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Federal Register / Vol. 77, No. 198 / Friday, October 12, 2012 / Rules and Regulations

FEDERAL RESERVE SYSTEM
12 CFR Part 252
[Regulation YY; Docket No. 1438]
RIN 7100–AD–86

Supervisory and Company-Run Stress
Test Requirements for Covered
Companies
Board of Governors of the
Federal Reserve System (Board).
ACTION: Final rule.
AGENCY:

The Dodd-Frank Wall Street
Reform and Consumer Protection Act
(Dodd-Frank Act or Act) requires the
Board to conduct annual stress tests of
bank holding companies with total
consolidated assets of $50 billion or
more and nonbank financial companies
the Financial Stability Oversight
Council (Council) designates for
supervision by the Board (nonbank
covered companies, and together, with
bank holding companies with total
consolidated assets of $50 billion or
more, covered companies) and also
requires the Board to issue regulations
that require covered companies to
conduct stress tests semi-annually. The
Board is adopting this final rule to
implement the stress test requirements
for covered companies established in
the Dodd-Frank Act. This final rule does
not apply to any banking organization
with total consolidated assets of less
than $50 billion. Furthermore,
implementation of the stress testing
requirements for bank holding
companies that did not participate in
the Supervisory Capital Assessment
Program is delayed until September
2013.

SUMMARY:

The rule is effective on
November 15, 2012.

DATES:

Tim
Clark, Senior Associate Director, (202)
452–5264, Lisa Ryu, Assistant Director,
(202) 263–4833, Constance Horsley,
Manager, (202) 452–5239, or David
Palmer, Senior Supervisory Financial
Analyst, (202) 452–2904, Division of
Banking Supervision and Regulation;
Laurie Schaffer, Associate General
Counsel, (202) 452–2272, Benjamin W.
McDonough, Senior Counsel, (202) 452–
2036, or Christine E. Graham, Senior
Attorney, (202) 452–3005, Legal
Division.

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FOR FURTHER INFORMATION CONTACT:

SUPPLEMENTARY INFORMATION:

Table of Contents
I. Background
II. Overview of Comments
III. Description of Final Rule
A. Scope of Application

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B. Effective Date
C. Overview of Stress Test Requirements
D. Annual Supervisory Stress Tests
Conducted by the Board
E. Annual and Mid-Cycle Stress Tests
Conducted by the Covered Companies
IV. Administrative Law Matters
A. Use of Plain Language
B. Paperwork Reduction Act Analysis
C. Regulatory Flexibility Act Analysis

I. Background
The Board has long held the view that
a banking organization, such as a bank
holding company or insured depository
institution, should operate with capital
levels well above its minimum
regulatory capital ratios and
commensurate with its risk profile.1 A
banking organization should also have
internal processes for assessing its
capital adequacy that reflect a full
understanding of its risks and ensure
that it holds capital commensurate with
those risks.2 Moreover, a banking
organization that is subject to the
Board’s advanced approaches risk-based
capital requirements must satisfy
specific requirements relating to their
internal capital adequacy processes in
order to use the advanced approaches to
calculate its minimum risk-based capital
requirements.3 Stress testing is one tool
that helps both bank supervisors and a
banking organization measure the
sufficiency of capital available to
support the banking organization’s
operations throughout periods of stress.4
The Board and the other federal banking
agencies previously have highlighted
the use of stress testing as a means to
better understand the range of a banking
organization’s potential risk exposures.5
1 See 12 CFR part 225, Appendix A; see also
Supervision and Regulation Letter SR 99–18,
Assessing Capital Adequacy in Relation to Risk at
Large Banking Organizations and Others with
Complex Risk Profiles (July 1, 1999), available at
http://www.federalreserve.gov/boarddocs/srletters/
1999/SR9918.HTM (hereinafter SR 99–18).
2 See Supervision and Regulation Letter SR 09–
4, Applying Supervisory Guidance and Regulations
on the Payment of Dividends, Stock Redemptions,
and Stock Repurchases at Bank Holding Companies
(Mar. 27, 2009), available at http://
www.federalreserve.gov/boarddocs/srletters/2009/
SR0904.htm (hereinafter SR 09–4).
3 See 12 CFR part 225, Appendix G, section 22(a);
see also, Supervisory Guidance: Supervisory
Review Process of Capital Adequacy (Pillar 2)
Related to the Implementation of the Basel II
Advanced Capital Framework, 73 FR 44620 (July
31, 2008).
4 A full assessment of a company’s capital
adequacy must take into account a range of risk
factors, including those that are specific to a
particular industry or company.
5 See, e.g., Supervisory Guidance on Stress
Testing for Banking Organizations With More Than
$10 Billion in Total Consolidated Assets, 77 FR
29458 (May 17, 2012); Supervision and Regulation
Letter SR 10–6, Interagency Policy Statement on
Funding and Liquidity Risk Management (March
17, 2010), available at http://

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In particular, as part of its effort to
stabilize the U.S. financial system
during the recent financial crisis, the
Board, along with other federal financial
regulatory agencies and the Federal
Reserve system, conducted stress tests
of large, complex bank holding
companies through the Supervisory
Capital Assessment Program (SCAP).
The SCAP was a forward-looking
exercise designed to estimate revenue,
losses, and capital needs under an
adverse economic and financial market
scenario. By looking at the broad capital
needs of the financial system and the
specific needs of individual companies,
these stress tests provided valuable
information to market participants,
reduced uncertainty about the financial
condition of the participating bank
holding companies under a scenario
that was more adverse than that which
was anticipated to occur at the time, and
had an overall stabilizing effect.
Building on the SCAP and other
supervisory work coming out of the
crisis, the Board initiated the annual
Comprehensive Capital Analysis and
Review (CCAR) in late 2010 to assess
the capital adequacy and the internal
capital planning processes of large,
complex bank holding companies and to
incorporate stress testing as part of the
Board’s regular supervisory program for
assessing capital adequacy and capital
planning practices at large bank holding
companies. The CCAR represents a
substantial strengthening of previous
approaches to assessing capital
adequacy and promotes thorough and
robust processes at large banking
organizations for measuring capital
needs and for managing and allocating
capital resources. The CCAR focuses on
the risk measurement and management
www.federalreserve.gov/boarddocs/srletters/2010/
sr1006.htm; Supervision and Regulation Letter SR
10–1, Interagency Advisory on Interest Rate Risk
(January 11, 2010), available at http://
www.federalreserve.gov/boarddocs/srletters/2010/
sr1001.htm; SR 09–4, supra note 2; Supervision and
Regulation Letter SR 07–1, Interagency Guidance on
Concentrations in Commercial Real Estate (Jan. 4,
2007), available at http://www.federalreserve.gov/
boarddocs/srletters/2007/SR0701.htm; Supervision
and Regulation Letter SR 12–7, Supervisory
Guidance on Stress Testing for Banking
Organizations With More Than $10 Billion in Total
Consolidated Assets (May 14, 2012), available at
http://www.federalreserve.gov/bankinforeg/
srletters/sr1207.htm; SR 99–18, supra note1;
Supervisory Guidance: Supervisory Review Process
of Capital Adequacy (Pillar 2) Related to the
Implementation of the Basel II Advanced Capital
Framework, 73 FR 44620 (July 31, 2008); The
Supervisory Capital Assessment Program: SCAP
Overview of Results (May 7, 2009), available at
http://www.federalreserve.gov/newsevents/press/
bcreg/bcreg20090507a1.pdf; and Comprehensive
Capital Analysis and Review: Objectives and
Overview (Mar. 18, 2011), available at http://
www.federalreserve.gov/newsevents/press/bcreg/
bcreg20110318a1.pdf.

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Federal Register / Vol. 77, No. 198 / Friday, October 12, 2012 / Rules and Regulations

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practices supporting organizations’
capital adequacy assessments, including
their ability to deliver credible inputs to
their loss estimation techniques, as well
as the governance processes around
capital planning practices. On
November 22, 2011, the Board issued an
amendment (capital plan rule) to its
Regulation Y to require all U.S. bank
holding companies with total
consolidated assets of $50 billion or
more to submit annual capital plans to
the Board to allow the Board to assess
whether they have robust, forwardlooking capital planning processes and
have sufficient capital to continue
operations throughout times of
economic and financial stress.6
In the wake of the financial crisis,
Congress enacted the Dodd-Frank Act,
which requires the Board to implement
enhanced prudential supervisory
standards, including requirements for
stress tests, for covered companies to
mitigate the threat to financial stability
posed by these institutions.7 Section
165(i)(1) of the Dodd-Frank Act requires
the Board to conduct an annual stress
test of each covered company to
evaluate whether the covered company
has sufficient capital, on a total
consolidated basis, to absorb losses as a
result of adverse economic conditions
(supervisory stress tests). The Act
requires that the supervisory stress test
provide for at least three different sets
of conditions—baseline, adverse, and
severely adverse conditions—under
which the Board would conduct its
evaluation. The Act also requires the
Board to publish a summary of the
supervisory stress test results.8
In addition, section 165(i)(2) of the
Dodd-Frank Act requires the Board to
issue regulations that require covered
companies to conduct stress tests semiannually and require financial
companies with total consolidated
assets of more than $10 billion that are
not covered companies and for which
the Board is the primary federal
financial regulatory agency to conduct
stress tests on an annual basis
(collectively, company-run stress tests).9
6 See Capital Plans, 76 FR 74631 (Dec. 1, 2011)
(codified at 12 CFR 225.8).
7 See 12 U.S.C. 5365(a). As defined above, a
‘‘covered company’’ includes any bank holding
company with total consolidated assets of $50
billion or more and each nonbank financial
company that the Council has designated for
supervision by the Board.
8 See 12 U.S.C. 5365(i)(1).
9 12 U.S.C. 5365(i)(2). In this final rule, the Board
is implementing the requirements for covered
companies only. The requirements applicable to
other banking organizations with total consolidated
assets of more than $10 billion and for which the
Board is the primary federal financial regulatory
agency are contained in a concurrently issued final

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The Act requires that the Board issue
regulations that: (i) Define the term
‘‘stress test’’; (ii) establish
methodologies for the conduct of the
company-run stress tests that provide
for at least three different sets of
conditions, including baseline, adverse,
and severely adverse conditions; (iii)
establish the form and content of the
report that companies subject to the
regulation must submit to the Board;
and (iv) require companies to publish a
summary of the results of the required
stress tests.10
On January 5, 2012, the Board invited
public comment on a notice of proposed
rulemaking (proposal or NPR) that
would implement the enhanced
prudential standards required to be
established under section 165 of the
Dodd-Frank Act and the early
remediation requirements established
under Section 166 of the Act, including
proposed rules regarding supervisory
and company-run stress tests.11 Under
the proposed rules, the Board would
conduct an annual supervisory stress
test of covered companies under three
sets of scenarios, using data as of
September 30 of each year as reported
by covered companies, and publish a
summary of the results of the
supervisory stress tests in early April of
the following year. In addition, the
proposed rule required each covered
company to conduct two company-run
stress tests each year: An ‘‘annual’’
company-run stress test using data as of
September 30 of each year and the three
scenarios provided by the Board, and an
additional company-run stress test using
data as of March 31 of each year and
three scenarios developed by the
company. The proposed rule required
each covered company to publish the
summary of the results of its companyrun stress tests within 90 days of
submitting the results to the Board.
Together, the supervisory stress tests
and the company-run stress tests are
intended to provide supervisors with
forward-looking information to help
identify downside risks and the
potential effect of adverse conditions on
capital adequacy at covered companies.
The stress tests will estimate the
covered company’s net income and
other factors affecting capital and how
each covered company’s capital
resources would be affected under the
scenarios and will produce pro forma
projections of capital levels and
regulatory capital ratios in each quarter
rule being published in this issue of the Federal
Register.
10 See 12 U.S.C. 5365(i)(2)(C).
11 Enhanced Prudential Standards and Early
Remediation Requirements for Covered Companies,
77 FR 594 (Jan. 5, 2012).

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of the planning horizon, under each
scenario. The publication of summary
results from these stress tests will
enhance public information about
covered companies’ financial condition
and the ability of those companies to
absorb losses as a result of adverse
economic and financial conditions. The
Board will use the results of the
supervisory stress tests and companyrun stress tests in its supervisory
evaluation of a covered company’s
capital adequacy and capital planning
practices. In addition, the stress tests
will also provide a means to assess
capital adequacy across companies more
fully and support the Board’s financial
stability efforts.
The Dodd-Frank Act mandates that
the OCC and the FDIC adopt rules
implementing stress testing
requirements for the depository
institutions that they supervise, and the
OCC and FDIC invited public comment
on proposed rules in January of 2012.12
The Board is finalizing the stress
testing frameworks in two separate
rules. First, the Board is issuing this
final rule, which implements the
supervisory and company-run stress
testing requirements for covered
companies (final rule).
Second, the Board is concurrently
issuing a final rule implementing
annual company-run stress test
requirements for bank holding
companies, savings and loan holding
companies, and state member banks
with consolidated assets greater than
$10 billion that are not otherwise
covered by this rule.
The Board is issuing this final rule
implementing the stress testing
requirements in advance of the other
enhanced prudential standards and
early remediation requirements in order
to address the timing of when the stress
testing requirements will apply to
various banking organizations and to
require large bank holding companies to
publicly disclose the results of their
company-run stress tests conducted in
the fall of 2012.
II. Overview of Comments
The Board received approximately
100 comments on its NPR on enhanced
prudential standards and early
remediation requirements.
Approximately 40 of these comments
pertained to the proposed stress testing
requirements. Commenters ranged from
individual banking organizations to
trade and industry groups and public
interest groups. In general, commenters
12 Annual Stress Test, 77 FR 3408 (Jan. 24, 2012)
(OCC); Annual Stress Test, 77 FR 3166 (Jan. 17,
2012) (FDIC).

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expressed support for stress testing as a
valuable tool for identifying and
managing both micro- and macroprudential risk. However, several
commenters recommended changes to,
or clarification of, certain provisions of
the proposed rule, including its timeline
for implementation, reporting
requirements, and disclosure
requirements. Commenters also urged
greater interagency coordination
regarding stress tests and requested
more information on the scenario design
process and the models and
methodologies that the Board intends to
use in the supervisory stress tests.
A. Delayed Compliance Date
Commenters suggested that covered
companies that have not previously
been subject to stress testing
requirements need more time to develop
systems and procedures to be able to
conduct the stress tests and collect the
information that the Board may require
in connection with these tests. In
response to these comments and to
reduce burden on these institutions, the
final rule provides that firms that have
not previously participated in SCAP
will begin conducting stress tests in the
fall of 2013, and non-bank covered
companies will begin conducting stress
tests in the calendar year after the year
in which the company first becomes
subject to the Board’s minimum
regulatory capital requirements.
Similarly, the rule requires any bank
holding company that becomes a
covered company after the effective date
of this rule to comply with the
requirements beginning in the fall of the
calendar year that follows the year the
company becomes a covered company,
unless that time is extended by the
Board in writing.13

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B. Tailoring
The proposed rule would have
applied consistent annual company-run
stress test requirements, including the
compliance date and the disclosure
requirements, to all banking
organizations with total consolidated
assets of more than $10 billion and
nonbank financial companies.14 The
Board sought public comment on
whether the stress testing requirements
13 In extending a time period under the final rule,
the Board will consider the activities, level of
complexity, risk profile, scope of operations, and
the regulatory capital of the covered company, and
any other relevant factors.
14 Under the proposal, savings and loan holding
companies would not have been subject to the
proposed requirements, including timing of
required submissions to the Board, until savings
and loan holding companies were subject to
minimum risk-based capital and leverage
requirements.

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should be tailored, particularly for
financial companies that are not large
bank holding companies.
Several commenters expressed
concern that the NPR would have
applied stress testing requirements
previously applicable only to large bank
holding companies, such as those
conducted under the CCAR, to smaller,
less complex banking organizations
with smaller systemic footprints and to
nonbank financial companies.
Furthermore, commenters indicated that
there are substantial differences
between bank holding companies and
nonbank financial companies, and that
the Board should tailor the proposed
prudential standards to account for
these differences.
The Board recognizes that the
population of covered companies is
diverse and that certain covered
companies may pose more material risk
to U.S. financial stability than others.
Furthermore, section 165 of the DoddFrank Act directs the Board to
implement enhanced prudential
standards that increase in stringency
with the systemic footprint of each
company.15 As a result, the Board
expects to use a tailored approach in
implementing the stress test
requirements for covered companies,
using their systemic footprint as the
basis for tailoring. For example, the
Board is delaying the compliance date
for covered companies that did not
participate in SCAP. In addition, the
Board expects to require a subset of
large, complex covered companies to
include additional components in their
adverse and severely adverse scenarios
or to apply additional scenarios beyond
the macroeconomic scenarios applied to
all covered companies.
With respect to nonbank financial
companies, several commenters
requested that the Board either further
tailor the requirements for nonbank
covered companies in the final rule or
issue a separate rule for these
companies. For example, some
commenters requested that the Board
develop standards that were ‘‘insurancecentric’’ rather than ‘‘bank-centric,’’
noting that stress test scenarios relevant
for bank holding companies would
ignore salient risks to insurers, such as
the possibility of a natural disaster.16
15 See

12 U.S.C. 5365(a)(1).
number of commenters on the NPR expressed
concerns about the application of the proposed
standards to nonbank covered companies. Several
of these commenters raised a concern that the NPR
does not afford nonbank financial companies a
meaningful opportunity to comment on how the
Board should tailor the standards to nonbank
financial companies. Commenters indicated that
there are substantial differences between bank
16 A

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The Board may, by order or regulation,
tailor the application of the enhanced
standards to nonbank covered
companies on an individual basis or by
category, as appropriate. As noted in the
proposal, the Board expects to take into
account differences among bank holding
companies and nonbank covered
companies supervised by the Board
when applying enhanced supervisory
standards, including stress testing
requirements. Following designation by
the Council, the Board will assess the
business model, capital structure, and
risk profile of a designated nonbank
financial company to determine how the
enhanced prudential standards,
including the stress test requirements in
this final rule, and the early remediation
requirements should apply.
Finally, the Board plans to issue
supervisory guidance to provide more
detail describing supervisory
expectations for company-run stress
tests. This guidance will be tailored
based on the size and complexity of a
covered company.
C. Coordination
Many commenters emphasized the
need for the federal banking agencies to
coordinate stress testing requirements
for parent holding companies and
depository institution subsidiaries and
more generally in regard to stress testing
frameworks. Commenters recommended
that the Board, the Office of the
Comptroller of the Currency (OCC), and
the Federal Deposit Insurance
Corporation (FDIC) coordinate in
implementing the Dodd-Frank Act stress
testing requirements in order to
minimize regulatory burden.
Commenters asked that the agencies
eliminate duplicative requirements and
use an interagency forum, like the
Federal Financial Institutions
Examination Council, to develop
common forms, policies, procedures,
assumptions, methodologies, and
application of results.
The Board has coordinated closely
with the FDIC and the OCC to help to
ensure that the company-run stress
testing regulations are consistent and
comparable across depository
institutions and depository institution
holding companies and to address any
burden that may be associated with
having multiple entities within one
organizational structure having to meet
stress testing requirements. The Board
anticipates that it will continue to
consult with the FDIC and OCC in the
holding companies and nonbank financial
companies, and that the Board should tailor the
proposed prudential standards to account for these
differences on a case-by-case basis following the
rulemaking process.

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Federal Register / Vol. 77, No. 198 / Friday, October 12, 2012 / Rules and Regulations
implementation of the final rule, and in
particular, in the development of stress
scenarios. The Board plans to develop
scenarios each year in close
consultation with the FDIC and the
OCC, so that, to the greatest extent
possible, a common set of scenarios can
be used for the supervisory stress tests
and the annual company-run stress tests
across various banking entities within
the same organizational structure.
D. Consolidated Publication and GroupWide Systems and Models
In addition to requesting better
coordination, commenters inquired as to
whether a company-run stress test
conducted by a parent holding company
would satisfy the stress testing
requirements applicable to that holding
company’s subsidiary depository
institutions. Commenters recommended
that in order to reduce burden the Board
develop and require the use of a single
set of scenarios for a bank holding
company and any depository institution
subsidiary of the bank holding
company, if the Board imposed separate
stress testing requirements on both the
bank holding company and bank.
In order to reduce burden on banking
organizations, the final rule provides
that a subsidiary depository institution
will disclose its stress testing results as
part of the results disclosed by its bank
holding company parent. Disclosure by
the bank holding company of its stress
test results and those of any subsidiary
state member bank will generally satisfy
any disclosure requirements applicable
to the state member bank subsidiary.
Moreover, a state member bank that is
controlled by a bank holding company
may rely on the systems and models of
its parent bank holding company if its
systems and models fully capture the
state member bank’s risks. For example,
under those circumstances, the bank
holding company and state member
bank may use the same data collection
processes and methods and models for
projecting and calculating potential
losses, pre-provision net revenues,
provision for loan and lease losses, and
pro forma capital positions over the
stress testing planning horizon.

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III. Description of the Final Rule
A. Scope of Application
This final rule applies to any bank
holding company (other than a foreign
banking organization) that has $50
billion or more in average total
consolidated assets 17 and to any
17 The final rule applies only to U.S.-domiciled
bank holding companies that are covered
companies, including, for example, the U.S.domiciled bank holding company subsidiary of a

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nonbank financial company that the
Council has determined under section
113 of the Dodd-Frank Act must be
supervised by the Board and for which
such determination is in effect.
Average total consolidated assets for
bank holding companies is based on the
average of the total consolidated assets
as reported on the bank holding
company’s four most recent
Consolidated Financial Statement for
Bank Holding Companies (FR Y–9C). If
the bank holding company has not filed
the FR Y–9C for each of the four most
recent consecutive quarters, average
total consolidated assets will be based
on the average of the company’s total
consolidated assets, as reported on the
company’s FR Y–9C, for the most recent
quarter or consecutive quarters. In either
case, average total consolidated assets
are measured on the as-of date of the
relevant regulatory report.
Once the average total consolidated
assets of a bank holding company
exceed $50 billion, the company will
remain subject to the final rule’s
requirements unless and until the total
consolidated assets of the company are
less than $50 billion, as reported on four
FR Y–9C reports consecutively filed.
Average total consolidated assets are
measured on the as-of date of the FR Y–
9C.
The final rule does not apply to
foreign banking organizations. The
Board expects to issue for public
comment a separate rulemaking on the
application of enhanced prudential
standards and early remediation
requirements established under the
Dodd-Frank Act, including enhanced
capital and stress testing requirements,
to foreign banking organizations at a
later date. A U.S.-domiciled bank
holding company subsidiary of a foreign
banking organization that has total
consolidated assets of $50 billion or
more is subject to the requirements of
this final rule. 18
B. Effective Date
Under the proposal, the stress testing
requirements would have become
effective upon adoption of a final rule.
A bank holding company that was a
covered company as of the effective date
of the rule would have been required to
immediately comply with its
requirements. A bank holding company
became a covered company after
foreign banking organization, but does not apply to
any foreign banking organization.
18 A U.S.-domiciled bank holding company
subsidiary of a foreign banking organization that is
currently relying on Supervision and Regulation
Letter SR 01–01 issued by the Board (as in effect
on May 19, 2010) is not required to comply with
the final rule’s requirements until July 21, 2015.

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adoption of the rule but more than 90
days before September 30 of a given
year would have been subject to the
supervisory and company-run stress test
requirements starting that year. With
respect to the mid-cycle company-run
stress test, bank holding companies that
met the proposal’s asset threshold more
than 90 days before March 31 of a given
year would need to satisfy the
requirements of the mid-cycle stress
tests that year (e.g., reporting and
publication requirements). Nonbank
financial companies designated for
supervision by the Council more than
180 days before September 30 of a given
year would have been required to
comply with the stress test requirements
starting that year.
Commenters indicated that the Board
should give companies that have not
participated in CCAR additional time
before subjecting such companies to
stress test requirements. Commenters
argued that delaying implementation for
these companies is necessary to allow
sufficient time to develop the systems
and procedures to collect the
information requested by the Board in
connection with these tests. In response
to these comments, the Board is
delaying the compliance date of stress
test requirements under the final rule
for certain bank holding companies that
have not previously participated in
stress testing through SCAP or CCAR.
Under the final rule, a bank holding
company that participated in SCAP, or
successor to such bank holding
company, is required to comply with
the supervisory and company-run stress
test requirements beginning on
November 15, 2012, unless that time is
extended by the Board in writing.19 All
other bank holding companies that are
covered companies will be required to
comply with the supervisory and
company-run stress test requirements
beginning in the fall of 2013, unless that
time is extended by the Board in
writing.20
Commenters similarly expressed
concern that bank holding companies
and nonbank financial companies that
19 The bank holding companies that participated
in SCAP were: American Express Company, Bank
of America Corporation, BB&T Corporation, Bank of
New York Mellon Corporation, Capital One
Financial Corp., Citigroup, Inc., Fifth Third
Bancorp, GMAC LLC (now Ally Financial Inc.),
Goldman Sachs Group Inc., JPMorgan Chase & Co.,
KeyCorp, MetLife Inc., Morgan Stanley, PNC
Financial Services Group, Regions Financial
Corporation, State Street Corp., SunTrust Banks,
Inc., US Bancorp, and Wells Fargo & Company.
20 Covered companies are required to submit FR
Y–14 data as of September 30, 2012. In addition,
all bank holding companies with total consolidated
assets of $50 billion or more remain subject to the
requirements of the Board’s capital plan rule (12
CFR 225.8).

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become covered companies after the
effective date of the final rule would not
have sufficient time to build the
systems, contract with outside vendors,
recruit experienced personnel, and
develop stress testing models that are
unique to their organization under the
proposed compliance date. In addition,
the Federal Advisory Council
recommended that the Board phase in
disclosure requirements to minimize
risk, build precedent, and allow banks
and supervisors to gain experience,
expertise, and mutual understanding of
stress testing models.
In response to these comments, the
Board extended the compliance date
applicable to bank holding companies
that become covered companies after
the effective date of the rule. Under the
final rule, such a bank holding company
will be required to conduct its first
stress tests beginning in the fall of the
calendar year after the company
becomes a covered company, unless that
time is extended by the Board in
writing.
The Board also is extending the
compliance date applicable to nonbank
covered companies to provide that all
nonbank covered companies will be
required to conduct their first stress test
in the calendar year after the year in
which the nonbank covered company
becomes subject to the Board’s
minimum regulatory capital
requirements, unless the Board
accelerates or extends the compliance
date. The extended timeline for
nonbank financial companies
supervised by the Board will allow
those companies and the Board to build
and adapt stress testing systems and
processes for application to specific
nonbank businesses.

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C. Overview of Stress Test Requirements
Applicable to Both Supervisory and
Company-Run Stress Tests
The Board designed the final rule in
a manner to integrate the supervisory
stress tests and company-run stress tests
with the Board’s capital plan rule in
order to achieve a streamlined regime
that minimizes regulatory burden. The
following discussion describes three of
these integrated aspects: Timing,
reporting, and scenario design.
1. Timing of the Stress Testing
Requirements
Under the proposal, the Board would
have required an as-of date of

21 As

described below in section III.E.1 of this
the Board may require
a covered company with significant trading activity,
as determined by the Board and specified in the
Capital Assessments and Stress Testing information
SUPPLEMENTARY INFORMATION,

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September 30 of information to be
submitted to the Board, provided
covered companies with scenarios for
the supervisory and annual companyrun stress tests by mid-November of
each year, required the filing of
regulatory reports by January 5, and
provided for publication of summary
results of the annual company-run stress
test and supervisory stress tests in early
April. For the mid-cycle company-run
stress test, the Board proposed to
require regulatory reports by July 5 and
publication of summary results by early
October.
Several commenters provided
suggestions on the proposed timeline for
the supervisory and company-run stress
tests. Comments included those relating
to the as-of date for data to be submitted
by covered companies, the date for
submitting results to the Board, and the
dates when public disclosures of stress
test results are to be made. For instance,
some commenters suggested that the
Board should use data collected at as-of
dates other than September 30, such as
June 30 or December 31, and make
corresponding changes to the timing of
public disclosure in order to reduce
burden on companies during the yearend period. One commenter suggested
having a floating submission date,
allowing organizations to submit their
results at the point in the year when it
is most convenient. Some commenters
also requested that the Board release the
scenarios earlier to provide banking
organizations more time to prepare the
required reports for the stress tests.
In order to integrate the supervisory
and company-run stress tests with the
capital plan rule, the final rule generally
maintains the timing for the supervisory
and company-run stress tests set forth in
the proposal. The capital plan rule
requires bank holding companies to
submit their capital plan to the Board by
January 5 using a September 30 as-of
date in order to provide the Board
sufficient time to review the bank
holding company’s capital plan and to
provide its assessment to the bank
holding company within the first
quarter, minimizing the potential to
disrupt the bank holding company’s
ability to make capital distributions in
subsequent quarters of that year.
Accordingly, the final rule maintains a
September 30 as-of date and the January
5th date for submission of the report to
the Board in order to align the

requirements and reduce any undue
burden for covered companies.21
Correspondingly, the final rule
maintains the March 31 as-of date for
the mid-cycle company-run stress tests.
Commenters requested that the Board
release the scenarios earlier in the
annual stress test cycle to provide
covered companies more time to
prepare the reports for supervisory
stress tests and company-run stress
tests. Under the final rule, the Board
will provide descriptions of the
baseline, adverse, and severely adverse
scenarios generally applicable to
covered companies no later than
November 15 of each year, and provide
any additional components or scenarios
by December 1. The Board believes that
providing scenarios earlier than
November could result in the scenarios
being stale, particularly in a rapidly
changing economic environment, and
that it is important to incorporate
economic or financial market data that
are as current as possible while
providing sufficient time for covered
companies to incorporate the scenarios
in their annual company-run stress
tests.
Commenters also noted that the
proposed public disclosure deadlines
(early April for annual supervisory and
company-run stress tests and early
October for mid-cycle company-run
stress tests) would interfere with socalled ‘‘quiet periods’’ that some
publicly-traded banking organizations
enforce in the lead up to earnings
announcements. These quiet periods are
designed to limit communications that
could disseminate proprietary company
information prior to earnings
announcements.
In light of these comments, the Board
adjusted the disclosure date to avoid
interfering with firms’ quiet periods.
Under the final rule, covered companies
are required to disclose the results of
their annual company-run stress tests
between March 15 and March 31 and to
disclose the results of their mid-cycle
company-run stress tests between
September 15 and September 30.
Table 1 describes the annual
supervisory and company-run stress test
cycles, including the anticipated general
timeframes for each step in 2013.

collection (FR Y–14), to include a trading and
counterparty scenario in its stress test. The data
used in this scenario will be as of a date between
October 1 and December 1 of that calendar year
selected by the Board, and the Board will

communicate the as-of date and a description of the
component to the company no later than December
1 of the calendar year.

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22 Covered companies must disclose their results
in the period between March 15 and March 31.
23 The FR Y–14 contains information that the
Board has determined is necessary in order for the
Board to derive the relevant pro forma estimates of
the covered company over the planning horizon for
purposes of both this rule and the Board’s capital
plan rule. The Board expects to apply the FR Y–
14 to a nonbank financial company supervised by
the Board upon such a company’s designation.

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Federal Register notice, the Board has
invited comment on these reports, the
Capital Assessments and Stress Testing
information collection (FR Y–14Q, FR
Y–14M, and FR Y–14A, together, FR Y–
14). For purposes of the mid-cycle
company-run stress test, a covered
company will file a regulatory report
with the Board by July 5. The Board
expects that this report will be identical
to or modeled on the FR Y–14A, and
will seek public comment on it.
In addition, the Board may require a
covered company to submit any other
information on a consolidated basis that
the Board deems necessary in order to
ensure that the Board has sufficient
information to conduct supervisory
stress test; and project a company’s
losses, pre-provision net revenue,
provision for loan and lease losses, pro
forma capital levels, regulatory capital
ratios, and tier 1 common ratio under
the scenarios it provides. In addition,

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the Board may obtain supplemental
information from covered companies, as
needed, through the supervisory
process.
The confidentiality of any information
submitted to the Board for the
supervisory and company-run stress
tests will be determined in accordance
with the Board’s rules regarding
availability of information.24
3. Scenarios
The proposal provided that the Board
would publish a minimum of three
different sets of economic and financial
conditions, including baseline, adverse,
and severely adverse scenarios, under
which the Board would conduct its
annual analyses and companies would
conduct their annual company-run
stress tests. The Board would update,
make additions to, or otherwise revise
24 See generally 12 CFR part 261; see also 5 U.S.C.
552(b).

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2. Reporting
To the greatest extent possible, the
final rule’s reporting framework has
been designed to minimize burden on
the covered company and to avoid
duplication, particularly in light of
other reporting requirements that may
be imposed by the Board. Accordingly,
the final rule will require each covered
company to file a single set of regulatory
reports with the Board by January 5 that
contains information that will support
the Board’s supervisory stress tests as
well as report the results of the
company-run stress tests.23 In a separate

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these scenarios as appropriate, and
would publish any such changes to the
scenarios in advance of conducting each
year’s stress test.
Commenters suggested that significant
changes in scenarios from year to year
could cause a banking organization’s
stress testing results to dramatically
change. To ameliorate this volatility,
commenters suggest that the federal
banking agencies have a uniform
approach for identifying stress scenarios
or establish a ‘‘quantitative severity
limit’’ in the final rule to ensure that
scenarios do not drastically change from
year to year. Commenters pointed out
that consistency in annual scenario
development will make comparability of
stress test results between institutions
and across time periods more accurate,
increase market confidence in the
results of stress tests, and make for more
dependable capital planning by banking
organizations. Commenters also
requested the opportunity to provide
input on the scenarios.
The Board believes that it is important
to have a consistent and transparent
framework to support scenario design.
To further this goal, the final rule
clarifies the definition of ‘‘scenarios’’
and includes definitions of baseline,
adverse, and severely adverse scenarios.
Scenarios are defined as those sets of
conditions that affect the U.S. economy
or the financial condition of a covered
company that the Board, or with respect
to the mid-cycle stress test, the covered
company, annually determines are
appropriate for use in the company-run
stress tests, including, but not limited
to, baseline, adverse, and severely
adverse scenarios.
The baseline scenario is defined as a
set of conditions that affect the U.S.
economy or the financial condition of a
covered company and that reflect the
consensus views of the economic and
financial outlook. The adverse scenario
is defined as a set of conditions that
affect the U.S. economy or the financial
condition of a covered company that are
more adverse than those associated with
the baseline scenario and may include
trading or other additional components.
The severely adverse scenario is defined
as a set of conditions that affect the U.S.
economy or the financial condition of a
covered company and that overall are
more severe than those associated with
the adverse scenario and may include
trading or other additional components.
In general, the baseline scenario will
reflect the consensus views of the
macroeconomic outlook expressed by
professional forecasters, government
agencies, and other public-sector
organizations as of the beginning of the
annual stress-test cycle. The Board

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expects that the severely adverse
scenario will, at a minimum, include
the paths of economic variables that are
generally consistent with the paths
observed during severe post-war U.S.
recessions. Each year the Board expects
to take into account of salient risks that
affect the U.S. economy or the financial
condition of a covered company that
may not be observed in a typical severe
recession. The Board expects that the
adverse scenario will, at a minimum,
include the paths of economic variables
that are generally consistent with mild
to moderate recessions. The Board may
vary the approach it uses for the adverse
scenario each year so that the results of
the scenario provide the most value to
supervisors, given the current
conditions of the economy and the
banking industry. Some of the
approaches the Board may consider
using include, but are not limited to, a
less severe version of the severely
adverse scenario or specifically
capturing, in the adverse scenario, risks
that the Board believes should be
understood better or should be
monitored.
The scenarios will consist of a set of
conditions that affect the U.S. economy
or the financial condition of a covered
company over the stress test planning
horizon. These conditions will include
projections for a range of
macroeconomic and financial
indicators, such as real Gross Domestic
Product (GDP), the unemployment rate,
equity and property prices, and various
other key financial variables, and will
be updated each year to reflect changes
in the outlook for economic and
financial conditions. The paths of these
economic variables could reflect risks to
the economic and financial outlook that
are especially salient but were not
prevalent in recessions of the past.
Depending on the systemic footprint
and scope of operations and activities of
a company, the Board may use, and
require that company to use, additional
components in the adverse and severely
adverse scenarios or additional or more
complex scenarios that are designed to
capture salient risks to specific lines of
business. For example, the Board
recognizes that certain trading positions
and trading-related exposures are highly
sensitive to adverse market events,
potentially leading to large short-term
volatility in covered companies’
earnings. To address this risk, the Board
may require covered companies with
significant trading activities to include
market price and rate ‘‘shocks’’ in their
adverse and severely adverse scenarios
as specified by the Board, that are
consistent with historical or other
adverse market events. In addition, the

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scenarios, in some cases, may also
include stress factors that may not be
directly correlated to macroeconomic or
financial assumptions but nevertheless
can materially affect covered
companies’ risks, such as factors that
affect operational risks. The process by
which the Board may require a covered
company to include additional
components in its adverse and severely
adverse scenarios or to use additional
scenarios is described under section
III.E.2 of this SUPPLEMENTARY
INFORMATION. The Board plans to
publish for comment a policy statement
that describes its framework for
developing scenarios.
Some commenters suggested that the
Board adopt a tailored approach to
scenarios to better capture idiosyncratic
characteristics of each company. For
example, commenters representing the
insurance industry suggested that any
stress testing regime applicable to
insurance companies incorporate shocks
relating to the exogenous factors that
actually impact a particular company,
such as a shock to the insurance
company’s insurance policy portfolio
arising from a natural disaster, and deemphasize shocks arising from
traditional banking activities.
In the Board’s view, a generally
uniform set of scenarios is necessary to
provide a basis for comparison across
companies. However, the Board expects
that each company’s stress testing
practices will be tailored to its business
model and lines of business, and that
the company may not use all of the
variables provided in the scenario, if
those variables are not appropriate to
the firm’s line of business, or may add
additional variables, as appropriate.25 In
addition, the Board expects banking
organizations to consider other
scenarios that are more idiosyncratic to
their operations and associated risks as
part of their ongoing internal analyses of
capital adequacy and include companyspecific vulnerabilities in their
scenarios when complying with the
Board’s requirements for mid-cycle
company-run stress test as described in
section 252.145.
D. Annual Supervisory Stress Tests
Conducted by the Board
The following discussion describes
the Board’s methodologies for the
conduct of the stress tests, the process
the Board intends to use to
25 The Board expects banking organizations will
ensure that the paths of such additional variables
are consistent with the scenarios the Board
provided. For example, the path of any local
economic variable should be consistent with the
path of a national economic variable that the Board
provides.

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communicate the results to the
company, the post-assessment actions
that a company is expected to take in
response to the supervisory stress tests,
and the Board’s publication of the stress
test results.

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1. Methodology for Estimating Losses
and Revenues
In the NPR, the Board proposed that
it would use the analytical techniques it
determines to be appropriate to identify,
measure, and monitor risks of covered
companies that may affect the financial
stability of the United States. The Board
also outlined in the proposal the general
framework it would use to analyze the
projected losses, pre-provision net
revenue, provision for loan and lease
losses, and pro forma, post-stress capital
levels and regulatory capital ratios in
conducting a stress test for covered
companies.
The Board received numerous
comments requesting greater clarity
with respect to the application of the
supervisory stress test models. For
example, commenters requested that the
Board increase the transparency of the
Board’s analysis, modeling techniques,
and assumptions used to analyze the
banks by stress tests in the final rule.
Commenters further recommended that
these models and applications should
be subject to a final public consultative
process prior to implementation and
that the Board should provide a detailed
description of models in the form of
consultative ‘‘white papers.’’
The Board is currently considering
how to provide more transparency with
respect to its models while not reducing
incentives on the part of covered
companies to develop better internal
stress test models that factor in their
idiosyncratic risks and to consider the
results of such models in their capital
planning process. At a minimum, the
Board plans to publish an overview of
its stress testing methodologies each
year. In addition, the Board expects to
communicate the extent and timing of
disclosure of information about
supervisory models at a later date.
The Board has established an
independent, internal model validation
group to review supervisory models and
their implementation, which is intended
to foster continuing improvements in
supervisory modeling practices. In
addition, the Board formed the Model
Validation Council earlier this year,
composed of independent, external
experts who provide input to the
Board’s internal model validation
process used to assess the effectiveness
of the models used in the supervisory

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stress tests.26 The Model Validation
Council is intended to improve the
quality of the Board’s model validation
process, and, thereby, strengthen
confidence in the Board’s stress tests.
As described in the proposal, the
anticipated framework to be used in
supervisory stress tests has a number of
elements. The Board will calculate each
covered company’s projected losses,
pre-provision net revenue, provision for
loan and lease losses and other factors
affecting capital using a series of models
and estimation techniques that relate
the economic and financial variables in
the baseline, adverse, and severely
adverse scenarios to the company’s
losses and revenues. The Board has
developed a series of models to estimate
losses on various types of loans and
securities held by the covered company,
using data submitted by that company.
These models may be adjusted over
time. The Board will use a separate
methodology or a combination of
methodologies—potentially including
covered companies’ internal models, if
appropriate—to estimate projected
losses related to covered companies’
trading portfolio or counterparty creditrisk exposures in the event of an adverse
market shock, taking into account the
complexity and idiosyncrasies of each
covered company’s positions. The
methodology may also incorporate an
approach to estimate potential losses
from stress factors specifically affecting
the covered companies’ other risks.
Finally, the framework will include a
set of methodologies to assess the effect
of losses, pre-provision net revenue,
provision for loan and lease losses, and
other factors on pro forma capital levels
and ratios.
In response to commenters’ requests
for more clarity regarding the Board’s
assumptions used to calculate a covered
company’s stress test results, the Board
is providing additional detail on the
assumptions it intends to use to
describe how a company’s capital
positions would change over time. To
help ensure that the publicly disclosed
results of supervisory stress tests are
comparable across institutions and
reflect the effect of common
macroeconomic scenarios on net income
and capital but not company-specific
assumptions about capital distributions,
the Board is applying a consistent
26 The Board published a press release on the
Model Validation Council on April 20, 2012. See
Press Release, Board of Governors of the Federal
Reserve System, Federal Reserve Board announces
the formation of the Model Validation Council (Apr.
20, 2012) available at http://
www.federalreserve.gov/newsevents/press/bcreg/
20120420a.htm.

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62385

approach to assumptions across
companies.
For the first quarter of the planning
horizon, the Board will take into
account the company’s actual capital
actions as of the end of the calendar
quarter. For each of the second through
ninth quarters of the planning horizon,
the Board will include the following
items in the projections of capital: (i)
Common stock dividends equal to the
quarterly average dollar amount of
common stock dividends that the
company paid in the previous year (that
is, the first quarter of the planning
horizon and the preceding three
calendar quarters); (ii) payments on any
other instrument that is eligible for
inclusion in the numerator of a
regulatory capital ratio equal to the
stated dividend, interest, or principal
due on such instrument during the
quarter; and (iii) an assumption of no
redemption or repurchase of any capital
instrument that is eligible for inclusion
in the numerator of a regulatory capital
ratio.
These assumptions are the same
assumptions that covered companies are
required to use in conducting their
company-run stress tests, as described
below in section III.E.3 of this
SUPPLEMENTARY INFORMATION. Adopting
a consistent, standardized approach
across covered companies and across
the supervisory and company-run stress
tests will provide for improved
comparability across companies and
between the supervisory and companyrun stress tests.
Another element of the supervisorystress test framework is a set of
assumptions or models to describe how
a covered company’s balance sheet
would change over time.27 Information
about planned future acquisitions and
divestitures by the companies will also
be incorporated. These projections will
then be analyzed to assess their
combined effect on the covered
company’s capital position, including
projected capital levels and capital
ratios, at the end of each quarter in the
planning horizon. The framework will
incorporate all regulatory capital
measures and the tier 1 common ratio.
These projections used in the
supervisory stress tests also will
incorporate, as appropriate, any
significant changes in or the significant
effects of accounting requirements
during the planning period.
27 At times, the Board may assume in its
supervisory stress tests that the covered company’s
balance sheet would change over time, following
the paths projected by the company.

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2. Description of Supervisory
Assessment

to a company before it publicly
discloses a summary of such results.

The Board, through its annual
analyses, will evaluate each covered
company as to whether the covered
company has the capital, on a total
consolidated basis, necessary to
continue operating under economic and
financial market conditions as
contained in the designated scenarios.
This evaluation will include, but will
not be limited to, a review of the
covered company’s estimated losses,
pre-provision net revenue, provision for
loan and lease losses, and the extent of
their effect on the company’s capital
levels and ratios, including pro forma
regulatory capital ratios and the tier 1
common ratio.

4. Post-Assessment Actions by Covered
Companies
Under the final rule, subsequent to
receiving the results of the Board’s
annual analyses, each covered company
must take the results of such analysis
conducted by the Board into account in
making changes, as appropriate, to the
company’s capital plan and capital
structure (including the level and
composition of capital) and its
exposures, concentrations, and risk
positions; and any plans of the company
for recovery or resolution. In addition,
each covered company must make such
updates to its resolution plan (required
to be submitted annually to the Board
and FDIC pursuant to the Board’s
Regulation QQ (12 CFR part 243) and
the FDIC’s Part 381 (12 CFR part 381))
as the Board, based on the results of its
analyses of the company, determines
appropriate.

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3. Communication of Results to Covered
Companies
Under the Dodd-Frank Act, the Board
is required to disclose a summary of the
results of its annual analyses.28 In the
NPR, the Board proposed that, prior to
publishing a summary of the results of
its annual analyses, the Board would
convey to each covered company the
results of the Board’s analyses of that
company and explain to the company
any information that the Board expected
to make public.
Numerous commenters requested that
the final rule include a formal appeals
process to dispute the Board’s findings
prior to public release of stress test
results. According to these commenters,
banking organizations should have the
opportunity to defend the results of
their internal models against the results
of supervisory stress tests, and explain
any major differences in assumptions or
potential drivers of divergent results
between the two to the Board in a
confidential manner prior to
publication.
The final rule does not provide for a
process whereby a company would be
able to appeal the results of its
supervisory stress test. The Board’s
supervisory stress tests reflect the
Board’s independent estimates of
revenue, losses, and capital under
various scenarios, using consistent
models and assumptions across all
companies. Covered companies are
separately required to disclose the
results of their own stress tests, which
will provide the company’s own
assessment of its capital adequacy under
stress conditions that are consistent
with those included in the Board’s
supervisory stress test.
The Board expects to communicate
the results of its supervisory stress tests
28 12

U.S.C. 5365(i)(1)(B)(v).

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5. Publication of Results by the Board
In the NPR, the Board proposed that,
within a reasonable period of time after
completing the annual analyses of
covered companies (but no later than by
mid-April of each calendar year), the
Board would disclose a summary of the
results of such analyses. The Board also
said that it expected to disclose quarterend results over the specified planning
horizon that included estimated losses
on a variety of lines of business,
estimated allowance for loan and lease
losses, and estimated pro forma
regulatory and other capital ratios.
In response, nearly all commenters
advocated that the Board use more
limited disclosures requirements for the
supervisory and company-run stress
tests, suggesting that the disclosures
proposed in the NPR go beyond what is
mandated in the Act. In particular,
nearly all commenters strongly
recommended against the disclosure of
the results under the baseline scenario.
Commenters indicated the baseline
scenario results would be perceived as
earnings guidance, which may compel
the banking organization to prioritize
short-term results over more appropriate
longer-term risk management and
sustained long term results.
Commenters also indicated that
disclosure of baseline results may force
the premature disclosure of future plans
by the institution, create confusion
among investors and the public, and
give rise to liability under securities
laws.
Several commenters also suggested
that the Board disclose the results using
the template used to disclose the CCAR

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results, which they likened to
publication of only the severely adverse
results. Commenters expressed the view
that the CCAR disclosure regime was
appropriately balanced by providing
useful information to market
participants while simultaneously
ensuring that disclosure of stress tests
results does not result in providing
earnings guidance.
As noted above, the Board believes
that public disclosure is a key
component of stress test requirements
mandated by the Act, and helps to
provide valuable information to market
participants, enhance transparency, and
promote market discipline. However,
the Board understands the concern that
the disclosure of results (particularly
baseline results) could be viewed as
earnings guidance to the market. Thus,
for the stress test conducted in 2012, the
Board expects that, similar to the public
disclosure following CCAR in early
2012, the Board will disclose results
under the severely adverse scenario for
each company that will include
estimates of the following information:
• Pre-provision net revenue and other
revenue;
• Provision for loan and lease losses,
realized losses or gains on available-forsale and held-to-maturity securities,
trading and counterparty losses, and
other losses or gains; 29
• Net income before taxes;
• Loan losses (dollar amount and as
a percentage of average portfolio
balance) in aggregate and by
subportfolio, including: Domestic
closed-end first-lien mortgages;
domestic junior lien mortgages and
home equity lines of credit; commercial
and industrial loans; commercial real
estate loans; credit card exposures; other
consumer loans; and all other loans; and
• Pro forma regulatory and other
capital ratios (including the tier 1
common ratio, as defined in the capital
plan rule, and any other capital ratios
specified by the Board).
The Board expects that the results
relating to pre-provision net revenue
and other revenue; provision for loan
and lease losses, realized losses/gains
on available-for-sale and held-tomaturity securities, trading and
counterparty losses, and other losses or
gains; net income before taxes; loan
losses in the aggregate and by
subportfolio will include the cumulative
total over the planning horizon, and the
regulatory and other capital ratios will
include at least the actual capital ratio
29 Other losses and gains include, but are not
limited to projected losses on loans that are heldfor-sale and held-for-investment measured under
the fair value option, and goodwill impairment.

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Federal Register / Vol. 77, No. 198 / Friday, October 12, 2012 / Rules and Regulations
as of September 30, 2012, and the
minimum and ending capital ratios over
the planning horizon. In addition, the
Board may include additional elements
under the severely adverse scenario, as
it deems appropriate. The Board will
disclose these summary results no later
than March 31 of a calendar year.
As the Board implements the DoddFrank stress testing requirements, it
intends to evaluate whether public
disclosure of the results of the adverse
and baseline would assist in informing
the company and market participants
about the condition of the banking
organization. The Board expects to
revisit the scope of the disclosure from
time to time, and may disclose the
results under the adverse and baseline
scenario in the future.
In response to commenters’ concerns
that market participants may
misunderstand the published results of
the Board’s analyses, the Board
emphasizes that there are certain factors
to bear in mind when interpreting these
published results. For example, the
outputs of the analyses might not align
with those produced by other parties
conducting similar exercises, even if a
similar set of scenarios were used, due
to differences in methodologies and
assumptions used to produce those
outputs. In addition, the outputs under
the severely adverse scenarios should
not be viewed as forecasts or expected
outcomes or as a measure of any
covered company’s solvency. Instead,
those outputs are the estimates from
forward-looking exercises that consider
possible outcomes based on a set of
hypothetical scenarios.

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E. Annual and Mid-Cycle Stress Tests
Conducted by the Covered Companies
1. Overview
The final rule requires each covered
company to conduct an annual stress
test by January 5 of each calendar year
and a mid-cycle stress test by July 5 of
each calendar year. A stress test is
defined as a process to assess the
potential impact of scenarios on the
consolidated earnings, losses, and
capital of a covered company over the
planning horizon, taking into account
its current condition, risks, exposures,
strategies, and activities.
A covered company is required to run
its annual stress test using financial data
as of September 30 of the preceding
calendar year and its mid-cycle stress
test using financial data as of March 31
of the preceding calendar year. The
following discussion describes the
scenarios, methodology, and practices
that a company will use in conducting
the annual and mid-cycle stress tests

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and disclosure requirements applicable
to the company.
2. Scenarios
For the annual stress test, covered
companies will use the same scenarios
as the Board will use for its supervisory
stress analysis. The scenarios will
include a minimum of three different
sets of economic and financial
conditions, including baseline, adverse,
and severely adverse scenarios, which
covered companies will be required to
use to conduct their annual companyrun stress tests. The Board will publish
baseline, adverse, and severely adverse
scenarios by no later than November 15
of each year, except with respect to
additional components or scenarios
described below.
As discussed in section III.C.3 of the
SUPPLEMENTARY INFORMATION, the Board
may require a covered company with
significant trading activity, as
determined by the Board and reflected
on the FR Y–14, to include a global
market shock component in its adverse
and severely adverse scenario that
measures potential stress losses from
trading activities and counterparty
exposures in its stress test.30 The data
used in this component for purposes of
the annual company-run stress test will
have an as-of date between October 1
and December 1 of that calendar year
selected by the Board and the as-of date
will be communicated to the company
no later than December 1 of the calendar
year.
In addition, depending on the
systemic footprint and scope of
operations and activities of a covered
company, the Board may require the
company to use additional components
in its adverse and severely adverse or to
use additional or more complex
scenarios that are designed to capture
salient risks stemming from specific
lines of business.31 Scenarios may also
include stress factors, such as
operational risk, that materially affect
the financial condition of a covered
company but are not directly correlated
to macroeconomic or financial
assumptions.
The Board will notify a covered
company in writing no later than
September 30 that it will be required to
include additional components in its
30 As of September 30, 2012, companies subject
to the global market shock scenario included those
bank holding companies with total consolidated
assets of $500 billion or more that are subject to the
market-risk measure set forth in Appendix E of the
Board’s Regulation Y (12 CFR Part 225, Appendix
E).
31 In making this assessment, the Board will
consider the financial condition, size, complexity,
risk profile, scope of operations, or activities, or
risks to the U.S. economy of the company.

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adverse and severely adverse scenarios
or additional scenarios in its stress test.
The notification will include the basis
for requiring the company to include the
additional components or additional
scenarios in its stress test. Within 14
calendar days of receipt of a
notification, a covered company may
request in writing that the Board
reconsider the requirement that the
company include additional
components or additional scenarios in
its stress test, including an explanation
as to why the reconsideration should be
granted. The Board will respond in
writing within 14 calendar days of
receipt of the covered company’s
request. The Board will provide a
covered company with a description of
any additional components or
additional scenarios, including the
trading component described above, by
December 1.
Under the final rule, the Board will
not provide scenarios to covered
companies for the mid-cycle companyrun stress tests. Rather, for the midcycle company-run stress test, a covered
company will be required to develop
and use a minimum of three sets of its
own scenarios—a baseline, adverse, and
severely adverse scenario. The Board
anticipates that covered companies may
use a variety of quantitative and
qualitative approaches to develop the
scenarios. The adverse and severely
adverse scenarios used in mid-cycle
stress tests should reflect a company’s
unique vulnerabilities to factors that
affect its firm-wide activities and risk
exposures, including macroeconomic,
market-wide, and firm-specific events.
The Board expects the companies to
consider their own risk profiles and
operations in designing specific
elements of the adverse and severely
adverse scenarios. If appropriate, the
Board will publish additional guidance
to covered companies describing the
considerations they should take into
account in developing the scenarios for
the mid-cycle company-run stress tests.
The Board may require a covered
company to include additional
components or scenarios in its stress
test based on the company’s financial
condition, size, complexity, risk profile,
scope of operations, or activities, or
risks to the U.S. economy. The notice
and response procedures are parallel to
those applicable in the annual
company-run stress test.
3. Methodologies and Practices
Under the final rule, a covered
company will be required to use the
applicable scenarios discussed above in
conducting its stress tests to calculate,
for each quarter-end within the

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planning horizon, potential losses, preprovision net revenue, provision for
loan and lease losses, and capital levels
over the planning horizon. Each covered
company will also be required to
calculate, for each quarter in the
planning horizon, the potential effect of
the specific scenarios on its regulatory
capital ratios and tier 1 common ratio.
Several commenters asked that the
Board generally adopt the disclosure
approach it used in CCAR 2012, which
provided for a uniform set of
assumptions of capital actions across
bank holding companies. In response to
these commenters and to enable
comparisons across firms and between
the company-run and supervisory stress
tests, the final rule requires a covered
company to make the following
assumptions regarding its capital
actions over the planning horizon. For
the first quarter of the planning horizon,
the covered company must take into
account its actual capital actions as of
the end of the calendar quarter. For each
of the second through ninth quarters of
the planning horizon, the covered
company must include the following
items in the projections of capital: (i)
Common stock dividends equal to the
quarterly average dollar amount of
common stock dividends that the
company paid in the previous year (that
is, the first quarter of the planning
horizon and the preceding three
calendar quarters); (ii) payments on any
other instrument that is eligible for
inclusion in the numerator of a
regulatory capital ratio equal to the
stated dividend, interest, or principal
due on such instrument during the
quarter; and (iii) an assumption of no
redemption or repurchase of any capital
instrument that is eligible for inclusion
in the numerator of a regulatory capital
ratio. The Board is requiring companies
to adopt a standard approach to
developing these assumptions to ensure
that the publicly disclosed results of
company-run stress tests are comparable
across institutions and reflect the effect
of common macroeconomic scenarios
on net income and capital but not
company-specific assumptions about
capital distributions.
The proposed rule would have
required a covered company to establish
and maintain a system of controls,
oversight, and documentation,
including policies and procedures,
designed to ensure that the stress testing
processes were effective. It also would
have required the board of directors and
senior management of the covered
company to annually review the
controls, oversight, and documentation
established pursuant to the final rule.

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Several commenters asked for
clarification on the roles of the board of
directors and senior management in
establishing and reviewing these
controls. In response to these
commenters, the final rule clarifies that
the senior management is responsible
for establishing and maintaining a
system of controls, oversight, and
documentation, including policies and
procedures, designed to ensure that the
stress testing processes used by the
company are effective in meeting the
requirements of the final rule. The board
of directors, or an appropriate
committee thereof, is responsible for
approving and reviewing the policies
and procedures of the stress testing
processes as frequently as economic
conditions or the condition of the
company may warrant, but no less than
annually. The board of directors and
senior management of the company
must receive a summary of the results
of the stress test.
The company’s policies and
procedures must, at a minimum, outline
the company’s stress testing practices
and methodologies, and processes for
validating and updating the company’s
stress testing practices and
methodologies consistent with
applicable laws, regulations, and
supervisory guidance. Each covered
company must also include in its
policies information describing its
processes for scenario development for
the mid-cycle stress test required under
the final rule.
The final rule also requires that the
board of directors and senior
management of each covered company
to consider the results of the stress tests
when developing and maintaining the
covered company’s capital plan and
capital planning processes and any
plans for recovery and resolution, and
assessing the exposures, concentration,
and risk positions, including under
times of stress, in light of the bank’s risk
profile.
4. Publication of Results by the
Company
Under the proposal, consistent with
the requirements of the Dodd-Frank Act,
a covered company would have been
required to disclose a summary of the
results of its company-run stress tests
within 75 days of submitting its
required report to the Board.
Consistent with comments on the
supervisory stress testing disclosure,
nearly all commenters suggested that
companies should not be required to
disclose information relating to their
baseline results or on a quarter-byquarter basis, and that the Board adopt

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the template used in reporting the CCAR
results.
As noted above, the Board believes
that public disclosure is a key
component of stress test requirements
mandated by the Act, and helps to
provide valuable information to market
participants, enhance transparency, and
facilitate market discipline. However,
the Board also understands the concern
that the disclosure of results
(particularly baseline results) could be
viewed as earnings guidance to the
market. Thus, the final rule requires
banking organizations to disclose only
the severely adverse results. As
companies begin conducting companyrun stress tests, submitting the results of
all scenarios to the Board, and
disclosing a summary of their results
under the severely adverse scenario, the
Board expects to evaluate whether
public disclosure of the results of the
adverse and baseline scenarios would
assist the public in understanding the
condition of the banking organization.
Thus, the Board expects to revisit the
scope of required public disclosure from
time to time, and may determine to
require disclosure of the results under
the adverse and baseline scenarios in
the future.
At a minimum, the publication of
summary results by a covered company
must include with respect to the
severely adverse scenario:
(i) A description of the types of risks
included in the stress test;
(ii) A general description of the
methodologies used in the stress test,
including those employed to estimate
losses, revenues, provision for loan and
lease losses, and changes in capital
positions over the planning horizon;
(iii) Results of company-run stress
tests, including, but not limited to
estimated:
• Pre-provision net revenue and other
revenue;
• Provision for loan and lease losses,
realized losses/gains on available-forsale and held-to-maturity securities),
trading and counterparty losses, and
other losses/gains; 32
• Net income before taxes;
• Loan losses (dollar amount and as
a percentage of average portfolio
balance) in the aggregate and by
subportfolio, including: Domestic
closed-end first-lien mortgages;
domestic junior lien mortgages and
home equity lines of credit; commercial
and industrial loans; commercial real
estate loans; credit card exposures; other
32 Other losses and gains include, but are not
limited to projected losses on loans that are heldfor-sale and held-for-investment measured under
the fair value option, and goodwill impairment.

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Federal Register / Vol. 77, No. 198 / Friday, October 12, 2012 / Rules and Regulations
consolidated assets of more than $10
billion, disclosure by a bank holding
company of the results of its state
member bank subsidiary’s stress test
will satisfy public disclosure
requirements applicable to that
subsidiary under section 165(i)(2) of the
Dodd-Frank Act, unless the Board
determines that the disclosures at the
holding company level do not
adequately capture the potential impact
of the scenarios on the capital of the
state member bank.

consumer loans; and all other loans; 33
and
• Pro forma regulatory capital ratios
and the tier 1 common ratio; and
(iv) An explanation of the most
significant causes for the changes in
regulatory capital ratios and tier 1
common ratio.
The results disclosed by covered
companies must include the cumulative
total for (1) pre-provision net revenue
and other revenue; (2) provision for loan
and lease losses, realized losses/gains
on available-for-sale and held-tomaturity securities, trading and
counterparty losses, and other losses or
gains; (3) net income before taxes; and
(4) loan losses in the aggregate and by
subportfolio over the planning horizon.
The disclosure of pro forma capital
ratios must include at least the actual
beginning ratios (as of September 30 for
annual stress tests and as of March 31
for mid-cycle stress tests), the ending
ratios, and the minimum ratios over the
planning horizon.
Several commenters suggested that
regulatory agencies coordinate
disclosure requirements for multiple
banking organizations within a single
parent company as the release of
conflicting test results could confuse
market participants. Additionally,
commenters recommended more limited
disclosure requirements for depository
institution subsidiaries.
In response to these comments, the
final rule requires bank holding
companies that are covered companies
to include in their public disclosure a
summary of any company-run stress test
conducted by a depository institution
subsidiary that is required to disclose a
summary of stress test results under
applicable regulations.34 The public
disclosures with respect to a depository
institution subsidiary must include
changes in pro forma regulatory capital
ratios of the depository institution
subsidiary over the planning horizon,
including an explanation of the most
significant causes for the changes in
those ratios. For subsidiary state
member banks, the Board expects that
this disclosure will include a general
description of methodologies used to
estimate capital actions over the
planning horizon. As described in the
concurrently issued final rule applicable
to state member banks with total

Request for Comment on Final
Information Collection
In accordance with section 3512 of
the Paperwork Reduction Act of 1995
(44 U.S.C. 3501–3521) (PRA), the Board
may not conduct or sponsor, and a
respondent is not required to respond
to, an information collection unless it
displays a currently valid Office of
Management and Budget (OMB) control
number. The OMB control number will
be assigned. The Board reviewed the
final rule under the authority delegated
to the Board by OMB.
The final rule contains requirements
subject to the PRA. The recordkeeping
requirements are found in section
252.146(c)(1) 35 (formerly section
252.145(b)(1) in the proposed rule) and
the disclosure requirements are found in
section 252.148. These information
collection requirements will implement
sections 165(i)(1) and (2) of the DoddFrank Act for covered companies, as
mentioned in the Abstract below.
The reporting requirements found in
section 252.137(b) have been addressed
in the Resolution Plans Required

33 In the proposed rule, the Board noted that it
expected covered companies to disclose the loan
loss results of their company-run stress tests in the
aggregate and by subportfolio. In response to
commenters’ requests for clarity on disclosure
expectations, the final rule specifies the
subportfolios for which a company will be required
to disclose loan losses.
34 See, e.g., 12 CFR 252.157(b)(2).

35 Some of the recordkeeping requirements for
Subpart G—Company-Run Stress Test
Requirements for Covered Companies have been
addressed in the proposed Recordkeeping and
Disclosure Provisions Associated with Stress
Testing Guidance (FR 4202). See the Federal
Register notice published on June 15, 2011 (76 FR
35072). Only new recordkeeping requirements are
being addressed with this proposed rulemaking

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IV. Administrative Law Matters
A. Use of Plain Language
Section 722 of the Gramm-LeachBliley Act (Pub. L. 106–102, 113 Stat.
1338, 1471, 12 U.S.C. 4809) requires the
Federal banking agencies to use plain
language in all proposed and final rules
published after January 1, 2000. The
Board invited comment on whether the
proposed rule was written plainly and
clearly, or whether there were ways the
Board could make the rule easier to
understand. The Board received no
comments on these matters and believes
that the final rule is written plainly and
clearly.
B. Paperwork Reduction Act Analysis

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Regulation (Reg QQ; OMB No. 7100–
0346).36 The reporting requirements
found in sections 252.135(a), 252.144,
252.146(a), and 252.147(a)(1) have been
incorporated into the Capital
Assessments and Stress Testing (FR Y–
14; OMB No. 7100–0341). The reporting
requirements found in sections 252.145
and 252.147(a)(2) will be addressed as
separate Federal Register notice for the
FR Y–14 at a later date. The
recordkeeping requirements found in
section 252.137(a)(1) have been
incorporated into the Capital Plans
Regulation (Reg Y–13; OMB No. 7100–
0342).
The Board received general comments
regarding the burden of the proposed
rule. In response to these comments and
to reduce burden, only covered
companies that are bank holding
companies and that participated in
SCAP will be required to conduct a
stress test under the final rule this year.
Other bank holding companies that are
covered companies with $50 billion or
more in total consolidated assets will
not begin conducting stress tests under
the final rule until fall 2013.
The Board has an ongoing interest in
your comments.
Comments are invited on:
(a) Whether the proposed collections
of information are necessary for the
proper performance of the Federal
Reserve’s functions, including whether
the information has practical utility;
(b) The accuracy of the Federal
Reserve’s estimate of the burden of the
proposed information collections,
including the validity of the
methodology and assumptions used;
(c) Ways to enhance the quality,
utility, and clarity of the information to
be collected;
(d) Ways to minimize the burden of
the information collections on
respondents, including through the use
of automated collection techniques or
other forms of information technology;
and
(e) Estimates of capital or start up
costs and costs of operation,
maintenance, and purchase of services
to provide information.
All comments will become a matter of
public record. Comments on aspects of
this notice that may affect reporting,
recordkeeping, or disclosure
requirements and burden estimates
should be sent to the addresses listed in
the ADDRESSES section. A copy of the
comments may also be submitted to the
OMB desk officer for the Agencies: By
mail to U.S. Office of Management and
Budget, 725 17th Street NW., #10235,
36 See the Federal Register notice published on
November 1, 2011 (76 FR 67323).

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Washington, DC 20503 or by facsimile
to 202–395–5806, Attention,
Commission and Federal Banking
Agency Desk Officer.
Title of Information Collection:
Recordkeeping and Disclosure
Requirements Associated with
Regulation YY (Subparts F and G).
Frequency of Response: Annual and
semiannual.
Affected Public: Businesses or other
for-profit.
Respondents: U.S. bank holding
companies and nonbank financial
companies.
Abstract: Section 165 of the DoddFrank Act implements the enhanced
prudential standards. The enhanced
standards include risk-based capital and
leverage requirements, liquidity
standards, requirements for overall risk
management (including establishing a
risk committee), single-counterparty
credit limits, stress test requirements,
and debt-to-equity limits for companies
that the Council has determined pose a
grave threat to financial stability.
Section 252.146(c)(1) requires that
each covered company must establish
and maintain a system of controls,
oversight, and documentation,
including policies and procedures, that
are designed to ensure that its stress
testing processes are effective in
meeting the requirements in Subpart G.
These policies and procedures must, at
a minimum, describe the covered
company’s stress testing practices and
methodologies, and processes for
validating and updating the covered
institution’s stress test practices and
methodologies consistent with
applicable laws, regulations, and
supervisory guidance. Policies of
covered companies must describe
processes for scenario development for
the mid-cycle stress test required under
section 252.145.
Section 252.148 requires a covered
company to publish a summary of the
results of the stress test required under
section 252.144 in the period beginning
on March 15 and ending on March 31,
unless that time is extended by the
Board in writing. A covered company
must also publish a summary of the
results of the stress test required under
section 252.145 in the period beginning
on September 15 and ending on
September 30, unless that time is
extended by the Board in writing. The
information disclosed by each covered
company, at a minimum, include the
following information regarding the
severely adverse scenario: (1) A
description of the types of risks being
included in the stress test; (2) a general
description of the methodologies used
in the stress test, including those

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employed to estimate losses, revenues,
provision for loan and lease losses, and
changes in capital positions over the
planning horizon; (3) estimates of preprovision net revenue and other
revenue; provisions for loan and lease
losses, realized losses/gains on
available-for-sale and held-to-maturity
securities, trading and counterparty
losses, and other losses or gains; net
income before taxes; loan losses (dollar
amount and as a percentage of average
portfolio balance) in the aggregate and
by subportfolio, including: Domestic
first-lien mortgages; domestic junior lien
and home equity lines of credit;
commercial and industrial loans;
commercial real estate loans; credit
cards; other consumer loans; and all
other loans; and regulatory capital ratios
and the tier 1 common ratio; (4) an
explanation of the most significant
causes for the changes in regulatory
capital ratios and tier 1 common ratio;
and (5) with respect to a stress test
conducted by an insured depository
institution subsidiary of the covered
company pursuant to subpart H of this
part 252, changes in regulatory capital
ratios of the depository institution
subsidiary over the planning horizon,
including an explanation of the most
significant causes for the changes in
regulatory capital ratios.
Estimated Paperwork Burden
Estimated Burden per Response:
Section 252.146(c)(1) recordkeeping—
40 hours (Initial setup 280 hours for
U.S. bank holding companies $50
billion and over in total consolidated
assets).
Section 252.148 disclosure—80 hours
(Initial setup 200 hours).
Number of respondents: 34 U.S. bank
holding companies with total
consolidated assets of $50 billion or
more.
Total estimated annual burden:
29,920 hours (23,120 hours for initial
setup and 6,800 hours for ongoing
compliance).
C. Regulatory Flexibility Act Analysis
The Regulatory Flexibility Act, 5
U.S.C. 601 et seq. (RFA), requires each
federal agency to prepare a final
regulatory flexibility analysis in
connection with the promulgation of a
final rule, or certify that the final rule
will not have a significant economic
impact on a substantial number of small
entities.37 The Board believes that the
final rule will not have a significant
economic impact on a substantial
number of small entities, but
37 See

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nonetheless is conducting the RFA
analysis for this final rule.
In accordance with section 165(i)(1)
and (2) of the Dodd-Frank Act, the
Board is adopting the final rule as
Regulation YY and adding new Part 252
(12 CFR part 252) to establish the
requirements that a covered company
provide data to support the Board’s
annual supervisory stress test and
conduct company-run stress tests semiannually.38 The reasons and
justification for the final rule are
described in the SUPPLEMENTARY
INFORMATION.
Under regulations issued by the Small
Business Administration (SBA), a
‘‘small entity’’ includes those firms
within the ‘‘Finance and Insurance’’
sector with asset sizes that vary from $7
million or less in assets to $175 million
or less in assets.39 The Board believes
that the Finance and Insurance sector
constitutes a reasonable universe of
firms for these purposes because such
firms generally engage in actives that are
financial in nature. Consequently, bank
holding companies or nonbank financial
companies with assets sizes of $175
million or less are small entities for
purposes of the RFA.
As discussed in the SUPPLEMENTARY
INFORMATION, the final rule applies to a
‘‘covered company,’’ which includes
only bank holding companies with $50
billion or more in total consolidated
assets, and nonbank financial
companies that the Council has
determined under section 113 of the
Dodd-Frank Act must be supervised by
the Board and for which such
determination is in effect. Bank holding
companies that are subject to the final
rule therefore substantially exceed the
$175 million asset threshold at which a
banking entity is considered a ‘‘small
entity’’ under SBA regulations. The final
rule will apply to a nonbank financial
company supervised by the Board
regardless of such a company’s asset
size. Although the asset size of nonbank
financial companies may not be the
determinative factor of whether such
companies may pose systemic risks and
would be designated by the Council for
supervision by the Board, it is an
important consideration.40 It is therefore
unlikely that a financial firm that is at
or below the $175 million asset
threshold would be designated by the
Council under section 113 of the DoddFrank Act because material financial
distress at such firms, or the nature,
38 See

12 U.S.C. 5365(i)(1) and (2).
CFR 121.201.
40 See Authority To Require Supervision and
Regulation of Certain Nonbank Financial
Companies, 77 FR 21637 (April 11, 2012) (to be
codified at 12 CFR part 1310).
39 13

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Federal Register / Vol. 77, No. 198 / Friday, October 12, 2012 / Rules and Regulations
scope, size, scale, concentration,
interconnectedness, or mix of it
activities, are not likely to pose a threat
to the financial stability of the United
States.
As noted above, because the final rule
is not likely to apply to any company
with assets of $175 million or less, the
final rule is not expected to apply to any
small entity for purposes of the RFA.
Moreover, as discussed in the
SUPPLEMENTARY INFORMATION, the DoddFrank Act requires the Board to adopt
rules implementing the provisions of
section 165(i)(2) of the Dodd-Frank Act.
The Board does not believe that the final
rule would have a significant economic
impact on a substantial number of small
entities or that the final rule duplicates,
overlaps, or conflicts with any other
Federal rules.
List of Subjects in 12 CFR Part 252
Administrative practice and
procedure, Banks, Banking, Federal
Reserve System, Holding companies,
Nonbank Financial Companies
Supervised by the Board, Reporting and
recordkeeping requirements, Securities,
Stress Testing.
Authority and Issuance
For the reasons stated in the
preamble, the Board of Governors of the
Federal Reserve System adds 12 CFR
part 252 to read as follows:
PART 252—ENHANCED PRUDENTIAL
STANDARDS (REGULATION YY)
Sec.
Subparts A—E [Reserved]
Subpart F—Supervisory Stress Test
Requirements for Covered Companies
252.131 Authority and purpose.
252.132 Definitions.
252.133 Applicability.
252.134 Annual analysis conducted by the
Board.
252.135 Data and information required to
be submitted in support of the Board’s
analyses.
252.136 Review of the Board’s analysis;
publication of summary results.
252.137 Use requirement.

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Subpart G—Company-Run Stress Test
Requirements for Covered Companies
252.141
252.142
252.143
252.144
252.145
252.146
252.147
252.148

Authority and purpose.
Definitions.
Applicability.
Annual stress test.
Mid-cycle stress test.
Methodologies and practices.
Reports of stress test results.
Disclosure of stress test results.

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Subpart H [Reserved]
Subpart I [Reserved]
Authority: 12 U.S.C. 321–338a, 1467a(g),
1818, 1831p–1, 1844(b), 1844(c), 5361, 5365,
5366.

Subparts A—E [Reserved]
Subpart F—Supervisory Stress Test
Requirements for Covered Companies
§ 252.131

Authority and purpose.

(a) Authority. 12 U.S.C. 321–338a,
1467a(g), 1818, 1831p–1, 1844(b),
1844(c), 5361, 5365, 5366.
(b) Purpose. This subpart implements
section 165(i)(1) of the Dodd-Frank Act
(12 U.S.C. 5365(i)(1)), which requires
the Board to conduct annual analyses of
nonbank financial companies
supervised by the Board and bank
holding companies with $50 billion or
more in total consolidated assets to
evaluate whether such companies have
the capital, on a total consolidated basis,
necessary to absorb losses as a result of
adverse economic conditions.
§ 252.132

Definitions.

For purposes of this subpart, the
following definitions apply:
(a) Adverse scenario means a set of
conditions that affect the U.S. economy
or the financial condition of a covered
company that are more adverse than
those associated with the baseline
scenario and may include trading or
other additional components.
(b) Average total consolidated assets
means the average of the total
consolidated assets as reported by a
bank holding company on its
Consolidated Financial Statements for
Bank Holding Companies (FR Y–9C) for
the four most recent consecutive
quarters. If the bank holding company
has not filed the FR Y–9C for each of the
four most recent consecutive quarters,
average total consolidated assets means
the average of the company’s total
consolidated assets, as reported on the
company’s FR Y–9C, for the most recent
quarter or consecutive quarters. Average
total consolidated assets are measured
on the as-of date of the most recent FR
Y–9C used in the calculation of the
average.
(c) Bank holding company has the
same meaning as in section 225.2(c) of
the Board’s Regulation Y (12 CFR
225.2(c)).
(d) Baseline scenario means a set of
conditions that affect the U.S. economy
or the financial condition of a covered
company and that reflect the consensus
views of the economic and financial
outlook.
(e) Covered company means:

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(1) A bank holding company (other
than a foreign banking organization)
with average total consolidated assets of
$50 billion or more; and
(2) A nonbank financial company
supervised by the Board.
(f) Depository institution has the same
meaning as in section 3 of the Federal
Deposit Insurance Act (12 U.S.C.
1813(c)).
(g) Foreign banking organization has
the same meaning as in section
211.21(o) of the Board’s Regulation K
(12 CFR 211.21(o)).
(h) Nonbank financial company
supervised by the Board means a
nonbank financial company that the
Financial Stability Oversight Council
has determined under section 113 of the
Dodd-Frank Act (12 U.S.C. 5323) shall
be supervised by the Board and for
which such determination is still in
effect.
(i) Planning horizon means the period
of at least nine quarters, beginning on
the first day of a stress test cycle (on
October 1) over which the relevant
projections extend.
(j) Pre-provision net revenue means
the sum of net interest income and noninterest income less expenses before
adjusting for loss provisions.
(k) Provision for loan and lease losses
means the provision for loan and lease
losses as reported by the covered
company on the FR Y–9C.
(l) Regulatory capital ratio means a
capital ratio for which the Board
established minimum requirements by
regulation or order, including a
company’s leverage ratio and tier 1 and
total risk-based capital ratios as
calculated under the Board’s
regulations, including appendices A, D,
E, and G to 12 CFR part 225 or any
successor regulation.
(m) Scenarios are those sets of
conditions that affect the U.S. economy
or the financial condition of a covered
company that the Board annually
determines are appropriate for use in
the supervisory stress tests, including,
but not limited to, baseline, adverse,
and severely adverse scenarios.
(n) Severely adverse scenario means a
set of conditions that affect the U.S.
economy or the financial condition of a
covered company and that overall are
more severe than those associated with
the adverse scenario and may include
trading or other additional components.
(o) Stress test cycle means the period
between October 1 of a calendar year
and September 30 of the following
calendar year. For the purposes of the
stress test cycle commencing in 2012,
such cycle will begin on November 15,
2012.

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(p) Subsidiary has the same meaning
as in section 225.2(o) of the Board’s
Regulation Y (12 CFR 225.2).
(q) Tier 1 common ratio has the same
meaning as in section 225.8(c)(9) of the
Board’s Regulation Y (12 CFR
225.8(c)(9)).

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§ 252.133

Applicability.

(a) Compliance date for bank holding
companies that are covered companies
as of November 15, 2012. (1) In general.
Except as provided in paragraph (a)(2)
or (a)(3) of this section, a bank holding
company that is a covered company as
of November 15, 2012, must comply
with the requirements of this subpart
beginning with the stress test cycle that
commences on October 1, 2013, unless
that time is extended by the Board in
writing.
(2) 2009 Supervisory Capital
Assessment Program. A bank holding
company that participated in the 2009
Supervisory Capital Assessment
Program, or a successor to such a bank
holding company, must comply with
the requirements of this subpart
beginning with the stress test cycle that
commences on November 15, 2012,
unless that time is extended by the
Board in writing.
(3) SR Letter 01–01. A U.S.-domiciled
bank holding company that is a covered
company as of November 15, 2012, and
is a subsidiary of a foreign banking
organization that is currently relying on
Supervision and Regulation Letter SR
01–01 issued by the Board (as in effect
on May 19, 2010) must comply with the
requirements of this subpart beginning
with the stress test cycle that
commences on October 1, 2015, unless
that time is extended by the Board in
writing.
(b) Compliance date for institutions
that become covered companies after
November 15, 2012. (1) Bank holding
companies. A bank holding company
that becomes a covered company after
November 15, 2012, must comply with
the requirements of this subpart
beginning with the stress test cycle that
commences in the calendar year after
the year in which the bank holding
company becomes a covered company,
unless that time is extended by the
Board in writing.
(2) Nonbank financial companies
supervised by the Board. A company
that becomes a nonbank financial
company supervised by the Board must
comply with the requirements of this
subpart beginning with the stress test
cycle that commences in the calendar
year after the year in which the
company first becomes subject to the
Board’s minimum regulatory capital
requirements, unless the Board

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accelerates or extends the compliance
date.
(c) Ongoing application. A bank
holding company that is a covered
company will remain subject to the
requirements of this subpart unless and
until its total consolidated assets fall
below $50 billion for each of four
consecutive quarters, as reported on the
FR Y–9C. The calculation will be
effective on the as-of date of the fourth
consecutive FR Y–9C.
§ 252.134 Annual analysis conducted by
the Board.

(a) In general. (1) On an annual basis,
the Board will conduct an analysis of
each covered company’s capital, on a
total consolidated basis, taking into
account all relevant exposures and
activities of that covered company, to
evaluate the ability of the covered
company to absorb losses in specified
economic and financial conditions.
(2) The analysis will include an
assessment of the projected losses, net
income, and pro forma capital levels
and regulatory capital ratios, tier 1
common ratio, and other capital ratios
for the covered company and use such
analytical techniques that the Board
determines are appropriate to identify,
measure, and monitor risks of the
covered company that may affect the
financial stability of the United States.
(3) In conducting the analyses, the
Board will coordinate with the
appropriate primary financial regulatory
agencies and the Federal Insurance
Office, as appropriate.
(b) Economic and financial scenarios
related to the Board’s analysis. The
Board will conduct its analysis under
this section using a minimum of three
different scenarios, including a baseline
scenario, adverse scenario, and severely
adverse scenario. The Board will notify
covered companies of the scenarios that
the Board will apply to conduct the
analysis for each stress test cycle by no
later than November 15 of each year,
except with respect to trading or any
other components of the scenarios and
any additional scenarios that the Board
will apply to conduct the analysis,
which will be communicated by no later
than December 1.
§ 252.135 Data and information required to
be submitted in support of the Board’s
analyses.

(a) Regular submissions. Each covered
company must submit to the Board such
data, on a consolidated basis, that the
Board determines is necessary in order
for the Board to derive the relevant pro
forma estimates of the covered company
over the planning horizon under the
scenarios described in § 252.134(b).

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(b) Additional submissions required
by the Board. The Board may require a
covered company to submit any other
information on a consolidated basis that
the Board deems necessary in order to:
(1) Ensure that the Board has
sufficient information to conduct its
analysis under this subpart; and
(2) Project a company’s pre-provision
net revenue, losses, provision for loan
and lease losses, and net income; and,
pro forma capital levels, regulatory
capital ratios, tier 1 common ratio, and
any other capital ratio specified by the
Board under the scenarios described in
section 252.134(b).
(c) Confidential treatment of
information submitted. The
confidentiality of information submitted
to the Board under this subpart and
related materials shall be determined in
accordance with the Freedom of
Information Act (5 U.S.C. 552(b)) and
the Board’s Rules Regarding Availability
of Information (12 CFR part 261).
§ 252.136 Review of the Board’s analysis;
publication of summary results.

(a) Review of results. Based on the
results of the analysis conducted under
this subpart, the Board will conduct an
evaluation to determine whether the
covered company has the capital, on a
total consolidated basis, necessary to
absorb losses and continue its operation
by maintaining ready access to funding,
meeting its obligations to creditors and
other counterparties, and continuing to
serve as a credit intermediary under
baseline, adverse and severely adverse
scenarios, and any additional scenarios.
(b) Communication of results to
covered companies. The Board will
convey to a covered company a
summary of the results of the Board’s
analyses of such covered company
within a reasonable period of time, but
no later than March 31.
(c) Publication of results by the Board.
By March 31 of each calendar year, the
Board will disclose a summary of the
results of the Board’s analyses of a
covered company.
§ 252.137

Use requirement.

(a) In general. The board of directors
and senior management of each covered
company must consider the results of
the analysis conducted by the Board
under this subpart, as appropriate:
(1) As part of the covered company’s
capital plan and capital planning
process, including when making
changes to the covered company’s
capital structure (including the level
and composition of capital);
(2) When assessing the covered
company’s exposures, concentrations,
and risk positions; and

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(3) In the development or
implementation of any plans of the
covered company for recovery or
resolution.
(b) Resolution plan updates. Each
covered company must update its
resolution plan as the Board determines
appropriate, based on the results of the
Board’s analyses of the covered
company under this subpart.
Subpart G—Company-Run Stress Test
Requirements for Covered Companies
§ 252.141

Authority and purpose.

(a) Authority. 12 U.S.C. 321–338a,
1467a(g), 1818, 1831p–1, 1844(b),
1844(c), 5361, 5365, 5366.
(b) Purpose. This subpart implements
section 165(i)(2) of the Dodd-Frank Act
(12 U.S.C. 5365(i)(2)), which requires a
covered company to conduct annual
and semi-annual stress tests. This
subpart also establishes definitions of
stress test and related terms,
methodologies for conducting stress
tests, and reporting and disclosure
requirements.

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§ 252.142

Definitions.

For purposes of this subpart, the
following definitions apply:
(a) Adverse scenario means a set of
conditions that affect the U.S. economy
or the financial condition of a covered
company that are more adverse than
those associated with the baseline
scenario and may include trading or
other additional components.
(b) Average total consolidated assets
means the average of the total
consolidated assets as reported by a
bank holding company on its
Consolidated Financial Statements for
Bank Holding Companies (FR Y–9C) for
the four most recent consecutive
quarters. If the bank holding company
has not filed the FR Y–9C for each of the
four most recent consecutive quarters,
average total consolidated assets means
the average of the company’s total
consolidated assets, as reported on the
company’s FR Y–9C, for the most recent
quarter or consecutive quarters. Average
total consolidated assets are measured
on the as of date of the most recent FR
Y–9C used in the calculation of the
average.
(c) Bank holding company has the
same meaning as in section 225.2(c) of
the Board’s Regulation Y (12 CFR
225.2(c)).
(d) Baseline scenario means a set of
conditions that affect the U.S. economy
or the financial condition of a covered
company and that reflect the consensus
views of the economic and financial
outlook.
(e) Capital action has the same
meaning as in section 225.8(c)(1) of the

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Board’s Regulation Y (12 CFR
225.8(c)(1)).
(g) Covered company means:
(1) A bank holding company (other
than a foreign banking organization)
with average total consolidated assets of
$50 billion or more; and
(2) A nonbank financial company
supervised by the Board.
(h) Depository institution has the
same meaning as in section 3 of the
Federal Deposit Insurance Act (12
U.S.C. 1813(c)).
(i) Foreign banking organization has
the same meaning as in section
211.21(o) of the Board’s Regulation K
(12 CFR 211.21(o)).
(j) Nonbank financial company
supervised by the Board means a
nonbank financial company that the
Financial Stability Oversight Council
has determined under section 113 of the
Dodd-Frank Act (12 U.S.C. 5323) shall
be supervised by the Board and for
which such determination is still in
effect.
(k) Planning horizon means the period
of at least nine quarters, beginning on
the first day of a stress test cycle (on
October 1 or April 1, as appropriate)
over which the relevant projections
extend.
(l) Pre-provision net revenue means
the sum of net interest income and noninterest income less expenses before
adjusting for loss provisions.
(m) Provision for loan and lease losses
means the provision for loan and lease
losses as reported by the covered
company on the FR Y–9C.
(n) Regulatory capital ratio means a
capital ratio for which the Board
established minimum requirements by
regulation or order, including a
company’s leverage ratio and tier 1 and
total risk-based capital ratios as
calculated under the Board’s
regulations, including appendices A, D,
E, and G to 12 CFR part 225, and
appendices A, B, E, and F to part 208
or any successor regulation.
(o) Scenarios are those sets of
conditions that affect the U.S. economy
or the financial condition of a covered
company that the Board, or with respect
to the mid-cycle stress test required
under section 252.145 of this subpart,
the covered company, annually
determines are appropriate for use in
the company-run stress tests, including,
but not limited to, baseline, adverse,
and severely adverse scenarios.
(p) Severely adverse scenario means a
set of conditions that affect the U.S.
economy or the financial condition of a
covered company and that overall are
more severe than those associated with
the adverse scenario and may include
trading or other additional components.

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(q) Stress test means a process to
assess the potential impact of scenarios
on the consolidated earnings, losses,
and capital of a covered company over
the planning horizon, taking into
account its current condition, risks,
exposures, strategies, and activities.
(r) Stress test cycle means the period
between October 1 of a calendar year
and September 30 of the following
calendar year. For the purposes of the
stress test cycle commencing in 2012,
such cycle will begin on November 15,
2012.
(s) Subsidiary has the same meaning
as in section 225.2(o) the Board’s
Regulation Y (12 CFR 225.2).
(t) Tier 1 common ratio has the same
meaning as in section 225.8(c)(9) of the
Board’s Regulation Y (12 CFR
225.8(c)(9)).
§ 252.143

Applicability.

(a) Compliance date for bank holding
companies that are covered companies
as of November 15, 2012—(1) In general.
Except as provided in paragraph (a)(2)
or (a)(3) of this section, a bank holding
company that is a covered company as
of November 15, 2012, must comply
with the requirements of this subpart
beginning with the stress test cycle
commencing on October 1, 2013, unless
that time is extended by the Board in
writing.
(2) 2009 Supervisory Capital
Assessment Program. A bank holding
company that participated in the 2009
Supervisory Capital Assessment
Program, or a successor to such a bank
holding company, must comply with
the requirements of this subpart
beginning with the stress test cycle
commencing on November 15, 2012,
unless that time is extended by the
Board in writing.
(3) SR Letter 01–01. A U.S.-domiciled
bank holding company that is a covered
company as of November 15, 2012, and
is a subsidiary of a foreign banking
organization that is currently relying on
Supervision and Regulation Letter SR
01–01 issued by the Board (as in effect
on May 19, 2010) must comply with the
requirements of this subpart beginning
with the stress test cycle commencing
on October 1, 2015, unless that time is
extended by the Board in writing.
(b) Compliance date for institutions
that become covered companies after
November 15, 2012—(1) Bank holding
companies. A bank holding company
that becomes a covered company after
November 15, 2012, must comply with
the requirements of this subpart
beginning with the stress test cycle that
commences in the calendar year after
the year in which the bank holding
company becomes a covered company,

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unless that time is extended by the
Board in writing.
(2) Nonbank financial companies
supervised by the Board. A company
that becomes a nonbank financial
company supervised by the Board must
comply with the requirements of this
subpart beginning with the stress test
cycle that commences in the calendar
year after the year in which company
first becomes subject to the Board’s
minimum regulatory capital
requirements, unless the Board
accelerates or extends the compliance
date.
(c) Ongoing application. A bank
holding company that is a covered
company will remain subject to the
requirements of this subpart unless and
until its total consolidated assets fall
below $50 billion for each of four
consecutive quarters, as reported on the
FR Y–9C. The calculation will be
effective on the as-of date of the fourth
consecutive FR Y–9C.

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§ 252.144

Annual stress test.

(a) In general. A covered company
must conduct an annual stress test by
January 5 during each stress test cycle
based on data as of September 30 of the
preceding calendar year, unless the time
or the as of date is extended by the
Board in writing.
(b) Scenarios provided by the Board.
(1) In general. In conducting a stress test
under this section, a covered company
must use the scenarios provided by the
Board. Except as provided in paragraphs
(b)(2) and (3) of this section, the Board
will provide a description of the
scenarios to each covered company no
later than November 15 of that calendar
year.
(2) Additional components. (i) The
Board may require a covered company
with significant trading activity, as
determined by the Board and specified
in the Capital Assessments and Stress
Testing report (FR Y–14), to include a
trading and counterparty component in
its adverse and severely adverse
scenarios in the stress test required by
this section. The data used in this
component will be as of a date between
October 1 and December 1 of that
calendar year selected by the Board, and
the Board will communicate the as-of
date and a description of the component
to the company no later than December
1 of the calendar year.
(ii) The Board may require a covered
company to include one or more
additional components in its adverse
and severely adverse scenarios in the
stress test required by this section based
on the company’s financial condition,
size, complexity, risk profile, scope of

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operations, or activities, or risks to the
U.S. economy.
(3) Additional scenarios. The Board
may require a covered company to use
one or more additional scenarios in the
stress test required by this section based
on the company’s financial condition,
size, complexity, risk profile, scope of
operations, or activities, or risks to the
U.S. economy.
(4) Notice and response. If the Board
requires a covered company to include
one or more additional components in
its adverse and severely adverse
scenarios under paragraph (b)(2)(ii) of
this section or to use one or more
additional scenarios under paragraph
(b)(3) of this section, the Board will
notify the company in writing no later
than September 30. The notification will
include a general description of the
additional component(s) or additional
scenario(s) and the basis for requiring
the company to include the additional
component(s) or additional scenario(s).
Within 14 calendar days of receipt of a
notification under this paragraph, the
covered company may request in
writing that the Board reconsider the
requirement that the company include
the additional component(s) or
additional scenario(s), including an
explanation as to why the
reconsideration should be granted. The
Board will respond in writing within 14
calendar days of receipt of the
company’s request. The Board will
provide the covered company with a
description of any additional
component(s) or additional scenario(s)
by December 1.
§ 252.145

Mid-cycle stress test.

(a) Mid-cycle stress test requirement.
In addition to the stress test required
under section 252.144 of this subpart, a
covered company must conduct a stress
test by July 5 during each stress test
cycle based on data as of March 31 of
that calendar year, unless the time or
the as-of date is extended by the Board
in writing.
(b) Scenarios related to mid-cycle
stress tests—(1) In general. A covered
company must develop and employ a
minimum of three scenarios, including
a baseline scenario, adverse scenario,
and severely adverse scenario, that are
appropriate for its own risk profile and
operations, in conducting the stress test
required by this section.
(2) Additional components. The
Board may require a covered company
to include one or more additional
components in its adverse and severely
adverse scenarios in the stress test
required by this section based on the
company’s financial condition, size,
complexity, risk profile, scope of

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operations, or activities, or risks to the
U.S. economy.
(3) Additional scenarios. The Board
may require a covered company to use
one or more additional scenarios in the
stress test required by this section based
on the company’s financial condition,
size, complexity, risk profile, scope of
operations, or activities, or risks to the
U.S. economy.
(4) Notice and response. If the Board
requires a covered company to include
one or more additional components in
its adverse and severely adverse
scenarios under paragraph (b)(2) of this
section or one or more additional
scenarios under paragraph (b)(3) of this
section, the Board will notify the
company in writing no later than March
31. The notification will include a
general description of the additional
component(s) or additional scenario(s)
and the basis for requiring the company
to include the additional component(s)
or additional scenario(s). Within 14
calendar days of receipt of a notification
under this paragraph, the covered
company may request in writing that the
Board reconsider the requirement that
the company include the additional
component(s) or additional scenario(s),
including an explanation as to why the
reconsideration should be granted. The
Board will respond in writing within 14
calendar days of receipt of the
company’s request. The Board will
provide the covered company with a
description of any additional
component(s) or additional scenario(s)
by June 1.
§ 252.146

Methodologies and practices.

(a) Potential impact on capital. In
conducting a stress test under
§§ 252.144 and 252.145, for each quarter
of the planning horizon, a covered
company must estimate the following
for each scenario required to be used:
(1) Losses, pre-provision net revenue,
provision for loan and lease losses, and
net income; and
(2) The potential impact on pro forma
regulatory capital levels and pro forma
capital ratios (including regulatory
capital ratios, the tier 1 common ratio,
and any other capital ratios specified by
the Board), incorporating the effects of
any capital actions over the planning
horizon and maintenance of an
allowance for loan losses appropriate for
credit exposures throughout the
planning horizon.
(b) Assumptions regarding capital
actions. In conducting a stress test
under §§ 252.144 and 252.145, a
covered company is required to make
the following assumptions regarding its
capital actions over the planning
horizon—

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Federal Register / Vol. 77, No. 198 / Friday, October 12, 2012 / Rules and Regulations
(1) For the first quarter of the
planning horizon, the covered company
must take into account its actual capital
actions as of the end of that quarter; and
(2) For each of the second through
ninth quarters of the planning horizon,
the covered company must include in
the projections of capital:
(i) Common stock dividends equal to
the quarterly average dollar amount of
common stock dividends that the
company paid in the previous year (that
is, the first quarter of the planning
horizon and the preceding three
calendar quarters);
(ii) Payments on any other instrument
that is eligible for inclusion in the
numerator of a regulatory capital ratio
equal to the stated dividend, interest, or
principal due on such instrument
during the quarter; and
(iii) An assumption of no redemption
or repurchase of any capital instrument
that is eligible for inclusion in the
numerator of a regulatory capital ratio.
(c) Controls and oversight of stress
testing processes—(1) In general. The
senior management of a covered
company must establish and maintain a
system of controls, oversight, and
documentation, including policies and
procedures, that are designed to ensure
that its stress testing processes are
effective in meeting the requirements in
this subpart. These policies and
procedures must, at a minimum,
describe the covered company’s stress
testing practices and methodologies,
and processes for validating and
updating the company’s stress test
practices and methodologies consistent
with applicable laws, regulations, and
supervisory guidance. Policies of
covered companies must also describe
processes for scenario development for
the mid-cycle stress test required under
§ 252.145.
(2) Oversight of stress testing
processes. The board of directors, or a
committee thereof, of a covered
company must approve and review the
policies and procedures of the stress
testing processes as frequently as
economic conditions or the condition of
the covered company may warrant, but
no less than annually. The board of
directors and senior management of the
covered company must receive a
summary of the results of any stress test
conducted under this subpart.
(3) Role of stress testing results. The
board of directors and senior
management of each covered company
must consider the results of the analysis
it conducts under this subpart, as
appropriate:
(i) As part of the covered company’s
capital plan and capital planning
process, including when making

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changes to the covered company’s
capital structure (including the level
and composition of capital);
(ii) When assessing the covered
company’s exposures, concentrations,
and risk positions; and
(iii) In the development or
implementation of any plans of the
covered company for recovery or
resolution.
§ 252.147

Reports of stress test results.

(a) Reports to the Board of stress test
results. (1) A covered company must
report the results of the stress test
required under section 252.144 to the
Board by January 5 of each calendar
year in the manner and form prescribed
by the Board, unless that time is
extended by the Board in writing.
(2) A covered company must report
the results of the stress test required
under section 252.145 to the Board by
July 5 of each calendar year in the
manner and form prescribed by the
Board, unless that time is extended by
the Board in writing.
(b) Confidential treatment of
information submitted. The
confidentiality of information submitted
to the Board under this subpart and
related materials shall be determined in
accordance with applicable exemptions
under the Freedom of Information Act
(5 U.S.C. 552(b)) and the Board’s Rules
Regarding Availability of Information
(12 CFR part 261).
§ 252.148

Disclosure of stress test results.

(a) Public disclosure of results—(1) In
general. (i) A covered company must
disclose a summary of the results of the
stress test required under section
252.144 in the period beginning on
March 15 and ending on March 31,
unless that time is extended by the
Board in writing.
(ii) A covered company must disclose
a summary of the results of the stress
test required under section 252.145 in
the period beginning on September 15
and ending on September 30, unless
that time is extended by the Board in
writing.
(2) Disclosure method. The summary
required under this section may be
disclosed on the Web site of a covered
company, or in any other forum that is
reasonably accessible to the public.
(b) Summary of results. A covered
company must disclose, at a minimum,
the following information regarding the
severely adverse scenario:
(1) A description of the types of risks
included in the stress test;
(2) A general description of the
methodologies used in the stress test,
including those employed to estimate
losses, revenues, provision for loan and

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lease losses, and changes in capital
positions over the planning horizon;
(3) Estimates of—
(i) Pre-provision net revenue and
other revenue;
(ii) Provision for loan and lease losses,
realized losses or gains on available-forsale and held-to-maturity securities,
trading and counterparty losses, and
other losses or gains;
(iii) Net income before taxes;
(iv) Loan losses (dollar amount and as
a percentage of average portfolio
balance) in the aggregate and by
subportfolio, including: domestic
closed-end first-lien mortgages;
domestic junior lien mortgages and
home equity lines of credit; commercial
and industrial loans; commercial real
estate loans; credit card exposures; other
consumer loans; and all other loans; and
(v) Pro forma regulatory capital ratios
and the tier 1 common ratio and any
other capital ratios specified by the
Board;
(4) An explanation of the most
significant causes for the changes in
regulatory capital ratios and the tier 1
common ratio; and
(5) With respect to a stress test
conducted pursuant to section 165(i)(2)
of the Dodd-Frank Act by an insured
depository institution that is a
subsidiary of the covered company and
that is required to disclose a summary
of its stress tests results under
applicable regulations, changes in
regulatory capital ratios and any other
capital ratios specified by the Board of
the depository institution subsidiary
over the planning horizon, including an
explanation of the most significant
causes for the changes in regulatory
capital ratios.
(c) Content of results. (1) The
following disclosures required under
paragraph (b) of this section must be on
a cumulative basis over the planning
horizon:
(i) Pre-provision net revenue and
other revenue;
(ii) Provision for loan and lease losses,
realized losses/gains on available-forsale and held-to-maturity securities,
trading and counterparty losses, and
other losses or gains;
(iii) Net income before taxes; and
(iv) Loan losses in the aggregate and
by subportfolio.
(2) The disclosure of pro forma
regulatory capital ratios, the tier 1
common ratio, and any other capital
ratios specified by the Board that is
required under paragraph (b) of this
section must include the beginning
value, ending value, and minimum
value of each ratio over the planning
horizon.

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Federal Register / Vol. 77, No. 198 / Friday, October 12, 2012 / Rules and Regulations

Subpart H [Reserved]
Subpart I [Reserved]
By order of the Board of Governors of the
Federal Reserve System, October 5, 2012.
Robert deV. Frierson,
Secretary of the Board.
[FR Doc. 2012–24987 Filed 10–11–12; 8:45 am]
BILLING CODE 6210–01–P

FEDERAL RESERVE SYSTEM
12 CFR Part 252
[Regulation YY; Docket No. 1438]
RIN 7100–AD–86

Annual Company-Run Stress Test
Requirements for Banking
Organizations With Total Consolidated
Assets Over $10 Billion Other Than
Covered Companies
Board of Governors of the
Federal Reserve System (Board).
ACTION: Final rule.
AGENCY:

The Dodd-Frank Wall Street
Reform and Consumer Protection Act
(Dodd-Frank Act or Act) requires the
Board to issue regulations that require
financial companies with total
consolidated assets of more than $10
billion and for which the Board is the
primary federal financial regulatory
agency to conduct stress tests on an
annual basis. The Board is adopting this
final rule to implement the companyrun stress test requirements in the
Dodd-Frank Act regarding company-run
stress tests for bank holding companies
with total consolidated assets greater
than $10 billion but less than $50
billion and state member banks and
savings and loan holding companies
with total consolidated assets greater
than $10 billion. This final rule does not
apply to any banking organization with
total consolidated assets of less than $10
billion. Furthermore, implementation of
the stress testing requirements for bank
holding companies, savings and loan
holding companies, and state member
banks with total consolidated assets of
greater than $10 billion but less than
$50 billion is delayed until September
2013.
DATES: This rule is effective November
15, 2012.
FOR FURTHER INFORMATION CONTACT: Tim
Clark, Senior Associate Director, (202)
452–5264, Lisa Ryu, Assistant Director,
(202) 263–4833, Constance Horsley,
Manager, (202) 452–5239, or David
Palmer, Senior Supervisory Financial
Analyst, (202) 452–2904, Division of
Banking Supervision and Regulation;

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SUMMARY:

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Laurie Schaffer, Associate General
Counsel, (202) 452–2272, Benjamin W.
McDonough, Senior Counsel, (202) 452–
2036 or Christine E. Graham, Senior
Attorney, (202) 452–3005, Legal
Division.
SUPPLEMENTARY INFORMATION:
Table of Contents
I. Background
II. Overview of Comments
III. Description of Final Rule
A. Scope of Application
B. Effective Date
C. Annual Stress Test Requirements
IV. Administrative Law Matters
A. Use of Plain Language
B. Riegle Community Development and
Regulatory Improvement Act
C. Paperwork Reduction Act Analysis
D. Regulatory Flexibility Act Analysis

I. Background
The Board has long held the view that
a banking organization, such as a bank
holding company or insured depository
institution, should operate with capital
levels well above its minimum
regulatory capital ratios and
commensurate with its risk profile.1 A
banking organization should also have
internal processes for assessing its
capital adequacy that reflect a full
understanding of its risks and ensure
that it holds capital commensurate with
those risks.2 Moreover, a banking
organization that is subject to the
Board’s advanced approaches risk-based
capital requirements must satisfy
specific requirements relating to their
internal capital adequacy processes in
order to use the advanced approaches to
calculate its minimum risk-based capital
requirements.3 Stress testing is one tool
that helps both bank supervisors and a
banking organization measure the
sufficiency of capital available to
support the banking organization’s
operations throughout periods of stress.4
1 See 12 CFR part 225, Appendix A; see also
Supervision and Regulation Letter SR 99–18,
Assessing Capital Adequacy in Relation to Risk at
Large Banking Organizations and Others with
Complex Risk Profiles (July 1, 1999), available at
http://www.federalreserve.gov/boarddocs/srletters/
1999/SR9918.HTM (hereinafter SR 99–18).
2 See Supervision and Regulation Letter SR 09–
4, Applying Supervisory Guidance and Regulations
on the Payment of Dividends, Stock Redemptions,
and Stock Repurchases at Bank Holding Companies
(Mar. 27, 2009), available at http://
www.federalreserve.gov/boarddocs/srletters/2009/
SR0904.htm (hereinafter SR 09–4).
3 See 12 CFR part 225, Appendix G, section 22(a);
see also, Supervisory Guidance: Supervisory
Review Process of Capital Adequacy (Pillar 2)
Related to the Implementation of the Basel II
Advanced Capital Framework, 73 FR 44620 (July
31, 2008).
4 A full assessment of a company’s capital
adequacy must take into account a range of risk
factors, including those that are specific to a
particular industry or company.

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The Board and the other federal banking
agencies previously have highlighted
the use of stress testing as a means to
better understand the range of a banking
organization’s potential risk exposures.5
In particular, as part of its effort to
stabilize the U.S. financial system
during the recent financial crisis, the
Board, along with other federal financial
regulatory agencies and the Federal
Reserve system, conducted stress tests
of large, complex bank holding
companies through the Supervisory
Capital Assessment Program (SCAP).
The SCAP was a forward-looking
exercise designed to estimate revenue,
losses, and capital needs under an
adverse economic and financial market
scenario. By looking at the broad capital
needs of the financial system and the
specific needs of individual companies,
these stress tests provided valuable
information to market participants,
reduced uncertainty about the financial
condition of the participating bank
holding companies under a scenario
that was more adverse than that which
was anticipated to occur at the time, and
had an overall stabilizing effect.
Building on the SCAP and other
supervisory work coming out of the
crisis, the Board initiated the annual
Comprehensive Capital Analysis and
Review (CCAR) in late 2010 to assess
the capital adequacy and the internal
capital planning processes of large,
complex bank holding companies and to
incorporate stress testing as part of the
Board’s regular supervisory program for
5 See, e.g., Supervisory Guidance on Stress
Testing for Banking Organizations With More Than
$10 Billion in Total Consolidated Assets, 77 FR
29458 (May 17, 2011); Supervision and Regulation
Letter SR 10–6, Interagency Policy Statement on
Funding and Liquidity Risk Management (Mar. 17,
2010), available at http://www.federalreserve.gov/
boarddocs/srletters/2010/sr1006.htm; Supervision
and Regulation Letter SR 10–1, Interagency
Advisory on Interest Rate Risk (Jan. 11, 2010),
available at http://www.federalreserve.gov/
boarddocs/srletters/2010/sr1001.htm; SR 09–4,
supra note2note2170; Supervision and Regulation
Letter SR 07–1, Interagency Guidance on
Concentrations in Commercial Real Estate (Jan. 4,
2007), available at http://www.federalreserve.gov/
boarddocs/srletters/2007/SR0701.htm; SR 99–18,
supra note 11boarddocs/srletters/2007/SR0701.htm;
Supervision and Regulation Letter SR 12–7,
Supervisory Guidance on Stress Testing for Banking
Organizations with More Than $10 Billion in Total
Consolidated Assets, 77 FR 29458 (May 14, 2012),
available at http://www.federalreserve.gov/
bankinforeg/srletters/sr1207.htm; SR 99–18, supra
note 169; Supervisory Guidance: Supervisory
Review Process of Capital Adequacy (Pillar 2)
Related to the Implementation of the Basel II
Advanced Capital Framework, 73 FR 44620 (Jul. 31,
2008); The Supervisory Capital Assessment
Program: SCAP Overview of Results (May 7, 2009),
available at http://www.federalreserve.gov/
newsevents/press/bcreg/bcreg20090507a1.pdf; and
Comprehensive Capital Analysis and Review:
Objectives and Overview (Mar. 18, 2011), available
at http://www.federalreserve.gov/newsevents/press/
bcreg/bcreg20110318a1.pdf.

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