Amendments to Capital Planning and Stress Testing Requirements for Large Bank Holding Companies, Intermediate Holding Companies and Savings and Loan Holding Companies, 63222-63235 [2020-22166]

Download as PDF 63222 Federal Register / Vol. 85, No. 195 / Wednesday, October 7, 2020 / Proposed Rules (b) The definitions in this section are severable. If any definition in this section is held to be invalid that shall not affect the operability of the remaining definitions. [FR Doc. 2020–20428 Filed 10–6–20; 8:45 am] BILLING CODE 6325–39–P FEDERAL RESERVE SYSTEM 12 CFR Parts 225, 238, and 252 [Regulations Y, LL, and YY; Docket No. R– 1724] RIN 7100–AF95 Amendments to Capital Planning and Stress Testing Requirements for Large Bank Holding Companies, Intermediate Holding Companies and Savings and Loan Holding Companies Board of Governors of the Federal Reserve System (Board). ACTION: Notice of proposed rulemaking with request for comment. AGENCY: The Board is inviting comment on a notice of proposed rulemaking (proposal) to tailor the requirements in the Board’s capital plan rule (capital plan rule), which applies to large bank holding companies and U.S. intermediate holding companies of foreign banking organizations. Specifically, as foreshadowed in the Board’s October 2019 rulemaking that updated the prudential framework for these companies (tailoring framework), the proposal would make conforming changes to the capital planning, regulatory reporting, and stress capital buffer requirements for firms subject to Category IV standards to be consistent with the tailoring framework. To be consistent with recent changes to the Board’s stress testing rules, the proposal would make other changes to the Board’s stress testing rules, Stress Testing Policy Statement and regulatory reporting requirements relating to business plan change assumptions, capital action assumptions, and the publication of company-run stress test results for savings and loan holding companies. This proposal also solicits comment on the Board’s guidance on capital planning for all firms supervised by the Board, in light of recent changes to relevant regulations and as part of the Board’s ongoing practice of reviewing its policies to ensure that they are having their intended effect. DATES: Comments must be received by November 20, 2020. ADDRESSES: You may submit comments, identified by Docket No.R–1724 and SUMMARY: VerDate Sep<11>2014 16:45 Oct 06, 2020 Jkt 253001 RIN 7100–AF95 by any of the following methods: • Agency Website: http:// www.federalreserve.gov. Follow the instructions for submitting comments at http://www.federalreserve.gov/ generalinfo/foia/ProposedRegs.aspx. • Email: regs.comments@ federalreserve.gov. Include the docket number and RIN number in the subject line of the message. • Fax: (202) 452–3819 or (202) 452– 3102. • Mail: Address to Ann E. Misback, Secretary, Board of Governors of the Federal Reserve System, 20th Street and Constitution Avenue NW, Washington, DC 20551. All public comments are available from the Board’s website at http:// www.federalreserve.gov/generalinfo/ foia/ProposedRegs.cfm as submitted, unless modified for technical reasons or to remove personally identifiable information at the commenter’s request. Accordingly, comments will not be edited to remove any identifying or contact information. Public comments may also be viewed electronically or in paper in Room 146, 1709 New York Avenue NW, Washington, DC 20006, between 9:00 a.m. and 5:00 p.m. on weekdays. FOR FURTHER INFORMATION CONTACT: Constance Horsley, Deputy Associate Director, (202) 452–5239, Elizabeth MacDonald, Manager (202) 475–6316, Hillel Kipnis, Senior Financial Institution Policy Analyst II, (202) 452– 2924, Christopher Appel, Senior Financial Institution Policy Analyst II, (202) 973–6862, and Palmer Osteen, Financial Institution Policy Analyst, (202) 785–6025, Division of Supervision and Regulation; Benjamin McDonough, Assistant General Counsel, (202) 452– 2036, Julie Anthony, Senior Counsel, (202) 475–6682, Asad Kudiya, Senior Counsel, (202) 475–6358, Jonah Kind, Senior Attorney, (202) 452–2045, or Jasmin Keskinen, Legal Assistant/ Attorney, (202) 475–6650, Legal Division, Board of Governors of the Federal Reserve System, 20th Street and Constitution Avenue NW, Washington, DC 20551. Users of Telecommunication Device for Deaf (TDD) only, call (202) 263–4869. SUPPLEMENTARY INFORMATION: Table of Contents I. Changes to the Capital Plan Rule A. Introduction i. Background on Capital Planning, Stress Testing and Stress Capital Buffer Requirements ii. Background on Tailoring Framework iii. Summary of Proposal PO 00000 Frm 00005 Fmt 4702 Sfmt 4702 B. Changes to Capital Planning Requirements for Firms Subject to Category IV Standards i. Capital Plan Submissions ii. Changes to Reporting Requirements Related to Capital Planning Requirements C. Calculation and Timing of the Stress Capital Buffer Requirement for Firms Subject to Category IV Standards D. Changes to Stress Test Rules for Firms Subject to Category I–IV Standards i. Business Plan Change Assumption ii. Changes for Savings and Loan Holding Companies iii. Changes to Reporting Requirements Related to Stress Test Rule Changes E. Definition of Common Stock Dividend in Capital Plan Rule F. Impact Analysis II. Request for Comment on Board Guidance on Capital Planning III. Administrative Law Matters A. Paperwork Reduction Act B. Regulatory Flexibility Act C. Solicitation of Comments of Use of Plain Language I. Changes to the Capital Plan Rule A. Introduction i. Background on Capital Planning, Stress Testing and Stress Capital Buffer Requirements Stress testing is a core element of the Board’s regulatory framework and supervisory program for large firms. Stress testing enables the Board to assess whether large firms have sufficient capital to absorb potential losses and continue lending under severely adverse conditions. The Board implemented its capital plan rule, which requires large firms to develop and maintain capital plans supported by robust processes for assessing their capital adequacy, in 2011.1 The Board made changes to its capital rule—which establishes minimum regulatory capital requirements—in 2013. These changes address weaknesses observed during the 2008—2009 financial crisis, including the establishment of a minimum common equity tier 1 (CET1) capital requirement and a fixed capital conservation buffer equal to 2.5 percent 1 Capital Plans, 76 FR 74631 (Dec. 1, 2011). Originally, as a part of the capital plan rule, the Federal Reserve could object to a firm’s capital plan based on a qualitative assessment. A subsequent rulemaking changed this requirement such that after CCAR 2020 no firm will be subject to a potential qualitative objection if the firm successfully passed several qualitative evaluations. Amendments to the Capital Plan Rule, 84 FR 8953 (March 13, 2019). All firms subject to the capital plan rule have successfully passed the required number of qualitative evaluations such that no firms are subject to the qualitative objection going forward. As a result, the proposal would revise the capital plan rule to remove references to the qualitative objection. E:\FR\FM\07OCP1.SGM 07OCP1 Federal Register / Vol. 85, No. 195 / Wednesday, October 7, 2020 / Proposed Rules of risk-weighted assets.2 Rigorous stress testing—in conjunction with stronger capital requirements implemented in the Board’s capital rule—have significantly improved the resilience of the U.S. banking system.3 The Board recently adopted a final rule (stress capital buffer rule) to integrate its capital plan rule and capital rule through the establishment of a stress capital buffer requirement, creating a single, risk-sensitive framework for large banking organizations.4 To achieve individually tailored and risk-sensitive capital requirements for banking organizations subject to the capital plan rule, the stress capital buffer rule establishes the size of a firm’s stress capital buffer requirement based in part on a supervisory stress test conducted by the Federal Reserve. The stress capital buffer rule included several changes to the assumptions embedded in the supervisory stress test, notably removing the assumption that firms make all planned common distributions and excluding material business plan changes from the stress capital buffer requirement calculation. Previously, under the Comprehensive Capital Analysis and Review (CCAR), the Board required firms to pre-fund nine quarters of planned dividends and share repurchases. Under the stress capital buffer rule, firms are subject to a pre-funding requirement of four quarters of planned dividends. This approach recognizes the capital rule’s automatic limitations on capital distributions while continuing to promote forward-looking capital planning and mitigate pro-cyclicality. Prior to the implementation of the stress capital buffer rule, the impact of expected material changes to a firm’s business plan were incorporated into a firm’s CCAR results. In order to simplify 63223 the stress test framework and to reduce burden, material business plan changes are not included in the stress capital buffer calculation. Instead, material changes to a firm’s business plan resulting from a merger or acquisition are incorporated into a firm’s capital and risk-weighted assets upon consummation of the transaction. ii. Background on Tailoring Framework In October 2019, the Board issued a final rule that established a revised framework for applying prudential standards to large firms to align prudential standards more closely to a large firm’s risk profile (tailoring rule).5 The tailoring rule established four categories of prudential standards and applies them based on indicators designed to measure the risk profile of a firm.6 Table I outlines the scoping criteria for categories of prudential standards finalized in the tailoring rule. TABLE I—SCOPING CRITERIA FOR CATEGORIES OF PRUDENTIAL STANDARDS Category U.S. banking organizations I .......................... U.S. GSIBs and their depository institution subsidiaries ......... II ......................... $700 billion or more in total assets; or $75 billion or more in cross-jurisdictional activity; and do not meet the criteria for Category I. $250 billion or more in total assets; or $75 billion or more in weighted short-term wholesale funding, nonbank assets, or offbalance sheet exposure; and do not meet the criteria for Category I or II. $100 billion or more in total assets; and do not meet the criteria for Category I–III. III ........................ IV ........................ Foreign banking organizations N/A. The tailoring rule made two changes to the stress testing rules for firms subject to Category IV standards. First, the tailoring rule removed the requirement for firms subject to Category IV standards to conduct and publicly disclose the results of company-run stress tests as defined in the Board’s stress testing rules. Second, the tailoring rule changed the frequency of the supervisory stress test for firms subject to Category IV standards from annual to biennial.7 In the tailoring rule, the Board also foreshadowed that it intended to provide greater flexibility to firms subject to Category IV standards to develop their annual capital plans and consider additional regulatory reporting burden relief in a separate proposal.8 2 See 12 CFR part 217. Large banking organizations also became subject to a countercyclical capital buffer requirement, and the largest and most systemically important firms— global systemically important bank holding companies, or GSIBs—became subject to an additional capital buffer based on a measure of their systemic risk, the GSIB surcharge. See Regulatory Capital Rules: Implementation of Risk-Based Capital Surcharges for Global Systemically Important Bank Holding Companies, 80 FR 49082 (Aug. 14, 2015). 3 The common equity capital ratios of firms subject to CCAR have more than doubled since 2009. Combined, these firms hold more than $1 trillion of common equity tier 1 capital and are substantially more resilient than they were ten years ago. 4 See Regulations Q, Y, and YY: Regulatory Capital, Capital Plan, and Stress Test Rules, 85 FR 15576 (March 18, 2020). 5 See Prudential Standards for Large Bank Holding Companies, Savings and Loan Holding Companies, and Foreign Banking Organizations, 84 FR 59032 (Nov. 1, 2019). 6 The final rule increased the threshold for general application of these standards from $50 billion to $100 billion in total consolidated assets. VerDate Sep<11>2014 16:45 Oct 06, 2020 Jkt 253001 iii. Summary of Proposal The Board is issuing this proposal to conform its capital plan rule, stress capital buffer requirements, and capital planning requirements by modifying them to be consistent with its tailoring framework. Most of the significant modifications included in the proposal have been previously described by the Board, notably in its tailoring rule and stress capital buffer rule. With respect to firms subject to Category IV standards, in order to align the capital plan rule requirements with the tailoring rule changes, this proposal would generally remove the capital plan rule PO 00000 Frm 00006 Fmt 4702 Sfmt 4702 requirement to calculate forwardlooking projections of capital under scenarios provided by the Board. In addition, for firms subject to Category IV standards, the proposal would update the frequency of calculating the portion of the stress capital buffer that is calculated as the decline in the CET1 ratio to every other year. These firms would have the ability to elect to participate in the supervisory stress test—and receive an updated stress capital buffer requirement—in a year in which they would not generally be subject to the supervisory stress test. The proposal would also include changes to the Board’s supervisory stress test and the company-run stress 7 Both changes related to stress testing rules for firms subject to Category IV standards—(1) to remove the requirement to conduct and to publicly disclose the results of the company-run stress tests; and (2) to change the frequency of the supervisory stress test to biennial—were consistent with amendments to section 165 of the Dodd-Frank Act made by the Economic Growth, Regulatory Relief and Consumer Protection Act (EGRRCPA). See Public Law 115–174, 132 Stat. 1296 (2018). 8 See 85 FR 15576, 15593, fn 57. E:\FR\FM\07OCP1.SGM 07OCP1 63224 Federal Register / Vol. 85, No. 195 / Wednesday, October 7, 2020 / Proposed Rules test rules.9 The proposal would clarify the assumptions related to business plan changes, introduce revisions to the capital action assumptions, and would require certain savings and loan holding companies to publicly disclose their stress tests results in a parallel manner as bank holding companies. B. Changes to Capital Planning Requirements for Firms Subject to Category IV Standards Consistent with Section 401(e) of the EGRRCPA, the tailoring rule adjusted the frequency of supervisory stress testing for firms subject to Category IV standards to every other year and eliminated the requirement to conduct the company-run stress tests under the scenarios provided by the Board. This adjustment reflected the lower risk profile of a firm subject to Category IV standards relative to a firm subject to Category I–III standards. The proposal would update the terminology in the capital plan rule to conform to the terminology used in the tailoring framework by removing the term ‘‘large and noncomplex bank holding company’’ and replacing it with the definition of a firm subject to Category IV standards and tailor the requirements in the capital plan rule that currently apply to these firms, as discussed below. i. Capital Plan Submissions Under the proposal, firms subject to Category IV standards would be required to submit a capital plan to the Board annually but would generally no longer be required to calculate estimates of projected revenues, losses, reserves, and pro forma capital levels (effectively a form of stress testing) using scenarios provided by the Board. Such firms would continue to be required to provide a forward-looking analysis of income and capital levels under expected and stressful conditions. The projections are required to be tailored to and sufficiently capture the firm’s exposures, activities, and idiosyncratic risks in their capital plans.10 This includes projections under a scenario designed by the firm that stresses the specific vulnerabilities of the firm’s risk profile and operations. This scenario should incorporate stressful conditions and events that could adversely affect the firm’s capital adequacy. Under certain circumstances, based on the 9 See 12 CFR part 252, subparts E and F. analysis should cover an appropriate period (usually a period of at least two years) to capture the relevant risks to a firm. A firm should estimate losses, revenues, expenses, and capital using sound methods that relate macroeconomic and other risk drivers to its estimates. 10 The VerDate Sep<11>2014 16:45 Oct 06, 2020 Jkt 253001 macroeconomic outlook or based on the firm’s risk profile, financial condition or corporate structure, the proposal would allow the Board to require a firm subject to Category IV standards to submit a capital plan under scenarios provided by the Board. This would ensure that the Board could evaluate the firm’s forward-looking capital position using a scenario designed for the specific circumstances of the macro-economy or the firm’s risk profile. In addition, firms subject to Category IV standards would no longer be required to submit to the Federal Reserve forward-looking projections in the granular form prescribed by the regulatory report FR Y–14A, Schedule A—Summary. This schedule includes over five hundred capital, revenue, expense, and balance sheet line items that a firm must project over a ninequarter planning horizon. In this way, the firm’s reporting requirements would be updated to reflect the tailoring rule’s elimination of the company-run stress test requirement for a firm subject to Category IV standards, permitting the firm to estimate its capital needs using scenarios reflective of its operations and to adjust the granularity of its stress projections to better align with the materiality of the firm’s business lines. The proposal would provide firms flexibility in the granularity of their forward-looking projections as they would no longer be required to submit the specific line items outlined in the FR Y–14A, Schedule A—Summary. As the projections would no longer require the same level of granularity, firms would also have more flexibility in the design of their individual stress scenarios. While the proposal would no longer require firms subject to Category IV standards to include certain elements in their capital plans, all banking organizations, regardless of size and complexity, are expected to have the capacity to analyze the potential impact of adverse outcomes on their financial condition, including on capital. Risk management practices should be tailored to the risk and complexity of the individual institution, and should include practices to identify and assess a firm’s sensitivity to unexpected adverse outcomes before they occur. The Federal Reserve would continue to conduct an annual assessment of the capital plan of a firm subject to Category IV standards as part of its ongoing supervisory process, and the results of this assessment would continue to be an input into the firm’s capital planning PO 00000 Frm 00007 Fmt 4702 Sfmt 4702 and positions component of the Large Financial Institution Rating System.11 ii. Changes to Reporting Requirements Related to Capital Planning Requirements The proposal includes several modifications to the FR Y–14 reporting requirements for firms subject to Category IV standards to align with the proposed changes to company-run stress testing requirements. The Board is proposing that firms subject to Category IV standards would no longer be required to report FR Y–14A Schedule A—Summary, Schedule B—Scenario, Schedule F—Business Plan Changes, and Appendix A—Supporting Documentation, which are used to report a firm’s company-run stress test results. Firms subject to Category IV standards would be required to complete all other FR Y–14A schedules, as they are either necessary for the Board to run its supervisory stress test or a required element of the firm’s capital plan.12 In order to be able to assess whether a firm’s planned capital distributions included in its capital plan would be consistent with any effective capital distribution limitations that would apply under the firm’s BHC baseline projections, as required by the capital plan rule, the proposal would add four line items to the FR Y–14A Schedule C—Regulatory Capital Instruments, as this schedule is filed by all firms subject to the capital plan rule. The line items would be the projections of Common Equity Tier 1 capital ratio, Tier 1 capital ratio, Total capital ratio and net income under the BHC baseline scenario. These line items would allow the Federal Reserve to confirm compliance with the capital plan rule for firms subject to Category IV standards. The detailed balance sheet information that would continue to be collected on a monthly and quarterly basis from firms subject to Category IV standards on the FR Y–14Q and FR Y– 14M is necessary to maintain the integrity of the stress tests, monitor financial stability, and effectively supervise those firms. Question 1: What are the advantages and disadvantages of requiring firms subject to Category IV standards to continue to provide the Board with forward-looking analysis of income and capital levels under expected and 11 See SR Letter 19–3, Large Financial Institution (LFI) Rating System (Feb. 26, 2019). 12 In particular, firms subject to Category IV standards would be required to complete the FR Y– 14A, Schedule C—Regulatory Capital Instruments, Schedule E—Operational Risk, and the Collection of Supplemental CECL Information. E:\FR\FM\07OCP1.SGM 07OCP1 Federal Register / Vol. 85, No. 195 / Wednesday, October 7, 2020 / Proposed Rules stressful conditions? What, if any, alternative approaches should the Board consider and why? Question 2: Are there potential alternatives or improvements to other capital planning requirements for firms subject to Category IV standards that the Board should consider in light of the Board’s elimination of the requirement for firms subject to Category IV standards to conduct and publicly disclose the results of company-run stress tests? Provide specific suggestions and rationale. Question 3: What are the advantages and disadvantages of requiring firms subject to Category IV standards to submit some, but not all, aspects of the Y–14A Schedule A—Summary to the Federal Reserve? For example, should these firms continue to be required to submit top-line items under their BHC stress scenario, such as level of capital, net income or risk-weighted assets, and if so why? Question 4: What alternatives could the Board use to collect information related to a firm’s capital plan and forward-looking projections under a range of conditions? C. Calculation and Timing of the Stress Capital Buffer Requirement for Firms Subject to Category IV Standards Firms subject to Category IV standards are currently subject to supervisory stress testing on a two-year cycle. Under the proposal, the portion of the stress capital buffer requirement that is calculated as the decline in the CET1 ratio for such firms would be calculated every other year. During a year in which a firm subject to Category IV standards does not undergo a supervisory stress test, the firm would receive an updated stress capital buffer requirement that reflects the firm’s updated planned common stock dividends. For example, a firm subject to Category IV standards receives a stress capital buffer requirement on June 30, 2022, equal to 3.5 percent and the buffer is composed of a 3.0 percent decline in CET1 ratio in the stress test and 0.5 percent from four quarters of planned dividends as a percent of risk-weighted assets. That requirement would be effective from October 1, 2022, to September 30, 2023. The following year, the firm would provide the Federal Reserve with an updated capital plan by April 5, 2023. If, for example, the firm planned to increase its dividends to equal 0.6 percent of risk-weighted assets, then its new stress capital buffer requirement of 3.6 percent would become effective on October 1, 2023, and would remain effective until September 30, 2024. VerDate Sep<11>2014 16:45 Oct 06, 2020 Jkt 253001 A firm subject to Category IV standards may prefer to receive an updated stress capital buffer requirement in a year in which it would not generally be subject to the supervisory stress test. To provide these firms the flexibility to ensure they receive stress capital buffer requirements that are reflective of their risk profiles, the proposal would allow a firm subject to Category IV standards to elect to participate in the supervisory stress test in a year in which the firm would not normally be subject to the supervisory stress test. To ensure the Board is provided sufficient notice that the firm is participating in the supervisory stress test, the firm would need to make its election by December 31 of the year preceding the year in which it seeks to opt in to the supervisory stress test by providing written notice to the Board and appropriate Federal Reserve Bank. Such a firm would be a full participant in that year’s supervisory stress test, including disclosure of the firm’s supervisory stress test results, and would receive an updated stress capital buffer requirement like all other firms subject to the supervisory stress test. For purposes of calculating the stress capital buffer requirement in 2021 for a firm subject to Category IV standards that elects to participate in the 2021 supervisory stress test, the proposal includes transitional procedures such that the firm could notify the Board until February 15, 2021. These transitional arrangements would apply only for purposes of the 2021 stress test cycle. In addition, as under the current capital plan rule, the Board would continue to have the ability to require a firm to resubmit its capital plan if, among other reasons, the Board determines that there has been or will likely be a material change in the firm’s risk profile, financial condition, or corporate structure, or if changes to financial market conditions or the macroeconomic outlook require the use of updated scenarios. If a firm resubmits its capital plan, the Board may recalculate its stress capital buffer requirement and may use a new severely adverse scenario. These requirements help ensure that a firm’s stress capital buffer requirement remains commensurate with its risk profile. Question 5: What are the advantages and disadvantages of updating on an annual basis the dividend add-on portion of the stress capital buffer requirements for firms subject to Category IV standards? Should the Board consider a shorter or longer time PO 00000 Frm 00008 Fmt 4702 Sfmt 4702 63225 period for updating the dividend add-on portion of the stress capital buffer requirement, and if so, why? Question 6: What are the advantages and disadvantages of allowing a firm subject to Category IV standards to receive an updated stress capital buffer requirement in a year in which the firm is not subject to the supervisory stress test if the firm elects to undergo a supervisory stress test, including the proposed method and timing of the election? Question 7: What are the advantages and disadvantages of requiring a firm subject to Category IV standards to be a full participant (i.e., the Board would disclose the results of its supervisory stress test results for the firm), in that year’s supervisory stress test in order to receive an updated stress capital buffer requirement? Question 8: This proposal includes February 15, 2021 as the deadline for a firm subject to Category IV standards to notify the Board of its intention to participate in the 2021 supervisory stress test. What are the advantages and disadvantages of including February 15, 2021 as the deadline for this notification to participate in the 2021 supervisory stress test for such a firm? What other date(s) or timeline should the Board consider in order to ensure such a firm can elect to participate in the 2021 supervisory stress test? For example, what would be the advantages and disadvantages of including April 5, 2021, the date on which these firms must submit their capital plans to the Federal Reserve, as the deadline for notification to participate in the 2021 supervisory stress test? D. Changes to Stress Test Rules for Firms Subject to Category I–IV Standards i. Business Plan Change Assumption For purposes of the supervisory stress test, the Board does not incorporate the impact of expected changes to a firm’s business plan that are likely to have a material impact on the firm’s capital adequacy and funding profile (material business plan changes) in balance sheet, risk-weighted asset, and capital projections. In order to ensure alignment in the assumptions in the supervisory and company-run stress tests, the proposal would clarify that the Board and firms would exclude impacts of unconsummated material business plan changes in the supervisory and company-run stress tests conducted pursuant to the Dodd-Frank Act. As this assumption would be reflected in the stress test rules, the proposal would E:\FR\FM\07OCP1.SGM 07OCP1 63226 Federal Register / Vol. 85, No. 195 / Wednesday, October 7, 2020 / Proposed Rules remove the corresponding section from the Stress Testing Policy Statement. A firm would continue to be required to include in its capital plan a discussion of any expected changes to the firm’s business plan that are likely to have a material impact on the firm’s capital adequacy or liquidity. A firm would also continue to be required to incorporate impacts of material business plan changes in projections of income and capital levels under all scenarios required for purposes of capital planning. This requirement would help to ensure that a firm appropriately plans for changes to its business. If a material business plan change resulted in or would result in a material change in a firm’s risk profile, the firm would still be required to resubmit its capital plan. ii. Changes for Savings and Loan Holding Companies As a part of the tailoring rule, covered savings and loan holding companies were made subject to the Board’s supervisory stress test and company-run stress test requirements in the same manner as comparable bank holding companies.13 Currently, the capital action assumptions in the stress test rules for covered savings and loan holding companies are different than those for comparable bank holding companies because they were not included in the stress capital buffer rule, in which the Board updated the distribution assumptions for bank holding companies. The proposal would amend the stress test rules for covered savings and loan holding companies so the capital distribution assumptions for covered savings and loan holding companies match the assumptions for comparable bank holding companies. The proposal would also include a change to address an omission in the Board’s company-run stress test requirements to ensure that all savings and loan holding companies with more than $250 billion in assets are required to publicly disclose the results of their stress tests, similar to the requirement for bank holding companies. This would ensure the requirements are consistent with the Dodd-Frank Act. The Board is also considering whether to apply the capital planning and stress capital buffer requirements to large covered savings and loan holding 13 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. VerDate Sep<11>2014 16:45 Oct 06, 2020 Jkt 253001 companies that currently apply to large bank holding companies and is posing the following questions for public comment. Question 9: As outlined in the preamble of the Board’s final tailoring rule, large covered savings and loan holding companies engage in many of the same activities and face similar risks as large bank holding companies, including, but not limited to, deposit taking, lending, broker-dealer activities, credit card and margin lending, and certain complex nonbanking activities. The Board’s tailoring rule applied the category framework to covered savings and loan holding companies to help identify 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. However, the requirements in the capital plan rule do not currently apply to large covered savings and loan holding companies. What would be the advantages and disadvantages of applying the requirements in the capital plan rule, including the stress capital buffer requirement, to large covered savings and loan holding companies in the same manner as they apply to large bank holding companies? To what extent does the public consider covered savings and loan holding companies to be close substitutes to similarly situated bank holding companies? Question 10: If the Board were to apply capital planning and stress capital buffer requirements to large covered savings and loan holding, what adjustments, if any, should the Board make to those requirements as compared to the requirements that apply to large bank holding companies and why? For example, should the Board consider any adjustments to the mandatory elements of the capital plan, the calculation of the stress capital buffer requirement, regulatory reporting requirements or any other aspect capital planning and stress capital buffer requirements in light of the risk profile of large covered savings and loan holding companies relative to large bank holding companies? Question 11: What other approaches to applying capital planning requirements to large covered savings and loan holding companies should the Board consider and why? For example, what would be the advantages and disadvantages of allowing large covered savings and loan holding companies to opt-in to being required to comply with the capital planning and stress capital PO 00000 Frm 00009 Fmt 4702 Sfmt 4702 buffer requirements that currently apply to large bank holding companies? Question 12: Under the Board’s capital plan rule for large bank holding companies, a firm that is subject to the capital plan rule and meets the asset threshold on or before September 30 of a calendar year must comply with the requirements of the rule beginning on January 1 of the next calendar year. Similarly, such a firm that meets the asset threshold after September 30 of a calendar year must comply with the requirements of the rule beginning on January 1 of the second calendar year after the firm meets the asset threshold. What elements of this approach to a transition period are appropriate for applying capital planning requirements to large covered savings and loan holding companies? iii. Changes to Reporting Requirements Related to Stress Test Rule Changes The proposal would update the FR Y– 14 reporting requirements for firms subject to Category I–IV standards to conform with changes made to the stress test rules. In order to reflect the exclusion of material business plan changes in company-run stress test projections, the proposal would create two sub-schedules for all items on the FR Y–14A, Schedule A—Summary: (1) DFAST, where a firm would not incorporate the effects of business plan changes and (2) CCAR, where a firm would incorporate the effects of business plan changes. Firms would report projections on the DFAST subschedule under the scenarios provided by the Federal Reserve, and firms would report projections on the CCAR subschedule under expected conditions and under a range of scenarios, including the supervisory severely adverse scenario provided by the Federal Reserve and at least one BHC baseline and one BHC stress scenario. To more accurately reflect the types of firms subject to the stress test reporting requirements, the proposal would also rename the BHC baseline scenario and BHC stress scenario to Firm baseline scenario and Firm stress scenario, respectively. Firms subject to Category I–III standards would be required to report a version of FR Y–14A, Schedule A.1.a— Income Statement, Schedule A.1.b— Balance Sheet, Schedule A.1.c.1— Standardized RWA, Schedule A.1.d— Capital, Schedule A.2.a—Retail Balance and Loss Projections, Schedule A.3— AFS/HTM Securities, Schedule A.4— Trading, Schedule A.5—Counterparty Credit Risk, Schedule A.6—Operational Risk, and Schedule A.7—Pre-Provision Net Revenue, that incorporates the E:\FR\FM\07OCP1.SGM 07OCP1 Federal Register / Vol. 85, No. 195 / Wednesday, October 7, 2020 / Proposed Rules effects of business plan changes, as well as a version of these schedules and items that does not incorporate these effects. For Schedule A.1.d, firms subject to Category I–III standards would no longer report the supervisory baseline scenario on the Capital—CCAR sub-schedule. Firms subject to Category I–IV standards would be required to report a version of FR Y–14A Schedule C that incorporates the effects of material business plan changes and a version that does not incorporate these effects. As described above, firms subject to Category IV standards would not be required to submit the FR Y–14A, Schedule A—Summary. Given the changes made to the FR Y–14A, Schedule A—Summary, firms would no longer be required to submit the supervisory baseline scenario for FR Y– 14A, Schedule F—Business Plan Changes. Question XX: What are the advantages and disadvantages of the Board requiring firms subject to Category IV standards to submit the FR Y–14A, Schedule A—Summary in response to changes based on the macroeconomic outlook or based on the firm’s risk profile, financial condition or corporate structure? E. Definition of Common Stock Dividend in Capital Plan Rule A component of a firm’s stress capital buffer requirement is the dividend addon, which is based on planned dividends during projected quarters four through seven of the planning horizon. As noted above, the dividend add-on promotes forward-looking dividend planning and mitigates the procyclicality of the Board’s stress testing framework. The capital plan rule does not define common stock dividends. However, the FR Y–14A defines dividends by referencing the definition of dividend in the Glossary to the FR Y–9C instructions. That definition provides, among other things, that cash dividends are ‘‘payments of cash to shareholders in proportion to the number of shares they own.’’ Using the definition of dividends on the FR Y– 9C, in 2019 dividends as a share of riskweighted assets was around 50 basis points. The Board has observed different practices regarding the classification of dividends and share repurchases. For example, certain U.S. intermediate holding companies of foreign banking organizations have classified distributions to their parent companies as dividends, while other U.S. intermediate holding companies have classified similar distributions as nondividend payouts. Decisions by firm VerDate Sep<11>2014 16:45 Oct 06, 2020 Jkt 253001 regarding classifications may depend, among other things, whether the distribution is paid out of the firm’s retained earnings. The Board is therefore seeking comment on, but not proposing, a definition for common stock dividends in the capital plan rule. The definition of common stock dividend could be aligned with the definition on the FR Y– 9C and could include payments of cash to parent organizations irrespective of whether the amount paid is debited from the firm’s retained earnings. For example, a definition of common stock dividend could be any payment of cash to shareholders in proportion to the number of shares they own. Question 13: What would be the advantages and disadvantages of including a definition of common stock dividends in the capital plan rule? How should such a definition interact with the definition of dividends in the Board’s rules and regulatory reports, including the FR Y–9C and the FR Y– 14A/Q/M? What would be the advantages and disadvantages of aligning the definition of dividends across the Board’s rules and regulatory reports? Please include a discussion of the materiality of including this definition. Question 14: What are the advantages and disadvantages of the definition discussed above? What adjustments should the Board consider to this definition and why? Are there any special considerations the Board should consider with regards to U.S. intermediate holding companies? F. Impact Analysis The changes in the proposal would not affect the calculation of capital requirements. The proposal would not change the calculation of capital requirements, including the stress capital buffer requirement, for firms subject to Category IV standards. The regulatory reporting aspects of the proposal would introduce some additional compliance burden on firms subject to Category I through III standards, while significantly reducing compliance burden on firms subject to Category IV standards. II. Request for Comment on Board Guidance on Capital Planning Sufficient capital resources are central to a firm’s ability to absorb unexpected losses and continue to lend to creditworthy businesses and consumers. Therefore, a firm’s processes for managing and allocating its capital resources are critical to its financial strength and resiliency, as well as to the stability and effective functioning of the PO 00000 Frm 00010 Fmt 4702 Sfmt 4702 63227 U.S. financial system. Over the past decades, the Board has issued guidance related to its supervisory expectations for firms’ capital planning. The Board has tailored expectations for sound capital planning depending on the size, scope of operations, activities, and systemic importance of a firm. The Board is requesting comment on all aspects of its guidance on capital planning for firms of all sizes (as delineated below), consistent with its ongoing practice of reviewing its policies to ensure that they are having their intended effect. Certain aspects of the guidance have not been updated since the 2007–2008 financial crisis. The revisions made to the Board’s regulations in the recent tailoring and stress capital buffer rules and experiences with capital planning during the Coronavirus Disease 2019 event (COVID event) also motivate seeking public input at this time. The Board’s key capital planning guidance includes supervision and regulation (SR) letters, ‘‘Federal Reserve Supervisory Assessment of Capital Planning and Positions for LISCC Firms and Large and Complex Firms,’’ 14 ‘‘Federal Reserve Supervisory Assessment of Capital Planning and Positions for Large and Noncomplex Firms,’’ 15 ‘‘Applying Supervisory Guidance and Regulations on the Payment of Dividends, Stock Redemptions, and Stock Repurchases at Bank Holding Companies,’’ 16 and the ‘‘Policy Statement on the Payment of Cash Dividends.’’ 17 The Board also encourages feedback on any other aspects of its guidance that relate to capital planning. Question 15: What if any changes should the Board consider with respect to the scope of application of its existing capital planning guidance and why? What if any considerations regarding firms’ risk profiles should be factored 14 SR letter 15–18, ‘‘Federal Reserve Supervisory Assessment of Capital Planning and Positions for LISCC Firms and Large and Complex Firms,’’ December 18, 2015, See https:// www.federalreserve.gov/supervisionreg/srletters/ sr1518.htm. 15 SR letter 15–19, ‘‘Federal Reserve Supervisory Assessment of Capital Planning and Positions for Large and Noncomplex Firms,’’ December 18, 2015, See https://www.federalreserve.gov/supervisionreg/ srletters/sr1519.htm. 16 SR letter 09–4, ‘‘Applying Supervisory Guidance and Regulations on the Payment of Dividends, Stock Redemptions, and Stock Repurchases at Bank Holding Companies’’, February 24, 2009, See https:// www.federalreserve.gov/boarddocs/srletters/2009/ SR0904.htm. 17 ‘‘UNSOUND BANKING PRACTICES—Cash Dividends Not Fully Covered by Earnings’’ November 14, 1985. See https:// www.federalreserve.gov/boarddocs/srletters/2009/ sr0904a2.pdf. E:\FR\FM\07OCP1.SGM 07OCP1 63228 Federal Register / Vol. 85, No. 195 / Wednesday, October 7, 2020 / Proposed Rules into the applicability of capital planning guidance and why? Factoring in the applicability of the Board’s regulations, what if any aspects of the Board’s capital planning guidance should be changed or tailored differently based on firms’ risk profiles and why? Question 16: The Board is interested in comment on whether changes are appropriate to its supervisory guidance on capital planning, in light of experience with the guidance and factors such as the recent tailoring and stress capital buffer rules and other applicable regulatory requirements. Please describe appropriate changes and the rationale behind them. Question 17: How should existing guidance on capital planning be adapted, if at all, to reflect times of heightened and prolonged uncertainty? For example, how has the COVID event influenced firms’ capital planning and loss estimation processes? How should these types of adjustments be reflected in the Board’s guidance on capital planning? Question 18: How should the Board weigh the potential benefits of revising its capital planning guidance against the potential burdens, given the current economic environment? How could any such burdens be mitigated? Question 19: How well does the existing guidance on capital planning reflect sound practices for managing risks across firms of various risk profiles and promote safety and soundness? With a goal of balancing clarity and flexibility, how could the guidance be improved in its application to firms with differing risk profiles? What aspects of industry practice or other developments should be considered in any potential updates to this guidance, and how? III. Administrative Law Matters A. Paperwork Reduction Act Certain provisions of the proposed rule contain ‘‘collections of information’’ within the meaning of the Paperwork Reduction Act of 1995 (PRA) (44 U.S.C. 3501–3521). The Board may not conduct or sponsor, and a respondent is not required to respond to, an information collection unless it displays a currently valid Office of Management and Budget (OMB) control number. The Board reviewed the proposed rule under the authority delegated to the Board by OMB. The proposed rule would revise collection of information requirements subject to the PRA. The Board proposes to revise the FR Y–14, FR LL, and the FR YY to reflect the changes proposed in the proposed rule. The OMB control VerDate Sep<11>2014 16:45 Oct 06, 2020 Jkt 253001 numbers are 7100–0341, 7100–NEW, and 7100–0350. Comments are invited on: a. Whether the collections of information are necessary for the proper performance of the Federal Reserve’s functions, including whether the information has practical utility; b. The accuracy or the estimate of the burden of the information collections, including the validity of the methodology and assumptions used; c. Ways to enhance the quality, utility, and clarity of the information to be collected; d. Ways to minimize the burden of the information collections on respondents, including through the use of automated collection techniques or other forms of information technology; and e. Estimates of capital or startup costs and costs of operation, maintenance, and purchase of services to provide information. All comment will become a matter of public record. Comments on aspects of this proposal that may affect reporting, recordkeeping, or disclosure requirements and burden estimates should be sent to: Secretary, Board of Governors of the Federal Reserve System, 20th and C Streets NW, Washington, DC 20551. A copy of the comments may also be submitted to the OMB desk officer by mail to U.S. Office of Management and Budget, 725 17th Street NW, #10235, Washington, DC 20503 or by facsimile to 202–395–5806, Attention, Agency Desk Officer. Proposed Revisions, With Extension for Three Years, of the Following Information Collections (1) Report title: Capital Assessments and Stress Testing Reports. Agency form number: FR Y–14A/Q/ M. OMB control number: 7100–0341. Frequency: Annually, quarterly, and monthly. Respondents: These collections of information are applicable to bank holding companies (BHCs), U.S. intermediate holding companies (IHCs), and covered savings and loan holding companies (SLHCs) 18 with $100 billion or more in total consolidated assets, as based on: (i) The average of the firm’s total consolidated assets in the four most recent quarters as reported 18 Covered SLHCs are those which are not substantially engaged in insurance or commercial activities. For more information, see the definition of ‘‘covered savings and loan holding company’’ provided in 12 CFR 217.2 and 12 CFR 238.2(ee). SLHCs with $100 billion or more in total consolidated assets become members of the FR Y– 14Q and FR Y–14M panels effective June 30, 2020, and the FR Y–14A panel effective December 31, 2020. See 84 FR 59032 (November 1, 2019). PO 00000 Frm 00011 Fmt 4702 Sfmt 4702 quarterly on the firm’s Consolidated Financial Statements for Holding Companies (FR Y–9C; OMB No. 7100– 0128); or (ii) if the firm has not filed an FR Y–9C for each of the most recent four quarters, then 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. 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: FR Y–14A/Q: 36; FR Y–14M: 34.19 Estimated average hours per response: FR Y–14A: 1,250 hours; FR Y–14Q: 2,143 hours; FR Y–14M: 1,072 hours; FR Y–14 On-going Automation Revisions: 480 hours; FR Y–14 Attestation Ongoing Attestation: 2,560 hours. Estimated annual burden hours: FR Y–14A: 45,000 hours; FR Y–14Q: 308,592 hours; FR Y–14M: 437,376 hours; FR Y–14 On-going Automation Revisions: 17,280 hours; FR Y–14 Attestation On-going Attestation: 33,280 hours. General description of report: This family of information collections is composed of the following three reports: • The annual 20 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.21 • The quarterly FR Y–14Q collects granular data on various asset classes, including loans, securities, trading assets, and PPNR for the reporting period. 19 The estimated number of respondents for the FR Y–14M is lower than for the FR Y–14Q and FR Y–14A because, in recent years, certain respondents to the FR Y–14A and FR Y–14Q have not met the materiality thresholds to report the FR Y–14M due to their lack of mortgage and credit activities. The Board expects this situation to continue for the foreseeable future. 20 In certain circumstances, a BHC or IHC may be required to re-submit its capital plan. See 12 CFR 225.8(e)(4). Firms that must re-submit their capital plan generally also must provide a revised FR Y– 14A in connection with their resubmission. 21 On October 10, 2019, the Board issued a final rule that eliminated the requirement for firms subject to Category IV standards to conduct and publicly disclose the results of a company-run stress test. See 84 FR 59032 (Nov. 1, 2019). That final rule maintained the existing FR Y–14A/Q/M substantive reporting requirements for these firms 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 its supervised firms. As noted in the final rule, the Board intends to provide greater flexibility to banking organizations subject to Category IV standards in developing their annual capital plans and consider further change to the FR Y–14A/Q/M forms as part of a separate proposal. See 84 FR 59032, 59063. E:\FR\FM\07OCP1.SGM 07OCP1 Federal Register / Vol. 85, No. 195 / Wednesday, October 7, 2020 / Proposed Rules • 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 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 reports are used to support the Board’s annual Comprehensive Capital Analysis and Review (CCAR) and DoddFrank Act Stress Test (DFAST) exercises, which complement 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 respondent financial institutions. Respondent firms are currently required to complete and submit up to 17 filings each year: One annual FR Y–14A filing, four quarterly FR Y–14Q filings, and 12 monthly FR Y–14M filings. Compliance with the information collection is mandatory. Current Actions: As previously described in this proposal, the Board is proposing to make several FR Y–14 revisions. Certain revisions would only be applicable to firms subject to Category IV or Category I–III standards, while other revisions would be applicable to all BHCs and IHCs. All revisions are proposed to be effective for data as-of December 31, 2020. Firms Subject to Category IV Standards As a result of the proposed changes to company-run stress testing requirements, the Board is proposing that firms subject to Category IV standards would no longer be required to report FR Y–14A Schedule A— Summary, Schedule B—Scenario, Schedule F—Business Plan Changes, and Appendix A—Supporting Documentation, which are used to report a firm’s company-run stress test results. However, firms subject to Category IV standards would be required to complete all remaining FR Y–14A schedules, as they are necessary for the Board to run its supervisory stress test. The Board believes that the VerDate Sep<11>2014 16:45 Oct 06, 2020 Jkt 253001 detailed balance sheet information that would continue to be collected on a monthly and quarterly basis from firms subject to Category IV standards on the FR Y–14Q and FR Y–14M is crucial for maintaining the integrity of the stress tests, monitoring financial stability, and supervising those firms. Firms Subject to Category I–III Standards As previously outlined, firms subject to Category I–III standards would continue to report the FR Y–14A Schedule A—Summary. To conform the FR Y–14 reports with the stress test assumption changes made per the stress capital buffer, the Board is proposing to create two sub-schedules for all items on the FR Y–14A, Schedule A: (1) DFAST, where a firm would not incorporate the effects of business plan changes and (2) CCAR, where a firm would incorporate the effects of business plan changes. Specifically, firms subject to Category I–III standards would be required to report a version of FR Y–14A, Schedule A.1.a—Income Statement, Schedule A.1.b—Balance Sheet, Schedule A.1.c.1—Standardized RWA, Schedule A.1.d—Capital, Schedule A.2.a—Retail Balance and Loss, Schedule A.3—AFS/HTM Securities, Schedule A.4—Trading, Schedule A.5—Counterparty Credit Risk, Schedule A.6—Operational Risk, and Loss Projections, and Schedule A.7—Pre-Provision Net Revenue, that incorporates the effects of business plan changes, as well as a version of these schedules and items that does not incorporate these effects. For Schedule A.1.d, firms would continue to report two sub-schedules with different capital actions, along with the income and balance sheet information reported in the appropriate sub-schedule. In addition, firms would only be required to report FR Y–14A, Schedule F under the Firm baseline and supervisory severely adverse scenarios. All BHCs and IHCs All BHCs and IHCs would still be required to report FR Y–14A, Schedule C—Regulatory Capital Instruments, and the stress test assumption changes made per the stress capital buffer rule create a need for firms to provide certain data excluding the impact of business plan changes. As a result, the Board is proposing to create two sub-schedules for all items on the FR Y–14A, Schedule C: (1) SCB, where a firm would not incorporate the effects of business plan changes and (2) CCAR, where a firm would incorporate the effects of business plan changes. Specifically, all BHCs and IHCs would be required to PO 00000 Frm 00012 Fmt 4702 Sfmt 4702 63229 report a version of FR Y–14A, Schedule C, that incorporates the effects of business plan changes, as well as a version of this schedule and items that does not incorporate these effects. In order to be able to assess whether a firm’s planned capital distributions included in its capital plan would be consistent with any effective capital distribution limitations that would apply under the firm’s baseline projections, as required by the capital plan rule, the Board is also proposing to add four items to FR Y–14A, Schedule C. These items would capture baseline projections of a firm’s common equity tier 1 capital ratio, tier 1 capital ratio, total capital ratio, and net income. Other Revisions As previously mentioned, the Board is proposing to replace the current definition of ‘‘large and noncomplex bank holding company’’ with the definition of a firm subject to Category IV standards. Therefore, the Board is proposing to make this change across the FR Y–14A/Q/M reports. In addition, to more accurately reflect the types of firms subject to the stress test reporting requirements, the Board is proposing to rename the ‘‘BHC baseline scenario’’ and ‘‘BHC stress scenario’’ to ‘‘Firm baseline scenario’’ and ‘‘Firm stress scenario,’’ respectively. (2) Report title: Reporting and Disclosure Requirements Associated with Regulation LL. Agency form number: FR LL. OMB control number: 7100–NEW. Frequency: Biennial. Affected Public: Businesses or other for-profit. Respondents: Savings and loan holding companies. Estimated number of respondents: 1. Estimated average hours per response: Reporting § 238.162(b)(1)(ii)—80; Disclosure section 238.146 (initial setup)—150; Disclosure § 238.146—60. Estimated annual burden hours: Reporting § 238.162(b)(1)(ii)—40; Disclosure § 238.146 (initial setup)—75; Disclosure § 238.146—30. 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 proposed rule includes amendments to § 238.146 of Regulation LL meant to ensure that certain savings and loan holding companies are required to publicly E:\FR\FM\07OCP1.SGM 07OCP1 63230 Federal Register / Vol. 85, No. 195 / Wednesday, October 7, 2020 / Proposed Rules disclose their stress tests results. Under the proposal, a covered savings and loan holding company that is subject to a supervisory stress test under § 238.132 of Regulation LL would be required to publicly disclose a summary of the results of the stress test required under § 238.143 of Regulation LL 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 of Regulation LL, unless that time is extended by the Board in writing, while a covered savings and loan holding company that is not subject to a supervisory stress test under § 238.132 of Regulation LL would be required to publicly disclose a summary of the results of the stress test required under § 238.143 of Regulation LL in the period beginning on June 15 and ending on June 30 in the year in which the stress test is conducted, unless that time is extended by the Board in writing. (3) Report title: Reporting, Recordkeeping, and Disclosure Requirements Associated with Regulation YY (Enhanced Prudential Standards). Agency Form Number: FR YY. OMB Control Number: 7100–0350. 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. VerDate Sep<11>2014 16:45 Oct 06, 2020 Jkt 253001 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 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 above, the Board proposes to allow a firm subject to Category IV standards to elect to participate in the supervisory stress test in a year in which the firm would not normally be subject to the supervisory stress test. To ensure the Board is provided sufficient notice that the firm is participating in the supervisory stress test, the firm would need to make its election by December 31 of the year preceding the year in which it seeks to opt in to the supervisory stress test by providing written notice to the Board and appropriate Federal Reserve Bank. For purposes of calculating the stress capital buffer requirement in 2021 for a firm subject to Category IV standards that elects to participate in the 2021 supervisory stress test, the proposal includes transitional procedures such that the firm could notify the Board after December 31, 2020, but before the Board publishes the supervisory scenarios. B. Regulatory Flexibility Act The Board is providing an initial regulatory flexibility analysis with respect to this proposed rule. The Regulatory Flexibility Act, 5 U.S.C. 601 et seq., (RFA), requires an agency to consider whether the rules it proposes will have a significant economic impact on a substantial number of small entities.22 In connection with a proposed rule, the RFA requires an 22 Under regulations issued by the Small Business Administration, a small entity includes a depository institution, bank holding company, or savings and loan holding company with total assets of $600 million or less and trust companies with annual receipts of $41.5 million or less. PO 00000 Frm 00013 Fmt 4702 Sfmt 4702 agency to prepare an Initial Regulatory Flexibility Analysis describing the impact of the rule on small entities or to certify that the proposed rule would not have a significant economic impact on a substantial number of small entities. An initial regulatory flexibility analysis must contain (1) a description of the reasons why action by the agency is being considered; (2) a succinct statement of the objectives of, and legal basis for, the proposed rule; (3) a description of, and, where feasible, an estimate of the number of small entities to which the proposed rule will apply; (4) a description of the projected reporting, recordkeeping, and other compliance requirements of the proposed rule, including an estimate of the classes of small entities that will be subject to the requirement and the type of professional skills necessary for preparation of the report or record; (5) an identification, to the extent practicable, of all relevant Federal rules which may duplicate, overlap with, or conflict with the proposed rule; and (6) a description of any significant alternatives to the proposed rule which accomplish its stated objectives. The Board has considered the potential impact of the proposed rule on small entities in accordance with the RFA. Based on its analysis and for the reasons stated below, the Board believes that this proposed rule will not have a significant economic impact on a substantial number of small entities. Nevertheless, the Board is publishing and inviting comment on this initial regulatory flexibility analysis. A final regulatory flexibility analysis will be conducted after comments received during the public comment period have been considered. The proposal would also make corresponding changes to the Board’s reporting forms. As discussed in detail above, the proposed rule would amend the capital rule, capital plan rule, stress testing rules, and the Stress Testing Policy Statement. Under the proposed rule, the Board would remove certain capital plan requirements to remove companyrun stress test requirements. In addition, in order to align the stress capital buffer requirements with the tailoring rule changes, the proposal would update the portion of the stress capital buffer that is calculated as the decline in the CET1 ratio every other year for firms subject to Category IV standards. The proposal would include changes to Board’s supervisory stress test and the companyrun stress test rules. The proposal would clarify the assumptions related to business plan changes, introduce a revision to the capital action assumptions and include a technical E:\FR\FM\07OCP1.SGM 07OCP1 Federal Register / Vol. 85, No. 195 / Wednesday, October 7, 2020 / Proposed Rules change to ensure certain savings and loan holding companies are required to publicly disclose their stress tests results. The Board has broad authority under the International Lending Supervision Act (ILSA) 23 and the PCA provisions of the Federal Deposit Insurance Act 24 to establish regulatory capital requirements for the institutions it regulates. For example, ILSA directs each Federal banking agency to cause banking institutions to achieve and maintain adequate capital by establishing minimum capital requirements as well as by other means that the agency deems appropriate.25 The PCA provisions of the Federal Deposit Insurance Act direct each Federal banking agency to specify, for each relevant capital measure, the level at which an IDI subsidiary is well capitalized, adequately capitalized, undercapitalized, and significantly undercapitalized.26 In addition, the Board has broad authority to establish regulatory capital standards for bank holding companies under the Bank Holding Company Act and the DoddFrank Reform and Consumer Protection Act (Dodd-Frank Act).27 The proposed rule would apply only to bank holding companies, intermediate holding companies and savings and loan holding companies with total consolidated assets of at least $100 billion in total consolidated assets. The proposed rule would not apply to any small entities. Further, the proposal would make changes to the projected reporting, recordkeeping, and other compliance requirements of the rule by proposing to collect information from firms subject to the capital plan rule. These changes would not impact small entities. In addition, the Board is aware of no other Federal rules that duplicate, overlap, or conflict with the proposed changes to the capital rule, capital plan rule, and stress testing rules. Therefore, the Board believes that the proposed rule will not have a significant economic impact on small banking organizations supervised by the Board and therefore believes that there are no significant alternatives to the proposed rule that would reduce the economic impact on small banking organizations supervised by the Board. The Board welcomes comment on all aspects of its analysis. In particular, the Board requests that commenters 23 12 U.S.C. 3901–3911. U.S.C. 1831o. 25 12 U.S.C. 3907(a)(1). 26 12 U.S.C. 1831o(c)(2). 27 See, e.g., sections 165 and 171 of the DoddFrank Act (12 U.S.C. 5365 and 12 U.S.C. 5371). Public Law 111–203, 124 Stat. 1376 (2010). 24 12 VerDate Sep<11>2014 16:45 Oct 06, 2020 Jkt 253001 describe the nature of any impact on small entities and provide empirical data to illustrate and support the extent of the impact. C. Solicitation of Comments of Use of Plain Language Section 722 of the Gramm-LeachBliley Act (Pub. L. 106–102, 113 Stat. 1338, 1471, 12 U.S.C. 4809) requires the federal banking agencies to use plain language in all proposed and final rules published after January 1, 2000. The Board has sought to present the proposed rule in a simple and straightforward manner, and invites comment on the use of plain language. For example: • Have we organized the material to suit your needs? If not, how could the rule be more clearly stated? • Are the requirements in the rule clearly stated? If not, how could the rule be more clearly stated? • Do the regulations contain technical language or jargon that is not clear? If so, which language requires clarification? • Will a different format (grouping and order of sections, use of headings, paragraphing) make the regulation easier to understand? If so, what changes will make the regulation easier to understand? • Will more, but shorter, sections be better? If so, which sections should be changed? • What else could we do to make the regulation easier to understand? List of Subjects 12 CFR Part 225 Administrative practice and procedure, Banks, Banking, Capital planning, Holding companies, Reporting and recordkeeping requirements, Securities, Stress testing. 12 CFR Part 238 Administrative practice and procedure, Banks, Banking, Federal Reserve System, Reporting and recordkeeping requirements, Securities. 12 CFR Part 252 Administrative practice and procedure, Banks, Banking, Capital planning, Federal Reserve System, Holding companies, Reporting and recordkeeping requirements, Securities, Stress testing. Authority and Issuance For the reasons stated in the the Board proposes to amend chapter II of title 12 of the Code of Federal Regulations as follows: SUPPLEMENTARY INFORMATION, PO 00000 Frm 00014 Fmt 4702 Sfmt 4702 63231 PART 225—BANK HOLDING COMPANIES AND CHANGE IN BANK CONTROL (REGULATION Y) 1. 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 2. Amend § 225.8 by: a. Removing all references to ‘‘BHC stress scenario’’ and ‘‘BHS stress scenario(s)’’ and add in their place ‘‘Firm stress scenario’’ and ‘‘Firm stress scenario(s),’’ respectively; ■ b. Removing all references to ‘‘BHC baseline scenario’’ and add in their place ‘‘Firm baseline scenario’’; ■ c. Revising paragraphs (d)(10) through (15), (e)(2)(i)(A), and (e)(4)(ii) and (iii); ■ d. Removing paragraphs (e)(4)(iv); ■ e. Revising paragraph (f)(1); ■ f. Adding paragraph (f)(4); ■ g. Revising paragraphs (h)(2) through (5), (i), (j), and (k); and ■ h. Removing paragraph (l). The revisions and addition read as follows: ■ ■ § 225.8 Capital planning and stress capital buffer requirement. * * * * * (d) * * * (10) Category IV bank holding company means any bank holding company or U.S. intermediate holding company subject to this section that, as of December 31 of the prior capital plan cycle, is a Category IV banking organization pursuant to 12 CFR 252.5. (11) Common equity tier 1 capital has the same meaning as under 12 CFR part 217. (12) Effective capital distribution limitations means any limitations on capital distributions established by the Board by order or regulation, including pursuant to 12 CFR 217.11, 225.4, 252.63, 252.165, and 263.202, provided that, for any limitations based on riskweighted assets, such limitations must be calculated using the standardized approach, as set forth in 12 CFR part 217, subpart D. (13) Final planned capital distributions means the planned capital distributions included in a capital plan that include the adjustments made pursuant to paragraph (h) of this section, if any. (14) Global systemically important BHC means a bank holding company identified as a global systemically important BHC under 12 CFR 217.402. E:\FR\FM\07OCP1.SGM 07OCP1 63232 Federal Register / Vol. 85, No. 195 / Wednesday, October 7, 2020 / Proposed Rules (15) GSIB surcharge has the same meaning as under 12 CFR 217.403. * * * * * (e) * * * (2) * * * (i) * * * (A) Estimates of projected revenues, losses, reserves, and pro forma capital levels, including regulatory capital ratios, and any additional capital measures deemed relevant by the bank holding company, over the planning horizon under a range of scenarios, including: (1) If the bank holding company is a Category IV bank holding company, the Firm baseline scenario and at least one Firm stress scenario, as well as any additional scenarios, based on financial conditions or the macroeconomic outlook, or based on the bank holding company’s financial condition, size, complexity, risk profile, or activities, or risks to the U.S. economy, that the Federal Reserve may provide the bank holding company after giving notice to the bank holding company; or (2) If the bank holding company is not a Category IV bank holding company, any scenarios provided by the Federal Reserve, the Firm baseline scenario, and at least one Firm stress scenario; * * * * * (4) * * * (ii) The Board, or the appropriate Reserve Bank with concurrence of the Board, may extend the 30-day period in paragraph (e)(4)(i) of this section for up to an additional 60 calendar days, or such longer period as the Board or the appropriate Reserve Bank, with concurrence of the Board, determines appropriate. (iii) Any updated capital plan must satisfy all the requirements of this section; however, a bank holding company may continue to rely on information submitted as part of a previously submitted capital plan to the extent that the information remains accurate and appropriate. * * * * * (f) Calculation of the stress capital buffer requirement—(1) General. The Board will determine the stress capital buffer requirement that applies under 12 CFR 217.11 pursuant to paragraph (f) of this section. For each bank holding company that is not a Category IV bank holding company, the Board will calculate the bank holding company’s stress capital buffer requirement annually. For each Category IV bank holding company, the Board will calculate the bank holding company’s stress capital buffer requirement biennially, occurring in each calendar year ending in an even number, and will VerDate Sep<11>2014 16:45 Oct 06, 2020 Jkt 253001 adjust the bank holding company’s stress capital buffer requirement biennially, occurring in each calendar year ending in an odd number. Notwithstanding the previous sentence, the Board will calculate the stress capital buffer requirement of a Category IV bank holding company in a year ending in an odd number with respect to which that company makes an election pursuant to 12 CFR 252.44(d)(2)(ii). * * * * * (4) Adjustment of stress capital buffer requirement. In each calendar year in which the Board does not calculate a Category IV bank holding company’s stress capital buffer requirement pursuant to paragraph (f)(1) of this section, the Board will adjust the Category IV bank holding company’s stress capital buffer requirement to be equal to the result of the calculation set forth in paragraph (f)(2) of this section, using the same values that were used to calculate the stress capital buffer requirement most recently provided to the bank holding company, except that the value used in paragraph (f)(2)(i)(C)(1) of this section will be equal to the bank holding company’s planned common stock dividends (expressed as a dollar amount) for each of the fourth through seventh quarters of the planning horizon as set forth in the capital plan submitted by the bank holding company in the calendar year in which the Board adjusts the bank holding company’s stress capital buffer requirement. * * * * * (h) * * * (2) Response to notice—(i) Request for reconsideration of stress capital buffer requirement. A bank holding company may request reconsideration of a stress capital buffer requirement provided under paragraph (h)(1) of this section. To request reconsideration of a stress capital buffer requirement, a bank holding company must submit to the Board a request pursuant to paragraph (i) of this section. (ii) Adjustments to planned capital distributions. Within two business days of receipt of notice of a stress capital buffer requirement under paragraph (h)(1) or (i)(5) of this section, as applicable, a bank holding company must: (A) Determine whether the planned capital distributions for the fourth through seventh quarters of the planning horizon under the Firm baseline scenario would be consistent with effective capital distribution limitations assuming the stress capital buffer requirement provided by the PO 00000 Frm 00015 Fmt 4702 Sfmt 4702 Board under paragraph (h)(1) or (i)(5) of this section, as applicable, in place of any stress capital buffer requirement in effect; and (1) If the planned capital distributions for the fourth through seventh quarters of the planning horizon under the Firm baseline scenario would not be consistent with effective capital distribution limitations assuming the stress capital buffer requirement provided by the Board under paragraph (h)(1) or (i)(5) of this section, as applicable, in place of any stress capital buffer requirement in effect, the bank holding company must adjust its planned capital distributions such that its planned capital distributions would be consistent with effective capital distribution limitations assuming the stress capital buffer requirement provided by the Board under paragraph (h)(1) or (i)(5) of this section, as applicable, in place of any stress capital buffer requirement in effect; or (2) If the planned capital distributions for the fourth through seventh quarters of the planning horizon under the Firm baseline scenario would be consistent with effective capital distribution limitations assuming the stress capital buffer requirement provided by the Board under paragraph (h)(1) or (i)(5) of this section, as applicable, in place of any stress capital buffer requirement in effect, the bank holding company may adjust its planned capital distributions. A bank holding company may not adjust its planned capital distributions to be inconsistent with the effective capital distribution limitations assuming the stress capital buffer requirement provided by the Board under paragraph (h)(1) or (i)(5) of this section, as applicable; and (B) Notify the Board of any adjustments made to planned capital distributions for the fourth through seventh quarters of the planning horizon under the Firm baseline scenario. (3) Final planned capital distributions. The Board will consider the planned capital distributions, including any adjustments made pursuant to paragraph (h)(2)(ii) of this section, to be the bank holding company’s final planned capital distributions on the later of: (i) The expiration of the time for requesting reconsideration under paragraph (i) of this section; and (ii) The expiration of the time for adjusting planned capital distributions pursuant to paragraph (h)(2)(ii) of this section. (4) Effective date of final stress capital buffer requirement. (i) The Board will provide a bank holding company with its final stress capital buffer requirement E:\FR\FM\07OCP1.SGM 07OCP1 Federal Register / Vol. 85, No. 195 / Wednesday, October 7, 2020 / Proposed Rules and confirmation of the bank holding company’s final planned capital distributions by August 31 of the calendar year that a capital plan was submitted pursuant to paragraph (e)(1)(ii) of this section, unless otherwise determined by the Board. A stress capital buffer requirement will not be considered final so as to be agency action subject to judicial review under 5 U.S.C. 704 during the pendency of a request for reconsideration made pursuant to paragraph (i) of this section or before the time for requesting reconsideration has expired. (ii) Unless otherwise determined by the Board, a bank holding company’s final planned capital distributions and final stress capital buffer requirement shall: (A) Be effective on October 1 of the calendar year in which a capital plan was submitted pursuant to paragraph (e)(1)(ii) of this section; and (B) Remain in effect until superseded. (5) Publication. With respect to any bank holding company subject to this section, the Board may disclose publicly any or all of the following: (i) The stress capital buffer requirement provided to a bank holding company under paragraph (h)(1) or (i)(5) of this section; (ii) Adjustments made pursuant to paragraph (h)(2)(ii); (iii) A summary of the results of the supervisory stress test; and (iv) Other information. (i) Administrative remedies; request for reconsideration. The following requirements and procedures apply to any request under this paragraph (i): (1) General. To request reconsideration of a stress capital buffer requirement, provided under paragraph (h) of this section, a bank holding company must submit a written request for reconsideration. (2) Timing of request. A request for reconsideration of a stress capital buffer requirement, provided under paragraph (h) of this section, must be received within 15 calendar days of receipt of a notice of a bank holding company’s stress capital buffer requirement. (3) Contents of request. (i) A request for reconsideration must include a detailed explanation of why reconsideration should be granted (that is, why a stress capital buffer requirement should be reconsidered). With respect to any information that was not previously provided to the Federal Reserve in the bank holding company’s capital plan, the request should include an explanation of why the information should be considered. (ii) A request for reconsideration may include a request for an informal VerDate Sep<11>2014 16:45 Oct 06, 2020 Jkt 253001 hearing on the bank holding company’s request for reconsideration. (4) Hearing. (i) The Board may, in its sole discretion, order an informal hearing if the Board finds that a hearing is appropriate or necessary to resolve disputes regarding material issues of fact. (ii) An informal hearing shall be held within 30 calendar days of a request, if granted, provided that the Board may extend this period upon notice to the requesting party. (5) Response to request. Within 30 calendar days of receipt of the bank holding company’s request for reconsideration of its stress capital buffer requirement submitted under paragraph (i)(2) of this section or within 30 days of the conclusion of an informal hearing conducted under paragraph (i)(4) of this section, the Board will notify the company of its decision to affirm or modify the bank holding company’s stress capital buffer requirement, provided that the Board may extend this period upon notice to the bank holding company. (6) Distributions during the pendency of a request for reconsideration. During the pendency of the Board’s decision under paragraph (i)(5) of this section, the bank holding company may make capital distributions that are consistent with effective distribution limitations, unless prior approval is required under paragraph (j)(1) of this section. (j) Approval requirements for certain capital actions—(1) Circumstances requiring approval—resubmission of a capital plan. Unless it receives prior approval pursuant to paragraph (j)(3) of this section, a bank holding company may not make a capital distribution (excluding any capital distribution arising from the issuance of a capital instrument eligible for inclusion in the numerator of a regulatory capital ratio) if the capital distribution would occur after the occurrence of an event requiring resubmission under paragraph (e)(4)(i)(A) or (B) of this section. (2) Contents of request. A request for a capital distribution under this section must contain the following information: (i) The bank holding company’s capital plan or a discussion of changes to the bank holding company’s capital plan since it was last submitted to the Federal Reserve; (ii) The purpose of the transaction; (iii) A description of the capital distribution, including for redemptions or repurchases of securities, the gross consideration to be paid and the terms and sources of funding for the transaction, and for dividends, the amount of the dividend(s); and PO 00000 Frm 00016 Fmt 4702 Sfmt 4702 63233 (iv) Any additional information requested by the Board or the appropriate Reserve Bank (which may include, among other things, an assessment of the bank holding company’s capital adequacy under a severely adverse scenario, a revised capital plan, and supporting data). (3) Approval of certain capital distributions. (i) The Board, or the appropriate Reserve Bank with concurrence of the Board, will act on a request for prior approval of a capital distribution within 30 calendar days after the receipt of all the information required under paragraph (j)(2) of this section. (ii) In acting on a request for prior approval of a capital distribution, the Board, or appropriate Reserve Bank with concurrence of the Board, will apply the considerations and principles in paragraph (g) of this section, as appropriate. In addition, the Board, or the appropriate Reserve Bank with concurrence of the Board, may disapprove the transaction if the bank holding company does not provide all of the information required to be submitted under paragraph (j)(2) of this section. (4) Disapproval and hearing. (i) The Board, or the appropriate Reserve Bank with concurrence of the Board, will notify the bank holding company in writing of the reasons for a decision to disapprove any proposed capital distribution. Within 15 calendar days after receipt of a disapproval by the Board, the bank holding company may submit a written request for a hearing. (ii) The Board may, in its sole discretion, order an informal hearing if the Board finds that a hearing is appropriate or necessary to resolve disputes regarding material issues of fact. An informal hearing shall be held within 30 calendar days of a request, if granted, provided that the Board may extend this period upon notice to the requesting party. (iii) Written notice of the final decision of the Board shall be given to the bank holding company within 60 calendar days of the conclusion of any informal hearing ordered by the Board, provided that the Board may extend this period upon notice to the requesting party. (iv) While the Board’s decision is pending and until such time as the Board, or the appropriate Reserve Bank with concurrence of the Board, approves the capital distribution at issue, the bank holding company may not make such capital distribution. (k) Post notice requirement. A bank holding company must notify the Board and the appropriate Reserve Bank E:\FR\FM\07OCP1.SGM 07OCP1 63234 Federal Register / Vol. 85, No. 195 / Wednesday, October 7, 2020 / Proposed Rules within 15 days of making a capital distribution if: (1) The capital distribution was approved pursuant to paragraph (j)(3) of this section; or (2) The dollar amount of the capital distribution will exceed the dollar amount of the bank holding company’s final planned capital distributions, as measured on an aggregate basis beginning in the fourth quarter of the planning horizon through the quarter at issue. PART 238—SAVINGS AND LOAN HOLDING COMPANIES (REGULATION LL) 3. The authority citation for part 238 continues to read as follows: ■ Authority: 5 U.S.C. 552, 559; 12 U.S.C. 1462, 1462a, 1463, 1464, 1467, 1467a, 1468, 5365; 1813, 1817, 1829e, 1831i, 1972, 15 U.S.C. 78 l. Subpart O—Supervisory Stress Test Requirements for Covered Savings and Loan Holding Companies 4. In § 238.132, add paragraphs (a)(4) and (d) to read as follows: ■ § 238.132 Board. Analysis conducted by the (a) * * * (4) In conducting the analysis, the Board will not incorporate changes to a firm’s business plan that are likely to have a material impact on the covered company’s capital adequacy and funding profile in its projections of losses, net income, pro forma capital levels, and capital ratios. * * * * * (d) Capital action assumptions. In conducting a stress test under this section, the Board will make the following assumptions regarding a covered company’s capital actions over the planning horizon: (1) The covered company will not pay any dividends on any instruments that qualify as common equity tier 1 capital; (2) The covered company will make payments on instruments that qualify as additional tier 1 capital or tier 2 capital equal to the stated dividend, interest, or principal due on such instrument; (3) The covered company will not make a redemption or repurchase of any capital instrument that is eligible for inclusion in the numerator of a regulatory capital ratio; and (4) The covered company will not make any issuances of common stock or preferred stock. Subpart P—Company-Run Stress Test Requirements for Savings and Loan Holding Companies 5. Amend § 238.144 by revising paragraphs (a)(2) and (b)(1) and (2) and adding paragraphs (b)(3) and (4) to read as follows: ■ § 238.144 Methodologies and practices. (a) * * * (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), and in so doing must: (i) Incorporate 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; and (ii) Exclude the impacts of changes to a firm’s business plan that are likely to have a material impact on the covered company’s capital adequacy and funding profile. (b) * * * (1) The covered company will not pay any dividends on any instruments that qualify as common equity tier 1 capital; (2) The covered company will make payments on instruments that qualify as additional tier 1 capital or tier 2 capital equal to the stated dividend, interest, or principal due on such instrument; (3) The covered company will not make a redemption or repurchase of any capital instrument that is eligible for inclusion in the numerator of a regulatory capital ratio; and (4) The covered company will not make any issuances of common stock or preferred stock. * * * * * ■ 6. In § 238.146, revise paragraph (a)(1) to read as follows: § 238.146 Disclosure of stress test results. (a) * * * (1) In general. (i) A covered company that is subject to a supervisory stress test under § 238.132 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; and (ii) A covered company that is not subject to a supervisory stress test under § 238.132 must publicly disclose a summary of the results of the stress test required under § 238.143 in the period beginning on June 15 and ending on June 30 in the year in which the stress test is conducted, unless that time is extended by the Board in writing. * * * * * PART 252—ENHANCED PRUDENTIAL STANDARDS (REGULATION YY) 7. The authority citation for part 252 continues to read as follows: ■ Authority: 12 U.S.C. 321–338a, 481–486, 1467a, 1818, 1828, 1831n, 1831o, 1831p–1, 1831w, 1835, 1844(b), 1844(c), 3101 et seq., 3101 note, 3904, 3906–3909, 4808, 5361, 5362, 5365, 5366, 5367, 5368, 5371. 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 8. In § 252.44, revise paragraphs (a)(3) and (d) to read as follows: ■ § 252.44 Analysis conducted by the Board. (a) * * * (3) In conducting the analysis, the Board will not incorporate changes to a firm’s business plan that are likely to have a material impact on the covered company’s capital adequacy and funding profile in its projections of losses, net income, pro forma capital levels, and capital ratios. * * * * * (d) Frequency of analysis conducted by the Board—(1) General. Except as provided in paragraph (d)(2) of this section, the Board will conduct its analysis of a covered company according to the frequency in Table 1 to this paragraph (d)(1). TABLE 1 TO PARAGRAPH (g)(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 ......................................................... VerDate Sep<11>2014 16:45 Oct 06, 2020 Jkt 253001 PO 00000 Frm 00017 Fmt 4702 Annually. Annually. Annually. Annually. Annually. Biennially, occurring in each year ending in an even number. Sfmt 4702 E:\FR\FM\07OCP1.SGM 07OCP1 Federal Register / Vol. 85, No. 195 / Wednesday, October 7, 2020 / Proposed Rules 63235 TABLE 1 TO PARAGRAPH (g)(1)—Continued If the covered company is a Then the Board will conduct its analysis Category IV U.S. intermediate holding company ..................................... Nonbank financial company supervised by the Board ............................. Biennially, occurring in each year ending in an even number. Annually. (2) Change in frequency. (i) The Board may conduct a stress test of a covered company on a more or less frequent basis than would be required under paragraph (d)(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. (ii) A Category IV bank holding company or Category IV U.S. intermediate holding company may elect to have the Board conduct a stress test with respect to the company in a year ending in an odd number by providing notice to the Board by December 31 of the preceding year (ending in an even number). Notwithstanding the previous sentence, such a company may elect to have the Board conduct a stress test with respect to the company in the year 2021 by providing notice to the Board by February 15, 2021. (3) Notice and response—(i) Notification of change in frequency. If the Board determines to change the frequency of the stress test under paragraph (d)(2)(i) 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 (d)(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 (d)(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. (i) * * * (B) Is not a Category IV bank holding company as the term is used in 12 CFR 225.8. * * * * * ■ 10. In § 252.56, revise paragraph (a)(2) 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 Appendix B to Part 252—[Amended] 9. In § 252.54, revise paragraph (b)(2)(i)(B) to read as follows: ■ § 252.54 * Stress test. * * (b) * * * (2) * * * VerDate Sep<11>2014 * * 16:45 Oct 06, 2020 Jkt 253001 § 252.56 Methodologies and practices. (a) * * * (2) The potential impact on the regulatory capital levels and ratios applicable to the covered bank, and any other capital ratios specified by the Board, and in doing so must: (i) Incorporate the effects of any capital action over the planning horizon and maintenance of an allowance for loan losses or adjusted allowance for credit losses, as appropriate, for credit exposures throughout the planning horizon; and (ii) Exclude the impacts of changes to a firm’s business plan that are likely to have a material impact on the covered company’s capital adequacy and funding profile. * * * * * ■ 11. In § 252.58, revise paragraph (a)(1) to read as follows: DEPARTMENT OF TRANSPORTATION Federal Aviation Administration 14 CFR Part 39 [Docket No. FAA–2020–0904; Product Identifier 2019–SW–041–AD] RIN 2120–AA64 Airworthiness Directives; Airbus Helicopters Federal Aviation Administration (FAA), DOT. ACTION: Notice of proposed rulemaking (NPRM). AGENCY: By order of the Board of Governors of the Federal Reserve System. Ann E. Misback, Secretary of the Board. The FAA proposes to adopt a new airworthiness directive (AD) for Airbus Helicopters Model EC225LP helicopters. This proposed AD would require various inspections of the lefthand side (LH) engine fuel supply (fuel supply) hose and depending on the inspection results, removing from service or reinstalling the hose. This proposed AD would also prohibit installing any LH fuel supply hose unless it is installed by following the service information. This proposed AD was prompted by a report of an incorrect installation of the LH fuel supply hose causing restricted fuel flow to the LH engine. The actions of this proposed AD are intended to address an unsafe condition on these products. DATES: The FAA must receive comments on this proposed AD by November 23, 2020. ADDRESSES: You may send comments by any of the following methods: • Federal eRulemaking Docket: Go to https://www.regulations.gov. Follow the online instructions for sending your comments electronically. • Fax: 202–493–2251. • Mail: Send comments to the U.S. Department of Transportation, Docket Operations, M–30, West Building Ground Floor, Room W12–140, 1200 New Jersey Avenue SE, Washington, DC 20590–0001. • Hand Delivery: Deliver to the ‘‘Mail’’ address between 9 a.m. and 5 p.m., Monday through Friday, except Federal holidays. [FR Doc. 2020–22166 Filed 10–6–20; 8:45 am] Examining the AD Docket BILLING CODE 6210–01–P You may examine the AD docket on the internet at https:// § 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(b), unless that time is extended by the Board in writing. * * * * * 12. Amend appendix B to part 252 by removing and reserving section 2.6. ■ PO 00000 Frm 00018 Fmt 4702 Sfmt 4702 SUMMARY: E:\FR\FM\07OCP1.SGM 07OCP1

Agencies

[Federal Register Volume 85, Number 195 (Wednesday, October 7, 2020)]
[Proposed Rules]
[Pages 63222-63235]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-22166]


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FEDERAL RESERVE SYSTEM

12 CFR Parts 225, 238, and 252

[Regulations Y, LL, and YY; Docket No. R-1724]
RIN 7100-AF95


Amendments to Capital Planning and Stress Testing Requirements 
for Large Bank Holding Companies, Intermediate Holding Companies and 
Savings and Loan Holding Companies

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

ACTION: Notice of proposed rulemaking with request for comment.

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SUMMARY: The Board is inviting comment on a notice of proposed 
rulemaking (proposal) to tailor the requirements in the Board's capital 
plan rule (capital plan rule), which applies to large bank holding 
companies and U.S. intermediate holding companies of foreign banking 
organizations. Specifically, as foreshadowed in the Board's October 
2019 rulemaking that updated the prudential framework for these 
companies (tailoring framework), the proposal would make conforming 
changes to the capital planning, regulatory reporting, and stress 
capital buffer requirements for firms subject to Category IV standards 
to be consistent with the tailoring framework. To be consistent with 
recent changes to the Board's stress testing rules, the proposal would 
make other changes to the Board's stress testing rules, Stress Testing 
Policy Statement and regulatory reporting requirements relating to 
business plan change assumptions, capital action assumptions, and the 
publication of company-run stress test results for savings and loan 
holding companies. This proposal also solicits comment on the Board's 
guidance on capital planning for all firms supervised by the Board, in 
light of recent changes to relevant regulations and as part of the 
Board's ongoing practice of reviewing its policies to ensure that they 
are having their intended effect.

DATES: Comments must be received by November 20, 2020.

ADDRESSES: You may submit comments, identified by Docket No.R-1724 and 
RIN 7100-AF95 by any of the following methods:
     Agency Website: http://www.federalreserve.gov. Follow the 
instructions for submitting comments at http://www.federalreserve.gov/generalinfo/foia/ProposedRegs.aspx.
     Email: [email protected]. Include the 
docket number and RIN number in the subject line of the message.
     Fax: (202) 452-3819 or (202) 452-3102.
     Mail: Address to Ann E. Misback, Secretary, Board of 
Governors of the Federal Reserve System, 20th Street and Constitution 
Avenue NW, Washington, DC 20551.
    All public comments are available from the Board's website at 
http://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm as 
submitted, unless modified for technical reasons or to remove 
personally identifiable information at the commenter's request. 
Accordingly, comments will not be edited to remove any identifying or 
contact information. Public comments may also be viewed electronically 
or in paper in Room 146, 1709 New York Avenue NW, Washington, DC 20006, 
between 9:00 a.m. and 5:00 p.m. on weekdays.

FOR FURTHER INFORMATION CONTACT: Constance Horsley, Deputy Associate 
Director, (202) 452-5239, Elizabeth MacDonald, Manager (202) 475-6316, 
Hillel Kipnis, Senior Financial Institution Policy Analyst II, (202) 
452-2924, Christopher Appel, Senior Financial Institution Policy 
Analyst II, (202) 973-6862, and Palmer Osteen, Financial Institution 
Policy Analyst, (202) 785-6025, Division of Supervision and Regulation; 
Benjamin McDonough, Assistant General Counsel, (202) 452-2036, Julie 
Anthony, Senior Counsel, (202) 475-6682, Asad Kudiya, Senior Counsel, 
(202) 475-6358, Jonah Kind, Senior Attorney, (202) 452-2045, or Jasmin 
Keskinen, Legal Assistant/Attorney, (202) 475-6650, Legal Division, 
Board of Governors of the Federal Reserve System, 20th Street and 
Constitution Avenue NW, Washington, DC 20551. Users of 
Telecommunication Device for Deaf (TDD) only, call (202) 263-4869.

SUPPLEMENTARY INFORMATION: 

Table of Contents

I. Changes to the Capital Plan Rule
    A. Introduction
    i. Background on Capital Planning, Stress Testing and Stress 
Capital Buffer Requirements
    ii. Background on Tailoring Framework
    iii. Summary of Proposal
    B. Changes to Capital Planning Requirements for Firms Subject to 
Category IV Standards
    i. Capital Plan Submissions
    ii. Changes to Reporting Requirements Related to Capital 
Planning Requirements
    C. Calculation and Timing of the Stress Capital Buffer 
Requirement for Firms Subject to Category IV Standards
    D. Changes to Stress Test Rules for Firms Subject to Category I-
IV Standards
    i. Business Plan Change Assumption
    ii. Changes for Savings and Loan Holding Companies
    iii. Changes to Reporting Requirements Related to Stress Test 
Rule Changes
    E. Definition of Common Stock Dividend in Capital Plan Rule
    F. Impact Analysis
II. Request for Comment on Board Guidance on Capital Planning
III. Administrative Law Matters
    A. Paperwork Reduction Act
    B. Regulatory Flexibility Act
    C. Solicitation of Comments of Use of Plain Language

I. Changes to the Capital Plan Rule

A. Introduction

i. Background on Capital Planning, Stress Testing and Stress Capital 
Buffer Requirements
    Stress testing is a core element of the Board's regulatory 
framework and supervisory program for large firms. Stress testing 
enables the Board to assess whether large firms have sufficient capital 
to absorb potential losses and continue lending under severely adverse 
conditions. The Board implemented its capital plan rule, which requires 
large firms to develop and maintain capital plans supported by robust 
processes for assessing their capital adequacy, in 2011.\1\ The Board 
made changes to its capital rule--which establishes minimum regulatory 
capital requirements--in 2013. These changes address weaknesses 
observed during the 2008--2009 financial crisis, including the 
establishment of a minimum common equity tier 1 (CET1) capital 
requirement and a fixed capital conservation buffer equal to 2.5 
percent

[[Page 63223]]

of risk-weighted assets.\2\ Rigorous stress testing--in conjunction 
with stronger capital requirements implemented in the Board's capital 
rule--have significantly improved the resilience of the U.S. banking 
system.\3\
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    \1\ Capital Plans, 76 FR 74631 (Dec. 1, 2011). Originally, as a 
part of the capital plan rule, the Federal Reserve could object to a 
firm's capital plan based on a qualitative assessment. A subsequent 
rulemaking changed this requirement such that after CCAR 2020 no 
firm will be subject to a potential qualitative objection if the 
firm successfully passed several qualitative evaluations. Amendments 
to the Capital Plan Rule, 84 FR 8953 (March 13, 2019). All firms 
subject to the capital plan rule have successfully passed the 
required number of qualitative evaluations such that no firms are 
subject to the qualitative objection going forward. As a result, the 
proposal would revise the capital plan rule to remove references to 
the qualitative objection.
    \2\ See 12 CFR part 217. Large banking organizations also became 
subject to a countercyclical capital buffer requirement, and the 
largest and most systemically important firms--global systemically 
important bank holding companies, or GSIBs--became subject to an 
additional capital buffer based on a measure of their systemic risk, 
the GSIB surcharge. See Regulatory Capital Rules: Implementation of 
Risk-Based Capital Surcharges for Global Systemically Important Bank 
Holding Companies, 80 FR 49082 (Aug. 14, 2015).
    \3\ The common equity capital ratios of firms subject to CCAR 
have more than doubled since 2009. Combined, these firms hold more 
than $1 trillion of common equity tier 1 capital and are 
substantially more resilient than they were ten years ago.
---------------------------------------------------------------------------

    The Board recently adopted a final rule (stress capital buffer 
rule) to integrate its capital plan rule and capital rule through the 
establishment of a stress capital buffer requirement, creating a 
single, risk-sensitive framework for large banking organizations.\4\ To 
achieve individually tailored and risk-sensitive capital requirements 
for banking organizations subject to the capital plan rule, the stress 
capital buffer rule establishes the size of a firm's stress capital 
buffer requirement based in part on a supervisory stress test conducted 
by the Federal Reserve.
---------------------------------------------------------------------------

    \4\ See Regulations Q, Y, and YY: Regulatory Capital, Capital 
Plan, and Stress Test Rules, 85 FR 15576 (March 18, 2020).
---------------------------------------------------------------------------

    The stress capital buffer rule included several changes to the 
assumptions embedded in the supervisory stress test, notably removing 
the assumption that firms make all planned common distributions and 
excluding material business plan changes from the stress capital buffer 
requirement calculation. Previously, under the Comprehensive Capital 
Analysis and Review (CCAR), the Board required firms to pre-fund nine 
quarters of planned dividends and share repurchases. Under the stress 
capital buffer rule, firms are subject to a pre-funding requirement of 
four quarters of planned dividends. This approach recognizes the 
capital rule's automatic limitations on capital distributions while 
continuing to promote forward-looking capital planning and mitigate 
pro-cyclicality.
    Prior to the implementation of the stress capital buffer rule, the 
impact of expected material changes to a firm's business plan were 
incorporated into a firm's CCAR results. In order to simplify the 
stress test framework and to reduce burden, material business plan 
changes are not included in the stress capital buffer calculation. 
Instead, material changes to a firm's business plan resulting from a 
merger or acquisition are incorporated into a firm's capital and risk-
weighted assets upon consummation of the transaction.
ii. Background on Tailoring Framework
    In October 2019, the Board issued a final rule that established a 
revised framework for applying prudential standards to large firms to 
align prudential standards more closely to a large firm's risk profile 
(tailoring rule).\5\ The tailoring rule established four categories of 
prudential standards and applies them based on indicators designed to 
measure the risk profile of a firm.\6\ Table I outlines the scoping 
criteria for categories of prudential standards finalized in the 
tailoring rule.
---------------------------------------------------------------------------

    \5\ See Prudential Standards for Large Bank Holding Companies, 
Savings and Loan Holding Companies, and Foreign Banking 
Organizations, 84 FR 59032 (Nov. 1, 2019).
    \6\ The final rule increased the threshold for general 
application of these standards from $50 billion to $100 billion in 
total consolidated assets.

    Table I--Scoping Criteria for Categories of Prudential Standards
------------------------------------------------------------------------
                               U.S. banking           Foreign banking
        Category              organizations            organizations
------------------------------------------------------------------------
I......................  U.S. GSIBs and their     N/A.
                          depository institution
                          subsidiaries.
                        ------------------------------------------------
II.....................  $700 billion or more in total assets; or $75
                          billion or more in cross-jurisdictional
                          activity; and 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; and do not meet the
                          criteria for Category I or II.
IV.....................  $100 billion or more in total assets; and do
                          not meet the criteria for Category I-III.
------------------------------------------------------------------------

    The tailoring rule made two changes to the stress testing rules for 
firms subject to Category IV standards. First, the tailoring rule 
removed the requirement for firms subject to Category IV standards to 
conduct and publicly disclose the results of company-run stress tests 
as defined in the Board's stress testing rules. Second, the tailoring 
rule changed the frequency of the supervisory stress test for firms 
subject to Category IV standards from annual to biennial.\7\ In the 
tailoring rule, the Board also foreshadowed that it intended to provide 
greater flexibility to firms subject to Category IV standards to 
develop their annual capital plans and consider additional regulatory 
reporting burden relief in a separate proposal.\8\
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    \7\ Both changes related to stress testing rules for firms 
subject to Category IV standards--(1) to remove the requirement to 
conduct and to publicly disclose the results of the company-run 
stress tests; and (2) to change the frequency of the supervisory 
stress test to biennial--were consistent with amendments to section 
165 of the Dodd-Frank Act made by the Economic Growth, Regulatory 
Relief and Consumer Protection Act (EGRRCPA). See Public Law 115-
174, 132 Stat. 1296 (2018).
    \8\ See 85 FR 15576, 15593, fn 57.
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iii. Summary of Proposal
    The Board is issuing this proposal to conform its capital plan 
rule, stress capital buffer requirements, and capital planning 
requirements by modifying them to be consistent with its tailoring 
framework. Most of the significant modifications included in the 
proposal have been previously described by the Board, notably in its 
tailoring rule and stress capital buffer rule. With respect to firms 
subject to Category IV standards, in order to align the capital plan 
rule requirements with the tailoring rule changes, this proposal would 
generally remove the capital plan rule requirement to calculate 
forward-looking projections of capital under scenarios provided by the 
Board. In addition, for firms subject to Category IV standards, the 
proposal would update the frequency of calculating the portion of the 
stress capital buffer that is calculated as the decline in the CET1 
ratio to every other year. These firms would have the ability to elect 
to participate in the supervisory stress test--and receive an updated 
stress capital buffer requirement--in a year in which they would not 
generally be subject to the supervisory stress test.
    The proposal would also include changes to the Board's supervisory 
stress test and the company-run stress

[[Page 63224]]

test rules.\9\ The proposal would clarify the assumptions related to 
business plan changes, introduce revisions to the capital action 
assumptions, and would require certain savings and loan holding 
companies to publicly disclose their stress tests results in a parallel 
manner as bank holding companies.
---------------------------------------------------------------------------

    \9\ See 12 CFR part 252, subparts E and F.
---------------------------------------------------------------------------

B. Changes to Capital Planning Requirements for Firms Subject to 
Category IV Standards

    Consistent with Section 401(e) of the EGRRCPA, the tailoring rule 
adjusted the frequency of supervisory stress testing for firms subject 
to Category IV standards to every other year and eliminated the 
requirement to conduct the company-run stress tests under the scenarios 
provided by the Board. This adjustment reflected the lower risk profile 
of a firm subject to Category IV standards relative to a firm subject 
to Category I-III standards. The proposal would update the terminology 
in the capital plan rule to conform to the terminology used in the 
tailoring framework by removing the term ``large and noncomplex bank 
holding company'' and replacing it with the definition of a firm 
subject to Category IV standards and tailor the requirements in the 
capital plan rule that currently apply to these firms, as discussed 
below.
i. Capital Plan Submissions
    Under the proposal, firms subject to Category IV standards would be 
required to submit a capital plan to the Board annually but would 
generally no longer be required to calculate estimates of projected 
revenues, losses, reserves, and pro forma capital levels (effectively a 
form of stress testing) using scenarios provided by the Board. Such 
firms would continue to be required to provide a forward-looking 
analysis of income and capital levels under expected and stressful 
conditions. The projections are required to be tailored to and 
sufficiently capture the firm's exposures, activities, and 
idiosyncratic risks in their capital plans.\10\ This includes 
projections under a scenario designed by the firm that stresses the 
specific vulnerabilities of the firm's risk profile and operations. 
This scenario should incorporate stressful conditions and events that 
could adversely affect the firm's capital adequacy. Under certain 
circumstances, based on the macroeconomic outlook or based on the 
firm's risk profile, financial condition or corporate structure, the 
proposal would allow the Board to require a firm subject to Category IV 
standards to submit a capital plan under scenarios provided by the 
Board. This would ensure that the Board could evaluate the firm's 
forward-looking capital position using a scenario designed for the 
specific circumstances of the macro-economy or the firm's risk profile.
---------------------------------------------------------------------------

    \10\ The analysis should cover an appropriate period (usually a 
period of at least two years) to capture the relevant risks to a 
firm. A firm should estimate losses, revenues, expenses, and capital 
using sound methods that relate macroeconomic and other risk drivers 
to its estimates.
---------------------------------------------------------------------------

    In addition, firms subject to Category IV standards would no longer 
be required to submit to the Federal Reserve forward-looking 
projections in the granular form prescribed by the regulatory report FR 
Y-14A, Schedule A--Summary. This schedule includes over five hundred 
capital, revenue, expense, and balance sheet line items that a firm 
must project over a nine-quarter planning horizon. In this way, the 
firm's reporting requirements would be updated to reflect the tailoring 
rule's elimination of the company-run stress test requirement for a 
firm subject to Category IV standards, permitting the firm to estimate 
its capital needs using scenarios reflective of its operations and to 
adjust the granularity of its stress projections to better align with 
the materiality of the firm's business lines. The proposal would 
provide firms flexibility in the granularity of their forward-looking 
projections as they would no longer be required to submit the specific 
line items outlined in the FR Y-14A, Schedule A--Summary. As the 
projections would no longer require the same level of granularity, 
firms would also have more flexibility in the design of their 
individual stress scenarios.
    While the proposal would no longer require firms subject to 
Category IV standards to include certain elements in their capital 
plans, all banking organizations, regardless of size and complexity, 
are expected to have the capacity to analyze the potential impact of 
adverse outcomes on their financial condition, including on capital. 
Risk management practices should be tailored to the risk and complexity 
of the individual institution, and should include practices to identify 
and assess a firm's sensitivity to unexpected adverse outcomes before 
they occur. The Federal Reserve would continue to conduct an annual 
assessment of the capital plan of a firm subject to Category IV 
standards as part of its ongoing supervisory process, and the results 
of this assessment would continue to be an input into the firm's 
capital planning and positions component of the Large Financial 
Institution Rating System.\11\
---------------------------------------------------------------------------

    \11\ See SR Letter 19-3, Large Financial Institution (LFI) 
Rating System (Feb. 26, 2019).
---------------------------------------------------------------------------

ii. Changes to Reporting Requirements Related to Capital Planning 
Requirements
    The proposal includes several modifications to the FR Y-14 
reporting requirements for firms subject to Category IV standards to 
align with the proposed changes to company-run stress testing 
requirements. The Board is proposing that firms subject to Category IV 
standards would no longer be required to report FR Y-14A Schedule A--
Summary, Schedule B--Scenario, Schedule F--Business Plan Changes, and 
Appendix A--Supporting Documentation, which are used to report a firm's 
company-run stress test results. Firms subject to Category IV standards 
would be required to complete all other FR Y-14A schedules, as they are 
either necessary for the Board to run its supervisory stress test or a 
required element of the firm's capital plan.\12\ In order to be able to 
assess whether a firm's planned capital distributions included in its 
capital plan would be consistent with any effective capital 
distribution limitations that would apply under the firm's BHC baseline 
projections, as required by the capital plan rule, the proposal would 
add four line items to the FR Y-14A Schedule C--Regulatory Capital 
Instruments, as this schedule is filed by all firms subject to the 
capital plan rule. The line items would be the projections of Common 
Equity Tier 1 capital ratio, Tier 1 capital ratio, Total capital ratio 
and net income under the BHC baseline scenario. These line items would 
allow the Federal Reserve to confirm compliance with the capital plan 
rule for firms subject to Category IV standards.
---------------------------------------------------------------------------

    \12\ In particular, firms subject to Category IV standards would 
be required to complete the FR Y-14A, Schedule C--Regulatory Capital 
Instruments, Schedule E--Operational Risk, and the Collection of 
Supplemental CECL Information.
---------------------------------------------------------------------------

    The detailed balance sheet information that would continue to be 
collected on a monthly and quarterly basis from firms subject to 
Category IV standards on the FR Y-14Q and FR Y-14M is necessary to 
maintain the integrity of the stress tests, monitor financial 
stability, and effectively supervise those firms.
    Question 1: What are the advantages and disadvantages of requiring 
firms subject to Category IV standards to continue to provide the Board 
with forward-looking analysis of income and capital levels under 
expected and

[[Page 63225]]

stressful conditions? What, if any, alternative approaches should the 
Board consider and why?
    Question 2: Are there potential alternatives or improvements to 
other capital planning requirements for firms subject to Category IV 
standards that the Board should consider in light of the Board's 
elimination of the requirement for firms subject to Category IV 
standards to conduct and publicly disclose the results of company-run 
stress tests? Provide specific suggestions and rationale.
    Question 3: What are the advantages and disadvantages of requiring 
firms subject to Category IV standards to submit some, but not all, 
aspects of the Y-14A Schedule A--Summary to the Federal Reserve? For 
example, should these firms continue to be required to submit top-line 
items under their BHC stress scenario, such as level of capital, net 
income or risk-weighted assets, and if so why?
    Question 4: What alternatives could the Board use to collect 
information related to a firm's capital plan and forward-looking 
projections under a range of conditions?

C. Calculation and Timing of the Stress Capital Buffer Requirement for 
Firms Subject to Category IV Standards

    Firms subject to Category IV standards are currently subject to 
supervisory stress testing on a two-year cycle. Under the proposal, the 
portion of the stress capital buffer requirement that is calculated as 
the decline in the CET1 ratio for such firms would be calculated every 
other year. During a year in which a firm subject to Category IV 
standards does not undergo a supervisory stress test, the firm would 
receive an updated stress capital buffer requirement that reflects the 
firm's updated planned common stock dividends.
    For example, a firm subject to Category IV standards receives a 
stress capital buffer requirement on June 30, 2022, equal to 3.5 
percent and the buffer is composed of a 3.0 percent decline in CET1 
ratio in the stress test and 0.5 percent from four quarters of planned 
dividends as a percent of risk-weighted assets. That requirement would 
be effective from October 1, 2022, to September 30, 2023. The following 
year, the firm would provide the Federal Reserve with an updated 
capital plan by April 5, 2023. If, for example, the firm planned to 
increase its dividends to equal 0.6 percent of risk-weighted assets, 
then its new stress capital buffer requirement of 3.6 percent would 
become effective on October 1, 2023, and would remain effective until 
September 30, 2024.
    A firm subject to Category IV standards may prefer to receive an 
updated stress capital buffer requirement in a year in which it would 
not generally be subject to the supervisory stress test. To provide 
these firms the flexibility to ensure they receive stress capital 
buffer requirements that are reflective of their risk profiles, the 
proposal would allow a firm subject to Category IV standards to elect 
to participate in the supervisory stress test in a year in which the 
firm would not normally be subject to the supervisory stress test. To 
ensure the Board is provided sufficient notice that the firm is 
participating in the supervisory stress test, the firm would need to 
make its election by December 31 of the year preceding the year in 
which it seeks to opt in to the supervisory stress test by providing 
written notice to the Board and appropriate Federal Reserve Bank. Such 
a firm would be a full participant in that year's supervisory stress 
test, including disclosure of the firm's supervisory stress test 
results, and would receive an updated stress capital buffer requirement 
like all other firms subject to the supervisory stress test.
    For purposes of calculating the stress capital buffer requirement 
in 2021 for a firm subject to Category IV standards that elects to 
participate in the 2021 supervisory stress test, the proposal includes 
transitional procedures such that the firm could notify the Board until 
February 15, 2021. These transitional arrangements would apply only for 
purposes of the 2021 stress test cycle.
    In addition, as under the current capital plan rule, the Board 
would continue to have the ability to require a firm to resubmit its 
capital plan if, among other reasons, the Board determines that there 
has been or will likely be a material change in the firm's risk 
profile, financial condition, or corporate structure, or if changes to 
financial market conditions or the macroeconomic outlook require the 
use of updated scenarios. If a firm resubmits its capital plan, the 
Board may recalculate its stress capital buffer requirement and may use 
a new severely adverse scenario. These requirements help ensure that a 
firm's stress capital buffer requirement remains commensurate with its 
risk profile.
    Question 5: What are the advantages and disadvantages of updating 
on an annual basis the dividend add-on portion of the stress capital 
buffer requirements for firms subject to Category IV standards? Should 
the Board consider a shorter or longer time period for updating the 
dividend add-on portion of the stress capital buffer requirement, and 
if so, why?
    Question 6: What are the advantages and disadvantages of allowing a 
firm subject to Category IV standards to receive an updated stress 
capital buffer requirement in a year in which the firm is not subject 
to the supervisory stress test if the firm elects to undergo a 
supervisory stress test, including the proposed method and timing of 
the election?
    Question 7: What are the advantages and disadvantages of requiring 
a firm subject to Category IV standards to be a full participant (i.e., 
the Board would disclose the results of its supervisory stress test 
results for the firm), in that year's supervisory stress test in order 
to receive an updated stress capital buffer requirement?
    Question 8: This proposal includes February 15, 2021 as the 
deadline for a firm subject to Category IV standards to notify the 
Board of its intention to participate in the 2021 supervisory stress 
test. What are the advantages and disadvantages of including February 
15, 2021 as the deadline for this notification to participate in the 
2021 supervisory stress test for such a firm? What other date(s) or 
timeline should the Board consider in order to ensure such a firm can 
elect to participate in the 2021 supervisory stress test? For example, 
what would be the advantages and disadvantages of including April 5, 
2021, the date on which these firms must submit their capital plans to 
the Federal Reserve, as the deadline for notification to participate in 
the 2021 supervisory stress test?

D. Changes to Stress Test Rules for Firms Subject to Category I-IV 
Standards

i. Business Plan Change Assumption
    For purposes of the supervisory stress test, the Board does not 
incorporate the impact of expected changes to a firm's business plan 
that are likely to have a material impact on the firm's capital 
adequacy and funding profile (material business plan changes) in 
balance sheet, risk-weighted asset, and capital projections. In order 
to ensure alignment in the assumptions in the supervisory and company-
run stress tests, the proposal would clarify that the Board and firms 
would exclude impacts of unconsummated material business plan changes 
in the supervisory and company-run stress tests conducted pursuant to 
the Dodd-Frank Act. As this assumption would be reflected in the stress 
test rules, the proposal would

[[Page 63226]]

remove the corresponding section from the Stress Testing Policy 
Statement.
    A firm would continue to be required to include in its capital plan 
a discussion of any expected changes to the firm's business plan that 
are likely to have a material impact on the firm's capital adequacy or 
liquidity. A firm would also continue to be required to incorporate 
impacts of material business plan changes in projections of income and 
capital levels under all scenarios required for purposes of capital 
planning. This requirement would help to ensure that a firm 
appropriately plans for changes to its business. If a material business 
plan change resulted in or would result in a material change in a 
firm's risk profile, the firm would still be required to resubmit its 
capital plan.
ii. Changes for Savings and Loan Holding Companies
    As a part of the tailoring rule, covered savings and loan holding 
companies were made subject to the Board's supervisory stress test and 
company-run stress test requirements in the same manner as comparable 
bank holding companies.\13\ Currently, the capital action assumptions 
in the stress test rules for covered savings and loan holding companies 
are different than those for comparable bank holding companies because 
they were not included in the stress capital buffer rule, in which the 
Board updated the distribution assumptions for bank holding companies. 
The proposal would amend the stress test rules for covered savings and 
loan holding companies so the capital distribution assumptions for 
covered savings and loan holding companies match the assumptions for 
comparable bank holding companies.
---------------------------------------------------------------------------

    \13\ 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.
---------------------------------------------------------------------------

    The proposal would also include a change to address an omission in 
the Board's company-run stress test requirements to ensure that all 
savings and loan holding companies with more than $250 billion in 
assets are required to publicly disclose the results of their stress 
tests, similar to the requirement for bank holding companies. This 
would ensure the requirements are consistent with the Dodd-Frank Act.
    The Board is also considering whether to apply the capital planning 
and stress capital buffer requirements to large covered savings and 
loan holding companies that currently apply to large bank holding 
companies and is posing the following questions for public comment.
    Question 9: As outlined in the preamble of the Board's final 
tailoring rule, large covered savings and loan holding companies engage 
in many of the same activities and face similar risks as large bank 
holding companies, including, but not limited to, deposit taking, 
lending, broker-dealer activities, credit card and margin lending, and 
certain complex nonbanking activities. The Board's tailoring rule 
applied the category framework to covered savings and loan holding 
companies to help identify 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. However, the 
requirements in the capital plan rule do not currently apply to large 
covered savings and loan holding companies. What would be the 
advantages and disadvantages of applying the requirements in the 
capital plan rule, including the stress capital buffer requirement, to 
large covered savings and loan holding companies in the same manner as 
they apply to large bank holding companies? To what extent does the 
public consider covered savings and loan holding companies to be close 
substitutes to similarly situated bank holding companies?
    Question 10: If the Board were to apply capital planning and stress 
capital buffer requirements to large covered savings and loan holding, 
what adjustments, if any, should the Board make to those requirements 
as compared to the requirements that apply to large bank holding 
companies and why? For example, should the Board consider any 
adjustments to the mandatory elements of the capital plan, the 
calculation of the stress capital buffer requirement, regulatory 
reporting requirements or any other aspect capital planning and stress 
capital buffer requirements in light of the risk profile of large 
covered savings and loan holding companies relative to large bank 
holding companies?
    Question 11: What other approaches to applying capital planning 
requirements to large covered savings and loan holding companies should 
the Board consider and why? For example, what would be the advantages 
and disadvantages of allowing large covered savings and loan holding 
companies to opt-in to being required to comply with the capital 
planning and stress capital buffer requirements that currently apply to 
large bank holding companies?
    Question 12: Under the Board's capital plan rule for large bank 
holding companies, a firm that is subject to the capital plan rule and 
meets the asset threshold on or before September 30 of a calendar year 
must comply with the requirements of the rule beginning on January 1 of 
the next calendar year. Similarly, such a firm that meets the asset 
threshold after September 30 of a calendar year must comply with the 
requirements of the rule beginning on January 1 of the second calendar 
year after the firm meets the asset threshold. What elements of this 
approach to a transition period are appropriate for applying capital 
planning requirements to large covered savings and loan holding 
companies?
iii. Changes to Reporting Requirements Related to Stress Test Rule 
Changes
    The proposal would update the FR Y-14 reporting requirements for 
firms subject to Category I-IV standards to conform with changes made 
to the stress test rules. In order to reflect the exclusion of material 
business plan changes in company-run stress test projections, the 
proposal would create two sub-schedules for all items on the FR Y-14A, 
Schedule A--Summary: (1) DFAST, where a firm would not incorporate the 
effects of business plan changes and (2) CCAR, where a firm would 
incorporate the effects of business plan changes. Firms would report 
projections on the DFAST sub-schedule under the scenarios provided by 
the Federal Reserve, and firms would report projections on the CCAR 
sub-schedule under expected conditions and under a range of scenarios, 
including the supervisory severely adverse scenario provided by the 
Federal Reserve and at least one BHC baseline and one BHC stress 
scenario. To more accurately reflect the types of firms subject to the 
stress test reporting requirements, the proposal would also rename the 
BHC baseline scenario and BHC stress scenario to Firm baseline scenario 
and Firm stress scenario, respectively.
    Firms subject to Category I-III standards would be required to 
report a version of FR Y-14A, Schedule A.1.a--Income Statement, 
Schedule A.1.b--Balance Sheet, Schedule A.1.c.1--Standardized RWA, 
Schedule A.1.d--Capital, Schedule A.2.a--Retail Balance and Loss 
Projections, Schedule A.3--AFS/HTM Securities, Schedule A.4--Trading, 
Schedule A.5--Counterparty Credit Risk, Schedule A.6--Operational Risk, 
and Schedule A.7--Pre-Provision Net Revenue, that incorporates the

[[Page 63227]]

effects of business plan changes, as well as a version of these 
schedules and items that does not incorporate these effects. For 
Schedule A.1.d, firms subject to Category I-III standards would no 
longer report the supervisory baseline scenario on the Capital--CCAR 
sub-schedule. Firms subject to Category I-IV standards would be 
required to report a version of FR Y-14A Schedule C that incorporates 
the effects of material business plan changes and a version that does 
not incorporate these effects. As described above, firms subject to 
Category IV standards would not be required to submit the FR Y-14A, 
Schedule A--Summary. Given the changes made to the FR Y-14A, Schedule 
A--Summary, firms would no longer be required to submit the supervisory 
baseline scenario for FR Y-14A, Schedule F--Business Plan Changes.
    Question XX: What are the advantages and disadvantages of the Board 
requiring firms subject to Category IV standards to submit the FR Y-
14A, Schedule A--Summary in response to changes based on the 
macroeconomic outlook or based on the firm's risk profile, financial 
condition or corporate structure?

E. Definition of Common Stock Dividend in Capital Plan Rule

    A component of a firm's stress capital buffer requirement is the 
dividend add-on, which is based on planned dividends during projected 
quarters four through seven of the planning horizon. As noted above, 
the dividend add-on promotes forward-looking dividend planning and 
mitigates the procyclicality of the Board's stress testing framework. 
The capital plan rule does not define common stock dividends. However, 
the FR Y-14A defines dividends by referencing the definition of 
dividend in the Glossary to the FR Y-9C instructions. That definition 
provides, among other things, that cash dividends are ``payments of 
cash to shareholders in proportion to the number of shares they own.'' 
Using the definition of dividends on the FR Y-9C, in 2019 dividends as 
a share of risk-weighted assets was around 50 basis points.
    The Board has observed different practices regarding the 
classification of dividends and share repurchases. For example, certain 
U.S. intermediate holding companies of foreign banking organizations 
have classified distributions to their parent companies as dividends, 
while other U.S. intermediate holding companies have classified similar 
distributions as non-dividend payouts. Decisions by firm regarding 
classifications may depend, among other things, whether the 
distribution is paid out of the firm's retained earnings.
    The Board is therefore seeking comment on, but not proposing, a 
definition for common stock dividends in the capital plan rule. The 
definition of common stock dividend could be aligned with the 
definition on the FR Y-9C and could include payments of cash to parent 
organizations irrespective of whether the amount paid is debited from 
the firm's retained earnings. For example, a definition of common stock 
dividend could be any payment of cash to shareholders in proportion to 
the number of shares they own.
    Question 13: What would be the advantages and disadvantages of 
including a definition of common stock dividends in the capital plan 
rule? How should such a definition interact with the definition of 
dividends in the Board's rules and regulatory reports, including the FR 
Y-9C and the FR Y-14A/Q/M? What would be the advantages and 
disadvantages of aligning the definition of dividends across the 
Board's rules and regulatory reports? Please include a discussion of 
the materiality of including this definition.
    Question 14: What are the advantages and disadvantages of the 
definition discussed above? What adjustments should the Board consider 
to this definition and why? Are there any special considerations the 
Board should consider with regards to U.S. intermediate holding 
companies?

F. Impact Analysis

    The changes in the proposal would not affect the calculation of 
capital requirements. The proposal would not change the calculation of 
capital requirements, including the stress capital buffer requirement, 
for firms subject to Category IV standards. The regulatory reporting 
aspects of the proposal would introduce some additional compliance 
burden on firms subject to Category I through III standards, while 
significantly reducing compliance burden on firms subject to Category 
IV standards.

II. Request for Comment on Board Guidance on Capital Planning

    Sufficient capital resources are central to a firm's ability to 
absorb unexpected losses and continue to lend to creditworthy 
businesses and consumers. Therefore, a firm's processes for managing 
and allocating its capital resources are critical to its financial 
strength and resiliency, as well as to the stability and effective 
functioning of the U.S. financial system. Over the past decades, the 
Board has issued guidance related to its supervisory expectations for 
firms' capital planning. The Board has tailored expectations for sound 
capital planning depending on the size, scope of operations, 
activities, and systemic importance of a firm.
    The Board is requesting comment on all aspects of its guidance on 
capital planning for firms of all sizes (as delineated below), 
consistent with its ongoing practice of reviewing its policies to 
ensure that they are having their intended effect. Certain aspects of 
the guidance have not been updated since the 2007-2008 financial 
crisis. The revisions made to the Board's regulations in the recent 
tailoring and stress capital buffer rules and experiences with capital 
planning during the Coronavirus Disease 2019 event (COVID event) also 
motivate seeking public input at this time.
    The Board's key capital planning guidance includes supervision and 
regulation (SR) letters, ``Federal Reserve Supervisory Assessment of 
Capital Planning and Positions for LISCC Firms and Large and Complex 
Firms,'' \14\ ``Federal Reserve Supervisory Assessment of Capital 
Planning and Positions for Large and Noncomplex Firms,'' \15\ 
``Applying Supervisory Guidance and Regulations on the Payment of 
Dividends, Stock Redemptions, and Stock Repurchases at Bank Holding 
Companies,'' \16\ and the ``Policy Statement on the Payment of Cash 
Dividends.'' \17\ The Board also encourages feedback on any other 
aspects of its guidance that relate to capital planning.
---------------------------------------------------------------------------

    \14\ SR letter 15-18, ``Federal Reserve Supervisory Assessment 
of Capital Planning and Positions for LISCC Firms and Large and 
Complex Firms,'' December 18, 2015, See https://www.federalreserve.gov/supervisionreg/srletters/sr1518.htm.
    \15\ SR letter 15-19, ``Federal Reserve Supervisory Assessment 
of Capital Planning and Positions for Large and Noncomplex Firms,'' 
December 18, 2015, See https://www.federalreserve.gov/supervisionreg/srletters/sr1519.htm.
    \16\ SR letter 09-4, ``Applying Supervisory Guidance and 
Regulations on the Payment of Dividends, Stock Redemptions, and 
Stock Repurchases at Bank Holding Companies'', February 24, 2009, 
See https://www.federalreserve.gov/boarddocs/srletters/2009/SR0904.htm.
    \17\ ``UNSOUND BANKING PRACTICES--Cash Dividends Not Fully 
Covered by Earnings'' November 14, 1985. See https://www.federalreserve.gov/boarddocs/srletters/2009/sr0904a2.pdf.
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    Question 15: What if any changes should the Board consider with 
respect to the scope of application of its existing capital planning 
guidance and why? What if any considerations regarding firms' risk 
profiles should be factored

[[Page 63228]]

into the applicability of capital planning guidance and why? Factoring 
in the applicability of the Board's regulations, what if any aspects of 
the Board's capital planning guidance should be changed or tailored 
differently based on firms' risk profiles and why?
    Question 16: The Board is interested in comment on whether changes 
are appropriate to its supervisory guidance on capital planning, in 
light of experience with the guidance and factors such as the recent 
tailoring and stress capital buffer rules and other applicable 
regulatory requirements. Please describe appropriate changes and the 
rationale behind them.
    Question 17: How should existing guidance on capital planning be 
adapted, if at all, to reflect times of heightened and prolonged 
uncertainty? For example, how has the COVID event influenced firms' 
capital planning and loss estimation processes? How should these types 
of adjustments be reflected in the Board's guidance on capital 
planning?
    Question 18: How should the Board weigh the potential benefits of 
revising its capital planning guidance against the potential burdens, 
given the current economic environment? How could any such burdens be 
mitigated?
    Question 19: How well does the existing guidance on capital 
planning reflect sound practices for managing risks across firms of 
various risk profiles and promote safety and soundness? With a goal of 
balancing clarity and flexibility, how could the guidance be improved 
in its application to firms with differing risk profiles? What aspects 
of industry practice or other developments should be considered in any 
potential updates to this guidance, and how?

III. Administrative Law Matters

A. Paperwork Reduction Act

    Certain provisions of the proposed rule contain ``collections of 
information'' within the meaning of the Paperwork Reduction Act of 1995 
(PRA) (44 U.S.C. 3501-3521). The Board may not conduct or sponsor, and 
a respondent is not required to respond to, an information collection 
unless it displays a currently valid Office of Management and Budget 
(OMB) control number. The Board reviewed the proposed rule under the 
authority delegated to the Board by OMB.
    The proposed rule would revise collection of information 
requirements subject to the PRA. The Board proposes to revise the FR Y-
14, FR LL, and the FR YY to reflect the changes proposed in the 
proposed rule. The OMB control numbers are 7100-0341, 7100-NEW, and 
7100-0350.
    Comments are invited on:
    a. Whether the collections of information are necessary for the 
proper performance of the Federal Reserve's functions, including 
whether the information has practical utility;
    b. The accuracy or the estimate of the burden of the information 
collections, including the validity of the methodology and assumptions 
used;
    c. Ways to enhance the quality, utility, and clarity of the 
information to be collected;
    d. Ways to minimize the burden of the information collections on 
respondents, including through the use of automated collection 
techniques or other forms of information technology; and
    e. Estimates of capital or startup costs and costs of operation, 
maintenance, and purchase of services to provide information.
    All comment will become a matter of public record. Comments on 
aspects of this proposal that may affect reporting, recordkeeping, or 
disclosure requirements and burden estimates should be sent to: 
Secretary, Board of Governors of the Federal Reserve System, 20th and C 
Streets NW, Washington, DC 20551. A copy of the comments may also be 
submitted to the OMB desk officer by mail to U.S. Office of Management 
and Budget, 725 17th Street NW, #10235, Washington, DC 20503 or by 
facsimile to 202-395-5806, Attention, Agency Desk Officer.
Proposed Revisions, With Extension for Three Years, of the Following 
Information Collections
    (1) Report title: Capital Assessments and Stress Testing Reports.
    Agency form number: FR Y-14A/Q/M.
    OMB control number: 7100-0341.
    Frequency: Annually, quarterly, and monthly.
    Respondents: These collections of information are applicable to 
bank holding companies (BHCs), U.S. intermediate holding companies 
(IHCs), and covered savings and loan holding companies (SLHCs) \18\ 
with $100 billion or more in total consolidated assets, as based on: 
(i) The average of the firm's total consolidated assets in the four 
most recent quarters as reported quarterly on the firm's Consolidated 
Financial Statements for Holding Companies (FR Y-9C; OMB No. 7100-
0128); or (ii) if the firm has not filed an FR Y-9C for each of the 
most recent four quarters, then 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. 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.
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    \18\ Covered SLHCs are those which are not substantially engaged 
in insurance or commercial activities. For more information, see the 
definition of ``covered savings and loan holding company'' provided 
in 12 CFR 217.2 and 12 CFR 238.2(ee). SLHCs with $100 billion or 
more in total consolidated assets become members of the FR Y-14Q and 
FR Y-14M panels effective June 30, 2020, and the FR Y-14A panel 
effective December 31, 2020. See 84 FR 59032 (November 1, 2019).
---------------------------------------------------------------------------

    Estimated number of respondents: FR Y-14A/Q: 36; FR Y-14M: 34.\19\
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    \19\ The estimated number of respondents for the FR Y-14M is 
lower than for the FR Y-14Q and FR Y-14A because, in recent years, 
certain respondents to the FR Y-14A and FR Y-14Q have not met the 
materiality thresholds to report the FR Y-14M due to their lack of 
mortgage and credit activities. The Board expects this situation to 
continue for the foreseeable future.
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    Estimated average hours per response: FR Y-14A: 1,250 hours; FR Y-
14Q: 2,143 hours; FR Y-14M: 1,072 hours; FR Y-14 On-going Automation 
Revisions: 480 hours; FR Y-14 Attestation On-going Attestation: 2,560 
hours.
    Estimated annual burden hours: FR Y-14A: 45,000 hours; FR Y-14Q: 
308,592 hours; FR Y-14M: 437,376 hours; FR Y-14 On-going Automation 
Revisions: 17,280 hours; FR Y-14 Attestation On-going Attestation: 
33,280 hours.
    General description of report: This family of information 
collections is composed of the following three reports:
     The annual \20\ 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.\21\
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    \20\ In certain circumstances, a BHC or IHC may be required to 
re-submit its capital plan. See 12 CFR 225.8(e)(4). Firms that must 
re-submit their capital plan generally also must provide a revised 
FR Y-14A in connection with their resubmission.
    \21\ On October 10, 2019, the Board issued a final rule that 
eliminated the requirement for firms subject to Category IV 
standards to conduct and publicly disclose the results of a company-
run stress test. See 84 FR 59032 (Nov. 1, 2019). That final rule 
maintained the existing FR Y-14A/Q/M substantive reporting 
requirements for these firms 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 its supervised firms. 
As noted in the final rule, the Board intends to provide greater 
flexibility to banking organizations subject to Category IV 
standards in developing their annual capital plans and consider 
further change to the FR Y-14A/Q/M forms as part of a separate 
proposal. See 84 FR 59032, 59063.
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     The quarterly FR Y-14Q collects granular data on various 
asset classes, including loans, securities, trading assets, and PPNR 
for the reporting period.

[[Page 63229]]

     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 needed to help ensure that large firms have 
strong, firm[hyphen]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 reports are used to 
support the Board's annual Comprehensive Capital Analysis and Review 
(CCAR) and Dodd-Frank Act Stress Test (DFAST) exercises, which 
complement 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 
respondent financial institutions. Respondent firms are currently 
required to complete and submit up to 17 filings each year: One annual 
FR Y-14A filing, four quarterly FR Y-14Q filings, and 12 monthly FR Y-
14M filings. Compliance with the information collection is mandatory.
    Current Actions: As previously described in this proposal, the 
Board is proposing to make several FR Y-14 revisions. Certain revisions 
would only be applicable to firms subject to Category IV or Category I-
III standards, while other revisions would be applicable to all BHCs 
and IHCs. All revisions are proposed to be effective for data as-of 
December 31, 2020.
Firms Subject to Category IV Standards
    As a result of the proposed changes to company-run stress testing 
requirements, the Board is proposing that firms subject to Category IV 
standards would no longer be required to report FR Y-14A Schedule A--
Summary, Schedule B--Scenario, Schedule F--Business Plan Changes, and 
Appendix A--Supporting Documentation, which are used to report a firm's 
company-run stress test results. However, firms subject to Category IV 
standards would be required to complete all remaining FR Y-14A 
schedules, as they are necessary for the Board to run its supervisory 
stress test. The Board believes that the detailed balance sheet 
information that would continue to be collected on a monthly and 
quarterly basis from firms subject to Category IV standards on the FR 
Y-14Q and FR Y-14M is crucial for maintaining the integrity of the 
stress tests, monitoring financial stability, and supervising those 
firms.
Firms Subject to Category I-III Standards
    As previously outlined, firms subject to Category I-III standards 
would continue to report the FR Y-14A Schedule A--Summary. To conform 
the FR Y-14 reports with the stress test assumption changes made per 
the stress capital buffer, the Board is proposing to create two sub-
schedules for all items on the FR Y-14A, Schedule A: (1) DFAST, where a 
firm would not incorporate the effects of business plan changes and (2) 
CCAR, where a firm would incorporate the effects of business plan 
changes. Specifically, firms subject to Category I-III standards would 
be required to report a version of FR Y-14A, Schedule A.1.a--Income 
Statement, Schedule A.1.b--Balance Sheet, Schedule A.1.c.1--
Standardized RWA, Schedule A.1.d--Capital, Schedule A.2.a--Retail 
Balance and Loss, Schedule A.3--AFS/HTM Securities, Schedule A.4--
Trading, Schedule A.5--Counterparty Credit Risk, Schedule A.6--
Operational Risk, and Loss Projections, and Schedule A.7--Pre-Provision 
Net Revenue, that incorporates the effects of business plan changes, as 
well as a version of these schedules and items that does not 
incorporate these effects. For Schedule A.1.d, firms would continue to 
report two sub-schedules with different capital actions, along with the 
income and balance sheet information reported in the appropriate sub-
schedule. In addition, firms would only be required to report FR Y-14A, 
Schedule F under the Firm baseline and supervisory severely adverse 
scenarios.
All BHCs and IHCs
    All BHCs and IHCs would still be required to report FR Y-14A, 
Schedule C--Regulatory Capital Instruments, and the stress test 
assumption changes made per the stress capital buffer rule create a 
need for firms to provide certain data excluding the impact of business 
plan changes. As a result, the Board is proposing to create two sub-
schedules for all items on the FR Y-14A, Schedule C: (1) SCB, where a 
firm would not incorporate the effects of business plan changes and (2) 
CCAR, where a firm would incorporate the effects of business plan 
changes. Specifically, all BHCs and IHCs would be required to report a 
version of FR Y-14A, Schedule C, that incorporates the effects of 
business plan changes, as well as a version of this schedule and items 
that does not incorporate these effects.
    In order to be able to assess whether a firm's planned capital 
distributions included in its capital plan would be consistent with any 
effective capital distribution limitations that would apply under the 
firm's baseline projections, as required by the capital plan rule, the 
Board is also proposing to add four items to FR Y-14A, Schedule C. 
These items would capture baseline projections of a firm's common 
equity tier 1 capital ratio, tier 1 capital ratio, total capital ratio, 
and net income.
Other Revisions
    As previously mentioned, the Board is proposing to replace the 
current definition of ``large and noncomplex bank holding company'' 
with the definition of a firm subject to Category IV standards. 
Therefore, the Board is proposing to make this change across the FR Y-
14A/Q/M reports. In addition, to more accurately reflect the types of 
firms subject to the stress test reporting requirements, the Board is 
proposing to rename the ``BHC baseline scenario'' and ``BHC stress 
scenario'' to ``Firm baseline scenario'' and ``Firm stress scenario,'' 
respectively.
    (2) Report title: Reporting and Disclosure Requirements Associated 
with Regulation LL.
    Agency form number: FR LL.
    OMB control number: 7100-NEW.
    Frequency: Biennial.
    Affected Public: Businesses or other for-profit.
    Respondents: Savings and loan holding companies.
    Estimated number of respondents: 1.
    Estimated average hours per response: Reporting Sec.  
238.162(b)(1)(ii)--80; Disclosure section 238.146 (initial setup)--150; 
Disclosure Sec.  238.146--60.
    Estimated annual burden hours: Reporting Sec.  238.162(b)(1)(ii)--
40; Disclosure Sec.  238.146 (initial setup)--75; Disclosure Sec.  
238.146--30.
    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 proposed rule includes amendments to Sec.  
238.146 of Regulation LL meant to ensure that certain savings and loan 
holding companies are required to publicly

[[Page 63230]]

disclose their stress tests results. Under the proposal, a covered 
savings and loan holding company that is subject to a supervisory 
stress test under Sec.  238.132 of Regulation LL would be required to 
publicly disclose a summary of the results of the stress test required 
under Sec.  238.143 of Regulation LL within the period that is 15 
calendar days after the Board publicly discloses the results of its 
supervisory stress test of the covered company pursuant to Sec.  
238.134 of Regulation LL, unless that time is extended by the Board in 
writing, while a covered savings and loan holding company that is not 
subject to a supervisory stress test under Sec.  238.132 of Regulation 
LL would be required to publicly disclose a summary of the results of 
the stress test required under Sec.  238.143 of Regulation LL in the 
period beginning on June 15 and ending on June 30 in the year in which 
the stress test is conducted, unless that time is extended by the Board 
in writing.
    (3) Report title: Reporting, Recordkeeping, and Disclosure 
Requirements Associated with Regulation YY (Enhanced Prudential 
Standards).
    Agency Form Number: FR YY.
    OMB Control Number: 7100-0350.
    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 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 above, the Board proposes to allow a 
firm subject to Category IV standards to elect to participate in the 
supervisory stress test in a year in which the firm would not normally 
be subject to the supervisory stress test. To ensure the Board is 
provided sufficient notice that the firm is participating in the 
supervisory stress test, the firm would need to make its election by 
December 31 of the year preceding the year in which it seeks to opt in 
to the supervisory stress test by providing written notice to the Board 
and appropriate Federal Reserve Bank. For purposes of calculating the 
stress capital buffer requirement in 2021 for a firm subject to 
Category IV standards that elects to participate in the 2021 
supervisory stress test, the proposal includes transitional procedures 
such that the firm could notify the Board after December 31, 2020, but 
before the Board publishes the supervisory scenarios.

B. Regulatory Flexibility Act

    The Board is providing an initial regulatory flexibility analysis 
with respect to this proposed rule. The Regulatory Flexibility Act, 5 
U.S.C. 601 et seq., (RFA), requires an agency to consider whether the 
rules it proposes will have a significant economic impact on a 
substantial number of small entities.\22\ In connection with a proposed 
rule, the RFA requires an agency to prepare an Initial Regulatory 
Flexibility Analysis describing the impact of the rule on small 
entities or to certify that the proposed rule would not have a 
significant economic impact on a substantial number of small entities. 
An initial regulatory flexibility analysis must contain (1) a 
description of the reasons why action by the agency is being 
considered; (2) a succinct statement of the objectives of, and legal 
basis for, the proposed rule; (3) a description of, and, where 
feasible, an estimate of the number of small entities to which the 
proposed rule will apply; (4) a description of the projected reporting, 
recordkeeping, and other compliance requirements of the proposed rule, 
including an estimate of the classes of small entities that will be 
subject to the requirement and the type of professional skills 
necessary for preparation of the report or record; (5) an 
identification, to the extent practicable, of all relevant Federal 
rules which may duplicate, overlap with, or conflict with the proposed 
rule; and (6) a description of any significant alternatives to the 
proposed rule which accomplish its stated objectives.
---------------------------------------------------------------------------

    \22\ Under regulations issued by the Small Business 
Administration, a small entity includes a depository institution, 
bank holding company, or savings and loan holding company with total 
assets of $600 million or less and trust companies with annual 
receipts of $41.5 million or less.
---------------------------------------------------------------------------

    The Board has considered the potential impact of the proposed rule 
on small entities in accordance with the RFA. Based on its analysis and 
for the reasons stated below, the Board believes that this proposed 
rule will not have a significant economic impact on a substantial 
number of small entities. Nevertheless, the Board is publishing and 
inviting comment on this initial regulatory flexibility analysis. A 
final regulatory flexibility analysis will be conducted after comments 
received during the public comment period have been considered. The 
proposal would also make corresponding changes to the Board's reporting 
forms.
    As discussed in detail above, the proposed rule would amend the 
capital rule, capital plan rule, stress testing rules, and the Stress 
Testing Policy Statement. Under the proposed rule, the Board would 
remove certain capital plan requirements to remove company-run stress 
test requirements. In addition, in order to align the stress capital 
buffer requirements with the tailoring rule changes, the proposal would 
update the portion of the stress capital buffer that is calculated as 
the decline in the CET1 ratio every other year for firms subject to 
Category IV standards. The proposal would include changes to Board's 
supervisory stress test and the company-run stress test rules. The 
proposal would clarify the assumptions related to business plan 
changes, introduce a revision to the capital action assumptions and 
include a technical

[[Page 63231]]

change to ensure certain savings and loan holding companies are 
required to publicly disclose their stress tests results.
    The Board has broad authority under the International Lending 
Supervision Act (ILSA) \23\ and the PCA provisions of the Federal 
Deposit Insurance Act \24\ to establish regulatory capital requirements 
for the institutions it regulates. For example, ILSA directs each 
Federal banking agency to cause banking institutions to achieve and 
maintain adequate capital by establishing minimum capital requirements 
as well as by other means that the agency deems appropriate.\25\ The 
PCA provisions of the Federal Deposit Insurance Act direct each Federal 
banking agency to specify, for each relevant capital measure, the level 
at which an IDI subsidiary is well capitalized, adequately capitalized, 
undercapitalized, and significantly undercapitalized.\26\ In addition, 
the Board has broad authority to establish regulatory capital standards 
for bank holding companies under the Bank Holding Company Act and the 
Dodd-Frank Reform and Consumer Protection Act (Dodd-Frank Act).\27\
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    \23\ 12 U.S.C. 3901-3911.
    \24\ 12 U.S.C. 1831o.
    \25\ 12 U.S.C. 3907(a)(1).
    \26\ 12 U.S.C. 1831o(c)(2).
    \27\ See, e.g., sections 165 and 171 of the Dodd-Frank Act (12 
U.S.C. 5365 and 12 U.S.C. 5371). Public Law 111-203, 124 Stat. 1376 
(2010).
---------------------------------------------------------------------------

    The proposed rule would apply only to bank holding companies, 
intermediate holding companies and savings and loan holding companies 
with total consolidated assets of at least $100 billion in total 
consolidated assets. The proposed rule would not apply to any small 
entities. Further, the proposal would make changes to the projected 
reporting, recordkeeping, and other compliance requirements of the rule 
by proposing to collect information from firms subject to the capital 
plan rule. These changes would not impact small entities. In addition, 
the Board is aware of no other Federal rules that duplicate, overlap, 
or conflict with the proposed changes to the capital rule, capital plan 
rule, and stress testing rules. Therefore, the Board believes that the 
proposed rule will not have a significant economic impact on small 
banking organizations supervised by the Board and therefore believes 
that there are no significant alternatives to the proposed rule that 
would reduce the economic impact on small banking organizations 
supervised by the Board.
    The Board welcomes comment on all aspects of its analysis. In 
particular, the Board requests that commenters describe the nature of 
any impact on small entities and provide empirical data to illustrate 
and support the extent of the impact.

C. Solicitation of Comments of Use of Plain Language

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

List of Subjects

12 CFR Part 225

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

12 CFR Part 238

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

12 CFR Part 252

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

Authority and Issuance

    For the reasons stated in the SUPPLEMENTARY INFORMATION, the Board 
proposes to amend chapter II of title 12 of the Code of Federal 
Regulations as follows:

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

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

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

Subpart A--General Provisions

0
2. Amend Sec.  225.8 by:
0
a. Removing all references to ``BHC stress scenario'' and ``BHS stress 
scenario(s)'' and add in their place ``Firm stress scenario'' and 
``Firm stress scenario(s),'' respectively;
0
b. Removing all references to ``BHC baseline scenario'' and add in 
their place ``Firm baseline scenario'';
0
c. Revising paragraphs (d)(10) through (15), (e)(2)(i)(A), and 
(e)(4)(ii) and (iii);
0
d. Removing paragraphs (e)(4)(iv);
0
e. Revising paragraph (f)(1);
0
f. Adding paragraph (f)(4);
0
g. Revising paragraphs (h)(2) through (5), (i), (j), and (k); and
0
h. Removing paragraph (l).
    The revisions and addition read as follows:


Sec.  225.8   Capital planning and stress capital buffer requirement.

* * * * *
    (d) * * *
    (10) Category IV bank holding company means any bank holding 
company or U.S. intermediate holding company subject to this section 
that, as of December 31 of the prior capital plan cycle, is a Category 
IV banking organization pursuant to 12 CFR 252.5.
    (11) Common equity tier 1 capital has the same meaning as under 12 
CFR part 217.
    (12) Effective capital distribution limitations means any 
limitations on capital distributions established by the Board by order 
or regulation, including pursuant to 12 CFR 217.11, 225.4, 252.63, 
252.165, and 263.202, provided that, for any limitations based on risk-
weighted assets, such limitations must be calculated using the 
standardized approach, as set forth in 12 CFR part 217, subpart D.
    (13) Final planned capital distributions means the planned capital 
distributions included in a capital plan that include the adjustments 
made pursuant to paragraph (h) of this section, if any.
    (14) Global systemically important BHC means a bank holding company 
identified as a global systemically important BHC under 12 CFR 217.402.

[[Page 63232]]

    (15) GSIB surcharge has the same meaning as under 12 CFR 217.403.
* * * * *
    (e) * * *
    (2) * * *
    (i) * * *
    (A) Estimates of projected revenues, losses, reserves, and pro 
forma capital levels, including regulatory capital ratios, and any 
additional capital measures deemed relevant by the bank holding 
company, over the planning horizon under a range of scenarios, 
including:
    (1) If the bank holding company is a Category IV bank holding 
company, the Firm baseline scenario and at least one Firm stress 
scenario, as well as any additional scenarios, based on financial 
conditions or the macroeconomic outlook, or based on the bank holding 
company's financial condition, size, complexity, risk profile, or 
activities, or risks to the U.S. economy, that the Federal Reserve may 
provide the bank holding company after giving notice to the bank 
holding company; or
    (2) If the bank holding company is not a Category IV bank holding 
company, any scenarios provided by the Federal Reserve, the Firm 
baseline scenario, and at least one Firm stress scenario;
* * * * *
    (4) * * *
    (ii) The Board, or the appropriate Reserve Bank with concurrence of 
the Board, may extend the 30-day period in paragraph (e)(4)(i) of this 
section for up to an additional 60 calendar days, or such longer period 
as the Board or the appropriate Reserve Bank, with concurrence of the 
Board, determines appropriate.
    (iii) Any updated capital plan must satisfy all the requirements of 
this section; however, a bank holding company may continue to rely on 
information submitted as part of a previously submitted capital plan to 
the extent that the information remains accurate and appropriate.
* * * * *
    (f) Calculation of the stress capital buffer requirement--(1) 
General. The Board will determine the stress capital buffer requirement 
that applies under 12 CFR 217.11 pursuant to paragraph (f) of this 
section. For each bank holding company that is not a Category IV bank 
holding company, the Board will calculate the bank holding company's 
stress capital buffer requirement annually. For each Category IV bank 
holding company, the Board will calculate the bank holding company's 
stress capital buffer requirement biennially, occurring in each 
calendar year ending in an even number, and will adjust the bank 
holding company's stress capital buffer requirement biennially, 
occurring in each calendar year ending in an odd number. 
Notwithstanding the previous sentence, the Board will calculate the 
stress capital buffer requirement of a Category IV bank holding company 
in a year ending in an odd number with respect to which that company 
makes an election pursuant to 12 CFR 252.44(d)(2)(ii).
* * * * *
    (4) Adjustment of stress capital buffer requirement. In each 
calendar year in which the Board does not calculate a Category IV bank 
holding company's stress capital buffer requirement pursuant to 
paragraph (f)(1) of this section, the Board will adjust the Category IV 
bank holding company's stress capital buffer requirement to be equal to 
the result of the calculation set forth in paragraph (f)(2) of this 
section, using the same values that were used to calculate the stress 
capital buffer requirement most recently provided to the bank holding 
company, except that the value used in paragraph (f)(2)(i)(C)(1) of 
this section will be equal to the bank holding company's planned common 
stock dividends (expressed as a dollar amount) for each of the fourth 
through seventh quarters of the planning horizon as set forth in the 
capital plan submitted by the bank holding company in the calendar year 
in which the Board adjusts the bank holding company's stress capital 
buffer requirement.
* * * * *
    (h) * * *
    (2) Response to notice--(i) Request for reconsideration of stress 
capital buffer requirement. A bank holding company may request 
reconsideration of a stress capital buffer requirement provided under 
paragraph (h)(1) of this section. To request reconsideration of a 
stress capital buffer requirement, a bank holding company must submit 
to the Board a request pursuant to paragraph (i) of this section.
    (ii) Adjustments to planned capital distributions. Within two 
business days of receipt of notice of a stress capital buffer 
requirement under paragraph (h)(1) or (i)(5) of this section, as 
applicable, a bank holding company must:
    (A) Determine whether the planned capital distributions for the 
fourth through seventh quarters of the planning horizon under the Firm 
baseline scenario would be consistent with effective capital 
distribution limitations assuming the stress capital buffer requirement 
provided by the Board under paragraph (h)(1) or (i)(5) of this section, 
as applicable, in place of any stress capital buffer requirement in 
effect; and
    (1) If the planned capital distributions for the fourth through 
seventh quarters of the planning horizon under the Firm baseline 
scenario would not be consistent with effective capital distribution 
limitations assuming the stress capital buffer requirement provided by 
the Board under paragraph (h)(1) or (i)(5) of this section, as 
applicable, in place of any stress capital buffer requirement in 
effect, the bank holding company must adjust its planned capital 
distributions such that its planned capital distributions would be 
consistent with effective capital distribution limitations assuming the 
stress capital buffer requirement provided by the Board under paragraph 
(h)(1) or (i)(5) of this section, as applicable, in place of any stress 
capital buffer requirement in effect; or
    (2) If the planned capital distributions for the fourth through 
seventh quarters of the planning horizon under the Firm baseline 
scenario would be consistent with effective capital distribution 
limitations assuming the stress capital buffer requirement provided by 
the Board under paragraph (h)(1) or (i)(5) of this section, as 
applicable, in place of any stress capital buffer requirement in 
effect, the bank holding company may adjust its planned capital 
distributions. A bank holding company may not adjust its planned 
capital distributions to be inconsistent with the effective capital 
distribution limitations assuming the stress capital buffer requirement 
provided by the Board under paragraph (h)(1) or (i)(5) of this section, 
as applicable; and
    (B) Notify the Board of any adjustments made to planned capital 
distributions for the fourth through seventh quarters of the planning 
horizon under the Firm baseline scenario.
    (3) Final planned capital distributions. The Board will consider 
the planned capital distributions, including any adjustments made 
pursuant to paragraph (h)(2)(ii) of this section, to be the bank 
holding company's final planned capital distributions on the later of:
    (i) The expiration of the time for requesting reconsideration under 
paragraph (i) of this section; and
    (ii) The expiration of the time for adjusting planned capital 
distributions pursuant to paragraph (h)(2)(ii) of this section.
    (4) Effective date of final stress capital buffer requirement. (i) 
The Board will provide a bank holding company with its final stress 
capital buffer requirement

[[Page 63233]]

and confirmation of the bank holding company's final planned capital 
distributions by August 31 of the calendar year that a capital plan was 
submitted pursuant to paragraph (e)(1)(ii) of this section, unless 
otherwise determined by the Board. A stress capital buffer requirement 
will not be considered final so as to be agency action subject to 
judicial review under 5 U.S.C. 704 during the pendency of a request for 
reconsideration made pursuant to paragraph (i) of this section or 
before the time for requesting reconsideration has expired.
    (ii) Unless otherwise determined by the Board, a bank holding 
company's final planned capital distributions and final stress capital 
buffer requirement shall:
    (A) Be effective on October 1 of the calendar year in which a 
capital plan was submitted pursuant to paragraph (e)(1)(ii) of this 
section; and
    (B) Remain in effect until superseded.
    (5) Publication. With respect to any bank holding company subject 
to this section, the Board may disclose publicly any or all of the 
following:
    (i) The stress capital buffer requirement provided to a bank 
holding company under paragraph (h)(1) or (i)(5) of this section;
    (ii) Adjustments made pursuant to paragraph (h)(2)(ii);
    (iii) A summary of the results of the supervisory stress test; and
    (iv) Other information.
    (i) Administrative remedies; request for reconsideration. The 
following requirements and procedures apply to any request under this 
paragraph (i):
    (1) General. To request reconsideration of a stress capital buffer 
requirement, provided under paragraph (h) of this section, a bank 
holding company must submit a written request for reconsideration.
    (2) Timing of request. A request for reconsideration of a stress 
capital buffer requirement, provided under paragraph (h) of this 
section, must be received within 15 calendar days of receipt of a 
notice of a bank holding company's stress capital buffer requirement.
    (3) Contents of request. (i) A request for reconsideration must 
include a detailed explanation of why reconsideration should be granted 
(that is, why a stress capital buffer requirement should be 
reconsidered). With respect to any information that was not previously 
provided to the Federal Reserve in the bank holding company's capital 
plan, the request should include an explanation of why the information 
should be considered.
    (ii) A request for reconsideration may include a request for an 
informal hearing on the bank holding company's request for 
reconsideration.
    (4) Hearing. (i) The Board may, in its sole discretion, order an 
informal hearing if the Board finds that a hearing is appropriate or 
necessary to resolve disputes regarding material issues of fact.
    (ii) An informal hearing shall be held within 30 calendar days of a 
request, if granted, provided that the Board may extend this period 
upon notice to the requesting party.
    (5) Response to request. Within 30 calendar days of receipt of the 
bank holding company's request for reconsideration of its stress 
capital buffer requirement submitted under paragraph (i)(2) of this 
section or within 30 days of the conclusion of an informal hearing 
conducted under paragraph (i)(4) of this section, the Board will notify 
the company of its decision to affirm or modify the bank holding 
company's stress capital buffer requirement, provided that the Board 
may extend this period upon notice to the bank holding company.
    (6) Distributions during the pendency of a request for 
reconsideration. During the pendency of the Board's decision under 
paragraph (i)(5) of this section, the bank holding company may make 
capital distributions that are consistent with effective distribution 
limitations, unless prior approval is required under paragraph (j)(1) 
of this section.
    (j) Approval requirements for certain capital actions--(1) 
Circumstances requiring approval--resubmission of a capital plan. 
Unless it receives prior approval pursuant to paragraph (j)(3) of this 
section, a bank holding company may not make a capital distribution 
(excluding any capital distribution arising from the issuance of a 
capital instrument eligible for inclusion in the numerator of a 
regulatory capital ratio) if the capital distribution would occur after 
the occurrence of an event requiring resubmission under paragraph 
(e)(4)(i)(A) or (B) of this section.
    (2) Contents of request. A request for a capital distribution under 
this section must contain the following information:
    (i) The bank holding company's capital plan or a discussion of 
changes to the bank holding company's capital plan since it was last 
submitted to the Federal Reserve;
    (ii) The purpose of the transaction;
    (iii) A description of the capital distribution, including for 
redemptions or repurchases of securities, the gross consideration to be 
paid and the terms and sources of funding for the transaction, and for 
dividends, the amount of the dividend(s); and
    (iv) Any additional information requested by the Board or the 
appropriate Reserve Bank (which may include, among other things, an 
assessment of the bank holding company's capital adequacy under a 
severely adverse scenario, a revised capital plan, and supporting 
data).
    (3) Approval of certain capital distributions. (i) The Board, or 
the appropriate Reserve Bank with concurrence of the Board, will act on 
a request for prior approval of a capital distribution within 30 
calendar days after the receipt of all the information required under 
paragraph (j)(2) of this section.
    (ii) In acting on a request for prior approval of a capital 
distribution, the Board, or appropriate Reserve Bank with concurrence 
of the Board, will apply the considerations and principles in paragraph 
(g) of this section, as appropriate. In addition, the Board, or the 
appropriate Reserve Bank with concurrence of the Board, may disapprove 
the transaction if the bank holding company does not provide all of the 
information required to be submitted under paragraph (j)(2) of this 
section.
    (4) Disapproval and hearing. (i) The Board, or the appropriate 
Reserve Bank with concurrence of the Board, will notify the bank 
holding company in writing of the reasons for a decision to disapprove 
any proposed capital distribution. Within 15 calendar days after 
receipt of a disapproval by the Board, the bank holding company may 
submit a written request for a hearing.
    (ii) The Board may, in its sole discretion, order an informal 
hearing if the Board finds that a hearing is appropriate or necessary 
to resolve disputes regarding material issues of fact. An informal 
hearing shall be held within 30 calendar days of a request, if granted, 
provided that the Board may extend this period upon notice to the 
requesting party.
    (iii) Written notice of the final decision of the Board shall be 
given to the bank holding company within 60 calendar days of the 
conclusion of any informal hearing ordered by the Board, provided that 
the Board may extend this period upon notice to the requesting party.
    (iv) While the Board's decision is pending and until such time as 
the Board, or the appropriate Reserve Bank with concurrence of the 
Board, approves the capital distribution at issue, the bank holding 
company may not make such capital distribution.
    (k) Post notice requirement. A bank holding company must notify the 
Board and the appropriate Reserve Bank

[[Page 63234]]

within 15 days of making a capital distribution if:
    (1) The capital distribution was approved pursuant to paragraph 
(j)(3) of this section; or
    (2) The dollar amount of the capital distribution will exceed the 
dollar amount of the bank holding company's final planned capital 
distributions, as measured on an aggregate basis beginning in the 
fourth quarter of the planning horizon through the quarter at issue.

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

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

    Authority: 5 U.S.C. 552, 559; 12 U.S.C. 1462, 1462a, 1463, 1464, 
1467, 1467a, 1468, 5365; 1813, 1817, 1829e, 1831i, 1972, 15 U.S.C. 
78 l.

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

0
4. In Sec.  238.132, add paragraphs (a)(4) and (d) to read as follows:


Sec.  238.132   Analysis conducted by the Board.

    (a) * * *
    (4) In conducting the analysis, the Board will not incorporate 
changes to a firm's business plan that are likely to have a material 
impact on the covered company's capital adequacy and funding profile in 
its projections of losses, net income, pro forma capital levels, and 
capital ratios.
* * * * *
    (d) Capital action assumptions. In conducting a stress test under 
this section, the Board will make the following assumptions regarding a 
covered company's capital actions over the planning horizon:
    (1) The covered company will not pay any dividends on any 
instruments that qualify as common equity tier 1 capital;
    (2) The covered company will make payments on instruments that 
qualify as additional tier 1 capital or tier 2 capital equal to the 
stated dividend, interest, or principal due on such instrument;
    (3) The covered company will not make a redemption or repurchase of 
any capital instrument that is eligible for inclusion in the numerator 
of a regulatory capital ratio; and
    (4) The covered company will not make any issuances of common stock 
or preferred stock.

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

0
5. Amend Sec.  238.144 by revising paragraphs (a)(2) and (b)(1) and (2) 
and adding paragraphs (b)(3) and (4) to read as follows:


Sec.  238.144   Methodologies and practices.

    (a) * * *
    (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), and in so doing must:
    (i) Incorporate 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; and
    (ii) Exclude the impacts of changes to a firm's business plan that 
are likely to have a material impact on the covered company's capital 
adequacy and funding profile.
    (b) * * *
    (1) The covered company will not pay any dividends on any 
instruments that qualify as common equity tier 1 capital;
    (2) The covered company will make payments on instruments that 
qualify as additional tier 1 capital or tier 2 capital equal to the 
stated dividend, interest, or principal due on such instrument;
    (3) The covered company will not make a redemption or repurchase of 
any capital instrument that is eligible for inclusion in the numerator 
of a regulatory capital ratio; and
    (4) The covered company will not make any issuances of common stock 
or preferred stock.
* * * * *
0
6. In Sec.  238.146, revise paragraph (a)(1) to read as follows:


Sec.  238.146  Disclosure of stress test results.

    (a) * * *
    (1) In general. (i) A covered company that is subject to a 
supervisory stress test under Sec.  238.132 must publicly disclose a 
summary of the results of the stress test required under Sec.  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 Sec.  238.134, unless that time is extended by the 
Board in writing; and
    (ii) A covered company that is not subject to a supervisory stress 
test under Sec.  238.132 must publicly disclose a summary of the 
results of the stress test required under Sec.  238.143 in the period 
beginning on June 15 and ending on June 30 in the year in which the 
stress test is conducted, unless that time is extended by the Board in 
writing.
* * * * *

PART 252--ENHANCED PRUDENTIAL STANDARDS (REGULATION YY)

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

    Authority:  12 U.S.C. 321-338a, 481-486, 1467a, 1818, 1828, 
1831n, 1831o, 1831p-1, 1831w, 1835, 1844(b), 1844(c), 3101 et seq., 
3101 note, 3904, 3906-3909, 4808, 5361, 5362, 5365, 5366, 5367, 
5368, 5371.

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

0
8. In Sec.  252.44, revise paragraphs (a)(3) and (d) to read as 
follows:


Sec.  252.44  Analysis conducted by the Board.

    (a) * * *
    (3) In conducting the analysis, the Board will not incorporate 
changes to a firm's business plan that are likely to have a material 
impact on the covered company's capital adequacy and funding profile in 
its projections of losses, net income, pro forma capital levels, and 
capital ratios.
* * * * *
    (d) Frequency of analysis conducted by the Board--(1) General. 
Except as provided in paragraph (d)(2) of this section, the Board will 
conduct its analysis of a covered company according to the frequency in 
Table 1 to this paragraph (d)(1).

                       Table 1 to Paragraph (g)(1)
------------------------------------------------------------------------
                                       Then the Board will conduct its
    If the covered company is a                    analysis
------------------------------------------------------------------------
Global systemically important BHC..  Annually.
Category II bank holding company...  Annually.
Category II U.S. intermediate        Annually.
 holding company.
Category III bank holding company..  Annually.
Category III U.S. intermediate       Annually.
 holding company.
Category IV bank holding company...  Biennially, occurring in each year
                                      ending in an even number.

[[Page 63235]]

 
Category IV U.S. intermediate        Biennially, occurring in each year
 holding company.                     ending in an even number.
Nonbank financial company            Annually.
 supervised by the Board.
------------------------------------------------------------------------

    (2) Change in frequency. (i) The Board may conduct a stress test of 
a covered company on a more or less frequent basis than would be 
required under paragraph (d)(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.
    (ii) A Category IV bank holding company or Category IV U.S. 
intermediate holding company may elect to have the Board conduct a 
stress test with respect to the company in a year ending in an odd 
number by providing notice to the Board by December 31 of the preceding 
year (ending in an even number). Notwithstanding the previous sentence, 
such a company may elect to have the Board conduct a stress test with 
respect to the company in the year 2021 by providing notice to the 
Board by February 15, 2021.
    (3) Notice and response--(i) Notification of change in frequency. 
If the Board determines to change the frequency of the stress test 
under paragraph (d)(2)(i) 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 (d)(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 (d)(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.

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

0
9. In Sec.  252.54, revise paragraph (b)(2)(i)(B) to read as follows:


Sec.  252.54  Stress test.

* * * * *
    (b) * * *
    (2) * * *
    (i) * * *
    (B) Is not a Category IV bank holding company as the term is used 
in 12 CFR 225.8.
* * * * *
0
10. In Sec.  252.56, revise paragraph (a)(2) to read as follows:


Sec.  252.56  Methodologies and practices.

    (a) * * *
    (2) The potential impact on the regulatory capital levels and 
ratios applicable to the covered bank, and any other capital ratios 
specified by the Board, and in doing so must:
    (i) Incorporate the effects of any capital action over the planning 
horizon and maintenance of an allowance for loan losses or adjusted 
allowance for credit losses, as appropriate, for credit exposures 
throughout the planning horizon; and
    (ii) Exclude the impacts of changes to a firm's business plan that 
are likely to have a material impact on the covered company's capital 
adequacy and funding profile.
* * * * *
0
11. In Sec.  252.58, revise paragraph (a)(1) to read as follows:


 Sec.  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 Sec.  252.54 within 
the period that is 15 calendar days after the Board publicly discloses 
the results of its supervisory stress test of the covered company 
pursuant to Sec.  252.46(b), unless that time is extended by the Board 
in writing.
* * * * *

Appendix B to Part 252--[Amended]

0
12. Amend appendix B to part 252 by removing and reserving section 2.6.

    By order of the Board of Governors of the Federal Reserve 
System.
Ann E. Misback,
Secretary of the Board.
[FR Doc. 2020-22166 Filed 10-6-20; 8:45 am]
BILLING CODE 6210-01-P