[Federal Register Volume 85, Number 17 (Monday, January 27, 2020)]
[Rules and Regulations]
[Pages 4569-4579]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-28293]
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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. 85, No. 17 / Monday, January 27, 2020 / Rules
and Regulations
[[Page 4569]]
DEPARTMENT OF THE TREASURY
Office of the Comptroller of the Currency
12 CFR Part 3
[Docket ID OCC-2019-0001]
RIN 1557-AE60
FEDERAL RESERVE SYSTEM
12 CFR Part 217
[Docket ID R-1659]
RIN 7100-AF46
FEDERAL DEPOSIT INSURANCE CORPORATION
12 CFR Part 324
RIN 3064-AE81
Regulatory Capital Rule: Revisions to the Supplementary Leverage
Ratio To Exclude Certain Central Bank Deposits of Banking Organizations
Predominantly Engaged in Custody, Safekeeping, and Asset Servicing
Activities
AGENCY: The Office of the Comptroller of the Currency; the Board of
Governors of the Federal Reserve System; and the Federal Deposit
Insurance Corporation.
ACTION: Final rule.
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SUMMARY: The Office of the Comptroller of the Currency, Board of
Governors of the Federal Reserve System, and Federal Deposit Insurance
Corporation are issuing a final rule to implement section 402 of the
Economic Growth, Regulatory Relief, and Consumer Protection Act.
Section 402 directs these agencies to amend the regulatory capital rule
to exclude from the supplementary leverage ratio certain funds of
banking organizations deposited with central banks if the banking
organization is predominantly engaged in custody, safekeeping, and
asset servicing activities.
DATES: The rule is effective April 1, 2020.
FOR FURTHER INFORMATION CONTACT: OCC: Venus Fan, Risk Expert, or Guowei
Zhang, Risk Expert, Capital and Regulatory Policy, (202) 649-6370; or
Patricia Dalton, Director for Asset Management (202) 649-6401; or Rima
Kundnani, Attorney, or Christopher Rafferty, Attorney, Chief Counsel's
Office, (202) 649-5490; the Office of the Comptroller of the Currency,
400 7th Street SW, Washington, DC 20219.
Board: Constance M. Horsley, Deputy Associate Director, (202) 452-
5239; Teresa A. Scott, Manager, (202) 475-6316; Donald Gabbai, Lead
Financial Institution Policy Analyst, (202) 452-3358; Division of
Supervision and Regulation; or Benjamin W. McDonough, Assistant General
Counsel, (202) 452-2036; Mark Buresh, Senior Counsel, (202) 452-5270;
Mary Watkins, Senior Attorney, (202) 452-3722; Legal Division, Board of
Governors of the Federal Reserve System, 20th and C Streets NW,
Washington, DC 20551. For the hearing impaired only, Telecommunication
Device for the Deaf, (202) 263-4869.
FDIC: Benedetto Bosco, Chief, Capital Policy Section,
[email protected]; Noah Cuttler, Senior Policy Analyst,
[email protected]; Dushan Gorechan, Financial Analyst,
[email protected]; Keith Bergstresser, Capital Markets Policy Analyst,
[email protected]; or [email protected]; Capital Markets
Branch, Division of Risk Management Supervision, (202) 898-6888;
Michael Phillips, Counsel, [email protected]; Catherine Wood, Counsel,
[email protected]; Supervision Branch, Legal Division, Federal Deposit
Insurance Corporation, 550 17th Street NW, Washington, DC 20429.
SUPPLEMENTARY INFORMATION:
Table of Contents
I. Overview of the Proposal
II. Background
A. The Supplementary Leverage Ratio
B. Fiduciary, Custody, Safekeeping, and Asset Servicing
Activities
III. Discussion of the Comments and Final Rule
A. Scope of Applicability
1. Definition of Custodial Banking Organizations
2. Assets Under Custody to Total Assets Measure
3. Scope of Covered Entities
B. Mechanics of the Central Bank Deposit Exclusion
C. Central Bank Deposit Exclusion Limit
D. Regulatory Reporting Requirements
IV. OCC Statement Regarding Standalone Depository Institutions
V. Interaction of Section 402 With Other Rules
A. Total Loss-Absorbing Capacity
B. The Enhanced Supplementary Leverage Ratio and Other Comments
on the Proposal
VI. Impact Analysis
VII. Regulatory Analysis
A. Paperwork Reduction Act
B. Regulatory Flexibility Act Analysis
C. Plain Language
D. Riegle Community Development and Regulatory Improvement Act
of 1994
E. OCC Unfunded Mandates Reform Act of 1995 Determination
F. Congressional Review Act
I. Overview of the Proposal
In April 2019, the Office of the Comptroller of the Currency (OCC),
Board of Governors of the Federal Reserve System (Board), and Federal
Deposit Insurance Corporation (FDIC) (collectively, the agencies)
published a notice of proposed rulemaking (proposal) \1\ to implement
section 402 of the Economic Growth, Regulatory Relief, and Consumer
Protection Act (section 402).\2\
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\1\ 84 FR 18175 (April 30, 2019).
\2\ Public Law 115-174, 132 Stat. 1296 (2018), section 402.
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Section 402 requires the agencies to amend the supplementary
leverage ratio, a measure of capital adequacy that applies to large
banking organizations. Under section 402, the supplementary leverage
ratio must not take into account funds of a custodial bank that are
deposited with certain central banks, provided that any amount that
exceeds the value of deposits of the custodial bank that are linked to
fiduciary or custodial and safekeeping accounts must be taken into
account when calculating the supplementary leverage ratio as applied to
the custodial bank.\3\ Under section 402, central bank deposits that
qualify for the exclusion include deposits of custodial banks placed
with (1) the Federal Reserve System, (2) the European Central Bank, and
(3) central banks of member countries of the Organisation for Economic
Co-operation and
[[Page 4570]]
Development (OECD),\4\ if the member country has been assigned a zero
percent risk weight under the agencies' regulatory capital rule
(capital rule) and the sovereign debt of such member country is not in
default or has not been in default during the previous five years.\5\
Section 402 defines a custodial bank as ``any depository institution
holding company predominantly engaged in custody, safekeeping, and
asset servicing activities, including any insured depository
institution subsidiary of such a holding company.'' \6\
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\3\ Id. at 402(b)(2).
\4\ The OECD is an intergovernmental organization founded in
1961 to stimulate economic progress and global trade. A list of OECD
member countries is available on the OECD's website, www.oecd.org.
\5\ Public Law 115-174, section 402(a).
\6\ Id., at 402(b).
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The proposal would have implemented section 402 by defining the
scope of banking organizations considered to be predominantly engaged
in custody, safekeeping, and asset servicing activities and by
providing the standard by which such banking organizations would
determine the amount of central bank deposits that could be excluded
from total leverage exposure, which is the denominator of the
supplementary leverage ratio in the capital rule.
Under the proposal, a depository institution holding company with a
ratio of assets under custody (AUC)-to-total assets of at least 30:1
would have been considered predominantly engaged in custody,
safekeeping, and asset servicing activities. Such a banking
organization would have been termed a ``custodial banking
organization.'' A custodial banking organization would have excluded
from the supplementary leverage ratio deposits placed at a ``qualifying
central bank,'' which would have included a Federal Reserve Bank, the
European Central Bank, or any central bank of a member country of the
OECD if the member country meets certain criteria. The amount of
central bank deposits that could have been excluded from total leverage
exposure would have been limited by the amount of deposit liabilities
of the custodial banking organization that are linked to fiduciary or
custody and safekeeping accounts.
The agencies collectively received six comment letters on the
proposal (from banking organizations and other interested parties).
Some commenters were supportive of the agencies' proposal to implement
section 402. Other commenters acknowledged that the agencies are
required to implement section 402 but raised various concerns regarding
the potential effect that implementation of section 402 would have on
other aspects of the banking sector.
The agencies have considered all the comments received on the
proposal. As described in more detail below, the agencies are adopting
the proposal as a final rule without modification. The agencies are
required under section 402 to amend the capital rule to exclude from
the supplementary leverage ratio certain central bank deposits of
banking organizations predominantly engaged in custody, safekeeping,
and asset servicing activities. The agencies' adoption of the proposal
fulfills this statutory requirement. The final rule becomes effective
on April 1, 2020.
II. Background
A. The Supplementary Leverage Ratio
The supplementary leverage ratio measures tier 1 capital relative
to total leverage exposure, which includes on-balance sheet assets
(including deposits at central banks) and certain off-balance sheet
exposures.\7\ A minimum supplementary leverage ratio of 3 percent
applies to certain banking organizations and their depository
institution subsidiaries.\8\ In addition, banking organizations that
will be subject to Category I standards, which are the global
systemically important bank holding companies (U.S. GSIBs), as well as
their depository institution subsidiaries, are subject to enhanced
supplementary leverage ratio (eSLR) standards. The eSLR standards
require each U.S. GSIB to maintain a supplementary leverage ratio above
5 percent to avoid limitations on the firm's distributions and certain
discretionary bonus payments and also require each of its insured
depository institutions to maintain a supplementary leverage ratio of
at least 6 percent to be deemed ``well capitalized'' under the prompt
corrective action framework of each agency.\9\
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\7\ 12 CFR 3.10(a)(5) and (c)(4) (OCC); 12 CFR 217.10(a)(5) and
(c)(4) (Board); 12 CFR 324.10(a)(5) and (c)(4) (FDIC).
\8\ The agencies recently adopted final rules tailoring the
application of capital requirements, including the supplementary
leverage ratio, based on a banking organization's risk profile
(tailoring rules). See 84 FR 59230 (November 1, 2019), available at
https://www.federalreserve.gov/aboutthefed/boardmeetings/20191010open.htm. Under the tailoring rules, the minimum
supplementary leverage ratio requirement applies to banking
organizations subject to Category I, II, and III standards. The
tailoring rules will be effective December 31, 2019. Until the
tailoring rules are effective, the supplementary leverage ratio
applies to advanced approaches banking organizations.
\9\ See 79 FR 24528 (May 1, 2014). Under OCC and FDIC rules, a
depository institution that is a subsidiary of a bank holding
company with more than $700 billion in total consolidated assets or
more than $10 trillion in assets under custody is subject to the
eSLR standards. 12 CFR 6.4(c) (OCC); 12 CFR 324.403(b) (FDIC). Under
the Board's rule, a bank holding company that is a U.S. GSIB is
subject to the eSLR standards. See 12 CFR 217.11(d); 12 CFR part
217, subpart H.
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B. Fiduciary, Custody, Safekeeping, and Asset Servicing Activities
Certain banking organizations engage in fiduciary, custody,
safekeeping, and asset servicing activities. Custody, safekeeping, and
asset servicing activities generally involve holding securities or
other assets on behalf of clients, as well as activities such as
transaction settlement, income processing, and related record keeping
and operational services. A banking organization may also act as a
fiduciary by, for example, acting as trustee or executor, or by having
investment discretion over the management of client assets. Banking
organizations typically provide custody, safekeeping, and asset
servicing to their fiduciary accounts. While many banking organizations
offer some or all of these services, certain banking organizations
specialize in these activities and often do not provide the same range
or scale of traditional commercial or retail banking products as are
provided by other banking organizations.\10\
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\10\ See OCC Comptrollers Handbook, Custody Services (January
2002).
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Fiduciary and custody clients often maintain cash deposits at the
banking organization in connection with these services. Clients
typically maintain cash positions consisting of funds awaiting
investment or distribution that are often in the form of deposits
placed in banking organizations. These cash deposits help facilitate
the administration of the custody account. Under U.S. generally
accepted accounting principles (U.S. GAAP), cash deposits at a banking
organization are a deposit liability and thus appear on the banking
organization's balance sheet.
Cash deposits that are linked to custody and fiduciary accounts at
banking organizations fluctuate depending on the activities of the
banking organization's custodial clients. For example, cash deposit
balances of such banking organizations generally increase during
periods when clients liquidate securities, such as during times of
stress. To assist in managing these cash fluctuations, banking
organizations may maintain significant cash deposits at central banks.
Central bank deposits can be used as an asset-liability management
strategy to facilitate these banking organizations' ability to support
custodial clients' cash-related needs. Under U.S. GAAP,
[[Page 4571]]
central bank deposits placed by the banking organization are on-balance
sheet assets of the banking organization.
III. Discussion of the Comments and Final Rule
A. Scope of Applicability
1. Definition of Custodial Banking Organization
The proposal would have defined a depository institution holding
company predominantly engaged in custody, safekeeping, and asset
servicing activities, together with any subsidiary depository
institution, as a ``custodial banking organization.'' \11\ To qualify
as a custodial banking organization under the proposal, a depository
institution holding company would have been required to have a ratio of
AUC-to-total assets of at least 30:1, calculated as an average over the
prior four calendar quarters.
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\11\ The agencies note that the term ``custodial bank'' under
the FDIC's risk-based deposit insurance assessments serves a
separate purpose than the term ``custodial banking organization''
under this final rule. See 12 CFR 327.5(c). For assessment purposes,
the FDIC defines a custodial bank consistent with section 331 of the
Dodd-Frank Wall Street Reform and Consumer Protection Act, which
requires the FDIC to define a custodial bank based on factors
including the percentage of total revenues generated by custodial
businesses and the level of assets under custody.
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For the proposal, the agencies considered various measures that
they could use to identify and define a custodial banking organization.
As noted in the proposal, the agencies believe that the phrase
``predominantly engaged in custodial, safekeeping, and asset servicing
activities'' suggests that the banking organization's business model is
primarily focused on custody, safekeeping, and asset servicing
activities, as compared to its commercial lending, investment banking,
or other banking activities.\12\ Specifically, the agencies considered
both an AUC-to-total assets measure and an income-based measure to
implement section 402.\13\ AUC-to-total assets would provide a measure
of a banking organization's custody, safekeeping, and asset servicing
business relative to its other businesses. An income-based measure
would show the percentage of a banking organization's income that it
derives from custodial, safekeeping, and asset servicing activities. As
described in the proposal, the agencies' analysis on both measures
indicated a clear separation between The Bank of New York Mellon
Corporation, Northern Trust Corporation, and State Street Corporation,
and the other depository institution holding companies subject to the
supplementary leverage ratio.\14\ The agencies' analysis also revealed
a significant positive correlation between the AUC-to-total assets
measure and the income-based measure.\15\ The agencies proposed the
AUC-to-total assets measure to identify and define a custodial banking
organization because it appeared to function well and minimized burden
by relying on already reported data.
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\12\ See, e.g., 115 Cong. Rec. S1544 (Mar. 8, 2018) (statement
of Sen. Corker) (``Section 402 is not intended to provide relief to
an organization engaged in consumer banking, investment banking, or
other businesses, and that also happens to have some custodial
business or a banking subsidiary that engages in custodial
activities . . . section 402 was intended as a very narrowly
tailored provision, focused on true custodial banks.''); see also
H.R. Rep. No. 115-656, at 3-4 (2018) (``Banks that have a
predominant amount of businesses derived from custodial services are
different from banks that engage in a wide variety of banking
activities . . . .'').
\13\ The agencies also considered using an absolute amount
measure, but such a measure would only take the size of a banking
organization's custodial, safekeeping, and asset servicing
activities into account rather than considering the predominance of
these activities relative to the banking organization's other
activities.
\14\ See 84 FR 18175, 18179. The legislative history of section
402 suggests that members of Congress identified the same three
institutions as custodial banking organizations. See, e.g., 115
Cong. Rec. S1714 (Mar. 14, 2018) (statement of Sen. Warner)
(``Section 402 provides relief to only three banks: Bank of New York
Mellon, State Street, and Northern Trust . . . This provision does
not mean that, if a bank has a large custodial business, it should
get relief . . . .); 115 Cong Rec. S1659 (Mar. 13, 2018) (statement
of Sen. Heitkamp) (``Under the plain reading of [section 402], the
three custodial banking organizations are the only three
institutions that are predominantly engaged in the custody
business.'').
\15\ See 84 FR 18175, 18178.
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The agencies received several comments on the proposed definition
of a custodial banking organization. One commenter supported adoption
of the AUC-to-total assets measure under the proposal as a simple
assessment that is consistent with legislative intent, and did not
support the use of an income-based measure because it would increase
reporting burden. Another commenter, however, supported an income-based
measure to determine a custodial banking organization, arguing that an
income-based measure would be more accurate than an asset-based measure
in a stress environment.
While an income-based measure would show the percentage of a
banking organization's income that it derives from custodial,
safekeeping, and asset servicing activities, the agencies are concerned
that such an approach would increase reporting burden for banking
organizations subject to the supplementary leverage ratio, as banking
organizations do not currently report income from custodial,
safekeeping, and asset servicing activities separately from income
derived from fiduciary activities. In addition and as noted above, an
income-based measure likely would not result in a different outcome
than an asset-based measure, as the agencies' analysis revealed a
significant positive correlation between the AUC-to-total assets
measure and the income-based measure.
As noted in the proposal, an AUC-to-total assets measure provides a
metric for sizing a banking organization's custodial, safekeeping, and
asset servicing business as compared with its other activities. Such a
measure would compare assets held in custody--a major activity of
banking organizations primarily focused on custody, safekeeping, and
asset servicing activities--relative to on-balance sheet assets. The
measure is objective because AUC often comprises marketable securities
or other assets with widely quoted market values, and banking
organizations typically exercise little or no valuation discretion when
measuring AUC. In addition, the AUC-to-total assets measure is derived
from items that are publicly reported and is subject to review by
regulators, banking organizations, and the public.
For these reasons, the agencies are adopting as final the proposed
use of an AUC-to-total assets measure as the basis for defining a
custodial banking organization.
A commenter pointed out that the agencies omitted ``asset servicing
activities'' from the definitions of ``fiduciary or custodial and
safekeeping account'' and ``custodial banking organization'' in several
parts of the proposal. Section 402 defines ``custodial bank'' as a
``depository institution holding company predominantly engaged in
custody, safekeeping, and asset servicing activities.'' In contrast
with the term ``custodial banking organization'' in section 402, the
statute uses the term ``fiduciary or custodial and safekeeping
account'' to describe the limit on the exclusion of deposits at
qualifying central banks and does not include ``asset servicing
activities'' in this context. Accordingly, the final rule does not use
the phrase ``asset servicing activities'' in the context of the
exclusion.
2. Assets Under Custody to Total Assets Measure
In defining a custodial banking organization, the proposal would
have set a threshold for the AUC-to-total assets ratio at 30:1. This
threshold represents the midpoint between the lowest AUC-to-total
assets measure of
[[Page 4572]]
banking organizations that are subject to the supplementary leverage
ratio and that specialize in providing custody, safekeeping, and asset
servicing services between second quarter of 2016 through the third
quarter of 2018 (52:1) and the highest such measure experienced by
other banking organizations subject to the supplementary leverage ratio
(9:1) over the same period. This amount also takes into account
potential changes in such banking organizations' ratio of AUC-to-total
assets during a stress environment. As noted in the proposal, the
agencies recognize that a banking organization's ratio of AUC-to-total
assets may fluctuate significantly during a stress environment as
client securities decline in value or as clients liquidate custodial
securities and deposit the cash with the banking organization (thus
increasing the banking organization's total assets). Among The Bank of
New York Mellon, Northern Trust Corporation, and State Street
Corporation, the lowest AUC-to-total assets ratio observed during the
period from the second quarter of 2016 through the third quarter of
2018 was approximately 52:1.\16\ This means that the banking
organization had approximately $52 in AUC for every $1 recognized in
their total on-balance sheet assets. In comparison, among the other
depository institution holding companies subject to the supplementary
leverage ratio, the highest AUC-to-total assets ratio observed during
that same period was approximately 9:1. An AUC-to-total assets ratio of
30:1 is also less than the minimum estimated ratio for The Bank of New
York Mellon, Northern Trust Corporation, and State Street Corporation
(35:1) over the period from 2004 through the third quarter of 2018,
which includes the 2007-2009 financial crisis.\17\
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\16\ Banking organizations report AUC on the FR Form Y-15,
Schedule C, Item 3, and banking organizations report total
consolidated assets on the FR Form Y-9C, Schedule HC, Item 12.
Quarterly reporting of the FR Y-15 became effective starting with
the June 30, 2016 date.
\17\ The agencies reviewed insured depository institution-level
data from the Consolidated Reports of Condition and Income (Call
Report) to approximate the holding company-level AUC-to-total assets
ratios of advanced approaches banking organizations during the
financial crisis, because banking organizations began reporting FR
Y-15 in 2015. Information regarding AUC was derived from Call
Report, Schedule RC-T, Items 10 and 11, Columns A (managed assets)
and B (non-managed assets), and was used as a proxy for AUC at the
holding company level, as most custodial services are conducted out
of insured depository institution subsidiaries.
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The proposal also incorporated use of a four-quarter average for
the AUC-to-total assets measure. This approach would further minimize
the effect of significant fluctuations in a banking organization's AUC-
to-total assets ratio, which is a particular concern under stress
conditions. The 30:1 AUC-to-total assets measure also would limit the
potential for a banking organization subject to the supplementary
leverage ratio that does not predominantly engage in custody,
safekeeping, and asset servicing activities, as compared to its other
activities, to qualify as a custodial banking organization. The
agencies did not receive comments on the proposed threshold. In
addition, expanding the analysis to include the first and second
quarters of 2019 produces the same range of AUC-to-total assets ratios.
For the reasons provided above, the agencies are adopting as final the
proposed threshold of 30:1 for the AUC-to-total assets measure.
3. Scope of Covered Entities
Under the proposal, any subsidiary depository institution of a U.S.
top-tier depository institution holding company that qualifies as a
custodial banking organization also would be a custodial banking
organization and therefore could exclude from total leverage exposure
all deposits with a qualifying central bank that are recognized on its
consolidated balance sheet in the same manner as its parent depository
institution holding company.\18\ In other words, the proposal would not
have required such a subsidiary depository institution to satisfy
separately a ratio of AUC-to-total assets to be able to make this
exclusion. The agencies believe this approach is both simple and
consistent with section 402, which defines a ``custodial bank'' based
on the characteristics of the holding company and provides that such a
subsidiary depository institution may also exclude deposits at
qualifying central banks from its supplementary leverage ratio, to the
extent that these deposits do not exceed deposit liabilities of the
banking organization that are linked to fiduciary or custodial and
safekeeping accounts.
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\18\ This rule applies to all depository institution
subsidiaries of a custodial banking organization holding company,
including uninsured national banks and Federal savings associations.
However, the final rule does not apply to Federal branches and
agencies supervised by the OCC.
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The agencies also sought comment on whether to expand the scope of
application and definition of custodial banking organization to include
a depository institution that is not controlled by a holding company
and that has a ratio of AUC-to-total assets of at least 30:1.\19\ The
agencies did not receive any comments on this issue. Accordingly, the
scope of application and definition of custodial banking organization
are adopted in this final rule as proposed.
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\19\ See 84 FR 18175, 18180 (April 30, 2019) for the agencies'
description of this proposed addition to the rule, and request for
comment.
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B. Mechanics of the Central Bank Deposit Exclusion
Under the proposal, the amount of central bank deposits eligible
for exclusion from total leverage exposure would have equaled the
average daily balance over the reporting quarter of all deposits placed
with a ``qualifying central bank.'' Under the proposal, and consistent
with section 402, a qualifying central bank would have meant a Federal
Reserve Bank, the European Central Bank, or a central bank of a member
country of the OECD if an exposure to the member country receives a
zero percent risk weight under section 32 of the capital rule and the
sovereign debt of such member country is not in default or has not been
in default during the previous five years.\20\ The proposal would have
calculated the exclusion amount based on the average daily balance of
deposits with a qualifying central bank over the reporting quarter to
align with the calculation of on-balance sheet assets in total leverage
exposure.\21\
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\20\ Under section 32 of the capital rule, an exposure to a
member country that qualifies for a zero percent risk weight cannot
also be in default or have been in default during the previous five
years. The agencies included this latter provision in the proposal,
however, for clarity and to align with section 402. 12 CFR 3.32(a)
(OCC); 12 CFR 217.32(a) (Board); 12 CFR 324.32(a) (FDIC).
\21\ 12 CFR 3.10(c)(4)(i)(A) (OCC); 12 CFR 217.10(c)(4)(i)(A)
(Board); 12 CFR 324.10(c)(4)(i)(A) (FDIC).
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The agencies did not receive any comments addressing the mechanics
of the central bank deposit exclusion. One commenter stated that
custodial banking organizations should be permitted to distribute
profits received from interest earned on excess reserves. The agencies
note that this rulemaking does not affect the types of deposits that a
bank may have with a Federal Reserve Bank, or the interest paid on
those deposits.
In addition, as discussed in the Supplementary Information to the
proposal, all deposits placed with a Federal Reserve Bank qualify for
the rule's central bank deposit exclusion, including deposits in a
master account, deposits in a term deposit account that offers an early
withdrawal feature, and deposits in an excess balance account.\22\ Any
deposits with a qualifying central bank denominated in a foreign
currency should be measured in U.S. dollars to determine the amount of
the deposits that can be excluded from total leverage
[[Page 4573]]
exposure. Similarly, central bank deposits recognized on the
consolidated balance sheet of a custodial banking organization may
include cash placements with a central bank made by a foreign bank
subsidiary. Although a foreign bank subsidiary itself will not be a
custodial banking organization, any qualifying central bank deposits of
the foreign bank subsidiary may be excluded from total leverage
exposure of the parent organization to the extent that the central bank
deposits are consolidated on the balance sheet of the parent
organization and have satisfied the requirements for a qualifying
central bank deposit.
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\22\ 84 FR 18175, 18180 (April 30, 2019).
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The agencies are adopting as final the proposed mechanics of the
central bank deposit exclusion.
C. Central Bank Deposit Exclusion Limit
Consistent with section 402, the proposal would have limited the
amount of a custodial banking organization's deposits with a qualifying
central bank that could have been excluded from total leverage
exposure. In particular, the amount of such deposits that could have
been excluded could not have exceeded an amount equal to the on-
balance-sheet deposit liabilities of the custodial banking organization
that were linked to fiduciary or custody and safekeeping accounts.
After considering the comments discussed below, the agencies are
adopting this aspect of the proposal without change.
The proposal would have defined a fiduciary or custodial and
safekeeping account as an account administered by a custodial banking
organization for which the custodial banking organization provides
fiduciary or custodial and safekeeping services, as authorized by
applicable federal and state law. Under the proposal, a deposit account
would have been considered linked to a fiduciary or custodial and
safekeeping account if the deposit account is used to facilitate the
administration of the fiduciary or custody and safekeeping account.
The agencies sought comment on the advantages and disadvantages of
using the FDIC exclusion limit or the reporting instructions to
Schedule RC-O of the Call Report for purposes of determining linkage
between a deposit account and a fiduciary or custody and safekeeping
account to calculate the limit on the amount of deposits that could be
excluded from total leverage exposure. In particular, the proposal
noted that the asset exclusion limit for ``custodial banks'' provided
under the FDIC's regulations for purposes of determining risk-based
deposit insurance assessments (FDIC exclusion limit) includes the
concept of a ``linked'' deposit and that the Call Report collects
information related to such linked deposits on Schedule RC-O.\23\ In
addition, the agencies sought comment on whether the proposed
definition of fiduciary or custody and safekeeping account should
explicitly reference the reporting instructions under Schedule RC-T.
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\23\ See 12 CFR 327.5(c) (Assessment base for custodial banks)
and FFIEC 031 and FFIEC 041 Instructions, Schedule RC-O, Item No.
11.b., Custodial bank deduction limit (``An institution that meets
the definition of custodial bank is eligible to have the FDIC deduct
certain assets from its assessment base, subject to a limit . . .
which equals the average amount of the institution's transaction
account deposit liabilities identified by the institution as being
directly linked to a fiduciary, custodial, or safekeeping account
reported in Schedule RC-T--Fiduciary and Related Services. The
titling of a transaction account or specific references in the
deposit account documents should clearly demonstrate the link
between the transaction account and a fiduciary, custodial, or
safekeeping account.''), available at www.ffiec.gov.
---------------------------------------------------------------------------
One commenter supported defining the scope of fiduciary or
custodial and safekeeping accounts in a manner that does not deviate
materially from the current scope of fiduciary and custody and
safekeeping accounts reported under schedule RC-T of the Call Report.
To mitigate additional compliance obligations for the purpose of
section 402, the commenter supported using the FDIC exclusion limit and
reporting instructions in Schedule RC-O to determine whether a deposit
account is linked to a fiduciary or custodial and safekeeping account.
The agencies are adopting as final the proposed definition of
fiduciary or custodial and safekeeping accounts. As noted in the
proposal, the agencies anticipate that the scope of the fiduciary or
custodial and safekeeping accounts under the rule should not deviate
materially from the current scope of the fiduciary and custody and
safekeeping accounts reported under Schedule RC-T of the Call Report.
However, the agencies are clarifying that because this final rule
applies to both custodial banking organization holding companies and
custodial banking organization subsidiary depository institutions, and
because holding companies do not report Schedule RC-T of the Call
Report, the agencies are not referring directly to schedule RC-T for
the scope of fiduciary or custodial and safekeeping accounts.
The agencies are clarifying that the existing FDIC exclusion limit
and the reporting instructions to Schedule RC-O are factors that a
banking organization may take into account to determine linkage between
a deposit account and a fiduciary or custody and safekeeping account.
However, the agencies are not directly defining the linkage standard in
the final rule by reference to the FDIC exclusion limit or Schedule RC-
O.
The FDIC exclusion limit and the reporting instructions to Schedule
RC-O were designed for the purpose of determining risk-based deposit
insurance assessments for insured depository institutions. In addition,
the FDIC exclusion limit and reporting instructions in Schedule RC-O
were designed to limit the custodial bank deduction to transaction
account deposit liabilities and therefore Schedule RC-O would not
capture non-transaction account deposit liabilities.\24\ In contrast to
the FDIC exclusion limit, this final rule applies to both custodial
banking organization holding companies and custodial banking
organization subsidiary depository institutions; uses a different
standard to define a custodial banking organization; and applies only
to custodial banking organizations that are subject to the
supplementary leverage ratio. The agencies believe that not directly
defining the linkage standard by reference to schedule RC-O and the
FDIC exclusion limit is appropriate in light of the purpose served by
section 402 (that is, prudential regulation of custodial banking
organizations' regulatory capital) as compared to deposit insurance
assessments, and because section 402 applies to a narrow set of the
largest banking organizations (that is, banking organizations that
qualify as custodial banking organizations that are subject to the
supplementary leverage ratio). In light of these differences, the
agencies are adopting as final the proposal's provision that a deposit
account is considered linked to a fiduciary or custodial and
safekeeping account if the deposit account is used to facilitate the
administration of the fiduciary or custody and safekeeping account.
---------------------------------------------------------------------------
\24\ 76 FR 10680 (February 25, 2011) (FDIC assessments
regulation).
---------------------------------------------------------------------------
The fact that a client has both a deposit account and a fiduciary
or custody and safekeeping account at the same custodial banking
organization, or an affiliate or subsidiary of such custodial banking
organization, would not by itself be sufficient for those accounts to
be considered ``linked'' for purposes of the final rule. On the other
hand, cash deposits may be used to facilitate the administration of a
custody or fiduciary account, such as holding interest and dividend
payments related to securities held in the custody or
[[Page 4574]]
fiduciary account; cash transfers or distributions from the custody or
fiduciary account; and the purchases and sale of securities for the
account. Deposit accounts used in these ways would be considered linked
for purposes of the final rule.
Consistent with section 402, under the final rule, a custodial
banking organization may exclude from total leverage exposure the
lesser of (1) the amount of central bank deposits placed at qualifying
central banks by the custodial banking organization (including deposits
placed by consolidated subsidiaries), and (2) the amount of on-balance
sheet deposit liabilities of the custodial banking organization
(including consolidated subsidiaries) that are linked to fiduciary or
custodial and safekeeping accounts.\25\
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\25\ The final rule does not affect the calculation of the size
indicator under the Board's Banking Organization Systemic Risk
Report (FR Y-15).
---------------------------------------------------------------------------
One commenter asked the agencies to clarify that the calculation of
the central bank exclusion limit must be done on a quarterly basis,
consistent with the calculations required under Schedule RC-T and RC-
O.\26\ In calculating the central bank exclusion limit, a custodial
banking organization should calculate the amount of deposit liabilities
linked to a fiduciary or custody and safekeeping account as the average
deposit liabilities for such accounts, calculated as of each day of the
reporting quarter. This approach is consistent with the calculation of
on-balance sheet assets for purposes of the supplementary leverage
ratio.
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\26\ While the custodial bank deduction limit in item 11.b. of
Schedule RC-O is reported on a quarterly basis, the limit is based
on an average that is calculated on a daily or weekly basis.
---------------------------------------------------------------------------
D. Regulatory Reporting Requirements
Banking organizations report their supplementary leverage ratios on
FFIEC Form 101, Schedule A and Form Y-9C, Schedule HC-R, and Call
Reports, Schedule RC-R. The agencies recently proposed modifications to
the regulatory reporting requirements for the supplementary leverage
ratio in a separate publication in the Federal Register to reflect the
implementation of the central bank deposit exclusion described in this
final rule.\27\ The agencies' adoption of these regulatory reporting
requirements would fulfill the disclosure requirements for purposes of
the capital rule.\28\ In particular, custodial banking organizations
subject to the supplementary leverage ratio would be subject to the
corresponding disclosure requirements in section 173, and would exclude
qualifying central bank deposits from total leverage exposure as
reported under section 173.
---------------------------------------------------------------------------
\27\ 84 FR 53227 (October 4, 2019).
\28\ See 12 CFR 3.173 (OCC); 12 CFR 217.173 (Board); 12 CFR
324.173 (FDIC).
---------------------------------------------------------------------------
IV. OCC Statement Regarding Standalone Depository Institutions
As discussed in section III, the agencies sought comment on whether
to expand the scope of application and definition of ``custodial
banking organization'' to include a depository institution that is not
controlled by a holding company and that has a ratio of AUC-to-total
assets of at least 30:1. For the reasons stated in the proposal,\29\
the OCC is considering this question for a future rulemaking.
---------------------------------------------------------------------------
\29\ See 84 FR 18175, 18180 (April 30, 2019) for the agencies'
description of this proposed addition to the rule and request for
comment. As discussed previously, the agencies received no comments
on this issue.
---------------------------------------------------------------------------
V. Interaction of Section 402 With Other Rules
A. Total Loss-Absorbing Capacity
Under the Board's total loss-absorbing capacity (TLAC) rule, a
covered company is subject to requirements that, in part, rely on the
covered company's total leverage exposure.\30\ Thus, changes to the
calculation of total leverage exposure under this final rule could
affect the amount of eligible external TLAC required to be held by a
covered company that is also a custodial banking organization. Under
the proposal, the revised definition of total leverage exposure for
custodial banking organizations would also apply for purposes of the
TLAC rule.
---------------------------------------------------------------------------
\30\ 12 CFR 252.60 through 252.65; 12 CFR 252.160 through
252.167.
---------------------------------------------------------------------------
Some commenters stated that the definition of total leverage
exposure should be consistent across the supplementary leverage ratio
and TLAC requirements. The commenters asserted that inconsistent
treatment across the supplementary leverage ratio and TLAC requirements
would be in tension with the legislative intent of section 402.
Commenters stated that including central bank deposits in TLAC for
custodial banking organizations could undermine the ability for such
deposits to serve as a safe store of value for client cash during a
stress event. In addition, commenters asserted that there is no
compelling policy rationale for requiring a banking organization to
include in TLAC an asset for which there is no corresponding capital
requirement under the supplementary leverage ratio. Commenters also
stated that the use of different measures for the supplementary
leverage ratio and TLAC rule would increase complexity for bank capital
allocation without improving risk assessment, because the differences
between the measures would only reflect the amount of central bank
placements.
The agencies are adopting as final the proposed treatment of total
leverage exposure. This treatment will align the TLAC rule with the
supplementary leverage ratio and reduce burden by not requiring
separate calculations for total leverage exposure under each of the
TLAC rule and the supplementary leverage ratio.
B. The Enhanced Supplementary Leverage Ratio and Other Comments on the
Proposal
Several commenters acknowledged that the agencies are required to
implement section 402 but raised various concerns regarding the
potential effect that implementation of section 402 could have on other
aspects of the banking sector. Two commenters raised concerns that
implementation of section 402 would lead to a market concentration in
custody services and provide custodial banking organizations with a
competitive advantage relative to banking organizations that are
subject to the supplementary leverage ratio but are not eligible to
exclude central bank deposits. To help mitigate these concerns, these
commenters urged for finalization of the proposal to recalibrate the
eSLR standards issued by the Board and OCC.\31\
---------------------------------------------------------------------------
\31\ 83 FR 17317 (April 19, 2018).
---------------------------------------------------------------------------
The agencies did not propose recalibrating the eSLR standards as
part of this rulemaking. Therefore, the agencies view comments on the
eSLR standards as outside the scope of this rulemaking. Another
commenter noted that while the agencies are required to implement
section 402, the agencies are not prevented from using other
authorities to counteract the potential effects of section 402 through
making changes to other parts of the capital rule. As noted above, the
proposal was designed to implement section 402, and the agencies did
not seek comment on other changes. Changes to the capital rule that do
not address the supplementary leverage ratio are outside of the scope
of this rulemaking, but may be considered by the agencies in subsequent
rulemakings.
VI. Impact Analysis
Under the final rule, a top-tier U.S. depository institution
holding company that qualifies as a custodial banking organization, and
any of its depository institution subsidiaries, will be able to exclude
certain central bank deposits
[[Page 4575]]
from total leverage exposure, subject to limits as described above. For
custodial banking organization holding companies and their lead
depository institution subsidiaries, the agencies estimate that central
bank deposits eligible for exclusion represent between 20 and 28
percent of their total leverage exposure.\32\ Based on an exclusion of
this amount from each of these banking organization's total leverage
exposure, the final rule may result in an estimated decrease in the
amount of tier 1 capital required by the supplementary leverage ratio
of approximately $8 billion in aggregate across the top-tier U.S.
depository institution holding companies and approximately $8 billion
in aggregate across their lead depository institution subsidiaries.\33\
However, this estimate relates solely to the supplementary leverage
ratio and does not take into account any other applicable capital
constraints that would prevent a decrease in tier 1 capital. Rather,
the binding capital requirement for a given banking organization is the
capital requirement that requires the highest amount of regulatory
capital.\34\ Holding companies are subject to leverage, risk-based, and
post-stress capital requirements, and only one of these requirements
binds an individual holding company at any given time.\35\ Similarly,
only one of the applicable leverage and risk-based capital requirements
binds a depository institution at any given time.\36\ The risk profile
and the capital requirements for the activities and exposures of a
banking organization determine which capital requirement is binding.
---------------------------------------------------------------------------
\32\ Analysis reflects data from the Consolidated Financial
Statements for Holding Companies (FR Y-9C), the Consolidated Reports
of Condition and Income for a Bank with Domestic and Foreign Offices
(FFIEC 031), the Regulatory Capital Reporting for Institutions
Subject to the Advanced Capital Adequacy Framework (FFIEC 101), as
reported by The Bank of New York Mellon Corporation, Northern Trust
Corporation, and State Street Corporation and their depository
institution subsidiaries as of third quarter 2018, as well as data
from the 2018 Comprehensive Capital Analysis and Review and
confidential information on central bank deposits as of third
quarter 2018 collected through the supervisory process. The
reporting period of 2018 was chosen in the final rule for
consistency and comparability of the impact analysis with the
proposed rule.
\33\ Because The Bank of New York Mellon Corporation and State
Street Corporation are each U.S. GSIBs, the amount of tier 1 capital
required to meet regulatory minimums and avoid limitations on
capital distributions is based on a 5 percent minimum supplementary
leverage ratio requirement at the holding company level and a 6
percent minimum supplementary leverage ratio requirement at the
depository institution subsidiary level. Because Northern Trust
Corporation is not a U.S. GSIB, its required amount of tier 1
capital is based on a 3 percent supplementary leverage ratio
requirement at both the holding company and depository institution
subsidiary levels.
\34\ For purposes of this analysis, a capital requirement is
considered binding at the level that it would impose restrictions on
the ability of a banking organization to make capital distributions
or if the banking organization would no longer be considered ``well
capitalized'' under the agencies' prompt corrective action
framework.
\35\ The Board's capital plan rule requires certain large bank
holding companies, including the U.S. GSIBs, to hold capital in
excess of the minimum capital ratios by requiring them to
demonstrate the ability to satisfy the capital requirements,
including the supplementary leverage ratio, under stressful
conditions. 12 CFR 225.8(e)(2).
\36\ Depository institutions are not subject to post-stress
capital requirements.
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Thus, the final rule would reduce the amount of tier 1 capital that
must be maintained by a custodial banking organization holding company
only if the supplementary leverage ratio currently serves as the
binding capital requirement for the banking organization.\37\ Data from
the third quarter of 2018 shows that top-tier U.S. depository
institution holding companies that are expected to qualify as custodial
banking organizations currently are bound by post-stress capital
requirements. The risk-based capital standards applicable to these
organizations also require a higher amount of tier 1 capital than the
amount of tier 1 capital that would be required under the final rule
for purposes of the supplementary leverage ratio. Therefore, the final
rule is not expected to decrease the amount of tier 1 capital
maintained by such holding companies.
---------------------------------------------------------------------------
\37\ The findings set forth in this impact analysis with respect
to the release of capital pertain only to the revisions under this
rule, and do not consider the capital impact of anticipated or
potential future changes to the capital rule.
---------------------------------------------------------------------------
The supplementary leverage ratio as of the third quarter 2018
serves as the binding constraint for two depository institution
subsidiaries of custodial banking organization holding companies.
Accordingly, under the final rule, the amount of tier 1 capital
required of those institutions to the supplementary leverage ratio will
decrease by approximately $7 billion, which represents approximately 23
percent of the total amount of tier 1 capital that must be maintained
by those institutions as of the third quarter 2018. As described above,
given the applicable capital requirements for parent holding companies
of these depository institutions, the final rule is not expected to
decrease the amount of tier 1 capital maintained by such holding
companies.
One commenter expressed concern that the rule might allow custodial
banking organizations to reduce the amount of tier 1 capital and urged
the agencies to use other authorities to offset the potential capital
impact. As described above, the capital standards and other constraints
applicable at the custodial banking organization holding company level
are expected to limit the amount of capital that such a holding company
could distribute outside of the consolidated organization, thus
limiting any safety and soundness or financial stability concerns for
the holding company as a whole due to reduced requirements at the
depository institution level. In addition, the agencies have regulatory
and supervisory tools to ensure that depository institutions and
holding companies maintain appropriate amounts of capital for their
operations and risk profile.
VII. Regulatory Analyses
A. Paperwork Reduction Act
The agencies' capital rule contains ``collections of information''
within the meaning of the Paperwork Reduction Act (PRA) of 1995 (44
U.S.C. 3501-3521). In accordance with the requirements of the PRA, the
agencies may not conduct or sponsor, and the 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 for the OCC is 1557-0318, Board is 7100-0313, and FDIC
is 3064-0153. The information collections that are part of the
agencies' capital rule will not be affected by this final rule and
therefore no final submissions will be made by the FDIC or OCC to OMB
under section 3507(d) of the PRA (44 U.S.C. 3507(d)) and Sec. 1320.11
of the OMB's implementing regulations (5 CFR part 1320) in connection
with this rulemaking.
Related to the final rule, there are required changes to the
Consolidated Reports of Condition and Income (Call Reports) (FFIEC 031,
FFIEC 041, and FFIEC 051), the Regulatory Capital Reporting for
Institutions Subject to the Advanced Capital Adequacy Framework (FFIEC
101), and the Consolidated Financial Statements for Holding Companies
(FR Y-9C; OMB No. 7100-0128 (Board)), which will be addressed through
one or more separate Federal Register notices.\38\
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\38\ See 84 FR 53227 (October 4, 2019).
---------------------------------------------------------------------------
B. Regulatory Flexibility Act Analysis
OCC: The Regulatory Flexibility Act, 5 U.S.C. 601 et seq., (RFA),
requires an agency, in connection with a proposed rule, to prepare an
Initial Regulatory Flexibility Analysis describing the impact of the
rule on small entities (defined by the Small Business
[[Page 4576]]
Administration (SBA) for purposes of the RFA to include commercial
banks and savings institutions with total assets of $600 million or
less and trust companies with total revenue of $41.5 million or less)
or to certify that the proposed rule would not have a significant
economic impact on a substantial number of small entities. As of
December 31, 2018, the OCC supervised 782 small entities. The rule
would impose requirements on four OCC supervised entities that are
subject to the advanced approaches risk-based capital rule, which
typically have assets in excess of $250 billion, and therefore would
not be small entities. Therefore, the OCC certifies that the final rule
would not have a significant economic impact on a substantial number of
OCC-supervised small entities.
Board: An initial regulatory flexibility analysis (IRFA) was
included in the proposal in accordance with section 603(a) of the
Regulatory Flexibility Act (RFA), 5 U.S.C. 601 et seq. (RFA). In the
IRFA, the Board requested comment on the effect of the proposed rule on
small entities and on any significant alternatives that would reduce
the regulatory burden on small entities. The Board did not receive any
comments on the IRFA. The RFA requires an agency to prepare a final
regulatory flexibility analysis unless the agency certifies that the
rule will not, if promulgated, have a significant economic impact on a
substantial number of small entities. Based on its analysis, and for
the reasons stated below, the Board certifies that the rule will not
have a significant economic impact on a substantial number of small
entities.\39\
---------------------------------------------------------------------------
\39\ 5 U.S.C. 605(b).
---------------------------------------------------------------------------
Under regulations issued by the Small Business Administration, a
small entity includes a bank, bank holding company, or savings and loan
holding company with assets of $600 million or less and trust companies
with total assets of $41.5 million or less (small banking
organization).\40\ On average since the second quarter of 2018, there
were approximately 2,976 small bank holding companies, 133 small
savings and loan holding companies, 70 small state member banks and no
small trust companies.
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\40\ See 13 CFR 121.201. Effective August 19, 2019, the Small
Business Administration revised the size standards for banking
organizations to $600 million in assets from $550 million in assets.
84 FR 34261 (July 18, 2019). Consistent with the General Principles
of Affiliation 13 CFR 121.103, Board counts the assets of all
domestic and foreign affiliates when determining if the Board should
classify a Board-supervised institution as a small entity.
---------------------------------------------------------------------------
As discussed in the Supplementary Information section, the final
rule revises the capital rule to implement section 402 of EGRRCPA.
Specifically, the final rule allows custodial banking organization to
exclude from the denominator of the supplementary leverage ratio
certain funds of the banking organization that are deposited with
central banks. The supplementary leverage ratio applies only to
advanced approaches banking organizations, which are very large banking
organizations and their depository institution subsidiaries regardless
of size.\41\ Therefore, the final rule is not expected to apply to a
substantial number of small entities.\42\ The Board does not expect
that the final rule will result in a material change in the level of
capital maintained by small banking organizations or in the compliance
burden on small banking organizations. For these reasons, the Board
does not expect the rule to have a significant economic impact on a
substantial number of small entities.
---------------------------------------------------------------------------
\41\ See 12 CFR 217.100.
\42\ To the extent any small entities are subject to the final
rule, they will be small subsidiaries within large organizations and
would be expected to rely on their parent banking organizations
rather than bearing material costs in connection with the final
rule.
---------------------------------------------------------------------------
FDIC: The Regulatory Flexibility Act (RFA), 5 U.S.C. 601 et seq.,
generally requires an agency, in connection with a final rule, to
prepare and make available for public comment a final regulatory
flexibility analysis that describes the impact of a final rule on small
entities.\43\ However, a regulatory flexibility analysis is not
required if the agency certifies that the rule will not have a
significant economic impact on a substantial number of small entities.
The Small Business Administration (SBA) has defined ``small entities''
to include banking organizations with total assets of less than or
equal to $600 million if they are either independently owned and
operated or owned by a holding company that also has less than $600
million in total assets.\44\
---------------------------------------------------------------------------
\43\ 5 U.S.C. 601 et seq.
\44\ The SBA defines a small banking organization as having $600
million or less in assets, where an organization's ``assets are
determined by averaging the assets reported on its four quarterly
financial statements for the preceding year.'' See 13 CFR 121.201
(as amended by 84 FR 34261, effective August 19, 2019). In its
determination, the ``SBA counts the receipts, employees, or other
measure of size of the concern whose size is at issue and all of its
domestic and foreign affiliates.'' See 13 CFR 121.103. Following
these regulations, the FDIC uses a covered entity's affiliated and
acquired assets, averaged over the preceding four quarters, to
determine whether the covered entity is ``small'' for the purposes
of RFA.
---------------------------------------------------------------------------
As of June 30, 2019, there were 3,424 FDIC-supervised institutions,
of which 2,665 are considered small entities for the purposes of RFA.
These small entities hold $514 billion in assets, accounting for 16.6
percent of total assets held by FDIC-supervised institutions.\45\
---------------------------------------------------------------------------
\45\ FDIC Call Report, June 30, 2019.
---------------------------------------------------------------------------
The final rule applies to only three advanced approaches banking
organizations, one of which has an IDI subsidiary that is FDIC-
supervised and has less than $600 million in total assets.\46\ However,
that institution is not a small entity for the purposes of RFA since it
is owned by a holding company with over $600 million in total assets.
Since this final rule does not affect any FDIC-supervised institutions
that are defined as small entities for the purposes of the RFA, the
FDIC certifies that the rule will not have a significant economic
impact on a substantial number of small entities.
---------------------------------------------------------------------------
\46\ Id.
---------------------------------------------------------------------------
C. Plain Language
Section 722 of the Gramm-Leach-Bliley Act \47\ requires the Federal
banking agencies to use plain language in all proposed and final rules
published after January 1, 2000. The agencies sought to present the
final rule in a simple and straightforward manner, and did not receive
any comments on the use of plain language.
---------------------------------------------------------------------------
\47\ Public Law 106-102, section 722, 113 Stat. 1338, 1471
(1999).
---------------------------------------------------------------------------
D. Riegle Community Development and Regulatory Improvement Act of 1994
Pursuant to section 302(a) of the Riegle Community Development and
Regulatory Improvement Act (RCDRIA),\48\ in determining the effective
date and administrative compliance requirements for new regulations
that impose additional reporting, disclosure, or other requirements on
IDIs, each Federal banking agency must consider, consistent with
principles of safety and soundness and the public interest, any
administrative burdens that such regulations would place on depository
institutions, including small depository institutions, and clients of
depository institutions, as well as the benefits of such regulations.
In addition, section 302(b) of RCDRIA requires new regulations and
amendments to regulations that impose additional reporting,
disclosures, or other new requirements on IDIs generally to take effect
on the first day of a calendar quarter that begins on or after the date
on which the regulations are published in final form.\49\
---------------------------------------------------------------------------
\48\ 12 U.S.C. 4802(a).
\49\ 12 U.S.C. 4802.
---------------------------------------------------------------------------
The agencies considered the administrative burdens and benefits of
the rule in determining its effective date
[[Page 4577]]
and administrative compliance requirements. As such, the final rule
will be effective on April 1, 2020.
E. OCC Unfunded Mandates Reform Act of 1995 Determination
The OCC has analyzed the final rule under the factors in the
Unfunded Mandates Reform Act of 1995 (UMRA).\50\ Under this analysis,
the OCC considered whether the final rule includes a Federal mandate
that may result in the expenditure by State, local, and tribal
governments, in the aggregate, or by the private sector, of $100
million or more in any one year (adjusted annually for inflation). The
UMRA does not apply to regulations that incorporate requirements
specifically set forth in law.
---------------------------------------------------------------------------
\50\ 2 U.S.C. 1531 et seq.
---------------------------------------------------------------------------
The OCC's estimated UMRA cost is near zero. Therefore, the OCC
finds that the final rule does not trigger the UMRA cost threshold.
Accordingly, the OCC has not prepared the written statement described
in section 202 of the UMRA.
F. The Congressional Review Act
For purposes of Congressional Review Act, the Office of Management
and Budget (OMB) makes a determination as to whether a final rule
constitutes a ``major'' rule.\51\ If a rule is deemed a ``major rule''
by OMB, the Congressional Review Act generally provides that the rule
may not take effect until at least 60 days following its
publication.\52\
---------------------------------------------------------------------------
\51\ 5 U.S.C. 801 et seq.
\52\ 5 U.S.C. 801(a)(3).
---------------------------------------------------------------------------
The Congressional Review Act defines a ``major rule'' as any rule
that the Administrator of the Office of Information and Regulatory
Affairs of the OMB finds has resulted in or is likely to result in (A)
an annual effect on the economy of $100,000,000 or more; (B) a major
increase in costs or prices for consumers, individual industries,
Federal, State, or local government agencies or geographic regions, or
(C) significant adverse effects on competition, employment, investment,
productivity, innovation, or on the ability of United States-based
enterprises to compete with foreign-based enterprises in domestic and
export markets.\53\ As required by the Congressional Review Act, the
agencies will submit the final rule and other appropriate reports to
Congress and the Government Accountability Office for review.
---------------------------------------------------------------------------
\53\ 5 U.S.C. 804(2).
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List of Subjects
12 CFR Part 3
Administrative practice and procedure, Capital, National banks,
Risk.
12 CFR Part 217
Administrative practice and procedure, Banks, Banking, Capital,
Federal Reserve System, Holding companies.
12 CFR Part 324
Administrative practice and procedure, Banks, Banking, Capital
adequacy, Savings associations, State non-member banks.
Office of the Comptroller of the Currency
For the reasons set out in the joint preamble, the OCC amends 12
CFR part 3 as follows:
PART 3--CAPITAL ADEQUACY STANDARDS
0
1. The authority citation for part 3 continues to read as follows:
Authority: 12 U.S.C. 93a, 161, 1462, 1462a, 1463, 1464, 1818,
1828(n), 1828 note, 1831n note, 1835, 3907, 3909, and 5412(b)(2)(B).
0
2. Section 3.2 is amended by adding the definitions of ``Custody
bank'', ``Fiduciary or custodial and safekeeping account'', and
``Qualifying central bank'' in alphabetical order to read as follows:
Sec. 3.2 Definitions.
* * * * *
Custody bank means a national bank or Federal savings association
that is a subsidiary of a depository institution holding company that
is a custodial banking organization under 12 CFR 217.2.
* * * * *
Fiduciary or custodial and safekeeping account means, for purposes
of Sec. 3.10(c)(4)(ii)(J), an account administered by a custody bank
for which the custody bank provides fiduciary or custodial and
safekeeping services, as authorized by applicable Federal or state law.
* * * * *
Qualifying central bank means:
(1) A Federal Reserve Bank;
(2) The European Central Bank; and
(3) The central bank of any member country of the OECD, if:
(i) Sovereign exposures to the member country would receive a zero
percent risk-weight under Sec. 3.32; and
(ii) The sovereign debt of the member country is not in default or
has not been in default during the previous 5 years.
* * * * *
0
3. Section 3.10 is amended by revising paragraph (c)(4)(ii)
introductory text and adding paragraph (c)(4)(ii)(J) to read as
follows:
Sec. 3.10 Minimum capital requirements.
* * * * *
(c) * * *
(4) * * *
(ii) For purposes of this part, total leverage exposure means the
sum of the items described in paragraphs (c)(4)(ii)(A) through (H) of
this section, as adjusted pursuant to paragraph (c)(4)(ii)(I) for a
clearing member national bank and Federal savings association and
paragraph (c)(4)(ii)(J) for a custody bank:
* * * * *
(J) A custodial bank shall exclude from its total leverage exposure
the lesser of:
(1) The amount of funds that the custody bank has on deposit at a
qualifying central bank; and
(2) The amount of funds that the custody bank's clients have on
deposit at the custody bank that are linked to fiduciary or custodial
and safekeeping accounts. For purposes of this paragraph (c)(4)(ii)(J),
a deposit account is linked to a fiduciary or custodial and safekeeping
account if the deposit account is provided to a client that maintains a
fiduciary or custodial and safekeeping account with the custody bank,
and the deposit account is used to facilitate the administration of the
fiduciary or custody and safekeeping account.
* * * * *
FEDERAL RESERVE SYSTEM
12 CFR Chapter II
Authority and Issuance
For the reasons set forth in the preamble, chapter II of title 12
of the Code of Federal Regulations is amended as set forth below:
PART 217--CAPITAL ADEQUACY OF BANK HOLDING COMPANIES, SAVINGS AND
LOAN HOLDING COMPANIES, AND STATE MEMBER BANKS (REGULATION Q)
0
4. The authority citation for part 217 continues to read as follows:
Authority: 12 U.S.C. 248(a), 321-338a, 481-486, 1462a, 1467a,
1818, 1828, 1831n, 1831o, 1831p-l, 1831w, 1835, 1844(b), 1851, 3904,
3906-3909, 4808, 5365, 5368, 5371, and 5371 note.
[[Page 4578]]
0
5. Section 217.2 is amended by adding the definitions of ``Custodial
banking organization,'' ``Fiduciary or custodial and safekeeping
accounts,'' and ``Qualifying central bank'' in alphabetical order to
read as follows:
Sec. 217.2 Definitions.
* * * * *
Custodial banking organization means:
(1) A Board-regulated institution that is:
(i) A top-tier depository institution holding company domiciled in
the United States that has assets under custody that are at least 30
times the amount of the depository institution holding company's total
assets; or
(ii) A state member bank that is a subsidiary of a depository
institution holding company described in paragraph (1)(i) of this
definition.
(2) For purposes of this definition, total assets are equal to the
average of the banking organization's total consolidated assets for the
four most recent calendar quarters. Assets under custody are equal to
the average of the Board-regulated institution's assets under custody
for the four most recent calendar quarters.
* * * * *
Fiduciary or custodial and safekeeping account means, for purposes
of Sec. 217.10(c)(4)(ii)(J), an account administered by a custodial
banking organization for which the custodial banking organization
provides fiduciary or custodial and safekeeping services, as authorized
by applicable Federal or state law.
* * * * *
Qualifying central bank means:
(1) A Federal Reserve Bank;
(2) The European Central Bank; and
(3) The central bank of any member country of the Organisation for
Economic Co-operation and Development, if:
(i) Sovereign exposures to the member country would receive a zero
percent risk-weight under Sec. 217.32; and
(ii) The sovereign debt of the member country is not in default or
has not been in default during the previous 5 years.
* * * * *
0
6. Section 217.10 is amended by revising paragraph (c)(4)(ii)
introductory text and adding paragraph (c)(4)(ii)(J) to read as
follows:
Sec. 217.10 Minimum capital requirements.
* * * * *
(c) * * *
(4) * * *
(ii) For purposes of this part, total leverage exposure means the
sum of the items described in paragraphs (c)(4)(ii)(A) through (H) of
this section, as adjusted pursuant to paragraph (c)(4)(ii)(I) for a
clearing member Board-regulated institution and paragraph (c)(4)(ii)(J)
for a custodial banking organization:
* * * * *
(J) A custodial banking organization shall exclude from its total
leverage exposure the lesser of:
(1) The amount of funds that the custodial banking organization has
on deposit at a qualifying central bank; and
(2) The amount of funds in deposit accounts at the custodial
banking organization that are linked to fiduciary or custodial and
safekeeping accounts at the custodial banking organization. For
purposes of this paragraph (c)(4)(ii)(J), a deposit account is linked
to a fiduciary or custodial and safekeeping account if the deposit
account is provided to a client that maintains a fiduciary or custodial
and safekeeping account with the custodial banking organization and the
deposit account is used to facilitate the administration of the
fiduciary or custodial and safekeeping account.
* * * * *
FEDERAL DEPOSIT INSURANCE CORPORATION
12 CFR Chapter III
Authority and Issuance
For the reasons set forth in the preamble, chapter III of title 12
of the Code of Federal Regulations is amended as set forth below.
PART 324--CAPITAL ADEQUACY OF FDIC-SUPERVISED INSTITUTIONS
0
7. The authority citation for part 324 continues to read as follows:
Authority: 12 U.S.C. 1815(a), 1815(b), 1816, 1818(a), 1818(b),
1818(c), 1818(t), 1819(Tenth), 1828(c), 1828(d), 1828(i), 1828(n),
1828(o), 1831o, 1835, 3907, 3909, 4808; 5371; 5412; Pub. L. 102-233,
105 Stat. 1761, 1789, 1790 (12 U.S.C. 1831n note); Pub. L. 102-242,
105 Stat. 2236, 2355, as amended by Pub. L. 103-325, 108 Stat. 2160,
2233 (12 U.S.C. 1828 note); Pub. L. 102-242, 105 Stat. 2236, 2386,
as amended by Pub. L. 102-550, 106 Stat. 3672, 4089 (12 U.S.C. 1828
note); Pub. L. 111-203, 124 Stat. 1376, 1887 (15 U.S.C. 78o-7 note).
0
8. Section 324.2 is amended by adding the definitions of ``Custody
bank,'' ``Fiduciary or custodial and safekeeping accounts,'' and
``Qualifying central bank'' in alphabetical order as follows:
Sec. 324.2 Definitions.
* * * * *
Custody bank means an FDIC-supervised institution that is a
subsidiary of a depository institution holding company that is a
custodial banking organization under 12 CFR 217.2.
* * * * *
Fiduciary or custodial and safekeeping account means, for purposes
of Sec. 324.10(c)(4)(ii)(J), an account administered by a custody bank
for which the custody bank provides fiduciary or custodial and
safekeeping services, as authorized by applicable Federal or state law.
* * * * *
Qualifying central bank means:
(1) A Federal Reserve Bank;
(2) The European Central Bank; and
(3) The central bank of any member country of the Organisation for
Economic Co-operation and Development, if:
(i) Sovereign exposures to the member country would receive a zero
percent risk-weight under Sec. 324.32; and
(ii) The sovereign debt of the member country is not in default or
has not been in default during the previous 5 years.
* * * * *
0
9. Section 324.10 is amended by revising paragraph (c)(4)(ii)
introductory text and adding paragraph (c)(4)(ii)(J) to read as
follows:
Sec. 324.10 Minimum capital requirements.
* * * * *
(c) * * *
(4) * * *
(ii) For purposes of this part, total leverage exposure means the
sum of the items described in paragraphs (c)(4)(ii)(A) through (H) of
this section, as adjusted pursuant to paragraph (c)(4)(ii)(I) for a
clearing member FDIC-supervised institution and paragraph (c)(4)(ii)(J)
for a custody bank:
* * * * *
(J) A custody bank shall exclude from its total leverage exposure
the lesser of:
(1) The amount of funds that the custody bank has on deposit at a
qualifying central bank; and
(2) The amount of funds in deposit accounts at the custody bank
that are linked to fiduciary or custodial and safekeeping accounts at
the custody bank. For purposes of this paragraph (c)(4)(ii)(J), a
deposit account is linked to a fiduciary or custodial and safekeeping
account if the deposit account is provided to a client that maintains a
fiduciary or custodial and safekeeping account with the custody bank
and the deposit account is used to facilitate the administration of the
fiduciary or custodial and safekeeping account.
* * * * *
[[Page 4579]]
Dated: November 19, 2019.
Joseph M. Otting,
Comptroller of the Currency.
By order of the Board of Governors of the Federal Reserve
System, November 19, 2019.
Ann E. Misback,
Secretary of the Board.
Federal Deposit Insurance Corporation.
By order of the Board of Directors.
Dated at Washington, DC, on November 19, 2019.
Annmarie H. Boyd,
Assistant Executive Secretary.
[FR Doc. 2019-28293 Filed 1-24-20; 8:45 am]
BILLING CODE 6210-01-P 4810-33-P; 6714-01-P