Bank Capital Plans and Stress Tests: Federal Reserve Proposes New Submission Deadlines and Other Revisions to Its Capital Plan Rule; Federal Banking Agencies Propose New Submission Deadlines for Dodd-Frank Act Company-Run Stress Tests

Sullivan & Cromwell LLP - June 30, 2014

The Board of Governors of the Federal Reserve System (the “FRB”) recently released a notice of proposed rulemaking (the “FRB NPR”, and the rules set forth therein, the “FRB Proposed Rules”) that would amend the FRB’s capital plan rule (the “Capital Plan Rule”) as well as its supervisory stress test rule and company-run stress test rules.  The FRB Proposed Rules would shift the start date of the annual capital plan and supervisory and company-run stress test cycles, the filing date for capital plans and company-run stress tests and the related planning horizon back by approximately three months.  The FRB Proposed Rules would not modify the upcoming capital plan and stress test cycle beginning on October 1, 2014 and ending September 30, 2015.  Rather, they would amend the cycle that would otherwise begin on October 1, 2015 to instead begin on January 1, 2016 and end December 31, 2016 and correspondingly amend subsequent cycles.

The FRB Proposed Rules include a number of other changes, including proposals that would:

  • modify the Capital Plan Rule to limit the ability of a bank holding company (“BHC”) with $50 billion or more in assets (a “Large BHC”) to make capital distributions in a given quarter to the extent that its actual capital issuances in that quarter were less than the amount indicated in its capital plan;
  • clarify the application of the Capital Plan Rule to a Large BHC that is a subsidiary of a U.S. intermediate holding company of a foreign banking organization;
  • clarify that BHCs and state member banks that have been notified that they have exited their parallel run are not permitted to use the Basel III “advanced approaches” to calculate regulatory capital requirements until the stress test cycles, and, for Large BHCs, the capital plan cycle, beginning on January 1, 2016;
  • permit, rather than require, resubmission of a capital plan following the FRB’s objection;
  • eliminate the need to obtain prior approval for “accretive” issuances of capital instruments (including common and preferred shares) that would qualify for inclusion in the numerator of regulatory capital ratios; and
  • add a stricter definition of “BHC stress scenario” to the Capital Plan Rule and make other conforming changes to related rules and guidance.
Like the FRB, the Office of the Comptroller of the Currency (the “OCC”) and the Federal Deposit Insurance Corporation each also recently issued a notice of proposed rulemaking (the “OCC NPR” and the “FDIC NPR”, respectively) that would amend the OCC’s and FDIC’s annual stress test rules  by shifting the timing of the stress test cycle, filing dates and planning horizon by three months.  Like the FRB Proposed Rules, the OCC’s proposed rules also clarify that national banks and federal savings banks subject to the OCC’s stress test rules that have been notified that they have exited their parallel run will not have to calculate their regulatory capital requirements over the stress test planning horizon using the Basel III “advanced approaches” until the stress testing cycle beginning on January 1, 2016 and for stress test cycles thereafter.
Comments to the FRB NPR are due August 11, 2014.  Comments to the OCC NPR and FDIC NPR must be received within 60 days from the date of publication of those NPRs in the Federal Register, which is expected shortly.