Annual Stress Test

Federal Register / Vol. 77, No. 14 / Monday, January 23, 2012 / Proposed Rules

for a replacement or in lieu of paper
certificate, except in the case of a lost
certificate, must be accompanied by the
original paper certificate. The new
certificate will carry the following
statement: ‘‘Issued in lieu of ____’’, with
the numbers of the certificates that have
been superseded.
(c) FSIS will deliver a copy of the
certificate to the person who requested
such certificate or his agent. Such
persons may duplicate the certificate as
required in connection with the
exportation of the product.
(d) FSIS will retain a copy of the
certificate.
(e) Exporters may request inspection
personnel to issue certificates for export
consignments of product of official
establishments not under their
supervision, provided the consignments
are first identified as having been ‘‘U.S.
inspected and passed,’’ are found to be
neither adulterated nor misbranded, and
are marked as required by § 381.105.
PART 590—INSPECTION OF EGGS
AND EGG PRODUCTS (EGG
PRODUCTS INSPECTION ACT)
14. The authority citation for Part 590
continues to read as follows:
Authority: 21 U.S.C. 1031–1056.

15. Add § 590.407 to read as follows:

srobinson on DSK4SPTVN1PROD with PROPOSALS

§ 590.407 Export certification and marking
of containers with export inspection mark.

(a) Exporters must apply for export
certification of inspected and passed
products shipped to any foreign
country. Exporters may apply for an
export certificate using a paper or
electronic application. FSIS will assess
exporters that submit an electronic
application the charge in § 592.500(d).
(b) FSIS will issue only one certificate
for each consignment, except in the case
of error in the certificate or loss of the
certificate originally issued. A request
for a replacement or in lieu of paper
certificate, except in the case of a lost
certificate, must be accompanied by the
original paper certificate. The new
certificate will carry the following
statement: ‘‘Issued in lieu of ____’’, with
the numbers of the certificates that have
been superseded.
(c) FSIS will deliver a copy of the
export certificate to the person who
requested such certificate or his agent.
Such persons may duplicate the
certificate as required in connection
with the exportation of the product.
(d) FSIS will retain a copy of the
certificate.
(e) When authorized by inspection
personnel, establishments must mark
the outside container of any inspected
and passed egg products destined for

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export, except ship stores, small
quantities exclusively for the personal
use of the consignee and not for sale or
distribution, and shipments by and for
the U.S. Armed Forces, with a mark that
contains a unique identifier that
corresponds to the export certificate or
an export inspection mark with the
following form:1

(f) Exporters may request inspection
personnel to issue certificates for export
consignments of product of official
establishments not under their
supervision, provided the consignments
are first identified as having been ‘‘U.S.
inspected and passed,’’ are found to be
neither adulterated nor misbranded, and
are marked as required by paragraph (e)
of this section.
PART 592—VOLUNTARY INSPECTION
OF EGG PRODUCTS
16. The authority citation for Part 592
continues to read as follows:
Authority: 7 U.S.C. 1621–1627.

Payment of fees and charges.

(a) Fees and charges for voluntary
base time rate, overtime inspection
service, holiday inspection service, and
electronic export applications shall be
paid by the interested party making the
application for such service, in
accordance with the applicable
provisions of this section and § 592.510
through § 592.530, both inclusive. If so
1 The number ‘‘529893’’ is given as an example
only. The number on the export certificate will
correspond to the export certificate.

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Done at Washington, DC, on January 11,
2012.
Alfred V. Almanza,
Administrator.
[FR Doc. 2012–1158 Filed 1–20–12; 8:45 am]
BILLING CODE 3410–DM–P

FEDERAL DEPOSIT INSURANCE
CORPORATION
12 CFR Part 325, Subpart C
RIN 3064–AD91

Annual Stress Test

17. In § 592.20 add paragraph (d) to
read as follows:
*
*
*
*
*
(d) Export certification. Upon
application, by any person intending to
export any egg product, inspectors may
make certifications regarding products
for human food purposes, to be
exported, as meeting conditions or
standards that are not imposed or are in
addition to those imposed by the
regulations in the part and the laws
under which such regulations were
issued.
17. Revise § 592.500 paragraph (a) and
add paragraphs (d), (e), and (f) as
follows:
§ 592.500

required by the inspection personnel,
such fees and charges shall be paid in
advance.
*
*
*
*
*
(d) Exporters that submit electronic
export certificate applications will be
charged a fee per application submitted.
(e) For each calendar year, FSIS will
calculate the electronic export
certificate application fee, using the
following formula: Labor Costs (Direct
Inspection Labor Cost + Technical
Support Cost + Export Library
Maintenance Cost) + Information
Technology Costs (On-going operations
Cost + Maintenance Cost +
eAuthentication Cost), divided by the
number of export applications.
(f) FSIS will publish notice of the
electronic export certificate application
fee annually in the Federal Register.

Federal Deposit Insurance
Corporation.
ACTION: Proposed rule with request for
public comment.
AGENCY:

The Federal Deposit
Insurance Corporation (the
‘‘Corporation’’ or ‘‘FDIC’’) requests
comment on this proposed rule that
implements the requirements in Section
165(i) of the Dodd-Frank Wall Street
Reform and Consumer Protection Act
(the ‘‘Dodd-Frank Act’’) regarding stress
tests (‘‘proposed rule’’). This proposed
rule would implement section 165(i)(2)
by requiring state nonmember banks
and state savings associations
supervised by the Corporation with total
consolidated assets of more than $10
billion to conduct annual stress tests in
accordance with the proposed rule,
report the results of such stress tests to
the Corporation and the Board of
Governors of the Federal Reserve
System (‘‘Board’’) at such time and in
such a form containing the information
required by the Corporation, and
publish a summary of the results of the
required stress tests.
DATES: Comments should be received on
or before March 23, 2012.
SUMMARY:

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Federal Register / Vol. 77, No. 14 / Monday, January 23, 2012 / Proposed Rules
You may submit comments
by any of the following methods:
• Federal eRulemaking Portal: http://
www.regulations.gov. Follow the
instructions for submitting comments.
• Agency Web site: http://www.FDIC.
gov/regulations/laws/federal/
propose.html.
• Mail: Robert E. Feldman, Executive
Secretary, Attention: Comments/Legal
ESS, Federal Deposit Insurance
Corporation, 550 17th Street, NW.,
Washington, DC 20429.
• Hand Delivered/Courier: The guard
station at the rear of the 550 17th Street
Building (located on F Street), on
business days between 7 a.m. and 5 p.m.
• Email: [email protected].
Instructions: Comments submitted
must include ‘‘FDIC’’ and ‘‘RIN 3064–
AD91.’’ Comments received will be
posted without change to http://
www.FDIC.gov/regulations/laws/
federal/propose.html, including any
personal information provided.
FOR FURTHER INFORMATION CONTACT:
George French, Deputy Director, Policy,
(202) 898–3929, Robert Burns, Associate
Director, Mid-Tier Bank Branch, (202)
898–3905, or Karl R. Reitz, Senior
Capital Markets Specialist, (202) 898–
6775, Division of Risk Management and
Supervision; Mark G. Flanigan, Counsel,
(202) 898–7426, or Ryan K. Clougherty,
Senior Attorney, (202) 898–3843, Legal
Division, Federal Deposit Insurance
Corporation, 550 17th Street, NW.,
Washington, DC, 20429.
SUPPLEMENTARY INFORMATION:
ADDRESSES:

srobinson on DSK4SPTVN1PROD with PROPOSALS

I. Background
A. Overview of Section 165(i) of the
Dodd-Frank Act
Section 165(i)(2) of the Dodd-Frank
Act requires the Corporation to issue
regulations that require FDIC-insured
state nonmember banks and FDICinsured state-chartered savings
associations with total consolidated
assets of more than $10 billion
(‘‘covered banks’’) to conduct annual
stress tests (‘‘bank-run stress tests’’).
For these stress tests, section 165(i)(2)
requires that the Corporation issue
regulations that: (1) Define the term
‘‘stress test’’ for purposes of the
regulations; (2) establish methodologies
for the conduct of the stress tests that
provide for at least three different sets
of conditions, including baseline,
adverse, and severely adverse
conditions; (3) establish the form and
content of a required report on the stress
tests that banks subject to the regulation
must submit to the Corporation; and (4)
require covered banks to publish a
summary of the results of the required
stress tests.

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Section 165(i)(2)(C) of the Dodd-Frank
Act requires the Corporation, in
coordination with the Board and the
Federal Insurance Office, to issue
consistent and comparable regulations
to implement the requirements of this
section. This proposed rule implements
section 165(i)(2) as described further
below.
B. Overview of Proposed Rule
1. Annual Stress Tests
a. Purpose
The Corporation views the bank-run
stress tests required under the proposed
rule as providing forward-looking
information to assist the Corporation in
its overall assessment of a covered
bank’s capital adequacy, helping to
better identify potential downside risks
and the potential impact of adverse
outcomes on the covered bank’s capital
adequacy, and to assist it in ensuring
the institution’s financial stability.
Further, these stress tests are expected
to improve the quality of covered banks’
internal assessments of capital adequacy
and overall capital planning.
The proposed rule would require
covered banks to conduct annual stress
tests. The proposed rule defines a stress
test as a process to assess the potential
impact on a covered bank of economic
and financial conditions (‘‘scenarios’’)
on the consolidated earnings, losses and
capital of the covered bank over a set
planning horizon, taking into account
the current condition of the covered
bank and its risks, exposures, strategies,
and activities.
The Corporation expects that the
stress tests required under the proposed
rule would be one component of the
broader stress testing activities
conducted by covered banks. The
broader stress testing activities should
address the impact of a broad range of
potentially adverse outcomes across a
broad set of risk types affecting other
aspects of a bank’s financial condition
beyond capital adequacy alone. For
example, under existing guidance,
supervisors expect banks to evaluate
their liquidity under stressed conditions
and their exposure to changes in interest
rates.1 In addition, a full assessment of
a bank’s capital adequacy must take into
account a range of factors, including
evaluation of its capital planning
processes, the governance over those
processes, regulatory capital measures,
results of supervisory stress tests where
1 On June 15, 2011, the Corporation, along with
the other banking agencies, published for comment
proposed guidance on covered banks’ stress testing
as a part of overall institution risk management. The
guidance included stress testing non-capital related
aspects of financial condition. (76 FR 35072)

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applicable, and market assessments,
among other factors. The Corporation
notes that the stress tests described in
the proposed rule focus on capital
adequacy and do not focus on other
aspects of financial condition.
b. Applicability
The proposed rule would apply to
covered banks. Covered banks are
defined under the proposed rule as any
state nonmember bank or state-chartered
savings association that has more than
$10 billion in total consolidated assets,
as determined based on the average total
consolidated assets as reported on the
state nonmember bank’s four most
recent Consolidated Reports of
Condition and Income (‘‘Call Reports’’)
or on the state savings association’s four
most recent Thrift Financial Reports
(‘‘TFRs’’), respectively. Once a state
nonmember bank or state savings
association becomes a covered bank, it
will remain so for purposes of the
proposed rule unless and until the state
nonmember bank or state savings
association has $10 billion or less in
total consolidated assets as determined
on each of, for state nonmember banks,
the four most recent Call Reports or, for
state savings associations, each of the
four most recent TFRs.
The Corporation may accelerate or
extend any specified deadline for stress
testing if the Corporation determines
such modification is appropriate in light
of the institution’s activities, operations,
risk profile, or regulatory capital.
c. Process Overview
Except as otherwise provided in the
proposed rule, a bank that becomes a
covered bank no less than 90 days
before September 30 of any given
calendar year must comply with the
requirements, including the timing of
required submissions to the
Corporation, of the proposed rule from
September 30 forward. With respect to
initial applicability, a bank that is a
covered bank on the effective date of the
proposed rule is subject to the proposed
requirements as of the effective date,
including the timing of required
submissions to the Corporation. The
Corporation expects to use the following
general process and timetables in
connection with the stress tests.
i. Reporting by Covered Banks
Under the proposed rule, the
Corporation would collect the covered
bank’s stress test results and additional
qualitative and quantitative information
about the tests on a confidential basis.
The Corporation plans to publish notice
of both specific requirements and
related instructions for the report to be

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Federal Register / Vol. 77, No. 14 / Monday, January 23, 2012 / Proposed Rules

submitted to the Corporation, as
described below. Following the annual
stress test, each covered bank would be
required to publish a summary of its
results.
ii. Annual Stress Test
Each year, in advance of the annual
stress test required of all covered banks

on a schedule to be established, the
Corporation would provide to such
banks at least three scenarios, including
baseline, adverse, and severely adverse,
that each covered bank must use to
conduct its annual stress test required
under the proposed rule.

iii. Proposed Steps for Annual Stress
Test
Table A below describes proposed
steps for the stress test cycle for covered
banks, including proposed general time
frames for each step. The proposed time
frames are illustrative and are subject to
change.

TABLE A—PROCESS OVERVIEW OF ANNUAL STRESS TEST CYCLE
[Using data as of September 30]
Step

Proposed timeframe

1. FDIC provides covered banks with scenarios for annual stress tests ..................................................................
2. Covered banks submit required regulatory reports to the FDIC on their stress tests ..........................................
3. Covered banks make required public disclosures .................................................................................................

d. Overview of Stress Test Requirements

srobinson on DSK4SPTVN1PROD with PROPOSALS

i. General Requirements for Stress Tests
Under the proposed rule, each
covered bank would be required to
conduct annual stress tests using the
bank’s financial data as of September 30
of that year to assess the potential
impact of different scenarios on the
consolidated earnings and capital of that
bank and certain related items over a
nine-quarter forward-looking planning
horizon, taking into account all relevant
exposures and activities.
The Corporation recognizes that
certain parent company structures of
covered banks may include one or more
financial companies, each with total
consolidated assets greater than $10
billion. The stress test requirements of
section 165(i)(2) apply to the parent
company and to each subsidiary
financial company (including covered
banks) regulated by a primary federal
financial regulatory agency that has
more than $10 billion in total
consolidated assets. To avoid
unnecessary complexity or duplication
of effort associated with this
requirement, the Corporation intends to
coordinate with the other primary
federal financial regulatory agencies, to
the extent needed. For example, the
Corporation will aim to coordinate, as
appropriate, with the other primary
federal financial regulatory agencies in
providing scenarios to be used by
multiple entities within a holding
company structure when meeting the
requirements of the stress tests
described in the proposed rule.
ii. Scenarios
The proposed rule would require each
covered bank to use a minimum of three
sets of economic and financial
conditions, including baseline, adverse,
and severely adverse scenarios, or such
additional conditions as the Corporation
determines appropriate. The

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Corporation would provide at least three
scenarios (baseline, adverse, and
severely adverse) in advance of the
annual stress tests.
iii. Methodologies and Practices
Under the proposed rule, each
covered bank would be required to use
the applicable scenarios discussed
above in conducting its stress tests to
calculate, for each quarter-end within
the planning horizon, the impact on its
potential losses, pre-provision revenues,
loan loss reserves, and pro forma capital
positions over the planning horizon,
including the impact on capital levels
and ratios. Each covered bank would
also be required to calculate, for each
quarter-end within the planning
horizon, the potential impact of the
specific scenarios on its capital ratios,
including regulatory and any other
capital ratios specified by the
Corporation.
The proposed rule would require each
covered bank to establish and maintain
a system of controls, oversight, and
documentation, including policies and
procedures, designed to ensure that the
stress testing processes used by the bank
are effective in meeting the
requirements of the proposed rule. The
covered bank’s policies and procedures
must, at a minimum, outline the bank’s
stress testing practices and
methodologies, validation, use of stress
test results, and processes for updating
the bank’s stress testing practices
consistent with relevant supervisory
guidance. The board of directors and
senior management of each covered
bank must approve and annually review
the controls, oversight, and
documentation, including policies and
procedures, of the covered bank
established in the proposed rule.

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No later than mid-November.
By January 5.
By early April.

iv. Stress Test Information and Results
1. Required Report to the FDIC of
Stress Test Information and Results
On or before January 5 of each year,
each covered bank would be required to
report to the Corporation, in the manner
and form prescribed in the proposed
rule, the results of the stress tests
conducted by the bank during the
immediately preceding year (‘‘required
report’’). The Corporation plans to
publish for comment a description of
items to be included in the required
report to the Corporation. It is
anticipated that the required report
would include (but not necessarily be
limited to) the following qualitative and
quantitative information.
Qualitative information:
• A general description of the use of
stress tests required by the proposed
rule in the bank’s capital planning and
capital adequacy assessments;
• A description of the types of risks
(e.g., credit, market, operational, etc.)
being captured in the stress test;
• A general description of the
methodologies employed to estimate
losses, pre-provision net revenues, loan
loss reserves, changes in capital levels
and ratios, and changes in the bank’s
balance sheet over the planning horizon;
• Assumptions about potential capital
distributions over the planning horizon;
and
• Any other relevant qualitative
information to facilitate supervisory
assessment of the tests, upon request by
the Corporation.
Quantitative information under each
scenario:
• Estimated pro forma capital levels
and capital ratios, including regulatory
and any other capital ratios specified by
the Corporation;
• Estimated losses by exposure
category;
• Estimated pre-provision net
revenue;

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• Estimated changes in loan loss
reserves;
• Estimated total assets and riskweighted assets;
• Estimated aggregate loan balances;
• Potential capital distributions over
the planning horizon; and
• Any other relevant quantitative
information to facilitate supervisory
understanding of the tests, upon request
by the primary supervisor of the covered
bank.
The confidentiality of information
submitted to the Corporation under the
proposed rule shall be determined in
accordance with applicable law
including any available exemptions
under the Freedom of Information Act
(5 U.S.C. 552(b)) and the FDIC’s Rules
and Regulations regarding the
Disclosure of Information (12 CFR part
309).
The Corporation may also obtain
supplemental information as needed.
Question: What are the anticipated
costs on covered banks associated with
internal data collection and developing
methodologies for stress testing in line
with requirements in the regulation?

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2. Supervisory Review of Covered Banks’
Stress Test Processes and Results
Based on information submitted by a
covered bank in the required report to
the Corporation, as well as other
relevant information, the Corporation
would conduct an analysis of the
quality of the bank’s stress test
processes and related results. The
Corporation envisions that feedback
concerning such analysis would be
provided to a covered bank through the
supervisory process. In addition, each
covered bank would be required to take
the results of the annual stress test, in
conjunction with the Corporation’s
analyses of those results, into account in
making changes, as appropriate, to: the
bank’s capital structure (including the
level and composition of capital); its
exposures, concentrations, and risk
positions; any plans of the covered bank
for recovery and resolution; and to
improve the overall risk management of
the firm. The Corporation may also
require other actions consistent with
safety and soundness of the covered
bank.
3. Publication of Results
Consistent with the requirements of
the Dodd-Frank Act, the proposed rule
would require each covered bank to
publish a summary of the results of its
annual stress tests within 90 days of the
required date for submitting its stress
test report to the Corporation. The
summary may be published on a
covered bank’s Web site or any other

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forum that is reasonably accessible to
the public. It is expected that a covered
bank that is a subsidiary of a parent
company also subject to section
165(i)(2) summary publication
requirements could publish its summary
on the parent company’s Web site or in
another forum with the parent
company’s summary. The required
information publicly disclosed by each
covered bank, as applicable, would, at a
minimum, include:
(1) A description of the types of risks
being included in the stress test;
(2) A general description of the
methodologies employed to estimate
losses, pre-provision net revenue, loss
reserves, and changes in capital
positions over the planning horizon;
and
(3) Aggregate losses, pre-provision net
revenue, loss reserves, net income, and
pro forma capital levels and capital
ratios (including regulatory and any
other capital ratios specified by the
Corporation) over the planning horizon,
under each scenario.
Question: Is the proposed method of
public disclosure appropriate and why?
If not, what alternatives would be more
appropriate? Do commenters have
concerns with the content of public
disclosures, including the details of
qualitative and quantitative
information?
II. Request for Comments
The Corporation requests comments
on all aspects of the proposed rule for
stress testing. What, if any, specific
challenges exist with respect to the
proposed steps and time frames? What
specific alternatives exist to address
these challenges that still allow the
companies to meet their statutory
requirements?
Is the proposed timing of stress testing
appropriate and why? If not, what
alternatives would be more appropriate?
What, if any, specific challenges exist
with respect to the proposed steps and
time frames? What specific alternatives
exist to address these challenges that
still allow the Corporation to meet its
statutory requirements? Please comment
on the use of the ‘‘as of’’ date of
September 30, the January 5 reporting
date, the publication date, and the
sufficiency of time for completion of the
stress test. Does the immediate
effectiveness of the proposed rule
provide sufficient time for a covered
bank as of the effective date of the rule
to conduct its first stress test?

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III. Administrative Law Matters
A. Paperwork Reduction Act Analysis
A. Request for Comment on Proposed
Information Collection
In accordance with the requirements
of the Paperwork Reduction Act of 1995
(44 U.S.C. 3501–3521) (‘‘PRA’’), the
Corporation may not conduct or
sponsor, and the respondent is not
required to respond to, an information
collection unless it displays a currently
valid Office of Management and Budget
(‘‘OMB’’) control number. The
information collection requirements
contained in this notice of proposed
rulemaking have been submitted by the
Corporation to OMB for review and
approval under section 3506 of the PRA
and section 1320.11 of OMB’s
implementing regulations (5 CFR part
1320).
Comments are invited on:
(a) Whether the collection of
information is necessary for the proper
performance of the agency’s functions,
including whether the information has
practical utility;
(b) The accuracy of the estimates of
the burden of the information
collection, 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 collection 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.
You may submit written comments by
any of the following methods:
• Agency Web Site: http://
www.fdic.gov/regulations/laws/federal/
propose.html. Follow the instructions
for submitting comments on the FDIC
Web site.
• Federal eRulemaking Portal: http://
www.regulations.gov. Follow the
instructions for submitting comments.
• Email: [email protected].
Include RIN 3064–AD91 on the subject
line of the message.
• Mail: Robert E. Feldman, Executive
Secretary, Attention: Comments, FDIC,
550 17th Street NW., Washington, DC
20429.
• Hand Delivery/Courier: Guard
station at the rear of the 550 17th Street
Building (located on F Street) on
business days between 7 a.m. and 5 p.m.
Public Inspection: All comments
received will be posted without change

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to http://www.fdic.gov/regulations/laws/
federal/propose.html including any
personal information provided.
Comments may be inspected at the FDIC
Public Information Center, 3501 North
Fairfax Drive, Room E–1002, Arlington,
VA 22226 between 9 a.m. and 4:30 p.m.
on business days.
A copy of the comments may also be
submitted to the OMB desk officer for
the agencies: By mail to the U.S. Office
of Management and Budget, 725 17th
Street NW., #10235, Washington, DC
20503 or by facsimile to (202) 395–6974,
Attention: Federal Banking Agency Desk
Officer.
B. Proposed Information Collection
Title of Information Collection: Stress
Test Reporting.
Frequency of Response: Annually.
Affected Public: State nonmember
banks and state savings associations
supervised by the Corporation.

Abstract: The information collection
requirements are found in sections
325.204, 325.205, and 325.207 of the
proposed rule. These requirements
implement the stress testing and stress
testing reporting requirements set forth
in Section 165(i) of the Dodd-Frank Act.
Section 325.204(a) identifies the
calculations of the potential impact on
capital that must be made during each
quarter of the planning horizon. Section
325.204(c) requires that each covered
bank must establish and maintain a
system of controls, oversight, and
documentation, including policies and
procedures that describe the covered
bank’s stress test practices and
methodologies, and processes for
updating such bank’s stress test
practices. Section 325.205 sets forth the
requirements for stress test reports to be
filed annually with the Corporation and
the Board in the time, manner and form
Number of
respondents

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Initial Paperwork Burden:
Initial Report .............................................................................................

specified by the Corporation. Section
325.205(d) includes a written request for
institutions to request an extension of
time to submit the stress test reports
under certain situations that have been
identified by the Corporation. Section
325.207 requires that a covered bank
shall publish a summary of the results
of its annual stress tests. The summary
must include a description of the types
of risks being included in the stress test,
a general description of the
methodologies employed to estimate
losses, pre-provision net revenue, loss
reserves, and changes in capital
positions over the planning horizon and
aggregate losses, pre-provision net
revenue, loss reserves, net income, and
pro forma capital levels and capital
ratios (including regulatory and any
other capital ratios specified by the
Corporation) over the planning horizon,
under each scenario.
Annual
frequency

Hourly
estimate

Total hours

23

1

2,000

46,000

Total ...................................................................................................
Ongoing Paperwork Burden:
Annual Report ...........................................................................................

23

1

2,000

46,000

23

1

1,040

23,920

Total ...................................................................................................

23

1

1,040

23,920

B. Regulatory Flexibility Act Analysis
The Regulatory Flexibility Act, 5
U.S.C. 601, et seq. (‘‘RFA’’), requires
that each federal agency either certify
that a proposed rule would not, if
adopted in final form, have a significant
economic impact on a substantial
number of small entities or prepare an
initial regulatory flexibility analysis of
the rule and publish the analysis for
comment.2 The proposed rule would
apply only to state nonmember banks
and state savings associations with more
than $10 billion in total consolidated
assets. Under regulations issued by the
Small Business Administration
(‘‘SBA’’), a bank or other depository
institution is considered ‘‘small’’ if it
has $175 million or less in assets.3 As
of December 31, 2010, there are
approximately 2,685 small state
nonmember banks and state savings
associations. Since the proposed rule
would apply only to state nonmember
banks and state savings associations
with more than $10 billion in total
consolidated assets, the Corporation
does not expect that the proposed rule
will directly affect a substantial number
2 See

5 U.S.C. 603, 604, and 605.
3 13 CFR 121.201.

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of small entities. It is hereby certified
that this rule will not have a significant
economic impact on a substantial
number of small entities and therefore,
a regulatory flexibility analysis under
the RFA is not required.
C. Solicitation of Comments and 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
federal banking agencies to use plain
language in all proposed and final rules
published after January 1, 2000. The
Corporation has sought to present the
proposed rule in a simple and
straightforward manner and invites
comment on how to make the proposed
rule easier to understand. For example:
• Is the material organized to suit
your needs? If not, how could the rule
be more clearly presented?
• Are the requirements in the rule
clearly stated? If not, how could the rule
be more clearly stated?
• Do the regulations contain technical
language or jargon that is not clear? If
so, which language requires
clarification?
• Would a different format (grouping
and order of sections, use of headings,

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paragraphing) make the regulation
easier to understand? If so, what
changes would achieve that?
• Is this section format adequate? If
not, which of the sections should be
changed and how?
• What other changes can the
Corporation incorporate to make the
regulation easier to understand?
List of Subjects in 12 CFR Part 325
Administrative practice and
procedure, Banks, Banking, Federal
Deposit Insurance Corporation,
Reporting and recordkeeping
requirements, State savings associations,
Stress tests.
Federal Deposit Insurance Corporation
12 CFR Chapter III
Authority and Issuance
The Corporation proposes to amend
part 325 of chapter III of title 12 of the
Code of Federal Regulations as follows:
PART 325—CAPITAL MAINTENANCE
1. The authority citation for part 325
is revised to read as follows:
Authority: 12 U.S.C. 1815(a), 1815(b),
1816, 1818(a), 1818(b), 1818(c), 1818(t),
1819(Tenth), 1828(c), 1828(d), 1828(i),

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Federal Register / Vol. 77, No. 14 / Monday, January 23, 2012 / Proposed Rules
1828(n), 1828(o), 1831o, 1835, 3907, 3909,
4808; Pub. L. 102–233, 105 Stat. 1761, 1789,
1790 (12 U.S.C. 1831n note); Pub. L. 102–
242, 105 Stat. 2236, as amended by Pub. L.
103–325, 108 Stat. 2160, 2233 (12 U.S.C.
1828 note); Pub. L. 102–242, 105 Stat. 2236,
2386, as amended by Pub. L. 102–550, 106
Stat. 3672, 4089 (12 U.S.C. 1828 note); 12
U.S.C. 5365(i).

2. Add subpart C to part 325 to read
as follows:
Subpart C—Annual Stress Test
Sec.
325.201 Authority, purpose, applicability,
and reservation of authority.
325.202 Definitions.
325.203 Annual stress tests required.
325.204 Methodologies and practices.
325.205 Report to the FDIC of stress test
results and related information.
325.206 Supervisory review of stress tests
and post-assessment actions.
325.207 Publication of summary of results.

Subpart C—Annual Stress Test

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§ 325.201 Authority, purpose, applicability,
and reservation of authority.

(a) Authority. This subpart is issued
by the Federal Deposit Insurance
Corporation (the ‘‘Corporation’’ or
‘‘FDIC’’) under section 165(i)(2) of the
Dodd-Frank Wall Street Reform and
Consumer Protection Act (the ‘‘DoddFrank Act’’) (Pub. L. 111–203, 124 Stat.
1376, 1430–1431, 12 U.S.C. 5365(i)(2)).
(b) Purpose. This subpart implements
section 165(i)(2) of the Dodd Frank Act
(12 U.S.C. 5365(i)(2)), which requires
the Corporation (in coordination with
the Board of Governors of the Federal
Reserve System (‘‘Board’’) and the
Federal Insurance Office) to issue
regulations implementing the
requirement that each covered bank
supervised by the Corporation with total
consolidated assets of more than $10
billion conduct annual stress tests.
(c) Applicability. (1) Except as
otherwise provided in this subpart, a
bank that becomes a covered bank no
less than 90 days before September 30
of that calendar year is subject to the
requirements of this subpart.
(2) Initial applicability. A bank that is
a covered bank on the effective date of
this subpart is subject to the
requirements, including timing of
required submissions to the
Corporation, of this subpart.
(d) Reservation of authority. (1)
Notwithstanding any other provisions of
this subpart, the Corporation may
accelerate or extend any deadline for
stress testing, reporting or publication,
or require additional tests if the
Corporation determines that such
modification is appropriate in light of
the covered bank’s activities, operations,
risk profile, or regulatory capital.

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(2) If the Corporation determines that
the stress testing techniques and
methodologies of a covered bank are
deficient under § 325.204, the
Corporation may determine that
additional analytical techniques and
methodologies are appropriate for the
covered bank to use in identifying,
measuring, and monitoring risks to its
safety and soundness and require it to
implement such techniques and
methodologies.
(3) The Corporation reserves the
authority to require a covered bank to
make additional publications beyond
those required by this subpart if the
Corporation determines that such
covered bank’s publication does not
adequately address one or more material
elements of the stress test. Further,
nothing in this subpart limits the
authority of the Corporation under any
other provision of law or regulation to
take supervisory or enforcement action,
including action to address unsafe and
unsound practices or conditions, or
violations of law or regulation.
§ 325.202

Definitions.

For purposes of this subpart—
(a) Covered bank means
(1) Any state nonmember bank or
state savings association that has more
than $10 billion in total consolidated
assets, as determined based on the
average of total consolidated assets as
reported on the state nonmember bank’s
four most recently-filed Consolidated
Reports of Condition and Income (Call
Report), or on the state savings
association’s four most recently-filed
Thrift Financial Reports (TFRs).
(2) Any state nonmember bank or
state savings association that meets the
requirements of paragraph (1) shall
remain a covered bank for purposes of
this subpart unless and until the state
nonmember bank has $10 billion or less
in total consolidated assets as
determined based on its four most
recently-filed Call Reports, or the state
savings association has $10 billion or
less in total consolidated assets as
determined based on each of its four
most recently-filed TFRs.
(b) Planning horizon means the period
over which the bank’s stress test
projections will extend: specifically
nine quarters.
(c) Scenarios are sets of economic and
financial conditions used in the covered
banks’ stress tests, including baseline,
adverse, and severely adverse.
(d) State nonmember bank and state
savings association shall each have the
same respective meaning contained in
section 3 of the Federal Deposit
Insurance Act (12 U.S.C. 1813).

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3171

(e) Stress test is a process used to
assess the potential impact on a covered
bank of economic and financial
conditions (scenarios) on the
consolidated earnings, losses, and
capital of a covered bank over a set
planning horizon, taking into account
the current condition of the covered
bank and the covered bank’s risks,
exposures, strategies, and activities.
§ 325.203

Annual stress tests required.

(a)(1) Each covered bank shall
complete an annual stress test of itself
based on data of the covered bank as of
September 30 of that calendar year.
(2) The stress test shall be conducted
in accordance with this section and the
methodologies and practices described
in section 325.204.
(b) Scenarios provided by the
Corporation. In conducting its stress
tests under this section, each covered
bank must use scenarios provided by
the Corporation that reflect a minimum
of three sets of economic and financial
conditions, including a baseline,
adverse, and severely adverse scenario.
In advance of these stress tests, the
Corporation will provide to all covered
banks a description of the baseline,
adverse, and severely adverse scenarios
that each covered bank shall use to
conduct its annual stress tests under
this subpart.
§ 325.204

Methodologies and practices.

(a) Potential impact on capital.
(1) In conducting a stress test under
§ 325.203, each covered bank shall
calculate how each of the following are
impacted during each quarter of the
stress test planning horizon for each
scenario:
(i) Potential losses, pre-provision net
revenues, loan loss reserves, and pro
forma capital positions over the
planning horizon; and
(ii) Capital levels and capital ratios,
including regulatory and any other
capital ratios specified by the
Corporation.
(b) Planning horizon. Each covered
bank must use a planning horizon of at
least nine quarters over which the
impact of specified scenarios would be
assessed.
(c) Controls and oversight of stress
testing processes.
(1) Each covered bank must establish
and maintain a system of controls,
oversight, and documentation,
including policies and procedures,
designed to ensure that the stress testing
processes used by the covered bank are
effective in meeting the requirements in
this subpart. These policies and
procedures must, at a minimum,
describe the covered bank’s stress

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Federal Register / Vol. 77, No. 14 / Monday, January 23, 2012 / Proposed Rules

testing practices and methodologies,
validation, and use of stress testing
results, as well as processes for updating
the covered bank’s stress testing
practices consistent with relevant
supervisory guidance.
(2) The board of directors and senior
management of each covered bank shall
approve and annually review the
controls, oversight, and documentation,
including policies and procedures of the
covered bank pursuant to this subpart.
§ 325.205 Report to the FDIC of stress test
results and related information.

(a) Report required for stress tests. On
or before January 5 of each year, each
covered bank must report the results of
the stress test required under section
325.203 to the FDIC in accordance with
paragraph 325.205(b) .
(b) Content of report for annual stress
tests. Each covered bank must file a
report in the manner, in such form, and
containing the information established
by the Corporation.
(c) Confidential treatment of
information submitted. The
confidentiality of information submitted
to the Corporation under this subpart
and related materials shall be
determined in accordance with
applicable law including any available
exemptions under the Freedom of
Information Act (5 U.S.C. 552(b)) and
the FDIC’s Rules and Regulations
regarding the Disclosure of Information
(12 CFR Part 309).
(d) Extension. The Corporation may,
in its discretion, and upon request by a
covered bank, extend the time period for
compliance established under paragraph
325.205(a) for up to an additional 60
days.
§ 325.206 Supervisory review of stress
tests and post-assessment actions.

(a) Each covered bank shall take the
results of the stress tests conducted
under section 325.203 into account in
making changes, as appropriate, to: The
covered bank’s capital structure
(including the level and composition of
capital); its exposures, concentrations,
and risk positions; any plans for
recovery and resolution; and to improve
overall risk management.

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§ 325.207
results.

Publication of summary of

(a) Public disclosure of results
required for stress tests of covered
banks. Within 90 days of the date
required for submitting a report under
§ 325.205(a) for its required stress test
under § 325.203, a covered bank shall
publicly disclose a summary of the
results of the stress tests required under
§ 325.203.

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(b) Information to be disclosed in the
summary. The information disclosed by
each covered bank shall, at a minimum,
include—
(1) A description of the types of risks
being included in the stress test;
(2) A general description of the
methodologies employed to estimate
losses, pre-provision net revenue, loss
reserves, and changes in capital
positions over the planning horizon;
(3) Aggregate losses, pre-provision net
revenue, loss reserves, net income, and
pro forma capital levels and capital
ratios (including regulatory and any
other capital ratios specified by the
Corporation) over the planning horizon
under each scenario.
Dated at Washington, DC this 17th day of
January, 2012.
By order of the Board of Directors.
Federal Deposit Insurance Corporation.
Robert E. Feldman,
Executive Secretary.
[FR Doc. 2012–1135 Filed 1–20–12; 8:45 am]
BILLING CODE 6714–01–P

FARM CREDIT ADMINISTRATION
12 CFR Parts 611, 612, 619, 620 and
630
RIN 3052–AC41

Compensation, Retirement Programs,
and Related Benefits
Farm Credit Administration.
Proposed rule.

AGENCY:
ACTION:

The Farm Credit
Administration (FCA, us, we, or our)
proposes to amend our regulations
related to Farm Credit System (System)
bank and association disclosures to
shareholders and investors. The
proposed rule would require reporting
of supplemental retirement plans, a
discussion of the link between senior
officer compensation and performance,
and timely and transparent reporting to
shareholders of significant events that
occur between annual reporting periods.
We believe the proposed changes will
provide full, transparent and consistent
disclosures to shareholders. The
proposed rule would identify the
minimum responsibilities a
compensation committee must perform
to ensure it continues to exercise good
stewardship, and require that System
banks and associations provide for a
nonbinding, advisory vote on senior
officer compensation in order to engage
shareholders in the management and
control of their institution. Also, the
proposed rule would bifurcate existing
annual reporting requirements at § 620.5

SUMMARY:

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and make other conforming technical
changes.
DATES: Submit comments on or before
March 23, 2012.
ADDRESSES: We offer a variety of
methods for you to submit your
comments. For accuracy and efficiency
reasons, commenters are encouraged to
submit comments by email or through
the FCA’s Web site. As facsimiles (faxes)
are difficult for us to process and
achieve compliance with section 508 of
the Rehabilitation Act, we no longer
accept comments submitted by fax.
Regardless of the method you use,
please do not submit your comments
multiple times via different methods.
You may submit comments by any of
the following methods:
• Email: Send an email to [email protected].
• FCA Web site: http://www.fca.gov.
Select ‘‘Public Commenters,’’ then
‘‘Public Comments,’’ and follow the
directions for ‘‘Submitting a Comment.’’
• Federal eRulemaking Portal: http://
www.regulations.gov. Follow the
instructions for submitting comments.
• Mail: Gary K. Van Meter, Director,
Office of Regulatory Policy, Farm Credit
Administration, 1501 Farm Credit Drive,
McLean, VA 22102–5090.
You may review copies of all
comments we receive at our office in
McLean, Virginia or on our Web site at
http://www.fca.gov. Once you are in the
Web site, select ‘‘Public Commenters,’’
then ‘‘Public Comments,’’ and follow
the directions for ‘‘Reading Submitted
Public Comments.’’ We will show your
comments as submitted, including any
supporting data provided, but for
technical reasons we may omit items
such as logos and special characters.
Identifying information that you
provide, such as phone numbers and
addresses, will be publicly available.
However, we will attempt to remove
email addresses to help reduce Internet
spam.
FOR FURTHER INFORMATION CONTACT:
Deborah Wilson, Senior Accountant,
Office of Regulatory Policy, Farm
Credit Administration, McLean, VA
22102–5090, (703) 883–4414, TTY
(703) 883–4434, or
Laura McFarland, Senior Counsel,
Office of General Counsel, Farm
Credit Administration, McLean, VA
22102–5090, (703) 883–4020, TTY
(703) 883–4020.
SUPPLEMENTARY INFORMATION:
I. Objective
The objectives of this proposed rule
are to:
• Improve the transparency and
completeness of disclosures in System

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