Federal Register / Vol. 81, No. 22 / Wednesday, February 3, 2016 / Proposed Rules 5661 

and sufficient technical knowledge to 

participate in substantive negotiations. 

Certain concepts are central to 

negotiating in good faith. One is the 

willingness to bring all issues to the 

bargaining table in an attempt to reach 

a consensus, as opposed to keeping key 

issues in reserve. The second is a 

willingness to keep the issues at the 

table and not take them to other forums. 

Finally, good faith includes a 

willingness to move away from some of 

the positions often taken in a more 

traditional rulemaking process, and 

instead explore openly with other 

parties all ideas that may emerge from 

the working group’s discussions. 

E. Facilitator 

The facilitator will act as a neutral in 

the substantive development of the 

proposed standard. Rather, the 

facilitator’s role generally includes: 

• Impartially assisting the members of 

the working group in conducting 

discussions and negotiations; and 

• Impartially assisting in performing 

the duties of the Designated Federal 

Official under FACA. 

F. Department Representative 

The DOE representative will be a full 

and active participant in the consensus 

building negotiations. The Department’s 

representative will meet regularly with 

senior Department officials, briefing 

them on the negotiations and receiving 

their suggestions and advice so that he 

or she can effectively represent the 

Department’s views regarding the issues 

before the working group. DOE’s 

representative also will ensure that the 

entire spectrum of governmental 

interests affected by the standards 

rulemaking, including the Office of 

Management and Budget, the Attorney 

General, and other Departmental offices, 

are kept informed of the negotiations 

and encouraged to make their concerns 

known in a timely fashion. 

G. Working Group and Schedule 

After evaluating the comments 

submitted in response to this notice of 

intent and the requests for nominations, 

DOE will either inform the members of 

the working group that they have been 

selected or determine that conducting a 

negotiated rulemaking is inappropriate. 

Per the ASRAC Charter, the working 

group is expected to make a concerted 

effort to negotiate a final term sheet by 

September 30, 2016. 

DOE will advise working group 

members of administrative matters 

related to the functions of the working 

group before beginning. While the 

negotiated rulemaking process is 

underway, DOE is committed to 

performing much of the same analysis 

as it would during a normal standards 

rulemaking process and to providing 

information and technical support to the 

working group. 

IV. Comments Requested 

DOE requests comments on which 

parties should be included in a 

negotiated rulemaking to develop draft 

language pertaining to the energy 

efficiency of circulator pumps and 

suggestions of additional interests and/ 

or stakeholders that should be 

represented on the working group. All 

who wish to participate as members of 

the working group should submit a 

request for nomination to DOE. 

V. Public Participation 

Members of the public are welcome to 

observe the business of the meeting and, 

if time allows, may make oral 

statements during the specified period 

for public comment. To attend the 

meeting and/or to make oral statements 

regarding any of the items on the 

agenda, email asrac@ee.doe.gov. In the 

email, please indicate your name, 

organization (if appropriate), 

citizenship, and contact information. 

Please note that foreign nationals 

participating in the public meeting are 

subject to advance security screening 

procedures which require advance 

notice prior to attendance at the public 

meeting. If a foreign national wishes to 

participate in the public meeting, please 

inform DOE as soon as possible by 

contacting Ms. Regina Washington at 

(202) 586–1214 or by email: 

Regina.Washington@ee.doe.gov so that 

the necessary procedures can be 

completed. Anyone attending the 

meeting will be required to present a 

government photo identification, such 

as a passport, driver’s license, or 

government identification. Due to the 

required security screening upon entry, 

individuals attending should arrive 

early to allow for the extra time needed. 

Due to the REAL ID Act implemented 

by the Department of Homeland 

Security (DHS) recent changes regarding 

ID requirements for individuals wishing 

to enter Federal buildings from specific 

states and U.S. territories. Driver’s 

licenses from the following states or 

territory will not be accepted for 

building entry and one of the alternate 

forms of ID listed below will be 

required. 

DHS has determined that regular 

driver’s licenses (and ID cards) from the 

following jurisdictions are not 

acceptable for entry into DOE facilities: 

Alaska, Louisiana, New York, American 

Samoa, Maine, Oklahoma, Arizona, 

Massachusetts, Washington, and 

Minnesota. 

Acceptable alternate forms of PhotoID include: U. S. Passport or Passport 

Card; An Enhanced Driver’s License or 

Enhanced ID-Card issued by the states 

of Minnesota, New York or Washington 

(Enhanced licenses issued by these 

states are clearly marked Enhanced or 

Enhanced Driver’s License); A military 

ID or other Federal government issued 

Photo-ID card. 

VI. Approval of the Office of the 

Secretary 

The Secretary of Energy has approved 

publication of today’s notice of intent. 

Issued in Washington, DC, on January 27, 

2016. 

Kathleen B. Hogan, 

Deputy Assistant Secretary for Energy 

Efficiency and Renewable Energy. 

[FR Doc. 2016–01979 Filed 2–2–16; 8:45 am] 

BILLING CODE 6450–01–P 

FEDERAL RESERVE SYSTEM 

12 CFR Part 217 

[Docket No. R–1529] 

RIN 7100 AE–43 

Regulatory Capital Rules: The Federal 

Reserve Board’s Framework for 

Implementing the U.S. Basel III 

Countercyclical Capital Buffer 

AGENCY: Board of Governors of the 

Federal Reserve System. 

ACTION: Proposed policy statement with 

request for public comment. 

SUMMARY: The Board is inviting public 

comment on a policy statement on the 

framework that the Board will follow in 

setting the amount of the U.S. 

countercyclical capital buffer for 

advanced approaches bank holding 

companies, savings and loan holding 

companies, and state member banks 

under the Board’s Regulation Q (12 CFR 

part 217). 

DATES: Comments must be received on 

or before March 21, 2016. Comments 

were originally due by February 19, 

2016. 

ADDRESSES: You may submit comments, 

identified by Docket No. R–1529 and 

RIN 7100 AE–43 by any of the following 

methods: 

• Agency Web site: http://

www.federalreserve.gov. Follow the 

instructions for submitting comments at 

http://www.federalreserve.gov/

generalinfo/foia/ProposedRegs.aspx. 

• Federal eRulemaking Portal: http:// 

www.regulations.gov. Follow the 

instructions for submitting comments. 

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5662 Federal Register / Vol. 81, No. 22 / Wednesday, February 3, 2016 / Proposed Rules 

1See 78 FR 62018 (October 11, 2013) (Board and 

OCC); 79 FR 20754 (April 14, 2014) (FDIC). 

Regulation Q applies generally to bank holding 

companies with more than $1 billion in total 

consolidated assets and savings and loan holding 

companies with more than $1 billion in total 

consolidated assets that are not substantially 

engaged in commercial or insurance underwriting 

activities. See 12 CFR 217.1(c)(1). 

2 12 CFR 217.11(b). 

3 Implementation of the CCyB also helps respond 

to the provision in the Dodd-Frank Wall Street 

Reform and Consumer Protection Act (Dodd-Frank 

Act) that the agencies ‘‘shall seek to make such 

[capital] requirements countercyclical, so that the 

amount of capital required to be maintained by a 

company increases in times of economic expansion 

and decreases in times of economic contraction, 

consistent with the safety and soundness of the 

company.’’ See 12 U.S.C. 1467a; 12 U.S.C. 1844; 12 

U.S.C. 3907 (as amended by section 616 of the 

Dodd-Frank Act). 

4An advanced approaches institution is subject to 

the CCyB regardless of whether it has completed the 

parallel run process and received notification from 

its primary Federal supervisor pursuant to 

§ 217.121(d) of Regulation Q. 

5 12 CFR 217.100(b)(1). 

6 12 CFR 217.11(b)(1)(i). 

7 12 CFR 217.11(a). 

8 12 CFR 217.11(b)(1). The Board may adjust the 

CCyB amount to reflect decisions made by foreign 

jurisdictions. See 12 CFR 217.11(b)(3). 

9 12 CFR 217.11(b)(1). 

10 Id. 

11 12 CFR 217.300(a)(2). 

• Email: regs.comments@

federalreserve.gov. Include the docket 

number and RIN number in the subject 

line of the message. 

• Fax: (202) 452–3819 or (202) 452– 

3102. 

• Mail: Robert V. Frierson, Secretary, 

Board of Governors of the Federal 

Reserve System, 20th Street and 

Constitution Avenue NW., Washington, 

DC 20551. 

All public comments will be made 

available on the Board’s Web site at 

http://www.federalreserve.gov/

generalinfo/foia/ProposedRegs.aspx as 

submitted, unless modified for technical 

reasons. Accordingly, your comments 

will not be edited to remove any 

identifying or contact information. 

Public comments may also be viewed 

electronically or in paper form in Room 

MP–500 of the Board’s Martin Building 

(20th and C Streets NW., Washington, 

DC 20551) between 9 a.m. and 5 p.m. on 

weekdays. 

FOR FURTHER INFORMATION CONTACT: 

William Bassett, Deputy Associate 

Director, (202) 736–5644, or Rochelle 

Edge, Deputy Associate Director, (202) 

452–2339, Office of Financial Stability 

Policy and Research; Sean Campbell, 

Associate Director, (202) 452–3760, 

Division of Banking Supervision and 

Regulation; Benjamin W. McDonough, 

Special Counsel, (202) 452–2036, Mark 

Buresh, Senior Attorney, (202) 452– 

5270, or Mary Watkins, Attorney, (202) 

452–3722, Legal Division. 

SUPPLEMENTARY INFORMATION: 

Table of Contents 

I. Background 

II. Proposed Policy Statement 

III. Administrative Law Matters 

A. Use of Plain Language 

B. Paperwork Reduction Act Analysis 

C. Regulatory Flexibility Act Analysis 

I. Background 

The Board of Governors of the Federal 

Reserve System (Board) issued in June 

2013 a final regulatory capital rule 

(Regulation Q) in coordination with the 

Office of the Comptroller of the 

Currency (OCC) and the Federal Deposit 

Insurance Corporation (FDIC) to 

strengthen risk-based and leverage 

capital requirements applicable to 

insured depository institutions and 

certain depository institution holding 

companies (banking organizations).1

Among the changes that Regulation Q 

introduced was the institution of a 

countercyclical capital buffer (CCyB) for 

large, internationally active banking 

organizations.2

The CCyB is a macroprudential policy 

tool that the Board can increase during 

periods of rising vulnerabilities in the 

financial system and reduce when 

vulnerabilities recede.3 The CCyB 

supplements the minimum capital 

requirements and other capital buffers 

included in Regulation Q, which 

themselves are designed to provide 

substantial resilience to unexpected 

losses created by normal fluctuations in 

economic and financial conditions. The 

CCyB is designed to increase the 

resilience of large banking organizations 

when the Board sees an elevated risk of 

above-normal losses. Increasing the 

resilience of large banking organizations 

should, in turn, improve the resilience 

of the broader financial system. Abovenormal losses often follow periods of 

rapid asset price appreciation or credit 

growth that are not well supported by 

underlying economic fundamentals. The 

circumstances in which the Board 

would most likely use the CCyB as a 

supplemental, macroprudential tool to 

augment minimum capital requirements 

and other capital buffers would be to 

address circumstances when potential 

systemic vulnerabilities are somewhat 

above normal. By requiring advanced 

approaches institutions to hold a larger 

capital buffer during periods of 

increased systemic risk and removing 

the buffer requirement when the 

vulnerabilities have diminished, the 

CCyB has the potential to moderate 

fluctuations in the supply of credit over 

time. 

The CCyB applies to banking 

organizations subject to the advanced 

approaches capital rules (advanced 

approaches institutions).4 The advanced 

approaches capital rules generally apply 

to banking organizations with greater 

than $250 billion in total assets or $10 

billion in on-balance-sheet foreign 

exposure and to any depository 

institution subsidiary of such banking 

organizations.5

The CCyB functions as an expansion 

of the Capital Conservation Buffer 

(CCB). The CCB requires that a banking 

organization hold a buffer of common 

equity tier 1 capital in excess of the 

minimum risk-based capital ratios 

greater than 2.5 percent of risk-weighted 

assets to avoid limits on capital 

distributions and certain discretionary 

bonus payments.6 The CCB is divided 

into quartiles, each associated with 

increasingly stringent limitations on 

capital distributions and certain 

discretionary bonus payments as the 

firm’s risk-based capital ratios approach 

regulatory minimums.7

As described in Regulation Q, the 

CCyB applies based on the location of 

exposures by national jurisdiction.8

Specifically, the applicable CCyB 

amount for a banking organization is 

equal to the weighted average of CCyB 

amounts established by the Board for 

the national jurisdictions where the 

banking organization has private-sector 

credit exposures.9 The CCyB amount 

applicable to a banking organization is 

weighted by jurisdiction according to 

the firm’s risk-weighted private-sector 

credit exposures for a specific 

jurisdiction as a percentage of the firm’s 

overall risk-weighted private-sector 

credit exposures.10

Regulation Q established the initial 

CCyB amount with respect to privatesector credit exposures located in the 

United States (U.S.-based credit 

exposures) at zero percent. Following a 

phase-in period, the amount of the 

CCyB will vary between 0 and 2.5 

percent of risk-weighted assets. Under 

the phase-in schedule, the maximum 

potential amount of the CCyB for U.S.- 

based credit exposures is 0.625 

percentage points in 2016, 1.25 

percentage points in 2017, 1.875 

percentage points in 2018, and 2.5 

percentage points in 2019 and all 

subsequent years.11 To provide banking 

organizations with sufficient time to 

adjust to any change to the CCyB, an 

increase in the amount of the CCyB for 

U.S.-based credit exposures will have an 

effective date 12 months after the 

determination, unless the Board 

determines that a more immediate 

implementation is necessary based on 

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Federal Register / Vol. 81, No. 22 / Wednesday, February 3, 2016 / Proposed Rules 5663 

12 12 CFR 217.11(b)(2)(v)(A). 

13 12 CFR 217.11(b)(2)(v)(B). 

14 12 CFR 217.11(b)(2)(vi). 

15See 13 CFR 121.201. Effective July 14, 2014, the 

Small Business Administration revised the size 

standards for banking organizations to $550 million 

in assets from $500 million in assets. 79 FR 33647 

(June 12, 2014). 

16 12 CFR 217.100(b)(1). 

economic conditions.12 In contrast, 

Regulation Q states that a decision by 

the Board to decrease the amount of the 

CCyB for U.S.-based credit exposures 

would become effective the day after the 

Board decides to decrease the CCyB or 

the earliest date permissible under 

applicable law or regulation, whichever 

is later.13 The amount of the CCyB for 

U.S.-based credit exposures will return 

to 0 percent 12 months after the 

effective date of any CCyB adjustment, 

unless the Board announces a decision 

to maintain the current amount or adjust 

it again before the expiration of the 12- 

month period.14

The Board expects to make decisions 

about the appropriate level of the CCyB 

on U.S.-based credit exposures jointly 

with the OCC and FDIC. In addition, the 

Board expects that the CCyB amount for 

U.S.-based credit exposures would be 

the same for covered insured depository 

institutions as for covered depository 

institution holding companies. The 

CCyB is designed to take into account 

the broad macroeconomic and financial 

environment in which banking 

organizations function and the degree to 

which that environment impacts the 

resilience of the group of advanced 

approaches institutions. Therefore, the 

Board’s determination of the 

appropriate level of the CCyB for U.S.- 

based credit exposures would be most 

directly linked to the condition of the 

overall financial environment rather 

than the condition of any individual 

banking organization. But, the overall 

CCyB requirement for a banking 

organization will vary based on the 

organization’s particular composition of 

private sector credit exposures located 

across national jurisdictions. 

II. Proposed Policy Statement 

The proposed policy statement 

(Policy Statement) describes the 

framework that the Board would follow 

in setting the amount of the CCyB for 

U.S.-based credit exposures. The 

framework consists of a set of principles 

for translating assessments of financialsystem vulnerabilities that are regularly 

undertaken at the Board into the 

appropriate level of the CCyB. Those 

assessments are informed by a broad 

array of quantitative indicators of 

financial and economic performance 

and a set of empirical models. In 

addition, the framework includes a 

discussion of how the Board would 

assess whether the CCyB is the most 

appropriate policy instrument (among 

available policy instruments) to address 

the highlighted financial-system 

vulnerabilities. 

The proposed Policy Statement is 

organized as follows. Section 1 provides 

background on the proposed Policy 

Statement. Section 2 is an outline of the 

proposed Policy Statement and 

describes its scope. Section 3 provides 

a broad description of the objectives of 

the CCyB, including a description of the 

ways in which the CCyB is expected to 

protect large banking organizations and 

the broader financial system. Section 4 

provides a broad description of the 

factors that the Board considers in 

setting the CCyB, including specific 

financial-system vulnerabilities and 

types of quantitative indicators of 

financial and economic performance, 

and outlines of empirical models the 

Board may use as inputs to that 

decision. Further, section 4 describes a 

set of principles that the Board expects 

to use for combining judgmental 

assessments with quantitative indicators 

to determine the appropriate level of the 

CCyB. Section 5 discusses how the 

Board will communicate the level of the 

CCyB and any changes to the CCyB. 

Section 6 describes how the Board plans 

to monitor the effects of the CCyB, 

including what indicators and effects 

will be monitored. 

The Board seeks comment on all 

aspects of the proposed Policy 

Statement. 

Question 1. In what ways could the 

Board improve its proposed framework 

for making decisions on the CCyB? 

Question 2. The proposed Policy 

Statement describes a set of principles 

for translating judgmental assessments 

of financial-system vulnerabilities into 

specific levels of the CCyB, a set of 

empirical models used as inputs to the 

judgmental process that distill and 

translate quantitative indicators of 

financial and economic performance 

into potential settings for the CCyB, and 

an assessment of whether the CCyB is 

the most appropriate policy instrument 

to address highlighted financial-system 

vulnerabilities. Are there any other 

considerations that should form part of 

the CCyB decision-making framework? 

Question 3. To what extent does the 

Board’s proposed framework for 

determining the appropriate level of the 

CCyB capture the appropriate set of 

financial-system vulnerabilities? Are 

there any vulnerabilities that should 

also be considered or are there 

vulnerabilities that should be given 

greater or less consideration? How 

should vulnerabilities developing 

outside of the banking sector be 

considered as compared to 

vulnerabilities developing inside of the 

banking sector? 

III. Administrative Law Matters 

A. Use of Plain Language 

Section 722 of the Gramm-LeachBliley Act (Pub. L. 106–102, 113 Stat. 

1338, 1471, 12 U.S.C. 4809) requires the 

Federal banking agencies to use plain 

language in all proposed and final rules 

published after January 1, 2000. The 

Board has sought to present the 

proposed policy statement in a simple 

and straightforward manner, and invites 

comment on the use of plain language. 

B. Paperwork Reduction Act Analysis 

In accordance with the requirements 

of the Paperwork Reduction Act of 1995 

(44 U.S.C. 3506), the Board has 

reviewed the proposed policy statement 

to assess any information collections. 

There are no collections of information 

as defined by the Paperwork Reduction 

Act in the proposal. 

C. Regulatory Flexibility Act Analysis 

The Board is providing an initial 

regulatory flexibility analysis with 

respect to this proposed Policy 

Statement. As discussed above, the 

proposed Policy Statement is designed 

to provide additional information 

regarding the factors that the Board 

expects to consider in evaluating 

whether to change the CCyB applicable 

to private-sector credit exposures 

located in the United States. The 

Regulatory Flexibility Act, 5 U.S.C. 601 

et seq. (RFA), generally requires that an 

agency prepare and make available an 

initial regulatory flexibility analysis in 

connection with a notice of proposed 

rulemaking. Under regulations issued by 

the Small Business Administration, a 

small entity includes a bank holding 

company with assets of $550 million or 

less (small bank holding company).15 As 

of December 31, 2014, there were 

approximately 3,441 small BHCs, 187 

small SLHCs, and 644 small state 

member banks. 

The proposed Policy Statement would 

relate only to advanced approaches 

institutions, which, generally, are 

banking organizations with total 

consolidated assets of $250 billion or 

more, that have total consolidated onbalance sheet foreign exposure of $10 

billion or more, are a subsidiary of an 

advanced approaches depository 

institution, or that elect to use the 

advanced approaches framework.16

Banking organizations that would be 

covered by the proposed Policy 

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5664 Federal Register / Vol. 81, No. 22 / Wednesday, February 3, 2016 / Proposed Rules 

1See 78 FR 62018 (October 11, 2013) (Board and 

OCC); 79 FR 20754 (April 14, 2014) (FDIC). 

2 12 CFR 217.11(b). The CCyB applies only to 

banking organizations subject to the advanced 

approaches capital rules, which generally apply to 

those banking organizations with greater than $250 

billion in assets or more than $10 billion in onbalance-sheet foreign exposures. See 12 CFR 

217.100(b). An advanced approaches institution is 

subject to the CCyB regardless of whether it has 

completed the parallel run process and received 

notification from its primary Federal supervisor. 

See 12 CFR 217.121(d). 

3 Implementation of the CCyB also helps respond 

to the Dodd-Frank Act’s requirement that the Board 

seek to make its capital requirements 

countercyclical 12 U.S.C. 1844(b), 1464a(g)(1), and 

3907(a)(1) (codifying sections 616(a), (b), and (c) of 

the Dodd-Frank Act). 

4The CCyB is subject to a phase-in arrangement 

between 2016 and 2019. See 12 CFR 217.300(a)(2). 

5See 80 FR 49082 (August 14, 2015). 

Statement substantially exceed the $550 

million asset threshold at which a 

banking entity would qualify as a small 

bank holding company, small savings 

and loan holding company, or small 

state member bank. Currently, no small 

top-tier bank holding company, small 

top-tier savings and loan holding 

company, or small state member bank is 

an advanced approaches institution, so 

there would be no additional projected 

compliance requirements imposed on 

small bank holding companies, small 

savings and loan holding companies, or 

small state member banks. 

Therefore, there are no significant 

alternatives to the proposal that would 

have less economic impact on small 

banking organizations. There are no 

projected reporting, recordkeeping, or 

other compliance requirements of the 

proposal. The Board does not believe 

that the proposal duplicates, overlaps, 

or conflicts with any other Federal 

rules. In light of the foregoing, the Board 

does not believe that the proposal, if 

adopted in final form, would have a 

significant economic impact on a 

substantial number of small entities. 

Nonetheless, the Board seeks comment 

on whether the proposal would impose 

undue burdens on, or have unintended 

consequences for, small organizations, 

and whether there are ways such 

potential burdens or consequences 

could be minimized in a manner 

consistent with the purpose of the 

proposal. A final regulatory flexibility 

analysis will be conducted after 

consideration of comments received 

during the public comment period. 

List of Subjects in 12 CFR Part 217 

Administrative practice and 

procedure, Banks, banking. Holding 

companies, Reporting and 

recordkeeping requirements, Securities. 

Authority and Issuance 

For the reasons stated in the 

Supplementary Information, the Board 

of Governors of the Federal Reserve 

System proposes to add the Policy 

Statement as set forth at the end of the 

Supplementary Information as appendix 

A to part 217 of 12 CFR chapter II as 

follows: 

PART 217—CAPITAL ADEQUACY OF 

BANK HOLDING COMPANIES, 

SAVINGS AND LOAN HOLDING 

COMPANIES, AND STATE MEMBER 

BANKS 

■ 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–l, 1831w, 1835, 1844(b), 1851, 

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

PART 217—CAPITAL ADEQUACY OF 

BANK HOLDING COMPANIES, 

SAVINGS AND LOAN HOLDING 

COMPANIES, AND STATE MEMBER 

BANKS 

■ 2. Appendix A to part 217 is added to 

read as follows: 

Appendix A to Part 217—The Federal 

Reserve Board’s Framework for 

Implementing the Countercyclical 

Capital Buffer 

1. Background 

The Board of Governors of the Federal 

Reserve System (Board) issued a final 

regulatory capital rule (Regulation Q) in 

coordination with the Office of the 

Comptroller of the Currency (OCC) and the 

Federal Deposit Insurance Corporation 

(FDIC) that strengthened risk-based and 

leverage capital requirements applicable to 

insured depository institutions and 

depository institution holding companies 

(banking organizations).1 Among those 

changes was the introduction of a 

countercyclical capital buffer (CCyB) for 

large, internationally active banking 

organizations.2

The CCyB is a macroprudential policy tool 

that the Board can increase during periods of 

rising vulnerabilities in the financial system 

and reduce when vulnerabilities recede. It is 

designed to increase the resilience of large 

banking organizations when policymakers 

see an elevated risk of above-normal losses. 

Increasing the resilience of large banking 

organizations should, in turn, improve the 

resilience of the broader financial system. 

Above-normal losses often follow periods of 

rapid asset price appreciation or credit 

growth that are not well supported by 

underlying economic fundamentals. The 

circumstances in which the Board would 

most likely use the CCyB as a supplemental, 

macroprudential tool to augment minimum 

capital requirements and other capital buffers 

would be to address circumstances when 

potential systemic vulnerabilities are 

somewhat above normal. By requiring large 

banking organizations to hold additional 

capital during those periods of excess and 

removing the requirement to hold additional 

capital when the vulnerabilities have 

diminished, the CCyB also is expected to 

moderate fluctuations in the supply of credit 

over time.3 Further, Regulation Q established 

the initial CCyB amount with respect to U.S.- 

based credit exposures at zero percent and 

provided that the maximum potential 

amount of the CCyB for credit exposures in 

the United States was 2.5 percent of riskweighted assets.4

The Board expects to make decisions about 

the appropriate level of the CCyB on U.S.- 

based credit exposures jointly with the OCC 

and FDIC, and expects that the CCyB amount 

for U.S.-based credit exposures will be the 

same for covered depository institution 

holding companies and insured depository 

institutions. The CCyB is designed to take 

into account the macrofinancial environment 

in which banking organizations function and 

the degree to which that environment 

impacts the resilience of the group of 

advanced approaches institutions. Therefore, 

the appropriate setting of the CCyB for 

private sector credit exposures located in the 

United States (U.S.-based credit exposures) is 

not closely linked to the characteristics of an 

individual institution. However, the overall 

CCyB for each institution will differ because 

the CCyB is weighted based on a banking 

organization’s particular composition of 

private-sector credit exposures across 

national jurisdictions. 

2. Overview and Scope of the Policy 

Statement 

This Policy Statement describes the 

framework that the Board will follow in 

setting the amount of the CCyB for U.S.-based 

credit exposures. The framework consists of 

a set of principles for translating assessments 

of financial-system vulnerabilities that are 

regularly undertaken by the Board into the 

appropriate level of the CCyB. Those 

assessments are informed by a broad array of 

quantitative indicators of financial and 

economic performance and a set of empirical 

models. In addition, the framework includes 

an assessment of whether the CCyB is the 

most appropriate policy instrument (among 

available policy instruments) to address the 

highlighted financial-system vulnerabilities. 

3. The Objectives of the CCyB 

The objectives of the CCyB are to 

strengthen banking organizations’ resilience 

against the build-up of systemic 

vulnerabilities and reduce fluctuations in the 

supply of credit. The CCyB supplements the 

minimum capital requirements and the 

capital conservation buffer, which 

themselves are designed to provide 

substantial resilience to unexpected losses 

created by normal fluctuations in economic 

and financial conditions. The capital 

surcharge on global systemically important 

banking organizations adds an additional 

layer of defense for the largest and most 

systemically important institutions, whose 

financial distress can have outsized effects on 

the rest of the financial system and real 

economy.5 However, periods of financial 

excesses, as reflected in episodes of rapid 

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Federal Register / Vol. 81, No. 22 / Wednesday, February 3, 2016 / Proposed Rules 5665 

6For additional background on the relationship 

between financial distress and economic outcomes, 

see Carmen Reinhart and Kenneth Rogoff (2009), 

This Time is Different. Princeton University Press; 

O` scar Jorda` & Moritz Schularick & Alan M. Taylor 

(2011), ‘‘Financial Crises, Credit Booms, and 

External Imbalances: 140 Years of Lessons,’’ IMF 

Economic Review, Palgrave Macmillan, vol. 59(2), 

pages 340–378; and Bank for International 

Settlements (2010), ‘‘Assessing the Long-Run 

Economic Impact of Higher Capital and Liquidity 

Requirements.’’ 

7For estimates of the size of certain adjustments, 

see Samuel G. Hanson, Anil K. Kashyap, and 

Jeremy C. Stein (2011), ‘‘A Macroprudential 

Approach to Financial Regulation,’’ Journal of 

Economic Perspectives 25(1), pp. 3–28; Skander J. 

Van den Heuvel (2008), ‘‘The Welfare Cost of Bank 

Capital Requirements.’’ Journal of Monetary 

Economics 55, pp. 298–320. 

8Tobias Adrian, Daniel Covitz, and Nellie Liang 

(2014), ‘‘Financial Stability Monitoring.’’ Finance 

and Economics Discussion Series 2013–021. 

Washington: Board of Governors of the Federal 

Reserve System, http://www.federalreserve.gov/

pubs/feds/2013/201321/201321pap.pdf. 

9See 12 CFR 217.11(b)(2)(iv). 

10See, e.g., Jorda, Oscar, Moritz Schularick and 

Alan Taylor, 2012. ‘‘When Credit Bites Back: 

Leverage, Business Cycles and Crises,’’ Working 

Papers 1224, University of California, Davis, 

Department of Economics, and Drehmann, Mathias, 

Claudio Borio, and Kostas Tsatsaronis, 2012. 

‘‘Characterizing the financial cycle: don’t lose sight 

of the medium term!’’ BIS Working Papers 380, 

Bank for International Settlements. Jorda, Oscar, 

Moritz Schularick and Alan Taylor, 2015. 

‘‘Leveraged Bubbles,’’ Center for Economic Policy 

Research Discussion Paper No. DP10781. BCBS 

(2010), ‘‘Guidance for national authorities operating 

the countercyclical capital buffer,’’ BIS. 

11See, e.g., Aikman, David, Michael T. Kiley, 

Seung Jung Lee, Michael G. Palumbo, and Missaka 

N. Warusawitharana (2015), ‘‘Mapping Heat in the 

U.S. Financial System,’’ Finance and Economics 

Discussion Series 2015–059. Washington: Board of 

Governors of the Federal Reserve System, http://dx.

doi.org/10.17016/FEDS.2015.059 (providing an 

example of the range of indicators used and type 

of analysis possible). 

asset price appreciation or credit growth not 

well supported by underlying economic 

fundamentals, are often followed by abovenormal losses that leave banking 

organizations and other financial institutions 

undercapitalized. Therefore, the Board would 

most likely apply the CCyB in those 

circumstances when systemic vulnerabilities 

are somewhat above normal. 

The CCyB is expected to help provide 

additional resilience for advanced 

approaches institutions, and by extension the 

broader financial system, against elevated 

vulnerabilities primarily in two ways. First, 

advanced approaches institutions will likely 

hold more capital to avoid limitations on 

capital distributions and discretionary bonus 

payments resulting from implementation of 

the CCyB. Strengthening their capital 

positions when financial conditions are 

accommodative would increase the capacity 

of advanced approaches institutions to 

absorb outsized losses during a future 

significant economic downturn or period of 

financial instability, thus making them more 

resilient. The second and related goal of the 

CCyB is to promote a more sustainable 

supply of credit over the economic cycle. 

During a credit cycle downturn, bettercapitalized institutions have been shown to 

be more likely to have continued access to 

funding and less likely to take actions that 

lead to broader financial-sector distress and 

its associated macroeconomic costs, such as 

large-scale sales of assets at prices below 

their fundamental value and sharp 

contractions in credit supply.6 Therefore, it 

is likely that as a result of the CCyB having 

been put into place during a period of rapid 

credit creation, advanced approaches 

institutions would be better positioned to 

continue their important intermediary 

functions during a subsequent economic 

contraction. A timely and credible reduction 

in the CCyB requirement during a period of 

high credit losses could reinforce those 

beneficial effects of a higher base level of 

capital, because it would permit advanced 

approaches institutions either to realize loan 

losses promptly and remove them from their 

balance sheets or to expand their balance 

sheets, for example by continuing to lend to 

creditworthy borrowers. 

Likewise, during a period of cyclically 

increasing vulnerabilities, advanced 

approaches institutions might react to an 

increase in the CCyB by tightening lending 

standards, otherwise reducing their risk 

exposure, augmenting their capital, or some 

combination of those actions. They may 

choose to raise capital by taking actions that 

would increase net income, reducing capital 

distributions through share repurchases or 

dividends, or issuing new equity. In this 

regard, an increase in the CCyB would not 

prevent advanced approaches institutions 

from maintaining their important role as 

credit intermediaries, but would reduce the 

likelihood that banking organizations with 

insufficient capital would foster 

unsustainable credit growth or engage in 

imprudent risk taking. The specific 

combination of adjustments and the relative 

size of each adjustment will depend in part 

on the initial capital positions of advanced 

approaches institutions, the cost of debt and 

equity financing, and the earnings 

opportunities presented by the economic 

situation at the time.7

4. The Framework for Setting the U.S. CCyB 

The Board regularly monitors and assesses 

threats to financial stability by synthesizing 

information from a comprehensive set of 

financial-sector and macroeconomic 

indicators, supervisory information, surveys, 

and other interactions with market 

participants.8 In forming its view about the 

appropriate size of the U.S. CCyB, the Board 

will consider a number of financial-system 

vulnerabilities, including but not limited to, 

asset valuation pressures and risk appetite, 

leverage in the nonfinancial sector, leverage 

in the financial sector, and maturity and 

liquidity transformation in the financial 

sector. The decision will reflect the 

implications of the assessment of overall 

financial-system vulnerabilities as well as 

any concerns related to one or more classes 

of vulnerabilities. The specific combination 

of vulnerabilities is important because an 

adverse shock to one class of vulnerabilities 

could be more likely than another to 

exacerbate existing pressures in other parts of 

the economy or financial system. 

The Board intends to monitor a wide range 

of financial and macroeconomic quantitative 

indicators including, but not limited to, 

measures of relative credit and liquidity 

expansion or contraction, a variety of asset 

prices, funding spreads, credit condition 

surveys, indices based on credit default swap 

spreads, options implied volatility, and 

measures of systemic risk.9 In addition, 

empirical models that translate a manageable 

set of quantitative indicators of financial and 

economic performance into potential settings 

for the CCyB, when used as part of a 

comprehensive judgmental assessment of all 

available information, can be a useful input 

to the Board’s deliberations. Such models 

may include those that rely on small sets of 

indicators—such as the credit-to-GDP ratio, 

its growth rate, and combinations of the 

credit-to-GDP ratio with trends in the prices 

of residential and commercial real estate— 

which some academic research has shown to 

be useful in identifying periods of financial 

excess followed by a period of crisis on a 

cross-country basis.10 Such models may also 

include those that consider larger sets of 

indicators, which have the advantage of 

representing conditions in all key sectors of 

the economy, especially those specific to 

risk-taking, performance, and the financial 

condition of large banks.11

However, no single indictor or fixed set of 

indicators can adequately capture all the key 

vulnerabilities in the U.S. economy and 

financial system. Moreover, adjustments in 

the CCyB that were tightly linked to a 

specific model or set of models would be 

imprecise due to the relatively short period 

that some indicators are available, the limited 

number of past crises against which the 

models can be calibrated, and limited 

experience with the CCyB as a 

macroprudential tool. As a result, the types 

of indicators and models considered in 

assessments of the appropriate level of the 

CCyB are likely to change over time based on 

advances in research and the experience of 

the Board with this new macroprudential 

tool. 

The Board will determine the appropriate 

level of the CCyB for U.S.-based credit 

exposures based on its analysis of the above 

factors. Generally, a zero percent U.S. CCyB 

amount would reflect an assessment that U.S. 

economic and financial conditions are 

broadly consistent with a financial system in 

which levels of system-wide vulnerabilities 

are not somewhat above normal. The Board 

could increase the CCyB as vulnerabilities 

build, and a 2.5 percent CCyB amount for 

U.S.-based credit exposures would reflect an 

assessment that the U.S. financial sector is 

experiencing a period of significantly 

elevated or rapidly increasing system-wide 

vulnerabilities. Importantly, as a 

macroprudential policy tool, the CCyB will 

be activated and deactivated based on broad 

developments and trends in the U.S. 

financial system, rather than the activities of 

any individual banking organization. 

Similarly, the Board would remove or 

reduce the CCyB when the conditions that 

led to its activation abate or lessen, rather 

than leaving the nonzero level of the buffer 

in place over periods when financial and 

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5666 Federal Register / Vol. 81, No. 22 / Wednesday, February 3, 2016 / Proposed Rules 

12For the most recent discussion in this format, 

see box titled ‘‘Developments Related to Financial 

Stability’’ in Board of Governors of the Federal 

Reserve System, Monetary Policy Report to 

Congress, July 2015, pp. 24–25. 

13BIS, Countercyclical capital buffer (CCyB), 

www.bis.org/bcbs/ccyb/index.htm. 

economic developments suggest the absence 

of notable risks to financial stability. Indeed, 

for it to be most effective, the CCyB should 

be deactivated or reduced in a timely 

manner. This would reduce the likelihood 

that advanced approaches institutions would 

significantly pare their risk-weighted assets 

in order to maintain their capital ratios 

during a downturn. 

The pace and magnitude of changes in the 

CCyB will depend importantly on the 

underlying conditions in the financial sector 

and the economy as well as the desired 

effects of the proposed change in the CCyB. 

If vulnerabilities are rising gradually, then 

incremental increases in the level of the 

CCyB may be appropriate. Incremental 

increases would allow banks to augment 

their capital primarily through retained 

earnings and allow policymakers additional 

time to assess the effects of the policy change 

before making subsequent adjustments. 

However, if vulnerabilities in the financial 

system are building rapidly, then larger or 

more frequent adjustments may be necessary 

to increase loss-absorbing capacity sooner 

and potentially to mitigate the rise in 

vulnerabilities. 

The Board will also consider whether the 

CCyB is the most appropriate of its available 

policy instruments to address the financialsystem vulnerabilities highlighted by the 

framework’s judgmental assessments and 

empirical models. The CCyB primarily is 

intended to address cyclical vulnerabilities, 

rather than structural vulnerabilities that do 

not vary significantly over time. Structural 

vulnerabilities are better addressed though 

targeted reforms or permanent increases in 

financial system resilience. Two key factors 

for the Board to consider are whether 

advanced approaches institutions are 

exposed—either directly or indirectly—to the 

vulnerabilities identified in the 

comprehensive judgmental assessment or by 

the quantitative indicators that suggest 

activation of the CCyB and whether advanced 

approaches institutions are contributing— 

either directly or indirectly—to these 

highlighted vulnerabilities. 

The Board, in setting the CCyB for 

advanced approaches institutions that it 

supervises, plans to consult with the OCC 

and FDIC on their analyses of financialsystem vulnerabilities and on the extent to 

which banking organizations are either 

exposed to or contributing to these 

vulnerabilities. 

5. Communication of the U.S. CCyB With the 

Public 

The Board expects to consider at least once 

per year the applicable level of the U.S. 

CCyB. The Board will review financial 

conditions regularly throughout the year and 

may adjust the CCyB more frequently as a 

result of those monitoring activities. 

Further, the Board will continue to 

communicate with the public in other 

formats regarding its assessment of U.S. 

financial stability, including financial-system 

vulnerabilities. For example, the Board’s 

biannual Monetary Policy Report to 

Congress, usually published in February and 

July, will continue to contain a section that 

reports on developments pertaining to the 

stability of the U.S. financial system.12 That 

portion of the report will be an important 

vehicle for updating the public on how the 

Board’s current assessment of financialsystem vulnerabilities bears on the setting of 

the CCyB. 

6. Monitoring of the Effects of the U.S. CCyB 

The effects of the U.S. CCyB ultimately 

will depend on the level at which it is set, 

the size and nature of any adjustments in the 

level, and the timeliness with which it is 

increased or decreased. The extent to which 

the CCyB may affect vulnerabilities in the 

broader financial system depends upon a 

complex set of interactions between required 

capital levels at the largest banking 

organizations and the economy and financial 

markets. In addition to the direct effects, the 

secondary economic effects could be 

amplified if financial markets extract a signal 

from the announcement of a change in the 

CCyB about subsequent actions that might be 

taken by the Board. Moreover, financial 

market participants might react by updating 

their expectations about future asset prices in 

specific markets or broader economic activity 

based on the concerns expressed by the 

regulators in communications announcing a 

policy change. 

The Board will monitor and analyze 

adjustments by banking organizations and 

other financial institutions to the CCyB. 

Factors that will be considered include (but 

are not limited to) the types of adjustments 

that affected banking organizations might 

undertake. For example, it will be useful to 

monitor whether a change in the CCyB leads 

to observed changes in risk-based capital 

ratios at advanced approaches institutions, as 

well as whether those adjustments are 

achieved passively through retained 

earnings, or actively through changes in 

capital distributions or in risk-weighted 

assets. Other factors to be monitored include 

the extent to which loan growth and spreads 

on loans issued by affected banking 

organizations change relative to loan growth 

and loan spreads at banking organizations 

that are not subject to the buffer. Another key 

consideration in setting the CCyB and other 

macroprudential tools is the extent to which 

the adjustments by advanced approaches 

institutions to higher capital buffers lead to 

migration of credit market activity outside of 

those banking organizations, especially to the 

nonbank financial sector. Depending on the 

amount of migration and which institutions 

are affected, those adjustments could cause 

the Board to favor either a higher or a lower 

value of the CCyB. 

The Board will also monitor information 

regarding the levels of and changes in the 

CCyB in other countries. The Basel 

Committee on Banking Supervision is 

expected to maintain this information for 

member countries in a publically available 

form on its Web site.13 Using that data in 

conjunction with supervisory and publicly 

available datasets, Board staff will be able to 

draw not only upon the experience of the 

United States but also that of other countries 

to refine estimates of the effects of changes 

in the CCyB. 

By order of the Board of Governors of the 

Federal Reserve System, December 21, 2015. 

Robert deV. Frierson, 

Secretary of the Board. 

[FR Doc. 2016–01934 Filed 2–2–16; 8:45 am] 

BILLING CODE P 

SMALL BUSINESS ADMINISTRATION 

13 CFR Part 107 

RIN 3245–AG66 

Small Business Investment Company 

Program—Impact SBICs 

AGENCY: U.S. Small Business 

Administration. 

ACTION: Notice of proposed rulemaking. 

SUMMARY: In this proposed rule, the U.S. 

Small Business Administration (SBA) is 

defining a new class of small business 

investment companies (SBICs) that will 

seek to generate positive and 

measurable social impact in addition to 

financial return. With the creation of 

this class of ‘‘Impact SBICs,’’ SBA is 

seeking to expand the pool of 

investment capital available primarily to 

underserved communities and 

innovative sectors as well as support the 

development of America’s growing 

impact investing industry. This 

proposed rule sets forth regulations 

applicable to Impact SBICs with respect 

to licensing, leverage eligibility, fees, 

reporting and compliance requirements. 

DATES: Comments on the proposed rule 

must be received on or before March 4, 

2016. 

ADDRESSES: You may submit comments, 

identified by RIN 3245–AG66, by any of 

the following methods: 

Federal eRulemaking Portal: http://

www.regulations.gov. Follow the 

instructions for submitting comments. 

Mail, Hand Delivery/Courier: Mark 

Walsh, Associate Administrator for the 

Office of Investment and Innovation, 

U.S. Small Business Administration, 

409 Third Street SW., Washington, DC 

20416. 

SBA will post comments on http://

www.regulations.gov. If you wish to 

submit confidential business 

information (CBI) as defined in the User 

Notice at http://www.regulations.gov, 

please submit the information to Nate T. 

Yohannes, Office of Investment and 

Innovation, 409 Third Street SW., 

Washington, DC 20416. Highlight the 

information that you consider to be CBI 

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