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2012-24608

2012-24608

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61238
Federal Register
/Vol. 77, No. 195/Tuesday, October 9, 2012/Rules and Regulations
1
Dodd-Frank Wall Street Reform and ConsumerProtection Act, Public Law 111–203, 124 Stat. 1376(2010).
2
12 U.S.C. 5301(12).
management that is independent fromthe STIF’s investment management.(I) Adopt procedures that require a bank to disclose to STIF participantsand to the OCC’s Asset ManagementGroup, Credit & Market Risk Division,within five business days after eachcalendar month-end, the fund’s totalassets under management (securitiesand other assets including cash, minusliabilities); the fund’s mark-to-marketand amortized cost net asset values bothwith and without capital supportagreements; the dollar-weighted averageportfolio maturity; the dollar-weightedaverage portfolio life maturity of theSTIF as of the last business day of theprior calendar month; and for eachsecurity held by the STIF as of the last business day of the prior calendarmonth:(
1
) The name of the issuer;(
2
) The category of investment;(
3
) The Committee on UniformSecurities Identification Procedures(CUSIP) number or other standardidentifier;(
4
) The principal amount;(
5
) The maturity date for purposes of calculating dollar-weighted averageportfolio maturity;(
6
) The final legal maturity date(taking into account any maturity dateextensions that may be effected at theoption of the issuer) if different from thematurity date for purposes of calculatingdollar-weighted average portfoliomaturity;(
) The coupon or yield; and(
8
) The amortized cost value;(J) Adopt procedures that require a bank that administers a STIF to notifythe OCC’s Asset Management Group,Credit & Market Risk Division, prior toor within one business day thereafter of the following:(
1
) Any difference exceeding $0.0025 between the net asset value and themark-to-market value of a STIFparticipating interest as calculated usingthe method set forth in paragraph(b)(4)(iii)(G)(1) of this section;(
2
) When a STIF has re-priced its netasset value below $0.995 perparticipating interest;(
3
) Any withdrawal distribution-in-kind of the STIF’s participating interestsor segregation of portfolio participants;(
4
) Any delays or suspensions inhonoring STIF participating interestwithdrawal requests;(
5
) Any decision to formally approvethe liquidation, segregation of assets orportfolios, or some other liquidation of the STIF; or(
6
) In those situations when a bank,its affiliate, or any other entity providesa STIF financial support, including acash infusion, a credit extension, apurchase of a defaulted or illiquid asset,or any other form of financial support inorder to maintain a stable net assetvalue per participating interest;(K) Adopt procedures that in theevent a STIF has re-priced its net assetvalue below $0.995 per participatinginterest, the bank administering theSTIF shall calculate, admit, andwithdraw the STIF’s participatinginterests at a price based on the mark-to-market net asset value; and(L) Adopt procedures that, in theevent a bank suspends or limitswithdrawals and initiates liquidation of the STIF as a result of redemptions,require the bank to:(
1
) Determine that the extent of thedifference between the STIF’s amortizedcost per participating interest and itsmark-to-market net asset value perparticipating interest may result inmaterial dilution of participatinginterests or other unfair results toparticipating accounts;(
2
) Formally approve the liquidationof the STIF; and(
3
) Facilitate the fair and orderlyliquidation of the STIF to the benefit of all STIF participants.* * * * *
Dated: September 26, 2012.
Thomas J. Curry,
Comptroller of the Currency.
[FR Doc. 2012–24375 Filed 10–5–12; 8:45 am]
BILLING CODE 4810–33–P
DEPARTMENT OF THE TREASURYOffice of the Comptroller of theCurrency12 CFR Part 46
[Docket ID OCC–2011–0029]RIN 1557–AD58
Annual Stress Test
AGENCY
:
Office of the Comptroller of theCurrency (‘‘OCC’’), Treasury.
ACTION
:
Final rule.
SUMMARY
:
This final rule implementssection 165(i) of the Dodd-Frank WallStreet Reform and Consumer ProtectionAct (‘‘Dodd-Frank Act’’) which requirescertain companies to conduct annualstress tests pursuant to regulationsprescribed by their respective primaryfinancial regulatory agencies.Specifically, this final rule requiresnational banks and Federal savingsassociations with total consolidatedassets over $10 billion (defined as‘‘covered institutions’’) to conduct anannual stress test as prescribed by thisrule.Under the final rule coveredinstitutions are divided into twocategories: covered institutions withtotal consolidated assets between $10and $50 billion, and coveredinstitutions with total consolidatedassets over $50 billion. Based on thesecategories, covered institutions aresubject to different stress testrequirements and deadlines forreporting and disclosures. A keydifference between these categories isthat a national bank or Federal savingsassociation that qualifies as an over $50 billion covered institution as of October9, 2012 must conduct the annual stresstest under this final rule beginning thisyear; other covered institutions thatqualify as $10 to $50 billion coveredinstitutions are not subject to the stresstest requirements under this final ruleuntil 2013.
DATES
:
This rule is effective on October9, 2012.
FOR FURTHER INFORMATION CONTACT
:
Darrin Benhart, Deputy Comptroller,Credit and Market Risk, (202) 874–1711;Robert Scavotto, Lead InternationalExpert, International Analysis andBanking Condition, (202) 874–4943;William Russell, National BankExaminer, (202) 874–5224; AkhtarurSiddique, Deputy Director, EnterpriseRisk Analysis Division, (202) 874–4665;Ron Shimabukuro, Senior Counsel, orAlexandra Arney, Attorney, Legislativeand Regulatory Activities Division,(202) 874–5090, Office of theComptroller of the Currency, 250 EStreet SW., Washington, DC 20219.
SUPPLEMENTARY INFORMATION
:
I. Background
Section 165(i) of the Dodd-Frank Act
1
 requires two types of stress testing: (1)Stress tests conducted by the companyand (2) stress tests conducted by theBoard of Governors of the FederalReserve System (‘‘Board’’). Section165(i)(2) requires certain financialcompanies, including national banksand Federal savings associations, toconduct stress tests and requires theFederal primary financial regulatoryagency
2
of those financial companies toissue regulations implementing thestress test requirements. A national bankor Federal savings association mustconduct a stress test if its totalconsolidated assets are more than $10 billion. Under section 165(i)(2), afinancial company is required to submitto the Board and to its primary financialregulatory agency a report at such time,
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61239
Federal Register
/Vol. 77, No. 195/Tuesday, October 9, 2012/Rules and Regulations
3
12 U.S.C. 5365(i)(2)(B).
4
12 U.S.C. 5365(i)(2)(C).
5
12 U.S.C. 5365(i)(1)(A).
6
Enhanced Prudential Standards and EarlyRemediation Requirements for Covered Companies,77 FR 594 (January 5, 2012).
7
See
77 FR 3408 (January 24, 2012).
8
Final joint guidance on Stress Testing forBanking Organizations with More Than $10 Billionin Total Consolidated Assets.
See
77 FR 29458 (May17, 2012).
in such form, and containing suchinformation as the primary financialregulatory agency may require.
3
Theprimary financial regulatory agency isrequired to define ‘‘stress test,’’ establishmethodologies for the conduct of thecompany-conducted stress test thatmust include at least three different setsof conditions (baseline, adverse, andseverely adverse), establish the form andcontent of the institution’s report, andcompel the institution to publish asummary of the results of the Dodd-Frank Act institutional stress tests.
4
 In addition to the company-run stresstests required under section 165(i)(2),section 165(i)(1) requires the Board toconduct annual analyses of nonbankfinancial companies supervised by theBoard and bank holding companies withtotal consolidated assets equal to orgreater than $50 billion to determinewhether such companies have thecapital, on a total consolidated basis,necessary to absorb losses as a result of adverse economic conditions.
5
TheBoard published a proposed ruleimplementing this supervisory stresstesting on January 5, 2012.
6
 
II. Discussion of Comments onProposed Rule
The OCC published a notice of proposed rulemaking in the
FederalRegister
on January 24, setting forthdefinitions and rules for scope of application, scenarios, data collection,reporting, and disclosure.
7
The OCCreceived 19 comment letters on theproposal. Commenters included banks,industry groups, nonprofitorganizations, and individuals.Commenters generally expressedsupport for the proposed rule and stresstesting in general, but severalrecommended changes to certainprovisions of the proposed rule. Manycommenters also strongly urged theOCC to coordinate with the Board andFederal Deposit Insurance Corporation(‘‘FDIC’’) (collectively, the ‘‘agencies’’)to make the agencies’ rules on annualstress tests consistent. After carefulconsideration of these comments, theOCC has modified the proposed rule incertain respects in response to thecomments.
A. Coordination With Other Agencies
As noted, section 165(i)(2) of theDodd-Frank Act requires the primaryfinancial regulators to issue regulationsthat include requirements defining‘‘stress test,’’ establishing methodologiesfor the conduct of company-run stresstests under at least three different setsof conditions, establishing the form andcontent of the institution’s report, andcompelling the institution to publish asummary of the results. One commenterraised concerns that the OCC wouldimpose unnecessary, multiple stresstesting requirements and subjectinstitutions to uncoordinated testingparameters, data requests, anddisclosure formats. Other commentersurged consistency and comparabilityacross the agencies’ rules andreconciliation of inconsistencies amongthe rules of the agencies.The OCC has worked to minimize anypotential duplication related to theannual stress test requirements. Inparticular, the OCC worked closely withthe other agencies to make consistentand comparable the rules’ standards inthe areas of scope of application,scenarios, data collection and reportingforms. Each of these areas is discussedin further detail below.
B. Scope of Application and EffectiveDate of the Rule
In the proposed rule, the OCC defineda ‘‘covered institution’’ as a national bank or Federal savings association withaverage consolidated assets that exceed$10 billion, with implementation of thestress testing requirements to begin inlate 2012. Several commenterssuggested that the OCC delayimplementation of the rule, particularlyfor institutions that have not beenpreviously subject to other stress testingrequirements such as the Board’sComprehensive Capital Analysis andReview (‘‘CCAR’’) stress tests. Onecommenter suggested that the OCCintroduce stress test requirements on arolling basis according to asset size and begin with the largest institutions. Onlyone commenter indicated that animmediate effective date would providesufficient time for an institution toconduct its first stress test.The OCC recognizes that institutionsare at different stages in developingtheir stress testing frameworks and thatthe agencies only recently issued stresstesting guidance.
8
Therefore, althoughthis rule will apply to all coveredinstitutions, this final rule establishestwo categories of covered institutions.The first category consists of national banks and Federal savings associationswith average total consolidated assetsgreater than $10 billion but less than$50 billion, hereinafter referred to as‘‘$10 to $50 billion coveredinstitutions.’’ The second categoryconsists of national banks and Federalsavings associations with average totalconsolidated assets of $50 billion ormore, hereinafter referred to as ‘‘over$50 billion covered institutions.’’ TheOCC is providing a one year delay for$10 to $50 billion covered institutions.This delay will allow these coveredinstitutions to continue to develop andimplement a robust stress testingframework.Most national banks withconsolidated assets of $50 billion ormore have been subject to previousstress testing, including the 2009Supervisory Capital AssessmentProgram (‘‘SCAP’’) and the Board’sCCAR stress tests, and consequently,have in place a framework necessary toconduct the stress tests required by thisrule. Furthermore, given the size andimportance of these covered institutionsto the safety and soundness of theUnited States banking system, the OCC believes it is appropriate for thesecovered institutions to begin conductingcompany-run stress tests as soon aspossible. Consequently, most national banks and Federal savings associationswith consolidated total assets equal toor exceeding $50 billion will berequired to conduct their first annualstress tests under this final rule in thefall of 2012.The OCC notes, however, that somenational banks and Federal savingsassociations with assets of $50 billion ormore may not be able or ready toconduct the annual stress test this yearin a manner that would yieldmeaningful results. For example,covered institutions that were notsubject to SCAP and CCAR may needmore time to develop and implement arobust stress testing framework.Therefore the OCC is reserving authorityin the rule to permit these national banks and Federal savings associationsto delay the application of therequirements under this final rule on acase-by-case basis, subject to suchconditions as the OCC may deemappropriate.One commenter recommendedexpanding the scope of the rule toinclude national banks and Federalsavings associations with consolidatedassets of less than $10 billion. The OCC believes that stress testing is a good riskmanagement tool that national banksand Federal savings associations of allsizes should consider using in their riskmanagement practices. Moreover, theremay be certain situations where, as asupervisory matter, the OCC believes it
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61240
Federal Register
/Vol. 77, No. 195/Tuesday, October 9, 2012/Rules and Regulations
9
Supervisory Guidance on Stress Testing forBanking Organizations With More Than $10 Billionin Total Consolidated Assets, 77 FR 29458 (May 17,2012).
10
Agency Information Collection Activities:Proposed Information Collection; CommentRequest, ‘‘Company-Run Annual Stress TestReporting Template and Documentation forCovered Institutions with Total Consolidated Assetsof $50 Billion or More under the Dodd-Frank WallStreet Reform and Consumer Protection Act,’’ 77 FR49485 (August 16, 2012).
is important for an institution withassets less than $10 billion to conducta stress test. Therefore, under its generalrulemaking authority in 12 U.S.C. 93aand 1463(a)(2), the OCC is reservingauthority in the rule to designate anational bank or Federal savingsassociation as a covered institution evenif it is not otherwise subject to this finalrule.In addition, the OCC reserves the rightto exempt an otherwise coveredinstitution from certain stress testrequirements under this final rule to thedegree consistent with the requirementsof the Dodd-Frank Act.
C. Scenario Development 
Several commenters urged theagencies to coordinate regarding thescenarios required to be used by bankholding companies, savings and loanholding companies, banks, and savingsassociations in conducting the stresstests. The OCC, the Board and the FDICexpect to consult closely to providecommon scenarios for use at both thedepository institution and holdingcompany levels. As part of the annualscenario development process, the OCCexpects to update, make additions to, orotherwise modify the scenarios asappropriate. This process will culminatewith the distribution of the scenarios toall covered institutions no later thanNovember 15 of each year. The OCCoriginally proposed an October 15 datefor distribution of the scenarios but believes that a November 15 date will better align the development andissuance of the scenarios with the otheragencies.Several of the commenters alsosuggested a review process relating toscenario development. The OCC believes that a lengthy annual reviewprocess for scenarios is impractical if scenarios are to be finalized and issuedwithout becoming outdated due toeconomic and financial developments.However, the OCC believes that it isimportant to have a consistent andtransparent framework to supportscenario design. Consequently, the OCCexpects to consult with the Board andthe FDIC as well as public and privatesector experts to obtain views on salientrisks and to obtain suggestions for the behavior of key economic variablesunder the stress conditions reflected inthe scenarios. The OCC expects topublish for one-time notice andcomment a guidance document settingout the annual procedures to be used bythe OCC in development of thescenarios.A question posed in the notice of proposed rulemaking regarding whetherto permit covered institutions todevelop their own scenarios generatedcomments on each side of the issue.After reviewing the comments, the OCC believes that the most compellingargument is that all covered institutionsshould use the same set of scenarios sothat the OCC can better compare results.Therefore, the OCC intends to provideone set of scenarios for use by allcovered institutions.However, the OCC believes there may be circumstances that would warrantthe use of different or additionalscenarios. For this reason, the OCCreserves the authority to require acovered institution to use different oradditional scenarios as the OCC maydeem appropriate. For example, acovered institution may conduct business activities or have riskexposures for which different oradditional scenarios might better meetthe objectives of this rule. Alternatively,at a more systemic level, although theagencies expect to consult closely onscenario development, the agencies mayhave different views of the risks thatshould be reflected in the stressscenarios that covered institutions usefor the annual stress test. Whilerecognizing this possibility, the OCCanticipates making every effort to avoiddifferences in the scenarios required byeach agency and to distribute the samescenarios to all covered institutions.
D. Definition of Stress Test and Use of Stress Test Results
One commenter noted that the OCC’sproposed rule defined ‘‘stress test’’ as aprocess to assess the impact of scenarioson capital, whereas the Board and FDICdefinitions also referred to impact onconsolidated earnings and losses. TheOCC has modified its definition in thefinal rule to include impact onconsolidated earnings and losses to beconsistent with the other agencies’definitions. In addition, the OCCproposal defined a ‘‘stress test’’ torequire taking into account severalfactors including ‘‘material’’ risks,whereas the Board and FDIC proposalsdid not expressly require the risk to be‘‘material.’’ The OCC has deleted theterm ‘‘material’’ from its definition.Thus, under the final rule, a coveredinstitution must be able to assess thepotential impact of scenarios on theconsolidated earnings, losses, andcapital of a covered institution over theplanning horizon, taking into accountthe covered institution’s currentcondition, risks, exposures, strategies,and activities.The final rule states that coveredinstitutions must consider the results of stress tests conducted under the rule inthe normal course of business,including, but not limited to, thecovered institution’s capital planning,assessment of capital adequacy, and riskmanagement practices. The OCC believes, as discussed in interagencyguidance on stress testing published inMay 2012, that stress tests are animportant tool for a variety of decisionsmade by covered institutions.
9
Suchdecisions include those related tocapital planning and capital adequacyprocesses, as well as risk managementmore generally. However, as thatguidance notes, such decisions shouldnot be based solely on the results of anysingle set of stress tests. Rather, coveredinstitutions should consider a range of relevant information when determiningappropriate actions. With regard tostress testing, the interagency guidancenotes that an effective stress testingframework is part of broader riskmanagement and governance processesand should encompass a broader set of activities and exercises rather thanrelying on any single test or type of test.
E. Reporting 
One commenter urged the agencies todevelop common reportingrequirements. The OCC recognizes thatmany covered institutions withconsolidated total assets of $50 billionor more have been subject to stresstesting requirements under the Board’sCCAR. The OCC also recognizes thatthese institutions’ stress tests will beapplied to more complex portfolios andtherefore warrant a broader set of reports to capture adequately the resultsof the company-run stress tests. Thesereports will necessarily require moredetail than would be appropriate forsmaller, less complex institutions.Therefore, in response to comments, theOCC has decided to specify separatereporting templates for coveredinstitutions with total consolidatedassets between $10 and $50 billion andfor covered institutions with totalconsolidated assets of $50 billion ormore. The OCC published for notice andcomment specific annual stress testreporting requirements for over $50 billion covered institutions in a separatefinal information collection under thePaperwork Reduction Act (44 U.S.C.3501–3521).
10
The OCC, in consultation
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