Proposed Rule2026-05961
Regulatory Capital Rule (Regulation Q): Risk-Based Capital Surcharges for Global Systemically Important Bank Holding Companies; Systemic Risk Report (FR Y-15)
Primary source
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Published
March 27, 2026
Issuing agencies
Federal Reserve System
Abstract
The Board of Governors of the Federal Reserve System (Board) is inviting public comment on a notice of proposed rulemaking to amend the Board's rule that identifies and establishes risk-based capital surcharges for U.S. global systemically important bank holding companies (GSIBs). The proposal would also amend the Systemic Risk Report (FR Y-15), which is the source of inputs to the implementation of the GSIB framework under the capital rule. The proposal would make several changes to better align surcharges with risk. First, it would modify certain coefficients used to calculate GSIB surcharges under method 2 of the GSIB surcharge framework to reflect changes in the financial system and the economy and provide for annual adjustments for real economic growth and inflation going forward. Second, the proposal would modify the measurement and weighting of the weighted short-term wholesale funding systemic indicator. Third, for certain systemic indicators currently measured as of a single date each year, the proposal would require measurement based on average values to reduce the effects of temporary changes to indicator values around measurement dates. Fourth, the proposal would reduce cliff effects and enhance the sensitivity of the surcharge to changes in a GSIB's systemic risk profile. Fifth, to improve risk capture, the proposal would also make improvements to the measurement of some systemic indicators used in the GSIB surcharge framework and the framework for determining prudential standards for large banking organizations. In addition to these changes, the proposal would make several amendments to the FR Y-15 to improve the consistency of data reporting and streamline the reporting process.
Full Text
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[Federal Register Volume 91, Number 59 (Friday, March 27, 2026)]
[Proposed Rules]
[Pages 14908-14949]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2026-05961]
[[Page 14907]]
Vol. 91
Friday,
No. 59
March 27, 2026
Part II
Federal Reserve System
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12 CFR Part 217
Regulatory Capital Rule (Regulation Q): Risk-Based Capital Surcharges
for Global Systemically Important Bank Holding Companies; Systemic Risk
Report (FR Y-15); Proposed Rule
Federal Register / Vol. 91, No. 59 / Friday, March 27, 2026 /
Proposed Rules
[[Page 14908]]
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FEDERAL RESERVE SYSTEM
12 CFR Part 217
[Docket No. 1889]
RIN 7100-AH22
Regulatory Capital Rule (Regulation Q): Risk-Based Capital
Surcharges for Global Systemically Important Bank Holding Companies;
Systemic Risk Report (FR Y-15)
AGENCY: Board of Governors of the Federal Reserve System.
ACTION: Notice of proposed rulemaking.
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SUMMARY: The Board of Governors of the Federal Reserve System (Board)
is inviting public comment on a notice of proposed rulemaking to amend
the Board's rule that identifies and establishes risk-based capital
surcharges for U.S. global systemically important bank holding
companies (GSIBs). The proposal would also amend the Systemic Risk
Report (FR Y-15), which is the source of inputs to the implementation
of the GSIB framework under the capital rule. The proposal would make
several changes to better align surcharges with risk. First, it would
modify certain coefficients used to calculate GSIB surcharges under
method 2 of the GSIB surcharge framework to reflect changes in the
financial system and the economy and provide for annual adjustments for
real economic growth and inflation going forward. Second, the proposal
would modify the measurement and weighting of the weighted short-term
wholesale funding systemic indicator. Third, for certain systemic
indicators currently measured as of a single date each year, the
proposal would require measurement based on average values to reduce
the effects of temporary changes to indicator values around measurement
dates. Fourth, the proposal would reduce cliff effects and enhance the
sensitivity of the surcharge to changes in a GSIB's systemic risk
profile. Fifth, to improve risk capture, the proposal would also make
improvements to the measurement of some systemic indicators used in the
GSIB surcharge framework and the framework for determining prudential
standards for large banking organizations. In addition to these
changes, the proposal would make several amendments to the FR Y-15 to
improve the consistency of data reporting and streamline the reporting
process.
DATES: Comments must be received on or before June 18, 2026.
ADDRESSES: You may submit comments, identified by Docket No. 1889 and
RIN 7100-AH22, by any of the following methods:
<bullet> Agency Website: <a href="https://www.federalreserve.gov/apps/proposals/">https://www.federalreserve.gov/apps/proposals/</a>. Follow the instructions for submitting comments, including
attachments. Preferred Method.
<bullet> Mail: Benjamin W. McDonough, Secretary, Board of Governors
of the Federal Reserve System, 20th Street and Constitution Avenue NW,
Washington, DC 20551.
<bullet> Hand Delivery/Courier: Same as mailing address.
<bullet> Other Means: <a href="/cdn-cgi/l/email-protection#126267707e7b71717d7f7f777c6661527460703c757d64"><span class="__cf_email__" data-cfemail="28585d4a44414b4b4745454d465c5b684e5a4a064f475e">[email protected]</span></a>. You must include the
docket number in the subject line of the message.
Comments received are subject to public disclosure. In general, all
public comments will be made available on the Board's website at
<a href="https://www.federalreserve.gov/apps/proposals/">https://www.federalreserve.gov/apps/proposals/</a> without change and will
not be modified to remove personal or business information including
confidential, contact, or other identifying information. Public
comments may also be viewed electronically or in person in Room M-
4365A, 2001 C St. NW, Washington, DC 20551, between 9:00 a.m. and 5:00
p.m. during Federal business weekdays.
FOR FURTHER INFORMATION CONTACT: Anna Lee Hewko, Associate Director,
(202) 250-1577, Brian Chernoff, Manager, (202) 731-8914, Akos Horvath,
Principal Economist, (202) 452-3048, Jennifer McClean, Senior Financial
Institution Policy Analyst II, (202) 579-4087, Sarah Dunning, Financial
Institution Policy Analyst III, (202) 961-6418, Division of Supervision
and Regulation; or Jay Schwarz, Deputy Associate General Counsel, (202)
452-2970, Mark Buresh, Senior Special Counsel, (202) 452-5270, Jonah
Kind, Senior Counsel, (202) 309-5287, Isabel Echarte, Senior Attorney,
(202) 945-2412, Legal Division, Board of Governors of the Federal
Reserve System, 20th and C Streets NW, Washington, DC 20551. For users
of TDD-TYY, (202) 263-4869 or dial 711 from any telephone anywhere in
the United States.
SUPPLEMENTARY INFORMATION:
Table of Contents
I. Introduction
A. Background on the GSIB Surcharge Framework
B. Systemic Risk Report (FR Y-15)
C. Overview of the Proposal
II. Description of the Proposal
A. Method 2 Coefficients
i. One-Time Adjustment to Fixed Method 2 Coefficients
ii. Annual Indexing of Method 2 Coefficients by Nominal GDP
Growth
iii. Alternative Approach To Adjust Method 2 Coefficients
B. Changes to the Short-Term Wholesale Funding Measure
i. Modification of the Short-Term Wholesale Funding Score To
Remove the Risk-Weighted Assets Denominator
ii. Weight the Short-Term Wholesale Funding Score To Represent
Approximately 20 Percent of Total Method 2 GSIB Scores
C. Data Averaging of Certain Systemic Indicators
i. Currency Conversion of Aggregate Global Indicator Amounts
D. Reducing Cliff Effects in the Calculation of Method 2 GSIB
Surcharges
E. Amendments to Systemic Indicators
i. Interconnectedness
a. Definition of ``Financial Institution'' and Treatment of
Exchange-Traded Funds
b. Derivatives
c. Securities Outstanding
ii. Substitutability
a. Trading Volume
b. Currencies Included in the Payments Activity Systemic
Indicator and Associated Memoranda Items
c. Clarifications for the Payments Activity Indicator
iii. Cross-Jurisdictional Activity
a. Cross-Jurisdictional Derivatives Activity
b. Other Changes to Measurement of Cross-Jurisdictional Activity
Indicators
iv. Short-Term Wholesale Funding
a. Alignment With Other Requirements
b. Instructions Update to the Calculation of the Weighted Short-
Term Wholesale Funding Amount
F. Clarification for Reduction in GSIB Surcharge Calculated
During the Year Between Calculation and Effective Date of a GSIB
Surcharge Increase
G. Foreign Banking Organization Reporting Requirements
H. Implementation and Timing
I. Interaction With Other Proposals
III. Economic Analysis
A. Introduction
B. Baseline and Data
C. Proposed Policy Change
D. Reasonable Alternatives
E. Estimated Changes in GSIB Scores and Surcharges
i. Estimated Impact of Changes to Systemic Indicators
ii. Estimated Impact of Changes to the Method 2 Score
Calculation
iii. Estimated Changes in GSIB Surcharges
F. Benefits
G. Costs
H. Interactions With Other Rules and Proposed Rulemakings
i. Interaction With TLAC and Long-Term Debt Requirements
ii. Interaction With the Regulatory Tailoring Framework
I. Conclusion
J. Appendix: Estimation Methodology
i. Partial Effects of Changes to Systemic Indicators
ii. Combined Effects of Changes to Systemic Indicators
iii. Incremental Effect of Adjusting Method 2 Coefficients
iv. Incremental Effect of Changing the Short-Term Wholesale
Funding Score
[[Page 14909]]
v. Combined Impact on Method 1 and Method 2 Scores
vi. GSIB Surcharges Under the Proposal and the Alternatives
vii. Interaction With the TLAC Framework
viii. Interaction With the Regulatory Tailoring Framework
IV. Administrative Law Matters
A. Paperwork Reduction Act
B. Regulatory Flexibility Act
C. Plain Language
D. Providing Accountability Through Transparency Act of 2023
I. Introduction
The Board of Governors of the Federal Reserve System (Board) is
proposing modifications to the methodology used to calculate risk-based
capital surcharges for U.S. global systemically important bank holding
companies (GSIBs) and the measurement and reporting of certain systemic
indicators used in this calculation and in the determination of
regulatory tailoring categories. The proposed changes seek to improve
the framework's measurement of systemic risk and better align
surcharges with GSIBs' systemic risk profiles.
A. Background on the GSIB Surcharge Framework
Section 165 of the Dodd-Frank Wall Street Reform and Consumer
Protection Act (Dodd-Frank Act) directs the Board to establish enhanced
prudential standards for large bank holding companies and for nonbank
financial companies that the Financial Stability Oversight Council has
designated for supervision by the Board (nonbank financial companies
supervised by the Board).\1\ These standards must include risk-based
capital requirements as well as other enumerated standards.\2\ The
standards must be more stringent than those applicable to other bank
holding companies and to nonbank financial companies that do not
present similar risks to U.S. financial stability.\3\ The standards
must also increase in stringency based on several factors, including
the size and risk characteristics of a company subject to the rule, and
the Board must take into account the differences among bank holding
companies and nonbank financial companies.\4\ Furthermore, various
statutory authorities provide the Board with broad authority to set
capital requirements and standards for depository institution holding
companies.\5\
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\1\ See 12 U.S.C. 5365. Originally, section 165 applied to bank
holding companies with $50 billion or more in total consolidated
assets. The Economic Growth, Regulatory Relief, and Consumer
Protection Act revised this threshold to $250 billion and granted
the ability to apply enhanced prudential standards under section 165
to bank holding companies with $100 billion or more in total
consolidated assets under certain circumstances. See Public Law 115-
174, Sec. 401.
\2\ See 12 U.S.C. 5365(b).
\3\ See 12 U.S.C. 5365(a)(1)(A).
\4\ See 12 U.S.C. 5365(a)(1)(B). Under section 165(a)(1)(B) of
the Dodd-Frank Act, the enhanced prudential standards must increase
in stringency based on the considerations listed in section
165(b)(3).
\5\ See, e.g., 12 U.S.C. 1467a(g)(1) (savings and loan holding
companies); 12 U.S.C. 1844(b) (bank holding companies); 12 U.S.C.
3902(1)-(2), 3907(a), 3909(a), (c)(1)-(2) (depository institutions;
affiliates of depository institutions, including holding companies;
and certain U.S. operations of foreign banking organizations); 12
U.S.C. 5371 (insured depository institutions, depository institution
holding companies, and nonbank financial companies supervised by the
Board).
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The Board adopted a final rule in 2015 that established a
methodology for identifying GSIBs and assigning them a risk-based
capital surcharge.\6\ The GSIB surcharge framework requires a GSIB to
maintain additional capital in order to avoid restrictions on certain
distributions and discretionary bonus payments. This capital buffer
strengthens a firm's resiliency, reducing the probability of its
failure and the risks that the firm's failure or distress could pose to
the U.S. financial system.
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\6\ Regulatory Capital Rules: Implementation of Risk-Based
Capital Surcharges for Global Systemically Important Bank Holding
Companies, 80 FR 49082 (Aug. 14, 2015). See 12 CFR part 217, subpart
H.
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The methodology to identify a GSIB (method 1) uses five equally
weighted categories that are correlated with systemic importance: (1)
size, (2) interconnectedness, (3) substitutability, (4) complexity, and
(5) cross-jurisdictional activity. The methodology subdivides certain
categories into systemic indicators. Generally, a bank holding company
subject to Category I, II, or III capital standards must calculate its
method 1 score annually.\7\ A bank holding company calculates each
systemic indicator by dividing its own measure of the indicator by an
aggregate global measure for that indicator.\8\ The resulting value for
each systemic indicator is then multiplied by the prescribed weighting
in the capital rule and by 10,000 to reflect the result in basis
points. A bank holding company then sums the weighted values for the
twelve systemic indicators to determine its method 1 score.\9\ A bank
holding company is identified as a GSIB if its method 1 score equals or
exceeds 130 basis points.\10\
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\7\ 12 CFR 217.400 and 217.402. In 2019, the Board, with the
Office of the Comptroller of the Currency (OCC) and the Federal
Deposit Insurance Corporation (FDIC), adopted rules establishing
four categories of capital standards for U.S. banking organizations
with $100 billion or more in total assets and foreign banking
organizations with $100 billion or more in combined U.S. assets.
Under this framework, Category I capital standards apply to U.S.
GSIBs and their depository institution subsidiaries. Category II
standards apply to banking organizations with at least $700 billion
in total consolidated assets or at least $75 billion in cross-
jurisdictional activity and their depository institution
subsidiaries. Category III standards apply to banking organizations
with total consolidated assets of at least $250 billion or at least
$75 billion in weighted short-term wholesale funding, nonbank
assets, or off-balance sheet exposure and their depository
institution subsidiaries. Category IV standards apply to banking
organizations with total consolidated assets of at least $100
billion that do not meet the thresholds for a higher category and
their depository institution subsidiaries. See 12 CFR 252.5 and
238.10; see also ``Prudential Standards for Large Bank Holding
Companies, Savings and Loan Holding Companies, and Foreign Banking
Organizations,'' 84 FR 59032 (November 1, 2019); and ``Changes to
Applicability Thresholds for Regulatory Capital and Liquidity
Requirements,'' 84 FR 59230 (Nov. 1, 2019).
\8\ 12 CFR 217.404. The Board annually publishes the aggregate
global measures.
\9\ 12 CFR 217.404. Scores are rounded to the nearest basis
point according to standard rounding rules for the purposes of
assigning levels. That is, fractional amounts between zero and one-
half are rounded down to zero, while fractional amounts at or above
one-half are rounded to one. A bank holding company's
substitutability category score is capped at 100 basis points. See
also 80 FR at 49088 (Aug. 14, 2015).
\10\ 12 CFR 217.402.
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If a bank holding company is identified as a GSIB, it must also
calculate its method 2 score.\11\ Method 2 measures a bank holding
company's systemic risk profile using the same systemic indicators as
method 1, except that the substitutability category is replaced with a
measurement of reliance on short-term wholesale funding.\12\ Method 2
also uses fixed coefficient values to scale the systemic indicators for
size, interconnectedness, complexity, and cross-jurisdictional
activity, rather than multiplying indicators by a measure that changes
each year based on the aggregate global measure for that indicator.\13\
A GSIB multiplies its indicator values for size, interconnectedness,
complexity, and cross-jurisdictional activity by the respective fixed
coefficients to calculate an indicator score. The firm then aggregates
these indicator scores with the GSIB's short-term wholesale funding
score to compute its total method 2 score. A GSIB's short-term
wholesale funding score is calculated by dividing the firm's average
weighted short-term wholesale funding amount by the firm's average
risk-weighted assets and
[[Page 14910]]
multiplying the result by a fixed factor of 350.\14\
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\11\ 12 CFR 217.403.
\12\ 12 CFR 217.405 and 406.
\13\ 12 CFR 217.405; see also 80 FR at 49087-88 (Aug. 14, 2015).
\14\ The short-term wholesale funding score uses a different
methodology from the other systemic indicators because inclusion of
short-term wholesale funding for GSIB surcharge purposes is specific
to the United States, and the Basel Committee on Banking Supervision
(Basel Committee)'s framework does not include a corresponding
measure for short-term wholesale funding. As a result, there is no
equivalent global aggregate indicator measure for short-term
wholesale funding.
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A GSIB's applicable surcharge is the larger of the surcharges that
apply based on its method 1 score and method 2 score. A GSIB is subject
to a minimum surcharge of 1.0 percent, and surcharges increase with
GSIB scores under both method 1 and method 2. Method 1 surcharges
increase in increments of 0.5 percentage points for each 100-basis
point method 1 score band, up to a method 1 surcharge of 2.5 percent,
which is associated with a method 1 score ranging from 430 to 529 basis
points. If a GSIB's method 1 score exceeds 529, the GSIB's method 1
surcharge equals 3.5 percent, plus 1.0 percentage point for every
further 100-basis point increase in score. Like the method 1 surcharge,
the method 2 surcharge uses score band ranges of 100 basis points, with
the lowest score band ranging from 130 to 229 basis points. The method
2 surcharge increases in increments of 0.5 percentage points per score
band.\15\
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\15\ 12 CFR 217.403.
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B. Systemic Risk Report (FR Y-15)
The Systemic Risk Report form (FR Y-15) collects systemic risk data
from U.S. bank holding companies and covered savings and loan holding
companies \16\ with total consolidated assets of $100 billion or more,
any U.S.-based bank holding company designated as a GSIB that does not
meet that consolidated assets threshold, and foreign banking
organizations with combined U.S. assets of $100 billion or more.\17\
The FR Y-15 collects data on a firm's structure, activities, and
funding that is consistent and comparable among firms and often
unavailable from other sources. Respondents must submit the FR Y-15
quarterly.
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\16\ Covered savings and loan holding companies are those that
are not substantially engaged in insurance or commercial activities.
For more information, see the definition of ``covered savings and
loan holding company'' provided in 12 CFR 238.2.
\17\ The mandatory FR Y-15 is authorized by sections 163 and 165
of the Dodd-Frank Wall Street Reform and Consumer Protection Act
(Dodd-Frank Act) (12 U.S.C. 5463 and 5365), the International
Banking Act (12 U.S.C. 3106 and 3108), the Bank Holding Company Act
(12 U.S.C. 1844), and the Home Owners' Loan Act (HOLA) (12 U.S.C.
1467a).
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Under the GSIB surcharge framework, any U.S.-based top-tier bank
holding company that qualifies as a Category I, II, or III Board-
regulated institution must annually compute its method 1 score using
the values for the systemic indicators (in each of the size,
interconnectedness, substitutability, complexity, and cross-
jurisdictional activity categories) that it reported on its FR Y-15 as
of December 31 of the prior year.\18\ A GSIB must also determine its
method 2 score and its GSIB surcharge based on the data reported on its
FR Y-15 as of the same date.
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\18\ There are certain circumstances under which a depository
institution that is not required to report the FR Y-15 would be
subject to standards based on calculation methodologies contained in
the FR Y-15. See, e.g., 12 CFR 217.2, ``Category III Board-regulated
institution.''
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Data reported on the FR Y-15 are also used to determine the
applicable category of prudential standards for U.S. banking
organizations with total consolidated assets of $100 billion or more
and foreign banking organizations with combined U.S. assets of $100
billion or more, under the framework adopted by the Board in 2019.\19\
Specifically, the measures for cross-jurisdictional activity, weighted
short-term wholesale funding, and off-balance sheet exposure, which are
used to determine whether a banking organization is subject to Category
II or III standards, use or include data reported on the FR Y-15.\20\
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\19\ See 12 CFR part 252, subpart A, and 12 CFR 238.10.
\20\ See id.
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In addition, the data collected on the FR Y-15 are used to identify
other firms that may present significant systemic risk and to analyze
the systemic risk implications of proposed mergers and acquisitions.
C. Overview of the Proposal
The proposal includes revisions to the GSIB framework that would
improve the framework's measurement of systemic risk and better align
GSIB surcharges with firms' systemic risk profiles.\21\ First, the
proposal would adjust the fixed coefficients in the method 2 GSIB
surcharge framework to account for changes in the financial system and
the economy. Additionally, going forward, the proposal would apply an
annual adjustment to the coefficients based on real economic growth and
inflation.
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\21\ The proposal would also be responsive to comments received
in response to the Economic Growth and Regulatory Paperwork
Reduction Act (EGRPRA) public notices. Public Law 104-208, Div. A,
Title II, section 2222, 110 Stat. 3009-414, (1996) (codified at 12
U.S.C. 3311). See also Regulatory Publication and Review Under the
Economic Growth and Regulatory Paperwork Reduction Act of 1996, 90
FR 35241 (Jul. 25, 2025). In 2023, the Board published a proposal to
revise the GSIB framework. 88 FR 60385 (Sept. 1, 2023). The Board is
rescinding the 2023 proposal. Members of the public that seek to
submit comments on the current proposal must submit comments in line
with the procedures described in this proposal.
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Second, to mitigate unintended effects of the current calculation,
the proposal would modify the short-term wholesale funding systemic
indicator by measuring it as an absolute amount rather than as a ratio
scaled to a firm's average risk-weighted assets. The proposal would
also set a new coefficient for this indicator that approximates 20
percent of the weighted basis points of total method 2 scores for
banking organizations identified as GSIBs, consistent with the intended
weighting of the category.
Third, to better reflect the risk profile of a firm and reduce
incentives for a firm to reduce its GSIB surcharge by making temporary
adjustments to reported indicators of systemic risk at year end, the
proposal would require firms to calculate certain systemic indicators
as an annual average of their daily or monthly values. Firms currently
calculate these indicators on a point-in-time basis at year end.
Fourth, to reduce cliff effects and increase the sensitivity of the
GSIB surcharge to changes in a firm's systemic risk profile, the
proposal would introduce narrower method 2 score band ranges.
Finally, the proposal would improve the measurement of certain
systemic indicators and would amend the FR Y-15 to improve the clarity
of instructions and consistency of data reporting and systemic
indicator measurement.\22\
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\22\ As discussed in section I.B of this SUPPLEMENTARY
INFORMATION, certain indicators that the proposal would modify are
also used to determine prudential standards for large banking
organizations. The proposed changes include revisions consistent
with the framework used by the Basel Committee to identify GSIBs and
assess their systemic importance. The Basel Committee is a committee
comprised of central banks and banking supervisory authorities,
which was established by the central bank governors of the G-10
countries in 1975. Among other roles, the Basel Committee provides a
forum for coordination on banking regulation and supervision across
jurisdictions. The Basel Committee developed a methodology,
available at <a href="https://www.bis.org/bcbs/gsib/">https://www.bis.org/bcbs/gsib/</a>, that uses an indicator-
based measurement approach for assessing the systemic importance of
global systemically important banks. In July 2018, the Basel
Committee made revisions to its methodology, which are available at
<a href="https://www.bis.org/bcbs/publ/d445.htm">https://www.bis.org/bcbs/publ/d445.htm</a>.
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II. Description of the Proposal
A. Method 2 Coefficients
Method 2 in the Board's GSIB surcharge framework uses a fixed
approach for measuring systemic indicator scores instead of measuring
relative to annually updated aggregate
[[Page 14911]]
global indicators as under method 1.\23\ This fixed approach uses
coefficients that are based on the average of the aggregate global
indicator amounts for each indicator other than short-term wholesale
funding for year-end 2012 and year-end 2013 and exchange rate data for
2011-2013.\24\ Method 2 also takes into account a measure of a banking
organization's reliance on short-term wholesale funding relative to the
banking organization's risk-weighted assets, rather than to a global
aggregate measure.\25\
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\23\ 12 CFR 217.403. See also 80 FR 49082, at 49085-49088 (Aug.
14, 2015).
\24\ See 80 FR 49082, at 49087-49088.
\25\ See id. at 49097-49101.
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The 2015 final rule adopted the fixed coefficients approach for
method 2 to help provide more certainty regarding the actions that a
U.S. GSIB could take to reduce its GSIB surcharge, so that a firm's
method 2 score would be affected only by its own systemic indicators
rather than by both its own systemic indicators and the aggregate level
of systemic indicators of a set of global firms. The fixed coefficients
thus seek to improve the predictability of method 2 scores and
facilitate capital planning by GSIBs.\26\
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\26\ See id. at 49085-49086.
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However, fixed coefficients do not account for changes in the
economy or financial system that can affect a firm's systemic risk
profile. Therefore, as the 2015 final rule observed, scores calculated
under the fixed approach could be influenced over time by factors that
do not represent changes in a firm's systemic risk.\27\ For example,
GSIBs may report higher method 2 scores over time that are not
commensurate with their systemic risk due to factors such as inflation,
real economic growth, or other macroeconomic changes. These effects can
compound and increase over time. The Board stated in the 2015 final
rule that it would periodically reevaluate the GSIB surcharge framework
to ensure that factors unrelated to systemic risk do not have
unintended effects on a bank holding company's method 2 scores and that
it would make adjustments as appropriate.\28\
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\27\ See id. at 49085.
\28\ See id. at 49088.
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To help ensure that method 2 scores better reflect systemic risk,
the proposal would adjust the fixed method 2 coefficients for changes
in the financial system and the economy and automatically index the
coefficients going forward on an annual basis. First, the proposal
would update the fixed method 2 coefficients for the size,
interconnectedness, complexity, and cross-jurisdictional activity
categories based on a one-time downward adjustment of the method 2
coefficients by a factor of 1.2. Second, the proposal would implement a
mechanism to annually adjust the method 2 coefficients, including the
proposed new coefficient for short-term wholesale funding described in
section II.B of this SUPPLEMENTARY INFORMATION, based on nominal U.S.
gross domestic product going forward. Overall, as a result of these
proposed changes to the method 2 coefficients, method 2 scores would
better account for changes in the U.S. economy and financial system.
i. One-Time Adjustment to Fixed Method 2 Coefficients
The proposal would update the fixed method 2 coefficients for the
size, interconnectedness, complexity, and cross-jurisdictional activity
categories by a one-time downward adjustment by a factor of 1.2 to
reflect changes in the financial system and economy since the
introduction of the framework.
The Board periodically reviews its regulatory capital framework to
ensure requirements are appropriate and the framework is functioning as
intended. The Board considered several elements of the GSIB surcharge
framework. These included updating components of the framework to
reflect changes in the financial system and the broader economy since
the framework's implementation, the relationship between regulatory
measures of systemic risk profiles, and other enhancements to improve
the effectiveness and efficiency of the framework.
Starting in 2020, there was a notable change in GSIBs' balance
sheets. These changes occurred concurrently with the onset of the
global COVID-19 pandemic and the subsequent monetary and fiscal policy
actions in response to the pandemic and its economic effects.\29\
Figure 1 shows that the size of GSIBs has expanded substantially since
2020, with the growth of these banking organizations exceeding its
historical trend.\30\
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\29\ See, e.g., Richard H. Clarida, Burcu Duygan-Bump, and
Chiara Scotti, The COVID-19 Crisis and the Federal Reserve's Policy
Response, Finance and Economics Discussion Series 2021-035 (June 3,
2021). For an overview of the U.S. fiscal policy response to the
pandemic, see Daniel J. Wilson, The COVID-19 Fiscal Multiplier:
Lessons from the Great Recession, Federal Reserve of San Francisco
Economic Letters 2020-13 (May 26, 2020).
\30\ See, e.g., the empirical evidence on the balance sheet
expansion of U.S. banks during the COVID-19 pandemic in the study of
Andrew Castro, Michele Cavallo, and Rebecca Zarutskie, Understanding
Bank Deposit Growth During the COVID-19 Pandemic, FEDS Notes, Board
of Governors of the Federal Reserve System (June 6, 2022).
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Figure 1: Evolution of GSIBs' Total Assets Over Time (in Trillion
Dollars)
This figure shows how the aggregate total assets of the eight
current GSIBs changed from 2009 to 2024. The dotted line is a linear
trendline fitted to the time series over the period from the fourth
quarter of 2009 (``Q4 2009'') to the fourth quarter of 2019 (``Q4
2019'').
[[Page 14912]]
[GRAPHIC] [TIFF OMITTED] TP27MR26.002
Related to this rapid expansion of GSIBs' balance sheets, method 2
scores have meaningfully increased relative to method 1 scores since
the end of 2019.
As Figure 2 shows, whereas method 1 and method 2 scores evolved
largely in parallel between the fourth quarter of 2016 and the fourth
quarter of 2019, the two scores have diverged since then. Indeed, from
the fourth quarter of 2019 to the fourth quarter of 2024, the method 2
scores of the eight GSIBs increased by 18 percent, in aggregate, which
is equivalent to a 3.4 percent annual increase. By contrast, over the
same period, the method 1 scores of the eight GSIBs have been
relatively stable, decreasing by 3 percent, in aggregate, which is
equivalent to a 0.6 percent annual decrease. As a result of the
divergent trends in method 1 and method 2 scores, the cumulative growth
of method 2 scores has exceeded the cumulative growth of method 1
scores by about 20 percentage points, on average, since the end of
2019.\31\
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\31\ Because method 1 and method 2 scores evolved largely in
parallel until 2019, the difference in their cumulative growth is
also about 20 percentage points over a longer period, such as the
period from the fourth quarter of 2014 to the fourth quarter of
2024.
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Figure 2: Evolution of Method 1 and Method 2 Scores Over Time
This figure shows how the aggregate method 1 and method 2 scores of
the eight current GSIBs changed from 2016 to 2024. Both aggregate
method 1 and method 2 scores are expressed as a percentage of their
corresponding values as of the fourth quarter of 2019 (``Q4 2019'').
[[Page 14913]]
[GRAPHIC] [TIFF OMITTED] TP27MR26.003
The divergence of method 1 and method 2 scores is primarily due to
their different calculation methodologies. The aggregate method 1
scores of the eight GSIBs have been relatively stable over time because
the method 1 score calculation uses systemic indicator coefficients
that are based on aggregate global systemic indicator amounts, which
historically increased at about the same rate as the systemic indicator
amounts of U.S. GSIBs. By contrast, the method 2 score calculation uses
systemic indicator coefficients that have been constant since the
implementation of the GSIB surcharge framework in 2015, which creates a
direct link between the dollar amounts of systemic indicators and
method 2 scores.
This direct link could pose a challenge for using method 2 scores
to measure changes in systemic risk profiles because it implies that
method 2 scores signal an increase in GSIBs' systemic risk as their
systemic indicators increase, regardless of how the banking system,
financial markets, or the economy may concurrently change. This
dynamic, solely driven by changes in the dollar amounts of systemic
indicators, could lead to the mismeasurement of systemic risk, which is
inherently a relative concept. For example, the current method 2 score
calculation does not take into account that the U.S. economy tends to
expand over time, through both real economic growth and inflation. Such
potential economic expansion could render GSIBs relatively smaller and
therefore less systemic, even if their method 2 scores increase, which
could result in GSIB surcharges that are not commensurate with the
systemic risk posed by GSIBs.
Considering the broad economic changes affecting the banking system
since 2020, the observed divergence between method 1 and method 2
scores suggests that some of the recent increase in GSIBs' method 2
scores is attributable to the method 2 score calculation's lack of
adjustment for such changes, rather than increases in GSIBs' systemic
risk profiles. Therefore, consistent with the Board's longstanding
objective to ensure that method 2 scores do not capture the effects of
factors unrelated to systemic risk, the proposal would apply a one-time
downward adjustment of the method 2 coefficients by a factor of 1.2.
The proposed adjustment factor would equal the observed 20-percentage-
point difference between the cumulative growth of aggregate method 2
and method 1 scores since the fourth quarter of 2019.
ii. Annual Indexing of Method 2 Coefficients by Nominal GDP Growth
As discussed above, under the current GSIB surcharge framework, a
U.S. GSIB's method 2 score can increase over time when the scale of the
firm's activities increases, even if the firm's systemic indicator
values grow more slowly than the overall economy. However, economic
expansion can make GSIBs' systemic profiles smaller on a relative basis
even if their method 2 scores increase. This dynamic can result in GSIB
surcharges that are not commensurate with the systemic risk profile of
the GSIBs. To address this effect and limit the need for future
adjustments through rulemaking, the proposal would adopt a mechanism to
automatically adjust the method 2 coefficients going forward.
Specifically, the proposal would annually adjust the method 2
coefficients to reflect real economic growth and inflation.\32\ The
annual adjustment would be based on a three-year moving average of
annual nominal U.S. gross domestic product (GDP) growth.\33\ Thereby,
under the proposed approach, a firm's method 2 scores would remain
unchanged if the firm's systemic risk indicators grow at the same rate
as average nominal U.S. GDP growth, because the proposed indexing would
adjust the method 2 coefficients at the rate of average annual nominal
[[Page 14914]]
U.S. GDP growth. Indexing under this approach would help ensure that
changes in method 2 scores reflect changes in a U.S. GSIB's systemic
risk profile relative to the size of the U.S. economy. Such an approach
would provide a simple way to account for changes in the economy and
financial system that could affect the measurement of a GSIB's systemic
risk profile.
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\32\ The proposed annual indexing would also apply to the
proposed new coefficient for short-term wholesale funding, described
in section II.B of this SUPPLEMENTARY INFORMATION.
\33\ The proposed annual indexing to the annual nominal U.S. GDP
growth is equivalent to adjusting method 2 coefficients for the
annual real U.S. GDP growth plus annual changes in the cumulative
U.S. GDP implicit price deflator.
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In the 2015 final rule, the Board observed that an unintended
consequence of automatically adjusting the method 2 coefficients based
on economic growth could be that in the event of an economic
contraction, U.S. GSIB scores would increase in a procyclical way,
potentially raising surcharges in a manner that could further
exacerbate the economic downturn. In order to avoid that scenario, the
proposed mechanism would not adjust the coefficients if the three-year
moving average of nominal U.S. GDP growth is negative. This approach
would reduce the potential for procyclicality in capital requirements
during a prolonged period of economic contraction. To further mitigate
the potential procyclical effect over short timeframes, the annual
mechanism would use a three-year moving average of annual nominal U.S.
GDP growth, which would reduce volatility and improve the
predictability of adjustments.\34\
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\34\ Because this approach would be based on cumulative change
in average nominal U.S. GDP following the effective date of a final
rule, it would still account for periods of negative growth.
Downward adjustments to the coefficients would only occur when there
is a positive net cumulative change.
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To ensure an accurate and predictable measure, the Board would
generally use the most current estimate of nominal U.S. GDP for a given
calendar year published by the Bureau of Economic Analysis on or before
September 30 of the year of the publication of the scalar.\35\ The
Board would calculate the value for the GDP growth adjustment scalar as
a ratio of the average nominal U.S. GDP estimates for the three
calendar years directly preceding the year in which the scalar is
published, divided by the average nominal U.S. GDP for the three most
recent calendar years preceding the effective date of any final rule
for which estimates are available. For example, if the Board were to
adopt a final rule with an effective date of 2027 for the updated
method 2 coefficients described in section II.A.i, of this
SUPPLEMENTARY INFORMATION, the Board would calculate the GDP growth
adjustment scalar in 2028 by dividing the average nominal U.S. GDP in
calendar years 2025, 2026, and 2027 by the average nominal U.S. GDP in
calendar years 2024, 2025, and 2026.\36\
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\35\ See Bureau of Economic Analysis, Gross Domestic Product,
<a href="https://www.bea.gov/data/gdp/gross-domestic-product">https://www.bea.gov/data/gdp/gross-domestic-product</a>. The Board may
elect to use a comparable value in instances such as where a nominal
U.S. GDP growth estimate from the Bureau of Economic Analysis is
unavailable.
\36\ The proposal includes a definition of the GDP growth
adjustment, which sets forth the way in which the adjustment would
be calculated each year.
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The Board would calculate and publish a GDP growth adjustment
scalar, along with updated method 2 coefficients, each year.\37\ Each
calendar year, a GSIB would calculate its method 2 score using the
updated coefficients published by the Board and the firm's systemic
indicator data reported as of the end of the previous calendar year.
For example, in 2028, when a GSIB calculates its method 2 score using
systemic indicator data reported as of December 31, 2027, the GSIB
would use the most recent adjusted method 2 coefficients published by
the Board in the fourth quarter of 2028.
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\37\ The Board expects that it would publish the adjustment and
the updated coefficients annually on the Board's public website and
in the Federal Register concurrent with the release of the annual
method 1 aggregate global indicator amounts.
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iii. Alternative Approach To Adjust Method 2 Coefficients
The Board requests comment on all aspects of the proposed approach
for adjusting the method 2 coefficients, as well as alternative
approaches. For example, as an alternative to the one-time update and
annual adjustments to the method 2 coefficients to reflect economic
growth described above, the Board seeks comment on an approach that
would adjust the method 2 coefficients based on inflation since 2015
and annually going forward.
To account for the effects of inflation, the method 2 coefficients
could be updated using the non-seasonally adjusted Consumer Price Index
for Urban Wage Earners and Clerical Workers (CPI-W), which is a measure
of prices paid by urban wage earners and clerical workers.\38\ This
index measures the price level of goods and services purchased by urban
households, reflecting price changes from a consumer's perspective. A
consumer price index (CPI) is widely used to account for changes in the
U.S. dollar over time. The U.S. Bureau of Labor Statistics publishes
different versions of CPI, which capture price changes in different
economic segments. The Board, with the OCC and FDIC (together, the
agencies), is simultaneously issuing two risk-based capital proposals
(the expanded risk-based proposal and standardized approach proposal,
together, the capital proposals) which, among other things, would index
certain thresholds in the capital rule using CPI-W. Using CPI-W to
adjust the method 2 coefficients would promote simplicity and
consistency by providing a single indexing mechanism within the capital
rule.\39\
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\38\ See Bureau of Labor Statistics. Consumer Price Index,
<a href="https://www.bls.gov/cpi/data.htm">https://www.bls.gov/cpi/data.htm</a> and Social Security Administration.
Consumer Price Index for Urban Wage Earners and Clerical Workers
(CPI-W), <a href="https://www.ssa.gov/oact/STATS/cpiw.html">https://www.ssa.gov/oact/STATS/cpiw.html</a>. The Board may
elect to use a comparable value in instances such as where CPI-W
data are unavailable.
\39\ In addition, CPI-W is used for inflation adjustments in
other banking regulations, such as Regulation CC, Regulation M,
Regulation Z, and the Community Reinvestment Act regulations, as
well as for regulations and programs such as the Social Security
Administration's annual cost of living adjustments. See, e.g., 12
CFR 229.11(a) (Regulation CC), 12 CFR 213.2(e)(1) (Regulation M), 12
CFR 226.3(b)(1)(ii) (Regulation Z), 12 CFR Appendix-G-to-Part-
228(u)(2) (Community Reinvestment), 20 CFR 404.272(a)(1) (Social
Security Administration).
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Indexing the method 2 coefficients by CPI-W would account for
changes in the price level, which over time has tended to be lower than
the rate of economic expansion in the United States. It would not,
however, automatically account for other changes in the financial
system and economy that could affect a GSIB's systemic risk profile.
Using CPI-W to index the method 2 coefficients, therefore, could result
in a GSIB experiencing higher method 2 scores if its systemic
indicators grew in line with economic growth.
Under an approach to adjust the coefficients by inflation, the
Board could calculate the cumulative percent change of the non-
seasonally adjusted CPI-W to create an index for inflation that
increases based on the cumulative change in the price index.\40\ Going
forward, this alternative approach could index the method 2
coefficients using CPI-W on an annual basis. To avoid increasing
capital requirements during a time of economic contraction, annual
adjustments under this alternative approach could reflect only positive
net cumulative changes in CPI-W, and the approach would not
automatically adjust coefficients upward in the event of a negative
year-over-year change in the index.\41\ To ensure an accurate and
[[Page 14915]]
predictable measure, in the fourth quarter of a calendar year, this
alternative approach could use the most current non-seasonally adjusted
CPI-W data published by the Bureau of Labor Statistics for December of
the preceding calendar year to calculate and publish the cumulative
percent change.\42\
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\40\ To calculate the inflation index, the non-seasonally
adjusted CPI-W index for December 2024 would be divided by the non-
seasonally adjusted CPI-W index for December 2015.
\41\ Because this approach would be based on cumulative change
in CPI-W, it would still account for periods of deflation. Downward
adjustments to the coefficients would only occur when there was a
positive net cumulative change in the index.
\42\ The Board may use a comparable value in instances such as
where CPI-W from the Bureau of Labor Statistics is unavailable.
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Question 1: What are the advantages and disadvantages of applying a
one-time downward adjustment by a factor of 1.2 to the method 2
coefficients under the proposal? What alternative approaches should the
Board consider, and why? Please provide any alternative approaches the
Board should consider to adjust the coefficients, noting in particular
how changes to the financial system and economy since the adoption of
the GSIB framework would be accounted for in any potential adjustment,
and the advantages and disadvantages of such an approach.
Question 2: What would be the advantages and disadvantages of
updating the method 2 coefficients based on the most recent available
aggregate global indicator amounts for the systemic indicators in the
size, interconnectedness, complexity, and cross-jurisdictional activity
categories?
Question 3: What are the advantages and disadvantages of using
nominal U.S. GDP as the basis to annually adjust the method 2
coefficients? What are the advantages of disadvantages of using a
three-year moving average of nominal U.S GDP as the measurement of real
economic growth and inflation to adjust the method 2 coefficients? What
alternative measures of real economic growth and inflation should the
Board consider, and why?
Question 4: What are the advantages and disadvantages of using the
data published by the Bureau of Economic Analysis as proposed? What
alternatives or other data sources should the Board consider, and why?
Question 5: What would be the advantages and disadvantages of an
alternative approach that would adjust the method 2 coefficients based
on inflation using CPI-W? What other measurements of inflation should
the Board consider and why?
Question 6: What are the advantages and disadvantages of the
proposed approach to annually adjust the method 2 coefficients so that
they do not change to reflect a period of negative average U.S. nominal
GDP growth? Under what circumstances, if any, should the adjustment
methodology increase the method 2 coefficients to reflect negative
average U.S. nominal GDP growth, and why?
Question 7: What are the advantages and disadvantages of publishing
the updated method 2 coefficients together with the aggregate global
indicator amounts in the fourth quarter of each calendar year? What
alternatives should the Board consider with respect to publication of
the adjustment data, and why?
Question 8: The capital proposals would utilize an indexing
methodology that would adjust certain dollar-based thresholds using
CPI-W. Specifically, the dollar thresholds would be adjusted at the end
of every consecutive two-year period, which is meant to capture changes
in price levels over time while reducing the frequency with which
thresholds are adjusted. What would be the advantages or disadvantages
of aligning the frequency and timing of the adjustments to the method 2
coefficients with the frequency of adjustments in the capital
proposals?
Question 9: What, if any, operational challenges are associated
with the proposed approach? What adjustments could the Board make to
the proposed approach to address such challenges?
B. Changes to the Short-Term Wholesale Funding Measure
The method 2 framework includes a measure of a firm's reliance on
short-term wholesale funding as an indicator of systemic risk. The
2007-09 financial crisis highlighted how banking organizations'
reliance on short-term wholesale funding can create vulnerabilities
during periods of stress that undermine financial stability.\43\
Banking organizations that face funding stress are often forced to sell
assets under duress at fire-sale prices, resulting in losses or
collateral calls for other market participants. This dynamic can create
an adverse cycle of mark-to-market losses, margin calls, forced
deleveraging, and additional losses, amplifying stress throughout the
financial system. When these dynamics occur at large, interconnected
banking organizations, they can impose negative externalities on
counterparties, other market participants, and the financial system
more broadly, particularly in periods of market turmoil.
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\43\ See Adrian, Tobias, and Hyun Song Shin. ``The Changing
Nature of Financial Intermediation and the Financial Crisis of 2007-
2009.'' Federal Reserve Bank of New York Staff Report No. 439 (March
2010). Huang, Rocco, and Lev Ratnovski. ``The Dark Side of Bank
Wholesale Funding.'' International Monetary Fund Working Paper No.
WP/10/170 (July 2010). Damar, H. Evren, C[eacute]saire A. Meh, and
Yaz Terajima. ``Leverage, Balance Sheet Size and Wholesale
Funding.'' Bank for International Settlements Conference Paper
(March 2013).
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The short-term wholesale funding indicator measures a banking
organization's reliance on wholesale funding sources that are generally
less stable than longer-term funding or retail deposits during periods
of stress. Short-term wholesale funding includes funding sources such
as wholesale deposits, brokered and sweep deposits, securities sold
under agreements to repurchase, certain short positions, and other
short-term borrowings.\44\ Under the method 2 framework, the short-term
wholesale funding score calculation uses the ratio of a banking
organization's average weighted short-term wholesale funding amount
\45\ to its average risk-weighted assets over the preceding four
quarters. This approach measures a banking organization's dependence on
short-term wholesale funding relative to the risk-adjusted size of its
balance sheet.
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\44\ Components of a GSIB's short-term wholesale funding amount
generally align with the definitions of the liquidity coverage ratio
framework and with items that are reported on the Board's Complex
Institution Liquidity Monitoring Report on Form FR 2052a.
\45\ A firm's weighted short-term wholesale funding amount is
determined by calculating its short-term wholesale funding amount
for each business day over the prior calendar year, applying the
appropriate weighting by short-term wholesale funding source and
remaining maturity, and averaging this amount over the prior
calendar year.
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i. Modification of the Short-Term Wholesale Funding Score To Remove the
Risk-Weighted Assets Denominator
The proposal would remove the average risk-weighted assets
denominator from the calculation of a firm's short-term wholesale
funding score. Under the proposal, a banking organization's short-term
wholesale funding score would be equal to its average weighted short-
term wholesale funding amount multiplied by a coefficient. This
approach would simplify the calculation of the indicator and use the
same calculation method used for the other method 2 systemic
indicators. It would also address an effect of the current calculation,
which can produce results not aligned with risk as described below. The
proposed approach would be consistent with the goal of the GSIB
framework to measure the expected impact of a banking organization's
failure and would align with the calculation methodology for the
weighted short-term wholesale funding risk-based indicator in the
regulatory tailoring framework.\46\
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\46\ The weighted short-term wholesale funding indicator in the
regulatory tailoring framework uses a banking organization's
weighted short-term wholesale funding amount reported on the FR Y-
15, without dividing by average risk-weighted assets. See 12 CFR
252.2 ``Weighted short-term wholesale funding.''
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[[Page 14916]]
Using a banking organization's weighted short-term wholesale
funding amount would improve the measurement of a banking
organization's systemic risk profile relative to the current approach
of using average risk-weighted assets in the denominator. Measuring the
total amount of a banking organization's weighted short-term wholesale
funding would provide a direct measurement of the potential
transmission effect of fire-sales described above that would result
from a GSIB's failure.\47\
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\47\ See Begalle, Brian, Antoine Martin, James McAndrews, and
Sarah McLaughlin. ``The Risk of Fire Sales in the Tri-Party Repo
Market.'' Contemporary Economic Policy, 34 (July 2016), <a href="https://onlinelibrary.wiley.com/doi/10.1111/coep.12126">https://onlinelibrary.wiley.com/doi/10.1111/coep.12126</a>. Raddatz, Claudio.
``Liquidity and the Use of Wholesale Funds in the Transmission of
the U.S. Subprime Crisis.'' The World Bank Development Research
Group (February 2010), <a href="https://www.bis.org/events/ccaconf2012/raddatz.pdf">https://www.bis.org/events/ccaconf2012/raddatz.pdf</a>. Duarte, Fernando and Thomas M. Eisenbach. ``Fire Sales
in a Model of Systemic Risk.'' Federal Reserve Bank of New York
Staff Report (2013), <a href="https://www.newyorkfed.org/medialibrary/media/research/conference/2013/fire_sales/Paper_Duarte_Eisenbach.pdf">https://www.newyorkfed.org/medialibrary/media/research/conference/2013/fire_sales/Paper_Duarte_Eisenbach.pdf</a>.
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The use of risk-weighted assets in the denominator of the current
approach can result in outcomes that may not align with measuring
systemic risk. Under the current approach, a banking organization with
higher risk-weighted assets than a firm with lower risk-weighted assets
and a similar amount of short-term wholesale funding is assigned a
lower short-term wholesale funding indicator score. This outcome may
not appropriately reflect the size and systemic importance of the two
firms' respective funding profiles.
Further, if a banking organization's risk-weighted assets increase,
its short-term wholesale funding score can correspondingly decrease,
even though its volume of short-term wholesale funding remains
unchanged. Conversely, if a banking organization's risk-weighted assets
decrease, its short-term wholesale funding score can increase. The
proposed approach would prevent these outcomes in the method 2
framework going forward.
As discussed in section II.A.ii of this SUPPLEMENTARY INFORMATION,
the proposal would index method 2 systemic indicator coefficients,
including the proposed short-term wholesale funding indicator
coefficient, to changes in nominal U.S. GDP. By incorporating a
coefficient calibrated to the amount of a banking organization's
weighted short-term wholesale funding amount, the proposal's annual
adjustment to reflect nominal U.S. GDP would apply to all ten method 2
indicators coefficients, including the short-term wholesale funding
systemic indicator. The proposed approach would not increase a banking
organization's reporting burden because it would continue to use the
same reporting requirements for weighted short-term wholesale funding
currently used in the FR Y-15.
Question 10: What are the advantages and disadvantages of using an
absolute level of weighted short-term wholesale funding as opposed to
the current approach, which divides a firm's amount of weighted short-
term wholesale funding by its average risk-weighted assets? What other
approaches to measure a banking organization's weighted short-term
wholesale funding should the Board consider, and why? For example, what
would be the advantages and disadvantages of retaining a ratio-based
approach but replacing risk-weighted assets with average total
consolidated assets or total leverage exposure? Please provide any
relevant data and rationale, particularly of why maintaining a ratio-
based approach would be more appropriate than the proposed approach.
ii. Weight the Short-Term Wholesale Funding Score To Represent
Approximately 20 Percent of Total Method 2 GSIB Scores
Under the proposal, a banking organization's short-term wholesale
funding score would equal the average of its weighted short-term
wholesale funding amount over the prior year multiplied by the
coefficient for this category. The coefficient for the short-term
wholesale funding category would be initially set at 23.003. The
proposal would use this coefficient in order to calibrate the weighted
short-term wholesale funding category at approximately twenty percent
of aggregate total method 2 scores for U.S. GSIBs based on reported FR
Y-15 data as of December 31, 2024.\48\ The use of this value would
align with the as-of date for the adjustments to the other method 2
coefficients described in section II.A of this SUPPLEMENTARY
INFORMATION.
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\48\ The updated coefficient reflects the changes in GSIBs'
method 2 scores from the coefficient adjustments and amendments to
the systemic indicators described in section F of this SUPPLEMENTARY
INFORMATION. See Section III.C for more information on the
methodology used to recalibrate the other method 2 coefficients.
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This proposed coefficient and calibration of the short-term
wholesale funding systemic indicator would be consistent with the
approach described in the 2015 final rule.\49\ Specifically, the 2015
final rule included a conversion factor for the short-term wholesale
funding indicator that was intended to result in the indicator
comprising 20 percent of method 2 scores for banking organizations
identified as GSIBs, consistent with the weighting of the other
systemic indicators.\50\ However, due to factors such as limited data
availability when the conversion factor was calibrated,\51\ the short-
term wholesale funding score has constituted approximately 30 percent
of aggregate method 2 scores across U.S. GSIBs since the adoption of
the GSIB framework.\52\ The proposed coefficient value would address
the current overweighting of the short-term wholesale funding category
by using a calibration consistent with the initial 20 percent
objective.
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\49\ See 80 FR 49082, at 49088 (Aug. 14, 2015). ``The conversion
factor was intended to weight the short-term wholesale funding
amount such that the short-term wholesale funding score receives an
equal weight as the other systemic indicators within method 2 (i.e.,
20 percent), and is based upon estimates of short-term wholesale
funding levels at the eight bank holding companies currently
identified as GSIBs.''
\50\ See id. at 49101. Unlike the other systemic risk indicators
that incorporated data from the Basel Committee's global
denominators for each indicator in setting the coefficient, the
short-term wholesale funding indicator did not have a corresponding
Basel Committee global denominator.
\51\ Prior to the full implementation of the Board's GSIB
surcharge rule, banking organizations did not report certain
systemic indicators, including the short-term wholesale funding
amount. Because firms were still establishing internal controls,
measurement methodologies, and reporting infrastructure for these
indicators, the initial data collection period was characterized by
varying levels of data quality.
\52\ As of year-end 2016, the short-term wholesale funding
category represented 30.7 percent of firms' estimated method 2 GSIB
surcharge scores on a size-weighted basis. As of year-end 2024, the
short-term wholesale funding category's share had decreased to 28.9
percent of firms' method 2 GSIB scores. Under the method 1 surcharge
framework, each of the five categories of systemic importance
receive an equal weight of 20 percent. Under the method 2 framework,
the relative contribution of each indicator or category can be
different over time than the weight used at the inception of the
framework.
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Question 11: What are the advantages and disadvantages of
calibrating the coefficient for the short-term wholesale funding
indicator to target a 20 percent share of method 2 scores as of
December 2024? What alternative weighting or calibration methodologies
should the Board consider, and why?
Question 12: What would be the advantages and disadvantages of
calibrating the coefficient value for the short-term wholesale funding
indicator based on a different as-of date than December 2024 or a
different period than calendar 2024? Please provide any rationale or
data that may be helpful to inform the Board's consideration.
[[Page 14917]]
C. Data Averaging of Certain Systemic Indicators
Under the current GSIB surcharge framework, FR Y-15 filers report
many of the data values used to calculate a firm's method 1 or method 2
score on a point-in-time basis, reflecting the firm's amount for the
indicators as of the end of the reporting quarter. Indicators currently
calculated on a point-in-time basis include intra-financial system
assets, intra-financial system liabilities, securities outstanding,
assets under custody, notional amount of over-the-counter (OTC)
derivatives, trading and available-for-sales securities, Level 3
assets, cross-jurisdictional claims, and cross-jurisdictional
liabilities. A firm's method 1 and 2 score calculations use as inputs
the value of these indicators as of December 31 of the previous
calendar year.\53\
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\53\ Generally, a bank holding company subject to Category I,
II, or III prudential standards must calculate its method 1 score
annually. A bank holding company is identified as a GSIB if its
method 1 score equals or exceeds 130 basis points. If a bank holding
company is identified as a GSIB, it must also calculate its method 2
score.
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Point-in-time indicator values, whether year-end or quarter-end,
may not accurately reflect a firm's systemic risk profile because such
values can be meaningfully different from values on other dates
throughout the year, for example due to seasonality. Furthermore,
measuring indicators only as of a single date each year creates
incentives for a firm to manage the values of its systemic indicators
on December 31 to reduce the amount of its GSIB surcharge in a manner
that may not be commensurate with the firm's systemic risk profile on
other days of the year.
To address this issue, the proposal would require U.S. GSIBs to
report certain indicators as averages of daily or monthly values rather
than point-in-time measurements.\54\ In addition, it would require the
calculation of method 1 and method 2 scores using average values over a
calendar year, rather than values only as of December 31. Table 1
displays the systemic indicator by categories and the proposed
reporting requirements for GSIBs relative to the current requirements.
Reporting these indicators as an average of daily or monthly values
over the previous year would result in GSIB scores and associated
surcharges that are more commensurate with each firm's level of
systemic risk.
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\54\ Unless otherwise noted, references to averaging of
``daily'' values in this SUPPLEMENTARY INFORMATION section refer to
averaging of values for each business day.
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BILLING CODE 6201-01-P
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Historical empirical evidence indicates that some U.S. and foreign
GSIBs have reported lower indicator amounts at year end than at other
times during the year.\55\ In particular, one analysis shows that U.S.
GSIBs, on average, reduce their notional amounts of OTC derivatives at
year end more than non-GSIB firms.\56\ Overall, the findings in these
empirical studies suggest that, in certain circumstances, applicable
GSIB surcharges can be based on systemic indicator values that do not
accurately reflect GSIBs' systemic risk profiles throughout the year.
In addition, these end-of-year patterns in GSIBs' activities can also
lead to liquidity disruptions in certain financial markets.\57\
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\55\ See, e.g., Luis Garcia, Ulf Lewrick, and Taja
Se[ccaron]nik, Is Window Dressing by Banks Systemically Important,
BIS Working Papers, 960 (August 2021); Markus Behn, Giacomo
Mangiante, Laura Parisi. and Michael Wedow, Behind the Scenes of the
Beauty Contest: Window Dressing and the G-SIB Framework,
International Journal of Central Banking, 76 (December 2022).
\56\ See, e.g., Jared Berry, Akber Khan, and Marcelo Rezende,
How Do U.S. Global Systemically Important Banks Lower Their Capital
Surcharges, FEDS Notes, Board of Governors of the Federal Reserve
System (January 31, 2020).
\57\ See, e.g., Erik Bostrom, David Bowman, Amy Rose, and Andy
Xia, What Happens on Quarter-Ends in the Repo Market, FEDS Notes,
Board of Governors of the Federal Reserve System (June 6, 2025);
Matthew Naylor, Renzo Corrias, and Peter Wells, Banks' Window-
Dressing of the G-SIB Framework: Causal Evidence from a Quantitative
Impact Study, Working Paper 42, Basel Committee on Banking
Supervision (March 7, 2024).
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Taken together, the existing empirical analyses and the economic
analysis described in section III.E.i of this SUPPLEMENTARY INFORMATION
suggest that the proposed data averaging requirement would result in
indicator values that are more consistent with GSIBs' systemic risk
profiles. Using averages of daily or monthly values rather than point-
in-time measurements of systemic indicators to calculate GSIB scores
would likely result in GSIB scores and capital surcharges that are
better aligned with GSIBs' systemic risk profiles. For each systemic
indicator, the proposed frequency of data to be averaged seeks to
balance the risks of indicator values that are not representative of a
GSIB's systemic risk profile, as described above, against the
operational burden for firms to calculate and report averaged values.
As noted in Table 1, the proposal would require a GSIB to report
the intra-financial system assets, intra-financial system liabilities,
notional amount of OTC derivatives, and trading and available-for-sale
securities indicators on the FR Y-15 as the average of daily values of
the indicator over the reporting quarter, instead of quarter-end point-
in-time values.\58\ Generally, these are data items the value of which
a firm could more easily manage as of a quarterly reporting date; for
example, many of the positions in these data items are relatively
highly liquid and easily tradeable.\59\ The Board expects that these
indicators would also generally present less operational complexity and
cost for GSIBs to report using averages of more frequent data (for
example, averages of daily rather than averages of monthly values). For
instance, U.S. GSIBs currently must report or maintain daily data for
OTC derivatives and trading and available-for-sale securities for other
purposes, including regulatory reporting requirements and risk
management.\60\ Similarly, for the intra-financial system assets and
intra-financial system liabilities indicators, GSIBs currently must
maintain much of this information for accounting purposes or regulatory
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purposes, which reduces the operational complexity of reporting these
indicators based on a higher frequency of data.\61\ For example, GSIBs
currently must track exposures to individual counterparties on a daily
basis in order to calculate compliance with the Board's single
counterparty credit limits rule; many of these exposures are also
captured in the intra-financial system assets indicator.\62\
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\58\ For certain off-balance sheet items, a U.S. GSIB would
report the average of month-end values over the reporting quarter,
rather than an average of daily values (see Table 1).
\59\ For example, trading and available-for-sale securities are
generally bought and sold with a relatively high degree of certainty
of settlement.
\60\ Trading and available-for-sale securities are also reported
on the Complex Institution Liquidity Monitoring Report (FR 2052a).
Additionally, firms report trading assets as an average of either
daily or weekly values on the Consolidated Financial Statements for
Holding Companies (FR-Y9C), Schedule HC-K, item 4(a).
\61\ For example, GSIBs are currently required to report certain
intra-financial system liabilities on a daily basis on the FR 2052a.
\62\ 12 CFR 252.78(a)(1).
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For some indicators, the benefits of more precise measurement may
not warrant the added operational costs for GSIBs to report averages of
daily data. For instance, cross-jurisdictional claims can be complex
for firms to report if they manually account for multiple different
types of risk transfers, such as the identity and location of
guarantors or collateral, for purposes of the reporting form.
Furthermore, in some cases, averages of daily values may not
meaningfully improve systemic risk measurement relative to averages of
monthly values. For example, Level 3 assets are by definition illiquid
and difficult to value, relying on unobservable inputs. Similarly,
firms are likely to have a limited ability to manage values of the
securities outstanding indicator as of a given date because a
significant portion of that indicator value is based on a firm's market
capitalization (which can be affected by exogenous factors).
Accordingly, as noted in Table 1, the proposal would require a GSIB
to report the securities outstanding, assets under custody, Level 3
assets, cross-jurisdictional claims, and cross-jurisdictional
liabilities indicators on the FR Y-15 as the average of monthly values
of the indicator over the reporting quarter.\63\ Requiring averages of
monthly, rather than daily, values for these indicators seeks to
balance the benefits of improved measurement of systemic risk and
reduced incentives for firms to adjust year-end indicator amounts with
the operational complexity and cost of reporting average values based
on higher-frequency data.
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\63\ For exposures reported on the FR Y-15 based on their U.S.
GAAP carrying value, the proposal would not change the frequency of
valuation required by U.S. GAAP for the exposure. Rather, the
proposal in certain cases would modify the frequency at which these
exposures must be identified for purposes of calculating average
values based on the U.S. GAAP carrying value at the time of
measurement. The proposed averaging frequencies for the purposes of
reporting on the FR Y-15 are not intended to affect firms' internal
valuation frequencies for exposures. For example, firms would not be
expected to revalue Level 3 assets on a monthly basis as a
regulatory reporting requirement.
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The proposal would not change the current reporting methodology for
items that measure flows (payments activity and underwritten
transactions in debt and equity markets) and short-term wholesale
funding.\64\
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\64\ For these indicators, where firms currently report items as
12-month sums or averages, the proposal would require reporting of
values for the reporting quarter only, with a separate line item to
include the 12-month sum or averages, to align with the proposed
reporting of other indicators and improve clarity. As discussed in
section II.B. of this SUPPLEMENTARY INFORMATION, the proposal would
make other changes to the short-term wholesale funding indicator.
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The proposed changes to require reporting of average data would
apply only to GSIBs identified under the Board's GSIB framework.\65\
The proposal would not change the regulatory reporting methodology for
firms that are subject to Category II, III, or IV standards. It would
require a bank holding company subject to Category II or III standards
to calculate its method 1 GSIB score by using the average of its four
quarterly reported values for each systemic indicator for the year. The
scope of the proposed data averaging requirements seeks to balance the
risks of indicator values that are not representative of a GSIB's
systemic risk profile, as described above, against the operational
complexity for firms to calculate and report averaged data. GSIBs have
the greatest incentives to manage the values of their systemic
indicators on measurement dates because these values directly affect
the firm's capital requirements. Additionally, GSIBs have, and are
expected to maintain, greater operational capabilities to report
averages of more frequent data. For non-GSIBs, both the incentives to
manage point-in-time systemic indicator values and the operational
capabilities to report averaged data are generally more limited.
Accordingly, for non-GSIBs, the benefits of averaged data are less
likely to outweigh these operational costs.
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\65\ See 12 CFR 217.402. A firm that newly becomes a GSIB would
be required to begin reporting averages of daily or monthly values
as of the first quarter following its identification as a GSIB.
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Question 13: How would the proposed averaging requirement of daily
values and monthly values for indicators affect the ability to of the
GSIB framework to identify and measure the systemic risk profile of
banking organizations? What other measurement approaches for the
systemic indicators should the Board consider to improve the
measurement of a large banking organization's level of systemic risk?
Question 14: For each systemic indicator, what alternative
frequency of data to be averaged should the Board consider, and why?
For example, what would be the advantages and disadvantages of using
averages of daily, weekly, or monthly values instead of the proposed
data frequencies?
Question 15: For each systemic indicator, what additional
operational burdens would be required to report according to the
proposed averaging frequency, relative to what banking organizations
already do to track this information? To what extent would the
operational burdens of reporting averages of daily, weekly, monthly, or
quarterly values differ for the different indicators? What other
changes, if any, could reduce the additional costs of reporting average
values for a particular indicator? Please provide relevant data or
analysis, including specific information regarding the operational
burden of different frequencies for any indicator.
Question 16: What modifications, if any, should the Board consider
to the proposed data averaging framework to account for material
changes in systemic indicator values that occur over the course of a
calendar year, for example, due to a corporate transaction such as a
merger, acquisition, or material sale?
Question 17: The Basel Committee issued a consultative document in
March 2024 that included potential approaches to increase the frequency
of data averaging in the international GSIB framework. What are the
advantages and disadvantages of alignment with international standards
in this area? If the Board were to consider aligning to the
international standard, what considerations should the Board take into
account? Please provide any relevant data or analysis.
i. Currency Conversion of Aggregate Global Indicator Amounts
Each year, the Board publishes aggregate global indicator amounts
used in the calculation of method 1 scores, which are based on data
collected by the Basel Committee.\66\ The Basel Committee amounts are
determined based on the sum of the systemic indicator amounts reported
by the 75 largest U.S. and foreign banking organizations as measured by
the Basel
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Committee, and any other banking organization the Basel Committee
includes in its sample total for that year. The Basel Committee
publicly releases these amounts, denominated in euros, each year.\67\
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\66\ See, e.g., 2025 Aggregate Global Indicators Amount, <a href="https://www.federalregister.gov/documents/2025/12/16/2025-22964/regulation-q-regulatory-capital-rule-risk-based-capital-surcharges-for-global-systemically-important">https://www.federalregister.gov/documents/2025/12/16/2025-22964/regulation-q-regulatory-capital-rule-risk-based-capital-surcharges-for-global-systemically-important</a>. The Board also maintains this information
its website, <a href="https://www.federalreserve.gov/supervisionreg/basel/denominators.htm">https://www.federalreserve.gov/supervisionreg/basel/denominators.htm</a>.
\67\ The values published by the Basel Committee are available
at <a href="https://www.bis.org/bcbs/gsib/denominators.htm">https://www.bis.org/bcbs/gsib/denominators.htm</a>.
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As discussed in the 2015 final rule, the Board uses a conversion
rate provided by the Basel Committee to convert aggregate global
indicators published by the Basel Committee in euros to the U.S.
dollar-denominated aggregate global indicator amounts used in the
method 1 GSIB score calculation.\68\ The conversion rate is the
prevailing exchange rate, as calculated by the Basel Committee, between
euros and U.S. dollars on December 31 of an applicable year. As
discussed above, under the proposal, most systemic indicators would use
an average of values over a calendar year as opposed to year-end point-
in-time values. To better align with the use of average values for
systemic indicators, the Board is proposing to update its internal
methodology to use annual average exchange rates to convert aggregate
global indicator amounts from euros to U.S. dollars. Under this
approach, the Board would rely on the annual average exchange rate
published by the Basel Committee rather than the year-end exchange rate
published by the Basel Committee.\69\
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\68\ See 80 FR 49085.
\69\ The Basel Committee publishes the prevailing year-end and
average annual exchange rates on its public website. See <a href="https://www.bis.org/bcbs/gsib/reporting_instructions.htm">https://www.bis.org/bcbs/gsib/reporting_instructions.htm</a>.
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Question 18: What are the advantages or disadvantages of using
annual average exchange rates to convert aggregate global indicator
amounts from euros to U.S. dollars, rather than year-end spot exchange
rates? What alternative approaches, if any, should the Board consider,
and why?
D. Reducing Cliff Effects in the Calculation of Method 2 GSIB
Surcharges
As described in the 2015 final rule, the Board chose to assign GSIB
surcharges using 100-basis point score band sizes so that modest
changes in a firm's systemic indicators would generally not cause a
change in its surcharge and surcharges would be reasonably sensitive to
changes in a firm's systemic risk profile.\70\ In practice, the Board
has observed that firms' method 2 scores tend to cluster close to the
upper limit of a score band range, especially at year-end.
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\70\ See 80 FR 49082, at 49091 (Aug. 14, 2015).
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In order to increase the sensitivity of a firm's surcharge to its
systemic risk profile and reduce cliff effects around changing score
bands, the Board is proposing to make the method 2 score band ranges
narrower.\71\ Instead of 100-basis point score band ranges
corresponding to 0.5-percentage point increments in the surcharge
(1.0%, 1.5%, 2.0%, etc.), the proposal would modify the ranges in
method 2 to 20-basis point ranges that would correspond to 0.1-
percentage point increments (1.0%, 1.1%, 1.2%, etc.).
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\71\ The proposal would not amend the score band ranges for
method 1, as discussed further below.
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Under this approach, the lowest score band range would be method 2
scores of 189 basis points or less, corresponding to a 1.0 percent
surcharge, the lowest applicable surcharge for a GSIB. If the method 2
score of a GSIB equaled or exceeded 190 basis points, the method 2
surcharge would equal the sum of 1.1 percent and an additional 0.1
percent for each additional 20 basis points by which the GSIB's method
2 score exceeded 190 basis points. Expressed mathematically, this is
equivalent to:
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Where ceiling means to round the fraction to the nearest integer
above or equal to it.\72\ Table 2 illustrates the application of this
formula up to a score of 1129.
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\72\ For example, 2.1 rounds up to 3; 4.7 rounds up to 5; 6 does
not require rounding.
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The proposed method 2 score band range structure would result in a
surcharge equivalent to that under the current method 2 surcharge score
band range structure when a method 2 score is in the middle quintile of
the current score band range, as displayed in Table 2. For example, a
method 2 score of 280 basis points is near the center of the current
2.5 percent surcharge score band range and would likewise receive a 2.5
percent surcharge under the proposal. Under the proposal, method 2
scores at the lower end of a current method 2 score band range would
receive a modest GSIB surcharge reduction. Method 2 scores at the
higher end of a current method 2 score band range would receive a
modest GSIB surcharge increase under the proposal.
The proposed revision is not meant to alter the overall calibration
of the method 2 surcharge, as reflected by the fact that the surcharge
for a proposed score band range that is at the center of a current
score band range would remain unchanged. Rather, the proposal would
apply a more continuous approach to determining a firm's GSIB surcharge
that would reduce cliff-effects in the framework and increase its risk
sensitivity.
The proposal would not amend the score band ranges for method 1.
Because method 1 is structured to be generally consistent with the
methodology used by other major jurisdictions to calculate GSIB
surcharges and with the GSIB surcharge standard published by the Basel
Committee, the proposal would keep the existing score band ranges for
method 1 to promote international consistency.
Question 19: What are the advantages and disadvantages of the
proposed approach to method 2 surcharges, including for firms' capital
planning? What alternative approaches, if any, should the Board
consider for reducing cliff effects and better reflecting a firm's
systemic risk profile in its GSIB surcharge?
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E. Amendments to Systemic Indicators
The Board is proposing to revise various aspects of the systemic
indicators, as implemented in certain cases through the data collected
on the FR Y-15. This section discusses these revisions, grouped by
systemic indicator category. Unless otherwise noted, each proposed
modification in this section would apply to all filers of the FR Y-15.
Table 3 summarizes the proposed modifications to the GSIB framework and
the FR Y-15 reporting.\73\
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\73\ In addition to the proposed amendments listed in Table 3,
the proposal would modify the FR Y-15 instructions related to the
total exposures systemic indicator to remove unintended differences
from the calculation of total leverage exposure under the Board's
capital rule. See 12 CFR 217.10(c)(2).
\74\ The capital rule currently rquires banking organizations
subject to Category I and II standards to use SA-CCR to calculate
standardized total risk-weighted assets and total leverage exposure
and to use SA-CCR or the internal models methodology to calculate
their advanced approach total risk-weighted assets. Firms subject to
Category III or IV standards may, but are not required to, use SA-
CCR. See 12 CFR 217.34(a) (applicability of SA-CCR); 12 CFR
217.132(c) (SA-CCR).
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i. Interconnectedness
a. Definition of ``Financial Institution'' and Treatment of Exchange-
Traded Funds
Banking organizations often enter into transactions with other
financial sector entities, giving rise to a range of obligations. These
transactions can serve many purposes and can also serve as transmission
channels for stress. Financial distress at a banking organization can
materially raise the likelihood of distress at other financial
institutions given the network of obligations throughout the financial
system.\75\ Accordingly, the GSIB framework includes as a measure of a
banking organization's systemic risk profile indicators of its
interconnectedness with other financial institutions and the financial
sector as a whole.
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\75\ See Rochet, J.-C., & Tirole, J. (1996). Interbank Lending
and Systemic Risk. Journal of Money, Credit and Banking, 28(4), 733-
762. <a href="https://doi.org/10.2307/2077918">https://doi.org/10.2307/2077918</a>. Li, M., Milne, F., & Qui, J.
(2016). Uncertainty in an Interconnected Financial System,
Contagion, and Market Freezes. Journal of Money, Credit and Banking,
48(6), 1135-1168. <a href="http://www.jstor.org/stable/43862647">http://www.jstor.org/stable/43862647</a>.
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The GSIB surcharge framework measures interconnectedness using
three systemic indicators: intra-financial system assets, intra-
financial system liabilities, and securities outstanding. For purposes
of the intra-financial system assets and intra-financial system
liabilities indicators, the FR Y-15 instructions currently define
``financial institutions'' as depository institutions, bank holding
companies, securities brokers, securities dealers, insurance companies,
mutual funds, hedge funds, pension funds, investment banks, and central
counterparties. The definition excludes central banks and other public
sector bodies, such as multilateral development banks and the Federal
Home Loan Banks but includes state-owned commercial banks. The
definition also excludes stock exchanges, though stock exchanges may
have subsidiaries that are included, such as securities dealers or
central counterparties.
The proposal would modify the definition of ``financial
institution'' to provide clearer and more consistent treatment of
positions with financial sector counterparties. Specifically, the
proposal would amend the definition of ``financial institution'' to
include savings and loan holding companies, private equity funds, asset
management companies, exchange-traded funds, and other asset management
entities that engage in similar activities to those listed in the
definition.
The proposed inclusion of savings and loan holding companies would
clarify that a reporting banking organization should include positions
with these financial institutions in the same manner as other
depository institution holding companies, since a banking
organization's positions with these financial institutions can act as a
similar channel for transmission of distress that can undermine
financial stability.
The proposed inclusion of private equity funds in the intra-
financial system assets and intra-financial system liabilities
indicators would be consistent with the purpose of the
interconnectedness category to holistically assess a banking
organization's exposures to and from other financial sector
entities.\76\ Private equity funds are engaged in asset management
activities, which are a financial activity, and they typically have
transactions or relationships with a broad set of other financial
market participants and generally hold financial assets. Like with
other asset management entities, perceptions of distress at a private
equity fund could affect market perceptions of the soundness of other
financial market participants. Private equity funds can present a
similar channel for transmission of distress and financial instability
as other asset management entities and other types of entities included
in the definition of ``financial institution.''
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\76\ The proposed change would not include the portfolio
companies of a private equity fund unless a portfolio company itself
meets the definition of ``financial institution.''
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The proposed change regarding asset management companies would
similarly reflect that positions with asset management companies, in
addition to positions with the underlying funds managed by the
companies, represent sources of financial sector interconnectedness.
To improve clarity, the proposal would modify the FR Y-15
instructions to specify that exchange-traded funds are included in the
definition of ``financial institution,'' and would include in the line
items for holdings of securities issued by other financial institutions
(within the intra-financial system assets indicator) holdings of
securities of an exchange-traded fund. Currently, the instructions for
this line item state not to include bond exchange-traded funds.
Although the redemption structures for shares of exchange-traded funds
generally differ from the structure of an open-ended mutual fund, asset
management entities can have a variety of redemption structures and
still act as a source of financial sector interconnectedness. In
addition, mutual funds, which are currently included in the FR Y-15
instruction's definition of ``financial institution,'' and exchange-
traded funds are generally covered by the Investment Company Act of
1940 and subject to similar regulatory requirements. Given that there
is no material distinction between exchange-traded funds and other
asset management entity types in terms of their legal structure and the
fact that exchange-traded funds engage in similar activities as mutual
funds, the inclusion of exchange-traded funds would ensure consistent
treatment across different types of asset management entities for the
purposes of the interconnectedness indicators. This change would
improve the clarity of reporting instructions and the consistency of
treatment of asset management entities and provide a more complete
measure of a banking organization's interconnectedness.
Finally, the current definition of ``financial institution'' in the
FR Y-15 relies on descriptions of certain asset management entity types
(for example, mutual funds and hedge funds) using general, rather than
specific, terminology, which may result in inconsistencies in the
identification and inclusion of financial sector counterparties across
banking organizations (for example, regarding the treatment of foreign
equivalents or other asset management entities that engage in similar
activities). To promote consistent treatment based on substance, the
proposal would clarify that asset management entities that engage in
similar activities to those listed are also included in the definition.
The proposal would implement these changes through revisions to the
instructions of the FR Y-15 that would apply to all filers.
Question 20: What other types of entities beyond those mentioned
should be included in the definition of ``financial institution,'' and
why?
Question 21: What are the advantages and disadvantages of the
proposed clarification regarding asset management entities similar to
those listed in the definition of ``financial institution''? What
entities, if any, would be scoped in by this approach that would not be
consistent with the purposes of the intra-financial system assets and
intra-financial systems liabilities indicators? What additional
compliance burden would result from such an approach, and how could
such
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burden be reduced? What alternative terms should the Board consider to
clarify the identification and inclusion of different asset management
or investment entities that ensures consistent treatment of similar
counterparties across banking organizations?
Question 22: What other changes should the Board consider to
improve the identification and inclusion of financial sector
counterparties for purposes of the intra-financial system assets and
intra-financial system liabilities indicators? For example, what would
be the advantages and disadvantages of aligning the definition of
``financial institution'' in the FR Y-15 with the definition used in
the capital rule (12 CFR 217.2)? Under such an approach, the Board
could add to the definition used in the FR Y-15 a functional prong
similar to parts (4)(ii) and (6) of the capital rule's definition of
``financial institution,'' which would scope in companies that are
predominantly engaged in certain financial activities. Alternatively,
the FR Y-15 could use the capital rule's definition of ``financial
institution,'' replacing the exclusions in part (7) of the capital
rule's definition with the list of excluded entity types in the current
FR Y-15 definition. What would be the advantages and disadvantages of
such an approach? What other alternatives should the Board consider to
capture the types of financial counterparties that reflect a firm's
interconnectedness, and why? For example, what would be the advantages
or disadvantages of aligning with criteria or defined terms used in
other parts of the Board's regulatory framework? Please provide
examples of financial sector counterparties that would be included
under any alternative approaches that are not included by the current
definition in the FR Y-15, and the appropriateness of including or not
including these counterparty types. In addition, please provide
information on the reporting burden of potential approaches relative to
the current reporting requirements.
Question 23: What other changes should the Board consider to the
definition of ``financial institution'' and other instructions for the
interconnectedness indicators to clarify instructions, improve
measurement, and promote more consistent reporting?
b. Derivatives
The proposal would update the reporting of derivative positions in
the intra-financial system assets and intra-financial system
liabilities indicators in the interconnectedness category to align with
amendments to the capital rule in 2019 that adopted the standardized
approach for counterparty credit risk (SA-CCR).\77\ The indicators for
intra-financial system assets and intra-financial system liabilities
include the net fair value and potential future exposure of OTC
derivatives with other financial institutions, as calculated under the
capital rule. The current instructions specify that firms should use
the current exposure method to calculate the potential future exposure
of these positions.\78\ The proposal would update the instructions for
the relevant line items in the intra-financial system assets and intra-
financial system liabilities indicators to provide instead for
calculation using SA-CCR for a banking organization that uses SA-CCR to
calculate its risk-weighted assets under the capital rule.
Specifically, the proposal would state that a banking organization
should report the exposure amount of derivatives in accordance with the
capital rule, 12 CFR 217.34(a). This change would align the measurement
of derivatives in the interconnectedness category with that used in the
size category, as well as in the calculation of risk-weighted assets
and total leverage exposure in the capital rule.
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\77\ See 85 FR 4362 (Jan. 24, 2020).
\78\ See 12 CFR 217.34.
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The proposal would allow a banking organization to recognize, for
purposes of the intra-financial system assets and intra-financial
system liabilities indicators, the value of non-cash collateral to
offset the net fair value of derivatives if such collateral is
financial collateral (as defined in the capital rule, 12 CFR 217.2) and
if adjusted for the applicable haircuts under SA-CCR or the current
exposure method, depending on which methodology the banking
organization uses, in accordance with the capital rule, 12 CFR
217.34(a). Specifically, the proposal would revise relevant line items
in the interconnectedness category of the FR Y-15. This change would
provide recognition of risk mitigants that reduce the impact to other
financial institutions of a banking organization's failure.
Question 24: Currently, firms are unable to recognize netting of
exposures across derivatives and securities financing transactions
contained within the same legal netting set for the purposes of certain
systemic indicators in their GSIB surcharge score calculations. The
capital proposals include changes to the ability of firms subject to
SA-CCR to recognize under the capital rule offsetting of certain
exposures across different product types (for example, certain
derivatives and repo-style transactions). What changes, if any, should
the Board make to the FR Y-15 to permit recognition of such offsetting
in the interconnectedness and size indicators or any other systemic
indicators? What would be the advantages and disadvantages of such
changes?
c. Securities Outstanding
The proposal would revise the scope of certain exposures measured
under the securities outstanding systemic indicator in the
interconnectedness category. First, the proposal would revise the FR Y-
15 instructions to indicate that banking organizations should not
report a certificate of deposit in the securities outstanding indicator
if the certificate of deposit is not due to or held by a financial
institution and is non-transferable. This modification would exclude
such certificates of deposit from the interconnectedness category
because they are not, and cannot become, exposures due to or held by a
financial institution.
Consistent with the purpose of the interconnectedness indicators to
measure a banking organization's intra-financial system transactions
and contractual relationships, banking organizations would continue to
include in the securities outstanding indicator a certificate of
deposit that is issued to a financial institution and a certificate of
deposit that is transferable.
The proposal would also modify the instructions for other items
included in the securities outstanding systemic indicator to provide
greater clarity to banking organizations. Specifically, the proposal
would require banking organizations to include preferred shares that
have a determinable fair value in the securities outstanding systemic
indicator, even if the preferred shares are not registered with the
Securities and Exchange Commission or listed on a securities exchange.
The current FR Y-15 instructions for this line item require banking
organizations to report publicly traded instruments. The proposed
change would include instruments for which banking organizations can
easily determine a fair value, which can be done for securities for
which there is an active market. This change would be consistent with
the intent of the securities outstanding indicator to accurately
measure issued and outstanding debt and equity instruments of a banking
organization and would align with the instructions for this line item
under the Basel Committee's GSIB surcharge framework.
Question 25: What further modifications or clarifications to the
[[Page 14926]]
securities outstanding systemic indicator should the Board consider,
and why?
Question 26: What other changes to the interconnectedness category
indicators should the Board consider, and why?
ii. Substitutability
a. Trading Volume
The substitutability category used in method 1 measures the extent
to which a banking organization provides critical financial services
and infrastructure to third parties and the broader financial system
that would be difficult to substitute in a period of financial stress
or failure. Currently, there are three indicators in the
substitutability category: (1) payments activity; (2) assets under
custody; and (3) underwritten transactions in debt and equity markets.
The proposal would revise the substitutability category to
introduce two new systemic indicators, ``trading volume--fixed income''
and ``trading volume--equity and other,'' as a complement to the
existing indicator for underwritten transactions in debt and equity
markets.
The proposed inclusion of trading volume in the substitutability
category in addition to underwritten transactions in debt and equity
markets would provide a broader measure of the extent to which a
banking organization's activities contribute to liquidity in the
primary market (underwriting) and secondary market (trading). The
permitted trading activity of banking organizations, such as market
making, can promote market liquidity, thereby enhancing price discovery
and permitting market participants to manage financial risk more
holistically. The provision of market-making services can require
substantial investments in information technology and infrastructure,
making it difficult to substitute in a period of financial stress or
firm default. The proposal would include separate indicators for
trading volume in fixed income and in equities and other securities to
avoid disproportionate impact due to differences in overall trading
volumes in the two markets.
The FR Y-15 sections for the substitutability indicators (Schedules
C and J) currently include these measures as memoranda line items. The
proposal would move these line items into the main section of Schedule
C to reflect their inclusion as new systemic indicators.\79\ The
indicator for trading volume in fixed income securities includes money
market instruments, certificates of deposit, bills, bonds, and other
fixed income securities, such as commercial paper, corporate bonds,
syndicated corporate loans, covered bonds, convertible debt, and
securitized products.\80\ This indicator includes securities issued by
public sector entities (as defined in 12 CFR 217.2) as well as
securities issued or guaranteed by government-sponsored agencies,
multilateral development banks, and state and local governments, but
does not include securities issued by a sovereign, as defined in 12 CFR
217.2. The indicator for trading volume of equities and other
securities includes all publicly traded equities (as defined in 12 CFR
217.2), including American depositary receipts (ADRs) and global
depositary receipts (GDRs), unlisted equity securities, preferred
stock, trust preferred securities, and securities issued by investment
funds, as defined in 12 CFR 217.2.\81\
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\79\ As discussed in section II.G of this SUPPLEMENTARY
INFORMATION section below, the proposal would remove Schedule J to
streamline reporting by foreign banking organizations.
\80\ See FR Y-15 Instructions, Schedule C, line items M5, M5(a),
M5(b), and M6.
\81\ See FR Y-15 Instructions, Schedule C, line items M5, M5(c),
M5(d), and M7.
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The proposal would modify the weighting of the indicators for the
substitutability category in a firm's method 1 GSIB score calculation
to reflect the addition of the two new indicators. Currently, the
indicator for underwritten transactions in debt and equity markets
receives a 6.67 percent weight. The proposal would reallocate a portion
of this weighting to the two new indicators: the indicator for
underwritten transactions in debt and equity markets would receive a
3.33 percent weight, and the trading volume--fixed income and trading
volume--equity and other systemic indicators would each receive a 1.67
percent weight. The remaining indicators in the substitutability
category would retain their current weight of 6.67 percent each. The
inclusion of the proposed indicators for trading volume would not
affect a GSIB's method 2 score calculation, as method 2 does not
include the substitutability category of indicators.
Question 27: What are the advantages and disadvantages of the
proposed trading volume systemic indicators as measures of a banking
organization's substitutability, based on its contributions to
efficient market functioning? What alternative indicators, if any,
should the Board consider?
Question 28: What, if any, other trading instruments and exposures
besides those mentioned above should the proposed systemic indicators
for trading volume include, and why?
b. Currencies Included in the Payments Activity Systemic Indicator and
Associated Memoranda Items
The payments activity indicator includes the value of all cash
payments sent via large-value payment systems, along with the value of
all cash payments sent through an agent (for example, using a
correspondent or nostro account), over the calendar year in major
global currencies. To determine which currencies to include in this
indicator, the payments activity indicator uses factors such as the
extent to which a currency represents a material share of global
foreign exchange market turnover, among other factors.\82\ In
identifying major currencies, the payment activity indicator takes into
account the list of major currencies announced by the Basel Committee
for purposes of the international GSIB surcharge standard, including
updates typically announced by the Basel Committee every three
years.\83\ The FR Y-15 also collects payments activity for certain
other currencies (memorandum item currencies) that are not used at
sufficient volumes to be included in the payments activity metric, to
help inform the selection of major currencies in the future and monitor
activity more consistently over time in currencies that may become
major currencies in the future.
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\82\ For example, a currency may also be considered a major
currency if it represents a material share of global nominal GDP.
\83\ See Basel Committee, G-SIB Assessment Reporting
Instructions, <a href="https://www.bis.org/bcbs/gsib/reporting_instructions.htm">https://www.bis.org/bcbs/gsib/reporting_instructions.htm</a>.
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The proposal would update the list of currencies included in the
payments activity systemic indicator to reflect changes in the
materiality of certain currencies' share of global foreign exchange
market turnover. The proposal would also update the list of currencies
collected as memorandum item currencies that are not included in the
payments activity systemic indicator.
The proposal would revise the payments activity systemic indicator
to include the Singapore dollar, based on its use in global foreign
exchange markets, and to remove the Brazilian real, the Mexican peso,
and the Swedish krona from the systemic indicator, based on their
reduced relative use in global foreign exchange markets. Based on the
2025 Triennial Central Bank Survey published by the Bank for
International Settlements (BIS), the Singapore dollar accounted for
over 2 percent of foreign
[[Page 14927]]
exchange market turnover.\84\ The Mexican peso and the Swedish krona,
which the FR Y-15 currently includes in the payments systemic
indicator, respectively accounted for slightly less than 2 percent of
foreign exchange market turnover. The Brazilian real, which the FR Y-15
also currently includes in the payments systemic indicator, accounted
for significantly less than 2 percent of foreign exchange market
turnover.
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\84\ The BIS Triennial Central Bank Survey is a comprehensive
source of information on the size and structure of global over-the-
counter markets in foreign exchange and interest rate derivatives.
The BIS coordinates the Triennial Survey every three years. The
foreign exchange turnover part of the 2025 Triennial Survey took
place in April 2025 and involved central banks and other authorities
in 52 jurisdictions. These authorities collected data from more than
1,100 banks and other dealers and reported national aggregates to
the BIS for inclusion in global aggregates. See Triennial Central
Bank Survey, September 2025, <a href="https://www.bis.org/statistics/rpfx25_fx.htm">https://www.bis.org/statistics/rpfx25_fx.htm</a>.
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Under the proposal, the FR Y-15 would continue to collect data on
payments in the Mexican peso and the Swedish krona as memoranda item
currencies, based their share of foreign exchange market turnover. The
proposal would also add payments activity in South Korean won as a
memorandum item currency on the FR Y-15. This currency accounted for
slightly less than 2 percent of foreign exchange market turnover, based
on the Triennial Central Bank Survey. Like other memoranda item
currencies, the South Korean won would not be included in the payments
activity systemic indicator under the proposal.
The proposal would amend the FR Y-15 to no longer collect data on
payments activity in Russian rubles and the Brazilian real, as the
foreign exchange market turnover for these currencies is significantly
less than the other currencies for which the FR Y-15 collects
information.
Question 29: Which, if any, other currencies should the Board add
or remove in the payments activity systemic indicator or as memorandum
item currencies, and why?
c. Clarifications for the Payments Activity Indicator
The proposal would make additional changes to the FR Y-15
instructions for the payments activity indicator to improve clarity for
filers. First, the proposal would modify the instructions for payments
made in the last four quarters to more clearly state the current
requirement that filers should include in their reported values the
quarter including the as-of date of the report. This clarification
would make no substantive change to the current instructions.
Additionally, the proposal would update a footnote in the instructions
for line item 1, which cites a report published by the Bank for
International Settlements' Committee on Payment and Settlement Systems,
to reflect a change in the name of this body to the Committee on
Payments and Market Infrastructures and to provide an updated
hyperlink. The proposal would also provide additional information on
how a firm may convert payments activity into U.S. dollars using
average exchange rates.
Question 30: What other changes should the Board consider to
improve the quality and efficiency of the data collected in the
payments activity indicator? For example, what would be the advantages
and disadvantages of permitting firms to collect the daily flow data
for each reporting currency included in the payments activity indicator
and converting the data for each currency using daily exchange rate
quotations?
iii. Cross-Jurisdictional Activity
a. Cross-Jurisdictional Derivatives Activity
Banking organizations with large cross-border activities and
exposures may be more difficult and costly to resolve than domestically
focused banking organizations in the event of a failure. The greater a
banking organization's exposures are across borders and to non-domestic
counterparties, the more difficult it can be to coordinate its
resolution were it to fail. In addition, cross-jurisdictional activity
can add complexity and present channels for transmission of distress
with parties in different jurisdictions. The two systemic indicators
included in this category--cross-jurisdictional claims and cross-
jurisdictional liabilities--measure a banking organization's global
profile by considering its activity and exposures outside of the United
States.
Under the current FR Y-15 instructions, neither of these indicators
for cross-jurisdictional activity include derivative exposures.
Omission of derivatives from the systemic indicators for cross-
jurisdictional activity can materially understate this measure for a
banking organization, and also present opportunities for a banking
organization to use derivatives to structure its exposures in a manner
that reduces the value of its systemic indicators without reducing the
risks the indicator is intended to measure. In the context of cross-
jurisdictional activity, derivative exposures increase a firm's cross-
jurisdictional claims and liabilities and can increase or transmit
distress in the same manner as--or even to a greater extent than--other
cross-jurisdictional assets and liabilities by amplifying the effect of
a banking organization's failure.\85\
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\85\ The failure of Lehman Brothers during the 2007-09 financial
crisis is an example of how cross-border derivatives can increase
the effect of a banking organization's failure. See Summe, K.
(2012). ``An Examination of Lehman Brothers' Derivatives Portfolio
Post-Bankruptcy.'' In K. Scott & J. Taylor (Eds.), Bankruptcy Not
Bailout: A Special Chapter 14 (pp. 97-125). Hoover Institution
Press. Wiggins and Metrick (2014). The Lehman Brothers Bankruptcy G:
The Special Case of Derivatives. Yale Program on Financial
Stability.
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Accordingly, the proposal would revise the systemic indicators for
cross-jurisdictional claims and cross-jurisdictional liabilities to
include derivative exposures. As a result of this change, these
indicators would provide a more accurate and comprehensive measure of a
banking organization's cross-jurisdictional activity and the associated
risks intended to be captured. In addition to its usage in the GSIB
surcharge framework, cross-jurisdictional activity as reported on the
FR Y-15 also serves as a risk-based indicator in the Board's framework
for determining the applicable category of prudential standards for
large banking organizations. Specifically, a banking organization that
has cross-jurisdictional activity of $75 billion or more is subject to
Category II standards.\86\ The proposed change would also have the
effect of improving the measurement of cross-jurisdictional activity
for the purposes of determining the application of prudential standards
for large banking organizations.
---------------------------------------------------------------------------
\86\ See 12 CFR 252.2. Cross jurisdictional activity is measured
as the sum of a banking organization's cross-jurisdictional claims
and cross-jurisdictional liabilities.
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The proposal would implement the modification to include derivative
exposures in the cross-jurisdictional activity category systemic
indicators through revisions to the FR Y-15, which currently collects
information regarding cross-jurisdictional derivative exposures as
memoranda items. Under the proposal, a banking organization would
generally recognize collateral associated with derivative exposures
consistently with the methodology for reporting other cross-
jurisdictional claims and liabilities on the FR Y-15. Specifically, a
banking organization would report cross-jurisdictional derivative
claims and liabilities gross of collateral, given that a banking
organization may be engaged in significant cross-jurisdictional
derivatives business even if its cross-jurisdictional claims and
[[Page 14928]]
liabilities are relatively small net of collateral. This approach would
better measure the underlying scale of a banking organization's cross-
jurisdictional derivatives activity.\87\
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\87\ Consistent with the current FR Y-15 and the FFIEC 009
instructions, the positive fair value of derivative contracts can be
offset against the negative fair value of derivative contracts if
the transactions are executed under a legally enforceable master
netting agreement and the offsetting is in accordance with ASC
Subtopics 815-10 and 210-20.
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Foreign banking organizations would report cross-jurisdictional
derivative claims and liabilities with affiliates outside the reporting
group in a consistent manner with other cross-jurisdictional claims and
liabilities, to reflect the structural differences between foreign
banking organizations' U.S. operations and domestic holding
companies.\88\
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\88\ Under the Board's tailoring framework, a foreign banking
organization may exclude from the cross-jurisdictional claims
indicator claims on an affiliate outside the reporting group (U.S.
intermediate holding company or combined U.S. operations, as
applicable) to the extent that these claims are secured by financial
collateral, in accordance with the methodology for collateralized
transactions under the capital rule (see instructions for line item
1(a) of Schedule L of the FR Y-15). A foreign banking organization
may exclude cross-jurisdictional liabilities for which the
counterparty is an affiliate outside the reporting group (see
instructions for line item 2(a) of Schedule L of FR Y-15). For more
information, see also SR Letter 20-2, Attachment B, <a href="https://www.federalreserve.gov/supervisionreg/srletters/sr2002.htm">https://www.federalreserve.gov/supervisionreg/srletters/sr2002.htm</a>.
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Question 31: What are the advantages and disadvantages of modifying
the scope of the cross-jurisdictional claims and cross-jurisdictional
liabilities indicators to include derivative exposures?
Question 32: What are the advantages and disadvantages of modifying
the scope of the cross-jurisdictional activity risk-based indicator in
the Board's framework for determining the applicable category of
prudential standards for large banking organizations to include
derivative exposures? What adjustments, if any, should the Board
consider to the reporting of a firm's cross-jurisdictional derivative
exposures, including by type of firm, and why would such adjustments
more appropriately capture cross-jurisdictional activity? Please
provide data or relevant information.
Question 33: What other modifications, if any, would improve
measurement of the cross-jurisdictional activity indicators?
b. Other Changes to Measurement of Cross-Jurisdictional Activity
Indicators
Currently, the FR Y-15 instructions direct filers to measure cross-
jurisdictional liabilities by referencing instructions for the Treasury
International Capital reports and the Country Exposure Report (FFIEC
009). To streamline the reporting instructions for cross-jurisdictional
liabilities, the proposal would remove references to the Treasury
International Capital reports, consolidate line items related to cross-
jurisdictional liabilities, and apply definitions consistent with the
FFIEC 009 for the measurement of cross-jurisdictional liabilities. This
approach would result in a consistent methodology for measuring the
consolidated cross-jurisdictional liabilities of firms while
simplifying the reporting instructions.
As part of this change, the proposal would revise the scope of the
cross-jurisdictional liabilities indicator to include total liabilities
booked at foreign offices regardless of whether payment is guaranteed
at locations outside the country of the office. Foreign office
liabilities may present complexity or increase the difficulty and cost
of resolving a banking organization in the event of a failure
regardless of whether payments are guaranteed at locations outside the
country of the office. Therefore, this revision would better reflect a
banking organization's cross-jurisdictional activities and exposures.
iv. Short-Term Wholesale Funding
In addition to the proposed changes outlined in II.B of this
SUPPLEMENTARY INFORMATION, the proposal would make additional
amendments to the short-term wholesale funding indicator and its
associated FR Y-15 instructions to improve the consistency of data
measurement and reporting, reduce operational burden, and improve the
clarity of reporting instructions.
a. Alignment With Other Requirements
To improve consistency of data measurement and reporting and reduce
operational burden for filers, the proposal would align the maturity
categories used to calculate a firm's short-term wholesale funding
score under the GSIB surcharge framework and reported on the FR Y-15
with the maturity categories used for liquidity data reporting on the
Complex Institution Liquidity Monitoring Report (FR 2052a) and for
purposes of the net stable funding ratio (NSFR) rule,\89\ by moving the
start and end dates for certain categories by one day.
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\89\ See 12 CFR part 249; see also Net Stable Funding Ratio:
Liquidity Risk Measurement Standards and Disclosure Requirements, 86
FR 9120 (Feb. 11, 2021).
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The Board in 2021 amended the FR 2052a to align the report with the
NSFR rule. As a result of those changes, there is currently a one-day
difference between the start and end dates for certain maturity
categories for reporting data items on the FR Y-15 and the FR 2052a.
Specifically, one of the maturity categories in the FR 2052a and under
the NSFR rule includes a lower bound of 180 days. The short-term
wholesale funding indicator under the GSIB surcharge framework and the
FR Y-15 reporting form, however, include a category for remaining
maturity of 181 to 365 days.
The proposal would modify the maturity category of 91 to 180 days
under the GSIB surcharge framework and FR Y-15 to a remaining maturity
of 91 to 179 days, and the maturity category of 181 to 365 days to a
maturity of 180 to 364 days, to align with the FR 2052a. This change
would improve consistency and reduce operational burden, for example,
by allowing banking organizations to use data from the FR 2052a to
complete FR Y-15 reporting.
b. Instructions Update to the Calculation of the Weighted Short-Term
Wholesale Funding Amount
The proposal would revise the General Instructions and certain line
items in Schedule G in addition to updating and adding definitions in
the Glossary of the FR Y-15 to simplify the instructions for
calculating the short-term wholesale funding indicator score.
Currently, under the method 2 framework, a firm reports its short-term
wholesale funding amount on the FR Y-15 and also calculates its short-
term wholesale funding amount for the purposes of its method 2 score
for the indicator based on the regulatory text in 12 CFR 217.406.
The proposal would remove the current regulatory text section 12
CFR 217.406, as well as certain definitions associated with the short-
term wholesale funding indicator from 12 CFR 217.401.\90\ Under the
proposal, the coefficient for the short-term wholesale funding
indicator would be in 12 CFR 217.405 and updated annually consistent
with the proposed indexing process outlined in section II.A.ii of this
SUPPLEMENTARY INFORMATION. The FR Y-15 instructions for Schedule G
would maintain the current line items in the reporting form and include
additional information on how to report these items. The separate
regulatory text would not be necessary for the weighted short-term
wholesale funding indicator in light of the proposed changes
[[Page 14929]]
described in section II.B.i-ii of this SUPPLEMENTARY INFORMATION.
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\90\ All proposed removals of current definitions from 12 CFR
217.401 would be added as definitions in the Glossary of the FR Y-15
to ensure consistency in the scope of reporting the short-term
wholesale funding indicator.
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Question 34: In addition to the proposed changes, what additional
changes, if any, should the Board consider making to the FR Y-15, and
why--for example, to improve the measurement of indicators and systemic
risk or to reduce operational burden?
F. Clarification for Reduction in GSIB Surcharge Calculated During the
Year Between Calculation and Effective Date of a GSIB Surcharge
Increase
Under the current rule, if a GSIB's systemic risk profile changes
from one year to the next such that it would be subject to a higher
GSIB surcharge, the higher surcharge is not applicable for a full year
(that is, two years from the systemic indicators measurement year).
Alternatively, if a GSIB's systemic risk profile changes from one year
to the next such that it would be subject to a lower GSIB surcharge,
the lower surcharge is applicable beginning on January 1 of the next
calendar year (that is, one year from the systemic indicators
measurement year). Providing an additional year before a GSIB surcharge
increase takes effect helps to facilitate firms' capital planning and
allows for more gradual increases in capital requirements, whereas
immediately applying surcharge decreases recognizes firms' reductions
in actual systemic risk profile. In addition, the one-year difference
in application between an increase and a decrease provides firms the
opportunity to reduce their systemic risk profile in order to not be
subject to an increased capital buffer requirement.
The proposal would amend section 217.403 of the capital rule to
clarify these mechanics, without changing the substance. The amendatory
text would specify that a firm's GSIB surcharge in effect for a
calendar year is the surcharge calculated in the immediately prior
calendar year, unless the surcharge calculated in the calendar year two
years prior was lower, in which case the GSIB surcharge calculated in
the calendar year two years prior shall be in effect.
For example, consider a GSIB that in 2026 has an effective GSIB
surcharge of 2.0 percent. Based on data reported as of the fourth
quarter of 2026, if the firm calculates a GSIB score that would result
in a GSIB surcharge of 2.2 percent, the higher GSIB surcharge would
take effect on January 1, 2029. If, based on data reported as of the
fourth quarter of 2027, that GSIB calculates a GSIB score that would
result in a GSIB surcharge of 2.1 percent (or lower), the GSIB's
effective surcharge on January 1, 2029, would be the 2.1 percent
calculated as of the fourth quarter of 2027, instead of the 2.2 percent
calculated as of the fourth quarter of 2026.
G. Foreign Banking Organization Reporting Requirements
In 2019, in connection with the final rule establishing categories
and thresholds for determining prudential standards for large banking
organizations, the Board added new Schedules H through N to the FR Y-
15, which apply solely to foreign banking organizations and their U.S.
intermediate holding companies. The new schedules were intended to
simplify reporting for foreign banking organizations and their
intermediate holding companies. However, to reduce technical challenges
and operational burden and improve administration and consistency of
reporting the Board is proposing to consolidate FR Y-15 reporting for
U.S. and foreign banking organizations on a single set of schedules.
To simplify and streamline the reporting form and its instructions,
the proposal would remove Schedules H through N and make adjustments to
accommodate reporting by foreign banking organizations using the same
schedules as domestic firms, Schedules A through G. Under the proposal,
a foreign banking organization would file Schedules A through G for its
combined U.S. operations and separately for any U.S. intermediate
holding company required to be formed pursuant to the Board's
Regulation YY. This change would only reorganize the way that foreign
banking organizations report the FR Y-15 and would not change the
actual information collected. The proposal would make corresponding
updates to the FR Y-15 instructions to reflect this change.
Question 35: The Board invites comment on the removal of Schedules
H through N from the FR Y-15 reporting form, including the operational
and administrative costs for foreign banking organizations to report
the form. How would the removal of these schedules affect regulatory
reporting processes, including resource allocation, system
requirements, and compliance costs?
Question 36: What other changes to the FR Y-15 should the Board
consider making to remove unnecessary reporting burden and why?
H. Implementation and Timing
The proposal's amendments to the capital rule, FR Y-15 reporting
form, and FR Y-15 instructions would take effect two calendar quarters
after the date of adoption of a final rule. This effective date timing
would give firms a minimum of two quarters to make the required changes
to their systems and processes. During the initial three quarters
following the effective date, items that require a four-quarter average
or sum would include data from quarters for which the underlying
reporting instructions differ. Banking organizations would not be
required to adjust data reported in previous quarters when calculating
these four-quarter averages or sums. A banking organization that does
not have data for an indicator for a previous quarter would be required
to use a pro-rata approach.\91\
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\91\ A reporting organization that does not have 12 months of
data to report would use an annualized pro-rata approach to
calculate line items that are a four--quarter sum or average. For
each line item that is an average, the approach would consist of
using the average value over the period during the prior 12 months
for which the banking organization has reported data. For example,
if a firm only has two quarters of data for Level 3 Assets (Schedule
D, line item 14), its average amount for the year would be equal to
the average of values for the two quarters for which the firm has
reported data on the FR Y-15.
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Question 37: What alternative implementation timing should the
Board consider and why?
I. Interaction With Other Proposals
The Board, with the OCC and FDIC, is separately issuing the capital
proposals, which would substantially revise the capital requirements
applicable to banking organizations operating in the United States. The
revisions set forth in the capital proposals would improve the
calculation of risk-based capital requirements to better reflect the
risks of banking organizations' exposures, reduce the complexity of the
framework, enhance the consistency of requirements across these banking
organizations, and facilitate more effective supervisory and market
assessments of capital adequacy.
Among other things, the capital proposals would modify the
conversion factors applicable to equity and credit commitments. The
capital proposals would introduce a 40 percent conversion factor for
all equity and credit commitments regardless of maturity that are not
unconditionally cancellable, which would be applicable to all FR Y-15
filers. This would replace the current capital rule's 20 percent and 50
percent equity and credit conversion factors for equity and credit
commitments that are not unconditionally cancellable.
Given that the GSIB surcharge framework's size indicator generally
aligns with the total leverage exposure
[[Page 14930]]
calculation, in connection with the capital proposals, the Board plans
to propose revisions to the FR Y-15 Schedule A (Size Category) to align
with these proposed changes to the credit conversion factors by adding
a line item for off-balance sheet exposures subject to a conversion
factor of 40 percent and removing the line items for conversion factors
of 20 and 50 percent.
Question 38: What other modifications, if any, should the Board
consider to this proposal due to the capital proposals?
III. Economic Analysis
A. Introduction
The proposal's primary objective is to improve the measurement of
systemic risk profiles in the GSIB surcharge framework. Specifically,
as discussed in section I of this SUPPLEMENTARY INFORMATION, the
proposal would make multiple adjustments to the calculation of method 1
and method 2 scores so that these scores, and the related GSIB
surcharges, more accurately reflect the systemic risk profiles of
GSIBs.
The accurate measurement of systemic risk profiles is crucial for
the functioning of the GSIB surcharge framework. In particular,
accurate systemic risk measurement helps achieve the framework's
objective that GSIBs that pose higher systemic risk are subject to
higher capital buffer requirements, which reduces their probability of
distress in order to moderate and equalize across GSIBs the expected
systemic losses from such potential distress. Additionally, accurate
systemic risk measurement makes GSIBs better internalize such potential
systemic losses, which creates incentives for them to better manage
their systemic risk.
The economic analysis is structured as follows. Section III.B
describes the baseline for the analysis, which is the current GSIB
surcharge framework, and the data used. Sections III.C and III.D
present the proposed policy change and three reasonable alternatives.
Section III.E estimates the changes in systemic indicators, method 1
and method 2 scores, and GSIB surcharges under the proposal and the
alternatives relative to the baseline. Sections III.F and III.G
evaluate the economic benefits and costs of the proposal and the policy
alternatives. Section III.H assesses potential interactions between the
proposal and other rules, such as the total loss-absorbing capacity
framework and the regulatory tailoring framework. Section III.I
concludes the analysis, and section III.J is an appendix that describes
the quantitative impact estimation methodology in detail.
B. Baseline and Data
The economic analysis uses the current regulatory framework as
baseline, including the current U.S. GSIB surcharge framework,
described in section I.A of this SUPPLEMENTARY INFORMATION. The
baseline represents the current state of GSIBs in the absence of any
policy change. Accordingly, throughout the analysis, the Board assesses
the economic impact of the proposal and the policy alternatives
considered, described in sections III.C and III.D of this SUPPLEMENTARY
INFORMATION, by comparing outcomes estimated under the proposal and the
alternatives to the outcome estimated under the baseline.
The economic analysis does not reflect the effects of the expanded
risk-based proposal, which would interact with the impact of this
proposal, for example, by changing risk-weighted asset amounts. The
economic analysis in the expanded risk-based proposal assesses
potential interactions between the two proposals as well as the
combined impact of the two proposals.
The economic analysis uses the most recent year-end financial
information available on the eight U.S. bank holding companies that are
GSIBs as of 2025 (``current GSIBs'') to estimate the method 1 and
method 2 scores, as well as the GSIB surcharges of these holding
companies under the baseline, the proposal, and the policy alternatives
considered.\92\ The analysis focuses on method 1 and method 2 scores
calculated using data from the fourth quarter of 2024 and investigates
how these scores would change under the proposal and the alternatives
relative to the baseline. Additionally, the analysis estimates the
impact of the proposal and the alternatives on GSIB surcharges
applicable in 2026, which also requires the calculation of method 1 and
method 2 scores using data from the fourth quarter of 2023.\93\ The
remainder of this subsection describes the data used in these
calculations and then presents summary statistics across the eight
GSIBs under the baseline.
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\92\ Section J of this SUPPLEMENTARY INFORMATION describes the
impact estimation methodology used in different subsections of the
economic analysis and the data used in the subsection assessing the
proposal's potential interaction with the total loss-absorbing
capacity framework.
\93\ Under the baseline, estimating GSIB surcharges applicable
in any given year requires the estimation of method 1 and method 2
scores in the two preceding years because increases in GSIB
surcharges are applicable only with a one-year delay, whereas
decreases are applicable without a delay. See 12 CFR 217.403(d). The
proposal and the alternatives would maintain this lag in the
applicability of surcharge increases.
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The analysis uses multiple data sources to calculate method 1 and
method 2 scores under the baseline, the proposal, and the policy
alternatives considered. The analysis primarily relies on publicly
available data on systemic indicator line items and memorandum items
reported in FR Y-15 filings as of the fourth quarters of 2023 and
2024.\94\ Additionally, the analysis uses quarterly systemic indicator
data from the first quarter of 2017 through the fourth quarter of 2024
to estimate the effect of the proposed data averaging of certain
systemic indicators. The analysis estimates the impact of the proposed
changes to certain systemic indicators by using confidential
supervisory information from the Board's special data collection as of
the second quarter of 2023.\95\ The calculation of method 1 scores uses
the aggregate global indicator amounts published by the Federal
Reserve.\96\ Furthermore, the analysis estimates the impact of one
policy alternative using the aggregate global indicator amounts
published by the Bank for International Settlements.\97\ The analysis
converts these euro-denominated global indicator amounts to U.S.
dollars by using exchange rate data published by the European Central
Bank.\98\ The analysis estimates the impact of the proposed changes on
the dollar amount of GSIB surcharges by using publicly available data
on total risk-weighted assets reported in FR Y-9C filings as of the
fourth quarter of 2024.\99\
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\94\ The specific line items used from FR Y-15 filings are RISK
Y832, M362, M359, M370, M367, M376, M374, M390, M378, Y835, M405,
M408, MV93, MV95, M411, N255, G506, M422, KW54, M426, KY50, Y894,
and Y896.
\95\ See <a href="https://www.federalreserve.gov/newsevents/pressreleases/bcreg20231020b.htm">https://www.federalreserve.gov/newsevents/pressreleases/bcreg20231020b.htm</a>. The specific line items used from
the Board's special data collection are Items 1 and 7-11.
Additionally, for the estimation of the proposal's impact on the
payments activity indicator, the analysis uses confidential
supervisory information on payments activity in Singapore dollars as
of the fourth quarter of 2024, reported on a voluntary basis in Item
6.k of the Basel Committee on Banking Supervision's annual GSIB
assessment exercise, for which the reporting templates and filing
instructions are available at <a href="https://www.bis.org/bcbs/gsib/reporting_instructions.htm">https://www.bis.org/bcbs/gsib/reporting_instructions.htm</a>.
\96\ See <a href="https://www.federalreserve.gov/supervisionreg/basel/denominators.htm">https://www.federalreserve.gov/supervisionreg/basel/denominators.htm</a>.
\97\ See <a href="https://www.bis.org/bcbs/gsib/denominators.htm">https://www.bis.org/bcbs/gsib/denominators.htm</a>.
\98\ See <a href="https://www.ecb.europa.eu/stats/policy_and_exchange_rates/euro_reference_exchange_rates/html/eurofxref-graph-usd.en.html">https://www.ecb.europa.eu/stats/policy_and_exchange_rates/euro_reference_exchange_rates/html/eurofxref-graph-usd.en.html</a>.
\99\ The specific line items used from FR Y-9C filings are BHCA
A223 and BHCW A223.
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Finally, the analysis uses publicly available macroeconomic data to
calculate adjustments to method 2 systemic indicator coefficients under
[[Page 14931]]
the proposal and one of the policy alternatives considered.
Specifically, in these calculations, the analysis uses the annual,
seasonally-adjusted U.S. Gross Domestic Product (GDP) published by the
U.S. Bureau of Economic Analysis and the Consumer Price Index for All
Urban Wage Earners and Clerical Workers (CPI-W) published by the U.S.
Bureau of Labor Statistics.\100\
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\100\ See <a href="https://apps.bea.gov/national/Release/XLS/Survey/Section1All_xls.xlsx">https://apps.bea.gov/national/Release/XLS/Survey/Section1All_xls.xlsx</a> (GDP) and <a href="https://download.bls.gov/pub/time.series/cw/cw.data.0.Current">https://download.bls.gov/pub/time.series/cw/cw.data.0.Current</a> (CPI-W).
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Table 4 presents summary statistics under the baseline, indicating
a high dispersion of both method 1 and method 2 scores across the eight
GSIBs, which creates a high cross-sectional dispersion of applicable
GSIB surcharges. Notably, method 2 surcharges are, on average, about
twice as high as their method 1 counterparts. Related to the discussion
in section II.B of this SUPPLELMENTARY INFORMATION, the relative share
of the short-term wholesale funding score in method 2 scores is, in
aggregate, about 30 percent, which is meaningfully higher than the 20
percent weight targeted in the proposal.\101\
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\101\ The aggregate share of the short-term wholesale funding
score has been consistently around 30 percent since the 2015
implementation of the GSIB surcharge framework.
[GRAPHIC] [TIFF OMITTED] TP27MR26.009
C. Proposed Policy Change
The proposal would revise multiple elements of the GSIB surcharge
framework. First, as described in section II.F of this SUPPLEMENTARY
INFORMATION, the proposal would make amendments to the systemic
indicators by revising the reporting instructions for the measurement
of certain existing systemic indicators and introducing two additional
systemic indicators in the substitutability category of the method 1
score. Second, as Table 1 shows, under the proposal, certain systemic
indicators that are currently calculated on a point-in-time basis at
year end would be calculated as annual averages of their daily or
monthly values (``data averaging'').\102\ Third, the proposal would
make a one-time downward adjustment to method 2 systemic indicator
coefficients by a factor of 1.2 and subsequently make annual
adjustments to the coefficients based on the cumulative growth in U.S.
nominal GDP. Fourth, the proposal would change the calculation of the
short-term wholesale funding score by removing the risk-weighted asset
scaling factor and instead taking the product of the weighted short-
term wholesale funding dollar amount and a revised coefficient.
Specifically, the proposal would calibrate this coefficient so as to
make the aggregate share of short-term wholesale funding scores within
the method 2 scores of current GSIBs equal to 20 percent as of the
fourth quarter of 2024, after all other proposed changes to method 2
scores. Finally, as Table 2 shows, the proposal would reduce method 2
surcharge increments from 50 basis points to 10 basis points by using
20-point ``narrow'' score bands in the
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\102\ Additionally, for the size indicator, the proposal would
use the average value taken over the entire year, rather than the
average value taken over the fourth quarter of the year, as measured
under the baseline.
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[[Page 14932]]
method 2 surcharge schedule, which would replace the 100-point score
bands used under the baseline.\103\
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\103\ Under the proposal, the lowest method 2 score band would
be from 130 to 189 points, corresponding to a one percent method 2
surcharge.
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D. Reasonable Alternatives
The analysis considers three alternatives to the proposed policy
change, assessing the expected benefits and costs of these alternatives
relative to the baseline and comparing them to the expected benefits
and costs of the proposal.
Alternative 1 (``inflation indexing'' approach) would change
systemic indicators and the short-term wholesale funding score the same
way as the proposal, but it would not make the proposal's one-time
adjustment to method 2 systemic indicator coefficients, described
earlier, and instead adjust the coefficients based on the cumulative
growth in the CPI-W index since December 2015. Consistently, going
forward, this alternative would make annual adjustments to method 2
systemic indicator coefficients using the CPI-W index, rather than U.S.
nominal GDP, which would be used under the proposal.
Alternative 2 (``global denominators'' approach) would change
systemic indicators and the short-term wholesale funding score the same
way as the proposal, but it would adjust method 2 systemic indicator
coefficients by using the calibration methodology applied in the 2015
GSIB surcharge final rule.\104\ Specifically, this alternative would
use the aggregate global indicator amounts from the latest two years to
revise method 2 systemic indicator coefficients.
---------------------------------------------------------------------------
\104\ See 80 FR 49082.
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Alternative 3 (``reference bank'' approach) would change systemic
indicators and the short-term wholesale funding score the same way as
the proposal, but it would reduce all method 2 systemic indicator
coefficients by 40 percent, which is the cumulative growth rate
differential between the method 2 scores and the method 1 scores of the
``reference bank'' used in the original calibration of the GSIB
surcharge framework, estimated from the fourth quarter of 2015 to the
fourth quarter of 2024.\105\ This reduction in method 2 coefficients is
algebraically equivalent to increasing the reference bank score, which
serves as a baseline for measuring the systemic risk profiles of GSIBs
and the determination of their GSIB surcharges.
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\105\ The Board estimated the 40 percent growth rate
differential for the reference bank by using the same methodology
and the same three non-GSIB bank holding companies as the Board's
2015 white paper, <a href="https://www.federalreserve.gov/aboutthefed/boardmeetings/gsib-methodology-paper-20150720.pdf">https://www.federalreserve.gov/aboutthefed/boardmeetings/gsib-methodology-paper-20150720.pdf</a>.
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All of the policy alternatives considered would redefine and
recalibrate the short-term wholesale funding score using the same
methodology as the proposal, setting the weight of the short-term
wholesale funding score to 20 percent.\106\
---------------------------------------------------------------------------
\106\ Because these alternatives would adjust method 2 systemic
indicator coefficients differently than the proposal, they would
also result in different method 2 coefficients for the weighted
short-term wholesale funding amount.
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Question 39: The economic analysis does not specify how
Alternatives 2 and 3 would adjust the method 2 coefficients going
forward. If these alternatives were combined with the proposal's
approach of adjusting the method 2 coefficients in the future based on
nominal U.S. GDP growth or a different approach, to what extent would
that change the analysis?
E. Estimated Changes in GSIB Scores and Surcharges
i. Estimated Impact of Changes to Systemic Indicators
This subsection of the analysis estimates how the proposal would
affect method 1 and method 2 scores through data averaging and the
amendments to systemic indicators, detailed in sections II.C and II.E
of this SUPPLEMENTARY INFORMATION, respectively. Because the effects of
the various changes may interact with one another, the analysis
assesses the effects of data averaging and the amendments both
separately and combined.\107\ Furthermore, the analysis creates a
detailed breakdown of the estimated percentage changes in both
individual systemic indicator scores and GSIB scores relative to the
baseline.\108\ Notably, the estimates are the same under the proposal
and the policy alternatives considered because the alternatives would
make the same changes to the systemic indicators.
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\107\ Sections III.J.i and III.J.ii of this SUPPLEMENTARY
INFORMATION describe the estimation of these ``partial'' and
combined effects of the proposed changes to systemic indicators.
\108\ For the assessment of increases in the intra-financial
system assets and intra-financial system liabilities systemic
indicator amounts that would be due to the expanded definition of
financial institutions under the proposal, described in section
II.E.i of this SUPPLEMENTARY INFORMATION, the analysis estimates
increases in the indicator amounts that would be due to the proposed
addition of saving and loan holding companies, private equity funds,
asset management companies, and exchange-traded funds to the
definition of financial institutions, as reflected by the Board's
special data collection. As such, the estimates do not reflect
potential increases in these systemic indicator amounts that would
result from capturing further intra-financial assets and liabilities
under the expanded definition of financial institutions.
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The estimates in Table 5 indicate that, relative to the baseline,
the proposed data averaging would increase method 1 scores by 2 to 3
percent, and the amendments to systemic indicators would increase
method 1 scores by about 4 percent, for a combined increase of about 6
percent, on average across GSIBs. Data averaging would mostly affect
systemic indicators in the complexity category, including and
especially the ``notional amount of OTC derivatives'' indicator. This
estimate is consistent with the empirical evidence in the literature
cited in section II.C of this SUPPLEMENTARY INFORMATION, which shows
that the nominal amount of the OTC derivatives indicator is prone to
end-of-year reductions. The systemic indicator amendments would mostly
affect indicators in the substitutability and cross-jurisdictional
activity categories, with the scores of cross-jurisdictional
liabilities increasing somewhat more than the scores of cross-
jurisdictional claims, on average across GSIBs.\109\
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\109\ The impact of the proposed amendments to substitutability
indicators would not be fully expressed in method 1 scores due to
the cap on the combined score of substitutability indicators applied
in the method 1 score calculation. Specifically, the cap is at one
hundred points, and it would be binding for five out of the eight
current GSIBs under the proposal.
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BILLING CODE 6201-01-P
[[Page 14933]]
[GRAPHIC] [TIFF OMITTED] TP27MR26.010
The estimates in Table 6 indicate that, relative to the baseline,
the proposed data averaging and amendments to systemic indicators would
increase method 2 scores by about 2 percent and about 1 percent,
respectively, for a combined increase of about 3 to 4 percent, on
average across GSIBs. Similar to the estimates for method 1 scores,
data averaging would mostly affect systemic indicators in the
complexity category, whereas the proposed amendments would mostly
affect the indicators for cross-jurisdictional activity. Despite this
similarity, the estimated combined impact on method 2 scores is lower
than the estimated combined impact on method 1 scores. This difference
is mainly because method 2 scores do not include systemic indicators in
the substitutability category, which would increase by more than 2
percent under the proposed amendments, on average across GSIBs.
[[Page 14934]]
[GRAPHIC] [TIFF OMITTED] TP27MR26.011
BILLING CODE 6201-01-C
Question 40: The analysis uses the Board's special data collection
to estimate the increase in the intra-financial system assets and
intra-financial system liabilities systemic indicator amounts due to
the proposed addition of savings and loan holding companies, private
equity funds, asset management companies, and exchange-traded funds to
the definition of financial institutions. What further increases in
these systemic indicator amounts, if any, should the analysis consider
to assess the impact of expanding the definition of financial
institutions under the proposal?
ii. Estimated Impact of Changes to the Method 2 Score Calculation
This subsection of the analysis estimates how the proposal and the
policy alternatives considered would affect method 2 scores through (i)
the changes to systemic indicators, assessed in the previous
subsection; (ii) the adjustments to method 2 systemic indicator
coefficients; \110\ and (iii) the changes to the short-term wholesale
funding score.\111\ Because the effects of these changes may interact
with one another, the analysis assesses the effects both sequentially
and combined.\112\ As section III.D of this SUPPLEMENTARY INFORMATION
describes, the alternatives would change systemic indicators and the
short-term wholesale funding score the same way as the proposal and
only differ from the proposal in how they would adjust method 2
systemic indicator coefficients.
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\110\ Section III.J.iii of this SUPPLEMENTARY INFORMATION
describes the estimation of the method 2 score impact of these
coefficient changes under the proposal and the alternatives.
\111\ Section III.J.iv of this SUPPLEMENTARY INFORMATION
describes the estimation of the method 2 score impact of the
proposed changes to the short-term wholesale funding score.
\112\ Section III.J.v of this SUPPLEMENTARY INFORMATION
describes the estimation of the combined method 2 score impact of
all changes under the proposal and the alternatives.
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The estimates in Table 7 indicate that, after the small increases
in method 2 scores due to the proposed changes to systemic indicators,
assessed in detail in section III.E.i of this SUPPLEMENTARY
INFORMATION, method 2 scores would decrease meaningfully through the
other two adjustments under the proposal. The estimated reduction in
method 2 scores is 22 percent, in aggregate, and 29 percent, on average
across GSIBs, to which the proposed method 2 systemic indicator
coefficient adjustments and short-term wholesale funding changes would
contribute about equally.
[[Page 14935]]
[GRAPHIC] [TIFF OMITTED] TP27MR26.012
In addition to these aggregate effects, the proposed removal of the
risk-weighted asset denominator from the calculation of the short-term
wholesale funding score calculation would have a meaningful
distributional effect across GSIBs. In particular, GSIBs with
relatively small dollar amounts of risk-weighted assets would see a
substantial decrease in their short-term wholesale funding scores under
the proposal, whereas the opposite effect would manifest for GSIBs with
relatively large dollar amounts of risk-weighted assets.
Alternative 1 (``inflation indexing'') would lead to a somewhat
larger (about 30 percent in aggregate and 36 percent on average)
reduction in method 2 scores than the proposal because this alternative
would adjust method 2 systemic indicator coefficients based on the 34
percent cumulative increase in the CPI-W index since December 2015,
which is greater than the 20 percent downward adjustment to these
coefficients under the proposal. Alternative 2 (``global
denominators'') would lead to a smaller (about 17 percent in aggregate
and 25 percent on average) reduction in method 2 scores than the
proposal because this alternative would adjust method 2 systemic
indicator coefficients by the cumulative growth of the global
denominators, which is smaller, on average, than the 20 percent
downward adjustment under the proposal. Alternative 3 (``reference
bank'') would lead to a larger (about 33 percent in aggregate and 39
percent on average) reduction in method 2 scores than the proposal
because this alternative would apply a 40 percent downward adjustment
to method 2 systemic indicator coefficients, rather than the 20 percent
downward adjustment under the proposal.
The impact estimates in Table 7 also demonstrate the interaction
between the proposed changes in that the estimated effect of the method
2 systemic indicator coefficient adjustments (shown in the second row
of the table) amplifies the estimated effect of the changes to the
short-term wholesale funding calculation (shown in the third row of the
table). This interaction effect manifests because if the method 2
systemic indicator coefficient adjustments reduce the affected systemic
indicator scores more, then the percentage share of the short-term
wholesale funding score within the method 2 score becomes higher. In
turn, however, a higher share of the short-term wholesale funding score
necessitates a larger reduction to this score component to set its
aggregate share to 20 percent in aggregate, as targeted by both the
proposal and the alternatives.
iii. Estimated Changes in GSIB Surcharges
This subsection of the analysis assesses how the proposal and the
policy alternatives considered would affect GSIB surcharges applicable
in 2026.\113\ In particular, the surcharge estimates reflect the
effects of all changes to method 1 and method 2 scores discussed in the
previous subsections, as well as the effect of the narrow score bands,
which both the proposal and the alternatives would implement.\114\
Notably, any changes in GSIB surcharges would solely be driven by
changes in method 2 surcharges because the estimated changes to method
1 scores would not lead to a change in method 1 surcharges.\115\
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\113\ As described in section III.B of this SUPPLEMENTARY
INFORMATION, the analysis estimates method 1 and method 2 scores as
of the fourth quarters of 2023 and 2024 under the baseline, the
proposal, and the policy alternatives considered to estimate the
impact on GSIB surcharges applicable in 2026.
\114\ Section III.J.vi of this SUPPLEMENTARY INFORMATION
describes the estimation of the combined GSIB surcharge impact of
all changes under the proposal and the alternatives.
\115\ Relatedly, because the proposal and the policy
alternatives considered would not change method 1 surcharges, they
also would not have an effect on the eSLR buffer requirements for
GSIBs and their subsidiary depository institutions, which depend on
method 1 surcharges under the recent eSLR final rule. See Regulatory
Capital Rule: Modifications to the Enhanced Supplementary Leverage
Ratio Standards for U.S. Global Systemically Important Bank Holding
Companies and Their Subsidiary Depository Institutions; Total Loss-
Absorbing Capacity and Long-Term Debt Requirements for U.S. Global
Systemically Important Bank Holding Companies, 90 FR 55248 (December
1, 2025).
---------------------------------------------------------------------------
When expressed in percentage points, the estimated GSIB surcharges
would not be affected by the concurrent expanded risk-based proposal
because both the proposal and the alternatives would change the
calculation of the short-term wholesale funding score such that it
would not use the ratio of the weighted short-term wholesale funding
amount and the risk-weighted asset amount, as it does under the
baseline. However, when expressed in dollar terms, the GSIB surcharge
estimates
[[Page 14936]]
could be affected by potential changes to risk-weighted asset amounts
under the expanded risk-based proposal because GSIB surcharge
requirements are the products of percentage-point GSIB surcharges and
risk-weighted asset amounts. The economic analysis in the expanded
risk-based proposal assesses the combined impact of the two concurrent
proposals, including this interaction effect.
The estimates in Table 8 indicate that the proposal would reduce
GSIB surcharges by 40 basis points, on average, relative to the
baseline. This effect corresponds to a $23 billion (10 percent)
reduction in the aggregate dollar amount of GSIB surcharges, calculated
using risk-weighted asset amounts as of the fourth quarter of 2024.
Furthermore, as the proposal would reduce method 2 surcharges, method 1
surcharges would become binding for two of the eight GSIBs, whereas
method 2 surcharges are binding for all eight GSIBs under the baseline.
The proposed narrow score bands would lead to slight changes in
surcharges for some GSIBs, with an average estimated effect of
zero.\116\
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\116\ The point-in-time impact of the proposed narrow score
bands on a GSIB's surcharge would depend on the GSIB's point-in-time
location relative to the score band boundaries used in the
applicable GSIB surcharge schedule. On average, at any given point
in time, this effect would be close to zero because it would
slightly increase or decrease GSIB surcharges across GSIBs, relative
to the baseline. Similarly, for any GSIB over time, this effect
would be close to zero because it would slightly increase or
decrease the surcharge relative to the baseline, depending on the
GSIB's time-varying location along the GSIB surcharge schedule in
the future.
[GRAPHIC] [TIFF OMITTED] TP27MR26.013
Under the policy alternatives considered, the GSIB surcharge impact
estimates are consistent with the method 2 score impact estimates
presented in Table 7 above. Under Alternative 1 (``inflation
indexing''), the estimated reduction in GSIB surcharges would be
somewhat larger (60 basis points, on average, and about 18 percent, in
aggregate) than under the proposal. Under Alternative 2 (``global
denominators''), the estimated reduction in GSIB surcharges would be
smaller (30 basis points, on average, and 2.4 percent, in aggregate)
than under the proposal. Partly because of the proposed narrow score
bands, the surcharge for one GSIB would slightly increase under this
alternative relative to the baseline. Under Alternative 3 (``reference
bank'') the estimated reduction in GSIB surcharges would be larger (70
basis points, on average, and about 22 percent, in aggregate) than
under the proposal. Similar to the proposal, under the alternatives,
method 1 surcharges would become binding for two GSIBs.
F. Benefits
The Board anticipates that the proposal would have several economic
benefits. First, the proposal would enhance systemic risk measurement
in the GSIB surcharge framework and thus improve the accuracy of GSIB
surcharges, which could in turn improve the framework's efficiency at
mitigating the systemic risk of GSIBs. Second, by bringing the level of
method 2 scores, and thus GSIB surcharges, closer to their initial
calibration, the proposal could enable some GSIBs to increase their
economic activities and supply of financial services. Third, the
proposed data averaging would reduce incentives for some GSIBs to
temporarily reduce the end-of-year values of certain systemic
indicators, which could reduce the economic costs of such indicator
adjustments. Fourth, the proposed narrow score bands would reduce
``cliff effects'' around the boundaries of surcharge buckets and create
smoother transitions in GSIB surcharges over time. Fifth, the proposed
amendments to systemic indicators would improve the U.S. GSIB surcharge
framework's consistency with the international standard published by
the Basel Committee. The rest of this
[[Page 14937]]
section discusses these benefits in detail, also assessing how they
could potentially be different under the policy alternatives
considered.
The proposal would enhance the measurement of GSIBs' systemic risk
profiles and thereby improve the accuracy of GSIB surcharges through
multiple changes.\117\ The proposed data averaging and amendments to
systemic indicators would better align the systemic indicator scores of
large U.S. holding companies with the systemic implications of their
potential distress. In particular, data averaging would reduce
measurement errors in systemic indicator scores due to year-end
patterns by ensuring that the indicators reflect systemic exposures
throughout the calendar year. Additionally, through the annual indexing
of systemic indicator coefficients to U.S. nominal GDP growth, the
proposal would render systemic risk measurement in the GSIB surcharge
framework robust to U.S. economic growth, consistent with the
discussion in section II.A of this SUPPLEMENTARY INFORMATION. Moreover,
as discussed in section II.B of this SUPPLEMENTARY INFORMATION, by
redefining the short-term wholesale funding score and setting its
aggregate weight to 20 percent in the method 2 score calculation, the
proposal would improve the measurement of systemic exposures captured
by this method 2 score component. Finally, the proposed narrow score
bands would improve the alignment of GSIBs' surcharges with their
systemic risk profiles, as measured by GSIB scores, by reducing score
differences across GSIBs that fall in the same band.
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\117\ The academic literature recognizes both the importance and
challenges of accurately measuring the systemic risk of large
banking organizations. In particular, the Global Financial Crisis of
2007-09 highlighted the importance of measuring systemic risk along
dimensions other than the size indicator. See, e.g., Andrew W. Lo,
The Feasibility of Systemic Risk Measurement, U.S. Congress:
Committee on Financial Services (October 19, 2009); Viral V.
Acharya, Markus K. Brunnermeier, and Diane Pierret, Systemic Risk
Measures: From the Panic of 1907 to the Banking Stress of 2023,
Annual Review of Financial Economics, 17 (August 11, 2025). For
example, expected shortfall metrics estimate an organization's
capital loss under a period of stress, whereas the conditional
value-at-risk metric estimates the systemic spillover effects of an
organization's potential distress. See Viral V. Acharya, Lasse H.
Pedersen, Thomas Philippon, and Matthew Richardson, Measuring
Systemic Risk, The Review of Financial Studies, 30(1) (October 19,
2016); Viral V. Acharya, Lasse H. Pedersen, Thomas Tobias Adrian,
and Markus K. Brunnermeier, CoVaR, The American Economic Review,
106(7) (July 2016).
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Through the enhanced measurement of systemic risk profiles and more
accurate GSIB surcharges, the proposal would improve the efficiency of
the GSIB surcharge framework. Because the framework requires that GSIBs
have capital buffers commensurate with their systemic risk, the
mismeasurement of their systemic risk profiles could create economic
deadweight losses and inefficiencies. Specifically, underestimating the
systemic risk posed by certain economic activities and financial
services could create incentives for GSIBs to excessively engage in
such activities and oversupply such services, whereas overestimating
systemic risk could discourage GSIBs from engaging in such activities
and lead to the under-provision of such services. Relatedly, through
more accurate GSIB surcharges, the proposal would set the probability
of GSIBs' potential distress closer to an optimum, in line with the
discussion in the 2015 white paper on the calibration of the GSIB
surcharge framework.\118\
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\118\ See Board of Governors of the Federal Reserve System,
Calibrating the GSIB Surcharge (July 20, 2015), <a href="https://www.federalreserve.gov/aboutthefed/boardmeetings/gsib-methodology-paper-20150720.pdf">https://www.federalreserve.gov/aboutthefed/boardmeetings/gsib-methodology-paper-20150720.pdf</a>.
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As a further expected benefit, the proposal would bring the level
of method 2 scores closer to the initial calibration of the GSIB
surcharge framework and reduce GSIB surcharges, which could enable
GSIBs to increase their economic activities and supply of financial
services. In specific, as estimated in section III.E of this
SUPPLEMENTARY INFORMATION, primarily through method 2 coefficient
adjustments and short-term wholesale funding score changes, the
proposal would reduce method 2 scores by about 29 percent and GSIB
surcharges by about 40 basis points, on average across GSIBs. This
reduction in risk-based capital buffer requirements would likely reduce
GSIBs' marginal funding costs, which could enable some GSIBs to
increase their economic activities and supply of financial services,
which could in turn increase aggregate economic surplus.\119\
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\119\ For example, lower GSIB surcharges could lead to an
increase in GSIBs' loan supply, as suggested by the empirical study
of Giovanni Favara, Ivan Ivanov, and Marcelo Rezende, GSIB
Surcharges and Bank Lending: Evidence from U.S. Corporate Loan Data,
Journal of Financial Economics, 142(3) (December 2021), which
estimates a negative effect of GSIB surcharges on the commercial and
industrial loan supply of GSIBs.
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Moreover, the proposal would reduce incentives for some GSIBs to
temporarily reduce the end-of-year values of certain systemic
indicators, as discussed in section II.C of this SUPPLEMENTARY
INFORMATION. This incentive effect would manifest because the proposed
data averaging would reduce GSIBs' ability to lower their risk-based
capital buffer requirements by engaging in such end-of-year indicator
management. Therefore, there would likely to be a decrease in the
fluctuations historically observed in some indicators at year end,
which could reduce potential deadweight losses from such fluctuations.
Hence, by reducing incentives for end-of-year indicator management, the
proposal could lead to a more stable supply of financial services by
GSIBs, which could improve the liquidity and contribute to the smooth
functioning of financial markets at year end.\120\
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\120\ For example, GSIBs play an important role as liquidity
providers and ``lenders of second-to-last resort'' in the U.S.
Treasury repurchase agreement and foreign exchange swap markets, as
discussed in Ricardo Correa, Wenxin Du, and Gordon Y. Liao, U.S.
Banks and Global Liquidity, National Bureau of Economic Research
Working Paper, 27491 (July 2020). Relatedly, the study by Claudio
Bassi, Claudio, Markus Behn, Michael Grill, and Martin Waibel,
Window Dressing of Regulatory Metrics: Evidence from Repo Markets,
Journal of Financial Intermediation, 58 (April 2024) finds that GSIB
surcharges drive GSIBs to significantly contract their repo books at
year ends, which can in turn affect repo market volumes and price
dynamics.
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Additionally, by implementing narrow score bands, the proposal
would reduce ``cliff effects'' around the boundaries of GSIB surcharge
buckets. In particular, narrow score bands would create a more
continuous correspondence between GSIB scores and surcharges, which
would result in smoother surcharge transitions between score bands.
These smoother transitions would ensure that firms with similar
systemic risk are assigned similar capital surcharges and could also
enable GSIBs to do better capital planning by reducing the size of GSIB
surcharge changes as firms cross score band boundaries.
Finally, the proposal would improve the consistency of the
calculation of systemic indicators used in the U.S. GSIB surcharge
framework with the international standard published by the Basel
Committee, which could reduce potential undesired economic effects due
to differences across jurisdictions.
Turning to the policy alternatives considered, the Board
anticipates that some of the proposal's economic benefits would also
manifest under the alternatives because of their common elements with
the proposal. Specifically, through data averaging, the alternatives
would also reduce incentives for some GSIBs to temporarily lower the
end-of-year values of certain systemic indicators; through narrow score
bands, the alternatives would also reduce ``cliff effects;'' and,
through the amendments to certain systemic indicators, the alternatives
would also enhance
[[Page 14938]]
international consistency. However, the alternatives would differ from
the proposal in their economic benefits resulting from the enhanced
measurement of systemic risk profiles and lower GSIB surcharges.
In particular, the alternatives would make different adjustments to
method 2 systemic indicator coefficients than the proposal in order to
make the measurement of systemic risk more consistent between method 1
and method 2 scores, related to the discussion in section II.A.i of
this SUPPLEMENTARY INFORMATION. Alternative 1 (``inflation indexing'')
would make annual adjustments to method 2 coefficients such that method
2 scores would not reflect the effect of U.S. inflation, as measured by
the CPI-W index. This alternative would reduce GSIB surcharges more
than the proposal in the short run, but it would likely lead to smaller
annual adjustments to method 2 indicator coefficients than the proposal
in the long run. The short-run effect of Alternative 1 would be larger
than that of the proposal because the alternative would adjust method 2
indicator coefficients based on the 34 percent cumulative increase in
the CPI-W index since December 2015, which is greater than the 20
percent one-time downward adjustment to these coefficients under the
proposal. In the long run, the annual adjustments to method 2
coefficients under Alternative 1 would likely be smaller than under the
proposal because the alternative would make the adjustments based on
the CPI-W index, which tends to grow more slowly than U.S. nominal
GDP.\121\ Therefore, in the short run, consistent with the relatively
larger estimated reduction in GSIB surcharges under Alternative 1,
presented in Table 8 above, the alternative would enable GSIBs to
expand their economic activities and supply of financial services more
than the proposal. However, in the long run, these benefits would
become larger under the proposal because of the faster annual downward
adjustment based on U.S. nominal GDP growth.
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\121\ Over time, the CPI-W index tends to grow more slowly than
U.S. nominal GDP because the CPI-W only reflects price inflation,
whereas U.S. nominal GDP reflects both real economic growth and
inflation. Accordingly, over the past decade, the annual growth rate
of U.S. GDP exceeded the CPI-W index's annual growth rate by about 2
percentage points. Between 1950 and 2025, this annual growth rate
differential was about 3 percentage points.
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Alternative 2 (``global denominators'') would adjust method 2
coefficients such that method 2 scores would measure changes in GSIBs'
systemic risk relative to the growth of the global banking system. As
estimated in Table 8 above, this alternative would reduce GSIB
surcharges less than the proposal, which implies that the potential
increase in GSIBs' activities and services would be smaller under this
alternative than under the proposal. Alternative 3 (``reference bank'')
would adjust method 2 coefficients such that method 2 scores would
measure changes in GSIBs' systemic risk relative to the change in the
systemic risk of the reference bank. As estimated in Table 8, this
alternative would reduce GSIB surcharges substantially more than the
proposal, and therefore the potential increase in GSIBs' activities and
services would be larger under this alternative than under the
proposal.
Compared to the proposal, which focuses on U.S. GSIBs and would
apply a simple methodology to adjust the method 2 score calculation for
changes in the U.S. economy and financial system, the systemic risk
measurement benefits of the alternatives would be limited. Alternative
1 would only take into account U.S. inflation and disregard the
potentially distortive effects of U.S. real economic growth on method 2
scores. Alternative 2 would adjust the method 2 score calculation based
on the historical change in each aggregate global systemic indicator
amount. This alternative would be more complex than the proposal, which
would adjust the method 2 score calculation for the divergence of
method 2 and method 1 scores shown in Figure 2 in order to more
directly take into account the effect of recent economic changes on the
systemic risk measurement of GSIBs by method 2. Alternative 3 would
adjust the method 2 score calculation using imprecise estimates for the
reference bank's score, relying on the proxy measures for the short-
term wholesale funding amount used in the initial calibration of the
GSIB surcharge framework in 2014. Hence, the methodology applied under
this alternative could result in method 2 scores that provide an
inaccurate measure for systemic risk profiles.
G. Costs
The Board anticipates that the proposal could have the following
economic costs. First, by reducing risk-based capital buffer
requirements for GSIBs, the proposal could potentially lead to a
decrease in the resilience of both individual GSIBs and the U.S.
financial system. Relatedly, the proposal could increase the unintended
``too-big-to-fail'' effect and its economic implications, discussed in
more detail below. Finally, the proposed data averaging could modestly
increase the cost of compliance for GSIBs. The rest of this section
discusses these costs in detail, also assessing how they could
potentially be different under the policy alternatives considered.
The proposal could potentially lead to a decrease in firm
resilience and systemic stability by reducing risk-based capital buffer
requirements for GSIBs. As section III.E.iii of this SUPPLEMENTARY
INFORMATION estimates, the proposal would reduce GSIB surcharges by 40
basis points, on average, and 10 percent, in aggregate. This reduction
in risk-based capital buffer requirements would enable most GSIBs to
increase their risk-weighted asset amounts or reduce their equity
capital, which could in turn decrease their resilience against economic
shocks.\122\ Because GSIBs are systemically important banking
organizations, such potential decrease in their resilience could
decrease the stability of the U.S. financial system and thus increase
the probability and severity of financial crises.
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\122\ For GSIBs, changing risk-based capital requirements is
relevant and could affect their risk-taking and capital structure
decisions because risk-based capital requirements are the highest
(that is, binding) capital requirements for most of these holding
companies under the baseline.
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Through both this potential decrease in the resilience of GSIBs and
by enabling GSIBs to increase their economic activities and supply of
financial services, discussed earlier in the benefit section, the
proposal could also increase the unintended ``too-big-to-fail'' effect
related to these large banking organizations.\123\ Specifically, if
GSIBs become less resilient or expand their business in response to the
reduction in their capital surcharges under the proposal, that could
increase the probability and magnitude of potential government
interventions in the event GSIBs face financial distress.
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\123\ See, e.g., Maureen O'Hara and Wayne Shaw, Deposit
Insurance and Wealth Effects: The Value of Being ``Too Big to
Fail,'' The Journal of Finance, 45(5) (December 1990); Priyank
Gandhi and Hanno Lustig, Size Anomalies in U.S. Bank Stock Returns,
The Journal of Finance, 70(2) (December 5, 2015); Jo[atilde]o AC
Santos, Evidence From the Bond Market on Banks' ``Too-Big-To-Fail
Subsidy'', Economic Policy Review 20(2) (April 4, 2014).
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Finally, the proposed data averaging could modestly increase the
cost of compliance for GSIBs by increasing their administrative burden.
In particular, reporting the affected systemic indicators and related
line items on an average basis, as shown in Table 1, would require the
collection and processing of the underlying financial information at
higher (daily or monthly) frequencies than under the baseline. Although
some GSIBs may
[[Page 14939]]
already collect and process sufficient data to report some of the
affected indicators at these higher frequencies under the baseline,
some GSIBs could incur additional one-time and recurring costs under
the proposal. For example, some GSIBs may face one-time expenses as
they make additional investments in their human resources and
information technology infrastructure to comply with the proposed data
averaging requirement. Furthermore, some GSIBs may face additional
recurring costs as they maintain the resources and infrastructure
needed for compliance. Overall, considering the large scale of GSIBs,
and because the proposal would tailor the data averaging requirement to
the specifics of each systemic indicator, the Board anticipates that a
potential increase in GSIBs' compliance costs would be modest.
Turning to the policy alternatives considered, the Board
anticipates that the potential economic costs described above would
also manifest under these alternatives, but the strength of these
effects would vary across the alternatives. As discussed earlier in the
benefit section, Alternative 1 (``inflation indexing'') would reduce
GSIB surcharges more than the proposal in the short run, but this
difference would likely revert in the long run. Hence, the potential
reduction in firm resilience and systemic stability would be larger in
the short run and smaller in the long run under this alternative than
under the proposal. The estimated reduction in GSIB surcharges under
Alternative 2 (``global denominators'') is smaller than under the
proposal, which implies that this alternative would affect firm
resilience and systemic stability less than the proposal. The estimated
reduction in GSIB surcharges is larger under Alternative 3 (``reference
bank'') than under the proposal, and therefore this alternative could
reduce firm resilience and systemic stability more than the proposal.
Finally, because all of the policy alternatives considered would
implement the proposed data averaging, they could modestly increase
compliance costs for GSIBs similarly to the proposal.
H. Interactions With Other Rules and Proposed Rulemakings
This section of the analysis assesses potential interactions
between the proposal and other existing rules or proposed rulemakings.
As section III.B of this SUPPLEMENTARY INFORMATION discusses, the
proposal (in this section, referred to as the ``GSIB surcharge
proposal'') would interact with the expanded risk-based proposal, which
assesses the combined economic impact of the two proposals. The
following subsections assess interactions between the two proposals and
the existing total-loss absorbing capacity (TLAC) framework for GSIBs;
\124\ and between the GSIB surcharge proposal and the existing
regulatory tailoring framework.\125\
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\124\ See 12 CFR part 252, subpart G.
\125\ See 84 FR 59032 (November 1, 2019); 84 FR 59230 (November
1, 2019).
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i. Interaction With TLAC and Long-Term Debt Requirements
The analysis assesses how the GSIB surcharge proposal and the
expanded risk-based proposal would interact with the existing TLAC
framework for GSIBs.\126\ Specifically, the analysis estimates baseline
TLAC and long-term debt requirements as of the second quarter of 2025,
also reflecting recent changes to these requirements under the eSLR
final rule.\127\ Both the TLAC and long-term debt requirements consist
of a risk-based and a leverage-based minimum requirement. Beyond TLAC
minimum requirements, GSIBs also have risk-based and leverage-based
TLAC buffer requirements.\128\ Unless noted otherwise, in the following
discussion, the term ``TLAC requirement'' refers to the sum of these
TLAC minimum and corresponding TLAC buffer requirements.
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\126\ Section III.J.vii of this SUPPLEMENTARY INFORMATION
describes the data and methodology used to estimate these
interaction effects in detail.
\127\ The analysis needs to estimate baseline TLAC and long-term
debt requirements because the baseline also includes the eSLR final
rule, which was adopted on November 25, 2025, and goes into effect
on April 1, 2026, whereas the reporting data as of the second
quarter of 2025 do not reflect the effect of the eSLR final rule.
For a detailed analysis of this effect, see section IV.I of the
supplementary information to the eSLR final rule. See 90 FR 55248
(December 1, 2025).
\128\ In the current regulatory framework, there are no long-
term debt buffer requirements.
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Under the baseline, the estimated aggregate TLAC requirement for
GSIBs is about $1.79 trillion. For five out of the eight current GSIBs,
the risk-based TLAC requirement is higher than the leverage-based
requirement. Under the baseline, the estimated aggregate long-term debt
requirement for GSIBs is $717 billion. For six out of the eight current
GSIBs, the risk-based long-term debt requirement is higher than the
leverage-based requirement.
The analysis assesses the combined impact of the GSIB surcharge
proposal and the expanded risk-based proposal on TLAC and long-term
debt requirements for GSIBs. Relative to the baseline, the aggregate
TLAC requirement for GSIBs would decrease by about $46 billion, or 2.6
percent, with the TLAC requirement decreasing for five GSIBs and
increasing for one GSIB. The number of GSIBs bound by the risk-based
TLAC requirement would increase from five to six. These changes would
be driven entirely by the expanded risk-based proposal's adjustments to
risk-weighted assets, which would affect the required quantity of TLAC
because risk-based TLAC requirements are specified as a percentage of
risk-based assets.\129\ Relative to the baseline, the analysis
estimates that the two proposals would reduce the long-term debt
requirement for GSIBs by about $17 billion, or 2.3 percent, in
aggregate, by lowering the requirement for five GSIBs and increasing it
for one GSIB. The proposals would change the binding long-term debt
requirement from risk-based to leverage-based for three GSIBs. These
changes would be driven by both the expanded risk-based proposal's
adjustments to risk-weighted assets and the GSIB surcharge proposal's
changes to method 2 GSIB surcharges.\130\
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\129\ Even though the GSIB surcharge proposal could potentially
affect TLAC requirements, which depend on method 1 surcharges, this
effect would not manifest because method 1 surcharges would not
change under the proposal. Specifically, although the proposal would
increase method 1 scores by about 6 percent, on average across
GSIBs, as discussed in section III.E.i of this SUPPLEMENTARY
INFORMATION, this change would not lead to an increase method 1
surcharges because of the score bands used in the GSIB surcharge
framework.
\130\ Risk-based long-term debt requirements depend in part on
method 2 surcharges, which would change under the GSIB surcharge
proposal.
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Furthermore, the analysis examines the partial impact of the two
proposals on TLAC and long-term debt requirements. As discussed above,
the GSIB surcharge proposal would not have an impact on TLAC
requirements, and therefore the expanded risk-based proposal's impact
drives the combined impact of the two proposals on TLAC requirements.
Relative to the baseline, the analysis estimates that the GSIB
surcharge proposal by itself would reduce the long-term debt
requirement for GSIBs by about $13 billion, or 1.7 percent, in
aggregate, by lowering the requirement for four GSIBs. Relative to the
baseline, the analysis estimates that the expanded risk-based proposal
by itself would reduce the long-term debt requirement for GSIBs by
about $2 billion, or 0.2 percent, in aggregate.
The analysis now turns to assessing the potential economic effects
of the proposals.\131\ If some GSIBs reduce their loss-absorbing
capacity in response to
[[Page 14940]]
the reduction in their TLAC requirements, the proposals could decrease
the funding costs of these firms. On the one hand, the academic and
policy literature finds that this potential reduction in funding costs
could increase lending and support economic activity.\132\ On the other
hand, many of these same studies indicate that the potential reduction
in loss-absorbing capacity may increase risks to safety and soundness
and financial stability, as well as associated social costs.
Nevertheless, because the estimated decrease in aggregate TLAC
requirements under the two proposals is relatively small, the related
economic effects would likely be modest.
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[…truncated; see source link]Indexed from Federal Register on March 27, 2026.
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.