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Federal Register / Vol. 86, No. 21 / Wednesday, February 3, 2021 / Rules and Regulations
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iv. Overview of Final Rule Consistent with the proposal, the final rule revises the capital planning requirements for firms subject to Category IV standards to better align such requirements with the risk profiles of these firms. Specifically, the final rule removes the requirement for firms subject to Category IV standards to provide projections in a firms capital plan under the supervisory scenarios and the requirement to submit FR Y
14A schedules associated with company-run stress test results. The final rule also replaces the use of large and noncomplex bank holding company with the definition of a firm subject to Category IV standards.
The final rule requires the stress test portion of the stress capital buffer requirement of a firm subject to Category IV standards to be updated in a manner consistent with the frequency of the supervisory stress test. The stress test portion of such a firms stress capital buffer requirement will not be updated in a year in which it does not participate in the supervisory stress test.
The final rule allows such a firm to elect to opt-in to a stress test in a year in which the firm would not generally be subject to the supervisory stress test and to receive an updated stress capital buffer requirement in that year.
The final rule adopts the proposed changes to the Boards supervisory stress test and the company-run stress test rules, which clarify the assumptions firms and the Federal Reserve should make regarding the effects of material business plan changes in their stress test results and require certain savings and loan holding companies to publicly disclose their stress tests results.
The final rule also applies capital planning and stress capital buffer requirements to covered saving and loan holding companies subject to Category II, Category III, or Category IV standards under the tailoring framework.
B. Changes to Capital Planning Requirements for Firms Subject to Category IV Standards Consistent with section 401e of EGRRCPA, the tailoring rule adjusted the frequency of supervisory stress testing for firms subject to Category IV
standards to every other year and eliminated the requirement to conduct and publicly disclose the results of a company-run stress test under the scenarios provided by the Board. These adjustments reflected the lower risk profile of a firm subject to Category IV
standards relative to firms subject to global market shock losses, and losses related to large counterparty defaults.

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Category I, II, or III standards. The final rule tailors the requirements in the capital plan rule that currently apply to Category IV firms, as discussed below.
The proposal would have updated the terminology in the capital plan rule to conform to the terminology used in the tailoring rule by removing the term large and noncomplex bank holding company and replacing it with the definition of a firm subject to Category IV standards. No comments were received on this change and the final rule adopts it as proposed. Given the effective date of this final rule, the definition of large and noncomplex bank holding company will be changed on the FR Y14 reports beginning with the December 31, 2020, as of date.13
Under the proposal, firms subject to Category IV standards generally would not have been required to calculate estimates of projected revenues, losses, reserves, or pro forma capital levels effectively a form of stress testing using scenarios provided by the Board.
However, under certain circumstances, based on the macroeconomic outlook or based on the firms risk profile, financial condition, or corporate structure, the proposal would have allowed the Board to require a firm subject to Category IV
standards to submit a capital plan under scenarios provided by the Board. No comments were received on the removal of the general requirement for firms subject to Category IV standards to calculate stress test results under scenarios provided by the Board, or on the stipulation that the Board may require firms to make such calculations in particular circumstances. The final rule adopts these changes as proposed.
The proposal would have updated regulatory reporting requirements to reflect the tailoring rules elimination of the company-run stress test requirement for a firm subject to Category IV
standards. Specifically, under the proposal such firms would no longer have been required to submit to the Federal Reserve forward-looking projections in the granular form prescribed by the FR Y14A, Schedule ASummary, Schedule BScenario, Schedule FBusiness Plan Changes, and Appendix ASupporting Documentation.
13 The proposal also would have modified the terms BHC baseline scenario and BHC stress scenario in the capital plan rule to Firm baseline scenario and Firm stress scenario, respectively.
To clarify that these are scenarios generated internally by firms, the final rule modifies the terms BHC baseline scenario and BHC stress scenario to Internal baseline scenario and Internal stress scenario, respectively. These terms will be changed on the FR Y14 reports beginning with the December 31, 2020, as of date.

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A commenter on the proposal noted that the Federal Reserve did not articulate the public benefits of removing the reporting requirements for firms subject to Category IV standards.
Removing these reporting requirements is necessary to effectuate the elimination of the company-run stress test requirement for these firms adopted in the tailoring rule. As discussed in the tailoring rule, eliminating the companyrun stress test requirement for firms subject to Category IV standards is consistent with the statutory provisions and appropriate for these firms risk profile. These reporting schedules are not publicly available, so the adjustments to the reporting requirements do not affect the information in the public domain. This revision comes into effect beginning with the 2021 capital planning cycle.14
The proposal would have added four line items to FR Y14A, Schedule C
Regulatory Capital Instruments, to provide the information needed to determine whether planned capital distributions included in a firms capital plan are consistent with any effective capital distribution limitations that would apply under the firms projections in the Internal baseline scenario, as required by the capital plan rule.15 No comments were received on this aspect of the proposal. To support compliance with the capital plan rule, these line items have been added to FR
Y14A, Schedule C, and are effective for the April 5, 2021, submission with a December 31, 2020, as of date.16 This will ensure that the Board can confirm compliance with the capital plan rule during the 2021 capital planning cycle.
Under the final rule, firms subject to Category IV standards will continue to be required to provide a forward-looking analysis of income and capital levels under expected and stressful conditions in their annual capital plans. These projections are required to be tailored to, and sufficiently capture, the firms exposures, activities, and idiosyncratic risks in their capital plans.17 This includes projections under a scenario 14 Firms subject to Category IV standards will continue to be required to complete the FR Y14A, Schedule CRegulatory Capital Instruments, Schedule EOperational Risk, and the Collection of Supplemental CECL Information.
15 The line items would be the projections of Common Equity Tier 1 capital ratio, Tier 1 capital ratio, Total capital ratio, and net income under the Internal baseline scenario.
16 FR Y14A, Schedule C, is required for all firms subject to the capital plan rule on an annual basis.
17 The analysis should cover an appropriate period usually a period of at least two years to capture the relevant risks to a firm. A firm should estimate losses, revenues, expenses, and capital using sound methods that relate macroeconomic and other risk drivers to its estimates.

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