The OCC released the economic and financial market scenarios that will be used in the next round of stress tests for large financial institutions. Concurrently, the OCC also issued the final “Policy Statement on the Principles for Development and Distribution of Annual Stress Test Scenarios.”

The scenarios include baseline, adverse, and severely adverse scenarios, as described in the OCC’s final rules that implement stress test requirements of the Dodd-Frank Act.  Separately, the guidance outlines the consultative processes that the OCC will use to gather information on material vulnerabilities or salient risks to the financial system, and to coordinate with the Board of Governors of the Federal Reserve System and the FDIC to develop the scenarios each year.

See: 2014 Stress Test Scenario Information.
See also: 78 FR 64153 (”Policy Statement on the Principles for Development and Distribution of Annual Stress Test Scenarios”).

The Board of Governors of the Federal Reserve System issued the supervisory scenarios that will be used in the 2014 capital planning and stress testing program, as well as instructions to firms with timelines for submissions. The program includes the Comprehensive Capital Analysis and Review (“CCAR”) of 30 bank holding companies with $50 billion or more of total consolidated assets.  Each of the companies in the CCAR in 2014 must submit its capital plans by January 6, 2014.

See: 2014 Supervisory Scenarios for Annual Stress Tests Required under the Dodd-Frank Act Stress Testing Rules and the Capital Plan Rule; Comprehensive Capital Analysis and Review 2014: Summary Instructions and Guidance.

The Office of the Comptroller of the Currency (”OCC”), the Board of Governors of the Federal Reserve System (”Board”), and the Federal Deposit Insurance Corporation (”FDIC”) proposed new rules to strengthen the liquidity positions of large financial institutions.  The proposal would for the first time create a standardized minimum liquidity requirement for large, internationally active and systemically important banking organizations (i.e., banking organizations with more than $250 billion in total assets or more than $10 billion in on-balance sheet foreign exposure, and to their consolidated subsidiaries that are depository institutions with $10 billion or more in total consolidated assets), as well as nonbank financial companies designated by the Financial Stability Oversight Council.  These institutions would be required to hold minimum amounts of high-quality liquid assets, such as central bank reserves and government and corporate debt that can be converted easily and quickly into cash.  Each institution would be required to hold liquidity in an amount equal to or greater than its projected cash outflows, minus its projected cash inflows during a short-term stress period.

On its own, the Board also is proposing a modified liquidity coverage ratio standard that is based on a 21-calendar day stress scenario rather than a 30-calendar day stress scenario for bank holding companies and savings and loan holding companies without significant insurance or commercial operations that, in each case, have $50 billion or more in total consolidated assets.

Comments Due: January 31, 2014.

See: Proposed Rule Release.
See also: Information and Webcast from the October 24 Open Meeting; Statement by Chairman Ben S. Bernanke; Statement by Governor Daniel K. Tarullo; Current FAQ: What Is the Difference between a Bank’s Liquidity and Its Capital?

SIFMA, the American Bankers Association (“ABA”) and the Financial Services Roundtable (“FSR”) submitted comments to the Board of Governors of the Federal Reserve (“FRB”), the Office of the Comptroller of the Currency (“OCC”) and the Federal Deposit Insurance Corporation (“FDIC”) on their proposal regarding enhanced supplementary leverage ratio standards (“SLR”) for certain bank holding companies and their subsidiary insured depository institutions.  The proposal would require an SLR surcharge of Tier 1 capital on eight U.S. bank holding companies identified as global systemically important banks and their insured depository institutions.  The proposal would also require these banks to maintain a Basel III SLR of at least 6% to be considered well capitalized under the prompt corrective action framework. 

According to the comment letter, SIFMA, the ABA and the FSR (the “Associations”) agree that “adequate levels of quality capital are an important safeguard that “helps institutions and the financial system as a whole withstand periods of stress.”  However, the Associations share serious concerns about the timing and substance of the proposal, and the consequences that will arise if the proposal is finalized in its current form.  The Associations state that the FRB, OCC and FDIC should only consider the proposal after the Basel Committee has finalized its recommended exposure measure, as well as make recommendations to modify the definition of “total leverage exposure.”

See: SIFMA, ABA, FSR Comment Letter to FRB, OCC, and FDIC.

The Federal Deposit Insurance Corporation (“FDIC”) issued a financial institution letter to describe the reports and information required under Dodd-Frank Section 165(i)(2) (“Enhanced Supervision and Prudential Standards for Nonbank Financial Companies Supervised by the Board of Governors and Certain Bank Holding Companies”) of covered banks with total consolidated assets between $10 billion and $50 billion. The data collected through the stress-test reporting templates will be used to assess how reasonable a covered bank’s stress-test results are, and provide forward-looking information to the FDIC regarding a covered bank’s capital adequacy.  Covered banks with consolidated assets between $10 billion and $50 billion must report capital and risk-weighted assets for the nine-quarter planning horizon using the regulatory capital rules applicable on the “as of” date of each report for the initial submission.

See: FDIC Financial Institution Letter.

The Office of the Comptroller of the Currency (“OCC”) and the Board of Governors of the Federal Reserve System (“FRB”) published a final rule in the Federal Register that revises their risk-based and leverage capital requirements for banking organizations. The final rule implements a revised definition of regulatory capital, a new common equity tier 1 minimum capital requirement, a higher minimum tier 1 capital requirement, and, for banking organizations subject to the advanced approaches risk-based capital rule, a supplementary leverage ratio that incorporates a broader set of exposures in the denominator. 

See: 78 FR 62018.
Related news: FRB Issues Two Interim Final Rules Regarding Basel III Regulatory Capital Reforms Incorporation (September 25, 2013).

The Board of Governors of the Federal Reserve System (“FRB”) issued two interim final rules intended to clarify how companies should incorporate the Basel III regulatory capital reforms into their capital and business projections during the next cycle of capital plan submissions and stress tests.  Rules to implement the Basel III capital reforms were finalized in July, and will be phased in beginning in 2014 or 2015, depending on the size of each banking organization. 

The FRB’s first interim final rule applies to bank holding companies with $50 billion or more in total consolidated assets, and clarifies that, in the next capital planning and stress test cycle, these companies must incorporate the revised capital framework into their capital planning projects and into the stress tests required under Dodd-Frank using the transition paths established in the Basel III final rule.  

The second interim final rule provides a one-year transition period for most banking organizations with between $10 billion and $50 billion in total consolidated assets.  These companies are conducting their first company-run stress tests this fall, and will be required to calculate these stress test projects using the Board’s current regulatory capital rules to allow time to adjust their internal systems to the revised capital framework. 

The interim final rules are effective immediately, but are subject to comment (with a comment deadline of November 25, 2013).   

See: FRB Press Release; Interim Final Rules.
Related News: FDIC Publishes Basel III and Capital Requirement Rules (Fed. Reg.) (September 12, 2013); FDIC and OCC Adopt Rules Regarding the Implementation of Basel III Capital Requirements (July 10, 2013); Delta Strategy Group: Summary of New Basel Capital Proposals (July 3, 2013).

The FDIC published interim final rules regarding the implementation of Basel III and other capital requirements in the Federal Register.  Comments are due November 12, 2013.  This interim final rule is substantially identical to a joint final rule issued by the Office of the Comptroller of the Currency (“OCC”) and the Board of Governors of the Federal Reserve System (“FRB”).  The interim final rule consolidates three separate notices of proposed rulemaking that the agencies had published jointly in the Federal Register on August 30, 2012, albeit with some changes.

See: 78 FR 55339.
See also: FDIC and OCC Adopt Rules Regarding the Implementation of Basel III Capital Requirements (July 10, 2013); Delta Strategy Group: Summary of New Basel Capital Proposals (July 3, 2013).