Changes to Applicability Thresholds for Regulatory Capital and Liquidity Requirements
| Published date | 01 November 2019 |
| Record Number | 2019-23800 |
| Section | Rules and Regulations |
| Court | The Comptroller Of The Currency Office,Treasury Department |
Federal Register, Volume 84 Issue 212 (Friday, November 1, 2019)
[Federal Register Volume 84, Number 212 (Friday, November 1, 2019)]
[Rules and Regulations]
[Pages 59230-59283]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-23800]
[[Page 59229]]
Vol. 84
Friday,
No. 212
November 1, 2019
Part VIIDepartment of Treasury-----------------------------------------------------------------------Office of the Comptroller of the CurrencyFederal Reserve System-----------------------------------------------------------------------Federal Deposit Insurance Corporation-----------------------------------------------------------------------12 CFR Parts 3, 50, 217 et al.Changes to Applicability Thresholds for Regulatory Capital and
Liquidity Requirements; Final Rule
Federal Register / Vol. 84 , No. 212 / Friday, November 1, 2019 /
Rules and Regulations
[[Page 59230]]
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DEPARTMENT OF TREASURY
Office of the Comptroller of the Currency
12 CFR Parts 3 and 50
[Docket ID OCC-2019-0009]
RIN 1557-AE63
FEDERAL RESERVE SYSTEM
12 CFR Parts 217 and 249
[Regulations Q, WW; Docket No. R-1628]
RIN 7100-AF21
FEDERAL DEPOSIT INSURANCE CORPORATION
12 CFR Parts 324 and 329
RIN 3064-AE96
Changes to Applicability Thresholds for Regulatory Capital and
Liquidity Requirements
AGENCY: Office of the Comptroller of the Currency, Treasury; the Board
of Governors of the Federal Reserve System; and the Federal Deposit
Insurance Corporation.
ACTION: Final rule.
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SUMMARY: The Office of the Comptroller of the Currency (OCC), the Board
of Governors of the Federal Reserve System (Board), and the Federal
Deposit Insurance Corporation (FDIC) (together, the agencies) are
adopting a final rule to revise the criteria for determining the
applicability of regulatory capital and liquidity requirements for
large U.S. banking organizations and the U.S. intermediate holding
companies of certain foreign banking organizations. The final rule
establishes four risk-based categories for determining the
applicability of requirements under the agencies' regulatory capital
rule and liquidity coverage ratio (LCR) rule. Under the final rule,
such requirements increase in stringency based on measures of size,
cross-jurisdictional activity, weighted short-term wholesale funding,
nonbank assets, and off-balance sheet exposure. The final rule applies
tailored regulatory capital and liquidity requirements to depository
institution holding companies and U.S. intermediate holding companies
with $100 billion or more in total consolidated assets as well as to
certain depository institutions. Separately, the Board is adopting a
final rule that revises the criteria for determining the applicability
of enhanced prudential standards for large domestic and foreign banking
organizations using a risk-based category framework that is consistent
with the framework described in this final rule, and makes additional
modifications to the Board's company-run stress test and supervisory
stress test rules. In addition, the Board and the FDIC are separately
adopting a final rule that amends the resolution planning requirements
under section 165(d) of the Dodd-Frank Wall Street Reform and Consumer
Protection Act using a risk-based category framework that is consistent
with the framework described in this final rule.
DATES: The final rule is effective December 31, 2019.
FOR FURTHER INFORMATION CONTACT:
OCC: Mark Ginsberg, Senior Risk Expert, or Venus Fan, Risk Expert,
Capital and Regulatory Policy, (202) 649-6370; James Weinberger,
Technical Expert, Treasury & Market Risk Policy, (202) 649-6360; or
Carl Kaminski, Special Counsel, Henry Barkhausen, Counsel, or Daniel
Perez, Senior Attorney, Chief Counsel's Office, (202) 649-5490, or for
persons who are hearing impaired, TTY, (202) 649-5597, Office of the
Comptroller of the Currency, 400 7th Street SW, Washington, DC 20219.
Board: Constance M. Horsley, Deputy Associate Director, (202) 452-
5239; Elizabeth MacDonald, Manager, (202) 475-6216; Peter Goodrich,
Lead Financial Institution Policy Analyst, 202-872-4997; Mark Handzlik,
Lead Financial Institution Policy Analyst, (202) 475-6636; Kevin
Littler, Lead Financial Institution Policy Analyst, (202) 475-6677;
Althea Pieters, Lead Financial Institution Policy Analyst, 202-452-
3397; Peter Stoffelen, Lead Financial Institution Policy Analyst, 202-
912-4677; Hillel Kipnis, Senior Financial Institution Policy Analyst
II, (202) 452-2924;, Matthew McQueeney, Senior Financial Institution
Policy Analyst II, (202) 452-2942; Christopher Powell, Senior Financial
Institution Policy Analyst II, (202) 452-3442, Division of Supervision
and Regulation; or Asad Kudiya, Senior Counsel, (202) 475-6358; Jason
Shafer, Senior Counsel (202) 728-5811; Mary Watkins, Senior Attorney
(202) 452-3722; Laura Bain, Counsel, (202) 736-5546; Alyssa O'Connor,
Attorney, (202) 452-3886, Legal Division, Board of Governors of the
Federal Reserve System, 20th and C Streets NW, Washington, DC 20551.
For the hearing impaired only, Telecommunication Device for the Deaf
(TDD), (202) 263-4869.
FDIC: Benedetto Bosco, Chief, Capital Policy Section,
[email protected]; Michael E. Spencer, Chief, Capital Markets Strategies
Section, [email protected]; Michael Maloney, Senior Policy Analyst,
mmaloneyfdic.gov; [email protected]; Eric W. Schatten, Senior
Policy Analyst, [email protected]; Andrew D. Carayiannis, Senior
Policy Analyst, [email protected]; Capital Markets Branch, Division
of Risk Management Supervision, (202) 898-6888; Michael Phillips,
Counsel, [email protected]; Suzanne Dawley, Counsel,
[email protected]; Andrew B. Williams II, Counsel,
[email protected]; or Gregory Feder, 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: Regulatory Capital and Liquidity Framework
III. Overview of the Notices of Proposed Rulemaking and General
Summary of Comments
IV. Overview of Final Rule
V. Framework for the Application of Capital and Liquidity
Requirements
A. Indicators-Based Approach and the Alternative Scoring
Methodology
B. Choice of Risk-Based Indicators
C. Application of Standards Based on the Proposed Risk-Based
Indicators
D. Calibration of Thresholds and Indexing
E. The Risk-Based Categories
F. Treatment of Depository Institution Subsidiaries
G. Specific Aspects of the Foreign Bank Proposal
H. Determination of Applicable Category of Standards
VI. Capital and Liquidity Requirements for Large U.S. and Foreign
Banking Organizations
A. Capital Requirements That Apply Under Each Category
B. Liquidity Requirements Applicable to Each Category
VIII. Impact Analysis
IX. Administrative Law Matters
A. Paperwork Reduction Act
B. Regulatory Flexibility Act
C. Plain Language
D. Riegle Community Development and Regulatory Improvement Act
of 1994
E. The Congressional Review Act
F. OCC Unfunded Mandates Reform Act of 1995 Determination
I. Introduction
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) are finalizing
the framework set forth under the agencies' recent proposals to change
[[Page 59231]]
the applicability thresholds under the regulatory capital and liquidity
requirements for U.S. banking organizations (domestic proposal) and the
U.S. operations of foreign banking organizations (foreign bank
proposal, and together, the proposals), with certain adjustments in
response to comments.\1\ The final rule establishes four risk-based
categories for determining the regulatory capital and liquidity
requirements applicable to large U.S. banking organizations and the
U.S. intermediate holding companies of foreign banking organizations,
which apply generally based on indicators of size, cross-jurisdictional
activity, weighted short-term wholesale funding, nonbank assets, and
off-balance sheet exposure.\2\ The final rule measures these indicators
based on the risk profile of the top-tier banking organization.\3\ For
the largest and most systemic and interconnected U.S. bank holding
companies, the final rule retains the identification methodology in the
Board's global systemically important bank holding company (GSIB)
surcharge rule.\4\ Under the final rule, the capital and liquidity
requirements that apply to U.S. intermediate holding companies and
their depository institution subsidiaries generally align with those
applicable to similarly situated U.S. banking organizations.
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\1\ See ``Proposed Changes to Applicability Thresholds for
Regulatory Capital and Liquidity Requirements,'' 83 FR 66024
(December 21, 2018); ``Changes to Applicability Thresholds for
Regulatory Capital Requirements for Certain U.S. Subsidiaries of
Foreign Banking Organizations and Application of Liquidity
Requirements to Foreign Banking Organizations, Certain U.S.
Depository Institution Holding Companies, and Certain Depository
Institution Subsidiaries,'' 84 FR 24296 (May 24, 2019). The final
rule combines these two proposals into a single final rule.
\2\ The Board's rules require foreign banking organizations with
$50 billion or more in U.S. non-branch assets to establish a U.S.
intermediate holding company and to hold its ownership interest in
all U.S. subsidiaries (other than companies whose assets are held
pursuant to section 2(h)(2) of the Bank Holding Company Act, 12
U.S.C. 1841(h)(2) and DPC branch subsidiaries) through its U.S.
intermediate holding company. See 12 CFR 252.153.
\3\ A ``top tier banking organization'' means the top-tier bank
holding company, U.S. intermediate holding company, savings and loan
holding company, or depository institution domiciled in the United
States. As of the date of this final rule, no depository institution
that is not also a subsidiary of a bank holding company, U.S.
intermediate holding company, or savings and loan holding company
meets any risk-based indicator threshold. Accordingly, references to
``top tier banking organization'' in this Supplementary Information
as a practical matter refer to holding companies, including U.S.
intermediate holding companies.
\4\ See ``Regulatory Capital Rules: Implementation of Risk-Based
Capital Surcharges for Global Systemically Important Bank Holding
Companies,'' 80 FR 49082 (Aug. 14, 2015).
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II. Background: Regulatory Capital and Liquidity Framework
In 2013, the agencies adopted a revised capital rule that, among
other things, addressed weaknesses in the regulatory framework that
became apparent during the financial crisis.\5\ The revised capital
rule strengthened the regulatory capital requirements applicable to
banking organizations supervised by the agencies, including U.S.
intermediate holding companies and depository institution subsidiaries
of foreign banking organizations, by improving both the quality and
quantity of regulatory capital and enhancing the risk sensitivity of
capital requirements.\6\ In 2014, the agencies adopted the liquidity
coverage ratio (LCR) rule to improve the banking sector's resiliency to
liquidity stress by requiring large U.S. banking organizations to be
more actively engaged in monitoring and managing liquidity risk.\7\ The
LCR rule generally applies to large depository institution holding
companies, certain of their depository institution subsidiaries, and
large depository institutions that do not have a parent holding
company.\8\ Banking organizations subject to the LCR rule must maintain
an amount of high-quality liquid assets (HQLA) equal to or greater than
their projected total net cash outflows over a prospective 30-calendar-
day period.\9\ In addition, in June 2016, the agencies invited comment
on a proposal to implement a net stable funding ratio (NSFR)
requirement that would apply to the same U.S. banking organizations,
including U.S. intermediate holding companies, as are subject to the
LCR rule.\10\ The NSFR proposed rule would establish a quantitative
metric to measure and help ensure the stability of a banking
organization's funding profile over a one-year time horizon. During the
same period, the Board implemented enhanced prudential standards for
large bank holding companies and foreign banking organizations.\11\
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\5\ The Board and OCC issued a joint final rule on October 11,
2013 (78 FR 62018), and the FDIC issued a substantially identical
interim final rule on September 10, 2013 (78 FR 55340). The FDIC
adopted the interim final rule as a final rule with no substantive
changes on April 14, 2014 (79 FR 20754).
\6\ Banking organizations subject to the agencies' capital rule
include national banks, state member banks, insured 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, and 12 CFR 238.9), excluding 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.
\7\ See 79 FR 61440 (October 10, 2014), codified at 12 CFR part
50 (OCC), 12 CFR part 249 (Board), and 12 CFR part 329 (FDIC).
\8\ The LCR rule applies to depository institutions with $10
billion or more in total consolidated assets that are subsidiaries
of a holding company subject to the full requirements of the
agencies' LCR rule.
\9\ For certain depository institution holding companies with
$50 billion or more, but less than $250 billion, in total
consolidated assets and less than $10 billion in on-balance sheet
foreign exposure, the Board separately adopted a modified LCR
requirement. See 12 CFR part 249, subpart G.
\10\ See ``Net Stable Funding Ratio: Liquidity Risk Measurement
Standards and Disclosure Requirements,'' 81 FR 35124 (Proposed June
1, 2016). For certain depository institution holding companies with
$50 billion or more, but less than $250 billion, in total
consolidated assets and less than $10 billion in total on-balance
sheet foreign exposure, the Board separately proposed a modified
NSFR requirement.
\11\ See ``Enhanced Prudential Standards for Bank Holding
Companies and Foreign Banking Organizations,'' 79 FR 17240 (March
27, 2014) (the enhanced prudential standards rule), codified at 12
CFR part 252.
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These and other post-crisis financial regulations have resulted in
substantial gains in the resiliency of individual banking organizations
and the financial system as a whole. U.S. banking organizations,
including the U.S. operations of foreign banking organizations, hold
higher levels of high-quality capital and liquidity than before the
financial crisis. Robust regulatory capital, stress testing, and
liquidity regulations for large banking organizations operating in the
United States have helped to ensure that they are better positioned to
continue lending and perform other financial intermediation functions
through periods of economic stress and market turbulence.
The agencies regularly review their regulatory framework, including
capital and liquidity requirements, to ensure it is functioning as
intended. These efforts include assessing the impact of regulations as
well as exploring alternatives that achieve regulatory objectives and
promote safe and sound practices while improving the simplicity,
transparency, and efficiency of the regulatory regime. The final rule
is the product of such a review. The final rule revises the
applicability of requirements for U.S. banking organizations and U.S.
intermediate holding companies in a way that enhances the risk
sensitivity and efficiency of the agencies' capital and liquidity
regulations, maintains the fundamental reforms of the post-crisis
framework, and supports banking organizations' resilience. Thus, the
final rule seeks to better align the regulatory requirements for large
banking
[[Page 59232]]
organizations with their risk profiles, taking into account the size
and complexity of these banking organizations as well as their
potential systemic risks. The final rule is consistent with
considerations and factors set forth under section 165 of the Dodd-
Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank
Act),\12\ as amended by the Economic Growth, Regulatory Relief, and
Consumer Protection Act (EGRRCPA).\13\
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\12\ Public Law 111-203, 124 Stat. 1376 (2010), sec. 165,
codified at 12 U.S.C. 5365.
\13\ Public Law 115-174, 132 Stat. 1296 (2018).
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The final rule also builds upon the agencies' practice of
differentiating requirements among banking organizations based on one
or more risk-based indicators. Specifically, prior to this final rule,
the agencies applied more stringent capital and liquidity requirements
to banking organizations with $250 billion or more in total
consolidated assets or $10 billion or more in total on-balance sheet
foreign exposure (advanced approaches banking organizations) relative
to banking organizations that did not meet these thresholds.\14\ The
Board also established a methodology under its GSIB surcharge rule to
identify the largest, most interconnected and systemically risky
banking organizations and to apply additional requirements to those
organizations.\15\ By refining the application of capital and liquidity
requirements based on the risk profile of a banking organization, the
final rule further improves upon the risk sensitivity and efficiency of
the agencies' rules.
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\14\ See 12 CFR 217.1(c), 12 CFR 217.100(b), 249.1 (Board); 12
CFR 3.1(c), 12 CFR 3.100(b), 50.1 (OCC); 12 CFR 324.1(c), 12 CFR
324.100(b), 329.1 (FDIC). The agencies designed these thresholds to
identify large, interconnected and internationally active banking
organizations and to act as broad indicators for banking
organizations with more complex risk profiles. With respect to
capital, the agencies required banking organizations meeting these
thresholds to calculate risk-weighted assets for credit risk and
operational risk using advanced methodologies and be subject to
risk-based capital requirements that are not less than the generally
applicable risk-based capital requirement; calculate a supplementary
leverage ratio; and include most elements of accumulated other
comprehensive income in regulatory capital. Advanced approaches
banking organizations must also increase their capital conservation
buffers by the amount of a countercyclical capital buffer under
certain circumstances. Similarly, the agencies applied the LCR
requirement to banking organizations based on the same measures of
total asset size and total on-balance sheet foreign exposure. The
Board's regulations also applied a less stringent, modified LCR
requirement to certain depository institution holding companies that
do not meet the advanced approaches thresholds but have total
consolidated assets of $50 billion or more. U.S. GSIBs form a sub-
category of advanced approaches banking organizations.
\15\ See 12 CFR part 217, subpart H. The additional requirements
for U.S. GSIBs include a risk-based capital surcharge at the top-
tier bank holding company level, calibrated to reflect GSIBs'
respective systemic footprints, total long term debt and loss-
absorbing capacity requirements (TLAC) applicable at the top-tier
bank holding company level, and enhanced supplementary leverage
ratio standards at both the top-tier bank holding company level and
depository institution subsidiary level. Certain internal TLAC
requirements also apply to the U.S. intermediate holding companies
of foreign GSIBs. The FDIC and OCC apply an enhanced supplementary
leverage ratio standard to depository institution subsidiaries of
U.S. top-tier bank holding companies with more than $700 billion in
total consolidated assets or more than $10 trillion in total assets
under custody, whereas the Board's regulation applies these
requirements to depository institution subsidiaries of U.S. GSIBs.
There is currently no difference between the U.S. holding companies
identified by these regulations, and the OCC has proposed to amend
its regulation to reference the Board's U.S. GSIB definition. See
``Regulatory Capital Rules: Regulatory Capital, Enhanced
Supplementary Leverage Ratio Standards for U.S. Global Systemically
Important Bank Holding Companies and Certain of Their Subsidiary
Insured Depository Institutions; Total Loss-Absorbing Capacity
Requirements for U.S. Global Systemically Important Bank Holding
Companies,'' 83 FR 17317 (proposed April 19, 2018).
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III. Overview of the Notices of Proposed Rulemaking and General Summary
of Comments
In 2018 and 2019, the agencies sought comment on two separate
proposals to revise the requirements for determining the applicability
of regulatory capital and liquidity requirements for large banking
organizations. On December 21, 2018, the agencies published a proposal
to revise the criteria for determining the applicability of
requirements under the capital rule, LCR rule, and the proposed NSFR
rule for U.S. banking organizations with $100 billion or more in total
consolidated assets, based on four risk-based categories (domestic
proposal).\16\ Using the risk profile of the top-tier banking
organization, Category I would have been based on the methodology in
the Board's GSIB surcharge rule for identification of U.S. GSIBs,
whereas Categories II through IV would have been based on size and
levels of cross-jurisdictional activity, nonbank assets, off-balance
sheet exposure, and weighted short-term wholesale funding (together
with size, the risk-based indicators). Capital and liquidity
requirements for depository institution subsidiaries, if applicable,
would have been based on the risk profile of the top-tier banking
organization.
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\16\ 83 FR 66024 (Dec. 21, 2018).
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Subsequently, on May 24, 2019, the agencies published a proposal to
revise the criteria for determining the applicability of capital and
liquidity requirements with respect to the U.S. operations of foreign
banking organizations (foreign bank proposal).\17\ This proposal also
included certain changes to the domestic proposal, as described
below.\18\ The foreign bank proposal was largely consistent with the
domestic proposal, with certain adjustments to reflect the unique
structures through which foreign banking organizations operate in the
United States. The foreign bank proposal would have applied three
categories of standards (Category II, III, or IV) to foreign banking
organizations with large U.S. operations, as Category I under the
domestic proposal was proposed to apply only to U.S. GSIBs. For
capital, the foreign bank proposal would have determined the
application of requirements for U.S. intermediate holding companies
with total consolidated assets of $100 billion or more and their
depository institution subsidiaries. For liquidity, the foreign bank
proposal would have applied an LCR requirement to, and amended the
scope of the proposed NSFR rule to include, certain foreign banking
organizations with combined U.S. assets of $100 billion or more.\19\
Foreign banking organizations would have been subject to an LCR
requirement with respect to any U.S. intermediate holding company and
certain of their large depository institution subsidiaries.
Additionally, in the foreign bank proposal the Board requested comment
on whether and how it should approach the potential application of
standardized liquidity requirements for foreign banking organizations
with respect to their U.S. branch and agency networks.
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\17\ 84 FR 24296 (May 24, 2019).
\18\ Specifically, under the foreign bank proposal, the Board
proposed applying standardized liquidity requirements to a U.S.
depository institution holding company that would have been subject
to Category IV standards if the depository institution holding
company significantly relies on short-term wholesale funding.
\19\ Combined U.S. assets means the sum of the consolidated
assets of each top-tier U.S. subsidiary of the foreign banking
organization (excluding any company whose assets are held pursuant
to section 2(h)(2) of the Bank Holding Company Act, 12 U.S.C.
1841(h)(2), if applicable) and the total assets of each U.S. branch
and U.S. agency of the foreign banking organization, as reported by
the foreign banking organization on the Capital and Asset Report for
Foreign Banking Organizations (FR Y-7Q).
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The agencies received approximately 50 public comments on the
proposals, from U.S. and foreign banking organizations, public entities
(including a foreign central bank and a U.S. state regulator), public
interest groups, private individuals, and other interested parties.
Agency staff also met with some commenters at those commenters'
requests to discuss their comments on
[[Page 59233]]
the proposals.\20\ Many commenters supported the proposals as
meaningfully tailoring prudential standards, and some were particularly
supportive of the proposed approach to further tailor regulatory
capital and liquidity requirements. Many commenters, however, expressed
the view that the proposed framework would not have sufficiently
aligned the agencies' capital and liquidity requirements to the risk
profile of a banking organization.\21\ For example, some commenters
argued that banking organizations with less than $250 billion in assets
that do not meet a separate indicator of risk should not be subject to
prudential standards under the proposals and that Category IV standards
should be eliminated. Other commenters argued that the proposed
Category II standards were too stringent given the risks indicated by a
high level of cross-jurisdictional activity. By contrast, other
commenters argued that the proposals would have revised the criteria
for determining the applicability and stringency of standards in a way
that would weaken the safety and soundness of large banking
organizations and increase risks to U.S. financial stability, and
asserted that the agencies had gone beyond the changes required by
EGRRCPA. Other commenters believed that the proposals could be further
revised to more closely align standards to the risk profile of banking
organizations in that category. For example, one commenter argued for
further differentiation in the standards between Categories I and II. A
number of these commenters argued that all risk-based indicators should
exclude transactions with affiliates. In addition, some commenters
expressed the general view that the thresholds set forth in the
proposals should be further justified.
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\20\ Summaries of these meetings may be found on the agencies'
public websites. See https://www.regulations.gov/docket?D=OCC-2019-0009 (OCC); https://www.federalreserve.gov/regreform/reform-systemic.htm (Board); https://www.fdic.gov/regulations/laws/federal/2018/2018-proposed-changes-to-applicability-thresholds-3064-ae96.html (FDIC).
\21\ The agencies received a number of comments that were not
specifically responsive to the proposals. In particular, commenters
recommended more targeted revisions or requests for clarification
related to the U.S. GSIB capital surcharge rule, generally
applicable capital rule, capital plan rule, stress capital buffer
proposal, total loss absorbing capacity rule, current expected
credit losses standard, Volcker rule, and capital simplifications
final rule. These comments are not within the scope of this
rulemaking, and therefore are not discussed in this Supplementary
Information.
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In response specifically to the foreign bank proposal, industry
commenters argued that the proposal would unfairly increase
requirements applicable to foreign banking organizations. These
commenters also expressed the general view that certain aspects of the
foreign bank proposal were inconsistent with the principle of national
treatment and equality of competitive opportunity, and argued that the
proposals should defer more broadly to compliance with home country
standards applicable to the parent foreign banking organization. In
particular, commenters argued that the foreign bank proposal should not
determine the applicability of the LCR and proposed NSFR requirements
for a foreign banking organization with respect to its U.S.
intermediate holding company based on the risk profile of the foreign
banking organization's combined U.S. operations. These commenters
asserted that the final rule should instead determine the application
of standardized liquidity requirements for a foreign banking
organization's U.S. intermediate holding company based on the risk-
based indicator levels of the U.S. intermediate holding company.
Commenters argued that the risk-based indicators, if applied to
combined U.S. assets, would disproportionately result in the
application of more stringent requirements to foreign banking
organizations, and asserted the proposal could disrupt the efficient
functioning of global financial markets and lead to increased
fragmentation. These commenters also generally opposed the potential
issuance of a separate proposal that would apply standardized liquidity
requirements to the U.S. branch and agency network of a foreign banking
organization, on the basis that such an approach could lead to ring-
fencing and regulatory inconsistencies across jurisdictions.
By contrast, other commenters criticized the foreign bank proposal
for reducing the stringency of standards beyond the changes required by
EGRRCPA, and argued that the proposal understated the financial
stability risks posed by foreign banking organizations. These
commenters supported the application of standardized liquidity
requirements for a foreign banking organization's U.S. intermediate
holding company based on the risk profile of the foreign banking
organization's combined U.S. operations, supported the application of
standardized liquidity requirements to the U.S. branches and agencies
of foreign banking organizations, and criticized the agencies for not
proposing such requirements for U.S. branches and agencies.
As discussed in this Supplementary Information, the final rule
largely adopts the proposals, with certain adjustments in response to
the comments.
IV. Overview of Final Rule
The final rule establishes four categories to apply regulatory
capital and liquidity requirements to large U.S. banking organizations
and U.S. intermediate holding companies.\22\ The criteria for each
category are based on certain indicators of risk that are measured at
the level of the top-tier banking organization. This approach
represents an amendment from the foreign bank proposal, as under the
final rule the liquidity requirements applicable to a U.S. intermediate
holding company are based on its own risk characteristics rather than
those of the combined U.S. operations of the foreign banking
organization, as discussed further below.
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\22\ Regulatory capital requirements also apply to depository
institution subsidiaries of banking organizations subject to
Category I, II, III, or IV standards, while liquidity requirements
apply to depository institution subsidiaries of banking
organizations subject to Category I, II, or III standards where
those depository institution subsidiaries have $10 billion or more
in total consolidated assets.
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Under the final rule, and unchanged from the domestic proposal, the
most stringent capital and liquidity requirements apply to U.S. GSIBs
and their depository institution subsidiaries under Category I, as
these banking organizations have the potential to pose the greatest
risks to U.S. financial stability. The Category I standards generally
reflect agreements reached by the Basel Committee on Banking
Supervision (BCBS) \23\ and include additional requirements adopted by
the Board to increase the resiliency of these banking organizations and
to mitigate the potential risk their material financial distress or
failure could pose to U.S. financial stability. Category I standards
generally remain unchanged from existing requirements.
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\23\ International standards that reflect agreements reached by
the BCBS may be implemented in the United States through notice and
comment rulemaking.
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The second set of standards, under Category II, apply to U.S.
banking organizations and U.S. intermediate holding companies with
total consolidated assets of $700 billion or more or cross-
jurisdictional activity of $75 billion or more, and that do not qualify
as U.S. GSIBs.\24\ Like Category I standards, Category II standards
generally reflect agreements reached by the BCBS, and requirements for
banking
[[Page 59234]]
organizations in this category remain largely unchanged from
requirements previously applicable to banking organizations with $250
billion or more in total consolidated assets or $10 billion or more in
on-balance-sheet foreign exposure. Applying requirements that reflect
agreements reached by the BCBS is appropriate for the risk profiles of
banking organizations in this category. For example, foreign operations
and cross-border positions add operational and funding complexity in
normal times and complicate the ability of a banking organization to
undergo an orderly resolution in times of stress, generating both
safety and soundness and financial stability risks. The application of
consistent prudential standards across jurisdictions to banking
organizations with significant size or cross-jurisdictional activity
also helps to promote international competitive equity and reduce
opportunities for regulatory arbitrage.
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\24\ The Board's GSIB surcharge rule does not apply to U.S.
intermediate holding companies, and therefore, a U.S. intermediate
holding company does not qualify as a U.S. GSIB. See 12 CFR part
217, subpart H.
---------------------------------------------------------------------------
The third set of standards, under Category III, apply to U.S.
banking organizations and U.S. intermediate holding companies that do
not meet the criteria for Category I or II, and have total consolidated
assets of $250 billion or more or $75 billion or more in weighted
short-term wholesale funding, nonbank assets, or off-balance sheet
exposure. Category III standards reflect the heightened risk profiles
of these banking organizations relative to smaller and less complex
banking organizations, such as those subject to Category IV standards.
As compared to existing requirements, under the final rule regulatory
capital and liquidity requirements under Category III are more
stringent for some banking organizations and less stringent for others.
For example, under Category III, a banking organization with weighted
short-term wholesale funding of $75 billion or more is subject to the
full set of requirements under the LCR rule; however, a banking
organization below that threshold is subject to a reduced LCR
requirement, calibrated to 85 percent of the full LCR requirement.\25\
With respect to capital, banking organizations subject to Category III
standards are subject to the supplementary leverage ratio, among other
requirements, but are not required to calculate risk-weighted assets
under the advanced approaches. For some banking organizations subject
to Category III standards, application of the supplementary leverage
ratio is a new requirement. In addition, although some banking
organizations subject to Category III standards were previously
required to include elements of accumulated other comprehensive income
(AOCI) in regulatory capital, these banking organizations can now elect
to exclude most elements of AOCI from regulatory capital. Similarly,
some banking organizations in Category III will now be subject to
simpler regulatory capital requirements for mortgage servicing assets,
certain deferred tax assets arising from temporary differences, and
investments in the capital of unconsolidated financial institutions,
relative to those that previously applied. These banking organizations
also will now be subject to a simplified treatment for the amount of
capital issued by a consolidated subsidiary and held by third parties
(sometimes referred to as a minority interest) that is includable in
regulatory capital.\26\
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\25\ For banking organizations subject to Category III with less
than $75 billion in weighted short-term wholesale funding, the
reduced LCR requirement under this final rule is calibrated to 85
percent of the full LCR. All other requirements of the LCR rule,
including the maturity mismatch add-on, apply to these banking
organizations. See section VI.B of this Supplementary Information.
\26\ See ``Regulatory Capital Rule: Simplifications to the
Capital Rule Pursuant to the Economic Growth and Regulatory
Paperwork Reduction Act of 1996,'' 84 FR 35234 (July 22, 2019)
(simplifications final rule).
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The fourth set of standards, under Category IV, apply to U.S.
banking organizations and U.S. intermediate holding companies with
total consolidated assets of $100 billion or more that do not meet the
thresholds for one of the other three categories. Banking organizations
in Category IV generally have greater scale and operational and
managerial complexity relative to smaller banking organizations, but
less than banking organizations subject to Category I, II, or III
standards. Category IV regulatory capital requirements remain largely
unchanged relative to prior requirements. With regard to liquidity
requirements, the final rule applies a reduced LCR requirement to a
banking organization subject to Category IV standards with weighted
short-term wholesale funding of at least $50 billion, but less than $75
billion, calibrated at 70 percent of the full LCR requirement.\27\ The
reduced LCR requirement does not apply to a depository institution
subsidiary of a banking organization subject to Category IV standards.
Further, the LCR rule does not apply to banking organizations subject
to Category IV standards with less than $50 billion in weighted short-
term wholesale funding. Similar to banking organizations in Categories
I, II, and III, banking organizations subject to Category IV standards
must monitor and report information regarding the risk-based
indicators, as described further below. In addition, under a separate
final rule the Board is adopting to revise the criteria for determining
the applicability of enhanced prudential standards for large domestic
and foreign banking organizations using a risk-based category framework
that is consistent with the framework described in this final rule
(Board-only final rule), all banking organizations subject to Category
I, II, III or IV standards are subject to enhanced prudential standards
as well as liquidity data reporting under the Board's Complex
Institution Liquidity Monitoring Report (FR 2052a).
---------------------------------------------------------------------------
\27\ Similar to Category III, all other requirements of the LCR
rule apply to such banking organizations, including the LCR rule's
maturity mismatch requirement. See section VI.B of this
Supplementary Information.
[[Page 59235]]
Table I--Scoping Criteria for Categories of Regulatory Capital and
Liquidity Requirements
------------------------------------------------------------------------
U.S. banking Foreign banking
Category organizations [dagger] organizations [Dagger]
------------------------------------------------------------------------
I...................... U.S. GSIBs and their N/A.
depository institution
subsidiaries.
------------------------------------------------------------------------
II..................... $700 billion or more in total consolidated
assets; or $75 billion or more in cross-
jurisdictional activity; do not meet the
criteria for Category I.
------------------------------------------------------------------------
III.................... $250 billion or more in total consolidated
assets; or $75 billion or more in weighted
short-term wholesale funding, nonbank assets,
or off-balance sheet exposure; do not meet the
criteria for Category I or II.
------------------------------------------------------------------------
IV..................... $100 billion or more in total consolidated
assets; do not meet the criteria for Category
I, II or III.
------------------------------------------------------------------------
[dagger] For U.S. banking organizations, the applicable category of
regulatory capital and liquidity requirements is measured at the level
of the top-tier banking organization level, and applies to any of its
depository institution subsidiaries for purposes of capital
requirements or to any of its depository institution subsidiaries with
$10 billion or more in total consolidated assets for liquidity
requirements.
[Dagger] For foreign banking organizations, the applicable category of
regulatory capital and liquidity requirements is measured at the level
of the top-tier U.S. intermediate holding company level, and applies
to any depository institution subsidiary of such holding company for
purposes of capital requirements or to any depository institution
subsidiary with $10 billion or more in total consolidated assets for
liquidity requirements.
V. Framework for the Application of Capital and Liquidity Requirements
This section describes the framework for determining the
application of regulatory capital and liquidity requirements under this
final rule, including a discussion of comments received on the proposed
framework. The final rule largely establishes the framework set forth
in the proposals and introduces four categories of capital and
liquidity requirements based on certain indicators of risk that are
measured at the level of the top-tier banking organization.\28\
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\28\ Comments regarding the NSFR proposal will be addressed in
the context of any final rule to adopt a NSFR requirement for large
U.S. banking organizations and U.S. intermediate holding companies.
---------------------------------------------------------------------------
A. Indicators-Based Approach and the Alternative Scoring Methodology
The proposals would have established four categories of regulatory
capital and liquidity requirements and the criteria for Categories II,
III and IV would have relied on the following risk-based indicators:
Size, cross-jurisdictional activity, weighted short-term wholesale
funding, off-balance sheet exposure, and nonbank assets. These risk-
based indicators are already used in the Board's existing regulatory
framework and reported by large U.S. bank holding companies, U.S.
intermediate holding companies, and covered savings and loan holding
companies.\29\
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\29\ A covered savings and loan holding company means a savings
and loan holding company that is not substantially engaged in
insurance and commercial underwriting activities.
---------------------------------------------------------------------------
The proposals also sought comment on an alternative approach that
would have used a single, comprehensive score based on the GSIB
identification methodology, which is currently used to identify U.S.
GSIBs and apply risk-based capital surcharges to these banking
organizations (scoring methodology).\30\ Under the alternative
approach, a banking organization's size and its score from the scoring
methodology would have been used to determine which category of
standards would apply to the banking organization.\31\
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\30\ For more discussion relating to the scoring methodology,
see the Board's final rule establishing the GSIB identification
methodology. See ``Regulatory Capital Rules: Implementation of Risk-
Based Capital Surcharges for Global Systemically Important Bank
Holding Companies,'' 80 FR 49082 (Aug. 14, 2015).
\31\ The scoring methodology contains two methods, method 1 and
method 2. The alternative proposal would have used the higher of
method 1 or method 2 to determine the applicable category of
standards.
---------------------------------------------------------------------------
Most commenters preferred the proposed indicators-based approach to
the alternative scoring methodology for determining the category of
standards that would apply to large banking organizations. These
commenters stated that the indicators-based approach would be more
transparent, less complex, and more appropriate for applying categories
of standards to banking organizations that are not U.S. GSIBs. Some
commenters also asserted that if the agencies used the scoring
methodology, the agencies should use only method 1. These commenters
argued that method 2 would be inappropriate for tailoring capital and
liquidity requirements on the basis that the denominators to method 2
are fixed, rather than updated annually. Commenters also argued against
using method 2 on the basis that method 2 was calibrated specifically
for U.S. GSIBs.
The final rule adopts the indicators-based approach for applying
Category II, III, or IV standards to a banking organization, as this
approach provides a simple framework that supports the objectives of
risk sensitivity and transparency. Many of the risk-based indicators
are used in the agencies' existing regulatory frameworks or reported by
top-tier banking organizations. By using indicators that exist or are
reported by most banking organizations subject to the final rules, the
indicators-based approach limits additional reporting requirements. The
agencies will continue to use the scoring methodology to apply Category
I standards to a U.S. GSIB and its depository institution subsidiaries.
B. Choice of Risk-Based Indicators
To determine the applicability of Category II, III, or IV
standards, the proposals considered a top-tier banking organization's
level of five risk-based indicators: Size, cross-jurisdictional
activity, weighted short-term wholesale funding, nonbank assets, and
off-balance sheet exposure.
The agencies received a number of comments on the choice of risk-
based indicators and suggested modifications to the calculation of the
indicators. Several commenters expressed the general view that the
proposed risk-based indicators were poor measures of risk. A number of
these commenters also asserted that the agencies did not provide
sufficient justification to support the proposed risk-based indicators,
and requested that the agencies provide additional explanation
regarding their selection. Commenters also asserted that the framework
should take into consideration additional risk-mitigating
characteristics when measuring the proposed risk-based indicators.
Several other commenters argued that the proposals are too complex and
at odds with the stated objectives of simplicity and burden reduction.
By considering the relative presence or absence of each risk-based
indicator, the proposals would have provided a basis for assessing a
banking organization's financial stability and safety and soundness
risks. The risk-
[[Page 59236]]
based indicators generally track measures already used in the Board's
existing regulatory framework and rely on information that is already
publicly reported by affected banking organizations.\32\ Together with
fixed, uniform thresholds, use of the risk-based indicators supports
the agencies' objectives of transparency and efficiency, while
providing for a framework that enhances the risk sensitivity of the
agencies' capital and liquidity rules in a manner that continues to
allow for comparability across banking organizations. Risk-mitigating
factors, such as a banking organization's HQLA and the presence of
collateral to secure an exposure, are incorporated into the enhanced
standards to which the banking organization is subject.
---------------------------------------------------------------------------
\32\ Bank holding companies, covered savings and loan holding
companies, and U.S. intermediate holding companies subject to this
final rule already report the information required to determine
size, weighted short-term wholesale funding, and off-balance sheet
exposure on the Banking Organization Systemic Risk Report (FR Y-15).
Such bank holding companies and covered savings and loan holding
companies also currently report the information needed to calculate
cross-jurisdictional activity on the FR Y-15. Nonbank assets are
reported on FR Form Y-9 LP. This information is publicly available.
---------------------------------------------------------------------------
One commenter asserted that an analysis of the proposed risk-based
indicators based on a measure of the expected capital shortfall of a
banking organization in the event of a steep equity market decline
(SRISK) \33\ demonstrated that only the cross-jurisdictional activity
and weighted short-term wholesale funding indicators were positively
correlated with SRISK, whereas the other risk-based indicators were not
important drivers of a banking organization's SRISK measures. However,
because SRISK is conditioned on a steep decline in equity markets, it
does not capture the probability of a financial crisis or an
idiosyncratic failure of a large banking organization. In addition,
SRISK does not directly capture other important aspects of systemic
risk, such as a banking organization's interconnectedness with other
financial market participants. For these reasons, SRISK alone is not a
sufficient means of determining the risk-based indicators used in the
tailoring framework.
---------------------------------------------------------------------------
\33\ For the definition and measurement of SRISK, see Acharya,
V., Engle, R. and Richardson, M. (2012). Capital shortfall: A new
approach to ranking and regulating systemic risks. American Economic
Review, 102(3), pp. 59-64, see also Brownlees, Christian, and Robert
F. Engle (2017). ``SRISK: A conditional capital shortfall measure of
systemic risk.'' The Review of Financial Studies 30.1 (2016): 48-79.
---------------------------------------------------------------------------
Accordingly, and as discussed below, the agencies are adopting the
risk-based indicators as proposed.
1. Size
The proposals would have considered size in tailoring the
application of capital and liquidity requirements to a domestic banking
organization or the U.S. operations of a foreign banking organization.
Some commenters argued that the proposals placed too much reliance on
size for determining the prudential standards applicable to large
banking organizations. These commenters generally criticized the size
indicator as not sufficiently risk sensitive and a poor measure of
systemic and safety and soundness risk, and suggested using risk-
weighted assets, as determined under the capital rule, rather than
total consolidated assets or combined U.S. assets, as applicable.
Several commenters argued that the proposals did not adequately explain
the relationship between size and safety and soundness risk,
particularly risks associated with operational or control gaps.
Other commenters, however, supported the use of size as a measure
of financial stability and safety and soundness risk. These commenters
asserted that size serves as an indicator of credit provision that
could be disrupted in times of stress, as well as the difficulties
associated with the resolution of a large banking organization. These
commenters also recommended placing additional emphasis on size for
purposes of tailoring prudential standards, and expressed the view that
the size indicator is less susceptible to manipulation through
temporary adjustments at the end of a reporting period as compared to
the other risk-based indicators.
Section 165 of the Dodd-Frank Act, as amended by EGRRCPA,
establishes thresholds based on total consolidated assets.\34\ Size is
also among the factors that the Board must take into consideration in
differentiating among banking organizations under section 165.\35\ A
banking organization's size provides a measure of the extent to which
stress at its operations could be disruptive to U.S. markets and
present significant risks to U.S. financial stability. A larger banking
organization has a greater number of customers and counterparties that
may be exposed to a risk of loss or suffer a disruption in the
provision of services if the banking organization were to experience
distress. In addition, size is an indicator of the extent to which
asset fire sales by a banking organization could transmit distress to
other market participants, given that a larger banking organization has
more counterparties and more assets to sell. The failure of a large
banking organization in the U.S. also may give rise to challenges that
complicate the resolution process due to the size and diversity of its
customer base and the number of counterparties that have exposure to
the banking organization.
---------------------------------------------------------------------------
\34\ See generally 12 U.S.C. 5635 and EGRRCPA section 401.
\35\ EGRRCPA section 401(a)(1)(B)(i) (codified at 12 U.S.C.
5365(a)(2)(A)). The agencies haves also previously used size as a
simple measure of a banking organization's potential systemic impact
and risk, and have differentiated the stringency of capital and
liquidity requirements based on total consolidated asset size. For
example, prior to the adoption of this final rule, advanced
approaches capital requirements, the supplementary leverage ratio,
and the LCR requirement generally applied to banking organizations
with total consolidated assets of $250 billion or more or total
consolidated on-balance sheet foreign exposure of $10 billion or
more.
---------------------------------------------------------------------------
The complexities associated with size also can give rise to
operational and control gaps that are a source of safety and soundness
risk and could result in financial losses to a banking organization and
adversely affect its customers. A larger banking organization operates
on a larger scale, has a broader geographic scope, and generally will
have more complex internal operations and business lines relative to a
smaller banking organization. Growth of a banking organization, whether
organic or through an acquisition, can require more robust risk
management and development of enhanced systems or controls; for
example, when managing the integration and maintenance of information
technology platforms.
Size also can be a proxy for other measures of complexity, such as
the amount of trading and available-for-sale securities, over-the-
counter derivatives, and Level 3 assets.\36\ Using Call Report data
from the first quarter of 2005 to the first quarter of 2018, the
correlation between a bank's total trading assets (a proxy of
complexity) and its total assets
[[Page 59237]]
(a proxy of size) is over 90 percent.\37\ As was seen in the financial
crisis, a more complex institution can be more opaque to the markets
and may have difficulty managing its own risks, warranting stricter
standards for both capital and liquidity.
---------------------------------------------------------------------------
\36\ The FR Y15 and the GSIB surcharge methodology include three
indicators of complexity that are used to determine a banking
organization's systemic importance for purposes of the U.S. GSIB
surcharge rule: Notional amount of OTC derivatives, Level 3 assets,
and trading and AFS securities. In the second quarter of 2019, the
average complexity score of a U.S. GSIB was 104.7, the average
complexity score of a banking organization with assets of greater
than $250 billion that is not a U.S. GSIB was 12.0, the average
complexity score of a banking organization with assets of more than
$100 billion but less than $250 billion was 3.5, and the average
complexity score of a banking organization with assets of $50
billion but less than $100 billion was 0.4.
\37\ See Amy G. Lorenc and Jeffery Y. Zhang (2018) ``The
Differential Impact of Bank Size on Systemic Risk,'' Finance and
Economics Discussion Series 2018-066. Washington: Board of Governors
of the Federal Reserve System, available at: https://doi.org/10.17016/FEDS.2018.066.
---------------------------------------------------------------------------
Further, notwithstanding commenters' assertions that risk-weighted
assets more appropriately capture risk, an approach that relies on
risk-weighted assets as an indication of size would not align with the
full scope of risks intended to be measured by the size indicator.
Risk-weighted assets serve as an indication of credit risk and are not
designed to capture the risks associated with managerial and
operational complexity or the potential for distress at a large banking
organization to cause widespread market disruptions.
Some commenters argued that the Board staff analysis cited in the
proposals does not demonstrate that size is a useful indicator for
determining the systemic importance of a banking organization.\38\
Specifically, one commenter asserted that the Board staff analysis (1)
uses a flawed measure of bank stress and (2) does not use robust
standard errors or sufficiently control for additional macroeconomic
factors that may contribute to a decline in economic activity.
---------------------------------------------------------------------------
\38\ As described in the proposals, relative to a smaller
banking organization, the failure of a large banking organization is
more likely to have a destabilizing effect on the economy, even if
the two banking organizations are engaged in similar business lines.
Board staff estimated that stress at a single large banking
organization with an assumed $100 billion in deposits would result
in approximately a 107 percent decline in quarterly real U.S. GDP
growth, whereas stress among five smaller banking organizations--
each with an assumed $20 billion in deposits--would collectively
result in roughly a 22 percent decline in quarterly real U.S. GDP
growth. Both scenarios assume $100 billion in total deposits, but
the negative impact is significantly greater when the larger banking
organization fails. Id.
---------------------------------------------------------------------------
The Board staff paper employs the natural logarithm of deposits at
failed banks as a proxy of bank stress. This choice was informed by
Bernanke's 1983 article, which uses the level (namely, thousands of
dollars) of deposits at failed banks to proxy bank stress.\39\ The
staff paper makes modifications to the stress proxy in order to account
for the evolution of the banking sector over time. In contrast to
Bernanke's study of a three-year period during the Great Depression,
Board staff's analysis spans almost six decades. Expressing bank stress
in levels as the commenter suggests (namely, trillions of dollars)
would not account for the structural changes that have occurred in the
banking sector and therefore would place a disproportionately greater
weight on the bank failures that occurred during the 2008-2009
financial crisis. In addition to the analysis conducted by Board staff,
other research has found evidence of a link between size and systemic
risk.\40\
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\39\ Bernanke, Ben S. 1983. ``Non-monetary Effects of the
Financial Crisis in the Propagation of the Great Depression.'' The
American Economic Review Vol. 73, No. 3, pp. 257--276.
\40\ See Bremus, Buck, Russ and Schnitzer, Big Banks and
Macroeconomic Outcomes: Theory and Cross-Country Evidence of
Granularity, Journal of Money, Credit and Banking (July 2018).
Allen, Bali, and Tang construct a measure of systemic risk (CATFIN)
and demonstrate that the CATFIN of both large and small banking
organizations can forecast macroeconomic declines, and found that
the CATFIN of large banks can successfully forecast lower economic
activity sooner than that of small banks. See Allen, Bali, and Tang,
Does Systemic Risk in the Financial Sector Predict Future Economic
Downturns?, Review of Financial Studies, Vol. 25, Issue 10 (2012).
Adrian and Brunnermeier constructed a measurement of systemic risk,
designated CoVar, and show that firms with higher leverage, more
maturity mismatch, and larger size are associated with larger
systemic risk contributions. Specifically, the authors find that if
a bank is 10 percent larger than another bank, then the size
coefficient predicts that the larger bank's CoVaR per unit of
capital is 27 basis points higher than the smaller bank's CoVaR. See
Adrian & Brunnermeir, CoVar, American Economic Review Journal, Vol.
106 No. 7 (July 2016).
In the same vein, research conducted by the Bank for
International Settlements suggests that the ratio of one
institution's systemic importance to a smaller institution's
systemic importance is larger than the ratio of the respective
sizes. See Tarashev, Borio and Tsatsaronis, Attributing systemic
risk to individual institutions, BIS Working Paper No. 308 (2010).
Relatedly, D[aacute]vila and Walther (2017) show that large banks
take on more leverage relative to small banks in times of stress.
See D[aacute]vila &Walther, Does Size Matter? Bailouts with Large
and Small Banks, NBER Working Paper No. 24132 (2017).
---------------------------------------------------------------------------
For the reasons discussed above, the agencies are adopting the
proposed measure of size for foreign and domestic banking organizations
without change.\41\ Size is a simple and transparent measure of
systemic importance and safety and soundness risk that can be readily
understood and measured by banking organizations and market
participants.
---------------------------------------------------------------------------
\41\ The final rule calibrates liquidity and capital
requirements for U.S. intermediate holding companies based on the
risk profile, including size, of the U.S. intermediate holding
company. However, the elements of the size indicator itself, as well
as the other risk-based indicators, are being finalized without
change.
---------------------------------------------------------------------------
2. Cross-Jurisdictional Activity
The proposals would have included a measure of cross-jurisdictional
activity as a risk-based indicator to determine the application of
Category II standards. For U.S. banking organizations, the domestic
proposal would have defined cross-jurisdictional activity as the sum of
cross-jurisdictional claims and liabilities. In recognition of the
structural differences between foreign and domestic banking
organizations, the foreign bank proposal would have adjusted the
measurement of cross-jurisdictional activity for foreign banking
organizations to exclude inter-affiliate liabilities and certain
collateralized inter-affiliate claims.\42\ Specifically, claims on
affiliates \43\ would have been reduced by the value of any financial
collateral in a manner consistent with the agencies' capital rule,\44\
which permits, for example, banking organizations to recognize
financial collateral when measuring the exposure amount of repurchase
agreements and securities borrowing and securities lending transactions
(together, repo-style transactions).\45\ The foreign bank proposal
sought comment on alternative adjustments to the cross-jurisdictional
activity indicator for foreign banking organizations, and on other
modifications to the components of the indicator.
---------------------------------------------------------------------------
\42\ Specifically, the proposal would have excluded from the
cross-jurisdictional activity indicator all inter-affiliate claims
of a foreign banking organization secured by financial collateral,
in accordance with the capital rule. Financial collateral is defined
under the capital rule to mean collateral, (1) in the form of (i)
cash on deposit with the banking organization (including cash held
for the banking organization by a third-party custodian or trustee),
(ii) gold bullion, (iii) long-term debt securities that are not
resecuritization exposures and that are investment grade, (iv)
short-term debt instruments that are not resecuritization exposures
and that are investment grade, (v) equity securities that are
publicly traded; (vi) convertible bonds that are publicly traded, or
(vii) money market fund shares and other mutual fund shares if a
price for the shares is publicly quoted daily; and (2) in which the
banking organization has a perfected, first-priority security
interest or, outside of the United States, the legal equivalent
thereof (with the exception of cash on deposit and notwithstanding
the prior security interest of any custodial agent). See 12 CFR 3.2
(OCC); 12 CFR 217.2 (Board); and 12 CFR 324.2 (FDIC).
\43\ For the combined U.S. operations, the measure of cross-
jurisdictional activity would have excluded all claims between the
foreign banking organization's U.S. domiciled affiliates, branches,
and agencies to the extent such items are not already eliminated in
consolidation. For the U.S. intermediate holding company, the
measure of cross-jurisdictional activity would have eliminated
through consolidation all inter-affiliate claims within the U.S.
intermediate holding company.
\44\ See 12 CFR 3.37 (OCC); 12 CFR 217.37 (Board); 12 CFR 324.37
(FDIC).
\45\ See the definition of repo-style transaction at 12 CFR
217.2.
---------------------------------------------------------------------------
Some commenters urged the agencies to adopt the cross-
jurisdictional activity indicator as proposed. By contrast, a number of
commenters expressed concern regarding this aspect of the proposals.
Several commenters opposed the inclusion of cross-jurisdictional
[[Page 59238]]
liabilities in the cross-jurisdictional activity indicator. Some
commenters argued that cross-jurisdictional liabilities are not a
meaningful indicator of systemic risk as measured by SRISK.\46\ Other
commenters asserted that cross-jurisdictional liabilities can reflect
sound risk-management practices on the basis that cross-jurisdictional
liabilities can indicate a diversity of funding sources and may be used
to fund assets in the same foreign jurisdiction as the liabilities.
These commenters suggested modifying the indicator to exclude the
amount of any central bank deposits, other HQLA, or assets that receive
a zero percent risk weight under the capital rule if those assets are
held in the same jurisdiction as a cross-jurisdictional liability.
---------------------------------------------------------------------------
\46\ See supra note 33.
---------------------------------------------------------------------------
A number of commenters suggested revisions to the cross-
jurisdictional activity indicator that would exclude specific types of
claims or liabilities. For example, some commenters asserted that the
measure of cross-jurisdictional activity should exclude any claim
secured by HQLA or highly liquid assets \47\ based on the nature of the
collateral. Another commenter suggested excluding operating payables
arising in the normal course of business, such as merchant payables.
Other commenters suggested that the indicator exclude exposures to U.S.
entities or projects that have a foreign guarantee or foreign insurer,
unless the U.S. direct counterparty does not meet an appropriate
measure of creditworthiness. Some commenters recommended that
investments in co-issued collateralized loan obligations be excluded
from the measure of cross-jurisdictional activity.
---------------------------------------------------------------------------
\47\ See 12 CFR 252.35(b)(3)(i) and 252.157(c)(7)(i).
---------------------------------------------------------------------------
Commenters also suggested specific modifications to exclude
exposures to certain types of counterparties. For example, several
commenters suggested excluding exposures to sovereign, supranational,
international, or regional organizations. Commenters asserted that
these exposures do not present the same interconnectivity concerns as
exposures with other types of counterparties and that claims on these
types of entities present little or no credit risk. Another commenter
suggested excluding transactions between a U.S. intermediate holding
company and any affiliated U.S. branches of its parent foreign banking
organization, on the basis that the foreign bank proposal could
disadvantage foreign banking organizations relative to U.S. banking
organizations that eliminate such inter-affiliate transactions in
consolidation. Similarly, one commenter suggested excluding
transactions between a U.S. intermediate holding company and any U.S.
branch of a foreign banking organization, whether affiliated or not, on
the basis that such exposures are geographically domestic. Another
commenter argued that exposures denominated in a foreign banking
organization's home currency should be excluded. By contrast, one
commenter argued that cross-jurisdictional activity should be revised
to include derivatives, arguing that derivatives can be used as a
substitute for other cross-jurisdictional transactions and, as a
result, could be used to avoid the cross-jurisdictional activity
threshold.
A number of commenters provided other suggestions for modifying the
cross-jurisdictional activity indicator. In particular, some commenters
recommended that the cross-jurisdictional activity indicator permit
netting of claims and liabilities with a counterparty, with only the
net claim or liability counting towards cross-jurisdictional activity.
Several commenters suggested that the agencies should consider
excluding assets or transactions that satisfy another regulatory
requirement. For example, these commenters argued that the agencies
should consider excluding transactions resulting in the purchase of or
receipt of HQLA.
Other commenters suggested modifications to the criteria for
determining whether an exposure would be considered cross-border.
Specifically, commenters requested modifications to the calculation of
cross-jurisdictional activity for claims supported by multiple
guarantors or a combination of guarantors and collateral, for example,
by not attributing the claim to the jurisdiction of the entity holding
the claim or collateral that bears the highest rating for reporting on
an ultimate-risk basis. Commenters also requested that the agencies
presume that an exposure created through negotiations with agents or
asset managers would generally create an exposure based in the
jurisdiction of the location of the agent or manager for their
undisclosed principal.
Foreign banking organization commenters generally supported the
approach taken in the foreign bank proposal with respect to the
treatment of inter-affiliate cross-jurisdictional liabilities, but
stated that such an approach would not adequately address the
differences between domestic and foreign banking organizations. These
commenters urged the agencies to eliminate the cross-jurisdictional
activity indicator for foreign banking organizations or, alternatively,
to eliminate all inter-affiliate transactions from measurement of the
indicator.
Significant cross-border activity can indicate heightened
interconnectivity and operational complexity. Cross-jurisdictional
activity can add operational complexity in normal times and complicate
the ability of a banking organization to undergo an orderly resolution
in times of stress, generating both safety and soundness and financial
stability risks. In addition, cross-jurisdictional activity may present
increased challenges in resolution because there could be legal or
regulatory restrictions that prevent the transfer of financial
resources across borders where multiple jurisdictions and regulatory
authorities are involved. Banking organizations with significant cross-
jurisdictional activity may require more sophisticated risk management
to appropriately address the complexity of those operations and the
diversity of risks across all jurisdictions in which the banking
organization provides financial services. For example, banking
organizations with significant cross-border activities may require more
sophisticated risk management related to raising funds in foreign
financial markets, accessing international payment and settlement
systems, and obtaining contingent sources of liquidity. In addition,
the application of consistent capital and liquidity standards to
banking organizations with significant size or cross-jurisdictional
activity helps to promote competitive equity in the United States as
well as abroad.
Measuring cross-jurisdictional activity taking into account both
assets and liabilities--instead of just assets--provides a broader
gauge of the scale of cross-border operations and associated risks, as
it includes both borrowing and lending activities outside of the United
States.\48\ While both borrowing and lending outside the United States
may reflect prudent risk management, cross-jurisdictional activity of
$75 billion or more indicates a level of organizational complexity that
warrants more stringent prudential standards. With respect to
commenters' suggestion to exclude central bank deposits, HQLA, or
assets that receive a zero percent risk weight in the same jurisdiction
as a cross-
[[Page 59239]]
jurisdictional liability, such an exclusion would assume that all local
liabilities are used to fund local claims. However, because foreign
affiliates rely on local funding to different extents, such an
exclusion could understate risk.\49\
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\48\ The BCBS recently amended its measurement of cross-border
activity to more consistently reflect derivatives, and the Board
anticipates it will separately propose changes to the FR Y-15 in a
manner consistent with this change. Any related changes to the
proposed cross-jurisdictional activity indicator would be updated
through those separately proposed changes to the FR Y-15.
\49\ Based on data collected from the FFIEC 009, some affiliates
of U.S. banking organizations relied extensively (75 percent) on
local funding, while others collected almost no local funding. In
particular, approximately 40 percent of bank-affiliate locations had
no local lending. See Nicola Cetorelli & Linda Goldberg, ``Liquidity
Management of U.S. Global Banks: Internal Capital Markets In the
Great Recession'' (Fed. Reserve Bank of N.Y. Staff Report No. 511,
2012), available at http://www.newyorkfed.org/research/staff_reports/sr511.pdf.
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The cross-jurisdictional activity indicator and threshold identify
banking organizations with significant cross-border activities.
Significant cross-border activities indicate a complexity of
operations, even if some of those activities are low risk. Excluding
additional types of claims or liabilities would reduce the transparency
and simplicity of the tailoring framework. In addition, excluding
certain types of assets based on the credit risk presented by the
counterparty would be inconsistent with the purpose of the indicator as
a measure of operational complexity and risk. The measure of cross-
jurisdictional activity in the final rule therefore does not exclude
specific types of claims or liabilities, or claims and liabilities with
specific types of counterparties, other than the proposed treatment of
inter-affiliate liabilities and certain inter-affiliate claims.
The proposals requested comment on possible additional changes to
the components of the cross-jurisdictional activity indicator to
potentially provide more consistent treatment across repurchase
agreements and other securities financing transactions and with respect
to the recognition and treatment of collateral across types of
transactions. Commenters were generally supportive of these additional
changes. The proposals also requested comment on the most appropriate
way in which the proposed cross-jurisdictional activity indicator could
account for the risk of transactions with a delayed settlement date.
Several commenters argued that the indicator should exclude trade-date
receivables or permit the use of settlement-date accounting in
calculating the cross-jurisdictional activity indicator. Commenters
also supported measuring securities lending agreements and repurchase
agreements on an ultimate-risk basis, rather than allocating these
exposures based on the residence of the counterparty.
The final rule adopts the cross-jurisdictional activity indicator
as proposed. Under the final rule cross-jurisdictional activity is
measured based on the instructions to the FR Y-15 and, by reference, to
the Country Exposure Report Form (FFIEC 009).\50\ The agencies are
considering whether additional technical modifications and refinements
to the cross-jurisdictional indicator would be appropriate, including
with respect to the treatment of derivatives, and would seek comment on
any such changes to the indicator through a separate notice.
Specifically, under the final rule, cross-jurisdictional claims are
measured according to the instructions to the FFIEC 009. The
instructions to the FFIEC 009 currently do not permit risk transfer for
repurchase agreements and securities financing transactions and the
Board is not altering the measurement of repurchase agreements and
securities financing transactions under this final rule. This approach
maintains consistency between the FR Y-15 and FFIEC 009. In addition,
the cross-jurisdictional indicator maintains the use of trade-date
accounting for purposes of the final rule. The preference for trade-
date accounting is consistent with other reporting forms (e.g.,
Consolidated Financial Statements for Holding Companies Form (FR Y-9C))
and with generally accepted accounting principles. With respect to
netting, the instructions to the FFIEC 009 permit netting in limited
circumstances. Allowing banking organizations to net all claims and
liabilities with a counterparty could significantly understate an
organization's level of international activity, even if such netting
might be appropriate from the perspective of managing risk.
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\50\ Specifically, cross-jurisdictional claims are measured on
an ultimate-risk basis according to the instructions to the FFIEC
009. The instructions to the FFIEC 009 currently do not permit risk
transfer for repurchase agreements and securities financing
transactions. Foreign banking organizations must include in cross-
jurisdictional claims only the net exposure (i.e., net of collateral
value subject to haircuts) of all secured transactions with
affiliates to the extent that these claims are collateralized by
financial collateral or excluded in consolidation. See supra note
43.
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As noted above, the risk-based indicators generally track measures
already used in the Board's existing regulatory framework and rely on
information that banking organizations covered by the final rule
already publicly report.\51\ The agencies believe that the measure of
cross-jurisdictional activity as proposed (including the current
reported measurements of repurchase agreements and securities financing
transactions, trade date accounting items, and netting) along with the
associated $75 billion threshold, appropriately captures the risks that
warrant the application of Category II standards. The agencies may
consider future changes regarding the measurement of the cross-
jurisdictional activity indicator, and in doing so, would consider the
comments described above and the impact of any future changes on the
$75 billion threshold, and would draw from supervisory experience
following the implementation of the final rule. Any such changes would
be considered in the context of a separate rulemaking process.
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\51\ See Form FR Y-15. This information is publicly available.
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3. Nonbank Assets
The proposals would have considered the level of nonbank assets in
determining the applicable category of standards. The amount of a
banking organization's activities conducted through nonbank
subsidiaries provides a measure of the organization's business and
operational complexity. Specifically, banking organizations with
significant activities in nonbank subsidiaries are more likely to have
complex corporate structures and funding relationships. In addition, in
certain cases nonbank subsidiaries are subject to less prudential
regulation than regulated banking entities.
Under the proposals, nonbank assets would have been measured as the
average amount of assets in consolidated nonbank subsidiaries and
equity investments in unconsolidated nonbank subsidiaries.\52\ The
proposals would have excluded from this measure assets in a depository
institution subsidiary, including a national bank, state member bank,
state nonmember bank, federal savings association, federal savings
bank, or state savings association subsidiary. The proposals also would
have excluded assets of subsidiaries of these depository institutions,
as well as assets held in each Edge or Agreement Corporation that is
held through a bank subsidiary.\53\
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\52\ For a foreign banking organization, nonbank assets would
have been measured as the average amount of assets in consolidated
U.S. nonbank subsidiaries and equity investments in unconsolidated
U.S. nonbank subsidiaries.
\53\ As noted above, the Parent Company Only Financial
Statements for Large Holding Companies (FR Y-9LP), Schedule PC-B,
line item 17 is used to determine nonbank assets. For purposes of
this item, nonbank companies exclude (i) all national banks, state
member banks, state nonmember insured banks (including insured
industrial banks), federal savings associations, federal savings
banks, and thrift institutions (collectively for purposes of this
item, ``depository institutions'') and (ii) except for an Edge or
Agreement Corporation designated as ``Nonbanking'' in the box on the
front page of the Consolidated Report of Condition and Income for
Edge and Agreement Corporations (FR 2886b), any subsidiary of a
depository institution (for purposes of this item, ``depository
institution subsidiary''). The revised FR Y-15 includes a line item
that would automatically populate this information. See section XV
of the Supplementary Information in the Board-only final rule.
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[[Page 59240]]
A number of commenters argued that measuring nonbank assets based
on the location of the assets in a nonbank subsidiary provides a poor
measure of risk. Some commenters requested that the agencies instead
consider whether the assets relate to bank-permissible activities.
Other commenters argued that activities conducted in nonbank
subsidiaries can present less risk than banking activities.
Specifically, some commenters argued that the proposed measure of
nonbank assets was over-inclusive on the basis that many of the assets
in nonbank subsidiaries would receive a zero percent risk weight under
the agencies' capital rule. In support of this position, commenters
noted that retail brokerage firms often hold significant amounts of
U.S. treasury securities.
Other commenters argued that the measure of nonbank assets is
poorly developed and infrequently used and urged the agencies to
provide additional support for the inclusion of the indicator in the
proposed framework. Specifically, commenters requested that the
agencies provide additional justification for nonbank assets as an
indicator of complex corporate structures and funding relationships, as
well as interconnectedness. A number of commenters argued that, to the
extent the measure was intended to address risk in broker-dealer
operations, it was unnecessary in light of existing supervision and
regulation of broker-dealers and application of consolidated capital,
stress testing, and risk-management requirements to the parent banking
organization.
A number of commenters argued that, if retained, the nonbank assets
indicator should be more risk sensitive. Some commenters suggested
excluding assets related to bank-permissible activities as well as
certain types of nonbanking activities, such as retail brokerage
activity. The commenters argued that, at a minimum, the nonbank assets
indicator should exclude any nonbank subsidiary or asset that would be
permissible for a bank to own. Other commenters suggested risk-
weighting nonbank assets or deducting certain assets held by nonbank
subsidiaries, such as on-balance sheet items that are deducted from
regulatory capital under the capital rule (e.g., deferred tax assets
and goodwill).
Both the organizational structure of a banking organization and the
activities it conducts contribute to its complexity and risk profile.
Banking organizations with significant investments in nonbank
subsidiaries are more likely to have complex corporate structures,
inter-affiliate transactions, and funding relationships.\54\ A banking
organization's complexity is positively correlated with the impact of
the organization's failure or distress.\55\
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\54\ See ``Evolution in Bank Complexity'', Nicola Cetorelli,
James McAndrews and James Traina, Federal Reserve Bank of New York
Economic Policy Review (December 2014) (discussing acquisitions of
nonbanking subsidiaries and cross-industry acquisitions as
contributing to growth in organization complexity), available at:
https://www.newyorkfed.org/medialibrary/media/research/epr/2014/1412cet2.pdf.
\55\ See 80 FR 49082 (August 14, 2015). See also BCBS, ``Global
systemically important banks: Updated assessment methodology and the
higher loss absorbency requirement'' (paragraph 25), available at:
http://www.bis.org/publ/bcbs255.htm.
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Market participants typically evaluate the financial condition of a
banking organization on a consolidated basis. Therefore, the distress
or failure of a nonbank subsidiary could be destabilizing to, and cause
counterparties and creditors to lose confidence in, the banking
organization as a whole. In addition, the distress or failure of
banking organizations with significant nonbank assets has coincided
with or increased the effects of significant disruptions to the
stability of the U.S. financial system.\56\
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\56\ An example includes the near-failure of Wachovia
Corporation, a financial holding company with $162 billion in
nonbank assets as of September 30, 2008.
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Nonbank activities also may involve a broader range of risks than
those associated with activities that are permissible for a depository
institution to conduct directly and can increase interconnectedness
with other financial firms, requiring sophisticated risk management and
governance, including capital planning, stress testing, and liquidity
risk management. For example, holding companies with significant
nonbank assets are generally engaged in financial intermediation of a
different nature (such as complex derivatives activities) than those
typically conducted through a depository institution. If not adequately
managed, the risks associated with nonbank activities could present
significant safety and soundness concerns and increase financial
stability risks. Nonbank assets also reflect the degree to which a
banking organization may be engaged in activities through legal
entities that are not subject to separate capital or liquidity
requirements or to the direct regulation and supervision applicable to
a regulated banking entity.
The nonbank assets indicator in the final rule provides a proxy for
operational complexity and nonbanking activities without requiring
banking organizations to track assets, income, or revenue based on
whether a depository institution has the legal authority to hold such
assets or conduct the related activities (legal authority). In
addition, a depository institution's legal authority depends on the
institution's charter and may be subject to additional interpretation
over time.\57\ A measure of nonbank assets based on legal authority
would be costly and complex for banking organizations to implement, as
they do not currently report this information based on legal authority.
Defining nonbank assets based on the type of entity that owns them,
rather than legal authority, reflects the risks associated with
organizational complexity and nonbanking activities without imposing
additional reporting burden as a result of implementing the final rule
or monitoring any future changes to legal authority. In addition, as
noted above, the nonbank assets indicator is designed, in part, to
identify activities that a banking organization conducts in
subsidiaries that may be subject to less prudential regulation, which
makes relevant whether the asset or activity is located in a bank or
nonbank subsidiary.
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\57\ See e.g., ``OCC Releases Updated List of Permissible
Activities for Nat'l Banks & Fed. Sav. Associations,'' OCC NR 17-121
(Oct. 13, 2017) (``The OCC may permit national banks and federal
savings associations to conduct additional activities in the
future''), available at: https://www.occ.treas.gov/publications/publications-by-type/other-publications-reports/pub-activities-permissible-for-nat-banks-fed-saving.pdf.
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Commenters' suggested modifications to exclude certain types of
assets or entities, or to risk-weight nonbank assets, would not align
with the full scope of risks intended to be measured by the indicator,
including risks associated with operational and managerial complexity.
In particular, under the generally applicable risk-based capital
requirements, the risk weight assigned to an individual asset is
primarily designed to measure credit risk, so relying on risk-weighted
assets could underestimate operational and other risks. Further,
because nonbank entities are permitted to conduct a wide range of
complex activities, assets held by those entities, including those that
receive a zero percent risk weight, may be held in connection with
complex activities, such as certain prime
[[Page 59241]]
brokerage or other trading activities. Finally, as noted above, the
nonbank asset measure is a relatively simple and transparent measures
of a banking organization's nonbank activities, and exclusion of
specific assets based on risk could undermine the simplicity and
transparency of the indicator. For these reasons, the agencies are
finalizing the nonbank assets indicator, including the measurement of
the indicator, generally as proposed.
4. Off-Balance Sheet Exposure
The proposals would have included off-balance sheet exposure as a
risk-based indicator to complement the measure of size. Under the
proposals, off-balance sheet exposure would have been measured as the
difference between total exposure, calculated in accordance with the
instructions to the FR Y-15 or equivalent reporting form, and total
assets.\58\ Total exposure includes on-balance sheet assets plus
certain off-balance sheet exposures, including derivative exposures and
commitments.
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\58\ Total exposure would be reported for domestic holding
companies on the FR Y-15, Schedule A, Line Item 5, and for foreign
banking organizations' U.S. intermediate holding companies and
combined U.S. operations on the FR Y-15, Schedule H, Line Item 5.
Total off-balance sheet exposure would be reported as Line Item M5
on Schedules A and H.
---------------------------------------------------------------------------
A number of commenters argued that the proposed measure of off-
balance sheet exposure was not sufficiently risk sensitive.
Specifically, these commenters argued that the exposures captured by
the indicator were generally associated with low-risk activities or
assets, such as securities lending activities. In addition, the
commenters argued that the proposed measure could be harmful to
economic activity by discouraging corporate financing through
commitments and letters of credit. Commenters accordingly urged the
agencies to modify the proposed approach to measuring the risk of off-
balance sheet exposures; for example, by using the combination of
credit conversion factors and risk weights applied under the agencies'
capital rule. Other commenters suggested that the agencies exclude
certain types of exposures from the indicator, such as letters of
credit. Foreign banking organization commenters also argued that inter-
affiliate transactions should be excluded from the measure, including
any guarantee related to securities issued to fund the foreign parent,
and guarantees used to facilitate clearing of swaps and futures for
affiliates that are not clearing members. With respect to guarantees
used to facilitate clearing, commenters argued that these exposures are
the result of mandatory clearing requirements and help support the
central clearing objectives of the Dodd-Frank Act. Commenters expressed
concern that including these exposures also could result in increased
concentration of clearing through U.S. GSIBs. For the same reasons,
commenters argued that potential future exposures associated with
derivatives cleared by an affiliate also should be excluded from the
measure of off-balance sheet exposure.
Off-balance sheet exposure complements the size indicator under the
tailoring framework by taking into account additional risks that are
not reflected in a banking organization's measure of on-balance sheet
assets. This indicator provides a measure of the extent to which
customers or counterparties may be exposed to a risk of loss or suffer
a disruption in the provision of services stemming from off-balance
sheet activities. In addition, off-balance sheet exposure can lead to
significant future draws on liquidity, particularly in times of stress.
For example, during stress conditions vulnerabilities at individual
banking organizations may be exacerbated by calls on commitments and
the need to post collateral on derivatives exposures. The nature of
these off-balance sheet risks for banking organizations of significant
size and complexity can also lead to financial stability risk, as they
can manifest rapidly and with less transparency and predictability to
other market participants relative to on-balance sheet exposures.
Excluding certain off-balance sheet exposures would be inconsistent
with the purpose of the indicator as a measure of the extent to which
customers or counterparties may be exposed to a risk of loss or suffer
a disruption in the provision of services. Commitments and letters of
credit, like extensions of credit through loans and other arrangements
included on a banking organization's balance sheet, help support
economic activity. Because corporations tend to increase their reliance
on committed credit lines during periods of stress in the financial
system, draws on these instruments can exacerbate the effects of stress
conditions on banking organizations by increasing their on-balance
sheet credit exposure.\59\ During the 2008-2009 financial crisis,
reliance on lines of credit was particularly pronounced among smaller
and non-investment grade corporations, suggesting that an increase in
these exposures may be associated with decreasing credit quality.\60\
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\59\ During the financial crisis, increased reliance on credit
lines began as early as 2007, and increased after September 2008.
See Jose M. Berrospide, Ralf R. Meisenzahl, and Briana D. Sullivan,
``Credit Line Use and Availability in the Financial Crisis: The
Importance of Hedging,'' available at: https://www.federalreserve.gov/pubs/feds/2012/201227/201227pap.pdf. Some
have found evidence that an increase in draws on credit lines may
have been motivated by concerns about the ability of financial
institutions to provide credit in the future. See Victoria Ivashina
& David Scharfstein, ``Bank Lending During the Financial Crisis of
2008,'' 97 J. Fin. Econ. 319-338 (2010). See William F. Bassett,
Simon Gilchrist, Gretchen C. Weinbach, and Egon Zakraj[scaron]ek,
``Improving Our Ability to Monitor Bank Lending'' chapter on Risk
Topography: Systemic Risk and Macro Modeling (2014), Markus
Brunnermeier and Arvind Krishnamurthy, ed., pp. 149-161, available
at: http://www.nber.org/chapters/c12554.
\60\ Id.
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Including guarantees to affiliates related to cleared derivative
transactions in off-balance sheet exposure also is consistent with the
overall purpose of the indicator. A clearing member that guarantees the
performance of an affiliate to a central counterparty is exposed to a
risk of loss if the affiliate were to fail to perform its obligations
under a derivative contract. By including these exposures, the
indicator identifies a source of interconnectedness with other
financial market participants. These transactions can arise with
respect not only to principal trades, but also because a client wishes
to face a particular part of the organization, and thus excluding these
guarantees could understate risk and interconnectedness.\61\
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\61\ In order to facilitate clearing generally, the capital rule
more specifically addresses the counterparty credit risk associated
with transactions that facilitate client clearing, such as a shorter
margin period of risk, and provides incentives that are intended to
help promote the central clearing objectives of the Dodd-Frank Act.
See 12 CFR 3.35 (OCC); 12 CFR 217.35 (Board); 12 CFR 324.35 (FDIC).
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As described above, the tailoring framework's risk-based indicators
and uniform category thresholds balance risk sensitivity with
simplicity and transparency. Excluding certain types of exposures would
not align with the full scope of risks intended to be measured by the
indicator. The final rule, therefore, adopts the off-balance sheet
exposure indicator as proposed.
5. Weighted Short-Term Wholesale Funding
The proposed weighted short-term wholesale funding indicator would
have measured the amount of a banking organization's short-term funding
obtained generally from wholesale counterparties. Reliance on short-
term, generally uninsured funding from more sophisticated
counterparties can make a banking organization more vulnerable to
[[Page 59242]]
large-scale funding runs, generating both safety and soundness and
financial stability risks. The proposals would have calculated this
indicator as the weighted-average amount of funding obtained from
wholesale counterparties, certain brokered deposits, and certain sweep
deposits with a remaining maturity of one year or less, in the same
manner as currently reported by holding companies on the FR Y-15.\62\
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\62\ Average amounts over a 12 month period in each category of
short-term wholesale funding are weighted based on four residual
maturity buckets; the asset class of collateral, if any, securing
the funding; and liquidity characteristics of the counterparty.
Weightings reflect risk of runs and attendant fire sales. See 12 CFR
217.406 and 80 FR 49082 (August 14, 2015).
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A number of commenters expressed concern regarding the use of the
weighted short-term wholesale funding indicator in the tailoring
framework. Several commenters argued that this indicator fails to take
into account the extent to which the risk of short-term wholesale
funding has been mitigated through existing regulatory requirements,
such as the Board's enhanced prudential standards rule and, for foreign
banking organizations, standardized liquidity requirements applicable
to foreign banking organizations at the global consolidated level.
Other commenters argued that the indicator is a poor measure of risk
more broadly because it fails to consider the maturity of assets funded
by short-term wholesale funding. Commenters argued that focusing on
liabilities and failing to recognize the types of assets funded by the
short-term funding would disproportionately affect foreign banking
organizations' capital market activities and ability to compete in the
United States.
The weighted short-term wholesale funding indicator is designed to
serve as a broad measure of the risks associated with elevated, ongoing
reliance on funding sources that are typically less stable than funding
of a longer term or funding such as fully-insured retail deposits,
long-term debt, and equity. For example, a banking organization's
weighted short-term wholesale funding level serves as an indication of
the likelihood of funding disruptions in firm-specific or market-wide
stress conditions. These funding disruptions may give rise to urgent
liquidity needs and unexpected losses, which warrant heightened
application of liquidity and regulatory capital requirements. A measure
of funding dependency that reflects the various types or maturities of
assets supported by short-term wholesale funding sources, as suggested
by commenters, would add complexity to the indicator. For example,
because a banking organization's funding is fungible, monitoring the
direct relationship between specific liabilities and assets with
various maturities requires a methodology for asset-liability matching
and liability maturity. The LCR rule and the proposed NSFR rule
therefore include methodologies for reflecting asset maturity in
regulatory requirements that address the associated risks.\63\
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\63\ For example, the LCR rule includes cash inflows from
certain maturing assets and the proposed NSFR rule would use the
maturity profile of a banking organization's assets to determine its
required stable funding amount.
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Commenters suggested revisions to the weighted short-term wholesale
funding indicator that would align with the treatment of certain assets
and liabilities under the LCR rule. For example, some commenters
recommended that the agencies more closely align the indicator's
measurement of weighted short-term wholesale funding with the outflow
rates applied in the LCR rule, such as by excluding from the indicator
funding that receives a zero percent outflow rate in the LCR rule or
reducing the weights for secured funding to match the LCR's outflow
treatment. Similarly, commenters suggested that the agencies provide a
lower weighting for brokered and sweep deposits from affiliates,
consistent with the lower outflow rates assigned to these deposits in
the LCR rule. Specifically, commenters argued that the weighted short-
term wholesale funding indicator inappropriately applies the same 25
percent weight to sweep deposits sourced by both affiliates and non-
affiliates alike, and treats certain non-brokered sweep deposits in a
manner inconsistent with the LCR rule.
The agencies note that when the Board established the weights
applied in calculating and reporting short-term wholesale funding for
purposes of the GSIB surcharge rule, the Board took into account the
treatment of certain liabilities in the LCR rule and fire sale risks in
key short-term wholesale funding markets. The agencies continue to
believe the current scope of the weighted short-term wholesale funding
indicator, and the weights applied in the indicator, are appropriately
calibrated for assessing the risk to broader financial stability as a
result of a banking organization's reliance on short-term wholesale
funding. The final rule treats brokered deposits as short-term
wholesale funding because they are generally considered less stable
than standard retail deposits. In order to preserve the relative
simplicity of the short-term wholesale funding metric, the final rule
does not distinguish among different types of brokered deposits and
sweep deposits. Accordingly, all retail deposits identified as brokered
deposits and brokered sweep deposits under the LCR rule are reported on
the FR Y-15 as retail brokered deposits and sweeps for purpose of the
weighted short-term wholesale funding indicator.
Commenters also suggested other specific revisions to the
calculation of the weighted short-term wholesale funding indicator.
Some commenters argued that the weighted short-term wholesale funding
indicator should look to the original maturity of the funding
relationship--instead of the remaining maturity--and exclude long-term
debt that is maturing within the next year. Commenters also urged the
agencies to recognize certain offsets to reduce the amount of short-
term wholesale funding included in the indicator. For example, a number
of commenters suggested that the amount of short-term wholesale funding
should be reduced by the amounts of HQLA held by the banking
organization, cash deposited at the Federal Reserve by the banking
organization, or of any high-quality collateral used for secured
funding. Commenters argued that this approach would better reflect the
banking organization's liquidity risk because it would take into
account assets that could be used to meet cash outflows as well as
collateral that typically maintains its value and therefore would not
contribute to asset fire sales. Commenters also argued that the measure
of weighted short-term wholesale funding should exclude funding that
the commenters viewed as stable, such as credit lines from Federal Home
Loan Banks and Federal Reserve Banks, savings and checking accounts of
wholesale customers, and brokered sweep deposits received from an
affiliate.
The agencies believe that the remaining maturity of a funding
relationship, instead of original maturity as suggested by commenters,
provides a more accurate measure of the banking organization's ongoing
exposure to rollover risk. As discussed above, because a banking
organization's inability to rollover funding may generate safety and
soundness and financial stability risks, the agencies believe that
using remaining maturity is more appropriate given the purposes of the
short-term wholesale funding indicator. Further, the weighted short-
term wholesale funding indicator takes into account the quality of
collateral used in funding transactions by
[[Page 59243]]
assigning different weights to average amounts of secured funding
depending on its collateral. These weights reflect the liquidity
characteristics of the collateral and the extent to which the quality
of such assets may mitigate fire sale risk. Revising the short-term
wholesale funding indicator to permit certain assets to offset
liabilities because the assets may be used to address cash outflows, as
suggested by commenters, could understate financial stability and
safety and soundness risk because such an approach assumes those assets
are available to offset funding needs in stress conditions. Similarly,
excluding a banking organization's reliance on certain types of short-
term funding from the indicator may result in an underestimation of a
banking organization's potential to contribute to systemic risk because
such funding may be unavailable for use in a time of stress. Thus, the
final rule does not exclude short-term borrowing from the Federal Home
Loan Banks, which may be secured by a broad range of collateral, and
the final rule treats such short-term borrowing the same as borrowing
from other wholesale counterparties in order to identify risk. More
generally, incorporating commenters' recommended exclusions and offsets
would reduce the transparency of the weighted short-term wholesale
funding indicator, contrary to the agencies' intention to provide a
simplified measure to identify banking organizations with heightened
risks. For these reasons, the final rule adopts the weighted short-term
wholesale funding indicator without change.
Commenters also provided suggestions to reduce or eliminate inter-
affiliate transactions from the measure of weighted-short term
wholesale funding. Specifically, commenters provided suggestions to
weight inter-affiliate transactions or net transactions with
affiliates.
Including funding from affiliated sources provides an appropriate
measure of the risks associated with a banking organization's general
reliance on short-term wholesale funding. Banking organizations that
generally rely on funding with a shorter contractual maturity from
financial sector affiliates may present higher risks relative to those
that generally rely on funding with a longer contractual term from
outside of the financial sector. Based on the contractual term, the
risks presented by ongoing reliance on short-term funding from
affiliates may be similar to funding from non-affiliated sources. For
the reasons discussed above, the final rule adopts the weighted short-
term wholesale funding indicator as proposed.
C. Application of Standards Based on the Proposed Risk-Based Indicators
The proposed risk-based indicators would have determined the
application of capital and liquidity requirements under Categories II,
III, and IV. By taking into consideration the relative presence or
absence of each risk-based indicator, the proposals would have provided
a basis for assessing a banking organization's financial stability and
safety and soundness risks for purposes of determining the
applicability and stringency of these requirements.
Commenters criticized the methods by which the proposed risk-based
indicators would determine the category of standards applicable to a
banking organization. Certain commenters expressed concern that a
banking organization could become subject to Category II or III
standards without first being subject to Category IV standards, due to
the disjunctive use of the size and other risk-based indicators under
the proposals. One commenter suggested that the agencies should instead
apply a category of standards based on a weighted average of the risk-
based indicators. Another commenter suggested that application of
Category II standards should be based on other or additional risk
factors. Several commenters suggested that the application of
standardized liquidity requirements should be based only on the levels
of the weighted short-term wholesale funding indicator, and not based
on the levels of any other risk-based indicator. One commenter
criticized the proposals for not providing sufficient justification for
the number of categories.
Because each indicator serves as a proxy for various types of risk,
a high level in a single indicator warrants the application of more
stringent standards to mitigate those risks and support the overall
purposes of each category. The agencies therefore do not believe using
a weighted average of a banking organization's levels in the risk-based
indicators, or the methods that would require a banking organization to
exceed multiple risk-based indicators, is appropriate to determine the
applicable category of standards. The final rule therefore adopts the
use of the risk-based indicators generally as proposed.
Certain commenters suggested that the agencies reduce requirements
under the foreign bank proposal to account for the application of
standards at the foreign banking organization parent. The final rule
takes into account the standards that already apply to the foreign
banking organization parent. Specifically, the final rule tailors the
application of capital and liquidity requirements based, in part, on
the size and complexity of a foreign banking organization's activities
in the United States. Moreover, under the Board-only final rule, the
standards applicable to foreign banking organizations with a more
limited U.S. presence largely rely on compliance with comparable home-
country standards applied at the consolidated foreign parent level. In
this way, the final rule helps to mitigate the risk such banking
organizations present to safety and soundness and U.S. financial
stability, consistent with the overall objectives of the tailoring
framework. Requiring foreign banking organizations to maintain
financial resources in the jurisdictions in which they operate
subsidiaries also reflects existing agreements reached by the BCBS and
international regulatory practice.
D. Calibration of Thresholds and Indexing
The proposals would have employed fixed nominal thresholds to
assign the categories of standards that apply to banking organizations.
In particular, the proposals included total asset thresholds of $100
billion, $250 billion, and $700 billion, along with $75 billion
thresholds for each of the other risk-based indicators. The foreign
bank proposal also included a $50 billion weighted short-term wholesale
funding threshold for U.S. and foreign banking organizations subject to
Category IV standards.
Some commenters expressed concerns regarding the use of $75 billion
thresholds for cross-jurisdictional activity, weighted short-term
wholesale funding, nonbank assets, and off-balance sheet exposure. In
particular, these commenters stated that the $75 billion thresholds
were poorly justified and requested additional information as to why
the agencies chose these thresholds. A number of these commenters also
supported the use of a higher threshold for these risk-based
indicators. Other commenters urged the agencies to retain the
discretion to adjust the thresholds on a case-by-case basis, such as in
the case of a temporary excess driven by customer transactions or for
certain transactions that would result in a sudden change in
categorization.
The $75 billion thresholds are based on the degree of concentration
of a particular risk indicator for each banking organization relative
to total assets. That is, a threshold of $75 billion represents at
least 30 percent and as
[[Page 59244]]
much as 75 percent of total assets for banking organizations with
between $100 billion and $250 billion in total assets.\64\ Thus, for
banking organizations that do not meet the size threshold for Category
III standards, other risks represented by the risk-based indicators
would be substantial, while banking organizations with $75 billion in
cross-jurisdictional activity have a substantial international
footprint. In addition, setting the thresholds at $75 billion ensures
that banking organizations that account for the vast majority of the
total amount of each risk-based indicator among banking organizations
with $100 billion or more in total consolidated assets are subject to
prudential standards that account for the associated risks of these
risk-based indicators, which facilitates consistent treatment of these
risks across banking organizations. The use of a single threshold also
supports the overall simplicity of the framework. Moreover, a framework
in which thresholds are regularly adjusted on a temporary and case-by-
case basis would not support the objectives of predictability and
transparency.
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\64\ The $100 billion and $250 billion size thresholds are
consistent with those set forth in section 165 of the Dodd-Frank
Act, as amended by 401 of EGRRCPA. Section 165 requires the
application of enhanced prudential standards to bank holding
companies and foreign banking organizations with $250 billion or
more in total consolidated assets. Section 165 authorizes the Board
to apply enhanced prudential standards to such banking organizations
with assets between $100 billion and $250 billion, taking into
consideration the banking organization's capital structure,
riskiness, complexity, financial activities (including those of
subsidiaries), size, and any other risk-related factors the Board
deems appropriate. 12 U.S.C. 5365.
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One commenter stated that the agencies should not use the $700
billion size threshold as the basis for applying Category II standards,
arguing that the agencies had not provided sufficient justification for
that threshold. However, as noted in the proposals, historical examples
suggest that the distress or failure of a banking organization of this
size would have systemic impacts. For example, during the 2008-2009
financial crisis, significant losses at Wachovia Corporation, which had
$780 billion in total assets at the time of being acquired in distress,
had a destabilizing effect on the financial system. The $700 billion
size threshold under Category II addresses the substantial risks that
can arise from the activities and potential distress of very large
banking organizations that are not U.S. GSIBs. Commenters did not
request additional explanation regarding the $100 billion and $250
billion total asset thresholds. As noted above, these size thresholds
are consistent with those set forth in section 165 of the Dodd-Frank
Act, as amended by section 401 of EGRRCPA.\65\
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\65\ Id.
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Several commenters requested that the agencies index certain of the
proposed thresholds based on changes in various measures, such as
growth in domestic banking assets, inflation, gross domestic product
growth or other measures of economic growth, or share of the indicator
held by the banking organization in comparison to the amount of the
indicator held in the financial system. These commenters requested that
the thresholds be automatically adjusted on an annual basis based on
changes in the relevant index, by operation of a provision in the rule.
Other commenters expressed concern that indexing can have pro-cyclical
effects.
As commenters noted, the $100 billion and $250 billion size
thresholds prescribed in the Dodd-Frank Act, as amended by EGRRCPA, are
fixed by statute.\66\ Indexing the other thresholds would add
complexity, a degree of uncertainty, and potential discontinuity to the
framework. The agencies acknowledge the thresholds should be
reevaluated over time to ensure they appropriately reflect growth on a
macroeconomic and industry-wide basis, as well as to continue to
support the objectives of this rule. The agencies plan to accomplish
this by periodically reviewing the thresholds and proposing changes
through the notice and comment process, rather than including an
automatic adjustment of thresholds based on indexing.\67\
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\66\ Section 165 of the Dodd-Frank Act does provide the Board
with discretion to establish a minimum asset threshold above the
statutory thresholds for some, but not all, enhanced prudential
standards. However, the Board may only utilize this discretion
``pursuant to a recommendation by the Financial Stability Oversight
Council in accordance with section 115 of the Dodd-Frank Act.'' This
authority is not available for stress testing and risk committee
requirements. 12 U.S.C. 5365(a)(2)(B).
\67\ Similarly, the Board-only final rule does not include an
automatic indexing function.
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E. The Risk-Based Categories
1. Category I
Under the domestic proposal, Category I standards would have
applied to U.S. GSIBs, which are banking organizations that have a U.S.
GSIB score of 130 or more under the scoring methodology. Category I
standards would have included the most stringent standards relative to
those imposed under the other categories, to reflect the heightened
risks that banking organizations subject to Category I standards pose
to U.S. financial stability. The requirements applicable to U.S. GSIBs
would have remained largely unchanged from existing requirements.
The agencies did not receive comments regarding the criteria for
application of Category I standards to U.S. GSIBs. Several commenters
expressed concern regarding applying more stringent standards than
Category II standards to foreign banking organizations, even if the
risk profile of a foreign banking organization's U.S. operations were
comparable to a U.S. GSIB.\68\ The final rule adopts the scoping
criteria for Category I, and the capital and liquidity standards that
apply under this category as proposed. U.S. GSIBs have the potential to
pose the greatest risks to U.S. financial stability due to their
systemic risk profile and, accordingly, should be subject to the most
stringent capital and liquidity standards. The treatment for U.S. GSIBs
aligns with international efforts to address the financial stability
risks posed by the largest, most interconnected financial institutions.
In 2011, the BCBS adopted a framework to identify global systemically
important banking organizations and evaluate their systemic
importance.\69\ This framework generally applies to the global
consolidated parent organization, and does not apply separately to
subsidiaries and operations in host jurisdictions. Consistent with this
approach, U.S. intermediate holding companies of foreign banking
organizations are not subject to Category I standards under the final
rule. The agencies will continue to monitor the systemic risk profiles
of foreign banking organizations' U.S. operations, and consider whether
application of more stringent requirements is appropriate to address
any increases in their size, complexity or overall systemic risk
profile.
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\68\ As noted above, the foreign bank proposal would not have
applied Category I standards to the U.S. operations of foreign
banking organizations because the Board's GSIB surcharge rule would
not identify a foreign banking organization or a U.S. intermediate
holding company as a U.S. GSIB. The foreign bank proposal sought
comment on the advantages and disadvantages of applying enhanced
prudential standards that are more stringent than Category II
standards to the U.S. operations of foreign banking organizations
with a comparable risk profile to U.S. GSIBs.
\69\ See BCBS, ``Global systemically important banks: Assessment
methodology and the additional loss absorbency requirement''
(November 4, 2011).
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2. Category II
The proposals would have applied Category II standards to banking
organizations with $700 billion in total assets or $100 billion or more
in total assets and $75 billion or more in cross-
[[Page 59245]]
jurisdictional activity. Like Category I standards, Category II capital
and liquidity standards are generally based on standards that reflect
agreements reached by the BCBS. The proposals also sought comment on
whether Category II standards should apply based on a banking
organization's weighted short-term wholesale funding, nonbank assets,
and off-balance sheet exposure, using a higher threshold than the $75
billion threshold that would apply for Category III standards.
Some commenters argued that cross-jurisdictional activity should be
an indicator for Category III standards rather than Category II
standards. Another commenter expressed concern with expanding the
criteria for Category II standards to include any of the other risk-
based indicators used for purposes of Category III standards. Some
commenters also argued that the proposed Category II standards were too
stringent relative to the risks indicated by a high level of cross-
jurisdictional activity or very large size. Other commenters argued
that application of Category II standards to foreign banking
organizations was unnecessary because these banking organizations are
already subject to BCBS-based standards on a global, consolidated basis
by their home-country regulators. Another commenter requested that the
agencies make clearer distinctions between Category I and Category II
standards.
As discussed above, banking organizations that engage in
significant cross-jurisdictional activity present complexities that
support the application of more stringent standards relative to those
that would apply under Category III. In addition, application of
consistent prudential standards across jurisdictions to banking
organizations with significant size or cross-jurisdictional activity
helps to promote competitive equity among U.S. banking organizations
and their foreign peers, while applying standards that appropriately
reflect the risk profiles of banking organizations that meet the
thresholds for Category III standards. As noted above, this approach is
consistent with international regulatory practice.
Accordingly, and consistent with the proposal, the final rule
applies Category II standards to U.S. banking organizations and U.S.
intermediate holding companies with $700 billion in total consolidated
assets or cross-jurisdictional activity of $75 billion or more.
3. Category III
Under the proposals, Category III standards would have applied to
banking organizations that are not subject to Category I or II
standards and that have total assets of $250 billion or more. They also
would have applied to banking organizations with $100 billion or more
in total assets and $75 billion or more in nonbank assets, weighted
short-term wholesale funding, or off-balance-sheet exposure.
A number of commenters supported the proposed scoping criteria for
Category III, as well as the standards that would have applied under
this category. Several other commenters requested certain changes to
the specific thresholds and risk-based indicators used to determine
which banking organizations would have been subject to Category III
standards, as well as the capital and liquidity standards that would
have applied under this category. Comments regarding the capital and
liquidity requirements that would have applied under Category III are
discussed in section V.B of this Supplementary Information.
The final rule generally adopts the scoping criteria for Category
III, and the capital and liquidity standards that apply under this
Category as proposed.
4. Category IV
Under the proposals, Category IV standards would have applied to
banking organizations with $100 billion or more in total assets that do
not meet the thresholds for any other category. A number of commenters
argued that no heightened prudential standards should apply to banking
organizations that meet the criteria for Category IV standards because
such banking organizations are not as large or complex as banking
organizations that would be subject to more stringent categories of
standards under the proposals. Alternatively, these commenters
suggested that the threshold for application of Category IV standards
should be raised from $100 billion to $250 billion in total assets.\70\
In contrast, one commenter argued that the agencies should not reduce
the requirements applicable to banking organizations that would be
subject to Category IV until current requirements have been in effect
for a full business cycle.
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\70\ Commenters also argued that the Board had not sufficiently
justified the application of enhanced prudential standards to
banking organizations subject to Category IV standards, in the
manner required under EGRRCPA. These comments are addressed in
section VI.D of the Supplementary Information in the Board-only
final rule.
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The final rule includes Category IV because banking organizations
subject to this category of standards generally have greater scale and
operational and managerial complexity relative to smaller banking
organizations and, as a result, present heightened safety and soundness
risks. In addition, the failure of one or more banking organizations
subject to Category IV standards could have a more significant negative
effect on economic growth and employment relative to the failure or
distress of smaller banking organizations. The banking organizations
subject to Category IV standards have lower risk profiles than those
subject to Category I, II, or III standards. Banking organizations
subject to these standards therefore generally will be subject to
capital and liquidity requirements that are similar to those applicable
to banking organizations with less than $100 billion in assets. To the
extent a banking organization subject to Category IV standards has
elevated levels of short-term wholesale funding, it will be subject to
a reduced LCR requirement. The agencies believe this approach strikes
the right balance in applying standards that are tailored to the risk
profiles of banking organizations subject to Category IV standards.
F. Treatment of Depository Institution Subsidiaries
The proposals generally would have applied the same category of
standards to U.S. depository institution holding companies and their
depository institution subsidiaries. As discussed in section VI.B of
this SUPPLEMENTARY INFORMATION, standardized liquidity requirements
would have applied only to depository institutions with $10 billion or
more in total consolidated assets that are subsidiaries of banking
organizations subject to Category I, II, or III standards.
Commenters on the domestic proposal generally supported the
application of consistent requirements for U.S. depository institution
holding companies and their depository institution subsidiaries. This
treatment aligns with the agencies' longstanding policy of applying
similar standards to holding companies and their depository institution
subsidiaries. For example, since 2007 the agencies generally have
required depository institutions to apply the advanced approaches
capital requirements if their parent holding company is identified as
an advanced approaches banking organization.
Accordingly, the final rule maintains the application of regulatory
capital and LCR requirements to depository institution subsidiaries as
proposed.
[[Page 59246]]
G. Specific Aspects of the Foreign Bank Proposal
1. Liquidity Standards Based on Combined U.S. Operations
The foreign bank proposal would have determined the category of
liquidity standards applicable to a foreign banking organization with
respect to its U.S. intermediate holding company based on the risk
profile of its combined U.S. operations, in recognition of the
agencies' observation that liquidity needs may arise suddenly and
manifest across all segments of a foreign banking organization's U.S.
operations.\71\
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\71\ Combined U.S. operations consist of the foreign banking
organizations U.S. subsidiaries, including any intermediate holding
company, and U.S. branch and agency operations.
---------------------------------------------------------------------------
Some commenters supported the proposal to calibrate liquidity
standards applicable to foreign banking organizations based on the risk
profile of their combined U.S. operations. Most commenters objected to
this aspect of the foreign bank proposal, however, and argued that the
agencies instead should determine the applicability and calibration of
liquidity standards based on the risk profile of a foreign banking
organization's U.S. intermediate holding company. These commenters
argued the U.S. intermediate holding company is a separate legal entity
from the foreign banking organization's U.S. branches and agencies,
with separate activities and risks. Commenters also asserted that the
proposed approach does not recognize the potential capacity of the
parent foreign banking organization to serve as a source of support for
its U.S. operations. Other commenters asserted that certain
requirements, such as capital planning requirements, stress testing,
and internal liquidity stress testing-based buffer requirements could
help to insulate a U.S. intermediate holding company from risks at
other parts of the foreign banking organization. Some commenters also
argued the proposed approach would have resulted in a framework that is
overly complex.
In addition, commenters stated that the proposed approach could
create a competitive disadvantage for U.S. intermediate holding
companies relative to U.S. banking organizations that the commenters
viewed as similarly situated, because the foreign bank proposal would
have considered risks and activities outside of the consolidated U.S.
intermediate holding company to determine the applicability and
calibration of standardized liquidity requirements. These commenters
stated that such an approach is inconsistent with the principle of
national treatment and equality of competitive opportunity. Some
commenters also asserted that the proposed approach would have
inappropriately required a foreign banking organization to hold liquid
assets at its U.S. intermediate holding company to meet outflows at the
foreign banking organization's U.S. branches and require HQLA of a U.S.
intermediate holding company to be controlled by the international bank
rather than the U.S. intermediate holding company. One commenter
suggested that the agencies should provide data in support of
assertions that requirements based on the combined U.S. operations
would reduce the incentives for a foreign banking organization to
migrate risky activities to the branches and agencies.
The final rule determines the applicability of liquidity standards
with respect to a U.S. intermediate holding company based on the risk
profile of the U.S. intermediate holding company, rather than the
combined U.S. operations of the foreign banking organization.
Specifically, the final rule applies a full LCR or reduced LCR
requirement to a U.S. intermediate holding company under the risk-based
categories based on measures of the U.S. intermediate holding company's
size, cross-jurisdictional activity, weighted short-term wholesale
funding, nonbank assets, and off-balance sheet exposure. The agencies
believe this approach helps to enhance the focus and efficiency of
standardized liquidity requirements relative to the proposal, because
liquidity requirements that apply to a U.S. intermediate holding
company will be based on the U.S. intermediate holding company's own
risk profile. As discussed in the foreign bank proposal and in section
VI.B.10 of this SUPPLEMENTARY INFORMATION, the Board may develop and
propose a standardized liquidity requirement for the U.S. branches and
agencies of a foreign banking organization. As part of that process,
the agencies intend to further consider how to most appropriately
address concerns regarding the liquidity risk profiles of foreign
banking organizations' U.S. operations, including through the use of
existing supervisory processes, other relevant regulations and
international coordination, as well as developments in the U.S.
activities and liquidity risk-management practices of foreign banking
organizations.
2. The Treatment of Inter-Affiliate Transactions
Except for cross-jurisdictional activity, which would have excluded
liabilities and certain collateralized claims on non-U.S. affiliates,
the proposed risk-based indicators would have included transactions
between a foreign banking organization's combined U.S. operations and
non-U.S. affiliates. Similarly, and as noted above, except for cross-
jurisdictional activity, a U.S. intermediate holding company would have
included transactions with affiliates outside the U.S. intermediate
holding company when reporting its risk-based indicators.
Most commenters on the foreign bank proposal supported the proposed
exclusion of certain inter-affiliate transactions in the cross-
jurisdictional activity indicator, and argued further that all risk-
based indicators should exclude transactions with affiliates. These
commenters asserted that including inter-affiliate transactions
disadvantaged foreign banking organizations relative to U.S. peers and
argued that the rationale for excluding certain inter-affiliate claims
from the cross-jurisdictional activity measure applied equally to all
other risk-based indicators. A number of commenters argued that
including inter-affiliate transactions would overstate the risks to a
foreign banking organization's U.S. operations or U.S. intermediate
holding company because inter-affiliate transactions may be used to
manage risks of the foreign bank's global operations. Similarly, some
commenters asserted that the inclusion of inter-affiliate transactions
would be inconsistent with the risks that the risk-based indicators are
intended to capture. Other commenters argued that any risks associated
with inter-affiliate transactions would be appropriately managed
through the supervisory process and existing requirements, and
expressed concern that including inter-affiliate transactions could
encourage ring fencing in other jurisdictions. Some commenters
suggested that, if inter-affiliate transactions are not excluded
entirely, the agencies should assign inter-affiliate transactions a
weight at no more than 50 percent. By contrast, one commenter argued
that inter-affiliate transactions should be included in the risk-based
indicators, arguing that the purpose of the Board's U.S. intermediate
holding company framework is that resources located outside the
organization may not be reliably available during periods of financial
stress.
[[Page 59247]]
Tailoring standards based on the risk profile of the U.S.
intermediate holding company, or combined U.S. operations of a foreign
banking organization as under the Board-only final rule, requires
measurement of risk-based indicators at a level below that of the
global consolidated foreign banking organization. As a result, the
calculation of the risk-based indicators must distinguish between a
foreign banking organization's U.S. operations or U.S. intermediate
holding company, as applicable, and affiliates outside of the United
States, including by providing a treatment for inter-affiliate
transactions that would otherwise be eliminated in consolidation at the
global parent. Including inter-affiliate transactions in the
calculation of risk-based indicators would mirror, as closely as
possible, the risk profile of a U.S. intermediate holding company or
combined U.S. operations if each were consolidated in the United
States.
Including inter-affiliate transactions in the calculation of risk-
based indicators is consistent with the agencies' approach to measuring
and applying standards at a sub-consolidated level in other contexts.
For example, existing thresholds and requirements in the Board's
Regulation YY are based on measures of a foreign banking organization's
size in the United States that includes inter-affiliate
transactions.\72\ Similarly, the total consolidated assets of a U.S.
intermediate holding company or depository institution include
transactions with affiliates outside of the consolidated U.S.
intermediate holding company.\73\ Capital and liquidity requirements
applied to U.S. intermediate holding companies and depository
institutions generally do not distinguish between exposures with
affiliates and third parties.\74\ For example, the LCR rule assigns
inflow rates to funding according to the characteristics of the source
of funding, but generally does not distinguish between funding provided
by an affiliate or third party. Excluding inter-affiliate transactions
from off-balance sheet exposure, size, and short-term wholesale funding
indicators would be inconsistent with the treatment of these exposures
under the capital and liquidity rules.
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\72\ Combined U.S. assets are calculated as the average of the
total combined assets of U.S. operations for the four most recent
consecutive quarters as reported by the foreign banking organization
on the Capital and Asset Report for Foreign Banking Organizations
Form (FR Y-7Q), or, if the foreign banking organization has not
reported this information on the FR Y-7Q for each of the four most
recent consecutive quarters, the average of the combined U.S. assets
for the most recent quarter or consecutive quarters as reported on
the FR Y-7Q. Combined U.S. assets are measured on the as-of date of
the most recent FR Y-7Q used in the calculation of the average. See
e.g. 12 CFR 252.15(b)(1).
\73\ See Call Report instructions, FR Y-9C.
\74\ For example, the LCR rule differentiates unsecured
wholesale funding provided by financial sector entities and by non-
financial sector entities, but does not differentiate between
financial sector entities that are affiliates and those that are not
affiliates. See 12 CFR 50.32(h) (OCC), 12 CFR 249.32(h) (Board), 12
CFR 329.32(h) (FDIC). The LCR rule differentiates between affiliates
and third parties under limited circumstances. See e.g., 12 CFR
50.32(g)(7) (OCC), 12 CFR 249.32(g)(7) (Board), 12 CFR 329.32(g)(7)
(FDIC).
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In some cases, the exclusion of inter-affiliate transactions would
not align with the full scope of risks intended to be measured by an
indicator. Inter-affiliate positions can represent sources of risk--for
example, claims on the resources of a foreign banking organization's
U.S. operations. As another example, short-term wholesale funding
provided to a U.S. intermediate holding company by its parent foreign
bank represents funding that the parent could withdraw quickly, which
could leave fewer assets available for U.S. counterparties of the U.S.
intermediate holding company.\75\ By including inter-affiliate
transactions in weighted short-term wholesale funding while excluding
these positions from cross-jurisdictional liabilities, the framework
provides a more risk-sensitive measure of funding risk from foreign
affiliates as it takes into consideration the maturity and other risk
characteristics of the funding for purposes of the weighted short-term
wholesale funding measure. Additionally, because long-term affiliate
funding (such as instruments used to meet total loss absorbing capacity
requirements) would not be captured in weighted short-term wholesale
funding, the indicator is designed to avoid discouraging a foreign
parent from providing support to its U.S. operations.
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\75\ See e.g., Robert H. Gertner, David S. Scharfstein & Jeremy
C. Stein, ``Internal Versus External Capital Markets,'' 109 Q.J.
ECON. 1211 (1994) (discussing allocation of resources within a
consolidated organization through internal capital markets); Nicola
Cetorelli & Linda S. Goldberg, ``Global Banks and International
Shock Transmission: Evidence from the Crisis,'' 59 IMF ECON. REV. 41
(2011) (discussing the role of internal capital markets as a
mechanism for transmission of stress in the financial system); and
Nicola Cetorelli & Linda Goldberg, ``Liquidity Management of U.S.
Global Banks: Internal Capital Markets in the Great Recession''
(Fed. Reserve Bank of N. Y. Staff Report No. 511, 2012), available
at: http://www.newyorkfed.org/research/staff_reports/sr511.pdf
(finding that foreign affiliates were both recipients and providers
of funds to the parent between March 2006 and December 2010). See
also, Ralph de Haas and Iman Van Lelyvelt, ``Internal Capital
Markets and Lending by Multinational Bank Subsidiaries (2008)
(discussing substitution effect in lending across several countries
as a parent bank expand its business in those countries where
economic conditions improve and decrease its activities where
economic circumstance worsen), available at: https://www.ebrd.com/downloads/research/economics/workingpapers/wp0105.pdf.
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Similarly, with respect to off-balance sheet exposure, an exclusion
for inter-affiliate transactions would not account for the risks
associated with any funding commitments provided by the U.S. operations
of a foreign banking organization to non-U.S. affiliates. Accordingly,
the agencies believe it would be inappropriate to exclude inter-
affiliate transactions from the measure of off-balance sheet exposure.
For purposes of the nonbank assets indicator, the proposals would
have treated inter-affiliate transactions similarly for foreign and
domestic banking organizations. For foreign banking organizations, the
proposals would have measured nonbank assets as the sum of assets in
consolidated U.S. nonbank subsidiaries together with investments in
unconsolidated U.S. nonbank companies that are controlled by the
foreign banking organization.\76\ Both foreign and domestic banking
organizations would have included in nonbank assets inter-affiliate
transactions between the nonbank company and other parts of the
organization.\77\
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\76\ See FR Y-9LP, Schedule PC-B, line item 17.
\77\ See FR Y-9LP Instructions for Preparation of Parent Company
Only Financial Statements for Large Holding Companies (September
2018) https://www.federalreserve.gov/reportforms/forms/FR_Y-9LP20190630_i.pdf.
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Accordingly, for purposes of the risk-based indicators, the final
rule adopts the treatment of inter-affiliate transactions as proposed.
H. Determination of Applicable Category of Standards
Under the proposals, a banking organization would have determined
its category of standards based on the average levels of each indicator
at the top-tier banking organization, reported over the preceding four
calendar quarters. If the banking organization had not reported risk-
based indicator levels for each of the preceding four calendar
quarters, the category would have been based on the risk-based
indicator level for the quarter, or average levels over the quarters,
that the banking organization has reported.
For a change to a more stringent category (for example, from
Category IV to Category III), the change would have been based on an
increase in the average value of its risk-based indicators over the
prior four quarters of a calendar year. In contrast, for a banking
organization to change to a less stringent category (for example,
Category II to Category III), the banking organization
[[Page 59248]]
would have been required to report risk-based indicator levels below
any applicable threshold for the more stringent category in each of the
four preceding calendar quarters. Changes in a banking organization's
requirements that result from a change in category generally would have
taken effect on the first day of the second quarter following the
change in the banking organization's category.
The agencies received several comments on the process for
determining the applicable category of standards under the proposal and
on the amount of time provided to comply with the requirements of a new
category. In particular, several commenters suggested providing banking
organizations with at least 18 months to comply with a more stringent
category of standards. Several commenters recommended that the agencies
retain discretion to address a temporary increase in an activity, such
as to help a banking organization avoid a sudden change in the
categorization of applicable standards. These commenters suggested that
any adjustments of thresholds could consider both qualitative
information and supervisory judgment. Commenters also requested that
the agencies clarify the calculation of certain risk-based indicators.
For example, by providing references to specific line items in the
relevant reporting forms. One commenter also suggested that the
agencies revise the reporting forms used to report risk-based indicator
levels so that they apply to a depository institution that is not part
of a bank or savings and loan holding company structure.
The final rule maintains the process for determining the category
of standards applicable to a banking organization as proposed. To move
into a category of standards or to determine the category of standards
that would apply for the first time, a banking organization would rely
on an average of the previous four quarters or, if the banking
organization has not reported in each of the prior four quarters, the
category would be based on the risk-based indicator level for the
quarter, or average levels over the quarter or quarters that the
banking organization has reported. Use of a four-quarter average would
capture significant changes in a banking organization's risk profile,
rather than temporary fluctuations, while maintaining incentives for a
banking organization to reduce its risk profile relative to a longer
period of measurement.
To move to a less stringent category of standards, a banking
organization must report risk-based indicator levels below any
applicable threshold for the more stringent category in each of the
four preceding calendar quarters. This approach is consistent with the
existing applicability and cessation requirements of the Board's
enhanced prudential standards rule.\78\
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\78\ See e.g., 12 CFR 252.43.
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The final rule does not provide for discretionary adjustments of
thresholds on a case-by-case basis, because such an approach would
diminish the transparency and predictability of the framework and could
reduce incentives for banking organizations to engage in long-term
management of their risks.\79\
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\79\ The agencies retain general authority under their capital
and liquidity rules to increase or adjust requirements as necessary
on a case-by-case basis. See 12 CFR 217.1(d) and 249.2 (Board); 12
CFR 324.1(d) and 329.2 (FDIC); 12 CFR 3.1(d) and 50.2 (OCC). The
discussion of transitions specific to the LCR rule are addressed
below in section VI of this SUPPLEMENTARY INFORMATION.
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Each risk-based indicator will generally be calculated in
accordance with the instructions to the FR Y-15, FR Y-9LP, FR Y-7Q, or
FR Y-9C, as applicable. The risk-based indicators must be reported for
the top-tier banking organization on a quarterly basis.\80\ U.S.
banking organizations currently report the information necessary to
determine their applicable category of standards based on a four-
quarter average.\81\ In response to concerns raised by commenters, the
Board also is revising its reporting forms to specify the line items
used in determining the risk-based indicators.\82\ With respect to the
commenters' concern regarding the applicability of these reporting
forms to depository institutions that are not a consolidated subsidiary
of a U.S. depository institution holding company, the agencies note
that no such depository institution would be subject to the final rule
based on first quarter 2019 data. The agencies will monitor the
implementation of the final rule and make any such adjustments to
reporting forms, as needed, to require such a depository institution to
report risk-based indicator levels.
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\80\ A foreign banking organization must also report risk-based
indicators with respect to its combined U.S. operations as
applicable under the final rule.
\81\ The Board-only final rule includes information on changes
to Federal Reserve reporting forms and discussion of the specific
line items that will be used to calculate risk-based indicators.
Although U.S. intermediate holding companies currently report the FR
Y-15, the revised form would reflect the cross-jurisdictional
activity indicator adopted in the final rule.
\82\ Section XV of the Supplementary Information in the Board-
only final rule discusses changes to reporting requirements, and
identifies the specific line items that will be used to calculate
risk-based indicators. Although U.S. intermediate holding companies
currently report the FR Y-15, the revised form reflects the cross-
jurisdictional activity indicator adopted in the final rule.
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Some commenters asserted that banking organizations could adjust
their exposures to avoid thresholds, including by making temporary
adjustments to lower risk-based indicator levels reported. The agencies
will continue to monitor risk-based indicator amounts reported and
information collected through supervisory processes to ensure that the
risk-based indicators are reflective of a banking organization's
overall risk profile, and would consider changes to reporting forms, as
needed. In particular, the agencies will monitor weighted short-term
wholesale funding levels reported at quarter-end, relative to levels
observed during the reporting period.
VI. Capital and Liquidity Requirements for Large U.S. and Foreign
Banking Organizations
A. Capital Requirements That Apply Under Each Category
As discussed below, the final rule adopts the capital requirements
applicable to large banking organizations under the risk-based category
framework as proposed. Under the final rule, Category I capital
requirements apply to U.S. GSIBs, whereas capital requirements under
Categories II through IV apply to large U.S. banking organizations and
U.S. intermediate holding companies based on measures of a top-tier
banking organization's size, cross-jurisdictional activity, weighted
short-term wholesale funding, nonbank assets, and off-balance sheet
exposure. Consistent with the principle of national treatment and
equality of competitive opportunity, as well as agreements reached by
the BCBS,\83\ the capital requirements applicable to U.S. intermediate
holding companies under this final rule are generally consistent with
those applicable to U.S. bank holding companies and savings and loan
holding companies of a similar size and risk profile.
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\83\ See e.g., BCBS, ``International Convergence of Capital
Measurement and Capital Standards,'' Sec. 781 (June 2006).
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1. Category I Capital Requirements
The domestic proposal would not have changed the capital
requirements applicable to U.S. GSIBs and their depository institution
subsidiaries. Therefore, such banking organizations would have remained
subject to the most stringent capital requirements, including
requirements based on
[[Page 59249]]
standards that reflect agreements reached by the BCBS.
One commenter supported the proposal to maintain the most stringent
capital requirements for U.S. GSIBs under Category I. Some commenters
specifically supported retaining the requirement to recognize elements
of AOCI in regulatory capital, and expressed the view that it serves as
an early warning signal for credit deterioration. However, a few other
commenters requested that the agencies permit all banking organizations
to make an election to opt out of this requirement.
Following the financial crisis, the agencies adopted heightened
capital requirements for U.S. GSIBs to support the resiliency of these
banking organizations and reduce risks to U.S. financial stability.
These requirements are tailored to the systemic risk profile of U.S.
GSIBs, and have contributed to the significant improvements in the
capital positions and risk-management practices of these banking
organizations since the financial crisis. The requirement to recognize
elements of AOCI in regulatory capital, in particular, has helped to
improve the transparency of regulatory capital ratios, as it better
reflects banking organizations' actual risk at a specific point in
time. The agencies previously have observed that AOCI is an important
indicator that market participants use to evaluate the capital strength
of a banking organization, and thus is particularly important for the
largest, most systemically significant banking organizations.
The final rule maintains the capital requirements applicable to
U.S. GSIBs and their depository institution subsidiaries. These
requirements generally reflect agreements reached by the BCBS. U.S.
GSIBs and their depository institution subsidiaries must calculate
risk-based capital ratios using both the advanced approaches and the
standardized approach and are subject to the U.S. leverage ratio. Such
banking organizations are also subject to the requirement to recognize
elements of AOCI in regulatory capital; the requirement to expand the
capital conservation buffer by the amount of the countercyclical
capital buffer, if applicable; and enhanced supplementary leverage
ratio standards. In addition, U.S. GSIBs are subject to the GSIB
surcharge. Application of these Category I capital requirements will
continue to strengthen the capital positions of U.S. GSIBs and reduce
risks to financial stability.
2. Category II Capital Requirements
The proposals generally would have maintained the capital
requirements applicable to banking organizations of a very large size
or that engage in significant cross-jurisdictional activity under
Category II. Similar to Category I, capital requirements under Category
II would have been based on standards that reflect agreements reached
by the BCBS and included the requirement to recognize elements of AOCI
in regulatory capital and to expand the capital conservation buffer by
the amount of the countercyclical capital buffer, if applicable.
Banking organizations subject to Category II capital requirements also
would have been required to comply with the advanced approaches capital
requirements, generally applicable risk-based capital requirements, and
the supplementary leverage ratio. Consistent with the prior treatment
of U.S. intermediate holding companies with $250 billion or more in
total consolidated assets or $10 billion or more in on-balance sheet
foreign exposure, U.S. intermediate holding companies subject to
Category II capital requirements would not have been required to
calculate risk-based capital requirements using the advanced approaches
under the capital rule. These banking organizations would instead have
used the generally applicable capital requirements for calculating
risk-weighted assets due to the compliance burden of applying the
advanced approaches in both the U.S. and the home-country
jurisdiction.\84\
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\84\ After adoption of the enhanced prudential standards rule,
and its general exemption for U.S. intermediate holding companies
from calculating risk-weighted assets under the advanced approaches,
depository institution subsidiaries of U.S. intermediate holding
companies were similarly exempted by order from calculating risk-
weighted assets under the advanced approaches.
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Several commenters argued that capital requirements under Category
II would not be appropriately aligned to the scoping criteria for this
category. In particular, some commenters asserted that the cross-
jurisdictional activity indicator is designed to identify activities
that could give rise to liquidity risks in foreign jurisdictions and
that would not need to be supported by more stringent capital
requirements. Therefore, commenters suggested a banking organization
scoped into Category II as a result of its cross-jurisdictional
activity should be subject to the same capital requirements that would
apply to banking organizations under Category III. In particular,
commenters opposed the application of advanced approaches capital
requirements and the requirement to recognize elements of AOCI in
regulatory capital. Some commenters argued that the proposals did not
establish the purpose of the requirement to reflect elements of AOCI in
regulatory capital for banking organizations with significant cross-
jurisdictional activity.
Relative to banking organizations subject to Category III capital
requirements, banking organizations of a very large size or with
significant cross-jurisdictional activity pose heightened risks to U.S.
financial stability and present increased complexity due to their
operational scale or global presence. The heightened capital
requirements under Category II, including the requirement to recognize
elements of AOCI in regulatory capital, serve to address these risks by
supporting the transparency of the capital strength of these banking
organizations, and promote consistency in the capital regulations
across all jurisdictions in which they operate. In view of the
operational and managerial sophistication required for a banking
organization of a very large size or global scale, banking
organizations subject to Category II capital standards are
appropriately positioned to manage the interest rate risk and
regulatory capital volatility that may result from this requirement.
More generally, with respect to the agencies' regulatory capital
requirements, the BCBS recently completed revisions to its capital
standards, including the methodologies for credit risk, operational
risk, and market risk. The agencies are considering how most
appropriately to implement these standards in the United States,
including potentially replacing the advanced approaches with risk-based
capital requirements based on the revised Basel standardized approaches
for credit risk and operational risk. Any such changes to applicable
risk-based capital requirements would be subject to notice and comment
through a future rulemaking process.
Some commenters argued that U.S. intermediate holding companies
subject to Category II capital requirements should not be subject to
the countercyclical capital buffer or the supplementary leverage
ratio.\85\
[[Page 59250]]
Commenters argued that application of these requirements to foreign
banking organizations on both a global consolidated basis and at the
local subsidiary level in a host jurisdiction could lead to
fragmentation of capital.
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\85\ These commenters also stated that U.S. intermediate holding
companies subject to Category III capital requirements should not be
subject to the countercyclical capital buffer and supplementary
leverage ratio. For the reasons stated above, and in the following
section regarding Category III capital requirements, the final rule
maintains these requirements as proposed.
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The countercyclical capital buffer is an important element of the
capital framework that aims to enhance the resilience of the banking
system and reduce systemic vulnerabilities. The benefits from
additional resiliency created by this requirement are more pronounced
when it is applied to all banking organizations of a large size or
global scale because they are interconnected with other market
participants. Further, application of the U.S. countercyclical capital
buffer to all such banking organizations with large U.S. operations
adds to the desired countercyclical effect relative to incomplete
activation of the buffer across comparable banking organizations.
Application of the supplementary leverage ratio to U.S. intermediate
holding companies subject to Category II capital standards also
supports the resilience of these banking organizations and promotes
consistency in the capital requirements across all jurisdictions in
which they operate. As noted above, aligning the capital requirements
for U.S. intermediate holding companies formed by foreign banking
organizations and U.S. bank holding companies is consistent with
longstanding international capital agreements that provide flexibility
to host jurisdictions to establish capital requirements on a national
treatment basis for local subsidiaries of foreign banking
organizations. The overall consistency of the capital requirements
under Category II with BCBS capital standards acts to mitigate concerns
regarding capital fragmentation.
The failure or distress of banking organizations subject to
Category II requirements could impose significant costs on the U.S.
financial system and economy, although they generally do not present
the same degree of risk as U.S. GSIBs. The application of consistent
prudential standards across jurisdictions to banking organizations with
significant size or cross-jurisdictional activity helps to promote
competitive equity among U.S. banking organizations and their foreign
peers and competitors, and to reduce opportunities for regulatory
arbitrage, while applying standards that appropriately reflect the risk
profiles of banking organizations in this category. Thus, the agencies
are finalizing Category II capital requirements as proposed.
3. Category III Capital Requirements
Under the proposals, Category III capital requirements would have
included the generally applicable risk-based capital requirements,
supplementary leverage ratio, and the countercyclical capital buffer.
The advanced approaches risk-based capital requirements would not have
applied under Category III, and banking organizations subject to this
category would have been permitted to make an election to opt out of
the requirement to recognize elements of AOCI in regulatory capital.
The proposals sought comment on various elements of Category III
capital requirements, including the advantages and disadvantages of
retaining the supplementary leverage ratio and countercyclical capital
buffer, and the optional recognition of AOCI in regulatory capital.
Some commenters supported the application of the supplementary
leverage ratio and countercyclical capital buffer to banking
organizations subject to Category III capital requirements. Commenters
asserted that the supplementary leverage ratio is a critical leverage
measure that offers significant benefits to financial stability
relative to risk-based capital measures, and that it is particularly
important for banking organizations subject to Category III to maintain
tier 1 capital for on- and off-balance sheet exposures because of their
risk profile. In addition, some commenters asserted that the
countercyclical capital buffer is a macro-prudential tool that supports
the capital strength of the banking system more broadly, and noted that
the consequence of not applying it to banking organizations subject to
Category III would be to remove a substantial amount of assets from the
potential activation of the buffer. Commenters added that retaining
these requirements would not increase the complexity of the capital
rule, as they currently apply to certain banking organizations that
would be subject to Category III capital requirements.
In view of the scale at which they provide financial intermediation
in the United States, banking organizations subject to Category III
have a footprint substantial enough to merit an expansion of their
regulatory capital base through application of the countercyclical
capital buffer. These banking organizations also may have elevated
levels of off-balance sheet exposure that is not accounted for in the
U.S. leverage ratio. The supplementary leverage ratio helps to
constrain the build-up of this exposure and mitigate any attendant risk
to the financial stability and safety and soundness of these banking
organizations. More broadly, the countercyclical capital buffer and
supplementary leverage ratio are important elements of the post-crisis
framework that support the agencies' objective to establish capital and
other prudential requirements at a level that not only promotes
resilience at a banking organization and protects financial stability,
but also maximizes long-term through-the-cycle credit availability and
economic growth. In addition, as noted above, application of these
requirements to U.S. intermediate holding companies is consistent with
international practice.
Consistent with the proposals, Category III capital requirements
under the final rule include generally applicable risk-based capital
requirements, the U.S. leverage ratio, and for the reasons described
above, the supplementary leverage ratio and the countercyclical capital
buffer. The final rule clarifies that the public disclosure
requirements related to the supplementary leverage ratio also apply
under Category III. Banking organizations subject to Category III
requirements are not required to apply advanced approaches capital
requirements. The models for applying these requirements are costly to
build and maintain, and the agencies do not expect that removal of
these requirements would materially change the amount of capital that
these banking organizations would be required to hold. Relative to
capital requirements under the advanced approaches, the standardized
approach currently represents the binding risk-based capital constraint
for the current population of banking organizations that are estimated
to be subject to Category III capital requirements.
In addition, the proposals would have removed the mandatory
application of the requirement to recognize elements of AOCI in
regulatory capital for certain banking organizations subject to
Category III capital requirements. Such banking organizations subject
to this requirement currently would have been provided an opportunity
to make a one-time opt-out election in the first regulatory report
filed after the effective date of the final rule. A banking
organization that is currently subject to this requirement and that
does not make such an opt-out election would have continued to include
all AOCI components in regulatory capital, except accumulated net gains
and losses on cash flow hedges related to items that are not recognized
at fair value.
[[Page 59251]]
Some commenters objected to the proposed regulatory capital
treatment of AOCI under Category III. Commenters argued that mandatory
application of the requirement to recognize elements of AOCI in
regulatory capital would support investor confidence in banking
organizations during stress, when gains and losses on securities
holdings can result in significant volatility in regulatory capital
levels. Commenters added that the agencies did not provide sufficient
justification for allowing banking organizations subject to Category
III capital standards to make an election to opt out of the requirement
to recognize elements of AOCI in regulatory capital. In contrast, other
commenters supported this aspect of the proposal.
Recognizing elements of AOCI in regulatory capital could introduce
substantial volatility to a banking organization's regulatory capital
levels, particularly during times of stress, and present significant
challenges to asset-liability and capital management. Generally, the
agencies' view has been that this volatility is justified for the
largest, most internationally active banking organizations in order to
provide a transparent, comparable measure of their capital. However,
relative to banking organizations subject to Category I and Category II
capital requirements, banking organizations subject to Category III
present different risk profiles. Further, several of the banking
organizations that would be subject to Category III or Category IV
capital requirements currently are not subject to the mandatory
recognition of AOCI in regulatory capital, and the agencies do not
believe that the benefits mandatory recognition would provide to market
participants sufficiently outweigh the associated burden and compliance
costs. Therefore, consistent with the proposals, the final rule
provides banking organizations subject to Category III capital
requirements an opportunity to make a one-time election to opt out of
the requirement to recognize elements of AOCI in regulatory
capital.\86\
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\86\ Banking organizations that were previously advanced
approaches banking organizations, but under the final rule will be
subject to Category III capital requirements, can make a one-time
election to become subject to AOCI-related adjustments as described
in Sec. __.22(b)(2) of the agencies' regulatory capital rules. See
12 CFR 3.22(b)(2) (OCC); 12 CFR 217.22(b)(2) (Board); 12 CFR
324.22(b)(2) (FDIC). Banking organizations must make this election
on the organization's Call Report or FR Y-9C report, as applicable,
filed on the first reporting date after this final rule is
effective.
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In July 2019, the agencies adopted the capital simplifications
rule.\87\ The capital simplifications rule established simpler capital
requirements for mortgage servicing assets, certain deferred tax assets
arising from temporary differences, and investments in the capital of
unconsolidated financial institutions relative to those that previously
applied to non-advanced approaches banking organizations. The capital
simplifications rule also adopted a simplified treatment for the amount
of capital issued by a consolidated subsidiary and held by third
parties (sometimes referred to as a minority interest) that is
includable in regulatory capital. This final rule extends the
applicability of the capital simplifications rule to all banking
organizations subject to Category III capital requirements.
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\87\ See supra note 26.
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The agencies separately have proposed to adopt the standardized
approach for counterparty credit risk for derivatives exposures (SA-
CCR) and to require advanced approaches banking organizations (banking
organizations subject to Category I or II standards under this final
rule) to use SA-CCR for calculating their risk-based capital ratios and
a modified version of SA-CCR for calculating total leverage exposure
under the supplementary leverage ratio. If that proposed approach were
to be adopted, the agencies would allow a Category III banking
organization to elect to use SA-CCR for calculating derivatives
exposure in connection with its risk-based capital ratios, consistent
with the SA-CCR proposal. Furthermore, the agencies intend to allow a
banking organization subject to Category III standards to elect to use
SA-CCR or continue to use the current exposure method for calculating
its total leverage exposure for purposes of its the supplementary
leverage ratio.\88\
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\88\ Banking organizations would be required to use the same
approach, SA-CCR or the current exposure method, for calculating
both its risk-based capital and its total leverage exposure. See 83
FR 64660 (December 17, 2018).
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4. Category IV Capital Requirements
Under the proposals, Category IV capital requirements would have
included the generally applicable risk-based capital requirements and
the U.S. leverage ratio. The proposals would not have applied the
countercyclical capital buffer and the supplementary leverage ratio to
Category IV banking organizations. In this manner, the requirements
applicable to banking organizations subject to Category IV capital
requirements would maintain the risk sensitivity of the current capital
regime and resiliency of these banking organizations' capital
positions, and would recognize that these banking organizations, while
large, have lower risk-based indicator levels relative to their larger
peers, as set forth in the proposals. As a result, and as noted above,
banking organizations subject to Category IV capital requirements would
have been subject to the same generally applicable risk-based and
leverage capital requirements as banking organizations with less than
$100 billion in total consolidated assets.
The agencies did not receive any comments specific to the capital
requirements that would apply to banking organizations subject to
Category IV standards. Similar to certain aspects of the current
capital requirements, the final rule allows banking organizations to
choose to apply the more stringent requirements of another category
(e.g., a banking organization subject to Category III standards could
choose to comply with the more stringent Category II standards to
minimize compliance costs across multiple jurisdictions).
5. Capital Requirements Transitions
Under the final rule, a banking organization that changes from one
category of applicable standards to another category must generally
comply with the new requirements no later than on the first day of the
second quarter following the change in category. Transition provisions
provided for certain requirements, such as increases to the GSIB
surcharge and the parallel run process for internal models, continue to
apply.
In addition, the agencies are amending the cessation provisions for
calculating risk-based capital requirements under the advanced
approaches. Previously, a banking organization that was required to
calculate its risk-based capital ratios using both the advanced
approaches and standardized approaches would have been required to
calculate its risk-based capital ratios using both the advanced
approaches and the standardized approaches until the appropriate
Federal banking agency determined that application of the requirement
would not be appropriate in light of the banking organization's asset
size, level of complexity, risk profile, or scope of operations. The
new framework makes this cessation provision unnecessary. Accordingly,
a banking organization that no longer meets the relevant criteria for
being subject to Category I or II standards will not be required to
calculate its risk-based capital ratios using both approaches.
[[Page 59252]]
B. Liquidity Requirements Applicable to Each Category
1. Background on LCR Rule
The LCR rule requires a banking organization to calculate and
maintain an amount of HQLA sufficient to cover its total net cash
outflows in a 30-day stress, as calculated under the LCR rule. A
banking organization's LCR is the ratio of its HQLA amount (LCR
numerator) divided by its total net cash outflows (LCR denominator).
Previously under the LCR rule, a banking organization, including a U.S.
intermediate holding company with a depository institution subsidiary,
with $250 billion in total consolidated assets or $10 billion in on-
balance sheet foreign exposure, and any depository institution
subsidiary with $10 billion or more in total consolidated assets, was
required to calculate and maintain an LCR of at least 100 percent each
business day. To ensure the HQLA amount can be used to cover relevant
cash outflows in a period of stress, the LCR rule places certain
requirements on the control and location of eligible HQLA within a
banking organization. The total net cash outflow amount includes an
amount that reflects the timing of certain outflows and inflows
(maturity mismatch add-on) within the LCR's 30-day horizon to ensure
the LCR denominator represents the potential cash needs of these
banking organizations.\89\ All banking organizations subject to the LCR
rule are required to make certain public disclosures on a quarterly
basis.
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\89\ Section __.30 of the LCR rule requires a banking
organization, as applicable, to include in its total net cash
outflow amount a maturity mismatch add-on, which is calculated as
the difference (if greater than zero) between the banking
organization's largest net cumulative maturity outflow amount for
any of the 30 calendar days following the calculation date and the
net day 30 cumulative maturity outflow amount. See 12 CFR 50.30
(OCC); 12 CFR 249.30 (Board); and 12 CFR 329.30 (FDIC).
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The Board previously applied a modified LCR requirement to certain
depository institution holding companies with $50 billion or more in
total consolidated assets, but less than $250 billion in total
consolidated assets and less than $10 billion in on-balance sheet
foreign exposure.\90\ The Board's former modified LCR minimum
requirement was calibrated at a level equivalent to 70 percent of the
full requirement. In addition, under the modified LCR requirement,
depository institution holding companies were not required to calculate
a maturity mismatch add-on as a component of their total net cash
outflow amounts.\91\
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\90\ See 12 CFR part 249, subpart G (2018), which has been
repealed as part of this final rule.
\91\ Separately, certain U.S. and foreign banking organizations
are required to submit data related to their liquidity positions
under the Board's FR 2052a.
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The proposals would have applied standardized liquidity and funding
requirements for U.S. and foreign banking organizations based on the
risk-based indicators and thresholds described above. Specifically, the
proposals would have applied one of four categories of liquidity and
funding requirements to a banking organization: Category I, II, III, or
IV. Under the proposals, a full LCR requirement would have been applied
to banking organizations subject to Category I and II standards. For
banking organizations subject to Category III or Category IV standards,
the proposals would have reduced the LCR requirement based on the
weighted short-term wholesale funding of the U.S. banking organization
or the combined U.S. operations of the foreign banking organization. A
banking organization subject to Category III standards with $75 billion
or more in weighted short-term wholesale funding would have been
subject to the full LCR requirement. A banking organization subject to
Category III standards with less than $75 billion in weighted short-
term wholesale funding or to Category IV standards with $50 billion or
more in weighted short-term wholesale funding would have been required
to comply with a reduced LCR requirement.\92\ Banking organizations
subject to Category IV standards with less than $50 billion in weighted
short-term wholesale funding would not have been subject to an LCR
requirement.
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\92\ The proposals would have removed the Board's modified LCR
because the agencies believed that the reduced LCR would be better
designed for assessing liquidity risks for banking organizations
that meet the thresholds for Categories III and IV.
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Under the proposals, the agencies sought comment on the calibration
of the reduced LCR requirement under Category III and Category IV, at a
level within a range of between 70 percent and 85 percent of the full
LCR requirement applicable under Category I and Category II. In
addition, the proposals would have required all banking organizations
subject to an LCR requirement to include a maturity mismatch add-on and
would have retained the LCR rule's treatment of HQLA held at a banking
organization's consolidated subsidiaries.\93\
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\93\ The proposals would have permitted a top-tier banking
organization to include in its HQLA amount the eligible HQLA of a
consolidated subsidiary up to the amount of the net cash outflows of
the subsidiary (as adjusted for the factor reducing the stringency
of the LCR requirement), plus any additional amount of assets,
including proceeds from the monetization of assets, that would be
available to the top-tier banking organization during times of
stress without statutory, regulatory, contractual, or supervisory
restrictions.
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In general, the agencies received comments on the application of a
standardized liquidity requirement to certain categories of banking
organizations, the calibration of the reduced LCR requirement, and the
application of elements of the Board's former modified LCR requirement
to banking organizations that would be subject to the reduced LCR
requirement.\94\ These comments are discussed below.
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\94\ Comments regarding the NSFR proposal will be addressed in
the context of any final rule to adopt a NSFR requirement for large
U.S. banking organizations and U.S. intermediate holding companies.
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2. Category I Liquidity Requirements
As proposed, U.S. GSIBs would have been subject to Category I
standards because they pose the highest risks to U.S. financial
stability and safety and soundness. The domestic proposal did not
propose to change the full LCR requirement applicable to U.S. GSIBs.
Under the domestic proposal, U.S. GSIBs would also have been included
in the scope of application of the full set of requirements described
in the proposed NSFR rule. In addition, consistent with current
requirements, a U.S. GSIB's depository institution subsidiary with $10
billion or more in total consolidated assets would have remained
subject to the full LCR requirement under the proposal.
The agencies did not receive comments on the application of
standardized liquidity requirements to U.S. GSIBs or their depository
institution subsidiaries and are finalizing the application of the full
LCR requirement to banking organizations subject to Category I as
proposed. Under the final rule, a banking organization subject to
Category I standards will continue to be required to hold an amount of
HQLA equal to at least 100 percent of its total net cash outflows as
calculated under the LCR rule each business day.
3. Category II Liquidity Requirements
The proposals would have applied the full LCR requirement to
banking organizations subject to Category II standards. Consistent with
existing requirements, the proposals would also have applied the full
LCR requirement to their depository institution subsidiaries with total
consolidated assets of $10 billion or more. Under the proposals,
banking organizations subject
[[Page 59253]]
to Category II standards would also have been included in the scope of
application of the full requirement of the proposed NSFR rule.
Some commenters argued that Category II standards should include
reduced, rather than the full LCR requirement because banking
organizations subject to Category II standards have lower risk relative
to U.S. GSIBs. In addition, commenters argued that custody activities
present lower risks due to their use of operational deposits, which the
commenters viewed as stable. Other commenters argued that U.S.
intermediate holding companies should not be subject to an LCR
requirement at all, or alternatively, that they should be subject to
the Board's former modified LCR requirement if the top-tier foreign
parent is subject to an LCR requirement.
The failure or distress of banking organizations that would be
subject to Category II standards could impose significant costs on the
U.S. financial system and economy. While these banking organizations
generally do not present the same degree of systemic risk as U.S.
GSIBs, the very large size or the cross-jurisdictional activity of
these banking organizations present risks that make it appropriate to
apply the most stringent liquidity standards. Size and cross-
jurisdictional activity can present particularly heightened challenges
in the case of a liquidity stress, and the nature of custody business
does not substantially mitigate these risks. Any very large or global
banking organization that engages in asset fire sales to meet short-
term liquidity needs, including one that has a significant custody
business, is likely to transmit distress on a broader scale because of
the greater volume of assets it may sell and its multiple
counterparties across multiple jurisdictions. Similarly, a banking
organization with significant international activity, regardless of the
level of custody business, is more exposed to the risk of ring-fencing
of liquidity resources by one or more jurisdictions. Such ring-fencing
would constrain the movement of liquid assets across jurisdictions to
meet outflows. More generally, the overall size of a banking
organization's operations, material transactions in foreign
jurisdictions, and use of overseas funding sources add complexity to
the management of its liquidity risk profile. Additionally, a U.S.
intermediate holding company may pose risks in the United States
similar to other banking organizations of similar size and risk
profile, regardless of whether the foreign banking organization is
subject to an LCR requirement in its home jurisdiction.\95\ In light of
these concerns, the agencies are adopting the full LCR requirement as a
Category II requirement as proposed.
---------------------------------------------------------------------------
\95\ Consistent with agreements that reflect BCBS standards,
other jurisdictions impose liquidity requirements on local
subsidiaries of consolidated banking organizations that are not
domiciled within that jurisdiction.
---------------------------------------------------------------------------
4. Category III Liquidity Requirements
Under the proposals, Category III liquidity requirements would have
reflected the elevated risk profile of banking organizations subject to
this category relative to smaller and less complex banking
organizations subject to Category IV. Within Category III, the
proposals would have differentiated liquidity requirements based on the
level of weighted short-term wholesale funding of a banking
organization or, for foreign banking organizations, its U.S.
operations. Specifically, a banking organization subject to Category
III with weighted short-term wholesale funding of $75 billion or more
would have been subject to the full set of LCR and proposed NSFR
requirements applicable under Categories I and II. The banking
organization would also have been included in the amended scope of
application of the proposed NSFR rule. A banking organization subject
to Category III with less than $75 billion in weighted short-term
wholesale funding would have been subject to reduced LCR and proposed
NSFR requirements. The level of the LCR and proposed NSFR requirements
applicable to a depository institution subsidiary with total
consolidated assets of $10 billion or more of a banking organization
subject to Category III standards would have been the same as the level
that would apply to the parent banking organization.\96\
---------------------------------------------------------------------------
\96\ For example, a depository institution subsidiary with $10
billion in total consolidated assets of a banking organization
subject to the reduced LCR requirement under Category III standards
would also be subject to the reduced LCR requirement. In the case of
a depository institution that is domiciled in the United States and
is not a consolidated subsidiary of a U.S. depository institution
holding company that would have been subject to Category I, II, or
III standards, the applicable category of standards would have
depended on the risk-based indicators of the depository institution.
For example, if the depository institution meets the criteria for
Category III standards but has weighted short-term wholesale funding
of less than $75 billion, the depository institution would have been
subject to the proposed reduced LCR requirement.
---------------------------------------------------------------------------
A banking organization subject to the reduced LCR requirement would
have been required to hold a lower minimum amount of HQLA to address
applicable net cash outflows, relative to a banking organization
subject to the full LCR. All other requirements under the LCR rule
would have remained the same, relative to a banking organization
subject to the full LCR requirement. For example, these banking
organizations would have been required to calculate an applicable LCR
on each business day and include the maturity mismatch add-on in their
calculations. The agencies requested comment on the calibration of the
reduced LCR requirement under Category III, at a level between 70 and
85 percent of the full LCR requirement. The proposals additionally
included a description of a potential reduced NSFR requirement for such
banking organizations under the proposed NSFR rule that would have
applied a similar adjustment factor to the banking organization's
required stable funding amount.
Under the proposals, a banking organization subject to Category III
liquidity requirements would not have been permitted to include in its
HQLA amount eligible HQLA of a consolidated subsidiary except up to the
amount of the net cash outflows of the subsidiary (as adjusted for the
factor reducing the stringency of the requirement), plus any additional
amount of assets, including proceeds from the monetization of assets,
that would be available for transfer to the top-tier banking
organization during times of stress without statutory, regulatory,
contractual, or supervisory restrictions. For the purpose of this
requirement, a banking organization subject to reduced LCR requirements
under the proposals would have reduced the net cash outflows of that
subsidiary by the appropriate outflow adjustment percentage.
Some commenters recommended that the proposals should not reduce
the LCR requirement applicable to banking organizations subject to
Category III with weighted short-term wholesale funding of less than
$75 billion. However, other commenters expressed support for the
reduced LCR requirement asserting that the proposals appropriately
recognize the liquidity risk profiles of these banking organizations.
The commenters that opposed reducing LCR requirements argued that
requirements under the LCR rule are already adjusted to account for a
banking organization's size and risk profile. Further, these commenters
asserted that banking organizations that would be subject to the
reduced LCR requirement under Category III had received substantial
governmental support during the financial crisis, and that the
proposals did not provide a sufficient economic justification for a
reduced LCR requirement nor describe the benefit of the reduction
relative to
[[Page 59254]]
its impact on the resilience of such banking organizations. Other
commenters recommended that the agencies adopt a 70 percent outflow
adjustment percentage for the reduced LCR requirement under Category
III, consistent with the calibration of the Board's former modified
LCR.
As noted by commenters, the LCR rule differentiates between banking
organizations by requiring a banking organization to hold a minimum
amount of HQLA based on its liquidity risk over a 30-day time
horizon.\97\ Banking organizations that have lower liquidity risk have
lower minimum requirements under the rule. To improve the calibration
of a banking organization's minimum HQLA amount relative to its risk
profile and its potential risk to U.S. financial stability, the final
rule differentiates between banking organizations based on their
category of standards and their degree of reliance on short-term
wholesale funding. Accordingly, under the final rule, a banking
organization subject to Category III standards with weighted short-term
wholesale funding of $75 billion or more is subject to the full LCR
requirement. A banking organization subject to Category III standards
with weighted short-term wholesale funding of less than $75 billion is
subject to a reduced LCR requirement calibrated at 85 percent of the
full LCR requirement. The agencies believe an 85 percent calibration is
appropriate for these banking organizations because they are less
likely to contribute to a systemic event relative to similarly sized
banking organizations that have a greater reliance on short-term
wholesale funding and, therefore, are more complex and more likely to
have greater systemic impact. The 85 percent calibration reflects the
expectation that these less complex banking organizations should be
able to address their liquidity needs under a stress scenario in a
shorter period of time than other larger or more complex banking
organizations that are subject to the full LCR requirement.
---------------------------------------------------------------------------
\97\ 12 CFR 249.10(a). The LCR rule prescribes the minimum
amount of HQLA that the banking organization must hold both by
reference to its total net cash outflow amount and the minimum
required ratio level, each as prescribed under the rule.
---------------------------------------------------------------------------
Several commenters argued that, in addition to the lower minimum
HQLA amount described above, the reduced LCR requirements should be
further reduced to align with those of the Board's former modified LCR
requirement. Commenters also requested that the reduced LCR requirement
should permit the automatic inclusion of a subsidiary's HQLA up to 100
percent of that subsidiary's outflows, rather than limiting the amount
based on reduced outflows, because the subsidiary's HQLA is available
to meet its outflow needs and this approach would be consistent with
the Board's former modified LCR treatment.
As a general matter, the broad alignment of the reduced LCR with
the Board's former modified LCR would not be appropriate because each
of these requirements was designed to address different risk profiles.
The Board designed the former modified LCR for smaller U.S. holding
companies with less complex business models and more limited potential
impact on U.S. financial stability compared to banking organizations
that would be subject to the reduced LCR requirement.\98\ While a lower
minimum HQLA amount improves the alignment of the LCR requirement with
the systemic risks posed by certain banking organizations subject to
Category III, additional approaches to reducing the stringency of the
requirements may reduce the effectiveness of the LCR.
---------------------------------------------------------------------------
\98\ The Board's former modified LCR applied to depository
institution holding companies with between $50 billion and less than
$250 billion in total assets whereas the proposal would have applied
Category III to banking organizations that either have $250 billion
or more in total assets or have $100 billion or more in total assets
as well as heightened levels of off-balance sheet exposure, nonbank
assets, or weighted short-term wholesale funding.
---------------------------------------------------------------------------
As discussed in section VI.B.6. of this Supplementary Information,
the final rule requires large depository institution subsidiaries of
banking organizations subject to Category III standards to calculate
and maintain an LCR because large subsidiary depository institutions
have a significant role in a consolidated banking organization's
funding structure, and in the operation of the payments system.
In addition, consistent with previous restrictions under the LCR
rule, the final rule retains the proposal's limitation on the amount of
a subsidiary's HQLA that is automatically includable in the top-tier
banking organization's HQLA amount. The agencies believe that it is
important that banking organizations consider potential liquidity needs
across the consolidated entity for which the LCR calculation is
required. Accordingly, banking organizations must consider the extent
to which assets held at a subsidiary are transferable across the
organization and ensure that a minimum level of HQLA is positioned or
freely available to transfer to meet outflows at the subsidiary where
they would be expected to occur. Although HQLA at a subsidiary in
excess of its adjusted net outflows may be available to support that
subsidiary in a period of stress, permitting the automatic inclusion of
such HQLA up to 100 percent of that subsidiary's outflows, as requested
by commenters, without appropriate consideration of transfer
restrictions, may make the consolidated asset coverage requirement less
effective. Therefore, under the final rule, the agencies are only
permitting an automatic inclusion of HQLA held at a subsidiary up to
the reduced amount of the subsidiary's outflows.
5. Category IV Liquidity Requirements
The foreign bank proposal would have required certain depository
institution holding companies and foreign banking organizations that
meet the criteria for Category IV and that have weighted short-term
wholesale funding of $50 billion or more to comply with a reduced LCR
requirement. The proposals would not have applied Category IV liquidity
requirements to standalone depository institutions or to depository
institution holding companies or foreign banking organizations with
less than $50 billion in weighted short-term wholesale funding, or
their subsidiary depository institutions. The agencies requested
comment on the calibration of the reduced LCR requirement under
Category IV, at a level between 70-85 percent of the full LCR
requirement.
Some commenters argued that all banking organizations subject to
Category IV should be subject to some form of standardized liquidity
requirements, rather than none, and that such requirements could be
modified or simplified for these organizations, as appropriate. These
commenters argued that, in absence of macroeconomic evidence that
current requirements have harmed credit intermediation, any decrease in
liquidity requirements for these organizations is difficult to support.
In contrast, certain commenters argued for the removal of any LCR
requirement for all banking organizations subject to Category IV.
Banking organizations subject to Category IV have smaller systemic
footprints, more limited size, and present less risk and complexity
relative to banking organizations subject to a more stringent category.
However, banking organizations subject to Category IV that are
substantially reliant on short-term wholesale funding are vulnerable to
the liquidity risks addressed by the reduced LCR requirement. Weighted
short-term wholesale funding of $50 billion or more is substantial
relative to the size of
[[Page 59255]]
banking organizations subject to Category IV. Banking organizations
with such funding dependencies are more likely to have higher risk of
near-term outflows in a stress. The application of the LCR requirement
is therefore appropriate for these banking organizations, albeit at a
reduced level, given their lower potential systemic impact. The
agencies are calibrating the minimum reduced LCR for banking
organizations subject to Category IV at a level equivalent to 70
percent of the minimum level required under Category I and II. The
difference between the 85 percent reduced LCR calibration in Category
III and the 70 percent reduced LCR calibration in Category IV reflects
the differences in the risk profiles of banking organizations subject
to each respective requirement. The 70 percent calibration recognizes
that these banking organizations are less complex and smaller than
other banking organizations subject to more stringent liquidity
requirements under the LCR rule and would likely have more modest
systemic impact than larger, more complex banking organizations if they
experienced liquidity stress. Under the final rule, banking
organizations that are subject to Category IV liquidity standards and
have weighted short-term wholesale funding of $50 billion or more apply
an outflow adjustment factor of 70 percent to their total net cash
outflow amount. Moreover, for the same reasons as discussed above, the
final rule retains the proposed limitation on the amount of
subsidiary's HQLA that is automatically includable in the top-tier
banking organization's HQLA amount, equal to an amount up to the amount
of the subsidiary's net cash outflows (as adjusted by the top-tier
banking organization's 70 percent outflow adjustment factor). Banking
organizations subject to Category IV that have weighted short-term
wholesale funding of less than $50 billion are not subject to an LCR
requirement under the final rule.\99\
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\99\ Banking organizations subject to Category IV remain subject
to the internal liquidity stress testing requirements under the
Board's regulations, which include 30-day and 1-year planning
horizons, and additionally FR 2052a reporting requirements. The
Board-only final rule provides further discussion of liquidity
standards that apply under the Board's regulations to banking
organizations subject to Category IV.
---------------------------------------------------------------------------
6. Application of Liquidity Requirements to Depository Institution
Subsidiaries
The proposals generally would have applied the same category of
liquidity standards to depository institution holding companies,
including U.S. intermediate holding companies, and their depository
institution subsidiaries with $10 billion or more in total consolidated
assets. As discussed above, standardized liquidity requirements would
not have applied at the depository institution subsidiary level or to a
depository institution domiciled in the United States that is not a
consolidated subsidiary of a U.S. depository institution holding
company under Category IV. Commenters argued that the application of
liquidity requirements to depository institution subsidiaries is
unnecessary and could limit the flexibility of a U.S. intermediate
holding company and its foreign parent to respond in a period of stress
by trapping liquidity at depository institution subsidiaries. One
commenter argued that the calibration of the LCR requirement should
reflect the size of the depository institution subsidiary, as the bulk
of the line items reported in the Board's FR 2052a are applicable to,
and driven by, the calculation of the depository institution
subsidiary's profile.
Large depository institution subsidiaries play a significant role
in a banking organization's funding structure and in the operation of
the payments system. To reduce the potential systemic impact of a
liquidity stress event at such large subsidiaries, the agencies believe
that such entities should have sufficient amounts of HQLA to meet their
own net cash outflows rather than be overly reliant on their parents or
affiliates for liquidity in times of stress. Accordingly, the final
rule maintains the application of the LCR requirement to certain
depository institution subsidiaries as proposed.
7. Maturity Mismatch Add-On Requirement for Reduced LCR
As discussed above, the proposals would have required all banking
organizations subject to an LCR requirement--full or reduced--to
include a maturity mismatch add-on in their LCR calculations. When
finalizing the LCR rule in 2014, the agencies required the maturity
mismatch add-on for all banking organizations subject to the full LCR
requirement. The agencies determined that the maturity mismatch add-on,
based only on certain categories of outflows and inflows, is necessary
to address a material risk to the safety and soundness of banking
organizations subject to the requirement.
Several commenters argued that no maturity mismatch add-on should
apply in the reduced LCR calculation. Commenters asserted that the
maturity mismatch add-on would create competitive disparities for
banking organizations because of different business models and observed
that the mismatch was not included in the Board's former modified LCR
requirement. One commenter stated that the maturity mismatch add-on
should not apply to LCR calculations with respect to a U.S.
intermediate holding company because, in the commenter's view, it
represents a significant departure from the Basel LCR standard and the
commenter argued that the U.S. operations of a foreign banking
organization should not be subject to a materially different standard
relative to its consolidated requirements.
The final rule provides that all banking organizations subject to
an LCR requirement must include a maturity-mismatch add on when
calculating the LCR and address the timing of potential outflows and
inflows within the LCR's 30-day time horizon. The maturity mismatch
add-on is appropriately risk sensitive because banking organizations
that are engaged primarily in deposit gathering and traditional lending
generally would have a smaller maturity mismatch add-on, while banking
organizations that are engaged in activities that create timing
mismatches inside the LCR rule's 30-day horizon may be subject to a
higher mismatch add-on. The agencies acknowledge that contractual
maturity mismatch is not a quantitative component of the Basel III LCR
standard, but believe that is an important component of addressing the
liquidity risks of banking organizations subject to the LCR rule. In
addition, under the final rule, a U.S. intermediate holding company
subject to an LCR requirement would only be required to assess its own
mismatches, consistent with the calculation for other banking
organizations, and without regard to business model. In response to
comments that the Board's former modified LCR requirement did not
require a maturity-mismatch add on calculation, as noted above, the
modified LCR was designed for smaller, less systemic and less complex
depository institution holding companies compared to banking
organizations that are subject to a reduced LCR requirement under the
final rule.
8. Timing of LCR Calculations and Public Disclosure Requirements
The proposal would have required banking organizations subject to
Category I, Category II, or Category III standards to calculate an LCR
on each business day. Banking organizations subject to Category IV
standards with $50 billion or more in weighted short-term wholesale
funding would have
[[Page 59256]]
been required to calculate a monthly LCR. To reduce compliance costs
for banking organizations subject to Category IV standards and to
reflect these organizations' smaller systemic footprint, the agencies
proposed to require the calculation of the LCR on the last business day
of the applicable month rather than each business day.
Commenters requested that Category III standards require a monthly
calculation frequency for banking organizations required to calculate a
reduced LCR or, alternatively, the rule could require daily monitoring
of the LCR by banking organizations but with monthly compliance
requirements. A commenter also argued for LCR public disclosures based
on the average month-end values to align with certain banking
organizations' FR 2052a reporting obligations. A commenter also
recommended that the public disclosure of LCR information be required
with a two-year lag. Commenters also requested that the Board
immediately eliminate the LCR public disclosure requirements for
banking organizations that would be subject to Category IV.
Banking organizations subject to Category III standards are larger
and generally have more complex risk profiles and business models than
banking organizations subject to Category IV standards (or the
depository institution holding companies that were previously subject
to the Board's modified LCR requirement). The size and complexity of
banking organizations subject to Category III standards warrant LCR
calculations that are the same as those used under Category I and II
standards, except for the 85 percent outflow adjustment factor for such
banking organizations with less than $75 billion of weighted short-term
wholesale funding.
The size and greater potential impact on U.S. financial stability
of these organizations also warrant daily calculation and compliance
requirements. Meaningful public disclosure by banking organizations
supports market discipline and encourages sound risk-management
practices. The current requirement that LCR public disclosures be made
quarterly is consistent with the frequency of other quarterly
disclosures of financial information, which should help market
participants assess the liquidity risk profiles of banking
organizations. Timely public disclosures based on the average of each
required calculation under the LCR rule provide market participants and
other stakeholders with more comprehensive information relative to only
averaging month-end calculations. Therefore, for banking organizations
whose LCR calculations are required each business day, the averages of
these calculations should be used for public disclosure even in cases
where the banking organizations are required only to provide more
detailed FR 2052a reporting on a monthly basis. Similarly, if a banking
organization subject to Category IV standards is required to calculate
an LCR on a monthly basis, the public disclosure of averages of such
calculations is also useful to market participants and other
stakeholders and, therefore, the agencies are declining to remove
public disclosure requirements from such banking organizations.\100\
Accordingly, the agencies are finalizing the frequency of LCR
calculations and the disclosure requirements as proposed.
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\100\ Subject to the transitions under the final rule, banking
organizations subject to Category IV standards with weighted short-
term wholesale funding of less than $50 billion are not subject to
LCR public disclosures under the final rule.
---------------------------------------------------------------------------
9. Comments on Refinements to the Current LCR Rule
Under the proposals, the agencies did not propose to amend other
definitions, calculation elements, or public disclosure requirements in
the LCR rule beyond those related to the categories of standards
discussed above. One commenter, however, expressed concern regarding a
statement in the foreign bank proposal that the agencies expect HQLA to
be ``continually available'' for use by the foreign banking
organization's liquidity management function to be considered eligible
HQLA. The commenter characterized this statement as creating an
intraday utilization requirement, which it asserted would be a new
requirement that would require an amendment to the LCR rule, following
the APA's notice-and-comment procedures. Although the LCR rule requires
a banking organization to calculate its LCR as of the same time on each
business day (the elected calculation time), the LCR rule also contains
explicit requirements for assets to be eligible for inclusion in the
company's HQLA amount. Section __.22(a)(2) of the LCR rule provides
that the banking organization must implement policies that require
eligible HQLA to be under the control of the management function in the
banking organization that is charged with managing liquidity risk
(liquidity management function). Section __.22(a)(2) specifies that the
liquidity management function must evidence its control over the HQLA
by either: (i) Segregating the HQLA from other assets, with the sole
intent to use the HQLA as a source of liquidity, or (ii) demonstrating
the ability to monetize the assets and making the proceeds available to
the liquidity management function without conflicting with a business
or risk-management strategy of the banking organization. In response to
the comment, the agencies are confirming that the LCR rule does not
limit the requirements of Sec. __.22(a)(2) to the elected calculation
time. To so limit the application of these requirements would be
inconsistent with the purpose of the requirements, which is to ensure
that a central function of a banking organization has the authority and
capability to liquidate HQLA to meet its obligations in times of
stress. In order for a liquidity management function to demonstrate
that it has the ability to monetize the HQLA in a way that does not
conflict with the banking organization's business or risk-management
strategy, the banking organization should be able to demonstrate its
ability to monetize the assets and make the proceeds continuously
available to the liquidity management function. Accordingly, HQLA that
is only available to the liquidity management function of a banking
organization at the elected calculation time would not meet the
requirements of Sec. __.22(a)(2).
One commenter provided a broad range of suggested technical
amendments to the existing LCR rule. These included adjustments to the
determination of the LCR numerator, such as expanding the types of
assets that qualify as level 1 and level 2 liquid assets and making
technical refinements to the definition of ``liquid and readily
marketable'' under the rule. The suggested amendments also included
changes to the determination of the total net cash outflow amount under
the current LCR rule, such as changes in the calculation of the retail
deposit and retail brokered deposit outflow amounts, a change to the
definition of operational deposits and recognition of potential
forward-dated collateral substitution under the LCR rule. The commenter
further suggested amendments to the public disclosure requirements
under the LCR rule and proposed NSFR rule.
The agencies assess the effectiveness of existing rules on a
regular basis and take into account insights received from industry and
public comments. As noted above, the agencies did not propose
amendments to the LCR rule or proposed NSFR rule beyond those described
above and are not amending other elements of the LCR rule or proposed
NSFR rule at this time.
[[Page 59257]]
10. Comments Regarding the Potential Application of Standardized
Liquidity Requirements With Respect to U.S. Branches and Agencies
In the foreign bank proposal, the Board requested comment on
whether and how it should apply standardized liquidity requirements,
such as an LCR-based requirement, to foreign banking organizations with
respect to their U.S. branch and agency networks. As stated in the
proposal, the goal of such a requirement would be to strengthen the
overall resilience of a foreign banking organization's U.S. operations
to liquidity risks and help prevent transmission of risks between
various segments of the foreign banking organization. The foreign bank
proposal clarified that if the Board were to consider application of
standardized requirements with respect to the U.S. branches and
agencies of foreign banking organizations, the proposed requirements
would be subject to a separate notice-and-comment rulemaking process.
Commenters generally opposed development or issuance of a proposal
that would apply standardized liquidity requirements to the U.S. branch
and agency network of a foreign banking organization. Some of these
commenters argued that the Board should defer to compliance with the
standardized liquidity requirements that apply to foreign banking
organizations in their home country, in recognition of the fact that
branches and agencies are the same legal entity as the parent foreign
banking organization. In the view of these commenters, the combination
of home-country standardized requirements and existing regulation and
supervision of U.S. branches and agencies would sufficiently address
liquidity risk at these entities. Commenters also noted that a
standardized requirement for U.S. branches and agencies could limit the
ability of foreign banking organizations to deploy funds as needed,
including during times of stress.
Certain commenters also argued that implementing liquidity
requirements for branches and agencies in the United States could lead
other jurisdictions to implement similar requirements for the branches
and agencies of U.S. banking organizations abroad, which could lead to
market fragmentation. Many of these commenters suggested that concerns
regarding liquidity risk at branches and agencies should be further
discussed and evaluated at the global level by international regulatory
groups before any actions are taken at the national level.
In contrast, some commenters supported the application of
standardized liquidity requirements with respect to the U.S. branches
and agencies of foreign banking organizations in order to account more
fully for liquidity risks of the U.S. operations of these entities. To
support this position, one commenter noted that the role of foreign
banking organizations, including their branches and agencies, as
providers of liquidity was a critical driver of systemic risks during
the financial crisis.
The Board is still considering whether to develop and propose for
implementation a standardized liquidity requirement with respect to the
U.S. branches and agencies of foreign banking organizations. As part of
this process, the Board intends to further evaluate commenters'
observations regarding the liquidity risk profiles of the U.S.
operations of foreign banking organizations, consider potential
interactions with existing regulations and supervisory processes, and
engage in further discussion and evaluation of the issue at an
international level. As mentioned above, any such requirement would be
subject to notice and comment as part of a separate rulemaking process.
11. LCR Rule Transition Periods; Cessation of Applicability
a. Initial Transitions for Banking Organizations Subject to an LCR
Requirement on the Effective Date
The domestic proposal did not include initial transition periods
for banking organizations already subject to the LCR rule. The foreign
bank proposal would have required compliance on the effective date for
a foreign banking organization with respect to its U.S. intermediate
holding company if that U.S. intermediate holding company was already
subject to the full LCR requirement. Under this final rule, a U.S.
banking organization or U.S. intermediate holding company that was
subject to the LCR rule immediately prior to the effective date is
required to comply with its applicable LCR requirement (full or
reduced) beginning on the effective date.
In addition, the foreign bank proposal provided a transition period
for a foreign banking organization that was not previously subject to
an LCR requirement with respect to its U.S. intermediate holding
company, including certain depository institution subsidiaries of such
foreign banking organizations. Some commenters requested longer initial
transitions. Consistent with the final framework and the proposed
transitions for foreign banking organizations, under the final rule, a
U.S. intermediate holding company that meets the applicability criteria
for the LCR rule on the effective date of the final rule, but was not
subject to an LCR requirement immediately prior to the effective date,
must comply with the applicable LCR requirement one year following the
effective date of the final rule.
Table II--Transitions for Banking Organizations Subject to LCR Rule on
the Effective Date
------------------------------------------------------------------------
LCR requirement as
LCR requirement prior to of the effective Mandatory compliance
effective date of the final date of the final date
rule rule
------------------------------------------------------------------------
Full LCR requirement........ LCR (full or Effective Date.
reduced) or no
requirement.
No requirement.............. Full LCR requirement First day of the
or Category III fifth full calendar
Reduced LCR quarter following
requirement. the effective date.
Category IV LCR Last business day of
requirement. the first month for
the fifth full
calendar quarter
following the
effective date.
------------------------------------------------------------------------
b. Initial Transitions for Banking Organizations That Become Subject to
LCR Rule After The Effective Date
Under the proposals, a banking organization that would have become
subject to the LCR rule after the effective date of the final rule
would have been required to comply with the LCR rule on the first day
of the second quarter after the banking organization became subject it
(newly covered banking organizations), consistent with the amount of
time previously provided under the LCR rule. In addition, the proposals
would have maintained the transition period under the LCR rule for the
daily calculation requirement, which provides a newly covered
[[Page 59258]]
banking organization three quarters to calculate its LCR on a monthly
basis before it must conduct daily LCR calculations.
Some commenters requested additional time to comply with the LCR
rule. The final rule provides an additional quarter to comply with the
LCR rule, such that a newly covered banking organization will be
required to comply with these requirements on the first day of the
third quarter after becoming subject to these requirements. In
addition, a newly covered banking organization that is required to
calculate its LCR daily has two quarters to calculate its LCR on a
monthly basis before transitioning to daily calculations.
Table III--Example of a Banking Organization That Becomes Subject to a
Daily LCR Requirement After the Effective Date
------------------------------------------------------------------------
First compliance LCR calculation
Example: date frequency
------------------------------------------------------------------------
Banking organization becomes July 1, 2024........ Monthly calculation:
subject as of December 31, From July 2024
2023 to an LCR requirement through December
(full or reduced) that 2024.
includes daily calculation. Daily calculation:
Begins January 1,
2025.
------------------------------------------------------------------------
c. Transitions for Changes to an LCR Requirement
Under the proposals, a banking organization subject to the LCR rule
that becomes subject to a higher outflow adjustment percentage would
have been able to continue using a lower calibration for one quarter. A
banking organization that becomes subject to a lower outflow adjustment
percentage at a quarter end would have been able to use the lower
percentage immediately, as of the first day of the subsequent quarter.
Some commenters requested longer transitions before a banking
organization is required to meet an increased LCR requirement. The
final rule allows a banking organization an additional quarter to
continue using a lower outflow adjustment percentage after becoming
subject to a higher outflow adjustment percentage. The agencies are
finalizing the transition period for a banking organization that
transitions to a lower outflow adjustment percentage as proposed.
The final rule also provides a banking organization that moves from
Category IV into another category one year to begin complying with
daily LCR calculation requirements. A depository institution subsidiary
with $10 billion or more in total consolidated assets must begin
complying on the same dates as its top-tier banking organization.\101\
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\101\ See, supra note 3.
Table IV--Example Dates for Changes to an LCR Requirement
------------------------------------------------------------------------
Continue to apply
prior outflow Apply new outflow
Example 1: adjustment adjustment
percentage percentage
------------------------------------------------------------------------
Banking organization that is 1st and 2nd quarter Beginning July 1,
subject to a daily LCR of 2024. 2024.
calculation requirement
becomes subject to a higher
outflow adjustment
percentage as of December
31, 2023, as a result of
having an average weighted-
short-term wholesale
funding level of greater
than $75 billion based on
the four prior calendar
quarters.
------------------------------------------------------------------------
Continue to apply
prior requirement
(i.e., lower outflow Apply new
Example 2: adjustment requirements
percentage and
monthly calculation)
------------------------------------------------------------------------
Banking organization subject Lower outflow Higher outflow
to a reduced LCR adjustment adjustment
requirement under Category percentage: 1st and percentage begins
IV moves to Category I, II, 2nd quarter of 2024. 3rd quarter of
or III as of December 31, 2024.
2023.
Monthly calculation: Daily calculation
January 2024- begins January 1,
December 2024. 2025.
------------------------------------------------------------------------
Continue to apply
prior requirement
(i.e., lower outflow Apply new
Example 3: adjustment requirements
percentage and
monthly calculation)
------------------------------------------------------------------------
Covered subsidiary No prior requirement Comply with outflow
depository institution of adjustment
banking organization that percentage
moves from Category IV to applicable to new
another category as of category from 3rd
December 31, 2023. quarter of 2024,
calculating monthly
Daily calculation
begins January 1,
2025.
------------------------------------------------------------------------
[[Page 59259]]
d. Reservation of Authority To Extend Transitions
The final rule includes a reservation of authority that provides
the agencies with the flexibility to extend transitions for banking
organizations where warranted by events and circumstances. There may be
limited circumstances where a banking organization needs a longer
transition period. For example, an extension may be appropriate when
unusual or unforeseen circumstances cause a banking organization to
become subject to an LCR requirement for the first time, such as a
merger with another entity that results in a banking organization
becoming subject to the LCR rule. However, the agencies expect that
this authority would be exercised in limited situations, consistent
with prior practice.
e. Cessation of Applicability
Under the proposal, once a banking organization became subject to
an LCR requirement, it would have remained subject to the rule until
the appropriate Federal banking agency determined that application of
the rule would not be appropriate in light of the foreign banking
organization's asset size, level of complexity, risk profile, or scope
of operations. The agencies are repealing this provision in the LCR
rule because the new framework makes this cessation provision
unnecessary. A banking organization that no longer meets the relevant
criteria for being subject to the LCR rule will not be required to
comply with the LCR rule.
VII. Impact Analysis
The Board assessed the potential impact of the tailoring final
rule, considering potential benefits and costs, taking into account
current levels of capital and holdings of HQLA at affected domestic and
foreign banking organizations.\102\ Potential benefits to banking
organizations include increased net interest margins from holding
higher yielding assets, reduced compliance costs as well as better
tailoring of regulatory requirements to banking organizations.
Potential costs to banking organizations and financial stability
include increased risk during a period of elevated economic stress or
market volatility.\103\
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\102\ The Board assessed the impact of the tailoring rulemaking
for domestic and foreign banking organizations that would be subject
to Category III or Category IV standards based on the data submitted
on the FR 2052a and FR Y-9C by banking organizations for the 2019:Q1
reporting period.
\103\ The OCC also considered the potential costs of the
tailoring rulemaking for the purpose of the Unfunded Mandates Reform
Act of 1996 (2 U.S.C. 1532), the Regulatory Flexibility Act, and the
Congressional Review Act.
---------------------------------------------------------------------------
Capital requirements will not change for banking organizations
subject to Category I or II standards. The Board expects the final rule
to slightly lower capital requirements by about $8 billion and $3.5
billion for domestic and foreign banking organizations subject to
Category III and IV standards, respectively, or about 60 basis points
of total risk-weighted assets for these banking organizations. The
impact on capital levels could vary under different economic and market
conditions. For example, from 2001 to 2018, the total AOCI of affected
banking organizations that included AOCI in capital ranged from a
decrease of approximately 140 basis points of total risk-weighted
assets to an increase of about 50 basis points of total risk-weighted
assets for domestic banking organizations and a decrease of about 70
basis points of total risk-weighted assets to an increase of about 70
basis points of total risk-weighted assets for foreign banking
organizations. In addition to no longer being required to reflect all
changes in AOCI into regulatory capital, some of these banking
organizations would receive a higher threshold for certain capital
deductions as outlined in the capital simplification rule.\104\ The
Board also expects the final rule to reduce compliance costs as a
result of certain banking organizations no longer being subject to the
advanced approaches capital requirements and as a result of LCR and
certain capital requirements no longer applying to banking
organizations with total consolidated assets of between $50 billion and
$100 billion.
---------------------------------------------------------------------------
\104\ See supra note 26.
---------------------------------------------------------------------------
The Board assessed the impact of the final rule on liquidity
standards, focusing on the potential changes in the applicability and
the stringency of the LCR requirement and taking into account the
internal liquidity stress test (ILST) requirements of banking
organizations, whose applicability remains unchanged.\105\ The Board
estimated that, under the final rule, total HQLA requirements would
decrease by $48 billion and $5 billion for domestic and foreign banking
organizations, respectively. The decrease would represent about a 2
percent reduction in the liquidity requirements for both domestic and
foreign banking organizations with greater than $100 billion in assets.
The decrease in the liquidity requirements of banking organizations
subject to Category III standards accounts for the majority of the
total liquidity requirement reduction, both among domestic and foreign
banking organizations. For banking organizations in Category III, the
decrease would represent an approximately 8 percent reduction in
liquidity requirements.
---------------------------------------------------------------------------
\105\ The Board-only proposal would continue to require large
domestic and foreign banking organizations to conduct internal
liquidity stress tests and hold highly liquid assets sufficient to
meet projected 30-day net stressed cash-flow needs under internal
stress scenarios. See 12 CFR part 252.
---------------------------------------------------------------------------
The Board also estimated the impact of the final rule on the HQLA
holdings of affected banking organizations. For the impact estimation,
the Board assumed that banking organizations would adjust their liquid
asset holdings so that they maintain the excess HQLA percentage that
they held above the greater of their LCR and ILST requirements in the
first quarter of 2019. According to the Board's estimates, total HQLA
holdings are expected to decrease by about $56 billion and $6 billion
at domestic and foreign banking organizations, respectively. The
decrease would represent an approximately 2 percent reduction in the
HQLA holdings for both domestic and foreign banking organizations with
greater than $100 billion in total assets. The estimated impact on HQLA
holdings is about equally distributed across Category III and Category
IV banking organizations and would represent an approximately 8 percent
reduction in the HQLA holdings of these organizations.
In addition to assessing the potential impact on liquid asset
requirements and HQLA holdings, the Board investigated the broader
benefits and costs associated with the final rule. Regarding domestic
banking organizations, the Board analyzed how the final rule would
affect the net interest margin, loan growth, and the likelihood of
default or the need for external support during times of financial
stress.\106\ The analysis was implemented by using linear and nonlinear
regression models for these outcome variables and calculating indirect
impact estimates based on the tailoring rulemaking's direct impact on
HQLA holdings discussed above. Regarding foreign banking organizations,
the Board analyzed how the tailoring rulemaking would affect the
participation in global dollar markets and their reliance on Federal
Reserve liquidity facilities in the event of a financial crisis. The
Board estimated the impact of the tailoring final rule on foreign
banking organizations' reliance on Federal
[[Page 59260]]
Reserve liquidity facilities by analyzing the relationship between
liquid asset holdings and the usage of the discount window and the Term
Auction Facility during the financial crisis.
---------------------------------------------------------------------------
\106\ The analysis assessed banking organizations' probability
of default or need for external support during the 2007-2008
financial crisis. In the analysis, external support reflected
participation in the Troubled Asset Relief Program, implemented in
2008 by the U.S. Treasury.
---------------------------------------------------------------------------
The Board estimated that the final rule would lead to a modest
increase in the net interest margin and have a negligible impact on the
loan growth of affected domestic banking organizations. The final rule
would modestly increase the likelihood that affected domestic banking
organizations experience liquidity pressure under stress. With regard
to foreign banking organizations, as the estimated impact of the
tailoring final rule on the HQLA holdings of these banking
organizations is relatively small, the anticipated effect on global
dollar markets and the safety and soundness of these banking
organizations is likely to be mild. The Board will continue to assess
the safety and soundness of both domestic and foreign banking
organizations through the normal course of supervision, including the
conduct of internal liquidity stress tests.
VIII. Administrative Law Matters
A. Paperwork Reduction Act
Certain provisions of the final rule contain ``collection of
information'' requirements within the meaning of the Paperwork
Reduction Act of 1995 (44 U.S.C. 3501-3521) (PRA). In accordance with
the requirements of the PRA, the agencies 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 numbers for the
agencies' respective LCR rules are OCC (1557-0323), Board (7100-0367),
and FDIC (3064-0197). The OMB control numbers for the agencies'
respective regulatory capital rules are OCC (1557-0318), Board (7100-
0313), and FDIC (3064-0153). These information collections will be
extended for three years, with revision. The information collection
requirements contained in this final rule have been submitted by the
OCC and FDIC to OMB for review and approval under section 3507(d) of
the PRA (44 U.S.C. 3507(d)) and Sec. 1320.11 of the OMB's implementing
regulations (5 CFR part 1320). The Board reviewed the final rule under
the authority delegated to the Board by OMB. The OCC and the FDIC
submitted the information collection requirements to OMB at the
proposed rule stage. OMB filed comments requesting that the agencies
examine public comment in response to the proposal and describe in the
supporting statement of its next collection any public comments
received regarding the collection as well as why (or why it did not)
incorporate the commenter's recommendations. The agencies received no
comments on the information collection requirements.
LCR Rule
Current Actions: The final rule revise Sec. Sec. __.1, __.3,
__.10, __.30, and __.50 of each of the agencies' respective LCR rules
and Sec. Sec. __.90 and __.91 of the Board's LCR rule to require
certain depository institution subsidiaries of large domestic banking
organizations and U.S. intermediate holding companies of foreign
banking organizations to calculate an LCR. For more detail on
Sec. Sec. __.90 and __.91, please see ``Liquidity Coverage Ratio:
Public Disclosure Requirements; Extension of Compliance Period for
Certain Companies to Meet the Liquidity Coverage Ratio Requirements,''
81 FR 94922 (Dec. 27, 2016).
Information Collections Proposed to be Revised:
OCC
OMB control number: 1557-0323.
Title of Information Collection: Reporting and Recordkeeping
Requirements Associated with Liquidity Coverage Ratio: Liquidity Risk
Measurement, Standards, and Monitoring.
Frequency: Event generated, monthly, quarterly, annually.
Affected Public: National banks and federal savings associations.
Estimated average hours per response:
50.40(a) (19 respondents)
Reporting (ongoing monthly)--.50
50.40(b) (19 respondents)
Reporting (ongoing)--.50
50.40(b)(3)(iv) (19 respondents)
Reporting (quarterly)--.50
50.22(a)(2) & (a)(5)) (19 respondents)
Recordkeeping (ongoing)--40
50.40(b) (19 respondents)
Recordkeeping (ongoing)--200
Estimated annual burden hours: 4,722.
Board
OMB control number: 7100-0367.
Title of Information Collection: Reporting, Recordkeeping, and
Disclosure Requirements Associated with the Regulation WW.
Frequency: Event generated, monthly, quarterly, annually.
Affected Public: Insured state member banks, bank holding
companies, and savings and loan holding companies, and foreign banking
organizations.
Estimated average hours per response:
249.40(a) (3 respondents)
Reporting (ongoing monthly)--.50
249.40(b) (3 respondents)
Reporting (ongoing)--.50
249.40(b)(3)(iv) (3 respondents)
Reporting (quarterly)--.50
249.22(a)(2) & (a)(5) (23 respondents)
Recordkeeping (ongoing)--40
249.40(b) (3 respondents)
Recordkeeping (ongoing)--200
249.90, 249.91 (19 respondents)
Disclosure (quarterly)--24
Estimated annual burden hours: 3,370.
FDIC
OMB control number: 3064-0197.
Title of Information Collection: Liquidity Coverage Ratio:
Liquidity Risk Measurement, Standards, and Monitoring (LCR).
Frequency: Event generated, monthly, quarterly, annually.
Affected Public: State nonmember banks and state savings
associations.
Estimated average hours per response:
329.40(a) (2 respondents)
Reporting (ongoing monthly)--.50
329.40(b) (2 respondents)
Reporting (ongoing)--.50
329.40(b)(3)(iv) (2 respondents)
Reporting (quarterly)--.50
329.22(a)(2) & (a)(5) (2 respondents)
Recordkeeping (ongoing)--40
329.40(b) (2 respondents)
Recordkeeping (ongoing)--200
Estimated annual burden hours: 497.
Disclosure Burden--Advanced Approaches Banking Organizations
Current Actions
The final rule requires banking organizations subject to Category
III standards to maintain a minimum supplementary leverage ratio of 3
percent given its size and risk profile. As a result, these
intermediate holding companies would no longer be identified as
``advanced approaches banking organizations'' for purposes of the
advanced approach disclosure respondent count.
Information Collections Proposed to be Revised:
OCC
Title of Information Collection: Risk-Based Capital Standards:
Advanced Capital Adequacy Framework.
Frequency: Quarterly, annual.
Affected Public: Businesses or other for-profit.
Respondents: National banks, state member banks, state nonmember
banks, and state and federal savings associations.
OMB control number: 1557-0318.
Estimated number of respondents: 1,365 (of which 18 are advanced
approaches institutions).
[[Page 59261]]
Estimated average hours per response:
Minimum Capital Ratios
Recordkeeping (Ongoing)--16.
Standardized Approach
Recordkeeping (Initial setup)--122.
Recordkeeping (Ongoing)--20.
Disclosure (Initial setup)--226.25.
Disclosure (Ongoing quarterly)--131.25.
Advanced Approach
Recordkeeping (Initial setup)--460.
Recordkeeping (Ongoing)--540.77.
Recordkeeping (Ongoing quarterly)--20.
Disclosure (Initial setup)--328.
Disclosure (Ongoing)--5.78.
Disclosure (Ongoing quarterly)--41.
Estimated annual burden hours: 1,136 hours initial setup, 64,945
hours for ongoing.
Board
Title of Information Collection: Recordkeeping and Disclosure
Requirements Associated with Regulation Q.
Frequency: Quarterly, annual.
Affected Public: Businesses or other for-profit.
Respondents: State member banks (SMBs), bank holding companies
(BHCs), U.S. intermediate holding companies (IHCs), savings and loan
holding companies (SLHCs), and global systemically important bank
holding companies (GSIBs).
Current actions: This proposal would amend the definition of
advanced approaches Board-regulated institution to include, as relevant
here, a depository institution holding company that is identified as a
Category II banking organization pursuant to 12 CFR 252.5 or 12 CFR
238.10, and a U.S. intermediate holding company that is identified as a
Category II banking organization pursuant to 12 CFR 252.5. Category III
Board-regulated institutions would not be considered advanced
approaches Board-regulated institutions. As a result, the Board
estimates that 1 institution will no longer be an advanced approaches
Board-regulated institution under the proposal.
Legal authorization and confidentiality: This information
collection is authorized by section 38(o) of the Federal Deposit
Insurance Act (12 U.S.C. 1831o(c)), section 908 of the International
Lending Supervision Act of 1983 (12 U.S.C. 3907(a)(1)), section 9(6) of
the Federal Reserve Act (12 U.S.C. 324), and section 5(c) of the Bank
Holding Company Act (12 U.S.C. 1844(c)). The obligation to respond to
this information collection is mandatory. If a respondent considers the
information to be trade secrets and/or privileged such information
could be withheld from the public under the authority of the Freedom of
Information Act (5 U.S.C. 552(b)(4)). Additionally, to the extent that
such information may be contained in an examination report such
information could also be withheld from the public (5 U.S.C. 552
(b)(8)).
Agency form number: FR Q.
OMB control number: 7100-0313.
Estimated number of respondents: 1,431 (of which 19 are advanced
approaches institutions).
Estimated average hours per response:
Minimum Capital Ratios
Recordkeeping (Ongoing)--16.
Standardized Approach
Recordkeeping (Initial setup)--122.
Recordkeeping (Ongoing)--20.
Disclosure (Initial setup)--226.25.
Disclosure (Ongoing quarterly)--131.25.
Advanced Approach
Recordkeeping (Initial setup)--460.
Recordkeeping (Ongoing)--540.77.
Recordkeeping (Ongoing quarterly)--20.
Disclosure (Initial setup)--328.
Disclosure (Ongoing)--5.78.
Disclosure (Ongoing quarterly)--41.
Disclosure (Table 13 quarterly)--5.
Risk-based Capital Surcharge for GSIBs
Recordkeeping (Ongoing)--0.5.
Current estimated annual burden hours: 1,136 hours initial setup,
78,591 hours for ongoing.
Proposed revisions estimated annual burden: 1,582 hours.
Total estimated annual burden: 1,136 hours initial setup, 80,173
hours for ongoing.
FDIC
Title of Information Collection: Regulatory Capital Rule.
Frequency: Quarterly, annual.
Affected Public: Businesses or other for-profit.
Respondents: State nonmember banks, state savings associations, and
certain subsidiaries of those entities.
OMB control number: 3064-0153.
Estimated number of respondents: 3,489 (of which 1 is an advanced
approaches institution).
Estimated average hours per response:
Minimum Capital Ratios
Recordkeeping (Ongoing)--16.
Standardized Approach
Recordkeeping (Initial setup)--122.
Recordkeeping (Ongoing)--20.
Disclosure (Initial setup)--226.25.
Disclosure (Ongoing quarterly)--131.25.
Advanced Approach
Recordkeeping (Initial setup)--460.
Recordkeeping (Ongoing)--540.77.
Recordkeeping (Ongoing quarterly)--20.
Disclosure (Initial setup)--328.
Disclosure (Ongoing)--5.78.
Disclosure (Ongoing quarterly)--41.
Estimated annual burden hours: 1,136 hours initial setup, 126,920
hours for ongoing.
Reporting Burden--FFIEC and Board Forms
Current Actions
The final rule requires changes to the Consolidated Reports of
Condition and Income (Call Reports) (FFIEC 031, FFIEC 041, and FFIEC
051; OMB Nos. 1557-0081 (OCC), 7100-0036 (Board), and 3064-0052 (FDIC))
and Risk-Based Capital Reporting for Institutions Subject to the
Advanced Capital Adequacy Framework (FFIEC 101; OMB Nos. 1557-0239
(OCC), 7100-0319 (Board), and 3064-0159 (FDIC)), which will be
addressed in a separate Federal Register notice.
B. Regulatory Flexibility Act
OCC: The Regulatory Flexibility Act, 5 U.S.C. 601 et seq.
(``RFA''), requires an agency, in connection with a final rule, to
prepare a final Regulatory Flexibility Analysis describing the impact
of the final rule on small entities (defined by the Small Business
Administration (``SBA'') for purposes of the RFA to include banking
entities with total assets of $600 million or less) or to certify that
the final rule would not have a significant economic impact on a
substantial number of small entities.
The OCC currently supervises approximately 755 small entities.\107\
Because the final rule only applies to banking organizations with total
consolidated assets of $100 billion or more, it will not impact any
OCC-supervised small entities. Therefore, the OCC certifies that the
final rule will not have a significant economic impact on a substantial
number of small entities.
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\107\ The OCC bases its estimate of the number of small entities
on the SBA's size thresholds for commercial banks and savings
institutions, and trust companies, which are $600 million and $41.5
million, respectively. Consistent with the General Principles of
Affiliation 13 CFR 121.103(a), the OCC counts the assets of
affiliated financial institutions when determining if it should
classify an OCC-supervised institution as a small entity. The OCC
uses December 31, 2018, to determine size because a ``financial
institution's assets are determined by averaging the assets reported
on its four quarterly financial statements for the preceding year.''
See footnote 8 of the U.S. Small Business Administration's Table of
Size Standards.
---------------------------------------------------------------------------
Board: The Regulatory Flexibility Act (RFA) generally requires
that, in connection with a final rulemaking, an agency prepare and make
available for public comment a final regulatory flexibility analysis
describing the impact of the proposed rule on small
[[Page 59262]]
entities.\108\ However, a final regulatory flexibility analysis is not
required if the agency certifies that the final rule will not have a
significant economic impact on a substantial number of small entities.
The Small Business Administration (SBA) has defined ``small entities''
to include banking organizations with total assets of less than or
equal to $600 million that are independently owned and operated or
owned by a holding company with less than or equal to $600 million in
total assets.\109\ For the reasons described below and under section
605(b) of the RFA, the Board certifies that the final rule will not
have a significant economic impact on a substantial number of small
entities. As of June 30, 2019, there were 2,976 bank holding companies,
133 savings and loan holding companies, and 537 state member banks that
would fit the SBA's current definition of ``small entity'' for purposes
of the RFA.
---------------------------------------------------------------------------
\108\ 5 U.S.C. 601 et seq.
\109\ See 13 CFR 121.201. Effective August 19, 2019, the Small
Business Administration revised the size standards for banking
organizations to $600 million in assets from $550 million in assets.
See 84 FR 34261 (July 18, 2019). Consistent with the General
Principles of Affiliation in 13 CFR 121.103, the Board counts the
assets of all domestic and foreign affiliates when determining if
the Board should classify a Board-supervised institution as a small
entity.
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The Board is finalizing amendments to Regulations Q \110\ and WW
\111\ that would affect the regulatory requirements that apply to state
member banks, U.S. bank holding companies, U.S. covered savings and
loan holding companies, and U.S. intermediate holding companies with
$50 billion or more in total consolidated assets. These changes are
consistent with EGRRCPA, which amended section 165 of the Dodd-Frank
Act. The reasons and justification for the final rule are described
above in more detail in this SUPPLEMENTARY INFORMATION.
---------------------------------------------------------------------------
\110\ 12 CFR part 217.
\111\ 12 CFR part 249.
---------------------------------------------------------------------------
The assets of institutions subject to this final rule substantially
exceed the $600 million asset threshold under which a banking
organization is considered a ``small entity'' under SBA regulations.
Because the final rule is not likely to apply to any depository
institution or company with assets of $600 million or less, it is not
expected to apply to any small entity for purposes of the RFA. The
Board does not believe that the final rule duplicates, overlaps, or
conflicts with any other Federal rules. In light of the foregoing, the
Board certifies that the final rule will not have a significant
economic impact on a substantial number of small entities supervised.
FDIC: The Regulatory Flexibility Act (RFA), 5 U.S.C. 601 et seq.,
generally requires that, in connection with a final rulemaking, an
agency prepare and make available for public comment a final regulatory
flexibility analysis describing the impact of the proposed rule on
small entities.\112\ However, a regulatory flexibility analysis is not
required if the agency certifies that the final rule will not have a
significant economic impact on a substantial number of small entities.
The SBA has defined ``small entities'' to include banking organizations
with total assets of less than or equal to $600 million that are
independently owned and operated or owned by a holding company with
less than or equal to $600 million in total assets.\113\ Generally, the
FDIC considers a significant effect to be a quantified effect in excess
of 5 percent of total annual salaries and benefits per institution, or
2.5 percent of total non-interest expenses. The FDIC believes that
effects in excess of these thresholds typically represent significant
effects for FDIC-supervised institutions. For the reasons described
below and under section 605(b) of the RFA, the FDIC certifies that the
proposed rule will not have a significant economic impact on a
substantial number of small entities.
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\112\ 5 U.S.C. 601 et seq.
\113\ The SBA defines a small banking organization as having
$600 million or less in assets, where an organization's ``assets are
determined by averaging the assets reported on its four quarterly
financial statements for the preceding year.'' See 13 CFR 121.201
(as amended by 84 FR 34261, effective August 19, 2019). In its
determination, the ``SBA counts the receipts, employees, or other
measure of size of the concern whose size is at issue and all of its
domestic and foreign affiliates.'' See 13 CFR 121.103. Following
these regulations, the FDIC uses a covered entity's affiliated and
acquired assets, averaged over the preceding four quarters, to
determine whether the covered entity is ``small'' for the purposes
of RFA.
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As of June 30, 2019, the FDIC supervised 3,424 institutions, of
which 2,665 are considered small entities for the purposes of RFA.\114\
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\114\ Consolidated Reports of Condition and Income for the
quarter ending June 30, 2019.
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As discussed in Section I, the final rule establishes four risk-
based categories for determining the regulatory capital and liquidity
requirements applicable to large U.S. banking organizations and the
U.S. intermediate holding companies of foreign banking organizations.
The final rule applies to banking organizations with greater than $100
billion in assets. The final rule also affects certain banking
organizations with greater than $50 billion in assets that were subject
to the modified LCR requirement.\115\
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\115\ See 12 CFR part 249, subpart G.
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Small banking organizations, as defined by the SBA, must have less
than $600 million in total assets amongst its affiliates. Thus, no
small banking organizations meet the minimum asset thresholds of
banking organizations affected by the final rule. Since this proposal
does not affect any institutions that are defined as small entities for
the purposes of the RFA, the FDIC certifies that the proposed rule will
not have a significant economic impact on a substantial number of small
entities.
C. Plain Language
Section 722 of the Gramm-Leach-Bliley Act \116\ 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.
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\116\ Public Law 106-102, section 722, 113 Stat. 1338, 1471
(1999).
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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),\117\ in determining the effective
date and administrative compliance requirements for new regulations
that impose additional reporting, disclosure, or other requirements on
insured depository institutions, 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 depository institutions, including small depository
institutions, and customers of depository institutions, as well as the
benefits of such regulations. In addition, section 302(b) of RCDRIA
requires new regulations and amendments to regulations that impose
additional reporting, disclosures, or other new 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.\118\
---------------------------------------------------------------------------
\117\ 12 U.S.C. 4802(a).
\118\ 12 U.S.C. 4802.
---------------------------------------------------------------------------
The Federal banking agencies considered the administrative burdens
and benefits of the rule and its elective framework in determining its
effective date and administrative compliance requirements. As such, the
final rule
[[Page 59263]]
will be effective on the first day of the first calendar quarter
following December 31, 2019. In addition, any banking organization
subject to the final rule may elect to adopt amendments on December 31,
2019.\119\
---------------------------------------------------------------------------
\119\ 12 U.S.C. 4802(b)(2).
---------------------------------------------------------------------------
E. The Congressional Review Act
For purposes of Congressional Review Act, the OMB makes a
determination as to whether a final rule constitutes a ``major''
rule.\120\ If a rule is deemed a ``major rule'' by the Office of
Management and Budget (OMB), the Congressional Review Act generally
provides that the rule may not take effect until at least 60 days
following its publication.\121\
---------------------------------------------------------------------------
\120\ 5 U.S.C. 801 et seq.
\121\ 5 U.S.C. 801(a)(3).
---------------------------------------------------------------------------
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.\122\ 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.
---------------------------------------------------------------------------
\122\ 5 U.S.C. 804(2).
---------------------------------------------------------------------------
Pursuant to the Congressional Review Act, the Office of Management
and Budget's Office of Information and Regulatory Affairs (OMB)
designated this rule as a ``major rule,'' as defined at 5 U.S.C.
804(2), as applied to OCC-supervised institutions [and Board-supervised
institutions]. However, for FDIC-supervised institutions, OMB
determined that this final rule is not a ``major rule,'' as defined in
5 U.S.C. 804(2).
F. OCC Unfunded Mandates Reform Act of 1995 Determination
The OCC analyzed the final rule under the factors set forth in the
Unfunded Mandates Reform Act of 1995 (UMRA) (2 U.S.C. 1532). Under this
analysis, the OCC considered whether the rule 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 (adjusted for inflation). The OCC has
determined that this rule will not result in expenditures by State,
local, and Tribal governments, or the private sector, of $100 million
or more in any one year.\123\ Accordingly, the OCC has not prepared a
written statement to accompany this rule.
---------------------------------------------------------------------------
\123\ The OCC identifies 29 OCC-supervised institutions that
fall within the scope of the final rule. However, only 12 of these
institutions will be impacted by the final rule. The remaining 17
institutions will not have any change from their current capital and
liquidity requirements and thus will not be impacted by the final
rule. Assuming a compensation cost of $114 per hour, the OCC
estimates that that the final rule will result in one-time
administrative costs of approximately $109,440. The OCC estimates
that each institution will spend approximately 80 hours to modify
policies and procedures (80 hours x $114 per hour x 12 institutions
= $109,440). Consistent with the UMRA, the OCC review considers
whether the mandates imposed by the final rule may result in an
expenditure of $100 million or more by state, local, and tribal
governments, or by the private sector, in any one year, adjusted
annually for inflation (currently $154 million). The OCC interprets
expenditure to mean assessment of costs (i.e., this part of the UMRA
analysis assesses the costs of a rule on OCC-supervised entities,
rather than the overall impact). The UMRA expenditure estimate for
the final rule is approximately $109,440.
---------------------------------------------------------------------------
List of Subjects
12 CFR Part 3
Administrative practice and procedure, Federal Reserve System,
National banks, Reporting and recordkeeping requirements.
12 CFR Part 50
Administrative practice and procedure, Banks, Banking, Reporting
and recordkeeping requirements.
12 CFR Part 217
Administrative practice and procedure, Banks, Banking, Holding
companies, Reporting and recordkeeping requirements, Securities.
12 CFR Part 249
Administrative practice and procedure, Banks, Banking, Holding
companies, Reporting and recordkeeping requirements.
12 CFR Part 324
Administrative practice and procedure, Banks, Banking, Reporting
and recordkeeping requirements.
12 CFR Part 329
Administrative practice and procedure, Banks, Banking, Reporting
and recordkeeping requirements.
DEPARTMENT OF THE TREASURY
Office of the Comptroller of the Currency
12 CFR Chapter I
Authority and Issuance
For the reasons stated in the SUPPLEMENTARY INFORMATION section,
chapter I of title 12 of the Code of Federal Regulations to be amended
as follows:
PART 3--CAPITAL ADEQUACY STANDARDS
0
1. The authority citation for part 3 continues to read as follows:
Authority: 12 U.S.C. 93a, 161, 1462, 1462a, 1463, 1464, 1818,
1828(n), 1828 note, 1831n note, 1835, 3907, 3909, and 5412(b)(2)(B).
0
2. In Sec. 3.1, add paragraph (f)(5) to read as follows:
Sec. 3.1 Purpose, applicability, reservations of authority, and
timing.
* * * * *
(f) * * *
(5) A national bank or Federal savings association that changes
from one category of national bank or Federal savings association to
another of such categories must comply with the requirements of its
category in this part, including applicable transition provisions of
the requirements in this part, no later than on the first day of the
second quarter following the change in the national bank's or Federal
savings association's category.
0
3. In Sec. 3.2, add the definitions of Category II national bank or
Federal savings association, Category III national bank or Federal
savings association, FR Y-9LP, and FR Y-15 in alphabetical order to
read as follows:
Sec. 3.2 Definitions.
* * * * *
Category II national bank or Federal savings association means:
(1) A national bank or Federal savings association that is a
subsidiary of a Category II banking organization, as defined pursuant
to 12 CFR 252.5 or 12 CFR 238.10, as applicable; or
(2) A national bank or Federal savings association that:
(i) Is not a subsidiary of a depository institution holding
company; and
(ii)(A) Has total consolidated assets, calculated based on the
average of the national bank's or Federal savings association's total
consolidated assets for the four most recent calendar quarters as
reported on the Call Report, equal to $700 billion or more. If the
national bank or Federal savings
[[Page 59264]]
association has not filed the Call Report for each of the four most
recent calendar quarters, total consolidated assets is calculated based
on its total consolidated assets, as reported on the Call Report, for
the most recent quarter or the average of the most recent quarters, as
applicable; or
(B) Has:
(1) Total consolidated assets, calculated based on the average of
the national bank's or Federal savings association's total consolidated
assets for the four most recent calendar quarters as reported on the
Call Report, of $100 billion or more but less than $700 billion. If the
national bank or Federal savings association has not filed the Call
Report for each of the four most recent quarters, total consolidated
assets is based on its total consolidated assets, as reported on the
Call Report, for the most recent quarter or average of the most recent
quarters, as applicable; and
(2) Cross-jurisdictional activity, calculated based on the average
of its cross-jurisdictional activity for the four most recent calendar
quarters, of $75 billion or more. Cross-jurisdictional activity is the
sum of cross-jurisdictional claims and cross-jurisdictional
liabilities, calculated in accordance with the instructions to the FR
Y-15 or equivalent reporting form.
(iii) After meeting the criteria in paragraph (2)(ii) of this
definition, a national bank or Federal savings association continues to
be a Category II national bank or Federal savings association until the
national bank or Federal savings association has:
(A)(1) Less than $700 billion in total consolidated assets, as
reported on the Call Report, for each of the four most recent calendar
quarters; and
(2) Less than $75 billion in cross-jurisdictional activity for each
of the four most recent calendar quarters. Cross-jurisdictional
activity is the sum of cross-jurisdictional claims and cross-
jurisdictional liabilities, calculated in accordance with the
instructions to the FR Y-15 or equivalent reporting form; or
(B) Less than $100 billion in total consolidated assets, as
reported on the Call Report, for each of the four most recent calendar
quarters.
Category III national bank or Federal savings association means:
(1) A national bank or Federal savings association that is a
subsidiary of a Category III banking organization, as defined pursuant
to 12 CFR 252.5 or 12 CFR 238.10, as applicable;
(2) A national bank or Federal savings association that is a
subsidiary of a depository institution that meets the criteria in
paragraph (3)(ii)(A) or (B) of this definition; or
(3) A national bank or Federal savings association that:
(i) Is not a subsidiary of a depository institution holding
company; and
(ii)(A) Has total consolidated assets, calculated based on the
average of the depository institution's total consolidated assets for
the four most recent calendar quarters as reported on the Call Report,
equal to $250 billion or more. If the depository institution has not
filed the Call Report for each of the four most recent calendar
quarters, total consolidated assets is calculated based on its total
consolidated assets, as reported on the Call Report, for the most
recent quarter or average of the most recent quarters, as applicable;
or
(B) Has:
(1) Total consolidated assets, calculated based on the average of
the depository institution's total consolidated assets for the four
most recent calendar quarters as reported on the Call Report, of $100
billion or more but less than $250 billion. If the depository
institution has not filed the Call Report for each of the four most
recent calendar quarters, total consolidated assets is calculated based
on its total consolidated assets, as reported on the Call Report, for
the most recent quarter or average of the most recent quarters, as
applicable; and
(2) At least one of the following in paragraphs (3)(ii)(B)(2)(i)
through (iii) of this definition, each calculated as the average of the
four most recent calendar quarters, or if the depository institution
has not filed each applicable reporting form for each of the four most
recent calendar quarters, for the most recent quarter or quarters, as
applicable:
(i) Total nonbank assets, calculated in accordance with the
instructions to the FR Y-9LP or equivalent reporting form, equal to $75
billion or more;
(ii) Off-balance sheet exposure equal to $75 billion or more. Off-
balance sheet exposure is a depository institution's total exposure,
calculated in accordance with the instructions to the FR Y-15 or
equivalent reporting form, minus the total consolidated assets of the
depository institution, as reported on the Call Report; or
(iii) Weighted short-term wholesale funding, calculated in
accordance with the instructions to the FR Y-15 or equivalent reporting
form, equal to $75 billion or more.
(iii) After meeting the criteria in paragraph (3)(ii) of this
definition, a national bank or Federal savings association continues to
be a Category III national bank or Federal savings association until
the national bank or Federal savings association:
(A) Has:
(1) Less than $250 billion in total consolidated assets, as
reported on the Call Report, for each of the four most recent calendar
quarters;
(2) Less than $75 billion in total nonbank assets, calculated in
accordance with the instructions to the FR Y-9LP or equivalent
reporting form, for each of the four most recent calendar quarters;
(3) Less than $75 billion in weighted short-term wholesale funding,
calculated in accordance with the instructions to the FR Y-15 or
equivalent reporting form, for each of the four most recent calendar
quarters; and
(4) Less than $75 billion in off-balance sheet exposure for each of
the four most recent calendar quarters. Off-balance sheet exposure is a
national bank's or Federal savings association's total exposure,
calculated in accordance with the instructions to the FR Y-15 or
equivalent reporting form, minus the total consolidated assets of the
national bank or Federal savings association, as reported on the Call
Report; or
(B) Has less than $100 billion in total consolidated assets, as
reported on the Call Report, for each of the four most recent calendar
quarters; or
(C) Is a Category II national bank or Federal savings association.
* * * * *
FR Y-9LP means the Parent Company Only Financial Statements for
Large Holding Companies.
FR Y-15 means the Systemic Risk Report.
* * * * *
0
4. In Sec. 3.10, revise paragraphs (a)(5), (c) introductory text, and
(c)(4)(i) introductory text to read as follows:
Sec. 3.10 Minimum capital requirements.
(a) * * *
(5) For advanced approaches national banks and Federal savings
associations, and for Category III national banks and Federal savings
associations, a supplementary leverage ratio of 3 percent.
* * * * *
(c) Advanced approaches and Category III capital ratio
calculations. An advanced approaches national bank or Federal savings
association that has completed the parallel run process and received
notification from the OCC pursuant to Sec. 3.121(d) must determine its
regulatory capital ratios as described in paragraphs (c)(1) through (3)
of this section. An advanced approaches national bank or Federal
savings
[[Page 59265]]
association must determine its supplementary leverage ratio in
accordance with paragraph (c)(4) of this section, beginning with the
calendar quarter immediately following the quarter in which the
national bank or Federal savings association institution meets any of
the criteria in Sec. 3.100(b)(1). A Category III national bank or
Federal savings association must determine its supplementary leverage
ratio in accordance with paragraph (c)(4) of this section, beginning
with the calendar quarter immediately following the quarter in which
the national bank or Federal savings association is identified as a
Category III national bank or Federal savings association.
* * * * *
(4) * * *
(i) An advanced approaches national bank's or Federal savings
association's or a Category III national bank's or Federal savings
association's supplementary leverage ratio is the ratio of its tier 1
capital to total leverage exposure, the latter of which is calculated
as the sum of:
* * * * *
0
5. In Sec. 3.11, revise paragraphs (b)(1) introductory text and
(b)(1)(ii) to read as follows:
Sec. 3.11 Capital conservation buffer and countercyclical capital
buffer amount.
* * * * *
(b) * * *
(1) General. An advanced approaches national bank or Federal
savings association, and a Category III national bank or Federal
savings association, must calculate a countercyclical capital buffer
amount in accordance with paragraphs (b)(1)(i) through (iv) of this
section for purposes of determining its maximum payout ratio under
Table 1 to this section.
* * * * *
(ii) Amount. An advanced approaches national bank or Federal
savings association, and a Category III national bank or Federal
savings association, has a countercyclical capital buffer amount
determined by calculating the weighted average of the countercyclical
capital buffer amounts established for the national jurisdictions where
the national bank's or Federal savings association's private sector
credit exposures are located, as specified in paragraphs (b)(2) and (3)
of this section.
* * * * *
0
6. In Sec. 3.22, revise paragraph (b)(2)(ii) introductory text to read
as follows:
Sec. 3.22 Regulatory capital adjustments and deductions.
* * * * *
(b) * * *
(2) * * *
(ii) A national bank or Federal savings association that is not an
advanced approaches national bank or Federal savings association must
make its AOCI opt-out election in the Call Report:
(A) If the national bank or Federal savings association is a
Category III national bank or Federal savings association, during the
first reporting period after the national bank or Federal savings
association meets the definition of a Category III national bank or
Federal savings association in Sec. 3.2; or
(B) If the national bank or Federal savings association is not a
Category III national bank or Federal savings association, during the
first reporting period after the national bank or Federal savings
association is required to comply with subpart A of this part as set
forth in Sec. 3.1(f).
* * * * *
0
7. In Sec. 3.63, add paragraphs (d) and (e) to read as follows:
Sec. 3.63 Disclosures by national banks or Federal savings
associations described in Sec. 3.61.
* * * * *
(d) A Category III national bank or Federal savings association
that is required to publicly disclose its supplementary leverage ratio
pursuant to Sec. 3.172(d) is subject to the supplementary leverage
ratio disclosure requirement at Sec. 3.173(a)(2).
(e) A Category III national bank or Federal savings association
that is required to calculate a countercyclical capital buffer pursuant
to Sec. 3.11 is subject to the disclosure requirement at Table 4 to
Sec. 3.173, ``Capital Conservation and Countercyclical Capital
Buffers,'' and not to the disclosure requirement at Table 4 to this
section, ``Capital Conservation Buffer.''
0
8. In Sec. 3.100, revise paragraph (b)(1), remove paragraph (b)(2),
and redesignate paragraph (b)(3) as paragraph (b)(2) to read as
follows:
Sec. 3.100 Purpose, applicability, and principle of conservatism.
* * * * *
(b) Applicability. (1) This subpart applies to a national bank or
Federal savings association that:
(i) Is a subsidiary of a global systemically important BHC, as
identified pursuant to 12 CFR 217.402;
(ii) Is a Category II national bank or Federal savings association;
(iii) Is a subsidiary of a depository institution that uses the
advanced approaches pursuant to this subpart (OCC), 12 CFR part 217,
subpart E (Board), or 12 CFR part 324 (FDIC), to calculate its risk-
based capital requirements;
(iv) Is a subsidiary of a bank holding company or savings and loan
holding company that uses the advanced approaches pursuant to subpart E
of 12 CFR part 217 to calculate its risk-based capital requirements; or
(v) Elects to use this subpart to calculate its risk-based capital
requirements.
0
9. In Sec. 3.172, revise paragraph (d)(2) to read as follows:
Sec. 3.172 Disclosure requirements.
* * * * *
(d) * * *
(2) A national bank or Federal savings association that meets any
of the criteria in Sec. 3.100(b)(1) on or after January 1, 2015, or a
Category III national bank or Federal savings association must publicly
disclose each quarter its supplementary leverage ratio and the
components thereof (that is, tier 1 capital and total leverage
exposure) as calculated under subpart B of this part beginning with the
calendar quarter immediately following the quarter in which the
national bank or Federal savings association becomes an advanced
approaches national bank or Federal savings association or a Category
III national bank or Federal savings association. This disclosure
requirement applies without regard to whether the national bank or
Federal savings association has completed the parallel run process and
has received notification from the OCC pursuant to Sec. 3.121(d).
0
10. In Sec. 3.173, revise the section heading and paragraph (a)(2) to
read as follows:
Sec. 3.173 Disclosures by certain advanced approaches national banks
or Federal savings associations and Category III national banks or
Federal savings associations.
* * * * *
(a) * * *
(2) An advanced approaches national bank or Federal savings
association and a Category III national bank or Federal savings
association that is required to publicly disclose its supplementary
leverage ratio pursuant to Sec. 3.172(d) must make the disclosures
required under Table 13 to this section unless the national bank or
Federal savings association is a consolidated subsidiary of a bank
holding company, savings and loan holding company, or depository
institution that is subject to these disclosure requirements or a
subsidiary of a non-U.S. banking organization that is subject to
comparable public
[[Page 59266]]
disclosure requirements in its home jurisdiction.
* * * * *
PART 50--LIQUIDITY RISK MEASUREMENT STANDARDS
0
11. The authority citation for part 50 continues to read as follows:
Authority: 12 U.S.C. 1 et seq., 93a, 481, 1818, and 1462 et seq.
0
12. Revise Sec. 50.1 to read as follows:
Sec. [thinsp]50.1 Purpose and applicability.
(a) Purpose. This part establishes a minimum liquidity standard for
certain national banks and Federal savings associations on a
consolidated basis, as set forth in this part.
(b) Applicability. (1) A national bank or Federal savings
association is subject to the minimum liquidity standard and other
requirements of this part if:
(i) It is a:
(A) GSIB depository institution supervised by the OCC;
(B) Category II national bank or Federal savings association; or
(C) Category III national bank or Federal savings association; or
(ii) The OCC has determined that application of this part is
appropriate in light of the national bank's or Federal savings
association's asset size, level of complexity, risk profile, scope of
operations, affiliation with foreign or domestic covered entities, or
risk to the financial system.
(2) This part does not apply to:
(i) A bridge financial company as defined in 12 U.S.C. 5381(a)(3),
or a subsidiary of a bridge financial company;
(ii) A new depository institution or a bridge depository
institution, as defined in 12 U.S.C. 1813(i); or
(iii) A Federal branch or agency as defined by 12 CFR 28.11.
(3) In making a determination under paragraph (b)(1)(ii) of this
section, the OCC will apply notice and response procedures in the same
manner and to the same extent as the notice and response procedures in
12 CFR 3.404.
0
13. In Sec. 50.3:
0
a. Add a definition for ``Average weighted short-term wholesale
funding'' in alphabetical order;
0
b. Revise the definition of ``Calculation date'';
0
c. Add definitions for ``Call Report'', ``Category II national bank or
Federal savings association'', and ``Category III national bank or
Federal savings association'' in alphabetical order;
0
d. Revise the definition of ``Covered depository institution holding
company'';
0
e. Add definitions of ``FR Y-9LP'', ``FR Y-15'', ``Global systemically
important BHC'', and ``GSIB depository institution'' in alphabetical
order;
0
f. Revise the definition of ``Regulated financial company''; and
0
g. Add definitions for ``State'' and ``U.S. intermediate holding
company'' in alphabetical order.
The additions and revisions read as follows:
Sec. 50.3 Definitions.
* * * * *
Average weighted short-term wholesale funding means the average of
the national bank's or Federal savings association's weighted short-
term wholesale funding for each of the four most recent calendar
quarters as reported quarterly on the FR Y-15 or, if the national bank
or Federal savings association has not filed the FR Y-15 for each of
the four most recent calendar quarters, for the most recent quarter or
averaged over the most recent quarters, as applicable.
* * * * *
Calculation date means, for purposes of subparts A through F of
this part, any date on which a national bank or Federal savings
association calculates its liquidity coverage ratio under Sec.
[thinsp]50.10.
Call Report means the Consolidated Reports of Condition and Income.
* * * * *
Category II national bank or Federal savings association means:
(1)(i) A national bank or Federal savings association that:
(A) Is a consolidated subsidiary of:
(1) A company that is identified as a Category II banking
organization pursuant to 12 CFR 252.5 or 12 CFR 238.10, as applicable;
(2) A U.S. intermediate holding company that is identified as a
Category II banking organization pursuant to 12 CFR 252.5; or
(3) A depository institution that meets the criteria in paragraph
(2)(ii)(A) or (B) of this definition; and
(B) Has total consolidated assets, calculated based on the average
of the national bank's or Federal savings association's total
consolidated assets for the four most recent calendar quarters as
reported on the Call Report, equal to $10 billion or more.
(ii) If the national bank or Federal savings association has not
filed the Call Report for each of the four most recent calendar
quarters, total consolidated assets is calculated based on its total
consolidated assets, as reported on the Call Report, for the most
recent quarter or the average of the most recent quarters, as
applicable. After meeting the criteria under this paragraph (1), a
national bank or Federal savings association continues to be a Category
II national bank or Federal savings association until the national bank
or Federal savings association has less than $10 billion in total
consolidated assets, as reported on the Call Report, for each of the
four most recent calendar quarters, or the national bank or Federal
savings association is no longer a consolidated subsidiary of an entity
described in paragraph (1)(i)(A)(1), (2), or (3) of this definition; or
(2) A national bank or Federal savings association that:
(i) Is not a subsidiary of a depository institution holding
company; and
(ii)(A) Has total consolidated assets, calculated based on the
average of the depository institution's total consolidated assets for
the four most recent calendar quarters as reported on the Call Report,
equal to $700 billion or more. If the depository institution has not
filed the Call Report for each of the four most recent calendar
quarters, total consolidated assets is calculated based on its total
consolidated assets, as reported on the Call Report, for the most
recent quarter or the average of the most recent quarters, as
applicable; or
(B) Has:
(1) Total consolidated assets, calculated based on the average of
the depository institution's total consolidated assets for the four
most recent calendar quarters as reported on the Call Report, of $100
billion or more but less than $700 billion. If the depository
institution has not filed the Call Report for each of the four most
recent calendar quarters, total consolidated assets means its total
consolidated assets, as reported on the Call Report, for the most
recent quarter or the average of the most recent quarters, as
applicable; and
(2) Cross-jurisdictional activity, calculated based on the average
of its cross-jurisdictional activity for the four most recent calendar
quarters, of $75 billion or more. Cross-jurisdictional activity is the
sum of cross-jurisdictional claims and cross-jurisdictional
liabilities, calculated in accordance with the instructions to the FR
Y-15 or equivalent reporting form.
(iii) After meeting the criteria in paragraphs (2)(i) and (ii) of
this definition, a national bank or Federal savings association
continues to be a Category II national bank or Federal savings
association until the national bank or Federal savings association:
(A)(1) Has less than $700 billion in total consolidated assets, as
reported on
[[Page 59267]]
the Call Report, for each of the four most recent calendar quarters;
and
(2) Has less than $75 billion in cross-jurisdictional activity for
each of the four most recent calendar quarters. Cross-jurisdictional
activity is the sum of cross-jurisdictional claims and cross-
jurisdictional liabilities, calculated in accordance with the
instructions to the FR Y-15 or equivalent reporting form;
(B) Has less than $100 billion in total consolidated assets, as
reported on the Call Report, for each of the four most recent calendar
quarters; or
(C) Is a GSIB depository institution.
Category III national bank or Federal savings association means:
(1)(i) A national bank or Federal savings association that:
(A) Is a consolidated subsidiary of:
(1) A company that is identified as a Category III banking
organization pursuant to 12 CFR 252.5 or 12 CFR 238.10, as applicable;
or
(2) A U.S. intermediate holding company that is identified as a
Category III banking organization pursuant to 12 CFR 252.5; or
(3) A depository institution that meets the criteria in paragraph
(2)(ii)(A) or (B) of this definition; and
(B) Has total consolidated assets, calculated based on the average
of the national bank's or Federal savings association's total
consolidated assets for the four most recent calendar quarters as
reported on the Call Report, equal to $10 billion or more.
(ii) If the national bank or Federal savings association has not
filed the Call Report for each of the four most recent calendar
quarters, total consolidated assets means its total consolidated
assets, as reported on the Call Report, for the most recent quarter or
the average of the most recent quarters, as applicable. After meeting
the criteria under this paragraph (1), a national bank or Federal
savings association continues to be a Category III national bank or
Federal savings association until the national bank or Federal savings
association has less than $10 billion in total consolidated assets, as
reported on the Call Report, for each of the four most recent calendar
quarters, or the national bank or Federal savings association is no
longer a consolidated subsidiary of an entity described in paragraph
(1)(i)(A)(1), (2), or (3) of this definition; or
(2) A national bank or Federal savings association that:
(i) Is not a subsidiary of a depository institution holding
company; and
(ii)(A) Has total consolidated assets, calculated based on the
average of the depository institution's total consolidated assets for
the four most recent calendar quarters as reported on the Call Report,
equal to $250 billion or more. If the depository institution has not
filed the Call Report for each of the four most recent calendar
quarters, total consolidated assets means its total consolidated
assets, as reported on the Call Report, for the most recent quarter or
the average of the most recent quarters, as applicable; or
(B) Has:
(1) Total consolidated assets, calculated based on the average of
the depository institution's total consolidated assets for the four
most recent calendar quarters as reported on the Call Report, of $100
billion or more but less than $250 billion. If the depository
institution has not filed the Call Report for each of the four most
recent calendar quarters, total consolidated assets means its total
consolidated assets, as reported on the Call Report, for the most
recent quarter or the average of the most recent quarters, as
applicable; and
(2) One or more of the following in paragraphs (2)(ii)(B)(2)(i)
through (iii) of this definition, each measured as the average of the
four most recent calendar quarters, or if the depository institution
has not filed the FR Y-9LP or equivalent reporting form, Call Report,
or FR Y-15 or equivalent reporting form, as applicable for each of the
four most recent calendar quarters, for the most recent quarter or the
average of the most recent quarters, as applicable:
(i) Total nonbank assets, calculated in accordance with
instructions to the FR Y-9LP or equivalent reporting form, equal to $75
billion or more;
(ii) Off-balance sheet exposure, calculated in accordance with the
instructions to the FR Y-15 or equivalent reporting form, minus the
total consolidated assets of the depository institution, as reported on
the Call Report, equal to $75 billion or more; or
(iii) Weighted short-term wholesale funding, calculated in
accordance with the instructions to the FR Y-15 or equivalent reporting
form, equal to $75 billion or more.
(iii) After meeting the criteria in paragraphs (2)(i) and (ii) of
this definition, a national bank or Federal savings association
continues to be a Category III national bank or Federal savings
association until the national bank or Federal savings association:
(A)(1) Has less than $250 billion in total consolidated assets, as
reported on the Call Report, for each of the four most recent calendar
quarters;
(2) Has less than $75 billion in total nonbank assets, calculated
in accordance with the instructions to the FR Y-9LP or equivalent
reporting form, for each of the four most recent calendar quarters;
(3) Has less than $75 billion in off-balance sheet exposure for
each of the four most recent calendar quarters. Off-balance sheet
exposure is calculated in accordance with the instructions to the FR Y-
15 or equivalent reporting form, minus the total consolidated assets of
the depository institution, as reported on the Call Report; and
(4) Has less than $75 billion in weighted short-term wholesale
funding, calculated in accordance with the instructions to the FR Y-15
or equivalent reporting form, for each of the four most recent calendar
quarters; or
(B) Has less than $100 billion in total consolidated assets, as
reported on the Call Report, for each of the four most recent calendar
quarters; or
(C) Is a Category II national bank or Federal savings bank; or
(D) Is a GSIB depository institution.
* * * * *
Covered depository institution holding company means a top-tier
bank holding company or savings and loan holding company domiciled in
the United States other than:
(1) A top-tier savings and loan holding company that is:
(i) A grandfathered unitary savings and loan holding company as
defined in section 10(c)(9)(A) of the Home Owners' Loan Act (12 U.S.C.
1461 et seq.); and
(ii) As of June 30 of the previous calendar year, derived 50
percent or more of its total consolidated assets or 50 percent of its
total revenues on an enterprise-wide basis (as calculated under GAAP)
from activities that are not financial in nature under section 4(k) of
the Bank Holding Company Act (12 U.S.C. 1843(k));
(2) A top-tier depository institution holding company that is an
insurance underwriting company;
(3)(i) A top-tier depository institution holding company that, as
of June 30 of the previous calendar year, held 25 percent or more of
its total consolidated assets in subsidiaries that are insurance
underwriting companies (other than assets associated with insurance for
credit risk); and
(ii) For purposes of paragraph (3)(i) of this definition, the
company must calculate its total consolidated assets in accordance with
GAAP, or if the company does not calculate its total consolidated
assets under GAAP for any regulatory purpose (including compliance with
applicable securities laws), the company may estimate its total
consolidated assets, subject to
[[Page 59268]]
review and adjustment by the Board of Governors of the Federal Reserve
System; or
(4) A U.S. intermediate holding company.
* * * * *
FR Y-9LP means the Parent Company Only Financial Statements for
Large Holding Companies.
FR Y-15 means the Systemic Risk Report.
* * * * *
Global systemically important BHC means a bank holding company
identified as a global systemically important BHC pursuant to 12 CFR
217.402.
GSIB depository institution means a depository institution that is
a consolidated subsidiary of a global systemically important BHC and
has total consolidated assets equal to $10 billion or more, calculated
based on the average of the depository institution's total consolidated
assets for the four most recent calendar quarters as reported on the
Call Report. If the depository institution has not filed the Call
Report for each of the four most recent calendar quarters, total
consolidated assets means its total consolidated assets, as reported on
the Call Report, for the most recent calendar quarter or the average of
the most recent calendar quarters, as applicable. After meeting the
criteria under this definition, a depository institution continues to
be a GSIB depository institution until the depository institution has
less than $10 billion in total consolidated assets, as reported on the
Call Report, for each of the four most recent calendar quarters, or the
depository institution is no longer a consolidated subsidiary of a
global systemically important BHC.
* * * * *
Regulated financial company means:
(1) A depository institution holding company or designated company;
(2) A company included in the organization chart of a depository
institution holding company on the Form FR Y-6, as listed in the
hierarchy report of the depository institution holding company produced
by the National Information Center (NIC) website,\2\ provided that the
top-tier depository institution holding company is subject to a minimum
liquidity standard under 12 CFR part 249;
---------------------------------------------------------------------------
\2\ http://www.ffiec.gov/nicpubweb/nicweb/NicHome.aspx.
---------------------------------------------------------------------------
(3) A depository institution; foreign bank; credit union;
industrial loan company, industrial bank, or other similar institution
described in section 2 of the Bank Holding Company Act of 1956, as
amended (12 U.S.C. 1841 et seq.); national bank, state member bank, or
state non-member bank that is not a depository institution;
(4) An insurance company;
(5) A securities holding company as defined in section 618 of the
Dodd-Frank Act (12 U.S.C. 1850a); broker or dealer registered with the
SEC under section 15 of the Securities Exchange Act (15 U.S.C. 78o);
futures commission merchant as defined in section 1a of the Commodity
Exchange Act of 1936 (7 U.S.C. 1 et seq.); swap dealer as defined in
section 1a of the Commodity Exchange Act (7 U.S.C. 1a); or security-
based swap dealer as defined in section 3 of the Securities Exchange
Act (15 U.S.C. 78c);
(6) A designated financial market utility, as defined in section
803 of the Dodd-Frank Act (12 U.S.C. 5462);
(7) A U.S. intermediate holding company; and
(8) Any company not domiciled in the United States (or a political
subdivision thereof) that is supervised and regulated in a manner
similar to entities described in paragraphs (1) through (7) of this
definition (e.g., a foreign banking organization, foreign insurance
company, foreign securities broker or dealer or foreign financial
market utility).
(9) A regulated financial company does not include:
(i) U.S. government-sponsored enterprises;
(ii) Small business investment companies, as defined in section 102
of the Small Business Investment Act of 1958 (15 U.S.C. 661 et seq.);
(iii) Entities designated as Community Development Financial
Institutions (CDFIs) under 12 U.S.C. 4701 et seq. and 12 CFR part 1805;
or
(iv) Central banks, the Bank for International Settlements, the
International Monetary Fund, or multilateral development banks.
* * * * *
State means any state, commonwealth, territory, or possession of
the United States, the District of Columbia, the Commonwealth of Puerto
Rico, the Commonwealth of the Northern Mariana Islands, American Samoa,
Guam, or the United States Virgin Islands.
* * * * *
U.S. intermediate holding company means the top-tier company that
is required to be established pursuant to 12 CFR 252.153.
* * * * *
0
14. In Sec. 50.10, revise paragraph (a) to read as follows:
Sec. 50.10 Liquidity coverage ratio.
(a) Minimum liquidity coverage ratio requirement. Subject to the
transition provisions in subpart F of this part, a national bank or
Federal savings association must calculate and maintain a liquidity
coverage ratio that is equal to or greater than 1.0 on each business
day in accordance with this part. A national bank or Federal savings
association must calculate its liquidity coverage ratio as of the same
time on each calculation date (the elected calculation time). The
national bank or Federal savings association must select this time by
written notice to the OCC prior to December 31, 2019. The national bank
or Federal savings association may not thereafter change its elected
calculation time without prior written approval from the OCC.
* * * * *
0
15. In Sec. 50.30, revise paragraph (a) and add paragraphs (c) and (d)
to read as follows:
Sec. 50.30 Total net cash outflow amount.
(a) Calculation of total net cash outflow amount. As of the
calculation date, a national bank's or Federal savings association's
total net cash outflow amount equals the national bank's or Federal
savings association's outflow adjustment percentage as determined under
paragraph (c) of this section multiplied by:
(1) The sum of the outflow amounts calculated under Sec. 50.32(a)
through (l); minus
(2) The lesser of:
(i) The sum of the inflow amounts calculated under Sec. 50.33(b)
through (g); and
(ii) 75 percent of the amount calculated under paragraph (a)(1) of
this section; plus
(3) The maturity mismatch add-on as calculated under paragraph (b)
of this section.
* * * * *
(c) Outflow adjustment percentage. A national bank's or Federal
savings association's outflow adjustment percentage is determined
pursuant to Table 1 to this paragraph (c).
[[Page 59269]]
Table 1 to Sec. 50.30(c)--Outflow Adjustment Percentages
------------------------------------------------------------------------
Percent
------------------------------------------------------------------------
Outflow adjustment percentage
------------------------------------------------------------------------
GSIB depository institution that is a national bank or 100
Federal savings association............................
Category II national bank or Federal savings association 100
Category III national bank or Federal savings 100
association that:
(1) Is a consolidated subsidiary of (a) a covered
depository institution holding company or U.S.
intermediate holding company identified as a
Category III banking organization pursuant to 12
CFR 252.5 or 12 CFR 238.10 or (b) a depository
institution that meets the criteria set forth in
paragraphs (2)(ii)(A) and (B) of the definition of
Category III national bank or Federal savings
association in this part, in each case with $75
billion or more in average weighted short-term
wholesale funding; or
(2) Has $75 billion or more in average weighted
short-term wholesale funding and is not a
consolidated subsidiary of (a) a covered depository
institution holding company or U.S. intermediate
holding company identified as a Category III
banking organization pursuant to 12 CFR 252.5 or 12
CFR 238.10 or (b) a depository institution that
meets the criteria set forth in paragraphs
(2)(ii)(A) and (B) of the definition of Category
III national bank or Federal savings association in
this part
Category III national bank or Federal savings 85
association that:
(1) Is a consolidated subsidiary of (a) a covered
depository institution holding company or U.S.
intermediate holding company identified as a
Category III banking organization pursuant to 12
CFR 252.5 or 12 CFR 238.10 or (b) a depository
institution that meets the criteria set forth in
paragraphs (2)(ii)(A) and (B) of the definition of
Category III national bank or Federal savings
association in this part, in each case with less
than $75 billion in average weighted short-term
wholesale funding; or
(2) Has less than $75 billion in average weighted
short-term wholesale funding and is not a
consolidated subsidiary of (a) a covered depository
institution holding company or U.S. intermediate
holding company identified as a Category III
banking organization pursuant to 12 CFR 252.5 or 12
CFR 238.10 or (b) a depository institution that
meets the criteria set forth in paragraphs
(2)(ii)(A) and (B) of the definition of Category
III national bank or Federal savings association in
this part
------------------------------------------------------------------------
(d) Transition into a different outflow adjustment percentage. (1)
A national bank or Federal savings association whose outflow adjustment
percentage increases from a lower to a higher outflow adjustment
percentage may continue to use its previous lower outflow adjustment
percentage until the first day of the third calendar quarter after the
outflow adjustment percentage increases.
(2) A national bank or Federal savings association whose outflow
adjustment percentage decreases from a higher to a lower outflow
adjustment percentage must continue to use its previous higher outflow
adjustment percentage until the first day of the first calendar quarter
after the outflow adjustment percentage decreases.
0
16. Revise Sec. 50.50 to read as follows:
Sec. 50.50 Transitions.
(a) No transition for certain national banks and Federal savings
association. A national bank or Federal savings association that is
subject to the minimum liquidity standard and other requirements of
this part prior to December 31, 2019 must comply with the minimum
liquidity standard and other requirements of this part as of December
31, 2019.
(b) [Reserved]
(c) Initial application. (1) A national bank or Federal savings
association that initially becomes subject to the minimum liquidity
standard and other requirements of this part under Sec. 50.1(b)(1)(i)
must comply with the requirements of this part beginning on the first
day of the third calendar quarter after which the national bank or
Federal savings association becomes subject to this part, except that a
national bank or Federal savings association must:
(i) For the first two calendar quarters after the national bank or
Federal savings association begins complying with the minimum liquidity
standard and other requirements of this part, calculate and maintain a
liquidity coverage ratio monthly, on each calculation date that is the
last business day of the applicable calendar month; and
(ii) Beginning the first day of the fifth calendar quarter after
the national bank or Federal savings association becomes subject to the
minimum liquidity standard and other requirements of this part and
continuing thereafter, calculate and maintain a liquidity coverage
ratio on each calculation date.
(2) A national bank or Federal savings association that becomes
subject to the minimum liquidity standard and other requirements of
this part under Sec. 50.1(b)(1)(ii), must comply with the requirements
of this part subject to a transition period specified by the OCC.
(d) Transition into a different outflow adjustment percentage. A
national bank or Federal savings association whose outflow adjustment
percentage changes is subject to transition periods as set forth in
Sec. 50.30(d).
(e) Compliance date. The OCC may extend or accelerate any
compliance date of this part if the OCC determines that such extension
or acceleration is appropriate. In determining whether an extension or
acceleration is appropriate, the OCC will consider the effect of the
modification on financial stability, the period of time for which the
modification would be necessary to facilitate compliance with this
part, and the actions the national bank or Federal savings association
is taking to come into compliance with this part.
BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
12 CFR Chapter II
Authority and Issuance
For the reasons set forth in the Supplementary Information section,
chapter II of title 12 of the Code of Federal Regulations is to be
amended as follows:
PART 217--CAPITAL ADEQUACY OF BANK HOLDING COMPANIES, SAVINGS AND
LOAN HOLDING COMPANIES, AND STATE MEMBER BANKS (REGULATION Q)
0
17. The authority citation for part 217 continues to read as follows:
Authority: 12 U.S.C. 248(a), 321-338a, 481-486, 1462a, 1467a,
1818, 1828, 1831n, 1831o, 1831p-1, 1831w, 1835, 1844(b), 1851, 3904,
3906-3909, 4808, 5365, 5368, 5371.
0
18. In Sec. 217.1, add paragraph (f)(5) to read as follows:
Sec. 217.1 Purpose, applicability, reservations of authority, and
timing.
* * * * *
(f) * * *
[[Page 59270]]
(5) A depository institution holding company, a U.S. intermediate
holding company, or a state member bank that changes from one category
of Board-regulated institution to another of such categories must
comply with the requirements of its category in this part, including
applicable transition provisions of the requirements in this part, no
later than on the first day of the second quarter following the change
in the company's category.
0
19. In Sec. 217.2, add definitions for ``Category II Board-regulated
institution'', ``Category III Board-regulated institution'', ``FR Y-
9LP'', ``FR Y-15'', and ``U.S. intermediate holding company'' in
alphabetical order to read as follows:
Sec. 217.2 Definitions.
* * * * *
Category II Board-regulated institution means:
(1) A depository institution holding company that is identified as
a Category II banking organization pursuant to 12 CFR 252.5 or 12 CFR
238.10, as applicable;
(2) A U.S. intermediate holding company that is identified as a
Category II banking organization pursuant to 12 CFR 252.5;
(3) A state member bank that is a subsidiary of a company
identified in paragraph (1) of this definition; or
(4) A state member bank that:
(i) Is not a subsidiary of a depository institution holding
company; and
(ii)(A) Has total consolidated assets, calculated based on the
average of the state member bank's total consolidated assets for the
four most recent calendar quarters as reported on the Call Report,
equal to $700 billion or more. If the state member bank has not filed
the Call Report for each of the four most recent calendar quarters,
total consolidated assets is calculated based on its total consolidated
assets, as reported on the Call Report, for the most recent quarter or
average of the most recent quarters, as applicable; or
(B) Has:
(1) Total consolidated assets, calculated based on the average of
the state member bank's total consolidated assets for the four most
recent calendar quarters as reported on the Call Report, of $100
billion or more but less than $700 billion. If the state member bank
has not filed the Call Report for each of the four most recent
quarters, total consolidated assets is based on its total consolidated
assets, as reported on the Call Report, for the most recent quarter or
average of the most recent quarters, as applicable; and
(2) Cross-jurisdictional activity, calculated based on the average
of its cross-jurisdictional activity for the four most recent calendar
quarters, of $75 billion or more. Cross-jurisdictional activity is the
sum of cross-jurisdictional claims and cross-jurisdictional
liabilities, calculated in accordance with the instructions to the FR
Y-15 or equivalent reporting form.
(iii) After meeting the criteria in paragraph (4)(i) of this
section, a state member bank continues to be a Category II Board-
regulated institution until the state member bank:
(A) Has:
(1) Less than $700 billion in total consolidated assets, as
reported on the Call Report, for each of the four most recent calendar
quarters; and
(2) Less than $75 billion in cross-jurisdictional activity for each
of the four most recent calendar quarters. Cross-jurisdictional
activity is the sum of cross-jurisdictional claims and cross-
jurisdictional liabilities, calculated in accordance with the
instructions to the FR Y-15 or equivalent reporting form; or
(B) Has less than $100 billion in total consolidated assets, as
reported on the Call Report, for each of the four most recent calendar
quarters.
Category III Board-regulated institution means:
(1) A depository institution holding company that is identified as
a Category III banking organization pursuant to 12 CFR 252.5 or 12 CFR
238.10, as applicable;
(2) A U.S. intermediate holding company that is identified as a
Category III banking organization pursuant to 12 CFR 252.5;
(3) A state member bank that is a subsidiary of a company
identified in paragraph (1) of this definition;
(4) A depository institution that:
(i) Is not a subsidiary of a depository institution holding
company;
(ii)(A) Has total consolidated assets, calculated based on the
average of the state member bank's total consolidated assets for the
four most recent calendar quarters as reported on the Call Report,
equal to $250 billion or more. If the state member bank has not filed
the Call Report for each of the four most recent calendar quarters,
total consolidated assets is calculated based on its total consolidated
assets, as reported on the Call Report, for the most recent quarter or
average of the most recent quarters, as applicable; or
(B) Has:
(1) Total consolidated assets, calculated based on the average of
the state member bank's total consolidated assets for the four most
recent calendar quarters as reported on the Call Report, of $100
billion or more but less than $250 billion. If the state member bank
has not filed the Call Report for each of the four most recent calendar
quarters, total consolidated assets is calculated based its total
consolidated assets, as reported on the Call Report, for the most
recent quarter or average of the most recent quarters, as applicable;
and
(2) At least one of the following in paragraphs (4)(i)(B)(2)(i)
through (iii) of this definition, each calculated as the average of the
four most recent calendar quarters:
(i) Total nonbank assets, calculated in accordance with the
instructions to the FR Y-9LP or equivalent reporting form, equal to $75
billion or more;
(ii) Off-balance sheet exposure equal to $75 billion or more. Off-
balance sheet exposure is a state member bank's total exposure,
calculated in accordance with the instructions to the FR Y-15 or
equivalent reporting form, minus the total consolidated assets of the
state member bank, as reported on the Call Report; or
(iii) Weighted short-term wholesale funding, calculated in
accordance with the instructions to the FR Y-15 or equivalent reporting
form, equal to $75 billion or more; or
(iii) [Reserved]
(iv) After meeting the criteria in paragraph (4)(ii) of this
definition, a state member bank continues to be a Category III Board-
regulated institution until the state member bank:
(A) Has:
(1) Less than $250 billion in total consolidated assets, as
reported on the Call Report, for each of the four most recent calendar
quarters;
(2) Less than $75 billion in total nonbank assets, calculated in
accordance with the instructions to the FR Y-9LP or equivalent
reporting form, for each of the four most recent calendar quarters;
(3) Less than $75 billion in weighted short-term wholesale funding,
calculated in accordance with the instructions to the FR Y-15 or
equivalent reporting form, for each of the four most recent calendar
quarters; and
(4) Less than $75 billion in off-balance sheet exposure for each of
the four most recent calendar quarters. Off-balance sheet exposure is a
state member bank's total exposure, calculated in accordance with the
instructions to the FR Y-15 or equivalent reporting form, minus the
total consolidated assets of the state member bank, as reported on the
Call Report; or
(B) Has less than $100 billion in total consolidated assets, as
reported on the
[[Page 59271]]
Call Report, for each of the four most recent calendar quarters; or
(C) Is a Category II Board-regulated institution.
* * * * *
FR Y-9LP means the Parent Company Only Financial Statements for
Large Holding Companies.
FR Y-15 means the Systemic Risk Report.
* * * * *
U.S. intermediate holding company means the company that is
required to be established or designated pursuant to 12 CFR 252.153.
* * * * *
0
20. In Sec. 217.10, revise paragraphs (a)(5), (c) introductory text,
and (c)(4)(i) introductory text to read as follows:
Sec. 217.10 Minimum capital requirements.
(a) * * *
(5) For advanced approaches Board-regulated institutions or, for
Category III Board-regulated institutions, a supplementary leverage
ratio of 3 percent.
* * * * *
(c) Advanced approaches and Category III capital ratio
calculations. An advanced approaches Board-regulated institution that
has completed the parallel run process and received notification from
the Board pursuant to Sec. 217.121(d) must determine its regulatory
capital ratios as described in paragraphs (c)(1) through (3) of this
section. An advanced approaches Board-regulated institution must
determine its supplementary leverage ratio in accordance with paragraph
(c)(4) of this section, beginning with the calendar quarter immediately
following the quarter in which the Board-regulated institution meets
any of the criteria in Sec. 217.100(b)(1). A Category III Board-
regulated institution must determine its supplementary leverage ratio
in accordance with paragraph (c)(4) of this section, beginning with the
calendar quarter immediately following the quarter in which the Board-
regulated institution is identified as a Category III Board-regulated
institution.
* * * * *
(4) * * *
(i) An advanced approaches Board-regulated institution's or a
Category III Board-regulated institution's supplementary leverage ratio
is the ratio of its tier 1 capital to total leverage exposure, the
latter which is calculated as the sum of:
* * * * *
0
21. In Sec. 217.11, revise paragraphs (b)(1) introductory text and
(b)(1)(ii) to read as follows:
Sec. 217.11 Capital conservation buffer, countercyclical capital
buffer amount, and GSIB surcharge.
* * * * *
(b) * * *
(1) General. An advanced approaches Board-regulated institution or
a Category III Board-regulated institution must calculate a
countercyclical capital buffer amount in accordance with this paragraph
(b) for purposes of determining its maximum payout ratio under Table 1
to this section.
* * * * *
(ii) Amount. An advanced approaches Board-regulated institution or
a Category III Board-regulated institution has a countercyclical
capital buffer amount determined by calculating the weighted average of
the countercyclical capital buffer amounts established for the national
jurisdictions where the Board-regulated institution's private sector
credit exposures are located, as specified in paragraphs (b)(2) and (3)
of this section.
* * * * *
0
22. In Sec. 217.22, revise paragraph (b)(2)(ii) to read as follows:
Sec. 217.22 Regulatory capital adjustments and deductions.
* * * * *
(b) * * *
(2) * * *
(ii) A Board-regulated institution that is not an advanced
approaches Board-regulated institution must make its AOCI opt-out
election in the Call Report, for a state member bank, FR Y-9C, for bank
holding companies or savings and loan holding companies:
(A) If the Board-regulated institution is a Category III Board-
regulated institution or Category IV Board-regulated institution,
during the first reporting period after the Board-regulated institution
meets the definition of a Category III Board-regulated institution or
Category IV Board-regulated institution in Sec. 217.2; or
(B) If the A Board-regulated institution is not a Category III
Board-regulated institution and not a Category IV Board-regulated
institution, during the first reporting period after the Board-
regulated institution is required to comply with subpart A of this part
as set forth in Sec. 217.1(f).
* * * * *
0
23. In Sec. 217.63, add paragraphs (d) and (e) to read as follows:
Sec. 217.63 Disclosures by Board-regulated institutions described in
Sec. 217.61.
* * * * *
(d) A Category III Board-regulated institution that is required to
publicly disclose its supplementary leverage ratio pursuant to Sec.
217.172(d) is subject to the supplementary leverage ratio disclosure
requirement at Sec. 217.173(a)(2).
(e) A Category III Board-regulated institution that is required to
calculate a countercyclical capital buffer pursuant to Sec. 217.11 is
subject to the disclosure requirement at Table 4 to Sec. 217.173,
``Capital Conservation and Countercyclical Capital Buffers,'' and not
to the disclosure requirement at Table 4 to this section, ``Capital
Conservation Buffer.''
0
24. In Sec. 217.100, revise paragraph (b)(1), remove paragraph (b)(2),
and redesignate paragraph (b)(3) as paragraph (b)(2) to read as
follows:
Sec. 217.100 Purpose, applicability, and principle of conservatism.
* * * * *
(b) * * *
(1) This subpart applies to:
(i) A top-tier bank holding company or savings and loan holding
company domiciled in the United States that:
(A) Is not a consolidated subsidiary of another bank holding
company or savings and loan holding company that uses this subpart to
calculate its risk-based capital requirements; and
(B) That:
(1) Is identified as a global systemically important BHC pursuant
to Sec. 217.402;
(2) Is identified as a Category II banking organization pursuant to
12 CFR 252.5 or 12 CFR 238.10; or
(3) Has a subsidiary depository institution that is required, or
has elected, to use 12 CFR part 3, subpart E (OCC), this subpart
(Board), or 12 CFR part 324, subpart E (FDIC), to calculate its risk-
based capital requirements;
(ii) A state member bank that:
(A) Is a subsidiary of a global systemically important BHC;
(B) Is a Category II Board-regulated institution;
(C) Is a subsidiary of a depository institution that uses 12 CFR
part 3, subpart E (OCC), this subpart (Board), or 12 CFR part 324,
subpart E (FDIC), to calculate its risk-based capital requirements; or
(D) Is a subsidiary of a bank holding company or savings and loan
holding company that uses this subpart to calculate its risk-based
capital requirements; or
(iii) Any Board-regulated institution that elects to use this
subpart to calculate its risk-based capital requirements.
* * * * *
0
25. In Sec. 217.172, revise paragraph (d)(2) to read as follows:
[[Page 59272]]
Sec. 217.172 Disclosure requirements.
* * * * *
(d) * * *
(2) A Board-regulated that meets any of the criteria in Sec.
217.100(b)(1) on or after January 1, 2015, or a Category III Board-
regulated institution must publicly disclose each quarter its
supplementary leverage ratio and the components thereof (that is, tier
1 capital and total leverage exposure) as calculated under subpart B of
this part beginning with the calendar quarter immediately following the
quarter in which the Board-regulated institution becomes an advanced
approaches Board-regulated institution or a Category III Board-
regulated institution. This disclosure requirement applies without
regard to whether the Board-regulated institution has completed the
parallel run process and has received notification from the Board
pursuant to Sec. 217.121(d).
0
26. In Sec. 217.173, revise the section heading and paragraph (a)(2)
to read as follows:
Sec. 217.173 Disclosures by certain advanced approaches Board-
regulated institutions and Category III Board-regulated institutions.
(a) * * *
(2) An advanced approaches Board-regulated institution and a
Category III Board-regulated institution that is required to publicly
disclose its supplementary leverage ratio pursuant to Sec. 217.172(d)
must make the disclosures required under Table 13 to this section
unless the Board-regulated institution is a consolidated subsidiary of
a bank holding company, savings and loan holding company, or depository
institution that is subject to these disclosure requirements or a
subsidiary of a non-U.S. banking organization that is subject to
comparable public disclosure requirements in its home jurisdiction.
* * * * *
PART 249--LIQUIDITY RISK MEASUREMENT STANDARDS (REGULATION WW)
0
27. Revise the authority citation for part 249 to read as follows:
Authority: 12 U.S.C. 248(a), 321-338a, 481-486, 1467a(g)(1),
1818, 1828, 1831p-1, 1831o-1, 1844(b), 5365, 5366, 5368; 12 U.S.C.
3101 et seq.
0
28. Revise Sec. 249.1 to read as follows:
Sec. [thinsp]249.1 Purpose and applicability.
(a) Purpose. This part establishes a minimum liquidity standard for
certain Board-regulated institutions on a consolidated basis, as set
forth in this part.
(b) Applicability. (1) A Board-regulated institution is subject to
the minimum liquidity standard and other requirements of this part if:
(i) It is a:
(A) Global systemically important BHC;
(B) GSIB depository institution;
(C) Category II Board-regulated institution;
(D) Category III Board-regulated institution; or
(E) Category IV Board-regulated institution with $50 billion or
more in average weighted short-term wholesale funding;
(ii) It is a covered nonbank company; or
(iii) The Board has determined that application of this part is
appropriate in light of the Board-regulated institution's asset size,
level of complexity, risk profile, scope of operations, affiliation
with foreign or domestic covered entities, or risk to the financial
system.
(2) This part does not apply to:
(i) A bridge financial company as defined in 12 U.S.C. 5381(a)(3),
or a subsidiary of a bridge financial company; or
(ii) A new depository institution or a bridge depository
institution, as defined in 12 U.S.C. 1813(i).
(3) In making a determination under paragraph (b)(1)(iii) of this
section, the Board will apply, as appropriate, notice and response
procedures in the same manner and to the same extent as the notice and
response procedures set forth in 12 CFR 263.202.
(c) Covered nonbank companies. The Board will establish a minimum
liquidity standard and other requirements for a designated company
under this part by rule or order. In establishing such standard, the
Board will consider the factors set forth in sections 165(a)(2) and
(b)(3) of the Dodd-Frank Act and may tailor the application of the
requirements of this part to the designated company based on the
nature, scope, size, scale, concentration, interconnectedness, mix of
the activities of the designated company, or any other risk-related
factor that the Board determines is appropriate.
0
29. Amend Sec. 249.3 by:
0
a. Adding a definition for ``Average weighted short-term wholesale
funding'' in alphabetical order;
0
b. Revising the definitions for ``Board-regulated institution'' and
``Calculation date'' in alphabetical order;
0
c. Adding the definitions for ``Call Report'', ``Category II Board-
regulated institution'', ``Category III Board-regulated institution'',
and ``Category IV Board-regulated institution'' in alphabetical order;
0
d. Revising the definition for ``Covered depository institution holding
company'';
0
e. Adding the definitions for ``FR Y-9LP'', ``FR Y-15'', ``Global
systemically important BHC'', and ``GSIB depository institution'' in
alphabetical order;
0
f. Revising the definition for ``Regulated financial company''; and
0
g. Adding the definitions for ``State'' and ``U.S. intermediate holding
company'' in alphabetical order.
The additions and revisions read as follows:
Sec. [thinsp]249.3 Definitions.
* * * * *
Average weighted short-term wholesale funding means the average of
the weighted short-term wholesale funding for each of the four most
recent calendar quarters as reported quarterly on the FR Y-15 or, if
the Board-regulated institution has not filed the FR Y-15 for each of
the four most recent calendar quarters, for the most recent quarter or
averaged over the most recent quarters, as applicable.
* * * * *
Board-regulated institution means a state member bank, covered
depository institution holding company, U.S. intermediate holding
company, or covered nonbank company.
* * * * *
Calculation date means, for purposes of subparts A through J of
this part, any date on which a Board-regulated institution calculates
its liquidity coverage ratio under Sec. [thinsp]249.10.
Call Report means the Consolidated Reports of Condition and Income.
Category II Board-regulated institution means:
(1) A covered depository institution holding company that is
identified as a Category II banking organization pursuant to 12 CFR
252.5 or 12 CFR 238.10;
(2) A U.S. intermediate holding company that is identified as a
Category II banking organization pursuant to 12 CFR 252.5;
(3)(i) A state member bank that:
(A) Is a consolidated subsidiary of:
(1) A company described in paragraph (1) or (2) of this definition;
or
(2) A depository institution that meets the criteria in paragraph
(4)(ii)(A) or (B) of this definition; and
(B) That has total consolidated assets, calculated based on the
average of the state member bank's total consolidated assets for the
four most recent calendar
[[Page 59273]]
quarters as reported on the Call Report, equal to $10 billion or more.
(ii) If the state member bank has not filed the Call Report for
each of the four most recent calendar quarters, total consolidated
assets is calculated based on its total consolidated assets, as
reported on the Call Report, for the most recent quarter or the average
of the most recent quarters, as applicable. After meeting the criteria
under this paragraph (3), a state member bank continues to be a
Category II Board-regulated institution until the state member bank has
less than $10 billion in total consolidated assets, as reported on the
Call Report, for each of the four most recent calendar quarters, or the
state member bank is no longer a consolidated subsidiary of a company
described in paragraph (3)(i)(A)(1) or (2) of this definition; or
(4) A state member bank that:
(i) Is not a subsidiary of a depository institution holding
company; and
(ii)(A) Has total consolidated assets, calculated based on the
average of the depository institution's total consolidated assets for
the four most recent calendar quarters as reported on the Call Report,
equal to $700 billion or more. If the depository institution has not
filed the Call Report for each of the four most recent calendar
quarters, total consolidated assets is calculated based on its total
consolidated assets, as reported on the Call Report, for the most
recent quarter or the average of the most recent quarters, as
applicable; or
(B) Has:
(1) Total consolidated assets, calculated based on the average of
the depository institution's total consolidated assets for the four
most recent calendar quarters as reported on the Call Report, of $100
billion or more but less than $700 billion. If the depository
institution has not filed the Call Report for each of the four most
recent calendar quarters, total consolidated assets means its total
consolidated assets, as reported on the Call Report, for the most
recent quarter or the average of the most recent quarters, as
applicable; and
(2) Cross-jurisdictional activity, calculated based on the average
of its cross-jurisdictional activity for the four most recent calendar
quarters, of $75 billion or more. Cross-jurisdictional activity is the
sum of cross-jurisdictional claims and cross-jurisdictional
liabilities, calculated in accordance with the instructions to the FR
Y-15 or equivalent reporting form.
(iii) After meeting the criteria in paragraphs (4)(i) and (ii) of
this definition, a state member bank continues to be a Category II
Board-regulated institution until the state member bank:
(A)(1) Has less than $700 billion in total consolidated assets, as
reported on the Call Report, for each of the four most recent calendar
quarters; and
(2) Has less than $75 billion in cross-jurisdictional activity for
each of the four most recent calendar quarters. Cross-jurisdictional
activity is the sum of cross-jurisdictional claims and cross-
jurisdictional liabilities, calculated in accordance with the
instructions to the FR Y-15 or equivalent reporting form;
(B) Has less than $100 billion in total consolidated assets, as
reported on the Call Report, for each of the four most recent calendar
quarters; or
(C) Is a GSIB depository institution.
Category III Board-regulated institution means:
(1) A covered depository institution holding company that is
identified as a Category III banking organization pursuant to 12 CFR
252.5 or 12 CFR 238.10, as applicable;
(2) A U.S. intermediate holding company that is identified as a
Category III banking organization pursuant to 12 CFR 252.5;
(3)(i) A state member bank that is:
(A) A consolidated subsidiary of:
(1) A company described in paragraph (1) or (2) of this definition;
or
(2) A depository institution that meets the criteria in paragraph
(4)(ii)(A) or (B) of this definition; and
(B) Has total consolidated assets, calculated based on the average
of the state member bank's total consolidated assets for the four most
recent calendar quarters as reported on the Call Report, equal to $10
billion or more.
(ii) If the state member bank has not filed the Call Report for
each of the four most recent calendar quarters, total consolidated
assets means its total consolidated assets, as reported on the Call
Report, for the most recent quarter or the average of the most recent
quarters, as applicable. After meeting the criteria under this
paragraph (3), a state member bank continues to be a Category III
Board-regulated institution until the state member bank has less than
$10 billion in total consolidated assets, as reported on the Call
Report, for each of the four most recent calendar quarters, or the
state member bank is no longer a consolidated subsidiary of a company
described in paragraph (3)(i)(A)(1) or (2) of this definition; or
(4) A state member bank that:
(i) Is not a depository institution holding company; and
(ii)(A) Has total consolidated assets, calculated based on the
average of the depository institution's total consolidated assets in
the four most recent quarters as reported on the most recent Call
Report, equal to $250 billion or more. If the depository institution
has not filed the Call Report for each of the four most recent calendar
quarters, total consolidated assets means its total consolidated
assets, as reported on the Call Report, for the most recent quarter or
the average of the most recent quarters, as applicable; or
(B) Has:
(1) Total consolidated assets, calculated based on the average of
the depository institution's total consolidated assets in the four most
recent calendar quarters as reported on the most recent Call Report, of
$100 billion or more but less than $250 billion. If the depository
institution has not filed the Call Report for each of the four most
recent calendar quarters, total consolidated assets means its total
consolidated assets, as reported on the Call Report, for the most
recent quarter or the average of the most recent quarters, as
applicable; and
(2) At least one of the following in paragraphs (4)(ii)(B)(2)(i)
through (iii) of this definition, each measured as the average of the
four most recent calendar quarters, or if the depository institution
has not filed the FR Y-9LP or equivalent reporting form, Call Report,
or FR Y-15 or equivalent reporting form, as applicable, for each of the
four most recent calendar quarters, for the most recent quarter or the
average of the most recent quarters, as applicable:
(i) Total nonbank assets, calculated in accordance with
instructions to the FR Y-9LP or equivalent reporting form, equal to $75
billion or more;
(ii) Off-balance sheet exposure, calculated in accordance with the
instructions to the FR Y-15 or equivalent reporting form, minus the
total consolidated assets of the depository institution, as reported on
the Call Report, equal to $75 billion or more; or
(iii) Weighted short-term wholesale funding, calculated in
accordance with the instructions to the FR Y-15 or equivalent reporting
form, equal to $75 billion or more.
(iii) After meeting the criteria in paragraphs (4)(i) and (ii) of
this definition, a state member bank continues to be a Category III
Board-regulated institution until the state member bank:
(A)(1) Has less than $250 billion in total consolidated assets, as
reported on the Call Report, for each of the four most recent calendar
quarters;
(2) Has less than $75 billion in total nonbank assets, calculated
in accordance with the instructions to the FR Y-9LP or equivalent
reporting form,
[[Page 59274]]
for each of the four most recent calendar quarters;
(3) Has less than $75 billion in off-balance sheet exposure for
each of the four most recent calendar quarters. Off-balance sheet
exposure is a state member bank's total exposure, calculated in
accordance with the instructions to the FR Y-15 or equivalent reporting
form, minus the total consolidated assets of the state member bank, as
reported on the Call Report; and
(4) Has less than $75 billion in weighted short-term wholesale
funding, calculated in accordance with the instructions to the FR Y-15
or equivalent reporting form, for each of the four most recent calendar
quarters;
(B) Has less than $100 billion in total consolidated assets, as
reported on the Call Report, for each of the four most recent calendar
quarters;
(C) Is a Category II Board-regulated institution; or
(D) Is a GSIB depository institution.
Category IV Board-regulated institution means:
(1) A covered depository institution holding company that is
identified as a Category IV banking organization pursuant to 12 CFR
252.5 or 12 CFR 238.10, as applicable; or
(2) A U.S. intermediate holding company that is identified as a
Category IV banking organization pursuant to 12 CFR 252.5.
* * * * *
Covered depository institution holding company means a top-tier
bank holding company or savings and loan holding company domiciled in
the United States other than:
(1) A top-tier savings and loan holding company that is:
(i) A grandfathered unitary savings and loan holding company as
defined in section 10(c)(9)(A) of the Home Owners' Loan Act (12 U.S.C.
1461 et seq.); and
(ii) As of June 30 of the previous calendar year, derived 50
percent or more of its total consolidated assets or 50 percent of its
total revenues on an enterprise-wide basis (as calculated under GAAP)
from activities that are not financial in nature under section 4(k) of
the Bank Holding Company Act (12 U.S.C. 1843(k));
(2) A top-tier depository institution holding company that is an
insurance underwriting company;
(3)(i) A top-tier depository institution holding company that, as
of June 30 of the previous calendar year, held 25 percent or more of
its total consolidated assets in subsidiaries that are insurance
underwriting companies (other than assets associated with insurance for
credit risk); and
(ii) For purposes of paragraph (3)(i) of this definition, the
company must calculate its total consolidated assets in accordance with
GAAP, or if the company does not calculate its total consolidated
assets under GAAP for any regulatory purpose (including compliance with
applicable securities laws), the company may estimate its total
consolidated assets, subject to review and adjustment by the Board of
Governors of the Federal Reserve System; or
(4) A U.S. intermediate holding company.
* * * * *
FR Y-9LP means the Parent Company Only Financial Statements for
Large Holding Companies.
FR Y-15 means the Systemic Risk Report.
* * * * *
Global systemically important BHC means a bank holding company
identified as a global systemically important BHC pursuant to 12 CFR
217.402.
GSIB depository institution means a depository institution that is
a consolidated subsidiary of a global systemically important BHC and
has total consolidated assets equal to $10 billion or more, calculated
based on the average of the depository institution's total consolidated
assets for the four most recent calendar quarters as reported on the
Call Report. If the depository institution has not filed the Call
Report for each of the four most recent calendar quarters, total
consolidated assets means its total consolidated assets, as reported on
the Call Report, for the most recent calendar quarter or the average of
the most recent calendar quarters, as applicable. After meeting the
criteria under this definition, a depository institution continues to
be a GSIB depository institution until the depository institution has
less than $10 billion in total consolidated assets, as reported on the
Call Report, for each of the four most recent calendar quarters, or the
depository institution is no longer a consolidated subsidiary of a
global systemically important BHC.
* * * * *
Regulated financial company means:
(1) A depository institution holding company or designated company;
(2) A company included in the organization chart of a depository
institution holding company on the Form FR Y-6, as listed in the
hierarchy report of the depository institution holding company produced
by the National Information Center (NIC) website,\2\ provided that the
top-tier depository institution holding company is subject to a minimum
liquidity standard under this part;
---------------------------------------------------------------------------
\2\ http://www.ffiec.gov/nicpubweb/nicweb/NicHome.aspx.
---------------------------------------------------------------------------
(3) A depository institution; foreign bank; credit union;
industrial loan company, industrial bank, or other similar institution
described in section 2 of the Bank Holding Company Act of 1956, as
amended (12 U.S.C. 1841 et seq.); national bank, state member bank, or
state non-member bank that is not a depository institution;
(4) An insurance company;
(5) A securities holding company as defined in section 618 of the
Dodd-Frank Act (12 U.S.C. 1850a); broker or dealer registered with the
SEC under section 15 of the Securities Exchange Act (15 U.S.C. 78o);
futures commission merchant as defined in section 1a of the Commodity
Exchange Act of 1936 (7 U.S.C. 1a); swap dealer as defined in section
1a of the Commodity Exchange Act (7 U.S.C. 1a); or security-based swap
dealer as defined in section 3 of the Securities Exchange Act (15
U.S.C. 78c);
(6) A designated financial market utility, as defined in section
803 of the Dodd-Frank Act (12 U.S.C. 5462);
(7) A U.S. intermediate holding company; and
(8) Any company not domiciled in the United States (or a political
subdivision thereof) that is supervised and regulated in a manner
similar to entities described in paragraphs (1) through (7) of this
definition (e.g., a foreign banking organization, foreign insurance
company, foreign securities broker or dealer or foreign financial
market utility).
(9) A regulated financial company does not include:
(i) U.S. government-sponsored enterprises;
(ii) Small business investment companies, as defined in section 102
of the Small Business Investment Act of 1958 (15 U.S.C. 661 et seq.);
(iii) Entities designated as Community Development Financial
Institutions (CDFIs) under 12 U.S.C. 4701 et seq. and 12 CFR part 1805;
or
(iv) Central banks, the Bank for International Settlements, the
International Monetary Fund, or multilateral development banks.
* * * * *
State means any state, commonwealth, territory, or possession of
the United States, the District of Columbia, the Commonwealth of Puerto
Rico, the Commonwealth of the Northern Mariana Islands, American
[[Page 59275]]
Samoa, Guam, or the United States Virgin Islands.
* * * * *
U.S. intermediate holding company means a top-tier company that is
required to be established pursuant to 12 CFR 252.153.
* * * * *
0
30. In Sec. 249.10, revise paragraph (a), redesignate paragraph (b) as
paragraph (c), and add new paragraph (b) to read as follows:
Sec. [thinsp]249.10 Liquidity coverage ratio.
(a) Minimum liquidity coverage ratio requirement. Subject to the
transition provisions in subpart F of this part, a Board-regulated
institution must calculate and maintain a liquidity coverage ratio that
is equal to or greater than 1.0 on each business day (or, in the case
of a Category IV Board-regulated institution, on the last business day
of the applicable month) in accordance with this part. A Board-
regulated institution must calculate its liquidity coverage ratio as of
the same time on each calculation date (the elected calculation time).
The Board-regulated institution must select this time by written notice
to the Board prior to December 31, 2019. The Board-regulated
institution may not thereafter change its elected calculation time
without prior written approval from the Board.
(b) Transition from monthly calculation to daily calculation. A
Board-regulated institution that was a Category IV Board-regulated
institution immediately prior to moving to a different category must
begin calculating and maintaining a liquidity coverage ratio each
business day beginning on the first day of the fifth quarter after
becoming a Category I Board-regulated institution, Category II Board-
regulated institution, or Category III Board-regulated institution.
* * * * *
0
31. In Sec. 249.30, revise paragraph (a) and add paragraphs (c) and
(d) to read as follows:
Sec. [thinsp]249.30 Total net cash outflow amount.
(a) Calculation of total net cash outflow amount. As of the
calculation date, a Board-regulated institution's total net cash
outflow amount equals the Board-regulated institution's outflow
adjustment percentage as determined under paragraph (c) of this section
multiplied by:
(1) The sum of the outflow amounts calculated under Sec. 249.32(a)
through (l); minus
(2) The lesser of:
(i) The sum of the inflow amounts calculated under Sec. 249.33(b)
through (g); and
(ii) 75 percent of the amount calculated under paragraph (a)(1) of
this section; plus
(3) The maturity mismatch add-on as calculated under paragraph (b)
of this section.
* * * * *
(c) Outflow adjustment percentage. A Board-regulated institution's
outflow adjustment percentage is determined pursuant to Table 1 to this
paragraph (c).
Table 1 to Sec. 249.30(c)--Outflow Adjustment Percentages
------------------------------------------------------------------------
Percent
------------------------------------------------------------------------
Outflow adjustment percentage
------------------------------------------------------------------------
Global systemically important BHC or GSIB depository 100
institution............................................
Category II Board-regulated institution................. 100
Category III Board-regulated institution with $75 100
billion or more in average weighted short-term
wholesale funding and any Category III Board-regulated
institution that is a consolidated subsidiary of such a
Category III Board-regulated institution...............
Category III Board-regulated institution with less than 85
$75 billion in average weighted short-term wholesale
funding and any Category III Board-regulated
institution that is a consolidated subsidiary of such a
Category III Board-regulated institution...............
Category IV Board-regulated institution with $50 billion 70
or more in average weighted short-term wholesale
funding................................................
------------------------------------------------------------------------
(d) Transition into a different outflow adjustment percentage. (1)
A Board-regulated institution whose outflow adjustment percentage
increases from a lower to a higher outflow adjustment percentage may
continue to use its previous lower outflow adjustment percentage until
the first day of the third calendar quarter after the outflow
adjustment percentage increases.
(2) A Board-regulated institution whose outflow adjustment
percentage decreases from a higher to a lower outflow adjustment
percentage must continue to use its previous higher outflow adjustment
percentage until the first day of the first calendar quarter after the
outflow adjustment percentage decreases.
0
32. Revise Sec. 249.50 to read as follows:
Sec. 249.50 Transitions.
(a) No transitions for certain Board-regulated institutions. A
Board-regulated institution that is subject to the minimum liquidity
standards and other requirements of this part immediately prior to
December 31, 2019 must comply with the requirements of this part as of
December 31, 2019.
(b) Transitions for certain U.S. intermediate holding companies. A
U.S. intermediate holding company that initially becomes subject to
this part on December 31, 2019 does not need to comply with the minimum
liquidity standard of Sec. 249.10 or with the public disclosure
requirements of Sec. 249.90 until December 31, 2020, at which time the
U.S. intermediate holding company must comply with the minimum
liquidity standard of Sec. 249.10 each business day (or, in the case
of a Category IV Board-regulated institution, on the last business day
of the applicable calendar month) in accordance with this part, and
with the public disclosure requirements of Sec. 249.90.
(c) Initial application. (1) A Board-regulated institution that
initially becomes subject to the minimum liquidity standard and other
requirements of this part under Sec. 249.1(b)(1)(i) or (ii) after
December 31, 2019, must comply with the requirements of this part
beginning on the first day of the third calendar quarter after which
the Board-regulated institution becomes subject to this part, except
that a Board-regulated institution that is not a Category IV Board-
regulated institution must:
(i) For the first two calendar quarters after the Board-regulated
institution begins complying with the minimum liquidity standard and
other requirements of this part, calculate and maintain a liquidity
coverage ratio monthly, on each calculation date that is the last
business day of the applicable calendar month; and
(ii) Beginning the first day of the fifth calendar quarter after
the Board-
[[Page 59276]]
regulated institution becomes subject to the minimum liquidity standard
and other requirements of this part and continuing thereafter,
calculate and maintain a liquidity coverage ratio on each calculation
date.
(2) A Board-regulated institution that becomes subject to the
minimum liquidity standard and other requirements of this part under
Sec. 249.1(b)(1)(iii) must comply with the requirements of this part
subject to a transition period specified by the Board.
(d) Transition into a different outflow adjustment percentage. (1)
A Board-regulated institution whose outflow adjustment percentage
changes is subject to transition periods as set forth in Sec.
249.30(d).
(2) A Board-regulated institution that is no longer subject to the
minimum liquidity standard and other requirements of this part pursuant
to Sec. 249.1(b)(1)(i) or (ii) based on the size of total consolidated
assets, cross-jurisdictional activity, total nonbank assets, weighted
short-term wholesale funding, or off-balance sheet exposure calculated
in accordance with the Call Report, instructions to the FR Y-9LP or the
FR Y-15 or equivalent reporting form, as applicable, for each of the
four most recent calendar quarters may cease compliance with this part
as of the first day of the first quarter after it is no longer subject
to Sec. 249.1(b).
(e) Reservation of authority. The Board may extend or accelerate
any compliance date of this part if the Board determines that such
extension or acceleration is appropriate. In determining whether an
extension or acceleration is appropriate, the Board will consider the
effect of the modification on financial stability, the period of time
for which the modification would be necessary to facilitate compliance
with this part, and the actions the Board-regulated institution is
taking to come into compliance with this part.
Subpart G--[Removed and Reserved]
0
33. Remove and reserve subpart G, consisting of Sec. Sec. 249.60
through 249.64.
0
34. In Sec. 249.90, revise paragraphs (a) and (b) to read as follows:
Sec. [thinsp]249.90 Timing, method and retention of disclosures.
(a) Applicability. A covered depository institution holding
company, U.S. intermediate holding company, or covered nonbank company
that is subject to Sec. [thinsp]249.1 must disclose publicly all the
information required under this subpart.
(b) Timing of disclosure. (1) A covered depository institution
holding company, U.S. intermediate holding company, or covered nonbank
company subject to this subpart must provide timely public disclosures
each calendar quarter of all the information required under this
subpart.
(2) A covered depository institution holding company, U.S.
intermediate holding company, or covered nonbank company that is
subject to this subpart must provide the disclosures required by this
subpart beginning with the first calendar quarter that includes the
date that is 18 months after the covered depository institution holding
company or U.S. intermediate holding company first became subject to
this subpart.
* * * * *
0
35. In Sec. 249.91:
0
a. Revise Table 1 to Sec. 249.91(a);
0
b. In paragraph (b)(1)(i)(B):
0
i. Remove ``(c)(1), (c)(5), (c)(9), (c)(14), (c)(19), (c)(23), and
(c)(28)'' and add in its place ``(c)(1), (5), (9), (14), (19), (23),
and (28)''; and
0
ii. Remove the semicolon at the end of the paragraph and add a period
in its place.
0
c. Remove paragraph (b)(1)(ii) and redesignate paragraph (b)(1)(iii) as
paragraph (b)(1)(ii);
0
d. Revise paragraphs (c)(32) and (33): and
0
e. Add paragraphs (c)(34) and (35).
The revisions and additions read as follows:
Sec. 249.91 Disclosure requirements.
(a) * * *
Table 1 to Sec. 249.91(a)--Disclosure Template
----------------------------------------------------------------------------------------------------------------
Average Average
XX/XX/XXXX to YY/YY/YYYY (In millions of U.S. dollars) unweighted weighted
amount amount
----------------------------------------------------------------------------------------------------------------
High-Quality Liquid Assets
1. Total eligible high-quality liquid assets (HQLA), of which:
2. Eligible level 1 liquid assets
3. Eligible level 2A liquid assets
4. Eligible level 2B liquid assets
----------------------------------------------------------------------------------------------------------------
Cash Outflow Amounts
5. Deposit outflow from retail customers and counterparties, of which:
6. Stable retail deposit outflow
7. Other retail funding
8. Brokered deposit outflow
9. Unsecured wholesale funding outflow, of which:
10. Operational deposit outflow
11. Non-operational funding outflow
12. Unsecured debt outflow
13. Secured wholesale funding and asset exchange outflow
14. Additional outflow requirements, of which:
15. Outflow related to derivative exposures and other collateral
requirements
16. Outflow related to credit and liquidity facilities including
unconsolidated structured transactions and mortgage commitments
17. Other contractual funding obligation outflow
18. Other contingent funding obligations outflow
19. Total Cash Outflow
----------------------------------------------------------------------------------------------------------------
Cash Inflow Amounts
20. Secured lending and asset exchange cash inflow
21. Retail cash inflow
22. Unsecured wholesale cash inflow
23. Other cash inflows, of which:
[[Page 59277]]
24. Net derivative cash inflow
25. Securities cash inflow
26. Broker-dealer segregated account inflow
27. Other cash inflow
28. Total Cash Inflow
----------------------------------------------------------------------------------------------------------------
Average amount
\1\
----------------------------------------------------------------------------------------------------------------
29. HQLA Amount
30. Total Net Cash Outflow Amount Excluding The Maturity Mismatch Add-On
31. Maturity Mismatch Add-On
32. Total Unadusted Net Cash Outflow Amount
33. Outflow Adjustment Percentage
34. Total Adjusted Net Cash Outflow Amount
35. Liquidity Coverage Ratio (%)
----------------------------------------------------------------------------------------------------------------
\1\ The amounts reported in this column may not equal the calculation of those amounts using component amounts
reported in rows 1-28 due to technical factors such as the application of the level 2 liquid asset caps and
the total inflow cap.
* * * * *
(c) * * *
(32) The average amount of the total net cash outflow amount as
calculated under Sec. 249.30 prior to the application of the
applicable outflow adjustment percentage described in Table 1 to Sec.
249.30(c) (row 32);
(33) The applicable outflow adjustment percentage described in
Table 1 to Sec. 249.30(c) (row 33);
(34) The average amount of the total net cash outflow as calculated
under Sec. 249.30 (row 34); and
(35) The average of the liquidity coverage ratios as calculated
under Sec. 249.10(b) (row 35).
* * * * *
Federal Deposit Insurance Corporation
12 CFR Chapter III
Authority and Issuance
For the reasons set forth in the Supplementary Information section,
chapter III of title 12 of the Code of Federal Regulations is to be
amended as follows:
PART 324--CAPITAL ADEQUACY OF FDIC-SUPERVISED INSTITUTIONS
0
37. The authority citation for part 324 continues to read as follows:
Authority: 12 U.S.C. 1815(a), 1815(b), 1816, 1818(a), 1818(b),
1818(c), 1818(t), 1819(Tenth), 1828(c), 1828(d), 1828(i), 1828(n),
1828(o), 1831o, 1835, 3907, 3909, 4808; 5371; 5412; Pub. L. 102-233,
105 Stat. 1761, 1789, 1790 (12 U.S.C. 1831n note); Pub. L. 102-242,
105 Stat. 2236, 2355, as amended by Pub. L. 103-325, 108 Stat. 2160,
2233 (12 U.S.C. 1828 note); Pub. L. 102-242, 105 Stat. 2236, 2386,
as amended by Pub. L. 102-550, 106 Stat. 3672, 4089 (12 U.S.C. 1828
note); Pub. L. 111-203, 124 Stat. 1376, 1887 (15 U.S.C. 78o-7 note).
0
38. In Sec. 324.1, add paragraph (f)(4) to read as follows:
Sec. 324.1 Purpose, applicability, reservations of authority, and
timing.
* * * * *
(f) * * *
(4) An FDIC-supervised institution that changes from one category
of FDIC-supervised institution to another of such categories must
comply with the requirements of its category in this part, including
applicable transition provisions of the requirements in this part, no
later than on the first day of the second quarter following the change
in the FDIC-supervised institution's category.
0
39. In Sec. 324.2, add the definitions of ``Category II FDIC-
supervised institution'', ``Category III FDIC-supervised institution'',
``FR Y-15'', and ``FR Y-9LP'' in alphabetical order to read as follows:
Sec. 324.2 Definitions.
* * * * *
Category II FDIC-supervised institution means:
(1) An FDIC-supervised institution that is a consolidated
subsidiary of a company that is identified as a Category II banking
organization, as defined pursuant to 12 CFR 252.5 or 12 CFR 238.10, as
applicable; or
(2) An FDIC-supervised institution that:
(i) Is not a subsidiary of a depository institution holding
company;
(ii)(A) Has total consolidated assets, calculated based on the
average of the FDIC-supervised institution's total consolidated assets
for the four most recent calendar quarters as reported on the Call
Report, equal to $700 billion or more. If the FDIC-supervised
institution has not filed the Call Report for each of the four most
recent calendar quarters, total consolidated assets is calculated based
on its total consolidated assets, as reported on the Call Report, for
the most recent quarter or the average of the four most recent
quarters, as applicable; or
(B) Has:
(1) Total consolidated assets, calculated based on the average of
the FDIC-supervised institution's total consolidated assets for the
four most recent calendar quarters as reported on the Call Report, of
$100 billion or more but less than $700 billion. If the FDIC-supervised
institution has not filed the Call Report for each of the four most
recent quarters, total consolidated assets is based on its total
consolidated assets, as reported on the Call Report, for the most
recent quarter or the average of the four most recent quarters, as
applicable; and
(2) Cross-jurisdictional activity, calculated based on the average
of its cross-jurisdictional activity for the four most recent calendar
quarters, of $75 billion or more. Cross-jurisdictional activity is the
sum of cross-jurisdictional claims and cross-jurisdictional
liabilities, calculated in accordance with the instructions to the FR
Y-15 or equivalent reporting form.
(iii) After meeting the criteria in paragraph (2)(ii) of this
definition, an FDIC-supervised institution continues to be a Category
II FDIC-supervised institution until the FDIC-supervised institution
has:
(A)(1) Less than $700 billion in total consolidated assets, as
reported on the Call Report, for each of the four most recent calendar
quarters; and
[[Page 59278]]
(2) Less than $75 billion in cross-jurisdictional activity for each
of the four most recent calendar quarters. Cross-jurisdictional
activity is the sum of cross-jurisdictional claims and cross-
jurisdictional liabilities, calculated in accordance with the
instructions to the FR Y-15 or equivalent reporting form; or
(B) Less than $100 billion in total consolidated assets, as
reported on the Call Report, for each of the four most recent calendar
quarters.
Category III FDIC-supervised institution means:
(1) An FDIC-supervised institution that is a subsidiary of a
Category III banking organization, as defined pursuant to 12 CFR 252.5
or 12 CFR 238.10, as applicable;
(2) An FDIC-supervised institution that is a subsidiary of a
depository institution that meets the criteria in paragraph (3)(iii)(A)
or (B) of this definition; or
(3) A depository institution that:
(i) Is an FDIC-supervised institution;
(ii) Is not a subsidiary of a depository institution holding
company; and
(iii)(A) Has total consolidated assets, calculated based on the
average of the depository institution's total consolidated assets for
the four most recent calendar quarters as reported on the Call Report,
equal to $250 billion or more. If the depository institution has not
filed the Call Report for each of the four most recent calendar
quarters, total consolidated assets is calculated based on its total
consolidated assets, as reported on the Call Report, for the most
recent quarter or the average of the four most recent quarters, as
applicable; or
(B) Has:
(1) Total consolidated assets, calculated based on the average of
the depository institution's total consolidated assets for the four
most recent calendar quarters as reported on the Call Report, of $100
billion or more but less than $250 billion. If the depository
institution has not filed the Call Report for each of the four most
recent calendar quarters, total consolidated assets is calculated based
on its total consolidated assets, as reported on the Call Report, for
the most recent quarter or the average of the four most recent
quarters, as applicable; and
(2) At least one of the following in paragraphs (3)(iii)(B)(2)(i)
through (iii) of this definition, each calculated as the average of the
four most recent calendar quarters, or if the depository institution
has not filed each applicable reporting form for each of the four most
recent calendar quarters, for the most recent quarter or quarters, as
applicable:
(i) Total nonbank assets, calculated in accordance with the
instructions to the FR Y-9LP or equivalent reporting form, equal to $75
billion or more;
(ii) Off-balance sheet exposure equal to $75 billion or more. Off-
balance sheet exposure is a depository institution's total exposure,
calculated in accordance with the instructions to the FR Y-15 or
equivalent reporting form, minus the total consolidated assets of the
depository institution, as reported on the Call Report; or
(iii) Weighted short-term wholesale funding, calculated in
accordance with the instructions to the FR Y-15 or equivalent reporting
form, equal to $75 billion or more.
(iv) After meeting the criteria in paragraph (3)(iii) of this
definition, an FDIC-supervised institution continues to be a Category
III FDIC-supervised institution until the FDIC-supervised institution:
(A) Has:
(1) Less than $250 billion in total consolidated assets, as
reported on the Call Report, for each of the four most recent calendar
quarters;
(2) Less than $75 billion in total nonbank assets, calculated in
accordance with the instructions to the FR Y-9LP or equivalent
reporting form, for each of the four most recent calendar quarters;
(3) Less than $75 billion in weighted short-term wholesale funding,
calculated in accordance with the instructions to the FR Y-15 or
equivalent reporting form, for each of the four most recent calendar
quarters; and
(4) Less than $75 billion in off-balance sheet exposure for each of
the four most recent calendar quarters. Off-balance sheet exposure is
an FDIC-supervised institution's total exposure, calculated in
accordance with the instructions to the FR Y-15 or equivalent reporting
form, minus the total consolidated assets of the FDIC-supervised
institution, as reported on the Call Report; or
(B) Has less than $100 billion in total consolidated assets, as
reported on the Call Report, for each of the four most recent calendar
quarters; or
(C) Is a Category II FDIC-supervised institution.
* * * * *
FR Y-9LP means the Parent Company Only Financial Statements for
Large Holding Companies.
FR Y-15 means the Systemic Risk Report.
* * * * *
0
40. In Sec. 324.10, revise paragraphs (a)(5), (c) introductory text,
and (c)(4)(i) introductory text to read as follows:
Sec. 324.10 Minimum capital requirements.
(a) * * *
(5) For advanced approaches FDIC-supervised institutions or, for
Category III FDIC-supervised institutions, a supplementary leverage
ratio of 3 percent.
* * * * *
(c) Advanced approaches and Category III capital ratio
calculations. An advanced approaches FDIC-supervised institution that
has completed the parallel run process and received notification from
the FDIC pursuant to Sec. 324.121(d) must determine its regulatory
capital ratios as described in paragraphs (c)(1) through (3) of this
section. An advanced approaches FDIC-supervised institution must
determine its supplementary leverage ratio in accordance with paragraph
(c)(4) of this section, beginning with the calendar quarter immediately
following the quarter in which the FDIC-supervised institution meets
any of the criteria in Sec. 324.100(b)(1). A Category III FDIC-
supervised institution must determine its supplementary leverage ratio
in accordance with paragraph (c)(4) of this section, beginning with the
calendar quarter immediately following the quarter in which the FDIC-
supervised institution is identified as a Category III FDIC-supervised
institution.
* * * * *
(4) * * *
(i) An advanced approaches FDIC-supervised institution's or a
Category III FDIC-supervised institution's supplementary leverage ratio
is the ratio of its tier 1 capital to total leverage exposure, the
latter of which is calculated as the sum of:
* * * * *
0
41. In Sec. 324.11, revise paragraphs (b)(1) introductory text and
(b)(1)(ii) to read as follows:
Sec. 324.11 Capital conservation buffer and countercyclical capital
buffer amount.
* * * * *
(b) * * *
(1) General. An advanced approaches FDIC-supervised institution or
a Category III FDIC-supervised institution must calculate a
countercyclical capital buffer amount in accordance with paragraph (b)
of this section for purposes of determining its maximum payout ratio
under Table 1 to this section.
* * * * *
(ii) Amount. An advanced approaches FDIC-supervised institution or
a Category III FDIC-supervised institution has a countercyclical
capital buffer amount determined by calculating the weighted average of
the countercyclical
[[Page 59279]]
capital buffer amounts established for the national jurisdictions where
the FDIC-supervised institution's private sector credit exposures are
located, as specified in paragraphs (b)(2) and (3) of this section.
* * * * *
0
42. In Sec. 324.22, revise paragraph (b)(2)(ii) to read as follows:
Sec. 324.22 Regulatory capital adjustments and deductions.
* * * * *
(b) * * *
(2) * * *
(ii) An FDIC-supervised institution that is not an advanced
approaches FDIC-supervised institution must make its AOCI opt-out
election in the Call Report:
(A) If the FDIC-supervised institution is a Category III FDIC-
supervised institution or a Category IV FDIC-supervised institution,
during the first reporting period after the FDIC-supervised institution
meets the definition of a Category III FDIC-supervised institution or a
Category IV FDIC-supervised institution in Sec. 324.2; or
(B) If the FDIC-supervised institution is not a Category III FDIC-
supervised institution or a Category IV FDIC-supervised institution,
during the first reporting period after the FDIC-supervised institution
is required to comply with subpart A of this part as set forth in Sec.
324.1(f).
* * * * *
0
43. In Sec. 324.63, add paragraphs (d) and (e) to read as follows:
Sec. 324.63 Disclosures by FDIC-supervised institutions described in
Sec. 324.61.
* * * * *
(d) A Category III FDIC-supervised institution that is required to
publicly disclose its supplementary leverage ratio pursuant to Sec.
324.172(d) is subject to the supplementary leverage ratio disclosure
requirement at Sec. 324.173(a)(2).
(e) A Category III FDIC-supervised institution that is required to
calculate a countercyclical capital buffer pursuant to Sec. 324.11 is
subject to the disclosure requirement at Table 4 to Sec. 324.173,
``Capital Conservation and Countercyclical Capital Buffers,'' and not
to the disclosure requirement at Table 4 to this section, ``Capital
Conservation Buffer.''
0
44. In Sec. 324.100, revise paragraph (b)(1), remove paragraph (b)(2),
and redesignate paragraph (b)(3) as paragraph (b)(2) to read as
follows:
Sec. 324.100 Purpose, applicability, and principle of conservatism.
* * * * *
(b) * * *
(1) This subpart applies to an FDIC-supervised institution that:
(i) Is a subsidiary of a global systemically important BHC, as
identified pursuant to 12 CFR 217.402;
(ii) Is a Category II FDIC-supervised institution;
(iii) Is a subsidiary of a depository institution that uses the
advanced approaches pursuant to 12 CFR part 3, subpart E (OCC), 12 CFR
part 217, subpart E (Board), or this subpart (FDIC) to calculate its
risk-based capital requirements;
(iv) Is a subsidiary of a bank holding company or savings and loan
holding company that uses the advanced approaches pursuant to subpart E
of 12 CFR part 217 to calculate its risk-based capital requirements; or
(v) Elects to use this subpart to calculate its risk-based capital
requirements.
* * * * *
0
45. In Sec. 324.172, revise paragraph (d)(2) to read as follows:
Sec. 324.172 Disclosure requirements.
* * * * *
(d) * * *
(2) An FDIC-supervised institution that meets any of the criteria
in Sec. 324.100(b)(1) on or after January 1, 2015, or a Category III
FDIC-supervised institution must publicly disclose each quarter its
supplementary leverage ratio and the components thereof (that is, tier
1 capital and total leverage exposure) as calculated under subpart B of
this part beginning with the calendar quarter immediately following the
quarter in which the FDIC-supervised institution becomes an advanced
approaches FDIC-supervised institution or a Category III FDIC-
supervised institution. This disclosure requirement applies without
regard to whether the FDIC-supervised institution has completed the
parallel run process and has received notification from the FDIC
pursuant to Sec. 324.121(d).
0
46. In Sec. 324.173, revise the section heading and paragraph (a)(2)
to read as follows:
Sec. 324.173 Disclosures by certain advanced approaches FDIC-
supervised institutions and Category III FDIC-supervised institutions.
(a) * * *
(2) An advanced approaches FDIC-supervised institution and a
Category III FDIC-supervised institution that is required to publicly
disclose its supplementary leverage ratio pursuant to Sec. 324.172(d)
must make the disclosures required under Table 13 to this section
unless the FDIC-supervised institution is a consolidated subsidiary of
a bank holding company, savings and loan holding company, or depository
institution that is subject to these disclosure requirements or a
subsidiary of a non-U.S. banking organization that is subject to
comparable public disclosure requirements in its home jurisdiction.
* * * * *
PART 329--LIQUIDITY RISK MEASUREMENT STANDARDS
0
47. The authority citation for part 329 continues to read as follows:
Authority: 12 U.S.C. 1815, 1816, 1818, 1819, 1828, 1831p-1,
5412.
0
48. Revise Sec. 329.1 to read as follows:
Sec. 329.1 Purpose and applicability.
(a) Purpose. This part establishes a minimum liquidity standard for
certain FDIC-supervised institutions on a consolidated basis, as set
forth in this part.
(b) Applicability. (1) An FDIC-supervised institution is subject to
the minimum liquidity standard and other requirements of this part if:
(i) It is a:
(A) GSIB depository institution supervised by the FDIC;
(B) Category II FDIC-supervised institution; or
(C) Category III FDIC-supervised institution; or
(ii) The FDIC has determined that application of this part is
appropriate in light of the FDIC-supervised institution's asset size,
level of complexity, risk profile, scope of operations, affiliation
with foreign or domestic covered entities, or risk to the financial
system.
(2) This part does not apply to:
(i) A bridge financial company as defined in 12 U.S.C. 5381(a)(3),
or a subsidiary of a bridge financial company;
(ii) A new depository institution or a bridge depository
institution, as defined in 12 U.S.C. 1813(i); or
(iii) An insured branch.
(3) In making a determination under paragraph (b)(1)(ii) of this
section, the FDIC will apply, as appropriate, notice and response
procedures in the same manner and to the same extent as the notice and
response procedures set forth in 12 CFR 324.5.
0
49. Amend Sec. 329.3 by:
0
a. Adding a definition for ``Average weighted short-term wholesale
funding'' in alphabetical order;
[[Page 59280]]
0
b. Revising the definition of ``Calculation date'';
0
c. Adding definitions for ``Call Report'', ``Category II FDIC-
supervised institution'', and ``Category III FDIC-supervised
institution'' in alphabetical order;
0
d. Revising the definition of ``Covered depository institution holding
company'';
0
e. Adding definitions for ``FR Y-9LP'', ``FR Y-15'', ``Global
systemically important BHC'', and ``GSIB depository institution'' in
alphabetical order;
0
f. Revising the definition of ``Regulated financial company''; and
0
g. Adding definitions for ``State'' and ``U.S. intermediate holding
company'' in alphabetical order.
The additions and revisions read as follows:
Sec. 329.3 Definitions.
* * * * *
Average weighted short-term wholesale funding means the average of
the FDIC-supervised institution's weighted short-term wholesale funding
for each of the four most recent calendar quarters as reported
quarterly on the FR Y-15 or, if the FDIC-supervised institution has not
filed the FR Y-15 for each of the four most recent calendar quarters,
for the most recent quarter or averaged over the most recent quarters,
as applicable.
* * * * *
Calculation date means, for purposes of subparts A through F of
this part, any date on which an FDIC-supervised institution calculates
its liquidity coverage ratio under Sec. [thinsp]329.10.
Call Report means the Consolidated Reports of Condition and Income.
Category II FDIC-supervised institution means:
(1)(i) An FDIC-supervised institution that:
(A) Is a consolidated subsidiary of:
(1) A company that is identified as a Category II banking
organization pursuant to 12 CFR 252.5 or 12 CFR 238.10, as applicable;
or
(2) A U.S. intermediate holding company that is identified as a
Category II banking organization pursuant to 12 CFR 252.5; or
(3) A depository institution that meets the criteria in paragraph
(2)(ii)(A) or (B) of this definition; and
(B) Has total consolidated assets, calculated based on the average
of the FDIC-supervised institution's total consolidated assets for the
four most recent calendar quarters as reported on the Call Report,
equal to $10 billion or more.
(ii) If the FDIC-supervised institution has not filed the Call
Report for each of the four most recent calendar quarters, total
consolidated assets is calculated based on its total consolidated
assets, as reported on the Call Report, for the most recent quarter or
the average of the most recent quarters, as applicable. After meeting
the criteria under this paragraph (1), an FDIC-supervised institution
continues to be a Category II FDIC-supervised institution until the
FDIC-supervised institution has less than $10 billion in total
consolidated assets, as reported on the Call Report, for each of the
four most recent calendar quarters, or the FDIC-supervised institution
is no longer a consolidated subsidiary of an entity described in
paragraph (1)(i)(A)(1), (2), or (3) of this definition; or
(2) An FDIC-supervised institution that:
(i) Is not a subsidiary of a depository institution holding
company; and
(ii)(A) Has total consolidated assets, calculated based on the
average of the depository institution's total consolidated assets for
the four most recent calendar quarters as reported on the Call Report,
equal to $700 billion or more. If the depository institution has not
filed the Call Report for each of the four most recent calendar
quarters, total consolidated assets is calculated based on its total
consolidated assets, as reported on the Call Report, for the most
recent quarter or the average of the most recent quarters, as
applicable; or
(B) Has:
(1) Total consolidated assets, calculated based on the average of
the depository institution's total consolidated assets for the four
most recent calendar quarters as reported on the Call Report, of $100
billion or more but less than $700 billion. If the depository
institution has not filed the Call Report for each of the four most
recent calendar quarters, total consolidated assets means its total
consolidated assets, as reported on the Call Report, for the most
recent quarter or the average of the most recent quarters, as
applicable; and
(2) Cross-jurisdictional activity, calculated based on the average
of its cross-jurisdictional activity for the four most recent calendar
quarters, of $75 billion or more. Cross-jurisdictional activity is the
sum of cross-jurisdictional claims and cross-jurisdictional
liabilities, calculated in accordance with the instructions to the FR
Y-15 or equivalent reporting form.
(iii) After meeting the criteria in paragraphs (2)(i) and (ii) of
this definition, an FDIC-supervised institution continues to be a
Category II FDIC-supervised institution until the FDIC-supervised
institution:
(A)(1) Has less than $700 billion in total consolidated assets, as
reported on the Call Report, for each of the four most recent calendar
quarters; and
(2) Has less than $75 billion in cross-jurisdictional activity for
each of the four most recent calendar quarters. Cross-jurisdictional
activity is the sum of cross-jurisdictional claims and cross-
jurisdictional liabilities, calculated in accordance with the
instructions to the FR Y-15 or equivalent reporting form; or
(B) Has less than $100 billion in total consolidated assets, as
reported on the Call Report, for each of the four most recent calendar
quarters; or
(C) Is a GSIB depository institution.
Category III FDIC-supervised institution means:
(1)(i) An FDIC-supervised institution that:
(A) Is a consolidated subsidiary of:
(1) A company that is identified as a Category III banking
organization pursuant to 12 CFR 252.5 or 12 CFR 238.10, as applicable;
or
(2) A U.S. intermediate holding company that is identified as a
Category III banking organization pursuant to 12 CFR 252.5; or
(3) A depository institution that meets the criteria in paragraph
(2)(ii)(A) or (B) of this definition; and
(B) Has total consolidated assets, calculated based on the average
of the FDIC-supervised institution's total consolidated assets for the
four most recent calendar quarters as reported on the Call Report,
equal to $10 billion or more.
(ii) If the FDIC-supervised institution has not filed the Call
Report for each of the four most recent calendar quarters, total
consolidated assets means its total consolidated assets, as reported on
the Call Report, for the most recent quarter or the average of the most
recent quarters, as applicable. After meeting the criteria under this
paragraph (1), an FDIC-supervised institution continues to be a
Category III FDIC-supervised institution until the FDIC-supervised
institution has less than $10 billion in total consolidated assets, as
reported on the Call Report, for each of the four most recent calendar
quarters, or the FDIC-supervised institution is no longer a
consolidated subsidiary of an entity described in paragraph
(1)(i)(A)(1), (2), or (3) of this definition; or
(2) An FDIC-supervised institution that:
(i) Is not a subsidiary of a depository institution holding
company; and
(ii)(A) Has total consolidated assets, calculated based on the
average of the depository institution's total consolidated assets for
the four most
[[Page 59281]]
recent quarters as reported on the Call Report, equal to $250 billion
or more. If the depository institution has not filed the Call Report
for each of the four most recent calendar quarters, total consolidated
assets means its total consolidated assets, as reported on the Call
Report, for the most recent quarter or the average of the most recent
quarters, as applicable; or
(B) Has:
(1) Total consolidated assets, calculated based on the average of
the depository institution's total consolidated assets for the four
most recent calendar quarters as reported on the Call Report, of $100
billion or more but less than $250 billion. If the depository
institution has not filed the Call Report for each of the four most
recent calendar quarters, total consolidated assets means its total
consolidated assets, as reported on the Call Report, for the most
recent quarter or the average of the most recent quarters, as
applicable; and
(2) One or more of the following in paragraphs (2)(ii)(B)(2)(i)
through (iii) of this definition, each measured as the average of the
four most recent calendar quarters, or if the depository institution
has not filed the FR Y-9LP or equivalent reporting form, Call Report,
or FR Y-15 or equivalent reporting form, as applicable for each of the
four most recent calendar quarters, for the most recent quarter or the
average of the most quarters, as applicable:
(i) Total nonbank assets, calculated in accordance with
instructions to the FR Y-9LP or equivalent reporting form, equal to $75
billion or more;
(ii) Off-balance sheet exposure, calculated in accordance with the
instructions to the FR Y-15 or equivalent reporting form, minus the
total consolidated assets of the depository institution, as reported on
the Call Report, equal to $75 billion or more; or
(iii) Weighted short-term wholesale funding, calculated in
accordance with the instructions to the FR Y-15 or equivalent reporting
form, equal to $75 billion or more.
(iii) After meeting the criteria in paragraphs (2)(i) and (ii) of
this definition, an FDIC-supervised institution continues to be a
Category III FDIC-supervised institution until the FDIC-supervised
institution:
(A)(1) Has less than $250 billion in total consolidated assets, as
reported on the Call Report, for each of the four most recent calendar
quarters; and
(2) Has less than $75 billion in total nonbank assets, calculated
in accordance with the instructions to the FR Y-9LP or equivalent
reporting form, for each of the four most recent calendar quarters;
(3) Has less than $75 billion in off-balance sheet exposure for
each of the four most recent calendar quarters. Off-balance sheet
exposure is calculated in accordance with the instructions to the FR Y-
15 or equivalent reporting form, minus the total consolidated assets of
the depository institution, as reported on the Call Report; and
(4) Has less than $75 billion in weighted short-term wholesale
funding, calculated in accordance with the instructions to the FR Y-15
or equivalent reporting form, for each of the four most recent calendar
quarters; or
(B) Has less than $100 billion in total consolidated assets, as
reported on the Call Report, for each of the four most recent calendar
quarters;
(C) Is a Category II FDIC-supervised institution; or
(D) Is a GSIB depository institution.
* * * * *
Covered depository institution holding company means a top-tier
bank holding company or savings and loan holding company domiciled in
the United States other than:
(1) A top-tier savings and loan holding company that is:
(i) A grandfathered unitary savings and loan holding company as
defined in section 10(c)(9)(A) of the Home Owners' Loan Act (12 U.S.C.
1461 et seq.); and
(ii) As of June 30 of the previous calendar year, derived 50
percent or more of its total consolidated assets or 50 percent of its
total revenues on an enterprise-wide basis (as calculated under GAAP)
from activities that are not financial in nature under section 4(k) of
the Bank Holding Company Act (12 U.S.C. 1843(k));
(2) A top-tier depository institution holding company that is an
insurance underwriting company;
(3)(i) A top-tier depository institution holding company that, as
of June 30 of the previous calendar year, held 25 percent or more of
its total consolidated assets in subsidiaries that are insurance
underwriting companies (other than assets associated with insurance for
credit risk); and
(ii) For purposes of paragraph (3)(i) of this definition, the
company must calculate its total consolidated assets in accordance with
GAAP, or if the company does not calculate its total consolidated
assets under GAAP for any regulatory purpose (including compliance with
applicable securities laws), the company may estimate its total
consolidated assets, subject to review and adjustment by the Board of
Governors of the Federal Reserve System; or
(4) A U.S. intermediate holding company.
* * * * *
FR Y-9LP means the Parent Company Only Financial Statements for
Large Holding Companies.
FR Y-15 means the Systemic Risk Report.
* * * * *
Global systemically important BHC means a bank holding company
identified as a global systemically important BHC pursuant to 12 CFR
217.402.
GSIB depository institution means a depository institution that is
a consolidated subsidiary of a global systemically important BHC and
has total consolidated assets equal to $10 billion or more, calculated
based on the average of the depository institution's total consolidated
assets for the four most recent calendar quarters as reported on the
Call Report. If the depository institution has not filed the Call
Report for each of the four most recent calendar quarters, total
consolidated assets means its total consolidated assets, as reported on
the Call Report, for the most recent calendar quarter or the average of
the most recent calendar quarters, as applicable. After meeting the
criteria under this definition, a depository institution continues to
be a GSIB depository institution until the depository institution has
less than $10 billion in total consolidated assets, as reported on the
Call Report, for each of the four most recent calendar quarters, or the
depository institution is no longer a consolidated subsidiary of a
global systemically important BHC.
* * * * *
Regulated financial company means:
(1) A depository institution holding company or designated company;
(2) A company included in the organization chart of a depository
institution holding company on the Form FR Y-6, as listed in the
hierarchy report of the depository institution holding company produced
by the National Information Center (NIC) website,\2\ provided that the
top-tier depository institution holding company is subject to a minimum
liquidity standard under 12 CFR part 249;
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\2\ http://www.ffiec.gov/nicpubweb/nicweb/NicHome.aspx.
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(3) A depository institution; foreign bank; credit union;
industrial loan company, industrial bank, or other similar institution
described in section 2 of the Bank Holding Company Act of
[[Page 59282]]
1956, as amended (12 U.S.C. 1841 et seq.); national bank, state member
bank, or state non-member bank that is not a depository institution;
(4) An insurance company;
(5) A securities holding company as defined in section 618 of the
Dodd-Frank Act (12 U.S.C. 1850a); broker or dealer registered with the
SEC under section 15 of the Securities Exchange Act (15 U.S.C. 78o);
futures commission merchant as defined in section 1a of the Commodity
Exchange Act of 1936 (7 U.S.C. 1a); swap dealer as defined in section
1a of the Commodity Exchange Act (7 U.S.C. 1a); or security-based swap
dealer as defined in section 3 of the Securities Exchange Act (15
U.S.C. 78c);
(6) A designated financial market utility, as defined in section
803 of the Dodd-Frank Act (12 U.S.C. 5462);
(7) A U.S. intermediate holding company; and
(8) Any company not domiciled in the United States (or a political
subdivision thereof) that is supervised and regulated in a manner
similar to entities described in paragraphs (1) through (7) of this
definition (e.g., a foreign banking organization, foreign insurance
company, foreign securities broker or dealer or foreign financial
market utility).
(9) A regulated financial company does not include:
(i) U.S. government-sponsored enterprises;
(ii) Small business investment companies, as defined in section 102
of the Small Business Investment Act of 1958 (15 U.S.C. 661 et seq.);
(iii) Entities designated as Community Development Financial
Institutions (CDFIs) under 12 U.S.C. 4701 et seq. and 12 CFR part 1805;
or
(iv) Central banks, the Bank for International Settlements, the
International Monetary Fund, or multilateral development banks.
* * * * *
State means any state, commonwealth, territory, or possession of
the United States, the District of Columbia, the Commonwealth of Puerto
Rico, the Commonwealth of the Northern Mariana Islands, American Samoa,
Guam, or the United States Virgin Islands.
* * * * *
U.S. intermediate holding company means a top-tier company that is
required to be established pursuant to 12 CFR 252.153.
* * * * *
0
50. In Sec. 329.10, revise paragraph (a) to read as follows:
Sec. [thinsp]329.10 Liquidity coverage ratio.
(a) Minimum liquidity coverage ratio requirement. Subject to the
transition provisions in subpart F of this part, an FDIC-supervised
institution must calculate and maintain a liquidity coverage ratio that
is equal to or greater than 1.0 on each business day in accordance with
this part. An FDIC-supervised institution must calculate its liquidity
coverage ratio as of the same time on each calculation date (the
elected calculation time). The FDIC-supervised institution must select
this time by written notice to the FDIC prior to December 31, 2019. The
FDIC-supervised institution may not thereafter change its elected
calculation time without prior written approval from the FDIC.
* * * * *
0
51. In Sec. 329.30, revise paragraph (a) and add paragraphs (c) and
(d) to read as follows:
Sec. [thinsp]329.30 Total net cash outflow amount.
(a) Calculation of total net cash outflow amount. As of the
calculation date, an FDIC-supervised institution's total net cash
outflow amount equals the FDIC-supervised institution's outflow
adjustment percentage as determined under paragraph (c) of this section
multiplied by:
(1) The sum of the outflow amounts calculated under Sec. 329.32(a)
through (l); minus
(2) The lesser of:
(i) The sum of the inflow amounts calculated under Sec. 329.33(b)
through (g); and
(ii) 75 percent of the amount calculated under paragraph (a)(1) of
this section; plus
(3) The maturity mismatch add-on as calculated under paragraph (b)
of this section.
* * * * *
(c) Outflow adjustment percentage. An FDIC-supervised institution's
outflow adjustment percentage is determined pursuant to Table 1 to this
paragraph (c).
Table 1 to Sec. 329.30(c)--Outflow Adjustment Percentages
------------------------------------------------------------------------
Percent
------------------------------------------------------------------------
Outflow adjustment percentage
------------------------------------------------------------------------
GSIB depository institution supervised by the FDIC...... 100
Category II FDIC-supervised institution................. 100
Category III FDIC-supervised institution that:.......... 100
(1) Is a consolidated subsidiary of (a) a covered
depository institution holding company or U.S.
intermediate holding company identified as a
Category III banking organization pursuant to 12
CFR 252.5 or 12 CFR 238.10 or (b) a depository
institution that meets the criteria set forth in
paragraphs (2)(ii)(A) and (B) of the definition of
Category III FDIC-supervised institution in this
part, in each case with $75 billion or more in
average weighted short-term wholesale funding; or
(2) Has $75 billion or more in average weighted
short-term wholesale funding and is not a
consolidated subsidiary of (a) a covered depository
institution holding company or U.S. intermediate
holding company identified as a Category III
banking organization pursuant to 12 CFR 252.5 or 12
CFR 238.10 or (b) a depository institution that
meets the criteria set forth in paragraphs
(2)(ii)(A) and (B) of the definition of Category
III FDIC-supervised institution in this part.
Category III FDIC-supervised institution that:.......... 85
Is a consolidated subsidiary of (a) a covered
depository institution holding company or U.S.
intermediate holding company identified as a
Category III banking organization pursuant to 12
CFR 252.5 or 12 CFR 238.10 or (b) a depository
institution that meets the criteria set forth in
paragraphs (2)(ii)(A) and (B) of the definition of
Category III FDIC-supervised institution in this
part, in each case with less than $75 billion in
average weighted short-term wholesale funding; or
(2) Has less than $75 billion in average weighted
short-term wholesale funding and is not a
consolidated subsidiary of (a) a covered depository
institution holding company or U.S. intermediate
holding company identified as a Category III
banking organization pursuant to 12 CFR 252.5 or 12
CFR 238.10 or (b) a depository institution that
meets the criteria set forth in paragraphs
(2)(ii)(A) and (B) of the definition of Category
III FDIC-supervised institution in this part.
------------------------------------------------------------------------
[[Page 59283]]
(d) Transition into a different outflow adjustment percentage. (1)
An FDIC-supervised institution whose outflow adjustment percentage
increases from a lower to a higher outflow adjustment percentage may
continue to use its previous lower outflow adjustment percentage until
the first day of the third calendar quarter after the outflow
adjustment percentage increases.
(2) An FDIC-supervised institution whose outflow adjustment
percentage decreases from a higher to a lower outflow adjustment
percentage must continue to use its previous higher outflow adjustment
percentage until the first day of the first calendar quarter after the
outflow adjustment percentage decreases.
0
52. Revise Sec. 329.50 to read as follows:
Sec. 329.50 Transitions.
(a) No transition for certain FDIC-supervised institutions. An
FDIC-supervised institution that is subject to the minimum liquidity
standard and other requirements of this part prior to December 31, 2019
must comply with the minimum liquidity standard and other requirements
of this part as of December 31, 2019.
(b) [Reserved]
(c) Initial application. (1) An FDIC-supervised institution that
initially becomes subject to the minimum liquidity standard and other
requirements of this part under Sec. 329.1(b)(1)(i) must comply with
the requirements of this part beginning on the first day of the third
calendar quarter after which the FDIC-supervised institution becomes
subject to this part, except that an FDIC-supervised institution must:
(i) For the first two calendar quarters after the FDIC-supervised
institution begins complying with the minimum liquidity standard and
other requirements of this part, calculate and maintain a liquidity
coverage ratio monthly, on each calculation date that is the last
business day of the applicable calendar month; and
(ii) Beginning the first day of the fifth calendar quarter after
the FDIC-supervised institution becomes subject to the minimum
liquidity standard and other requirements of this part and continuing
thereafter, calculate and maintain a liquidity coverage ratio on each
calculation date.
(2) An FDIC-supervised institution that becomes subject to the
minimum liquidity standard and other requirements of this part under
Sec. 329.1(b)(1)(ii), must comply with the requirements of this part
subject to a transition period specified by the FDIC.
(d) Transition into a different outflow adjustment percentage. (1)
An FDIC-supervised institution whose outflow adjustment percentage
changes is subject to transition periods as set forth in Sec.
329.30(d).
(2) An FDIC-supervised institution that is no longer subject to the
minimum liquidity standard and other requirements of this part pursuant
to Sec. 329.1(b)(1)(i) based on the size of total consolidated assets,
cross-jurisdictional activity, total nonbank assets, weighted short-
term wholesale funding, or off-balance sheet exposure calculated in
accordance with the Call Report, the instructions to the FR Y-9LP or
the FR Y-15 or equivalent reporting form, as applicable, for each of
the four most recent calendar quarters may cease compliance with this
part as of the first day of the first quarter after it is no longer
subject to Sec. 329.1(b)(1).
(e) Reservation of authority. The FDIC may extend or accelerate any
compliance date of this part if the FDIC determines that such extension
or acceleration is appropriate. In determining whether an extension or
acceleration is appropriate, the FDIC will consider the effect of the
modification on financial stability, the period of time for which the
modification would be necessary to facilitate compliance with this
part, and the actions the FDIC-supervised supervised institution is
taking to come into compliance with this part.
Dated: October 10, 2019.
Morris R. Morgan,
First Deputy Comptroller, Comptroller of the Currency.
By order of the Board of Governors of the Federal Reserve
System.
Margaret McCloskey Shanks,
Deputy Secretary of the Board.
Federal Deposit Insurance Corporation.
By order of the Board of Directors.
Dated at Washington, DC, on October 15, 2019.
Annmarie H. Boyd,
Assistant Executive Secretary.
[FR Doc. 2019-23800 Filed 10-31-19; 8:45 am]
BILLING CODE 4810-33-P; 6210-01-P; 6714-01-P
