Annual Report 2015
Other Federal Reserve Operations
Regulatory Developments
In this Section:
Dodd-Frank Implementation
Throughout 2015, the Federal Reserve continued to implement the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) (Pub. L. No. 111-203), which gives the Federal Reserve important responsibilities to issue rules and supervise financial companies to enhance financial stability and preserve the safety and soundness of the banking system. The Board also continued to implement other regulatory reforms to increase the resiliency of banking organizations and help to ensure that they are operating in a safe and sound manner.
The following is a summary of the key regulatory initiatives that were completed during 2015.
Risk-Based Capital Surcharge for Global Systemically Important Bank Holding Companies (Subpart G of Regulation Q)
In July 2015, the Board issued a final rule requiring the largest, most systemically important U.S. bank holding companies (BHCs) to further strengthen their capital positions. Under the rule, a firm that is identified as a global systemically important bank holding company, or G-SIB, will have to hold additional capital to increase its resiliency in light of the greater threat it poses to the financial stability of the United States.
The final rule establishes the criteria for identifying a G-SIB and the methods that those firms will use to calculate a risk-based capital surcharge, which is calibrated to each firm's overall systemic risk. The final rule requires G-SIBs to calculate their surcharges under two methods and use the higher of the two surcharges. The first method is based on the framework agreed to by the Basel Committee on Banking Supervision and considers a G-SIB's size, interconnectedness, cross-jurisdictional activity, substitutability, and complexity. The second method uses similar inputs but is calibrated to result in significantly higher surcharges and replaces substitutability with a measure of the firm's reliance on short-term wholesale funding. The surcharges are phased in between January 1, 2016, and January 1, 2019.
Capital Planning and Stress Testing Requirements (Regulations Y and YY)
In November 2015, the Board issued a final rule that makes minor amendments to its capital plan and stress testing rules. For BHCs with more than $10 billion but less than $50 billion in total consolidated assets and savings and loan holding companies with total consolidated assets of more than $10 billion, the final rule modifies certain mandatory capital action assumptions in the stress test rules and delays the application of the company-run stress test requirements to savings and loan holding companies until January 1, 2017.
For BHCs that have total consolidated assets of $50 billion or more and state member banks that are subject to the Board's advanced approaches capital requirements, the final rule delays the use of the supplementary leverage ratio for one year and indefinitely defers the use of the advanced approaches risk-based capital framework in the capital plan and stress test rules. For BHCs that have total consolidated assets of $50 billion or more, the final rule removes the tier 1 common capital ratio requirement and modifies certain mandatory capital action assumptions. The final rule also makes other technical amendments to reflect other recent rulemakings. The final rule became effective on January 1, 2016.
Swaps Margin and Capital Requirements (Regulation KK)
In November 2015, the Board, the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, the Federal Housing Finance Agency, and the Farm Credit Administration issued a joint final rule to establish minimum margin requirements for registered swap dealers, major swap participants, security-based swap dealers and major security-based swap participants for which one of the agencies is the prudential regulator. In particular, the agencies adopted a risk-based approach that would establish initial and variation margin requirements on all non-cleared swaps and non-cleared security-based swaps to offset the greater risk to such entities and the financial system arising from the use of swaps and securities-based swaps that are not cleared.
In November 2015, the agencies also issued an interim final rule that exempts from the margin requirements certain non-cleared swaps and non-cleared security-based swaps used for hedging purposes by commercial end-users and certain other counterparties.
Key Regulatory Initiatives Proposed in 2015
The following is a summary of additional regulatory initiatives that the Board proposed in 2015.
Liquidity Risk Measurement Standards (Regulation WW)
In May 2015, the Board issued a proposed rule that would amend the liquidity coverage ratio (LCR) rule to include certain U.S. general obligation municipal securities as high-quality liquid assets (HQLA). The proposed rule would apply only to entities supervised by the Board that are subject to the LCR. The proposed rule would permit companies to include as level 2B liquid assets U.S. general obligation municipal securities that meet the same criteria as corporate debt securities that are included as level 2B liquid assets. It also would apply limits to the amount of U.S. general obligation municipal securities included in a company's total HQLA amount to address the unique structure of the U.S. municipal securities market and to ensure appropriate diversification of the assets included in the total HQLA amount.
Long-Term Debt Requirement (Regulations Q and YY)
In October 2015, the Board issued a proposed rule that would strengthen the ability of the largest domestic and foreign banks operating in the United States to be resolved without extraordinary government support or taxpayer assistance. The proposed rule would require the parent holding companies of U.S. global systemically important banking organizations (covered BHCs) to maintain outstanding minimum levels of total loss-absorbing capacity and long-term unsecured debt, and a related buffer.
The proposed rule would also require the top-tier U.S. intermediate holding companies (IHCs) of foreign global systemically important banking organizations (covered IHCs) to maintain outstanding minimum levels of total loss-absorbing capacity and long-term unsecured debt instruments issued to their foreign parent company and related buffer. The proposed rule would subject the covered BHCs and the covered IHCs to "clean holding company" limitations that would prohibit or limit those companies from entering into certain financial arrangements in order to further improve their resolvability and the resiliency of their operating subsidiaries.
Finally, the proposed rule would require banking organizations subject to the Board's capital requirements to apply a regulatory capital deduction treatment to any investments in unsecured debt instruments issued by covered BHCs. The Board also invited comment on whether, and if so how, the Board should regulate the mechanisms used by a covered BHC or a covered IHC to transfer losses up from the operating subsidiaries that incur the losses to the covered BHC or covered IHC. The public comment period for the proposed rule ended on February 19, 2016.
Liquidity Coverage Ratio Rule Disclosures (Regulation WW)
In November 2015, the Board proposed an amendment to the LCR rule to implement public disclosure requirements for certain companies subject to the LCR rule. The proposed rule would apply to BHCs and certain savings and loan holding companies with total consolidated assets of $50 billion or more or total on-balance-sheet foreign exposure of $10 billion or more and to nonbank financial companies designated by the Financial Stability Oversight Council for Board supervision to which the Board has applied the LCR rule. These companies would be required to disclose information about certain components of their LCR calculations on a quarterly basis in a standardized format and to discuss certain features of their LCR results. In addition, this proposal included an amendment to the modified LCR rule to provide one full year for BHCs and certain savings and loan holding companies to come into compliance with the rule. The public comment period for the proposed rule ended on February 2, 2016.
The Board's Framework for Implementing the Countercyclical Capital Buffer (Appendix A to Regulation Q)
In December 2015, the Board issued a proposed policy statement detailing the framework the Board would follow in setting the U.S. Countercyclical Capital Buffer (CCyB). The CCyB is a macroprudential tool that can be used to increase the resilience of the financial system by raising capital requirements on internationally active banking organizations when there is an elevated risk of above-normal losses in the future. The proposed policy statement provides background on the range of financial system vulnerabilities and other factors the Board could take into account as it evaluates settings for the U.S. CCyB, including but not limited to, leverage in the nonfinancial sector, leverage in the financial sector, maturity and liquidity transformation in the financial sector, and asset valuation pressures. The public comment period for the CCyB policy statement ended on March 21, 2016.
The Board of Governors and the Government Performance and Results Act
In this Section:
Overview
The Government Performance and Results Act (GPRA) of 1993 requires federal agencies, in consultation with Congress and outside stakeholders, to prepare a strategic plan covering a multiyear period. GPRA also requires each agency to submit an annual performance plan and an annual performance report. The GPRA Modernization Act of 2010 further refines those requirements to include quarterly performance reporting. Although the Board is not covered by GPRA, the Board follows the spirit of the act and, like other federal agencies, prepares an annual performance plan and an annual performance report.
Strategic Framework, Performance Plan, and Performance Report
The Board's 2012-15 Strategic Framework (framework) articulates the Board's mission within the context of resources required to meet Dodd-Frank Act mandates, close cross-disciplinary knowledge gaps, develop appropriate policy, and continue addressing the recovery of a fragile global economy. The framework sets forth major goals, outlines strategies for achieving those goals, and identifies key measures of performance toward achieving the strategic objectives.
The annual performance plan outlines the planned projects, initiatives, and activities that support the framework's long-term objectives and resources necessary to achieve those objectives. The annual performance report summarizes the Board's accomplishments that contributed toward achieving the strategic goals and objectives identified in the framework.
The framework, performance plan, and performance report are available on the Board's website at www.federalreserve.gov/publications/gpra/files/2012-2015-strategic-framework.pdf, www.federalreserve.gov/publications/gpra/files/2015-gpra-performance-plan.pdf, and www.federalreserve.gov/publications/gpra/files/2014-gpra-performance-report.pdf.
On July 7, 2015, the Board approved the Strategic Plan 2016-19, which identifies and frames critical organizational challenges facing the Board. In addition to investing in ongoing operations, the Board will prioritize investments and dedicate sufficient resources to six pillars over the 2016-19 period, which will allow the Board to advance its mission and respond to these continuing and evolving challenges. The Board's Strategic Plan 2016-19 is available on the Board's website at www.federalreserve.gov/publications/gpra/files/2016-2019-gpra-strategic-plan.pdf.
