18160 Federal Register / Vol. 83, No. 80 / Wednesday, April 25, 2018 / Proposed Rules

FEDERAL RESERVE SYSTEM • Fax: (202) 452–3819 or (202) 452– C. Summary of the Proposed Timeline for 3102. Reviewing Capital Plans and Calculating 12 CFR Parts 217, 225, and 252 • Mail: Address to Ann E. Misback, the Stress Buffer Requirements D. Requests for Reconsideration [Regulations Q, Y, and YY; Docket No. R– Secretary, Board of Governors of the Federal Reserve System, 20th Street and E. Capital Plan Resubmission and 1603] Circumstances Warranting Recalculation Constitution Avenue NW, Washington, RIN 7100–AF 02 of the Stress Buffer Requirements DC 20551. IV. Proposed Changes to the Capital Rule and All public comments will be made Explanation of the Mechanics of the Amendments to the Regulatory available on the Board’s website at Capital, Capital Plan, and Stress Test Distribution Limitations of the Stress http://www.federalreserve.gov/ Buffer Requirements Rules generalinfo/foia/ProposedRegs.aspx as A. Proposed Changes to the Capital Rule AGENCY: Board of Governors of the submitted, unless modified for technical B. Mechanics of the Distribution Federal Reserve System (Board). reasons or to remove sensitive PII at the Limitations of the Stress Buffer commenter’s request. Public comments Requirements ACTION: Notice of proposed rulemaking may also be viewed electronically or in V. Proposed Changes to the Stress Test Rules with request for comment. paper form in Room 3515, 1801 K Street VI. Proposed Changes to Regulatory Reports VII. Administrative Law Matters SUMMARY: The Board is inviting NW (between 18th and 19th Streets A. Paperwork Reduction Act comment on a notice of proposed NW), Washington, DC 20006 between B. Regulatory Flexibility Act rulemaking (proposal) that would 9:00 a.m. and 5:00 p.m. on weekdays. C. Solicitation of Comments of Use of Plain integrate the Board’s regulatory capital FOR FURTHER INFORMATION CONTACT: Lisa Language Ryu, Associate Director, (202) 263–4833, rule (capital rule) and the Board’s I. Background and Summary of the Constance Horsley, Deputy Associate Comprehensive Capital Analysis and Proposal Review (CCAR) and stress test rules in Director, (202) 452–5239, (202) 475– order to simplify the capital regime 6316, Juan Climent, Manager (202) 872– A. Description of the Capital Plan and applicable to firms subject to the capital 7526, Christine Graham, Senior Capital Rules Supervisory Financial Analyst, (202) plan rule. The proposal would amend The resiliency of large financial 452–3005, Page Conkling, Senior the Board’s capital plan rule, capital institutions is critical to the stability of Supervisory Financial Analyst, (202) rule, and stress testing rules, and make the financial sector. As shown in the 912–4647, Joseph Cox, Senior amendments to the Stress Testing Policy 2007–2008 financial crisis, problems at Supervisory Financial Analyst, (202) Statement that was proposed for public large financial institutions can lead to 452–3216, or Hillel Kipnis, Senior comment on December 15, 2017. Under significant market disruption, spread Financial Analyst, (202) 452–2924, the proposal, the Board’s supervisory rapidly throughout the financial system, Division of Banking Supervision and stress test would be used to establish the and cause a credit crunch, worsening Regulation; Benjamin W. McDonough, size of a stress capital buffer economic downturns. To be resilient, a Assistant General Counsel, (202) 452– requirement and a stress leverage buffer financial institution must maintain 2036, Julie Anthony, Counsel, (202) requirement. The proposal would apply sufficient levels of capital to support the 475–6682, Mark Buresh, Senior to bank holding companies with $50 risks associated with its exposures and Attorney, (202) 452–5270, Asad Kudiya, billion or more in total consolidated activities. In the years leading up to the Senior Attorney, (202) 475–6358, or assets and U.S. intermediate holding financial crisis, neither the regulatory Mary Watkins, Attorney, (202) 452– companies of foreign banking capital regime nor financial institutions’ 3722, Legal Division, Board of organizations established pursuant to own models sufficiently captured the Governors of the Federal Reserve Regulation YY. The proposal would not actual risk exposures of financial System, 20th Street and Constitution apply to any community bank, any bank institutions, resulting in a level of Avenue NW, Washington, DC 20551. holding company with total capital that was inadequate to cover Users of Telecommunication Device for consolidated assets of less than $50 losses as conditions deteriorated, Deaf (TDD) only, call (202) 263–4869. billion, or to any state member bank or putting the economic activity at risk. savings and loan holding company. The SUPPLEMENTARY INFORMATION: The risks to the ability of the financial proposal would be effective on Table of Contents system to support economic growth December 31, 2018. Under the proposal, were exacerbated by actions taken by a firm’s first stress capital buffer and I. Background and Summary of the Proposal A. Description of the Capital Plan and firms during the crisis. Rather than stress leverage buffer requirements conserve loss-absorbing resources, many would generally be effective on October Capital Rules B. Review of Capital Planning and Stress firms continued to distribute capital to 1, 2019. Testing Programs shareholders in an attempt to reassure DATES: Comments must be received by C. Actions Following the CCAR Review the market of their health and June 25, 2018. D. Summary of Proposal resiliency. Further, the lack of ADDRESSES: You may submit comments, II. Proposed Stress Buffer Requirements transparency into firms’ actual risk A. Introduction to the Stress Buffer profiles during the crisis increased identified by [Docket No. R–1603 and Requirements RIN 7100–AF 02] by any of the B. Assumptions and Methodologies Used uncertainty, left counterparties unable following methods: in Determining the Proposed Stress to distinguish between healthy and • Agency Website: http:// Buffer Requirements unhealthy banks, and prompted a large www.federalreserve.gov. Follow the C. Effective Dates for Proposed Stress and sudden reaction from the markets as instructions for submitting comments at Buffer Requirements the full scale of risks was revealed. The http://www.federalreserve.gov/ D. Impact of the Proposed Stress Buffer systematic loss of confidence in the generalinfo/foia/ProposedRegs.aspx. Requirements banking sector that ensued led to • III. Proposed Changes to the Capital Plan Email: regs.comments@ Rule sharply tighter credit conditions for federalreserve.gov. Include the docket A. Removal of Quantitative Objection businesses and households and caused number and RIN number in the subject B. Requirements for a Firm’s Planned extreme strains in crucial markets; the line of the message. Capital Distributions economic consequences prompted

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public sector intervention by the capital actions (for example, dividends, otherwise meet the conditions set forth Congress, U.S. Treasury, Board,1 and capital issuances, and repurchases of in 12 CFR 217.100(b).9 Federal Deposit Insurance Corporation capital instruments) that are in its In July 2015, the Board adopted the to avoid further deterioration and capital plan (supervisory post-stress GSIB surcharge rule as part of its restore economic activity. capital assessment). implementation of section 165 of the 10 At the height of the crisis, the Board Section 165 of the Dodd-Frank Wall Dodd-Frank Act. The GSIB surcharge turned to stress testing, under the Street Reform and Consumer Protection rule establishes the criteria for Supervisory Capital Assessment Act (Dodd-Frank Act) requires the Board identifying a GSIB and the methods that Program (SCAP), to determine potential to adopt enhanced capital standards, those firms must use to calculate a risk- losses at the largest firms if the including supervisory stress tests, based capital surcharge, which is prevailing stress severely worsened and company-run stress tests, and enhanced calibrated to each firm’s overall to restore confidence in the financial risk-based and leverage capital systemic risk and which expands the sector.2 Building on the success of the capital conservation buffer requirement requirements, for bank holding 11 SCAP, the Board introduced the current companies with total consolidated for these firms. stress testing regime and CCAR to assess Strengthening the regulatory capital assets of $50 billion or more. The whether the largest firms have sufficient regime, including the introduction of enhanced prudential standards that the capital to continue to lend and absorb capital planning and stress testing Board adopts pursuant to section 165 potential losses under severely adverse requirements, has been an important must increase in stringency based on the conditions, and to ensure that they have supervisory response to the financial systemic importance of the firm. The sound, forward-looking capital planning crisis. Stress testing makes the capital Board’s supervisory stress test practices.3 The Board publishes the regime more forward-looking, risk- conducted pursuant to the Dodd-Frank results of its stress tests and assessment sensitive, and firm-specific. As a result Act evaluates whether firms have of firms’ capital planning practices, of this program and the enhancements sufficient capital to continue operations which enhances market discipline. made to the Board’s regulatory capital The Board adopted the capital plan throughout times of economic and regime, large U.S. bank holding rule in 2011, which requires each bank financial stress using firm-provided data companies are much more resilient to holding company with $50 billion or and a common set of scenarios, models, stress than in the past. Common equity 6 more in total consolidated assets to and assumptions. In the company-run capital levels among the nation’s largest submit an annual capital plan to the stress tests, firms use the same scenarios bank holding companies have risen by Board.4 The Board may limit a firm’s that the Board uses to conduct the over $720 billion since 2009, making capital distributions under the rule if supervisory stress tests. U.S. firms among the strongest in the the Board finds deficiencies in the Similar to the Board’s capital world.12 firm’s capital plan or pro forma post- planning and stress testing rules, the B. Review of Capital Planning and stress level of capital.5 As part of CCAR, Board’s capital rule also addresses Stress Testing Programs the Board evaluates the ability of each weaknesses observed during the 2007– of the largest bank holding companies to 2008 financial crisis. In 2013, the Board The Board periodically reevaluates its maintain capital above minimum adopted a final rule that revised the programs to ensure that they remain regulatory capital requirements under Board’s risk-based and leverage capital effective and that unintended expected and stressful conditions, requirements for firms.7 The revisions to consequences are minimized. assuming that a firm makes all planned the Board’s capital rule strengthened the Accordingly, the Board has reviewed quality and quantity of capital held by the CCAR program to assess its 1 References to the Board in this preamble may firms by implementing, among other effectiveness and to identify any areas also refer to the Federal Reserve. changes, a new minimum common that should be refined (CCAR review). 2 SCAP applied to domestic bank holding equity tier 1 (CET1) capital requirement, The CCAR review included an internal companies with $100 billion or more in total assessment as well as a series of consolidated assets. a higher minimum tier 1 capital 3 The changes in this proposal would apply to requirement, and capital buffer feedback meetings with outside parties. bank holding companies with total consolidated requirements above the minimum The participants in such meetings assets of $50 billion or more, any nonbank financial requirements. A firm must maintain included senior management from firms company supervised by the Board that becomes currently subject to the capital plan subject to the capital planning requirements risk-based capital ratios in excess of the pursuant to a rule or order of the Board, and to U.S. minimum plus buffer requirements in rule, debt and equity market analysts, intermediate holding companies established order to avoid limitations on capital pursuant to the Board’s Regulation YY (12 CFR part distributions and certain discretionary 9 12 CFR part 217. 10 252) in accordance with the transition provisions 8 12 CFR part 217, subpart H; 80 FR 49082 under the capital plan rule. Currently, no nonbank bonus payments. In addition, the Board (August 14, 2015). financial companies supervised by the Board are adopted a supplementary leverage ratio 11 In addition, a GSIB must maintain a subject to the capital planning requirements. that measures capital against on- and supplementary leverage ratio in excess of 5 percent References to ‘‘bank holding companies’’ or ‘‘firms’’ off-balance sheet exposures for firms in order to avoid limitations on capital distributions in this preamble should be read to include all of and discretionary bonus payments. 79 FR 24528 these companies, unless otherwise specified. with total consolidated assets greater (May 1, 2014) (revised 80 FR 49082 (August 14, 4 See 12 CFR 225.8. A firm’s capital plan must than or equal to $250 billion or total 2015)). include (i) an assessment of the expected uses and consolidated on-balance sheet foreign The Board expects to release a proposal that sources of capital over the planning horizon; (ii) a exposures of at least $10 billion, or that would recalibrate the enhanced supplementary detailed description of the firm’s processes for leverage ratio standards for GSIBs and their state assessing capital adequacy; (iii) the firm’s capital member bank insured depository institution policy; and (iv) a discussion of any expected 6 The supervisory post-stress capital assessment subsidiaries. The proposal would set the enhanced changes to the firm’s business plan that could in CCAR is based on the supervisory stress test supplementary leverage ratio standards to 3 percent materially affect its capital adequacy. A firm may conducted pursuant to the Dodd-Frank Act. plus one half of the GSIB surcharge applicable to be required to include other information and 7 78 FR 62018 (October 11, 2013), adopted as 12 the bank holding company. That proposal would analysis relevant to its capital planning processes CFR part 217 (Regulation Q) and subsequently amend the Board’s capital rule, as well as make and internal capital adequacy assessment. amended. conforming changes to the Board’s total loss- 5 12 CFR 225.8(f). As discussed below, a large and 8 The limitations apply to discretionary bonus absorbing capacity rule. noncomplex firm is no longer subject to the payments made to executive officers of a banking 12 Staff calculations based on the Consolidated qualitative assessment in CCAR. organization. Financial Statements for Holding Companies.

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representatives from public interest would not be permitted under the firms that are not identified as GSIBs groups, and academics in the fields of capital rule. and that have average total consolidated economics and finance. The Board also Some participants in the CCAR assets of $50 billion or more but less examined the interaction between the review viewed other assumptions in the than $250 billion and total nonbank capital rule and its capital planning and supervisory post-stress capital assets of less than $75 billion (large and stress testing rules. assessment as unrealistic and overly noncomplex firms) are no longer subject conservative. Since the 2014 CCAR to the provisions of the capital plan rule Some participants in the CCAR cycle, in projecting a firm’s balance whereby the Board may object to a review expressed support for increasing sheet, the supervisory stress test has firm’s capital plan on the basis of post-stress capital requirements by the included the assumption that credit qualitative deficiencies in the firm’s amount of the GSIB surcharge and supply does not contract. This capital planning process.16 countercyclical capital buffer amount, assumption furthered the Board’s Additionally, in December 2017, the arguing that such buffer requirements macroprudential objectives by Board released a package of proposals are intended to further macroprudential evaluating whether firms could pass the that would increase the transparency of and countercyclical objectives in a supervisory post-stress capital the supervisory stress test.17 The manner that is not currently addressed assessment while continuing to lend package included three proposals for directly in the supervisory post-stress and support the real economy. In public comment: (1) Enhanced model capital assessment. On the other hand, implementing this assumption, the disclosure that would provide some participants argued it would not Board used a model calibrated to additional detail about the supervisory be appropriate to increase post-stress historical data that tended to project stress test models and how they minimum requirements by the GSIB that a firm’s balance sheet and risk- function; (2) a Stress Testing Policy surcharge because it would treat the weighted assets would grow over the Statement that would provide the key GSIB surcharge as a minimum capital planning horizon, even in the severely principles and policies that govern the requirement rather than as a buffer as adverse scenario.15 Some participants in Board’s approach to model intended in the capital rule and because the CCAR review argued that this development, implementation, use, and the supervisory post-stress capital assumption is overly conservative, and validation in the supervisory stress test; assessment already includes scenario suggested that the Board modify this and (3) an amendment to the Board’s components that, historically, were only growth assumption to account for Policy Statement on the Scenario Design applicable to GSIBs.13 certain portfolios where it is unrealistic Framework for Stress Testing (Scenario Participants in the CCAR review also (such as legacy portfolios). Design Policy Statement) that would raised concerns about the interactions The Board received other feedback make the scenario development process between the capital rule and the from participants in the CCAR review more countercyclical. supervisory post-stress capital regarding changes to its processes D. Summary of Proposal assessment. The supervisory post-stress associated with CCAR. For example, participants recommended further The capital rule and capital plan rule capital assessment includes an each place separate limitations on firms’ assumption that a firm makes all enhancing the transparency of the supervisory post-stress capital capital distributions to address the fact planned capital distributions, reflecting that many firms made significant the historical experience from the assessment and eliminating the heightened supervisory scrutiny of a distributions of capital in the lead up to financial crisis in which the largest and during the crisis without fully banking organizations continued to capital plan that includes a dividend payout ratio of more than 30 percent. considering the effects that a prolonged repurchase shares and pay dividends to economic downturn could have on their shareholders well after the financial C. Actions Following the CCAR Review capital adequacy. Under the capital rule, 14 system came under severe stress. The Board has identified several areas a firm is subject to one or more buffer Some participants in the CCAR review where the capital plan rule and CCAR requirements above its minimum capital argued that the Board should not could be further refined or improved, requirements and becomes subject to assume in the supervisory post-stress including by reducing burden for non- increasingly strict limitations on the capital assessment that a firm continues GSIBs subject to CCAR; addressing the distributions and bonus payments as its to make all of its planned capital role of the GSIB surcharge in the capital ratios decline below the buffer distributions if the capital distributions supervisory post-stress capital requirements toward the minimum assessment; addressing inconsistencies capital requirements. Under the capital 13 The supervisory stress test includes a trading between the assumptions in the plan rule, a firm is required to follow and counterparty component (the global market shock) and large counterparty default scenario supervisory stress test and the the capital distributions included in its component. Historically, the global market shock distribution limitations in the capital capital plan and, except in limited has included six U.S. GSIBs with significant trading rule; eliminating one or more post-stress circumstances, seek the Board’s activity. However, in December 2017, additional capital ratio minimums in CCAR; and approval before making additional firms were identified as having ‘‘significant trading 18 activity,’’ and beginning in 2019, will be subject to simplifying certain supervisory stress capital distributions. the global market shock. The large counterparty test assumptions. default scenario component has been applied to the In January 2017, the Board adopted a 16 The capital planning processes for these large firms with the largest derivatives exposures and rule to reduce the burden associated and noncomplex firms would be evaluated through securities financing transaction activities, which to with the qualitative aspects of CCAR for the regular supervisory process. See 81 FR 9308 date, has included the eight U.S. GSIBs. (February 3, 2017). 14 Beverly Hirtle, ‘‘Bank Holding Company less complex firms. Under that rule, 17 See 82 FR 59529 (December 15, 2017). Dividends and Repurchases during the Financial 18 The Board may object to the capital plan of a Crisis,’’ FRBNY Staff Report, (April 2016), 15 See the Board’s letter regarding the Federal firm that does not demonstrate an ability to www.newyorkfed.org/medialibrary/media/research/ Reserve’s independent balance sheet and risk- maintain capital levels above minimum regulatory staff_reports/sr666.pdf and Viral V. Acharya, Irvind weighted asset projections (December 16, 2013) capital requirements on a pro forma basis under Gujral, Nirupama Kulkarni, Hyun Song Shin, available at www.federalreserve.gov/bankinforeg/ expected and stressful conditions. A firm receiving ‘‘Dividends and Bank Capital in the Financial Crisis independent-projections-letter-20131216.pdf. This such an objection can make only those capital of 2007–2009,’’ (March 2011) NBER Working Paper letter includes information on historical distributions permitted by the Board. In assessing No. 16896, www.nber.org/papers/w16896. experiences of banking assets in past recessions. a firm’s capital plan under the capital plan rule, the

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The proposal would use the results of preserve the current incentives for a plan. Incorporating four quarters of the annual supervisory stress test to size firm to engage in disciplined, forward- planned common stock dividends in the specific buffer requirements above looking dividend planning. The stress stress buffer requirements would minimum capital requirements that buffer requirements would include provide sufficient incentive for prudent restrict capital distributions under the dividends—but not repurchases—based dividend payouts. capital rule and establish a single on the experience in the recent financial The proposal would continue to approach to capital distribution crisis, when large bank holding require a firm to describe its planned limitations, effectively integrating the companies began to reduce share capital distributions in its capital plan capital rule and the capital plan rule. repurchases early in the crisis but and not exceed those planned capital Integrating the two capital regimes continued to pay dividends at nearly the distributions. Further, as described in would simplify the Board’s overall pre-crisis rate through 2008.20 section III.B of this preamble, a firm’s approach to capital regulation. The In addition, the Board would also planned capital distributions would proposal would replace the static 2.5 adjust the methodology used in the need to be consistent with the effective percent of risk-weighted assets portion supervisory stress test to assume that capital distribution limitations that of the capital conservation buffer the firm takes actions to maintain a would apply under the firm’s own requirement under the standardized constant level of assets, including loans, baseline financial projections (BHC approach with a stress capital buffer trading assets, and securities over the baseline scenario). requirement, which is forward-looking, planning horizon. As a related matter, As discussed in detail in section II.D risk-sensitive, and firm-specific. The the Board would assume that a firm’s of this preamble, the Board estimates proposal would also establish a stress risk-weighted assets and leverage ratio that non-GSIBs subject to CCAR would leverage buffer requirement in addition denominator generally remain generally need to hold less capital under 21 to the minimum 4 percent tier 1 unchanged over the planning horizon. the proposal, as compared with the leverage ratio requirement.19 The Board would further modify current supervisory post-stress capital A firm would be required to maintain certain elements of CCAR to reflect the assessment in CCAR, which is the capital ratios above its minimum plus introduction of the proposed stress binding constraint for most of these buffer requirements. Specifically, the its buffer requirements in order to avoid firms. In contrast, the Board estimates proposal would remove the quantitative restrictions on its capital distributions based on the most recent CCAR results objection in CCAR and instead rely on and discretionary bonus payments. A the proposal would generally maintain the capital rule’s automatic restrictions firm would be bound by the most or in some cases increase CET1 capital on capital distributions that are stringent distribution limitations, if any, requirements for GSIBs. However, the triggered if a firm breaches its buffer as determined by the firm’s Board’s estimates suggest that no firm requirements. For firms subject to standardized approach capital that participated in recent CCAR conservation buffer requirement (as supervision by the Board’s Large exercises would need to raise additional defined below), the firm’s stress Institution Supervision Coordination capital in order to avoid the proposal’s leverage buffer requirement and, if Committee (LISCC firms) and other large limitations on capital distributions. The applicable, the firm’s advanced and complex firms,22 the Board would impact of the proposal will vary approaches capital conservation buffer retain the CCAR qualitative supervisory throughout the economic cycle. requirement and enhanced review and the ability to object to a supplementary leverage ratio standard. firm’s capital plan on qualitative II. Proposed Stress Buffer Requirements The stress capital buffer and stress grounds based on the adequacy of the A. Introduction to the Stress Buffer leverage buffer requirements (together, firm’s capital planning processes Requirements the stress buffer requirements) are (qualitative objection).23 The Board described in greater detail in section II. would also eliminate the 30 percent As a general matter, capital buffer As noted, participants in the CCAR dividend payout ratio as a criterion for requirements are designed to help review observed an inconsistency heightened scrutiny of a firm’s capital ensure that a firm maintains an between the distribution limitations of adequate amount of loss-absorbing the capital rule and the distribution 20 Hirtle, Beverly, ‘‘Bank Holding Company capital to stay above minimum assumptions used in the supervisory Dividends and Repurchases during the Financial regulatory requirements during stress. Crisis,’’ FRBNY Staff Report, (April 2016), post-stress capital assessment. To www.newyorkfed.org/medialibrary/media/research/ The capital buffer requirements restrict address this inconsistency, certain staff_reports/sr666.pdf. And Viral V. Acharya, a firm’s ability to distribute capital as assumptions used in the supervisory Irvind Gujral, Nirupama Kulkarni, Hyun Song Shin, the firm’s actual capital levels approach stress test would be modified as part of ‘‘Dividends and Bank Capital in the Financial Crisis 24 of 2007–2009,’’ (March 2011) NBER Working Paper minimum ratios. These requirements the proposal. Specifically, in calculating No. 16896, http://www.nber.org/papers/w16896. therefore strengthen the ability of the stress buffer requirements, the 21 The leverage ratio denominator is equal to the individual firms and the banking system proposal would remove the current difference between projected total consolidated to continue to function and to serve as assumption that a firm would make all assets and amounts projected to be deducted from financial intermediaries in times of planned capital distributions over the tier 1 capital under 12 CFR 217.22(a), (c), and (d). 22 stress. planning horizon, including any A list of the current LISCC portfolio firms is available at www.federalreserve.gov/bankinforeg/ planned common stock dividends and large-institution-supervision.htm. Those LISCC 24 Under the capital rule, a firm’s maximum repurchases of common stock. Instead, firms that are currently subject to the capital plan amount of capital distributions and certain the stress buffer requirements would rule are: Bank of America Corporation; The Bank of discretionary bonus payments during the current include only four quarters of planned New York Mellon Corporation; Barclays PLC; calendar quarter are based on its applicable Citigroup Inc.; Credit Suisse Group AG; Deutsche maximum payout ratio multiplied by the firm’s common stock dividends in order to Bank AG; The Goldman Sachs Group, Inc.; JP eligible retained income. The maximum payout Morgan Chase & Co.; Morgan Stanley; State Street ratio declines as a firm’s capital ratio approaches Federal Reserve assumes that the firm makes all Corporation; UBS AG; and Wells Fargo & Company. the minimum requirement. Eligible retained income planned capital actions (e.g. dividends and Large and complex firms include any bank holding is defined as net income attributable to the issuances and repurchases of capital instruments) company that has average total consolidated assets institution for the four calendar quarters preceding even in the severely adverse scenario. of at least $250 billion or average total nonbank the current calendar quarter, net of any 19 The leverage ratio is the ratio of a firm’s tier assets of at least $75 billion. distributions and associated tax effects not already 1 capital to its average total consolidated assests. 23 See 82 FR 9308 (February 3, 2017). reflected in net income.

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Under the current capital rule, a evaluating a firm’s vulnerability to conservation buffer requirement serves a firm’s capital conservation buffer declines in its leverage ratio under distinct purpose and is calibrated and requirement is equal to 2.5 percent of stressful conditions. designed according to that purpose. The risk-weighted assets plus any applicable The proposal would not, however, stress capital buffer requirement would GSIB surcharge and countercyclical extend the stress buffer concept to the be calibrated based on each firm’s capital buffer amount. The proposal supplementary leverage ratio. A single vulnerability to adverse economic or would replace the 2.5 percent of risk- stress leverage buffer, applicable to all financial market conditions. As such, it weighted assets with a stress capital firms, would provide a sufficient would help ensure that the firm holds buffer requirement, for firms subject to backstop and avoid adding additional sufficient capital to continue to serve as the supervisory stress test. A firm’s complexity.25 a financial intermediary during a period stress capital buffer requirement would A firm would need to maintain capital of financial stress. The GSIB surcharge be tailored to its risk profile and ratios above all minimum and buffer is designed to mitigate the risk posed to potential vulnerability to stress. The requirements to avoid restrictions on its financial stability by certain large and firm’s capital conservation buffer capital distributions and discretionary systemic financial institutions, and is requirement under the standardized bonus payments. A firm would be calibrated based on the externalities approach would be equal to its stress subject to the most stringent distribution posed by these firms as measured by capital buffer and any applicable GSIB limitations, if any, as determined by the factors such as size, interconnectedness, surcharge plus any applicable firm’s standardized approach capital and complexity. Finally, the countercyclical capital buffer amount conservation buffer requirement, the countercyclical capital buffer is a (standardized approach capital firm’s stress leverage buffer requirement macroprudential tool intended to conservation buffer requirement). and, if applicable, the firm’s advanced strengthen the resiliency of financial Currently, a firm subject to the approaches capital conservation buffer firms and the financial system, by advanced approaches calculates a given requirement, and the enhanced allowing the Board to raise capital risk-based capital ratio under both the supplementary leverage ratio standard. standards when credit growth in the standardized and advanced approaches, The Board’s supervisory stress test economy becomes excessive. Taken and uses the lower of the two ratios as conducted under Regulation YY would together, a firm’s standardized approach its operative ratio. Under the proposal, be used to size each firm’s stress buffer capital conservation buffer requirement a firm would continue to calculate a requirements. The stress buffer ensures that the firm has sufficient given risk-based capital ratio under both requirements would be calculated under capital to continue to serve as a the standardized and advanced the supervisory stress test’s severely financial intermediary during stress, approaches, and would calculate a adverse scenario, designed in internalizes the cost that its failure different capital conservation buffer accordance with the Policy Statement would have on the broader economy, requirement for each. The capital on the Scenario Design Framework for and builds capital when there is an conservation buffer requirement under Stress Testing. As described in elevated risk of above-normal losses. the advanced approaches would be appendix A to 12 CFR part 252, severely In the CCAR review, certain equal to 2.5 percent of risk-weighted adverse scenarios are designed to be discussion participants disagreed with assets (rather than the stress capital plausible, relevant, and guided in large the view that the supervisory post-stress buffer requirement) plus any applicable part by historical experience in severe capital assessment and the GSIB GSIB surcharge plus any applicable U.S. recessions.26 surcharge serve different purposes countercyclical capital buffer amount As in the current supervisory post- because two elements of the Board’s (advanced approaches capital stress capital assessment in CCAR, supervisory post-stress capital conservation buffer requirement). To under the proposal, the supervisory assessment, the global market shock and date, the Board has not used or required stress test would continue to use a the large counterparty default scenario the use of the capital rule’s advanced common set of scenarios, models, and component, apply only to GSIBs. approaches in the supervisory stress test assumptions across firms. The However, the global market shock and due to the significant resources required performance of each model used in the large counterparty default scenario to implement the advanced approaches supervisory stress test is assessed using component apply to any firm that has on a pro forma basis and due to the a variety of metrics and benchmarks, material trading, derivatives, and complexity and opaqueness associated including benchmark model results, securities financing transaction with introducing the advanced where applicable. Each model is activities to capture direct losses approaches in supervisory stress test validated annually by an independent stemming from these activities.28 The projections. In addition, both the supervisory model validation function. market shock measures the trading supervisory stress test and the advanced In December 2017, the Board issued a mark-to-market losses associated with approaches are calibrated to reflect tail- Stress Testing Policy Statement for sudden changes in asset prices, and the risks; thus it could be duplicative to public comment describing its approach large counterparty default scenario require a firm to meet the requirements to supervisory model development, component measures the losses of the advanced approaches on a post- implementation, use, and validation.27 stress basis. 28 For firms subject to the capital plan Each component of a firm’s On December 15, 2017, the Board modified the standardized approach capital applicability criteria for the global market shock to rule, the proposal would introduce a more accurately identify the risks and capital needs stress leverage buffer requirement in of firms participating in the supervisory stress test. 25 addition to the 4 percent minimum tier GSIBs would continue to be subject to an As revised, the global market shock applies to any enhanced supplementary leverage ratio standard bank holding company or intermediate holding 1 leverage ratio requirement. This stress under the capital rule. company that (1) has aggregate trading assets and leverage buffer requirement would help 26 12 CFR part 252, appendix A. liabilities of $50 billion or more, or aggregate to maintain the current complementary 27 See 82 FR 59528 (Dec. 15, 2017) as proposed trading assets and liabilities equal to 10 percent or relationship between the risk-based and 12 CFR part 252, appendix B. This proposal re- more of total consolidated assets, and (2) is not a proposes only section 2.7 of the proposed Stress large and noncomplex firm. In this proposal, the leverage capital requirements in normal Testing Policy Statement for public comment and Board proposes to move the applicability criteria for and stressful conditions. In addition, it proposes to add a new section 3.4 relating to a the global market shock from the FR Y–14 reporting would continue the current practice of simple approach for projecting risk-weighted assets. form to Regulation YY.

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associated with repricing counterparty stress buffer concept to the the dollar amount of the firm’s planned exposures based on the market shock, supplementary leverage ratio? common stock dividends to projected and then assumes the default of the Question 4: Would modifications to leverage ratio denominator for each of counterparty that represents the largest the enhanced supplementary leverage the fourth through seventh quarters of net exposure. These components of the ratio standards impact the responses to the planning horizon. The stress current supervisory post-stress capital the questions above or any other aspect leverage buffer requirement would not assessment (and future modified of the proposal, and if so how? have a floor, as there is no generally supervisory stress test) therefore do not Question 5: How should the Board applicable leverage buffer requirement capture the potential adverse impact of contemplate the appropriate level of the today, and would apply to all firms the failure of a GSIB on the financial countercyclical capital buffer in light of subject to the capital plan rule. the proposal? system as a whole—the risks that are the B. Assumptions and Methodologies basis for the GSIB surcharge. Calculation of the Proposed Stress Used in Determining the Proposed As described below in section II.B of Capital Buffer Requirement Stress Buffer Requirements this preamble, the proposed stress buffer Under the proposal, the Board would requirements would incorporate For the supervisory stress test used to determine a firm’s stress capital buffer calculate the stress buffer requirements, different capital action assumptions requirement as the difference between the Board proposes to revise certain than are currently used in the the firm’s starting and lowest projected assumptions it currently uses in the supervisory post-stress capital CET1 capital ratios under the severely supervisory post-stress capital assessment in CCAR. Those revised adverse scenario in the supervisory assessment in CCAR. Currently, in the capital action assumptions would also stress test, calculated under the CCAR post-stress capital assessment, the be incorporated in the Board’s standardized approach, plus the sum of Board assumes that a firm will make all supervisory stress tests and the the ratios of the dollar amount of the of its planned capital actions, including company-run stress tests conducted firm’s planned common stock dividends dividends and repurchases, and under Regulation YY, in order to to projected risk-weighted assets for issuances of regulatory capital harmonize the publicly disclosed each of the fourth through seventh instruments. The proposal would supervisory and company-run stress test quarters of the planning horizon. The narrow the set of planned capital results with the stress buffer stress capital buffer requirement would 29 actions assumed to occur in the requirements. be floored at 2.5 percent of a firm’s risk- supervisory stress test. Question 1: What are the advantages weighted assets. The current CCAR capital distribution and disadvantages of incorporating the Under the current capital rule, all assumptions were introduced to assess stress capital buffer and stress leverage banking organizations are subject to a whether a firm could meet minimum buffer requirements into the capital capital conservation buffer requirement. capital requirements during severe rule? How well does the proposal The capital rule’s current static 2.5 stress conditions even if the firm did not enhance regulatory simplicity, percent of risk-weighted assets reduce its planned capital distributions. transparency, and efficiency for firms component of the capital conservation However, the stress buffer requirements subject to the capital plan rule? What buffer requirement was calibrated to would reduce the need for the refinements or additional approaches reflect how firms’ capital positions were assumption that a firm makes all should the Board consider to enhance affected during periods of severe stress, common stock distributions in a stress these goals, and why? Please provide including the most recent financial scenario because the restriction on a data on the impact of any proposed crisis.30 Placing a 2.5 percent of risk- firm’s capital distributions on an refinements or additional proposals. weighted assets floor on the stress ongoing basis would be a function of the Question 2: What are the advantages capital buffer requirement would ensure firm’s performance under stress. and disadvantages of including or a minimum level of stringency across Accordingly, the Board would no longer excluding the stress capital buffer firms of all sizes and complexity and assume that a firm makes any requirement from the advanced that a smaller firm would not be subject repurchases or redemptions of any approaches capital conservation buffer to more a stringent buffer requirement capital instrument. requirement when considered in than a firm with total consolidated However, in order to preserve the combination with other elements of the assets of $50 billion or more. current incentives for a firm to engage in disciplined, forward-looking proposal or alternatives to the proposal? Calculation of the Proposed Stress dividend planning, a firm’s stress buffer What if any, alternatives should the Leverage Buffer Requirement Board consider and why? For example, requirements would include four should the Board consider scaling the The stress leverage buffer requirement quarters of planned common stock stress capital buffer requirement by the would be determined based on the same dividends (in the fourth through ratio of a firm’s standardized total risk- annual supervisory stress test that the seventh quarters of the planning weighted assets to its advanced Board conducts to determine the stress horizon), added to the projected decline approaches total risk-weighted assets in capital buffer requirement. Under the in the firm’s capital under stress. cases where the firm’s advanced proposal, the Board would determine a Requiring a firm to pre-fund one year of approaches capital ratio calculations firm’s stress leverage buffer requirement planned dividends would preserve the are lower than its standardized capital as the difference between the firm’s current incentives for a firm to engage ratio calculations? What are the starting and lowest projected Tier 1 in disciplined, forward-looking advantages or disadvantages of such an leverage ratio under the severely dividend planning. As noted, this aspect approach? adverse scenario in the supervisory of the proposal is based on the Board’s Question 3: What are the advantages stress test plus the sum of the ratios of experience with large bank holding or disadvantages of not extending the companies’ capital distribution 30 See Basel Committee on Banking Supervision, practices during the recent financial Calibrating regulatory minimum capital 29 The supervisory and company-run stress tests requirements and capital buffers: A top-down crisis. Additionally, evidence in the conducted under Regulation YY would not include approach (October 2010), available at: https:// academic literature generally indicates four quarters of planned dividends. www.bis.org/publ/bcbs180.htm. that repurchases are more flexible than

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dividends.31 A reduction in dividends Since the first CCAR exercise, any sheet, risk-weighted asset, and leverage by a publicly-traded firm could be capital plan implying a common stock ratio denominator projections would interpreted by market participants as a dividend payout ratio above 30 percent reflect the impact of a change to a firm’s signal of long-run deterioration in firm has received heightened scrutiny in the business plan, such as a planned merger profitability, which could lead to a qualitative assessment of each firm’s or acquisition, or completed or negative stock price reaction. Hence, capital planning processes. Participants contractually agreed-on divestiture.35 even if the outlook for a publicly traded in the CCAR review expressed general Question 6: What aspects of the firm has significantly worsened, public opposition to any specific cap on calculation of the stress buffer pressure and competition may deter the dividends, and argued that if a cap were requirements could be modified to firm from reducing dividend payments. deemed necessary, it should be higher increase the effectiveness of the Requiring a firm to pre-fund one year of than 30 percent. Including four quarters proposal in ensuring that firms dividends reflects the assumption that of planned dividends in a firm’s stress maintain stress buffer requirements that the firm will strive to maintain its buffer requirements as proposed would are appropriately sized to withstand current level of dividends even during foster an incentive for prudent dividend stressful economic and financial times of stress. payouts, removing the need for conditions while permitting such firms As in the current supervisory post- heightened scrutiny based on a capital to continue lending and supporting the stress capital assessment, the Board plan’s dividend payout ratio. real economy? Please describe the would continue to assume in the Accordingly, in connection with this advantages or disadvantages of any supervisory stress test that a firm would proposal, in future CCAR exercises the alternative approach. make payments on any instrument that Board would eliminate the 30 percent Question 7: Besides stated payments qualifies as additional tier 1 capital or dividend payout ratio as a criterion for on regulatory capital instruments and tier 2 capital equal to the stated heightened supervisory scrutiny of a issuance of common or preferred stock dividend, or contractual interest or firm’s capital plan. associated with a merger or acquisition, principal due on such instrument In addition, in response to comments what, if any, other types of planned during the quarter. Based on regarding the current assumption that a capital actions should the Board supervisory experience, reductions in firm’s credit supply does not contract, incorporate into the supervisory stress these payments are generally viewed by resulting in growth of a firm’s balance test for the purposes of calculating the market participants as a sign of material sheet in stress scenarios, the Board is stress buffer requirements, and why? weakness and firms are therefore likely proposing to modify its Stress Testing Question 8: What are the advantages to make them even under stressful Policy Statement to include the and disadvantages of including or conditions.32 assumption that a firm takes actions to excluding dividend payouts and certain The Board would also generally maintain its current level of assets, other planned capital actions in the assume in the supervisory stress test including its securities, trading assets, calculation of the stress buffer that a firm does not make any planned and loans, over the planning horizon requirements when considered in issuance of regulatory capital (no growth assumption).34 The no combination with other elements of the instruments, parallel to the assumption growth assumption would simplify the proposal or alternatives to the proposal? that a firm does not repurchase any current supervisory stress test Question 9: What, if any, additional regulatory capital instruments. assumptions while preventing firms factors beyond a planned divestiture, However, as under the current capital from planning to reduce credit supply merger, or acquisition, should the Board plan rule, the supervisory stress test in a stress scenario. In addition, the incorporate into its projected changes in would include issuances of common or proposal would clarify in the Stress a firm’s balance sheet or risk-weighted preferred stock in connection with a Testing Policy Statement that, in assets over the planning horizon and planned merger or acquisition to the projecting risk-weighted assets and the why? extent that the merger or acquisition is leverage ratio denominator, the Board Question 10: What are the advantages reflected in a firm’s pro forma balance would assume that a firm’s risk- and disadvantages of integrating the sheet estimates. Including such weighted assets and leverage ratio distribution assumptions used in issuances, for purposes of the denominator remain unchanged over calculating a firm’s stress buffer supervisory stress tests, would allow the the planning horizon except for changes requirements with those used in the Board to assess how a planned merger primarily related to deductions from supervisory stress test? or acquisition would affect a firm’s post- regulatory capital or due to changes to the Board’s regulations. Similar to the C. Effective Dates for Proposed Stress stress capital position. Buffer Requirements The proposal would revise the Board’s current methodology, balance required capital action assumptions in A firm’s stress buffer requirements the company-run stress test rules to be Actual capital actions for the first quarter of the would be effective on October 1 of each planning horizon; (2) any common stock dividends; year, and remain in effect until consistent with the proposed capital or (3) issuance of common or preferred stock actions used to calculate a firm’s stress relating to expensed employee compensation. For September 30 of the following year, buffer requirements and would the first quarter of the planning horizon, firms unless the firm received updated stress introduce those assumptions into the would include any payments on any other buffer requirements from the Board.36 33 instrument that is eligible for inclusion in the The rule would be effective December supervisory stress test rules. numerator of a regulatory capital ratio equal to the stated dividend, interest, or principal due on such 31, 2018. Under the proposal, a firm’s 31 See Franklin Allen and Roni Michaely (2003), instrument during the quarter. The capital action ‘‘Payout Policy’’ in Handbook of the Economics of assumptions used in the company-run and 35 A firm’s capital plan must include a discussion Finance, and Martin Schmalz, Joan Farre-Mensa, supervisory stress tests would not include the four of any expected changes to its business plan that and Roni Michaely (2014) ‘‘Payout Policy’’ in quarters of planned dividends. are likely to have a material impact on its capital Robert Jarrow (Ed.), Annual Review of Financial 34 While the Board would assume in the adequacy or liquidity. See 12 CFR 225.8(e)(2)(iv). Economics. supervisory post-stress capital assessment that a 36 A firm may receive updated stress buffer 32 12 CFR 217.20(c) and (d). firm’s balance sheet does not grow, in a firm’s requirements in connection with a resubmitted 33 Under the proposal, in their company-run company-run stress tests, the Board expects each capital plan or in connection with a request for stress test, covered companies would no longer firm’s projected balance sheet to be consistent with reconsideration (as described in section III.D of this include in their capital action assumptions: (1) each scenario and the firm’s business strategy. preamble).

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first stress buffer requirements would be For firms with over $50 billion in in aggregate, respectively, while non- effective on October 1, 2019.37 assets that are not GSIBs, the proposal GSIBs would have a decrease of The process for determining the stress would generally result in a reduction to approximately $45 billion to $10 billion, buffer requirements would be codified a firm’s required level of capital to avoid respectively. Had the proposal been in in the Board’s capital plan rule capital distribution limitations relative effect during recent CCAR exercises, (discussed further in section III below), to what is required today.39 This analysis of those CCAR results and the and the restrictions associated with estimated reduction is attributable to the current level of capital at participating these requirements would be codified in proposal’s modified assumptions firms indicates that no such firm would the Board’s capital rule (discussed regarding balance sheet growth and have needed to raise additional capital further in section IV below). capital distributions. While these in order to avoid the proposal’s Question 11: What if any operational assumptions would more appropriately limitations on capital distributions. complications or challenges to capital reflect the expected performance of III. Proposed Changes to the Capital planning processes would the proposed bank portfolios under stress, they would Plan Rule effective dates create, and how might be somewhat less stringent than the the Board address these issues assumptions currently used in the A. Removal of Quantitative Objection consistent with the goals of the supervisory stress test. For GSIBs, the The proposal would remove the proposal? proposal would generally maintain or in quantitative objection from the capital Question 12: What advantages or some cases increase CET1 capital disadvantages are associated with plan rule. Under the current capital plan requirements. The estimated increase rule, a firm may receive an objection to making the rule effective on December for these firms would occur because the 31, 2018 and generally making the stress its capital plan if the firm does not capital conservation buffer requirement demonstrate the ability to maintain buffer requirements effective on October under the proposal—which, for a GSIB, 1, 2019? capital ratios above the minimum includes both the stress capital buffer requirements on a post-stress basis. The D. Impact of the Proposed Stress Buffer requirement and the GSIB surcharge— proposal would replace the quantitative Requirements would be greater than the capital objection with the stress buffer required under the current supervisory requirements. To avoid limitations on capital post-stress capital assessment. distributions under the Board’s current All other things being equal, the B. Requirements for a Firm’s Planned rules, a firm must manage to two proposal generally would lower the Capital Distributions distinct capital regimes. Specifically, amount of tier 1 capital that a firm the firm must both (1) maintain risk- A focus on firms’ capital planning would need to maintain with respect to would continue to be a key element of based capital ratios above the capital the assessment of the leverage ratio in rule’s minimum requirements plus the the Board’s regulatory and supervisory stress. This is because the modified regime. The proposal would continue to capital conservation buffer requirement balance sheet and distribution (a GSIB must also maintain a require a firm to describe its planned assumptions in the supervisory stress capital distributions in its capital plan supplementary leverage ratio above 5 test would reduce the stringency of the percent), and (2) demonstrate an ability and not exceed those planned capital Tier 1 leverage ratio in stress and the distributions. Firms should plan to to maintain capital ratios above stress leverage buffer requirement minimum regulatory capital maintain capital levels above their would not include a GSIB surcharge or minimum requirements plus relevant requirements in the supervisory post- any applicable countercyclical capital stress capital assessment in CCAR. This buffer requirements during normal buffer amount. economic periods and also to plan for proposal would simplify and integrate The impact of the proposal would capital needs during adverse economic these requirements, eliminating the vary through the economic and credit conditions. These practices allow firms need for firms to manage to both cycle based on the risk profile and potential sources of limitations on planned capital distributions of to continue to lend and operate as viable capital distributions. In conjunction individual firms, as well as on the financial intermediaries even during with the proposal, the Board would also specific severely adverse stress scenario adverse periods. To help ensure a firm engages in modify certain assumptions used in the used in the supervisory stress test. prudent capital planning, the firm supervisory stress test. To assess the Based on data from CCAR 2015, 2016, would be required to limit its planned impact of both the integration and the and 2017, the impact of the proposal capital distributions for the fourth modified assumptions, the Board would range from an aggregate through seventh quarters of the reviewed the levels of capital currently reduction in CET1 capital requirements planning horizon to those that would be required of each firm across the two of about $35 billion (based on 2017 consistent with any effective capital current regimes to avoid limitations on data) to an aggregate increase in CET1 distribution limitations that would capital distributions and compared the capital requirements of about $40 apply under the firm’s own BHC higher of those amounts to the estimated billion (based on 2015 data). For GSIBs, baseline scenario projections.40 For level of capital that would be required this represents a corresponding increase 38 in CET1 capital requirements of of each firm under the proposal. 40 A firm would be required to ensure its planned approximately $10 billion to $50 billion capital distributions are consistent with any 37 To provide a transition between the 2018 CCAR limitations on capital distributions it anticipates cycle and the first stress buffer requirement, for the www.federalreserve.gov/newsevents/pressreleases/ would apply in baseline conditions in the period from July 1 through September 30, 2019, bcreg20171201a.htm. upcoming year. Those limitations would include under the proposal, a firm would be authorized to 39 In connection with this analysis, the Board the projected standardized approach capital make capital distributions that do not exceed the analyzed the stress test results in CCAR 2015 conservation buffer requirement, stress leverage four-quarter average of capital distributions for through 2017. U.S. IHC subsidiaries of foreign buffer requirement, supplementary leverage buffer which the Board or Reserve Bank indicated its non- banking organizations were not subject to requirement, internal and external total loss- objection in the previous capital plan cycle, unless supervisory stress testing for this full period, and absorbing capacity buffer requirements, and any otherwise determined by the Board. accordingly, were excluded from this quantitative capital directive established by the Board by order 38 This analysis assumes a countercyclical capital analysis. None of these firms is subject to the GSIB or regulation. The limitations would not be buffer amount of zero, consistent with the current surcharge, and all would benefit from the modified calculated using the advanced approaches, as a firm level as affirmed by the Board on December 1, 2017: capital distribution and balance sheet assumptions. Continued

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example, in a given calendar quarter, if planning horizon (as it would not have be able to object to the capital plans of a firm estimates that the amount of its knowledge of a decrease in its GSIB large and complex firms and LISCC capital conservation buffer will be less surcharge when it finalized its plan). firms on qualitative grounds. than the corresponding capital With regard to the countercyclical Further, the proposal would provide conservation buffer requirement, the capital buffer, a firm would reflect any that the Board would consider the firm would be required to limit its applicable countercyclical capital buffer results of any stress test conducted by planned distributions in that quarter to amount as established by the Board. For the bank holding company or the Board those permitted under the capital rule. example, if the Board had established a in conducting its review of a firm’s When determining conformance under countercyclical capital buffer amount capital plan, similar to the provision in the capital plan rule with effective beginning in the fifth quarter of the the current capital plan rule. Those capital distribution limitations planning horizon that remained in effect results would inform the Board’s view established by the Board under the for one year, the firm would reflect the of the financial condition of the firm, capital rule, a firm would not be countercyclical capital buffer amount in which has implications for the required to consider planned quarters five through eight of the reasonableness and appropriateness of discretionary bonus payments.41 planning horizon. the firm’s capital plan. In its capital plan, a firm would also Under the proposal, a firm’s planned Question 13: What are the advantages be required to plan for all limitations on capital distributions would be required and disadvantages of not requiring a capital distributions in the Board’s to be consistent with effective capital firm to project and meet the limitations rules, except the advanced approaches distribution limitations that would of the capital rule regarding capital conservation buffer requirement apply in the firm’s pro forma projections discretionary bonus payments on a pro and total loss-absorbing capacity buffer under the BHC baseline scenario. The forma basis? requirement calculated using the BHC baseline scenario would be defined Question 14: What, if any, advanced approaches.42 In addition, a as a scenario that reflects the bank modifications should the Board make to firm’s GSIB surcharge and holding company’s reasonable the definition of BHC baseline scenario? countercyclical capital buffer amount expectation of the economic and Question 15: What are the advantages may vary over the planning horizon, financial outlook, including and disadvantages of not requiring a consistent with the requirements of the expectations related to the bank holding firm to make BHC baseline scenario capital rule. The proposal would require company’s capital adequacy and projections that would enable it to a firm’s planned capital distributions to financial condition. The firm’s evaluate whether its planned capital be consistent with, as applicable, the projections under the BHC baseline actions would be consistent with firm’s current GSIB surcharge and scenario must incorporate the firm’s advanced approaches-based capital countercyclical capital buffer amount, expected performance, business plan, distribution restrictions, such as the as well as any known changes to these management actions, and all planned advanced approaches capital items during the planning horizon. Any capital actions.43 conservation buffer requirement or the assumption that the GSIB would rapidly Basing capital distribution restrictions total loss absorbency capacity buffer shrink and reduce its other measures of on a firm’s projections in its BHC requirements? baseline scenario may create incentives systemic risk during a stress period such C. Summary of the Proposed Timeline for a firm to be overly optimistic about that it no longer would be a GSIB would for Reviewing Capital Plans and its baseline projections in order to be inconsistent with the expectation Calculating the Stress Buffer increase the amount of permissible that the GSIB remain a financial Requirements intermediary and continue to support capital distributions. In order to Under the current capital plan rule, the real economy. The proposal would maintain strong incentives for a firm to the Board completes its assessment of a therefore require a firm to assume its project realistic baseline earnings, the firm’s capital plan, including the GSIB surcharge in the ninth quarter of Board intends to monitor and evaluate supervisory stress test, by June 30. the planning horizon is the same as its a firm’s quarterly performance relative Similarly, under the proposal, the Board GSIB surcharge in the eighth quarter of to its baseline projections to help ensure would complete the assessment of a the planning horizon. that the firm adopts processes that For instance, a firm that became realistically project performance and firm’s capital plan and provide each subject to a higher GSIB surcharge in its capital levels. A pattern of materially firm with initial notice of the firm’s most recent annual surcharge underperforming baseline projections stress buffer requirements by June 30. calculation would use the higher for earnings, capital levels, or capital The proposal would modify certain surcharge beginning in the fifth quarter ratios may be indicative of weaknesses other procedural requirements of the planning horizon (which would in the firm’s capital planning and result associated with the capital plan rule. Consistent with the current practice, coincide with the quarter in which the in heightened scrutiny in the qualitative the as-of date for the capital plan cycle higher GSIB surcharge would come into assessment. Additionally, as under the would be December 31 of the previous effect under the capital rule) and retain current rule, the Board may require a calendar year, and the planning horizon that amount through the end of the firm that materially underperforms its for capital planning would be a period planning horizon. Otherwise, a firm projected capital ratios to resubmit its of nine consecutive quarters from that would assume that its current GSIB capital plan if such underperformance date. Firms would submit their capital surcharge applies for all quarters of the results from material changes in the firm’s risk exposures or operating plans and related regulatory reports by is not required to use the advanced approaches to conditions. Additionally, under the April 5. The Board generally would calculate its regulatory capital ratios in the capital proposal, the Board would continue to determine each firm’s stress buffer plan rule. requirements and conduct a qualitative 41 The capital plan rule and corresponding 43 Consistent with current practice, a firm may evaluation of the capital plans of large regulatory reports do not require a firm to describe use the same baseline scenario as the supervisory and complex firms and LISCC firms in or separately identify discretionary bonus baseline scenario if the bank holding company payments. determines the supervisory baseline scenario the second quarter of the year (April 42 See e.g., 12 CFR 217.11, 12 CFR 252.63, 12 CFR appropriately represents its view of the most likely through June). By June 30, the Board 252.165, and 12 CFR part 263. outlook for the risk factors salient to the firm. generally would disclose to the public

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each firm’s stress buffer requirements stress buffer requirements, a firm would reductions in capital distributions in its and the Board’s decision to object or not be required to assess whether its capital plan. object to the capital plan of each large planned capital distributions are Each firm’s updated annual stress and complex and LISCC firm on consistent with the effective capital buffer requirements would become qualitative grounds. distribution limitations that would effective for purposes of the capital rule Currently, upon completion of the apply on a pro forma basis under the on October 1. From October 1 through supervisory stress test but before the BHC baseline scenario throughout the September 30 of the following calendar disclosure of the final CCAR results, the fourth through seventh quarters of the year, a firm would not be permitted to Board provides each firm with the planning horizon. In the event of an exceed the amount of capital results of its post-stress capital analysis, inconsistency, a firm would be required distributions in the firm’s capital plan and each firm has an opportunity to to reduce the capital distributions in its without prior notification to or approval make a one-time adjustment to its capital plan to be consistent with such from the Board. planned capital actions. Similarly, limitations for those quarters of the Table 1 below summarizes the key under the proposal, within two business planning horizon.44 A firm would be dates and actions in the annual capital days of receipt of initial notice of its required to notify the Board of any plan cycle under the proposal.

TABLE 1—KEY DATES AND ACTIONS IN THE ANNUAL CAPITAL PLAN CYCLE UNDER THE PROPOSAL

Date Action

December 31 of the pre- As of date of the capital plan cycle. ceding calendar year. By February 15 ...... Board publishes scenarios for the upcoming capital plan cycle. By April 5 ...... Each firm submits its capital plan (including results of the bank holding company’s stress tests) and relevant reg- ulatory reports. April through June ...... Board performs its supervisory stress test and calculates each firm’s stress buffer requirements. Concurrently, the Board conducts a qualitative evaluation of each large and complex and LISCC firm’s capital plan. By June 30 ...... The Board provides to a firm and publishes initial notice of the firm’s stress buffer requirements, and for each large and complex and LISCC firm, the Board’s decision to object or not object to the capital plan on a quali- tative basis. Within two business days of Each firm must analyze its planned capital distributions for the period of October 1 through September 30 of the initial notice. following calendar year, and adjust downward any amount not consistent with effective capital distribution limi- tations that would apply on a pro forma basis under baseline conditions, and provide the Board its final planned capital distributions. October 1 through Sep- Effective dates of a firm’s stress buffer requirements. tember 30 of the following calendar year.

Transition to the Stress Buffer providing firms with two business days would respond in writing within 30 Requirement Regime to make any adjustments to planned days. By requiring a firm to submit a Currently, the Board’s review and capital actions to minimize the time request for reconsideration through this approval of planned capital actions when a firm has material nonpublic procedure, the proposal would provide covers the four-quarter period between information. What if any challenges are the Board with an opportunity to July 1 and June 30 of the following posed by this timeframe for a firm to consider justifications and additional calendar year. Were a firm’s stress buffer adjust its planned capital actions? information that the firm believes would requirements to become effective on Question 17: What are the advantages support its request in light of the results October 1, 2019, as proposed, for the or disadvantages of the proposed of the Board’s supervisory stress test, period July 1 to September 30, 2019, a transition from the current process to additional information received during bank holding company would be the proposed process? What if any the CCAR process, and any other authorized to make capital distributions alternative transition processes should relevant information. The proposed that do not exceed the four-quarter the Board consider and why? procedures also would provide a firm average of capital distributions to which D. Requests for Reconsideration with an opportunity to respond to any the Board indicated its non-objection for of its stress buffer requirements and the previous capital plan cycle, unless The proposed rule would revise the help ensure that the stress capital buffer procedures for a firm to request otherwise determined by the Board. To requirements are appropriately sized. reconsideration of a qualitative the extent that a firm wishes to make Likewise, the proposed procedures objection to its capital plan and would additional capital distributions beyond would provide a firm with an its four-quarter average of capital provide similar procedures to allow a firm to request reconsideration of its opportunity to respond to a qualitative distributions to which the Board objection to its capital plan, and to help indicated its non-objection for the stress buffer requirements. ensure that the Board has considered all previous capital plan cycle, it would be Under the proposal, a firm that relevant aspects of the firm’s capital able to use the established notification determines to request reconsideration of or request for approval processes in the any of its stress buffer requirements or planning process and capital adequacy current capital plan rule. of a qualitative objection to its capital process. While a firm’s request for Question 16: The proposal would plan would be required to submit a reconsideration is pending, the maintain the Board’s current practice of request to the Board, and the Board requirements under reconsideration

44 In addition, a firm that is not required to reduce permitted to do so after receiving its initial notice. planned dividends in order to lower its stress buffer its planned capital distributions would be For instance, a firm may choose to reduce its requirements.

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would not be final, and therefore would Effectiveness of Stress Buffer reconsideration of a qualitative not be effective. Requirements During Request for objection to a capital plan or any of the Reconsideration stress buffer requirements? What, if any, Timing and Contents of Request for modifications would enhance the Reconsideration While a firm’s request for reconsideration is pending, its stress proposed procedures? Question 19: During the pendency of The proposal would establish buffer requirement(s) or qualitative a request for reconsideration, a firm’s objection to the firm’s capital plan, if requirements for the timing and stress buffer requirements or objection under reconsideration, would not be contents of a request for to a firm’s capital plan would not go final, and therefore would not be reconsideration. Under the proposal, a into effect and a firm generally would effective.46 The firm generally would be firm wishing to request reconsideration continue to be bound by existing able to continue to make capital of a qualitative objection to its capital limitations on capital distributions. distributions that were included in the plan or any of its stress buffer What are the advantages and requirements would be required to last capital plan for which the firm 47 disadvantages of this approach? submit to the Board in writing such received a non-objection. Question 20: The proposal would request within fifteen calendar days of Adjustments Following Reconsideration require a firm to submit a request for receipt of notice of its objection or stress Determination reconsideration within 15 calendar days of receiving notice of a qualitative buffer requirements. The request would In the case that the Board adjusted a objection to its capital plan or any of its be required to include an explanation of firm’s stress buffer requirements in stress buffer requirements. What if any why the firm believes that the objection response to a request for reconsideration challenges are posed by this proposed to its capital plan or either of its stress of a firm’s stress buffer requirement(s), buffer requirements should be timeframe? the firm would follow the procedures Question 21: The Board has not reconsidered. To facilitate the Board’s provided for the initial notification of received any requests for an informal review of a firm’s request for the stress buffer requirements. To enable hearing under the capital plan rule. reconsideration, the request should the firm to make the capital What are the advantages and identify all supporting reasons for the distributions included in its original disadvantages of continuing to provide request. For information not previously capital plan, if the Board reduced the an opportunity to request an informal provided as part of the capital plan, the firm’s stress buffer requirements, the hearing? What information would not be request should include an explanation firm would have an opportunity to adequately addressed in a written of why the information should be increase its planned capital reconsideration process that would be considered. distributions up to the amount included better addressed in an informal hearing? in the firm’s original capital plan. A Within 30 calendar days of receipt of Discuss and provide examples of any firm would be required to notify the the firm’s request for reconsideration, issues that are likely to be raised in an Board of any adjustments in planned informal hearing that would not be the Board would notify the firm of its capital distributions. decision to affirm or modify any of the adequately presented through a written firm’s stress buffer requirements or Informal Hearing Procedures submission. affirm or withdraw its objection to the Currently, the capital plan rule E. Capital Plan Resubmission and firm’s capital plan.45 The Board’s provides that a firm that requests Circumstances Warranting response would include an explanation reconsideration of an objection to its Recalculation of the Stress Buffer of its decision, including responses to capital plan may request an informal Requirements the firm’s supporting reasons and hearing as an alternative to requesting The capital plan rule currently consideration of additional information reconsideration of an objection to its provides that the Board may require a provided. capital plan. Consistent with the current firm to resubmit its capital plan if the The proposed timeline is intended to capital plan rule, the proposal would Board determines that there has been a provide a firm with an opportunity to provide an adequate opportunity for material change in the firm’s risk request an informal hearing as part of its response, while ensuring that the results profile, financial condition, or corporate request for request for reconsideration. of the supervisory stress test and a structure or if the bank holding Question 18: What are the advantages company stress scenario(s) used in the firm’s most recent capital plan are and disadvantages of the proposed integrated into the firm’s ongoing firm’s most recent capital plan are no procedures for requesting longer appropriate for the firm’s capital requirements and planned business model and portfolios, or distributions as quickly as possible. The 46 A qualitative objection to a capital plan and changes in financial markets or the proposed process should provide the any of a firm’s stress buffer requirements also macro-economic outlook that could firm with an opportunity to present any would not be effective during the 15-day period following the notice of objection or stress buffer have a material impact on a firm’s risk issues or arguments in an efficient requirements but prior to the deadline for profile and financial condition require manner and allow the Board to respond submitting a request for reconsideration. the use of updated scenarios (material 47 to the items raised in the request for To maintain a firm’s status quo during the change). Additionally, a firm must reconsideration taking into account the request for reconsideration, if the Board has not yet indicated its non-objection for a quarter during resubmit its capital plan if it determines results of the stress test and its which a decision for a request for reconsideration there has been or will be a material supervisory experience in light of is pending, a firm would be able to make capital change in the firm’s risk profile, information and arguments presented by distributions so long as these distributions do not exceed the four-quarter average of capital financial condition, or corporate the firm. distributions to which the Board indicated its non- structure since the firm last submitted objection for the previous capital plan cycle, unless the capital plan to the Board. Until the otherwise determined by the Board. A limitation Board has acted on that resubmitted based, in part, on an average of final planned 45 The Board would be able to extend the time for capital actions for the previous capital plan cycle capital plan, a firm is not permitted to action on a request for reconsideration upon notice would account for variations in a firm’s capital make any capital distributions other to the firm. actions from quarter to quarter. than those approved by the Board in

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writing. A firm that wishes to increase deficiencies in the firm’s capital based capital ratios calculated under the its capital distributions can choose to planning process; rule’s advanced approaches.49 The firm resubmit its capital plan to the Board. ii. Publishing for notice and comment would compare each of these buffers to These provisions would be maintained the severely adverse scenario used in the corresponding capital conservation in the proposal. calculating a firm’s stress buffer buffer requirement. A subject firm’s Similar to the current procedure, requirements; standardized approach capital under the proposal, the Board may iii. Providing additional flexibility for conservation buffer requirement would recalculate a firm’s stress buffer a firm to exceed the capital distributions be equal to the sum of: (1) Its stress requirements whenever the firm chooses included in its capital plan if its capital buffer requirement, (2) as or is required to resubmit its capital earnings and capital ratios are above applicable, the firm’s GSIB surcharge; plan. The Board would review a those in its BHC baseline; or and, (3) as applicable, the firm’s resubmitted capital plan within 75 iv. Providing additional flexibility to a countercyclical capital amount. A calendar days after receipt and, at the firm to increase the planned capital subject firm’s advanced approaches Board’s discretion, provide the firm actions above what was included in its capital conservation buffer requirement with one or more updated stress buffer original capital plan based on the would be equal to the sum of: (1) 2.5 requirements, and, for a large and results of the supervisory stress test or Percent of risk-weighted assets, (2) as complex or LISCC firm, would object or request for reconsideration? applicable, the firm’s GSIB surcharge; not object to the resubmitted capital and, (3) as applicable, the firm’s plan on qualitative grounds. Under the IV. Proposed Changes to the Capital countercyclical capital buffer amount. proposal, upon a determination by the Rule and Explanation of the Mechanics Similarly, under the proposal, a firm Board or the firm of a material change, of the Distribution Limitations of the would compare its leverage buffer to its the Board may conduct an updated Stress Buffer Requirements stress leverage buffer requirement. supervisory stress test and recalculate a A. Proposed Changes to the Capital Rule firm’s stress buffer requirements based B. Mechanics of the Distribution Conceptually, a firm’s capital buffer is on the resubmitted capital plan.48 Limitations of the Stress Buffer Similar to the process for submitting the the amount by which its regulatory Requirements annual capital plan, the planned capital capital ratios exceed minimum A firm would be subject to the most distributions in the firm’s resubmitted requirements. For example, for risk- stringent distribution limitation, if any, capital plan would be required to be based capital purposes under the as determined by the firm’s consistent with any effective capital current capital rule, a firm’s capital standardized approach capital distribution limitations that would conservation buffer is equal to the conservation buffer requirement, the apply on a pro forma basis over the lowest of the following ratios: The firm’s firm’s stress leverage buffer requirement planning horizon. Any updated stress CET1 capital ratio minus its minimum and, if applicable, the firm’s advanced buffer requirements, approved planned CET1 capital ratio requirement, its tier approaches capital conservation buffer capital actions, and, for a LISCC or large 1 capital ratio minus its minimum tier requirement, and the enhanced and complex firm, the Board’s action on 1 capital ratio requirement, and its total supplementary leverage ratio standard. the resubmitted capital plan, would be capital ratio minus its minimum total The firm would determine the in effect until the firm’s updated stress capital ratio requirement. The proposal maximum amount it could pay in buffer requirements from the next would retain this concept for capital distributions and discretionary annual assessment by the Board become determining a firm’s buffer above its bonus payments that quarter (maximum effective (unless the firm experienced minimum risk-based capital payout amount) by multiplying the another material change prior to that requirements, and would extend the firm’s eligible retained income by the date). concept for purposes of determining a most stringent payout ratio, if any, that Question 22: Under the proposal, the firm’s buffer above its minimum 4 it is subject to as determined under Board may recalculate a firm’s stress percent tier 1 leverage ratio requirement Table 2 to 12 CFR 217.11 of the buffer requirements if the firm resubmits (leverage buffer). Under the proposal, a proposed rule. its capital plan. Accordingly, the Board firm would compare a given buffer to For example, in order to determine also would recalculate the firm’s stress the relevant buffer requirement to the maximum payout amount that a firm buffer requirement using an updated determine whether it is subject to may pay in capital distributions and severely adverse scenario. What are the limitations on its capital distributions discretionary bonus payments for the advantages or disadvantages of using an and discretionary bonus payments. first quarter of 2020, a firm would updated severely adverse scenario to To incorporate the stress buffer multiply its maximum payout ratio by recalculate a firm’s stress buffer requirements into the capital rule, the its eligible retained income. For the requirements? proposal would revise the capital rule to period from January 1, 2020 to March Question 23: What, if any, other introduce the terms ‘‘stress capital 31, 2020, the eligible retained income of changes to CCAR or the capital plan buffer requirement’’ and ‘‘stress leverage the firm would be based on the firm’s rule should the Board consider? For buffer requirement,’’ and to define net income for the year 2019 and the example, what advantages or standardized approach capital maximum payout ratio would be disadvantages would be associated with: conservation buffer requirement and determined based on the capital ratios i. Removing or adjusting the advanced approaches capital of the firm as of December 31, 2019. provisions that allow the Board to object conservation buffer requirement for Firms that are subject to stress buffer to a large and complex or LISCC firm’s firms subject to the capital plan rule. A requirements are expected to know their capital plan on the basis of qualitative firm would determine its standardized approach capital conservation buffer 49 As under the current capital rule, under 48 For this purpose, the planning horizon would using risk-based capital ratios calculated § 217.10, a firm subject to the advanced approaches be the nine quarter period beginning on the date under the capital rule’s standardized must calculate each of its risk-based capital ratios after the as-of date of the projections. For instance, (common equity tier 1, tier 1, and total capital) if the as-of date of the projections was June 30, approach, and, if applicable, would under the standardized approach (12 CFR part 217, 2019, the planning horizon would extend from July determine its advanced approaches subpart D) and under the advanced approaches (12 1, 2019, through September 30, 2021. capital conservation buffer using risk- CFR part 217, subpart E).

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capital positions on a daily basis. If a of ‘‘significant trading activity’’ into the baseline scenario.51 As described in firm has any uncertainty regarding its Board’s company-run stress test section III.C above, the proposal quarter-end capital ratios prior to filing requirements,50 rather than defining this provides that, within two business days its regulatory reports, it should be term with reference to the Capital of receipt of notice of its stress buffer conservative with capital distributions Assessments and Stress Testing report requirements, a firm would be required (including buybacks) during the (FR Y–14). Currently, significant trading to assess whether its planned capital beginning of a calendar quarter in order activity is defined in the FR Y–14. The distributions are consistent with the to avoid a situation in which it FR Y–14 defines a firm with significant effective capital distribution limitations distributes more than the amount trading activity as any domestic bank that would apply on a pro forma basis permitted under the capital rule. holding company or U.S. intermediate under the BHC baseline scenario The proposal would not amend the holding company that is subject to throughout the fourth through seventh current definitions of ‘‘distribution’’ and supervisory stress tests and that (1) has quarters of the planning horizon. In the ‘‘capital distribution’’ found in the aggregate trading assets and liabilities of event of an inconsistency, a firm would capital rule and capital plan rule, $50 billion or more, or aggregate trading be required to reduce the capital respectively. Under the capital rule, the assets and liabilities equal to 10 percent distributions in its capital plan to be definition of distribution includes or more of total consolidated assets, and consistent with such limitations for reductions in tier 1 capital through a (2) is not a ‘‘large and noncomplex firm’’ those quarters of the planning horizon repurchase or any other means, except under the Board’s capital plan rule. and provide the Board with its final when the institution, in the same Under the proposal, this definition of planned capital actions following any 52 quarter as the repurchase, fully replaces significant trading activity would be such adjustments. the tier 1 instrument by issuing another To implement this requirement, a firm adopted in the stress test rules for the similar instrument. Under the capital would be required to report its capital annual company-run stress test. This plan rule, a capital distribution means a distributions on the FR Y–14A filed in change would be responsive to feedback redemption or repurchase of any debt or connection with its initial capital plan that it is more transparent to define the equity capital instrument, a payment of on April 5, and in the event of any common or preferred stock dividends, a scope of applicability for the trading downward adjustments to its planned payment that may be temporarily or and counterparty component in the capital distributions, resubmit the FR permanently suspended by the issuer on stress test rules, rather than by cross- Y–14A summary schedule within two any instrument that is eligible for reference to the FR Y–14. business days of receiving its stress inclusion in the numerator of any VI. Proposed Changes to Regulatory buffer requirements, that reflect the minimum regulatory capital ratio, and Reports stress buffer requirements and its any similar transaction that the Board reduced planned capital distributions.53 determines to be in substance a The proposal would modify the At the time a firm submits its capital distribution of capital. Unlike the Consolidated Financial Statements for plan and FR Y–14 report (April 5), the definition of distribution in the capital Holding Companies Report (FR Y–9C; firm will not be aware of its stress buffer rule, the definition of capital OMB: 7100–0128) to collect information requirements for the upcoming cycle. distribution in the capital plan rule does regarding the stress buffer requirements For simplicity, the instructions not provide an exception for applicable to a firm and the Capital contemplate that the firm would report distributions accompanied by an Assessments and Stress Testing Report the stress buffer requirements currently offsetting issuance. The discrepancy (FR Y–14A; OMB No. 7100–0341). in effect, and assume that the stress between the two definitions reflects the Specifically, the proposal would add buffer requirements remain constant different purposes of the two rules. The new line items to the quarterly FR Y– through the planning horizon. However, broader definition included in the 9C in order to collect information the capital plan rule requires the firm’s capital plan rule ensures that all regarding a firm’s stress capital buffer planned capital distributions to be distributions, including those offset by requirement, stress leverage buffer consistent with effective capital issuances, are included in a firm’s requirement, and GSIB surcharge and distribution limitations in the fourth capital plan. However, because countercyclical capital buffer amount, through seventh quarters of the distributions offset by equivalent as applicable, and information planning horizon and not the issuances within a quarter do not affect necessary to calculate a firm’s distribution limitations in effect in the a firm’s capital position, this type of distribution limitations, including its prior cycle. Thus, it would be possible distribution is not included in the capital conservation buffer, advanced for a firm to include planned capital definition in the capital rule. approaches capital conservation buffer, distributions in its April 5 FR Y–14A Question 24: What are the advantages leverage buffer, eligible retained or disadvantages of maintaining the income, and distributions. This 51 A firm generally would only be required to current definitions of distribution and information would enable the Board and report this information annually in connection with its April 5 capital plan submission. capital distribution in the capital rule the public to identify any distribution and capital plan rule, respectively, or of 52 The proposal also permits a firm to reduce its limitations and monitor a bank holding planned capital distributions if the firm’s planned amending the definition of capital company’s performance on a quarterly capital distributions are consistent with effective distribution in the capital plan rule to basis. capital distribution limitations. match the definition of distribution in 53 In the event that a firm requests reconsideration the capital rule or vice versa? The proposal would add similar items of any of its stress buffer requirements, a firm must to the semi-annual FR Y–14A schedule evaluate its planned capital distributions in light of V. Proposed Changes to the Stress Test to collect the information necessary to any modifications any of the stress buffer Rules requirements. The firm may be required to reduce compare a firm’s projected capital ratios or permitted to increase its capital distributions To increase the transparency to expected buffer requirements and depending on any modifications, and must provide regarding the application of an implement the proposed evaluation of the Board with its final planned capital actions planned capital actions under the BHC reflecting those adjustments. In the event of any additional trading and counterparty adjustment, the firm would be required to file the scenario component, the proposal FR Y–14A to reflect its revised planned capital would expressly include the definition 50 See 12 CFR part 252, subpart F. distributions.

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that would exceed those permitted this notice that may affect reporting, standardized approach capital under the previous cycle’s capital plan, recordkeeping, or disclosure conservation buffer requirement and the but be consistent with the capital plan requirements and burden estimates advanced approaches capital rule because the firm’s stress buffer should be sent to: Secretary, Board of conservation buffer requirement), stress requirements declined. Governors of the Federal Reserve leverage buffer requirement, and SLR Question 25: The proposal would System, 20th and C Streets NW, buffer requirement; (2) the firm’s capital require all firms subject to the stress Washington, DC 20551. A copy of the conservation buffer, advanced buffer requirements to report their comments may also be submitted to the approaches capital conservation buffer, eligible retained income and capital OMB desk officer by mail to U.S. Office leverage buffer, and, as applicable, SLR distributions and discretionary bonus of Management and Budget, 725 17th buffer as of the preceding quarter-end, payments each quarter on the FR Y–9C, Street NW, #10235, Washington, DC which is the difference between the which is publicly available. What 20503 or by facsimile to 202–3955806, firm’s relevant capital ratio and the concerns, if any, are raised by making Attention, Agency Desk Officer. relevant minimum requirement; and (3) this reporting mandatory? What Proposed Revisions, With Extension information needed to calculate the concerns, if any, are raised by making for Three Years, of the Following firm’s maximum payout amount, this reporting public as opposed to Information Collections: including the firm’s planned total including this information in a (1) Title of Information Collection: capital distributions, eligible retained confidential information collection? Consolidated Financial Statements for income, and maximum payout ratio. Holding Companies. The proposed revision would apply to VII. Administrative Law Matters Agency Form Number: FR Y–9C; FR top-tier holding companies subject to A. Paperwork Reduction Act Y–9LP; FR Y–9SP; FR Y–9ES; FR Y– the Board’s capital plan rule (BHCs and 9CS. IHCs with total consolidated assets of In accordance with section 3512 of OMB Control Number: 7100–0128. $50 billion or more), for a total of 39 of the Paperwork Reduction Act of 1995 Frequency of Response: Quarterly, the existing FR Y–9C respondents. The (44 U.S.C. 3501–3521) (PRA), the Board semi-annually, and annually. draft reporting forms and instructions may not conduct or sponsor, and a Affected Public: Businesses or other for the FR Y–9C will be available at respondent is not required to respond for-profit. https://www.federalreserve.gov/apps/ to, an information collection unless it Respondents: Bank holding reportforms/review.aspx. displays a currently valid Office of companies (BHCs), savings and loan Number of Respondents: FR Y–9C Management and Budget (OMB) control holding companies (SLHCs), securities (non-Advanced Approaches holding number. The Board reviewed the holding companies (SHCs), and U.S. companies or other respondents): 632; proposed rule under the authority intermediate holding companies (IHCs), FR Y–9C (Advanced Approaches delegated to the Board by OMB. (collectively, ‘‘holding companies’’). holding companies or other The proposed rule would revise Abstract: The FR Y–9C serves as respondents): 18; FR Y–9LP: 780; FR Y– collection of information requirements standardized financial statements for 9SP: 3,889; FR Y–9ES: 80; FR Y–9CS: subject to the PRA. As described further holding companies. The FR Y–9 family 236. below, the proposal would revise the of reporting forms continues to be the Current Estimated Average Hours per reporting requirements found in section primary source of financial data on Response: FR Y–9C (non-Advanced 12 CFR 225.8. Additionally, the Board holding companies that examiners rely Approaches holding companies or other proposes to revise certain other on in the intervals between on-site respondents): 47.11 hours; FR Y–9C collections of information to reflect the inspections. Financial data from these (Advanced Approaches holding changes proposed in the proposed rule. reporting forms are used to detect companies or other respondents): 48.36 The OMB control numbers are 7100– emerging financial problems, to review hours; FR Y–9LP: 5.27 hours; FR Y–9SP: 0128, 7100–0341, and 7100–0342 for performance and conduct pre- 5.4 hours; FR Y–9ES: 0.5 hours; FR Y– this information collection. inspection analysis, to monitor and 9CS: 0.5 hours. Comments are invited on: evaluate capital adequacy, to evaluate Current Estimated Annual Burden a. Whether the collections of holding company mergers and Hours: FR Y–9C (non-Advanced information are necessary for the proper acquisitions, and to analyze a holding Approaches holding companies or other performance of the Federal Reserve’s company’s overall financial condition to respondents): 119,094 hours; FR Y–9C functions, including whether the ensure the safety and soundness of its (Advanced Approaches holding information has practical utility; operations. companies or other respondents): 3,482 b. The accuracy or the estimate of the Current Actions: The proposal would hours; FR Y–9LP: 16,442 hours; FR Y– burden of the information collections, modify the FR Y–9C for holding 9SP: 42,001; FR Y–9ES: 40; FR Y–9CS: including the validity of the companies subject to the capital plan 472. methodology and assumptions used; rule in order to collect information Proposed Change in Estimated c. Ways to enhance the quality, regarding a firm’s stress capital buffer Annual Burden Hours: FR Y–9C: 1,188 utility, and clarity of the information to requirement, stress leverage buffer hours (an increase of 0.26 hours per be collected; requirement, GSIB surcharge, response for FR Y–9C (non-Advanced d. Ways to minimize the burden of the countercyclical capital buffer amount, Approaches holding companies or other information collections on respondents, as applicable, and any applicable respondents) and an increase of 8 hours including through the use of automated distribution limitations under the per response for FR Y–9C (Advanced collection techniques or other forms of regulatory capital rule. Specifically, the Approaches holding companies or other information technology; and proposal would add new line items to respondents)). e. Estimates of capital or startup costs the FR Y–9C Schedule HC–R Part I to Proposed Total Estimated Annual and costs of operation, maintenance, collect to collect the following Burden Hours: FR Y–9C (non-Advanced and purchase of services to provide information from holding companies Approaches holding companies or other information. subject to the capital plan rule: (1) The respondents): 119,751 hours; FR Y–9C All comment will become a matter of firm’s capital conservation buffer (Advanced Approaches holding public record. Comments on aspects of requirements (including its companies or other respondents): 4,058

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hours; FR Y–9LP: 16,442 hours; FR Y– projections of capital across scenarios.54 Securities, 13 hours; PPNR, 711 hours; 9SP: 42,001; FR Y–9ES: 40; FR Y–9CS: The quarterly FR Y–14Q collects Wholesale, 151 hours; Trading, 1,926 472. granular data on various asset classes, hours; Regulatory capital transitions, 23 (2) Title of Information Collection: including loans, securities, and trading hours; Regulatory capital instruments, Capital Assessments and Stress Testing assets, and pre-provision net revenue 54 hours; Operational risk, 50 hours; information collection. (PPNR) for the reporting period. The MSR Valuation, 23 hours; Agency Form Number: FR Y–14A/Q/ monthly FR Y–14M comprises three Supplemental, 4 hours; Retail FVO/ M. retail portfolio- and loan-level HFS, 15 hours; CCR, 514 hours; and OMB Control Number: 7100–0341. collections, and one detailed address Balances, 16 hours. FR Y–14M: 1st lien Frequency of Response: Annually, matching collection to supplement two mortgage, 516 hours; Home equity, 516 semi-annually, quarterly, and monthly. of the portfolio and loan-level hours; and Credit card, 512 hours. FR Affected Public: Businesses or other collections. Y–14 On-Going automation revisions, for-profit. Current Actions: The proposal would 480 hours; and implementation, 7,200 Respondents: The respondent panel modify the FR Y–14 reports in order to hours. FR Y–14 Attestation: consists of any top-tier bank holding collect information regarding a firm’s Implementation, 4,800 hours; and on- company (BHC) or intermediate holding capital conservation buffer requirements going, 2,560 hours. company (IHC) that has $50 billion or (including the stress buffer Current Estimated Annual Burden more in total consolidated assets, as requirements) and any applicable Hours: FR Y–14A: Summary, 69,186 determined based on: (i) The average of distribution limitations under the hours; Macro scenario, 2,418 hours; the firm’s total consolidated assets in regulatory capital rule. The proposal Operational Risk, 702 hours; Regulatory the four most recent quarters as reported would add new line items to the semi- capital instruments, 819 hours; Business quarterly on the firm’s Consolidated annual FR Y–14A, Schedule A plan changes, 624 hours; and Adjusted Financial Statements for Bank Holding (Summary—Capital) to collect Capital Submission, 500 hours. FR Y– Companies (FR Y–9C) (OMB No. 7100– information regarding a firm’s 14Q: Retail, 2,340; Securities, 2,028 0128); or (ii) the average of the firm’s projections under BHC baseline hours; Pre-provision net revenue total consolidated assets in the most conditions. Specifically, the FR Y–14A (PPNR), 110,916 hours; Wholesale, recent consecutive quarters as reported would be revised to collect the 23,556 hours; Trading, 92,448 hours; quarterly on the firm’s FR Y–9Cs, if the following: (1) The firm’s capital Regulatory capital transitions, 3,588 firm has not filed an FR Y–9C for each conservation buffer requirements hours; Regulatory capital instruments, of the most recent four quarters. (including its standardized approach 8,424 hours; Operational risk, 7,800 Reporting is required as of the first day capital conservation buffer requirement hours; Mortgage Servicing Rights (MSR) of the quarter immediately following the and the advanced approaches capital Valuation, 1,380 hours; Supplemental, quarter in which it meets this asset conservation buffer requirement), stress 624 hours; and Retail Fair Value threshold, unless otherwise directed by leverage buffer requirement, and SLR Option/Held for Sale (Retail FVO/HFS), the Board. buffer requirement for each quarter of 1,500 hours; Counterparty, 24,672 Abstract: The data collected through the planning horizon; (2) the firm’s hours; and Balances, 2,496 hours. FR Y– the FR Y–14A/Q/M schedules provide capital conservation buffer, advanced 14M: 1st lien mortgage, 229,104 hours; the Board with the information and approaches capital conservation buffer, Home equity, 191,952 hours; and Credit card, 110,592 hours. FR Y–14 On-going perspective needed to help ensure that leverage buffer, and, as applicable, SLR automation revisions, 18,720 hours; and large BHCs and IHCs have strong, buffer as of the preceding quarter-end implementation, 0 hours. FR Y–14 firm-wide risk measurement and for each quarter of the planning horizon, Attestation: Implementation, 0 hours; management processes supporting their which is the difference between the firm’s relevant capital ratio and the and on-going, 33,280 hours. internal assessments of capital adequacy Proposed Change in Estimated relevant minimum requirement; and (3) and that their capital resources are Annual Burden Hours: FR Y–14A: 780 information needed to calculate the sufficient given their business focus, hours (20 additional hours annually for activities, and resulting risk exposures. firm’s maximum payout amount, the 39 FR Y–14 filers). The annual CCAR exercise is including the firm’s planned total Proposed Total Estimated Annual complemented by other Board capital distributions, eligible retained Burden Hours: FR Y–14A: Summary, supervisory efforts aimed at enhancing income, and maximum payout ratio for 69,966 hours; Macro scenario, 2,418 the continued viability of large firms, each quarter of the planning horizon. hours; Operational Risk, 702 hours; including continuous monitoring of The draft reporting forms and Regulatory capital instruments, 819 firms’ planning and management of instructions for the FR Y–14 will be hours; Business plan changes, 624 liquidity and funding resources and available at https:// hours; and Adjusted Capital regular assessments of credit, market www.federalreserve.gov/apps/ Submission, 500 hours. FR Y–14Q: and operational risks, and associated reportforms/review.aspx. Retail, 2,340; Securities, 2,028 hours; risk management practices. Information Number of Respondents: 39. Pre-provision net revenue (PPNR), gathered in this data collection is also Current Estimated Average Hours per 110,916 hours; Wholesale, 23,556 hours; used in the supervision and regulation Response: FR Y–14A: Summary, 887 Trading, 92,448 hours; Regulatory of these financial institutions. hours; Macro scenario, 31 hours; capital transitions, 3,588 hours; The Capital Assessments and Stress Operational Risk, 18 hours; Regulatory Regulatory capital instruments, 8,424 Testing information collection consists capital instruments, 21 hours; and hours; Operational risk, 7,800 hours; of the FR Y–14A, FR Y–14Q, and FR Y– Business plan changes, 16 hours; Mortgage Servicing Rights (MSR) 14M reports. The semi-annual FR Y– Adjusted Capital Submission, 100 Valuation, 1,380 hours; Supplemental, 14A collects quantitative projections of hours. FR Y–14Q: Retail, 15 hours; 624 hours; and Retail Fair Value balance sheet, income, losses, and Option/Held for Sale (Retail FVO/HFS), capital across a range of macroeconomic 54 A bank holding company that must re-submit its capital plan generally also must provide a 1,500 hours; Counterparty, 24,672 scenarios and qualitative information on revised FR Y–14A in connection with its hours; and Balances, 2,496 hours. FR Y– methodologies used to develop internal resubmission. 14M: 1st lien mortgage, 229,104 hours;

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Home equity, 191,952 hours; and Credit Current Estimated Annual Burden proposed rule, the RFA requires an card, 110,592 hours. FR Y–14 On-going Hours: Annual capital planning agency to prepare an Initial Regulatory automation revisions, 18,720 hours; and recordkeeping (§ 225.8(e)(1)(i)) (LISCC Flexibility Analysis describing the implementation, 0 hours. FR Y–14 and large and complex firms), 238,400 impact of the rule on small entities or Attestation: Implementation, 0 hours; hours; Annual capital planning to certify that the proposed rule would and on-going, 33,280 hours. recordkeeping (large and complex firms) not have a significant economic impact (3) Title of Information Collection: (§ 225.8(e)(1)(i)) (large and noncomplex on a substantial number of small Recordkeeping and Reporting firms), 160,560 hours; annual capital entities. An initial regulatory flexibility Requirements Associated with planning reporting (§ 225.8(e)(1)(ii)), analysis must contain (1) a description Regulation Y (Capital Plans). 2,240 hours; annual capital planning of the reasons why action by the agency Agency Form Number: Reg Y–13. recordkeeping (§ 225.8(e)(1)(iii)), 2,800 is being considered; (2) a succinct OMB Control Number: 7100–0342. hours; data collections reporting statement of the objectives of, and legal Frequency of Response: Annually. (§ 225.8(e)(3)(i)–(vi)), 38,190 hours; data basis for, the proposed rule; (3) a Affected Public: Businesses or other collections reporting (§ 225.8(e)(4)), description of, and, where feasible, an for-profit. 1,000 hours; review of capital plans by estimate of the number of small entities Respondents: BHCs and IHCs. the Federal Reserve reporting to which the proposed rule will apply; Abstract: Regulation Y (12 CFR part (§ 225.8(j)), 32 hours; prior approval (4) a description of the projected 225) requires large bank holding request requirements reporting reporting, recordkeeping, and other companies (BHCs) to submit capital (§ 225.8(k)(1), (3), & (4)), 2,600 hours; compliance requirements of the plans to the Federal Reserve on an prior approval request requirements proposed rule, including an estimate of annual basis and to require such BHCs exceptions (§ 225.8(k)(3)(iii)(A)), 32 the classes of small entities that will be to request prior approval from the hours; prior approval request subject to the requirement and the type Federal Reserve under certain requirements reports (§ 225.8(k)(6)), 32 of professional skills necessary for circumstances before making a capital hours. preparation of the report or record; (5) distribution. Proposed Change in Estimated an identification, to the extent Current Actions: The proposal would Average Hours per Response: Proposed practicable, of all relevant Federal rules modify the capital plan rule in response to notice; adjustments to which may duplicate, overlap with, or Regulation Y by introducing stress planned capital distributions conflict with the proposed rule; and (6) buffer requirements and providing for (recordkeeping) (§ 225.8(h)(3)(i)), 2 a description of any significant new procedures regarding their hours. alternatives to the proposed rule which Proposed Total Estimated Annual accomplish its stated objectives. implementation. This includes adding Burden Hours: Annual capital planning The Board has considered the § 225.8(h)(3)(i), which would require a recordkeeping (§ 225.8(e)(1)(i)) (LISCC potential impact of the proposed rule on firm to determine whether capital and large and complex firms), 238,400 small entities in accordance with the distributions for the fourth through hours; Annual capital planning RFA. Based on its analysis and for the seventh quarters of the planning horizon recordkeeping (§ 225.8(e)(1)(i)) (large reasons stated below, the Board believes under the BHC baseline scenario and noncomplex firms), 160,560 hours; that this proposed rule will not have a included in the capital plan submitted annual capital planning reporting significant economic impact on a pursuant to paragraph (e)(1)(ii) would (§ 225.8(e)(1)(ii)), 2,240 hours; annual substantial number of small entities. be consistent with effective capital capital planning recordkeeping Nevertheless, the Board is publishing distribution limitations, assuming the (§ 225.8(e)(1)(iii)), 2,800 hours; data and inviting comment on this initial stress buffer requirements, and reduce collections reporting (§ 225.8(e)(3)(i)– regulatory flexibility analysis. A final its distributions as necessary to be (vi)), 38,190 hours; data collections regulatory flexibility analysis will be consistent with such capital distribution reporting (§ 225.8(e)(4)), 1,000 hours; conducted after comments received limitations. proposed response to notice: during the public comment period have Number of Respondents: 39. Adjustments to planned capital been considered. The proposal would Current Estimated Average Hours per distributions (recordkeeping) also make corresponding changes to the Response: Annual capital planning (§ 225.8(h)(3)(i)), 78 hours; prior Board’s reporting forms. recordkeeping (§ 225.8(e)(1)(i)) (LISCC approval request requirements reporting As discussed in detail above, the and large and complex firms), 11,920 (§ 225.8(k)(1), (3), & (4)), 2,600 hours; proposed rule would amend the capital hours; Annual capital planning prior approval request requirements rule, capital plan rule, stress testing recordkeeping (§ 225.8(e)(1)(i)) (large exceptions (§ 225.8(k)(3)(iii)(A)), 32 rules, and the proposed Stress Testing and noncomplex firms), 8,920 hours; hours; prior approval request Policy Statement, that was previously annual capital planning reporting requirements reports (§ 225.8(k)(6)), 32 proposed on December 15, 2017. Under (§ 225.8(e)(1)(ii)), 80 hours; annual hours. the proposed rule, the Board would use capital planning recordkeeping the results of the supervisory stress test (§ 225.8(e)(1)(iii)), 100 hours; data B. Regulatory Flexibility Act to establish the size of a firm’s stress collections reporting (§ 225.8(e)(3)(i)– The Board is providing an initial capital buffer requirement and stress (vi)), 1,005 hours; data collections regulatory flexibility analysis with leverage buffer requirement. The stress reporting (§ 225.8(e)(4)), 100 hours; respect to this proposed rule. The capital buffer requirement would review of capital plans by the Federal Regulatory Flexibility Act, 5 U.S.C. 601 replace the static 2.5 percent of Reserve reporting (§ 225.8(j)), 16 hours; et seq., (RFA), requires an agency to standardized risk-weighted assets prior approval request requirements consider whether the rules it proposes reporting (§ 225.8(k)(1), (3), & (4)), 100 will have a significant economic impact institution, bank holding company, or savings and hours; prior approval request on a substantial number of small loan holding company with total assets of $550 requirements exceptions 55 million or less and trust companies with total assets entities. In connection with a of $38.5 million or less. As of December 31, 2017, (§ 225.8(k)(3)(iii)(A)), 16 hours; prior there were approximately 3,384 small bank holding approval request requirements reports 55 Under regulations issued by the Small Business companies, 230 small savings and loan holding (§ 225.8(k)(6)), 16 hours. Administration, a small entity includes a depository companies, and 553 small state member banks.

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component of a firm’s capital the capital plan rule relating to List of Subjects conservation buffer requirement in the adjustments to planned capital 12 CFR Part 217 capital rule. As under the current distributions included in a firm’s capital capital rule, a firm would be subject to plan and information regarding a firm’s Administrative practice and increasingly strict limitations on capital capital conservation buffer requirements procedure, Banks, Banking, Holding distributions and bonus payments as the (including the stress buffer companies, Reporting and firm’s capital ratios decline below the requirements) and any applicable recordkeeping requirements, Securities. firm’s buffer requirements. The proposal distribution limitations under the 12 CFR Part 225 would also make adjustments to the capital rule. These changes would not assumptions used in the supervisory impact small entities. In addition, the Administrative practice and stress test and would replace the capital Board is aware of no other Federal rules procedure, Banks, Banking, Capital plan rule’s quantitative objection. that duplicate, overlap, or conflict with planning, Holding companies, Reporting The Board has broad authority under the proposed changes to the capital rule, and recordkeeping requirements, the International Lending Supervision capital plan rule, and stress testing Securities, Stress testing. 56 Act (ILSA) and the PCA provisions of rules. Therefore, the Board believes that 57 12 CFR Part 252 the Federal Deposit Insurance Act to the proposed rule will not have a Administrative practice and establish regulatory capital significant economic impact on small procedure, Banks, Banking, Capital requirements for the institutions it banking organizations supervised by the planning, Federal Reserve System, regulates. For example, ILSA directs Board and therefore believes that there Holding companies, Reporting and each Federal banking agency to cause are no significant alternatives to the banking institutions to achieve and recordkeeping requirements, Securities, proposed rule that would reduce the maintain adequate capital by Stress testing. economic impact on small banking establishing minimum capital organizations supervised by the Board. Authority and Issuance requirements as well as by other means that the agency deems appropriate.58 The Board welcomes comment on all For the reasons stated in the The PCA provisions of the Federal aspects of its analysis. In particular, the SUPPLEMENTARY INFORMATION, the Board Deposit Insurance Act direct each Board requests that commenters of Governors of the Federal Reserve Federal banking agency to specify, for describe the nature of any impact on System proposes to amend 12 CFR each relevant capital measure, the level small entities and provide empirical chapter II as follows: at which an IDI subsidiary is well data to illustrate and support the extent capitalized, adequately capitalized, of the impact. PART 217—CAPITAL ADEQUACY OF undercapitalized, and significantly BANK HOLDING COMPANIES, undercapitalized.59 In addition, the C. Solicitation of Comments of Use of SAVINGS AND LOAN HOLDING Board has broad authority to establish Plain Language COMPANIES, AND STATE MEMBER BANKS (REGULATION Q) regulatory capital standards for bank Section 722 of the Gramm-Leach- holding companies under the Bank Bliley Act (Pub. L. 106–102, 113 Stat. ■ Holding Company Act and the Dodd- 1. The authority citation for part 217 1338, 1471, 12 U.S.C. 4809) requires the continues to read as follows: Frank Reform and Consumer Protection Federal banking agencies to use plain 60 Act (Dodd-Frank Act). language in all proposed and final rules Authority: 12 U.S.C. 248(a), 321–338a, The proposed rule would apply only 481–486, 1462a, 1467a, 1818, 1828, 1831n, published after January 1, 2000. The to bank holding companies with total 1831o, 1831p–1, 1831w, 1835, 1844(b), 1851, Board has sought to present the consolidated assets of $50 billion or 3904, 3906–3909, 4808, 5365, 5368, 5371. proposed rule in a simple and more, any nonbank financial company straightforward manner, and invites Subpart B—Capital Ratio supervised by the Board that becomes comment on the use of plain language. Requirements and Buffers subject to the capital planning requirements pursuant to a rule or order For example: ■ 2. Section 217.11 is revised to read as of the Board, and to U.S. intermediate • Have we organized the material to follows: holding companies established pursuant suit your needs? If not, how could the to the Board’s Regulation YY. Currently, rule be more clearly stated? § 217.11 Capital conservation buffer, countercyclical capital buffer amount, and all nonbank financial companies • supervised by the Board are not subject Are the requirements in the rule GSIB surcharge. to the capital planning requirements clearly stated? If not, how could the rule (a) Capital conservation buffer—(1) and all U.S. intermediate holding be more clearly stated? Composition of the capital conservation companies established pursuant to • Do the regulations contain technical buffer. The capital conservation buffer is Regulation YY have greater than $1 language or jargon that is not clear? If composed solely of common equity tier billion in total assets. The proposed rule so, which language requires 1 capital. would not apply to any small entities. clarification? (2) Definitions. For purposes of this Further, the proposal would make • Would a different format (grouping section, the following definitions apply: changes to the projected reporting, and order of sections, use of headings, (i) Eligible retained income. The recordkeeping, and other compliance paragraphing) make the regulation eligible retained income of a Board- requirements of the rule by proposing to easier to understand? If so, what regulated institution is the Board- collect information from firms subject to changes would make the regulation regulated institution’s net income, easier to understand? calculated in accordance with the 56 12 U.S.C. 3901–3911. • instructions to the Call Report or the FR 57 12 U.S.C. 1831o. Would more, but shorter, sections Y–9C, as applicable, for the four 58 12 U.S.C. 3907(a)(1). be better? If so, which sections should calendar quarters preceding the current 59 12 U.S.C. 1831o(c)(2). be changed? calendar quarter net of any distributions 60 See, e.g., sections 165 and 171 of the Dodd- • Frank Act (12 U.S.C. 5365 and 12 U.S.C. 5371). What else could we do to make the and associated tax effects not already Public Law 111–203, 124 Stat. 1376 (2010). regulation easier to understand? reflected in net income.

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(ii) Maximum payout amount. A stress leverage buffer requirement is the quarter that, in the aggregate, exceed its Board-regulated institution’s maximum stress leverage buffer requirement maximum payout amount. payout amount for the current calendar determined under 12 CFR 225.8. (ii) No limitations. A Board-regulated quarter is equal to the Board-regulated (3) Calculation of capital conservation institution that is not subject 12 CFR institution’s eligible retained income, buffer. (i) A Board-regulated institution 225.8 and that has a capital multiplied by its maximum payout that is not subject to 12 CFR 225.8 has conservation buffer that is greater than ratio. a capital conservation buffer equal to 2.5 percent plus 100 percent of its (iii) Maximum payout ratio. The the lowest of the following ratios, applicable countercyclical capital buffer maximum payout ratio is the percentage calculated as of the last day of the amount in accordance with paragraph of eligible retained income that a Board- previous calendar quarter: (b) of this section is not subject to a regulated institution can pay out in the (A) The Board-regulated institution’s maximum payout amount under form of distributions and discretionary common equity tier 1 capital ratio paragraph (a)(2)(ii) of this section. bonus payments during the current minus the Board-regulated institution’s (iii) Negative eligible retained income. calendar quarter. For a Board-regulated minimum common equity tier 1 capital Except as provided in paragraph institution that is not subject to 12 CFR ratio requirement under § 217.10; (a)(4)(iv) of this section, a Board- 225.8, the maximum payout ratio is (B) The Board-regulated institution’s regulated institution that is not subject determined by the Board-regulated tier 1 capital ratio minus the Board- to 12 CFR 225.8 may not make institution’s capital conservation buffer, regulated institution’s minimum tier 1 distributions or discretionary bonus calculated as of the last day of the capital ratio requirement under payments during the current calendar previous calendar quarter, as set forth in § 217.10; and quarter if the Board-regulated Table 1 to this section. For a Board- (C) The Board-regulated institution’s institution’s: regulated institution that is subject to 12 total capital ratio minus the Board- (A) Eligible retained income is CFR 225.8, the maximum payout ratio is regulated institution’s minimum total negative; and determined under paragraph (c)(1)(ii) of capital ratio requirement under (B) Capital conservation buffer was this section. § 217.10; or less than 2.5 percent as of the end of the (iv) Private sector credit exposure. (ii) Notwithstanding paragraphs previous calendar quarter. Private sector credit exposure means an (a)(3)(i)(A) through (C) of this section, if (iv) Prior approval. Notwithstanding exposure to a company or an individual the Board-regulated institution’s the limitations in paragraphs (a)(4)(i) that is not an exposure to a sovereign, common equity tier 1, tier 1 or total through (iii) of this section, the Board the Bank for International Settlements, capital ratio is less than or equal to the may permit a Board-regulated the European Central Bank, the Board-regulated institution’s minimum institution that is not subject to 12 CFR European Commission, the International common equity tier 1, tier 1 or total 225.8 to make a distribution or Monetary Fund, a MDB, a PSE, or a capital ratio requirement under discretionary bonus payment upon a GSE. § 217.10, respectively, the Board- request of the Board-regulated (v) SLR buffer requirement. A bank regulated institution’s capital institution, if the Board determines that holding company’s SLR buffer conservation buffer is zero. the distribution or discretionary bonus requirement is 2.0 percent. (4) Limits on distributions and payment would not be contrary to the (vi) Stress capital buffer requirement. discretionary bonus payments—(i) purposes of this section, or to the safety A bank holding company’s stress capital General limitation. A Board-regulated and soundness of the Board-regulated buffer requirement is the stress capital institution that is not subject 12 CFR institution. In making such a buffer requirement determined under 12 225.8 shall not make distributions or determination, the Board will consider CFR 225.8. discretionary bonus payments or create the nature and extent of the request and (vii) Stress leverage buffer an obligation to make such distributions the particular circumstances giving rise requirement. A bank holding company’s or payments during the current calendar to the request.

TABLE 1 TO § 217.11—CALCULATION OF MAXIMUM PAYOUT AMOUNT

Capital conservation buffer Maximum payout ratio

Greater than 2.5 percent plus 100 percent of the Board-regulated institution’s applicable countercyclical capital No payout ratio limitation buffer amount. applies. Less than or equal to 2.5 percent plus 100 percent of the Board-regulated institution’s applicable countercyclical 60 percent. capital buffer amount, and greater than 1.875 percent plus 75 percent of the Board-regulated institution’s appli- cable countercyclical capital buffer amount. Less than or equal to 1.875 percent plus 75 percent of the Board-regulated institution’s applicable countercyclical 40 percent. capital buffer amount, and greater than 1.25 percent plus 50 percent of the Board-regulated institution’s applica- ble countercyclical capital buffer amount. Less than or equal to 1.25 percent plus 50 percent of the Board-regulated institution’s applicable countercyclical 20 percent. capital buffer amount and greater than 0.625 percent plus 25 percent of the Board-regulated institution’s appli- cable countercyclical capital buffer amount. Less than or equal to 0.625 percent plus 25 percent of the Board-regulated institution’s applicable countercyclical 0 percent. capital buffer amount.

(v) Other limitations on distributions. (b) Countercyclical capital buffer paragraph (b) for purposes of Additional limitations on distributions amount—(1) General. An advanced determining its maximum payout ratio may apply under 12 CFR 225.4 and approaches Board-regulated institution under Table 1 to this section and, if 263.202 to a Board-regulated institution must calculate a countercyclical capital applicable, Table 2 to this section. that is not subject to 12 CFR 225.8. buffer amount in accordance with this

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(i) Extension of capital conservation borrower, determined consistent with countercyclical capital buffer amount or buffer. The countercyclical capital paragraph (b)(1)(iv)(A) of this section. adjust it again before the expiration of buffer amount is an extension of the (2) Countercyclical capital buffer the 12-month period. capital conservation buffer as described amount for credit exposures in the (3) Countercyclical capital buffer in paragraph (a) or (c) of this section, as United States—(i) Initial countercyclical amount for foreign jurisdictions. The applicable. capital buffer amount with respect to Board will adjust the countercyclical (ii) Amount. An advanced approaches credit exposures in the United States. capital buffer amount for private sector Board-regulated institution has a The initial countercyclical capital buffer credit exposures to reflect decisions countercyclical capital buffer amount amount in the United States is zero. made by foreign jurisdictions consistent determined by calculating the weighted (ii) Adjustment of the countercyclical with due process requirements average of the countercyclical capital capital buffer amount. The Board will described in paragraph (b)(2) of this buffer amounts established for the adjust the countercyclical capital buffer section. national jurisdictions where the Board- amount for credit exposures in the (c) Calculation of buffers for Board- regulated institution’s private sector United States in accordance with regulated institutions subject to 12 CFR credit exposures are located, as applicable law.10 225.8—(1) Limits on distributions and specified in paragraphs (b)(2) and (3) of (iii) Range of countercyclical capital discretionary bonus payments. (i) A this section. buffer amount. The Board will adjust Board-regulated institution that is (iii) Weighting. The weight assigned to the countercyclical capital buffer subject to 12 CFR 225.8 shall not make a jurisdiction’s countercyclical capital amount for credit exposures in the distributions or discretionary bonus buffer amount is calculated by dividing United States between zero percent and payments or create an obligation to the total risk-weighted assets for the 2.5 percent of risk-weighted assets. make such distributions or payments Board-regulated institution’s private (iv) Adjustment determination. The during the current calendar quarter that, sector credit exposures located in the Board will base its decision to adjust the in the aggregate, exceed its maximum jurisdiction by the total risk-weighted countercyclical capital buffer amount payout amount. (ii) Maximum payout ratio. The assets for all of the Board-regulated under this section on a range of maximum payout ratio of a Board- institution’s private sector credit macroeconomic, financial, and regulated institution that is subject to 12 exposures. The methodology a Board- supervisory information indicating an CFR 225.8 is the lowest of the following regulated institution uses for increase in systemic risk including, but ratios determined by its standardized determining risk-weighted assets for not limited to, the ratio of credit to gross approach capital conservation buffer, purposes of this paragraph (b) must be domestic product, a variety of asset leverage buffer; if applicable, advanced the methodology that determines its prices, other factors indicative of approaches capital conservation buffer; risk-based capital ratios under § 217.10. relative credit and liquidity expansion and, if applicable, SLR buffer; as set Notwithstanding the previous sentence, or contraction, funding spreads, credit condition surveys, indices based on forth in Table 2 to this section. the risk-weighted asset amount for a (iii) Capital conservation buffer private sector credit exposure that is a credit default swap spreads, options implied volatility, and measures of requirements. A Board-regulated covered position under subpart F of this institution that is subject to 12 CFR part is its specific risk add-on as systemic risk. (v) Effective date of adjusted 225.8 has: determined under § 217.210 multiplied (A) A standardized approach capital by 12.5. countercyclical capital buffer amount— (A) Increase adjustment. A conservation buffer requirement equal (iv) Location. (A) Except as provided to its stress capital buffer requirement in paragraphs (b)(1)(iv)(B) and (C) of this determination by the Board under paragraph (b)(2)(ii) of this section to plus its applicable countercyclical section, the location of a private sector capital buffer amount in accordance credit exposure is the national increase the countercyclical capital buffer amount will be effective 12 with paragraph (b) of this section plus jurisdiction where the borrower is its applicable GSIB surcharge in located (that is, where it is incorporated, months from the date of announcement, unless the Board establishes an earlier accordance with paragraph (d) of this chartered, or similarly established or, if section; and the borrower is an individual, where the effective date and includes a statement articulating the reasons for the earlier (B) If the Board-regulated institution borrower resides). calculates risk-weighted assets under (B) If, in accordance with subpart D or effective date. (B) Decrease adjustment. A subpart E of this part, an advanced E of this part, the Board-regulated determination by the Board to decrease approaches capital conservation buffer institution has assigned to a private the established countercyclical capital requirement equal to 2.5 percent plus sector credit exposure a risk weight buffer amount under paragraph (b)(2)(ii) the Board-regulated institution’s associated with a protection provider on of this section will be effective on the countercyclical capital buffer amount in a guarantee or credit derivative, the day following announcement of the accordance with paragraph (b) of this location of the exposure is the national final determination or the earliest date section plus its applicable GSIB jurisdiction where the protection permissible under applicable law or surcharge in accordance with paragraph provider is located. regulation, whichever is later. (d) of this section. (C) The location of a securitization (vi) Twelve month sunset. The (iv) No maximum payout amount exposure is the location of the countercyclical capital buffer amount limitation. A Board-regulated institution underlying exposures, or, if the will return to zero percent 12 months that is subject to 12 CFR 225.8 is not underlying exposures are located in after the effective date that the adjusted subject to a maximum payout amount more than one national jurisdiction, the countercyclical capital buffer amount is under paragraph (a)(2)(ii) of this section national jurisdiction where the announced, unless the Board announces if it has: underlying exposures with the largest (A) A standardized approach capital a decision to maintain the adjusted aggregate unpaid principal balance are conservation buffer, calculated under located. For purposes of this paragraph 10 The Board expects that any adjustment will be paragraph (c)(2) of this section, that is (b), the location of an underlying based on a determination made jointly by the greater than its standardized approach exposure shall be the location of the Board, OCC, and FDIC. capital conservation buffer requirement

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calculated under paragraph (c)(1)(iii)(A) may apply under 12 CFR 225.4, 225.8, (A) The ratio calculated by the Board- of this section; 252.63, 252.165, and 263.202 to a Board- regulated institution under (B) If applicable, an advanced regulated institution that is subject to 12 § 217.10(c)(1)(ii) minus the Board- approaches capital conservation buffer, CFR 225.8. regulated institution’s minimum calculated under paragraph (c)(3) of this (2) Standardized approach capital common equity tier 1 capital ratio section, that is greater than the Board- conservation buffer. (i) The requirement under § 217.10(a); regulated institution’s advanced standardized approach capital (B) The ratio calculated by the Board- approaches capital conservation buffer conservation buffer for Board-regulated regulated institution under requirement calculated under paragraph institutions subject to 12 CFR 225.8 is § 217.10(c)(2)(ii) minus the Board- (c)(1)(iii)(B) of this section; and composed solely of common equity tier regulated institution’s minimum tier 1 (C) A leverage buffer, calculated 1 capital. capital ratio requirement under under paragraph (c)(4) of this section, (ii) A Board-regulated institution that § 217.10(a); and that is greater than its stress leverage is subject to 12 CFR 225.8 has a (C) The ratio calculated by the Board- buffer requirement calculated under standardized approach capital regulated institution under paragraph (a)(2)(vii) of this section; and conservation buffer that is equal to the § 217.10(c)(3)(ii) minus the Board- (D) If applicable, a SLR buffer, lowest of the following ratios, calculated regulated institution’s minimum total calculated under paragraph (c)(5) of this as of the last day of the previous capital ratio requirement under section, that is greater than its SLR calendar quarter: § 217.10(a). buffer requirement as calculated under (A) The ratio calculated by the Board- (iii) Notwithstanding paragraphs paragraph (a)(2)(v) of this section. regulated institution under (c)(3)(ii) of this section, if any of the (v) Negative eligible retained income. § 217.10(b)(1) or (c)(1)(i), as applicable, ratios calculated by the Board-regulated Except as provided in paragraph minus the Board-regulated institution’s institution under § 217.10(c)(1)(ii), (c)(1)(vi) of this section, a Board- minimum common equity tier 1 capital (c)(2)(ii), or (c)(3)(ii) is less than or equal regulated institution that is subject to 12 ratio requirement under § 217.10(a); to the Board-regulated institution’s CFR 225.8 may not make distributions (B) The ratio calculated by the Board- minimum common equity tier 1 capital or discretionary bonus payments during regulated institution under ratio, tier 1 capital ratio, or total capital the current calendar quarter if, as of the § 217.10(b)(2) or (c)(2)(i), as applicable, ratio requirement under § 217.10(a), end of the previous calendar quarter, the minus the Board-regulated institution’s respectively, the Board-regulated Board-regulated institution’s: minimum tier 1 capital ratio institution’s advanced approaches (A) Eligible retained income is requirement under § 217.10(a); and capital conservation buffer is zero. negative; and (C) The ratio calculated by the Board- (4) Leverage buffer. (i) The leverage (B)(1) Standardized approach capital regulated institution under buffer is composed solely of tier 1 conservation buffer was less than its § 217.10(b)(3) or (c)(3)(i), as applicable, capital. stress capital buffer requirement; or minus the Board-regulated institution’s (2) If applicable, advanced approaches minimum total capital ratio requirement (ii) A Board-regulated institution has capital conservation buffer was less than under § 217.10(a). a leverage buffer that is equal to the 2.5 percent; or (iii) Notwithstanding paragraph Board-regulated institution’s leverage (3) Leverage buffer was less than its (c)(2)(ii) of this section, if any of the ratio minus 4 percent, calculated as of stress leverage buffer requirement; or ratios calculated by the Board-regulated the last day of the previous calendar (4) If applicable, SLR buffer was less institution under § 217.10(b)(1), (2), or quarter. than its SLR buffer requirement. (3), or if applicable § 217.10(c)(1)(i), (iii) Notwithstanding paragraph (vi) Prior approval. Notwithstanding (c)(2)(i), or (c)(3)(i) is less than or equal (c)(4)(ii) of this section, if the Board- the limitations in paragraphs (c)(1)(i) to the Board-regulated institution’s regulated institution’s leverage ratio is through (v) of this section, the Board minimum common equity tier 1 capital less than or equal to 4 percent, the may permit a Board-regulated ratio, tier 1 capital ratio, or total capital Board-regulated institution’s leverage institution that is subject to 12 CFR ratio requirement under § 217.10(a), buffer is zero. 225.8 to make a distribution or respectively, the Board-regulated (5) SLR buffer. (i) The SLR buffer is discretionary bonus payment upon a institution’s capital conservation buffer composed solely of tier 1 capital. request of the Board-regulated is zero. (ii) A global systemically important institution, if the Board determines that (3) Advanced approaches capital BHC has a SLR buffer that is equal to the the distribution or discretionary bonus conservation buffer. (i) The advanced global systemically important BHC’s payment would not be contrary to the approaches capital conservation buffer supplementary leverage ratio minus 3 purposes of this section, or to the safety is composed solely of common equity percent, calculated as of the last day of and soundness of the Board-regulated tier 1 capital. the previous calendar quarter. institution. In making such a (ii) A Board-regulated institution that (iii) Notwithstanding paragraph determination, the Board will consider calculates risk-weighted assets under (c)(5)(ii) of this section, if the global the nature and extent of the request and subpart E of this part has an advanced systemically important BHC’s the particular circumstances giving rise approaches capital conservation buffer supplementary leverage ratio is less to the request. that is equal to the lowest of the than or equal to 3 percent, the global (v) Other limitations on distributions. following ratios, calculated as of the last systemically important BHC’s SLR Additional limitations on distributions day of the previous calendar quarter: buffer is zero.

TABLE 2 TO § 217.11—CALCULATION OF MAXIMUM PAYOUT RATIO

Capital buffer 1 Payout ratio

Greater than the Board-regulated institution’s buffer requirement 2 ...... No payout ratio limitation applies.

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TABLE 2 TO § 217.11—CALCULATION OF MAXIMUM PAYOUT RATIO—Continued

Capital buffer 1 Payout ratio

Less than or equal to 100 percent of the Board-regulated institution’s buffer requirement, and greater than 75 per- 60 percent. cent of the Board-regulated institution’s buffer requirement. Less than or equal to 75 percent of the Board-regulated institution’s buffer requirement, and greater than 50 per- 40 percent. cent of the bank holding company’s buffer requirement. Less than or equal to 50 percent of the Board-regulated institution’s buffer requirement, and greater than 25 per- 20 percent. cent of the Board-regulated institution’s buffer requirement. Less than or equal to 25 percent of the Board-regulated institution’s buffer requirement ...... 0 percent. 1 A Board-regulated institution’s ‘‘capital buffer’’ means each of, as applicable, its standardized approach capital conservation buffer, leverage buffer, advanced approaches capital conservation buffer, and SLR buffer. 2 A Board-regulated institution’s ‘‘buffer requirement’’ means each of, as applicable, its standardized approach capital conservation buffer re- quirement, stress leverage buffer requirement, advanced approaches capital conservation buffer requirement, and SLR buffer requirement.

(d) GSIB surcharge. A global companies. This section also establishes quarters, as reported on the FR Y–9C systemically important BHC must use the Board’s process for determining the and effective on the as-of date of the its GSIB surcharge calculated in stress buffer requirements for these bank fourth consecutive FR Y–9C. accordance with subpart H of this part holding companies. (4) Reservation of authority. Nothing for purposes of determining its (b) Scope and reservation of in this section shall limit the authority maximum payout ratio under Table 2 to authority—(1) Applicability. Except as of the Federal Reserve to issue a capital this section. provided in paragraph (c) of this directive or take any other supervisory section, this section applies to: or enforcement action, including an Subpart G—Transition Provisions (i) Any top-tier bank holding action to address unsafe or unsound company domiciled in the United States practices or conditions or violations of ■ 3. In § 217.300, add paragraph (g) to with average total consolidated assets of law. read as follows: $50 billion or more ($50 billion asset (5) Rule of construction. Unless the § 217.300 Transitions. threshold); context otherwise requires, any * * * * * (ii) Any other bank holding company reference to bank holding company in (g) Implementation of stress capital domiciled in the United States that is this section shall include a U.S. buffer requirement and stress leverage made subject to this section, in whole or intermediate holding company and shall buffer requirement. Notwithstanding in part, by order of the Board; include a nonbank financial company (iii) Any U.S. intermediate holding any other requirement in § 217.11, supervised by the Board to the extent company subject to this section unless and until a Board-regulated this section is made applicable pursuant pursuant to 12 CFR 252.153; and institution subject to 12 CFR 225.8 has to a rule or order of the Board. (iv) Any nonbank financial company received a stress capital buffer (6) Application of this section by supervised by the Board that is made requirement from the Board calculated order. The Board may apply this subject to this section pursuant to a rule pursuant to 12 CFR 225.8, for purposes section, in whole or in part, to a bank or order of the Board. holding company by order based on the of § 217.11 its stress capital buffer (2) Average total consolidated assets. requirement is equal to 2.5 percent; and, institution’s size, level of complexity, For purposes of this section, average risk profile, scope of operations, or unless a Board-regulated institution total consolidated assets means the subject to 12 CFR 225.8 has received a financial condition. average of the total consolidated assets (c) Transitional arrangements—(1) stress leverage buffer requirement, for as reported by a bank holding company Transition periods for certain bank purposes of § 217.11 its stress leverage on its Consolidated Financial holding companies. (i) A bank holding buffer requirement is zero. Statements for Bank Holding Companies company that meets the $50 billion PART 225—BANK HOLDING (FR Y–9C) for the four most recent asset threshold (as measured under COMPANIES AND CHANGE IN BANK consecutive quarters. If the bank paragraph (b) of this section) on or CONTROL (REGULATION Y) holding company has not filed the FR before September 30 of a calendar year Y–9C for each of the four most recent must comply with the requirements of ■ 4. The authority citation for part 225 consecutive quarters, average total this section beginning on January 1 of continues to read as follows: consolidated assets means the average of the next calendar year, unless that time Authority: 12 U.S.C. 1817(j)(13), 1818, the company’s total consolidated assets, is extended by the Board in writing. 1828(o), 1831i, 1831p–1, 1843(c)(8), 1844(b), as reported on the company’s FR Y–9C, (ii) A bank holding company that 1972(1), 3106, 3108, 3310, 3331–3351, 3906, for the most recent quarter or meets the $50 billion asset threshold 3907, and 3909; 15 U.S.C. 1681s, 1681w, consecutive quarters, as applicable. after September 30 of a calendar year 6801 and 6805. Average total consolidated assets are must comply with the requirements of measured on the as-of date of the most this section beginning on January 1 of Subpart A—General Provisions recent FR Y–9C used in the calculation the second calendar year after the bank ■ 5. Section 225.8 is revised to read as of the average. holding company meets the $50 billion follows: (3) Ongoing applicability. A bank asset threshold, unless that time is holding company (including any extended by the Board in writing. § 225.8 Capital planning and stress capital successor bank holding company) that is (iii) The Board or the appropriate and leverage buffer requirements. subject to any requirement in this Reserve Bank with the concurrence of (a) Purpose. This section establishes section shall remain subject to such the Board, may require a bank holding capital planning and prior notice and requirements unless and until its total company described in paragraph approval requirements for capital consolidated assets fall below $50 (c)(1)(i) or (ii) of this section to comply distributions by certain bank holding billion for each of four consecutive with any or all of the requirements in

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paragraph (e)(1), (e)(3), (g), or (k) of this this section will cease to apply to a bank and guidelines used for capital section if the Board or appropriate holding company that is a subsidiary of planning, capital issuance, capital usage Reserve Bank with concurrence of the a U.S. intermediate holding company, and distributions, including internal Board, determines that the requirement unless otherwise determined by the capital goals; the quantitative or is appropriate on a different date based Board in writing. qualitative guidelines for capital on the company’s risk profile, scope of (d) Definitions. For purposes of this distributions; the strategies for operation, or financial condition and section, the following definitions apply: addressing potential capital shortfalls; provides prior notice to the company of (1) Additional tier 1 capital has the and the internal governance procedures the determination. same meaning as under 12 CFR part around capital policy principles and (2) Transition periods for subsidiaries 217. guidelines. of certain foreign banking (2) Advanced approaches means the (11) Common equity tier 1 capital has organizations—(i) U.S. intermediate risk-weighted assets calculation the same meaning as under 12 CFR part holding companies. (A) A U.S. methodologies at 12 CFR part 217, 217. intermediate holding company required subpart E, as applicable. (12) Effective capital distribution to be established or designated pursuant (3) Average total nonbank assets limitations means any limitations on to 12 CFR 252.153 on or before means the average of the total nonbank capital distributions established by the September 30 of a calendar year must assets, calculated in accordance with Board by order or regulation, including comply with the requirements of this the instructions to the FR Y–9LP, for the pursuant to 12 CFR 217.11, 252.63, section beginning on January 1 of the four most recent consecutive quarters 252.165, and 263.202, provided that, for next calendar year, unless that time is or, if the bank holding company has not any limitations based on risk-weighted extended by the Board in writing. filed the FR Y–9LP for each of the four assets, such limitations must be (B) A U.S. intermediate holding most recent consecutive quarters, for the calculated using the standardized company required to be established or most recent quarter or consecutive approach, as set forth in 12 CFR part designated pursuant to 12 CFR 252.153 quarters, as applicable. 217, subpart D.1 after September 30 of a calendar year (4) BHC baseline scenario means a (13) Final planned capital must comply with the requirements of scenario that reflects the bank holding distributions means the planned capital this section beginning on January 1 of company’s reasonable expectation of the distributions included in a capital plan the second calendar year after the U.S. economic and financial outlook, that include the adjustments made intermediate holding company is including expectations related to the pursuant to paragraph (h) of this required to be established, unless that bank holding company’s capital section, if any. time is extended by the Board in adequacy and financial condition. (14) Global systemically important writing. (5) BHC stress scenario means a BHC means a bank holding company (C) The Board or the appropriate scenario designed by a bank holding identified as a global systemically Reserve Bank with the concurrence of company that stresses the specific important BHC under 12 CFR 217.402. the Board, may require a U.S. vulnerabilities of the bank holding (15) GSIB surcharge has the same intermediate holding company company’s risk profile and operations, meaning as under 12 CFR 217.403. described in paragraph (c)(2)(i)(A) or (B) including those related to the bank (16) Large and noncomplex bank of this section to comply with any or all holding company’s capital adequacy holding company means any bank of the requirements in paragraph (e)(1), and financial condition. holding company subject to this section (e)(3), (g), or (k) of this section if the (6) Capital action means any issuance that: Board or appropriate Reserve Bank with of a debt or equity capital instrument, (i) Has, as of December 31 of the concurrence of the Board, determines any capital distribution, and any similar calendar year prior to the capital plan that the requirement is appropriate on a action that the Federal Reserve cycle: different date based on the company’s determines could impact a bank holding (A) Average total consolidated assets risk profile, scope of operation, or company’s consolidated capital. of less than $250 billion; financial condition and provides prior (7) Capital distribution means a (B) Average total nonbank assets of notice to the company of the redemption or repurchase of any debt or less than $75 billion; and determination. equity capital instrument, a payment of (ii) Is not a bank holding company (ii) Bank holding company common or preferred stock dividends, a that is identified as a global systemically subsidiaries of U.S. intermediate payment that may be temporarily or important BHC pursuant to § 217.402. holding companies required to be permanently suspended by the issuer on (17) Net distributions means, for each established by July 1, 2016. (A) any instrument that is eligible for category of regulatory capital, the dollar Notwithstanding any other requirement inclusion in the numerator of any amount of the bank holding company’s in this section, a bank holding company minimum regulatory capital ratio, and capital distributions, net of the dollar that is a subsidiary of a U.S. any similar transaction that the Federal amount of its capital issuances. intermediate holding company (or, with Reserve determines to be in substance a (18) Net final planned capital the mutual consent of the company and distribution of capital. distributions means the dollar amount Board, another bank holding company (8) Capital plan means a written of net distributions relating to the bank domiciled in the United States) shall presentation of a bank holding holding company’s final planned capital remain subject to paragraph (e) of this company’s capital planning strategies distributions. section until December 31, 2017, and and capital adequacy process that (19) Nonbank financial company shall remain subject to the requirements includes the mandatory elements set supervised by the Board means a of paragraphs (g) and (k) of this section forth in paragraph (e)(2) of this section. company that the Financial Stability until the Board issues an objection or (9) Capital plan cycle means the Oversight Council has determined non-objection to the capital plan of the period beginning on January 1 of a under section 113 of the Dodd-Frank relevant U.S. intermediate holding calendar year and ending on December Wall Street Reform and Consumer company. 31 of that year. (B) After the time periods set forth in (10) Capital policy means a bank 1 Effective capital distribution limitations should paragraph (c)(2)(ii)(A) of this section, holding company’s written principles not include planned discretionary bonus payments.

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Protection Act (12 U.S.C. 5323) shall be (2) Mandatory elements of capital (B) A discussion of how the bank supervised by the Board and for which plan. A capital plan must contain at holding company will, under expected such determination is still in effect. least the following elements: and stressful conditions, maintain (20) Planning horizon means the (i) An assessment of the expected uses sufficient capital to continue its period of at least nine consecutive and sources of capital over the planning operations by maintaining ready access quarters, beginning with the quarter horizon that reflects the bank holding to funding, meeting its obligations to preceding the quarter in which the bank company’s size, complexity, risk profile, creditors and other counterparties, and holding company submits its capital and scope of operations, assuming both continuing to serve as a credit plan, over which the relevant expected and stressful conditions, intermediary; projections extend. including: (iii) The bank holding company’s (21) Regulatory capital ratio means a (A) Estimates of projected revenues, capital policy; and capital ratio for which the Board has losses, reserves, and pro forma capital (iv) A discussion of any expected established minimum requirements for levels, including regulatory capital changes to the bank holding company’s the bank holding company by regulation ratios, and any additional capital business plan that are likely to have a or order, including, as applicable, the measures deemed relevant by the bank material impact on the bank holding bank holding company’s regulatory holding company, over the planning company’s capital adequacy or capital ratios calculated under 12 CFR horizon under a range of scenarios, liquidity. part 217 and the deductions required including any scenarios provided by the (3) Data collection. Upon the request under 12 CFR 248.12; except that the Federal Reserve, the BHC baseline of the Board or appropriate Reserve bank holding company shall not use the scenario, and at least one BHC stress Bank, the bank holding company shall advanced approaches to calculate its scenario; provide the Federal Reserve with regulatory capital ratios. (B) A discussion of the results of any information regarding: (22) Stress buffer requirement means stress test required by law or regulation, (i) The bank holding company’s either the stress capital buffer and an explanation of how the capital financial condition, including its requirement or the stress leverage buffer plan takes these results into account; capital; requirement. and (ii) The bank holding company’s structure; (23) Stress capital buffer requirement (C) A description of all planned (iii) Amount and risk characteristics means the amount calculated under capital actions over the planning of the bank holding company’s on- and paragraph (f)(2) of this section. horizon that are consistent with off-balance sheet exposures, including (24) Stress leverage buffer effective capital distribution limitations exposures within the bank holding requirement means the amount and as may be adjusted pursuant to company’s trading account, other calculated under paragraph (f)(3) of this paragraph (h) of this section. In trading-related exposures (such as section. determining whether a bank holding counterparty-credit risk exposures) or company’s planned capital distributions (25) Tier 1 capital has the same other items sensitive to changes in are consistent with effective capital meaning as under 12 CFR part 217. market factors, including, as distribution limitations, a bank holding (26) Tier 2 capital has the same appropriate, information about the company must assume: meaning as under 12 CFR part 217. sensitivity of positions to changes in (27) U.S. intermediate holding (1) That any countercyclical capital market rates and prices; company means the top-tier U.S. buffer amount currently applicable to (iv) The bank holding company’s company that is required to be the bank holding company remains at relevant policies and procedures, established pursuant to 12 CFR 252.153. the same level, except that the bank including risk management policies and (e) Capital planning requirements and holding company must reflect any procedures; procedures—(1) Annual capital increases or decreases in the (v) The bank holding company’s planning. (i) A bank holding company countercyclical capital buffer amount liquidity profile and management; must develop and maintain a capital that have been announced by the Board (vi) The loss, revenue, and expense plan. at the times indicated by the Board’s estimation models used by the bank (ii) A bank holding company must announcement for when such increases holding company for stress scenario submit its complete capital plan to the or decreases take effect; and analysis, including supporting Board and the appropriate Reserve Bank (2) That any GSIB surcharge currently documentation regarding each model’s by April 5 of each calendar year, or such applicable to the bank holding company development and validation; and later date as directed by the Board or by when the capital plan is submitted (vii) Any other relevant qualitative or the appropriate Reserve Bank with remains at the same level, except that quantitative information requested by concurrence of the Board. the bank holding company must reflect the Board or by the appropriate Reserve (iii) The bank holding company’s any increase in its GSIB surcharge Bank to facilitate review of the bank board of directors or a designated pursuant to 12 CFR 217.403(d)(1), holding company’s capital plan under committee thereof must at least beginning in the fifth quarter of the this section. annually and prior to submission of the planning horizon. (4) Re-submission of a capital plan. (i) capital plan under paragraph (e)(1)(ii) of (ii) A detailed description of the bank A bank holding company must update this section: holding company’s process for assessing and re-submit its capital plan to the (A) Review the robustness of the bank capital adequacy, including: appropriate Reserve Bank within 30 holding company’s process for assessing (A) A discussion of how the bank calendar days of the occurrence of one capital adequacy; holding company will, under expected of the following events: (B) Ensure that any deficiencies in the and stressful conditions, maintain (A) The bank holding company bank holding company’s process for capital commensurate with its risks, determines there has been or will be a assessing capital adequacy are maintain capital above the regulatory material change in the bank holding appropriately remedied; and capital ratios, and serve as a source of company’s risk profile, financial (C) Approve the bank holding strength to its subsidiary depository condition, or corporate structure since company’s capital plan. institutions; the bank holding company last

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submitted the capital plan to the Board requirements that apply under 12 CFR updated version of the severely adverse and the appropriate Reserve Bank under 217.11 pursuant to this paragraph (f). scenario. this section; or (2) Stress capital buffer requirement (g) Review of capital plans by the (B) The Board or the appropriate calculation. A bank holding company’s Federal Reserve. The Board, or the Reserve Bank with concurrence of the stress capital buffer requirement is equal appropriate Reserve Bank with Board, directs the bank holding to the greater of: concurrence of the Board, will consider company in writing to revise and (i)(A) The ratio of a bank holding the following factors in reviewing a resubmit its capital plan for any of the company’s common equity tier 1 risk- bank holding company’s capital plan: following reasons: based capital to risk-weighted assets, as (1) The comprehensiveness of the (1) The capital plan is incomplete or calculated under 12 CFR part 217, capital plan, including the extent to the capital plan, or the bank holding subpart D, as of the final quarter of the which the analysis underlying the company’s internal capital adequacy previous capital plan cycle, unless capital plan captures and addresses process, contains material weaknesses; otherwise determined by the Board; potential risks stemming from activities (2) There has been, or will likely be, minus across the bank holding company and a material change in the bank holding (B) The lowest projected ratio of the the bank holding company’s capital company’s risk profile (including a bank holding company’s common policy; material change in its business strategy equity tier 1 capital to risk-weighted (2) The reasonableness of the bank or any risk exposure), financial assets in any quarter of the planning holding company’s capital plan, the condition, or corporate structure; horizon under the supervisory stress test assumptions and analysis underlying (3) The BHC stress scenario(s) are not described in paragraph (f)(4) of this the capital plan, and the robustness of appropriate for the bank holding section; plus its capital adequacy process; company’s business model and (C) The sum of the ratios of the bank (3) Relevant supervisory information portfolios, or changes in financial holding company’s planned common about the bank holding company and its markets or the macro-economic outlook stock dividends (expressed as a dollar subsidiaries; (4) The bank holding company’s that could have a material impact on a amount) to projected risk-weighted regulatory and financial reports, as well bank holding company’s risk profile and assets for each of the fourth through as supporting data that would allow for financial condition require the use of seventh quarters of the planning an analysis of the bank holding updated scenarios; or horizon; or company’s loss, revenue, and reserve (4) For a bank holding company (ii) 2.5 percent. projections; subject to paragraph (i) of this section, (3) Stress leverage buffer requirement (5) The results of any stress tests the capital plan or the condition of the calculation. A bank holding company’s conducted by the bank holding bank holding company raise any of the stress leverage buffer requirement is company or the Federal Reserve; and issues described in paragraph (i)(2) of equal to: (6) Other information requested or this section. (i) The ratio of a bank holding required by the Board or the appropriate (ii) A bank holding company may company’s tier 1 capital to average total Reserve Bank, as well as any other resubmit its capital plan to the Federal consolidated assets, as calculated under information relevant, or related, to the Reserve if the Board or the appropriate 12 CFR part 217, subpart D, as of the bank holding company’s capital Reserve Bank objects to the capital plan. final quarter of the previous capital plan adequacy. (iii) The Board or the appropriate cycle, unless otherwise determined by (h) Federal Reserve notice of stress Reserve Bank with concurrence of the the Board; minus buffer requirements; final planned Board, may extend the 30-day period in (ii) The lowest projected leverage ratio capital distributions—(1) Timing of paragraph (e)(4)(i) of this section for up for the bank holding company in any notice. The Board will provide a bank to an additional 60 calendar days, or quarter during the planning horizon holding company with notice of its such longer period as the Board or the under the supervisory stress test stress buffer requirements by June 30 of appropriate Reserve Bank, with described in paragraph (f)(4) of this the calendar year in which the capital concurrence of the Board, determines section; plus plan was submitted pursuant to appropriate. (iii) The sum of the ratios of the bank paragraph (e)(1)(ii) of this section, (iv) Any updated capital plan must holding company’s planned common unless otherwise determined by the satisfy all the requirements of this stock dividends (expressed as a dollar Board. The notice will include an section; however, a bank holding amount) to the difference between explanation of the results of the company may continue to rely on projected total consolidated assets and supervisory stress test described in information submitted as part of a amounts projected to be deducted from paragraph (f)(4) of this section. previously submitted capital plan to the tier 1 capital under 12 CFR 217.22(a), (2) Response to notice; request for extent that the information remains (c), and (d) for each of the fourth reconsideration of stress capital buffer accurate and appropriate. through seventh quarters of the requirement or stress leverage buffer (5) Confidential treatment of planning horizon. requirement. A bank holding company information submitted. The (4) Supervisory stress test. The may request reconsideration of the confidentiality of information submitted supervisory stress test is the stress test stress buffer requirements provided to the Board under this section and conducted by the Board pursuant to 12 under paragraph (h)(1) of this section. related materials shall be determined in CFR part 252, subpart E, under the To request reconsideration of its stress accordance with applicable exemptions severely adverse scenario using the buffer requirements, a bank holding under the Freedom of Information Act assumptions regarding a bank holding company must submit to the Board a (5 U.S.C. 552(b)) and the Board’s Rules company’s capital actions over the written request pursuant to paragraph (j) Regarding Availability of Information planning horizon that are set forth in of this section. (12 CFR part 261). that section. For a capital plan (3) Response to notice; adjustments to (f) Calculation methodologies and resubmitted pursuant to paragraph (e)(4) planned capital distributions. Within supervisory practices—(1) General. The of this section, the Board may conduct two business days of receipt of notice of Board will determine the stress buffer the supervisory stress test using an its stress buffer requirements under

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paragraph (h)(1) or (j)(5) of this section, this section, within 2 business days of (ii) For a capital plan resubmitted as applicable, a bank holding company receipt of notice of the Board’s response pursuant to paragraph (e)(4) of this must: under paragraph (j)(5) of this section. section, within 75 calendar days after (i) Determine whether the capital (5) Final stress capital buffer the date on which a capital plan is distributions for the fourth through requirement and stress leverage buffer resubmitted, unless the Board provides seventh quarters of the planning horizon requirement; effective date. (i) The notice to the bank holding company that under the BHC baseline scenario Board will provide a bank holding it is extending the time period. included in the capital plan submitted company with its stress buffer (2) Basis for objection to a capital pursuant to paragraph (e)(1)(ii) of this requirements and confirmation of the plan. The Board may object to a capital section would be consistent with bank holding company’s final planned plan submitted by a bank holding effective capital distribution limitations, capital distributions by August 31 of the company that is not a large and assuming the stress buffer requirements calendar year that a capital plan was noncomplex bank holding company if provided by the Board under paragraph submitted, unless otherwise determined the Board determines that: (h)(1) or (j)(5) of this section, as by the Board. No stress buffer (i) The bank holding company has applicable; and requirements shall be considered final material unresolved supervisory issues, (ii) If the capital distributions for the so as to be agency action subject to including but not limited to issues fourth through seventh quarters of the judicial review under 5 U.S.C. 704 associated with its capital adequacy planning horizon under the BHC during the pendency of a request for process; baseline scenario included in the capital reconsideration, pursuant to paragraph (ii) The assumptions and analysis plan submitted pursuant to paragraph (j) of this section, or before the time for underlying the bank holding company’s (e)(1)(ii) of this section would not be requesting reconsideration has expired. capital plan, or the bank holding company’s methodologies and practices consistent with effective capital (ii) A bank holding company’s final that support its capital planning distribution limitations assuming the planned capital distributions and stress process, are not reasonable or stress buffer requirements, the bank buffer requirements shall: holding company must determine how appropriate; or (A) Unless otherwise determined by (iii) The bank holding company’s it would reduce its planned capital the Board, be effective on October 1 of distributions such that those planned capital planning process or proposed the calendar year in which a capital capital distributions would be capital distributions otherwise plan was submitted pursuant to consistent with effective capital constitute an unsafe or unsound paragraph (e)(1)(ii) of this section; and distribution limitations assuming the practice, or would violate any law, (B) Remain in effect until superseded, stress buffer requirements, and must regulation, Board order, directive, or unless otherwise determined by the notify the Board of these reductions; or condition imposed by, or written (iii) If the capital distributions for the Board. agreement with, the Board or the fourth through seventh quarters of the (6) Publication. With respect to any appropriate Reserve Bank. In planning horizon under the BHC bank holding company subject to this determining whether a capital plan or baseline scenario included in the capital section, the Board may disclose publicly any proposed capital distribution would plan submitted pursuant to paragraph any or all of the following items: constitute an unsafe or unsound (e)(1)(ii) of this section would be (i) The stress buffer requirements practice, the Board or the appropriate consistent with effective capital provided to a bank holding company Reserve Bank would consider whether distribution limitations assuming the under paragraph (h)(1) of this section the bank holding company is and would stress buffer requirements, the bank that includes the adjustments made remain in sound financial condition holding company may determine to under paragraph (h)(3) also of this after giving effect to the capital plan and adjust its planned capital distributions, section, if any; all proposed capital distributions. provided that the adjusted planned (ii) A summary of the results of the (3) Notification of decision. The Board capital distributions do not exceed the supervisory stress test described in or the appropriate Reserve Bank will amount included in the capital plan paragraph (f)(4) of this section; and notify the bank holding company in submitted pursuant to paragraph (iii) A bank holding company’s writing of the reasons for a decision to (e)(1)(ii) of this section, and, if any request for reconsideration under object to a capital plan. adjustments are made, must notify the paragraph (j) of this section, and the (4) General distribution limitation. If Board of these adjustments. Board’s response to any such request for the Board or the appropriate Reserve (4) Response to notice; final planned reconsideration or a summary thereof. Bank objects to a capital plan and until capital distributions. (i) If a bank (i) Federal Reserve action on a capital such time as the Board or the holding company does not request plan for bank holding companies that appropriate Reserve Bank with reconsideration under paragraph (j) of are not large and noncomplex bank concurrence of the Board, issues a non- this section, the Board will consider the holding companies—(1) Timing of objection to the bank holding company’s planned capital distributions, including action. The Board or the appropriate capital plan, the bank holding company any adjustments made pursuant to Reserve Bank with concurrence of the may not make any capital distribution, paragraph (h)(3) of this section, to be the Board, will object, in whole or in part, other than capital distributions arising bank holding company’s final planned to the capital plan of a bank holding from the issuance of a capital capital distributions on the expiration of company that is not a large and instrument eligible for inclusion in the the time for requesting reconsideration noncomplex bank holding company or numerator of a regulatory capital ratio or under paragraph (j) of this section. provide the bank holding company with capital distributions with respect to (ii) If a bank holding company a notice of non-objection to its capital which the Board or the appropriate requests reconsideration under plan: Reserve Bank has indicated in writing paragraph (j) of this section, the bank (i) Unless otherwise determined by its non-objection. holding company must provide the the Board, by June 30 of the calendar (5) Publication of summary results. Board with its final planned capital year in which a capital plan was The Board may disclose publicly its distributions, including any adjustments submitted pursuant to paragraph decision to object or not object to a bank made pursuant to paragraph (h)(3) of (e)(1)(ii) of this section; and holding company’s capital plan under

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this section, along with a summary of company of its decision to affirm or (iii) Except as provided in paragraph the results of the supervisory stress test withdraw the objection to the bank (k)(2) of this section, the dollar amount described in paragraph (f)(4) of this holding company’s capital plan, or a of the capital distribution will exceed section for that company. Any specific capital distribution, provided the dollar amount of the bank holding disclosure under this paragraph (i)(5) that the Board may extend this period company’s final planned capital will occur by June 30 of the calendar upon notice to the bank holding distributions, as measured on an year in which a capital plan was company. aggregate basis beginning in the fourth submitted pursuant to paragraph (ii) Within 30 calendar days of receipt quarter of the planning horizon through (e)(1)(ii) of this section, unless of the bank holding company’s request the quarter at issue; or otherwise determined by the Board. for reconsideration of its stress buffer (iv) The capital distribution would (j) Administrative Remedies; request requirement submitted under paragraph occur after the occurrence of an event for reconsideration. The following (j) of this section or within 30 days of requiring resubmission under paragraph requirements and procedures apply to the conclusion of an informal hearing (e)(4)(i)(A) or (B) of this section and any request under this paragraph (j): conducted under paragraph (j)(4) of this before the Federal Reserve has (1) General. To request section, the Board will notify the responded or acted under paragraphs (h) reconsideration of an objection to a company of its decision to affirm or and (i) of this section, as applicable. capital plan, provided under paragraph modify, as applicable, the bank holding (2) Exception for well capitalized (i) of this section, or of a stress buffer company’s stress buffer requirement, bank holding companies. (i) A bank requirement, provided under paragraph provided that the Board may extend this holding company may make a capital (h) of this section, a bank holding period upon notice to the bank holding distribution for which the dollar amount company must submit a written request company. exceeds the dollar amount of the bank for reconsideration. (6) Distributions during the pendency holding company’s final planned capital (2) Timing of request. (i) A request for of a request for reconsideration. During distributions if the following conditions reconsideration of an objection to a the pendency of the Board’s final are satisfied: decision under paragraph (j)(5) of this capital plan, provided under paragraph (A) The bank holding company is, and section, the bank holding company may (i) of this section, must be received after the capital distribution would make the capital distributions to which within 15 calendar days of receipt of a remain, well capitalized as defined in the Board or the appropriate Reserve notice of objection to a capital plan. § 225.2(r); (ii) A request for reconsideration of a Bank indicated its non-objection, except (B) The bank holding company’s stress buffer requirement, provided that, if the Board or the appropriate performance and capital levels are, and under paragraph (h) of this section, Reserve Bank has not yet indicated its after the capital distribution would must be received within 15 calendar non-objection for a quarter during remain, consistent with its projections days of receipt of a notice of bank which a decision under paragraph (j)(5) under the BHC baseline scenario; holding company’s stress buffer of this section is pending, the bank (C) The annual aggregate dollar requirement. holding company is authorized to make (3) Contents of request. (i) A request capital distributions that do not to amount of all capital distributions in the for reconsideration must include a exceed the four-quarter average of period beginning on July 1 of a calendar detailed explanation of why capital distributions to which the Board year and ending on June 30 of the reconsideration should be granted. With or the appropriate Reserve Bank following calendar year would not respect to any information that was not indicated its non-objection for the exceed the total dollar amounts of the previously provided to the Federal previous capital plan cycle, unless bank holding company’s final planned Reserve in the bank holding company’s otherwise determined by the Board. capital distributions by more than 0.25 capital plan, the request should include (k) Approval requirements for certain percent multiplied by the bank holding an explanation of why the information capital actions—(1) Circumstances company’s tier 1 capital, as reported to should be considered. requiring approval. A bank holding the Federal Reserve on the bank holding (ii) A request for reconsideration may company may not make a capital company’s most recent first-quarter FR include a request for an informal distribution (excluding any capital Y–9C; hearing on the bank holding company’s distribution arising from the issuance of (D) Between July 1 of a calendar year request for reconsideration. a capital instrument eligible for and March 15 of the following calendar (4) Hearing. (i) The Board may, in its inclusion in the numerator of a year, the bank holding company sole discretion, order an informal regulatory capital ratio) under the provides the appropriate Reserve Bank hearing if the Board finds that a hearing following circumstances, unless it with notice 15 calendar days prior to a is appropriate or necessary to resolve receives prior approval from the Board capital distribution that includes the disputes regarding material issues of or appropriate Reserve Bank pursuant to elements described in paragraph (k)(4) fact. paragraph (k)(5) of this section: of this section; and (ii) An informal hearing shall be held (i) After giving effect to the capital (E) The Board or the appropriate within 30 calendar days of a request, if distribution, the bank holding company Reserve Bank with concurrence of the granted, provided that the Board may would not meet a minimum regulatory Board, does not object to the transaction extend this period upon notice to the capital ratio; proposed in the notice. In determining requesting party. (ii) The Board or the appropriate whether to object to the proposed (5) Response to request. (i) Within 30 Reserve Bank with concurrence of the transaction, the Board or the appropriate calendar days of receipt of the bank Board, notifies the company in writing Reserve Bank shall apply the criteria holding company’s request for that the Federal Reserve has determined described in paragraph (k)(5)(ii) of this reconsideration of an objection to a that the capital distribution would section. capital plan submitted under paragraph result in a material adverse change to (ii) The exception in this paragraph (j) of this section or within 30 days of the company’s capital or liquidity (k)(2) shall not apply if the Board or the the conclusion of an informal hearing structure or that the company’s earnings appropriate Reserve Bank notifies the conducted under paragraph (j)(4) of this were materially underperforming bank holding company in writing that it section, the Board will notify the projections; is ineligible for this exception.

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(3) Net distribution limitation—(i) paragraph (k)(5) of this section, (4) Contents of request. (i) A request General. Notwithstanding a bank following a request for prior approval for a capital distribution under this holding company’s final planned capital from the bank holding company that section shall be filed between July 1 of distributions, the bank holding includes all of the information required a calendar year and March 1 of the company must reduce its capital to be submitted under paragraph (k)(4) following calendar year with the distributions in accordance with of this section; appropriate Reserve Bank and the Board paragraph (k)(3)(ii) of this section if the (B) To capital distributions arising and shall contain the following bank holding company raises a smaller from the issuance of a capital information: dollar amount of capital of a given instrument eligible for inclusion in the (A) The bank holding company’s category of regulatory capital numerator of a regulatory capital ratio current capital plan or an attestation instruments than it had included in its that the bank holding company had not that there have been no changes to the capital plan, as measured on an included in its capital plan; capital plan since it was last submitted aggregate basis beginning in the fourth (C) To the extent that the bank to the Federal Reserve; quarter of the planning horizon through holding company raised a smaller dollar (B) The purpose of the transaction; the end of the current quarter. amount of capital in the category of (C) A description of the capital (ii) Reduction of distributions—(A) regulatory capital instruments described distribution, including for redemptions Common equity tier 1 capital. If the in paragraph (k)(3)(i) of this section due or repurchases of securities, the gross bank holding company raises a smaller to employee-directed capital issuances consideration to be paid and the terms dollar amount of common equity tier 1 related to an employee stock ownership and sources of funding for the capital, the bank holding company must plan; transaction, and for dividends, the reduce its final planned capital (D) To the extent that the bank amount of the dividend(s); and distributions relating to common equity holding company raised a smaller dollar (D) Any additional information tier 1 capital such that net distributions amount of capital in the category of requested by the Board or the relating to common equity tier 1 capital regulatory capital instruments described appropriate Reserve Bank (which may are no greater than net final planned in paragraph (k)(3)(i) of this section due include, among other things, an capital distributions of common equity to a planned merger or acquisition that assessment of the bank holding tier 1 capital, as measured on an is no longer expected to be company’s capital adequacy under a aggregate basis beginning in the fourth consummated or for which the revised stress scenario provided by the quarter of the planning horizon through consideration paid is lower than the Federal Reserve, a revised capital plan, the end of the current quarter. and supporting data). (B) Additional tier 1 capital. If the projected price in the capital plan; or bank holding company raises a smaller (E) To the extent that the dollar (ii) Any request submitted with dollar amount of additional tier 1 amount by which the bank holding respect to a capital distribution capital, the bank holding company must company’s net distributions exceed the described in paragraph (k)(1)(i) of this reduce its final planned capital dollar amount of its net final planned section shall also include a plan for distributions relating to additional tier 1 capital distributions in the category of restoring the bank holding company’s capital (other than scheduled payments regulatory capital instruments described capital to an amount above a minimum on additional tier 1 capital instruments) in paragraph (k)(3)(i) of this section, as level within 30 calendar days and a such that the dollar amount of the bank measured on an aggregate basis rationale for why the capital holding company’s net distributions beginning in the fourth quarter of the distribution would be appropriate. relating to additional tier 1 capital is no planning horizon through the end of the (5) Approval of certain capital greater than the dollar amount of its net current quarter, is less than 0.25 percent distributions. (i) The Board or the final planned capital distributions of the bank holding company’s tier 1 appropriate Reserve Bank with relating to additional tier 1 capital, as capital, as reported to the Federal concurrence of the Board, will act on a measured on an aggregate basis Reserve on the bank holding company’s request under this paragraph (k)(5) beginning in the fourth quarter of the most recent first-quarter FR Y–9C; within 30 calendar days after the receipt planning horizon through the end of the between July 1 of a calendar year and of all the information required under current quarter. March 15 of the following calendar year, paragraph (k)(4) of this section. (C) Tier 2 capital. If the bank holding the bank holding company provides the (ii) In acting on a request under this company raises a smaller dollar amount appropriate Reserve Bank with notice 15 paragraph (k)(5), the Board or of tier 2 capital, the bank holding calendar days prior to any capital appropriate Reserve Bank will apply the company must reduce its final planned distribution in that category of considerations and principles in capital distributions relating to tier 2 regulatory capital instruments that paragraphs (g) and (i) of this section, as capital (other than scheduled payments includes the elements described in appropriate. In addition, the Board or on tier 2 capital instruments) such that paragraph (k)(4) of this section; and the the appropriate Reserve Bank may the dollar amount of the bank holding Board or the appropriate Reserve Bank disapprove the transaction if the bank company’s net distributions relating to with concurrence of the Board, does not holding company does not provide all of tier 2 capital is no greater than the object to the transaction proposed in the the information required to be dollar amount of its net final planned notice. In determining whether to object submitted under paragraph (k)(4) of this capital distributions relating to tier 2 to the proposed transaction, the Board section. capital, as measured on an aggregate or the appropriate Reserve Bank shall (6) Disapproval and hearing. (i) The basis beginning in the fourth quarter of apply the criteria described in Board or the appropriate Reserve Bank the planning horizon through the end of paragraph (k)(5)(ii) of this section. will notify the bank holding company in the current quarter. (iv) Exclusion from exceptions. The writing of the reasons for a decision to (iii) Exceptions. Paragraphs (k)(3)(i) exceptions in paragraph (k)(3)(iii) of this disapprove any proposed capital and (ii) of this section shall not apply: section shall not apply if the Board or distribution. Within 15 calendar days (A) To the extent that the Board or the appropriate Reserve Bank notifies after receipt of a disapproval by the appropriate Reserve Bank indicates in the bank holding company in writing Board, the bank holding company may writing its approval pursuant to that it is ineligible for this exception. submit a written request for a hearing.

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(A) The Board may, in its sole (2) The covered company will make capital instrument that is eligible for discretion, order an informal hearing if payments on instruments that qualify as inclusion in the numerator of a the Board finds that a hearing is additional tier 1 capital or tier 2 capital regulatory capital ratio; and appropriate or necessary to resolve equal to the stated dividend, interest, or (4) The covered company will not disputes regarding material issues of principal due on such instrument; make any issuances of common stock or fact. (3) The covered company will not preferred stock, except for issuances in (B) An informal hearing shall be held make a redemption or repurchase of any connection with a planned merger or within 30 calendar days of a request, if capital instrument that is eligible for acquisition to the extent that the merger granted, provided that the Board may inclusion in the numerator of a or acquisition is reflected in the covered extend this period upon notice to the regulatory capital ratio; and company’s pro forma balance sheet requesting party. (4) The covered company will not estimates. (C) Written notice of the final decision make any issuances of common stock or * * * * * of the Board shall be given to the bank preferred stock, except for issuances in ■ 10. Amend appendix B to part 252, as holding company within 60 calendar connection with a planned merger or proposed to be added at 82 FR 59528, days of the conclusion of any informal acquisition to the extent that the merger by revising section 2.7 and adding hearing ordered by the Board, provided or acquisition is reflected in the covered section 3.4 to read as follows: that the Board may extend this period company’s pro forma balance sheet upon notice to the requesting party. estimates. Appendix B to Part 252—Stress Testing (D) While the Board’s final decision is Policy Statement pending and until such time as the Subpart F—Company-Run Stress Test * * * * * Requirements for U.S. Bank Holding Board or the appropriate Reserve Bank 2.7. Credit Supply Maintenance with concurrence of the Board, approves Companies With $50 Billion or More in the capital distribution at issue, the Total Consolidated Assets and The supervisory stress test incorporates an assumption that restricts the contraction of bank holding company may not make Nonbank Financial Companies Supervised by the Board aggregate credit supply during the stress such capital distribution. period. The aim of supervisory stress testing (ii) [Reserved] ■ 8. Section 252.54 is amended by is to assess whether firms are sufficiently (l) Transition for certain planned revising paragraph (b)(2)(i) introductory capitalized to absorb losses during times of capital actions. For the period July 1 to text to read as follows: economic stress, while meeting obligations September 30, 2019, a bank holding and continuing to lend to households and company is authorized to make capital § 252.54 Annual stress test. businesses. While an individual firm may distributions that do not exceed the * * * * * assume that it reacts to rising losses by (b) * * * sharply restricting its lending, (e.g., by four-quarter average of capital exiting a particular business line), the distributions to which the Board or the (2) * * * banking industry as a whole cannot do so appropriate Reserve Bank indicated its (i) The Board may require a covered without creating a ‘‘credit crunch’’ and non-objection for the previous capital company with significant trading substantially increasing the severity and plan cycle, unless otherwise determined activity (a covered company that has duration of an economic downturn. Ensuring by the Board. aggregate trading assets and liabilities of that covered companies cannot assume they $50 billion or more, or aggregate trading will ‘‘shrink to health,’’ serves the Federal PART 252—ENHANCED PRUDENTIAL assets and liabilities equal to 10 percent Reserve’s goal of helping to ensure that major STANDARDS (REGULATION YY) or more of total consolidated assets, and financial firms remain sufficiently is not a large and noncomplex bank capitalized to accommodate credit demand in ■ 6. The authority citation for part 252 holding company, as defined in 12 CFR a severe downturn. continues to read as follows: Accordingly, in projecting a firm’s balance 225.8) to include a trading and sheet, the Federal Reserve will assume that Authority: 12 U.S.C. 321–338a, 481–486, counterparty component in its adverse the firm takes actions to maintain a constant 1467a, 1818, 1828, 1831n, 1831o, 1831p–l, and severely adverse scenarios in the level of assets, including loans, trading 1831w, 1835, 1844(b), 1844(c), 3101 et seq., stress test required by this section: assets, and securities over the planning 3101 note, 3904, 3906–3909, 4808, 5361, horizon. In order to implement this policy, 5362, 5365, 5366, 5367, 5368, 5371. * * * * * ■ 9. Section 252.56 is amended by the Federal Reserve must make assumptions revising paragraph (b) to read as follows: about new loan balances. To predict losses Subpart E—Supervisory Stress Test on new originations over the planning Requirements for U.S. Bank Holding § 252.56 Methodologies and practices. horizon, newly originated loans are assumed Companies With $50 Billion or More in to have the same risk characteristics as the Total Consolidated Assets and * * * * * (b) Assumptions regarding capital existing portfolio, where applicable, with the Nonbank Financial Companies exception of loan age and delinquency status. actions. In conducting a stress test Supervised by the Board These newly originated loans would be part under §§ 252.54 and 252.55, a covered of a covered company’s normal business, ■ 7. Section 252.44 is amended by company is required to make the even in a stressed economic environment. By adding paragraph (c) to read as follows: following assumptions regarding its precluding the need to make assumptions capital actions over the planning about how underwriting standards might § 252.44 Annual analysis conducted by the horizon: tighten or loosen during times of economic Board. (1) The covered company will not pay stress, the Federal Reserve adheres to * * * * * any dividends on any instruments that Principle 1.3 and promotes consistency (c) Assumptions. In conducting a qualify as common equity tier 1 capital; across covered companies. Similar to the stress test under this section, the Board (2) The covered company will make Board’s current methodology, balance sheet will make the following assumptions projections would reflect the impact of a payments on instruments that qualify as planned merger or acquisition, or completed regarding a covered company’s capital additional tier 1 capital or tier 2 capital or contractually agreed-on divestiture. actions over the planning horizon: equal to the stated dividend, interest, or In projecting the denominator for the (1) The covered company will not pay principal due on such instrument; calculation of the leverage ratio, the Federal any dividends on any instruments that (3) The covered company will not Reserve will account for the effect of changes qualify as common equity tier 1 capital; make a redemption or repurchase of any associated with the calculation of regulatory

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capital or changes to the Board’s regulations. remain unchanged over the planning the Board’s regulations in the calculation of As with the Board’s current methodology, horizon. This assumption allows the Federal risk-weighted assets. As with the Board’s leverage ratio denominator projections would Reserve to independently project firms’ risk- current methodology, risk-weighted asset reflect the impact of a planned merger or weighted assets in line with the goal of projections would reflect the impact of a acquisition, or completed or contractually simplicity (Principle 1.4). In addition, this planned merger or acquisition, or completed agreed-on divestiture. approach is forward-looking (Principle 1.2), or contractually agreed-on divestiture. * * * * * as this assumption removes reliance on By order of the Board of Governors of the historical data and past outcomes from the Federal Reserve System, April 10, 2018. 3.4. Simple Approach for Projecting Risk- projection of risk-weighted assets. Ann Misback, Weighted Assets In projecting a firm’s risk-weighted assets, Secretary of the Board. In projecting risk-weighted assets, the the Federal Reserve will account for the Federal Reserve will generally assume that a effect of changes associated with the [FR Doc. 2018–08006 Filed 4–24–18; 8:45 am] covered company’s risk-weighted assets calculation of regulatory capital or changes to BILLING CODE 6210–01–P

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