 1844(b), 1972(1), 3106, 3108, 3310, 3331-3351, 3906, 
3907, and 3909; 15 U.S.C. 1681s, 1681w, 6801 and 6805.

Subpart A--General Provisions

0
4. In Sec.  225.8, as proposed to be amended at 83 FR 61408 (November 
29, 2018), is further amended by revising paragraph (c) and paragraph 
(d)(9) to read as follows:


Sec.  225.8   Capital planning.

* * * * *
    (c) Transitional arrangements--Transition periods for certain bank 
holding companies.
    (1) A bank holding company that meets the $100 billion asset 
threshold (as measured under paragraph (b) of this section) on or 
before September 30 of a calendar year must comply with the 
requirements of this section beginning on January 1 of the next 
calendar year, unless that time is extended by the Board in writing.
    (2) A bank holding company that meets the $100 billion asset 
threshold after September 30 of a calendar year must comply with the 
requirements of this section beginning on January 1 of the second 
calendar year after the bank holding company meets the $100 billion 
asset threshold, unless that time is extended by the Board in writing.
    (3) The Board or the appropriate Reserve Bank with the concurrence 
of the Board, may require a bank holding company described in paragraph 
(c)(1)(i) or (ii) of this section to comply with any or all of the 
requirements in paragraphs (e)(1), (e)(3), (f), or (g) of this section 
if the Board or appropriate Reserve Bank with concurrence of the Board, 
determines that the requirement is appropriate on a different date 
based on the company's risk profile, scope of operation, or financial 
condition and provides prior notice to the company of the determination
    (d) * * *
    (9) Large and noncomplex bank holding company means any bank 
holding company subject to this section that, as of December 31 of the 
calendar year prior to the capital plan cycle, is identified as a 
Category IV banking organization pursuant to 12 CFR 252.5.
* * * * *

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

0
5. 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 N--Risk Committee, Liquidity Risk Management, and Liquidity 
Buffer Requirements for Covered Savings and Loan Holding Companies 
With Total Consolidated Assets of $100 Billion or More

0
6. Section 238.124, as proposed to be added at 83 FR 61408 (November 
29, 2018), is further amended by adding paragraph (a)(8) to read as 
follows:


Sec.  238.124   Liquidity stress testing and buffer requirements

    (a) * * *
    (8) Notice and Response. (i) If the Board determines that a savings 
and loan holding company must conduct liquidity stress tests according 
to a frequency other than the frequency provided in paragraphs 
(a)(2)(i) and (ii) of this section, the Board will notify the savings 
and loan holding company before the change in frequency takes effect, 
and describe the basis for its determination. Within 14 calendar days 
of receipt of a notification under this paragraph, the savings and loan 
holding company may request in writing that the Board reconsider the 
requirement. The Board will respond in writing to the company's request 
for reconsideration prior to requiring the company conduct liquidity 
stress tests according to a frequency other than the frequency provided 
in paragraphs (a)(2)(i) and (ii) of this section.
* * * * *
0
7. Add subpart R to read as follows:
Subpart R--Company-Run Stress Test Requirements for Foreign Savings and 
Loan Holding Companies With Total Consolidated Assets Over $250 Billion
Sec.
238.160 Definitions.
238.161 Applicability.
238.162 Capital stress testing requirements.

Subpart R--Company-Run Stress Test Requirements for Foreign Savings 
and Loan Holding Companies With Total Consolidated Assets Over $250 
Billion


Sec.  238.160   Definitions.

    For purposes of this subpart, the following definitions apply:
    (a) Foreign savings and loan holding company means a savings and 
loan holding company as defined in section 10 of the Home Owners' Loan 
Act (12 U.S.C. 1467a(a)) that is incorporated or organized under the 
laws of a country other than the United States.
    (b) Pre-provision net revenue means revenue less expenses before 
adjusting for total loan loss provisions.
    (c) Stress test cycle has the same meaning as in subpart O of this 
part.
    (d) Total loan loss provisions means the amount needed to make 
reserves

[[Page 22020]]

adequate to absorb estimated credit losses, based upon management's 
evaluation of the loans and leases that the company has the intent and 
ability to hold for the foreseeable future or until maturity or payoff, 
as determined under applicable accounting standards.


Sec.  238.161   Applicability.

    (a) Applicability for foreign savings and loan holding companies 
with total consolidated assets of more than $250 billion--(1) General. 
A foreign savings and loan holding company must comply with the stress 
test requirements set forth in this section beginning on the first day 
of the ninth quarter following the date on which its total consolidated 
assets exceed $250 billion.
    (2) Total consolidated assets. Total consolidated assets of a 
foreign savings and loan holding company for purposes of this subpart 
are equal to the average of total assets for the four most recent 
calendar quarters as reported by the foreign savings and loan holding 
company on its applicable regulatory report. If the foreign savings and 
loan holding company has reported total consolidated assets for the 
four most recent calendar quarters, total consolidated assets are equal 
to the average of total consolidated assets as reported for the most 
recent quarter or quarters, or most recent year.
    (3) Cessation of requirements. A foreign savings and loan holding 
company will remain subject to requirements of this subpart until the 
date on which the foreign savings and loan holding company's total 
consolidated assets are below $250 billion for each of four most recent 
calendar quarters.
    (b) [Reserved]


Sec.  238.162   Capital stress testing requirements.

    (a) In general. (1) A foreign savings and loan holding company with 
total consolidated assets of more than $250 billion must:
    (i) Be subject on a consolidated basis to a capital stress testing 
regime by its home-country supervisor that meets the requirements of 
paragraph (a)(2) of this section; and
    (ii) Conduct such stress tests or be subject to a supervisory 
stress test and meet any minimum standards set by its home-country 
supervisor with respect to the stress tests.
    (2) The capital stress testing regime of a foreign savings and loan 
holding company's home-country supervisor must include:
    (i) A supervisory capital stress test conducted by the relevant 
home-country supervisor or an evaluation and review by the home-country 
supervisor of an internal capital adequacy stress test conducted by the 
foreign savings and loan holding company, conducted on at least a 
biennial basis; and
    (ii) Requirements for governance and controls of stress testing 
practices by relevant management and the board of directors (or 
equivalent thereof).
    (b) Additional standards. (1) Unless the Board otherwise determines 
in writing, a foreign savings and loan holding company that does not 
meet each of the requirements in paragraphs (a)(1) and (2) of this 
section must:
    (i) Conduct an annual stress test of its U.S. subsidiaries to 
determine whether those subsidiaries have the capital necessary to 
absorb losses as a result of adverse economic conditions; and
    (ii) Report on at least a biennial basis a summary of the results 
of the stress test to the Board that includes a description of the 
types of risks included in the stress test, a description of the 
conditions or scenarios used in the stress test, a summary description 
of the methodologies used in the stress test, estimates of aggregate 
losses, pre-provision net revenue, total loan loss provisions, net 
income before taxes and pro forma regulatory capital ratios required to 
be computed by the home-country supervisor of the foreign savings and 
loan holding company and any other relevant capital ratios, and an 
explanation of the most significant causes for any changes in 
regulatory capital ratios.
    (2) An enterprise-wide stress test that is approved by the Board 
may meet the stress test requirement of paragraph (b)(1)(ii) of this 
section.

PART 252--ENHANCED PRUDENTIAL STANDARDS (REGULATION YY)

0
8. 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.

Subpart A--General Provisions

0
9. Amend Sec.  252.1 by adding paragraph (c) to read as follows:


Sec.  252.1   Authority and purpose.

* * * * *
    (c) Reservation of authority. The Board may permit a foreign 
banking organization to comply with the requirements of this part 
through a subsidiary foreign bank or company of the foreign banking 
organization. In making this determination, the Board shall consider:
    (1) The ownership structure of the foreign banking organization, 
including whether the foreign banking organization is owned or 
controlled by a foreign government;
    (2) Whether the action would be consistent with the purposes of 
this part; and
    (3) Any other factors that the Board determines are relevant.
0
10. Revise Sec.  252.2 to read as follows:


Sec.  252.2   Definitions.

    Unless otherwise specified, the following definitions apply for 
purposes of this part:
    Affiliate has the same meaning as in section 2(k) of the Bank 
Holding Company Act (12 U.S.C. 1841(k)) and Sec.  225.2(a) of this 
chapter.
    Applicable accounting standards means U.S. generally accepted 
accounting principles, international financial reporting standards, or 
such other accounting standards that a company uses in the ordinary 
course of its business in preparing its consolidated financial 
statements.
    Average combined U.S. assets means the average of combined U.S. 
assets for the four most recent calendar quarters or, if the banking 
organization has not reported combined U.S. assets for each of the four 
most recent calendar quarters, the average of combined U.S. assets for 
the most recent calendar quarter or quarters, as applicable.
    Average cross-jurisdictional activity means the average of cross-
jurisdictional activity for the four most recent calendar quarters or, 
if the banking organization has not reported cross-jurisdictional 
activity for each of the four most recent calendar quarters, the 
average of cross-jurisdictional activity for the most recent calendar 
quarter or quarters, as applicable.
    Average off-balance sheet exposure means the average of off-balance 
sheet exposure for the four most recent calendar quarters or, if the 
banking organization has not reported total exposure and total 
consolidated assets for each of the four most recent calendar quarters, 
the average of off-balance sheet exposure for the most recent calendar 
quarter or quarters, as applicable.
    Average total consolidated assets means the average of total 
consolidated assets for the four most recent calendar quarters or, if 
the banking organization has not reported total consolidated assets for 
each of the four most recent calendar quarters, the average of total 
consolidated assets for the most recent calendar quarter or quarters, 
as applicable.
    Average total nonbank assets means the average of total nonbank 
assets for

[[Page 22021]]

the four most recent calendar quarters or, if the banking organization 
has not reported or calculated total nonbank assets for each of the 
four most recent calendar quarters, the average of total nonbank assets 
for the most recent calendar quarter or quarters, as applicable.
    Average weighted short-term wholesale funding means the average of 
weighted short-term wholesale funding for each of the four most recent 
calendar quarters or, if the banking organization has not reported 
weighted short-term wholesale funding for each of the four most recent 
calendar quarters, the average of weighted short-term wholesale funding 
for the most recent quarter or quarters, as applicable.
    Bank holding company has the same meaning as in section 2(a) of the 
Bank Holding Company Act (12 U.S.C. 1841(a)) and Sec.  225.2(c) of this 
chapter.
    Banking organization means:
    (1) A bank holding company that is a U.S. bank holding company, 
which means a bank holding company that is:
    (i) Incorporated in or organized under the laws of the United 
States or in any State; and
    (ii) Not a consolidated subsidiary of a bank holding company that 
is incorporated in or organized under the laws of the United States or 
in any State;
    (2) A U.S. intermediate holding company; or
    (3) A foreign banking organization.
    Board means the Board of Governors of the Federal Reserve System.
    Category II bank holding company means a U.S. bank holding company 
identified as a Category II banking organization pursuant to Sec.  
252.5.
    Category II foreign banking organization means a foreign banking 
organization identified as a Category II banking organization pursuant 
to Sec.  252.5.
    Category II U.S. intermediate holding company means a U.S. 
intermediate holding company identified as a Category II banking 
organization pursuant to Sec.  252.5.
    Category III bank holding company means a U.S. bank holding company 
identified as a Category III banking organization pursuant to Sec.  
252.5.
    Category III foreign banking organization means a foreign banking 
organization identified as a Category III banking organization pursuant 
to Sec.  252.5.
    Category III U.S. intermediate holding company means a U.S. 
intermediate holding company identified as a Category III banking 
organization pursuant to Sec.  252.5.
    Category IV bank holding company means a U.S. bank holding company 
identified as a Category IV banking organization pursuant to Sec.  
252.5.
    Category IV foreign banking organization means a foreign banking 
organization identified as a Category IV banking organization pursuant 
to Sec.  252.5.
    Category IV U.S. intermediate holding company means a U.S. 
intermediate holding company identified as a Category IV banking 
organization pursuant to Sec.  252.5.
    Combined U.S. assets means the sum of the consolidated assets of 
each top-tier U.S. subsidiary of the foreign banking organization 
(excluding any section 2(h)(2) company, if applicable) and the total 
assets of each U.S. branch and U.S. agency of the foreign banking 
organization, as reported by the foreign banking organization on the FR 
Y-7Q.
    Combined U.S. operations means:
    (1) The U.S. branches and agencies of the foreign banking 
organization, if any; and
    (2) The U.S. subsidiaries of the foreign banking organization 
(excluding any section 2(h)(2) company, if applicable) and subsidiaries 
of such U.S. subsidiaries.
    Company means a corporation, partnership, limited liability 
company, depository institution, business trust, special purpose 
entity, association, or similar organization.
    Control has the same meaning as in section 2(a) of the Bank Holding 
Company Act (12 U.S.C. 1841(a)), and the terms controlled and 
controlling shall be construed consistently with the term control.
    Council means the Financial Stability Oversight Council established 
by section 111 of the Dodd-Frank Act (12 U.S.C. 5321).
    Credit enhancement means a qualified financial contract of the type 
set forth in section 210(c)(8)(D)(ii)(XII), (iii)(X), (iv)(V), (v)(VI), 
or (vi)(VI) of Title II of the Dodd-Frank Wall Street Reform and 
Consumer Protection Act (12 U.S.C. 5390(c)(8)(D)(ii)(XII), (iii)(X), 
(iv)(V), (v)(VI), or (vi)(VI)) or a credit enhancement that the Federal 
Deposit Insurance Corporation determines by regulation is a qualified 
financial contract pursuant to section 210(c)(8)(D)(i) of Title II of 
the act (12 U.S.C. 5390(c)(8)(D)(i)).
    Cross-jurisdictional activity. (1) The cross-jurisdictional 
activity of a U.S. bank holding company is equal to the sum of its 
cross-jurisdictional claims and cross-jurisdictional liabilities, as 
reported on the FR Y-15.
    (2) The cross-jurisdictional activity of a U.S. intermediate 
holding company is equal to the sum of cross-jurisdictional claims and 
cross-jurisdictional liabilities of the U.S. intermediate holding 
company, as reported on the FR Y-15.
    (3) The cross-jurisdictional activity of a foreign banking 
organization is equal to the sum of cross-jurisdictional claims and 
cross-jurisdictional liabilities of the combined U.S. operations of the 
foreign banking organization, as reported on the FR Y-15.
    Depository institution has the same meaning as in section 3 of the 
Federal Deposit Insurance Act (12 U.S.C. 1813(c)).
    DPC branch subsidiary means any subsidiary of a U.S. branch or a 
U.S. agency acquired, or formed to hold assets acquired, in the 
ordinary course of business and for the sole purpose of securing or 
collecting debt previously contracted in good faith by that branch or 
agency.
    Foreign banking organization has the same meaning as in Sec.  
211.21(o) of this chapter, provided that if the top-tier foreign 
banking organization is incorporated in or organized under the laws of 
any State, the foreign banking organization shall not be treated as a 
foreign banking organization for purposes of this part.
    FR Y-7 means the Annual Report of Foreign Banking Organizations 
reporting form.
    FR Y-7Q means the Capital and Asset Report for Foreign Banking 
Organizations reporting form.
    FR Y-9C means the Consolidated Financial Statements for Holding 
Companies reporting form.
    FR Y-9LP means the Parent Company Only Financial Statements of 
Large Holding Companies.
    FR Y-15 means the Systemic Risk Report.
    Global methodology means the assessment methodology and the higher 
loss absorbency requirement for global systemically important banks 
issued by the Basel Committee on Banking Supervision, as updated from 
time to time.
    Global systemically important banking organization means a global 
systemically important bank, as such term is defined in the global 
methodology.
    Global systemically important BHC means a bank holding company 
identified as a global systemically important BHC pursuant to 12 CFR 
217.402.
    Global systemically important foreign banking organization means a 
top-tier foreign banking organization that is identified as a global 
systemically important foreign banking organization under Sec.  
252.153(b)(4).

[[Page 22022]]

    GAAP means generally accepted accounting principles as used in the 
United States.
    Home country, with respect to a foreign banking organization, means 
the country in which the foreign banking organization is chartered or 
incorporated.
    Home country resolution authority, with respect to a foreign 
banking organization, means the governmental entity or entities that 
under the laws of the foreign banking organization's home county has 
responsibility for the resolution of the top-tier foreign banking 
organization.
    Home-country supervisor, with respect to a foreign banking 
organization, means the governmental entity or entities that under the 
laws of the foreign banking organization's home county has 
responsibility for the supervision and regulation of the top-tier 
foreign banking organization.
    Nonbank financial company supervised by the Board means a company 
that the Council has determined under section 113 of the Dodd-Frank Act 
(12 U.S.C. 5323) shall be supervised by the Board and for which such 
determination is still in effect.
    Non-U.S. affiliate means any affiliate of a foreign banking 
organization that is incorporated or organized in a country other than 
the United States.
    Off-balance sheet exposure. (1) The off-balance sheet exposure of a 
U.S. bank holding company or U.S. intermediate holding company is equal 
to:
    (i) The total exposure of such banking organization, as reported by 
the banking organization on the FR Y-15; minus
    (ii) The total consolidated assets of such banking organization for 
the same calendar quarter.
    (2) The off-balance sheet exposure of a foreign banking 
organization is equal to:
    (i) The total exposure of the combined U.S. operations of the 
foreign banking organization, as reported by such foreign banking 
organization on the FR Y-15; minus
    (ii) The combined U.S. assets of the foreign banking organization 
for the same calendar quarter.
    Publicly traded means an instrument that is traded on:
    (1) Any exchange registered with the U.S. Securities and Exchange 
Commission as a national securities exchange under section 6 of the 
Securities Exchange Act of 1934 (15 U.S.C. 78f); or
    (2) Any non-U.S.-based securities exchange that:
    (i) Is registered with, or approved by, a non-U.S. national 
securities regulatory authority; and
    (ii) Provides a liquid, two-way market for the instrument in 
question, meaning that there are enough independent bona fide offers to 
buy and sell so that a sales price reasonably related to the last sales 
price or current bona fide competitive bid and offer quotations can be 
determined promptly and a trade can be settled at such price within a 
reasonable time period conforming with trade custom.
    (3) A company can rely on its determination that a particular non-
U.S.-based securities exchange provides a liquid two-way market unless 
the Board determines that the exchange does not provide a liquid two-
way market.
    Section 2(h)(2) company has the same meaning as in section 2(h)(2) 
of the Bank Holding Company Act (12 U.S.C. 1841(h)(2)).
    State means any state, commonwealth, territory, or possession of 
the United States, the District of Columbia, the Commonwealth of Puerto 
Rico, the Commonwealth of the Northern Mariana Islands, American Samoa, 
Guam, or the United States Virgin Islands.
    Subsidiary has the same meaning as in section 3 of the Federal 
Deposit Insurance Act (12 U.S.C. 1813).
    Top-tier foreign banking organization, with respect to a foreign 
bank, means the top-tier foreign banking organization or, 
alternatively, a subsidiary of the top-tier foreign banking 
organization designated by the Board.
    Total consolidated assets. (1) Total consolidated assets of a U.S. 
bank holding company or a U.S. intermediate holding company is equal to 
the total consolidated assets of such banking organization, as reported 
on the FR Y-9C.
    (2) Total consolidated assets of a foreign banking organization is 
equal to the total consolidated assets of the foreign banking 
organization, as reported on the FR Y-7Q.
    Total nonbank assets. (1) Total nonbank assets of a U.S. bank 
holding company or U.S. intermediate holding company is equal to the 
total nonbank assets of such banking organization, as reported on the 
FR Y-9LP.
    (2) Total nonbank assets of a foreign banking organization is equal 
to:
    (i) The sum of the assets of the foreign banking organization's 
nonbank U.S. subsidiaries, including the total nonbank assets of any 
U.S. intermediate holding company, excluding the assets of any section 
2(h)(2) company; plus
    (ii) The sum of the foreign banking organization's equity 
investments in unconsolidated U.S. subsidiaries, excluding equity 
investments in any section 2(h)(2) company.
    U.S. agency has the same meaning as the term ``agency'' in Sec.  
211.21(b) of this chapter.
    U.S. branch has the same meaning as the term ``branch'' in Sec.  
211.21(e) of this chapter.
    U.S. branches and agencies means the U.S. branches and U.S. 
agencies of a foreign banking organization.
    U.S. government agency means an agency or instrumentality of the 
United States whose obligations are fully and explicitly guaranteed as 
to the timely payment of principal and interest by the full faith and 
credit of the United States.
    U.S. government-sponsored enterprise means an entity originally 
established or chartered by the U.S. government to serve public 
purposes specified by the U.S. Congress, but whose obligations are not 
explicitly guaranteed by the full faith and credit of the United 
States.
    U.S. intermediate holding company means the top-tier U.S. company 
that is required to be established pursuant to Sec.  252.147 or Sec.  
252.153.
    U.S. subsidiary means any subsidiary that is incorporated in or 
organized under the laws of the United States or in any State, 
commonwealth, territory, or possession of the United States, the 
Commonwealth of Puerto Rico, the Commonwealth of the North Mariana 
Islands, the American Samoa, Guam, or the United States Virgin Islands.
    Weighted short-term wholesale funding means the weighted short-term 
wholesale funding of a banking organization, as reported on the FR Y-
15.
0
11. In Sec.  252.5, as proposed to be added at 83 FR 61408 (November 
29, 2018), is revised to read as follows:


Sec.  252.5   Categorization of banking organizations.

    (a) General. (1) A U.S. bank holding company with average total 
consolidated assets of $100 billion or more must determine its category 
among the four categories described in paragraphs (b) through (e) of 
this section at least quarterly.
    (2) A U.S. intermediate holding company with average total 
consolidated assets of $100 billion or more must determine its category 
among the three categories described in paragraphs (c) through (e) of 
this section at least quarterly.
    (3) A foreign banking organization with total consolidated assets 
of $100 billion or more and average combined U.S. assets of $100 
billion or more must

[[Page 22023]]

determine its category among the three categories described in 
paragraphs (c) through (e) of this section at least quarterly.
    (b) Global systemically important BHC. A banking organization is a 
global systemically important BHC if it is identified as a global 
systemically important BHC pursuant to 12 CFR 217.402.
    (c) Category II. (1) A banking organization is a Category II 
banking organization if the banking organization:
    (i) Has:
    (A)(1) For a U.S. bank holding company or a U.S. intermediate 
holding company, $700 billion or more in average total consolidated 
assets;
    (2) For a foreign banking organization, $700 billion or more in 
average combined U.S. assets; or
    (B)(1) Has $75 billion or more in average cross-jurisdictional 
activity; and
    (2)(i) For a U.S. bank holding company or a U.S. intermediate 
holding company, $100 billion or more in average total consolidated 
assets; or
    (ii) For a foreign banking organization, $100 billion or more in 
average combined U.S. assets; and
    (ii) Is not a global systemically important BHC.
    (2) After meeting the criteria in paragraph (c)(1) of this section, 
a banking organization continues to be a Category II banking 
organization until the banking organization:
    (i) Has:
    (A)(1) For a U.S. bank holding company or a U.S. intermediate 
holding company, less than $700 billion in total consolidated assets 
for each of the four most recent calendar quarters; or
    (2) For a foreign banking organization, less than $700 billion in 
combined U.S. assets for each of the four most recent calendar 
quarters; and
    (B) Less than $75 billion in cross-jurisdictional activity for each 
of the four most recent calendar quarters;
    (ii)(A) For a U.S. bank holding company or a U.S. intermediate 
holding company, less than $100 billion in total consolidated assets 
for each of the four most recent calendar quarters;
    (B) For a foreign banking organization, less than $100 billion in 
combined U.S. assets for each of the four most recent calendar 
quarters; or
    (iii) Meets the criteria in paragraph (b) to be a global 
systemically important BHC.
    (d) Category III. (1) A banking organization is a Category III 
banking organization if the banking organization:
    (i) Has:
    (A)(1) For a U.S. bank holding company or a U.S. intermediate 
holding company, $250 billion or more in average total consolidated 
assets; or
    (2) For a foreign banking organization, $250 billion or more in 
average combined U.S. assets; or
    (B)(1)(i) For a U.S. bank holding company or a U.S. intermediate 
holding company, $100 billion or more in average total consolidated 
assets; or
    (ii) For a foreign banking organization, $100 billion in average 
combined U.S. assets; and
    (2) At least:
    (i) $75 billion in average total nonbank assets;
    (ii) $75 billion in average weighted short-term wholesale funding; 
or
    (iii) $75 billion in average off-balance sheet exposure;
    (ii) Is not a global systemically important BHC; and
    (iii) Is not a Category II banking organization.
    (2) After meeting the criteria in paragraph (d)(1) of this section, 
a banking organization continues to be a Category III banking 
organization until the banking organization:
    (i) Has:
    (A)(1) For a U.S. bank holding company or a U.S. intermediate 
holding company, less than $250 billion in total consolidated assets 
for each of the four most recent calendar quarters; or
    (2) For a foreign banking organization, less than $250 billion in 
combined U.S. assets for each of the four most recent calendar 
quarters;
    (B) Less than $75 billion in total nonbank assets for each of the 
four most recent calendar quarters;
    (C) Less than $75 billion in weighted short-term wholesale funding 
for each of the four most recent calendar quarters; and
    (D) Less than $75 billion in off-balance sheet exposure for each of 
the four most recent calendar quarters; or
    (ii) Has:
    (A) For a U.S. bank holding company or a U.S. intermediate holding 
company, less than $100 billion in total consolidated assets for each 
of the four most recent calendar quarters; or
    (B) For a foreign banking organization, less than $100 billion in 
combined U.S. assets for each of the four most recent calendar 
quarters;
    (iii) Meets the criteria in paragraph (b) of this section to be a 
global systemically important BHC; or
    (iv) Meets the criteria in paragraph (c)(1) of this section to be a 
Category II banking organization.
    (e) Category IV. (1) A banking organization is a Category IV 
banking organization if the banking organization:
    (i) Is not global systemically important BHC;
    (ii) Is not a Category II banking organization;
    (iii) Is not a Category III banking organization; and
    (iv) Has:
    (A) For a U.S. bank holding company or a U.S. intermediate holding 
company, average total consolidated assets of $100 billion or more; or
    (B) For a foreign banking organization, average combined U.S. 
assets of $100 billion or more.
    (2) After meeting the criteria in paragraph (e)(1), a banking 
organization continues to be a Category IV banking organization until 
the banking organization:
    (i) Has:
    (A) For a U.S. bank holding company or a U.S. intermediate holding 
company, less than $100 billion in total consolidated assets for each 
of the four most recent calendar quarters;
    (B) For a foreign banking organization, less than $100 billion in 
combined U.S. assets for each of the four most recent calendar 
quarters;
    (ii) Meets the criteria in paragraph (b) of this section to be a 
global systemically important BHC;
    (iii) Meets the criteria in paragraph (c)(1) of this section to be 
a Category II banking organization; or
    (iv) Meets the criteria in paragraph (d)(1) of this section to be a 
Category III banking organization.
0
12. Revise the heading of subpart D to read as follows:

Subpart D--Enhanced Prudential Standards for Bank Holding Companies 
With Total Consolidated Assets of $100 Billion or More

0
13. Section 252.35 is amended by adding paragraph (a)(8) to read as 
follows:
    (a) * * *
    (8) Notice and Response. If the Board determines that a bank 
holding company must conduct liquidity stress tests according to a 
frequency other than the frequency provided in paragraphs (a)(2)(i) and 
(ii) of this section, the Board will notify the bank holding company 
before the change in frequency takes effect, and describe the basis for 
its determination. Within 14 calendar days of receipt of a notification 
under this paragraph, the bank holding company may request in writing 
that the Board reconsider the requirement. The Board will respond in 
writing to the company's request for reconsideration prior to requiring 
the company conduct liquidity stress tests according to a frequency 
other than the frequency provided in paragraphs (a)(2)(i) and (ii) of 
this section.
* * * * *
0
14. Revise the heading of subpart E to read as follows:

[[Page 22024]]

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
15. Section 252.43 is amended by revising paragraph (a)(2) to read as 
follows:


Sec.  252.43  Applicability.

    (a) * * *
    (2) Ongoing applicability. A bank holding company or U.S. 
intermediate 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 its total consolidated assets fall 
below $100 billion for each of four consecutive quarters, as reported 
on the FR Y-9C and, effective on the as-of date of the fourth 
consecutive FR Y-9C.
* * * * *
0
16. Section 252.44, as proposed to be amended at 83 FR 61408 (November 
29, 2018), is further amended by revising paragraph (c) to read as 
follows:


Sec.  252.44   Analysis conducted by the Board.

* * * * *
    (c) Frequency of analysis conducted by the Board. (1) Except as 
provided in paragraph (c)(2) of this section, the Board will conduct 
its analysis of a covered company on an annual basis.
    (2) The Board will conduct its analysis of a Category IV bank 
holding company or a Category IV U.S. intermediate holding company on a 
biennial basis and occurring in each year ending in an even number.
0
17. In Sec.  252.53, republish paragraphs (a)(1)(i) through (iii) and 
as proposed to be revised in 83 FR 61408 (November 29, 2018) further 
revise paragraphs (a)(1)(iv) through (vi) to read as follows:


Sec.  252.53   Applicability.

    (a) Scope--(1) Applicability. Except as provided in paragraph (b) 
of this section, this subpart applies to any covered company, which 
includes:
    (i) A global systemically important BHC;
    (ii) Any Category II bank holding company;
    (iii) Any Category III bank holding company;
    (iv) Any Category II U.S. intermediate holding company subject to 
this section pursuant to Sec.  252.153;
    (v) Any Category III U.S. intermediate holding company subject to 
this section pursuant to Sec.  252.153; and
    (vi) Any nonbank financial company supervised by the Board that is 
made subject to this section pursuant to a rule or order of the Board.
    (2) Ongoing applicability. (i) A bank 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 bank holding company:
    (A) Is not a global systemically important BHC;
    (B) Is not a Category II bank holding company; and
    (C) Is not a Category III bank holding company.
    (ii) A U.S. intermediate 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 U.S. 
intermediate holding company:
    (A) Is not a Category II U.S. intermediate holding company; and
    (B) Is not a Category III U.S. intermediate holding company.
* * * * *
0
18. Section 252.54, as proposed to be amended at 83 FR 61408 (November 
29, 2018), is further amended by revising paragraph (a) to read as 
follows:


Sec.  252.54   Stress test.

    (a) Stress test--(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 Category III bank holding company or a Category III U.S. 
intermediate holding company 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.
* * * * *


Sec.  252.55   [Removed and Reserved]

0
19. Section 252.55 is removed and reserved.
0
20. Section 252.56 is amended by revising paragraphs (a) introductory 
text, (b) introductory text, and (c)(1) to read as follows:


Sec.  252.56   Methodologies and practices.

    (a) Potential impact on capital. In conducting a stress test under 
Sec.  252.54, for each quarter of the planning horizon, a covered 
company must estimate the following for each scenario required to be 
used:
* * * * *
    (b) Assumptions regarding capital actions. In conducting a stress 
test under Sec.  252.54, a covered company is required to make the 
following assumptions regarding its capital actions over the planning 
horizon:
* * * * *
    (c) * * *
    (1) In general. The senior management of a covered company must 
establish and maintain a system of controls, oversight, and 
documentation, including policies and procedures, that are designed to 
ensure that its stress testing processes are effective in meeting the 
requirements in this subpart. These policies and procedures must, at a 
minimum, describe the covered company's stress testing practices and 
methodologies, and processes for validating and updating the company's 
stress test practices and methodologies consistent with applicable laws 
and regulations.
* * * * *
0
21. Section 252.57 is amended by revising paragraph (a) to read as 
follows:


Sec.  252.57   Reports of stress test results.

    (a) Reports to the Board of stress test results. A covered company 
must report the results of the stress test required under Sec.  252.54 
to the Board in the manner and form prescribed by the Board. Such 
results must be submitted by April 5 of the calendar year in which the 
stress test is performed pursuant to Sec.  252.54, unless that time is 
extended by the Board in writing.
* * * * *
0
22. Section 252.58 is amended by revising paragraph (a)(1) to read as 
follows:


Sec.  252.58   Disclosure of stress test results.

    (a) Public disclosure of results--(1) In general. A covered company 
must publicly disclose a summary of the results of the stress test 
required under Sec.  252.54 within the period that is 15 calendar days 
after the Board publicly 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.
* * * * *

Subpart L--[Removed and Reserved]

0
23. Remove and reserve subpart L, consisting of Sec. Sec.  252.120 
through 252.122.
0
24. Revise the heading for subpart M to read as follows.

[[Page 22025]]

Subpart M--Risk Committee Requirement for Foreign Banking 
Organizations With Total Consolidated Assets of at Least $50 
Billion but Less Than $100 Billion

0
25. In Sec.  252.131, revise paragraphs (a) and (c) to read as follows:


Sec.  252.131   Applicability.

    (a) General applicability. A foreign banking organization with 
total consolidated assets of at least $50 billion but less than $100 
billion must comply with the risk-committee requirements set forth in 
this subpart beginning on the first day of the ninth quarter following 
the date on which its total consolidated assets equal or exceed $50 
billion.
* * * * *
    (c) Cessation of requirements. A foreign banking organization will 
remain subject to the risk-committee requirements of this section until 
the earlier of the date on which:
    (1) Its reported total consolidated assets on the FR Y-7 are below 
$50 billion for each of four consecutive calendar quarters; and
    (2) It becomes subject to the requirements of subpart N or subpart 
O of this part.
* * * * *
0
26. In Sec.  252.132 revise the section heading, paragraph (a) 
introductory text, and paragraph (d) to read as follows:


Sec.  252.132   Risk-committee requirements for foreign banking 
organizations with total consolidated assets of $50 billion or more but 
less than $100 billion.

    (a) U.S. risk committee certification. A foreign banking 
organization with total consolidated assets of at least $50 billion but 
less than $100 billion, must, on an annual basis, certify to the Board 
that it maintains a committee of its global board of directors (or 
equivalent thereof), on a standalone basis or as part of its 
enterprise-wide risk committee (or equivalent thereof) that:
* * * * *
    (d) Noncompliance with this section. If a foreign banking 
organization does not satisfy the requirements of this section, the 
Board may impose requirements, conditions, or restrictions relating to 
the activities or business operations of the combined U.S. operations 
of the foreign banking organization. The Board will coordinate with any 
relevant State or Federal regulator in the implementation of such 
requirements, conditions, or restrictions. If the Board determines to 
impose one or more requirements, conditions, or restrictions under this 
paragraph, the Board will notify the organization before it applies any 
requirement, condition or restriction, and describe the basis for 
imposing such requirement, condition, or restriction. Within 14 
calendar days of receipt of a notification under this paragraph, the 
company may request in writing that the Board reconsider the 
requirement, condition, or restriction. The Board will respond in 
writing to the organization's request for reconsideration prior to 
applying the requirement, condition, or restriction.

Subpart N--Enhanced Prudential Standards for Foreign Banking 
Organizations With Total Consolidated Assets of $100 Billion or 
More but Combined U.S. Assets of Less Than $100 Billion

0
27. Revise the heading of subpart N to read as set forth above.
0
28. Revise Sec.  252.140 to read as follows:


Sec.  252.140   Scope.

    This subpart applies to foreign banking organizations with total 
consolidated assets of $100 billion or more, but combined U.S. assets 
of less than $100 billion.
0
29. In Sec.  252.142, revise paragraph (a), add paragraph (b)(3), and 
revise paragraph (c) to read as follows:


Sec.  252.142   Applicability.

    (a) General applicability. A foreign banking organization with 
total consolidated assets of $100 billion or more and combined U.S. 
assets of less than $100 billion must:
    (1) Comply with the capital stress testing, risk-management and 
risk committee requirements set forth in this subpart beginning no 
later than on the first day of the ninth quarter the date on which its 
total consolidated assets equal or exceed $100 billion; and
    (2) Comply with the risk-based and leverage capital requirements 
and liquidity risk-management requirements set forth in this subpart 
beginning no later than on the first day of the ninth quarter following 
the date on which its total consolidated assets equal or exceed $250 
billion; and
    (3) Comply with the U.S. intermediate holding company requirement 
set forth in Sec.  252.147 beginning no later than on the first day of 
the ninth quarter following the date on which its U.S. non-branch 
assets equal or exceed $50 billion.
    (b) * * *
    (3) U.S. non-branch assets. U.S. non-branch assets are equal to the 
sum of the consolidated assets of each top-tier U.S. subsidiary of the 
foreign banking organization (excluding any section 2(h)(2) company and 
DPC branch subsidiary, if applicable).
    (i) For purposes of this subpart, U.S. non-branch assets of a 
foreign banking organization are calculated as the average of the sum 
of the total consolidated assets of the top-tier U.S. subsidiaries of 
the foreign banking organization (excluding any section 2(h)(2) company 
and DPC branch subsidiary) for the four most recent calendar quarters, 
as reported to the Board on the FR Y-7Q, or, if the foreign banking 
organization has not reported this information on the FR Y-7Q for each 
of the four most recent calendar quarters, the average for the most 
recent quarter or consecutive quarters as reported on the FR Y-7Q.
    (ii) In calculating U.S. non-branch assets, a foreign banking 
organization must reduce its U.S. non-branch assets calculated under 
this paragraph by the amount corresponding to balances and transactions 
between a top-tier U.S. subsidiary and any other top-tier U.S. 
subsidiary (excluding any 2(h)(2) company or DPC branch subsidiary) to 
the extent such items are not already eliminated in consolidation.
    (iii) U.S. non-branch assets are measured on the as-of date of the 
most recent FR Y-7Q used in the calculation of the average.
    (c) Cessation of requirements--(1) Enhanced prudential standards 
applicable to the foreign banking organization. A foreign banking 
organization will remain subject to the requirements set forth in this 
subpart until its reported total consolidated assets on the FR Y-7Q are 
below $100 billion for each of four consecutive calendar quarters, or 
it becomes subject to the requirements of subpart O of this part.
    (2) Intermediate holding company requirement. A foreign banking 
organization will remain subject to the U.S. intermediate holding 
company requirement set forth in Sec.  252.147 until the sum of the 
total consolidated assets of the top-tier U.S. subsidiaries of the 
foreign banking organization (excluding any section 2(h)(2) company and 
DPC branch subsidiary) is below $50 billion for each of four 
consecutive calendar quarters, or it becomes subject to the U.S. 
intermediate holding company requirements of subpart O of this part.
0
30. In Sec.  252.143, revise the section heading and paragraphs (a)(1) 
introductory text, (b), and (c) to read as follows:

[[Page 22026]]

Sec.  252.143   Risk-based and leverage capital requirements for 
foreign banking organizations with total consolidated assets of $250 
billion or more but combined U.S. assets of less than $100 billion.

    (a) * * *
    (1) A foreign banking organization with total consolidated assets 
of $250 billion or more and combined U.S. assets of less than $100 
billion must certify to the Board that it meets capital adequacy 
standards on a consolidated basis established by its home-country 
supervisor that are consistent with the regulatory capital framework 
published by the Basel Committee on Banking Supervision, as amended 
from time to time (Basel Capital Framework).
* * * * *
    (b) Reporting. A foreign banking organization with total 
consolidated assets of $250 billion or more and combined U.S. assets of 
less than $100 billion must provide to the Board reports relating to 
its compliance with the capital adequacy measures described in 
paragraph (a) of this section concurrently with filing the FR Y-7Q.
    (c) Noncompliance with the Basel Capital Framework. If a foreign 
banking organization does not satisfy the requirements of this section, 
the Board may impose requirements, conditions, or restrictions, 
including risk-based or leverage capital requirements, relating to the 
activities or business operations of the U.S. operations of the 
organization. The Board will coordinate with any relevant State or 
Federal regulator in the implementation of such requirements, 
conditions, or restrictions. If the Board determines to impose one or 
more requirements, conditions, or restrictions under this paragraph, 
the Board will notify the organization before it applies any 
requirement, condition or restriction, and describe the basis for 
imposing such requirement, condition, or restriction. Within 14 
calendar days of receipt of a notification under this paragraph, the 
organization may request in writing that the Board reconsider the 
requirement, condition, or restriction. The Board will respond in 
writing to the organization's request for reconsideration prior to 
applying the requirement, condition, or restriction.
0
31. Revise Sec.  252.144 to read as follows:


Sec.  252.144   Risk-management and risk committee requirements for 
foreign banking organizations with total consolidated assets of $100 
billion or more but combined U.S. assets of less than $100 billion.

    (a) Risk-management and risk-committee requirements for foreign 
banking organizations with combined U.S. assets of less than $50 
billion--(1) U.S. risk committee certification. Each foreign banking 
organization with combined U.S. assets of less than $50 billion must, 
on an annual basis, certify to the Board that it maintains a committee 
of its global board of directors (or equivalent thereof), on a 
standalone basis or as part of its enterprise-wide risk committee (or 
equivalent thereof) that:
    (i) Oversees the risk management policies of the combined U.S. 
operations of the foreign banking organization; and
    (ii) Includes at least one member having experience in identifying, 
assessing, and managing risk exposures of large, complex firms.
    (2) Timing of certification. The certification required under 
paragraph (a) of this section must be filed on an annual basis with the 
Board concurrently with the FR Y-7.
    (b) Risk-management and risk committee requirements for foreign 
banking organizations with combined U.S. assets of more than $50 
billion but less than $100 billion--(1) U.S. risk committee--(i) 
General. Each foreign banking organization with combined U.S. assets of 
more than $50 billion but less than $100 billion must maintain a U.S. 
risk committee that approves and periodically reviews the risk 
management policies of the combined U.S. operations of the foreign 
banking organization and oversees the risk-management framework of such 
combined U.S. operations.
    (ii) Risk-management framework. The foreign banking organization's 
risk-management framework for its combined U.S. operations must be 
commensurate with the structure, risk profile, complexity, activities, 
and size of its combined U.S. operations and consistent with its 
enterprise-wide risk management policies. The framework must include:
    (A) Policies and procedures establishing risk-management 
governance, risk-management procedures, and risk-control infrastructure 
for the combined U.S. operations of the foreign banking organization; 
and
    (B) Processes and systems for implementing and monitoring 
compliance with such policies and procedures, including:
    (1) Processes and systems for identifying and reporting risks and 
risk-management deficiencies, including regarding emerging risks, on a 
combined U.S. operations basis and ensuring effective and timely 
implementation of actions to address emerging risks and risk-management 
deficiencies;
    (2) Processes and systems for establishing managerial and employee 
responsibility for risk management of the combined U.S. operations;
    (3) Processes and systems for ensuring the independence of the 
risk-management function of the combined U.S. operations; and
    (4) Processes and systems to integrate risk management and 
associated controls with management goals and the compensation 
structure of the combined U.S. operations.
    (iii) Placement of the U.S. risk committee. (A) A foreign banking 
organization that conducts its operations in the United States solely 
through a U.S. intermediate holding company must maintain its U.S. risk 
committee as a committee of the board of directors of its U.S. 
intermediate holding company (or equivalent thereof).
    (B) A foreign banking organization that conducts its operations 
through U.S. branches or U.S. agencies (in addition to through its U.S. 
intermediate holding company, if any) may maintain its U.S. risk 
committee either:
    (1) As a committee of the global board of directors (or equivalent 
thereof), on a standalone basis or as a joint committee with its 
enterprise-wide risk committee (or equivalent thereof); or
    (2) As a committee of the board of directors of its U.S. 
intermediate holding company (or equivalent thereof), on a standalone 
basis or as a joint committee with the risk committee of its U.S. 
intermediate holding company required pursuant to Sec.  252.147(e)(3).
    (iv) Corporate governance requirements. The U.S. risk committee 
must meet at least quarterly and otherwise as needed, and must fully 
document and maintain records of its proceedings, including risk-
management decisions.
    (v) Minimum member requirements. The U.S. risk committee must:
    (A) Include at least one member having experience in identifying, 
assessing, and managing risk exposures of large, complex financial 
firms; and
    (B) Have at least one member who:
    (1) Is not an officer or employee of the foreign banking 
organization or its affiliates and has not been an officer or employee 
of the foreign banking organization or its affiliates during the 
previous three years; and
    (2) Is not a member of the immediate family, as defined in Sec.  
225.41(b)(3) of the Board's Regulation Y (12 CFR 225.41(b)(3)), of a 
person who is, or has been within the last three years, an executive 
officer, as defined in Sec.  215.2(e)(1) of the Board's Regulation O

[[Page 22027]]

(12 CFR 215.2(e)(1)) of the foreign banking organization or its 
affiliates.
    (2) [Reserved]
    (c) U.S. chief risk officer--(1) General. A foreign banking 
organization with combined U.S. assets of more than $50 billion but 
less than $100 billion or its U.S. intermediate holding company, if 
any, must appoint a U.S. chief risk officer with experience in 
identifying, assessing, and managing risk exposures of large, complex 
financial firms.
    (2) Responsibilities. (i) The U.S. chief risk officer is 
responsible for overseeing:
    (A) The measurement, aggregation, and monitoring of risks 
undertaken by the combined U.S. operations;
    (B) The implementation of and ongoing compliance with the policies 
and procedures for the foreign banking organization's combined U.S. 
operations set forth in paragraph (b)(1)(ii)(A) of this section and the 
development and implementation of processes and systems set forth in 
paragraph (b)(1)(ii)(B) of this section; and
    (C) The management of risks and risk controls within the parameters 
of the risk-control framework for the combined U.S. operations, and the 
monitoring and testing of such risk controls.
    (ii) The U.S. chief risk officer is responsible for reporting risks 
and risk-management deficiencies of the combined U.S. operations, and 
resolving such risk-management deficiencies in a timely manner.
    (3) Corporate governance and reporting. The U.S. chief risk officer 
must:
    (i) Receive compensation and other incentives consistent with 
providing an objective assessment of the risks taken by the combined 
U.S. operations of the foreign banking organization;
    (ii) Be employed by and located in the U.S. branch, U.S. agency, 
U.S. intermediate holding company, if any, or another U.S. subsidiary;
    (iii) Report directly to the U.S. risk committee and the global 
chief risk officer or equivalent management official (or officials) of 
the foreign banking organization who is responsible for overseeing, on 
an enterprise-wide basis, the implementation of and compliance with 
policies and procedures relating to risk-management governance, 
practices, and risk controls of the foreign banking organization, 
unless the Board approves an alternative reporting structure based on 
circumstances specific to the foreign banking organization;
    (iv) Regularly provide information to the U.S. risk committee, 
global chief risk officer, and the Board regarding the nature of and 
changes to material risks undertaken by the foreign banking 
organization's combined U.S. operations, including risk-management 
deficiencies and emerging risks, and how such risks relate to the 
global operations of the foreign banking organization; and
    (v) Meet regularly and as needed with the Board to assess 
compliance with the requirements of this section.
    (d) Responsibilities of the foreign banking organization. The 
foreign banking organization must take appropriate measures to ensure 
that its combined U.S. operations implement the risk management 
policies overseen by the U.S. risk committee described in paragraphs 
(a) or (b) of this section, and its combined U.S. operations provide 
sufficient information to the U.S. risk committee to enable the U.S. 
risk committee to carry out the responsibilities of this subpart.
    (e) Noncompliance with this section. If a foreign banking 
organization does not satisfy the requirements of this section, the 
Board may impose requirements, conditions, or restrictions relating to 
the activities or business operations of the combined U.S. operations 
of the foreign banking organization. The Board will coordinate with any 
relevant State or Federal regulator in the implementation of such 
requirements, conditions, or restrictions. If the Board determines to 
impose one or more requirements, conditions, or restrictions under this 
paragraph, the Board will notify the organization before it applies any 
requirement, condition, or restriction, and describe the basis for 
imposing such requirement, condition, or restriction. Within 14 
calendar days of receipt of a notification under this paragraph, the 
organization may request in writing that the Board reconsider the 
requirement, condition, or restriction. The Board will respond in 
writing to the organization's request for reconsideration prior to 
applying the requirement, condition, or restriction.
0
32. In Sec.  252.145, revise the section heading and paragraph (a) to 
read as follows:


Sec.  252.145   Liquidity risk-management requirements for foreign 
banking organizations with total consolidated assets of $250 billion or 
more but combined U.S. assets of less than $100 billion.

    (a) A foreign banking organization with total consolidated assets 
of $250 billion or more and combined U.S. assets of less than $100 
billion must report to the Board on an annual basis the results of an 
internal liquidity stress test for either the consolidated operations 
of the foreign banking organization or the combined U.S. operations of 
the foreign banking organization. Such liquidity stress test must be 
conducted consistently with the Basel Committee principles for 
liquidity risk management and must incorporate 30-day, 90-day, and one-
year stress-test horizons. The ``Basel Committee principles for 
liquidity risk management'' means the document titled ``Principles for 
Sound Liquidity Risk Management and Supervision'' (September 2008) as 
published by the Basel Committee on Banking Supervision, as 
supplemented and revised from time to time.
* * * * *
0
33. In Sec.  252.146, revise the section heading and paragraphs (b)(1) 
introductory text, (b)(2)(i), and (c)(1)(ii) and (iii) to read as 
follows:


Sec.  252.146   Capital stress testing requirements for foreign banking 
organizations with total consolidated assets of $100 billion or more 
but combined U.S. assets of less than $100 billion.

* * * * *
    (b) In general. (1) A foreign banking organization with total 
consolidated assets of more than $100 billion and combined U.S. assets 
of less than $100 billion must:
* * * * *
    (2) * * *
    (i) A supervisory capital stress test conducted by the foreign 
banking organization's home-country supervisor or an evaluation and 
review by the foreign banking organization's home-country supervisor of 
an internal capital adequacy stress test conducted by the foreign 
banking organization, according to the frequency specified in the 
following paragraphs (b)(2)(i)(A) and (B):
    (A) If the foreign banking organization has total consolidated 
assets of $250 billion or more, on at least an annual basis; or
    (B) If the foreign banking organization has total consolidated 
assets of less than $250 billion, at least biennially; and
* * * * *
    (c) * * *
    (1) * * *
    (ii) Conduct a stress test of its U.S. subsidiaries to determine 
whether those subsidiaries have the capital necessary to absorb losses 
as a result of adverse economic conditions, according to the frequency 
specified in the following paragraphs (c)(1)(ii)(A) and (B):
    (A) If the foreign banking organization has total consolidated 
assets of $250 billion or more, on at least an annual basis; or
    (B) If the foreign banking organization has total consolidated 
assets of less than $250 billion, at least biennially; and

[[Page 22028]]

    (iii) Report a summary of the results of the stress test to the 
Board that includes a description of the types of risks included in the 
stress test, a description of the conditions or scenarios used in the 
stress test, a summary description of the methodologies used in the 
stress test, estimates of aggregate losses, pre-provision net revenue, 
total loan loss provisions, net income before taxes and pro forma 
regulatory capital ratios required to be computed by the home-country 
supervisor of the foreign banking organization and any other relevant 
capital ratios, and an explanation of the most significant causes for 
any changes in regulatory capital ratios.
* * * * *
0
34. Add Sec.  252.147 to read as follows:


Sec.  252.147   U.S. intermediate holding company requirement for 
foreign banking organizations with combined U.S. assets of less than 
$100 billion but U.S. non-branch assets of $50 billion or more.

    (a) Requirement to form a U.S. intermediate holding company. (1) 
Formation. A foreign banking organization with U.S. non-branch assets 
of $50 billion or more must establish a U.S. intermediate holding 
company, or designate an existing subsidiary that meets the 
requirements of paragraph (a)(2) of this section, as its U.S. 
intermediate holding company.
    (2) Structure. The U.S. intermediate holding company must be:
    (i) Organized under the laws of the United States, any one of the 
fifty states of the United States, or the District of Columbia; and
    (ii) Be governed by a board of directors or managers that is 
elected or appointed by the owners and that operates in an equivalent 
manner, and has equivalent rights, powers, privileges, duties, and 
responsibilities, to a board of directors of a company chartered as a 
corporation under the laws of the United States, any one of the fifty 
states of the United States, or the District of Columbia.
    (3) Notice. Within 30 days of establishing or designating a U.S. 
intermediate holding company under this section, a foreign banking 
organization must provide to the Board:
    (i) A description of the U.S. intermediate holding company, 
including its name, location, corporate form, and organizational 
structure;
    (ii) A certification that the U.S. intermediate holding company 
meets the requirements of this section; and
    (iii) Any other information that the Board determines is 
appropriate.
    (b) Holdings and regulation of the U.S. intermediate holding 
company--(1) General. Subject to paragraph (c) of this section, a 
foreign banking organization that is required to form a U.S. 
intermediate holding company under paragraph (a) of this section must 
hold its entire ownership interest in any U.S. subsidiary (excluding 
each section 2(h)(2) company or DPC branch subsidiary, if any) through 
its U.S. intermediate holding company.
    (2) Reporting. Each U.S. intermediate holding company shall submit 
information in the manner and form prescribed by the Board.
    (3) Examinations and inspections. The Board may examine or inspect 
any U.S. intermediate holding company and each of its subsidiaries and 
prepare a report of their operations and activities.
    (4) Global systemically important banking organizations. For 
purposes of this part, a top-tier foreign banking organization with 
U.S. non-branch assets that equal or exceed $50 billion is a global 
systemically important foreign banking organization if any of the 
following conditions are met:
    (i) The top-tier foreign banking organization determines, pursuant 
to paragraph (b)(6) of this section, that the top-tier foreign banking 
organization has the characteristics of a global systemically important 
banking organization under the global methodology; or
    (ii) The Board, using information available to the Board, 
determines:
    (A) That the top-tier foreign banking organization would be a 
global systemically important banking organization under the global 
methodology;
    (B) That the top-tier foreign banking organization, if it were 
subject to the Board's Regulation Q, would be identified as a global 
systemically important BHC under 12 CFR 217.402 of the Board's 
Regulation Q; or
    (C) That the U.S. intermediate holding company, if it were subject 
to 12 CFR 217.402 of the Board's Regulation Q, would be identified as a 
global systemically important BHC.
    (5) Notice. Each top-tier foreign banking organization that 
controls a U.S. intermediate holding company shall submit to the Board 
by January 1 of each calendar year through the U.S. intermediate 
holding company:
    (i) Notice of whether the home-country supervisor (or other 
appropriate home country regulatory authority) of the top-tier foreign 
banking organization of the U.S. intermediate holding company has 
adopted standards consistent with the global methodology; and
    (ii) Notice of whether the top-tier foreign banking organization 
prepares or reports the indicators used by the global methodology to 
identify a banking organization as a global systemically important 
banking organization and, if it does, whether the top-tier foreign 
banking organization has determined that it has the characteristics of 
a global systemically important banking organization under the global 
methodology pursuant to paragraph (b)(6) of this section.
    (6) Global systemically important banking organization under the 
global methodology. A top-tier foreign banking organization that 
controls a U.S. intermediate holding company and prepares or reports 
for any purpose the indicator amounts necessary to determine whether 
the top-tier foreign banking organization is a global systemically 
important banking organization under the global methodology must use 
the data to determine whether the top-tier foreign banking organization 
has the characteristics of a global systemically important banking 
organization under the global methodology.
    (c) Alternative organizational structure--(1) General. Upon a 
written request by a foreign banking organization, the Board may permit 
the foreign banking organization to establish or designate multiple 
U.S. intermediate holding companies; use an alternative organizational 
structure to hold its combined U.S. operations; or not transfer its 
ownership interests in certain subsidiaries to a U.S. intermediate 
holding company.
    (2) Factors. In making a determination under paragraph (c)(1) of 
this section, the Board may consider whether applicable law would 
prohibit the foreign banking organization from owning or controlling 
one or more of its U.S. subsidiaries through a single U.S. intermediate 
holding company, or whether circumstances otherwise warrant an 
exception based on the foreign banking organization's activities, scope 
of operations, structure, or similar considerations.
    (3) Request--(i) Contents. A request submitted under this section 
must include an explanation of why the request should be granted and 
any other information required by the Board.
    (ii) Timing. The Board shall act on a request for an alternative 
organizational structure within 90 days of receipt of a complete 
request, unless the Board provides notice to the company that it is 
extending the period for action.
    (4) Conditions. The Board may grant relief under this section upon 
such conditions as the Board deems appropriate, including, but not 
limited to, requiring the U.S. operations of the

[[Page 22029]]

foreign banking organization to comply with additional enhanced 
prudential standards, or requiring the foreign banking organization to 
enter into supervisory agreements governing such alternative 
organizational structure.
    (d) Modifications. The Board may modify the application of any 
section of this subpart to a foreign banking organization that is 
required to form a U.S. intermediate holding company or to such U.S. 
intermediate holding company if appropriate to accommodate the 
organizational structure of the foreign banking organization or 
characteristics specific to such foreign banking organization and such 
modification is appropriate and consistent with the capital structure, 
size, complexity, risk profile, scope of operations, or financial 
condition of each U.S. intermediate holding company, safety and 
soundness, and the financial stability mandate of section 165 of the 
Dodd-Frank Act.
    (e) Enhanced prudential standards for U.S. intermediate holding 
companies--(1) Capital requirements for a U.S. intermediate holding 
company. (i)(A) A U.S. intermediate holding company must comply with 12 
CFR part 217, other than subpart E of 12 CFR part 217, in the same 
manner as a bank holding company.
    (B) A U.S. intermediate holding company may choose to comply with 
subpart E of 12 CFR part 217.
    (ii) A U.S. intermediate holding company must comply with capital 
adequacy standards beginning on the date it is required to established 
under this subpart, or if the U.S. intermediate holding company is 
subject to capital adequacy standards on the date that the foreign 
banking organization becomes subject to Sec.  252.142(a)(3), on the 
date that the foreign banking organization becomes subject to this 
subpart.
    (2) Risk-management and risk committee requirements--(i) General. A 
U.S. intermediate holding company must establish and maintain a risk 
committee that approves and periodically reviews the risk management 
policies and oversees the risk-management framework of the U.S. 
intermediate holding company. The risk committee must be a committee of 
the board of directors of the U.S. intermediate holding company (or 
equivalent thereof). The risk committee may also serve as the U.S. risk 
committee for the combined U.S. operations required pursuant to Sec.  
252.144(b).
    (ii) Risk-management framework. The U.S. intermediate holding 
company's risk-management framework must be commensurate with the 
structure, risk profile, complexity, activities, and size of the U.S. 
intermediate holding company and consistent with the risk management 
policies for the combined U.S. operations of the foreign banking 
organization. The framework must include:
    (A) Policies and procedures establishing risk-management 
governance, risk-management procedures, and risk-control infrastructure 
for the U.S. intermediate holding company; and
    (B) Processes and systems for implementing and monitoring 
compliance with such policies and procedures, including:
    (1) Processes and systems for identifying and reporting risks and 
risk-management deficiencies at the U.S. intermediate holding company, 
including regarding emerging risks and ensuring effective and timely 
implementation of actions to address emerging risks and risk-management 
deficiencies;
    (2) Processes and systems for establishing managerial and employee 
responsibility for risk management of the U.S. intermediate holding 
company;
    (3) Processes and systems for ensuring the independence of the 
risk-management function of the U.S. intermediate holding company; and
    (4) Processes and systems to integrate risk management and 
associated controls with management goals and the compensation 
structure of the U.S. intermediate holding company.
    (iii) Corporate governance requirements. The risk committee of the 
U.S. intermediate holding company must meet at least quarterly and 
otherwise as needed, and must fully document and maintain records of 
its proceedings, including risk-management decisions.
    (iv) Minimum member requirements. The risk committee must:
    (A) Include at least one member having experience in identifying, 
assessing, and managing risk exposures of large, complex financial 
firms; and
    (B) Have at least one member who:
    (1) Is not an officer or employee of the foreign banking 
organization or its affiliates and has not been an officer or employee 
of the foreign banking organization or its affiliates during the 
previous three years; and
    (2) Is not a member of the immediate family, as defined in Sec.  
225.41(b)(3) of the Board's Regulation Y (12 CFR 225.41(b)(3)), of a 
person who is, or has been within the last three years, an executive 
officer, as defined in Sec.  215.2(e)(1) of the Board's Regulation O 
(12 CFR 215.2(e)(1)) of the foreign banking organization or its 
affiliates.
    (v) The U.S. intermediate holding company must take appropriate 
measures to ensure that it implements the risk management policies for 
the U.S. intermediate holding company and it provides sufficient 
information to the U.S. risk committee to enable the U.S. risk 
committee to carry out the responsibilities of this subpart;
    (vi) A U.S. intermediate holding company must comply with risk 
committee and risk management requirements beginning on the date that 
it is required to established under this subpart or, if the U.S. 
intermediate holding company is subject to risk committee and risk 
management requirements on the date that the foreign banking 
organization becomes subject to Sec.  252.147(a)(3), on the date that 
the foreign banking organization becomes subject to this subpart.

Subpart O--Enhanced Prudential Standards for Foreign Banking 
Organizations With Total Consolidated Assets of $100 Billion or 
More and Combined U.S. Assets of $100 Billion or More

0
35. Revise Sec.  252.150 to read as follows:


Sec.  252.150   Scope.

    This subpart applies to foreign banking organizations with total 
consolidated assets of $100 billion or more and combined U.S. assets of 
$100 billion or more.
0
36. Revise Sec.  252.152 to read as follows:


Sec.  252.152   Applicability.

    (a) General applicability. (1) A foreign banking organization must:
    (i) Comply with the requirements of this subpart (other than the 
U.S. intermediate holding company requirement set forth in Sec.  
252.153) beginning on the first day of the ninth quarter following the 
date on which its combined U.S. assets equal or exceed $100 billion; 
and
    (ii) Comply with the requirement to establish or designate a U.S. 
intermediate holding company requirement set forth in Sec.  252.153(a) 
beginning on the first day of the ninth quarter following the date on 
which its U.S. non-branch assets equal or exceed $50 billion or, if the 
foreign banking organization has established or designated a U.S. 
intermediate holding company pursuant to Sec.  252.147, beginning on 
the first day following the date on which the foreign banking 
organization's combined U.S. assets equal or exceed $100 billion.
    (2) Changes in requirements following a change in category. A 
foreign banking

[[Page 22030]]

organization that changes from one category of banking organization 
described in Sec.  252.5(c) through (e) to another of such categories 
must comply with the requirements applicable to the new category under 
this subpart no later than on the first day of the second quarter 
following the change in the foreign banking organization's category.
    (b) Asset measures--(1) Combined U.S. assets. Combined U.S. assets 
of a foreign banking organization are equal to the sum of the 
consolidated assets of each top-tier U.S. subsidiary of the foreign 
banking organization (excluding any section 2(h)(2) company, if 
applicable) and the total assets of each U.S. branch and U.S. agency of 
the foreign banking organization. For purposes of this subpart, 
``combined U.S. assets'' are calculated as the average of the total 
combined assets of U.S. operations for the four most recent consecutive 
quarters as reported by the foreign banking organization on the FR Y-
7Q, or, if the foreign banking organization has not reported this 
information on the FR Y-7Q for each of the four most recent consecutive 
quarters, the average of the combined U.S. assets for the most recent 
quarter or consecutive quarters as reported on the FR Y-7Q. Combined 
U.S. assets are measured on the as-of date of the most recent FR Y-7Q 
used in the calculation of the average.
    (2) U.S. non-branch assets. U.S. non-branch assets are equal to the 
sum of the consolidated assets of each top-tier U.S. subsidiary of the 
foreign banking organization (excluding any section 2(h)(2) company and 
DPC branch subsidiary, if applicable).
    (i) For purposes of this subpart, U.S. non-branch assets of a 
foreign banking organization are calculated as the average of the sum 
of the total consolidated assets of the top-tier U.S. subsidiaries of 
the foreign banking organization (excluding any section 2(h)(2) company 
and DPC branch subsidiary) for the four most recent consecutive 
quarters, as reported to the Board on the FR Y-7Q, or, if the foreign 
banking organization has not reported this information on the FR Y-7Q 
for each of the four most recent consecutive quarters, the average for 
the most recent quarter or consecutive quarters as reported on the FR 
Y-7Q.
    (ii) In calculating U.S. non-branch assets, a foreign banking 
organization must reduce its U.S. non-branch assets calculated under 
this paragraph by the amount corresponding to balances and transactions 
between a top-tier U.S. subsidiary and any other top-tier U.S. 
subsidiary (excluding any 2(h)(2) company or DPC branch subsidiary) to 
the extent such items are not already eliminated in consolidation.
    (iii) U.S. non-branch assets are measured on the as-of date of the 
most recent FR Y-7Q used in the calculation of the average.
    (3) Total consolidated assets. (i) Total consolidated assets of a 
foreign banking organization are equal to the consolidated assets of 
the foreign banking organization. For purposes of this subpart, ``total 
consolidated assets'' are calculated as the average of the foreign 
banking organization's total assets for the four most recent calendar 
quarters as reported by the foreign banking organization on the FR Y-
7Q. If the foreign banking organization has not filed the FR Y-7Q for 
the four most recent calendar quarters, the Board shall use an average 
of the foreign banking organization's total consolidated assets 
reported on its most recent two FR Y-7Qs. Total consolidated assets are 
measured on the as-of date of the most recent FR Y-7Q used in the 
calculation of the average.
    (ii) Total consolidated assets of a U.S. intermediate holding 
company purposes of this subpart are equal to its consolidated assets, 
calculated based on the average of the holding company's total 
consolidated assets in the four most recent quarters as reported 
quarterly on the FR Y-9C. If the holding company has not filed the FR 
Y-9C for each of the four most recent calendar quarters, total 
consolidated assets means the average of its total consolidated assets, 
as reported on the FR Y-9C, for the most recent quarter or quarters, as 
applicable. Total consolidated assets are measured on the as-of date of 
the most recent FR Y-9C used in the calculation of the average to its 
total consolidated assets, as reported on the FR Y-9C;
    (c) Cessation of requirements--(1) Enhanced prudential standards 
applicable to the foreign banking organization. Subject to paragraph 
(c)(2) of this section, a foreign banking organization will remain 
subject to the applicable requirements of this subpart until its 
reported combined U.S. assets on the FR Y-7Q are below $100 billion for 
each of four consecutive calendar quarters.
    (2) Intermediate holding company requirement. A foreign banking 
organization will remain subject to the U.S. intermediate holding 
company requirement set forth in Sec.  252.153 until the sum of the 
total consolidated assets of the top-tier U.S. subsidiaries of the 
foreign banking organization (excluding any section 2(h)(2) company and 
DPC branch subsidiary) is below $50 billion for each of four 
consecutive calendar quarters, or until the foreign banking 
organization is subject to subpart N of this part and is in compliance 
with the U.S. intermediate holding company requirements as set forth in 
Sec.  252.147.
0
37. In Sec.  252.153, revise paragraphs (a)(1) and (3) and (c) through 
(e) to read as follows:


Sec.  252.153   U.S. intermediate holding company requirement for 
foreign banking organizations with U.S. non-branch assets of $50 
billion or more.

    (a) * * *
    (1) A foreign banking organization with U.S. non-branch assets of 
$50 billion or more must establish a U.S. intermediate holding company, 
or designate an existing subsidiary that meets the requirements of 
paragraph (a)(2) of this section, as its U.S. intermediate holding 
company.
* * * * *
    (3) Notice. Within 30 days of establishing or designating a U.S. 
intermediate holding company under this section, a foreign banking 
organization must provide to the Board:
    (i) A description of the U.S. intermediate holding company, 
including its name, location, corporate form, and organizational 
structure;
    (ii) A certification that the U.S. intermediate holding company 
meets the requirements of this section; and
    (iii) Any other information that the Board determines is 
appropriate.
* * * * *
    (c) Alternative organizational structure--(1) General. Upon a 
written request by a foreign banking organization, the Board may permit 
the foreign banking organization to establish or designate multiple 
U.S. intermediate holding companies; use an alternative organizational 
structure to hold its combined U.S. operations; or not transfer its 
ownership interests in certain subsidiaries to a U.S. intermediate 
holding company.
    (2) Factors. In making a determination under paragraph (c)(1) of 
this section, the Board may consider whether applicable law would 
prohibit the foreign banking organization from owning or controlling 
one or more of its U.S. subsidiaries through a single U.S. intermediate 
holding company, or whether circumstances otherwise warrant an 
exception based on the foreign banking organization's activities, scope 
of operations, structure, or similar considerations.
    (3) Request--(i) Contents. A request submitted under this section 
must include an explanation of why the request should be granted and 
any other information required by the Board.
    (ii) Timing. The Board shall act on a request for an alternative 
organizational

[[Page 22031]]

structure within 90 days of receipt of a complete request, unless the 
Board provides notice to the company that it is extending the period 
for action.
    (4) Conditions. (i) The Board may grant relief under this section 
upon such conditions as the Board deems appropriate, including, but not 
limited to, requiring the U.S. operations of the foreign banking 
organization to comply with additional enhanced prudential standards, 
or requiring the foreign banking organization to enter into supervisory 
agreements governing such alternative organizational structure.
    (ii) If the Board permits a foreign banking organization to form 
two or more U.S. intermediate holding companies under this section, 
each U.S. intermediate holding company must determine its category 
pursuant to section 252.5 of this part as though the U.S. intermediate 
holding companies were a consolidated company.
    (d) Modifications. The Board may modify the application of any 
section of this subpart to a foreign banking organization that is 
required to form a U.S. intermediate holding company or to such U.S. 
intermediate holding company if appropriate to accommodate the 
organizational structure of the foreign banking organization or 
characteristics specific to such foreign banking organization and such 
modification is appropriate and consistent with the capital structure, 
size, complexity, risk profile, scope of operations, or financial 
condition of each U.S. intermediate holding company, safety and 
soundness, and the financial stability mandate of section 165 of the 
Dodd-Frank Act.
    (e) Enhanced prudential standards for U.S. intermediate holding 
companies--(1) Capital requirements for a U.S. intermediate holding 
company. (i)(A) A U.S. intermediate holding company must comply with 12 
CFR part 217, other than subpart E of 12 CFR part 217, in the same 
manner as a bank holding company.
    (B) A U.S. intermediate holding company may choose to comply with 
subpart E of 12 CFR part 217.
    (ii) A U.S. intermediate holding company must comply with capital 
adequacy standards beginning on the date that it is required to 
established under this subpart or, if the U.S. intermediate holding 
company is subject to capital adequacy standards on the date that the 
foreign banking organization becomes subject to section 
252.153(a)(1)(ii), on the date that the foreign banking organization 
becomes subject to this subpart.
    (2) Capital planning. (i) A U.S. intermediate holding company with 
total consolidated assets of $100 billion or more must comply with 12 
CFR 225.8 in the same manner as a bank holding company.
    (ii) A U.S. intermediate holding company with total consolidated 
assets of $100 billion or more must comply with 12 CFR 225.8 in 
accordance with the transition provisions of 12 CFR 225.8 of Regulation 
Y.
    (3) Risk-management and risk committee requirements--(i) General. A 
U.S. intermediate holding company must establish and maintain a risk 
committee that approves and periodically reviews the risk management 
policies and oversees the risk-management framework of the U.S. 
intermediate holding company. The risk committee must be a committee of 
the board of directors of the U.S. intermediate holding company (or 
equivalent thereof). The risk committee may also serve as the U.S. risk 
committee for the combined U.S. operations required pursuant to Sec.  
252.155(a).
    (ii) Risk-management framework. The U.S. intermediate holding 
company's risk-management framework must be commensurate with the 
structure, risk profile, complexity, activities, and size of the U.S. 
intermediate holding company and consistent with the risk management 
policies for the combined U.S. operations of the foreign banking 
organization. The framework must include:
    (A) Policies and procedures establishing risk-management 
governance, risk-management procedures, and risk-control infrastructure 
for the U.S. intermediate holding company; and
    (B) Processes and systems for implementing and monitoring 
compliance with such policies and procedures, including:
    (1) Processes and systems for identifying and reporting risks and 
risk-management deficiencies at the U.S. intermediate holding company, 
including regarding emerging risks and ensuring effective and timely 
implementation of actions to address emerging risks and risk-management 
deficiencies;
    (2) Processes and systems for establishing managerial and employee 
responsibility for risk management of the U.S. intermediate holding 
company;
    (3) Processes and systems for ensuring the independence of the 
risk-management function of the U.S. intermediate holding company; and
    (4) Processes and systems to integrate risk management and 
associated controls with management goals and the compensation 
structure of the U.S. intermediate holding company.
    (iii) Corporate governance requirements. The risk committee of the 
U.S. intermediate holding company must meet at least quarterly and 
otherwise as needed, and must fully document and maintain records of 
its proceedings, including risk-management decisions.
    (iv) Minimum member requirements. The risk committee must:
    (A) Include at least one member having experience in identifying, 
assessing, and managing risk exposures of large, complex financial 
firms; and
    (B) Have at least one member who:
    (1) Is not an officer or employee of the foreign banking 
organization or its affiliates and has not been an officer or employee 
of the foreign banking organization or its affiliates during the 
previous three years; and
    (2) Is not a member of the immediate family, as defined in Sec.  
225.41(b)(3) of the Board's Regulation Y (12 CFR 225.41(b)(3)), of a 
person who is, or has been within the last three years, an executive 
officer, as defined in Sec.  215.2(e)(1) of the Board's Regulation O 
(12 CFR 215.2(e)(1)) of the foreign banking organization or its 
affiliates.
    (v) The U.S. intermediate holding company must take appropriate 
measures to ensure that it implements the risk management policies for 
the U.S. intermediate holding company and it provides sufficient 
information to the U.S. risk committee to enable the U.S. risk 
committee to carry out the responsibilities of this subpart.
    (vi) A U.S. intermediate holding company must comply with risk 
committee and risk management requirements beginning on the date that 
it is required to established under this subpart or, if the U.S. 
intermediate holding company is subject to risk committee and risk 
management requirements on the date that the foreign banking 
organization becomes subject to Sec.  252.153(a)(1)(ii), on the date 
that the foreign banking organization becomes subject to this subpart.
    (4) Liquidity requirements. (i) A U.S. intermediate holding company 
must comply with the liquidity risk-management requirements in Sec.  
252.156 and conduct liquidity stress tests and hold a liquidity buffer 
pursuant to Sec.  252.157.
    (ii) A U.S. intermediate holding company must comply with liquidity 
risk-management, liquidity stress test, and liquidity buffer 
requirements beginning on the date that it is required to established 
under this subpart.
    (5) Stress test requirements. (i)(A) A U.S. intermediate holding 
company

[[Page 22032]]

with total consolidated assets of $100 billion or more must comply with 
the requirements of subpart E of this part in the same manner as a bank 
holding company;
    (B) A U.S. intermediate holding company must comply with the 
requirements of subpart E beginning the later of:
    (1) The stress test cycle of the calendar year after the calendar 
year in which it becomes subject to regulatory capital requirements; or
    (2) In accordance with the transition provisions of subpart E.
    (ii)(A) A Category II U.S. intermediate holding company and a 
Category III U.S. intermediate holding company must comply with the 
requirements of subpart F of this part in the same manner as a bank 
holding company;
    (B) A U.S. intermediate holding company must comply with the 
requirements of subpart F beginning the later of:
    (1) The stress test cycle of the calendar year after the calendar 
year in which it becomes subject to regulatory capital requirements; or
    (2) In accordance with the transition provisions of subpart F.
0
38. In Sec.  252.154 revise the section heading and paragraphs (a)(1), 
(b), and (c) to read as follows:


Sec.  252.154   Risk-based and leverage capital requirements for 
foreign banking organizations with combined U.S. assets of $100 billion 
or more.

    (a) * * *
    (1) A foreign banking organization with combined U.S. assets of 
$100 billion or more must certify to the Board that it meets capital 
adequacy standards on a consolidated basis established by its home-
country supervisor that are consistent with the regulatory capital 
framework published by the Basel Committee on Banking Supervision, as 
amended from time to time (Basel Capital Framework).
* * * * *
    (b) Reporting. A foreign banking organization with combined U.S. 
assets of $100 billion or more must provide to the Board reports 
relating to its compliance with the capital adequacy measures described 
in paragraph (a) of this section concurrently with filing the FR Y-7Q.
    (c) Noncompliance with the Basel Capital Framework. If a foreign 
banking organization does not satisfy the requirements of this section, 
the Board may impose requirements, conditions, or restrictions relating 
to the activities or business operations of the U.S. operations of the 
foreign banking organization. The Board will coordinate with any 
relevant State or Federal regulator in the implementation of such 
requirements, conditions, or restrictions. If the Board determines to 
impose one or more requirements, conditions, or restrictions under this 
paragraph, the Board will notify the organization before it applies any 
requirement, condition or restriction, and describe the basis for 
imposing such requirement, condition, or restriction. Within 14 
calendar days of receipt of a notification under this paragraph, the 
company may request in writing that the Board reconsider the 
requirement, condition, or restriction. The Board will respond in 
writing to the organizations request for reconsideration prior to 
applying the requirement, condition, or restriction.
0
39. In Sec.  252.155 revise the section heading and paragraphs (a)(1) 
and (3) and (b)(1) to read as follows:


Sec.  252.155   Risk-management and risk-committee requirements for 
foreign banking organizations with combined U.S. assets of $100 billion 
or more.

    (a) * * *
    (1) General. Each foreign banking organization with combined U.S. 
assets of $100 billion or more must maintain a U.S. risk committee that 
approves and periodically reviews the risk management policies of the 
combined U.S. operations of the foreign banking organization and 
oversees the risk-management framework of such combined U.S. 
operations. The U.S. risk committee's responsibilities include the 
liquidity risk-management responsibilities set forth in Sec.  
252.156(a).
* * * * *
    (3) Placement of the U.S. risk committee. (i) A foreign banking 
organization that conducts its operations in the United States solely 
through a U.S. intermediate holding company must maintain its U.S. risk 
committee as a committee of the board of directors of its U.S. 
intermediate holding company (or equivalent thereof).
    (ii) A foreign banking organization that conducts its operations 
through U.S. branches or U.S. agencies (in addition to through its U.S. 
intermediate holding company, if any) may maintain its U.S. risk 
committee either:
    (A) As a committee of the global board of directors (or equivalent 
thereof), on a standalone basis or as a joint committee with its 
enterprise-wide risk committee (or equivalent thereof); or
    (B) As a committee of the board of directors of its U.S. 
intermediate holding company (or equivalent thereof), on a standalone 
basis or as a joint committee with the risk committee of its U.S. 
intermediate holding company required pursuant to Sec.  252.153(e)(3).
* * * * *
    (b) * * *
    (1) General. A foreign banking organization with combined U.S. 
assets of $100 billion or more or its U.S. intermediate holding 
company, if any, must appoint a U.S. chief risk officer with experience 
in identifying, assessing, and managing risk exposures of large, 
complex financial firms.
* * * * *
0
40. In Sec.  252.156, revise the section heading and paragraphs (a)(1), 
(b)(1) and (2), (b)(3)(i), (b)(4) through (6), (c)(1), (c)(2)(ii), 
(d)(1), (e)(1), (e)(2)(i)(A) and (C), (e)(2)(ii)(A), (f), (g) 
introductory text, (g)(1) introductory text, (g)(1)(i), (g)(3) 
introductory text, (g)(3)(i), (ii) and (iv), and republish (g)(3)(v) to 
read as follows:


Sec.  252.156   Liquidity risk-management requirements for foreign 
banking organizations with combined U.S. assets of $100 billion or 
more.

    (a) * * *
    (1) The U.S. risk committee established by a foreign banking 
organization pursuant to Sec.  252.155(a) (or a designated subcommittee 
of such committee composed of members of the board of directors (or 
equivalent thereof)) of the U.S. intermediate holding company or the 
foreign banking organization, as appropriate must:
* * * * *
    (b) * * *
    (1) Liquidity risk. The U.S. chief risk officer of a foreign 
banking organization with combined U.S. assets of $100 billion or more 
must review the strategies and policies and procedures established by 
senior management of the U.S. operations for managing the risk that the 
financial condition or safety and soundness of the foreign banking 
organization's combined U.S. operations would be adversely affected by 
its inability or the market's perception of its inability to meet its 
cash and collateral obligations (liquidity risk).
    (2) Liquidity risk tolerance. The U.S. chief risk officer of a 
foreign banking organization with combined U.S. assets of $100 billion 
or more must review information provided by the senior management of 
the U.S. operations to determine whether the combined U.S. operations 
are operating in accordance with the established liquidity risk 
tolerance. The U.S. chief risk officer must regularly, and, at least 
semi-annually, report to the foreign banking organization's U.S. risk 
committee and enterprise-wide risk committee, or the equivalent thereof 
(if any) (or a

[[Page 22033]]

designated subcommittee of such committee composed of members of the 
relevant board of directors (or equivalent thereof)) on the liquidity 
risk profile of the foreign banking organization's combined U.S. 
operations and whether it is operating in accordance with the 
established liquidity risk tolerance for the U.S. operations, and must 
establish procedures governing the content of such reports.
    (3) * * *
    (i) The U.S. chief risk officer of a foreign banking organization 
with combined U.S. assets of $100 billion or more must approve new 
products and business lines and evaluate the liquidity costs, benefits, 
and risks of each new business line and each new product offered, 
managed or sold through the foreign banking organization's combined 
U.S. operations that could have a significant effect on the liquidity 
risk profile of the U.S. operations of the foreign banking 
organization. The approval is required before the foreign banking 
organization implements the business line or offers the product through 
its combined U.S. operations. In determining whether to approve the new 
business line or product, the U.S. chief risk officer must consider 
whether the liquidity risk of the new business line or product (under 
both current and stressed conditions) is within the foreign banking 
organization's established liquidity risk tolerance for its combined 
U.S. operations.
* * * * *
    (4) Cash-flow projections. The U.S. chief risk officer of a foreign 
banking organization with combined U.S. assets of $100 billion or more 
must review the cash-flow projections produced under paragraph (d) of 
this section at least quarterly (or more often, if changes in market 
conditions or the liquidity position, risk profile, or financial 
condition of the foreign banking organization or the U.S. operations 
warrant) to ensure that the liquidity risk of the foreign banking 
organization's combined U.S. operations is within the established 
liquidity risk tolerance.
    (5) Liquidity risk limits. The U.S. chief risk officer of a foreign 
banking organization with combined U.S. assets of $100 billion or more 
must establish liquidity risk limits as set forth in paragraph (f) of 
this section and review the foreign banking organization's compliance 
with those limits at least quarterly (or more often, if changes in 
market conditions or the liquidity position, risk profile, or financial 
condition of the U.S. operations of the foreign banking organization 
warrant).
    (6) Liquidity stress testing. The U.S. chief risk officer of a 
foreign banking organization with combined U.S. assets of $100 billion 
or more must:
    (i) Approve the liquidity stress testing practices, methodologies, 
and assumptions required in Sec.  252.157(a) at least quarterly, and 
whenever the foreign banking organization materially revises its 
liquidity stress testing practices, methodologies or assumptions;
    (ii) Review the liquidity stress testing results produced under 
Sec.  252.157(a) of this subpart at least quarterly; and
    (iii) Approve the size and composition of the liquidity buffer 
established under Sec.  252.157(c) of this subpart at least quarterly.
    (c) * * *
    (1) A foreign banking organization with combined U.S. assets of 
$100 billion or more must establish and maintain a review function that 
is independent of the management functions that execute funding for its 
combined U.S. operations to evaluate the liquidity risk management for 
its combined U.S. operations.
    (2) * * *
    (ii) Assess whether the foreign banking organization's liquidity 
risk management function of its combined U.S. operations complies with 
applicable laws and regulations, and sound business practices; and
* * * * *
    (d) * * *
    (1) A foreign banking organization with combined U.S. assets of 
$100 billion or more must produce comprehensive cash-flow projections 
for its combined U.S. operations that project cash flows arising from 
assets, liabilities, and off-balance sheet exposures over, at a 
minimum, short- and long-term time horizons. The foreign banking 
organization must update short-term cash-flow projections daily and 
must update longer-term cash-flow projections at least monthly.
* * * * *
    (e) * * *
    (1) A foreign banking organization with combined U.S. assets of 
$100 billion or more must establish and maintain a contingency funding 
plan for its combined U.S. operations that sets out the foreign banking 
organization's strategies for addressing liquidity needs during 
liquidity stress events. The contingency funding plan must be 
commensurate with the capital structure, risk profile, complexity, 
activities, size, and the established liquidity risk tolerance for the 
combined U.S. operations. The foreign banking organization must update 
the contingency funding plan for its combined U.S. operations at least 
annually, and when changes to market and idiosyncratic conditions 
warrant.
    (2) * * *
    (i) * * *
    (A) Identify liquidity stress events that could have a significant 
impact on the liquidity of the foreign banking organization or its 
combined U.S. operations;
* * * * *
    (C) Identify the circumstances in which the foreign banking 
organization would implement its action plan described in paragraph 
(e)(2)(ii)(A) of this section, which circumstances must include failure 
to meet any minimum liquidity requirement imposed by the Board on the 
foreign banking organization's combined U.S. operations;
* * * * *
    (ii) * * *
    (A) Include an action plan that clearly describes the strategies 
that the foreign banking organization will use to respond to liquidity 
shortfalls in its combined U.S. operations for identified liquidity 
stress events, including the methods that the organization or the 
combined U.S. operations will use to access alternative funding 
sources;
* * * * *
    (f) Liquidity risk limits--(1) Liquidity risk limits for Category 
II and III foreign banking organizations. A Category II foreign banking 
organization or Category III foreign banking organization must monitor 
sources of liquidity risk and establish limits on liquidity risk, 
including limits on:
    (A) Concentrations in sources of funding by instrument type, single 
counterparty, counterparty type, secured and unsecured funding, and as 
applicable, other forms of liquidity risk;
    (B) The amount of liabilities that mature within various time 
horizons; and
    (C) Off-balance sheet exposures and other exposures that could 
create funding needs during liquidity stress events.
    (ii) Each limit established pursuant to paragraph (g)(1) of this 
section must be consistent with the company's established liquidity 
risk tolerance and must reflect the organization's capital structure, 
risk profile, complexity, activities, and size.
    (2) Liquidity risk limits for Category IV foreign banking 
organizations. A Category IV foreign banking organization must monitor 
sources of liquidity risk and establish limits on liquidity risk that 
are consistent with the organization's established liquidity

[[Page 22034]]

risk tolerance and that reflect the organization's capital structure, 
risk profile, complexity, activities, and size.
    (g) Collateral, legal entity, and intraday liquidity risk 
monitoring. A foreign banking organization with combined U.S. assets of 
$100 billion or more must establish and maintain procedures for 
monitoring liquidity risk as set forth in this paragraph.
    (1) Collateral. The foreign banking organization must establish and 
maintain policies and procedures to monitor assets that have been or 
are available to be pledged as collateral in connection with 
transactions to which entities in its U.S. operations are 
counterparties. These policies and procedures must provide that the 
foreign banking organization:
    (i) Calculates all of the collateral positions for its combined 
U.S. operations according to the frequency specified in paragraphs 
(g)(1)(i)(A) and (B) or as directed by the Board, specifying the value 
of pledged assets relative to the amount of security required under the 
relevant contracts and the value of unencumbered assets available to be 
pledged:
    (A) If the foreign banking organization is not a Category IV 
foreign banking organization, on a weekly basis; or
    (B) If the foreign banking organization is a Category IV foreign 
banking organization, on a monthly basis;
* * * * *
    (3) Intraday exposure. The foreign banking organization must 
establish and maintain procedures for monitoring intraday liquidity 
risk exposure for its combined U.S. operations that are consistent with 
the capital structure, risk profile, complexity, activities, and size 
of the foreign banking organization and its combined U.S. operations. 
If the foreign banking organization is a Category II foreign banking 
organization or a Category III foreign banking organization these 
procedures must address how the management of the combined U.S. 
operations will:
    (i) Monitor and measure expected gross daily inflows and outflows;
    (ii) Manage and transfer collateral to obtain intraday credit;
* * * * *
    (iv) Manage the issuance of credit to customers where necessary; 
and
    (v) Consider the amounts of collateral and liquidity needed to meet 
payment systems obligations when assessing the overall liquidity needs 
of the combined U.S. operations.
0
41. Amend Sec.  252.157 by:
0
a. Revising the section heading and paragraphs (a)(1)(i) introductory 
text, (a)(1)(ii) through (iv), (a)(2), and (a)(7)(i) and (ii);
0
b. Adding paragraph (a)(8); and
0
c. Revising paragraphs (b) and (c)(1).
    The revisions and addition read as follows:


Sec.  252.157   Liquidity stress testing and buffer requirements for 
foreign banking organizations with combined U.S. assets of $100 billion 
or more.

    (a) * * *
    (1) * * *
    (i) A foreign banking organization with combined U.S. assets of 
$100 billion or more must conduct stress tests to separately assess the 
potential impact of liquidity stress scenarios on the cash flows, 
liquidity position, profitability, and solvency of:
* * * * *
    (ii) Each liquidity stress test required under this paragraph 
(a)(1) must use the stress scenarios described in paragraph (a)(3) of 
this section and take into account the current liquidity condition, 
risks, exposures, strategies, and activities of the combined U.S. 
operations.
    (iii) The liquidity stress tests required under this paragraph 
(a)(1) must take into consideration the balance sheet exposures, off-
balance sheet exposures, size, risk profile, complexity, business 
lines, organizational structure and other characteristics of the 
foreign banking organization and its combined U.S. operations that 
affect the liquidity risk profile of the combined U.S. operations.
    (iv) In conducting a liquidity stress test using the scenarios 
described in paragraphs (a)(3)(i) and (iii) of this section, the 
foreign banking organization must address the potential direct adverse 
impact of associated market disruptions on the foreign banking 
organization's combined U.S. operations and the related indirect effect 
such impact could have on the combined U.S. operations of the foreign 
banking organization and incorporate the potential actions of other 
market participants experiencing liquidity stresses under the market 
disruptions that would adversely affect the foreign banking 
organization or its combined U.S. operations.
    (2) Frequency. The foreign banking organization must perform the 
liquidity stress tests required under paragraph (a)(1) according to the 
frequency specified in paragraphs (a)(2)(i) and (ii) or as directed by 
the Board:
    (i) If the foreign banking organization is not a Category IV 
foreign banking organization, at least monthly; or
    (ii) If the foreign banking organization is a Category IV foreign 
banking organization, at least quarterly.
* * * * *
    (7) * * *
    (i) Stress test function. A foreign banking organization with 
combined U.S. assets of $100 billion or more, within its combined U.S. 
operations and its enterprise-wide risk management, must establish and 
maintain policies and procedures governing its liquidity stress testing 
practices, methodologies, and assumptions that provide for the 
incorporation of the results of liquidity stress tests in future stress 
testing and for the enhancement of stress testing practices over time.
    (ii) Controls and oversight. The foreign banking organization must 
establish and maintain a system of controls and oversight that is 
designed to ensure that its liquidity stress testing processes are 
effective in meeting the requirements of this section. The controls and 
oversight must ensure that each liquidity stress test appropriately 
incorporates conservative assumptions with respect to the stress 
scenario in paragraph (a)(3) of this section and other elements of the 
stress-test process, taking into consideration the capital structure, 
risk profile, complexity, activities, size, and other relevant factors 
of the combined U.S. operations. These assumptions must be approved by 
U.S. chief risk officer and subject to independent review consistent 
with the standards set out in Sec.  252.156(c).
* * * * *
    (8) Notice and response. If the Board determines that a foreign 
banking organization must conduct liquidity stress tests according to a 
frequency other than the frequency provided in paragraphs (a)(2)(i) and 
(ii) of this section, the Board will notify the foreign banking 
organization before the change in frequency takes effect, and describe 
the basis for its determination. Within 14 calendar days of receipt of 
a notification under this paragraph, the foreign banking organization 
may request in writing that the Board reconsider the requirement. The 
Board will respond in writing to the organization's request for 
reconsideration prior to requiring the foreign banking organization to 
conduct liquidity stress tests according to a frequency other than the 
frequency provided in paragraphs (a)(2)(i) and (ii) of this section.
    (b) Reporting of liquidity stress tests required by home-country 
regulators. A foreign banking organization with combined U.S. assets of 
$100 billion or more must make available to the Board, in a timely 
manner, the results of any liquidity internal stress tests and 
establishment of liquidity buffers required by regulators in its home 
jurisdiction. The report required under

[[Page 22035]]

this paragraph must include the results of its liquidity stress test 
and liquidity buffer, if required by the laws or regulations 
implemented in the home jurisdiction, or expected under supervisory 
guidance.
    (c) * * *
    (1) General. A foreign banking organization with combined U.S. 
assets of $100 billion or more must maintain a liquidity buffer for its 
U.S. intermediate holding company, if any, calculated in accordance 
with paragraph (c)(2) of this section, and a separate liquidity buffer 
for its U.S. branches and agencies, if any, calculated in accordance 
with paragraph (c)(3) of this section.
* * * * *
0
42. In Sec.  252.158, revise the section heading and paragraphs (b)(1) 
introductory text, (b)(2)(i), (c)(1) introductory text and (c)(2) 
introductory text to read as follows:


Sec.  252.158   Capital stress testing requirements for foreign banking 
organizations with combined U.S. assets of $100 billion or more.

* * * * *
    (b) * * *
    (1) A foreign banking organization with combined U.S. assets of 
$100 billion or more and that has a U.S. branch or U.S. agency must:
* * * * *
    (2) * * *
    (i) A supervisory capital stress test conducted by the foreign 
banking organization's home-country supervisor or an evaluation and 
review by the foreign banking organization's home-country supervisor of 
an internal capital adequacy stress test conducted by the foreign 
banking organization, according to the frequency specified in 
paragraphs (b)(2)(A) and (B):
    (A) If the foreign banking organization is not a Category IV 
foreign banking organization, on at least an annual basis; or
    (B) If the foreign banking organization is a Category IV foreign 
banking organization, at least biennially; and
* * * * *
    (c) * * *
    (1) In general. A foreign banking organization with combined U.S. 
assets of $100 billion or more must report to the Board by January 5 of 
each calendar year, unless such date is extended by the Board, summary 
information about its stress-testing activities and results, including 
the following quantitative and qualitative information:
* * * * *
    (2) Additional information required for foreign banking 
organizations in a net due from position. If, on a net basis, the U.S. 
branches and agencies of a foreign banking organization with combined 
U.S. assets of $100 billion or more provide funding to the foreign 
banking organization's non-U.S. offices and non-U.S. affiliates, 
calculated as the average daily position over a stress test cycle for a 
given year, the foreign banking organization must report the following 
information to the Board by January 5 of each calendar year, unless 
such date is extended by the Board:
* * * * *

Subpart Q--Single-Counterparty Credit Limits

0
43. Revise Sec.  252.170 to read as follows:


Sec.  252.170   Applicability and general provisions.

    (a) In general. (1) This subpart establishes single counterparty 
credit limits for a covered foreign entity.
    (2) For purposes of this subpart:
    (i) Covered foreign entity means:
    (A) A Category II foreign banking organization;
    (B) A Category III foreign banking organization;
    (C) A foreign banking organization with total consolidated assets 
that equal or exceed $250 billion with respect to its combined U.S. 
operations; and
    (D) Any U.S. intermediate holding company of a Category II foreign 
banking organization or a Category III foreign banking organization.
    (ii) Major foreign banking organization means a foreign banking 
organization that is a covered foreign entity and meets the 
requirements of Sec.  252.172(c)(3) through (5).
    (b) Credit exposure limits. (1) Section 252.172 establishes credit 
exposure limits for covered foreign entities and major foreign banking 
organizations.
    (2) A covered foreign entity is required to calculate its aggregate 
net credit exposure, gross credit exposure, and net credit exposure to 
a counterparty using the methods in this subpart.
    (c) Applicability of this subpart--(1) Foreign banking 
organizations. (i) A foreign banking organization that is a covered 
foreign entity as of October 5, 2018, must comply with the requirements 
of this subpart, including but not limited to Sec.  252.172, beginning 
on July 1, 2020, unless that time is extended by the Board in writing.
    (ii) Notwithstanding paragraph (c)(1)(i) of this section, a foreign 
banking organization that is a major foreign banking organization as of 
October 5, 2018, must comply with the requirements of this subpart, 
including but not limited to Sec.  252.172, beginning on January 1, 
2020, unless that time is extended by the Board in writing.
    (iii) A foreign banking organization that becomes a covered foreign 
entity subject to this subpart after October 5, 2018, must comply with 
the requirements of this subpart beginning on the first day of the 
ninth calendar quarter after it becomes a covered foreign entity, 
unless that time is accelerated or extended by the Board in writing.
    (2) U.S. intermediate holding companies. (i) A U.S. intermediate 
holding company that is a covered foreign entity as of October 5, 2018, 
must comply with the requirements of this subpart, including but not 
limited to Sec.  252.172, beginning on July 1, 2020, unless that time 
is extended by the Board in writing.
    (ii) [Reserved]
    (iii) A U.S. intermediate holding company that becomes a covered 
foreign entity subject to this subpart after October 5, 2018, must 
comply with the requirements of this subpart beginning on the first day 
of the ninth calendar quarter after it becomes a covered foreign 
entity, unless that time is accelerated or extended by the Board in 
writing.
    (d) Cessation of requirements--(1) Foreign banking organizations. 
(i) Any foreign banking organization that becomes a covered foreign 
entity will remain subject to the requirements of this subpart unless 
and until:
    (A) The covered foreign entity is not a Category II foreign banking 
organization;
    (B) The covered foreign entity is not a Category III foreign 
banking organization; and
    (C) Its total consolidated assets fall below $250 billion for each 
of four consecutive quarters, as reported on the covered foreign 
entity's FR Y-7Q, effective on the as-of date of the fourth consecutive 
FR Y-7Q.
    (ii) A foreign banking organization that is a covered foreign 
entity and that has ceased to be a major foreign banking organization 
for purposes of Sec.  252.172(c) is no longer subject to the 
requirements of Sec.  252.172(c) beginning on the first day of the 
calendar quarter following the reporting date on which it ceased to be 
a major foreign banking organization; provided that the foreign banking 
organization remains subject to the requirements of this subpart, 
unless it ceases to be a foreign banking organization that is a covered 
foreign entity pursuant to paragraph (d)(1)(i) of this section.

[[Page 22036]]

    (2) U.S. intermediate holding companies. (i) Any U.S. intermediate 
holding company that becomes a covered foreign entity will remain 
subject to the requirements of this subpart unless and until:
    (A) The covered foreign entity is not the subsidiary of a Category 
II foreign banking organization;
    (B) The covered foreign entity is not the subsidiary of a Category 
III foreign banking organization; or
    (C) The covered foreign entity's total consolidated assets fall 
below $50 billion for each of four consecutive quarters, as reported on 
the covered foreign entity's FR Y-9C, effective on the as-of date of 
the fourth consecutive FR Y-9C.
0
44. Amend Sec.  252.171 by;
0
a. Revising paragraph (f)(1);
0
b. Removing paragraph (aa); and
0
c. Redesignating paragraphs (bb) through (ll) as (aa) through (kk) 
respectively.
    The revision reads as follows:


Sec.  252.171   Definitions.

* * * * *
    (f) * * *
    (1) With respect to a natural person, the natural person, and, if 
the credit exposure of the covered foreign entity to such natural 
person exceeds 5 percent of its tier 1 capital, the natural person and 
members of the person's immediate family collectively;
* * * * *
0
45. Amend Sec.  252.172 by:
0
a. Removing and reserving paragraph (a);
0
b. Revising paragraph (b);
0
c. Removing and reserving paragraph (c)(1); and
0
d. Revising paragraph (c)(2).
    The revisions read as follows:


Sec.  252.172   Credit exposure limits.

* * * * *
    (b) Limit on aggregate net credit exposure for covered foreign 
entities. (1) No U.S. intermediate holding company that is a covered 
foreign entity may have an aggregate net credit exposure to any 
counterparty that exceeds 25 percent of the tier 1 capital of the U.S. 
intermediate holding company.
    (2) No foreign banking organization that is a covered foreign 
entity may permit its combined U.S. operations to have aggregate net 
credit exposure to any counterparty that exceeds 25 percent of the tier 
1 capital of the foreign banking organization.
    (c) * * *
    (2) No major foreign banking organization may permit its combined 
U.S. operations to have aggregate net credit exposure to any major 
counterparty that exceeds 15 percent of the tier 1 capital of the major 
foreign banking organization.
* * * * *
0
46. Amend Sec.  252.173 by removing and reserving paragraph (b)(1) and 
revising paragraph (b)(2) to read as follows:


Sec.  252.173   Gross credit exposure.

* * * * *
    (b) * * *
    (2) A covered foreign entity must calculate pursuant to Sec.  
252.175 its gross credit exposure due to any investment in the debt or 
equity of, and any credit derivative or equity derivative between the 
covered foreign entity and a third party where the covered foreign 
entity is the protection provider and the reference asset is an 
obligation or equity security of, or equity investment in, a 
securitization vehicle, investment fund, and other special purpose 
vehicle that is not an affiliate of the covered foreign entity.
* * * * *


Sec.  252.175  [Amended]

0
47. In Sec.  252.175, remove and reserve paragraph (a)(1) to read as 
follows:
0
48. In Sec.  252.176 remove and reserve paragraph (a)(1) and revise 
paragraph (a)(2)(i) to read as follows:


Sec.  252.176   Aggregation of exposures to more than one counterparty 
due to economic interdependence or control relationships.

    (a) * * *
    (2)(i) If a covered foreign entity has an aggregate net credit 
exposure to any counterparty that exceeds 5 percent of its tier 1 
capital, the covered foreign entity must assess its relationship with 
the counterparty under paragraph (b)(2) of this section to determine 
whether the counterparty is economically interdependent with one or 
more other counterparties of the covered foreign entity and under 
paragraph (c)(1) of this section to determine whether the counterparty 
is connected by a control relationship with one or more other 
counterparties.
* * * * *
0
49. Amend Sec.  252.178 by:
0
a. Revising paragraph (a)(1);
0
b. Removing and reserving paragraph (a)(2); and
0
c. Revising paragraph (c)(2).
    The revisions read as follows:


Sec.  252.178   Compliance.

    (a) * * *
    (1) Using all available data, including any data required to be 
maintained or reported to the Federal Reserve under this subpart, a 
covered foreign entity must comply with the requirements of this 
subpart on a daily basis at the end of each business day.
* * * * *
    (c) * * *
    (2) A covered foreign entity may request a special temporary credit 
exposure limit exemption from the Board. The Board may grant approval 
for such exemption in cases where the Board determines that such credit 
transactions are necessary or appropriate to preserve the safety and 
soundness of the covered foreign entity or U.S. financial stability. In 
acting on a request for an exemption, the Board will consider the 
following:
    (i) A decrease in the covered foreign entity's tier 1 capital;
    (ii) The merger of the covered foreign entity with another covered 
foreign entity;
    (iii) A merger of two counterparties; or
    (iv) An unforeseen and abrupt change in the status of a 
counterparty as a result of which the covered foreign entity's credit 
exposure to the counterparty becomes limited by the requirements of 
this section; or
    (v) Any other factor(s) the Board determines, in its discretion, is 
appropriate.
* * * * *

    By order of the Board of Governors of the Federal Reserve 
System.
Ann Misback,
Secretary of the Board.
[FR Doc. 2019-07895 Filed 5-14-19; 8:45 am]
BILLING CODE 6210-01-P

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