81 FR 20579 - Risk-Based Capital Guidelines: Implementation of Capital Requirements for Global Systemically Important Bank Holding Companies

FEDERAL RESERVE SYSTEM

Federal Register Volume 81, Issue 68 (April 8, 2016)

The Board of Governors of the Federal Reserve System (Board) is inviting public comment on proposed clarifying revisions (proposed rule) to the Board's rule regarding risk-based capital surcharges for U.S. based global systemically important bank holding companies (GSIB surcharge rule). The proposed rule proposed rule would modify the GSIB surcharge rule to provide that a bank holding company subject to the rule would continue to calculate its method 1 and method 2 GSIB surcharge scores annually using data as of December 31 of the previous calendar year, even though the data will be due quarterly beginning with the June 30, 2016, report. In addition, the proposed rule would clarify that a bank holding company subject to the GSIB surcharge rule is required to calculate its method 2 GSIB surcharge score using systemic indicator amounts expressed in billions of dollars even though the data is reported in millions of dollars. The preamble to the proposed rule also provides clarifying information on how a covered bank holding company should calculate its short-term wholesale funding score for purposes of calculating its method 2 score under the GSIB surcharge rule.

[Federal Register Volume 81, Number 68 (Friday, April 8, 2016)]
[Proposed Rules]
[Pages 20579-20582]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2016-08015]


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FEDERAL RESERVE SYSTEM

12 CFR Part 217

[Regulation Q; Docket No. R-1535]
RIN 7100 AE-49


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.

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SUMMARY: The Board of Governors of the Federal Reserve System (Board) 
is inviting public comment on proposed clarifying revisions (proposed 
rule) to the Board's rule regarding risk-based capital surcharges for 
U.S. based global systemically important bank holding companies (GSIB 
surcharge rule). The proposed rule proposed rule would modify the GSIB 
surcharge rule to provide that a bank holding company subject to the 
rule would continue to calculate its method 1 and method 2 GSIB 
surcharge scores annually using data as of December 31 of the previous 
calendar year, even though the data will be due quarterly beginning 
with the June 30, 2016, report. In addition, the proposed rule would 
clarify that a bank holding company subject to the GSIB surcharge rule 
is required to calculate its method 2 GSIB surcharge score using 
systemic indicator amounts expressed in billions of dollars even though 
the data is reported in millions of dollars. The preamble to the 
proposed rule also provides clarifying information on how a covered 
bank holding company should calculate its short-term wholesale funding 
score for purposes of calculating its method 2 score under the GSIB 
surcharge rule.

DATES: Comments must be received May 13, 2016.

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-1535 and RIN 7100 AE-49, by any of the 
following methods:
     Agency Web site: www.federalreserve.gov. Follow the 
instructions for submitting comments at www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm.
     Federal eRulemaking Portal: www.regulations.gov. Follow 
the instructions for submitting comments.
     Email: [email protected]. 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, Associate Director, 
(202) 530-6260, Constance M. Horsley, Assistant Director, (202) 452-
5239, Juan C. Climent, Manager, (202) 872-7526, or Holly Kirkpatrick, 
Supervisory Financial Analyst, (202) 452-2796, Division of Banking 
Supervision and Regulation; or Benjamin McDonough, Special Counsel, 
(202) 452-2036, Mark Buresh, Senior Attorney, (202) 452-

[[Page 20580]]

5270, or Mary Watkins, Attorney, (202) 452-3722, 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
II. Background
III. Revision Related to FR Y-15 Reporting Frequency
IV. Revision To Clarify the Method 2 Score Calculation
V. Clarification of the Transitional Short-Term Wholesale Funding 
Score Calculation
VI. Request for Comment
VII. Regulatory Analysis
    A. Paperwork Reduction Act
    B. Regulatory Flexibility Analysis
    C. Riegle Community Development and Regulatory Improvement Act 
of 1994
    D. Plain Language

Introduction

    Section 165 of the Dodd-Frank Wall Street Reform and Consumer 
Protection Act (Dodd-Frank Act) authorizes the Board to establish 
enhanced prudential standards for bank holding companies with $50 
billion or more in total consolidated assets and for nonbank financial 
companies that the Financial Stability Oversight Council has designated 
for supervision by the Board.\1\ These standards must include risk-
based capital requirements as well as other enumerated standards. In 
July 2015, the Board adopted the GSIB surcharge rule, pursuant to 
section 165 of the Dodd-Frank Act, to identify global systemically 
important bank holding companies and impose a risk-based capital 
surcharge on those institutions.\2\
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    \1\ See 12 U.S.C. 5365.
    \2\ 80 FR 49082 (August 14, 2015).
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II. Background

    The GSIB surcharge rule works to mitigate the potential risk that 
the material financial distress or failure of a GSIB could pose to U.S. 
financial stability by increasing the stringency of capital standards 
for GSIBs, thereby increasing the resiliency of these firms. The GSIB 
surcharge rule takes into consideration the nature, scope, size, scale, 
concentration, interconnectedness, and mix of activities of each 
company subject to the rule. These factors are reflected in the GSIB 
surcharge rule's method 1 and method 2 scores, which use quantitative 
metrics reported on the FR Y 15 reporting form to measure the firm's 
systemic footprint. A bank holding company whose method 1 score exceeds 
a defined threshold is identified as a GSIB. Bank holding companies 
that are identified as GSIBs under the GSIB surcharge rule must 
calculate their method 1 and method 2 scores each year using data 
reported on a firm's FR Y-15 as of December 31 of the prior year. GSIB 
surcharges are established using these scores, and GSIBs with higher 
scores are subject to higher GSIB surcharges.
    Method 1 uses five equally-weighted categories that are correlated 
with systemic importance--size, interconnectedness, cross-
jurisdictional activity, substitutability, and complexity--and these 
categories are subdivided into twelve systemic indicators.\3\ For each 
systemic indicator, a firm divides its own measure of the systemic 
indicator by an aggregate global indicator amount. Each resulting value 
is then weighted and put onto a standard scale. The firm's method 1 
score is the sum of its weighted systemic indicator scores. Method 2 
uses similar inputs to those used in method 1, but replaces the 
substitutability category with a measure of a firm's use of short-term 
wholesale funding.\4\ The GSIB surcharge for the firm is the higher of 
the two surcharges determined under method 1 and method 2.\5\ Method 2 
is calibrated differently from method 1 and method 2 generally results 
in a higher GSIB surcharge.
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    \3\ 12 CFR 217.404.
    \4\ 12 CFR 217.405.
    \5\ 12 CFR 217.403.
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    The FR Y-15 reporting form collects systemic risk data from U.S. 
bank holding companies and covered savings and loan holding companies 
\6\ with total consolidated assets of $50 billion or more. The Federal 
Reserve primarily uses the FR Y-15 data to monitor, on an ongoing 
basis, the systemic risk profile of the institutions that are subject 
to enhanced prudential standards under section 165 of the Dodd-Frank 
Act. The information reported on the FR Y-15 is also used in the 
calculation of a bank holding company's method 1 and method 2 scores 
under the GSIB surcharge rule. Currently, the FR Y-15 requires 
reporting of the components used in calculating the method 1 and method 
2 scores on the FR Y-15, but does not require reporting of the scores 
themselves.\7\
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    \6\ Covered savings and loan holding companies are those which 
are not substantially engaged in insurance or commercial activities. 
For more information, see the definition of ``covered savings and 
loan holding company'' provided in 12 CFR 217.2.
    \7\ Beginning on January 1, 2016, a bank holding company that is 
subject to a GSIB surcharge is required to report its applicable 
GSIB surcharge on line 67 of the FFIEC 101 report.
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III. Revisions Related to FR Y-15 Reporting Frequency

    The FR Y-15, as implemented on December 31, 2012, is an annual 
report that collects data regarding a firm's systemic risk.\8\ The 
Board recently adopted revisions to the FR Y-15 that include requiring 
the FR Y-15 to be filed on a quarterly basis, beginning with the report 
as of June 30, 2016.\9\ Under the GSIB surcharge rule, bank holding 
companies are required to calculate their method 1 and method 2 scores 
using data from the most recent FR Y-15.\10\ At the time the GSIB 
surcharge rule was adopted, these calculations were intended to be 
conducted annually consistent with the frequency of the FR Y-15 and 
using data as of December 31 of the prior calendar year.
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    \8\ See 77 FR 76487 (December 28, 2012). The Board subsequently 
revised the FR Y-15 in December 2013. See 78 FR 77128 (December 20, 
2013).
    \9\ 80 FR 77344 (December 14, 2015).
    \10\ 80 FR 49082 (August 14, 2015).
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    The proposed rule would revise the GSIB surcharge rule to require 
continued use of a December 31 as-of date for purposes of a bank 
holding company's calculation of its method 1 and method 2 scores. In 
particular, the proposed rule would revise sections 217.404 and 217.405 
of the GSIB surcharge rule, which are the sections that describe the 
methodology for calculating a firm's method 1 and method 2 scores, 
respectively. The revisions to sections 217.404 and 217.405 would 
clarify that the systemic indicator amount used in the calculations 
would be drawn from a firm's FR Y-15 as of December 31 of the previous 
calendar year even after the FR Y-15 becomes a quarterly report.

IV. Revision To Clarify the Method 2 Score Calculation

    The proposed rule would revise section 217.405 of the Board's 
Regulation Q to clarify that, for purposes of calculating its method 2 
score, a GSIB should convert its systemic indicator amounts as reported 
on the FR Y-15 in millions of dollars to billions of dollars. The FR Y-
15 requires these data to be reported in millions of dollars, while the 
fixed coefficients used in the calculation of a firm's method 2 score 
were determined using aggregate data expressed in billions of 
dollars.\11\

[[Page 20581]]

Therefore, to properly use the fixed coefficients in the method 2 score 
methodology, a firm should reflect its systemic indicator amounts used 
in the method 2 score calculation in billions of dollars.
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    \11\ See 80 FR 49082, 49088.
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V. Clarification of the Short-Term Wholesale Funding Method 2 Score 
Calculation

    A firm subject to the GSIB surcharge rule must calculate a short-
term wholesale funding score in order to calculate the denominator of 
its method 2 GSIB surcharge, if any.\12\ Some firms subject to the GSIB 
surcharge rule have requested clarification on what the appropriate 
denominator should be for determining the short-term wholesale funding 
score during the transitional period before the GSIB surcharge becomes 
fully phased in. Consistent with the definition in the GSIB surcharge 
rule, the draft Federal Register notice would state that, for purposes 
of calculating this denominator during the transitional period, the 
average risk-weighted assets used in determining a firm's short-term 
wholesale funding score is the four-quarter average of total risk-
weighted assets associated with the lower of the firm's common equity 
tier 1 capital ratios, as reported on the firm's FR Y-9C for each 
quarter of the previous calendar year.\13\
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    \12\ 12 CFR 217.401(c).
    \13\ 12 CFR 217.401(c).
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    As it relates to the numerator used in the short-term wholesale 
funding score calculation, the GSIB surcharge rule contains a 
transition provision that directs firms identified as GSIBs to 
determine the average of their weighted short-term wholesale funding 
amounts for the GSIB surcharge in effect beginning January 1, 2016, and 
January 1, 2017, by averaging their weighted short-term wholesale 
funding amounts on July 31, 2015, August 24, 2015, and September 30, 
2015.\14\ These transition arrangements relate only to the calculation 
of a firm's average weighted short-term wholesale funding amount that 
is used as a component of the calculation of a firm's short-term 
wholesale funding score for the GSIB surcharges in effect during 
calendar year 2016 and calendar year 2017. These transition 
arrangements do not affect any other amount used in the calculation of 
a firm's short-term wholesale funding score, method 2 score, method 1 
score, or GSIB surcharge. This is described further in the table below.
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    \14\ 12 CFR 217.400(b)(3). The funding sources were defined 
using terminology from the Liquidity Coverage Ratio rule (12 CFR 
part 249) and aligned with items that are reported on the Board's 
Complex Institution Liquidity Monitoring Report on Form FR 2052a.

                                                GSIB Surcharge Calculation During the Transitional Period
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                                                                                           Using RWAs in
                                                                                          the short-term
                                                              Using short-term wholesale     wholesale
                                      Using indicator data    funding calculated as the   funding metric    Resulting in a GSIB      If the surcharge
     Surcharges  calculated in:       reported on the FR Y-    average of the weighted     calculated as    surcharge in effect    decreases, then it is
                                            15 as of:         amounts for the  following   the 4-quarter            on:                in effect on:
                                                                  days (numerator):        average over
                                                                                             the year
                                                                                          (denominator):
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December 2015......................  December 31, 2014.....  July 31, August 24, and                2014  January 1, 2016.......
                                                              September 30, 2015.                         January 1, 2017.......
December 2016......................  December 31, 2015.....  July 31, August 24, and                2015  January 1, 2018.......  January 1, 2017
                                                              September 30, 2015.
December 2017......................  December 31, 2016.....  2016 daily values..........            2016  January 1, 2019.......  January 1, 2018
December 2018......................  December 31, 2017.....  2017 daily values..........            2017  January 1, 2020.......  January 1, 2019
December [Year]....................  December 31, [Year-1].  [Year-1] daily values......        [Year-1]  January 1, [Year + 2].  January 1, [Year + 1]
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VI. Request for Comment

    The Board seeks comment on all aspects of the proposed revisions to 
the GSIB surcharge rule.

VII. Regulatory Analysis

A. Paperwork Reduction Act (PRA)

    There is no new collection of information pursuant to the PRA (44 
U.S.C. 3501 et seq.) contained in this proposed rule.

B. Regulatory Flexibility Act Analysis

    The Board is providing an initial regulatory flexibility analysis 
with respect to this proposed rule. 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 depository 
institution, bank holding company, or savings and loan holding company 
with assets of $550 million or less (small banking organizations).\15\ 
As of December 31, 2014, there were approximately 3,833 small bank 
holding companies.
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    \15\ See 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).
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    The proposed rule would apply only to advanced approaches bank 
holding companies, which, generally, are bank holding companies with 
total consolidated assets of $250 billion or more, that have total 
consolidated on-balance sheet foreign exposures of $10 billion or more, 
that have subsidiary depository institutions that are advanced 
approaches institutions, or that elect to use the advanced approaches 
framework.\16\ Bank holding companies that are subject to the proposed 
rule therefore are expected to substantially exceed the $550 million 
asset threshold at which a banking entity would qualify as a small bank 
holding company.
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    \16\ See 12 CFR 217.100.
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    Because the proposed rule is not likely to apply to any bank 
holding company with assets of $550 million or less, if adopted in 
final form, it is not expected to apply to any small bank holding 
company for purposes of the RFA. The Board does not believe that

[[Page 20582]]

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.

C. Riegle Community Development and Regulatory Improvement Act of 1994

    In determining the effective date and administrative compliance 
requirements for new regulations that impose additional reporting, 
disclosure, or other requirements on state member banks, the Board is 
required to consider, consistent with the principles of safety and 
soundness and the public interest, any administrative burdens that such 
regulations would place on depository institutions, and the benefits of 
such regulations.\17\ In addition, new regulations that impose 
additional reporting disclosures or other new requirements on insured 
depository institutions generally must take effect on the first day of 
a calendar quarter which begins on or after the date on which the 
regulations are published in final form.\18\
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    \17\ See Section 302 of the Riegle Community Development and 
Regulatory Improvement Act of 1994 (``RCDRIA''), 12 U.S.C. 4802.
    \18\ 12 U.S.C. 4802(b).
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    The proposed revision to the Board's GSIB surcharge rule are only 
applicable to advanced approaches bank holding companies. Therefore, 
these requirements are not applicable to this proposed rule.

D. Plain Language

    Section 722 of the Gramm-Leach-Bliley 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 invites comment on the use of plain 
language. For example:

     Has the Board organized the material to suit your 
needs? If not, how could the Board 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 217

    Administrative practice and procedure, Banks, Banking, Holding 
companies, Reporting and recordkeeping requirements, Securities.

BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM

12 CFR CHAPTER II

Authority and Issuance

    For the reasons set forth in the preamble, the Board proposes to 
amend chapter II of title 12 of the Code of Federal Regulations as 
follows:

PART 217--CAPITAL ADEQUACY OF BANK HOLDING COMPANIES, SAVINGS AND 
LOAN HOLDING COMPANIES, AND STATE MEMBER BANKS (REGULATION Q)

0
1. The authority citation for part 217 continues to read as follows:

    Authority: 12 U.S.C. 248(a), 321-338a, 481-486, 1462a, 1467a, 
1818, 1828, 1831n, 1831o, 1831p-l, 1831w, 1835, 1844(b), 1851, 3904, 
3906-3909, 4808, 5365, 5368, 5371.

0
2. In Sec.  217.404, paragraph (b)(1) is revised to read as follows:


Sec.  217.404  Method 1 score.

* * * * *
    (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 that systemic indicator, as reported by the bank 
holding company as of December 31 of the previous calendar year; 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.
* * * * *
0
3. In Sec.  217.405, paragraph (b)(1) is revised to read as follows:


Sec.  217.405  Method 2 score.

* * * * *
    (b) Systemic indicator score. A global systemically important BHC's 
score for a systemic indicator is equal to:
    (1) The amount of the systemic indicator, as reported by the bank 
holding company as of December 31 of the previous calendar year, 
expressed in billions of dollars;
* * * * *

    By order of the Board of Governors of the Federal Reserve 
System, April 4, 2016.
Robert deV. Frierson,
Secretary of the Board.
[FR Doc. 2016-08015 Filed 4-7-16; 8:45 am]
 BILLING CODE P