64026 Federal Register / Vol. 79, No. 207 / Monday, October 27, 2014 / Rules and Regulations 

1 12 CFR 225.8. 

2See generally 12 CFR 225.8. 

3 Id. at § 225.8(d)(2)(i)(B). 

4See 12 USC 5365(i)(1) and 12 CFR part 252. 

5The changes in this final rule will apply to 

nonbank financial companies supervised by the 

Board once they become subject to stress test 

requirements and to U.S. intermediate holding 

companies of foreign banking organizations in 

accordance with the transition provisions of the 

FEDERAL RESERVE SYSTEM 

12 CFR Parts 225 and 252 

[Regulations Y and YY; Docket No. 1492] 

RIN 7100–AE 20 

Capital Plan and Stress Test Rules 

AGENCY: Board of Governors of the 

Federal Reserve System (Board). 

ACTION: Final rule. 

SUMMARY: The Board is amending the 

capital plan and stress test rules 

applicable to bank holding companies 

with $50 billion or more in total 

consolidated assets and the companyrun stress test rules applicable to bank 

holding companies with more than $10 

billion but less than $50 billion in total 

consolidated assets and savings and 

loan holding companies and state 

member banks with more than $10 

billion in total consolidated assets to 

modify, following a transition period, 

the start date of the capital plan and 

stress test cycles from October 1 of a 

calendar year to January 1 of the 

following calendar year. The final rule 

makes other changes to the rules, 

including limiting the ability of a bank 

holding company with $50 billion or 

more in total consolidated assets to 

make capital distributions under the 

capital plan rule if the bank holding 

company’s net capital issuances are less 

than the amount indicated in its capital 

plan. The final rule clarifies the 

application of the capital plan rule to a 

bank holding company that is a 

subsidiary of a U.S. intermediate 

holding company of a foreign banking 

organization and the characteristics of a 

stressed scenario to be included in 

company run stress tests. 

DATES: Effective November 26, 2014, 

except the amendment to § 225.8(g)(3) 

(establishing a limitation on net capital 

distributions), which will be effective 

on April 1, 2015. 

FOR FURTHER INFORMATION CONTACT: Lisa 

Ryu, Deputy Associate Director, (202) 

263–4833, Constance Horsley, Assistant 

Director, (202) 452–5239, Mona Touma 

Elliot, Senior Supervisory Financial 

Analyst, (202) 912–4688, Holly 

Kirkpatrick, Supervisory Financial 

Analyst, (202) 452–2796, Joseph Cox, 

Financial Analyst, (202) 452–3216, or 

Hillel Kipnis, Financial Analyst, (202) 

452–2924, Division of Banking 

Supervision and Regulation; Laurie 

Schaffer, Associate General Counsel, 

(202) 452–2272, Christine Graham, 

Counsel, (202) 452–3005, or Julie 

Anthony, Senior Attorney, (202) 475– 

6682, Legal Division, Board of 

Governors of the Federal Reserve 

System, 20th Street and Constitution 

Avenue NW., Washington, DC 20551. 

Users of Telecommunication Device for 

Deaf (TDD) only, call (202) 263–4869. 

SUPPLEMENTARY INFORMATION: 

Table of Contents 

I. Background 

A. Capital Plan and Stress Test Rules 

B. Intermediate Holding Company Rule 

II. Proposed Revisions to the Capital Plan and 

Stress Test Rules and Comments 

Received 

A. Timing of Actions in the Capital Plan 

and Stress Test Rules 

i. Timing of Capital Plan and Stress Test 

Cycles for Large Bank Holding 

Companies 

ii. Disclosure Dates for Company-Run 

Stress Tests by Large Bank Holding 

Companies 

iii. Transition Provisions for Capital Plan 

and Stress Test Rules for Large Bank 

Holding Companies 

iv. Timing of Stress Test Cycle and 

Disclosure Requirements for Bank 

Holding Companies With Total 

Consolidated Assets of More Than $10 

Billion But Less Than $50 Billion and 

Savings and Loan Holding Companies 

and State Member Banks With Total 

Consolidated Assets of More Than $10 

billion 

B. Definition of a ‘‘BHC Stress Scenario’’ 

C. Modifications to Capital Plan 

Resubmission Requirements Under the 

Capital Plan Rule 

D. Consequences for Failure To Execute 

Planned Actions 

E. Practice of Large Discrepancies in 

Planned Capital Distributions in the Out 

Quarters 

F. Application of CCAR Process to Bank 

Holding Company Subsidiaries of 

Foreign Banking Organizations 

i. Formation of a New U.S. Intermediate 

Holding Company 

ii. Designation of Existing Bank Holding 

Company 

iii. Guidance for 2017 Cycle 

G. Modification of the Capital Plan Rule 

Regarding Capital Actions Not Requiring 

Approval 

H. Clarification of Assumptions Regarding 

Capital Actions Under the Stress Test 

Rules 

I. Other Modifications to the Capital Plan 

Rule and Related Requirements 

i. Hearing Procedures 

ii. Submission of Loss, Revenue, and 

Expense Estimation Models to the Board 

in Connection With Capital Plan 

J. Comments on the Tier 1 Common Ratio 

and Capital Plan Capital Action 

Assumptions 

III. Administrative Law Matters 

A. Paperwork Reduction Act 

B. Regulatory Flexibility Act Analysis 

C. Solicitation of Comments on the Use of 

Plain Language 

I. Background 

On June 12, 2014, the Board invited 

comment on a proposed rule to modify 

and clarify aspects of the Board’s capital 

plan rule (section 225.8 of Regulation Y) 

and stress test rules (subparts B, E, and 

F of Regulation YY) and the Board’s 

enhanced prudential standards rule 

applicable to foreign banking 

organizations (subpart O of Regulation 

YY). 

A. Capital Plan and Stress Test Rules 

Pursuant to the Board’s capital plan 

rule and related supervisory process, the 

Comprehensive Capital Analysis and 

Review (CCAR), the Federal Reserve 

assesses the internal capital planning 

process of each bank holding company 

with total consolidated assets of $50 

billion or more (large bank holding 

company) and its ability to maintain 

sufficient capital to continue its 

operations under expected and stressful 

conditions.1 Under the capital plan rule, 

a large bank holding company is 

required to submit an annual capital 

plan to the Federal Reserve that 

includes a detailed description of the 

following: The company’s internal 

processes for assessing its capital 

adequacy; the policies governing capital 

actions such as common stock 

issuances, dividends and share 

repurchases; and all planned capital 

actions over a nine-quarter planning 

horizon (planning horizon). In addition, 

the bank holding company’s capital 

plan must contain estimates of its 

regulatory capital ratios and its tier 1 

common ratio under expected 

conditions and under a range of stressed 

scenarios over the planning horizon.2 A 

capital plan also must include a 

discussion of how a large bank holding 

company will maintain regulatory 

capital ratios above the regulatory 

minimums and above a tier 1 common 

ratio of 5 percent under expected 

conditions and stressed scenarios.3

The capital plan rule works in 

conjunction with the stress test rules 

adopted by the Board to implement the 

stress testing requirements of the DoddFrank Wall Street Reform and Consumer 

Protection Act (stress test rules).4 The 

stress test rules establish a framework 

for the Board to conduct supervisory 

stress tests of large bank holding 

companies and require these bank 

holding companies to conduct annual 

and mid-cycle company-run stress 

tests.5 In addition, the stress test rules 


tkelley on DSK3SPTVN1PROD with RULES2
Federal Register / Vol. 79, No. 207 / Monday, October 27, 2014 / Rules and Regulations 64027 

final rule incorporating enhanced prudential 

standards for U.S. bank holding companies and 

foreign banking organizations with total 

consolidated assets of $50 billion or more. (79 FR 

17240 (March 27, 2014)). For simplicity, this 

preamble discussion of amendments generally 

refers only to bank holding companies. 

6 77 FR 62378 (October 12, 2012) (codified at 12 

CFR part 252, subparts E and F). 

7Capital Planning at Large Bank Holding 

Companies: Supervisory Expectations and Range of 

Current Practice (August 19, 2013), p. 3, available 

at: http://www.federalreserve.gov/bankinforeg/

bcreg20130819a1.pdf. 

8 Id. 

9 79 FR 17240 (March 27, 2014). 

10The proposal would have revised the Board’s 

Policy Statement on the Scenario Design 

Framework for Stress Testing and provisions 

governing applicability of the stress test 

requirements to U.S. intermediate holding 

companies of foreign banking organizations to 

reflect the changes in the cycle shift. The final rule 

adopts these revisions without change. 

require state member banks and savings 

and loan holding companies with total 

consolidated assets of more than $10 

billion and bank holding companies 

with total consolidated assets of more 

than $10 billion but less than $50 

billion to conduct annual company-run 

stress tests.6

The capital plan and stress test rules 

establish baseline requirements for all 

banking organizations that are subject to 

the rules; the Board has tailored its 

expectations regarding application of 

these requirements for companies based 

on their sizes, scopes of operations, 

activities, and systemic importance.7

For example, the Board has significantly 

heightened supervisory expectations for 

the largest and most complex bank 

holding companies in all aspects of 

capital planning and expects these bank 

holding companies to have capital 

planning practices that are 

commensurate with their size and 

complexity.8

B. Intermediate Holding Company Rule 

In February 2014, the Board issued a 

final rule requiring foreign banking 

organizations with U.S. non-branch 

assets of $50 billion or more establish 

U.S. intermediate holding companies 

(‘‘IHC rule’’).9 The U.S. intermediate 

holding company is generally subject to 

the same prudential standards as a U.S. 

bank holding company, including 

capital planning and stress testing 

requirements. 

II. Proposed Revisions to the Capital 

Plan and Stress Test Rules and 

Comments Received 

The Board received 18 comments in 

response to the proposal. Commenters 

included individuals, bank holding 

companies with total consolidated 

assets of more than $10 billion but less 

than $50 billion, large bank holding 

companies, and trade organizations. 

Commenters expressed support for 

certain aspects of the proposal, 

particularly the proposed shift to the 

timing of the start of the capital 

planning and stress test cycles. 

Commenters also recommended 

revisions to provisions of the proposed 

rule, including the proposed limitation 

on net distributions, and provided 

comments on the preamble to the 

proposal, particularly regarding 

expectations for the bank holding 

company stress scenario. The following 

discussion provides a summary of 

comments received on the proposal and 

the Board’s responses to those 

comments. 

A. Timing of Actions in the Capital Plan 

and Stress Test Rules 

i. Timing of Capital Plan and Stress Test 

Cycles for Large Bank Holding 

Companies 

The current capital plan and stress 

test cycles for large bank holding 

companies begin on October 1, and large 

bank holding companies are required to 

submit their capital plans and annual 

company-run stress test results to the 

Board by January 5 of the following 

calendar year using data as of 

September 30 of the preceding calendar 

year. The proposed rule would have 

shifted the start of the capital planning 

and stress test cycles, as well as the 

related deadline for submission of 

results, by one calendar quarter. As a 

result of the proposed shift, the capital 

plan and stress test cycles would have 

started January 1, and large bank 

holding companies would have been 

required to submit their capital plans 

and stress test results to the Board by 

April 5. The proposed rule would have 

included a transition period to 

incorporate the proposed timing 

changes to the capital plan and stress 

test cycles. The capital plan cycle 

scheduled to begin on October 1, 2014, 

would have started on that date without 

change, and large bank holding 

companies would have been required to 

submit a capital plan to the Board by 

January 5, 2015. In order to provide a 

transition to the proposed timing, the 

Federal Reserve’s objection or nonobjection to a 2015 capital plan would 

have covered a five-quarter period 

commencing with the second quarter of 

2015 and extending through the second 

quarter of 2016.10

Table 1 sets forth the proposed 

revisions to the relevant dates for 

actions in the annual capital plan and 

stress test cycles for large bank holding 

companies and state member banks that 

are subsidiaries of large bank holding 

companies, along with the proposed 

transition timeline. 

TABLE 1—KEY DATES OF REVISED TIMELINE FOR ANNUAL CAPITAL PLAN AND STRESS TEST CYCLES FOR LARGE BANK

HOLDING COMPANIES (LARGE BHC) AND STATE MEMBER BANKS THAT ARE SUBSIDIARIES OF LARGE BANK HOLDING

COMPANIES

For cycle beginning 

October 1, 2014 

For cycle beginning 

January 1, 2016, and 

thereafter 

Supervisory stress test 

action 

Company-run stress test 

action 

Capital plan 

action 

September 30, 2014 ......... December 31 of the preceding calendar year.As-of date for capital plan and stress test cycles. 

By September 30, 2014 .... By December 31 of the 

preceding calendar year.

........................................... Board notifies a large BHC 

that it will require the 

company to use one or 

more additional scenarios.

By November 15, 2014 ..... By February 15 ................. Board publishes scenarios for upcoming annual cycle. 


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64028 Federal Register / Vol. 79, No. 207 / Monday, October 27, 2014 / Rules and Regulations 

11As discussed in section II.A.ii of this preamble, 

companies must disclose summary results within 

15 calendar days after the Board discloses the 

summary results of its supervisory stress test. 

TABLE 1—KEY DATES OF REVISED TIMELINE FOR ANNUAL CAPITAL PLAN AND STRESS TEST CYCLES FOR LARGE BANK

HOLDING COMPANIES (LARGE BHC) AND STATE MEMBER BANKS THAT ARE SUBSIDIARIES OF LARGE BANK HOLDING

COMPANIES—Continued 

For cycle beginning 

October 1, 2014 

For cycle beginning 

January 1, 2016, and 

thereafter 

Supervisory stress test 

action 

Company-run stress test 

action 

Capital plan 

action 

By December 1, 2014 ....... By March 1 ........................ ........................................... Board communicates description of any additional components or 

scenarios to a large 

BHC.

By January 5, 2015 ........... By April 5 .......................... ........................................... Large BHCs submit required regulatory report 

to the Board on their 

stress tests.

Large BHCs submit capital 

plan (including results of 

bank holding companyrun stress tests). 

By March 31, 2015 ........... By June 30 ........................ Board publishes summary 

results of the supervisory stress test.

Companies disclose summary results of the annual company-run stress 

test.11.

Board responds to a large 

BHC’s capital plan and 

publicly discloses the results. 

By March 31, 2015 ........... By June 30 ........................ ........................................... Board notifies a large BHC 

that it will require the 

company to use one or 

more additional scenarios in the mid-cycle 

stress test.

By June 1, 2015 ................ By September 1 ................ ........................................... Board communicates description of any additional components or 

scenarios to a large 

BHC in the mid-cycle 

stress test.

By July 5, 2015 ................. By October 5 ..................... ........................................... Large BHCs submit required regulatory report 

to the Board on their 

mid-cycle stress test.

July 5–July 20 (revised to 

July 5–August 4 in the 

final rule).

October 5–October 20 (revised to October 5–November 4 in the final 

rule).

........................................... Large BHCs disclose results of their mid-cycle 

stress test.

Commenters generally expressed 

support for the proposed transition 

timeline, and some commenters 

requested that the Board accelerate the 

implementation of the proposed 

timeframe to apply to the capital 

planning cycle beginning October 1, 

2014. The final rule adopts the proposed 

revisions to the start of the stress test 

and capital planning cycles and related 

dates, including the five-quarter 

objection or non-objection period for 

CCAR 2015 capital plans, but does not 

accelerate the implementation. The 

transition period is necessary to permit 

the Federal Reserve and banking 

organizations sufficient time to revise 

reporting schedules and change internal 

systems. As such, the new timeline will 

become effective for the capital 

planning cycle that begins on January 1, 

2016. 

Commenters also requested that the 

Board provide macroeconomic scenarios 

by January 1 and global market shock 

components by January 15 of a given 

calendar year under the revised timeline 

to provide companies with additional 

time to conduct their company-run 

stress tests. In developing the scenarios, 

the Board aims to provide companies 

with as much time as possible to 

conduct the company-run stress tests, 

while ensuring that the scenarios reflect 

timely data on economic and financial 

conditions. The Board notes that in the 

capital plan cycle that started October 1, 

2013, it released the macroeconomic 

scenarios in advance of the November 

15, 2013 deadline provided in the rules. 

Under the revised timeline, the Board 

expects to continue to work to provide 

the macroeconomic scenarios as soon as 

possible. Accordingly, the Board has 

adopted this aspect of the proposal 

without change. 

Commenters additionally requested 

that the length of the planning horizon 

be reduced from nine quarters to eight 

quarters. These commenters argued that 

the ninth quarter does not provide 

additional meaningful information 

given the incremental uncertainty as 

projections move further into the future, 

and that eight quarters would still 

represent two full years of capital 

planning. In addition, commenters 

noted that an eight-quarter horizon 

would allow the companies to better 

utilize the transition arrangements in 

the revised regulatory capital 

framework, which would make their 

capital planning less operationally 

complex. 

The proposal would have shifted the 

stress testing and capital planning 

timeline by one quarter, but would have 

maintained the nine-quarter planning 

horizon. The nine-quarter planning 

horizon results, in general, in actual 

capital planning for eight quarters, as 

the first quarter of planning horizon is 

contemporaneous with the quarter in 

which the company formulates its plan. 

As such, in order to maintain two full 

years of capital planning, the final rule 

maintains the nine-quarter planning 

horizon. 

A commenter expressed the view that 

the proposal was unclear with respect to 

when many of the planned rule changes 


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Federal Register / Vol. 79, No. 207 / Monday, October 27, 2014 / Rules and Regulations 64029 

12As discussed in the proposal, the Board does 

not expect to disclose the results of the supervisory 

stress test results before March 1 for the 2015 stress 

test cycle or before June 1 in subsequent stress test 

cycles. 

13Average total consolidated assets means the 

average of the total consolidated assets as reported 

by a bank holding company on its Consolidated 

Financial Statements for Bank Holding Companies 

(FR Y–9C) for the four most recent consecutive 

quarters. 

14Accordingly, a bank holding company that 

meets the $50 billion threshold as of December 31, 

2015 would be required to submit a capital plan on 

April 5, 2016. 

would be effective. The Board clarifies 

that the cycle shift will take effect 

beginning on January 1, 2016, the 

limitation on net distributions described 

in section II.D will take effect on April 

1, 2015, and all other changes will take 

effect beginning on November 26, 2014. 

Another commenter expressed the 

view that the Board consider the impact 

of the requirements on non-financial 

firms. The changes included in the final 

rule generally are intended to relieve 

burden or to formalize existing 

requirements and expectations, and 

therefore, should not have a significant 

impact on non-financial firms. 

ii. Disclosure Ddates for Company-Run 

Stress Tests by Large Bank Holding 

Companies 

The proposed rule would have 

revised the disclosure periods for a large 

bank holding company to publicly 

disclose the results of its annual and 

mid-cycle company-run stress test. For 

the annual company-run stress test, a 

bank holding company would be 

required to disclose the results within 

15 calendar days after the Board 

disclosed the results of that bank 

holding company’s supervisory stress 

test, unless that time was extended by 

the Board. For example, if the Board 

publicly disclosed supervisory stress 

test results on March 30, the bank 

holding company would have had until 

April 14 to publicly disclose its 

company-run stress test results.12 The 

Board did not receive comments on the 

proposed changes to the disclosure 

dates for company-run annual stress 

tests, and is adopting this aspect of the 

proposal without change. 

For the mid-cycle company-run stress 

tests, the proposed rule would have 

required a large bank holding company 

to publicly disclose the results of its 

mid-cycle stress test within 15 calendar 

days after it submitted the results of its 

mid-cycle stress test to the Board, unless 

that time period was extended by the 

Board. A commenter noted that a 15-day 

period to provide disclosures proposed 

by the Board would provide bank 

holding companies insufficient time to 

prepare thorough and meaningful 

disclosures and may adversely impact 

the amount of time bank holding 

companies allocate for scenario design 

and testing. The commenter proposed 

that the Board provide firms with 45 

days to prepare the disclosure. 

In response to the commenter’s 

request, the final rule requires a bank 

holding company to disclose results of 

its mid-cycle stress test within 30 

calendar days after the bank holding 

company submits the results of its midcycle stress test to the Board, unless that 

time period is extended by the Board. 

This extended time period will allow 

bank holding companies to focus on the 

multiple priorities of scenario design 

and testing, as well as publication of 

meaningful results. 

iii. Transition Provisions for Capital 

Plan and Stress Test Rules for Large 

Bank Holding Companies 

Transition Provisions in the Stress Test 

and Capital Plan Rules for Bank Holding 

Companies That Meet the $50 Billion 

Total Consolidated Asset Threshold 

The proposal would have revised the 

transition provisions for the capital plan 

and the stress test rules to align 

application of the rules to a bank 

holding company that initially exceeds 

the $50 billion threshold. For a bank 

holding company with total 

consolidated assets of $50 billion or 

more,13 the proposal would have 

provided that the bank holding 

company would become subject to the 

capital plan rule and the large bank 

holding company stress test rules 

beginning on the first day of the first 

capital plan and stress test cycle 

following the date on which the bank 

holding company meets that 

threshold.14 The Board did not receive 

any comments on this provision, and 

the final rule adopts the provision 

without change. 

Transition Provisions in the Stress Test 

Rules for Nonbank Financial Companies 

Designated for Board Supervision 

The proposed rule would have 

provided that the Board would apply 

stress test requirements to a nonbank 

financial company supervised by the 

Board by rule or order and would have 

established timing for application of the 

stress test rules. If the Board issued the 

rule or order on or before March of the 

previous year, the stress test 

requirements would have been effective 

on January 1 of a given year, unless the 

time was accelerated or extended by the 

Board in writing. Commenters requested 

that the Board ensure that insurance 

nonbank financial companies have 

sufficient time to transition into the 

stress tests and capital planning 

regimes, and consider the lower risk 

profile and higher risk diversification of 

insurance companies in tailoring the 

stress test regime to insurance 

companies. 

In response to comments, the final 

rule does not establish the timing for 

application of the stress test rules to 

nonbank financial companies. Instead, 

following designation of a nonbank 

financial company, the Board will 

consider the business model, capital 

structure, and risk profile of the 

designated company to determine how, 

and under what transition schedule, the 

stress test and capital planning 

standards should applied to that 

nonbank financial company. 

Transition Provisions in the Capital 

Plan and Stress Test Rules Resulting 

From the Cycle Shift 

The proposal would have revised the 

transition provisions in the capital plan 

and stress test rules for initial 

application of the stress test rules and 

incorporation of the risk-based capital 

advanced approaches to account for the 

change in the cycle start date. Under the 

proposal, a bank holding company that 

had total consolidated assets of $50 

billion or more on or before March 31 

of a given year would have been subject 

to the supervisory stress test rules 

beginning on January 1 of the following 

year. In addition, beginning January 1, 

2016, a large bank holding company that 

received notification that it must use the 

advanced approaches methodology in 

addition to the standardized approach 

to determine its risk-based capital 

requirements on or before December 31 

of a given year would have been 

required to use the advanced 

approaches to estimate its risk-based 

capital ratios in the stress test cycle 

beginning on January 1 of the following 

year. 

While the Board did not receive 

comments on the revisions to the 

transition periods to account for the 

change in the cycle start date, some 

commenters urged the Board to 

reconsider the use of the advanced 

approaches in its capital planning and 

stress testing frameworks because use of 

the advanced approaches would require 

significant resources and would 

introduce complexity and opaqueness 

into the stress test framework. Certain 

bank holding companies are required to 

use the advanced approaches to 

determine their minimum capital 

requirements, and the capital plan and 

stress test rules require a bank holding 

company to estimate its regulatory 

capital ratios calculated under the 


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64030 Federal Register / Vol. 79, No. 207 / Monday, October 27, 2014 / Rules and Regulations 

15Savings and loan holding companies are 

subject to the stress test requirements beginning 

with the stress test cycle that commences in the 

year after the year in which the company becomes 

subject to the Board’s minimum regulatory capital 

requirements, unless the Board accelerates or 

extends that date. Savings and loan holding 

companies (other than those substantially engaged 

in commercial activities or insurance underwriting 

activities) are subject to the Board’s capital 

requirements in the Board’s Regulation Q beginning 

on January 1, 2015. The Board has not applied 

capital requirements to savings and loan holding 

companies that are substantially engaged in 

commercial activities or insurance underwriting 

activities to date. The Board is currently working 

on developing an appropriate capital regime for 

those institutions. 

16As compared to the current rule, the proposed 

rule would have provided bank holding companies 

and savings and loan holding companies with total 

consolidated assets of more than $10 billion but less 

than $50 billion and state member banks that are 

not covered company subsidiaries with an 

additional 30 calendar days to report the results of 

their stress tests to the Board. This change is 

intended to further tailor the rule for these 

companies by providing an additional month to 

conduct stress tests. This aspect of the rule is being 

finalized as proposed. 

17The commenter also expressed concern that the 

timing of the disclosure (October 15 through 

October 31) would overlap with the disclosure of 

mid-cycle stress test results by large bank holding 

companies (proposed to be October 5 through 

October 20), and would invite comparison between 

the results of the two sets of stress tests. 

regulatory capital rules. The proposed 

transition provisions were intended to 

align the timing of, but not otherwise 

impact, these requirements. 

Accordingly, the final rule adopts the 

proposed transition provisions to the 

stress test and capital planning cycles 

for firms subject to the advanced 

approaches without change. 

iv. Timing of Stress Test Cycle and 

Disclosure Requirements for Bank 

Holding Companies With Total 

Consolidated Assets of More Than $10 

Billion But Less Than $50 Billion and 

Savings and Loan Holding Companies 

and State Member Banks With Total 

Consolidated Assets of More Than $10 

Billion 

The proposed rule would have shifted 

the start of the stress test cycle by one 

calendar quarter, and the related 

deadline for submission of results by 

four months, for bank holding 

companies with total consolidated 

assets of more than $10 billion but less 

than $50 billion and savings and loan 

holding companies and state member 

banks with total consolidated assets of 

more than $10 billion.15 For the stress 

testing cycle that would begin on 

January 1, 2016, these companies would 

have been required to submit the results 

of their company-run stress tests to the 

Board by July 31 and would have been 

required to publicly disclose those 

results in the period beginning on 

October 15 and ending on October 31.16

Table 2 below describes the proposed 

changes to the stress test cycle timeline 

for bank holding companies with greater 

than $10 billion but less than $50 

billion in total consolidated assets and 

savings and loan holding companies 

and state member banks with total 

consolidated assets of $10 billion or 

more, along with the proposed 

transition timeline. If such a company 

crossed the $10 billion asset threshold 

on or before March 31 of a given year, 

it would have been subject to the 

company-run stress test rules beginning 

on January 1 of the following year. 

TABLE 2—KEY DATES OF REVISED TIMELINE FOR ANNUAL STRESS TEST CYCLE FOR BANK HOLDING COMPANIES WITH

TOTAL CONSOLIDATED ASSETS BETWEEN $10–$50 BILLION AND SAVINGS AND LOAN HOLDING COMPANIES AND

STATE MEMBER BANKS WITH TOTAL CONSOLIDATED ASSETS OF $10 BILLION OR MORE THAT ARE NOT SUBSIDIARIES

OF LARGE BANK HOLDING COMPANIES

For cycle beginning October 1, 2014 For cycle beginning January 1, 2016, 

and thereafter Company-run stress test action 

September 30, 2014 ............................. December 31 of the preceding calendar year.As-of date for stress test cycle. 

By September 30, 2014 ........................ By December 31 of the preceding calendar year.Board notifies a company that it will require the company to 

use one or more additional scenarios. 

By November 15, 2014 ......................... By February 15 .................................... Board publishes scenarios for upcoming annual cycle. 

By December 1, 2014 ........................... By March 1 .......................................... Board communicates description of any additional components or scenarios to company. 

By March 31, 2015 ................................ By July 31 ............................................ Companies submit required regulatory report to the Board on 

their stress tests. 

June 15, 2015 through June 30 ............ October 15 through October 31 .......... Companies disclose summary results of the annual companyrun stress test. 

A commenter argued that the Board 

should provide a flexible submission 

date for bank holding companies with 

more than $10 billion but less than $50 

billion in total consolidated assets so 

that such companies can implement 

their stress tests during their unique 

capital planning periods, which occur at 

different times of the year. The 

commenter also expressed concerns 

with the disclosure requirements, 

suggesting that the Board make an 

aggregate disclosure on behalf of all 

bank holding companies with more than 

$10 billion but less than $50 billion in 

total consolidated assets to avoid 

misinterpretation of the results or 

comparisons of the results to the results 

of stress tests conducted by large bank 

holding companies.17 In the alternative, 

commenters requested additional 

clarification on the substance of the 

disclosure by bank holding companies 

with between $10 and $50 billion in 

assets and the basis of evaluation of 

their disclosure. 

Generally, the Board has sought to 

tailor its requirements and expectations 

for bank holding companies with more 

than $10 billion but less than $50 

billion in total consolidated assets. With 

regards to timing, the Board notes that 

the proposal already provides bank 

holding companies with more than $10 

billion but less than $50 billion in total 

consolidated assets an additional month 

to conduct their company-run stress 

tests as compared to the previous 

deadline, and an additional four months 

as compared to the requirements for 

large bank holding companies. 

Introducing a rolling year submission 

date, or further delaying the submission 

date, may cause the stress test to become 

stale by the time a company reports the 


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Federal Register / Vol. 79, No. 207 / Monday, October 27, 2014 / Rules and Regulations 64031 

18 12 U.S.C. 5365(i)(2)(C)(iv). 

19See, e.g., Supervisory Guidance on 

Implementing Dodd-Frank Act Company-Run Stress 

Tests for Banking Organizations With Total 

Consolidated Assets of More Than $10 Billion but 

Less Than $50 Billion, 79 FR 14153 (March 13, 

2014). 20 12 U.S.C. 4802. 

21For guidance on the usual severity of the 

severely adverse scenario, a bank holding company 

should review the Board’s ‘‘Policy Statement on the 

Scenario Design Framework for Stress Testing,’’ 

which sets forth the Board’s approach to designing 

the severely adverse scenario. 12 CFR 252, 

Appendix A. Additionally, bank holding companies 

could review the severely adverse scenarios used in 

previous cycles to guide the severity of the BHC 

stress scenario. 

results to the Board. Accordingly, the 

final rule would adopt the timing as 

proposed. 

With regards to disclosure, section 

165(i)(2) of the Dodd-Frank Act requires 

the Board to adopt rules that require 

companies subject to the stress test 

requirement to publish a summary of 

the results of the required stress tests.18

An aggregate disclosure by the Board 

would arguably not satisfy this statutory 

requirement, and would also lessen the 

extent to which the disclosure provides 

information to market participants and 

enhances market discipline. The Board’s 

stress test rules set forth the minimum 

information that must be included in a 

company’s disclosure of its stress test 

results, but do not prescribe the form 

that the disclosure must take. This 

flexibility permits companies to design 

their disclosures as appropriate for their 

institutions. In addition, the Board has 

tailored the disclosure requirements for 

companies with more than $10 billion 

but less than $50 billion in total 

consolidated assets compared to larger 

companies, specifically by requiring 

fewer items to be disclosed. While the 

Board may review a company’s 

disclosure of its stress test results to 

ensure that it contains the required 

information set forth in the rule, it does 

not intend to conduct a formal 

supervisory evaluation of disclosures by 

a company prior to that public 

disclosure. 

The Board carefully considers how its 

regulations affect bank holding 

companies with more than $10 billion 

but less than $50 billion in total 

consolidated assets, and has taken 

significant steps to tailor the regulatory 

stress testing requirements and its 

supervisory expectations applicable to 

these firms beyond the reporting and 

disclosure requirements noted above. 

For example, expectations for data 

sources, data segmentation, 

sophistication of estimation practices 

approaches, reporting and public 

disclosure are elevated for larger and 

more complex organizations than for 

bank holding companies with more than 

$10 billion but less than $50 billion in 

total consolidated assets.19 The Board 

continues to consider ways to reduce 

burden on these institutions. 

One commenter noted that the 

proposed rule lacks any analysis that 

fulfills the Board’s obligations under the 

Riegle Community Development and 

Regulatory Improvement Act (‘‘Riegle 

Act’’). The Riegle Act requires a federal 

banking agency to consider 

administrative burdens and benefits in 

determining the effective date and 

administrative compliance requirements 

for new regulations that impose 

additional reporting, disclosure, or other 

requirements on a depository 

institution.20 The proposed regulation 

does not impose additional reporting, 

disclosure, or other requirements on a 

depository institution. Rather, it 

generally reduces burden on state 

member banks by modifying the stress 

test cycle date and providing certain 

state member banks with an additional 

month to complete public disclosure of 

their stress test results. 

B. Definition of a ‘‘BHC Stress Scenario’’ 

The capital plan rule requires each 

large bank holding company to design 

its own stress scenario that is 

appropriate for the company’s business 

model and portfolios. The proposed rule 

would have defined the term ‘‘BHC 

stress scenario’’ as a scenario designed 

by the bank holding company that 

stresses the specific vulnerabilities of 

the bank holding company’s risk profile 

and operations. Commenters were 

generally supportive of the BHC stress 

scenario definition, and commenters 

representing insurance companies 

viewed the definition as consistent with 

the Board’s commitment to tailor stress 

testing and capital planning 

requirements to the specific risks faced 

by firms. The final rule would finalize 

the definition as proposed. 

The preamble to the proposal 

explained the Board’s expectations 

regarding the BHC stress scenario. As 

described in the preamble to the 

proposal, an appropriately tailored 

scenario would likely result in an 

impact to projected pre-tax net income 

that is at least as severe as the results 

of the bank holding company’s company 

run stress test under the Board’s 

severely adverse scenario. The preamble 

to the proposal further clarified that, 

while the Board expected a BHC stress 

scenario to be severe enough to result in 

a substantial negative impact on capital, 

a stress scenario that produced 

regulatory capital and tier 1 common 

capital ratios that were lower than those 

produced under the Board’s severely 

adverse scenario would not, by itself, 

have demonstrated that the bank 

holding company had developed an 

appropriate BHC stress scenario. In the 

Board’s view, it would be equally 

critical that the stress scenario be 

designed to capture potential risks 

stemming from a bank holding 

company’s idiosyncratic positions and 

activities. 

Many commenters expressed 

concerns with the statement that the 

BHC stress scenario generally would 

result in projected pre-tax net income 

that is ‘‘at least as severe as’’ the 

company run stress test of the Board’s 

severely adverse scenario. Many 

commenters interpreted this expectation 

to mean that a BHC stress scenario 

would be qualitatively deficient if the 

quantitative results of the BHC stress 

scenario did not reflect higher losses 

than the results of the company-run 

stress tests under the severely adverse 

scenario. Commenters argued that this 

expectation could compel a large bank 

holding company to tailor its BHC stress 

scenario as an add-on to the supervisory 

severely adverse scenario, rather than 

basing the BHC stress scenario on an 

evaluation of the bank holding 

company’s idiosyncratic risks. The 

commenters also cited timing issues, as 

bank holding companies would be 

required to wait for the release of the 

supervisory scenarios in order to 

calibrate the severity of their BHC stress 

scenario. 

Bank holding companies should not 

view the Board’s general expectation for 

the severity of the BHC stress scenario 

as a rigid benchmark against the 

particular supervisory severely adverse 

scenario from a single stress test cycle. 

Rather, the Board expects a bank 

holding company to develop scenarios 

of severity generally comparable to the 

usual severity in the Board’s severely 

adverse scenario.21 The Board also notes 

that if a particular cycle’s severely 

adverse scenario was notably more 

severe for a particular company than in 

previous exercises, for example, if a 

particular company was required to 

include an additional component in its 

severely adverse scenario for the first 

time, then the Board would take that 

into account when assessing the 

appropriateness of the company’s BHC 

stress scenario. 

Clarifying the Board’s general 

expectation for the severity of the BHC 

stress scenario should mitigate concerns 

expressed by commenters that a bank 

holding company would be driven to 

base its BHC stress scenario as an addon to the supervisory severely adverse 


tkelley on DSK3SPTVN1PROD with RULES2
64032 Federal Register / Vol. 79, No. 207 / Monday, October 27, 2014 / Rules and Regulations 

22The proposed rule would have identified 

common equity tier 1 capital as having the greatest 

ability to absorb losses, followed by additional tier 

1 capital, and tier 2 capital, each as defined in the 

Board’s Regulation Q (12 CFR 217.2). 

scenario or wait for the release of the 

supervisory scenarios in order to 

calibrate the severity of their BHC stress 

scenario. The Board emphasizes that the 

proposed rule requires bank holding 

companies to incorporate the specific 

vulnerabilities of their risk profiles and 

operations into their BHC stress 

scenarios. The Board expects each large 

bank holding company to develop a 

BHC stress scenario that is both 

appropriately severe and that is relevant 

to its idiosyncratic risks. 

Some commenters suggested that the 

Board recognize elements other than net 

income that may have a material impact 

on capital ratios when measuring the 

severity of a BHC stress scenario, such 

as the impact of other comprehensive 

income or the changes in the value of 

mortgage servicing rights. The Board 

agrees with the commenter that the 

severity of the BHC stress scenario 

should be evaluated based on factors in 

addition to net income, such as other 

comprehensive income. If a bank 

holding company can demonstrate that 

the combined effect of the BHC stress 

scenario on net income and other 

elements that affect capital results in a 

BHC stress scenario of greater severity 

than the severely adverse scenario, then 

the Board’s expectations for the severity 

of the BHC stress scenario would be 

satisfied. 

A central goal of the capital plan rule 

is to ensure that large bank holding 

companies have robust internal 

practices and policies to determine their 

adequate amount and composition of 

capital, given the bank holding 

company’s risk exposures and corporate 

strategies as well as supervisory 

expectations and regulatory standards. 

While the stress scenarios designed by 

the Federal Reserve for use in companyrun and supervisory stress testing are 

helpful in showing the comparative 

effects of a downturn in the economy 

across companies, these scenarios are 

created with the overall banking 

industry in mind, rather than a focus on 

an individual company’s risk profile. 

For these reasons, the BHC stress 

scenario is a key element of a firm’s 

capital plan that assists the Federal 

Reserve and the firm in gaining a deeper 

understanding of an individual 

company’s vulnerabilities. The Board 

will continue to evaluate each BHC 

stress scenario on a qualitative basis to 

ensure that the scenario is appropriately 

severe and captures the bank holding 

company’s idiosyncratic risks. 

C. Modifications to Capital Plan 

Resubmission Requirements Under the 

Capital Plan Rule 

The proposed rule would have 

provided flexibility by permitting, 

rather than requiring, a large bank 

holding company to resubmit its capital 

plan in the event that the Board objected 

to the capital plan. This proposed 

change targeted circumstances in which 

the automatic resubmission 

requirements may have been 

counterproductive by drawing a bank 

holding company’s focus away from 

efforts to remediate the issues that gave 

rise to the Board’s objection, and cases 

in which the remediation of such issues 

may have required more than the 

allotted 30 calendar days (the period 

within which companies previously had 

been required to resubmit their capital 

plans). 

Commenters were supportive of this 

change, as it would provide firms with 

flexibility in their decision to resubmit 

capital plans and give them time to 

remediate issues that led to the 

objection of the capital plan. The final 

rule adopts the changes to the capital 

plan resubmission requirements as 

proposed. 

D. Consequences for Failure To Execute 

Planned Capital Actions 

The proposed rule would have 

limited a large bank holding company’s 

ability to make capital distributions to 

the extent that the bank holding 

company did not execute planned 

capital issuances during the capital plan 

cycle. Under the proposed rule, if a 

large bank holding company were to 

raise less capital than the amount it 

projected in its capital plan for a given 

quarter, the bank holding company 

would have been required to address 

that shortfall by reducing capital 

distributions (e.g., reducing dividends 

or repurchases) on instruments with 

greater or equal ability to absorb losses 

(quarterly net distribution limit).22 The 

proposal would have provided an 

exception from the quarterly net 

distribution limit where a large bank 

holding company had contemplated a 

capital issuance to support a merger or 

acquisition, but did not consummate 

such merger or acquisition. 

Commenters requested that the Board 

not finalize the proposed quarterly net 

distribution limit, but instead use its 

authority to object to capital plans on 

qualitative grounds if a bank holding 

company does not adequately explain a 

failure to execute planned issuances. 

Commenters expressed the concern that 

the proposed limitation was too severe 

and would hinder a firm’s ability to 

conduct optimal capital management. 

Commenters expressed the view that 

tying capital distributions to planned 

capital actions on a quarter-by-quarter 

basis would be impractical, as 

companies are not able to predict 

market conditions with precision in 

developing their capital plans. 

Commenters noted that, to the extent 

that a bank holding company had 

planned to declare preferred stock 

dividends and issue additional 

preferred stock but market conditions 

turned poor, the proposal would force 

firms to either undertake issuances in 

the poor market conditions, or cancel 

planned dividends on preferred stock, 

which would lead investors to question 

the bank holding company’s credibility 

and financial condition. Commenters 

also contended that large bank holding 

companies would be less likely to 

include capital issuances in their capital 

plan in order to avoid adverse 

consequences under the proposed rule, 

rather than reflecting their actual capital 

issuance plans. 

In the alternative, commenters 

proposed modifications to increase the 

flexibility of the limit. For instance, one 

commenter proposed that a firm should 

be allowed to proceed with planned 

distributions in a given quarter as long 

as the firm maintained applicable 

minimum regulatory capital ratios 

under the supervisory severely adverse 

scenario. Another commenter proposed 

that capital actions should be assessed 

on an annual cumulative basis, so that 

issuances in excess of those included in 

the capital plan in a given quarter or 

distributions less than those proposed 

in the capital plan in a given quarter are 

carried over to the next quarter to allow 

for fluctuations in actual issuances or 

distributions. Also, some commenters 

recommended that the Board include a 

buffer for small deviations from the 

capital plan. For example, a commenter 

asserted that a $10 million shortfall in 

planned capital issuance for a firm with 

$1 billion in capital should qualify for 

an exception to the quarterly net 

distribution limit. 

Commenters also provided additional 

examples of circumstances in which 

they believed the quarterly net 

distribution limit would not be 

appropriate. For example, commenters 

argued that the quarterly net 

distribution limit should not be 

triggered by employee-directed issuance 

activity, which is at the discretion of the 

employee and may deviate from the 


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Federal Register / Vol. 79, No. 207 / Monday, October 27, 2014 / Rules and Regulations 64033 

23The final rule would continue to require a bank 

holding company to offset a failure to execute 

planned regulatory capital issuances in common 

equity tier 1 capital instruments issuances by 

reducing its common equity tier 1 regulatory capital 

distributions. 

24The classes of regulatory capital instruments 

are common equity tier 1, additional tier 1, and tier 

2 capital instruments, as defined in 12 CFR 217.2. 

The final rule does not contemplate that a bank 

holding company would raise capital with a greater 

ability to absorb losses to compensate for lower 

issuances of capital with less ability to absorb 

losses. However, as noted below, if a bank holding 

company believes that a distribution would be 

appropriate even if it would not be allowed under 

the cumulative net distribution limit, the bank 

holding company may seek a non-objection from 

the Board to make a planned capital distribution. 

25The final rule would also permit a bank 

holding company to calculate the gross maximum 

amount of its distributions on a cumulative basis so 

that a company may credit reduced distributions 

beginning in the third quarter of the planning 

horizon to increase the maximum permitted 

distributions in a later quarter up to the cumulative 

gross amount of its planned distributions 

(cumulative gross distribution limit). For the 

purposes of the cumulative gross distribution limit, 

a company may not carry reduced distributions 

forward beyond the end of the sixth quarter of the 

planning horizon to the next capital plan cycle. 

26 12 CFR 225.8(g)(4)(i)(D). 

bank holding company’s estimates due 

to employee turnover or changes in 

stock price. With regard to the exception 

for mergers and acquisitions, a 

commenter also argued that the Board 

should expand the exception for 

mergers and acquisitions where a bank 

holding company issued less stock due 

to changes in the merger price. 

The Federal Reserve evaluates the 

bank holding company’s post-stress 

capital position based on the 

assumption that the bank holding 

company actually executes the 

issuances contained in its plan. Relying 

on the Board’s authority to object to a 

capital plan on qualitative grounds, as 

suggested by commenters, would not 

permit the Board to address behavior 

that deviates from that which is 

contemplated in a bank holding 

company’s capital plan in a timely 

manner. It would also result in less 

transparency into the capital plan 

review process. In contrast, the 

proposed rule would have increased 

transparency in the operation of the 

capital plan rule by formalizing the 

Board’s current practice of approving 

repurchases net of capital issuances. For 

these reasons, the final rule adopts the 

requirement that a bank holding 

company reduce its distributions to the 

extent it does not execute planned 

capital issuances. 

The final rule reflects several 

significant changes from the proposal in 

order to address commenters’ concerns. 

As noted by commenters, a bank 

holding company may suffer significant 

market consequences if it does not make 

scheduled payments on non-common 

equity instruments that qualify as 

additional tier 1 and tier 2 capital 

instruments. Accordingly, the final rule 

would not require a large bank holding 

company to reduce its scheduled 

payments on non-common equity 

instruments that qualify as additional 

tier 1 and tier 2 capital instruments (e.g., 

dividends on preferred stock) if it did 

not issue the additional tier 1 and tier 

2 capital instruments included in its 

capital plan.23 In addition, the final rule 

does not require a bank holding 

company to reduce distributions on 

instruments with greater ability to 

absorb losses in the event that a bank 

holding company does not execute a 

planned issuance of a capital instrument 

with less ability to absorb losses (i.e., 

non-common equity instruments that 

qualify as additional tier 1 or tier 2 

capital instruments), if it had no 

planned redemptions or repurchases of 

additional tier 1 or tier 2 capital 

instruments, respectively, in that 

quarter. 

As suggested by commenters, the final 

rule measures issuances and 

distributions beginning with the third 

quarter of the planning horizon 

(cumulative net distribution limit), 

which provides bank holding 

companies with flexibility to credit 

excess issuances or lower distributions 

of capital, in each case relative to the 

amounts included in the company’s 

capital plan for a given class of 

regulatory capital instrument.24 Under 

the cumulative net distribution limit, a 

bank holding company that has reduced 

the dollar amount of its capital 

distributions on a given class of 

regulatory capital instrument, increased 

the dollar amount of its issuances of that 

class of regulatory capital instrument, or 

taken any combination of the foregoing 

actions beginning in the third quarter of 

the planning horizon would be 

permitted to recognize this net increase 

in that class of regulatory capital 

relative to planned amounts in a quarter 

in which the company does not make its 

issuances as planned.25

In addition, the final rule includes 

exceptions to address specific 

circumstances raised by commenters. In 

particular, the final rule provides that 

the cumulative net distribution limit 

does not apply to the extent that the 

bank holding company raised a smaller 

dollar amount of capital due to 

employee-driven issuance activities or 

issuances related to mergers and 

acquisitions for which the purchase 

price is lower than the price projected 

in a bank holding company’s capital 

plan. The final rule also provides that 

the cumulative net distribution limit 

does not apply to a capital distribution 

to the extent that the excess net 

distributions is de minimis (the excess 

net distributions are less than one 

percent of the bank holding company’s 

tier 1 capital, as reported on the bank 

holding company’s first quarter FR Y– 

9C), and the bank holding company 

notifies the appropriate Reserve Bank at 

least 15 calendar days in advance of any 

such capital distribution. 

The final rule also provides bank 

holding companies with a means for 

seeking a non-objection from the Board 

for planned distributions when market 

conditions or other circumstances have 

prevented the company from making 

planned issuances. This provision 

would provide some flexibility for cases 

in which, for example, a bank holding 

company issued capital with greater 

ability to absorb losses than it had 

included in its capital plan, and desired 

to execute its planned capital 

distributions as included in its capital 

plan. Consistent with other requests for 

approval or non-objection to execute 

distributions under the capital plan 

rule, the request for non-objection to 

make a planned capital distribution 

must contain the information set forth 

in section 225.8(g)(4) of the final rule. 

The Board expects a bank holding 

company to reflect its change in 

planned capital issuances and any other 

relevant changes in the capital plan is 

submits under section 225.8(g)(4), and 

may require a bank holding company to 

submit supporting information, 

including the bank holding company’s 

forward-looking assessment of the bank 

holding company’s capital adequacy 

under revised scenarios, any supporting 

information, and a description of any 

quantitative methods used that are 

different than those used in their 

original capital plan.26

Below are two examples that illustrate 

the operation of the cumulative net 

distribution limit in the final rule. 

Example 1: Table 3 sets forth a large bank 

holding company’s planned regulatory 

capital issuances and distributions included 

in its capital plan for the third through sixth 

quarters of the planning horizon. Table 4 sets 

forth the large bank holding company’s 

actual regulatory capital issuances and 

distributions for the third through sixth 

quarters of the planning horizon. 


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64034 Federal Register / Vol. 79, No. 207 / Monday, October 27, 2014 / Rules and Regulations 

27The final rule would not permit the bank 

holding company to substitute a preferred stock 

issuance for a common stock issuance. In the fifth 

quarter, the company could have sought a nonobjection from the Board to make its planned distributions. 

TABLE 3—PLANNED ISSUANCES AND DISTRIBUTIONS

Planning horizon quarter 

Q3 Q4 Q5 Q6 

Issuance .................. $125 m (common stock) ...... $125 m (common stock) ...... $125 m (common stock) ...... $125 m (common stock). 

Distribution .............. $100 m (common stock repurchase).$100 m (common stock dividend).$100 m (common stock repurchase).$100 m (common stock dividend). 

TABLE 4—ACTUAL ISSUANCES AND DISTRIBUTIONS

Planning horizon quarter 

Q3 Q4 Q5 Q6 

Issuance .................. $250 m (common stock) ...... $0 ......................................... $125 m (preferred stock) ..... $250 m (common stock). 

Distribution .............. $100 m (common stock repurchase).$100 m (common stock dividend).$0 ......................................... $100 m (common stock dividend) $100 m (common 

stock repurchase). 

Market conditions for issuances were 

more favorable than anticipated in the 

third quarter, so the firm issued $250 

million of common stock, the entire 

amount of common stock issuances 

planned in quarters three and four. In 

the fourth quarter, market conditions 

were unfavorable, and the company 

executed none of its planned common 

stock issuance. In the fifth quarter, 

instead of issuing common stock as 

planned, the company issued $125 

million of preferred stock (qualifying as 

additional tier 1 capital). Early in the 

sixth quarter, the company issued $250 

million of common stock, $125 million 

in excess of the amount it had planned 

for the quarter. 

Under the final rule, the bank holding 

company would be permitted to make 

its planned $100 million common stock 

distributions in the third quarter 

because it issued an amount of common 

stock at least as large as planned for that 

quarter. In the fourth quarter, in which 

the company did not issue any common 

stock included in its plan, the 

cumulative net distribution limit under 

the rule permits the company to credit 

its over-issuance from the previous 

quarter. As a result, the company could 

make the distributions it planned in the 

fourth quarter ($100 million common 

stock dividend). Because the bank 

holding company did not issue common 

stock but instead issued $100 million in 

preferred stock in the fifth quarter, the 

cumulative net distribution limit would 

prohibit the company from making its 

planned common stock dividend in that 

quarter.27 After the common stock 

issuance in the sixth quarter, the net 

distribution limitation under the final 

rule permits the company to make the 

distributions it planned but did not 

execute in the fifth quarter, as well as 

those planned in the sixth quarter ($100 

million common stock repurchase and 

$100 million common stock dividend). 

Example 2: Table 5 sets forth a large bank 

holding company’s regulatory capital 

issuances and distributions included in its 

capital plan for the third through sixth 

quarters of the planning horizon. Table 6 sets 

forth the large bank holding company’s 

actual regulatory capital issuances and 

distributions for the third through sixth 

quarters of the planning horizon. 

TABLE 5—PLANNED ISSUANCES AND DISTRIBUTIONS

Planning horizon quarter 

Q3 Q4 Q5 Q6 

Issuance .................. $125 m (preferred stock) ..... $125 m (preferred stock) ..... $125 m (preferred stock) ..... $125 m (preferred stock). 

Distribution .............. $100 m (preferred stock dividend).$100 m (preferred stock repurchase).$100 m (preferred stock repurchase).$100 m (preferred stock dividend). 

TABLE 6—ACTUAL ISSUANCES AND DISTRIBUTIONS

Planning horizon quarter 

Q3 Q4 Q5 Q6 

Issuance ...................... $75 m (preferred stock) ...... $125 m (preferred stock) .... $175 m (preferred stock) .... $0. 

Distribution ................... $100 m (preferred stock 

dividend).

$50 m (preferred stock repurchase).$150 m (preferred stock repurchase).$100 m (preferred stock 

dividend). 

In the third quarter of the planning 

horizon, the company issued $75 

million of the $125 million preferred 

stock included in its plan for that 

quarter. In the fourth quarter, the 

company issued the full $125 million of 

preferred stock included in its capital 

plan for that quarter. Early in the fifth 

quarter, market conditions were 


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Federal Register / Vol. 79, No. 207 / Monday, October 27, 2014 / Rules and Regulations 64035 

28 If the company wished to make the full $100 

in preferred repurchases in the fourth quarter, the 

company could seek a non-objection from the 

Board. 29 12 CFR 225.8(e)(2)(ii)(B). 

particularly favorable, and the company 

issued $175 million of preferred stock 

instead of the $125 million included in 

its capital plan for that quarter. In the 

sixth quarter, the company issued none 

of the $125 million of preferred stock it 

had planned for that quarter. 

Although the company issued less 

preferred stock than it included in its 

plan for the third quarter, the rule 

permits the company to make the full 

$100 million of its planned preferred 

stock dividend for that quarter because 

the rule permits the company to make 

scheduled payments on an additional 

tier 1 capital instrument. In the fourth 

quarter, the cumulative net distribution 

limit requires the bank holding 

company to reduce its preferred stock 

repurchases to $50 million of the 

planned $100 million for that quarter. 

This is because the rule requires the 

company to reduce its planned 

repurchases of preferred stock to the 

extent that it failed to make planned 

issuances in that class of regulatory 

capital instrument. (The $50 million 

reduction in preferred stock repurchases 

reflects the $50 million shortfall in 

issuances of preferred stock in the third 

quarter.)28 After the preferred stock 

issuance in the fifth quarter, the 

cumulative net distribution limit in the 

final rule permits the company to make 

the full $100 million of its planned 

preferred stock repurchases and an 

additional $50 million of the planned 

preferred stock repurchases that the 

bank holding company was required to 

reduce in the fourth quarter, for a total 

of $150 million in preferred stock 

repurchases. This is because the 

company can credit the excess preferred 

stock issuance it made in the fifth 

quarter to make the remaining preferred 

stock repurchase originally planned for 

the fourth quarter. In the sixth quarter, 

as in the third quarter, the rule permits 

the company to make the full $100 

million of preferred stock dividends as 

it is a scheduled payment on an 

additional tier 1 capital instrument, 

even though the company did not issue 

the preferred stock included in its plan. 

Under the final rule, as under the 

proposed rule, the Board may object to 

a large bank holding company’s capital 

plan in the following cycle, or require 

resubmission of its capital plan in the 

current cycle, if the assumptions and 

analysis underlying the bank holding 

company’s capital plan, or the bank 

holding company’s methodologies for 

reviewing the robustness of its capital 

adequacy process, are not reasonable or 

appropriate. The Board generally 

expects that a bank holding company 

will undertake the capital actions 

included in its capital plan and be able 

to justify discrepancies between its 

planned and executed capital issuances. 

A bank holding company’s consistent 

failure to do so may be indicative of 

shortcomings in its capital planning 

processes and may indicate that the 

assumptions and analysis underlying 

the bank holding company’s capital 

plan, or the bank holding company’s 

methodologies for reviewing the 

robustness of its capital adequacy 

process, are not reasonable or 

appropriate. Accordingly, a bank 

holding company’s consistent failure to 

execute capital issuances in its capital 

plan may form the basis for objection if 

it is unable to explain the discrepancies 

between its planned and executed 

capital issuances. 

E. Practice of Large Discrepancies in 

Planned Capital Distributions in the Out 

Quarters 

The preamble to the proposal 

described a practice whereby some large 

bank holding companies have included 

markedly reduced distributions in the 

final three quarters of the planning 

horizon (i.e., the quarters that are not 

subject to objection in the current 

capital plan cycle, sometimes referred to 

as ‘‘out-quarters’’) relative to the 

distributions in the preceding four 

quarters of the capital plan (i.e., the 

distributions that are subject to possible 

objection in the current cycle). In the 

next capital plan cycle, when the 

previous capital plan cycle’s ‘‘out 

quarters’’ become subject to possible 

objection, the bank holding companies 

submit a capital plan with significantly 

increased distributions relative to the 

previous capital plan cycle’s ‘‘outquarters,’’ while again submitting 

reduced distributions for the ‘‘outquarters’’ of the new capital plan cycle. 

The proposal explained that, in the 

Board’s view, the practice of widely 

varying planned capital distributions 

based on whether they occur in an ‘‘outquarter’’ as compared to a quarter that 

is subject to a possible objection may be 

indicative of shortcomings in a bank 

holding company’s capital planning 

processes and may indicate that ‘‘the 

assumptions and analysis underlying 

the bank holding company’s capital 

plan, or the bank holding company’s 

methodologies for reviewing the 

robustness of its capital adequacy 

process, are not reasonable or 

appropriate.’’ 29 This may form the basis 

for objection to a bank holding 

company’s capital plan. The proposal 

further clarified that, in reviewing this 

type of practice, the Federal Reserve 

would consider whether the bank 

holding company can adequately 

explain why the bank holding company 

revised its planned distributions for the 

same period of time from one capital 

plan cycle to the next capital plan cycle. 

Commenters noted that there are 

legitimate reasons bank holding 

companies would raise their capital 

distributions from year to year to reflect 

new expectations and business 

conditions. Commenters also argued 

that if a bank holding company 

projected a decline in net income, it 

should be allowed to plan for lower 

capital distributions. Some commenters 

noted that bank holding companies do 

not have sufficient predictive insight 

into out quarters to support realistic 

assumptions around capital 

distributions. 

The Board uses CCAR as an 

assessment of a bank holding company’s 

capital planning processes, and it 

generally expects that a firm will project 

its distributions in the final three 

quarters of their capital plans based on 

realistic assumptions about the future 

and in a manner broadly consistent with 

previous quarters, unless the bank 

holding company is in fact planning to 

reduce its distributions. The Board 

understands that circumstances may 

arise, such as changes in market 

conditions, the profitability of the 

company, or the risk profile of the 

company, that may cause a bank 

holding company to revise its outquarter capital distributions in a capital 

plan cycle as compared to the treatment 

of the same quarters in the next capital 

plan cycle. However, the Board will 

continue to closely monitor this 

behavior, and if bank holding 

companies are unable to provide 

sufficient explanation for changes in 

planned capital actions, the Board may 

see that as an indication of poor capital 

planning. 

F. Application of CCAR Process to Bank 

Holding Company Subsidiaries of 

Foreign Banking Organizations 

Under the Board’s IHC rule, a foreign 

banking organization with U.S. nonbranch assets of $50 billion or more is 

required to establish a U.S. intermediate 

holding company by July 1, 2016. The 

foreign banking organization may do so 

either by designating an existing bank 

holding company, designating an 

existing nonbank company, or forming a 

new holding company. The U.S. 

intermediate holding company is 

subject to enhanced prudential 


tkelley on DSK3SPTVN1PROD with RULES2
64036 Federal Register / Vol. 79, No. 207 / Monday, October 27, 2014 / Rules and Regulations 

30See 12 CFR 252.152(c)(1); 12 CFR 

252.153(e)(1)(ii). 

31 79 FR 17240, 17244 (March 27, 2014). 

32As discussed below, for the 2015 capital 

planning cycle, the Board will not require a bank 

holding company subsidiary of a foreign banking 

organization to reflect the reorganization required 

by the IHC rule in its capital plan and stress test 

results. 

33With the mutual consent of the company and 

the Board, another U.S. bank holding company 

owned by the foreign banking organization could 

comply with the requirements of the capital plan 

rule in lieu of the subsidiary bank holding 

company. 12 CFR 225.8(c)(2)(iii)(A). 34 12 CFR 225.8. 

standards following the transition 

periods set forth in the IHC rule. 

i. Formation of a New U.S. Intermediate 

Holding Company 

Under the transition provisions in the 

IHC rule, a company that is formed or 

designated as an intermediate holding 

company that was not previously 

subject to prudential standards would 

not be subject to prudential standards 

until the effective date of the IHC rule’s 

requirements.30 An intermediate 

holding company that is formed in 

anticipation of the IHC rule would not 

be subject to risk-based capital, 

liquidity, and risk management 

standards until July 1, 2016, the capital 

plan rule until the 2017 cycle, and the 

stress testing rule and the CCAR process 

until the 2018 cycle. This transition 

period was designed to provide foreign 

banking organizations with a reasonable 

transition period during which to 

prepare for the compliance with the IHC 

rule, including the required structural 

reorganization.31 This transition period 

applies notwithstanding that, upon its 

formation, the intermediate holding 

company may become a bank holding 

company. 

However, the IHC rule does not 

relieve existing subsidiary bank holding 

companies of foreign banking 

organizations that were not formed to 

comply with the IHC rule and that were 

previously subject to prudential 

standards from compliance with the 

regulatory requirements that apply to 

U.S. bank holding companies. The 

Board notes that these bank holding 

companies may be designated by a 

foreign banking organization as an 

intermediate holding company or 

moved under a foreign banking 

organization’s intermediate holding 

company in order to comply with the 

intermediate holding company 

requirement. In either case, these 

existing bank holding companies are 

required to continue complying with all 

applicable prudential requirements that 

applied to them prior to their 

designation as an intermediate holding 

company or the transfer of their 

ownership to an intermediate holding 

company, including with respect to any 

assets transferred to the existing bank 

holding company before the IHC 

requirements become effective.32 To 

ensure that bank holding company 

subsidiaries of foreign banking 

organizations remain subject to stress 

testing requirements during this 

transition period, the Board proposed 

that any bank holding company 

subsidiary of a foreign banking 

organization must comply with any 

applicable stress test requirements 

through the 2017 stress test cycle. 

Similarly, the Board proposed that any 

bank holding company subsidiary of a 

foreign banking organization must 

comply with the capital plan rule 

through the 2017 capital planning 

cycle.33

One commenter argued that, by 

continuing to apply the various 

enhanced prudential standards to bank 

holding company subsidiaries of foreign 

banking organizations while providing 

some transition relief for newly formed 

U.S. intermediate holding companies, 

the proposal provides an incentive for a 

foreign banking organization to establish 

a new company to serve as the U.S. 

intermediate holding company rather 

than to designate an existing subsidiary 

bank holding company. To remove this 

incentive and provide foreign banking 

organizations with more options for 

organizing their U.S. operations, 

commenters requested that the Board 

provide the transition period to an 

existing bank holding company 

subsidiary of a foreign banking 

organization. Commenters also 

suggested that the Board temporarily 

exclude from the stress test and capital 

planning frameworks subsidiaries that 

have been transferred into a bank 

holding company subsidiary of a foreign 

banking organization in order to provide 

additional time for foreign banking 

organizations to comply with the stress 

test and capital plan rules. 

In developing the transition 

provisions in the IHC rule, the Board 

intended to prevent foreign-owned bank 

holding companies from weakening 

their capital or risk management during 

the transition period under the IHC rule 

and to ensure that existing U.S. 

subsidiary bank holding companies of 

foreign banking organizations would 

continue to be held to consistent 

prudential standards that maintain a 

level playing field between U.S. and 

foreign-owned bank holding companies. 

The approaches suggested by 

commenters would be inconsistent with 

these principles. The commenter’s 

suggestion of excluding assets that have 

been transferred to the bank holding 

company in compliance with the IHC 

rule from capital planning and stress 

testing would not address the fact that 

the bank holding company is exposed to 

the risks of the assets it holds and, 

therefore, should be holding capital 

commensurate with those risks. 

Generally, the Board expects that 

foreign banking organizations will 

determine whether to designate an 

existing bank holding company and 

when to transfer assets to an existing 

bank holding company depending on a 

variety of facts and circumstances, 

including the effect of the transition 

periods in the IHC rule. For these 

reasons, the Board reaffirms that 

existing U.S. subsidiary bank holding 

companies of foreign banking 

organizations remain subject to 

prudential standards during the 

transition provisions in the IHC rule. 

ii. Designation of Existing Bank Holding 

Company 

Commenters noted that certain foreign 

banking organizations intend to 

designate existing bank holding 

company subsidiaries as their U.S. 

intermediate holding companies, and 

requested that the Board clarify that 

such a bank holding company 

subsidiary would not be required to 

project the formation of a U.S. 

intermediate holding company in its 

capital plan for 2015 and 2016. 

Commenters expressed the view that 

this approach would introduce 

uncertainty into the organization’s 2015 

capital plan and would effectively 

prohibit the organization from giving 

effect to any additional capital that 

would be contributed or otherwise 

raised in connection with the 

designation as a U.S. intermediate 

holding company unless the capital was 

contributed prior to December 31, 2014. 

To address these concerns, a commenter 

suggested that, for purposes of their 

capital plans and stress test results 

submitted January 5, 2015, and April 5, 

2016, the Board permit a bank holding 

company owned by a foreign banking 

organization to exclude any effect on the 

capital plans that could arise from the 

formation of the U.S. intermediate 

holding company. 

The capital plan rule requires a bank 

holding company to include in its 

capital plan an assessment of its 

expected uses and sources of capital, 

including estimates of projected 

revenues, losses, reserves, and pro 

forma capital levels over the planning 

horizon.34 To the extent that a foreign 

banking organization controls nonbank 


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35The Board has moved the date for the capital 

plan submission for 2016 to April 2016. 12 CFR 

225.8(e)(1)(ii). 

36 If the bank holding company did not execute 

its planned issuances, the final rule generally 

would require the bank holding company to reduce 

its planned capital distributions, as described in 

section II.D of this preamble. 

37These firms were not immediately required to 

participate in the full CCAR process, and were 

given a two-year transition period under the Board’s 

CapPR process. 38See 12 CFR part 252, subpart E. 

39Commenters also requested that bank holding 

companies subject to the Board’s SR Letter 01–01 

be granted an extension before becoming subject to 

the ‘‘Capital Assessments and Stress Testing’’ (FR 

Y–14) regulatory report, arguing that the bank 

holding companies were not given sufficient prior 

notice of their inclusion in the proposal. Those 

comments are addressed in the final reporting 

collection. 79 FR 59264 (October 1, 2014). 

40See section 225.8(f) of the capital plan rule (12 

CFR 225.8(f)). 

subsidiaries outside of a bank holding 

company, those nonbank subsidiaries 

would not likely have the systems and 

models in place to make the necessary 

projections to comply with the capital 

plan rule. As such, subsidiary bank 

holding companies may not have 

sufficient time to adjust their 

management information and 

accounting systems to take into account 

exposures of those nonbank subsidiaries 

for the 2015 capital planning cycle. 

Thus, for the 2015 capital planning 

cycle, the Board will not require a bank 

holding company subsidiary of a foreign 

banking organization to reflect the 

reorganization required by the IHC rule 

in its capital plan and stress test results. 

For the 2016 capital planning cycle, the 

Board expects a bank holding company 

subsidiary of a foreign banking 

organization to reflect the effects of any 

transfers associated with the IHC rule in 

the bank holding company’s capital 

plan due April 5, 2016.35 By April 2016 

foreign banking organizations should 

have completed any necessary 

adjustments to their management 

information and accounting systems in 

order to comply with the IHC rule on 

July 1, 2016, which would be less than 

three months after the capital plan 

submission. In the April 5, 2016 capital 

plan submission, a bank holding 

company should reflect any capital 

issuances or contributions planned 

during the planning horizon that are 

related to the capitalization of the 

intermediate holding company.36

If a bank holding company that will 

be designated as the U.S. intermediate 

holding company elects to avail itself of 

this relief for the 2015 capital planning 

cycle, the Board expects that, generally, 

the U.S. bank holding company will 

have a capital plan that includes 

planned capital distributions (net of 

capital issuance) that are no greater than 

those included in the bank holding 

company’s capital plan for the previous 

cycle (or, if the bank holding company 

has not previously submitted a capital 

plan, the amount of capital distributions 

(net of capital issuance) actually made 

in the previous year). In the Board’s 

view, this limitation is appropriate 

because the Board would expect such a 

bank holding company to retain capital 

as compared to its previous capital plan 

in preparation for compliance with the 

U.S. intermediate holding company 

requirement. For a bank holding 

company that avails itself of this relief, 

neither the assets of subsidiaries that 

will be transferred under the bank 

holding company as part of IHC 

formation, nor the projections of 

earnings from those subsidiaries, would 

be included in the bank holding 

company’s capital plan. 

iii. Guidance for 2017 Cycle 

Commenters requested further 

information for U.S. intermediate 

holding companies that will be subject 

for the first time to the stress test and 

capital plan processes in the 2017 

capital planning cycle. Commenters 

suggested that requirements and details 

be provided as soon as possible to allow 

U.S. intermediate holding companies 

the opportunity to prepare for the 

Board’s requests. In addition, 

commenters suggested that the initial 

assessment of an intermediate holding 

company’s capital plan by the Board be 

similar to the process used for bank 

holding companies entering CCAR that 

had not previously been subject to the 

Supervisory Capital Assessment 

Program.37 Commenters also suggested 

that public disclosures for the new 

participants be limited, similar to the 

CapPR process. 

As noted above, for the 2017 capital 

planning cycle, U.S. intermediate 

holding companies (unless the U.S. 

intermediate holding company was a 

bank holding company subject to the 

CCAR process prior to its designation) 

will not be subject to the stress test 

rules. Accordingly, for the 2017 cycle, 

the Federal Reserve’s assessment of the 

U.S. intermediate holding company’s 

capital plan will not be based on a 

supervisory stress test estimates 

conducted under those rules.38 Instead, 

the Federal Reserve intends to conduct 

a more limited quantitative assessment 

of the U.S. intermediate holding 

company’s capital plan based on the 

company’s own stress scenario and any 

scenarios provided by the Board and a 

qualitative assessment of its capital 

planning processes and supporting 

practices. The Board expects that this 

assessment will be similar to the Board’s 

CapPR process, and that the disclosures 

will also be limited. Beginning with the 

2018 cycle, the Board anticipates that a 

U.S. intermediate holding company will 

be subject to the full CCAR process. The 

Board recognizes the challenges that 

will face the U.S. intermediate holding 

companies that are new to the CCAR 

process, and expects that these bank 

holding companies will continue to 

work to enhance their capital planning 

systems and processes to meet 

supervisory expectations.39

Commenters requested further detail 

on how U.S. intermediate holding 

companies and their subsidiary bank 

holding companies can jointly submit 

their capital plans during the cycle 

when they are both subject to the capital 

plan rule. As noted in the proposal, 

companies may jointly submit a capital 

plan that clearly explains how certain 

aspects of the capital plan for the U.S. 

intermediate holding company build 

upon the bank holding company’s 

capital plan. For example, if the U.S. 

intermediate holding company and the 

bank holding company subsidiary rely 

on common stress testing models and 

practices, both companies could submit 

the same supporting documentation for 

these models, provided that each 

company’s submission meets all of the 

requirements of the capital plan rule. 

The Board intends to provide additional 

information regarding this submission 

in the future. 

G. Modification of the Capital Plan Rule 

Regarding Capital Actions Not 

Requiring Approval 

The proposed rule would have 

modified a provision of the capital plan 

rule that required a large bank holding 

company to request prior approval or 

provide prior notice of a capital 

distribution if the ‘‘dollar amount of the 

capital distribution will exceed the 

amount described in the capital plan for 

which a non-objection was issued.’’ 40

This provision applied to all capital 

distributions, including those associated 

with new issuances of regulatory capital 

instruments. Accordingly, large bank 

holding companies that issued accretive 

capital instruments with fixed 

dividends were required to seek the 

Board’s approval or provide notice to 

the Board in order to issue these 

instruments. The Board approved the 

prior requests, and would anticipate 

approving similar requests in the future, 

provided that the proposed capital 

issuance would result in net capital 

accretion. In order to relieve the burden 

on the bank holding companies going 

forward, the proposed rule would have 


tkelley on DSK3SPTVN1PROD with RULES2
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41See 12 CFR 217.11. 

removed prior approval and prior notice 

requirements for distributions involving 

incremental issuances of instruments 

that would qualify for inclusion in the 

numerator of regulatory capital ratios 

(i.e., common equity tier 1, additional 

tier 1, and tier 2 capital). Commenters 

were generally supportive of this 

proposed change, and the final rule 

adopts it without change. 

H. Clarification of Assumptions 

Regarding Capital Actions Under the 

Stress Test Rules 

The stress test rules require 

companies to assume, as part of 

company-run stress tests, that they issue 

no capital and redeem no capital 

instruments in the second through ninth 

quarters of the planning horizon. The 

proposal would have provided an 

exception to this assumption for 

issuances related to expensed employee 

compensation. 

While the Board received no 

comments on this proposed exception, 

one commenter expressed the view that 

the Board should allow the inclusion of 

new capital issuances in stress testing if 

the issuance is related to a discretely 

defined strategic initiative that could 

not take place without the capital 

issuance. 

The stress test rule requires 

companies to make consistent 

assumptions about their capital actions 

in order to enhance the comparability of 

the stress test across companies. An 

exception for expensed employee 

compensation does not undermine this 

comparability because all companies 

subject to stress testing generally have 

outstanding employee compensation 

programs, and have little to no 

discretion to direct issuances relating to 

employee compensation. In contrast, 

strategic initiatives vary across firms, 

and may be halted in times of stress. As 

such, the Board is finalizing the change 

to the stress testing capital action 

assumptions as proposed. 

I. Other Modifications to the Capital 

Plan Rule and Related Requirements 

i. Hearing procedures 

The proposal would have revised the 

hearing procedures in the capital plan 

rule. Under the proposal, a large bank 

holding company would have had 15 

calendar days to request an informal 

hearing, and the hearing would have 

been held within 30 calendar days of 

the request. The Board would have 

provided written notice of its final 

decision to the bank holding company 

within 60 calendar days of the 

conclusion of any informal hearing. 

Commenters were supportive of the 

flexibility provided to firms under the 

informal hearing procedures, and the 

final rule adopts the proposed revisions 

without change. 

ii. Submission of Loss, Revenue, and 

Expense Estimation Models to the Board 

in Connection With Capital Plan 

The proposed rule also would have 

required a bank holding company to be 

capable of providing to the Board its 

loss, revenue, and expense estimation 

models used by the bank holding 

company for stress scenario analysis, 

including supporting documentation 

regarding each model’s development 

and validation status. 

Commenters argued that they would 

have difficulty presenting the Board 

with certain models as they may be 

housed on third party servers or for 

other reasons. Commenters requested 

that the Board provide flexibility to 

firms to meet this requirement given the 

wide variety of loss, revenue and 

expense estimation models employed by 

firms and the contractual obligations 

firms may have with third party vendors 

regarding the dissemination of 

proprietary models. 

In response, the Board clarifies that it 

will require companies to provide an 

inventory and description of models 

and methodologies, not the models 

themselves. This information is needed 

by supervisors in order to properly 

assess a bank holding company’s capital 

adequacy and capital planning 

processes. In this regard, the 

information helps facilitate cross-firm 

comparisons of bank holding 

companies’ loss, revenue, and expense 

estimation models and their approaches 

to model validation. The Board is 

finalizing the additional required 

documentation supporting a capital 

plan as proposed. 

J. Comments on the Tier 1 Common 

Ratio and Capital Plan Capital Action 

Assumptions 

While the Board did not propose to 

change the role of the tier 1 common 

ratio or the capital plan’s capital action 

assumptions in the proposal, 

commenters provided views on these 

aspects of the rules. 

Regarding the tier 1 common ratio, 

commenters noted that the components 

of the tier 1 common ratio will no longer 

be calculated as part of the regulatory 

capital calculations, and projecting the 

ratio for purposes of the capital plan 

and stress test rules imposes an 

additional burden on bank holding 

companies. The Board notes that the 

common equity tier 1 ratio will not be 

fully phased in until January 1, 2018. 

During the transition period, the Board 

expects that, for certain firms, the 

common equity tier 1 ratio will require 

less capital than the tier 1 common ratio 

under the supervisory severely adverse 

scenario. Consistent with the principle 

articulated in other aspects of the final 

rule where transition periods are 

relevant (see, for example, the 

discussion regard the clarification of the 

CCAR process for bank holding 

company subsidiaries of foreign banking 

organizations), the Board aims to ensure 

that bank holding companies are not 

held to lower standards during 

transition periods than they were prior 

to the adoption of the relevant rule. 

Accordingly, the final rule retains the 

tier 1 common ratio. However, the 

Board intends to monitor the common 

equity tier 1 ratio as it is phased in 

under the revised risk-based capital 

framework and implemented in stress 

testing and capital planning, and 

expects to revisit the issue as additional 

relevant data becomes available. 

Commenters also provided views 

regarding the requirement that 

companies assume that they continue to 

execute capital actions planned in 

baseline conditions throughout the 

adverse and severely adverse 

supervisory scenarios for purposes of 

the capital plan rule. Commenters argue 

that this assumption does not reflect the 

fact that bank holding companies 

operate subject to internal capital 

management policies, and that the 

Board has supervisory authority to force 

banks to preserve capital in times of 

stress distributions in CCAR. In 

addition, commenters noted that the use 

of planned capital distributions in times 

of stress will be inconsistent with the 

soon-to-be-implemented capital 

conservation buffer requirements under 

the revised risk-based capital rules.41

The Board notes that CCAR makes 

conservative assumptions in order to 

provide a rigorous assessment of the 

capital adequacy of large bank holding 

companies. By assuming that 

distributions continue even during a 

stress period, CCAR is designed to 

approximate the tendency of losses in a 

crisis to occur suddenly, with capital 

continuing to be distributed until losses 

are realized or unavoidable. In this way, 

it helps to ensure that a bank holding 

company would remain sufficiently 

capitalized even if the timing of the 

losses were different or more sudden 

than that projected in the severely 

adverse scenario. Thus, the Board is not 

modifying its assumptions regarding 

baseline capital actions. With respect to 

the capital conservation buffer, the 

Board notes that the effects of the 


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42See Comprehensive Capital Analysis and 

Review 2015 Summary Instructions and Guidance 

(October 17, 2014). 

capital conservation buffer distribution 

limitations are likely to be limited for 

the stress testing and capital planning 

cycle that begins on October 1, 2014, 

given the small portion of the buffer that 

will be effective during the planning 

horizon (0.625 percent of risk-weighted 

assets, only one quarter the size of the 

fully phased-in capital conservation 

buffer). Therefore, as noted in the CCAR 

2015 instructions, the Board will not 

consider the limitation effects of the 

capital conservation buffer in the last 

four quarters of the CCAR 2015 

planning horizon when performing its 

post-stress capital analysis of a bank 

holding company’s planned capital 

distributions and bank holding 

companies should not assume the 

operation of distribution limitations of 

the capital conservation buffer when 

conducting their stress tests.42 The 

Board is considering the appropriate 

treatment of the capital conservation 

buffer distribution limitations in stress 

testing and capital planning for future 

capital planning cycles and intends to 

address this issue in due course. 

III. Administrative Law Matters 

A. Paperwork Reduction Act 

In accordance with the Paperwork 

Reduction Act (PRA) of 1995 (44 U.S.C. 

3506; 5 CFR 1320, Appendix A.1), the 

Board reviewed the final rule under the 

authority delegated to the Board by 

Office of Management and Budget 

(OMB). 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 OMB control number. The OMB 

control for this information collection is 

7100–0342. In addition, as permitted by 

the PRA, the Board is extending for 

three years, with revision, the 

Recordkeeping and Reporting 

Requirements Associated with 

Regulation Y (Capital Plans) (Reg Y–13; 

OMB No. 7100–0342). 

As mentioned in the preamble, the 

Board received 18 comment letters, 

however, none specifically addressed 

the PRA analysis. One commenter, 

however, did express general concerns 

regarding their ability to provide 

supporting documentation, due to third 

party legal and physical impediments, 

required by section 225.8(e)(3)(vi). In 

response to this comment, the Board 

adjusted its PRA burden estimate 

associated with this requirement. 

The final rule contains requirements 

subject to the PRA. The collection of 

information revised by this final rule is 

found in section 225.8 of Regulation Y 

(12 CFR part 225). Section 

225.8(e)(3)(vi) requires a bank holding 

company to be capable of providing to 

the Board its loss, revenue, and expense 

estimation models used by the bank 

holding company for stress scenario 

analysis, including supporting 

documentation regarding each model’s 

development and validation status. This 

information is needed by supervisors in 

order to properly assess a bank holding 

company’s capital adequacy and capital 

planning processes. In this regard, the 

information helps facilitate cross-firm 

comparisons of bank holding 

companies’ loss, revenue, and expense 

estimation models and their approaches 

to model validation. The Board 

estimates that, on average, respondents 

take an additional 5 hours to comply 

with the requirements in section 

225.8(e)(3)(vi). 

Section 225.8(g)(1) removes prior 

approval and prior notice requirements 

for distributions involving incremental 

issuances of instruments that would 

qualify for inclusion in the numerator of 

regulatory capital ratios (i.e., common 

equity tier 1, additional tier 1, and tier 

2 capital). As mentioned in the 

preamble, the Board believes that 

removing the requirement would reduce 

unnecessary efforts by a bank holding 

company to submit requests for 

distributions outside of the capital plan 

that are associated with issuances of 

regulatory capital. The Board estimates 

that respondent burden associated with 

section 225.8(g)(1) would be reduced by 

approximately 50 percent. 

Section 225.8(g)(3)(iii)(A)—Net 

distribution limitation exceptions—To 

the extent that the Board or the 

appropriate Reserve Bank indicates in 

writing its non-objection pursuant to 

section 225.8(g)(5), following a request 

for non-objection from the bank holding 

company that includes all of the 

information required to be submitted 

under section 225.8(g)(4). The Board 

estimates that, on average, respondents 

take 16 hours to comply with the 

requirement in section 

225.8(g)(3)(iii)(A). 

Title of Information Collection: 

Recordkeeping and Reporting 

Requirements Associated with 

Regulation Y (Capital Plans) (Reg Y–13). 

Frequency of Response: 

Recordkeeping requirements, annually. 

Reporting requirements, varied—the 

capital plan exercise would be done at 

least annually, capital plan 

resubmissions and prior approval 

requirements would be event-generated. 

Affected Public: This information 

collection applies to every top-tier bank 

holding company domiciled in the 

United States that has $50 billion or 

more in total consolidated assets (large 

U.S. bank holding companies) and U.S. 

intermediate holding companies with 

total consolidated assets of $50 billion 

or more. 

General Description of Information 

Collection: This information collection 

is mandatory and the recordkeeping 

requirement to maintain the Capital 

Plan is in effect until either a bank 

holding company is no longer 

operational or until further notice by the 

Board. Section 616(a) of the Dodd-Frank 

Act amended section 5(b) of the Bank 

Holding Company Act (BHC Act) (12 

U.S.C. § 1844(b)) to specifically 

authorize the Board to issue regulations 

and orders relating to capital 

requirements for bank holding 

companies. The Board is also authorized 

to collect and require reports from bank 

holding companies pursuant to section 

5(c) of the BHC Act (12 U.S.C. 

§ 1844(c)). Additionally, the Board’s 

rulemaking authority for the 

information collection requirements 

associated with Reg Y–13 is found in 

sections 908 and 910 of the 

International Lending Supervision Act, 

as amended (12 U.S.C. 3907 and 3909). 

Additional support for Reg Y–13 is 

found in sections 165 and 166 of the 

Dodd-Frank Act (12 U.S.C. 5365 and 

5366). The capital plan information 

submitted by the covered bank holding 

company would consist of confidential 

and proprietary modeling information 

and highly sensitive business plans, 

such as acquisition plans submitted to 

the Federal Reserve for approval. 

Therefore, it appears the information 

would be subject to withholding under 

exemption 4 of the Freedom of 

Information Act (5 U.S.C. 552(b)(4)). 

Estimated Burden 

Number of Respondents: 52 

Estimated Burden per Response: 

l.8(e)(1)(i) and (ii) Recordkeeping and 

Reporting, 12,000 hours 

l.8(e)(1)(iii) Recordkeeping, 100 hours 

l.8(e)(3)(i)–(vii) Reporting, 1,005 hours 

l.8(e)(4) Reporting, 100 hours 

l.8(f)(3)(i) Reporting, 16 hours 

l.8(g)(1), (3) and (4) Reporting, 100 

hours 

l.8(g)(3)(iii)(A) Reporting, 16 hours 

l.8(g)(6) Reporting, 16 hours 

Total Estimated Annual Burden: 

685,156 hours. 

The Board has a continuing interest in 

the public’s opinions of collections of 

information. At any time, comments 

regarding the burden estimate, or any 

other aspect of this collection of 

information, including suggestions for 

reducing the burden, may be sent to: 


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64040 Federal Register / Vol. 79, No. 207 / Monday, October 27, 2014 / Rules and Regulations 

43See 13 CFR 121.201. Effective July 14, 2014, the 

SBA revised the size standards for banking 

organizations to $550 million in assets from $500 

million in assets. 79 FR 33647 (June 12, 2014). 

Secretary, Board of Governors of the 

Federal Reserve System, 20th and C 

Streets NW., Washington, DC 20551; 

and to the Office of Management and 

Budget, Paperwork Reduction Project 

(7100–0342), Washington, DC 20503. 

B. Regulatory Flexibility Act Analysis 

The Board has considered the 

potential impact of the final rule on 

small companies in accordance with the 

Regulatory Flexibility Act (5 U.S.C. 

603(b)). Based on its analysis and for the 

reasons stated below, the Board believes 

that the final rule will not have a 

significant economic impact on a 

substantial number of small entities. 

Nevertheless, the Board is publishing a 

final regulatory flexibility analysis. 

Under regulations issued by the Small 

Business Administration (‘‘SBA’’), a 

small entity includes a depository 

institution, bank holding company, or 

savings and loan holding company with 

total assets of $550 million or less (a 

small banking organization).43 The final 

rule will apply to bank holding 

companies, savings and loan holding 

companies, and state member banks 

with total consolidated asset of $10 

billion or more and nonbank financial 

companies supervised by the Board. 

Companies that will be subject to the 

final rule therefore substantially exceed 

the $550 million total asset threshold at 

which a company is considered a small 

company under SBA regulations. 

In light of the foregoing, the Board 

does not believe that the final rule will 

have a significant economic impact on 

a substantial number of small entities. 

C. Solicitation of Comments on the 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 sought to present the proposed 

rule in a simple and straightforward 

manner and solicited comment on how 

to make the proposed rule easier to 

understand. No comments were 

received on the use of plain language. 

List of Subjects 

12 CFR Part 225 

Administrative practice and 

procedure, Banks, banking, Capital 

planning, Holding companies, Reporting 

and recordkeeping requirements, 

Securities, Stress testing. 

12 CFR Part 252 

Administrative practice and 

procedure, Banks, Banking, Capital 

planning, Federal Reserve System, 

Holding companies, Reporting and 

recordkeeping requirements, Securities, 

Stress testing. 

Authority and Issuance 

For the reasons stated in the 

SUPPLEMENTARY INFORMATION, the Board 

of Governors of the Federal Reserve 

System amends 12 CFR chapter II as 

follows: 

PART 225—BANK HOLDING 

COMPANIES AND CHANGE IN BANK 

CONTROL (REGULATION Y) 

■ 1. The authority citation for part 225 

is revised to read as follows: 

Authority: 12 U.S.C. 1817(j)(13), 1818, 

1828(o), 1831i, 1831p–1, 1843(c)(8), 1844(b), 

1972(1), 3106, 3108, 3310, 3331–3351, 3906, 

3907, and 3909; 15 U.S.C. 1681s, 1681w, 

6801 and 6805. 

Subpart A—General Provisions 

■ 2. Section 225.8 is revised to read as 

follows: 

§ 225.8 Capital planning. 

(a) Purpose. This section establishes 

capital planning and prior notice and 

approval requirements for capital 

distributions by certain bank holding 

companies. 

(b) Scope and reservation of 

authority—(1) Applicability. Except as 

provided in paragraph (c) of this 

section, this section applies to: 

(i) Any top-tier bank holding 

company domiciled in the United States 

with average total consolidated assets of 

$50 billion or more ($50 billion asset 

threshold); 

(ii) Any other bank holding company 

domiciled in the United States that is 

made subject to this section, in whole or 

in part, by order of the Board; 

(iii) Any U.S. intermediate holding 

company subject to this section 

pursuant to 12 CFR 252.153; and 

(iv) Any nonbank financial company 

supervised by the Board that is made 

subject to this section pursuant to a rule 

or order of the Board. 

(2) Average total consolidated assets. 

For purposes of this section, average 

total consolidated assets means the 

average of the total consolidated assets 

as reported by a bank holding company 

on its Consolidated Financial 

Statements for Bank Holding Companies 

(FR Y–9C) for the four most recent 

consecutive quarters. If the bank 

holding company has not filed the FR 

Y–9C for each of the four most recent 

consecutive quarters, average total 

consolidated assets means the average of 

the company’s total consolidated assets, 

as reported on the company’s FR Y–9C, 

for the most recent quarter or 

consecutive quarters, as applicable. 

Average total consolidated assets are 

measured on the as-of date of the most 

recent FR Y–9C used in the calculation 

of the average. 

(3) Ongoing applicability. A bank 

holding company (including any 

successor bank holding company) that is 

subject to any requirement in this 

section shall remain subject to any such 

requirement unless and until its total 

consolidated assets fall below $50 

billion for each of four consecutive 

quarters, as reported on the FR Y–9C 

and effective on the as-of date of the 

fourth consecutive FR Y–9C. 

(4) Reservation of authority. Nothing 

in this section shall limit the authority 

of the Federal Reserve to issue a capital 

directive or take any other supervisory 

or enforcement action, including an 

action to address unsafe or unsound 

practices or conditions or violations of 

law. 

(5) Rule of construction. Unless the 

context otherwise requires, any 

reference to bank holding company in 

this section shall include a U.S. 

intermediate holding company and shall 

include a nonbank financial company 

supervised by the Board to the extent 

this section is made applicable pursuant 

to a rule or order of the Board. 

(c) Transitional arrangements—(1) 

Transition periods for certain bank 

holding companies. (i) A bank holding 

company is subject to this section 

beginning on the first day of the first 

capital plan cycle that begins after the 

bank holding company meets or exceeds 

the $50 billion asset threshold (as 

measured under paragraph (b) of this 

section), unless that time is extended by 

the Board in writing. 

(ii) The Board or the appropriate 

Reserve Bank with the concurrence of 

the Board, may require a bank holding 

company described in paragraph 

(c)(1)(i) of this section to comply with 

any or all of the requirements in 

paragraphs (e)(1), (e)(3), (f), or (g) of this 

section if the Board or appropriate 

Reserve Bank with concurrence of the 

Board, determines that the requirement 

is appropriate on a different date based 

on the company’s risk profile, scope of 

operation, or financial condition and 

provides prior notice to the company of 

the determination. 

(2) Transition periods for subsidiaries 

of certain foreign banking 

organizations—(i) Bank holding 

companies that rely on SR Letter 01–01. 

(A) A bank holding company that meets 


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the $50 billion asset threshold (as 

measured under paragraph (b) of this 

section) and is relying as of July 20, 

2015, on Supervision and Regulation 

Letter SR 01–01 issued by the Board (as 

in effect on May 19, 2010) is subject to 

this section beginning on January 1, 

2016, unless that time is extended by 

the Board in writing. 

(B) The Board or the appropriate 

Reserve Bank with the concurrence of 

the Board, may require a bank holding 

company described in paragraph 

(c)(2)(i)(A) of this section to comply 

with any or all of the requirements in 

paragraphs (e)(1), (e)(3), (f), or (g) of this 

section if the Board or appropriate 

Reserve Bank with concurrence of the 

Board, determines that the requirement 

is appropriate on a different date based 

on the company’s risk profile, scope of 

operation, or financial condition and 

provides prior notice to the company of 

the determination. 

(ii) U.S. intermediate holding 

companies. (A) A U.S. intermediate 

holding company is subject to this 

section beginning on the first day of the 

first capital plan cycle after the date that 

the U.S. intermediate holding company 

is required to be established pursuant to 

12 CFR 252.153, unless that time is 

extended by the Board in writing. 

(B) The Board or the appropriate 

Reserve Bank with the concurrence of 

the Board, may require a U.S. 

intermediate holding company 

described in paragraph (c)(2)(ii)(A) of 

this section to comply with any or all 

of the requirements in paragraphs (e)(1), 

(e)(3), (f), or (g) of this section if the 

Board or appropriate Reserve Bank with 

concurrence of the Board, determines 

that the requirement is appropriate on a 

different date based on the company’s 

risk profile, scope of operation, or 

financial condition and provides prior 

notice to the company of the 

determination. 

(iii) Bank holding company 

subsidiaries of U.S. intermediate 

holding companies required to be 

established by July 1, 2016. (A) 

Notwithstanding any other requirement 

in this section, a bank holding company 

that is a subsidiary of a U.S. 

intermediate holding company (or, with 

the mutual consent of the company and 

Board, another bank holding company 

domiciled in the United States) shall 

remain subject to paragraph (e) of this 

section until December 31, 2017 and 

shall remain subject to the requirements 

of paragraphs (f) and (g) of this section 

until the Board issues an objection or 

non-objection to the capital plan of the 

relevant U.S. intermediate holding 

company. 

(B) After the time periods set forth in 

paragraph (c)(iii)(A) of this section, this 

section will cease to apply to a bank 

holding company that is a subsidiary of 

a U.S. intermediate holding company, 

unless otherwise determined by the 

Board in writing. 

(3) Transition periods for bank 

holding companies subject to the 

advanced approaches. (i) 

Notwithstanding any other requirement 

in this section, a bank holding company 

must use 12 CFR part 225, appendices 

A and E (as applicable), and 12 CFR part 

217, subpart D and F, as applicable, to 

estimate its pro forma regulatory capital 

ratios and its pro forma tier 1 common 

ratio for the capital plan cycle beginning 

on October 1, 2014, and the bank 

holding company may not use the 

advanced approaches to estimate its pro 

forma regulatory capital ratios and its 

pro forma tier 1 common ratio until 

January 1, 2016. 

(ii) Beginning January 1, 2016, a bank 

holding company must use the 

advanced approaches to estimate its pro 

forma regulatory capital ratios and its 

pro forma tier 1 common ratio for 

purposes of its capital plan submission 

under paragraph (e) of this section if the 

Board notifies the bank holding 

company before the first day of the 

capital plan cycle that the bank holding 

company is required to use the 

advanced approaches to determine its 

risk-based capital requirements. 

(d) Definitions. For purposes of this 

section, the following definitions apply: 

(1) Advanced approaches means the 

risk-weighted assets calculation 

methodologies at 12 CFR part 217, 

subpart E, as applicable, and any 

successor regulation. 

(2) BHC stress scenario means a 

scenario designed by a bank holding 

company that stresses the specific 

vulnerabilities of the bank holding 

company’s risk profile and operations, 

including those related to the 

company’s capital adequacy and 

financial condition. 

(3) Capital action means any issuance 

or redemption of a debt or equity capital 

instrument, any capital distribution, and 

any similar action that the Federal 

Reserve determines could impact a bank 

holding company’s consolidated capital. 

(4) Capital distribution means a 

redemption or repurchase of any debt or 

equity capital instrument, a payment of 

common or preferred stock dividends, a 

payment that may be temporarily or 

permanently suspended by the issuer on 

any instrument that is eligible for 

inclusion in the numerator of any 

minimum regulatory capital ratio, and 

any similar transaction that the Federal 

Reserve determines to be in substance a 

distribution of capital. 

(5) Capital plan means a written 

presentation of a bank holding 

company’s capital planning strategies 

and capital adequacy process that 

includes the mandatory elements set 

forth in paragraph (e)(2) of this section. 

(6) Capital plan cycle means: 

(i) Until September 30, 2015, the 

period beginning on October 1 of a 

calendar year and ending on September 

30 of the following calendar year, and 

(ii) Beginning October 1, 2015, the 

period beginning on January 1 of a 

calendar year and ending on December 

31 of that year. 

(7) Capital policy means a bank 

holding company’s written assessment 

of the principles and guidelines used for 

capital planning, capital issuance, 

capital usage and distributions, 

including internal capital goals; the 

quantitative or qualitative guidelines for 

capital distributions; the strategies for 

addressing potential capital shortfalls; 

and the internal governance procedures 

around capital policy principles and 

guidelines. 

(8) Minimum regulatory capital ratio 

means any minimum regulatory capital 

ratio that the Federal Reserve may 

require of a bank holding company, by 

regulation or order, including, as 

applicable, the bank holding company’s 

tier 1 and supplementary leverage ratios 

and common equity tier 1, tier 1, and 

total risk-based capital ratios as 

calculated under appendices A, D, and 

E to this part (12 CFR part 225) and 12 

CFR part 217, as applicable, including 

the transition provisions at 12 CFR 

217.1(f)(4) and 12 CFR 217.300, or any 

successor regulation. 

(9) Nonbank financial company 

supervised by the Board means a 

company that the Financial Stability 

Oversight Council has determined 

under section 113 of the Dodd-Frank 

Act (12 U.S.C. 5323) shall be supervised 

by the Board and for which such 

determination is still in effect. 

(10) Planning horizon means the 

period of at least nine consecutive 

quarters, beginning with the quarter 

preceding the quarter in which the bank 

holding company submits its capital 

plan, over which the relevant 

projections extend. 

(11) Tier 1 capital has the same 

meaning as under appendix A to this 

part or under 12 CFR part 217, as 

applicable, or any successor regulation. 

(12) Tier 1 common capital means tier 

1 capital as defined under appendix A 

to this part less the non-common 

elements of tier 1 capital, including 

perpetual preferred stock and related 

surplus, minority interest in 


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subsidiaries, trust preferred securities 

and mandatory convertible preferred 

securities. 

(13) Tier 1 common ratio means the 

ratio of a bank holding company’s tier 

1 common capital to total risk-weighted 

assets as defined under appendices A 

and E to this part. 

(14) U.S. intermediate holding 

company means the top-tier U.S. 

company that is required to be 

established pursuant to 12 CFR 252.153. 

(e) General requirements—(1) Annual 

capital planning. (i) A bank holding 

company must develop and maintain a 

capital plan. 

(ii) A bank holding company must 

submit its complete capital plan to the 

Board and the appropriate Reserve Bank 

each year. For the capital plan cycle 

beginning on October 1, 2014, the 

capital plan must be submitted by 

January 5, 2015, or such later date as 

directed by the Board or by the 

appropriate Reserve Bank with 

concurrence of the Board. For each 

capital plan cycle beginning thereafter, 

the capital plan must be submitted by 

April 5, or such later date as directed by 

the Board or by the appropriate Reserve 

Bank with concurrence of the Board. 

(iii) The bank holding company’s 

board of directors or a designated 

committee thereof must at least 

annually and prior to submission of the 

capital plan under paragraph (e)(1)(ii) of 

this section: 

(A) Review the robustness of the bank 

holding company’s process for assessing 

capital adequacy, 

(B) Ensure that any deficiencies in the 

bank holding company’s process for 

assessing capital adequacy are 

appropriately remedied; and 

(C) Approve the bank holding 

company’s capital plan. 

(2) Mandatory elements of capital 

plan. A capital plan must contain at 

least the following elements: 

(i) An assessment of the expected uses 

and sources of capital over the planning 

horizon that reflects the bank holding 

company’s size, complexity, risk profile, 

and scope of operations, assuming both 

expected and stressful conditions, 

including: 

(A) Estimates of projected revenues, 

losses, reserves, and pro forma capital 

levels, including any minimum 

regulatory capital ratios (for example, 

leverage, tier 1 risk-based, and total riskbased capital ratios) and any additional 

capital measures deemed relevant by the 

bank holding company, over the 

planning horizon under expected 

conditions and under a range of 

scenarios, including any scenarios 

provided by the Federal Reserve and at 

least one BHC stress scenario; 

(B) A calculation of the pro forma tier 

1 common ratio over the planning 

horizon under expected conditions and 

under a range of stressed scenarios and 

discussion of how the company will 

maintain a pro forma tier 1 common 

ratio above 5 percent under expected 

conditions and the stressed scenarios 

required under paragraphs (e)(2)(i)(A) 

and (e)(2)(ii) of this section; 

(C) A discussion of the results of any 

stress test required by law or regulation, 

and an explanation of how the capital 

plan takes these results into account; 

and 

(D) A description of all planned 

capital actions over the planning 

horizon. 

(ii) A detailed description of the bank 

holding company’s process for assessing 

capital adequacy, including: 

(A) A discussion of how the bank 

holding company will, under expected 

and stressful conditions, maintain 

capital commensurate with its risks, 

maintain capital above the minimum 

regulatory capital ratios and above a tier 

1 common ratio of 5 percent, and serve 

as a source of strength to its subsidiary 

depository institutions; 

(B) A discussion of how the bank 

holding company will, under expected 

and stressful conditions, maintain 

sufficient capital to continue its 

operations by maintaining ready access 

to funding, meeting its obligations to 

creditors and other counterparties, and 

continuing to serve as a credit 

intermediary; 

(iii) The bank holding company’s 

capital policy; and 

(iv) A discussion of any expected 

changes to the bank holding company’s 

business plan that are likely to have a 

material impact on the bank holding 

company’s capital adequacy or 

liquidity. 

(3) Data collection. Upon the request 

of the Board or appropriate Reserve 

Bank, the bank holding company shall 

provide the Federal Reserve with 

information regarding: 

(i) The bank holding company’s 

financial condition, including its 

capital; 

(ii) The bank holding company’s 

structure; 

(iii) Amount and risk characteristics 

of the bank holding company’s on- and 

off-balance sheet exposures, including 

exposures within the bank holding 

company’s trading account, other 

trading-related exposures (such as 

counterparty-credit risk exposures) or 

other items sensitive to changes in 

market factors, including, as 

appropriate, information about the 

sensitivity of positions to changes in 

market rates and prices; 

(iv) The bank holding company’s 

relevant policies and procedures, 

including risk management policies and 

procedures; 

(v) The bank holding company’s 

liquidity profile and management; 

(vi) The loss, revenue, and expense 

estimation models used by the bank 

holding company for stress scenario 

analysis, including supporting 

documentation regarding each model’s 

development and validation; and 

(vii) Any other relevant qualitative or 

quantitative information requested by 

the Board or by the appropriate Reserve 

Bank to facilitate review of the bank 

holding company’s capital plan under 

this section. 

(4) Re-submission of a capital plan. (i) 

A bank holding company must update 

and re-submit its capital plan to the 

appropriate Reserve Bank within 30 

calendar days of the occurrence of one 

of the following events: 

(A) The bank holding company 

determines there has been or will be a 

material change in the bank holding 

company’s risk profile, financial 

condition, or corporate structure since 

the bank holding company last 

submitted the capital plan to the Board 

and the appropriate Reserve Bank under 

this section; or 

(B) The Board or the appropriate 

Reserve Bank with concurrence of the 

Board, directs the bank holding 

company in writing to revise and 

resubmit its capital plan for any of the 

following reasons: 

(1) The capital plan is incomplete or 

the capital plan, or the bank holding 

company’s internal capital adequacy 

process, contains material weaknesses; 

(2) There has been, or will likely be, 

a material change in the bank holding 

company’s risk profile (including a 

material change in its business strategy 

or any risk exposure), financial 

condition, or corporate structure; 

(3) The BHC stress scenario(s) are not 

appropriate for the bank holding 

company’s business model and 

portfolios, or changes in financial 

markets or the macro-economic outlook 

that could have a material impact on a 

bank holding company’s risk profile and 

financial condition require the use of 

updated scenarios; or 

(4) The capital plan or the condition 

of the bank holding company raise any 

of the issues described in paragraph 

(f)(2)(ii) of this section. 

(ii) A bank holding company may 

resubmit its capital plan to the Federal 

Reserve if the Board or the appropriate 

Reserve Bank objects to the capital plan. 

(iii) The Board or the appropriate 

Reserve Bank with concurrence of the 

Board, may extend the 30-day period in 


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Federal Register / Vol. 79, No. 207 / Monday, October 27, 2014 / Rules and Regulations 64043 

paragraph (e)(4)(i) of this section for up 

to an additional 60 calendar days, or 

such longer period as the Board or the 

appropriate Reserve Bank, with 

concurrence of the Board, determines, 

in its discretion, appropriate. 

(iv) Any updated capital plan must 

satisfy all the requirements of this 

section; however, a bank holding 

company may continue to rely on 

information submitted as part of a 

previously submitted capital plan to the 

extent that the information remains 

accurate and appropriate. 

(5) Confidential treatment of 

information submitted. The 

confidentiality of information submitted 

to the Board under this section and 

related materials shall be determined in 

accordance with applicable exemptions 

under the Freedom of Information Act 

(5 U.S.C. 552(b)) and the Board’s Rules 

Regarding Availability of Information 

(12 CFR part 261). 

(f) Review of capital plans by the 

Federal Reserve; publication of 

summary results—(1) Considerations 

and inputs. (i) The Board or the 

appropriate Reserve Bank with 

concurrence of the Board, will consider 

the following factors in reviewing a 

bank holding company’s capital plan: 

(A) The comprehensiveness of the 

capital plan, including the extent to 

which the analysis underlying the 

capital plan captures and addresses 

potential risks stemming from activities 

across the firm and the company’s 

capital policy; 

(B) The reasonableness of the bank 

holding company’s capital plan, the 

assumptions and analysis underlying 

the capital plan, and the robustness of 

its capital adequacy process; and 

(C) The bank holding company’s 

ability to maintain capital above each 

minimum regulatory capital ratio and 

above a tier 1 common ratio of 5 percent 

on a pro forma basis under expected and 

stressful conditions throughout the 

planning horizon, including but not 

limited to any scenarios required under 

paragraphs (e)(2)(i)(A) and (e)(2)(ii) of 

this section. 

(ii) The Board or the appropriate 

Reserve Bank with concurrence of the 

Board, will also consider the following 

information in reviewing a bank holding 

company’s capital plan: 

(A) Relevant supervisory information 

about the bank holding company and its 

subsidiaries; 

(B) The bank holding company’s 

regulatory and financial reports, as well 

as supporting data that would allow for 

an analysis of the bank holding 

company’s loss, revenue, and reserve 

projections; 

(C) As applicable, the Federal 

Reserve’s own pro forma estimates of 

the firm’s potential losses, revenues, 

reserves, and resulting capital adequacy 

under expected and stressful conditions, 

including but not limited to any 

scenarios required under paragraphs 

(e)(2)(i)(A) and (e)(2)(ii) of this section, 

as well as the results of any stress tests 

conducted by the bank holding 

company or the Federal Reserve; and 

(D) Other information requested or 

required by the Board or the appropriate 

Reserve Bank, as well as any other 

information relevant, or related, to the 

bank holding company’s capital 

adequacy. 

(2) Federal Reserve action on a capital 

plan. (i) The Board or the appropriate 

Reserve Bank with concurrence of the 

Board, will object, in whole or in part, 

to the capital plan or provide the bank 

holding company with a notice of nonobjection to the capital plan: 

(A) For the capital plan cycle 

beginning on October 1, 2014, by March 

31, 2015; 

(B) For each capital plan cycle 

beginning thereafter, by June 30 of the 

calendar year in which a capital plan 

was submitted pursuant to paragraph 

(e)(1)(ii) of this section; and 

(C) For a capital plan resubmitted 

pursuant to paragraph (e)(4) of this 

section, within 75 calendar days after 

the date on which a capital plan is 

resubmitted, unless the Board provides 

notice to the company that it is 

extending the time period. 

(ii) The Board or the appropriate 

Reserve Bank with concurrence of the 

Board, may object to a capital plan if it 

determines that: 

(A) The bank holding company has 

material unresolved supervisory issues, 

including but not limited to issues 

associated with its capital adequacy 

process; 

(B) The assumptions and analysis 

underlying the bank holding company’s 

capital plan, or the bank holding 

company’s methodologies for reviewing 

the robustness of its capital adequacy 

process, are not reasonable or 

appropriate; 

(C) The bank holding company has 

not demonstrated an ability to maintain 

capital above each minimum regulatory 

capital ratio and above a tier 1 common 

ratio of 5 percent, on a pro forma basis 

under expected and stressful conditions 

throughout the planning horizon; or 

(D) The bank holding company’s 

capital planning process or proposed 

capital distributions otherwise 

constitute an unsafe or unsound 

practice, or would violate any law, 

regulation, Board order, directive, or 

condition imposed by, or written 

agreement with, the Board or the 

appropriate Reserve Bank. In 

determining whether a capital plan or 

any proposed capital distribution would 

constitute an unsafe or unsound 

practice, the Board or the appropriate 

Reserve Bank would consider whether 

the bank holding company is and would 

remain in sound financial condition 

after giving effect to the capital plan and 

all proposed capital distributions. 

(iii) The Board or the appropriate 

Reserve Bank will notify the bank 

holding company in writing of the 

reasons for a decision to object to a 

capital plan. 

(iv) If the Board or the appropriate 

Reserve Bank objects to a capital plan 

and until such time as the Board or the 

appropriate Reserve Bank with 

concurrence of the Board, issues a nonobjection to the bank holding company’s 

capital plan, the bank holding company 

may not make any capital distribution, 

other than capital distributions arising 

from the issuance of a regulatory capital 

instrument eligible for inclusion in the 

numerator of a minimum regulatory 

capital ratio or capital distributions with 

respect to which the Board or the 

appropriate Reserve Bank has indicated 

in writing its non-objection. 

(v) The Board may disclose publicly 

its decision to object or not object to a 

bank holding company’s capital plan 

under this section, along with a 

summary of the Board’s analyses of that 

company. Any disclosure under this 

paragraph will occur by March 31 (for 

the capital plan cycle beginning on 

October 1, 2014) or June 30 (for each 

capital plan cycle beginning thereafter), 

unless the Board determines that a later 

disclosure date is appropriate. 

(3) Request for reconsideration or 

hearing—(i) General. Within 15 

calendar days of receipt of a notice of 

objection to a capital plan by the Board 

or the appropriate Reserve Bank: 

(A) A bank holding company may 

submit a written request to the Board 

requesting reconsideration of the 

objection, including an explanation of 

why reconsideration should be granted. 

Within 15 calendar days of receipt of 

the bank holding company’s request, the 

Board will notify the company of its 

decision to affirm or withdraw the 

objection to the bank holding company’s 

capital plan or a specific capital 

distribution; or 

(B) As an alternative to paragraph 

(f)(3)(i)(A) of this section, a bank 

holding company may request an 

informal hearing on the objection. 

(ii) Request for an informal hearing. 

(A) A request for an informal hearing 

shall be in writing and shall be 

submitted within 15 calendar days of a 


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64044 Federal Register / Vol. 79, No. 207 / Monday, October 27, 2014 / Rules and Regulations 

notice of an objection. The Board may, 

in its sole discretion, order an informal 

hearing if the Board finds that a hearing 

is appropriate or necessary to resolve 

disputes regarding material issues of 

fact. 

(B) An informal hearing shall be held 

within 30 calendar days of a request, if 

granted, provided that the Board may 

extend this period upon notice to the 

requesting party. 

(C) Written notice of the final decision 

of the Board shall be given to the bank 

holding company within 60 calendar 

days of the conclusion of any informal 

hearing ordered by the Board, provided 

that the Board may extend this period 

upon notice to the requesting party. 

(D) While the Board’s final decision is 

pending and until such time as the 

Board or the appropriate Reserve Bank 

with concurrence of the Board issues a 

non-objection to the bank holding 

company’s capital plan, the bank 

holding company may not make any 

capital distribution, other than those 

capital distributions with respect to 

which the Board or the appropriate 

Reserve Bank has indicated in writing 

its non-objection. 

(4) Application of this section to other 

bank holding companies. The Board 

may apply this section, in whole or in 

part, to any other bank holding 

company by order based on the 

institution’s size, level of complexity, 

risk profile, scope of operations, or 

financial condition. 

(g) Approval requirements for certain 

capital actions—(1) Circumstances 

requiring approval. Notwithstanding a 

notice of non-objection under paragraph 

(f)(2)(i) of this section, a bank holding 

company may not make a capital 

distribution (excluding any capital 

distribution arising from the issuance of 

a regulatory capital instrument eligible 

for inclusion in the numerator of a 

minimum regulatory capital ratio) under 

the following circumstances, unless it 

receives prior approval from the Board 

or appropriate Reserve Bank pursuant to 

paragraph (g)(5) of this section: 

(i) After giving effect to the capital 

distribution, the bank holding company 

would not meet a minimum regulatory 

capital ratio or a tier 1 common ratio of 

at least 5 percent; 

(ii) The Board or the appropriate 

Reserve Bank with concurrence of the 

Board, notifies the company in writing 

that the Federal Reserve has determined 

that the capital distribution would 

result in a material adverse change to 

the organization’s capital or liquidity 

structure or that the company’s earnings 

were materially underperforming 

projections; 

(iii) Except as provided in paragraph 

(g)(2) of this section, the dollar amount 

of the capital distribution will exceed 

the amount described in the capital plan 

for which a non-objection was issued 

under this section, as measured on an 

aggregate basis beginning in the third 

quarter of the planning horizon through 

the quarter at issue; or 

(iv) The capital distribution would 

occur after the occurrence of an event 

requiring resubmission under 

paragraphs (e)(4)(i)(A) or (B) of this 

section and before the Federal Reserve 

has acted on the resubmitted capital 

plan. 

(2) Exception for well capitalized 

bank holding companies. (i) A bank 

holding company may make a capital 

distribution for which the dollar amount 

exceeds the amount described in the 

capital plan for which a non-objection 

was issued under paragraph (f)(2)(i) of 

this section if the following conditions 

are satisfied: 

(A) The bank holding company is, and 

after the capital distribution would 

remain, well capitalized as defined in 

§ 225.2(r) of Regulation Y (12 CFR 

225.2(r)); 

(B) The bank holding company’s 

performance and capital levels are, and 

after the capital distribution would 

remain, consistent with its projections 

under expected conditions as set forth 

in its capital plan under paragraph 

(f)(2)(i) of this section; 

(C) The annual aggregate dollar 

amount of all capital distributions (for 

purposes of the capital plan cycle 

beginning on October 1, 2014, in the 

period beginning on April 1, 2015 and 

ending on March 31, 2016, and for 

purposes of each capital plan cycle 

beginning thereafter, in the period 

beginning on July 1 of a calendar year 

and ending on June 30 of the following 

calendar year) would not exceed the 

total amounts described in the 

company’s capital plan for which the 

bank holding company received a notice 

of non-objection by more than 1.00 

percent multiplied by the bank holding 

company’s tier 1 capital, as reported to 

the Federal Reserve on the bank holding 

company’s first quarter FR Y–9C; 

(D) The bank holding company 

provides the appropriate Reserve Bank 

with notice 15 calendar days prior to a 

capital distribution that includes the 

elements described in paragraph (g)(4) 

of this section; and 

(E) The Board or the appropriate 

Reserve Bank with concurrence of the 

Board, does not object to the transaction 

proposed in the notice. In determining 

whether to object to the proposed 

transaction, the Board or the appropriate 

Reserve Bank shall apply the criteria 

described in paragraph (g)(5)(ii) of this 

section. 

(ii) The exception in this paragraph 

(g)(2) shall not apply if the Board or the 

appropriate Reserve Bank notifies the 

bank holding company in writing that it 

may not take advantage of this 

exception. 

(3) Net distribution limitation—(i) 

General. Notwithstanding a notice of 

non-objection under paragraph (f)(2)(i) 

of this section, a bank holding company 

must reduce its capital distributions in 

accordance with paragraph (g)(3)(ii) of 

this section if the bank holding 

company raises a smaller dollar amount 

of capital of a given category of 

regulatory capital instruments than it 

had included in its capital plan, as 

measured on an aggregate basis 

beginning in the third quarter of the 

planning horizon through the end of the 

current quarter. 

(ii) Reduction of distributions—(A) 

Common equity tier 1 capital. If the 

bank holding company raises a smaller 

dollar amount of common equity tier 1 

capital (as defined in 12 CFR 217.2), the 

bank holding company must reduce its 

capital distributions relating to common 

equity tier 1 capital such that the dollar 

amount of the bank holding company’s 

capital distributions, net of the dollar 

amount of its capital raises, (‘‘net 

distributions’’) relating to common 

equity tier 1 capital is no greater than 

the dollar amount of net distributions 

relating to common equity tier 1 capital 

included in its capital plan, as measured 

on an aggregate basis beginning in the 

third quarter of the planning horizon 

through the end of the current quarter. 

(B) Additional tier 1 capital. If the 

bank holding company raises a smaller 

dollar amount of additional tier 1 

capital (as defined in 12 CFR 217.2), the 

bank holding company must reduce its 

capital distributions relating to 

additional tier 1 capital (other than 

scheduled payments on additional tier 1 

capital instruments) such that the dollar 

amount of the bank holding company’s 

net distributions relating to additional 

tier 1 capital is no greater than the 

dollar amount of net distributions 

relating to additional tier 1 capital 

included in its capital plan, as measured 

on an aggregate basis beginning in the 

third quarter of the planning horizon 

through the end of the current quarter. 

(C) Tier 2 capital. If the bank holding 

company raises a smaller dollar amount 

of tier 2 capital (as defined in 12 CFR 

217.2), the bank holding company must 

reduce its capital distributions relating 

to tier 2 capital (other than scheduled 

payments on tier 2 capital instruments) 

such that the dollar amount of the bank 

holding company’s net distributions 


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relating to tier 2 capital is no greater 

than the dollar amount of net 

distributions relating to tier 2 capital 

included in its capital plan, as measured 

on an aggregate basis beginning in the 

third quarter of the planning horizon 

through the end of the current quarter. 

(iii) Exceptions. Paragraphs (g)(3)(i) 

and (ii) of this section shall not apply: 

(A) To the extent that the Board or 

appropriate Reserve Bank indicates in 

writing its non-objection pursuant to 

paragraph (g)(5) of this section, 

following a request for non-objection 

from the bank holding company that 

includes all of the information required 

to be submitted under paragraph (g)(4) 

of this section; 

(B) To capital distributions arising 

from the issuance of a regulatory capital 

instrument eligible for inclusion in the 

numerator of a minimum regulatory 

capital ratio that the bank holding 

company had not included in its capital 

plan; 

(C) To the extent that the bank 

holding company raised a smaller dollar 

amount of capital in the category of 

regulatory capital instruments described 

in paragraph (g)(3)(i) of this section due 

to employee-directed capital issuances 

related to an employee stock ownership 

plan; 

(D) To the extent that the bank 

holding company raised a smaller dollar 

amount of capital in the category of 

regulatory capital instruments described 

in paragraph (g)(3)(i) of this section due 

to a planned merger or acquisition that 

is no longer expected to be 

consummated or for which the 

consideration paid is lower than the 

projected price in the capital plan; or 

(E) To the extent that the dollar 

amount by which the bank holding 

company’s net distributions exceed the 

dollar amount of net distributions 

included in its capital plan in the 

category of regulatory capital 

instruments described in paragraph 

(g)(3)(i) of this section, as measured on 

an aggregate basis beginning in the third 

quarter of the planning horizon through 

the end of the current quarter, is less 

than 1.00 percent of the bank holding 

company’s tier 1 capital, as reported to 

the Federal Reserve on the bank holding 

company’s first quarter FR Y–9C, and 

the bank holding company notifies the 

appropriate Reserve Bank at least 15 

calendar days in advance of any capital 

distribution in that category of 

regulatory capital instruments. 

(4) Contents of request. (i) A request 

for a capital distribution under this 

section shall be filed with the 

appropriate Reserve Bank and the Board 

and shall contain the following 

information: 

(A) The bank holding company’s 

current capital plan or an attestation 

that there have been no changes to the 

capital plan since it was last submitted 

to the Federal Reserve; 

(B) The purpose of the transaction; 

(C) A description of the capital 

distribution, including for redemptions 

or repurchases of securities, the gross 

consideration to be paid and the terms 

and sources of funding for the 

transaction, and for dividends, the 

amount of the dividend(s); and 

(D) Any additional information 

requested by the Board or the 

appropriate Reserve Bank (which may 

include, among other things, an 

assessment of the bank holding 

company’s capital adequacy under a 

revised stress scenario provided by the 

Federal Reserve, a revised capital plan, 

and supporting data). 

(ii) Any request submitted with 

respect to a capital distribution 

described in paragraph (g)(1)(i) of this 

section shall also include a plan for 

restoring the bank holding company’s 

capital to an amount above a minimum 

level within 30 calendar days and a 

rationale for why the capital 

distribution would be appropriate. 

(5) Approval of certain capital 

distributions. (i) The Board or the 

appropriate Reserve Bank with 

concurrence of the Board, will act on a 

request under this paragraph (g)(5) 

within 30 calendar days after the receipt 

of all the information required under 

paragraph (g)(4) of this section. 

(ii) In acting on a request under this 

paragraph, the Board or appropriate 

Reserve Bank will apply the 

considerations and principles in 

paragraph (f) of this section. In addition, 

the Board or the appropriate Reserve 

Bank may disapprove the transaction if 

the bank holding company does not 

provide all of the information required 

to be submitted under paragraph (g)(4) 

of this section. 

(6) Disapproval and hearing. (i) The 

Board or the appropriate Reserve Bank 

will notify the bank holding company in 

writing of the reasons for a decision to 

disapprove any proposed capital 

distribution. Within 15 calendar days 

after receipt of a disapproval by the 

Board, the bank holding company may 

submit a written request for a hearing. 

(A) The Board may, in its sole 

discretion, order an informal hearing if 

the Board finds that a hearing is 

appropriate or necessary to resolve 

disputes regarding material issues of 

fact. 

(B) An informal hearing shall be held 

within 30 calendar days of a request, if 

granted, provided that the Board may 

extend this period upon notice to the 

requesting party. 

(C) Written notice of the final decision 

of the Board shall be given to the bank 

holding company within 60 calendar 

days of the conclusion of any informal 

hearing ordered by the Board, provided 

that the Board may extend this period 

upon notice to the requesting party. 

(D) While the Board’s final decision is 

pending and until such time as the 

Board or the appropriate Reserve Bank 

with concurrence of the Board, approves 

the capital distribution at issue, the 

bank holding company may not make 

such capital distribution. 

Appendix A to Part 225 [Removal 

Withdrawn] 

■ 3. The removal of appendix A to part 

225 published October 11, 2013, at 78 

FR 62291, and effective January 1, 2019, 

is withdrawn. 

PART 252—ENHANCED PRUDENTIAL 

STANDARDS (REGULATION YY) 

■ 4. The authority citation for part 252 

is revised to read as follows: 

Authority: 12 U.S.C. 321–338a, 1467a(g), 

1818, 1831p-1, 1844(b), 1844(c), 5361, 5365, 

5366. 

■ 5. Subpart B is revised to read as 

follows: 

Subpart B—Company-Run Stress Test 

Requirements for Certain U.S. Banking 

Organizations With Total Consolidated 

Assets Over $10 Billion and Less Than $50 

Billion 

Sec. 

252.10 [Reserved] 

252.11 Authority and purpose. 

252.12 Definitions. 

252.13 Applicability. 

252.14 Annual stress test. 

252.15 Methodologies and practices. 

252.16 Reports of stress test results. 

252.17 Disclosure of stress test results. 

§ 252.10 [Reserved] 

§ 252.11 Authority and purpose. 

(a) Authority. 12 U.S.C. 321–338a, 

1467a(g), 1818, 1831o, 1831p–1, 

1844(b), 1844(c), 3906–3909, 5365. 

(b) Purpose. This subpart implements 

section 165(i)(2) of the Dodd-Frank Act 

(12 U.S.C. 5365(i)(2)), which requires a 

bank holding company with total 

consolidated assets of greater than $10 

billion but less than $50 billion and 

savings and loan holding companies 

and state member banks with total 

consolidated assets of greater than $10 

billion to conduct annual stress tests. 

This subpart also establishes definitions 

of stress test and related terms, 

methodologies for conducting stress 

tests, and reporting and disclosure 

requirements. 


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§ 252.12 Definitions. 

For purposes of this subpart, the 

following definitions apply: 

(a) Advanced approaches means the 

regulatory capital requirements at 12 

CFR part 217, subpart E, as applicable, 

and any successor regulation. 

(b) Adverse scenario means a set of 

conditions that affect the U.S. economy 

or the financial condition of a bank 

holding company, savings and loan 

holding company, or state member bank 

that are more adverse than those 

associated with the baseline scenario 

and may include trading or other 

additional components. 

(c) Asset threshold means: 

(1) For a bank holding company, 

average total consolidated assets of 

greater than $10 billion but less than 

$50 billion, and 

(2) For a savings and loan holding 

company or state member bank, average 

total consolidated assets of greater than 

$10 billion. 

(d) Average total consolidated assets 

means the average of the total 

consolidated assets as reported by a 

bank holding company, savings and 

loan holding company, or state member 

bank on its Consolidated Financial 

Statements for Bank Holding Companies 

(FR Y–9C) or Consolidated Report of 

Condition and Income (Call Report), as 

applicable, for the four most recent 

consecutive quarters. If the bank 

holding company, savings and loan 

holding company, or state member bank 

has not filed the FR Y–9C or Call 

Report, as applicable, for each of the 

four most recent consecutive quarters, 

average total consolidated assets means 

the average of the company’s total 

consolidated assets, as reported on the 

company’s FR Y–9C or Call Report, as 

applicable, for the most recent quarter 

or consecutive quarters. Average total 

consolidated assets are measured on the 

as-of date of the most recent FR Y–9C 

or Call Report, as applicable, used in the 

calculation of the average. 

(e) Bank holding company has the 

same meaning as in § 225.2(c) of the 

Board’s Regulation Y (12 CFR 225.2(c)). 

(f) Baseline scenario means a set of 

conditions that affect the U.S. economy 

or the financial condition of a bank 

holding company, savings and loan 

holding company, or state member 

bank, and that reflect the consensus 

views of the economic and financial 

outlook. 

(g) Capital action has the same 

meaning as in § 225.8(c)(2) of the 

Board’s Regulation Y (12 CFR 

225.8(c)(2)). 

(h) Covered company subsidiary 

means a state member bank that is a 

subsidiary of a covered company as 

defined in subpart F of this part. 

(i) Depository institution has the same 

meaning as in section 3 of the Federal 

Deposit Insurance Act (12 U.S.C. 

1813(c)). 

(j) Foreign banking organization has 

the same meaning as in § 211.21(o) of 

the Board’s Regulation K (12 CFR 

211.21(o)). 

(k) Planning horizon means the period 

of at least nine consecutive quarters, 

beginning on the first day of a stress test 

cycle over which the relevant 

projections extend. 

(l) Pre-provision net revenue means 

the sum of net interest income and noninterest income less expenses before 

adjusting for loss provisions. 

(m) Provision for loan and lease losses 

means the provision for loan and lease 

losses as reported by the bank holding 

company, savings and loan holding 

company, or state member bank on the 

FR Y–9C or Call Report, as appropriate. 

(n) Regulatory capital ratio means a 

capital ratio for which the Board 

established minimum requirements for 

the company by regulation or order, 

including, as applicable, a company’s 

tier 1 and supplementary leverage ratio 

and common equity tier 1, tier 1, and 

total risk-based capital ratios as 

calculated under the Board’s 

regulations, including appendices A, D, 

and E to 12 CFR part 225, appendices 

A, B, and E to 12 CFR part 208, and 12 

CFR part 217, as applicable, including 

the transition provisions at 12 CFR 

217.1(f)(4) and 12 CFR 217.300, or any 

successor regulation. For state member 

banks other than covered company 

subsidiaries and for all bank holding 

companies, for the stress test cycle that 

commences on October 1, 2013, 

regulatory capital ratios must be 

calculated pursuant to the regulatory 

capital framework set forth in 12 CFR 

part 225, appendix A, and not the 

regulatory capital framework set forth in 

12 CFR part 217. 

(o) Savings and loan holding 

company has the same meaning as in 

§ 238.2(m) of the Board’s Regulation LL 

(12 CFR 238.2(m)). 

(p) Scenarios are those sets of 

conditions that affect the U.S. economy 

or the financial condition of a bank 

holding company, savings and loan 

holding company, or state member bank 

that the Board annually determines are 

appropriate for use in the company-run 

stress tests, including, but not limited 

to, baseline, adverse, and severely 

adverse scenarios. 

(q) Severely adverse scenario means a 

set of conditions that affect the U.S. 

economy or the financial condition of a 

bank holding company, savings and 

loan holding company, or state member 

bank and that overall are more severe 

than those associated with the adverse 

scenario and may include trading or 

other additional components. 

(r) State member bank has the same 

meaning as in § 208.2(g) of the Board’s 

Regulation H (12 CFR 208.2(g)). 

(s) Stress test means a process to 

assess the potential impact of scenarios 

on the consolidated earnings, losses, 

and capital of a bank holding company, 

savings and loan holding company, or 

state member bank over the planning 

horizon, taking into account the current 

condition, risks, exposures, strategies, 

and activities. 

(t) Stress test cycle means: 

(1) Until September 30, 2015, the 

period beginning on October 1 of a 

calendar year and ending on September 

30 of the following calendar year, and 

(2) Beginning October 1, 2015, the 

period beginning on January 1 of a 

calendar year and ending on December 

31 of that year. 

(u) Subsidiary has the same meaning 

as in § 225.2(o) the Board’s Regulation Y 

(12 CFR 225.2(o)). 

§ 252.13 Applicability. 

(a) Scope—(1) Applicability. Except as 

provided in paragraph (b) of this 

section, this subpart applies to: 

(i) Any bank holding company with 

average total consolidated assets (as 

defined in § 252.12(d)) of greater than 

$10 billion but less than $50 billion; 

(ii) Any savings and loan holding 

company with average total 

consolidated assets (as defined in 

§ 252.12(d)) of greater than $10 billion; 

and 

(iii) Any state member bank with 

average total consolidated assets (as 

defined in § 252.12(d)) of greater than 

$10 billion. 

(2) Ongoing applicability. (i) A bank 

holding company, savings and loan 

holding company, or state member bank 

(including any successor company) that 

is subject to any requirement in this 

subpart shall remain subject to any such 

requirement unless and until its total 

consolidated assets fall below $10 

billion for each of four consecutive 

quarters, as reported on the FR Y–9C or 

Call Report, as applicable and effective 

on the as-of date of the fourth 

consecutive FR Y–9C or Call Report, as 

applicable. 

(ii) A bank holding company or 

savings and loan holding company that 

becomes a covered company as defined 

in subpart F of this part and conducts 

a stress test pursuant to that subpart is 

not subject to the requirements of this 

subpart. 

(b) Transitional arrangements—(1) 

Transition periods for bank holding 


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companies and state member banks. (i) 

A bank holding company or state 

member bank that exceeds the asset 

threshold for the first time on or before 

March 31 of a given year, must comply 

with the requirements of this subpart 

beginning on January 1 of the following 

year, unless that time is extended by the 

Board in writing. 

(ii) A bank holding company or state 

member bank that exceeds the asset 

threshold for the first time after March 

31 of a given year must comply with the 

requirements of this subpart beginning 

on January 1 of the second year 

following that given year, unless that 

time is extended by the Board in 

writing. 

(iii) Notwithstanding paragraphs 

(b)(1)(i) or (ii) of this section, a bank 

holding company that meets the asset 

threshold (as defined in § 252.12(c)) and 

that is relying as of July 20, 2015, on 

Supervision and Regulation Letter SR 

01–01 issued by the Board (as in effect 

on May 19, 2010) must comply with the 

requirements of this subpart beginning 

on January 1, 2016, unless that time is 

extended by the Board in writing. 

(2) Transition period for savings and 

loan holding companies. (i) A savings 

and loan holding company that is 

subject to minimum regulatory capital 

requirements and exceeds the asset 

threshold for the first time on or before 

March 31 of a given year, must comply 

with the requirements of this subpart 

beginning on January 1 of the following 

year, unless that time is extended by the 

Board in writing. 

(ii) A savings and loan holding 

company that is subject to minimum 

regulatory capital requirements and 

exceeds the asset threshold for the first 

time after March 31 of a given year must 

comply with the requirements of this 

subpart beginning on January 1 of the 

second year following that given year, 

unless that time is extended by the 

Board in writing. 

(3) Transition periods for companies 

subject to the advanced approaches. 

Notwithstanding any other requirement 

in this section: 

(i) A bank holding company, savings 

and loan holding company, or state 

member bank must use 12 CFR part 225, 

appendices A and E (as applicable), and 

12 CFR part 217, subpart D and F, as 

applicable, to estimate its pro forma 

regulatory capital ratios and its pro 

forma tier 1 common ratio for the stress 

test cycle beginning on October 1, 2014, 

and may not use the advanced 

approaches until January 1, 2016; and 

(ii) Beginning January 1, 2016, a bank 

holding company, savings and loan 

holding company, or state member bank 

must use the advanced approaches to 

estimate its pro forma regulatory capital 

ratios if the Board notifies the company 

before the first day of the stress test 

cycle that the company is required to 

use the advanced approaches to 

determine its risk-based capital 

requirements. 

§ 252.14 Annual stress test. 

(a) General requirements—(1) 

General. A bank holding company, 

savings and loan holding company, and 

state member bank must conduct an 

annual stress test in accordance with 

paragraphs (a)(2) and (3) of this section. 

(2) Timing for the stress test cycle 

beginning on October 1, 2014. For the 

stress test cycle beginning on October 1, 

2014: 

(i) A state member bank that is a 

covered company subsidiary must 

conduct its stress test by January 5, 

2015, based on data as of September 30, 

2014, unless the time or the as-of date 

is extended by the Board in writing; and 

(ii) A state member bank that is not 

a covered company subsidiary and a 

bank holding company must conduct its 

stress test by March 31, 2015 based on 

data as of September 30, 2014, unless 

the time or the as-of date is extended by 

the Board in writing. 

(3) Timing for each stress test cycle 

beginning after October 1, 2014. For 

each stress test cycle beginning after 

October 1, 2014: 

(i) A state member bank that is a 

covered company subsidiary and a 

savings and loan holding company with 

average total consolidated assets of $50 

billion or more must conduct its stress 

test by April 5 of each calendar year 

based on data as of December 31 of the 

preceding calendar year, unless the time 

or the as-of date is extended by the 

Board in writing; and 

(ii) A state member bank that is not 

a covered company subsidiary, a bank 

holding company, and a savings and 

loan holding company with average 

total consolidated assets of less than $50 

billion must conduct its stress test by 

July 31 of each calendar year using 

financial statement data as of December 

31 of the preceding calendar year, 

unless the time or the as-of date is 

extended by the Board in writing. 

(b) Scenarios provided by the Board— 

(1) In general. In conducting a stress test 

under this section, a bank holding 

company, savings and loan holding 

company, or state member bank must, at 

a minimum, use the scenarios provided 

by the Board. Except as provided in 

paragraphs (b)(2) and (3) of this section, 

the Board will provide a description of 

the scenarios to each bank holding 

company, savings and loan holding 

company, or state member bank no later 

than November 15, 2014 (for the stress 

test cycle beginning on October 1, 2014) 

and no later than February 15 of that 

calendar year (for each stress test cycle 

beginning thereafter). 

(2) Additional components. (i) The 

Board may require a bank holding 

company, savings and loan holding 

company, or state member bank with 

significant trading activity, as 

determined by the Board and specified 

in the Capital Assessments and Stress 

Testing report (FR Y–14), to include a 

trading and counterparty component in 

its adverse and severely adverse 

scenarios in the stress test required by 

this section. The Board may also require 

a state member bank that is subject to 

12 CFR part 208, appendix E (or, 

beginning on January 1, 2015, 12 CFR 

217, subpart F) or that is a subsidiary of 

a bank holding company that is subject 

to either this paragraph or 

§ 252.54(b)(2)(i) of this part to include a 

trading and counterparty component in 

the state member bank’s adverse and 

severely adverse scenarios in the stress 

test required by this section. For the 

stress test cycle beginning on October 1, 

2014, the data used in this component 

must be as of a date between October 1 

and December 1 of 2014 selected by the 

Board, and the Board will communicate 

the as-of date and a description of the 

component to the company no later than 

December 1 of the calendar year. For 

each stress test cycle beginning 

thereafter, the data used in this 

component must be as of a date between 

January 1 and March 1 of that calendar 

year selected by the Board, and the 

Board will communicate the as-of date 

and a description of the component to 

the company no later than March 1 of 

that calendar year. 

(ii) The Board may require a bank 

holding company, savings and loan 

holding company, or state member bank 

to include one or more additional 

components in its adverse and severely 

adverse scenarios in the stress test 

required by this section based on the 

company’s financial condition, size, 

complexity, risk profile, scope of 

operations, or activities, or risks to the 

U.S. economy. 

(3) Additional scenarios. The Board 

may require a bank holding company, 

savings and loan holding company, or 

state member bank to include one or 

more additional scenarios in the stress 

test required by this section based on 

the company’s financial condition, size, 

complexity, risk profile, scope of 

operations, or activities, or risks to the 

U.S. economy. 

(4) Notice and response—(i) 

Notification of additional component. If 

the Board requires a bank holding 


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64048 Federal Register / Vol. 79, No. 207 / Monday, October 27, 2014 / Rules and Regulations 

company, savings and loan holding 

company, or state member bank to 

include one or more additional 

components in its adverse and severely 

adverse scenarios under paragraph (b)(2) 

of this section or to use one or more 

additional scenarios under paragraph 

(b)(3) of this section, the Board will 

notify the company in writing by 

September 30, 2014 (for the stress test 

cycle beginning on October 1, 2014) and 

by December 31 (for each stress test 

cycle beginning thereafter). 

(ii) Request for reconsideration and 

Board response. Within 14 calendar 

days of receipt of a notification under 

this paragraph, the bank holding 

company, savings and loan holding 

company, or state member bank may 

request in writing that the Board 

reconsider the requirement that the 

company include the additional 

component(s) or additional scenario(s), 

including an explanation as to why the 

reconsideration should be granted. The 

Board will respond in writing within 14 

calendar days of receipt of the 

company’s request. 

(iii) Description of component. The 

Board will provide the bank holding 

company, savings and loan holding 

company, or state member bank with a 

description of any additional 

component(s) or additional scenario(s) 

by December 1, 2014 (for the stress test 

cycle beginning on October 1, 2014) and 

by March 1 (for each stress test cycle 

beginning thereafter). 

§ 252.15 Methodologies and practices. 

(a) Potential impact on capital. In 

conducting a stress test under § 252.14, 

for each quarter of the planning horizon, 

a bank holding company, savings and 

loan holding company, or state member 

bank must estimate the following for 

each scenario required to be used: 

(1) Losses, pre-provision net revenue, 

provision for loan and lease losses, and 

net income; and 

(2) The potential impact on pro forma 

regulatory capital levels and pro forma 

capital ratios (including regulatory 

capital ratios and any other capital 

ratios specified by the Board), 

incorporating the effects of any capital 

actions over the planning horizon and 

maintenance of an allowance for loan 

losses appropriate for credit exposures 

throughout the planning horizon. 

(b) Assumptions regarding capital 

actions. In conducting a stress test 

under § 252.14, a bank holding company 

or savings and loan holding company is 

required to make the following 

assumptions regarding its capital 

actions over the planning horizon: 

(1) For the first quarter of the 

planning horizon, the bank holding 

company or savings and loan holding 

company must take into account its 

actual capital actions as of the end of 

that quarter; and 

(2) For each of the second through 

ninth quarters of the planning horizon, 

the bank holding company or savings 

and loan holding company must include 

in the projections of capital: 

(i) Common stock dividends equal to 

the quarterly average dollar amount of 

common stock dividends that the 

company paid in the previous year (that 

is, the first quarter of the planning 

horizon and the preceding three 

calendar quarters); 

(ii) Payments on any other instrument 

that is eligible for inclusion in the 

numerator of a regulatory capital ratio 

equal to the stated dividend, interest, or 

principal due on such instrument 

during the quarter; 

(iii) An assumption of no redemption 

or repurchase of any capital instrument 

that is eligible for inclusion in the 

numerator of a regulatory capital ratio; 

and 

(iv) An assumption of no issuances of 

common stock or preferred stock, except 

for issuances related to expensed 

employee compensation. 

(c) Controls and oversight of stress 

testing processes—(1) In general. The 

senior management of a bank holding 

company, savings and loan holding 

company, or state member bank must 

establish and maintain a system of 

controls, oversight, and documentation, 

including policies and procedures, that 

are designed to ensure that its stress 

testing processes are effective in 

meeting the requirements in this 

subpart. These policies and procedures 

must, at a minimum, describe the 

company’s stress testing practices and 

methodologies, and processes for 

validating and updating the company’s 

stress test practices and methodologies 

consistent with applicable laws, 

regulations, and supervisory guidance. 

(2) Oversight of stress testing 

processes. The board of directors, or a 

committee thereof, of a bank holding 

company, savings and loan holding 

company, or state member bank must 

review and approve the policies and 

procedures of the stress testing 

processes as frequently as economic 

conditions or the condition of the 

company may warrant, but no less than 

annually. The board of directors and 

senior management of the bank holding 

company, savings and loan holding 

company, or state member bank must 

receive a summary of the results of the 

stress test conducted under this section. 

(3) Role of stress testing results. The 

board of directors and senior 

management of a bank holding 

company, savings and loan holding 

company, or state member bank must 

consider the results of the stress test in 

the normal course of business, including 

but not limited to, the banking 

organization’s capital planning, 

assessment of capital adequacy, and risk 

management practices. 

§ 252.16 Reports of stress test results. 

(a) Reports to the Board of stress test 

results—(1) General. A bank holding 

company, savings and loan holding 

company, and state member bank must 

report the results of the stress test to the 

Board in the manner and form 

prescribed by the Board, in accordance 

with paragraphs (a)(2) and (3) of this 

section. 

(2) Timing for the stress test cycle 

beginning on October 1, 2014. For the 

stress test cycle beginning on October 1, 

2014: 

(i) A state member bank that is a 

covered company subsidiary must 

report the results of its stress test to the 

Board by January 5, 2015, unless that 

time is extended by the Board in 

writing; and 

(ii) A state member bank that is not 

a covered company subsidiary and a 

bank holding company must report the 

results of its stress test to the Board by 

March 31, 2015, unless that time is 

extended by the Board in writing. 

(3) Timing for each stress test cycle 

beginning after October 1, 2014. For 

each stress test cycle beginning after 

October 1, 2014: 

(i) A state member bank that is a 

covered company subsidiary and a 

savings and loan holding company that 

has average total consolidated assets of 

$50 billion or more must report the 

results of the stress test to the Board by 

April 5, unless that time is extended by 

the Board in writing; and 

(ii) A state member bank that is not 

a covered company subsidiary, a bank 

holding company, and a savings and 

loan holding company with average 

total consolidated assets of less than $50 

billion must report the results of the 

stress test to the Board by July 31, 

unless that time is extended by the 

Board in writing. 

(b) Contents of reports. The report 

required under paragraph (a) of this 

section must include the following 

information for the baseline scenario, 

adverse scenario, severely adverse 

scenario, and any other scenario 

required under § 252.14(b)(3): 

(1) A description of the types of risks 

being included in the stress test; 

(2) A summary description of the 

methodologies used in the stress test; 

and 


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(3) For each quarter of the planning 

horizon, estimates of aggregate losses, 

pre-provision net revenue, provision for 

loan and lease losses, net income, and 

regulatory capital ratios; 

(4) An explanation of the most 

significant causes for the changes in 

regulatory capital ratios; and 

(5) Any other information required by 

the Board. 

(c) Confidential treatment of 

information submitted. The 

confidentiality of information submitted 

to the Board under this subpart and 

related materials shall be determined in 

accordance with applicable exemptions 

under the Freedom of Information Act 

(5 U.S.C. 552(b)) and the Board’s Rules 

Regarding Availability of Information 

(12 CFR part 261). 

§ 252.17 Disclosure of stress test results. 

(a) Public disclosure of results—(1) 

General. (i) A bank holding company, 

savings and loan holding company, and 

state member bank must publicly 

disclose a summary of the results of the 

stress test required under this subpart. 

(2) Timing for the stress test cycle 

beginning on October 1, 2014. For the 

stress test cycle beginning on October 1, 

2014: 

(i) A state member bank that is a 

covered company subsidiary must 

publicly disclose a summary of the 

results of the stress test within 15 

calendar days after the Board discloses 

the results of its supervisory stress test 

of the covered company pursuant to 

§ 252.46(c) of this part, unless that time 

is extended by the Board in writing; and 

(ii) A state member bank that is not 

a covered company subsidiary and a 

bank holding company must publicly 

disclose a summary of the results of the 

stress test in the period beginning on 

June 15 and ending on June 30, 2015, 

unless that time is extended by the 

Board in writing. 

(3) Timing for each stress test cycle 

beginning after October 1, 2014. For 

each stress test cycle beginning after 

October 1, 2014: 

(i) A state member bank that is a 

covered company subsidiary must 

publicly disclose a summary of the 

results of the stress test within 15 

calendar days after the Board discloses 

the results of its supervisory stress test 

of the covered company pursuant to 

§ 252.46(c) of this part, unless that time 

is extended by the Board in writing; 

(ii) A savings and loan holding 

company with average total 

consolidated assets of $50 billion or 

more must publicly disclose a summary 

of the results of the stress test in the 

period beginning on June 15 and ending 

on June 30, unless that time is extended 

by the Board in writing; and 

(iii) A state member bank that is not 

a covered company subsidiary, a bank 

holding company, and a savings and 

loan holding company with average 

total consolidated assets of less than $50 

billion must publicly disclose a 

summary of the results of the stress test 

in the period beginning on October 15 

and ending on October 31, unless that 

time is extended by the Board in 

writing. 

(3) Disclosure method. The summary 

required under this section may be 

disclosed on the Web site of a bank 

holding company, savings and loan 

holding company, or state member 

bank, or in any other forum that is 

reasonably accessible to the public. 

(b) Summary of results—(1) Bank 

holding companies and savings and 

loan holding companies. The summary 

of the results of a bank holding 

company or savings and loan holding 

company must, at a minimum, contain 

the following information regarding the 

severely adverse scenario: 

(i) A description of the types of risks 

included in the stress test; 

(ii) A summary description of the 

methodologies used in the stress test; 

(iii) Estimates of— 

(A) Aggregate losses; 

(B) Pre-provision net revenue; 

(C) Provision for loan and lease losses; 

(D) Net income; and 

(E) Pro forma regulatory capital ratios 

and any other capital ratios specified by 

the Board; 

(iv) An explanation of the most 

significant causes for the changes in 

regulatory capital ratios; and 

(v) With respect to any depository 

institution subsidiary that is subject to 

stress testing requirements pursuant to 

12 U.S.C. 5365(i)(2), as implemented by 

this subpart, 12 CFR part 46 (OCC), or 

12 CFR part 325, subpart C (FDIC), 

changes over the planning horizon in 

regulatory capital ratios and any other 

capital ratios specified by the Board and 

an explanation of the most significant 

causes for the changes in regulatory 

capital ratios. 

(2) State member banks that are 

subsidiaries of bank holding companies. 

A state member bank that is a subsidiary 

of a bank holding company satisfies the 

public disclosure requirements under 

this subpart if the bank holding 

company publicly discloses summary 

results of its stress test pursuant to this 

section or § 252.58 of this part, unless 

the Board determines that the 

disclosures at the holding company 

level do not adequately capture the 

potential impact of the scenarios on the 

capital of the state member bank and 

requires the state member bank to make 

public disclosures. 

(3) State member banks that are not 

subsidiaries of bank holding companies. 

A state member bank that is not a 

subsidiary of a bank holding company 

or that is required to make disclosures 

under paragraph (b)(2) of this section 

must publicly disclose, at a minimum, 

the following information regarding the 

severely adverse scenario: 

(i) A description of the types of risks 

being included in the stress test; 

(ii) A summary description of the 

methodologies used in the stress test; 

(iii) Estimates of— 

(A) Aggregate losses; 

(B) Pre-provision net revenue 

(C) Provision for loan and lease losses; 

(D) Net income; and 

(E) Pro forma regulatory capital ratios 

and any other capital ratios specified by 

the Board; and 

(iv) An explanation of the most 

significant causes for the changes in 

regulatory capital ratios. 

(c) Content of results. (1) The 

disclosure of aggregate losses, preprovision net revenue, provision for 

loan and lease losses, and net income 

that is required under paragraph (b) of 

this section must be on a cumulative 

basis over the planning horizon. 

(2) The disclosure of pro forma 

regulatory capital ratios and any other 

capital ratios specified by the Board that 

is required under paragraph (b) of this 

section must include the beginning 

value, ending value and minimum value 

of each ratio over the planning horizon. 

■ 6. Subpart E is revised to read as 

follows: 

Subpart E—Supervisory Stress Test 

Requirements for U.S. Bank Holding 

Companies With $50 Billion or More in Total 

Consolidated Assets and Nonbank 

Financial Companies Supervised by the 

Board 

Sec. 

252.40 [Reserved]. 

252.41 Authority and purpose. 

252.42 Definitions. 

252.43 Applicability. 

252.44 Annual analysis conducted by the 

Board. 

252.45 Data and information required to be 

submitted in support of the Board’s 

analyses. 

252.46 Review of the Board’s analysis; 

publication of summary results. 

252.47 Corporate use of stress test results. 

§ 252.40 [Reserved]. 

§ 252.41 Authority and purpose. 

(a) Authority. 12 U.S.C. 321–338a, 

1467a(g), 1818, 1831p–1, 1844(b), 

1844(c), 5361, 5365, 5366. 

(b) Purpose. This subpart implements 

section 165(i)(1) of the Dodd-Frank Act 


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(12 U.S.C. 5365(i)(1)), which requires 

the Board to conduct annual analyses of 

nonbank financial companies 

supervised by the Board and bank 

holding companies with $50 billion or 

more in total consolidated assets to 

evaluate whether such companies have 

the capital, on a total consolidated basis, 

necessary to absorb losses as a result of 

adverse economic conditions. 

§ 252.42 Definitions. 

For purposes of this subpart F, the 

following definitions apply: 

(a) Advanced approaches means the 

risk-weighted assets calculation 

methodologies at 12 CFR part 217, 

subpart E, as applicable, and any 

successor regulation. 

(b) Adverse scenario means a set of 

conditions that affect the U.S. economy 

or the financial condition of a covered 

company that are more adverse than 

those associated with the baseline 

scenario and may include trading or 

other additional components. 

(c) Average total consolidated assets 

means the average of the total 

consolidated assets as reported by a 

bank holding company on its 

Consolidated Financial Statements for 

Bank Holding Companies (FR Y–9C) for 

the four most recent consecutive 

quarters. If the bank holding company 

has not filed the FR Y–9C for each of the 

four most recent consecutive quarters, 

average total consolidated assets means 

the average of the company’s total 

consolidated assets, as reported on the 

company’s FR Y–9C, for the most recent 

quarter or consecutive quarters. Average 

total consolidated assets are measured 

on the as-of date of the most recent FR 

Y–9C used in the calculation of the 

average. 

(d) Bank holding company has the 

same meaning as in § 225.2(c) of the 

Board’s Regulation Y (12 CFR 225.2(c)). 

(e) Baseline scenario means a set of 

conditions that affect the U.S. economy 

or the financial condition of a covered 

company and that reflect the consensus 

views of the economic and financial 

outlook. 

(f) Covered company means: 

(1) A bank holding company (other 

than a foreign banking organization) 

with average total consolidated assets of 

$50 billion or more; 

(2) A U.S. intermediate holding 

company subject to this section 

pursuant to § 252.153 of this part; and 

(3) A nonbank financial company 

supervised by the Board. 

(g) Depository institution has the same 

meaning as in section 3 of the Federal 

Deposit Insurance Act (12 U.S.C. 

1813(c)). 

(h) Foreign banking organization has 

the same meaning as in § 211.21(o) of 

the Board’s Regulation K (12 CFR 

211.21(o)). 

(i) Nonbank financial company 

supervised by the Board means a 

nonbank financial company that the 

Financial Stability Oversight Council 

has determined under section 113 of the 

Dodd-Frank Act (12 U.S.C. 5323) shall 

be supervised by the Board and for 

which such determination is still in 

effect. 

(j) Planning horizon means the period 

of at least nine consecutive quarters, 

beginning on the first day of a stress test 

cycle over which the relevant 

projections extend. 

(k) Pre-provision net revenue means 

the sum of net interest income and noninterest income less expenses before 

adjusting for loss provisions. 

(l) Provision for loan and lease losses 

means the provision for loan and lease 

losses as reported by the covered 

company on the FR Y–9C. 

(m) Regulatory capital ratio means a 

capital ratio for which the Board 

established minimum requirements for 

the company by regulation or order, 

including, as applicable, the company’s 

tier 1 and supplementary leverage ratios 

and common equity tier 1, tier 1, and 

total risk-based capital ratios as 

calculated under appendices A, D, and 

E to this part (12 CFR part 225) and 12 

CFR part 217, as applicable, including 

the transition provisions at 12 CFR 

217.1(f)(4) and 12 CFR 217.300, or any 

successor regulation. 

(n) Scenarios are those sets of 

conditions that affect the U.S. economy 

or the financial condition of a covered 

company that the Board annually 

determines are appropriate for use in 

the supervisory stress tests, including, 

but not limited to, baseline, adverse, 

and severely adverse scenarios. 

(o) Severely adverse scenario means a 

set of conditions that affect the U.S. 

economy or the financial condition of a 

covered company and that overall are 

more severe than those associated with 

the adverse scenario and may include 

trading or other additional components. 

(p) Stress test cycle means: 

(1) Until September 30, 2015, the 

period beginning on October 1 of a 

calendar year and ending on September 

30 of the following calendar year, and 

(2) Beginning October 1, 2015, the 

period beginning on January 1 of a 

calendar year and ending on December 

31 of that year. 

(q) Subsidiary has the same meaning 

as in § 225.2(o) the Board’s Regulation Y 

(12 CFR 225.2). 

(r) Tier 1 common ratio has the same 

meaning as in the Board’s Regulation Y 

(12 CFR 225.8). 

§ 252.43 Applicability. 

(a) Scope—(1) Applicability. Except as 

provided in paragraph (b) of this 

section, this subpart applies to any 

covered company, which includes: 

(i) Any bank holding company with 

average total consolidated assets (as 

defined in § 252.42(c)) of $50 billion or 

more; 

(ii) Any U.S. intermediate holding 

company subject to this section 

pursuant to § 252.153 of this part; and 

(iii) Any nonbank financial company 

supervised by the Board that is made 

subject to this section pursuant to a rule 

or order of the Board. 

(2) Ongoing applicability. A bank 

holding company (including any 

successor company) that is subject to 

any requirement in this subpart shall 

remain subject to any such requirement 

unless and until its total consolidated 

assets fall below $50 billion for each of 

four consecutive quarters, as reported 

on the FR Y–9C and effective on the asof date of the fourth consecutive FR Y– 

9C. 

(b) Transitional arrangements—(1) 

Transition periods for bank holding 

companies that become covered 

companies after October 1, 2014. (i) A 

bank holding company that becomes a 

covered company on or before March 31 

of a given year must comply with the 

requirements of this subpart beginning 

on January 1 of the following year, 

unless that time is extended by the 

Board in writing. 

(ii) A bank holding company that 

becomes a covered company after March 

31 of a given year must comply with the 

requirements of this subpart beginning 

on January 1 of the second year 

following that given year, unless that 

time is extended by the Board in 

writing. 

(2) Bank holding companies that rely 

on SR Letter 01–01. A covered company 

that is relying as of July 20, 2015, on 

Supervision and Regulation Letter SR 

01–01 issued by the Board (as in effect 

on May 19, 2010) must comply with the 

requirements of this subpart beginning 

on January 1, 2016, unless that time is 

extended by the Board in writing. 

(c) Transition periods for covered 

companies subject to the advanced 

approaches. Notwithstanding any other 

requirement in this section, for a given 

stress test cycle: 

(1) The Board will use 12 CFR part 

225, appendices A and E (as applicable), 

and 12 CFR part 217, subpart D and F, 

as applicable, to estimate a covered 

company’s pro forma regulatory capital 


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ratios and its pro forma tier 1 common 

ratio for the stress test cycle beginning 

on October 1, 2014 and will not use the 

advanced approaches until January 1, 

2016; and 

(2) Beginning January 1, 2016, the 

Board will use the advanced approaches 

to estimate a covered company’s pro 

forma regulatory capital ratios and pro 

forma tier 1 common ratio if the Board 

notified the covered company before the 

first day of the stress test cycle that the 

covered company is required to use the 

advanced approaches to determine its 

risk-based capital requirements. 

§ 252.44 Annual analysis conducted by the 

Board. 

(a) In general. (1) On an annual basis, 

the Board will conduct an analysis of 

each covered company’s capital, on a 

total consolidated basis, taking into 

account all relevant exposures and 

activities of that covered company, to 

evaluate the ability of the covered 

company to absorb losses in specified 

economic and financial conditions. 

(2) The analysis will include an 

assessment of the projected losses, net 

income, and pro forma capital levels 

and regulatory capital ratios, tier 1 

common ratio, and other capital ratios 

for the covered company and use such 

analytical techniques that the Board 

determines are appropriate to identify, 

measure, and monitor risks of the 

covered company that may affect the 

financial stability of the United States. 

(3) In conducting the analyses, the 

Board will coordinate with the 

appropriate primary financial regulatory 

agencies and the Federal Insurance 

Office, as appropriate. 

(b) Economic and financial scenarios 

related to the Board’s analysis. The 

Board will conduct its analysis under 

this section using a minimum of three 

different scenarios, including a baseline 

scenario, adverse scenario, and severely 

adverse scenario. For the stress test 

cycle beginning on October 1, 2014, the 

Board will notify covered companies of 

the scenarios that the Board will apply 

to conduct the analysis for each stress 

test cycle by no later than November 15, 

2014, except with respect to trading or 

any other components of the scenarios 

and any additional scenarios that the 

Board will apply to conduct the 

analysis, which will be communicated 

by no later than December 1, 2014. For 

each stress test cycle beginning 

thereafter, the Board will notify covered 

companies of the scenarios that the 

Board will apply to conduct the analysis 

for each stress test cycle by no later than 

February 15 of each year, except with 

respect to trading or any other 

components of the scenarios and any 

additional scenarios that the Board will 

apply to conduct the analysis, which 

will be communicated by no later than 

March 1 of that year. 

§ 252.45 Data and information required to 

be submitted in support of the Board’s 

analyses. 

(a) Regular submissions. Each covered 

company must submit to the Board such 

data, on a consolidated basis, that the 

Board determines is necessary in order 

for the Board to derive the relevant pro 

forma estimates of the covered company 

over the planning horizon under the 

scenarios described in § 252.44(b). 

(b) Additional submissions required 

by the Board. The Board may require a 

covered company to submit any other 

information on a consolidated basis that 

the Board deems necessary in order to: 

(1) Ensure that the Board has 

sufficient information to conduct its 

analysis under this subpart; and 

(2) Project a company’s pre-provision 

net revenue, losses, provision for loan 

and lease losses, and net income; and, 

pro forma capital levels, regulatory 

capital ratios, tier 1 common ratio, and 

any other capital ratio specified by the 

Board under the scenarios described in 

§ 252.44(b). 

(c) Confidential treatment of 

information submitted. The 

confidentiality of information submitted 

to the Board under this subpart and 

related materials shall be determined in 

accordance with the Freedom of 

Information Act (5 U.S.C. 552(b)) and 

the Board’s Rules Regarding Availability 

of Information (12 CFR part 261). 

§ 252.46 Review of the Board’s analysis; 

publication of summary results. 

(a) Review of results. Based on the 

results of the analysis conducted under 

this subpart, the Board will conduct an 

evaluation to determine whether the 

covered company has the capital, on a 

total consolidated basis, necessary to 

absorb losses and continue its operation 

by maintaining ready access to funding, 

meeting its obligations to creditors and 

other counterparties, and continuing to 

serve as a credit intermediary under 

baseline, adverse and severely adverse 

scenarios, and any additional scenarios. 

(b) Publication of results by the Board. 

(1) The Board will publicly disclose a 

summary of the results of the Board’s 

analyses of a covered company by 

March 31, 2015 (for the stress test cycle 

beginning on October 1, 2014) and by 

June 30 (for each stress test cycle 

beginning thereafter). 

(2) The Board will notify companies 

of the date on which it expects to 

publicly disclose a summary of the 

Board’s analyses pursuant to paragraph 

(b)(1) of this section at least 14 calendar 

days prior to the expected disclosure 

date. 

§ 252.47 Corporate use of stress test 

results. 

(a) In general. The board of directors 

and senior management of each covered 

company must consider the results of 

the analysis conducted by the Board 

under this subpart, as appropriate: 

(1) As part of the covered company’s 

capital plan and capital planning 

process, including when making 

changes to the covered company’s 

capital structure (including the level 

and composition of capital); 

(2) When assessing the covered 

company’s exposures, concentrations, 

and risk positions; and 

(3) In the development or 

implementation of any plans of the 

covered company for recovery or 

resolution. 

(b) Resolution plan updates. Each 

covered company must update its 

resolution plan as the Board determines 

appropriate, based on the results of the 

Board’s analyses of the covered 

company under this subpart. 

■ 8. Subpart F is revised to read as 

follows: 

Subpart F—Company-Run Stress Test 

Requirements for U.S. Bank Holding 

Companies With $50 Billion or More in Total 

Consolidated Assets and Nonbank 

Financial Companies Supervised by the 

Board 

Sec. 

252.50 [Reserved]. 

252.51 Authority and purpose. 

252.52 Definitions. 

252.53 Applicability. 

252.54 Annual stress test. 

252.55 Mid-cycle stress test. 

252.56 Methodologies and practices. 

252.57 Reports of stress test results. 

252.58 Disclosure of stress test results. 

§ 252.50 [Reserved]. 

§ 252.51 Authority and purpose. 

(a) Authority. 12 U.S.C. 321–338a, 

1467a(g), 1818, 1831p–1, 1844(b), 

1844(c), 5361, 5365, 5366. 

(b) Purpose. This subpart implements 

section 165(i)(2) of the Dodd-Frank Act 

(12 U.S.C. 5365(i)(2)), which requires a 

covered company to conduct annual 

and semi-annual stress tests. This 

subpart also establishes definitions of 

stress test and related terms, 

methodologies for conducting stress 

tests, and reporting and disclosure 

requirements. 

§ 252.52 Definitions. 

For purposes of this subpart, the 

following definitions apply: 

(a) Advanced approaches means the 

risk-weighted assets calculation 


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64052 Federal Register / Vol. 79, No. 207 / Monday, October 27, 2014 / Rules and Regulations 

methodologies at 12 CFR part 217, 

subpart E, as applicable, and any 

successor regulation. 

(b) Adverse scenario means a set of 

conditions that affect the U.S. economy 

or the financial condition of a covered 

company that are more adverse than 

those associated with the baseline 

scenario and may include trading or 

other additional components. 

(c) Average total consolidated assets 

means the average of the total 

consolidated assets as reported by a 

bank holding company on its 

Consolidated Financial Statements for 

Bank Holding Companies (FR Y–9C) for 

the four most recent consecutive 

quarters. If the bank holding company 

has not filed the FR Y–9C for each of the 

four most recent consecutive quarters, 

average total consolidated assets means 

the average of the company’s total 

consolidated assets, as reported on the 

company’s FR Y–9C, for the most recent 

quarter or consecutive quarters. Average 

total consolidated assets are measured 

on the as-of date of the most recent FR 

Y–9C used in the calculation of the 

average. 

(d) Bank holding company has the 

same meaning as in § 225.2(c) of the 

Board’s Regulation Y (12 CFR 225.2(c)). 

(e) Baseline scenario means a set of 

conditions that affect the U.S. economy 

or the financial condition of a covered 

company and that reflect the consensus 

views of the economic and financial 

outlook. 

(f) Capital action has the same 

meaning as in § 225.8(c)(2) of the 

Board’s Regulation Y (12 CFR 

225.8(c)(2)). 

(g) Covered company means: 

(1) A bank holding company (other 

than a foreign banking organization) 

with average total consolidated assets of 

$50 billion or more; 

(2) A U.S. intermediate holding 

company subject to this section 

pursuant to § 252.153 of this part; and 

(3) A nonbank financial company 

supervised by the Board. 

(h) Depository institution has the 

same meaning as in section 3 of the 

Federal Deposit Insurance Act (12 

U.S.C. 1813(c)). 

(i) Foreign banking organization has 

the same meaning as in § 211.21(o) of 

the Board’s Regulation K (12 CFR 

211.21(o)). 

(j) Nonbank financial company 

supervised by the Board means a 

nonbank financial company that the 

Financial Stability Oversight Council 

has determined under section 113 of the 

Dodd-Frank Act (12 U.S.C. 5323) shall 

be supervised by the Board and for 

which such determination is still in 

effect. 

(k) Planning horizon means the period 

of at least nine consecutive quarters, 

beginning on the first day of a stress test 

cycle (on October 1 or April 1, as 

appropriate) over which the relevant 

projections extend. 

(l) Pre-provision net revenue means 

the sum of net interest income and noninterest income less expenses before 

adjusting for loss provisions. 

(m) Provision for loan and lease losses 

means the provision for loan and lease 

losses as reported by the covered 

company on the FR Y–9C. 

(n) Regulatory capital ratio means a 

capital ratio for which the Board 

established minimum requirements for 

the company by regulation or order, 

including, as applicable, the company’s 

tier 1 and supplementary leverage ratios 

and common equity tier 1, tier 1, and 

total risk-based capital ratios as 

calculated under appendices A, D, and 

E to this part (12 CFR part 225) and 12 

CFR part 217, as applicable, including 

the transition provisions at 12 CFR 

217.1(f)(4) and 12 CFR 217.300, or any 

successor regulation. 

(o) Scenarios are those sets of 

conditions that affect the U.S. economy 

or the financial condition of a covered 

company that the Board, or with respect 

to the mid-cycle stress test required 

under § 252.55, the covered company, 

annually determines are appropriate for 

use in the company-run stress tests, 

including, but not limited to, baseline, 

adverse, and severely adverse scenarios. 

(p) Severely adverse scenario means a 

set of conditions that affect the U.S. 

economy or the financial condition of a 

covered company and that overall are 

more severe than those associated with 

the adverse scenario and may include 

trading or other additional components. 

(q) Stress test means a process to 

assess the potential impact of scenarios 

on the consolidated earnings, losses, 

and capital of a covered company over 

the planning horizon, taking into 

account its current condition, risks, 

exposures, strategies, and activities. 

(r) Stress test cycle means: 

(1) Until September 30, 2015, the 

period beginning on October 1 of a 

calendar year and ending on September 

30 of the following calendar year, and 

(2) Beginning October 1, 2015, the 

period beginning on January 1 of a 

calendar year and ending on December 

31 of that year. 

(s) Subsidiary has the same meaning 

as in § 225.2(o) the Board’s Regulation Y 

(12 CFR 225.2). 

(t) Tier 1 common ratio has the same 

meaning as in § 225.8 of the Board’s 

Regulation Y (12 CFR 225.8). 

§ 252.53 Applicability. 

(a) Scope—(1) Applicability. Except as 

provided in paragraph (b) of this 

section, this subpart applies to any 

covered company, which includes: 

(i) Any bank holding company with 

average total consolidated assets (as 

defined in § 252.42(c) of this part) of $50 

billion or more; 

(ii) Any U.S. intermediate holding 

company subject to this section 

pursuant to § 252.153 of this part; and 

(iii) Any nonbank financial company 

supervised by the Board that is made 

subject to this section pursuant to a rule 

or order of the Board. 

(2) Ongoing applicability. A bank 

holding company (including any 

successor company) that is subject to 

any requirement in this subpart shall 

remain subject to any such requirement 

unless and until its total consolidated 

assets fall below $50 billion for each of 

four consecutive quarters, as reported 

on the FR Y–9C and effective on the asof date of the fourth consecutive FR Y– 

9C. 

(b) Transitional arrangements—(1) 

Transition periods for bank holding 

companies that become covered 

companies after October 1, 2014. (i) A 

bank holding company that becomes a 

covered company on or before March 31 

of a given year must comply with the 

requirements of this subpart beginning 

on January 1 of the following year, 

unless that time is extended by the 

Board in writing. 

(ii) A bank holding company that 

becomes a covered company after March 

31 of a given year must comply with the 

requirements of this subpart beginning 

on January 1 of the second year 

following that given year, unless that 

time is extended by the Board in 

writing. 

(2) Bank holding companies that rely 

on SR Letter 01–01. A covered company 

that is relying as of July 20, 2015, on 

Supervision and Regulation Letter SR 

01–01 issued by the Board (as in effect 

on May 19, 2010) must comply with the 

requirements of this subpart beginning 

on January 1, 2016, unless that time is 

extended by the Board in writing. 

(3) Transition periods for covered 

companies subject to the advanced 

approaches. Notwithstanding any other 

requirement in this section: 

(i) A covered company must use 12 

CFR part 225, appendices A and E (as 

applicable), and 12 CFR part 217, 

subpart D and F, as applicable, to 

estimate its pro forma regulatory capital 

ratios and its pro forma tier 1 common 

ratio for the stress test cycle beginning 

on October 1, 2014, and may not use the 

advanced approaches until January 1, 

2016; and 


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(ii) Beginning January 1, 2016, a 

covered company must use the 

advanced approaches to estimate its pro 

forma regulatory capital ratios and its 

pro forma tier 1 common ratio for 

purposes of its stress test under § 252.54 

if the Board notifies the company before 

the first day of the stress test cycle that 

the company is required to use the 

advanced approaches to determine its 

risk-based capital requirements. 

§ 252.54 Annual stress test. 

(a) In general. A covered company 

must conduct an annual stress test. For 

the stress test cycle beginning on 

October 1, 2014, the stress test must be 

conducted by January 5, 2015, based on 

data as of September 30, 2014, unless 

the time or the as-of date is extended by 

the Board in writing. For each stress test 

cycle beginning thereafter, the stress test 

must be conducted by April 5 of each 

calendar year based on data as of 

December 31 of the preceding calendar 

year, unless the time or the as-of date is 

extended by the Board in writing. 

(b) Scenarios provided by the Board— 

(1) In general. In conducting a stress test 

under this section, a covered company 

must, at a minimum, use the scenarios 

provided by the Board. Except as 

provided in paragraphs (b)(2) and (3) of 

this section, for the stress test cycle 

beginning on October 1, 2014, the Board 

will provide a description of the 

scenarios to each covered company no 

later than November 15, 2014. Except as 

provided in paragraphs (b)(2) and (3) of 

this section, for each stress test cycle 

beginning thereafter, the Board will 

provide a description of the scenarios to 

each covered company no later than 

February 15 of that calendar year. 

(2) Additional components. (i) The 

Board may require a covered company 

with significant trading activity, as 

determined by the Board and specified 

in the Capital Assessments and Stress 

Testing report (FR Y–14), to include a 

trading and counterparty component in 

its adverse and severely adverse 

scenarios in the stress test required by 

this section. For the stress test cycle 

beginning on October 1, 2014, the data 

used in this component must be as of a 

date between October 1 and December 

1, 2014, as selected by the Board, and 

the Board will communicate the as-of 

date and a description of the component 

to the company no later than December 

1, 2014. For the stress test cycle 

beginning on January 1, 2016, and for 

each stress test cycle beginning 

thereafter, the data used in this 

component must be as of a date between 

January 1 and March 1 of that calendar 

year selected by the Board, and the 

Board will communicate the as-of date 

and a description of the component to 

the company no later than March 1 of 

the relevant calendar year. 

(ii) The Board may require a covered 

company to include one or more 

additional components in its adverse 

and severely adverse scenarios in the 

stress test required by this section based 

on the company’s financial condition, 

size, complexity, risk profile, scope of 

operations, or activities, or risks to the 

U.S. economy. 

(3) Additional scenarios. The Board 

may require a covered company to use 

one or more additional scenarios in the 

stress test required by this section based 

on the company’s financial condition, 

size, complexity, risk profile, scope of 

operations, or activities, or risks to the 

U.S. economy. 

(4) Notice and response—(i) 

Notification of additional component. If 

the Board requires a covered company 

to include one or more additional 

components in its adverse and severely 

adverse scenarios under paragraph (b)(2) 

of this section or to use one or more 

additional scenarios under paragraph 

(b)(3) of this section, the Board will 

notify the company in writing. For the 

stress test cycle beginning on October 1, 

2014, the Board will provide such 

notification no later than September 30, 

2014, and for each stress test cycle 

beginning thereafter, the Board will 

provide such notification no later than 

December 31 of the preceding calendar 

year. The notification will include a 

general description of the additional 

component(s) or additional scenario(s) 

and the basis for requiring the company 

to include the additional component(s) 

or additional scenario(s). 

(ii) Request for reconsideration and 

Board response. Within 14 calendar 

days of receipt of a notification under 

this paragraph, the covered company 

may request in writing that the Board 

reconsider the requirement that the 

company include the additional 

component(s) or additional scenario(s), 

including an explanation as to why the 

reconsideration should be granted. 

(iii) Description of component. The 

Board will respond in writing within 14 

calendar days of receipt of the 

company’s request. The Board will 

provide the covered company with a 

description of any additional 

component(s) or additional scenario(s) 

by December 1, 2014 (for the stress test 

cycle beginning on October 1, 2014) and 

by March 1 (for each stress test cycle 

beginning thereafter). 

§ 252.55 Mid-cycle stress test. 

(a) Mid-cycle stress test requirement. 

In addition to the stress test required 

under § 252.54, a covered company 

must conduct a mid-cycle stress test. 

For the stress test cycle beginning on 

October 1, 2014, the mid-cycle stress 

test must be conducted by July 5 based 

on data as of March 31 of that calendar 

year, unless the time or the as-of date is 

extended by the Board in writing. For 

each stress test cycle beginning 

thereafter, the stress test must be 

conducted by September 30 of each 

calendar year based on data as of June 

30 of that calendar year, unless the time 

or the as-of date is extended by the 

Board in writing. 

(b) Scenarios related to mid-cycle 

stress tests—(1) In general. A covered 

company must develop and employ a 

minimum of three scenarios, including 

a baseline scenario, adverse scenario, 

and severely adverse scenario, that are 

appropriate for its own risk profile and 

operations, in conducting the stress test 

required by this section. 

(2) Additional components. The 

Board may require a covered company 

to include one or more additional 

components in its adverse and severely 

adverse scenarios in the stress test 

required by this section based on the 

company’s financial condition, size, 

complexity, risk profile, scope of 

operations, or activities, or risks to the 

U.S. economy. 

(3) Additional scenarios. The Board 

may require a covered company to use 

one or more additional scenarios in the 

stress test required by this section based 

on the company’s financial condition, 

size, complexity, risk profile, scope of 

operations, or activities, or risks to the 

U.S. economy. 

(4) Notice and response—(i) 

Notification of additional component. If 

the Board requires a covered company 

to include one or more additional 

components in its adverse and severely 

adverse scenarios under paragraph (b)(2) 

of this section or one or more additional 

scenarios under paragraph (b)(3) of this 

section, the Board will notify the 

company in writing. For the stress test 

cycle beginning on October 1, 2014, the 

Board will provide such notification no 

later than March 31, and for each stress 

test cycle beginning thereafter, the 

Board will provide such notification no 

later than June 30. The notification will 

include a general description of the 

additional component(s) or additional 

scenario(s) and the basis for requiring 

the company to include the additional 

component(s) or additional scenario(s). 

(ii) Request for reconsideration and 

Board response. Within 14 calendar 

days of receipt of a notification under 

this paragraph, the covered company 

may request in writing that the Board 

reconsider the requirement that the 

company include the additional 


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component(s) or additional scenario(s), 

including an explanation as to why the 

reconsideration should be granted. The 

Board will respond in writing within 14 

calendar days of receipt of the 

company’s request. 

(iii) Description of component. The 

Board will provide the covered 

company with a description of any 

additional component(s) or additional 

scenario(s) by June 1 (for the stress test 

cycle beginning on October 1, 2014) and 

by September 1 (for each stress test 

cycle beginning thereafter). 

§ 252.56 Methodologies and practices. 

(a) Potential impact on capital. In 

conducting a stress test under §§ 252.54 

and 252.55, for each quarter of the 

planning horizon, a covered company 

must estimate the following for each 

scenario required to be used: 

(1) Losses, pre-provision net revenue, 

provision for loan and lease losses, and 

net income; and 

(2) The potential impact on pro forma 

regulatory capital levels and pro forma 

capital ratios (including regulatory 

capital ratios, the tier 1 common ratio, 

and any other capital ratios specified by 

the Board), incorporating the effects of 

any capital actions over the planning 

horizon and maintenance of an 

allowance for loan losses appropriate for 

credit exposures throughout the 

planning horizon. 

(b) Assumptions regarding capital 

actions. In conducting a stress test 

under §§ 252.54 and 252.55, a covered 

company is required to make the 

following assumptions regarding its 

capital actions over the planning 

horizon: 

(1) For the first quarter of the 

planning horizon, the covered company 

must take into account its actual capital 

actions as of the end of that quarter; and 

(2) For each of the second through 

ninth quarters of the planning horizon, 

the covered company must include in 

the projections of capital: 

(i) Common stock dividends equal to 

the quarterly average dollar amount of 

common stock dividends that the 

company paid in the previous year (that 

is, the first quarter of the planning 

horizon and the preceding three 

calendar quarters); 

(ii) Payments on any other instrument 

that is eligible for inclusion in the 

numerator of a regulatory capital ratio 

equal to the stated dividend, interest, or 

principal due on such instrument 

during the quarter; 

(iii) An assumption of no redemption 

or repurchase of any capital instrument 

that is eligible for inclusion in the 

numerator of a regulatory capital ratio; 

and 

(iv) An assumption of no issuances of 

common stock or preferred stock, except 

for issuances related to expensed 

employee compensation. 

(c) Controls and oversight of stress 

testing processes—(1) In general. The 

senior management of a covered 

company must establish and maintain a 

system of controls, oversight, and 

documentation, including policies and 

procedures, that are designed to ensure 

that its stress testing processes are 

effective in meeting the requirements in 

this subpart. These policies and 

procedures must, at a minimum, 

describe the covered company’s stress 

testing practices and methodologies, 

and processes for validating and 

updating the company’s stress test 

practices and methodologies consistent 

with applicable laws, regulations, and 

supervisory guidance. Policies of 

covered companies must also describe 

processes for scenario development for 

the mid-cycle stress test required under 

§ 252.55. 

(2) Oversight of stress testing 

processes. The board of directors, or a 

committee thereof, of a covered 

company must review and approve the 

policies and procedures of the stress 

testing processes as frequently as 

economic conditions or the condition of 

the covered company may warrant, but 

no less than annually. The board of 

directors and senior management of the 

covered company must receive a 

summary of the results of any stress test 

conducted under this subpart. 

(3) Role of stress testing results. The 

board of directors and senior 

management of each covered company 

must consider the results of the analysis 

it conducts under this subpart, as 

appropriate: 

(i) As part of the covered company’s 

capital plan and capital planning 

process, including when making 

changes to the covered company’s 

capital structure (including the level 

and composition of capital); 

(ii) When assessing the covered 

company’s exposures, concentrations, 

and risk positions; and 

(iii) In the development or 

implementation of any plans of the 

covered company for recovery or 

resolution. 

§ 252.57 Reports of stress test results. 

(a) Reports to the Board of stress test 

results. (1) A covered company must 

report the results of the stress test 

required under § 252.54 to the Board in 

the manner and form prescribed by the 

Board. For the stress test cycle 

beginning on October 1, 2014, such 

results must be submitted by January 5, 

unless that time is extended by the 

Board in writing. For each stress test 

cycle beginning thereafter, such results 

must be submitted by April 5, unless 

that time is extended by the Board in 

writing. 

(2) A covered company must report 

the results of the stress test required 

under § 252.55 to the Board in the 

manner and form prescribed by the 

Board. For the stress test cycle 

beginning on October 1, 2014, such 

results must be submitted by July 5, 

unless that time is extended by the 

Board in writing. For each stress test 

cycle beginning thereafter, such results 

must be submitted by October 5, unless 

that time is extended by the Board in 

writing. 

(b) Confidential treatment of 

information submitted. The 

confidentiality of information submitted 

to the Board under this subpart and 

related materials shall be determined in 

accordance with applicable exemptions 

under the Freedom of Information Act 

(5 U.S.C. 552(b)) and the Board’s Rules 

Regarding Availability of Information 

(12 CFR part 261). 

§ 252.58 Disclosure of stress test results. 

(a) Public disclosure of results—(1) In 

general. (i) A covered company must 

publicly disclose a summary of the 

results of the stress test required under 

§ 252.54 within the period that is 15 

calendar days after the Board publicly 

discloses the results of its supervisory 

stress test of the covered company 

pursuant to § 252.46(c) of this part, 

unless that time is extended by the 

Board in writing. 

(ii) A covered company must publicly 

disclose a summary of the results of the 

stress test required under § 252.55. For 

the stress test cycle beginning on 

October 1, 2014, this disclosure must 

occur in the period beginning on July 5 

and ending on August 4, unless that 

time is extended by the Board in 

writing. For all stress test cycles 

beginning thereafter, this disclosure 

must occur in the period beginning on 

October 5 and ending on November 4, 

unless that time is extended by the 

Board in writing. 

(2) Disclosure method. The summary 

required under this section may be 

disclosed on the Web site of a covered 

company, or in any other forum that is 

reasonably accessible to the public. 

(b) Summary of results. The summary 

results must, at a minimum, contain the 

following information regarding the 

severely adverse scenario: 

(1) A description of the types of risks 

included in the stress test; 

(2) A general description of the 

methodologies used in the stress test, 

including those employed to estimate 


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Federal Register / Vol. 79, No. 207 / Monday, October 27, 2014 / Rules and Regulations 64055 

4 12 CFR 252.44(b), 12 CFR 252.54(b). For the 

stress test cycle beginning on October 1, 2014, the 

Continued 

losses, revenues, provision for loan and 

lease losses, and changes in capital 

positions over the planning horizon; 

(3) Estimates of— 

(i) Pre-provision net revenue and 

other revenue; 

(ii) Provision for loan and lease losses, 

realized losses or gains on available-forsale and held-to-maturity securities, 

trading and counterparty losses, and 

other losses or gains; 

(iii) Net income before taxes; 

(iv) Loan losses (dollar amount and as 

a percentage of average portfolio 

balance) in the aggregate and by 

subportfolio, including: Domestic 

closed-end first-lien mortgages; 

domestic junior lien mortgages and 

home equity lines of credit; commercial 

and industrial loans; commercial real 

estate loans; credit card exposures; other 

consumer loans; and all other loans; and 

(v) Pro forma regulatory capital ratios 

and the tier 1 common ratio and any 

other capital ratios specified by the 

Board; 

(4) An explanation of the most 

significant causes for the changes in 

regulatory capital ratios and the tier 1 

common ratio; and 

(5) With respect to any depository 

institution subsidiary that is subject to 

stress testing requirements pursuant to 

12 U.S.C. 5365(i)(2), as implemented by 

subpart B of this part, 12 CFR part 46 

(OCC), or 12 CFR part 325, subpart C 

(FDIC), changes over the planning 

horizon in regulatory capital ratios and 

any other capital ratios specified by the 

Board and an explanation of the most 

significant causes for the changes in 

regulatory capital ratios. 

(c) Content of results. (1) The 

following disclosures required under 

paragraph (b) of this section must be on 

a cumulative basis over the planning 

horizon: 

(i) Pre-provision net revenue and 

other revenue; 

(ii) Provision for loan and lease losses, 

realized losses/gains on available-forsale and held-to-maturity securities, 

trading and counterparty losses, and 

other losses or gains; 

(iii) Net income before taxes; and 

(iv) Loan losses in the aggregate and 

by subportfolio. 

(2) The disclosure of pro forma 

regulatory capital ratios, the tier 1 

common ratio, and any other capital 

ratios specified by the Board that is 

required under paragraph (b) of this 

section must include the beginning 

value, ending value, and minimum 

value of each ratio over the planning 

horizon. 

Subpart O—Enhanced Prudential 

Standards for Foreign Banking 

Organizations With Total Consolidated 

Assets of $50 Billion or More and 

Combined U.S. Assets of $50 Billion or 

More 

■ 8. In § 252.153, revise paragraph (e) to 

read as follows: 

§ 252.153 U.S. intermediate holding 

company requirement for foreign banking 

organizations with U.S. non-branch assets 

of $50 billion or more. 

* * * * * 

(e) Enhanced prudential standards for 

U.S. intermediate holding companies— 

(1) Applicability—(i) Ongoing 

application. Subject to the initial 

applicability provisions in paragraph 

(e)(1)(ii) of this section, a U.S. 

intermediate holding company must 

comply with the capital, risk 

management, and liquidity 

requirements set forth in paragraphs 

(e)(2)(i), (e)(3), and (e)(4) of this section 

beginning on the date it is required to 

be established, comply with the capital 

plan requirements set forth in paragraph 

(e)(2)(ii) of this section in accordance 

with § 225.8(c)(2) of the Board’s 

Regulation Y (12 CFR 225.8(c)(2)), and 

comply with the stress test requirements 

set forth in paragraph (e)(5) beginning 

with the stress test cycle the calendar 

year following that in which it becomes 

subject to regulatory capital 

requirements. 

(ii) Initial applicability—(A) General. 

A U.S. intermediate holding company 

required to be established by July 1, 

2016 must comply with the risk-based 

capital, risk management, and liquidity 

requirements set forth in paragraphs 

(e)(2)(i), (e)(3), and (e)(4) of this section 

beginning on July 1, 2016, and comply 

with the capital planning requirements 

set forth in (e)(2)(ii) of this section in 

accordance with § 225.8(c)(2) of the 

Board’s Regulation Y (12 CFR 

225.8(c)(2)). 

(B) Transition provisions for leverage. 

(1) A U.S. intermediate holding 

company required to be established by 

July 1, 2016 must comply with the 

leverage capital requirements set forth 

in paragraph (e)(2)(i) of this section 

beginning on January 1, 2018, provided 

that each subsidiary bank holding 

company and insured depository 

institution controlled by the foreign 

banking organization immediately prior 

to the establishment or designation of 

the U.S. intermediate holding company, 

and each bank holding company and 

insured depository institution acquired 

by the foreign banking organization after 

establishment of the intermediate 

holding company, is subject to leverage 

capital requirements under 12 CFR part 

217 until December 31, 2017. 

(2) The Board may accelerate the 

application of the leverage ratio to a 

U.S. intermediate holding company if it 

determines that the foreign banking 

organization has taken actions to evade 

the application of this subpart. 

(C) Transition provisions for stress 

testing. A U.S. intermediate holding 

company required to be established by 

July 1, 2016 must comply with the stress 

test requirements set forth in paragraph 

(e)(5) of this section beginning on 

January 1, 2018, provided that each 

subsidiary bank holding company and 

insured depository institution 

controlled by the foreign banking 

organization immediately prior to the 

establishment or designation of the U.S. 

intermediate holding company, and 

each bank holding company and 

insured depository institution acquired 

by the foreign banking organization after 

establishment of the intermediate 

holding company, must comply with 

the stress test requirements in subparts 

B, E, or F of this subpart, as applicable, 

until December 31, 2017. 

■ 8. Appendix A to part 252 is amended 

by: 

■ a. Redesignating footnotes 21 through 

40 as footnotes 1 through 20. 

■ b. Revising newly redesignated 

footnotes 1, 2, 9, 19, and 20; and 

■ c. Revising paragraphs 1.b, 2.a, and 

7.a 

The revisions read as follows: 

Appendix A to Part 252—Policy 

Statement on the Scenario Design 

Framework for Stress Testing 

1. Background 

1 12 U.S.C. 5365(i)(1); 12 CFR part 252, 

subpart E. 

* * * * * 2 12 U.S.C. 5365(i)(2); 12 CFR part 252, 

subparts B and F. 

* * * * * 9 12 CFR 252.14(b), 12 CFR 252.44(b), 12 

CFR 252.54(b). 

* * * * * 19 12 CFR 252.55. 

* * * * * 20 12 CFR 252.55. 

* * * * * 

b. The stress test rules provide that, for the 

stress test cycle beginning on October 1, 

2014, the Board will notify covered 

companies by no later than November 15, 

2014 of the scenarios it will use to conduct 

its annual supervisory stress tests and the 

scenarios that covered companies must use to 

conduct their annual company-run stress 

tests.4 For each stress test cycle beginning 


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annual company-run stress tests use data as of 

September 30 of each calendar year. For each stress 

test cycle beginning thereafter, the annual 

company-run stress tests use data as of December 

31 of each calendar year. 

5 Id. 

6 Id. 

812 CFR 252.44(b), 12 CFR 252.54(b). For the 

stress test cycle beginning on October 1, 2014, the 

annual company-run stress tests use data as of 

September 30 of each calendar year. For each stress 

test cycle beginning thereafter, the annual 

company-run stress tests use data as of December 

31 of each calendar year. 

thereafter, the Board will provide a 

description of these scenarios to covered 

companies by no later than February 15 of 

that calendar year. Under the stress test rules, 

the Board may require certain companies to 

use additional components in the adverse or 

severely adverse scenario or additional 

scenarios.5 For example, the Board expects to 

require large banking organizations with 

significant trading activities to include a 

trading and counterparty component (market 

shock, described in the following sections) in 

their adverse and severely adverse scenarios. 

The Board will provide any additional 

components or scenario by no later than 

December 1 of each year.6 The Board expects 

that the scenarios it will require the 

companies to use will be the same as those 

the Board will use to conduct its supervisory 

stress tests (together, stress test scenarios). 

* * * * * 

2. Overview and Scope 

a. This policy statement provides more 

detail on the characteristics of the stress test 

scenarios and explains the considerations 

and procedures that underlie the approach 

for formulating these scenarios. The 

considerations and procedures described in 

this policy statement apply to the Board’s 

stress testing framework, including to the 

stress tests required under 12 CFR part 252, 

subparts E, F, and G, as well as the Board’s 

capital plan rule (12 CFR 225.8).8

* * * * * 

7. Timeline for Scenario Publication 

a. The Board will provide a description of 

the macroeconomic scenarios by no later 

than November 15, 2014 (for the stress test 

cycle beginning on October 1, 2014) and no 

later than February 15 (for each stress test 

cycle beginning thereafter). During the period 

immediately preceding the publication of the 

scenarios, the Board will collect and consider 

information from academics, professional 

forecasters, international organizations, 

domestic and foreign supervisors, and other 

private-sector analysts that regularly conduct 

stress tests based on U.S. and global 

economic and financial scenarios, including 

analysts at the covered companies. In 

addition, the Board will consult with the 

FDIC and the OCC on the salient risks to be 

considered in the scenarios. For the stress 

test cycle beginning on October 1, 2014, the 

Board expects to conduct this process in July 

and August of 2014 and to update the 

scenarios based on incoming macroeconomic 

data releases and other information through 

the end of October. For each stress test cycle 

beginning thereafter, the Board expects to 

conduct this process in October and 

November of each year and to update the 

scenarios based on incoming macroeconomic 

data releases and other information through 

the end of January. 

* * * * * 

By order of the Board of Governors of the 

Federal Reserve System, October 17, 2014. 

Margaret McCloskey Shanks, 

Deputy Secretary of the Board. 

[FR Doc. 2014–25170 Filed 10–24–14; 8:45 am] 

BILLING CODE 6210–01–P 


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