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Federal Register / Vol. 86, No. 21 / Wednesday, February 3, 2021 / Rules and Regulations
Institution Policy Analyst I, 202 475
6685, and Palmer Osteen, Financial Institution Policy Analyst II, 202 785
6025, Division of Supervision and Regulation; Benjamin McDonough, Associate General Counsel, 202 452
2036, Julie Anthony, Senior Counsel, 202 4756682, Asad Kudiya, Senior Counsel, 202 4756358, Jonah Kind, Counsel, 202 4522045, or Jasmin Keskinen, Attorney, 202 4756650, Legal Division, Board of Governors of the Federal Reserve System, 20th Street and Constitution Avenue NW, Washington, DC 20551. Users of Telecommunication Device for Deaf TDD only, call 202 2634869.
SUPPLEMENTARY INFORMATION:

Table of Contents
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I. Changes to the Capital Plan Rule A. Introduction i. Background on Capital Planning, Stress Testing and Stress Capital Buffer Requirements ii. Background on Tailoring Framework iii. Overview of Proposed Rule and Summary of Comments iv. Overview of Final Rule B. Changes to Capital Planning Requirements for Firms Subject to Category IV Standards C. Calculation and Timing of the Stress Capital Buffer Requirement for Firms Subject to Category IV Standards D. Changes to Stress Test Rules for Firms With Total Consolidated Assets of at Least $100 Billion i. Business Plan Change Assumption ii. Changes to Reporting Requirements Related to Stress Test Rule Changes E. Covered Savings and Loan Holding Companies i. Application of Capital Plan Rule ii. Stress Test Rule Changes F. Definition of Common Stock Dividend in Capital Plan Rule G. Impact Analysis II. Board Guidance on Capital Planning III. Administrative Law Matters A. Paperwork Reduction Act B. Regulatory Flexibility Act C. Solicitation of Comments of Use of Plain Language 1 The common equity capital ratios of firms subject to Comprehensive Capital Analysis and Review CCAR have more than doubled since 2009.
Combined, these firms hold more than $1 trillion of common equity tier 1 capital and are substantially more resilient than they were ten years ago.
2 See 12 CFR 225.8; see also Capital Plans, 76 FR
74631 Dec. 1, 2011. Originally, as a part of the capital plan rule, the Federal Reserve could object to a firms capital plan based on a qualitative assessment. A subsequent rulemaking changed this requirement such that after CCAR 2020 no firm will be subject to a potential qualitative objection if the firm successfully passed several qualitative
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I. Changes to the Capital Plan Rule A. Introduction
notably removing the assumption that firms make all planned common distributions and excluding material business plan changes from the stress capital buffer requirement calculation.
Previously, under the Comprehensive Capital Analysis and Review CCAR, the Board assumed that a firm would continue to make all planned dividends and share repurchases under stress, and therefore required firms to pre-fund nine quarters of planned dividends and share repurchases. Under the stress capital buffer rule, the Board no longer assumes that a firm would continue to make all planned dividends and share repurchases under stress. The stress capital buffer requirement includes four-quarters of planned dividends in a firms capital buffer requirements;
therefore, firms are subject to a prefunding requirement of four quarters of planned dividends. This approach recognizes the capital rules automatic limitations on capital distributions while continuing to promote forwardlooking capital planning and mitigate pro-cyclicality.
Prior to the implementation of the stress capital buffer rule, the impact of expected material changes to a firms business plan were incorporated into a firms CCAR results. In order to simplify the stress test framework and to reduce burden, material business plan changes are not included in the stress capital buffer requirement. Instead, material changes to a firms business plan resulting from a merger or acquisition are incorporated into a firms capital and risk-weighted assets upon consummation of the transaction.

i. Background on Capital Planning, Stress Testing and Stress Capital Buffer Requirements Stress testing is a core element of the Boards regulatory framework and supervisory program for large firms.
Stress testing enables the Board to assess whether large firms have sufficient capital to absorb potential losses and continue lending under severely adverse conditions. Experience has demonstrated that rigorous stress testingtogether with stronger capital requirements implemented in the Boards capital rulehave significantly improved the resilience of the U.S.
banking system.1
The Board implemented its capital plan rule to require large firms to develop and maintain capital plans supported by robust processes for assessing their capital adequacy, in 2011.2 The Board made changes to its regulatory capital rulewhich establishes minimum regulatory capital requirementsin 2013. These changes address weaknesses observed during the 20082009 financial crisis, including the establishment of a minimum common equity tier 1 CET1 capital requirement and a fixed capital conservation buffer equal to 2.5 percent of risk-weighted assets.3
In March 2020, the Board adopted a final rule stress capital buffer rule to integrate its capital plan rule and regulatory capital rule through the establishment of a stress capital buffer requirement, creating a single, risksensitive framework for large banking organizations.4 To achieve individually tailored and risk-sensitive capital requirements for banking organizations subject to the capital plan rule, the stress capital buffer rule establishes the size of a firms stress capital buffer requirement based in part on a supervisory stress test conducted by the Federal Reserve.
The stress capital buffer rule included several changes to the assumptions embedded in the supervisory stress test,
ii. Background on Tailoring Framework In October 2019, the Board issued a final rule that established a revised framework for applying prudential standards to large firms to align prudential standards more closely to a large firms risk profile tailoring rule.5
The tailoring rule established four categories of prudential standards and applies them based on indicators designed to measure the risk profile of a firm.6 Table I outlines the scoping
evaluations. Amendments to the Capital Plan Rule, 84 FR 8953 March 13, 2019. All firms subject to the capital plan rule have successfully passed the required number of qualitative evaluations such that no firms are subject to the qualitative objection going forward. As a result, the final rule revises the capital plan rule to remove references to the qualitative objection.
3 See 12 CFR part 217. Large banking organizations also became subject to a countercyclical capital buffer requirement, and the largest and most systemically important firms global systemically important bank holding companies, or GSIBsbecame subject to an additional capital buffer based on a measure of their
systemic risk, the GSIB surcharge. See Regulatory Capital Rules: Implementation of Risk-Based Capital Surcharges for Global Systemically Important Bank Holding Companies, 80 FR 49082
Aug. 14, 2015.
4 See Regulations Q, Y, and YY: Regulatory Capital, Capital Plan, and Stress Test Rules, 85 FR
15576 March 18, 2020.
5 See Prudential Standards for Large Bank Holding Companies, Savings and Loan Holding Companies, and Foreign Banking Organizations, 84
FR 59032 Nov. 1, 2019.
6 The final rule increased the threshold for general application of these standards from $50
billion to $100 billion in total consolidated assets.

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