Regulatory Capital Rule: Revisions to the Supplementary Leverage Ratio To Exclude Certain Central Bank Deposits of Banking Organizations Predominantly Engaged in Custody, Safekeeping and Asset Servicing Activities
Joint notice of proposed rulemaking.
CFR Part: "12 CFR Part 3"; "12 CFR Part 217"; "12 CFR Part 324"
RIN Number: "RIN 1557-AE60"; "RIN 7100-AF 46"; "RIN 3064-AE81"
Citation: "84 FR 18175"
Document Number: "Docket ID OCC-2019-0001"; "Docket ID R-1659"
Page Number: "18175"
"Proposed Rules"
Agency: "
SUMMARY:
DATES: Comments should be received on or before
ADDRESSES: Comments should be directed to:
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FOR FURTHER INFORMATION CONTACT:
OCC:
Board:
SUPPLEMENTARY INFORMATION:
Table of Contents
I. Background
A. Overview of the Proposal
B. Leverage Capital Requirements
C. Overview of Custody, Safekeeping, Asset Servicing Activities and Fiduciary Accounts
D. Section 402 and the Supplementary Leverage Ratio
II. Summary of the Proposal
A. Scope of Applicability
B. Mechanics of the Central Bank Deposit Exclusion
C. Central Bank Deposit Exclusion Limit
D. Regulatory Reporting Requirements
III. Impact Analysis
IV. Regulatory Analysis
A. Paperwork Reduction Act
B. Regulatory Flexibility Act Analysis
C. Plain Language
D.
E. OCC Unfunded Mandates Reform Act of 1995 Determination
SUPPLEMENTARY INFORMATION:
I. Background
A. Overview of the Proposal This proposal would implement section 402 of the Economic Growth, Regulatory Relief, and Consumer Protection Act (section 402). /1/ Section 402 directs the
FOOTNOTE 1 Public Law 115-174, 402. END FOOTNOTE
FOOTNOTE 2 See 12 CFR part 3 (OCC); 12 CFR part 217 (Board); 12 CFR part 324 (FDIC). While the agencies have codified the capital rule in different parts of title 12 of the Code of Federal Regulations, the internal structure of the sections within each agency's rule are substantially similar. All references to sections in the capital rule or the proposal are intended to refer to the corresponding sections in the capital rule of each agency. END FOOTNOTE
FOOTNOTE 3 See generally Public Law 115-174, section 402. END FOOTNOTE
Under the proposal, a depository institution holding company would be considered predominantly engaged in custody, safekeeping, and asset servicing activities if the
FOOTNOTE 4 For purposes of this proposal, the OCC's capital rule would be revised to include a definition of "custody bank", defined as a national bank or Federal savings association that is a subsidiary of a depository institution holding company that is a custodial banking organization under 12 CFR 217.2. Similarly, the
FOOTNOTE 5 The
B. Leverage Capital Requirements
Leverage requirements under the capital rule increase in stringency based on the size and complexity of a banking organization. /6/ All banking organizations must meet a minimum leverage ratio of 4 percent, measured as the ratio of tier 1 capital to average total consolidated assets. /7/ Advanced approaches banking organizations /8/ also must maintain a supplementary leverage ratio of 3 percent. /9/ The supplementary leverage ratio measures tier 1 capital relative to total leverage exposure, which includes on-balance sheet assets (including deposits at central banks) and certain off-balance sheet exposures. /10/ In addition, the largest and most interconnected
FOOTNOTE 6 Banking organizations subject to the agencies' capital rule include national banks, state member banks, insured state nonmember banks, savings associations, and top-tier bank holding companies and savings and loan holding companies domiciled in
FOOTNOTE 7 12 CFR 3.10(a)(4) & 3.10(b)(4) (OCC); 12 CFR 217.10(a)(4) & 217.10(b)(4) (Board); 12 CFR 324.10(a)(4) & 324.10(b)(4) (FDIC). On
FOOTNOTE 8 Currently, an advanced approaches banking organization is defined as a depository institution holding company with total consolidated assets of at least
FOOTNOTE 9 See n. 6, supra. END FOOTNOTE
FOOTNOTE 10 12 CFR 3.10(a)(5)), 3.10(c)(4) (OCC); 12 CFR 217.10(a)(5)), 217.10(c)(4) (Board); 12 CFR 324.10(a)(5)), 324.10(c)(4) (FDIC). END FOOTNOTE
FOOTNOTE 11 See 79 FR 24528 (
FOOTNOTE 12 12 CFR 6.4 (OCC); 12 CFR 208.42 (Board); 12 CFR 324.403 (FDIC). END FOOTNOTE
Unlike risk-based capital requirements, leverage capital requirements do not differentiate the amount of regulatory capital that must be maintained for an exposure based on the risk it presents to a banking organization. This distinction allows a leverage ratio to serve as a complement to risk-based capital requirements by establishing a simple and transparent constraint on a banking organization's leverage and mitigating any potential underestimation of risk by either banking organizations or risk-based capital requirements. /13/
FOOTNOTE 13 Risk-based and leverage capital measures contain significant information about a banking organization's condition. See, e.g.,
C. Overview of Custody, Safekeeping, Asset Servicing Activities and Fiduciary Accounts
Certain banking organizations engage in fiduciary, custody, safekeeping and asset servicing activities. Custody, safekeeping and asset servicing activities generally involve holding securities or other assets on behalf of clients, as well as activities such as transaction settlement, income processing, and related record keeping and operational services. A banking organization may also act as a fiduciary by, for example, acting as trustee or executor, or by having discretion over the management of client assets. Banking organizations typically provide custody, safekeeping, and asset servicing to their fiduciary accounts. While many banking organizations offer some or all of these services, certain banking organizations specialize in these activities, and often do not provide the same range or scale of traditional commercial or retail banking products as are provided by other banking organizations. /14/
FOOTNOTE 14 See OCC Comptrollers Handbook, Custody Services (
Fiduciary and custody clients often maintain cash deposits at the banking organization in connection with these services. Specifically, clients typically maintain cash positions consisting of funds awaiting investment or distribution that are often in the form of deposits placed in the banking organization. These cash deposits help facilitate the administration of the custody account. Under
Cash deposits that are linked to custody and fiduciary accounts at banking organizations fluctuate depending on the activities of the banking organization's custodial clients. For example, cash deposit balances of such banking organizations generally increase during periods when clients liquidate securities, such as during times of stress. To assist in managing these cash fluctuations, banking organizations may maintain significant cash deposits at central banks. Central bank deposits can be used as an asset-liability management strategy to facilitate these banking organizations' ability to support custodial clients' cash-related needs. Under
D. Section 402 and the Supplementary Leverage Ratio Requirements
Section 402 requires the agencies to amend the supplementary leverage ratio to not take into account funds of a custodial bank that are deposited with certain central banks, provided that "any amount that exceeds the value of deposits of the custodial bank that are linked to fiduciary or custodial and safekeeping accounts shall be taken into account when calculating the supplementary leverage ratio as applied to the custodial bank." /15/ Under section 402, central bank deposits that qualify for the exclusion include deposits of custodial banks placed with (1) the
FOOTNOTE 15 Public Law 115-174, section 402(b)(2). END FOOTNOTE
FOOTNOTE 16 Public Law 115-174, section 402(a). END FOOTNOTE
FOOTNOTE 17 Id. at section 402(b). END FOOTNOTE
As discussed below, the proposal would implement section 402 by defining the scope of banking organizations considered to be predominantly engaged in custody, safekeeping, and asset servicing activities, and revising the supplementary leverage ratio to exclude any qualifying central bank deposits of such banking organizations from total leverage exposure, subject to the limit described in section 402(b)(2).
II. Summary of the Proposal
A. Scope of Applicability
The proposal would define a depository institution holding company predominantly engaged in custody, safekeeping, and asset servicing activities, together with any subsidiary depository institution, as a "custodial banking organization." /18/ The phrase "predominantly engaged in custodial, safekeeping, and asset servicing activities" suggests that the banking organization's business model is primarily focused on custody, safekeeping, and asset servicing activities, as compared to its other commercial lending, investment banking, or other banking activities. /19/
FOOTNOTE 18 See note 4, supra. END FOOTNOTE
FOOTNOTE 19 See, e.g., 115 Cong. Rec. S1544 (
The agencies considered various measures that they could use to identify and define a custodial banking organization. Specifically, the agencies considered both an AUC-to-total assets measure and an income-based measure. AUC-to-total assets would provide a measure of a banking organization's custodial and safekeeping business relative to its other businesses. An income-based measure would show the percentage of a banking organization's income that it derives from custodial, safekeeping, and asset servicing activities.
Under the AUC-to-total assets measure, among
FOOTNOTE 20 Banking organizations report Assets under Custody on the FR Form
FOOTNOTE 21 Because depository institution holding companies currently do not report income derived from custody activities separately from income derived from fiduciary activities, the agencies used a measure that includes income derived from both activities for purposes of their analysis. Specifically, the agencies analyzed an income-based measure with the numerator as income from fiduciary and custody activities, as reported on FR Y-9C, Schedule HI, Item 5.a, and the denominator as the sum of net interest income and total noninterest income, as reported on the FR Y-9C, Schedule HI, Items 3 and 5.m. END FOOTNOTE
FOOTNOTE 22 Among The
FOOTNOTE 23 Across depository institution holding companies subject to the supplementary leverage ratio in the third quarter of 2018, the correlation coefficient between AUC-to-total assets ratio and income derived from custody and fiduciary activities as a percentage of income was 0.948. END FOOTNOTE
FOOTNOTE 24 See, e.g., 115 Cong. Rec. S1714 (
The agencies propose to use the AUC-to-total assets measure to define a custodial banking organization because it provides a measure of the size of a banking organization's custodial, safekeeping, and asset servicing business as compared with its other activities, is objective and publicly reported, and is subject to review by regulators, banking organizations, and the public. In addition, because AUC is often comprised of marketable securities or other assets with widely-quoted market values, banking organizations typically exercise little or no valuation discretion when measuring AUC. A banking organization's total assets reflect the size and scope of all the businesses in which the banking organization is engaged and provides a useful point of comparison to AUC. Accordingly, AUC-to-total assets provides a measure of the extent to which a banking organization is predominantly engaged in custody, safekeeping, and asset servicing activities.
The agencies are not proposing to use an income-based measure because such an approach would increase reporting burden for banking organizations subject to the supplementary leverage ratio. Consistent with section 402, a custodial banking organization is defined with respect to its custodial, safekeeping, and asset servicing activities. Banking organizations do not currently report income from custodial, safekeeping, and asset servicing activities separately from income derived from fiduciary activities. /25/
FOOTNOTE 25 The agencies recognize that the
The agencies also considered using absolute amount measures. The agencies do not believe that defining custodial banking organizations by reference to an absolute amount measure (such as AUC of at least a specified amount) would be consistent with section 402. Such a measure would only take the scale of a banking organization's custodial, safekeeping, and asset servicing activities into account, rather than considering the predominance of these activities relative to the banking organization's other activities.
The agencies recognize that the ratio of AUC-to-total assets may fluctuate significantly during a stress environment as client securities decline in value or as clients liquidate custodial securities and deposit the cash with the banking organization (thus increasing the banking organization's total assets). To ensure the ratio of AUC-to-total assets under this proposal is appropriately calibrated to take into consideration a range of conditions, the agencies evaluated the quarterly AUC-to-total assets ratios of advanced approaches banking organizations from the first quarter of 2004 through the third quarter of 2018. /26/ This period includes the 2007-2009 financial crisis. During the observed period, the lowest AUC-to-total assets ratio among
FOOTNOTE 26 The agencies reviewed IDI-level data from the Consolidated Reports of Condition and Income (Call Report) to approximate the holding company-level AUC-to-total assets ratios of advanced approaches banking organizations during the financial crisis, because banking organizations began reporting FR
In view of the agencies' analysis, the agencies are proposing a standard of AUC-to-total assets of 30:1, calculated as an average over the prior four calendar quarters, to identify banking organizations predominantly engaged in custodial, safekeeping, and asset servicing activities. An AUC-to-total assets ratio of 30:1 is approximately equal to the midpoint of the range between the minimum observed for
Accordingly, under the proposal, a custodial banking organization would be defined as a depository institution holding company that is predominantly engaged in custody, safekeeping, and asset servicing activities, as well as any subsidiary depository institution of such a holding company, which means a
Under the proposal, any subsidiary depository institution of a
FOOTNOTE 27 This proposed rule would apply to all depository institution subsidiaries of a custodial banking organization holding company, including uninsured Federal savings associations (FSAs). However, the proposal would not apply to Federal branches and agencies supervised by the OCC. END FOOTNOTE
Question 1: What alternative standard, if any, should be used to define a custodial banking organization instead of, or in conjunction with, an AUC-to-total asset ratio? What are the advantages or disadvantages of using an income-based ratio to define a custodial banking organization? What are commenters' views on the potential increased reporting burden of requiring new regulatory reporting line items to distinguish between income derived from custodial, safekeeping, and asset servicing activities and income derived from fiduciary activities, consistent with the requirements of section 402? The agencies encourage commenters to provide an empirical analysis to support the use of a different ratio or standard.
Question 2: What alternative calculation or calibration, if any, should be used in the calculation of AUC-to-total assets to account for a range of economic conditions? The agencies encourage commenters to provide an empirical analysis to support the use of a different calculation.
Question 3: Under the proposed rule, a custodial banking organization holding company and its subsidiary depository institutions would be immediately disqualified as a custodial banking organization holding company if the four quarter average of the holding company's AUC-to-total asset ratio falls below the 30:1 ratio and would no longer be permitted to adjust its supplementary leverage ratio under the proposed rule. The use of a four-quarter average of AUC-to-total assets measure should generally prevent an unforeseen disqualification of a custodial banking organization holding company and its subsidiary depository institutions. What would be the advantages and disadvantages of delaying the timing of a banking organization losing its status as a "custodial banking organization," to minimize market disruptions during a stress environment? What would be an appropriate amount of time for such a delay?
Question 4: What changes, if any, should the agencies consider with respect to the proposed definition of "custodial banking organization"?
The agencies are contemplating applying this rule to a depository institution that is not controlled by a holding company (standalone depository institution) to permit such standalone depository institution to qualify as a custodial banking organization for purposes of the proposal. Extending the application of the proposal to standalone depository institutions would be consistent with the current scope of applicability of the agencies' capital rule. While section 402 does not apply to standalone depository institutions, it does not limit the agencies' authority /28/ to otherwise tailor or adjust the supplementary leverage ratio. /29/ Under such an approach, a standalone depository institution would similarly be able to exclude certain deposits placed at a "qualifying central bank" from the denominator of its supplementary leverage ratio, subject to a specified limit, if the standalone depository institution has an AUC-to-total assets ratio of at least 30:1. The agencies are seeking comment on all aspects of extending the proposal to standalone depository institutions.
FOOTNOTE 28 See, e.g, 12 U.S.C. 3907 (International Lending Supervision Act) ("Each appropriate Federal banking agency shall cause banking institutions to achieve and maintain adequate capital by establishing minimum levels of capital for such banking institutions and by using such other methods as the appropriate Federal banking agency deems appropriate."). END FOOTNOTE
FOOTNOTE 29 Public Law 115-174, section 402(c). END FOOTNOTE
Question 5: Should a standalone depository institution be permitted to qualify as a custodial banking organization and why? What would be the advantages and disadvantages of allowing such a standalone depository institution that has no depository institution holding company to qualify as a custodial banking organization under this proposed rule?
Question 6: The agencies note that depository institutions currently report information related to fiduciary or custodial and safekeeping accounts under Schedule RC-T of the Call Report and do not report FR Form
B. Mechanics of the Central Bank Deposit Exclusion
Consistent with section 402, the amount of central bank deposits eligible for exclusion from the supplementary leverage ratio would equal the average daily balance over the reporting quarter of all deposits placed with a "qualifying central bank." For purposes of the proposal, a qualifying central bank would mean a
FOOTNOTE 30 Under section 32 of the capital rule, an exposure to a member country that qualifies for a zero percent risk weight cannot also be in default or have been in default during the previous five years. The agencies are proposing to include this latter provision, however, to preserve the intent of section 402. END FOOTNOTE
The agencies are proposing that the exclusion amount be calculated based on the average daily balance of deposits with a qualifying central bank over the reporting quarter to align with the calculation of on-balance sheet assets in total leverage exposure. /31/ All deposits placed with a
FOOTNOTE 31 12 CFR 3.10(c)(4)(i)(A) (OCC); 12 CFR 217.10(c)(4)(i)(A) (Board); 12 CFR 324.10(c)(4)(i)(A) (FDIC). END FOOTNOTE
Question 7: What terms, if any, should the agencies define or more specifically describe to facilitate the calculation of the amount of central bank deposits eligible for exclusion from total leverage exposure?
C. Central Bank Deposit Exclusion Limit
The proposal would limit the amount of a custodial banking organization's deposits with a qualifying central bank that could be excluded from total leverage exposure. The amount of such deposits that could be excluded could not exceed an amount equal to the on-balance-sheet deposit liabilities of the custodial banking organization that are linked to fiduciary or custody and safekeeping accounts. Specifically, a custodial banking organization would be able to exclude from its total leverage exposure the lesser of (1) the amount of central bank deposits placed at qualifying central banks by the custodial banking organization (including deposits placed by consolidated subsidiaries), and (2) the amount of on-balance sheet deposit liabilities of the custodial banking organization (including consolidated subsidiaries) that are linked to fiduciary or custodial and safekeeping accounts. /32/ Consistent with the calculation of on-balance sheet assets for purposes of the supplementary leverage ratio, a custodial banking organization would calculate the amount of deposit liabilities linked to a fiduciary or custody and safekeeping account as the average deposit liabilities for such accounts, calculated as of each day of the reporting quarter.
FOOTNOTE 32 The proposal would not affect the calculation of the size indicator under the Board's Banking Organization Systemic Risk Report (FR
The proposal would define a fiduciary or custodial and safekeeping account as an account administered by a custodial banking organization for which the custodial banking organization provides fiduciary or custodial and safekeeping services, as authorized by applicable federal and state law. The agencies anticipate that the scope of the fiduciary or custodial and safekeeping accounts under the proposal would not deviate materially from the current scope of the fiduciary and custody and safekeeping accounts reported under Schedule RC-T of the Call Report.
Consistent with section 402, a custodial banking organization would include in total leverage exposure any amount of central bank deposits with a qualifying central bank that exceeds the value of funds deposited with the custodial banking organization that are linked to fiduciary or custodial and safekeeping accounts. The fact that a client has both a deposit account and a fiduciary or custody and safekeeping account at the same custodial banking organization, or an affiliate or subsidiary of such custodial banking organization, would not alone be sufficient for those accounts to be considered "linked" for purposes of the proposal. A deposit account would be considered linked to a fiduciary or custodial and safekeeping account if the deposit account is used to facilitate the administration of the fiduciary or custody and safekeeping account. For example, cash deposits may be used to facilitate processing transactions for the custody or fiduciary account, such as interest and dividend payments related to securities held in the custody or fiduciary account, cash transfers or distributions from the custody or fiduciary account, and the purchases and sale of securities for the account. These deposit balances correspond, and are reconciled, to the custodian's off-balance sheet books and records for each fiduciary and custody account. In times of stress when market conditions may lead to the liquidation of significant volumes of securities in a banking organization's fiduciary or custody and safekeeping accounts, these linked deposits may increase significantly. That is, during times of stress, custodial banking organizations may experience significant increases in custodial deposits. A custodial banking organization may have to hold additional capital to meet its supplementary leverage ratio requirement as a result of the increase in on balance sheet assets. Implementation of section 402 would mitigate this capital impact.
The asset exclusion limit for "custodial banks" provided under the
FOOTNOTE 33 See 12 CFR 327.5(c) (Assessment base for custodial banks) and
Question 8: What alternative definitions, if any, should the agencies consider to define a fiduciary or custodial and safekeeping account and why? The agencies note that depository institutions currently report information related to fiduciary or custodial and safekeeping accounts under Schedule RC-T of the Call Report. Should the proposed definition explicitly reference the reporting instructions for Schedule RC-T of the Call Report? What challenges would banking organizations anticipate in identifying fiduciary or custodial and safekeeping accounts under the proposed definition?
Question 9: What challenges would banking organizations face in applying the proposed standard for determining linkage between a deposit account and a fiduciary or custodial and safekeeping account; that is, that the deposit account is used to facilitate the administration of the fiduciary or custody and safekeeping account? How should this standard be broadened or narrowed to include or exclude particular types of deposits? What alternative standard should the agencies consider and why? What are the advantages and disadvantages of using the
Question 10: Under the Board's total loss-absorbing capacity rule, a GSIB is subject to requirements that, in part, rely on the GSIB's total leverage exposure. /34/ Because the Board's total loss-absorbing capacity rule relies on the definition of total leverage exposure in the Board's capital rule, the proposal could affect the amount of eligible external total loss-absorbing capacity required to be held by a GSIB that is also a custodial banking organization. What are the advantages and disadvantages of revising the definition of total leverage exposure for custodial banking organizations solely for purposes of the supplementary leverage ratio in the capital rule as compared to revising total leverage exposure for custodial banking organizations in other rules, such as in the Board's total loss-absorbing capacity rule?
FOOTNOTE 34 12 CFR 252.61. END FOOTNOTE
D. Regulatory Reporting Requirements
Advanced approaches banking organizations currently report their supplementary leverage ratios on FFIEC Form 101, Schedule A and Form Y-9C, Schedule HC-R. The agencies expect to propose modifications to the regulatory reporting requirements for the supplementary leverage ratio in a separate publication in the
III. Impact Analysis
The top-tier
FOOTNOTE 35 Analysis reflects data from the Consolidated Financial Statements for Holding Companies (FR Y-9C), the Consolidated Reports of Condition and Income for a Bank with Domestic and Foreign Offices (
FOOTNOTE 36 Because The
FOOTNOTE 37 For purposes of this analysis, a capital requirement is considered binding at the level that it would impose restrictions on the ability of a firm to make capital distributions or if the firm would no longer be considered "well capitalized" under the agencies' prompt corrective action framework. END FOOTNOTE
FOOTNOTE 38 The Board's capital plan rule requires certain large bank holding companies, including the GSIBs, to hold capital in excess of the minimum capital ratios by requiring them to demonstrate the ability to satisfy the capital requirements, including the supplementary leverage ratio, under stressful conditions. 12 CFR 225.8(e)(2). END FOOTNOTE
FOOTNOTE 39 Depository institutions are not subject to post-stress capital requirements. END FOOTNOTE
Thus, the proposal would reduce the amount of tier 1 capital that must be maintained by a custodial banking organization holding company only if the supplementary leverage ratio currently serves as the binding capital requirement for the banking organization. /40/ Data from the third quarter of 2018 data suggests that top-tier
FOOTNOTE 40 The findings set forth in this impact analysis with respect to the release of capital pertain only to the revisions under this proposal, and do not consider the capital impact of other prospective changes to the capital rule. END FOOTNOTE
In contrast, the supplementary leverage ratio currently serves as the binding constraint for two custodial banking organization depository institution subsidiaries. Accordingly, under the proposal, the amount of tier 1 capital required of those institutions would decrease by approximately
Regulatory capital supports a depository institution subsidiary's ability to absorb unexpected losses. The capital standards and other constraints applicable at the custodial banking organization holding company level are expected to limit the amount of capital that such a holding company could distribute or allocate for other purposes, thus limiting any safety and soundness or financial stability concerns for the holding company as a whole. In addition, the agencies have regulatory and supervisory tools to constrain the ability of a depository institution to make capital distributions.
IV. Regulatory Analyses
A. Paperwork Reduction Act
Certain provisions of the proposed rule contain "collection of information" requirements within the meaning of the Paperwork Reduction Act (PRA) of 1995 (44 U.S.C. 3501-3521). In accordance with the requirements of the PRA, the agencies may not conduct or sponsor, and the respondent is not required to respond to, an information collection unless it displays a currently-valid
The proposed rule, once final, may require changes to the following reports: (1) Consolidated Reports of Condition and Income for a Bank with Domestic and Foreign Offices (
B. Regulatory Flexibility Act Analysis
OCC: The Regulatory Flexibility Act, 5 U.S.C.
Board: The Board is providing an initial regulatory flexibility analysis with respect to this proposed rule. The Regulatory Flexibility Act, 5 U.S.C.
FOOTNOTE 41 Under regulations issued by the
The Board has considered the potential impact of the proposed rule on small entities in accordance with the RFA. Based on its analysis and for the reasons stated below, the Board believes that this proposed rule will not have a significant economic impact on a substantial number of small entities. Nevertheless, the Board is publishing and inviting comment on this initial regulatory flexibility analysis. A final regulatory flexibility analysis will be conducted after comments received during the public comment period have been considered. The proposal would also make corresponding changes to the Board's reporting forms.
As discussed in detail above, the proposed rule would amend the capital rule to provide an exclusion under the denominator of the supplementary leverage ratio for central bank deposits of a custodial banking organization, defined as a top-tier depository institution holding company domiciled in
The Board has broad authority under the International Lending Supervision Act (ILSA) /42/ and the PCA provisions of the Federal Deposit Insurance Act /43/ to establish regulatory capital requirements for the institutions it regulates. For example, ILSA directs each Federal banking agency to cause banking institutions to achieve and maintain adequate capital by establishing minimum capital requirements as well as by other means that the agency deems appropriate. /44/ The prompt corrective action (PCA) provisions of the Federal Deposit Insurance Act direct each Federal banking agency to specify, for each relevant capital measure, the level at which an IDI subsidiary is well capitalized, adequately capitalized, undercapitalized, and significantly undercapitalized. /45/ In addition, the Board has broad authority to establish regulatory capital standards for bank holding companies, savings and loan holding companies, and
FOOTNOTE 42 12 U.S.C. 3901-3911. END FOOTNOTE
FOOTNOTE 43 12 U.S.C. 1831o. END FOOTNOTE
FOOTNOTE 44 12 U.S.C. 3907(a)(1). END FOOTNOTE
FOOTNOTE 45 12 U.S.C. 1831o(c)(2). END FOOTNOTE
FOOTNOTE 46 See 12 U.S.C. 1467a, 1844, 5365, 5371. END FOOTNOTE
The proposed rule would apply only to advanced approaches banking organizations. Advanced approaches banking organizations include depository institutions, bank holding companies, savings and loan holding companies, or intermediate holding companies with at least
Further, as discussed previously in the Paperwork Reduction Act section, the proposed rule, once final, may require changes to the Risk-Based Capital Reporting for Institutions Subject to the Advanced Capital Adequacy Framework (
The Board welcomes comment on all aspects of its analysis. In particular, the Board requests that commenters describe the nature of any impact on small entities and provide empirical data to illustrate and support the extent of the impact.
FOOTNOTE 47 5 U.S.C.
FOOTNOTE 48 The SBA defines a small banking organization as having
As of
FOOTNOTE 49 FDIC Call Report,
The proposed rule would apply to only three advanced approaches banking organizations, one of which has an IDI subsidiary that is
The
C. Plain Language
Section 722 of the Gramm-Leach-Bliley Act /50/ requires the Federal banking agencies to use plain language in all proposed and final rules published after
FOOTNOTE 50 Public Law 106-102, section 722, 113 Stat. 1338, 1471 (1999). END FOOTNOTE
* Have the agencies organized the material to suit your needs? If not, how could they present the rule more clearly?
* 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, 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 agencies incorporate to make the regulation easier to understand?
D.
Pursuant to section 302(a) of the
FOOTNOTE 51 12 U.S.C. 4802(a). END FOOTNOTE
FOOTNOTE 52 12 U.S.C. 4802. END FOOTNOTE
The agencies note that comment on these matters has been solicited in other sections of this Supplementary Information section, and that the requirements of RCDRIA will be considered as part of the overall rulemaking process. In addition, the agencies also invite any other comments that further will inform the agencies' consideration of RCDRIA.
E. OCC Unfunded Mandates Reform Act of 1995 Determination
The OCC has analyzed the proposed rule under the factors in the Unfunded Mandates Reform Act of 1995 (UMRA). /53/ Under this analysis, the OCC considered whether the proposed rule includes a Federal mandate that may result in the expenditure by State local, and tribal governments, in the aggregate, or by the private sector, of
FOOTNOTE 53 2 U.S.C.
The OCC's estimated UMRA cost is near zero. Therefore, the OCC finds that the proposed rule does not trigger the UMRA cost threshold. Accordingly, the OCC has not prepared the written statement described in section 202 of the UMRA.
List of Subjects
12 CFR Part 3
Administrative practice and procedure, Capital, National banks, Risk.
12 CFR Part 217
Administrative practice and procedure, Banks, Banking, Capital,
12 CFR Part 324
Administrative practice and procedure, Banks, Banking, Capital adequacy, Savings associations, State non-member banks.
PART 3--CAPITAL ADEQUACY STANDARDS
1. The authority citation for part 3 continues to read as follows:
Authority: 12 U.S.C. 93a, 161, 1462, 1462a, 1463, 1464, 1818, 1828(n), 1828 note, 1831n note, 1835, 3907, 3909, and 5412(b)(2)(B).
2. Section 3.2 is amended by adding the definitions of "custody bank", "fiduciary or custodial and safekeeping account", and "qualifying central bank" in alphabetical order as follows:
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Custody bank means a national bank or Federal savings association that is a subsidiary of a depository institution holding company that is a custodial banking organization under 12 CFR 217.2.
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Fiduciary or custodial and safekeeping account means, for purposes of section 3.10(c)(4)(ii)(J), an account administered by a custody bank for which the custody bank provides fiduciary or custodial and safekeeping services, as authorized by applicable federal or state law.
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Qualifying central bank means:
(1) A
(2) The
(3) The central bank of any member country of the
(i) Sovereign exposures to the member country would receive a zero percent risk-weight under section 3.32 of this part; and
(ii) The sovereign debt of the member country is not in default or has not been in default during the previous 5 years.
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3. Section 3.10, paragraph (c)(4)(ii) is revised and new paragraph (c)(4)(ii)(J) is added to read as follows:
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(c) * * *
(4) * * *
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(ii) For purposes of this part, total leverage exposure means the sum of the items described in paragraphs (c)(4)(ii)(A) through (H) of this section, as adjusted pursuant to paragraph (c)(4)(ii)(I) of this section for a clearing member national bank and Federal savings association and paragraph (c)(4)(ii)(J) of this section for a custody bank:
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(J) A custodial bank shall exclude from its total leverage exposure the lesser of:
(1) The amount of funds that the custody bank has on deposit at a qualifying central bank; and
(2) The amount of funds that the custody bank's clients have on deposit at the custody bank that are linked to fiduciary or custodial and safekeeping accounts. For purposes of this paragraph, a deposit account is linked to a fiduciary or custodial and safekeeping account if the deposit account is provided to a clients that maintains a fiduciary or custodial and safekeeping account with the custody bank, and the deposit account is used to facilitate the administration of the fiduciary or custody and safekeeping account.
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12 CFR Chapter II
Authority and Issuance
For the reasons set forth in the preamble, chapter II of title 12 of the Code of Federal Regulations is proposed to be amended as set forth below:
PART 217--CAPITAL ADEQUACY OF BANK HOLDING COMPANIES, SAVINGS AND LOAN HOLDING COMPANIES, AND STATE MEMBER BANKS (REGULATION Q)
4. The authority citation for part 217 continues to read as follows:
Authority:12 U.S.C. 248(a), 321-338a, 481-486, 1462a, 1467a, 1818, 1828, 1831n, 1831o, 1831p-l, 1831w, 1835, 1844(b), 1851, 3904, 3906-3909, 4808, 5365, 5368, 5371.
5. Section 217.2 is amended by adding the definitions of "custodial banking organization," "fiduciary or custodial and safekeeping accounts," and "qualifying central bank" in alphabetical order as follows:
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Custodial banking organization means
(1) A Board-regulated institution that is:
(i) A top-tier depository institution holding company domiciled in
(ii) A state member bank that is a subsidiary of a depository institution holding company described in paragraph (1)(i).
(2) For purposes of this definition, total assets are equal to the average of the banking organization's total consolidated assets for the four most recent calendar quarters. Assets under custody are equal to the average of the Board-regulated institution's assets under custody for the four most recent calendar quarters.
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Fiduciary or custodial and safekeeping account means, for purposes of
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Qualifying central bank means
(1) A
(2) The
(3) The central bank of any member country of the
(i) Sovereign exposures to the member country would receive a zero percent risk-weight under section 32 of this part; and
(ii) The sovereign debt of the member country is not in default or has not been in default during the previous 5 years.
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6. Section 217.10, paragraph (c)(4)(ii) is revised and new paragraph (c)(4)(ii)(J) is added to read as follows:
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(c) * * *
(4) * * *
(ii) For purposes of this part, total leverage exposure means the sum of the items described in paragraphs (c)(4)(ii)(A) through (H) of this section, as adjusted pursuant to paragraph (c)(4)(ii)(I) of this section for a clearing member Board-regulated institution and paragraph (c)(4)(ii)(J) of this section for a custodial banking organization:
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(J) A custodial banking organization shall exclude from its total leverage exposure the lesser of:
(1) The amount of funds that the custodial banking organization has on deposit at a qualifying central bank; and
(2) The amount of funds in deposit accounts at the custodial banking organization that are linked to fiduciary or custodial and safekeeping accounts at the custodial banking organization. For purposes of this paragraph, a deposit account is linked to a fiduciary or custodial and safekeeping account if the deposit account is provided to a client that maintains a fiduciary or custodial and safekeeping account with the custodial banking organization and the deposit account is used to facilitate the administration of the fiduciary or custodial and safekeeping account.
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12 CFR Chapter III
Authority and Issuance
For the reasons set forth in the preamble, chapter III of title 12 of the Code of Federal Regulations is proposed to be amended as set forth below.
PART 324--CAPITAL ADEQUACY OF FDIC-SUPERVISED INSTITUTIONS
7. The authority citation for part 324 continues 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), 1828(n), 1828(o), 1831o, 1835, 3907, 3909, 4808; 5371; 5412; Pub. L. 102-233, 105 Stat. 1761, 1789, 1790 (12 U.S.C. 1831n note); Pub. L. 102-242, 105 Stat. 2236, 2355, 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); Pub. L. 111-203, 124 Stat. 1376, 1887 (15 U.S.C. 78o-7 note).
8. Section 324.2 is amended by adding the definitions of "custody bank," "fiduciary or custodial and safekeeping accounts," and "qualifying central bank" in alphabetical order as follows:
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Custody bank means an
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Fiduciary or custodial and safekeeping account means, for purposes of section 324.10(c)(4)(ii)(J), an account administered by a custody bank for which the custody bank provides fiduciary or custodial and safekeeping services, as authorized by applicable federal or state law.
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Qualifying central bank means
(1) A
(2) The
(3) The central bank of any member country of the
(i) Sovereign exposures to the member country would receive a zero percent risk-weight under section 324.32 of this part; and
(ii) The sovereign debt of the member country is not in default or has not been in default during the previous 5 years.
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9. Section 324.10, paragraph (c)(4)(ii) is revised and new paragraph (c)(4)(ii)(J) is added to read as follows:
*****
(c) * * *
(4) * * *
(ii) For purposes of this part, total leverage exposure means the sum of the items described in paragraphs (c)(4)(ii)(A) through (H) of this section, as adjusted pursuant to paragraph (c)(4)(ii)(I) of this section for a clearing member
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(J) A custody bank shall exclude from its total leverage exposure the lesser of:
(1) The amount of funds that the custody bank has on deposit at a qualifying central bank; and
(2) The amount of funds in deposit accounts at the custody bank that are linked to fiduciary or custodial and safekeeping accounts at the custody bank. For purposes of this paragraph, a deposit account is linked to a fiduciary or custodial and safekeeping account if the deposit account is provided to a client that maintains a fiduciary or custodial and safekeeping account with the custody bank and the deposit account is used to facilitate the administration of the fiduciary or custodial and safekeeping account.
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Dated:
Comptroller of the Currency.
By order of the
Secretary of the Board.
Dated at
By order of the Board of Directors.
Assistant Executive Secretary.
[FR Doc. 2019-08448 Filed 4-29-19;
BILLING CODE 4810-33-P; 6210-01;-P 6714-01-P
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