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Federal Register / Vol. 86, No. 21 / Wednesday, February 3, 2021 / Rules and Regulations designed by the firm that stresses the specific vulnerabilities of the firms risk profile and operations. This scenario should incorporate stressful conditions and events that could adversely affect the firms capital adequacy.
While the final rule does not require firms subject to Category IV standards to include certain elements in their capital plans, all banking organizations, regardless of size and complexity, are expected to have the capacity to analyze the potential impact of adverse outcomes on their financial condition, including on capital.18 Therefore, riskmanagement practices should be tailored to the risk and complexity of the individual firm and should include practices to identify and assess its sensitivity to unexpected adverse outcomes before they occur. The Federal Reserve will continue to conduct an annual assessment of the capital plan of a firm subject to Category IV standards as part of its ongoing supervisory process, and the results of this assessment will continue to be an input into the firms capital planning and positions component of the Large Financial Institution Rating System.

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C. Calculation and Timing of the Stress Capital Buffer Requirement for Firms Subject to Category IV Standards Firms subject to Category IV standards are currently subject to supervisory stress testing on a two-year cycle. To align with the stress testing cycle for firms subject to Category IV standards, the proposal would have required the portion of the stress capital buffer requirement that is calculated as the 18 For example, bank holding companies with less than $50 billion in total consolidated assets are subject to guidance that clarifies such firms are expected to hold capital commensurate with their overall risk profile. See SR Letter 094, Applying Supervisory Guidance and Regulations on the Payment of Dividends, Stock Redemptions, and Stock Repurchases at Bank Holding Companies Feb. 24, 2009, revised July 24, 2020. Holding companies with less than $100 billion in total consolidated assets are subject to an overall evaluation and rating of managerial and financial condition and an assessment of future potential risk to subsidiary depository institutions as part of the RFI or Modified RFI rating. See SR Letter 194/CA
Letter 193, Supervisory Rating System for Holding Companies with Total Consolidated Assets Less Than $100 billion Feb. 26, 2019 and SR Letter 13
21, Inspection Frequency and Scope Requirements for Bank Holding Companies and Savings and Loan Holding Companies with Total Consolidated Assets of $10 Billion or Less Dec. 17, 2019, revised Mar.
6, 2019. Bank holding companies with total consolidated assets of $100 billion or greater and certain savings and loan holding companies are subject to a supervisory evaluation of whether a covered firm possesses sufficient financial and operational strength and resilience to maintain safeand-sound operations through a range of conditions, including stressful ones. See SR Letter 193, Large Financial Institution LFI Rating System Feb. 26, 2019.

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decline in a firms CET1 capital ratio to be calculated every other year. During a year in which a firm subject to Category IV standards does not undergo a supervisory stress test, the firm would have received an updated stress capital buffer requirement that reflects the firms updated planned common stock dividends.
A commenter objected to the proposed frequency of adjustments for the calculation of the decline in CET1
capital ratios for purposes of stress capital buffer requirement for firms subject to Category IV standards. This commenter argued that a biennial frequency would adversely affect comparability across firms subject to the stress capital buffer requirement and cause their stress capital buffer requirements to rely on outdated information. As stated in the proposal, these adjustments align with the requirement under EGRRCPA to apply supervisory stress testing on a periodic basis to firms with $100
billion to $250 billion in assets, and the revisions to the supervisory stress test under the tailoring rule that changed the stress testing cycle for firms subject to Category IV standards from annual to biennial.19 20 Therefore, consistent with the proposal, the final rule requires the portion of the stress capital buffer requirement that is calculated as the decline in the CET1 capital ratio for firms subject to Category IV standards to be calculated every other year.21
The proposal would have allowed a firm subject to Category IV standards to elect to participate in the supervisory stress test in a year in which the firm would not normally be subject to the supervisory stress test. A firm that makes such an election would be a full participant in that years supervisory stress test, including being subject to the disclosure requirements related to the firms supervisory stress test results, and would receive an updated stress capital buffer requirement.
Commenters generally supported the opt-in election set forth in the proposal and stated that the flexibility provided under this approach is appropriate for the risk profile of firms subject to Category IV standards. By contrast, one commenter argued that the opt-in election could undermine the credibility 19 See Economic Growth, Regulatory Relief, and Consumer Protection Act, S. 2155, 115th Congress 2018.
20 See Prudential Standards for Large Bank Holding Companies, Savings and Loan Holding Companies, and Foreign Banking Organizations, 84
FR 59032 Nov. 1, 2019.
21 The final rule also clarifies that a firm will not receive notice of its stress capital buffer requirement until the first year the Board conducts a supervisory stress test of the firm.

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of the stress testing framework and cause concern regarding banking organizations that choose not to participate that is, firms that choose not to participate may be perceived as being in weaker condition.
The final rule allows firms subject to Category IV standards to request an updated stress capital buffer requirement in a year in which it would not generally be subject to the supervisory stress test. A firms decision to request such an update could stem from various factors, such as recent significant changes to the firms risk profile or corporate structure. The approach in the final rule reduces burden as a general matter while also providing flexibility for firm-specific requests.
The proposal would have required a firm subject to Category IV standards to provide written notice of its election to the Board and appropriate Federal Reserve Bank by December 31 of the year preceding the year in which it seeks to opt in to the supervisory stress test. For purposes of the 2021
supervisory stress test, the proposal included transitional procedures such that a firm subject to Category IV
standards would have had until February 15, 2021, to provide written notice of its opt-in election to the Board and appropriate Federal Reserve Bank.
A number of commenters argued that the proposals December 31 cut-off date for the opt-in notification is too early and requested that the final rule provide a mid-March deadline for a firm subject to Category IV standards to notify the Board and the appropriate Federal Reserve Bank in writing of its opt-in election for that years supervisory stress test. Additionally, these commenters argued that the February 15
deadline is too early for the 2021 stress test cycle and requested more time to make their opt-in election.
In response to these comments, the final rule requires firms subject to Category IV standards to provide prior written notice of their opt-in election to the Board and the appropriate Federal Reserve Bank by January 15 of any year in which they are not required to participate in the supervisory stress test, rather than the earlier December 31
deadline. The January 15 date will provide these firms with more time to better understand their year-end financial results. The Board is also selecting this date because it generally precedes the announcement of stress test scenarios. Under the final rule, for purposes of the 2021 stress testing cycle, firms subject to Category IV standards have until April 5, 2021, to provide prior written notice of their opt-in
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