82950 Federal Register / Vol. 88, No. 226 / Monday, November 27, 2023 / Rules and Regulations 

1Capital Requirements for Supervised 

Institutions Significantly Engaged in Insurance 

Activities, 81 FR 38631 (June 14, 2016). 

2Regulatory Capital Rules: Risk-Based Capital 

Requirements for Depository Institution Holding 

Companies Significantly Engaged in Insurance 

Activities, 84 FR 57240 (October 24, 2019). 

3Public Law 111–203, 124 Stat. 1376, 1435–38 

(2010), as amended by Public Law 113–279, 128 

Stat. 3017 (2014). 

4 12 U.S.C. 1467a. 

5 12 U.S.C. 5371. 

6 Id. 

FEDERAL RESERVE SYSTEM 

12 CFR Parts 217, 238, and 252 

[Docket No. R–1673] 

RIN 7100–AF56 

Regulatory Capital Rules: Risk-Based 

Capital Requirements for Depository 

Institution Holding Companies 

Significantly Engaged in Insurance 

Activities 

AGENCY: Board of Governors of the 

Federal Reserve System. 

ACTION: Final rule. 

SUMMARY: The Board of Governors of the 

Federal Reserve System is adopting riskbased capital requirements for 

depository institution holding 

companies that are significantly engaged 

in insurance activities. This risk-based 

capital framework, termed the Building 

Block Approach, adjusts and aggregates 

existing legal entity capital 

requirements to determine enterprisewide capital requirements. The final 

rule also contains a risk-based capital 

requirement excluding insurance 

activities, in compliance with section 

171 of The Dodd-Frank Wall Street 

Reform and Consumer Protection Act. 

The Board also is adopting a reporting 

form FR Q–1 related to the Building 

Block Approach. The capital 

requirements and associated reporting 

form meet statutory mandates and will 

help to prevent the economic and 

consumer impacts resulting from the 

failure of organizations engaged in 

banking and insurance. 

DATES: This rule is effective on January 

1, 2024. 

FOR FURTHER INFORMATION CONTACT: Lara 

Lylozian, Deputy Associate Director and 

Chief Accountant, (202) 475–6656; Matt 

Walker, Manager, Insurance Supervision 

& Regulation, (202) 872–4971; or John 

Muska, Lead Insurance Policy Analyst, 

(202) 384–7278; Division of Supervision 

and Regulation; or Dafina Stewart, 

Assistant General Counsel, (202) 452– 

2677; Andrew Hartlage, Special 

Counsel, (202) 452–6483; Jonah Kind, 

Senior Counsel, (202) 452–2045; or 

Jasmin Keskinen, Attorney, (202) 475– 

6650, Legal Division, Board of 

Governors of the Federal Reserve 

System, 20th Street and Constitution 

Avenue NW, Washington, DC 20551. 

For users of TTY–TRS, please call 711 

from any telephone, anywhere in the 

United States. 

SUPPLEMENTARY INFORMATION: 

Table of Contents 

I. Introduction 

A. Background 

B. Description of the Building Block 

Approach 

C. Summary of Comments Received on the 

NPR and Form FR Q–1 

D. Main Changes in the Final Rule and 

Form FR Q–1 

II. Effective Date and Scope 

A. Scope 

B. Effective Date 

III. Dodd-Frank Act Capital Calculation 

IV. Minimum Capital Requirement and 

Capital Conservation Buffer 

V. Determination of Building Blocks and 

Related Issues 

A. Inventory 

B. Identifying Capital Frameworks for Each 

Inventory Company 

C. Identification of Building Block Parents 

D. Material Financial Entity 

E. Treatment of Asset Managers 

VI. Adjustments 

A. Capital Instruments 

B. Adjustments for Comparability 

C. Title Insurance Issues 

VII. Title Insurance Reserves 

VIII. Title Plant Assets 

IX. Scaling 

X. Aggregation 

XI. Reporting 

A. Submission Date 

B. Public Disclosure 

C. Audit Requirements 

XII. Economic Impact Analysis of the BBA 

XIII. Administrative Law Matters 

A. Paperwork Reduction Act 

B. Regulatory Flexibility Act 

C. Plain Language 

I. Introduction 

The Board of Governors of the Federal 

Reserve System (Board) is adopting a 

rule that establishes minimum riskbased capital requirements for certain 

depository institution holding 

companies significantly engaged in 

insurance activities (insurance 

depository institution holding 

companies). The rule establishes an 

enterprise-wide risk-based capital 

framework, termed the ‘‘building block’’ 

approach (BBA), that incorporates legal 

entity capital requirements such as the 

requirements prescribed by state 

insurance regulators, taking into 

account differences between the 

business of insurance and banking. 

This final rule follows the issuance of 

two documents for comment by the 

Board. The first was the 2016 advance 

notice of proposed rulemaking (ANPR), 

in which the Board described the 

concept of the BBA as a capital 

framework and sought input on all 

aspects of its development at an early 

stage.1 The Board considered this 

feedback and invited comment on a 

detailed BBA proposal in the notice of 

proposed rulemaking (NPR or proposal) 

issued in September 2019.2 The NPR 

would have established risk-based 

capital requirements for insurance 

depository institution holding 

companies. As discussed in that 

proposal, insurance depository 

institution holding companies include 

depository institution holding 

companies that are insurance 

underwriting companies and depository 

institution holding companies that hold 

a significant percentage of total assets in 

insurance underwriting subsidiaries. In 

addition to the enterprise-wide capital 

requirement for insurance depository 

institution holding companies based on 

the BBA framework, the proposal would 

have applied a minimum risk-based 

capital requirement to the enterprise 

using the flexibility afforded under 

amendments enacted in 2014 to section 

171 of the Dodd-Frank Wall Street 

Reform and Consumer Protection Act 

(Dodd-Frank Act) to exclude certain 

state- and foreign-regulated insurance 

operations (section 171 calculation).3

The proposal included a buffer 

requirement that would have limited an 

insurance depository institution holding 

company’s capital distributions and 

discretionary bonus payments if it did 

not hold sufficient capital relative to 

enterprise-wide risk, including risk from 

insurance activities. The proposed rule 

would have relied on the Board’s 

authority under section 10 of the Home 

Owners’ Loan Act (HOLA) 4 and section 

171 of the Dodd-Frank Act.5

The Board is responsible for 

protecting the safety and soundness of 

certain banking organizations. This 

responsibility includes establishing 

minimum requirements for the capital 

of holding companies of groups that 

conduct both depository and insurance 

operations.6 In the United States and 

other jurisdictions, the current riskbased capital assessment methodologies 

have been designed specifically for 

either insurance or banking. 

In view of the above, the Board is 

adopting aggregation-based capital 

requirements for insurance depository 

institution holding companies. These 

capital requirements aggregate the 

required capital from insurance 

activities, as determined based on 

insurance capital rules set by the states 

or foreign jurisdictions, and banking 


khammond on DSKJM1Z7X2PROD with RULES2
Federal Register / Vol. 88, No. 226 / Monday, November 27, 2023 / Rules and Regulations 82951 

7Public Law 111–203, title III, section 301, 124 

Stat. 1520 (2010). 

8 Dodd-Frank Act 616(b); HOLA sec. 10(g)(1). 

Under Title I of the Dodd-Frank Act, the Board also 

supervises any nonbank financial companies 

designated by the Financial Stability Oversight 

Council (FSOC) for supervision by the Board. Under 

section 113 of the Dodd-Frank Act, the FSOC may 

designate a nonbank financial company, including 

an insurance company, to be supervised by the 

Board. Currently, no firms are subject to the Board’s 

supervision pursuant to this provision. 

9 2 U.S.C. 1831o. The floor for capital 

requirements established pursuant to section 171 of 

the Dodd-Frank Act, referred to as the ‘‘generally 

applicable’’ requirements, is defined to include the 

regulatory capital components in the numerator of 

those capital requirements, the risk-weighted assets 

in the denominator of those capital requirements, 

and the required ratio of the numerator to the 

denominator. 

10Public Law 113–279, 128 Stat. 3017 (2014). 

11 12 U.S.C. 5371(c)(3)(A). 

12When aggregating required capital for the 

denominator, the BBA follows NAIC Risk-Based 

Capital in using the Authorized Control Level (ACL) 

risk-based capital. This is the amount of capital 

below which a state insurance regulator would be 

authorized to take control of the company. 

activities, as determined based on 

banking capital rules. These 

requirements fulfill the Board’s goal of 

designing an appropriate capital 

standard for insurance depository 

institution holding companies. Prior to 

this rule, savings and loan holding 

companies (SLHCs) with significant 

insurance operations have been 

excluded from the Board’s banking 

capital rule pending this rulemaking, 

while bank holding companies (BHCs) 

with significant insurance operations 

have been required to comply with the 

Board’s banking capital rule. 

In addition to the NPR, the Board 

invited comment on a draft reporting 

form ‘‘Capital Requirements for BoardRegulated Institutions Significantly 

Engaged in Insurance Activities’’ (form 

FR Q–1) and associated instructions, 

which would gather data related to the 

BBA, and published a white paper 

describing how the BBA translated 

between the banking and insurance 

capital frameworks. The Board also 

launched a quantitative impact study 

(QIS) alongside the NPR using the draft 

reporting form. The comments received 

on the NPR and on the reporting form 

and instructions, as well as the QIS 

results, have informed this final rule 

and are discussed in the following 

sections. The reporting form and 

instructions are being finalized along 

with this final rule with certain changes 

in response to the comments. 

A. Background 

In response to the 2007–09 financial 

crisis, Congress enacted the Dodd-Frank 

Act, which, among other purposes, was 

enacted to ensure appropriate 

supervision of depository institution 

holding companies without regard to 

charter type of their insured depository 

institution subsidiaries and to 

streamline the supervision of such 

holding companies. In furtherance of 

these purposes, Title III of the DoddFrank Act expanded the Board’s 

supervisory role by transferring to the 

Board all supervisory functions related 

to SLHCs and their non-depository 

subsidiaries. 

As a result, the Board became the 

Federal supervisory authority for all 

depository institution holding 

companies, including insurance 

depository institution holding 

companies.7 Concurrent with the 

expansion of the Board’s supervisory 

role, section 616 of the Dodd-Frank Act 

amended HOLA to provide the Board 

express authority to adopt regulations or 

orders that set capital requirements for 

SLHCs.8

Any capital requirements the Board 

may establish for SLHCs are subject to 

minimum standards under the DoddFrank Act. Specifically, section 171 of 

the Dodd-Frank Act requires the Board 

to establish minimum risk-based and 

leverage capital requirements on a 

consolidated basis for depository 

institution holding companies. These 

requirements must be not less than the 

capital requirements established by the 

Federal banking agencies to apply to 

insured depository institutions under 

the prompt corrective action regulations 

implementing section 38 of the Federal 

Deposit Insurance Act,9 nor 

quantitatively lower than the capital 

requirements that applied to these 

institutions when the Dodd-Frank Act 

was enacted. 

Section 171 of the Dodd-Frank Act 

was amended in 2014 (2014 

Amendment) to provide the Board 

flexibility when developing 

consolidated capital requirements for 

insurance depository institution holding 

companies.10 The 2014 Amendment 

permits the Board, in establishing 

minimum risk-based and leverage 

capital requirements on a consolidated 

basis, to exclude companies engaged in 

the business of insurance and regulated 

by a state insurance regulator, as well as 

certain companies engaged in the 

business of insurance and regulated by 

a foreign insurance regulator. 

Section 171 of the Dodd-Frank Act 

also provides that the Board may not 

require, under its authority pursuant to 

section 171 of the Dodd-Frank Act or 

HOLA, a supervised firm that is also a 

state-regulated insurer and files 

financial statements with a state 

insurance regulator or the National 

Association of Insurance Commissioners 

(NAIC) utilizing only Statutory 

Accounting Principles (SAP) to prepare 

such financial statements in accordance 

with U.S. generally accepted accounting 

principles (GAAP).11 The Board notes 

that, unlike GAAP, SAP does not 

include an accounting consolidation 

concept. As discussed in detail in 

subsequent sections of this 

SUPPLEMENTARY INFORMATION, the BBA is 

thus an aggregation-based approach, 

designed to comprehensively capture 

risk, including all material risks, at the 

level of the entire enterprise or group. 

The Board is adopting the BBA in this 

final rule in order to set risk-based 

capital requirements for BHCs and 

SLHCs that are significantly engaged in 

insurance activities. 

B. Description of the Building Block 

Approach 

As adopted in this final rule, the BBA 

aggregates the available capital and 

required capital positions of certain 

entities determined to be building block 

parents in order to determine the capital 

position of top-tier supervised insurance 

depository institution holding 

companies (supervised insurance 

organizations or SIOs). The BBA 

expresses such a capital position as a 

BBA ratio, which is the ratio of the 

aggregated available capital to the 

aggregated required capital of the 

enterprise.12 The SIO must maintain a 

BBA ratio of at least 250 percent and a 

capital conservation buffer of 150 

percent, resulting in a total requirement 

of 400 percent. 

The BBA groups legal entities together 

into building blocks to calculate the 

BBA ratio. These building blocks are 

developed by grouping entities in the 

supervised insurance organization that 

are covered under the same regulatory 

capital framework. By grouping related 

legal entities in this manner, the BBA 

maintains the regulatory framework 

developed for the particular business 

activity and reduces regulatory burden. 

Without grouping in this type of capital 

construct, a large SIO would need to 

perform a capital calculation for each of 

hundreds of legal entities. Typically, the 

building blocks follow other existing 

legal-entity capital regulations. For 

instance, a typical U.S. legal entity that 

offers life insurance is assessed together 

with most of its subsidiaries using its 

existing regulatory capital framework, 

NAIC Risk-Based Capital (RBC). 

Depository institutions and their 

subsidiaries are assessed using Federal 

banking capital rules. The BBA does, 

however, sometimes deviate from 


khammond on DSKJM1Z7X2PROD with RULES2
82952 Federal Register / Vol. 88, No. 226 / Monday, November 27, 2023 / Rules and Regulations 

13For example, it would typically be 

inappropriate to assess the risk of a material 

financial subsidiary engaging primarily in 

derivative transactions by application of a risk 

charge applied to its net equity. 

existing regulatory groupings to ensure 

risks are appropriately captured. For 

example, certain financial companies 

owned by insurance companies are not 

directly subject to capital regulation. For 

these companies, the parent’s regime 

assesses a simplified capital charge that 

may not appropriately reflect the risk. 

The BBA separately assesses, applies 

a capital regime to, and aggregates these 

companies if they are material and 

engage in financial activities and their 

risks would not otherwise be 

appropriately measured.13

The BBA makes certain adjustments 

to the required and available capital of 

entities when preparing the building 

blocks for aggregation. Some of these 

adjustments avoid double counting 

capital or risk, others increase 

comparability among SIOs, while others 

are intended to align with certain 

aspects of the banking capital 

requirements to reduce the potential for 

arbitrage. One such adjustment is 

requiring all capital instruments to meet 

certain criteria and subjecting certain 

types of capital instruments to limits. 

These criteria and limits substantively 

match those applied to other depository 

institution holding companies. 

The BBA aggregates the adjusted 

capital positions of the building blocks 

to calculate an SIO’s capital position. To 

enable aggregation of the output of 

different capital frameworks, the BBA 

includes a translation mechanism called 

scaling. Scaling converts a capital 

position from one capital framework to 

its equivalent in another capital 

framework. The BBA then sums the 

scaled, adjusted capital position of each 

building block to calculate an SIO’s 

capital position. This aggregated capital 

position is compared to the minimum 

requirement and capital conservation 

buffer discussed above. 

C. Summary of Comments Received on 

the NPR and Form FR Q–1 

The Board received 18 substantive 

comment letters on the proposal and 

several recommendations from the 

Board’s Insurance Policy Advisory 

Committee. Comments were received 

from insurers supervised by the Board, 

insurers not supervised by the Board, 

insurance trade groups, a U.S. Senator, 

and the NAIC. 

Most commenters supported the 

BBA’s general framework, which 

aggregates existing capital requirements 

to determine an enterprise-wide capital 

requirement. Commenters strongly 

preferred applying this framework, 

rather than other frameworks like the 

banking capital rules or the Insurance 

Capital Standard, to depository 

institution holding companies that are 

significantly engaged in insurance 

activities. The Insurance Capital 

Standard is being developed by the 

International Association of Insurance 

Supervisors. Indeed, certain 

commenters argued that the BBA should 

further leverage existing insurance 

capital requirements. Although 

commenters were supportive of the 

framework, some commenters expressed 

concerns with the level of detail that 

would be required in form FR Q–1 due 

to the proposed requirement to report 

assets and liabilities of inventory 

companies. 

Specific comments are discussed 

below in the sections that follow. Some 

of the main issues that were raised by 

commenters include: 

Section 171 Calculation—Most 

commenters argued that the section 171 

calculation was flawed and should not 

be adopted. Commenters argued the 

BBA would still comply with section 

171 of the Dodd-Frank Act without this 

calculation. 

Calibration—Most commenters 

supported setting the BBA’s 

requirement equal to other banking 

capital requirements based on the 

indicated results from the scaling white 

paper, rather than including an upward 

adjustment designed to account for 

uncertainty. These commenters 

contended that the upward adjustment 

would have resulted in excess 

conservatism. 

Qualifying Capital Instruments and 

Limits—Most commenters argued that 

the Board’s proposed capital instrument 

qualification criteria were too narrow 

and that senior debt should qualify as 

capital, although several commenters 

and the Board’s Insurance Policy 

Advisory Committee disagreed. Some 

commenters and the Board’s Insurance 

Policy Advisory Committee also argued 

for increasing the proposed limits on 

less loss-absorbing tiers of capital 

instruments. Some commenters also 

argued that surplus notes should qualify 

as tier 1 capital and if they are tier 2, 

then no limits should apply. 

Insurance Adjustments—Commenters 

expressed diverging opinions on the 

proposed adjustments to reduce 

differences among states in insurance 

capital regulation. Along with the NPR, 

the Board also invited comments about 

related work on the International 

Association of Insurance Supervisors’ 

Insurance Capital Standard. In the NPR, 

the Board asked for the comparative 

strengths and weaknesses of both 

approaches. The Board appreciates the 

comments received on this work and 

will take these comments into 

consideration in the ongoing 

International Association of Insurance 

Supervisors deliberations. 

D. Main Changes in the Final Rule and 

Form FR Q–1 

The final rule differs from the 

proposal in several ways. One change 

relates to the capital conservation 

buffer. The final rule includes a 150 

percent capital conservation buffer, 

rather than the 235 percent buffer 

proposed in the NPR. This smaller 

capital conservation buffer better aligns 

the BBA’s stringency with the Board’s 

banking capital rule. With this change, 

the BBA’s total capital requirement 

equals the total requirement applied to 

most other banking organizations, as 

estimated based on the parameters 

derived in the Board’s scaling white 

paper. 

The final rule includes an additional 

tier of capital instruments, additional 

tier 1 capital, that is eligible as available 

capital. The proposal only included two 

tiers of capital because no SIO had 

issued additional tier 1 capital. 

Commenters requested its addition in 

order to allow SIOs flexibility in their 

capital structures. In order to provide 

such flexibility, and be consistent with 

the Board’s banking capital rule, the 

final rule includes this additional 

capital tier. The additional tier 1 capital 

limit has been set at 100 percent of the 

building block capital requirement for 

the top-tier parent. Any amount of 

additional tier 1 capital above this 

amount would be eligible for inclusion 

as tier 2 capital, subject to limitations on 

the inclusion of tier 2 capital 

instruments. 

The final rule also increases a 

proposed limit to 150 percent on the 

amount of tier 2 capital instruments that 

could have been counted toward the 

building block capital requirement of a 

top-tier parent holding company in an 

SIO. Under the proposal, the BBA 

would have limited tier 2 capital 

instruments to be no more than 62.5 

percent of the building block capital 

requirement for the top-tier parent. 

Commenters expressed concern that the 

conservative nature of statutory 

accounting distorts the ratio of tier 2 

capital instruments to common equity 

tier 1 capital which causes the 62.5 

percent to be overly conservative. 

The proposal included an adjustment 

that would have removed the effects of 

legacy treatment or transitional 

measures under a capital framework in 

determining capital requirements. Some 

commenters expressed concerns with 


khammond on DSKJM1Z7X2PROD with RULES2
Federal Register / Vol. 88, No. 226 / Monday, November 27, 2023 / Rules and Regulations 82953 

14The preamble to the proposal indicated that 

this type of determination may be appropriate with 

respect to, for example, an intermediate holding 

company, if its top-tier parent company were 

primarily engaged in non-financial commercial 

activity. 15Public Law 115–174, 132 Stat. 1296 (2018). 16EGRRCPA section 206. With limited 

exceptions, a covered savings association has the 

same rights and privileges, and is subject to the 

same duties, restrictions, penalties, liabilities, 

conditions, and limitations, as a national bank that 

has its main office in the same location as the home 

office of the covered savings association. The Board 

generally treats a company that controls a covered 

savings association as a bank holding company. 

the burden associated with adjusting 

capital resources to eliminate the impact 

of transitional provisions or legacy 

treatment when there are changes in an 

underlying capital regime. Some 

commenters were particularly 

concerned with having to restate legacy 

business under the NAIC Principles 

Based Reserving Standard (PBR) for life 

insurance reserves. PBR was adopted 

only prospectively by the NAIC and 

states. The final rule maintains the 

legacy treatment and transitional 

requirements for consistency in 

measurement, but provides a simple 

factor-based approximation rather than 

a full PBR calculation to the legacy 

reserves. This approach will allow for 

consistency for the measurement of life 

insurance reserves while minimizing 

burden. 

In addition to the changes discussed 

above, the final rule simplifies the 

insurance adjustments, increases the 

limits on certain capital instruments, 

and eliminates an exception of certain 

asset managers from being material 

financial entities, and reduces the 

burden of the proposed form FR Q–1. 

The Board is also making changes to 

the reporting form FR Q–1 as part of this 

final rule. The final form FR Q–1 is less 

burdensome than in the proposal. In 

particular, SIOs will not need to report 

the assets and liabilities of all 

subsidiaries. Numerous companies said 

providing this information would be 

difficult. Additionally, the annual due 

date for form FR Q–1’s has been moved 

from March 15 to March 31 to allow 

companies additional time to complete 

the reporting template after their 

statutory filings are due. 

II. Effective Date and Scope 

A. Scope 

The proposal would have applied to 

SLHCs significantly engaged in 

insurance activities. Under the proposal, 

a firm would have been subject to the 

BBA if the top-tier SLHC were an 

insurance underwriting company or the 

top-tier SLHC, together with its 

subsidiaries, if 25 percent of its total 

consolidated assets were in insurance 

underwriting subsidiaries (other than 

assets associated with insurance 

underwriting for credit risk related to 

bank lending). For purposes of this 

threshold, a supervised firm would have 

calculated its total consolidated assets 

in accordance with U.S. GAAP, or, if the 

firm does not calculate its total 

consolidated assets under U.S. GAAP 

for any regulatory purpose (including 

compliance with applicable securities 

laws), the company would have been 

permitted to estimate its total 

consolidated assets, subject to review 

and adjustment by the Board. The 

proposal also would have permitted the 

Board to determine to apply the BBA to 

another Board-regulated institution.14

As consolidated supervisor of the toptier depository institution holding 

company of an insurance depository 

institution holding company, the Board 

proposed to include, within the scope of 

the BBA calculation, all owned or 

controlled subsidiaries of this top-tier 

parent. The NPR sought comments 

about whether the BBA should apply to 

BHCs. The proposal would have 

excluded BHCs; however, the NPR 

noted the Board would consider 

subjecting BHCs significantly engaged 

in insurance activities to the BBA in the 

final rule in light of the enactment of the 

Economic Growth, Regulatory Relief, 

and Consumer Protection Act 

(EGRRCPA).15 This Act allowed Federal 

savings associations with total 

consolidated assets of up to $20 billion, 

as reported to the Office of the 

Comptroller of the Currency (OCC) as of 

year-end 2017, to elect to operate as 

covered savings associations.16

Four commenters addressed the scope 

of the BBA in their comments. One 

commenter supported applying the BBA 

to BHCs significantly engaged in 

insurance activities. Two commenters 

asked for clarifications related to 25 

percent asset test. These commenters 

noted that some SIOs do not calculate 

consolidated assets and contended that 

the Board legally cannot require GAAP 

financial statements from certain 

insurers. They asked that the asset test 

be aligned with 12 CFR part 246 (Board 

Regulation TT), which concerns the 

assessment of fees from certain Boardregulated companies based on their total 

assets and contains a provision for 

estimating total assets in the absence of 

GAAP statements. One commenter 

recommended that the BBA include 

additional flexibility to exclude certain 

companies within an SIO from the BBA 

and instead treating a subsidiary 

company as if it were the top tier. This 

commenter was concerned that the 

Board may lack the legal authority to 

select a mid-tier holding company as the 

top-tier holding company for purposes 

of the BBA when the insurance 

company is controlled by a company 

significantly engaged in non-insurance 

commercial activities. Another 

commenter suggested explicitly 

excluding certain non-operating holding 

companies from the BBA. 

Based on the comments received, as 

well the Board’s policy to achieve 

regulatory consistency across both types 

of depository institution holding 

companies, the final rule adopts the 

proposed scope of the BBA framework 

with a change to include BHCs 

significantly engaged in insurance 

activities. The final rule does not alter 

the proposed 25 percent asset test but 

does address the comments received. 

The final rule will instead allow SIOs 

that do not calculate consolidated 

GAAP assets to provide an estimate of 

consolidated total assets. The 

calculation would be subject to review 

and adjustment by the Board. 

The final rule does not amend the 

Board’s authority to modify the scope of 

the BBA, as the reservations of authority 

in the final rule and elsewhere in the 

banking capital rule are sufficient to 

allow the Board to exclude from the 

BBA a top-tier holding company that is 

a controlling depository institution 

holding company under this rule. While 

possible, this likely will not occur 

frequently due to statutory mandates to 

ensure that depository institution 

holding companies can serve as a source 

of strength to their depository 

institutions, as well as other policy 

considerations. The final rule does 

streamline the reservation of authority 

to clarify the Board’s authority to 

require an SIO to make certain decisions 

involved in the BBA calculation, such 

as the identification of the top-tier 

building block parents, building block 

parents, and Material Financial Entities 

(MFEs). 

B. Effective Date 

The NPR did not propose an effective 

date for the BBA framework. Several 

commenters requested delaying the 

BBA’s effective date significantly 

beyond its finalization. One suggested 

having at least a two-year transition 

period from the effective date, or a 

longer transition period if the finalized 

total capital requirement were above 

400 percent. This commenter also 

suggested providing a further 

opportunity for public comment 

regarding any changes related to the 

proposed form FR Q–1, which could 

impact the effective date because form 

FR Q–1 is needed to effectuate the 

BBA’s requirements. Another 


khammond on DSKJM1Z7X2PROD with RULES2
82954 Federal Register / Vol. 88, No. 226 / Monday, November 27, 2023 / Rules and Regulations 

17See 12 CFR 217.306. 

18 12 CFR 217.2. 

19This term refers to a SLHC that meets the 

requirements of section 10(c)(9)(C) of HOLA (12 

U.S.C. 1467a(c)(9)(C). 

20 In accordance with section 171 of the DoddFrank Act, a foreign insurance regulator that falls 

under this provision is one that ‘‘is a member of the 

[IAIS] or other comparable foreign insurance 

regulatory authority as determined by the Board of 

Governors following consultation with the State 

insurance regulators, including the lead State 

insurance commissioner (or similar State official) of 

the insurance holding company system as 

determined by the procedures within the Financial 

Analysis Handbook adopted by the [NAIC].’’ 

commenter suggested that the first filing 

date of the associated form FR Q–1 

should be two years after the 

publication date of the final rulemaking. 

One commenter suggested using a 

five-year monitoring period, like that 

used by the International Association of 

Insurance Supervisors (IAIS) for its 

Insurance Capital Standard, before 

making the BBA effective. Other 

commenters argued that there is a need 

to delay certain of the proposed 

requirements of form FR Q–1. The 

proposed form FR Q–1 attestation 

section of the cover page would have 

required reporting firms to attest that 

effective controls were in place 

throughout the reporting period. 

Because form FR Q–1 was proposed as 

an annual report, commenters asserted 

that at least a one-year delay would be 

needed between the final rule becoming 

effective and the first form FR Q–1 

attestation requirement to avoid it 

applying retroactively. 

Under the final rule, companies must 

comply with most of the BBA beginning 

on January 1, 2024. Beginning at that 

time, companies are expected to hold 

capital sufficient to comply with the 

BBA’s minimum requirement. 

Companies must first report on their 

capital adequacy under the BBA capital 

requirement as of December 31, 2024. 

As described above, the comments 

received on form FR Q–1 primarily 

related to reporting of legal entities, 

filing date, and reporting of results. The 

Board received only non-substantive 

clarification requests through the QIS 

process on form FR Q–1. 

Given that only small technical 

changes were made to the proposed 

reporting form based on these comments 

and requests for clarification, the Board 

elected not to seek further comments on 

form FR Q–1. Additionally, the January 

1, 2024, effective date of this rules 

allows firms time to ensure that 

effective internal controls are in place 

for the first reporting date. As such, the 

first form FR Q–1 submissions, which 

will be due in March 2025, must 

include the attestation section of the 

cover page. 

Firms that are not initially subject to 

the BBA, but subsequently become 

subject to the BBA during January 

through June in a year, will be required 

to begin submitting the form FR Q–1 in 

March of the calendar year following the 

year they become subject to the BBA, 

except for the attestation section of the 

cover page, which must be submitted 

beginning with the firm’s second form 

FR Q–1. Firms that are not initially 

subject to the BBA, but subsequently 

become subject to the BBA during July 

through December in a year, will be 

required to begin submitting the form 

FR Q–1 in March of the second calendar 

year following the year they become 

subject to the BBA, except for the 

attestation section of the cover page, 

which must be submitted beginning 

with the firm’s second form FR Q–1. 

The final rule also clarifies the timing 

of the application of the buffer. In the 

absence of any enterprise-wide group 

income calculation, the BBA links the 

amount of eligible distributions under 

the capital conservation buffer with 

changes to building block available 

capital. 

Calculating the change in building 

block available capital requires two 

years of BBA data, meaning that firms 

would not be able calculate their 

permissible distributions before 

completing their second form FR Q–1. 

Consequently, the BBA’s buffer 

requirements are effective starting with 

the submission of a firm’s second form 

FR Q–1.17 In the year proceeding the 

second form FR Q–1 submission, the 

Board expects firms to consider the 

pending requirements and to set their 

distribution policies to avoid needing a 

large and sudden change in payouts at 

the effective date. 

III. Dodd-Frank Act Capital Calculation 

The proposal would have applied a 

separate minimum risk-based capital 

requirement calculation to insurance 

depository institution holding 

companies, which would have used the 

flexibility afforded by the 2014 

Amendment to exclude certain stateand foreign-regulated insurance 

operations and to exempt top-tier 

insurance underwriting companies from 

the risk-based capital requirement. The 

proposed section 171 calculation would 

have applied the Board’s existing 

minimum risk-based capital 

requirements to a top-tier insurance 

SLHC on a consolidated basis when this 

company is not an insurance 

underwriting company. In the case of an 

insurance SLHC that is an insurance 

underwriting company, the proposal 

would have applied the requirements to 

any subsidiary SLHC of an insurance 

SLHC, where the subsidiary SLHC is not 

itself an insurance underwriting 

company, provided that the subsidiary 

SLHC is the farthest upstream noninsurer SLHC (i.e., the subsidiary 

SLHC’s assets and liabilities are not 

consolidated with those of a holding 

company that controls the subsidiary for 

purposes of determining the parent 

holding company’s capital requirements 

and capital ratios under the Board’s 

banking capital rule) (an insurance 

SLHC mid-tier holding company). 

The proposed section 171 calculation 

would have been implemented by 

amending the definition of ‘‘covered 

savings and loan holding company’’ for 

the purposes of the Board’s banking 

capital rule.18 The proposal would have 

resulted in an insurance SLHC 

becoming a covered SLHC subject to the 

requirements of the Board’s banking 

capital rule unless it was a legacy 

unitary SLHC19 that derived 50 percent 

or more of its total consolidated assets 

or 50 percent or more of its total 

revenues on an enterprise-wide basis (as 

calculated under GAAP) from activities 

that are not financial in nature. 

However, the proposal would not have 

required top-tier SLHCs that are engaged 

in insurance underwriting and regulated 

by a state insurance regulator, or certain 

foreign insurance regulators, to comply 

with the generally applicable risk-based 

capital requirements.20 Instead, those 

requirements would have applied to any 

insurance SLHC mid-tier holding 

companies. 

As noted above, commenters opposed 

this calculation and argued that the BBA 

would comply with section 171 of the 

Dodd-Frank Act without this additional 

calculation. Commenters contended that 

the proposal without the section 171 

calculation meets the Board’s statutory 

requirements under section 171 of the 

Dodd-Frank Act, as amended by the 

2014 Amendment, to establish 

minimum risk-based capital 

requirements for these companies. 

Commenters argued that the section 171 

calculation would introduce burdens 

and costs that do not meaningfully 

advance the Board’s supervisory 

objectives. Some commenters also 

contended that the 2014 Amendment 

indicates that Congress did not intend 

for the Board to implement the section 

171 calculation. Commenters argued 

that the section 171 calculation 

duplicates certain requirements of the 

BBA and inappropriately treats firms 

differently according to legal form. 

The Board considered the comments 

and has decided to include the section 


khammond on DSKJM1Z7X2PROD with RULES2
Federal Register / Vol. 88, No. 226 / Monday, November 27, 2023 / Rules and Regulations 82955 

21 12 CFR 217.52(b)(6). 

22 12 CFR part 225, appendix C. 

23 Id. section 1. 

24Two building blocks under two different 

capital frameworks cannot typically be added 

together if, as is frequently the case, each 

framework has a different scale for its ratios and 

thresholds. As discussed below in section VII, the 

BBA proposes to scale and equate capital positions 

in different frameworks through analyzing 

historical defaults under those frameworks. 

171 calculation in the final rule. Section 

171 of the Dodd-Frank Act generally 

requires that the minimum risk-based 

capital requirements established by the 

Board for depository institution holding 

companies apply on a consolidated 

basis. The Board believes that including 

the section 171 calculation accords with 

the plain language meaning of section 

171 of the Dodd-Frank Act, considering 

also the use of terms in section 171 

elsewhere in the Federal banking laws, 

and the legislative history of section 171 

and the 2014 Amendment. Moreover, 

the Board believes that the treatments 

for insurance activities under the 

section 171 calculation is an appropriate 

exercise of the discretion given to the 

Board by Congress in the 2014 

Amendment. 

The proposed section 171 calculation 

would have allowed an insurance SLHC 

subject to the generally applicable riskbased capital requirements (i.e., that is 

not a top-tier insurance underwriting 

company) to elect not to consolidate the 

assets and liabilities of all of its 

subsidiary state-regulated insurers and 

certain foreign-regulated insurers. The 

proposal would have provided two 

alternative approaches if this election is 

made. Under the first alternative, the 

holding company could have elected to 

deduct the aggregate amount of its 

outstanding equity investment in its 

subsidiary state-regulated and certain 

foreign-regulated insurers, including 

retained earnings, from its common 

equity tier 1 capital elements. Under the 

second alternative, the holding 

company could have included the 

amount of its investment in its riskweighted assets and assigned to the 

investment a 400 percent risk weight, 

consistent with the risk weight 

applicable under the simple risk-weight 

approach in § 217.52 of the Board’s 

banking capital rule to an equity 

exposure that is not publicly traded.21

A commenter expressed concerns 

regarding the proposed equitydeduction treatment, contending that it 

would be unduly punitive. The 

commenter also urged the Board to 

permit firms to risk-weight a company’s 

net equity investment in insurance 

operations consistently with NAIC 

RBC’s treatment of equity investments 

in affiliates. The commenter also 

suggested that the Board permit firms to 

satisfy the section 171 calculation 

through use of the Small Bank Holding 

Company and Savings and Loan 

Holding Company Policy Statement and 

measuring compliance with the 

applicability thresholds of that 

statement after applying the election not 

to consolidate the assets and liabilities 

of subsidiary state-regulated insurers 

and certain foreign-regulated insurers. 

In the final rule, firms that elect not 

to consolidate the assets and liabilities 

of all of its subsidiary state-regulated 

insurers and certain foreign-regulated 

insurers have the option to choose 

between the proposed treatments. This 

optional provision should provide firms 

with greater flexibility to apply an 

appropriate treatment in view of a firm’s 

individual structural and other business 

circumstances. In the final rule, a firm 

that makes such an election and chooses 

to risk-weight its net equity investment 

in the deconsolidated subsidiaries must 

apply a risk weight of 400 percent, 

consistent with the proposal. The Board 

believes that this treatment is 

appropriate considering the risk weights 

applied to non-publicly traded equity 

exposures. Finally, a firm may not 

comply with the section 171 calculation 

through use of the Small Bank Holding 

Company and Savings and Loan 

Holding Company Policy Statement.22

This policy statement states expressly 

that the statement applies only to 

holding companies that are ‘‘not 

engaged in significant nonbanking 

activities either directly or through a 

nonbank subsidiary’’; 23 the section 171 

calculation applies only to companies 

that are members of a holding company 

organization that is significantly 

engaged in insurance activities, a 

nonbank activity. 

IV. Minimum Capital Requirement and 

Capital Conservation Buffer 

The proposal was designed to 

produce an enterprise-wide risk-based 

capital requirement that is not less 

stringent than the results derived from 

the Board’s banking capital rule. To 

enable aggregation of available capital 

and capital requirements across 

different building blocks, the proposal 

included a mechanism (scaling) that 

would have translated a capital position 

under one capital framework to its 

equivalent in another capital 

framework.24 At the enterprise level, the 

proposal would have applied a 

minimum risk-based capital 

requirement that leverages the 

minimum requirement from the Board’s 

banking capital rule, expressed as its 

equivalent value in terms of the BBA 

ratio based on the Board’s published 

scaling white paper. In addition to this 

equivalent value, the proposal would 

have also included a margin of 

conservatism to provide a heightened 

degree of confidence that the BBA’s 

requirement would be compliant with 

section 171 of the Dodd-Frank Act, 

which requires the BBA to be ‘‘not less 

than’’ the Board’s banking capital 

requirements. In addition to complying 

with section 171 of the Dodd-Frank Act, 

calibrating the BBA to the same 

stringency level as the banking capital 

requirements minimizes the incentive 

for depository institution holding 

companies to acquire or sell insurance 

operations due to disparate capital 

requirements. 

The proposal would have established 

a minimum BBA ratio of 250 percent 

and a capital conservation buffer of 235 

percent. Together, these would have 

created a 485 percent total requirement. 

Insurers that breach this total 

requirement would have faced limits on 

capital distributions such as dividend 

payments and on discretionary bonus 

payments. The proposed minimum 

ratio, 250 percent, would have aligned 

with the midpoint between two 

prominent, existing state insurance 

supervisory intervention points, the 

‘‘company action level’’ and ‘‘trend test 

level’’ under state insurance RBC 

requirements. To determine the 

appropriate threshold for a capital 

conservation buffer under the BBA, the 

Board took a similar approach to how it 

determined the minimum requirement. 

The full amount of the buffer under the 

Board’s banking capital rule, 2.5 

percent, translates to approximately 235 

percent under the NAIC RBC 

framework. This translated buffer 

threshold would have been applied in 

the BBA. 

Commenters criticized the proposed 

margin for conservatism and indicated 

that proposed minimum capital 

requirements and total capital 

requirements are significantly higher 

than the banking capital requirements. 

Some of these comments distinguished 

between including margins for 

conservatism in the minimum and total 

capital requirements. Consequently, 

while most commenters opposed 

including the margins in the total 

requirement, only some opposed 

uplifting the minimum requirement. 

Commenters justified this nuance 

because section 171 of the Dodd-Frank 

Act applies to only the minimum 

requirement. Legally, any margin 

included in the minimum requirement 

could be offset by a smaller capital 

conservation buffer. This would reduce 


khammond on DSKJM1Z7X2PROD with RULES2
82956 Federal Register / Vol. 88, No. 226 / Monday, November 27, 2023 / Rules and Regulations 

25The proposal’s capital requirement included an 

approximately 85 percent increase over the bestestimate translation to account for the uncertainty. 

That is, the best-estimate translation of an 8 percent 

total capital ratio is a BBA ratio of near 165 percent. 

This was uplifted to a 250 percent proposed 

requirement in the proposal. Removing this 85 

percent uplift from the buffer reduces the proposed 

485 percent total BBA ratio requirement to 400 

percent. A 400 percent BBA ratio requirement 

aligns with the best-estimate translation of a 10.5 

percent total capital ratio. 

26A commenter contended that the proposal was 

inconsistent with the McCarran-Ferguson Act, 15 

U.S.C. 1011 et seq. The Board believes that section 

5 of the Bank Holding Company Act, section 10(g) 

of the Home Owners’ Loan Act, and section 171 of 

the Dodd-Frank Act provide authority for the Board 

to establish capital requirements for companies 

significantly engaged in insurance activities that 

have elected also to engage in the business of 

banking by operating a subsidiary bank or savings 

association. In particular, the 2014 Amendment 

expressly contemplates that the Board would 

establish minimum capital requirements for such 

companies. 

27The Board used Monte Carlo simulation to 

translate the standard errors displayed in Table 2 

of the white paper to a confidence interval for the 

calibration. In 95 percent of simulations, 8 percent 

total capitalization Risk Weighted Assets ratio 

translated to between 80 percent ACL RBC and 251 

percent ACL RBC. 

28Table 3 of the white paper parameterizes the 

scalars using alternative assumptions. These 

parameters can be used to translate 8 percent and 

10.5 percent risk-weighted assets to NAIC RBC 

using the scaling formulas derived in Appendix 1. 

29Senior debt may qualify as capital for the issuer 

in the NAIC’s Group Capital Calculation (GCC). The 

BBA is, however, designed to match the stringency 

of requirements for other depository institution 

holding companies, not the GCC. The BBA and GCC 

also have different purposes. The GCC will be used 

as a tool by state insurance regulators, rather than 

a requirement. No GCC ratio would necessarily 

produce a similar intervention to a breach of the 

BBA’s minimum requirement. 

the BBA’s total requirement from 485 

percent to 400 percent.25 Commenters 

argued that the margin could 

competitively disadvantage SIOs as 

compared to other insurers or 

alternatively create externalities for 

companies not subject to the rule by 

changing industry-wide perceptions of 

capital adequacy. 

Several commenters also argued that 

other aspects of the BBA are excessively 

conservative. These commenters 

criticized the BBA for the lack of 

diversification credit between entities in 

the group, treatment of captive 

reinsurance transactions, and criteria for 

including capital instruments in 

available capital. Several commenters 

argued the BBA’s capital requirements 

should be reduced in order to offset 

these conservative aspects of the 

framework. 

Some commenters suggested 

fundamental changes to the calibration 

of the BBA. A few commenters argued 

that the BBA’s requirements should not 

equal those applied to other banking 

organizations. Two commenters 

suggested instead tailoring the BBA’s 

requirements to the loss experience of 

insurers. Two other commenters argued 

for eliminating the capital conservation 

buffer, either because insurance does 

not create systemic risk or because 

subsidiary depository institutions 

already are subject to a buffer 

requirement. Finally, one commenter 

argued that any capital requirements in 

excess of state insurance capital 

requirements would be unlawful and 

inappropriate. In the alternative, this 

commenter argued that an SIO buffer 

should depend on the size of its 

depository institution. 

Commenters also raised concerns 

about the impact of breaching the BBA 

requirements and how they would 

interact with the NAIC RBC 

requirements. First, two commenters 

disagreed with limiting policyholder 

dividends when the BBA’s total 

requirement is breached. Second, some 

commenters questioned how the BBA’s 

requirements would interact with NAIC 

RBC, which is calibrated differently. An 

additional commenter requested 

clarification of the impact of not 

meeting the total capital requirement. 

Based on the comments received, the 

Board has decided to modify the 

proposed calibration of the BBA. Most 

significantly, the Board has removed the 

margin from the proposed capital 

conservation buffer, dropping the BBA’s 

total requirement from 485 percent to 

400 percent. 

Like the proposal, the final rule 

attempts to calibrate the BBA to the 

same level of stringency as the Board’s 

banking capital rules. The BBA takes 

into account the different risks involved 

in insurance activities, on the one hand, 

and banking activities, on the other, 

through its aggregation process, rather 

than through an altered calibration or by 

eliminating the capital conservation 

buffer. While some commenters 

suggested that the BBA’s calibration 

should be tailored to insurance, no 

commenter explained either how or 

why engaging in insurance activities 

should change the stringency of capital 

requirements that apply to a bank 

holding company or SLHC.26

To ensure safety and soundness of the 

SIOs, the BBA’s minimum capital 

requirement includes a margin. This 

margin ensures, to a high degree of 

confidence, that the BBA’s minimum 

requirement is not less than the banking 

capital requirements. The margin’s size 

corresponds to the upper bound of a 95 

percent confidence interval on the 

BBA’s calibration from the scaling 

regressions.27 Sensitivity tests of the 

calibration using different assumptions 

also informed the analysis.28

Consequently, the final rule does not 

include a margin for the capital 

conservation buffer. As a result, the 

BBA’s total requirement equals the total 

requirement applicable to most other 

banking organizations. 

The minimum capital ratio of 250 

percent has not been reduced in the 

final rule in response to the comments 

about the proposal’s alleged 

conservatism in its treatment of certain 

capital instruments, application of the 

banking rules to unregulated entities, 

lack of diversification credit, or 

treatment of prescribed and permitted 

practices. While some of these 

differences may make the BBA more 

conservative than NAIC RBC, the 

differences provide for a consistent level 

of conservatism between the BBA and 

the banking capital rule and consistency 

between SIOs. For example, the Board’s 

capital rule applies to holding 

companies on a consolidated basis, 

including any unregulated entities. The 

BBA treatment of some non- depository 

institution, non-insurer subsidiaries of 

insurance BHCs and insurance SLHCs 

as MFEs and application of the banking 

capital rule to them does not justify 

reducing the BBA’s calibration to below 

the banking capital rule. 

Additionally, even if the BBA were 

intended to match the stringency of 

NAIC RBC rather than the banking 

capital rule, many of the referenced 

details still would not justify reducing 

the BBA’s requirements. Senior debt 

does not qualify as capital for the issuer 

in either the BBA or NAIC RBC. If senior 

debt is downstreamed to a subsidiary as 

equity, it qualifies as capital for the 

subsidiary in both.29 By design, NAIC 

RBC excludes the parent and other 

affiliated companies. The impact of 

these exclusions varies. If an 

unregulated entity is relatively well 

capitalized, including it would be less 

conservative than NAIC RBC. Similarly, 

prescribed and permitted practices 

could either increase or decrease 

surplus. 

No changes were made regarding the 

interaction of the BBA and NAIC RBC 

or the operation of the capital 

conservation buffer. The BBA and NAIC 

RBC create separate requirements. SIOs 

must comply with all applicable legal 

requirements. The final rule, like the 

proposal, treats policyholder dividends 

as capital distributions. Policyholder 

dividends are how mutual insurers 

distribute earnings to their owners. 

These capital distributions are 

analogous to shareholder dividends for 

stock companies. Prudent management 

requires limiting these payments when 

capital is low. 


khammond on DSKJM1Z7X2PROD with RULES2
Federal Register / Vol. 88, No. 226 / Monday, November 27, 2023 / Rules and Regulations 82957 

30The inventory would have contained any entity 

required to be reported under the Board’s FR Y–6 

or Y–10 reports or considered an affiliate under 

Statutory Statement of Accounting Principle (SSAP) 

25 and reported on Schedule Y of the insurer’s 

statutory annual report. 

31Examples of rare cases would have included 

title insurers and non-scalar compatible insurers. 

32Some commenters criticized the proposed 

application of the banking capital rule to companies 

other than banks. The root disagreement from these 

commenters appeared to be with the scoping and 

grouping rules rather than the identification of the 

banking capital rule as the indicated capital 

framework for companies not engaged in insurance. 

The commenters preferred to either exclude the 

companies from the BBA or analyze these 

companies together with their parents rather than 

specifying an alternative capital framework for 

analysis. 

V. Determination of Building Blocks 

and Related Issues 

A. Inventory 

The proposed BBA calculation started 

by creating an inventory of the legal 

entities in a SIO, which generally would 

have been all legal entities under the 

depository institution holding company. 

This inventory would have served as the 

foundation for the BBA’s aggregation. 

As the proposal did elsewhere, it 

leveraged existing regulations to define 

the inventory. Under the proposal, a 

SIO’s inventory would have included all 

entities that appear on organizational 

structure data reported to the Board or 

state insurance regulators.30

In rare cases, the inventory would 

have included a special purpose entity 

not included in the organizational 

structure data provided to the Board or 

filed with the state insurance regulators. 

The organizational data provided are 

generally based on control of a 

subsidiary, and therefore may not 

include all entities that the Board 

intends to include in the scope of the 

BBA in order to avoid missing risks. The 

burden of including such entities in the 

inventory would have been limited, as 

only special purpose entities with 

which an SIO enters into a derivative or 

reinsurance contract would have been 

included. 

Under the proposed form FR Q–1, 

SIOs would have needed to report 

certain basic information (e.g., total 

assets) for all inventory companies. Two 

commenters suggested significantly 

reducing the reporting burden. The 

commenters asserted that SIOs could 

not easily calculate the total assets of 

subsidiaries multiple levels down their 

organization chart. To avoid this 

burden, these commenters argued for 

excluding immaterial, non-operating 

entities from the inventory. 

One other commenter opposed 

including in the inventory any company 

that is not included in existing 

regulatory reporting. The commenter 

noted that determining whether a 

company needed to be included in the 

inventory would require estimating the 

company’s expected losses, which 

would be difficult. 

In response to the comments, the final 

form FR Q–1 requires less information 

than the proposal. Specifically, the final 

form FR Q–1 does not require reporting 

the assets and liabilities of inventory 

companies whose parents represent less 

than one percent of the group’s assets. 

Based on QIS data, this form FR Q–1 

change reduces the BBA’s burden 

similarly to the inventory change 

suggested by two commenters. 

In light of this change to the reporting 

form FR Q–1, the final rule does not 

alter the scope of the inventory in 

determining the scope in the BBA. For 

each inventory company, the final rule 

still requires checking whether the 

company should become a building 

block parent, but it would not require 

the asset and liability information from 

all inventory companies. The tests for 

becoming a building block parent, 

which are examined in the next section, 

focus on whether the BBA appropriately 

captures the company’s risks. The final 

rule applies these tests broadly to avoid 

excluding material risks. 

B. Identifying Capital Frameworks for 

Each Inventory Company 

After the creation of the inventory, the 

proposal would have identified each 

inventory company’s applicable capital 

framework, which would have been 

used to partition the inventory 

companies into building blocks. For 

insurance companies, the applicable 

capital framework would have been 

their current regulatory framework, 

except in rare cases.31 For all other 

companies, the applicable capital 

framework would have been the Board’s 

capital rule or, the capital rule applied 

by the Federal Deposit Insurance 

Corporation (FDIC), or the capital rule 

applied by the Office of the Comptroller 

of the Currency (OCC). 

Commenters generally did not oppose 

the rules for assigning companies to 

capital frameworks, but several QIS 

participants expressed confusion that 

the proposal would not actually have 

applied the ‘‘applicable capital 

framework’’ in all instances.32 For 

instance, the applicable capital 

framework for non-insurance 

subsidiaries of insurers would have 

been the Board’s capital rule. However, 

most such companies would have 

remained in their insurance parent’s 

building block. This insurance parent 

would continue to assess the inventory 

companies’ risks using its insurance 

capital framework, unless they are an 

MFE. 

To address this comment, the final 

rule replaces the term ‘‘applicable 

capital framework’’ with ‘‘indicated 

capital framework.’’ This revised 

terminology better describes the BBA’s 

usage. The indicated capital framework 

is the capital framework that would 

apply to a company if it were 

determined to be a building block 

parent. 

C. Identification of Building Block 

Parents 

After identifying an applicable capital 

framework for each inventory company, 

the proposal would have identified 

building block parents (BBPs). Under 

the proposal, a building block parent 

could have been one of several different 

types of companies. The first would 

have been the top-tier depository 

institution holding company. In the 

absence of any other identified building 

block parents, the top-tier depository 

institution holding company’s building 

block would have contained all of the 

top-tier depository institution holding 

company’s subsidiaries. A second type 

of building block parent would have 

been a mid-tier holding company that is 

a ‘‘depository institution holding 

company’’ under U.S. law. The 

proposed treatment of these companies 

as building block parents would have 

allowed for the calculation of a separate 

BBA ratio at the level of these 

companies in the enterprise and helped 

to ensure that these companies remain 

appropriately capitalized. 

The proposal would have identified 

additional building block parents based 

on grouping rules that would have 

generally relied on existing capital 

regulations. Relying on these 

frameworks materially reduces burden 

and the potential for unintended 

consequences. Additionally, the 

proposal would have identified certain 

other financial entities that are material 

to the group as building block parents. 

The proposal deemed these entities as 

MFEs, which are described below. 

The proposal would have determined 

which entities are building block 

parents by considering whether the 

capital framework applicable to each 

inventory company or MFE is the same 

as that of the next-upstream company 

that is directly subject to a capital 

framework. 

Generally, the proposal would have 

had companies subject to the same 

capital framework remain in the same 

building block, except for one case. This 

exceptional case would have been 

where a company’s applicable capital 


khammond on DSKJM1Z7X2PROD with RULES2
82958 Federal Register / Vol. 88, No. 226 / Monday, November 27, 2023 / Rules and Regulations 

33The BBA proposes to apply NAIC RBC to such 

subsidiaries. However, under state laws, the 

application of NAIC RBC on the parent would not 

normally operate to include the available and 

required capital from applying NAIC RBC to the 

subsidiary. However, when the subsidiary is 

identified as a building block parent in the BBA, the 

subsidiary’s available and required capital under 

NAIC RBC would be reflected by the parent after 

aggregation. 

framework treats the company’s 

subsidiaries in a way that does not 

substantially reflect the subsidiary’s 

risk. For instance, there could be 

situations in which NAIC RBC may not 

fully reflect the risks in certain 

subsidiaries (typically, certain foreign 

subsidiaries) that assume risk from 

affiliates.33 In such cases, the subsidiary 

(which could be a capital-regulated 

company or MFEs) would have been 

identified as a building block parent so 

that its risks could more appropriately 

be reflected in the BBA. 

The proposal would have taken into 

account the risks of companies that are 

not building block parents indirectly 

through a building block parent’s capital 

calculation using its regulatory 

requirements. This could have been 

through consolidation by a building 

block parent or accounting for the 

inventory company as an investment by 

the building block parent. 

Figure 1 illustrates the how the rules 

for identifying building block parents 

would have worked under the proposal. 

D. Material Financial Entity 

A key step in the proposal’s 

identification of building block parents 

would have been assessing whether a 

financial entity is an MFE. If an entity 

was determined to be a MFE in the 

proposal, it would have become a 

building block parent and assessed 

under either the banking capital rule or 

NAIC RBC. The proposal would have 

defined a financial entity as material if 

the top-tier depository institution 

holding company’s total exposure to it 

exceeds 1 percent of the top-tier 

depository institution holding 

company’s consolidated assets. While a 

parent company’s exposure to a 

subsidiary most commonly arises from 

potential losses on the parent 

company’s investment, the exposure 

could also result from guarantees and 

other sources. In addition to this 

quantitative materiality definition, the 

proposed rule would have included a 

qualitative definition to capture entities 

that are otherwise significant when 

assessing capital. The proposal would 

have excluded certain entities, 

including some asset managers, from the 

MFE definition. The proposal would 

have also contained an option of 

electing to treat certain pass-through 

entities as MFEs or including their risks 

in the capital calculation of other 

building block parents. 


khammond on DSKJM1Z7X2PROD with RULES2ER27NO23.000</GPH>
Federal Register / Vol. 88, No. 226 / Monday, November 27, 2023 / Rules and Regulations 82959 

34Frequently a pass-through company enters into 

transactions with affiliates (e.g., operating insurers) 

and enters into back-to-back transactions with third 

parties to manage risks on a portfolio basis. 35See 12 U.S.C. 24a(c). 

Typically, such a company would be 

one that serves as a pass-through or risk 

management intermediary for other 

companies under the insurance 

depository institution holding 

company.34 If an insurance depository 

institution holding company were to 

make this election, the risks posed by 

this company would nonetheless have 

been reflected in the BBA. As proposed, 

the BBA would have required the 

insurance depository institution holding 

company to allocate the risks that the 

company faces to the other companies 

in the enterprise with which the 

company engages in transactions. 

Commenters expressed diverging 

views on the concept of MFEs. Several 

commenters criticized some results of 

identifying MFEs as building block 

parents. These commenters noted the 

burden and complexity of applying the 

banking capital rule to non-banking 

companies. One commenter noted that 

this would be particularly problematic 

in the case of investment subsidiaries, 

as it would create burden and result in 

a misalignment with how an entity is 

treated in its parent’s capital regime. 

This commenter believed these entities 

should be assessed along with the 

insurance company. 

Other commenters either explicitly 

agreed with the proposal or suggested 

only minor revisions. Commenters 

suggested that the threshold of 1 percent 

of total assets should be higher. One 

commenter argued that using total assets 

as the base measure for materiality is 

inconsistent with state-based insurance 

regulations, where surplus is most often 

used. Additionally, a commenter 

asserted that using total assets could 

penalize property and casualty (P&C) 

insurers relative to life insurers because 

P&C insurers are generally less 

leveraged. Another commenter 

suggested clarifying aspects of the 

definition of materiality, particularly 

with regards to captive insurers who 

may not use NAIC Statutory Accounting 

Practices. One commenter suggested 

considering size, off-balance sheet 

exposures, and activities involving 

derivatives or securitizations within the 

materiality definition. 

Consistent with the proposal, the final 

rule continues to designate MFEs as 

building block parents when certain 

conditions are met. The Board intends 

the BBA to capture all material risks 

within the group. Designating MFEs as 

building block parents is essential to 

ensuring that these risks are 

appropriately reflected. Without this 

designation, SIOs could easily evade 

and manipulate BBA results by 

transferring risks from regulated entities 

to unregulated entities that would only 

be captured in the BBA through 

inclusion in their parent’s capital 

requirement based on an equity risk 

factor applied to their net equity, which 

could result in a very small capital 

requirement if the entity is thinly 

capitalized. Based on the QIS results, 

identifying MFEs as building block 

parents will result in only minimal 

burden, but could have a significant 

impact in reducing the potential for 

regulatory arbitrage. All SIOs 

collectively identified only a very small 

number of MFEs in the QIS. 

The final rule does, however, modify 

the definition of materiality in response 

to the comments. The final rule uses a 

threshold of 5 percent of equity of the 

top-tier depository institution’s holding 

company rather than 1 percent of its 

assets. Because the BBA assesses 

capitalization, capital represents a better 

benchmark for materiality than assets, 

and 5 percent better aligns with the 

thresholds used in other contexts (e.g., 

accounting). By assessing the materiality 

of exposure from all sources (e.g., 

investments and guarantees), the BBA’s 

assessment of materiality incorporates 

the factors suggested by one commenter 

(e.g., off-balance sheet exposures). 

The Board does not agree that 

designating an investment subsidiary as 

an MFE is problematic, as the proposal 

contained an exclusion that would have 

allowed pass-through treatment of the 

risk of the entity rather than treating it 

as an MFE. In addition, QIS results 

indicated this exclusion will operate as 

intended. The final rule does not change 

this treatment. 

Based on the QIS, the final rule also 

makes a small change to address 

inventory companies that have no 

upstream entity and that are not a toptier SLHC (e.g., a mutual insurance 

company controlled through common 

management). The NPR did not 

contemplate these types of companies. 

The final rule clarifies that if a company 

is an MFE or a company subject to 

capital regulation, then it must be 

considered a building block parent. 

These companies are exempted from the 

typical tests comparing their indicated 

capital framework to their upstream 

building block parent’s indicated capital 

framework. 

E. Treatment of Asset Managers 

The proposal would have excluded 

certain asset managers from the MFE 

definition. Asset managers owned by 

insurers would have been assessed as 

they currently are in their insurance 

parent’s risk-based capital calculation 

based on NAIC RBC. Asset managers 

owned by companies assessed using the 

Board’s banking capital rule would have 

been consolidated by their parent 

company. Commenters were divided on 

this exclusion from the MFE definition. 

Several commenters supported the 

exclusion and noted that the Board’s 

banking capital rule would not 

necessarily be more appropriate than 

the treatment of these subsidiaries 

under NAIC RBC. One commenter 

supported expanding the exclusion to 

also cover any activity that could be 

undertaken by a financial subsidiary. 

This commenter argued that other 

financial subsidiaries and asset 

managers should have the same 

treatment. This commenter also noted 

that the NPR specifically excluded 

financial subsidiaries of banks from the 

MFE definition through a different 

exclusion. Another commenter 

suggested further assessing the risks 

presented by different types of asset 

managers and varying the treatment of 

asset managers accordingly. Conversely, 

several other commenters did not 

support the exclusion. The commenters 

noted that due to the proposed 

exclusion, the treatment of material 

asset managers would have depended 

on the organizational structure of the 

SIO, and they argued that the BBA 

should seek to neutralize this 

discrepancy. 

Commenters also disagreed on the 

best framework for assessing asset 

managers. Two commenters supported 

application of the banking capital rule 

to these companies. Other commenters 

supported broader application of NAIC 

RBC to asset managers. One commenter 

suggested an alternative approach based 

on GAAP for a subset of asset managers. 

The final rule eliminates the 

exclusion of asset managers from the 

MFE definition so that all asset 

managers would be treated consistently 

under the Board’s banking capital rule. 

Consistent with the proposal, financial 

subsidiaries of banks are excluded from 

MFE definition because Federal banking 

law requires deduction of these values 

from a bank’s capital.35

VI. Adjustments 

A. Capital Instruments 

The proposal would have required 

certain adjustments at the level of 

determining building block available 

capital that would have included 

deducting any capital instrument issued 

by a company within the building block, 


khammond on DSKJM1Z7X2PROD with RULES2
82960 Federal Register / Vol. 88, No. 226 / Monday, November 27, 2023 / Rules and Regulations 

36The criteria are listed in § 217.608(a) of this 

rule. In the banking capital rule, they are codified 

at 12 CFR 217.20(d). 

37Matthew Walker and Li Cheng, CFA, FRM, 

FSA, Page 2, Standard and Poor’s Rating Services, 

Peaking =Inside the Black Boxes: Why North 

American Life Insurers are Using Captives and Why 

it Matters, May 12, 2015. 

38Because the Board has approved all transitional 

measures within the banking capital rule, this 

adjustment would have only affected insurance 

transitional measures. 

that fails one or more of the eleven 

criteria for tier 2 capital under the 

Board’s banking capital rule.36

For consistency with the Board’s 

banking capital rule, senior debt would 

not have been considered as available 

capital. As noted above, many 

commenters expressed a view that 

senior debt should be included as 

qualifying capital, as it is structurally 

subordinated to policyholder liabilities 

and is similar to surplus notes in that 

regard. The Board’s Insurance Policy 

Advisory Committee disagreed with 

these respondents and recommended 

the Board adopt the proposed capital 

instrument qualification without 

modification. 

The proposal would have allowed 

surplus notes to be eligible for inclusion 

in tier 2 available capital under the 

BBA, provided that the notes meet the 

criteria. Recognizing that not all surplus 

notes previously issued would have 

addressed all of the tier 2 qualifying 

capital criteria, the proposal also 

including a legacy provision that allows 

surplus notes to qualify if issued by a 

top-tier depository institution holding 

company or its subsidiary to a nonaffiliate prior to November 1, 2019. 

Commenters indicated that surplus 

notes should be included as tier 1 

qualifying capital and if they only 

qualified as tier 2 capital, the proposed 

62.5 percent limitation on the amount of 

tier 2 capital that can be counted toward 

an SIO’s capital requirement should be 

higher. 

The proposal also would have 

limited, at the level of building block 

available capital for the top-tier parent, 

tier 2 capital instruments to be no more 

than 62.5 percent of the building block 

capital requirement for that top-tier 

parent. Commenters observed that 

statutory accounting is more 

conservative than GAAP, and this 

conservatism reduces the value of 

common equity tier 1 capital, but not 

the value of tier 2 capital instruments. 

This, in commenters’ view, distorts the 

ratio of tier 2 capital instruments to 

common equity tier 1 capital, which the 

NPR would have used to limit tier 2 

capital instruments. 

The Board considered the comments 

and decided to maintain consistency 

with the Board’s banking capital rule for 

both surplus notes and senior debt. This 

would require insurers to issue surplus 

notes meeting all of the Board’s criteria 

consistent with the banking capital rule 

to qualify as tier 1 capital. For surplus 

notes that only qualify as tier 2 capital 

instruments, the Board did change the 

tier 2 limit as noted above. This also 

results in senior debt not being 

considered as qualifying capital. The 

Board recognizes the structural 

subordination argument; however, this 

argument applies to the insurance 

subsidiaries and not the regulated 

holding company, which does not 

benefit from structural subordination. 

The Board also recognizes that there are 

some similarities between surplus notes 

and senior debt, but unlike surplus 

notes, a default is triggered for nonpayment of senior debt, which would 

impact the entire group. 

Although the Board has decided to 

maintain consistency with the banking 

capital criteria, considering the impact 

of the conservatism of statutory 

accounting as expressed by the 

commenters, the final rule increases the 

tier 2 capital instrument limit to 150 

percent of the building block capital 

requirement for the top-tier parent. In 

addition, in order to provide capital 

flexibility to firms, the Board added an 

additional tier 1 capital component as 

discussed above. 

B. Adjustments for Comparability 

The proposal included a series of 

adjustments to improve comparability 

among U.S. insurance entities. These 

adjustments including reversing 

permitted and prescribed practices, 

disallowing legacy treatment and 

transitional measures in the application 

of new capital regulation for insurers, 

and reversing certain transactions (e.g., 

captives) in order to ensure consistency 

between SIOs. While many aspects of 

insurance regulation have been 

harmonized across states, other aspects 

can differ significantly across 

companies and states. 

The proposal would have used a 

consistent approach by assessing all 

U.S. insurers using NAIC RBC. Because 

NAIC RBC focuses on legal entities, it 

can be impacted by intercompany 

transactions. Some life insurers have 

used affiliated reinsurance transactions 

to alter their NAIC RBC ratios through 

the use of captives. These transactions 

move risks into captive reinsurance 

companies, which are generally not 

subject to the same accounting, 

disclosure, and capital requirements as 

NAIC RBC. The proposal would have 

neutralized much of the impact of these 

transactions through its grouping rules, 

which would have resulted in these 

affiliated reinsurance companies being 

analyzed using the same capital 

framework applicable to the ceding 

insurer. 

The proposal would have gone further 

to provide consistent treatment by 

mandating the use of the accounting 

principles promulgated by the NAIC. 

States can and do deviate from the 

framework. States can either mandate 

that regulated companies do or do not 

recognize certain financial transactions 

or can require a measurement basis 

other than that promulgated by the 

NAIC (‘‘prescribed practices’’) or allow 

differences in recognition or 

measurement for a specific transaction 

(‘‘permitted practices’’). These practices 

can decrease the capital requirements 

for insurers. For instance, one of the 

contributing factors in the use of life 

insurance captives was that some states 

allowed a permitted practice whereby 

life insurers could transfer certain life 

insurance business to a captive that 

would use a different accounting. This 

was due to the belief that some of the 

life insurance reserving requirements in 

NAIC RBC were overly conservative, 

and the captives were able to apply 

recognition and measurement concepts 

that were viewed as more appropriate. 

In moving the business to a captive, the 

life insurance entities could receive 

significant capital relief.37

The proposed rule included 

adjustments to address permitted 

practices, prescribed practices, or other 

practices, including legal, regulatory, or 

accounting, that departs from a capital 

framework as promulgated for 

application in a jurisdiction. The 

proposed rule would have adjusted 

capital requirements (the denominator 

in the BBA ratio) to reverse state 

permitted and prescribed practices (and, 

where relevant, any approved variations 

applied by solvency regulators other 

than U.S. state and territory insurance 

supervisors). The proposed adjustment 

was meant to provide for a consistent 

representation of financial information 

across all companies in the jurisdiction. 

The proposal also would have 

removed all legacy treatment and 

transitional measures associated with 

changes in a capital regime, unless the 

measures were approved by the Board.38

Transitional provisions and legacy 

treatment are utilized to make adoption 

of significant changes less burdensome 

for insurers, but can result in differences 

in application between insurers. An 

example of this, described above, is the 

change to PBR by the NAIC and states. 

Many states required insurers to apply 


khammond on DSKJM1Z7X2PROD with RULES2
Federal Register / Vol. 88, No. 226 / Monday, November 27, 2023 / Rules and Regulations 82961 

39A 40 percent factor is applied to all term life 

insurance business accounted for using an approach 

based on the Valuation of Life Insurance Policies 

Model Regulation (Regulation XXX). A 90 percent 

factor is applied to all secondary-guaranteed 

universal life insurance products accounted for 

using Actuarial Guideline XXXVIII—The 

Application of the Valuation of Life Insurance 

Policies Model (AXXX). 

PBR prospectively to new business 

beginning in 2020. This was optional in 

most states beginning in 2017. Due to 

the long-term nature of insurance 

liabilities, the measurement basis of 

most insurance liabilities by volume 

will continue to be the previous rules 

for many years. The proposal would 

have accelerated the transition by 

removing transitional measures not 

approved by the Board, which would 

have required applying PBR to legacy 

business (i.e., all business prior to 

2020). 

Commenters expressed divergent 

views that generally split into two highlevel positions. One group of 

commenters argued against the 

proposed adjustments to increase 

consistency. Another group of 

commenters supported the adjustments 

but suggested simplifying certain 

aspects of the proposal to reduce 

burden. 

Most commenters argued against 

making any of the suggested insurance 

adjustments. Several commenters 

argued that state prescribed and 

permitted accounting practices aren’t 

motivated by arbitrage. For example, a 

company may not update its accounting 

practices after previously ambiguous 

rules are clarified differently. One 

commenter linked these practices to a 

broader issue of supervisory or 

jurisdictional discretion, which also 

exists in other frameworks such as 

Europe’s Solvency II, and argued that 

these should all be recognized by the 

BBA. Several commenters argued that 

state prescribed and permitted practices 

can more faithfully represent 

idiosyncratic situations than the broad, 

default accounting rules. In these 

situations, the commenters argued that 

the proposed adjustments may decrease 

comparability. Similarly, commenters 

asserted that retroactively applying PBR 

could harm comparability because of 

differences in assumptions and 

interpretations. Several commenters 

also argued that these adjustments could 

confuse external stakeholders and 

management by causing the BBA to 

diverge from operating company RBC 

ratios. Commenters also stated that 

applying PBR retroactively would be 

burdensome. A large number of 

commenters argued that the Board 

should defer to the states on this topic. 

One of these commenters argued that 

failing to do so jeopardizes financial 

stability. Other commenters argued for 

further study, either of existing 

permitted and practices or state 

regulations, which one commenter 

believed would indicate that these 

adjustments are not needed. 

Several commenters supported the 

proposed adjustments with suggested 

modifications to reduce burden. These 

commenters asserted that individual 

state’s permitted and prescribed 

practices can be justified, but they do 

harm comparability in aggregate. By 

volume, most state permitted and 

prescribed practices do not address 

idiosyncratic issues. Instead, they 

specify different substantive treatments 

on common issues. These commenters 

argued that the treatment of business 

should not depend on the state of the 

insurer or the cession of business to an 

affiliated reinsurance company. 

The commenters, however, did 

suggest simplifying and clarifying the 

proposed insurance adjustments. 

Commenters wanted clarity on the 

scope of the adjustment on transitional 

measures and suggested that it may have 

unintended consequences by reversing 

transition measures related to the 

current expected credit losses 

methodology for estimating allowances 

for credit losses or requiring the 

restatement of insurance business using 

old mortality tables. With regard to PBR, 

commenters requested clarity on which 

types and years of business would 

require revaluation. Many commenters 

suggested simplifying or narrowing the 

scope of PBR revaluation. Approaches 

suggested included an approximation of 

a full PBR calculation by applying 

factors to current reserves, allowing the 

use of GAAP reserves instead, and 

allowing companies without captives or 

material exposures to opt out. Because 

PBR will apply prospectively, 

commenters suggested that these 

simplifications would better balance 

costs and benefits. One commenter also 

suggested retaining flexibility to 

maintain any given permitted or 

prescribed practice. 

The final rule simplifies but does not 

eliminate the proposed adjustments that 

increase comparability. Comparing 

institutions helps the Board identify 

unsafe and unsound conditions and 

could also benefit other users of the 

BBA. These adjustments effectively 

harmonize the approaches of different 

states to the approach set collectively 

through the NAIC. This aligns with 

other parts of the BBA. The BBA uses 

NAIC RBC, not the approach of any 

particular state, as the common capital 

framework. These adjustments convert 

individual company financial 

statements to that basis and justify not 

requiring any scaling between states. 

The final rule also includes the 

flexibility to allow any particular 

accounting practices if merited through 

the broad reservations of authority. 

In place of the proposal’s reversal of 

transitional measures that have not 

otherwise been approved by the Board, 

the final rule adopts the factor-based 

simplification for PBR suggested by 

some commenters. The final rule 

specifies factors that will be applied to 

current statutory reserves for certain 

types of insurance business that are 

subject to legacy treatment under the 

NAIC rule, to approximate PBR 

reserves.39 This narrower treatment of 

transitional measures eliminates any 

unintended effects on domestic 

insurance business. While the Board 

may eventually decide to reverse certain 

transitional measures in foreign 

insurance systems, these issues are 

currently not material to the Board’s 

supervised population. 

C. Title Insurance Issues 

The proposal would have assessed 

title insurers using the banking capital 

framework because title insurers 

currently lack risk-based capital rules. 

To capture the risk of title insurance 

businesses, an additional 300 percent 

risk weight would have been applied to 

title insurance reserves. Additionally, 

title plants, which are collections of 

data and records related to the titles of 

real property, would have been 

deducted from available capital like 

other intangible assets in the banking 

capital framework. 

The Board received two comment 

letters on the treatment of title 

insurance. These commenters did not 

oppose using the banking capital rule to 

assess title insurance business. 

However, they suggested modifying the 

treatment of title insurance reserves and 

title plant assets. They argued that title 

insurance reserves should qualify as tier 

2 capital, that the 300 percent risk 

weight for title insurance reserves was 

too high, and that title plant assets 

should not be deducted from capital. 

VII. Title Insurance Reserves 

Commenters advocated including title 

insurance reserves in tier 2 capital and 

not applying a risk weight for two 

reasons. First, they argued this would be 

more consistent with the banking 

capital rule because title insurance 

reserves are analogous to banks’ 

provisions for credit losses. Banks may 

count these allowances as tier 2 capital, 

subject to a limit of 1.25 percent of risk 


khammond on DSKJM1Z7X2PROD with RULES2
82962 Federal Register / Vol. 88, No. 226 / Monday, November 27, 2023 / Rules and Regulations 

40See, https://www.sec.gov/edgar/searchedgar/ 

companysearch (Fidelity National Financial, Inc. 

Form 8–K Termination of Material Definitive 

Agreement, Filed September 11, 2019 Fidelity 

National Financial, Inc. Form 8–K). 

41Comparing Capital Requirements in Different 

Regulatory Frameworks, September 2019, https://

www.federalreserve.gov/newsevents/pressreleases/ 

files/bcreg20190906a1.pdf. 

weighted assets. Second, commenters 

argued this would encourage 

conservative reserving. 

The commenters also argued that the 

proposed 300 percent risk weight for 

title insurance reserves was 

inappropriately high. They claimed title 

insurance reserves are less risky than 

publicly traded equities based on a 

comparison of industry-wide title 

insurance reserves and returns of equity 

indices. They also argued that title 

insurance policies and underwriting 

standards have evolved since the 

financial crisis to make the industry less 

risky. 

Based on an analysis of the comment 

letter and data, the final rule maintains 

the proposed treatment of title 

insurance reserves. Insurance reserves 

are substantively and significantly 

different than banks’ allowances. 

Allowances are a contra-asset that 

reflect expected future reductions in 

asset cashflows; title insurance reserves 

are a liability which represents expected 

future cash outflows. The reserves on 

other insurance products are a better 

analogy. Insurance capital frameworks 

unanimously classify insurance reserves 

as liabilities rather than capital. 

Indeed, many insurance capital 

frameworks, including NAIC RBC, 

explicitly use very conservative 

reserving methodologies to safeguard 

even more funds as liabilities. 

Commenters argued that this treatment 

incentivizes underestimating reserves; 

however, there are actuarial standards of 

practice that are followed by the vast 

majority of actuaries when developing 

reserves estimates. Additionally, 

applying a factor to a liability value is 

consistent with many other insurance 

capital regimes. Independent of the 

BBA, reserves impact earnings, taxes, 

executive compensation, and strategic 

business decisions. Some members of 

management can have a short-term 

incentive to reduce reserves to increase 

earnings, but internal controls help to 

protect against this risk. Fear about 

these controls failing, which would 

result in some reserves becoming 

capital, does not just justify treating 

reserves like capital. 

The final rule maintains the 300 

percent factor for title insurance 

reserves. During the financial crisis, the 

four largest title insurers’ reserves 

varied significantly more than equity 

indices. While the financial crisis hit 

title insurers particularly hard, the 

percentage losses on these reserves also 

exceeded the equity losses in any 

period, including the Great Depression. 

One of the four largest title insurers 

became insolvent. Another’s reserves 

more than doubled. A third’s reserves 

increased by more than 50 percent. The 

industry-wide data from commenters 

underestimate the potential volatility for 

individual companies. Data since 2011 

on all title insurers show that 10 percent 

reserve increases are somewhat common 

even when industry-wide reserves are 

relatively stable. 

VIII. Title Plant Assets 

Commenters also argued that title 

plant assets, which are collections of 

data and records related to the titles of 

real property, should not be deducted 

from capital and should instead receive 

a risk weight of 100 percent. They stated 

that title plant ownership interests are 

readily transferable. Insurers and agents 

often transfer ownership interests in 

title plants, which can be done without 

selling a business. The commenters 

believed these transactions could be 

completed even under adverse financial 

conditions. 

The final rule deducts title plant 

assets from capital. During a stress 

event, title plant assets would likely not 

be capable of generating significant 

resources. The most likely buyers for an 

asset which helps underwrite title 

insurance would be a title insurer. But 

if one large title insurer needs capital, 

others are likely to require capital as 

well. Even if a potentially willing and 

able buyer were found, the transaction 

could face other difficulties, including 

antitrust scrutiny. The title insurance 

industry is highly concentrated. An 

attempted merger of two large title 

insurers in 2019 was abandoned after 

the Federal Trade Commission 

opposition on antitrust grounds.40

IX. Scaling 

Scaling was considered in the 

proposal because regulatory capital 

frameworks differ in their outputs. 

While these outputs all assess capital, 

some use radically different terminology 

and scales. Banking capital frameworks 

focus on of risk weighted asset ratios, 

with requirements set at levels well 

below 100 percent. Insurance capital 

frameworks, in contrast, are set based on 

multiples of state requirements and 

target ratios well above 100 percent. 

Aggregating these different metrics 

requires translating (that is, ‘‘scaling’’) 

them. 

Because of scaling’s importance to the 

BBA, the Board published a white 

paper 41 on it. The white paper explored 

scaling and assessed different potential 

scaling methods. On the basis of the 

white paper’s assessment, the proposal 

would have based scaling between the 

Board’s banking capital rules and NAIC 

RBC based on historical default 

probabilities. The proposed method 

used these default rates as a benchmark 

for translation. The white paper’s 

analysis indicated this results in the 

most accurate translation of any 

method. Accurate translations facilitate 

aggregation and ultimately the 

assessment of an institution’s safety and 

soundness. 

The proposal did not propose scalars 

for other jurisdictional regimes at this 

time primarily due to a lack of 

consistent default information. Instead, 

the proposal included a provisional 

scaling method that would have applied 

in the absence of specified scalars. This 

method assumed the equivalence of 

available capital calculations and 

regulatory intervention points after an 

adjustment for country risk. 

Commenters largely agreed with the 

Board’s analysis. Several commenters 

explicitly supported the Board’s 

proposed approach. These commenters 

said the approach was thoughtful, 

rigorous, and practical. No commenter 

explicitly disagreed with using it to 

translate between NAIC RBC and the 

Federal banking capital rule. One 

commenter, did, however raise concerns 

that the proposed approach was ‘‘bank 

centric’’ and overly dependent on 

default data from P&C insurance groups, 

which may differ from data from other 

types of insurers. 

The main criticism of the Board’s 

overall scaling proposal was that it 

supplies scalars only between two 

capital frameworks as described above. 

Several commenters asked the Board to 

specify scalars for other frameworks 

rather than relying on this provisional 

scaling method. They argued that this 

would reduce uncertainty and aid 

international negotiations. Because of 

the lack of default data on other 

frameworks, these commenters also 

encouraged the Board to develop 

practical alternatives to relying on 

default data. In addition to the 

comments on developing scalars for 

other jurisdictions, the Board also 

received comments on the provisional 

scaling method. One commenter argued 

that this country risk adjustment 

disfavors international frameworks 

relative to the U.S. framework. Another 

commenter disagreed with some of the 

discussion in the white paper of the 

provisional methodology and argued 


khammond on DSKJM1Z7X2PROD with RULES2
Federal Register / Vol. 88, No. 226 / Monday, November 27, 2023 / Rules and Regulations 82963 

42When parameterized separately, life and P&C 

insurance frameworks generated nearly identical 

scalars. A t-test regarding the differences in these 

parameters resulted in a p-value close to 50 percent. 

See page 18 of the White Paper for further 

information. 

43A top-tier depository institution holding 

company’s BBA ratio would be impacted by this 

change only if (1) a subsidiary building block parent 

issued capital outside of the group, (2) the 

subsidiary building block parent issued both equity 

and non-equity capital instruments, and (3) the 

group’s ownership percentage of the non-equity 

capital instruments differed from its ownership of 

equity capital instruments. 

44The adopted form FR Q–1 and instructions are 

available at https://www.federalreserve.gov/apps/ 

reportforms/review.aspx. 

that it did not adequately consider the 

possibility of interpolating a scaling 

methodology from a single assumed 

equivalency point or the possibility of 

using multiyear analysis to mitigate 

volatility. Another commenter thought 

the proposed provisional scaling 

method was not as sophisticated as 

what the NAIC is considering as part of 

its group capital calculation. Those 

methods rely on an alternative 

assumption related to the different 

insurance industries being equally well 

capitalized. 

After reviewing these comments, the 

Board is finalizing scalars between 

NAIC RBC and the Board’s banking 

capital rule as proposed. As explained 

in the white paper, historical insolvency 

rates are a fair benchmark for solvency 

ratios from different frameworks, and 

the Board’s testing did not indicate a 

bias toward either banks or insurers. 

Extensive data exists on banks, P&C 

insurers, and life insurers. This data did 

not support treating the life and P&C 

capital frameworks differently.42

The Board considered and attempted 

to survey all potential scaling methods 

in the published white paper. The 

Board’s analysis revealed a trade-off in 

scaling methods between the 

reasonableness of their assumptions and 

the amount of data they required. 

Without data, scaling requires using 

untested assumptions. No comment 

disputed this trade-off. 

Because more accurate scaling 

requires data and data is limited on 

many frameworks, the Board could 

either vary its approach based on the 

data available or exclusively use a 

framework that would rely on data that 

is more likely to be available but would 

not provide scaling results to sufficient 

degree of accuracy. The final rule, like 

the proposal, avoids setting a uniform 

approach to scaling. This does create 

some uncertainty about how foreign 

insurance frameworks would be treated, 

but it also allows more accurate 

translations domestically. To reduce the 

uncertainty, the Board will continue 

working with the NAIC domestically, 

and at the IAIS internationally, on 

scaling, including parameterizing 

scalars within the BBA as appropriate. 

The final rule also adopts the 

provisional scaling methodology as 

proposed for material foreign insurance 

entities. Other approaches may produce 

more accurate translations, but they also 

require more data. A provisional scaling 

method must always output a valid 

translation. Without this, a SIO would 

not be able to compute its BBA ratio in 

the absence of a further Board 

rulemaking or order. The proposed 

methodology requires the least amount 

of data. 

Additionally, the NAIC is currently 

using an unscaled approach in its 

development of the GCC, which, like the 

provisional approach, would leverage 

the capital requirements in jurisdictions 

with risk-based regimes, though it does 

not include a country risk adjustment. 

The final rule maintains this adjustment 

as country risk affects the insurers 

operating in those jurisdictions. 

With regard to the technical points 

made, the Board believes these were 

accurately discussed in the white paper. 

One commenter noted that changes to 

NAIC RBC could impact scalars and 

asked about the timeframe for updates 

to the scalars and their effect time. The 

Board will monitor changes to NAIC 

RBC and plans to update scalars as 

necessary rather than on a 

predetermined schedule. 

Proposed updates to the scalars will 

be released for public comment prior to 

adoption. 

X. Aggregation 

The proposal would have aggregated 

the adjusted and scaled output from the 

building block parents. At each level of 

aggregation, the scaled and adjusted 

results from subsidiary building block 

parents would have replaced the default 

treatment for these risks in the indicated 

capital framework of the upstream 

building block parent. For example, an 

insurance company that owns a 

depository institution would have held 

this depository institution on its balance 

sheet based on GAAP equity and 

applied a factor to this value to calculate 

the capital required on the investment. 

When calculating available capital, the 

proposal would have replaced the 

GAAP equity with the bank’s scaled 

capital, as calculated under the 

proposed BBA. Similarly, scaled and 

adjusted output from the bank capital 

framework would have replaced the 

insurance capital framework’s treatment 

of the bank subsidiary. 

The proposal would have used 

proportional consolidation to address 

the partial ownership of building block 

parents. When aggregating the risks of a 

downstream building block parent, the 

upstream building block parent would 

have only included a fraction of the 

downstream parent that is proportional 

to its ownership. In the proposal, this 

proportion would have been based on 

the fraction of the capital resources of 

the downstream building block parent 

owned by the upstream building block 

parent. 

The Board received one comment 

regarding this aspect of the proposal. 

The commenter suggested using the 

proportion of equity in place of the 

proportion of capital to allocate 

ownership of an inventory company 

among multiple building block parents. 

As suggested by the commenter, the 

final rule uses equity ownership 

percentages to incorporate partially 

owned building block parents. This 

fraction is calculated for other purposes 

and would simplify the rule without 

materially impacting the calculation of 

the BBA ratio.43 The final rule otherwise 

adopts the proposed method of 

aggregation under the BBA. 

XI. Reporting 

To implement the BBA, the Board 

proposed a new reporting form. This 

reporting form, form FR Q–1 would 

have collected information needed to 

carry out the BBA calculations.44 Form 

FR Q–1 would have facilitated 

monitoring the capital position of 

companies subject to the BBA. 

The Board published a proposed 

version of form FR Q–1 for comment 

along with the NPR. This proposed 

reporting form served as the basis for a 

voluntary QIS from SIOs. Several 

comment letters addressed form FR Q– 

1. Additionally, QIS participants 

provided feedback based on their 

experience completing the form. 

Several issues raised in the context of 

form FR Q–1 overlap with other aspects 

of the BBA and are discussed elsewhere 

in this Supplementary Information 

section. As discussed above in section II 

related to the BBA’s effective date, 

several comments requested deferring 

the first filing of form FR Q–1’s 

attestation cover page to avoid requiring 

controls related to the BBA to be in 

place before the BBA becomes effective. 

The final rule defers the first filing of 

the attestation cover page until the 

submission of the second form FR Q–1. 

As discussed in section V.A related to 

the BBA’s inventory, commenters 

suggested the Board restrict the 

definition of an inventory company to 

reduce form FR Q–1’s burden. Instead, 

the adopted version of form FR Q–1 


khammond on DSKJM1Z7X2PROD with RULES2
82964 Federal Register / Vol. 88, No. 226 / Monday, November 27, 2023 / Rules and Regulations 

45 12 CFR 363.1. 

46 12 CFR 238.5. 

limits the inventory companies that are 

required to provide asset information to 

achieve a similar effect. 

Commenters also raised issues 

regarding form FR Q–1’s proposed 

March 15 yearly deadline, the amount of 

form FR Q–1 information that would be 

made public, and how much of the 

information related to form FR Q–1 

would need to be audited. 

A. Submission Date 

The proposal would have had a 

March 15 annual submission deadline 

for form FR Q–1. This date was selected 

to closely follow the March 1 date on 

which state insurance legal entities 

must submit their annual statements to 

state insurance regulators. Because the 

BBA relies on information in these 

reports, form FR Q–1’s deadline should 

occur after it. A date shortly after this 

deadline was proposed because timely 

information facilitates better 

supervision. 

Commenters requested extending the 

submission deadline for form FR Q–1. 

These commenters cited the burden of 

an additional reporting form tied to the 

year-end. They suggested that form FR 

Q–1 be submitted further back in the 

queue of these reports. June 1 was the 

most common requested filing date, 

which would coincide with the date 

insurers must submit audited financial 

statements. Commenters noted the 

additional accuracy with these audited 

statements. Two other commenters 

suggested slightly earlier dates. 

In response to the comments, the final 

rule includes a March 31 due date for 

form FR Q–1. This allows SIOs an extra 

two weeks to complete the report in 

recognition of the report’s reliance on 

U.S. statutory financial statements that 

are filed with the states, and the existing 

burden on reporting staff during this 

period of time. The final rule does not, 

however, extend the deadline as much 

as suggested by commenters. Doing so 

would significantly disrupt the Board’s 

supervision schedule and mean that the 

most recent BBA information available 

would be between 5 and 17 months out 

of date. Conversely, for other banking 

organizations, significantly more 

detailed consolidated financial 

information is reported quarterly, 

around a month after the close of a 

quarter. 

B. Public Disclosure 

Under the proposal, the vast majority 

of the information reported to the Board 

through the proposed reporting form FR 

Q–1 would not have been made public. 

The information that the Board 

proposed to make public would have 

consisted of the building block available 

capital, building block capital 

requirement, and BBA ratio for the toptier parent of an insurance depository 

institution holding company’s 

enterprise. This sought to protect some 

of the non-public information contained 

within form FR Q–1 while still 

providing the public some transparency 

into the capitalization of the firm, which 

could be used as the basis for 

supervisory actions. The proposed 

disclosure was significantly less 

extensive than the disclosure required 

for other financial institutions because 

of the Board’s limited role in regulating 

supervised insurance institutions and 

the potential competitive effects of 

requiring disclosure from only a small 

subset of the sector. 

Commenters expressed diverging 

opinions on the disclosure proposal. 

One commenter supported the proposal. 

Three other commenters argued that all 

aspects of the BBA should be 

confidential. They argued that 

disclosing the BBA ratio could cause 

competitive disadvantages because the 

NAIC does not intend to make public 

the results of their group capital 

calculation. 

The final rule adopts the proposed 

disclosure standard. The Board will 

publish each SIO’s overall results along 

with their numerator and denominator. 

Although publishing detailed 

information on a supervised institution, 

some of which is contained in form FR 

Q–1, could cause competitive harm, 

publishing this overall BBA ratio and 

the numerator and denominator would 

not. No trade secret information can be 

derived from disclosing this high-level 

datum related to the overall enterprise’s 

capitalization. Outside of revealing 

confidential information, the BBA ratio 

could place an SIO at a competitive 

disadvantage if the ratio itself could be 

used against the company. A very poor 

BBA ratio could be marketed against a 

company, but a very poor BBA ratio 

likely could not be kept a secret 

regardless because it results in 

supervisory consequences. For example, 

companies that breach the BBA’s 

minimum requirements will face 

limitations on capital distributions that 

would be difficult to conceal. 

Additionally, it is likely that for any SIO 

with a low BBA ratio, there would be 

publicly available information 

indicating that some of the underlying 

building blocks are thinly capitalized 

through either the published banking 

capital ratios or the U.S. statutory 

filings. The net impact of the disclosure 

then relates to the exact amount of the 

BBA ratio, particularly when it is above 

the minimum. No commenter provided 

any plausible avenue for how this could 

be used to harm an SIO. 

C. Audit Requirements 

The NPR was not clear about how 

much of the information entered into 

form FR Q–1 would need to be subject 

to an independent audit. However, it 

included a requirement that all BBA 

controls would be subject to an internal 

audit annually. The proposal would 

have mandated that building block 

parents calculate their available and 

required capital under their indicated 

capital framework, but it did not specify 

whether the source financial statements 

should be audited. The bank rules 

referenced by the BBA do not clearly 

resolve the issue. There is no universal 

financial statement audit requirement, 

although FDIC regulations do require 

audited financial statements from 

depository institutions over a certain 

asset threshold, and this audit can be 

satisfied by an audit of the depository 

institution holding company.45 Section 

238.5 of the Board’s Regulation MM also 

requires audited financial statements for 

SLHCs with greater than $500 million in 

consolidated assets.46

Commenters argued that an 

independent audit of financial 

statements for each building block 

parent should not be required by the 

BBA or form FR Q–1 instructions. They 

argued this would be burdensome, 

without creating corresponding benefits. 

In relation to the proposed internal 

audit requirement, one commenter 

argued that the requirement would be 

overly burdensome and unnecessary on 

account of the requirement for a senior 

officer to attest to the accuracy of form 

FR Q–1 and existence of appropriate 

controls. 

The final rule and form FR Q–1 

instructions remove the proposed 

internal audit requirement and clarify 

the Board’s expectations for 

independent audits of building block 

parent financial statements. While the 

final rule does not require Internal audit 

coverage of form FR Q–1 each year, the 

Senior Officer in signing form FR Q–1 

must attest that related internal controls 

of the firm are considered adequate by 

Internal audit. 

As noted above, the proposal did not 

include an explicit audit requirement 

for the underlying building blocks or for 

the enterprise, and the Board has not 

adopted one in the final rule. However, 

the safety and soundness considerations 

that justify the audit requirements of 12 

CFR 238.5 and in FDIC annual audit 


khammond on DSKJM1Z7X2PROD with RULES2
Federal Register / Vol. 88, No. 226 / Monday, November 27, 2023 / Rules and Regulations 82965 

47See 12 CFR part 363. 

rules 47 apply to SIOs as well. Typically, 

the financial statements of large 

companies, particularly those with $500 

million or more in consolidated assets, 

should be subject to an audit performed 

by a qualified independent public 

accountant. This is particularly true of 

large building block parents, whose 

financial statements would typically be 

relied upon for this calculation and 

when making business decisions. As 

with the financial statements of 

depository institutions under the FDIC 

rule, this audit expectation could be 

fulfilled through an audit of a holding 

company’s financial statements if the 

holding company consolidates the 

entity. In addition, U.S. statutory 

accounting requirements (rules) have 

audit requirements for most insurance 

legal entities. Between the banking 

requirements and the U.S. statutory 

requirements, it is expected that most of 

the building block parents will have 

audits. 

The Board will monitor 

implementation of the BBA and 

determine if there are audit gaps. If gaps 

are discovered, the Board would 

consider implementing an audit 

requirement by independent public 

accountants of financial statements of 

building block parents with total assets 

of $500 million. 

XII. Economic Impact Analysis of the 

BBA 

The Board analyzed the potential 

costs and benefits of the proposed 

minimum risk-based capital 

requirements for supervised insurance 

holding companies. Setting the BBA at 

the similar stringency level as bank 

capital requirements minimizes the 

incentive for BHCs to acquire or sell 

insurance operations due to disparate 

capital requirements, while maintaining 

the safety and soundness of supervised 

firms. The Board analyzed whether the 

proposed level of the BBA requirements 

might drive currently supervised firms 

to shed their depository institutions or 

meaningful deter other insurers from 

acquiring thrifts, given that the BBA’s 

total capital requirement would be 

higher than any current state 

requirements. Data from the BBA QIS, 

as of year-end 2018, indicated that none 

of the currently supervised insurance 

institutions would have needed to raise 

capital to comply with the rule. This 

was confirmed to still be the case as of 

year-end 2021 based on analysis of these 

firms’ Statutory Insurance Annual 

Statements and data on depository 

institutions and intermediate holding 

companies. 

This same data was used to assess the 

distribution of Risk Based Capital ratios 

relative to the BBA requirements for the 

universe of insurers with over $1 billion 

in assets. Nearly nine in ten insurers 

could meet the 400 percent total 

requirement without raising capital and 

only 1 percent of insurers were below 

the proposed 250 percent minimum. 

This demonstrates that the vast majority 

of insurers would not be deterred by the 

BBA from acquiring thrifts by the BBA 

while appropriately excluding the least 

capitalized insurers from doing so. 

Parallel to the capital required by the 

BBA calculation, insurance depository 

institution holding company would also 

have to demonstrate capital adequacy 

on a fully consolidated basis as 

prescribed by section 171 of the DoddFrank Act. An SIO may comply with 

this requirement on a fully consolidated 

basis using the bank capital 

requirements. Alternatively, an SIO may 

utilize the flexibility afforded by the 

2014 Amendment to exclude certain 

state- and foreign-regulated insurance 

operations and to exempt top-tier 

insurance underwriting companies from 

the risk-based capital requirement. The 

final rule allows SIOs to utilize one of 

two different calculations that consider 

the section 171 calculation scope 

exceptions: full deduction from capital 

of investment in subsidiaries or risk 

weighting of these investments at 400 

percent, consistent with the current 

treatment of bank’s equity exposures. 

The Board’s analysis confirms that for 

most mutual insurance companies, the 

parallel requirement would not be 

relevant. A significant percentage of 

publicly traded companies would likely 

fail to meet the requirement based on 

the deduction option, though most 

could satisfy the risk-weight option. 

Overall, the parallel requirement would 

not have material impact due to the 

different options for achieving 

compliance. 

The BBA framework is designed to 

protect subsidiary insured depository 

institutions from risks in the broader 

enterprise. The Board analyzed the 

experience of insurance depository 

institution holding companies during a 

significant stress period, the 2007–09 

financial crisis, to shed light on the 

potential benefits of an enterprise-wide 

risk-based capital requirements. Prior to 

the financial crisis, more than twenty 

holding companies would have been 

subject to enterprise-wide capital 

requirements, had such a rule been in 

place, due to their significant 

engagement in insurance activities. 

These combined assets of these firms 

were over $3.3 trillion, according to data 

from forms FR Y–9C and OTS 1313 

(Thrift Financial Reports). 

Depository institution subsidiaries 

tended to be a source of strength for 

these insurers when some of them 

suffered significant capital impairment 

at their non-banking subsidiaries. No 

depository institution affiliates of 

insurers were resolved by the FDIC 

during the 2007–09 financial crisis. 

Banking-insurance combinations also 

enabled some insurers to access 

emergency relief programs available to 

banks. Three of these insurers received 

public assistance aimed at bolstering 

their solvency, while six participated in 

Federal Reserve liquidity facilities and 

seven increased their reliance on public 

liquidity backstops. These included the 

largest three pre-crisis insurance 

depository institution holding 

companies and in aggregate accounted 

for about two-thirds of the total assets of 

this group. 

Unlike regulations in place during the 

2007–09 financial crisis, the BBA 

provides a clear regulatory capital 

framework for insurers that try to 

acquire depository institutions for the 

purposes of accessing emergency 

facilities. Had it been in place, the BBA 

could have either forced the insurers to 

raise capital before completing the 

transactions or prevented such 

transactions due to a lack of 

consolidated capital. In such a context, 

the BBA could help protect taxpayer 

funds by ensuring the safety and 

soundness of insurers accessing 

emergency facilities via a depository 

institution acquisition, since the insurer 

would need to meet the BBA minimum 

requirement in order to do so. As such, 

the consolidated BBA may lessen moral 

hazard associated with the implicit 

government backstop seen in the 

financial crisis. 

When the Federal Reserve assumed 

responsibility for supervision of 

insurance SLHCs in mid-2011 there 

were 28 such firms. Fairly rapidly, a 

majority of these firms left the Federal 

Reserve’s regulatory purview, either by 

converting their depository subsidiaries 

to trust banks or by divesting from their 

thrifts entirely. These divestments could 

be troubling if it implied that potentially 

synergistic mergers have been 

discouraged. While it is difficult to 

precisely ascribe these dissolutions to 

any particular factors, the Board’s 

analysis relied on financial comparisons 

and textual evidence to illuminate the 

likely causes. 

A quantitative comparison was 

conducted, using data collected by the 

Office of Thrift Supervision leading up 

to the time of the handover of 

supervisory responsibility to the Board, 


khammond on DSKJM1Z7X2PROD with RULES2
82966 Federal Register / Vol. 88, No. 226 / Monday, November 27, 2023 / Rules and Regulations 

between those firms keeping their 

depository institution subsidiaries and 

those that either converted their 

depository subsidiaries to trust banks or 

divested from their thrifts entirely. The 

firms that kept their thrift subsidiaries 

tended to have banking as a larger share 

of their overall business operations and 

to be more profitable. The firms that dethrifted tended to be riskier as measured 

by leverage and the volatility of 

earnings. 

Reviewing the record of bankinginsurance combinations highlights three 

drivers of de-thrifting that are tangential 

to the BBA capital rule. First, most 

divestments preceded the development 

of the BBA. While some insurers did 

cite regulatory concerns as a factor in 

their decisions, they highlighted 

potential stress tests or distribution 

restrictions rather than capital 

standards. Second, the economies of 

scale envisioned from cross-selling 

banking and insurance products failed 

to materialize. Finally, the small size of 

the thrifts at most insurance SLHCs 

suggest an additional headwind. 

Economies of scale from technological 

advances and the loosening of 

branching restrictions have long raised 

competitive difficulties for small 

depository institutions that are 

unrelated to any specific requirements 

of the BBA. It is clear from the analysis 

that the development of the BBA was 

not the driver of insurers divesting or 

switching charters. Further, the primary 

aim of the rule, protecting insured 

depository subsidiaries from risks in the 

broader enterprise, fits with the pattern 

of the riskiest firms divesting their 

banks while those who maintain them 

have banking as a major business line, 

are well capitalized, and operate at low 

risk levels. 

The BBA capital rule is more stringent 

than state level insurance regulation in 

that it entails swifter regulatory 

intervention should capital deteriorate. 

The Board quantified this comparative 

stringency using data collected through 

the QIS for the firms in the Board’s 

supervisory portfolio. Intervention 

probabilities over a three-year horizon 

were estimated based on how BBA 

ratios, projected back over the prior two 

decades, have compared against the 

required capital plus the buffer. Relative 

to a firm’s respective state-level 

requirement, threshold breach 

probabilities were on average about four 

percentage points higher under the 

BBA, though this varied form near zero 

to over 10 percent. This demonstrates 

that the BBA capital rule is consistently 

more conservative than state-level 

requirements, enhancing protection of 

the insured depository subsidiaries. 

Regulatory interventions, to the extent 

they reduce the ability to do business or 

require additional compliance 

resources, can impose costs on firms. In 

practice, firms with higher intervention 

probabilities based on their current 

financials may raise their capital levels 

to forestall the need for regulatory 

intervention. 

In addition to somewhat higher 

capital requirements, supervised 

insurance holding companies would 

also see two notable differences in how 

their capital levels are determined 

relative to state-level regulations, both 

of which are intended to enhance the 

quality of capital. 

First, captive reinsurers are 

consolidated under the same accounting 

standards as U.S. operating insurance 

entities rather than being permitted to 

back some policy reserves with lowerquality assets. Such a treatment could 

put insurers covered by the BBA at a 

competitive disadvantage by 

necessitating higher premiums on 

certain products. The effect on currently 

supervised firms would be small given 

their limited use of captive reinsurance. 

The Board’s calculations suggest about 

one-fifth of life insurers by assets 

industry-wide would not have sufficient 

capital to meet the BBA capital 

conservation buffer without the relief 

provided by captives, potentially 

deterring their interest in acquiring a 

depository institution. Because this 

form of capital relief derives from a 

corporate structure choice rather than 

actual risk differences, it would be 

counter to the principle that the same 

activity should get the same regulatory 

treatment. 

Second, the share of insurer capital 

that can be accounted for by surplus 

notes is capped. 

While the NAIC considers these 

instruments as capital, they are a form 

of unsecured subordinated debt with 

fixed payment schedules. In principle, 

heavy users of surplus notes would be 

disincentivized from acquiring a 

depository institution given the need to 

raise more costly forms of capital. The 

impact in practice is expected to be 

minimal given the stipulation under the 

BBA legacy treatment of existing 

surplus notes as a qualifying capital 

instrument. 

Further, the Board’s analysis found 

that the incremental difference in the 

share of firms industry-wide who would 

not meet the BBA’s regulatory 

thresholds is not meaningfully different 

with the use of surplus notes capped. 

XIII. Administrative Law Matters 

A. Paperwork Reduction Act 

In connection with the final rule, the 

Board is implementing ‘‘collections of 

information’’ within the meaning of the 

Paperwork Reduction Act of 1995 (PRA) 

(44 U.S.C. 3501–3521). In accordance 

with the requirements of the PRA, the 

Board may not conduct or sponsor, and 

a respondent is not required to respond 

to, an information collection unless it 

displays a currently valid Office of 

Management and Budget (OMB) control 

number. The OMB control number is 

7100–NEW. The Board reviewed the 

final rule under the authority delegated 

to the Board by OMB. 

In order to implement the final rule, 

the Board is implementing the FR Q–1 

reporting form, which contains 

reporting requirements subject to the 

PRA. The reporting form has been 

implemented pursuant to section 171 of 

the Dodd-Frank Act and section 10 of 

HOLA for insurance depository 

institution holding companies. The 

Board received no comments 

specifically related to the PRA. The 

Board did receive two comments, as 

described above, relating to the 

difficulties of providing certain 

information for all subsidiaries. The 

Board lowered the reporting burden by 

adding a materiality threshold that will 

eliminate some of the reporting on 

immaterial inventory companies. 

Implementation of the Following 

Information Collection 

Collection title: Capital Requirements 

for Board-regulated Institutions 

Significantly Engaged in Insurance 

Activities. 

Collection identifier: FR Q–1. 

OMB control number: 7100–NEW. 

General description of report: Section 

171 of the Dodd-Frank Act requires, and 

section 10 of the HOLA authorizes, the 

Board to implement risk-based capital 

requirements for depository institution 

holding companies, including those that 

are significantly engaged in insurance 

activities. 

Frequency: Annual. 

Affected Public: Businesses or other 

for-profit. 

Respondents: Insurance depository 

institution holding companies. 

Estimated number of respondents: 5. 

Estimated average hours per response: 

175.50 for initial setup and 43.88 for 

ongoing compliance. 

Estimated annual burden hours: 1,097 

(878 for initial setup and 219 for 

ongoing compliance). 

Current Actions: Pursuant to section 

171 of the Dodd-Frank Act and section 

10 of HOLA, the Board has adopted the 


khammond on DSKJM1Z7X2PROD with RULES2
Federal Register / Vol. 88, No. 226 / Monday, November 27, 2023 / Rules and Regulations 82967 

48 5 U.S.C. 601 et seq. 

49 5 U.S.C. 605(b). 

50See 12 U.S.C. 1467a and 5371. 

51 13 CFR 121.201. Consistent with the SBA’s 

General Principles of Affiliation, the Board includes 

the assets of all domestic and foreign affiliates 

toward the applicable size threshold when 

determining whether to classify a particular entity 

as a small entity. See 13 CFR 121.103. 52 12 U.S.C. 4809. 

application of risk-based capital 

requirements to certain depository 

institution holding companies. The 

Board has adopted an aggregation-based 

approach, the Building Block Approach, 

that would aggregate capital resources 

and capital requirements across the 

different legal entities under an 

insurance depository institution holding 

company to calculate consolidated, 

enterprise-wide qualifying and required 

capital. The BBA utilizes, to the greatest 

extent possible, capital frameworks 

already in place for the entities in the 

enterprise of a depository institution 

holding company significantly engaged 

in insurance activities and is tailored to 

the supervised firm’s business model, 

capital structure, and risk profile. The 

new reporting form (FR Q–1) requires a 

depository institution holding company 

to produce certain information required 

for the application of the BBA. The 

reporting form and instructions are 

available on the Board’s public website 

at https://www.federalreserve.gov/apps/ 

reportingforms/home/review. 

The Board made several changes to 

form FR Q–1 and the FR Q–1 

instructions that correspond with 

changes to the final rule. The changes 

include the addition of a new column 

for additional tier 1 capital, revising the 

tier 2 limit, the materiality calculation 

for reporting requirement on inventory 

companies, a simplification on how 

building blocks are aggregated, and the 

inclusion of a request for confidentiality 

check box. One additional change was 

made to include a column to list the 

Legal Entity Identifier for inventory 

companies, which allows for more 

consistent identification of legal 

entities. The changes in the aggregate 

are a reduction in the burden from the 

proposed FR Q–1. Form FR Q–1 is 

effective January 1, 2024. 

B. Regulatory Flexibility Act 

An initial regulatory flexibility 

analysis was included in the proposal in 

accordance with section 603(a) of the 

Regulatory Flexibility Act (RFA).48 In 

the initial regulatory flexibility analysis, 

the Board requested comment on the 

effect of the proposed rule on small 

entities and on any significant 

alternatives that would reduce 

regulatory burden on small entities. The 

Board did not receive any comments on 

the initial regulatory flexibility analysis. 

The RFA requires an agency to prepare 

a final regulatory flexibility analysis 

unless the agency certifies that the rule 

will not, if promulgated, have a 

significant economic impact on a 

substantial number of small entities. 

Based on its analysis, and for the 

reasons stated below, the Board certifies 

that the rule will not have a significant 

economic impact on a substantial 

number of small entities.49 In 

accordance with section 171 of the 

Dodd-Frank Act and section 10 of 

HOLA, the Board is adopting subpart J 

to 12 CFR part 217 (Regulation Q) to 

establish risk-based capital 

requirements for insurance depository 

institution holding companies.50 An 

insurance depository institution holding 

company’s aggregate capital 

requirements generally are the sum of 

the capital requirements applicable to 

the top tier parent and certain 

subsidiaries of the insurance depository 

institution holding company, where the 

capital requirements for regulated 

financial subsidiaries are based on the 

regulatory capital rules of the 

subsidiaries’ functional regulators— 

whether a state Department of Insurance 

or a foreign insurance regulator for 

insurance subsidiaries, or a Federal 

banking regulator for insured depository 

institutions (IDIs). The BBA then builds 

upon and aggregates capital resources 

and requirements across groups of legal 

entities in the insurance depository 

institution holding company’s 

enterprise (insurance, non-insurance 

financial, non-financial, and holding 

company), subject to adjustments. 

Under Small Business Administration 

(SBA) regulations, the finance and 

insurance sector includes direct life 

insurance carriers, direct title insurance 

carriers, and direct P&C insurance 

carriers, which generally are considered 

‘‘small’’ for the purposes of the RFA if 

a life insurance carrier or title insurance 

carrier has average annual receipts of 

$47 million or less or if a P&C insurance 

carrier has less than 1,500 employees.51

Life insurance companies and title 

insurance companies that are subject to 

the rule all substantially exceed the $47 

million average annual receipt threshold 

at which they would be considered a 

‘‘small entity’’ under SBA regulations. 

P&C insurance companies subject to the 

rule exceed the less than 1,500 

employee threshold below which a P&C 

entity is considered a ‘‘small entity’’ 

under SBA regulations. 

Because the rule does not apply to 

any life insurance carrier or title 

insurance carrier with average annual 

receipts of less than $47 million, or P&C 

carrier with less than 1,500 employees, 

it will not apply to a substantial number 

of small entities for purposes of the 

RFA. Accordingly, the Board does not 

expect the rule to have a significant 

economic impact on a substantial 

number of small entities. 

C. Plain Language 

Section 722 of the Gramm-LeachBliley Act 52 requires the Federal 

banking agencies to use plain language 

in all proposed and final rules 

published after January 1, 2000. The 

Board sought to present the proposal in 

a simple and straightforward manner 

and did not receive any comments on 

the use of plain language. 

List of Subjects 

12 CFR Part 217 

Administrative practice and 

procedure, Banks, banking, Federal 

Reserve System, Holding companies, 

Investments, National banks, Reporting 

and recordkeeping requirements, 

Securities. 

12 CFR Part 238 

Administrative practice and 

procedure, Banks, banking, Federal 

Reserve System, Holding companies, 

Reporting and recordkeeping 

requirements, Securities. 

12 CFR Part 252 

Administrative practice and 

procedure, Banks, banking, Credit, 

Federal Reserve System, Holding 

companies, Investments, Qualified 

financial contracts, Reporting and 

recordkeeping requirements, Securities. 

Authority and Issuance 

For the reasons set forth in the 

preamble, the Board of Governors of the 

Federal Reserve System amends chapter 

II of title 12 of the Code of Federal 

Regulations as follows: 

PART 217—CAPITAL ADEQUACY OF 

BANK HOLDING COMPANIES, 

SAVINGS AND LOAN HOLDING 

COMPANIES, AND STATE MEMBER 

BANKS (REGULATION Q) 

■ 1. The authority citation for part 217 

continues to read as follows: 

Authority: 12 U.S.C. 248(a), 321–338a, 

481–486, 1462a, 1467a, 1818, 1828, 1831n, 

1831o, 1831p–1, 1831w, 1835, 1844(b), 1851, 

3904, 3906–3909, 4808, 5365, 5368, 5371, 

5371 note, and sec. 4012, Pub. L. 116–136, 

134 Stat. 281. 

Subpart A—General Provisions 

■ 2. In § 217.1: 


khammond on DSKJM1Z7X2PROD with RULES2
82968 Federal Register / Vol. 88, No. 226 / Monday, November 27, 2023 / Rules and Regulations 

■ a. Revise paragraph (c)(1); and 

■ b. Add paragraph (g). 

The revision and addition read as 

follows: 

§ 217.1 Purpose, applicability, 

reservations of authority, and timing. 

* * * * * 

(c) * * * 

(1)(i) Applicability in general. This 

part applies on a consolidated basis to 

every Board-regulated institution that is: 

(A) A state member bank; 

(B) A bank holding company 

domiciled in the United States that is 

not subject to 12 CFR part 225, 

appendix C, provided that the Board 

may by order apply any or all of this 

part to any bank holding company, 

based on the institution’s size, level of 

complexity, risk profile, scope of 

operations, or financial condition; or 

(C) A covered savings and loan 

holding company domiciled in the 

United States, other than a savings and 

loan holding company that meets the 

requirements of 12 CFR part 225, 

appendix C, as if the savings and loan 

holding company were a bank holding 

company and the savings association 

were a bank. For purposes of 

compliance with the capital adequacy 

requirements and calculations in this 

part, savings and loan holding 

companies that do not file form FR Y– 

9C or form FR Q–1 should follow the 

instructions to the FR Y–9C. 

(ii) Mid-tier holding companies of 

insurance depository institution holding 

companies. In the case of a bank holding 

company, or a covered savings and loan 

holding company, that does not 

calculate minimum risk-based capital 

requirements under subpart B of this 

part by operation of § 217.10(f)(1), this 

part applies to a depository institution 

holding company that is a subsidiary of 

such bank holding company or covered 

savings and loan holding company, 

provided that: 

(A) The subsidiary depository 

institution holding company is an 

insurance mid-tier holding company; 

and 

(B) The subsidiary depository 

institution holding company’s assets 

and liabilities are not consolidated with 

those of a depository institution holding 

company that controls the subsidiary for 

purposes of determining the parent 

depository institution holding 

company’s capital requirements and 

capital ratios under subparts B through 

F of this part. 

* * * * * 

(g) Depository institution holding 

companies and treatment of subsidiary 

state-regulated insurers, regulated 

foreign subsidiaries, and regulated 

foreign affiliates—(1) In general. In 

complying with the capital adequacy 

requirements of this part (except for the 

requirements and calculations of 

subpart J of this part), including any 

determination of applicability under 

§ 217.100 or § 217.201, an insurance 

bank holding company, insurance 

savings and loan holding company, or 

insurance mid-tier holding company 

may elect not to consolidate the assets 

and liabilities of its subsidiary stateregulated insurers, regulated foreign 

subsidiaries, and regulated foreign 

affiliates. Such an institution that makes 

this election must either: 

(i) Deduct from the sum of its 

common equity tier 1 capital elements 

the aggregate amount of its outstanding 

equity investment, including retained 

earnings, in such subsidiaries and 

affiliates; or 

(ii) Include in the risk-weighted assets 

of the Board-regulated institution the 

aggregate amount of its outstanding 

equity investment, including retained 

earnings, in such subsidiaries and 

affiliates and assign to these assets a 400 

percent risk weight. 

(2) Method of election. (i) An 

insurance bank holding company, 

insurance savings and loan holding 

company, or insurance mid-tier holding 

company may make the election 

described in paragraph (g)(1) of this 

section by indicating that it has made 

this election on the applicable 

regulatory report, filed by the insurance 

bank holding company, insurance 

savings and loan holding company, or 

insurance mid-tier holding company for 

the first reporting period in which it is 

an insurance bank holding company, 

insurance savings and loan holding 

company, or insurance mid-tier holding 

company. The electing Board-regulated 

institution must indicate on the 

applicable regulatory report whether it 

elects to deduct from the sum of its 

common equity tier 1 capital elements 

in accordance with paragraph (g)(1)(i) of 

this section or whether it elects to 

include an amount in its risk-weighted 

assets in accordance with paragraph 

(g)(1)(ii) of this section. 

(ii) An insurance bank holding 

company, insurance savings and loan 

holding company, or insurance mid-tier 

holding company that has not made an 

effective election pursuant to paragraph 

(g)(2)(i) of this section, or that seeks to 

change its election (or its choice of 

treatment under paragraph (g)(1) of this 

section) due to a change in control, 

business combination, or other 

legitimate business purpose, may do so 

only with the prior approval of the 

Board, effective as of the first reporting 

period after the period in which the 

Board approves the election, or such 

other date specified in the approval. 

■ 3. In § 217.2: 

■ a. Revise the definition of ‘‘Covered 

savings and loan holding company’’; 

and 

■ b. Add the definitions of ‘‘Insurance 

bank holding company,’’ ‘‘Insurance 

mid-tier holding company’’, ‘‘Insurance 

savings and loan holding company’’, 

‘‘Regulated foreign subsidiary and 

regulated foreign affiliate’’, and ‘‘Stateregulated insurer’’ in alphabetical order. 

The revision and additions read as 

follows: 

§ 217.2 Definitions. 

* * * * * 

Covered savings and loan holding 

company means a top-tier savings and 

loan holding company other than an 

institution that— 

(1) Meets the requirements of section 

10(c)(9)(C) of the Home Owners’ Loan 

Act (12 U.S.C. 1467a(c)(9)(C)); and 

(2) As of June 30 of the previous 

calendar year, derived 50 percent or 

more of its total consolidated assets or 

50 percent of its total revenues on an 

enterprise-wide basis (as calculated 

under GAAP) from activities that are not 

financial in nature under section 4(k) of 

the Bank Holding Company Act (12 

U.S.C. 1843(k)). 

* * * * * 

Insurance bank holding company 

means: 

(1)(i) A bank holding company that is 

an insurance underwriting company; or 

(ii) A bank holding company that, as 

of June 30 of the previous calendar year, 

held 25 percent or more of its total 

consolidated assets in subsidiaries that 

are insurance underwriting companies 

(other than assets associated with 

insurance underwriting for credit risk). 

(2) For purposes of this definition, the 

company must calculate its total 

consolidated assets in accordance with 

GAAP, or if the company does not 

calculate its total consolidated assets 

under GAAP for any regulatory purpose 

(including compliance with applicable 

securities laws), the company may 

estimate its total consolidated assets, 

subject to review and adjustment by the 

Board. 

Insurance mid-tier holding company 

means a bank holding company, or 

savings and loan holding company, 

domiciled in the United States that: 

(1) Is a subsidiary of: 

(i) An insurance bank holding 

company to which subpart J of this part 

applies; or 

(ii) An insurance savings and loan 

holding company to which subpart J of 

this part applies; and 


khammond on DSKJM1Z7X2PROD with RULES2
Federal Register / Vol. 88, No. 226 / Monday, November 27, 2023 / Rules and Regulations 82969 

(2) Is not an insurance underwriting 

company that is subject to state law 

capital requirements. 

Insurance savings and loan holding 

company means: 

(1)(i) A top-tier savings and loan 

holding company that is an insurance 

underwriting company; or 

(ii) A top-tier savings and loan 

holding company that, as of June 30 of 

the previous calendar year, held 25 

percent or more of its total consolidated 

assets in subsidiaries that are insurance 

underwriting companies (other than 

assets associated with insurance 

underwriting for credit risk). 

(2) For purposes of this definition, the 

company must calculate its total 

consolidated assets in accordance with 

GAAP, or if the company does not 

calculate its total consolidated assets 

under GAAP for any regulatory purpose 

(including compliance with applicable 

securities laws), the company may 

estimate its total consolidated assets, 

subject to review and adjustment by the 

Board. 

* * * * * 

Regulated foreign subsidiary and 

regulated foreign affiliate means a 

person described in section 171(a)(6) of 

the Dodd-Frank Act (12 U.S.C. 

5371(a)(6)) and any subsidiary of such a 

person other than a state-regulated 

insurer. 

* * * * * 

State-regulated insurer means a 

person regulated by a state insurance 

regulator as defined in section 1002(22) 

of the Dodd-Frank Act (12 U.S.C. 

5481(22)), and any subsidiary of such a 

person, other than a regulated foreign 

subsidiary and regulated foreign 

affiliate. 

* * * * * 

Subpart B—Capital Ratio 

Requirements and Buffers 

■ 4. In § 217.10, add paragraph (f) to 

read as follows: 

§ 217.10 Minimum capital requirements. 

* * * * * 

(f) Insurance depository institution 

holding companies. Notwithstanding 

paragraphs (a) through (d) of this 

section: 

(1) An insurance bank holding 

company that is a state-regulated 

insurer, or an insurance savings and 

loan holding company that is a stateregulated insurer, is not required to 

meet the minimum capital ratio 

requirements in paragraphs (a)(1)(i) 

through (iii) of this section if the 

company is subject to subpart J of this 

part; and 

(2) A Board-regulated institution that 

is an insurance bank holding company, 

insurance savings and loan holding 

company, or insurance mid-tier holding 

company is not required to meet the 

minimum capital ratio requirements in 

paragraphs (a)(1)(iv) and (v) of this 

section. 

■ 5. In § 217.11, add paragraph (e) to 

read as follows: 

§ 217.11 Capital conservation buffer, 

countercyclical capital buffer amount, and 

GSIB surcharge. 

* * * * * 

(e) Insurance depository institution 

holding companies. Notwithstanding 

any other provision of this section: 

(1) A Board-regulated institution that 

is an insurance bank holding company 

that is subject to subpart J of this part 

calculates its capital conservation buffer 

in accordance with § 217.604; 

(2) A Board-regulated institution that 

is an insurance savings and loan 

holding company that is subject to 

subpart J of this part calculates its 

capital conservation buffer in 

accordance with § 217.604; and 

(3) A Board-regulated institution that 

is an insurance mid-tier holding 

company is not subject to the provisions 

of this section. 

Subpart G—Transitional Provisions 

■ 6. Add § 217.306 to read as follows: 

§ 217.306 Building Block Approach (BBA) 

capital conservation buffer transition. 

(a) Notwithstanding any provision of 

this part and subject to paragraph (b) of 

this section, an insurance bank holding 

company, or insurance savings and loan 

holding company, that, on January 1, 

2023, was not subject to this part is not 

subject to any restrictions on 

distributions or discretionary bonus 

payments under §§ 217.11 and 217.604. 

(b) This section ceases to be effective 

after March 31, 2026. 

■ 7. Add subpart J to read as follows: 

Subpart J—Risk-Based Capital 

Requirements for Board-Regulated 

Institutions Significantly Engaged in 

Insurance Activities 

Sec. 

217.601 Purpose, applicability, and 

reservations of authority. 

217.602 Definitions. 

217.603 BBA ratio and minimum 

requirements. 

217.604 Capital conservation buffer. 

217.605 Determination of building blocks. 

217.606 Scaling parameters. 

217.607 Capital requirements under the 

Building Block Approach. 

217.608 Available capital resources under 

the Building Block Approach. 

§ 217.601 Purpose, applicability, and 

reservations of authority. 

(a) Purpose. This subpart establishes a 

framework for assessing overall riskbased capital for Board-regulated 

institutions that are significantly 

engaged in insurance activities. The 

framework in this subpart is used to 

measure available capital resources and 

capital requirements across a Boardregulated institution and its subsidiaries 

that are subject to diverse capital 

frameworks, aggregate available capital 

resources and capital requirements and 

calculate a ratio that reflects the overall 

capital adequacy of the Board-regulated 

institution. 

(b) Applicability. This subpart applies 

to every Board-regulated institution that 

is: 

(1) A top-tier depository institution 

holding company that is an insurance 

underwriting company; or 

(2) A top-tier depository institution 

holding company, that, as of June 30 of 

the previous calendar year, held 25 

percent or more of its total consolidated 

assets in insurance underwriting 

companies (other than assets associated 

with insurance underwriting for credit 

risk). For purposes of this paragraph 

(b)(2), the Board-regulated institution 

must calculate its total consolidated 

assets in accordance with GAAP, or if 

the Board-regulated institution does not 

calculate its total consolidated assets 

under GAAP for any regulatory purpose 

(including compliance with applicable 

securities laws), the company may 

estimate its total consolidated assets, 

subject to review and adjustment by the 

Board; or 

(3) Depository institution holding 

company in a supervised insurance 

organization; or 

(4) An institution that is otherwise 

made subject to this subpart by the 

Board. 

(c) Exclusion of certain depository 

institution holding companies. 

Notwithstanding paragraph (b) of this 

section, this subpart does not apply to 

a top-tier depository institution holding 

company that— 

(1) Exclusively files financial 

statements in accordance with Statutory 

Accounting Principles (SAP); 

(2) Is not subject to a state insurance 

capital requirement; and 

(3) Has no subsidiary depository 

institution holding company that— 

(i) Is subject to a capital requirement; 

or 

(ii) Does not exclusively file financial 

statements in accordance with SAP. 

(d) Reservation of authority—(1) 

Regulatory capital resources. (i) If the 

Board determines that a particular 

company capital element has 


khammond on DSKJM1Z7X2PROD with RULES2
82970 Federal Register / Vol. 88, No. 226 / Monday, November 27, 2023 / Rules and Regulations 

characteristics or terms that diminish its 

ability to absorb losses, or otherwise 

present safety and soundness concerns, 

the Board may require the supervised 

insurance organization to exclude all or 

a portion of such element from building 

block available capital for a depository 

institution holding company in the 

supervised insurance organization. 

(ii) Notwithstanding any provision of 

§ 217.608, the Board may find that a 

capital resource may be included in the 

building block available capital of a 

depository institution holding company 

on a permanent or temporary basis 

consistent with the loss absorption 

capacity of the capital resource and in 

accordance with § 217.608(g). 

(2) Required capital amounts. If the 

Board determines that the building 

block capital requirement for any 

depository institution holding company 

is not commensurate with the risks of 

the depository institution holding 

company, the Board may adjust the 

building block capital requirement and 

building block available capital for the 

supervised insurance organization. 

(3) Structural requirements. In order 

to achieve the appropriate application of 

this subpart, the Board may require a 

supervised insurance organization to 

take any of the following actions with 

respect to the application of this 

subpart, if the Board determines that 

such action would better reflect the risk 

profile of an inventory company or the 

supervised insurance organization: 

(i) Identify components under this 

subpart differently than as done by the 

supervised insurance organization. This 

could include a different identification 

of a top-tier depository institution 

holding company, an inventory 

company, a material financial entity, or 

a building block parent, then that made 

by the supervised insurance 

organization; or 

(ii) Set a building block parent’s 

allocation share of a downstream 

building block parent equal to 100 

percent. 

(4) Other reservation of authority. 

With respect to any treatment required 

under this subpart, the Board may 

require a different treatment, provided 

that such alternative treatment is 

commensurate with the supervised 

insurance organization’s risk and 

consistent with safety and soundness. 

(e) Notice and response procedures. 

In making any determinations under 

paragraph (d) of this section, the Board 

will apply notice and response 

procedures in the same manner as the 

notice and response procedures in 

§ 263.202 of this chapter. 

§ 217.602 Definitions. 

(a) Terms that are set forth in § 217.2 

and used in this subpart have the 

definitions assigned thereto in § 217.2. 

(b) For the purposes of this subpart, 

the following terms are defined as 

follows: 

Allocation share means the portion of 

a downstream building block’s available 

capital or building block capital 

requirement that a building block parent 

must aggregate in calculating its own 

building block available capital or 

building block capital requirement, as 

applicable, and calculated in 

accordance with § 217.605(d). 

Assignment means the process of 

associating an inventory company with 

one or more building block parents for 

purposes of inclusion in the building 

block parents’ building blocks. 

BBA ratio is defined in § 217.603. 

Building block means a building block 

parent and all downstream companies 

and subsidiaries assigned to the 

building block parent. 

Building block available capital has 

the meaning set out in § 217.608. 

Building block capital requirement 

has the meaning set out in § 217.607. 

Building block parent means the lead 

company of a building block whose 

indicated capital framework must be 

applied to all members of a building 

block for purposes of determining 

building block available capital and the 

building block capital requirement. 

Capital-regulated company means a 

company that is— 

(i) A depository institution, foreign 

bank, or company engaged in the 

business of insurance in a supervised 

insurance organization; and 

(ii) Directly subject to a regulatory 

capital framework. 

Common capital framework means 

NAIC RBC. 

Company available capital means, for 

a company, the amount of its capital 

elements, net of any adjustments and 

deductions, as determined in 

accordance with the company’s 

indicated capital framework. 

Company capital element means any 

part, item, component, balance sheet 

account, instrument, or other element 

qualifying as regulatory capital under a 

company’s indicated capital framework 

prior to any adjustments and deductions 

under that framework. 

Company capital requirement means: 

(i) For a company whose indicated 

capital framework is NAIC RBC, the 

Authorized Control Level risk-based 

capital requirement as set forth in NAIC 

RBC; 

(ii) For a company whose indicated 

capital framework is a U.S. Federal 

banking capital rule, the total riskweighted assets; and 

(iii) For any other company, a risksensitive measure of required capital 

used to determine the jurisdictional 

intervention point applicable to that 

company. 

Downstream building block parent 

means a building block parent that is a 

downstream company of another 

building block parent. 

Downstream company means a 

company whose company capital 

element is directly or indirectly owned, 

in whole or in part, by another company 

in the supervised insurance 

organization. 

Downstreamed capital means direct 

ownership of a downstream company’s 

company capital element that is 

accretive to a downstream building 

block parent’s building block available 

capital. When calculating building block 

available capital, the amount of the 

downstreamed capital is calculated as 

the amount, excluding any impact on 

taxes, of the company available capital 

of the building block parent of the 

upstream building block, if the owner 

were to deduct the downstreamed 

capital. 

Financial entity means: 

(i) A bank holding company; a savings 

and loan holding; a U.S. intermediate 

holding company established or 

designated for purposes of compliance 

with part 252 of this chapter; 

(ii) A depository institution as defined 

in section 3(c) of the Federal Deposit 

Insurance Act (12 U.S.C. 1813(c)); an 

organization that is organized under the 

laws of a foreign country and that 

engages directly in the business of 

banking outside the United States; a 

Federal credit union or state credit 

union; a national association, state 

member bank, or state nonmember bank 

that is not a depository institution; an 

institution that functions solely in a 

trust or fiduciary capacity; an industrial 

loan company, an industrial bank, or 

other similar institution; 

(iii) An entity that is state-licensed or 

registered as: 

(A) A credit or lending entity, 

including a finance company; money 

lender; installment lender; consumer 

lender or lending company; mortgage 

lender, broker, or bank; motor vehicle 

title pledge lender; payday or deferred 

deposit lender; premium finance 

company; commercial finance or 

lending company; or commercial 

mortgage company; except entities 

registered or licensed solely on account 

of financing the entity’s direct sales of 

goods or services to customers; or 

(B) A money services business, 

including a check casher; money 

transmitter; currency dealer or 


khammond on DSKJM1Z7X2PROD with RULES2
Federal Register / Vol. 88, No. 226 / Monday, November 27, 2023 / Rules and Regulations 82971 

exchange; or money order or traveler’s 

check issuer; 

(iv) Any person registered with the 

Commodity Futures Trading 

Commission as a swap dealer or major 

swap participant pursuant to the 

Commodity Exchange Act (7 U.S.C. 1 et 

seq.), or an entity that is registered with 

the U.S. Securities and Exchange 

Commission as a security-based swap 

dealer or a major security-based swap 

participant pursuant to the Securities 

Exchange Act of 1934 (15 U.S.C. 78a et 

seq.); 

(v) A securities holding company as 

defined in section 618 of the DoddFrank Act (12 U.S.C. 1850a); a broker or 

dealer as defined in sections 3(a)(4) and 

3(a)(5) of the Securities Exchange Act of 

1934 (15 U.S.C. 78c(a)(4)–(5)); an 

investment company registered with the 

U.S. Securities and Exchange 

Commission under the Investment 

Company Act of 1940 (15 U.S.C. 80a–1 

et seq.); or a company that has elected 

to be regulated as a business 

development company pursuant to 

section 54(a) of the Investment 

Company Act of 1940 (15 U.S.C. 80a– 

53(a)); 

(vi) A private fund as defined in 

section 202(a) of the Investment 

Advisers Act of 1940 (15 U.S.C. 80b– 

2(a)); an entity that would be an 

investment company under section 3 of 

the Investment Company Act of 1940 

(15 U.S.C. 80a–3) but for section 

3(c)(5)(C) of that Act; or an entity that 

is deemed not to be an investment 

company under section 3 of the 

Investment Company Act of 1940 

pursuant to 17 CFR 270.3a–7 

(Investment Company Act Rule 3a–7 of 

the U.S. Securities and Exchange 

Commission); 

(vii) A commodity pool, a commodity 

pool operator, or a commodity trading 

advisor as defined, respectively, in 

sections 1a(10), 1a(11), and 1a(12) of the 

Commodity Exchange Act (7 U.S.C. 

1a(10), 1a(11), and 1a(12)); a floor 

broker, a floor trader, or introducing 

broker as defined, respectively, in 

sections 1a(22), 1a(23) and 1a(31) of the 

Commodity Exchange Act (7 U.S.C. 

1a(22), 1a(23), and 1a(31)); or a futures 

commission merchant as defined in 

section 1a(28) of the Commodity 

Exchange Act (7 U.S.C. 1a(28)); 

(viii) An entity that is organized as an 

insurance company, primarily engaged 

in underwriting insurance or reinsuring 

risks underwritten by insurance 

companies; 

(ix) Any designated financial market 

utility, as defined in section 803 of the 

Dodd-Frank Act (12 U.S.C. 5462); and 

(x) An entity that would be a financial 

entity described in paragraphs (i) 

through (ix) of this definition, if it were 

organized under the laws of the United 

States or any State thereof. 

Indicated capital framework is 

defined in § 217.605, provided that for 

purposes of § 217.605(b)(2), the NAIC 

RBC frameworks for life insurance and 

fraternal insurers, property and casualty 

(P&C) insurance, and health insurance 

companies are different indicated 

capital frameworks. 

Inventory company means a company 

identified pursuant to § 217.605(b)(1). 

Material means, for a company in the 

supervised insurance organization: 

(i) Where the top-tier depository 

institution holding company’s total 

exposure to the company exceeds 5 

percent of the maximum of— 

(A) Top-tier depository institution 

holding company’s company available 

capital; and 

(B) The largest company available 

capital of all capital regulated 

companies reported in the supervised 

insurance organization’s inventory; or 

(ii) The company is otherwise 

significant when assessing the building 

block available capital or building block 

capital requirement of the top-tier 

depository institution holding company 

based on factors including risk 

exposure, activities, organizational 

structure, complexity, affiliate 

guarantees or recourse rights, and size. 

(iii) For purposes of this definition, 

total exposure includes: 

(A) The absolute value of the top-tier 

depository institution holding 

company’s direct or indirect interest in 

the company capital elements of the 

company; 

(B) The maximum possible loss from 

a guarantee (explicit or implicit) the toptier depository institution holding 

company or any other company in the 

supervised insurance organization 

provides for the benefit of the company; 

and 

(C) Maximum potential counterparty 

credit risk to the top-tier depository 

institution holding company or any 

other company in the supervised 

insurance organization arising from any 

derivative or similar instrument, 

reinsurance or similar arrangement, or 

other contractual agreement. 

Material financial entity means a 

financial entity that, together with its 

subsidiaries, but excluding any 

subsidiary capital-regulated company 

(or subsidiary thereof), is material, 

provided that an inventory company is 

not eligible to be a material financial 

entity if: 

(i) The supervised insurance 

organization has elected pursuant to 

§ 217.605(c) not to treat the company as 

a material financial entity; or 

(ii) The inventory company is a 

financial subsidiary, as defined in 

section 121 of the Gramm-Leach-Bliley 

Act. 

Member means, with respect to a 

building block, the building block 

parent or any of its downstream 

companies or subsidiaries that have 

been assigned to a building block. 

NAIC means the National Association 

of Insurance Commissioners. 

NAIC RBC means the most recent 

version of the Risk-Based Capital (RBC) 

For Insurers Model Act, together with 

the RBC instructions, as adopted in a 

substantially similar manner by an 

NAIC member and published in the 

NAIC’s Model Regulation Service. 

Permitted accounting practice means 

an accounting practice, specifically 

requested by a state-regulated insurer, 

that departs from SAP and state 

prescribed accounting practices and has 

been approved by the state-regulated 

insurer’s domiciliary state regulatory 

authority. 

Prescribed accounting practice means 

an accounting practice that is 

incorporated directly or by reference to 

state laws, regulations, and general 

administrative rules applicable to all 

insurance companies domiciled in a 

particular state. 

Principles based reserving (PBR) 

means the valuation standard adopted 

for certain life insurance reserves by the 

NAIC effective as of January 1, 2020. 

Recalculated building block capital 

requirement means, for a downstream 

building block parent and an upstream 

building block parent, the downstream 

building block parent’s building block 

capital requirement recalculated 

assuming that the downstream building 

block parent had no upstream 

investment in the upstream building 

block parent. 

Regulatory capital framework means, 

with respect to a company, the 

applicable legal requirements, excluding 

this subpart, specifying the minimum 

amount of total regulatory capital the 

company must hold to avoid restrictions 

on distributions and discretionary 

bonus payments, regulatory intervention 

on the basis of capital adequacy levels 

for the company, or equivalent 

standards; provided that the NAIC RBC 

frameworks for life and fraternal 

insurance, P&C insurance, and health 

insurance companies are different 

regulatory capital frameworks. 

SAP means Statutory Accounting 

Principles as promulgated by the NAIC 

and adopted by a jurisdiction for 

purposes of financial reporting by 

insurance companies. 

Scaling means the translation of 

building block available capital and 


khammond on DSKJM1Z7X2PROD with RULES2
82972 Federal Register / Vol. 88, No. 226 / Monday, November 27, 2023 / Rules and Regulations 

building block capital requirement from 

one indicated capital framework to 

another by application of § 217.606. 

Scalar compatible means a capital 

framework: 

(i) For which the Board has 

determined scalars; or 

(ii) That is an insurance capital 

regulatory framework, and exhibits each 

of the following three attributes: 

(A) The framework is clearly defined 

and broadly applicable; 

(B) The framework has an identifiable 

regulatory intervention point that can be 

used to calibrate a scalar; and 

(C) The framework provides a risksensitive measure of required capital 

reflecting material risks to a company’s 

financial strength. 

Submission date means the date as of 

which form FR Q–1 is filed with the 

Board. 

Supervised insurance organization 

means: 

(i) In the case of a depository 

institution holding company, the set of 

companies consisting of: 

(A) A top-tier depository institution 

holding company that is an insurance 

underwriting company, together with its 

inventory companies; or 

(B) A top-tier depository institution 

holding company, together with its 

inventory companies, that, as of June 30 

of the previous calendar year, held 25 

percent or more of its total consolidated 

assets in insurance underwriting 

companies (other than assets associated 

with insurance underwriting for credit 

risk). For purposes of this paragraph 

(i)(B), the supervised firm must 

calculate its total consolidated assets in 

accordance with GAAP, or if the firm 

does not calculate its total consolidated 

assets under GAAP for any regulatory 

purpose (including compliance with 

applicable securities laws), the company 

may estimate its total consolidated 

assets, subject to review and adjustment 

by the Board; or 

(ii) An institution that is otherwise 

subject to this subpart, as determined by 

the Board, together with its inventory 

companies. 

Tier 2 capital instruments has the 

meaning set out in § 217.608(a). 

Top-tier depository institution holding 

company means a depository institution 

holding company that is not controlled 

by another depository institution 

holding company. 

Upstream building block parent 

means an upstream company that is a 

building block parent. 

Upstream company means a company 

within a supervised insurance 

organization that directly or indirectly 

controls a downstream company, or 

directly or indirectly owns part or all of 

a downstream company’s company 

capital elements. 

Upstream investment means any 

direct or indirect investment by a 

downstream building block parent in an 

upstream building block parent. When 

calculating adjusted downstream 

building block available capital, the 

amount of the upstream investment is 

calculated as the impact, excluding any 

impact on taxes, on the downstream 

building block parent’s building block 

available capital if the owner were to 

deduct the investment. 

U.S. Federal banking capital rules 

mean this part, other than this subpart, 

and the regulatory capital rules 

promulgated by the Federal Deposit 

Insurance Corporation at chapter III of 

this title and the Office of the 

Comptroller of the Currency at chapter 

I of this title. 

§ 217.603 BBA ratio and minimum 

requirements. 

(a) In general. A supervised insurance 

organization must determine its BBA 

ratio, subject to the minimum 

requirement set out in this section and 

buffer set out in § 217.604, for each 

depository institution holding company 

within its enterprise by: 

(1) Establishing an inventory that 

includes the supervised insurance 

organization and every company that 

meets the requirements of 

§ 217.605(b)(1); 

(2) Identifying all building block 

parents as required under 

§ 217.605(b)(3); 

(3) Determining the available capital 

and capital requirement for each 

building block parent in accordance 

with its indicated capital framework; 

(4) Determining the building block 

available capital and building block 

capital requirement for each building 

block, reflecting adjustments and 

scaling as set out in this subpart; 

(5) Rolling up building block available 

capital and building block capital 

requirement amounts across all building 

blocks in the supervised insurance 

organization’s enterprise to determine 

the same for any depository institution 

holding companies in the enterprise; 

and 

(6) Determining the ratio of building 

block available capital to building block 

capital requirement for each depository 

institution holding company in the 

supervised insurance organization. 

(b) Determination of BBA ratio. For a 

depository institution holding company 

in a supervised insurance organization, 

the BBA ratio is the ratio of the 

company’s building block available 

capital to the company’s building block 

capital requirement, each scaled to the 

common capital framework in 

accordance with § 217.606. 

(c) Minimum capital requirement. A 

depository institution holding company 

in a supervised insurance organization 

must maintain a BBA ratio of at least 

250 percent. 

(d) Capital adequacy. (1) 

Notwithstanding the minimum 

requirement in this subpart, a 

depository institution holding company 

in a supervised insurance organization 

must maintain capital commensurate 

with the level and nature of all risks to 

which it is exposed. The supervisory 

evaluation of the depository institution 

holding company’s capital adequacy is 

based on an individual assessment of 

numerous factors, including the 

character and condition of the 

company’s assets and its existing and 

prospective liabilities and other 

corporate responsibilities. 

(2) A depository institution holding 

company in a supervised insurance 

organization must have a process for 

assessing its overall capital adequacy in 

relation to its risk profile and a 

comprehensive strategy for maintaining 

an appropriate level of capital. 

§ 217.604 Capital conservation buffer. 

(a) Capital conservation buffer—(1) 

Composition of the capital conservation 

buffer. The capital conservation buffer is 

composed solely of building block 

available capital excluding tier 2 capital 

instruments and additional tier 1 capital 

instruments. 

(2) Definitions. For purposes of this 

section, the following definitions apply: 

(i) Distribution means: 

(A) A reduction of tier 1 capital 

through the repurchase of a tier 1 capital 

instrument or by other means, except 

when a Board-regulated institution, 

within the same quarter when the 

repurchase is announced, fully replaces 

a tier 1 capital instrument it has 

repurchased by issuing another capital 

instrument that meets the eligibility 

criteria for: 

(1) A common equity tier 1 capital 

instrument if the instrument being 

repurchased was part of the Boardregulated institution’s common equity 

tier 1 capital; or 

(2) A common equity tier 1 or 

additional tier 1 capital instrument if 

the instrument being repurchased was 

part of the Board-regulated institution’s 

tier 1 capital; 

(B) A reduction of tier 2 capital 

through the repurchase, or redemption 

prior to maturity, of a tier 2 capital 

instrument or by other means, except 

when a Board-regulated institution, 

within the same quarter when the 

repurchase or redemption is announced, 


khammond on DSKJM1Z7X2PROD with RULES2
Federal Register / Vol. 88, No. 226 / Monday, November 27, 2023 / Rules and Regulations 82973 

fully replaces a tier 2 capital instrument 

it has repurchased by issuing another 

capital instrument that meets the 

eligibility criteria for a tier 1 or tier 2 

capital instrument; 

(C) A dividend declaration or 

payment on any tier 1 capital 

instrument; 

(D) A dividend declaration or interest 

payment on any tier 2 capital 

instrument if the Board-regulated 

institution has full discretion to 

permanently or temporarily suspend 

such payments without triggering an 

event of default; 

(E) A discretionary dividend payment 

on participating insurance policies; or 

(F) Any similar transaction that the 

Board determines to be in substance a 

distribution of capital. 

(ii) Eligible retained income means, 

for a depository institution holding 

company in a supervised insurance 

organization, the annual change in the 

company’s building block available 

capital, calculated as of the last day of 

the current and immediately preceding 

calendar years based on the supervised 

insurance organization’s most recent 

form FR Q–1, net of any distributions 

and accretion to building block 

available capital from capital 

instruments issued in the current or 

immediately preceding calendar year, 

excluding issuances corresponding with 

retirement of capital instruments under 

paragraph (a)(2)(i)(A) of this section. 

(iii) Maximum payout amount means, 

for the current calendar year, is equal to 

the Board-regulated institution’s eligible 

retained income, multiplied by its 

maximum payout ratio. 

(iv) Maximum payout ratio means the 

percentage of eligible retained income 

that a Board-regulated institution can 

pay out in the form of distributions and 

discretionary bonus payments during 

the current calendar year. The 

maximum payout ratio is determined by 

the Board-regulated institution’s capital 

conservation buffer, calculated as of the 

last day of the previous calendar year, 

as set forth in table 1 to this section. 

(3) Calculation of capital conservation 

buffer. The capital conservation buffer 

for a depository institution holding 

company in a supervised insurance 

organization is the greater of its BBA 

ratio, calculated as of the last day of the 

previous calendar year based on the 

supervised insurance organization’s 

most recent form FR Q–1, minus the 

minimum capital requirement under 

§ 217.603(c), and zero. 

(4) Limits on distributions and 

discretionary bonus payments. (i) A toptier depository institution holding 

company in a supervised insurance 

organization shall not make 

distributions or discretionary bonus 

payments or create an obligation to 

make such distributions or payments 

during the current calendar year that, in 

the aggregate, exceed its maximum 

payout amount. 

(ii) A top-tier depository institution 

holding company in a supervised 

insurance organization and that has a 

capital conservation buffer that is 

greater than 150 percent is not subject 

to a maximum payout amount under 

this section. 

(iii) Except as provided in paragraph 

(a)(4)(iv) of this section, a top-tier 

depository institution holding company 

in a supervised insurance organization 

may not make distributions or 

discretionary bonus payments during 

the current calendar year if the Boardregulated institution’s: 

(A) Eligible retained income is 

negative; and 

(B) Capital conservation buffer was 

less than 150 percent as of the end of 

the previous calendar year. 

(iv) Notwithstanding the limitations 

in paragraphs (a)(4)(i) through (iii) of 

this section, the Board may permit a 

top-tier depository institution holding 

company in a supervised insurance 

organization to make a distribution or 

discretionary bonus payment upon a 

request of the depository institution 

holding company, if the Board 

determines that the distribution or 

discretionary bonus payment would not 

be contrary to the purposes of this 

section, or to the safety and soundness 

of the depository institution holding 

company. In making such a 

determination, the Board will consider 

the nature and extent of the request and 

the particular circumstances giving rise 

to the request. 

(b) [Reserved] 

TABLE 1 TO § 217.604—CALCULATION OF MAXIMUM PAYOUT AMOUNT

Capital conservation buffer Maximum payout ratio 

(as a percentage of eligible retained income) 

Greater than 150 percent .......................................................................................... No payout ratio limitation applies. 

Less than or equal to 150 percent, and greater than 113 percent .......................... 60 percent. 

Less than or equal to 113 percent, andgreater than 75 percent ............................. 40 percent. 

Less than or equal to 75 percent, and greater than 38 percent .............................. 20 percent. 

Less than or equal to 38 percent .............................................................................. 0 percent. 

§ 217.605 Determination of building 

blocks. 

(a) In general. A supervised insurance 

organization must identify each 

building block parent and its allocation 

share of any downstream building block 

parent, as applicable. 

(b) Operation. To identify building 

block parents and determine allocation 

shares, a supervised insurance 

organization must take the following 

steps in the following order: 

(1) Inventory of companies. A 

supervised insurance organization must 

identify as inventory companies: 

(i) All companies that are— 

(A) Required to be reported on the FR 

Y–6; 

(B) Required to be reported on the FR 

Y–10; or 

(C) Classified as affiliates in 

accordance with NAIC Statement of 

Statutory Accounting Principles (SSAP) 

No. 25 and Schedule Y; 

(ii) Any company, special purpose 

entity, variable interest entity, or similar 

entity that: 

(A) Enters into one or more 

reinsurance or derivative transactions 

with inventory companies identified 

pursuant to paragraph (b)(1)(i) of this 

section; 

(B) Is material; 

(C) Is engaged in activities such that 

one or more inventory companies 

identified pursuant to paragraph (b)(1)(i) 

of this section are expected to absorb 

more than 50 percent of its expected 

losses; and 

(D) Is not otherwise identified as an 

inventory company; and 

(iii) Any other company that the 

Board determines must be identified as 

an inventory company. 

(2) Determination of indicated capital 

framework. (i) A supervised insurance 

organization must: 

(A) Determine the indicated capital 

framework for each inventory company; 

and 

(B) Identify inventory companies that 

are subject to a regulatory capital 

framework. 


khammond on DSKJM1Z7X2PROD with RULES2
82974 Federal Register / Vol. 88, No. 226 / Monday, November 27, 2023 / Rules and Regulations 

(ii) The indicated capital framework 

for an inventory company is: 

(A) If the inventory company is not 

engaged in insurance or reinsurance 

underwriting, the U.S. Federal banking 

capital rules, in particular: 

(1) If the inventory company is not a 

depository institution, subparts A 

through F of this part; and 

(2) If the inventory company is a 

depository institution, the regulatory 

capital framework applied to the 

depository institution by the 

appropriate primary Federal regulator— 

that is, subparts A through F of this part 

(Board), part 3 of this title (Office of the 

Comptroller of the Currency), or part 

324 of this title (Federal Deposit 

Insurance Corporation), as applicable; 

(B) If the inventory company is 

engaged in insurance or reinsurance 

underwriting and subject to a regulatory 

capital framework that is scalar 

compatible, the regulatory capital 

framework; and 

(C) If the inventory company is 

engaged in insurance or reinsurance 

underwriting and not subject to a 

regulatory capital framework that is 

scalar compatible, then NAIC RBC for 

life and fraternal insurers, health 

insurers, or property & casualty insurers 

based on the company’s primary source 

of premium revenue. 

(3) Identification of building block 

parents. A supervised insurance 

organization must identify all building 

block parents according to the following 

procedure: 

(i)(A) Identify all top-tier depository 

institution holding companies in the 

supervised insurance organization. 

(B) Any top-tier depository institution 

holding company is a building block 

parent. 

(ii)(A) Identify any inventory 

company that is a depository institution 

holding company. 

(B) An inventory company identified 

in paragraph (b)(3)(ii)(A) of this section 

is a building block parent. 

(iii) Identify all inventory companies 

that are capital-regulated companies 

(that is, inventory companies that are 

subject to a regulatory capital 

framework) or material financial 

entities. 

(iv)(A) Of the inventory companies 

identified in paragraph (b)(3)(iii) of this 

section, identify any inventory company 

that: 

(1) Is assigned an indicated capital 

framework that is different from the 

indicated capital framework of any next 

upstream inventory company identified 

in paragraphs (b)(3)(i) through (iii) of 

this section or does not have a next 

upstream inventory company; and 

(i) In a simple structure, an inventory 

company would compare its indicated 

capital framework to the indicated 

capital framework of its parent 

company. However, if the parent 

company does not meet the criteria to be 

identified as a building block parent, the 

inventory company must compare its 

capital framework to the next upstream 

company that is eligible to be identified 

as a building block parent. For purposes 

of this paragraph (b)(3)(iv), a company 

is ‘‘next upstream’’ to a downstream 

company if it controls or owns, in whole 

or in part, a company capital element of 

the downstream company either 

directly, or indirectly other than 

through a company identified in 

paragraphs (b)(3)(ii) and (iii) of this 

section. 

(ii) [Reserved] 

(2) Is assigned an indicated capital 

framework for which the Board has 

determined a scalar or, if the company 

in aggregate with all other companies 

subject to the same indicated capital 

framework are material, a provisional 

scalar; 

(B) Of the inventory companies 

identified in paragraph (b)(3)(iii) of this 

section, identify any inventory company 

that: 

(1) Is assigned an indicated capital 

framework that is the same as the 

indicated capital framework of each 

next upstream inventory company 

identified in paragraphs (b)(3)(i) through 

(iii) of this section; 

(2) Is assigned an indicated capital 

framework for which the Board has 

determined a scalar or, if the company 

in aggregate with all other companies 

subject to the same indicated capital 

framework is material, a provisional 

scalar; and 

(3) Is owned, in whole or part, by an 

inventory company that is subject to the 

same regulatory capital framework, and 

the owner: 

(i) Applies a charge on the inventory 

company’s equity value in calculating 

its company capital requirement; or 

(ii) Deducts all or a portion of its 

investment in the inventory company in 

calculating its company available 

capital. 

(C) An inventory company identified 

in paragraph (b)(3)(iv)(A) through (B) of 

this section is a building block parent. 

(v) Include any inventory company 

identified in paragraph (b)(1)(ii) of this 

section as a building block parent. 

(vi)(A) Identify any inventory 

company— 

(1) For which more than one building 

block parent, as identified pursuant to 

paragraphs (b)(3)(i) through (v) of this 

section, owns a company capital 

element either directly or indirectly 

other than through another such 

building block parent; and 

(2)(i) Is consolidated under any such 

building block parent’s indicated capital 

framework; or 

(ii) Owns downstreamed capital. 

(B) An inventory company identified 

in paragraph (b)(3)(vi)(A) of this section 

is a building block parent. 

(4) Building blocks. (i) Except as 

provided in paragraph (b)(4)(ii) of this 

section, a supervised insurance 

organization must assign an inventory 

company to the building block of any 

building block parent that owns a 

company capital element of the 

inventory company, or of which the 

inventory company is a subsidiary, 

directly or indirectly through any 

company other than a building block 

parent, unless the inventory company is 

a building block parent. 

(A) For purposes of this section, 

subsidiary includes a company that is 

required to be reported on the FR Y–6, 

FR Y–10, or NAIC’s Schedule Y, as 

applicable. 

(B) [Reserved] 

(ii) A supervised insurance 

organization is not required to assign to 

a building block any inventory company 

that is not a downstream company or 

subsidiary of a top-tier depository 

institution holding company. 

(5) Financial statements. The 

supervised insurance organization must: 

(i) For any inventory company whose 

indicated capital framework is NAIC 

RBC, prepare financial statements in 

accordance with SAP; and 

(ii) For any building block parent 

whose indicated capital framework is 

subparts A through F of this part: 

(A) Apply the same elections and 

treatment of exposures as are applied to 

the subsidiary depository institution; 

(B) Apply subparts A through F of this 

part, to the members of the building 

block of which the building block 

parent is a member, on a consolidated 

basis, to the same extent as if the 

building block parent were a Boardregulated institution; and 

(C) Where the building block parent is 

not the top-tier depository institution 

holding company, not deduct 

investments in capital of 

unconsolidated financial institutions, 

nor exclude these investments from the 

calculation of risk-weighted assets. 

(6) Allocation share. A supervised 

insurance organization must, for each 

building block parent, identify any 

downstream building block parent 

owned directly or indirectly through 

any company other than a building 

block parent, and determine the 

building block parent’s allocation share 

of these downstream building block 


khammond on DSKJM1Z7X2PROD with RULES2
Federal Register / Vol. 88, No. 226 / Monday, November 27, 2023 / Rules and Regulations 82975 

parents pursuant to paragraph (d) of this 

section. 

(c) Material financial entity election. 

(1) A supervised insurance organization 

may elect not to treat an inventory 

company meeting the criteria in 

paragraph (c)(2) of this section as a 

material financial entity. An election 

under this paragraph (c)(1) must be 

included with the first financial 

statements submitted to the Board after 

the company is included in the 

supervised insurance organization’s 

inventory. 

(2) The election in paragraph (c)(1) of 

this section is available to an inventory 

company if: 

(i) The company engages in 

transactions consisting solely of either— 

(A) Transactions for the purpose of 

transferring risk from one or more 

affiliates within the supervised 

insurance organization to one or more 

third parties; or 

(B) Transactions to invest assets 

contributed to the company by one or 

more affiliates within the supervised 

insurance organization, where the 

company is established for purposes of 

limiting tax obligation or legal liability; 

and 

(ii) The supervised insurance 

organization is able to calculate the 

adjustment required in § 217.607(b)(4). 

(d) Allocation share. (1) Except as 

provided in paragraph (d)(2) of this 

section, a building block parent’s 

allocation share of a downstream 

building block parent is calculated as 

the percentage of equity ownership of a 

downstream building block parent, 

including associated paid-in capital, 

held by an upstream building block 

parent directly or indirectly through a 

member of the upstream building block 

parent’s building block. 

(2) The top-tier depository institution 

holding company’s allocation share of a 

building block parent that has no 

outstanding common equity or that is 

identified under paragraph (b)(3)(v) of 

this section is 100 percent. Any other 

building block parent’s allocation share 

of such building block parent is zero. 

§ 217.606 Scaling parameters. 

(a) Scaling specified by the Board—(1) 

Scaling between the U.S. Federal 

banking capital rules and NAIC RBC— 

(i) Scaling capital requirement. When 

calculating the building block capital 

requirement for a building block parent 

in accordance with § 217.607, where the 

indicated capital framework is NAIC 

RBC or the U.S. Federal banking capital 

rules, and where the indicated capital 

framework of the appropriate 

downstream building block parent is 

NAIC RBC or the U.S. Federal banking 

capital rules, the capital requirement 

scaling modifier is provided by table 1 

to this paragraph (a)(1)(i). 

TABLE 1 TO PARAGRAPH (a)(1)(i)—CAPITAL REQUIREMENT SCALING MODIFIERS FOR NAIC RBC AND THE U.S. FEDERAL

BANKING CAPITAL RULES

Upstream building block parent’s 

indicated capital framework: 

NAIC RBC U.S. Federal banking 

capital rules 

Downstream building block parent’s indicated capital framework: 

U.S. Federal banking capital rules ....................................................................................................... 0.0106 1 

NAIC RBC ............................................................................................................................................ 1 94.3 

(ii) Scaling available capital. When 

calculating the building block available 

capital for a building block parent in 

accordance with § 217.608, where the 

indicated capital framework is NAIC 

RBC or the U.S. Federal banking capital 

rules, and where the indicated capital 

framework of the appropriate 

downstream building block parent is 

NAIC RBC or the U.S. Federal banking 

capital rules, the available capital 

scaling modifier is provided by table 2 

to this paragraph (a)(1)(ii). 

TABLE 2 TO PARAGRAPH (a)(1)(ii)—AVAILABLE CAPITAL SCALING MODIFIERS FOR NAIC RBC AND THE U.S. FEDERAL

BANKING CAPITAL RULES

Upstream building block parent’s indicated capital framework: 

NAIC RBC U.S. Federal banking capital rules 

Downstream building block parent’s indicated capital 

framework: 

U.S. Federal banking capital rules ............................ Recalculated building block capital requirement * 0.063.0. 

NAIC RBC ................................................................. 0 ................................................................ Recalculated building block capital requirement * 5.9. 

Capital framework: 

NAIC RBC ................................................................. 0 ................................................................ Recalculated building block capital requirement * 5.9. 

(2) Scaling to determine BBA ratio. 

For purposes of determining the BBA 

ratio under § 217.603(b)— 

(i) A depository institution holding 

company for which the indicated capital 

framework is the U.S. Federal banking 

capital rules scales its building block 

available capital and building block 

capital requirement the common capital 

framework by using the methods 

described in paragraphs (a)(1) of this 

section. For purposes of scaling under 

this paragraph (a)(2)(i), the downstream 

building block parent’s indicated capital 

framework is the U.S. Federal banking 

capital rules and the upstream building 

block parent’s indicated capital 

framework is NAIC RBC; and 

(ii) A depository institution holding 

company for which the indicated capital 

framework is NAIC RBC does not scale 


khammond on DSKJM1Z7X2PROD with RULES2
82976 Federal Register / Vol. 88, No. 226 / Monday, November 27, 2023 / Rules and Regulations 

its building block available capital or 

building block capital requirement. 

(b) Scaling not specified by the Board 

but framework is scalar compatible. 

Where a scaling modifier to be used in 

§ 217.607 or § 217.608 is not specified in 

paragraph (a) of this section, and the 

building block parent’s indicated capital 

framework (i.e., jurisdictional capital 

framework) is scalar compatible, a 

building block parent determines the 

scaling modifier as follows: 

(1) Definitions. For purposes of this 

section, the following definitions apply: 

(i) Jurisdictional intervention point. 

The jurisdictional intervention point is 

the capital level, under the laws of the 

jurisdiction for its domestic insurers, at 

which the supervisory authority in the 

jurisdiction may intervene as to a 

company subject its capital framework 

by imposing restrictions on 

distributions and discretionary bonus 

payments by the company or, if no such 

intervention may occur in a jurisdiction, 

then the capital level at which the 

supervisory authority would first have 

the authority to take action against a 

company based on its capital level. 

(ii) Jurisdiction adjustment. The 

jurisdictional adjustment is the risk 

adjustment set forth in table 3 to this 

paragraph (b)(1)(ii), based on the 

country risk classification set by the 

Organization for Economic Cooperation 

and Development (OECD) for the 

jurisdiction. This adjustment is applied 

to the jurisdictional intervention point. 

TABLE 3 TO PARAGRAPH ( b)(1)(ii)— 

JURISDICTIONAL ADJUSTMENTS BY

OECD COUNTRY RISK CLASSIFICATION

OECD CRC 

Jurisdictional 

adjustment 

(percent) 

0–1, including jurisdictions with no OECD 

country risk classification .............................. 0 

2 ...................................... 20 

TABLE 3 TO PARAGRAPH ( b)(1)(ii)— 

JURISDICTIONAL ADJUSTMENTS BY

OECD COUNTRY RISK CLASSIFICATION—Continued 

OECD CRC 

Jurisdictional 

adjustment 

(percent) 

3 ...................................... 50 

4–6 .................................. 100 

7 ...................................... 150 

(2) Scaling capital requirement. When 

calculating the building block capital 

requirement for a building block parent 

in accordance with § 217.607, where the 

indicated capital framework of the 

appropriate downstream building block 

parent is a scalar-compatible framework 

for which the Board has not specified a 

capital requirement scaling modifier, 

the capital requirement scaling modifier 

is calculated according to the following 

formula: 

Equation 1 to Paragraph (b)(2) 

Where: 

Adjustmentscaling from is equal to the 

jurisdictional adjustment of the 

downstream building block parent; 

Requirementscaling from is equal to the 

jurisdictional intervention point of the 

downstream building block parent; and 

Requirementscaling to is equal to the 

jurisdictional intervention point of the 

upstream building block parent. 

(3) Scaling available capital. When 

calculating the building block available 

capital for a building block parent in 

accordance with § 217.608, where the 

indicated capital framework of the 

appropriate downstream building block 

parent is a scalar-compatible framework 

for which the Board has not specified an 

available capital scaling modifier, the 

available capital scaling modifier is 

equal to zero. 

§ 217.607 Capital requirements under the 

Building Block Approach. 

(a) Determination of building block 

capital requirement. For each building 

block parent, building block capital 

requirement means the sum of the items 

in paragraphs (a)(1) and (2) of this 

section: 

(1) The company capital requirement 

of the building block parent; that is: 

(i) Recalculated under the assumption 

that members of the building block 

parent’s building block had no 

investment in any downstream building 

block parent; and is: 

(ii) Adjusted pursuant to paragraph 

(b) of this section; 

(2) For each downstream building 

block parent, the adjusted downstream 

building block capital requirement 

(BBCRADJ), which is calculated 

according to the following formula: 

Equation 1 to Paragraph (a)(2) 

BBCRADJ = BBCRDS · CRSM · AS 

Where: 

BBCRDS is equal to the building block capital 

requirement of the downstream building 

block parent recalculated under the 

assumption that the downstream 

building block parent had no upstream 

investment in the building block parent; 

CRSM is equal to the appropriate capital 

requirement scaling modifier under 

§ 217.606; and 

AS is equal to the building block parent’s 

allocation share of the downstream 

building block parent. 

(b) Adjustments in determining the 

building block capital requirement. A 

supervised insurance organization must 

adjust the company capital requirement 

for any building block parent as follows: 

(1) Internal credit risk charges. A 

supervised insurance organization must 

deduct from the building block parent’s 

company capital requirement any 

difference between: 

(i) The building block parent’s 

company capital requirement; and 

(ii) The building block parent’s 

company capital requirement 

recalculated excluding capital 

requirements related to potential for the 

possibility of default of any company in 

the supervised insurance organization. 

(2) Permitted accounting practices 

and prescribed accounting practices. A 

supervised insurance organization must 

adjust the building block parent’s 

company capital requirement by any 

difference between: 

Note 1 to paragraph (b)(2) introductory 

text: The adjustment can be either positive or 

negative depending on the permitted or 

prescribed practices. In most cases, the 

reversal of the permitted or prescribed 

practice would result in an increase in the 

building block parent’s company required 

capital. In rare cases, a permitted or 

prescribed practice could increase the 

insurers required capital. In this instance, 

this adjustment would reduce the building 

block parent’s company required capital. 

(i) The building block parent’s 

company capital requirement, after 

making any adjustment in accordance 

with paragraph (b)(1) of this section; 

and 

(ii) The building block parent’s 

company capital requirement, after 

making any adjustment in accordance 

with paragraph (b)(1) of this section, 

recalculated under the assumption that 

neither the building block parent, nor 

any company that is a member of that 

building block parent’s building block, 

had prepared its financial statements 

with the application of any permitted 


khammond on DSKJM1Z7X2PROD with RULES2ER27NO23.001</GPH>
Federal Register / Vol. 88, No. 226 / Monday, November 27, 2023 / Rules and Regulations 82977 

accounting practice, prescribed 

accounting practice, or other practice, 

including legal, regulatory, or 

accounting procedures or standards, 

that departs from a solvency framework 

as promulgated for application in a 

jurisdiction. 

(3) Risks of certain intermediary 

entities. Where a supervised insurance 

organization has made an election with 

respect to a company not to treat that 

company as a material financial entity 

pursuant to § 217.605(c), the supervised 

insurance organization must add to the 

company capital requirement of any 

building block parent, whose building 

block contains a member, with which 

the company engages in one or more 

transactions, and for which the 

company engages in one or more 

transactions described in § 217.605(c)(2) 

with a third party, any difference 

between: 

(i) The building block parent’s 

company capital requirement; and 

(ii) The building block parent’s 

company capital requirement 

recalculated taking into account the 

risks of the company, excluding internal 

credit risks described in paragraph (b)(1) 

of this section, allocated to the building 

block parent, reflecting the 

transaction(s) that the company engages 

in with any member of the building 

block parent’s building block. Note, the 

total allocation of the risks of the 

intermediary entity to building block 

parents must capture all material risks 

and avoid double counting. 

(4) Investments in own capital 

instruments—(i) In general. A 

supervised insurance organization must 

deduct from the building block parent’s 

company capital requirement any 

difference between: 

(A) The building block parent’s 

company capital requirement; and 

(B) The building block parent’s 

company capital requirement 

recalculated after assuming that neither 

the building block parent, nor any 

company that is a member of the 

building block parent’s building block, 

held any investment in the building 

block parent’s own capital 

instrument(s), including any net long 

position determined in accordance with 

paragraph (b)(5)(ii) of this section. 

(ii) Net long position. For purposes of 

calculating an investment in a building 

block parent’s own capital instrument 

under this section, the net long position 

is determined in accordance with 

§ 217.22(h), provided that a separate 

account asset or associated guarantee is 

not regarded as an indirect exposure 

unless the net long position of the fund 

underlying the separate account asset 

(determined in accordance with 

§ 217.22(h) without regard to this 

paragraph (b)(4)(ii)) equals or exceeds 5 

percent of the value of the fund. 

(5) Risks relating to title insurance. A 

supervised insurance organization must 

add to the building block parent’s 

company capital requirement the 

amount of the building block parent’s 

reserves for claims pertaining to title 

insurance, multiplied by 300 percent. 

§ 217.608 Available capital resources 

under the Building Block Approach. 

(a) Qualifying capital instruments— 

(1) General criteria. A qualifying capital 

instrument with respect to a building 

block parent is a capital instrument that 

meets the following criteria: 

(i) The instrument is issued and paidin; 

(ii) The instrument is subordinated to 

depositors and general creditors of the 

building block parent; 

(iii) The instrument is not secured, 

not covered by a guarantee of the 

building block parent or of an affiliate 

of the building block parent, and not 

subject to any other arrangement that 

legally or economically enhances the 

seniority of the instrument in relation to 

more senior claims; 

(iv) The instrument has a minimum 

original maturity of at least five years. 

At the beginning of each of the last five 

years of the life of the instrument, the 

amount that is eligible to be included in 

building block available capital is 

reduced by 20 percent of the original 

amount of the instrument (net of 

redemptions), and is excluded from 

building block available capital when 

the remaining maturity is less than one 

year. In addition, the instrument must 

not have any terms or features that 

require, or create significant incentives 

for, the building block parent to redeem 

the instrument prior to maturity; and 

Note 1 to paragraph (a)(1)(iv): A building 

block parent may replace qualifying capital 

instruments concurrent with the redemption 

of existing qualifying capital instruments. 

(v) The instrument, by its terms, may 

be called by the building block parent 

only after a minimum of five years 

following issuance, except that the 

terms of the instrument may allow it to 

be called sooner upon the occurrence of 

an event that would preclude the 

instrument from being included in the 

building block parent’s company 

available capital or building block 

available capital, a tax event, or if the 

issuing entity is required to register as 

an investment company pursuant to the 

Investment Company Act of 1940 (15 

U.S.C. 80a–1 et seq.). In addition: 

(A) The top-tier depository institution 

holding company must receive the prior 

approval of the Board to exercise a call 

option on the instrument. 

(B) The building block parent does 

not create at issuance, through action or 

communication, an expectation the call 

option will be exercised. 

(C) Prior to exercising the call option, 

or immediately thereafter, the top-tier 

depository institution holding company 

must either: replace any amount called 

with an equivalent amount of an 

instrument that meets the criteria for 

qualifying capital instruments under 

this section; or demonstrate to the 

satisfaction of the Board that following 

redemption, the top-tier depository 

institution holding company would 

continue to hold an amount of capital 

that is commensurate with its risk. 

Note 2 to paragraph (a)(1)(v)(C): A 

building block parent may replace qualifying 

capital instruments concurrent with the 

redemption of existing qualifying capital 

instruments. 

(vi) Redemption of the instrument 

prior to maturity or repurchase requires 

the prior approval of the Board. 

(vii) The instrument meets the criteria 

in § 217.20(d)(1)(vi) through (ix) and 

(xi), except that each instance of 

‘‘Board-regulated institution’’ is 

replaced with ‘‘building block parent’’ 

and, in § 217.20(d)(1)(ix), ‘‘tier 2 capital 

instruments’’ is replaced with 

‘‘qualifying capital instruments’’. 

(2) Additional tier 1 capital 

instruments. Additional tier 1 capital 

instruments of a top-tier depository 

institution holding company are 

instruments issued by any inventory 

company that are qualifying capital 

instruments under paragraph (a)(1) of 

this section and meet all of the 

following criteria: 

Note 3 to paragraph (a)(2) introductory 

text: For purposes of this paragraph (a)(2), the 

supervised insurance organization evaluates 

the criteria in paragraph (a)(1) of this section 

with regard to the building block in which 

the issuing inventory company is a member. 

(i) The instrument is subordinated to 

depositors, general creditors, and 

subordinated debt holders of the 

building block parent in a receivership, 

insolvency, liquidation, or similar 

proceeding; 

(ii) The instrument is not secured, not 

covered by a guarantee of the building 

block parent or of an affiliate of the 

building block parent, and not subject to 

any other arrangement that legally or 

economically enhances the seniority of 

the instrument; 

(iii) The instrument has no maturity 

date and does not contain a dividend 

step-up or any other term or feature that 

creates an incentive to redeem; and 

(iv) If callable by its terms, the 

instrument may be called only after a 


khammond on DSKJM1Z7X2PROD with RULES2
82978 Federal Register / Vol. 88, No. 226 / Monday, November 27, 2023 / Rules and Regulations 

minimum of five years following 

issuance, except that the terms of the 

instrument may allow it to be called 

earlier than five years upon the 

occurrence of a regulatory event that 

precludes the instrument from being 

included in the building block parent’s 

company available capital or building 

block available capital, a tax event, or if 

the issuing entity is required to register 

as an investment company pursuant to 

the Investment Company Act of 1940 

(15 U.S.C. 80a–1 et seq.). In addition: 

(A) The top-tier depository institution 

holding company must receive the prior 

approval of the Board to exercise a call 

option on the instrument. 

(B) The building block parent does 

not create at issuance, through action or 

communication, an expectation that the 

call option will be exercised. 

(C) Prior to exercising the call option, 

or immediately thereafter, the top-tier 

depository institution holding company 

must either: replace any amount called 

with an equivalent amount of an 

instrument that meets the criteria for 

additional tier 1 capital instruments or 

common equity tier 1 instruments under 

this section; or demonstrate to the 

satisfaction of the Board that following 

redemption, the top-tier depository 

institution holding company would 

continue to hold an amount of capital 

that is commensurate with its risk. 

Note 4 to paragraph (a)(2)(iv)(C): A 

building block parent may replace qualifying 

capital instruments concurrent with the 

redemption of existing qualifying capital 

instruments. 

(v) Redemption or repurchase of the 

instrument requires prior approval of 

the Board. 

(vi) The paid-in amount would be 

classified as equity under GAAP. 

(vii) The instrument meets the criteria 

in § 217.20(c)(1)(vii) through (ix) and 

(xi) through (xiv), except that each 

instance of ‘‘Board-regulated 

institution’’ is replaced with ‘‘building 

block parent’’. 

(3) Common equity tier 1 capital 

instruments. Common equity tier 1 

capital instruments of a top-tier 

depository institution holding company 

are instruments issued by any inventory 

company that are qualifying capital 

instruments under paragraph (a)(1) of 

this section and that meet all of the 

following criteria: 

Note 5 to paragraph (a)(3) introductory 

text: For purposes of this paragraph (a)(3), the 

supervised insurance organization evaluates 

the criteria in paragraph (a)(1) of this section 

with regard to the building block in which 

the issuing inventory company is a member. 

(i) The holders of the instrument bear 

losses, as they occur, equally, 

proportionately, and simultaneously 

with the holders of all other qualifying 

capital instruments (other than 

additional tier 1 capital instruments or 

tier 2 capital instruments) before any 

losses are borne by holders of claims on 

the building block parent any with 

greater priority in a receivership, 

insolvency, liquidation, or similar 

proceeding. 

(ii) The paid-in amount would be 

classified as equity under GAAP. 

(iii) The instrument meets the criteria 

in § 217.20(b)(1)(i) through (vii) and (x) 

through (xiii). 

(4) Tier 2 capital instruments. Tier 2 

capital instruments of a top-tier 

depository institution holding company 

are instruments issued by any inventory 

company that are qualifying capital 

instruments under paragraph (a)(1) of 

this section and are not additional tier 

1 capital instruments or common equity 

tier 1 capital instruments. 

(b) Determination of building block 

available capital—(1) In general. For 

each building block parent, building 

block available capital means the sum 

of the items described in paragraphs 

(b)(1)(i) and (ii) of this section: 

(i) The company available capital of 

the building block parent: 

(A) Less the amount of downstreamed 

capital owned by any member of the 

building block parent’s building block; 

and 

(B) Adjusted pursuant to paragraph (c) 

of this section. 

(ii) For each downstream building 

block parent, the adjusted downstream 

building block available capital 

(BBACADJ), which is calculated 

according to the following formula: 

Equation 1 to Paragraph (b)(1)(ii) 

BBACADJ = (BBACDS¥UpInv + ACSM) 

·AS 

Where: 

BBACDS is equal to the building block 

available capital of the downstream 

building block parent; 

UpInv is equal to the amount of any upstream 

investment held by that downstream 

building block parent in the building 

block parent; 

ACSM is equal to the appropriate available 

capital scaling modifier under § 217.606; 

and AS is equal to the building block 

parent’s allocation share of the 

downstream building block parent. 

(2) Combining tiers of capital. If there 

is more than one tier of company 

available capital under a building block 

parent’s indicated capital framework, 

the amounts of company available 

capital from all tiers are combined in 

calculating building block available 

capital in accordance with paragraph (b) 

of this section. 

(c) Adjustments in determining 

building block available capital. For 

purposes of the calculations required in 

paragraph (b) of this section, a 

supervised insurance organization must 

adjust the company available capital for 

any building block parent as follows: 

(1) Nonqualifying capital instruments. 

A supervised insurance organization 

must deduct from the building block 

parent’s company available capital any 

accretion arising from any instrument 

issued by any company that is a member 

of the building block parent’s building 

block, where the instrument is not a 

qualifying capital instrument. 

(2) Insurance underwriting RBC. 

When applying the U.S. Federal banking 

capital rules as the indicated capital 

framework for a building block parent, 

a supervised insurance organization 

must add back into the building block 

parent’s company available capital any 

amounts deducted pursuant to 

§ 3.22(b)(3) of this title, § 217.22(b)(3), or 

§ 324.22(b)(3) of this title, as applicable. 

(3) Permitted accounting practices 

and prescribed accounting practices. A 

supervised insurance organization must 

adjust the building block parent’s 

company available capital by any 

difference between: 

(i) The building block parent’s 

company available capital; and 

(ii) The building block parent’s 

company available capital recalculated 

under the assumption that neither the 

building block parent, nor any company 

that is a member of that building block 

parent’s building block, had prepared its 

financial statements with the 

application of any permitted accounting 

practice, prescribed accounting practice, 

or other practice, including legal, 

regulatory, or accounting procedures or 

standards, that departs from a solvency 

framework as promulgated for 

application in a jurisdiction. 

(4) Adjusting certain life insurance 

reserves. A supervised insurance 

organization must adjust the building 

block parent’s company available 

capital by any difference between: 

(i) The building block parent’s 

company available capital; and 

(ii) The building block parent’s 

company available capital recalculated 

based on using a 40 percent factor 

applied to all term life insurance 

accounted for using an approach based 

on the Valuation of Life Insurance 

Policies Model Regulation and a 90 

percent factor applied to all secondaryguaranteed universal life insurance 

products accounted for using Actuarial 

Guideline XXXVIII—The Application of 

the Valuation of Life Insurance Policies 

Model Regulation. 


khammond on DSKJM1Z7X2PROD with RULES2
Federal Register / Vol. 88, No. 226 / Monday, November 27, 2023 / Rules and Regulations 82979 

(5) Deduction of investments in own 

capital instruments—(i) In general. A 

supervised insurance organization must 

deduct from the building block parent’s 

company available capital any 

investment by the building block parent 

in its own capital instrument(s), or any 

investment by any member of the 

building block parent’s building block 

in capital instruments of the building 

block parent, including any net long 

position determined in accordance with 

paragraph (c)(5)(ii) of this section, to the 

extent that such investment(s) would 

otherwise be accretive to the building 

block parent’s building block available 

capital. 

(ii) Net long position. For purposes of 

calculating an investment in a building 

block parent’s own capital instrument 

under this section, the net long position 

is determined in accordance with 

§ 217.22(h), provided that a separate 

account asset or associated guarantee is 

not regarded as an indirect exposure 

unless the net long position of the fund 

underlying the separate account asset 

(determined in accordance with 

§ 217.22(h) without regard to this 

paragraph (c)(5)(ii)) equals or exceeds 5 

percent of the value of the fund. 

(6) Reciprocal cross holdings in the 

capital of financial institutions. A 

supervised insurance organization must 

deduct from the building block parent’s 

company available capital any 

investment(s) by the building block 

parent in the capital of unaffiliated 

financial institutions that it holds 

reciprocally, where such reciprocal 

cross holdings result from a formal or 

informal arrangement to swap, 

exchange, or otherwise intend to hold 

each other’s capital instruments, to the 

extent that such investment(s) would 

otherwise be accretive to the building 

block parent’s building block available 

capital. 

(d) Limits on certain elements in 

building block available capital of toptier depository institution holding 

companies—(1) Investment in capital of 

unconsolidated financial institutions. (i) 

A top-tier depository institution holding 

company must deduct from its building 

block available capital any accreted 

capital from an investment in the capital 

of an unconsolidated financial 

institution that is not an inventory 

company, that exceeds twenty-five 

percent of the amount of its building 

block available capital, prior to 

application of this adjustment, 

excluding tier 2 capital instruments. For 

purposes of this paragraph (d)(1), the 

amount of an investment in the capital 

of an unconsolidated financial 

institution is calculated in accordance 

with § 217.22(h), except that a separate 

account asset or associated guarantee is 

not an indirect exposure. 

(ii) The deductions described in this 

paragraph (d)(1) are net of associated 

deferred tax liabilities in accordance 

with § 217.22(e). 

(2) Adjustments to accretions from 

tier 2 capital instruments. A top-tier 

depository institution holding company 

must adjust accretions from tier 2 

capital instruments in accordance with 

this paragraph (d)(2). 

(i) A top-tier depository institution 

holding company must deduct any 

accretions from tier 2 capital 

instruments that, in the aggregate, 

exceed the greater of: 

(A) 150 percent of the amount of its 

building block capital requirement; and 

(B) The amount of instruments subject 

to paragraph (e) or (f) of this section that 

are outstanding as of the submission 

date; and 

(ii) A top-tier depository institution 

holding company must increase 

accretions from tier 2 capital 

instruments by any amount deducted 

from accretions from additional tier 1 

capital instruments by operation of 

paragraph (d)(3) of this section. 

(3) Limitation on additional tier 1 

capital instruments. A top-tier 

depository institution holding company 

must deduct any accretions from 

additional tier 1 capital instruments 

that, in the aggregate, exceed the greater 

of: 

(i) 100 percent of the amount of its 

building block capital requirement; and 

(ii) The amount of instruments subject 

to paragraph (f) of this section that are 

outstanding as of the submission date. 

(e) Treatment of outstanding surplus 

notes. A surplus note issued by any 

company in a supervised insurance 

organization is deemed to meet the 

criteria in paragraphs (a)(1)(iii) and (vi) 

of this section if: 

(1) The instrument was issued prior to 

the later of— 

(i) November 1, 2019; and 

(ii) The earliest date on which any 

depository institution holding company 

in the group became a depository 

institution holding company; 

(2) The surplus note is a company 

capital element for the issuing company; 

(3) The surplus note is not owned by 

an affiliate of the issuer; and 

(4) The surplus note is outstanding as 

of the submission date. 

(f) Treatment of certain callable 

instruments. Notwithstanding the 

criteria under paragraph (a)(1) of this 

section, an instrument with terms that 

provide that the instrument may be 

called earlier than five years upon the 

occurrence of a rating event does not 

violate the criterion in paragraph 

(a)(1)(v) of this section, provided that 

the instrument was a company capital 

element issued prior to January 1, 2014, 

and that such instrument satisfies all 

other criteria under paragraph (a)(1) of 

this section. 

(g) Board approval of a capital 

instrument. (1) A supervised insurance 

organization must receive Board prior 

approval to include in its building block 

available capital for any building block 

an instrument (as listed in this section), 

issued by any company in the 

supervised insurance organization, 

unless the instrument: 

(i) Was a capital element for the issuer 

prior to May 19, 2010, in accordance 

with the indicated capital framework 

that was effective as of that date and the 

underlying instrument meets the criteria 

to be a qualifying capital instrument (as 

defined in paragraph (a) of this section); 

or 

(ii) Is equivalent, in terms of capital 

quality and ability to absorb losses with 

respect to all material terms, to a 

company capital element that the Board 

determined may be included in 

regulatory capital pursuant to paragraph 

(g)(2) of this section, or may be included 

in the regulatory capital of a Boardregulated institution pursuant to 

§ 217.20(e)(3). 

(2) After determining that an 

instrument may be included in a 

supervised insurance organization’s 

regulatory capital under this subpart, 

the Board will make its decision 

publicly available, including a brief 

description of the material terms of the 

instrument and the rationale for the 

determination. 

PART 238—SAVINGS AND LOAN 

HOLDING COMPANIES (REGULATION 

LL) 

■ 7. The authority citation for part 238 

continues to read as follows: 

Authority: 5 U.S.C. 552, 559; 12 U.S.C. 

1462, 1462a, 1463, 1464, 1467, 1467a, 1468, 

5365; 1813, 1817, 1829e, 1831i, 1972, 15 

U.S.C. 78l. 

Subpart P—Company-Run Stress Test 

Requirements for Savings and Loan 

Holding Companies 

■ 8. In § 238.142: 

■ a. Revise paragraph (a)(1) introductory 

text; and 

■ b. Add paragraph (a)(3). 

The revision and addition read as 

follows: 

§ 238.142 Applicability. 

(a) * * * 

(1) Applicability. Except as provided 

in paragraphs (a)(3) and (b) of this 


khammond on DSKJM1Z7X2PROD with RULES2
82980 Federal Register / Vol. 88, No. 226 / Monday, November 27, 2023 / Rules and Regulations 

section, this subpart applies to any 

covered company, which includes: 

* * * * * 

(3) Insurance savings and loan 

holding companies. Notwithstanding 

any other provision of this paragraph 

(a), this subpart does not apply to a 

covered company that is subject to part 

217, subpart J, of this chapter. 

* * * * * 

PART 252—ENHANCED PRUDENTIAL 

STANDARDS (REGULATION YY) 

■ 9. The authority citation for part 252 

continues to read as follows: 

Authority: 12 U.S.C. 321–338a, 481–486, 

1467a, 1818, 1828, 1831n, 1831o, 1831p-1, 

1831w, 1835, 1844(b), 1844(c), 3101 et seq., 

3101 note, 3904, 3906–3909, 4808, 5361, 

5362, 5365, 5366, 5367, 5368, 5371. 

Subpart F—Company-Run Stress Test 

Requirements for Certain U.S. Bank 

Holding Companies and Nonbank 

Financial Companies Supervised by 

the Board 

■ 10. In § 252.53: 

■ a. Revise paragraph (a)(1) introductory 

text; and 

■ b. Add paragraph (a)(3). 

The revision and addition read as 

follows: 

§ 252.53 Applicability. 

(a) * * * 

(1) Applicability. Except as provided 

in paragraphs (a)(3) and (b) of this 

section, this subpart applies to any 

covered company, which includes: 

* * * * * 

(3) Insurance bank holding 

companies. Notwithstanding any other 

provision of this paragraph (a), this 

subpart does not apply to a covered 

company that is a bank holding 

company that is subject to part 217, 

subpart J, of this chapter. 

* * * * * 

By order of the Board of Governors of the 

Federal Reserve System. 

Ann E. Misback, 

Secretary of the Board. 

[FR Doc. 2023–23911 Filed 11–24–23; 8:45 am] 

BILLING CODE P 


khammond on DSKJM1Z7X2PROD with RULES2