(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 and that has
a U.S. branch or U.S. agency 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;
(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;
and
(iii) Provide to the Board
the information required under paragraph (c) of this section.
(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 paragraph (b)(2)(A) or (B):
(A) If the foreign banking organization is
not a Category IV foreign banking organization, at least annually;
or
(B) If the foreign banking organization
is a Category IV foreign banking organization, 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) Information requirements.
(1) In general. A foreign banking organization subject to this subpart must report
to the Board by January 5 of each calendar year, unless such date
is extended by the Board, summary information about its stress-testing
activities and results, including the following quantitative and qualitative
information:
(i)
A description of the types of risks included in the stress test;
(ii) A description of the conditions
or scenarios used in the stress test;
(iii) A summary description of the methodologies
used in the stress test;
(iv)
Estimates of:
(A) Aggregate
losses;
(B) Pre-provision net revenue;
(C) Total loan loss provisions;
(D) Net income before taxes; and
(E) 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
(v) An explanation
of the most significant causes for any changes in regulatory capital
ratios.
(2) Additional information required for foreign
banking organizations in a net due from position. If, on a net
basis, the U.S. branches and agencies of a foreign banking organization
subject to this subpart provide funding to the foreign banking organization’s
non-U.S. offices and non-U.S. affiliates, calculated as the average
daily position over a stress test cycle for a given year, the foreign
banking organization must report the following information to the
Board by January 5 of each calendar year, unless such date is extended
by the Board:
(i)
A detailed description of the methodologies used in the stress test,
including those employed to estimate losses, revenues, and changes
in capital positions;
(ii) Estimates
of realized losses or gains on available-for-sale and held-to-maturity
securities, trading and counterparty losses, if applicable; and loan
losses (dollar amount and as a percentage of average portfolio balance)
in the aggregate and by material sub-portfolio; and
(iii) Any additional information that
the Board requests.
(d) Imposition of additional standards for capital
stress tests.
(1)
Unless the Board otherwise determines in writing, a foreign banking
organization that does not meet each of the requirements in paragraph
(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
108 percent of the average value over each day of the previous calendar
quarter of the total liabilities of all U.S. branches and agencies
of the foreign banking organization; and
(ii) To the extent that a foreign banking
organization has not established a U.S. intermediate holding company,
conduct an annual 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; and report to the Board
on an annual basis a summary of the results of the stress test that
includes the information required under paragraph (b)(1) of this section
and any other information specified by the Board.
(2) An enterprise-wide stress test
that is approved by the Board may meet the stress test requirement
of paragraph (d)(1)(ii) of this section.
(3) Intragroup
funding restrictions or liquidity requirements for U.S. operations. If a foreign banking organization does not meet each of the requirements
in paragraphs (b)(1) and (2) of this section, the Board may require
the U.S. branches and agencies of the foreign banking organization
and, if the foreign banking organization has not established a U.S.
intermediate holding company, any U.S. subsidiary of the foreign banking
organization, to maintain a liquidity buffer or be subject to intragroup
funding restrictions.
(e) Notice and response. If the Board determines to impose one or
more conditions under paragraph (d)(3) of this section, the Board
will notify the company before it applies the condition, and describe
the basis for imposing the condition. Within 14 calendar days of receipt
of a notification under this paragraph, the company may request in
writing that the Board reconsider the requirement. The Board will
respond in writing to the company’s request for reconsideration prior
to applying the condition.
