SR 15-19:

Federal Reserve Supervisory Assessment of Capital Planning and Positions for Firms Subject to Category II or III Standards

BOARD OF GOVERNORS
OF THE FEDERAL RESERVE SYSTEM
WASHINGTON, D.C. 20551

DIVISION OF BANKING
SUPERVISION AND REGULATION

SR 15-19
December 18, 2015
Revised January 15, 2021
Attachment Reposted January 15, 2021

In January 2021, this letter was modified to apply to U.S. bank holding companies, U.S. intermediate holding companies of foreign banking organizations, and covered savings and loan holding companies that are subject to Category II or III standards under the Board's tailoring framework.1 These applicability modifications align with the Board's tailoring rules. See 84 Fed. Reg. 59032 (November 1, 2019) for more information.

TO THE OFFICER IN CHARGE OF SUPERVISION AT EACH FEDERAL RESERVE BANK

SUBJECT:

Federal Reserve Supervisory Assessment of Capital Planning and Positions for Firms Subject to Category II or III Standards

Applicability: This guidance applies only to U.S. bank holding companies, U.S. intermediate holding companies of foreign banking organizations, and covered savings and loan holding companies that are subject to Category II or III standards under the Board’s tailoring framework.

The Federal Reserve is issuing this letter to explain its supervisory expectations for capital planning at firms subject to Category II or III standards, consistent with the broad supervisory expectations set forth in SR letter 12-17/CA letter 12-14, "Consolidated Supervision Framework for Large Financial Institutions."2 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 firms subject to Category II or III standards, building upon the capital planning requirements in the Federal Reserve's capital plan rule and stress test rules.3, 4

The guidance outlines capital planning expectations for:

  • Governance
  • 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)5
  • Comprehensive Capital Analysis and Review 2015 Summary Instructions and Guidance (October 2014)6
  • Instructions for the Capital Assessments and Stress Testing information collection (Reporting Form FR Y-14A), (OMB No. 7100-0341)7
  • 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"

Applicability

This guidance applies to U.S. bank holding companies, U.S. intermediate holding companies of foreign banking organizations, and covered savings and loan holding companies8 that are subject to Category II or III standards under the Board's tailoring framework.9, 10, 11

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. The Federal Reserve has separate guidance, set forth in SR letter 15-18, that clarifies that expectations for firms subject to Category I standards are higher than the expectations for firms subject to Category II or III standards.

Federal Reserve Banks should distribute this letter to firms subject to Category II or III standards 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.12

signed by
Michael S. Gibson
Director
Division of Banking
Supervision and Regulation

Supersedes:
  • SR letter 99-18, “Assessing Capital Adequacy in Relation to Risk at Large Banking Organizations and Others with Complex Risk Profiles”
  • SR letter 09-4, “Applying Supervisory Guidance and Regulations on the Payment of Dividends, Stock Redemptions, and Stock Repurchases at Bank Holding Companies”
    Note: This SR letter is superseded for a U.S. bank holding company or an intermediate holding company of a foreign banking organization with $50 billion or more in total consolidated assets.
Cross References:
Notes:

1. This guidance previously applied 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 (LISCC) framework. Return to text

2. 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

3. For the capital plan rules, refer to section 225.8 of Regulation Y (12 CFR 225.8) and section 238.170 of Regulation LL (12 CFR 238.170). 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) and Regulation LL (12 CFR part 238) establish capital stress testing requirements for bank holding companies and covered savings and loan holding companies, respectively, with total consolidated assets of $100 billion or more. Return to text

4. 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

5. Available at: http://www.federalreserve.gov/bankinforeg/bcreg20130819a1.pdf. Return to text

6. Available at: http://www.federalreserve.gov/newsevents/press/bcreg/bcreg20141017a1.pdf. Return to text

7. Available at: http://www.federalreserve.gov/apps/reportforms/reportdetail.aspx?sOoYJ+5BzDa2AwLR/gLe5DPhQFttuq/4. Return to text

8. A covered savings and loan holding company is a savings and loan holding company not predominantly engaged in insurance or commercial activities (see 12 CFR 217.2). Return to text

9. Firms subject to Category I standards are U.S. global systemically important bank holding companies (GSIBs).

Firms subject to Category II standards include banking organizations with $700 billion or more in total consolidated assets; or $75 billion or more in cross-jurisdictional activity; and do not meet the criteria for Category I.

Firms subject to Category III standards include banking organizations with $250 billion or more in total consolidated assets; or banking organizations with $100 billion or more in total consolidated assets and $75 billion or more in weighted short-term wholesale funding, total nonbank assets, or off-balance sheet exposure; and do not meet the criteria for Category I or II. Return to text

10. This guidance does not apply to nonbank financial companies designated by the Financial Stability Oversight Council for supervision by the Board of Governors. Return to text

11. Firms should refer to this guidance in the development of the capital plans that they will submit by April 5, 2021, and for subsequent years. Return to text

12. See: http://www.federalreserve.gov/apps/contactus/feedback.aspx. Return to text

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Last Update: January 15, 2021