Amendments to the Capital Plan Rule
| Published date | 13 March 2019 |
| Citation | 84 FR 8953 |
| Record Number | 2019-04515 |
| Section | Rules and Regulations |
| Court | Federal Reserve System |
Federal Register, Volume 84 Issue 49 (Wednesday, March 13, 2019)
[Federal Register Volume 84, Number 49 (Wednesday, March 13, 2019)]
[Rules and Regulations]
[Pages 8953-8958]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-04515]
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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. 84, No. 49 / Wednesday, March 13, 2019 /
Rules and Regulations
[[Page 8953]]
FEDERAL RESERVE SYSTEM
12 CFR Parts 225
[Regulations Y; Docket No. R-1653 and RIN 7100--AF41]
Amendments to the Capital Plan Rule
AGENCY: Board of Governors of the Federal Reserve System (Board).
ACTION: Final rule.
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SUMMARY: The Board is amending the capital plan rule to limit the scope
of potential objections to a firm's capital plan on the basis of
qualitative deficiencies in the firm's capital planning process
(qualitative objection). In particular, effective immediately, the
Board will no longer issue a qualitative objection under the capital
plan rule to a firm if the firm has been subject to a potential
qualitative objection for four consecutive years, and the firm does not
receive a qualitative objection in the fourth year of that period. In
addition, except for certain firms that have received a qualitative
objection in the immediately prior year, the Board will no longer issue
a qualitative objection to any firm effective January 1, 2021.
DATES:
Effective date: March 13, 2019.
Applicability date: The removal of the qualitative objection under
the capital plan was applicable on March 6, 2019.
FOR FURTHER INFORMATION CONTACT: Lisa Ryu, Associate Director, (202)
263-4833, Constance Horsley, Deputy Associate Director, (202) 452-5239,
(202) 475-6316, Juan Climent, Manager (202) 872-7526, Page Conkling,
Lead Financial Institution and Policy Analyst, (202) 912-4647, Noah
Cuttler, Senior Financial Institution and Policy Analyst I, (202) 912-
4678, Division of Banking Supervision and Regulation; Benjamin W.
McDonough, Assistant General Counsel, (202) 452-2036, Julie Anthony,
Senior Counsel, (202) 475-6682, Mark Buresh, Counsel, (202) 452-5270,
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. Introduction
A. Background
B. Revisions to the Capital Plan Rule
II. Removal of Qualitative Objection
III. Administrative Law Matters
A. Paperwork Reduction Act
B. Regulatory Flexibility Act
C. Solicitation of Comments of Use of Plain Language
I. Introduction
A. Background
Capital planning and stress testing are two key components of the
Federal Reserve's supervisory framework for large financial
institutions. At the height of the 2007-2008 financial crisis, the
Board turned to stress testing under the Supervisory Capital Assessment
Program (SCAP) to determine potential losses at the largest firms if
the prevailing stress severely worsened and to restore confidence in
the financial sector.\1\ Building on the success of SCAP, the Board
introduced the current stress testing regime and the Comprehensive
Capital Analysis and Review (CCAR) to assess whether the largest firms
have sufficient capital to continue to lend and absorb potential losses
under severely adverse conditions, and to ensure that they have sound,
forward-looking capital planning practices.\2\
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\1\ SCAP applied to domestic bank holding companies with $100
billion or more in total consolidated assets.
\2\ The changes in this rule will apply to bank holding
companies with total consolidated assets of $50 billion or more, any
nonbank financial company supervised by the Board that becomes
subject to the capital planning requirements pursuant to a rule or
order of the Board, and to U.S. intermediate holding companies
established pursuant to the Board's Regulation YY (12 CFR part 252)
in accordance with the transition provisions under the capital plan
rule. References to ``bank holding companies'' or ``firms'' in this
preamble should be read to include all of these companies, unless
otherwise specified. Currently, no nonbank financial companies
supervised by the Board are subject to the capital planning
requirements. On July 6, 2018, the Board issued a statement
regarding the impact of the Economic Growth, Regulatory Relief, and
Consumer Protection Act. The Board announced that it will not take
action to require bank holding companies with total consolidated
assets greater than or equal to $50 billion but less than $100
billion to comply with the Board's capital plan rule. See
www.federalreserve.gov/newsevents/pressreleases/files/bcreg20180706b1.pdf.
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The Board adopted the capital plan rule in 2011. This rule requires
certain large bank holding companies to submit an annual capital plan
to the Board.\3\ Under the capital plan rule as initially adopted, the
Federal Reserve conducted a qualitative assessment of the strength of
each bank holding company's internal capital planning process and a
quantitative assessment of each bank holding company's capital
adequacy. In the qualitative assessment, the Federal Reserve evaluated
the extent to which the analysis underlying each bank holding company's
capital plan comprehensively captured and addressed potential risks
stemming from company-wide activities. In addition, the Federal Reserve
evaluated the reasonableness of each bank holding company's capital
plan, the assumptions and analysis underlying the plan, and the
robustness of the bank holding company's capital planning process.
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\3\ See 12 CFR 225.8. A firm's capital plan must include (i) an
assessment of the expected uses and sources of capital over the
planning horizon; (ii) a detailed description of the firm's
processes for assessing capital adequacy; (iii) the firm's capital
policy; and (iv) a discussion of any expected changes to the firm's
business plan that could materially affect its capital adequacy. A
firm may be required to include other information and analysis
relevant to its capital planning processes and internal capital
adequacy assessment.
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Under the capital plan rule, the Federal Reserve may object to the
capital plan of a LISCC firm (a firm subject to the Large Institution
Supervision Coordinating Committee (LISCC) supervisory framework) or a
large and complex firm,\4\ if the Federal Reserve determines that (1)
the firm has material unresolved supervisory issues, including but not
limited to issues associated with its capital adequacy process; \5\ (2)
the assumptions and analysis underlying the firm's capital plan, or the
firm's methodologies for reviewing its capital adequacy process, are
not reasonable or appropriate; \6\ or
[[Page 8954]]
(3) the firm's capital planning process or proposed capital
distributions otherwise constitute an unsafe or unsound practice, or
would violate any law, regulation, Board order, directive, or condition
imposed by, or written agreement with, the Board or the appropriate
Federal Reserve Bank (together, qualitative objection criteria).\7\ In
addition to the qualitative objection criteria, the Federal Reserve can
object to a firm's capital plan if the firm has not demonstrated an
ability to maintain capital above each minimum regulatory capital ratio
on a pro forma basis under expected and stressful conditions throughout
the planning horizon.\8\
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\4\ A firm is a large and complex firm if it otherwise had total
consolidated assets of $250 billion or more, on-balance sheet
foreign exposure of $10 billion or more, or nonbank assets of $75
billion or more. Based on the current population of firms, all LISCC
firms have total consolidated assets of $250 billion or more, on-
balance sheet foreign exposure of $10 billion or more, or nonbank
assets of $75 billion or more.
\5\ 12 CFR 225.8(f))(2)(ii)(B)(2).
\6\ 12 CFR 225.8(f))(2)(ii)(B)(3).
\7\ 12 CFR 225.8(f))(2)(ii)(B)(4).
\8\ 12 CFR 225.8(f))(2)(ii)(B)(1).
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In past CCAR exercises, the Board has publicly announced its
decision to object to a firm's capital plan, along with the basis for
the decision.\9\ If the Federal Reserve objects to a firm's capital
plan, the firm may not make any capital distributions unless the
Federal Reserve indicates in writing that it does not object to such
distributions.\10\
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\9\ See 12 CFR 225.8(f)(v).
\10\ See 12 CFR 225.8(f)(2)(iv).
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B. Revisions to Capital Plan Rule
In 2017, the Board adopted a rule to reduce the burden on less
complex firms by removing them from the qualitative assessment of CCAR
(2017 Final Rule).\11\ As a result of the 2017 Final Rule, firms that
are not identified as global systemically important bank holding
companies and that have average total consolidated assets of $50
billion or more but less than $250 billion and total nonbank assets of
less than $75 billion (large and noncomplex firms) are no longer
subject to the qualitative objection.\12\ By the time the Board issued
the 2017 Final Rule, most large and noncomplex firms were meeting or
close to meeting supervisory expectations relating to capital planning
practices. Because large and noncomplex firms had substantially
strengthened their capital positions and improved their risk management
capabilities since the inception of CCAR, the Board determined that the
added regulatory burden of complying with CCAR's qualitative component
outweighed its benefits for these firms. Instead, these firms were
subject to regular supervisory review of their capital planning
processes.
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\11\ See 82 FR 9308 (Feb. 3, 2017).
\12\ See 12 CFR 225.8(f)(2)(ii)(A).
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In the preamble to the 2017 Final Rule, the Board noted that the
Federal Reserve would conduct its supervisory assessment of large and
noncomplex firms' risk-management and capital planning practices
through the regular supervisory process and targeted, horizontal
assessments of particular aspects of capital planning, rather than
through the annual CCAR assessment. The Board further noted that, while
it would not object to the capital plans of large and noncomplex firms
due to qualitative deficiencies in their capital planning process, it
would incorporate an assessment of capital planning practices into its
regular, ongoing supervisory activities. Under the 2017 Final Rule, the
Federal Reserve may object to the capital plan of a LISCC or large and
complex firm based on the qualitative objection criteria.
As it has with other bodies of regulation, the Board has reviewed
the CCAR program to assess its effectiveness and to identify any areas
that should be refined (CCAR review). Based in part on the CCAR review,
in April 2018, the Board invited public comment on a notice of proposed
rulemaking (2018 NPR) that would integrate its regulatory capital rule
and the CCAR and stress test rules in order to simplify the capital
regime applicable to firms subject to the capital plan rule.\13\ As
part of the 2018 NPR, the Board sought comment on the advantages and
disadvantages associated with removing or adjusting the provisions that
allow the Board to object to large and complex or LISCC firms' capital
plans on the basis of qualitative deficiencies in the firms' capital
planning process.\14\
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\13\ 83 FR 18160 (April 25, 2018).
\14\ See Question 23(i), 83 FR 18160 (April 25, 2018). The Board
continues to consider the other comments received on the 2018 NPR
and the other aspects of the proposal raised in the 2018 NPR. The
Board may issue one or more additional final rules to implement all
or part of that proposal at a later date.
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Several commenters supported eliminating the qualitative objection
from the capital plan rule, noting that firms subject to the capital
plan rule have raised significant amounts of capital and made
significant enhancements to their capital planning and stress testing
processes since the capital plan rule and CCAR processes were first
adopted in 2011. Commenters argued that assessments of a firm's capital
planning processes are supervisory in nature and therefore should be
conducted through customary supervisory channels, and addressed through
supervisory actions, rather than being subject to a potentially
unexpected public qualitative objection that could result in market
events that have potential adverse impacts on a firm. These commenters
stated that the same approach to assessing the capital planning
processes of large and noncomplex firms through the ongoing supervisory
process and targeted horizontal assessments should be adopted for large
and complex and LISCC firms, noting that the Board should place greater
emphasis on its recent large financial institution rating proposal.\15\
Two commenters argued for keeping the qualitative objection. One such
commenter argued that the qualitative objection helps to ensure the
integrity of the data that firms use to model the stress tests.
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\15\ See 82 FR 39049 (August 17, 2017).
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II. Removal of the Qualitative Objection
The original rationale for providing that the Board could object to
firms' capital plans based on the qualitative objection criteria was to
provide strong incentives for firms to address the significant
shortcomings in risk management and capital planning practices that the
Federal Reserve observed during the financial crisis. For example, many
firms supervised by the Federal Reserve had substantial deficiencies in
their ability to measure, monitor, and manage their risks. Since the
Federal Reserve started the CCAR process in 2011, most supervised firms
have significantly improved their risk management and capital planning
processes. For instance, the qualitative assessment conducted as part
of the 2018 CCAR cycle found that most firms either meet or are close
to meeting the Federal Reserve's supervisory expectations for capital
planning. These advances have resulted from firms improving the methods
they use to identify their unique risks, using sound practices for
identifying and addressing model deficiencies, and appropriately
relying upon the results of capital stress testing to evaluate their
capital positions on a forward-looking basis.
The Board continues to believe that it is important for firms to
maintain strong capital planning practices that respond appropriately
to changes in firms' financial conditions, business models and
operating environment. The Federal Reserve has increasingly integrated
the CCAR qualitative assessment into the regular supervisory process
over the past several years. For example, the Board recently adopted a
new rating system for large financial institutions (LFI rating system)
to align with the Federal Reserve's current supervisory programs and
practices for these firms.\16\
[[Page 8955]]
The LFI rating system will assign component ratings with respect to a
firm's capital planning and positions, in addition to its liquidity
risk management and positions and governance and controls. The LFI
rating system will give supervisors the opportunity to provide more
regular, ongoing feedback to firms regarding their capital planning
processes.
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\16\ 83 FR 58724 (Nov. 21, 2018). The final rating system
applies to bank holding companies and non-insurance, non-commercial
savings and loan holding companies with total consolidated assets of
$100 billion or more, and U.S. intermediate holding companies of
foreign banking organizations established under Regulation YY with
total consolidated assets of $50 billion or more.
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In recognition of the continued progress that firms have made in
their risk management and capital planning practices, their
significantly strengthened capital positions,\17\ and changes to the
Board's supervisory processes, the Board believes it is appropriate to
transition away from the qualitative objection under the capital plan
rule. Instead, supervisors would incorporate a robust qualitative
assessment of capital planning practices into the traditional
supervisory approach with respect to LISCC and large and complex firms.
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\17\ Staff calculations based on the Consolidated Financial
Statement for Holding Companies indicated that common equity capital
levels among the nation's largest bank holding companies have risen
by over $700 billion since 2009.
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The qualitative objection under the capital plan rule has provided
helpful focus that has led to improvements in firms' capital planning.
As a result, it would be prudent temporarily to retain the qualitative
objection for those firms that only very recently became subject to the
Federal Reserve's qualitative assessment. This approach would provide
additional time for those firms to improve their capital planning
practices before the qualitative objection is removed. Accordingly, for
firms subject to the capital plan rule as of January 1, 2019, the Board
is amending the capital plan rule to limit the scope of potential
objections to the capital plan of a firm based on qualitative
deficiencies subject to transitional arrangements. These are that the
firm's capital plan has been subject to review and a potential
qualitative objection by the Board for any period of four consecutive
years, and the firm does not receive a qualitative objection in the
fourth year of that period. If a firm receives a qualitative objection
in the fourth year of that period, the firm will remain subject to a
potential qualitative objection until January 1 of the year after the
first year in which the firm does not receive a qualitative objection.
In addition, except for a firm that receives a qualitative objection in
the fourth year of the four-year period and in subsequent years, the
Board would not object to the capital plan of any firm based on
qualitative deficiencies after December 31, 2020. For example, if a
large and complex firm first became subject to the capital plan rule in
2017 and that firm received a qualitative objection in 2020, the firm
would be subject to a potential qualitative objection in 2021. If that
firm does not receive a qualitative objection in 2021, the firm would
no longer be subject to a potential qualitative objection under the
capital plan rule. If that firm receives a qualitative objection in
2021, the firm would remain subject to a potential qualitative
objection in 2022.
The Board believes that by January 2021, all LISCC and large and
complex firms should have had sufficient time to improve their capital
planning practices such that assessments of capital planning should be
undertaken through the regular course of supervision and, when needed,
targeted assessments of particular aspects of a firm's capital
planning. However, if a LISCC or large and complex firm has not
improved its capital planning practices by January 2021, the Board
believes it is appropriate for that firm to continue to be subject to a
potential qualitative objection until the firm demonstrates
satisfactory capital planning practices.
If a large and complex or LISCC firm was required under the capital
plan rule to submit its first capital plan to the Federal Reserve and
was subject to a confidential review process, that year will be
considered the first year that a firm would have been subject to a
qualitative objection. The Board will consider whether a firm is a
successor for purposes of the four-year period on a case-by-case
basis.\18\ If a bank holding company subsidiary of a U.S. intermediate
holding company that was required to be established by July 1, 2016,
previously participated in CCAR,\19\ the U.S. intermediate holding
company will not be considered the same firm or a successor firm to
that bank holding company subsidiary for purposes of the four-year
tolling period. If the Board previously permitted a foreign banking
organization to form two or more U.S. intermediate holding companies
under 12 CFR 252.153(c)(4)(ii), the Board will consider the first year
that the first U.S. intermediate holding company submitted a capital
plan to be the first year of the four-year period for all of the
foreign banking organization's U.S. intermediate holding companies.
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\18\ The Bank Holding Company Act provides that any
``successor'' to a bank holding company shall be deemed to be a bank
holding company from the date on which the predecessor became a bank
holding company. 12 U.S.C. 1841(a)(6). The Bank Holding Company Act
defines ``successor'' to ``include any company which acquires
directly or indirectly from a bank holding company shares of any
bank, when and if the relationship between such company and the bank
holding company is such that the transaction effects no substantial
change in the control of the bank or beneficial ownership of such
shares of such bank.'' The Bank Holding Company Act also provides
that the Board may, by regulation, further define the term
``successor'' to the extent necessary to prevent evasion of the
purposes of the Bank Holding Company Act. 12 U.S.C. 1841(e).
\19\ See 12 CFR 225.8(c)(2)(ii).
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For example, a large and complex or LISCC firm that submitted its
first capital plan pursuant to the capital plan rule beginning with the
2016 capital plan cycle would be subject to a qualitative objection of
its annual capital plan through the 2019 capital plan cycle, and a
large and complex or LISCC firm that submitted its first capital plan
and was subject to a confidential review process in the 2017 capital
plan cycle would be subject to a qualitative objection of its annual
capital plan through the 2020 capital plan cycle. As a further example,
if a foreign banking organization's first U.S. intermediate holding
company submitted its first capital plan in 2017 and the foreign
banking organization was permitted to form a second U.S. intermediate
holding company that submitted its first capital plan in 2018, the
first year of the four-year period would be 2017 for both U.S.
intermediate holding companies.
All LISCC and large and complex firms will still be required to
meet their capital requirements under stress as part of CCAR's
quantitative assessment and will be subject to regular supervisory
assessments that examine their capital planning processes.\20\ In
particular, these firms will remain subject to the same supervisory
expectations as under the capital plan rule, and examiners will
continue to conduct rigorous horizontal and firm-specific assessments
of each firm's capital positions and capital planning, tailored to the
risk profile of the firm. While much of the examination work centers on
a firm's capital plan submissions, examination work would continue on a
year-round basis, taking into account the firm's management of other
financial risks. For example, a firm's capital rating under the LFI
rating system will reflect a broad assessment of the firm's capital
planning and positions. In consolidating supervisory findings into a
comprehensive assessment of a firm's capital planning and positions,
the Federal Reserve will take into account
[[Page 8956]]
the materiality of a firm's outstanding and newly identified
supervisory issues. In addition, any findings from supervisory stress
testing, such as CCAR or similar activities, will represent inputs into
the Capital Planning and Positions component rating. Firms with
deficient practices would receive supervisory findings through the
examination process, and would be subject to a deficient supervisory
rating, and potentially an enforcement action, if those deficiencies
were sufficiently material.
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\20\ The 2018 NPR proposed to eliminate the quantitative
objection from CCAR. Board staff is currently considering all
comments received on the 2018 NPR.
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In addition, consistent with the current capital plan rule, if the
Federal Reserve determines that a firm has unsafe or unsound capital
planning processes or the financial condition of the firm is unsafe or
unsound, the Federal Reserve is reserving the authority to issue
publicly a capital directive, such as a directive to reduce capital
distributions, and to take other supervisory or public enforcement
actions, including an action to address such unsafe or unsound
practices or any other conditions or violations of law.\21\
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\21\ See 12 CFR 225.8(b)(4).
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Effective Date
The Board is issuing this final rule without the 30-day delayed
effective date ordinarily prescribed by the Administrative Procedure
Act.\22\ The APA requires a 30-day delayed effective date, except for
(1) substantive rules which grant or recognize an exemption or relieve
a restriction; (2) interpretative rules and statements of policy; or
(3) as otherwise provided by the agency for good cause.\23\ The Board
has concluded that, because the rule relieves a restriction, the final
rule is exempt from the APA's delayed effective date requirement.\24\
Accordingly, the Board is publishing the final rule with an immediate
effective date.
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\22\ 12 U.S.C. 551 et seq.
\23\ 12 U.S.C. 553(d).
\24\ 12 U.S.C. 553(d)(1).
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III. Administrative Law Matters
A. Paperwork Reduction Act
In accordance with section 3512 of the Paperwork Reduction Act of
1995 (44 U.S.C. 3501-3521) (PRA), 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 OMB control number is 7100-0342
for this information collection. The Board reviewed the final rule
under the authority delegated to the Board by OMB. No specific comments
related to the PRA were received. The final rule contains requirements
subject to the PRA. The reporting requirements are found in sections 12
CFR 225.8.
The Board has a continuing interest in the public's opinions of
this collection of information. At any time, commenters may submit
comments regarding the burden estimate, or any other aspect of this
collection of information, including suggestions for reducing burden
sent to: Nuha Elmaghrabi: Federal Reserve Clearance Officer, Office of
the Chief Data Officer, Mail Stop K1-148, Board of Governors of the
Federal Reserve System, Washington, DC 20551, with copies of such
comments sent to the Office of Management and Budget (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 202-3955806, Attention,
Agency Desk Officer.
Proposed Revisions, With Extension for Three Years, of the
Following Information Collections:
Title of Information Collection: Recordkeeping and Reporting
Requirements Associated with Regulation Y (Capital Plans).
Agency Form Number: Reg. Y-13.
OMB Control Number: 7100-0342.
Frequency of Response: Annually.
Affected Public: Businesses or other for-profit.
Respondents: BHCs and IHCs.
Abstract: Regulation Y (12 CFR part 225) requires large bank
holding companies (BHCs) to submit capital plans to the Federal Reserve
on an annual basis and to require such BHCs to request prior approval
from the Federal Reserve under certain circumstances before making a
capital distribution.
Current Actions: The final rule contains requirements subject to
the PRA. The collection of information revised by this final rule is
found in Sec. 225.8 of Regulation Y (12 CFR part 225). Under Sec.
225.8(f)(2) of the final rule, certain large and complex firms will no
longer be subject to the provisions of the Board's capital plan rule
whereby the Board can object to a capital plan on the basis of
qualitative deficiencies in the firm's capital planning process. In
comments received on the proposal, commenters expressed the view that
the provision of the rule permitting the Board to object to a capital
plan on the basis of qualitative deficiencies, in their view, required
a firm to develop a large amount of documentation and stress test
models in order to avoid risk of a public objection to its capital
plan. Accordingly, the final rule is expected to reduce the
recordkeeping requirements for immediately excluded large and complex
firms by approximately 25 percent, or 3,000 hours for the immediately
excluded large and complex firms for 2019 and 2020. In addition, the
final rule is expected to reduce the recordkeeping requirements for the
remaining large and complex firms by approximately 25 percent, or 3,000
hours in 2021 and thereafter.
The final rule provides that a large and complex firm that has
submitted a capital plan subject to potential objection by the Board on
the basis of qualitative deficiencies for any period of four
consecutive years and that does not receive a qualitative objection in
the fourth and final year will no longer be subject to potential
objection by the Board on the basis of qualitative deficiencies. In
addition, except for any firm that receives a qualitative objection,
the final rule provides that the Board will no longer object to a
capital plan on the basis of qualitative deficiencies beginning in 2021
and continuing thereafter.
Number of Respondents: 36.
Current Estimated Average Hours per Response: Annual capital
planning recordkeeping (Sec. 225.8(e)(1)(i)) (LISCC and large and
complex firms), 11,920 hours; annual capital planning recordkeeping
(Sec. 225.8(c)(1)(i)) (large and noncomplex firms), 8,920 hours;
annual capital planning recordkeeping Sec. (225.8(e)(1)(iii), 100
hours; annual capital planning reporting (Sec. 225.8(e)(1)(ii)), 80
hours; data collections reporting ((Sec. 225.8(e)(3)), 1,005 hours;
data collections reporting (Sec. 225.8(e)(4)), 100 hours; review of
capital plans by the Federal Reserve reporting (Sec. 225.8(f)(3)(i)),
16 hours; prior approval request requirements reporting (Sec.
225.8(g)(1), (3), & (4)), 100 hours; prior approval request
requirements exceptions (Sec. 225.8(g)(3)(iii)(A)), 16 hours; prior
approval request requirements reports (Sec. 225.8(g)(6)), 16 hours.
Current Estimated Annual Burden Hours: Annual capital planning
recordkeeping (Sec. 225.8(e)(1)(i)) (LISCC and large and complex
firms), 214,560 hours; annual capital planning recordkeeping (Sec.
225.8(e)(1)(i)) (large and noncomplex firms), 160,560 hours; annual
capital planning recordkeeping (Sec. 225.8(e)(1)(iii)), 2,800 hours;
annual capital planning reporting (Sec. 225.8(e)(1)(ii)), 2,240 hours;
data collections reporting ((Sec. 225.8(e)(3)(i)- (vi)), 36,180 hours;
data collections reporting (Sec. 225.8(e)(4)), 1,000 hours; review of
capital plans by the Federal Reserve reporting (Sec. 225.8(f)(3)(i)),
32 hours; prior approval request requirements reporting (Sec.
225.8(g)(1),
[[Page 8957]]
(3), & (4)), 2,600 hours; prior approval request requirements
exceptions (Sec. 225.8(g)(3)(iii)(A)), 32 hours; prior approval
request requirements reports (Sec. 225.8(g)(6)), 32 hours.
Approved Revisions Only Change in Estimated Average Hours per
Response: Annual capital planning recordkeeping (Sec. 225.8(e)(1)(i)),
3,000 hours.
Approved Revisions Only Change in Estimated Annual Burden Hours:
Annual capital planning reporting (Sec. 225.8(e)(1)(ii)), 54,000
hours.
Approved Total Estimated Annual Burden Hours: Annual capital
planning recordkeeping (Sec. 225.8(e)(1)(i)) (LISCC and large and
complex firms), 160,560 hours; annual capital planning recordkeeping
(Sec. 225.8(e)(1)(i)) (large and noncomplex firms), 160,560 hours;
annual capital planning recordkeeping (Sec. 225.8(e)(1)(iii)), 2,800
hours; annual capital planning reporting (Sec. 225.8(e)(1)(ii)), 2,240
hours; data collections reporting ((Sec. 225.8(e)(3)(i)-(vi)), 36,180
hours; data collections reporting (Sec. 225.8(e)(4)), 1,000 hours;
review of capital plans by the Federal Reserve reporting (Sec.
225.8(f)(3)(i)), 32 hours; prior approval request requirements
reporting (Sec. 225.8(g)(1), (3), & (4)), 2,600 hours; prior approval
request requirements exceptions (Sec. 225.8(g)(3)(iii)(A)), 32 hours;
prior approval request requirements reports (Sec. 225.8(g)(6)), 32
hours.
B. Regulatory Flexibility Act
The Regulatory Flexibility Act, 5 U.S.C. 601 et seq., (RFA),
requires an agency to consider whether the rules it finalizes will have
a significant economic impact on a substantial number of small
entities.\25\ The RFA generally requires that an agency prepare and
make available an initial regulatory flexibility analysis (IRFA) in
connection with a notice of proposed rulemaking and that an agency
prepare a final regulatory flexibility analysis (FRFA) in connection
with promulgating a final rule. A FRFA issued by the Board must contain
(1) a statement of the need for, and objectives of, the rule; (2) a
statement of the significant issues raised by the public comments in
response to the IRFA, a statement of the assessment of the agency of
such issues, and a statement of any changes made in the proposed rule
as a result of such comments; (3) the response of the agency to any
comments filed by the Chief Counsel for Advocacy of the Small Business
Administration in response to the proposed rule, and a detailed
statement of any change made to the proposed rule in the final rule as
a result of the comments; (4) a description of and an estimate of the
number of small entities to which the rule will apply or an explanation
of why no such estimate is available; (5) a description of the
projected reporting, recordkeeping and other compliance requirements of
the rule, including an estimate of the classes of small entities which
will be subject to the requirement and the type of professional skills
necessary for preparation of the report or record; (6) a description of
the steps the agency has taken to minimize the significant economic
impact on small entities consistent with the stated objectives of
applicable statutes, including a statement of the factual, policy, and
legal reasons for selecting the alternative adopted in the final rule
and why each one of the other significant alternatives to the rule
considered by the agency which affect the impact on small entities was
rejected.\26\
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\25\ 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 $550 million or less and trust companies with total assets
of $38.5 million or less. As of June 30, 2018, there were
approximately 3,053 small bank holding companies, 184 small savings
and loan holding companies, and 541 small state member banks.
\26\ 5 U.S.C. 601(a).
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The Board solicited public common on this rule in a notice of
proposed rulemaking and has considered the potential impact of this
rule on small entities in accordance with section 604 of the RFA.\27\
Based on the Board's analysis, and for the reasons stated below, the
Board believes the final rule will not have a significant economic
impact on a substantial number of small entities.
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\27\ 83 FR 18160 (April 25, 2018).
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1. Statement of the Need for, and Objectives of, the Final Rule
As discussed, the Board is issuing this final to transition away
from the qualitative objection under the capital plan rule towards
greater reliance on the Board's general supervisory processes.
The final rule would change the scope of firms with capital plans
subject to potential objection by the Board under the capital plan rule
for non-quantitative reasons. The capital plan rule applies to bank
holding companies with total consolidated assets of $50 billion or
more, any nonbank financial company supervised by the Board that
becomes subject to the capital planning requirements pursuant to a rule
or order of the Board, and to U.S. intermediate holding companies
established pursuant to the Board's Regulation YY. This rule narrows
the scope of banking organizations subject to potential objection of
their capital plans by the Board under the capital plan rule. As a
result, this rule does not apply to any small entities.
2. Significant Issues Raised by the Public Comments in Response to the
IRFA and Comments Filed by the Chief Counsel for Advocacy of the Small
Business Administration in Response to the Proposed Rule and Summary of
Any Changes Made in the Proposed Rule as a Result of Such Comments
Commenters did not raise any issues in response to the IRFA. The
Chief Counsel for Advocacy of the Small Business Administration did not
file any comments in response to the proposed rule.
3. Description and Estimate of the Number of Small Entities To Which
the Final Rule Will Apply
The Board estimates that approximately 18 banking organizations
were subject to potential objection to their capital plans for non-
quantitative reasons prior to this rule. As a result of this rule, the
Board estimates that approximately 6 banking organization will be
subject to potential objection to their capital plans for non-
quantitative reasons. None of these banking organizations would qualify
as a small banking entity for the purposes of the RFA.
4. Significant Alternatives to the Final Rule
The Board does not believe that this final rule will have a
significant negative economic impact on any small entities and
therefore believes that there are no significant alternatives to the
final rule that would reduce the impact on small entities.
5. Description of the Projected Reporting, Recordkeeping and Other
Compliance Requirements of the Rule
The Board does not believe that the final rule imposes any
reporting, recordkeeping, or other compliance requirements.
6. Steps Taken To Minimize the Significant Economic Impact on Small
Entities
The Board does not believe that this final rule will have a
significant economic impact on any small entities.
C. Plain Language
Section 722 of the Gramm-Leach-Bliley Act requires the Federal
banking agencies to use ``plain language'' in all proposed and final
rules published after January 1, 2000. In light of this
[[Page 8958]]
requirement, the Board has sought to present the final rule in a simple
and straightforward manner, and did not receive any comments on the use
of plain language.
List of Subjects in 12 CFR Part 225
Administrative practice and procedure, Banks, banking, Capital
planning, Holding companies, Reporting and recordkeeping requirements
Securities, Stress testing.
Accordingly, the Board amends 12 CFR part 225 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. Section 225.8 is amended by revising paragraph (f)(2)(ii)(B) to read
as follows:
Sec. 225.8 Capital planning.
* * * * *
(f) * * *
(2) * * *
(ii) * * *
(B) Bank holding companies that are not large and noncomplex bank
holding companies. The Board or the appropriate Reserve Bank with
concurrence of the Board, may object to a capital plan submitted by a
bank holding company that is not a large and noncomplex bank holding
company if it determines that:
(1) The bank holding company has not demonstrated an ability to
maintain capital above each minimum regulatory capital ratio on a pro
forma basis under expected and stressful conditions throughout the
planning horizon; or
(2) Until January 1, 2021, except as provided in paragraph
(f)(2)(ii)(B)(3) of this section, for a bank holding company that was
subject to this section as of January 1, 2019, but whose capital plan
has not been subject to review and a potential qualitative objection
under the criteria listed in paragraph (f)(2)(ii)(B)(2)(i) through
(iii) of this section for any period of four consecutive years:
(i) The bank holding company has material unresolved supervisory
issues, including but not limited to issues associated with its capital
adequacy process;
(ii) The assumptions and analysis underlying the bank holding
company's capital plan, or the bank holding company's methodologies and
practices that support its capital planning process, are not reasonable
or appropriate; or
(iii) The bank holding company's capital planning process or
proposed capital distributions otherwise constitute an unsafe or
unsound practice, or would violate any law, regulation, Board order,
directive, or condition imposed by, or written agreement with, the
Board or the appropriate Reserve Bank. In determining whether a capital
plan or any proposed capital distribution would constitute an unsafe or
unsound practice, the Board or the appropriate Reserve Bank would
consider whether the bank holding company is and would remain in sound
financial condition after giving effect to the capital plan and all
proposed capital distributions.
(3) Notwithstanding paragraph (f)(2)(ii)(B)(2) of this section, a
bank holding company that was subject to this section as of January 1,
2019, and that receives a qualitative objection in the fourth year of
the four-year period described in paragraph (f)(2)(ii)(B)(2), pursuant
to the criteria in paragraph (f)(2)(ii)(B)(2)(i) through (iii) of this
section, will remain subject to a qualitative objection under this
section until January 1 of the year after the first year in which the
bank holding company does not receive a qualitative objection.
* * * * *
By order of the Board of Governors of the Federal Reserve
System, March 6, 2019.
Margaret McCloskey Shanks,
Deputy Secretary of the Board.
[FR Doc. 2019-04515 Filed 3-12-19; 8:45 am]
BILLING CODE P
