Agency Information Collection Activities: Revision of an Approved Information Collection; Comment Request; Capital Adequacy Standards

AGENCY:

Office of the Comptroller of the Currency (OCC), Treasury.

ACTION:

Notice and request for comment.

SUMMARY:

The OCC, as part of its continuing effort to reduce paperwork and respondent burden, invites comment on a continuing information collection, as required by the Paperwork Reduction Act of 1995 (PRA). In accordance with the requirements of the PRA, the OCC 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 OCC is soliciting comment concerning a revision to its information collection titled, “Capital Adequacy Standards.”

DATES:

Comments must be received by January 22, 2024.

ADDRESSES:

Commenters are encouraged to submit comments by email, if possible. You may submit comments by any of the following methods:

• Email: prainfo@occ.treas.gov.

• Mail: Chief Counsel's Office, Attention: Comment Processing, Office of the Comptroller of the Currency, Attention: 1557–0318, 400 7th Street SW, Suite 3E–218, Washington, DC 20219.

• Hand Delivery/Courier: 400 7th Street SW, Suite 3E–218, Washington, DC 20219.

• Fax: (571) 293–4835.

Instructions: You must include “OCC” as the agency name and “1557–0318” in your comment. In general, the OCC will publish comments on www.reginfo.gov without change, including any business or personal information provided, such as name and address information, email addresses, or phone numbers. Comments received, including attachments and other supporting materials, are part of the public record and subject to public disclosure. Do not include any information in your comment or supporting materials that you consider confidential or inappropriate for public disclosure.

Following the close of this notice's 60-day comment period, the OCC will publish a second notice with a 30-day comment period. You may review comments and other related materials that pertain to this information collection beginning on the date of publication of the second notice for this collection by the method set forth in the next bullet.

• Viewing Comments Electronically: Go to www.reginfo.gov. Hover over the “Information Collection Review” drop down menu. Click on “Information Collection Review.” From the “Currently under Review” drop-down menu, select “Department of Treasury” and then click “submit.” This information collection can be located by searching OMB control number “1557–0318” or “Capital Adequacy Standards.” Upon finding the appropriate information collection, click on the related “ICR Reference Number.” On the next screen, select “View Supporting Statement and Other Documents” and then click on the link to any comment listed at the bottom of the screen.

• For assistance in navigating www.reginfo.gov, please contact the Regulatory Information Service Center at (202) 482–7340.

FOR FURTHER INFORMATION CONTACT:

Shaquita Merritt, Clearance Officer, (202) 649–5490, Chief Counsel's Office, Office of the Comptroller of the Currency, 400 7th Street SW, Washington, DC 20219. If you are deaf, hard of hearing, or have a speech disability, please dial 7–1–1 to access telecommunications relay services.

SUPPLEMENTARY INFORMATION:

Under the PRA (44 U.S.C. 3501 et seq.), Federal agencies must obtain approval from the OMB for each collection of information that they conduct or sponsor. “Collection of information” is defined in 44 U.S.C. 3502(3) and 5 CFR 1320.3(c) to include agency requests or requirements that members of the public submit reports, keep records, or provide information to a third party. Section 3506(c)(2)(A) of title 44 generally requires Federal agencies to provide a 60-day notice in the Federal Register concerning each proposed collection of information, including each proposed extension of an existing collection of information, before submitting the collection to OMB for approval. To comply with this requirement, the OCC is publishing notice of the revision to the collection of information set forth in this document. The OCC asks OMB to approve this revised collection.

Title: Capital Adequacy Standards. OMB Control No.: 1557–0318.

Type of Review: Regular.

Abstract: The OCC is seeking renewal with revision of an information collection approval for the recordkeeping, reporting, and disclosure requirements associated with capital adequacy standards applicable to national banks and Federal savings associations. The OCC is proposing revisions in connection with this extension to reflect more granular detail for certain existing reporting and recordkeeping provisions, as well as improving prior estimates regarding the number of respondents and burden associated with these existing provisions. In addition, reporting burden associated with 12 CFR 3.304 is being removed as that portion of the rule is no longer in effect.

Section-by-Section Analysis

Twelve CFR part 3 sets forth the OCC's minimum capital requirements and overall capital adequacy standards for national banks and Federal savings associations.

Minimum Regulatory Capital Ratios

Reporting Requirements

Section 3.3(c) allows for the recognition of netting across multiple types of transactions or agreements if the national bank or Federal savings association obtains a written legal opinion verifying the validity and enforceability of the agreement under certain circumstances.

Section 3.22(b)(2)(iv) permits, with prior notice to the OCC, a national bank or Federal savings association resulting from a merger, acquisition, or purchase transaction and that is not an advanced approaches national bank or Federal savings association to change its AOCI opt-out election.

Section 3.22(c)(4) provides that, with the prior written approval of the OCC, a national bank or Federal savings association that underwrites a failed underwriting, is not required to deduct an investment in the capital of an unconsolidated financial institution to the extent the investment is related to the failed underwriting.

Section 3.22(c)(5)(i) provides that, with the prior written approval of the OCC, an advanced approaches national bank or Federal savings association that underwrites a failed underwriting, for the period of time stipulated by the OCC is not required to deduct from capital a non-significant investment in the capital of an unconsolidated financial institution or an investment in a covered debt instrument to the extent the investment is related to the failed underwriting.

Section 3.22(c)(6) provides that, with prior written approval of the OCC and for the period of time stipulated by the OCC, an advanced approaches national bank or Federal savings association that underwrites a failed underwriting is not required to deduct the significant investment in the capital of an unconsolidated financial institution or an investment in a covered debt instrument if such investment is related to such failed underwriting.

Section 3.22(d)(2)(i)(C) provides that, with the prior written approval of the OCC and for the period of time stipulated by the OCC, an advanced approaches national bank or Federal savings association that underwrites a failed underwriting is not required to deduct a significant investment in the capital of an unconsolidated financial institution in the form of common stock if such investment is related to such failed underwriting.

Section 3.22(d)(2)(iii) permits an advanced approaches national bank or Federal savings association to change its exclusion preference to exclude deferred tax assets (DTAs) and deferred tax liabilities (DTLs) relating to adjustments relating to common equity tier 1 capital after obtaining the prior approval of the OCC.

Section 3.22(h)(2)(iii)(A) permits the use of a conservative estimate of the amount of an institution's investment in its own capital or the capital of unconsolidated financial institutions held through an index security with prior approval by the OCC.

Recordkeeping Requirements

Section 3.3(d) allows for the recognition of an agreement as a qualifying master netting agreement if the national bank or Federal savings association conducts a sufficient legal review and maintains sufficient written documentation of that legal review to ensure that the agreement continues to satisfy the requirements of the definition of qualifying master netting agreement that a relevant court would find to be legal, valid, binding, and enforceable. Section 3.3(d) further requires s national banks and Federal savings associations to establish and maintain written procedures to monitor possible changes in relevant law and to ensure that the agreement continues to satisfy the requirements of the definition of qualifying master netting agreement.

Standardized Approach

Reporting Requirements

Section 3.37(c)(4)(i)(E) requires that a bank or Federal savings association obtain the prior approval of the OCC for and notify the OCC if it makes any material changes to the policies and procedures describing how it determines the period of significant financial stress used to calculate its own internal estimates for haircuts and be able to provide empirical support for the period used.

Recordkeeping Requirements

Section 3.35(b)(3)(i)(A) requires for a cleared transaction with a qualified central counterparty (QCCP), that a client bank apply a risk weight of two percent, provided that the collateral posted by the national bank or Federal savings association to the QCCP is subject to certain arrangements and the client bank has conducted a sufficient legal review (and maintains sufficient written documentation of the legal review) to conclude with a well-founded basis that the arrangements, in the event of a legal challenge, would be found to be legal, valid, binding, and enforceable under the law of the relevant jurisdictions.

Section 3.37(c)(4)(i)(E) requires that a national bank or Federal savings association have policies and procedures in place describing how it determines the period of significant financial stress used to calculate its own internal estimates for haircuts and be able to provide empirical support for the period used.

Section 3.41(b)(3), which sets forth operational requirements for securitization exposures, allows a national bank or Federal savings association to recognize for risk-based capital purposes, in the case of synthetic securitizations, a credit risk mitigant to hedge underlying exposures if certain conditions are met. Section 3.41(b)(3) includes a requirement that the national bank or Federal savings association obtain a well-reasoned opinion from legal counsel that confirms the enforceability of the credit risk mitigant in all relevant jurisdictions.

Section 3.41(c)(2)(i) requires that a national bank or Federal savings association demonstrate its comprehensive understanding of a securitization exposure by conducting an analysis of the risk characteristics of each securitization exposure prior to its acquisition, taking into account a number of specified considerations and documenting the analysis within three business days after the acquisition.

Section 3.41(c)(2)(ii) requires a national bank or Federal savings association, on an on-going basis (no less frequently than quarterly), to evaluate, review, and update as appropriate the analysis required under § 3.41(c)(1) for each securitization exposure.

Disclosure Requirements

In a case where a national bank or Federal savings association provides non-contractual support ( i.e., implicit support) to a securitization, § 3.42(e)(2) requires the national bank or Federal savings association to publicly disclose that it has provided implicit support to the securitization and the risk-based capital impact to the bank or savings association of providing such implicit support.

Section 3.62 sets forth disclosure requirements related to the capital requirements of a national bank or Federal savings association. Section 3.61 provides that these requirements apply to an institution with total consolidated assets of $50 billion or more that is not a consolidated subsidiary of a bank holding company, savings and loan holding company, or a depository institution subject to the disclosure requirements of § 3.62. For national banks or Federal savings associations subject to the disclosure requirements, § 3.62(a) requires quarterly disclosure of information in the applicable tables in § 3.63 and, if a significant change occurs, such that the most recent reported amounts are no longer reflective of the institution's capital adequacy and risk profile, § 3.62(a) requires the national bank or Federal savings association to disclose as soon as practicable thereafter a brief discussion of the change and its likely impact. Section 3.62(a) also permits annual disclosure of qualitative information that typically does not change each quarter, provided that any significant changes are disclosed in the interim.

Section 3.62(b) requires that a national bank or Federal savings association have a formal disclosure policy approved by the board of directors that addresses its approach for determining the disclosures it makes. The policy must address the associated internal controls and disclosure controls and procedures. Section 3.62(c) permits a national bank or Federal savings association to disclose more general information about certain subjects if the national bank or Federal savings association concludes that the specific commercial or financial information required to be disclosed under § 3.62 is exempt from disclosure under the Freedom of Information Act (5 U.S.C. 552) and the national bank or Federal savings association provides the reason the specific items of information have not been disclosed.

Currently, § 3.63 sets forth the specific disclosure requirements for a non-advanced approaches national bank or Federal savings association with total consolidated assets of $50 billion or more that is not a consolidated subsidiary of a bank holding company, savings and loan holding company, or a depository institution subject to the disclosure requirements of § 3.62. Section 3.63(a) requires those institutions to make the disclosures in Tables 1 through 10 in § 3.63 and in § 3.63(b) for each of the last three years beginning on the effective date of the rule. Section 3.63(b) requires quarterly disclosure of an institution's common equity tier 1 capital, additional tier 1 capital, tier 2 capital, tier 1 and total capital ratios, including the regulatory capital elements and all the regulatory adjustments and deductions needed to calculate the numerator of such ratios; total risk-weighted assets, including the different regulatory adjustments and deductions needed to calculate total risk-weighted assets; regulatory capital ratios during any transition periods, including a description of all the regulatory capital elements and all regulatory adjustments and deductions needed to calculate the numerator and denominator of each capital ratio during any transition period; and a reconciliation of regulatory capital elements as they relate to its balance sheet in any audited consolidated financial statements. Tables 1 through 10 in § 3.63 set forth qualitative and/or quantitative requirements for scope of application, capital structure, capital adequacy, capital conservation buffer, credit risk, counterparty credit risk-related exposures, credit risk mitigation, securitizations, equities not subject to Subpart F (Market Risk requirements) of the rule, and interest rate risk for non-trading activities.

Advanced Approaches

Reporting Requirements

Section 3.121(b)(2) requires a national bank or Federal savings association to submit an implementation plan, together with a copy of the minutes of the board of director's approval, to the OCC at least 60 days before the national bank or Federal savings association proposes to begin its parallel run, unless the OCC waives prior notice.

Section 3.121(c) requires that during a parallel run, a national bank or Federal savings association report to the OCC on a calendar quarterly basis its risk-based capital ratios.

Section 3.122(d)–(g) requires a national bank or Federal savings association to obtain the prior written approval of the OCC under § 3.132 to use the internal models methodology for counterparty credit risk and the advanced CVA approach for the CVA capital requirement, § 3.135 to use the double default treatment, § 3.153 to use the internal models approach for equity exposures, and § 3.122(g)(3) to generate an estimate of its operational risk exposure using an alternative approach.

Section 3.123 references ongoing qualification requirements that would require an institution to notify the OCC of any material change to an advance system and establish and submit to the OCC a plan for returning to compliance with the qualification requirements.

Section 3.124 requires a national bank or Federal savings association to submit to the OCC, within 90 days of consummating a merger or acquisition, an implementation plan for using its advanced systems for the merged or acquired company.

Section 3.132(b)(2)(iii)(A) addresses counterparty credit risk of repo-style transactions, eligible margin loans, and over-the-counter (OTC) derivative contracts, and internal estimates for haircuts. With the prior written approval of the OCC, a national bank or Federal savings association may calculate haircuts using its own internal estimates of the volatilities of market prices and foreign exchange rates. The section requires national banks and Federal savings associations to satisfy certain minimum quantitative standards in order to receive OCC approval to use its own internal estimates.

Section 3.132(b)(3) covers counterparty credit risk of repo-style transactions, eligible margin loans, OTC derivative contracts, and simple Value-at-Risk (VaR) methodology. With the prior written approval of the OCC, a national bank or Federal savings association may estimate exposure at default (EAD) for a netting set using a VaR model that meets certain requirements.

Section 3.132(d)(1) permits the use of the internal models methodology (IMM) to determine EAD for counterparty credit risk for derivative contracts with prior written approval from the OCC.

Section 3.132(d)(1)(iii) permits the use of the internal models methodology for derivative contracts, eligible margin loans, and repo-style transactions subject to a qualifying cross-product netting agreement with prior written approval from the OCC.

Section 3.132(d)(2)(iv) addresses counterparty credit risk of repo-style transactions, eligible margin loans, and OTC derivative contracts, and risk-weighted assets using IMM. Under the IMM, an institution uses an internal model to estimate the expected exposure (EE) for a netting set and then calculates EAD based on that EE. A national bank or Federal savings association must calculate two EEs and two EADs (one stressed and one unstressed) for each netting as outlined in this section. A national bank or Federal savings association may use a conservative measure of EAD subject to prior written approval of the OCC.

Section 3.153(b), outlining the Internal Models Approach (IMA) for calculating risk-weighted assets for equity exposures, specifies that a national bank or Federal savings association must receive prior written approval from the OCC before it can use IMA by demonstrating to the OCC that the national bank or Federal savings association meets certain criteria.

Recordkeeping Requirements

Section 3.121 requires a national bank or Federal savings association subject to the advanced approaches risk-based capital requirements to adopt a written implementation plan to address how it will comply with the advanced capital adequacy framework's qualification requirements and also develop and maintain a comprehensive and sound planning and governance process to oversee the implementation efforts described in the plan. Section 3.122 further requires these institutions to: develop processes for assessing capital adequacy in relation to an organization's risk profile; establish and maintain internal risk rating and segmentation systems for wholesale and retail risk exposures, including comprehensive risk parameter quantification processes and processes for annual reviews and analyses of reference data to determine their relevance; document their processes for identifying, measuring, monitoring, controlling, and internally reporting operational risk; verify the accurate and timely reporting of risk-based capital requirements; and monitor, validate, and refine their advanced systems.

Section 3.132(d)(3)(vi) addresses counterparty credit risk of repo-style transactions, eligible margin loans, and OTC derivative contracts. To obtain OCC approval to calculate the distributions of exposures upon which the EAD calculation is based, a national bank or Federal savings association must demonstrate to the satisfaction of the OCC that it has been using for at least one year an internal model that broadly meets the minimum standards with which the national bank or Federal savings association must maintain compliance. The national bank or Federal savings association must have procedures to identify, monitor, and control wrong-way risk throughout the life of an exposure and they must include stress testing and scenario analysis.

Section 3.132(d)(3)(viii) addresses counterparty credit risk of repo-style transactions, eligible margin loans, and OTC derivative contracts. When estimating model parameters based on a stress period, a national bank or Federal savings association must use at least three years of historical data that include a period of stress to the credit default spreads of its counterparties. The national bank or Federal savings association must review the data set and update the data as necessary, particularly for any material changes in its counterparties. The national bank or Federal savings association must demonstrate at least quarterly that the stress period coincides with increased credit default swap (CDS) or other credit spreads of the institution's counterparties. The national bank or Federal savings association must have procedures to evaluate the effectiveness of its stress calibration that include a process for using benchmark portfolios that are vulnerable to the same risk factors as the national bank's or Federal savings association's portfolio. The OCC may require the institution to modify its stress calibration to better reflect actual historic losses of the portfolio.

Section 3.132(d)(3)(ix), regarding counterparty credit risk of repo-style transactions, eligible margin loans, and OTC derivative contracts, requires that a national bank or Federal savings association must subject its internal model to an initial validation and annual model review process that includes consideration of whether the inputs and risk factors, as well as the model outputs, are appropriate. The section requires national banks and Federal savings associations to have a backtesting program for its model that includes a process by which unacceptable model performance will be determined and remedied.

Section 3.132(d)(3)(x), regarding counterparty credit risk of repo-style transactions, eligible margin loans, and OTC derivative contracts, provides that a national bank or Federal savings association must have policies for the measurement, management, and control of collateral and margin amounts.

Section 3.132(d)(3)(xi), concerning counterparty credit risk of repo-style transactions, eligible margin loans, and OTC derivative contracts, states that a national bank or Federal savings association must have a comprehensive stress testing program that captures all credit exposures to counterparties and incorporates stress testing of principal market risk factors and creditworthiness of counterparties.

Section 3.133(b)(3)(i)(A) permits a national bank or Federal savings association to assign a two percent risk weight to an exposure to a qualifying central counterparty (QCCP), if the institution conducts sufficient legal review, and maintains written documentation of that review.

Section 3.141(b)(3) requires a national bank or Federal savings association to obtain a well-reasoned legal opinion confirming the enforceability of the credit risk mitigant in all relevant jurisdictions in order to recognize the transference of risk in connection with a synthetic securitization.

Sections 3.141(c)(1) and 3.141(c)(2)(i) require a national bank or Federal savings association to demonstrate its comprehensive understanding of a securitization exposure for each securitization exposure by conducting an analysis of the risk characteristics of a securitization exposure prior to acquiring the exposure and document such analysis within three business days after acquiring the exposure.

Section 3.141(c)(2)(ii) requires that institutions, on an on-going basis (at least quarterly), evaluate, review, and update as appropriate the analysis required under this section for each securitization exposure.

Disclosure Requirements

Section 3.142, which outlines the capital treatment for securitization exposures, requires a national bank or Federal savings association to disclose publicly that it has provided implicit support to a securitization and the regulatory capital impact to the institution of providing such implicit support. Specifically, § 3.124(a) requires a national bank or Federal savings association that merges with or acquires a company that does not calculate its risk-based capital requirements using advanced systems and uses subpart D to determine the risk-weighted asset amounts for the merged or acquired company's exposures, the national bank or Federal savings association must disclose publicly the amounts of risk-weighted assets and qualifying capital calculated under this subpart for the bank or savings association and under subpart D for the acquired company.

Section 3.172 specifies that each national bank or Federal savings association that is an advanced approaches national bank or Federal savings association, that has completed the parallel run process, must publicly disclose its total and tier 1 risk-based capital ratios and their components.

Section 3.173 addresses disclosures by an advanced approaches national bank or Federal savings association that is not a consolidated subsidiary of a bank holding company, savings and loan holding company, or a depository institution subject to the disclosure requirements of § 3.172. An advanced approaches institution that is subject to the disclosure requirements must make the disclosures described in § 3.173, Tables 1 through 12. The national bank or Federal savings association must make these disclosures publicly available for each of the last three years (that is, twelve quarters) or such shorter period beginning on the effective date of this subpart E. The tables in § 3.173 require qualitative and quantitative public disclosures for capital structure, capital adequacy, capital conservation and countercyclical buffers, general disclosures related to credit risk, credit risk disclosures for portfolios subject to IRB risk-based capital formulas, general disclosures related to counterparty credit risk of OTC derivative contracts, repo-style transactions, and eligible margin loans, credit risk mitigation, securitization, operational risk, equities not subject to the market risk capital requirements, and interest rate risk for non-trading activities.

Burden Estimates

Estimated Number of Respondents: 1,014 national banks and Federal savings associations.

Estimated Total Annual Burden Hours: 87,087.

Comments submitted in response to this notice will be summarized and included in the request for OMB approval. All comments will become a matter of public record. Comments are invited on:

(a) Whether the collection of information is necessary for the proper performance of the functions of the OCC, including whether the information has practical utility;

(b) The accuracy of the OCC's estimate of the burden of the collection of information;

(c) Ways to enhance the quality, utility, and clarity of the information to be collected;

(d) Ways to minimize the burden of the 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.