Regulatory Capital Rule and Total Loss-Absorbing Capacity Rule: Eligible Retained Income, 63423-63428 [2020-19829]

Agencies

• FEDERAL DEPOSIT INSURANCE CORPORATION
• FEDERAL RESERVE SYSTEM
• Department of Treasury
• Office of the Comptroller of the Currency

[Federal Register Volume 85, Number 196 (Thursday, October 8, 2020)]
[Rules and Regulations]
[Pages 63423-63428]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-19829]



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Rules and Regulations
                                                Federal Register
________________________________________________________________________

This section of the FEDERAL REGISTER contains regulatory documents 
having general applicability and legal effect, most of which are keyed 
to and codified in the Code of Federal Regulations, which is published 
under 50 titles pursuant to 44 U.S.C. 1510.

The Code of Federal Regulations is sold by the Superintendent of Documents. 

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Federal Register / Vol. 85, No. 196 / Thursday, October 8, 2020 / 
Rules and Regulations

[[Page 63423]]



DEPARTMENT OF TREASURY

Office of the Comptroller of the Currency

12 CFR Part 3

[Docket No. OCC-2020-0009]
RIN 1557-AE81

FEDERAL RESERVE SYSTEM

12 CFR Parts 217 and 252

[Regulations Q and YY; Docket Nos. R-1703, 1706; RIN 7100-AF77, 7100-
AF80]

FEDERAL DEPOSIT INSURANCE CORPORATION

12 CFR Part 324

RIN 3064-AF40


Regulatory Capital Rule and Total Loss-Absorbing Capacity Rule: 
Eligible Retained Income

AGENCY: Office of the Comptroller of the Currency (OCC), Board of 
Governors of the Federal Reserve System (Board), and Federal Deposit 
Insurance Corporation (FDIC).

ACTION: Final rule.

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SUMMARY: The OCC, Board, and FDIC (together, the agencies) are adopting 
as final the revisions to the definition of eligible retained income 
made under the interim final rule published in the Federal Register on 
March 20, 2020, for all depository institutions, bank holding 
companies, and savings and loan holding companies subject to the 
agencies' capital rule. The final rule revises the definition of 
eligible retained income to make more gradual any automatic limitations 
on capital distributions that could apply under the agencies' capital 
rule. Separately, in this final rule, the Board also is adopting as 
final the definition of eligible retained income made under the interim 
final rule published in the Federal Register on March 26, 2020, for 
purposes of the Board's total loss-absorbing capacity (TLAC) rule. The 
final rule adopts these interim final rules with no changes.

DATES: The final rule is effective January 1, 2021.

FOR FURTHER INFORMATION CONTACT: 
    OCC: Benjamin Pegg, Risk Expert, Capital and Regulatory Policy, 
(202) 649-6370; or Kevin Korzeniewski, Counsel, or Marta Stewart-Bates, 
Senior Attorney, Chief Counsel's Office, (202) 649-5490, for persons 
who are deaf or hearing impaired, TTY, (202) 649-5597, Office of the 
Comptroller of the Currency, 400 7th Street SW, Washington, DC 20219.
    Board: Anna Lee Hewko, Associate Director, (202) 530-6360, 
Constance Horsley, Deputy Associate Director, (202) 452-5239, Matthew 
McQueeney, Senior Financial Institution Policy Analyst II, (202) 452-
2942, or Eusebius Luk, Senior Financial Institution Policy Analyst I, 
(202) 452-2874, Division of Supervision and Regulation; Benjamin 
McDonough, Assistant General Counsel, (202) 452-2036, Mark Buresh, 
Senior Counsel, (202) 452-5270, Asad Kudiya, Senior Counsel, (202) 475-
6358, or Mary Watkins, Senior Attorney, (202) 452-3722, 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.
    FDIC: Bobby R. Bean, Associate Director, [email protected]; Benedetto 
Bosco, Chief, Capital Policy Section, [email protected]; Michael Maloney, 
Senior Policy Analyst, [email protected]fdic.gov; [email protected]; 
Capital Markets Branch, Division of Risk Management Supervision, (202) 
898-6888; or Michael Phillips, Counsel, [email protected]; Catherine 
Wood, Counsel, [email protected]; Supervision and Legislation Branch, 
Legal Division, Federal Deposit Insurance Corporation, 550 17th Street 
NW, Washington, DC 20429. For the hearing impaired only, 
Telecommunication Device for the Deaf (TDD), (800) 925-4618.

SUPPLEMENTARY INFORMATION:

Table of Contents

I. Introduction
II. Background
    A. Capital Rule
    B. TLAC Rule
III. Overview of the Interim Final Rules and Public Comments
    A. Capital Interim Final Rule
    B. TLAC Interim Final Rule
    C. Public Comments
IV. Summary of the Final Rule
V. Impact Assessment
VI. Administrative Law Matters
    A. Congressional Review Act
    B. Paperwork Reduction Act
    C. Regulatory Flexibility Act
    D. Riegle Community Development and Regulatory Improvement Act 
of 1994
    E. Use of Plain Language
    F. OCC Unfunded Mandates Reform Act of 1995

I. Introduction

    In light of recent disruptions in economic conditions caused by the 
coronavirus disease 2019 (COVID-19) and current strains in U.S. 
financial markets, the Office of the Comptroller of the Currency (OCC), 
Board of Governors of the Federal Reserve System (Board), and Federal 
Deposit Insurance Corporation (FDIC) (together, the agencies) published 
an interim final rule in the Federal Register on March 20, 2020 
(capital interim final rule) \1\ that revised the definition of 
eligible retained income for all depository institutions, bank holding 
companies, and savings and loan holding companies (together, banking 
organizations) subject to the agencies' capital rule (capital rule). 
Separately, the Board published an interim final rule in the Federal 
Register on March 26, 2020 (TLAC interim final rule) \2\ that revised 
the definition of eligible retained income for the largest and most 
systemically important U.S. bank holding companies (collectively, U.S. 
GSIBs) and the U.S. operations of the largest and most systemically 
important foreign banking organizations (collectively, covered 
intermediate holding companies (IHCs) and together with U.S. GSIBs, 
TLAC covered companies), which are subject to the Board's total loss-
absorbing capacity (TLAC) rule. These revisions help strengthen the 
ability of banking organizations and TLAC covered companies to continue 
lending and conducting other financial intermediation activities during 
stress periods by making distribution limitations more gradual, as 
intended by the agencies.
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    \1\ See 85 FR 15909 (March 20, 2020).
    \2\ See 85 FR 17003 (March 26, 2020).
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    In this final rule, the agencies are adopting as final and without 
change

[[Page 63424]]

the revisions to the definition of eligible retained income made under 
the capital interim final rule and TLAC interim final rule, as detailed 
further below.

II. Background

A. Capital Rule

    Under the capital rule, a banking organization \3\ must maintain 
minimum risk-based capital and leverage ratios.\4\ In addition, a 
banking organization under the capital rule must maintain a buffer of 
regulatory capital above its applicable minimum risk-based capital and 
leverage ratio requirements, as applicable, to avoid restrictions on 
capital distributions--including in the form of dividends and share 
buybacks and certain discretionary bonus payments (collectively, 
capital distributions).\5\
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    \3\ Banking organizations subject to the agencies' capital rule 
include national banks, state member banks, state nonmember banks, 
savings associations, and top-tier bank holding companies and 
savings and loan holding companies domiciled in the United States 
not subject to the Board's Small Bank Holding Company and Savings 
and Loan Holding Company Policy Statement (12 CFR part 225, Appendix 
C), but exclude certain savings and loan holding companies that are 
substantially engaged in insurance underwriting or commercial 
activities or that are estate trusts and bank holding companies and 
savings and loan holding companies that are employee stock ownership 
plans.
    \4\ 12 CFR 3.10 (OCC); 12 CFR 217.10 (Board); and 12 CFR 324.10 
(FDIC). An additional minimum supplementary leverage ratio of 3 
percent applies to banking organizations subject to Category I, II, 
and III standards.
    \5\ See 12 CFR 3.11 (OCC); 12 CFR 217.11 (Board); and 12 CFR 
324.11 (FDIC).
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    Banking organizations under the capital rule are generally subject 
to a fixed capital conservation buffer requirement, composed solely of 
common equity tier 1 capital, of greater than 2.5 percent of risk-
weighted assets. On March 4, 2020, the Board adopted a final rule that 
simplified the Board's regulatory capital framework for large bank 
holding companies and U.S. intermediate holding companies of foreign 
banking organizations with the introduction of a stress capital buffer 
requirement (SCB final rule).\6\ Under the SCB final rule, a covered 
holding company will receive a new stress capital buffer requirement on 
an annual basis, which replaces the static greater than 2.5 percent 
capital conservation buffer requirement.\7\ Moreover, banking 
organizations subject to Category I, II, and III standards also are 
subject to a countercyclical capital buffer requirement \8\ and a 
minimum supplementary leverage ratio of 3 percent. U.S. GSIBs are 
subject to the GSIB surcharge, an additional capital buffer requirement 
based on a measure of their systemic risk. Further, U.S. GSIBs are 
subject to enhanced supplementary leverage ratio standards, and must 
hold an additional leverage capital buffer of tier 1 capital to avoid 
limitations on capital distributions. The insured depository 
institution subsidiaries of U.S. GSIBs must maintain a similarly higher 
supplementary leverage ratio to be considered well capitalized under 
the agencies' respective prompt corrective action frameworks.\9\
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    \6\ Amendments to the Regulatory Capital, Capital Plan, and 
Stress Test Rules, March 4, 2020, available at https://www.federalreserve.gov/newsevents/pressreleases/files/bcreg20200304a2.pdf. The SCB final rule applies to bank holding 
companies and U.S. intermediate holding companies of foreign banking 
organizations subject to the capital plan rule (covered holding 
company). 12 CFR 225.8.
    \7\ A covered holding company's first stress capital buffer 
requirement, as determined under the SCB final rule, will be 
effective October 1, 2020. See 12 CFR 225.8.
    \8\ Currently, the countercyclical capital buffer is set at 0 
percent.
    \9\ See 12 CFR 6.4(b)(1)(i) (OCC); 12 CFR 208.43(b)(1)(i) 
(Board); 12 CFR 324.403(b)(1)(ii) (FDIC).
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    The agencies established the capital buffer requirements to 
encourage better capital conservation by banking organizations and to 
enhance the resilience of the banking system during stress periods.\10\ 
In particular, the agencies intended for the capital buffer 
requirements to limit gradually the ability of banking organizations to 
distribute capital if their capital ratios fall below certain levels, 
thereby strengthening the ability of banking organizations to continue 
lending and conducting other financial intermediation activities during 
stress periods.
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    \10\ See 78 FR 62018, 62034 (October 11, 2013).
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    Under the capital rule, if a banking organization's capital ratios 
fall within its applicable minimum-plus-buffer requirements, the 
maximum amount of capital distributions it can make is a function of 
its eligible retained income.\11\ All of the buffer requirements in the 
capital rule use the same definition of eligible retained income and 
the same definition of eligible retained income applies to depository 
institutions and holding companies. Prior to the issuance of the 
capital interim final rule, the capital rule generally defined eligible 
retained income as four quarters of net income, net of distributions 
and associated tax effects not already reflected in net income.\12\
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    \11\ A banking organization in or below the bottom quartile of 
its capital conservation buffer requirement may not make any capital 
distributions without prior approval from the OCC, Board, or FDIC, 
as applicable.
    \12\ For purposes of the stress capital buffer, the definition 
of eligible retained income used to determine restrictions on 
capital distributions by an applicable banking organization depended 
on the covered holding company's capital buffer amount compared to 
its stress capital buffer requirement.
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B. TLAC Rule

    In December 2016, the Board issued a final rule (TLAC rule) to 
require U.S. GSIBs and covered IHCs to maintain a minimum TLAC amount, 
consisting of minimum amounts of long-term debt (LTD) and tier 1 
capital.\13\ In addition, the TLAC rule prescribed buffer requirements 
above the minimum TLAC amount which a TLAC covered company must 
maintain to avoid restrictions on capital distributions.
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    \13\ 82 FR 8266 (January 27, 2017); 12 CFR part 252, subparts G 
and P.
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    The TLAC rule applies to U.S. GSIBs and covered IHCs because the 
failure or material financial distress of these companies has the 
greatest potential to disrupt U.S. financial stability.\14\ The 
requirements in the TLAC rule build on, and serve as a complement to, 
the regulatory capital requirements in the Board's capital rule (Board 
capital rule).\15\ As with the Board capital rule, the TLAC buffer 
requirements were established to encourage better capital conservation 
by TLAC covered companies and to enhance the resilience of the banking 
system during stress periods.\16\ In particular, the Board intended for 
the TLAC buffer requirements to limit gradually the ability of TLAC 
covered companies to make capital distributions under certain 
circumstances, thereby strengthening the ability of TLAC covered 
companies to continue lending and conducting other financial 
intermediation activities during stress periods.
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    \14\ See 12 CFR 252.60; 12 CFR 252.160.
    \15\ While the Board capital rule's requirements are intended to 
ensure that a banking organization has sufficient capital to remain 
a going concern, the objective of the TLAC rule is to reduce the 
financial stability impact of the failure of a TLAC covered company 
by requiring sufficient loss- absorbing capacity on both a going-
concern and a gone-concern basis. A TLAC covered company's 
regulatory capital, and especially its equity capital, is likely to 
be significantly or completely depleted in the events leading to its 
bankruptcy or resolution. Thus, if a TLAC covered company is to re-
emerge from resolution with sufficient capital to successfully 
operate as a going concern, the firm must have a source of capital. 
The TLAC rule therefore requires TLAC covered companies to maintain 
a minimum amount of LTD that can absorb losses and serve as a source 
of capital in resolution.
    \16\ 78 FR 62018, 62034 (October 11, 2013).
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    A TLAC covered company with a TLAC level that falls below the 
applicable minimum-plus-buffer requirements faces limitations on

[[Page 63425]]

capital distributions, in a manner designed to parallel the 
restrictions on capital distributions under the Board capital rule. In 
particular, the maximum amount of capital distributions that a TLAC 
covered company can make is limited as a percentage of its eligible 
retained income, as defined in the TLAC rule.
    Prior to the issuance of TLAC interim final rule, the TLAC rule 
used the same definition of eligible retained income for purposes of 
the TLAC buffer as the definition used under the Board capital rule 
prior to the adoption of the capital interim final rule.

III. Overview of the Interim Final Rules and Public Comments

    The spread of COVID-19 has disrupted economic activity in the 
United States, causing significant volatility in U.S. financial 
markets. The magnitude and persistence of COVID-19's overall effect on 
the economy remain uncertain. In light of these developments, banking 
organizations may experience a sudden and unanticipated decline in 
capital ratios.

A. Capital Interim Final Rule

    In March 2020, the agencies issued the capital interim final rule, 
which revised the definition of eligible retained income to the greater 
of (1) a banking organization's net income for the four preceding 
calendar quarters, net of any distributions and associated tax effects 
not already reflected in net income, and (2) the average of a banking 
organization's net income over the preceding four quarters.\17\ This 
revision reduces the likelihood that a banking organization is suddenly 
subject to abrupt and restrictive distribution limitations in a 
scenario where its ratios fall within its applicable minimum-plus-
buffer requirements.
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    \17\ The capital interim final rule also applies to the U.S. 
intermediate holding companies of foreign banking organizations 
required to be established or designated under 12 CFR 252.153.
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    The capital interim final rule's changes to the definition of 
eligible retained income allow banking organizations to more freely use 
their capital and leverage buffers and supports banking organizations' 
lending activity and other financial intermediation activities to avoid 
compounding negative impacts on the financial markets.
    The revised definition of eligible retained income under the 
capital interim final rule applies to all of a banking organization's 
buffer requirements, including the fixed greater than 2.5 percent 
capital conservation buffer and, if applicable, the countercyclical 
capital buffer, as well as, for global systemically important bank 
holding companies, the GSIB surcharge, and enhanced supplementary 
leverage ratio buffer. Once the stress capital buffer requirements for 
covered holding companies under the SCB final rule apply, the revised 
definition would also apply to all parts of a covered holding company's 
buffer requirements. The agencies believe that having one definition of 
eligible retained income for all banking organizations under the 
capital rule simplifies the regulatory capital framework and ensures 
fairness across banking organizations of all sizes.
    In addition, the revised definition of eligible retained income 
under the capital interim final rule assists in the ability of S-
corporation banking organizations to provide dividends to shareholders 
in order to meet their pass-through tax liabilities. S-corporation 
banking organizations do not pay federal income taxes. Instead, income 
and losses of an S-corporation are attributed to shareholders, 
potentially increasing their personal tax liability when the S-
corporation has income and potentially reducing their personal tax 
liability when the S-corporation has losses. In a situation where the 
S-corporation has income but does not pay dividends, its shareholders 
are responsible for meeting their increased personal tax liability 
using their own resources. When an otherwise adequately capitalized S-
corporation banking organization is restricted from making dividends 
because one or more of its capital ratios breach its buffer 
requirements, a situation can arise in which the banking organization's 
dividends to its shareholders would be insufficient to pay their share 
of taxes on the banking organization's income.\18\
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    \18\ FDIC, FIL-40-2014 (July 21, 2014).
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    The agencies encourage banking organizations to make prudent 
decisions regarding capital distributions.\19\ The capital interim 
final rule was intended to strengthen the incentives for a banking 
organization to use its buffers in a prudent manner in adverse 
conditions and continue to serve as a financial intermediary and source 
of credit to the economy. The capital interim final rule does not make 
changes to any other requirement that may limit capital 
distributions.\20\ For instance, under the prompt corrective action 
requirements, an insured depository institution that becomes less than 
adequately capitalized would be subject to dividend restrictions.\21\
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    \19\ See Interagency Statement on the Use of Capital and 
Liquidity Buffers (March 17, 2020), available at: https://www.occ.gov/news-issuances/news-releases/2020/nr-ia-2020-34a.pdf.
    \20\ See, e.g., 12 U.S.C. 56 and 60 (OCC); 12 CFR 5.46, 5.55, 
and 5.64 (OCC); 12 CFR 208.5 and 12 CFR 225.4(b) (Board); 12 U.S.C. 
1828(i) and 12 CFR 303.241 (FDIC).
    \21\ See 12 CFR 6.6 (OCC); 12 CFR 208.40 (Board); 12 CFR 324.405 
(FDIC).
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B. TLAC Interim Final Rule

    The COVID-19 stress period has presented analogous concerns under 
the TLAC rule to those described above around buffer use and continued 
financial intermediation. That is, in light of developments in 
connection with COVID-19, TLAC covered companies rule may experience a 
sudden and unanticipated decline in TLAC and, prior to the issuance of 
the TLAC interim final rule, the Board was similarly concerned that the 
mechanics around buffer requirements set forth in the TLAC rule did not 
reflect the intended gradual manner in which capital distribution 
restrictions applied. A modest reduction in TLAC could result in sudden 
and severe limitations on capital distributions, undermining a TLAC 
covered company's ability to use its TLAC buffer and creating a strong 
incentive to limit lending and other financial intermediation 
activities, thereby deterring the company from continued lending to 
creditworthy businesses and households during a stress period.
    In March 2020, the Board issued the TLAC interim final rule so that 
the definition of eligible retained income under the TLAC rule 
paralleled the definition of the term under the Board capital rule. 
Specifically, the TLAC interim final rule revises the definition of 
eligible retained income under the TLAC rule to mean the greater of (1) 
a TLAC covered company's net income for the four preceding calendar 
quarters, net of any distributions and associated tax effects not 
already reflected in net income, and (2) the average of a TLAC covered 
company's net income over the preceding four quarters. The Board 
adopted this modified definition with the intent to support TLAC 
covered companies' lending activity and other financial intermediation 
activities and avoid compounding impacts on the financial markets. The 
revised definition applies with respect to all TLAC buffer requirements 
under the TLAC rule.\22\
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    \22\ Under the TLAC rule, a U.S. GSIB is subject to the external 
TLAC risk-weighted buffer, which sits above the minimum risk-based 
TLAC requirement, and the external TLAC leverage buffer, which sits 
above the minimum total-leverage exposure-based TLAC requirement. 12 
CFR 252.63(c). Similarly, a covered IHC is subject to covered IHC 
TLAC buffer, which sits above the minimum risk-based TLAC 
requirement. 12 CFR 252.165(d).

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[[Page 63426]]

C. Public Comments

    The agencies received five public comment letters on the capital 
interim final rule, and the Board received two public comments on the 
TLAC interim final rule.
Comments on the Capital Interim Final Rule
    Some commenters on the capital interim final rule supported the 
change to the definition of eligible retained income in the capital 
rule, indicating that flexibility provided by the change will help 
banking organizations continue to lend through the COVID-19 crisis. One 
commenter indicated that the capital interim final rule would assist 
community banking organizations organized as S-corporations to meet tax 
obligations and still raise capital as needed. Another commenter was 
supportive of the capital interim final rule's application of a 
consistent definition of eligible retained income across banking 
organizations of all sizes and suggested that the new definition will 
add consistency to the capital rule while balancing the need for 
banking organizations to lend to borrowers affected by COVID-19 and 
still maintain general safety and soundness.
    Other commenters opposed the change to the definition of eligible 
retained income in the capital interim final rule and advocated that 
the agencies be more prescriptive in compelling banking organizations 
to take actions to conserve capital or continue lending, such as 
prohibiting capital distributions while the COVID-19 crisis 
continues.\23\ One commenter was supportive of the capital interim 
final rule, but asserted that the revised definition of eligible 
retained income should only be used by a banking organization if the 
capital distributions enhance the financial institution's ability to 
contribute to economic recovery of both the stock market and main 
street businesses. The commenter suggested that capital distributions 
should have requirements and restrictions associated with them, such as 
limits on executive bonuses or payouts and limits on share repurchases, 
and should not be permitted in certain situations.
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    \23\ The Board received a number of comments that were not 
specifically responsive to the proposals. In particular, commenters 
suggested that the Board take actions outside of the scope of the 
Board capital rule. These comments are not within the scope of this 
rulemaking and therefore are not discussed in this Supplementary 
Information.
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    The agencies note that the capital buffer requirements do restrict 
capital distributions. As described above, if a banking organization's 
capital or leverage ratios fall within its applicable minimum-plus-
buffer requirements, the maximum amount of capital distributions it can 
make is limited as a percentage of its eligible retained income, as 
defined in the capital rule. Accordingly, the capital buffer 
requirements compel banking organizations to increasingly constrain 
distributions as their regulatory capital ratios approach their 
applicable minimums. For instance, a banking organization in or below 
the bottom quartile of its buffer requirement may not make any capital 
distributions without prior approval from its primary Federal 
regulator.
    The revised definition of eligible retained income under the final 
rule facilitates banking organizations' use of their buffers as 
intended by ensuring that the limits on capital distributions apply 
gradually. The revised definition reduces the incentive for banking 
organizations to limit their lending and other financial intermediation 
activities in order to avoid facing abrupt limitations on capital 
distributions.
Comments on the TLAC Interim Final Rule
    The comment letters addressing the TLAC interim final rule 
generally opposed the Board's change to the definition of eligible 
retained income and advocated for additional restrictions on capital 
distributions. These comments closely aligned with similar comments 
received in connection with the capital interim final rule.
    A commenter to the TLAC interim final rule suggested that TLAC 
covered companies that utilize U.S. Treasury or Federal Reserve lending 
facilities should not be able to apply the revised definition of 
eligible retained income since it would potentially allow for greater 
distributions while simultaneously taking advantage of government 
support. Additionally, this commenter suggested that TLAC covered 
companies should be subject to minimum requirements for lending and 
limits on executive bonuses and share repurchases in order to ensure 
capital distributions enhance their ability to contribute to the 
economic recovery.
    Another commenter to the TLAC interim final rule indicated that, 
given the uncertainties surrounding COVID-19 and potential economic 
effects, TLAC covered companies should be taking actions to conserve 
capital. This commenter asserted that the TLAC interim final rule may 
pose risks to safety and soundness because capital distributed will not 
be available to absorb future losses of unknown severity. Further, the 
commenter expressed doubt that the TLAC interim final rule would 
achieve the Board's intent of promoting lending to the economy. The 
commenter concluded that the best way to promote lending would be for 
the Board to prohibit capital distributions by TLAC covered companies 
for the duration of the crisis. In addition, the commenter requested 
that the Board delay implementation of the revised definition of 
eligible retained income until after the crisis has passed.
    The revised definition of eligible retained income under the TLAC 
interim final rule facilitates TLAC covered companies' use of their 
buffers as intended by ensuring that the limits on capital 
distributions apply gradually. The revised definition reduces the 
incentive for TLAC covered companies to limit their lending and other 
financial intermediation activities in order to avoid facing abrupt 
limitations on capital distributions.

IV. Summary of the Final Rule

    For the reasons discussed above, the final rule adopts the 
definition of eligible retained income unchanged from the capital 
interim final rule, and the TLAC interim final rule. Accordingly, under 
the final rule, eligible retained income for purposes of the agencies' 
capital rule and the Board's TLAC rule is defined as the greater of (1) 
a banking organization's or TLAC covered company's net income (as 
applicable) for the four preceding calendar quarters, net of any 
distributions and associated tax effects not already reflected in net 
income, and (2) the average of a banking organization's or TLAC covered 
company's net income (as applicable) over the preceding four quarters.

V. Impact Assessment

    In ordinary economic circumstances, many banking organizations will 
distribute a significant portion of their net income and retain the 
rest to support growth. As banking organizations enter stress periods, 
the restrictions in the capital rule and TLAC rule, as applicable, 
limit distributions and help to preserve capital and support lending. 
However, if the limits to distributions are too restrictive, banking 
organizations can face a sharp increase in their distribution 
limitations when their applicable ratios fall to certain levels. This 
may create an incentive for banking organizations to reduce lending or 
take other actions to avoid using their buffers. The revised definition 
of eligible net income in the final rule

[[Page 63427]]

allows banking organizations to more gradually reduce distributions as 
they enter stress and provides banking organizations with stronger 
incentives to continue to lend in a stressed scenario. On the other 
hand, by enabling banking organizations to gradually decrease capital 
distributions in stress (rather than mandating a sharp decrease) the 
rule could incrementally reduce the banking organization's loss-
absorption capacity in stress.
    The definition of eligible retained income affects the 
distributions of banking organizations operating within their 
applicable minimum-plus-buffer requirements. It does not have an impact 
on minimum capital or TLAC requirements, per se. As such, the revised 
definition of eligible retained income in the final rule is not likely 
to have any noticeable effect on the minimum capital requirements of 
banking organizations or the TLAC or LTD requirements applicable to 
covered companies. However, the final rule could impact actual capital 
levels given the additional flexibility of meeting buffers during times 
of stress.

VI. Administrative Law Matters

A. Congressional Review Act

    For purposes of Congressional Review Act, the Office of Management 
and Budget (OMB) makes a determination as to whether a final rule 
constitutes a ``major'' rule.\24\ If a rule is deemed a ``major rule'' 
by the OMB, the Congressional Review Act generally provides that the 
rule may not take effect until at least 60 days following its 
publication.\25\
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    \24\ 5 U.S.C. 801 et seq.
    \25\ 5 U.S.C. 801(a)(3).
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    The Congressional Review Act defines a ``major rule'' as any rule 
that the Administrator of the Office of Information and Regulatory 
Affairs of the OMB finds has resulted in or is likely to result in (A) 
an annual effect on the economy of $100,000,000 or more; (B) a major 
increase in costs or prices for consumers, individual industries, 
Federal, State, or local government agencies or geographic regions, or 
(C) significant adverse effects on competition, employment, investment, 
productivity, innovation, or on the ability of United States-based 
enterprises to compete with foreign-based enterprises in domestic and 
export markets.\26\
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    \26\ 5 U.S.C. 804(2).
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    As required by the Congressional Review Act, the agencies will 
submit the final rule and other appropriate reports to Congress and the 
Government Accountability Office for review.

B. Paperwork Reduction Act

    The Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3521) (PRA) 
states that no agency may conduct or sponsor, nor is the respondent 
required to respond to, an information collection unless it displays a 
currently valid OMB control number. In connection with the capital 
interim final rule, the agencies made revisions to their current 
information collections for the Consolidated Reports of Condition and 
Income (Call Reports) (FFIEC 031, FFIEC 041, and FFIEC 051). The OMB 
control numbers for the agencies are: OCC OMB No. 1557-0081; Board OMB 
No. 7100-0036; and FDIC OMB No. 3064-0052. OMB has approved these 
revisions and the agencies are seeking comment in a separate Federal 
Register notice.\27\ There is no change, however, to the Call Reports 
or their related instructions in connection with this final rule.
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    \27\ See 85 FR 44361 (July 22, 2020).
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    Also, in connection with the capital interim final rule, the Board 
temporarily revised the Consolidated Financial Statements for Holding 
Companies (FR Y-9; OMB No. 7100-0128) to reflect the changes made in 
the capital interim final rule, and invited comment on a proposal to 
extend that collection of information for three years, with revision. 
No comments were received regarding this proposal under the PRA. The 
Board has now extended the FR Y-9 reports for three years, with 
revision, as proposed, to align the reporting instructions with this 
final rule. The Board has reviewed the revisions to the FR Y-9C 
pursuant to authority delegated by the OMB and will submit information 
collection burden estimates to OMB to finalize the revisions. All of 
the updates to the FR Y-9C noted in the interim final rule should be 
minimal and result in zero estimated net change in hourly burden.
    (1) Report title: Financial Statements for Holding Companies.
    Agency form number: FR Y-9C, FR Y-9LP, FR Y-9SP, FR Y-9ES, and FR 
Y-9CS.
    OMB control number: 7100-0128.
    Effective Date: Currently effective.
    Frequency: Quarterly, semiannually, and annually.
    Respondents: Bank holding companies, savings and loan holding 
companies,\28\ securities holding companies, and U.S. intermediate 
holding companies (collectively, HCs).
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    \28\ A savings and loans holding company (SLHC) must file one or 
more of the FR Y-9 series of reports unless it is: (1) A unitary 
SLHC with primarily commercial assets that meets the requirements of 
section 10(c)(9)(c) of the Home Owners' Loan Act, for which thrifts 
make up less than 5 percent of its consolidated assets; or (2) a 
SLHC that primarily holds insurance-related assets and does not 
otherwise submit financial reports with the SEC pursuant to section 
13 or 15(d) of the Securities Exchange Act of 1934.
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    Estimated number of respondents:
    FR Y-9C (non-advanced approaches (AA) HCs community bank leverage 
ratio (CBLR)) with less than $5 billion in total assets--71,
    FR Y-9C (non AA HCs CBLR) with $5 billion or more in total assets--
35,
    FR Y-9C (non AA HCs non-CBLR) with less than $5 billion in total 
assets--84,
    FR Y-9C (non AA HCs non-CBLR) with $5 billion or more in total 
assets--154,
    FR Y-9C (AA HCs)--19,
    FR Y-9LP--434,
    FR Y-9SP--3,960,
    FR Y-9ES--83,
    FR Y-9CS--236.
    Estimated average hours per response:
Reporting
    FR Y-9C (non AA HCs CBLR) with less than $5 billion in total 
assets--29.17,
    FR Y-9C (non AA HCs CBLR) with $5 billion or more in total assets--
35.14,
    FR Y-9C (non AA HCs non-CBLR) with less than $5 billion in total 
assets--41.01,
    FR Y-9C (non AA HCs non-CBLR) with $5 billion or more in total 
assets--46.98,
    FR Y-9C (AA HCs)--48.80,
    FR Y-9LP--5.27,
    FR Y-9SP--5.40,
    FR Y-9ES--0.50,
    FR Y-9CS--0.50.
Recordkeeping
    FR Y-9C (non-advanced approaches HCs with less than $5 billion in 
total assets), FR Y-9C (non-advanced approaches HCs with $5 billion or 
more in total assets), FR Y-9C (advanced approaches HCs), and FR Y-9LP: 
1.00 hour; FR Y-9SP, FR Y-9ES, and FR Y-9CS: 0.50 hours.
    Estimated annual burden hours:
Reporting
    FR Y-9C (non AA HCs CBLR) with less than $5 billion in total 
assets--8,284,
    FR Y-9C (non AA HCs CBLR) with $5 billion or more in total assets--
4,920,
    FR Y-9C (non AA HCs non-CBLR) with less than $5 billion in total 
assets--13,779,
    FR Y-9C (non AA HCs non-CBLR) with $5 billion or more in total 
assets--28,940,
    FR Y-9C (AA HCs)--3,709,
    FR Y-9LP--9,149,
    FR Y-9SP--42,768,

[[Page 63428]]

    FR Y-9ES--42,
    FR Y-9CS--472.
Recordkeeping
    FR Y-9C--1,452,
    FR Y-9LP--1,736,
    FR Y-9SP--3,960,
    FR Y-9ES--42,
    FR Y-9CS--472.

C. Regulatory Flexibility Act

    The Regulatory Flexibility Act (RFA) requires an agency to consider 
whether the rules it proposes will have a significant economic impact 
on a substantial number of small entities. The RFA requires an agency 
to prepare a final regulatory flexibility analysis when it promulgates 
a final rule after being required to publish a general notice of 
proposed rulemaking. As discussed previously, the agencies have decided 
to adopt, without changes, revisions to the definition of eligible 
retain income made under the capital interim final rule and the TLAC 
interim final rule. There was no general notice of proposed rulemaking 
associated with this final rule. Accordingly, the agencies have 
concluded that the RFA's requirements relating to initial and final 
regulatory flexibility analysis do not apply to the promulgation of 
this final rule.

D. Riegle Community Development and Regulatory Improvement Act of 1994

    Pursuant to section 302(a) of the Riegle Community Development and 
Regulatory Improvement Act (RCDRIA),\29\ in determining the effective 
date and administrative compliance requirements for new regulations 
that impose additional reporting, disclosure, or other requirements on 
insured depository institutions (IDIs), each Federal banking agency 
must consider, consistent with the principle of safety and soundness 
and the public interest, any administrative burdens that such 
regulations would place on IDIs, including small IDIs, and customers of 
IDIs, as well as the benefits of such regulations. In addition, section 
302(b) of RCDRIA requires new regulations and amendments to regulations 
that impose additional reporting, disclosures, or other new 
requirements on IDIs generally to take effect on the first day of a 
calendar quarter that begins on or after the date on which the 
regulations are published in final form.\30\ The agencies considered 
the administrative burdens and benefits of the final rule in 
determining its effective date and administrative compliance 
requirements. As such, the final rule will be effective on January 1, 
2021.
---------------------------------------------------------------------------

    \29\ 12 U.S.C. 4802(a).
    \30\ 12 U.S.C. 4802.
---------------------------------------------------------------------------

E. Use of Plain Language

    Section 722 of the Gramm-Leach-Bliley Act \31\ requires the Federal 
banking agencies to use plain language in all proposed and final rules 
published after January 1, 2000. The agencies have sought to present 
the final rule in a simple and straightforward manner and did not 
receive any comments on the use of plain language.
---------------------------------------------------------------------------

    \31\ 12 U.S.C. 4809.
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F. OCC Unfunded Mandates Reform Act of 1995

    As a general matter, the Unfunded Mandates Act of 1995 (UMRA), 2 
U.S.C. 1531 et seq., requires the preparation of a budgetary impact 
statement before promulgating a rule that includes a Federal mandate 
that may result in the expenditure by State, local, and tribal 
governments, in the aggregate, or by the private sector, of $100 
million or more in any one year. However, the UMRA does not apply to 
final rules for which a general notice of proposed rulemaking was not 
published. See 2 U.S.C. 1532(a). Therefore, because the OCC has not 
published a general notice of proposed rulemaking in connection with 
this revision, the OCC has not prepared an economic analysis of the 
rule under the UMRA.

Authority and Issuance

0
For the reasons set forth in the preamble, the interim final rules that 
were published at 85 FR 15909 on March 20, 2020, and 85 FR 17003 on 
March 26, 2020, are adopted as final rules by the OCC, Board, and FDIC 
without change.

Brian P. Brooks,
Acting Comptroller of the Currency

    By order of the Board of Governors of the Federal Reserve 
System.
Ann E. Misback,
Secretary of the Board

Federal Deposit Insurance Corporation.

    By order of the Board of Directors.

    Dated at Washington, DC, on or about August 21, 2020.
James P. Sheesley,
Acting Assistant Executive Secretary.
[FR Doc. 2020-19829 Filed 10-7-20; 8:45 am]
BILLING CODE 4810-33-P, 6210-01-P; 6714-01-P