Rule2024-24402
OCC Guidelines Establishing Standards for Recovery Planning by Certain Large Insured National Banks, Insured Federal Savings Associations, and Insured Federal Branches
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Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
October 22, 2024
Effective
January 1, 2025
Issuing agencies
Treasury DepartmentComptroller of the Currency
Abstract
The Office of the Comptroller of the Currency is amending its enforceable recovery planning guidelines to apply them to insured national banks, insured Federal savings associations, and insured Federal branches of foreign banks with average total consolidated assets of $100 billion or more; incorporate a testing standard; and clarify the role of non-financial (including operational and strategic) risk in recovery planning.
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<title>Federal Register, Volume 89 Issue 204 (Tuesday, October 22, 2024)</title>
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[Federal Register Volume 89, Number 204 (Tuesday, October 22, 2024)]
[Rules and Regulations]
[Pages 84255-84261]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2024-24402]
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Rules and Regulations
Federal Register
________________________________________________________________________
This section of the FEDERAL REGISTER contains regulatory documents
having general applicability and legal effect, most of which are keyed
to and codified in the Code of Federal Regulations, which is published
under 50 titles pursuant to 44 U.S.C. 1510.
The Code of Federal Regulations is sold by the Superintendent of Documents.
========================================================================
Federal Register / Vol. 89, No. 204 / Tuesday, October 22, 2024 /
Rules and Regulations
[[Page 84255]]
DEPARTMENT OF THE TREASURY
Office of the Comptroller of the Currency
12 CFR Part 30
[Docket ID OCC-2024-0008]
RIN 1557-AF27
OCC Guidelines Establishing Standards for Recovery Planning by
Certain Large Insured National Banks, Insured Federal Savings
Associations, and Insured Federal Branches
AGENCY: Office of the Comptroller of the Currency, Treasury.
ACTION: Final guidelines.
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SUMMARY: The Office of the Comptroller of the Currency is amending its
enforceable recovery planning guidelines to apply them to insured
national banks, insured Federal savings associations, and insured
Federal branches of foreign banks with average total consolidated
assets of $100 billion or more; incorporate a testing standard; and
clarify the role of non-financial (including operational and strategic)
risk in recovery planning.
DATES: The final guidelines are effective on January 1, 2025.
FOR FURTHER INFORMATION CONTACT: Kimberly Jameson, Lead Expert, Market
Risk, (202) 322-8527; Andra Shuster, Senior Counsel, Karen McSweeney,
Special Counsel, or Priscilla Benner, Counsel, Chief Counsel's Office,
(202) 649-5490; 400 7th Street SW, Washington, DC 20219. If you are
deaf or hard of hearing or have a speech disability, please dial 7-1-1
to access telecommunications relay services.
SUPPLEMENTARY INFORMATION:
I. Background
Large-scale financial crises have demonstrated the destabilizing
effect that severe stress can have on financial entities, capital
markets, the Federal banking system, and the U.S. and global economies.
This is particularly true when a crisis places severe stress on large,
complex financial institutions due to the systemic and contagion risks
that they pose. For example, during the 2008 crisis, the Office of the
Comptroller of the Currency (OCC) observed that many financial
institutions were not prepared to respond effectively to the financial
effects of severe stress. The lack of or inadequate planning threatened
the viability of some financial institutions, and many were forced to
take significant actions without the benefit of a well-developed plan
for recovery.
For the OCC, this experience highlighted the importance of large,
complex banks having strong risk governance frameworks, including plans
for how to respond quickly and effectively to, and recover from, the
financial effects of severe stress. The agency recognized that this
type of advance planning would reduce a bank's risk of failure and
increase the likelihood that it would return to a position of financial
strength and viability following severe stress.
On September 29, 2016, the OCC issued Guidelines Establishing
Standards for Recovery Planning by Certain Large Insured National
Banks, Insured Federal Savings Associations, and Insured Federal
Branches (Guidelines).\1\ Under the Guidelines, an insured national
bank, insured Federal savings association, or insured Federal branch
(bank) subject to the standards (covered bank) should have a recovery
plan that includes (1) quantitative or qualitative indicators of the
risk or existence of severe stress that reflect its particular
vulnerabilities; (2) a wide range of credible options that it could
undertake in response to the stress to restore its financial strength
and viability; and (3) an assessment and description of how these
options would affect it. The Guidelines provide that a recovery plan
should also address (1) the covered bank's overall organizational and
legal entity structure and its interconnections and interdependencies;
(2) procedures for escalating decision-making to senior management or
the board of directors or an appropriate committee thereof (board); (3)
management reports; (4) communication procedures; and (5) any other
information the OCC communicates in writing. The Guidelines also set
forth the responsibilities of management and the board with respect to
the covered bank's recovery plan.
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\1\ 81 FR 66791. The Guidelines are codified at 12 CFR part 30,
appendix E. They were issued pursuant to section 39 of the Federal
Deposit Insurance Act, 12 U.S.C. 1831p-1, which authorizes the OCC
to prescribe enforceable safety and soundness standards.
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The 2016 Guidelines applied to banks with total consolidated assets
of $50 billion or more. In 2018, the OCC amended the Guidelines to
raise the threshold to $250 billion based on its view, at that time,
that these larger, more complex, and potentially more interconnected
banks presented greater systemic risk to the financial system and would
benefit most from recovery planning.\2\
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\2\ 83 FR 66604 (Dec. 27, 2018).
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In March 2023, several insured depository institutions (IDIs) with
total consolidated assets of $100 billion or more experienced
significant withdrawals of uninsured deposits in response to underlying
weaknesses in their financial position and failed. These events
highlighted the risk, complexity, and interconnectedness of banks with
average total consolidated assets between $100 billion and $250 billion
and underscored that it is important for banks in this size range
(which are not covered by the current Guidelines) to develop and
maintain recovery plans to respond to the financial effects of severe
stress.
In addition, since the issuance of the Guidelines in 2016, the
agency has examined covered banks' recovery planning processes and
reviewed numerous recovery plans. Based on this experience, the OCC has
identified areas where the current Guidelines should be strengthened.
To address these issues, on July 3, 2024, the OCC published a
proposal to expand the Guidelines to apply to banks with average total
consolidated assets of $100 billion or more; incorporate a testing
standard; and clarify the role of non-financial (including operational
and strategic) risk in recovery planning.\3\ The OCC received five
comments on the proposal. Two comments were from banks, one was from an
individual, one was from two trade associations, and one was from a
[[Page 84256]]
non-profit organization.\4\ These comments are addressed in detail in
the next section.
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\3\ 89 FR 55114.
\4\ The OCC also received a comment letter from three trade
associations requesting that the agency extend the comment period by
30 days. The OCC denied this request on July 25, 2024. <a href="https://www.regulations.gov/document/OCC-2024-0008-0004">https://www.regulations.gov/document/OCC-2024-0008-0004</a>.
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II. Description of the Proposal, Comments, and Final Guidelines
A. Covered Bank Threshold
Definition of covered bank. The current Guidelines generally apply
to banks with average total consolidated assets of $250 billion or
more. Based on the OCC's observations during the IDI failures in 2023,
the agency proposed to expand the Guidelines to apply to banks with
average total consolidated assets of $100 billion or more.\5\ To make
this change, the OCC proposed to revise the definition of ``covered
bank'' in paragraph I.E.3. of the current Guidelines.
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\5\ In addition, the Federal Deposit Insurance Corporation
(FDIC) recently amended its resolution planning rule to require
covered IDIs with $100 billion or more in total assets to submit
comprehensive resolution plans. 89 FR 56620 (July 9, 2024).
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The OCC received several comments on this proposed change. While
one commenter supported the proposed $100 billion threshold, another
commenter suggested a $150 billion threshold. Commenters also
recommended that the OCC include metrics in addition to asset size in
its definition of covered bank, periodically adjust the threshold for
inflation, notify covered banks when they become subject to the
Guidelines, and tailor the Guidelines based on covered banks' size and
complexity.
The OCC continues to believe that the $100 billion threshold is
appropriate. As noted above, the agency has observed that banks at or
above this size generally have a level of risk, complexity, and
interconnectedness at which recovery planning is most beneficial.
Narrowing the threshold to $150 billion would exclude some of these
banks. With respect to additional metrics, the reservation of authority
in paragraph I.C. of the Guidelines provides the OCC with sufficient
flexibility to determine, based on factors other than asset size, that
a bank is highly complex or otherwise presents a heightened risk and,
thus, should be subject to the Guidelines.\6\
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\6\ The OCC also has authority to determine that a covered bank
is no longer highly complex or no longer presents a heightened risk
and thus should not be subject to the Guidelines.
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Regarding an inflation adjustment, the OCC has determined that it
does not need to include this provision in the Guidelines, as the
agency can revisit and amend the threshold through the rulemaking
process as appropriate. The OCC has also concluded that it is not
necessary to notify a bank when it becomes a covered bank because this
is determined based on a bank's own Consolidated Reports of Condition
and Income (Call Report) data.\7\ Finally, the current Guidelines
specifically state that each covered bank's recovery plan should be
``appropriate for its individual size, risk profile, activities, and
complexity,'' and thus, they are inherently tailored.\8\
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\7\ For banks that become subject to the Guidelines through the
OCC's reservation of authority, the agency has already incorporated
notice and response procedures at paragraph I.C.2.
\8\ Paragraph II.A.
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Therefore, the OCC is adopting the changes to the definition of
``covered bank'' as proposed.
Calculation of the threshold. The current Guidelines define
``average total consolidated assets'' in paragraph I.E.1. as ``the
average total consolidated assets of the bank or the covered bank,'' as
reported on its Call Report for the four most recent consecutive
quarters. The OCC proposed a clarifying change to this definition to
refer to the average ``of'' total consolidated assets of the bank or
covered bank. This change was intended to clarify that the calculation
of ``average total consolidated assets'' for purposes of the Guidelines
is based on the ``total assets'' line, not the ``average total
consolidated assets'' line, of the Call Report.\9\ This change could
have affected the quarter in which a bank became a covered bank and
would have been consistent with the OCC Guidelines Establishing
Heightened Standards for Certain Large Insured National Banks, Insured
Federal Savings Associations, and Insured Federal Branches.\10\ The OCC
did not receive any comments on this proposed change and adopts it as
proposed.
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\9\ Compare Schedule RC, item 12 and Schedule RC-R, item 27 of
the Call Report.
\10\ 12 CFR part 30, appendix D.
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Reservation of authority. The reservation of authority in paragraph
I.C.1. of the current Guidelines provides that the OCC has the
discretion to apply the Guidelines, in whole or in part, to a bank with
average total consolidated assets of less than $250 billion if it
determines that the bank is highly complex or otherwise presents a
heightened risk that warrants application of the Guidelines.\11\
Consistent with the proposed threshold change described above, the
proposal would have allowed the agency to apply the Guidelines to a
bank with average total consolidated assets of less than $100 billion
in these circumstances.\12\
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\11\ Paragraph I.C.1.a.
\12\ The proposal did not include changes to paragraph I.C.1.b.
of the Guidelines (which provides that the OCC can determine that
the Guidelines should not apply to a covered bank) because this
paragraph does not reference asset size.
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The OCC received one comment on this proposed change, which stated
that the reservation of authority should not be used for banks with
under $100 billion in average total consolidated assets because
recovery planning addresses issues similar to those already addressed
in other contexts (e.g., capital planning and stress testing). The OCC
continues to believe that the agency should have the flexibility to
apply the Guidelines to banks below the $100 billion threshold based on
whether the bank is highly complex or otherwise presents a heightened
risk. For this reason, the OCC is adopting this change as proposed.
B. Testing
Testing generally. As stated above, the OCC has many years of
experience with administering the Guidelines, including reviewing
covered banks' recovery plans. During this period, the agency has
observed that covered banks would benefit from testing their recovery
plans, which would allow them to proactively identify and address any
weaknesses or deficiencies before they experience severe stress. This
process would help a covered bank determine that its recovery plan is
an effective tool that can realistically help restore the bank to
financial strength and viability in response to severe stress. Not
surprisingly, testing is already a key component of other regulatory
frameworks addressing the stress continuum (e.g., contingency funding
planning \13\ and stress testing \14\).
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\13\ 75 FR 13656 (March 22, 2010); Addendum to the Interagency
Policy Statement on Funding and Liquidity Risk Management:
Importance of Contingency Funding Plan (July 28, 2023).
\14\ 12 CFR part 46.
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For these reasons, the OCC proposed to add a testing provision as a
new paragraph II.D. of the Guidelines, which stated that a covered bank
should validate the effectiveness of its recovery plan. The preamble
explained that a covered bank may do this by simulating severe
financial and non-financial stress scenarios (e.g., the scenarios used
to develop the plan) to confirm that the plan is likely to work as
intended. This testing should include, for example, ensuring that the
plan's triggers appropriately reflect the covered bank's particular
vulnerabilities and will, in practice, provide timely notice of
[[Page 84257]]
increasingly severe stress, ranging from warnings of the likely
occurrence of severe stress to its actual existence. Testing should
also enable management and the board to verify that the covered bank
has identified credible options that it is prepared to carry out during
a period of severe stress. It should provide management and the board
with similar assurances regarding other elements of the plan and,
ultimately, the plan as a whole. The proposal did not specify a testing
format or methodology but stated that testing should be risk-based and
reflect the covered bank's size, risk profile, activities, and
complexity.
The OCC received three comments on its proposed testing provision.
One commenter stated that testing should be a flexible, risk-based
``capabilities assessment'' (i.e., an assessment of a covered bank's
capability to implement its recovery plan in a timely manner). The
commenter also expressed concern that validation was not defined or
explained and could require a covered bank to prove its plan's
effectiveness by, for example, actually executing a recovery plan
option (e.g., divesting a business line). The commenter also argued
that the inclusion of scenario analysis would duplicate the process
that a covered bank used to develop or update a recovery plan. Another
commenter supported the addition of testing to the Guidelines but
stated that the OCC should provide more specific directions.
The OCC disagrees with several of these comments. While a
capabilities assessment is an important aspect of testing, it is
insufficient on its own to achieve the purpose of testing. For example,
a capabilities assessment would not necessarily help a covered bank
identify gaps in its recovery plan (e.g., missing triggers or options)
or determine if the plan can realistically help to restore the bank to
financial strength and viability during periods of severe stress. With
respect to the concept of validation, the OCC is using the term to
convey that testing should confirm, to the extent possible, that the
plan can accomplish its intended goals. Naturally, validation does not
necessarily mean that a covered bank should actually execute a recovery
option as part of testing. With respect to scenario analysis, the
proposal would not have directed covered banks to use a specified
testing format or methodology. Therefore, one covered bank could
determine that a scenario analysis is an informative component of
testing, while another may decide that it would unnecessarily duplicate
its process for developing and updating its recovery plan. Accordingly,
the OCC makes no change in the final Guidelines in response to these
comments.
However, the OCC agrees that testing should be risk-based. A risk-
based standard will provide each covered bank with the flexibility to
develop and implement a testing framework that is consistent with its
individual characteristics. To reflect this, the OCC is amending the
final Guidelines to state that testing ``should be appropriate for the
bank's individual size, risk profile, activities, and complexity,
including the complexity of its organizational and legal entity
structure'' and declines to establish a more prescriptive testing
standard.
Testing of elements. The proposal stated that testing should
include validation of the effectiveness of each element of the
plan.\15\ Two commenters questioned how a bank would validate the
effectiveness of key aspects of recovery planning (e.g., the ``Overview
of covered bank,'' which describes a covered bank's overall
organizational and legal entity structure and its interconnections and
interdependencies). The OCC agrees that it may not be possible to
validate the effectiveness of each plan element, particularly
descriptive elements (e.g., the covered bank's overview). The agency
believes, however, that a covered bank should consider each element of
its recovery plan as part of testing to validate the effectiveness of
the overall plan. This consideration may include, for example,
assessing the effectiveness, completeness, or accuracy of each element,
as appropriate. To address any confusion, the OCC has revised the final
Guidelines to state: ``Testing should validate the effectiveness of the
recovery plan, including by considering each element set forth in
paragraph II.B. of this appendix.''
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\15\ As set forth in paragraph II.B. of the Guidelines, the
elements of a recovery plan are (1) Overview of covered bank; (2)
Triggers; (3) Options for recovery; (4) Impact assessments; (5)
Escalation procedures; (6) Management reports; (7) Communication
procedures; and (8) Other information.
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Frequency of testing. The proposed testing provision provided that
a covered bank should test its recovery plan periodically but not less
than annually. Two commenters generally agreed that annual testing is
appropriate while another commenter suggested that testing should be
conducted at intervals and along timelines that are appropriate for
each bank. In addition, a commenter said that the testing should be
conducted in connection with, or as part of, resolution planning or
other business-as-usual testing to avoid unnecessary duplication and
that a provision for specific testing in response to a material change
is unnecessary if testing is risk-based.
The OCC continues to believe that annual testing is appropriate and
has concluded that a covered bank should also test its recovery plan
following any significant changes to the recovery plan made in response
to a material event. This frequency will ensure that management and the
board can consider the results of testing during their recovery plan
reviews under paragraphs III.A. and B. of the Guidelines,
respectively.\16\ Within this framework, the final Guidelines provide
each bank with flexibility regarding when to test its plan, including
whether to align this testing with other types of testing or to engage
in continuous or regular testing throughout the testing cycle, provided
that the bank meets the testing standard in the Guidelines. The OCC
also reiterates that it does not expect a covered bank to consider
every component of each element during each testing cycle (e.g.,
considering the trigger element during a cycle does not necessarily
mean considering every trigger during that cycle). Rather, as noted
above, testing should be risk-based. Therefore, the final Guidelines
provide that ``Each covered bank should test its recovery plan
periodically but not less than annually and following any significant
changes to the recovery plan made in response to a material event.''
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\16\ Paragraph III.A. provides that management should review the
recovery plan at least annually and in response to a material event.
Paragraph III.B. provides that the board should review and approve
the recovery plan at least annually and as needed to address
significant changes made by management. The OCC did not propose and
is making no changes to these paragraphs.
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Plan updates following testing. Finally, the proposed testing
provision provided that a covered bank should revise its recovery plan
as appropriate following testing. One commenter stated that the OCC
should not require a bank to both test and make changes to its recovery
plan based on the result of the testing in the same testing cycle. The
OCC believes that covered banks should take a risk-based approach to
updating their recovery plans following testing. For example, if
testing reveals a critical deficiency in the plan, the covered bank
should update it as soon as feasible. However, for less significant
deficiencies, it may be appropriate to delay updates until the next
annual review cycle. Therefore, the OCC adopts this provision of the
Guidelines as proposed.
[[Page 84258]]
C. Non-Financial Risk
In the OCC's experience with covered banks' implementation of the
Guidelines, banks have generally been successful in considering and
addressing financial risks in their recovery plans. For example, many
covered banks' recovery plans address changes to the bank's financial
position, such as profitability, funding sources, liquidity ratios, and
capital ratios. The OCC has observed, however, that covered banks have
been less consistent in considering or addressing non-financial risk,
such as operational and strategic risks. By focusing a recovery plan
exclusively on financial risks while neglecting non-financial risks,
the covered bank may overlook the very real threats that non-financial
risks can pose to its financial strength and viability.
Because the current Guidelines do not specifically reference non-
financial risk, the proposal contained changes to ensure that covered
banks appropriately address these risks in their recovery plans.
Specifically, the OCC proposed to add language to paragraph II.A.
stating that a covered bank ``should appropriately consider both
financial risk and non-financial risk (including operational and
strategic risk).'' The reference to financial risk was not because
covered banks had not appropriately considered this type of risk but to
highlight that both types of risk should be considered. The OCC also
proposed conforming changes to the definitions of ``recovery'' and
``trigger'' in paragraphs I.E.4. and I.E.6., respectively, and to the
recovery plan elements of ``trigger'' and ``impact assessment'' in
paragraphs II.B.2. and II.B.4., respectively.\17\ Finally, to provide
an additional example of an operational risk plan with which a covered
bank should align its recovery plan, the OCC proposed adding a
reference to ``resilience program'' in paragraph II.C.
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\17\ The OCC did not propose any changes to the ``options for
recovery'' element in paragraph II.B.3. of the Guidelines, which
provides that recovery plans ``should explain how the covered bank
would carry out each option and describe the timing required for
carrying out each option.'' The OCC believes, however, it is
important to emphasize that this process should include an
understanding of, and plan for mitigating, the non-financial
challenges and risks, including operational challenges and risks,
associated with executing each recovery option during severe stress.
Without this, a covered bank's management and board cannot
accurately assess whether the options identified in the recovery
plan are, in fact, credible options that the covered bank could
undertake to restore financial strength and viability.
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The OCC received one comment on the proposed non-financial risk
language, which agreed that this type of risk should be considered but
also observed that financial risk and non-financial risk have distinct
roles in recovery planning. In particular, the commenter noted that the
role of, and a covered bank's response to, non-financial risk differs
from its response to financial risk and that breaches of non-financial
triggers should not automatically lead to activation of the recovery
plan and execution of recovery options.
The OCC agrees that financial risk and non-financial risk differ.
However, both are important aspects of recovery planning, and the
Guidelines provide covered banks with sufficient flexibility to account
for these differences. Each covered bank's recovery plan can and should
address financial risk and non-financial risk in a manner appropriate
for that bank, including by ensuring that its recovery plan reflects
their differences. Moreover, while the breach of any trigger (whether
financial or non-financial) should always be escalated for purposes of
initiating a response, a covered bank should not view a specific
trigger as necessitating the execution of a particular option. Rather,
a covered bank should use its judgment to determine what options, if
any, to undertake during a period of severe stress. Therefore, the OCC
is adopting these changes as proposed.
D. Compliance
When the OCC issued the proposal, it understood that covered banks
would need time to implement the proposed changes. To this end, the
agency proposed to amend paragraph I.B. of the Guidelines, entitled
``Compliance date,'' to provide affected banks with sufficient time to
comply.
Specifically, under the proposal, a bank that is a covered bank
under the current Guidelines would have had 12 months from the
effective date of the amendments to comply with the changes. A bank
that has $100 billion or more but less than $250 billion in average
total consolidated assets on the effective date of the amendments to
the Guidelines would have had to comply with the Guidelines within 12
months of the effective date, except for the testing requirements with
which the bank would have had to comply within 18 months. A bank or
other financial institution that is not a covered bank on the effective
date of the amended Guidelines but that subsequently becomes a covered
bank would have had 12 months from the date on which it became a
covered bank to comply with the Guidelines, except that it would have
had 18 months to comply with the testing requirements.\18\
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\18\ A financial institution could become a covered bank after
the effective date of the amended Guidelines, for example, (1) if
its average total consolidated assets grow to or above the
threshold, (2) if it is a State bank with average total consolidated
assets of $100 billion or more that converts to an OCC charter, or
(3) through the OCC's exercise of its reservation of authority under
paragraph I.C.
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The OCC received several comments on this topic. Two commenters
stated that newly covered banks should have more time to comply (e.g.,
24 months), while another suggested that the proposal provided newly
covered banks with too much time because of synergies with resolution
and contingency planning requirements. One commenter said that the
final Guidelines should have (1) one compliance date for a covered bank
to develop the testing framework and (2) another compliance date to
conduct the testing and, if necessary, revise its recovery plan based
on the testing results. Finally, one commenter suggested that the OCC's
compliance dates should not overlap with the FDIC's resolution planning
rule.
The OCC agrees with commenters that covered banks should have time
to both develop a testing framework and conduct testing. In order to
provide sufficient time for both, the OCC is revising the proposed
compliance dates. Specifically, under the final Guidelines, banks that
are currently covered banks will have 12 months to amend their recovery
plans to address non-financial risk and an additional 6 months to
comply with the new testing provision. Banks that are not covered by
the current Guidelines but that become covered banks on the effective
date of the final Guidelines will have 12 months to develop their
recovery plan and an additional 12 months to comply with the testing
provision. Banks or other financial institutions that become covered
banks after the effective date of the final Guidelines will have 12
months to develop their recovery plan and an additional 12 months to
comply with the testing provision. These compliance dates provide banks
and other financial institutions that are or become covered banks under
the final Guidelines with sufficient time and flexibility to both
develop a testing framework and conduct testing, and based on our
supervisory experience, they strike the appropriate balance between the
time needed to satisfy the final Guidelines and the risks that recovery
planning is designed to address. The agency believes this addresses the
other comments about the
[[Page 84259]]
proposed compliance dates discussed above.\19\
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\19\ One commenter asked a bank-specific question about how the
proposed compliance dates would affect a bank that recently became
subject to the current Guidelines (i.e., crossed the $250 billion
threshold) but has not yet completed its recovery plan under the
currently applicable compliance date. Any bank in this unique
situation may contact the appropriate OCC Supervisory Office for
assistance in determining the applicable compliance dates.
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In the proposal, the OCC also asked whether it should reserve
authority to adjust an otherwise-applicable compliance date. In
response, one commenter noted that if the OCC did so, it should reserve
authority to both lengthen and shorten the applicable timeframes but
should not specifically reference the context in which it might be
appropriate to use this reservation of authority because the referenced
examples could be interpreted as highly risky.
The OCC has determined that an additional reservation of authority
for compliance date adjustments is unnecessary, as the agency already
has sufficient tools to address this issue. For example, as a condition
of approving a merger, the OCC can require that a bank comply with the
Guidelines on a timeline other than the one specified in paragraph I.B.
Therefore, the final Guidelines do not contain any changes in response
to this question.
E. Other
In addition to the changes discussed above, the OCC has made
technical and clarifying changes to the final Guidelines.
III. Regulatory Analysis
Paperwork Reduction Act of 1995
Under the Paperwork Reduction Act of 1995 (PRA),\20\ the OCC may
not conduct or sponsor, and a respondent is not required to respond to,
an information collection unless it displays a currently valid Office
of Management and Budget (OMB) control number. The OMB previously
approved the collection of information in the current Guidelines, which
are found in 12 CFR part 30, appendix E, at paragraphs II.B., II.C.,
and III. Specifically, paragraph II.B. lists the elements of the
recovery plan, which are an overview of the covered bank; triggers;
options for recovery; impact assessments; escalation procedures;
management reports; communication procedures; and other information.
Paragraph II.C. addresses the relationship of the plan to other covered
bank processes and coordination with other plans, including the
processes and plans of its bank holding company. Paragraph III.
outlines management's and the board's responsibilities.
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\20\ 44 U.S.C. 3501-3521.
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The final Guidelines include changes to the information
collection.\21\ Specifically, the threshold for applying the final
Guidelines is reduced from $250 billion to $100 billion in average
total consolidated assets. The final Guidelines also establish a
testing standard, which provides that a covered bank should test its
recovery plan. Additionally, the final Guidelines clarify the role of
non-financial risk (including operational and strategic risk) in
recovery planning.
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\21\ When the OCC proposed changes to the current Guidelines, as
required, the agency submitted the changes to the OMB. Pursuant to 5
CFR 1320.11(c), the OMB filed a comment on the submission,
instructing that the proposed changes would be reviewed again upon
finalization of the Guidelines.
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The OCC has submitted the following revised information collection
to the OMB for review.
Title: OCC Guidelines Establishing Standards for Recovery Planning
by Certain Large Insured National Banks, Insured Federal Savings
Associations, and Insured Federal Branches.
OMB Control No.: 1557-0333.
Affected Public: Businesses or other for-profit organizations.
Estimated Burden:
Frequency of Response: On occasion.
Total Number of Respondents: 21.
Total Burden per Respondent: 32,017 hours.\22\
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\22\ This number includes burden hours for the implementation of
the testing standard, which may occur during or after the 12-month
period following the effective date of the final Guidelines.
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Total Burden for Collection: 672,360 hours.
The OCC did not receive any PRA-related comments. The agency has a
continuing interest in the public's opinions of information
collections. Within 30 days of publication of this document, commenters
may submit comments regarding the burden estimate, or any other aspect
of this collection of information, including suggestions for reducing
the burden, to the address listed in the ADDRESSES caption in the
Notice of Proposed Rulemaking. All comments will become a matter of
public record. Written comments and recommendations for the information
collection should be sent within 30 days of publication of this
document to <a href="http://www.reginfo.gov/public/do/PRAMain">www.reginfo.gov/public/do/PRAMain</a>. Find this information
collection by selecting ``Currently under 30-day Review--Open for
Public Comments'' or using the search function.
Regulatory Flexibility Act
In general, the Regulatory Flexibility Act (RFA) \23\ requires an
agency, in connection with a proposed and final rulemaking, to prepare
a Regulatory Flexibility Analysis describing the impact of the rule on
small entities, which are defined by the U.S. Small Business
Administration for purposes of the RFA to include commercial banks and
savings institutions with total assets of $850 million or less and
trust companies with total assets of $47 million or less. However, a
Regulatory Flexibility Analysis is not required if the agency certifies
that the rulemaking would not have a significant economic impact on a
substantial number of small entities and publishes its certification
and a short explanatory statement in the Federal Register along with
its rulemaking.
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\23\ 5 U.S.C. 601 et seq.
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The OCC currently supervises approximately 942 IDIs,\24\ of which
636 are small entities.\25\ The final Guidelines do not impact any
small entities because they only apply to banks with average total
consolidated assets of $100 billion or more. Accordingly, the OCC
certifies that the final Guidelines will not have a significant
economic impact on a substantial number of small entities.
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\24\ Based on data accessed using FINDRS on September 12, 2024.
\25\ Consistent with the General Principles of Affiliation, 13
CFR 121.103(a), the OCC counts the assets of affiliated financial
institutions when determining if it should classify an institution
as a small entity. The OCC used December 31, 2023, to determine size
because a ``financial institution's assets are determined by
averaging the assets reported on its four quarterly financial
statements for the preceding year.'' See footnote 8 of the U.S.
Small Business Administration's Table of Standards.
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Unfunded Mandates Reform Act of 1995
Under section 202 of the Unfunded Mandates Reform Act of 1995
(UMRA),\26\ the OCC prepares a budgetary impact statement before
promulgating a rulemaking that includes any Federal mandate that may
result in the expenditure by State, local, and Tribal governments, in
the aggregate, or by the private sector, of $100 million or more
(currently $183 million, as adjusted annually for inflation) in any one
year. The OCC has determined that the expenditures associated with the
final Guidelines' mandates will be approximately $86.7 million.
Therefore, the OCC concludes that the final Guidelines will not result
in an expenditure of $183 million or more annually by State, local, and
Tribal governments, in the aggregate, or by the private sector.
Accordingly, the
[[Page 84260]]
OCC has not prepared the budgetary impact statement described above.
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\26\ 2 U.S.C. 1532.
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Congressional Review Act
For purposes of the Congressional Review Act,\27\ the OMB
determines whether a final rule constitutes a major rule. If a rule is
deemed a major rule by the OMB, the Congressional Review Act generally
provides that the rule may not take effect until at least 60 days
following its publication. The Congressional Review Act defines a
``major rule'' as any rule that the Administrator of the Office of
Information and Regulatory Affairs of the OMB finds has resulted in or
is likely to result in (1) an annual effect on the economy of $100
million or more; (2) a major increase in costs or prices for consumers,
individual industries, Federal, State, or local government agencies or
geographic regions; or (3) significant adverse effects on competition,
employment, investment, productivity, innovation, or on the ability of
United States-based enterprises to compete with foreign-based
enterprises in domestic and export markets. The OCC submitted the final
Guidelines to the OMB for this major rule determination, and the OMB
determined that the final Guidelines are not a major rule. As required
by the Congressional Review Act, the OCC is submitting the appropriate
report to Congress and the Government Accountability Office for review.
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\27\ 5 U.S.C. 801 et seq.
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Administrative Procedure Act
The Administrative Procedure Act \28\ requires that publication of
a substantive rule generally be made not less than 30 days before its
effective date. Consistent with this requirement, the final Guidelines
will be effective on January 1, 2025, which is more than 30 days after
their publication in the Federal Register.
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\28\ 5 U.S.C. 553(d).
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Riegle Community Development and Regulatory Improvement Act of 1994
Pursuant to section 302(a) of the Riegle Community Development and
Regulatory Improvement Act of 1994,\29\ in determining the effective
date and administrative compliance requirements for new regulations
that impose additional reporting, disclosure, or other requirements on
IDIs, the OCC considers, consistent with the principles of safety and
soundness and the public interest: (1) any administrative burdens that
the rule will place on depository institutions, including small
depository institutions and customers of depository institutions and
(2) the benefits of a rulemaking. The OCC has considered the
administrative burdens that the final Guidelines will place on IDIs,
including small depository institutions and their customers, and the
benefits of the final Guidelines. The agency believes that the
effective date of January 1, 2025, is appropriate.
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\29\ 12 U.S.C. 4802(a).
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List of Subjects in 12 CFR Part 30
Banks, Banking, Consumer protection, National banks, Privacy,
Safety and soundness, Reporting and recordkeeping requirements.
Authority and Issuance
For the reasons set forth in the preamble, and under the authority
of 12 U.S.C. 93a and 12 U.S.C. 1831p-1, chapter I of title 12 of the
Code of Federal Regulations is amended as follows:
PART 30--SAFETY AND SOUNDESS STANDARDS
0
1. The authority citation for part 30 continues to read as follows:
Authority: 12 U.S.C. 1, 93a, 371, 1462a, 1463, 1464, 1467a,
1818, 1828, 1831p-1, 1881-1884, 3102(b) and 5412(b)(2)(B); 15 U.S.C.
1681s, 1681w, 6801, and 6805(b)(1).
0
2. Amend appendix E by:
0
a. Revising and republishing paragraph I.B.
0
b. In paragraph I.C.1.a., removing the text ``$250 billion'' and adding
the text ``$100 billion'' in its place; and
0
c. Revising and republishing paragraphs I.E. and II.
The revisions and republications read as follows:
Appendix E to Part 30--OCC Guidelines Establishing Standards for
Recovery Planning by Certain Large Insured National Banks, Insured
Federal Savings Associations, and Insured Federal Branches
* * * * *
I. Introduction
* * * * *
B. Compliance Date
1. A covered bank with average total consolidated assets,
calculated according to paragraph I.E.1. of this appendix, equal to
or greater than $250 billion as of January 1, 2025, should be in
compliance with this appendix on January 1, 2025, except that the
bank should be in compliance with:
a. the amended provisions on non-financial risk within 12 months
from January 1, 2025, and
b. paragraph II.D. of this appendix within 18 months from
January 1, 2025.
2. A covered bank with average total consolidated assets,
calculated according to paragraph I.E.1. of this appendix, equal to
or greater than $100 billion but less than $250 billion as of
January 1, 2025, should be in compliance with this appendix within
12 months from January 1, 2025, except that the bank should be in
compliance with paragraph II.D. of this appendix within 24 months
from January 1, 2025.
3. A financial institution that is not a covered bank as of
January 1, 2025, but which subsequently becomes a covered bank
should comply with this appendix within 12 months of becoming a
covered bank, except that the bank should be in compliance with
paragraph II.D. of this appendix within 24 months of becoming a
covered bank.
* * * * *
E. Definitions
1. Average total consolidated assets means the average of total
consolidated assets of the bank or the covered bank, as reported on
the bank's or the covered bank's Consolidated Reports of Condition
and Income for the four most recent consecutive quarters.
2. Bank means any insured national bank, insured Federal savings
association, or insured Federal branch of a foreign bank.
3. Covered bank means any bank:
a. With average total consolidated assets equal to or greater
than $100 billion;
b. With average total consolidated assets less than $100 billion
if the bank was previously a covered bank, unless the OCC determines
otherwise; or
c. With average total consolidated assets less than $100
billion, if the OCC determines that such bank is highly complex or
otherwise presents a heightened risk as to warrant the application
of this appendix pursuant to paragraph I.C.1.a. of this appendix.
4. Recovery means timely and appropriate action that a covered
bank takes to remain a going concern when it is experiencing or is
likely to experience considerable financial stress or non-financial
stress. A covered bank in recovery has not yet deteriorated to the
point where liquidation or resolution is imminent.
5. Recovery plan means a plan that identifies triggers and
options for responding to a wide range of severe internal and
external stress scenarios to restore a covered bank that is in
recovery to financial strength and viability in a timely manner. The
options should maintain the confidence of market participants, and
neither the plan nor the options may assume or rely on any
extraordinary government support.
6. Trigger means a quantitative or qualitative indicator of the
risk or existence of severe financial stress or non-financial
stress, the breach of which should always be escalated to senior
management or the board of directors (or appropriate committee of
the board of directors), as appropriate, for purposes of initiating
a response. The breach of any trigger should result in timely notice
accompanied by sufficient information to enable management of the
covered bank to take corrective action.
II. Recovery Plan
A. Recovery plan. Each covered bank should develop and maintain
a recovery plan
[[Page 84261]]
that is specific to that covered bank and appropriate for its
individual size, risk profile, activities, and complexity, including
the complexity of its organizational and legal entity structure.
When developing and maintaining its recovery plan, each covered bank
should appropriately consider both financial risk and non-financial
risk (including operational and strategic risk).
B. Elements of recovery plan. A recovery plan under paragraph
II.A. of this appendix should include the following elements:
1. Overview of covered bank. A recovery plan should describe the
covered bank's overall organizational and legal entity structure,
including its material entities, critical operations, core business
lines, and core management information systems. The plan should
describe interconnections and interdependencies:
(i) Across business lines within the covered bank;
(ii) With affiliates in a bank holding company structure;
(iii) Between a covered bank and its foreign subsidiaries; and
(iv) With critical third parties.
2. Triggers. A recovery plan should identify financial triggers
and non-financial triggers that appropriately reflect the covered
bank's particular vulnerabilities.
3. Options for recovery. A recovery plan should identify a wide
range of credible options that a covered bank could undertake to
restore financial strength and viability, thereby allowing the bank
to continue to operate as a going concern and to avoid liquidation
or resolution. A recovery plan should explain how the covered bank
would carry out each option and describe the timing required for
carrying out each option. The recovery plan should specifically
identify the recovery options that require regulatory or legal
approval.
4. Impact assessments. For each recovery option, a covered bank
should assess and describe how the option would affect the covered
bank. This impact assessment and description should specify the
procedures the covered bank would use to maintain the financial
strength and viability of its material entities, critical
operations, and core business lines for each recovery option. For
each option, the recovery plan's impact assessment should address
the following:
a. The effect on the covered bank's capital, liquidity, funding,
and profitability;
b. The effect on the covered bank's material entities, critical
operations, and core business lines, including reputational impact;
c. The effect on the covered bank's risk profile as a result of
changes to its financial risk and non-financial risk; and
d. Any legal or market impediment or regulatory requirement that
must be addressed or satisfied in order to implement the option.
5. Escalation procedures. A recovery plan should clearly outline
the process for escalating decision-making to senior management or
the board of directors (or an appropriate committee of the board of
directors), as appropriate, in response to the breach of any
trigger. The recovery plan should also identify the departments and
persons responsible for executing the decisions of senior management
or the board of directors (or an appropriate committee of the board
of directors).
6. Management reports. A recovery plan should require reports
that provide senior management or the board of directors (or an
appropriate committee of the board of directors) with sufficient
data and information to make timely decisions regarding the
appropriate actions necessary to respond to the breach of a trigger.
7. Communication procedures. A recovery plan should provide that
the covered bank notify the OCC of any significant breach of a
trigger and any action taken or to be taken in response to such
breach and should explain the process for deciding when a breach of
a trigger is significant. A recovery plan also should address when
and how the covered bank will notify persons within the organization
and other external parties of its action under the recovery plan.
The recovery plan should specifically identify how the covered bank
will obtain required regulatory or legal approvals.
8. Other information. A recovery plan should include any other
information that the OCC communicates in writing directly to the
covered bank regarding the covered bank's recovery plan.
C. Relationship to other processes; coordination with other
plans. The covered bank should integrate its recovery plan into its
risk governance functions. The covered bank also should align its
recovery plan with its other plans, such as its strategic;
operational (including business continuity and resilience program);
contingency; capital (including stress testing); liquidity; and
resolution planning. The covered bank's recovery plan should be
specific to that covered bank. The covered bank also should
coordinate its recovery plan with any recovery and resolution
planning efforts by the covered bank's holding company, so that the
plans are consistent with and do not contradict each other.
D. Testing. Each covered bank should test its recovery plan
periodically but not less than annually and following any
significant changes to the recovery plan made in response to a
material event. Testing should validate the effectiveness of the
recovery plan, including by considering each element set forth in
paragraph II.B. of this appendix, and should be appropriate for the
bank's individual size, risk profile, activities, and complexity,
including the complexity of its organizational and legal entity
structure. Each covered bank should revise its recovery plan as
appropriate following completion of testing.
* * * * *
Michael J. Hsu,
Acting Comptroller of the Currency.
[FR Doc. 2024-24402 Filed 10-21-24; 8:45 am]
BILLING CODE 4810-33-P
</pre></body>
</html>Indexed from Federal Register on October 22, 2024.
This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.