Regulatory Capital Rules: Regulatory Capital, Enhanced Supplementary Leverage Ratio Standards for Certain Bank Holding Companies and their Subsidiary Insured Depository Institutions

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51101

Federal Register / Vol. 78, No. 161 / Tuesday, August 20, 2013 / Proposed Rules

Committee will make every effort to

hear the views of all interested parties

and to facilitate the orderly conduct of

business.

Participation in the meeting is not a

prerequisite for submission of written

comments. ASRAC invites written

comments from all interested parties.

Any comments submitted must identify

the ASRAC, and provide docket number

EERE–2013–BT–NOC–0005. Comments

may be submitted using any of the

following methods:

1. Federal eRulemaking Portal:

www.regulations.gov. Follow the

instructions for submitting comments.

2. Email: ASRAC@ee.doe.gov. Include

docket number EERE–2013–BT–NOC–

0005 in the subject line of the message.

3. Mail: Ms. Brenda Edwards, U.S.

Department of Energy, Building

Technologies Program, Mailstop EE–2J,

1000 Independence Avenue SW.,

Washington, DC 20585–0121. If

possible, please submit all items on a

compact disc (CD), in which case it is

not necessary to include printed copies.

4. Hand Delivery/Courier: Ms. Brenda

Edwards, U.S. Department of Energy,

Building Technologies Program, 950

L’Enfant Plaza SW., Suite 600,

Washington, DC 20024. Telephone:

(202) 586–2945. If possible, please

submit all items on a CD, in which case

it is not necessary to include printed

copies.

No telefacsimilies (faxes) will be

accepted.

Docket: The docket is available for

review at www.regulations.gov,

including Federal Register notices,

public meeting attendee lists and

transcripts, comments, and other

supporting documents/materials. All

documents in the docket are listed in

the www.regulations.gov index.

However, not all documents listed in

the index may be publicly available,

such as information that is exempt from

public disclosure.

The Secretary of Energy has approved

publication of today’s notice of

proposed rulemaking.

Issued in Washington, DC, on August 13,

2013.

Kathleen B

supporting documents/materials. All

documents in the docket are listed in

the www.regulations.gov index.

However, not all documents listed in

the index may be publicly available,

such as information that is exempt from

public disclosure.

The Secretary of Energy has approved

publication of today’s notice of

proposed rulemaking.

Issued in Washington, DC, on August 13,

2013.

Kathleen B. Hogan,

Deputy Assistant Secretary for Energy

Efficiency, Energy Efficiency and Renewable

Energy.

[FR Doc. 2013–20273 Filed 8–19–13; 8:45 am]

BILLING CODE 6450–01–P

DEPARTMENT OF TREASURY

Office of the Comptroller of the

Currency

12 CFR Parts 6

[Docket ID OCC–2013–0008]

RIN 1557–AD69

FEDERAL RESERVE SYSTEM

12 CFR Parts 208 and 217

[Regulation H and Q; Docket No. R–1460]

RIN 7100–AD 99

FEDERAL DEPOSIT INSURANCE

CORPORATION

12 CFR Part 324

RIN 3064–AE01

Regulatory Capital Rules: Regulatory

Capital, Enhanced Supplementary

Leverage Ratio Standards for Certain

Bank Holding Companies and Their

Subsidiary Insured Depository

Institutions

AGENCY: Office of the Comptroller of the

Currency, Treasury; the Board of

Governors of the Federal Reserve

System; and the Federal Deposit

Insurance Corporation.

ACTION: Joint notice of proposed

rulemaking.

SUMMARY: The Office of the Comptroller

of the Currency (OCC), the Board of

Governors of the Federal Reserve

System (Board), and the Federal Deposit

Insurance Corporation (FDIC)

(collectively, the agencies) are seeking

comment on a proposal that would

strengthen the agencies’ leverage ratio

standards for large, interconnected U.S.

banking organizations. The proposal

would apply to any U.S. top-tier bank

holding company (BHC) with at least

$700 billion in total consolidated assets

or at least $10 trillion in assets under

custody (covered BHC) and any insured

depository institution (IDI) subsidiary of

these BHCs

on a proposal that would

strengthen the agencies’ leverage ratio

standards for large, interconnected U.S.

banking organizations. The proposal

would apply to any U.S. top-tier bank

holding company (BHC) with at least

$700 billion in total consolidated assets

or at least $10 trillion in assets under

custody (covered BHC) and any insured

depository institution (IDI) subsidiary of

these BHCs. In the revised capital

approaches adopted by the agencies in

July, 2013 (2013 revised capital

approaches), the agencies established a

minimum supplementary leverage ratio

of 3 percent (supplementary leverage

ratio), consistent with the minimum

leverage ratio adopted by the Basel

Committee on Banking Supervision

(BCBS), for banking organizations

subject to the advanced approaches risk-

based capital rules. In this notice of

proposed rulemaking (proposal or

proposed rule), the agencies are

proposing to establish a ‘‘well

capitalized’’ threshold of 6 percent for

the supplementary leverage ratio for any

IDI that is a subsidiary of a covered

BHC, under the agencies’ prompt

corrective action (PCA) framework. The

Board also proposes to establish a new

leverage buffer for covered BHCs above

the minimum supplementary leverage

ratio requirement of 3 percent (leverage

buffer). The leverage buffer would

function like the capital conservation

buffer for the risk-based capital ratios in

the 2013 revised capital approaches. A

covered BHC that maintains a leverage

buffer of tier 1 capital in an amount

greater than 2 percent of its total

leverage exposure would not be subject

to limitations on distributions and

discretionary bonus payments. The

proposal would take effect beginning on

January 1, 2018. The agencies seek

comment on all aspects of this proposal.

DATES: Comments must be received by

October 21, 2013

covered BHC that maintains a leverage

buffer of tier 1 capital in an amount

greater than 2 percent of its total

leverage exposure would not be subject

to limitations on distributions and

discretionary bonus payments. The

proposal would take effect beginning on

January 1, 2018. The agencies seek

comment on all aspects of this proposal.

DATES: Comments must be received by

October 21, 2013.

ADDRESSES: Comments should be

directed to:

OCC: Because paper mail in the

Washington, DC area and at the OCC is

subject to delay, commenters are

encouraged to submit comments by the

Federal eRulemaking Portal or email, if

possible. Please use the title ‘‘Regulatory

Capital Rules: Regulatory Capital,

Enhanced Supplementary Leverage

Ratio Standards for Certain Bank

Holding Companies and Their

Subsidiary Insured Depository

Institutions’’ to facilitate the

organization and distribution of the

comments. You may submit comments

by any of the following methods:

• Federal eRulemaking Portal—

‘‘regulations.gov’’: Go to http://

www.regulations.gov. Enter ‘‘Docket ID

OCC–2013–0008’’ in the Search Box and

click ‘‘Search’’. Results can be filtered

using the filtering tools on the left side

of the screen. Click on ‘‘Comment Now’’

to submit public comments.

• Click on the ‘‘Help’’ tab on the

Regulations.gov home page to get

information on using Regulations.gov,

including instructions for submitting

public comments.

• Email: regs.comments@

occ.treas.gov.

• Mail: Legislative and Regulatory

Activities Division, Office of the

Comptroller of the Currency, 400 7th

Street SW., Suite 3E–218, Mail Stop

9W–11, Washington, DC 20219.

• Hand Delivery/Courier: 400 7th

Street SW., Suite 3E–218, Mail Stop

9W–11, Washington, DC 20219.

• Fax: (571) 465–4326.

Instructions: You must include

‘‘OCC’’ as the agency name and ‘‘Docket

ID OCC–2013–0008’’ in your comment

egislative and Regulatory

Activities Division, Office of the

Comptroller of the Currency, 400 7th

Street SW., Suite 3E–218, Mail Stop

9W–11, Washington, DC 20219.

• Hand Delivery/Courier: 400 7th

Street SW., Suite 3E–218, Mail Stop

9W–11, Washington, DC 20219.

• Fax: (571) 465–4326.

Instructions: You must include

‘‘OCC’’ as the agency name and ‘‘Docket

ID OCC–2013–0008’’ in your comment.

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Federal Register / Vol. 78, No. 161 / Tuesday, August 20, 2013 / Proposed Rules

In general, OCC will enter all comments

received into the docket and publish

them on the Regulations.gov Web site

without change, including any business

or personal information that you

provide 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

enclose any information in your

comment or supporting materials that

you consider confidential or

inappropriate for public disclosure.

You may review comments and other

related materials that pertain to this

rulemaking action by any of the

following methods:

• Viewing Comments Electronically:

Go to http://www.regulations.gov. Enter

‘‘Docket ID OCC–2013–0008’’ in the

Search box and click ‘‘Search’’.

Comments can be filtered by Agency

using the filtering tools on the left side

of the screen.

• Click on the ‘‘Help’’ tab on the

Regulations.gov home page to get

information on using Regulations.gov,

including instructions for viewing

public comments, viewing other

supporting and related materials, and

viewing the docket after the close of the

comment period.

• Viewing Comments Personally: You

may personally inspect and photocopy

comments at the OCC, 400 7th Street

SW., Washington, DC 20219

he ‘‘Help’’ tab on the

Regulations.gov home page to get

information on using Regulations.gov,

including instructions for viewing

public comments, viewing other

supporting and related materials, and

viewing the docket after the close of the

comment period.

• Viewing Comments Personally: You

may personally inspect and photocopy

comments at the OCC, 400 7th Street

SW., Washington, DC 20219. For

security reasons, the OCC requires that

visitors make an appointment to inspect

comments. You may do so by calling

(202) 649–6700. 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.

• Docket: You may also view or

request available background

documents and project summaries using

the methods described above.

Board: When submitting comments,

please consider submitting your

comments by email or fax because paper

mail in the Washington, DC area and at

the Board may be subject to delay. You

may submit comments, identified by

Docket No. R–1460, by any of the

following methods:

• Agency Web site: http://

www.federalreserve.gov. Follow the

instructions for submitting comments at

http://www.federalreserve.gov/

generalinfo/foia/ProposedRegs.cfm.

• Federal eRulemaking Portal: http://

www.regulations.gov. Follow the

instructions for submitting comments.

• Email: regs.comments@

federalreserve.gov. Include docket

number in the subject line of the

message.

• Fax: (202) 452–3819 or (202) 452–

3102.

• Mail: Robert de V. Frierson,

Secretary, Board of Governors of the

Federal Reserve System, 20th Street and

Constitution Avenue NW., Washington,

DC 20551.

All public comments are available

from the Board’s Web site at http://

www.federalreserve.gov/generalinfo/

foia/ProposedRegs.cfm as submitted,

unless modified for technical reasons.

Accordingly, your comments will not be

edited to remove any identifying or

contact information

, Board of Governors of the

Federal Reserve System, 20th Street and

Constitution Avenue NW., Washington,

DC 20551.

All public comments are available

from the Board’s Web site at http://

www.federalreserve.gov/generalinfo/

foia/ProposedRegs.cfm as submitted,

unless modified for technical reasons.

Accordingly, your 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 MP–500 of the

Board’s Martin Building (20th and C

Street NW., Washington, DC 20551)

between 9 a.m. and 5 p.m. on weekdays.

FDIC: You may submit comments,

identified by RIN 3064–AE01, by any of

the following methods:

Agency Web site: http://www.fdic.gov/

regulations/laws/federal/propose.html.

Follow instructions for submitting

comments on the Agency Web site.

• Email: Comments@fdic.gov. Include

the RIN 3064–AE01 on the subject line

of the message.

• Mail: Robert E. Feldman, Executive

Secretary, Attention: Comments, Federal

Deposit Insurance Corporation, 550 17th

Street NW., Washington, DC 20429.

• Hand Delivery: Comments may be

hand delivered to the guard station at

the rear of the 550 17th Street Building

(located on F Street) on business days

between 7:00 a.m. and 5:00 p.m.

Public Inspection: All comments

received must include the agency name

and RIN 3064–AE01 for this rulemaking.

All comments received will be posted

without change to http://www.fdic.gov/

regulations/laws/federal/propose.html,

including any personal information

provided. Paper copies of public

comments may be ordered from the

FDIC Public Information Center, 3501

North Fairfax Drive, Room E–1002,

Arlington, VA 22226 by telephone at

ust include the agency name

and RIN 3064–AE01 for this rulemaking.

All comments received will be posted

without change to http://www.fdic.gov/

regulations/laws/federal/propose.html,

including any personal information

provided. Paper copies of public

comments may be ordered from the

FDIC Public Information Center, 3501

North Fairfax Drive, Room E–1002,

Arlington, VA 22226 by telephone at

(877) 275–3342 or (703) 562–2200.

FOR FURTHER INFORMATION CONTACT:

OCC: Roger Tufts, Senior Economic

Advisor, (202) 649–6981; Nicole Billick,

Risk Expert, (202) 649–7932, Capital

Policy; or Ron Shimabukuro, Senior

Counsel; or Carl Kaminski, Senior

Attorney, Legislative and Regulatory

Activities Division, (202) 649–5490,

Office of the Comptroller of the

Currency, 400 7th Street SW.,

Washington, DC 20219.

Board: Anna Lee Hewko, Deputy

Associate Director, (202) 530–6260;

Constance M. Horsley, Manager, (202)

452–5239; Juan C. Climent, Senior

Supervisory Financial Analyst, (202)

872–7526; or Holly Kirkpatrick, Senior

Financial Analyst, (202) 452–2796,

Capital and Regulatory Policy, Division

of Banking Supervision and Regulation;

or Benjamin McDonough, Senior

Counsel, (202) 452–2036; April C.

Snyder, Senior Counsel, (202) 452–

3099; Christine Graham, Senior

Attorney, (202) 452–3005; or David

Alexander, Senior Attorney, (202) 452–

2877, Legal Division, Board of

Governors of the Federal Reserve

System, 20th and C Streets NW.,

Washington, DC 20551. For the hearing

impaired only, Telecommunication

Device for the Deaf (TDD), (202) 263–

4869.

FDIC: George French, Deputy

Director, gfrench@fdic.gov; Bobby R

02) 452–

3099; Christine Graham, Senior

Attorney, (202) 452–3005; or David

Alexander, Senior Attorney, (202) 452–

2877, Legal Division, Board of

Governors of the Federal Reserve

System, 20th and C Streets NW.,

Washington, DC 20551. For the hearing

impaired only, Telecommunication

Device for the Deaf (TDD), (202) 263–

4869.

FDIC: George French, Deputy

Director, gfrench@fdic.gov; Bobby R.

Bean, Associate Director, bbean@

fdic.gov; Ryan Billingsley, Chief, Capital

Policy Section, rbillingsley@fdic.gov;

Karl Reitz, Chief, Capital Markets

Strategies Section, kreitz@fdic.gov;

Capital Markets Branch, Division of Risk

Management Supervision,

regulatorycapital@fdic.gov or (202) 898–

6888; or Mark Handzlik, Counsel,

mhandzlik@fdic.gov; or Michael

Phillips, Counsel, mphillips@fdic.gov;

Supervision Branch, Legal Division,

Federal Deposit Insurance Corporation,

550 17th Street NW., Washington, DC

20429.

SUPPLEMENTARY INFORMATION:

I. Background

The recent financial crisis showed

that some financial companies had

grown so large, leveraged, and

interconnected that their failure could

pose a threat to overall financial

stability. The sudden collapses or near-

collapses of major financial companies

were among the most destabilizing

events of the crisis. As a result of the

imprudent risk taking of major financial

companies and the severe consequences

to the financial system and the economy

associated with the disorderly failure of

these companies, the U.S. government

(and many foreign governments in their

home countries) intervened on an

unprecedented scale to reduce the

impact of, or prevent, the failure of

these companies and the attendant

consequences for the broader financial

system.

A perception continues to persist in

the markets that some companies

remain ‘‘too big to fail,’’ posing an

ongoing threat to the financial system

he U.S. government

(and many foreign governments in their

home countries) intervened on an

unprecedented scale to reduce the

impact of, or prevent, the failure of

these companies and the attendant

consequences for the broader financial

system.

A perception continues to persist in

the markets that some companies

remain ‘‘too big to fail,’’ posing an

ongoing threat to the financial system.

First, the existence of the ‘‘too big to

fail’’ problem reduces the incentives of

shareholders, creditors and

counterparties of these companies to

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Federal Register / Vol. 78, No. 161 / Tuesday, August 20, 2013 / Proposed Rules

1 Public Law 111–203, 124 Stat. 1376 (2010).

2 The agencies have authority to establish capital

requirements for depository institutions under the

prompt corrective action provisions of the Federal

Deposit Insurance Act (12 U.S.C. 1831o). In

addition, the Federal Reserve has broad authority to

establish various regulatory capital standards for

BHCs under the Bank Holding Company Act and

the Dodd-Frank Act. See, for example, sections 165

and 171 of the Dodd-Frank Act (12 U.S.C. 5365 and

12 U.S.C. 5371).

3 12 U.S.C. 3901–3911.

4 12 U.S.C. 1831o.

5 12 U.S.C. 3901(a).

6 ‘‘Each appropriate Federal banking agency shall

cause banking institutions to achieve and maintain

adequate capital by establishing levels of capital for

such banking institutions and by using such other

methods as the appropriate Federal banking agency

deems appropriate.’’ 12 U.S.C. 3907(a)(1).

7 Each appropriate Federal banking agency shall

have the authority to establish such minimum level

of capital for a banking institution as the

appropriate Federal banking agency, in its

discretion, deems to be necessary or appropriate in

light of the particular circumstances of the banking

institution.’’ 12 U.S.C. 3907(a)(2).

8 12 U.S.C

ng agency

deems appropriate.’’ 12 U.S.C. 3907(a)(1).

7 Each appropriate Federal banking agency shall

have the authority to establish such minimum level

of capital for a banking institution as the

appropriate Federal banking agency, in its

discretion, deems to be necessary or appropriate in

light of the particular circumstances of the banking

institution.’’ 12 U.S.C. 3907(a)(2).

8 12 U.S.C. 3907(b)(3)(C).

9 See 12 U.S.C. 5365; 77 FR 593 (January 5, 2012);

and 77 FR 76627 (December 28, 2012).

10 The BCBS is a committee of banking

supervisory authorities, which was established by

the central bank governors of the G–10 countries in

1975. It currently consists of senior representatives

of bank supervisory authorities and central banks

from Argentina, Australia, Belgium, Brazil, Canada,

China, France, Germany, Hong Kong SAR, India,

Indonesia, Italy, Japan, Korea, Luxembourg, Mexico,

the Netherlands, Russia, Saudi Arabia, Singapore,

South Africa, Sweden, Switzerland, Turkey, the

United Kingdom, and the United States. Documents

issued by the BCBS are available through the Bank

for International Settlements Web site at http://

www.bis.org.

discipline excessive risk-taking by the

companies. Second, it produces

competitive distortions because

companies perceived as ‘‘too big to fail’’

can often fund themselves at a lower

cost than other companies. This

distortion is unfair to smaller

companies, damaging to fair

competition, and tends to artificially

encourage further consolidation and

concentration in the financial system.

An important objective of the Dodd-

Frank Wall Street Reform and Consumer

Protection Act of 2010 (Dodd-Frank Act)

is to mitigate the threat to financial

stability posed by systemically-

important financial companies.1 The

agencies have sought to address this

problem through enhanced supervisory

programs, including heightened

supervisory expectations for large,

complex institutions and stress testing

requirements

the Dodd-

Frank Wall Street Reform and Consumer

Protection Act of 2010 (Dodd-Frank Act)

is to mitigate the threat to financial

stability posed by systemically-

important financial companies.1 The

agencies have sought to address this

problem through enhanced supervisory

programs, including heightened

supervisory expectations for large,

complex institutions and stress testing

requirements. The Dodd-Frank Act

further addresses this problem with a

multi-pronged approach: a new orderly

liquidation authority for financial

companies (other than banks and

insurance companies); the

establishment of the Financial Stability

Oversight Council (Council) empowered

with the authority to designate nonbank

financial companies for Board oversight;

stronger regulation of major BHCs and

nonbank financial companies

designated for Board oversight; and

enhanced regulation of over-the-counter

(OTC) derivatives, other core financial

markets, and financial market utilities.

This proposal would build on these

efforts by increasing leverage standards

for the largest and most interconnected

U.S. banking organizations. The

agencies have broad authority to set

regulatory capital standards.2 As a

general matter, the agencies’ authority to

set regulatory capital requirements for

the institutions they regulate derives

from the International Lending

Supervision Act (ILSA)3 and the PCA

provisions 4 of Federal Deposit

Insurance Corporation Improvement Act

(FDICIA)

t interconnected

U.S. banking organizations. The

agencies have broad authority to set

regulatory capital standards.2 As a

general matter, the agencies’ authority to

set regulatory capital requirements for

the institutions they regulate derives

from the International Lending

Supervision Act (ILSA)3 and the PCA

provisions 4 of Federal Deposit

Insurance Corporation Improvement Act

(FDICIA). In establishing ILSA, Congress

codified its intentions, providing, ‘‘It is

the policy of the Congress to assure that

the economic health and stability of the

United States and the other nations of

the world shall not be adversely affected

or threatened in the future by imprudent

lending practices or inadequate

supervision.’’5 ILSA encourages the

agencies to work with their

international counterparts to establish

effective and consistent supervisory

policies and practices and specifically

provides the agencies authority to set

broadly applicable minimum capital

levels 6 as well as individual capital

requirements.7 Additionally, ILSA

specifically calls on U.S. regulators to

encourage governments, central banks,

bank regulatory authorities, and other

major banking countries to work toward

maintaining, and where appropriate,

strengthening the capital bases of

banking institutions involved in

international banking.8 With its focus

on international lending and the safety

of the broader financial system, ILSA

provides the agencies with the authority

to consider an institution’s

interconnectedness and other systemic

factors when setting capital standards.

As part of the overall prudential

framework for bank capital, the agencies

have long expected institutions to

maintain capital well above regulatory

minimums and have monitored banking

organizations’ capital adequacy through

the supervisory process in accordance

with this expectation

o consider an institution’s

interconnectedness and other systemic

factors when setting capital standards.

As part of the overall prudential

framework for bank capital, the agencies

have long expected institutions to

maintain capital well above regulatory

minimums and have monitored banking

organizations’ capital adequacy through

the supervisory process in accordance

with this expectation. Additionally, this

expectation is codified for IDIs in the

statutory PCA requirements, which

require the agencies to establish ratio

thresholds for both leverage and risk-

based capital that banks have to meet to

be considered ‘‘well capitalized.’’

Additionally, section 165 of the Dodd-

Frank Act requires the Board to impose

a package of enhanced prudential

standards on BHCs with total

consolidated assets of $50 billion or

more and nonbank financial companies

the Council has designated for

supervision by the Board.9 The

prudential standards for covered

companies required under section 165

of the Dodd-Frank Act must include

enhanced leverage requirements. In

general, the Dodd-Frank Act directs the

Board to implement enhanced

prudential standards that strengthen

existing micro-prudential supervision

and regulation of individual companies

and incorporate macro-prudential

considerations so as to reduce threats

posed by covered companies to the

stability of the financial system as a

whole. The enhanced standards must

increase in stringency based on the

systemic footprint and risk

characteristics of individual covered

companies. When differentiating among

companies for purposes of applying the

standards established under section 165,

the Board may consider the companies’

size, capital structure, riskiness,

complexity, financial activities, and any

other risk-related factors the Board

deems appropriate.

In the agencies’ experience, strong

capital is an important safeguard that

helps financial institutions navigate

periods of financial or economic stress

purposes of applying the

standards established under section 165,

the Board may consider the companies’

size, capital structure, riskiness,

complexity, financial activities, and any

other risk-related factors the Board

deems appropriate.

In the agencies’ experience, strong

capital is an important safeguard that

helps financial institutions navigate

periods of financial or economic stress.

Maintenance of a strong base of capital

at the largest, systemically important

institutions is particularly important

because capital shortfalls at these

institutions can contribute to systemic

distress and can have material adverse

economic effects. Further, higher capital

standards for these institutions would

place additional private capital at risk

before the Federal deposit insurance

fund and the Federal government’s

resolution mechanisms would be called

upon, and reduce the likelihood of

economic disruptions caused by

problems at these institutions. The

agencies believe that higher standards

for the supplementary leverage ratio

would reduce the likelihood of

resolutions, and would allow regulators

more time to tailor resolution efforts in

the event those are needed. By further

constraining their use of leverage,

higher leverage standards could offset

possible funding cost advantages that

these institutions may enjoy as a result

of the ‘‘too big to fail’’ problem, as

discussed above.

A. Scope of the Proposal

In November 2011, the BCBS10

released a document entitled, Global

systemically important banks:

assessment methodology and the

additional loss absorbency

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of the ‘‘too big to fail’’ problem, as

discussed above.

A. Scope of the Proposal

In November 2011, the BCBS10

released a document entitled, Global

systemically important banks:

assessment methodology and the

additional loss absorbency

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11 Available at http://www.bis.org/publ/

bcbs207.pdf.

12 The U.S. banking organizations that are

currently identified as G–SIBs and that would be

subject to the proposal are Citigroup Inc., JP Morgan

Chase & Co., Bank of America Corporation, The

Bank of New York Mellon Corporation, Goldman

Sachs Group, Inc., Morgan Stanley, State Street

Corporation, and Wells Fargo & Company.

Available at http://www.financialstabilityboard.org/

publications/r_121031ac.pdf.

13 The 2013 revised capital approaches would

revise and replace the agencies’ risk-based and

leverage capital standards and establish a 3 percent

minimum supplementary leverage ratio for banking

organizations subject to the agencies’ advanced

approaches risk-based capital rules. The Board

adopted the 2013 revised capital approaches as

final on July 2, 2013. See http://

www.federalreserve.gov/newsevents/press/bcreg/

20130702a.htm. The OCC adopted the 2013 revised

capital approaches as final on July 9, 2013. See

http://www.occ.gov/news-issuances/news-releases/

2013/nr-occ-2013-110.html. The FDIC adopted the

2013 revised capital approaches on an interim basis

on July 9, 2013.

14 Under the 2013 revised capital approaches, a

‘‘subsidiary’’ is defined as a company controlled by

another company, and a person or company

‘‘controls’’ a company if it: (1) owns, controls, or

holds with power to vote 25 percent or more of a

class of voting securities of the company; or (2)

consolidates the company for financial reporting

purposes

es on an interim basis

on July 9, 2013.

14 Under the 2013 revised capital approaches, a

‘‘subsidiary’’ is defined as a company controlled by

another company, and a person or company

‘‘controls’’ a company if it: (1) owns, controls, or

holds with power to vote 25 percent or more of a

class of voting securities of the company; or (2)

consolidates the company for financial reporting

purposes. See section 2 of the 2013 revised capital

approaches.

15 The generally applicable leverage ratio under

the 2013 revised capital approaches is the ratio of

a banking organization’s tier 1 capital to its average

total consolidated assets as reported on the banking

organization’s regulatory report minus amounts

deducted from tier 1 capital.

16 12 U.S.C. 5371.

17 See BCBS, ‘‘Basel III: A Global Regulatory

Framework for More Resilient Banks and Banking

Systems’’ (December 2010), available at http://

www.bis.org/publ/bcbs189.htm.

requirement,11 which sets out a

framework for a new capital surcharge

for global systemically important banks

(BCBS framework). The BCBS

framework is intended to strengthen the

capital position of the global

systemically important banking

organizations (G–SIBs) beyond the

requirements for other banking

organizations by expanding the capital

conservation buffer for these

organizations.

The BCBS framework incorporates

five broad characteristics of a banking

organization that the agencies consider

to be good proxies for, and correlated

with, systemic importance—size,

complexity, interconnectedness, lack of

substitutes, and cross-border activity.

The Board believes that the criteria and

methodology used by the BCBS to

identify G–SIBs are consistent with the

criteria it must consider under the DFA

when tailoring enhanced prudential

standards based on the systemic

footprint and risk characteristics of

individual covered companies

stemic importance—size,

complexity, interconnectedness, lack of

substitutes, and cross-border activity.

The Board believes that the criteria and

methodology used by the BCBS to

identify G–SIBs are consistent with the

criteria it must consider under the DFA

when tailoring enhanced prudential

standards based on the systemic

footprint and risk characteristics of

individual covered companies.

In November 2012 the FSB and BCBS

published a list of banks that meet the

BCBS definition of a G–SIB based on

year-end 2011 data.12 Each of these

organizations has more than $700

billion in consolidated assets or more

than $10 trillion in assets under

custody. For the reasons described in

this notice, the agencies are proposing

to modify the 2013 revised capital

approaches 13 to implement enhanced

leverage standards for the largest, most

interconnected U.S. BHCs (that have

been, and are likely to continue to be

identified as G–SIBs) and their

subsidiary IDIs.14 Accordingly, the

agencies propose to use these thresholds

to identify covered BHCs and their IDI

subsidiaries to which the higher

leverage requirements would apply.

Over time, as the G–SIB risk-based

capital framework is implemented in

the United States or revised by the

BCBS, the agencies may consider

modifying the scope of application of

the proposed leverage requirements. In

addition, independent of the G–SIB

capital framework implementation, the

agencies will continue to evaluate the

proposed applicability thresholds and

may consider revising them to ensure

they remain appropriate.

B. The Supplementary Leverage Ratio

The 2013 revised capital approaches

comprehensively revise and strengthen

the capital regulations applicable to

banking organizations. The 2013 revised

capital approaches strengthen the

definition of regulatory capital, increase

the minimum risk-based capital

requirements for all banking

organizations, and modify the way

banking organizations are required to

calculate risk-weighted assets

he 2013 revised capital approaches

comprehensively revise and strengthen

the capital regulations applicable to

banking organizations. The 2013 revised

capital approaches strengthen the

definition of regulatory capital, increase

the minimum risk-based capital

requirements for all banking

organizations, and modify the way

banking organizations are required to

calculate risk-weighted assets. The 2013

revised capital approaches also establish

a minimum tier 1 leverage ratio

requirement 15 of 4 percent applicable to

all IDIs, which is the ‘‘generally

applicable’’ leverage ratio for purposes

of section 171 of the Dodd-Frank Act.

Accordingly, the minimum tier 1

leverage requirement for depository

institution holding companies is also 4

percent.16

In addition, for advanced approaches

banking organizations, the 2013 revised

capital approaches establish a minimum

requirement of 3 percent of tier 1 capital

to total leverage exposure

(supplementary leverage ratio). Total

leverage exposure includes all on-

balance sheet assets and many off-

balance sheet exposures for banking

organizations subject to the agencies’

advanced approaches risk-based capital

rules. The supplementary leverage ratio

is consistent with the minimum

leverage ratio requirement adopted by

the BCBS (Basel III leverage ratio).17

Because total leverage exposure

includes off-balance sheet exposures, for

any given company with material off-

balance sheet exposures, the minimum

amount of capital required to meet the

supplementary leverage ratio would

substantially exceed the amount of

capital that would be required to meet

the generally applicable leverage ratio,

assuming that both ratios were set at the

same level

Because total leverage exposure

includes off-balance sheet exposures, for

any given company with material off-

balance sheet exposures, the minimum

amount of capital required to meet the

supplementary leverage ratio would

substantially exceed the amount of

capital that would be required to meet

the generally applicable leverage ratio,

assuming that both ratios were set at the

same level. Based on recent supervisory

estimates, the 6 percent proposed

supplementary leverage ratio for

subsidiary IDIs of covered BHCs

corresponds to roughly an 8.6 percent

generally applicable leverage ratio,

while the proposed 5 percent buffer

level of the supplementary leverage

ratio for covered BHCs corresponds to a

roughly 7 percent generally applicable

leverage ratio, as shown in Table 1.

TABLE 1—GENERALLY APPLICABLE LEVERAGE RATIO EQUIVALENTS FOR VARIOUS VALUES OF THE SUPPLEMENTARY

LEVERAGE RATIO

Leverage concept

Supplementary leverage ratio level:

Implied generally applicable ratio* .....

4 .3%

5.7%

7.2%

8.6%

10.0%

11.4%

Current BHC minimum** ....................

Current IDI minimum ..........................

Current IDI well-capitalized threshold

*Assumes total leverage exposure for the supplementary leverage ratio is $143 for every $100 of current generally applicable leverage expo-

sure based on a group of advanced approaches banking organizations as of 3Q 2012. Amounts by which total leverage exposure exceeds bal-

ance sheet amounts will vary across banking organizations depending on the composition of their off-balance sheet assets.

**Under the 2013 revised capital approaches, the minimum leverage ratio for BHCs is 4 percent.

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e exposure exceeds bal-

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**Under the 2013 revised capital approaches, the minimum leverage ratio for BHCs is 4 percent.

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18 The BCBS recently published a consultative

paper seeking comment on a number of specific

changes to the supplementary leverage ratio

denominator. If and when any of these changes are

finalized, the agencies would consider the

appropriateness of their application in the United

States.

19 See 77 FR 52792 (August 30, 2012) (2012

proposal).

20 If the BCBS finalizes changes in the definition

of the total leverage exposure measure, the agencies

will consider the appropriateness of incorporating

those changes into the definition of the

supplementary leverage ratio and its appropriate

levels for purposes of U.S. regulation. Any such

changes would be based on a notice and comment

rulemaking process.

21 See section 10 of the 2013 revised capital

approaches. The agencies’ current risk-based capital

rules are at 12 CFR part 3, appendix A and 12 CFR

part 167 (OCC); 12 CFR part 208, appendix A and

12 CFR part 225, appendix A (Board); and 12 CFR

part 325, appendix A and 12 CFR part 390, subpart

Z (FDIC). The agencies’ current leverage rules are

at 12 CFR 3.6(b) and 3.6(c), and 12 CFR 167.6

(OCC); 12 CFR part 208, appendix B and 12 CFR

part 225, appendix D (Board); and 12 CFR 325.3 and

12 CFR 390.467 (FDIC).

The introduction of the Basel III

leverage ratio as a minimum standard is

an important step in improving the

BCBS framework for international

capital standards (Basel capital

framework), and the BCBS described it

as a backstop to the risk-based capital

ratios and an overall constraint on

leverage

ndix B and 12 CFR

part 225, appendix D (Board); and 12 CFR 325.3 and

12 CFR 390.467 (FDIC).

The introduction of the Basel III

leverage ratio as a minimum standard is

an important step in improving the

BCBS framework for international

capital standards (Basel capital

framework), and the BCBS described it

as a backstop to the risk-based capital

ratios and an overall constraint on

leverage. The agencies believe the

leverage requirement should produce a

simple and transparent measure of

capital adequacy that will be credible to

market participants and ensure a

meaningful amount of capital is

available to absorb losses. The Basel III

leverage ratio is a non-risk-based

measure of capital adequacy that

measures both on- and off-balance sheet

exposures relative to tier 1 capital.18

This is particularly important for large,

complex organizations that often have

substantial off-balance sheet exposures.

The financial crisis demonstrated the

risks from off-balance sheet exposures

that can require capital support,

especially during a period of stress. The

agencies note that the BCBS has

committed to collecting additional data

and potentially recalibrating the Basel

III leverage ratio requirements. The

agencies will review any modifications

to the Basel III leverage ratio made by

the BCBS and consider proposing

revisions to the U.S. requirements, as

appropriate.

II. Proposed Revisions to Strengthen the

Supplementary Leverage Ratio

Standards

A. Factors Contributing to the Proposed

Revisions

In developing this proposal, the

agencies considered various factors,

including comments regarding the

supplementary leverage ratio when the

agencies proposed revisions to their

capital standards in 2012,19 and the

calibration objectives and

methodologies of the agencies in

developing the risk-based capital and

leverage requirements in the 2013

revised capital approaches

osed

Revisions

In developing this proposal, the

agencies considered various factors,

including comments regarding the

supplementary leverage ratio when the

agencies proposed revisions to their

capital standards in 2012,19 and the

calibration objectives and

methodologies of the agencies in

developing the risk-based capital and

leverage requirements in the 2013

revised capital approaches.

Some commenters on the

supplementary leverage ratio in the

2012 proposal recommended that the

agencies implement a higher minimum

requirement. These commenters argued

that the risk-based capital ratios are less

transparent and more subject to

manipulation than leverage ratios and

therefore should not be the binding

requirement. Other commenters

recommended that the agencies wait to

implement a supplementary leverage

ratio until the BCBS completes any

refinements to the Basel III leverage

ratio.20 Some commenters stated that if

a leverage ratio is the binding regulatory

capital requirement, banking

organizations may have incentives to

increase their holdings of riskier assets.

In calibrating the revised risk-based

capital framework, the BCBS identified

those elements of regulatory capital that

would be available to absorb

unexpected losses on a going-concern

basis. The BCBS agreed that an

appropriate regulatory minimum level

for the risk-based capital requirements

should force banking organizations to

hold enough loss-absorbing capital to

provide market participants a high level

of confidence in their viability. The

BCBS also determined that a buffer

above the minimum risk-based capital

requirements would enhance stability,

and that such a buffer should be

calibrated to allow banking

organizations to absorb a severe level of

loss, while still remaining above the

regulatory minimum requirements. The

buffer is conceptually similar, but not

identical in function, to the PCA ‘‘well

capitalized’’ category for IDIs

determined that a buffer

above the minimum risk-based capital

requirements would enhance stability,

and that such a buffer should be

calibrated to allow banking

organizations to absorb a severe level of

loss, while still remaining above the

regulatory minimum requirements. The

buffer is conceptually similar, but not

identical in function, to the PCA ‘‘well

capitalized’’ category for IDIs.

The BCBS’s approach for determining

the minimum level of the Basel III

leverage ratio was different than the

calibration approach described above

for the risk-based capital ratios. The

BCBS used the most loss-absorbing

measure of capital, common equity tier

1 capital, as the basis for calibration for

the risk-based capital ratios, but not for

the Basel III leverage ratio. In addition,

the BCBS did not calibrate the

minimum Basel III leverage ratio to meet

explicit loss absorption and market

confidence objectives as it did in

calibrating the minimum risk-based

capital requirements and did not

implement a capital conservation buffer

level above the minimum leverage ratio.

Rather, the BCBS focused on calibrating

the Basel III leverage ratio to be a

backstop to the risk-based capital ratios

and an overall constraint on leverage.

The agencies believe that while the

establishment of the Basel III leverage

ratio internationally is an important

achievement, further steps could be

taken to ensure that the risk-based and

leverage capital requirements effectively

work together to enhance the safety and

soundness of the largest, most

systemically important banking

organizations.

An estimated half of the covered

BHCs that were BHCs in 2006 would

have met or exceeded a 3 percent

minimum supplementary leverage ratio

at the end of 2006, and the other half

were quite close to the minimum. This

suggests that the minimum requirement

would not have placed a significant

constraint on the pre-crisis buildup of

leverage at the largest institutions

t banking

organizations.

An estimated half of the covered

BHCs that were BHCs in 2006 would

have met or exceeded a 3 percent

minimum supplementary leverage ratio

at the end of 2006, and the other half

were quite close to the minimum. This

suggests that the minimum requirement

would not have placed a significant

constraint on the pre-crisis buildup of

leverage at the largest institutions.

Based on their experience during the

financial crisis, the agencies believe that

there could be benefits to financial

stability and reduced costs to the

deposit insurance fund by requiring

these banking organizations to meet a

well-capitalized standard or capital

buffer in addition to the 3 percent

minimum supplementary leverage ratio

requirement.

The agencies have also considered the

complementary nature of leverage

capital requirements and risk-based

capital requirements as well as the

potential complexity and burden of

additional leverage standards. From a

safety-and-soundness perspective, each

type of requirement offsets potential

weaknesses of the other, and the two

sets of requirements working together

are more effective than either would be

in isolation. In this regard, the agencies

note that the 2013 revised capital

approaches strengthen U.S. banking

organizations’ risk-based capital

requirements considerably more than it

strengthens their leverage requirements.

Relative to the new supplementary

leverage ratio in the 2013 revised capital

approaches, the tier 1 risk-based capital

requirements under the 2013 revised

capital approaches will be

proportionately stronger than was the

case under the previous rules.21 At the

same time, the degree to which banking

organizations could potentially benefit

from active management of risk-

weighted assets before they breach the

leverage requirements may be greater

2013 revised capital

approaches, the tier 1 risk-based capital

requirements under the 2013 revised

capital approaches will be

proportionately stronger than was the

case under the previous rules.21 At the

same time, the degree to which banking

organizations could potentially benefit

from active management of risk-

weighted assets before they breach the

leverage requirements may be greater.

Such potential behavior suggests that

the increase in stringency of the

leverage and risk-based standards

should be more closely calibrated to

each other so that they remain in an

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22 See section 11(a)(4) of the 2013 revised capital

approaches.

23 See section 11(a) of the 2013 revised capital

approaches.

effective complementary relationship.

This was an important factor the

agencies considered in identifying the

proposed levels for the well-capitalized

and buffer levels of the supplementary

leverage ratio.

This proportionality rationale applies

to all banking organizations and to both

the generally applicable and

supplementary leverage ratios.

However, the agencies believe it is

appropriate to weigh the burden and

complexity of imposing a leverage

buffer and enhanced PCA standards

against the benefits to financial stability

and addressing the concern that some

institutions benefit from a real or

perceived implicit Federal safety net

subsidy or may be viewed as ‘‘too big to

fail.’’ The agencies are therefore

proposing to apply enhanced leverage

standards only to those U.S. banking

organizations that pose the greatest

potential risk to financial stability,

which are covered BHCs and their

subsidiary IDIs

ity

and addressing the concern that some

institutions benefit from a real or

perceived implicit Federal safety net

subsidy or may be viewed as ‘‘too big to

fail.’’ The agencies are therefore

proposing to apply enhanced leverage

standards only to those U.S. banking

organizations that pose the greatest

potential risk to financial stability,

which are covered BHCs and their

subsidiary IDIs.

In this regard, the proposed

heightened standards for the

supplementary leverage ratio for

covered BHCs and their subsidiary IDIs

should provide meaningful incentives to

encourage these banking organizations

to conserve capital, thereby reducing the

likelihood of their instability or failure

and consequent negative external effects

on the financial system. The calibration

of the proposed heightened standards is

based on consideration of all of the

factors described in this section.

B. Description of the Proposed Revisions

In the 2013 revised capital

approaches, the agencies established a

minimum supplementary leverage ratio

requirement of 3 percent for advanced

approaches banking organizations based

on the Basel III leverage ratio. The

supplementary leverage ratio is defined

as the simple arithmetic mean of the

ratio of the banking organization’s tier 1

capital to total leverage exposure

calculated as of the last day of each

month in the reporting quarter.

Under this proposal, a covered BHC

would be subject to a leverage buffer of

tier 1 capital in addition to the

minimum supplementary leverage ratio

requirement established in the 2013

revised capital approaches

he simple arithmetic mean of the

ratio of the banking organization’s tier 1

capital to total leverage exposure

calculated as of the last day of each

month in the reporting quarter.

Under this proposal, a covered BHC

would be subject to a leverage buffer of

tier 1 capital in addition to the

minimum supplementary leverage ratio

requirement established in the 2013

revised capital approaches. Similar to

the capital conservation buffer in the

2013 revised capital approaches, under

the proposal, a covered BHC that

maintains a leverage buffer of tier 1

capital in an amount greater than 2

percent of its total leverage exposure

would not be subject to limitations on

its distributions and discretionary bonus

payments.22 If the BHC maintains a

leverage buffer of 2 percent or less, it

would be subject to increasingly stricter

limitations on such payouts. The

proposed leverage buffer would follow

the same general mechanics and

structure as the capital conservation

buffer contained in the 2013 revised

capital approaches.23 The leverage

buffer constraints on distributions and

discretionary bonus payments would be

independent of any constraints imposed

by the capital conservation buffer or

other supervisory or regulatory

measures.

In the 2013 revised capital

approaches, the agencies incorporated

the 3 percent supplementary leverage

ratio minimum requirement into the

PCA framework as an adequately

capitalized threshold for IDIs subject to

the agencies’ advanced approaches risk-

based capital rules, but did not establish

an explicit well-capitalized threshold

for this ratio. Under the proposal, an IDI

that is a subsidiary of a covered BHC

would be required to satisfy a 6 percent

supplementary leverage ratio to be

considered well capitalized for PCA

purposes. The leverage ratio thresholds

under the 2013 revised capital

approaches and this proposal are shown

in Table 2

capital rules, but did not establish

an explicit well-capitalized threshold

for this ratio. Under the proposal, an IDI

that is a subsidiary of a covered BHC

would be required to satisfy a 6 percent

supplementary leverage ratio to be

considered well capitalized for PCA

purposes. The leverage ratio thresholds

under the 2013 revised capital

approaches and this proposal are shown

in Table 2.

TABLE 2—PCA LEVELS IN THE 2013 REVISED CAPITAL APPROACHES FOR ADVANCED APPROACHES BANKING

ORGANIZATIONS THAT ARE IDIS AND PROPOSED WELL-CAPITALIZED LEVEL FOR SUBSIDIARY IDIS OF COVERED BHCS

PCA category

Generally applicable leverage

ratio

(percent)

Supplementary leverage ratio

(percent)

Proposed supplementary

leverage ratio for subsidiary

IDIs of covered BHCs

(percent)

Well Capitalized .............................................

≥ 5

Not applicable

≥ 6.

Adequately Capitalized ..................................

≥ 4

≥ 3

≥ 3.

Undercapitalized ............................................

< 4

< 3

< 3.

Significantly Undercapitalized ........................

< 3

Not applicable

Not applicable.

Critically Undercapitalized .............................

Tangible equity (defined as tier

1 capital plus non-tier 1

perpetual preferred stock) to

Total Assets ≤ 2

Not applicable

Not applicable.

Note: The supplementary leverage ratio includes many off-balance sheet assets in its denominator; the generally applicable leverage ratio

does not. See the supplementary leverage ratio under section I.B. of this preamble for additional information.

Consistent with the transition

provisions set forth in subpart G of the

2013 revised capital approaches, the

agencies propose to adopt the leverage

buffer for covered BHCs and the 6

percent well-capitalized threshold for

subsidiary IDIs of covered BHCs

beginning on January 1, 2018

does not. See the supplementary leverage ratio under section I.B. of this preamble for additional information.

Consistent with the transition

provisions set forth in subpart G of the

2013 revised capital approaches, the

agencies propose to adopt the leverage

buffer for covered BHCs and the 6

percent well-capitalized threshold for

subsidiary IDIs of covered BHCs

beginning on January 1, 2018.

The agencies note that by setting the

minimum supplementary leverage ratio

plus leverage buffer at 5 percent for

covered BHCs and the well-capitalized

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24 The $89 billion estimate was calculated by

assuming that CCAR results were proportionally

applied based upon the total assets of the lead IDI

relative to the BHC.

threshold for subsidiary IDIs of covered

BHCs at 6 percent, the proposal would

be structurally consistent with the

current relationship between the

generally applicable leverage ratio

requirements applicable to IDIs and

BHCs under section 10 of the 2013

revised capital approaches. Under the

2013 revised capital approaches, IDIs

must maintain a 5 percent generally

applicable leverage ratio to be well

capitalized for PCA purposes, whereas

BHCs must maintain a minimum 4

percent generally applicable leverage

ratio under separate BHC regulations.

Under this proposed rule, the well-

capitalized supplementary leverage ratio

standard for subsidiary IDIs of covered

BHCs would become a more stringent

requirement than the current 5 percent

well-capitalized standard under PCA

with respect to the generally applicable

leverage ratio

BHCs must maintain a minimum 4

percent generally applicable leverage

ratio under separate BHC regulations.

Under this proposed rule, the well-

capitalized supplementary leverage ratio

standard for subsidiary IDIs of covered

BHCs would become a more stringent

requirement than the current 5 percent

well-capitalized standard under PCA

with respect to the generally applicable

leverage ratio. Accordingly, the agencies

are considering eliminating the 5

percent well-capitalized standard for the

generally applicable leverage ratio for

subsidiary IDIs of covered BHCs if the

agencies finalize the 6 percent well-

capitalized threshold for the

supplementary leverage ratio as

proposed.

C. Required Capital and Credit

Availability

In developing this proposal, the

agencies analyzed its potential impact

on the amount of capital the covered

organizations would be required to hold

and, in general terms, factors relevant to

the potential effects on credit

availability.

Some perspective on the potential

effects of the proposed rule can be

gained by considering information

obtained from the Board’s

Comprehensive Capital Analysis and

Review (CCAR) process in which all of

the agencies participate. This

information reflects banking

organizations’ own projections of their

Basel III capital ratios under the

supervisory baseline scenario, including

institutions’ own assumptions about

earnings retention and other strategic

actions. It does not reflect supervisory

views. In the 2013 CCAR, all 8 covered

BHCs met the 3 percent supplementary

leverage ratio as of third quarter 2012,

and almost all projected that their

supplementary leverage ratios would

exceed 5 percent at year-end 2017.

If the proposed supplementary

leverage ratio thresholds had been in

effect as of third quarter 2012, covered

BHCs under the proposal that did not

meet a 5 percent supplementary

leverage ratio would have needed to

increase their tier 1 capital by about $63

billion to meet that ratio

and almost all projected that their

supplementary leverage ratios would

exceed 5 percent at year-end 2017.

If the proposed supplementary

leverage ratio thresholds had been in

effect as of third quarter 2012, covered

BHCs under the proposal that did not

meet a 5 percent supplementary

leverage ratio would have needed to

increase their tier 1 capital by about $63

billion to meet that ratio. The

incremental capital needs associated

with higher supplementary leverage

ratios need to be evaluated in the

context of the proposed 2018 effective

date and institutions’ efforts to build

their capital to meet Basel III

requirements and for other purposes.

Given these capital-building activities, it

is likely that incremental capital needs

to meet a 5 percent supplementary

leverage ratio would be significantly

less as the effective date approaches

than if the requirements had been in

place in September 2012. While

projections and future economic

conditions are subject to considerable

uncertainty, covered BHCs’ 2013 CCAR

projections are currently the best

available evidence on which to base an

estimate of the ultimate incremental

capital needs of the proposed rule.

Based on these projections, achieving

the proposed 5 percent supplementary

leverage ratio for covered BHCs appears

generally in line with current and

planned capital strengthening initiatives

and within the financial capacity of

these organizations.

Because CCAR is focused on the

consolidated capital of BHCs, BHCs did

not project future Basel III leverage

ratios for their IDIs. To estimate the

impact of the proposal on the lead IDIs

of covered BHCs, the agencies assumed

that an IDI has the same ratio of total

leverage exposure to total assets as its

BHC. Using this assumption and CCAR

2013 projections, all 8 lead IDIs of

covered BHCs are estimated to meet the

3 percent supplementary leverage ratio

as of third quarter 2012

sel III leverage

ratios for their IDIs. To estimate the

impact of the proposal on the lead IDIs

of covered BHCs, the agencies assumed

that an IDI has the same ratio of total

leverage exposure to total assets as its

BHC. Using this assumption and CCAR

2013 projections, all 8 lead IDIs of

covered BHCs are estimated to meet the

3 percent supplementary leverage ratio

as of third quarter 2012. If the proposed

supplementary leverage ratio thresholds

had been in effect as of third quarter

2012, the lead IDIs that did not meet a

6 percent ratio would have needed to

increase their tier 1 capital by about $89

billion to meet that ratio.24 The agencies

believe that the CCAR projections made

by covered BHCs under the proposal in

many cases reflect similar anticipated

capital trends at these BHCs’ lead IDIs

and that affected IDIs under the

proposal would be able to effectively

manage their capital structures to meet

a 6 percent supplementary leverage ratio

at year-end 2017.

In short, the agencies’ assessment of

the capital impact of the proposed rule

is that it would formalize and preserve

a strengthening of U.S. systemically

important banking organizations’ capital

that is already underway and

anticipated to continue.

The agencies considered a number of

broad considerations relevant to the

potential effects of the proposal on

credit availability. Roughly speaking,

banking organizations fund themselves

with debt and equity, and both funding

sources support lending. The agencies

believe the effect of higher banking

organization capital requirements on

lending would likely depend on a

number of factors. First, if the higher

capital requirement is less than the

banking organization’s planned capital

holdings, the higher capital requirement

may not directly affect lending

s fund themselves

with debt and equity, and both funding

sources support lending. The agencies

believe the effect of higher banking

organization capital requirements on

lending would likely depend on a

number of factors. First, if the higher

capital requirement is less than the

banking organization’s planned capital

holdings, the higher capital requirement

may not directly affect lending. If the

higher capital requirement does exceed

planned capital levels, but the increase

in capital does not increase overall

funding costs (perhaps because the risk

premium demanded by counterparties is

sufficiently reduced), the higher capital

requirement may not affect lending. If

actual capital held increases and this

causes overall funding costs to increase,

and if these costs are passed on to

borrowers, then there would likely be an

increase in the cost of credit that could

affect lending, in an amount that

depends on the materiality of the

increase in the cost of funding.

The proposed rule would permit

covered BHCs and their IDI subsidiaries

to fund themselves more than 90

percent with debt while still satisfying

the proposed leverage thresholds. In the

extreme, if an organization had to

increase its actual capital holdings by a

full 3 percentage points of its total

leverage exposures, corresponding to

the establishment of a 6 percent well-

capitalized threshold above the 3

percent adequately-capitalized

threshold, the remainder of its funding

sources would be expected to carry the

same or possibly lower cost (lower if

counterparty-demanded risk premiums

come down) while a small percentage of

its funding sources, in an amount equal

to 3 percent of total leverage exposure,

could come at a higher cost reflecting

the replacement of debt with equity

above the 3

percent adequately-capitalized

threshold, the remainder of its funding

sources would be expected to carry the

same or possibly lower cost (lower if

counterparty-demanded risk premiums

come down) while a small percentage of

its funding sources, in an amount equal

to 3 percent of total leverage exposure,

could come at a higher cost reflecting

the replacement of debt with equity.

The agencies note that to the extent that

higher capital standards increase the

cost of credit and reduce the volume of

lending, this effect should be weighed

against the potential long-term benefits

to the availability of credit resulting

from a better capitalized and more

stable banking system that is less prone

to crises. Historically, banking crises are

often followed by long periods of

diminished lending and economic

growth.

III. Request for Comment

The agencies seek comment on all

aspects of the proposed strengthening of

the leverage standards for covered BHCs

and their subsidiary IDIs. Comments are

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requested about the potential

advantages of the proposal in

strengthening the individual safety and

soundness of these banking

organizations and the stability of the

financial system. Comments are also

requested about the calibration and

capital impact of the proposal,

including whether the proposal

maintains an appropriately

complementary relationship between

the risk-based and leverage capital

requirements, and the nature and extent

of any costs to the affected institutions

or the broader economy. While the

proposal references the supplementary

leverage ratio defined in the 2013

revised capital approaches, comments

are also sought about alternative

definitions

hether the proposal

maintains an appropriately

complementary relationship between

the risk-based and leverage capital

requirements, and the nature and extent

of any costs to the affected institutions

or the broader economy. While the

proposal references the supplementary

leverage ratio defined in the 2013

revised capital approaches, comments

are also sought about alternative

definitions. Finally, the agencies seek

commenters’ views about future

rulemaking efforts that should be

considered for simplification or other

improvements to the agencies’

regulatory capital rules generally.

Question 1: How would proposed

strengthening of the supplementary

leverage ratio for covered BHCs and

their subsidiary IDIs contribute to

financial stability and thus economic

growth?

Question 2: Would the proposed

strengthening of the leverage ratio

mitigate public-policy concerns about

the regulatory treatment of banking

organizations that may pose risks to the

broader economy?

Question 3: The agencies solicit

commenters’ views on what economic

data suggest about leverage ratios and

risk-based capital ratios as predictors of

bank distress and thus tools to prevent

the failure of large systemically-

important banking organizations.

Question 4: Would the proposal create

any risk-reducing incentives and around

what specific activities? Would the

proposal create incentives for subject

banking organizations to take additional

risk and if so, would this effect be

expected to limit the safety-and-

soundness benefits of the proposal?

Question 5: What are commenters’

views on the proposed calibration of the

leverage standards? Is the proposed 6

percent well-capitalized standard for

subsidiary IDIs and the proposed 5

percent minimum supplementary

leverage ratio plus leverage buffer for

covered BHCs appropriate or should

these requirements be higher or lower?

In particular with regard to covered

BHCs, what are the advantages and

disadvantages of establishing the

minimum supplementary levera

leverage standards? Is the proposed 6

percent well-capitalized standard for

subsidiary IDIs and the proposed 5

percent minimum supplementary

leverage ratio plus leverage buffer for

covered BHCs appropriate or should

these requirements be higher or lower?

In particular with regard to covered

BHCs, what are the advantages and

disadvantages of establishing the

minimum supplementary leverage ratio

plus leverage buffer at 5 percent for all

covered BHC’s versus establishing the

amount between 4 and 5.5 percent

according to each covered BHC’s risk-

based capital surcharge (that is, to

reflect the minimum supplementary

leverage ratio of 3 percent plus between

1 and 2.5 percent depending upon each

covered BHC’s risk-based capital

surcharge)? With respect to the

subsidiary IDIs of covered BHCs, the

agencies seek commenters’ views on

what, if any, specific challenges these

institutions would face in meeting the

proposed well-capitalized threshold of 6

percent beginning on January 1, 2018.

Question 6: The agencies solicit

commenters’ views on whether a

strengthened leverage ratio requirement

would enhance the competitive position

of U.S. banking organizations relative to

foreign banking organizations by

enhancing the relative safety of the U.S.

banking system. Alternatively, could the

proposed strengthened leverage ratio

requirement place U.S. banking

organizations at a competitive

disadvantage relative to foreign banking

organizations and if so, in what areas?

Question 7: How would this proposal

affect counterparty incentives and

behavior?

Question 8: The agencies seek

commenters’ views on the

macroeconomic implications of the

proposal, particularly the potential

effects the proposal could have on the

allocation of credit and the volume of

lending

a competitive

disadvantage relative to foreign banking

organizations and if so, in what areas?

Question 7: How would this proposal

affect counterparty incentives and

behavior?

Question 8: The agencies seek

commenters’ views on the

macroeconomic implications of the

proposal, particularly the potential

effects the proposal could have on the

allocation of credit and the volume of

lending. For example, could a

strengthened leverage ratio requirement

as proposed cause a shift in favor of

lending to individuals and businesses as

opposed to markets- based activity by

banking organizations? If covered BHCs

were better capitalized as a group, to

what extent would this improve their

ability to serve as a source of credit to

the economy during periods of

economic stress? Conversely, to what

extent would the proposal create

incentives for banking organizations to

shrink or otherwise modify their

activities?

Question 9: What are the incremental

costs to banking organizations of the

proposed rule compared to the costs of

currently anticipated and planned

capitalization initiatives?

Question 10: The agencies are

interested in comment on the

appropriate measure of capital that

should be used as the numerator of the

supplementary leverage ratio. Among

the many measures of capital used by

banks, regulators and the market, the

agencies considered the following

measures: (1) Common equity tier 1

capital, (2) tier 1 capital, (3) total

capital, and (4) tangible equity (as these

terms are defined in the agencies’

capital regulations as of the date of the

issuance of this proposed rule,

including the 2013 revised capital

approaches)

. Among

the many measures of capital used by

banks, regulators and the market, the

agencies considered the following

measures: (1) Common equity tier 1

capital, (2) tier 1 capital, (3) total

capital, and (4) tangible equity (as these

terms are defined in the agencies’

capital regulations as of the date of the

issuance of this proposed rule,

including the 2013 revised capital

approaches). What are the advantages

and disadvantages of each of these as

well as alternative measures?

Question 11: What, if any, alternatives

to the definition of total leverage

exposure should be considered and

why?

Question 12: In light of the proposed

enhanced leverage requirement and

ongoing standardized risk-based capital

floors, should the agencies consider, in

some future regulatory action,

simplifying or eliminating portions of

the advanced approaches rule if they are

unnecessary or duplicative? Are there

opportunities to simplify the

standardized risk-based capital

framework that would be consistent

with safety and soundness or other

policy objectives?

Question 13: The proposed scope of

application is U.S. top-tier BHCs with

more than $700 billion in total assets or

more than $10 trillion in assets under

custody and their subsidiary IDIs.

Should the proposed requirements also

be applied to other advanced

approaches banking organizations? Why

or why not? Should all IDI subsidiaries

of a covered BHC be subject to the

proposed well-capitalized standard, and

if not, why? Please provide specific

factors and the associated rationale the

agencies should consider in establishing

any exemption from the proposed well-

capitalized standard.

IV. Regulatory Analysis:

A. Paperwork Reduction Act (PRA)

There is no new collection of

information pursuant to the PRA (44

U.S.C. 3501 et seq.) contained in this

proposed rule.

B. Regulatory Flexibility Act Analysis

OCC

The Regulatory Flexibility Act, 5

U.S.C. 601 et seq

rationale the

agencies should consider in establishing

any exemption from the proposed well-

capitalized standard.

IV. Regulatory Analysis:

A. Paperwork Reduction Act (PRA)

There is no new collection of

information pursuant to the PRA (44

U.S.C. 3501 et seq.) contained in this

proposed rule.

B. Regulatory Flexibility Act Analysis

OCC

The Regulatory Flexibility Act, 5

U.S.C. 601 et seq. (RFA), requires an

agency to provide an initial regulatory

flexibility analysis (IRFA) with a

proposed rule or to certify that the rule

will not have a significant economic

impact on a substantial number of small

entities (defined for purposes of the

RFA to include banking entities with

total assets of $175 million or less, and,

after July 22, 2013, total assets of $500

million or less).

As described in sections I. and II. of

this preamble, the proposal would

strengthen the supplementary leverage

ratio standards for U.S. top-tier bank

holding companies with total assets of

more than $700 billion or assets under

custody of more than $10 trillion and

their IDI subsidiaries. Using the Small

Business Administration’s (SBA)

recently issued size standards, as of

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25 The OCC based the estimate of the number of

small entities on the SBA’s size thresholds for

commercial banks and savings institutions, and

trust companies, which as of July 21, 2013 will be

$500 million and $35.5 million, respectively.

Consistent with the General Principles of

Affiliation, 13 CFR 121.103(a), the OCC counts the

assets of affiliated financial institutions when

determining whether to classify a banking

organization as a ‘‘small entity’’ for the purposes of

the Regulatory Flexibility Act

savings institutions, and

trust companies, which as of July 21, 2013 will be

$500 million and $35.5 million, respectively.

Consistent with the General Principles of

Affiliation, 13 CFR 121.103(a), the OCC counts the

assets of affiliated financial institutions when

determining whether to classify a banking

organization as a ‘‘small entity’’ for the purposes of

the Regulatory Flexibility Act. The OCC used

December 31, 2012, to determine size because the

SBA has provided that a ‘‘financial institution’s

assets are determined by averaging the assets

reported on its four quarterly financial statements

for the preceding year.’’ See, footnote 8 to the SBA’s

Table of Size Standards.

26 See 13 CFR 121.201. Effective July 22, 2013, the

SBA revised the size standards for banking

organizations to $500 million in assets from $175

million in assets. 78 FR 37409 (June 20, 2013).

27 Under the prior SBA threshold of $175 million

in assets, as of March 31, 2013 the Board supervised

approximately 369 small state member banks. As of

December 31, 2012, there were approximately 2,259

small bank holding companies.

28 Effective July 22, 2013, the SBA revised the size

standards for banking organizations to $500 million

in assets from $175 million in assets. 78 FR 37409

(June 20, 2013).

December 31, 2012, the OCC supervised

approximately 1,291 small entities.25

Because the proposed rule only applies

to large internationally active banks, it

does not impact any OCC-supervised

small entities. Therefore, the OCC does

not believe that the proposed rule will

result in a significant economic impact

on a substantial number of small entities

under its supervisory jurisdiction.

The OCC certifies that the proposed

rule would not have a significant

economic impact on a substantial

number of small national banks and

small Federal savings associations.

Board

The Board is providing an initial

regulatory flexibility analysis with

respect to this proposed rule

a significant economic impact

on a substantial number of small entities

under its supervisory jurisdiction.

The OCC certifies that the proposed

rule would not have a significant

economic impact on a substantial

number of small national banks and

small Federal savings associations.

Board

The Board is providing an initial

regulatory flexibility analysis with

respect to this proposed rule. As

discussed above, this proposed rule is

designed to enhance the safety and

soundness of U.S. top-tier bank holding

companies with at least $700 billion in

consolidated assets or at least $10

trillion in assets under custody (covered

BHCs), and the IDI subsidiaries of

covered BHCs. Under regulations issued

by the SBA, a small entity includes a

depository institution, bank holding

company, or savings and loan holding

company with total assets of $500

million or less (a small banking

organization).26 As of March 31, 2013,

there were approximately 636 small

state member banks. As of December 31,

2012, there were approximately 3,802

small bank holding companies.27

The proposal would apply only to

very large bank holding companies and

their IDI subsidiaries. Currently, no

small top-tier bank holding company

would meet the threshold criteria

provided in this NPR, so there would be

no additional projected compliance

requirements imposed on small bank

holding companies. One covered bank

holding company has one small state

member bank subsidiary, which would

be covered by this proposal. The Board

expects that this entity would rely on its

parent banking organization for

compliance and would not bear

additional costs. The Board is aware of

no other Federal rules that duplicate,

overlap, or conflict with the proposed

rule

on small bank

holding companies. One covered bank

holding company has one small state

member bank subsidiary, which would

be covered by this proposal. The Board

expects that this entity would rely on its

parent banking organization for

compliance and would not bear

additional costs. The Board is aware of

no other Federal rules that duplicate,

overlap, or conflict with the proposed

rule. The Board believes that the

proposed rule will not have a significant

economic impact on small banking

organizations supervised by the Board

and therefore believes that there are no

significant alternatives to the proposed

rule that would reduce the economic

impact on small banking organizations

supervised by the Board.

The Board welcomes comment on all

aspects of its analysis. A final regulatory

flexibility analysis will be conducted

after consideration of comments

received during the public comment

period.

FDIC

The RFA requires an agency to

provide an IRFA with a proposed rule

or to certify that the rule will not have

a significant economic impact on a

substantial number of small entities

(defined for purposes of the RFA to

include banking entities with total

assets of $175 million or less, and, after

July 22, 2013, total assets of $500

million or less).28

As described in sections I. and II. of

this preamble, the proposal would

strengthen the supplementary leverage

ratio standards for U.S. top-tier bank

holding companies with total assets of

more than $700 billion or assets under

custody of more than $10 trillion and

their IDIs subsidiaries. As of March 31,

2013, based on a $175 million

threshold, 1 (out of 2,453) small state

nonmember bank and no (out of 159)

small state savings associations were

subsidiaries of a covered BHC. As of

March 31, 2013, based on a $500 million

threshold, 2 (out of 3,398) small state

nonmember banks and no (out of 316)

small state savings associations were

subsidiaries of a covered BHC

sidiaries. As of March 31,

2013, based on a $175 million

threshold, 1 (out of 2,453) small state

nonmember bank and no (out of 159)

small state savings associations were

subsidiaries of a covered BHC. As of

March 31, 2013, based on a $500 million

threshold, 2 (out of 3,398) small state

nonmember banks and no (out of 316)

small state savings associations were

subsidiaries of a covered BHC.

Therefore, the FDIC does not believe

that the proposed rule will result in a

significant economic impact on a

substantial number of small entities

under its supervisory jurisdiction.

The FDIC certifies that the NPR would

not have a significant economic impact

on a substantial number of small FDIC-

supervised institutions.

C. OCC Unfunded Mandates Reform Act

of 1995 Determination

The Unfunded Mandates Reform Act

of 1995 (UMRA) requires federal

agencies to prepare a budgetary impact

statement before promulgating a rule

that 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

$100 million or more (adjusted annually

for inflation) in any one year. The

current inflation-adjusted expenditure

threshold is $141 million. If a budgetary

impact statement is required, section

205 of the UMRA also requires an

agency to identify and consider a

reasonable number of regulatory

alternatives before promulgating a rule

vernments, in the

aggregate, or by the private sector of

$100 million or more (adjusted annually

for inflation) in any one year. The

current inflation-adjusted expenditure

threshold is $141 million. If a budgetary

impact statement is required, section

205 of the UMRA also requires an

agency to identify and consider a

reasonable number of regulatory

alternatives before promulgating a rule.

In conducting the regulatory analysis,

UMRA requires each federal agency to

provide:

• The text of the draft regulatory

action, together with a reasonably

detailed description of the need for the

regulatory action and an explanation of

how the regulatory action will meet that

need;

• An assessment of the potential costs

and benefits of the regulatory action,

including an explanation of the manner

in which the regulatory action is

consistent with a statutory mandate and,

to the extent permitted by law, promotes

the President’s priorities and avoids

undue interference with State, local,

and tribal governments in the exercise

of their governmental functions;

• An assessment, including the

underlying analysis, of benefits

anticipated from the regulatory action

(such as, but not limited to, the

promotion of the efficient functioning of

the economy and private markets, the

enhancement of health and safety, the

protection of the natural environment,

and the elimination or reduction of

discrimination or bias) together with, to

the extent feasible, a quantification of

those benefits;

• An assessment, including the

underlying analysis, of costs anticipated

from the regulatory action (such as, but

not limited to, the direct cost both to the

government in administering the

regulation and to businesses and others

in complying with the regulation, and

any adverse effects on the efficient

functioning of the economy, private

markets (including productivity,

employment, and competitiveness),

health, safety, and the natural

environment), together with, to the

extent feasible, a quantification

imited to, the direct cost both to the

government in administering the

regulation and to businesses and others

in complying with the regulation, and

any adverse effects on the efficient

functioning of the economy, private

markets (including productivity,

employment, and competitiveness),

health, safety, and the natural

environment), together with, to the

extent feasible, a quantification of those

costs;

• An assessment, including the

underlying analysis, of costs and

benefits of potentially effective and

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29 12 CFR part 6.

30 Given the usual fluctuations in capital and

assets, well-capitalized banks would, in particular,

hold their SLR at least slightly above the six percent

threshold level.

reasonably feasible alternatives to the

planned regulation, identified by the

agencies or the public (including

improving the current regulation and

reasonably viable non-regulatory

actions), and an explanation why the

planned regulatory action is preferable

to the identified potential alternatives;

• An estimate of any disproportionate

budgetary effects of the federal mandate

upon any particular regions of the

nation or particular State, local, or tribal

governments, urban or rural or other

types of communities, or particular

segments of the private sector; and

• An estimate of the effect the

rulemaking action may have on the

national economy, if the OCC

determines that such estimates are

reasonably feasible and that such effect

is relevant and material.

Need for Regulatory Action

For the reasons set forth in the

Supplementary Information section, the

agencies are proposing to strengthen the

agencies’ leverage ratio standards for

large, interconnected U.S. banking

organizations

emaking action may have on the

national economy, if the OCC

determines that such estimates are

reasonably feasible and that such effect

is relevant and material.

Need for Regulatory Action

For the reasons set forth in the

Supplementary Information section, the

agencies are proposing to strengthen the

agencies’ leverage ratio standards for

large, interconnected U.S. banking

organizations. The agencies believe that

the maintenance of a strong base of

capital at the largest and most

systemically important institutions is

particularly important because capital

shortfalls at these institutions can

contribute to systemic distress and can

have material adverse economic effects.

Further, higher capital standards for

these institutions would place

additional private capital at risk before

the federal deposit insurance fund and

the federal government’s resolution

mechanisms would be called upon, and

reduce the likelihood of economic

disruptions caused by problems at these

institutions.

The Proposed Rule

The proposed rule would require the

covered banking organizations to

maintain higher supplementary leverage

ratios. The supplementary leverage ratio

is the ratio of tier 1 capital to total

leverage exposure, where total leverage

exposure is the sum of (1) on-balance

sheet assets less amounts deducted from

tier 1 capital, (2) potential future

exposure from derivative contracts, (3)

ten percent of the bank’s notional

amount of unconditionally cancellable

commitments, and (4) the notional

amount of all other off-balance sheet

exposures except securities lending,

securities borrowing, reverse repurchase

transactions, derivatives, and

unconditionally cancellable

commitments. The regulatory metric

will be the mean of the supplementary

leverage ratios calculated as of the last

day of each month in the reporting

quarter

ditionally cancellable

commitments, and (4) the notional

amount of all other off-balance sheet

exposures except securities lending,

securities borrowing, reverse repurchase

transactions, derivatives, and

unconditionally cancellable

commitments. The regulatory metric

will be the mean of the supplementary

leverage ratios calculated as of the last

day of each month in the reporting

quarter. For instance, the supplementary

leverage ratio (SLR) calculated when the

2013 revised capital approaches go into

effect on January 1, 2018, will be as

follows:

The SLR, which captures off-balance

sheet and on-balance sheet assets in the

denominator, would supplement the

current U.S. leverage ratio, which is the

ratio of tier 1 capital to on-balance sheet

assets. The U.S. leverage ratio applies to

all national banks and federal savings

associations, and must be at least four

percent for an institution to be

‘‘adequately capitalized’’ and five

percent to be ‘‘well capitalized’’ under

the OCC’s prompt corrective action

regulations.29 The proposed rule would

set a six percent SLR threshold for IDIs

to be well-capitalized.30

The following table shows the

transition table for leverage ratio

requirements. The last row of the table

indicates the proposed supplemental

leverage ratio.

TRANSITION SCHEDULE FOR LEVERAGE REQUIREMENTS

[In Percent]

Jan. 1,

2014

Jan. 1,

2015

Jan. 1,

2016

Jan. 1,

2017

Jan. 1,

2018

Jan. 1,

2019

PCA

Adq.

Well

Applies to All Banks:

Minimum Common Equity + Conservation

Buffer .......................................................

4 .0

4 .5

5 .125

5 .75

6 .375

7 .0

4.5

6 .5

Minimum Tier 1 + Conservation Buffer ......

5 .5

6 .0

6 .625

7 .25

7 .875

8 .5

Minimum Total Capital + Conservation

Buffer .......................................................

8 .0

8 .625

9 .25

9 .875

10 .5

U. S. Leverage Ratio .................................

....................................................

4 .0

4 .5

5 .125

5 .75

6 .375

7 .0

4.5

6 .5

Minimum Tier 1 + Conservation Buffer ......

5 .5

6 .0

6 .625

7 .25

7 .875

8 .5

Minimum Total Capital + Conservation

Buffer .......................................................

8 .0

8 .625

9 .25

9 .875

10 .5

U. S. Leverage Ratio ..................................

4 .0

Advanced Approaches Banks:

Maximum Countercyclical Buffer ................

0 .625

1 .25

1 .875

2 .5

Basel III Supplemental Leverage Ratio ......

Start to

Report

3 .0

U.S. Banking Organizations with $700 billion in total assets or $10 trillion in custody assets

Proposed Rule Supplemental Basel III Le-

verage Ratio for Well Capitalized Banks

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31 To measure custody assets, the OCC used

custody and safekeeping accounts non-managed

assets (RCFDB898) from Call Report Schedule RC–

T: Fiduciary and Related Services.

32 Because the 2013 revised capital approaches

require advanced approaches banks to maintain a

minimum supplementary leverage ratio of at least

3 percent, and all covered BHCs are advanced

approaches banks, the OCC estimates the capital

shortfall related to the proposed rule as the

difference between the leverage ratio threshold

shown and any shortfall at the 3 percent ratio. With

QIS data, there is a shortfall at the three percent

ratio of approximately $5 billion. Thus, the shortfall

shown is approximately $5 billion less than the

actual shortfall. There is no adjustment with CCAR

data as this data shows no shortfall at the three

percent threshold.

33 See, Merton H. Miller, (1995), ‘‘Do the M & M

propositions apply to banks?’’ Journal of Banking &

Finance, Vol

QIS data, there is a shortfall at the three percent

ratio of approximately $5 billion. Thus, the shortfall

shown is approximately $5 billion less than the

actual shortfall. There is no adjustment with CCAR

data as this data shows no shortfall at the three

percent threshold.

33 See, Merton H. Miller, (1995), ‘‘Do the M & M

propositions apply to banks?’’ Journal of Banking &

Finance, Vol. 19, pp. 483–489.

34 See, John R. Graham, (2000), ‘‘How Big Are the

Tax Benefits of Debt?’’ Journal of Finance, Vol. 55,

No. 5, pp. 1901–1941. Graham points out that

ignoring the offsetting effects of personal taxes

Continued

Institutions Affected by the Proposed

Rule

The proposed rule currently would

apply to eight U.S. banking

organizations, which have at least $700

billion in consolidated assets or at least

$10 trillion in assets under custody.

These thresholds capture the eight U.S.

bank holding companies that the

Financial Stability Board designated as

G–SIBs on November 1, 2012.31 Of the

eight U.S. bank holding companies that

would be subject to the rule, six have

subsidiary IDIs that are supervised by

the OCC.

Estimated Costs and Benefits of the

Proposed Rule

The proposed rule could affect costs

in two ways: (1) the cost of the

additional capital institutions will need

to meet the higher minimum leverage

ratio, and (2) potential spillover costs

into various markets for bank products

and economic growth in general. Under

the 2013 revised capital approaches, all

advanced approach banks must

compute a supplementary leverage ratio.

Therefore, the OCC estimates that there

are no additional compliance costs

associated with establishing systems to

determine the proposed supplementary

leverage ratio.

Benefits of the Proposed Rule

The proposed rule would produce the

following benefits:

• It would increase the amount of loss

absorbing capital held by covered BHCs

and their IDI subsidiaries

supplementary leverage ratio.

Therefore, the OCC estimates that there

are no additional compliance costs

associated with establishing systems to

determine the proposed supplementary

leverage ratio.

Benefits of the Proposed Rule

The proposed rule would produce the

following benefits:

• It would increase the amount of loss

absorbing capital held by covered BHCs

and their IDI subsidiaries.

• Consequently, it would increase the

likelihood that loss absorbing capital in

the U.S. banking system will dampen

negative economic shocks as they pass

through the U.S. financial system,

thereby diminishing the negative effect

of the shock on growth in the broader

U.S. and global economies.

• It would help mitigate the threat to

financial stability posed by systemically

important financial companies.

• It places additional private capital

ahead of the deposit insurance fund and

the federal government’s resolution

mechanisms.

• It offsets possible funding cost

advantages that some institutions may

enjoy as a result of real or perceived

implicit federal support.

Costs of the Proposed Rule

To estimate the impact of the

proposed rule on bank capital

requirements, the OCC estimated the

amount of additional tier 1 capital banks

will need to meet the six percent

supplementary leverage ratio relative to

the amount of tier 1 capital currently

reported. To estimate new capital ratios

and requirements, the OCC used data

from a quantitative impact study (QIS)

from the fourth quarter of 2012 and data

from the Board’s most recent

Comprehensive Capital Analysis and

Review (CCAR) program. These data

collection exercises gather holding

company data.

The estimates based on QIS data are

likely to be conservative. They include

denominator elements that are relevant

internationally but that are not part of

the domestic rule. Their inclusion for

the purposes of this analysis along with

the CCAR data generates a range of cost

estimates

apital Analysis and

Review (CCAR) program. These data

collection exercises gather holding

company data.

The estimates based on QIS data are

likely to be conservative. They include

denominator elements that are relevant

internationally but that are not part of

the domestic rule. Their inclusion for

the purposes of this analysis along with

the CCAR data generates a range of cost

estimates.

To estimate the effect of the proposed

rule on IDIs, the OCC adjusted bank-

level Call Report data by applying

scalars created by comparing QIS and

CCAR holding company data to Y9 data.

In particular, the adjustment factor for

each IDI’s reported tier 1 capital is equal

to the ratio of the holding company’s

Basel III tier 1 capital reported in the

QIS and CCAR to the holding

company’s tier 1 capital reported in Y9

data. Similarly, the adjustment factor for

each IDI’s reported average assets for

leverage ratio purposes is equal to the

ratio of the holding company’s Basel III

leverage exposure reported in the QIS or

CCAR to the holding company’s average

assets for leverage ratio purposes

reported in Y9 data. In effect, this

approach assumes (1) that the ratio of

tier 1 capital as determined under the

2013 revised capital approaches to tier

1 capital determined under previous

rules is the same at the bank and the

bank holding company, and (2) that the

ratio of the denominator of the

supplemental leverage ratio to the

denominator of the leverage ratio is the

same at the bank and the bank holding

company.

The following tables show the OCC’s

estimates, using QIS and CCAR data, of

the total shortfall in tier 1 capital at

various levels of the supplementary

leverage ratio for the six covered BHCs

that control OCC-regulated IDIs

) that the

ratio of the denominator of the

supplemental leverage ratio to the

denominator of the leverage ratio is the

same at the bank and the bank holding

company.

The following tables show the OCC’s

estimates, using QIS and CCAR data, of

the total shortfall in tier 1 capital at

various levels of the supplementary

leverage ratio for the six covered BHCs

that control OCC-regulated IDIs. As the

tables show, at the five percent

supplementary leverage ratio for

holding companies, QIS and CCAR data

suggest that the capital shortfall will

range between $63 billion and $113

billion.32 After making the scalar

adjustments to estimate IDI data, at the

six percent supplementary leverage ratio

for IDIs, QIS and CCAR data suggest that

the bank-level capital shortfall will

range between $84 billion and $123

billion.

To estimate the cost to IDIs of

additional capital associated with the

proposed supplemental leverage ratio

requirement, the OCC examined the

effect of this requirement on capital

structure and the overall cost of capital.

33 The cost of financing a bank or any

firm is the weighted average cost of its

various financing sources, which

amounts to a weighted average cost of

capital reflecting many different types of

debt and equity financing. Because

interest payments on debt are tax

deductible, a more leveraged capital

structure reduces corporate taxes,

thereby lowering funding costs, and the

weighted average cost of financing tends

to decline as leverage increases. Thus,

an increase in required equity capital

would require a bank to deleverage

and—all else equal—would increase the

cost of capital for that bank.

This increased cost would be tax

benefits foregone: the additional capital

requirement (between $84 billion and

$123 billion), multiplied by the interest

rate on the debt displaced and by the

effective marginal tax rate for the banks

affected by the proposed rule

equired equity capital

would require a bank to deleverage

and—all else equal—would increase the

cost of capital for that bank.

This increased cost would be tax

benefits foregone: the additional capital

requirement (between $84 billion and

$123 billion), multiplied by the interest

rate on the debt displaced and by the

effective marginal tax rate for the banks

affected by the proposed rule. The

effective marginal corporate tax rate is

affected not only by the statutory federal

and state rates, but also by the

probability of positive earnings (since

there is no tax benefit when earnings are

negative), and the offsetting effects of

personal taxes on required bond yields.

Graham (2000) considers these factors

and estimates a median marginal tax

benefit of $9.40 per $100 of interest. So,

using an estimated interest rate on debt

of 6 percent, the OCC estimates that the

annual tax benefits foregone on between

$84 billion and $123 billion of capital

switching from debt to equity is

between $474 million and $694 million

per year ($474 million = $84 billion *

0.06 (interest rate) * 0.094 (median

marginal tax savings)).34

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would increase the median marginal tax rate to

$31.5 per $100 of interest.

35 Affected banking organizations do have some

potential for lost revenue should they elect to shed

assets as part of their strategy to meet the new

minimum supplementary leverage ratio

requirement.

36 The OCC estimates this cost to be between zero

and $29 million.

The OCC does not anticipate any

additional compliance costs for banks or

costs to the agencies. Thus, the overall

cost estimate for OCC-regulated banking

organizations under the proposed rule is

between $474 million and $694 million

per year

their strategy to meet the new

minimum supplementary leverage ratio

requirement.

36 The OCC estimates this cost to be between zero

and $29 million.

The OCC does not anticipate any

additional compliance costs for banks or

costs to the agencies. Thus, the overall

cost estimate for OCC-regulated banking

organizations under the proposed rule is

between $474 million and $694 million

per year.

Potential Costs

In addition to costs associated with

increasing minimum capital levels, the

proposed rule could affect competition,

and it could have some effect on lending

and other bank activities.

Because the proposed rule would not

take effect until January 1, 2018,

institutions subject to the proposed rule

would have roughly four years to

accumulate the additional capital

needed to meet the new requirements.

In most instances, this transition period

should allow for institutions to adjust

smoothly to the proposed requirements,

should they become final in their

current form, without disruption to

bank lending and other banking

activities.

The proposed rule would strengthen

the capital position of covered U.S.

banking organizations. If other foreign

and domestic banks did not follow suit,

the market share of these covered

institutions might conceivably expand

because they might be relatively well-

positioned to invest and make

acquisitions, especially in a downturn.

However, the direct effect of the

proposed rule on competition is more

likely to be to reduce the market share

of the covered institutions. If they met

with any difficulty in accumulating or

raising additional tier 1 capital, then

they would have to decrease the size of

their supplementary leverage ratio

denominator to meet the new standards

d make

acquisitions, especially in a downturn.

However, the direct effect of the

proposed rule on competition is more

likely to be to reduce the market share

of the covered institutions. If they met

with any difficulty in accumulating or

raising additional tier 1 capital, then

they would have to decrease the size of

their supplementary leverage ratio

denominator to meet the new standards.

Such an adjustment to the denominator

could affect on-balance sheet assets,

exposure to derivative contracts, or

commitments and other off-balance

sheet exposures.35 Should such an

adjustment to the denominator be

necessary at one or more institutions

affected by the proposed rule, it is likely

that another unrestricted financial

institution would provide these

products or services, which could

mitigate any associated disruption to

financial markets in general.

This potential shift in banking

activities away from institutions

affected by the proposed rule, while not

likely, does highlight the potential for

the proposed rule to have some effect on

competition, both foreign and domestic.

Again, should affected banking

organizations need to contract their

banking activities in order to meet the

new supplementary leverage ratio,

foreign-owned G–SIBs or other large

U.S. banking organizations would likely

expand to take their place.. The

proposed rule is not likely to have an

adverse effect on financial markets

generally, but it could affect the

competitive standing of particular

institutions.

U.S. BANKING ORGANIZATIONS WITH OCC-REGULATED IDIS SHORT OF THE SUPPLEMENTARY LEVERAGE RATIO, QIS

DATA, DECEMBER 31, 2012

[$ in thousands]

Supplementary leverage ratio

BHC Tier 1 capital

shortfall

Proposed rule

BHC marginal

shortfall

Annual cost of

capital for mar-

ginal shortfall

3% .............................................................................................................................

TIONS WITH OCC-REGULATED IDIS SHORT OF THE SUPPLEMENTARY LEVERAGE RATIO, QIS

DATA, DECEMBER 31, 2012

[$ in thousands]

Supplementary leverage ratio

BHC Tier 1 capital

shortfall

Proposed rule

BHC marginal

shortfall

Annual cost of

capital for mar-

ginal shortfall

3% ..............................................................................................................................

$5,137,830

4% ..............................................................................................................................

21,786,760

16,648,930

93,900

5% ..............................................................................................................................

118,503,000

113,365,170

639,380

6% ..............................................................................................................................

235,270,200

230,132,370

1,297,947

7% ..............................................................................................................................

361,547,477

356,409,647

2,010,150

8% ..............................................................................................................................

497,877,831

492,740,001

2,779,054

9% ..............................................................................................................................

634,208,185

629,070,355

3,547,957

U.S. BANKING ORGANIZATIONS WITH OCC-REGULATED IDIS SHORT OF THE SUPPLEMENTARY LEVERAGE RATIO, CCAR

DATA, SEPTEMBER 30, 2012

[$ in thousands]

Supplementary leverage ratio

BHC Tier 1 capital

shortfall

Proposed rule

BHC marginal

shortfall

Annual cost of

capital for mar-

ginal shortfall

3% ..............................................................................................................................

4% .............................................................................................................................

e ratio

BHC Tier 1 capital

shortfall

Proposed rule

BHC marginal

shortfall

Annual cost of

capital for mar-

ginal shortfall

3% ..............................................................................................................................

4% ..............................................................................................................................

7,528,091

42,458

5% ..............................................................................................................................

62,722,407

353,754

6% ..............................................................................................................................

167,020,534

941,996

7% ..............................................................................................................................

281,777,638

1,589,226

8% ..............................................................................................................................

405,078,110

2,284,641

9% ..............................................................................................................................

528,378,583

2,980,055

Comparison Between the Proposed Rule

and the Baseline

Under the baseline scenario,

minimum supplementary leverage

requirements set forth in the 2013

revised capital approaches would

continue to take effect. Thus, under the

baseline, the minimum supplementary

leverage ratio requirement of three

percent would take effect, and the only

costs associated with the supplemental

leverage ratio requirement would be

those related to the 2013 revised capital

approaches.36 Under the baseline,

however, there would also be no added

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three

percent would take effect, and the only

costs associated with the supplemental

leverage ratio requirement would be

those related to the 2013 revised capital

approaches.36 Under the baseline,

however, there would also be no added

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benefits stemming from the protection

provided by additional tier 1 capital.

Comparison Between the Proposed Rule

and Alternatives

The above tables provide several

alternative scenarios for varying

requirements of the supplementary

leverage ratio. As these tables suggest,

increasing the supplementary leverage

ratio increases the total amount of

additional tier 1 capital required and the

corresponding cost of the proposal.

Similarly, decreasing the total asset and

total custody asset size thresholds that

determine applicability of the proposed

rule would capture a larger number of

institutions, and would thereby increase

the capital costs of the proposed rule.

Increasing the total asset and total

custody asset size thresholds capture a

smaller number of institutions, and

would thereby decrease the costs of the

proposed rule. The benefits from

additional protection provided by the

additional tier 1 capital would also

increase with the supplementary

leverage ratio. While the optimal

leverage ratio is the subject of some

debate, the BCBS selected 3 percent as

a test minimum during the parallel run

period between January 1, 2013, and

January 1, 2017. During the parallel run

period, the BCBS will assess whether

the leverage ratio definition and

regulatory minimum are appropriate.

The agencies have indicated in the

proposed rule that they will review any

modifications to the Basel III leverage

ratio made by the BCBS.

CBS selected 3 percent as

a test minimum during the parallel run

period between January 1, 2013, and

January 1, 2017. During the parallel run

period, the BCBS will assess whether

the leverage ratio definition and

regulatory minimum are appropriate.

The agencies have indicated in the

proposed rule that they will review any

modifications to the Basel III leverage

ratio made by the BCBS.

D. Plain Language

Section 722 of the Gramm-Leach-

Bliley Act requires the Federal banking

agencies to use plain language in all

proposed and final rules published after

January 1, 2000. The agencies have

sought to present the proposed rule in

a simple and straightforward manner,

and invite comment on the use of plain

language. For example:

• Have the agencies organized the

material to suit your needs? If not, how

could they present the proposed rule

more clearly?

• Are the requirements in the

proposed rule clearly stated? If not, how

could the proposed 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?

End of the Common Preamble.

List of Subjects

12 CFR Part 3

Administrative practice and

procedure, Capital, National banks,

Reporting and recordkeeping

requirements, Risk.

12 CFR Part 5

Administrative practice and

procedure, National banks, Reporting

and recordkeeping requirements,

Securities.

12 CFR Part 6

National banks.

12 CFR Part 165

Administrative practice and

procedure, Savings associations.

12 CFR Part 167

Capital, Reporting and recordkeeping

requirements, Risk, Savings

associations

ional banks,

Reporting and recordkeeping

requirements, Risk.

12 CFR Part 5

Administrative practice and

procedure, National banks, Reporting

and recordkeeping requirements,

Securities.

12 CFR Part 6

National banks.

12 CFR Part 165

Administrative practice and

procedure, Savings associations.

12 CFR Part 167

Capital, Reporting and recordkeeping

requirements, Risk, Savings

associations.

12 CFR Part 208

Confidential business information,

Crime, Currency, Federal Reserve

System, Mortgages, Reporting and

recordkeeping requirements, Securities.

12 CFR Part 217

Administrative practice and

procedure, Banks, Banking, Capital,

Federal Reserve System, Holding

companies, Reporting and

recordkeeping requirements, Securities.

12 CFR Part 225

Administrative practice and

procedure, Banks, banking, Federal

Reserve System, Holding companies,

Reporting and recordkeeping

requirements, Risk.

12 CFR Part 324

Administrative practice and

procedure, Banks, banking, Capital

Adequacy, Reporting and recordkeeping

requirements, Savings associations,

State non-member banks.

Department of the Treasury

Office of the Comptroller of the

Currency

12 CFR Chapter I

Authority and Issuance

For the reasons set forth in the

common preamble and under the

authority of 12 U.S.C. 93a, 1831o, and

5412(b)(2)(B), the Office of the

Comptroller of the Currency proposes to

amend part 6 of chapter I of title 12,

Code of Federal Regulations as follows:

PART 6—PROMPT CORRECTIVE

ACTION

■1. Revise the authority of part 6 to

read as follows:

Authority: 12 U.S.C. 93a, 1831o,

5412(b)(2)(B).

■2. In § 6.4, remove and reserve

paragraphs (a) and (b) and revise

paragraph (c) to read as follows:

§ 6.4

Capital measures and capital

category definition.

amend part 6 of chapter I of title 12,

Code of Federal Regulations as follows:

PART 6—PROMPT CORRECTIVE

ACTION

■1. Revise the authority of part 6 to

read as follows:

Authority: 12 U.S.C. 93a, 1831o,

5412(b)(2)(B).

■2. In § 6.4, remove and reserve

paragraphs (a) and (b) and revise

paragraph (c) to read as follows:

§ 6.4

Capital measures and capital

category definition.

and after January 1, 2015. On January 1,

2015, and thereafter, for purposes of the

provisions of section 38 and this part, a

national bank or Federal savings

association shall be deemed to be:

(1) Well capitalized if:

(i) [Reserved]

(ii) [Reserved]

(iii) [Reserved]

(iv) Leverage Measure:

(A) The national bank or Federal

savings association has a leverage ratio

of 5.0 percent or greater; and

(B) With respect to a national bank or

Federal savings association that is a

subsidiary of a U.S. top-tier bank

holding company that has more than

$700 billion in total assets as reported

on the company’s most recent

Consolidated Financial Statement for

Bank Holding Companies (FR Y–9C) or

more than $10 trillion in assets under

custody as reported on the company’s

most recent Banking Organization

Systemic Risk Report (Y–15), on January

1, 2018 and thereafter, the national bank

or Federal savings association has a

supplementary leverage ratio of 6.0

percent or greater; and

on the company’s most recent

Consolidated Financial Statement for

Bank Holding Companies (FR Y–9C) or

more than $10 trillion in assets under

custody as reported on the company’s

most recent Banking Organization

Systemic Risk Report (Y–15), on January

1, 2018 and thereafter, the national bank

or Federal savings association has a

supplementary leverage ratio of 6.0

percent or greater; and

(v) [Reserved]

(2) [Reserved]

Board of Governors of the Federal

Reserve System

12 CFR Chapter II

Authority and Issuance

For the reasons set forth in the

common preamble, chapter II of title 12

of the Code of Federal Regulations is

proposed to be amended as follows:

PART 208—MEMBERSHIP OF STATE

BANKING INSTITUTIONS IN THE

FEDERAL RESERVE SYSTEM

(REGULATION H)

■3. The authority citation for part 208

is revised to read as follows:

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Authority: 12 U.S.C. 24, 36, 92a, 93a,

248(a), 248(c), 321–338a, 371d, 461, 481–486,

601, 611, 1814, 1816, 1818, 1820(d)(9),

1833(j), 1828(o), 1831, 1831o, 1831p–1,

1831r–1, 1831w, 1831x, 1835a, 1882, 2901–

2907, 3105, 3310, 3331–3351, 3905–3909,

and 5371; 15 U.S.C. 78b, 78I(b), 781(i), 780–

4(c)(5), 78q, 78q–1, and 78w, 1681s, 1681w,

6801, and 6805; 31 U.S.C. 5318; 42 U.S.C.

4012a, 4104a, 4104b, 4106 and 4128.

■4. In § 208.41, remove the alphabetical

paragraph designations and arrange

definitions in alphabetical order and

add in alphabetical order a definition of

‘‘covered BHC’’ to read as follows:

§ 208.41

Definitions for purposes of this

subpart.

Covered BHC means a covered BHC as

defined in § 217.2 of Regulation Q (12

CFR 217.2).

■5. Revise § 208.43 to read as follows:

§ 208.43

Capital measures and capital

category definitions.

range

definitions in alphabetical order and

add in alphabetical order a definition of

‘‘covered BHC’’ to read as follows:

§ 208.41

Definitions for purposes of this

subpart.

Covered BHC means a covered BHC as

defined in § 217.2 of Regulation Q (12

CFR 217.2).

■5. Revise § 208.43 to read as follows:

§ 208.43

Capital measures and capital

category definitions.

(a) Capital measures.

(1) [Reserved]

(2) Capital measures applicable after

January 1, 2015. On January 1, 2015,

and thereafter, for purposes of section

38 and this subpart, the relevant capital

measures are:

(i) [Reserved]

(ii) [Reserved]

(iii) [Reserved]

(iv) Leverage Measure:

(A) [Reserved]

(B) [Reserved]

subsidiary (as defined in § 217.2 of

Regulation Q (12 CFR 217.2)) of a

covered BHC, on January 1, 2018, and

thereafter, the supplementary leverage

ratio.

(b) [Reserved]

advanced approaches banks and to all

member banks on and after January 1,

2015. On January 1, 2015, and

thereafter, for purposes of section 38

and this subpart, a member bank is

deemed to be:

(1) ‘‘Well capitalized’’ if:

(i) [Reserved]

(ii) [Reserved]

(iii) [Reserved]

(iv) Leverage Measure:

(A) The bank has a leverage ratio of

5.0 percent or greater; and

(B) Beginning on January 1, 2018,

with respect to any bank that is a

subsidiary of a covered BHC under the

definition of ‘‘subsidiary’’ in section 2 of

part 217 (12 CFR 217.2), the bank has

a supplementary leverage ratio of 6.0

percent or greater; and

(i) [Reserved]

(ii) [Reserved]

(iii) [Reserved]

(iv) Leverage Measure:

(A) The bank has a leverage ratio of

5.0 percent or greater; and

(B) Beginning on January 1, 2018,

with respect to any bank that is a

subsidiary of a covered BHC under the

definition of ‘‘subsidiary’’ in section 2 of

part 217 (12 CFR 217.2), the bank has

a supplementary leverage ratio of 6.0

percent or greater; and

(v) [Reserved]

(2) [Reserved]

6. Add part 217 to read as follows:

PART 217—CAPITAL ADEQUACY OF

BANK HOLDING COMPANIES,

SAVINGS AND LOAN HOLDING

COMPANIES, AND STATE MEMBER

BANKS (REGULATION Q)

Sec.

Subpart A—General Provisions

217.1

Purpose, applicability, reservations of

authority, and timing.

217.2

Definitions.

Subpart B—Capital Ratio Requirements and

Buffers

217.11

Capital conservation buffer and

countercyclical capital buffer amount.

Authority: 12 U.S.C. 248(a), 321–338a,

481–486, 1462a, 1467a, 1818, 1828, 1831n,

1831o, 1831p–1, 1831w, 1835, 1844(b), 1851,

3904, 3906–3909, 4808, 5365, 5371.

Subpart A—General Provisions

§ 217.1

Purpose, applicability,

reservations of authority, and timing.

(a) [Reserved]

(b) [Reserved]

(d) [Reserved]

(e) [Reserved]

(f) Timing. (1) Subject to the transition

provisions in subpart G of this part, an

advanced approaches Board-regulated

institution that is not a savings and loan

holding company must:

(i) [Reserved]

(ii) [Reserved]

(iii) Beginning on January 1, 2014,

calculate and maintain minimum

capital ratios in accordance with

subparts A, B, and C of this part,

provided, however, that such Board-

regulated institution must:

(A) [Reserved]

(B) [Reserved]

covered BHC as defined in § 217.2 is

subject to the lower of the maximum

payout amount as determined under

paragraph (a)(2)(ii) of § 217.11 and the

maximum leverage payout amount as

determined under paragraph (c)(3) of

§ 217.11.

§ 217.2

Definitions.

Covered BHC means a U.S

ever, that such Board-

regulated institution must:

(A) [Reserved]

(B) [Reserved]

covered BHC as defined in § 217.2 is

subject to the lower of the maximum

payout amount as determined under

paragraph (a)(2)(ii) of § 217.11 and the

maximum leverage payout amount as

determined under paragraph (c)(3) of

§ 217.11.

§ 217.2

Definitions.

Covered BHC means a U.S. top-tier

bank holding company that has more

than $700 billion in total assets as

reported on the company’s most recent

Consolidated Financial Statement for

Bank Holding Companies (FR Y–9C) or

more than $10 trillion in assets under

custody as reported on the company’s

most recent Banking Organization

Systemic Risk Report (FR Y–15).

Subpart B—Capital Ratio

Requirements and Buffers

§ 217.11

Capital conservation buffer and

countercyclical capital buffer amount.

(a) Capital conservation buffer.

(1) [Reserved]

(2) Definitions. For purposes of this

section, the following definitions apply:

(i) [Reserved]

(ii) [Reserved]

(iii) [Reserved]

(iv) [Reserved]

(v) Maximum leverage payout ratio.

The maximum leverage payout ratio is

the percentage of eligible retained

income that a covered BHC can pay out

in the form of distributions and

discretionary bonus payments during

the current calendar quarter. The

maximum leverage payout ratio is based

on the covered BHC’s leverage buffer,

calculated as of the last day of the

previous calendar quarter, as set forth in

Table 2.

(vi) Maximum leverage payout

amount. A covered BHC’s maximum

leverage payout amount for the current

calendar quarter is equal to the covered

BHC’s eligible retained income,

multiplied by the applicable maximum

leverage payout ratio, as set forth in

Table 2.

(3) [Reserved]

(4) Limits on distributions and

discretionary bonus payments.

previous calendar quarter, as set forth in

Table 2.

(vi) Maximum leverage payout

amount. A covered BHC’s maximum

leverage payout amount for the current

calendar quarter is equal to the covered

BHC’s eligible retained income,

multiplied by the applicable maximum

leverage payout ratio, as set forth in

Table 2.

(3) [Reserved]

(4) Limits on distributions and

discretionary bonus payments.

(i) [Reserved]

(ii) A Board-regulated institution that

has a capital conservation buffer that is

greater than 2.5 percent plus 100

percent of its applicable countercyclical

capital buffer, in accordance with

paragraph (b) of this section, and, if

applicable, that has a leverage buffer

that is greater than 2.0 percent, in

accordance with paragraph (c) of this

section, is not subject to a maximum

leverage payout amount under this

section.

(iii) Negative eligible retained income.

Except as provided in paragraph

(a)(4)(iv) of this section, a Board-

regulated institution may not make

distributions or discretionary bonus

payments during the current calendar

quarter if the Board-regulated

institution’s:

(A) Eligible retained income is

negative; and

(B) Capital conservation buffer was

less than 2.5 percent, or, if applicable,

leverage buffer was less than 2.0

percent, as of the end of the previous

calendar quarter.

(iv) [Reserved]

(v) [Reserved]

(b) [Reserved]

covered BHC is subject to the lower of

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the maximum payout amount as

determined under paragraph (a)(2)(ii) of

this section and the maximum leverage

payout amount as determined under

paragraph (a)(2)(vi) of this section.

(2) Composition of the leverage buffer.

The leverage buffer is composed solely

of tier 1 capital.

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the maximum payout amount as

determined under paragraph (a)(2)(ii) of

this section and the maximum leverage

payout amount as determined under

paragraph (a)(2)(vi) of this section.

(2) Composition of the leverage buffer.

The leverage buffer is composed solely

of tier 1 capital.

(3) Calculation of leverage buffer. (i)

A covered BHC’s leverage buffer is equal

to the covered BHC’s supplementary

leverage ratio minus 3 percent,

calculated as of the last day of the

previous calendar quarter based on the

covered BHC’s most recent Consolidated

Financial Statement for Bank Holding

Companies (FR Y–9C).

(ii) Notwithstanding paragraph

(c)(3)(i) of this section, if the covered

BHC’s supplementary leverage ratio is

less than or equal to 3 percent, the

covered BHC’s leverage buffer is zero.

TABLE 2 TO § 217.11—CALCULATION OF MAXIMUM LEVERAGE PAYOUT AMOUNT

Leverage buffer

Maximum leverage payout

ratio

(as a percentage of eligible

retained income)

Greater than 2.0 percent ................................................................................................................................................

No payout ratio limitation

applies.

Less than or equal to 2.0 percent, and greater than 1.5 percent ..................................................................................

60 percent.

Less than or equal to 1.5 percent, and greater than 1.0 percent ..................................................................................

40 percent.

Less than or equal to 1.0 percent, and greater than 0.5 percent ..................................................................................

20 percent.

Less than or equal to 0.5 percent ..................................................................................................................................

0 percent

....................................................

40 percent.

Less than or equal to 1.0 percent, and greater than 0.5 percent ..................................................................................

20 percent.

Less than or equal to 0.5 percent ..................................................................................................................................

0 percent.

Federal Deposit Insurance Corporation

12 CFR chapter III

Authority and Issuance

For the reasons stated in the

preamble, the Federal Deposit Insurance

Corporation proposes to add part 324 of

chapter III of Title 12, Code of Federal

Regulations to read as follows:

PART 324—CAPITAL ADEQUACY

Sec.

Subparts A–G [Reserved]

Subpart H—Prompt Corrective Action

324.403

Capital measures and capital

category definitions.

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).

Subparts A–G [Reserved]

Subpart H—Prompt Corrective Action

§ 324.403

Capital measures and capital

category definitions.

(a) [Reserved]

(b) Capital categories. For purposes of

section 38 of the FDI Act and this

subpart, an FDIC-supervised institution

shall be deemed to be:

(1) ‘‘Well capitalized’’ if it:

(i) [Reserved]

(ii) [Reserved]

(iii) [Reserved]

(iv) [Reserved]

.C. 78o–7 note).

Subparts A–G [Reserved]

Subpart H—Prompt Corrective Action

§ 324.403

Capital measures and capital

category definitions.

(a) [Reserved]

(b) Capital categories. For purposes of

section 38 of the FDI Act and this

subpart, an FDIC-supervised institution

shall be deemed to be:

(1) ‘‘Well capitalized’’ if it:

(i) [Reserved]

(ii) [Reserved]

(iii) [Reserved]

(iv) [Reserved]

(v) Beginning on January 1, 2018 and

thereafter, an FDIC-supervised

institution that is a subsidiary of a

covered BHC will be deemed to be ‘‘well

capitalized’’ if the FDIC-supervised

institution satisfies paragraphs (b)(1)(i)–

(iv) of this paragraph and has a

supplementary leverage ratio of 6.0

percent or greater. For purposes of this

paragraph, a covered BHC means a U.S.

top-tier bank holding company with

more than $700 billion in total assets as

reported on the company’s most recent

Consolidated Financial Statement for

Bank Holding Companies (FR Y–9C) or

more than $10 trillion in assets under

custody as reported on the company’s

most recent Banking Organization

Systemic Risk Report (FR Y–15); and

(vi) [Reserved]

(2) [Reserved]

Dated: July 9, 2013.

Thomas J. Curry,

Comptroller of the Currency.

By order of the Board of Governors of the

Federal Reserve System, July 8, 2013.

Robert deV. Frierson,

Secretary of the Board.

Dated at Washington, DC, this 9th day of

July, 2013.

By order of the Board of Directors.

Federal Deposit Insurance Corporation.

Robert E. Feldman,

Executive Secretary.

[FR Doc. 2013–20143 Filed 8–19–13; 8:45 am]

BILLING CODE P

DEPARTMENT OF TRANSPORTATION

Federal Aviation Administration

14 CFR Part 39

[Docket No. FAA–2013–0737; Directorate

Identifier 2012–SW–111–AD]

RIN 2120–AA64

Airworthiness Directives; Eurocopter

France Helicopters

AGENCY: Federal Aviation

Administration (FAA), DOT.

ACTION: Notice of proposed rulemaking

(NPRM)

ecutive Secretary.

[FR Doc. 2013–20143 Filed 8–19–13; 8:45 am]

BILLING CODE P

DEPARTMENT OF TRANSPORTATION

Federal Aviation Administration

14 CFR Part 39

[Docket No. FAA–2013–0737; Directorate

Identifier 2012–SW–111–AD]

RIN 2120–AA64

Airworthiness Directives; Eurocopter

France Helicopters

AGENCY: Federal Aviation

Administration (FAA), DOT.

ACTION: Notice of proposed rulemaking

(NPRM).

SUMMARY: We propose to adopt a new

airworthiness directive (AD) for certain

Eurocopter France (Eurocopter) Model

AS332C, AS332L, AS332L1, AS332L2,

and SA330J helicopters. This proposed

AD would require inspecting the

crimping of the ball joint of the upper-

and lower- end-fittings of the main

servo-control and, depending on

findings, replacing the main servo-

control or repairing the ball joint. This

proposed AD is prompted by incidents

of missing crimping on the ball joints of

servo-control end-fittings. The proposed

actions are intended to prevent failure

of a main servo-control upper end

fitting, and subsequent failure of the

flight controls and loss of control of the

helicopter.

DATES: We must receive comments on

this proposed AD by October 21, 2013.

ADDRESSES: You may send comments by

any of the following methods:

• Federal eRulemaking Docket: Go to

http://www.regulations.gov. Follow the

online instructions for sending your

comments electronically.

• Fax: 202–493–2251.

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This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.