RegYY_SubpartH_20121115_omb

Supporting Statement for the
Reporting, Recordkeeping, and Disclosure Requirements Associated with
Regulation YY (Enhanced Prudential Standards) (Reg YY; OMB No. 7100-0350)
Annual Company-Run Stress Test Requirements for Banking Organizations With Total
Consolidated Assets Over $10 Billion Other Than Covered Companies
(Subpart H - Company-Run Stress Test Requirements for Banking Organizations With Total
Consolidated Assets Over $10 Billion That Are Not Covered Companies)
(Docket No. R-1438) (RIN 7100-AD86)
Summary
The Board of Governors of the Federal Reserve System, under delegated authority from
the Office of Management and Budget (OMB), proposes to extend for three years, with revision,
the Reporting, Recordkeeping, and Disclosure Requirements Associated with Regulation YY
(Enhanced Prudential Standards) (Reg YY; OMB No. 7100-0350). The Paperwork Reduction
Act (PRA) classifies reporting, recordkeeping, or disclosure requirements of a regulation as an
“information collection.”1
The Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act)2
requires the Federal Reserve to issue regulations that require financial companies with total
consolidated assets of more than $10 billion and for which the Federal Reserve is the primary
federal financial regulatory agency to conduct stress tests on an annual basis. The Federal
Reserve adopted a final rule to implement the company-run stress test requirements in the DoddFrank 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. On January 5,
2012, the Federal Reserve published a notice of proposed rulemaking in the Federal Register for
public comment (77 FR 594). The comment period expired on April 30, 2012. On October 12,
2012, the Federal Reserve published a notice of final rulemaking in the Federal Register (77 FR
62396). The final rule is effective on November 15, 2012.
The recordkeeping requirements are found in section 252.155(c) and the reporting
requirements for state member banks are found in section 252.156. These information collection
requirements will implement section 165(i)(2) of the Dodd-Frank Act for Federal Reserveregulated companies with $10 billion or more in total consolidated assets that are not covered
companies. The current annual burden for this information collection is estimated to be 29,920
hours and would increase by 29,400 hours based on the proposed revisions. There are no
required reporting forms associated with this information collection.
Background and Justification
The Federal Reserve 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
1
2

See 44 U.S.C. § 3501 et seq.
Dodd-Frank Wall Street Reform and Consumer Protection Act, Public Law 111-203, 124 Stat. 1376 (2010).

its minimum regulatory capital ratios and commensurate with its risk profile. 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.
Moreover, a banking organization that is subject to the Federal Reserve’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. 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. The Federal Reserve 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.
In particular, as part of its effort to stabilize the U.S. financial system during the recent
financial crisis, the Federal Reserve, 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 forwardlooking 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 Federal
Reserve 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 Federal Reserve’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 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 Federal Reserve 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 Federal Reserve to allow the Federal
Reserve to assess whether they have robust, forward looking capital planning processes and have
sufficient capital to continue operations throughout times of economic and financial stress.
In the wake of the financial crisis, Congress enacted the Dodd-Frank Act, which requires
the Federal Reserve 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. Section 165(i)(1) of the Dodd-Frank Act requires the Federal
Reserve 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

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of adverse economic conditions (supervisory stress tests). The Dodd-Frank 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 Federal Reserve would conduct its evaluation.
The Dodd-Frank Act also requires the Federal Reserve to publish a summary of the supervisory
stress test results.
In addition, section 165(i)(2) of the Dodd-Frank Act requires the Federal Reserve 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 Federal Reserve is the primary federal financial regulatory agency
to conduct stress tests on an annual basis (collectively, company-run stress tests). The DoddFrank Act requires that the Federal Reserve issue regulations that: (1) define the term “stress
test”; (2) 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; (3) establish the form and content of the report that companies subject to the
regulation must submit to the Federal Reserve; and (4) require companies to publish a summary
of the results of the required stress tests.
On October 12, 2012, the Federal Reserve published a notice of final rulemaking 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 final rules regarding supervisory and company-run stress tests. Under the
final rules, the Federal Reserve 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 final rule required each covered company to
conduct two company-run stress tests each year: (1) an “annual” company-run stress test using
data as of September 30 of each year and the three scenarios provided by the Federal Reserve
and (2) an additional company-run stress test using data as of March 31 of each year and three
scenarios developed by the company. The final rule required each covered company to publish
the summary of the results of its company-run stress tests within 90 days of submitting the
results to the Federal Reserve.
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 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
Federal Reserve will use the results of the supervisory stress tests and company-run 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 Federal Reserve’s financial stability efforts.

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Description of Information Collection
The recordkeeping and disclosure requirements are found in section 252.146(c)(1) and
252.148. The Federal Reserve adopted these requirements to implement the stress test
requirements for covered companies established in the Dodd-Frank Act. Compliance with the
information collection is mandatory. No other federal law mandates these recordkeeping and
disclosure requirements.
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 Federal Reserve 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 Federal Reserve 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 employed to estimate losses, revenues,
provision for loan and lease losses, and changes in capital positions over the planning horizon;
(3) estimates of pre-provision 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.
Proposed Revisions
Section 252.155(c) requires that each bank holding company, savings and loan holding
company, or state member bank 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 H. These policies and

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procedures must, at a minimum, describe the 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.
Section 252.156 requires state member banks with $50 billion or more in total
consolidated assets to report the results of the stress test to the Board by March 31 of each
calendar year, unless that time is extended by the Board in writing. The report must include,
under the baseline scenario, adverse scenario, and severely adverse scenario, a description of the
types of risks being included in the stress test, a summary description of the methodologies used
in the stress test, for each quarter of the planning horizon, estimates of aggregate losses, preprovision net revenue, provision for loan and lease losses, net income, and regulatory capital
ratios; an explanation of the most significant causes for the changes in regulatory capital ratios;
and any other information required by the Board. This requirement will remain applicable until
such time as the Board issues a reporting form to collect the results of the stress test required
under section 252.154.
Time Schedule for Information Collection
The information collection pursuant to the recordkeeping requirements is event-generated
and must be maintained on sight. The information collection pursuant to the disclosure
requirements mandates that a covered company publish a summary of the results of the stress test
(1) in the period beginning on March 15 and ending on March 31 and (2) in the period beginning
on September 15 and ending on September 30. The proposed information collection pursuant to
the reporting requirements mandates that a state member banks with $50 billion or more in total
consolidated assets report the results of the stress test to the Board by March 31 of each calendar
year.
Legal Status
The Board’s Legal Division has determined that these information collections are
required by sections 165(i)(1) and (2) of the Dodd-Frank Act (12 U.S.C. § 5365 and 5366) and
Regulation YY (12 C.F.R. § 252). The data are regarded as confidential under the Freedom of
Information Act until the institution discloses certain information to the public (5 U.S.C. §§
552(b)(4) and (b)(8)).
Consultation Outside the Agency and Discussion of Public Comment
On January 5, 2012, the Federal Reserve published the proposed rule in the Federal
Register (77 FR 594) requesting public comment on the proposed information collection. The
comment period for this notice expired on April 30, 2012. The Federal Reserve received general
comments regarding the burden of the proposed rule, particularly for companies with less than
$50 billion in total consolidated assets. Commenters suggested that companies with total
consolidated assets greater than $10 billion but less than $50 billion that have not previously
been subject to stress-testing requirements need more time to develop the necessary systems and
procedures to be able to conduct company-run stress tests and to collect the information that the
Federal Reserve may require in connection with these tests. In response to these comments and

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to reduce burden, the final rule delays the compliance date for most smaller companies, extends
the timeline for most smaller companies to submit the results of the test to the Board, tailors
disclosure requirements, and synchronizes the disclosure regime for bank holding companies and
their depository institution subsidiaries. On October 12, 2012, the Federal Reserve published the
final rule in the Federal Register (77 FR 62396) and is effective on November 15, 2012.
Estimate of Respondent Burden
The current annual burden for Reg YY is estimated to be 29,920 hours. The proposed
reporting and recordkeeping requirement would increase the estimated annual burden hours by
29,400 hours as shown in the tables below. The Reg YY reporting, recordkeeping, and
disclosure requirements represent less than 1 percent of the total Federal Reserve System
paperwork burden.

Current
Initial Set-up
Subpart G - Section 252.146c1
Recordkeeping ($50 billion)
Subpart G - Section 252.148
Disclosure ($50 billion)
Total Initial Set-Up
Ongoing
Subpart G - Section 252.146c1
Recordkeeping ($50 billion)
Subpart G - Section 252.148
Disclosure ($50 billion)
Total Ongoing

Number of
respondents3

Annual
frequency

Estimated
average
hours
per response

Estimated
annual burden
hours

34

1

280

9,520

34

2

200

13,600
23,120

34

1

40

1,360

34

2

80

5,440
6,800

Total

29,920

3

Of these respondents, none are small entities as defined by the Small Business Administration (i.e., entities with
less than $175 million in total assets) www.sba.gov/content/table-small-business-size-standards.

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Proposed
Initial Set-up
Subpart G - Section 252.146c1
Recordkeeping ($50 billion)
Subpart G - Section 252.148
Disclosure ($50 billion)
Subpart H - Section 252.155c
Recordkeeping ($10 billion)
Subpart H - Section 252.156
Reporting ($50 billion)
Total Initial Set-Up
Ongoing
Subpart G - Section 252.146c1
Recordkeeping ($50 billion)
Subpart G - Section 252.148
Disclosure ($50 billion)
Subpart H - Section 252.155c
Recordkeeping ($10 billion)
Subpart H - Section 252.156
Reporting ($50 billion)
Total Ongoing

Number of
respondents4

Annual
frequency

Estimated
average
hours
per response

34

1

280

9,520

34

2

200

13,600

99

1

240

23,760

6

1

200

1,200

Estimated
annual burden
hours

48,080

34

1

40

1,360

34

2

80

5,440

99

1

40

3,960

6

1

80

480
11,240

Total
Change

59,320
29,400

The total cost to the public for this information collection is estimated to increase from the
current level of $1,341,912 to $2,660,502.5
Sensitive Questions
This collection of information contains no questions of a sensitive nature, as defined by
OMB guidelines.

4

Of these respondents, none are small entities as defined by the Small Business Administration (i.e., entities with
less than $175 million in total assets) www.sba.gov/content/table-small-business-size-standards.
5
Total cost to the public was estimated using the following formula: percent of staff time, multiplied by annual
burden hours, multiplied by hourly rate (30% Office & Administrative Support @ $17, 45% Financial Managers @
$52, 15% Legal Counsel @ $55, and 10% Chief Executives @ $81). Hourly rate for each occupational group are
the median hourly wages (rounded up) from the Bureau of Labor and Statistics (BLS), Occupational Employment
and Wages 2011, www.bls.gov/news.release/ocwage.nr0.htm. Occupations are defined using the BLS Occupational
Classification System, www.bls.gov/soc/.

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Estimate of Cost to the Federal Reserve System
The cost to the Federal Reserve System is negligible.

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