Prudential Standards for Large Bank Holding Companies, Savings and Loan Holding Companies, and Foreign Banking Organizations, 59032-59123 [2019-23662]
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Federal Register / Vol. 84, No. 212 / Friday, November 1, 2019 / Rules and Regulations
FOR FURTHER INFORMATION CONTACT:
FEDERAL RESERVE SYSTEM
12 CFR Parts 217, 225, 238, 242, and
252
[Regulations Q, Y, LL, PP, and YY; Docket
No. R–1658]
RIN 7100–AF 45
Prudential Standards for Large Bank
Holding Companies, Savings and Loan
Holding Companies, and Foreign
Banking Organizations
Board of Governors of the
Federal Reserve System (Board).
ACTION: Final rule.
AGENCY:
The Board of Governors of the
Federal Reserve System (Board) is
adopting a final rule that establishes
risk-based categories for determining
prudential standards for large U.S.
banking organizations and foreign
banking organizations, consistent with
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 (EGRRCPA),
and with the Home Owners’ Loan Act.
The final rule amends certain prudential
standards, including standards relating
to liquidity, risk management, stress
testing, and single-counterparty credit
limits, to reflect the risk profile of
banking organizations under each
category; applies prudential standards
to certain large savings and loan holding
companies using the same categories;
makes corresponding changes to
reporting forms; and makes additional
modifications to the Board’s companyrun stress test and supervisory stress
test rules, consistent with section 401 of
EGRRCPA. Separately, the Office of the
Comptroller of the Currency (OCC), the
Board, and the Federal Deposit
Insurance Corporation (FDIC) are
adopting a final rule that revises the
criteria for determining the applicability
of regulatory capital and standardized
liquidity requirements for large U.S.
banking organizations and the U.S.
intermediate holding companies of
foreign banking organizations, using a
risk-based category framework that is
consistent with the framework
described in this final rule. In addition,
the Board and the FDIC are separately
adopting a final rule that amends the
resolution planning requirements under
section 165(d) of the Dodd-Frank Wall
Street Reform and Consumer Protection
Act using a risk-based category
framework that is consistent with the
framework described in this final rule.
DATES: The final rule is effective
December 31, 2019.
SUMMARY:
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Constance M. Horsley, Deputy Associate
Director, (202) 452–5239; Elizabeth
MacDonald, Manager, (202) 475–6216;
Peter Goodrich, Lead Financial
Institution Policy Analyst, (202) 872–
4997; Mark Handzlik, Lead Financial
Institution Policy Analyst, (202) 475–
6636; Kevin Littler, Lead Financial
Institution Policy Analyst, (202) 475–
6677; Althea Pieters, Lead Financial
Institution Policy Analyst, (202) 452–
3397; Peter Stoffelen, Lead Financial
Institution Policy Analyst, (202) 912–
4677; Hillel Kipnis, Senior Financial
Institution Policy Analyst II, (202) 452–
2924; Matthew McQueeney, Senior
Financial Institution Policy Analyst II,
(202) 452–2942; Christopher Powell,
Senior Financial Institution Policy
Analyst II, (202) 452–3442, Division of
Supervision and Regulation; or Asad
Kudiya, Senior Counsel, (202) 475–
6358; Jason Shafer, Senior Counsel (202)
728–5811; Mary Watkins, Senior
Attorney (202) 452–3722; Laura Bain,
Counsel, (202) 736–5546; 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. For
the hearing impaired only,
Telecommunication Device for the Deaf
(TDD), (202) 263–4869.
SUPPLEMENTARY INFORMATION:
Table of Contents
I. Introduction
II. Background
III. Overview of the Notices of Proposed
Rulemaking and General Summary of
Comments
IV. Overview of Final Rule
V. Tailoring Framework
A. Indicators-Based Approach and the
Alternative Scoring Methodology
B. Dodd-Frank Act Statutory Framework
C. Choice of Risk-Based Indicators
D. Application of Standards Based on the
Proposed Risk-Based Indicators
E. Calibration of Thresholds and Indexing
F. The Risk-Based Categories
G. Specific Aspects of the Foreign Bank
Proposal—Treatment of Inter-Affiliate
Transactions
H. Determination of Applicable Category of
Standards
VI. Prudential Standards for Large U.S. and
Foreign Banking Organizations
A. Category I Standards
B. Category II Standards
C. Category III Standards
D. Category IV Standards
VII. Single-Counterparty Credit Limits
VIII. Covered Savings and Loan Holding
Companies
IX. Risk Management and Risk Committee
Requirements
X. Enhanced Prudential Standards for
Foreign Banking Organizations With a
Smaller U.S. Presence
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XI. Technical Changes to the Regulatory
Framework for Foreign Banking
Organizations and Domestic Banking
Organizations
XII. Changes to Liquidity Buffer
Requirements
XIII. Changes to Company-Run Stress Testing
Requirements for State Member Banks,
Removal of the Adverse Scenario, and
Other Technical Changes Proposed in
January 2019
A. Minimum Asset Threshold for State
Member Banks
B. Frequency of Stress Testing for State
Member Banks
C. Removal of ‘‘Adverse’’ Scenario
D. Review by Board of Directors
E. Scope of Applicability for Savings and
Loan Holding Companies
XIV. Changes to Dodd-Frank Definitions
XV. Reporting Requirements
A. FR Y–14
B. FR Y–15
C. FR 2052a
D. Summary of Reporting Effective Dates
XVI. Impact Assessment
A. Liquidity
B. Stress Testing
C. Single-Counterparty Credit Limits
D. Covered Savings and Loan Holding
Companies
XVII. Administrative Law Matters
A. Paperwork Reduction Act Analysis
B. Regulatory Flexibility Act Analysis
C. Riegle Community Development and
Regulatory Improvement Act of 1994
I. Introduction
In 2018 and 2019, the Board of
Governors of the Federal Reserve
System (Board) sought comment on two
separate proposals to revise the
framework for determining application
of prudential standards to large banking
organizations. First, on October 31,
2018, the Board sought comment on a
proposal to revise the criteria for
determining the application of
prudential standards for U.S. banking
organizations with $100 billion or more
in total consolidated assets (domestic
proposal).1 Then, on April 8, 2019, the
Board sought comment on a proposal to
revise the criteria for determining the
application of prudential standards for
foreign banking organizations with total
consolidated assets of $100 billion or
more (foreign bank proposal, and,
together with the domestic proposal, the
proposals).2
1 See https://www.federalreserve.gov/newsevents/
pressreleases/bcreg20181031a.htm; Prudential
Standards for Large Bank Holding Companies and
Savings and Loan Holding Companies, 83 FR 61408
(Nov. 29, 2018).
2 See https://www.federalreserve.gov/newsevents/
pressreleases/bcreg20190408a.htm; Prudential
Standards for Large Foreign Banking Organizations;
Revisions to Proposed Prudential Standards for
Large Domestic Bank Holding Companies and
Savings and Loan Holding Companies, 84 FR 21988
(May 15, 2019). Foreign banking organization
means a foreign bank that operates a branch,
agency, or commercial lending company subsidiary
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The Board is finalizing the framework
set forth under the proposals, with
certain adjustments.3 Specifically, the
final rule revises the thresholds for
application of prudential standards to
large banking organizations and tailors
the stringency of these standards based
on the risk profiles of these firms. For
U.S. banking organizations with $100
billion or more in total consolidated
assets and foreign banking organizations
with $100 billion or more in combined
U.S. assets, the final rule establishes
four categories of prudential standards.
The most stringent set of standards
(Category I) applies to U.S. global
systemically important bank holding
companies (U.S. GSIBs) based on the
methodology in the Board’s GSIB
surcharge rule.4 The remaining
categories of standards apply to U.S.
and foreign banking organizations based
on indicators of a firm’s size, crossjurisdictional activity, weighted shortterm wholesale funding, nonbank assets,
and off-balance sheet exposure. The
framework set forth in the final rule will
be used throughout the Board’s
prudential standards framework for
large banking organizations.
In connection with a proposal on
which the Board sought comment in
January 2019, and consistent with
EGRRCPA, this final rule also revises
the minimum asset threshold for state
member banks to conduct stress tests,
revises the frequency by which state
member banks would be required to
conduct stress tests, and removes the
adverse scenario from the list of
required scenarios in the Board’s stress
test rules. This final rule also makes
conforming changes to the Board’s
Policy Statement on the Scenario Design
Framework for Stress Testing.5
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. 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).
3 On January 8, 2019, the Board also issued a
proposal that would revise the stress testing
requirements that were proposed in the domestic
proposal for certain savings and loan holding
companies. See https://www.federalreserve.gov/
newsevents/pressreleases/bcreg20190108a.htm;
Regulations LL and YY; Amendments to the
Company-Run and Supervisory Stress Test Rules,
84 FR 4002 (Feb. 19, 2019). This final rule adopts
those proposed changes, with certain adjustments.
4 12 CFR 217.403.
5 See 12 CFR part 252, appendix A. The proposals
would have revised the scope of applicability of the
capital plan rule to apply to U.S. bank holding
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Concurrently with this final rule, the
Board, with the Office of the
Comptroller of the Currency (OCC) and
Federal Deposit Insurance Corporation
(FDIC) (together, the agencies), is
separately finalizing amendments to the
agencies’ regulatory capital rule and
liquidity coverage ratio (LCR) rule, to
introduce the same risk-based categories
for tailoring standards (the interagency
capital and liquidity final rule). The
Board and FDIC are also finalizing
changes to the resolution planning
requirements (resolution plan final rule)
that would adopt the same risk-based
category framework.
II. 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. To address weaknesses in the
banking sector that were evident in the
financial crisis, the Board strengthened
prudential standards for large U.S. and
foreign banking organizations. These
enhanced standards included capital
planning requirements; supervisory and
company-run stress testing; liquidity
risk management, stress testing, and
buffer requirements; and singlecounterparty credit limits. The Board’s
enhanced standards also implemented
section 165 of the Dodd-Frank Wall
Street Reform and Consumer Protection
Act (Dodd-Frank Act), which directed
the Board to establish enhanced
prudential standards for bank holding
companies and foreign banking
organizations with total consolidated
assets of $50 billion or more.6
The Board has calibrated the
stringency of requirements based on the
size and complexity of a banking
organization. Regulatory capital
requirements, such as the GSIB capital
surcharge, advanced approaches capital
requirements, enhanced supplementary
companies and U.S. intermediate holding
companies with $100 billion or more in assets. In
addition, the proposals would have revised the
definition of large and noncomplex bank holding
company to mean banking organizations subject to
Category IV standards. The Board received a
number of comments about its capital requirements.
While the Board intends separately to propose
modifications at a future date to capital planning
requirements to incorporate the proposed risk-based
categories, the final rule revises the scope of
applicability of the Board’s capital plan rule to
apply to U.S. bank holding companies and U.S.
intermediate holding companies with $100 billion
or more in total assets. This final rule does not
revise the definition of large and noncomplex bank
holding company.
6 12 U.S.C. 5365.
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leverage ratio standards for U.S. GSIBs,7
as well as the requirements under the
capital plan rule,8 are examples of this
tailoring.9 For foreign banking
organizations, the Board tailored
enhanced 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 generally apply to its
combined U.S. operations.10
The Board regularly reviews its
regulatory framework to update and
streamline regulatory requirements
based on its experience implementing
the rules and consistent with the
statutory provisions that motivated the
rules. These efforts include assessing
the impact of regulations as well as
considering alternatives that achieve
regulatory objectives while improving
the simplicity, transparency, and
efficiency of the regulatory regime. The
final rule is the result of this practice
and reflects amendments to section 165
of the Dodd-Frank Act made by the
Economic Growth, Regulatory Relief,
and Consumer Protection Act
(EGRRCPA).11
Specifically, EGRRCPA amended
section 165 of the Dodd-Frank Act by
raising the threshold for general
application of enhanced prudential
standards. By taking into consideration
a broader range of risk-based indicators
and establishing four categories of
standards, the final rule enhances the
risk sensitivity and efficiency of the
Board’s regulatory framework. This
approach better aligns the prudential
standards applicable to large banking
organizations with their risk profiles,
taking into account the size and
complexity of these banking
organizations as well as their potential
7 12
CFR 217.11.
CFR 225.8.
9 For example, prior to the adoption of this final
rule, heightened capital requirements and full LCR
requirements applied to firms with $250 billion or
more in total consolidated assets or $10 billion or
more in on-balance sheet foreign exposure,
including the requirement to calculate regulatory
capital requirements using internal models and
meeting a minimum supplementary leverage ratio
requirement.
10 The combined U.S. operations of a foreign
banking organization include any U.S. subsidiaries
(including any U.S. intermediate holding company),
U.S. branches, and U.S. agencies.
11 Public Law 115–174, 132 Stat. 1296 (2018).
8 12
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to pose systemic risk. The final rule also
maintains the fundamental reforms of
the post-crisis framework and supports
large banking organizations’ resilience.
III. Overview of the Notices of Proposed
Rulemaking and General Summary of
Comments
As noted above, the Board sought
comment on two separate proposals to
establish a framework for determining
the prudential standards that would
apply to large banking organizations.
Specifically, the proposals would have
calibrated requirements for large
banking organizations using four riskbased categories. Category I would have
been based on the methodology in the
Board’s GSIB surcharge rule for
identification of U.S. GSIBs, while
Categories II through IV would have
been based on measures of size and the
levels of the following indicators: Crossjurisdictional activity, weighted shortterm wholesale funding, nonbank assets,
and off-balance sheet exposure (together
with size, the risk-based indicators). The
applicable standards would have
included supervisory and company-run
stress testing; risk committee and risk
management requirements; liquidity
risk management, stress testing, and
buffer requirements; and singlecounterparty credit limits. 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 have been
subject to requirements that largely
defer to compliance with similar homecountry standards at the consolidated
level, with the exception of certain riskmanagement standards.
The proposals would have applied to
U.S. banking organizations, foreign
banking organizations, and certain large
savings and loan holding companies
using the same categories, with some
differences particular to foreign banking
organizations. Specifically, while the
foreign bank proposal was largely
consistent with the domestic proposal,
it would have included certain
adjustments to reflect the unique
structures through which foreign
banking organizations operate in the
United States. As Category I standards
under the domestic proposal would
have applied only to U.S. GSIBs, foreign
banking organizations would have been
subject to standards in Categories II, III,
or IV. The foreign bank proposal based
the requirements of Categories II, III,
and IV on the risk profile of a foreign
banking organization’s combined U.S.
operations or U.S. intermediate holding
company, as measured by the level of
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the same risk-based indicators as under
the domestic proposal. However, in
order to reflect the structural differences
between foreign banking organizations’
operations in the United States and
domestic holding companies, the
foreign bank proposal would have
adjusted the measurement of crossjurisdictional activity to exclude interaffiliate liabilities and to recognize
collateral in calculating inter-affiliate
claims.
A. General Summary of Comments
The Board received approximately 50
comments on the proposals from U.S.
and foreign banking organizations,
public entities, public interest groups,
private individuals, and other interested
parties.12 Many commenters supported
the proposals as meaningfully tailoring
prudential standards. A number of
commenters, however, expressed the
view that the proposed framework
would not have sufficiently aligned the
Board’s prudential standards with the
risk profile of a firm. For example, some
commenters on the domestic proposal
argued that banking organizations with
total consolidated assets of less than
$250 billion that do not meet a separate
indicator of risk should not be subject
to any enhanced standards. Some
commenters on both proposals argued
that proposed Category II standards
were too stringent given the risks
indicated by a high level of crossjurisdictional activity. By contrast, other
commenters argued that the proposals
would weaken the safety and soundness
of large banking organizations and
increase risks to U.S. financial stability.
In response to the foreign bank
proposal, commenters generally argued
that the framework remained too
stringent for the risks posed by foreign
banking organizations. These
commenters also argued that the riskbased indicators would
disproportionately and unfairly result in
the application of more stringent
requirements to foreign banking
organizations and, as a result, could
disrupt the efficient functioning of
financial markets and have negative
effects on the U.S. economy. A number
of these commenters argued that all riskbased indicators should exclude
transactions with affiliates. By contrast,
other commenters criticized the foreign
bank proposal for reducing the
12 The Board received a number of comments that
were not specifically responsive to the proposals. In
particular, commenters recommended specific
changes related to the Board’s supervisory stress
test scenarios and stress capital buffer proposal.
These comments are not within the scope of this
rulemaking, and therefore are not discussed
separately in this SUPPLEMENTARY INFORMATION.
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stringency of standards and argued that
the proposal understated the financial
stability risks posed by foreign banking
organizations.
While some commenters argued that
the proposed changes went beyond the
changes mandated by EGRRCPA, other
commenters argued that the proposals
did not fully implement EGRRCPA. In
addition, several commenters argued
that the proposal exceeded the Board’s
authority under section 165 of the
Dodd-Frank Act, as amended by
EGRRCPA, and that enhanced standards
should not be included in Category IV
standards or applied to savings and loan
holding companies. Foreign banking
organization commenters also argued
that the proposals did not adequately
take into consideration the principle of
national treatment and equality of
competitive opportunity, or the extent
to which a foreign banking organization
is subject on a consolidated basis to
home country standards that are
comparable to those that are applied to
the firm in the United States. As
discussed in this SUPPLEMENTARY
INFORMATION, the final rule largely
adopts the proposals, with certain
adjustments in response to comments.
IV. Overview of Final Rule
The final rule establishes four
categories to apply enhanced standards
based on indicators designed to measure
the risk profile of a banking
organization.13 The prudential
standards are applicable to U.S. bank
holding companies, certain savings and
loan holding companies, and foreign
banking organizations. For U.S. banking
organizations and savings and loan
holding companies that are not
substantially engaged in insurance
underwriting or commercial activities
(covered savings and loan holding
companies), these risk-based indicators
are measured at the level of the top-tier
holding company. For foreign banking
organizations, these risk-based
indicators are generally measured at the
level of such firms’ combined U.S.
operations, except for supervisory and
company-run stress testing requirements
and certain single-counterparty credit
limits, which are based on the risk
profile of such firms’ U.S. intermediate
holding companies. In addition, as
discussed in the interagency capital and
liquidity final rule, regulatory capital
and LCR requirements also are based on
the risk profile of such firms’ U.S.
intermediate holding company.
13 The final rule also increases the threshold for
general application of enhanced prudential
standards from $50 billion to $100 billion in total
consolidated assets.
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Under the final rule, and unchanged
from the domestic proposal, the most
stringent prudential standards apply to
U.S. GSIBs under Category I, as these
banking organizations have the potential
to pose the greatest risks to U.S.
financial stability. Category I includes
standards that reflect agreements
reached by the Basel Committee on
Banking Supervision (BCBS).14 The
existing post-financial crisis framework
for U.S. GSIBs has resulted in
significant gains in resiliency and risk
management. The final rule accordingly
maintains the most stringent standards
for these firms. For example, U.S. GSIBs
are subject to the GSIB capital surcharge
and enhanced supplementary leverage
ratio standards under the agencies’
regulatory capital rule. U.S. GSIBs are
also subject to the most stringent stress
testing requirements, including annual
company-run and supervisory stress
testing requirements, as well as the most
stringent liquidity standards, including
liquidity risk management, stress testing
and buffer requirements, as well as
single-counterparty credit limits. U.S.
GSIBs also will remain subject to the
most comprehensive reporting
requirements, including the FR Y–14
(capital assessments and stress testing)
and daily FR 2052a (complex institution
liquidity monitoring report) reporting
requirements.
The second set of standards, Category
II standards, apply to U.S. banking
organizations and foreign banking
organizations that have $700 billion or
more in total assets,15 or $75 billion or
more in cross-jurisdictional activity, and
that do not meet the criteria for Category
I. As a result, these standards apply to
banking organizations that are very large
or have significant international
activity. In addition to being subject to
current enhanced risk-management
requirements, banking organizations
subject to Category II standards are
subject to annual supervisory stress
testing and annual company-run stress
testing requirements. These banking
organizations also are subject to the FR
Y–14 and daily FR 2052a reporting
requirements and the most stringent
liquidity risk management, stress
testing, and buffer requirements.
Category II standards also include
single-counterparty credit limits.
The third set of standards, Category III
standards, apply to U.S. banking
organizations and foreign banking
organizations that have $250 billion or
more in total assets, or $75 billion or
more in weighted short-term wholesale
funding, nonbank assets, or off-balance
sheet exposure, and that do not meet the
criteria for Category I or II. In addition
to being subject to current enhanced risk
management requirements, a banking
organization subject to Category III
standards is subject to annual
supervisory stress testing. However,
under Category III, a banking
organization is required to publicly
disclose company-run test results every
other year, rather than on an annual
basis. These banking organizations are
subject to the existing FR Y–14
reporting requirements and the most
stringent liquidity risk management,
stress testing, and buffer requirements.
59035
Under Category III standards, banking
organizations are subject to daily or
monthly FR 2052a reporting
requirements, depending on their levels
of weighted short-term wholesale
funding. Category III standards also
include single-counterparty credit
limits.
The fourth category, Category IV
standards, apply to U.S. banking
organizations and foreign banking
organizations that have at least $100
billion in total assets and that do not
meet the criteria for Category I, II, or III,
as applicable. Category IV standards
align with the scale and complexity of
these banking organizations but are less
stringent than Category I, II, or III
standards, which reflects the lower risk
profile of these banking organizations
relative to other banking organizations
with $100 billion or more in total assets.
For example, a banking organization
subject to Category IV standards is
subject to supervisory stress testing
every other year, and is not required to
conduct and publicly report the results
of a company-run stress test. In
addition, Category IV standards under
the final rule continue to include
enhanced liquidity standards, including
liquidity risk management, stress testing
and buffer requirements, but the final
rule reduces the required minimum
frequency of liquidity stress tests and
granularity of certain liquidity riskmanagement requirements,
commensurate with these firms’ size
and risk profile.
TABLE I—SCOPING CRITERIA FOR CATEGORIES OF PRUDENTIAL STANDARDS
Category
U.S. banking organizations †
Foreign banking organizations ‡
I .....................
U.S. GSIBs ..................................................................................
N/A.
II ....................
$700 billion or more in total assets; or $75 billion or more in cross-jurisdictional activity; do not meet the criteria for Category I.
III ...................
$250 billion or more in total assets; or $75 billion or more in weighted short-term wholesale funding, nonbank assets, or off-balance sheet exposure; do not meet the criteria for Category I or II.
IV ..................
$100 billion or more in total assets; do not meet the criteria for Category I, II, or III.
† For a U.S. banking organization, the applicable category of prudential requirements is measured at the level of the top-tier holding company.
‡ For a foreign banking organization, the applicable category of prudential requirements is measured at the level of the combined U.S. operations or U.S. intermediate holding company of the foreign banking organization, depending on the particular standard.
V. Tailoring Framework
This section describes the framework
for determining the application of
14 International standards reflect agreements
reached by the BCBS as implemented in the United
States through notice and comment rulemaking.
15 Category I–IV standards apply to U.S. banking
organizations with $100 billion or more in total
consolidated assets and foreign banking
organizations with $100 billion or more in
combined U.S assets. As discussed above, the risk-
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prudential standards under this final
rule, including a discussion of
comments received on the proposed
framework. The final rule largely
establishes the framework set forth in
the proposals and introduces four
based indicators are measured at the level of the
top-tier holding company for U.S. banking
organizations and at the level of combined U.S.
operations or U.S. intermediate holding company
for foreign banking organizations. Accordingly, for
U.S. banking organizations, total assets means total
consolidated assets. For foreign banking
organizations, total assets means combined U.S.
assets or total consolidated assets of the U.S.
intermediate holding company, as applicable.
Foreign banking organizations with $100 billion or
more in total consolidated assets but with combined
U.S. assets of less than $100 billion are subject to
less stringent standards than required under
Category I–IV. See section X of this SUPPLEMENTARY
INFORMATION.
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categories of prudential standards based
on certain indicators of risk.
A. Indicators-Based Approach and the
Alternative Scoring Methodology
The proposals would have established
four categories of prudential standards
that would have applied to U.S banking
organizations with $100 billion or more
in total consolidated assets and three
categories of prudential standards that
would have applied to foreign banking
organizations with $100 billion or more
in combined U.S. assets, based on the
risk profile of their U.S. operations. The
proposals generally would have relied
on five risk-based indicators to
determine a banking organization’s
applicable category of standards: Size,
cross-jurisdictional activity, nonbank
assets, off-balance sheet exposure, and
weighted short-term wholesale funding.
The proposals also sought comment on
an alternative approach that would have
used a single, comprehensive score
based on the GSIB identification
methodology, which is currently used to
identify U.S. GSIBs and apply riskbased capital surcharges to these
banking organizations (scoring
methodology).16 Under the alternative
approach, a banking organization’s size
and score from the scoring methodology
would have been used to determine
which category of standards would
apply to the banking organization.
Most commenters preferred the
proposed indicators-based approach to
the scoring methodology for
determining the category of standards
that would apply to large banking
organizations. These commenters stated
that the indicators-based approach
would be more transparent, less
complex, and more appropriate for
applying categories of standards to
banking organizations that are not U.S.
GSIBs. Some commenters also asserted
that if the Board used the scoring
methodology, the Board should use only
method 1. These commenters argued
that method 2 would be inappropriate
for determining applicable prudential
standards on the basis that the
denominators to method 2 are fixed,
rather than being updated annually.
Commenters also asserted that method 2
was calibrated specifically for U.S.
GSIBs and, as a result, should not be
used to determine prudential standards
for other banking organizations.
16 For more discussion relating to the scoring
methodology, see the Board’s final rule establishing
the GSIB identification methodology. See
Regulatory Capital Rules: Implementation of RiskBased Capital Surcharges for Global Systemically
Important Bank Holding Companies, 80 FR 49082
(Aug. 14, 2015).
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The final rule adopts the indicatorsbased approach for applying Category II,
III, or IV standards to a banking
organization, as this approach provides
a simple framework that supports the
objectives of risk sensitivity and
transparency. Many of the risk-based
indicators are used in the agencies’
existing regulatory frameworks or are
reported by banking organizations. By
using indicators that exist or are
reported by most banking organizations
subject to the final rule, the indicatorsbased approach limits additional
reporting requirements. The Board will
continue to use the scoring methodology
to apply Category I standards to a U.S.
GSIB and its depository institution
subsidiaries.17
B. Dodd-Frank Act Statutory Framework
The Board received a number of
comments discussing the scope of the
changes required by EGRRCPA and the
Board’s authority for implementing
certain parts of the proposal. Some
commenters argued that EGRRCPA did
not require the Board to make any
changes to prudential standards applied
to bank holding companies and foreign
banking organizations with $100 billion
or more in total consolidated assets.
Conversely, other commenters argued
that, in passing EGRRCPA, Congress
intended for banking organizations with
less than $250 billion in total
consolidated assets to be exempt from
most enhanced prudential standards
under section 165 of the Dodd-Frank
Act. These commenters argued that the
proposal was not consistent with the
revised criteria for applying enhanced
prudential standards to bank holding
companies with between $100 billion
and $250 billion in total consolidated
assets provided under section
165(a)(2)(C) of the Dodd-Frank Act.
Specifically, commenters argued that
EGRRCPA does not permit the Board to
apply enhanced prudential standards to
a bank holding company with $100
billion or more in total consolidated
assets if the bank holding company does
not meet a risk-based indicator other
than size. Some commenters urged the
Board to apply enhanced prudential
standards on a case-by-case basis.
Foreign banking organization
commenters argued that the proposals
did not give adequate regard to the
principle of national treatment and
equality of competitive opportunity.
These commenters also argued that the
proposals did not appropriately account
17 See the interagency capital and liquidity final
rule for application of Category I liquidity and
capital standards to depository institution
subsidiaries of U.S. GSIBs.
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for home country standards applied to
the foreign parent or the capacity of the
foreign parent to serve as a source of
strength during times of stress. To
provide greater recognition of home
country standards and parental support,
foreign banking organization
commenters asserted that standards
applied to their U.S. operations should
be discounted relative to the standards
applied to U.S. banking organizations.
Section 401 of EGRRCPA amended
section 165 of the Dodd-Frank Act by
generally raising the minimum asset
threshold for application of prudential
standards under section 165 from $50
billion in total consolidated assets to
$250 billion in total consolidated
assets.18 However, the Board is required
to apply certain enhanced prudential
standards to bank holding companies
with less than $250 billion in total
consolidated assets. Specifically, the
Board must conduct periodic
supervisory stress tests of bank holding
companies with total consolidated
assets equal to or greater than $100
billion and less than $250 billion,19 and
must require publicly traded bank
holding companies with $50 billion or
more in total consolidated assets to
establish a risk committee.20 In
addition, section 165(a)(2)(C) of the
Dodd-Frank Act authorizes the Board to
apply enhanced prudential standards to
bank holding companies with $100
billion or more, but less than $250
billion, in total consolidated assets,
provided that the Board (1) determines
that application of the prudential
standard is appropriate to prevent or
mitigate risks to the financial stability of
the United States, or to promote the
safety and soundness of a bank holding
company or bank holding companies;
and (2) takes into consideration a bank
holding company’s or bank holding
companies’ capital structure, riskiness,
complexity, financial activities
(including financial activities of
subsidiaries), size, and any other risk18 A bank holding company designated as a GSIB
under the Board’s GSIB surcharge rule is subject to
section 165, regardless of its size. See EGRRCPA
401(f). The term bank holding company as used in
section 165 of the Dodd-Frank Act includes a
foreign bank or company treated as a bank holding
company for purposes of the Bank Holding
Company Act, pursuant to section 8(a) of the
International Banking Act of 1978. See 12 U.S.C.
3106(a); 12 U.S.C. 5311(a)(1). See also EGRRCPA
401(g) (regarding the Board’s authority to establish
enhanced prudential standards for foreign banking
organizations with total consolidated assets of $100
billion or more).
19 EGRRCPA 401(e). Pursuant to section 165(i)(1),
the Board must conduct an annual stress test of
bank holding companies described in section
165(a), and nonbank financial companies
designated for supervision by the Board. 12 U.S.C.
5365(i)(1).
20 12 U.S.C. 5365(h)(2)(A).
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related factors that the Board of
Governors deems appropriate.21 Section
165(a)(2)(C) permits the Board to apply
any enhanced prudential standard or
standards to an individual bank holding
company and also permits the Board to
apply enhanced prudential standards to
a class of bank holding companies.
Similarly, in tailoring the application of
enhanced prudential standards, section
165 provides the Board with discretion
in differentiating among companies on
an individual basis or by category.22
Finally, in applying section 165 to
foreign banking organizations, the
Dodd-Frank Act directs the Board to
give due regard to the principle of
national treatment and equality of
competitive opportunity, and to take
into account the extent to which the
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.
The framework for application of
enhanced prudential standards
established in this final rule is
consistent with section 165 of the DoddFrank Act, as amended by EGRRCPA.
The framework takes into consideration
banking organizations’ risk profiles by
applying prudential standards based on
a banking organization’s size, crossjurisdictional activity, nonbank assets,
off-balance sheet exposure, and
weighted short-term wholesale funding.
By evaluating the degree of each riskbased indicator’s presence at various
thresholds, the framework takes into
account concentrations in various types
of risk. As explained below, the riskbased indicators were selected to
measure risks to both financial stability
and safety and soundness, including a
bank holding company or bank holding
companies’ capital structure, riskiness,
complexity, and financial activities.
Size is specifically mentioned in section
165(a)(2)(C)(ii). By establishing
categories of standards that increase in
stringency based on risk, the framework
would ensure that the Board’s
prudential standards align with the risk
profile of large banking organizations,
supporting financial stability and
promoting safety and soundness.
Category IV standards apply if a
banking organization reaches an asset
size threshold ($100 billion or more, as
identified in the statute) but does not
meet the thresholds for the other riskbased indicators. Size, as discussed
below in section V.C.1 of this
21 12 U.S.C. 5365(a)(2)(C). Section 401(a) of
EGRRCPA amended section 165 of the Dodd-Frank
Act to add section 165(a)(2)(C).
22 12 U.S.C. 5365(a)(2)(A).
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Supplementary Information, provides a
measure of the extent to which stress at
a banking organization’s operations
could be disruptive to U.S. markets and
present significant risks to U.S. financial
stability. Size also provides a measure of
other types of risk, including managerial
and operational complexity. The
presence of one factor and absence of
other factors suggests that prudential
standards should apply to this group of
banking organizations, but with reduced
stringency to account for these
organizations’ reduced risk profiles. In
addition, as discussed above, the Board
must apply periodic supervisory stress
testing and risk-committee requirements
to institutions of this size.
Under the final rule, the standards
applied to the U.S. operations of foreign
banking organizations are consistent
with the standards applicable to U.S.
bank holding companies. The standards
also 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.
Specifically, the final rule would
continue the Board’s approach of
tailoring the application of prudential
standards to foreign banking
organizations based on the foreign
banking organization’s U.S. risk profile.
For a foreign banking organization with
a smaller U.S. presence, the final rule
would largely defer to the foreign
banking organization’s compliance with
home-country capital and liquidity
standards at the consolidated level, and
impose certain risk-management
requirements that are specific to the
U.S. operations of a foreign banking
organization. For foreign banking
organizations with significant U.S.
operations, the final rule would apply a
framework that is consistent with the
framework applied to U.S. banking
organizations. By using consistent
indicators of risk, the final rule
facilitates a level playing field between
foreign and U.S. banking organizations
operating in the United States, in
furtherance of the principle of national
treatment and equality of competitive
opportunity. Differences in the
measurement of risk-based indicators
and in the application of standards
between foreign banking organizations
and U.S. banking organizations takes
into account structural differences in
operation and organization of foreign
banking organizations, as well as the
standards to which the foreign banking
organization on a consolidated basis
may be subject. For example, the crossjurisdictional activity indicator excludes
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59037
liabilities of the combined U.S.
operations, or U.S. intermediate holding
company, to non-U.S. affiliates, which
recognizes the benefit of the foreign
banking organization providing support
to its U.S. operations.
Commenters also raised questions
over the Board’s legal authority to apply
prudential standards to covered savings
and loan holding companies. These
comments are addressed in Section VIII
of this Supplementary Information.
C. Choice of Risk-Based Indicators
To determine the applicability of the
Category II, III, or IV standards, the
proposals considered a banking
organization’s level of five risk-based
indicators: Size, cross-jurisdictional
activity, weighted short-term wholesale
funding, nonbank assets, and offbalance sheet exposure.
The Board received a number of
comments on the choice of risk-based
indicators and suggested modifications
to the calculation of the indicators.
Several commenters expressed the
general view that the proposed riskbased indicators were poor measures of
risk. A number of these commenters
also asserted that the Board did not
provide sufficient justification to
support the proposed risk-based
indicators, and requested that the Board
provide additional explanation
regarding its selection. Commenters also
asserted that the framework should take
into consideration additional riskmitigating characteristics when
measuring the proposed risk-based
indicators. Several other commenters
argued that the proposals are too
complex and at odds with the stated
objective of simplicity and burden
reduction.
By considering the relative presence
or absence of each risk-based indicator,
the proposals would have provided a
basis for assessing a banking
organization’s financial stability and
safety and soundness risks. The riskbased indicators generally track
measures already used in the Board’s
existing regulatory framework and that
are already publicly reported by affected
banking organizations.23 Together with
fixed, uniform thresholds, use of the
23 Bank holding companies, covered savings and
loan holding companies, and U.S. intermediate
holding companies subject to this final rule already
report the information required to determine size,
weighted short-term wholesale funding, and offbalance sheet exposure on the Banking
Organization Systemic Risk Report (FR Y–15). Such
bank holding companies and covered savings and
loan holding companies also currently report the
information needed to calculate cross-jurisdictional
activity on the FR Y–15. Nonbank assets are
reported on the FR Y–9 LP. This information is
publicly available.
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Federal Register / Vol. 84, No. 212 / Friday, November 1, 2019 / Rules and Regulations
indicators supports the Board’s
objectives of transparency and
efficiency, while providing for a
framework that enhances the risksensitivity of the Board’s enhanced
prudential standards in a manner that
continues to allow for comparability
across banking organizations. Riskmitigating factors, such as a banking
organization’s high-quality liquid assets
and the presence of collateral to secure
an exposure, are incorporated into the
enhanced standards to which the
banking organization is subject.
One commenter asserted that an
analysis of the proposed risk-based
indicators based on a measure of the
expected capital shortfall of a banking
organization in the event of a steep
equity market decline (SRISK) 24
demonstrated that only the crossjurisdictional activity and weighted
short-term wholesale funding indicators
were positively correlated with SRISK
while the other indicators were not
important drivers of a banking
organization’s SRISK measures. Because
SRISK is conditioned on a steep decline
in equity markets, it does not capture
the probability of a financial crisis or an
idiosyncratic failure of a large banking
organization. In addition, SRISK does
not directly capture other important
aspects of systemic risk, such as a
banking organization’s
interconnectedness with other financial
market participants. For these reasons,
SRISK alone is not a sufficient means of
determining the risk-based indicators
used in the tailoring framework.
Accordingly and as discussed below,
the Board is adopting the risk-based
indicators as proposed.
1. Size
The proposals would have considered
size in tailoring the application of
enhanced standards to a domestic
banking organization or the U.S.
operations of a foreign banking
organization.
Some commenters argued that the
proposals placed too much reliance on
size for determining the prudential
standards applicable to large banking
organizations. These commenters
generally criticized the size indicator as
not sufficiently risk sensitive and a poor
measure of systemic and safety and
soundness risk, and suggested using
24 For the definition and measurement of SRISK,
see Acharya, V., Engle, R. and Richardson, M.,
2012. Capital shortfall: A new approach to ranking
and regulating systemic risks. American Economic
Review, 102(3), pp.59–64, and see Brownlees,
Christian, and Robert F. Engle (2017). ‘‘SRISK: A
conditional capital shortfall measure of systemic
risk.’’ The Review of Financial Studies 30.1 (2016):
48–79.
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risk-weighted assets, as determined
under the regulatory capital rule, rather
than total consolidated assets or
combined U.S. assets, as applicable.
Several commenters argued that the
proposals did not adequately explain
the relationship between size and safety
and soundness risk, particularly risks
associated with operational or control
gaps.
Other commenters, however,
supported the use of size as a measure
of financial stability and safety and
soundness risk. These commenters
asserted that size serves as an indicator
of credit provision that could be
disrupted in times of stress, as well as
the difficulties associated with the
resolution of a large banking
organization. These commenters also
recommended placing additional
emphasis on size for purposes of
tailoring prudential standards, and
expressed the view that the size
indicator is less susceptible to
manipulation through temporary
adjustments at the end of a reporting
period as compared to the other riskbased indicators.
Section 165 of the Dodd-Frank Act, as
amended by EGRRCPA, establishes
thresholds based on total consolidated
assets.25 Size is also among the factors
that the Board must take into
consideration in differentiating among
banking organizations under section
165.26 A banking organization’s size
provides a measure of the extent to
which stress at its operations could be
disruptive to U.S. markets and present
significant risks to U.S. financial
stability. A larger banking organization
has a greater number of customers and
counterparties that may be exposed to a
risk of loss or suffer a disruption in the
provision of services if the banking
organization were to experience
distress. In addition, size is an indicator
of the extent to which asset fire sales by
a banking organization could transmit
distress to other market participants,
given that a larger banking organization
has more counterparties and more assets
to sell. The failure of a large banking
organization in the United States also
25 See generally 12 U.S.C. 5635 and EGRRCPA
section 401.
26 EGRRCPA § 401(a)(1)(B)(i) (codified at 12
U.S.C. 5365(a)(2)(A)). The Board has also previously
used size as a simple measure of a banking
organization’s potential systemic impact and risk,
and have differentiated the stringency of capital and
liquidity requirements based on total consolidated
asset size. For example, prior to the adoption of this
final rule, advanced approaches capital
requirements, the supplementary leverage ratio, and
the LCR requirement generally applied to banking
organizations with total consolidated assets of $250
billion or more or total consolidated on-balance
sheet foreign exposure of $10 billion or more.
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may give rise to challenges that
complicate the resolution process due to
the size and diversity of its customer
base and the number of counterparties
that have exposure to the banking
organization.
The complexities associated with size
also can give rise to operational and
control gaps that are a source of safety
and soundness risk and could result in
financial losses to a banking
organization and adversely affect its
customers. A larger banking
organization operates on a larger scale,
has a broader geographic scope, and
generally will have more complex
internal operations and business lines
relative to a smaller banking
organization. Growth of a banking
organization, whether organic or
through an acquisition, can require
more robust risk management and
development of enhanced systems or
controls; for example, when managing
the integration and maintenance of
information technology platforms.
Size also can be a proxy for other
measures of complexity, such as the
amount of trading and available-for-sale
securities, over-the-counter derivatives,
and Level 3 assets.27 Using Call Report
data from the first quarter of 2005 to the
first quarter of 2018, the correlation
between a bank’s total trading assets (a
proxy of complexity) and its total assets
(a proxy of size) is over 90 percent.28 As
was seen in the financial crisis, a more
complex institution can be more opaque
to the markets and may have difficulty
managing its own risks, warranting
stricter standards for both capital and
liquidity.
Further, notwithstanding
commenters’ assertions that riskweighted assets more appropriately
capture risk, an approach that relies on
risk-weighted assets as an indication of
size would not align with the full scope
of risks intended to be measured by the
size indicator. Risk-weighted assets
27 The FR Y–15 and the GSIB surcharge
methodology include three indicators of complexity
that are used to determine a banking organization’s
systemic importance for purposes of the GSIB
surcharge rule: Notional amount of OTC
derivatives, Level 3 assets, and trading and AFS
securities. In the second quarter of 2019, the
average complexity score of a U.S. GSIB was 104.7,
the average complexity score of a banking
organization with assets of greater than $250 billion
that is not a U.S. GSIB was 12.0, the average
complexity score of a banking organization with
assets of more than $100 billion but less than $250
billion was 3.5, and the average complexity score
of a banking organization with assets of $50 billion
but less than $100 billion was 0.4.
28 See Amy G. Lorenc, and Jeffery Y. Zhang (2018)
‘‘The Differential Impact of Bank Size on Systemic
Risk,’’ Finance and Economics Discussion Series
2018–066. Washington: Board of Governors of the
Federal Reserve System, available at: https://
doi.org/10.17016/FEDS.2018.066.
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serve as an indication of credit risk and
are not designed to capture the risks
associated with managerial and
operational complexity or the potential
for distress at a large banking
organization to cause widespread
market disruptions.
Some commenters argued that the
Board staff analysis cited in the
proposals does not demonstrate that size
is a useful indicator for determining the
systemic importance of a banking
organization.29 Specifically, one
commenter asserted that the Board staff
analysis (1) uses a flawed measure of
bank stress and (2) does not use robust
standard errors or sufficiently control
for additional macroeconomic factors
that may contribute to a decline in
economic activity. The Board staff paper
employs the natural logarithm of
deposits at failed banks as a proxy of
bank stress. This choice was informed
by Bernanke’s 1983 article, which uses
the level (namely, thousands of dollars)
of deposits at failed banks to proxy bank
stress.30 The staff paper makes
modifications to this stress proxy in
order to account for the evolution of the
banking sector over time. In contrast to
Bernanke’s study of a three-year period
during the Great Depression, Board
staff’s analysis spans almost six
decades. Expressing bank stress in
levels (namely, trillions of dollars)
would not account for the structural
changes that have occurred in the
banking sector and therefore would
place a disproportionately greater
weight on the bank failures that
occurred during the 2008–2009
financial crisis. In addition to the
analysis conducted by Board staff, other
research has found evidence of a link
between size and systemic risk.31
29 As described in the proposals, relative to a
smaller banking organization, the failure of a large
banking organization is more likely to have a
destabilizing effect on the economy, even if the two
banking organizations are engaged in similar
business lines. Board staff estimated that stress at
a single large banking organization with an assumed
$100 billion in deposits would result in
approximately a 107 percent decline in quarterly
real U.S. GDP growth, whereas stress among five
smaller banking organizations—each with an
assumed $20 billion in deposits—would
collectively result in roughly a 22 percent decline
in quarterly real U.S. GDP growth. Both scenarios
assume $100 billion in total deposits, but the
negative impact is significantly greater when the
larger banking organization fails. Id.
30 Bernanke, Ben S. 1983. ‘‘Nonmonetary Effects
of the Financial Crisis in the Propagation of the
Great Depression.’’ The American Economic Review
Vol. 73, No. 3, pp. 257–276.
31 See Bremus, Buck, Russ and Schnitzer, Big
Banks and Macroeconomic Outcomes: Theory and
Cross-Country Evidence of Granularity, Journal of
Money, Credit and Banking (July 2018). Allen, Bali,
and Tang construct a measure of systemic risk
(CATFIN) and demonstrate that the CATFIN of both
large and small banking organizations can forecast
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For the reasons discussed above, the
Board is adopting the proposed measure
of size for foreign and domestic banking
organizations without change. Size is a
simple and transparent measure of
systemic importance and safety and
soundness risk that can be readily
understood and measured by banking
organizations and market participants.
2. Cross-Jurisdictional Activity
The proposals would have included a
measure of cross-jurisdictional activity
as a risk-based indicator to determine
the application of Category II standards.
For U.S. banking organizations, the
domestic proposal defined crossjurisdictional activity as the sum of
cross-jurisdictional claims and
liabilities. In recognition of the
structural differences between foreign
and domestic banking organizations, the
foreign bank proposal would have
adjusted the measurement of crossjurisdictional activity for foreign
banking organizations to exclude interaffiliate liabilities and certain
collateralized inter-affiliate claims.32
macroeconomic declines, and found that the
CATFIN of large banks can successfully forecast
lower economic activity sooner than that of small
banks. See, Allen, Bali, and Tang, Does Systemic
Risk in the Financial Sector Predict Future
Economic Downturns?, Review of Financial Studies,
Vol. 25, Issue 10 (2012). Adrian and Brunnermeier
constructed a measurement of systemic risk,
designated CoVar, and show that firms with higher
leverage, more maturity mismatch, and larger size
are associated with larger systemic risk
contributions. Specifically, the authors find that if
a bank is 10 percent larger than another bank, then
the size coefficient predicts that the larger bank’s
CoVaR per unit of capital is 27 basis points higher
than the smaller bank’s CoVaR. See, Adrian &
Brunnermeir, CoVar, American Economic Review
Journal, Vol. 106 No. 7 (July 2016)
In the same vein, research conducted by the Bank
for International Settlements suggests that the ratio
of one institution’s systemic importance to a
smaller institution’s systemic importance is larger
than the ratio of the respective sizes. See Tarashev,
Borio and Tsatsaronis, Attributing systemic risk to
individual institutions, BIS Working Paper No. 308
(2010). Relatedly, Da´vila and Walther (2017) show
that large banks take on more leverage relative to
small banks in times of stress and government
bailouts. See Da´vila & Walther, Does Size Matter?
Bailouts with Large and Small Banks, NBER
Working Paper No. 24132 (2017).
32 Specifically, the proposal would have excluded
from the cross-jurisdictional activity indicator all
inter-affiliate claims of a foreign banking
organization secured by financial collateral, in
accordance with the capital rule. Financial
collateral is defined under the capital rule to mean
collateral, (1) in the form of (i) cash on deposit with
the banking organization (including cash held for
the banking organization by a third-party custodian
or trustee), (ii) gold bullion, (iii) long-term debt
securities that are not resecuritization exposures
and that are investment grade, (v) short-term debt
instruments that are not resecuritization exposures
and that are investment grade, (v) equity securities
that are publicly traded; (vi) convertible bonds that
are publicly traded, or (vii) money market fund
shares and other mutual fund shares if a price for
the shares is publicly quoted daily; and (2) in which
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59039
Specifically, claims on affiliates 33
would be reduced by the value of any
financial collateral in a manner
consistent with the Board’s capital
rule,34 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).35 The
foreign bank proposal sought comment
on alternative adjustments to the crossjurisdictional activity indicator for
foreign banking organizations, and on
other modifications to the components
of the indicator.
Some commenters urged the Board to
adopt the cross-jurisdictional activity
indicator as proposed. By contrast, a
number of commenters expressed
concern regarding this aspect of the
proposals. Several commenters opposed
the inclusion of cross-jurisdictional
liabilities in the cross-jurisdictional
activity indicator. Some commenters
argued that cross-jurisdictional
liabilities are not a meaningful indicator
of systemic risk as measured by
SRISK.36 Other commenters asserted
that cross-jurisdictional liabilities can
reflect sound risk management practices
on the basis that cross-jurisdictional
liabilities can indicate a diversity of
funding sources and may be used to
fund assets in the same foreign
jurisdiction as the liabilities. These
commenters suggested modifying the
indicator to exclude the amount of any
central bank deposits, other high-quality
liquid assets (HQLA), or assets that
receive a zero percent risk weight under
the capital rule if those assets are held
in the same jurisdiction as a crossjurisdictional liability.
A number of commenters suggested
revisions to the cross-jurisdictional
activity indicator that would exclude
specific types of claims or liabilities. For
example, some commenters asserted
that the measure of cross-jurisdictional
the banking organization has a perfected, firstpriority security interest or, outside of the United
States, the legal equivalent thereof (with the
exception of cash on deposit and notwithstanding
the prior security interest of any custodial agent).
See 12 CFR 217.2.
33 For the combined U.S. operations, the measure
of cross-jurisdictional activity would exclude all
claims between the foreign banking organization’s
U.S. domiciled affiliates, branches, and agencies to
the extent such items are not already eliminated in
consolidation. For the U.S. intermediate holding
company, the measure of cross-jurisdictional
activity would eliminate through consolidation all
intercompany claims within the U.S. intermediate
holding company.
34 See 12 CFR 217.37.
35 See the definition of repo-style transaction at
12 CFR 217.2.
36 See, supra note 25.
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activity should exclude any claim
secured by HQLA or highly liquid
assets 37 based on the nature of the
collateral. Another commenter
suggested excluding operating payables
arising in the normal course of business,
such as merchant payables. Other
commenters suggested that the indicator
exclude exposures to U.S. entities or
projects that have a foreign guarantee or
foreign insurer, unless the U.S. direct
counterparty does not meet an
appropriate measure of
creditworthiness. Some commenters
stated that investments in co-issued
collateralized loan obligations should be
excluded from the measure of crossjurisdictional activity.
Commenters also suggested specific
modifications to exclude exposures to
certain types of counterparties. For
example, several commenters suggested
excluding exposures to sovereign,
supranational, international, or regional
organizations. Commenters asserted that
these exposures do not present the same
interconnectivity concerns as exposures
with other types of counterparties and
that claims on these types of entities
present little or no credit risk. Another
commenter suggested excluding
transactions between a U.S.
intermediate holding company and any
affiliated U.S. branches of its parent
foreign banking organization on the
basis that the foreign bank proposal
could disadvantage foreign banking
organizations relative to U.S. banking
organizations that eliminate such interaffiliate transactions in consolidation.
Similarly, one commenter suggested
excluding transactions between a U.S.
intermediate holding company and any
U.S. branch of a foreign banking
organization, whether affiliated or not,
on the basis that such exposures are
geographically domestic. Another
commenter argued that exposures
denominated in a foreign banking
organization’s home currency should be
excluded. By contrast, one commenter
argued that cross-jurisdictional activity
should be revised to include derivatives,
arguing that derivatives can be used as
a substitute for other cross-jurisdictional
transactions and, as a result, could be
used to avoid the cross-jurisdictional
activity threshold.
A number of commenters provided
other suggestions for modifying the
cross-jurisdictional activity indicator. In
particular, some commenters
recommended that the crossjurisdictional activity indicator permit
netting of claims and liabilities with a
counterparty, with only the net claim or
37 See 12 CFR part 252.35(b)(3)(i) and
252.157(c)(7)(i).
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liability counting towards crossjurisdictional activity. Several
commenters suggested that the Board
should consider excluding assets or
transactions that satisfy another
regulatory requirement. For example,
these commenters argued that the Board
should consider excluding transactions
resulting in the purchase of or receipt of
HQLA.
Other commenters suggested
modifications to the criteria for
determining when an exposure is
considered cross-border. Specifically,
commenters requested modifications to
the calculation of cross-jurisdictional
activity for claims supported by
multiple guarantors or a combination of
guarantors and collateral, for example,
by not attributing the claim to the
jurisdiction of the entity holding the
claim, or collateral that bears the highest
rating for reporting on an ultimate-risk
basis. Commenters also requested that
the Board presume that an exposure
created through negotiations with agents
or asset managers would generally
create an exposure based in the
jurisdiction of the location of the agent
or manager for their undisclosed
principal.
Foreign banking organization
commenters generally supported the
approach taken in the foreign bank
proposal with respect to the treatment of
inter-affiliate cross-jurisdictional
liabilities, but stated that such an
approach would not adequately address
the differences between domestic and
foreign banking organizations. These
commenters urged the Board to
eliminate the cross-jurisdictional
activity indicator for foreign banking
organizations or, alternatively, to
eliminate all inter-affiliate transactions
from measurement of the indicator.
Significant cross-border activity can
indicate heightened interconnectivity
and operational complexity. Crossjurisdictional activity can add
operational complexity in normal times
and complicate the ability of a banking
organization to undergo an orderly
resolution in times of stress, generating
both safety and soundness and financial
stability risks. In addition, crossjurisdictional 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.
Banking organizations with significant
cross-jurisdictional activity may require
more sophisticated risk management to
appropriately address the complexity of
those operations and the diversity of
risks across all of the jurisdictions in
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which the banking organization
provides financial services. For
example, banking organizations with
significant cross-border activities may
require more sophisticated risk
management related to raising funds in
foreign financial markets, accessing
international payment and settlement
systems, and obtaining contingent
sources of liquidity. In addition, the
application of consistent prudential
standards to banking organizations with
significant size or cross-jurisdictional
activity helps to promote competitive
equity in the United States as well as
abroad.
Measuring cross-jurisdictional activity
taking into account both assets and
liabilities—instead of just assets—
provides 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.38 While both borrowing and
lending outside the United States may
reflect prudent risk management, crossjurisdictional activity of $75 billion or
more indicates a level of organizational
complexity that warrants more stringent
prudential standards. With respect to
commenters’ suggestion to exclude
central bank deposits, HQLA, or assets
that receive a zero percent risk weight
in the same jurisdiction as a crossjurisdictional liability, such an
exclusion would assume that all local
liabilities are used to fund local claims.
However, because foreign affiliates rely
on local funding to different extents,
such an exclusion could understate
risk.39
The cross-jurisdictional activity
indicator and threshold is intended to
identify banking organizations with
significant cross-border activities.
Significant cross-border activities
indicate a complexity of operations,
even if some of those activities are low
risk. Excluding additional types of
claims or liabilities would reduce the
transparency and simplicity of the
38 The 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.
39 Based on data collected from the Country
Exposure Report (FFIEC 009), some affiliates of U.S.
banking organizations relied extensively (75
percent) on local funding, while others collected
almost no local funding. In particular,
approximately 40 percent of bank-affiliate locations
had no local lending. See Nicola Cetorelli & Linda
Goldberg, ‘‘Liquidity Management of U.S. Global
Banks: Internal Capital Markets In the Great
Recession’’ (Fed. Reserve Bank of N.Y. Staff Report
No. 511, 2012), available at https://
www.newyorkfed.org/research/staff_reports/
sr511.pdf.
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tailoring framework. In addition,
excluding certain types of assets based
on the credit risk presented by the
counterparty would be inconsistent
with the purpose of the indicator as a
measure of operational complexity and
risk. The measure of cross-jurisdictional
activity in the final rule therefore does
not exclude specific types of claims or
liabilities, or claims and liabilities with
specific types of counterparties, other
than the proposed treatment of interaffiliate liabilities and certain interaffiliate claims.
The proposals requested comment on
possible additional changes to the
components of the cross-jurisdictional
activity indicator to potentially provide
more consistent treatment across
repurchase agreements and other
securities financing transactions and
with respect to the recognition of
collateral across types of transactions.
Commenters were generally supportive
of these additional changes. The
proposals also requested comment on
the most appropriate way in which the
proposed cross-jurisdictional activity
indicator could account for the risk of
transactions with a delayed settlement
date. Several commenters argued that
the indicator should exclude trade-date
receivables or permit the use settlementdate accounting in calculating the crossjurisdictional activity indicator.
Commenters also supported measuring
securities lending agreements and
repurchase agreements on an ultimaterisk basis, rather than allocating these
exposures based on the residence of the
counterparty.
The final rule adopts the crossjurisdictional activity indicator as
proposed. Under the final rule, crossjurisdictional activity is measured based
on the instructions to the FR Y–15 and,
by reference, to the FFIEC 009.40 The
Board is considering whether additional
technical modifications and refinements
to the cross-jurisdictional indicator
would be appropriate, including with
respect to the treatment of derivatives,
and would seek comment on any
changes to the indicator through a
separate notice. Specifically, crossjurisdictional claims are measured
according to the instructions to the
FFEIC 009. The instructions to the
40 Specifically, cross-jurisdictional claims are
measured on an ultimate-risk basis according to the
instructions to the FFIEC 009. The instructions to
the FFIEC 009 currently do not permit risk transfer
for repurchase agreements and securities financing
transactions. Foreign banking organizations must
include in cross-jurisdictional claims only the net
exposure (i.e., net of collateral value subject to
haircuts) of all secured transactions with affiliates
to the extent that these claims are collateralized by
financial collateral or excluded in consolidation
(see supra note 35).
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FFIEC 009 currently do not permit risk
transfer for repurchase agreements and
securities financing transactions and the
Board is not altering the measurement of
repurchase agreements and securities
financing transactions under this final
rule. This approach maintains
consistency between the FR Y–15 and
FFIEC 009. In addition, the crossjurisdictional indicator maintains the
use of trade-date accounting for
purposes of the final rule. The
preference for trade-date accounting is
consistent with other reporting forms
(e.g., Consolidated Financial Statements
for Holding Companies (FR Y–9C)) and
with generally accepted accounting
principles. With respect to netting, the
instructions to the FFIEC 009 permit
netting in limited circumstances.
Allowing banking organizations to net
all claims and liabilities with a
counterparty could significantly
understate an organization’s level of
international activity, even if such
netting might be appropriate from the
perspective of managing risk.
As noted above, the risk-based
indicators generally track measures
already used in the Board’s existing
regulatory framework and rely on
information that banking organizations
covered by the final rule already
publicly report.41 The Board believes
that the measure of cross-jurisdictional
activity as proposed (including the
current reported measurements of
repurchase agreements and securities
financing transactions, trade date
accounting items, and netting) along
with the associated $75 billion
threshold, appropriately captures the
risks that warrant the application of
Category II standards. The Board may
consider future changes regarding the
measurement of cross-jurisdictional
activity indicator, and in doing so,
would consider the comments described
above and the impact of any future
changes on the $75 billion threshold,
and would draw from supervisory
experience following the
implementation of the final rule. Any
such changes would be considered in
the context of a separate rulemaking
process.
3. Nonbank Assets
The proposals would have considered
the level of nonbank assets in
determining the applicable category of
standards for foreign and domestic
banking organizations. The amount of a
banking organization’s activities
conducted through nonbank
subsidiaries provides a measure of the
41 See Form FR Y–15. This information is
publicly available.
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59041
organization’s business and operational
complexity. Specifically, banking
organizations with significant activities
in nonbank subsidiaries are more likely
to have complex corporate structures
and funding relationships. In addition,
in certain cases nonbank subsidiaries
are subject to less prudential regulation
than regulated banking entities.
Under the proposals, nonbank assets
would have been measured as the
average amount of assets in
consolidated nonbank subsidiaries and
equity investments in unconsolidated
nonbank subsidiaries.42 The proposals
would have excluded from this measure
assets in a depository institution
subsidiary, including a national bank,
state member bank, state nonmember
bank, federal savings association,
federal savings bank, or state savings
association subsidiary. The proposals
also would have excluded assets of
subsidiaries of these depository
institutions, as well as assets held in
each Edge or Agreement Corporation
that is held through a bank subsidiary.43
A number of commenters argued that
measuring nonbank assets based on the
location of the assets in a nonbank
subsidiary provides a poor measure of
risk. Some commenters requested that
the Board instead consider whether the
assets relate to bank-permissible
activities. Other commenters argued that
activities conducted in nonbank
subsidiaries can present less risk than
banking activities. Specifically, some
commenters argued that the proposed
measure of nonbank assets was overinclusive on the basis that many of the
assets in nonbank subsidiaries would
receive a zero percent risk weight under
the Board’s capital rule. In support of
this position, commenters noted that
retail brokerage firms often hold
significant amounts of U.S. treasury
securities.
42 For a foreign banking organization, nonbank
assets would have been measured as the average
amount of assets in consolidated U.S. nonbank
subsidiaries and equity investments in
unconsolidated U.S. nonbank subsidiaries.
43 As noted above, the Parent Company Only
Financial Statements for Large Holding Companies
(FR Y–9LP), Schedule PC–B, line item 17 is used
to determine nonbank assets. For purposes of this
item, nonbank companies exclude (i) all national
banks, state member banks, state nonmember
insured banks (including insured industrial banks),
federal savings associations, federal savings banks,
and thrift institutions (collectively for purposes of
this item, ‘‘depository institutions’’) and (ii) except
for an Edge or Agreement Corporation designated as
‘‘Nonbanking’’ in the box on the front page of the
Consolidated Report of Condition and Income for
Edge and Agreement Corporations (FR 2886b), any
subsidiary of a depository institution (for purposes
of this item, ‘‘depository institution subsidiary’’).
The revised FR Y–15 includes a line item that
would automatically populate this information. See
Section XV of this SUPPLEMENTARY INFORMATION.
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Other commenters argued that the
measure of nonbank assets is poorly
developed and infrequently used and
urged the Board to provide additional
support for the inclusion of the
indicator in the proposed framework.
Specifically, commenters requested that
the Board provide additional
justification for nonbank assets as an
indicator of complex corporate
structures and funding relationships, as
well as interconnectedness. A number
of commenters argued that, to the extent
the measure was intended to address
risk in broker-dealer operations, it was
unnecessary in light of existing
supervision and regulation of brokerdealers and application of consolidated
capital, stress testing, and riskmanagement requirements to the parent
banking organization.
A number of commenters argued that,
if retained, the nonbank assets indicator
should be more risk-sensitive. Some
commenters suggested excluding assets
related to bank-permissible activities as
well as certain types of nonbanking
activities, such as retail brokerage
activity. The commenter argued that, at
a minimum, the nonbank assets
indicator should exclude any nonbank
subsidiary or asset that would be
permissible for a bank to own. Other
commenters suggested risk-weighting
nonbank assets or deducting certain
assets held by nonbank subsidiaries,
such as on-balance sheet items that are
deducted from regulatory capital under
the capital rule (e.g., deferred tax assets
and goodwill).
Both the organizational structure of a
banking organization and the activities
it conducts contribute to its complexity
and risk profile. Banking organizations
with significant investments in nonbank
subsidiaries are more likely to have
complex corporate structures, interaffiliate transactions, and funding
relationships.44 A banking
organization’s complexity is positively
correlated with the impact of the
organization’s failure or distress.45
Market participants typically evaluate
the financial condition of a banking
organization on a consolidated basis.
Therefore, the distress or failure of a
44 See ‘‘Evolution in Bank Complexity’’, Nicola
Cetorelli, James McAndrews and James Traina,
Federal Reserve Bank of New York Economic Policy
Review (December 2014) (discussing acquisitions of
nonbanking subsidiaries and cross-industry
acquisitions as contributing to growth in
organization complexity), available at, https://
www.newyorkfed.org/medialibrary/media/research/
epr/2014/1412cet2.pdf.
45 See 80 FR 49082 (August 14, 2015). See also
BCBS, ‘‘Global systemically important banks:
Updated assessment methodology and the higher
loss absorbency requirement’’ (paragraph 25),
available at https://www.bis.org/publ/bcbs255.htm.
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nonbank subsidiary could be
destabilizing to, and cause
counterparties and creditors to lose
confidence in, the banking organization
as a whole. In addition, the distress or
failure of banking organizations with
significant nonbank assets has
coincided with or increased the effects
of significant disruptions to the stability
of the U.S. financial system.46
Nonbank activities also may involve a
broader range of risks than those
associated with activities that are
permissible for a depository institution
to conduct directly and can increase
interconnectedness with other financial
firms, requiring sophisticated risk
management and governance, including
capital planning, stress testing, and
liquidity risk management. For example,
holding companies with significant
nonbank assets are generally engaged in
financial intermediation of a different
nature (such as complex derivatives
activities) than those typically
conducted through a depository
institution. If not adequately managed,
the risks associated with nonbank
activities could present significant
safety and soundness concerns and
increase financial stability risks.
Nonbank assets also reflect the degree to
which a banking organization may be
engaged in activities through legal
entities that are not subject to separate
capital or liquidity requirements or to
the direct regulation and supervision
applicable to a regulated banking entity.
The nonbank assets indicator in the
final rule provides a proxy for
operational complexity and nonbanking
activities without requiring banking
organizations to track assets, income, or
revenue based on whether a depository
institution has the legal authority to
hold such assets or conduct the related
activities (legal authority). In addition, a
depository institution’s legal authority
depends on the institution’s charter and
may be subject to additional
interpretation over time.47 A measure of
nonbank assets based on legal authority
would be costly and complex for
banking organizations to implement, as
they do not currently report this
information based on legal authority.
Defining nonbank assets based on the
46 An example includes the near-failure of
Wachovia Corporation, a financial holding
company with $162 billion in nonbank assets as of
September 30, 2008.
47 See, e.g., ‘‘OCC Releases Updated List of
Permissible Activities for Nat’l Banks & Fed. Sav.
Associations,’’ OCC NR 17–121 (Oct. 13, 2017)
(‘‘The OCC may permit national banks and federal
savings associations to conduct additional activities
in the future’’), available at https://
www.occ.treas.gov/publications/publications-bytype/other-publications-reports/pub-activitiespermissible-for-nat-banks-fed-saving.pdf.
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type of entity that owns them, rather
than legal authority, reflects the risks
associated with organizational
complexity and nonbanking activities
without imposing additional reporting
burden as a result of implementing the
final rule or monitoring any future
changes to legal authority. In addition,
as noted above, the nonbank assets
indicator is designed, in part, to identify
activities that a banking organization
conducts in subsidiaries that may be
subject to less prudential regulation,
which makes relevant whether the asset
or activity is located in a bank or
nonbank subsidiary.
Commenters’ suggested modifications
to exclude certain types of assets or
entities, or to risk-weight nonbank
assets, would not align with the full
scope of risks intended to be measured
by the indicator, including risks
associated with operational and
managerial complexity. As noted in the
discussion of size above, risk weights
are primarily designed to measure credit
risk, and can underestimate operational
and other risks. Further, because
nonbank entities are permitted to
conduct a wide range of complex
activities, assets held by those entities,
including those that receive a zero
percent risk weight, may be held in
connection with complex activities,
such as certain prime brokerage or other
trading activities. Finally, as noted
above, the nonbank assets measure is a
relatively simple and transparent
measure of a banking organization’s
nonbank activities, and exclusion of
specific assets based on risk could
undermine the simplicity and
transparency of the indicator. For these
reasons, the Board is finalizing the
nonbank assets indicator, including the
measurement of the indicator, as
proposed.
4. Off-Balance Sheet Exposure
The proposals included off-balance
sheet exposure as a risk-based indicator
to complement the measure of size.
Under the proposals, off-balance sheet
exposure would have been measured as
the difference between total exposure,
calculated in accordance with the
instructions to the FR Y–15 or
equivalent reporting form, and total
assets.48 Total exposure includes onbalance sheet assets plus certain off48 Total exposure would be reported for domestic
holding companies on the FR Y–15, Schedule A,
Line Item 5, and for foreign banking organizations’
U.S. intermediate holding companies and combined
U.S. operations on the FR Y–15, Schedule H, Line
Item 5. Total off-balance sheet exposure would be
reported as Line Item M5 on Schedules A and H.
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balance sheet exposures, including
derivative exposures and commitments.
A number of commenters argued that
the proposed measure of off-balance
sheet exposure was not sufficiently risksensitive. Specifically, these
commenters argued that the exposures
captured by the indicator were generally
associated with low-risk activities or
assets, such as securities lending
activities. In addition, the commenters
argued that the proposed measure could
be harmful to economic activity by
discouraging corporate financing
through commitments and letters of
credit. Commenters accordingly urged
the Board to modify the proposed
approach to measuring the risk of offbalance sheet exposures, for example,
by using the combination of creditconversion factors and risk weights
applied under the Board’s capital rule.
Other commenters suggested that the
Board exclude certain types of
exposures from the indicator, such as
letters of credit. Foreign banking
organization commenters also argued
that inter-affiliate transactions should be
excluded from the measure, including
any guarantee related to securities used
to fund the foreign parent, and
guarantees used to facilitate clearing of
swaps and futures for affiliates that are
not clearing members. With respect to
guarantees used to facilitate clearing,
commenters argued that these exposures
are the result of mandatory clearing
requirements and help support the
central clearing objectives of the DoddFrank Act. Commenters expressed
concern that including these exposures
also could result in increased
concentration of clearing through U.S.
GSIBs. For the same reasons,
commenters argued that potential future
exposures associated with derivatives
cleared by an affiliate also should be
excluded from the measure of offbalance sheet exposure.
Off-balance sheet exposure
complements the size indicator under
the tailoring framework by taking into
account additional risks that are not
reflected in a banking organization’s
measure of on-balance sheet assets. This
indicator 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 stemming from offbalance sheet activities. In addition, offbalance sheet exposure can lead to
significant future draws on liquidity,
particularly in times of stress. For
example, during stress conditions
vulnerabilities at individual banking
organizations may be exacerbated by
calls on commitments and the need to
post collateral on derivatives exposures.
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The nature of these off-balance sheet
risks for banking organizations of
significant size and complexity can also
lead to financial stability risk, as they
can manifest rapidly and with less
transparency and predictability to other
market participants relative to onbalance sheet exposures.
Excluding certain off-balance sheet
exposures would be inconsistent with
the purpose of the indicator as 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.
Commitments and letters of credit, like
extensions of credit through loans and
other arrangements included on a
banking organization’s balance sheet,
help support economic activity. Because
corporations tend to increase their
reliance on committed credit lines
during periods of stress in the financial
system, draws on these instruments can
exacerbate the effects of stress
conditions on banking organizations by
increasing their on-balance sheet credit
exposure.49 During the 2008–2009
financial crisis, reliance on lines of
credit was particularly pronounced
among smaller and non-investment
grade corporations, suggesting that an
increase in these exposures may be
associated with decreasing credit
quality.50
Including guarantees to affiliates
related to cleared derivative transactions
in off-balance sheet exposure also is
consistent with the overall purpose of
the indicators. A clearing member that
guarantees the performance of a clearing
member client to a central counterparty
is exposed to a risk of loss if the clearing
member client were to fail to perform its
obligations under a derivative contract.
By including these exposures, the
indicator identifies a source of
interconnectedness with other financial
market participants. These transactions
can arise with respect not only to
49 During the financial crisis, increased reliance
on credit lines began as early as 2007, and increased
after September 2008. See Jose M. Berrospide, Ralf
R. Meisenzahl, and Briana D. Sullivan, ‘‘Credit Line
Use and Availability in the Financial Crisis: The
Importance of Hedging,’’ available at: https://
www.federalreserve.gov/pubs/feds/2012/201227/
201227pap.pdf. Some have found evidence that an
increase in draws on credit lines may have been
motivated by concerns about the ability of financial
institutions to provide credit in the future. See
Victoria Ivashina & David Scharfstein, ‘‘Bank
Lending During the Financial Crisis of 2008,’’ 97 J.
Fin. Econ. 319–338 (2010). See also, William F.
Bassett, Simon Gilchrist, Gretchen C. Weinbach,
and Egon Zakrajsˇek, ‘‘Improving Our Ability to
Monitor Bank Lending’’ chapter on Risk
Topography: Systemic Risk and Macro Modeling
(2014), Markus Brunnermeier and Arvind
Krishnamurthy, ed., pp. 149–161, available at:
https://www.nber.org/chapters/c12554.
50 Id.
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59043
principal trades, but also because a
client wishes to face a particular part of
the organization, and thus excluding
these guarantees could insufficiently
measure risk and interconnectedness.51
As described above, the tailoring
framework’s risk-based indicators and
uniform category thresholds balance
risk-sensitivity with simplicity and
transparency. Excluding certain types of
exposures would not align with the full
scope of risks intended to be measured
by the indicator. The final rule,
therefore, adopts the off-balance sheet
exposure indicator as proposed.
5. Weighted Short-Term Wholesale
Funding
The proposed weighted short-term
wholesale funding indicator would have
measured the amount of a banking
organization’s short-term funding
obtained generally from wholesale
counterparties. Reliance on short-term,
generally uninsured funding from more
sophisticated counterparties can make a
banking organization more vulnerable to
large-scale funding runs, generating
both safety and soundness and financial
stability risks. The proposals would
have calculated this indicator as the
weighted-average amount of funding
obtained from wholesale counterparties,
certain brokered deposits, and certain
sweep deposits with a remaining
maturity of one year or less, in the same
manner as currently reported by holding
companies on the FR Y–15.52
A number of commenters expressed
concern regarding the use of the
weighted short-term wholesale funding
indicator in the tailoring framework.
Several commenters argued that this
indicator fails to take into account the
extent to which the risk of short-term
wholesale funding has been mitigated
through existing regulatory
requirements, such as the Board’s
enhanced prudential standards rule and,
for foreign banking organizations,
standardized liquidity requirements
applicable to foreign banking
organizations at the global consolidated
level. Other commenters argued that the
indicator is a poor measure of risk more
51 In order to facilitate clearing generally, the
capital rule more specifically addresses the
counterparty credit risk associated with
transactions that facilitate client clearing, such as a
shorter margin period of risk, and provides
incentives that are intended to help promote the
central clearing objectives of the Dodd-Frank Act.
See 12 CFR 217.35.
52 Average amounts over a 12 month period in
each category of short-term wholesale funding are
weighted based on four residual maturity buckets;
the asset class of collateral, if any, securing the
funding; and liquidity characteristics of the
counterparty. Weightings reflect risk of runs and
attendant fire sales. See 12 CFR 217.406 and 80 FR
49082 (August 14, 2015).
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broadly because it fails to consider the
maturity of assets funded by short-term
wholesale funding. Commenters argued
that focusing on liabilities and failing to
recognize the types of assets funded by
the short-term funding would
disproportionately affect foreign
banking organizations’ capital market
activities and ability to compete in the
United States.
The weighted short-term wholesale
funding indicator is designed to serve as
a broad measure of the risks associated
with elevated, ongoing reliance on
funding sources that are typically less
stable than funding of a longer term or
funding such as fully insured retail
deposits, long-term debt, and equity. For
example, a banking organization’s
weighted short-term wholesale funding
level serves as an indication of the
likelihood of funding disruptions in
firm-specific or market-wide stress
conditions. These funding disruptions
may give rise to urgent liquidity needs
and unexpected losses, which warrant
heightened application of liquidity and
regulatory capital requirements. A
measure of funding dependency that
reflects the various types or maturities
of assets supported by short-term
wholesale funding sources, as suggested
by commenters, would add complexity
to the indicator. For example, because a
banking organization’s funding is
fungible, monitoring the relationship
between specific liabilities and assets
with various maturities is complex and
imprecise. The LCR rule and the
proposed net stable funding ratio
(NSFR) rule therefore include
methodologies for reflecting asset
maturity in regulatory requirements that
address the associated risks.53
Commenters suggested revisions to
the weighted short-term wholesale
funding indicator that would align with
the treatment of certain assets and
liabilities under the LCR rule. For
example, some commenters
recommended that the Board more
closely align the indicator’s
measurement of weighted short-term
wholesale funding with the outflow
rates applied in the LCR rule, such as by
excluding from the indicator funding
that receives a zero percent outflow in
the LCR rule or reducing the weights for
secured funding to match the LCR rule’s
outflow treatment. Similarly,
commenters suggested that the Board
provide a lower weighting for brokered
and sweep deposits from affiliates,
consistent with the lower outflow rates
53 For
example, the LCR rule includes cash
inflows from certain maturing assets and the
proposed NSFR rule would use the maturity profile
of a banking organization’s assets to determine its
required stable funding amount.
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assigned to these deposits in the LCR
rule. Specifically, commenters argued
that the weighted short-term wholesale
funding indicator inappropriately
applies the same 25 percent weight to
sweep deposits sourced by both
affiliates and non-affiliates alike and
treats certain non-brokered sweep
deposits in a manner inconsistent with
the LCR rule.
The Board notes that when it
established the weights applied in
calculating and reporting short-term
wholesale funding for purposes of the
GSIB surcharge rule, the Board took into
account the treatment of certain
liabilities in the LCR rule, including
comments received in connection with
that rulemaking, and fire sale risks in
key short-term wholesale funding
markets. At that time, the Board noted
that the LCR rule does not fully address
the systemic risks of certain types and
maturities of funding.54 The Board
continues to believe the current scope of
the weighted short-term wholesale
funding indicator, and the weights
applied in the indicator, are
appropriately calibrated for assessing
the risk to broader financial stability as
a result of a banking organization’s
reliance on short-term wholesale
funding. The final rule treats brokered
deposits as short-term wholesale
funding because they are generally
considered less stable than standard
retail deposits. In order to preserve the
relative simplicity of the short-term
wholesale funding metric, the final rule
does not distinguish between different
types of brokered deposits and sweep
deposits. Accordingly, all retail deposits
identified as brokered deposits and
brokered sweep deposits under the LCR
rule are reported on the FR Y–15 as
retail brokered deposits and sweeps for
purpose of the weighted short-term
wholesale funding indicator.
Commenters also suggested other
specific revisions to the calculation of
the weighted short-term wholesale
funding indicator. Some commenters
argued that the weighted short-term
wholesale funding indicator should look
to the original maturity of the funding
relationship—instead of the remaining
maturity—and exclude long-term debt
that is maturing within the next year.
Commenters also urged the Board to
recognize certain offsets to reduce the
amount of short-term wholesale funding
included in the indicator. For example,
a number of commenters suggested that
54 For example, the LCR rule generally does not
address maturities beyond 30 calendar days and
offsets outflows from certain short-term funding
transactions with inflows from certain short-term
claims, which may not fully address the risk of
asset fire sales.
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the amount of short-term wholesale
funding should be reduced by the
amounts of HQLA held by the banking
organization, cash deposited at the
Federal Reserve by the banking
organization, or any high-quality
collateral used for secured funding.
Commenters argued that this approach
would better reflect the banking
organization’s liquidity risk because it
would take into account assets that
could be used to meet cash outflows as
well as collateral that typically
maintains its value and therefore would
not contribute to asset fire sales.
Commenters also argued that the
measure of weighted short-term
wholesale funding should exclude
funding that the commenters viewed as
stable, such as credit lines from Federal
Home Loan Banks and Federal Reserve
Banks, savings and checking accounts of
wholesale customers, and brokered
sweep deposits received from an
affiliate.
The Board believes that the remaining
maturity of a funding relationship,
instead of original maturity as suggested
by commenters, provides a more
accurate measure of the banking
organization’s ongoing exposure to
rollover risk. As discussed above,
because a banking organization’s
inability to rollover funding may
generate safety and soundness and
financial stability risks, the Board
believes that using remaining maturity
is more appropriate given the purposes
of the weighted short-term wholesale
funding indicator. Further, the weighted
short-term wholesale funding indicator
takes into account the quality of
collateral used in funding transactions
by assigning different weights to average
amounts of secured funding depending
on its collateral. These weights reflect
the liquidity characteristics of the
collateral and the extent to which the
quality of such assets may mitigate fire
sale risk. Revising the weighted shortterm wholesale funding indicator to
permit certain assets to offset liabilities
because the assets may be used to
address cash outflows, as suggested by
commenters, could understate financial
stability and safety and soundness risks
because such an approach assumes
those assets are available to offset
funding needs in stress conditions.
Further, the indicator measures average
short-term funding dependency over the
prior 12 months, and a banking
organization’s current holdings of liquid
assets may not address the financial
stability and safety and soundness risks
associated with its ongoing funding
structure. Similarly, excluding a
banking organization’s general reliance
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on certain types of short-term funding
from the indicator may result in an
underestimation of a banking
organization’s potential to contribute to
systemic risk because such funding may
be unavailable for use in a time of stress.
Thus, the final rule does not exclude
short-term borrowing from the Federal
Home Loan Banks, which may be
secured by a broad range of collateral,
and the final rule treats such short-term
borrowing the same as borrowing from
other wholesale counterparties in order
to identify risk. More generally,
incorporating commenters’
recommended exclusions and offsets
would reduce the transparency of the
weighted short-term wholesale funding
indicator, contrary to the Board’s
intention to provide a simplified
measure to identify banking
organizations with heightened risks. For
these reasons, the final rule adopts the
weighted short-term wholesale funding
indicator without change.
Commenters also provided
suggestions to reduce or eliminate interaffiliate transactions from the measure
of weighted short-term wholesale
funding. Specifically, commenters
provided suggestions to weight interaffiliate transactions or net transactions
with affiliates.
Including funding from affiliated
sources provides an appropriate
measure of the risks associated with a
banking organization’s general reliance
on short-term wholesale funding.
Banking organizations that generally
rely on funding with a shorter
contractual maturity from financial
sector affiliates may present higher risks
relative to those that generally rely on
funding with a longer contractual term
from outside of the financial sector.
While funding relationships with
affiliates may provide a banking
organization with additional flexibility
in the normal course of business,
ongoing reliance on contractually shortterm funding from affiliates may present
risks that are similar to funding from
nonaffiliated sources.
For the reasons discussed above, the
final rule adopts the weighted shortterm wholesale funding indicator as
proposed.
D. Application of Standards Based on
the Proposed Risk-Based Indicators
The proposed risk-based indicators
would have determined the application
of enhanced standards under Categories
II, III, and IV. By taking into
consideration the relative presence or
absence of each risk-based indicator, the
proposals would have provided a basis
for assessing a banking organization’s
financial stability and safety and
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soundness risks for purposes of
determining the applicability and
stringency of these requirements.
Commenters criticized the methods
by which the proposed risk-based
indicators would determine the category
of standards applicable to a banking
organization. Certain commenters
expressed concern that a banking
organization could become subject to
Category II or III standards without first
being subject to Category IV standards,
due to the disjunctive use of the size
and other risk-based indicators under
the proposals. One commenter
suggested that the Board should instead
apply a category of standards based on
a weighted average of the risk-based
indicators. Another commenter
suggested that application of Category II
standards should be based on other risk
factors that they asserted are more
relevant to the determination of whether
a banking organization has a risk profile
that would warrant Category II
standards. Several commenters
suggested that the application of
standardized liquidity requirements
should be based only on the levels of
the weighted short-term wholesale
funding indicator, and not based on the
levels of any other risk-based indicator.
One commenter criticized the proposals
for not providing sufficient justification
for the number of categories.
Because each indicator serves as a
proxy for various types of risk, a high
level in a single indicator warrants the
application of more stringent standards
to mitigate those risks and support the
overall purposes of each category. The
Board therefore does not believe using
a weighted average of a banking
organization’s levels in the risk-based
indicators, or the methods that would
require a banking organization to exceed
multiple risk-based indicators, is
appropriate to determine the applicable
category of standards. The final rule
therefore adopts the use of the riskbased indicators, generally as proposed.
Certain commenters suggested that
the Board reduce requirements under
the foreign bank proposal to account for
the application of standards at the
foreign banking organization parent.
The final rule takes into account the
standards that already apply to the
foreign banking organization parent.
Specifically, the final rule tailors the
application of enhanced 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
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59045
consolidated foreign parent level. In this
way, the final rule helps to mitigate the
risk such banking organizations present
to safety and soundness and U.S.
financial stability, consistent with the
overall objectives of the tailoring
framework. Requiring foreign banking
organizations to maintain financial
resources in the jurisdictions in which
they operate subsidiaries also reflects
existing agreements reached by the
BCBS and international regulatory
practice.
E. Calibration of Thresholds and
Indexing
The proposals would have employed
fixed nominal thresholds to assign the
categories of standards that apply to
banking organizations. In particular, the
proposals included total asset
thresholds of $100 billion, $250 billion,
and $700 billion, along with $75 billion
thresholds for each of the other riskbased indicators. The foreign bank
proposal also included a $50 billion
weighted short-term wholesale funding
threshold for U.S. and foreign banking
organizations subject to Category IV
standards.
Some commenters expressed concerns
regarding the use of $75 billion
thresholds for cross-jurisdictional
activity, weighted short-term wholesale
funding, nonbank assets, and offbalance sheet exposure. In particular,
these commenters stated that the $75
billion thresholds were poorly justified
and requested additional information as
to why the Board chose these
thresholds. A number of these
commenters also supported the use of a
higher threshold for these indicators.
Other commenters urged the Board to
retain the discretion to adjust the
thresholds on a case-by-case basis, such
as in the case of a temporary excess
driven by customer transactions or for
certain transactions that would result in
a sudden change in categorization.
The $75 billion thresholds are based
on the degree of concentration of a
particular risk-based indicator for each
banking organization relative to total
assets. That is, a threshold of $75 billion
represents at least 30 percent and as
much as 75 percent of total assets for
banking organizations with between
$100 billion and $250 billion in total
assets.55 Thus, for banking organizations
55 The $100 billion and $250 billion size
thresholds are consistent with those set forth in
section 165 of the Dodd-Frank Act, as amended by
section 401 of EGRRCPA. Section 165 of the DoddFrank Act requires the application of enhanced
prudential standards to bank holding companies
and foreign banking organizations with $250 billion
or more in total consolidated assets. Section 165
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that do not meet the size threshold for
Category III standards, other risks
represented by the risk-based indicators
would be substantial, while banking
organizations with $75 billion in crossjurisdictional activity have a substantial
international footprint. In addition,
setting the thresholds at $75 billion
ensures that banking organizations that
account for the vast majority of the total
amount of each risk-based indicator
among banking organizations with $100
billion or more in total assets are subject
to prudential standards that account for
the associated risks of these risk-based
indicators, which facilitates consistent
treatment of these risks across banking
organizations. The use of a single
threshold also supports the overall
simplicity of the framework. Moreover,
a framework that permits the Board to
adjust thresholds on a temporary basis
would not support the objectives of
predictability and transparency.
One commenter stated that the Board
should not use the $700 billion size
threshold as the basis for applying
Category II standards, arguing that the
Board had not provided sufficient
justification for that threshold.
However, as noted in the proposals,
historical examples suggest that the
distress or failure of a banking
organization of this size would have
systemic impacts. For example, during
the financial crisis significant losses at
Wachovia Corporation, which had $780
billion in total assets at the time of being
acquired in distress, had a destabilizing
effect on the financial system. The $700
billion size threshold under Category II
addresses the substantial risks that can
arise from the activities and potential
distress of very large banking
organizations that are not U.S. GSIBs.
Commenters did not request additional
explanation regarding the $100 billion
and $250 billion total asset thresholds.
As noted above, these size thresholds
are consistent with those set forth in
section 165 of the Dodd-Frank Act, as
amended by section 401 of EGRRCPA.
Several commenters requested that
the Board index certain of the proposed
thresholds based on changes in various
measures, such as growth in domestic
banking assets, inflation, gross domestic
product growth or other measures of
economic growth, or share of the
indicator held by the banking
organization in comparison to the
amount of the indicator held in the
authorizes the Board to apply enhanced prudential
standards to such banking organizations with assets
between $100 billion and $250 billion, taking into
consideration the firm’s capital structure, riskiness,
complexity, financial activities (including those of
subsidiaries), size, and any other risk-related factors
the Board deems appropriate. 12 U.S.C. 5365.
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financial system. These commenters
requested that the thresholds be
automatically adjusted on an annual
basis based on changes in the relevant
index, by operation of a provision in the
rule. Other commenters expressed
concern that indexing can have procyclical effects.
As commenters noted, the $100
billion and $250 billion size thresholds
prescribed in the Dodd-Frank Act, as
amended by EGRRCPA, are fixed by
statute.56 Indexing the other thresholds
would add complexity, a degree of
uncertainty, and potential discontinuity
to the framework. The Board
acknowledges the thresholds should be
reevaluated over time to ensure they
appropriately reflect growth on a
macroeconomic and industry-wide
basis, as well as to continue to support
the objectives of this rule. The Board
plans to accomplish this by periodically
reviewing the thresholds and proposing
changes through the notice and
comment process, rather than including
an automatic adjustment of thresholds
based on indexing.
F. The Risk-Based Categories
1. Category I
Under the proposals, Category I
standards would have applied to U.S.
GSIBs, which are banking organizations
that have a U.S. GSIB score of 130 or
more under the scoring methodology.57
Category I standards would have
included the most stringent standards
relative to those imposed under the
other categories to reflect the heightened
risks that banking organizations subject
to Category I standards pose to U.S.
financial stability. The requirements
applicable to U.S. GSIBs would have
largely remained unchanged from
existing requirements.
The Board did not receive comments
regarding the criteria for application of
56 Section 165 of the Dodd-Frank Act does
provide the Board with discretion to establish a
minimum asset threshold above the statutory
thresholds for some, but not all, enhanced
prudential standards. However, the Board may only
utilize this discretion pursuant to a
recommendation by the Financial Stability
Oversight Council in accordance with section 115
of the Dodd-Frank Act. This authority is not
available for stress testing and risk committee
requirements. 12 U.S.C. 5365(a)(2)(B).
57 As noted above, the foreign bank proposal
would not have applied Category I standards to the
U.S. operations of foreign banking organizations
because the Board’s GSIB surcharge rule would not
identify a foreign banking organization or a U.S.
intermediate holding company as a U.S. GSIB. The
foreign bank proposal sought comment on the
advantages and disadvantages of applying standards
that are more stringent than Category II standards
to the U.S. operations of foreign banking
organizations with a comparable risk profile to U.S.
GSIBs. Several commenters expressed general
opposition to such an approach.
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Category I standards to U.S. GSIBs.
Several commenters expressed concern
regarding applying more stringent
standards than Category II standards to
foreign banking organizations, even if
the risk profile of a foreign banking
organization’s U.S. operations were
comparable to a U.S. GSIB. The final
rule adopts the scoping criteria for
Category I, and the prudential standards
that apply under this category, as
proposed.58 U.S. GSIBs have the
potential to pose the greatest risks to
U.S. financial stability due to their
systemic risk profile and, accordingly,
should be subject to the most stringent
prudential standards. The treatment for
U.S. GSIBs aligns with international
efforts to address the financial stability
risks posed by the largest, most
interconnected financial institutions. In
2011, the BCBS adopted a framework to
identify global systemically important
banking organizations and assess their
systemic importance.59 This framework
generally applies to the global
consolidated parent organization, and
does not apply separately to subsidiaries
and operations in host jurisdictions.
Consistent with this approach, the U.S.
operations of foreign banking
organizations are not subject to Category
I standards under the final rule. The
Board will continue to monitor the
systemic risk profiles of foreign banking
organization’s U.S. operations, and
consider whether application of more
stringent requirements is appropriate to
address any increases in their size,
complexity or overall systemic risk
profile.
2. Category II
The proposals would have applied
Category II standards to banking
organizations with $700 billion in total
assets or $100 billion or more in total
assets and $75 billion or more in crossjurisdictional activity. The proposals
also sought comment on whether
Category II standards should apply
based on a banking organization’s
weighted short-term wholesale funding,
nonbank assets, and off-balance sheet
exposure, using a higher threshold than
the $75 billion threshold that would
have applied for Category III standards.
Some commenters argued that crossjurisdictional activity should be an
indicator for Category III standards
rather than Category II standards.
Another commenter expressed concern
58 Under the final rule, a U.S. banking
organization that meets the criteria for Categories I,
II, or III standards is required to calculate its
method 1 GSIB score annually.
59 See BCBS, ‘‘Global systemically important
banks: Assessment methodology and the additional
loss absorbency requirement’’ (November 4, 2011).
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with expanding the criteria for Category
II standards to include any of the other
risk-based indicators used for purposes
of Category III standards. Some
commenters also argued that the
proposed Category II standards were too
stringent relative to the risks indicated
by a high level of cross-jurisdictional
activity or very large size. Other
commenters argued that application of
Category II standards to foreign banking
organizations was unnecessary because
these banking organizations are already
subject to BCBS-based standards on a
global, consolidated basis by their
home-country regulators. Another
commenter requested that the Board
provide greater differentiation between
Category I and Category II standards.
As discussed above, banking
organizations that engage in significant
cross-jurisdictional activity present
complexities that support the
application of more stringent standards
relative to those that would apply under
Category III. In addition, application of
consistent prudential standards across
jurisdictions to banking organizations
with significant size or crossjurisdictional activity helps to promote
competitive equity among U.S. banking
organizations and their foreign peers,
while applying standards that
appropriately reflect the risk profiles of
banking organizations that meet the
thresholds for Category III standards. As
noted above, this approach is consistent
with international regulatory practice.
Accordingly, and consistent with the
proposal, the final rule applies Category
II standards to banking organizations
with $700 billion in total consolidated
assets or cross-jurisdictional activity of
$75 billion or more.
3. Category III
Under the proposals, Category III
standards would have applied to
banking organizations that are not
subject to Category I or II standards and
that have total assets of $250 billion or
more. They also would have applied to
banking organizations with $100 billion
or more in total assets and $75 billion
or more in nonbank assets, weighted
short-term wholesale funding, or offbalance-sheet exposure.
A number of commenters supported
the proposed scoping criteria for
Category III, as well as the standards
that would have applied under this
category. Several other commenters
requested certain changes to the specific
thresholds and indicators used to
determine which banking organizations
would have been subject to Category III
standards, as well as the prudential
standards that would have applied
under this category. Comments
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regarding the prudential standards that
would have applied under Category III
are discussed in section VI.C of this
Supplementary Information.
The final rule generally adopts the
scoping criteria for Category III, and the
prudential standards that apply under
this Category, as proposed.
4. Category IV
Under the proposals, Category IV
standards would have applied to
banking organizations with $100 billion
or more in total assets that do not meet
the thresholds for any other category. A
number of commenters argued that no
heightened prudential standards should
apply to banking organizations that
meet the criteria for Category IV because
such banking organizations are not as
large or complex as banking
organizations that would be subject to
more stringent categories of standards
under the proposals. Alternatively,
these commenters suggested that the
threshold for application of Category IV
standards should be raised from $100
billion to $250 billion in total assets.60
In contrast, one commenter argued that
the Board should not reduce the
requirements applicable to banking
organizations that would be subject to
Category IV until current requirements
have been in effect for a full business
cycle.
The final rule includes Category IV
because banking organizations subject to
this category of standards generally have
greater scale and operational and
managerial complexity relative to
smaller banking organizations and, as a
result, present heightened safety and
soundness risks. In addition, the failure
of one or more banking organizations
subject to Category IV standards could
have a more significant negative effect
on economic growth and employment
relative to the failure or distress of
smaller banking organizations.61 The
final rule generally adopts the scoping
criteria for Category IV, and the
prudential standards that apply under
this Category, as proposed.
G. Specific Aspects of the Foreign Bank
Proposal—Treatment of Inter-Affiliate
Transactions
Except for cross-jurisdictional
activity, which would have excluded
liabilities to and certain collateralized
claims on non-U.S. affiliates, the
proposed risk-based indicators would
60 Commenters also argued that the Board had not
sufficiently justified the application of enhanced
prudential standards to firms subject to Category IV
standards. These comments are addressed in
section VI.D. of this SUPPLEMENTARY INFORMATION.
61 See section V.C.1. of this SUPPLEMENTARY
INFORMATION.
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59047
have included transactions between a
foreign banking organization’s
combined U.S. operations and non-U.S.
affiliates.62 Similarly, and as noted
above, except for cross-jurisdictional
activity, a U.S. intermediate holding
company would have included
transactions with affiliates outside the
U.S. intermediate holding company
when reporting its risk-based indicators.
Most commenters on the foreign bank
proposal supported the proposed
exclusion of certain inter-affiliate
transactions in the cross-jurisdictional
activity indicator, and argued further
that all risk-based indicators should
exclude transactions with affiliates.
These commenters asserted that
including inter-affiliate transactions
disadvantaged foreign banking
organizations relative to U.S. peers and
argued that the rationale for excluding
certain inter-affiliate claims from the
cross-jurisdictional activity measure
applied equally to all other risk-based
indicators. A number of commenters
argued that including inter-affiliate
transactions would overstate the risks to
a foreign banking organization’s U.S.
operations or U.S. intermediate holding
company because inter-affiliate
transactions may be used to manage
risks of the foreign banking
organization’s global operations.
Similarly, some commenters asserted
that the inclusion of inter-affiliate
transactions was inconsistent with risks
that the risk-based indicators are
intended to capture. Other commenters
argued that any risks associated with
inter-affiliate transactions were
appropriately managed through the
supervisory process and existing
regulatory requirements, and expressed
concern that including inter-affiliate
transactions could encourage ring
fencing in other jurisdictions. Some
commenters suggested that, if the Board
does not exclude inter-affiliate
transactions entirely, the Board should
weight inter-affiliate transactions at no
more than 50 percent. By contrast, one
commenter argued that inter-affiliate
transactions should be included in the
risk-based indicators, arguing that the
purpose of the Board’s U.S. intermediate
holding company framework is that
resources located outside the
organization may not be reliably
available during periods of financial
stress.
Tailoring standards based on the risk
profile of the U.S. intermediate holding
company or combined U.S. operations
of a foreign banking organization, as
applicable, requires measurement of
risk-based indicators at a sub62 See
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consolidated level rather than at the
global parent. As a result, calculation of
the risk-based indicators must
distinguish between such a banking
organization’s U.S. operations or U.S.
intermediate holding company, as
applicable, and affiliates outside of the
United States, including by providing a
treatment for inter-affiliate transactions
that would otherwise be eliminated in
consolidation at the global parent.
Including inter-affiliate transactions in
the calculation of risk-based indicators
would mirror, as closely as possible, the
risk profile of a U.S. intermediate
holding company or combined U.S.
operations if each were consolidated in
the United States.
Including inter-affiliate transactions
in the calculation of risk-based
indicators is consistent with the Board’s
approach to measuring and applying
standards at a sub-consolidated level in
other contexts. For example, existing
thresholds and requirements in the
Board’s Regulation YY are based on
measures of a foreign banking
organization’s size in the United States
that includes inter-affiliate
transactions.63 Similarly, the total
consolidated assets of a U.S.
intermediate holding company or
depository institution include
transactions with affiliates outside of
the U.S. intermediate holding
company.64 Capital and liquidity
requirements applied to U.S.
intermediate holding companies and
insured depository institutions
generally do not distinguish between
exposures with affiliates and third
parties. For example, the LCR rule
assigns outflow rates to funding
according to the characteristics of the
source of funding, but generally does
not distinguish between funding
provided by an affiliate or third party.65
Excluding inter-affiliate transactions
from off-balance sheet exposure, size,
and weighted short-term wholesale
funding indicators would be
inconsistent with the treatment of these
exposures under the capital and
liquidity rules.
In some cases, the exclusion of interaffiliate transactions would not align
with the full scope of risks intended to
be measured by an indicator. Inter63 See 12 CFR 252.2 and 252.150 (definition of
‘‘Average combined U.S. assets).’’
64 See Call Report instructions, FR Y–9C.
65 For example, the LCR rule differentiates
between unsecured wholesale funding provided by
financial sector entities and by non-financial sector
entities, but does not differentiate between financial
sector entities that are affiliates and those that are
not affiliates. 12 CFR 249.32(h). The LCR rule
differentiates between affiliates and third parties
under limited circumstances. See, e.g., 12 CFR
249.32(g)(7).
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affiliate positions can represent sources
of risk—for example, claims on the
resources of a foreign banking
organization’s U.S. operations.66 As
another example, short-term wholesale
funding provided to a U.S. intermediate
holding company by its parent foreign
bank represents funding that the parent
could withdraw quickly, which could
leave fewer assets available for U.S.
counterparties of the U.S. intermediate
holding company.67 By including interaffiliate transactions in weighted shortterm wholesale funding while excluding
these positions from cross-jurisdictional
liabilities, the framework provides a
more risk-sensitive measure of funding
risk from foreign affiliates as it takes
into consideration the maturity and
other risk characteristics of the funding
for purposes of the weighted short-term
wholesale funding measure.
Additionally, because long-term affiliate
funding (such as instruments used to
meet total loss absorbing capacity
requirements) would not be captured in
weighted short-term wholesale funding,
the indicator is designed to avoid
discouraging a foreign parent from
providing support to its U.S. operations.
Similarly, with respect to off-balance
sheet exposure, an exclusion for interaffiliate transactions would not account
for the risks associated with any funding
commitments provided by the U.S.
operations of a foreign banking
organization to non-U.S. affiliates.
Accordingly, the Board believes it
would be inappropriate to exclude interaffiliate transactions from the measure
of off-balance sheet exposure.
66 Domestic banking organizations are required to
establish and maintain procedures for monitoring
risks associated with funding needs across
significant legal entities, currencies, and business
lines. See, e.g., 12 CFR 252.34(h)(2).
67 See e.g., Robert H. Gertner, David S. Scharfstein
& Jeremy C. Stein, ‘‘Internal Versus External Capital
Markets,’’ 109 Q.J. ECON. 1211 (1994) (discussing
allocation of resources within a consolidated
organization through internal capital markets);
Nicola Cetorelli & Linda S. Goldberg, ‘‘Global Banks
and International Shock Transmission: Evidence
from the Crisis,’’ 59 IMF ECON. REV. 41 (2011)
(discussing the role of internal capital markets as
a mechanism for transmission of stress in the
financial system); Nicola Cetorelli & Linda
Goldberg, ‘‘Liquidity Management of U.S. Global
Banks: Internal Capital Markets in the Great
Recession’’ (Fed. Reserve Bank of N. Y. Staff Report
No. 511, 2012), available at: https://
www.newyorkfed.org/research/staff_reports/
sr511.pdf (finding that foreign affiliates were both
recipients and providers of funds to the parent
between March 2006 and December 2010). See also,
Ralph de Haas and Iman Van Lelyvelt, ‘‘Internal
Capital Markets and Lending by Multinational Bank
Subsidiaries (2008) (discussing substitution effect
in lending across several countries as a parent bank
expand its business in those countries where
economic conditions improve and decrease its
activities where economic circumstance worsen),
available at: https://www.ebrd.com/downloads/
research/economics/workingpapers/wp0105.pdf.
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For purposes of the nonbank assets
indicator, the proposals would have
treated inter-affiliate transactions
similarly for foreign and domestic
banking organizations. For foreign
banking organizations, the proposals
would have measured nonbank assets as
the sum of assets in consolidated U.S.
nonbank subsidiaries together with
investments in unconsolidated U.S.
nonbank companies that are controlled
by the foreign banking organization.68
Both foreign and domestic banking
organizations would have included in
nonbank assets inter-affiliate
transactions between the nonbank
company and other parts of the
organization.69
Accordingly, for purposes of the riskbased indicators, the final rule adopts
the treatment of inter-affiliate
transactions as proposed.
H. Determination of Applicable
Category of Standards
Under the proposals, a banking
organization would have determined its
category of standards based on the
average levels of each indicator at the
banking organization, reported over the
preceding four calendar quarters. If the
banking organization had not reported
risk-based indicator levels for each of
the preceding four calendar quarters, the
category would have been based on the
risk-based indicator level for the
quarter, or average levels over the
quarters, that the banking organization
has reported.
For a change to a more stringent
category (for example, from Category IV
to Category III), the change would have
been based on an increase in the average
value of its indicators over the prior four
quarters of a calendar year. In contrast,
for a banking organization to change to
a less stringent category (for example,
Category II to Category III), the banking
organization would have been required
to report risk-based indicator levels
below any applicable threshold for the
more stringent category in each of the
four preceding calendar quarters.
Changes in a banking organization’s
requirements that result from a change
in category generally would have taken
effect on the first day of the second
quarter following the change in the
banking organization’s category.
The Board received several comments
on the process for determining the
applicable category of standards under
the proposal and on the amount of time
provided to comply with the
68 See
FR Y–9LP, Schedule PC–B, line item 17.
FR Y–9 LP Instructions for Preparation of
Parent Company Only Financial Statements for
Large Holding Companies (September 2018).
69 See
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requirements of a new category. In
particular, several commenters
suggested providing banking
organizations with at least 18 months to
comply with a more stringent category
of standards. Several commenters
recommended that the Board retain
discretion to address a temporary
increase in an activity, such as to help
a banking organization avoid a sudden
change in the categorization of
applicable standards. These commenters
suggested that any adjustments of
thresholds could consider both
qualitative information and supervisory
judgment. Commenters also requested
that the Board clarify the calculation of
certain indicators; for example, by
providing references to specific line
items in the relevant reporting forms.
One commenter also suggested that the
Board revise the reporting forms used to
report risk-based indicator levels so that
they apply to a depository institution
that is not part of a bank or savings and
loan holding company structure.
The final rule maintains the process
for determining the category of
standards applicable to a banking
organization as proposed. To move into
a category of standards or to determine
the category of standards that would
apply for the first time, a banking
organization would rely on an average
of the previous four quarters or, if the
banking organization has not reported in
each of the prior four quarters, the
category would be based on the riskbased indicator level for the quarter, or
average levels over the quarter or
quarters, that the banking organization
has reported. Use of a four-quarter
average would capture significant
changes in a banking organization’s risk
profile, rather than temporary
fluctuations, while maintaining
incentives for a banking organization to
reduce its risk profile relative to a longer
period of measurement.
To move to a less stringent category
of standards, a banking organization
must report risk-based indicator levels
below any applicable threshold for the
more stringent category in each of the
four preceding calendar quarters. This
approach is consistent with the existing
applicability and cessation requirements
of the Board’s enhanced prudential
standards rule.70 In addition, the final
rule would adopt the transition for
compliance with a new category of
standards as proposed. Specifically, a
banking organization that changes from
one category of applicable standards to
another category must generally comply
with the new requirements no later than
70 See,
e.g., 12 CFR 252.43.
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on the first day of the second quarter
following the change in category.
The final rule does not provide for
discretionary adjustments of thresholds
on a case-by-case basis, because such an
approach would diminish the
transparency and predictability of the
framework and could reduce incentives
for banking organizations to engage in
long-term management of their risks.71
Each risk-based indicator will
generally be calculated in accordance
with the instructions to the FR Y–15, FR
Y–9LP, Capital and Asset Report for
Foreign Banking Organizations (FR Y–
7Q), or FR Y–9C, as applicable. The
risk-based indicators must be reported
for the banking organization on a
quarterly basis.72 U.S. banking
organizations currently report the
information necessary to determine
their applicable category of standards
based on a four-quarter average. In
response to concerns raised by
commenters, the Board also is revising
its reporting forms to specify the line
items used in determining the riskbased indicators. Section XV of this
SUPPLEMENTARY INFORMATION discusses
changes to reporting requirements, and
identifies the specific line items that
will be used to calculate risk-based
indicators.73 With respect to the
commenters’ concern regarding the
applicability of these reporting forms to
depository institutions that are not part
of a bank or savings and loan holding
company structure, the Board notes that
no such depository institution would be
subject to the final rule based on first
quarter 2019 data. The Board will
monitor the implementation of the final
rule and make any such adjustments to
reporting forms, as needed, to require
such a depository institution to report
risk-based indicator levels.
Some commenters asserted that
banking organizations could adjust their
exposures to avoid thresholds,
including by making temporary
adjustments to lower risk-based
indicator levels reported. The Board
will continue to monitor risk-based
indicator amounts reported and
information collected through
supervisory processes to ensure that the
risk-based indicators are reflective of a
71 The Board retains the general authority under
its enhanced prudential standards, capital, and
liquidity rules to increase or adjust requirements as
necessary on a case-by-case basis. See 12 CFR
217.1(d); 249.2; 252.3.
72 A foreign banking organization must also report
risk-based indicators as with respect to the
organization’s combined U.S. operations as
applicable under the final rule.
73 Although U.S. intermediate holding companies
currently report the FR Y–15, the revised form
would reflect the cross-jurisdictional activity
indicator adopted in the final rule.
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59049
banking organization’s overall risk
profile, and would consider changes to
reporting forms, as needed. In
particular, the Board will monitor
weighted short-term wholesale funding
levels reported at quarter-end, relative
to levels observed during the reporting
period.
VI. Prudential Standards for Large U.S.
and Foreign Banking Organizations
A. Category I Standards
U.S. GSIBs are subject to the most
stringent prudential standards relative
to other firms, which reflects and helps
to mitigate the heightened risks these
firms pose to U.S. financial stability.
The domestic proposal would have
required that U.S. GSIBs remain subject
to the most stringent stress testing
requirements, such as an annual
supervisory stress testing, FR Y–14
reporting requirements, and a
requirement to conduct company-run
stress tests on an annual basis.
Consistent with changes made by
EGRRCPA, the proposal would have
removed the mid-cycle company-run
stress test requirement for all bank
holding companies, including U.S.
GSIBs.74 The proposal would have
maintained the requirement for a U.S.
GSIB to conduct an annual companyrun stress test.
While many commenters supported a
reduction in the frequency of companyrun stress testing, some commenters
expressed the view that this aspect of
the proposal could weaken a tool that is
intended to enhance the safety and
soundness of banking organizations.
These commenters argued that the
Board should postpone removing the
mid-cycle company-run stress test until
the efficacy of this requirement has been
evaluated over a full business cycle.
Relative to the annual company-run
stress test, the mid-cycle company-run
stress test has provided only modest risk
management benefits and limited
incremental information to market
participants. To provide additional
flexibility to respond to changes in the
risk profile of a banking organization or
in times of stress, it is important for the
Board to have the ability to adjust the
frequency of the company-run stress test
requirement. Accordingly, and in
74 Section 401 of EGRRCPA amended section
165(i) of the Dodd-Frank Act to require companyrun stress tests to be conducted periodically rather
than on a semi-annual basis. Certain commenters
requested that the Board remove the mid-cycle
company-run stress test requirement for the 2019
stress test cycle. Because the final rule is effective
after October 5, 2019, which was the due date for
mid-cycle company-run stress tests, the removal of
this requirement will take effect for the 2020 stress
test cycle.
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response to commenters, the final rule
eliminates the mid-cycle stress testing
requirement for all bank holding
companies but provides the Board
authority to adjust the required
frequency at which a banking
organization, including a U.S. GSIB,
must conduct a stress test based on its
financial condition, size, complexity,
risk profile, scope of operations, or
activities, or risks to the U.S. economy.
The final rule therefore provides
flexibility to the Board to require more
frequent company-run stress testing as
needed, while minimizing the burden
associated with an ongoing semi-annual
requirement.
Some commenters also requested that
the Board eliminate its ability to object
to a firm’s capital plan on the basis of
qualitative deficiencies (qualitative
objection) for all banking
organizations.75 This comment was
addressed after the domestic proposal
was issued in a separate rulemaking. In
March 2019, the Board eliminated the
qualitative objection for most firms,
including firms that are subject to
Category I standards under this final
rule.76 In recognition of the progress
that firms have made in their risk
management and capital planning
practices, their significantly
strengthened capital positions, and
changes to the Board’s supervisory
processes, the Board expressed its belief
that it is appropriate to transition away
from the qualitative objection under the
capital plan rule. Because the
qualitative objection has led to
improvements in firms’ capital
planning, however, the Board decided
to temporarily retain the qualitative
objection for firms that recently became
subject to the Federal Reserve’s
qualitative assessment, including
certain U.S. intermediate holding
companies. In doing so, the capital plan
rule provides additional time for those
firms to improve their capital planning
practices before the qualitative objection
is removed. While the qualitative
objection no longer applies to certain
banking organizations, all banking
organizations continue to be subject to
75 The qualitative assessment evaluates the
strength of a company’s capital planning process,
including the extent to which the analysis
underlying a company’s capital plan
comprehensively captures and addresses potential
risks stemming from company-wide activities, as
well as the reasonableness of a company’s capital
plan and the assumptions and analysis underlying
the plan.
76 84 FR 8953 (March 13, 2019). Specifically, a
firm that participates in four assessments and
successfully passes the qualitative evaluation in the
fourth year is no longer subject to a potential
qualitative objection.
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robust supervisory assessments of their
capital planning practices.
The proposal also would have
required U.S. GSIBs to remain subject to
the most stringent liquidity standards,
including the liquidity risk
management, monthly internal liquidity
stress testing, and liquidity buffer
requirements under the enhanced
prudential standards rule. The proposal
also would have required U.S. GSIBs to
report certain liquidity data for each
business day under the FR 2052a. The
Board did not receive comments on the
continued application of these
enhanced liquidity standards to U.S.
GSIBs and is finalizing liquidity
requirements for U.S. GSIBs as
proposed.
B. Category II Standards
The proposals would have required
banking organizations subject to
Category II standards to remain subject
to the most stringent stress testing
requirements, including annual
supervisory stress testing, FR Y–14
reporting requirements, and a
requirement to conduct company-run
stress tests on an annual basis. As noted
above, the failure or distress of a U.S.
banking organization or the U.S.
operations of a foreign banking
organization that is subject to Category
II standards could impose significant
costs on the U.S. financial system and
economy, although these banking
organizations generally do not present
the same degree of systemic risk as U.S.
GSIBs. Sophisticated stress testing helps
to address the risks presented by the
size and cross-jurisdictional activity of
such banking organizations.77
The Board did not receive any
comments related to capital planning
and stress testing for firms subject to
Category II standards, other than those
discussed for Category I. The Board is
finalizing the removal of the mid-cycle
stress test for firms subject to Category
II standards and adjusting the frequency
of stress testing requirements, as
discussed above. The Board is not
finalizing changes to the capital plan
rule to amend the definition of large and
noncomplex bank holding company at
this time, however. The Board intends
to consider such changes in conjunction
with other changes to the capital plan
rule as part of a future capital plan
proposal.
With respect to liquidity, the
proposals would have maintained the
existing liquidity risk management,
monthly internal liquidity stress testing,
and liquidity buffer requirements under
77 See
section V.C of this SUPPLEMENTARY
INFORMATION.
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the enhanced prudential standards rule
for banking organizations that would
have been subject to Category II
standards. The liquidity risk
management requirements under the
Board’s enhanced prudential standards
rule reflect important elements of
liquidity risk management in normal
and stressed conditions, such as cash
flow projections and contingency
funding plan requirements. Similarly,
internal liquidity stress testing and
buffer requirements require a banking
organization to project its liquidity
needs based on its own idiosyncratic
risk profile and to hold a liquidity buffer
sufficient to cover those needs. A
banking organization subject to Category
II standards under the proposals would
have been required to conduct internal
liquidity stress tests on a monthly basis.
A U.S. banking organization would have
conducted such stress tests at the toptier consolidated level, whereas a
foreign banking organization would
have been required to conduct internal
liquidity stress tests separately for each
of its U.S. intermediate holding
company, if applicable, its collective
U.S. branches and agencies, and its
combined U.S. operations. The
proposals would have also required a
top-tier U.S. depository institution
holding company or foreign banking
organization subject to Category II
standards to report FR 2052a liquidity
data for each business day.
Category II liquidity standards are
appropriate for banking organizations of
a very large size or with significant
cross-jurisdictional activity. Such
banking organizations may have greater
liquidity risk and face heightened
challenges for liquidity risk
management compared to an
organization that is smaller or has less
of a global reach. In addition, a very
large banking organization that becomes
subject to funding disruptions may need
to engage in asset fire sales to meet its
liquidity needs and has the potential to
transmit distress to the financial sector
on a broader scale because of the greater
volume of assets it could sell in a short
period of time. Similarly, a banking
organization with significant crossjurisdictional activity may have greater
challenges in the monitoring and
management of its liquidity risk across
jurisdictions and may be exposed to a
greater diversity of liquidity risks as a
result of its more global operations.
The Board received comments related
to the frequency and submission timing
of FR 2052a reporting for banking
organizations subject to Category II
standards. These comments are
discussed below in section XV of this
SUPPLEMENTARY INFORMATION. Otherwise,
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commenters did not provide views on
liquidity requirements applicable under
Category II. The Board is adopting
Category II liquidity standards as
proposed.
C. Category III Standards
For banking organizations subject to
Category III standards, the proposals
would have removed the mid-cycle
company-run stress testing requirement
and changed the frequency of the
required public disclosure for companyrun stress test results to every other year
rather than annually. The proposals
would have maintained all other stress
testing requirements for banking
organizations subject to Category III
standards. These standards would have
included the requirements for an annual
capital plan submission and annual
supervisory stress testing. A firm subject
to Category III standards would also be
required to conduct an internal stress
test, and report the results on the FR Y–
14A, in connection with its annual
capital plan submission.
A number of commenters requested
that the Board clarify the relationship
between the capital plan rule and the
stress testing rules and minimize the
imposition of any additional
requirements or processes. Specifically,
commenters requested that the Board
clarify expectations for internal stress
testing conducted in years during which
a company-run stress test would not be
required. These commenters requested
that internal stress tests be aligned with
the analysis required under the capital
plan rule by, for example, relying on the
capital action assumptions in the
Board’s stress testing rules. In addition,
some of these commenters suggested
that the Board reduce burden by
limiting the number of scenarios
required. Alternatively, some
commenters requested that the Board
reduce the frequency of the stress
testing cycle—including capital plan
submissions—to every other year for
banking organizations subject to
Category III standards.
The final rule retains the frequency of
supervisory stress testing and FR Y–14
reporting requirements as proposed.
These requirements help to ensure that
a banking organization subject to
Category III standards maintains
sufficient capital to absorb unexpected
losses and continue to serve as a
financial intermediary under stress.
Additionally, all large banking
organizations should maintain a sound
capital planning process on an ongoing
basis, including in years during which
a company-run stress test is not
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required.78 As noted in the proposals,
the Board will consider any other
changes to the capital plan rule as part
of a separate capital plan proposal.
Reporting requirements are discussed in
more detail in section XV of this
SUPPLEMENTARY INFORMATION.
Other commenters requested that the
Board retain the requirement for
banking organizations to publicly
disclose the results of their stress tests
on an annual basis. The Board will
continue to publish its annual
supervisory stress test results for firms
subject to Category III standards and
thus the reduced frequency to every
other year of firm’s required public
disclosure should only modestly limit
the amount of information that is
publicly available. Accordingly, the
final rule adopts the stress testing
disclosure requirements for banking
organizations subject to Category III
standards without change.
The proposals would have applied the
existing liquidity risk management,
monthly internal liquidity stress testing,
and liquidity buffer requirements under
the enhanced prudential standards rule
to banking organizations subject to
Category III standards. Additionally, the
proposals would have required a toptier U.S. depository institution holding
company or foreign banking
organization subject to Category III
standards to report daily or monthly FR
2052a liquidity data, depending on the
weighted short-term wholesale funding
level of the domestic holding company
or the foreign banking organization’s
combined U.S. operations. Specifically,
to provide greater insight into banking
organizations with heightened liquidity
risk, the Board proposed that a top-tier
U.S. holding company with $75 billion
or more in weighted short-term
wholesale funding, or a foreign banking
organization with U.S. operations
having at least that amount of weighted
short-term wholesale funding, be
required to submit FR 2052a data for
each business day.
The Board did not receive comments
on the application of liquidity stress
testing and buffer requirements to
banking organizations subject to
Category III standards. With respect to
liquidity risk management
requirements, some commenters
requested that the rule permit a banking
organization’s board of directors to
delegate certain oversight and approval
functions to a risk committee with
primary responsibility for overseeing
liquidity risks, including approval of
liquidity policies and review of
quarterly risk reports. These
78 See
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59051
commenters also requested elimination
of the requirement for a banking
organization’s board or risk committee
to review or approve certain operational
documents, such as cash flow projection
methodologies and liquidity risk
procedures, arguing that these
responsibilities are more appropriate for
senior management than the board or a
committee of the board.
The Board has long taken the view
that the board of directors should have
responsibility for oversight of liquidity
risk management because the directors
have ultimate responsibility for the
strategic direction of the banking
organization, and thus its liquidity
profile. Certain risk management
responsibilities, however, are assigned
to senior management. As such, the
final rule maintains the requirement for
the board of directors to approve and
periodically review the liquidity risk
management strategies and policies and
review quarterly risk reports. In
addition, the final rule continues to
state that the liquidity risk management
requirements for certain operational
documents such as cash flow projection
methodologies require submission to the
risk committee, rather than the board of
directors, for approval.79 The final rule
adopts Category III liquidity riskmanagement standards as proposed,
including monthly liquidity stress
testing and liquidity buffer maintenance
requirements.
Additionally, as discussed in section
XV of this Supplementary Information,
the Board received certain comments
related to the frequency and timeliness
of FR 2052a reporting for banking
organizations subject to Category III
standards. As discussed in that section,
the Board is finalizing FR 2052a
reporting requirements for banking
organizations subject to Category III
standards generally as proposed, with
minor changes to submission timing.
D. Category IV Standards
The proposal would have applied
revised stress testing requirements to
banking organizations subject to
Category IV standards to align with the
risk profile of these firms. Specifically,
the proposal would have revised the
frequency of supervisory stress testing
to every other year and eliminated the
requirement for firms subject to
Category IV standards to conduct and
publicly disclose the results of a
company-run stress test. Firms subject
to Category IV standards also would be
subject to FR Y–14 reporting
requirements. Relative to current
requirements under the enhanced
79 See
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prudential standards rule, the proposed
Category IV standards would have
maintained core elements of existing
standards but tailored these
requirements to reflect these banking
organizations’ lower risk profile and
lesser degree of complexity relative to
other large banking organizations.
Many commenters supported the
reduced frequency of supervisory stress
tests as a form of burden reduction.
However, some commenters opposed
this change and expressed concern that
it would allow banking organizations
subject to Category IV standards to take
on additional risk during off-cycle years,
and limit the public and market’s ability
to assess systemic risk. Other
commenters also argued that stress
testing requirements are not justified for
banking organizations subject to
Category IV standards in view of the
significant costs and burden associated
with such requirements. Some
commenters requested that the Board
provide additional information on the
impact of reducing the frequency of
supervisory stress testing for banking
organizations subject to Category IV
standards.
Supervisory stress testing on a twoyear cycle is consistent with section
401(e) of EGRRCPA, and takes into
account the risk profile of these banking
organizations relative to those that are
larger and more complex. Maintaining
FR Y–14 reporting requirements for
firms subject to Category IV standards
will provide the Board with the data it
needs to conduct supervisory stress
testing and inform ongoing supervision
of these firms. The Federal Reserve will
continue to supervise banking
organizations subject to Category IV
standards on an ongoing basis,
including evaluation of the capital
adequacy and capital planning
processes during off-cycle years. In
addition, the final rule provides the
Board with authority to adjust the
frequency of stress testing requirements
based on the risk profile of a banking
organization or other factors.
Accordingly, the final rule adopts the
revisions to the frequency of
supervisory stress testing requirements
for firms subject to Category IV
standards as proposed. Reporting
requirements are discussed in more
detail in section XV below.
Similar to the comments discussed
above, several commenters requested
that the Board clarify the relationship
between the capital plan rule and the
stress testing rules for banking
organizations subject to Category IV
standards. In particular, commenters
requested that the Board clarify what
information would be required in a
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capital plan and related reporting forms
submitted by a banking organization
subject to Category IV standards, given
that these banking organizations would
not be subject to company-run stress
testing requirements. Other commenters
requested that any forward-looking
analysis required for banking
organizations subject to Category IV
standards be limited and not require
hypothetical stress scenarios. The Board
plans to propose changes to the capital
plan rule as part of a separate proposal,
including providing firms subject to
Category IV standards additional
flexibility to develop their annual
capital plans.
Under the proposals, Category IV
standards would have included
liquidity risk management, stress
testing, and buffer requirements.
Banking organizations subject to
Category IV standards also would have
been required to report FR 2052a
liquidity data on a monthly basis. While
the proposals would have retained core
liquidity requirements under Category
IV standards, certain liquidity risk
management and liquidity stress testing
requirements would have been further
tailored to more appropriately reflect
the risk profiles of banking
organizations subject to this category of
standards.
As a class, banking organizations that
would have been subject to Category IV
standards tend to have more stable
funding profiles, as measured by their
generally lower level of weighted shortterm wholesale funding, and lesser
degrees of liquidity risk and operational
complexity associated with size, crossjurisdictional activity, nonbank assets,
and off-balance sheet exposure.
Accordingly, the proposals would have
reduced the frequency of required
internal liquidity stress testing to at
least quarterly, rather than monthly. The
proposals would not have changed other
aspects of the liquidity buffer
requirements for banking organizations
subject to Category IV standards.
The proposals would have modified
certain liquidity risk-management
requirements under the enhanced
prudential standards rule for banking
organizations subject to Category IV
standards. First, the proposals would
have required such banking
organizations to calculate collateral
positions on a monthly basis, rather
than a weekly basis. Second, the
proposals would have further tailored
the requirement under the enhanced
prudential standards rule for certain
bank holding companies to establish
risk limits to monitor sources of
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liquidity risk.80 Third, Category IV
standards would have specified fewer
required elements of monitoring
intraday liquidity risk exposures.81
Such changes would have reflected the
generally more stable funding profiles
and lower degrees of intraday risk and
operational complexity of these banking
organizations relative to those that are
larger and more complex. Under the
proposals, banking organizations subject
to Category IV standards also would
have been required to report FR 2052a
liquidity data on a monthly basis.
Some commenters objected to the
liquidity risk-management standards
proposed for banking organizations
subject to Category IV standards, on the
basis that any reduction in such
requirements could increase safety and
soundness and financial stability risks.
Other commenters supported this aspect
of the proposals, and asserted that it
would distinguish more effectively
between banking organizations in this
category and those that are larger and
more complex.
Banking organizations subject to
Category IV standards generally are less
prone to funding disruptions, even
under stress conditions. Monthly FR
2052a information, which is discussed
in more detail in section XV below,
together with information obtained
through the supervisory process, allows
the Board to monitor the liquidity risk
profiles of these banking organizations.
Accordingly, the final rule adopts the
proposed Category IV liquidity
standards without change.
VII. Single-Counterparty Credit Limits
In 2018, the Board adopted a final
rule to apply single-counterparty credit
limits to large U.S. and foreign banking
organizations (single-counterparty credit
limits rule). The single-counterparty
credit limits rule limits the aggregate net
credit exposure of a U.S. GSIB and any
bank holding company with total
consolidated assets of $250 billion or
more to a single counterparty. The
credit exposure limits are tailored to the
size and systemic footprint of the firm.
Single-counterparty credit limit
requirements also apply to a foreign
banking organization with $250 billion
or more in total consolidated assets with
respect to its combined U.S. operations,
and separately to any subsidiary U.S.
intermediate holding company of such a
firm.82 A foreign banking organization
may comply with single-counterparty
credit limits applicable to its combined
U.S. operations by certifying that it
80 12
CFR 252.34(g).
12 CFR 252.34(h)(3).
82 12 CFR 252.170(a).
81 See
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meets, on a consolidated basis,
standards established by its home
country supervisor that are consistent
with the BCBS large exposure
standard.83
The domestic proposal would have
modified the thresholds for application
of the single-counterparty credit limit
rule to apply single-counterparty credit
limits to all U.S. bank holding
companies that would be subject to
Category II or Category III standards.
This change would have aligned the
thresholds for application of singlecounterparty credit limits requirements
with the proposed thresholds for other
prudential standards. Similarly, the
foreign bank proposal would have
revised the single-counterparty credit
limit requirements to align with the
proposed thresholds for other enhanced
prudential standards applied to the U.S.
operations of foreign banking
organizations. Under the proposal,
single-counterparty credit limits would
have applied to foreign banking
organizations subject to Category II or
Category III standards or to a foreign
banking organization with $250 billion
or more in total consolidated assets. The
proposal would have preserved the
ability of a foreign banking organization
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 have
applied single-counterparty credit limits
separately to a U.S. intermediate
holding company subsidiary of a foreign
banking organization subject to Category
II or Category III standards, based on the
risk profile of the foreign banking
organization’s combined U.S.
operations. Under the proposal, the
requirements previously applicable to
U.S. intermediate holding companies
with $250 billion or more in assets
would have applied to all U.S.
intermediate holding companies subject
to single-counterparty credit limits—
specifically, the aggregate net credit
exposure limit of 25 percent of tier 1
capital, the treatment regarding
exposures to special purpose vehicles
(SPVs) and the application of the
economic interdependence and control
relationship tests, as well as the
required frequency of compliance. The
proposal also would have eliminated
the distinction under the singlecounterparty credit limits rule for
‘‘major’’ U.S. intermediate holding
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.
companies, and subjected all U.S.
intermediate holding companies subject
to the single-counterparty credit limits
rule to the same aggregate net credit
exposure limit. The proposal would not
have applied single-counterparty credit
limits to U.S. intermediate holding
companies under Category IV.
Many commenters supported the
proposed exclusion of U.S. intermediate
holding company subsidiaries of foreign
banking organizations subject to
Category IV standards from singlecounterparty credit limits.84 Some
commenters asserted that singlecounterparty credit limits for a U.S.
intermediate holding company should
be determined based on the risk profile
of the U.S. intermediate holding
company rather than on the risk profile
of the combined U.S. operations of its
parent foreign banking organization.
While some commenters supported the
proposal’s expansion of singlecounterparty credit limit requirements
for U.S. intermediate holding companies
with less than $250 billion in assets
under Categories II and III, others
argued that this approach was
unnecessary. Some commenters also
requested an extended compliance
period for the treatment of exposures to
SPVs and application of the economic
interdependence and control test. The
commenters also argued that the Board
should give the single-counterparty
credit limits rule the opportunity to take
effect before considering further
changes.
Single-counterparty credit limits
support safety and soundness and are
designed to reduce transmission of
distress, particularly for larger, riskier,
and interconnected banking
organizations. The risks indicated by
size, cross-jurisdictional activity, offbalance sheet exposure, and weighted
short-term wholesale funding and that
result in the application of Category II
and Category III standards evidence
vulnerability to safety and soundness
and financial stability risks, which may
be exacerbated if a banking organization
has outsized credit exposure to a single
counterparty. Therefore, the final rule
adopts the single-counterparty credit
limits proposed for U.S. banking
organizations without change. The
Board is, however, revising the
proposed single-counterparty credit
limit requirements for U.S. intermediate
holding companies so that the
application of such requirements are
based on the risk profile of the U.S.
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intermediate holding company rather
than on the risk profile of the combined
U.S. operations of its parent foreign
banking organization. This revision
would improve the focus and efficiency
of single-counterparty credit limits
relative to the proposal, because singlecounterparty credit limits that apply to
a U.S. intermediate holding company
will be based on the U.S. intermediate
holding company’s own risk profile. As
a result, only U.S. intermediate holding
companies subject to Category II or III
standards are separately subject to the
single-counterparty credit limits rule.
These U.S. intermediate holding
companies are subject to a single net
aggregate credit exposure limit of 25
percent of tier 1 capital. In addition,
these firms are subject to the treatment
for exposures to SPVs, the economic
interdependence and control tests, and
the daily compliance requirement that
was previously only applicable to U.S.
intermediate holding companies with
$250 billion or more in assets. The final
rule would provide U.S. intermediate
holding companies with less than $250
billion in assets that are subject to
Category II or III standards an additional
transition time, until January 1, 2021, to
come into compliance with more
stringent requirements.
VIII. Covered Savings and Loan
Holding Companies
The proposal would have subjected
covered savings and loan holding
companies to supervisory and companyrun stress testing requirements; riskmanagement and risk-committee
requirements; liquidity risk
management, stress testing, and buffer
requirements; and single-counterparty
credit limits, pursuant to section 10(g)
of the Home Owners’ Loan Act
(HOLA).85 These requirements would
have been applied to covered savings
and loan holding companies in the same
manner as a similarly situated bank
holding company.86 As described in the
reporting section, section XV, the
proposal would have expanded the
scope of applicability of the FR Y–14
reporting requirements to apply to
covered savings and loan holding
companies with total consolidated
assets of $100 billion or more. The
proposal also noted that the Board
planned to seek comment on the
application of capital planning
requirements to covered savings and
85 12
U.S.C. 1467a(g).
covered savings and loan holding company
would not be subject to Category I standards as the
definition of ‘‘global systemically important BHC’’
under the GSIB surcharge rule does not include
savings and loan holding companies. See 12 CFR
217.2.
86 A
83 12
84 Some commenters’ suggested modifications to
the single-counterparty credit limit rule that are
beyond the scope of changes in this rulemaking.
Therefore, these changes are not discussed
separately in this SUPPLEMENTARY INFORMATION.
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loan holding companies that would be
consistent with the capital planning
requirements for large bank holding
companies as part of a separate
proposal.
Some commenters argued that the
Board lacks the authority to apply
prudential standards to savings and loan
holding companies that are not
designated by the Financial Stability
Oversight Council (FSOC) as
systemically important nonbank
financial companies under section 113
of the Dodd-Frank Act.87 These
commenters argued that the Board may
only apply the proposed prudential
standards to covered savings and loan
holding companies that have been
designated by the FSOC for supervision
by the Board and not based on the
general grant of authority in section
10(g) of the HOLA.88 Commenters
argued that application of prudential
standards to covered savings and loan
holding companies pursuant to section
10(g) of HOLA implied that these
prudential standards could be applied
to banking organizations regardless of
size, an inference that commenters
asserted would be contrary to the
congressional intent of the Dodd-Frank
Act and EGRRCPA.
Section 10(g) of HOLA authorizes the
Board to issue such regulations and
orders, including regulations relating to
capital requirements, as the Board
deems necessary or appropriate to
administer and carry out the purposes of
section 10 of HOLA. As the primary
federal regulator and supervisor of
savings and loan holding companies,
one of the Board’s objectives is to ensure
that savings and loan holding
companies operate in a safe-and-sound
manner and in compliance with
applicable law. Like bank holding
companies, savings and loan holding
companies must serve as a source of
strength to their subsidiary savings
associations and may not conduct
operations in an unsafe and unsound
manner.
Section 165 of the Dodd-Frank Act
directs the Board to establish specific
enhanced prudential standards for large
bank holding companies and companies
designated by FSOC in order to prevent
or mitigate risks to the financial stability
of the United States.89 Section 165 does
not prohibit the application of standards
87 12
U.S.C. 5323.
commenters argued that relying on
the general authority of section 10(g) of HOLA to
apply prudential standards to covered savings and
loan holding companies would be inconsistent with
a canon of statutory construction that specific
statutory language ordinarily prevail over
conflicting general language.
89 12 U.S.C. 5365(a)(1).
88 Specifically,
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to savings and loan holding companies
and bank holding companies pursuant
to other statutory authorities.90
One commenter supported the
proposal’s application of prudential
standards to covered savings and loan
holding companies, asserting that
covered savings and loan holding
companies have similar risk profiles as
bank holding companies and therefore
should not be treated differently under
the Board’s regulatory framework.
Another commenter asserted that
certain of the risk-based indicators were
not reflective of risks to safety and
soundness for savings and loan holding
companies and should be modified.
Similarly, this commenter also argued
that covered savings and loan holding
companies were less risky and less
complex than bank holding companies
of the same size and should be subject
to streamlined capital planning
requirements and supervisory
expectations. The commenter also
opposed the application of singlecounterparty credit limits to covered
savings and loan holding companies on
the basis that the application of these
standards would be inconsistent with
the qualified thrift lender test, described
below. This commenter argued that, if
applied, the limits should be modified
to exclude mortgage-backed securities of
U.S. government-sponsored enterprises.
Large covered savings and loan
holding companies engage in many of
the same activities and face similar risks
as large bank holding companies. By
definition, covered savings and loan
holding companies are substantially
engaged in banking and financial
activities, including deposit taking,
lending, and broker-dealer activities.91
Large covered savings and loan holding
companies engage in credit card and
margin lending and certain complex
nonbanking activities that pose higher
levels of risk. Large covered savings and
loan holding companies can also rely on
high levels of short-term wholesale
funding, which may require
sophisticated capital, liquidity, and risk
management processes. Similar to large
bank holding companies, large covered
savings and loan holding companies
also conduct business across a large
geographic footprint, which in times of
stress could present certain operational
90 See
EGRRCPA 401(b).
covered savings and loan holding company
must have less than 25 percent of its total
consolidated assets in insurance underwriting
subsidiaries (other than assets associated with
insurance underwriting for credit), must not have
a top-tier holding company that is an insurance
underwriting company, and must derive a majority
of its assets or revenues from activities that are
financial in nature under section 4(k) of the Bank
Holding Company Act. 12 CFR 217.2.
91 A
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risks and complexities. As discussed
above in section V, the risk-based
indicators identify risks to safety and
soundness in addition to risks to
financial stability. The category
framework would align requirements
with the risk profile of a banking
organization, including by identifying
risks that warrant more sophisticated
capital planning, more frequent
company-run stress testing, and greater
supervisory oversight through
supervisory stress testing, to further the
safety and soundness of these banking
organizations. By strengthening the riskmanagement, capital, and liquidity
requirements commensurate with these
risks, the final rule would improve the
resiliency and promote the safe and
sound operations of covered savings and
loan holding companies. Accordingly,
the Board is adopting the application of
prudential standards to covered savings
and loan holding companies as
proposed.
These standards include supervisory
stress testing and, for Categories II and
III, company-run stress testing
requirements.92 Stress testing
requirements provide a means to better
understand the financial condition of
the banking organization and risks
within the banking organization that
may pose a threat to safety and
soundness. To implement the
supervisory stress testing requirements,
the Board is requiring covered savings
and loan holding companies to report
the FR Y–14 reports in the same manner
as a bank holding company.93 The final
rule does not establish capital planning
requirements for covered savings and
loan holding companies. The Board
intends to propose to apply those
requirements to covered savings and
loan holding companies as part of a
separate proposal that would be issued
for public notice and comment.
The final rule also would apply
liquidity risk management, stress testing
and buffer requirements to covered
savings and loan holding companies.
Specifically, a covered savings and loan
holding company is required to conduct
internal stress tests at least monthly (or
92 Company-run stress test requirements are
discussed further in section XIII. of this
SUPPLEMENTARY INFORMATION.
93 Covered savings and loan holding companies
with total consolidated assets of $100 or more are
required to report the FR Y–14M and all schedules
of the FR Y–14Q except for Schedules C—
Regulatory Capital Instruments and Schedule D—
Regulatory Capital Transitions. These firms also are
required to report the FR Y–14A Schedule E—
Operational Risk. Covered savings and loan holding
companies subject to Category II or III standards are
required to submit the FR Y–14A Schedule A—
Summary and Schedule F—Business Plan Changes
in connection with the company-run stress test
requirement.
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quarterly, for a firm that is subject to
Category IV standards) to measure its
potential liquidity needs across
overnight, 30-day, 90-day, and 1-year
planning horizons during times of
instability in the financial markets. In
addition, the covered savings and loan
holding company is required to hold
highly liquid assets sufficient to meet
the projected 30-day net stress cash-flow
need under internal stress scenarios. A
covered savings and loan holding
company is also required to meet
specified corporate governance
requirements around liquidity risk
management, to produce cash flow
projections over various time horizons,
to establish internal limits on certain
liquidity metrics, and to maintain a
contingency funding plan that identifies
potential sources of liquidity strain and
alternative sources of funding when
usual sources of liquidity are
unavailable. These liquidity risk
management, liquidity stress testing,
and buffer requirements help to ensure
that covered savings and loan holding
companies have effective governance
and risk-management processes to
determine the amount of liquidity to
cover risks and exposures, and
sufficient liquidity to support their
activities through a range of conditions.
The final rule applies singlecounterparty credit limits to covered
savings and loan holding companies
that are subject to Category II or III
standards as proposed. Application of
single-counterparty credit limits to
covered savings and loan holding
companies would reduce the likelihood
that distress at another firm would be
transmitted to the savings and loan
holding company.
The single-counterparty credit limits
exempt transactions with governmentsponsored entities (GSEs), such as the
Federal National Mortgage Association
(Fannie Mae) or the Federal Home Loan
Mortgage Corp. (Freddie Mac), from
limits on credit exposure, so long as the
GSE remains under U.S. government
conservatorship.94 As commenters
observed, if the GSEs exit
conservatorship, the single-counterparty
credit limits would limit a banking
organization from holding mortgagebacked securities of U.S. GSEs (Agency
MBS) in excess of 25 percent of tier 1
94 The Board’s single-counterparty credit limits
exclude any direct claim on, and the portion of a
claim that is directly and fully guaranteed as to
principal and interest by, the Federal National
Mortgage Association and the Federal Home Loan
Mortgage Corporation, only while operating under
the conservatorship or receivership of the Federal
Housing Finance Agency. 12 CFR 252.77. Agency
MBS also are considered eligible collateral while
the GSEs remain in conservatorship. 12 CFR 252.71.
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capital.95 The qualified thrift lender test
(QTL test) requires a savings association
to either be a domestic building
association or have qualified thrift
investments exceeding 65 percent of its
portfolio assets.96 The QTL test permits
Agency MBS to be used to satisfy the
QTL test without limit.97 While the
GSEs are under U.S. government
conservatorship, the single-counterparty
credit limits would not affect the ability
of a banking organization, including a
savings association, to hold Agency
MBS.
Fannie Mae and Freddie Mac have
been operating under the
conservatorship of the Federal Housing
Finance Agency since 2008 and,
concurrent with being placed in
conservatorship, received capital
support from the United States
Department of the Treasury.98 The
timing and terms of Fannie Mae and
Freddie Mac exiting conservatorship are
uncertain. In addition, other aspects of
the Board’s regulatory framework could
be affected by a change to the
conservatorship status of Fannie Mae or
Freddie Mac. The Board will continue
to monitor and take into consideration
any future changes to the
conservatorship status of the GSEs,
including the extent and type of support
received by the GSEs. As appropriate,
the Board will consider changes to the
application of single-counterparty credit
limits to covered savings and loan
holding companies and other banking
organizations, as well as to other aspects
of the Board’s regulatory framework.
Finally, one commenter urged the
Board to provide covered savings and
loan holding companies extended
transition periods to come into
compliance with the new requirements,
if adopted. The final rule would provide
covered savings and loan holding
companies a transition period to come
into compliance with the new
prudential standards. Specifically, a
covered savings and loan holding
company will be required to comply
with risk-management and riskcommittee requirements as well as the
liquidity risk-management, stress
testing, and buffer requirements on the
first day of the fifth quarter following
the effective date of the final rule. A
covered savings and loan holding
company will be required to comply
with single-counterparty credit limits
and stress testing requirements on the
first day of the ninth quarter following
the effective date of the final rule.
95 12
CFR 252.177(a)(1); 12 CFR 238.150.
U.S.C. 1467a(m)(3)(C).
97 12 U.S.C. 1467a(m)(4)(C)(ii)(III).
98 See 79 FR 77602 (December 24, 2014).
96 12
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59055
Transition periods for reporting
requirements are discussed in section
XV of this SUPPLEMENTARY INFORMATION.
IX. Risk Management and Risk
Committee Requirements
Section 165(h) of the Dodd-Frank Act
requires certain publicly traded bank
holding companies to establish a risk
committee that is ‘‘responsible for the
oversight of the enterprise-wide risk
management practices’’ and meets other
statutory requirements.99 EGRRCPA
raised the threshold for mandatory
application of the risk-committee
requirement from publicly traded bank
holding companies with $10 billion or
more in total consolidated assets to
publicly traded bank holding companies
with $50 billion or more in total
consolidated assets. However, 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 would be
necessary or appropriate to promote
sound risk-management practices.
The proposal would have raised the
threshold for application of riskcommittee requirements consistent with
the changes made by EGRRCPA. Under
the proposal, a publicly traded or
privately held U.S. bank holding
company with total consolidated assets
of $50 billion or more would have been
required to maintain a risk committee.
The proposal would have applied the
same risk-committee requirements to
covered savings and loan holding
companies with $50 billion or more in
total consolidated assets as would have
applied to a U.S. bank holding company
of the same size.
Under the enhanced prudential
standards rule, as adopted, all foreign
banking organizations with total
consolidated assets of $50 billion or
more, and publicly traded foreign
banking organizations with $10 billion
or more in total consolidated assets,
were required to maintain a risk
committee that met specified
requirements. These requirements
varied based on a foreign banking
organization’s total consolidated assets
and combined U.S. assets. Publicly
traded 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, were required
to annually certify to the Board that they
maintain a qualifying committee that
oversees the risk management practices
99 12
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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 were subject to
more detailed risk-committee and riskmanagement requirements, including
the requirement to appoint a U.S. chief
risk officer.
Consistent with EGRRCPA, the
proposal would have raised the total
consolidated asset threshold for
application of the risk-committee
requirements to foreign banking
organizations but would not have
changed the substance of the riskcommittee requirements for these firms.
One commenter argued for additional
flexibility in meeting certain
requirements for certain foreign banking
organizations that do not have a U.S.
intermediate holding company.
Specifically, the commenter requested
that the Board modify the U.S. chief risk
officer requirement so that foreign
banking organizations without a U.S.
intermediate holding company could be
allowed to identify a senior officer to
serve as the point of contact responsible
for the U.S. risk management structure.
The Board is finalizing the riskcommittee requirements as proposed.
Sound enterprise-wide risk management
supports safe and sound operations of
banking organizations and reduces the
likelihood of their material distress or
failure, and thus also promotes financial
stability. The final rule applies riskcommittee requirements to a publicly
traded or privately held bank holding
company or covered savings and loan
holding company with total
consolidated assets of $50 billion or
more. These standards enhance safety
and soundness and help to ensure
independent risk management, which is
appropriate for firms of this size,
including both privately held as well as
publicly traded banking organizations.
Applying the same minimum standards
to covered savings and loan holding
companies accordingly furthers their
safety and soundness by addressing
concerns that apply equally across large
depository institution holding
companies.
Taking into consideration varying
structures of their U.S. operations, the
proposed risk-management
requirements are important to ensure
safety and soundness of the U.S.
operations of a foreign banking
organization as well. Under the final
rule, foreign banking organizations with
$50 billion or more but less than $100
billion in total consolidated assets, as
well as foreign banking organizations
with total consolidated assets of $100
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20:44 Oct 31, 2019
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billion or more but less than $50 billion
in combined U.S. assets, are 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
are required to comply with the more
detailed risk-committee and riskmanagement requirements under the
enhanced prudential standards rule,
which include the chief risk officer
requirement. The final rule eliminates
the risk-committee requirements that
apply to foreign banking organizations
with less than $50 billion in total
consolidated assets. For banking
organizations with less than $50 billion
in total consolidated assets, the Board
proposes to review the risk-management
practices of such firms through existing
supervisory processes and expects that
all firms establish risk-management
processes and procedures
commensurate with their risks.
X. Enhanced Prudential Standards for
Foreign Banking Organizations With a
Smaller U.S. Presence
The Board’s regulatory framework
tailors the application of enhanced
prudential standards to foreign banking
organizations based on the size and
complexity of the organization’s U.S.
operations. In particular, subparts L and
M of the enhanced prudential standards
rule, as adopted, established companyrun stress testing and risk-management
and risk-committee requirements for
foreign banking organizations with at
least $10 billion but less than $50
billion in total consolidated assets, the
latter of which is described above.
Additionally, subpart N, as adopted,
established risk-based and leverage
capital, risk-management and riskcommittee, liquidity risk management,
and capital stress testing requirements
for foreign banking organizations with at
least $50 billion in total consolidated
assets but less than $50 billion in
combined U.S. assets.100 These
provisions largely required the foreign
banking organization to comply with
home-country capital and liquidity
standards at the consolidated level, and
imposed certain risk-management
requirements that are specific to the
U.S. operations of a foreign banking
organization.
The proposal would have maintained
this approach for foreign banking
organizations with a limited U.S.
presence; however, it would have also
implemented targeted changes to reduce
the stringency of certain requirements
100 79
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applicable to these firms. It also would
have maintained certain riskmanagement 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, III, or IV
standards.
A. Enhanced Prudential Standards for
Foreign Banking Organizations With
Less Than $50 Billion in Total
Consolidated Assets
The proposal would have eliminated
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 have
eliminated 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.101
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.102
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.
Commenters were generally supportive
of the Board’s proposed changes to raise
the thresholds for application of
standards consistent with EGRRCPA.
Accordingly, the Board is finalizing
101 Subpart L, as adopted, also applied to foreign
savings and loan holding companies with more
than $10 billion in total consolidated assets. See 12
CFR 252.120 et seq.
102 For foreign savings and loan holding
companies, the proposal would have applied
company-run stress testing requirements to foreign
savings and loan holding companies with more
than $250 billion in total consolidated assets. These
requirements would have been the same as those
that were established under subpart L of the
enhanced prudential standards rule. See id. Raising
the asset size threshold for application of companyrun 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 final
rule, company-run stress test requirements for
foreign savings and loan holding companies would
be in the new subpart R of Regulation LL.
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changes to the thresholds for
application of the company-run stress
testing, risk-committee and riskmanagement requirements as proposed.
B. 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
Subpart N of the enhanced prudential
standards rule, as adopted, established
risk-based and leverage capital, liquidity
risk management, and capital stress
testing requirements for foreign banking
organizations with $50 billion or more
in total consolidated assets but less than
$50 billion in combined U.S. assets.
These standards largely required
compliance with home-country
standards.
Under the proposed rule, the
requirements under subpart N would
have continued 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
changes to the frequency of stress
testing for smaller and less complex
domestic holding companies, the
proposal would have required foreign
banking organizations with total
consolidated assets of less than $250
billion that do not meet the criteria for
application of Category II, III, or IV
standards to be subject to a homecountry supervisory stress test on a
biennial basis, rather than annually.
As discussed above, risk-committee
requirements in subpart N would have
been 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
have been 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 have been subject to more
detailed risk-committee and riskmanagement requirements, which
include the chief risk officer
requirement. These more detailed riskcommittee requirements would be the
same requirements that previously
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applied to foreign banking organizations
with $100 billion or more in combined
U.S. assets.
The Board did not propose to revise
the $50 billion U.S. non-branch asset
threshold for the U.S. intermediate
holding company formation
requirement. Because a foreign banking
organization with less than $100 billion
in combined U.S. assets may have or
could be required to form a U.S.
intermediate holding company, the
proposal would have established an
intermediate holding company
requirement for these foreign banking
organizations in subpart N (subpart N
intermediate holding company). Under
the proposal, a subpart N intermediate
holding company would not have been
subject to Category II, III, or IV capital
standards, but would have remained
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.103 Similarly, a subpart N
intermediate holding company would
have been required to comply with riskmanagement and risk-committee
requirements. As under the current rule,
under the proposal the risk committee
of the U.S. intermediate holding
company would have also been able to
serve as the U.S. risk committee for the
foreign banking organization’s
combined U.S. operations.
Some commenters objected to the U.S.
intermediate holding company
requirement entirely. These commenters
also argued that, if the requirement is
retained, the threshold should be
increased to $100 billion or more,
arguing that a $100 billion threshold
would be more consistent with section
401 of EGRRCPA and principle of
national treatment and competitive
equality.
A number of commenters argued that
the U.S. intermediate holding company
requirement and the standards applied
to U.S. intermediate holding companies
discouraged growth through
subsidiaries rather than branches (nonbranch assets). Instead, commenters
argued that growth in non-branch assets
should be encouraged on the basis that
it improved a foreign banking
organization’s liquidity risk profile in
the United States. These commenters
argued that disincentives to form an
U.S. intermediate holding company
were particularly pronounced if the
standards that are applied to the U.S.
103 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.
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59057
intermediate holding company are
calibrated based on the risk profile of
the foreign banking organization’s
combined U.S. operations. Some
commenters supported the proposed
application of fewer enhanced
prudential standards to subpart N
intermediate holding companies. Other
commenters argued that a subpart N
intermediate holding company should
be subject to risk management standards
only.
The Board did not propose to amend
the threshold for formation of the U.S.
intermediate holding company
requirement. The U.S. intermediate
holding company requirement has
resulted in substantial gains in the
resilience and safety and soundness of
foreign banking organizations’ U.S.
operations. EGRRCPA raised the
thresholds for application of section 165
of the Dodd-Frank Act, but did not
affect the $50 billion threshold for
application of the U.S. intermediate
holding company requirement.104
The final rule would adopt the
subpart N intermediate holding
company requirements as proposed. By
applying risk management and
standardized capital requirements to
subpart N intermediate holding
companies, the enhanced prudential
standards rule would treat a subpart N
intermediate holding company similarly
to a domestic banking organization of
the same size. As some commenters
observed, a subpart N intermediate
holding company would be subject to
fewer and less stringent requirements
than a U.S. intermediate holding
company of a foreign banking
organization subject to subpart O of the
Board’s enhanced prudential standards
rule (subpart O intermediate holding
company). Specifically, a subpart N
intermediate holding company is not
subject to liquidity risk management,
liquidity stress testing and buffer
requirements. In addition, as discussed
above, the application of capital,
liquidity and single-counterparty credit
limits to a subpart O intermediate
holding company would be based on the
risk profile of the subpart O
intermediate holding company. By
establishing two tiers of U.S.
intermediate holding company and
tailoring the standards applicable to
each type of U.S. intermediate holding
company, this approach would
significantly reduce cliff-effects in the
standards applied to U.S. intermediate
holding companies and reduce
104 See also EGRRCPA 401(g) (discussing the
Board’s authority to apply enhanced prudential
standards to foreign banking organizations with
more than $100 billion in total consolidated assets.
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disincentives to growth in branch assets
relative to non-branch assets.
XI. Technical Changes to the
Regulatory Framework for Foreign
Banking Organizations and Domestic
Banking Organizations
The proposal would have made
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, the
proposal would have added 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
organization,’’ ‘‘Category III foreign
banking organization,’’ or ‘‘Category IV
foreign banking organization,’’
respectively. Similarly, the proposal
would have added defined terms for
‘‘Category II U.S. intermediate holding
company,’’ ‘‘Category III U.S.
intermediate holding company,’’ and
‘‘Category IV U.S. intermediate holding
company.’’ The addition of these terms
would facilitate the requirements for
application of enhanced prudential
standards under the category
framework. The final rule uses the
Board’s GSIB surcharge methodology to
identify a U.S. GSIB and refers to these
banking organizations as global
systemically important bank holding
companies, consistent with the term
used elsewhere in the Board’s
regulations. The final rule adopts these
changes as proposed, consistent with
the adoption of the category framework
in this final rule.
In addition, the final rule further
streamlines the Board’s enhanced
prudential standards rule by locating
certain definitions common to all
subparts into a common definitions
section.105 In addition, the proposal
would have made revisions to
streamline the process for forming a
U.S. intermediate holding company and
for requesting an alternative
organizational structure. The Board did
not receive any comments on these
aspects of the proposal and is adopting
these changes as proposed.
Specifically, the final rule eliminates
the requirement to submit an
implementation plan for formation of a
U.S. intermediate holding company.
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,
105 See
12 CFR 252.2.
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information would have been 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.
In addition, the Board is making
conforming amendments to the process
for requesting an alternative
organizational structure for a U.S.
intermediate holding company, as well
as clarifying 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 final rule shortens the
time period for action by the Board from
180 days to 90 days. This process
applies to both subpart N and subpart O
intermediate holding companies.
As discussed above in sections VI and
VII of this Supplementary Information,
capital, liquidity and singlecounterparty credit limits would apply
to a U.S. intermediate holding company
based on its risk profile. Subpart O of
the enhanced prudential standards rule
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 all such U.S.
intermediate holding companies. The
final rule retains this aggregation
requirement, but amends the
requirement to consider the risk-based
indicators discussed above.
In addition, the final rule provides a
reservation of authority to permit a
foreign banking organization to comply
with the requirements of the enhanced
prudential standards rule 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
whether the foreign banking
organization is owned or controlled by
a foreign government; (2) whether the
action would be consistent with the
purposes of the enhanced prudential
standards rule; and (3) any other factors
that the Board determines are relevant.
For example, if a top-tier foreign
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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 the
enhanced prudential standards rule
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 the enhanced prudential
standards rule. The reservation of
authority is intended to provide
additional flexibility to address certain
foreign banking organization structures
the Board has encountered following the
initial implementation of the rule, as
well as to provide clarity and reduce
burden for these institutions.
Finally, the proposal would have
eliminated transition and initial
applicability provisions that were
relevant only for purposes of the initial
adoption and implementation of the
enhanced prudential standards rule. For
example, the proposal would have
removed paragraph (a)(2) of § 252.14 of
part 252, which provides the required
timing of the stress tests for each stress
test cycle prior to October 1, 2014. The
Board did not receive comments on
these aspects of the proposals and is
adopting them without change.
XII. Changes to Liquidity Buffer
Requirements
Banking organizations subject to the
Board’s enhanced prudential standards
rule are required to maintain liquidity
buffers composed of unencumbered
highly liquid assets sufficient to cover
projected net stressed cash-flow needs
determined under firm-conducted stress
scenarios over specified planning
horizons.106 At the time of the
proposals, the rule stated that cash and
securities issued or guaranteed by the
U.S. government or a U.S. governmentsponsored enterprise are highly liquid
assets.107 In addition, the rule required
106 A bank holding company subject to the
enhanced prudential standards rule must maintain
a liquidity buffer sufficient to meet its projected net
stressed cash-flow needs over a 30-day planning
horizon. Similarly, a foreign banking organization
subject to the enhanced prudential standards rule
must maintain a liquidity buffer for a U.S.
intermediate holding company, if any, sufficient to
meet its projected net stressed cash-flow needs over
a 30-day planning horizon. Separately, such a
foreign banking organization must maintain a
liquidity buffer for its collective U.S. branches and
agencies sufficient to meet their net stressed cashflow need over the first 14 days of a stress test with
a 30-day planning horizon. See 12 CFR 252.35(b)(1)
and 252.157(c)(2)–(3).
107 12 CFR 252.35(b)(3)(i)(A)–(B) and 12 CFR
252.157(c)(7)(i)(A)–(B). The foreign bank proposal
requested comment on whether it would be
appropriate to limit ‘‘cash’’ in the enhanced
prudential standards rule to Reserve Bank balances
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banking organizations to demonstrate to
the satisfaction of the Board that any
other asset meets specific liquidity
criteria in order to use it to meet the
rule’s liquidity buffer requirements.108
The criteria for highly liquid assets set
forth in the enhanced prudential
standards rule are substantially similar
to the qualifying criteria for HQLA
under the LCR rule, which requires
banking organizations covered by that
rule to maintain an amount of HQLA
sufficient to meet net stressed outflows
over a 30-day period of stress.109 Under
the LCR rule, HQLA includes asset
classes that are expected to be easily
and immediately convertible into cash
with little or no expected loss of value
during a period of stress. Certain of the
asset classes are also subject to
additional, asset-specific requirements.
In the preamble to the enhanced
prudential standards rule, which was
adopted prior to finalization of the LCR
rule, the Board indicated that assets that
would qualify as HQLA under the thenproposed LCR rule would be liquid
under most scenarios, but a banking
organization would still be required to
demonstrate to the Board that the asset
meets the criteria for highly liquid
assets set forth in the enhanced
prudential standards rule.
The foreign bank proposal sought
comment on whether to more closely
align the assets that qualify as highly
liquid assets in the enhanced prudential
standards rule with HQLA under the
LCR rule. Specifically, the foreign bank
proposal asked 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. The foreign bank proposal
also sought comment on whether the
Board should incorporate other HQLA
requirements in the enhanced
prudential standards rule for highly
liquid assets, such as the LCR rule’s
Level 2A and Level 2B liquid asset
haircuts, the 40 percent composition
limit on the total amount of Level 2
liquid assets, as well as the operational
requirements set forth in 12 CFR 249.22.
Commenters generally supported
aligning the definition of highly liquid
assets with HQLA. However,
commenters did not support including
in the enhanced prudential standards
and foreign withdrawable reserves. The Board
received a comment recommending that the Board
not limit ‘‘cash’’ for purposes of the definition of
highly liquid asset. The Board is not revising the
term ‘‘cash’’ as part of this final rule.
108 12 CFR 252.35(b)(3)(i)(C) and 12 CFR
252.157(c)(7)(i)(C).
109 12 CFR part 249.
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rule the haircuts and composition limits
under the LCR rule. These commenters
argued that firms should instead
continue to evaluate all market and
credit risk characteristics of assets
eligible for inclusion as highly liquid
assets, and apply market and credit risk
haircuts consistent with the design of
their internal liquidity stress test
scenarios. Commenters also did not
support adding the operational
requirements for eligible HQLA under
the LCR rule to the requirements for
highly liquid assets under the enhanced
prudential standards rule, arguing that
firms should be able to apply
independent judgement in assessing
operational or other risks in the context
of highly liquid assets.
Due to the similarity in asset
qualification requirements under the
two rules, the Board is amending the
definition of highly liquid assets under
the enhanced prudential standards rule
to include all assets that would qualify
as HQLA under LCR rule. The asset
must satisfy all the qualifying criteria
for HQLA, including, where
appropriate, that the asset is liquid and
readily marketable as defined in the
LCR rule and meets the additional assetspecific criteria under the LCR rule.110
In addition, the Board is amending the
definition of highly liquid assets to
include requirements that the banking
organization subject to the rule
demonstrate each asset is under the
control of the management function that
is charged with managing liquidity risk
(liquidity management function) and
demonstrate the capability to monetize
the highly liquid assets. For banking
organizations that are subject to the LCR
rule, the liquidity management function
that controls the highly liquid assets is
intended to be the same function that
controls eligible HQLA. For a foreign
banking organization, the appropriate
management function is the one that is
charged with managing liquidity risk for
its combined U.S. operations.
The Board is retaining, without
change, the provision that permits other
assets to qualify as highly liquid assets
if the banking organization
demonstrates to the satisfaction of the
Board that these assets meet the criteria
for highly liquid assets (Section C
assets).111 The Board is clarifying that
12 CFR 249.20.
12 CFR 252.35(d)(b)(i)(C) and 12 CFR
252.157(c)(7)(i)(C). The requirements for a Section
C asset include that the bank holding company or
foreign banking organization demonstrate to the
satisfaction of the Board that the asset: (1) Has low
credit risk and low market risk; (2) is traded in an
active secondary two-way market that has
committed market makers and independent bona
fide offers to buy and sell so that a price reasonably
59059
the banking organization cannot include
Section C assets in its buffer until it has
received approval from the Board.
As a result of the expansion of the
definition of highly liquid assets to
include HQLA, the Board expects other
assets will qualify as highly liquid
assets only in narrow circumstances.
However, the Board is retaining this
provision to provide a banking
organization the opportunity to
determine and demonstrate to the Board
that other assets meet the criteria for
highly liquid assets.112 For example, it
may be possible for a banking
organization to demonstrate that an
asset that is eligible as HQLA under
another jurisdiction’s LCR rule meets
the requirements for Section C assets.
The Board is not changing the definition
of highly liquid assets or other asset
requirements under the rule to include
the haircuts or quantitative limits that
exist in the LCR rule. The Board
believes that the requirements in the
enhanced prudential standards rule that
banking organizations discount the fair
market value of the asset to reflect any
credit risk and market price volatility of
the asset serve to address similar
concerns as the LCR rule’s haircuts
while permitting a banking organization
to perform its own assessment of
potential stress. In addition, the
enhanced prudential standard rule’s
diversification requirement that a
liquidity buffer not contain significant
concentrations of highly liquid assets by
issuer, business sector, region, or other
factor related to the banking
organization’s risk address similar risks
as the LCR rule’s quantitative limits to
the composition of the HQLA amount,
and permit a banking organization to
consider its idiosyncratic risk profile
and market conditions. Consistent with
the LCR rule’s composition limits on
Level 2 and Level 2B liquid assets, the
Board believes overreliance on Level 2
liquid assets that are generally not
immediately convertible to cash and
subject to greater price volatility,
present safety and soundness concerns
and increase the risks a banking
organization would not be able to meet
its obligations during a period of stress.
The Board is clarifying that the
diversification requirements in the
enhanced prudential standards rule are
110 See
111 See
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related to the last sales price or current bona fide
competitive bid and offer quotations can be
determined within one day and settled at that price
within a reasonable time period conforming with
trade custom; and (3) is a type of asset that investors
historically have purchased in periods of financial
market distress during which market liquidity has
been impaired.
112 Id.
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intended to prevent such
overreliance.113
Although commenters requested that
the definition of highly liquid assets or
other asset requirements not include the
operational requirements for eligible
HQLA prescribed in the LCR rule, the
Board believes demonstrating the
liquidity buffer is under the control of
the liquidity management function and
demonstrating the capability to
monetize the liquidity buffer are
fundamental risk management processes
that ensure the liquidity buffer is
available during times of stress.
Specifically, these requirements are
intended to ensure a banking
organization can monetize highly liquid
assets during the relevant stress scenario
and have the proceeds available to the
liquidity management function without
conflicting with another business or risk
management strategy, sending a
negative signal to market participants,
or adversely affecting its reputation or
franchise. However, to address
commenters’ concern that banking
organizations be allowed to apply
independent judgement in assessing
operational and other risks in the
context of highly liquid assets, the
Board is not incorporating the LCR
rule’s more prescriptive requirements
for demonstrating the operational
capability to control and monetize
assets. The Board believes it is
appropriate to allow for a greater range
of risk management practices to
demonstrate control or monetization
capabilities for a firm’s highly liquid
asset buffer, consistent with the goal
that the internal liquidity stress test be
tailored to a firm’s risk profile, size, and
complexity. The Board is clarifying,
however, that a banking organization’s
approach to demonstrating control and
monetization capabilities under the LCR
rule would also meet the requirements
of the amended definition.
XIII. Changes to Company-Run Stress
Testing Requirements for State Member
Banks, Removal of the Adverse
Scenario, and Other Technical Changes
Proposed in January 2019
In January 2019, the Board requested
comment on a proposed rule that would
amend the Board’s stress testing rules,
consistent with section 401 of
EGRRCPA (stress testing proposal).114
113 See 12 CFR 238.124(b)(3)(v) (covered savings
and loan holding companies), 12 CFR
252.35(b)(3)(v) and 12 CFR 252.157(c)(7)(v). As
discussed in Section VIII of this Supplementary
Information, this final rule adopts the same
liquidity risk management, stress testing and buffer
requirements for covered savings and loan holding
companies.
114 84 FR 4002 (February 14, 2019).
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Prior to the passage of EGRRCPA,
section 165(i) of the Dodd-Frank Act 115
required each state member bank with
total consolidated assets of more than
$10 billion to conduct annual stress
tests. In addition, section 165 required
the Board to issue regulations that
establish methodologies for conducting
stress tests, which were required to
include at least three different stresstesting scenarios: ‘‘baseline,’’ ‘‘adverse,’’
and ‘‘severely adverse.’’ 116
Section 401 of EGRRCPA amended
certain aspects of the stress testing
requirements applicable to state member
banks under section 165(i) of the DoddFrank Act.117 Specifically, 18 months
after the date of enactment, section 401
of EGRRCPA raises the minimum asset
threshold for application of the stress
testing requirement from more than $10
billion to more than $250 billion in total
consolidated assets; revises the
requirement for state member banks to
conduct stress tests ‘‘annually,’’ and
instead requires them to conduct stress
tests ‘‘periodically.’’ In addition,
EGRRCPA amended section 165(i) to no
longer require the Board’s supervisory
stress test and firms’ company-run stress
tests to include an ‘‘adverse’’ scenario,
thus reducing the number of required
stress test scenarios from three to two.
The stress testing proposal would
have raised the minimum asset
threshold for state member banks to
conduct stress tests from more than $10
billion to more than $250 billion, and
revised the frequency with which state
member banks with assets greater than
$250 billion would have been required
to conduct stress tests. In addition, the
stress testing proposal would have
removed the adverse scenario from the
list of required scenarios in the Board’s
stress testing rules and the Board’s
Policy Statement on the Scenario Design
Framework for Stress Testing. As
discussed below, the Board received
two comments on the stress testing
proposal and is adopting the proposal
without change.
In preparing the stress testing
proposal and this aspect of the final
rule, the Board coordinated closely with
the FDIC and the OCC to help to ensure
that the company-run stress testing
requirements are consistent and
comparable across depository
institutions and depository institution
holding companies, and to address any
burden that may be associated with
having multiple entities within one
115 Public
Law 111–203, 124 Stat. 1376 (2010).
U.S.C. 5365(i)(2)(C).
117 Public Law 115–174, 132 Stat. 1296–1368
(2018).
116 12
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organizational structure complying with
different stress testing requirements.
A. Minimum Asset Threshold for State
Member Banks
As described above, section 401 of
EGRRCPA amends section 165 of the
Dodd-Frank Act by raising the
minimum asset threshold for state
member banks required to conduct
company-run stress tests from more
than $10 billion to more than $250
billion. Consistent with EGRRCPA, the
proposal would have raised this
threshold such that only state member
banks with total consolidated assets
greater than $250 billion would be
required to conduct stress tests. The
Board did not receive comments on this
aspect of the proposal and is finalizing
it without change.
B. Frequency of Stress Testing for State
Member Banks
Section 401 of EGRRCPA revised the
requirement under section 165 of the
Dodd-Frank Act for state member banks
to conduct stress tests, changing the
required frequency from ‘‘annual’’ to
‘‘periodic.’’ Under the stress testing
proposal, state member banks with total
consolidated assets of more than $250
billion generally would have no longer
been required to conduct stress tests
annually; rather, they would be required
to conduct stress tests once every other
year. As an exception to the two-year
cycle, state member banks that are
subsidiaries of banking organizations
subject to Category I or Category II
standards would have been required to
conduct a stress test on an annual basis.
The proposed frequency was intended
to provide the Board and the state
member bank with information
necessary to satisfy the purposes of
stress testing, including: Assisting in an
overall assessment of the state member
bank’s capital adequacy, identifying
downside risks and the potential impact
of adverse conditions on the state
member bank’s capital adequacy, and
determining whether additional
analytical techniques and exercises are
appropriate for the state member bank to
employ in identifying, measuring, and
monitoring risks to the soundness of the
state member bank.
One commenter asserted that the
Board should not reduce the frequency
of stress testing for any covered banks.
Based on the Board’s experience
overseeing and reviewing the results of
company-run stress testing since 2012,
the Board believes that a two-year stress
testing cycle generally would be
appropriate for certain state member
banks. Specifically, the state member
banks that would be subject to a two-
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year stress testing cycle under the
proposal would not be the subsidiaries
of larger, more complex firms, which
can present greater risk and therefore
merit closer monitoring. State member
banks that are subsidiaries of larger,
more complex firms would continue to
be required to conduct stress tests on an
annual basis. Accordingly, the final rule
retains the frequency of company-run
stress test requirements for state
member banks set forth in the stress
testing proposal without change. In
addition, and as discussed above, the
final rule provides the Board with the
authority to adjust the required
frequency for a holding company or
state member bank subject to the
Board’s stress testing rules based on the
company’s financial condition, size,
complexity, risk profile, scope of
operations, activities, or risks to the U.S.
economy. The final rule therefore
provides flexibility to the Board to
require more frequent company-run
stress testing at the state member bank
or holding company level, which would
take into account the risk profile of the
subsidiary state member bank, as
needed.
Under the stress testing proposal, all
state member banks that would conduct
stress tests every other year would have
been required to conduct stress tests in
the same even numbered year (i.e., the
reporting years for these state member
banks would be synchronized). By
requiring these state member banks to
conduct their stress tests in the same
year, the proposal would continue to
allow the Board to make comparisons
across state member banks for
supervisory purposes and assess
macroeconomic trends and risks to the
banking industry. The Board did not
receive comments on this aspect of the
stress testing proposal and is adopting it
without change.
Under the stress testing proposal, a
state member bank that was subject to
a two-year stress test cycle would have
become subject to an annual stress test
if, for example, the parent bank holding
company of the bank becomes a firm
subject to Category I or II standards. The
proposal would not have established a
transition period in these cases.
Accordingly, a state member bank that
becomes subject to an annual stress test
requirement would have been required
to begin stress testing on an annual basis
as of the next year. The Board did not
receive comments on this aspect of the
proposal and is adopting it without
change.
C. Removal of ‘‘Adverse’’ Scenario
As adopted, the Board’s stress testing
requirements—which are applicable to
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state member banks, savings and loan
holding companies, bank holding
companies, U.S. intermediate holding
companies of foreign banking
organizations, and any nonbank
financial company supervised by the
Board—required the inclusion of an
‘‘adverse’’ scenario in the stress test.
Section 401 of EGRRCPA amends
section 165(i) of the Dodd-Frank Act to
no longer require the Board to include
an ‘‘adverse’’ scenario in the companyrun stress test or its supervisory stress
tests, reducing the number of required
stress test scenarios from three to two.
The stress testing proposal would have
removed the ‘‘adverse’’ scenario from
the list of required scenarios in the
Board’s stress testing rules. In addition,
the proposal would have made
conforming changes to the Board’s
Policy Statement on the Scenario Design
Framework for Stress Testing to reflect
the removal of the adverse scenario.
The ‘‘baseline’’ scenario represents a
set of conditions that affect the U.S.
economy or the financial condition of
the banking organization, and that
reflect the consensus views of the
economic and financial outlook, and the
‘‘severely adverse’’ scenario is a more
severe set of conditions and the most
stringent of the scenarios. Because the
‘‘baseline’’ and ‘‘severely adverse’’
scenarios are designed to cover a full
range of expected and stressful
conditions, the ‘‘adverse’’ scenario has
provided limited incremental
information to the Board and market
participants. Accordingly, the stress
testing proposal would have maintained
the requirement for a banking
organization to conduct company-run
stress tests under both a ‘‘baseline’’ and
‘‘severely adverse’’ scenario. In
addition, the proposal would have
redefined the ‘‘severely adverse’’
scenario to mean a set of conditions that
affect the U.S. economy or the financial
condition of a banking organization that
overall are significantly more severe
than those associated with the baseline
scenario and may include trading or
other additional components.
One commenter requested that the
Board immediately eliminate certain
stress testing requirements that would
no longer be in effect upon finalization
of the proposal or that are not
appropriate for any firm of any size.
Specifically, the commenter asserted
that the Board should immediately
eliminate the ‘‘adverse’’ scenario from
the scenarios required for purposes of
the Board’s 2019 stress test cycle.
Because the final rule is effective after
the October 5, 2019, due date for midcycle company-run stress tests, and
there is no additional requirement that
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59061
necessitates use of the ‘‘adverse’’
scenarios for the 2019 stress test cycle,
the removal of this requirement will
take effect for the 2020 stress test cycle.
D. Review by Board of Directors
The enhanced prudential standards
rule, as adopted, required the board of
directors of a banking organization to
‘‘review and approve the policies and
procedures of the stress testing
processes as frequently as economic
conditions or the condition of the
company may warrant, but no less than
annually.’’ 118 The domestic proposal
would have established similar
requirements for covered savings and
loan holding companies. The stress
testing proposal would have revised the
frequency of these requirements for
banking organizations from ‘‘annual’’ to
‘‘no less than each year a stress test is
conducted’’ in order to make review by
the board of directors consistent with
the supervised firm’s stress testing
cycle. The Board did not receive
comments on this aspect of the proposal
and is adopting it without change.
E. Scope of Applicability for Savings
and Loan Holding Companies
The stress testing proposal would
have revised the company-run stress
testing requirements for covered savings
and loan holding companies included in
the domestic proposal. As part of the
domestic proposal, the Board generally
proposed to apply prudential standards
to certain covered savings and loan
holding companies using the standards
for determining prudential standards for
large bank holding companies. Section
165(i)(2) of the Dodd-Frank Act, as
amended by EGRRCPA, requires all
financial companies that have total
consolidated assets of more than $250
billion to conduct periodic stress tests.
Consistent with EGRRCPA, the Board
proposed to revise the scope of
applicability of the company-run stress
testing requirements included in the
domestic proposal to include all savings
and loan holding companies that meet
the criteria for Category II or Category III
standards. The proposal also would
have amended the proposed companyrun stress test requirements to maintain
the existing transition provision that
provides that a savings and loan holding
company would not be required to
conduct its first stress test until after it
is subject to minimum capital
requirements. The Board did not receive
comments on this aspect of the proposal
and adopting it generally as proposed.
The final rule applies company-run
118 See 77 FR 62396 (October 12, 2012); 77 FR
62378 (October 12, 2012).
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stress testing requirements to covered
savings and loan holding companies
subject to Category II or III standards,
consistent with the requirements that
apply to similarly-situated bank holding
companies. In addition, the final rule
applies company-run stress test
requirements to all other savings and
loan holding companies with total
consolidated assets of $250 billion or
more, consistent with the Dodd-Frank
Act, as amended by EGRRCPA. A
savings and loan holding company is
required to comply with company-run
stress testing requirements after it is
subject to minimum regulatory capital
requirements. Covered savings and loan
holding companies are subject to
minimum regulatory capital
requirements through the Board’s
capital rule.119
XIV. Changes to Dodd-Frank
Definitions
The proposal would have made
changes to the Board’s implementation
of certain definitions in the Dodd-Frank
Act. Specifically, the Dodd-Frank Act
directed the Board to define the terms
‘‘significant bank holding company’’
and ‘‘significant nonbank financial
company,’’ terms that are used in the
credit exposure reports provision in
section 165(d)(2).120 The terms
‘‘significant nonbank financial
company’’ and ‘‘significant bank
holding company’’ are also used in
section 113 of the Dodd-Frank Act,
which specifies that FSOC must
consider the extent and nature of a
nonbank company’s transactions and
relationships with other ‘‘significant
nonbank financial companies’’ and
‘‘significant bank holding companies,’’
among other factors, in determining
whether to designate a nonbank
financial company for supervision by
the Board.121 The Board previously
defined ‘‘significant bank holding
company’’ and ‘‘significant nonbank
financial company’’ using $50 billion
minimum asset thresholds to conform
with section 165.122 In light of
EGRRCPA’s amendments, the Board
proposed to amend these definitions to
include minimum asset thresholds of
$100 billion, and make other
conforming edits in the Board’s
regulation on definitions in Title I of the
Dodd-Frank Act.123 The Board did not
receive any comments on this aspect of
the proposal and is finalizing it as
proposed.
XV. Reporting Requirements
In the proposals, the Board proposed
changes to the FR Y–14, FR Y–15, FR
2052a, FR Y–9C, FR Y–9LP, FR Y–7,
and FR Y–7Q report forms. The Board
received comments on changes to the
FR Y–14, FR Y–15, and FR 2052a,
which are discussed below. The Board
did not receive comments on its
proposed changes to the FR Y–9C, FR
Y–9LP, FR Y–7 and FR Y–7Q, and is
finalizing those changes as proposed.
Some commenters requested that the
Board clearly identify in the preamble to
the final rule the specific line items and
forms that would be used to determine
a banking organization’s size and other
risk-based indicators. Table II below
indicates the line items that measure
risk-based indicators under the final
rule:
TABLE II—LINE ITEMS FOR RISK-BASED INDICATORS
Reporting unit
U.S. holding companies
U.S. intermediate holding companies
of foreign banking organizations
Combined U.S. operations of foreign
banking organizations
Size ..................................
FR Y–15, Schedule A, Line Item M4
Cross-jurisdictional activity
FR Y–15, Schedule E, Line Item 5 ...
Nonbank assets ...............
FR Y–15, Schedule A, Line Item M6
Short-term wholesale
funding.
Off-balance sheet exposure.
FR Y–15, Schedule G, Line Item 6 ...
FR Y–15, Schedule H, Line Item M4,
Column A.
FR Y–15, Schedule L, Line Item 4,
Column A.
FR Y–15, Schedule H, Line Item M6,
Column A.
FR Y–15, Schedule N, Line Item 6,
Column A.
FR Y–15, Schedule H, Line Item M5,
Column A.
FR Y–15, Schedule H, Line Item M4,
Column B.
FR Y–15, Schedule L, Line Item 4,
Column B.
FR Y–15, Schedule H, Line Item M6,
Column B.
FR Y–15, Schedule N, Line Item 6,
Column B.
FR Y–15, Schedule H, Line Item M5,
Column B.
FR Y–15, Schedule A, Line Item M5
The proposal would have added two
line items to Schedule A and Schedule
H of the FR Y–15 to clarify the
calculation of risk-based indicators:
Line Item M4 would calculate total
assets and Line Item M5 would
calculate total off-balance sheet
exposure. The Board did not receive
specific comments on these line items
and is adopting them as proposed.124 To
further clarify the line items for
calculating risk-based indicators, the
Board has added Line Item 5, Crossjurisdictional activity, to Schedule E of
the FR Y–15. The Board has also added
Line Item M6, Total non-bank assets, on
119 12
CFR 217.
U.S.C. 5311(a)(7); 5365(d)(2). EGRRCPA
changed credit exposure reports from a mandatory
120 12
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Schedule A and Schedule H of the FR
Y–15.
The Board received a number of
general comments on compliance
periods. Various commenters requested
that the Board provide banking
organizations subject to new or
heightened reporting requirements
under the proposals with extended
compliance periods for such
requirements. The Board is providing a
phase-in time for banking organizations
to prepare for new reporting
requirements, as applicable. The
compliance and transition periods for
each form are discussed below.
to discretionary prudential standard under section
165.
121 See 12 U.S.C. 5323.
122 12 CFR 242.4.
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The Board also received comments
that were outside the scope of the
proposals, such as suggested changes to
forms that the Board did not propose to
modify through these proposals. Some
commenters requested tailoring of the
proposed FR 2590, which relates to
compliance with the single-counterparty
credit limits rule. Proposed changes to
the proposed FR 2590 will be addressed
in a separate Board action. Commenters
also requested a change to the FFIEC
forms. The agencies are reviewing
interagency forms and intend to propose
changes to them to conform to
EGRRCPA and this final rule.
123 12
CFR part 242.
regarding the composition of the
risk-based indicators are discussed in section V of
this SUPPLEMENTARY INFORMATION.
124 Comments
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A. FR Y–14
Consistent with EGRRCPA’s changes
and the Board’s July 2018 statement
relating to EGRRCPA,125 the proposals
would have revised the FR Y–14 series
of reports (FR Y–14A, Y–14Q, and Y–
14M) so that domestic bank holding
companies and U.S. intermediate
holding companies with less than $100
billion in total consolidated assets
would no longer be required to submit
the forms. Under the proposals,
domestic bank holding companies and
U.S. intermediate holding companies
with $100 billion or more in total
consolidated assets would continue to
submit the FR Y–14 reports.
The proposal also would have
required all covered savings and loan
holding companies with $100 billion or
more in total consolidated assets to
complete elements of the FR Y–14 series
of reports that are used in conducting
supervisory stress tests: (1) The FR Y–
14M; (2) all schedules of the FR Y–14–
Q except for Schedule C—Regulatory
Capital Instruments and Schedule D—
Regulatory Capital Transitions; and (3)
Schedule E—Operational Risk of the FR
Y–14A. The proposal would have
required covered savings and loan
holding companies subject to Category II
or III standards to report the Form FR
Y–14A Schedule A—Summary and
Schedule F—Business Plan Changes
with respect to company run stress
testing.
Commenters argued that the Board
should adjust various FR Y–14 reporting
requirements for banking organizations
subject to the proposals. Commenters
generally requested that the FR Y–14 be
amended to provide reductions in
burden for banking organizations,
particularly those subject to Category III
or IV standards. Some commenters
asked the Board to revise the FR Y- 14M
and Y–14A for banking organizations
subject to Category IV standards, by
reducing the frequency of the Y–14M
from monthly to quarterly and altering
or eliminating certain Y–14A schedules
and worksheets. These commenters also
asked the Board to review the relevance
of information requested on the Y–14Q
for banking organizations subject to
Category IV standards. Other
commenters suggested that certain Y–
14A sub-schedules should not be
required for banking organizations
subject to Category III standards. Some
commenters requested that the Board
simplify the Y–14A Summary schedule
for all banking organizations.
The final rule adopts the changes to
the FR Y–14 largely as proposed. The
final rule maintains the existing FR Y–
14 substantive reporting requirements 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 bank
holding companies, covered savings and
loan holding companies, and U.S.
intermediate holding companies.
However, as discussed in the proposals,
the Board intends to provide greater
flexibility to banking organizations
59063
subject to Category IV standards in
developing their annual capital plans
and consider further changes to the FR
Y–14 forms as part of a separate
proposal. The Board has also revised the
FR Y–14 instructions to remove
references to the adverse scenario,
consistent with the changes in this final
rule.
The final rule does not finalize certain
definitional changes to the FR Y–14
series of reports, however. The proposal
would have made changes to the
definitions of ‘‘large and complex’’ and
‘‘large and noncomplex’’ bank holding
company to align with proposed
changes in section 225.8(d)(9). The
Board is not finalizing these changes as
part of this final rule, and instead
intends to consider these changes in
conjunction with other changes to the
capital plan rule as part of a separate
capital plan proposal.
Commenters also requested that the
Board provide an initial transition
period for covered savings and loan
holding companies to submit their first
FR Y–14 reports. The final rule provides
covered savings and loan holding
companies with an extended amount of
time to file their first reports. Table III
details the submission date
requirements for covered savings and
loan holding companies with $100
billion or more in total consolidated
assets that will be submitting FR Y–14
reports under the final rule for the first
time:
TABLE III—FIRST SUBMISSION DATES OF FR Y–14 FOR COVERED SAVINGS AND LOAN HOLDING COMPANIES
First as-of
date
Form
FR Y–14A ...............................................................
FR Y–14Q ..............................................................
12/31/2021
6/30/2020
FR Y–14M ..............................................................
6/30/2020
B. FR Y–15
The proposals would have modified
the reporting panel and substantive
requirements of the FR Y–15. First, the
domestic proposal would have no
longer required U.S. bank holding
companies and covered savings and
loan holding companies with $50
billion or more, but less than $100
billion, in total consolidated assets to
file the FR Y–15. The foreign bank
proposal would have further revised the
reporting panels and scope of the FR Y–
15. Currently, U.S. intermediate holding
125 See Board statement regarding the impact of
the Economic Growth, Regulatory Relief, and
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First submission dates
April 5, 2022.
90 days after quarter end for first two quarterly submissions; 65 days after
quarter end for the third and fourth quarterly submissions.
For the first three monthly submissions, 90 days after the month-end as-of
date.
companies with $50 billion or more in
total consolidated assets report the FR
Y–15. Under the foreign bank proposal,
foreign banking organizations with $100
billion or more in combined U.S. assets,
rather than U.S. intermediate holding
companies, would have been required to
submit the FR Y–15 with respect to their
combined U.S. operations. Specifically,
the proposal would have required a
foreign banking organization to report
information described in the FR Y–15
separately for its (i) U.S. branch and
agency network, if any; (ii) U.S.
intermediate holding company, if any;
and (iii) combined U.S. operations.
Some commenters supported the
changes to the FR Y–15’s scope and
reporting panel in the proposals.
Commenters noted that the Board does
not currently compile systemic risk data
on foreign banking organizations that
includes information on branch
networks. These commenters argued
that incorporating combined U.S.
operations into the FR Y–15 would
provide more complete information on
a foreign banking organization’s
Consumer Protection Act, July 6, 2018, available at:
https://www.federalreserve.gov/newsevents/
pressreleases/bcreg20180706b.htm.
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financial profile, and that such a
revision was overdue. However, other
commenters opposed the changes.
These commenters argued that the
proposed reporting based on the
combined U.S. operations was
unjustified, and would require
significant modifications to foreign
banking organizations’ existing
reporting systems at a substantial cost.
Some commenters also argued that the
proposed FR Y–15 changes would
disproportionately burden foreign
banking organizations compared to
domestic banking organizations, and
therefore were inconsistent with the
principle of national treatment.
To address these concerns,
commenters suggested alternatives to
the proposal. Some commenters stated
that the FR Y–15 should not include any
reporting on a combined U.S. operations
basis. In particular, commenters argued
that the Board should implement a
tailoring framework that does not
measure risk-based indicators across a
foreign banking organization’s
combined U.S. operations, and
eliminate FR Y–15 reporting on a
combined U.S. operations basis. Other
commenters suggested that a foreign
banking organization should only be
required to report information on its
combined U.S. operations that is
necessary for calculating the risk-based
indicators. Commenters also
recommended that the Board allow
banking organizations to file a modified
FR Y–15 with an option to prepare topline items and not require more
nuanced risk-based indicator
calculations with respect to a particular
indicator if a banking organization is
well below the threshold for the riskbased indicator based on the top-line
item. Another commenter also requested
removal of the requirement to calculate
risk-weighted assets at the combined
U.S. operations level.
As commenters acknowledged, the
proposal would have required foreign
banking organizations to calculate size,
cross-jurisdictional activity, nonbank
assets, off-balance sheet exposure, and
weighted short-term wholesale funding
for their combined U.S. operations in
order to determine the category of
standards that would apply to a foreign
banking organization at the level of its
combined U.S. operations.126 Most of
these indicators are already reported by
U.S. bank holding companies, covered
savings and loan holding companies,
and U.S. intermediate holding
companies. Requiring a foreign banking
organization to report this information
for its combined U.S. operations
supports tailoring prudential standards
based on the risk-profile of foreign
banking organization’s U.S. operations.
This approach also establishes a central
location for information on the riskbased indicators to help support the
transparency of the framework.
The purpose and use of the FR Y–15
is broader than compliance with the
tailoring framework, however. The FR
Y–15 requests granular data on an
institution’s funding, structure, and
activities that is consistent and
comparable among institutions, and is
often unavailable from other sources.
The Board uses this information to
monitor the systemic risk profile of
banking organizations, as well as for
other purposes.127 Information on the
combined U.S. operations of foreign
banking organizations from the FR Y–15
will enhance the Board’s ability to
monitor and supervise the U.S. footprint
of large foreign banking organizations
and compare the risk profiles of large
banking organizations. Having this data
reported on the FR Y–15 also ensures
that information on the combined U.S.
operations of foreign banking
organizations is available to the public,
and thus can be used by the market to
evaluate the systemic importance of
domestic banking organizations and the
U.S. operations of foreign banking
organizations.
Accordingly, the final rule requires
foreign banking organizations to report
the FR Y–15 at the U.S. intermediate
holding company and combined U.S.
operations levels largely as proposed.
The FR Y–15 as finalized is consistent
with the principle of national treatment
because it requires similarly-situated
domestic holding companies and
foreign banking organizations to report
similar data on their U.S. footprint,
taking into account the unique
structures of foreign banking
organizations. In response to comments,
and because the Board is not applying
categories of standards to the U.S.
operations of foreign banking
organizations based only on the risk
profile of their U.S. branch and agency
networks, the Board will not require
foreign banking organizations to provide
standalone data on their U.S. branches
and agencies on the FR Y–15.
Accordingly, the Board is modifying the
126 Standards that apply to the combined U.S.
operations of a foreign banking organization include
liquidity stress tests, risk management, and buffer
requirements under the enhanced prudential
standards rule; resolution planning requirements;
and the reporting frequency of the FR 2052a.
127 For example, the FR Y–15 is used to facilitate
the implementation of GSIB capital surcharges,
identify other institutions which may present
significant systemic risk, and analyze the systemic
risk implications of proposed mergers and
acquisitions.
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proposal by eliminating the U.S. branch
and agency column on the FR Y–15, and
instead will only require foreign
banking organizations to complete the
FR Y–15 in two columns for purposes
of the final rule: Column A, U.S.
intermediate holding companies, if any;
and Column B, combined U.S.
operations. Foreign banking
organizations also will not be required
to calculate average risk-weighted assets
for their combined U.S. operations in
Column B on Schedule N, line item 7.
Because branches and agencies are not
subject to capital requirements, this
information would provide limited
supervisory benefit and could be
burdensome to compile and calculate.
Commenters requested a number of
specific line item changes and
instruction clarifications for completing
the FR Y–15. These commenters
requested more clarity in the General
Instructions on the rule of consolidation
for foreign banking organizations and
foreign affiliate netting. The final form
includes revised language in the General
Instructions and certain schedules that
is intended to further clarify and
address questions regarding
consolidation rules and netting. The
Board also intends to continue to review
the FR Y–15 instructions in light of the
changes in this final rule and, if
necessary, further refine the form and
instructions to provide additional
clarity on how to report line items for
the combined U.S. operations of foreign
banking organizations. Commenters
requested that the Board permit foreign
banking organizations to report size as
a spot, rather than average measure, on
proposed Schedule H of the FR Y–15
unless the foreign banking
organization’s U.S. intermediate holding
company is subject to the
supplementary leverage ratio. Averages
provide a more reliable and risksensitive estimate of the banking
organization’s size over the period, and
as such, the Board is finalizing the
calculation of total exposure on
Schedule H as proposed.
Commenters raised a number of issues
and questions regarding proposed
Schedule L—FBO Cross-Jurisdictional
Activity Indicators. For purposes of
reporting cross-jurisdictional activity,
the proposal would have required a
foreign banking organization to report
assets and liabilities of the combined
U.S. operations, 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
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change, the proposal would have
amended the FR Y–15 by adding new
line items to proposed Schedule L and
changed the accompanying FR Y–15
instructions. Comments related to the
substance of the cross-jurisdictional
indicator are discussed in section V.
The Board is finalizing Schedule L
substantively as proposed, with some
technical edits to language to provide
further clarity on how to report line
items for a foreign banking
organization’s combined U.S.
operations.
One commenter recommended
expanding line item 4 on Schedule E—
Cross-Jurisdictional Activity Indicators
to separately identify deposits; trading
liabilities; borrowings (including shortterm borrowings, long-term debt, federal
funds purchased, and repurchase
agreements); accounts payable; and
other liabilities. The commenter argued
that such additional specificity would
provide the Board and the public with
additional insight into the nature of an
institution’s cross-jurisdictional
liabilities without increasing reporting
burden. The Board finds that line item
4 is reported with sufficient granularity
to understand the risk profile of the
banking organizations and is adopting it
as proposed.
Commenters expressed concern about
the amount of time required to establish
systems necessary to collect information
from combined U.S. operations of a
foreign banking organization as well as
with the accuracy and integrity of the
data collected. Commenters also
requested at minimum, a 12-month
phase-in period to accommodate the
expanded scope of the FR Y–15
reporting requirements, and that the
first two quarterly FR Y–15 filings be
prepared on a ‘‘best efforts’’ basis. To
allow firms to develop reporting and
data systems, the final rule provides a
phase-in period to meet the expanded
reporting requirements in the FR Y–15.
Under the phase-in period, banking
organizations will be required to report
the first combined U.S. operations data
on the FR Y–15 with an as-of date of
June 30, 2020, and submit the data to
the Board no later than August 19, 2020.
Under the foreign bank proposal,
Schedule N—FBO Short-Term
Wholesale Funding Indicator of the FR
Y–15 would have required foreign
banking organizations that report the FR
2052a daily to report the average
weighted short-term wholesale funding
values using daily data, and all other
foreign banking organizations to report
average values using monthly data.
Some commenters requested that
weighted short-term wholesale funding
in Schedule N be reported using
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monthly data for all foreign banking
organizations. An average of day-end
data points is a more accurate
representation of a banking
organization’s ongoing reliance on
wholesale funding. Accordingly, for
foreign banking organizations that have
sufficient liquidity risks that would
require FR 2052a daily reporting, the
final rule requires these banking
organizations to report Schedule N on
the FR Y–15 using daily data. For firms
not subject to FR 2052a daily reporting,
the Board is finalizing the rule for
calculating weighted short-term
wholesale funding as proposed.
The Board continues to evaluate
whether the benefits of a more frequent
average would be justified for these
firms, particularly for firms that report
the LCR on a daily basis, and may
propose adjustments to the calculation
frequency. Furthermore, the Board
intends to monitor a firm’s weighted
short-term wholesale funding position
at month-end relative to its position
throughout the month through the
supervisory process, and continues to
have the authority to apply additional
prudential standards based on the risk
profile of a firm, including its liquidity
risk profile.128
C. FR 2052a
The proposals would have modified
the current reporting frequency and
granularity of the FR 2052a to align with
the proposed tailoring framework.
Specifically, the proposals would have
required U.S. bank holding companies
and covered savings and loan holding
companies, each with $100 billion or
more in total consolidated assets, or
foreign banking organizations with
combined U.S. assets of $100 billion or
more, to report FR 2052a data each
business day if they were (i) subject to
Category I or II standards, as applicable,
or (ii) subject to Category III standards
and had $75 billion or more in weighted
short-term wholesale funding (for
foreign banking organizations, this
would be measured at the level of the
combined U.S. operations). All other
domestic holding companies and
foreign banking organizations would
have been required to report the FR
2052a on a monthly basis. These
changes would have increased the
frequency of reporting for domestic
banking organizations subject to
Category II standards with less than
$700 billion in total consolidated assets,
and domestic banking organizations
subject to Category III standards with
$75 billion or more in weighted short128 See 12 CFR 217.1(d); 12 CFR 249.2(a); 12 CFR
252.3(a).
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59065
term wholesale funding; both groups of
banking organizations currently report
the FR 2052a monthly. Similarly, the
frequency of reporting would have
changed for some foreign banking
organizations. The proposals also would
have simplified the FR 2052a reporting
thresholds by eliminating the current
criteria used to identify daily filers of
the FR 2052a—for domestic holding
companies, those firms with $700
billion or more in total assets or $10
trillion or more in assets under custody,
and for foreign banking organizations,
those firms included in the Large
Institution Supervision Coordinating
Committee portfolio—and replacing
these criteria with the category
framework.
A number of commenters requested
that the Board reduce or eliminate
proposed FR 2052a reporting
requirements. Commenters requested
that the Board modify the proposed FR
2052a reporting frequencies so that
banking organizations subject to
Category II and Category III standards
would be subject to monthly or
quarterly, rather than daily, reporting.
Similarly, commenters argued that the
Board should not expand the scope of
daily FR 2052a reporting beyond its
current reach, and that no banking
organization should be subject to more
frequent FR 2052a reporting under the
proposals. Some commenters suggested
that the requirement to report FR 2052a
data each business day should not be
based on the $75 billion weighted shortterm wholesale funding threshold, but
instead on a higher short-term
wholesale funding threshold, such as
$100 billion or $125 billion.
Commenters on the foreign proposal
noted that certain foreign banking
organizations would move from
monthly to daily FR 2052a reporting
under the proposal and argued that this
was unjustified, as well as inconsistent
with the principle of national treatment.
The Board is finalizing the FR 2052a
generally as proposed, with certain
modifications as discussed below. Daily
FR 2052a reporting is appropriate for
institutions subject to Category II
standards or Category III standards with
$75 billion or more in weighted shortterm wholesale funding. The Board uses
liquidity data provided through FR
2052a reporting to monitor and assess
the liquidity risks and resiliency of large
banking organizations on an ongoing
basis. The frequency and timeliness
with which data is provided to
supervisors should be commensurate
with the scale and dynamic nature of a
banking organization’s liquidity risk.
Liquidity stresses can materialize
rapidly for banking organizations of all
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sizes, but banking organizations with
significant size and cross-jurisdictional
activity in the United States may be
more likely to face stress suddenly due
to the scale of their funding and their
operational complexity. Moreover,
greater reliance on short-term wholesale
funding may indicate heightened
rollover risk and greater volatility in the
funding profile of a banking
organization or its U.S. operations.
Banking organizations subject to
Category II standards or Category III
standards with $75 billion or more in
weighted short-term wholesale funding
have liquidity risk profiles that present
higher risk to both financial stability
and safety and soundness. Therefore,
supervisory monitoring through daily
FR 2052a reporting is critical to ensure
these banking organizations are
maintaining appropriate levels of
liquidity and supervisors have a
detailed understanding of their funding
sources. The Board is thus finalizing the
FR 2052a criteria and reporting
frequency as proposed for banking
organizations subject to Category II or III
standards.
Some commenters on the domestic
proposal argued that banking
organizations that engage in activities
that present lower liquidity risk, such as
custodial activities, should not be
required to submit the FR 2052a daily.
Liquidity stresses may arise from a
broad range of sources and markets, and
can be impactful for banking
organizations that have a range of
business models. Accordingly, the
Board is not providing different FR
2052a reporting requirements for
institutions that engage in custodial
activities.
A number of commenters argued that
banking organizations subject to
Category IV standards should be subject
to quarterly reporting to align with the
institutions’ liquidity stress testing
requirements. Other commenters
requested that the Board eliminate FR
2052a reporting for banking
organizations subject to Category IV
standards, or instead require these
institutions to report on an alternative
form, such as the previously-used FR
2052b. If banking organizations subject
to Category IV standards report the FR
2052a but are not subject to an LCR
requirement under the final rule,
commenters requested that the Board
clarify and confirm that FR 2052a
reporting will not implicitly bind these
firms to the LCR rule.
The Board uses FR 2052a information
to analyze systemic and idiosyncratic
liquidity risk and to inform supervisory
processes. As a class, banking
organizations that are subject to
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Category IV standards tend to have more
stable funding profiles, as measured by
their generally lower level of weighted
short-term wholesale funding, and
lesser degrees of liquidity risk and
operational complexity associated with
size, cross-jurisdictional activity,
nonbank assets, and off-balance sheet
exposure compared to institutions
subject to Categories I, II, or III
standards. For this reason, the Board
previously tailored data elements in the
FR 2052a report based on the risk
profiles for firms, and currently requires
most banking organizations that would
be subject to Category IV standards
under the final rule to report the FR
2052a monthly rather than daily. The
size of institutions subject to Category
IV standards indicates that such
institutions still present heightened
liquidity risk relative to smaller banking
organizations, however, and should
continue to provide the information on
the FR 2052a to ensure sufficient
supervisory monitoring.
Similarly, because of their potential
liquidity risks, banking organizations
that would be subject to Category IV
standards would still be required to
develop comprehensive liquidity stress
tests and short term daily cash flow
projections under the enhanced
prudential standards rule. The FR
2052b, which was discontinued in 2017,
did not capture cash flow projections
but collected information covering
broad funding classifications by
product, outstanding balance, and
purpose, each segmented by maturity
date. FR 2052a reporting aligns with the
cash flows projection expectations and
is substantially similar to the
management information system a
banking organization is required to
develop to meet liquidity stress test
requirements. The FR 2052a thus is a
more comprehensive reporting form that
is more appropriate for firms subject to
the tailoring framework.
Accordingly, the Board is finalizing
the FR 2052a largely as proposed, and
requiring institutions subject to
Category IV standards to report the form
on a monthly basis. As discussed above,
the purpose of FR 2052a reporting is
broader than compliance with the LCR
rule. In particular, the FR 2052a report
collects data elements that enable the
Federal Reserve to assess the cash flow
profile of reporting firms. As a result,
the Board notes that FR 2052a reporting
will not be used to implicitly bind firms
to an LCR rule.
Some commenters requested that
banking organizations that would have
been subject to monthly FR 2052a
reporting be required to submit the form
ten days after the as-of date (T+10)
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rather than two days after the as-of date
(T+2). Under the proposals, top-tier U.S.
depository institution holding
companies and foreign banking
organizations subject to either (1)
Category III standards with less than $75
billion in weighted short-term
wholesale funding or (2) Category IV
standards with $50 billion or more in
weighted short-term wholesale funding
would have filed the FR 2052a monthly
on a T+2 basis; all other monthly filers
would have filed on a T+10 basis. Some
commenters noted that, based on
estimated categories included in the
proposal, more foreign banking
organizations would be required to file
on a T+2 basis when compared to
domestic banking organizations. Under
the interagency capital and liquidity
final rule, all banking organizations
subject to Category III standards
continue to be required to compute the
LCR each business day. For banking
organizations subject to Category III
standards that file the FR 2052a
monthly, a T+2 submission is not
expected to create significant additional
burden and the final rule will continue
to require submission on a T+2 basis for
these firms. However, for all banking
organizations subject to Category IV
standards that are subject to FR 2052a
reporting on a monthly basis, the Board
will require these firms to submit data
on a T+10 basis, regardless of their level
of weighted short-term wholesale
funding. Based on the lower liquidity
risk profile of Category IV banking
organizations, the benefits of T+2
reporting for these firms would not
outweigh the burden for these
institutions.
Commenters requested clarification
that foreign banking organizations may
use the FR 2052a to calculate both the
LCR and proposed NSFR. Appendix VI
within the FR 2052a instructions was
developed to assist reporting firms
subject to the LCR rule in mapping the
provisions of the LCR rule to the unique
data identifiers reported on FR 2052a.
This mapping document is neither part
of the LCR rule nor a component of the
FR 2052a report, and therefore may be
used at firms’ discretion. Finally, the FR
2052a includes a number of additional
technical edits to the form and
appendices to conform to the
substantive changes in this final rule.
D. Summary of Reporting Effective
Dates
The following chart summarizes when
banking organizations will be required
to first determine their category under
this final rule, as well as when amended
reporting forms and new reporting
requirements will take effect. As
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reflected on the chart, U.S. bank holding
companies, covered U.S. savings and
loan holding companies, and U.S.
intermediate holding companies should
determine the category of standards that
apply to them on the effective date of
this final rule, using data from the FR
Y–15 and FR Y–9LP reports as-of the
quarter end dates for the previous four
quarters. Foreign banking organizations
will not be required to comply with the
amended Schedule L of the FR Y–15
with respect to their U.S. intermediate
holding companies until as-of June 30,
2020. Until that time, U.S. intermediate
holding companies should determine
their category under the tailoring
framework consistent with the crossjurisdictional activity schedule on the
FR Y–15 that previously applied to U.S.
intermediate holding companies
provided that, when a foreign banking
organization reports on the amended
Schedule L with respect to its U.S.
intermediate holding company, the U.S.
intermediate holding company’s
measure of cross-jurisdictional activity
will be based on the amount reported on
the amended Schedule L and will not be
averaged with amounts of crossjurisdictional activity previously
reported by the U.S. intermediate
holding company.
59067
In contrast, foreign banking
organizations will not be required to
determine the category of standards
applied to their combined U.S.
operations until the submission date of
the FR Y–15 following the June 30, 2020
as-of date. Accordingly, a foreign
banking organization would be required
to comply with the category of
standards applied to its combined U.S.
operations beginning on October 1,
2020. This delay is to account for
foreign banking organizations filing the
FR Y–15 on behalf of their combined
U.S. operations for the first time as-of
June 30, 2020.
TABLE IV—TIMELINE FOR INITIAL CATEGORIZATIONS AND REPORTING UNDER THE FINAL RULE
Reporting unit
U.S.
bank holding
companies
Covered U.S. savings and
loan holding
companies
U.S. intermediate
holding companies
Date for first categorization under 12 CFR
252.5 or 12 CFR 238.10.
Effective date of final
rule129 .
Effective date of final
rule130 .
First as-of date for amended FR Y–15 ......
June 30, 2020 .....................
June 30, 2020 .....................
June 30, 2020.132
First as-of date for amended FR 2052a ....
June 30, 2020 .....................
June 30, 2020 .....................
October 1, 2020.133
First as-of date for amended FR Y–14A ...
Next report after effective
date of final rule.
Next report after effective
date of final rule.
Next report after effective
date of final rule.
Next report after effective
date of final rule.
Next report after effective
date of final rule.
December 31, 2021 ............
First as-of date for amended FR Y–7Q .....
N/A ......................................
N/A ......................................
Next report after effective date of final rule.134
First as-of date for amended FR Y–7 ........
N/A ......................................
N/A ......................................
Next report after effective date of final rule (fiscal year-end
2020).135
First as-of date for amended FR Y–14Q ...
First as-of date for amended FR Y–14M ...
First as-of date for amended FR Y–9C .....
First as-of date for amended FR Y–9LP ...
XVI. Impact Assessment
In general, U.S. banking organizations
with less than $100 billion in total
consolidated assets and U.S.
intermediate holding companies with
less than $100 billion in total
consolidated assets would have
129 A bank holding company should determine its
initial category based on averages using the bank
holding company’s four most recent FR Y–15 and
FR Y–9LP filings.
130 A covered savings and loan holding company
should determine its initial category based on
averages using the covered savings and loan
holding company’s four most recent FR Y–15 and
FR Y–9LP filings.
131 A U.S. intermediate holding company should
determine its initial category based on averages
using the U.S. intermediate holding company’s four
most recent FR Y–15 and FR Y–9LP filings. When
a foreign banking organization reports on the
amended Schedule L with respect to its U.S.
intermediate holding company, the U.S.
intermediate holding company’s measure of cross-
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June 30, 2020 .....................
June 30, 2020 .....................
Next report after effective
date of final rule.
Next report after effective
date of final rule.
Effective date of final
rule131 .
Combined U.S.
operations of foreign
banking organizations
Next report after effective
date of final rule.
Next report after effective
date of final rule.
Next report after effective
date of final rule.
Next report after effective
date of final rule.
Next report after effective
date of final rule.
Submission date of FR Y–
15 as-of June 30, 2020.
N/A.
N/A.
N/A.
N/A.
N/A.
significantly reduced compliance costs,
as under the final rule these firms are no
longer subject to the enhanced
prudential standards rule or the capital
plan rule, and are no longer required to
file FR Y–14, FR Y–15, or FR 2052a
reports.136 While these banking
organizations are no longer subject to
internal liquidity stress testing and
buffer requirements, these firms
currently hold highly liquid assets well
in excess of their current liquidity buffer
requirements.
jurisdictional activity will be based on the amount
reported on the amended Schedule L and will not
be averaged with amounts of cross-jurisdictional
activity previously reported by the U.S.
intermediate holding company.
132 As-of this date, top-tier foreign banking
organizations will report the FR Y–15 on behalf of
their U.S. intermediate holding company and
combined U.S. operations.
133 Until this date, a foreign banking organization
should report the FR 2052a with the frequency and
as-of date (Day T) as the foreign banking
organization was required to report on September
1, 2019.
134 Top-tier foreign banking organizations
currently, and will continue to, report the FR Y–
7Q.
135 Top-tier foreign banking organizations
currently, and will continue to, report the FR Y–
7. The FR Y–7 is due annually at the end of a
foreign banking organization’s fiscal year.
136 However, bank holding companies have not
been complying with these requirements since July
6, 2018, when the Board issued a statement noting
that it would no longer enforce these regulations or
reporting requirements with respect to these firms.
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/
files/bcreg20180706b1.pdf.
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For U.S. banking organizations with
$100 billion or more in total
consolidated assets and foreign banking
organizations with $100 billion or more
in combined U.S. assets, the Board
expects the adjustments to the enhanced
prudential standards under this final
rule to reduce aggregate compliance
costs with minimal effects on the safety
and soundness of these firms and U.S.
financial stability. With respect to
reporting, foreign banking organizations
will experience an increase in
compliance costs as a result of having to
report the information required under
Form FR Y–15 at the level of their
combined U.S. operations, and certain
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 an increase in compliance
costs due to the increase in reporting
frequency of the FR 2052a to daily. The
interagency capital and liquidity final
rule provides additional impact
information.
A. Liquidity
The changes to liquidity requirements
are expected to reduce compliance costs
for banking organizations subject to
Category IV standards by reducing the
required frequency of internal liquidity
stress tests from monthly to quarterly,
and tailoring the liquidity risk
management requirements to the risk
profiles of these firms. The Board does
not expect these changes to materially
affect the liquidity buffer levels held by
these banking organizations or their
exposure to liquidity risk.
B. Stress Testing
First, while the Board expects the
changes to stress testing requirements to
have no material impact on the capital
levels of U.S. banking organizations and
U.S. intermediate holding companies
with $100 billion or more in total
consolidated assets, the final rule will
reduce compliance costs for those firms
subject to Category III or IV capital
standards. These firms were previously
required to conduct company-run stress
tests on a semi-annual basis. For U.S.
banking organizations and U.S.
intermediate holding companies subject
to Category III standards, the final rule
reduces this frequency to every other
year. For U.S. banking organizations and
U.S. intermediate holding companies
subject to Category IV standards, the
final rule removes the company-run
stress test requirement altogether.137 In
137 Although the final rule would not modify the
requirement for a U.S. banking organization or
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addition, under the final rule, the Board
will conduct supervisory stress tests of
U.S. banking organizations and U.S.
intermediate holding companies subject
to Category IV standards on a two-year,
rather than annual, cycle.
C. Single-Counterparty Credit Limits
The changes to the singlecounterparty credit limits framework
under the final rule are not expected to
increase risks to safety and soundness or
U.S. financial stability. The final rule
removes U.S. intermediate holding
companies subject to Category IV
standards from the applicability of
single-counterparty credit limits. While
these firms 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 singlecounterparty credit limits framework. In
addition, the final rule removes 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 final rule will 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, by extending the
applicability of certain provisions under
the single-counterparty credit limits
framework to these firms. Specifically,
as of January 1, 2021, U.S. intermediate
holding companies with less than $250
billion in total consolidated assets that
subject to Category II or Category III
standards will be subject to a net credit
exposure limit equal to 25 percent of
tier 1 capital, the treatment for
investments in and exposures to certain
special purpose entities and the
economic interdependence and control
relationship tests for purposes of
aggregating exposures to connected
counterparties.
D. Covered Savings and Loan Holding
Companies
For covered savings and loan holding
companies, the final rule increases
compliance costs while reducing risks
to the safety and soundness of these
intermediate holding company 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.
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firms. The Board expects the new
requirements for covered savings and
loan holding companies to meaningfully
improve the risk management
capabilities of these firms and their
resiliency to stress, which furthers their
safety and soundness.
A covered savings and loan holding
company that is subject to Category II or
III standards is required to conduct
company-run stress tests, which would
be a new requirement. In connection
with the application of supervisory and
company-run capital stress testing
requirements, covered savings and loan
holding companies with total
consolidated assets of $100 billion or
more must report the FR Y–14 reports.
In addition, the final rule requires a
covered savings and loan holding
company with total consolidated assets
of $100 billion or more to conduct
internal liquidity stress testing and
maintain a liquidity buffer. While
covered savings and loan holding
companies will incur costs for
conducting internal liquidity stress
testing, this requirement will serve to
improve the capability of these firms to
understand, manage, and plan for
liquidity risk exposures across a range
of conditions. Depending on its
liquidity buffer requirement, a covered
savings and loan holding company may
need to increase the amount of liquid
assets it holds or otherwise adjust its
risk profile to reduce estimated net
stressed cash-flow needs. Because
covered savings and loan holding
companies are already subject to the
LCR rule, which also requires a firm to
maintain a minimum amount of liquid
assets to meet net outflows under a
stress scenario, covered savings and
loan holding companies generally will
need to hold only an incremental
amount—if any—above the levels
already required to comply with the
LCR rule.
XVII. Administrative Law Matters
A. Paperwork Reduction Act Analysis
Certain provisions of the final 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
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reviewed the final rule under the
authority delegated to the Board by
OMB. The Board did not receive any
specific comments on the PRA.
The final rule contains reporting
requirements subject to the PRA. To
implement these requirements, the
Board is revising 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) Systemic
Risk Report (FR Y–15; OMB No. 7100–
0352).
The final rule also contains reporting
and recordkeeping requirements subject
to the PRA. To implement these
requirements, the Board is revising the
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). Foreign banking organizations do
not yet 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.
Adopted 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.
Effective Date: June 30, 2020 (October
1, 2020 for foreign banking
organizations with U.S. assets).
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.
Estimated number of respondents:
Monthly: 26; Daily: 16.
Estimated average hours per response:
Monthly: 120; Daily: 220.
Estimated annual burden hours:
917,440.
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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 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 the Home Owners’ Loan Act (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 final rule,
the Board is modifying the current FR
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59069
2052a reporting frequency. The Board
revised the FR 2052a (1) so that BHCs
and SLHCs with less than $100 billion
in total consolidated assets would no
longer have to report, (2) BHCs or
SLHCs subject to Category II standards
($700 billion or more in total
consolidated assets or $75 billion or
more in cross jurisdictional activity)
would have to report FR 2052a daily,
and (3) BHCs or SLHCs subject to
Category III standards with $75 billion
or more in weighted short-term
wholesale funding would have to report
FR 2052a daily, rather than monthly.
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 final
rule 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)
are subject to Category III standards and
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
the 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 26, but the number
of daily filers would increase from 12 to
16. The Board estimates that revisions to
the FR 2052a would increase the
estimated annual burden by 205,600
hours. The final 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.
Effective Date: For the amended FR
Y–7, the next report after effective date
of final rule (fiscal year-end 2020).
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)),
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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: 4,044; FR Y–7: 256; FR Y–10:
4,232; FR Y–10E: 4,232.
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: 22,242; FR Y–7: 1,152; FR Y–10:
43,233; FR Y–10E: 2,116.
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
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.
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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
(D.C. 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
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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 revised
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 the final rules
and other regulatory changes that are
consistent with the Board’s July 2018
statement concerning EGRRCPA. The
Board estimates that 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 revisions to the FR Y–7 would
decrease the estimated annual burden
by 384 hours. The final 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.
Effective Date: For the amended FR
Y–7Q, the next report after effective date
of final rule.
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.
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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 final rule would
amend the FR Y–7Q to align with
revisions to the enhanced prudential
standards rule. Previously, top-tier
foreign banking organizations with $50
billion or more in total consolidated
assets were required to report Part 1B—
Capital and Asset Information for Toptier Foreign Banking Organizations with
Consolidated Assets of $50 billion or
more. The final rule would now require
top-tier foreign banking organizations
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 revisions
to the FR Y–7Q would not impact the
respondent count, but the estimated
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average hours per response would
decrease from 3 hours to 2.25 hours for
quarterly filers. The Board estimates
that revisions to the FR Y–7Q would
decrease the estimated annual burden
by 390 hours. The final 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.
Effective Date: For amended FR Y–9C
and FR Y–9LP, next report after
effective date of final rule.
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): 344; FR Y–9C
(advanced approached holding
companies): 19; FR Y–9LP: 434; FR Y–
9SP: 3,960; FR Y–9ES: 83; 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): 63,764; FR Y–9C
(advanced approached holding
companies): 3,617; FR Y–9LP: 9,149; FR
Y–9SP: 42,768; FR Y–9ES: 42; 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
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59071
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
by, on behalf of, or for the use of an
agency responsible for the regulation or
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supervision of financial institutions (5
U.S.C. 552(b)(8)).
Current Actions: To implement the
reporting requirements of the final rule,
the Board is amending the FR Y–9C to
clarify requirements for holding
companies subject to Category III capital
standards. The final rule amends 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
FR Y–9LP is revised to require covered
savings and loan holding companies
with total consolidated assets of $100
billion or more to report total nonbank
assets on Schedule PC–B, in order to
determine whether the firm would be
subject to Category III standards. The
Board estimates that revisions to the FR
Y–9C would increase the non AA HCs
respondent count by 11 and decrease
the AA HCs respondent count by 11.
The Board estimates that revisions to
the FR Y–9 would decrease the
estimated annual burden by 55 hours.
The final 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.
Effective Date: For U.S. bank holding
companies and U.S. intermediate
holding companies, the next reports (FR
Y–14A, Q, and M) after the effective
date of final rule. For U.S. covered
savings and loan holding companies
June 30, 2020 (FR Y–14Q and FR Y–
14M), and December 31, 2021 (FR Y–
14A).
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
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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: 38.
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.
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, 67,412; Macro
Scenario, 2,232; Operational Risk, 684;
Regulatory Capital Instruments, 756;
Business Plan Changes, 608; and
Adjusted Capital Plan Submission, 500.
FR Y–14Q: Retail, 2,280; Securities,
1,976; Pre-Provision Net Revenue
(PPNR), 108,072; Wholesale, 22,952;
Trading, 92,448; Regulatory Capital
Transitions, 3,212; Regulatory Capital
Instruments, 7,776; Operational risk,
7,600; Mortgage Servicing Rights (MSR)
Valuation, 1,564; Supplemental, 608;
Retail Fair Value Option/Held for Sale
(Retail FVO/HFS), 1,620; Counterparty,
24,672; and Balances, 2,432. FR Y–14M:
1st Lien Mortgage, 222,912; Home
Equity, 185,760; and Credit Card,
98,304. FR Y–14: Implementation,
14,400 and On-going Automation
Revisions, 18,240. 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.
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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
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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 final rule,
the Board revised the FR Y–14 so that
(1) BHCs with less than $100 billion in
total consolidated assets would no
longer have to report and (2) covered
SLHCs with $100 billion or more in
total consolidated assets are included in
the reporting panel for certain FR Y–14
schedules. The Board revised 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 has
also made certain revisions to the FR Y–
14 forms to eliminate references to the
adverse scenario, consistent with other
changes in this final rule. The Board
estimates that revisions to the FR Y–14
would increase the reporting panel by 2
respondents. The Board estimates that
revisions to the FR Y–14 would increase
the estimated annual burden by 64,016
hours. The final reporting forms and
instructions are available on the Board’s
public website at https://
www.federalreserve.gov/apps/
reportforms/review.aspx.
(6) Report title: Systemic Risk Report.
Agency form number: FR Y–15.
OMB control number: 7100–0352.
Effective Date: June 30, 2020.
Frequency: Quarterly.
Affected Public: Businesses or other
for-profit.
Respondents: U.S. bank holding
companies (BHCs) and covered savings
and loan holding companies (SLHCs)
with $100 billion or more in total
consolidated assets, foreign banking
organizations with $100 billion or more
in combined U.S. 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: 43.
Estimated average hours per response:
403.
Estimated annual burden hours:
69,316.
General description of report: The FR
Y–15 quarterly report collects systemic
risk data from U.S. bank holding
companies (BHCs), and covered savings
and loan holding companies (SLHCs)
with total consolidated assets of $100
billion or more, any BHC identified as
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20:44 Oct 31, 2019
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a global systemically important banking
organization (GSIB) based on its method
1 score calculated as of December 31 of
the previous calendar year, and foreign
banking organizations with $100 billion
or more in combined U.S. assets. The
Board uses the FR Y–15 data to monitor,
on an ongoing basis, the systemic risk
profile of subject institutions. 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
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 Schedules
G and N 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: Consistent with the
final rule, the FR Y–15 has been
amended to require U.S. bank holding
companies and U.S. covered savings
and loan holding companies with $100
billion or more in total consolidated
assets to file the form, as well as foreign
banking organizations with $100 billion
or more in combined U.S. assets. These
foreign banking organizations will file
all schedules of the FR Y–15 on behalf
of their U.S. intermediate holding
companies (Column A) and combined
U.S. operations (Column B). The final
form includes others edits described
further in the SUPPLEMENTARY
INFORMATION sections.
The Board estimates that the changes
to the FR Y–15 would increase the
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59073
respondent count by 6 respondents. The
Board also estimates that the revisions
to the FR Y–15 would increase the
estimated average hours per response by
2 hours and would increase the
estimated annual burden by 9,968
hours. The final 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.
Effective Date: Effective date of final
rule.
Frequency: Annually.
Affected Public: Businesses or other
for-profit.
Respondents: BHCs and IHCs.
Estimated number of respondents: 34.
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)), 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)), 303,280
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
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under certain circumstances before
making a capital distribution.
Current Actions: The final rule raises
the threshold for application of § 225.8
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. This change would
reduce the panels for various provisions
in § 225.8. The Board estimates that the
revisions to the FR Y–13 would
decrease the estimated annual burden
by 28,115 hours.
(8) Report title: Reporting and
Disclosure Requirements Associated
with Regulation LL.
Agency Form Number: FR LL.
OMB control number: 7100–NEW.
Effective Date: Effective date of final
rule.
Frequency: Biennial.
Affected Public: Businesses or other
for-profit.
Respondents: Savings and loan
holding companies.
Estimated number of respondents:
1.138
Estimated average hours per response:
Reporting section 238.162b1ii, 80;
Disclosure section 238.146 (initial
setup), 150; Disclosure section 238.146,
60.
Estimated annual burden hours:
Reporting section 238.162b1ii, 40;
Disclosure section 238.146 (initial
setup), 75; Disclosure section 238.146,
30.
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.
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.
Current Actions: The Board is moving
the requirement for foreign savings and
loan holding companies currently in
§ 252.122(b)(1)(iii) of Regulation YY into
§ 238.162(b)(1)(ii) of Regulation LL. In
doing so, the Board is amending the
138 Currently, there are no foreign savings and
loan holding companies in existence. For PRA
purposes, ‘‘1’’ is used as a placeholder.
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20:44 Oct 31, 2019
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frequency of the reporting requirement
in proposed § 238.162(b)(1)(ii) from
annual to at least biennial. The Board is
also raising 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.
(9) Report title: Reporting,
Recordkeeping, and Disclosure
Requirements Associated with
Regulation YY (Enhanced Prudential
Standards).
Agency Form Number: FR YY.
OMB Control Number: 7100–0350.
Effective Date: Effective date of final
rule.
Frequency: Annual, semiannual,
quarterly.
Affected Public: Businesses or other
for-profit.
Respondents: State member banks,
U.S. bank 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.
Estimated number of respondents: 23
U.S. bank holding companies with total
consolidated assets of $100 billion or
more, 4 U.S. bank holding companies
with total consolidated assets of $50
billion or more but less than $100
billion, 1 state member bank with total
consolidated assets over $250 billion, 11
U.S. intermediate holding companies
with $100 billion or more in total assets,
23 foreign banking organizations with
total consolidated assets of more than
$50 billion but less than $100 billion; 23
foreign banking organizations with total
consolidated assets of $100 billion or
more but combined U.S. operations of at
least $50 billion but less than $100
billion; 17 foreign banking organizations
with total consolidated assets of $100
billion or more and combined U.S.
operations of $100 billion or more.
Current estimated annual burden:
41,619 hours.
Proposed revisions estimated annual
burden: (13,868) hours.
Total estimated annual burden:
27,751 hours.
General description of report: 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
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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 in this
SUPPLEMENTARY INFORMATION, the Board
is amending reporting, recordkeeping
and disclosure requirements in
Regulation YY to generally raise the
thresholds for application of these
requirements to state member banks,
U.S. bank holding companies, U.S.
intermediate holding companies, and
foreign banking organizations,
consistent with EGRRCPA’s changes to
section 165 of the Dodd-Frank.
B. Regulatory Flexibility Act Analysis
The Regulatory Flexibility Act (RFA)
generally requires that, in connection
with a final rulemaking, an agency
prepare and make available for public
comment a final regulatory flexibility
analysis describing the impact of the
proposed rule on small entities.139
However, a final regulatory flexibility
analysis is not required if the agency
certifies that the final rule will not have
a significant economic impact on a
substantial number of small entities.
The Small Business Administration
(SBA) has defined ‘‘small entities’’ to
include banking organizations with total
assets of less than or equal to $600
million that are independently owned
and operated or owned by a holding
company with less than or equal to $600
million in total assets.140 For the
reasons described below and under
section 605(b) of the RFA, the Board
certifies that the final rule will not have
a significant economic impact on a
substantial number of small entities. As
of June 30, 2019, there were 2,976 bank
holding companies, 133 savings and
loan holding companies, and 537 state
member banks that would fit the SBA’s
current definition of ‘‘small entity’’ for
purposes of the RFA.
139 5
U.S.C. 601 et seq.
13 CFR 121.201. Effective August 19,
2019, the Small Business Administration revised
the size standards for banking organizations to $600
million in assets from $550 million in assets. See
84 FR 34261 (July 18, 2019). Consistent with the
General Principles of Affiliation in 13 CFR 121.103,
the Board counts the assets of all domestic and
foreign affiliates when determining if the Board
should classify a Board-supervised institution as a
small entity.
140 See
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The Board is finalizing amendments
to Regulations Q,141 Y,142 LL,143 PP,144
and YY 145 that would affect the
regulatory requirements that apply to
state member banks, U.S. bank holding
companies, U.S. covered savings and
loan holding companies, U.S.
intermediate holding companies, foreign
banking organizations, and foreign
savings and loan holding companies
with $10 billion or more in total
consolidated assets. These changes are
consistent with EGRRCPA, which
amended section 165 of the Dodd-Frank
Act. The reasons and justification for
the final rule are described above in
more detail in this SUPPLEMENTARY
INFORMATION.
The assets of institutions subject to
this final rule substantially exceed the
$600 million asset threshold under
which a banking organization is
considered a ‘‘small entity’’ under SBA
regulations. Because the final rule is not
likely to apply to any depository
institution or company with assets of
$600 million or less, it is not expected
to apply to any small entity for purposes
of the RFA. The Board does not believe
that the final rule duplicates, overlaps,
or conflicts with any other Federal
rules. In light of the foregoing, the Board
certifies that the final rule will not have
a significant economic impact on a
substantial number of small entities
supervised.
C. Riegle Community Development and
Regulatory Improvement Act of 1994
Pursuant to section 302(a) of the
Riegle Community Development and
Regulatory Improvement Act
(RCDRIA),146 in determining the
effective date and administrative
compliance requirements for new
regulations that impose additional
reporting, disclosure, or other
requirements on insured depository
institutions (IDIs), each Federal banking
agency must consider, consistent with
principle of safety and soundness and
the public interest, any administrative
burdens that such regulations would
place on depository institutions,
including small depository institutions,
and customers of depository
institutions, as well as the benefits of
such regulations. In addition, section
302(b) of RCDRIA requires new
regulations and amendments to
regulations that impose additional
reporting, disclosures, or other new
CFR part 217.
CFR part 225.
143 12 CFR part 238.
144 12 CFR part 242.
145 12 CFR part 252.
146 12 U.S.C. 4802(a).
142 12
20:44 Oct 31, 2019
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 242
Administrative practice and
procedure, Holding companies,
Nonbank financial companies.
12 CFR Part 252
Administrative practice and
procedure, Banks, Banking, Capital
planning, Federal Reserve System,
Holding companies, Reporting and
recordkeeping requirements, Securities,
Stress testing.
Authority and Issuance
141 12
VerDate Sep<11>2014
requirements on IDIs generally to take
effect on the first day of a calendar
quarter that begins on or after the date
on which the regulations are published
in final form.147
The final rule imposes no additional
reporting, disclosure, or other
requirements on insured depository
institutions, including small depository
institutions, nor on the customers of
depository institutions. The final rule
would raise the minimum asset
threshold for state member banks that
would be required to conduct a stress
test from $10 billion to $250 billion,
would revise the frequency with which
state member banks with assets greater
than $250 billion would be required to
conduct stress tests, and would reduce
the number of required stress test
scenarios from three to two. The
requirement to conduct, report, and
publish a company-run stress testing is
a previously existing requirement
imposed by section 165 of the DoddFrank Act. Accordingly, the RCDRIA
does not apply to the final rule.
For the reasons stated in the
SUPPLEMENTARY INFORMATION, chapter II
147 12
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59075
of title 12 of the Code of Federal
Regulations is 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. In § 217.400:
a. Revise paragraphs (b)(1), (b)(2
introductory text, and (b)(2)(i); and
■ b. Remove 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) Effective date of calculation and
surcharge requirements. (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 by December 31 of 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;
and
*
*
*
*
*
PART 225—BANK HOLDING
COMPANIES AND CHANGE IN BANK
CONTROL (REGULATION Y)
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
4. In § 225.8, revise paragraphs
(b)(1)(i), (b)(2) and (3), and (c) to read as
follows:
■
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Capital planning.
*
*
*
*
*
(b) * * *
(1) * * *
(i) Any top-tier bank holding
company domiciled in the United States
with average total consolidated assets of
$100 billion or more ($100 billion asset
threshold);
*
*
*
*
*
(2) Average total consolidated assets.
For purposes of this section, average
total consolidated assets means the
average of the total consolidated assets
as reported by a bank holding company
on its Consolidated Financial
Statements for Holding Companies (FR
Y–9C) for the four most recent
consecutive quarters. If the bank
holding company has not filed the FR
Y–9C for each of the four most recent
consecutive quarters, average total
consolidated assets means the average of
the company’s total consolidated assets,
as reported on the company’s FR Y–9C,
for the most recent quarter or
consecutive quarters, as applicable.
Average total consolidated assets are
measured on the as-of date of the most
recent FR Y–9C used in the calculation
of the average.
(3) Ongoing applicability. A bank
holding company (including any
successor bank holding company) that is
subject to any requirement in this
section shall remain subject to such
requirements 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.
*
*
*
*
*
(c) 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)
or (2) of this section to comply with any
or all of the requirements in paragraph
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20:44 Oct 31, 2019
Jkt 250001
(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.
*
*
*
*
*
PART 238—SAVINGS AND LOAN
HOLDING COMPANIES (REGULATION
LL)
5. The authority citation for part 238
is revised to read as follows:
■
Authority: 5 U.S.C. 552, 559; 12 U.S.C.
1462, 1462a, 1463, 1464, 1467, 1467a, 1468,
5365; 1813, 1817, 1829e, 1831i, 1972, 15
U.S.C. 78 l.
Subpart A—General Provisions
6. In § 238.2, add paragraphs (v)
through (ss) to read as follows:
■
§ 238.2
Definitions.
*
*
*
*
*
(v) Applicable accounting standards
means GAAP, 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.
(w) Average cross-jurisdictional
activity means the average of crossjurisdictional 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 cross-jurisdictional activity for the
most recent calendar quarter or average
of the most recent calendar quarters, as
applicable.
(x) Average off-balance sheet
exposure means the average of offbalance 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 off-balance sheet
exposure for the most recent calendar
quarter or average of the most recent
quarters, as applicable.
(y) 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 total consolidated
assets for the most recent calendar
quarter or average of the most recent
calendar quarters, as applicable.
(z) Average total nonbank assets
means the average of total nonbank
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assets for the four most recent calendar
quarters or, if the banking organization
has not reported total nonbank assets for
each of the four most recent calendar
quarters, the total nonbank assets for the
most recent calendar quarter or average
of the most recent calendar quarters, as
applicable.
(aa) 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
weighted short-term wholesale funding
for the most recent quarter or average of
the most recent calendar quarters, as
applicable.
(bb) Banking organization. Banking
organization means a covered savings
and loan holding company that is:
(1) Incorporated in or organized under
the laws of the United States or any
State; and
(2) Not a consolidated subsidiary of a
covered savings and loan holding
company that is incorporated in or
organized under the laws of the United
States or any State.
(cc) Category II savings and loan
holding company means a covered
savings and loan holding company
identified as a Category II banking
organization pursuant to § 238.10.
(dd) Category III savings and loan
holding company means a covered
savings and loan holding company
identified as a Category III banking
organization pursuant to § 238.10.
(ee) Category IV savings and loan
holding company means a covered
savings and loan holding company
identified as a Category IV banking
organization pursuant to § 238.10.
(ff) Covered savings and loan holding
company means a savings and loan
holding company other than:
(1) A top-tier savings and loan
holding company that is:
(i) A grandfathered unitary savings
and loan holding company as defined in
section 10(c)(9)(C) of the Home Owners’
Loan Act (12 U.S.C. 1461 et seq.); and
(ii) As of June 30 of the previous
calendar year, derived 50 percent or
more of its total consolidated assets or
50 percent of its total revenues on an
enterprise-wide basis (as calculated
under GAAP) from activities that are not
financial in nature under section 4(k) of
the Bank Holding Company Act (12
U.S.C. 1843(k));
(2) A top-tier depository institution
holding company that is an insurance
underwriting company; or
(3)(i) A top-tier depository institution
holding company that, as of June 30 of
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the previous calendar year, held 25
percent or more of its total consolidated
assets in subsidiaries that are insurance
underwriting companies (other than
assets associated with insurance for
credit risk); and
(ii) For purposes of paragraph (ff)(3)(i)
of this section, the company must
calculate its total consolidated assets in
accordance with GAAP, or if the
company does not calculate its total
consolidated assets under GAAP for any
regulatory purpose (including
compliance with applicable securities
laws), the company may estimate its
total consolidated assets, subject to
review and adjustment by the Board of
Governors of the Federal Reserve
System.
(gg) Cross-jurisdictional activity. The
cross-jurisdictional activity of a banking
organization is equal to the crossjurisdictional activity of the banking
organization as reported on the FR Y–
15.
(hh) Foreign banking organization has
the same meaning as in § 211.21(o) of
this chapter.
(ii) FR Y–9C means the Consolidated
Financial Statements for Holding
Companies reporting form.
(jj) FR Y–9LP means the Parent
Company Only Financial Statements of
Large Holding Companies.
(kk) FR Y–15 means the Systemic Risk
Report.
(ll) GAAP means generally accepted
accounting principles as used in the
United States.
(mm) Off-balance sheet exposure. The
off-balance sheet exposure of a banking
organization is equal to:
(1) The total exposure of the banking
organization, as reported by the banking
organization on the FR Y–15; minus
(2) The total consolidated assets of the
banking organization for the same
calendar quarter.
(nn) 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.
(oo) Total consolidated assets. Total
consolidated assets of a banking
organization are equal to its total
consolidated assets calculated based on
the average of the balances as of the
close of business for each day for the
calendar quarter or an average of the
balances as of the close of business on
each Wednesday during the calendar
quarter, as reported on the FR Y–9C.
(pp) Total nonbank assets. Total
nonbank assets of a banking
organization is equal to the total
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nonbank assets of such banking
organization, as reported on the FR Y–
9LP.
(qq) 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.
(rr) 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.
(ss) Weighted short-term wholesale
funding is equal to the weighted shortterm wholesale funding of a banking
organization, as reported on the FR Y–
15.
■ 7. Add § 238.10 to subpart A to read
as follows:
§ 238.10 Categorization of banking
organizations.
(a) General. A banking organization
with average total consolidated assets of
$100 billion or more must determine its
category among the three categories
described in paragraphs (b) through (d)
of this section at least quarterly.
(b) Category II. (1) A banking
organization is a Category II banking
organization if the banking organization
has:
(i) $700 billion or more in average
total consolidated assets; or
(ii)(A) $75 billion or more in average
cross-jurisdictional activity; and
(B) $100 billion or more in average
total consolidated assets.
(2) After meeting the criteria in
paragraph (b)(1) of this section, a
banking organization continues to be a
Category II banking organization until
the banking organization has:
(i)(A) Less than $700 billion in total
consolidated 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; or
(ii) Less than $100 billion in total
consolidated assets for each of the four
most recent calendar quarters.
(c) Category III. (1) A banking
organization is a Category III banking
organization if the banking organization:
(i) Has:
(A) $250 billion or more in average
total consolidated assets; or
(B) $100 billion or more in average
total consolidated assets and at least:
(1) $75 billion in average total
nonbank assets;
(2) $75 billion in average weighted
short-term wholesale funding; or
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59077
(3) $75 billion in average off-balance
sheet exposure; and
(ii) Is not a Category II banking
organization.
(2) After meeting the criteria in
paragraph (c)(1) of this section, a
banking organization continues to be a
Category III banking organization until
the banking organization:
(i) Has:
(A) Less than $250 billion in total
consolidated 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 less than $100 billion in total
consolidated assets for each of the four
most recent calendar quarters; or
(iii) Meets the criteria in paragraph
(b)(1) of this section to be a Category II
banking organization.
(d) Category IV. (1) A banking
organization with average total
consolidated assets of $100 billion or
more is a Category IV banking
organization if the banking organization:
(i) Is not a Category II banking
organization; and
(ii) Is not a Category III banking
organization.
(2) After meeting the criteria in
paragraph (d)(1) of this section, a
banking organization continues to be a
Category IV banking organization until
the banking organization:
(i) Has less than $100 billion in total
consolidated assets for each of the four
most recent calendar quarters;
(ii) Meets the criteria in paragraph
(b)(1) of this section to be a Category II
banking organization; or
(iii) Meets the criteria in paragraph
(c)(1) of this section to be a Category III
banking organization.
■ 8. Add subpart M, consisting of
§§ 238.118 and 238.119, to read as
follows:
Subpart M—Risk Committee
Requirement for Covered Savings and
Loan Holding Companies With Total
Consolidated Assets of $50 Billion or
More and Less Than $100 Billion
§238.118
Applicability.
(a) General applicability. A covered
savings and loan bank holding company
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
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average total consolidated assets equal
or exceed $50 billion.
(b) Cessation of requirements. A
covered savings and loan holding
company will remain subject to the
requirements of this subpart until the
earlier of the date on which:
(1) Its total consolidated assets are
below $50 billion for each of four
consecutive calendar quarters; and
(2) It becomes subject to the
requirements of subpart N of this part.
§ 238.119 Risk committee requirement for
covered savings and loan holding
companies with total consolidated assets of
$50 billion or more.
(a) Risk committee—(1) General. A
covered savings and loan holding
company subject to this subpart must
maintain a risk committee that approves
and periodically reviews the riskmanagement policies of the covered
savings and loan holding company’s
global operations and oversees the
operation of the company’s global riskmanagement framework.
(2) Risk-management framework. The
covered savings and loan holding
company’s global risk-management
framework must be commensurate with
its structure, risk profile, complexity,
activities, and size and must include:
(i) Policies and procedures
establishing risk-management
governance, risk-management
procedures, and risk-control
infrastructure for its global operations;
and
(ii) Processes and systems for
implementing and monitoring
compliance with such policies and
procedures, including:
(A) Processes and systems for
identifying and reporting risks and riskmanagement deficiencies, including
regarding emerging risks, and ensuring
effective and timely implementation of
actions to address emerging risks and
risk-management deficiencies for its
global operations;
(B) Processes and systems for
establishing managerial and employee
responsibility for risk management;
(C) Processes and systems for
ensuring the independence of the riskmanagement function; and
(D) Processes and systems to integrate
risk management and associated
controls with management goals and its
compensation structure for its global
operations.
(3) Corporate governance
requirements. The risk committee must:
(i) Have a formal, written charter that
is approved by the covered savings and
loan holding company’s board of
directors;
(ii) Be an independent committee of
the board of directors that has, as its
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sole and exclusive function,
responsibility for the risk-management
policies of the covered savings and loan
holding company’s global operations
and oversight of the operation of the
company’s global risk-management
framework;
(iii) Report directly to the covered
savings and loan holding company’s
board of directors;
(iv) Receive and review regular
reports on a not less than a quarterly
basis from the covered savings and loan
holding company’s chief risk officer
provided pursuant to paragraph (b)(3)(ii)
of this section; and
(v) Meet at least quarterly, or more
frequently as needed, and fully
document and maintain records of its
proceedings, including riskmanagement decisions.
(4) Minimum member requirements.
The risk committee must:
(i) Include at least one member having
experience in identifying, assessing, and
managing risk exposures of large,
complex financial firms; and
(ii) Be chaired by a director who:
(A) Is not an officer or employee of
the covered savings and loan holding
company and has not been an officer or
employee of the covered savings and
loan holding company during the
previous three years;
(B) Is not a member of the immediate
family, as defined in § 238.31(b)(3), of a
person who is, or has been within the
last three years, an executive officer of
the covered savings and loan holding
company, as defined in § 215.2(e)(1) of
this chapter; and
(C)(1) Is an independent director
under Item 407 of the Securities and
Exchange Commission’s Regulation S–K
(17 CFR 229.407(a)), if the covered
savings and loan holding company has
an outstanding class of securities traded
on an 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) (national
securities exchange); or
(2) Would qualify as an independent
director under the listing standards of a
national securities exchange, as
demonstrated to the satisfaction of the
Board, if the covered savings and loan
holding company does not have an
outstanding class of securities traded on
a national securities exchange.
(b) Chief risk officer—(1) General. A
covered savings and loan holding
company subject to this subpart must
appoint a chief risk officer with
experience in identifying, assessing, and
managing risk exposures of large,
complex financial firms.
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(2) Responsibilities. (i) The chief risk
officer is responsible for overseeing:
(A) The establishment of risk limits
on an enterprise-wide basis and the
monitoring of compliance with such
limits;
(B) The implementation of and
ongoing compliance with the policies
and procedures set forth in paragraph
(a)(2)(i) of this section and the
development and implementation of the
processes and systems set forth in
paragraph (a)(2)(ii) of this section; and
(C) The management of risks and risk
controls within the parameters of the
company’s risk control framework, and
monitoring and testing of the company’s
risk controls.
(ii) The chief risk officer is
responsible for reporting riskmanagement deficiencies and emerging
risks to the risk committee and resolving
risk-management deficiencies in a
timely manner.
(3) Corporate governance
requirements. (i) The covered savings
and loan holding company must ensure
that the compensation and other
incentives provided to the chief risk
officer are consistent with providing an
objective assessment of the risks taken
by the company; and
(ii) The chief risk officer must report
directly to both the risk committee and
chief executive officer of the company.
■ 9. Add subpart N to read as follows:
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
Sec.
238.120 Scope.
238.121 Applicability.
238.122 Risk-management and risk
committee requirements.
238.123 Liquidity risk-management
requirements.
§ 238.120
Scope.
This subpart applies to covered
savings and loan holding companies
with average total consolidated assets of
$100 billion or more.
§ 238.121
Applicability.
(a) Applicability—(1) Initial
applicability. A covered savings and
loan holding company must comply
with the risk-management and riskcommittee requirements set forth in
§ 238.122 and the liquidity riskmanagement and liquidity stress test
requirements set forth in §§ 238.123 and
238.124 no later than the first day of the
fifth quarter following the date on
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which its average total consolidated
assets equal or exceed $100 billion.
(2) Changes in requirements following
a change in category. A covered savings
and loan holding company with average
total consolidated assets of $100 billion
or more that changes from one category
of covered savings and loan holding
company described in § 238.10(b)
through (d) to another such category
must comply with the requirements
applicable to the new category no later
than on the first day of the second
calendar quarter following the change in
the covered savings and loan holding
company’s category.
(b) Cessation of requirements. A
covered savings and loan holding
company is subject to the riskmanagement and risk committee
requirements set forth in § 238.122 and
the liquidity risk-management and
liquidity stress test requirements set
forth in §§ 238.123 and 238.124 until its
total consolidated assets are below $100
billion for each of four consecutive
calendar quarters.
§ 238.122 Risk-management and risk
committee requirements.
(a) Risk committee—(1) General. A
covered savings and loan holding
subject to this subpart must maintain a
risk committee that approves and
periodically reviews the riskmanagement policies of the covered
savings and loan holding company’s
global operations and oversees the
operation of the covered savings and
loan holding company’s global riskmanagement framework. The risk
committee’s responsibilities include
liquidity risk-management as set forth in
§ 238.123(b).
(2) Risk-management framework. The
covered savings and loan holding
company’s global risk-management
framework must be commensurate with
its structure, risk profile, complexity,
activities, and size and must include:
(i) Policies and procedures
establishing risk-management
governance, risk-management
procedures, and risk-control
infrastructure for its global operations;
and
(ii) Processes and systems for
implementing and monitoring
compliance with such policies and
procedures, including:
(A) Processes and systems for
identifying and reporting risks and riskmanagement deficiencies, including
regarding emerging risks, and ensuring
effective and timely implementation of
actions to address emerging risks and
risk-management deficiencies for its
global operations;
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(B) Processes and systems for
establishing managerial and employee
responsibility for risk management;
(C) Processes and systems for
ensuring the independence of the riskmanagement function; and
(D) Processes and systems to integrate
risk management and associated
controls with management goals and its
compensation structure for its global
operations.
(3) Corporate governance
requirements. The risk committee must:
(i) Have a formal, written charter that
is approved by the covered savings and
loan holding company’s board of
directors;
(ii) Be an independent committee of
the board of directors that has, as its
sole and exclusive function,
responsibility for the risk-management
policies of the covered savings and loan
holding company’s global operations
and oversight of the operation of the
covered savings and loan holding
company’s global risk-management
framework;
(iii) Report directly to the covered
savings and loan holding company’s
board of directors;
(iv) Receive and review regular
reports on not less than a quarterly basis
from the covered savings and loan
holding company’s chief risk officer
provided pursuant to paragraph (b)(3)(ii)
of this section; and
(v) Meet at least quarterly, or more
frequently as needed, and fully
document and maintain records of its
proceedings, including riskmanagement decisions.
(4) Minimum member requirements.
The risk committee must:
(i) Include at least one member having
experience in identifying, assessing, and
managing risk exposures of large,
complex financial firms; and
(ii) Be chaired by a director who:
(A) Is not an officer or employee of
the covered savings and loan holding
company and has not been an officer or
employee of the covered savings and
loan holding company during the
previous three years;
(B) Is not a member of the immediate
family, as defined in § 238.31(b)(3), of a
person who is, or has been within the
last three years, an executive officer of
the covered savings and loan holding
company, as defined in § 215.2(e)(1) of
this chapter; and
(C)(1) Is an independent director
under Item 407 of the Securities and
Exchange Commission’s Regulation S–K
(17 CFR 229.407(a)), if the covered
savings and loan holding company has
an outstanding class of securities traded
on an exchange registered with the U.S.
Securities and Exchange Commission as
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59079
a national securities exchange under
section 6 of the Securities Exchange Act
of 1934 (15 U.S.C. 78f) (national
securities exchange); or
(2) Would qualify as an independent
director under the listing standards of a
national securities exchange, as
demonstrated to the satisfaction of the
Board, if the covered savings and loan
holding company does not have an
outstanding class of securities traded on
a national securities exchange.
(b) Chief risk officer—(1) General. A
covered savings and loan holding
company subject to this subpart must
appoint a chief risk officer with
experience in identifying, assessing, and
managing risk exposures of large,
complex financial firms.
(2) Responsibilities. (i) The chief risk
officer is responsible for overseeing:
(A) The establishment of risk limits
on an enterprise-wide basis and the
monitoring of compliance with such
limits;
(B) The implementation of and
ongoing compliance with the policies
and procedures set forth in paragraph
(a)(2)(i) of this section and the
development and implementation of the
processes and systems set forth in
paragraph (a)(2)(ii) of this section; and
(C) The management of risks and risk
controls within the parameters of the
company’s risk control framework, and
monitoring and testing of the company’s
risk controls.
(ii) The chief risk officer is
responsible for reporting riskmanagement deficiencies and emerging
risks to the risk committee and resolving
risk-management deficiencies in a
timely manner.
(3) Corporate governance
requirements. (i) The covered savings
and loan holding company must ensure
that the compensation and other
incentives provided to the chief risk
officer are consistent with providing an
objective assessment of the risks taken
by the covered savings and loan holding
company; and
(ii) The chief risk officer must report
directly to both the risk committee and
chief executive officer of the company.
§ 238.123 Liquidity risk-management
requirements.
(a) Responsibilities of the board of
directors—(1) Liquidity risk tolerance.
The board of directors of a covered
savings and loan holding company
subject to this subpart must:
(i) Approve the acceptable level of
liquidity risk that the covered savings
and loan holding company may assume
in connection with its operating
strategies (liquidity risk tolerance) at
least annually, taking into account the
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covered savings and loan holding
company’s capital structure, risk profile,
complexity, activities, and size; and
(ii) Receive and review at least semiannually information provided by
senior management to determine
whether the covered savings and loan
holding company is operating in
accordance with its established liquidity
risk tolerance.
(2) Liquidity risk-management
strategies, policies, and procedures. The
board of directors must approve and
periodically review the liquidity riskmanagement strategies, policies, and
procedures established by senior
management pursuant to paragraph
(c)(1) of this section.
(b) Responsibilities of the risk
committee. The risk committee (or a
designated subcommittee of such
committee composed of members of the
board of directors) must approve the
contingency funding plan described in
paragraph (f) of this section at least
annually, and must approve any
material revisions to the plan prior to
the implementation of such revisions.
(c) Responsibilities of senior
management—(1) Liquidity risk. (i)
Senior management of a covered savings
and loan holding company subject to
this subpart must establish and
implement strategies, policies, and
procedures designed to effectively
manage the risk that the covered savings
and loan holding company’s financial
condition or safety and soundness
would be adversely affected by its
inability or the market’s perception of
its inability to meet its cash and
collateral obligations (liquidity risk).
The board of directors must approve the
strategies, policies, and procedures
pursuant to paragraph (a)(2) of this
section.
(ii) Senior management must oversee
the development and implementation of
liquidity risk measurement and
reporting systems, including those
required by this section and § 238.124.
(iii) Senior management must
determine at least quarterly whether the
covered savings and loan holding
company is operating in accordance
with such policies and procedures and
whether the covered savings and loan
holding company is in compliance with
this section and § 238.124 (or more
often, if changes in market conditions or
the liquidity position, risk profile, or
financial condition warrant), and
establish procedures regarding the
preparation of such information.
(2) Liquidity risk tolerance. Senior
management must report to the board of
directors or the risk committee
regarding the covered savings and loan
holding company’s liquidity risk profile
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and liquidity risk tolerance at least
quarterly (or more often, if changes in
market conditions or the liquidity
position, risk profile, or financial
condition of the company warrant).
(3) Business lines or products. (i)
Senior management must approve new
products and business lines and
evaluate the liquidity costs, benefits,
and risks of each new business line and
each new product that could have a
significant effect on the company’s
liquidity risk profile. The approval is
required before the company
implements the business line or offers
the product. In determining whether to
approve the new business line or
product, senior management must
consider whether the liquidity risk of
the new business line or product (under
both current and stressed conditions) is
within the company’s established
liquidity risk tolerance.
(ii) Senior management must review
at least annually significant business
lines and products to determine
whether any line or product creates or
has created any unanticipated liquidity
risk, and to determine whether the
liquidity risk of each strategy or product
is within the company’s established
liquidity risk tolerance.
(4) Cash-flow projections. Senior
management must review the cash-flow
projections produced under paragraph
(e) 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
covered savings and loan holding
company warrant) to ensure that the
liquidity risk is within the established
liquidity risk tolerance.
(5) Liquidity risk limits. Senior
management must establish liquidity
risk limits as set forth in paragraph (g)
of this section and review the
company’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 company
warrant).
(6) Liquidity stress testing. Senior
management must:
(i) Approve the liquidity stress testing
practices, methodologies, and
assumptions required in § 238.124(a) at
least quarterly, and whenever the
covered savings and loan holding
company materially revises its liquidity
stress testing practices, methodologies
or assumptions;
(ii) Review the liquidity stress testing
results produced under § 238.124(a) at
least quarterly;
(iii) Review the independent review
of the liquidity stress tests under
§ 238.123(d) periodically; and
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(iv) Approve the size and composition
of the liquidity buffer established under
§ 238.124(b) at least quarterly.
(d) Independent review function. (1) A
covered savings and loan holding
company subject to this subpart must
establish and maintain a review
function that is independent of
management functions that execute
funding to evaluate its liquidity risk
management.
(2) The independent review function
must:
(i) Regularly, but no less frequently
than annually, review and evaluate the
adequacy and effectiveness of the
company’s liquidity risk management
processes, including its liquidity stress
test processes and assumptions;
(ii) Assess whether the company’s
liquidity risk-management function
complies with applicable laws and
regulations, and sound business
practices; and
(iii) Report material liquidity risk
management issues to the board of
directors or the risk committee in
writing for corrective action, to the
extent permitted by applicable law.
(e) Cash-flow projections. (1) A
covered savings and loan holding
company subject to this subpart must
produce comprehensive cash-flow
projections that project cash flows
arising from assets, liabilities, and offbalance sheet exposures over, at a
minimum, short- and long-term time
horizons. The covered savings and loan
holding company must update shortterm cash-flow projections daily and
must update longer-term cash-flow
projections at least monthly.
(2) The covered savings and loan
holding company must establish a
methodology for making cash-flow
projections that results in projections
that:
(i) Include cash flows arising from
contractual maturities, intercompany
transactions, new business, funding
renewals, customer options, and other
potential events that may impact
liquidity;
(ii) Include reasonable assumptions
regarding the future behavior of assets,
liabilities, and off-balance sheet
exposures;
(iii) Identify and quantify discrete and
cumulative cash flow mismatches over
these time periods; and
(iv) Include sufficient detail to reflect
the capital structure, risk profile,
complexity, currency exposure,
activities, and size of the covered
savings and loan holding company and
include analyses by business line,
currency, or legal entity as appropriate.
(3) The covered savings and loan
holding company must adequately
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document its methodology for making
cash flow projections and the included
assumptions and submit such
documentation to the risk committee.
(f) Contingency funding plan—(1)
General. A covered savings and loan
holding company subject to this subpart
must establish and maintain a
contingency funding plan that sets out
the company’s strategies for addressing
liquidity needs during liquidity stress
events. The contingency funding plan
must be commensurate with the
company’s capital structure, risk profile,
complexity, activities, size, and
established liquidity risk tolerance. The
company must update the contingency
funding plan at least annually, and
when changes to market and
idiosyncratic conditions warrant.
(2) Components of the contingency
funding plan—(i) Quantitative
assessment. The contingency funding
plan must:
(A) Identify liquidity stress events
that could have a significant impact on
the covered savings and loan holding
company’s liquidity;
(B) Assess the level and nature of the
impact on the covered savings and loan
holding company’s liquidity that may
occur during identified liquidity stress
events;
(C) Identify the circumstances in
which the covered savings and loan
holding company would implement its
action plan described in paragraph
(f)(2)(ii)(A) of this section, which
circumstances must include failure to
meet any minimum liquidity
requirement imposed by the Board;
(D) Assess available funding sources
and needs during the identified
liquidity stress events;
(E) Identify alternative funding
sources that may be used during the
identified liquidity stress events; and
(F) Incorporate information generated
by the liquidity stress testing required
under § 238.124(a).
(ii) Liquidity event management
process. The contingency funding plan
must include an event management
process that sets out the covered savings
and loan holding company’s procedures
for managing liquidity during identified
liquidity stress events. The liquidity
event management process must:
(A) Include an action plan that clearly
describes the strategies the company
will use to respond to liquidity
shortfalls for identified liquidity stress
events, including the methods that the
company will use to access alternative
funding sources;
(B) Identify a liquidity stress event
management team that would execute
the action plan described in paragraph
(f)(2)(ii)(A) of this section;
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(C) Specify the process,
responsibilities, and triggers for
invoking the contingency funding plan,
describe the decision-making process
during the identified liquidity stress
events, and describe the process for
executing contingency measures
identified in the action plan; and
(D) Provide a mechanism that ensures
effective reporting and communication
within the covered savings and loan
holding company and with outside
parties, including the Board and other
relevant supervisors, counterparties,
and other stakeholders.
(iii) Monitoring. The contingency
funding plan must include procedures
for monitoring emerging liquidity stress
events. The procedures must identify
early warning indicators that are
tailored to the company’s capital
structure, risk profile, complexity,
activities, and size.
(iv) Testing. The covered savings and
loan holding company must
periodically test:
(A) The components of the
contingency funding plan to assess the
plan’s reliability during liquidity stress
events;
(B) The operational elements of the
contingency funding plan, including
operational simulations to test
communications, coordination, and
decision-making by relevant
management; and
(C) The methods the covered savings
and loan holding company will use to
access alternative funding sources to
determine whether these funding
sources will be readily available when
needed.
(g) Liquidity risk limits—(1) General.
A covered savings and loan holding
company subject to this subpart must
monitor sources of liquidity risk and
establish limits on liquidity risk that are
consistent with the company’s
established liquidity risk tolerance and
that reflect the company’s capital
structure, risk profile, complexity,
activities, and size.
(2) Liquidity risk limits established by
a Category II savings and loan holding
company, or Category III savings and
loan holding company. If the covered
savings and loan holding company is a
Category II savings and loan holding
company or Category III savings and
loan holding company, liquidity risk
limits established under paragraph (g)(1)
of this section by must include limits
on:
(i) Concentrations in sources of
funding by instrument type, single
counterparty, counterparty type,
secured and unsecured funding, and as
applicable, other forms of liquidity risk;
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(ii) The amount of liabilities that
mature within various time horizons;
and
(iii) Off-balance sheet exposures and
other exposures that could create
funding needs during liquidity stress
events.
(h) Collateral, legal entity, and
intraday liquidity risk monitoring. A
covered savings and loan holding
company subject to this subpart must
establish and maintain procedures for
monitoring liquidity risk as set forth in
this paragraph.
(1) Collateral. The covered savings
and loan holding company 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 it or its affiliates
are counterparties. These policies and
procedures must provide that the
covered savings and loan holding
company:
(i) Calculates all of its collateral
positions according to the frequency
specified in paragraphs (h)(1)(i)(A) and
(B) of this section 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 covered savings and loan
holding company is not a Category IV
savings and loan holding company, on
at least a weekly basis;
(B) If the covered savings and loan
holding company is a Category IV
savings and loan holding company, on
at least a monthly basis;
(ii) Monitors the levels of
unencumbered assets available to be
pledged by legal entity, jurisdiction, and
currency exposure;
(iii) Monitors shifts in the covered
savings and loan holding company’s
funding patterns, such as shifts between
intraday, overnight, and term pledging
of collateral; and
(iv) Tracks operational and timing
requirements associated with accessing
collateral at its physical location (for
example, the custodian or securities
settlement system that holds the
collateral).
(2) Legal entities, currencies and
business lines. The covered savings and
loan holding company must establish
and maintain procedures for monitoring
and controlling liquidity risk exposures
and funding needs within and across
significant legal entities, currencies, and
business lines, taking into account legal
and regulatory restrictions on the
transfer of liquidity between legal
entities.
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(3) Intraday exposures. The covered
savings and loan holding company must
establish and maintain procedures for
monitoring intraday liquidity risk
exposures that are consistent with the
covered savings and loan holding
company’s capital structure, risk profile,
complexity, activities, and size. If the
covered savings and loan holding
company is a Category II savings and
loan holding company or a Category III
savings and loan holding company,
these procedures must address how the
management of the covered savings and
loan holding company will:
(i) Monitor and measure expected
daily gross liquidity inflows and
outflows;
(ii) Manage and transfer collateral to
obtain intraday credit;
(iii) Identify and prioritize timespecific obligations so that the covered
savings and loan holding company can
meet these obligations as expected and
settle less critical obligations as soon as
possible;
(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
covered savings and loan holding
company’s overall liquidity needs.
§ 238.124 Liquidity stress testing and
buffer requirements.
(a) Liquidity stress testing
requirement—(1) General. A covered
savings and loan holding company
subject to this subpart must conduct
stress tests to assess the potential impact
of the liquidity stress scenarios set forth
in paragraph (a)(3) of this section on its
cash flows, liquidity position,
profitability, and solvency, taking into
account its current liquidity condition,
risks, exposures, strategies, and
activities.
(i) The covered savings and loan
holding company must take into
consideration its balance sheet
exposures, off-balance sheet exposures,
size, risk profile, complexity, business
lines, organizational structure, and other
characteristics of the covered savings
and loan holding company that affect its
liquidity risk profile in conducting its
stress test.
(ii) In conducting a liquidity stress
test using the scenarios described in
paragraphs (a)(3)(i) and (ii) of this
section, the covered savings and loan
holding company must address the
potential direct adverse impact of
associated market disruptions on the
covered savings and loan holding
company and incorporate the potential
actions of other market participants
experiencing liquidity stresses under
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the market disruptions that would
adversely affect the covered savings and
loan holding company.
(2) Frequency. The covered savings
and loan holding company must
perform the liquidity stress tests
required under paragraph (a)(1) of this
section according to the frequency
specified in paragraph (a)(2)(i) or (ii) of
this section or as directed by the Board:
(i) If the covered savings and loan
holding company is not a Category IV
savings and loan holding company, at
least monthly; or
(ii) If the covered savings and loan
holding company is a Category IV
savings and loan holding company, at
least quarterly.
(3) Stress scenarios. (i) Each stress test
conducted under paragraph (a)(1) of this
section must include, at a minimum:
(A) A scenario reflecting adverse
market conditions;
(B) A scenario reflecting an
idiosyncratic stress event for the
covered savings and loan holding
company; and
(C) A scenario reflecting combined
market and idiosyncratic stresses.
(ii) The covered savings and loan
holding company must incorporate
additional liquidity stress scenarios into
its liquidity stress test, as appropriate,
based on its financial condition, size,
complexity, risk profile, scope of
operations, or activities. The Board may
require the covered savings and loan
holding company to vary the underlying
assumptions and stress scenarios.
(4) Planning horizon. Each stress test
conducted under paragraph (a)(1) of this
section must include an overnight
planning horizon, a 30-day planning
horizon, a 90-day planning horizon, a
one-year planning horizon, and any
other planning horizons that are
relevant to the covered savings and loan
holding company’s liquidity risk profile.
For purposes of this section, a
‘‘planning horizon’’ is the period over
which the relevant stressed projections
extend. The covered savings and loan
holding company must use the results of
the stress test over the 30-day planning
horizon to calculate the size of the
liquidity buffer under paragraph (b) of
this section.
(5) Requirements for assets used as
cash-flow sources in a stress test. (i) To
the extent an asset is used as a cash flow
source to offset projected funding needs
during the planning horizon in a
liquidity stress test, the fair market
value of the asset must be discounted to
reflect any credit risk and market
volatility of the asset.
(ii) Assets used as cash-flow sources
during a planning horizon must be
diversified by collateral, counterparty,
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borrowing capacity, and other factors
associated with the liquidity risk of the
assets.
(iii) A line of credit does not qualify
as a cash flow source for purposes of a
stress test with a planning horizon of 30
days or less. A line of credit may qualify
as a cash flow source for purposes of a
stress test with a planning horizon that
exceeds 30 days.
(6) Tailoring. Stress testing must be
tailored to, and provide sufficient detail
to reflect, a covered savings and loan
holding company’s capital structure,
risk profile, complexity, activities, and
size.
(7) Governance—(i) Policies and
procedures. A covered savings and loan
holding company subject to this subpart
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. A covered
savings and loan holding subject to this
subpart 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 covered savings and loan holding
company’s capital structure, risk profile,
complexity, activities, size, business
lines, legal entity or jurisdiction, and
other relevant factors. The assumptions
must be approved by the chief risk
officer and be subject to the
independent review under § 238.123(d).
(iii) Management information
systems. The covered savings and loan
holding company must maintain
management information systems and
data processes sufficient to enable it to
effectively and reliably collect, sort, and
aggregate data and other information
related to liquidity stress testing.
(8) Notice and response. If the Board
determines that a covered 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
covered 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
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this paragraph, the covered 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 that
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.
(b) Liquidity buffer requirement. (1) A
covered savings and loan holding
company subject to this subpart must
maintain a liquidity buffer that is
sufficient to meet the projected net
stressed cash-flow need over the 30-day
planning horizon of a liquidity stress
test conducted in accordance with
paragraph (a) of this section under each
scenario set forth in paragraph (a)(3)(i)
through (ii) of this section.
(2) Net stressed cash-flow need. The
net stressed cash-flow need for a
covered savings and loan holding
company is the difference between the
amount of its cash-flow need and the
amount of its cash flow sources over the
30-day planning horizon.
(3) Asset requirements. The liquidity
buffer must consist of highly liquid
assets that are unencumbered, as
defined in paragraph (b)(3)(ii) of this
section:
(i) Highly liquid asset. A highly liquid
asset includes:
(A) Cash;
(B) Assets that meet the criteria for
high quality liquid assets as defined in
12 CFR 249.20; or
(C) Any other asset that the covered
savings and loan holding company
demonstrates to the satisfaction of the
Board:
(1) Has low credit risk and low market
risk;
(2) Is traded in an active secondary
two-way market that has committed
market makers and independent bona
fide offers to buy and sell so that a price
reasonably related to the last sales price
or current bona fide competitive bid and
offer quotations can be determined
within one day and settled at that price
within a reasonable time period
conforming with trade custom; and
(3) Is a type of asset that investors
historically have purchased in periods
of financial market distress during
which market liquidity has been
impaired.
(ii) Unencumbered. An asset is
unencumbered if it:
(A) Is free of legal, regulatory,
contractual, or other restrictions on the
ability of such company promptly to
liquidate, sell or transfer the asset; and
(B) Is either:
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(1) Not pledged or used to secure or
provide credit enhancement to any
transaction; or
(2) Pledged to a central bank or a U.S.
government-sponsored enterprise, to the
extent potential credit secured by the
asset is not currently extended by such
central bank or U.S. governmentsponsored enterprise or any of its
consolidated subsidiaries.
(iii) Calculating the amount of a
highly liquid asset. In calculating the
amount of a highly liquid asset included
in the liquidity buffer, the covered
savings and loan holding company must
discount the fair market value of the
asset to reflect any credit risk and
market price volatility of the asset.
(iv) Operational requirements. With
respect to the liquidity buffer, the bank
holding company must:
(A) Establish and implement policies
and procedures that require highly
liquid assets comprising the liquidity
buffer to be under the control of the
management function in the covered
savings and loan holding company that
is charged with managing liquidity risk;
and
(B) Demonstrate the capability to
monetize a highly liquid asset under
each scenario required under
§ 238.124(a)(3).
(v) Diversification. The liquidity
buffer must not contain significant
concentrations of highly liquid assets by
issuer, business sector, region, or other
factor related to the covered savings and
loan holding company’s risk, except
with respect to cash and securities
issued or guaranteed by the United
States, a U.S. government agency, or a
U.S. government-sponsored enterprise.
■ 10. Add subpart O to read as follows:
Subpart O—Supervisory Stress Test
Requirements for Covered Savings
and Loan Holding Companies
Sec.
238.130 Definitions.
238.131 Applicability.
238.132 Analysis conducted by the Board.
238.133 Data and information required to
be submitted in support of the Board’s
analyses.
238.134 Review of the Board’s analysis;
publication of summary results.
238.135 Corporate use of stress test results.
§ 238.130
Definitions.
For purposes of this subpart, the
following definitions apply:
Advanced approaches means the riskweighted assets calculation
methodologies at 12 CFR part 217,
subpart E, as applicable.
Baseline scenario means a set of
conditions that affect the U.S. economy
or the financial condition of a covered
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59083
company and that reflect the consensus
views of the economic and financial
outlook.
Covered company means a covered
savings and loan holding company
(other than a foreign banking
organization) subject to this subpart.
Planning horizon means the period of
at least nine consecutive quarters,
beginning on the first day of a stress test
cycle over which the relevant
projections extend.
Pre-provision net revenue means the
sum of net interest income and noninterest income less expenses before
adjusting for loss provisions.
Provision for credit losses means:
(1) With respect to a covered company
that has adopted the current expected
credit losses methodology under GAAP,
the provision for credit losses, as would
be reported by the covered company on
the FR Y–9C in the current stress test
cycle; and,
(2) With respect to a covered company
that has not adopted the current
expected credit losses methodology
under GAAP, the provision for loan and
lease losses as would be reported by the
covered company on the FR Y–9C in the
current stress test cycle.
Regulatory capital ratio means a
capital ratio for which the Board has
established minimum requirements for
the covered savings and loan holding
company by regulation or order,
including, as applicable, the company’s
regulatory capital ratios calculated
under 12 CFR part 217 and the
deductions required under 12 CFR
248.12; except that the company shall
not use the advanced approaches to
calculate its regulatory capital ratios.
Scenarios are those sets of conditions
that affect the U.S. economy or the
financial condition of a covered
company that the Board determines are
appropriate for use in the supervisory
stress tests, including, but not limited
to, baseline and severely adverse
scenarios.
Severely adverse scenario means a set
of conditions that affect the U.S.
economy or the financial condition of a
covered company and that overall are
significantly more severe than those
associated with the baseline scenario
and may include trading or other
additional components.
Stress test cycle means the period
beginning on January 1 of a calendar
year and ending on December 31 of that
year.
Subsidiary has the same meaning as
in § 225.2(o) of this chapter.
§ 238.131
Applicability.
(a) Scope—(1) Applicability. Except as
provided in paragraph (b) of this
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section, this subpart applies to any
covered savings and loan holding
company with average total
consolidated assets of $100 billion or
more.
(2) Ongoing applicability. A covered
savings and loan holding company
(including any successor company) that
is subject to any requirement in this
subpart shall remain subject to any such
requirement unless and until its total
consolidated assets fall below $100
billion for each of four consecutive
quarters, effective on the as-of date of
the fourth consecutive FR Y–9C.
(b) Transitional arrangements. (1) A
covered savings and loan holding
company that becomes a covered
company on or before September 30 of
a calendar year must comply with the
requirements of this subpart beginning
on January 1 of the second calendar year
after the covered savings and loan
holding company becomes a covered
company, unless that time is extended
by the Board in writing.
(2) A covered savings and loan
holding company that becomes a
covered company after September 30 of
a calendar year must comply with the
requirements of this subpart beginning
on January 1 of the third calendar year
after the covered savings and loan
holding company becomes a covered
company, unless that time is extended
by the Board in writing.
§ 238.132
Board.
Analysis conducted by the
(a) In general. (1) The Board will
conduct an analysis of each covered
company’s capital, on a total
consolidated basis, taking into account
all relevant exposures and activities of
that covered company, to evaluate the
ability of the covered company to absorb
losses in specified economic and
financial conditions.
(2) The analysis will include an
assessment of the projected losses, net
income, and pro forma capital levels
and regulatory capital ratios and other
capital ratios for the covered company
and use such analytical techniques that
the Board determines are appropriate to
identify, measure, and monitor risks of
the covered company.
(3) In conducting the analyses, the
Board will coordinate with the
appropriate primary financial regulatory
agencies and the Federal Insurance
Office, as appropriate.
(b) Economic and financial scenarios
related to the Board’s analysis. The
Board will conduct its analysis using a
minimum of two different scenarios,
including a baseline scenario and a
severely adverse scenario. The Board
will notify covered companies of the
scenarios that the Board will apply to
conduct the analysis for each stress test
cycle to which the covered company is
subject by no later than February 15 of
that year, except with respect to trading
or any other components of the
scenarios and any additional scenarios
that the Board will apply to conduct the
analysis, which will be communicated
by no later than March 1 of that year.
(c) Frequency of analysis conducted
by the Board—(1) General. Except as
provided in paragraph (c)(2) of this
section, the Board will conduct its
analysis of a covered company
according to the frequency in Table 1 to
§ 238.132(c)(1).
TABLE 1 TO § 238.132(c)(1)
If the covered company is a
Then the Board will conduct its analysis
Category II savings and loan holding company .......................................
Category III savings and loan holding company ......................................
Category IV savings and loan holding company .....................................
Annually.
Annually.
Biennially, occurring in each year ending in an even number.
(2) Change in frequency. The Board
may conduct a stress test of a covered
company on a more or less frequent
basis than would be required under
paragraph (c)(1) of this section based on
the company’s financial condition, size,
complexity, risk profile, scope of
operations, or activities, or risks to the
U.S. economy.
(3) Notice and response—(i)
Notification of change in frequency. If
the Board determines to change the
frequency of the stress test under
paragraph (c)(2), the Board will notify
the company in writing and provide a
discussion of the basis for its
determination.
(ii) Request for reconsideration and
Board response. Within 14 calendar
days of receipt of a notification under
paragraph (c)(2) of this section, a
covered company may request in
writing that the Board reconsider the
requirement to conduct a stress test on
a more or less frequent basis than would
be required under paragraph (c)(1) of
this section. A covered company’s
request for reconsideration must include
an explanation as to why the request for
reconsideration should be granted. The
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Board will respond in writing within 14
calendar days of receipt of the
company’s request.
§ 238.133 Data and information required to
be submitted in support of the Board’s
analyses.
(a) Regular submissions. Each covered
company must submit to the Board such
data, on a consolidated basis, that the
Board determines is necessary in order
for the Board to derive the relevant pro
forma estimates of the covered company
over the planning horizon under the
scenarios described in § 238.132(b).
(b) Additional submissions required
by the Board. The Board may require a
covered company to submit any other
information on a consolidated basis that
the Board deems necessary in order to:
(1) Ensure that the Board has
sufficient information to conduct its
analysis under this subpart; and
(2) Project a company’s pre-provision
net revenue, losses, provision for credit
losses, and net income; and pro forma
capital levels, regulatory capital ratios,
and any other capital ratio specified by
the Board under the scenarios described
in § 238.132(b).
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(c) Confidential treatment of
information submitted. The
confidentiality of information submitted
to the Board under this subpart and
related materials shall be determined in
accordance with the Freedom of
Information Act (5 U.S.C. 552(b)) and
the Board’s Rules Regarding Availability
of Information (12 CFR part 261).
§ 238.134 Review of the Board’s analysis;
publication of summary results.
(a) Review of results. Based on the
results of the analysis conducted under
this subpart, the Board will conduct an
evaluation to determine whether the
covered company has the capital, on a
total consolidated basis, necessary to
absorb losses and continue its operation
by maintaining ready access to funding,
meeting its obligations to creditors and
other counterparties, and continuing to
serve as a credit intermediary under
baseline and severely adverse scenarios,
and any additional scenarios.
(b) Publication of results by the Board.
(1) The Board will publicly disclose a
summary of the results of the Board’s
analyses of a covered company by June
30 of the calendar year in which the
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stress test was conducted pursuant to
§ 238.132.
(2) The Board will notify companies
of the date on which it expects to
publicly disclose a summary of the
Board’s analyses pursuant to paragraph
(b)(1) of this section at least 14 calendar
days prior to the expected disclosure
date.
§ 238.135
results.
Corporate use of stress test
The board of directors and senior
management of each covered company
must consider the results of the analysis
conducted by the Board under this
subpart, as appropriate:
(a) As part of the covered company’s
capital plan and capital planning
process, including when making
changes to the covered company’s
capital structure (including the level
and composition of capital); and
(b) When assessing the covered
company’s exposures, concentrations,
and risk positions.
■ 11. Add subpart P to read as follows:
Subpart P—Company-Run Stress Test
Requirements for Savings and Loan
Holding Companies
Sec.
238.140
238.141
238.142
238.143
238.144
238.145
238.146
§ 238.140
Authority and purpose.
Definitions.
Applicability.
Stress test.
Methodologies and practices.
Reports of stress test results.
Disclosure of stress test results.
Authority and purpose.
(a) Authority. 12 U.S.C. 1467; 1467a,
1818, 5361, 5365.
(b) Purpose. This subpart establishes
the requirement for a covered company
to conduct stress tests. This subpart also
establishes definitions of stress test and
related terms, methodologies for
conducting stress tests, and reporting
and disclosure requirements.
§ 238.141
Definitions.
For purposes of this subpart, the
following definitions apply:
Advanced approaches means the riskweighted assets calculation
methodologies at 12 CFR part 217,
subpart E, as applicable.
Baseline scenario means a set of
conditions that affect the U.S. economy
or the financial condition of a covered
company and that reflect the consensus
views of the economic and financial
outlook.
Capital action means any issuance or
redemption of a debt or equity capital
instrument, any capital distribution, and
any similar action that the Federal
Reserve determines could impact a
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savings and loan holding company’s
consolidated capital.
Covered company means:
(1) A Category II savings and loan
holding company;
(2) A Category III savings and loan
holding company; or
(3) A savings and loan holding
company with average total
consolidated assets of greater than $250
billion.
Planning horizon means the period of
at least nine consecutive quarters,
beginning on the first day of a stress test
cycle over which the relevant
projections extend.
Pre-provision net revenue means the
sum of net interest income and noninterest income less expenses before
adjusting for loss provisions.
Provision for credit losses means:
(1) With respect to a covered company
that has adopted the current expected
credit losses methodology under GAAP,
the provision for credit losses, as would
be reported by the covered company on
the FR Y–9C in the current stress test
cycle; and
(2) With respect to a covered company
that has not adopted the current
expected credit losses methodology
under GAAP, the provision for loan and
lease losses as would be reported by the
covered company on the FR Y–9C in the
current stress test cycle.
Regulatory capital ratio means a
capital ratio for which the Board has
established minimum requirements for
the savings and loan holding company
by regulation or order, including, as
applicable, the company’s regulatory
capital ratios calculated under 12 CFR
part 217 and the deductions required
under 12 CFR 248.12; except that the
company shall not use the advanced
approaches to calculate its regulatory
capital ratios.
Scenarios are those sets of conditions
that affect the U.S. economy or the
financial condition of a covered
company that the Board determines are
appropriate for use in the company-run
stress tests, including, but not limited
to, baseline and severely adverse
scenarios.
Severely adverse scenario means a set
of conditions that affect the U.S.
economy or the financial condition of a
covered company and that overall are
significantly more severe than those
associated with the baseline scenario
and may include trading or other
additional components.
Stress test means a process to assess
the potential impact of scenarios on the
consolidated earnings, losses, and
capital of a covered company over the
planning horizon, taking into account
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its current condition, risks, exposures,
strategies, and activities.
Stress test cycle means the period
beginning on January 1 of a calendar
year and ending on December 31 of that
year.
§ 238.142
Applicability.
(a) Scope—(1) Applicability. Except as
provided in paragraph (b) of this
section, this subpart applies to any
covered company, which includes:
(i) Any Category II savings and loan
holding company;
(ii) Any Category III savings and loan
holding company; and
(iii) Any savings and loan holding
company with average total
consolidated assets of greater than $250
billion.
(2) Ongoing applicability. A savings
and loan holding company (including
any successor company) that is subject
to any requirement in this subpart shall
remain subject to any such requirement
unless and until the savings and loan
holding company:
(i) Is not a Category II savings and
loan holding company;
(ii) Is not a Category III savings and
loan holding company; and
(iii) Has $250 billion or less in total
consolidated assets in each of four
consecutive calendar quarters.
(b) Transitional arrangements. (1) A
savings and loan holding company that
is subject to minimum capital
requirements and that becomes a
covered company on or before
September 30 of a calendar year must
comply with the requirements of this
subpart beginning on January 1 of the
second calendar year after the savings
and loan holding company becomes a
covered company, unless that time is
extended by the Board in writing.
(2) A savings and loan holding
company that is subject to minimum
capital requirements and that becomes a
covered company after September 30 of
a calendar year must comply with the
requirements of this subpart beginning
on January 1 of the third calendar year
after the savings and loan holding
company becomes a covered company,
unless that time is extended by the
Board in writing.
§ 238.143
Stress test.
(a) Stress test requirement—(1) In
general. A covered company must
conduct a stress test as required under
this subpart.
(2) Frequency. (i) General. Except as
provided in paragraph (a)(2)(ii) of this
section, a covered company must
conduct a stress test according to the
frequency in Table 1 of
§ 238.143(a)(2)(i).
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TABLE 1 OF § 238.143(a)(2)(i)
If the covered company is a
Then the stress test must be conducted
Category II savings and loan holding company .......................................
Annually, 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.
Biennially, 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.
Periodically, as determined by rule or order.
Category III savings and loan holding company ......................................
Savings and loan holding company that is not: .......................................
(A) A Category II savings and loan holding company; or
(B) A Category III savings and loan holding company.
(ii) Change in frequency. The Board
may require a covered company to
conduct a stress test on a more or less
frequent basis than would be required
under paragraphs (a)(2)(i) of this section
based on the company’s financial
condition, size, complexity, risk profile,
scope of operations, or activities, or
risks to the U.S. economy.
(3) Notice and response—(i)
Notification of change in frequency. If
the Board requires a covered company
to change the frequency of the stress test
under paragraph (a)(2)(ii) of this section,
the Board will notify the company in
writing and provide a discussion of the
basis for its determination.
(ii) Request for reconsideration and
Board response. Within 14 calendar
days of receipt of a notification under
this paragraph (a)(3), a covered
company may request in writing that the
Board reconsider the requirement to
conduct a stress test on a more or less
frequent basis than would be required
under paragraph (a)(2)(i) of this section.
A covered company’s request for
reconsideration must include an
explanation as to why the request for
reconsideration should be granted. The
Board will respond in writing within 14
calendar days of receipt of the
company’s request.
(b) Scenarios provided by the Board—
(1) In general. In conducting a stress test
under this section, a covered company
must, at a minimum, use the scenarios
provided by the Board. Except as
provided in paragraphs (b)(2) and (3) of
this section, the Board will provide a
description of the scenarios to each
covered company no later than February
15 of the calendar year in which the
stress test is performed pursuant to this
section.
(2) Additional components. (i) The
Board may require a covered company
with significant trading activity, as
determined by the Board and specified
in the Capital Assessments and Stress
Testing report (FR Y–14), to include a
trading and counterparty component in
its severely adverse scenario in the
stress test required by this section. The
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data used in this component must be asof a date selected by the Board between
October 1 of the previous calendar year
and March 1 of the calendar year in
which the stress test is performed
pursuant to this section, and the Board
will communicate the as-of date and a
description of the component to the
company no later than March 1 of the
calendar year in which the stress test is
performed pursuant to this section.
(ii) The Board may require a covered
company to include one or more
additional components in its severely
adverse scenario in the stress test
required by this section based on the
company’s financial condition, size,
complexity, risk profile, scope of
operations, or activities, or risks to the
U.S. economy.
(3) Additional scenarios. The Board
may require a covered company to use
one or more additional scenarios in the
stress test required by this section based
on the company’s financial condition,
size, complexity, risk profile, scope of
operations, or activities, or risks to the
U.S. economy.
(4) Notice and response—(i)
Notification of additional component. If
the Board requires a covered company
to include one or more additional
components in its severely adverse
scenario under paragraph (b)(2) of this
section or to use one or more additional
scenarios under paragraph (b)(3) of this
section, the Board will notify the
company in writing and include a
discussion of the basis for its
determination. The Board will provide
such notification no later than
December 31 of the preceding calendar
year. The notification will include a
general description of the additional
component(s) or additional scenario(s)
and the basis for requiring the company
to include the additional component(s)
or additional scenario(s).
(ii) Request for reconsideration and
Board response. Within 14 calendar
days of receipt of a notification under
this paragraph, the covered company
may request in writing that the Board
reconsider the requirement that the
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company include the additional
component(s) or additional scenario(s),
including an explanation as to why the
request for reconsideration should be
granted. The Board will respond in
writing within 14 calendar days of
receipt of the company’s request.
(iii) Description of component. The
Board will provide the covered
company with a description of any
additional component(s) or additional
scenario(s) by March 1 of the calendar
year in which the stress test is
performed pursuant to this section.
§ 238.144
Methodologies and practices.
(a) Potential impact on capital. In
conducting a stress test under § 238.143,
for each quarter of the planning horizon,
a covered company must estimate the
following for each scenario required to
be used:
(1) Losses, pre-provision net revenue,
provision for credit losses, and net
income; and
(2) The potential impact on pro forma
regulatory capital levels and pro forma
capital ratios (including regulatory
capital ratios and any other capital
ratios specified by the Board),
incorporating the effects of any capital
actions over the planning horizon and
maintenance of an allowance for credit
losses appropriate for credit exposures
throughout the planning horizon.
(b) Assumptions regarding capital
actions. In conducting a stress test
under § 238.143, a covered company is
required to make the following
assumptions regarding its capital
actions over the planning horizon:
(1) For the first quarter of the
planning horizon, the covered company
must take into account its actual capital
actions as of the end of that quarter; and
(2) For each of the second through
ninth quarters of the planning horizon,
the covered company must include in
the projections of capital:
(i) Common stock dividends equal to
the quarterly average dollar amount of
common stock dividends that the
company paid in the previous year (that
is, the first quarter of the planning
horizon and the preceding three
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calendar quarters) plus common stock
dividends attributable to issuances
related to expensed employee
compensation or in connection with a
planned merger or acquisition to the
extent that the merger or acquisition is
reflected in the covered company’s pro
forma balance sheet estimates;
(ii) Payments on any other instrument
that is eligible for inclusion in the
numerator of a regulatory capital ratio
equal to the stated dividend, interest, or
principal due on such instrument
during the quarter;
(iii) An assumption of no redemption
or repurchase of any capital instrument
that is eligible for inclusion in the
numerator of a regulatory capital ratio;
and
(iv) An assumption of no issuances of
common stock or preferred stock, except
for issuances related to expensed
employee compensation or in
connection with a planned merger or
acquisition to the extent that the merger
or acquisition is reflected in the covered
company’s pro forma balance sheet
estimates.
(c) Controls and oversight of stress
testing processes—(1) In general. The
senior management of a covered
company must establish and maintain a
system of controls, oversight, and
documentation, including policies and
procedures, that are designed to ensure
that its stress testing processes are
effective in meeting the requirements in
this subpart. These policies and
procedures must, at a minimum,
describe the covered company’s stress
testing practices and methodologies,
and processes for validating and
updating the company’s stress test
practices and methodologies consistent
with applicable laws and regulations.
(2) Oversight of stress testing
processes. The board of directors, or a
committee thereof, of a covered
company must review and approve the
policies and procedures of the stress
testing processes as frequently as
economic conditions or the condition of
the covered company may warrant, but
no less than each year a stress test is
conducted. The board of directors and
senior management of the covered
company must receive a summary of the
results of any stress test conducted
under this subpart.
(3) Role of stress testing results. The
board of directors and senior
management of each covered company
must consider the results of the analysis
it conducts under this subpart, as
appropriate:
(i) As part of the covered company’s
capital plan and capital planning
process, including when making
changes to the covered company’s
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capital structure (including the level
and composition of capital); and
(ii) When assessing the covered
company’s exposures, concentrations,
and risk positions.
§ 238.145
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 § 238.143 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
§ 238.143, unless that time is extended
by the Board in writing.
(b) Confidential treatment of
information submitted. The
confidentiality of information submitted
to the Board under this subpart and
related materials shall be determined in
accordance with applicable exemptions
under the Freedom of Information Act
(5 U.S.C. 552(b)) and the Board’s Rules
Regarding Availability of Information
(12 CFR part 261).
§ 238.146
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
§ 238.143 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 § 238.134, unless that time
is extended by the Board in writing.
(2) Disclosure method. The summary
required under this section may be
disclosed on the website of a covered
company, or in any other forum that is
reasonably accessible to the public.
(b) Summary of results. The summary
results must, at a minimum, contain the
following information regarding the
severely adverse scenario:
(1) A description of the types of risks
included in the stress test;
(2) A general description of the
methodologies used in the stress test,
including those employed to estimate
losses, revenues, provision for credit
losses, and changes in capital positions
over the planning horizon;
(3) Estimates of—
(i) Pre-provision net revenue and
other revenue;
(ii) Provision for credit losses,
realized losses or gains on available-forsale and held-to-maturity securities,
trading and counterparty losses, and
other losses or gains;
(iii) Net income before taxes;
(iv) Loan losses (dollar amount and as
a percentage of average portfolio
balance) in the aggregate and by
subportfolio, including: Domestic
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59087
closed-end first-lien mortgages;
domestic junior lien mortgages and
home equity lines of credit; commercial
and industrial loans; commercial real
estate loans; credit card exposures; other
consumer loans; and all other loans; and
(v) Pro forma regulatory capital ratios
and any other capital ratios specified by
the Board; and
(4) An explanation of the most
significant causes for the changes in
regulatory capital ratios; and
(5) With respect to any depository
institution subsidiary that is subject to
stress testing requirements pursuant to
12 U.S.C. 5365(i)(2), 12 CFR part 46
(OCC), or 12 CFR part 325, subpart C
(FDIC), changes over the planning
horizon in regulatory capital ratios and
any other capital ratios specified by the
Board and an explanation of the most
significant causes for the changes in
regulatory capital ratios.
(c) Content of results. (1) The
following disclosures required under
paragraph (b) of this section must be on
a cumulative basis over the planning
horizon:
(i) Pre-provision net revenue and
other revenue;
(ii) Provision for credit losses,
realized losses or gains on available-forsale and held-to-maturity securities,
trading and counterparty losses, and
other losses or gains;
(iii) Net income before taxes; and
(iv) Loan losses in the aggregate and
by subportfolio.
(2) The disclosure of pro forma
regulatory capital ratios and any other
capital ratios specified by the Board that
is required under paragraph (b) of this
section must include the beginning
value, ending value, and minimum
value of each ratio over the planning
horizon.
■ 12. Add subpart Q to read as follows:
Subpart Q—Single Counterparty Credit
Limits for Covered Savings and Loan
Holding Companies
Sec.
238.150 Applicability and general
provisions.
238.151 Definitions.
238.152 Credit exposure limits.
238.153 Gross credit exposure.
238.154 Net credit exposure.
238.155 Investments in and exposures to
securitization vehicles, investment
funds, and other special purpose
vehicles that are not subsidiaries of the
covered company.
238.156 Aggregation of exposures to more
than one counterparty due to economic
interdependence or control
relationships.
238.157 Exemptions.
238.158 Compliance.
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§ 238.150 Applicability and general
provisions.
(a) In general. This subpart establishes
single counterparty credit limits for a
covered company. For purposes of this
subpart, covered company means:
(i) A Category II savings and loan
holding company; or
(ii) A Category III savings and loan
holding company.
(b) Credit exposure limits. (1) Section
238.152 establishes credit exposure
limits for a covered company.
(2) A covered company 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) A
covered company that becomes subject
to this subpart must comply with the
requirements of this subpart beginning
on the first day of the ninth calendar
quarter after it becomes a covered
company, unless that time is accelerated
or extended by the Board in writing.
(d) Cessation of requirements. Any
company that becomes a covered
company will remain subject to the
requirements of this subpart unless and
until it is not a Category II savings and
loan holding company or a Category III
savings and loan holding company.
§ 238.151
Definitions.
Unless defined in this section, terms
that are set forth in § 238.2 and used in
this subpart have the definitions
assigned in § 238.2. For purposes of this
subpart:
(a) Adjusted market value means:
(1) With respect to the value of cash,
securities, or other eligible collateral
transferred by the covered company to
a counterparty, the sum of:
(i) The market value of the cash,
securities, or other eligible collateral;
and
(ii) The product of the market value
of the securities or other eligible
collateral multiplied by the applicable
collateral haircut in Table 1 to § 217.132
of this chapter; and
(2) With respect to cash, securities, or
other eligible collateral received by the
covered company from a counterparty:
(i) The market value of the cash,
securities, or other eligible collateral;
minus
(ii) The market value of the securities
or other eligible collateral multiplied by
the applicable collateral haircut in Table
1 to § 217.132 of this chapter.
(3) Prior to calculating the adjusted
market value pursuant to paragraphs
(a)(1) and (2) of this section, with regard
to a transaction that meets the definition
of ‘‘repo-style transaction’’ in § 217.2 of
this chapter, the covered company
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would first multiply the applicable
collateral haircuts in Table 1 to
§ 217.132 of this chapter by the square
root of 1/2.
(b) Affiliate means, with respect to a
company:
(1) Any subsidiary of the company
and any other company that is
consolidated with the company under
applicable accounting standards; or
(2) For a company that is not subject
to principles or standards referenced in
paragraph (b)(1) of this section, any
subsidiary of the company and any
other company that would be
consolidated with the company, if
consolidation would have occurred if
such principles or standards had
applied.
(c) Aggregate net credit exposure
means the sum of all net credit
exposures of a covered company and all
of its subsidiaries to a single
counterparty as calculated under this
subpart.
(d) Bank-eligible investments means
investment securities that a national
bank is permitted to purchase, sell, deal
in, underwrite, and hold under 12
U.S.C. 24 (Seventh) and 12 CFR part 1.
(e) Counterparty means, with respect
to a credit transaction:
(1) With respect to a natural person,
the natural person, and, if the credit
exposure of the covered company to
such natural person exceeds 5 percent
of the covered company’s tier 1 capital,
the natural person and members of the
person’s immediate family collectively;
(2) With respect to any company that
is not a subsidiary of the covered
company, the company and its affiliates
collectively;
(3) With respect to a State, the State
and all of its agencies, instrumentalities,
and political subdivisions (including
any municipalities) collectively;
(4) With respect to a foreign sovereign
entity that is not assigned a zero percent
risk weight under the standardized
approach in 12 CFR part 217, subpart D,
the foreign sovereign entity and all of its
agencies and instrumentalities (but not
including any political subdivision)
collectively; and
(5) With respect to a political
subdivision of a foreign sovereign entity
such as a state, province, or
municipality, any political subdivision
of the foreign sovereign entity and all of
such political subdivision’s agencies
and instrumentalities, collectively.1
(f) Covered company is defined in
§ 238.150(a)
1 In addition, under § 238.156, under certain
circumstances, a covered company is required to
aggregate its net credit exposure to one or more
counterparties for all purposes under this subpart.
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(g) Credit derivative has the same
meaning as in § 217.2 of this chapter.
(h) Credit transaction means, with
respect to a counterparty:
(1) Any extension of credit to the
counterparty, including loans, deposits,
and lines of credit, but excluding
uncommitted lines of credit;
(2) Any repurchase agreement or
reverse repurchase agreement with the
counterparty;
(3) Any securities lending or
securities borrowing transaction with
the counterparty;
(4) Any guarantee, acceptance, or
letter of credit (including any
endorsement, confirmed letter of credit,
or standby letter of credit) issued on
behalf of the counterparty;
(5) Any purchase of securities issued
by or other investment in the
counterparty;
(6) Any credit exposure to the
counterparty in connection with a
derivative transaction between the
covered company and the counterparty;
(7) Any credit exposure to the
counterparty in connection with a credit
derivative or equity derivative between
the covered company and a third party,
the reference asset of which is an
obligation or equity security of, or
equity investment in, the counterparty;
and
(8) Any transaction that is the
functional equivalent of the above, and
any other similar transaction that the
Board, by regulation or order,
determines to be a credit transaction for
purposes of this subpart.
(i) Depository institution has the same
meaning as in section 3 of the Federal
Deposit Insurance Act (12 U.S.C.
1813(c)).
(j) Derivative transaction means any
transaction that is a contract, agreement,
swap, warrant, note, or option that is
based, in whole or in part, on the value
of, any interest in, or any quantitative
measure or the occurrence of any event
relating to, one or more commodities,
securities, currencies, interest or other
rates, indices, or other assets.
(k) Eligible collateral means collateral
in which, notwithstanding the prior
security interest of any custodial agent,
the covered company has a perfected,
first priority security interest (or the
legal equivalent thereof, if outside of the
United States), with the exception of
cash on deposit, and is in the form of:
(1) Cash on deposit with the covered
company or a subsidiary of the covered
company (including cash in foreign
currency or U.S. dollars held for the
covered company by a custodian or
trustee, whether inside or outside of the
United States);
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(2) Debt securities (other than
mortgage- or asset-backed securities and
resecuritization securities, unless those
securities are issued by a U.S.
government-sponsored enterprise) that
are bank-eligible investments and that
are investment grade, except for any
debt securities issued by the covered
company or any subsidiary of the
covered company;
(3) Equity securities that are publicly
traded, except for any equity securities
issued by the covered company or any
subsidiary of the covered company;
(4) Convertible bonds that are
publicly traded, except for any
convertible bonds issued by the covered
company or any subsidiary of the
covered company; or
(5) Gold bullion.
(l) Eligible credit derivative means a
single-name credit derivative or a
standard, non-tranched index credit
derivative, provided that:
(1) The contract meets the
requirements of an eligible guarantee
and has been confirmed by the
protection purchaser and the protection
provider;
(2) Any assignment of the contract has
been confirmed by all relevant parties;
(3) If the credit derivative is a credit
default swap, the contract includes the
following credit events:
(i) Failure to pay any amount due
under the terms of the reference
exposure, subject to any applicable
minimal payment threshold that is
consistent with standard market
practice and with a grace period that is
closely in line with the grace period of
the reference exposure; and
(ii) Receivership, insolvency,
liquidation, conservatorship, or inability
of the reference exposure issuer to pay
its debts, or its failure or admission in
writing of its inability generally to pay
its debts as they become due, and
similar events;
(4) The terms and conditions dictating
the manner in which the contract is to
be settled are incorporated into the
contract;
(5) If the contract allows for cash
settlement, the contract incorporates a
robust valuation process to estimate loss
reliably and specifies a reasonable
period for obtaining post-credit event
valuations of the reference exposure;
(6) If the contract requires the
protection purchaser to transfer an
exposure to the protection provider at
settlement, the terms of at least one of
the exposures that is permitted to be
transferred under the contract provide
that any required consent to transfer
may not be unreasonably withheld; and
(7) If the credit derivative is a credit
default swap, the contract clearly
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identifies the parties responsible for
determining whether a credit event has
occurred, specifies that this
determination is not the sole
responsibility of the protection
provider, and gives the protection
purchaser the right to notify the
protection provider of the occurrence of
a credit event.
(m) Eligible equity derivative means
an equity derivative, provided that:
(1) The derivative contract has been
confirmed by all relevant parties;
(2) Any assignment of the derivative
contract has been confirmed by all
relevant parties; and
(3) The terms and conditions dictating
the manner in which the derivative
contract is to be settled are incorporated
into the contract.
(n) Eligible guarantee has the same
meaning as in § 217.2 of this chapter.
(o) Eligible guarantor has the same
meaning as in § 217.2 of this chapter.
(p) Equity derivative has the same
meaning as ‘‘equity derivative contract’’
in § 217.2 of this chapter.
(q) Exempt counterparty means an
entity that is identified as exempt from
the requirements of this subpart under
§ 238.157, or that is otherwise excluded
from this subpart, including any
sovereign entity assigned a zero percent
risk weight under the standardized
approach in 12 CFR part 217, subpart D.
(r) Financial entity means:
(1)(i) A bank holding company or an
affiliate thereof; a savings and loan
holding company; a U.S. intermediate
holding company established or
designated pursuant to 12 CFR 252.153;
or a nonbank financial company
supervised by the Board;
(ii) A depository institution as defined
in section 3(c) of the Federal Deposit
Insurance Act (12 U.S.C. 1813(c)); an
organization that is organized under the
laws of a foreign country and that
engages directly in the business of
banking outside the United States; a
federal credit union or state credit union
as defined in section 2 of the Federal
Credit Union Act (12 U.S.C. 1752(1) and
(6)); a national association, state
member bank, or state nonmember bank
that is not a depository institution; an
institution that functions solely in a
trust or fiduciary capacity as described
in section 2(c)(2)(D) of the Bank Holding
Company Act (12 U.S.C. 1841(c)(2)(D));
an industrial loan company, an
industrial bank, or other similar
institution described in section
2(c)(2)(H) of the Bank Holding Company
Act (12 U.S.C. 1841(c)(2)(H));
(iii) An entity that is state-licensed or
registered as:
(A) A credit or lending entity,
including a finance company; money
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59089
lender; installment lender; consumer
lender or lending company; mortgage
lender, broker, or bank; motor vehicle
title pledge lender; payday or deferred
deposit lender; premium finance
company; commercial finance or
lending company; or commercial
mortgage company; except entities
registered or licensed solely on account
of financing the entity’s direct sales of
goods or services to customers;
(B) A money services business,
including a check casher; money
transmitter; currency dealer or
exchange; or money order or traveler’s
check issuer;
(iv) Any person registered with the
Commodity Futures Trading
Commission as a swap dealer or major
swap participant pursuant to the
Commodity Exchange Act of 1936 (7
U.S.C. 1 et seq.), or an entity that is
registered with the U.S. Securities and
Exchange Commission as a securitybased swap dealer or a major securitybased swap participant pursuant to the
Securities Exchange Act of 1934 (15
U.S.C. 78a et seq.);
(v) A securities holding company as
defined in section 618 of the DoddFrank Wall Street Reform and Consumer
Protection Act (12 U.S.C. 1850a); a
broker or dealer as defined in sections
3(a)(4) and 3(a)(5) of the Securities
Exchange Act of 1934 (15 U.S.C.
78c(a)(4)–(5)); an investment adviser as
defined in section 202(a) of the
Investment Advisers Act of 1940 (15
U.S.C. 80b–2(a)); an investment
company registered with the U.S.
Securities and Exchange Commission
under the Investment Company Act of
1940 (15 U.S.C. 80a–1 et seq.); or a
company that has elected to be
regulated as a business development
company pursuant to section 54(a) of
the Investment Company Act of 1940
(15 U.S.C. 80a–53(a));
(vi) A private fund as defined in
section 202(a) of the Investment
Advisers Act of 1940 (15 U.S.C. 80b–
2(a)); an entity that would be an
investment company under section 3 of
the Investment Company Act of 1940
(15 U.S.C. 80a–3) but for section
3(c)(5)(C); or an entity that is deemed
not to be an investment company under
section 3 of the Investment Company
Act of 1940 pursuant to Investment
Company Act Rule 3a–7 (17 CFR
270.3a–7) of the U.S. Securities and
Exchange Commission;
(vii) A commodity pool, a commodity
pool operator, or a commodity trading
advisor as defined, respectively, in
sections 1a(10), 1a(11), and 1a(12) of the
Commodity Exchange Act of 1936 (7
U.S.C. 1a(10), 1a(11), and 1a(12)); a floor
broker, a floor trader, or introducing
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broker as defined, respectively, in
sections 1a(22), 1a(23) and 1a(31) of the
Commodity Exchange Act of 1936 (7
U.S.C. 1a(22), 1a(23), and 1a(31)); or a
futures commission merchant as defined
in section 1a(28) of the Commodity
Exchange Act of 1936 (7 U.S.C. 1a(28));
(viii) An employee benefit plan as
defined in paragraphs (3) and (32) of
section 3 of the Employee Retirement
Income and Security Act of 1974 (29
U.S.C. 1002);
(ix) An entity that is organized as an
insurance company, primarily engaged
in writing insurance or reinsuring risks
underwritten by insurance companies,
or is subject to supervision as such by
a State insurance regulator or foreign
insurance regulator;
(x) Any designated financial market
utility, as defined in section 803 of the
Dodd-Frank Wall Street Reform and
Consumer Protection Act (12 U.S.C.
5462); and
(xi) An entity that would be a
financial entity described in paragraphs
(r)(1)(i) through (x) of this section, if it
were organized under the laws of the
United States or any State thereof; and
(2) Provided that, for purposes of this
subpart, ‘‘financial entity’’ does not
include any counterparty that is a
foreign sovereign entity or multilateral
development bank.
(s) Foreign sovereign entity means a
sovereign entity other than the United
States government and the entity’s
agencies, departments, ministries, and
central bank collectively.
(t) Gross credit exposure means, with
respect to any credit transaction, the
credit exposure of the covered company
before adjusting, pursuant to § 238.154,
for the effect of any eligible collateral,
eligible guarantee, eligible credit
derivative, eligible equity derivative,
other eligible hedge, and any unused
portion of certain extensions of credit.
(u) Immediate family means the
spouse of an individual, the individual’s
minor children, and any of the
individual’s children (including adults)
residing in the individual’s home.
(v) Intraday credit exposure means
credit exposure of a covered company to
a counterparty that by its terms is to be
repaid, sold, or terminated by the end of
its business day in the United States.
(w) Investment grade has the same
meaning as in § 217.2 of this chapter.
(x) Multilateral development bank has
the same meaning as in § 217.2 of this
chapter.
(y) Net credit exposure means, with
respect to any credit transaction, the
gross credit exposure of a covered
company and all of its subsidiaries
calculated under § 238.153, as adjusted
in accordance with § 238.154.
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(z) Qualifying central counterparty
has the same meaning as in § 217.2 of
this chapter.
(aa) Qualifying master netting
agreement has the same meaning as in
§ 217.2 of this chapter.
(bb) Securities financing transaction
means any repurchase agreement,
reverse repurchase agreement, securities
borrowing transaction, or securities
lending transaction.
(cc) Short sale means any sale of a
security which the seller does not own
or any sale which is consummated by
the delivery of a security borrowed by,
or for the account of, the seller.
(dd) Sovereign entity means a central
national government (including the U.S.
government) or an agency, department,
ministry, or central bank, but not
including any political subdivision such
as a state, province, or municipality.
(ee) Subsidiary. A company is a
subsidiary of another company if:
(1) The company is consolidated by
the other company under applicable
accounting standards; or
(2) For a company that is not subject
to principles or standards referenced in
paragraph (ee)(1) of this section,
consolidation would have occurred if
such principles or standards had
applied.
(ff) Tier 1 capital means common
equity tier 1 capital and additional tier
1 capital, as defined in 12 CFR part 217
and as reported by the covered savings
and loan holding company on the most
recent FR Y–9C report on a consolidated
basis.
(gg) Total consolidated assets. A
company’s total consolidated assets are
determined based on:
(1) The average of the company’s total
consolidated assets in the four most
recent consecutive quarters as reported
quarterly on the FR Y–9C; or
(2) If the company has not filed an FR
Y–9C for each of the four most recent
consecutive quarters, the average of the
company’s total consolidated assets, as
reported on the company’s FR Y–9C, for
the most recent quarter or consecutive
quarters, as applicable.
§ 238.152
Credit exposure limits.
General limit on aggregate net credit
exposure. No covered company may
have an aggregate net credit exposure to
any counterparty that exceeds 25
percent of the tier 1 capital of the
covered company.
§ 238.153
Gross credit exposure.
(a) Calculation of gross credit
exposure. The amount of gross credit
exposure of a covered company to a
counterparty with respect to a credit
transaction is, in the case of:
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(1) A deposit of the covered company
held by the counterparty, loan by a
covered company to the counterparty,
and lease in which the covered
company is the lessor and the
counterparty is the lessee, equal to the
amount owed by the counterparty to the
covered company under the transaction.
(2) A debt security or debt investment
held by the covered company that is
issued by the counterparty, equal to:
(i) The market value of the securities,
for trading and available-for-sale
securities; and
(ii) The amortized purchase price of
the securities or investments, for
securities or investments held to
maturity.
(3) An equity security held by the
covered company that is issued by the
counterparty, equity investment in a
counterparty, and other direct
investments in a counterparty, equal to
the market value.
(4) A securities financing transaction
must be valued using any of the
methods that the covered company is
authorized to use under 12 CFR part
217, subparts D and E to value such
transactions:
(i)(A) As calculated for each
transaction, in the case of a securities
financing transaction between the
covered company and the counterparty
that is not subject to a bilateral netting
agreement or does not meet the
definition of ‘‘repo-style transaction’’ in
§ 217.2 of this chapter; or
(B) As calculated for a netting set, in
the case of a securities financing
transaction between the covered
company and the counterparty that is
subject to a bilateral netting agreement
with that counterparty and meets the
definition of ‘‘repo-style transaction’’ in
§ 217.2 of this chapter;
(ii) For purposes of paragraph (a)(4)(i)
of this section, the covered company
must:
(A) Assign a value of zero to any
security received from the counterparty
that does not meet the definition of
‘‘eligible collateral’’ in § 238.151; and
(B) Include the value of securities that
are eligible collateral received by the
covered company from the counterparty
(including any exempt counterparty),
calculated in accordance with
paragraphs (a)(4)(i) through (iv) of this
section, when calculating its gross credit
exposure to the issuer of those
securities;
(iii) Notwithstanding paragraphs
(a)(4)(i) and (ii) of this section and with
respect to each credit transaction, a
covered company’s gross credit
exposure to a collateral issuer under this
paragraph (a)(4) is limited to the
covered company’s gross credit
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exposure to the counterparty on the
credit transaction; and
(iv) In cases where the covered
company receives eligible collateral
from a counterparty in addition to the
cash or securities received from that
counterparty, the counterparty may
reduce its gross credit exposure to that
counterparty in accordance with
§ 238.154(b).
(5) A committed credit line extended
by a covered company to a counterparty,
equal to the face amount of the
committed credit line.
(6) A guarantee or letter of credit
issued by a covered company on behalf
of a counterparty, equal to the
maximum potential loss to the covered
company on the transaction.
(7) A derivative transaction must be
valued using any of the methods that
the covered company is authorized to
use under 12 CFR part 217, subparts D
and E to value such transactions:
(i)(A) As calculated for each
transaction, in the case of a derivative
transaction between the covered
company and the counterparty,
including an equity derivative but
excluding a credit derivative described
in paragraph (a)(8) of this section, that
is not subject to a qualifying master
netting agreement; or
(B) As calculated for a netting set, in
the case of a derivative transaction
between the covered company and the
counterparty, including an equity
derivative but excluding a credit
derivative described in paragraph (a)(8)
of this section, that is subject to a
qualifying master netting agreement.
(ii) In cases where a covered company
is required to recognize an exposure to
an eligible guarantor pursuant to
§ 238.154(d), the covered company must
exclude the relevant derivative
transaction when calculating its gross
exposure to the original counterparty
under this section.
(8) A credit derivative between the
covered company and a third party
where the covered company is the
protection provider and the reference
asset is an obligation or debt security of
the counterparty, equal to the maximum
potential loss to the covered company
on the transaction.
(b) Investments in and exposures to
securitization vehicles, investment
funds, and other special purpose
vehicles that are not subsidiaries.
Notwithstanding paragraph (a) of this
section, a covered company must
calculate pursuant to § 238.155 its gross
credit exposure due to any investment
in the debt or equity of, and any credit
derivative or equity derivative between
the covered company and a third party
where the covered company is the
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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 a subsidiary of the covered
company.
(c) Attribution rule. Notwithstanding
any other requirement in this subpart, a
covered company must treat any
transaction with any natural person or
entity as a credit transaction with
another party, to the extent that the
proceeds of the transaction are used for
the benefit of, or transferred to, the other
party.
§ 238.154
Net credit exposure.
(a) In general. For purposes of this
subpart, a covered company must
calculate its net credit exposure to a
counterparty by adjusting its gross
credit exposure to that counterparty in
accordance with the rules set forth in
this section.
(b) Eligible collateral. (1) In
computing its net credit exposure to a
counterparty for any credit transaction
other than a securities financing
transaction, a covered company must
reduce its gross credit exposure on the
transaction by the adjusted market value
of any eligible collateral.
(2) A covered company that reduces
its gross credit exposure to a
counterparty as required under
paragraph (b)(1) of this section must
include the adjusted market value of the
eligible collateral, when calculating its
gross credit exposure to the collateral
issuer.
(3) Notwithstanding paragraph (b)(2)
of this section, a covered company’s
gross credit exposure to a collateral
issuer under this paragraph (b) is
limited to:
(i) Its gross credit exposure to the
counterparty on the credit transaction,
or
(ii) In the case of an exempt
counterparty, the gross credit exposure
that would have been attributable to that
exempt counterparty on the credit
transaction if valued in accordance with
§ 238.153(a).
(c) Eligible guarantees. (1) In
calculating net credit exposure to a
counterparty for any credit transaction,
a covered company must reduce its
gross credit exposure to the
counterparty by the amount of any
eligible guarantee from an eligible
guarantor that covers the transaction.
(2) A covered company that reduces
its gross credit exposure to a
counterparty as required under
paragraph (c)(1) of this section must
include the amount of eligible
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59091
guarantees when calculating its gross
credit exposure to the eligible guarantor.
(3) Notwithstanding paragraph (c)(2)
of this section, a covered company’s
gross credit exposure to an eligible
guarantor with respect to an eligible
guarantee under this paragraph (c) is
limited to:
(i) Its gross credit exposure to the
counterparty on the credit transaction
prior to recognition of the eligible
guarantee, or
(ii) In the case of an exempt
counterparty, the gross credit exposure
that would have been attributable to that
exempt counterparty on the credit
transaction prior to recognition of the
eligible guarantee if valued in
accordance with § 238.153(a).
(d) Eligible credit and equity
derivatives. (1) In calculating net credit
exposure to a counterparty for a credit
transaction under this section, a covered
company must reduce its gross credit
exposure to the counterparty by:
(i) In the case of any eligible credit
derivative from an eligible guarantor,
the notional amount of the eligible
credit derivative; or
(ii) In the case of any eligible equity
derivative from an eligible guarantor,
the gross credit exposure amount to the
counterparty (calculated in accordance
with § 238.153(a)(7)).
(2)(i) A covered company that reduces
its gross credit exposure to a
counterparty as provided under
paragraph (d)(1) of this section must
include, when calculating its net credit
exposure to the eligible guarantor,
including in instances where the
underlying credit transaction would not
be subject to the credit limits of
§ 238.152 (for example, due to an
exempt counterparty), either
(A) In the case of any eligible credit
derivative from an eligible guarantor,
the notional amount of the eligible
credit derivative; or
(B) In the case of any eligible equity
derivative from an eligible guarantor,
the gross credit exposure amount to the
counterparty (calculated in accordance
with § 238.153(a)(7)).
(ii) Notwithstanding paragraph
(d)(2)(i) of this section, in cases where
the eligible credit derivative or eligible
equity derivative is used to hedge
covered positions that are subject to the
Board’s market risk rule (12 CFR part
217, subpart F) and the counterparty on
the hedged transaction is not a financial
entity, the amount of credit exposure
that a company must recognize to the
eligible guarantor is the amount that
would be calculated pursuant to
§ 238.153(a).
(3) Notwithstanding paragraph (d)(2)
of this section, a covered company’s
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gross credit exposure to an eligible
guarantor with respect to an eligible
credit derivative or an eligible equity
derivative this paragraph (d) is limited
to:
(i) Its gross credit exposure to the
counterparty on the credit transaction
prior to recognition of the eligible credit
derivative or the eligible equity
derivative, or
(ii) In the case of an exempt
counterparty, the gross credit exposure
that would have been attributable to that
exempt counterparty on the credit
transaction prior to recognition of the
eligible credit derivative or the eligible
equity derivative if valued in
accordance with § 238.153(a).
(e) Other eligible hedges. In
calculating net credit exposure to a
counterparty for a credit transaction
under this section, a covered company
may reduce its gross credit exposure to
the counterparty by the face amount of
a short sale of the counterparty’s debt
security or equity security, provided
that:
(1) The instrument in which the
covered company has a short position is
junior to, or pari passu with, the
instrument in which the covered
company has the long position; and
(2) The instrument in which the
covered company has a short position
and the instrument in which the
covered company has the long position
are either both treated as trading or
available-for-sale exposures or both
treated as held-to-maturity exposures.
(f) Unused portion of certain
extensions of credit. (1) In computing its
net credit exposure to a counterparty for
a committed credit line or revolving
credit facility under this section, a
covered company may reduce its gross
credit exposure by the amount of the
unused portion of the credit extension
to the extent that the covered company
does not have any legal obligation to
advance additional funds under the
extension of credit and the used portion
of the credit extension has been fully
secured by eligible collateral.
(2) To the extent that the used portion
of a credit extension has been secured
by eligible collateral, the covered
company may reduce its gross credit
exposure by the adjusted market value
of any eligible collateral received from
the counterparty, even if the used
portion has not been fully secured by
eligible collateral.
(3) To qualify for the reduction in net
credit exposure under this paragraph,
the credit contract must specify that any
used portion of the credit extension
must be fully secured by the adjusted
market value of any eligible collateral.
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(g) Credit transactions involving
exempt counterparties. (1) A covered
company’s credit transactions with an
exempt counterparty are not subject to
the requirements of this subpart,
including but not limited to § 238.152.
(2) Notwithstanding paragraph (g)(1)
of this section, in cases where a covered
company has a credit transaction with
an exempt counterparty and the covered
company has obtained eligible collateral
from that exempt counterparty or an
eligible guarantee or eligible credit or
equity derivative from an eligible
guarantor, the covered company must
include (for purposes of this subpart)
such exposure to the issuer of such
eligible collateral or the eligible
guarantor, as calculated in accordance
with the rules set forth in this section,
when calculating its gross credit
exposure to that issuer of eligible
collateral or eligible guarantor.
(h) Currency mismatch adjustments.
For purposes of calculating its net credit
exposure to a counterparty under this
section, a covered company must apply,
as applicable:
(1) When reducing its gross credit
exposure to a counterparty resulting
from any credit transaction due to any
eligible collateral and calculating its
gross credit exposure to an issuer of
eligible collateral, pursuant to paragraph
(b) of this section, the currency
mismatch adjustment approach of
§ 217.37(c)(3)(ii) of this chapter; and
(2) When reducing its gross credit
exposure to a counterparty resulting
from any credit transaction due to any
eligible guarantee, eligible equity
derivative, or eligible credit derivative
from an eligible guarantor and
calculating its gross credit exposure to
an eligible guarantor, pursuant to
paragraphs (c) and (d) of this section,
the currency mismatch adjustment
approach of § 217.36(f) of this chapter.
(i) Maturity mismatch adjustments.
For purposes of calculating its net credit
exposure to a counterparty under this
section, a covered company must apply,
as applicable, the maturity mismatch
adjustment approach of § 217.36(d) of
this chapter:
(1) When reducing its gross credit
exposure to a counterparty resulting
from any credit transaction due to any
eligible collateral or any eligible
guarantees, eligible equity derivatives,
or eligible credit derivatives from an
eligible guarantor, pursuant to
paragraphs (b) through (d) of this
section, and
(2) In calculating its gross credit
exposure to an issuer of eligible
collateral, pursuant to paragraph (b) of
this section, or to an eligible guarantor,
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pursuant to paragraphs (c) and (d) of
this section; provided that
(3) The eligible collateral, eligible
guarantee, eligible equity derivative, or
eligible credit derivative subject to
paragraph (i)(1) of this section:
(i) Has a shorter maturity than the
credit transaction;
(ii) Has an original maturity equal to
or greater than one year;
(iii) Has a residual maturity of not less
than three months; and
(iv) The adjustment approach is
otherwise applicable.
§ 238.155 Investments in and exposures to
securitization vehicles, investment funds,
and other special purpose vehicles that are
not subsidiaries of the covered company.
(a) In general. (1) For purposes of this
section, the following definitions apply:
(i) SPV means a securitization vehicle,
investment fund, or other special
purpose vehicle that is not a subsidiary
of the covered company.
(ii) SPV exposure means an
investment in the debt or equity of an
SPV, or a credit derivative or equity
derivative between the covered
company and a third party where the
covered company is the protection
provider and the reference asset is an
obligation or equity security of, or
equity investment in, an SPV.
(2)(i) A covered company must
determine whether the amount of its
gross credit exposure to an issuer of
assets in an SPV, due to an SPV
exposure, is equal to or greater than 0.25
percent of the covered company’s tier 1
capital using one of the following two
methods:
(A) The sum of all of the issuer’s
assets (with each asset valued in
accordance with § 238.153(a)) in the
SPV; or
(B) The application of the lookthrough approach described in
paragraph (b) of this section.
(ii) With respect to the determination
required under paragraph (a)(2)(i) of this
section, a covered company must use
the same method to calculate gross
credit exposure to each issuer of assets
in a particular SPV.
(iii) In making a determination under
paragraph (a)(2)(i) of this section, the
covered company must consider only
the credit exposure to the issuer arising
from the covered company’s SPV
exposure.
(iv) For purposes of this paragraph
(a)(2), a covered company that is unable
to identify each issuer of assets in an
SPV must attribute to a single unknown
counterparty the amount of its gross
credit exposure to all unidentified
issuers and calculate such gross credit
exposure using one method in either
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paragraph (a)(2)(i)(A) or (a)(2)(i)(B) of
this section.
(3)(i) If a covered company
determines pursuant to paragraph (a)(2)
of this section that the amount of its
gross credit exposure to an issuer of
assets in an SPV is less than 0.25
percent of the covered company’s tier 1
capital, the amount of the covered
company’s gross credit exposure to that
issuer may be attributed to either that
issuer of assets or the SPV:
(A) If attributed to the issuer of assets,
the issuer of assets must be identified as
a counterparty, and the gross credit
exposure calculated under paragraph
(a)(2)(i)(A) of this section to that issuer
of assets must be aggregated with any
other gross credit exposures (valued in
accordance with § 238.153) to that same
counterparty; and
(B) If attributed to the SPV, the
covered company’s gross credit
exposure is equal to the covered
company’s SPV exposure, valued in
accordance with § 238.153(a).
(ii) If a covered company determines
pursuant to paragraph (a)(2) of this
section that the amount of its gross
credit exposure to an issuer of assets in
an SPV is equal to or greater than 0.25
percent of the covered company’s tier 1
capital or the covered company is
unable to determine that the amount of
the gross credit exposure is less than
0.25 percent of the covered company’s
tier 1 capital:
(A) The covered company must
calculate the amount of its gross credit
exposure to the issuer of assets in the
SPV using the look-through approach in
paragraph (b) of this section;
(B) The issuer of assets in the SPV
must be identified as a counterparty,
and the gross credit exposure calculated
in accordance with paragraph (b) of this
section must be aggregated with any
other gross credit exposures (valued in
accordance with § 238.153) to that same
counterparty; and
(C) When applying the look-through
approach in paragraph (b) of this
section, a covered company that is
unable to identify each issuer of assets
in an SPV must attribute to a single
unknown counterparty the amount of its
gross credit exposure, calculated in
accordance with paragraph (b) of this
section, to all unidentified issuers.
(iii) For purposes of this section, a
covered company must aggregate all
gross credit exposures to unknown
counterparties for all SPVs as if the
exposures related to a single unknown
counterparty; this single unknown
counterparty is subject to the limits of
§ 238.152 as if it were a single
counterparty.
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(b) Look-through approach. A covered
company that is required to calculate
the amount of its gross credit exposure
with respect to an issuer of assets in
accordance with this paragraph (b) must
calculate the amount as follows:
(1) Where all investors in the SPV
rank pari passu, the amount of the gross
credit exposure to the issuer of assets is
equal to the covered company’s pro rata
share of the SPV multiplied by the value
of the underlying asset in the SPV,
valued in accordance with § 238.153(a);
and
(2) Where all investors in the SPV do
not rank pari passu, the amount of the
gross credit exposure to the issuer of
assets is equal to:
(i) The pro rata share of the covered
company’s investment in the tranche of
the SPV; multiplied by
(ii) The lesser of:
(A) The market value of the tranche in
which the covered company has
invested, except in the case of a debt
security that is held to maturity, in
which case the tranche must be valued
at the amortized purchase price of the
securities; and
(B) The value of each underlying asset
attributed to the issuer in the SPV, each
as calculated pursuant to § 238.153(a).
(c) Exposures to third parties. (1)
Notwithstanding any other requirement
in this section, a covered company must
recognize, for purposes of this subpart,
a gross credit exposure to each third
party that has a contractual obligation to
provide credit or liquidity support to an
SPV whose failure or material financial
distress would cause a loss in the value
of the covered company’s SPV exposure.
(2) The amount of any gross credit
exposure that is required to be
recognized to a third party under
paragraph (c)(1) of this section is equal
to the covered company’s SPV exposure,
up to the maximum contractual
obligation of that third party to the SPV,
valued in accordance with § 238.153(a).
(This gross credit exposure is in
addition to the covered company’s gross
credit exposure to the SPV or the issuers
of assets of the SPV, calculated in
accordance with paragraphs (a) and (b)
of this section.)
(3) A covered company must
aggregate the gross credit exposure to a
third party recognized in accordance
with paragraphs (c)(1) and (2) of this
section with its other gross credit
exposures to that third party (that are
unrelated to the SPV) for purposes of
compliance with the limits of § 238.152.
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59093
§ 238.156 Aggregation of exposures to
more than one counterparty due to
economic interdependence or control
relationships.
(a) In general. (1) If a covered
company has an aggregate net credit
exposure to any counterparty that
exceeds 5 percent of its tier 1 capital,
the covered company 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 company 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.
(2) If, pursuant to an assessment
required under paragraph (a)(1) of this
section, the covered company
determines that one or more of the
factors of paragraph (b)(2) or (c)(1) of
this section are met with respect to one
or more counterparties, or the Board
determines pursuant to paragraph (d) of
this section that one or more other
counterparties of a covered company are
economically interdependent or that
one or more other counterparties of a
covered company are connected by a
control relationship, the covered
company must aggregate its net credit
exposure to the counterparties for all
purposes under this subpart, including,
but not limited to, § 238.152.
(3) In connection with any request
pursuant to paragraph (b)(3) or (c)(2) of
this section, the Board may require the
covered company to provide additional
information.
(b) Aggregation of exposures to more
than one counterparty due to economic
interdependence. (1) For purposes of
this paragraph, two counterparties are
economically interdependent if the
failure, default, insolvency, or material
financial distress of one counterparty
would cause the failure, default,
insolvency, or material financial distress
of the other counterparty, taking into
account the factors in paragraph (b)(2) of
this section.
(2) A covered company must assess
whether the financial distress of one
counterparty (counterparty A) would
prevent the ability of the other
counterparty (counterparty B) to fully
and timely repay counterparty B’s
liabilities and whether the insolvency or
default of counterparty A is likely to be
associated with the insolvency or
default of counterparty B and, therefore,
these counterparties are economically
interdependent, by evaluating the
following:
(i) Whether 50 percent or more of one
counterparty’s gross revenue is derived
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from, or gross expenditures are directed
to, transactions with the other
counterparty;
(ii) Whether counterparty A has fully
or partly guaranteed the credit exposure
of counterparty B, or is liable by other
means, in an amount that is 50 percent
or more of the covered company’s net
credit exposure to counterparty A;
(iii) Whether 25 percent or more of
one counterparty’s production or output
is sold to the other counterparty, which
cannot easily be replaced by other
customers;
(iv) Whether the expected source of
funds to repay the loans of both
counterparties is the same and neither
counterparty has another independent
source of income from which the loans
may be serviced and fully repaid; 1 and
(v) Whether two or more
counterparties rely on the same source
for the majority of their funding and, in
the event of the common provider’s
default, an alternative provider cannot
be found.
(3)(i) Notwithstanding paragraph
(b)(2) of this section, if a covered
company determines that one or more of
the factors in paragraph (b)(2) is met, the
covered company may request in
writing a determination from the Board
that those counterparties are not
economically interdependent and that
the covered company is not required to
aggregate those counterparties.
(ii) Upon a request by a covered
company pursuant to paragraph (b)(3) of
this section, the Board may grant
temporary relief to the covered company
and not require the covered company to
aggregate one counterparty with another
counterparty provided that the
counterparty could promptly modify its
business relationships, such as by
reducing its reliance on the other
counterparty, to address any economic
interdependence concerns, and
provided that such relief is in the public
interest and is consistent with the
purpose of this subpart.
(c) Aggregation of exposures to more
than one counterparty due to certain
control relationships. (1) For purposes
of this subpart, one counterparty
(counterparty A) is deemed to control
the other counterparty (counterparty B)
if:
(i) Counterparty A owns, controls, or
holds with the power to vote 25 percent
or more of any class of voting securities
of counterparty B; or
(ii) Counterparty A controls in any
manner the election of a majority of the
directors, trustees, or general partners
1 An employer will not be treated as a source of
repayment under this paragraph because of wages
and salaries paid to an employee.
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(or individuals exercising similar
functions) of counterparty B.
(2)(i) Notwithstanding paragraph
(c)(1) of this section, if a covered
company determines that one or more of
the factors in paragraph (c)(1) is met, the
covered company may request in
writing a determination from the Board
that counterparty A does not control
counterparty B and that the covered
company is not required to aggregate
those counterparties.
(ii) Upon a request by a covered
company pursuant to paragraph (c)(2) of
this section, the Board may grant
temporary relief to the covered company
and not require the covered company to
aggregate counterparty A with
counterparty B provided that, taking
into account the specific facts and
circumstances, such indicia of control
does not result in the entities being
connected by control relationships for
purposes of this subpart, and provided
that such relief is in the public interest
and is consistent with the purpose of
this subpart.
(d) Board determinations for
aggregation of counterparties due to
economic interdependence or control
relationships. The Board may
determine, after notice to the covered
company and opportunity for hearing,
that one or more counterparties of a
covered company are:
(1) Economically interdependent for
purposes of this subpart, considering
the factors in paragraph (b)(2) of this
section, as well as any other indicia of
economic interdependence that the
Board determines in its discretion to be
relevant; or
(2) Connected by control relationships
for purposes of this subpart, considering
the factors in paragraph (c)(1) of this
section and whether counterparty A:
(i) Controls the power to vote 25
percent or more of any class of voting
securities of Counterparty B pursuant to
a voting agreement;
(ii) Has significant influence on the
appointment or dismissal of
counterparty B’s administrative,
management, or governing body, or the
fact that a majority of members of such
body have been appointed solely as a
result of the exercise of counterparty A’s
voting rights; or
(iii) Has the power to exercise a
controlling influence over the
management or policies of counterparty
B.
(e) Board determinations for
aggregation of counterparties to prevent
evasion. Notwithstanding paragraphs (b)
and (c) of this section, a covered
company must aggregate its exposures
to a counterparty with the covered
company’s exposures to another
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counterparty if the Board determines in
writing after notice and opportunity for
hearing, that the exposures to the two
counterparties must be aggregated to
prevent evasions of the purposes of this
subpart, including, but not limited to
§ 238.156.
§ 238.157
Exemptions.
(a) Exempted exposure categories.
The following categories of credit
transactions are exempt from the limits
on credit exposure under this subpart:
(1) Any direct claim on, and the
portion of a claim that is directly and
fully guaranteed as to principal and
interest by, the Federal National
Mortgage Association and the Federal
Home Loan Mortgage Corporation, only
while operating under the
conservatorship or receivership of the
Federal Housing Finance Agency, and
any additional obligation issued by a
U.S. government-sponsored entity as
determined by the Board;
(2) Intraday credit exposure to a
counterparty;
(3) Any trade exposure to a qualifying
central counterparty related to the
covered company’s clearing activity,
including potential future exposure
arising from transactions cleared by the
qualifying central counterparty and prefunded default fund contributions;
(4) Any credit transaction with the
Bank for International Settlements, the
International Monetary Fund, the
International Bank for Reconstruction
and Development, the International
Finance Corporation, the International
Development Association, the
Multilateral Investment Guarantee
Agency, or the International Centre for
Settlement of Investment Disputes;
(5) Any credit transaction with the
European Commission or the European
Central Bank; and
(6) Any transaction that the Board
exempts if the Board finds that such
exemption is in the public interest and
is consistent with the purpose of this
subpart.
(b) Exemption for Federal Home Loan
Banks. For purposes of this subpart, a
covered company does not include any
Federal Home Loan Bank.
(c) Additional exemptions by the
Board. The Board may, by regulation or
order, exempt transactions, in whole or
in part, from the definition of the term
‘‘credit exposure,’’ if the Board finds
that the exemption is in the public
interest.
§ 238.158
Compliance.
(a) Scope of compliance. (1) Using all
available data, including any data
required to be maintained or reported to
the Federal Reserve under this subpart,
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a covered company must comply with
the requirements of this subpart on a
daily basis at the end of each business
day.
(2) A covered company must report its
compliance to the Federal Reserve as of
the end of the quarter, unless the Board
determines and notifies that company in
writing that more frequent reporting is
required.
(3) In reporting its compliance, a
covered company must calculate and
include in its gross credit exposure to an
issuer of eligible collateral or eligible
guarantor the amounts of eligible
collateral, eligible guarantees, eligible
equity derivatives, and eligible credit
derivatives that were provided to the
covered company in connection with
credit transactions with exempt
counterparties, valued in accordance
with and as required by § 238.154(b)
through (d) and § 238.154 (g).
(b) Qualifying master netting
agreement. With respect to any
qualifying master netting agreement, a
covered company must establish and
maintain procedures that meet or
exceed the requirements of § 217.3(d) of
this chapter to monitor possible changes
in relevant law and to ensure that the
agreement continues to satisfy these
requirements.
(c) Noncompliance. (1) Except as
otherwise provided in this section, if a
covered company is not in compliance
with this subpart with respect to a
counterparty solely due to the
circumstances listed in paragraphs
(c)(2)(i) through (v) of this section, the
covered company will not be subject to
enforcement actions for a period of 90
days (or, with prior notice to the
company, such shorter or longer period
determined by the Board, in its sole
discretion, to be appropriate to preserve
the safety and soundness of the covered
company), if the covered company uses
reasonable efforts to return to
compliance with this subpart during
this period. The covered company may
not engage in any additional credit
transactions with such a counterparty in
contravention of this rule during the
period of noncompliance, except as
provided in paragraph (c)(2) of this
section.
(2) A covered company 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
company. In acting on a request for an
exemption, the Board will consider the
following:
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(i) A decrease in the covered
company’s capital stock and surplus;
(ii) The merger of the covered
company with another covered
company;
(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 company’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.
(d) Other measures. The Board may
impose supervisory oversight and
additional reporting measures that it
determines are appropriate to monitor
compliance with this subpart. Covered
companies must furnish, in the manner
and form prescribed by the Board, such
information to monitor compliance with
this subpart and the limits therein as the
Board may require.
■ 13. 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
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
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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 average total
consolidated assets exceed $250 billion.
(2) 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]
§ 238.162 Capital stress testing
requirements.
(a) In general. (1) A foreign savings
and loan holding company subject to
this subpart 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
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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.
PART 242—DEFINITIONS RELATING
TO TITLE I OF THE DODD-FRANK ACT
(REGULATION PP)
14. The authority citation for part 242
continues to read as follows:
■
Authority: 12 U.S.C. 5311.
15. In § 242.1, paragraph (b)(2)(ii)(B) is
revised to read as follows:
■
§ 242.1
Authority and purpose
*
*
*
*
*
(b) * * *
(2) * * *
(ii) * * *
(B) A bank holding company or
foreign bank subject to the Bank
Holding Company Act (BHC Act) (12
U.S.C. 1841 et seq.) that is a bank
holding company described in section
165(a) of the Dodd-Frank Act (12 U.S.C.
5365(a)).
■ 16. Section 242.4 is revised to read as
follows:
§ 242.4 Significant nonbank financial
companies and significant bank holding
companies
For purposes of Title I of the DoddFrank Act, the following definitions
shall apply:
(a) Significant nonbank financial
company. A ‘‘significant nonbank
financial company’’ means—
(1) Any nonbank financial company
supervised by the Board; and
(2) Any other nonbank financial
company that had $100 billion or more
in total consolidated assets (as
determined in accordance with
applicable accounting standards) as of
the end of its most recently completed
fiscal year.
(b) Significant bank holding company.
A ‘‘significant bank holding company’’
means any bank holding company or
company that is, or is treated in the
United States as, a bank holding
company, that had $100 billion or more
in total consolidated assets as of the end
of the most recently completed calendar
year, as reported on either the Federal
Reserve’s FR Y–9C (Consolidated
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Financial Statement for Holding
Companies), or any successor form
thereto, or the Federal Reserve’s Form
FR Y–7Q (Capital and Asset Report for
Foreign Banking Organizations), or any
successor form thereto.
PART 252—ENHANCED PRUDENTIAL
STANDARDS (REGULATION YY)
17. The authority citation for part 252
is revised to read as follows:
■
Authority: 12 U.S.C. 321–338a, 481–486,
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
■
18. Revise § 252.1 to read as follows:
§ 252.1
Authority and purpose.
(a) Authority. This part is issued by
the Board of Governors of the Federal
Reserve System (the Board) under
sections 162, 165, 167, and 168 of Title
I of the Dodd-Frank Wall Street Reform
and Consumer Protection Act (the
Dodd-Frank Act) (Pub. L. 111–203, 124
Stat. 1376, 1423–1432, 12 U.S.C. 5362,
5365, 5367, and 5368); section 9 of the
Federal Reserve Act (12 U.S.C. 321–
338a); section 5(b) of the Bank Holding
Company Act (12 U.S.C. 1844(b));
sections 8 and 39 of the Federal Deposit
Insurance Act (12 U.S.C. 1818(b) and
1831p–1); the International Banking Act
(12 U.S.C. 3101et seq.); the Foreign
Bank Supervision Enhancement Act (12
U.S.C. 3101 note); and 12 U.S.C. 3904,
3906–3909, and 4808.
(b) Purpose. This part implements
certain provisions of section 165 of the
Dodd-Frank Act (12 U.S.C. 5365), which
require the Board to establish enhanced
prudential standards for certain bank
holding companies, foreign banking
organizations, nonbank financial
companies supervised by the Board, and
certain other companies.
■ 19. 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 12
CFR 225.2(a).
Applicable accounting standards
means GAAP, 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
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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 combined U.S. assets for
the most recent calendar quarter or
average of the most recent calendar
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
cross-jurisdictional activity for the most
recent calendar quarter or average of the
most recent calendar 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
or combined U.S. assets, as applicable,
for each of the four most recent calendar
quarters, the off-balance sheet exposure
for the most recent calendar quarter or
average of the most recent calendar
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 total consolidated
assets for the most recent calendar
quarter or average of the most recent
calendar quarters, as applicable.
Average total nonbank assets means
the average of total nonbank assets for
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 total nonbank
assets for the most recent calendar
quarter or average of the most recent
calendar quarters, as applicable.
Average U.S. non-branch assets
means the average of U.S. non-branch
assets for the four most recent calendar
quarters or, if the banking organization
has not reported the total consolidated
assets of its top-tier U.S. subsidiaries for
each of the four most recent calendar
quarters, the U.S. non-branch assets for
the most recent calendar quarter or
average of the most recent calendar
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
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most recent calendar quarters, the
weighted short-term wholesale funding
for the most recent calendar quarter or
average of the most recent calendar
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 12 CFR 225.2(c).
Banking organization means:
(1) A bank holding company that is a
U.S. bank holding company;
(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
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–15 or
FR Y–7Q.
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Combined U.S. operations means:
(1) The U.S. branches and agencies of
the foreign banking organization; 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 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. The
cross-jurisdictional activity of a banking
organization is equal to the crossjurisdictional activity of the 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 12 CFR 211.21(o),
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.
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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 § 252.147(b)(4) or § 252.153(b)(4)
of this part.
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.
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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 the 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 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.
State member bank has the same
meaning as in 12 CFR 208.2(g).
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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 calculated based on the
average of the balances as of the close
of business for each day for the calendar
quarter or an average of the balances as
of the close of business on each
Wednesday during the calendar quarter,
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.
(3) Total consolidated assets of a state
member bank is equal to the total
consolidated assets as reported by a
state member bank on its Consolidated
Report of Condition and Income (Call
Report).
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 total nonbank
assets of any U.S. intermediate holding
company, if any, as reported on the FR
Y–9LP; plus
(ii) The assets of the foreign banking
organization’s nonbank U.S.
subsidiaries excluding the U.S.
intermediate holding company, if any;
plus
(iii) 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; minus
(iv) The assets of 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. bank holding company means a
bank holding company that is:
(1) Incorporated in or organized under
the laws of the United States or any
State; and
(2) Not a consolidated subsidiary of a
bank holding company that is
incorporated in or organized under the
laws of the United States or any State.
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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 a top-tier U.S. company that is
required to be established pursuant to
§ 252.147 or § 252.153.
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) as reported on
the FR Y–7Q. In calculating U.S. nonbranch assets, a foreign banking
organization must reduce its U.S. nonbranch assets 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.
U.S. subsidiary means any subsidiary
that is incorporated in or organized
under the laws of the United States or
any State, commonwealth, territory, or
possession of the United States, the
Commonwealth of Puerto Rico, the
Commonwealth of the North Mariana
Islands, American Samoa, Guam, or the
United States Virgin Islands.
Weighted short-term wholesale
funding is equal to the weighted shortterm wholesale funding of a banking
organization, as reported on the FR Y–
15.
■ 19. In § 252.3, add paragraph (c) to
read as follows:
§ 252.3
Reservation of authority.
*
*
*
*
*
(c) Reservation of authority for certain
foreign banking organizations. The
Board may permit a foreign banking
organization to comply with the
requirements of this part through a
subsidiary. In making this
determination, the Board shall consider:
(1) The ownership structure of the
foreign banking organization, including
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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.
■ 20. Section 252.5 is added 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 average total consolidated assets of
$100 billion or more and average
combined U.S. 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.
(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) $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:
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(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) 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; 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 or more 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;
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(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;
(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.
■ 21. Revise the heading of subpart B to
read as follows:
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Subpart B—Company-Run Stress Test
Requirements for State Member Banks
With Total Consolidated Assets Over
$250 Billion
22. Section 252.11 is revised to read
as follows:
■
§ 252.11
Authority and purpose.
(a) Authority. 12 U.S.C. 321–338a,
1818, 1831p–1, 3906–3909, 5365.
(b) Purpose. This subpart implements
section 165(i)(2) of the Dodd-Frank Act
(12 U.S.C. 5365(i)(2)), which requires
state member banks with total
consolidated assets of greater than $250
billion to conduct stress tests. This
subpart also establishes definitions of
stress tests and related terms,
methodologies for conducting stress
tests, and reporting and disclosure
requirements.
■ 23. Section 252.12 is revised to read
as follows:
§ 252.12
Definitions.
For purposes of this subpart, the
following definitions apply:
Advanced approaches means the
regulatory capital requirements at 12
CFR 217, subpart E, as applicable, and
any successor regulation.
Asset threshold means average total
consolidated assets of greater than $250
billion.
Baseline scenario means a set of
conditions that affect the U.S. economy
or the financial condition of a state
member bank, and that reflect the
consensus views of the economic and
financial outlook.
Capital action has the same meaning
as in 12 CFR 225.8(d)).
Covered company subsidiary means a
state member bank that is a subsidiary
of a covered company as defined in
subpart F of this part.
Planning horizon means the period of
at least nine consecutive quarters,
beginning on the first day of a stress test
cycle over which the relevant
projections extend.
Pre-provision net revenue means the
sum of net interest income and non-
interest income less expenses before
adjusting for loss provisions.
Provision for credit losses means:
(1) With respect to a state member
bank that has adopted the current
expected credit losses methodology
under GAAP, the provision for credit
losses, as would be reported by the state
member bank on the Call Report in the
current stress test cycle; and
(2) With respect to a state member
bank that has not adopted the current
expected credit losses methodology
under GAAP, the provision for loan and
lease losses as would be reported by the
state member bank on the Call Report in
the current stress test cycle.
Regulatory capital ratio means a
capital ratio for which the Board has
established minimum requirements for
the state member bank by regulation or
order, including, as applicable, the state
member bank’s regulatory capital ratios
calculated under 12 CFR part 217 and
the deductions required under 12 CFR
248.12; except that the state member
bank shall not use the advanced
approaches to calculate its regulatory
capital ratios.
Scenarios are those sets of conditions
that affect the U.S. economy or the
financial condition of a state member
bank that the Board determines are
appropriate for use in the company-run
stress tests, including, but not limited to
baseline and severely adverse scenarios.
Severely adverse scenario means a set
of conditions that affect the U.S.
economy or the financial condition of a
state member bank and that overall are
significantly more severe than those
associated with the baseline scenario
and may include trading or other
additional components.
Stress test means a process to assess
the potential impact of scenarios on the
consolidated earnings, losses, and
capital of a state member bank over the
planning horizon, taking into account
the current condition, risks, exposures,
strategies, and activities.
Stress test cycle means the period
beginning on January 1 of a calendar
year and ending on December 31 of that
year.
Subsidiary has the same meaning as
in 12 CFR 225.2(o).
■ 24. Section 252.13 is revised to read
as follows:
§ 252.13
Applicability.
(a) Scope—(1) Applicability. Except as
provided in paragraph (b) of this
section, this subpart applies to any state
member bank with average total
consolidated assets of greater than $250
billion.
(2) Ongoing applicability. A state
member bank (including any successor
company) that is subject to any
requirement in this subpart shall remain
subject to any such requirement unless
and until its total consolidated assets
fall below $250 billion for each of four
consecutive quarters, effective on the asof date of the fourth consecutive Call
Report.
(b) Transition period. (1) A state
member bank that exceeds the asset
threshold for the first time on or before
September 30 of a calendar year must
comply with the requirements of this
subpart beginning on January 1 of the
second calendar year after the state
member bank becomes subject to this
subpart, unless that time is extended by
the Board in writing.
(2) A state member bank that exceeds
the asset threshold for the first time after
September 30 of a calendar year must
comply with the requirements of this
subpart beginning on January 1 of the
third year after the state member bank
becomes subject to this subpart, unless
that time is extended by the Board in
writing.
■ 25. Section 252.14 is revised to read
as follows:
§ 252.14
Stress test.
(a) In general. (1) A state member
bank must conduct a stress test as
required under this subpart.
(2) Frequency—(i) General. Except as
provided in paragraph (a)(2)(ii) of this
section, a state member bank must
conduct a stress test according to the
frequency in table 1 to § 252.14(a)(2)(i).
TABLE 1 TO § 252.14(a)(2)(i)
If the state member bank is a
Then the stress test must be conducted
Subsidiary of a global systemically important BHC .................................
Annually, by April 5 of each calendar year, based on data as of December 31 of the preceding calendar year, unless the time or the asof date is extended by the Board in writing.
Annually, by April 5 of each calendar year, based on data as of December 31 of the preceding calendar year, unless the time or the asof date is extended by the Board in writing.
Annually, by April 5 of each calendar year, based on data as of December 31 of the preceding calendar year, unless the time or the asof date is extended by the Board in writing.
Subsidiary of a Category II bank holding company .................................
Subsidiary of a Category II U.S. intermediate holding company .............
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59101
TABLE 1 TO § 252.14(a)(2)(i)—Continued
If the state member bank is a
Then the stress test must be conducted
Not a subsidiary of a: ...............................................................................
(A) Global systemically important BHC;
(B) Category II bank holding company; or
(C) Category II U.S. intermediate holding company.
Biennially, 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.
(ii) Change in frequency. The Board
may require a state member bank to
conduct a stress test on a more or less
frequent basis than would be required
under paragraph (a)(2)(i) of this section
based on the company’s financial
condition, size, complexity, risk profile,
scope of operations, or activities, or
risks to the U.S. economy.
(3) Notice and response—(i)
Notification of change in frequency. If
the Board requires a state member bank
to change the frequency of the stress test
under paragraph (a)(2)(ii) of this section,
the Board will notify the state member
bank in writing and provide a
discussion of the basis for its
determination.
(ii) Request for reconsideration and
Board response. Within 14 calendar
days of receipt of a notification under
paragraph (a)(3)(i) of this section, a state
member bank may request in writing
that the Board reconsider the
requirement to conduct a stress test on
a more or less frequent basis than would
be required under paragraph (a)(2)(i) of
this section. A state member bank’s
request for reconsideration must include
an explanation as to why the request for
reconsideration should be granted. The
Board will respond in writing within 14
calendar days of receipt of the
company’s request.
(b) Scenarios provided by the Board—
(1) In general. In conducting a stress test
under this section, a state member bank
must, at a minimum, use the scenarios
provided by the Board. Except as
provided in paragraphs (b)(2) and (3) of
this section, the Board will provide a
description of the scenarios no later
than February 15 of each calendar year.
(2) Additional components. (i) The
Board may require a state member bank
with significant trading activity, as
determined by the Board and specified
in the Capital Assessments and Stress
Testing report (FR Y–14), to include a
trading and counterparty component in
its severely adverse scenario in the
stress test required by this section. The
Board may also require a state member
bank that is subject to 12 CFR part 217,
subpart F or that is a subsidiary of a
bank holding company that is subject to
section § 252.54(b)(2)(i) to include a
trading and counterparty component in
the state member bank’s severely
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adverse scenario in the stress test
required by this section. The data used
in this component must be as of a date
between October 1 of the previous
calendar year and March 1 of the
calendar year in which the stress test is
performed, and the Board will
communicate the as-of date and a
description of the component to the
company no later than March 1 of that
calendar year.
(ii) The Board may require a state
member bank to include one or more
additional components in its severely
adverse scenario in the stress test
required by this section based on the
state member bank’s financial condition,
size, complexity, risk profile, scope of
operations, or activities, or risks to the
U.S. economy.
(3) Additional scenarios. The Board
may require a state member bank to
include one or more additional
scenarios in the stress test required by
this section based on the state member
bank’s financial condition, size,
complexity, risk profile, scope of
operations, or activities, or risks to the
U.S. economy.
(4) Notice and response—(i)
Notification of additional component or
scenario. If the Board requires a state
member bank to include one or more
additional components in its severely
adverse scenario under paragraph (b)(2)
of this section or to use one or more
additional scenarios under paragraph
(b)(3) of this section, the Board will
notify the company in writing by
December 31 and include a discussion
of the basis for its determination.
(ii) Request for reconsideration and
Board response. Within 14 calendar
days of receipt of a notification under
paragraph (b)(4)(i) of this section, the
state member bank may request in
writing that the Board reconsider the
requirement that the company include
the additional component(s) or
additional scenario(s), including an
explanation as to why the request for
reconsideration should be granted. The
Board will respond in writing within 14
calendar days of receipt of the
company’s request.
(iii) Description of component. The
Board will provide the state member
bank with a description of any
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additional component(s) or additional
scenario(s) by March 1.
26. In § 252.15, paragraphs (a)
introductory text and (b) are revised and
paragraph (c) is removed.
The revisions read as follows:
■
§ 252.15
Methodologies and practices.
(a) Potential impact on capital. In
conducting a stress test under § 252.14,
for each quarter of the planning horizon,
a state member bank must estimate the
following for each scenario required to
be used:
*
*
*
*
*
(b) Controls and oversight of stress
testing processes—(1) In general. The
senior management of a state member
bank must establish and maintain a
system of controls, oversight, and
documentation, including policies and
procedures, that are designed to ensure
that its stress testing processes are
effective in meeting the requirements in
this subpart. These policies and
procedures must, at a minimum,
describe the company’s stress testing
practices and methodologies, and
processes for validating and updating
the company’s stress test practices and
methodologies consistent with
applicable laws and regulations.
(2) Oversight of stress testing
processes. The board of directors, or a
committee thereof, of a state member
bank must review and approve the
policies and procedures of the stress
testing processes as frequently as
economic conditions or the condition of
the company may warrant, but no less
than each year that a stress test is
conducted. The board of directors and
senior management of the state member
bank must receive a summary of the
results of the stress test conducted
under this section.
(3) Role of stress testing results. The
board of directors and senior
management of a state member bank
must consider the results of the stress
test in the normal course of business,
including but not limited to, the state
member bank’s capital planning,
assessment of capital adequacy, and risk
management practices.
27. In § 252.16, paragraphs (a) and (b)
are revised to read as follows:
■
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Reports of stress test results.
(a) Reports to the Board of stress test
results—(1) General. A state member
bank must report the results of the stress
test to the Board in the manner and form
prescribed by the Board, in accordance
with paragraphs (a)(2) of this section.
(2) Timing. For each stress test cycle
in which a stress test is conducted:
(i) A state member bank that is a
covered company subsidiary must
report the results of the stress test to the
Board by April 5, unless that time is
extended by the Board in writing; and
(ii) A state member bank that is not
a covered company subsidiary must
report the results of the stress test to the
Board by July 31, unless that time is
extended by the Board in writing.
(b) Contents of reports. The report
required under paragraph (a) of this
section must include the following
information for the baseline scenario,
severely adverse scenario, and any other
scenario required under § 252.14(b)(3):
*
*
*
*
*
■ 28. In § 252.17, paragraphs (a) and (b)
are revised to read as follows:
§ 252.17
Disclosure of stress test results.
(a) Public disclosure of results—(1)
General. A state member bank must
publicly disclose a summary of the
results of the stress test required under
this subpart.
(2) Timing. For each stress test cycle
in which a stress test is conducted:
(i) A state member bank that is a
covered company subsidiary must
publicly disclose a summary of the
results of the stress test within 15
calendar days after the Board discloses
the results of its supervisory stress test
of the covered company pursuant to
§ 252.46(b), unless that time is extended
by the Board in writing; and
(ii) A state member bank that is not
a covered company subsidiary must
publicly disclose a summary of the
results of the stress test in the period
beginning on October 15 and ending on
October 31, unless that time is extended
by the Board in writing.
(3) Disclosure method. The summary
required under this section may be
disclosed on the website of a state
member bank, or in any other forum that
is reasonably accessible to the public.
(b) Summary of results—(1) State
member banks that are subsidiaries of
bank holding companies. A state
member bank that is a subsidiary of a
bank holding company satisfies the
public disclosure requirements under
this subpart if the bank holding
company publicly discloses summary
results of its stress test pursuant to this
section or § 252.58, unless the Board
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determines that the disclosures at the
holding company level do not
adequately capture the potential impact
of the scenarios on the capital of the
state member bank and requires the
state member bank to make public
disclosures.
(2) State member banks that are not
subsidiaries of bank holding companies.
A state member bank that is not a
subsidiary of a bank holding company
or that is required to make disclosures
under paragraph (b)(1) of this section
must publicly disclose, at a minimum,
the following information regarding the
severely adverse scenario:
(i) A description of the types of risks
being included in the stress test;
(ii) A summary description of the
methodologies used in the stress test;
(iii) Estimates of—
(A) Aggregate losses;
(B) Pre-provision net revenue
(C) Provision for credit losses;
(D) Net income; and
(E) Pro forma regulatory capital ratios
and any other capital ratios specified by
the Board; and
(iv) An explanation of the most
significant causes for the changes in
regulatory capital ratios.
*
*
*
*
*
■ 29. The heading of subpart C is
revised to read as follows:
Subpart C—Risk Committee
Requirement for Bank Holding
Companies With Total Consolidated
Assets of $50 Billion or More and Less
Than $100 Billion
30. Section 252.21 is revised to read
as follows:
■
§ 252.21
Applicability.
(a) General applicability. A bank
holding company 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 average total consolidated
assets equal or exceed $50 billion.
(b) Cessation of requirements. A bank
holding company will remain subject to
the requirements of this subpart until
the earlier of the date on which:
(1) Its total consolidated assets are
below $50 billion for each of four
consecutive calendar quarters; and
(2) It becomes subject to the
requirements of subpart D of this part.
■ 31. Section 252.22 is revised to read
as follows:
§ 252.22 Risk committee requirement for
bank holding companies with total
consolidated assets of $50 billion or more.
(a) Risk committee—(1) General. A
bank holding company subject to this
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subpart must maintain a risk committee
that approves and periodically reviews
the risk-management policies of the
bank holding company’s global
operations and oversees the operation of
the bank holding company’s global riskmanagement framework.
(2) Risk-management framework. The
bank holding company’s global riskmanagement framework must be
commensurate with its structure, risk
profile, complexity, activities, and size,
and must include:
(i) Policies and procedures
establishing risk-management
governance, risk-management
procedures, and risk-control
infrastructure for its global operations;
and
(ii) Processes and systems for
implementing and monitoring
compliance with such policies and
procedures, including:
(A) Processes and systems for
identifying and reporting risks and riskmanagement deficiencies, including
regarding emerging risks, and ensuring
effective and timely implementation of
actions to address emerging risks and
risk-management deficiencies for its
global operations;
(B) Processes and systems for
establishing managerial and employee
responsibility for risk management;
(C) Processes and systems for
ensuring the independence of the riskmanagement function; and
(D) Processes and systems to integrate
risk management and associated
controls with management goals and its
compensation structure for its global
operations.
(3) Corporate governance
requirements. The risk committee must:
(i) Have a formal, written charter that
is approved by the bank holding
company’s board of directors;
(ii) Be an independent committee of
the board of directors that has, as its
sole and exclusive function,
responsibility for the risk-management
policies of the bank holding company’s
global operations and oversight of the
operation of the bank holding
company’s global risk-management
framework;
(iii) Report directly to the bank
holding company’s board of directors;
(iv) Receive and review regular
reports on a not less than a quarterly
basis from the bank holding company’s
chief risk officer provided pursuant to
paragraph (b)(3)(ii) of this section; and
(v) Meet at least quarterly, or more
frequently as needed, and fully
document and maintain records of its
proceedings, including riskmanagement decisions.
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(4) Minimum member requirements.
The risk committee must:
(i) Include at least one member having
experience in identifying, assessing, and
managing risk exposures of large,
complex financial firms; and
(ii) Be chaired by a director who:
(A) Is not an officer or employee of
the bank holding company and has not
been an officer or employee of the bank
holding company during the previous
three years;
(B) Is not a member of the immediate
family, as defined in 12 CFR
225.41(b)(3), of a person who is, or has
been within the last three years, an
executive officer of the bank holding
company, as defined in 12 CFR
215.2(e)(1); and
(C)(1) Is an independent director
under Item 407 of the Securities and
Exchange Commission’s Regulation S–K
(17 CFR 229.407(a)), if the bank holding
company has an outstanding class of
securities traded on an 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) (national securities
exchange); or
(2) Would qualify as an independent
director under the listing standards of a
national securities exchange, as
demonstrated to the satisfaction of the
Board, if the bank holding company
does not have an outstanding class of
securities traded on a national securities
exchange.
(b) Chief risk officer—(1) General. A
bank holding company subject to this
subpart must appoint a chief risk officer
with experience in identifying,
assessing, and managing risk exposures
of large, complex financial firms.
(2) Responsibilities. (i) The chief risk
officer is responsible for overseeing:
(A) The establishment of risk limits
on an enterprise-wide basis and the
monitoring of compliance with such
limits;
(B) The implementation of and
ongoing compliance with the policies
and procedures set forth in paragraph
(a)(2)(i) of this section and the
development and implementation of the
processes and systems set forth in
paragraph (a)(2)(ii) of this section; and
(C) The management of risks and risk
controls within the parameters of the
company’s risk-control framework, and
monitoring and testing of the company’s
risk controls.
(ii) The chief risk officer is
responsible for reporting riskmanagement deficiencies and emerging
risks to the risk committee and resolving
risk-management deficiencies in a
timely manner.
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(3) Corporate governance
requirements. (i) The bank holding
company must ensure that the
compensation and other incentives
provided to the chief risk officer are
consistent with providing an objective
assessment of the risks taken by the
bank holding company; and
(ii) The chief risk officer must report
directly to both the risk committee and
chief executive officer of the company.
■ 32. 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
33. Section 252.30 is revised to read
as follows:
■
§ 252.30
Scope.
This subpart applies to bank holding
companies with average total
consolidated assets of $100 billion or
more.
■ 34. Section 252.31 is revised to read
as follows:
§ 252.31
Applicability.
(a) Applicability—(1) Initial
applicability. Subject to paragraph (c) of
this section, a bank holding company
must comply with the risk-management
and risk-committee requirements set
forth in § 252.33 and the liquidity riskmanagement and liquidity stress test
requirements set forth in §§ 252.34 and
252.35 no later than the first day of the
fifth quarter following the date on
which its average total consolidated
assets equal or exceed $100 billion.
(2) Changes in requirements following
a change in category. A bank holding
company with average total
consolidated assets of $100 billion or
more that changes from one category of
banking organization described in
§ 252.5(b) through (e) to another of such
categories must comply with the
requirements applicable to the new
category no later than on the first day
of the second quarter following the
change in the bank holding company’s
category.
(b) Cessation of requirements. Except
as provided in paragraph (c) of this
section, a bank holding company is
subject to the risk-management and risk
committee requirements set forth in
§ 252.33 and the liquidity riskmanagement and liquidity stress test
requirements set forth in §§ 252.34 and
252.35 until its total consolidated assets
are below $100 billion for each of four
consecutive calendar quarters.
(c) Applicability for bank holding
companies that are subsidiaries of
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59103
foreign banking organizations. If a bank
holding company that has average total
consolidated assets of $100 billion or
more is controlled by a foreign banking
organization, the U.S. intermediate
holding company established or
designated by the foreign banking
organization must comply with the riskmanagement and risk committee
requirements set forth in § 252.153(e)(3)
and the liquidity risk-management and
liquidity stress test requirements set
forth in § 252.153(e)(4).
■ 35. Section 252.32 is revised to read
as follows:
§ 252.32 Risk-based and leverage capital
and stress test requirements.
A bank holding company subject to
this subpart must comply with, and
hold capital commensurate with the
requirements of, any regulations
adopted by the Board relating to capital
planning and stress tests, in accordance
with the applicability provisions set
forth therein.
■ 36. In § 252.33, paragraphs (a)(1) and
(b)(1) are revised to read as follows:
§ 252.33 Risk-management and risk
committee requirements.
(a) Risk committee—(1) General. A
bank holding company subject to this
subpart must maintain a risk committee
that approves and periodically reviews
the risk-management policies of the
bank holding company’s global
operations and oversees the operation of
the bank holding company’s global riskmanagement framework. The risk
committee’s responsibilities include
liquidity risk-management as set forth in
§ 252.34(b).
*
*
*
*
*
(b) Chief risk officer—(1) General. A
bank holding company subject to this
subpart must appoint a chief risk officer
with experience in identifying,
assessing, and managing risk exposures
of large, complex financial firms.
*
*
*
*
*
■ 37. In § 252.34, paragraphs (a)(1)
introductory text, (c)(1)(i), (d), (e)(1),
(f)(1), (f)(2)(i), (g), and (h) are revised to
read as follows:
§ 252.34 Liquidity risk-management
requirements.
(a) * * *
(1) Liquidity risk tolerance. The board
of directors of a bank holding company
that is subject to this subpart must:
*
*
*
*
*
(c) * * *
(1) * * *
(i) Senior management of a bank
holding company subject to this subpart
must establish and implement
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strategies, policies, and procedures
designed to effectively manage the risk
that the bank holding company’s
financial condition or safety and
soundness would be adversely affected
by its inability or the market’s
perception of its inability to meet its
cash and collateral obligations (liquidity
risk). The board of directors must
approve the strategies, policies, and
procedures pursuant to paragraph (a)(2)
of this section.
*
*
*
*
*
(d) Independent review function. (1) A
bank holding company subject to this
subpart must establish and maintain a
review function that is independent of
management functions that execute
funding to evaluate its liquidity risk
management.
(2) The independent review function
must:
(i) Regularly, but no less frequently
than annually, review and evaluate the
adequacy and effectiveness of the
company’s liquidity risk-management
processes, including its liquidity stress
test processes and assumptions;
(ii) Assess whether the company’s
liquidity risk-management function
complies with applicable laws and
regulations, and sound business
practices; and
(iii) Report material liquidity riskmanagement issues to the board of
directors or the risk committee in
writing for corrective action, to the
extent permitted by applicable law.
(e) * * *
(1) A bank holding company subject
to this subpart must produce
comprehensive cash-flow projections
that project cash flows arising from
assets, liabilities, and off-balance sheet
exposures over, at a minimum, shortand long-term time horizons. The bank
holding company must update shortterm cash-flow projections daily and
must update longer-term cash-flow
projections at least monthly.
*
*
*
*
*
(f) * * *
(1) General. A bank holding company
subject to this subpart must establish
and maintain a contingency funding
plan that sets out the company’s
strategies for addressing liquidity needs
during liquidity stress events. The
contingency funding plan must be
commensurate with the company’s
capital structure, risk profile,
complexity, activities, size, and
established liquidity risk tolerance. The
company must update the contingency
funding plan at least annually, and
when changes to market and
idiosyncratic conditions warrant.
(2) * * *
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(i) Quantitative assessment. The
contingency funding plan must:
(A) Identify liquidity stress events
that could have a significant impact on
the bank holding company’s liquidity;
(B) Assess the level and nature of the
impact on the bank holding company’s
liquidity that may occur during
identified liquidity stress events;
(C) Identify the circumstances in
which the bank holding company would
implement its action plan described in
paragraph (f)(2)(ii)(A) of this section,
which circumstances must include
failure to meet any minimum liquidity
requirement imposed by the Board;
(D) Assess available funding sources
and needs during the identified
liquidity stress events;
(E) Identify alternative funding
sources that may be used during the
identified liquidity stress events; and
(F) Incorporate information generated
by the liquidity stress testing required
under § 252.35(a).
*
*
*
*
*
(g) Liquidity risk limits—(1) General.
A bank holding company must monitor
sources of liquidity risk and establish
limits on liquidity risk that are
consistent with the company’s
established liquidity risk tolerance and
that reflect the company’s capital
structure, risk profile, complexity,
activities, and size.
(2) Liquidity risk limits established by
a global systemically important BHC,
Category II bank holding company, or
Category III bank holding company. If
the bank holding company is a global
systemically important BHC, Category II
bank holding company, or Category III
bank holding company, liquidity risk
limits established under paragraph (g)(1)
of this section must include limits on:
(i) Concentrations in sources of
funding by instrument type, single
counterparty, counterparty type,
secured and unsecured funding, and as
applicable, other forms of liquidity risk;
(ii) The amount of liabilities that
mature within various time horizons;
and
(iii) Off-balance sheet exposures and
other exposures that could create
funding needs during liquidity stress
events.
(h) Collateral, legal entity, and
intraday liquidity risk monitoring. A
bank holding company subject to this
subpart must establish and maintain
procedures for monitoring liquidity risk
as set forth in this paragraph.
(1) Collateral. The bank holding
company must establish and maintain
policies and procedures to monitor
assets that have been, or are available to
be, pledged as collateral in connection
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with transactions to which it or its
affiliates are counterparties. These
policies and procedures must provide
that the bank holding company:
(i) Calculates all of its collateral
positions according to the frequency
specified in paragraph (h)(1)(i)(A) or (B)
of this section, 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 bank holding company is
not a Category IV bank holding
company, on at least a weekly basis; or
(B) If the bank holding company is a
Category IV bank holding company, on
at least a monthly basis;
(ii) Monitors the levels of
unencumbered assets available to be
pledged by legal entity, jurisdiction, and
currency exposure;
(iii) Monitors shifts in the bank
holding company’s funding patterns,
such as shifts between intraday,
overnight, and term pledging of
collateral; and
(iv) Tracks operational and timing
requirements associated with accessing
collateral at its physical location (for
example, the custodian or securities
settlement system that holds the
collateral).
(2) Legal entities, currencies, and
business lines. The bank holding
company must establish and maintain
procedures for monitoring and
controlling liquidity risk exposures and
funding needs within and across
significant legal entities, currencies, and
business lines, taking into account legal
and regulatory restrictions on the
transfer of liquidity between legal
entities.
(3) Intraday exposures. The bank
holding company must establish and
maintain procedures for monitoring
intraday liquidity risk exposures 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 BHC, 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:
(i) Monitor and measure expected
daily gross liquidity inflows and
outflows;
(ii) Manage and transfer collateral to
obtain intraday credit;
(iii) Identify and prioritize timespecific obligations so that the bank
holding company can meet these
obligations as expected and settle less
critical obligations as soon as possible;
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(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
bank holding company’s overall
liquidity needs.
■ 38. In § 252.35:
■ a. Paragraphs (a)(1) introductory text,
(a)(2), and (a)(7)(i) and (ii) are revised;
■ b. Paragraph (a)(8) is added; and
■ c. Paragraphs (b)(1) and (3) are
revised.
The revisions and addition read as
follows:
§ 252.35 Liquidity stress testing and buffer
requirements.
(a) * * *
(1) General. A bank holding company
subject to this subpart must conduct
stress tests to assess the potential impact
of the liquidity stress scenarios set forth
in paragraph (a)(3) of this section on its
cash flows, liquidity position,
profitability, and solvency, taking into
account its current liquidity condition,
risks, exposures, strategies, and
activities.
*
*
*
*
*
(2) Frequency. The bank holding
company must perform the liquidity
stress tests required under paragraph
(a)(1) of this section according to the
frequency specified in paragraph
(a)(2)(i) or (ii), or as directed by the
Board:
(i) If the bank holding company is not
a Category IV bank holding company, at
least monthly; or
(ii) If the bank holding company is a
Category IV bank holding company, at
least quarterly.
*
*
*
*
*
(7) * * *
(i) Policies and procedures. A bank
holding company subject to this subpart
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. A bank
holding company subject to this subpart
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,
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taking into consideration the bank
holding company’s capital structure,
risk profile, complexity, activities, size,
business lines, legal entity or
jurisdiction, and other relevant factors.
The assumptions must be approved by
the chief risk officer and be subject to
the independent review under
§ 252.34(d) of this subpart.
*
*
*
*
*
(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.
(b) Liquidity buffer requirement. (1) A
bank holding company subject to this
subpart must maintain a liquidity buffer
that is sufficient to meet the projected
net stressed cash-flow need over the 30day planning horizon of a liquidity
stress test conducted in accordance with
paragraph (a) of this section under each
scenario set forth in paragraph (a)(3)(i)
through (iii) of this section.
*
*
*
*
*
(3) Asset requirements. The liquidity
buffer must consist of highly liquid
assets that are unencumbered, as
defined in paragraph (b)(3)(ii) of this
section:
(i) Highly liquid asset. A highly liquid
asset includes:
(A) Cash;
(B) Assets that meet the criteria for
high quality liquid assets as defined in
12 CFR 249.20; or
(C) Any other asset that the bank
holding company demonstrates to the
satisfaction of the Board:
(1) Has low credit risk and low market
risk;
(2) Is traded in an active secondary
two-way market that has committed
market makers and independent bona
fide offers to buy and sell so that a price
reasonably related to the last sales price
or current bona fide competitive bid and
offer quotations can be determined
within one day and settled at that price
within a reasonable time period
conforming with trade custom; and
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59105
(3) Is a type of asset that investors
historically have purchased in periods
of financial market distress during
which market liquidity has been
impaired.
(ii) Unencumbered. An asset is
unencumbered if it:
(A) Is free of legal, regulatory,
contractual, or other restrictions on the
ability of such company promptly to
liquidate, sell or transfer the asset; and
(B) Is either:
(1) Not pledged or used to secure or
provide credit enhancement to any
transaction; or
(2) Pledged to a central bank or a U.S.
government-sponsored enterprise, to the
extent potential credit secured by the
asset is not currently extended by such
central bank or U.S. governmentsponsored enterprise or any of its
consolidated subsidiaries.
(iii) Calculating the amount of a
highly liquid asset. In calculating the
amount of a highly liquid asset included
in the liquidity buffer, the bank holding
company must discount the fair market
value of the asset to reflect any credit
risk and market price volatility of the
asset.
(iv) Operational requirements. With
respect to the liquidity buffer, the bank
holding company must:
(A) Establish and implement policies
and procedures that require highly
liquid assets comprising the liquidity
buffer to be under the control of the
management function in the bank
holding company that is charged with
managing liquidity risk; and
(B) Demonstrate the capability to
monetize a highly liquid asset under
each scenario required under
§ 252.35(a)(3).
(v) Diversification. The liquidity
buffer must not contain significant
concentrations of highly liquid assets by
issuer, business sector, region, or other
factor related to the bank holding
company’s risk, except with respect to
cash and securities issued or guaranteed
by the United States, a U.S. government
agency, or a U.S. government-sponsored
enterprise.
■ 39. The heading of subpart E is
revised to read as follows:
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
40. Section 252.41 is revised to read
as follows
■
§ 252.41
Authority and purpose.
(a) Authority. 12 U.S.C. 321–338a,
1818, 1831p–1, 1844(b), 1844(c), 5361,
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5365, 5366, sec. 401(e), Pub. L. 115–174,
132 Stat. 1296.
(b) Purpose. This subpart implements
section 165 of the Dodd-Frank Act (12
U.S.C. 5365) and section 401(e) of the
Economic Growth, Regulatory Relief,
and Consumer Protection Act, which
requires the Board to conduct annual
analyses of nonbank financial
companies supervised by the Board and
bank holding companies with $100
billion or more in total consolidated
assets to evaluate whether such
companies have the capital, on a total
consolidated basis, necessary to absorb
losses as a result of adverse economic
conditions.
■ 41. Section 252.42 is revised to read
as follows:
§ 252.42
Definitions
For purposes of this subpart E, the
following definitions apply:
Advanced approaches means the riskweighted assets calculation
methodologies at 12 CFR part 217,
subpart E, as applicable, and any
successor regulation.
Baseline scenario means a set of
conditions that affect the U.S. economy
or the financial condition of a covered
company and that reflect the consensus
views of the economic and financial
outlook.
Covered company means:
(1) A U.S. bank holding company
with average total consolidated assets of
$100 billion or more;
(2) A U.S. intermediate holding
company subject to this section
pursuant to § 252.153; and
(3) A nonbank financial company
supervised by the Board.
Foreign banking organization has the
same meaning as in 12 CFR 211.21(o).
Pre-provision net revenue means the
sum of net interest income and noninterest income less expenses before
adjusting for loss provisions.
Planning horizon means the period of
at least nine consecutive quarters,
beginning on the first day of a stress test
cycle over which the relevant
projections extend.
Provision for credit losses means:
(1) With respect to a covered company
that has adopted the current expected
credit losses methodology under GAAP,
the provision for credit losses, as would
be reported by the covered company on
the FR Y–9C in the current stress test
cycle; and,
(2) With respect to a covered company
that has not adopted the current
expected credit losses methodology
under GAAP, the provision for loan and
lease losses as would be reported by the
covered company on the FR Y–9C in the
current stress test cycle.
Regulatory capital ratio means a
capital ratio for which the Board has
established minimum requirements for
the company by regulation or order,
including, as applicable, the company’s
regulatory capital ratios calculated
under 12 CFR part 217 and the
deductions required under 12 CFR
248.12; except that the company shall
not use the advanced approaches to
calculate its regulatory capital ratios.
Scenarios are those sets of conditions
that affect the U.S. economy or the
financial condition of a covered
company that the Board determines are
appropriate for use in the supervisory
stress tests, including, but not limited
to, baseline and severely adverse
scenarios.
Severely adverse scenario means a set
of conditions that affect the U.S.
economy or the financial condition of a
covered company and that overall are
significantly more severe than those
associated with the baseline scenario
and may include trading or other
additional components.
Stress test cycle means the period
beginning on January 1 of a calendar
year and ending on December 31 of that
year.
Subsidiary has the same meaning as
in 12 CFR 225.2.
■ 42. In § 252.43, paragraph (a) is
revised to read as follows:
§ 252.43
Applicability.
(a) Scope—(1) Applicability. Except as
provided in paragraph (b) of this
section, this subpart applies to any
covered company, which includes:
(i) Any U.S. bank holding company
with average total consolidated assets of
$100 billion or more;
(ii) Any U.S. intermediate holding
company subject to this section
pursuant to § 252.153; and
(iii) 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. 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.
*
*
*
*
*
43. In § 252.44, the section heading
and paragraphs (a)(1) and (b) are revised
and paragraph (c) is added to read as
follows:
■
§ 252.44
Analysis conducted by the Board.
(a) In general. (1) The Board will
conduct an analysis of each covered
company’s capital, on a total
consolidated basis, taking into account
all relevant exposures and activities of
that covered company, to evaluate the
ability of the covered company to absorb
losses in specified economic and
financial conditions.
*
*
*
*
*
(b) Economic and financial scenarios
related to the Board’s analysis. The
Board will conduct its analysis using a
minimum of two different scenarios,
including a baseline scenario and a
severely adverse scenario. The Board
will notify covered companies of the
scenarios that the Board will apply to
conduct the analysis for each stress test
cycle to which the covered company is
subject by no later than February 15 of
that year, except with respect to trading
or any other components of the
scenarios and any additional scenarios
that the Board will apply to conduct the
analysis, which will be communicated
by no later than March 1 of that year.
(c) Frequency of analysis conducted
by the Board—(1) General. Except as
provided in paragraph (c)(2) of this
section, the Board will conduct its
analysis of a covered company
according to the frequency in Table 1 to
§ 252.44(c)(1).
TABLE 1 TO § 252.44(c)(1)
If the covered company is a
Then the Board will conduct its analysis
Global systemically important BHC ..........................................................
Category II bank holding company ..........................................................
Category II U.S. intermediate holding company ......................................
Category III bank holding company .........................................................
Category III U.S. intermediate holding company .....................................
Category IV bank holding company .........................................................
Category IV U.S. intermediate holding company .....................................
Annually.
Annually.
Annually.
Annually.
Annually.
Biennially, occurring in each year ending in an even number.
Biennially, occurring in each year ending in an even number.
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TABLE 1 TO § 252.44(c)(1)—Continued
If the covered company is a
Then the Board will conduct its analysis
Nonbank financial company supervised by the Board .............................
Annually.
(2) Change in frequency. The Board
may conduct a stress test of a covered
company on a more or less frequent
basis than would be required under
paragraph (c)(1) of this section based on
the company’s financial condition, size,
complexity, risk profile, scope of
operations, or activities, or risks to the
U.S. economy.
(3) Notice and response—(i)
Notification of change in frequency. If
the Board determines to change the
frequency of the stress test under
paragraph (c)(2) of this section, the
Board will notify the company in
writing and provide a discussion of the
basis for its determination.
(ii) Request for reconsideration and
Board response. Within 14 calendar
days of receipt of a notification under
paragraph (c)(3)(i) of this section, a
covered company may request in
writing that the Board reconsider the
requirement to conduct a stress test on
a more or less frequent basis than would
be required under paragraph (c)(1) of
this section. A covered company’s
request for reconsideration must include
an explanation as to why the request for
reconsideration should be granted. The
Board will respond in writing within 14
calendar days of receipt of the
company’s request.
■ 44. The heading of subpart F is
revised to read as follows:
Subpart F—Company-Run Stress Test
Requirements for Certain U.S. Bank
Holding Companies and Nonbank
Financial Companies Supervised by
the Board
45. Section 252.51 is revised to read
as follows:
■
§ 252.51
Authority and purpose.
(a) Authority. 12 U.S.C. 321–338a,
1818, 1831p–1, 1844(b), 1844(c), 5361,
5365, 5366.
(b) Purpose. This subpart establishes
the requirement for a covered company
to conduct stress tests. This subpart also
establishes definitions of stress test and
related terms, methodologies for
conducting stress tests, and reporting
and disclosure requirements.
■ 46. Section 252.52 is revised as
follows:
§ 252.52
Definitions.
For purposes of this subpart, the
following definitions apply:
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Advanced approaches means the riskweighted assets calculation
methodologies at 12 CFR part 217,
subpart E, as applicable, and any
successor regulation.
Baseline scenario means a set of
conditions that affect the U.S. economy
or the financial condition of a covered
company and that reflect the consensus
views of the economic and financial
outlook.
Capital action has the same meaning
as in 12 CFR 225.8(d).
Covered company means:
(1) A global systemically important
BHC;
(2) A Category II bank holding
company;
(3) A Category III bank holding
company;
(4) A Category II U.S. intermediate
holding company subject to this section
pursuant to § 252.153;
(5) A Category III U.S. intermediate
holding company subject to this section
pursuant to § 252.153; and
(6) A nonbank financial company
supervised by the Board that is made
subject to this section pursuant to a rule
or order of the Board.
Foreign banking organization has the
same meaning as in 12 CFR 211.21(o).
Planning horizon means the period of
at least nine consecutive quarters,
beginning on the first day of a stress test
cycle over which the relevant
projections extend.
Pre-provision net revenue means the
sum of net interest income and noninterest income less expenses before
adjusting for loss provisions.
Provision for credit losses means:
(1) With respect to a covered company
that has adopted the current expected
credit losses methodology under GAAP,
the provision for credit losses, as would
be reported by the covered company on
the FR Y–9C in the current stress test
cycle; and
(2) With respect to a covered company
that has not adopted the current
expected credit losses methodology
under GAAP, the provision for loan and
lease losses as would be reported by the
covered company on the FR Y–9C in the
current stress test cycle.
Regulatory capital ratio means a
capital ratio for which the Board has
established minimum requirements for
the company by regulation or order,
including, as applicable, the company’s
regulatory capital ratios calculated
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under 12 CFR part 217 and the
deductions required under 12 CFR
248.12; except that the company shall
not use the advanced approaches to
calculate its regulatory capital ratios.
Scenarios are those sets of conditions
that affect the U.S. economy or the
financial condition of a covered
company that the Board determines are
appropriate for use in the company-run
stress tests, including, but not limited
to, baseline and severely adverse
scenarios.
Severely adverse scenario means a set
of conditions that affect the U.S.
economy or the financial condition of a
covered company and that overall are
significantly more severe than those
associated with the baseline scenario
and may include trading or other
additional components.
Stress test means a process to assess
the potential impact of scenarios on the
consolidated earnings, losses, and
capital of a covered company over the
planning horizon, taking into account
its current condition, risks, exposures,
strategies, and activities.
Stress test cycle means the period
beginning on January 1 of a calendar
year and ending on December 31 of that
year.
Subsidiary has the same meaning as
in 12 CFR 225.2.
■ 47. Section 252.53 is revised to read
as follows:
§ 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) Any 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
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
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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.
(b) Transitional arrangements. (1) A
company that becomes a covered
company on or before September 30 of
a calendar year must comply with the
requirements of this subpart beginning
on January 1 of the second calendar year
after the company becomes a covered
company, unless that time is extended
by the Board in writing.
(2) A company that becomes a
covered company after September 30 of
a calendar year must comply with the
requirements of this subpart beginning
on January 1 of the third calendar year
after the company becomes a covered
company, unless that time is extended
by the Board in writing.
■ 48. In § 252.54 the section heading,
paragraphs (a), (b)(2)(i), and (b)(4)(ii)
and (iii) are revised 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) General. Except as
provided in paragraph (a)(2)(ii) of this
section, a covered company must
conduct a stress test according to the
frequency in Table 1 to § 252.54(a)(2)(i).
TABLE 1 TO § 252.54(a)(2)(i)
If the covered company is a
Then the stress test must be conducted
Global systemically important BHC ..........................................................
Annually, 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.
Annually, 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.
Annually, 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.
Biennially, 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.
Biennially, 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.
Periodically, as determined by rule or order.
Category II bank holding company ..........................................................
Category II U.S. intermediate holding company ......................................
Category III bank holding company .........................................................
Category III U.S. intermediate holding company .....................................
Nonbank financial company supervised by the Board .............................
(ii) Change in frequency. The Board
may require a covered company to
conduct a stress test on a more or less
frequent basis than would be required
under paragraph (a)(2)(i) of this section
based on the company’s financial
condition, size, complexity, risk profile,
scope of operations, or activities, or
risks to the U.S. economy.
(3) Notice and response—(i)
Notification of change in frequency. If
the Board requires a covered company
to change the frequency of the stress test
under paragraph (a)(2)(ii) of this section,
the Board will notify the company in
writing and provide a discussion of the
basis for its determination.
(ii) Request for reconsideration and
Board response. Within 14 calendar
days of receipt of a notification under
paragraph (a)(3)(i) of this section, a
covered company may request in
writing that the Board reconsider the
requirement to conduct a stress test on
a more or less frequent basis than would
be required under paragraph (a)(2)(i) of
this section. A covered company’s
request for reconsideration must include
an explanation as to why the request for
reconsideration should be granted. The
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Board will respond in writing within 14
calendar days of receipt of the
company’s request.
(b) * * *
(2) * * *
(i) The Board may require a covered
company with significant trading
activity, as determined by the Board and
specified in the Capital Assessments
and Stress Testing report (FR Y–14), to
include a trading and counterparty
component in its severely adverse
scenario in the stress test required by
this section. The data used in this
component must be as of a date selected
by the Board between October 1 of the
previous calendar year and March 1 of
the calendar year in which the stress
test is performed pursuant to this
section, and the Board will
communicate the as-of date and a
description of the component to the
company no later than March 1 of the
calendar year in which the stress test is
performed pursuant to this section.
(ii) The Board may require a covered
company to include one or more
additional components in its severely
adverse scenario in the stress test
required by this section based on the
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company’s financial condition, size,
complexity, risk profile, scope of
operations, or activities, or risks to the
U.S. economy.
*
*
*
*
*
(4) * * *
(ii) Request for reconsideration and
Board response. Within 14 calendar
days of receipt of a notification under
this paragraph, the covered company
may request in writing that the Board
reconsider the requirement that the
company include the additional
component(s) or additional scenario(s),
including an explanation as to why the
request for reconsideration should be
granted. The Board will respond in
writing within 14 calendar days of
receipt of the company’s request.
(iii) Description of component. The
Board will provide the covered
company with a description of any
additional component(s) or additional
scenario(s) by March 1 of the calendar
year in which the stress test is
performed pursuant to this section.
§ 252.55
[Removed and Reserved]
49. Section 252.55 is removed and
reserved.
■
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50. Section 252.56, paragraphs (a)
introductory text, (b) introductory text,
and (c)(1) and (2) are revised 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,
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.
(2) Oversight of stress testing
processes. The board of directors, or a
committee thereof, of a covered
company must review and approve the
policies and procedures of the stress
testing processes as frequently as
economic conditions or the condition of
the covered company may warrant, but
no less than each year a stress test is
conducted. The board of directors and
senior management of the covered
company must receive a summary of the
results of any stress test conducted
under this subpart.
*
*
*
*
*
■ 51. In § 252.57, paragraph (a) is
revised 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 conducted pursuant to
§ 252.54, unless that time is extended by
the Board in writing.
*
*
*
*
*
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52. In § 252.58, paragraph (a)(1) is
revised to read as follows:
■
§ 252.58
Disclosure of stress test results.
(a) * * *
(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 H—Single-Counterparty Credit
Limits
53. In § 252.70, paragraphs (a) and
(d)(1) are revised to read as follows:
■
§ 252.70 Applicability and general
provisions.
(a) In general. (1) This subpart
establishes single counterparty credit
limits for a covered company.
(2) For purposes of this subpart:
(i) Covered company means:
(A) A global systemically important
BHC;
(B) A Category II bank holding
company; and
(C) A Category III bank holding
company;
(ii) Major covered company means
any covered company that is a global
systemically important BHC.
*
*
*
*
*
(d) * * *
(1) Any company that becomes a
covered company will remain subject to
the requirements of this subpart unless
and until:
(i) The covered company is not a
global systemically important BHC;
(ii) The covered company is not a
Category II bank holding company; and
(iii) The covered company is not a
Category III bank holding company.
*
*
*
*
*
Subpart L—[Removed and Reserved]
54. Subpart L, consisting of §§ 252.120
through 252.122, is removed.
■ 55. Revise the heading for subpart M
to read as follows.
■
Subpart M—Risk Committee
Requirement for Foreign Banking
Organizations With Total Consolidated
Assets of at Least $50 Billion but Less
Than $100 Billion
56. Section 252.131 is revised to read
as follows:
■
§ 252.131
Applicability.
(a) General applicability. A foreign
banking organization with average total
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59109
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
average total consolidated assets equal
or exceed $50 billion.
(b) 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 total consolidated assets 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.
■ 57. In § 252.132, the section heading
and paragraphs (a) introductory text and
(d) are revised to read as follows:
§ 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 subject to
this subpart, 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.
■ 58. The heading of subpart N is
revised as follows:
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Subpart N—Enhanced Prudential
Standards for Foreign Banking
Organizations With Total Consolidated
Assets of $100 Billion or More and
Combined U.S. Assets of Less Than
$100 Billion
59. Section 252.140 is revised to read
as follows:
■
§ 252.140
Scope.
This subpart applies to foreign
banking organizations with average total
consolidated assets of $100 billion or
more, but average combined U.S. assets
of less than $100 billion.
■ 60. Section 252.142 is revised to read
as follows:
§ 252.142
Applicability.
(a) General applicability. A foreign
banking organization with average total
consolidated assets of $100 billion or
more and average combined U.S. assets
of less than $100 billion must:
(1) Comply with the capital stress
testing, risk-management and riskcommittee requirements set forth in this
subpart beginning no later than on the
first day of the ninth quarter the date on
which its average 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 average
U.S. non-branch assets equal or exceed
$50 billion.
(b) Cessation of requirements—(1)
Enhanced prudential standards
applicable to the foreign banking
organization. (i) A foreign banking
organization will remain subject to the
requirements set forth in §§ 252.144 and
252.146 until its total consolidated
assets are below $100 billion for each of
four consecutive calendar quarters, or it
becomes subject to the requirements of
subpart O of this part.
(ii) A foreign banking organization
will remain subject to the requirements
set forth in §§ 252.143 and 252.145 until
its total consolidated assets are below
$250 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
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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.
■ 61. In § 252.143, the section heading
and paragraphs (a)(1) introductory text,
(b), and (c) are revised to read as
follows:
§ 252.143 Risk-based and leverage capital
requirements for foreign banking
organizations with total consolidated assets
of $250 billion or more and combined U.S.
assets of less than $100 billion.
(a) * * *
(1) A foreign banking organization
subject to this subpart and with average
total consolidated assets of $250 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 subject to this subpart and
with average total consolidated assets of
$250 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, 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,
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condition, or restriction. The Board will
respond in writing to the organization’s
request for reconsideration prior to
applying the requirement, condition, or
restriction.
■ 62. Section 252.144 is revised to read
as follows:
§ 252.144 Risk-management and riskcommittee 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
banking organizations with combined
U.S. assets of less than $50 billion—(1)
U.S. risk committee certification. A
foreign banking organization with
average 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 riskcommittee requirements for foreign
banking organizations with combined
U.S. assets of $50 billion or more but
less than $100 billion—(1) U.S. risk
committee—(i) General. A foreign
banking organization subject to this this
subpart and with average combined U.S.
assets of $50 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.
(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
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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;
(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,
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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 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 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
average combined U.S. assets of $50
billion or more 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
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59111
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
paragraph (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.
■ 63. In § 252.145, the section heading
and paragraph (a) are revised to read as
follows:
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§ 252.145 Liquidity risk-management
requirements for foreign banking
organizations with total consolidated assets
of $250 billion or more and combined U.S.
assets of less than $100 billion.
(a) A foreign banking organization
subject to this subpart with average total
consolidated assets of $250 billion or
more 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 consistent 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.
*
*
*
*
*
■ 64. In § 252.146, the section heading
and paragraphs (b)(1) introductory text,
(b)(2)(i), and (c)(1)(ii) and (iii) are
revised to read as follows:
§ 252.146 Capital stress testing
requirements for foreign banking
organizations with total consolidated assets
of $100 billion or more and combined U.S.
assets of less than $100 billion.
*
*
*
*
*
(b) * * *
(1) A foreign banking organization
subject to this subpart 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 paragraph (b)(2)(i)(A) or (B) of
this section:
(A) If the foreign banking organization
has average total consolidated assets of
$250 billion or more, on at least an
annual basis; or
(B) If the foreign banking organization
has average 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
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subsidiaries have the capital necessary
to absorb losses as a result of adverse
economic conditions, according to the
frequency specified in paragraph
(c)(1)(ii)(A) or (B) of this section:
(A) If the foreign banking organization
has average total consolidated assets of
$250 billion or more, on at least an
annual basis; or
(B) If the foreign banking organization
has average total consolidated assets of
less than $250 billion, at least
biennially; and
(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.
*
*
*
*
*
■ 65. Section 252.147 is added to read
as follows:
§ 252.147 U.S. intermediate holding
company requirement for foreign banking
organizations with combined U.S. assets of
less than $100 billion and 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 average U.S. nonbranch 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.
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(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 average U.S. nonbranch 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;
or
(C) That the U.S. intermediate holding
company, if it were subject to 12 CFR
217.402, would be identified as a global
systemically important BHC.
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(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
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; not
transfer its ownership interests in
certain subsidiaries to a U.S.
intermediate holding company; or use
an alternative organizational structure to
hold its combined U.S. operations.
(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.
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(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 organization 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
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 riskcommittee requirements—(i) General. A
U.S. intermediate holding company
must establish and maintain a risk
committee that approves and
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59113
periodically reviews the riskmanagement 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
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
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(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 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 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 riskcommittee and risk-management
requirements beginning on the date that
it is required to be established or
designated under this subpart or, if the
U.S. intermediate holding company is
subject to risk-committee and riskmanagement 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.
■ 66. The heading of subpart O is
revised to read as follows:
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
67. Section 252.150 is revised to read
as follows:
■
§ 252.150
Scope.
This subpart applies to foreign
banking organizations with average total
consolidated assets of $100 billion or
more and average combined U.S. assets
of $100 billion or more.
■ 68. Section 252.152 is revised to read
as follows:
§ 252.152
Applicability.
20:44 Oct 31, 2019
69. In § 252.153:
a.Revise the section heading and
paragraph (a)(1);
■ b. Add a subject heading to paragraph
(a)(2); and
■ c. Revise paragraphs (a)(3) and (c)
through (e).
The revisions and addition read as
follows:
■
■
(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
VerDate Sep<11>2014
average 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
average 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 average combined U.S.
assets equal or exceed $100 billion.
(2) Changes in requirements following
a change in category. A foreign banking
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) 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 combined U.S. assets 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
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.
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§ 252.153 U.S. intermediate holding
company requirement for foreign banking
organizations with combined U.S. assets of
$100 billion or more and U.S. non-branch
assets of $50 billion or more.
(a) * * *
(1) Formation. A foreign banking
organization with average U.S. nonbranch 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. * * *
(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; not
transfer its ownership interests in
certain subsidiaries to a U.S.
intermediate holding company; or use
an alternative organizational structure to
hold its combined U.S. operations.
(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 other
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 will 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 organization that
it is extending the period for action.
(4) Conditions. (i) The Board may
grant relief under this section upon such
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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
§ 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
mandate of section 165 of the DoddFrank 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 applicable
capital adequacy standards beginning
on the date that it is required to be
established or designated 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 paragraph (a)(1)(ii) of this
section, 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.
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20:44 Oct 31, 2019
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(ii) A U.S. intermediate holding
company with total consolidated assets
of $100 billion or more must comply
with 12 CFR 225.8 on the date
prescribed in the transition provisions
of 12 CFR 225.8.
(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 riskmanagement 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
compensation structure of the U.S.
intermediate holding company.
(iii) Corporate governance
requirements. The risk committee of the
U.S. intermediate holding company
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59115
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 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 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 riskcommittee and risk-management
requirements beginning on the date that
it is required to be established or
designated under this subpart or, if the
U.S. intermediate holding company is
subject to risk-committee and riskmanagement 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 be established or designated under
this subpart.
(5) Stress test requirements. (i)(A) A
U.S. intermediate holding company
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;
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(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 the U.S. intermediate holding
company becomes subject to regulatory
capital requirements; or
(2) The transition period provided
under subpart E.
(ii)(A) A Category II U.S. intermediate
holding company or 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 Category II U.S. intermediate
holding company or Category III 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 the U.S. intermediate holding
company becomes subject to regulatory
capital requirements; or
(2) The transition period provided
under subpart F.
■ 70. In § 252.154 the section heading
and paragraphs (a)(1), (b), and (c) are
revised to read as follows:
§ 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
subject to this subpart more must certify
to the Board that it meets capital
adequacy standards on a consolidated
basis that are established by its homecountry supervisor and 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 subject to this subpart 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
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20:44 Oct 31, 2019
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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.
■ 71. In § 252.155 revise the section
heading and paragraphs (a)(1) and (3)
and (b)(1) to read as follows:
(b) * * *
(1) General. A foreign banking
organization subject to this subpart 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.
*
*
*
*
*
■ 72. In § 252.156, the section heading
and paragraphs (a)(1) introductory text,
(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), and (g) are
revised to read as follows:
The revisions read as follows:
§ 252.155 Risk-management and riskcommittee 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 § 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
subject to this subpart 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 subject to this subpart 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 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.
(a) * * *
(1) General. A foreign banking
organization subject to this subpart 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 § 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
§ 252.153(e)(3).
*
*
*
*
*
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§ 252.156 Liquidity risk-management
requirements for foreign banking
organizations with combined U.S. assets of
$100 billion or more.
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operations, and must establish
procedures governing the content of
such reports.
(3) * * *
(i) The U.S. chief risk officer of a
foreign banking organization subject to
this subpart 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 subject to this subpart 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 subject to this subpart 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 subject to this subpart
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
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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
subject to this subpart must establish
and maintain a review function, which
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 riskmanagement function of its combined
U.S. operations complies with
applicable laws and regulations, and
sound business practices; and
*
*
*
*
*
(d) * * *
(1) A foreign banking organization
subject to this subpart 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
subject to this subpart 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;
*
*
*
*
*
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(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) General.
A foreign banking organization must
monitor sources of liquidity risk and
establish limits on liquidity risk that are
consistent with the organization’s
established liquidity risk tolerance and
that reflect the organization’s capital
structure, risk profile, complexity,
activities, and size.
(2) Liquidity risk limits established by
a Category II foreign banking
organization or Category III foreign
banking organization. If the foreign
banking organization is not a Category
IV foreign banking organization,
liquidity risk limits established under
paragraph (f)(1) of this section must
include limits on:
(i) Concentrations in sources of
funding by instrument type, single
counterparty, counterparty type,
secured and unsecured funding, and as
applicable, other forms of liquidity risk;
(ii) The amount of liabilities that
mature within various time horizons;
and
(iii) Off-balance sheet exposures and
other exposures that could create
funding needs during liquidity stress
events.
(g) Collateral, legal entity, and
intraday liquidity risk monitoring. A
foreign banking organization subject to
this subpart or more must establish and
maintain procedures for monitoring
liquidity risk as set forth in this
paragraph (g).
(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:
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(i) Calculates all of the collateral
positions for its combined U.S.
operations according to the frequency
specified in paragraph (g)(1)(i)(A) or (B)
of this section 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 at least a weekly basis;
or
(B) If the foreign banking organization
is a Category IV foreign banking
organization, on at least a monthly
basis;
(ii) Monitors the levels of
unencumbered assets available to be
pledged by legal entity, jurisdiction, and
currency exposure;
(iii) Monitors shifts in the foreign
banking organization’s funding patterns,
including shifts between intraday,
overnight, and term pledging of
collateral; and
(iv) Tracks operational and timing
requirements associated with accessing
collateral at its physical location (for
example, the custodian or securities
settlement system that holds the
collateral).
(2) Legal entities, currencies and
business lines. The foreign banking
organization must establish and
maintain procedures for monitoring and
controlling liquidity risk exposures and
funding needs of its combined U.S.
operations, within and across significant
legal entities, currencies, and business
lines and taking into account legal and
regulatory restrictions on the transfer of
liquidity between legal entities.
(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 not a
Category IV 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;
(iii) 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;
(iv) Manage the issuance of credit to
customers where necessary; and
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(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.
■ 73. In § 252.157:
■ a. The section heading and paragraphs
(a)(1)(i) through (iv), (a)(2), and (a)(7)(i)
through (iii) are revised;
■ b. Paragraph (a)(8) is added;
■ c. Paragraphs (b) and (c)(1) and
(c)(7)(i) through (iv) are revised; and
■ d. Paragraph (c)(7)(v) is added.
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
subject to this subpart must conduct
stress tests to separately assess the
potential impact of liquidity stress
scenarios on the cash flows, liquidity
position, profitability, and solvency of:
(A) Its combined U.S. operations as a
whole;
(B) Its U.S. branches and agencies on
an aggregate basis; and
(C) Its U.S. intermediate holding
company, if any.
(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.
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(2) Frequency. The foreign banking
organization must perform the liquidity
stress tests required under paragraph
(a)(1) of this section according to the
frequency specified in paragraph
(a)(2)(i) or (ii) of this section 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 subject to this
subpart, 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).
(iii) Management information
systems. The foreign banking
organization must maintain
management information systems and
data processes sufficient to enable it to
effectively and reliably collect, sort, and
aggregate data and other information
related to the liquidity stress testing of
its combined U.S. operations.
(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
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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 subject to
this subpart 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
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 subject to this subpart 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.
*
*
*
*
*
(7) * * *
(i) Highly liquid assets. The asset
must be a highly liquid asset. For these
purposes, a highly liquid asset includes:
(A) Cash;
(B) Assets that meet the criteria for
high quality liquid assets as defined in
12 CFR 249.20; or
(C) Any other asset that the foreign
banking organization demonstrates to
the satisfaction of the Board:
(1) Has low credit risk and low market
risk;
(2) Is traded in an active secondary
two-way market that has committed
market makers and independent bona
fide offers to buy and sell so that a price
reasonably related to the last sales price
or current bona fide competitive bid and
offer quotations can be determined
within one day and settled at that price
within a reasonable time period
conforming with trade custom; and
(3) Is a type of asset that investors
historically have purchased in periods
of financial market distress during
which market liquidity has been
impaired.
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(ii) Unencumbered. The asset must be
unencumbered. For these purposes, an
asset is unencumbered if it:
(A) Is free of legal, regulatory,
contractual or other restrictions on the
ability of such company promptly to
liquidate, sell or transfer the asset; and
(B) Is either:
(1) Not pledged or used to secure or
provide credit enhancement to any
transaction; or
(2) Pledged to a central bank or a U.S.
government-sponsored enterprise, to the
extent potential credit secured by the
asset is not currently extended by such
central bank or U.S. governmentsponsored enterprise or any of its
consolidated subsidiaries.
(iii) Calculating the amount of a
highly liquid asset. In calculating the
amount of a highly liquid asset included
in the liquidity buffer, the foreign
banking organization must discount the
fair market value of the asset to reflect
any credit risk and market price
volatility of the asset.
(iv) Operational requirements. With
respect to the liquidity buffer, the
foreign banking organization must:
(A) Establish and implement policies
and procedures that require highly
liquid assets comprising the liquidity
buffer to be under the control of the
management function in the foreign
banking organization that is charged
with managing liquidity risk of its
combined U.S. operations; and
(B) Demonstrate the capability to
monetize a highly liquid asset under
each scenario required under
§ 252.157(a)(3).
(v) Diversification. The liquidity
buffer must not contain significant
concentrations of highly liquid assets by
issuer, business sector, region, or other
factor related to the foreign banking
organization’s risk, except with respect
to cash and securities issued or
guaranteed by the United States, a U.S.
government agency, or a U.S.
government sponsored enterprise.
*
*
*
*
*
■ 74. In § 252.158, the section heading
and paragraphs (b)(1) introductory text,
(b)(2)(i), (c)(1) introductory text, and
(c)(2) introductory text are revised to
read as follows:
§ 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
subject to this subpart and that has a
U.S. branch or U.S. agency must:
*
*
*
*
*
(2) * * *
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(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 paragraph
(b)(2)(A) or (B):
(A) If the foreign banking organization
is not a Category IV foreign banking
organization, at least annually; 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 subject to this subpart 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 subject to
this subpart 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
75. Section 252.170 is revised 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;
(D) A Category II U.S. intermediate
holding company; and
(E) A Category III U.S. intermediate
holding company.
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(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
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:
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(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.
(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
a Category II U.S. intermediate holding
company; or
(B) The covered foreign entity is not
a Category III U.S. intermediate holding
company.
■ 76. In § 252.171,
■ a. Paragraph (f)(1) is revised;
■ b. Paragraph (aa) is removed; and
■ c. Paragraphs (bb) through (ll) are
redesignated as paragraphs (aa) through
(kk).
The revision reads as follows:
§ 252.171
Definitions.
*
*
*
*
*
(f) * * *
(1) With respect to a natural person:
(i) The natural person;
(ii) Except as provided in paragraph
(f)(1)(iii) of this section, if the credit
exposure of the covered foreign entity to
such natural person exceeds 5 percent
of tier 1 capital, the natural person and
members of the person’s immediate
family collectively; and
(iii) Until January 1, 2021, with
respect to a U.S. intermediate holding
company that is a covered foreign entity
and that has less than $250 billion in
total consolidated assets as of December
31, 2019, if the credit exposure of the
U.S. intermediate holding company to
such natural person exceeds 5 percent
of its capital stock and surplus, the
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natural person and member of the
person’s immediately family
collectively.
*
*
*
*
*
■ 77. In § 252.172:
■ a. Paragraphs (a), (b), and (c)
introductory text are revised;
■ b. Paragraph (c)(1) is removed and
reserved; and
■ c. Paragraph (c)(2) is revised.
The revisions read as follows:
§ 252.172
Credit exposure limits.
(a) Transition limit on aggregate credit
exposure for certain covered foreign
entities. (1) A U.S. intermediate holding
company that is a covered foreign entity
and that has less than $250 billion in
total consolidated assets as of December
31, 2019 is not required to comply with
paragraph (b)(1) of this section until
January 1, 2021.
(2) Until January 1, 2021, no U.S.
intermediate holding company that is a
covered foreign entity and that has less
than $250 billion in total consolidated
assets as of December 31, 2019 may
have an aggregate net credit exposure
that exceeds 25 percent of the
consolidated capital stock and surplus
of the U.S. intermediate holding
company.
(b) Limit on aggregate net credit
exposure for covered foreign entities. (1)
Except as provided in paragraph (a) of
this section, 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) Limit on aggregate net credit
exposure of major foreign banking
organizations to major counterparties.
(1) [Reserved]
(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.
*
*
*
*
*
■ 76. In § 252.173 paragraphs (b)(1) and
(2) are revised and paragraph (b)(3) is
added to read as follows:
§ 252.173
*
Gross credit exposure.
*
*
(b) * * *
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(1) A U.S. intermediate holding
company that is a covered foreign entity
and that has less than $250 billion in
total consolidated assets as of December
31, 2019 is not required to comply with
paragraph (b)(3) of this section until
January 1, 2021.
(2) Until January 1, 2021, unless the
Board applies the requirements of
§ 252.175 to the transaction pursuant to
§ 252.175(d), a U.S. intermediate
holding company that is a covered
foreign entity and that has less than
$250 billion in total consolidated assets
as of December 31, 2019 must:
(i) Calculate pursuant to paragraph (a)
of this section 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 in 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; and
(ii) Attribute that gross credit
exposure to the securitization vehicle,
investment fund, or other special
purpose vehicle for purposes of this
subpart.
(3) Except as provided in paragraph
(b)(1) of this section, 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.
*
*
*
*
*
■ 77. In § 252.175, paragraph (a)(1) is
revised to read as follows:
§ 252.175 Investments in an exposure to
securitization vehicles, investment funds,
and other special purpose vehicles that are
not affiliates of the covered foreign entity.
(a) * * *
(1) This section applies to a covered
foreign entity, except as provided in
paragraph (a)(1)(i) of this section.
(i) Until January 1, 2021, this section
does not apply to a U.S. intermediate
holding company that is a covered
foreign entity with less than $250
billion in total consolidated assets as of
December 31, 2019, provided that:
(A) In order to avoid evasion of this
subpart, the Board may determine, after
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notice to the covered foreign entity and
opportunity for hearing, that a U.S.
intermediate holding company with less
than $250 billion in total consolidated
assets must apply either the approach in
this paragraph (a) or the look-through
approach in paragraph (b) of this
section, or must recognize exposures to
a third party that has a contractual
obligation to provide credit or liquidity
support to a securitization vehicle,
investment fund, or other special
purpose vehicle that is not an affiliate
of the covered foreign entity, as
provided in paragraph (c) of this
section; and
(B) For purposes of paragraph
(a)(1)(i)(A) of this section, the Board, in
its discretion and as applicable, may
allow a covered foreign entity to
measure its capital base using the
covered foreign entity’s capital stock
and surplus rather than its tier 1 capital.
*
*
*
*
*
■ 78. In § 252.176 paragraphs (a)(1) and
(a)(2)(i) are revised to read as follows:
§ 252.176 Aggregation of exposures to
more than one counterparty due to
economic interdependence or control
relationships.
(a) * * *
(1) This section applies to a covered
foreign entity except as provided in
paragraph (a)(1)(i) of this section.
(i) Until January 1, 2021, paragraphs
(a)(2) through (d) of this section do not
apply to a U.S. intermediate holding
company that is a covered foreign entity
with less than $250 billion in total
consolidated assets as of December 31,
2019.
(ii) [Reserved]
(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.
*
*
*
*
*
■ 79. In § 252.178, paragraphs (a)(1) and
(2) and (c)(2) are revised to read as
follows:
§ 252.178
Compliance.
(a) * * *
(1) Except as provided in paragraph
(a)(2) of this section, using all available
data, including any data required to be
maintained or reported to the Federal
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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.
(2) Until December 31, 2020, using all
available data, including any data
required to be maintained or reported to
the Federal Reserve under this subpart,
a U.S. intermediate holding company
that is a covered foreign entity with less
than $250 billion in total consolidated
assets as of December 31, 2019 must
comply with the requirements of this
subpart on a quarterly basis, unless the
Board determines and notifies the entity
in writing that more frequent
compliance is required.
*
*
*
*
*
(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 capital stock and surplus or tier
1 capital, as applicable;
(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.
*
*
*
*
*
■ 80. In appendix A to part 252:
■ a. Section 1, paragraphs (a) and (b) are
revised;
■ b. Section 2 is revised
■ c. Section 3, paragraph (a) is revised
■ d. Section 3.2, paragraph (a) is
revised;
■ e. Section 4 is revised;
■ f. Section 4.1, paragraph (a) is revised;
■ g. Section 4.2 is revised;
■ h. Section 4.3 is removed;
■ i. Section 5, paragraphs (a) and (b) are
revised;
■ j. Section 5.2.2, paragraph (a) is
revised;
■ k. Section 5.3 is removed; and
■ l. Section 6, paragraph (d) is removed.
The revisions read as follows:
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the same as those the Board will use to
conduct its supervisory stress tests (together,
stress test scenarios).
Appendix A to Part 252—Policy
Statement on the Scenario Design
Framework for Stress Testing
1. Background
(a) The Board has imposed stress testing
requirements through its regulations (stress
test rules) implementing section 165(i) of the
Dodd-Frank Wall Street Reform and
Consumer Protection Act (Dodd-Frank Act or
Act) and section 401(e) of the Economic
Growth, Regulatory Relief, and Consumer
Protection Act, and through its capital plan
rule (12 CFR 225.8). Under the stress test
rules, the Board conducts a supervisory stress
test of each bank holding company with total
consolidated assets of $100 billion or more,
intermediate holding company of a foreign
banking organization with total consolidated
assets of $100 billion or more, and nonbank
financial company that the Financial
Stability Oversight Council has designated
for supervision by the Board (together,
covered companies).1 In addition, under the
stress test rules, certain firms are also subject
to company-run stress test requirements.2
The Board will provide for at least two
different sets of conditions (each set, a
scenario), including baseline and severely
adverse scenarios for both supervisory and
company-run stress tests (macroeconomic
scenarios).3
(b) The stress test rules provide that the
Board will notify covered companies by no
later than February 15 of each year of the
scenarios it will use to conduct its
supervisory stress tests and provide, also by
no later than February 15, covered companies
and other financial companies subject to the
final rules the set of scenarios they must use
to conduct their company-run stress tests.
Under the stress test rules, the Board may
require certain companies to use additional
components in the severely adverse scenario
or additional scenarios. For example, the
Board expects to require large banking
organizations with significant trading
activities to include a trading and
counterparty component (market shock,
described in the following sections) in their
severely adverse scenario. The Board will
provide any additional components or
scenario by no later than March 1 of each
year.4 The Board expects that the scenarios
it will require the companies to use will be
1 12
U.S.C. 5365(i)(1); 12 CFR part 252, subpart
E.
2 12 U.S.C. 5365(i)(2); 12 CFR part 252, subparts
B and F.
3 The stress test rules define scenarios as those
sets of conditions that affect the United States
economy or the financial condition of a company
that the Board determines are appropriate for use
in stress tests, including, but not limited to,
baseline and severely adverse scenarios. The stress
test rules define baseline scenario as a set of
conditions that affect the United States economy or
the financial condition of a company and that
reflect the consensus views of the economic and
financial outlook. The stress test rules define
severely adverse scenario as a set of conditions that
affect the U.S. economy or the financial condition
of a company and that overall are significantly more
severe than those associated with the baseline
scenario and may include trading or other
additional components.
4 Id.
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2. Overview and Scope
(a) This policy statement provides more
detail on the characteristics of the stress test
scenarios and explains the considerations
and procedures that underlie the approach
for formulating these scenarios. The
considerations and procedures described in
this policy statement apply to the Board’s
stress testing framework, including to the
stress tests required under 12 CFR part 252,
subparts B, E, and F as well as the Board’s
capital plan rule (12 CFR 225.8).6
(b) Although the Board does not envision
that the broad approach used to develop
scenarios will change from year to year, the
stress test scenarios will reflect changes in
the outlook for economic and financial
conditions and changes to specific risks or
vulnerabilities that the Board, in consultation
with the other federal banking agencies,
determines should be considered in the
annual stress tests. The stress test scenarios
should not be regarded as forecasts; rather,
they are hypothetical paths of economic
variables that will be used to assess the
strength and resilience of the companies’
capital in various economic and financial
environments.
(c) The remainder of this policy statement
is organized as follows. Section 3 provides a
broad description of the baseline and
severely adverse scenarios and describes the
types of variables that the Board expects to
include in the macroeconomic scenarios and
the market shock component of the stress test
scenarios applicable to companies with
significant trading activity. Section 4
describes the Board’s approach for
developing the macroeconomic scenarios,
and section 5 describes the approach for the
market shocks. Section 6 describes the
relationship between the macroeconomic
scenario and the market shock components.
Section 7 provides a timeline for the
formulation and publication of the
macroeconomic assumptions and market
shocks.
3. Content of the Stress Test Scenarios
(a) The Board will publish a minimum of
two different scenarios, including baseline
and severely adverse conditions, for use in
stress tests required in the stress test rules.7
In general, the Board anticipates that it will
not issue additional scenarios. Specific
circumstances or vulnerabilities that in any
given year the Board determines require
particular vigilance to ensure the resilience
of the banking sector will be captured in the
severely adverse scenario. A greater number
of scenarios could be needed in some years—
for example, because the Board identifies a
large number of unrelated and uncorrelated
but nonetheless significant risks.
*
*
*
*
*
6 12 CFR 252.14(a), 12 CFR 252.44(a), 12 CFR
252.54(a).
7 12 CFR 252.14(b), 12 CFR 252.44(b), 12 CFR
252.54(b).
PO 00000
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3.2 Market Shock Component
(a) The market shock component of the
severely adverse scenario will only apply to
companies with significant trading activity
and their subsidiaries.10 The component
consists of large moves in market prices and
rates that would be expected to generate
losses. Market shocks differ from
macroeconomic scenarios in a number of
ways, both in their design and application.
For instance, market shocks that might
typically be observed over an extended
period (e.g., 6 months) are assumed to be an
instantaneous event which immediately
affects the market value of the companies’
trading assets and liabilities. In addition,
under the stress test rules, the as-of date for
market shocks will differ from the quarterend, and the Board will provide the as-of
date for market shocks no later than February
1 of each year. Finally, as described in
section 4, the market shock includes a much
larger set of risk factors than the set of
economic and financial variables included in
macroeconomic scenarios. Broadly, these risk
factors include shocks to financial market
variables that affect asset prices, such as a
credit spread or the yield on a bond, and, in
some cases, the value of the position itself
(e.g., the market value of private equity
positions).
*
*
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*
*
4. Approach for Formulating the
Macroeconomic Assumptions for Scenarios
(a) This section describes the Board’s
approach for formulating macroeconomic
assumptions for each scenario. The
methodologies for formulating this part of
each scenario differ by scenario, so these
methodologies for the baseline and severely
adverse scenarios are described separately in
each of the following subsections.
(b) In general, the baseline scenario will
reflect the most recently available consensus
views of the macroeconomic outlook
expressed by professional forecasters,
government agencies, and other public-sector
organizations as of the beginning of the
stress-test cycle. The severely adverse
scenario will consist of a set of economic and
financial conditions that reflect the
conditions of post-war U.S. recessions.
(c) Each of these scenarios is described
further in sections below as follows: Baseline
(subsection 4.1) and severely adverse
(subsection 4.2)
4.1 Approach for Formulating
Macroeconomic Assumptions in the Baseline
Scenario
(a) The stress test rules define the baseline
scenario as a set of conditions that affect the
10 Currently, companies with significant trading
activity include any bank holding company or
intermediate holding company that (1) has
aggregate trading assets and liabilities of $50 billion
or more, or aggregate trading assets and liabilities
equal to 10 percent or more of total consolidated
assets, and (2) is not a large and noncomplex firm.
The Board may also subject a state member bank
subsidiary of any such bank holding company to
the market shock component. The set of companies
subject to the market shock component could
change over time as the size, scope, and complexity
of financial company’s trading activities evolve.
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U.S. economy or the financial condition of a
banking organization, and that reflect the
consensus views of the economic and
financial outlook. Projections under a
baseline scenario are used to evaluate how
companies would perform in more likely
economic and financial conditions. The
baseline serves also as a point of comparison
to the severely adverse scenario, giving some
sense of how much of the company’s capital
decline could be ascribed to the scenario as
opposed to the company’s capital adequacy
under expected conditions.
5. Approach for Formulating the Market
Shock Component
4.2 Approach for Formulating the
Macroeconomic Assumptions in the Severely
Adverse Scenario
The stress test rules define a severely
adverse scenario as a set of conditions that
affect the U.S. economy or the financial
condition of a financial company and that
overall are significantly more severe than
those associated with the baseline scenario.
The financial company will be required to
publicly disclose a summary of the results of
its stress test under the severely adverse
scenario, and the Board intends to publicly
disclose the results of its analysis of the
financial company under the severely
adverse scenario.
(a) This section discusses the approach the
Board proposes to adopt for developing the
market shock component of the severely
adverse scenario appropriate for companies
with significant trading activities. The design
and specification of the market shock
component differs from that of the
macroeconomic scenarios because profits and
losses from trading are measured in mark-tomarket terms, while revenues and losses from
traditional banking are generally measured
using the accrual method. As noted above,
another critical difference is the timeevolution of the market shock component.
The market shock component consists of an
instantaneous ‘‘shock’’ to a large number of
risk factors that determine the mark-tomarket value of trading positions, while the
macroeconomic scenarios supply a projected
path of economic variables that affect
traditional banking activities over the entire
planning period.
(b) The development of the market shock
component that are detailed in this section
are as follows: Baseline (subsection 5.1) and
severely adverse (subsection 5.2).
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5.2.2
59123
Approaches to Market Shock Design
(a) As an additional component of the
severely adverse scenario, the Board plans to
use a standardized set of market shocks that
apply to all companies with significant
trading activity. The market shocks could be
based on a single historical episode, multiple
historical periods, hypothetical (but
plausible) events, or some combination of
historical episodes and hypothetical events
(hybrid approach). Depending on the type of
hypothetical events, a scenario based on such
events may result in changes in risk factors
that were not previously observed. In the
supervisory scenarios for 2012 and 2013, the
shocks were largely based on relative moves
in asset prices and rates during the second
half of 2008, but also included some
additional considerations to factor in the
widening of spreads for European sovereigns
and financial companies based on actual
observation during the latter part of 2011.
*
*
*
*
*
By order of the Board of Governors of the
Federal Reserve System.
Ann Misback,
Secretary of the Board.
[FR Doc. 2019–23662 Filed 10–31–19; 8:45 am]
BILLING CODE 6210–01–P
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]]>Agencies
[Federal Register Volume 84, Number 212 (Friday, November 1, 2019)]
[Rules and Regulations]
[Pages 59032-59123]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-23662]
[[Page 59031]]
Vol. 84
Friday,
No. 212
November 1, 2019
Part IV
Federal Reserve System
-----------------------------------------------------------------------
12 CFR Parts 217, 225, 238, et al.
Prudential Standards for Large Bank Holding Companies, Savings and
Loan Holding Companies, and Foreign Banking Organizations; Final Rule
Federal Register / Vol. 84 , No. 212 / Friday, November 1, 2019 /
Rules and Regulations
[[Page 59032]]
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FEDERAL RESERVE SYSTEM
12 CFR Parts 217, 225, 238, 242, and 252
[Regulations Q, Y, LL, PP, and YY; Docket No. R-1658]
RIN 7100-AF 45
Prudential Standards for Large Bank Holding Companies, Savings
and Loan Holding Companies, and Foreign Banking Organizations
AGENCY: Board of Governors of the Federal Reserve System (Board).
ACTION: Final rule.
-----------------------------------------------------------------------
SUMMARY: The Board of Governors of the Federal Reserve System (Board)
is adopting a final rule that establishes risk-based categories for
determining prudential standards for large U.S. banking organizations
and foreign banking organizations, consistent with 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
(EGRRCPA), and with the Home Owners' Loan Act. The final rule amends
certain prudential standards, including standards relating to
liquidity, risk management, stress testing, and single-counterparty
credit limits, to reflect the risk profile of banking organizations
under each category; applies prudential standards to certain large
savings and loan holding companies using the same categories; makes
corresponding changes to reporting forms; and makes additional
modifications to the Board's company-run stress test and supervisory
stress test rules, consistent with section 401 of EGRRCPA. Separately,
the Office of the Comptroller of the Currency (OCC), the Board, and the
Federal Deposit Insurance Corporation (FDIC) are adopting a final rule
that revises the criteria for determining the applicability of
regulatory capital and standardized liquidity requirements for large
U.S. banking organizations and the U.S. intermediate holding companies
of foreign banking organizations, using a risk-based category framework
that is consistent with the framework described in this final rule. In
addition, the Board and the FDIC are separately adopting a final rule
that amends the resolution planning requirements under section 165(d)
of the Dodd-Frank Wall Street Reform and Consumer Protection Act using
a risk-based category framework that is consistent with the framework
described in this final rule.
DATES: The final rule is effective December 31, 2019.
FOR FURTHER INFORMATION CONTACT: Constance M. Horsley, Deputy
Associate Director, (202) 452-5239; Elizabeth MacDonald, Manager, (202)
475-6216; Peter Goodrich, Lead Financial Institution Policy Analyst,
(202) 872-4997; Mark Handzlik, Lead Financial Institution Policy
Analyst, (202) 475-6636; Kevin Littler, Lead Financial Institution
Policy Analyst, (202) 475-6677; Althea Pieters, Lead Financial
Institution Policy Analyst, (202) 452-3397; Peter Stoffelen, Lead
Financial Institution Policy Analyst, (202) 912-4677; Hillel Kipnis,
Senior Financial Institution Policy Analyst II, (202) 452-2924; Matthew
McQueeney, Senior Financial Institution Policy Analyst II, (202) 452-
2942; Christopher Powell, Senior Financial Institution Policy Analyst
II, (202) 452-3442, Division of Supervision and Regulation; or Asad
Kudiya, Senior Counsel, (202) 475-6358; Jason Shafer, Senior Counsel
(202) 728-5811; Mary Watkins, Senior Attorney (202) 452-3722; Laura
Bain, Counsel, (202) 736-5546; 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. For the hearing impaired
only, Telecommunication Device for the Deaf (TDD), (202) 263-4869.
SUPPLEMENTARY INFORMATION:
Table of Contents
I. Introduction
II. Background
III. Overview of the Notices of Proposed Rulemaking and General
Summary of Comments
IV. Overview of Final Rule
V. Tailoring Framework
A. Indicators-Based Approach and the Alternative Scoring
Methodology
B. Dodd-Frank Act Statutory Framework
C. Choice of Risk-Based Indicators
D. Application of Standards Based on the Proposed Risk-Based
Indicators
E. Calibration of Thresholds and Indexing
F. The Risk-Based Categories
G. Specific Aspects of the Foreign Bank Proposal--Treatment of
Inter-Affiliate Transactions
H. Determination of Applicable Category of Standards
VI. Prudential Standards for Large U.S. and Foreign Banking
Organizations
A. Category I Standards
B. Category II Standards
C. Category III Standards
D. Category IV Standards
VII. Single-Counterparty Credit Limits
VIII. Covered Savings and Loan Holding Companies
IX. Risk Management and Risk Committee Requirements
X. Enhanced Prudential Standards for Foreign Banking Organizations
With a Smaller U.S. Presence
XI. Technical Changes to the Regulatory Framework for Foreign
Banking Organizations and Domestic Banking Organizations
XII. Changes to Liquidity Buffer Requirements
XIII. Changes to Company-Run Stress Testing Requirements for State
Member Banks, Removal of the Adverse Scenario, and Other Technical
Changes Proposed in January 2019
A. Minimum Asset Threshold for State Member Banks
B. Frequency of Stress Testing for State Member Banks
C. Removal of ``Adverse'' Scenario
D. Review by Board of Directors
E. Scope of Applicability for Savings and Loan Holding Companies
XIV. Changes to Dodd-Frank Definitions
XV. Reporting Requirements
A. FR Y-14
B. FR Y-15
C. FR 2052a
D. Summary of Reporting Effective Dates
XVI. Impact Assessment
A. Liquidity
B. Stress Testing
C. Single-Counterparty Credit Limits
D. Covered Savings and Loan Holding Companies
XVII. Administrative Law Matters
A. Paperwork Reduction Act Analysis
B. Regulatory Flexibility Act Analysis
C. Riegle Community Development and Regulatory Improvement Act
of 1994
I. Introduction
In 2018 and 2019, the Board of Governors of the Federal Reserve
System (Board) sought comment on two separate proposals to revise the
framework for determining application of prudential standards to large
banking organizations. First, on October 31, 2018, the Board sought
comment on a proposal to revise the criteria for determining the
application of prudential standards for U.S. banking organizations with
$100 billion or more in total consolidated assets (domestic
proposal).\1\ Then, on April 8, 2019, the Board sought comment on a
proposal to revise the criteria for determining the application of
prudential standards for foreign banking organizations with total
consolidated assets of $100 billion or more (foreign bank proposal,
and, together with the domestic proposal, the proposals).\2\
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\1\ See https://www.federalreserve.gov/newsevents/pressreleases/bcreg20181031a.htm; Prudential Standards for Large Bank Holding
Companies and Savings and Loan Holding Companies, 83 FR 61408 (Nov.
29, 2018).
\2\ See https://www.federalreserve.gov/newsevents/pressreleases/bcreg20190408a.htm; Prudential Standards for Large Foreign Banking
Organizations; Revisions to Proposed Prudential Standards for Large
Domestic Bank Holding Companies and Savings and Loan Holding
Companies, 84 FR 21988 (May 15, 2019). 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. 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).
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[[Page 59033]]
The Board is finalizing the framework set forth under the
proposals, with certain adjustments.\3\ Specifically, the final rule
revises the thresholds for application of prudential standards to large
banking organizations and tailors the stringency of these standards
based on the risk profiles of these firms. For U.S. banking
organizations with $100 billion or more in total consolidated assets
and foreign banking organizations with $100 billion or more in combined
U.S. assets, the final rule establishes four categories of prudential
standards. The most stringent set of standards (Category I) applies to
U.S. global systemically important bank holding companies (U.S. GSIBs)
based on the methodology in the Board's GSIB surcharge rule.\4\ The
remaining categories of standards apply to U.S. and foreign banking
organizations based on indicators of a firm's size, cross-
jurisdictional activity, weighted short-term wholesale funding, nonbank
assets, and off-balance sheet exposure. The framework set forth in the
final rule will be used throughout the Board's prudential standards
framework for large banking organizations.
---------------------------------------------------------------------------
\3\ On January 8, 2019, the Board also issued a proposal that
would revise the stress testing requirements that were proposed in
the domestic proposal for certain savings and loan holding
companies. See https://www.federalreserve.gov/newsevents/pressreleases/bcreg20190108a.htm; Regulations LL and YY; Amendments
to the Company-Run and Supervisory Stress Test Rules, 84 FR 4002
(Feb. 19, 2019). This final rule adopts those proposed changes, with
certain adjustments.
\4\ 12 CFR 217.403.
---------------------------------------------------------------------------
In connection with a proposal on which the Board sought comment in
January 2019, and consistent with EGRRCPA, this final rule also revises
the minimum asset threshold for state member banks to conduct stress
tests, revises the frequency by which state member banks would be
required to conduct stress tests, and removes the adverse scenario from
the list of required scenarios in the Board's stress test rules. This
final rule also makes conforming changes to the Board's Policy
Statement on the Scenario Design Framework for Stress Testing.\5\
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\5\ See 12 CFR part 252, appendix A. The proposals would have
revised the scope of applicability of the capital plan rule to apply
to U.S. bank holding companies and U.S. intermediate holding
companies with $100 billion or more in assets. In addition, the
proposals would have revised the definition of large and noncomplex
bank holding company to mean banking organizations subject to
Category IV standards. The Board received a number of comments about
its capital requirements. While the Board intends separately to
propose modifications at a future date to capital planning
requirements to incorporate the proposed risk-based categories, the
final rule revises the scope of applicability of the Board's capital
plan rule to apply to U.S. bank holding companies and U.S.
intermediate holding companies with $100 billion or more in total
assets. This final rule does not revise the definition of large and
noncomplex bank holding company.
---------------------------------------------------------------------------
Concurrently with this final rule, the Board, with the Office of
the Comptroller of the Currency (OCC) and Federal Deposit Insurance
Corporation (FDIC) (together, the agencies), is separately finalizing
amendments to the agencies' regulatory capital rule and liquidity
coverage ratio (LCR) rule, to introduce the same risk-based categories
for tailoring standards (the interagency capital and liquidity final
rule). The Board and FDIC are also finalizing changes to the resolution
planning requirements (resolution plan final rule) that would adopt the
same risk-based category framework.
II. 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. To address weaknesses in the banking
sector that were evident in the financial crisis, the Board
strengthened prudential standards for large U.S. and foreign banking
organizations. These enhanced standards included capital planning
requirements; supervisory and company-run stress testing; liquidity
risk management, stress testing, and buffer requirements; and single-
counterparty credit limits. The Board's enhanced standards also
implemented section 165 of the Dodd-Frank Wall Street Reform and
Consumer Protection Act (Dodd-Frank Act), which directed the Board to
establish enhanced prudential standards for bank holding companies and
foreign banking organizations with total consolidated assets of $50
billion or more.\6\
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\6\ 12 U.S.C. 5365.
---------------------------------------------------------------------------
The Board has calibrated the stringency of requirements based on
the size and complexity of a banking organization. Regulatory capital
requirements, such as the GSIB capital surcharge, advanced approaches
capital requirements, enhanced supplementary leverage ratio standards
for U.S. GSIBs,\7\ as well as the requirements under the capital plan
rule,\8\ are examples of this tailoring.\9\ For foreign banking
organizations, the Board tailored enhanced 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 generally apply
to its combined U.S. operations.\10\
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\7\ 12 CFR 217.11.
\8\ 12 CFR 225.8.
\9\ For example, prior to the adoption of this final rule,
heightened capital requirements and full LCR requirements applied to
firms with $250 billion or more in total consolidated assets or $10
billion or more in on-balance sheet foreign exposure, including the
requirement to calculate regulatory capital requirements using
internal models and meeting a minimum supplementary leverage ratio
requirement.
\10\ The combined U.S. operations of a foreign banking
organization include any U.S. subsidiaries (including any U.S.
intermediate holding company), U.S. branches, and U.S. agencies.
---------------------------------------------------------------------------
The Board regularly reviews its regulatory framework to update and
streamline regulatory requirements based on its experience implementing
the rules and consistent with the statutory provisions that motivated
the rules. These efforts include assessing the impact of regulations as
well as considering alternatives that achieve regulatory objectives
while improving the simplicity, transparency, and efficiency of the
regulatory regime. The final rule is the result of this practice and
reflects amendments to section 165 of the Dodd-Frank Act made by the
Economic Growth, Regulatory Relief, and Consumer Protection Act
(EGRRCPA).\11\
---------------------------------------------------------------------------
\11\ Public Law 115-174, 132 Stat. 1296 (2018).
---------------------------------------------------------------------------
Specifically, EGRRCPA amended section 165 of the Dodd-Frank Act by
raising the threshold for general application of enhanced prudential
standards. By taking into consideration a broader range of risk-based
indicators and establishing four categories of standards, the final
rule enhances the risk sensitivity and efficiency of the Board's
regulatory framework. This approach better aligns the prudential
standards applicable to large banking organizations with their risk
profiles, taking into account the size and complexity of these banking
organizations as well as their potential
[[Page 59034]]
to pose systemic risk. The final rule also maintains the fundamental
reforms of the post-crisis framework and supports large banking
organizations' resilience.
III. Overview of the Notices of Proposed Rulemaking and General Summary
of Comments
As noted above, the Board sought comment on two separate proposals
to establish a framework for determining the prudential standards that
would apply to large banking organizations. Specifically, the proposals
would have calibrated requirements for large banking organizations
using four risk-based categories. Category I would have been based on
the methodology in the Board's GSIB surcharge rule for identification
of U.S. GSIBs, while Categories II through IV would have been based on
measures of size and the levels of the following indicators: Cross-
jurisdictional activity, weighted short-term wholesale funding, nonbank
assets, and off-balance sheet exposure (together with size, the risk-
based indicators). The applicable standards would have included
supervisory and company-run stress testing; risk committee and risk
management requirements; liquidity risk management, stress testing, and
buffer requirements; and single-counterparty credit limits. 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 have been 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.
The proposals would have applied to U.S. banking organizations,
foreign banking organizations, and certain large savings and loan
holding companies using the same categories, with some differences
particular to foreign banking organizations. Specifically, while the
foreign bank proposal was largely consistent with the domestic
proposal, it would have included certain adjustments to reflect the
unique structures through which foreign banking organizations operate
in the United States. As Category I standards under the domestic
proposal would have applied only to U.S. GSIBs, foreign banking
organizations would have been subject to standards in Categories II,
III, or IV. The foreign bank proposal based the requirements of
Categories II, III, and IV on the risk profile of a foreign banking
organization's combined U.S. operations or U.S. intermediate holding
company, as measured by the level of the same risk-based indicators as
under the domestic proposal. However, in order to reflect the
structural differences between foreign banking organizations'
operations in the United States and domestic holding companies, the
foreign bank proposal would have adjusted the measurement of cross-
jurisdictional activity to exclude inter-affiliate liabilities and to
recognize collateral in calculating inter-affiliate claims.
A. General Summary of Comments
The Board received approximately 50 comments on the proposals from
U.S. and foreign banking organizations, public entities, public
interest groups, private individuals, and other interested parties.\12\
Many commenters supported the proposals as meaningfully tailoring
prudential standards. A number of commenters, however, expressed the
view that the proposed framework would not have sufficiently aligned
the Board's prudential standards with the risk profile of a firm. For
example, some commenters on the domestic proposal argued that banking
organizations with total consolidated assets of less than $250 billion
that do not meet a separate indicator of risk should not be subject to
any enhanced standards. Some commenters on both proposals argued that
proposed Category II standards were too stringent given the risks
indicated by a high level of cross-jurisdictional activity. By
contrast, other commenters argued that the proposals would weaken the
safety and soundness of large banking organizations and increase risks
to U.S. financial stability.
---------------------------------------------------------------------------
\12\ The Board received a number of comments that were not
specifically responsive to the proposals. In particular, commenters
recommended specific changes related to the Board's supervisory
stress test scenarios and stress capital buffer proposal. These
comments are not within the scope of this rulemaking, and therefore
are not discussed separately in this Supplementary Information.
---------------------------------------------------------------------------
In response to the foreign bank proposal, commenters generally
argued that the framework remained too stringent for the risks posed by
foreign banking organizations. These commenters also argued that the
risk-based indicators would disproportionately and unfairly result in
the application of more stringent requirements to foreign banking
organizations and, as a result, could disrupt the efficient functioning
of financial markets and have negative effects on the U.S. economy. A
number of these commenters argued that all risk-based indicators should
exclude transactions with affiliates. By contrast, other commenters
criticized the foreign bank proposal for reducing the stringency of
standards and argued that the proposal understated the financial
stability risks posed by foreign banking organizations.
While some commenters argued that the proposed changes went beyond
the changes mandated by EGRRCPA, other commenters argued that the
proposals did not fully implement EGRRCPA. In addition, several
commenters argued that the proposal exceeded the Board's authority
under section 165 of the Dodd-Frank Act, as amended by EGRRCPA, and
that enhanced standards should not be included in Category IV standards
or applied to savings and loan holding companies. Foreign banking
organization commenters also argued that the proposals did not
adequately take into consideration the principle of national treatment
and equality of competitive opportunity, or the extent to which a
foreign banking organization is subject on a consolidated basis to home
country standards that are comparable to those that are applied to the
firm in the United States. As discussed in this SUPPLEMENTARY
INFORMATION, the final rule largely adopts the proposals, with certain
adjustments in response to comments.
IV. Overview of Final Rule
The final rule establishes four categories to apply enhanced
standards based on indicators designed to measure the risk profile of a
banking organization.\13\ The prudential standards are applicable to
U.S. bank holding companies, certain savings and loan holding
companies, and foreign banking organizations. For U.S. banking
organizations and savings and loan holding companies that are not
substantially engaged in insurance underwriting or commercial
activities (covered savings and loan holding companies), these risk-
based indicators are measured at the level of the top-tier holding
company. For foreign banking organizations, these risk-based indicators
are generally measured at the level of such firms' combined U.S.
operations, except for supervisory and company-run stress testing
requirements and certain single-counterparty credit limits, which are
based on the risk profile of such firms' U.S. intermediate holding
companies. In addition, as discussed in the interagency capital and
liquidity final rule, regulatory capital and LCR requirements also are
based on the risk profile of such firms' U.S. intermediate holding
company.
---------------------------------------------------------------------------
\13\ The final rule also increases the threshold for general
application of enhanced prudential standards from $50 billion to
$100 billion in total consolidated assets.
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[[Page 59035]]
Under the final rule, and unchanged from the domestic proposal, the
most stringent prudential standards apply to U.S. GSIBs under Category
I, as these banking organizations have the potential to pose the
greatest risks to U.S. financial stability. Category I includes
standards that reflect agreements reached by the Basel Committee on
Banking Supervision (BCBS).\14\ The existing post-financial crisis
framework for U.S. GSIBs has resulted in significant gains in
resiliency and risk management. The final rule accordingly maintains
the most stringent standards for these firms. For example, U.S. GSIBs
are subject to the GSIB capital surcharge and enhanced supplementary
leverage ratio standards under the agencies' regulatory capital rule.
U.S. GSIBs are also subject to the most stringent stress testing
requirements, including annual company-run and supervisory stress
testing requirements, as well as the most stringent liquidity
standards, including liquidity risk management, stress testing and
buffer requirements, as well as single-counterparty credit limits. U.S.
GSIBs also will remain subject to the most comprehensive reporting
requirements, including the FR Y-14 (capital assessments and stress
testing) and daily FR 2052a (complex institution liquidity monitoring
report) reporting requirements.
---------------------------------------------------------------------------
\14\ International standards reflect agreements reached by the
BCBS as implemented in the United States through notice and comment
rulemaking.
---------------------------------------------------------------------------
The second set of standards, Category II standards, apply to U.S.
banking organizations and foreign banking organizations that have $700
billion or more in total assets,\15\ or $75 billion or more in cross-
jurisdictional activity, and that do not meet the criteria for Category
I. As a result, these standards apply to banking organizations that are
very large or have significant international activity. In addition to
being subject to current enhanced risk-management requirements, banking
organizations subject to Category II standards are subject to annual
supervisory stress testing and annual company-run stress testing
requirements. These banking organizations also are subject to the FR Y-
14 and daily FR 2052a reporting requirements and the most stringent
liquidity risk management, stress testing, and buffer requirements.
Category II standards also include single-counterparty credit limits.
---------------------------------------------------------------------------
\15\ Category I-IV standards apply to U.S. banking organizations
with $100 billion or more in total consolidated assets and foreign
banking organizations with $100 billion or more in combined U.S
assets. As discussed above, the risk-based indicators are measured
at the level of the top-tier holding company for U.S. banking
organizations and at the level of combined U.S. operations or U.S.
intermediate holding company for foreign banking organizations.
Accordingly, for U.S. banking organizations, total assets means
total consolidated assets. For foreign banking organizations, total
assets means combined U.S. assets or total consolidated assets of
the U.S. intermediate holding company, as applicable. Foreign
banking organizations with $100 billion or more in total
consolidated assets but with combined U.S. assets of less than $100
billion are subject to less stringent standards than required under
Category I-IV. See section X of this SUPPLEMENTARY INFORMATION.
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The third set of standards, Category III standards, apply to U.S.
banking organizations and foreign banking organizations that have $250
billion or more in total assets, or $75 billion or more in weighted
short-term wholesale funding, nonbank assets, or off-balance sheet
exposure, and that do not meet the criteria for Category I or II. In
addition to being subject to current enhanced risk management
requirements, a banking organization subject to Category III standards
is subject to annual supervisory stress testing. However, under
Category III, a banking organization is required to publicly disclose
company-run test results every other year, rather than on an annual
basis. These banking organizations are subject to the existing FR Y-14
reporting requirements and the most stringent liquidity risk
management, stress testing, and buffer requirements. Under Category III
standards, banking organizations are subject to daily or monthly FR
2052a reporting requirements, depending on their levels of weighted
short-term wholesale funding. Category III standards also include
single-counterparty credit limits.
The fourth category, Category IV standards, apply to U.S. banking
organizations and foreign banking organizations that have at least $100
billion in total assets and that do not meet the criteria for Category
I, II, or III, as applicable. Category IV standards align with the
scale and complexity of these banking organizations but are less
stringent than Category I, II, or III standards, which reflects the
lower risk profile of these banking organizations relative to other
banking organizations with $100 billion or more in total assets. For
example, a banking organization subject to Category IV standards is
subject to supervisory stress testing every other year, and is not
required to conduct and publicly report the results of a company-run
stress test. In addition, Category IV standards under the final rule
continue to include enhanced liquidity standards, including liquidity
risk management, stress testing and buffer requirements, but the final
rule reduces the required minimum frequency of liquidity stress tests
and granularity of certain liquidity risk-management requirements,
commensurate with these firms' size and risk profile.
Table I--Scoping Criteria for Categories of Prudential Standards
------------------------------------------------------------------------
U.S. banking Foreign banking
Category organizations [dagger] organizations [Dagger]
------------------------------------------------------------------------
I................... U.S. GSIBs.............. N/A.
rrrrrrrrrrrrrrrrrrrrr
II.................. $700 billion or more in total assets; or $75
billion or more in cross-jurisdictional activity;
do not meet the criteria for Category I.
rrrrrrrrrrrrrrrrrrrrr
III................. $250 billion or more in total assets; or $75
billion or more in weighted short-term wholesale
funding, nonbank assets, or off-balance sheet
exposure; do not meet the criteria for Category I
or II.
rrrrrrrrrrrrrrrrrrrrr
IV.................. $100 billion or more in total assets; do not meet
the criteria for Category I, II, or III.
------------------------------------------------------------------------
[dagger] For a U.S. banking organization, the applicable category of
prudential requirements is measured at the level of the top-tier
holding company.
[Dagger] For a foreign banking organization, the applicable category of
prudential requirements is measured at the level of the combined U.S.
operations or U.S. intermediate holding company of the foreign banking
organization, depending on the particular standard.
V. Tailoring Framework
This section describes the framework for determining the
application of prudential standards under this final rule, including a
discussion of comments received on the proposed framework. The final
rule largely establishes the framework set forth in the proposals and
introduces four
[[Page 59036]]
categories of prudential standards based on certain indicators of risk.
A. Indicators-Based Approach and the Alternative Scoring Methodology
The proposals would have established four categories of prudential
standards that would have applied to U.S banking organizations with
$100 billion or more in total consolidated assets and three categories
of prudential standards that would have applied to foreign banking
organizations with $100 billion or more in combined U.S. assets, based
on the risk profile of their U.S. operations. The proposals generally
would have relied on five risk-based indicators to determine a banking
organization's applicable category of standards: Size, cross-
jurisdictional activity, nonbank assets, off-balance sheet exposure,
and weighted short-term wholesale funding. The proposals also sought
comment on an alternative approach that would have used a single,
comprehensive score based on the GSIB identification methodology, which
is currently used to identify U.S. GSIBs and apply risk-based capital
surcharges to these banking organizations (scoring methodology).\16\
Under the alternative approach, a banking organization's size and score
from the scoring methodology would have been used to determine which
category of standards would apply to the banking organization.
---------------------------------------------------------------------------
\16\ For more discussion relating to the scoring methodology,
see the Board's final rule establishing the GSIB identification
methodology. See Regulatory Capital Rules: Implementation of Risk-
Based Capital Surcharges for Global Systemically Important Bank
Holding Companies, 80 FR 49082 (Aug. 14, 2015).
---------------------------------------------------------------------------
Most commenters preferred the proposed indicators-based approach to
the scoring methodology for determining the category of standards that
would apply to large banking organizations. These commenters stated
that the indicators-based approach would be more transparent, less
complex, and more appropriate for applying categories of standards to
banking organizations that are not U.S. GSIBs. Some commenters also
asserted that if the Board used the scoring methodology, the Board
should use only method 1. These commenters argued that method 2 would
be inappropriate for determining applicable prudential standards on the
basis that the denominators to method 2 are fixed, rather than being
updated annually. Commenters also asserted that method 2 was calibrated
specifically for U.S. GSIBs and, as a result, should not be used to
determine prudential standards for other banking organizations.
The final rule adopts the indicators-based approach for applying
Category II, III, or IV standards to a banking organization, as this
approach provides a simple framework that supports the objectives of
risk sensitivity and transparency. Many of the risk-based indicators
are used in the agencies' existing regulatory frameworks or are
reported by banking organizations. By using indicators that exist or
are reported by most banking organizations subject to the final rule,
the indicators-based approach limits additional reporting requirements.
The Board will continue to use the scoring methodology to apply
Category I standards to a U.S. GSIB and its depository institution
subsidiaries.\17\
---------------------------------------------------------------------------
\17\ See the interagency capital and liquidity final rule for
application of Category I liquidity and capital standards to
depository institution subsidiaries of U.S. GSIBs.
---------------------------------------------------------------------------
B. Dodd-Frank Act Statutory Framework
The Board received a number of comments discussing the scope of the
changes required by EGRRCPA and the Board's authority for implementing
certain parts of the proposal. Some commenters argued that EGRRCPA did
not require the Board to make any changes to prudential standards
applied to bank holding companies and foreign banking organizations
with $100 billion or more in total consolidated assets. Conversely,
other commenters argued that, in passing EGRRCPA, Congress intended for
banking organizations with less than $250 billion in total consolidated
assets to be exempt from most enhanced prudential standards under
section 165 of the Dodd-Frank Act. These commenters argued that the
proposal was not consistent with the revised criteria for applying
enhanced prudential standards to bank holding companies with between
$100 billion and $250 billion in total consolidated assets provided
under section 165(a)(2)(C) of the Dodd-Frank Act. Specifically,
commenters argued that EGRRCPA does not permit the Board to apply
enhanced prudential standards to a bank holding company with $100
billion or more in total consolidated assets if the bank holding
company does not meet a risk-based indicator other than size. Some
commenters urged the Board to apply enhanced prudential standards on a
case-by-case basis. Foreign banking organization commenters argued that
the proposals did not give adequate regard to the principle of national
treatment and equality of competitive opportunity. These commenters
also argued that the proposals did not appropriately account for home
country standards applied to the foreign parent or the capacity of the
foreign parent to serve as a source of strength during times of stress.
To provide greater recognition of home country standards and parental
support, foreign banking organization commenters asserted that
standards applied to their U.S. operations should be discounted
relative to the standards applied to U.S. banking organizations.
Section 401 of EGRRCPA amended section 165 of the Dodd-Frank Act by
generally raising the minimum asset threshold for application of
prudential standards under section 165 from $50 billion in total
consolidated assets to $250 billion in total consolidated assets.\18\
However, the Board is required to apply certain enhanced prudential
standards to bank holding companies with less than $250 billion in
total consolidated assets. Specifically, the Board must conduct
periodic supervisory stress tests of bank holding companies with total
consolidated assets equal to or greater than $100 billion and less than
$250 billion,\19\ and must require publicly traded bank holding
companies with $50 billion or more in total consolidated assets to
establish a risk committee.\20\ In addition, section 165(a)(2)(C) of
the Dodd-Frank Act authorizes the Board to apply enhanced prudential
standards to bank holding companies with $100 billion or more, but less
than $250 billion, in total consolidated assets, provided that the
Board (1) determines that application of the prudential standard is
appropriate to prevent or mitigate risks to the financial stability of
the United States, or to promote the safety and soundness of a bank
holding company or bank holding companies; and (2) takes into
consideration a bank holding company's or bank holding companies'
capital structure, riskiness, complexity, financial activities
(including financial activities of subsidiaries), size, and any other
risk-
[[Page 59037]]
related factors that the Board of Governors deems appropriate.\21\
Section 165(a)(2)(C) permits the Board to apply any enhanced prudential
standard or standards to an individual bank holding company and also
permits the Board to apply enhanced prudential standards to a class of
bank holding companies. Similarly, in tailoring the application of
enhanced prudential standards, section 165 provides the Board with
discretion in differentiating among companies on an individual basis or
by category.\22\ Finally, in applying section 165 to foreign banking
organizations, the Dodd-Frank Act directs the Board to give due regard
to the principle of national treatment and equality of competitive
opportunity, and to take into account the extent to which the 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.
---------------------------------------------------------------------------
\18\ A bank holding company designated as a GSIB under the
Board's GSIB surcharge rule is subject to section 165, regardless of
its size. See EGRRCPA 401(f). The term bank holding company as used
in section 165 of the Dodd-Frank Act includes a foreign bank or
company treated as a bank holding company for purposes of the Bank
Holding Company Act, pursuant to section 8(a) of the International
Banking Act of 1978. See 12 U.S.C. 3106(a); 12 U.S.C. 5311(a)(1).
See also EGRRCPA 401(g) (regarding the Board's authority to
establish enhanced prudential standards for foreign banking
organizations with total consolidated assets of $100 billion or
more).
\19\ EGRRCPA 401(e). Pursuant to section 165(i)(1), the Board
must conduct an annual stress test of bank holding companies
described in section 165(a), and nonbank financial companies
designated for supervision by the Board. 12 U.S.C. 5365(i)(1).
\20\ 12 U.S.C. 5365(h)(2)(A).
\21\ 12 U.S.C. 5365(a)(2)(C). Section 401(a) of EGRRCPA amended
section 165 of the Dodd-Frank Act to add section 165(a)(2)(C).
\22\ 12 U.S.C. 5365(a)(2)(A).
---------------------------------------------------------------------------
The framework for application of enhanced prudential standards
established in this final rule is consistent with section 165 of the
Dodd-Frank Act, as amended by EGRRCPA. The framework takes into
consideration banking organizations' risk profiles by applying
prudential standards based on a banking organization's size, cross-
jurisdictional activity, nonbank assets, off-balance sheet exposure,
and weighted short-term wholesale funding. By evaluating the degree of
each risk-based indicator's presence at various thresholds, the
framework takes into account concentrations in various types of risk.
As explained below, the risk-based indicators were selected to measure
risks to both financial stability and safety and soundness, including a
bank holding company or bank holding companies' capital structure,
riskiness, complexity, and financial activities. Size is specifically
mentioned in section 165(a)(2)(C)(ii). By establishing categories of
standards that increase in stringency based on risk, the framework
would ensure that the Board's prudential standards align with the risk
profile of large banking organizations, supporting financial stability
and promoting safety and soundness.
Category IV standards apply if a banking organization reaches an
asset size threshold ($100 billion or more, as identified in the
statute) but does not meet the thresholds for the other risk-based
indicators. Size, as discussed below in section V.C.1 of this
Supplementary Information, provides a measure of the extent to which
stress at a banking organization's operations could be disruptive to
U.S. markets and present significant risks to U.S. financial stability.
Size also provides a measure of other types of risk, including
managerial and operational complexity. The presence of one factor and
absence of other factors suggests that prudential standards should
apply to this group of banking organizations, but with reduced
stringency to account for these organizations' reduced risk profiles.
In addition, as discussed above, the Board must apply periodic
supervisory stress testing and risk-committee requirements to
institutions of this size.
Under the final rule, the standards applied to the U.S. operations
of foreign banking organizations are consistent with the standards
applicable to U.S. bank holding companies. The standards also 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.
Specifically, the final rule would continue the Board's approach of
tailoring the application of prudential standards to foreign banking
organizations based on the foreign banking organization's U.S. risk
profile. For a foreign banking organization with a smaller U.S.
presence, the final rule would largely defer to the foreign banking
organization's compliance with home-country capital and liquidity
standards at the consolidated level, and impose certain risk-management
requirements that are specific to the U.S. operations of a foreign
banking organization. For foreign banking organizations with
significant U.S. operations, the final rule would apply a framework
that is consistent with the framework applied to U.S. banking
organizations. By using consistent indicators of risk, the final rule
facilitates a level playing field between foreign and U.S. banking
organizations operating in the United States, in furtherance of the
principle of national treatment and equality of competitive
opportunity. Differences in the measurement of risk-based indicators
and in the application of standards between foreign banking
organizations and U.S. banking organizations takes into account
structural differences in operation and organization of foreign banking
organizations, as well as the standards to which the foreign banking
organization on a consolidated basis may be subject. For example, the
cross-jurisdictional activity indicator excludes liabilities of the
combined U.S. operations, or U.S. intermediate holding company, to non-
U.S. affiliates, which recognizes the benefit of the foreign banking
organization providing support to its U.S. operations.
Commenters also raised questions over the Board's legal authority
to apply prudential standards to covered savings and loan holding
companies. These comments are addressed in Section VIII of this
Supplementary Information.
C. Choice of Risk-Based Indicators
To determine the applicability of the Category II, III, or IV
standards, the proposals considered a banking organization's level of
five risk-based indicators: Size, cross-jurisdictional activity,
weighted short-term wholesale funding, nonbank assets, and off-balance
sheet exposure.
The Board received a number of comments on the choice of risk-based
indicators and suggested modifications to the calculation of the
indicators. Several commenters expressed the general view that the
proposed risk-based indicators were poor measures of risk. A number of
these commenters also asserted that the Board did not provide
sufficient justification to support the proposed risk-based indicators,
and requested that the Board provide additional explanation regarding
its selection. Commenters also asserted that the framework should take
into consideration additional risk-mitigating characteristics when
measuring the proposed risk-based indicators. Several other commenters
argued that the proposals are too complex and at odds with the stated
objective of simplicity and burden reduction.
By considering the relative presence or absence of each risk-based
indicator, the proposals would have provided a basis for assessing a
banking organization's financial stability and safety and soundness
risks. The risk-based indicators generally track measures already used
in the Board's existing regulatory framework and that are already
publicly reported by affected banking organizations.\23\ Together with
fixed, uniform thresholds, use of the
[[Page 59038]]
indicators supports the Board's objectives of transparency and
efficiency, while providing for a framework that enhances the risk-
sensitivity of the Board's enhanced prudential standards in a manner
that continues to allow for comparability across banking organizations.
Risk-mitigating factors, such as a banking organization's high-quality
liquid assets and the presence of collateral to secure an exposure, are
incorporated into the enhanced standards to which the banking
organization is subject.
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\23\ Bank holding companies, covered savings and loan holding
companies, and U.S. intermediate holding companies subject to this
final rule already report the information required to determine
size, weighted short-term wholesale funding, and off-balance sheet
exposure on the Banking Organization Systemic Risk Report (FR Y-15).
Such bank holding companies and covered savings and loan holding
companies also currently report the information needed to calculate
cross-jurisdictional activity on the FR Y-15. Nonbank assets are
reported on the FR Y-9 LP. This information is publicly available.
---------------------------------------------------------------------------
One commenter asserted that an analysis of the proposed risk-based
indicators based on a measure of the expected capital shortfall of a
banking organization in the event of a steep equity market decline
(SRISK) \24\ demonstrated that only the cross-jurisdictional activity
and weighted short-term wholesale funding indicators were positively
correlated with SRISK while the other indicators were not important
drivers of a banking organization's SRISK measures. Because SRISK is
conditioned on a steep decline in equity markets, it does not capture
the probability of a financial crisis or an idiosyncratic failure of a
large banking organization. In addition, SRISK does not directly
capture other important aspects of systemic risk, such as a banking
organization's interconnectedness with other financial market
participants. For these reasons, SRISK alone is not a sufficient means
of determining the risk-based indicators used in the tailoring
framework.
---------------------------------------------------------------------------
\24\ For the definition and measurement of SRISK, see Acharya,
V., Engle, R. and Richardson, M., 2012. Capital shortfall: A new
approach to ranking and regulating systemic risks. American Economic
Review, 102(3), pp.59-64, and see Brownlees, Christian, and Robert
F. Engle (2017). ``SRISK: A conditional capital shortfall measure of
systemic risk.'' The Review of Financial Studies 30.1 (2016): 48-79.
---------------------------------------------------------------------------
Accordingly and as discussed below, the Board is adopting the risk-
based indicators as proposed.
1. Size
The proposals would have considered size in tailoring the
application of enhanced standards to a domestic banking organization or
the U.S. operations of a foreign banking organization.
Some commenters argued that the proposals placed too much reliance
on size for determining the prudential standards applicable to large
banking organizations. These commenters generally criticized the size
indicator as not sufficiently risk sensitive and a poor measure of
systemic and safety and soundness risk, and suggested using risk-
weighted assets, as determined under the regulatory capital rule,
rather than total consolidated assets or combined U.S. assets, as
applicable. Several commenters argued that the proposals did not
adequately explain the relationship between size and safety and
soundness risk, particularly risks associated with operational or
control gaps.
Other commenters, however, supported the use of size as a measure
of financial stability and safety and soundness risk. These commenters
asserted that size serves as an indicator of credit provision that
could be disrupted in times of stress, as well as the difficulties
associated with the resolution of a large banking organization. These
commenters also recommended placing additional emphasis on size for
purposes of tailoring prudential standards, and expressed the view that
the size indicator is less susceptible to manipulation through
temporary adjustments at the end of a reporting period as compared to
the other risk-based indicators.
Section 165 of the Dodd-Frank Act, as amended by EGRRCPA,
establishes thresholds based on total consolidated assets.\25\ Size is
also among the factors that the Board must take into consideration in
differentiating among banking organizations under section 165.\26\ A
banking organization's size provides a measure of the extent to which
stress at its operations could be disruptive to U.S. markets and
present significant risks to U.S. financial stability. A larger banking
organization has a greater number of customers and counterparties that
may be exposed to a risk of loss or suffer a disruption in the
provision of services if the banking organization were to experience
distress. In addition, size is an indicator of the extent to which
asset fire sales by a banking organization could transmit distress to
other market participants, given that a larger banking organization has
more counterparties and more assets to sell. The failure of a large
banking organization in the United States also may give rise to
challenges that complicate the resolution process due to the size and
diversity of its customer base and the number of counterparties that
have exposure to the banking organization.
---------------------------------------------------------------------------
\25\ See generally 12 U.S.C. 5635 and EGRRCPA section 401.
\26\ EGRRCPA Sec. 401(a)(1)(B)(i) (codified at 12 U.S.C.
5365(a)(2)(A)). The Board has also previously used size as a simple
measure of a banking organization's potential systemic impact and
risk, and have differentiated the stringency of capital and
liquidity requirements based on total consolidated asset size. For
example, prior to the adoption of this final rule, advanced
approaches capital requirements, the supplementary leverage ratio,
and the LCR requirement generally applied to banking organizations
with total consolidated assets of $250 billion or more or total
consolidated on-balance sheet foreign exposure of $10 billion or
more.
---------------------------------------------------------------------------
The complexities associated with size also can give rise to
operational and control gaps that are a source of safety and soundness
risk and could result in financial losses to a banking organization and
adversely affect its customers. A larger banking organization operates
on a larger scale, has a broader geographic scope, and generally will
have more complex internal operations and business lines relative to a
smaller banking organization. Growth of a banking organization, whether
organic or through an acquisition, can require more robust risk
management and development of enhanced systems or controls; for
example, when managing the integration and maintenance of information
technology platforms.
Size also can be a proxy for other measures of complexity, such as
the amount of trading and available-for-sale securities, over-the-
counter derivatives, and Level 3 assets.\27\ Using Call Report data
from the first quarter of 2005 to the first quarter of 2018, the
correlation between a bank's total trading assets (a proxy of
complexity) and its total assets (a proxy of size) is over 90
percent.\28\ As was seen in the financial crisis, a more complex
institution can be more opaque to the markets and may have difficulty
managing its own risks, warranting stricter standards for both capital
and liquidity.
---------------------------------------------------------------------------
\27\ The FR Y-15 and the GSIB surcharge methodology include
three indicators of complexity that are used to determine a banking
organization's systemic importance for purposes of the GSIB
surcharge rule: Notional amount of OTC derivatives, Level 3 assets,
and trading and AFS securities. In the second quarter of 2019, the
average complexity score of a U.S. GSIB was 104.7, the average
complexity score of a banking organization with assets of greater
than $250 billion that is not a U.S. GSIB was 12.0, the average
complexity score of a banking organization with assets of more than
$100 billion but less than $250 billion was 3.5, and the average
complexity score of a banking organization with assets of $50
billion but less than $100 billion was 0.4.
\28\ See Amy G. Lorenc, and Jeffery Y. Zhang (2018) ``The
Differential Impact of Bank Size on Systemic Risk,'' Finance and
Economics Discussion Series 2018-066. Washington: Board of Governors
of the Federal Reserve System, available at: https://doi.org/10.17016/FEDS.2018.066.
---------------------------------------------------------------------------
Further, notwithstanding commenters' assertions that risk-weighted
assets more appropriately capture risk, an approach that relies on
risk-weighted assets as an indication of size would not align with the
full scope of risks intended to be measured by the size indicator.
Risk-weighted assets
[[Page 59039]]
serve as an indication of credit risk and are not designed to capture
the risks associated with managerial and operational complexity or the
potential for distress at a large banking organization to cause
widespread market disruptions.
Some commenters argued that the Board staff analysis cited in the
proposals does not demonstrate that size is a useful indicator for
determining the systemic importance of a banking organization.\29\
Specifically, one commenter asserted that the Board staff analysis (1)
uses a flawed measure of bank stress and (2) does not use robust
standard errors or sufficiently control for additional macroeconomic
factors that may contribute to a decline in economic activity. The
Board staff paper employs the natural logarithm of deposits at failed
banks as a proxy of bank stress. This choice was informed by Bernanke's
1983 article, which uses the level (namely, thousands of dollars) of
deposits at failed banks to proxy bank stress.\30\ The staff paper
makes modifications to this stress proxy in order to account for the
evolution of the banking sector over time. In contrast to Bernanke's
study of a three-year period during the Great Depression, Board staff's
analysis spans almost six decades. Expressing bank stress in levels
(namely, trillions of dollars) would not account for the structural
changes that have occurred in the banking sector and therefore would
place a disproportionately greater weight on the bank failures that
occurred during the 2008-2009 financial crisis. In addition to the
analysis conducted by Board staff, other research has found evidence of
a link between size and systemic risk.\31\
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\29\ As described in the proposals, relative to a smaller
banking organization, the failure of a large banking organization is
more likely to have a destabilizing effect on the economy, even if
the two banking organizations are engaged in similar business lines.
Board staff estimated that stress at a single large banking
organization with an assumed $100 billion in deposits would result
in approximately a 107 percent decline in quarterly real U.S. GDP
growth, whereas stress among five smaller banking organizations--
each with an assumed $20 billion in deposits--would collectively
result in roughly a 22 percent decline in quarterly real U.S. GDP
growth. Both scenarios assume $100 billion in total deposits, but
the negative impact is significantly greater when the larger banking
organization fails. Id.
\30\ Bernanke, Ben S. 1983. ``Nonmonetary Effects of the
Financial Crisis in the Propagation of the Great Depression.'' The
American Economic Review Vol. 73, No. 3, pp. 257-276.
\31\ See Bremus, Buck, Russ and Schnitzer, Big Banks and
Macroeconomic Outcomes: Theory and Cross-Country Evidence of
Granularity, Journal of Money, Credit and Banking (July 2018).
Allen, Bali, and Tang construct a measure of systemic risk (CATFIN)
and demonstrate that the CATFIN of both large and small banking
organizations can forecast macroeconomic declines, and found that
the CATFIN of large banks can successfully forecast lower economic
activity sooner than that of small banks. See, Allen, Bali, and
Tang, Does Systemic Risk in the Financial Sector Predict Future
Economic Downturns?, Review of Financial Studies, Vol. 25, Issue 10
(2012). Adrian and Brunnermeier constructed a measurement of
systemic risk, designated CoVar, and show that firms with higher
leverage, more maturity mismatch, and larger size are associated
with larger systemic risk contributions. Specifically, the authors
find that if a bank is 10 percent larger than another bank, then the
size coefficient predicts that the larger bank's CoVaR per unit of
capital is 27 basis points higher than the smaller bank's CoVaR.
See, Adrian & Brunnermeir, CoVar, American Economic Review Journal,
Vol. 106 No. 7 (July 2016)
In the same vein, research conducted by the Bank for
International Settlements suggests that the ratio of one
institution's systemic importance to a smaller institution's
systemic importance is larger than the ratio of the respective
sizes. See Tarashev, Borio and Tsatsaronis, Attributing systemic
risk to individual institutions, BIS Working Paper No. 308 (2010).
Relatedly, D[aacute]vila and Walther (2017) show that large banks
take on more leverage relative to small banks in times of stress and
government bailouts. See D[aacute]vila & Walther, Does Size Matter?
Bailouts with Large and Small Banks, NBER Working Paper No. 24132
(2017).
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For the reasons discussed above, the Board is adopting the proposed
measure of size for foreign and domestic banking organizations without
change. Size is a simple and transparent measure of systemic importance
and safety and soundness risk that can be readily understood and
measured by banking organizations and market participants.
2. Cross-Jurisdictional Activity
The proposals would have included a measure of cross-jurisdictional
activity as a risk-based indicator to determine the application of
Category II standards. For U.S. banking organizations, the domestic
proposal defined cross-jurisdictional activity as the sum of cross-
jurisdictional claims and liabilities. In recognition of the structural
differences between foreign and domestic banking organizations, the
foreign bank proposal would have adjusted the measurement of cross-
jurisdictional activity for foreign banking organizations to exclude
inter-affiliate liabilities and certain collateralized inter-affiliate
claims.\32\ Specifically, claims on affiliates \33\ would be reduced by
the value of any financial collateral in a manner consistent with the
Board's capital rule,\34\ 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).\35\ The foreign bank proposal sought comment on
alternative adjustments to the cross-jurisdictional activity indicator
for foreign banking organizations, and on other modifications to the
components of the indicator.
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\32\ Specifically, the proposal would have excluded from the
cross-jurisdictional activity indicator all inter-affiliate claims
of a foreign banking organization secured by financial collateral,
in accordance with the capital rule. Financial collateral is defined
under the capital rule to mean collateral, (1) in the form of (i)
cash on deposit with the banking organization (including cash held
for the banking organization by a third-party custodian or trustee),
(ii) gold bullion, (iii) long-term debt securities that are not
resecuritization exposures and that are investment grade, (v) short-
term debt instruments that are not resecuritization exposures and
that are investment grade, (v) equity securities that are publicly
traded; (vi) convertible bonds that are publicly traded, or (vii)
money market fund shares and other mutual fund shares if a price for
the shares is publicly quoted daily; and (2) in which the banking
organization has a perfected, first-priority security interest or,
outside of the United States, the legal equivalent thereof (with the
exception of cash on deposit and notwithstanding the prior security
interest of any custodial agent). See 12 CFR 217.2.
\33\ For the combined U.S. operations, the measure of cross-
jurisdictional activity would exclude all claims between the foreign
banking organization's U.S. domiciled affiliates, branches, and
agencies to the extent such items are not already eliminated in
consolidation. For the U.S. intermediate holding company, the
measure of cross-jurisdictional activity would eliminate through
consolidation all intercompany claims within the U.S. intermediate
holding company.
\34\ See 12 CFR 217.37.
\35\ See the definition of repo-style transaction at 12 CFR
217.2.
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Some commenters urged the Board to adopt the cross-jurisdictional
activity indicator as proposed. By contrast, a number of commenters
expressed concern regarding this aspect of the proposals. Several
commenters opposed the inclusion of cross-jurisdictional liabilities in
the cross-jurisdictional activity indicator. Some commenters argued
that cross-jurisdictional liabilities are not a meaningful indicator of
systemic risk as measured by SRISK.\36\ Other commenters asserted that
cross-jurisdictional liabilities can reflect sound risk management
practices on the basis that cross-jurisdictional liabilities can
indicate a diversity of funding sources and may be used to fund assets
in the same foreign jurisdiction as the liabilities. These commenters
suggested modifying the indicator to exclude the amount of any central
bank deposits, other high-quality liquid assets (HQLA), or assets that
receive a zero percent risk weight under the capital rule if those
assets are held in the same jurisdiction as a cross-jurisdictional
liability.
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\36\ See, supra note 25.
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A number of commenters suggested revisions to the cross-
jurisdictional activity indicator that would exclude specific types of
claims or liabilities. For example, some commenters asserted that the
measure of cross-jurisdictional
[[Page 59040]]
activity should exclude any claim secured by HQLA or highly liquid
assets \37\ based on the nature of the collateral. Another commenter
suggested excluding operating payables arising in the normal course of
business, such as merchant payables. Other commenters suggested that
the indicator exclude exposures to U.S. entities or projects that have
a foreign guarantee or foreign insurer, unless the U.S. direct
counterparty does not meet an appropriate measure of creditworthiness.
Some commenters stated that investments in co-issued collateralized
loan obligations should be excluded from the measure of cross-
jurisdictional activity.
---------------------------------------------------------------------------
\37\ See 12 CFR part 252.35(b)(3)(i) and 252.157(c)(7)(i).
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Commenters also suggested specific modifications to exclude
exposures to certain types of counterparties. For example, several
commenters suggested excluding exposures to sovereign, supranational,
international, or regional organizations. Commenters asserted that
these exposures do not present the same interconnectivity concerns as
exposures with other types of counterparties and that claims on these
types of entities present little or no credit risk. Another commenter
suggested excluding transactions between a U.S. intermediate holding
company and any affiliated U.S. branches of its parent foreign banking
organization on the basis that the foreign bank proposal could
disadvantage foreign banking organizations relative to U.S. banking
organizations that eliminate such inter-affiliate transactions in
consolidation. Similarly, one commenter suggested excluding
transactions between a U.S. intermediate holding company and any U.S.
branch of a foreign banking organization, whether affiliated or not, on
the basis that such exposures are geographically domestic. Another
commenter argued that exposures denominated in a foreign banking
organization's home currency should be excluded. By contrast, one
commenter argued that cross-jurisdictional activity should be revised
to include derivatives, arguing that derivatives can be used as a
substitute for other cross-jurisdictional transactions and, as a
result, could be used to avoid the cross-jurisdictional activity
threshold.
A number of commenters provided other suggestions for modifying the
cross-jurisdictional activity indicator. In particular, some commenters
recommended that the cross-jurisdictional activity indicator permit
netting of claims and liabilities with a counterparty, with only the
net claim or liability counting towards cross-jurisdictional activity.
Several commenters suggested that the Board should consider excluding
assets or transactions that satisfy another regulatory requirement. For
example, these commenters argued that the Board should consider
excluding transactions resulting in the purchase of or receipt of HQLA.
Other commenters suggested modifications to the criteria for
determining when an exposure is considered cross-border. Specifically,
commenters requested modifications to the calculation of cross-
jurisdictional activity for claims supported by multiple guarantors or
a combination of guarantors and collateral, for example, by not
attributing the claim to the jurisdiction of the entity holding the
claim, or collateral that bears the highest rating for reporting on an
ultimate-risk basis. Commenters also requested that the Board presume
that an exposure created through negotiations with agents or asset
managers would generally create an exposure based in the jurisdiction
of the location of the agent or manager for their undisclosed
principal.
Foreign banking organization commenters generally supported the
approach taken in the foreign bank proposal with respect to the
treatment of inter-affiliate cross-jurisdictional liabilities, but
stated that such an approach would not adequately address the
differences between domestic and foreign banking organizations. These
commenters urged the Board to eliminate the cross-jurisdictional
activity indicator for foreign banking organizations or, alternatively,
to eliminate all inter-affiliate transactions from measurement of the
indicator.
Significant cross-border activity can indicate heightened
interconnectivity and operational complexity. Cross-jurisdictional
activity can add operational complexity in normal times and complicate
the ability of a banking organization to undergo an orderly resolution
in times of stress, generating both safety and soundness and financial
stability risks. 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. Banking organizations with significant cross-
jurisdictional activity may require more sophisticated risk management
to appropriately address the complexity of those operations and the
diversity of risks across all of the jurisdictions in which the banking
organization provides financial services. For example, banking
organizations with significant cross-border activities may require more
sophisticated risk management related to raising funds in foreign
financial markets, accessing international payment and settlement
systems, and obtaining contingent sources of liquidity. In addition,
the application of consistent prudential standards to banking
organizations with significant size or cross-jurisdictional activity
helps to promote competitive equity in the United States as well as
abroad.
Measuring cross-jurisdictional activity taking into account both
assets and liabilities--instead of just assets--provides 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.\38\ While both borrowing and lending outside the United States
may reflect prudent risk management, cross-jurisdictional activity of
$75 billion or more indicates a level of organizational complexity that
warrants more stringent prudential standards. With respect to
commenters' suggestion to exclude central bank deposits, HQLA, or
assets that receive a zero percent risk weight in the same jurisdiction
as a cross-jurisdictional liability, such an exclusion would assume
that all local liabilities are used to fund local claims. However,
because foreign affiliates rely on local funding to different extents,
such an exclusion could understate risk.\39\
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\38\ The 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.
\39\ Based on data collected from the Country Exposure Report
(FFIEC 009), some affiliates of U.S. banking organizations relied
extensively (75 percent) on local funding, while others collected
almost no local funding. In particular, approximately 40 percent of
bank-affiliate locations had no local lending. See Nicola Cetorelli
& Linda Goldberg, ``Liquidity Management of U.S. Global Banks:
Internal Capital Markets In the Great Recession'' (Fed. Reserve Bank
of N.Y. Staff Report No. 511, 2012), available at https://www.newyorkfed.org/research/staff_reports/sr511.pdf.
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The cross-jurisdictional activity indicator and threshold is
intended to identify banking organizations with significant cross-
border activities. Significant cross-border activities indicate a
complexity of operations, even if some of those activities are low
risk. Excluding additional types of claims or liabilities would reduce
the transparency and simplicity of the
[[Page 59041]]
tailoring framework. In addition, excluding certain types of assets
based on the credit risk presented by the counterparty would be
inconsistent with the purpose of the indicator as a measure of
operational complexity and risk. The measure of cross-jurisdictional
activity in the final rule therefore does not exclude specific types of
claims or liabilities, or claims and liabilities with specific types of
counterparties, other than the proposed treatment of inter-affiliate
liabilities and certain inter-affiliate claims.
The proposals requested comment on possible additional changes to
the components of the cross-jurisdictional activity indicator to
potentially provide more consistent treatment across repurchase
agreements and other securities financing transactions and with respect
to the recognition of collateral across types of transactions.
Commenters were generally supportive of these additional changes. The
proposals also requested comment on the most appropriate way in which
the proposed cross-jurisdictional activity indicator could account for
the risk of transactions with a delayed settlement date. Several
commenters argued that the indicator should exclude trade-date
receivables or permit the use settlement-date accounting in calculating
the cross-jurisdictional activity indicator. Commenters also supported
measuring securities lending agreements and repurchase agreements on an
ultimate-risk basis, rather than allocating these exposures based on
the residence of the counterparty.
The final rule adopts the cross-jurisdictional activity indicator
as proposed. Under the final rule, cross-jurisdictional activity is
measured based on the instructions to the FR Y-15 and, by reference, to
the FFIEC 009.\40\ The Board is considering whether additional
technical modifications and refinements to the cross-jurisdictional
indicator would be appropriate, including with respect to the treatment
of derivatives, and would seek comment on any changes to the indicator
through a separate notice. Specifically, cross-jurisdictional claims
are measured according to the instructions to the FFEIC 009. The
instructions to the FFIEC 009 currently do not permit risk transfer for
repurchase agreements and securities financing transactions and the
Board is not altering the measurement of repurchase agreements and
securities financing transactions under this final rule. This approach
maintains consistency between the FR Y-15 and FFIEC 009. In addition,
the cross-jurisdictional indicator maintains the use of trade-date
accounting for purposes of the final rule. The preference for trade-
date accounting is consistent with other reporting forms (e.g.,
Consolidated Financial Statements for Holding Companies (FR Y-9C)) and
with generally accepted accounting principles. With respect to netting,
the instructions to the FFIEC 009 permit netting in limited
circumstances. Allowing banking organizations to net all claims and
liabilities with a counterparty could significantly understate an
organization's level of international activity, even if such netting
might be appropriate from the perspective of managing risk.
---------------------------------------------------------------------------
\40\ Specifically, cross-jurisdictional claims are measured on
an ultimate-risk basis according to the instructions to the FFIEC
009. The instructions to the FFIEC 009 currently do not permit risk
transfer for repurchase agreements and securities financing
transactions. Foreign banking organizations must include in cross-
jurisdictional claims only the net exposure (i.e., net of collateral
value subject to haircuts) of all secured transactions with
affiliates to the extent that these claims are collateralized by
financial collateral or excluded in consolidation (see supra note
35).
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As noted above, the risk-based indicators generally track measures
already used in the Board's existing regulatory framework and rely on
information that banking organizations covered by the final rule
already publicly report.\41\ The Board believes that the measure of
cross-jurisdictional activity as proposed (including the current
reported measurements of repurchase agreements and securities financing
transactions, trade date accounting items, and netting) along with the
associated $75 billion threshold, appropriately captures the risks that
warrant the application of Category II standards. The Board may
consider future changes regarding the measurement of cross-
jurisdictional activity indicator, and in doing so, would consider the
comments described above and the impact of any future changes on the
$75 billion threshold, and would draw from supervisory experience
following the implementation of the final rule. Any such changes would
be considered in the context of a separate rulemaking process.
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\41\ See Form FR Y-15. This information is publicly available.
---------------------------------------------------------------------------
3. Nonbank Assets
The proposals would have considered the level of nonbank assets in
determining the applicable category of standards for foreign and
domestic banking organizations. The amount of a banking organization's
activities conducted through nonbank subsidiaries provides a measure of
the organization's business and operational complexity. Specifically,
banking organizations with significant activities in nonbank
subsidiaries are more likely to have complex corporate structures and
funding relationships. In addition, in certain cases nonbank
subsidiaries are subject to less prudential regulation than regulated
banking entities.
Under the proposals, nonbank assets would have been measured as the
average amount of assets in consolidated nonbank subsidiaries and
equity investments in unconsolidated nonbank subsidiaries.\42\ The
proposals would have excluded from this measure assets in a depository
institution subsidiary, including a national bank, state member bank,
state nonmember bank, federal savings association, federal savings
bank, or state savings association subsidiary. The proposals also would
have excluded assets of subsidiaries of these depository institutions,
as well as assets held in each Edge or Agreement Corporation that is
held through a bank subsidiary.\43\
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\42\ For a foreign banking organization, nonbank assets would
have been measured as the average amount of assets in consolidated
U.S. nonbank subsidiaries and equity investments in unconsolidated
U.S. nonbank subsidiaries.
\43\ As noted above, the Parent Company Only Financial
Statements for Large Holding Companies (FR Y-9LP), Schedule PC-B,
line item 17 is used to determine nonbank assets. For purposes of
this item, nonbank companies exclude (i) all national banks, state
member banks, state nonmember insured banks (including insured
industrial banks), federal savings associations, federal savings
banks, and thrift institutions (collectively for purposes of this
item, ``depository institutions'') and (ii) except for an Edge or
Agreement Corporation designated as ``Nonbanking'' in the box on the
front page of the Consolidated Report of Condition and Income for
Edge and Agreement Corporations (FR 2886b), any subsidiary of a
depository institution (for purposes of this item, ``depository
institution subsidiary''). The revised FR Y-15 includes a line item
that would automatically populate this information. See Section XV
of this Supplementary Information.
---------------------------------------------------------------------------
A number of commenters argued that measuring nonbank assets based
on the location of the assets in a nonbank subsidiary provides a poor
measure of risk. Some commenters requested that the Board instead
consider whether the assets relate to bank-permissible activities.
Other commenters argued that activities conducted in nonbank
subsidiaries can present less risk than banking activities.
Specifically, some commenters argued that the proposed measure of
nonbank assets was over-inclusive on the basis that many of the assets
in nonbank subsidiaries would receive a zero percent risk weight under
the Board's capital rule. In support of this position, commenters noted
that retail brokerage firms often hold significant amounts of U.S.
treasury securities.
[[Page 59042]]
Other commenters argued that the measure of nonbank assets is
poorly developed and infrequently used and urged the Board to provide
additional support for the inclusion of the indicator in the proposed
framework. Specifically, commenters requested that the Board provide
additional justification for nonbank assets as an indicator of complex
corporate structures and funding relationships, as well as
interconnectedness. A number of commenters argued that, to the extent
the measure was intended to address risk in broker-dealer operations,
it was unnecessary in light of existing supervision and regulation of
broker-dealers and application of consolidated capital, stress testing,
and risk-management requirements to the parent banking organization.
A number of commenters argued that, if retained, the nonbank assets
indicator should be more risk-sensitive. Some commenters suggested
excluding assets related to bank-permissible activities as well as
certain types of nonbanking activities, such as retail brokerage
activity. The commenter argued that, at a minimum, the nonbank assets
indicator should exclude any nonbank subsidiary or asset that would be
permissible for a bank to own. Other commenters suggested risk-
weighting nonbank assets or deducting certain assets held by nonbank
subsidiaries, such as on-balance sheet items that are deducted from
regulatory capital under the capital rule (e.g., deferred tax assets
and goodwill).
Both the organizational structure of a banking organization and the
activities it conducts contribute to its complexity and risk profile.
Banking organizations with significant investments in nonbank
subsidiaries are more likely to have complex corporate structures,
inter-affiliate transactions, and funding relationships.\44\ A banking
organization's complexity is positively correlated with the impact of
the organization's failure or distress.\45\
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\44\ See ``Evolution in Bank Complexity'', Nicola Cetorelli,
James McAndrews and James Traina, Federal Reserve Bank of New York
Economic Policy Review (December 2014) (discussing acquisitions of
nonbanking subsidiaries and cross-industry acquisitions as
contributing to growth in organization complexity), available at,
https://www.newyorkfed.org/medialibrary/media/research/epr/2014/1412cet2.pdf.
\45\ See 80 FR 49082 (August 14, 2015). See also BCBS, ``Global
systemically important banks: Updated assessment methodology and the
higher loss absorbency requirement'' (paragraph 25), available at
https://www.bis.org/publ/bcbs255.htm.
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Market participants typically evaluate the financial condition of a
banking organization on a consolidated basis. Therefore, the distress
or failure of a nonbank subsidiary could be destabilizing to, and cause
counterparties and creditors to lose confidence in, the banking
organization as a whole. In addition, the distress or failure of
banking organizations with significant nonbank assets has coincided
with or increased the effects of significant disruptions to the
stability of the U.S. financial system.\46\
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\46\ An example includes the near-failure of Wachovia
Corporation, a financial holding company with $162 billion in
nonbank assets as of September 30, 2008.
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Nonbank activities also may involve a broader range of risks than
those associated with activities that are permissible for a depository
institution to conduct directly and can increase interconnectedness
with other financial firms, requiring sophisticated risk management and
governance, including capital planning, stress testing, and liquidity
risk management. For example, holding companies with significant
nonbank assets are generally engaged in financial intermediation of a
different nature (such as complex derivatives activities) than those
typically conducted through a depository institution. If not adequately
managed, the risks associated with nonbank activities could present
significant safety and soundness concerns and increase financial
stability risks. Nonbank assets also reflect the degree to which a
banking organization may be engaged in activities through legal
entities that are not subject to separate capital or liquidity
requirements or to the direct regulation and supervision applicable to
a regulated banking entity.
The nonbank assets indicator in the final rule provides a proxy for
operational complexity and nonbanking activities without requiring
banking organizations to track assets, income, or revenue based on
whether a depository institution has the legal authority to hold such
assets or conduct the related activities (legal authority). In
addition, a depository institution's legal authority depends on the
institution's charter and may be subject to additional interpretation
over time.\47\ A measure of nonbank assets based on legal authority
would be costly and complex for banking organizations to implement, as
they do not currently report this information based on legal authority.
Defining nonbank assets based on the type of entity that owns them,
rather than legal authority, reflects the risks associated with
organizational complexity and nonbanking activities without imposing
additional reporting burden as a result of implementing the final rule
or monitoring any future changes to legal authority. In addition, as
noted above, the nonbank assets indicator is designed, in part, to
identify activities that a banking organization conducts in
subsidiaries that may be subject to less prudential regulation, which
makes relevant whether the asset or activity is located in a bank or
nonbank subsidiary.
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\47\ See, e.g., ``OCC Releases Updated List of Permissible
Activities for Nat'l Banks & Fed. Sav. Associations,'' OCC NR 17-121
(Oct. 13, 2017) (``The OCC may permit national banks and federal
savings associations to conduct additional activities in the
future''), available at https://www.occ.treas.gov/publications/publications-by-type/other-publications-reports/pub-activities-permissible-for-nat-banks-fed-saving.pdf.
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Commenters' suggested modifications to exclude certain types of
assets or entities, or to risk-weight nonbank assets, would not align
with the full scope of risks intended to be measured by the indicator,
including risks associated with operational and managerial complexity.
As noted in the discussion of size above, risk weights are primarily
designed to measure credit risk, and can underestimate operational and
other risks. Further, because nonbank entities are permitted to conduct
a wide range of complex activities, assets held by those entities,
including those that receive a zero percent risk weight, may be held in
connection with complex activities, such as certain prime brokerage or
other trading activities. Finally, as noted above, the nonbank assets
measure is a relatively simple and transparent measure of a banking
organization's nonbank activities, and exclusion of specific assets
based on risk could undermine the simplicity and transparency of the
indicator. For these reasons, the Board is finalizing the nonbank
assets indicator, including the measurement of the indicator, as
proposed.
4. Off-Balance Sheet Exposure
The proposals included off-balance sheet exposure as a risk-based
indicator to complement the measure of size. Under the proposals, off-
balance sheet exposure would have been measured as the difference
between total exposure, calculated in accordance with the instructions
to the FR Y-15 or equivalent reporting form, and total assets.\48\
Total exposure includes on-balance sheet assets plus certain off-
[[Page 59043]]
balance sheet exposures, including derivative exposures and
commitments.
---------------------------------------------------------------------------
\48\ Total exposure would be reported for domestic holding
companies on the FR Y-15, Schedule A, Line Item 5, and for foreign
banking organizations' U.S. intermediate holding companies and
combined U.S. operations on the FR Y-15, Schedule H, Line Item 5.
Total off-balance sheet exposure would be reported as Line Item M5
on Schedules A and H.
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A number of commenters argued that the proposed measure of off-
balance sheet exposure was not sufficiently risk-sensitive.
Specifically, these commenters argued that the exposures captured by
the indicator were generally associated with low-risk activities or
assets, such as securities lending activities. In addition, the
commenters argued that the proposed measure could be harmful to
economic activity by discouraging corporate financing through
commitments and letters of credit. Commenters accordingly urged the
Board to modify the proposed approach to measuring the risk of off-
balance sheet exposures, for example, by using the combination of
credit-conversion factors and risk weights applied under the Board's
capital rule. Other commenters suggested that the Board exclude certain
types of exposures from the indicator, such as letters of credit.
Foreign banking organization commenters also argued that inter-
affiliate transactions should be excluded from the measure, including
any guarantee related to securities used to fund the foreign parent,
and guarantees used to facilitate clearing of swaps and futures for
affiliates that are not clearing members. With respect to guarantees
used to facilitate clearing, commenters argued that these exposures are
the result of mandatory clearing requirements and help support the
central clearing objectives of the Dodd-Frank Act. Commenters expressed
concern that including these exposures also could result in increased
concentration of clearing through U.S. GSIBs. For the same reasons,
commenters argued that potential future exposures associated with
derivatives cleared by an affiliate also should be excluded from the
measure of off-balance sheet exposure.
Off-balance sheet exposure complements the size indicator under the
tailoring framework by taking into account additional risks that are
not reflected in a banking organization's measure of on-balance sheet
assets. This indicator 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 stemming from off-balance
sheet activities. In addition, off-balance sheet exposure can lead to
significant future draws on liquidity, particularly in times of stress.
For example, during stress conditions vulnerabilities at individual
banking organizations may be exacerbated by calls on commitments and
the need to post collateral on derivatives exposures. The nature of
these off-balance sheet risks for banking organizations of significant
size and complexity can also lead to financial stability risk, as they
can manifest rapidly and with less transparency and predictability to
other market participants relative to on-balance sheet exposures.
Excluding certain off-balance sheet exposures would be inconsistent
with the purpose of the indicator as 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. Commitments and letters of
credit, like extensions of credit through loans and other arrangements
included on a banking organization's balance sheet, help support
economic activity. Because corporations tend to increase their reliance
on committed credit lines during periods of stress in the financial
system, draws on these instruments can exacerbate the effects of stress
conditions on banking organizations by increasing their on-balance
sheet credit exposure.\49\ During the 2008-2009 financial crisis,
reliance on lines of credit was particularly pronounced among smaller
and non-investment grade corporations, suggesting that an increase in
these exposures may be associated with decreasing credit quality.\50\
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\49\ During the financial crisis, increased reliance on credit
lines began as early as 2007, and increased after September 2008.
See Jose M. Berrospide, Ralf R. Meisenzahl, and Briana D. Sullivan,
``Credit Line Use and Availability in the Financial Crisis: The
Importance of Hedging,'' available at: https://www.federalreserve.gov/pubs/feds/2012/201227/201227pap.pdf. Some
have found evidence that an increase in draws on credit lines may
have been motivated by concerns about the ability of financial
institutions to provide credit in the future. See Victoria Ivashina
& David Scharfstein, ``Bank Lending During the Financial Crisis of
2008,'' 97 J. Fin. Econ. 319-338 (2010). See also, William F.
Bassett, Simon Gilchrist, Gretchen C. Weinbach, and Egon Zakrajsek,
``Improving Our Ability to Monitor Bank Lending'' chapter on Risk
Topography: Systemic Risk and Macro Modeling (2014), Markus
Brunnermeier and Arvind Krishnamurthy, ed., pp. 149-161, available
at: https://www.nber.org/chapters/c12554.
\50\ Id.
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Including guarantees to affiliates related to cleared derivative
transactions in off-balance sheet exposure also is consistent with the
overall purpose of the indicators. A clearing member that guarantees
the performance of a clearing member client to a central counterparty
is exposed to a risk of loss if the clearing member client were to fail
to perform its obligations under a derivative contract. By including
these exposures, the indicator identifies a source of
interconnectedness with other financial market participants. These
transactions can arise with respect not only to principal trades, but
also because a client wishes to face a particular part of the
organization, and thus excluding these guarantees could insufficiently
measure risk and interconnectedness.\51\
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\51\ In order to facilitate clearing generally, the capital rule
more specifically addresses the counterparty credit risk associated
with transactions that facilitate client clearing, such as a shorter
margin period of risk, and provides incentives that are intended to
help promote the central clearing objectives of the Dodd-Frank Act.
See 12 CFR 217.35.
---------------------------------------------------------------------------
As described above, the tailoring framework's risk-based indicators
and uniform category thresholds balance risk-sensitivity with
simplicity and transparency. Excluding certain types of exposures would
not align with the full scope of risks intended to be measured by the
indicator. The final rule, therefore, adopts the off-balance sheet
exposure indicator as proposed.
5. Weighted Short-Term Wholesale Funding
The proposed weighted short-term wholesale funding indicator would
have measured the amount of a banking organization's short-term funding
obtained generally from wholesale counterparties. Reliance on short-
term, generally uninsured funding from more sophisticated
counterparties can make a banking organization more vulnerable to
large-scale funding runs, generating both safety and soundness and
financial stability risks. The proposals would have calculated this
indicator as the weighted-average amount of funding obtained from
wholesale counterparties, certain brokered deposits, and certain sweep
deposits with a remaining maturity of one year or less, in the same
manner as currently reported by holding companies on the FR Y-15.\52\
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\52\ Average amounts over a 12 month period in each category of
short-term wholesale funding are weighted based on four residual
maturity buckets; the asset class of collateral, if any, securing
the funding; and liquidity characteristics of the counterparty.
Weightings reflect risk of runs and attendant fire sales. See 12 CFR
217.406 and 80 FR 49082 (August 14, 2015).
---------------------------------------------------------------------------
A number of commenters expressed concern regarding the use of the
weighted short-term wholesale funding indicator in the tailoring
framework. Several commenters argued that this indicator fails to take
into account the extent to which the risk of short-term wholesale
funding has been mitigated through existing regulatory requirements,
such as the Board's enhanced prudential standards rule and, for foreign
banking organizations, standardized liquidity requirements applicable
to foreign banking organizations at the global consolidated level.
Other commenters argued that the indicator is a poor measure of risk
more
[[Page 59044]]
broadly because it fails to consider the maturity of assets funded by
short-term wholesale funding. Commenters argued that focusing on
liabilities and failing to recognize the types of assets funded by the
short-term funding would disproportionately affect foreign banking
organizations' capital market activities and ability to compete in the
United States.
The weighted short-term wholesale funding indicator is designed to
serve as a broad measure of the risks associated with elevated, ongoing
reliance on funding sources that are typically less stable than funding
of a longer term or funding such as fully insured retail deposits,
long-term debt, and equity. For example, a banking organization's
weighted short-term wholesale funding level serves as an indication of
the likelihood of funding disruptions in firm-specific or market-wide
stress conditions. These funding disruptions may give rise to urgent
liquidity needs and unexpected losses, which warrant heightened
application of liquidity and regulatory capital requirements. A measure
of funding dependency that reflects the various types or maturities of
assets supported by short-term wholesale funding sources, as suggested
by commenters, would add complexity to the indicator. For example,
because a banking organization's funding is fungible, monitoring the
relationship between specific liabilities and assets with various
maturities is complex and imprecise. The LCR rule and the proposed net
stable funding ratio (NSFR) rule therefore include methodologies for
reflecting asset maturity in regulatory requirements that address the
associated risks.\53\
---------------------------------------------------------------------------
\53\ For example, the LCR rule includes cash inflows from
certain maturing assets and the proposed NSFR rule would use the
maturity profile of a banking organization's assets to determine its
required stable funding amount.
---------------------------------------------------------------------------
Commenters suggested revisions to the weighted short-term wholesale
funding indicator that would align with the treatment of certain assets
and liabilities under the LCR rule. For example, some commenters
recommended that the Board more closely align the indicator's
measurement of weighted short-term wholesale funding with the outflow
rates applied in the LCR rule, such as by excluding from the indicator
funding that receives a zero percent outflow in the LCR rule or
reducing the weights for secured funding to match the LCR rule's
outflow treatment. Similarly, commenters suggested that the Board
provide a lower weighting for brokered and sweep deposits from
affiliates, consistent with the lower outflow rates assigned to these
deposits in the LCR rule. Specifically, commenters argued that the
weighted short-term wholesale funding indicator inappropriately applies
the same 25 percent weight to sweep deposits sourced by both affiliates
and non-affiliates alike and treats certain non-brokered sweep deposits
in a manner inconsistent with the LCR rule.
The Board notes that when it established the weights applied in
calculating and reporting short-term wholesale funding for purposes of
the GSIB surcharge rule, the Board took into account the treatment of
certain liabilities in the LCR rule, including comments received in
connection with that rulemaking, and fire sale risks in key short-term
wholesale funding markets. At that time, the Board noted that the LCR
rule does not fully address the systemic risks of certain types and
maturities of funding.\54\ The Board continues to believe the current
scope of the weighted short-term wholesale funding indicator, and the
weights applied in the indicator, are appropriately calibrated for
assessing the risk to broader financial stability as a result of a
banking organization's reliance on short-term wholesale funding. The
final rule treats brokered deposits as short-term wholesale funding
because they are generally considered less stable than standard retail
deposits. In order to preserve the relative simplicity of the short-
term wholesale funding metric, the final rule does not distinguish
between different types of brokered deposits and sweep deposits.
Accordingly, all retail deposits identified as brokered deposits and
brokered sweep deposits under the LCR rule are reported on the FR Y-15
as retail brokered deposits and sweeps for purpose of the weighted
short-term wholesale funding indicator.
---------------------------------------------------------------------------
\54\ For example, the LCR rule generally does not address
maturities beyond 30 calendar days and offsets outflows from certain
short-term funding transactions with inflows from certain short-term
claims, which may not fully address the risk of asset fire sales.
---------------------------------------------------------------------------
Commenters also suggested other specific revisions to the
calculation of the weighted short-term wholesale funding indicator.
Some commenters argued that the weighted short-term wholesale funding
indicator should look to the original maturity of the funding
relationship--instead of the remaining maturity--and exclude long-term
debt that is maturing within the next year. Commenters also urged the
Board to recognize certain offsets to reduce the amount of short-term
wholesale funding included in the indicator. For example, a number of
commenters suggested that the amount of short-term wholesale funding
should be reduced by the amounts of HQLA held by the banking
organization, cash deposited at the Federal Reserve by the banking
organization, or any high-quality collateral used for secured funding.
Commenters argued that this approach would better reflect the banking
organization's liquidity risk because it would take into account assets
that could be used to meet cash outflows as well as collateral that
typically maintains its value and therefore would not contribute to
asset fire sales. Commenters also argued that the measure of weighted
short-term wholesale funding should exclude funding that the commenters
viewed as stable, such as credit lines from Federal Home Loan Banks and
Federal Reserve Banks, savings and checking accounts of wholesale
customers, and brokered sweep deposits received from an affiliate.
The Board believes that the remaining maturity of a funding
relationship, instead of original maturity as suggested by commenters,
provides a more accurate measure of the banking organization's ongoing
exposure to rollover risk. As discussed above, because a banking
organization's inability to rollover funding may generate safety and
soundness and financial stability risks, the Board believes that using
remaining maturity is more appropriate given the purposes of the
weighted short-term wholesale funding indicator. Further, the weighted
short-term wholesale funding indicator takes into account the quality
of collateral used in funding transactions by assigning different
weights to average amounts of secured funding depending on its
collateral. These weights reflect the liquidity characteristics of the
collateral and the extent to which the quality of such assets may
mitigate fire sale risk. Revising the weighted short-term wholesale
funding indicator to permit certain assets to offset liabilities
because the assets may be used to address cash outflows, as suggested
by commenters, could understate financial stability and safety and
soundness risks because such an approach assumes those assets are
available to offset funding needs in stress conditions. Further, the
indicator measures average short-term funding dependency over the prior
12 months, and a banking organization's current holdings of liquid
assets may not address the financial stability and safety and soundness
risks associated with its ongoing funding structure. Similarly,
excluding a banking organization's general reliance
[[Page 59045]]
on certain types of short-term funding from the indicator may result in
an underestimation of a banking organization's potential to contribute
to systemic risk because such funding may be unavailable for use in a
time of stress. Thus, the final rule does not exclude short-term
borrowing from the Federal Home Loan Banks, which may be secured by a
broad range of collateral, and the final rule treats such short-term
borrowing the same as borrowing from other wholesale counterparties in
order to identify risk. More generally, incorporating commenters'
recommended exclusions and offsets would reduce the transparency of the
weighted short-term wholesale funding indicator, contrary to the
Board's intention to provide a simplified measure to identify banking
organizations with heightened risks. For these reasons, the final rule
adopts the weighted short-term wholesale funding indicator without
change.
Commenters also provided suggestions to reduce or eliminate inter-
affiliate transactions from the measure of weighted short-term
wholesale funding. Specifically, commenters provided suggestions to
weight inter-affiliate transactions or net transactions with
affiliates.
Including funding from affiliated sources provides an appropriate
measure of the risks associated with a banking organization's general
reliance on short-term wholesale funding. Banking organizations that
generally rely on funding with a shorter contractual maturity from
financial sector affiliates may present higher risks relative to those
that generally rely on funding with a longer contractual term from
outside of the financial sector. While funding relationships with
affiliates may provide a banking organization with additional
flexibility in the normal course of business, ongoing reliance on
contractually short-term funding from affiliates may present risks that
are similar to funding from nonaffiliated sources.
For the reasons discussed above, the final rule adopts the weighted
short-term wholesale funding indicator as proposed.
D. Application of Standards Based on the Proposed Risk-Based Indicators
The proposed risk-based indicators would have determined the
application of enhanced standards under Categories II, III, and IV. By
taking into consideration the relative presence or absence of each
risk-based indicator, the proposals would have provided a basis for
assessing a banking organization's financial stability and safety and
soundness risks for purposes of determining the applicability and
stringency of these requirements.
Commenters criticized the methods by which the proposed risk-based
indicators would determine the category of standards applicable to a
banking organization. Certain commenters expressed concern that a
banking organization could become subject to Category II or III
standards without first being subject to Category IV standards, due to
the disjunctive use of the size and other risk-based indicators under
the proposals. One commenter suggested that the Board should instead
apply a category of standards based on a weighted average of the risk-
based indicators. Another commenter suggested that application of
Category II standards should be based on other risk factors that they
asserted are more relevant to the determination of whether a banking
organization has a risk profile that would warrant Category II
standards. Several commenters suggested that the application of
standardized liquidity requirements should be based only on the levels
of the weighted short-term wholesale funding indicator, and not based
on the levels of any other risk-based indicator. One commenter
criticized the proposals for not providing sufficient justification for
the number of categories.
Because each indicator serves as a proxy for various types of risk,
a high level in a single indicator warrants the application of more
stringent standards to mitigate those risks and support the overall
purposes of each category. The Board therefore does not believe using a
weighted average of a banking organization's levels in the risk-based
indicators, or the methods that would require a banking organization to
exceed multiple risk-based indicators, is appropriate to determine the
applicable category of standards. The final rule therefore adopts the
use of the risk-based indicators, generally as proposed.
Certain commenters suggested that the Board reduce requirements
under the foreign bank proposal to account for the application of
standards at the foreign banking organization parent. The final rule
takes into account the standards that already apply to the foreign
banking organization parent. Specifically, the final rule tailors the
application of enhanced 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 this way, the final rule helps to mitigate the risk such
banking organizations present to safety and soundness and U.S.
financial stability, consistent with the overall objectives of the
tailoring framework. Requiring foreign banking organizations to
maintain financial resources in the jurisdictions in which they operate
subsidiaries also reflects existing agreements reached by the BCBS and
international regulatory practice.
E. Calibration of Thresholds and Indexing
The proposals would have employed fixed nominal thresholds to
assign the categories of standards that apply to banking organizations.
In particular, the proposals included total asset thresholds of $100
billion, $250 billion, and $700 billion, along with $75 billion
thresholds for each of the other risk-based indicators. The foreign
bank proposal also included a $50 billion weighted short-term wholesale
funding threshold for U.S. and foreign banking organizations subject to
Category IV standards.
Some commenters expressed concerns regarding the use of $75 billion
thresholds for cross-jurisdictional activity, weighted short-term
wholesale funding, nonbank assets, and off-balance sheet exposure. In
particular, these commenters stated that the $75 billion thresholds
were poorly justified and requested additional information as to why
the Board chose these thresholds. A number of these commenters also
supported the use of a higher threshold for these indicators. Other
commenters urged the Board to retain the discretion to adjust the
thresholds on a case-by-case basis, such as in the case of a temporary
excess driven by customer transactions or for certain transactions that
would result in a sudden change in categorization.
The $75 billion thresholds are based on the degree of concentration
of a particular risk-based indicator for each banking organization
relative to total assets. That is, a threshold of $75 billion
represents at least 30 percent and as much as 75 percent of total
assets for banking organizations with between $100 billion and $250
billion in total assets.\55\ Thus, for banking organizations
[[Page 59046]]
that do not meet the size threshold for Category III standards, other
risks represented by the risk-based indicators would be substantial,
while banking organizations with $75 billion in cross-jurisdictional
activity have a substantial international footprint. In addition,
setting the thresholds at $75 billion ensures that banking
organizations that account for the vast majority of the total amount of
each risk-based indicator among banking organizations with $100 billion
or more in total assets are subject to prudential standards that
account for the associated risks of these risk-based indicators, which
facilitates consistent treatment of these risks across banking
organizations. The use of a single threshold also supports the overall
simplicity of the framework. Moreover, a framework that permits the
Board to adjust thresholds on a temporary basis would not support the
objectives of predictability and transparency.
---------------------------------------------------------------------------
\55\ The $100 billion and $250 billion size thresholds are
consistent with those set forth in section 165 of the Dodd-Frank
Act, as amended by section 401 of EGRRCPA. Section 165 of the Dodd-
Frank Act requires the application of enhanced prudential standards
to bank holding companies and foreign banking organizations with
$250 billion or more in total consolidated assets. Section 165
authorizes the Board to apply enhanced prudential standards to such
banking organizations with assets between $100 billion and $250
billion, taking into consideration the firm's capital structure,
riskiness, complexity, financial activities (including those of
subsidiaries), size, and any other risk-related factors the Board
deems appropriate. 12 U.S.C. 5365.
---------------------------------------------------------------------------
One commenter stated that the Board should not use the $700 billion
size threshold as the basis for applying Category II standards, arguing
that the Board had not provided sufficient justification for that
threshold. However, as noted in the proposals, historical examples
suggest that the distress or failure of a banking organization of this
size would have systemic impacts. For example, during the financial
crisis significant losses at Wachovia Corporation, which had $780
billion in total assets at the time of being acquired in distress, had
a destabilizing effect on the financial system. The $700 billion size
threshold under Category II addresses the substantial risks that can
arise from the activities and potential distress of very large banking
organizations that are not U.S. GSIBs. Commenters did not request
additional explanation regarding the $100 billion and $250 billion
total asset thresholds. As noted above, these size thresholds are
consistent with those set forth in section 165 of the Dodd-Frank Act,
as amended by section 401 of EGRRCPA.
Several commenters requested that the Board index certain of the
proposed thresholds based on changes in various measures, such as
growth in domestic banking assets, inflation, gross domestic product
growth or other measures of economic growth, or share of the indicator
held by the banking organization in comparison to the amount of the
indicator held in the financial system. These commenters requested that
the thresholds be automatically adjusted on an annual basis based on
changes in the relevant index, by operation of a provision in the rule.
Other commenters expressed concern that indexing can have pro-cyclical
effects.
As commenters noted, the $100 billion and $250 billion size
thresholds prescribed in the Dodd-Frank Act, as amended by EGRRCPA, are
fixed by statute.\56\ Indexing the other thresholds would add
complexity, a degree of uncertainty, and potential discontinuity to the
framework. The Board acknowledges the thresholds should be reevaluated
over time to ensure they appropriately reflect growth on a
macroeconomic and industry-wide basis, as well as to continue to
support the objectives of this rule. The Board plans to accomplish this
by periodically reviewing the thresholds and proposing changes through
the notice and comment process, rather than including an automatic
adjustment of thresholds based on indexing.
---------------------------------------------------------------------------
\56\ Section 165 of the Dodd-Frank Act does provide the Board
with discretion to establish a minimum asset threshold above the
statutory thresholds for some, but not all, enhanced prudential
standards. However, the Board may only utilize this discretion
pursuant to a recommendation by the Financial Stability Oversight
Council in accordance with section 115 of the Dodd-Frank Act. This
authority is not available for stress testing and risk committee
requirements. 12 U.S.C. 5365(a)(2)(B).
---------------------------------------------------------------------------
F. The Risk-Based Categories
1. Category I
Under the proposals, Category I standards would have applied to
U.S. GSIBs, which are banking organizations that have a U.S. GSIB score
of 130 or more under the scoring methodology.\57\ Category I standards
would have included the most stringent standards relative to those
imposed under the other categories to reflect the heightened risks that
banking organizations subject to Category I standards pose to U.S.
financial stability. The requirements applicable to U.S. GSIBs would
have largely remained unchanged from existing requirements.
---------------------------------------------------------------------------
\57\ As noted above, the foreign bank proposal would not have
applied Category I standards to the U.S. operations of foreign
banking organizations because the Board's GSIB surcharge rule would
not identify a foreign banking organization or a U.S. intermediate
holding company as a U.S. GSIB. The foreign bank proposal sought
comment on the advantages and disadvantages of applying standards
that are more stringent than Category II standards to the U.S.
operations of foreign banking organizations with a comparable risk
profile to U.S. GSIBs. Several commenters expressed general
opposition to such an approach.
---------------------------------------------------------------------------
The Board did not receive comments regarding the criteria for
application of Category I standards to U.S. GSIBs. Several commenters
expressed concern regarding applying more stringent standards than
Category II standards to foreign banking organizations, even if the
risk profile of a foreign banking organization's U.S. operations were
comparable to a U.S. GSIB. The final rule adopts the scoping criteria
for Category I, and the prudential standards that apply under this
category, as proposed.\58\ U.S. GSIBs have the potential to pose the
greatest risks to U.S. financial stability due to their systemic risk
profile and, accordingly, should be subject to the most stringent
prudential standards. The treatment for U.S. GSIBs aligns with
international efforts to address the financial stability risks posed by
the largest, most interconnected financial institutions. In 2011, the
BCBS adopted a framework to identify global systemically important
banking organizations and assess their systemic importance.\59\ This
framework generally applies to the global consolidated parent
organization, and does not apply separately to subsidiaries and
operations in host jurisdictions. Consistent with this approach, the
U.S. operations of foreign banking organizations are not subject to
Category I standards under the final rule. The Board will continue to
monitor the systemic risk profiles of foreign banking organization's
U.S. operations, and consider whether application of more stringent
requirements is appropriate to address any increases in their size,
complexity or overall systemic risk profile.
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\58\ Under the final rule, a U.S. banking organization that
meets the criteria for Categories I, II, or III standards is
required to calculate its method 1 GSIB score annually.
\59\ See BCBS, ``Global systemically important banks: Assessment
methodology and the additional loss absorbency requirement''
(November 4, 2011).
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2. Category II
The proposals would have applied Category II standards to banking
organizations with $700 billion in total assets or $100 billion or more
in total assets and $75 billion or more in cross-jurisdictional
activity. The proposals also sought comment on whether Category II
standards should apply based on a banking organization's weighted
short-term wholesale funding, nonbank assets, and off-balance sheet
exposure, using a higher threshold than the $75 billion threshold that
would have applied for Category III standards.
Some commenters argued that cross-jurisdictional activity should be
an indicator for Category III standards rather than Category II
standards. Another commenter expressed concern
[[Page 59047]]
with expanding the criteria for Category II standards to include any of
the other risk-based indicators used for purposes of Category III
standards. Some commenters also argued that the proposed Category II
standards were too stringent relative to the risks indicated by a high
level of cross-jurisdictional activity or very large size. Other
commenters argued that application of Category II standards to foreign
banking organizations was unnecessary because these banking
organizations are already subject to BCBS-based standards on a global,
consolidated basis by their home-country regulators. Another commenter
requested that the Board provide greater differentiation between
Category I and Category II standards.
As discussed above, banking organizations that engage in
significant cross-jurisdictional activity present complexities that
support the application of more stringent standards relative to those
that would apply under Category III. In addition, application of
consistent prudential standards across jurisdictions to banking
organizations with significant size or cross-jurisdictional activity
helps to promote competitive equity among U.S. banking organizations
and their foreign peers, while applying standards that appropriately
reflect the risk profiles of banking organizations that meet the
thresholds for Category III standards. As noted above, this approach is
consistent with international regulatory practice.
Accordingly, and consistent with the proposal, the final rule
applies Category II standards to banking organizations with $700
billion in total consolidated assets or cross-jurisdictional activity
of $75 billion or more.
3. Category III
Under the proposals, Category III standards would have applied to
banking organizations that are not subject to Category I or II
standards and that have total assets of $250 billion or more. They also
would have applied to banking organizations with $100 billion or more
in total assets and $75 billion or more in nonbank assets, weighted
short-term wholesale funding, or off-balance-sheet exposure.
A number of commenters supported the proposed scoping criteria for
Category III, as well as the standards that would have applied under
this category. Several other commenters requested certain changes to
the specific thresholds and indicators used to determine which banking
organizations would have been subject to Category III standards, as
well as the prudential standards that would have applied under this
category. Comments regarding the prudential standards that would have
applied under Category III are discussed in section VI.C of this
Supplementary Information.
The final rule generally adopts the scoping criteria for Category
III, and the prudential standards that apply under this Category, as
proposed.
4. Category IV
Under the proposals, Category IV standards would have applied to
banking organizations with $100 billion or more in total assets that do
not meet the thresholds for any other category. A number of commenters
argued that no heightened prudential standards should apply to banking
organizations that meet the criteria for Category IV because such
banking organizations are not as large or complex as banking
organizations that would be subject to more stringent categories of
standards under the proposals. Alternatively, these commenters
suggested that the threshold for application of Category IV standards
should be raised from $100 billion to $250 billion in total assets.\60\
In contrast, one commenter argued that the Board should not reduce the
requirements applicable to banking organizations that would be subject
to Category IV until current requirements have been in effect for a
full business cycle.
---------------------------------------------------------------------------
\60\ Commenters also argued that the Board had not sufficiently
justified the application of enhanced prudential standards to firms
subject to Category IV standards. These comments are addressed in
section VI.D. of this Supplementary Information.
---------------------------------------------------------------------------
The final rule includes Category IV because banking organizations
subject to this category of standards generally have greater scale and
operational and managerial complexity relative to smaller banking
organizations and, as a result, present heightened safety and soundness
risks. In addition, the failure of one or more banking organizations
subject to Category IV standards could have a more significant negative
effect on economic growth and employment relative to the failure or
distress of smaller banking organizations.\61\ The final rule generally
adopts the scoping criteria for Category IV, and the prudential
standards that apply under this Category, as proposed.
---------------------------------------------------------------------------
\61\ See section V.C.1. of this Supplementary Information.
---------------------------------------------------------------------------
G. Specific Aspects of the Foreign Bank Proposal--Treatment of Inter-
Affiliate Transactions
Except for cross-jurisdictional activity, which would have excluded
liabilities to and certain collateralized claims on non-U.S.
affiliates, the proposed risk-based indicators would have included
transactions between a foreign banking organization's combined U.S.
operations and non-U.S. affiliates.\62\ Similarly, and as noted above,
except for cross-jurisdictional activity, a U.S. intermediate holding
company would have included transactions with affiliates outside the
U.S. intermediate holding company when reporting its risk-based
indicators.
---------------------------------------------------------------------------
\62\ See supra note 34.
---------------------------------------------------------------------------
Most commenters on the foreign bank proposal supported the proposed
exclusion of certain inter-affiliate transactions in the cross-
jurisdictional activity indicator, and argued further that all risk-
based indicators should exclude transactions with affiliates. These
commenters asserted that including inter-affiliate transactions
disadvantaged foreign banking organizations relative to U.S. peers and
argued that the rationale for excluding certain inter-affiliate claims
from the cross-jurisdictional activity measure applied equally to all
other risk-based indicators. A number of commenters argued that
including inter-affiliate transactions would overstate the risks to a
foreign banking organization's U.S. operations or U.S. intermediate
holding company because inter-affiliate transactions may be used to
manage risks of the foreign banking organization's global operations.
Similarly, some commenters asserted that the inclusion of inter-
affiliate transactions was inconsistent with risks that the risk-based
indicators are intended to capture. Other commenters argued that any
risks associated with inter-affiliate transactions were appropriately
managed through the supervisory process and existing regulatory
requirements, and expressed concern that including inter-affiliate
transactions could encourage ring fencing in other jurisdictions. Some
commenters suggested that, if the Board does not exclude inter-
affiliate transactions entirely, the Board should weight inter-
affiliate transactions at no more than 50 percent. By contrast, one
commenter argued that inter-affiliate transactions should be included
in the risk-based indicators, arguing that the purpose of the Board's
U.S. intermediate holding company framework is that resources located
outside the organization may not be reliably available during periods
of financial stress.
Tailoring standards based on the risk profile of the U.S.
intermediate holding company or combined U.S. operations of a foreign
banking organization, as applicable, requires measurement of risk-based
indicators at a sub-
[[Page 59048]]
consolidated level rather than at the global parent. As a result,
calculation of the risk-based indicators must distinguish between such
a banking organization's U.S. operations or U.S. intermediate holding
company, as applicable, and affiliates outside of the United States,
including by providing a treatment for inter-affiliate transactions
that would otherwise be eliminated in consolidation at the global
parent. Including inter-affiliate transactions in the calculation of
risk-based indicators would mirror, as closely as possible, the risk
profile of a U.S. intermediate holding company or combined U.S.
operations if each were consolidated in the United States.
Including inter-affiliate transactions in the calculation of risk-
based indicators is consistent with the Board's approach to measuring
and applying standards at a sub-consolidated level in other contexts.
For example, existing thresholds and requirements in the Board's
Regulation YY are based on measures of a foreign banking organization's
size in the United States that includes inter-affiliate
transactions.\63\ Similarly, the total consolidated assets of a U.S.
intermediate holding company or depository institution include
transactions with affiliates outside of the U.S. intermediate holding
company.\64\ Capital and liquidity requirements applied to U.S.
intermediate holding companies and insured depository institutions
generally do not distinguish between exposures with affiliates and
third parties. For example, the LCR rule assigns outflow rates to
funding according to the characteristics of the source of funding, but
generally does not distinguish between funding provided by an affiliate
or third party.\65\ Excluding inter-affiliate transactions from off-
balance sheet exposure, size, and weighted short-term wholesale funding
indicators would be inconsistent with the treatment of these exposures
under the capital and liquidity rules.
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\63\ See 12 CFR 252.2 and 252.150 (definition of ``Average
combined U.S. assets).''
\64\ See Call Report instructions, FR Y-9C.
\65\ For example, the LCR rule differentiates between unsecured
wholesale funding provided by financial sector entities and by non-
financial sector entities, but does not differentiate between
financial sector entities that are affiliates and those that are not
affiliates. 12 CFR 249.32(h). The LCR rule differentiates between
affiliates and third parties under limited circumstances. See, e.g.,
12 CFR 249.32(g)(7).
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In some cases, the exclusion of inter-affiliate transactions would
not align with the full scope of risks intended to be measured by an
indicator. Inter-affiliate positions can represent sources of risk--for
example, claims on the resources of a foreign banking organization's
U.S. operations.\66\ As another example, short-term wholesale funding
provided to a U.S. intermediate holding company by its parent foreign
bank represents funding that the parent could withdraw quickly, which
could leave fewer assets available for U.S. counterparties of the U.S.
intermediate holding company.\67\ By including inter-affiliate
transactions in weighted short-term wholesale funding while excluding
these positions from cross-jurisdictional liabilities, the framework
provides a more risk-sensitive measure of funding risk from foreign
affiliates as it takes into consideration the maturity and other risk
characteristics of the funding for purposes of the weighted short-term
wholesale funding measure. Additionally, because long-term affiliate
funding (such as instruments used to meet total loss absorbing capacity
requirements) would not be captured in weighted short-term wholesale
funding, the indicator is designed to avoid discouraging a foreign
parent from providing support to its U.S. operations.
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\66\ Domestic banking organizations are required to establish
and maintain procedures for monitoring risks associated with funding
needs across significant legal entities, currencies, and business
lines. See, e.g., 12 CFR 252.34(h)(2).
\67\ See e.g., Robert H. Gertner, David S. Scharfstein & Jeremy
C. Stein, ``Internal Versus External Capital Markets,'' 109 Q.J.
ECON. 1211 (1994) (discussing allocation of resources within a
consolidated organization through internal capital markets); Nicola
Cetorelli & Linda S. Goldberg, ``Global Banks and International
Shock Transmission: Evidence from the Crisis,'' 59 IMF ECON. REV. 41
(2011) (discussing the role of internal capital markets as a
mechanism for transmission of stress in the financial system);
Nicola Cetorelli & Linda Goldberg, ``Liquidity Management of U.S.
Global Banks: Internal Capital Markets in the Great Recession''
(Fed. Reserve Bank of N. Y. Staff Report No. 511, 2012), available
at: https://www.newyorkfed.org/research/staff_reports/sr511.pdf
(finding that foreign affiliates were both recipients and providers
of funds to the parent between March 2006 and December 2010). See
also, Ralph de Haas and Iman Van Lelyvelt, ``Internal Capital
Markets and Lending by Multinational Bank Subsidiaries (2008)
(discussing substitution effect in lending across several countries
as a parent bank expand its business in those countries where
economic conditions improve and decrease its activities where
economic circumstance worsen), available at: https://www.ebrd.com/downloads/research/economics/workingpapers/wp0105.pdf.
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Similarly, with respect to off-balance sheet exposure, an exclusion
for inter-affiliate transactions would not account for the risks
associated with any funding commitments provided by the U.S. operations
of a foreign banking organization to non-U.S. affiliates. Accordingly,
the Board believes it would be inappropriate to exclude inter-affiliate
transactions from the measure of off-balance sheet exposure.
For purposes of the nonbank assets indicator, the proposals would
have treated inter-affiliate transactions similarly for foreign and
domestic banking organizations. For foreign banking organizations, the
proposals would have measured nonbank assets as the sum of assets in
consolidated U.S. nonbank subsidiaries together with investments in
unconsolidated U.S. nonbank companies that are controlled by the
foreign banking organization.\68\ Both foreign and domestic banking
organizations would have included in nonbank assets inter-affiliate
transactions between the nonbank company and other parts of the
organization.\69\
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\68\ See FR Y-9LP, Schedule PC-B, line item 17.
\69\ See FR Y-9 LP Instructions for Preparation of Parent
Company Only Financial Statements for Large Holding Companies
(September 2018).
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Accordingly, for purposes of the risk-based indicators, the final
rule adopts the treatment of inter-affiliate transactions as proposed.
H. Determination of Applicable Category of Standards
Under the proposals, a banking organization would have determined
its category of standards based on the average levels of each indicator
at the banking organization, reported over the preceding four calendar
quarters. If the banking organization had not reported risk-based
indicator levels for each of the preceding four calendar quarters, the
category would have been based on the risk-based indicator level for
the quarter, or average levels over the quarters, that the banking
organization has reported.
For a change to a more stringent category (for example, from
Category IV to Category III), the change would have been based on an
increase in the average value of its indicators over the prior four
quarters of a calendar year. In contrast, for a banking organization to
change to a less stringent category (for example, Category II to
Category III), the banking organization would have been required to
report risk-based indicator levels below any applicable threshold for
the more stringent category in each of the four preceding calendar
quarters. Changes in a banking organization's requirements that result
from a change in category generally would have taken effect on the
first day of the second quarter following the change in the banking
organization's category.
The Board received several comments on the process for determining
the applicable category of standards under the proposal and on the
amount of time provided to comply with the
[[Page 59049]]
requirements of a new category. In particular, several commenters
suggested providing banking organizations with at least 18 months to
comply with a more stringent category of standards. Several commenters
recommended that the Board retain discretion to address a temporary
increase in an activity, such as to help a banking organization avoid a
sudden change in the categorization of applicable standards. These
commenters suggested that any adjustments of thresholds could consider
both qualitative information and supervisory judgment. Commenters also
requested that the Board clarify the calculation of certain indicators;
for example, by providing references to specific line items in the
relevant reporting forms. One commenter also suggested that the Board
revise the reporting forms used to report risk-based indicator levels
so that they apply to a depository institution that is not part of a
bank or savings and loan holding company structure.
The final rule maintains the process for determining the category
of standards applicable to a banking organization as proposed. To move
into a category of standards or to determine the category of standards
that would apply for the first time, a banking organization would rely
on an average of the previous four quarters or, if the banking
organization has not reported in each of the prior four quarters, the
category would be based on the risk-based indicator level for the
quarter, or average levels over the quarter or quarters, that the
banking organization has reported. Use of a four-quarter average would
capture significant changes in a banking organization's risk profile,
rather than temporary fluctuations, while maintaining incentives for a
banking organization to reduce its risk profile relative to a longer
period of measurement.
To move to a less stringent category of standards, a banking
organization must report risk-based indicator levels below any
applicable threshold for the more stringent category in each of the
four preceding calendar quarters. This approach is consistent with the
existing applicability and cessation requirements of the Board's
enhanced prudential standards rule.\70\ In addition, the final rule
would adopt the transition for compliance with a new category of
standards as proposed. Specifically, a banking organization that
changes from one category of applicable standards to another category
must generally comply with the new requirements no later than on the
first day of the second quarter following the change in category.
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\70\ See, e.g., 12 CFR 252.43.
---------------------------------------------------------------------------
The final rule does not provide for discretionary adjustments of
thresholds on a case-by-case basis, because such an approach would
diminish the transparency and predictability of the framework and could
reduce incentives for banking organizations to engage in long-term
management of their risks.\71\
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\71\ The Board retains the general authority under its enhanced
prudential standards, capital, and liquidity rules to increase or
adjust requirements as necessary on a case-by-case basis. See 12 CFR
217.1(d); 249.2; 252.3.
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Each risk-based indicator will generally be calculated in
accordance with the instructions to the FR Y-15, FR Y-9LP, Capital and
Asset Report for Foreign Banking Organizations (FR Y-7Q), or FR Y-9C,
as applicable. The risk-based indicators must be reported for the
banking organization on a quarterly basis.\72\ U.S. banking
organizations currently report the information necessary to determine
their applicable category of standards based on a four-quarter average.
In response to concerns raised by commenters, the Board also is
revising its reporting forms to specify the line items used in
determining the risk-based indicators. Section XV of this Supplementary
Information discusses changes to reporting requirements, and identifies
the specific line items that will be used to calculate risk-based
indicators.\73\ With respect to the commenters' concern regarding the
applicability of these reporting forms to depository institutions that
are not part of a bank or savings and loan holding company structure,
the Board notes that no such depository institution would be subject to
the final rule based on first quarter 2019 data. The Board will monitor
the implementation of the final rule and make any such adjustments to
reporting forms, as needed, to require such a depository institution to
report risk-based indicator levels.
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\72\ A foreign banking organization must also report risk-based
indicators as with respect to the organization's combined U.S.
operations as applicable under the final rule.
\73\ Although U.S. intermediate holding companies currently
report the FR Y-15, the revised form would reflect the cross-
jurisdictional activity indicator adopted in the final rule.
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Some commenters asserted that banking organizations could adjust
their exposures to avoid thresholds, including by making temporary
adjustments to lower risk-based indicator levels reported. The Board
will continue to monitor risk-based indicator amounts reported and
information collected through supervisory processes to ensure that the
risk-based indicators are reflective of a banking organization's
overall risk profile, and would consider changes to reporting forms, as
needed. In particular, the Board will monitor weighted short-term
wholesale funding levels reported at quarter-end, relative to levels
observed during the reporting period.
VI. Prudential Standards for Large U.S. and Foreign Banking
Organizations
A. Category I Standards
U.S. GSIBs are subject to the most stringent prudential standards
relative to other firms, which reflects and helps to mitigate the
heightened risks these firms pose to U.S. financial stability.
The domestic proposal would have required that U.S. GSIBs remain
subject to the most stringent stress testing requirements, such as an
annual supervisory stress testing, FR Y-14 reporting requirements, and
a requirement to conduct company-run stress tests on an annual basis.
Consistent with changes made by EGRRCPA, the proposal would have
removed the mid-cycle company-run stress test requirement for all bank
holding companies, including U.S. GSIBs.\74\ The proposal would have
maintained the requirement for a U.S. GSIB to conduct an annual
company-run stress test.
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\74\ Section 401 of EGRRCPA amended section 165(i) of the Dodd-
Frank Act to require company-run stress tests to be conducted
periodically rather than on a semi-annual basis. Certain commenters
requested that the Board remove the mid-cycle company-run stress
test requirement for the 2019 stress test cycle. Because the final
rule is effective after October 5, 2019, which was the due date for
mid-cycle company-run stress tests, the removal of this requirement
will take effect for the 2020 stress test cycle.
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While many commenters supported a reduction in the frequency of
company-run stress testing, some commenters expressed the view that
this aspect of the proposal could weaken a tool that is intended to
enhance the safety and soundness of banking organizations. These
commenters argued that the Board should postpone removing the mid-cycle
company-run stress test until the efficacy of this requirement has been
evaluated over a full business cycle.
Relative to the annual company-run stress test, the mid-cycle
company-run stress test has provided only modest risk management
benefits and limited incremental information to market participants. To
provide additional flexibility to respond to changes in the risk
profile of a banking organization or in times of stress, it is
important for the Board to have the ability to adjust the frequency of
the company-run stress test requirement. Accordingly, and in
[[Page 59050]]
response to commenters, the final rule eliminates the mid-cycle stress
testing requirement for all bank holding companies but provides the
Board authority to adjust the required frequency at which a banking
organization, including a U.S. GSIB, must conduct a stress test based
on its financial condition, size, complexity, risk profile, scope of
operations, or activities, or risks to the U.S. economy. The final rule
therefore provides flexibility to the Board to require more frequent
company-run stress testing as needed, while minimizing the burden
associated with an ongoing semi-annual requirement.
Some commenters also requested that the Board eliminate its ability
to object to a firm's capital plan on the basis of qualitative
deficiencies (qualitative objection) for all banking organizations.\75\
This comment was addressed after the domestic proposal was issued in a
separate rulemaking. In March 2019, the Board eliminated the
qualitative objection for most firms, including firms that are subject
to Category I standards under this final rule.\76\ In recognition of
the progress that firms have made in their risk management and capital
planning practices, their significantly strengthened capital positions,
and changes to the Board's supervisory processes, the Board expressed
its belief that it is appropriate to transition away from the
qualitative objection under the capital plan rule. Because the
qualitative objection has led to improvements in firms' capital
planning, however, the Board decided to temporarily retain the
qualitative objection for firms that recently became subject to the
Federal Reserve's qualitative assessment, including certain U.S.
intermediate holding companies. In doing so, the capital plan rule
provides additional time for those firms to improve their capital
planning practices before the qualitative objection is removed. While
the qualitative objection no longer applies to certain banking
organizations, all banking organizations continue to be subject to
robust supervisory assessments of their capital planning practices.
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\75\ The qualitative assessment evaluates the strength of a
company's capital planning process, including the extent to which
the analysis underlying a company's capital plan comprehensively
captures and addresses potential risks stemming from company-wide
activities, as well as the reasonableness of a company's capital
plan and the assumptions and analysis underlying the plan.
\76\ 84 FR 8953 (March 13, 2019). Specifically, a firm that
participates in four assessments and successfully passes the
qualitative evaluation in the fourth year is no longer subject to a
potential qualitative objection.
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The proposal also would have required U.S. GSIBs to remain subject
to the most stringent liquidity standards, including the liquidity risk
management, monthly internal liquidity stress testing, and liquidity
buffer requirements under the enhanced prudential standards rule. The
proposal also would have required U.S. GSIBs to report certain
liquidity data for each business day under the FR 2052a. The Board did
not receive comments on the continued application of these enhanced
liquidity standards to U.S. GSIBs and is finalizing liquidity
requirements for U.S. GSIBs as proposed.
B. Category II Standards
The proposals would have required banking organizations subject to
Category II standards to remain subject to the most stringent stress
testing requirements, including annual supervisory stress testing, FR
Y-14 reporting requirements, and a requirement to conduct company-run
stress tests on an annual basis. As noted above, the failure or
distress of a U.S. banking organization or the U.S. operations of a
foreign banking organization that is subject to Category II standards
could impose significant costs on the U.S. financial system and
economy, although these banking organizations generally do not present
the same degree of systemic risk as U.S. GSIBs. Sophisticated stress
testing helps to address the risks presented by the size and cross-
jurisdictional activity of such banking organizations.\77\
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\77\ See section V.C of this Supplementary Information.
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The Board did not receive any comments related to capital planning
and stress testing for firms subject to Category II standards, other
than those discussed for Category I. The Board is finalizing the
removal of the mid-cycle stress test for firms subject to Category II
standards and adjusting the frequency of stress testing requirements,
as discussed above. The Board is not finalizing changes to the capital
plan rule to amend the definition of large and noncomplex bank holding
company at this time, however. The Board intends to consider such
changes in conjunction with other changes to the capital plan rule as
part of a future capital plan proposal.
With respect to liquidity, the proposals would have maintained the
existing liquidity risk management, monthly internal liquidity stress
testing, and liquidity buffer requirements under the enhanced
prudential standards rule for banking organizations that would have
been subject to Category II standards. The liquidity risk management
requirements under the Board's enhanced prudential standards rule
reflect important elements of liquidity risk management in normal and
stressed conditions, such as cash flow projections and contingency
funding plan requirements. Similarly, internal liquidity stress testing
and buffer requirements require a banking organization to project its
liquidity needs based on its own idiosyncratic risk profile and to hold
a liquidity buffer sufficient to cover those needs. A banking
organization subject to Category II standards under the proposals would
have been required to conduct internal liquidity stress tests on a
monthly basis. A U.S. banking organization would have conducted such
stress tests at the top-tier consolidated level, whereas a foreign
banking organization would have been required to conduct internal
liquidity stress tests separately for each of its U.S. intermediate
holding company, if applicable, its collective U.S. branches and
agencies, and its combined U.S. operations. The proposals would have
also required a top-tier U.S. depository institution holding company or
foreign banking organization subject to Category II standards to report
FR 2052a liquidity data for each business day.
Category II liquidity standards are appropriate for banking
organizations of a very large size or with significant cross-
jurisdictional activity. Such banking organizations may have greater
liquidity risk and face heightened challenges for liquidity risk
management compared to an organization that is smaller or has less of a
global reach. In addition, a very large banking organization that
becomes subject to funding disruptions may need to engage in asset fire
sales to meet its liquidity needs and has the potential to transmit
distress to the financial sector on a broader scale because of the
greater volume of assets it could sell in a short period of time.
Similarly, a banking organization with significant cross-jurisdictional
activity may have greater challenges in the monitoring and management
of its liquidity risk across jurisdictions and may be exposed to a
greater diversity of liquidity risks as a result of its more global
operations.
The Board received comments related to the frequency and submission
timing of FR 2052a reporting for banking organizations subject to
Category II standards. These comments are discussed below in section XV
of this Supplementary Information. Otherwise,
[[Page 59051]]
commenters did not provide views on liquidity requirements applicable
under Category II. The Board is adopting Category II liquidity
standards as proposed.
C. Category III Standards
For banking organizations subject to Category III standards, the
proposals would have removed the mid-cycle company-run stress testing
requirement and changed the frequency of the required public disclosure
for company-run stress test results to every other year rather than
annually. The proposals would have maintained all other stress testing
requirements for banking organizations subject to Category III
standards. These standards would have included the requirements for an
annual capital plan submission and annual supervisory stress testing. A
firm subject to Category III standards would also be required to
conduct an internal stress test, and report the results on the FR Y-
14A, in connection with its annual capital plan submission.
A number of commenters requested that the Board clarify the
relationship between the capital plan rule and the stress testing rules
and minimize the imposition of any additional requirements or
processes. Specifically, commenters requested that the Board clarify
expectations for internal stress testing conducted in years during
which a company-run stress test would not be required. These commenters
requested that internal stress tests be aligned with the analysis
required under the capital plan rule by, for example, relying on the
capital action assumptions in the Board's stress testing rules. In
addition, some of these commenters suggested that the Board reduce
burden by limiting the number of scenarios required. Alternatively,
some commenters requested that the Board reduce the frequency of the
stress testing cycle--including capital plan submissions--to every
other year for banking organizations subject to Category III standards.
The final rule retains the frequency of supervisory stress testing
and FR Y-14 reporting requirements as proposed. These requirements help
to ensure that a banking organization subject to Category III standards
maintains sufficient capital to absorb unexpected losses and continue
to serve as a financial intermediary under stress. Additionally, all
large banking organizations should maintain a sound capital planning
process on an ongoing basis, including in years during which a company-
run stress test is not required.\78\ As noted in the proposals, the
Board will consider any other changes to the capital plan rule as part
of a separate capital plan proposal. Reporting requirements are
discussed in more detail in section XV of this Supplementary
Information.
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\78\ See SR letters 15-18 and 15-19.
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Other commenters requested that the Board retain the requirement
for banking organizations to publicly disclose the results of their
stress tests on an annual basis. The Board will continue to publish its
annual supervisory stress test results for firms subject to Category
III standards and thus the reduced frequency to every other year of
firm's required public disclosure should only modestly limit the amount
of information that is publicly available. Accordingly, the final rule
adopts the stress testing disclosure requirements for banking
organizations subject to Category III standards without change.
The proposals would have applied the existing liquidity risk
management, monthly internal liquidity stress testing, and liquidity
buffer requirements under the enhanced prudential standards rule to
banking organizations subject to Category III standards. Additionally,
the proposals would have required a top-tier U.S. depository
institution holding company or foreign banking organization subject to
Category III standards to report daily or monthly FR 2052a liquidity
data, depending on the weighted short-term wholesale funding level of
the domestic holding company or the foreign banking organization's
combined U.S. operations. Specifically, to provide greater insight into
banking organizations with heightened liquidity risk, the Board
proposed that a top-tier U.S. holding company with $75 billion or more
in weighted short-term wholesale funding, or a foreign banking
organization with U.S. operations having at least that amount of
weighted short-term wholesale funding, be required to submit FR 2052a
data for each business day.
The Board did not receive comments on the application of liquidity
stress testing and buffer requirements to banking organizations subject
to Category III standards. With respect to liquidity risk management
requirements, some commenters requested that the rule permit a banking
organization's board of directors to delegate certain oversight and
approval functions to a risk committee with primary responsibility for
overseeing liquidity risks, including approval of liquidity policies
and review of quarterly risk reports. These commenters also requested
elimination of the requirement for a banking organization's board or
risk committee to review or approve certain operational documents, such
as cash flow projection methodologies and liquidity risk procedures,
arguing that these responsibilities are more appropriate for senior
management than the board or a committee of the board.
The Board has long taken the view that the board of directors
should have responsibility for oversight of liquidity risk management
because the directors have ultimate responsibility for the strategic
direction of the banking organization, and thus its liquidity profile.
Certain risk management responsibilities, however, are assigned to
senior management. As such, the final rule maintains the requirement
for the board of directors to approve and periodically review the
liquidity risk management strategies and policies and review quarterly
risk reports. In addition, the final rule continues to state that the
liquidity risk management requirements for certain operational
documents such as cash flow projection methodologies require submission
to the risk committee, rather than the board of directors, for
approval.\79\ The final rule adopts Category III liquidity risk-
management standards as proposed, including monthly liquidity stress
testing and liquidity buffer maintenance requirements.
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\79\ See 12 CFR 252.34(e)(3).
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Additionally, as discussed in section XV of this Supplementary
Information, the Board received certain comments related to the
frequency and timeliness of FR 2052a reporting for banking
organizations subject to Category III standards. As discussed in that
section, the Board is finalizing FR 2052a reporting requirements for
banking organizations subject to Category III standards generally as
proposed, with minor changes to submission timing.
D. Category IV Standards
The proposal would have applied revised stress testing requirements
to banking organizations subject to Category IV standards to align with
the risk profile of these firms. Specifically, the proposal would have
revised the frequency of supervisory stress testing to every other year
and eliminated the requirement for firms subject to Category IV
standards to conduct and publicly disclose the results of a company-run
stress test. Firms subject to Category IV standards also would be
subject to FR Y-14 reporting requirements. Relative to current
requirements under the enhanced
[[Page 59052]]
prudential standards rule, the proposed Category IV standards would
have maintained core elements of existing standards but tailored these
requirements to reflect these banking organizations' lower risk profile
and lesser degree of complexity relative to other large banking
organizations.
Many commenters supported the reduced frequency of supervisory
stress tests as a form of burden reduction. However, some commenters
opposed this change and expressed concern that it would allow banking
organizations subject to Category IV standards to take on additional
risk during off-cycle years, and limit the public and market's ability
to assess systemic risk. Other commenters also argued that stress
testing requirements are not justified for banking organizations
subject to Category IV standards in view of the significant costs and
burden associated with such requirements. Some commenters requested
that the Board provide additional information on the impact of reducing
the frequency of supervisory stress testing for banking organizations
subject to Category IV standards.
Supervisory stress testing on a two-year cycle is consistent with
section 401(e) of EGRRCPA, and takes into account the risk profile of
these banking organizations relative to those that are larger and more
complex. Maintaining FR Y-14 reporting requirements for firms subject
to Category IV standards will provide the Board with the data it needs
to conduct supervisory stress testing and inform ongoing supervision of
these firms. The Federal Reserve will continue to supervise banking
organizations subject to Category IV standards on an ongoing basis,
including evaluation of the capital adequacy and capital planning
processes during off-cycle years. In addition, the final rule provides
the Board with authority to adjust the frequency of stress testing
requirements based on the risk profile of a banking organization or
other factors. Accordingly, the final rule adopts the revisions to the
frequency of supervisory stress testing requirements for firms subject
to Category IV standards as proposed. Reporting requirements are
discussed in more detail in section XV below.
Similar to the comments discussed above, several commenters
requested that the Board clarify the relationship between the capital
plan rule and the stress testing rules for banking organizations
subject to Category IV standards. In particular, commenters requested
that the Board clarify what information would be required in a capital
plan and related reporting forms submitted by a banking organization
subject to Category IV standards, given that these banking
organizations would not be subject to company-run stress testing
requirements. Other commenters requested that any forward-looking
analysis required for banking organizations subject to Category IV
standards be limited and not require hypothetical stress scenarios. The
Board plans to propose changes to the capital plan rule as part of a
separate proposal, including providing firms subject to Category IV
standards additional flexibility to develop their annual capital plans.
Under the proposals, Category IV standards would have included
liquidity risk management, stress testing, and buffer requirements.
Banking organizations subject to Category IV standards also would have
been required to report FR 2052a liquidity data on a monthly basis.
While the proposals would have retained core liquidity requirements
under Category IV standards, certain liquidity risk management and
liquidity stress testing requirements would have been further tailored
to more appropriately reflect the risk profiles of banking
organizations subject to this category of standards.
As a class, banking organizations that would have been subject to
Category IV standards tend to have more stable funding profiles, as
measured by their generally lower level of weighted short-term
wholesale funding, and lesser degrees of liquidity risk and operational
complexity associated with size, cross-jurisdictional activity, nonbank
assets, and off-balance sheet exposure. Accordingly, the proposals
would have reduced the frequency of required internal liquidity stress
testing to at least quarterly, rather than monthly. The proposals would
not have changed other aspects of the liquidity buffer requirements for
banking organizations subject to Category IV standards.
The proposals would have modified certain liquidity risk-management
requirements under the enhanced prudential standards rule for banking
organizations subject to Category IV standards. First, the proposals
would have required such banking organizations to calculate collateral
positions on a monthly basis, rather than a weekly basis. Second, the
proposals would have further tailored the requirement under the
enhanced prudential standards rule for certain bank holding companies
to establish risk limits to monitor sources of liquidity risk.\80\
Third, Category IV standards would have specified fewer required
elements of monitoring intraday liquidity risk exposures.\81\ Such
changes would have reflected the generally more stable funding profiles
and lower degrees of intraday risk and operational complexity of these
banking organizations relative to those that are larger and more
complex. Under the proposals, banking organizations subject to Category
IV standards also would have been required to report FR 2052a liquidity
data on a monthly basis.
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\80\ 12 CFR 252.34(g).
\81\ See 12 CFR 252.34(h)(3).
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Some commenters objected to the liquidity risk-management standards
proposed for banking organizations subject to Category IV standards, on
the basis that any reduction in such requirements could increase safety
and soundness and financial stability risks. Other commenters supported
this aspect of the proposals, and asserted that it would distinguish
more effectively between banking organizations in this category and
those that are larger and more complex.
Banking organizations subject to Category IV standards generally
are less prone to funding disruptions, even under stress conditions.
Monthly FR 2052a information, which is discussed in more detail in
section XV below, together with information obtained through the
supervisory process, allows the Board to monitor the liquidity risk
profiles of these banking organizations. Accordingly, the final rule
adopts the proposed Category IV liquidity standards without change.
VII. Single-Counterparty Credit Limits
In 2018, the Board adopted a final rule to apply single-
counterparty credit limits to large U.S. and foreign banking
organizations (single-counterparty credit limits rule). The single-
counterparty credit limits rule limits the aggregate net credit
exposure of a U.S. GSIB and any bank holding company with total
consolidated assets of $250 billion or more to a single counterparty.
The credit exposure limits are tailored to the size and systemic
footprint of the firm. Single-counterparty credit limit requirements
also apply to a foreign banking organization with $250 billion or more
in total consolidated assets with respect to its combined U.S.
operations, and separately to any subsidiary U.S. intermediate holding
company of such a firm.\82\ A foreign banking organization may comply
with single-counterparty credit limits applicable to its combined U.S.
operations by certifying that it
[[Page 59053]]
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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\82\ 12 CFR 252.170(a).
\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.
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The domestic proposal would have modified the thresholds for
application of the single-counterparty credit limit rule to apply
single-counterparty credit limits to all U.S. bank holding companies
that would be subject to Category II or Category III standards. This
change would have aligned the thresholds for application of single-
counterparty credit limits requirements with the proposed thresholds
for other prudential standards. Similarly, the foreign bank proposal
would have revised the single-counterparty credit limit requirements to
align with the proposed thresholds for other enhanced prudential
standards applied to the U.S. operations of foreign banking
organizations. Under the proposal, single-counterparty credit limits
would have applied to foreign banking organizations subject to Category
II or Category III standards or to a foreign banking organization with
$250 billion or more in total consolidated assets. The proposal would
have preserved the ability of a foreign banking organization 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 have applied single-
counterparty credit limits separately to a U.S. intermediate holding
company subsidiary of a foreign banking organization subject to
Category II or Category III standards, based on the risk profile of the
foreign banking organization's combined U.S. operations. Under the
proposal, the requirements previously applicable to U.S. intermediate
holding companies with $250 billion or more in assets would have
applied to all U.S. intermediate holding companies subject to single-
counterparty credit limits--specifically, the aggregate net credit
exposure limit of 25 percent of tier 1 capital, the treatment regarding
exposures to special purpose vehicles (SPVs) and the application of the
economic interdependence and control relationship tests, as well as the
required frequency of compliance. The proposal also would have
eliminated the distinction under the single-counterparty credit limits
rule for ``major'' U.S. intermediate holding companies, and subjected
all U.S. intermediate holding companies subject to the single-
counterparty credit limits rule to the same aggregate net credit
exposure limit. The proposal would not have applied single-counterparty
credit limits to U.S. intermediate holding companies under Category IV.
Many commenters supported the proposed exclusion of U.S.
intermediate holding company subsidiaries of foreign banking
organizations subject to Category IV standards from single-counterparty
credit limits.\84\ Some commenters asserted that single-counterparty
credit limits for a U.S. intermediate holding company should be
determined based on the risk profile of the U.S. intermediate holding
company rather than on the risk profile of the combined U.S. operations
of its parent foreign banking organization. While some commenters
supported the proposal's expansion of single-counterparty credit limit
requirements for U.S. intermediate holding companies with less than
$250 billion in assets under Categories II and III, others argued that
this approach was unnecessary. Some commenters also requested an
extended compliance period for the treatment of exposures to SPVs and
application of the economic interdependence and control test. The
commenters also argued that the Board should give the single-
counterparty credit limits rule the opportunity to take effect before
considering further changes.
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\84\ Some commenters' suggested modifications to the single-
counterparty credit limit rule that are beyond the scope of changes
in this rulemaking. Therefore, these changes are not discussed
separately in this Supplementary Information.
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Single-counterparty credit limits support safety and soundness and
are designed to reduce transmission of distress, particularly for
larger, riskier, and interconnected banking organizations. The risks
indicated by size, cross-jurisdictional activity, off-balance sheet
exposure, and weighted short-term wholesale funding and that result in
the application of Category II and Category III standards evidence
vulnerability to safety and soundness and financial stability risks,
which may be exacerbated if a banking organization has outsized credit
exposure to a single counterparty. Therefore, the final rule adopts the
single-counterparty credit limits proposed for U.S. banking
organizations without change. The Board is, however, revising the
proposed single-counterparty credit limit requirements for U.S.
intermediate holding companies so that the application of such
requirements are based on the risk profile of the U.S. intermediate
holding company rather than on the risk profile of the combined U.S.
operations of its parent foreign banking organization. This revision
would improve the focus and efficiency of single-counterparty credit
limits relative to the proposal, because single-counterparty credit
limits that apply to a U.S. intermediate holding company will be based
on the U.S. intermediate holding company's own risk profile. As a
result, only U.S. intermediate holding companies subject to Category II
or III standards are separately subject to the single-counterparty
credit limits rule. These U.S. intermediate holding companies are
subject to a single net aggregate credit exposure limit of 25 percent
of tier 1 capital. In addition, these firms are subject to the
treatment for exposures to SPVs, the economic interdependence and
control tests, and the daily compliance requirement that was previously
only applicable to U.S. intermediate holding companies with $250
billion or more in assets. The final rule would provide U.S.
intermediate holding companies with less than $250 billion in assets
that are subject to Category II or III standards an additional
transition time, until January 1, 2021, to come into compliance with
more stringent requirements.
VIII. Covered Savings and Loan Holding Companies
The proposal would have subjected covered savings and loan holding
companies to supervisory and company-run stress testing requirements;
risk-management and risk-committee requirements; liquidity risk
management, stress testing, and buffer requirements; and single-
counterparty credit limits, pursuant to section 10(g) of the Home
Owners' Loan Act (HOLA).\85\ These requirements would have been applied
to covered savings and loan holding companies in the same manner as a
similarly situated bank holding company.\86\ As described in the
reporting section, section XV, the proposal would have expanded the
scope of applicability of the FR Y-14 reporting requirements to apply
to covered savings and loan holding companies with total consolidated
assets of $100 billion or more. The proposal also noted that the Board
planned to seek comment on the application of capital planning
requirements to covered savings and
[[Page 59054]]
loan holding companies that would be consistent with the capital
planning requirements for large bank holding companies as part of a
separate proposal.
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\85\ 12 U.S.C. 1467a(g).
\86\ A covered savings and loan holding company would not be
subject to Category I standards as the definition of ``global
systemically important BHC'' under the GSIB surcharge rule does not
include savings and loan holding companies. See 12 CFR 217.2.
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Some commenters argued that the Board lacks the authority to apply
prudential standards to savings and loan holding companies that are not
designated by the Financial Stability Oversight Council (FSOC) as
systemically important nonbank financial companies under section 113 of
the Dodd-Frank Act.\87\ These commenters argued that the Board may only
apply the proposed prudential standards to covered savings and loan
holding companies that have been designated by the FSOC for supervision
by the Board and not based on the general grant of authority in section
10(g) of the HOLA.\88\ Commenters argued that application of prudential
standards to covered savings and loan holding companies pursuant to
section 10(g) of HOLA implied that these prudential standards could be
applied to banking organizations regardless of size, an inference that
commenters asserted would be contrary to the congressional intent of
the Dodd-Frank Act and EGRRCPA.
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\87\ 12 U.S.C. 5323.
\88\ Specifically, commenters argued that relying on the general
authority of section 10(g) of HOLA to apply prudential standards to
covered savings and loan holding companies would be inconsistent
with a canon of statutory construction that specific statutory
language ordinarily prevail over conflicting general language.
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Section 10(g) of HOLA authorizes the Board to issue such
regulations and orders, including regulations relating to capital
requirements, as the Board deems necessary or appropriate to administer
and carry out the purposes of section 10 of HOLA. As the primary
federal regulator and supervisor of savings and loan holding companies,
one of the Board's objectives is to ensure that savings and loan
holding companies operate in a safe-and-sound manner and in compliance
with applicable law. Like bank holding companies, savings and loan
holding companies must serve as a source of strength to their
subsidiary savings associations and may not conduct operations in an
unsafe and unsound manner.
Section 165 of the Dodd-Frank Act directs the Board to establish
specific enhanced prudential standards for large bank holding companies
and companies designated by FSOC in order to prevent or mitigate risks
to the financial stability of the United States.\89\ Section 165 does
not prohibit the application of standards to savings and loan holding
companies and bank holding companies pursuant to other statutory
authorities.\90\
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\89\ 12 U.S.C. 5365(a)(1).
\90\ See EGRRCPA 401(b).
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One commenter supported the proposal's application of prudential
standards to covered savings and loan holding companies, asserting that
covered savings and loan holding companies have similar risk profiles
as bank holding companies and therefore should not be treated
differently under the Board's regulatory framework. Another commenter
asserted that certain of the risk-based indicators were not reflective
of risks to safety and soundness for savings and loan holding companies
and should be modified. Similarly, this commenter also argued that
covered savings and loan holding companies were less risky and less
complex than bank holding companies of the same size and should be
subject to streamlined capital planning requirements and supervisory
expectations. The commenter also opposed the application of single-
counterparty credit limits to covered savings and loan holding
companies on the basis that the application of these standards would be
inconsistent with the qualified thrift lender test, described below.
This commenter argued that, if applied, the limits should be modified
to exclude mortgage-backed securities of U.S. government-sponsored
enterprises.
Large covered savings and loan holding companies engage in many of
the same activities and face similar risks as large bank holding
companies. By definition, covered savings and loan holding companies
are substantially engaged in banking and financial activities,
including deposit taking, lending, and broker-dealer activities.\91\
Large covered savings and loan holding companies engage in credit card
and margin lending and certain complex nonbanking activities that pose
higher levels of risk. Large covered savings and loan holding companies
can also rely on high levels of short-term wholesale funding, which may
require sophisticated capital, liquidity, and risk management
processes. Similar to large bank holding companies, large covered
savings and loan holding companies also conduct business across a large
geographic footprint, which in times of stress could present certain
operational risks and complexities. As discussed above in section V,
the risk-based indicators identify risks to safety and soundness in
addition to risks to financial stability. The category framework would
align requirements with the risk profile of a banking organization,
including by identifying risks that warrant more sophisticated capital
planning, more frequent company-run stress testing, and greater
supervisory oversight through supervisory stress testing, to further
the safety and soundness of these banking organizations. By
strengthening the risk-management, capital, and liquidity requirements
commensurate with these risks, the final rule would improve the
resiliency and promote the safe and sound operations of covered savings
and loan holding companies. Accordingly, the Board is adopting the
application of prudential standards to covered savings and loan holding
companies as proposed.
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\91\ A covered savings and loan holding company must have less
than 25 percent of its total consolidated assets in insurance
underwriting subsidiaries (other than assets associated with
insurance underwriting for credit), must not have a top-tier holding
company that is an insurance underwriting company, and must derive a
majority of its assets or revenues from activities that are
financial in nature under section 4(k) of the Bank Holding Company
Act. 12 CFR 217.2.
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These standards include supervisory stress testing and, for
Categories II and III, company-run stress testing requirements.\92\
Stress testing requirements provide a means to better understand the
financial condition of the banking organization and risks within the
banking organization that may pose a threat to safety and soundness. To
implement the supervisory stress testing requirements, the Board is
requiring covered savings and loan holding companies to report the FR
Y-14 reports in the same manner as a bank holding company.\93\ The
final rule does not establish capital planning requirements for covered
savings and loan holding companies. The Board intends to propose to
apply those requirements to covered savings and loan holding companies
as part of a separate proposal that would be issued for public notice
and comment.
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\92\ Company-run stress test requirements are discussed further
in section XIII. of this SUPPLEMENTARY INFORMATION.
\93\ Covered savings and loan holding companies with total
consolidated assets of $100 or more are required to report the FR Y-
14M and all schedules of the FR Y-14Q except for Schedules C--
Regulatory Capital Instruments and Schedule D--Regulatory Capital
Transitions. These firms also are required to report the FR Y-14A
Schedule E--Operational Risk. Covered savings and loan holding
companies subject to Category II or III standards are required to
submit the FR Y-14A Schedule A--Summary and Schedule F--Business
Plan Changes in connection with the company-run stress test
requirement.
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The final rule also would apply liquidity risk management, stress
testing and buffer requirements to covered savings and loan holding
companies. Specifically, a covered savings and loan holding company is
required to conduct internal stress tests at least monthly (or
[[Page 59055]]
quarterly, for a firm that is subject to Category IV standards) to
measure its potential liquidity needs across overnight, 30-day, 90-day,
and 1-year planning horizons during times of instability in the
financial markets. In addition, the covered savings and loan holding
company is required to hold highly liquid assets sufficient to meet the
projected 30-day net stress cash-flow need under internal stress
scenarios. A covered savings and loan holding company is also required
to meet specified corporate governance requirements around liquidity
risk management, to produce cash flow projections over various time
horizons, to establish internal limits on certain liquidity metrics,
and to maintain a contingency funding plan that identifies potential
sources of liquidity strain and alternative sources of funding when
usual sources of liquidity are unavailable. These liquidity risk
management, liquidity stress testing, and buffer requirements help to
ensure that covered savings and loan holding companies have effective
governance and risk-management processes to determine the amount of
liquidity to cover risks and exposures, and sufficient liquidity to
support their activities through a range of conditions.
The final rule applies single-counterparty credit limits to covered
savings and loan holding companies that are subject to Category II or
III standards as proposed. Application of single-counterparty credit
limits to covered savings and loan holding companies would reduce the
likelihood that distress at another firm would be transmitted to the
savings and loan holding company.
The single-counterparty credit limits exempt transactions with
government-sponsored entities (GSEs), such as the Federal National
Mortgage Association (Fannie Mae) or the Federal Home Loan Mortgage
Corp. (Freddie Mac), from limits on credit exposure, so long as the GSE
remains under U.S. government conservatorship.\94\ As commenters
observed, if the GSEs exit conservatorship, the single-counterparty
credit limits would limit a banking organization from holding mortgage-
backed securities of U.S. GSEs (Agency MBS) in excess of 25 percent of
tier 1 capital.\95\ The qualified thrift lender test (QTL test)
requires a savings association to either be a domestic building
association or have qualified thrift investments exceeding 65 percent
of its portfolio assets.\96\ The QTL test permits Agency MBS to be used
to satisfy the QTL test without limit.\97\ While the GSEs are under
U.S. government conservatorship, the single-counterparty credit limits
would not affect the ability of a banking organization, including a
savings association, to hold Agency MBS.
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\94\ The Board's single-counterparty credit limits exclude any
direct claim on, and the portion of a claim that is directly and
fully guaranteed as to principal and interest by, the Federal
National Mortgage Association and the Federal Home Loan Mortgage
Corporation, only while operating under the conservatorship or
receivership of the Federal Housing Finance Agency. 12 CFR 252.77.
Agency MBS also are considered eligible collateral while the GSEs
remain in conservatorship. 12 CFR 252.71.
\95\ 12 CFR 252.177(a)(1); 12 CFR 238.150.
\96\ 12 U.S.C. 1467a(m)(3)(C).
\97\ 12 U.S.C. 1467a(m)(4)(C)(ii)(III).
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Fannie Mae and Freddie Mac have been operating under the
conservatorship of the Federal Housing Finance Agency since 2008 and,
concurrent with being placed in conservatorship, received capital
support from the United States Department of the Treasury.\98\ The
timing and terms of Fannie Mae and Freddie Mac exiting conservatorship
are uncertain. In addition, other aspects of the Board's regulatory
framework could be affected by a change to the conservatorship status
of Fannie Mae or Freddie Mac. The Board will continue to monitor and
take into consideration any future changes to the conservatorship
status of the GSEs, including the extent and type of support received
by the GSEs. As appropriate, the Board will consider changes to the
application of single-counterparty credit limits to covered savings and
loan holding companies and other banking organizations, as well as to
other aspects of the Board's regulatory framework.
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\98\ See 79 FR 77602 (December 24, 2014).
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Finally, one commenter urged the Board to provide covered savings
and loan holding companies extended transition periods to come into
compliance with the new requirements, if adopted. The final rule would
provide covered savings and loan holding companies a transition period
to come into compliance with the new prudential standards.
Specifically, a covered savings and loan holding company will be
required to comply with risk-management and risk-committee requirements
as well as the liquidity risk-management, stress testing, and buffer
requirements on the first day of the fifth quarter following the
effective date of the final rule. A covered savings and loan holding
company will be required to comply with single-counterparty credit
limits and stress testing requirements on the first day of the ninth
quarter following the effective date of the final rule. Transition
periods for reporting requirements are discussed in section XV of this
SUPPLEMENTARY INFORMATION.
IX. Risk Management and Risk Committee Requirements
Section 165(h) of the Dodd-Frank Act requires certain publicly
traded bank holding companies to establish a risk committee that is
``responsible for the oversight of the enterprise-wide risk management
practices'' and meets other statutory requirements.\99\ EGRRCPA raised
the threshold for mandatory application of the risk-committee
requirement from publicly traded bank holding companies with $10
billion or more in total consolidated assets to publicly traded bank
holding companies with $50 billion or more in total consolidated
assets. However, 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
would be necessary or appropriate to promote sound risk-management
practices.
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\99\ 12 U.S.C. 5363(h).
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The proposal would have raised the threshold for application of
risk-committee requirements consistent with the changes made by
EGRRCPA. Under the proposal, a publicly traded or privately held U.S.
bank holding company with total consolidated assets of $50 billion or
more would have been required to maintain a risk committee. The
proposal would have applied the same risk-committee requirements to
covered savings and loan holding companies with $50 billion or more in
total consolidated assets as would have applied to a U.S. bank holding
company of the same size.
Under the enhanced prudential standards rule, as adopted, all
foreign banking organizations with total consolidated assets of $50
billion or more, and publicly traded foreign banking organizations with
$10 billion or more in total consolidated assets, were required to
maintain a risk committee that met specified requirements. These
requirements varied based on a foreign banking organization's total
consolidated assets and combined U.S. assets. Publicly traded 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, were required to
annually certify to the Board that they maintain a qualifying committee
that oversees the risk management practices
[[Page 59056]]
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
were subject to more detailed risk-committee and risk-management
requirements, including the requirement to appoint a U.S. chief risk
officer.
Consistent with EGRRCPA, the proposal would have raised the total
consolidated asset threshold for application of the risk-committee
requirements to foreign banking organizations but would not have
changed the substance of the risk-committee requirements for these
firms.
One commenter argued for additional flexibility in meeting certain
requirements for certain foreign banking organizations that do not have
a U.S. intermediate holding company. Specifically, the commenter
requested that the Board modify the U.S. chief risk officer requirement
so that foreign banking organizations without a U.S. intermediate
holding company could be allowed to identify a senior officer to serve
as the point of contact responsible for the U.S. risk management
structure.
The Board is finalizing the risk-committee requirements as
proposed. Sound enterprise-wide risk management supports safe and sound
operations of banking organizations and reduces the likelihood of their
material distress or failure, and thus also promotes financial
stability. The final rule applies risk-committee requirements to a
publicly traded or privately held bank holding company or covered
savings and loan holding company with total consolidated assets of $50
billion or more. These standards enhance safety and soundness and help
to ensure independent risk management, which is appropriate for firms
of this size, including both privately held as well as publicly traded
banking organizations. Applying the same minimum standards to covered
savings and loan holding companies accordingly furthers their safety
and soundness by addressing concerns that apply equally across large
depository institution holding companies.
Taking into consideration varying structures of their U.S.
operations, the proposed risk-management requirements are important to
ensure safety and soundness of the U.S. operations of a foreign banking
organization as well. Under the final rule, foreign banking
organizations with $50 billion or more 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, are 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 are required to comply with the more detailed risk-committee and
risk-management requirements under the enhanced prudential standards
rule, which include the chief risk officer requirement. The final rule
eliminates the risk-committee requirements that apply to foreign
banking organizations with less than $50 billion in total consolidated
assets. For banking organizations with less than $50 billion in total
consolidated assets, the Board proposes to review the risk-management
practices of such firms through existing supervisory processes and
expects that all firms establish risk-management processes and
procedures commensurate with their risks.
X. Enhanced Prudential Standards for Foreign Banking Organizations With
a Smaller U.S. Presence
The Board's regulatory framework tailors the application of
enhanced prudential standards to foreign banking organizations based on
the size and complexity of the organization's U.S. operations. In
particular, subparts L and M of the enhanced prudential standards rule,
as adopted, established company-run stress testing and risk-management
and risk-committee requirements for foreign banking organizations with
at least $10 billion but less than $50 billion in total consolidated
assets, the latter of which is described above. Additionally, subpart
N, as adopted, established risk-based and leverage capital, risk-
management and risk-committee, liquidity risk management, and capital
stress testing requirements for foreign banking organizations with at
least $50 billion in total consolidated assets but less than $50
billion in combined U.S. assets.\100\ These provisions largely required
the foreign banking organization to comply with home-country capital
and liquidity standards at the consolidated level, and imposed certain
risk-management requirements that are specific to the U.S. operations
of a foreign banking organization.
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\100\ 79 FR 17240 (March 27, 2014).
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The proposal would have maintained this approach for foreign
banking organizations with a limited U.S. presence; however, it would
have also implemented targeted changes to reduce the stringency of
certain requirements applicable to these firms. It also would have
maintained 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, III, or IV standards.
A. Enhanced Prudential Standards for Foreign Banking Organizations With
Less Than $50 Billion in Total Consolidated Assets
The proposal would have eliminated 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 have
eliminated 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.\101\ 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.\102\
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\101\ Subpart L, as adopted, also applied to foreign savings and
loan holding companies with more than $10 billion in total
consolidated assets. See 12 CFR 252.120 et seq.
\102\ For foreign savings and loan holding companies, the
proposal would have applied company-run stress testing requirements
to foreign savings and loan holding companies with more than $250
billion in total consolidated assets. These requirements would have
been the same as those that were established under 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 final rule, company-run stress test requirements for
foreign savings and loan holding companies would be in the new
subpart R of Regulation LL.
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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. Commenters were
generally supportive of the Board's proposed changes to raise the
thresholds for application of standards consistent with EGRRCPA.
Accordingly, the Board is finalizing
[[Page 59057]]
changes to the thresholds for application of the company-run stress
testing, risk-committee and risk-management requirements as proposed.
B. 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
Subpart N of the enhanced prudential standards rule, as adopted,
established risk-based and leverage capital, liquidity risk management,
and capital stress testing requirements for foreign banking
organizations with $50 billion or more in total consolidated assets but
less than $50 billion in combined U.S. assets. These standards largely
required compliance with home-country standards.
Under the proposed rule, the requirements under subpart N would
have continued 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 changes to the frequency of stress testing
for smaller and less complex domestic holding companies, the proposal
would have required foreign banking organizations with total
consolidated assets of less than $250 billion that do not meet the
criteria for application of Category II, III, or IV standards to be
subject to a home-country supervisory stress test on a biennial basis,
rather than annually.
As discussed above, risk-committee requirements in subpart N would
have been 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 have been 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 have been
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 previously applied to foreign banking organizations
with $100 billion or more in combined U.S. assets.
The Board did not propose to revise the $50 billion U.S. non-branch
asset threshold for the U.S. intermediate holding company formation
requirement. Because a foreign banking organization with less than $100
billion in combined U.S. assets may have or could be required to form a
U.S. intermediate holding company, the proposal would have established
an intermediate holding company requirement for these foreign banking
organizations in subpart N (subpart N intermediate holding company).
Under the proposal, a subpart N intermediate holding company would not
have been subject to Category II, III, or IV capital standards, but
would have remained 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.\103\ Similarly, a
subpart N intermediate holding company would have been required to
comply with risk-management and risk-committee requirements. As under
the current rule, under the proposal the risk committee of the U.S.
intermediate holding company would have also been able to serve as the
U.S. risk committee for the foreign banking organization's combined
U.S. operations.
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\103\ 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.
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Some commenters objected to the U.S. intermediate holding company
requirement entirely. These commenters also argued that, if the
requirement is retained, the threshold should be increased to $100
billion or more, arguing that a $100 billion threshold would be more
consistent with section 401 of EGRRCPA and principle of national
treatment and competitive equality.
A number of commenters argued that the U.S. intermediate holding
company requirement and the standards applied to U.S. intermediate
holding companies discouraged growth through subsidiaries rather than
branches (non-branch assets). Instead, commenters argued that growth in
non-branch assets should be encouraged on the basis that it improved a
foreign banking organization's liquidity risk profile in the United
States. These commenters argued that disincentives to form an U.S.
intermediate holding company were particularly pronounced if the
standards that are applied to the U.S. intermediate holding company are
calibrated based on the risk profile of the foreign banking
organization's combined U.S. operations. Some commenters supported the
proposed application of fewer enhanced prudential standards to subpart
N intermediate holding companies. Other commenters argued that a
subpart N intermediate holding company should be subject to risk
management standards only.
The Board did not propose to amend the threshold for formation of
the U.S. intermediate holding company requirement. The U.S.
intermediate holding company requirement has resulted in substantial
gains in the resilience and safety and soundness of foreign banking
organizations' U.S. operations. EGRRCPA raised the thresholds for
application of section 165 of the Dodd-Frank Act, but did not affect
the $50 billion threshold for application of the U.S. intermediate
holding company requirement.\104\
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\104\ See also EGRRCPA 401(g) (discussing the Board's authority
to apply enhanced prudential standards to foreign banking
organizations with more than $100 billion in total consolidated
assets.
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The final rule would adopt the subpart N intermediate holding
company requirements as proposed. By applying risk management and
standardized capital requirements to subpart N intermediate holding
companies, the enhanced prudential standards rule would treat a subpart
N intermediate holding company similarly to a domestic banking
organization of the same size. As some commenters observed, a subpart N
intermediate holding company would be subject to fewer and less
stringent requirements than a U.S. intermediate holding company of a
foreign banking organization subject to subpart O of the Board's
enhanced prudential standards rule (subpart O intermediate holding
company). Specifically, a subpart N intermediate holding company is not
subject to liquidity risk management, liquidity stress testing and
buffer requirements. In addition, as discussed above, the application
of capital, liquidity and single-counterparty credit limits to a
subpart O intermediate holding company would be based on the risk
profile of the subpart O intermediate holding company. By establishing
two tiers of U.S. intermediate holding company and tailoring the
standards applicable to each type of U.S. intermediate holding company,
this approach would significantly reduce cliff-effects in the standards
applied to U.S. intermediate holding companies and reduce
[[Page 59058]]
disincentives to growth in branch assets relative to non-branch assets.
XI. Technical Changes to the Regulatory Framework for Foreign Banking
Organizations and Domestic Banking Organizations
The proposal would have made 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, the proposal would have added 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 organization,'' ``Category III foreign banking organization,''
or ``Category IV foreign banking organization,'' respectively.
Similarly, the proposal would have added defined terms for ``Category
II U.S. intermediate holding company,'' ``Category III U.S.
intermediate holding company,'' and ``Category IV U.S. intermediate
holding company.'' The addition of these terms would facilitate the
requirements for application of enhanced prudential standards under the
category framework. The final rule uses the Board's GSIB surcharge
methodology to identify a U.S. GSIB and refers to these banking
organizations as global systemically important bank holding companies,
consistent with the term used elsewhere in the Board's regulations. The
final rule adopts these changes as proposed, consistent with the
adoption of the category framework in this final rule.
In addition, the final rule further streamlines the Board's
enhanced prudential standards rule by locating certain definitions
common to all subparts into a common definitions section.\105\ In
addition, the proposal would have made revisions to streamline the
process for forming a U.S. intermediate holding company and for
requesting an alternative organizational structure. The Board did not
receive any comments on these aspects of the proposal and is adopting
these changes as proposed.
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\105\ See 12 CFR 252.2.
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Specifically, the final rule eliminates the requirement to submit
an implementation plan for formation of a U.S. intermediate holding
company. 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 have been
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.
In addition, the Board is making conforming amendments to the
process for requesting an alternative organizational structure for a
U.S. intermediate holding company, as well as clarifying 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 final rule shortens the time period for action
by the Board from 180 days to 90 days. This process applies to both
subpart N and subpart O intermediate holding companies.
As discussed above in sections VI and VII of this Supplementary
Information, capital, liquidity and single-counterparty credit limits
would apply to a U.S. intermediate holding company based on its risk
profile. Subpart O of the enhanced prudential standards rule 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 all such U.S. intermediate holding companies.
The final rule retains this aggregation requirement, but amends the
requirement to consider the risk-based indicators discussed above.
In addition, the final rule provides a reservation of authority to
permit a foreign banking organization to comply with the requirements
of the enhanced prudential standards rule 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 whether the
foreign banking organization is owned or controlled by a foreign
government; (2) whether the action would be consistent with the
purposes of the enhanced prudential standards rule; and (3) any other
factors that the Board determines are relevant. For example, if a 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 the enhanced prudential standards rule 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 the enhanced prudential standards rule. The reservation of
authority is intended to provide additional flexibility to address
certain foreign banking organization structures the Board has
encountered following the initial implementation of the rule, as well
as to provide clarity and reduce burden for these institutions.
Finally, the proposal would have eliminated transition and initial
applicability provisions that were relevant only for purposes of the
initial adoption and implementation of the enhanced prudential
standards rule. For example, the proposal would have removed paragraph
(a)(2) of Sec. 252.14 of part 252, which provides the required timing
of the stress tests for each stress test cycle prior to October 1,
2014. The Board did not receive comments on these aspects of the
proposals and is adopting them without change.
XII. Changes to Liquidity Buffer Requirements
Banking organizations subject to the Board's enhanced prudential
standards rule are required to maintain liquidity buffers composed of
unencumbered highly liquid assets sufficient to cover projected net
stressed cash-flow needs determined under firm-conducted stress
scenarios over specified planning horizons.\106\ At the time of the
proposals, the rule stated that cash and securities issued or
guaranteed by the U.S. government or a U.S. government-sponsored
enterprise are highly liquid assets.\107\ In addition, the rule
required
[[Page 59059]]
banking organizations to demonstrate to the satisfaction of the Board
that any other asset meets specific liquidity criteria in order to use
it to meet the rule's liquidity buffer requirements.\108\
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\106\ A bank holding company subject to the enhanced prudential
standards rule must maintain a liquidity buffer sufficient to meet
its projected net stressed cash-flow needs over a 30-day planning
horizon. Similarly, a foreign banking organization subject to the
enhanced prudential standards rule must maintain a liquidity buffer
for a U.S. intermediate holding company, if any, sufficient to meet
its projected net stressed cash-flow needs over a 30-day planning
horizon. Separately, such a foreign banking organization must
maintain a liquidity buffer for its collective U.S. branches and
agencies sufficient to meet their net stressed cash-flow need over
the first 14 days of a stress test with a 30-day planning horizon.
See 12 CFR 252.35(b)(1) and 252.157(c)(2)-(3).
\107\ 12 CFR 252.35(b)(3)(i)(A)-(B) and 12 CFR
252.157(c)(7)(i)(A)-(B). The foreign bank proposal requested comment
on whether it would be appropriate to limit ``cash'' in the enhanced
prudential standards rule to Reserve Bank balances and foreign
withdrawable reserves. The Board received a comment recommending
that the Board not limit ``cash'' for purposes of the definition of
highly liquid asset. The Board is not revising the term ``cash'' as
part of this final rule.
\108\ 12 CFR 252.35(b)(3)(i)(C) and 12 CFR 252.157(c)(7)(i)(C).
---------------------------------------------------------------------------
The criteria for highly liquid assets set forth in the enhanced
prudential standards rule are substantially similar to the qualifying
criteria for HQLA under the LCR rule, which requires banking
organizations covered by that rule to maintain an amount of HQLA
sufficient to meet net stressed outflows over a 30-day period of
stress.\109\ Under the LCR rule, HQLA includes asset classes that are
expected to be easily and immediately convertible into cash with little
or no expected loss of value during a period of stress. Certain of the
asset classes are also subject to additional, asset-specific
requirements. In the preamble to the enhanced prudential standards
rule, which was adopted prior to finalization of the LCR rule, the
Board indicated that assets that would qualify as HQLA under the then-
proposed LCR rule would be liquid under most scenarios, but a banking
organization would still be required to demonstrate to the Board that
the asset meets the criteria for highly liquid assets set forth in the
enhanced prudential standards rule.
---------------------------------------------------------------------------
\109\ 12 CFR part 249.
---------------------------------------------------------------------------
The foreign bank proposal sought comment on whether to more closely
align the assets that qualify as highly liquid assets in the enhanced
prudential standards rule with HQLA under the LCR rule. Specifically,
the foreign bank proposal asked 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. The foreign bank proposal also
sought comment on whether the Board should incorporate other HQLA
requirements in the enhanced prudential standards rule for highly
liquid assets, such as the LCR rule's Level 2A and Level 2B liquid
asset haircuts, the 40 percent composition limit on the total amount of
Level 2 liquid assets, as well as the operational requirements set
forth in 12 CFR 249.22.
Commenters generally supported aligning the definition of highly
liquid assets with HQLA. However, commenters did not support including
in the enhanced prudential standards rule the haircuts and composition
limits under the LCR rule. These commenters argued that firms should
instead continue to evaluate all market and credit risk characteristics
of assets eligible for inclusion as highly liquid assets, and apply
market and credit risk haircuts consistent with the design of their
internal liquidity stress test scenarios. Commenters also did not
support adding the operational requirements for eligible HQLA under the
LCR rule to the requirements for highly liquid assets under the
enhanced prudential standards rule, arguing that firms should be able
to apply independent judgement in assessing operational or other risks
in the context of highly liquid assets.
Due to the similarity in asset qualification requirements under the
two rules, the Board is amending the definition of highly liquid assets
under the enhanced prudential standards rule to include all assets that
would qualify as HQLA under LCR rule. The asset must satisfy all the
qualifying criteria for HQLA, including, where appropriate, that the
asset is liquid and readily marketable as defined in the LCR rule and
meets the additional asset-specific criteria under the LCR rule.\110\
In addition, the Board is amending the definition of highly liquid
assets to include requirements that the banking organization subject to
the rule demonstrate each asset is under the control of the management
function that is charged with managing liquidity risk (liquidity
management function) and demonstrate the capability to monetize the
highly liquid assets. For banking organizations that are subject to the
LCR rule, the liquidity management function that controls the highly
liquid assets is intended to be the same function that controls
eligible HQLA. For a foreign banking organization, the appropriate
management function is the one that is charged with managing liquidity
risk for its combined U.S. operations.
---------------------------------------------------------------------------
\110\ See 12 CFR 249.20.
---------------------------------------------------------------------------
The Board is retaining, without change, the provision that permits
other assets to qualify as highly liquid assets if the banking
organization demonstrates to the satisfaction of the Board that these
assets meet the criteria for highly liquid assets (Section C
assets).\111\ The Board is clarifying that the banking organization
cannot include Section C assets in its buffer until it has received
approval from the Board.
---------------------------------------------------------------------------
\111\ See 12 CFR 252.35(d)(b)(i)(C) and 12 CFR
252.157(c)(7)(i)(C). The requirements for a Section C asset include
that the bank holding company or foreign banking organization
demonstrate to the satisfaction of the Board that the asset: (1) Has
low credit risk and low market risk; (2) is traded in an active
secondary two-way market that has committed market makers and
independent bona fide offers to buy and sell so that a price
reasonably related to the last sales price or current bona fide
competitive bid and offer quotations can be determined within one
day and settled at that price within a reasonable time period
conforming with trade custom; and (3) is a type of asset that
investors historically have purchased in periods of financial market
distress during which market liquidity has been impaired.
---------------------------------------------------------------------------
As a result of the expansion of the definition of highly liquid
assets to include HQLA, the Board expects other assets will qualify as
highly liquid assets only in narrow circumstances. However, the Board
is retaining this provision to provide a banking organization the
opportunity to determine and demonstrate to the Board that other assets
meet the criteria for highly liquid assets.\112\ For example, it may be
possible for a banking organization to demonstrate that an asset that
is eligible as HQLA under another jurisdiction's LCR rule meets the
requirements for Section C assets. The Board is not changing the
definition of highly liquid assets or other asset requirements under
the rule to include the haircuts or quantitative limits that exist in
the LCR rule. The Board believes that the requirements in the enhanced
prudential standards rule that banking organizations discount the fair
market value of the asset to reflect any credit risk and market price
volatility of the asset serve to address similar concerns as the LCR
rule's haircuts while permitting a banking organization to perform its
own assessment of potential stress. In addition, the enhanced
prudential standard rule's diversification requirement that a liquidity
buffer not contain significant concentrations of highly liquid assets
by issuer, business sector, region, or other factor related to the
banking organization's risk address similar risks as the LCR rule's
quantitative limits to the composition of the HQLA amount, and permit a
banking organization to consider its idiosyncratic risk profile and
market conditions. Consistent with the LCR rule's composition limits on
Level 2 and Level 2B liquid assets, the Board believes overreliance on
Level 2 liquid assets that are generally not immediately convertible to
cash and subject to greater price volatility, present safety and
soundness concerns and increase the risks a banking organization would
not be able to meet its obligations during a period of stress. The
Board is clarifying that the diversification requirements in the
enhanced prudential standards rule are
[[Page 59060]]
intended to prevent such overreliance.\113\
---------------------------------------------------------------------------
\112\ Id.
\113\ See 12 CFR 238.124(b)(3)(v) (covered savings and loan
holding companies), 12 CFR 252.35(b)(3)(v) and 12 CFR
252.157(c)(7)(v). As discussed in Section VIII of this Supplementary
Information, this final rule adopts the same liquidity risk
management, stress testing and buffer requirements for covered
savings and loan holding companies.
---------------------------------------------------------------------------
Although commenters requested that the definition of highly liquid
assets or other asset requirements not include the operational
requirements for eligible HQLA prescribed in the LCR rule, the Board
believes demonstrating the liquidity buffer is under the control of the
liquidity management function and demonstrating the capability to
monetize the liquidity buffer are fundamental risk management processes
that ensure the liquidity buffer is available during times of stress.
Specifically, these requirements are intended to ensure a banking
organization can monetize highly liquid assets during the relevant
stress scenario and have the proceeds available to the liquidity
management function without conflicting with another business or risk
management strategy, sending a negative signal to market participants,
or adversely affecting its reputation or franchise. However, to address
commenters' concern that banking organizations be allowed to apply
independent judgement in assessing operational and other risks in the
context of highly liquid assets, the Board is not incorporating the LCR
rule's more prescriptive requirements for demonstrating the operational
capability to control and monetize assets. The Board believes it is
appropriate to allow for a greater range of risk management practices
to demonstrate control or monetization capabilities for a firm's highly
liquid asset buffer, consistent with the goal that the internal
liquidity stress test be tailored to a firm's risk profile, size, and
complexity. The Board is clarifying, however, that a banking
organization's approach to demonstrating control and monetization
capabilities under the LCR rule would also meet the requirements of the
amended definition.
XIII. Changes to Company-Run Stress Testing Requirements for State
Member Banks, Removal of the Adverse Scenario, and Other Technical
Changes Proposed in January 2019
In January 2019, the Board requested comment on a proposed rule
that would amend the Board's stress testing rules, consistent with
section 401 of EGRRCPA (stress testing proposal).\114\ Prior to the
passage of EGRRCPA, section 165(i) of the Dodd-Frank Act \115\ required
each state member bank with total consolidated assets of more than $10
billion to conduct annual stress tests. In addition, section 165
required the Board to issue regulations that establish methodologies
for conducting stress tests, which were required to include at least
three different stress-testing scenarios: ``baseline,'' ``adverse,''
and ``severely adverse.'' \116\
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\114\ 84 FR 4002 (February 14, 2019).
\115\ Public Law 111-203, 124 Stat. 1376 (2010).
\116\ 12 U.S.C. 5365(i)(2)(C).
---------------------------------------------------------------------------
Section 401 of EGRRCPA amended certain aspects of the stress
testing requirements applicable to state member banks under section
165(i) of the Dodd-Frank Act.\117\ Specifically, 18 months after the
date of enactment, section 401 of EGRRCPA raises the minimum asset
threshold for application of the stress testing requirement from more
than $10 billion to more than $250 billion in total consolidated
assets; revises the requirement for state member banks to conduct
stress tests ``annually,'' and instead requires them to conduct stress
tests ``periodically.'' In addition, EGRRCPA amended section 165(i) to
no longer require the Board's supervisory stress test and firms'
company-run stress tests to include an ``adverse'' scenario, thus
reducing the number of required stress test scenarios from three to
two.
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\117\ Public Law 115-174, 132 Stat. 1296-1368 (2018).
---------------------------------------------------------------------------
The stress testing proposal would have raised the minimum asset
threshold for state member banks to conduct stress tests from more than
$10 billion to more than $250 billion, and revised the frequency with
which state member banks with assets greater than $250 billion would
have been required to conduct stress tests. In addition, the stress
testing proposal would have removed the adverse scenario from the list
of required scenarios in the Board's stress testing rules and the
Board's Policy Statement on the Scenario Design Framework for Stress
Testing. As discussed below, the Board received two comments on the
stress testing proposal and is adopting the proposal without change.
In preparing the stress testing proposal and this aspect of the
final rule, the Board coordinated closely with the FDIC and the OCC to
help to ensure that the company-run stress testing requirements are
consistent and comparable across depository institutions and depository
institution holding companies, and to address any burden that may be
associated with having multiple entities within one organizational
structure complying with different stress testing requirements.
A. Minimum Asset Threshold for State Member Banks
As described above, section 401 of EGRRCPA amends section 165 of
the Dodd-Frank Act by raising the minimum asset threshold for state
member banks required to conduct company-run stress tests from more
than $10 billion to more than $250 billion. Consistent with EGRRCPA,
the proposal would have raised this threshold such that only state
member banks with total consolidated assets greater than $250 billion
would be required to conduct stress tests. The Board did not receive
comments on this aspect of the proposal and is finalizing it without
change.
B. Frequency of Stress Testing for State Member Banks
Section 401 of EGRRCPA revised the requirement under section 165 of
the Dodd-Frank Act for state member banks to conduct stress tests,
changing the required frequency from ``annual'' to ``periodic.'' Under
the stress testing proposal, state member banks with total consolidated
assets of more than $250 billion generally would have no longer been
required to conduct stress tests annually; rather, they would be
required to conduct stress tests once every other year. As an exception
to the two-year cycle, state member banks that are subsidiaries of
banking organizations subject to Category I or Category II standards
would have been required to conduct a stress test on an annual basis.
The proposed frequency was intended to provide the Board and the state
member bank with information necessary to satisfy the purposes of
stress testing, including: Assisting in an overall assessment of the
state member bank's capital adequacy, identifying downside risks and
the potential impact of adverse conditions on the state member bank's
capital adequacy, and determining whether additional analytical
techniques and exercises are appropriate for the state member bank to
employ in identifying, measuring, and monitoring risks to the soundness
of the state member bank.
One commenter asserted that the Board should not reduce the
frequency of stress testing for any covered banks. Based on the Board's
experience overseeing and reviewing the results of company-run stress
testing since 2012, the Board believes that a two-year stress testing
cycle generally would be appropriate for certain state member banks.
Specifically, the state member banks that would be subject to a two-
[[Page 59061]]
year stress testing cycle under the proposal would not be the
subsidiaries of larger, more complex firms, which can present greater
risk and therefore merit closer monitoring. State member banks that are
subsidiaries of larger, more complex firms would continue to be
required to conduct stress tests on an annual basis. Accordingly, the
final rule retains the frequency of company-run stress test
requirements for state member banks set forth in the stress testing
proposal without change. In addition, and as discussed above, the final
rule provides the Board with the authority to adjust the required
frequency for a holding company or state member bank subject to the
Board's stress testing rules based on the company's financial
condition, size, complexity, risk profile, scope of operations,
activities, or risks to the U.S. economy. The final rule therefore
provides flexibility to the Board to require more frequent company-run
stress testing at the state member bank or holding company level, which
would take into account the risk profile of the subsidiary state member
bank, as needed.
Under the stress testing proposal, all state member banks that
would conduct stress tests every other year would have been required to
conduct stress tests in the same even numbered year (i.e., the
reporting years for these state member banks would be synchronized). By
requiring these state member banks to conduct their stress tests in the
same year, the proposal would continue to allow the Board to make
comparisons across state member banks for supervisory purposes and
assess macroeconomic trends and risks to the banking industry. The
Board did not receive comments on this aspect of the stress testing
proposal and is adopting it without change.
Under the stress testing proposal, a state member bank that was
subject to a two-year stress test cycle would have become subject to an
annual stress test if, for example, the parent bank holding company of
the bank becomes a firm subject to Category I or II standards. The
proposal would not have established a transition period in these cases.
Accordingly, a state member bank that becomes subject to an annual
stress test requirement would have been required to begin stress
testing on an annual basis as of the next year. The Board did not
receive comments on this aspect of the proposal and is adopting it
without change.
C. Removal of ``Adverse'' Scenario
As adopted, the Board's stress testing requirements--which are
applicable to state member banks, savings and loan holding companies,
bank holding companies, U.S. intermediate holding companies of foreign
banking organizations, and any nonbank financial company supervised by
the Board--required the inclusion of an ``adverse'' scenario in the
stress test. Section 401 of EGRRCPA amends section 165(i) of the Dodd-
Frank Act to no longer require the Board to include an ``adverse''
scenario in the company-run stress test or its supervisory stress
tests, reducing the number of required stress test scenarios from three
to two. The stress testing proposal would have removed the ``adverse''
scenario from the list of required scenarios in the Board's stress
testing rules. In addition, the proposal would have made conforming
changes to the Board's Policy Statement on the Scenario Design
Framework for Stress Testing to reflect the removal of the adverse
scenario.
The ``baseline'' scenario represents a set of conditions that
affect the U.S. economy or the financial condition of the banking
organization, and that reflect the consensus views of the economic and
financial outlook, and the ``severely adverse'' scenario is a more
severe set of conditions and the most stringent of the scenarios.
Because the ``baseline'' and ``severely adverse'' scenarios are
designed to cover a full range of expected and stressful conditions,
the ``adverse'' scenario has provided limited incremental information
to the Board and market participants. Accordingly, the stress testing
proposal would have maintained the requirement for a banking
organization to conduct company-run stress tests under both a
``baseline'' and ``severely adverse'' scenario. In addition, the
proposal would have redefined the ``severely adverse'' scenario to mean
a set of conditions that affect the U.S. economy or the financial
condition of a banking organization that overall are significantly more
severe than those associated with the baseline scenario and may include
trading or other additional components.
One commenter requested that the Board immediately eliminate
certain stress testing requirements that would no longer be in effect
upon finalization of the proposal or that are not appropriate for any
firm of any size. Specifically, the commenter asserted that the Board
should immediately eliminate the ``adverse'' scenario from the
scenarios required for purposes of the Board's 2019 stress test cycle.
Because the final rule is effective after the October 5, 2019, due date
for mid-cycle company-run stress tests, and there is no additional
requirement that necessitates use of the ``adverse'' scenarios for the
2019 stress test cycle, the removal of this requirement will take
effect for the 2020 stress test cycle.
D. Review by Board of Directors
The enhanced prudential standards rule, as adopted, required the
board of directors of a banking organization to ``review and approve
the policies and procedures of the stress testing processes as
frequently as economic conditions or the condition of the company may
warrant, but no less than annually.'' \118\ The domestic proposal would
have established similar requirements for covered savings and loan
holding companies. The stress testing proposal would have revised the
frequency of these requirements for banking organizations from
``annual'' to ``no less than each year a stress test is conducted'' in
order to make review by the board of directors consistent with the
supervised firm's stress testing cycle. The Board did not receive
comments on this aspect of the proposal and is adopting it without
change.
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\118\ See 77 FR 62396 (October 12, 2012); 77 FR 62378 (October
12, 2012).
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E. Scope of Applicability for Savings and Loan Holding Companies
The stress testing proposal would have revised the company-run
stress testing requirements for covered savings and loan holding
companies included in the domestic proposal. As part of the domestic
proposal, the Board generally proposed to apply prudential standards to
certain covered savings and loan holding companies using the standards
for determining prudential standards for large bank holding companies.
Section 165(i)(2) of the Dodd-Frank Act, as amended by EGRRCPA,
requires all financial companies that have total consolidated assets of
more than $250 billion to conduct periodic stress tests. Consistent
with EGRRCPA, the Board proposed to revise the scope of applicability
of the company-run stress testing requirements included in the domestic
proposal to include all savings and loan holding companies that meet
the criteria for Category II or Category III standards. The proposal
also would have amended the proposed company-run stress test
requirements to maintain the existing transition provision that
provides that a savings and loan holding company would not be required
to conduct its first stress test until after it is subject to minimum
capital requirements. The Board did not receive comments on this aspect
of the proposal and adopting it generally as proposed. The final rule
applies company-run
[[Page 59062]]
stress testing requirements to covered savings and loan holding
companies subject to Category II or III standards, consistent with the
requirements that apply to similarly-situated bank holding companies.
In addition, the final rule applies company-run stress test
requirements to all other savings and loan holding companies with total
consolidated assets of $250 billion or more, consistent with the Dodd-
Frank Act, as amended by EGRRCPA. A savings and loan holding company is
required to comply with company-run stress testing requirements after
it is subject to minimum regulatory capital requirements. Covered
savings and loan holding companies are subject to minimum regulatory
capital requirements through the Board's capital rule.\119\
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\119\ 12 CFR 217.
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XIV. Changes to Dodd-Frank Definitions
The proposal would have made changes to the Board's implementation
of certain definitions in the Dodd-Frank Act. Specifically, the Dodd-
Frank Act directed the Board to define the terms ``significant bank
holding company'' and ``significant nonbank financial company,'' terms
that are used in the credit exposure reports provision in section
165(d)(2).\120\ The terms ``significant nonbank financial company'' and
``significant bank holding company'' are also used in section 113 of
the Dodd-Frank Act, which specifies that FSOC must consider the extent
and nature of a nonbank company's transactions and relationships with
other ``significant nonbank financial companies'' and ``significant
bank holding companies,'' among other factors, in determining whether
to designate a nonbank financial company for supervision by the
Board.\121\ The Board previously defined ``significant bank holding
company'' and ``significant nonbank financial company'' using $50
billion minimum asset thresholds to conform with section 165.\122\ In
light of EGRRCPA's amendments, the Board proposed to amend these
definitions to include minimum asset thresholds of $100 billion, and
make other conforming edits in the Board's regulation on definitions in
Title I of the Dodd-Frank Act.\123\ The Board did not receive any
comments on this aspect of the proposal and is finalizing it as
proposed.
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\120\ 12 U.S.C. 5311(a)(7); 5365(d)(2). EGRRCPA changed credit
exposure reports from a mandatory to discretionary prudential
standard under section 165.
\121\ See 12 U.S.C. 5323.
\122\ 12 CFR 242.4.
\123\ 12 CFR part 242.
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XV. Reporting Requirements
In the proposals, the Board proposed changes to the FR Y-14, FR Y-
15, FR 2052a, FR Y-9C, FR Y-9LP, FR Y-7, and FR Y-7Q report forms. The
Board received comments on changes to the FR Y-14, FR Y-15, and FR
2052a, which are discussed below. The Board did not receive comments on
its proposed changes to the FR Y-9C, FR Y-9LP, FR Y-7 and FR Y-7Q, and
is finalizing those changes as proposed.
Some commenters requested that the Board clearly identify in the
preamble to the final rule the specific line items and forms that would
be used to determine a banking organization's size and other risk-based
indicators. Table II below indicates the line items that measure risk-
based indicators under the final rule:
Table II--Line Items for Risk-Based Indicators
----------------------------------------------------------------------------------------------------------------
Reporting unit
--------------------------------------------------------------------------
U.S. intermediate
holding companies of Combined U.S.
U.S. holding companies foreign banking operations of foreign
organizations banking organizations
----------------------------------------------------------------------------------------------------------------
Size................................. FR Y-15, Schedule A, FR Y-15, Schedule H, FR Y-15, Schedule H,
Line Item M4. Line Item M4, Column A. Line Item M4, Column
B.
Cross-jurisdictional activity........ FR Y-15, Schedule E, FR Y-15, Schedule L, FR Y-15, Schedule L,
Line Item 5. Line Item 4, Column A. Line Item 4, Column B.
Nonbank assets....................... FR Y-15, Schedule A, FR Y-15, Schedule H, FR Y-15, Schedule H,
Line Item M6. Line Item M6, Column A. Line Item M6, Column
B.
Short-term wholesale funding......... FR Y-15, Schedule G, FR Y-15, Schedule N, FR Y-15, Schedule N,
Line Item 6. Line Item 6, Column A. Line Item 6, Column B.
Off-balance sheet exposure........... FR Y-15, Schedule A, FR Y-15, Schedule H, FR Y-15, Schedule H,
Line Item M5. Line Item M5, Column A. Line Item M5, Column
B.
----------------------------------------------------------------------------------------------------------------
The proposal would have added two line items to Schedule A and
Schedule H of the FR Y-15 to clarify the calculation of risk-based
indicators: Line Item M4 would calculate total assets and Line Item M5
would calculate total off-balance sheet exposure. The Board did not
receive specific comments on these line items and is adopting them as
proposed.\124\ To further clarify the line items for calculating risk-
based indicators, the Board has added Line Item 5, Cross-jurisdictional
activity, to Schedule E of the FR Y-15. The Board has also added Line
Item M6, Total non-bank assets, on Schedule A and Schedule H of the FR
Y-15.
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\124\ Comments regarding the composition of the risk-based
indicators are discussed in section V of this Supplementary
Information.
---------------------------------------------------------------------------
The Board received a number of general comments on compliance
periods. Various commenters requested that the Board provide banking
organizations subject to new or heightened reporting requirements under
the proposals with extended compliance periods for such requirements.
The Board is providing a phase-in time for banking organizations to
prepare for new reporting requirements, as applicable. The compliance
and transition periods for each form are discussed below.
The Board also received comments that were outside the scope of the
proposals, such as suggested changes to forms that the Board did not
propose to modify through these proposals. Some commenters requested
tailoring of the proposed FR 2590, which relates to compliance with the
single-counterparty credit limits rule. Proposed changes to the
proposed FR 2590 will be addressed in a separate Board action.
Commenters also requested a change to the FFIEC forms. The agencies are
reviewing interagency forms and intend to propose changes to them to
conform to EGRRCPA and this final rule.
[[Page 59063]]
A. FR Y-14
Consistent with EGRRCPA's changes and the Board's July 2018
statement relating to EGRRCPA,\125\ the proposals would have revised
the FR Y-14 series of reports (FR Y-14A, Y-14Q, and Y-14M) so that
domestic bank holding companies and U.S. intermediate holding companies
with less than $100 billion in total consolidated assets would no
longer be required to submit the forms. Under the proposals, domestic
bank holding companies and U.S. intermediate holding companies with
$100 billion or more in total consolidated assets would continue to
submit the FR Y-14 reports.
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\125\ 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 also would have required all covered savings and loan
holding companies with $100 billion or more in total consolidated
assets to complete elements of the FR Y-14 series of reports that are
used in conducting supervisory stress tests: (1) The FR Y-14M; (2) all
schedules of the FR Y-14-Q except for Schedule C--Regulatory Capital
Instruments and Schedule D--Regulatory Capital Transitions; and (3)
Schedule E--Operational Risk of the FR Y-14A. The proposal would have
required covered savings and loan holding companies subject to Category
II or III standards to report the Form FR Y-14A Schedule A--Summary and
Schedule F--Business Plan Changes with respect to company run stress
testing.
Commenters argued that the Board should adjust various FR Y-14
reporting requirements for banking organizations subject to the
proposals. Commenters generally requested that the FR Y-14 be amended
to provide reductions in burden for banking organizations, particularly
those subject to Category III or IV standards. Some commenters asked
the Board to revise the FR Y- 14M and Y-14A for banking organizations
subject to Category IV standards, by reducing the frequency of the Y-
14M from monthly to quarterly and altering or eliminating certain Y-14A
schedules and worksheets. These commenters also asked the Board to
review the relevance of information requested on the Y-14Q for banking
organizations subject to Category IV standards. Other commenters
suggested that certain Y-14A sub-schedules should not be required for
banking organizations subject to Category III standards. Some
commenters requested that the Board simplify the Y-14A Summary schedule
for all banking organizations.
The final rule adopts the changes to the FR Y-14 largely as
proposed. The final rule maintains the existing FR Y-14 substantive
reporting requirements 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 bank holding companies, covered
savings and loan holding companies, and U.S. intermediate holding
companies. However, as discussed in the proposals, the Board intends to
provide greater flexibility to banking organizations subject to
Category IV standards in developing their annual capital plans and
consider further changes to the FR Y-14 forms as part of a separate
proposal. The Board has also revised the FR Y-14 instructions to remove
references to the adverse scenario, consistent with the changes in this
final rule.
The final rule does not finalize certain definitional changes to
the FR Y-14 series of reports, however. The proposal would have made
changes to the definitions of ``large and complex'' and ``large and
noncomplex'' bank holding company to align with proposed changes in
section 225.8(d)(9). The Board is not finalizing these changes as part
of this final rule, and instead intends to consider these changes in
conjunction with other changes to the capital plan rule as part of a
separate capital plan proposal.
Commenters also requested that the Board provide an initial
transition period for covered savings and loan holding companies to
submit their first FR Y-14 reports. The final rule provides covered
savings and loan holding companies with an extended amount of time to
file their first reports. Table III details the submission date
requirements for covered savings and loan holding companies with $100
billion or more in total consolidated assets that will be submitting FR
Y-14 reports under the final rule for the first time:
Table III--First Submission Dates of FR Y-14 for Covered Savings and
Loan Holding Companies
------------------------------------------------------------------------
First as-of First submission
Form date dates
------------------------------------------------------------------------
FR Y-14A.......................... 12/31/2021 April 5, 2022.
FR Y-14Q.......................... 6/30/2020 90 days after
quarter end for
first two quarterly
submissions; 65
days after quarter
end for the third
and fourth
quarterly
submissions.
FR Y-14M.......................... 6/30/2020 For the first three
monthly
submissions, 90
days after the
month-end as-of
date.
------------------------------------------------------------------------
B. FR Y-15
The proposals would have modified the reporting panel and
substantive requirements of the FR Y-15. First, the domestic proposal
would have no longer required U.S. bank holding companies and covered
savings and loan holding companies with $50 billion or more, but less
than $100 billion, in total consolidated assets to file the FR Y-15.
The foreign bank proposal would have further revised the reporting
panels and scope of the FR Y-15. Currently, U.S. intermediate holding
companies with $50 billion or more in total consolidated assets report
the FR Y-15. Under the foreign bank proposal, foreign banking
organizations with $100 billion or more in combined U.S. assets, rather
than U.S. intermediate holding companies, would have been required to
submit the FR Y-15 with respect to their combined U.S. operations.
Specifically, the proposal would have required a foreign banking
organization to report information described in the FR Y-15 separately
for its (i) U.S. branch and agency network, if any; (ii) U.S.
intermediate holding company, if any; and (iii) combined U.S.
operations.
Some commenters supported the changes to the FR Y-15's scope and
reporting panel in the proposals. Commenters noted that the Board does
not currently compile systemic risk data on foreign banking
organizations that includes information on branch networks. These
commenters argued that incorporating combined U.S. operations into the
FR Y-15 would provide more complete information on a foreign banking
organization's
[[Page 59064]]
financial profile, and that such a revision was overdue. However, other
commenters opposed the changes. These commenters argued that the
proposed reporting based on the combined U.S. operations was
unjustified, and would require significant modifications to foreign
banking organizations' existing reporting systems at a substantial
cost. Some commenters also argued that the proposed FR Y-15 changes
would disproportionately burden foreign banking organizations compared
to domestic banking organizations, and therefore were inconsistent with
the principle of national treatment.
To address these concerns, commenters suggested alternatives to the
proposal. Some commenters stated that the FR Y-15 should not include
any reporting on a combined U.S. operations basis. In particular,
commenters argued that the Board should implement a tailoring framework
that does not measure risk-based indicators across a foreign banking
organization's combined U.S. operations, and eliminate FR Y-15
reporting on a combined U.S. operations basis. Other commenters
suggested that a foreign banking organization should only be required
to report information on its combined U.S. operations that is necessary
for calculating the risk-based indicators. Commenters also recommended
that the Board allow banking organizations to file a modified FR Y-15
with an option to prepare top-line items and not require more nuanced
risk-based indicator calculations with respect to a particular
indicator if a banking organization is well below the threshold for the
risk-based indicator based on the top-line item. Another commenter also
requested removal of the requirement to calculate risk-weighted assets
at the combined U.S. operations level.
As commenters acknowledged, the proposal would have required
foreign banking organizations to calculate size, cross-jurisdictional
activity, nonbank assets, off-balance sheet exposure, and weighted
short-term wholesale funding for their combined U.S. operations in
order to determine the category of standards that would apply to a
foreign banking organization at the level of its combined U.S.
operations.\126\ Most of these indicators are already reported by U.S.
bank holding companies, covered savings and loan holding companies, and
U.S. intermediate holding companies. Requiring a foreign banking
organization to report this information for its combined U.S.
operations supports tailoring prudential standards based on the risk-
profile of foreign banking organization's U.S. operations. This
approach also establishes a central location for information on the
risk-based indicators to help support the transparency of the
framework.
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\126\ Standards that apply to the combined U.S. operations of a
foreign banking organization include liquidity stress tests, risk
management, and buffer requirements under the enhanced prudential
standards rule; resolution planning requirements; and the reporting
frequency of the FR 2052a.
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The purpose and use of the FR Y-15 is broader than compliance with
the tailoring framework, however. The FR Y-15 requests granular data on
an institution's funding, structure, and activities that is consistent
and comparable among institutions, and is often unavailable from other
sources. The Board uses this information to monitor the systemic risk
profile of banking organizations, as well as for other purposes.\127\
Information on the combined U.S. operations of foreign banking
organizations from the FR Y-15 will enhance the Board's ability to
monitor and supervise the U.S. footprint of large foreign banking
organizations and compare the risk profiles of large banking
organizations. Having this data reported on the FR Y-15 also ensures
that information on the combined U.S. operations of foreign banking
organizations is available to the public, and thus can be used by the
market to evaluate the systemic importance of domestic banking
organizations and the U.S. operations of foreign banking organizations.
---------------------------------------------------------------------------
\127\ For example, the FR Y-15 is used to facilitate the
implementation of GSIB capital surcharges, identify other
institutions which may present significant systemic risk, and
analyze the systemic risk implications of proposed mergers and
acquisitions.
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Accordingly, the final rule requires foreign banking organizations
to report the FR Y-15 at the U.S. intermediate holding company and
combined U.S. operations levels largely as proposed. The FR Y-15 as
finalized is consistent with the principle of national treatment
because it requires similarly-situated domestic holding companies and
foreign banking organizations to report similar data on their U.S.
footprint, taking into account the unique structures of foreign banking
organizations. In response to comments, and because the Board is not
applying categories of standards to the U.S. operations of foreign
banking organizations based only on the risk profile of their U.S.
branch and agency networks, the Board will not require foreign banking
organizations to provide standalone data on their U.S. branches and
agencies on the FR Y-15. Accordingly, the Board is modifying the
proposal by eliminating the U.S. branch and agency column on the FR Y-
15, and instead will only require foreign banking organizations to
complete the FR Y-15 in two columns for purposes of the final rule:
Column A, U.S. intermediate holding companies, if any; and Column B,
combined U.S. operations. Foreign banking organizations also will not
be required to calculate average risk-weighted assets for their
combined U.S. operations in Column B on Schedule N, line item 7.
Because branches and agencies are not subject to capital requirements,
this information would provide limited supervisory benefit and could be
burdensome to compile and calculate.
Commenters requested a number of specific line item changes and
instruction clarifications for completing the FR Y-15. These commenters
requested more clarity in the General Instructions on the rule of
consolidation for foreign banking organizations and foreign affiliate
netting. The final form includes revised language in the General
Instructions and certain schedules that is intended to further clarify
and address questions regarding consolidation rules and netting. The
Board also intends to continue to review the FR Y-15 instructions in
light of the changes in this final rule and, if necessary, further
refine the form and instructions to provide additional clarity on how
to report line items for the combined U.S. operations of foreign
banking organizations. Commenters requested that the Board permit
foreign banking organizations to report size as a spot, rather than
average measure, on proposed Schedule H of the FR Y-15 unless the
foreign banking organization's U.S. intermediate holding company is
subject to the supplementary leverage ratio. Averages provide a more
reliable and risk-sensitive estimate of the banking organization's size
over the period, and as such, the Board is finalizing the calculation
of total exposure on Schedule H as proposed.
Commenters raised a number of issues and questions regarding
proposed Schedule L--FBO Cross-Jurisdictional Activity Indicators. For
purposes of reporting cross-jurisdictional activity, the proposal would
have required a foreign banking organization to report assets and
liabilities of the combined U.S. operations, 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
[[Page 59065]]
change, the proposal would have amended the FR Y-15 by adding new line
items to proposed Schedule L and changed the accompanying FR Y-15
instructions. Comments related to the substance of the cross-
jurisdictional indicator are discussed in section V. The Board is
finalizing Schedule L substantively as proposed, with some technical
edits to language to provide further clarity on how to report line
items for a foreign banking organization's combined U.S. operations.
One commenter recommended expanding line item 4 on Schedule E--
Cross-Jurisdictional Activity Indicators to separately identify
deposits; trading liabilities; borrowings (including short-term
borrowings, long-term debt, federal funds purchased, and repurchase
agreements); accounts payable; and other liabilities. The commenter
argued that such additional specificity would provide the Board and the
public with additional insight into the nature of an institution's
cross-jurisdictional liabilities without increasing reporting burden.
The Board finds that line item 4 is reported with sufficient
granularity to understand the risk profile of the banking organizations
and is adopting it as proposed.
Commenters expressed concern about the amount of time required to
establish systems necessary to collect information from combined U.S.
operations of a foreign banking organization as well as with the
accuracy and integrity of the data collected. Commenters also requested
at minimum, a 12-month phase-in period to accommodate the expanded
scope of the FR Y-15 reporting requirements, and that the first two
quarterly FR Y-15 filings be prepared on a ``best efforts'' basis. To
allow firms to develop reporting and data systems, the final rule
provides a phase-in period to meet the expanded reporting requirements
in the FR Y-15. Under the phase-in period, banking organizations will
be required to report the first combined U.S. operations data on the FR
Y-15 with an as-of date of June 30, 2020, and submit the data to the
Board no later than August 19, 2020.
Under the foreign bank proposal, Schedule N--FBO Short-Term
Wholesale Funding Indicator of the FR Y-15 would have required foreign
banking organizations that report the FR 2052a daily to report the
average weighted short-term wholesale funding values using daily data,
and all other foreign banking organizations to report average values
using monthly data. Some commenters requested that weighted short-term
wholesale funding in Schedule N be reported using monthly data for all
foreign banking organizations. An average of day-end data points is a
more accurate representation of a banking organization's ongoing
reliance on wholesale funding. Accordingly, for foreign banking
organizations that have sufficient liquidity risks that would require
FR 2052a daily reporting, the final rule requires these banking
organizations to report Schedule N on the FR Y-15 using daily data. For
firms not subject to FR 2052a daily reporting, the Board is finalizing
the rule for calculating weighted short-term wholesale funding as
proposed.
The Board continues to evaluate whether the benefits of a more
frequent average would be justified for these firms, particularly for
firms that report the LCR on a daily basis, and may propose adjustments
to the calculation frequency. Furthermore, the Board intends to monitor
a firm's weighted short-term wholesale funding position at month-end
relative to its position throughout the month through the supervisory
process, and continues to have the authority to apply additional
prudential standards based on the risk profile of a firm, including its
liquidity risk profile.\128\
---------------------------------------------------------------------------
\128\ See 12 CFR 217.1(d); 12 CFR 249.2(a); 12 CFR 252.3(a).
---------------------------------------------------------------------------
C. FR 2052a
The proposals would have modified the current reporting frequency
and granularity of the FR 2052a to align with the proposed tailoring
framework. Specifically, the proposals would have required U.S. bank
holding companies and covered savings and loan holding companies, each
with $100 billion or more in total consolidated assets, or foreign
banking organizations with combined U.S. assets of $100 billion or
more, to report FR 2052a data each business day if they were (i)
subject to Category I or II standards, as applicable, or (ii) subject
to Category III standards and had $75 billion or more in weighted
short-term wholesale funding (for foreign banking organizations, this
would be measured at the level of the combined U.S. operations). All
other domestic holding companies and foreign banking organizations
would have been required to report the FR 2052a on a monthly basis.
These changes would have increased the frequency of reporting for
domestic banking organizations subject to Category II standards with
less than $700 billion in total consolidated assets, and domestic
banking organizations subject to Category III standards with $75
billion or more in weighted short-term wholesale funding; both groups
of banking organizations currently report the FR 2052a monthly.
Similarly, the frequency of reporting would have changed for some
foreign banking organizations. The proposals also would have simplified
the FR 2052a reporting thresholds by eliminating the current criteria
used to identify daily filers of the FR 2052a--for domestic holding
companies, those firms with $700 billion or more in total assets or $10
trillion or more in assets under custody, and for foreign banking
organizations, those firms included in the Large Institution
Supervision Coordinating Committee portfolio--and replacing these
criteria with the category framework.
A number of commenters requested that the Board reduce or eliminate
proposed FR 2052a reporting requirements. Commenters requested that the
Board modify the proposed FR 2052a reporting frequencies so that
banking organizations subject to Category II and Category III standards
would be subject to monthly or quarterly, rather than daily, reporting.
Similarly, commenters argued that the Board should not expand the scope
of daily FR 2052a reporting beyond its current reach, and that no
banking organization should be subject to more frequent FR 2052a
reporting under the proposals. Some commenters suggested that the
requirement to report FR 2052a data each business day should not be
based on the $75 billion weighted short-term wholesale funding
threshold, but instead on a higher short-term wholesale funding
threshold, such as $100 billion or $125 billion. Commenters on the
foreign proposal noted that certain foreign banking organizations would
move from monthly to daily FR 2052a reporting under the proposal and
argued that this was unjustified, as well as inconsistent with the
principle of national treatment.
The Board is finalizing the FR 2052a generally as proposed, with
certain modifications as discussed below. Daily FR 2052a reporting is
appropriate for institutions subject to Category II standards or
Category III standards with $75 billion or more in weighted short-term
wholesale funding. The Board uses liquidity data provided through FR
2052a reporting to monitor and assess the liquidity risks and
resiliency of large banking organizations on an ongoing basis. The
frequency and timeliness with which data is provided to supervisors
should be commensurate with the scale and dynamic nature of a banking
organization's liquidity risk. Liquidity stresses can materialize
rapidly for banking organizations of all
[[Page 59066]]
sizes, but banking organizations with significant size and cross-
jurisdictional activity in the United States may be more likely to face
stress suddenly due to the scale of their funding and their operational
complexity. Moreover, greater reliance on short-term wholesale funding
may indicate heightened rollover risk and greater volatility in the
funding profile of a banking organization or its U.S. operations.
Banking organizations subject to Category II standards or Category III
standards with $75 billion or more in weighted short-term wholesale
funding have liquidity risk profiles that present higher risk to both
financial stability and safety and soundness. Therefore, supervisory
monitoring through daily FR 2052a reporting is critical to ensure these
banking organizations are maintaining appropriate levels of liquidity
and supervisors have a detailed understanding of their funding sources.
The Board is thus finalizing the FR 2052a criteria and reporting
frequency as proposed for banking organizations subject to Category II
or III standards.
Some commenters on the domestic proposal argued that banking
organizations that engage in activities that present lower liquidity
risk, such as custodial activities, should not be required to submit
the FR 2052a daily. Liquidity stresses may arise from a broad range of
sources and markets, and can be impactful for banking organizations
that have a range of business models. Accordingly, the Board is not
providing different FR 2052a reporting requirements for institutions
that engage in custodial activities.
A number of commenters argued that banking organizations subject to
Category IV standards should be subject to quarterly reporting to align
with the institutions' liquidity stress testing requirements. Other
commenters requested that the Board eliminate FR 2052a reporting for
banking organizations subject to Category IV standards, or instead
require these institutions to report on an alternative form, such as
the previously-used FR 2052b. If banking organizations subject to
Category IV standards report the FR 2052a but are not subject to an LCR
requirement under the final rule, commenters requested that the Board
clarify and confirm that FR 2052a reporting will not implicitly bind
these firms to the LCR rule.
The Board uses FR 2052a information to analyze systemic and
idiosyncratic liquidity risk and to inform supervisory processes. As a
class, banking organizations that are subject to Category IV standards
tend to have more stable funding profiles, as measured by their
generally lower level of weighted short-term wholesale funding, and
lesser degrees of liquidity risk and operational complexity associated
with size, cross-jurisdictional activity, nonbank assets, and off-
balance sheet exposure compared to institutions subject to Categories
I, II, or III standards. For this reason, the Board previously tailored
data elements in the FR 2052a report based on the risk profiles for
firms, and currently requires most banking organizations that would be
subject to Category IV standards under the final rule to report the FR
2052a monthly rather than daily. The size of institutions subject to
Category IV standards indicates that such institutions still present
heightened liquidity risk relative to smaller banking organizations,
however, and should continue to provide the information on the FR 2052a
to ensure sufficient supervisory monitoring.
Similarly, because of their potential liquidity risks, banking
organizations that would be subject to Category IV standards would
still be required to develop comprehensive liquidity stress tests and
short term daily cash flow projections under the enhanced prudential
standards rule. The FR 2052b, which was discontinued in 2017, did not
capture cash flow projections but collected information covering broad
funding classifications by product, outstanding balance, and purpose,
each segmented by maturity date. FR 2052a reporting aligns with the
cash flows projection expectations and is substantially similar to the
management information system a banking organization is required to
develop to meet liquidity stress test requirements. The FR 2052a thus
is a more comprehensive reporting form that is more appropriate for
firms subject to the tailoring framework.
Accordingly, the Board is finalizing the FR 2052a largely as
proposed, and requiring institutions subject to Category IV standards
to report the form on a monthly basis. As discussed above, the purpose
of FR 2052a reporting is broader than compliance with the LCR rule. In
particular, the FR 2052a report collects data elements that enable the
Federal Reserve to assess the cash flow profile of reporting firms. As
a result, the Board notes that FR 2052a reporting will not be used to
implicitly bind firms to an LCR rule.
Some commenters requested that banking organizations that would
have been subject to monthly FR 2052a reporting be required to submit
the form ten days after the as-of date (T+10) rather than two days
after the as-of date (T+2). Under the proposals, top-tier U.S.
depository institution holding companies and foreign banking
organizations subject to either (1) Category III standards with less
than $75 billion in weighted short-term wholesale funding or (2)
Category IV standards with $50 billion or more in weighted short-term
wholesale funding would have filed the FR 2052a monthly on a T+2 basis;
all other monthly filers would have filed on a T+10 basis. Some
commenters noted that, based on estimated categories included in the
proposal, more foreign banking organizations would be required to file
on a T+2 basis when compared to domestic banking organizations. Under
the interagency capital and liquidity final rule, all banking
organizations subject to Category III standards continue to be required
to compute the LCR each business day. For banking organizations subject
to Category III standards that file the FR 2052a monthly, a T+2
submission is not expected to create significant additional burden and
the final rule will continue to require submission on a T+2 basis for
these firms. However, for all banking organizations subject to Category
IV standards that are subject to FR 2052a reporting on a monthly basis,
the Board will require these firms to submit data on a T+10 basis,
regardless of their level of weighted short-term wholesale funding.
Based on the lower liquidity risk profile of Category IV banking
organizations, the benefits of T+2 reporting for these firms would not
outweigh the burden for these institutions.
Commenters requested clarification that foreign banking
organizations may use the FR 2052a to calculate both the LCR and
proposed NSFR. Appendix VI within the FR 2052a instructions was
developed to assist reporting firms subject to the LCR rule in mapping
the provisions of the LCR rule to the unique data identifiers reported
on FR 2052a. This mapping document is neither part of the LCR rule nor
a component of the FR 2052a report, and therefore may be used at firms'
discretion. Finally, the FR 2052a includes a number of additional
technical edits to the form and appendices to conform to the
substantive changes in this final rule.
D. Summary of Reporting Effective Dates
The following chart summarizes when banking organizations will be
required to first determine their category under this final rule, as
well as when amended reporting forms and new reporting requirements
will take effect. As
[[Page 59067]]
reflected on the chart, U.S. bank holding companies, covered U.S.
savings and loan holding companies, and U.S. intermediate holding
companies should determine the category of standards that apply to them
on the effective date of this final rule, using data from the FR Y-15
and FR Y-9LP reports as-of the quarter end dates for the previous four
quarters. Foreign banking organizations will not be required to comply
with the amended Schedule L of the FR Y-15 with respect to their U.S.
intermediate holding companies until as-of June 30, 2020. Until that
time, U.S. intermediate holding companies should determine their
category under the tailoring framework consistent with the cross-
jurisdictional activity schedule on the FR Y-15 that previously applied
to U.S. intermediate holding companies provided that, when a foreign
banking organization reports on the amended Schedule L with respect to
its U.S. intermediate holding company, the U.S. intermediate holding
company's measure of cross-jurisdictional activity will be based on the
amount reported on the amended Schedule L and will not be averaged with
amounts of cross-jurisdictional activity previously reported by the
U.S. intermediate holding company.
In contrast, foreign banking organizations will not be required to
determine the category of standards applied to their combined U.S.
operations until the submission date of the FR Y-15 following the June
30, 2020 as-of date. Accordingly, a foreign banking organization would
be required to comply with the category of standards applied to its
combined U.S. operations beginning on October 1, 2020. This delay is to
account for foreign banking organizations filing the FR Y-15 on behalf
of their combined U.S. operations for the first time as-of June 30,
2020.
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\129\ A bank holding company should determine its initial
category based on averages using the bank holding company's four
most recent FR Y-15 and FR Y-9LP filings.
\130\ A covered savings and loan holding company should
determine its initial category based on averages using the covered
savings and loan holding company's four most recent FR Y-15 and FR
Y-9LP filings.
\131\ A U.S. intermediate holding company should determine its
initial category based on averages using the U.S. intermediate
holding company's four most recent FR Y-15 and FR Y-9LP filings.
When a foreign banking organization reports on the amended Schedule
L with respect to its U.S. intermediate holding company, the U.S.
intermediate holding company's measure of cross-jurisdictional
activity will be based on the amount reported on the amended
Schedule L and will not be averaged with amounts of cross-
jurisdictional activity previously reported by the U.S. intermediate
holding company.
\132\ As-of this date, top-tier foreign banking organizations
will report the FR Y-15 on behalf of their U.S. intermediate holding
company and combined U.S. operations.
\133\ Until this date, a foreign banking organization should
report the FR 2052a with the frequency and as-of date (Day T) as the
foreign banking organization was required to report on September 1,
2019.
\134\ Top-tier foreign banking organizations currently, and will
continue to, report the FR Y-7Q.
\135\ Top-tier foreign banking organizations currently, and will
continue to, report the FR Y-7. The FR Y-7 is due annually at the
end of a foreign banking organization's fiscal year.
Table IV--Timeline for Initial Categorizations and Reporting Under the Final Rule
----------------------------------------------------------------------------------------------------------------
Reporting unit
-------------------------------------------------------------------------------
Combined U.S.
U.S. bank holding Covered U.S. U.S. intermediate operations of
companies savings and loan holding companies foreign banking
holding companies organizations
----------------------------------------------------------------------------------------------------------------
Date for first categorization Effective date of Effective date of Effective date of Submission date of
under 12 CFR 252.5 or 12 CFR final rule\129\. final rule\130\. final rule\131\. FR Y-15 as-of
238.10. June 30, 2020.
---------------------------------------
First as-of date for amended FR June 30, 2020..... June 30, 2020..... June 30, 2020.\132\
Y-15.
---------------------------------------
First as-of date for amended FR June 30, 2020..... June 30, 2020..... October 1, 2020.\133\
2052a.
---------------------------------------
First as-of date for amended FR Next report after December 31, 2021. Next report after N/A.
Y-14A. effective date of effective date of
final rule. final rule.
First as-of date for amended FR Next report after June 30, 2020..... Next report after N/A.
Y-14Q. effective date of effective date of
final rule. final rule.
First as-of date for amended FR Next report after June 30, 2020..... Next report after N/A.
Y-14M. effective date of effective date of
final rule. final rule.
First as-of date for amended FR Next report after Next report after Next report after N/A.
Y-9C. effective date of effective date of effective date of
final rule. final rule. final rule.
First as-of date for amended FR Next report after Next report after Next report after N/A.
Y-9LP. effective date of effective date of effective date of
final rule. final rule. final rule.
---------------------------------------
First as-of date for amended FR N/A............... N/A............... Next report after effective date of
Y-7Q. final rule.\134\
---------------------------------------
First as-of date for amended FR N/A............... N/A............... Next report after effective date of
Y-7. final rule (fiscal year-end
2020).\135\
----------------------------------------------------------------------------------------------------------------
XVI. Impact Assessment
In general, U.S. banking organizations with less than $100 billion
in total consolidated assets and U.S. intermediate holding companies
with less than $100 billion in total consolidated assets would have
significantly reduced compliance costs, as under the final rule these
firms are no longer subject to the enhanced prudential standards rule
or the capital plan rule, and are no longer required to file FR Y-14,
FR Y-15, or FR 2052a reports.\136\ While these banking organizations
are no longer subject to internal liquidity stress testing and buffer
requirements, these firms currently hold highly liquid assets well in
excess of their current liquidity buffer requirements.
---------------------------------------------------------------------------
\136\ However, bank holding companies have not been complying
with these requirements since July 6, 2018, when the Board issued a
statement noting that it would no longer enforce these regulations
or reporting requirements with respect to these firms. 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/files/bcreg20180706b1.pdf.
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[[Page 59068]]
For U.S. banking organizations with $100 billion or more in total
consolidated assets and foreign banking organizations with $100 billion
or more in combined U.S. assets, the Board expects the adjustments to
the enhanced prudential standards under this final rule to reduce
aggregate compliance costs with minimal effects on the safety and
soundness of these firms and U.S. financial stability. With respect to
reporting, foreign banking organizations will experience an increase in
compliance costs as a result of having to report the information
required under Form FR Y-15 at the level of their combined U.S.
operations, and certain 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 an increase in compliance costs
due to the increase in reporting frequency of the FR 2052a to daily.
The interagency capital and liquidity final rule provides additional
impact information.
A. Liquidity
The changes to liquidity requirements are expected to reduce
compliance costs for banking organizations subject to Category IV
standards by reducing the required frequency of internal liquidity
stress tests from monthly to quarterly, and tailoring the liquidity
risk management requirements to the risk profiles of these firms. The
Board does not expect these changes to materially affect the liquidity
buffer levels held by these banking organizations or their exposure to
liquidity risk.
B. Stress Testing
First, while the Board expects the changes to stress testing
requirements to have no material impact on the capital levels of U.S.
banking organizations and U.S. intermediate holding companies with $100
billion or more in total consolidated assets, the final rule will
reduce compliance costs for those firms subject to Category III or IV
capital standards. These firms were previously required to conduct
company-run stress tests on a semi-annual basis. For U.S. banking
organizations and U.S. intermediate holding companies subject to
Category III standards, the final rule reduces this frequency to every
other year. For U.S. banking organizations and U.S. intermediate
holding companies subject to Category IV standards, the final rule
removes the company-run stress test requirement altogether.\137\ In
addition, under the final rule, the Board will conduct supervisory
stress tests of U.S. banking organizations and U.S. intermediate
holding companies subject to Category IV standards on a two-year,
rather than annual, cycle.
---------------------------------------------------------------------------
\137\ Although the final rule would not modify the requirement
for a U.S. banking organization or intermediate holding company
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.
---------------------------------------------------------------------------
C. Single-Counterparty Credit Limits
The changes to the single-counterparty credit limits framework
under the final rule are not expected to increase risks to safety and
soundness or U.S. financial stability. The final rule removes U.S.
intermediate holding companies subject to Category IV standards from
the applicability of single-counterparty credit limits. While these
firms 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 final rule removes 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 final rule will 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, by extending the applicability of certain provisions under
the single-counterparty credit limits framework to these firms.
Specifically, as of January 1, 2021, U.S. intermediate holding
companies with less than $250 billion in total consolidated assets that
subject to Category II or Category III standards will be subject to a
net credit exposure limit equal to 25 percent of tier 1 capital, the
treatment for investments in and exposures to certain special purpose
entities and the economic interdependence and control relationship
tests for purposes of aggregating exposures to connected
counterparties.
D. Covered Savings and Loan Holding Companies
For covered savings and loan holding companies, the final rule
increases compliance costs while reducing risks to the safety and
soundness of these firms. The Board expects the new requirements for
covered savings and loan holding companies to meaningfully improve the
risk management capabilities of these firms and their resiliency to
stress, which furthers their safety and soundness.
A covered savings and loan holding company that is subject to
Category II or III standards is required to conduct company-run stress
tests, which would be a new requirement. In connection with the
application of supervisory and company-run capital stress testing
requirements, covered savings and loan holding companies with total
consolidated assets of $100 billion or more must report the FR Y-14
reports. In addition, the final rule requires a covered savings and
loan holding company with total consolidated assets of $100 billion or
more to conduct internal liquidity stress testing and maintain a
liquidity buffer. While covered savings and loan holding companies will
incur costs for conducting internal liquidity stress testing, this
requirement will serve to improve the capability of these firms to
understand, manage, and plan for liquidity risk exposures across a
range of conditions. Depending on its liquidity buffer requirement, a
covered savings and loan holding company may need to increase the
amount of liquid assets it holds or otherwise adjust its risk profile
to reduce estimated net stressed cash-flow needs. Because covered
savings and loan holding companies are already subject to the LCR rule,
which also requires a firm to maintain a minimum amount of liquid
assets to meet net outflows under a stress scenario, covered savings
and loan holding companies generally will need to hold only an
incremental amount--if any--above the levels already required to comply
with the LCR rule.
XVII. Administrative Law Matters
A. Paperwork Reduction Act Analysis
Certain provisions of the final 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
[[Page 59069]]
reviewed the final rule under the authority delegated to the Board by
OMB. The Board did not receive any specific comments on the PRA.
The final rule contains reporting requirements subject to the PRA.
To implement these requirements, the Board is revising 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) Systemic Risk Report (FR Y-15; OMB No. 7100-0352).
The final rule also contains reporting and recordkeeping
requirements subject to the PRA. To implement these requirements, the
Board is revising the 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). Foreign banking organizations do not yet
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.
Adopted 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.
Effective Date: June 30, 2020 (October 1, 2020 for foreign banking
organizations with U.S. assets).
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.
Estimated number of respondents: Monthly: 26; Daily: 16.
Estimated average hours per response: Monthly: 120; Daily: 220.
Estimated annual burden hours: 917,440.
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 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 the Home Owners' Loan Act (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
final rule, the Board is modifying the current FR 2052a reporting
frequency. The Board revised the FR 2052a (1) so that BHCs and SLHCs
with less than $100 billion in total consolidated assets would no
longer have to report, (2) BHCs or SLHCs subject to Category II
standards ($700 billion or more in total consolidated assets or $75
billion or more in cross jurisdictional activity) would have to report
FR 2052a daily, and (3) BHCs or SLHCs subject to Category III standards
with $75 billion or more in weighted short-term wholesale funding would
have to report FR 2052a daily, rather than monthly. 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 final
rule 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) are subject to
Category III standards and 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 the 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 26, but the number of daily filers would increase from 12 to
16. The Board estimates that revisions to the FR 2052a would increase
the estimated annual burden by 205,600 hours. The final 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.
Effective Date: For the amended FR Y-7, the next report after
effective date of final rule (fiscal year-end 2020).
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)),
[[Page 59070]]
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: 4,044; FR Y-7: 256; FR Y-
10: 4,232; FR Y-10E: 4,232.
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: 22,242; FR Y-7: 1,152; FR Y-
10: 43,233; FR Y-10E: 2,116.
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 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 (D.C. 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 revised 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 the final
rules and other regulatory changes that are consistent with the Board's
July 2018 statement concerning EGRRCPA. The Board estimates that
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 revisions to the FR Y-7 would decrease
the estimated annual burden by 384 hours. The final 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.
Effective Date: For the amended FR Y-7Q, the next report after
effective date of final rule.
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.
[[Page 59071]]
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 final rule would amend the FR Y-7Q to align
with revisions to the enhanced prudential standards rule. Previously,
top-tier foreign banking organizations with $50 billion or more in
total consolidated assets were required to report Part 1B--Capital and
Asset Information for Top-tier Foreign Banking Organizations with
Consolidated Assets of $50 billion or more. The final rule would now
require top-tier foreign banking organizations 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 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 for
quarterly filers. The Board estimates that revisions to the FR Y-7Q
would decrease the estimated annual burden by 390 hours. The final
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.
Effective Date: For amended FR Y-9C and FR Y-9LP, next report after
effective date of final rule.
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): 344; FR Y-9C (advanced approached holding
companies): 19; FR Y-9LP: 434; FR Y-9SP: 3,960; FR Y-9ES: 83; 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): 63,764; FR Y-9C (advanced approached holding
companies): 3,617; FR Y-9LP: 9,149; FR Y-9SP: 42,768; FR Y-9ES: 42; 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 pre-inspection 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
[[Page 59072]]
supervision of financial institutions (5 U.S.C. 552(b)(8)).
Current Actions: To implement the reporting requirements of the
final rule, the Board is amending the FR Y-9C to clarify requirements
for holding companies subject to Category III capital standards. The
final rule amends 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 FR Y-9LP is revised to require covered savings and loan
holding companies with total consolidated assets of $100 billion or
more to report total nonbank assets on Schedule PC-B, in order to
determine whether the firm would be subject to Category III standards.
The Board estimates that revisions to the FR Y-9C would increase the
non AA HCs respondent count by 11 and decrease the AA HCs respondent
count by 11. The Board estimates that revisions to the FR Y-9 would
decrease the estimated annual burden by 55 hours. The final 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.
Effective Date: For U.S. bank holding companies and U.S.
intermediate holding companies, the next reports (FR Y-14A, Q, and M)
after the effective date of final rule. For U.S. covered savings and
loan holding companies June 30, 2020 (FR Y-14Q and FR Y-14M), and
December 31, 2021 (FR Y-14A).
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: 38.
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. 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, 67,412; Macro
Scenario, 2,232; Operational Risk, 684; Regulatory Capital Instruments,
756; Business Plan Changes, 608; and Adjusted Capital Plan Submission,
500. FR Y-14Q: Retail, 2,280; Securities, 1,976; Pre-Provision Net
Revenue (PPNR), 108,072; Wholesale, 22,952; Trading, 92,448; Regulatory
Capital Transitions, 3,212; Regulatory Capital Instruments, 7,776;
Operational risk, 7,600; Mortgage Servicing Rights (MSR) Valuation,
1,564; Supplemental, 608; Retail Fair Value Option/Held for Sale
(Retail FVO/HFS), 1,620; Counterparty, 24,672; and Balances, 2,432. FR
Y-14M: 1st Lien Mortgage, 222,912; Home Equity, 185,760; and Credit
Card, 98,304. FR Y-14: Implementation, 14,400 and On-going Automation
Revisions, 18,240. 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
[[Page 59073]]
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
final rule, the Board revised the FR Y-14 so that (1) BHCs with less
than $100 billion in total consolidated assets would no longer have to
report and (2) covered SLHCs with $100 billion or more in total
consolidated assets are included in the reporting panel for certain FR
Y-14 schedules. The Board revised 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 has also made
certain revisions to the FR Y-14 forms to eliminate references to the
adverse scenario, consistent with other changes in this final rule. The
Board estimates that revisions to the FR Y-14 would increase the
reporting panel by 2 respondents. The Board estimates that revisions to
the FR Y-14 would increase the estimated annual burden by 64,016 hours.
The final reporting forms and instructions are available on the Board's
public website at https://www.federalreserve.gov/apps/reportforms/review.aspx.
(6) Report title: Systemic Risk Report.
Agency form number: FR Y-15.
OMB control number: 7100-0352.
Effective Date: June 30, 2020.
Frequency: Quarterly.
Affected Public: Businesses or other for-profit.
Respondents: U.S. bank holding companies (BHCs) and covered savings
and loan holding companies (SLHCs) with $100 billion or more in total
consolidated assets, foreign banking organizations with $100 billion or
more in combined U.S. 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: 43.
Estimated average hours per response: 403.
Estimated annual burden hours: 69,316.
General description of report: The FR Y-15 quarterly report
collects systemic risk data from U.S. bank holding companies (BHCs),
and covered savings and loan holding companies (SLHCs) with total
consolidated assets of $100 billion or more, 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, and foreign banking organizations with $100 billion or more in
combined U.S. assets. The Board uses the FR Y-15 data to monitor, on an
ongoing basis, the systemic risk profile of subject institutions. 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 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 Schedules G and N 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: Consistent with the final rule, the FR Y-15 has
been amended to require U.S. bank holding companies and U.S. covered
savings and loan holding companies with $100 billion or more in total
consolidated assets to file the form, as well as foreign banking
organizations with $100 billion or more in combined U.S. assets. These
foreign banking organizations will file all schedules of the FR Y-15 on
behalf of their U.S. intermediate holding companies (Column A) and
combined U.S. operations (Column B). The final form includes others
edits described further in the SUPPLEMENTARY INFORMATION sections.
The Board estimates that the changes to the FR Y-15 would increase
the respondent count by 6 respondents. The Board also estimates that
the revisions to the FR Y-15 would increase the estimated average hours
per response by 2 hours and would increase the estimated annual burden
by 9,968 hours. The final 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.
Effective Date: Effective date of final rule.
Frequency: Annually.
Affected Public: Businesses or other for-profit.
Respondents: BHCs and IHCs.
Estimated number of respondents: 34.
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)), 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)), 303,280 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
[[Page 59074]]
under certain circumstances before making a capital distribution.
Current Actions: The final rule raises the threshold for
application of Sec. 225.8 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. This change would
reduce the panels for various provisions in Sec. 225.8. The Board
estimates that the revisions to the FR Y-13 would decrease the
estimated annual burden by 28,115 hours.
(8) Report title: Reporting and Disclosure Requirements Associated
with Regulation LL.
Agency Form Number: FR LL.
OMB control number: 7100-NEW.
Effective Date: Effective date of final rule.
Frequency: Biennial.
Affected Public: Businesses or other for-profit.
Respondents: Savings and loan holding companies.
Estimated number of respondents: 1.\138\
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\138\ Currently, there are no foreign savings and loan holding
companies in existence. For PRA purposes, ``1'' is used as a
placeholder.
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Estimated average hours per response: Reporting section
238.162b1ii, 80; Disclosure section 238.146 (initial setup), 150;
Disclosure section 238.146, 60.
Estimated annual burden hours: Reporting section 238.162b1ii, 40;
Disclosure section 238.146 (initial setup), 75; Disclosure section
238.146, 30.
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.
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.
Current Actions: The Board is moving the requirement for foreign
savings and loan holding companies currently in Sec.
252.122(b)(1)(iii) of Regulation YY into Sec. 238.162(b)(1)(ii) of
Regulation LL. In doing so, the Board is amending the frequency of the
reporting requirement in proposed Sec. 238.162(b)(1)(ii) from annual
to at least biennial. The Board is also raising 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.
(9) Report title: Reporting, Recordkeeping, and Disclosure
Requirements Associated with 
