4569

Rules and Regulations Federal Register Vol. 85, No. 17

Monday, January 27, 2020

This section of the FEDERAL REGISTER DATES: The rule is effective April 1, B. Mechanics of the contains regulatory documents having general 2020. Exclusion applicability and legal effect, most of which C. Central Bank Deposit Exclusion Limit are keyed to and codified in the Code of FOR FURTHER INFORMATION CONTACT: D. Regulatory Reporting Requirements Federal Regulations, which is published under OCC: Venus Fan, Risk Expert, or IV. OCC Statement Regarding Standalone 50 titles pursuant to 44 U.S.C. 1510. Guowei Zhang, Risk Expert, Capital and Depository Institutions Regulatory Policy, (202) 649–6370; or V. Interaction of Section 402 With Other The Code of Federal Regulations is sold by Patricia Dalton, Director for Asset Rules the Superintendent of Documents. Management (202) 649–6401; or Rima A. Total Loss-Absorbing Capacity Kundnani, Attorney, or Christopher B. The Enhanced Supplementary Leverage DEPARTMENT OF THE TREASURY Rafferty, Attorney, Chief Counsel’s Ratio and Other Comments on the Office, (202) 649–5490; the Office of the Proposal Office of the Comptroller of the Comptroller of the , 400 7th VI. Impact Analysis Currency Street SW, Washington, DC 20219. VII. Regulatory Analysis A. Paperwork Reduction Act Board: Constance M. Horsley, Deputy B. Regulatory Flexibility Act Analysis 12 CFR Part 3 Associate Director, (202) 452–5239; C. Plain Language [Docket ID OCC–2019–0001] Teresa A. Scott, Manager, (202) 475– D. Riegle Community Development and 6316; Donald Gabbai, Lead Financial Regulatory Improvement Act of 1994 RIN 1557–AE60 Institution Policy Analyst, (202) 452– E. OCC Unfunded Mandates Reform Act of 3358; Division of Supervision and 1995 Determination SYSTEM Regulation; or Benjamin W. F. Congressional Review Act McDonough, Assistant General Counsel, I. Overview of the Proposal 12 CFR Part 217 (202) 452–2036; Mark Buresh, Senior [Docket ID R–1659] Counsel, (202) 452–5270; Mary Watkins, In April 2019, the Office of the Senior Attorney, (202) 452–3722; Legal RIN 7100–AF46 Comptroller of the Currency (OCC), Division, Board of Governors of the Board of Governors of the Federal FEDERAL DEPOSIT INSURANCE Federal Reserve System, 20th and C Reserve System (Board), and Federal CORPORATION Streets NW, Washington, DC 20551. For Deposit Insurance Corporation (FDIC) the hearing impaired only, (collectively, the agencies) published a 12 CFR Part 324 Telecommunication Device for the Deaf, notice of proposed rulemaking (202) 263–4869. (proposal) 1 to implement section 402 of RIN 3064–AE81 FDIC: Benedetto Bosco, Chief, Capital the Economic Growth, Regulatory Policy Section, [email protected]; Noah Regulatory Capital Rule: Revisions to Relief, and Consumer Protection Act Cuttler, Senior Policy Analyst, ncuttler@ 2 the Supplementary Leverage Ratio To (section 402). fdic.gov; Dushan Gorechan, Financial Exclude Certain Central Bank Deposits Section 402 requires the agencies to Analyst, [email protected]; Keith of Banking Organizations amend the supplementary leverage Bergstresser, Capital Markets Policy Predominantly Engaged in Custody, ratio, a measure of capital adequacy that Analyst, [email protected]; or Safekeeping, and Asset Servicing applies to large banking organizations. [email protected]; Capital Activities Under section 402, the supplementary Markets Branch, Division of Risk leverage ratio must not take into account AGENCY: The Office of the Comptroller Management Supervision, (202) 898– funds of a custodial bank that are of the Currency; the Board of Governors 6888; Michael Phillips, Counsel, deposited with certain central banks, of the Federal Reserve System; and the [email protected]; Catherine Wood, provided that any amount that exceeds Federal Deposit Insurance Corporation. Counsel, [email protected]; Supervision the value of deposits of the custodial ACTION: Final rule. Branch, Legal Division, Federal Deposit bank that are linked to fiduciary or Insurance Corporation, 550 17th Street custodial and safekeeping accounts SUMMARY: The Office of the Comptroller NW, Washington, DC 20429. must be taken into account when of the Currency, Board of Governors of SUPPLEMENTARY INFORMATION: calculating the supplementary leverage the Federal Reserve System, and Federal ratio as applied to the custodial bank.3 Table of Contents Deposit Insurance Corporation are Under section 402, central bank issuing a final rule to implement section I. Overview of the Proposal deposits that qualify for the exclusion 402 of the Economic Growth, Regulatory II. Background include deposits of custodial banks Relief, and Consumer Protection Act. A. The Supplementary Leverage Ratio placed with (1) the Federal Reserve Section 402 directs these agencies to B. Fiduciary, Custody, Safekeeping, and System, (2) the European Central Bank, amend the regulatory capital rule to Asset Servicing Activities III. Discussion of the Comments and Final and (3) central banks of member exclude from the supplementary countries of the Organisation for leverage ratio certain funds of banking Rule A. Scope of Applicability Economic Co-operation and organizations deposited with central 1. Definition of Custodial Banking banks if the banking organization is Organizations 1 84 FR 18175 (April 30, 2019). predominantly engaged in custody, 2. Assets Under Custody to Total Assets 2 Public Law 115–174, 132 Stat. 1296 (2018), safekeeping, and asset servicing Measure section 402. activities. 3. Scope of Covered Entities 3 Id. at 402(b)(2).

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Development (OECD),4 if the member implementation of section 402 would B. Fiduciary, Custody, Safekeeping, and country has been assigned a zero have on other aspects of the banking Asset Servicing Activities percent risk weight under the agencies’ sector. Certain banking organizations engage regulatory capital rule (capital rule) and The agencies have considered all the in fiduciary, custody, safekeeping, and the sovereign debt of such member comments received on the proposal. As asset servicing activities. Custody, country is not in default or has not been described in more detail below, the safekeeping, and asset servicing in default during the previous five agencies are adopting the proposal as a activities generally involve holding 5 years. Section 402 defines a custodial final rule without modification. The securities or other assets on behalf of bank as ‘‘any depository institution agencies are required under section 402 clients, as well as activities such as holding company predominantly to amend the capital rule to exclude transaction settlement, income engaged in custody, safekeeping, and from the supplementary leverage ratio processing, and related record keeping asset servicing activities, including any certain central bank deposits of banking and operational services. A banking insured depository institution organizations predominantly engaged in organization may also act as a fiduciary subsidiary of such a holding custody, safekeeping, and asset by, for example, acting as trustee or 6 company.’’ servicing activities. The agencies’ executor, or by having investment The proposal would have adoption of the proposal fulfills this discretion over the management of implemented section 402 by defining statutory requirement. The final rule client assets. Banking organizations the scope of banking organizations becomes effective on April 1, 2020. typically provide custody, safekeeping, considered to be predominantly engaged II. Background and asset servicing to their fiduciary in custody, safekeeping, and asset accounts. While many banking servicing activities and by providing the A. The Supplementary Leverage Ratio organizations offer some or all of these standard by which such banking The supplementary leverage ratio services, certain banking organizations organizations would determine the measures tier 1 capital relative to total specialize in these activities and often amount of central bank deposits that leverage exposure, which includes on- do not provide the same range or scale could be excluded from total leverage balance sheet assets (including deposits of traditional commercial or retail exposure, which is the denominator of at central banks) and certain off-balance banking products as are provided by the supplementary leverage ratio in the sheet exposures.7 A minimum other banking organizations.10 capital rule. supplementary leverage ratio of 3 Fiduciary and custody clients often Under the proposal, a depository percent applies to certain banking maintain cash deposits at the banking institution holding company with a organizations and their depository organization in connection with these ratio of assets under custody (AUC)-to- institution subsidiaries.8 In addition, services. Clients typically maintain cash total assets of at least 30:1 would have banking organizations that will be positions consisting of funds awaiting been considered predominantly engaged subject to Category I standards, which investment or distribution that are often in custody, safekeeping, and asset are the global systemically important in the form of deposits placed in servicing activities. Such a banking bank holding companies (U.S. GSIBs), banking organizations. These cash organization would have been termed a as well as their depository institution deposits help facilitate the ‘‘custodial banking organization.’’ A subsidiaries, are subject to enhanced administration of the custody account. custodial banking organization would supplementary leverage ratio (eSLR) Under U.S. generally accepted have excluded from the supplementary standards. The eSLR standards require accounting principles (U.S. GAAP), cash leverage ratio deposits placed at a each U.S. GSIB to maintain a deposits at a banking organization are a ‘‘qualifying central bank,’’ which would supplementary leverage ratio above 5 deposit liability and thus appear on the have included a Federal Reserve Bank, percent to avoid limitations on the banking organization’s balance sheet. the European Central Bank, or any firm’s distributions and certain Cash deposits that are linked to central bank of a member country of the discretionary bonus payments and also custody and fiduciary accounts at OECD if the member country meets require each of its insured depository banking organizations fluctuate certain criteria. The amount of central institutions to maintain a depending on the activities of the bank deposits that could have been supplementary leverage ratio of at least banking organization’s custodial clients. excluded from total leverage exposure 6 percent to be deemed ‘‘well For example, cash deposit balances of would have been limited by the amount capitalized’’ under the prompt such banking organizations generally of deposit liabilities of the custodial corrective action framework of each increase during periods when clients banking organization that are linked to agency.9 liquidate securities, such as during fiduciary or custody and safekeeping times of stress. To assist in managing accounts. 7 12 CFR 3.10(a)(5) and (c)(4) (OCC); 12 CFR these cash fluctuations, banking The agencies collectively received six 217.10(a)(5) and (c)(4) (Board); 12 CFR 324.10(a)(5) organizations may maintain significant comment letters on the proposal (from and (c)(4) (FDIC). cash deposits at central banks. Central banking organizations and other 8 The agencies recently adopted final rules bank deposits can be used as an asset- interested parties). Some commenters tailoring the application of capital requirements, liability management strategy to were supportive of the agencies’ including the supplementary leverage ratio, based on a banking organization’s risk profile (tailoring facilitate these banking organizations’ proposal to implement section 402. rules). See 84 FR 59230 (November 1, 2019), ability to support custodial clients’ Other commenters acknowledged that available at https://www.federalreserve.gov/about cash-related needs. Under U.S. GAAP, the agencies are required to implement thefed/boardmeetings/20191010open.htm. Under section 402 but raised various concerns the tailoring rules, the minimum supplementary leverage ratio requirement applies to banking than $700 billion in total consolidated assets or regarding the potential effect that organizations subject to Category I, II, and III more than $10 trillion in assets under custody is standards. The tailoring rules will be effective subject to the eSLR standards. 12 CFR 6.4(c) (OCC); 4 The OECD is an intergovernmental organization December 31, 2019. Until the tailoring rules are 12 CFR 324.403(b) (FDIC). Under the Board’s rule, founded in 1961 to stimulate economic progress effective, the supplementary leverage ratio applies a bank holding company that is a U.S. GSIB is and global trade. A list of OECD member countries to advanced approaches banking organizations. subject to the eSLR standards. See 12 CFR is available on the OECD’s website, www.oecd.org. 9 See 79 FR 24528 (May 1, 2014). Under OCC and 217.11(d); 12 CFR part 217, subpart H. 5 Public Law 115–174, section 402(a). FDIC rules, a depository institution that is a 10 See OCC Comptrollers Handbook, Custody 6 Id., at 402(b). subsidiary of a bank holding company with more Services (January 2002).

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central bank deposits placed by the provide a measure of a banking safekeeping, and asset servicing banking organization are on-balance organization’s custody, safekeeping, and activities separately from income sheet assets of the banking organization. asset servicing business relative to its derived from fiduciary activities. In other businesses. An income-based addition and as noted above, an income- III. Discussion of the Comments and measure would show the percentage of based measure likely would not result Final Rule a banking organization’s income that it in a different outcome than an asset- A. Scope of Applicability derives from custodial, safekeeping, and based measure, as the agencies’ analysis asset servicing activities. As described revealed a significant positive 1. Definition of Custodial Banking in the proposal, the agencies’ analysis correlation between the AUC-to-total Organization on both measures indicated a clear assets measure and the income-based The proposal would have defined a separation between The Bank of New measure. depository institution holding company York Mellon Corporation, Northern As noted in the proposal, an AUC-to- predominantly engaged in custody, Trust Corporation, and State Street total assets measure provides a metric safekeeping, and asset servicing Corporation, and the other depository for sizing a banking organization’s activities, together with any subsidiary institution holding companies subject to custodial, safekeeping, and asset depository institution, as a ‘‘custodial the supplementary leverage ratio.14 The servicing business as compared with its banking organization.’’ 11 To qualify as a agencies’ analysis also revealed a other activities. Such a measure would custodial banking organization under significant positive correlation between compare assets held in custody—a the proposal, a depository institution the AUC-to-total assets measure and the major activity of banking organizations holding company would have been income-based measure.15 The agencies primarily focused on custody, required to have a ratio of AUC-to-total proposed the AUC-to-total assets safekeeping, and asset servicing assets of at least 30:1, calculated as an measure to identify and define a activities—relative to on-balance sheet average over the prior four calendar custodial banking organization because assets. The measure is objective because quarters. it appeared to function well and AUC often comprises marketable For the proposal, the agencies minimized burden by relying on already securities or other assets with widely considered various measures that they reported data. quoted market values, and banking could use to identify and define a The agencies received several organizations typically exercise little or custodial banking organization. As comments on the proposed definition of no valuation discretion when measuring AUC. In addition, the AUC-to-total noted in the proposal, the agencies a custodial banking organization. One commenter supported adoption of the assets measure is derived from items believe that the phrase ‘‘predominantly AUC-to-total assets measure under the that are publicly reported and is subject engaged in custodial, safekeeping, and proposal as a simple assessment that is to review by regulators, banking asset servicing activities’’ suggests that consistent with legislative intent, and organizations, and the public. the banking organization’s business did not support the use of an income- For these reasons, the agencies are model is primarily focused on custody, based measure because it would adopting as final the proposed use of an safekeeping, and asset servicing increase reporting burden. Another AUC-to-total assets measure as the basis activities, as compared to its commenter, however, supported an for defining a custodial banking commercial lending, investment income-based measure to determine a organization. banking, or other banking activities.12 custodial banking organization, arguing A commenter pointed out that the Specifically, the agencies considered that an income-based measure would be agencies omitted ‘‘asset servicing both an AUC-to-total assets measure and more accurate than an asset-based activities’’ from the definitions of an income-based measure to implement ‘‘fiduciary or custodial and safekeeping 13 measure in a stress environment. section 402. AUC-to-total assets would While an income-based measure account’’ and ‘‘custodial banking would show the percentage of a banking organization’’ in several parts of the 11 The agencies note that the term ‘‘custodial bank’’ under the FDIC’s risk-based deposit organization’s income that it derives proposal. Section 402 defines ‘‘custodial insurance assessments serves a separate purpose from custodial, safekeeping, and asset bank’’ as a ‘‘depository institution than the term ‘‘custodial banking organization’’ servicing activities, the agencies are holding company predominantly under this final rule. See 12 CFR 327.5(c). For concerned that such an approach would engaged in custody, safekeeping, and assessment purposes, the FDIC defines a custodial bank consistent with section 331 of the Dodd-Frank increase reporting burden for banking asset servicing activities.’’ In contrast Wall Street Reform and Consumer Protection Act, organizations subject to the with the term ‘‘custodial banking which requires the FDIC to define a custodial bank supplementary leverage ratio, as organization’’ in section 402, the statute based on factors including the percentage of total banking organizations do not currently uses the term ‘‘fiduciary or custodial revenues generated by custodial businesses and the level of assets under custody. report income from custodial, and safekeeping account’’ to describe 12 See, e.g., 115 Cong. Rec. S1544 (Mar. 8, 2018) the limit on the exclusion of deposits at (statement of Sen. Corker) (‘‘Section 402 is not of these activities relative to the banking qualifying central banks and does not intended to provide relief to an organization organization’s other activities. include ‘‘asset servicing activities’’ in engaged in consumer banking, investment banking, 14 See 84 FR 18175, 18179. The legislative history this context. Accordingly, the final rule or other businesses, and that also happens to have of section 402 suggests that members of Congress some custodial business or a banking subsidiary identified the same three institutions as custodial does not use the phrase ‘‘asset servicing that engages in custodial activities . . . section 402 banking organizations. See, e.g., 115 Cong. Rec. activities’’ in the context of the was intended as a very narrowly tailored provision, S1714 (Mar. 14, 2018) (statement of Sen. Warner) exclusion. focused on true custodial banks.’’); see also H.R. (‘‘Section 402 provides relief to only three banks: Rep. No. 115–656, at 3–4 (2018) (‘‘Banks that have Bank of New York Mellon, State Street, and 2. Assets Under Custody to Total Assets a predominant amount of businesses derived from Northern Trust . . . This provision does not mean Measure custodial services are different from banks that that, if a bank has a large custodial business, it engage in a wide variety of banking activities should get relief . . . .); 115 Cong Rec. S1659 (Mar. In defining a custodial banking . . . .’’). 13, 2018) (statement of Sen. Heitkamp) (‘‘Under the organization, the proposal would have 13 The agencies also considered using an absolute plain reading of [section 402], the three custodial set a threshold for the AUC-to-total amount measure, but such a measure would only banking organizations are the only three institutions take the size of a banking organization’s custodial, that are predominantly engaged in the custody assets ratio at 30:1. This threshold safekeeping, and asset servicing activities into business.’’). represents the midpoint between the account rather than considering the predominance 15 See 84 FR 18175, 18178. lowest AUC-to-total assets measure of

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banking organizations that are subject to significant fluctuations in a banking receive any comments on this issue. the supplementary leverage ratio and organization’s AUC-to-total assets ratio, Accordingly, the scope of application that specialize in providing custody, which is a particular concern under and definition of custodial banking safekeeping, and asset servicing services stress conditions. The 30:1 AUC-to-total organization are adopted in this final between second quarter of 2016 through assets measure also would limit the rule as proposed. the third quarter of 2018 (52:1) and the potential for a banking organization B. Mechanics of the Central Bank highest such measure experienced by subject to the supplementary leverage Deposit Exclusion other banking organizations subject to ratio that does not predominantly the supplementary leverage ratio (9:1) engage in custody, safekeeping, and Under the proposal, the amount of over the same period. This amount also asset servicing activities, as compared to central bank deposits eligible for takes into account potential changes in its other activities, to qualify as a exclusion from total leverage exposure such banking organizations’ ratio of custodial banking organization. The would have equaled the average daily AUC-to-total assets during a stress agencies did not receive comments on balance over the reporting quarter of all environment. As noted in the proposal, the proposed threshold. In addition, deposits placed with a ‘‘qualifying the agencies recognize that a banking expanding the analysis to include the central bank.’’ Under the proposal, and organization’s ratio of AUC-to-total first and second quarters of 2019 consistent with section 402, a qualifying assets may fluctuate significantly during produces the same range of AUC-to-total central bank would have meant a a stress environment as client securities assets ratios. For the reasons provided Federal Reserve Bank, the European decline in value or as clients liquidate above, the agencies are adopting as final Central Bank, or a central bank of a custodial securities and deposit the cash the proposed threshold of 30:1 for the member country of the OECD if an with the banking organization (thus AUC-to-total assets measure. exposure to the member country increasing the banking organization’s receives a zero percent risk weight 3. Scope of Covered Entities total assets). Among The Bank of New under section 32 of the capital rule and York Mellon, Northern Trust Under the proposal, any subsidiary the sovereign debt of such member Corporation, and State Street depository institution of a U.S. top-tier country is not in default or has not been depository institution holding company in default during the previous five Corporation, the lowest AUC-to-total 20 assets ratio observed during the period that qualifies as a custodial banking years. The proposal would have from the second quarter of 2016 through organization also would be a custodial calculated the exclusion amount based the third quarter of 2018 was banking organization and therefore on the average daily balance of deposits with a qualifying central bank over the approximately 52:1.16 This means that could exclude from total leverage reporting quarter to align with the the banking organization had exposure all deposits with a qualifying calculation of on-balance sheet assets in approximately $52 in AUC for every $1 central bank that are recognized on its total leverage exposure.21 recognized in their total on-balance consolidated balance sheet in the same manner as its parent depository The agencies did not receive any sheet assets. In comparison, among the comments addressing the mechanics of other depository institution holding institution holding company.18 In other words, the proposal would not have the central bank deposit exclusion. One companies subject to the supplementary commenter stated that custodial banking leverage ratio, the highest AUC-to-total required such a subsidiary depository institution to satisfy separately a ratio of organizations should be permitted to assets ratio observed during that same distribute profits received from interest period was approximately 9:1. An AUC- AUC-to-total assets to be able to make this exclusion. The agencies believe this earned on excess reserves. The agencies to-total assets ratio of 30:1 is also less note that this rulemaking does not affect approach is both simple and consistent than the minimum estimated ratio for the types of deposits that a bank may with section 402, which defines a The Bank of New York Mellon, have with a Federal Reserve Bank, or ‘‘custodial bank’’ based on the Northern Trust Corporation, and State the interest paid on those deposits. Street Corporation (35:1) over the period characteristics of the holding company In addition, as discussed in the from 2004 through the third quarter of and provides that such a subsidiary Supplementary Information to the 2018, which includes the 2007–2009 depository institution may also exclude proposal, all deposits placed with a financial crisis.17 deposits at qualifying central banks Federal Reserve Bank qualify for the The proposal also incorporated use of from its supplementary leverage ratio, to rule’s central bank deposit exclusion, a four-quarter average for the AUC-to- the extent that these deposits do not including deposits in a master account, total assets measure. This approach exceed deposit liabilities of the banking deposits in a term that would further minimize the effect of organization that are linked to fiduciary offers an early withdrawal feature, and or custodial and safekeeping accounts. deposits in an excess balance account.22 16 The agencies also sought comment on Banking organizations report AUC on the FR Any deposits with a qualifying central Form Y–15, Schedule C, Item 3, and banking whether to expand the scope of bank denominated in a foreign currency organizations report total consolidated assets on the application and definition of custodial FR Form Y–9C, Schedule HC, Item 12. Quarterly should be measured in U.S. dollars to banking organization to include a reporting of the FR Y–15 became effective starting determine the amount of the deposits depository institution that is not with the June 30, 2016 date. that can be excluded from total leverage 17 The agencies reviewed insured depository controlled by a holding company and institution-level data from the Consolidated Reports that has a ratio of AUC-to-total assets of 20 Under section 32 of the capital rule, an of Condition and Income (Call Report) to at least 30:1.19 The agencies did not approximate the holding company-level AUC-to- exposure to a member country that qualifies for a total assets ratios of advanced approaches banking zero percent risk weight cannot also be in default organizations during the financial crisis, because 18 This rule applies to all depository institution or have been in default during the previous five banking organizations began reporting FR Y–15 in subsidiaries of a custodial banking organization years. The agencies included this latter provision in 2015. Information regarding AUC was derived from holding company, including uninsured national the proposal, however, for clarity and to align with Call Report, Schedule RC–T, Items 10 and 11, banks and Federal savings associations. However, section 402. 12 CFR 3.32(a) (OCC); 12 CFR 217.32(a) Columns A (managed assets) and B (non-managed the final rule does not apply to Federal branches (Board); 12 CFR 324.32(a) (FDIC). assets), and was used as a proxy for AUC at the and agencies supervised by the OCC. 21 12 CFR 3.10(c)(4)(i)(A) (OCC); 12 CFR holding company level, as most custodial services 19 See 84 FR 18175, 18180 (April 30, 2019) for the 217.10(c)(4)(i)(A) (Board); 12 CFR 324.10(c)(4)(i)(A) are conducted out of insured depository institution agencies’ description of this proposed addition to (FDIC). subsidiaries. the rule, and request for comment. 22 84 FR 18175, 18180 (April 30, 2019).

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exposure. Similarly, central bank insurance assessments (FDIC exclusion linkage between a deposit account and deposits recognized on the consolidated limit) includes the concept of a ‘‘linked’’ a fiduciary or custody and safekeeping balance sheet of a custodial banking deposit and that the Call Report collects account. However, the agencies are not organization may include cash information related to such linked directly defining the linkage standard in placements with a central bank made by deposits on Schedule RC–O.23 In the final rule by reference to the FDIC a foreign bank subsidiary. Although a addition, the agencies sought comment exclusion limit or Schedule RC–O. foreign bank subsidiary itself will not be on whether the proposed definition of The FDIC exclusion limit and the a custodial banking organization, any fiduciary or custody and safekeeping reporting instructions to Schedule RC– qualifying central bank deposits of the account should explicitly reference the O were designed for the purpose of foreign bank subsidiary may be reporting instructions under Schedule determining risk-based deposit excluded from total leverage exposure of RC–T. insurance assessments for insured the parent organization to the extent One commenter supported defining depository institutions. In addition, the that the central bank deposits are the scope of fiduciary or custodial and FDIC exclusion limit and reporting consolidated on the balance sheet of the safekeeping accounts in a manner that instructions in Schedule RC–O were parent organization and have satisfied does not deviate materially from the designed to limit the custodial bank the requirements for a qualifying central current scope of fiduciary and custody deduction to transaction account bank deposit. and safekeeping accounts reported deposit liabilities and therefore The agencies are adopting as final the under schedule RC–T of the Call Report. Schedule RC–O would not capture non- proposed mechanics of the central bank To mitigate additional compliance transaction account deposit liabilities.24 deposit exclusion. obligations for the purpose of section In contrast to the FDIC exclusion limit, this final rule applies to both custodial C. Central Bank Deposit Exclusion Limit 402, the commenter supported using the FDIC exclusion limit and reporting banking organization holding Consistent with section 402, the instructions in Schedule RC–O to companies and custodial banking proposal would have limited the determine whether a deposit account is organization subsidiary depository amount of a custodial banking linked to a fiduciary or custodial and institutions; uses a different standard to organization’s deposits with a qualifying safekeeping account. define a custodial banking organization; central bank that could have been The agencies are adopting as final the and applies only to custodial banking excluded from total leverage exposure. proposed definition of fiduciary or organizations that are subject to the In particular, the amount of such custodial and safekeeping accounts. As supplementary leverage ratio. The deposits that could have been excluded noted in the proposal, the agencies agencies believe that not directly could not have exceeded an amount anticipate that the scope of the fiduciary defining the linkage standard by equal to the on-balance-sheet deposit or custodial and safekeeping accounts reference to schedule RC–O and the liabilities of the custodial banking under the rule should not deviate FDIC exclusion limit is appropriate in organization that were linked to materially from the current scope of the light of the purpose served by section fiduciary or custody and safekeeping fiduciary and custody and safekeeping 402 (that is, prudential regulation of accounts. After considering the accounts reported under Schedule RC– custodial banking organizations’ comments discussed below, the T of the Call Report. However, the regulatory capital) as compared to agencies are adopting this aspect of the agencies are clarifying that because this deposit insurance assessments, and proposal without change. final rule applies to both custodial because section 402 applies to a narrow The proposal would have defined a banking organization holding set of the largest banking organizations fiduciary or custodial and safekeeping companies and custodial banking (that is, banking organizations that account as an account administered by organization subsidiary depository qualify as custodial banking a custodial banking organization for institutions, and because holding organizations that are subject to the which the custodial banking companies do not report Schedule RC– supplementary leverage ratio). In light organization provides fiduciary or T of the Call Report, the agencies are not of these differences, the agencies are custodial and safekeeping services, as referring directly to schedule RC–T for adopting as final the proposal’s authorized by applicable federal and the scope of fiduciary or custodial and provision that a deposit account is state law. Under the proposal, a deposit safekeeping accounts. considered linked to a fiduciary or account would have been considered The agencies are clarifying that the custodial and safekeeping account if the linked to a fiduciary or custodial and existing FDIC exclusion limit and the deposit account is used to facilitate the safekeeping account if the deposit reporting instructions to Schedule RC– administration of the fiduciary or account is used to facilitate the O are factors that a banking organization custody and safekeeping account. administration of the fiduciary or may take into account to determine The fact that a client has both a custody and safekeeping account. deposit account and a fiduciary or The agencies sought comment on the 23 See 12 CFR 327.5(c) (Assessment base for custody and safekeeping account at the advantages and disadvantages of using custodial banks) and FFIEC 031 and FFIEC 041 same custodial banking organization, or the FDIC exclusion limit or the Instructions, Schedule RC–O, Item No. 11.b., an affiliate or subsidiary of such reporting instructions to Schedule RC– Custodial bank deduction limit (‘‘An institution that meets the definition of custodial bank is custodial banking organization, would O of the Call Report for purposes of eligible to have the FDIC deduct certain assets from not by itself be sufficient for those determining linkage between a deposit its assessment base, subject to a limit . . . which accounts to be considered ‘‘linked’’ for account and a fiduciary or custody and equals the average amount of the institution’s purposes of the final rule. On the other safekeeping account to calculate the transaction account deposit liabilities identified by the institution as being directly linked to a hand, cash deposits may be used to limit on the amount of deposits that fiduciary, custodial, or safekeeping account facilitate the administration of a custody could be excluded from total leverage reported in Schedule RC–T—Fiduciary and Related or fiduciary account, such as holding exposure. In particular, the proposal Services. The titling of a transaction account or interest and dividend payments related noted that the asset exclusion limit for specific references in the deposit account documents should clearly demonstrate the link to securities held in the custody or ‘‘custodial banks’’ provided under the between the transaction account and a fiduciary, FDIC’s regulations for purposes of custodial, or safekeeping account.’’), available at 24 76 FR 10680 (February 25, 2011) (FDIC determining risk-based deposit www.ffiec.gov. assessments regulation).

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fiduciary account; cash transfers or disclosure requirements in section 173, capital allocation without improving distributions from the custody or and would exclude qualifying central risk assessment, because the differences fiduciary account; and the purchases bank deposits from total leverage between the measures would only and sale of securities for the account. exposure as reported under section 173. reflect the amount of central bank Deposit accounts used in these ways placements. IV. OCC Statement Regarding The agencies are adopting as final the would be considered linked for Standalone Depository Institutions purposes of the final rule. proposed treatment of total leverage Consistent with section 402, under As discussed in section III, the exposure. This treatment will align the the final rule, a custodial banking agencies sought comment on whether to TLAC rule with the supplementary organization may exclude from total expand the scope of application and leverage ratio and reduce burden by not leverage exposure the lesser of (1) the definition of ‘‘custodial banking requiring separate calculations for total amount of central bank deposits placed organization’’ to include a depository leverage exposure under each of the at qualifying central banks by the institution that is not controlled by a TLAC rule and the supplementary custodial banking organization holding company and that has a ratio of leverage ratio. AUC-to-total assets of at least 30:1. For (including deposits placed by B. The Enhanced Supplementary consolidated subsidiaries), and (2) the the reasons stated in the proposal,29 the OCC is considering this question for a Leverage Ratio and Other Comments on amount of on-balance sheet deposit the Proposal liabilities of the custodial banking future rulemaking. organization (including consolidated Several commenters acknowledged V. Interaction of Section 402 With that the agencies are required to subsidiaries) that are linked to fiduciary Other Rules or custodial and safekeeping accounts.25 implement section 402 but raised One commenter asked the agencies to A. Total Loss-Absorbing Capacity various concerns regarding the potential clarify that the calculation of the central Under the Board’s total loss-absorbing effect that implementation of section bank exclusion limit must be done on a capacity (TLAC) rule, a covered 402 could have on other aspects of the quarterly basis, consistent with the company is subject to requirements that, banking sector. Two commenters raised calculations required under Schedule in part, rely on the covered company’s concerns that implementation of section RC–T and RC–O.26 In calculating the total leverage exposure.30 Thus, changes 402 would lead to a market central bank exclusion limit, a custodial to the calculation of total leverage concentration in custody services and banking organization should calculate exposure under this final rule could provide custodial banking organizations the amount of deposit liabilities linked affect the amount of eligible external with a competitive advantage relative to to a fiduciary or custody and TLAC required to be held by a covered banking organizations that are subject to safekeeping account as the average company that is also a custodial banking the supplementary leverage ratio but are deposit liabilities for such accounts, organization. Under the proposal, the not eligible to exclude central bank calculated as of each day of the revised definition of total leverage deposits. To help mitigate these reporting quarter. This approach is exposure for custodial banking concerns, these commenters urged for consistent with the calculation of on- organizations would also apply for finalization of the proposal to balance sheet assets for purposes of the purposes of the TLAC rule. recalibrate the eSLR standards issued by 31 supplementary leverage ratio. Some commenters stated that the the Board and OCC. definition of total leverage exposure The agencies did not propose D. Regulatory Reporting Requirements should be consistent across the recalibrating the eSLR standards as part Banking organizations report their supplementary leverage ratio and TLAC of this rulemaking. Therefore, the supplementary leverage ratios on FFIEC requirements. The commenters asserted agencies view comments on the eSLR Form 101, Schedule A and Form Y–9C, that inconsistent treatment across the standards as outside the scope of this Schedule HC–R, and Call Reports, supplementary leverage ratio and TLAC rulemaking. Another commenter noted Schedule RC–R. The agencies recently requirements would be in tension with that while the agencies are required to proposed modifications to the the legislative intent of section 402. implement section 402, the agencies are regulatory reporting requirements for Commenters stated that including not prevented from using other the supplementary leverage ratio in a central bank deposits in TLAC for authorities to counteract the potential separate publication in the Federal custodial banking organizations could effects of section 402 through making Register to reflect the implementation of undermine the ability for such deposits changes to other parts of the capital the central bank deposit exclusion to serve as a for client rule. As noted above, the proposal was described in this final rule.27 The cash during a stress event. In addition, designed to implement section 402, and agencies’ adoption of these regulatory commenters asserted that there is no the agencies did not seek comment on reporting requirements would fulfill the compelling policy rationale for other changes. Changes to the capital disclosure requirements for purposes of requiring a banking organization to rule that do not address the the capital rule.28 In particular, include in TLAC an asset for which supplementary leverage ratio are outside custodial banking organizations subject there is no corresponding capital of the scope of this rulemaking, but may to the supplementary leverage ratio requirement under the supplementary be considered by the agencies in would be subject to the corresponding leverage ratio. Commenters also stated subsequent rulemakings. that the use of different measures for the VI. Impact Analysis 25 The final rule does not affect the calculation of supplementary leverage ratio and TLAC the size indicator under the Board’s Banking rule would increase complexity for bank Under the final rule, a top-tier U.S. Organization Systemic Risk Report (FR Y–15). depository institution holding company 26 While the custodial bank deduction limit in 29 See 84 FR 18175, 18180 (April 30, 2019) for the that qualifies as a custodial banking item 11.b. of Schedule RC–O is reported on a agencies’ description of this proposed addition to organization, and any of its depository quarterly basis, the limit is based on an average that the rule and request for comment. As discussed institution subsidiaries, will be able to is calculated on a daily or weekly basis. previously, the agencies received no comments on 27 84 FR 53227 (October 4, 2019). this issue. exclude certain central bank deposits 28 See 12 CFR 3.173 (OCC); 12 CFR 217.173 30 12 CFR 252.60 through 252.65; 12 CFR 252.160 (Board); 12 CFR 324.173 (FDIC). through 252.167. 31 83 FR 17317 (April 19, 2018).

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from total leverage exposure, subject to applicable leverage and risk-based and other constraints applicable at the limits as described above. For custodial capital requirements binds a depository custodial banking organization holding banking organization holding institution at any given time.36 The risk company level are expected to limit the companies and their lead depository profile and the capital requirements for amount of capital that such a holding institution subsidiaries, the agencies the activities and exposures of a banking company could distribute outside of the estimate that central bank deposits organization determine which capital consolidated organization, thus limiting eligible for exclusion represent between requirement is binding. any safety and soundness or financial 20 and 28 percent of their total leverage Thus, the final rule would reduce the stability concerns for the holding exposure.32 Based on an exclusion of amount of tier 1 capital that must be company as a whole due to reduced this amount from each of these banking maintained by a custodial banking requirements at the depository organization’s total leverage exposure, organization holding company only if institution level. In addition, the the final rule may result in an estimated the supplementary leverage ratio agencies have regulatory and decrease in the amount of tier 1 capital currently serves as the binding capital supervisory tools to ensure that required by the supplementary leverage requirement for the banking depository institutions and holding ratio of approximately $8 billion in organization.37 Data from the third companies maintain appropriate aggregate across the top-tier U.S. quarter of 2018 shows that top-tier U.S. amounts of capital for their operations depository institution holding depository institution holding and risk profile. companies and approximately $8 billion companies that are expected to qualify in aggregate across their lead depository as custodial banking organizations VII. Regulatory Analyses institution subsidiaries.33 However, this currently are bound by post-stress A. Paperwork Reduction Act estimate relates solely to the capital requirements. The risk-based supplementary leverage ratio and does capital standards applicable to these The agencies’ capital rule contains not take into account any other organizations also require a higher ‘‘collections of information’’ within the applicable capital constraints that amount of tier 1 capital than the amount meaning of the Paperwork Reduction would prevent a decrease in tier 1 of tier 1 capital that would be required Act (PRA) of 1995 (44 U.S.C. 3501– capital. Rather, the binding capital under the final rule for purposes of the 3521). In accordance with the requirement for a given banking supplementary leverage ratio. Therefore, requirements of the PRA, the agencies organization is the capital requirement the final rule is not expected to decrease may not conduct or sponsor, and the that requires the highest amount of the amount of tier 1 capital maintained respondent is not required to respond regulatory capital.34 Holding companies by such holding companies. to, an information collection unless it are subject to leverage, risk-based, and The supplementary leverage ratio as displays a currently valid Office of post-stress capital requirements, and of the third quarter 2018 serves as the Management and Budget (OMB) control only one of these requirements binds an binding constraint for two depository number. The OMB control number for individual holding company at any institution subsidiaries of custodial the OCC is 1557–0318, Board is 7100– given time.35 Similarly, only one of the banking organization holding 0313, and FDIC is 3064–0153. The companies. Accordingly, under the final information collections that are part of 32 Analysis reflects data from the Consolidated rule, the amount of tier 1 capital the agencies’ capital rule will not be Financial Statements for Holding Companies (FR required of those institutions to the affected by this final rule and therefore Y–9C), the Consolidated Reports of Condition and supplementary leverage ratio will no final submissions will be made by Income for a Bank with Domestic and Foreign Offices (FFIEC 031), the Regulatory Capital decrease by approximately $7 billion, the FDIC or OCC to OMB under section Reporting for Institutions Subject to the Advanced which represents approximately 23 3507(d) of the PRA (44 U.S.C. 3507(d)) Capital Adequacy Framework (FFIEC 101), as percent of the total amount of tier 1 and § 1320.11 of the OMB’s reported by The Bank of New York Mellon implementing regulations (5 CFR part Corporation, Northern Trust Corporation, and State capital that must be maintained by those Street Corporation and their depository institution institutions as of the third quarter 2018. 1320) in connection with this subsidiaries as of third quarter 2018, as well as data As described above, given the rulemaking. from the 2018 Comprehensive Capital Analysis and applicable capital requirements for Related to the final rule, there are Review and confidential information on central bank deposits as of third quarter 2018 collected parent holding companies of these required changes to the Consolidated through the supervisory process. The reporting depository institutions, the final rule is Reports of Condition and Income (Call period of 2018 was chosen in the final rule for not expected to decrease the amount of Reports) (FFIEC 031, FFIEC 041, and consistency and comparability of the impact tier 1 capital maintained by such FFIEC 051), the Regulatory Capital analysis with the proposed rule. 33 Because The Bank of New York Mellon holding companies. Reporting for Institutions Subject to the Corporation and State Street Corporation are each One commenter expressed concern Advanced Capital Adequacy Framework U.S. GSIBs, the amount of tier 1 capital required to that the rule might allow custodial (FFIEC 101), and the Consolidated meet regulatory minimums and avoid limitations on banking organizations to reduce the Financial Statements for Holding capital distributions is based on a 5 percent minimum supplementary leverage ratio amount of tier 1 capital and urged the Companies (FR Y–9C; OMB No. 7100– requirement at the holding company level and a 6 agencies to use other authorities to 0128 (Board)), which will be addressed percent minimum supplementary leverage ratio offset the potential capital impact. As through one or more separate Federal requirement at the depository institution subsidiary described above, the capital standards 38 level. Because Northern Trust Corporation is not a Register notices. U.S. GSIB, its required amount of tier 1 capital is B. Regulatory Flexibility Act Analysis based on a 3 percent supplementary leverage ratio GSIBs, to hold capital in excess of the minimum requirement at both the holding company and capital ratios by requiring them to demonstrate the OCC: The Regulatory Flexibility Act, ability to satisfy the capital requirements, including depository institution subsidiary levels. 5 U.S.C. 601 et seq., (RFA), requires an 34 For purposes of this analysis, a capital the supplementary leverage ratio, under stressful requirement is considered binding at the level that conditions. 12 CFR 225.8(e)(2). agency, in connection with a proposed it would impose restrictions on the ability of a 36 Depository institutions are not subject to post- rule, to prepare an Initial Regulatory banking organization to make capital distributions stress capital requirements. Flexibility Analysis describing the or if the banking organization would no longer be 37 The findings set forth in this impact analysis impact of the rule on small entities considered ‘‘well capitalized’’ under the agencies’ with respect to the release of capital pertain only prompt corrective action framework. to the revisions under this rule, and do not consider (defined by the Small Business 35 The Board’s capital plan rule requires certain the capital impact of anticipated or potential future large bank holding companies, including the U.S. changes to the capital rule. 38 See 84 FR 53227 (October 4, 2019).

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Administration (SBA) for purposes of revises the capital rule to implement entities hold $514 billion in assets, the RFA to include commercial banks section 402 of EGRRCPA. Specifically, accounting for 16.6 percent of total and savings institutions with total assets the final rule allows custodial banking assets held by FDIC-supervised of $600 million or less and trust organization to exclude from the institutions.45 companies with total revenue of $41.5 denominator of the supplementary The final rule applies to only three million or less) or to certify that the leverage ratio certain funds of the advanced approaches banking proposed rule would not have a banking organization that are deposited organizations, one of which has an IDI significant economic impact on a with central banks. The supplementary subsidiary that is FDIC-supervised and substantial number of small entities. As leverage ratio applies only to advanced has less than $600 million in total of December 31, 2018, the OCC approaches banking organizations, assets.46 However, that institution is not supervised 782 small entities. The rule which are very large banking a small entity for the purposes of RFA would impose requirements on four organizations and their depository since it is owned by a holding company OCC supervised entities that are subject institution subsidiaries regardless of with over $600 million in total assets. to the advanced approaches risk-based size.41 Therefore, the final rule is not Since this final rule does not affect any capital rule, which typically have assets expected to apply to a substantial FDIC-supervised institutions that are in excess of $250 billion, and therefore number of small entities.42 The Board defined as small entities for the would not be small entities. Therefore, does not expect that the final rule will purposes of the RFA, the FDIC certifies the OCC certifies that the final rule result in a material change in the level that the rule will not have a significant would not have a significant economic of capital maintained by small banking economic impact on a substantial impact on a substantial number of OCC- organizations or in the compliance number of small entities. supervised small entities. burden on small banking organizations. C. Plain Language Board: An initial regulatory flexibility For these reasons, the Board does not analysis (IRFA) was included in the expect the rule to have a significant Section 722 of the Gramm-Leach- proposal in accordance with section economic impact on a substantial Bliley Act 47 requires the Federal 603(a) of the Regulatory Flexibility Act number of small entities. banking agencies to use plain language (RFA), 5 U.S.C. 601 et seq. (RFA). In the FDIC: The Regulatory Flexibility Act in all proposed and final rules IRFA, the Board requested comment on (RFA), 5 U.S.C. 601 et seq., generally published after January 1, 2000. The the effect of the proposed rule on small requires an agency, in connection with agencies sought to present the final rule entities and on any significant a final rule, to prepare and make in a simple and straightforward manner, alternatives that would reduce the available for public comment a final and did not receive any comments on regulatory burden on small entities. The regulatory flexibility analysis that the use of plain language. Board did not receive any comments on describes the impact of a final rule on D. Riegle Community Development and 43 the IRFA. The RFA requires an agency small entities. However, a regulatory Regulatory Improvement Act of 1994 to prepare a final regulatory flexibility flexibility analysis is not required if the analysis unless the agency certifies that agency certifies that the rule will not Pursuant to section 302(a) of the the rule will not, if promulgated, have have a significant economic impact on Riegle Community Development and a significant economic impact on a a substantial number of small entities. Regulatory Improvement Act 48 substantial number of small entities. The Small Business Administration (RCDRIA), in determining the effective Based on its analysis, and for the (SBA) has defined ‘‘small entities’’ to date and administrative compliance reasons stated below, the Board certifies include banking organizations with total requirements for new regulations that that the rule will not have a significant assets of less than or equal to $600 impose additional reporting, disclosure, economic impact on a substantial million if they are either independently or other requirements on IDIs, each number of small entities.39 owned and operated or owned by a Federal banking agency must consider, Under regulations issued by the Small holding company that also has less than consistent with principles of safety and Business Administration, a small entity $600 million in total assets.44 soundness and the public interest, any includes a bank, bank holding company, As of June 30, 2019, there were 3,424 administrative burdens that such or savings and loan holding company FDIC-supervised institutions, of which regulations would place on depository with assets of $600 million or less and 2,665 are considered small entities for institutions, including small depository trust companies with total assets of the purposes of RFA. These small institutions, and clients of depository $41.5 million or less (small banking institutions, as well as the benefits of organization).40 On average since the 41 See 12 CFR 217.100. such regulations. In addition, section second quarter of 2018, there were 42 To the extent any small entities are subject to 302(b) of RCDRIA requires new approximately 2,976 small bank holding the final rule, they will be small subsidiaries within regulations and amendments to large organizations and would be expected to rely regulations that impose additional companies, 133 small savings and loan on their parent banking organizations rather than holding companies, 70 small state bearing material costs in connection with the final reporting, disclosures, or other new member banks and no small trust rule. requirements on IDIs generally to take companies. 43 5 U.S.C. 601 et seq. effect on the first day of a calendar As discussed in the Supplementary 44 The SBA defines a small banking organization quarter that begins on or after the date Information section, the final rule as having $600 million or less in assets, where an on which the regulations are published organization’s ‘‘assets are determined by averaging 49 the assets reported on its four quarterly financial in final form. 39 5 U.S.C. 605(b). statements for the preceding year.’’ See 13 CFR The agencies considered the 40 See 13 CFR 121.201. Effective August 19, 2019, 121.201 (as amended by 84 FR 34261, effective administrative burdens and benefits of the Small Business Administration revised the size August 19, 2019). In its determination, the ‘‘SBA the rule in determining its effective date standards for banking organizations to $600 million counts the receipts, employees, or other measure of in assets from $550 million in assets. 84 FR 34261 size of the concern whose size is at issue and all 45 FDIC Call Report, June 30, 2019. (July 18, 2019). Consistent with the General of its domestic and foreign affiliates.’’ See 13 CFR 46 Principles of Affiliation 13 CFR 121.103, Board 121.103. Following these regulations, the FDIC uses Id. counts the assets of all domestic and foreign a covered entity’s affiliated and acquired assets, 47 Public Law 106–102, section 722, 113 Stat. affiliates when determining if the Board should averaged over the preceding four quarters, to 1338, 1471 (1999). classify a Board-supervised institution as a small determine whether the covered entity is ‘‘small’’ for 48 12 U.S.C. 4802(a). entity. the purposes of RFA. 49 12 U.S.C. 4802.

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and administrative compliance List of Subjects (ii) The sovereign debt of the member requirements. As such, the final rule country is not in default or has not been 12 CFR Part 3 will be effective on April 1, 2020. in default during the previous 5 years. Administrative practice and * * * * * E. OCC Unfunded Mandates Reform Act procedure, Capital, National banks, of 1995 Determination ■ 3. Section 3.10 is amended by revising Risk. paragraph (c)(4)(ii) introductory text and The OCC has analyzed the final rule 12 CFR Part 217 adding paragraph (c)(4)(ii)(J) to read as under the factors in the Unfunded follows: Mandates Reform Act of 1995 Administrative practice and § 3.10 Minimum capital requirements. (UMRA).50 Under this analysis, the OCC procedure, Banks, Banking, Capital, considered whether the final rule Federal Reserve System, Holding * * * * * includes a Federal mandate that may companies. (c) * * * result in the expenditure by State, local, 12 CFR Part 324 (4) * * * and tribal governments, in the aggregate, (ii) For purposes of this part, total Administrative practice and or by the private sector, of $100 million leverage exposure means the sum of the procedure, Banks, Banking, Capital or more in any one year (adjusted items described in paragraphs adequacy, Savings associations, State annually for inflation). The UMRA does (c)(4)(ii)(A) through (H) of this section, non-member banks. as adjusted pursuant to paragraph not apply to regulations that incorporate (c)(4)(ii)(I) for a member requirements specifically set forth in Office of the Comptroller of the national bank and Federal savings law. Currency association and paragraph (c)(4)(ii)(J) for The OCC’s estimated UMRA cost is For the reasons set out in the joint a custody bank: near zero. Therefore, the OCC finds that preamble, the OCC amends 12 CFR part * * * * * the final rule does not trigger the UMRA 3 as follows: (J) A custodial bank shall exclude cost threshold. Accordingly, the OCC from its total leverage exposure the PART 3—CAPITAL ADEQUACY has not prepared the written statement lesser of: STANDARDS described in section 202 of the UMRA. (1) The amount of funds that the custody bank has on deposit at a F. The Congressional Review Act ■ 1. The authority citation for part 3 qualifying central bank; and continues to read as follows: For purposes of Congressional Review (2) The amount of funds that the Act, the Office of Management and Authority: 12 U.S.C. 93a, 161, 1462, custody bank’s clients have on deposit 1462a, 1463, 1464, 1818, 1828(n), 1828 note, Budget (OMB) makes a determination as at the custody bank that are linked to 1831n note, 1835, 3907, 3909, and fiduciary or custodial and safekeeping to whether a final rule constitutes a 5412(b)(2)(B). ‘‘major’’ rule.51 If a rule is deemed a accounts. For purposes of this paragraph ‘‘major rule’’ by OMB, the Congressional ■ 2. Section 3.2 is amended by adding (c)(4)(ii)(J), a deposit account is linked Review Act generally provides that the the definitions of ‘‘Custody bank’’, to a fiduciary or custodial and rule may not take effect until at least 60 ‘‘Fiduciary or custodial and safekeeping safekeeping account if the deposit days following its publication.52 account’’, and ‘‘Qualifying central bank’’ account is provided to a client that in alphabetical order to read as follows: maintains a fiduciary or custodial and The Congressional Review Act defines safekeeping account with the custody a ‘‘major rule’’ as any rule that the § 3.2 Definitions. bank, and the deposit account is used to Administrator of the Office of * * * * * facilitate the administration of the Information and Regulatory Affairs of Custody bank means a national bank fiduciary or custody and safekeeping the OMB finds has resulted in or is or Federal savings association that is a account. likely to result in (A) an annual effect subsidiary of a depository institution * * * * * on the economy of $100,000,000 or holding company that is a custodial more; (B) a major increase in costs or banking organization under 12 CFR FEDERAL RESERVE SYSTEM prices for consumers, individual 217.2. 12 CFR Chapter II industries, Federal, State, or local * * * * * Authority and Issuance government agencies or geographic Fiduciary or custodial and regions, or (C) significant adverse effects safekeeping account means, for For the reasons set forth in the on competition, employment, purposes of § 3.10(c)(4)(ii)(J), an account preamble, chapter II of title 12 of the investment, productivity, innovation, or administered by a custody bank for Code of Federal Regulations is amended on the ability of United States-based which the custody bank provides as set forth below: enterprises to compete with foreign- fiduciary or custodial and safekeeping PART 217—CAPITAL ADEQUACY OF based enterprises in domestic and services, as authorized by applicable BANK HOLDING COMPANIES, 53 export markets. As required by the Federal or state law. SAVINGS AND LOAN HOLDING Congressional Review Act, the agencies * * * * * COMPANIES, AND STATE MEMBER will submit the final rule and other Qualifying central bank means: BANKS (REGULATION Q) appropriate reports to Congress and the (1) A Federal Reserve Bank; Government Accountability Office for ■ 4. The authority citation for part 217 (2) The European Central Bank; and review. continues to read as follows: (3) The central bank of any member country of the OECD, if: Authority: 12 U.S.C. 248(a), 321–338a, 50 2 U.S.C. 1531 et seq. 481–486, 1462a, 1467a, 1818, 1828, 1831n, 51 5 U.S.C. 801 et seq. (i) Sovereign exposures to the member 1831o, 1831p–l, 1831w, 1835, 1844(b), 1851, 52 5 U.S.C. 801(a)(3). country would receive a zero percent 3904, 3906–3909, 4808, 5365, 5368, 5371, 53 5 U.S.C. 804(2). risk-weight under § 3.32; and and 5371 note.

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■ 5. Section 217.2 is amended by adding items described in paragraphs holding company that is a custodial the definitions of ‘‘Custodial banking (c)(4)(ii)(A) through (H) of this section, banking organization under 12 CFR organization,’’ ‘‘Fiduciary or custodial as adjusted pursuant to paragraph 217.2. and safekeeping accounts,’’ and (c)(4)(ii)(I) for a clearing member Board- * * * * * ‘‘Qualifying central bank’’ in regulated institution and paragraph Fiduciary or custodial and alphabetical order to read as follows: (c)(4)(ii)(J) for a custodial banking safekeeping account means, for organization: § 217.2 Definitions. purposes of § 324.10(c)(4)(ii)(J), an * * * * * account administered by a custody bank * * * * * (J) A custodial banking organization for which the custody bank provides Custodial banking organization shall exclude from its total leverage fiduciary or custodial and safekeeping means: exposure the lesser of: services, as authorized by applicable (1) A Board-regulated institution that (1) The amount of funds that the Federal or state law. is: custodial banking organization has on * * * * * (i) A top-tier depository institution deposit at a qualifying central bank; and holding company domiciled in the (2) The amount of funds in deposit Qualifying central bank means: United States that has assets under accounts at the custodial banking (1) A Federal Reserve Bank; custody that are at least 30 times the organization that are linked to fiduciary (2) The European Central Bank; and amount of the depository institution or custodial and safekeeping accounts at (3) The central bank of any member holding company’s total assets; or the custodial banking organization. For country of the Organisation for (ii) A state member bank that is a purposes of this paragraph (c)(4)(ii)(J), a Economic Co-operation and subsidiary of a depository institution deposit account is linked to a fiduciary Development, if: holding company described in or custodial and safekeeping account if (i) Sovereign exposures to the member paragraph (1)(i) of this definition. the deposit account is provided to a country would receive a zero percent (2) For purposes of this definition, client that maintains a fiduciary or risk-weight under § 324.32; and total assets are equal to the average of custodial and safekeeping account with (ii) The sovereign debt of the member the banking organization’s total the custodial banking organization and country is not in default or has not been consolidated assets for the four most the deposit account is used to facilitate in default during the previous 5 years. recent calendar quarters. Assets under the administration of the fiduciary or * * * * * custody are equal to the average of the custodial and safekeeping account. ■ 9. Section 324.10 is amended by Board-regulated institution’s assets * * * * * under custody for the four most recent revising paragraph (c)(4)(ii) introductory calendar quarters. FEDERAL DEPOSIT INSURANCE text and adding paragraph (c)(4)(ii)(J) to * * * * * CORPORATION read as follows: Fiduciary or custodial and 12 CFR Chapter III § 324.10 Minimum capital requirements. safekeeping account means, for Authority and Issuance * * * * * purposes of § 217.10(c)(4)(ii)(J), an (c) * * * account administered by a custodial For the reasons set forth in the banking organization for which the preamble, chapter III of title 12 of the (4) * * * custodial banking organization provides Code of Federal Regulations is amended (ii) For purposes of this part, total fiduciary or custodial and safekeeping as set forth below. leverage exposure means the sum of the services, as authorized by applicable items described in paragraphs Federal or state law. PART 324—CAPITAL ADEQUACY OF (c)(4)(ii)(A) through (H) of this section, FDIC-SUPERVISED INSTITUTIONS as adjusted pursuant to paragraph * * * * * (c)(4)(ii)(I) for a clearing member FDIC- Qualifying central bank means: ■ 7. The authority citation for part 324 supervised institution and paragraph (1) A Federal Reserve Bank; continues to read as follows: (c)(4)(ii)(J) for a custody bank: (2) The European Central Bank; and Authority: 12 U.S.C. 1815(a), 1815(b), (3) The central bank of any member * * * * * 1816, 1818(a), 1818(b), 1818(c), 1818(t), (J) A custody bank shall exclude from country of the Organisation for 1819(Tenth), 1828(c), 1828(d), 1828(i), Economic Co-operation and 1828(n), 1828(o), 1831o, 1835, 3907, 3909, its total leverage exposure the lesser of: Development, if: 4808; 5371; 5412; Pub. L. 102–233, 105 Stat. (1) The amount of funds that the (i) Sovereign exposures to the member 1761, 1789, 1790 (12 U.S.C. 1831n note); Pub. custody bank has on deposit at a country would receive a zero percent L. 102–242, 105 Stat. 2236, 2355, as amended qualifying central bank; and risk-weight under § 217.32; and by Pub. L. 103–325, 108 Stat. 2160, 2233 (12 (2) The amount of funds in deposit (ii) The sovereign debt of the member U.S.C. 1828 note); Pub. L. 102–242, 105 Stat. accounts at the custody bank that are country is not in default or has not been 2236, 2386, as amended by Pub. L. 102–550, linked to fiduciary or custodial and 106 Stat. 3672, 4089 (12 U.S.C. 1828 note); safekeeping accounts at the custody in default during the previous 5 years. Pub. L. 111–203, 124 Stat. 1376, 1887 (15 * * * * * U.S.C. 78o–7 note). bank. For purposes of this paragraph (c)(4)(ii)(J), a deposit account is linked ■ 6. Section 217.10 is amended by ■ 8. Section 324.2 is amended by adding to a fiduciary or custodial and revising paragraph (c)(4)(ii) introductory the definitions of ‘‘Custody bank,’’ safekeeping account if the deposit text and adding paragraph (c)(4)(ii)(J) to ‘‘Fiduciary or custodial and safekeeping account is provided to a client that read as follows: accounts,’’ and ‘‘Qualifying central maintains a fiduciary or custodial and bank’’ in alphabetical order as follows: § 217.10 Minimum capital requirements. safekeeping account with the custody * * * * * § 324.2 Definitions. bank and the deposit account is used to (c) * * * * * * * * facilitate the administration of the (4) * * * Custody bank means an FDIC- fiduciary or custodial and safekeeping (ii) For purposes of this part, total supervised institution that is a account. leverage exposure means the sum of the subsidiary of a depository institution * * * * *

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Dated: November 19, 2019. useful guidance to regulated entities is with those rules and statutes.6 But they Joseph M. Otting, an important aspect of facilitating may not address all situations. Where Comptroller of the Currency. markets that serve consumers. there are multiple methods of Since its inception, the Bureau has compliance that are permitted by the By order of the Board of Governors of the provided guidance through a variety of applicable rules and statutes, an entity Federal Reserve System, November 19, 2019. means, and its guidance functions have can make its own business decision Ann E. Misback, evolved and are continuing to evolve in regarding which method to use, and this Secretary of the Board. response to feedback from industry and may include a method that is not Federal Deposit Insurance Corporation. other stakeholders. Some examples of specifically addressed in a Compliance By order of the Board of Directors. compliance resources that the Bureau Aid. In sum, regulated entities are not required to comply with the Compliance Dated at Washington, DC, on November 19, has released include small entity 2019. compliance guides, instructional guides Aids themselves. Regulated entities are only required to comply with the Annmarie H. Boyd, for disclosure forms, executive summaries, summaries of regulation underlying rules and statutes. Assistant Executive Secretary. changes, factsheets, flow charts, Compliance Aids are designed to [FR Doc. 2019–28293 Filed 1–24–20; 8:45 am] compliance checklists, frequently asked accurately summarize and illustrate the BILLING CODE 6210–01–P 4810–33–P; 6714–01–P questions, and summary tables. underlying rules and statutes. Accordingly, when exercising its II. Policy Statement on Compliance enforcement and supervisory discretion, BUREAU OF CONSUMER FINANCIAL Aids the Bureau does not intend to sanction, PROTECTION Going forward, the Bureau intends to or ask a court to sanction, entities that establish a new category of materials reasonably rely on Compliance Aids. 12 CFR Chapter X that are similar to previous compliance II. Regulatory Requirements Policy Statement on Compliance Aids resources but will now be designated as ‘‘Compliance Aids.’’ This designation This policy statement constitutes a AGENCY: Bureau of Consumer Financial will provide the public with greater general statement of policy that is Protection. clarity regarding the legal status and exempt from the notice and comment ACTION: Policy statement. role of these materials, as discussed rulemaking requirements of the below.3 Administrative Procedure Act.7 It is SUMMARY: The Bureau of Consumer The Bureau does not intend to use intended to provide information Financial Protection (Bureau) is Compliance Aids to make decisions that regarding the Bureau’s general plans to publishing this policy statement in bind regulated entities. Unlike the exercise its discretion and does not order to announce a new designation for Bureau’s regulations and official confer any rights. Because no notice of certain Bureau guidance, known as interpretations, Compliance Aids are proposed rulemaking is required, the ‘‘Compliance Aids,’’ and to explain the not ‘‘rules’’ under the Administrative Regulatory Flexibility Act does not legal status and role of guidance with 4 require an initial or final regulatory Procedure Act. Rather, Compliance 8 that designation. Aids present the requirements of flexibility analysis. The Bureau has DATES: This policy statement becomes existing rules and statutes in a manner also determined that this policy applicable on February 1, 2020. that is useful for compliance statement does not impose any new or FOR FURTHER INFORMATION CONTACT: professionals, other industry revise any existing recordkeeping, Christopher Shelton, Counsel, or Lea stakeholders, and the public.5 reporting, or disclosure requirements on Mosena, Senior Counsel, Legal Division, Compliance Aids may also include covered entities or members of the 202–435–7700. Regulatory inquiries can practical suggestions for how entities public that would be collections of be submitted at https:// might choose to go about complying information requiring approval by the reginquiries.consumerfinance.gov/. If Office of Management and Budget under the Paperwork Reduction Act.9 you require this document in an 3 This policy statement does not apply to alternative electronic format, please materials that do not bear the label ‘‘Compliance Pursuant to the Congressional Review 10 contact [email protected]. Aid,’’ or to the use of outdated materials that have Act, the Bureau will submit a report been withdrawn or superseded. It also does not containing this policy statement and SUPPLEMENTARY INFORMATION: alter the status of materials that were issued before other required information to the United this policy statement, although the Bureau may re- I. Background issue certain existing materials as Compliance Aids States Senate, the United States House of Representatives, and the Comptroller The Bureau’s ‘‘primary functions’’ if it is in the public interest and as Bureau resources permit. Moreover, this policy statement does not General of the United States prior to its under the Dodd-Frank Wall Street determine the policies of regulators other than the applicability date. The Office of Reform and Consumer Protection Act 1 Bureau. Information and Regulatory Affairs has include issuing guidance implementing 4 Under the Administrative Procedure Act, designated this policy statement as not Federal consumer financial law.2 The generally a ‘‘rule’’ is an agency statement of general or particular applicability and future effect a ‘‘major rule’’ as defined by 5 U.S.C. Bureau believes that providing clear and designed to implement, interpret, or prescribe law 804(2). or policy. 5 U.S.C. 551(4). The three main categories 1 Public Law 111–203, 124 Stat. 2081 (2010). of rules are substantive rules, interpretive rules, and 6 See, e.g., Indus. Safety Equip. Ass’n, Inc. v. EPA, 2 12 U.S.C. 5511(c)(5). Moreover, the Dodd-Frank general statements of policy. Some examples of 837 F.2d 1115, 1120–21 (D.C. Cir. 1988) (an Act authorizes the Director of the Bureau to issue rules are regulations like Regulation Z, 12 CFR part agency’s ‘‘hortatory advice’’ regarding potential guidance as may be necessary or appropriate to 1026, and official interpretations like the Official methods for complying with a rule is not itself a enable the Bureau to administer and carry out the Interpretations to Regulation Z, 12 CFR part 1026, rule under the Administrative Procedure Act). purposes and objectives of the Federal consumer supp. I. 7 financial laws and to prevent evasions thereof. 12 5 See, e.g., Golden & Zimmerman, LLC v. 5 U.S.C. 553(b). However, this is not a U.S.C. 5512(b)(1). Additionally, the Bureau is Domenech, 599 F.3d 426, 432 (4th Cir. 2010) ‘‘statement of policy’’ as that term is specifically authorized to establish general policies, including (agency documents like FAQs that ‘‘restate or report used in Regulation X, 12 CFR 1024.4(a)(1)(ii). with respect to implementing the Federal consumer what already exists in the relevant body of statutes, 8 5 U.S.C. 603(a), 604(a). financial laws through guidance. 12 U.S.C. regulations, and rulings’’ are not themselves rules 9 44 U.S.C. 3501–3521. 5492(a)(10). under the Administrative Procedure Act). 10 5 U.S.C. 801–808.

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