(a) Definitions. For purposes of this section, the following definitions apply:
(1) Eligible asset means any asset of the U.S. branch or U.S. agency held in the United
States that is recorded on the general ledger of a U.S. branch or
U.S. agency of the foreign banking organization (reduced by the amount
of any specifically allocated reserves held in the United States and
recorded on the general ledger of the U.S. branch or U.S. agency in
connection with such assets), subject to the following exclusions
and, for purposes of this definition, as modified by the rules of
valuation set forth in paragraph (a)(1)(ii) of this section.
(i) The following assets do not
qualify as eligible assets:
(A) Equity securities;
(B) Any assets
classified as loss at the preceding examination by a regulatory agency,
outside accountant, or the bank’s internal loan review staff;
(C) Accrued income on assets classified
loss, doubtful, substandard or value impaired, at the preceding examination
by a regulatory agency, outside accountant, or the bank’s internal
loan review staff;
(D) Any amounts
due from the home office, other offices and affiliates, including
income accrued but uncollected on such amounts;
(E) The balance from time to time of any other
asset or asset category disallowed at the preceding examination or
by direction of the Board for any other reason until the underlying
reasons for the disallowance have been removed;
(F) Prepaid expenses and unamortized costs,
furniture and fixtures and leasehold improvements; and
(G) Any other asset that the Board determines
should not qualify as an eligible asset.
(ii) The following rules of valuation
apply:
(A) A marketable
debt security is valued at its principal amount or market value, whichever
is lower;
(B) An asset classified doubtful
or substandard at the preceding examination by a regulatory agency,
outside accountant, or the bank’s internal loan review staff,
is valued at 50 percent and 80 percent, respectively;
(C) With respect to an asset classified value
impaired, the amount representing the allocated transfer risk reserve
that would be required for such exposure at a domestically chartered
bank is valued at 0 and the residual exposure is valued at 80 percent;
and
(D) Real estate located in the
United States and carried on the accounting records as an asset are
valued at net book value or appraised value, whichever is less.
(2) Liabilities of all U.S. branches and agencies of a foreign banking
organization means all liabilities of all U.S. branches and agencies
of the foreign banking organization, including acceptances and any
other liabilities (including contingent liabilities), but excluding:
(i) Amounts due to
and other liabilities to other offices, agencies, branches and affiliates
of such foreign banking organization, including its head office, including
unremitted profits; and
(ii)
Reserves for possible loan losses and other contingencies.
(3) Pre-provision net revenue means revenue less expenses before adjusting for total loan loss
provisions.
(4) Stress test cycle has the same meaning as in subpart F of this part.
(5) Total loan loss provisions means
the amount needed to make reserves adequate to absorb estimated credit
losses, based upon management’s evaluation of the loans and
leases that the company has the intent and ability to hold for the
foreseeable future or until maturity or payoff, as determined under
applicable accounting standards.
(b) In general.
(1) A foreign banking organization subject
to this subpart must:
(i) Be subject on a consolidated basis to a capital stress testing
regime by its home-country supervisor that meets the requirements
of paragraph (b)(2) of this section; and
(ii) Conduct such stress tests or be
subject to a supervisory stress test and meet any minimum standards
set by its home-country supervisor with respect to the stress tests.
(2) The capital stress
testing regime of a foreign banking organization’s home-country
supervisor must include:
(i) A supervisory capital stress test
conducted by the foreign banking organization’s home-country
supervisor or an evaluation and review by the foreign banking organization’s
home-country supervisor of an internal capital adequacy stress test
conducted by the foreign banking organization, according to the frequency
specified in the following paragraph (b)(2)(i)(A) or (B) of this section:
(A) If the foreign banking
organization has average total consolidated assets of $250 billion
or more, on at least an annual basis; or
(B) If the foreign banking organization has average total consolidated
assets of less than $250 billion, at least biennially; and
(ii) Requirements for governance
and controls of stress testing practices by relevant management and
the board of directors (or equivalent thereof) of the foreign banking
organization;
(c) Additional standards.
(1) Unless the Board otherwise determines
in writing, a foreign banking organization that does not meet each of the
requirements in paragraphs (b)(1) and (2) of this section must:
(i) Maintain eligible
assets in its U.S. branches and agencies that, on a daily basis, are
not less than 105 percent of the average value over each day of the
previous calendar quarter of the total liabilities of all branches
and agencies operated by the foreign banking organization in the United
States;
(ii) Conduct a stress
test of its U.S. subsidiaries to determine whether those subsidiaries
have the capital necessary to absorb losses as a result of adverse
economic conditions, according to the frequency specified in paragraph
(c)(1)(ii)(A) or (B) of this section:
(A) If the foreign banking organization has
average total consolidated assets of $250 billion or more, on at least
an annual basis; or
(B) If the foreign
banking organization has average total consolidated assets of less
than $250 billion, at least biennially; and
(iii) Report a summary of the results
of the stress test to the Board that includes a description of the
types of risks included in the stress test, a description of the conditions
or scenarios used in the stress test, a summary description of the
methodologies used in the stress test, estimates of aggregate losses,
pre-provision net revenue, total loan loss provisions, net income
before taxes and pro forma regulatory capital ratios required
to be computed by the home-country supervisor of the foreign banking
organization and any other relevant capital ratios, and an explanation
of the most significant causes for any changes in regulatory capital
ratios.
(2) An enterprise-wide
stress test that is approved by the Board may meet the stress test
requirement of paragraph (c)(1)(ii) of this section.
