[Federal Register Volume 84, Number 49 (Wednesday, March 13, 2019)]
[Rules and Regulations]
[Pages 8953-8958]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-04515]



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Rules and Regulations
                                                Federal Register
________________________________________________________________________

This section of the FEDERAL REGISTER contains regulatory documents 
having general applicability and legal effect, most of which are keyed 
to and codified in the Code of Federal Regulations, which is published 
under 50 titles pursuant to 44 U.S.C. 1510.

The Code of Federal Regulations is sold by the Superintendent of Documents. 

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Federal Register / Vol. 84, No. 49 / Wednesday, March 13, 2019 / 
Rules and Regulations

[[Page 8953]]



FEDERAL RESERVE SYSTEM

12 CFR Parts 225

[Regulations Y; Docket No. R-1653 and RIN 7100--AF41]


Amendments to the Capital Plan Rule

AGENCY: Board of Governors of the Federal Reserve System (Board).

ACTION: Final rule.

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SUMMARY: The Board is amending the capital plan rule to limit the scope 
of potential objections to a firm's capital plan on the basis of 
qualitative deficiencies in the firm's capital planning process 
(qualitative objection). In particular, effective immediately, the 
Board will no longer issue a qualitative objection under the capital 
plan rule to a firm if the firm has been subject to a potential 
qualitative objection for four consecutive years, and the firm does not 
receive a qualitative objection in the fourth year of that period. In 
addition, except for certain firms that have received a qualitative 
objection in the immediately prior year, the Board will no longer issue 
a qualitative objection to any firm effective January 1, 2021.

DATES: 
    Effective date: March 13, 2019.
    Applicability date: The removal of the qualitative objection under 
the capital plan was applicable on March 6, 2019.

FOR FURTHER INFORMATION CONTACT: Lisa Ryu, Associate Director, (202) 
263-4833, Constance Horsley, Deputy Associate Director, (202) 452-5239, 
(202) 475-6316, Juan Climent, Manager (202) 872-7526, Page Conkling, 
Lead Financial Institution and Policy Analyst, (202) 912-4647, Noah 
Cuttler, Senior Financial Institution and Policy Analyst I, (202) 912-
4678, Division of Banking Supervision and Regulation; Benjamin W. 
McDonough, Assistant General Counsel, (202) 452-2036, Julie Anthony, 
Senior Counsel, (202) 475-6682, Mark Buresh, Counsel, (202) 452-5270, 
Legal Division, Board of Governors of the Federal Reserve System, 20th 
Street and Constitution Avenue NW, Washington, DC 20551. Users of 
Telecommunication Device for Deaf (TDD) only, call (202) 263-4869.

SUPPLEMENTARY INFORMATION:

Table of Contents

I. Introduction
    A. Background
    B. Revisions to the Capital Plan Rule
II. Removal of Qualitative Objection
III. Administrative Law Matters
    A. Paperwork Reduction Act
    B. Regulatory Flexibility Act
    C. Solicitation of Comments of Use of Plain Language

I. Introduction

A. Background

    Capital planning and stress testing are two key components of the 
Federal Reserve's supervisory framework for large financial 
institutions. At the height of the 2007-2008 financial crisis, the 
Board turned to stress testing under the Supervisory Capital Assessment 
Program (SCAP) to determine potential losses at the largest firms if 
the prevailing stress severely worsened and to restore confidence in 
the financial sector.\1\ Building on the success of SCAP, the Board 
introduced the current stress testing regime and the Comprehensive 
Capital Analysis and Review (CCAR) to assess whether the largest firms 
have sufficient capital to continue to lend and absorb potential losses 
under severely adverse conditions, and to ensure that they have sound, 
forward-looking capital planning practices.\2\
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    \1\ SCAP applied to domestic bank holding companies with $100 
billion or more in total consolidated assets.
    \2\ The changes in this rule will apply to bank holding 
companies with total consolidated assets of $50 billion or more, any 
nonbank financial company supervised by the Board that becomes 
subject to the capital planning requirements pursuant to a rule or 
order of the Board, and to U.S. intermediate holding companies 
established pursuant to the Board's Regulation YY (12 CFR part 252) 
in accordance with the transition provisions under the capital plan 
rule. References to ``bank holding companies'' or ``firms'' in this 
preamble should be read to include all of these companies, unless 
otherwise specified. Currently, no nonbank financial companies 
supervised by the Board are subject to the capital planning 
requirements. On July 6, 2018, the Board issued a statement 
regarding the impact of the Economic Growth, Regulatory Relief, and 
Consumer Protection Act. The Board announced that it will not take 
action to require bank holding companies with total consolidated 
assets greater than or equal to $50 billion but less than $100 
billion to comply with the Board's capital plan rule. See 
www.federalreserve.gov/newsevents/pressreleases/files/bcreg20180706b1.pdf.
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    The Board adopted the capital plan rule in 2011. This rule requires 
certain large bank holding companies to submit an annual capital plan 
to the Board.\3\ Under the capital plan rule as initially adopted, the 
Federal Reserve conducted a qualitative assessment of the strength of 
each bank holding company's internal capital planning process and a 
quantitative assessment of each bank holding company's capital 
adequacy. In the qualitative assessment, the Federal Reserve evaluated 
the extent to which the analysis underlying each bank holding company's 
capital plan comprehensively captured and addressed potential risks 
stemming from company-wide activities. In addition, the Federal Reserve 
evaluated the reasonableness of each bank holding company's capital 
plan, the assumptions and analysis underlying the plan, and the 
robustness of the bank holding company's capital planning process.
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    \3\ See 12 CFR 225.8. A firm's capital plan must include (i) an 
assessment of the expected uses and sources of capital over the 
planning horizon; (ii) a detailed description of the firm's 
processes for assessing capital adequacy; (iii) the firm's capital 
policy; and (iv) a discussion of any expected changes to the firm's 
business plan that could materially affect its capital adequacy. A 
firm may be required to include other information and analysis 
relevant to its capital planning processes and internal capital 
adequacy assessment.
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    Under the capital plan rule, the Federal Reserve may object to the 
capital plan of a LISCC firm (a firm subject to the Large Institution 
Supervision Coordinating Committee (LISCC) supervisory framework) or a 
large and complex firm,\4\ if the Federal Reserve determines that (1) 
the firm has material unresolved supervisory issues, including but not 
limited to issues associated with its capital adequacy process; \5\ (2) 
the assumptions and analysis underlying the firm's capital plan, or the 
firm's methodologies for reviewing its capital adequacy process, are 
not reasonable or appropriate; \6\ or

[[Page 8954]]

(3) the firm's capital planning process or proposed capital 
distributions otherwise constitute an unsafe or unsound practice, or 
would violate any law, regulation, Board order, directive, or condition 
imposed by, or written agreement with, the Board or the appropriate 
Federal Reserve Bank (together, qualitative objection criteria).\7\ In 
addition to the qualitative objection criteria, the Federal Reserve can 
object to a firm's capital plan if the firm has not demonstrated an 
ability to maintain capital above each minimum regulatory capital ratio 
on a pro forma basis under expected and stressful conditions throughout 
the planning horizon.\8\
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    \4\ A firm is a large and complex firm if it otherwise had total 
consolidated assets of $250 billion or more, on-balance sheet 
foreign exposure of $10 billion or more, or nonbank assets of $75 
billion or more. Based on the current population of firms, all LISCC 
firms have total consolidated assets of $250 billion or more, on-
balance sheet foreign exposure of $10 billion or more, or nonbank 
assets of $75 billion or more.
    \5\ 12 CFR 225.8(f))(2)(ii)(B)(2).
    \6\ 12 CFR 225.8(f))(2)(ii)(B)(3).
    \7\ 12 CFR 225.8(f))(2)(ii)(B)(4).
    \8\ 12 CFR 225.8(f))(2)(ii)(B)(1).
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    In past CCAR exercises, the Board has publicly announced its 
decision to object to a firm's capital plan, along with the basis for 
the decision.\9\ If the Federal Reserve objects to a firm's capital 
plan, the firm may not make any capital distributions unless the 
Federal Reserve indicates in writing that it does not object to such 
distributions.\10\
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    \9\ See 12 CFR 225.8(f)(v).
    \10\ See 12 CFR 225.8(f)(2)(iv).
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B. Revisions to Capital Plan Rule

    In 2017, the Board adopted a rule to reduce the burden on less 
complex firms by removing them from the qualitative assessment of CCAR 
(2017 Final Rule).\11\ As a result of the 2017 Final Rule, firms that 
are not identified as global systemically important bank holding 
companies and that have average total consolidated assets of $50 
billion or more but less than $250 billion and total nonbank assets of 
less than $75 billion (large and noncomplex firms) are no longer 
subject to the qualitative objection.\12\ By the time the Board issued 
the 2017 Final Rule, most large and noncomplex firms were meeting or 
close to meeting supervisory expectations relating to capital planning 
practices. Because large and noncomplex firms had substantially 
strengthened their capital positions and improved their risk management 
capabilities since the inception of CCAR, the Board determined that the 
added regulatory burden of complying with CCAR's qualitative component 
outweighed its benefits for these firms. Instead, these firms were 
subject to regular supervisory review of their capital planning 
processes.
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    \11\ See 82 FR 9308 (Feb. 3, 2017).
    \12\ See 12 CFR 225.8(f)(2)(ii)(A).
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    In the preamble to the 2017 Final Rule, the Board noted that the 
Federal Reserve would conduct its supervisory assessment of large and 
noncomplex firms' risk-management and capital planning practices 
through the regular supervisory process and targeted, horizontal 
assessments of particular aspects of capital planning, rather than 
through the annual CCAR assessment. The Board further noted that, while 
it would not object to the capital plans of large and noncomplex firms 
due to qualitative deficiencies in their capital planning process, it 
would incorporate an assessment of capital planning practices into its 
regular, ongoing supervisory activities. Under the 2017 Final Rule, the 
Federal Reserve may object to the capital plan of a LISCC or large and 
complex firm based on the qualitative objection criteria.
    As it has with other bodies of regulation, the Board has reviewed 
the CCAR program to assess its effectiveness and to identify any areas 
that should be refined (CCAR review). Based in part on the CCAR review, 
in April 2018, the Board invited public comment on a notice of proposed 
rulemaking (2018 NPR) that would integrate its regulatory capital rule 
and the CCAR and stress test rules in order to simplify the capital 
regime applicable to firms subject to the capital plan rule.\13\ As 
part of the 2018 NPR, the Board sought comment on the advantages and 
disadvantages associated with removing or adjusting the provisions that 
allow the Board to object to large and complex or LISCC firms' capital 
plans on the basis of qualitative deficiencies in the firms' capital 
planning process.\14\
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    \13\ 83 FR 18160 (April 25, 2018).
    \14\ See Question 23(i), 83 FR 18160 (April 25, 2018). The Board 
continues to consider the other comments received on the 2018 NPR 
and the other aspects of the proposal raised in the 2018 NPR. The 
Board may issue one or more additional final rules to implement all 
or part of that proposal at a later date.
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    Several commenters supported eliminating the qualitative objection 
from the capital plan rule, noting that firms subject to the capital 
plan rule have raised significant amounts of capital and made 
significant enhancements to their capital planning and stress testing 
processes since the capital plan rule and CCAR processes were first 
adopted in 2011. Commenters argued that assessments of a firm's capital 
planning processes are supervisory in nature and therefore should be 
conducted through customary supervisory channels, and addressed through 
supervisory actions, rather than being subject to a potentially 
unexpected public qualitative objection that could result in market 
events that have potential adverse impacts on a firm. These commenters 
stated that the same approach to assessing the capital planning 
processes of large and noncomplex firms through the ongoing supervisory 
process and targeted horizontal assessments should be adopted for large 
and complex and LISCC firms, noting that the Board should place greater 
emphasis on its recent large financial institution rating proposal.\15\ 
Two commenters argued for keeping the qualitative objection. One such 
commenter argued that the qualitative objection helps to ensure the 
integrity of the data that firms use to model the stress tests.
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    \15\ See 82 FR 39049 (August 17, 2017).
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II. Removal of the Qualitative Objection

    The original rationale for providing that the Board could object to 
firms' capital plans based on the qualitative objection criteria was to 
provide strong incentives for firms to address the significant 
shortcomings in risk management and capital planning practices that the 
Federal Reserve observed during the financial crisis. For example, many 
firms supervised by the Federal Reserve had substantial deficiencies in 
their ability to measure, monitor, and manage their risks. Since the 
Federal Reserve started the CCAR process in 2011, most supervised firms 
have significantly improved their risk management and capital planning 
processes. For instance, the qualitative assessment conducted as part 
of the 2018 CCAR cycle found that most firms either meet or are close 
to meeting the Federal Reserve's supervisory expectations for capital 
planning. These advances have resulted from firms improving the methods 
they use to identify their unique risks, using sound practices for 
identifying and addressing model deficiencies, and appropriately 
relying upon the results of capital stress testing to evaluate their 
capital positions on a forward-looking basis.
    The Board continues to believe that it is important for firms to 
maintain strong capital planning practices that respond appropriately 
to changes in firms' financial conditions, business models and 
operating environment. The Federal Reserve has increasingly integrated 
the CCAR qualitative assessment into the regular supervisory process 
over the past several years. For example, the Board recently adopted a 
new rating system for large financial institutions (LFI rating system) 
to align with the Federal Reserve's current supervisory programs and 
practices for these firms.\16\

[[Page 8955]]

The LFI rating system will assign component ratings with respect to a 
firm's capital planning and positions, in addition to its liquidity 
risk management and positions and governance and controls. The LFI 
rating system will give supervisors the opportunity to provide more 
regular, ongoing feedback to firms regarding their capital planning 
processes.
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    \16\ 83 FR 58724 (Nov. 21, 2018). The final rating system 
applies to bank holding companies and non-insurance, non-commercial 
savings and loan holding companies with total consolidated assets of 
$100 billion or more, and U.S. intermediate holding companies of 
foreign banking organizations established under Regulation YY with 
total consolidated assets of $50 billion or more.
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    In recognition of the continued progress that firms have made in 
their risk management and capital planning practices, their 
significantly strengthened capital positions,\17\ and changes to the 
Board's supervisory processes, the Board believes it is appropriate to 
transition away from the qualitative objection under the capital plan 
rule. Instead, supervisors would incorporate a robust qualitative 
assessment of capital planning practices into the traditional 
supervisory approach with respect to LISCC and large and complex firms.
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    \17\ Staff calculations based on the Consolidated Financial 
Statement for Holding Companies indicated that common equity capital 
levels among the nation's largest bank holding companies have risen 
by over $700 billion since 2009.
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    The qualitative objection under the capital plan rule has provided 
helpful focus that has led to improvements in firms' capital planning. 
As a result, it would be prudent temporarily to retain the qualitative 
objection for those firms that only very recently became subject to the 
Federal Reserve's qualitative assessment. This approach would provide 
additional time for those firms to improve their capital planning 
practices before the qualitative objection is removed. Accordingly, for 
firms subject to the capital plan rule as of January 1, 2019, the Board 
is amending the capital plan rule to limit the scope of potential 
objections to the capital plan of a firm based on qualitative 
deficiencies subject to transitional arrangements. These are that the 
firm's capital plan has been subject to review and a potential 
qualitative objection by the Board for any period of four consecutive 
years, and the firm does not receive a qualitative objection in the 
fourth year of that period. If a firm receives a qualitative objection 
in the fourth year of that period, the firm will remain subject to a 
potential qualitative objection until January 1 of the year after the 
first year in which the firm does not receive a qualitative objection. 
In addition, except for a firm that receives a qualitative objection in 
the fourth year of the four-year period and in subsequent years, the 
Board would not object to the capital plan of any firm based on 
qualitative deficiencies after December 31, 2020. For example, if a 
large and complex firm first became subject to the capital plan rule in 
2017 and that firm received a qualitative objection in 2020, the firm 
would be subject to a potential qualitative objection in 2021. If that 
firm does not receive a qualitative objection in 2021, the firm would 
no longer be subject to a potential qualitative objection under the 
capital plan rule. If that firm receives a qualitative objection in 
2021, the firm would remain subject to a potential qualitative 
objection in 2022.
    The Board believes that by January 2021, all LISCC and large and 
complex firms should have had sufficient time to improve their capital 
planning practices such that assessments of capital planning should be 
undertaken through the regular course of supervision and, when needed, 
targeted assessments of particular aspects of a firm's capital 
planning. However, if a LISCC or large and complex firm has not 
improved its capital planning practices by January 2021, the Board 
believes it is appropriate for that firm to continue to be subject to a 
potential qualitative objection until the firm demonstrates 
satisfactory capital planning practices.
    If a large and complex or LISCC firm was required under the capital 
plan rule to submit its first capital plan to the Federal Reserve and 
was subject to a confidential review process, that year will be 
considered the first year that a firm would have been subject to a 
qualitative objection. The Board will consider whether a firm is a 
successor for purposes of the four-year period on a case-by-case 
basis.\18\ If a bank holding company subsidiary of a U.S. intermediate 
holding company that was required to be established by July 1, 2016, 
previously participated in CCAR,\19\ the U.S. intermediate holding 
company will not be considered the same firm or a successor firm to 
that bank holding company subsidiary for purposes of the four-year 
tolling period. If the Board previously permitted a foreign banking 
organization to form two or more U.S. intermediate holding companies 
under 12 CFR 252.153(c)(4)(ii), the Board will consider the first year 
that the first U.S. intermediate holding company submitted a capital 
plan to be the first year of the four-year period for all of the 
foreign banking organization's U.S. intermediate holding companies.
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    \18\ The Bank Holding Company Act provides that any 
``successor'' to a bank holding company shall be deemed to be a bank 
holding company from the date on which the predecessor became a bank 
holding company. 12 U.S.C. 1841(a)(6). The Bank Holding Company Act 
defines ``successor'' to ``include any company which acquires 
directly or indirectly from a bank holding company shares of any 
bank, when and if the relationship between such company and the bank 
holding company is such that the transaction effects no substantial 
change in the control of the bank or beneficial ownership of such 
shares of such bank.'' The Bank Holding Company Act also provides 
that the Board may, by regulation, further define the term 
``successor'' to the extent necessary to prevent evasion of the 
purposes of the Bank Holding Company Act. 12 U.S.C. 1841(e).
    \19\ See 12 CFR 225.8(c)(2)(ii).
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    For example, a large and complex or LISCC firm that submitted its 
first capital plan pursuant to the capital plan rule beginning with the 
2016 capital plan cycle would be subject to a qualitative objection of 
its annual capital plan through the 2019 capital plan cycle, and a 
large and complex or LISCC firm that submitted its first capital plan 
and was subject to a confidential review process in the 2017 capital 
plan cycle would be subject to a qualitative objection of its annual 
capital plan through the 2020 capital plan cycle. As a further example, 
if a foreign banking organization's first U.S. intermediate holding 
company submitted its first capital plan in 2017 and the foreign 
banking organization was permitted to form a second U.S. intermediate 
holding company that submitted its first capital plan in 2018, the 
first year of the four-year period would be 2017 for both U.S. 
intermediate holding companies.
    All LISCC and large and complex firms will still be required to 
meet their capital requirements under stress as part of CCAR's 
quantitative assessment and will be subject to regular supervisory 
assessments that examine their capital planning processes.\20\ In 
particular, these firms will remain subject to the same supervisory 
expectations as under the capital plan rule, and examiners will 
continue to conduct rigorous horizontal and firm-specific assessments 
of each firm's capital positions and capital planning, tailored to the 
risk profile of the firm. While much of the examination work centers on 
a firm's capital plan submissions, examination work would continue on a 
year-round basis, taking into account the firm's management of other 
financial risks. For example, a firm's capital rating under the LFI 
rating system will reflect a broad assessment of the firm's capital 
planning and positions. In consolidating supervisory findings into a 
comprehensive assessment of a firm's capital planning and positions, 
the Federal Reserve will take into account

[[Page 8956]]

the materiality of a firm's outstanding and newly identified 
supervisory issues. In addition, any findings from supervisory stress 
testing, such as CCAR or similar activities, will represent inputs into 
the Capital Planning and Positions component rating. Firms with 
deficient practices would receive supervisory findings through the 
examination process, and would be subject to a deficient supervisory 
rating, and potentially an enforcement action, if those deficiencies 
were sufficiently material.
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    \20\ The 2018 NPR proposed to eliminate the quantitative 
objection from CCAR. Board staff is currently considering all 
comments received on the 2018 NPR.
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    In addition, consistent with the current capital plan rule, if the 
Federal Reserve determines that a firm has unsafe or unsound capital 
planning processes or the financial condition of the firm is unsafe or 
unsound, the Federal Reserve is reserving the authority to issue 
publicly a capital directive, such as a directive to reduce capital 
distributions, and to take other supervisory or public enforcement 
actions, including an action to address such unsafe or unsound 
practices or any other conditions or violations of law.\21\
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    \21\ See 12 CFR 225.8(b)(4).
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Effective Date

    The Board is issuing this final rule without the 30-day delayed 
effective date ordinarily prescribed by the Administrative Procedure 
Act.\22\ The APA requires a 30-day delayed effective date, except for 
(1) substantive rules which grant or recognize an exemption or relieve 
a restriction; (2) interpretative rules and statements of policy; or 
(3) as otherwise provided by the agency for good cause.\23\ The Board 
has concluded that, because the rule relieves a restriction, the final 
rule is exempt from the APA's delayed effective date requirement.\24\ 
Accordingly, the Board is publishing the final rule with an immediate 
effective date.
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    \22\ 12 U.S.C. 551 et seq.
    \23\ 12 U.S.C. 553(d).
    \24\ 12 U.S.C. 553(d)(1).
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III. Administrative Law Matters

A. Paperwork Reduction Act

    In accordance with section 3512 of the Paperwork Reduction Act of 
1995 (44 U.S.C. 3501-3521) (PRA), the Board may not conduct or sponsor, 
and a respondent is not required to respond to, an information 
collection unless it displays a currently valid Office of Management 
and Budget (OMB) control number. The OMB control number is 7100-0342 
for this information collection. The Board reviewed the final rule 
under the authority delegated to the Board by OMB. No specific comments 
related to the PRA were received. The final rule contains requirements 
subject to the PRA. The reporting requirements are found in sections 12 
CFR 225.8.
    The Board has a continuing interest in the public's opinions of 
this collection of information. At any time, commenters may submit 
comments regarding the burden estimate, or any other aspect of this 
collection of information, including suggestions for reducing burden 
sent to: Nuha Elmaghrabi: Federal Reserve Clearance Officer, Office of 
the Chief Data Officer, Mail Stop K1-148, Board of Governors of the 
Federal Reserve System, Washington, DC 20551, with copies of such 
comments sent to the Office of Management and Budget (OMB) desk officer 
by mail to U.S. Office of Management and Budget, 725 17th Street NW, 
#10235, Washington, DC 20503 or by facsimile to 202-3955806, Attention, 
Agency Desk Officer.
    Proposed Revisions, With Extension for Three Years, of the 
Following Information Collections:
    Title of Information Collection: Recordkeeping and Reporting 
Requirements Associated with Regulation Y (Capital Plans).
    Agency Form Number: Reg. Y-13.
    OMB Control Number: 7100-0342.
    Frequency of Response: Annually.
    Affected Public: Businesses or other for-profit.
    Respondents: BHCs and IHCs.
    Abstract: Regulation Y (12 CFR part 225) requires large bank 
holding companies (BHCs) to submit capital plans to the Federal Reserve 
on an annual basis and to require such BHCs to request prior approval 
from the Federal Reserve under certain circumstances before making a 
capital distribution.
    Current Actions: The final rule contains requirements subject to 
the PRA. The collection of information revised by this final rule is 
found in Sec.  225.8 of Regulation Y (12 CFR part 225). Under Sec.  
225.8(f)(2) of the final rule, certain large and complex firms will no 
longer be subject to the provisions of the Board's capital plan rule 
whereby the Board can object to a capital plan on the basis of 
qualitative deficiencies in the firm's capital planning process. In 
comments received on the proposal, commenters expressed the view that 
the provision of the rule permitting the Board to object to a capital 
plan on the basis of qualitative deficiencies, in their view, required 
a firm to develop a large amount of documentation and stress test 
models in order to avoid risk of a public objection to its capital 
plan. Accordingly, the final rule is expected to reduce the 
recordkeeping requirements for immediately excluded large and complex 
firms by approximately 25 percent, or 3,000 hours for the immediately 
excluded large and complex firms for 2019 and 2020. In addition, the 
final rule is expected to reduce the recordkeeping requirements for the 
remaining large and complex firms by approximately 25 percent, or 3,000 
hours in 2021 and thereafter.
    The final rule provides that a large and complex firm that has 
submitted a capital plan subject to potential objection by the Board on 
the basis of qualitative deficiencies for any period of four 
consecutive years and that does not receive a qualitative objection in 
the fourth and final year will no longer be subject to potential 
objection by the Board on the basis of qualitative deficiencies. In 
addition, except for any firm that receives a qualitative objection, 
the final rule provides that the Board will no longer object to a 
capital plan on the basis of qualitative deficiencies beginning in 2021 
and continuing thereafter.
    Number of Respondents: 36.
    Current Estimated Average Hours per Response: Annual capital 
planning recordkeeping (Sec.  225.8(e)(1)(i)) (LISCC and large and 
complex firms), 11,920 hours; annual capital planning recordkeeping 
(Sec.  225.8(c)(1)(i)) (large and noncomplex firms), 8,920 hours; 
annual capital planning recordkeeping Sec.  (225.8(e)(1)(iii), 100 
hours; annual capital planning reporting (Sec.  225.8(e)(1)(ii)), 80 
hours; data collections reporting ((Sec.  225.8(e)(3)), 1,005 hours; 
data collections reporting (Sec.  225.8(e)(4)), 100 hours; review of 
capital plans by the Federal Reserve reporting (Sec.  225.8(f)(3)(i)), 
16 hours; prior approval request requirements reporting (Sec.  
225.8(g)(1), (3), & (4)), 100 hours; prior approval request 
requirements exceptions (Sec.  225.8(g)(3)(iii)(A)), 16 hours; prior 
approval request requirements reports (Sec.  225.8(g)(6)), 16 hours.
    Current Estimated Annual Burden Hours: Annual capital planning 
recordkeeping (Sec.  225.8(e)(1)(i)) (LISCC and large and complex 
firms), 214,560 hours; annual capital planning recordkeeping (Sec.  
225.8(e)(1)(i)) (large and noncomplex firms), 160,560 hours; annual 
capital planning recordkeeping (Sec.  225.8(e)(1)(iii)), 2,800 hours; 
annual capital planning reporting (Sec.  225.8(e)(1)(ii)), 2,240 hours; 
data collections reporting ((Sec.  225.8(e)(3)(i)- (vi)), 36,180 hours; 
data collections reporting (Sec.  225.8(e)(4)), 1,000 hours; review of 
capital plans by the Federal Reserve reporting (Sec.  225.8(f)(3)(i)), 
32 hours; prior approval request requirements reporting (Sec.  
225.8(g)(1),

[[Page 8957]]

(3), & (4)), 2,600 hours; prior approval request requirements 
exceptions (Sec.  225.8(g)(3)(iii)(A)), 32 hours; prior approval 
request requirements reports (Sec.  225.8(g)(6)), 32 hours.
    Approved Revisions Only Change in Estimated Average Hours per 
Response: Annual capital planning recordkeeping (Sec.  225.8(e)(1)(i)), 
3,000 hours.
    Approved Revisions Only Change in Estimated Annual Burden Hours: 
Annual capital planning reporting (Sec.  225.8(e)(1)(ii)), 54,000 
hours.
    Approved Total Estimated Annual Burden Hours: Annual capital 
planning recordkeeping (Sec.  225.8(e)(1)(i)) (LISCC and large and 
complex firms), 160,560 hours; annual capital planning recordkeeping 
(Sec.  225.8(e)(1)(i)) (large and noncomplex firms), 160,560 hours; 
annual capital planning recordkeeping (Sec.  225.8(e)(1)(iii)), 2,800 
hours; annual capital planning reporting (Sec.  225.8(e)(1)(ii)), 2,240 
hours; data collections reporting ((Sec.  225.8(e)(3)(i)-(vi)), 36,180 
hours; data collections reporting (Sec.  225.8(e)(4)), 1,000 hours; 
review of capital plans by the Federal Reserve reporting (Sec.  
225.8(f)(3)(i)), 32 hours; prior approval request requirements 
reporting (Sec.  225.8(g)(1), (3), & (4)), 2,600 hours; prior approval 
request requirements exceptions (Sec.  225.8(g)(3)(iii)(A)), 32 hours; 
prior approval request requirements reports (Sec.  225.8(g)(6)), 32 
hours.

B. Regulatory Flexibility Act

    The Regulatory Flexibility Act, 5 U.S.C. 601 et seq., (RFA), 
requires an agency to consider whether the rules it finalizes will have 
a significant economic impact on a substantial number of small 
entities.\25\ The RFA generally requires that an agency prepare and 
make available an initial regulatory flexibility analysis (IRFA) in 
connection with a notice of proposed rulemaking and that an agency 
prepare a final regulatory flexibility analysis (FRFA) in connection 
with promulgating a final rule. A FRFA issued by the Board must contain 
(1) a statement of the need for, and objectives of, the rule; (2) a 
statement of the significant issues raised by the public comments in 
response to the IRFA, a statement of the assessment of the agency of 
such issues, and a statement of any changes made in the proposed rule 
as a result of such comments; (3) the response of the agency to any 
comments filed by the Chief Counsel for Advocacy of the Small Business 
Administration in response to the proposed rule, and a detailed 
statement of any change made to the proposed rule in the final rule as 
a result of the comments; (4) a description of and an estimate of the 
number of small entities to which the rule will apply or an explanation 
of why no such estimate is available; (5) a description of the 
projected reporting, recordkeeping and other compliance requirements of 
the rule, including an estimate of the classes of small entities which 
will be subject to the requirement and the type of professional skills 
necessary for preparation of the report or record; (6) a description of 
the steps the agency has taken to minimize the significant economic 
impact on small entities consistent with the stated objectives of 
applicable statutes, including a statement of the factual, policy, and 
legal reasons for selecting the alternative adopted in the final rule 
and why each one of the other significant alternatives to the rule 
considered by the agency which affect the impact on small entities was 
rejected.\26\
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    \25\ Under regulations issued by the Small Business 
Administration, a small entity includes a depository institution, 
bank holding company, or savings and loan holding company with total 
assets of $550 million or less and trust companies with total assets 
of $38.5 million or less. As of June 30, 2018, there were 
approximately 3,053 small bank holding companies, 184 small savings 
and loan holding companies, and 541 small state member banks.
    \26\ 5 U.S.C. 601(a).
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    The Board solicited public common on this rule in a notice of 
proposed rulemaking and has considered the potential impact of this 
rule on small entities in accordance with section 604 of the RFA.\27\ 
Based on the Board's analysis, and for the reasons stated below, the 
Board believes the final rule will not have a significant economic 
impact on a substantial number of small entities.
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    \27\ 83 FR 18160 (April 25, 2018).
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1. Statement of the Need for, and Objectives of, the Final Rule
    As discussed, the Board is issuing this final to transition away 
from the qualitative objection under the capital plan rule towards 
greater reliance on the Board's general supervisory processes.
    The final rule would change the scope of firms with capital plans 
subject to potential objection by the Board under the capital plan rule 
for non-quantitative reasons. The capital plan rule applies to bank 
holding companies with total consolidated assets of $50 billion or 
more, any nonbank financial company supervised by the Board that 
becomes subject to the capital planning requirements pursuant to a rule 
or order of the Board, and to U.S. intermediate holding companies 
established pursuant to the Board's Regulation YY. This rule narrows 
the scope of banking organizations subject to potential objection of 
their capital plans by the Board under the capital plan rule. As a 
result, this rule does not apply to any small entities.
2. Significant Issues Raised by the Public Comments in Response to the 
IRFA and Comments Filed by the Chief Counsel for Advocacy of the Small 
Business Administration in Response to the Proposed Rule and Summary of 
Any Changes Made in the Proposed Rule as a Result of Such Comments
    Commenters did not raise any issues in response to the IRFA. The 
Chief Counsel for Advocacy of the Small Business Administration did not 
file any comments in response to the proposed rule.
3. Description and Estimate of the Number of Small Entities To Which 
the Final Rule Will Apply
    The Board estimates that approximately 18 banking organizations 
were subject to potential objection to their capital plans for non-
quantitative reasons prior to this rule. As a result of this rule, the 
Board estimates that approximately 6 banking organization will be 
subject to potential objection to their capital plans for non-
quantitative reasons. None of these banking organizations would qualify 
as a small banking entity for the purposes of the RFA.
4. Significant Alternatives to the Final Rule
    The Board does not believe that this final rule will have a 
significant negative economic impact on any small entities and 
therefore believes that there are no significant alternatives to the 
final rule that would reduce the impact on small entities.
5. Description of the Projected Reporting, Recordkeeping and Other 
Compliance Requirements of the Rule
    The Board does not believe that the final rule imposes any 
reporting, recordkeeping, or other compliance requirements.
6. Steps Taken To Minimize the Significant Economic Impact on Small 
Entities
    The Board does not believe that this final rule will have a 
significant economic impact on any small entities.

C. Plain Language

    Section 722 of the Gramm-Leach-Bliley Act requires the Federal 
banking agencies to use ``plain language'' in all proposed and final 
rules published after January 1, 2000. In light of this

[[Page 8958]]

requirement, the Board has sought to present the final rule in a simple 
and straightforward manner, and did not receive any comments on the use 
of plain language.

List of Subjects in 12 CFR Part 225

    Administrative practice and procedure, Banks, banking, Capital 
planning, Holding companies, Reporting and recordkeeping requirements 
Securities, Stress testing.

    Accordingly, the Board amends 12 CFR part 225 as follows:

PART 225--BANK HOLDING COMPANIES AND CHANGE IN BANK CONTROL 
(REGULATION Y)

0
1. The authority citation for part 225 continues to read as follows:

    Authority: 12 U.S.C. 1817(j)(13), 1818, 1828(o), 1831i, 1831p-1, 
1843(c)(8), 1844(b), 1972(1), 3106, 3108, 3310, 3331-3351, 3906, 
3907, and 3909; 15 U.S.C. 1681s, 1681w, 6801 and 6805.

Subpart A--General Provisions

0
2. Section 225.8 is amended by revising paragraph (f)(2)(ii)(B) to read 
as follows:


Sec.  225.8  Capital planning.

* * * * *
    (f) * * *
    (2) * * *
    (ii) * * *
    (B) Bank holding companies that are not large and noncomplex bank 
holding companies. The Board or the appropriate Reserve Bank with 
concurrence of the Board, may object to a capital plan submitted by a 
bank holding company that is not a large and noncomplex bank holding 
company if it determines that:
    (1) The bank holding company has not demonstrated an ability to 
maintain capital above each minimum regulatory capital ratio on a pro 
forma basis under expected and stressful conditions throughout the 
planning horizon; or
    (2) Until January 1, 2021, except as provided in paragraph 
(f)(2)(ii)(B)(3) of this section, for a bank holding company that was 
subject to this section as of January 1, 2019, but whose capital plan 
has not been subject to review and a potential qualitative objection 
under the criteria listed in paragraph (f)(2)(ii)(B)(2)(i) through 
(iii) of this section for any period of four consecutive years:
    (i) The bank holding company has material unresolved supervisory 
issues, including but not limited to issues associated with its capital 
adequacy process;
    (ii) The assumptions and analysis underlying the bank holding 
company's capital plan, or the bank holding company's methodologies and 
practices that support its capital planning process, are not reasonable 
or appropriate; or
    (iii) The bank holding company's capital planning process or 
proposed capital distributions otherwise constitute an unsafe or 
unsound practice, or would violate any law, regulation, Board order, 
directive, or condition imposed by, or written agreement with, the 
Board or the appropriate Reserve Bank. In determining whether a capital 
plan or any proposed capital distribution would constitute an unsafe or 
unsound practice, the Board or the appropriate Reserve Bank would 
consider whether the bank holding company is and would remain in sound 
financial condition after giving effect to the capital plan and all 
proposed capital distributions.
    (3) Notwithstanding paragraph (f)(2)(ii)(B)(2) of this section, a 
bank holding company that was subject to this section as of January 1, 
2019, and that receives a qualitative objection in the fourth year of 
the four-year period described in paragraph (f)(2)(ii)(B)(2), pursuant 
to the criteria in paragraph (f)(2)(ii)(B)(2)(i) through (iii) of this 
section, will remain subject to a qualitative objection under this 
section until January 1 of the year after the first year in which the 
bank holding company does not receive a qualitative objection.
* * * * *

    By order of the Board of Governors of the Federal Reserve 
System, March 6, 2019.
Margaret McCloskey Shanks,
Deputy Secretary of the Board.
[FR Doc. 2019-04515 Filed 3-12-19; 8:45 am]
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