[Federal Register Volume 84, Number 206 (Thursday, October 24, 2019)]
[Rules and Regulations]
[Pages 56929-56935]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-23036]
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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. 206 / Thursday, October 24, 2019 /
Rules and Regulations
[[Page 56929]]
FEDERAL DEPOSIT INSURANCE CORPORATION
12 CFR Part 325
RIN 3064-AE84
Company-Run Stress Testing Requirements for FDIC-Supervised State
Nonmember Banks and State Savings Associations
AGENCY: Federal Deposit Insurance Corporation.
ACTION: Final rule.
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SUMMARY: The Federal Deposit Insurance Corporation (FDIC) is adopting a
final rule to amend the FDIC's company-run stress testing regulations
applicable to state nonmember banks and state savings associations,
consistent with section 401 of the Economic Growth, Regulatory Relief,
and Consumer Protection Act (EGRRCPA). Specifically, the final rule
revises the minimum threshold for applicability from $10 billion to
$250 billion, revises the frequency of required stress tests by FDIC-
supervised institutions, and reduces the number of required stress
testing scenarios from three to two. The final rule also makes certain
conforming and technical changes.
DATES: The final rule is effective November 25, 2019.
FOR FURTHER INFORMATION CONTACT: Ryan Sheller, Section Chief, (202)
412-4861, [email protected], Large Bank Supervision, Division of Risk
Management Supervision; or Benjamin Klein, Counsel, (202) 898-7027,
[email protected]; Legal Division, Federal Deposit Insurance Corporation,
550 17th Street NW, Washington, DC 20429.
SUPPLEMENTARY INFORMATION:
I. Policy Objective
The policy objective of the final rule is to conform the FDIC's
regulations to section 401 of EGRRCPA, which raises the applicability
threshold for company-run stress testing required by section 165(i)(2)
of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-
Frank Act) from $10 billion to $250 billion, revises the required
periodicity of such stress testing from ``annual'' to ``periodic,'' and
removes the requirement that such stress testing include an ``adverse''
scenario.
II. Background
Prior to the enactment of EGRRCPA, section 165(i)(2) of the Dodd-
Frank Act required a financial company, including an insured depository
institution, with total consolidated assets of more than $10 billion
and regulated by a primary federal regulatory agency to conduct annual
stress tests and submit a report to the Board of Governors of the
Federal Reserve System (Board) and to its primary federal regulatory
agency.\1\ Section 165(i)(2)(C) required each primary federal regulator
to issue consistent and comparable regulations to: (1) Implement the
stress testing requirements, including establishing methodologies for
conducting stress tests that provided for at least three different sets
of conditions, including baseline, adverse, and severely adverse; (2)
establish the form and content of the required reports, and (3) require
companies to publish a summary of the stress test results.
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\1\ Public Law 111-203, section 165(i)(2), 124 Stat. 1376, 1430-
31 (2010).
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In October 2012, the FDIC published in the Federal Register its
rule implementing the Dodd-Frank Act stress testing requirement.\2\ The
FDIC regulation at 12 CFR part 325 implements the company-run stress
test requirements of section 165(i)(2) of the Dodd-Frank Act with
respect to state nonmember banks and state savings associations with
more than $10 billion in assets (covered banks). Although 12 CFR part
325 applies to all covered banks that exceed $10 billion in assets, the
regulation differentiates between ``$10 billion to $50 billion covered
banks'' and ``over $50 billion covered banks.''
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\2\ 77 FR 62417 (October 15, 2012). The Board and the Office of
the Comptroller of the Currency contemporaneously issued comparable
regulations. See 77 FR 62380 (October 12, 2012) (Board); 77 FR 61238
(October 9, 2012) (OCC).
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EGRRCPA, enacted on May 24, 2018,\3\ amended certain aspects of the
company-run stress-testing requirements in section 165(i)(2) of the
Dodd-Frank Act. Specifically, section 401 of EGRRCPA raises the minimum
asset threshold for the company-run stress testing requirement from $10
billion to $250 billion; replaces the requirement for banks to conduct
stress tests ``annually'' with the requirement to conduct stress tests
``periodically;'' and no longer requires the ``adverse'' stress testing
scenario, thus reducing the number of required stress testing scenarios
from three to two. The EGRRCPA amendments to the section 165(i)(2)
stress testing requirements are effective eighteen months after
enactment.
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\3\ Public Law 115-174, 132 Stat. 1296-1368 (2018).
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Prior to the enactment of EGRRCPA, on April 2, 2018, the FDIC
issued a notice of proposed rulemaking that also proposed certain
revisions to the FDIC stress testing regulations (April 2018 NPR).\4\
Certain changes proposed in the April NPR, particularly those
establishing a stress testing transition process for ``over $50 billion
covered banks'' are no longer relevant as a result of EGRRCPA's
increase in the stress testing asset threshold to $250 billion.
However, other revisions originally proposed in the April NPR remain
necessary to ensure the FDIC's stress testing regulations remain
consistent with those of the Board and the Office of the Comptroller of
the Currency (OCC).
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\4\ 83 FR 13880 (April 2, 2018).
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III. Proposed Rule
On December 28, 2018, the FDIC published in the Federal Register a
notice of proposed rulemaking (proposed rule or proposal) to amend 12
CFR part 325 consistent with section 401 of EGRRCPA. Specifically, the
proposal would have raised the applicability threshold for covered
banks required to conduct stress tests from $10 billion to $250
billion, reduced the frequency by which covered banks would generally
be required to conduct stress tests from annually to biennially, and
eliminated the requirement that covered banks use the ``adverse''
scenario when conducting stress tests. The proposal also included
various technical changes to facilitate the above revisions, a proposed
transition period, and proposed revisions to the regulation's
[[Page 56930]]
reservation of authority. The proposed rule also included certain
provisions initially proposed in the April 2018 NPR, such as extending
the as-of date range for trading and counterparty components for
covered banks with significant trading activities.
The FDIC received six comments in response to the proposed rule.
With respect to raising the applicability threshold from $10 to $250
billion, some commenters supported raising the threshold, others
acknowledged that such a revision was statutorily required, and others
expressed concern that eliminating stress testing requirements for
banks under $250 billion may raise prudential concerns. Similarly, some
commenters supported the proposed rule's elimination of the ``adverse''
scenario, positing that the adverse scenario is of limited utility,\5\
some acknowledged that removing the ``adverse'' scenario is statutorily
required, and others expressed concern that eliminating the ``adverse''
scenario may reduce the efficacy of company-run stress testing. The
FDIC appreciates the concerns raised by commenters, but does not
believe that they warrant changes to the proposal, and is finalizing
without change the proposal to align the regulatory threshold for
company-run stress testing by covered banks with the statutory
threshold of $250 billion established by section 401 of EGRCCPA, and to
eliminate the ``adverse'' scenario requirement, consistent with section
401 of EGRCCPA.
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\5\ One commenter recommended that the FDIC, OCC, and FRB
(agencies) not include the adverse scenario in the 2019 stress
tests. The FDIC did not consider it necessary to do so, and notes
that the EGRRCPA amendments to the Dodd-Frank Act's company-run
stress testing requirements are effective November 24, 2019.
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With respect to the proposed rule's requirement that covered banks
generally be subject to biennial stress testing, some commenters
supported biennial stress testing as being an appropriate frequency for
most covered banks, while others contended that reducing the frequency
from annual to biennial would not be appropriate. Among the concerns
highlighted by these commenters was that such a reduction in the
frequency of stress testing could lead to complacency by covered banks
in managing risk, and that biennial stress tests would not be
sufficiently current to be credible. One commenter specifically
suggested that a data-driven empirical analysis should support the
change from annual to biennial stress testing, and that biennial stress
testing would not be appropriate since firms make choices about
dividends and repurchases on an annual basis. This commenter also
suggested that the risks associated with reducing the frequency of
stress testing would be amplified by other regulatory proposals
addressing capital and liquidity requirements.
Based on its experience in overseeing and reviewing the results of
company-run stress testing, the FDIC believes that biennial stress
testing would be appropriate under most conditions for covered banks.
The FDIC expects biennial stress testing to sufficiently satisfy the
purposes of stress testing, including assisting in an overall
assessment of a covered bank's capital adequacy, identifying risks and
the potential impact of adverse financial and economic conditions on a
covered bank's capital adequacy, and determining whether additional
analytical techniques and exercises would be appropriate for a covered
bank to employ in identifying, measuring, and monitoring risks to the
soundness of the covered bank. In addition, the FDIC would continue to
review the covered bank's stress testing processes and procedures.
Under the final rule, all covered banks that conduct stress tests on a
biennial basis are required to conduct stress tests in the same
reporting year (i.e., the reporting years for biennial stress testing
covered banks would be synchronized). By requiring these covered banks
to conduct their stress tests in the same reporting year, the final
rule allows the FDIC to make comparisons across banks for supervisory
purposes and assess macroeconomic trends and risks to the banking
industry. The FDIC also notes that it retains the ability to require
more frequent stress testing pursuant to its reservation of authority
under 12 CFR 325.1(c).
IV. Final Rule
The FDIC is adopting without change the proposed revisions to the
FDIC's stress testing rule, as described in detail below.
A. Covered Banks
Section 401 of EGRRCPA amended section 165 of the Dodd-Frank Act by
raising the minimum asset threshold for banks required to conduct
stress tests from $10 billion to $250 billion. The final rule
implements this change by eliminating the two existing subcategories of
``covered bank''--``$10 to $50 billion covered bank'' and ``over $50
billion covered bank''--and revising the term ``covered bank'' to mean
a state nonmember bank or state savings association with average total
consolidated assets that are greater than $250 billion. In addition,
the final rule makes certain technical and conforming changes to 12 CFR
part 325 in order to consolidate requirements, such as those related to
reporting and publication, that are currently referenced separately
with respect to $10 billion to $50 billion covered banks and over $50
billion covered banks.
B. Frequency of Stress Testing
Section 401 of EGRRCPA also changed the requirement under section
165 of the Dodd-Frank Act to conduct stress tests from ``annual'' to
``periodic.'' Consistent with proposals by the Board and the OCC, the
final rule provides that, in general, an FDIC-supervised institution
that is a covered bank as of December 31, 2019, is required to conduct,
report, and publish a stress test once every two years, beginning on
January 1, 2020, and continuing every even-numbered year thereafter
(i.e., 2022, 2024, 2026, etc.). The final rule also adds a new defined
term, ``reporting year,'' to the definitions at 12 CFR 325.2. A covered
bank's reporting year is the year in which a covered bank must conduct,
report, and publish its stress test. As noted above, the ``reporting
year'' for most covered banks would generally be every even-numbered
year.
Certain covered banks may be required to conduct stress tests
annually under the final rule. This subset of covered banks is limited
to those that are consolidated under holding companies that are
required to conduct stress tests more frequently than once every other
year. On November 29, 2018, the Board published a proposed rule that
would establish risk-based categories for determining the application
of prudential standards, including stress testing.\6\ The proposed rule
would distinguish between four risk-based categories for holding
companies. Three of these categories--``global systemically important
BHCs,'' ``Category II bank holding companies,'' and ``Category III bank
holding companies''--would be required to conduct company-run stress
tests. Category I holding companies and Category II holding companies
would be required to conduct company-run stress tests annually, while
Category III holding companies would be required to conduct company-run
stress tests biennially.\7\
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\6\ See ``Prudential Standards for Large Bank Holding Companies
and Savings and Loan Holding Companies,'' 83 FR 61408 (Nov. 29,
2018).
\7\ A Category III holding company would be a holding company
that is not a Category II holding company and that has (1) $250
billion or more in average total consolidated assets or (2) $100
billion or more in average total consolidated assets and $75 billion
or more in total consolidated assets in one of three risk
indicators.
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[[Page 56931]]
Because the FDIC's final stress testing rule would require a
covered institution to conduct stress tests annually if its parent
holding company is required to do so under Board regulations, the
FDIC's stress testing regulation would adopt by reference any potential
changes to stress testing frequency in the Board's regulations,
including from the Board's proposed rule. This treatment aligns with
the FDIC's, OCC's, and Board's long-standing policy of applying similar
standards to holding companies and their subsidiary banks, and reflects
the FDIC's expectation that covered banks that would be required to
stress test on an annual basis would be subsidiaries of the largest and
most systemically important banking organizations, (i.e., under the
Board's proposed rule, subsidiaries of global systemically important
bank holding companies or bank holding companies that have $700 billion
or more in total assets or cross-jurisdictional activity of $75
billion). There are currently no FDIC-supervised covered banks that are
subsidiaries of bank holding companies that would be required to
conduct annual company-run stress tests under the Board's proposed
rule.
For covered banks that are required to conduct stress tests
biennially or annually, the dates and deadlines in the FDIC's stress
testing rule applies for each reporting year for a covered bank. For
example, a biennial stress testing covered bank preparing its 2022
stress test would rely on financial data available as of December 31,
2021; use stress test scenarios that would be provided by the FDIC no
later than February 15, 2022; provide its report of the stress test to
the FDIC by April 5, 2022; and publish a summary of the results of its
stress test in the period starting June 15 and ending July 15 of 2022.
C. Removal of ``Adverse'' Scenario
As enacted by the Dodd-Frank Act, section 165(i)(2)(C) required the
FDIC to establish methodologies for conducting stress tests and further
required the inclusion of at least three different stress-testing
scenarios: ``Baseline,'' ``adverse,'' and ``severely adverse.'' EGRRCPA
amended section 165(i) to no longer require the FDIC to include an
``adverse'' stress-testing scenario and to reduce the minimum number of
required stress test scenarios from three to two. Given that the
``adverse'' stress-testing scenario has provided limited incremental
information to the FDIC and market participants beyond what the
``baseline'' and ``severely adverse'' stress testing scenarios provide,
the final rule removes the ``adverse'' scenario in the FDIC's stress
testing rule and maintains the requirement to conduct stress tests
under the ``baseline'' and ``severely adverse'' stress testing
scenarios. The final rule also amends the definition of ``severely
adverse scenario'' so that the term is defined relative to the
``baseline scenario,'' rather than relative to the ``adverse
scenario.''
D. Transition Process for Covered Banks
Currently, 12 CFR 325.3 provides for a transition period between
when a bank becomes a covered bank and when the bank must report its
first stress test. The final rule revises the transition period in 12
CFR 325.3 to conform to the other changes in this final rule.
Accordingly, paragraph (a)(2) generally requires a state nonmember bank
or state savings association that becomes a covered bank after December
31, 2019, to conduct its first stress test under this part in the first
reporting year that begins more than three calendar quarters after the
date the state nonmember bank or state savings association becomes a
covered bank. For example, if a covered bank that conducts stress tests
on a biennial basis becomes a covered bank on March 31 of a non-
reporting year (e.g., 2023), the bank would report its first stress
test in the subsequent calendar year (i.e., 2024), which is its first
reporting year. If the same bank becomes a covered bank on April 1 of a
non-reporting year (e.g., 2023), it would skip the subsequent reporting
calendar year and the following, non-reporting calendar year, and would
report its first stress test in the next reporting year (i.e., 2026).
As with other aspects of the stress test rule, the rule reserves to the
FDIC the authority to change the transition period for a particular
covered bank, as appropriate in light of the nature and level of the
activities, complexity, risks, operations, and regulatory capital of
the covered bank, in addition to any other relevant factors.\8\
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\8\ 12 CFR 325.1(c).
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The final rule does not establish a transition period for covered
banks that move from a biennial stress testing requirement to an annual
stress testing requirement. Accordingly, a covered bank that becomes
subject to annual stress testing would be required to begin stress
testing annually as of the next reporting year. The FDIC expects that
covered banks would anticipate and make arrangements for this
development. To the extent that particular circumstances warrant the
extension of a transition period, the FDIC would do so based on its
reservation of authority and supervisory discretion.
E. Review by Board of Directors
Currently, 12 CFR 325.5(b)(2) requires a covered bank's board of
directors, or a committee thereof, to approve and review the policies
and procedures of the stress testing processes as frequently as
economic conditions or the bank's condition may warrant, but no less
than annually. The final rule revises the frequency of this requirement
from ``annual'' to ``once every reporting year'' in order to make
review by the board of directors consistent with the covered bank's
stress testing cycle.
F. Reservation of Authority
12 CFR 325.1(c) currently includes a reservation of authority,
pursuant to which the FDIC may revise the frequency and methodology of
the stress testing requirement as appropriate for a particular covered
bank. The final rule amends the reservation of authority by clarifying
the FDIC's authority to exempt a covered bank from the requirement to
conduct a stress test in a particular reporting year.
G. New Range of As-of Dates for Trading Scenario Component
Under 12 CFR 325.4(c), the FDIC may require a covered bank with
significant trading activities to include trading and counterparty
components in its adverse and severely adverse scenarios. The trading
data to be used in this component is as of a date between January 1 and
March 1 of a calendar year.\9\ On February 3, 2017, the Board published
a final rule that extended this range to run from October 1 of the
calendar year preceding the year of the stress test to March 1 of the
calendar year of the stress test.\10\ On February 23, 2018, the OCC
published a final rule making the same change to its stress testing
regulation.\11\ On April 2, 2018, the FDIC issued a notice of proposed
rulemaking that proposed such a change, and the proposed rule re-
proposed this provision.\12\ No comments were received regarding this
aspect of the proposal. The final rule adopts the same change to the
FDIC's stress testing regulation, extending the range of as-of dates
from October 1 of
[[Page 56932]]
the preceding calendar year to March 1 of the calendar year of the
stress test. Extending the as-of date range ensures consistency with
the Board and OCC rules and increases the FDIC's flexibility to choose
an appropriate as-of date.
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\9\ 12 CFR 325.4(c).
\10\ 82 FR 9308 (Feb. 3, 2017).
\11\ 83 FR 7951 (Feb. 23, 2018).
\12\ 83 FR 13880 (April 2, 2018).
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H. Other Changes
As originally proposed in the April NPR and in the proposed rule,
the final rule removes certain obsolete transitional language in 12 CFR
325.3 that was included to facilitate a 2014 shift in the dates of the
annual stress testing cycle.\13\ That transition is now complete and
the regulatory transition language is no longer necessary.
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\13\ 79 FR 69365 (Nov. 21, 2014).
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Additionally, in order to update and standardize the language used
in part 325, references to ``this subpart'' is changed to ``this part''
following the redesignation of the FDIC's stress test rule from Subpart
C of 12 CFR part 325 to occupy all of part 325.\14\ Lastly, the final
rule eliminates the reference to supervisory guidance in 12 CFR
325.5(b)(1).\15\
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\14\ 83 FR 17737 (Apr. 24, 2018). Additional technical
amendments to part 325 were recently proposed in a notice of
proposed rulemaking to implement the current expected credit losses
methodology for allowances. 83 FR 22312 (May 14, 2018).
\15\ See Interagency Statement Clarifying the Role of
Supervisory Guidance, Financial Institution Letter 49-2018 (Sep. 11,
2018).
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IV. Regulatory Analysis
A. Riegle Community Development and Regulatory Improvement Act of 1994
The RCDRIA requires that the FDIC, in determining the effective
date and administrative compliance requirements of new regulations that
impose additional reporting, disclosure, or other requirements on
insured depository institutions (IDIs), 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 customers of
depository institutions, as well as the benefits of such
regulations.\16\ In addition, in order to provide an adequate
transition period, new regulations that impose additional reporting,
disclosures, or other new requirements on IDIs generally must 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.
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\16\ 12 U.S.C. 4802.
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The final rule imposes no additional reporting, disclosure, or
other requirements on IDIs, including small depository institutions,
nor on the customers of depository institutions. The final rule reduces
the frequency of company-run stress tests for a subset of banks, raises
the threshold for covered banks from $10 billion to $250 billion, and
reduces the number of required stress test scenarios from three to two
for all covered banks. The requirement to conduct, report, and publish
a company-run stress testing is a previously existing requirement
imposed by section 165(i) of the Dodd-Frank Act. Accordingly, RCDRIA
does not apply to the final rule.
The final rule is effective 30 days after publication in the
Federal Register.
B. The Regulatory Flexibility Act
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.\17\ However, a regulatory flexibility analysis is not
required if the agency certifies that the rule would 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 that are independently owned and operated or
owned by a holding company with less than $600 million in total
assets.\18\ For the reasons described below and under section 605(b) of
the RFA, the FDIC certifies that this proposed rule would not have a
significant economic impact on a substantial number of small entities.
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\17\ 5 U.S.C. 601 et seq.
\18\ The SBA defines a small banking organization as having $600
million or less in assets, where ``a financial institution'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).
``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.
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The FDIC has considered the potential impact of the final rule on
small entities in accordance with the RFA. The FDIC supervises 3,424
depository institutions,\19\ of which, 2,665 are defined as small
banking entities by the terms of the RFA.\20\ As discussed in the
Background Section, 12 CFR part 325 implements company-run stress test
requirements for all state nonmember banks and state savings
associations with more than $10 billion in assets (covered banks). The
final rule raises the threshold for covered banks required to conduct
company-run stress testing from $10 billion to $250 billion. No FDIC-
supervised institutions with total consolidated assets of $600 million
or less are subject to 12 CFR part 325. Therefore, the final rule would
not affect any small, FDIC-supervised institutions.
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\19\ FDIC-supervised institutions are set forth in 12 U.S.C.
1813(q)(2).
\20\ FDIC Call Report, June 30, 2019.
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C. The Paperwork Reduction Act
The FDIC has determined that this final rule involves a collection
of information pursuant to the provisions of the Paperwork Reduction
Act of 1995 (the PRA) (44 U.S.C. 3501 et seq.).
A Federal agency may not conduct or sponsor, and an organization is
not required to respond to, this information collection unless the
information collection displays a currently valid Office of Management
and Budget (OMB) control number. The FDIC has obtained an OMB control
number for this information collection (3064-0189) and will make a
submission to OMB in connection with the final rule. The FDIC did not
receive any comments on its estimated total annual burden for the
stress testing rule. The estimates are as follows:
Revised Information Collection Title: Stress Test Reporting
Templates and Documentation for Covered Banks with Total Consolidated
Assets of $250 Billion or More.
OMB Number: 3064-0189.
Form Number: FDIC DFAST 14A Summary; FDIC DFAST 14A Scenario.
Affected Public: Insured state nonmember banks
Burden Estimate:
[[Page 56933]]
Summary of Annual Burden
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Estimated Estimated time Estimated
Information collection description Type of burden Obligation to number of Estimated frequency per response annual burden
respond respondents of responses (hours) (hours)
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Methodologies and Practices........ Recordkeeping........ Mandatory............ * 1 Annually............. 640 640
Stress Test Reporting.............. Reporting............ Mandatory............ * 1 Annually............. 240 240
Publications....................... Disclosure........... Mandatory............ * 1 Annually............. 160 160
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*Note: FDIC estimates that none of the existing FDIC-supervised institutions are currently subject to the recordkeeping, reporting or disclosure
requirements in the proposed rule. However, FDIC is reporting one respondent as a placeholder to preserve the burden estimate in case an institution
becomes subject to these requirements in the future.
Estimated Total Annual Burden: 1,040 hours.
D. Plain Language
Section 722 of the Gramm-Leach-Bliley Act requires the FDIC to use
plain language in all proposed and final rules published after January
1, 2000. In the proposal, the FDIC requested comment on how to make
this proposed rule easier to understand, and received no responsive
comments.
F. The Congressional Review Act
Pursuant to the Congressional Review Act, the Office of Management
and Budget's Office of Information and Regulatory Affairs designated
this rule as not a ``major rule,'' as defined at 5 U.S.C. 804(2).
List of Subjects in 12 CFR Part 325
Administrative practice and procedure, Banks, banking, Reporting
and recordkeeping requirements, State savings associations, Stress
tests.
Authority and Issuance
For the reasons stated in the preamble, the FDIC amends 12 CFR part
325 as follows:
PART 325--STRESS TESTING
0
1. The authority citation for part 325 continues to read as follows:
Authority: 12 U.S.C. 5365(i)(2), 12 U.S.C. 5412(b)(2)(C), 12
U.S.C. 1818, 12 U.S.C. 1819(a)(Tenth), 12 U.S.C. 1831o, and 12
U.S.C. 1831p-1.
0
2. The heading for part 325 is revised to read as set forth above.
0
3. In part 325, revise all references to ``subpart'' to read ``part''.
0
4. Amend Sec. 325.1 by revising paragraphs (b) and (c) to read as
follows:
Sec. 325.1 Authority, purpose, and reservation of authority.
* * * * *
(b) Purpose. This part implements 12 U.S.C. 5365(i)(2), which
requires the Corporation (in coordination with the Board of Governors
of the Federal Reserve System (Board) and the Federal Insurance Office)
to issue regulations that require each covered bank to conduct periodic
stress tests, and establishes a definition of stress test,
methodologies for conducting stress tests, and reporting and disclosure
requirements.
(c) Reservation of authority. Notwithstanding any other provisions
of this part, the Corporation may modify some or all of the
requirements of this part.
(1) The Corporation may accelerate or extend any deadline for
stress testing, reporting, or publication of the stress test results.
(2) The Corporation may require different or additional tests not
otherwise required by this part or may require or permit different or
additional analytical techniques and methodologies, different or
additional scenarios (including components for the scenarios), or
different assumptions for the covered bank to use in meeting the
requirements of this part. In addition, the FDIC may specify a
different as-of date for any or all categories of financial data used
by the stress test.
(3) The Corporation may modify the reporting requirements of a
report under this part or may require additional reports. The
Corporation may modify the publication requirements of this part and or
may require different or additional publication disclosures.
(4) The Corporation may also exempt a covered bank from the
requirement to conduct a stress test in a particular reporting year.
(5) Factors considered: Any exercise of authority under this
section by the Corporation will be in writing and will consider the
activities, level of complexity, risk profile, scope of operations, and
the regulatory capital of the covered bank, in addition to any other
relevant factors.
(6) Notice and comment procedures: In exercising its authority to
require different or additional stress tests and different or
additional scenarios (including components for the scenarios) under
paragraph (c)(2) of this section, the Corporation will apply notice and
response procedures in the same manner and to the same extent as the
notice and response procedures in 12 CFR 324.5, as appropriate.
(7) Nothing in this subpart limits the authority of the Corporation
under any other provision of law or regulation to take supervisory or
enforcement action, including action to address unsafe and unsound
practices or conditions, or violations of law or regulation.
0
4. Amend Sec. 325.2 by:
0
a. Removing paragraph (a) and redesignating paragraphs (b) through (h)
as paragraphs (a) through (g);
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b. Revising newly redesignated paragraph (c)
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c. Adding a new paragraph (h); and
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d. Revising paragraphs (i), (j), and (m).
The revisions and addition read as follows:
Sec. 325.2 Definitions.
* * * * *
(c) Covered bank means any state nonmember bank or state savings
association with average total consolidated assets calculated as
required under this part that are greater than $250 billion.
* * * * *
(h) Reporting year means the calendar year in which a covered
institution must conduct, report, and publish its stress test, as
required under 12 CFR 325.4(d).
(i) Scenarios are those sets of conditions that affect the U.S.
economy or the financial condition of a covered bank that the
Corporation determines are appropriate for use in the company-run
stress tests, including, but not limited to, baseline and severely
adverse scenarios.
(j) Severely adverse scenario means a set of conditions that affect
the U.S. economy or the financial condition of a covered bank and that
overall are significantly more severe than those associated with the
baseline scenario and may include trading or other additional
components.
* * * * *
(m) Stress test cycle means the period beginning January 1 of a
reporting year and ending on December 31 of that reporting year.
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5. Revise Sec. 325.3 to read as follows:
[[Page 56934]]
Sec. 325.3 Applicability.
(a) Covered banks subject to stress testing. (1) A state nonmember
bank or state savings association that is a covered bank as of December
31, 2019, is subject to the requirements of this subpart for the 2020
reporting year.
(2) A state nonmember bank or state savings association that
becomes a covered bank after December 31, 2019, shall conduct its first
stress test under this part in the first reporting year that begins
more than three calendar quarters after the date the state nonmember
bank or state savings association becomes a covered bank, unless
otherwise determined by the Corporation in writing.
(b) Ceasing to be a covered bank. A covered bank shall remain
subject to the stress test requirements of this part unless and until
total consolidated assets of the covered bank falls to $250 billion or
less for each of four consecutive quarters as reported on the covered
bank's most recent Call Reports. The calculation will be effective on
the as-of date of the fourth consecutive Call Report.
(c) Covered bank subsidiaries of a bank holding company or savings
and loan holding company subject to periodic stress test requirements.
(1) Notwithstanding the requirements applicable to covered banks under
this section, a covered bank that is a consolidated subsidiary of a
bank holding company or savings and loan holding company that is
required to conduct a periodic company-run stress test under applicable
regulations of the Board of Governors of the Federal Reserve System may
elect to conduct its stress test and report to the FDIC on the same
timeline as its parent bank holding company or savings and loan holding
company.
(2) A covered bank that elects to conduct its stress test under
paragraph (c)(1) of this section will remain subject to the same
timeline requirements of its parent company until otherwise approved by
the FDIC.
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6. Revise Sec. 325.4 to read as follows:
Sec. 325.4 Periodic stress tests required.
Each covered bank must conduct the periodic stress test under this
part subject to the following requirements:
(a) Financial data. A covered bank must use financial data as of
December 31 of the calendar year prior to the reporting year.
(b) Scenarios provided by the Corporation. In conducting the stress
test under this part, each covered bank must use the scenarios provided
by the Corporation. The scenarios provided by the Corporation will
reflect a minimum of two sets of economic and financial conditions,
including baseline and severely adverse scenarios. The Corporation will
provide a description of the scenarios required to be used by each
covered bank no later than February 15 of the reporting year.
(c) Significant trading activities. The Corporation may require a
covered bank with significant trading activities, as determined by the
Corporation, to include trading and counterparty components in its
severely adverse scenarios. The trading and counterparty position data
used in this component will be as of a date between October 1 of the
year preceding the reporting year and March 1 of the reporting year,
and the Corporation will communicate a description of the component to
the covered bank no later than March 1 of the reporting year.
(d) Frequency. A covered bank that is consolidated under a holding
company that is required, pursuant to applicable regulations of the
Board of Governors of the Federal Reserve System, to conduct a stress
test at least once every calendar year must treat every calendar year
as a reporting year, unless otherwise determined by the Corporation.
All other covered banks must treat every even-numbered calendar year
beginning January 1, 2020 (i.e., 2022, 2024, 2026, etc.), as a
reporting year, unless otherwise determined by the Corporation.
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7. Amend Sec. 325.5 by revising paragraph (b) to read as follows:
Sec. 325.5 Methodologies and practices.
* * * * *
(b) Controls and oversight of stress testing processes. (1) The
senior management of a covered bank must establish and maintain a
system of controls, oversight, and documentation, including policies
and procedures, that are designed to ensure that its stress test
processes satisfy the requirements in this part. These policies and
procedures must, at a minimum, describe the covered bank's stress test
practices and methodologies, and processes for validating and updating
the covered bank's stress test practices and methodologies consistent
with applicable laws and regulations.
(2) The board of directors, or a committee thereof, of a covered
bank must approve and review the policies and procedures of the stress
testing processes as frequently as economic conditions or the condition
of the covered bank may warrant, but no less than once every reporting
year. The board of directors and senior management of the covered bank
must receive a summary of the results of the stress test.
(3) The board of directors and senior management of each covered
bank must consider the results of the stress tests in the normal course
of business, including but not limited to, the covered bank's capital
planning, assessment of capital adequacy, and risk management
practices.
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8. Revise Sec. 325.6 to read as follows:
Sec. 325.6 Required reports of stress test results to the FDIC and
the Board of Governors of the Federal Reserve System.
(a) Report required for periodic stress test results. A covered
bank must report to the FDIC and to the Board of Governors of the
Federal Reserve System, on or before April 5 of the reporting year, the
results of the stress test in the manner and form specified by the
FDIC.
(b) Content of reports. (1) The reports required under paragraph
(a) of this section must include under the baseline scenario, severely
adverse scenario, and any other scenario required by the Corporation
under this part, a description of the types of risks being included in
the stress test, a summary description of the methodologies used in the
stress test, and, for each quarter of the planning horizon, estimates
of aggregate losses, pre-provision net revenue, provision for loan and
lease losses, net income, and pro forma capital ratios (including
regulatory and any other capital ratios specified by the FDIC). In
addition, the report must include an explanation of the most
significant causes for the changes in regulatory capital ratios and any
other information required by the Corporation.
(2) The description of aggregate losses and net income must include
the cumulative losses and cumulative net income over the planning
horizon, and the description of each regulatory capital ratio must
include the beginning value, ending value, and minimum value of each
ratio over the planning horizon.
(c) Confidential treatment of information submitted. The
confidentiality of information submitted to the Corporation under this
part and related materials will be determined in accordance with
applicable law including any available exemptions under the Freedom of
Information Act (5 U.S.C. 552(b)) and the FDIC's Rules and Regulations
regarding the Disclosure of Information (12 CFR part 309).
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9. Amend Sec. 325.7 by revising paragraphs (a) and (b) and paragraph
(c) introductory text to read as follows:
[[Page 56935]]
Sec. 325.7 Publication of stress test results.
(a) Publication date. A covered bank must publish a summary of the
results of its stress tests in the period starting June 15 and ending
July 15 of the reporting year, provided:
(1) Unless the Corporation determines otherwise, if the covered
bank is a consolidated subsidiary of a bank holding company or savings
and loan holding company subject to supervisory stress tests conducted
by the Board of Governors of the Federal Reserve System under 12 CFR
part 252, then, within the June 15 to July 15 period, such covered bank
may not publish the required summary of its periodic stress test
earlier than the date that the Board of Governors of the Federal
Reserve System publishes the supervisory stress test results of the
covered bank's parent holding company.
(2) If the Board of Governors of the Federal Reserve System
publishes the supervisory stress test results of the covered bank's
parent holding company prior to June 15, then such covered bank may
publish its stress test results prior to June 15, but no later than
July 15, through actual publication by the covered bank or through
publication by the parent holding company under paragraph (b) of this
section.
(b) Publication method. The summary required under this section may
be published on the covered bank's website or in any other forum that
is reasonably accessible to the public. A covered bank that is a
consolidated subsidiary of a bank holding company or savings and loan
holding company that is required to conduct a company-run stress test
under applicable regulations of the Board of Governors of the Federal
Reserve System will be deemed to have satisfied the public disclosure
requirements under this subpart if it publishes a summary of its stress
test results with its parent bank holding company's or savings and loan
holding company's summary of stress test results. Subsidiary covered
banks electing to satisfy their public disclosure requirement in this
manner must include a summary of changes in regulatory capital ratios
of such covered bank over the planning horizon, and an explanation of
the most significant causes for the changes in regulatory capital
ratios.
(c) Information to be disclosed in the summary. A covered bank must
disclose the following information regarding the severely adverse
scenario if it is not a consolidated subsidiary of a parent bank
holding company or savings and loan holding company that has elected to
make its disclosure under 12 CFR 325.3(d):
* * * * *
Federal Deposit Insurance Corporation.
By order of the Board of Directors.
Dated at Washington, DC, on October 15, 2019.
Annmarie H. Boyd,
Assistant Executive Secretary.
[FR Doc. 2019-23036 Filed 10-23-19; 8:45 am]
BILLING CODE 6714-01-P