Bank Capital Plans and Stress Tests: Federal Reserve Finalizes Reporting Requirements for Intermediate Holding Companies of Foreign Banking Organizations

Sullivan & Cromwell LLP - June 15, 2016

The Federal Reserve recently published in the Federal Register final rules regarding mandatory reporting requirements (the “Final Release”) for the U.S. intermediate holding companies (“IHCs”) to be formed, no later than July 1, 2016, by certain foreign banking organizations (“FBOs”).  The Final Release will require IHCs to (i) file several regulatory reports currently submitted by bank holding companies (“BHCs”) and (ii) comply with the information collection requirements associated with the regulatory capital rules, including reports on forms FR Y-6, FR Y-9C, FR Y-14A/Q/M, FR Y-15, and FR 4200 and 4201, as applicable, beginning with the reporting period ending September 30, 2016, for most reports.  A table setting forth the complete reporting panel is attached as Annex A, which includes the relevant effective dates.
Notable provisions of the Final Release include:

  • Requests to Modify the Requirement to Report Historical Financial Information on Forms FR Y-14 to Be Considered by the Federal Reserve on a Case-by-Case Basis.  The Federal Reserve’s original proposal would have required IHCs to complete the FR Y-14 series of reports  “in the same manner as a [bank holding company],” including as to historical financial data for periods prior to the formation of the IHC with respect to its U.S. bank and nonbank subsidiaries.  This would mean that IHCs would need to create pro forma historical IHC financial data for periods predating the creation of the IHC starting with the first quarter of 2009.  While the Federal Reserve adopted this aspect as proposed, in response to comments received and “in recognition of the challenges in providing these data,” the Federal Reserve will consider, on a case-by-case basis, requests to modify this requirement or to extend the deadline by which an IHC must report these data, “including the inclusion of best estimates of data prior to 2015.”  Requests must include a description of any data gaps or deficiencies, an overview of the approach to address the issues identified, and a proposed time frame for completion.  The Final Release did not provide guidance as to the standards the Federal Reserve will use to evaluate such requests.
  • Form FR Y-14 Attestation Requirements. The proposal did not explicitly address whether the Federal Reserve intended to apply the FR Y-14 CFO attestation requirements to the IHC/BHC subsidiaries of FBOs that are supervised by the Federal Reserve’s Large Institution Supervision Coordinating Committee through the application of the FR Y-14 series reporting requirements.  The Final Release states that the Federal Reserve does not currently propose to apply these attestation requirements to IHCs, although it will consider commenters’ views on any future proposal in this area.
  • Time Period Will Be Extended to File Initial Reports on Form FR Y-15.  The proposal would have required an IHC to complete the FR Y-15 report in the same manner as a BHC, effective September 20, 2016.  In response to comments requesting a delay of 65 days given that the resources and personnel involved in the formation of the IHC are substantially the same as those involved in implementing the FR Y-15 report, the Federal Reserve will permit all IHCs—including an existing BHC designated as an IHC—to file the first FR Y-15 report by December 5, 2016, 65 days after the September 30, 2016 as-of date.  The Federal Reserve also notes that for an IHC that has not previously filed the FR Y-15—that is, an IHC that was not an existing BHC designated as an IHC—it will permit institutions to file “reasonable best estimates,” consistent with the report instructions.
  • Guidance on Reporting IHC Formation for Purposes of the FR Y-9C and FR Y-11 Reports.  The manner in which each IHC will report its formation will depend on the structure of the FBO parent’s U.S. operations prior to the effective date of the IHC requirement—including (i) whether the issuance of stock should be treated as a “sale” for purposes of the FR Y-9C report, (ii) how firms should report the net income for the first six months of the year for an entity that will become part of the IHC on July 1, 2016, and (iii) how to report equity capital and changes in equity capital for purposes of the FR Y-11 report.  Accordingly, an FBO that designates an existing BHC as its IHC should reflect any issuance of the stock as a sale for purposes of the FR Y-9C report, while an FBO that creates a new IHC above an existing BHC should treat the creation of the top-tier holding company as a reorganization for purposes of the FR Y-9C report, and an IHC without an insured depository institution should treat the item as though it were a de novo filer.