Regulatory Capital Rule: Eligible Retained Income
| Citation | 85 FR 15909 |
| Record Number | 2020-06051 |
| Published date | 20 March 2020 |
| Section | Rules and Regulations |
| Court | Federal Deposit Insurance Corporation,The Comptroller Of The Currency Office |
Federal Register, Volume 85 Issue 55 (Friday, March 20, 2020)
[Federal Register Volume 85, Number 55 (Friday, March 20, 2020)]
[Rules and Regulations]
[Pages 15909-15916]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-06051]
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Rules and Regulations
Federal Register
________________________________________________________________________
This section of the FEDERAL REGISTER contains regulatory documents
having general applicability and legal effect, most of which are keyed
to and codified in the Code of Federal Regulations, which is published
under 50 titles pursuant to 44 U.S.C. 1510.
The Code of Federal Regulations is sold by the Superintendent of Documents.
========================================================================
Federal Register / Vol. 85, No. 55 / Friday, March 20, 2020 / Rules
and Regulations
[[Page 15909]]
DEPARTMENT OF THE TREASURY
Office of the Comptroller of the Currency
12 CFR Part 3
[Docket No. OCC-2020-0009]
RIN 1557-AE81
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FEDERAL RESERVE SYSTEM
12 CFR Part 217
[Regulations Q; Docket No. R-1703]
RIN 7100-AF77
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FEDERAL DEPOSIT INSURANCE CORPORATION
12 CFR Part 324
RIN 3064-AF40
Regulatory Capital Rule: Eligible Retained Income
AGENCY: Board of Governors of the Federal Reserve System (Board),
Office of the Comptroller of the Currency (OCC), and Federal Deposit
Insurance Corporation (FDIC).
ACTION: Interim final rule with request for comments.
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SUMMARY: In light of recent disruptions in economic conditions caused
by the coronavirus disease 2019 (COVID-19) and current strains in U.S.
financial markets, the Board, OCC and FDIC (together, the agencies) are
issuing an interim final rule that revises the definition of eligible
retained income for all depository institutions, bank holding
companies, and savings and loan holding companies subject to the
agencies' capital rule (together, a banking organization or banking
organizations). The revised definition of eligible retained income will
make any automatic limitations on capital distributions that could
apply under the agencies' capital rules more gradual.
DATES: The interim final rule is effective March 20, 2020. Comments on
the interim final rule must be received no later than May 4, 2020.
ADDRESSES:
OCC: Commenters are encouraged to submit comments through the
Federal eRulemaking Portal or email, if possible. Please use the title
``Regulatory Capital Rule: Eligible Retained Income'' to facilitate the
organization and distribution of the comments. You may submit comments
by any of the following methods:
Federal eRulemaking Portal--Regulations.gov Classic or
Regulations.gov Beta: Regulations.gov Classic: Go to https://www.regulations.gov/. Enter ``Docket ID OCC-2020-0009'' in the Search
Box and click ``Search.'' Click on ``Comment Now'' to submit public
comments. For help with submitting effective comments please click on
``View Commenter's Checklist.'' Click on the ``Help'' tab on the
Regulations.gov home page to get information on using Regulations.gov,
including instructions for submitting public comments. Regulations.gov
Beta: Go to https://beta.regulations.gov/ or click ``Visit New
Regulations.gov Site'' from the Regulations.gov Classic homepage. Enter
``Docket ID OCC-2020-0009'' in the Search Box and click ``Search.''
Public comments can be submitted via the ``Comment'' box below the
displayed document information or by clicking on the document title and
then clicking the ``Comment'' box on the top-left side of the screen.
For help with submitting effective comments please click on
``Commenter's Checklist.'' For assistance with the Regulations.gov Beta
site, please call (877) 378-5457 (toll free) or (703) 454-9859 Monday-
Friday, 9 a.m.-5 p.m. ET or email [email protected].
Email: [email protected].
Mail: Chief Counsel's Office, Attention: Comment
Processing, Office of the Comptroller of the Currency, 400 7th Street
SW, suite 3E-218, Washington, DC 20219.
Hand Delivery/Courier: 400 7th Street SW, Suite 3E-218,
Washington, DC 20219.
Fax: (571) 465-4326.
Instructions: You must include ``OCC'' as the agency name and
``Docket ID OCC-2020-0009'' in your comment. In general, the OCC will
enter all comments received into the docket and publish the comments on
the Regulations.gov website without change, including any business or
personal information provided such as name and address information,
email addresses, or phone numbers. Comments received, including
attachments and other supporting materials, are part of the public
record and subject to public disclosure. Do not include any information
in your comment or supporting materials that you consider confidential
or inappropriate for public disclosure.
You may review comments and other related materials that pertain to
this rulemaking action by any of the following methods:
Viewing Comments Electronically--Regulations.gov Classic
or Regulations.gov Beta:
Regulations.gov Classic: Go to https://www.regulations.gov/. Enter
``Docket ID OCC-2020-0009'' in the Search box and click ``Search.''
Click on ``Open Docket Folder'' on the right side of the screen.
Comments and supporting materials can be viewed and filtered by
clicking on ``View all documents and comments in this docket'' and then
using the filtering tools on the left side of the screen. Click on the
``Help'' tab on the Regulations.gov home page to get information on
using Regulations.gov. The docket may be viewed after the close of the
comment period in the same manner as during the comment period.
Regulations.gov Beta: Go to https://beta.regulations.gov/ or click
``Visit New Regulations.gov Site'' from the Regulations.gov Classic
homepage. Enter ``Docket ID OCC-2020-0009'' in the Search Box and click
``Search.'' Click on the ``Comments'' tab. Comments can be viewed and
filtered by clicking on the ``Sort By'' drop-down on the right side of
the screen or the ``Refine Results'' options on the left side of the
screen. Supporting materials can be viewed by clicking on the
``Documents'' tab and filtered by clicking on the ``Sort By'' drop-down
on the right side of the screen or the ``Refine Results'' options on
the left side of the screen.'' For assistance with the Regulations.gov
Beta site, please call (877) 378-5457 (toll free) or (703) 454-
[[Page 15910]]
9859 Monday-Friday, 9am-5pm ET or email
[email protected]. The docket may be viewed after the
close of the comment period in the same manner as during the comment
period.
Viewing Comments Personally: You may personally inspect
comments at the OCC, 400 7th Street SW, Washington, DC 20219. For
security reasons, the OCC requires that visitors make an appointment to
inspect comments. You may do so by calling (202) 649-6700 or, for
persons who are deaf or hearing impaired, TTY, (202) 649-5597. Upon
arrival, visitors will be required to present valid government-issued
photo identification and submit to security screening in order to
inspect comments.
Board: You may submit comments, identified by Docket No. R-1703;
RIN 7100-AF77, by any of the following methods:
Agency website: http://www.federalreserve.gov. Follow the
instructions for submitting comments at http://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm.
Email: [email protected]. Include docket
and RIN numbers in the subject line of the message.
FAX: (202) 452-3819 or (202) 452-3102.
Mail: Ann E. Misback, Secretary, Board of Governors of the
Federal Reserve System, 20th Street and Constitution Avenue NW,
Washington, DC 20551.
All public comments will be made available on the Board's website at
http://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm as
submitted, unless modified for technical reasons or to remove
personally identifiable information at the commenter's request.
Accordingly, comments will not be edited to remove any identifying or
contact information. Public comments may also be viewed electronically
or in paper in Room 146, 1709 New York Avenue NW, Washington, DC 20006,
between 9:00 a.m. and 5:00 p.m. on weekdays. For security reasons, the
Board requires that visitors make an appointment to inspect comments.
You may do so by calling (202) 452-3684.
FDIC: You may submit comments, identified by RIN [3064-AF40], by
any of the following methods:
Agency website: http://www.fdic.gov/regulations/laws/federal. Follow instructions for submitting comments on the Agency
website.
Email: [email protected]. Include ``RIN 3064-AF40'' on the
subject line of the message.
Mail: Robert E. Feldman, Executive Secretary, Attention:
Comments/RIN 3064-AF40, Federal Deposit Insurance Corporation, 550 17th
Street NW, Washington, DC 20429.
Hand Delivery/Courier: Comments may be hand delivered to
the guard station at the rear of the 550 17th Street Building (located
on F Street) on business days between 7 a.m. and 5 p.m. All comments
received must include the agency name (FDIC) and RIN 3064-AF40 and will
be posted without change to http://www.fdic.gov/regulations/laws/federal, including any personal information provided.
FOR FURTHER INFORMATION CONTACT: OCC: Margot Schwadron, Director, or
Benjamin Pegg, Risk Expert, Capital and Regulatory Policy, (202) 649-
6370; or Carl Kaminski, Special Counsel, or Kevin Korzeniewski,
Counsel, Chief Counsel's Office, (202) 649-5490, for persons who are
deaf or hearing impaired, TTY, (202) 649-5597, Office of the
Comptroller of the Currency, 400 7th Street SW, Washington, DC 20219.
Board: Anna Lee Hewko, Associate Director, (202) 530-6360,
Constance Horsley, Deputy Associate Director, (202) 452-5239, Juan
Climent, Manager, (202) 460 2180, Matthew McQueeney, Senior Financial
Institution Policy Analyst II, (202) 452-2942, Division of Supervision
and Regulation; Benjamin McDonough, Assistant General Counsel, (202)
452-2036, Asad Kudiya, Senior Counsel, (202) 475-6358, or Mary Watkins,
Senior Attorney, (202) 452-3722, Legal Division, Board of Governors of
the Federal Reserve System, 20th Street and Constitution Avenue NW,
Washington, DC 20551. Users of Telecommunication Device for Deaf (TDD)
only, call (202) 263-4869.
FDIC: Bobby R. Bean, Associate Director, [email protected]; Benedetto
Bosco, Chief, Capital Policy Section, [email protected]; Noah Cuttler,
Senior Policy Analyst, [email protected]; [email protected];
Capital Markets Branch, Division of Risk Management Supervision, (202)
898-6888; or Michael Phillips, Counsel, [email protected]; Catherine
Wood, Counsel, [email protected]; Supervision and Legislation Branch,
Legal Division, Federal Deposit Insurance Corporation, 550 17th Street
NW, Washington, DC 20429. For the hearing impaired only,
Telecommunication Device for the Deaf (TDD), (800) 925-4618.
SUPPLEMENTARY INFORMATION:
Table of Contents
I. Background
II. The Interim Final Rule
III. Impact Assessment
IV. Administrative Law Matters
A. Effective Date/Request for Comment
B. Paperwork Reduction Act
C. Regulatory Flexibility Act
D. Riegle Community Development and Regulatory Improvement Act
of 1994
E. Use of Plain Language
F. Unfunded Mandates
I. Background
Under the capital rule, a banking organization \1\ must maintain a
minimum amount of regulatory capital.\2\ In addition, a banking
organization must maintain a buffer of regulatory capital above its
minimum capital requirements to avoid restrictions on capital
distributions and discretionary bonus payments.\3\ The agencies
established the buffer requirements to encourage better capital
conservation by banking organizations and to enhance the resilience of
the banking system during stress periods.\4\ In particular, the
agencies intend for the buffer requirements to limit the ability of
banking organizations to distribute capital in the form of dividends
and discretionary bonus payments and therefore strengthen the ability
of banking organizations to continue lending and conducting other
financial intermediation activities during stress periods. The agencies
are concerned, however, that the buffer requirements do not limit
capital distributions in the gradual manner intended when the buffer
requirements were developed. Rather, the limitations on capital
distributions could be sudden and severe if such banking organizations
were to experience even a modest reduction in their capital ratios,
undermining the ability of banking organizations to use their capital
buffers.
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\1\ Banking organizations subject to the capital rule include
national banks, state member banks, state nonmember banks, savings
associations, and top-tier bank holding companies and savings and
loan holding companies domiciled in the United States not subject to
the Board's Small Bank Holding Company Policy Statement (12 CFR part
225, appendix C), but exclude certain savings and loan holding
companies that are substantially engaged in insurance underwriting
or commercial activities or that are estate trusts, and bank holding
companies and savings and loan holding companies that are employee
stock ownership plans.
\2\ See 12 CFR 3.10 (OCC), 12 CFR 217.10 (Board), and 12 CFR
324.10 (FDIC).
\3\ See 12 CFR 3.11 (OCC); 12 CFR 217.11 (Board); 12 CFR 324.11
(FDIC).
\4\ 78 FR 62018, 62034 (Oct. 11, 2013).
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The agencies are adopting an interim final rule that revises the
definition of eligible retained income. The interim final rule also
addresses the impact of recent dislocations in the U.S. economy as a
result of COVID-19. By modifying the definition of eligible retained
income and thereby allowing banking organizations to more freely use
their
[[Page 15911]]
capital buffers, this interim final rule should help to promote lending
activity and other financial intermediation activities by banking
organizations and avoid compounding negative impacts on the financial
markets.\5\
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\5\ The interim final rule also would apply to the U.S.
intermediate holding companies of foreign banking organizations
required to be established or designated under 12 CFR 252.153.
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During this stress period, the agencies encourage banking
organizations to make prudent decisions regarding capital
distributions. In addition, this interim final rule does not make
changes to any other rule or regulation that may limit capital
distributions or discretionary bonus payments. For instance, under the
prompt corrective action framework, an insured depository institution
that becomes less than adequately capitalized will be subject to
dividend restrictions.\6\
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\6\ 12 CFR 6.6 (OCC); 12 CFR 208.40 (Board); 12 CFR 324.405
(FDIC).
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In addition, S-corporation banks do not pay Federal income taxes.
Income and losses are attributed to shareholders, potentially
increasing their personal tax liability when the S-corporation has
income and potentially reducing their personal tax liability if the S-
corporation has losses. In a situation where the S-corporation has
income but does not pay dividends, its shareholders are responsible for
meeting the increased tax liability from their own resources. A
situation in which S-corporation shareholders' dividends would be
insufficient to pay their share of taxes on the banks' income because
of the capital conservation buffer is most likely to occur when the
bank is adequately capitalized but one or more of its risk-based
capital ratios breach the capital conservation buffer requirements.\7\
The revised definition of eligible retained income would assist in the
ability of S-corporation banks to provide dividends to shareholders in
order to meet their pass-through tax liabilities.
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\7\ FDIC, FIL-40-2014 (July 21, 2014).
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II. The Interim Final Rule
The capital rule requires a banking organization to maintain
minimum risk-based capital and leverage ratios.\8\ The capital rule
also requires a banking organization to maintain certain buffers above
its risk-based capital and leverage ratios, as applicable, to avoid
increasingly stringent restrictions on capital distributions and
discretionary bonus payments.\9\ All banking organizations are
currently subject to a fixed capital conservation buffer equal to 2.5
percent of risk-weighted assets. Banking organizations subject to
Category I, II, and III standards also are subject to a countercyclical
capital buffer requirement, and the largest and most systemically
important banking organizations--global systemically important bank
holding companies, or U.S. GSIBs--are subject to an additional capital
buffer based on a measure of their systemic risk, the GSIB
surcharge.\10\ In addition, a minimum supplementary leverage ratio of 3
percent applies to banking organizations subject to Category I, II, and
III standards. U.S. GSIBs also are subject to enhanced supplementary
leverage ratio standards. U.S. GSIB bank holding companies must hold a
leverage buffer of tier 1 capital to avoid limitations on distributions
and discretionary bonus payments. The depository institution
subsidiaries of U.S. GSIB holding companies generally must maintain a
similarly higher supplementary leverage ratio to be considered well
capitalized under the agencies' respective prompt corrective action
frameworks. On March 4, 2020, the Board adopted a final rule that
simplified the Board's capital framework for large banking
organizations with the introduction of a stress capital buffer
requirement (SCB final rule).\11\ Under the SCB final rule, a banking
organization will receive a new stress capital buffer requirement on an
annual basis, which replaces the static 2.5 percent capital
conservation buffer requirement.
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\8\ 12 CFR 3.10 (OCC); 12 CFR 217.10 (Board); 12 CFR 324.10
(FDIC).
\9\ See 12 CFR 3.11 (OCC); 12 CFR 217.11 (Board); 12 CFR 324.11
(FDIC).
\10\ In October 2019, the agencies finalized the tailoring rule,
which more closely matches the regulations applicable to large
banking organizations with their risk profile. The tailoring rule
groups large U.S. and foreign banking organizations into four
categories of standards (Category I through IV), with the most
stringent standards applying to banking organizations subject to
Category I standards. 84 FR 59230 (November 1, 2019).
\11\ Amendments to the Regulatory Capital, Capital Plan, and
Stress Test Rules, March 4, 2020, available at https://www.federalreserve.gov/newsevents/pressreleases/files/bcreg20200304a2.pdf. The SCB final rule applies to bank holding
companies and U.S. intermediate holding companies of foreign banking
organizations subject to the capital plan rule (covered holding
company). 12 CFR 225.8.
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Under the capital rule, if a banking organization's capital ratios
fall within its buffer requirements, the maximum amount of capital
distributions and discretionary bonus payments it can make is a
function of its eligible retained income. For example, a banking
organization in the bottom quartile of its capital conservation buffer
may not make any capital distributions without prior approval from the
Board, OCC, or FDIC, as applicable. The countercyclical capital buffer,
the GSIB surcharge, and enhanced supplementary leverage ratio standards
use the same definition of eligible retained income. As adopted,
eligible retained income was defined as four quarters of net income,
net of distributions and associated tax effects not already reflected
in net income.
Under a benign business environment when banking organizations have
significant capital cushions above their capital requirements, some
banking organizations decide to distribute all or nearly all of their
net income. Because the measure of eligible retained income subtracts
capital distributions made during the previous year, a period of sudden
stress following a period of relatively benign conditions could result
in very low or zero eligible retained income. Similarly, if a banking
organization with eligible retained income that is very low or negative
experiences an increase in its stress capital buffer requirement,
because, for example, the banking organization's risk profile changed,
then the banking organization's capital levels might not be sufficient
to meet the stress capital buffer requirement. In either scenario, the
banking organization could face sudden and severe distribution
limitations even if its capital ratios only marginally fall below
applicable buffer requirements.
To address this concern, the SCB final rule revised the definition
of eligible retained income for the stress loss portion of a covered
holding company's capital conservation buffer requirement. Under the
SCB final rule, if a covered holding company's capital ratios are above
minimum requirements plus the fixed 2.5 percent portion of the capital
conservation buffer plus any applicable GSIB surcharge and
countercyclical capital buffer, the covered holding company's eligible
retained income is defined as the average of its previous four quarters
of net income. Under the SCB final rule, if a covered holding company's
capital ratios are below its minimum requirements plus the fixed 2.5
percent portion of the capital conservation buffer plus any applicable
GSIB surcharge and countercyclical capital buffer, the covered holding
company's eligible retained income is defined as net income for the
four preceding calendar quarters, net of any distributions.
Recent events have suddenly and significantly impacted financial
markets. The spread of the COVID-19 virus has disrupted economic
activity in many countries. In addition, financial markets have
experienced significant volatility. The magnitude and
[[Page 15912]]
persistence of the overall effects on the economy remain highly
uncertain. In light of these developments, banking organizations may
realize a sudden, unanticipated drop in capital ratios. This could
create a strong incentive for these banking organizations to limit
their lending and other financial intermediation activities in order to
avoid facing abrupt limitations on capital distributions. Thus, the
current definition of eligible retained income, particularly in light
of present market uncertainty, could serve as a deterrent for banking
organizations to continue lending to creditworthy businesses and
households.
To better allow a banking organization to continue lending during
times of stress, the agencies are issuing the interim final rule to
revise the definition of eligible retained income to the greater of (1)
a banking organization's net income for the four preceding calendar
quarters, net of any distributions and associated tax effects not
already reflected in net income, and (2) the average of a banking
organization's net income over the preceding four quarters. This
definition will apply with respect to all of a banking organization's
buffer requirements, including the fixed 2.5 percent capital
conservation buffer, and, if applicable, the countercyclical capital
buffer, the GSIB surcharge, and enhanced supplementary leverage ratio
standards. Once the SCB final rule is effective, this definition will
also apply to all parts of a covered holding company's buffer
requirements, including the stress loss portion of a covered holding
company's capital conservation requirement. The agencies believe that
having one definition for all banking organizations as described in
this interim final rule simplifies the regulatory capital framework and
ensures fairness across banking organizations of all sizes.
This interim final rule is intended to strengthen the incentives
for a banking organization to use its capital buffers as intended in
adverse conditions and serve as a financial intermediary and source of
credit to the economy. This revision would reduce the likelihood that a
banking organization is suddenly subject to abrupt and restrictive
distribution limitations in a scenario of lower than expected capital
levels.
Question 1: What would be the advantages and disadvantages of
defining eligible retained income as the average of a banking
organization's net income over the preceding four quarters instead of
the greater of (i) a banking organization's net income for the four
preceding calendar quarters, net of any distributions and associated
tax effects not already reflected in net income, and (ii) the average
of a banking organization's net income over the preceding four
quarters?
Question 2: What are the advantages and disadvantages of applying
the revised definition of eligible retained income to depository
institution subsidiaries? Would, and if so how would, applying the
revised definition of eligible retained income to depository
institutions be consistent with the purposes of the buffer requirements
discussed above? How, if at all, do, the incentives for using a capital
buffer differ for depository institutions compared to bank holding
companies and savings and loan holding companies? Similarly, would, and
if so how would, applying the revised definition of eligible retained
income to U.S. intermediate holding companies be consistent with the
purposes of the buffer requirements discussed above? How, if at all, do
the incentives for using a capital buffer differ for U.S. intermediate
holding companies?
Question 3: Under what circumstances, if any, should a banking
organization be restricted from making any capital distributions?
III. Impact Assessment
In ordinary economic circumstances, many banking organizations will
pay out a significant portion of their net income, and retain the rest
to support growth. As banking organizations enter stress periods, the
restrictions in the capital buffers limit distributions and help to
preserve capital and support lending. However, if the limits to
distributions are too restrictive, banking organizations can face a
sharp increase in their distribution limitations when they enter the
buffer due to stress. This may create an incentive for banking
organizations to reduce lending or take other actions to avoid falling
into the buffer. The revised definition of eligible net income in the
interim final rule allows banking organizations to more gradually
reduce distributions as they enter stress, and provides banking
organizations with stronger incentives to continue to lend in such a
scenario. On the other hand, by enabling banking organizations to
gradually decrease capital distributions in stress (rather than
mandating a sharp decrease), the rule could incrementally reduce the
banking organization's loss-absorption capacity in stress.
The definition of eligible retained income affects the
distributions of banking organizations within their capital
conservation or stress capital buffers. It does not have an impact on
minimum capital requirements, per se. As such, the revised definition
of eligible retained income in the interim final rule is not likely to
have any noticeable effect on the capital requirements of banking
organizations. Furthermore, banking organizations currently maintain
robust capital levels, with only a small number of banking
organizations having capital levels within the capital conservation
buffer.
IV. Administrative Law Matters
A. Administrative Procedure Act
The agencies are issuing the interim final rules without prior
notice and the opportunity for public comment and the delayed effective
date ordinarily prescribed by the Administrative Procedure Act
(APA)).\12\ Pursuant to section 553(b)(B) of the APA, general notice
and the opportunity for public comment are not required with respect to
a rulemaking when an ``agency for good cause finds (and incorporates
the finding and a brief statement of reasons therefor in the rules
issued) that notice and public procedure thereon are impracticable,
unnecessary, or contrary to the public interest.'' \13\
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\12\ 5 U.S.C. 553.
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The agencies believe that the public interest is best served by
implementing the interim final rule immediately upon publication in the
Federal Register. As discussed above, the spread of COVID-19 has
disrupted economic activity in the United States. In addition, U.S.
financial markets have featured extreme levels of volatility. The
magnitude and persistence of COVID-19 on the economy remain uncertain.
In light of the current market uncertainty, banking organizations may
have a strong incentive to limit their lending activity in order to
avoid facing abrupt restrictions on distributions. By making the
automatic limitations on a banking organization's distributions more
gradual as the banking organization's capital ratios decline, the
interim final rule would allow banking organizations to focus on
continuing to lend to creditworthy households and businesses rather
than on managing their capital buffers and reducing the potential of
exacerbating negative impacts on the financial markets. For these
reasons, the agencies find that there is good cause consistent with the
public interest to issue the rule without advance notice and
comment.\14\
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\14\ 5 U.S.C. 553(b)(B); 553(d)(3).
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The APA also requires a 30-day delayed effective date, except for
(1) substantive rules which grant or recognize an exemption or relieve
a restriction; (2) interpretative rules and
[[Page 15913]]
statements of policy; or (3) as otherwise provided by the agency for
good cause.\15\ Because the rules relieve a restriction, the interim
final rule is exempt from the APA's delayed effective date
requirement.\16\
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\15\ 5 U.S.C. 553(d).
\16\ 5 U.S.C. 553(d)(1).
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While the agencies believe that there is good cause to issue the
rule without advance notice and comment and with an immediate effective
date, the agencies are interested in the views of the public and
requests comment on all aspects of the interim final rule.
B. Congressional Review Act
For purposes of Congressional Review Act, the OMB makes a
determination as to whether a final rule constitutes a ``major''
rule.\17\ 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.\18\
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\17\ 5 U.S.C. 801 et seq.
\18\ 5 U.S.C. 801(a)(3).
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The Congressional Review Act defines a ``major rule'' as any rule
that the Administrator of the Office of Information and Regulatory
Affairs of the OMB finds has resulted in or is likely to result in (A)
an annual effect on the economy of $100,000,000 or more; (B) a major
increase in costs or prices for consumers, individual industries,
Federal, State, or local government agencies or geographic regions, or
(C) significant adverse effects on competition, employment, investment,
productivity, innovation, or on the ability of United States-based
enterprises to compete with foreign-based enterprises in domestic and
export markets.\19\
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\19\ 5 U.S.C. 804(2).
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For the same reasons set forth above, the agencies are adopting the
interim final rule without the delayed effective date generally
prescribed under the Congressional Review Act. The delayed effective
date required by the Congressional Review Act does not apply to any
rule for which an agency for good cause finds (and incorporates the
finding and a brief statement of reasons therefor in the rule issued)
that notice and public procedure thereon are impracticable,
unnecessary, or contrary to the public interest.\20\ In light of
current market uncertainty, the agencies believe that delaying the
effective date of the rule would be contrary to the public interest. In
addition, as discussed above, the revised definition of eligible
retained income in the interim final rule is not likely to have any
significant effect on the capital requirements of banking
organizations.
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\20\ 5 U.S.C. 808.
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As required by the Congressional Review Act, the agencies will
submit the final rule and other appropriate reports to Congress and the
Government Accountability Office for review.
C. Paperwork Reduction Act
The Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3521) (PRA)
states that no agency may conduct or sponsor, nor is the respondent
required to respond to, an information collection unless it displays a
currently valid OMB control number. The interim final rule affects the
agencies' current information collections for the Consolidated Reports
of Condition and Income (Call Reports) (FFIEC 031, FFIEC 041, and FFIEC
051). The OMB control numbers for the agencies are: OCC OMB No. 1557-
0081; Board OMB No. 7100-0036; and FDIC OMB No. 3064-0052. The Board
has reviewed this interim final rule pursuant to authority delegated by
the OMB.
Although there is a substantive change to the actual calculation of
retained income for purposes of the Call Reports, the change should be
minimal and result in a zero net change in hourly burden under the
agencies' information collections. Submissions will, however, be made
by the agencies to OMB. The changes to the Call Reports and their
related instructions will be addressed in a separate Federal Register
notice. Also, the Board has temporarily revised the Consolidated
Financial Statements for Holding Companies (FR Y-9; OMB No. 7100-0128)
to reflect the changes made in this interim final rule. On June 15,
1984, OMB delegated to the Board authority under the PRA to temporarily
approve a revision to a collection of information without providing
opportunity for public comment if the Board determines that a change in
an existing collection must be instituted quickly and that public
participation in the approval process would defeat the purpose of the
collection or substantially interfere with the Board's ability to
perform its statutory obligation.
The Board's delegated authority requires that the Board, after
temporarily approving a collection, solicit public comment on a
proposal to extend the temporary collection for a period not to exceed
three years. Therefore, the Board is inviting comment on a proposal to
extend the FR Y-9 reports for three years, with revision. The Board
invites public comment on the FR Y-9 reports, which are being reviewed
under authority delegated by the OMB under the PRA. Comments are
invited on the following:
a. Whether the proposed collection of information is necessary for
the proper performance of the Board's functions, including whether the
information has practical utility;
b. The accuracy of the Board's estimate of the burden of the
proposed information collection, including the validity of the
methodology and assumptions used;
c. Ways to enhance the quality, utility, and clarity of the
information to be collected;
d. Ways to minimize the burden of information collection on
respondents, including through the use of automated collection
techniques or other forms of information technology; and
e. Estimates of capital or startup costs and costs of operation,
maintenance, and purchase of services to provide information.
Comments must be submitted on or before May 19, 2020. At the end of
the comment period, the comments and recommendations received will be
analyzed to determine the extent to which the Board should modify the
proposal.
Adopted Revision, With Extension for Three Years, of the Following
Information Collection:
Report title: Financial Statements for Holding Companies.
Agency form number: FR Y-9C; FR Y-9LP; FR Y-9SP; FR Y-9ES; FR Y-
9CS.
OMB control number: 7100-0128.
Effective date: December 31, 2020.
Frequency: Quarterly, semiannually, and annually.
Affected public: Businesses or other for-profit.
Respondents: Bank holding companies (BHCs), savings and loan
holding companies (SLHCs),\21\ securities holding companies (SHCs), and
U.S. intermediate holding companies (IHCs) (collectively, holding
companies (HCs)).
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\21\ A savings and loan holding company (SLHC) must file one or
more of the FR Y-9 family of reports unless it is: (1) A
grandfathered unitary SLHC with primarily commercial assets and
thrifts that make up less than 5 percent of its consolidated assets;
or (2) a SLHC that primarily holds insurance-related assets and does
not otherwise submit financial reports with the SEC pursuant to
section 13 or 15(d) of the Securities Exchange Act of 1934.
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Estimated number of respondents:
FR Y-9C (non AA HCs) with less than $5 billion in total assets--
155,
FR Y-9C (non AA HCs) with $5 billion or more in total assets--189,
FR Y-9C (AA HCs)--19,
FR Y-9LP--434,
FR Y-9SP--3,960,
FR Y-9ES--83,
[[Page 15914]]
FR Y-9CS--236.
Estimated average hours per response:
Reporting
FR Y-9C (non AA HCs) with less than $5 billion in total assets--
40.48,
FR Y-9C (non AA HCs) with $5 billion or more in total assets--
46.34,
FR Y-9C (AA HCs)--47.59,
FR Y-9LP--5.27,
FR Y-9SP--5.40,
FR Y-9ES--0.50,
FR Y-9CS--0.50.
Recordkeeping
FR Y-9C (non AA HCs) with less than $5 billion in total assets--1,
FR Y-9C (non AA HCs) with $5 billion or more in total assets--1,
FR Y-9C (AA HCs)--1,
FR Y-9LP--1,
FR Y-9SP--0.50,
FR Y-9ES--0.50,
FR Y-9CS--0.50.
Estimated annual burden hours:
Reporting
FR Y-9C (non AA HCs) with less than $5 billion in total assets--
25,098,
FR Y-9C (non AA HCs) with $5 billion or more in total assets--
35,033,
FR Y-9C (AA HCs)--3,617,
FR Y-9LP--9,149,
FR Y-9SP--42,768,
FR Y-9ES--42,
FR Y-9CS--472.
Recordkeeping
FR Y-9C (non AA HCs) with less than $5 billion in total assets--
620,
FR Y-9C (non AA HCs) with $5 billion or more in total assets--756,
FR Y-9C (AA HCs)--76,
FR Y-9LP--1,736,
FR Y-9SP--3,960,
FR Y-9ES--42,
FR Y-9CS--472.
General description of report: The FR Y-9 family of reporting forms
continues to be the primary source of financial data on holding
companies that examiners rely on in the intervals between on-site
inspections. Financial data from these reporting forms are used to
detect emerging financial problems, to review performance and conduct
pre-inspection analysis, to monitor and evaluate capital adequacy, to
evaluate holding company mergers and acquisitions, and to analyze a
holding company's overall financial condition to ensure the safety and
soundness of its operations. The FR Y-9C, FR Y-9LP, and FR Y-9SP serve
as standardized financial statements for the consolidated holding
company. The Board requires HCs to provide standardized financial
statements to fulfill the Board's statutory obligation to supervise
these organizations. The FR Y-9ES is a financial statement for HCs that
are Employee Stock Ownership Plans. The Board uses the FR Y-9CS (a
free-form supplement) to collect additional information deemed to be
critical and needed in an expedited manner. HCs file the FR Y-9C on a
quarterly basis, the FR Y-9LP quarterly, the FR Y-9SP semiannually, the
FR Y-9ES annually, and the FR Y-9CS on a schedule that is determined
when this supplement is used.
Legal authorization and confidentiality: The Board has the
authority to impose the reporting and recordkeeping requirements
associated with the FR Y-9 family of reports on BHCs pursuant to
section 5 of the Bank Holding Company Act of 1956 (BHC Act) (12 U.S.C.
1844); on SLHCs pursuant to section 10(b)(2) and (3) of the Home
Owners' Loan Act (12 U.S.C. 1467a(b)(2) and (3)), as amended by
sections 369(8) and 604(h)(2) of the Dodd-Frank Wall Street and
Consumer Protection Act (Dodd-Frank Act); on U.S. IHCs pursuant to
section 5 of the BHC Act (12 U.S.C 1844), as well as pursuant to
sections 102(a)(1) and 165 of the Dodd-Frank Act (12 U.S.C. 511(a)(1)
and 5365); and on securities holding companies pursuant to section 618
of the Dodd-Frank Act (12 U.S.C. 1850a(c)(1)(A)). The obligation to
submit the FR Y-9 series of reports, and the recordkeeping requirements
set forth in the respective instructions to each report, are mandatory.
With respect to the FR Y-9C report, Schedule HI's memoranda data
item 7(g) ``FDIC deposit insurance assessments,'' Schedule HC-P's data
item 7(a) ``Representation and warranty reserves for 1-4 family
residential mortgage loans sold to U.S. government agencies and
government sponsored agencies,'' and Schedule HC-P's data item 7(b)
``Representation and warranty reserves for 1-4 family residential
mortgage loans sold to other parties'' are considered confidential
commercial and financial information. Such treatment is appropriate
under exemption 4 of the Freedom of Information Act (FOIA) (5 U.S.C.
552(b)(4)) because these data items reflect commercial and financial
information that is both customarily and actually treated as private by
the submitter, and which the Board has previously assured submitters
will be treated as confidential. It also appears that disclosing these
data items may reveal confidential examination and supervisory
information, and in such instances, this information would also be
withheld pursuant to exemption 8 of the FOIA (5 U.S.C. 552(b)(8)),
which protects information related to the supervision or examination of
a regulated financial institution.
In addition, for both the FR Y-9C report and the FR Y-9SP report,
Schedule HC's memorandum item 2.b., the name and email address of the
external auditing firm's engagement partner, is considered confidential
commercial information and protected by exemption 4 of the FOIA (5
U.S.C. 552(b)(4)) if the identity of the engagement partner is treated
as private information by HCs. The Board has assured respondents that
this information will be treated as confidential since the collection
of this data item was proposed in 2004.
Aside from the data items described above, the remaining data items
on the FR Y-9C report and the FR Y-9SP report are generally not
accorded confidential treatment. The data items collected on FR Y-9LP,
FR Y-9ES, and FR Y-9CS reports, are also generally not accorded
confidential treatment. As provided in the Board's Rules Regarding
Availability of Information (12 CFR part 261), however, a respondent
may request confidential treatment for any data items the respondent
believes should be withheld pursuant to a FOIA exemption. The Board
will review any such request to determine if confidential treatment is
appropriate, and will inform the respondent if the request for
confidential treatment has been denied.
To the extent the instructions to the FR Y-9C, FR Y-9LP, FR Y-9SP,
and FR Y-9ES reports each respectively direct the financial institution
to retain the workpapers and related materials used in preparation of
each report, such material would only be obtained by the Board as part
of the examination or supervision of the financial institution.
Accordingly, such information is considered confidential pursuant to
exemption 8 of the FOIA (5 U.S.C. 552(b)(8)). In addition, the
workpapers and related materials may also be protected by exemption 4
of the FOIA, to the extent such financial information is treated as
confidential by the respondent (5 U.S.C. 552(b)(4)).
Current actions: The Board has temporarily revised the instructions
for the FR Y-9C to reflect the modification to the definition of
eligible retained income contained in this interim final rule.
Specifically, the Board has temporarily revised the instructions for
the item capturing eligible retained income for HCs not subject to the
capital plan rule on FR Y-9C, Schedule HC-R. The Board has determined
that the revisions to the FR Y-9C must be instituted quickly and that
public participation in the approval process would defeat the purpose
of the
[[Page 15915]]
collection of information, as delaying the revisions would result in
the collection of inaccurate information and would interfere with the
Board's ability to perform its statutory duties. The Board also
proposes to revise the instructions for a forthcoming item, which will
be added to Schedule HC-R for the December 31, 2020 as-of date, that
captures eligible retained income for HCs subject to the capital plan
rule.
The Board also proposes to extend the FR Y-9 reports for three
years, with the revisions discussed above.
D. Regulatory Flexibility Act
The Regulatory Flexibility Act (RFA) \22\ requires an agency to
consider whether the rules it proposes will have a significant economic
impact on a substantial number of small entities.\23\ The RFA applies
only to rules for which an agency publishes a general notice of
proposed rulemaking pursuant to 5 U.S.C. 553(b). As discussed
previously, consistent with section 553(b)(B) of the APA, the agencies
have determined for good cause that general notice and opportunity for
public comment is unnecessary, and therefore the agencies are not
issuing a notice of proposed rulemaking. Accordingly, the agencies have
concluded that the RFA's requirements relating to initial and final
regulatory flexibility analysis do not apply.
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\22\ 5 U.S.C. 601 et seq.
\23\ Under regulations issued by the Small Business
Administration, a small entity includes a depository institution,
bank holding company, or savings and loan holding company with total
assets of $600 million or less and trust companies with total assets
of $41.5 million or less. See 13 CFR 121.201.
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Nevertheless, the agencies seek comment on whether, and the extent
to which, the interim final rule would affect a significant number of
small entities.
E. Riegle Community Development and Regulatory Improvement Act of 1994
Pursuant to section 302(a) of the Riegle Community Development and
Regulatory Improvement Act (RCDRIA),\24\ in determining the effective
date and administrative compliance requirements for new regulations
that impose additional reporting, disclosure, or other requirements on
insured depository institutions (IDIs), each Federal banking agency
must consider, consistent with the principle of safety and soundness
and the public interest, any administrative burdens that such
regulations would place on 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, with certain exceptions, including for good cause.\25\
For the reasons described above, the agencies find good cause exists
under section 302 of RCDRIA to publish this interim final rule with an
immediate effective date.
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\24\ 12 U.S.C. 4802(a).
\25\ 12 U.S.C. 4802.
---------------------------------------------------------------------------
As such, the final rule will be effective on March 20, 2020.
Nevertheless, the agencies seek comment on RCDRIA.
F. Use of Plain Language
Section 722 of the Gramm-Leach-Bliley Act \26\ 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 interim final rule in a simple and straightforward manner. The
agencies invite comments on whether there are additional steps it could
take to make the rule easier to understand. For example:
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\26\ 12 U.S.C. 4809.
---------------------------------------------------------------------------
Have we organized the material to suit your needs? If not,
how could this material be better organized?
Are the requirements in the regulation clearly stated? If
not, how could the regulation be more clearly stated?
Does the regulation contain language or jargon that is not
clear? If so, which language requires clarification?
Would a different format (grouping and order of sections,
use of headings, paragraphing) make the regulation easier to
understand? If so, what changes to the format would make the regulation
easier to understand?
What else could we do to make the regulation easier to understand?
G. Unfunded Mandates
As a general matter, the Unfunded Mandates Act of 1995 (UMRA), 2
U.S.C. 1531 et seq., requires the preparation of a budgetary impact
statement before promulgating a rule that includes a Federal mandate
that may result in the expenditure by State, local, and tribal
governments, in the aggregate, or by the private sector, of $100
million or more in any one year. However, the UMRA does not apply to
final rules for which a general notice of proposed rulemaking was not
published. See 2 U.S.C. 1532(a). Therefore, because the OCC has found
good cause to dispense with notice and comment for this interim final
rule, the OCC has not prepared an economic analysis of the rule under
the UMRA.
List of Subjects
12 CFR Part 3
Administrative practice and procedure, Capital, Federal savings
associations, National banks, Risk.
12 CFR Part 217
Administrative practice and procedure, Banks, Banking, Federal
Reserve System, Holding companies, Reporting and recordkeeping
requirements, Risk, Securities.
12 CFR Part 324
Administrative practice and procedure, Banks, banking, Reporting
and recordkeeping requirements, Savings associations.
Office of the Comptroller of the Currency
For the reasons set out in the joint preamble, the OCC amends part
3 of chapter I, title 12 of the CFR 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. Section 3.11 is amended by revising paragraph (a)(2)(i) to read as
follows:
Sec. 3.11 Capital conservation buffer and countercyclical capital
buffer amount.
(a) * * *
(2) * * *
(i) Eligible retained income. The eligible retained income of a
national bank or Federal savings association is the greater of:
(A) The national bank's or Federal savings association's net
income, calculated in accordance with the instructions to the Call
Report, for the four calendar quarters preceding the current calendar
quarter, net of any distributions and associated tax effects not
already reflected in net income; and
(B) The average of the national bank's or Federal savings
association's net income, calculated in accordance with the
instructions to the Call Report, for the four calendar quarters
preceding the current calendar quarter.
* * * * *
[[Page 15916]]
BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
12 CFR Chapter II
Authority and Issuance
For the reasons stated in the joint preamble, the Board of
Governors of the Federal Reserve System amends 12 CFR chapter II as
follows:
PART 217--CAPITAL ADEQUACY OF BANK HOLDING COMPANIES, SAVINGS AND
LOAN HOLDING COMPANIES, AND STATE MEMBER BANKS (REGULATION Q)
0
3. 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, and 5371 note.
0
4. Section 217.11 is amended by revising paragraph (a)(2)(i) to read as
follows:
Sec. 217.11 Capital conservation buffer, countercyclical capital
buffer amount, and GSIB surcharge.
(a) * * *
(2) * * *
(i) Eligible retained income. The eligible retained income of a
Board-regulated institution is the greater of:
(A) The Board-regulated institution's net income, calculated in
accordance with the instructions to the FR Y-9C or Call Report, as
applicable, for the four calendar quarters preceding the current
calendar quarter, net of any distributions and associated tax effects
not already reflected in net income; and
(B) The average of the Board-regulated institution's net income,
calculated in accordance with the instructions to the FR Y-9C or Call
Report, as applicable, for the four calendar quarters preceding the
current calendar quarter.
* * * * *
Federal Deposit Insurance Corporation
12 CFR Chapter III
Authority and Issuance
For the reasons set forth in the joint preamble, chapter III of
title 12 of the Code of Federal Regulations is amended as follows:
PART 324--CAPITAL ADEQUACY OF FDIC-SUPERVISED INSTITUTIONS
0
5. 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
6. Section 324.11 is amended by revising paragraph (a)(2)(i) to read as
follows:
Sec. 324.11 Capital conservation buffer and countercyclical capital
buffer amount.
(a) * * *
(2) * * *
(i) Eligible retained income. The eligible retained income of an
FDIC-supervised institution is the greater of:
(A) The FDIC-supervised institution's net income, calculated in
accordance with the instructions to the Call Report, for the four
calendar quarters preceding the current calendar quarter, net of any
distributions and associated tax effects not already reflected in net
income; and
(B) The average of the FDIC-supervised institution's net income,
calculated in accordance with the instructions to Call Report, for the
four calendar quarters preceding the current calendar quarter.
* * * * *
Dated: March 17, 2020.
Morris R. Morgan,
First Deputy Comptroller, Comptroller of the Currency.
By order of the Board of Governors of the Federal Reserve
System.
Ann E. Misback,
Secretary of the Board.
Federal Deposit Insurance Corporation.
By order of the Board of Directors.
Dated at Washington, DC, on March 16, 2020.
Robert E. Feldman,
Executive Secretary.
[FR Doc. 2020-06051 Filed 3-19-20; 8:45 am]
BILLING CODE 6210-01-P
