Modifications to the Capital Plan Rule and Stress Capital Buffer Requirement

FEDERAL RESERVE SYSTEM <CFR>12 CFR Parts 225, 238 and 252</CFR> <DEPDOC>[Regulations Y, LL, and YY; Docket No. R-1866]</DEPDOC> <RIN>RIN 7100-AG92</RIN> <SUBJECT>Modifications to the Capital Plan Rule and Stress Capital Buffer Requirement</SUBJECT> <HD SOURCE="HED">AGENCY:</HD> Board of Governors of the Federal Reserve System. <HD SOURCE="HED">ACTION:</HD> Notice of proposed rulemaking. <SUM> <HD SOURCE="HED">SUMMARY:</HD> The Board is inviting public comment on a notice of proposed rulemaking (the proposal) that would amend the calculation of the Board's stress capital buffer requirement applicable to certain large bank holding companies, savings and loan holding companies, U.S. intermediate holding companies of foreign banking organizations, and nonbank financial companies supervised by the Board to reduce the volatility of the stress capital buffer requirement. The proposal would use the average of the maximum common equity tier 1 capital declines projected in each of the Board's prior two annual supervisory stress tests to inform a firm's stress capital buffer requirement. The proposal would also extend the annual effective date of the stress capital buffer requirement by one quarter, to January 1, to provide additional time for firms to comply with the requirement. In addition, the proposal would make changes to the FR Y-14A/Q/M reports to collect additional net income data that would improve the accuracy of the stress capital buffer requirement calculation, as well as remove data items that are no longer needed to conduct the supervisory stress test. The changes in the proposal are not designed to materially affect overall capital requirements and would decrease regulatory reporting burden. </SUM> <EFFDATE> <HD SOURCE="HED">DATES:</HD> Comments must be received on or before June 23, 2025. </EFFDATE> <HD SOURCE="HED">ADDRESSES:</HD> You may submit comments, identified by Docket R-1866 and RIN 7100 AG92, by any of the following methods: <E T="03">Agency Website: https://www.federalreserve.gov/apps/proposals/.</E> Follow the instructions for submitting comments, including attachments. <E T="03">Preferred Method.</E> <E T="03">Federal eRulemaking Portal: http://www.regulations.gov.</E> Follow the instructions for submitting comments. <E T="03">Email: publiccomments@frb.gov.</E> You must include docket number and RIN in the subject line of the message. <E T="03">Fax:</E> (202) 452-3819 or (202) 452-3102. <E T="03">Mail, Courier and Hand Delivery:</E> Ann Misback, Secretary, Board of Governors of the Federal Reserve System, 20th Street and Constitution Avenue NW, Washington, DC 20551. <E T="03">Instructions:</E> All public comments are available from the Board's website at <E T="03">https://www.federalreserve.gov/apps/proposals/</E> as submitted, unless modified for technical reasons. Accordingly, comments will not be edited to remove any identifying or contact information. Public comments may also be viewed electronically or in paper form in Room M-4365A, 2001 C Street NW, Washington, DC 20551, between 9:00 a.m. and 5:00 p.m. on federal weekdays. For security reasons, the Board requires that visitors make an appointment to inspect comments. You may do so by calling (202) 452-3684. Upon arrival, visitors will be required to present valid government-issued photo identification and to submit to security screening in order to inspect and photocopy comments. For users of TTY-TRS, please call 711 from any telephone, anywhere in the United States. <FURINF> <HD SOURCE="HED">FOR FURTHER INFORMATION CONTACT:</HD> Juan Climent, Deputy Associate Director (202) 872-7526, Hillel Kipnis, Assistant Director, (202) 452-2924, Andrew Willis, Manager, (202) 430-1667, Missaka Warusawitharana, Manager, (202) 452-3461, Christopher Appel, Lead Financial Institution Policy Analyst, (202) 973-6862, John Simone, Lead Financial Institution Policy Analyst, (202) 245-4256, and Mehdi Beyhaghi, Principal Economist, (202) 973-6909, Division of Supervision and Regulation; Asad Kudiya, Deputy Associate General Counsel, (202) 360-6887, Julie Anthony, Senior Special Counsel, (202) 658-9400, Jonah Kind, Senior Counsel, (202) 452-2045, Legal Division. Board of Governors of the Federal Reserve System, 20th Street and Constitution Avenue NW, Washington, DC 20551. For users of TDD-TYY, please call 711 from any telephone, anywhere in the United States. Board of Governors of the Federal Reserve System, 20th Street and Constitution Avenue NW, Washington, DC 20551. </FURINF> <SUPLINF> <HD SOURCE="HED">SUPPLEMENTARY INFORMATION:</HD> <HD SOURCE="HD1">Table of Contents</HD> <EXTRACT> <FP SOURCE="FP-2">I. Introduction</FP> <FP SOURCE="FP1-2">A. Planned Stress Test Public Comment Initiatives</FP> <FP SOURCE="FP1-2">B. Background on Stress Testing Framework and the Stress Capital Buffer Requirement</FP> <FP SOURCE="FP1-2">C. Volatility in Capital Requirements</FP> <FP SOURCE="FP1-2">D. Summary of the Proposed Rule</FP> <FP SOURCE="FP-2">II. Changes to the Calculation of the Stress Capital Decline Component of the Stress Capital Buffer Requirement</FP> <FP SOURCE="FP1-2">A. Results Averaging</FP> <FP SOURCE="FP1-2">1. Reducing Volatility and Improving Predictability</FP> <FP SOURCE="FP1-2">2. Risk Sensitivity</FP> <FP SOURCE="FP1-2">3. Components of the Averaging Period</FP> <FP SOURCE="FP1-2">4. Averaging Period</FP> <FP SOURCE="FP1-2">5. Symmetric Averaging</FP> <FP SOURCE="FP1-2">6. Applicability</FP> <FP SOURCE="FP1-2">B. Changes to the Effective Date of the Stress Capital Buffer Requirement and Dividend Add-on Component Calculation</FP> <FP SOURCE="FP1-2">1. Change Stress Capital Buffer Requirement Effective Date to January 1</FP> <FP SOURCE="FP1-2">2. Amendment to the Dividend Add-on Component Calculation</FP> <FP SOURCE="FP1-2">C. Changes to Regulatory Reports</FP> <FP SOURCE="FP1-2">1. FR Y-14A/Q/M</FP> <FP SOURCE="FP-2">III. Economic Analysis</FP> <FP SOURCE="FP1-2">A. Baseline Analysis</FP> <FP SOURCE="FP1-2">B. Proposal Versus Baseline</FP> <FP SOURCE="FP1-2">C. Reasonable Alternatives</FP> <FP SOURCE="FP1-2">D. Analysis of Benefits and Costs</FP> <FP SOURCE="FP-2">Administrative Law Matters</FP> <FP SOURCE="FP1-2">A. Paperwork Reduction Act Analysis</FP> <FP SOURCE="FP1-2">B. Regulatory Flexibility Act Analysis</FP> <FP SOURCE="FP1-2">C. Plain Language</FP> <FP SOURCE="FP1-2">D. Providing Accountability Through Transparency Act of 2023</FP> </EXTRACT> <HD SOURCE="HD1">I. Introduction</HD> <HD SOURCE="HD2">A. Planned Stress Test Public Comment Initiatives and Broader Policy Considerations</HD> In December 2024, the Board announced that it would seek public comment on a proposal to make significant changes to its supervisory stress test practices and framework to improve their transparency and reduce volatility. <SU>1</SU> <FTREF/> <FTNT> <SU>1</SU>   <E T="03">See https://www.federalreserve.gov/newsevents/pressreleases/bcreg20241223a.htm.</E> In February 2025, the Board reiterated its previous announcement that it would begin the public comment process on changes to the supervisory stress test. <E T="03">See https://www.federalreserve.gov/newsevents/pressreleases/bcreg20250205a.htm.</E> </FTNT> This notice of proposed rulemaking (proposal) would help to reduce volatility of the stress capital buffer requirements. The Board also plans to issue proposals to seek public comment on the models it uses to determine the hypothetical losses and revenue of firms for the supervisory stress test and on a process to update the models at a frequency that ensures they remain dynamic while still subjecting those future changes to notice and comment. The Board also plans to seek public comment on the supervisory scenarios used in the supervisory stress test. In doing so, the Board seeks to improve the transparency of its supervisory stress test, while retaining appropriate risk sensitivity and risk capture in capital requirements, as well as effective tools for understanding and assessing risk. Maintaining the capacity to regularly update the supervisory stress test models and supervisory scenarios is integral to ensuring the stress test's ability to capture changes in the risks in the financial industry over time. The Board is also considering broad modifications to its regulatory capital and capital planning requirements for large firms to ensure they remain cohesive and effective, maintain the resilience of the banking sector, and minimize any unnecessary burden. The Board will make any changes to its rules through the public notice and comment process. <E T="03">Question 01: The Board seeks comment on all aspects of the proposal and its intended approach to seek comment on other significant changes to its supervisory stress test. What, if any, other elements of the supervisory stress test framework should the Board consider amending to improve the transparency and effectiveness of its supervisory stress test? For example, the Board could instead provide firms with their stress capital buffer requirements before firms are required to submit their annual capital plans. What would be the advantages and disadvantages of this approach? As an additional example, the Board's Stress Testing Policy Statement states that some variables, such as the unemployment rate, generally will increase by a certain amount or rise to a certain level in the severely adverse scenario.</E> <E T="51">2</E> <FTREF/> <E T="03">What would be the advantages and disadvantages of the Board defining the paths of other variables in the severely adverse scenario? On which variables should the Board consider defining paths and why?</E> <FTNT> <SU>2</SU>   <E T="03">See</E> 12 CFR 252, Appendix B. </FTNT> <HD SOURCE="HD2">B. Background on Stress Testing Framework and the Stress Capital Buffer Requirement</HD> Stress testing is ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━ Preview showing 10k of 138k characters. Full document text is stored and available for version comparison. ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━