Federal Register / Vol. 79, No. 243 / Thursday, December 18, 2014 / Proposed Rules 75473 

(2) An advanced approaches FDICsupervised institution that is required to 

publicly disclose its supplementary 

leverage ratio pursuant to § 324.172(d) 

must make the disclosures required 

under Table 13 to § 324.173, unless the 

FDIC-supervised institution is a 

consolidated subsidiary of a bank 

holding company, savings and loan 

holding company, or depository 

institution that is subject to these 

disclosures requirements or a subsidiary 

of a non-U.S. banking organization that 

is subject to comparable public 

disclosure requirements in its home 

jurisdiction. 

(3) The disclosures described in 

Tables 1 through 12 to § 324.173 must 

be made publicly available for twelve 

consecutive quarters beginning on 

January 1, 2014, or a shorter period, as 

applicable, for the quarters after the 

FDIC-supervised institution has 

completed the parallel run process and 

received notification from the FDIC 

pursuant to section 121(d) of subpart E 

of this part. The disclosures described 

in Table 13 to § 324.173 must be made 

publicly available for twelve 

consecutive quarters beginning on 

January 1, 2015, or a shorter period, as 

applicable, for the quarters after the 

FDIC-supervised institution becomes 

subject to the disclosure of the 

supplementary leverage ratio pursuant 

to § 324.172(d). 

* * * * * 

TABLE 6 TO § 324.173—CREDIT RISK: DISCLOSURES FOR PORTFOLIOS SUBJECT TO IRB RISK-BASED CAPITAL FORMULA

Qualitative disclosures ........................... (a) ................................ * * * 

(1) Structure of internal rating systems and if the national bank or the FDICsupervised institution considers external ratings, the relation between internal and external ratings; 

* * * 

* * * * * * * 

* * * * * 

TABLE 9 TO § 324.173—SECURITIZATION

*******

Quantitative disclosures ......................... * * * ............................ * * * 

(i) ................................. * * * 

(2) Aggregate amount disclosed separately by type of underlying exposure 

in the pool of any: (A) After-tax gain-on-sale on a securitization that has 

been deducted from common equity tier 1 capital; and (B) Credit-enhancing interest-only strip that is assigned a 1,250 percent risk weight. 

* * * * * * * 

* * * * * 

Dated: November 18, 2014. 

Thomas J. Curry, 

Comptroller of the Currency. 

By order of the Board of Governors of the 

Federal Reserve System, December 2, 2014. 

Robert deV. Frierson, 

Secretary of the Board. 

Dated at Washington, DC, this 18th day of 

November, 2014. 

By order of the Board of Directors. 

Federal Deposit Insurance Corporation. 

Robert E. Feldman, 

Executive Secretary. 

[FR Doc. 2014–28690 Filed 12–17–14; 8:45 am] 

BILLING CODE P 

FEDERAL RESERVE SYSTEM 

12 CFR Part 217 

[Regulation Q; Docket No. R–1505] 

RIN 7100 AE–26 

Risk-Based Capital Guidelines: 

Implementation of Capital 

Requirements for Global Systemically 

Important Bank Holding Companies 

AGENCY: Board of Governors of the 

Federal Reserve System. 

ACTION: Notice of proposed rulemaking. 

SUMMARY: The Board of Governors of the 

Federal Reserve System (Board) is 

inviting public comment on a 

framework to establish risk-based 

capital surcharges for the largest, most 

interconnected U.S.-based bank holding 

companies pursuant to section 165 of 

the Dodd-Frank Wall Street Reform and 

Consumer Protection Act. The proposal 

is based upon the international standard 

adopted by the Basel Committee on 

Banking Supervision, modified to reflect 

systemic risk concerns specific to the 

funding structures of large U.S. bank 

holding companies. 

The proposed framework would 

require a U.S. top-tier bank holding 

company with $50 billion or more in 

total consolidated assets to calculate a 

measure of its systemic importance and 

would identify a subset of those 

companies as global systemically 

important bank holding companies 

based on that measure. A global 

systemically important bank holding 

company would be subject to a riskbased capital surcharge that would 

increase its capital conservation buffer 

under the Board’s regulatory capital 

rule. The proposed framework would be 

phased in beginning on January 1, 2016 

through year-end 2018, becoming fully 

effective on January 1, 2019. The 

proposal would also revise the 

terminology used to identify the firms 

subject to the enhanced supplementary 

leverage ratio standards to ensure 

consistency of the scopes of application 

of both rulemakings. 

DATES: Comments must be received no 

later than March 2, 2015. 

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75474 Federal Register / Vol. 79, No. 243 / Thursday, December 18, 2014 / Proposed Rules 

1Public Law 111–203, 124 Stat. 1376 (July 21, 

2010). 

ADDRESSES: When submitting 

comments, please consider submitting 

your comments by email or fax because 

paper mail in the Washington, DC area 

and at the Board may be subject to 

delay. You may submit comments, 

identified by Docket No. R–1505 and 

RIN 7100 AE–16, by any of the 

following methods: 

• Agency Web site: 

www.federalreserve.gov. Follow the 

instructions for submitting comments at 

http://www.federalreserve.gov/apps/ 

foia/proposedregs.aspx. 

• Federal eRulemaking Portal: 

www.regulations.gov. Follow the 

instructions for submitting comments. 

• Email: regs.comments@ 

federalreserve.gov. Include the docket 

number in the subject line of the 

message. 

• Fax: (202) 452–3819 or (202) 452– 

3102. 

• Mail: Address to Robert de V. 

Frierson, Secretary, Board of Governors 

of the Federal Reserve System, 20th 

Street and Constitution Avenue NW., 

Washington, DC 20551. 

All public comments will be made 

available on the Board’s Web site at 

www.federalreserve.gov/generalinfo/ 

foia/ProposedRegs.cfm as submitted, 

unless modified for technical reasons. 

Accordingly, comments will not be 

edited to remove any identifying or 

contact information. Public comments 

may also be viewed electronically or in 

paper in Room MP—500 of the Board’s 

Martin Building (20th and C Streets 

NW., Washington, DC 20551) between 9 

a.m. and 5 p.m. on weekdays. 

FOR FURTHER INFORMATION CONTACT: 

Anna Lee Hewko, Deputy Associate 

Director, (202) 530–6260, Ann 

McKeehan, Senior Supervisory 

Financial Analyst, (202) 973–6903, 

Jordan Bleicher, Senior Supervisory 

Financial Analyst, (202) 973–6123, or 

Holly Kirkpatrick, Supervisory 

Financial Analyst, (202) 452–2796, 

Division of Banking Supervision and 

Regulation, or Christine Graham, 

Counsel, (202) 452–3005, or Mark 

Buresh, Attorney, (202) 452–5270, Legal 

Division. Board of Governors of the 

Federal Reserve System, 20th and C 

Streets NW., Washington, DC 20551. For 

the hearing impaired only, 

Telecommunications Device for the Deaf 

(TDD) users may contact (202) 263– 

4869). 

SUPPLEMENTARY INFORMATION: 

Table of Contents 

I. Introduction 

A. Background 

B. Dodd-Frank Act 

C. Overview of the Proposal 

D. Integrated Set of Prudential Standards 

E. Global Framework 

II. Description of the Proposal To Measure 

and Impose Capital Requirements Based 

Upon Global Systemic Importance 

A. Identification of a GSIB 

B. Using Systemic Indicators Reported on 

the FR Y–15 

C. Computing the Applicable GSIB 

Surcharge 

D. Augmentation of the Capital 

Conservation Buffer 

E. Implementation and Timing 

F. Periodic Review and Refinement of the 

Proposal 

III. Indicators of Global Systemic Risk 

A. Size 

B. Interconnectedness 

C. Substitutability 

D. Complexity 

E. Cross-jurisdictional Activity 

F. Use of Short-term Wholesale Funding 

IV. Amendments to the FR Y–15 

V. Modifications to Related Rules 

VI. Regulatory Analysis 

A. Paperwork Reduction Act 

B. Regulatory Flexibility Act 

C. Plain Language 

I. Introduction 

A. Background 

The 2007–2008 financial crisis 

demonstrated that certain U.S. financial 

companies had grown so large, 

leveraged, and interconnected that their 

failure could pose a threat to financial 

stability in the United States and 

globally. The sudden collapse and nearcollapse of major financial companies 

were among the most destabilizing 

events of the crisis. As a result, 

significant public sector intervention 

was needed to reduce the impact of, or 

prevent, the failure of these companies 

and the attendant consequences for the 

broader financial system. The crisis 

demonstrated that supervisors and other 

relevant authorities needed to take 

additional steps to prevent financial 

vulnerabilities from spreading among 

firms in a manner that could undermine 

national and global financial stability. In 

response, U.S. authorities have 

undertaken a comprehensive reform of 

financial regulation to enhance their 

ability to monitor and address threats to 

financial stability, strengthen the 

prudential oversight and resolvability of 

systemically important financial 

institutions, and improve the capacity of 

financial markets and infrastructures to 

absorb shocks. 

Despite those efforts, a perception 

persists in the markets that some 

companies remain too big to fail, which 

poses a significant threat to the financial 

system. The perception of too big to fail 

reduces incentives of shareholders, 

creditors, and counterparties of these 

companies to discipline excessive risktaking by these companies and produces 

competitive distortions because these 

companies can often fund themselves at 

a lower cost than other companies. This 

distortion is unfair to smaller 

companies, damages fair competition, 

and may artificially encourage further 

consolidation and concentration in the 

financial system. 

The financial crisis also revealed 

dangers that can emerge as a result of 

firms’ reliance on short-term wholesale 

funding. Short-term wholesale funding 

is used by a variety of financial firms, 

including commercial banks and brokerdealers, and can take many forms, 

including unsecured commercial paper, 

asset-backed commercial paper, 

wholesale certificates of deposits, and 

securities financing transactions. During 

normal times, short-term wholesale 

funding helps to satisfy investor 

demand for safe and liquid investments, 

lower funding costs for borrowers, and 

support the functioning of the financial 

markets. During periods of stress, 

however, reliance on short-term 

wholesale funding can leave firms 

vulnerable to runs that undermine 

financial stability. 

When short-term creditors lose 

confidence in a firm or believe other 

short-term creditors may lose 

confidence in that firm, those creditors 

have a strong incentive to withdraw 

funding quickly before withdrawals by 

other creditors drain the firm of its 

liquid assets. To meet its obligations, 

the borrowing firm may be required to 

rapidly sell less liquid assets, which it 

may be able to do only at fire sale prices 

that deplete the seller’s capital and 

drive down asset prices across the 

market. In a post-default scenario, fire 

sale externalities could result if the 

defaulted firm’s creditors seize and 

rapidly liquidate assets the defaulted 

firm has posted as collateral. Financial 

distress can spread among firms as a 

result of counterparty relationships or 

because of perceived similarities among 

firms, forcing firms to rapidly liquidate 

assets in a manner that places the 

financial system as a whole under 

significant strain. 

B. Dodd-Frank Act 

In the wake of the financial crisis, 

Congress enacted the Dodd-Frank Wall 

Street Reform and Consumer Protection 

Act (Dodd-Frank Act) in order to 

mitigate the risk to the financial stability 

of the United States that could arise 

from the material financial distress or 

failure of large, interconnected financial 

institutions.1 Section 165 of the DoddFrank Act directs the Board to establish 

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2See 12 U.S.C. 5365. 

3 Id. 

4See 12 U.S.C. 5365(a)(1)(A). 

5See 12 U.S.C. 5365(a)(1)(B). Under section 

165(a)(1)(B) of the Dodd-Frank Act, the enhanced 

prudential standards must increase in stringency 

based on the considerations listed in section 

165(b)(3). 

6See 12 CFR 217.11. Implementation of the GSIB 

surcharge as an expansion of the capital 

conservation buffer is also the method of 

implementation chosen by the BCBS in the BCBS 

global framework. See paragraph 129 of the Basel 

III framework and paragraph 46 of the BCBS 

Revised Document. 

7This example assumes that any applicable 

countercyclical capital buffer amount is zero. 

8 12 CFR 217.300(a). 

enhanced prudential standards for bank 

holding companies with $50 billion or 

more in total consolidated assets and for 

nonbank financial companies the 

Financial Stability Oversight Council 

(Council) has designated for supervision 

by the Board (nonbank financial 

companies supervised by the Board).2

The enhanced prudential standards 

include heightened risk-based capital 

requirements, leverage limits, liquidity 

requirements, single-counterparty credit 

limits, stress testing requirements, and 

risk management requirements.3 These 

standards must be more stringent than 

those standards applicable to other bank 

holding companies and to nonbank 

financial companies that do not present 

similar risks to U.S. financial stability.4

The standards must also increase in 

stringency based on several factors, 

including the size and risk 

characteristics of a company subject to 

the rule, and the Board must take into 

account the difference among bank 

holding companies and nonbank 

financial companies based on the same 

factors.5 Section 165 also permits the 

Board to establish other prudential 

standards in addition to the mandatory 

standards, including three enumerated 

standards—a contingent capital 

requirement, enhanced public 

disclosures, and short-term debt 

limits—and any ‘‘other prudential 

standards’’ that the Board determines 

are ‘‘appropriate.’’ 

C. Overview of the Proposal 

Pursuant to its authority to establish 

enhanced risk-based capital standards 

under section 165 of the Dodd-Frank 

Act, the Board is proposing to impose 

risk-based capital surcharges (GSIB 

surcharges) upon U.S. bank holding 

companies that are identified as global 

systemically important banking 

organizations (GSIBs). First, the 

proposal would establish a methodology 

to determine whether a U.S. top-tier 

bank holding company is a GSIB based 

on five broad categories that are 

believed to be good proxies for, and 

correlated with, systemic importance— 

size, interconnectedness, crossjurisdictional activity, substitutability, 

and complexity. If a bank holding 

company’s score as calculated under the 

proposed methodology is 130 basis 

points or greater, then such a bank 

holding company would be designated 

as a GSIB. Under the proposed 

methodology, eight large U.S. bank 

holding companies currently would be 

identified as GSIBs. 

A firm that is designated as a GSIB 

under the proposed methodology would 

calculate a GSIB surcharge using two 

methods. The first method would be 

based on the sum of a firm’s systemic 

indicator scores reflecting its size, 

interconnectedness, cross-jurisdictional 

activity, substitutability, and complexity 

(method 1). The second method would 

be based on the sum of the firm’s 

systemic indicator scores reflecting its 

size, interconnectedness, crossjurisdictional activity, and complexity, 

as well as a measure of use of short-term 

wholesale funding, but would exclude 

the systemic indicator scores reflecting 

the firm’s substitutability (method 2), 

and would generally result in higher 

surcharges as compared to method 1. A 

GSIB’s surcharge would be the higher of 

the two surcharges determined under 

the two methods. 

The proposal would amend the 

Board’s regulatory capital rule to 

increase a GSIB’s capital conservation 

buffer by the amount of its GSIB 

surcharge.6 For example, under the 

proposal, a bank holding company 

subject to a GSIB surcharge of 2.5 

percent would have a capital 

conservation buffer of 5.0 percent, 

which is the sum of the 2.5 percent 

capital conservation buffer and its GSIB 

surcharge.7 The Board is proposing that 

the GSIB surcharge become effective 

pursuant to the same timeline as the 

capital conservation buffer, which will 

be phased in beginning in 2016 at a rate 

of 25 percent per year and become fully 

effective on January 1, 2019.8

The proposed GSIB surcharge is 

designed to reduce a GSIB’s probability 

of default such that a GSIB’s expected 

systemic impact is approximately equal 

to that of a large, non-systemic bank 

holding company. Distress at a GSIB 

would have substantially greater 

negative consequences on the financial 

system than the failure of other bank 

holding companies that may be large or 

interconnected, but that do not have 

comparable systemic risk profiles. 

Distress at a GSIB can lead to a domino 

effect, whereby a GSIB’s counterparties 

are placed under severe strain when the 

GSIB does not meet its financial 

obligations. The inability of a 

counterparty of a GSIB to meet its 

obligations leads, in turn, to severe 

strains at its significant counterparties, 

leading to more firms being unable to 

fulfill their contractual obligations. In 

addition, distress at a GSIB can lead to 

fire sales in asset markets, when a GSIB 

engages in distressed sales in an effort 

to obtain needed liquidity. The sudden 

increase in market supply of assets 

drives down prices. This effect is 

transmitted not only to firms that must 

sell assets to meet immediate liquidity 

needs but, because of margin calls and 

mark-to-market accounting 

requirements, to many other firms as 

well. There can also be information 

contagion effects, where market 

participants conclude from a GSIB’s 

distress that other firms holding similar 

assets or following similar business 

models are likely to also be facing 

distress. Taken together, these impacts 

indicate that the failure of a GSIB could 

affect not only those firms closely 

connected to the GSIB, but also the 

broader financial system. Because the 

systemic loss given default of a GSIB is 

much greater than that of a large, nonsystemic bank holding company, its 

probability of default must be 

significantly lower than that of a large, 

non-systemic bank holding company in 

order to equalize the expected systemic 

impact of its failure or distress. 

The proposed GSIB surcharge 

increases in stringency based on a 

GSIB’s risk characteristics, including 

size, complexity, interconnectedness, 

cross-jurisdictional activity, and use of 

short-term wholesale funding. In this 

way, the calibration is designed to 

induce a GSIB to reduce its risk of 

failure, internalize the negative 

externalities it poses, and correct for 

competitive distortions created by the 

perception that it may be too big to fail. 

In addition, the proposed GSIB 

surcharge would place additional 

private capital at risk before the Federal 

Deposit Insurance Fund or the Federal 

government’s resolution mechanisms 

would be called upon and would reduce 

the likelihood of economic disruptions 

as a result of financial distress at these 

institutions. 

D. Integrated Set of Prudential 

Standards 

The proposed GSIB surcharge is one 

of several enhanced prudential 

standards that the Board has developed 

pursuant to section 165 of the Dodd 

Frank Act. In November 2011, the Board 

and the Federal Deposit Insurance 

Corporation (FDIC) issued a joint final 

rule that would require bank holding 

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75476 Federal Register / Vol. 79, No. 243 / Thursday, December 18, 2014 / Proposed Rules 

9 12 CFR part 243. 

10See 12 CFR 225.8. See 76 FR 74631 (December 

1, 2011); 79 FR 64026 (October 27, 2014); and 79 

FR 13498 (March 11, 2014). 

11See 12 U.S.C. 5365(i)(1) and 12 CFR 252, 

subparts E and F. See 77 FR 62378 (October 12, 

2012); 79 FR 64026 (October 27, 2014); and 79 FR 

13498 (March 11, 2014). 

12See 79 FR 17240 (March 27, 2014). 

13 79 FR 61440 (October 10, 2014). 

14The Board and the OCC issued a joint final rule 

on October 11, 2013 (78 FR 62018) and the FDIC 

issued a substantially identical interim final rule on 

September 10, 2013 (78 FR 55340). In April 2014, 

the FDIC adopted the interim final rule as a final 

rule with no substantive changes. 79 FR 20754 

(April 14, 2014). 

15 Id. at 62170–62172. 

16See 79 FR 24528 (May 1, 2014). The 

supplementary leverage ratio comes into effect on 

January 1, 2018 and applies to top-tier U.S. bank 

holding companies with more than $700 billion in 

total consolidated assets or more than $10 trillion 

in assets under custody (covered BHCs), as well as 

insured depository institution subsidiaries of the 

covered BHCs. As discussed in section IV of this 

preamble, the proposal would amend the 

supplementary leverage ratio rule to ensure 

consistency of the scopes of application for the 

supplementary leverage ratio rule and the GSIB 

proposal. 

17The G–20 was established in 1999 to bring 

together industrialized and developing economies 

to discuss key issues in the global economy. 

Members include finance ministers and central 

bank governors of 19 countries (Argentina, 

Australia, Brazil, Canada, China, France, Germany, 

India, Indonesia, Italy, Japan, Mexico, Russia, Saudi 

Arabia, South Africa, Republic of Korea, Turkey, 

U.K., and U.S.) and the European Union. The FSB 

was established to coordinate at the international 

level the work of national financial authorities and 

international standard setting bodies and to develop 

and promote the implementation of effective 

regulatory, supervisory and other financial sector 

policies in the interest of financial stability. The 

FSB brings together national authorities responsible 

for financial stability in 24 countries and 

jurisdictions, international financial institutions, 

sector-specific international groupings of regulators 

and supervisors, and committees of central bank 

experts. 

18For additional background on the November 

2010 initiative, see www.financialstabilityboard.

org/press/pr_101111a.pdf. 

19See ‘‘Policy Measures to Address Systemically 

Important Financial Institutions’’ available at www.

financialstabilityboard.org/publications/r_

111104bb.pdf. 

20The Basel Committee on Banking Supervision 

(BCBS) is a committee of banking supervisory 

authorities established by the central bank 

Governors of the Group of Ten countries in 1975. 

The committee’s membership consists of senior 

representatives of bank supervisory authorities and 

central banks from Argentina, Australia, Belgium, 

Brazil, Canada, China, France, Germany, Hong Kong 

SAR, India, Indonesia, Italy, Japan, Korea, 

Luxembourg, Mexico, the Netherlands, Russia, 

Saudi Arabia, Singapore, South Africa, Spain, 

Sweden, Switzerland, Turkey, the United Kingdom, 

and the United States. It usually meets at the Bank 

for International Settlements (BIS) in Basel, 

Switzerland, where its permanent Secretariat is 

located. See ‘‘Global systemically important banks: 

Assessment methodology and the additional loss 

absorbency requirement’’ available at www.bis.org/ 

publ/bcbs201.htm. In July 2013, the BCBS 

published revisions to this document entitled, 

‘‘Global systemically important banks: Updated 

assessment methodology and the higher loss 

absorbency requirement,’’ which provides certain 

revisions and clarifications to the initial framework. 

The document is available at www.bis.org/publ/

bcbs255.htm. 

companies and foreign banking 

organizations with $50 billion or more 

in total consolidated assets and nonbank 

financial companies designated by the 

Council for supervision by the Board to 

submit annual resolution plans.9 Also in 

November 2011, the Board issued a final 

rule requiring a bank holding company 

to submit an annual capital plan to the 

Board in which it demonstrates the 

ability to meet the Board’s minimum 

regulatory capital requirements over a 

range of stressed conditions.10 In 

October 2012, the Board issued two 

final rules implementing stress testing 

requirements for certain bank holding 

companies, state member banks, and 

savings and loan holding companies 

pursuant to sections 165(i)(1) and (2) of 

the Dodd-Frank Act.11 In February 2014, 

the Board issued a final rule 

establishing liquidity and risk 

management standards for U.S. bank 

holding companies and capital, stress 

testing, liquidity, and risk management 

standards for foreign banking 

organizations.12 Finally, in September 

2014, the Board, the FDIC, and the 

Office of the Comptroller of the 

Currency (OCC) issued the liquidity 

coverage ratio rule (LCR rule) that 

creates for the first time a standardized 

minimum liquidity coverage ratio 

requirement for the largest, most 

complex banking organizations.13

In addition, the Board has adopted 

measures to strengthen the capital 

regulations applicable to all banking 

organizations. In July 2013, the Board, 

the FDIC, and the OCC adopted a final 

rule revising the regulatory capital rule 

to increase the quality and quantity of 

regulatory capital that must be 

maintained by banking organizations, 

and to improve risk coverage by more 

accurately measuring the risk inherent 

in exposures.14 The final rule also 

established a capital conservation buffer 

that incentivizes banking organizations 

to hold capital in excess of regulatory 

minimums by imposing increasingly 

stringent limits on capital distributions 

and certain discretionary bonus 

payments as the banking organization’s 

buffer falls below specified thresholds. 

For the case of banking organizations 

subject to the advanced approaches rule, 

the regulatory capital rule also includes 

a mechanism for increasing the capital 

conservation buffer when credit markets 

overheat (through the countercyclical 

buffer), and a supplementary leverage 

ratio that takes into account both onand off-balance sheet exposures.15 In 

April 2014, the Board, the FDIC, and the 

OCC issued enhanced supplementary 

leverage ratio standards for the largest, 

most complex bank holding companies 

(i.e., the bank holding companies that 

would be identified as GSIBs under the 

proposed rule) and their insured 

depository institution subsidiaries, 

under which such bank holding 

companies must maintain a 

supplementary leverage ratio of 5 

percent or more in order to avoid 

limitations on distributions and certain 

discretionary bonus payments, and such 

insured depository institution 

subsidiaries must maintain a 

supplementary leverage ratio of 6 

percent or more to be ‘‘well capitalized’’ 

under the agencies’ prompt corrective 

action regulations.16

The Board continues to develop 

additional enhanced standards that will 

mitigate risks to U.S. financial stability 

posed by certain banking organizations. 

E. Global Framework 

The proposed GSIB surcharge is 

consistent with global efforts to address 

the financial stability risks posed by the 

largest, most interconnected financial 

institutions. Following the financial 

crisis, the Group of Twenty Finance 

Ministers and Central Bank Governors 

(G–20) requested that the Financial 

Stability Board (FSB) develop a policy 

framework to address the systemic and 

moral hazard risks associated with 

systemically important financial 

institutions, and in particular, global 

systemically important financial 

institutions.17 In November 2010, the G– 

20 endorsed an FSB policy framework 

for addressing these institutions, one 

element of which is a capital surcharge 

for global systemically important 

financial institutions.18 In November 

2011, the FSB published an integrated 

set of policy measures to address the 

systemic and moral hazard risks 

associated with global systemically 

important financial institutions, 

intended to mitigate the impact of the 

failure of a global systemically 

important financial institution and 

reduce any competitive funding 

advantages these firms may have as a 

result of the perception that they are too 

big to fail.19 The FSB identified the 

global systemically important financial 

institutions using an assessment 

methodology and framework developed 

by the Basel Committee on Banking 

Supervision (BCBS framework).20 The 

BCBS calculates global firms’ scores and 

releases the lists of global systemically 

important financial institutions, 

including global systemically important 

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21See http://www.bis.org/bcbs/gsib/gsibs_as_of_

2014.htm. 

22See paragraph 39 of the Revised BCBS 

Document. 

23The Dodd-Frank Act requires the Board to 

consider risks to U.S. financial stability when 

approving applications and notices by bank holding 

companies under sections 3 and 4 of the Bank 

Holding Company Act. Dodd-Frank Act, § 604(d) 

and (e), codified at 12 U.S.C. 1842(c)(7) and 

1843(j)(2)(A). Other provisions of the Dodd-Frank 

Act impose a similar requirement that the Board 

consider or weigh the risks to financial stability 

posed by a merger, acquisition, or expansion 

proposal by a financial institution. See sections 163, 

173 of the Dodd-Frank Act. 

24Subject bank holding companies are required to 

file the FR Y–15. In addition, a bank holding 

company that is designated as a GSIB would be 

required to calculate its systemic score the 

following year, regardless of whether it has $50 

billion in total assets that year. See Instructions for 

Preparation of Banking Organization Systemic Risk 

Report available at http://www.federalreserve.gov/ 

reportforms/forms/FR_Y-1520131231_i.pdf. The 

Board intends to seek comment on a proposal to 

revise the measure of total exposure to align with 

recent revisions to the Board’s supplementary 

leverage ratio rule. 79 FR 57725 (September 26, 

2014). 

25The sample of global banking organizations 

includes the following: 

(1) Banking organizations identified as the 75 

largest global banking organizations, based on the 

financial year-end Basel III framework leverage ratio 

exposure measure; (2) banking organizations that 

were designated as GSIBs by the FSB in the 

previous year (unless supervisors agree that there is 

compelling reason to exclude them); and (3) 

banking organizations that have been added to the 

sample group by national supervisors using 

supervisory judgment (subject to certain criteria). 

See paragraph 26 of the BCBS Revised Document. 

The BCBS publishes annually the aggregate global 

indicator amount for each indicator. The Board will 

make this information available on its public Web 

site, through a press release, or by publication in 

the Federal Register. 

banking organizations, on an annual 

basis.21

The BCBS plans to review the BCBS 

framework, including the indicatorbased measurement approach and the 

threshold scores for identifying global 

systemically important financial 

institutions, every three years in order 

to capture developments in the banking 

sector and any progress in methods and 

approaches for measuring systemic 

importance.22 The first three-year 

review has already begun. In connection 

with this review, the Board has 

encouraged the BCBS to consider 

including a measure of short-term 

wholesale funding within the BCBS 

framework. 

II. Description of the Proposal To 

Measure and Impose Capital 

Requirements Based Upon Global 

Systemic Importance 

The proposal would establish a 

methodology for identifying a U.S. bank 

holding company as a GSIB based on 

the bank holding company’s systemic 

risk profile and establishing the 

appropriate size of the GSIB surcharge. 

A. Identification of a GSIB 

The proposal would require each U.S. 

top-tier bank holding company with 

total consolidated assets of $50 billion 

or more that is not a subsidiary of a nonU.S. banking organization to determine 

annually whether it is a GSIB by using 

five categories that measure global 

systemic importance: Size, 

interconnectedness, substitutability, 

complexity, and cross-jurisdictional 

activity. These proposed categories were 

chosen to measure whether the failure 

of a bank holding company, or the 

inability of a bank holding company to 

conduct regular course-of-business 

transactions, would likely impair 

financial intermediation or financial 

market functioning so as to inflict 

material damage on the broader 

economy. These factors are also 

consistent with the factors that the 

Board considers in reviewing financial 

stability implications of proposed 

mergers and acquisitions by banking 

organizations.23

The proposal identifies individual 

systemic indicators that measure the 

firm’s profile within each category, set 

forth in Table 1 below, and sets forth a 

weighting for those indicators to 

compute a bank holding company’s 

systemic indicator score. The 

advantages of a multiple indicator-based 

measurement approach is that it 

encompasses many dimensions of 

systemic importance and is transparent. 

These systemic indicators, and their 

relationship to financial stability, are 

described in section III of this preamble. 

TABLE 1—SYSTEMIC INDICATORS

Category Systemic Indicator 

Indicator 

weight 

(%) 

Size ............................................................................................. Total exposures .......................................................................... 20 

Interconnectedness .................................................................... Intra-financial system assets ......................................................

Intra-financial system liabilities ...................................................

Securities outstanding ................................................................

6.67 

6.67 

6.67 

Substitutability ............................................................................. Payments activity .......................................................................

Assets under custody .................................................................

Underwritten transactions in debt and equity markets ...............

6.67 

6.67 

6.67 

Complexity .................................................................................. Notional amount of over-the-counter (OTC) derivatives ............ 6.67 

Trading and available-for-sale (AFS) securities .........................

Level 3 assets6.67 .....................................................................

6.67 

6.67 

Cross-jurisdictional activity ......................................................... Cross-jurisdictional claims ..........................................................

Cross-jurisdictional liabilities .......................................................

10 

10 

Total for twelve indicators across five categories ............... ..................................................................................................... 100 

To determine whether it is a GSIB, a 

bank holding company would first 

identify values for each systemic 

indicator listed in Table 1 that it 

reported on its most recent Banking 

Organization Systemic Risk Report (FR 

Y–15).24 The bank holding company 

would then divide each of these values 

by the corresponding aggregate global 

indicator amount published by the 

Board in the fourth quarter of that year. 

This aggregate global indicator amount 

corresponds to the amount released by 

the BCBS, converted from Euros to U.S. 

dollars using the conversion rate 

provided by the BCBS. The aggregate 

global indicator amount released by the 

BCBS is the sum of the systemic 

indicator amounts for each category 

listed in Table 1 above, as reported by 

a sample of the largest banking 

organizations in the world for each 

systemic indicator.25 The resulting 

quotient for each indicator would be 

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26Relative to the other categories in the method 

1 surcharge, the substitutability category has a 

greater-than-intended impact on the assessment of 

systemic importance for certain banking 

organizations that are dominant in the provision of 

asset custody, payment systems, and underwriting 

services. Accordingly, the proposal would cap the 

maximum weighted score for the substitutability 

category at 100 basis points so that the 

substitutability category does not have a greater 

than intended impact on a bank holding company’s 

global systemic score. 

27See Appendix 2 of the BCBS Initial Document 

and Appendix 2 of the BCBS Revised Document for 

a detailed discussion of the empirical analysis 

conducted by BCBS. 

28Scores would be rounded according to standard 

rounding rules for the purposes of assigning levels. 

That is, fractional amounts between zero and onehalf would be rounded down to zero, while 

fractional amounts at or above one-half would be 

rounded to one. 

29See 77 FR 76487 (December 28, 2012). The 

Board subsequently revised the FR Y–15 in 

December 2013. See 78 FR 77128 (December 20, 

2013). 

multiplied by the prescribed weighting 

indicated in Table 1 above, and then 

multiplied by 10,000 to reflect the result 

in basis points. For example, if a bank 

holding company’s cross-jurisdictional 

claims divided by the associated 

aggregate global amount for that 

indicator is 0.03 (that is, the firm’s 

cross-jurisdictional claims amount is 

equal to 3 percent of the aggregate global 

amount for cross-jurisdictional claims), 

then its cross-jurisdictional claims 

indicator score would be 30 basis points 

(0.03*0.1*10,000). A bank holding 

company would then sum the weighted 

values for the twelve systemic 

indicators to determine its aggregate 

systemic indicator score and whether it 

would be identified as a GSIB, provided 

that the value for the substitutability 

indicators would be capped at 100, as 

described in section III.C of this 

preamble.26 Under this methodology, a 

bank holding company’s systemic 

importance depends on the amount of 

its activity in each systemic indicator 

relative to the global magnitude of the 

activity. The multi-indicator approach 

reflects the fact that there are multiple 

elements that contribute to systemic 

importance. The aggregate global 

indicator amounts released annually by 

the BCBS provide a simple and 

convenient means of comparing the 

global, consolidated activities of 

similarly situated global banking 

organizations. 

In determining the threshold for 

identifying a GSIB, the Board analyzed 

various potential metrics for evaluating 

the systemic importance of large 

banking organizations, including those 

in the BCBS framework.27 According to 

the Board’s analysis, across many 

potential metrics, there is a clear 

separation in systemic risk profiles 

between the eight U.S. top-tier bank 

holding companies that would be 

identified as GSIBs under the proposed 

methodology and other bank holding 

companies. For example, using the 

estimated global systemic scores for the 

U.S. bank holding companies with over 

$50 billion of total consolidated as 

derived from data reported on the FR 

Y–15 filed in March 2014, there is a 

significant gap in scores among the 

largest bank holding companies, with all 

entities other than the eight bank 

holding companies that would currently 

be identified as GSIBs receiving 

aggregate systemic indicator scores of 

less than 50 points. Further, the bank 

holding company with the highest 

aggregate systemic indicator score that 

is not a GSIB received a score of 

approximately one third of that of the 

GSIB with the lowest aggregate systemic 

indicator score. The 130 basis point 

threshold is intended to capture the 

bank holding companies that are in this 

separate, higher systemic importance 

group. Bank holding companies with 

aggregate systemic indicator scores 

under the 130 basis point threshold 

would not be subject to a GSIB 

surcharge.28

The proposal would require a bank 

holding company with total 

consolidated assets of $50 billion or 

more to begin calculating its aggregate 

systemic indicator score by December 

31 of the year in which it crosses the 

$50 billion threshold. While the Board’s 

other regulations implementing section 

165 of the Dodd-Frank Act generally 

measure application of the enhanced 

prudential standards based on a fourquarter average of total consolidated 

assets, the proposal would adopt a June 

30 measurement date of total 

consolidated assets to be consistent with 

the FR Y–15 reporting schedule. 

Question 1. What are commenters’ 

views on the scope of application of the 

proposal? Is the $50 billion total 

consolidated asset threshold appropriate 

for requiring bank holding companies to 

calculate their systemic indicator scores, 

or should some higher asset threshold 

be considered? Is it appropriate to 

exclude bank holding companies that 

are subsidiaries of non-U.S. banking 

organizations from the proposal’s scope 

of application? 

Question 2. What, if any, different or 

additional indicators should the Board 

consider for the identification of a bank 

holding company as a GSIB? In 

particular, should the Board take into 

account a bank holding company’s use 

of short-term wholesale funding instead 

of or in addition to substitutability in 

determining whether it should be 

designated as a GSIB? Why or why not? 

Question 3. What, if any, different 

aggregate systemic indicator score 

threshold should the Board consider for 

the designation of a bank holding 

company as a GSIB? 

Question 4. If the proposed 

framework were applied to nonbank 

financial companies designated by the 

Financial Stability Oversight Council for 

Board oversight, how (if at all) should 

the framework be modified to capture 

the systemic risk profile of those 

companies? 

B. Using Systemic Indicators Reported 

on the FR Y–15 

As noted above, the systemic 

indicators are aligned with those 

reported by a bank holding company on 

the FR Y–15. The FR Y–15, 

implemented on December 31, 2012, is 

an annual report that gathers data on 

components of systemic risk from large 

bank holding companies and provides 

firm-specific information to enable an 

analysis of the systemic risk profiles of 

such firms.29 The FR Y–15 was 

developed to facilitate the 

implementation of the GSIB surcharge 

through regulation, and also is used to 

analyze the systemic risk implications 

of proposed mergers and acquisitions 

and to monitor, on an ongoing basis, the 

systemic risk profiles of bank holding 

companies subject to enhanced 

prudential standards under section 165 

of the Dodd-Frank Act. As of December 

31, 2013, all U.S. top-tier bank holding 

companies with total consolidated 

assets of $50 billion or more are 

required to file the FR Y–15 on an 

annual basis. In connection with this 

proposal, the Board intends to modify 

the FR Y–15 to gather information on 

bank holding companies’ use of shortterm wholesale funding. 

Question 5. Is the proposed use of 

June 30 as the measurement date for the 

$50 billion total consolidated asset 

threshold appropriate? Is there an 

alternative measurement date that 

should be used? 

C. Computing the Applicable GSIB 

Surcharge 

Under the proposal, a bank holding 

company with an aggregate systemic 

indicator score of 130 basis points or 

greater would be identified as a GSIB 

and as such, would be subject to the 

higher of the two surcharges calculated 

under method 1 and method 2, as 

described below. 

1. Method 1 Surcharge 

A GSIB’s method 1 surcharge would 

be the capital surcharge set forth in 

Table 2 below that corresponds to its 

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aggregate systemic indicator score. As 

discussed further in section II.C.3 of this 

preamble, the proposed method 1 

surcharge reflects one method of 

calibrating the size of a surcharge based 

on the probable systemic impact from 

the failure of a GSIB as compared to a 

bank holding company that is large, but 

not systemically important. 

TABLE 2—METHOD 1 SURCHARGE

Systemic 

indicator score 

(basis points) 

Method 1 surcharge 

Less than 130 .... 0.0 percent (no surcharge). 

130—229 ............ 1.0 percent. 

230—329 ............ 1.5 percent. 

330—429 ............ 2.0 percent. 

430—529 ............ 2.5 percent. 

530—629 ............ 3.5 percent. 

630 or greater .... 3.5 percent plus 1.0 percentage point for every 

100 basis point increase in score. 

For instance, if a GSIB’s systemic 

indicator score were 250, the GSIB’s 

method 1 surcharge would be 1.5 

percent. 

As reflected in Table 2, the lowest 

method 1 surcharge would correlate to 

a method 1 score band ranging from 130 

basis points to 229 basis points and 

would increase in increments of 0.5 

percentage points for each additional 

100 basis-point band, up to a method 1 

surcharge of 2.5 percent. To account for 

the possibility that a GSIB’s aggregate 

systemic indicator score could increase 

in the future beyond the fourth band, 

the proposal would require a one 

percentage point increase in the method 

1 surcharge for each 100 basis point 

band at and above 530 basis points. An 

indefinite number of bands would give 

the Board the ability to assess an 

appropriate method 1 surcharge should 

a GSIB become significantly more 

systemically important, and would 

create disincentives for continued 

increases in global systemic scores. 

Calibrating the surcharge using bands, 

as set forth in the proposal, or using a 

continuous function that increases 

linearly based on the weighted average 

of a bank holding company’s systemic 

indicator score was considered during 

the development of the proposal. While 

the continuous function is more 

sensitive to changes in a bank holding 

company’s systemic risk profile, it could 

be less transparent to the public and 

may be misleading in its precision as a 

measure of systemic risk. Accordingly, 

the proposal uses bands because it is a 

simple, transparent method that enables 

a GSIB and the public to better 

anticipate the size of the method 1 

surcharge for future periods. The bands 

are intended to be sufficiently large so 

that modest changes in a firm’s systemic 

indicators would not cause a firm to 

move between surcharge amounts. 

However, to the extent that a marginal 

change in a bank holding company’s 

systemic risk profile caused the bank 

holding company to have a higher 

method 1 score, the proposal would 

delay the effective date of the higher 

method 1 score for a full year after it 

was calculated. 

2. Method 2 Surcharge 

As a second step to determining its 

GSIB surcharge, a GSIB would be 

required to compute its surcharge under 

method 2. Under method 2, the GSIB 

would calculate a score for the size, 

interconnectedness, complexity, and 

cross-jurisdictional activity systemic 

indicators in the same manner as 

undertaken to compute its aggregate 

systemic indicator score. However, 

rather than using the substitutability 

systemic indicator used under method 

1, the GSIB would instead add to its 

score a quantitative measure of its use 

of short-term wholesale funding (shortterm wholesale funding score). 

The proposal would include a firm’s 

short-term wholesale funding score as a 

factor in the GSIB surcharge in order to 

address the systemic risks associated 

with short-term wholesale funding use. 

As described in section I.A. of this 

preamble, use of short-term wholesale 

funding generally increases a firm’s 

probability of default by making the 

firm vulnerable to short-term creditor 

runs, and increases the likely social 

costs of the firm’s distress, including by 

heightening the risk that the firm’s 

significant stress or failure will give rise 

to fire sale externalities. Incorporating a 

short-term wholesale funding score into 

the GSIB surcharge framework would 

require a GSIB to hold more capital 

based on whether it relies more heavily 

on short-term wholesale funding. The 

increased capital charge would help 

increase the resiliency of the firm 

against runs on its short-term wholesale 

funding and help internalize the cost of 

using short-term wholesale funding. A 

GSIB may opt to modify its funding 

profile to reduce its use of short-term 

wholesale funding, or continue to use 

short-term wholesale funding to the 

same degree but hold additional capital. 

The proposed method 2 would not 

rely on a measure of substitutability, 

even though the proposal would use 

substitutability to determine whether a 

bank holding company would be 

identified as a GSIB. A bank holding 

company’s substitutability is relevant in 

determining whether a bank holding 

company is a GSIB, as the failure of a 

bank holding company that performs a 

critical function where other firms lack 

the expertise or capacity to do so can 

pose significant risks to U.S. financial 

stability. However, the capital surcharge 

imposed on a GSIB should be designed 

to address the GSIB’s susceptibility to 

failure, and increasing a GSIB’s 

surcharge based on short-term 

wholesale funding use rather than 

substitutability is a more effective 

means of requiring a GSIB to internalize 

the externalities it imposes on the 

broader financial system and reduce its 

probability of failure. A GSIB’s shortterm wholesale funding score would be 

based on the GSIB’s average use of 

short-term wholesale funding sources 

over a calendar year. The proposed 

components of short-term wholesale 

funding would be weighted to account 

for the varying degrees of risk associated 

with different sources of short-term 

wholesale funding, and would then be 

divided by the GSIB’s average total riskweighted assets over the same calendar 

year. A GSIB would then apply a fixed 

conversion factor to the measure of 

short-term wholesale funding to 

normalize the value of short-term 

wholesale funding relative to the other 

systemic indicators. This amount would 

constitute the GSIB’s short-term 

wholesale funding score. The 

methodology to calculate the short-term 

wholesale funding score, including its 

justification, is described in detail in 

section III.F of this preamble. 

Once a GSIB calculates its short-term 

wholesale funding score, the GSIB 

would add its short-term wholesale 

funding score to the systemic indicator 

scores for the size, interconnectedness, 

complexity, and cross-jurisdictional 

activity indicators and multiply this 

figure by two to arrive at its method 2 

score. To determine its method 2 

surcharge, a GSIB would identify the 

method 2 surcharge that corresponds to 

its method 2 score, as identified in 

Table 3 below. 

TABLE 3—METHOD 2 SURCHARGE

Method 2 score 

(basis points) Method 2 surcharge 

Less than 130 .... 0.0 percent (no surcharge). 

130–229 ............. 1.0 percent. 

230–329 ............. 1.5 percent. 

330–429 ............. 2.0 percent. 

430–529 ............. 2.5 percent. 

530–629 ............. 3.0 percent. 

630–729 ............. 3.5 percent. 

730–829 ............. 4.0 percent. 

830–929 ............. 4.5 percent. 

930–1029 ........... 5.0 percent. 

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30See ‘‘An assessment of the long-term economic 

impact of stronger capital and liquidity 

requirements,’’ available at http://www.bis.org/

publ/bcbs173.pdf (August 2010). This study 

specified that tangible common equity is net of 

goodwill and intangibles and is therefore analogous 

to common equity tier 1 capital under the 

regulatory capital rule. 

31See the Swiss Financial Market Supervisory 

Authority FINMA’s ‘‘Pillar 2 Capital Adequacy 

Requirements for Banks Fact Sheet’’ published June 

17, 2013, available at: http://www.finma.ch/e/

finma/publikationen/faktenblaetter/Documents/fbeigenmittelanforderungen-banken-e.pdf, the 

Riksbank Financial Stability Report, Q2:2013, 

published November 2013, available at: http://

www.riksbank.se/Documents/Rapporter/FSR/2013/

FSR_2/rap_fsr2_131128_eng.pdf, and the 

Norwegian Ministry of Finance press release 

‘‘Regulation and decision on systemically important 

financial institutions,’’ published May 12, 2014, 

available at http://www.regjeringen.no/en/dep/fin/

press-center/press-releases/2014/Regulation-anddecision-on-systemically-important-financialinstitutions.html?id=759115. 

32These preliminary estimates were generated 

using BCBS aggregate global indicator amounts 

from year-end 2013, 2013 Y–15 data, and aggregated 

2013 short-term wholesale funding data from the FR 

2052a. 

TABLE 3—METHOD 2 SURCHARGE— 

Continued 

Method 2 score 

(basis points) Method 2 surcharge 

1030–1129 ......... 5.5 percent. 

1130 or greater .. 5.5 percent plus 0.5 percentage point for every 

100 basis point increase in score. 

For instance, if a GSIB’s short-term 

wholesale funding score were 200 and 

the sum of its systemic indicator scores 

for the size, interconnectedness, 

complexity, and cross-jurisdictional 

activity indicators were 530, the GSIB’s 

method 2 score would equal 730, and its 

method 2 surcharge would be 4.0 

percent. 

Like the bands of the method 1 

surcharge, the method 2 surcharge 

would use band ranges of 100 basis 

points, with the lowest band ranging 

from 130 basis points to 229 basis 

points. The method 2 surcharge would 

increase in increments of 0.5 percentage 

points per band, including bands at and 

above 1130 basis points. The modified 

band structure is appropriate for the 

method 2 surcharge because the 

proposed method’s doubling of a GSIB’s 

method 2 score could otherwise impose 

a surcharge that is larger than necessary 

to appropriately address the risks posed 

by a GSIB’s systemic nature. As with the 

method 1 surcharge, the method 2 

surcharge would include an indefinite 

number of bands in order to give the 

Board the ability to assess an 

appropriate surcharge should a GSIB 

become significantly more systemically 

important and would create 

disincentives for continued increases in 

systemic indicator and short-term 

wholesale funding scores. 

3. Calibration of GSIB Surcharge and 

Estimated Impact 

Under the proposal, a GSIB would be 

subject to the greater surcharge resulting 

from the two methods described above. 

Based upon the proposed formulation of 

method 2, in most instances, a GSIB 

would be subject to the surcharge 

resulting from method 2. 

The proposed calibration of the GSIB 

surcharges is based on the Board’s 

analysis of the additional capital 

necessary to equalize the probable 

systemic impact from the failure of a 

GSIB as compared to the probable 

systemic impact from the failure of a 

large, but not systemically important, 

bank holding company. Increased 

capital at a GSIB increases the firm’s 

resiliency to failure, thereby reducing 

the probability of it having a systemic 

effect. The proposed approach also 

builds on analysis of the return on riskweighted assets that was developed to 

inform the calibration of the minimums 

and capital conservation buffers of the 

Board’s regulatory capital rule. 

In addition, the Board considered the 

long-term economic impact of stronger 

capital and liquidity requirements at 

banking organizations. In 2010, the 

BCBS published a study (2010 BCBS 

study), which estimated, using 

historical data, that the economic 

benefits of more stringent capital and 

liquidity requirements, on net, 

outweighed the cost of such 

requirements and that benefits would 

continue to accrue at even higher levels 

of risk-based capital than are a part of 

the Board’s regulatory capital rule.30

The Board also considered that other 

jurisdictions have established capital 

requirements for global systemically 

important banking organizations that 

exceed those required by the BCBS 

framework; for instance, by imposing a 

larger surcharge upon global 

systemically important banking 

organizations than would be imposed 

under the BCBS framework or by 

requiring implementation of a global 

systemically important banking 

organization surcharge on a more 

expedited timeline. For example, 

Switzerland, Sweden, and Norway each 

require global systemically important 

banking organizations to adhere to 

capital requirements larger than those of 

the BCBS framework.31

Under the proposal, the method 1 

surcharge would serve as a floor for the 

GSIB surcharge. Like the method 2 

surcharge, the method 1 surcharge is 

based on the expected impact approach, 

but differs in three important ways. 

First, based upon current data, method 

1 generally results in lower GSIB 

surcharges than method 2. Second, as 

compared to method 2, method 1 

increases the GSIB surcharge at a higher 

rate to the extent a GSIB’s systemic risk 

profile were to exceed the highest 

aggregate systemic indicator scores of 

the current GSIB population. As 

described above, the proposed method 1 

surcharge would increase in 0.5 

percentage point increments up to 2.5 

percent, and then in 1.0 percentage 

point increments after a GSIB’s systemic 

risk profile increases beyond the 

maximum current level (i.e., beyond 250 

points). Accordingly, in the future, a 

GSIB that increases in systemic 

importance could be bound by proposed 

method 1, rather than method 2. Third, 

method 1 would use a measure of 

substitutability. While the use of shortterm wholesale funding is likely a more 

effective indicator for evaluating a 

GSIB’s susceptibility to failure, a GSIB 

with a high substitutability score but 

low systemic indicator scores in all 

other categories may be subject to a 

surcharge under method 1 but not under 

method 2. In this case, imposing the 

method 1 surcharge would be 

appropriate, in order to correct for 

competitive and systemic distortions 

created by the perception that the GSIB 

may be too big to fail. Notably, this 

approach would also facilitate 

comparability among jurisdictions 

implementing the BCBS framework. 

Using data as of year-end 2013, the 

Board estimates that the GSIB 

surcharges that would apply to the eight 

U.S. top-tier bank holding companies 

that would be identified as GSIBs would 

range from 1.0 to 4.5 percent.32 Based 

upon these estimates, nearly all of the 

eight firms would already meet their 

GSIB surcharges on a fully phased-in 

basis, and all firms are on their way to 

meeting their surcharges over the 

proposed three-year phase-in period. 

Question 6. The Board seeks comment 

on all aspects of the calibration of the 

GSIB surcharge. What are commenters’ 

views regarding the proposed 

calibration? What are commenters’ 

views regarding the benefits and 

challenges associated with the proposed 

two-method approach for determining 

the amount of the GSIB surcharge? 

Question 7. What are commenters’ 

views on the appropriateness of 

replacing the substitutability indicator 

with the short-term wholesale funding 

score under method 2? 

Question 8. What are commenters’ 

views on how the proposed GSIB 

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33 12 CFR 217.11(a). 

34See id. 

35Separate from the possible expansion of the 

capital conservation buffer set forth in this 

proposal, the capital conservation buffer could also 

be expanded by any applicable countercyclical 

capital buffer amount. See 12 CFR 217.11(b). 

36For the purposes of this example, all regulatory 

capital requirements are assumed to be fully phased 

in. 

surcharge would impact the competitive 

position of GSIBs relative to foreign peer 

institutions? 

Question 9. What potential costs 

would be imposed on bank holding 

companies if the proposed GSIB 

surcharge were implemented? What are 

the potential impacts of the proposed 

framework on economic growth, credit 

availability, and credit costs in the 

United States, over the short-term and 

long-term? How could potential costs, 

burdens, and other adverse effects be 

minimized while achieving the financial 

stability benefits of the proposed GSIB 

surcharge? 

4. Alternative Method of Capturing Use 

of Short-Term Wholesale Funding 

Alternative methods could be used to 

reflect use of short-term wholesale 

funding within the GSIB surcharge. For 

example, the applicable surcharge might 

be calculated by using short-term 

wholesale funding as a scaling factor for 

the method 1 surcharge. For example, 

one approach might be: 

where 

GSIBMethod2 is the result of scaling the 

method 1 surcharge, and where F = 1 + 

(STWF/RWA) × n, where STWF is a GSIB’s shortterm wholesale funding amount and RWA is 

the total risk-weighted assets of a GSIB. The 

parameter n would be chosen to capture 

concerns about a GSIB’s default probability 

and its interaction with the externalities 

identified in the GSIBMethod1 methodology. 

As noted above, the Board believes 

that in most instances, GSIBMethod2 will 

be greater than GSIBMethod1. Multiplying 

the method 1 surcharge by a scaling 

factor F could result in stronger 

incentives to reduce use of short-term 

wholesale funding, particularly among 

the most systemic firms. For example, 

using the existing measure of reliance 

(short-term wholesale funding/total 

average risk-weighted assets) and a 

scaling factor of 4 (n=4) produces a 

comparable set of surcharges relative to 

the method 2 surcharge described 

above. Similarly, choosing a smaller 

factor for n would result in a smaller 

increase in GSIB surcharges. 

Scaling the method 1 surcharge using 

a factor that incorporates short-term 

wholesale funding would reflect the 

view that the externalities associated 

with short-term wholesale funding 

depend largely on those firms identified 

as GSIBs under the proposed 

methodology. As a result, this 

alternative approach would maintain 

consistency with the BCBS framework’s 

surcharge methodology. In addition, 

alternative scaling factors might be 

considered by altering the definition of 

short-term wholesale funding or using 

alternative dominators other than total 

average risk-weighted assets. 

Question 10. What are commenters’ 

views regarding scaling the method 1 

surcharge to capture use of short-term 

wholesale funding? How should the 

scaling factor be chosen? 

D. Augmentation of the Capital 

Conservation Buffer 

Under the proposal, the GSIB 

surcharge would augment the regulatory 

capital rule’s capital conversation buffer 

for purposes of determining the banking 

organization’s maximum payout ratio.33

Under the regulatory capital rule, a 

banking organization must maintain 

capital sufficient to meet a minimum 

common equity tier 1 capital 

requirement of 4.5 percent, a minimum 

tier 1 capital requirement of 6 percent, 

and a minimum total capital 

requirement of 8.0 percent. In addition 

to those minimums, in order to avoid 

limits on capital distributions and 

certain discretionary bonus payments, a 

banking organization must hold 

sufficient capital to satisfy the minimum 

capital requirements, plus a capital 

conservation buffer composed of 

common equity tier 1 capital equal to 

more than 2.5 percent of risk-weighted 

assets. The capital conservation buffer is 

divided into quartiles, each associated 

with increasingly stringent limitations 

on capital distributions and certain 

discretionary bonus payments as the 

capital conservation buffer approaches 

zero.34

Under the proposal, the GSIB 

surcharge would expand each quartile 

of a GSIB’s capital conservation buffer 

by the equivalent of one fourth of the 

GSIB surcharge.35 The minimum 

common equity tier 1 capital 

requirement for banking organizations is 

4.5 percent, which, when added to the 

capital conservation buffer of 2.5 

percent, results in a banking 

organization needing to maintain a 

common equity tier 1 capital ratio of 

more than 7 percent to avoid limitations 

on distributions and certain 

discretionary bonus payments. Under 

the proposal, this 7 percent level would 

be further increased by the applicable 

GSIB surcharge. 

The mechanics of the capital 

conservation buffer calculations, after 

incorporating the GSIB surcharge, are 

illustrated in the following example.36 A 

bank holding company is identified as 

a GSIB under the proposed framework 

as a result of having an aggregate 

systemic indicator score of 350 basis 

points. Under method 1, the GSIB’s 

score correlates to a 2.0 percent method 

1 surcharge. Under method 2, the GSIB’s 

method 2 score equals 625, so that the 

GSIB’s score would correlate to a 

surcharge of 3.0 percent. As the method 

2 surcharge is larger than the method 1 

surcharge, the GSIB would be subject to 

a GSIB surcharge of 3.0 percent. As a 

result, in order to have no payout ratio 

limitation under the proposal, the GSIB 

must maintain a common equity tier 1 

capital ratio in excess of 10 percent 

(determined as the sum of the minimum 

common equity tier 1 capital ratio of 4.5 

percent plus the capital conservation 

buffer of 2.5 percent as expanded by the 

3 percent GSIB surcharge). In 

determining the effect on capital 

distributions and bonus payments, each 

of the four quartiles of the GSIB’s capital 

conservation buffer would be expanded 

by one fourth of its GSIB surcharge, or 

by 0.75 percent, as set forth below in 

Table 5. 


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75482 Federal Register / Vol. 79, No. 243 / Thursday, December 18, 2014 / Proposed Rules 

37See 12 CFR 225.8 and 12 CFR part 252. 

TABLE 5—CAPITAL CONSERVATION BUFFER ASSUMING A 3 PERCENT GSIB SURCHARGE

Capital conservation buffer 

Maximum payout ratio 

(as a percentage of eligible retained 

income) 

Greater than 5.5 percent ................................................................................................................................... No payout ratio limitation applies. 

Between 5.5 percent and 4.125 percent .......................................................................................................... 60 percent. 

Between 4.125 percent and 2.75 percent ........................................................................................................ 40 percent. 

Between 2.75 percent and 1.375 percent ........................................................................................................ 20 percent. 

Less than or equal to 1.375 percent ................................................................................................................. 0 percent. 

The Board will be analyzing in the 

coming year whether the Board’s capital 

plan and stress test rules should also 

include a form of GSIB surcharge.37 If 

the Board were to decide to propose a 

GSIB surcharge for the capital plan and 

stress test rules at a later date, the Board 

would do so through a separate notice 

of proposed rulemaking. 

E. Implementation and Timing 

1. Ongoing applicability 

Subject to the initial applicability 

provisions described in section E.2 of 

this preamble, if a top-tier U.S. bank 

holding company has total consolidated 

assets of $50 billion or more for the first 

time as of June 30 of a given year (as 

reported on its FR Y–9C), under the 

proposal, that bank holding company 

must begin calculating its aggregate 

systemic indicator score by December 

31 of that calendar year. If the bank 

holding company’s aggregate systemic 

indicator score exceeds 130 basis points, 

the bank holding company would be 

identified as a GSIB, and would be 

required to calculate its GSIB surcharge 

(using both method 1 and method 2) by 

December 31 of that year. Under the 

proposal, the GSIB surcharge would 

become an extension of the GSIB’s 

capital conservation buffer a full year 

later, on January 1 of the second 

calendar year, based on the surcharge 

calculated in the year the bank holding 

company was identified as a GSIB. 

The proposed schedule is aligned 

with the filing schedule for the FR Y– 

15 report, which must be filed by any 

top-tier U.S. bank holding company 

with total consolidated assets of $50 

billion or more. Specifically, 65 

calendar days after the December 31 asof date of the FR Y–15, a bank holding 

company must file the FR Y–15 on 

which it reports the indicator values 

that comprise its aggregate systemic 

indicator score as of the end of the prior 

calendar year. Over the course of the 

year, the BCBS aggregates the indicator 

amounts from a specific sample of the 

largest global banking organizations (the 

75 largest global banking organizations 

by total exposures, along with any 

banking organization that was 

designated as a global systemically 

important banking organization by the 

FSB in the previous year), and publishes 

its calculation of those aggregate 

amounts that November. Following 

publication by the BCBS, the Board will 

publish the aggregate global indicator 

amount, which generally will be equal 

to the amount published by the BCBS 

and converted into dollars. As noted 

above, a bank holding company with 

total consolidated assets of $50 billion 

or more would be required to calculate 

its aggregate systemic indicator score by 

December 31, relying on the previous 

year-end data. If a bank holding 

company were identified as a GSIB, it 

would also be required to calculate its 

GSIB surcharge by the end of the year 

in which it qualified as a GSIB. To 

perform this calculation, the GSIB 

would be required to retain data 

necessary to calculate its short-term 

wholesale fund score during the 

previous year. 

For example, a bank holding company 

would file on March 1, 2020 a FR Y–15 

report, on which it reported its systemic 

indicator values as of December 31, 

2019. The BCBS would publish its 

estimates of the aggregate global 

indicator amounts as of December 31, 

2019 in November 2020, and the Board 

would publish the aggregate global 

indicator amounts shortly thereafter. 

The bank holding company would 

calculate its aggregate systemic 

indicator score by December 31, 2020. If 

the bank holding company were 

identified as a GSIB by December 31, 

2020, that GSIB would be required to 

calculate its global systemic score using 

its systemic indicators and short-term 

wholesale funding data as of December 

31, 2019. In that instance, the GSIB 

would be required to use its GSIB 

surcharge to calculate its maximum 

payout ratio under the capital 

conservation buffer framework 

beginning on January 1, 2022. 

After the initial GSIB surcharge is in 

effect, if a GSIB’s systemic risk profile 

changes from one year to the next such 

that it becomes subject to a higher GSIB 

surcharge, the higher GSIB surcharge 

would not take effect for a full year (that 

is, two years from the systemic indicator 

measurement date). If a GSIB’s systemic 

risk profile changes such that the GSIB 

would be subject to a lower GSIB 

surcharge, the GSIB would be subject to 

the lower surcharge beginning in the 

next quarter. 

Question 11. What are commenters’ 

views with regard to the proposal’s 

dates for the measurement of systemic 

indicator scores for purposes of the 

GSIB surcharge? In light of these dates, 

what challenges would bank holding 

companies encounter in retaining 

capital sufficient to adhere to the GSIB 

surcharge? 

Question 12. What challenges would 

a bank holding company encounter in 

retaining short-term wholesale funding 

data sufficient to calculate the GSIB 

surcharge? 

2. Initial Applicability 

For the eight bank holding companies 

that would currently be identified as 

GSIBs under the proposed methodology, 

the GSIB surcharge would be phased in 

from January 1, 2016 to December 31, 

2018. This phase-in period was chosen 

to align with the phase-in of the capital 

conservation buffer and countercyclical 

capital buffer, as well as the phase-in 

period of the BCBS framework. Table 6 

shows the regulatory capital levels that 

a GSIB must satisfy to avoid limitations 

on capital distributions and 

discretionary bonus payments during 

the applicable transition period, from 

January 1, 2016 to January 1, 2019. 

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Federal Register / Vol. 79, No. 243 / Thursday, December 18, 2014 / Proposed Rules 75483 

38Table 6 assumes that the countercyclical capital 

buffer is zero. 

TABLE 6—REGULATORY CAPITAL LEVELS FOR GSIBS 38

Jan. 1, 2016 Jan. 1, 2017 Jan. 1, 2018 Jan. 1, 2019 

Capital conservation buffer 0.625% .............................. 1.25% ................................ 1.875% .............................. 2.5%. 

GSIB surcharge ................. 25% of applicable GSIB 

surcharge.

50% of applicable GSIB 

surcharge.

75% of applicable GSIB 

surcharge.

100% of applicable GSIB 

surcharge. 

Minimum common equity 

tier 1 capital ratio + capital conservation buffer + 

applicable GSIB surcharge.

5.125% + 25% of applicable GSIB surcharge.5.75% + 50% of applicable 

GSIB surcharge.

6.375% + 75% of applicable GSIB surcharge.7.0% + 100% of applicable 

GSIB surcharge. 

Minimum tier 1 capital ratio 

+ capital conservation 

buffer + applicable GSIB 

surcharge.

6.625% + 25% of applicable GSIB surcharge.7.25% + 50% of applicable 

GSIB surcharge.

7.875% + 75% of applicable GSIB surcharge.8.5% + 100% of applicable 

GSIB surcharge. 

Minimum total capital ratio 

+ capital conservation 

buffer + applicable GSIB 

surcharge.

8.625% + 25% of applicable GSIB surcharge.9.25% + 50% of applicable 

GSIB surcharge.

9.875% + 75% of applicable GSIB surcharge.10.5% + 100% of applicable GSIB surcharge. 

The GSIB surcharge in effect on 

January 1, 2016, would rely on the 

systemic indicator scores reported as of 

December 31, 2014. However, given that 

bank holding companies have not been 

required to calculate or retain data 

related to their short-term wholesale 

funding scores (which is generally based 

on average data over the preceding 

calendar year), the proposal would 

measure a GSIB’s short-term wholesale 

funding amount for: (i) The GSIB 

surcharge calculated by December 31, 

2015, based on data from the third 

quarter of 2015, and (ii) the GSIB 

surcharge calculated by December 31, 

2016, based on data from the third and 

fourth quarters of 2015. For the GSIB 

surcharge calculated by December 31, 

2017 (assuming a GSIB’s surcharge does 

not otherwise increase), the surcharge 

would be based on yearly data from 

2016. In order to comply with the 

proposal, a bank holding company that 

is currently identified as a GSIB would 

be required to retain information to 

calculate its short-term wholesale 

funding amount beginning on July 1, 

2015. 

While the proposal would generally 

rely on a full calendar year of short-term 

wholesale funding data to compute a 

GSIB’s short-term wholesale funding 

amount for purposes of calculating the 

GSIB’s method 2 surcharge going 

forward, the proposed implementation 

schedule would rely on quarterly 

averages for the surcharges calculated 

by December 31, 2015 and 2016, which 

should be sufficient to smooth the 

volatility for short-term wholesale 

funding while facilitating 

implementation of the method 2 

surcharge on the same timeline as that 

used for the implementation of the 

method 1 surcharge. 

Table 7 sets forth the reporting and 

compliance dates for the proposed GSIB 

surcharge described above. 

TABLE 7—GSIB SURCHARGE REPORTING AND COMPLIANCE DATES DURING PHASE-IN PERIOD

Date Occurrence 

March 2015 ..................................... FR Y–15 filing deadline reflecting bank holding company systemic indicator values as of December 31, 

2014. 

July 1, 2015 .................................... GSIBs begin collecting short-term wholesale funding data. 

November 2015 .............................. BCBS publishes aggregate global indicator amounts using 2014 data, and the Board publishes the aggregate global indicator amount for use by U.S. bank holding companies shortly thereafter. 

January 1, 2016 .............................. Bank holding companies identified as GSIBs are subject to GSIB surcharge (as phased in) calculated 

using year-end 2014 systemic indicator scores and Q3 2015 short-term wholesale funding data. 

March 2016 ..................................... FR Y–15 filing deadline reflecting bank holding company (1) systemic indicator values and scores as of 

December 31, 2015 and (2) short-term wholesale funding score using Q3 and Q4 2015 data (to be separately proposed). 

November 2016 .............................. BCBS publishes aggregate systemic indicator amounts using 2015 data, and the Board publishes the aggregate global indicator amount for use by U.S. bank holding companies shortly thereafter. 

December 31, 2016 ........................ Bank holding companies identified as GSIBs must calculate their GSIB surcharge using year-end 2015 

systemic indicator scores and short-term wholesale funding score using Q3 and Q4 2015 short-term 

wholesale funding data. 

January 1, 2017 .............................. If the GSIB surcharge calculated by December 31, 2016, stays the same or decreases, the GSIB is subject to that GSIB surcharge (if the GSIB surcharge increases, increased GSIB surcharge comes into effect beginning on January 1, 2018). 

March 2017 ..................................... FR Y–15 filing deadline reflecting bank holding company (1) systemic indicator values and scores as of 

December 31, 2016; and (2) short-term wholesale funding score as of December 31, 2016 using 2016 

short-term wholesale funding data (to be separately proposed). 

November 2017 .............................. BCBS publishes aggregate systemic indicator amounts using 2016 data, and the Board publishes the aggregate global indicator amount for use by U.S. bank holding companies shortly thereafter. 

December 31, 2017 ........................ Bank holding companies identified as GSIBs must calculate their GSIB surcharge using year-end 2016 

systemic indicator scores and 2016 short-term wholesale funding score. 

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39The BCBS expects to review and refine the 

BCBS framework, including the initial threshold 

and the size of the surcharge buckets, every three 

years in order to capture developments in the 

banking sector and assess new approaches to 

measuring systemic risk. See paragraph 39 of the 

BCBS Revised Document. 

40The systemic indicators described in the 

proposal are those previously identified as 

indicative of global systemic importance by the 

BCBS, FSB, and G–20. Many of the items reported 

on the FR Y–15 are also reported on the 

Consolidated Financial Statements for Holding 

Companies (FR Y–9C). 

41See 12 CFR 217.10(c)(4). 

TABLE 7—GSIB SURCHARGE REPORTING AND COMPLIANCE DATES DURING PHASE-IN PERIOD—Continued 

Date Occurrence 

January 1, 2017 .............................. If the GSIB surcharge calculated by December 31, 2017, stays the same or decreases, the GSIB is subject to that GSIB surcharge (if the GSIB surcharge increases, increased GSIB surcharge comes into effect beginning on January 1, 2019). 

Question 13. What are commenters’ 

views regarding the timing of the 

implementation of the GSIB surcharge? 

What are the benefits and drawbacks of 

aligning the effective dates of the 

method 1 and method 2 surcharges? 

Should the Board consider staggering 

the effectiveness of the method 1 and 

method 2 surcharges such that GSIBs 

would be able to use a year’s worth of 

short-term wholesale funding data to 

compute their short-term wholesale 

funding scores? Why or why not? 

Question 14. What are commenters’ 

views with regard to the proposal’s 

dates for the measurement of systemic 

indicator scores for purposes of the 

GSIB surcharge that is effective January 

1, 2016? Would using data as of yearend 2014 present any difficulties in 

terms of capital retention for bank 

holding companies that are currently 

identified as GSIBs? 

F. Periodic Review and Refinement of 

the Proposal 

The Board recognizes that the 

proposal, if adopted, may require 

further refinement over time. The Board 

would monitor the proposed GSIB 

surcharge methodology and consider 

whether any revisions are necessary to 

improve the effectiveness of the GSIB 

surcharge in advancing the Board’s 

goals. This could include consideration 

of any revisions made by the BCBS to 

the BCBS framework, as well as 

revisions to the minimum threshold to 

qualify as a GSIB and revisions to the 

method 1 and method 2 surcharge 

calculations that may be necessary over 

time.39 To the extent that revisions are 

deemed necessary, any proposed 

changes would be subject to notice and 

comment. 

Question 15. How well would the 

proposal’s GSIB surcharge incentivize 

bank holding companies to minimize 

their systemic risk profiles? How could 

the framework be changed to strengthen 

these incentives? 

Question 16. How well does the 

proposal mitigate any implicit subsidies 

that GSIBs enjoy due to market 

perceptions that they are too big to fail? 

How well does the proposed framework 

force GSIBs to internalize the 

externalities that their failure or 

material financial distress would pose to 

the broader financial system? 

Question 17. How well do the 

proposed indicators of global systemic 

importance and other aspects of the 

scoring methodology capture the 

relevant dimensions of global systemic 

importance and the negative 

externalities that global systemic 

importance can generate? What 

modifications or simplifications, if any, 

would be appropriate to assess global 

systemic importance? 

Question 18. To what extent could 

bank holding companies and market 

participants easily determine a firm’s 

GSIB surcharge? How could the Board 

make the proposal more transparent in 

this respect? 

Question 19. What are the advantages 

and disadvantages of a framework 

where a firm is identified as a GSIB not 

by firm-specific measures (e.g., a firm’s 

size, interconnectedness, and other 

characteristics), but rather by how a 

firm’s specific measures compare to the 

aggregate measures of a set of global 

large banking organizations? What are 

the implications for bank holding 

companies of using internationally 

compiled data to determine their 

systemic scores? 

Question 20. What are the 

implications of periodically 

recalibrating the threshold scores and 

the size of the bands under methods 1 

and 2? What are the implications of 

revising the framework over time? What 

factors should the Board consider in 

making such modifications and 

recalibrations? 

Question 21. How well does the 

proposal reflect the changing elements 

of the global economy, such as growth 

in global domestic product, advances in 

financial intermediation, and inflation, 

and how might the proposal be adjusted 

to better reflect such elements? 

III. Indicators of Global Systemic Risk 

As described above, the Board is 

proposing to determine the systemic 

scores and GSIB surcharges of bank 

holding companies using six 

components under two formulations. 

These components, which are described 

in detail below, were chosen on the 

basis of the Board’s belief that they are 

indicative of the global systemic 

importance of bank holding companies. 

Five of the components—size, 

interconnectedness, substitutability, 

complexity, and cross-jurisdictional 

activity—have been previously 

identified as indicative of global 

systemic importance by the BCBS, FSB, 

and G–20, and are defined in detail in 

the instructions for the FR Y–15.40 The 

Board also intends to propose 

amendments to the FR Y–15 to collect 

information regarding the sixth 

component, a firm’s short-term 

wholesale funding amount, in the near 

term. 

A. Size 

A banking organization’s size is a key 

measure of its systemic importance. A 

banking organization’s distress or failure 

is more likely to negatively impact the 

financial markets and the economy 

more broadly if the banking 

organization’s activities comprise a 

relatively large share of total financial 

activities. Moreover, the size of 

exposures and volume of transactions 

and assets managed by a banking 

organization are indicative of the extent 

to which clients, counterparties, and the 

broader financial system could suffer 

disruption if the firm were to fail or 

become distressed. In addition, the 

larger a banking organization is, the 

more difficult it generally is for other 

firms to replace its services and, 

therefore, the greater the chance that the 

banking organization’s distress or failure 

would cause disruption. 

Under the proposal, a bank holding 

company’s size would be equivalent to 

total exposures, which would mean the 

bank holding company’s measure of 

total leverage exposure calculated 

pursuant to the regulatory capital rule.41

The Board separately intends to propose 

changes to the FR Y–15 to align its 

definition of ‘‘total exposure’’ with the 

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42See FR Y–15 Instructions, Schedule B, line 

item 1. 

‘‘Central counterparties’’ for the purposes of the 

proposal has the same meaning used in the FR Y– 

15 Instructions, Schedule D, line item 1. That is, 

central counterparties are entities (e.g., a clearing 

house) that facilitate trades between counterparties 

in one or more financial markets by either 

guaranteeing trades or novating contracts. 

43See paragraph 19 of the BCBS Revised 

Document. 

definition in the regulatory capital rule, 

and expects that these changes will be 

in effect before the March 2015 due date 

of the FR Y–15. 

Question 22. What modifications, if 

any, are necessary to ensure that total 

exposure is a size indicator that 

appropriately measures the extent to 

which a bank holding company may 

cause damage or disruption to the 

broader financial system? 

B. Interconnectedness 

Financial institutions may be 

interconnected in many ways, as 

banking organizations commonly engage 

in transactions with other financial 

institutions that give rise to a wide 

range of contractual obligations. The 

proposal reflects the belief that financial 

distress at a GSIB may materially raise 

the likelihood of distress at other firms 

given the network of contractual 

obligations throughout the financial 

system. A banking organization’s 

systemic impact is, therefore, likely to 

be directly related to its 

interconnectedness vis-a`-vis other 

financial institutions and the financial 

sector as a whole. 

Under the proposal, 

interconnectedness would be measured 

by intra-financial system assets, intrafinancial system liabilities, and 

securities outstanding as of December 

31 of a given year. These indicators 

represent the major components 

(lending, borrowing, and capital markets 

activity) of intra-financial system 

transactions and contractual 

relationships, and are broadly defined to 

capture the relevant dimensions of these 

activities by a bank holding company. 

For the purpose of the intra-financial 

system assets and intra-financial system 

liabilities indicators, financial 

institutions are defined by the FR Y–15 

instructions as depository institutions 

(as defined in the FR Y–9C Instructions, 

Schedule HC–C, line item 2), bank 

holding companies, securities dealers, 

insurance companies, mutual funds, 

hedge funds, pension funds, investment 

banks, and central counterparties (as 

defined in the FR Y–15 Instructions, 

Schedule D, line item 1).42 Central 

banks and multilateral development 

banks are excluded, but state-owned 

commercial banks are included. 

It should be noted that the Board has 

developed different concepts and 

methodologies for identifying financial 

sector entities, including in the Board’s 

regulatory capital rule, the FR Y–15, and 

the recently adopted LCR rule. The 

Board is proposing to continue using the 

definition that is reported on the Y–15 

reporting form. The Board may consider 

converging these concepts and 

methodologies at some point in the 

future. 

Question 23. What aspects, if any, of 

the measures of intra-financial system 

assets and intra-financial system 

liabilities should be adjusted to better 

capture interconnectedness between 

bank holding companies? What 

modifications to these indicators or 

additional indicators would more 

appropriately measure the 

interconnectedness associated with 

securities financing transactions and 

OTC derivative exposures? How, if at 

all, should collateral and netting 

agreements be reflected in these 

measures? What are the advantages and 

disadvantages of including in these 

measures exposures over which firms 

do not have control, such as the amount 

of their securities owned by other 

financial firms? 

C. Substitutability 

The potential adverse systemic impact 

of a banking organization will depend in 

part on the degree to which other 

banking organizations are able to serve 

as substitutes for its role in the financial 

system in the event that the banking 

organization is unable to perform its 

role during times of financial stress. 

Under the proposal, three indicators 

would be used to measure 

substitutability: Assets under custody as 

of December 31 of a given year, the total 

value of payments activity sent over the 

calendar year, and the total value of 

transactions in debt and equity markets 

underwritten during the calendar year. 

Relative to the other categories in the 

method 1 surcharge, the substitutability 

category has a greater-than-intended 

impact on the assessment of systemic 

importance for certain banking 

organizations that are dominant in the 

provision of asset custody, payment 

systems, and underwriting services. The 

Board is therefore proposing to cap the 

maximum score for the substitutability 

category at 500 basis points (or 100 basis 

points, after the 20 percent weighting 

factor is applied) so that the 

substitutability category does not have a 

greater than intended impact on a bank 

holding company’s global systemic 

score.43 This proposed cap is also 

consistent with the approach taken in 

the BCBS framework. The following 

discusses how each of the three 

substitutability indicators would be 

measured and reported on the FR Y–15. 

1. Assets under custody. The collapse 

of a GSIB that holds assets on behalf of 

customers, particularly other financial 

firms, could severely disrupt financial 

markets and have serious consequences 

for the domestic and global economies. 

The proposal would measure assets 

under custody as the aggregate value of 

assets that a bank holding company 

holds as a custodian. For purposes of 

the proposal, a custodian would be 

defined as a banking organization that 

manages or administers the custody or 

safekeeping of stocks, debt securities, or 

other assets for institutional and private 

investors. 

2. Payments activity. The collapse of 

a GSIB that processes a large volume of 

payments is likely to affect a large 

number of customers, including 

financial, non-financial, and retail 

customers. In the event of collapse, 

these customers may be unable to 

process payments and could experience 

liquidity issues as a result. Additionally, 

if failure (meaning the inability to 

operate properly in the payment system) 

occurred while the banking organization 

was in a net positive liquidity position, 

those funds could become inaccessible 

to the recipients. 

The proposal would use a bank 

holding company’s share of payments 

made through large-value payment 

systems and through agent banks as an 

indicator of the company’s degree of 

systemic importance within the context 

of substitutability. Specifically, 

payments activity would be the value of 

all cash payments sent via large-value 

payment systems, along with the value 

of all cash payments sent through an 

agent (e.g., using a correspondent or 

nostro account), over the calendar year 

in the currencies specified on the FR 

Y–15. 

3. Underwritten transactions in debt 

and equity markets. The failure of a 

GSIB with a large share of the global 

market’s debt and equity underwriting 

could impede new securities issuances 

and potentially increase the cost of debt 

and capital. In order to assess a bank 

holding company’s significance in 

underwriting as compared to its peers, 

the proposal would measure 

underwriting activity as the aggregate 

value of equity and debt underwriting 

transactions of a banking organization, 

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75486 Federal Register / Vol. 79, No. 243 / Thursday, December 18, 2014 / Proposed Rules 

conducted over the calendar year, as 

specified on the FR Y–15. 

D. Complexity 

The global systemic impact of a 

banking organization’s failure or distress 

is positively correlated to that 

organization’s business, operational, 

and structural complexity. Generally, 

the more complex a banking 

organization is, the greater the expense 

and time necessary to resolve it. Costly 

resolutions can have negative cascading 

effects in the markets, including 

disorderly unwinding of positions, firesales of assets, disruption of services to 

customers, and increased uncertainty in 

the markets. 

As reflected in the FR Y–15, the 

proposal would include three indicators 

of complexity: Notional amount of OTC 

derivatives, Level 3 assets, and trading 

and AFS securities as of December 31 of 

a given year. The indictors would be 

measured as follows: 

1. Notional amount of OTC 

derivatives. A bank holding company’s 

OTC derivatives activity would be the 

aggregate notional amount of the bank 

holding company’s OTC derivative 

transactions that are cleared through a 

central counterparty or settled 

bilaterally. 

2. Level 3 assets. Level 3 assets would 

be equal to the value of the assets that 

the bank holding company measures at 

fair value for purposes of its FR Y–9C 

quarterly report (Schedule HC–Q, 

column E). These are generally illiquid 

assets with fair values that cannot be 

determined by observable data, such as 

market price signals or models. Instead, 

the value of the level 3 assets is 

calculated based on internal estimates 

or risk-adjusted value ranges by the 

banking organization. Firms with high 

levels of level 3 assets would be difficult 

to value in times of stress, thereby 

negatively affecting market confidence 

in such firms and creating the potential 

for a disorderly resolution process. 

3. Trading and AFS securities. A 

banking organization’s trading and AFS 

securities can cause a market 

disturbance through mark-to-market 

losses and fire sales of assets in times of 

distress. Specifically, a banking 

organization’s write-down or sales of 

securities could drive down the prices 

of these securities, which could cause a 

spill-over effect that forces other holders 

of the same securities to experience 

mark-to-market losses. Accordingly, the 

proposal would consider a bank holding 

company’s trading and AFS securities as 

an indicator of complexity. 

Question 24. Do the three indicators 

(notional amount of OTC derivatives 

transactions, Level 3 assets, and trading 

and AFS securities) appropriately reflect 

a bank holding company’s complexity? 

What alternative or additional 

indicators might better reflect 

complexity and global systemic 

importance? 

Question 25. What, if any, other 

financial instruments should be 

measured by the trading and AFS 

securities systemic indicator and why? 

E. Cross-Jurisdictional Activity 

Banking organizations with a large 

global presence are more difficult and 

costly to resolve than purely domestic 

institutions. Specifically, the greater the 

number of jurisdictions in which a firm 

operates, the more difficult it would be 

to coordinate its resolution and the 

more widespread the spillover effects 

were it to fail. Under the proposal, the 

two indicators included in this 

category—cross-jurisdictional claims 

and cross-jurisdictional liabilities— 

would measure a bank holding 

company’s global reach by considering 

its activity outside its home jurisdiction 

as compared to the cross-jurisdictional 

activity of its peers. In particular, claims 

would include deposits and balances 

placed with other banking 

organizations, loans and advances to 

banking organizations and non-banks, 

and holdings of securities. Liabilities 

would include the liabilities of all 

offices of the same banking organization 

(headquarters as well as branches and 

subsidiaries in different jurisdictions) to 

entities outside of its home market. 

Question 26. Are there any other 

specific metrics that should be used to 

ensure that a bank holding company’s 

cross-jurisdictional reach is adequately 

measured? Should there be any 

modifications to the cross-jurisdictional 

indicators that have been proposed? 

F. Use of Short-Term Wholesale 

Funding 

As described in section II.C.2 of this 

preamble, the proposal incorporates a 

measure of short-term wholesale 

funding use in order to address the risks 

presented by those funding sources. 

To determine its method 2 surcharge 

under the proposal, a GSIB would be 

required to compute its short-term 

wholesale funding score. As a first step 

in doing so, a GSIB would determine, on 

a consolidated basis, the amount of its 

short-term wholesale funding sources 

with a remaining maturity of less than 

one year for each business day of the 

preceding calendar year. Under the 

proposal, components of a GSIB’s shortterm wholesale funding amount would 

generally be defined using terminology 

from the LCR rule and aligned with 

items that are reported on the Board’s 

Complex Institution Liquidity 

Monitoring Report on Form FR 2052a. 

In identifying items for inclusion in 

short-term wholesale funding, the 

proposal focuses on those sources that 

give rise to the greatest risk of creditor 

runs and associated systemic 

externalities. Specifically, a GSIB’s 

short-term wholesale funding amount 

would include the following: 

• All funds that the GSIB must pay 

under each secured funding transaction, 

other than an operational deposit, with 

a remaining maturity of one year or less; 

• All funds that the GSIB must pay 

under each unsecured wholesale 

funding transaction, other than an 

operational deposit, with a remaining 

maturity of one year or less; 

• The fair market value of all assets 

that the GSIB must return in connection 

with transactions where it has provided 

a non-cash asset of a given liquidity 

category to a counterparty in exchange 

for non-cash assets of a higher liquidity 

category, and the GSIB and the 

counterparty agreed to return the assets 

to each other at a future date (covered 

asset exchange); 

• The fair market value of all assets 

that the GSIB must return under 

transactions where it has borrowed or 

otherwise obtained a security which it 

has sold (short positions); and 

• All brokered deposits and all 

brokered sweep deposits held at the 

GSIB provided by a retail customer or 

counterparty. 

The proposal would align the 

definition of a ‘‘secured funding 

transaction’’ with the definition of that 

term in the LCR rule. As such, it would 

include repurchase transactions, 

securities lending transactions, secured 

funding from a Federal Reserve Bank or 

other foreign central bank, Federal 

Home Loan Bank advances, secured 

deposits, loans of collateral to effect 

customer short positions, and other 

secured wholesale funding 

arrangements. These funding sources 

are treated as short-term wholesale 

funding, provided that they have a 

remaining maturity of less than one 

year, as such funding generally gives 

rise to cash outflows during periods of 

stress because counterparties are more 

likely to abruptly remove or cease to 

roll-over secured funding transactions 

as compared to longer-term funding. 

The proposal would also align the 

definition of ‘‘unsecured wholesale 

funding’’ with the definition of that 

term in the LCR rule. Such funding 

typically includes: wholesale deposits; 

federal funds purchased; unsecured 

advances from a public sector entity, 

sovereign entity, or U.S. government 

sponsored enterprise; unsecured notes; 

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bonds, or other unsecured debt 

securities issued by a GSIB (unless sold 

exclusively to retail customers or 

counterparties), brokered deposits from 

non-retail customers; and any other 

transaction where an on-balance sheet 

unsecured credit obligation has been 

contracted. As evidenced in the 

financial crisis, funding from wholesale 

counterparties presents greater run risk 

to banking organizations during periods 

of stress as compared to the same type 

of funding provided by retail 

counterparties. Unsecured wholesale 

funding has exhibited a potential to be 

withdrawn in large amounts by 

wholesale counterparties seeking to 

meet their financial obligations when 

facing financial distress. The proposal 

would include in short-term wholesale 

funding unsecured wholesale funding 

that is partially or fully covered by 

deposit insurance, as such funding 

poses run risks even when deposit 

insurance is present. The proposal 

would not reflect offsetting amounts 

from the release of assets held in 

segregated accounts in connection with 

wholesale deposits included in a GSIB’s 

short-term wholesale funding amount. 

The proposed definition of short-term 

wholesale funding also would include 

the fair market value of all assets that a 

GSIB must return in connection with 

transactions where it has provided a 

non-cash asset of a given liquidity 

category to a counterparty in exchange 

for non-cash assets of a higher liquidity 

category, and the GSIB and the 

counterparty agreed to return the assets 

to each other at a future date. The 

unwinding of such transactions could 

negatively impact a GSIB’s funding 

profile in times of stress to the extent 

that the unwinding requires the GSIB to 

obtain funding for a less liquid asset or 

security or because the counterparty is 

unwilling to roll over the transaction. 

The proposed definition also includes 

the fair market value of all assets a GSIB 

must return under transactions where it 

has borrowed or otherwise obtained a 

security which it has sold. If the 

transaction in which the GSIB borrows 

or obtains the security closes out, then 

the GSIB would be required to fund a 

repurchase or otherwise obtain the 

security, which may impact the GSIB’s 

funding profile. 

The proposal would characterize 

retail brokered deposits and brokered 

sweep deposits as short-term wholesale 

funding because these forms of funding 

have demonstrated significant volatility 

in times of stress, notwithstanding the 

presence of deposit insurance. These 

types of deposits can be easily moved 

from one institution to another during 

times of stress, as customers and 

counterparties seek higher interest rates 

or seek to use those funds for other 

purposes and on account of the 

incentives that third-party brokers have 

to provide the highest possible returns 

for their clients. However, the proposed 

definition of short-term funding would 

exclude deposits from retail customers 

and counterparties that are not brokered 

deposits or brokered sweep deposits, as 

these deposits are less likely to pose 

liquidity risks in times of stress. 

The proposed definition of short-term 

wholesale funding would exclude 

operational deposits from secured 

funding transactions and unsecured 

wholesale funding. Operational deposits 

would be defined consistent with the 

LCR rule as deposits required for the 

provision of operational services by a 

banking organization to its customers, 

which can include services related to 

clearing, custody, and cash 

management. Because these deposits are 

tied to the provision of specific services 

to customers, these funding sources 

present less short-term liquidity risk 

during times of stress. Under the LCR 

rule, such deposits are required to be 

tied to operational services agreements 

that have a minimum 30-day 

termination period or are the subject of 

significant termination or switching 

costs. 

As an alternative proposal, the Board 

is proposing to treat operational 

deposits as short-term wholesale 

funding for the purposes of the method 

2 surcharge and to weight these deposits 

at 25 percent (which, as described 

below, is the same weighting applied to 

secured funding transactions secured by 

a level 1 liquid asset). To the extent that 

a firm suffers operational deposit 

outflows, the firm will generally need to 

liquidate assets to meet the large deposit 

outflows. These assets may include 

securities or short-term loans to other 

financial institutions, and the rapid 

liquidation of such assets may have an 

adverse impact on financial stability. 

Question 27. How should the measure 

of short-term wholesale funding amount 

reflect operational deposits? If these are 

included in the measure of short-term 

wholesale funding amount, how should 

operational deposits be weighted? 

In addition, the GSIB’s short-term 

wholesale funding amount would not 

reflect liquidity risks from derivatives 

transactions. In particular, a GSIB’s 

short-term wholesale funding amount 

would not reflect the potential need for 

a firm to post incremental cash or 

securities as margin for derivatives 

transactions that move in a 

counterparty’s favor, nor would the 

short-term wholesale funding amount 

recognize the possibility that a GSIB 

may lose the ability to rehypothecate 

collateral it has received in connection 

with its derivatives transactions. While 

each of these scenarios could present 

liquidity risk to the firm, it is arguable 

that such liquidity risks are more 

appropriately considered under the 

liquidity regulatory framework. 

However, as an alternative proposal, 

the Board is proposing that the 

definition of short term wholesale 

funding include exposures attributable 

to derivatives transactions, in particular, 

in cases where the firm has the ability 

to rehypothecate collateral received in 

connection with derivative transactions. 

Under this alternative proposal, the 

weighting of these exposures could be 

determined based on the counterparty 

or type of derivative transaction. 

Question 28. How should the measure 

of short-term wholesale funding amount 

reflect exposures for derivatives 

transactions, in particular, in cases 

where the firm has the ability to 

rehypothecate collateral received in 

connection with derivative transactions? 

If derivatives exposures are included in 

the measure of short-term wholesale 

funding amount, how should they be 

weighted? 

The GSIB’s short-term wholesale 

funding amount would not reflect any 

exposures that arise from sponsoring a 

structured transaction where the issuing 

entity is not consolidated on the GSIB’s 

balance sheet under GAAP. Such 

treatment, however, may be at odds 

with the support that some companies 

provided during the financial crisis to 

the funds they advised and sponsored. 

For example, many money market 

mutual fund sponsors, including 

banking organizations, supported their 

money market mutual funds during the 

crisis in order to enable those funds to 

meet investor redemption requests 

without having to sell assets into thenfragile and illiquid markets. For these 

reasons, as an alternative proposal, the 

Board is proposing to adjust the 

definition of short-term wholesale 

funding to include exposures arising 

from sponsoring a structured 

transaction. Under this alternative 

proposal, the weighting of these 

exposures would be determined based 

on the liquidity characteristics of the 

assets of the issuing entity. 

Question 29. How should the measure 

of short-term wholesale funding amount 

reflect exposures for structured 

transactions? If these exposures are 

included in the measure of short-term 

wholesale funding amount, how should 

they be weighted? 

After a GSIB has identified the shortterm wholesale funding sources 

specified above, the GSIB would apply 

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a weighting system that is designed to 

take account of the varying levels of 

systemic risk associated with the 

different funding sources comprising its 

short-term wholesale funding amount. 

The weighting system generally would 

focus on the remaining maturity of a 

short-term wholesale funding source 

and the asset class of any collateral 

backing the source, each of which is 

captured on the FR 2052a. A GSIB 

would be required to categorize the 

sources that comprise its short-term 

wholesale funding amount into one of 

four remaining maturity buckets (under 

30 days (which would include shortterm wholesale funding sources with no 

maturity date), 31 to 90 days, 91 to 180 

days, and 181 to 365 days), and to 

distinguish between certain of those 

sources based on whether they are 

backed by level 1 liquid assets, level 2A 

liquid assets, or level 2B liquid assets, 

each as defined in the Board’s LCR rule. 

To determine the remaining maturity of 

a short-term wholesale funding source, 

a GSIB would be required to assume 

that a short-term wholesale funding 

source matures in accordance with the 

LCR rule’s provisions for determining 

maturity, including the provisions for 

determining the maturity of transactions 

with no maturity date. In general, the 

proposed weights would progressively 

decrease as the remaining maturity of a 

funding transaction increases, and 

would progressively increase as the 

quality of the collateral securing a 

funding transaction decreases. 

Table 8 below sets forth the proposed 

weights for each component of shortterm wholesale funding. 

TABLE 8—SHORT-TERM WHOLESALE FUNDING WEIGHTING

Component of short-term wholesale funding 

Remaining 

maturity of 30 

days or less 

(percent) 

Remaining 

maturity of 31 

to 90 days 

(percent) 

Remaining 

maturity of 91 

to 180 days 

(percent) 

Remaining 

maturity of 181 

to 365 days 

(percent) 

Secured funding transaction secured by a level 1 liquid asset ....................... 25 10 0 0 

(1) Secured funding transaction secured by a level 2A liquid asset; .............. 50 25 10 0 

(2) Unsecured wholesale funding where the customer or counterparty is not 

a financial sector entity or a consolidated subsidiary of a financial sector 

entity; and 

(3) Brokered deposits and brokered sweep deposits provided by a retail 

customer or counterparty; and 

(4) Covered asset exchanges involving the future exchange of a level 1 liquid asset for a level 2A liquid asset; and 

(5) Short positions where the borrowed security is either a level 1 or level 

2A liquid asset 

(1) Secured funding transaction secured by a level 2B liquid asset; and ...... 75 50 25 10 

(2) Covered asset exchanges and short positions (other than those described above) 

(1) Unsecured wholesale funding where the customer or counterparty is a 

financial sector entity or a consolidated subsidiary thereof; and ................. 100 75 50 25 

(2) Any other component of short-term wholesale funding 

As noted above, a GSIB’s short-term 

wholesale funding amount would be 

determined by calculating its short-term 

wholesale funding amount for each 

business day over the prior calendar 

year, applying the appropriate 

weighting as set forth in Table 8 by 

short-term wholesale funding source 

and remaining maturity, and averaging 

this amount over the prior calendar 

year. Consideration of a GSIB’s 

weighted short-term wholesale funding 

amount as a yearly average is intended 

to reduce the extent to which daily or 

monthly volatility in a firm’s use of 

short-term wholesale funding could 

affect the firm’s method 2 surcharge 

level. Using a yearly average of a firm’s 

daily short-term wholesale funding use 

to determine the weighted short-term 

wholesale funding amount is intended 

to strike an appropriate balance between 

generating an accurate depiction of a 

GSIB’s short-term wholesale funding 

use and operational complexity. 

Question 30. What, if any, additional 

or alternative items should be 

considered in determining a GSIB’s 

short-term wholesale funding amount? 

Should wholesale deposits included in 

a GSIB’s unsecured wholesale funding 

reflect any offsetting amounts from the 

release of assets held in segregated 

accounts? Should brokered deposits and 

brokered sweep deposits provided by a 

retail customer or counterparty be 

excluded from a GSIB’s short-term 

wholesale funding amount? 

Question 31. What are commenters’ 

views on the proposed method of 

weighting a GSIB’s short-term wholesale 

funding amount? 

After calculating its weighted shortterm wholesale funding amount, the 

GSIB would divide its weighted shortterm wholesale funding amount by its 

average risk-weighted assets, measured 

as the four-quarter average of the firm’s 

total risk-weighted assets (e.g., 

standardized or advanced approaches) 

associated with the lower of its riskbased capital ratios as reported on its FR 

Y–9C for each quarter of the previous 

year. Consideration of a GSIB’s shortterm wholesale funding amount as a 

percentage of its average risk-weighted 

assets is an appropriate means of scaling 

in a firm-specific manner a firm’s use of 

short-term wholesale funding. This 

reflects the view that the systemic risks 

associated with a firm’s use of shortterm wholesale funding are comparable 

regardless of the business model of the 

firm. More specifically, the use of shortterm wholesale funding poses similar 

systemic risks regardless of whether 

short-term wholesale funding is used by 

a firm that is predominantly engaged in 

trading operations as opposed to a firm 

that combines large trading operational 

with large commercial banking 

activities, and regardless of whether a 

firm uses short-term wholesale funding 

to fund securities inventory as opposed 

to securities financing transaction 

matched book activity. Dividing shortterm wholesale funding by average riskweighted assets helps ensure that two 

firms that use the same amount of shortterm wholesale funding would be 

required to hold the same dollar amount 

of additional capital regardless of such 

differences. 

To illustrate the rationale for dividing 

a GSIB’s short-term wholesale funding 

by its average risk-weighted assets, 

assume that two GSIBs use the same 

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44 78 FR 24528 (May 1, 2014). 

amount of short-term wholesale 

funding, but the first GSIB has average 

risk-weighted assets of $50, and the 

second GSIB has average risk-weighted 

assets of $100. If method 2’s short-term 

wholesale funding score were based on 

a GSIB’s short-term wholesale funding 

amount instead of the ratio of short-term 

wholesale funding to average riskweighted assets, the two GSIBs would 

have equal short-term wholesale 

funding scores, but the second GSIB 

would effectively be required to hold 

more capital than the first GSIB (given 

its higher risk-weighted assets) to avoid 

being subject to restrictions on capital 

distributions and certain discretionary 

bonus payments as a result of its use of 

short-term wholesale funding. By 

contrast, if the surcharge formula were 

based on the ratio of the short-term 

wholesale funding amount to average 

risk-weighted assets, the first GSIB 

would have a higher short-term 

wholesale funding score, but the two 

GSIBs would be required to hold similar 

amounts of capital as a result of shortterm wholesale funding. While the latter 

approach better reflects the risk that the 

use of short-term wholesale funding 

poses to the GSIB, the Board is also 

proposing to measure a GSIB’s shortterm wholesale funding amount as a 

dollar amount, rather than as a 

percentage of its average risk-weighted 

assets. 

To arrive at its short-term wholesale 

funding score, a GSIB would multiply 

the ratio of its weighted short-term 

wholesale funding amount over its 

average risk-weighted assets by a fixed 

conversion factor (175). The conversion 

factor accounts for the fact that, in 

contrast to the other systemic indicators 

that comprise a GSIB’s method 2 score, 

the short-term wholesale funding score 

does not have an associated aggregate 

global indicator; and is intended to 

weight the short-term wholesale funding 

amount such that the short-term 

wholesale funding score accounts for 

approximately 20 percent of the method 

2 score, thereby weighting short-term 

wholesale funding approximately the 

same as the other systemic indicators 

within method 2, based upon estimates 

of current levels of short-term wholesale 

funding at the eight bank holding 

companies currently identified as 

GSIBs. 

This fixed conversion factor was 

developed using 2013 and 2014 data on 

short-term wholesale funding sources 

from the FR 2052a for the eight firms 

currently identified as GSIBs under the 

proposed methodology, average riskweighted assets as of 2013, and the yearend 2013 aggregate global indicator 

amounts for the size, 

interconnectedness, complexity, and 

cross-jurisdictional activity systemic 

indicators. Using this data, the total 

weighted basis points for the size, 

interconnectedness, complexity, and 

cross-jurisdictional activity systemic 

indicator scores for the firms currently 

identified as GSIBs were calculated. 

Given that this figure is intended to 

comprise 80 percent of the method 2 

score, the weighted basis points 

accounting for the remaining 20 percent 

of the method 2 score were determined. 

The aggregate estimated short-term 

wholesale funding amount over average 

risk-weighted assets for the firms 

currently identified as GSIBs and the 

total weighted basis points that would 

equate to 20 percent of a firm’s method 

2 score were used to determine the fixed 

conversion factor. 

A fixed conversion factor is intended 

to facilitate one of the goals of the 

incorporation of short-term wholesale 

funding into the GSIB surcharge 

framework, which is to provide 

incentives for GSIBs to decrease their 

use of this less stable form of funding. 

To the extent that a GSIB reduces its use 

of short-term wholesale funding, its 

short-term wholesale funding score will 

decline, even if GSIBs in the aggregate 

reduce their use of short-term wholesale 

funding. As noted in section II.G above, 

to the extent that GSIBs’ use of shortterm wholesale funding and the 

aggregate global indicator amounts 

change over time, the Board will 

continue to evaluate whether the 

proposed method achieves the goals of 

the proposal. 

Given that the short-term wholesale 

funding score does not have an 

associated aggregate global indicator 

amount, the Board proposes that the 

ratio of a GSIB’s weighted short-term 

wholesale funding amount to its average 

risk-weighted assets serve as an 

alternative means of scaling its shortterm wholesale funding amount. 

Question 32. What are commenters’ 

views on the proposed method of 

determining a GSIB’s short-term 

wholesale funding score? What other 

specific approaches should be used to 

ensure that a GSIB’s reliance on shortterm wholesale funding is adequately 

measured? Should a GSIB calculate its 

short-term wholesale funding score with 

or without reference to average riskweighted assets? For example, should 

the Board consider an approach similar 

to the BCBS global framework whereby 

a GSIB’s short-term wholesale funding 

amount would be considered as against 

the aggregate short-term wholesale 

funding amount for all GSIBs? What 

approach would be most consistent with 

the Board’s view that the financial 

stability risks associated with short-term 

wholesale funding are generally 

comparable regardless of a firm’s 

average risk-weighted assets? 

Question 33. What are commenters’ 

views regarding the use of a fixed 

conversion factor to determine a GSIB’s 

short-term wholesale funding score? 

Should the Board consider using a 

conversion factor that would, like the 

aggregate global systemic indicators, 

change on an annual basis? 

IV. Amendments to the FR Y–15 

In the near future, the Board intends 

to propose modifications to the FR Y– 

15 to include disclosure of bank holding 

companies’ systemic indicator scores 

and information pertaining to GSIBs’ 

short-term wholesale funding scores, as 

calculated under the proposal. Until 

those reporting form changes are 

proposed and finalized, the Board 

anticipates that bank holding companies 

would collect and retain data necessary 

to determine their short-term wholesale 

funding scores. 

V. Modifications to Related Rules 

The Board, along with the FDIC and 

the OCC, recently issued a final rule 

imposing enhanced supplementary 

leverage ratio standards on certain bank 

holding companies and their subsidiary 

insured depository institutions.44 The 

enhanced supplementary leverage ratio 

standards applied to top-tier U.S. bank 

holding companies with more than $700 

billion in total consolidated assets or 

more than $10 trillion in assets under 

custody (covered BHCs), as well as 

insured depository institution 

subsidiaries of the covered BHCs. The 

enhanced standards imposed a 2 

percent leverage ratio buffer similar to 

the capital conservation buffer above the 

minimum supplementary leverage ratio 

requirement of 3 percent on the covered 

BHCs, and also required insured 

depository institution subsidiaries of 

covered BHCs to maintain a 

supplementary leverage ratio of at least 

6 percent to be well capitalized under 

the prompt corrective action framework. 

In connection with this proposal, the 

Board is proposing to revise the 

terminology used to identify the firms 

subject to the enhanced supplementary 

leverage ratio standards to reflect the 

proposed GSIB surcharge framework. 

Specifically, the Board is proposing to 

replace the use of ‘‘covered BHC’’ with 

firms identified as GSIBs using the 

methodology of this proposal within the 

prompt corrective action provisions of 

Regulation H (12 CFR part 208), as well 

as within the Board’s regulatory capital 

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75490 Federal Register / Vol. 79, No. 243 / Thursday, December 18, 2014 / Proposed Rules 

45See 13 CFR 121.201. Effective July 14, 2014, the 

Small Business Administration revised the size 

standards for banking organizations to $550 million 

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

(June 12, 2014). 

rule. The eight U.S. top-tier bank 

holding companies that are ‘‘covered 

BHCs’’ under the enhanced 

supplementary leverage ratio rule’s 

definition are the same eight U.S. toptier bank holding companies that would 

be identified as GSIBs under this 

proposal. These changes would simplify 

the Board’s regulations by removing 

overlapping definitions, and would not 

result in a material change in the 

provisions applicable to these bank 

holding companies. 

VI. Regulatory Analysis 

A. Paperwork Reduction Act 

In accordance with the Paperwork 

Reduction Act of 1995 (44 U.S.C. 3506; 

5 CFR part 1320, Appendix A.1), the 

Board reviewed the proposed rule under 

the authority delegated to the Board by 

the Office of Management and Budget. 

For purposes of calculating burden 

under the Paperwork Reduction Act, a 

‘‘collection of information’’ involves 10 

or more respondents. Any collection of 

information addressed to all or a 

substantial majority of an industry is 

presumed to involve 10 or more 

respondents (5 CFR 1320.3(c), 

1320.3(c)(4)(ii)). The Board estimates 

there are fewer than 10 respondents, 

and these respondents do not represent 

all or a substantial majority of U.S. toptier bank holding companies. Therefore, 

no collections of information pursuant 

to the Paperwork Reduction Act are 

contained in the proposed rule. 

B. Regulatory Flexibility Act 

The Board is providing an initial 

regulatory flexibility analysis with 

respect to this proposed rule. As 

discussed above, this proposed rule is 

designed to identify U.S. bank holding 

companies that are GSIBs and to apply 

capital surcharges to the GSIBs that are 

calibrated to their systemic risk profiles. 

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

601 et seq. (RFA), generally requires that 

an agency prepare and make available 

an initial regulatory flexibility analysis 

in connection with a notice of proposed 

rulemaking. Under regulations issued by 

the Small Business Administration, a 

small entity includes a bank holding 

company with assets of $550 million or 

less (small bank holding company).45 As 

of June 30, 2014, there were 

approximately 3,718 small bank holding 

companies. 

The proposed rule would only apply 

to atop-tier bank holding company 

domiciled in the United States with $50 

billion or more in total consolidated 

assets that is not a subsidiary of a nonU.S. banking organization. Bank holding 

companies that are subject to the 

proposed rule therefore substantially 

exceed the $550 million asset threshold 

at which a banking entity would qualify 

as a small bank holding company. 

Because the proposed rule would not 

apply to a bank holding company with 

assets of $550 million or less, if adopted 

in final form, it would not apply to any 

small bank holding company for 

purposes of the RFA. Therefore, there 

are no significant alternatives to the 

proposed rule that would have less 

economic impact on small bank holding 

companies. As discussed above, the 

projected reporting, recordkeeping, and 

other compliance requirements of the 

proposed rule are expected to be small. 

The Board does not believe that the 

proposed rule duplicates, overlaps, or 

conflicts with any other Federal rules. 

In light of the foregoing, the Board does 

not believe that the proposed rule, if 

adopted in final form, would have a 

significant economic impact on a 

substantial number of small entities. 

Nonetheless, the Board seeks comment 

on whether the proposed rule would 

impose undue burdens on, or have 

unintended consequences for, small 

organizations, and whether there are 

ways such potential burdens or 

consequences could be minimized in a 

manner consistent with the purpose of 

the proposed rule. A final regulatory 

flexibility analysis will be conducted 

after consideration of comments 

received during the public comment 

period. 

C. Plain Language 

Section 722 of the Gramm-LeachBliley Act requires the Board to use 

plain language in all proposed and final 

rules published after January 1, 2000. 

The Board has sought to present the 

proposed rule in a simple 

straightforward manner, and invite 

comment on the use of plain language. 

For example: 

• Have the agencies organized the 

material to suit your needs? If not, how 

could they present the proposed rule 

more clearly? 

• Are the requirements in the 

proposed rule clearly stated? If not, how 

could the proposed rule be more clearly 

stated? 

• Do the regulations contain technical 

language or jargon that is not clear? If 

so, which language requires 

clarification? 

• Would a different format (grouping 

and order of sections, use of headings, 

paragraphing) make the regulation 

easier to understand? If so, what 

changes would achieve that? 

• Is the section format adequate? If 

not, which of the sections should be 

changed and how? 

• What other changes can the Board 

incorporate to make the regulation 

easier to understand? 

List of Subjects in 12 CFR Part 208 

Accounting, Agriculture, Banks, 

banking, Confidential business 

information, Consumer protection, 

Crime, Currency, Global systemically 

important bank, Insurance, Investments, 

Mortgages Reporting and recordkeeping 

requirements, Securities. 

Board of Governors or the Federal 

Reserve System 

12 CFR Chapter II 

Authority and Issuance 

For the reasons set forth in the 

preamble, chapter II of title 12 of the 

Code of Federal Regulations is proposed 

to be amended as follows: 

PART 208—MEMBERSHIP OF STATE 

BANKING INSTITUTIONS IN THE 

FEDERAL RESERVE SYSTEM 

(REGULATION H) 

■ 1. The authority citation for part 208 

continues to read as follows: 

Authority: 12 U.S.C. 24, 36, 92a, 93a, 

248(a), 248(c), 321–338a, 371d, 461, 481–486, 

601, 611, 1814, 1816, 1818, 1820(d)(9), 

1823(j), 1828(o), 1831, 1831o, 1831p–1, 

1831r–1, 1831w, 1831x, 1835a, 1882, 2901– 

2907, 3105, 3310, 3331–3351, 3905–3909, 

and 5371; 15 U.S.C. 78b, 78l(b), 78l(i), 780– 

4(c)(5), 78q, 78q–1, and 78w, 1681s, 1681w, 

6801, and 6805; 31 U.S.C. 5318; 42 U.S.C. 

4012a, 4104a, 4104b, 4106 and 4128. 

■ 2. In § 208.41 remove the definition of 

‘‘covered BHC’’ as added on May 1, 

2014 (79 FR 24540), effective January 1, 

2018, and adding in its place the 

definition of ‘‘global systemically 

important BHC,’’ to read as follows: 

§ 208.41 Definitions for purposes of this 

subpart. 

* * * * * 

Global systemically important BHC 

has the same meaning as in § 217.2 of 

Regulation Q (12 CFR 217.2). 

* * * * * 

■ 3. In § 208.43 revise paragraphs 

(a)(2)(iv)(C) and (c)(1)(iv), as added on 

May 1, 2014 (79 FR 24540) effective 

January 1, 2018, by removing the words 

‘‘covered BHC’’ and adding in their 

place the words ‘‘global systemically 

important BHC.’’ 

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Federal Register / Vol. 79, No. 243 / Thursday, December 18, 2014 / Proposed Rules 75491 

PART 217—CAPITAL ADEQUACY OF 

BANK HOLDING COMPANIES, 

SAVINGS AND LOAN HOLDING 

COMPANIES, AND STATE MEMBER 

BANKS (REGULATION Q) 

■ 4. The authority citation for part 217 

continues to read as follows: 

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

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

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

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

■ 5. In § 217.1 revise paragraph (f)(3) to 

read as follows: 

Subpart A—General Provisions 

§ 217.1 Purpose, applicability, 

reservations of authority, and timing. 

* * * * * 

(f) Timing. 

* * * * * 

(3) Beginning on January 1, 2016, and 

subject to the transition provisions in 

subpart G of this part, a Board-regulated 

institution is subject to limitations on 

distributions and discretionary bonus 

payments with respect to its capital 

conservation buffer, any applicable 

countercyclical capital buffer amount, 

and any applicable GSIB surcharge, in 

accordance with subpart B of this part. 

* * * * * 

■ 6. In § 217.1 revise paragraph (f)(4), as 

added on May 1, 2014 (79 FR 24540) 

effective January 1, 2018, by removing 

the words ‘‘covered BHC’’ and adding in 

its place the words ‘‘global systemically 

important BHC.’’ 

§ 217.2 [Amended] 

■ 7. In § 217.2, remove the definition of 

‘‘covered BHC’’ as added on May 1, 

2014 (79 FR 24540), effective January 1, 

2018, add in its place the definitions of 

‘‘GSIB surcharge’’ and ‘‘Global 

systemically important BHC’’ as follows: 

Global systemically important BHC 

means a bank holding company that is 

identified as a global systemically 

important BHC pursuant to § 217.402. 

GSIB surcharge means the capital 

surcharge applicable to a global 

systemically important BHC calculated 

pursuant to § 217.403. 

* * * * * 

§ 217.11 [Amended] 

■ 8. In § 217.11 amend paragraphs 

(a)(2)(v) and (a)(2)(vi) and (c) by 

removing the words ‘‘covered BHC’’ 

added on May 1, 2014 (79 FR 24540) 

effective January 1, 2018, and adding in 

its place the words ‘‘global systemically 

important BHC.’’ 

■ 9. In § 217.11 revise the section 

heading, paragraphs (a)(4) and (a)(4)(ii) 

to read as follows: 

§ 217.11 Capital conservation buffer and 

countercyclical capital buffer amount, and 

GSIB surcharge. 

(a) * * * 

(4) Limits on distributions and 

discretionary bonus payments. 

* * * * * 

(ii) A Board-regulated institution with 

a capital conservation buffer that is 

greater than 2.5 percent plus (A) 100 

percent of its applicable countercyclical 

capital buffer in accordance with 

paragraph (b) of this section, and (B) 100 

percent of its applicable GSIB surcharge, 

in accordance with paragraph (c) of this 

section, is not subject to a maximum 

payout amount under this section. 

* * * * * 

■ 10. Amend by revising Table 1 to 

§ 217.11 to read as follows: 

TABLE 1 TO § 217.11—CALCULATION OF MAXIMUM PAYOUT AMOUNT

Capital conservation buffer 

Maximum payout ratio 

(as a percentage of eligible retained 

income) 

Greater than 2.5 percent plus (A) 100 percent of the Board-regulated institution’s applicable countercyclical capital buffer amount and (B) 100 percent of the Board-regulated institution’s applicable GSIB 

surcharge.

No payout ratio limitation applies. 

Less than or equal to 2.5 percent plus (A) 100 percent of the Board-regulated institution’s applicable countercyclical capital buffer amount and (B) 100 percent of the Board-regulated institution’s applicable GSIB 

surcharge, and greater than 1.875 percent plus (A) 75 percent of the Board-regulated institution’s applicable countercyclical capital buffer amount and (B) 75 percent of the Board-regulated institution’s applicable GSIB surcharge.

60 percent. 

Less than or equal to 1.875 percent plus (A) 75 percent of the Board-regulated institution’s applicable 

countercyclical capital buffer amount and (B) 75 percent of the Board-regulated institution’s applicable 

GSIB surcharge, and greater than 1.25 percent plus (A) 50 percent of the Board-regulated institution’s 

applicable countercyclical capital buffer amount and (B) 50 percent of the Board-regulated institution’s 

applicable GSIB surcharge.

40 percent. 

Less than or equal to 1.25 percent plus (A) 50 percent of the Board-regulated institution’s applicable countercyclical capital buffer amount and (B) 50 percent of the Board-regulated institution’s applicable GSIB 

surcharge, and greater than 0.625 percent plus (A) 25 percent of the Board-regulated institution’s applicable countercyclical capital buffer amount and (B) 25 percent of the Board-regulated institution’s applicable GSIB surcharge.

20 percent. 

Less than or equal to 0.625 percent plus (A) 25 percent of the Board-regulated institution’s applicable 

countercyclical capital buffer amount and (B) 25 percent of the Board-regulated institution’s applicable 

GSIB surcharge.

0 percent. 

§ 217.11 [Amended] 

■ 11. In § 217.11 redesignate paragraph 

(c) added on May 1, 2014 (79 FR 24540) 

effective January 1, 2018, as paragraph 

(d) and add new paragraph (c) to read 

as follows: 

(c) GSIB surcharge. A global 

systemically important BHC must use 

its GSIB surcharge calculated in 

accordance with subpart H of this part 

for purposes of determining its 

maximum payout ratio under Table 1 to 

§ 217.11. 

■ 12. Revise § 217.300 to read as 

follows: 

§ 217.300 Transitions. 

(a) Capital conservation and 

countercyclical capital buffer and GSIB 

surcharge. 

(1) From January 1, 2014 through 

December 31, 2015, a Board-regulated 

institution is not subject to limits on 

distributions and discretionary bonus 

payments under § 217.11 of subpart B of 

this part notwithstanding the amount of 

its capital conservation buffer or any 

applicable countercyclical capital buffer 

amount or GSIB surcharge. 

(2) Notwithstanding § 217.11, 

beginning January 1, 2016 through 

December 31, 2018 a Board-regulated 

institution’s maximum payout ratio 

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75492 Federal Register / Vol. 79, No. 243 / Thursday, December 18, 2014 / Proposed Rules 

shall be determined as set forth in Table 

1 to § 217.300. 

TABLE 1 TO § 217.300 

Transition period Capital conservation buffer 

Maximum payout ratio 

(as a percentage of eligible retained 

income) 

Calendar year 2016 ............... Greater than 0.625 percent (plus (A) 25 percent of any applicable countercyclical capital buffer amount and (B) 25 percent of any applicable 

GSIB surcharge).

No payout ratio limitation applies 

under this section. 

Less than or equal to 0.625 percent (plus (A) 25 percent of any applicable countercyclical capital buffer amount and (B) 25 percent of any applicable GSIB surcharge), and greater than 0.469 percent (plus (A) 

17.25 percent of any applicable countercyclical capital buffer amount 

and (B) 17.25 percent of any applicable GSIB surcharge).

60 percent. 

Less than or equal to 0.469 percent (plus (A) 17.25 percent of any applicable countercyclical capital buffer amount and (B) 17.25 percent of 

any applicable GSIB surcharge), and greater than 0.313 percent (plus 

(A) 12.5 percent of any applicable countercyclical capital buffer amount 

and (B) 12.5 percent of any applicable GSIB surcharge).

40 percent. 

Less than or equal to 0.313 percent (plus (A) 12.5 percent of any applicable countercyclical capital buffer amount and (B) 12.5 percent of any 

applicable GSIB surcharge), and greater than 0.156 percent (plus (A) 

6.25 percent of any applicable countercyclical capital buffer amount 

and (B) 6.25 percent of any applicable GSIB surcharge).

20 percent. 

Less than or equal to 0.156 percent (plus (A) 6.25 percent of any applicable countercyclical capital buffer amount and (B) 6.25 percent of any 

applicable GSIB surcharge).

0 percent. 

Calendar year 2017 ............... Greater than 1.25 percent (plus (A) 50 percent of any applicable countercyclical capital buffer amount and (B) 50 percent of any applicable 

GSIB surcharge).

No payout ratio limitation applies 

under this section. 

Less than or equal to 1.25 percent (plus (A) 50 percent of any applicable 

countercyclical capital buffer amount and (B) 50 percent of any applicable GSIB surcharge), and greater than 0.938 percent (plus (A) 37.5 

percent of any applicable countercyclical capital buffer amount and (B) 

37.5 percent of any applicable GSIB surcharge).

60 percent. 

Less than or equal to 0.938 percent (plus (A) 37.5 percent of any applicable countercyclical capital buffer amount and (B) 37.5 percent of any 

applicable GSIB surcharge), and greater than 0.625 percent (plus (A) 

25 percent of any applicable countercyclical capital buffer amount and 

(B) 25 percent of any applicable GSIB surcharge).

40 percent. 

Less than or equal to 0.625 percent (plus (A) 25 percent of any applicable countercyclical capital buffer amount and (B) 25 percent of any applicable GSIB surcharge), and greater than 0.313 percent (plus (A) 

12.5 percent of any applicable countercyclical capital buffer amount 

and (B) 12.5 percent of any applicable GSIB surcharge).

20 percent. 

Less than or equal to 0.313 percent (plus (A) 12.5 percent of any applicable countercyclical capital buffer amount and (B) 12.5 percent of any 

applicable GSIB surcharge).

0 percent. 

Calendar year 2018 ............... Greater than 1.875 percent (plus (A) 75 percent of any applicable countercyclical capital buffer amount and (B) 75 percent of any applicable 

GSIB surcharge).

No payout ratio limitation applies 

under this section. 

Less than or equal to 1.875 percent (plus (A) 75 percent of any applicable countercyclical capital buffer amount and (B) 75 percent of any applicable GSIB surcharge), and greater than 1.406 percent (plus (A) 

56.25 percent of any applicable countercyclical capital buffer amount 

and (B) 56.25 percent of any applicable GSIB surcharge).

60 percent. 

Less than or equal to 1.406 percent (plus (A) 56.25 percent of any applicable countercyclical capital buffer amount and (B) 56.25 percent of 

any applicable GSIB surcharge), and greater than 0.938 percent (plus 

(A) 37.5 percent of any applicable countercyclical capital buffer amount 

and (B) 37.5 percent of any applicable GSIB surcharge).

40 percent. 

Less than or equal to 0.938 percent (plus (A) 37.5 percent of any applicable countercyclical capital buffer amount and (B) 37.5 percent of any 

applicable GSIB surcharge), and greater than 0.469 percent (plus (A) 

18.75 percent of any applicable countercyclical capital buffer amount 

and (B) 18.75 percent of any applicable GSIB surcharge).

20 percent. 

Less than or equal to 0.469 percent (plus (A) 18.75 percent of any applicable countercyclical capital buffer amount and (B) 18.75 percent of 

any applicable GSIB surcharge).

0 percent. 

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Federal Register / Vol. 79, No. 243 / Thursday, December 18, 2014 / Proposed Rules 75493 

■ 13. Add subpart H to part 217 to read 

as follows: 

Subpart H—Risk-Based Capital 

Surcharge for Global Systemically 

Important Bank Holding Companies 

General Provisions 

Secs. 

217.400 Purpose and applicability. 

217.401 Definitions. 

217.402 Identification as a global 

systemically important BHC. 

217.403 GSIB surcharge. 

Authority: 12 U.S.C. 5365. 

General Provisions 

§ 217.400 Purpose and applicability. 

(a) Purpose. This subpart implements 

certain provisions of section 165 of the 

Dodd-Frank Act (12 U.S.C. 5365), by 

establishing a risk-based capital 

surcharge for certain bank holding 

companies that are not consolidated 

subsidiaries of a bank holding company 

or subsidiaries of a non-U.S. banking 

organization. 

(b) Applicability. 

(1) Application of the calculation 

requirements. Subject to the initial 

applicability provisions of paragraph 

(b)(3) of this section: 

(i) A bank holding company must 

calculate its systemic indicator score 

pursuant to § 217.402 by December 31 of 

the year in which its total consolidated 

assets first equal or exceed $50 billion 

if it: 

(A) Has total consolidated assets of 

$50 billion or more as of June 30 of that 

year, as reported on its FR Y–9C; and 

(B) Is not a consolidated subsidiary of 

a bank holding company or a subsidiary 

of a non-U.S. banking organization; and 

(ii) A bank holding company 

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

section that is identified as a global 

systemically important BHC pursuant to 

§ 217.402(a) must calculate its GSIB 

surcharge by December 31 of the year in 

which the bank holding company is 

identified as a global systemically 

important BHC. 

(2) Applicability of the GSIB 

surcharge and any adjustments thereto. 

(i) First GSIB surcharge. Subject to the 

transition provisions of § 217.300(a) and 

the initial applicability provisions of 

paragraph (b)(3) of this section, a global 

systemically important BHC must use 

its GSIB surcharge (as calculated in the 

first year that the bank holding company 

was identified as a global systemically 

important BHC) for purposes of 

determining its maximum payout ratio 

under Table 1 to § 217.11 beginning on 

the January 1 of the year that is one full 

calendar year after it is identified as a 

global systemically important BHC. 

(ii) Increase in GSIB surcharge. To the 

extent that a global systemically 

important BHC’s GSIB surcharge 

increases relative to its GSIB surcharge 

in effect for the current year, the global 

systemically important BHC must 

determine the maximum payout ratio 

under Table 1 to § 217.11: 

(A) Using the current year’s GSIB 

surcharge through December 31 of the 

following the calendar year; and 

(B) Using the increased GSIB 

surcharge beginning on January 1 of the 

year that is one full calendar year after 

the increased GSIB surcharge was 

calculated. 

(iii) Decrease in GSIB surcharge. To 

the extent that a global systemically 

important BHC’s GSIB surcharge 

decreases relative to the surcharge in 

effect for the current year, the global 

systemically important BHC must 

determine the maximum payout ratio 

required under Table 1 to § 217.11 using 

the decreased surcharge beginning on 

January 1 of the immediately following 

calendar year. 

(3) Initial applicability of the 

calculation and surcharge requirements. 

(i) A bank holding company must 

calculate its systemic indicator score 

pursuant to § 217.402 by December 31, 

2015 if it: 

(A) Had total consolidated assets of 

$50 billion or more as of June 30, 2014 

as reported on the FR Y–9C, and 

(B) Is not a consolidated subsidiary of 

a bank holding company or a subsidiary 

of a non-U.S. banking organization. 

(ii) A bank holding company 

described in (b)(3)(i) of this section that 

is identified as a global systemically 

important BHC pursuant to § 217.402(a) 

by December 31, 2015, must calculate 

its GSIB surcharge by December 31, 

2015, provided that: 

(A) For the GSIB surcharge calculated 

by December 31, 2015, a bank holding 

company must calculate its weighted 

short-term wholesale funding amount 

(defined in § 217.403(c)) based on the 

average of its short-term wholesale 

funding amount calculated for each 

business day of the third quarter of 

2015, divided by the bank holding 

company’s average risk-weighted assets 

calculated for each business day of the 

third quarter of 2015; and multiplied by 

175; 

(B) For the GSIB surcharge calculated 

by December 31, 2016, the bank holding 

company must calculate its weighted 

short-term wholesale funding amount 

(defined in § 217.403(c)) based on the 

average of its short-term wholesale 

funding amount calculated for each 

business day of the third and fourth 

quarters of 2015, divided by the bank 

holding company’s average riskweighted assets for each business day of 

the third and fourth quarters of 2015; 

and multiplied by 175; and 

(C) For the GSIB surcharge calculated 

by December 31, 2017, and thereafter, 

the bank holding company must 

calculate its weighted short-term 

wholesale funding amount (defined in 

§ 217.403(c)) based on the average of its 

short-term wholesale funding amount 

calculated for each business day of the 

previous calendar year. 

(iii) Subject to the transition 

provisions of § 217.300(a): 

(A) A bank holding company that is 

identified as a global systemically 

important BHC pursuant to § 217.402(a) 

by December 31, 2015, must use its 

GSIB surcharge for purposes of 

determining its maximum payout ratio 

under Table 1 to § 217.11 beginning on 

January 1, 2016; 

(B) The GSIB surcharge that the bank 

holding company initially uses to 

determine its maximum payout ratio 

under Table 1 to § 217.11 is the 

surcharge that the bank holding 

company calculated by December 31, 

2015; and 

(C) The surcharge that the bank 

holding company uses to determine its 

maximum payout ratio under Table 1 to 

§ 217.11 for each year following is 

determined in accordance with 

paragraph (b)(2) of this section. 

(c) Reservation of authority. (1) The 

Board may apply this subpart to any 

Board-regulated institution, in whole or 

in part, by order of the Board based on 

the institution’s size, level of 

complexity, risk profile, scope of 

operations, or financial condition. 

(2) The Board may adjust the amount 

of the GSIB surcharge applicable to a 

global systemically important BHC, or 

extend or accelerate any compliance 

date of this subpart, if the Board 

determines that the adjustment, 

extension, or acceleration is appropriate 

in light of the capital structure, size, 

complexity, risk profile, and scope of 

operations of the global systemically 

important BHC. In increasing the size of 

the GSIB surcharge for a global 

systemically important BHC, the Board 

will apply notice and response 

procedures in 12 CFR 263.202. 

§ 217.401 Definitions. 

As used in this subpart: 

(a) Aggregate global indicator amount 

means, for each systemic indicator, the 

annual dollar figure published by the 

Board that represents the sum of the 

systemic indicator scores of: 

(i) The 75 largest global banking 

organizations, as measured by the Basel 

Committee on Banking Supervision, and 

(ii) any other banking organization that 

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75494 Federal Register / Vol. 79, No. 243 / Thursday, December 18, 2014 / Proposed Rules 

the Basel Committee on Banking 

Supervision includes in its sample total 

for that year. 

(b) Assets under custody means assets 

held as a custodian on behalf of 

customers, as reported by a bank 

holding company on the FR Y–15. 

(c) Average risk-weighted assets 

means the four-quarter average of the 

measure of total risk-weighted assets 

associated with the lower of the bank 

holding company’s common equity tier 

1 risk-based capital ratios, as reported 

on the bank holding company’s FR Y– 

9C for each quarter of the previous 

calendar year, as available. 

(d) Cross-jurisdictional claims means 

foreign claims on an ultimate risk basis, 

as reported by a bank holding company 

on the FR Y–15. 

(e) Cross-jurisdictional liabilities 

means total cross-jurisdictional 

liabilities, as reported by a bank holding 

company on the FR Y–15. 

(f) Intra-financial system assets means 

total intra-financial system assets, as 

reported by a bank holding company on 

the FR Y–15. 

(g) Intra-financial system liabilities 

means total intra-financial system 

liabilities, as reported by a bank holding 

company on the FR Y–15. 

(h) Level 3 assets means assets valued 

using Level 3 measurement inputs, as 

reported by a bank holding company on 

the FR Y–15. 

(i) Notional amount of over-thecounter (OTC) derivatives means the 

total notional amount of OTC 

derivatives as reported by a bank 

holding company on the FR Y–15. 

(j) Payments activity means payments 

activity as reported by a bank holding 

company on the FR Y–15. 

(k) Securities outstanding means total 

securities outstanding as reported by a 

bank holding company on the FR Y–15. 

(l) Systemic indicator means any of 

the following indicators included on the 

FR Y–15: 

(1) Total exposures; 

(2) Intra-financial system assets; 

(3) Intra-financial system liabilities; 

(4) Securities outstanding; 

(5) Payments activity; 

(6) Assets under custody; 

(7) Underwritten transactions in debt 

and equity markets; 

(8) Notional amount of over-thecounter (OTC) derivatives; 

(9) Trading and available-for-sale 

(AFS) securities; 

(10) Level 3 assets; 

(11) Cross-jurisdictional claims; or 

(12) Cross-jurisdictional liabilities. 

(m) Total exposures means total 

exposures as reported by a bank holding 

company on the FR Y–15 (as revised to 

be consistent with the measure used to 

calculate the supplementary leverage 

ratio). 

(n) Trading and AFS securities means 

total adjusted trading and available-forsale securities as reported by a bank 

holding company on the FR Y–15. 

(o) Underwritten transactions in debt 

and equity markets means total 

underwriting activity as reported by a 

bank holding company on the FR Y–15. 

§ 217.402 Identification as a global 

systemically important BHC. 

(a) General. A bank holding company 

subject to this subpart is a global 

systemically important BHC if the sum 

of its systemic indicator scores for the 

twelve systemic indicators set forth in 

Table 1 of this section, as determined 

under paragraph (b) of this section, 

equals or exceeds 130 basis points. A 

bank holding company must calculate 

the sum of its systemic indicator scores 

on an annual basis by December 31 of 

each year. 

(b) Systemic indicator score. (1) 

Except as provided in paragraph (b)(2) 

of this section, the systemic indicator 

score in basis points for a given 

systemic indicator is equal to: 

(i) The ratio of: 

(A) The amount of the systemic 

indicator, as reported on the bank 

holding company’s most recent FR 

Y–15; to 

(B) The aggregate global indicator 

amount for that systemic indicator 

published by the Board in the fourth 

quarter of that year; 

(ii) Multiplied by 10,000; and 

(iii) Multiplied by the indicator 

weight corresponding to the systemic 

indicator as set forth in Table 1 of this 

section. 

(2) Maximum substitutability score. 

The sum of the systemic indicator 

scores for the indicators in the 

substitutability category (assets under 

custody, payments systems activity, and 

underwriting activity) is capped at 100 

basis points. 

TABLE 1 

Category Systemic indicator Indicator weight 

(percent) 

Size ............................................................................................ Total exposures ......................................................................... 20 

Interconnectedness .................................................................... Intra-financial system assets ..................................................... 6 .67 

Intra-financial system liabilities ................................................. 6 .67 

Securities outstanding ............................................................... 6 .67 

Substitutability ............................................................................ Payments activity ...................................................................... 6 .67 

Assets under custody ................................................................ 6 .67 

Underwritten transactions in debt and equity markets ............. 6 .67 

Complexity ................................................................................. Notional amount of over-the-counter (OTC) derivatives ........... 6 .67 

Trading and available-for-sale (AFS) securities ....................... 6 .67 

Level 3 assets ........................................................................... 6 .67 

Cross-jurisdictional activity ......................................................... Cross-jurisdictional claims ......................................................... 10 

Cross-jurisdictional liabilities ..................................................... 10 

§ 217.403 GSIB surcharge. 

(a) General. A company identified as 

a global systemically important BHC 

pursuant to § 217.402(a) must calculate 

its GSIB surcharge on an annual basis by 

December 31 of each year. The GSIB 

surcharge is equal to the greater of: 

(1) The method 1 surcharge calculated 

in accordance with paragraph (b) of this 

section; and 

(2) The method 2 surcharge calculated 

in accordance with paragraph (c) of this 

section. 

(b) Method 1 surcharge—(1) General. 

A bank holding company’s method 1 

surcharge is the amount set forth in 

Table 2 that corresponds to the sum of 

the bank holding company’s systemic 

indicator scores for the twelve systemic 

indicators included in Table 1 of 

§ 217.402, calculated pursuant to 

§ 217.402. 

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Federal Register / Vol. 79, No. 243 / Thursday, December 18, 2014 / Proposed Rules 75495 

TABLE 2—METHOD 1 SURCHARGE

Method 1 score 

Method 1 

surcharge 

(percent) 

Below 130 ................................... 0.0 

130–229 ...................................... 1.0 

230–329 ...................................... 1.5 

330–429 ...................................... 2.0 

430–529 ...................................... 2.5 

530–629 ...................................... 3.5 

(2) Higher method 1 surcharges. To 

the extent that the score of a global 

systemically important BHC equals or 

exceeds 630 basis points, the method 1 

surcharge equals the sum of: 

(i) 4.5 percent; and 

(ii) An additional 1.0 percent for each 

100 basis points that the BHC’s score 

exceeds 630 basis points. 

(c) Method 2 surcharge—(1) General. 

A bank holding company’s method 2 

surcharge is the percentage amount set 

forth in Table 3 that corresponds to the 

bank holding company’s method 2 

score. 

TABLE 3—METHOD 2 SURCHARGE

Method 2 score 

Method 2 

surcharge 

(percent) 

Below 130 ................................... 0.0 

130–229 ...................................... 1.0 

230–329 ...................................... 1.5 

330–429 ...................................... 2.0 

430–529 ...................................... 2.5 

530–629 ...................................... 3.0 

630–729 ...................................... 3.5 

730–829 ...................................... 4.0 

830–929 ...................................... 4.5 

930–1029 .................................... 5.0 

1030–1129 .................................. 5.5 

(2) Higher method 2 surcharges. To 

the extent that the score of a global 

systemically important BHC equals or 

exceeds 1130 basis points, the method 

2 surcharge equals the sum of: 

(i) 5.5 percent; and 

(ii) An additional 0.5 percent for each 

100 basis points that the BHC’s score 

exceeds 630 basis points. 

(3) Method 2 score. A bank holding 

company’s method 2 score is equal to: 

(i) The sum of: 

(A) The bank holding company’s 

systemic indicator scores for the nine 

systemic indicators included in table 4 

of paragraph (c)(4) of this section, each 

weighted as described therein; and 

(B) The bank holding company’s 

short-term wholesale funding score, 

calculated pursuant to paragraph (c)(5) 

of this section; 

(ii) Multiplied by 2. 

(4) Systemic indicator score. A bank 

holding company’s score for a systemic 

indicator is equal to: 

(i) The ratio of: 

(A) The amount of the systemic 

indicator, as reported on the bank 

holding company’s most recent FR Y– 

15; to 

(B) The aggregate global indicator 

amount for that systemic indicator 

published by the Board in the fourth 

quarter of that year; 

(iii) Multiplied by 10,000; and 

(iv) Multiplied by the indicator 

weight corresponding to the systemic 

indicator as set forth in Table 4 of this 

section. 

TABLE 4 

Category Systemic indicator 

Indicator 

weight 

(percent) 

Size ............................................................................................. Total exposures .......................................................................... 20 

Interconnectedness .................................................................... Intra-financial system assets ...................................................... 6.67 

Intra-financial system liabilities ................................................... 6.67 

Securities outstanding ................................................................ 6.67 

Complexity .................................................................................. Notional amount of over-the-counter (OTC) derivatives ............ 6.67 

Trading and available-for-sale (AFS) securities ......................... 6.67 

Level 3 assets ............................................................................ 6.67 

Cross-jurisdictional activity ......................................................... Cross-jurisdictional claims .......................................................... 10 

Cross-jurisdictional liabilities ....................................................... 10 

(5) Short-term wholesale funding 

score—(i) General. Except as provided 

in § 217.400(b)(3)(ii), a bank holding 

company’s short-term wholesale 

funding score is equal to: 

(A) The average of the bank holding 

company’s weighted short-term 

wholesale funding amount (defined in 

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

calculated for each business day of the 

previous calendar year; 

(B) Divided by the bank holding 

company’s average risk-weighted assets; 

and 

(C) Multiplied by a fixed factor of 175. 

(ii) Weighted short-term wholesale 

funding amount. (A) To calculate its 

weighted short-term wholesale funding 

amount, a bank holding company must 

calculate the amount of its short-term 

wholesale funding on a consolidated 

basis for each business day and weigh 

the components of short-term wholesale 

funding in accordance with Table 5 of 

this section. 

(B) Short-term wholesale funding 

includes the following items, each as 

defined in paragraph (c)(5)(iii) of this 

section: 

(1) All funds that the bank holding 

company must pay under each secured 

funding transaction, other than an 

operational deposit, with a remaining 

maturity of 1 year or less; 

(2) All funds that the bank holding 

company must pay under all unsecured 

wholesale funding, other than an 

operational deposit, with a remaining 

maturity of 1 year or less; 

(3) The fair value of an asset as 

determined under GAAP that a bank 

holding company must return under a 

covered asset exchange with a 

remaining maturity of 1 year or less; 

(4) The fair value of an asset as 

determined under GAAP that the bank 

holding company must return under a 

short position; and 

(5) All brokered deposits and all 

brokered sweep deposits held at the 

bank holding company provided by a 

retail customer or counterparty. 

(C) For purposes of calculating the 

short-term wholesale funding amount 

and the components thereof, a bank 

holding company must assume that 

each asset or transaction described in 

paragraph (c)(5)(ii)(B) of this section 

matures in accordance with the criteria 

set forth in 12 CFR 249.31. 

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75496 Federal Register / Vol. 79, No. 243 / Thursday, December 18, 2014 / Proposed Rules 

TABLE 5 

Component of short-term wholesale funding 

Remaining 

maturity of 30 

days of less or 

no maturity 

(percent) 

Remaining 

maturity of 31 

to 90 days 

(percent) 

Remaining 

maturity of 91 

to 180 days 

(percent) 

Remaining 

maturity of 181 

to 365 days 

(percent) 

Secured funding transaction secured by a level 1 liquid asset ....................... 25 10 0 0 

(1) Secured funding transaction secured by a level 2A liquid asset; (2) Unsecured wholesale funding where the customer or counterparty is not a financial sector entity or a consolidated subsidiary thereof; (3) Brokered 

deposits and brokered sweep deposits provided by a retail customer or 

counterparty; (4) Covered asset exchanges involving the future exchange 

of a Level 1 asset for a Level 2A asset; and (5) Short positions where the 

borrowed security is either a Level 1 or Level 2A asset ............................. 50 25 10 0 

(1) Secured funding transaction secured by a level 2B liquid asset (2) Covered asset exchanges and short positions (other than those described in 

the category above) ..................................................................................... 75 50 25 10 

(1) Unsecured wholesale funding where the customer or counterparty is a 

financial sector entity or a consolidated subsidiary thereof; and (2) Any 

other component of short-term wholesale funding ...................................... 100 75 50 25 

(iii) Short-term wholesale funding 

definitions. The following definitions 

apply for purposes of paragraph 

(c)(5)(ii)(B) of this section. 

(A) Brokered deposit means any 

deposit held at a bank holding company 

that is obtained, directly or indirectly, 

from or through the mediation or 

assistance of a deposit broker as that 

term is defined in section 29 of the 

Federal Deposit Insurance Act (12 

U.S.C. 1831f(g)), and includes a 

reciprocal brokered deposit and a 

brokered sweep deposit. 

(B) Brokered sweep deposit means a 

deposit held at a bank holding company 

by a customer or counterparty through 

a contractual feature that automatically 

transfers to the bank holding company 

from another regulated financial 

company at the close of each business 

day amounts identified under the 

agreement governing the account from 

which the amount is being transferred. 

(C) Covered asset exchange means a 

transaction in which a bank holding 

company has provided assets of a given 

liquidity category to a counterparty in 

exchange for assets of a higher liquidity 

category, and the bank holding company 

and the counterparty agreed to return 

such assets to each other at a future 

date. Categories of assets, in descending 

order of liquidity, are level 1 liquid 

assets, level 2A liquid assets, level 2B 

liquid assets, and assets that are not 

HQLA. Covered asset exchanges do not 

include secured funding transactions. 

(D) Consolidated subsidiary means a 

company that is consolidated on the 

balance sheet of a bank holding 

company or other company under 

GAAP. 

(E) Deposit insurance means deposit 

insurance provided by the Federal 

Deposit Insurance Corporation under 

the Federal Deposit Insurance Act (12 

U.S.C. 1811 et seq.). 

(F) Financial sector entity has the 

meaning set forth in 12 CFR 249.3. 

(G) GAAP means generally accepted 

accounting principles as used in the 

United States. 

(H) High-quality liquid asset (HQLA) 

has the meaning set forth in 12 CFR 

249.3. 

(I) Level 1 liquid asset is an asset that 

qualifies as a level 1 liquid asset 

pursuant to 12 CFR 249.20(a). 

(J) Level 2A liquid asset is an asset 

that qualifies as a level 2A liquid asset 

pursuant to 12 CFR 249.20(b). 

(K) Level 2B liquid asset is an asset 

that qualifies as a level 2B liquid asset 

pursuant to 12 CFR 249.20(c). 

(L) Operational deposit has the 

meaning set forth in 12 CFR 249.3. 

(M) Retail customer or counterparty 

has the meaning set forth in 12 CFR 

249.3. 

(N) Secured funding transaction 

means any funding transaction that is 

subject to a legally binding agreement 

and gives rise to a cash obligation of the 

bank holding company to a counterparty 

that is secured under applicable law by 

a lien on assets owned by the bank 

holding company, which gives the 

counterparty, as holder of the lien, 

priority over the assets in the event the 

bank holding company enters into 

receivership, bankruptcy, insolvency, 

liquidation, resolution, or similar 

proceeding. Secured funding 

transactions include repurchase 

transactions, loans of collateral to the 

bank holding company’s customers to 

effect short positions, other secured 

loans, and borrowings from a Federal 

Reserve Bank. 

(O) Short position means a transaction 

in which a bank holding company has 

borrowed or otherwise obtained a 

security from a counterparty and sold 

that security to sell to another 

counterparty, and the bank holding 

company must return the security to the 

initial counterparty in the future. 

(P) Unsecured wholesale funding 

means a liability or general obligation, 

including a wholesale deposit, of the 

bank holding company to a wholesale 

customer or counterparty that is not 

secured under applicable law by a lien 

on assets owned by the bank holding 

company. 

(Q) Wholesale customer or 

counterparty means a customer or 

counterparty that is not a retail 

customer or counterparty. 

By order of the Board of Governors of the 

Federal Reserve System, December 10, 2014. 

Robert deV. Frierson, 

Secretary of the Board. 

[FR Doc. 2014–29330 Filed 12–17–14; 8:45 am] 

BILLING CODE 6210–01–P 

DEPARTMENT OF TRANSPORTATION 

Federal Aviation Administration 

14 CFR Part 25 

[Docket No.: FAA–2014–1027; Notice No. 

14–09] 

RIN 2120–AK24 

Transport Airplane Fuel Tank and 

System Lightning Protection 

AGENCY: Federal Aviation 

Administration (FAA), DOT. 

ACTION: Notice of proposed rulemaking 

(NPRM). 

SUMMARY: The FAA proposes to amend 

certain airworthiness regulations for 

transport category airplanes regarding 

lightning protection of fuel tanks and 

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