Federal Register Vol. 82, No.240,

I. Overview

The proposed policy statement (Policy Statement) outlines the key principles and policies governing the Board's approach to the development, implementation, and validation of models used in the supervisory stress test. The supervisory stress test models are used to produce estimates of post-stress capital ratios for covered companies,1 pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) and the Board's stress test rules.2 This annual exercise is referred to as the Dodd-Frank Act Stress Test (DFAST). The supervisory models are also used in the Comprehensive Capital Analysis and Review (CCAR), pursuant to the Board's capital plan rule.3 The Board is proposing the Policy Statement to increase transparency around the development, implementation, and validation of these models by the Federal Reserve. Accordingly, the Policy Statement would not apply to models used by covered companies in the company-run stress tests mandated by the Dodd-Frank Act and the Board's stress test rules.4

Supervisory stress testing is a tool that allows the Board to assess whether the largest and most complex financial firms are sufficiently capitalized to absorb losses in stressful economic conditions while continuing to meet obligations to creditors and other counterparties and to lend to households and businesses. The 2007-2009 financial crisis showed that many large bank holding companies (BHCs) did not hold capital commensurate with their risk profiles and were insufficiently capitalized to withstand unanticipated losses in severe economic stress and remain a going concern. Post-crisis reforms to regulation and supervision have improved the quality and quantity of capital in the financial system. These improvements have strengthened financial institutions and have reduced the likelihood and severity of future financial crises, which can cause severe and lasting damage to the economy.

The Board's approach to supervisory stress testing has evolved since the Supervisory Capital Assessment Program (SCAP) in 2009, which was the first evaluation of BHCs' capital levels on a forward-looking basis under stress. The lessons from SCAP encouraged the creation, pursuant to the Dodd-Frank Act, of DFAST,5 a forward-looking quantitative evaluation of the impact of stressful economic and financial market conditions on covered companies' capital. CCAR is a related supervisory program that was developed pursuant to the Board's capital plan rule and focuses on forward-looking capital planning and the use of stress testing to assess firms' capital adequacy. The quantitative assessment in CCAR uses the same supervisory stress test as does DFAST, and includes firms' planned capital distributions, including any dividend payments or common stock repurchases.6 By assessing the capital adequacy of a covered company under severe projected economic and financial stress, the supervisory stress test complements minimum regulatory capital ratios, which reflect the covered company's current condition.

The proposed Policy Statement describes the principles, policies, and procedures that guide the development, implementation, and validation of the Federal Reserve's supervisory stress test models, and would complement the Board's policy statement on scenario design.7

The Federal Reserve maintains the same standards for model development and implementation of supervisory models as the Federal Reserve has established for covered companies. In addition to maintaining those standards, the Federal Reserve adheres to specific principles for model development and implementation. These principles, which apply broadly across the full set of supervisory models, have guided the formulation of the Federal Reserve's supervisory modeling approach and continue to guide changes to supervisory models.

Models used in the supervisory stress test are also subject to ongoing review and validation by an independent unit within the Federal Reserve. In addition to addressing principles and policies of model development, implementation, and use, the Policy Statement describes principles of model validation, which is central to the credibility of supervisory models and to the credibility of the stress test exercise. The proposed Policy Statement is organized as follows. Section 1 describes the principles that guide the design of the supervisory stress test and the Federal Reserve's approach to supervisory modeling. Section 2 describes the governing policies and implementation of the supervisory stress test. Section 3 establishes the principles and policies for the validation of models used in the supervisory stress test. The Board may determine that modifications to the Policy Statement would be appropriate if the principles and policies that guide decisions in the supervisory stress test are revised materially. The Board is inviting public comment on all aspects of the proposed Policy Statement.

Section 722 of the Gramm-Leach-Bliley Act (Pub. L. 106-102, 113 Stat. 1338, 1471, 12 U.S.C. 4809) requires the Federal banking agencies to use plain language in all proposed and final rules published after January 1, 2000. The Board has sought to present the proposed rule in a simple and straightforward manner, and invites comment on the use of plain language.

In accordance with the requirements of the Paperwork Reduction Act of 1995 (44 U.S.C. 3506), the Board has reviewed the proposed policy statement to assess any information collections. There are no collections of information as defined by the Paperwork Reduction Act in the proposal.

In accordance with section 3(a) of the Regulatory Flexibility Act (RFA), the Board is publishing an initial regulatory flexibility analysis of the proposed policy statement. The RFA, 5 U.S.C. 601 et seq., requires each federal agency to prepare an initial regulatory flexibility analysis in connection with the promulgation of a proposed rule, or certify that the proposed rule will not have a significant economic impact on a substantial number of small entities.8 The RFA requires an agency either to provide an initial regulatory flexibility analysis with a proposed rule for which a general notice of proposed rulemaking is required or to certify that the proposed rule will not have a significant economic impact on a substantial number of small entities. Based on its analysis and for the reasons stated below, the Board believes that the proposed policy statement will not have a significant economic impact on a substantial number of small entities.

Under regulations issued by the Small Business Administration (SBA), a “small entity” includes those firms within the “Finance and Insurance” sector with asset sizes that vary from $7 million or less in assets to $175 million or less in assets.9 The Board believes that the Finance and Insurance sector constitutes a reasonable universe of firms for these purposes because such firms generally engage in actives that are financial in nature. Consequently, bank holding companies or nonbank financial companies with assets sizes of $175 million or less are small entities for purposes of the RFA.

As discussed in the SUPPLEMENTARY INFORMATION, the proposed policy statement generally would affect the stress test framework used in regulations that apply to bank holding companies with $50 billion or more in total consolidated assets and nonbank financial companies that the Council has determined under section 113 of the Dodd-Frank Act must be supervised by the Board and for which such determination is in effect. Companies that are affected by the proposed policy statement therefore substantially exceed the $175 million asset threshold at which a banking entity is considered a “small entity” under SBA regulations.10 The proposed policy statement would affect a nonbank financial company designated by the Council under section 113 of the Dodd-Frank Act regardless of such a company's asset size. Although the asset size of nonbank financial companies may not be the determinative factor of whether such companies may pose systemic risks and would be designated by the Council for supervision by the Board, it is an important consideration.11 It is therefore unlikely that a financial firm that is at or below the $175 million asset threshold would be designated by the Council under section 113 of the Dodd-Frank Act because material financial distress at such firms, or the nature, scope, size, scale, concentration, interconnectedness, or mix of it activities, are not likely to pose a threat to the financial stability of the United States.

As noted above, because the proposed policy statement is not likely to apply to any company with assets of $175 million or less, if adopted in final form, it is not expected to affect any small entity for purposes of the RFA. The Board does not believe that the proposed policy statement duplicates, overlaps, or conflicts with any other Federal rules. In light of the foregoing, the Board does not believe that the proposed policy statement, if adopted in final form, would have a significant economic impact on a substantial number of small entities supervised. Nonetheless, the Board seeks comment on whether the proposed policy statement 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 its purpose.

For the reasons stated in the Supplementary Information, the Board of Governors of the Federal Reserve System proposes to amend 12 CFR part 252 as follows:

Pursuant to the Board's stress test rules, the Board conducts supervisory stress tests of bank holding companies and U.S. intermediate holding companies subsidiaries of foreign banking organizations with total consolidated assets of $50 billion or more (covered companies) and requires covered companies to conduct semi-annual company-run stress tests.1 In addition, savings and loan holding companies, state member banks with greater than $10 billion in total consolidated assets, and bank holding companies with assets of more than $10 billion but less than $50 billion are required to conduct annual company-run stress tests.2

To conduct the supervisory stress tests, the Board develops three scenarios—a baseline, adverse, and severely adverse scenario—and projects a firm's balance sheet, risk-weighted assets, net income, and resulting post-stress capital levels and regulatory capital ratios under each scenario. Similarly, a firm subject to company-run stress tests under the Board's rules uses the same adverse and severely adverse scenarios that apply in the supervisory stress test to conduct an annual company-run stress test. The scenarios also serve as an input into a covered company's capital plan under the Board's capital plan rule (12 CFR 225.8), and the Federal Reserve also uses these scenarios to evaluate each firm's capital plan in the supervisory post-stress capital assessment.3

On November 29, 2013, the Board adopted a final policy statement on its scenario design framework for stress testing (policy statement).4 The policy statement outlined the characteristics of the supervisory stress test scenarios and explained the considerations and procedures that underlie the formulation of these scenarios. The considerations and procedures described in the policy statement apply to the Board's stress testing framework, including to the stress tests required under 12 CFR part 252, subparts B, E, and F, and the Board's capital plan rule. The policy statement describes in greater detail than the stress test rules the baseline, adverse, and severely adverse scenarios. The policy statement also describes the Board's approach for developing these three macroeconomic scenarios and additional components of the stress test scenarios, which apply to a subset of covered companies.

As described in the policy statement, the severely adverse scenario is designed to reflect conditions that have characterized post-war U.S. recessions (the “recession approach”). Historically, recessions typically feature increases in the unemployment rate and contractions in aggregate incomes and economic activity. In light of the typical co-movement of measures of economic activity during economic downturns, such as the unemployment rate and gross domestic product, in developing the severely adverse scenario, the Board first specifies a path for the unemployment rate and then develops paths for other measures of activity broadly consistent with the course of the unemployment rate.

The Board's scenario design framework includes a counter-cyclical design element in the change in the unemployment rate in the severely adverse scenario. The policy statement provides that the Board anticipates the unemployment rate in the severely adverse scenario would increase by between 3 and 5 percentage points from its initial level. However, if a 3 to 5 percentage point increase in the unemployment rate does not raise the level of the unemployment rate to at least 10 percent, the path of the unemployment rate in most cases will be specified so as to raise the unemployment rate to at least 10 percent. The policy statement also notes that the typical increase in the unemployment rate in the severely adverse scenario will be about 4 percentage points. The policy statement provides that the Board intends to set the unemployment rate at the higher end of the 3 to 5 percentage point range if the Board believes that cyclical systemic risks are high (as they would be after a sustained long expansion), and to the lower end of the range if cyclical systemic risks are low (as they would be in the earlier stages of a recovery).

The policy statement provides that economic variables included in the scenarios may change over time, or that the Board may augment the recession approach to account for salient risks.5 The Board has not historically captured stress to funding markets in the supervisory stress test exercise. However, it is exploring the inclusion of such a stress in the scenarios, given the potential impact that funding shocks could have on firms subject to the supervisory stress test.

The Federal Reserve routinely reviews its experience with each year's stress testing and capital planning programs as implemented through DFAST and CCAR. These reviews have included formal engagements with public interest groups, meetings with academics in the fields of economics and finance, and internal assessments.

In the course of its review of the stress test exercises, the Federal Reserve has received feedback on the Board's framework for designing stress scenarios. Some participants advocated developing a structured process for strengthening scenario design over time. Other participants were concerned that the Federal Reserve would be pressured to reduce the severity of the scenario over time. As part of its internal assessment of the stress test exercises, the Federal Reserve also considered ways to further enhance the countercyclical elements, transparency, and risk coverage of the scenario design framework.

After considering feedback received in these reviews and possible improvements to the methodology for specifying the macroeconomic scenarios used in the supervisory stress test and the annual company-run stress tests, the Board is proposing to modify the policy statement to enhance the countercyclicality and transparency of the Board's scenario design framework and improve the risk coverage of the scenarios.

The Board investigated possible improvements to the methodology for specifying the macroeconomic scenarios used in supervisory and company-run stress tests. A main area of inquiry was the severity of macroeconomic scenarios used in previous stress test exercises. As noted, the scenario design framework was formulated to increase the severity of the severely adverse scenario during economic expansions in order to limit the procyclicality of the financial system by increasing the resilience of the banking system to building risks. The review evaluated the path of key variables in the severely adverse scenarios since 2011, and determined that amendments to the scenario design framework could further limit procyclicality.6

The severity of a scenario can be gauged by considering both the maximum (or minimum) levels obtained by key variables and changes of the variables from their starting points. Table 1 shows the peak and change in the unemployment rate in the supervisory severely adverse scenarios since 2011.7 The peak unemployment rate in the severely adverse scenario has been falling since CCAR 2012 as the economy improved. Beginning in 2016, the countercyclical element of the Board's scenario design framework acted to increase scenario severity, so while the peak level of the unemployment rate remained about the same, the change in the unemployment rate increased. The countercyclical design of the scenarios is also reflected in the change in real GDP, which, in 2017, declined by the largest amount since 2012.

The Board also evaluated its approach to developing the path of house prices, which is a key scenario variable, to assess whether it could improve the transparency of the measure and to identify a guide that would formalize the Board's countercyclical objectives. To date, the Board has developed the path of house prices using a judgmental approach, and has not established a quantitative guide for the trajectory of house prices.

As demonstrated in Panel A of table 2, the existing approach to house prices has resulted in increasing severity over time. The declines in the nominal house price index (nominal HPI) from the start to the trough have increased from 21 percent (in 2012 and 2013) to about 25-26 percent (in 2014 through 2017). The increased severity in the decline in nominal HPI in supervisory scenarios beginning in 2014 offset the rise in observed house prices over that period, and hence limited procyclicality.

Assessing the procyclicality of house price paths over time is complicated by the fact that house prices—in contrast to the unemployment rate—naturally trend upward over time. The ratio of nominal house prices to nominal, per capita, disposable personal income (HPI-DPI ratio, henceforth), does not exhibit an upward trend and, as such, provides an alternative way to assess the procyclicality of the scenarios' house price paths. The severity of a scenario depends on both the change and the trough level of the HPI-DPI ratio. Panel A of table 2 indicates that the change in the HPI-DPI ratio increased in absolute terms in the years 2014 to 2017 compared to the years 2012 and 2013. However, the trough of the HPI-DPI ratio achieved in the severely adverse scenarios has generally moved up since 2012. Scenarios with higher HPI-DPI troughs may be less severe even if they feature the same decline in the ratio.

Based on this analysis, the Board determined that its scenario design framework could be strengthened by (1) enhancing the counter-cyclicality of the scenarios when conditions at the start of the exercise already reflected stress; and (2) improving the transparency of the scenario design framework by developing an explicit guide for formulating the path of house prices in the severely adverse scenario.

The Board also has examined whether there were important dimensions of risk that had not featured in supervisory scenarios to date. The review suggested that a key risk dimension that had not been directly addressed in the supervisory stress test was banking organizations' reliance on certain types of runnable liabilities, which has been an important source of financial stress on banking organizations, as well a channel by which one firm's distress affects other firms. For example, shocks to the costs of short-term wholesale funding played a prominent role in the recent financial crisis, and had a notable effect on firms' ability to operate as financial intermediaries. Accordingly, the Board is exploring incorporating an increase in the cost of short-term wholesale funding in its scenarios and stress tests.

The proposal includes three modifications to the Board's scenario design framework. First, the proposal would modify the current guide in the policy statement for the peak unemployment rate in the severely adverse scenario to include a description of the circumstances in which an increase in the unemployment rate at the lower end of the 3 to 5 percentage point range suggested by the guide would be warranted. Second, the proposal would add to the policy statement an explicit guide for house prices in the severely adverse scenario based on the HPI-DPI ratio that features both a minimum level and a fixed change in the HPI-DPI ratio. Third, the proposal would provide notice that the Board is exploring the inclusion of an increase in the cost of funds for banking organizations as an explicit factor in the scenarios. Finally, the policy statement would be amended to update references and remove obsolete text.

The proposal would include more specific guidance for the change in the unemployment rate when the stress test is conducted during a period in which the unemployment rate is already elevated. The Board currently calibrates the peak unemployment rate in the severely adverse scenario as the greater of a 3 to 5 percentage point increase from the unemployment rate at the beginning of the stress test planning horizon, or 10 percent. This approach introduces an element of counter-cyclicality to the scenario design process, as lower levels of the unemployment rate at the beginning of the stress planning horizons imply a larger increase in unemployment over the severely adverse scenario to a level that is at least consistent with past severe recessions.

Consistent with the current policy statement, the Board believes that the typical increase in the unemployment rate in the severely adverse scenario will be about 4 percentage points, and that a lower increase may be appropriate in certain circumstances. In determining the increase in the unemployment rate, the Board would consider the level of unemployment at the start of the scenarios, the strength of the labor market, and the strength of firms' balance sheets. The proposed framework would clarify that the Board may adopt an increase in the unemployment rate of less than 4 percentage points when the unemployment rate at the start of the scenarios is elevated but the labor market is judged to be strengthening and higher-than-usual credit losses stemming from previously elevated unemployment rates were either already realized—or are in the process of being realized—and thus removed from banks' balance sheets. Evidence of a strengthening labor market could include a declining unemployment rate, steadily expanding nonfarm payroll employment, or improving labor force participation. Evidence that credit losses are being realized could include elevated charge-offs on loans and leases, loan-loss provisions in excess of gross charge-offs, or losses being realized in securities portfolios that include securities that are subject to credit risk.

This proposed change would keep the unemployment rate in the macroeconomic scenario broadly similar to that in previous scenarios except during times when a smaller change would be appropriate based on the credit cycle. By adopting a smaller change in the unemployment rate when the economy was recovering and losses had already been broadly recognized by the industry, the proposal would complement the current counter-cyclical design elements.

Question number 1: In connection with this proposal, the Federal Reserve considered an alternative guide for the unemployment rate, in which the path of the unemployment rate would reach the lesser of a level 4 percentage points above its level at the beginning of the scenario or 11 percent. On average, this alternative would increase the severity of severely adverse scenarios but also would be more countercyclical than the current guide. What are the advantages or disadvantages to this alternative relative to the proposed guide?

The policy statement would also be amended to include guidance for the path of the nominal house price index in the severely adverse scenario. The nominal house price index is a key scenario variable, and providing explicit guidance for its path over the planning horizon would enhance the transparency and countercyclical design of the scenario design framework.

The proposal would establish a quantitative guide for house prices. The guide for house prices would be informed by the ratio of the nominal house price index to nominal per capita disposable income (HPI-DPI ratio). Unlike the level of house prices, the HPI-DPI ratio does not exhibit a trend over time. Under most circumstances, the decline in the HPI-DPI ratio in the severely adverse scenario is expected to be 25 percent from its starting value or enough to bring the ratio down to its Great Recession trough, whichever is greater. A rule with both a minimum change in the ratio and a level of severity that the ratio must reach is consistent with the rule for the path of the unemployment rate and would further the Board's countercyclical goals in scenario design.

In its analysis, the Board identified the HPI-DPI trough reached during the Great Recession as the lowest trough attained in housing recessions since 1976, and considered this trough an appropriate basis for explicit guidance for the path of house prices. Setting a minimum decline in the HPI-DPI ratio would ensure that additional economic stress would be incorporated into the macroeconomic scenario, even if house prices were depressed at the outset of the scenario. The Board would typically set a minimum decline in the HPI-DPI ratio of 25 percent from its starting value. A decline of 25 percent is consistent with the average decline in housing recessions (see table 2 in the Policy Statement) and with the path of house prices in the supervisory severely adverse scenarios since 2015.

Procyclicality in house prices would be limited by setting a maximum level for the trough of the HPI-DPI ratio in the severely adverse scenario. This would increase the severity of the decline in house prices as house prices rise relative to disposable personal incomes, as is the case in times of economic expansion. When the HPI-DPI ratio rises above the level at which a 25 percent decline would bring the ratio to its Great Recession trough, at the start of the stress test, the change in the ratio would be greater than 25 percent in order to bring the ratio to its Great Recession trough.8 This proposal would offer a more systematic approach to specifying house price paths than does the current approach, and would limit procyclicality while broadly preserving the decline in the nominal HPI featured in recent stress testing cycles.

Question number 2: In connection with this proposal, the Federal Reserve considered alternative guides for projecting house prices, including guides based on the ratio of the nominal house price index to an index of nominal rent prices for residential housing. What are the advantages or disadvantages to such alternatives relative to the proposed guide?

To date, the Board's adverse and severely adverse scenarios have not incorporated stress to funding markets. The proposal states that the Board may include variables or an additional components in the scenario to capture the cost of funds, particularly wholesale funds, to banking organizations. Including stress to funding costs in the scenarios would account for the impact of increased costs of certain runnable liabilities on net income and capital of banking organizations reliant on short-term wholesale funding. The Board would not expect to incorporate wholesale funding costs in the scenarios before 2019, and would expect to include wholesale funding costs in the adverse scenario before the severely adverse scenario. Accordingly, the Board would not expect to include a stress to funding costs in the severely adverse scenario until 2020 at the earliest.

Question number 3: What variable or combinations of variables would best represent stress to funding costs or availability in the supervisory scenarios?

Question number 4: What, if any, other risks should the Federal Reserve consider capturing in the supervisory scenarios?

Generally, the proposed amendments would not affect the severity of the scenarios in a manner that persists throughout the economic cycle. The one exception is the introduction of an increase in the cost of certain runnable liabilities. Generally, the inclusion of a stress to wholesale funding would be expected to increase the stringency of the stress test. The extent of the increased stringency would depend on the implementation of the stress, such as the type of liabilities stressed, and the duration and magnitude of the stress considered.

The proposed unemployment rate clarification would reduce the stringency of the scenario if the economy had already experienced stress and was recovering, and would not impact the stringency of the scenario in other points during the economic cycle. The house price guide would formalize an approach that was previously judgmental with little persistent impact on the severity of the stress to house prices in the severely adverse scenarios. However, the countercyclical element of the guide would increase the severity of the stress to house prices when the ratio of house prices to disposable personal income was particularly elevated at the start of the stress test.

Question number 5: The Federal Reserve is proposing changes to the Scenario Design Policy Statement to enhance the countercyclicality, risk coverage, and transparency of the scenario development process. Are there other modifications not included in this proposal that could further enhance the scenario development process?

Section 722 of the Gramm-Leach-Bliley Act (Pub. L. 106-102, 113 Stat. 1338, 1471, 12 U.S.C. 4809) requires the Federal banking agencies to use plain language in all proposed and final rules published after January 1, 2000. The Board has sought to present the proposed rule in a simple and straightforward manner, and invites comment on the use of plain language.

In accordance with the requirements of the Paperwork Reduction Act of 1995 (44 U.S.C. 3506), the Board has reviewed the proposed policy statement to assess any information collections. There are no collections of information as defined by the Paperwork Reduction Act in the proposal.

In accordance with section 3(a) of the Regulatory Flexibility Act (RFA), the Board is publishing an initial regulatory flexibility analysis of the proposed policy statement. The RFA, 5 U.S.C. 601 et seq., requires each federal agency to prepare an initial regulatory flexibility analysis in connection with the promulgation of a proposed rule, or certify that the proposed rule will not have a significant economic impact on a substantial number of small entities.9 The RFA requires an agency either to provide an initial regulatory flexibility analysis with a proposed rule for which a general notice of proposed rulemaking is required or to certify that the proposed rule will not have a significant economic impact on a substantial number of small entities. Based on its analysis and for the reasons stated below, the Board believes that the proposed policy statement would not have a significant economic impact on a substantial number of small entities.

Under regulations issued by the Small Business Administration (SBA), a “small entity” includes those firms within the “Finance and Insurance” sector with asset sizes that vary from $7 million or less in assets to $175 million or less in assets.10 The Board believes that the Finance and Insurance sector constitutes a reasonable universe of firms for these purposes because such firms generally engage in actives that are financial in nature. Consequently, bank holding companies, savings and loan holding companies, state member banks, or nonbank financial companies with assets sizes of $175 million or less are small entities for purposes of the RFA.

As discussed in the SUPPLEMENTARY INFORMATION, the proposed policy statement generally would affect the scenario design framework used in regulations that apply to covered companies, savings and loan holding companies, and state member banks with greater than $10 billion in total consolidated assets and bank holding companies with assets of more than $10 billion but less than $50 billion. Companies that are affected by the proposed policy statement therefore substantially exceed the $175 million asset threshold at which a banking entity is considered a “small entity” under SBA regulations.11 The proposed policy statement would affect a nonbank financial company designated by the Council under section 113 of the Dodd-Frank Act regardless of such a company's asset size. Although the asset size of nonbank financial companies may not be the determinative factor of whether such companies may pose systemic risks and would be designated by the Council for supervision by the Board, it is an important consideration.12 It is therefore unlikely that a financial firm that is at or below the $175 million asset threshold would be designated by the Council under section 113 of the Dodd-Frank Act because material financial distress at such firms, or the nature, scope, size, scale, concentration, interconnectedness, or mix of its activities, are not likely to pose a threat to the financial stability of the United States.

As noted above, because the proposed policy statement is not likely to apply to any company with assets of $175 million or less, if adopted in final form, it is not expected to affect any small entity for purposes of the RFA. The Board does not believe that the proposed policy statement duplicates, overlaps, or conflicts with any other Federal rules. In light of the foregoing, the Board does not believe that the proposed policy statement, if adopted in final form, would have a significant economic impact on a substantial number of small entities supervised. Nonetheless, the Board seeks comment on whether the proposed policy statement 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 its purpose.

For the reasons stated in the SUPPLEMENTARY INFORMATION, the Board of Governors of the Federal Reserve System proposes to amend 12 CFR part 252 as follows:

Table of Contents I. Overview II. Description of Enhanced Model Disclosure A. Enhanced Description of Models B. Modeled Loss Rates on Pools of Loans C. Portfolios of Hypothetical Loans and Associated Loss Rates D. Explanatory Notes on Enhanced Model Disclosures III. Request for Comment IV. Example of Enhanced Model Disclosure A. Enhanced Description of Models B. Modeled Loss Rates on Pools of Loans C. Portfolios of Hypothetical Loans and Associated Loss Rates I. Overview

Each year the Federal Reserve publicly discloses the results of the supervisory stress test.1 The disclosures include revenues, expenses, losses, pre-tax net income, and capital ratios that would result under two sets of adverse economic and financial conditions. As part of the disclosures, the Federal Reserve also describes the broad framework and methodology used in the supervisory stress test, including information about the models used to estimate the revenues, losses, and capital ratios in the stress test. The annual disclosures of both the stress test results and supervisory model framework and methodology represent a significant increase in the public transparency of large bank supervision in the U.S.2 Indeed, prior to the first supervisory stress test in 2009, many analysts and institutions cautioned against these disclosures, arguing that releasing bank-specific loss estimates to the public would be destabilizing. However, experience to date has shown the opposite to be true—disclosing these details to the public has garnered public and market confidence in the process.

The Federal Reserve routinely reviews its stress testing and capital planning programs, and during those reviews the Federal Reserve has received feedback regarding the transparency of the supervisory stress test models.3 Some of those providing feedback requested more detail on modeling methodologies with a focus on year-over-year changes in the supervisory models.4 Others, however, cautioned against disclosing too much information about the supervisory models because doing so could permit firms to reverse-engineer the stress test.

The Federal Reserve recognizes that disclosing additional information about supervisory models and methodologies has significant public benefits, and is committed to finding ways to further increase the transparency of the supervisory stress test. More detailed disclosures could further enhance the credibility of the stress test by providing the public with information on the fundamental soundness of the models and their alignment with best modeling practices. These disclosures would also facilitate comments on the models from the public, including academic experts. These comments could lead to improvements, particularly in the data most useful to understanding the risks of particular loan types. More detailed disclosures could also help the public understand and interpret the results of the stress test, furthering the goal of maintaining market and public confidence in the U.S. financial system. Finally, more detailed disclosures of how the Federal Reserve's models assign losses to particular positions could help those financial institutions that are subject to the stress test understand the capital implications of changes to their business activities, such as acquiring or selling a portfolio of assets.

The Federal Reserve also believes there are material risks associated with fully disclosing the models to the firms subject to the supervisory stress test. One implication of releasing all details of the models is that firms could conceivably use them to make modifications to their businesses that change the results of the stress test without changing the risks they face. In the presence of such behavior, the stress test could give a misleading picture of the actual vulnerabilities faced by firms. Further, such behavior could increase correlations in asset holdings among the largest banks, making the financial system more vulnerable to adverse financial shocks.5 Another implication is that full model disclosure could incent banks to simply use models similar to the Federal Reserve's, rather than build their own capacity to identify, measure, and manage risk. That convergence to the Federal Reserve's model would create a “model monoculture,” in which all firms have similar internal stress testing models which may miss key idiosyncratic risks faced by the firms.6

In the next section of the paper, three proposed enhancements to the supervisory stress test model disclosures are described, with an example of the enhanced disclosure for the Federal Reserve's corporate loan loss model. If the proposed enhancements were implemented, the Federal Reserve would expect to publish the enhanced disclosures in the first quarter of each year, starting with selected loan portfolios in 2018. The Federal Reserve expects that the annual disclosure would reflect any updates to supervisory models, for applicable portfolios, in a given year, but would be based on data and scenarios from the prior year.

The proposed enhancements are designed to balance the costs and benefits discussed above in a way that would further enhance the public's understanding of the supervisory stress test models without undermining the effectiveness of the stress test as a supervisory tool.

The proposed enhanced disclosures have three components: (1) Enhanced descriptions of supervisory models, including key variables; (2) modeled loss rates on loans grouped by important risk characteristics and summary statistics associated with the loans in each group; and, (3) portfolios of hypothetical loans and the estimated loss rates associated with the loans in each portfolio.7

Collectively, the additional information is designed to facilitate the public's ability to understand the workings of the models and provide meaningful feedback.

The Federal Reserve currently discloses descriptions of the supervisory stress test models in an appendix in the annual Dodd-Frank Act supervisory stress test methodology and results document. For each modeling area, the appendix includes a description of the structure of the model, key features, and the most important explanatory variables in the model.

The proposed enhanced descriptions of the models would expand these descriptions in two ways. First, they would provide more detailed information about the structure of the models. For example, the existing disclosure for corporate loans explains that the model estimates expected losses using models of probability of default (PD), loss given default (LGD), and exposure at default (EAD). It further explains that PDs are projected using a series of equations fitted to the historical relationship between changes in the PD and macroeconomic variables, including growth in real gross domestic product, changes in the unemployment rate, and changes in the spread on BBB-rated corporate bonds. The proposed enhanced model description would include certain important equations that characterize aspects of the model. Second, the proposed enhanced descriptions would include a table that contains a list of the key loan characteristics and macroeconomic variables that influence the results of a given model. The table would show the relevant variables for each component of the model (e.g., PD, LGD, EAD), and information about the source of the variables (see Table 1).

The proposed enhanced disclosure would include estimated loss rates for groups of loans with distinct characteristics. Those loss rates would allow the public to directly see how the supervisory models treat specific assets under stress. The corporate loan example included below illustrates how this new loss rate disclosure could operate in practice. The modeled loss rates are reported for eight groups of loans that have combinations of three loan characteristics: sector (financial and nonfinancial), security status (secured and unsecured), and rating class (investment grade and non-investment grade). The average (mean) estimated loss rate and 25th and 75th percentiles of the estimated loan-level loss rates are presented for each group of loans. By presenting the modeled loss rates in ranges as well as the average for each group, the disclosure highlights that loans within the same group may have different loss rates because of differences in other risk characteristics. For example, nonfinancial sector loans would include loans to companies in a range of sectors, which may have different sensitivities to the macroeconomic environment associated with any given scenario.

To shed more light on the degree of heterogeneity of loans within a given group, the enhanced disclosure could also include summary statistics associated with the loans in each group. Combined, the modeled loss rates and summary statistics would allow a firm to compare the characteristics of its own portfolio to those of the aggregate portfolio for all firms subject to the stress test and to better understand differences in loss rates between the two. The modeled loss rates could be reported for both the supervisory adverse and supervisory severely adverse scenarios, which would help to illustrate the effect of variation in macroeconomic conditions on modeled loss rates.

Publishing portfolios of hypothetical loans is another way to enhance transparency. This approach would allow outside parties to use their own suites of models to estimate losses on the portfolios and compare loss rates across different models.

The portfolios the Federal Reserve may publish for certain asset classes could comprise three sets of hypothetical loans designed to mimic the characteristics of the actual loans reported by firms participating in the stress test. The first set could be based on the full sample of loans observed in the data, the second could capture characteristics associated with lower-than-average risk loans, and the third could capture characteristics associated with higher-than-average risk loans. Importantly, those portfolios would not contain any individual firm's actual loan portfolio or any actual loans reported by firms, but rather would be portfolios of hypothetical loans designed to illustrate the effect of loan characteristics on estimated loss rates. The set of variables included for each portfolio would be designed such that the public could independently estimate loss rates for these portfolios, although this set would not necessarily include every variable that might be included in a loss model for the relevant loan type. The disclosure could also include the loss rates estimated by the supervisory models for each portfolio of hypothetical loans under the supervisory adverse and supervisory severely adverse scenarios.

The proposed enhanced model disclosures described in this document focus on the design of and projections from particular models, whereas the current disclosures of supervisory stress test results include projections aggregated to the portfolio level that in most cases contain the outputs from multiple supervisory models. As such, the two different disclosures will not align exactly.

The proposed enhanced model disclosures would also differ from the current stress testing results disclosures in that they would not include accounting and other adjustments used to translate projected credit losses into net income. In the current supervisory stress test results disclosure, accounting adjustments are used to translate supervisory model estimates into provisions and other income or expense items needed to calculate stressed pre-tax net income. These adjustments often depend on factors that vary across participating banks, such as the write-down amounts on loans purchased with credit impairments.

The Board requests comment on the proposed enhanced disclosure of the models used in the Federal Reserve's supervisory stress test. Where possible, commenters should provide both quantitative data and detailed analysis in their comments. Commenters should also explain the rationale for their suggestions. Specifically, feedback is requested on the following questions:

• Does the enhanced disclosure appropriately balance the benefits and costs of additional disclosure as outlined above?

• Would the enhanced disclosure allow the public, including academics, to comment on the soundness of the models and their alignment with best modeling practices?

• Are there specific ways the enhanced disclosures could be tailored to limit the potential for increased correlation of risks in the system?

• Are there additional disclosures that would be more helpful to the public without increasing the potential for increased correlation of risks in the system?

This section contains an illustrative example of what an enhanced model disclosure could look like for the supervisory corporate loan model.

Losses stemming from the default of corporate loans are projected using a model that assigns a specific loss amount to each corporate loan held by a firm subject to the supervisory stress test. The model projects losses as the product of three components: Probability of default (PD), loss given default (LGD), and exposure at default (EAD). The PD component measures the likelihood that a borrower will stop repaying the loan. The other two components capture the lender's loss on the loan if the borrower enters default. The LGD component measures the percent of the loan balance that the lender will not be able to recover after the loan defaults, and the EAD component measures the total expected outstanding balance on the loan at the time of default.

The model is estimated using historical data on corporate loan losses, loan characteristics, and economic conditions. Losses are projected using the estimated model, firm-reported loan characteristics, and economic conditions defined in the Federal Reserve's supervisory stress scenarios. Some of the key loan characteristics that affect projected losses include:

• The loan's credit rating;

• The industry of the borrower;

• The country in which the borrower is domiciled; and

• Whether or not the loan is secured.

The losses projected by the model for a given loan vary based on changes in the defined economic conditions over the nine quarters of the projection horizon. Those include:

• Growth in real gross domestic product (GDP);

• Changes in the unemployment rate; and

• Changes in the spread on BBB-rated loans relative to Treasuries.

Corporate loans modeled using the expected loss modeling framework described in this document consist of a number of different categories of loans, as defined by the Consolidated Financial Statements for Holding Companies—FR Y-9C report. The largest group of these loans includes commercial and industrial (C&I) loans with more than $1 million in committed balances that are “graded” using a firm's corporate rating process. The corporate loan model is designed to project quarterly losses on those loans over the projection horizon of each stress test scenario.

Expected loss (EL) is the product of the three components described above (PD, LGD, and EAD), and for loan i in quarter t of the projection horizon it can be expressed as: 9

We invite you to send any written relevant data, views, or arguments about this proposed AD. Send your comments to an address listed under the ADDRESSES section. Include “Docket No. FAA-2017-1184; Product Identifier 2017-CE-029-AD” at the beginning of your comments. We specifically invite comments on the overall regulatory, economic, environmental, and energy aspects of this proposed AD. We will consider all comments received by the closing date and may amend this proposed AD because of those comments.

We will post all comments we receive, without change, to http://regulations.gov, including any personal information you provide. We will also post a report summarizing each substantive verbal contact we receive about this proposed AD.

The Civil Aviation Authority (CAA), which is the aviation authority for New Zealand, has issued AD No. DCA/750XL/19, dated September 7, 2017 (referred to after this as “the MCAI”), to correct an unsafe condition for Pacific Aerospace Limited Model 750XL airplanes and was based on mandatory continuing airworthiness information originated by an aviation authority of another country. The MCAI states:

You may examine the MCAI on the internet at http://www.regulations.gov by searching for and locating Docket No. FAA-2017-1184.

Pacific Aerospace Limited has issued Pacific Aerospace Mandatory Service Bulletin (MSB) PACSB/XL/088, dated August 11, 2017; and Pacific Aerospace temporary revisions XL/POH/00/001, XUPOH/02/001, XUPOH/03/001, and XUPOH/03/002 (co-published as one document), all dated August 18, 2017. The service bulletin describes procedures for adjustment or replacement of the low oil pressure light, pressure switch, and indicator. The temporary revisions correct the reference to the incorrect instrument markings in the Pilots Operating Handbook (POH). This service information is reasonably available because the interested parties have access to it through their normal course of business or by the means identified in the ADDRESSES section of this NPRM.

This product has been approved by the aviation authority of another country, and is approved for operation in the United States. Pursuant to our bilateral agreement with this State of Design Authority, they have notified us of the unsafe condition described in the MCAI and service information referenced above. We are proposing this AD because we evaluated all information and determined the unsafe condition exists and is likely to exist or develop on other products of the same type design.

We estimate that this proposed AD will affect 22 products of U.S. registry. We also estimate that it would take about 2 work-hours per product to comply with the basic requirements of this proposed AD. The average labor rate is $85 per work-hour. Required parts would cost about $500 per product.

Based on these figures, we estimate the cost of the proposed AD on U.S. operators to be $14,740, or $670 per product.

Title 49 of the United States Code specifies the FAA's authority to issue rules on aviation safety. Subtitle I, section 106, describes the authority of the FAA Administrator. “Subtitle VII: Aviation Programs,” describes in more detail the scope of the Agency's authority.

We are issuing this rulemaking under the authority described in “Subtitle VII, Part A, Subpart III, Section 44701: General requirements.” Under that section, Congress charges the FAA with promoting safe flight of civil aircraft in air commerce by prescribing regulations for practices, methods, and procedures the Administrator finds necessary for safety in air commerce. This regulation is within the scope of that authority because it addresses an unsafe condition that is likely to exist or develop on products identified in this rulemaking action.

This AD is issued in accordance with authority delegated by the Executive Director, Aircraft Certification Service, as authorized by FAA Order 8000.51C. In accordance with that order, issuance of ADs is normally a function of the Compliance and Airworthiness Division, but during this transition period, the Executive Director has delegated the authority to issue ADs applicable to small airplanes and domestic business jet transport airplanes to the Director of the Policy and Innovation Division.

We determined that this proposed AD would not have federalism implications under Executive Order 13132. This proposed AD would not have a substantial direct effect on the States, on the relationship between the national Government and the States, or on the distribution of power and responsibilities among the various levels of government.

For the reasons discussed above, I certify this proposed regulation:

(1) Is not a “significant regulatory action” under Executive Order 12866,

(2) Is not a “significant rule” under the DOT Regulatory Policies and Procedures (44 FR 11034, February 26, 1979),

(3) Will not affect intrastate aviation in Alaska, and

(4) Will not have a significant economic impact, positive or negative, on a substantial number of small entities under the criteria of the Regulatory Flexibility Act.

Accordingly, under the authority delegated to me by the Administrator, the FAA proposes to amend 14 CFR part 39 as follows:

Comments Invited

We invite you to send any written relevant data, views, or arguments about this proposed AD. Send your comments to an address listed under the ADDRESSES section. Include “Docket No. FAA-2017-1107; Product Identifier 2016-NE-22-AD” at the beginning of your comments. We specifically invite comments on the overall regulatory, economic, environmental, and energy aspects of this NPRM. We will consider all comments received by the closing date and may amend this NPRM because of those comments.

We will post all comments we receive, without change, to http://www.regulations.gov, including any personal information you provide. We will also post a report summarizing each substantive verbal contact we receive about this proposed AD.

We issued AD 2017-12-03, Amendment 39-18918 (82 FR 27411, June 15, 2017), (“AD 2017-12-03”), for PW PW2037, PW2037M, and PW2040 turbofan engines. AD 2017-12-03 requires installing a software standard eligible for installation and precludes the use of EEC software standards earlier than SCN 5B/I. AD 2017-12-03 resulted from an unrecoverable engine in-flight shutdown (IFSD) after an ice crystal icing event. We issued AD 2017-12-03 to prevent failure of the high-pressure turbine (HPT), rotor seizure, failure of one or more engines, loss of thrust control, and loss of the airplane.

Since we issued AD 2017-12-03, software became available for PW engines with EEC model number EEC104-1 with 26K memory. These are older engine models that did not have software fixes available when AD 2017-12-03 was issued.

We reviewed PW Alert Service Bulletin (ASB) PW2000 A73-170, dated July 14, 2016 and PW ASB PW2000 A73-171, dated March 24, 2017. The ASBs describe procedures for modifying or replacing the EEC.

We are proposing this AD because we evaluated all the relevant information and determined the unsafe condition described previously is likely to exist or develop in other products of the same type design.

This proposed AD would retain all the requirements of AD 2017-12-03. This proposed AD would add additional, older engine models to the applicability.

We estimate that this proposed AD affects 587 engines, installed on airplanes of U.S. registry.

We estimate the following costs to comply with this proposed AD:

Title 49 of the United States Code specifies the FAA's authority to issue rules on aviation safety. Subtitle I, Section 106, describes the authority of the FAA Administrator. Subtitle VII, Aviation Programs, describes in more detail the scope of the Agency's authority.

We are issuing this rulemaking under the authority described in Subtitle VII, Part A, Subpart III, Section 44701, “General requirements.” Under that section, Congress charges the FAA with promoting safe flight of civil aircraft in air commerce by prescribing regulations for practices, methods, and procedures the Administrator finds necessary for safety in air commerce. This regulation is within the scope of that authority because it addresses an unsafe condition that is likely to exist or develop on products identified in this rulemaking action.

This AD is issued in accordance with authority delegated by the Executive Director, Aircraft Certification Service, as authorized by FAA Order 8000.51C. In accordance with that order, issuance of ADs is normally a function of the Compliance and Airworthiness Division, but during this transition period, the Executive Director has delegated the authority to issue ADs applicable to engines, propellers, and associated appliances to the Manager, Engine and Propeller Standards Branch, Policy and Innovation Division.

We have determined that this proposed AD would not have federalism implications under Executive Order 13132. This proposed AD would not have a substantial direct effect on the States, on the relationship between the national Government and the States, or on the distribution of power and responsibilities among the various levels of government.

For the reasons discussed above, I certify that the proposed regulation:

(1) Is not a “significant regulatory action” under Executive Order 12866,

(2) Is not a “significant rule” under the DOT Regulatory Policies and Procedures (44 FR 11034, February 26, 1979),

(3) Will not affect intrastate aviation in Alaska, and

(4) Will not have a significant economic impact, positive or negative, on a substantial number of small entities under the criteria of the Regulatory Flexibility Act.

Accordingly, under the authority delegated to me by the Administrator, the FAA proposes to amend 14 CFR part 39 as follows:

Comments Invited

We invite you to send any written relevant data, views, or arguments about this proposal. Send your comments to an address listed under the ADDRESSES section. Include “Docket No. FAA-2017-1108; Product Identifier 2012-NE-44-AD” at the beginning of your comments. We specifically invite comments on the overall regulatory, economic, environmental, and energy aspects of this NPRM. We will consider all comments received by the closing date and may amend this NPRM because of those comments.

We will post all comments we receive, without change, to http://www.regulations.gov, including any personal information you provide. We will also post a report summarizing each substantive verbal contact we receive about this NPRM.

We issued AD 2016-03-03, Amendment 39-18390 (81 FR 12585, March 10, 2016), “AD 2016-03-03,” for all RR Viper Mk. 521, Viper Mk. 522, and Viper Mk. 601-22 turbojet engines. AD 2016-03-03 requires reducing the life of certain critical parts. AD 2016-03-03 resulted from a determination by RR that the life of certain critical engine parts needed to be reduced. We issued AD 2016-03-03 to prevent failure of life-limited parts, which could lead to an uncontained part release, damage to the engine, and damage to the airplane.

Since we issued AD 2016-03-03, RR determined that additional compressor rotating shrouds and the compressor main shaft, installed on the affected Viper engines, require a reduction in their cyclic life limits. Also since we issued AD 2016-03-03, the European Aviation Safety Agency (EASA) has issued AD 2017-0148, dated August 15, 2017, which requires reducing the cyclic life limits of the affected parts.

RR has issued Alert Service Bulletin (ASBs) Mk. 521 Number 72-A408, Circulation A; Mk. 521 Number 72-A408, Circulation B; Mk. 522 Number 72-A413, Circulation A; Mk. 522 Number 72-A412, Circulation B; and Mk. 601-22 Number 72-A207; all identified as Revision 1 and all dated June 2017. RR ASBs Mk. 521 Number 72-A408, Circulation A (Revision 1) and Mk. 521 Number 72-A408, Circulation B (Revision 1) describe applicable part numbers (P/Ns) and revised cyclic life limits for parts installed on the Mk. 521 engine. RR ASBs Mk. 522 Number 72-A413, Circulation A (Revision 1), and Mk. 522 Number 72-A412, Circulation B (Revision 1) describe applicable P/Ns and revised cyclic life limits for parts installed on the Mk. 522 engine. RR ASB Mk. 601-22 Number 72-A207, Rev. 1, describes applicable P/Ns and revised cyclic life limits for parts installed on the Mk. 601-22 engine. This service information is reasonably available because the interested parties have access to it through their normal course of business or by the means identified in the ADDRESSES section.

We are proposing this AD because we evaluated all the relevant information and determined the unsafe condition described previously is likely to exist or develop in other products of the same type design.

This proposed AD would require reducing the cyclic life of certain critical parts. This proposed AD would add additional parts to the applicability of AD 2016-03-03.

We estimate that this proposed AD affects 46 engines installed on helicopters of U.S. registry.

We estimate the following costs to comply with this proposed AD:

Title 49 of the United States Code specifies the FAA's authority to issue rules on aviation safety. Subtitle I, Section 106, describes the authority of the FAA Administrator. Subtitle VII, Aviation Programs, describes in more detail the scope of the Agency's authority.

We are issuing this rulemaking under the authority described in Subtitle VII, Part A, Subpart III, Section 44701, “General requirements.” Under that section, Congress charges the FAA with promoting safe flight of civil aircraft in air commerce by prescribing regulations for practices, methods, and procedures the Administrator finds necessary for safety in air commerce. This regulation is within the scope of that authority because it addresses an unsafe condition that is likely to exist or develop on products identified in this rulemaking action.

This AD is issued in accordance with authority delegated by the Executive Director, Aircraft Certification Service, as authorized by FAA Order 8000.51C. In accordance with that order, issuance of ADs is normally a function of the Compliance and Airworthiness Division, but during this transition period, the Executive Director has delegated the authority to issue ADs applicable to engines, propellers, and associated appliances to the Manager, Engine and Propeller Standards Branch, Policy and Innovation Division.

We have determined that this proposed AD would not have federalism implications under Executive Order 13132. This proposed AD would not have a substantial direct effect on the States, on the relationship between the national Government and the States, or on the distribution of power and responsibilities among the various levels of government.

For the reasons discussed above, I certify that the proposed regulation:

(1) Is not a “significant regulatory action” under Executive Order 12866,

(2) Is not a “significant rule” under the DOT Regulatory Policies and Procedures (44 FR 11034, February 26, 1979),

(3) Will not affect intrastate aviation in Alaska, and

(4) Will not have a significant economic impact, positive or negative, on a substantial number of small entities under the criteria of the Regulatory Flexibility Act.

Accordingly, under the authority delegated to me by the Administrator, the FAA proposes to amend 14 CFR part 39 as follows:

I. Request for Comment

On December 5, 2017, the Department published a NPRM and request for comments in the Federal Register (82 FR 57395), proposing to rescind portions of its tip regulations issued pursuant to the Fair Labor Standards Act. The NPRM also requested that interested parties from the public submit comments on the NPRM on or before January 4, 2018.

The Department has decided to provide an extension of the period for submitting public comment until February 5, 2018.

The existing regulation for the SR 171/700 (Wappoo Cut) Bridge across Wappoo Creek (AICW), mile 470.8, at Charleston, SC is contained in 33 CFR 117.911(d), which is entitled, “Atlantic Intracoastal Waterway, Little River to Savannah River.” This regulation provides three different seasonal operating schedules throughout the year.

The SR 171/700 (Wappoo Cut) Bridge across Wappoo Creek (AICW), mile 470.8 at Charleston, SC, provides a vertical clearance of 33 feet in the closed position at MHW and a horizontal clearance of 100 feet between fenders.

On November 16, 2016, the Mayor of the City of Charleston requested that the Coast Guard modify the current regulation by changing the times the bridge is allowed to remain in the closed position, remove the seasonal operating schedules, and allow for a once an hour opening during the day. The South Carolina Department of Transportation, the bridge owner, has no objection to the requested changes.

The requested modification should simplify the current operating schedule, allow for a more consistent and efficient operation of the bridge and provide relief to vehicle traffic congestion while meeting the reasonable needs of navigation.

The Coast Guard proposes to modify the regulation contained in 33 CFR 117.911(d). Under this proposed regulation, the draw of the SR171/700 (Wappoo Cut) Bridge would open on signal, except from 6 a.m. to 9:29 a.m. and 3:31 p.m. to 7 p.m., the bridge need not open. Additionally, the draw would open once an hour on the half hour, between the hours of 9:30 a.m. and 3:30 p.m.

This proposed change would still allow vessels that can transit under the bridge, without an opening, to do so at any time while taking into account the reasonable needs of other modes of transportation. Emergency vessels and tugs with tows can still request openings at any time.

We developed this proposed rule after considering numerous statutes and Executive Orders related to rulemaking. Below we summarize our analyses based on these statutes and Executive Orders and we discuss First Amendment rights of protestors.

Executive Orders 12866 and 13563 direct agencies to assess the costs and benefits of available regulatory alternatives and, if regulation is necessary, to select regulatory approaches that maximize net benefits. Executive Order 13771 directs agencies to control regulatory costs through a budgeting process. This NPRM has not been designated a “significant regulatory action,” under Executive Order 12866. Accordingly, the NPRM has not been reviewed by the Office of Management and Budget (OMB) and pursuant to OMB guidance it is exempt from the requirements of Executive Order 13771.

This regulatory action determination is based on the ability of vessels to still transit the bridge once an hour during the day, except during the allowed closure times. Vessels in distress, public vessels of the United States and tugs with tows would be allowed to pass at any time.

The Regulatory Flexibility Act of 1980 (RFA), 5 U.S.C. 601-612, as amended, requires federal agencies to consider the potential impact of regulations on small entities during rulemaking. The term “small entities” comprises small businesses, not-for-profit organizations that are independently owned and operated and are not dominant in their fields, and governmental jurisdictions with populations of less than 50,000. The Coast Guard certifies under 5 U.S.C. 605(b) that this proposed rule would not have a significant economic impact on a substantial number of small entities.

While some owners or operators of vessels intending to transit the bridge may be small entities, for the reasons stated in section IV.A above, this proposed rule would not have a significant economic impact on any vessel owner or operator.

If you think that your business, organization, or governmental jurisdiction qualifies as a small entity and that this rule would have a significant economic impact on it, please submit a comment (see ADDRESSES) explaining why you think it qualifies and how and to what degree this rule would economically affect it.

Under section 213(a) of the Small Business Regulatory Enforcement Fairness Act of 1996 (Pub. L. 104-121), we want to assist small entities in understanding this proposed rule. If the rule would affect your small business, organization, or governmental jurisdiction and you have questions concerning its provisions or options for compliance, please contact the person listed in the FOR FURTHER INFORMATION CONTACT, above. The Coast Guard will not retaliate against small entities that question or complain about this proposed rule or any policy or action of the Coast Guard.

This proposed rule would call for no new collection of information under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520.).

A rule has implications for federalism under Executive Order 13132, Federalism, if it has a substantial direct effect on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government. We have analyzed this proposed rule under that Order and have determined that it is consistent with the fundamental federalism principles and preemption requirements described in Executive Order 13132.

Also, this proposed rule does not have tribal implications under Executive Order 13175, Consultation and Coordination with Indian Tribal Governments, because it would not have a substantial direct effect on one or more Indian tribes, on the relationship between the Federal Government and Indian tribes, or on the distribution of power and responsibilities between the Federal Government and Indian tribes. If you believe this proposed rule has implications for federalism or Indian tribes, please contact the person listed in the FOR FURTHER INFORMATION CONTACT section above.

The Unfunded Mandates Reform Act of 1995 (2 U.S.C. 1531-1538) requires Federal agencies to assess the effects of their discretionary regulatory actions. In particular, the Act addresses actions that may result in the expenditure by a State, local, or tribal government, in the aggregate, or by the private sector of $100,000,000 (adjusted for inflation) or more in any one year. Though this proposed rule will not result in such an expenditure, we do discuss the effects of this proposed rule elsewhere in this preamble.

We have analyzed this rule under Department of Homeland Security Directive 023-01, which guides the Coast Guard in complying with the National Environmental Policy Act of 1969 (42 U.S.C. 4321-4370f), and have determined that this action is one of a category of actions that do not individually or cumulatively have a significant effect on the human environment. This rule involves promulgating the operating regulations for a drawbridge. It is categorically excluded from further review under paragraph L49 of Appendix A, Table 1 of DHS Instruction Manual 023-01-001-01, Rev. 01.

We seek any comments or information that may lead to the discovery of a significant environmental impact from this proposed rule.

The Coast Guard respects the First Amendment rights of protesters. Protesters are asked to contact the person listed in the FOR FURTHER INFORMATION CONTACT section to coordinate protest activities so that your message can be received without jeopardizing the safety or security of people, places or vessels.

We view public participation as essential to effective rulemaking, and will consider all comments and material received during the comment period. Your comment can help shape the outcome of this rulemaking. If you submit a comment, please include the docket number for this rulemaking, indicate the specific section of this document to which each comment applies, and provide a reason for each suggestion or recommendation.

We encourage you to submit comments through the Federal eRulemaking Portal at http://www.regulations.gov. If your material cannot be submitted using http://www.regulations.gov, contact the person in the FOR FURTHER INFORMATION CONTACT section of this document for alternate instructions.

We accept anonymous comments. All comments received will be posted without change to http://www.regulations.gov and will include any personal information you have provided. For more about privacy and the docket, visit http://www.regulations.gov/privacynotice.

Documents mentioned in this NPRM as being available in this docket and all public comments, will be in our online docket at http://www.regulations.gov and can be viewed by following that website's instructions. Additionally, if you go to the online docket and sign up for email alerts, you will be notified when comments are posted or a final rule is published.

For the reasons discussed in the preamble, the Coast Guard proposes to amend 33 CFR part 117 as follows:

The U.S. Fish and Wildlife Service's (Service) Wildlife and Sport Fish Restoration Program (WSFR) annually apportions to States more than $1 billion for programs and subprograms under the Pittman-Robertson Wildlife Restoration Act (50 Stat. 917, as amended; 16 U.S.C. 669-669k), and the Dingell-Johnson Sport Fish Restoration Act (64 Stat. 430, as amended; 16 U.S.C. 777-777n, except 777e-1 and g-1) (Acts). We are proposing to update the regulations at title 50 part 80 of the Code of Federal Regulations (CFR), which is “Financial Assistance: Wildlife Restoration, Sport Fish Restoration, Hunter Education and Safety.” We published the last revision of these regulations in 2011. In conducting the rulemaking process for the 2011 rule, we received comments from the proposed rule that we did not resolve in the final rule. Since the 2011 update to the regulations, we have also worked with States and other partners to identify information from Service Manual chapters, Memoranda, Director's Orders, interim guidance, and other guidance that we intend to include, as appropriate, in regulation.

This proposed rule is the first of several rulemaking documents that we will publish over an extended period, based on a phased plan developed by a team of Federal and State representatives. The phased-approach will allow us to make changes and address topics while giving States and the public additional opportunities for review and comment. The primary users of these regulations are the fish and wildlife agencies of the 50 States; the Commonwealths of Puerto Rico and the Northern Mariana Islands; the territories of Guam, the U.S. Virgin Islands, and American Samoa; and the District of Columbia (DC). We use “State” or “States” in this document to refer to any or all of these jurisdictions, except that the District of Columbia receives funds only under the Dingell-Johnson Sport Fish Restoration Act. The Pittman-Robertson Wildlife Restoration Act does not authorize funding for the District of Columbia. The term “the 50 States” applies only to the 50 States of the United States.

The Acts established a hunting- and angling-based user-pay and public-benefit system in which the State fish and wildlife agencies receive formula-based funding from a continuing appropriation. Industry partners pay excise taxes on equipment and gear manufactured for purchase by hunters, anglers, boaters, archers, and recreational shooters. The Service apportions funds to the State fish and wildlife agencies, and the agencies contribute matching funds. These regulations tell States how they may receive annual apportionments from the Wildlife Restoration Account (16 U.S.C. 669(b)) and the Sport Fish Restoration and Boating Trust Fund (26 U.S.C. 9504), how they may use hunting and fishing license fees, and what requirements States must follow when participating in the programs under the Acts. We also address the State component of the Outreach and Communications subprogram. The programs and subprograms under the Acts give financial assistance to State fish and wildlife agencies to restore or manage wildlife and sport fish; offer hunter-education, hunter-development, hunter-recruitment, and hunter-safety programs; develop and increase recreational boating access; enhance the public's understanding of water resources, aquatic-life forms, and sport fishing; and develop responsible attitudes and ethics toward aquatic and related environments.

The Catalog of Federal Domestic Assistance at http://www.cfda.gov describes these programs under 15.605, 15.611, and 15.626.

We published a proposed revision to the regulations at 50 CFR part 80 on June 10, 2010 (75 FR 32877). We published the final rule on August 1, 2011 (76 FR 46150). In 2015, we shared with our State partners a list of topics that we generated from unresolved comments on that prior rulemaking and other non-regulatory guidance. From June through September 2015, we hosted 12 webinars that were open to States, Service Regions, and other interested parties. Each webinar addressed a few topics from the list and gave participants an opportunity to learn more about the reasons the topics are of concern, offer opinions on approaches we have considered, and share their knowledge and experiences. WSFR used information gathered from these webinars to help guide development of a draft proposed rule. In November 2015, we posted the draft proposed rule for informal comments prior to official rulemaking. States informed us that the volume of changes and the level of complexity of many of the topics made it difficult for them to review and respond effectively. At a meeting in April 2016, WSFR proposed to the Association of Fish & Wildlife Agencies (AFWA), the Joint Federal/State Task Force for Financial Assistance Policy, and the Federal Aid Coordinators Working Group a cooperative approach to scheduling rulemaking, which led to forming a Federal/State 50 CFR part 80 Schedule Development Team.

The result of this effort is a plan to make changes to 50 CFR part 80 through four separate rulemakings. Each round of rulemaking will make changes to the rule to address concerns that have already been vetted and resolved and will now be included in regulation, as well as a few complex topics. This approach will distribute the workload in multiple ways, allowing for more focused involvement and well-developed comments. You may find further information on the schedule and topics at https://fawiki.fws.gov/display/5C8SDT. The proposed schedule is:

In addition to the specific amendments that we are proposing elsewhere in this document, we are also requesting comments and information on some topics identified as being more complex or having the potential to elicit a wide range of opinion or approaches that could impact the proposed rules we issue later in this phased rulemaking process. The Service is asking you to respond to the questions we ask or suggestions we make. This will help us to understand how your State addresses the associated issues and how we can make changes that will improve the ability of fish and wildlife agencies to implement successful projects. We ask you to tell us if you support a suggested change or approach, as well as comment on suggested changes or approaches you do not support. When responding, we ask you to give the reasoning behind your comments to help us better understand your position. When your comments include a legal reference, please specifically cite the legal document. We recommend you use citation formats in Association of Legal Writing Directors (ALWD) Guide to Legal Citation or Bluebook: A Uniform System of Citation as your guide. If possible, please give a location where we may access the document electronically.

The terms you, your, and I refer to a State fish and wildlife agency that applies for or receives a grant under the Acts, their subgrantees, or interested members of the public who comment. The terms we, us, and our refer to the Service or the Service's Wildlife and Sport Fish Restoration Program (WSFR).

Our focus audience for these topics consists of the State fish and wildlife agencies who receive funding under the Wildlife Restoration and Sport Fish Restoration Act (Acts) and those interested in the activities of these agencies. We offer definitions and approaches to address a certain topic as a starting point to allow you to know what we are considering and to respond. We ask you to (1) tell us if you agree with an approach, (2) suggest alternatives, (3) advise us of potential obstacles or concerns, (4) give examples of scenarios that would help inform us, and (5) offer your knowledge and experience to assist us in understanding how our rulemaking can best support wildlife management goals and objectives.

We have posted pertinent information about these topics and the development of 50 CFR part 80 at https://fawiki.fws.gov/display/5C8SDT/50+CFR+80+Update. This website includes copies of documents that we reference and information about scheduled webinars. These topics are open for discussion and you may contact the WSFR Policy Branch ([email protected]) or other WSFR staff with whom you work prior to or after making comments. You may view other comments at www.regulations.gov by searching for docket number FWS-HQ-WSR-2017-0002.

A definition for “wildlife” is not in the Act and was not in the regulations until 1960, at which time the term was simply defined as “wild birds and wild mammals.” The definition did not appear in the 2008 final rule (73 FR 43120, July 24, 2008), but the Service reintroduced the term with a new definition in the 2010 proposed rule (75 FR 32877, June 10, 2010), and the term was codified by the 2011 final rule (76 FR 46150, August 1, 2011). The definition of “wildlife” set forth in 2011 remains the definition in 50 CFR 80.2 today.

We received many comments on our proposed rule to revise 50 CFR part 80 in 2010 (75 FR 32877, June 10, 2010). Among those comments were some from States that sell licenses to hunt or fish species that did not meet the definition of wildlife. These comments suggested that we consider adjusting the definition to allow State fish and wildlife agencies to use funds under the Acts for managing these other species. We did not make changes to the proposed definition in the 2011 final rule, as we wanted to gather comments from all State fish and wildlife agencies as to whether we should consider expanding the definition to include other species.

We ask you to consider a possible alternative to the current definition at 50 CFR 80.2 that would include other species for which a State fish and wildlife agency sells a license to hunt. We ask your response to these questions:

1. Should we expand the definition of “wildlife” to include other species for which a State fish and wildlife agency sells a license to hunt? This would include any indigenous or naturalized species other than birds or mammals that meet the existing criteria and for which a State issues a license for the legal taking of the species.

2. If this option is acceptable, should we consider including a requirement that the hunting of the species does not interfere with or oppose the legal hunting of birds and mammals already in the definition?

3. If this option is acceptable, should we consider including the requirement that the State Director approve the inclusion of that species as meeting the definition of “wildlife” for that State? Should the Service Director approve?

4. If we should expand the definition, do you have comments on the suggested new definition?

5. Are there advantages or concerns we should consider?

We received a comment during the 2011 rulemaking asking that we define “law enforcement.” Law enforcement is an ineligible activity under the Acts and the current regulations. States have told us that law enforcement officers sometimes conduct activities that do not involve enforcing laws and that are beneficial to the State fish and wildlife agency for fish and wildlife management. Agencies may interpret the current regulations to mean that any activities done by law enforcement personnel are not eligible. Without a definition for law enforcement, agencies do not have clear, consistent direction.

We request your comments on how to define law enforcement and if any activities conducted by law enforcement personnel may be eligible using funds under the Acts. Please note that license revenue may be used for any activities that support the administration of the State fish and wildlife agency as described at 50 CFR 80.10(c), which could include some law enforcement activities. WSFR proposed the following definition for informal comment in 2015, and we offer it in this document for further comment and development. We ask you to comment on whether you think this definition is sufficient to guide States and WSFR regarding eligible and ineligible activities, and if the proposed definition is lacking, please describe what additional considerations you recommend.

Law enforcement means the act of developing regulations, issuing punitive citations or tickets for infractions of the law, or assisting with inspections and other enforcement activities that have the potential to result in the issuance of penalties.

State fish and wildlife agencies may use one of two methods of operation for managing financial assistance. One method is project-by-project grants, and the other is the Comprehensive Management System (CMS). Currently, five States utilize the CMS method, leaving the majority using the project-by-project method. A CMS grant is not the same as a “block grant,” and Federal compliance requirements apply to eligible projects. States using a comprehensive plan link programs, financial systems, human resources, goals, products, and services in developing a strategic plan and carrying it out through an operational planning process. The process must allow an opportunity for public participation, clearly define projects to the level where grant managers can evaluate for compliance, and include approaches for evaluating results. The plan also assesses the current, projected, and desired status of fish and wildlife.

We intend to define a comprehensive management plan and specify that the planning period must be at least 5 years and use a minimum 15-year projection of the desires and needs of the State's citizens. We would emphasize requirements for public participation in developing the plan. We would describe that a CMS grant funds all or part of your plan, you receive one grant at the beginning of the grant period, and the grant period consists of segments funded by annual apportionments. We would describe compliance requirements. Some compliance requirements may be completed when the plan is approved, but discrete projects in the plan, changing conditions or considerations, and other factors would require additional compliance prior to projects being initiated. We would describe situations that would require additional compliance actions. Plans will include projects using funding under the Acts and projects using other sources of funding. Service staff often must conduct extensive compliance for projects that have limited funding under the Acts, so we are considering a funding threshold under which States or other Federal entities will be responsible for compliance.

We request your comments on whether we need to give more detail on the level of public participation required, type of notification to citizens, level of budget detail, compliance, and reporting.

We often receive questions from States as to what the Service means when we use the term “control” in 50 CFR part 80. We use the term “control” in conjunction with funding under the Acts, license revenues, real and personal property, third-party agreements, and more. States ask us to define the parameters for what constitutes a loss of control and what actions would lead to a diversion of license revenue or grant funds. States also ask us about control of real property when certain real property rights are held by other entities. We address Loss of Control and Disposal of Real Property in our Service manual at 522 FW 20, but this information is limited. Our Regional offices routinely respond to issues involving loss of control and diversion of funds under the Acts, which leads us to consider the need for clear information on control and diversion.

We understand that this topic is complicated and that each State has a different perception of the needs, limits, and use of control under the Acts, and the meaning of control when certain situations present themselves. We intend to address this subject in a future proposed rule and ask State fish and wildlife agencies to comment on how this issue has affected your agency, what challenges you have encountered, and what concerns you wish us to address. We ask that you give us examples of scenarios that could be difficult to manage without further clarification. We ask you to tell us if your State has encountered situations where an outside entity has dictated, or attempted to dictate, the scope of work of the State fish and wildlife agency and what the response has been. We are also interested in hearing about situations that involve oil, gas, and mineral extraction on or under State fish and wildlife agency-owned and -managed lands. We encourage States to discuss this topic with your Regional WSFR offices.

We address allowable recreational and commercial activities at Service manual chapters 522 FW 21 (https://www.fws.gov/policy/522fw21.html) and 522 FW 22 (https://www.fws.gov/policy/522fw22.html). We intend to move this policy information into regulations for those programs under the Acts. We welcome any comments you have on the information in the chapters, the approach, and making these policy provisions regulatory.

This document is not a full update of the proposed changes we plan to make to the regulations in 50 CFR part 80, but rather we address only certain topics at this time. State and Federal representatives proposed and accepted the list of topics we address in this proposed update to the regulations.

• We define the terms “asset” and “obligation” in response to requests for clarifying these terms.

• We revise the definition of “capital improvement” to raise the monetary threshold from $10,000 to $25,000.

• We add definitions for the terms “geographic location,” “structure,” and “technical assistance.”

• We revise the definition for the term “match” to include that match may be from a Federal source if a statute authorizes it. We revise the definition for the term “real property” to make the definition consistent with other guidance.

We collaborated with the Association of Fish and Wildlife Agencies (AFWA) to recommend changes to the regulations at Subpart D—Certification of License Holders that would address States' concerns over the current language. In September 2016, AFWA voted in support of the changes. In November 2016, the Joint Federal/State Task Force for Federal Assistance Policy proposed changes to the draft that will encourage all States to adopt the new method for all licenses as soon as possible. In December 2016, AFWA again voted in support of the changes.

The major proposed change is in the method for determining the minimum standard needed to count a license holder. The current method requires a minimum of $1 of net revenue per year. State fish and wildlife agencies determine this amount through various cost accounting methods, tracking costs of multiple types of licenses, tracking and applying administrative costs, and comparing multiyear licenses to annual licenses. The proposed method simply requires a minimum of $2 of revenue (no net) to the State fish and wildlife agency for each privilege to hunt or fish, for each year the license is valid. The major effect is in how States count multiyear licenses. The proposed changes will allow a State to count a multiyear license for each year that it meets the standard and all other requirements of the subpart.

We propose to revise §§ 80.50 and 80.51 to:

a. Add “technical assistance” as an eligible activity.

b. Add information on payments in lieu of taxes.

c. Expand the guidance on leased vs. purchased equipment.

d. Add at § 80.50(c)(6) that buying real property for firearm and archery ranges is eligible under the Enhanced Hunter Education and Safety program.

Additional proposed changes to 50 CFR part 80 in this document include the following:

a. We revise § 80.56 to clarify that projects may have different components and still be substantial in character and design.

b. We revise § 80.82 to separate “Purpose” and “Objectives.”

c. We add a new section (at § 80.97) to incorporate guidance on how grantees and subgrantees may charge equipment-use costs to a WSFR grant.

d. We update § 80.120 to include hunter education course fees as program income.

e. We update §§ 80.123 and 80.124 to address program income banking.

f. We add a new section (at § 80.134) to state that a lease is real property.

g. We add a new section (at § 80.136) to address prescribed fires on land acquired under the Acts. (This proposed change is in response to requests from States to clarify the standards.)

h. We revise current § 80.137 (proposed to be moved to § 80.139) to remove the reference to 43 CFR 12.71, which no longer exists as 43 CFR part 12 has been removed and reserved from the CFR.

i. We add § 80.140 to replace the reference to 43 CFR 12.71 at current § 80.137 (proposed § 80.139).

j. We update § 80.160 for terms and references.

We will accept comments on all the issues addressed that we describe in this preamble and that are set forth in the amendatory instructions. Prior to issuing a final rule on this proposed action, we will take into consideration all comments and any additional information we receive. Such information may lead to a final rule that differs from this proposal. All comments and recommendations, including names and addresses, will become part of the administrative record.

You may submit your comments and materials by one of the methods listed in ADDRESSES. Comments must be submitted to http://www.regulations.gov before 11:59 p.m. (Eastern Time) on the date specified in DATES. We will not consider hand-delivered comments that we do not receive, or mailed comments that are not postmarked, by the date specified in DATES. Please note that comments posted to http://www.regulations.gov are not immediately viewable. When you submit a comment, the system receives it immediately. However, the comment will not be publicly viewable until we post it, which might not occur until several days after submission.

We will post your entire comment on http://www.regulations.gov. Before including personal identifying information in your comment, you should be aware that we may make your entire comment—including your personal identifying information—publicly available at any time. While you can ask us in your hardcopy comment to withhold your personal identifying information from public review, we cannot guarantee that we will be able to do so. Comments submitted electronically to http://www.regulations.gov will be posted in their entirety.

In addition, comments and materials we receive, as well as supporting documentation we used in preparing this proposed rule, will be available for public inspection in two ways:

(1) You can view them on http://www.regulations.gov. In the Search box, enter FWS-HQ-WSR-2017-0002, which is the docket number for this rulemaking.

(2) You can make an appointment, during normal business hours, to view the comments and materials in person at the U.S. Fish and Wildlife Service's headquarters office in Falls Church, VA (contact the person listed under FOR FURTHER INFORMATION CONTACT).

Executive Order 12866 provides that the Office of Information and Regulatory Affairs (OIRA) will review all significant rules. OIRA has determined that this rule is not significant.

Executive Order 13563 reaffirms the principles of E.O. 12866 while calling for improvements in the nation's regulatory system to promote predictability, to reduce uncertainty, and to use the best, most innovative, and least burdensome tools for achieving regulatory ends. The executive order directs agencies to consider regulatory approaches that reduce burdens and maintain flexibility and freedom of choice for the public where these approaches are relevant, feasible, and consistent with regulatory objectives. E.O. 13563 emphasizes further that regulations must be based on the best available science and that the rulemaking process must allow for public participation and an open exchange of ideas. We have developed this proposed rule in a manner consistent with these requirements.

The Regulatory Flexibility Act requires an agency to consider the impact of rules on small entities, i.e., small businesses, small organizations, and small government jurisdictions. If there is a significant economic impact on a substantial number of small entities, the agency must perform a regulatory flexibility analysis. This analysis is not required if the head of an agency certifies the rule will not have a significant economic impact on a substantial number of small entities. The Small Business Regulatory Enforcement Fairness Act (SBREFA) amended the Regulatory Flexibility Act to require Federal agencies to state the factual basis for certifying that a rule will not have a significant economic impact on a substantial number of small entities.

We have examined this proposed rule's potential effects on small entities as required by the Regulatory Flexibility Act. We have determined that this proposed rule does not have a significant impact and does not require a regulatory flexibility analysis because it:

a. Gives information to State fish and wildlife agencies that allows them to apply for and administer financial assistance more easily, more efficiently, and with greater flexibility. Only State fish and wildlife agencies may receive Wildlife Restoration, Sport Fish Restoration, and Hunter Education program and subprogram grants.

b. Addresses changes in law and regulation. This helps applicants and grantees by making the regulations consistent with current authorities and standards.

c. Rewords and reorganizes the regulations to make them easier to understand.

d. Allows small entities to voluntarily become subgrantees of agencies, and any impact on these subgrantees would be beneficial.

The Service has determined that the proposed changes primarily affect State governments and any small entities affected by the changes voluntarily enter into mutually beneficial relationships with a State agency. They are primarily concessioners and subgrantees, and the impact on these small entities will be very limited and beneficial in all cases.

Consequently, we certify that because this proposed rule will not have a significant economic effect on a substantial number of small entities, a regulatory flexibility analysis is not required.

In addition, this proposed rule is not a major rule under SBREFA (5 U.S.C. 804(2)) and will not have a significant impact on a substantial number of small entities because it will not:

a. Have an annual effect on the economy of $100 million or more;

b. Cause a major increase in costs or prices for consumers, individual industries, Federal, State, or local government agencies, or geographic regions; or

c. Have significant adverse effects on competition, employment, investment, productivity, innovation, or the ability of U.S.-based enterprises to compete with foreign-based enterprises.

The Unfunded Mandates Reform Act of 1995 (2 U.S.C. 1501 et seq.) establishes requirements for Federal agencies to assess the effects of their regulatory actions on State, local, and tribal governments and the private sector. The Act requires each Federal agency, to the extent permitted by law, to prepare a written assessment of the effects of proposed regulations with Federal mandates that may result in the expenditure by State, local, and tribal governments, in aggregate, or by the private sector, of $100 million or more (adjusted annually for inflation) in any 1 year. We have determined the following under the Unfunded Mandates Reform Act:

a. As discussed in the determination for the Regulatory Flexibility Act, this proposed rule will not have a significant economic effect on a substantial number of small entities.

b. The regulation does not require a small government agency plan or any other requirement for expending local funds.

c. The programs governed by the current regulations and enhanced by the proposed changes potentially assist small governments financially when they occasionally and voluntarily participate as subgrantees of an eligible agency.

d. The proposed rule clarifies and improves upon the current regulations allowing State, local, and tribal governments and the private sector to receive the benefits of financial assistance funding in a more flexible, efficient, and effective manner.

e. Any costs incurred by a State, local, or tribal government or the private sector are voluntary. There are no mandated costs associated with the proposed rule.

f. The benefits of grant funding outweigh the costs. The Federal Government may legally provide up to 100 percent for Puerto Rico and DC. The Federal Government will also waive the first $200,000 of match for each grant to the Commonwealth of the Northern Mariana Islands and the territories of Guam, the U.S. Virgin Islands, and American Samoa. Of the 50 States and 6 other jurisdictions that voluntarily are eligible to apply for grants in these programs each year, all participate. This is clear evidence that the benefits of this grant funding outweigh the costs.

g. This proposed rule will not produce a Federal mandate of $100 million or greater in any year, i.e., it is not a “significant regulatory action” under the Unfunded Mandates Reform Act.

This proposed rule will not have significant takings implications under E.O. 12630 because it will not have a provision for taking private property. Therefore, a takings implication assessment is not required.

This proposed rule will not have sufficient Federalism effects to warrant preparing a federalism summary impact statement under E.O. 13132. It would not interfere with the States' ability to manage themselves or their funds. We work closely with the States administering these programs. They helped us identify those sections of the current regulations needing further consideration and new issues that prompted us to develop a regulatory response.

The Office of the Solicitor has determined under E.O. 12988 that the rule will not unduly burden the judicial system and meets the requirements of sections 3(a) and 3(b)(2) of the Order. The proposed rule will help grantees because it:

a. Updates the regulations to reflect changes in policy and practice and recommendations received during the past 5 years;

b. Makes the regulations easier to use and understand by improving the organization and using plain language;

c. Modifies the final rule to amend 50 CFR part 80 published in the Federal Register at 76 FR 46150 on August 1, 2011, based on subsequent experience; and

d. Adopts recommendations on new issues received from State fish and wildlife agencies. We will review all comments on this proposed rule and consider all suggestions when preparing the final rule for publication.

This proposed rule does not contain new information collection requirements that require approval under the PRA (44 U.S.C. 3501 et seq.). OMB reviewed and approved the U.S. Fish and Wildlife Service application and reporting requirements associated with the Wildlife Restoration, Sport Fish Restoration, and Hunter's Education financial assistance programs and assigned OMB Control Number 1018-0109, which expires November 30, 2018. An agency may not conduct or sponsor and you are not required to respond to a collection of information unless it displays a currently valid OMB control number.

We have analyzed this proposed rule under the National Environmental Policy Act (42 U.S.C. 4321 et seq.), 43 CFR part 46, and part 516 of the Departmental Manual. This rule is not a major Federal action significantly affecting the quality of the human environment. An environmental impact statement/assessment is not required due to the categorical exclusion for administrative changes given at 43 CFR 46.210(i).

We have evaluated potential effects on federally recognized Indian tribes under the President's memorandum of April 29, 1994, “Government-to-Government Relations with Native American Tribal Governments” (59 FR 22951), E.O. 13175, and 512 DM 2. We have determined that there are no potential effects. This proposed rule will not interfere with the tribes' ability to manage themselves or their funds.

E.O. 13211 addresses regulations that significantly affect energy supply, distribution, and use, and requires agencies to prepare Statements of Energy Effects when undertaking certain actions. This rule is not a significant regulatory action under E.O. 12866 and does not affect energy supplies, distribution, or use. Therefore, this action is not a significant energy action and no Statement of Energy Effects is required.

For the reasons discussed in the preamble, we propose to amend title 50 of the Code of Federal Regulations, part 80, as follows:

The additions and revisions read as follows: