81 FR 90952 - Regulatory Capital Rules: Implementation of Capital Requirements for Global Systemically Important Bank Holding Companies

FEDERAL RESERVE SYSTEM

Federal Register Volume 81, Issue 242 (December 16, 2016)

The Board of Governors of the Federal Reserve System (Board) is adopting a final rule to make several revisions to its rule regarding risk-based capital surcharges for U.S.-based global systemically important bank holding companies (GSIB surcharge rule). The final rule modifies the GSIB surcharge rule to provide that a bank holding company subject to the rule should continue to calculate its method 1 score and method 2 score under the rule annually using data reported on the firm's Banking Organization Systemic Risk Report (FR Y- 15) as of December 31 of the previous calendar year. In addition, the final rule clarifies that a bank holding company subject to the GSIB surcharge rule must calculate its method 2 score using systemic indicator amounts expressed in billions of dollars.

[Federal Register Volume 81, Number 242 (Friday, December 16, 2016)]
[Rules and Regulations]
[Pages 90952-90955]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2016-29966]


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FEDERAL RESERVE SYSTEM

12 CFR Part 217 Regulation Q

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


Regulatory Capital Rules: Implementation of Capital Requirements 
for Global Systemically Important Bank Holding Companies

AGENCY: Board of Governors of the Federal Reserve System.

ACTION: Final rule.

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SUMMARY: The Board of Governors of the Federal Reserve System (Board) 
is adopting a final rule to make several revisions to its rule 
regarding risk-based capital surcharges for U.S.-based global 
systemically important bank holding companies (GSIB surcharge rule). 
The final rule modifies the GSIB surcharge rule to provide that a bank 
holding company subject to the rule should continue to calculate its 
method 1 score and method 2 score under the rule annually using data 
reported on the firm's Banking Organization Systemic Risk Report (FR Y-
15) as of December 31 of the previous calendar year. In addition, the 
final rule clarifies that a bank holding company subject to the GSIB 
surcharge rule must calculate its method 2 score using systemic 
indicator amounts expressed in billions of dollars.

DATES: The final rule is effective January 17, 2017.

FOR FURTHER INFORMATION CONTACT: Anna Lee Hewko, Associate Director, 
(202) 530-6260, Constance M. Horsley, Assistant Director, (202) 452-
5239, Elizabeth MacDonald, Manager, (202) 475-6316, or Sean Healey, 
Supervisory Financial Analyst, (202) 912-4611, Division of Banking 
Supervision and Regulation; or Benjamin McDonough, Special Counsel, 
(202) 452-2036, Mark Buresh, Senior Attorney, (202) 452-5270, 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. Description of the Final Rule
    A. Revisions Related to FR Y-15 Reporting Frequency
    B. Revision To Clarify the Method 2 Score Calculation
    C. Comment Received on the Proposed Rule
V. Regulatory Analysis
    A. Paperwork Reduction Act
    B. Regulatory Flexibility Analysis
    C. Riegle Community Development and Regulatory Improvement Act 
of 1994
    D. Plain Language

I. Introduction

    Section 165 of the Dodd-Frank Wall Street Reform and Consumer 
Protection Act (Dodd-Frank Act) authorizes the Board of Governors of 
the Federal Reserve System (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. Pursuant to section 
165 of the Dodd-Frank Act, the Board adopted a rule regarding risk-
based capital surcharges for U.S.-based global systemically important 
bank holding companies (GSIB surcharge rule) in July 2015 to impose a 
risk-based-capital surcharge on bank holding companies identified under 
the rule as global systemically important bank holding companies 
(GSIBs).\2\ In April 2016, the Board invited public comment on a notice 
of proposed rulemaking (proposal or proposed rule) to make clarifying 
revisions to the Board's GSIB surcharge rule.\3\ The Board now is 
issuing a final rule implementing the proposal without change (final 
rule).
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    \1\ See, 12 U.S.C. 5365.
    \2\ 80 FR 49082 (August 14, 2015).
    \3\ 81 FR 20579 (April 8, 2016).
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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 establishes a methodology to identify whether a U.S. 
top-tier bank holding company is a GSIB and imposes a risk-based 
capital surcharge on such an institution. 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 in its methodology for determining whether the company is a 
GSIB and the size of the surcharge. These factors are captured 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 
a firm's systemic footprint.
    Specifically, the GSIB surcharge rule requires each U.S. bank 
holding company that qualifies as an advanced approaches institution 
under the Board's capital rules to calculate an aggregate systemic 
indicator score based on five indicators of systemic importance (method 
1 score).\4\ A bank holding company whose method 1 score exceeds a 
defined threshold is identified as a GSIB. Advanced approaches 
institutions must calculate their method 1 scores on an annual basis 
using data

[[Page 90953]]

reported on the FR Y-15 reporting form as of December 31 of the prior 
year.\5\
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    \4\ See, 12 CFR 217.100(b)(1); 12 CFR part 217, subpart H.
    \5\ The GSIB surcharge rule includes transition provisions for 
the first years that it is effective. See 12 CFR 217.400(b)(2).
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    A bank holding company identified as a GSIB must also calculate a 
score under method 2. Such a firm must calculate a method 2 score each 
year using data reported on the firm's FR Y-15 as of December 31 of the 
prior year. GSIB surcharges are established using the method 1 and 
method 2 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--as measured 
by twelve systemic indicators.\6\ 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 short-term wholesale funding.\7\ The GSIB surcharge for 
the firm is the higher of the two surcharges determined under method 1 
and method 2.\8\ Method 2 is calibrated differently from method 1 and 
generally results in a higher GSIB surcharge.
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    \6\ 12 CFR 217.404.
    \7\ 12 CFR 217.405.
    \8\ 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 
\9\ with total consolidated assets of $50 billion or more. The 
information reported on the FR Y-15 is used in part in the calculation 
of a bank holding company's method 1 and method 2 scores under the GSIB 
surcharge rule.\10\
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    \9\ 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.
    \10\ 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. As of 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 Federal Financial Institutions Examination Council 101 report, 
Regulatory Capital Reporting for Institutions Subject to the 
Advanced Capital Adequacy Framework.
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    In April 2016, the Board invited comment on a proposed rule to 
clarify certain aspects of the GSIB surcharge rule.\11\ Because the FR 
Y-15 had become a quarterly, rather than an annual report, the proposed 
rule would have clarified that a bank holding company subject to the 
rule should continue to use the systemic indicator amount from the FR 
Y-15 regulatory report as of December 31 of the prior calendar year to 
calculate its method 1 and method 2 scores. The proposal also would 
have clarified the units used for purposes of the method 2 score 
calculation under the capital surcharge rule. In connection with these 
proposed changes, the preamble to the proposal provided clarifying 
information on how a firm identified as a GSIB should calculate its 
short-term wholesale funding score for purposes of calculating its 
method 2 score.
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    \11\ 81 FR 20579 (April 8, 2016).
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III. Description of the Final Rule

A. Revisions Related to FR Y-15 Reporting Frequency

    The FR Y-15, as implemented on December 31, 2012, was an annual 
report.\12\ The Board recently revised the FR Y-15 to require that the 
FR Y-15 to be filed on a quarterly basis, beginning with the report as 
of June 30, 2016.\13\ Under the GSIB surcharge rule, bank holding 
companies calculate their method 1 and method 2 scores using data from 
their most recent FR Y-15.\14\ These calculations were intended to be 
conducted annually using data as of December 31 of the prior calendar 
year, consistent with the frequency of the FR Y-15 at the time.
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    \12\ 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).
    \13\ 80 FR 77344 (December 14, 2015).
    \14\ 80 FR 49082 (August 14, 2015).
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    The proposed rule sought comment on revising 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. The proposed revisions to sections 217.404 and 217.405 of the 
GSIB surcharge rule would provide 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.
    The Board received no comments on this aspect of the proposal and 
is finalizing this portion of the rule as proposed.

B. Revision To Clarify the Method 2 Score Calculation

    The proposed rule also sought to 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 to billions of dollars. The FR Y-15 requires 
these data to be reported in thousands of dollars, while the fixed 
coefficients used in the calculation of a firm's method 2 score are 
determined using aggregate data expressed in billions of dollars.\15\ 
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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    \15\ See, 80 FR 49082, 49088.
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    The Board received no comments on this aspect of the proposal and 
is finalizing this portion of the rule as proposed.

C. Comment Received on the Proposed Rule

    The Board received one public comment on the proposed rule. The 
commenter generally expressed support for the proposed rule, but 
expressed concerns regarding the interaction of the timing of the FR Y-
15 and the Federal Reserve's complex institution liquidity monitoring 
report, the FR 2052a. The FR Y-15, as noted above, collects data 
regarding a firm's systemic risk, while the FR 2052a collects data on 
an institution's overall liquidity profile.\16\ The commenter expressed 
concern that if the initial effective date of Schedule G of the FR Y-15 
preceded the initial effective date of the FR 2052a this difference 
would reduce the time that certain firms have to fully implement the FR 
2052a. Specifically, the commenter observed that, because data from the 
FR 2052a will be used to complete Schedule G of the FR Y-15, it was 
inconsistent to require firms with total assets of $50 billion or more 
to file Schedule G of the FR Y-15 as of December 31, 2016, but provide 
firms with total assets equal to or greater than $50 billion, but less 
than $250 billion until July 31, 2017 to file the FR 2052a. The 
commenter therefore argued that firms should be given additional time 
to complete Schedule G of the FR Y-15 in order to allow them to make 
use of the

[[Page 90954]]

full implementation period for the FR 2052a.
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    \16\ 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). See 80 FR 71795 (November, 17, 2015).
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    In response to the comment, the Board is issuing an interim final 
rule concurrently with this final rule to provide additional time for 
certain smaller firms to complete Schedule G of the FR Y-15 for the 
first time.

V. 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 final rule.

B. Regulatory Flexibility Act Analysis

    The Board is providing a final regulatory flexibility analysis with 
respect to this final rule. The Regulatory Flexibility Act, 5 U.S.C. 
601 et seq. (RFA), generally requires that an agency provide a 
regulatory flexibility analysis in connection with a final rulemaking. 
This final rule amends the Board's GSIB surcharge rule, which only 
applies to bank holding companies that are advanced approaches Board-
regulated institutions for purposes of the Board's Regulation Q 
(advanced approaches bank holding companies). Generally, advanced 
approaches bank holding companies are those that: Have total 
consolidated assets of $250 billion or more; have total consolidated 
on-balance sheet foreign exposures of $10 billion or more; have 
subsidiary depository institutions that are advanced approaches 
institutions; or elect to use the advanced approaches framework.\17\ 
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).\18\ As of June 30, 2016, there were 
approximately 3,203 top-tier small bank holding companies. Bank holding 
companies that are subject to the final 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. As a 
result, the final rule is not expected to apply to any small bank 
holding company for purposes of the RFA.
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    \17\ See 12 CFR 217.100.
    \18\ 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). The Small Business Administration's 
June 12, 2014, interim final rule was adopted without change as a 
final rule by the Small Business Administration on January 12, 2016. 
81 FR 3949 (January 25, 2016).
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    Therefore, there are no significant alternatives to the final rule 
that would have less economic impact on small bank holding companies. 
As discussed above, there are no projected reporting, recordkeeping, 
and other compliance requirements of the final rule. The Board does not 
believe that the final rule duplicates, overlaps, or conflicts with any 
other Federal rules. In light of the foregoing, the Board does not 
believe that the final rule would have a significant economic impact on 
a substantial number of small entities.
    The Board sought comment on whether the proposed rule would impose 
undue burdens on, or have unintended consequences for, small 
organizations, and received no comments on this aspect of the proposal. 
In light of the foregoing, the Board does not believe that the final 
rule will have a significant impact on small entities.

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.\19\ 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.\20\
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    \19\ See Section 302 of the Riegle Community Development and 
Regulatory Improvement Act of 1994 (``RCDRIA''), 12 U.S.C. 4802.
    \20\ 12 U.S.C. 4802(b).
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    The final rule is only applicable to advanced approaches bank 
holding companies. Therefore, the requirements of the Riegle Community 
Development and Regulatory Improvement Act of 1994 are not applicable 
to this final 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 final rule in a simple 
straightforward manner. The Board did not receive any comment on its 
use of plain language.

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 amends chapter 
II of title 12 of the Code of Federal Regulations as follows:

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

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-1, 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) * * *
    (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) * * *
    (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;
* * * * *


[[Page 90955]]


    By order of the Board of Governors of the Federal Reserve 
System, December 9, 2016.
Robert deV. Frierson,
Secretary of the Board.
[FR Doc. 2016-29966 Filed 12-14-16; 11:15 am]
 BILLING CODE P