Supervision and Regulation Letters
Federal Reserve Supervisory Assessment of Capital Planning and Positions for Large and Noncomplex Firms
SUPERVISION AND REGULATION
|SUBJECT:||Federal Reserve Supervisory Assessment of Capital Planning and Positions for Large and Noncomplex Firms|
The Federal Reserve is issuing this letter to explain its supervisory expectations for capital planning at large and noncomplex bank holding companies and intermediate holding companies of foreign banking organizations, consistent with the broad supervisory expectations set forth in SR letter 12-17/CA letter 12-14, "Consolidated Supervision Framework for Large Financial Institutions."1 Capital is central to a firm's ability to absorb unexpected losses and continue to lend to creditworthy businesses and consumers. Therefore, a firm's processes for managing and allocating its capital resources are critical to its financial strength and resiliency, and also to the stability and effective functioning of the U.S. financial system. The attached guidance provides the Federal Reserve's core capital planning expectations for large and noncomplex firms, building upon the capital planning requirements in the Federal Reserve's capital plan rule and stress test rules.2 ,3
The guidance outlines capital planning expectations for:
- Risk management
- Internal controls
- Capital policy
- Scenario design
- Projection methodologies
Further, the attached guidance includes several appendices that detail supervisory expectations on a firm's capital planning process. This guidance largely consolidates the Federal Reserve's existing capital planning guidance, including:
- Capital Planning at Large Bank Holding Companies: Supervisory Expectations and Range of Current Practice (August 2013)4
- Comprehensive Capital Analysis and Review 2015 Summary Instructions and Guidance (October 2014)5
- Instructions for the Capital Assessments and Stress Testing information collection (Reporting Form FR Y-14A), (OMB No. 7100-0341)6
- SR letter 11-7, "Supervisory Guidance on Model Risk Management"
- SR letter 12-7, "Supervisory Guidance on Stress Testing for Banking Organizations with More Than $10 Billion in Total Consolidated Assets"
- SR letter 12-17/CA letter 12-14, "Consolidated Supervision Framework for Large Financial Institutions"
This guidance applies to U.S. bank holding companies and intermediate holding companies of foreign banking organizations that have total consolidated assets of at least $50 billion but less than $250 billion, have consolidated total on-balance sheet foreign exposure of less than $10 billion, and are not otherwise subject to the Federal Reserve's Large Institution Supervision Coordinating Committee framework (referred to as a "Large and Noncomplex Firm" in this letter and attachment).7 ,8 The guidance is effective immediately for bank holding companies that are subject to the capital plan rule as of January 1, 2016. The guidance will become effective for intermediate holding companies beginning on January 1, 2017, which is the date on which the capital plan rule applies to these firms.
The Federal Reserve has different expectations for sound capital planning and capital adequacy depending on the size, scope of operations, activities, and systemic importance of a firm. Concurrently with issuance of this guidance, the Federal Reserve is issuing separate guidance for U.S. bank holding companies and intermediate holding companies that are subject to the LISCC framework (referred to as a "LISCC Firm") or that otherwise have total consolidated assets of $250 billion or more or consolidated total on-balance sheet foreign exposure of $10 billion or more (referred to as a "Large and Complex Firm"). This separate guidance clarifies that expectations for LISCC Firms and Large and Complex Firms are higher than the expectations for Large and Noncomplex Firms.
Federal Reserve Banks should distribute this letter to Large and Noncomplex Firms in their districts as well as to appropriate supervisory staff. Questions regarding this guidance may be directed to the following Board staff: Lisa Ryu, Associate Director, at (202) 263-4833, or David Palmer, Senior Supervisory Financial Analyst, at (202) 452-2904. In addition, questions may be sent to the secure CCAR Communications mailbox or via the Board's public website.9
Michael S. Gibson
Division of Banking
Supervision and Regulation
1. The term "capital planning process" used in this document, which aligns with terminology in SR 12-17/ CA 12‑14, is equivalent to the term "capital adequacy process" used in other Federal Reserve documents. Return to text
2. For the capital plan rule, refer to section 225.8 of Regulation Y (12 CFR 225.8). Regulation Q (12 CFR part 217) establishes minimum capital requirements and overall capital adequacy standards for Federal Reserve-regulated institutions. Regulation YY (12 CFR part 252) establishes capital stress testing requirements for bank holding companies with total consolidated assets of $50 billion or more, including requirements to participate in the Federal Reserve's annual supervisory stress test and conduct their own internal capital stress tests. Return to text
3. With the issuance of this letter, SR letter 99-18, "Assessing Capital Adequacy in Relation to Risk at Large Banking Organizations and Others with Complex Risk Profiles," is superseded. In addition, SR letter 09-4, "Applying Supervisory Guidance and Regulations on the Payment of Dividends, Stock Redemptions, and Stock Repurchases at Bank Holding Companies," is superseded with respect to firms subject to this guidance. Return to text
7. Total consolidated assets equals the amount of total assets reported on the firm's Consolidated Financial Statements for Holding Companies (FR Y-9C), measured as an average over the preceding four quarters. If a firm has not filed the FR Y-9C for each of the four most recent consecutive quarters, a firm's total consolidated assets are measured as the average of its total consolidated assets, as reported on the FR Y-9C, for the most recent quarter or consecutive quarters, as applicable. Consolidated total on-balance sheet foreign exposure equals total cross-border claims less claims with head office or guarantor located in another country plus redistributed guaranteed amounts to the country of head office or guarantor plus local country claims on local residents plus revaluation gains on foreign exchange and derivative products, calculated as of the most recent year-end in accordance with the Federal Financial Institutions Examination Council (FFIEC) 009 Country Exposure Report. Return to text
8. This guidance does not apply to nonbank financial companies designated by the Financial Stability Oversight Council for supervision by the Board of Governors. Capital position and capital planning expectations will be issued for those firms at a later date. Return to text