Unknown. Interim guidance with request for public comment

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A research copy — for the controlling text, always check the official state or federal source. Not legal advice.

--- schema: federal-register doc_type: fedreg source_file: FR-2012-11-15.xml --- 77 221 Thursday, November 15, 2012 Contents Agency Toxic Agency for Toxic Substances and Disease Registry NOTICES Statements of Organization, Functions, and Delegations of Authority, 68125-68127 2012-27533 Arctic Arctic Research Commission NOTICES Meetings: Programs and Research Projects Affecting the Arctic, 68102 2012-27531 Arts and Humanities, National Foundation See National Foundation on the Arts and the Humanities Safety Enviromental Enforcement Bureau of Safety and Environmental Enforcement NOTICES Agency Information Collection Activities;

Proposals, Submissions, and Approvals: Oil and Gas Production Measurement, Surface Commingling, and Security, 68144-68146 2012-27773 Centers Medicare Centers for Medicare & Medicaid Services RULES Medicare and Medicaid Programs: Hospital Outpatient Prospective Payment and Ambulatory Surgical Center Payment Systems and Quality Reporting Programs; Electronic Reporting Pilot; etc., 68210-68565 2012-26902 Commerce Commerce Department See Foreign-Trade Zones Board See International Trade Administration See National Institute of Standards and Technology See National Oceanic and Atmospheric Administration NOTICES Agency Information Collection Activities;

Proposals, Submissions, and Approvals, 68102 2012-27711 Commission Fine Commission of Fine Arts NOTICES Meetings: Commission of Fine Arts, 68113 2012-27532 Comptroller Comptroller of the Currency RULES Policy Statement: Principles for Development and Distribution of Annual Stress Test Scenarios, 68047-68050 2012-27660 Copyright Office Copyright Office, Library of Congress PROPOSED RULES Mechanical and Digital Phonorecord Delivery Compulsory License, 68075-68076 2012-27774 Defense Department Defense Department See Navy Department Drug Drug Enforcement Administration NOTICES Decisions and Orders:

Karen Paul Holley, M.D., 68149-68150 2012-27692 Energy Department Energy Department See Federal Energy Regulatory Commission Environmental Protection Environmental Protection Agency RULES 2017 and Later Model Year Light-Duty Vehicle Greenhouse Gas Emissions and Corporate Average Fuel Economy Standards, 68070 C1--2012--21972 PROPOSED RULES Approvals and Promulgations of Air Quality Implementation Plans: West Virginia; Redesignation of the West Virginia Portion of the Huntington-Ashland, WV-KY-OH 1997 Annual PM2.5 Nonattainment Area to Attainment, etc., 68076-68087 2012-27785 Approvals and Promulgations of Implementation Plans and Designation of Areas for Air Quality Planning Purposes:

South Carolina; Redesignation of the Charlotte-Gastonia-Rock Hill, North Carolina-South Carolina 1997 8-Hour Ozone Moderate Nonattainment Area to Attainment, 68087-68101 2012-27807 NOTICES Agency Information Collection Activities; Proposals, Submissions, and Approvals: 2013 Hazardous Waste Report, Notification of Regulated Waste Activity, and Part A Hazardous Waste Permit Application and Modification, 68120 2012-27788 NSPS for Beverage Can Surface Coating, 68119 2012-27787 Executive Office of the President See Presidential Documents Export Import Export-Import Bank NOTICES Application for Final Commitment:

Long-term Loan or Financial Guarantee in Excess of $100 million; 25 Day Comment Period, 68120-68121 2012-27736 Federal Aviation Federal Aviation Administration RULES Airworthiness Directives: Airbus Airplanes, 68050-68052 2012-27055 Bell Helicopter Textron Helicopters, 68055-68057 2012-27059 Fokker Services B.V. Airplanes, 68052-68055, 68063-68065 2012-26781 2012-27057 Sikorsky Aircraft Corporation Helicopters, 68057-68062 2012-26907 2012-27049 2012-27050 Amendments of Class D and Class E Airspace:

Lewiston, ID, 68065-68067 2012-27659 Establishments of Class E Airspace: Coaldale, NV, 68067-68068 2012-27666 Modifications of Class E Airspace: Pullman, WA, 68068-68069 2012-27668 NOTICES Orders Limiting Operations at John F. Kennedy International, LaGuardia and Newark Liberty International Airports; High Density Rule at Reagan Washington National Airport, 68196-68197 2012-27844 Federal Communications Federal Communications Commission RULES Implementing Public Safety Broadband Provisions of the Middle Class Tax Relief and Job Creation Act of 2012, 68070-68071 2012-27912 Federal Deposit Federal Deposit Insurance Corporation NOTICES Meetings;

Sunshine Act, 68121 2012-27926 Federal Energy Federal Energy Regulatory Commission NOTICES Applications: Millennium Pipeline Company, L.L.C., 68115 2012-27734 Water Wheel Ranch, 68116 2012-27731 Petitions for Declaratory Orders: Blue Summit Wind, LLC, 68117 2012-27710 Electric Transmission Texas, LLC, 68117 2012-27708 Petitions for Rate Approvals: TEAK Texana Transmission Company, LP, 68116-68117 2012-27730 TexStar Transmission, LP, 68118 2012-27733 Preliminary Permit Applications:

Corral Creek South Hydro, LLC, 68118 2012-27732 Federal Highway Federal Highway Administration NOTICES Final Federal Agency Actions on Proposed Highways: Indiana, 68197-68199 2012-27617 Federal Maritime Federal Maritime Commission NOTICES Agreements Filed, 68121 2012-27833 Federal Motor Federal Motor Carrier Safety Administration NOTICES Qualifications of Drivers: Exemption Applications; Vision, 68199-68203 2012-27693 2012-27695 2012-27697 Federal Railroad Federal Railroad Administration NOTICES Agency Information Collection Activities;

Proposals, Submissions, and Approvals, 68203-68204 2012-27790 Federal Reserve Federal Reserve System NOTICES Changes in Bank Control: Acquisitions of Shares of a Bank or Bank Holding Company, 68121-68122 2012-27744 Formations of, Acquisitions by, and Mergers of Savings and Loan Holding Companies, 68122 2012-27745 Fine Arts Commission See Commission of Fine Arts Food and Drug Food and Drug Administration NOTICES Agency Information Collection Activities; Proposals, Submissions, and Approvals:

Establishing and Maintaining a List of U.S. Dairy Product Manufacturers/Processors with Interest in Exporting to Chile, 68128-68129 2012-27723 Interstate Shellfish Dealer's Certificate, 68129-68130 2012-27722 Voluntary Hazard Analysis and Critical Control Point Manuals for Operators and Regulators of Retail and Food Service Establishments, 68130-68132 2012-27721 Compliance Guidance for Small Business Entities; Availability: Labeling for Bronchodilators; Cold, Cough, Allergy, Bronchodilator, and Antiasthmatic Drug Products for Over-the-Counter Human Use, 68132-68133 2012-27724 Guidance for Industry:

Use of Nucleic Acid Tests on Pooled and Individual Samples from Donors of Whole Blood and Blood Components, Including Source Plasma, to Reduce the Risk of Transmission of Hepatitis B Virus, 68133-68134 2012-27783 Foreign Assets Foreign Assets Control Office NOTICES Blocking Persons and Property: Designations of 4 Individuals Who Commit, Threaten to Commit, or Support Terrorism, 68207 2012-27831 Foreign Trade Foreign-Trade Zones Board NOTICES Applications for Subzones: Foreign-Trade Zone 163, Zimmer Manufacturing BV, Ponce, PR, 68102 2012-27780 Proposed Production Activities:

Foreign-Trade Zone 163, Zimmer Manufacturing BV, Ponce, PR, 68103 2012-27776 Health and Human Health and Human Services Department See Agency for Toxic Substances and Disease Registry See Centers for Medicare & Medicaid Services See Food and Drug Administration See National Institutes of Health NOTICES Agency Information Collection Activities; Proposals, Submissions, and Approvals, 68122-68123 2012-27770 Privacy Act of 1974; System of Records, 68123-68125 2012-27699 Housing Housing and Urban Development Department NOTICES Agency Information Collection Activities;

Proposals, Submissions, and Approvals: Eligibility of Nonprofit Corporation/Housing Consultant Certification, 68138-68139 2012-27799 Multifamily Housing Service Coordinator Grant, 68139-68140 2012-27802 Announcement of Funding Awards: Continuum of Care Program for Fiscal Year 2011, 68568-68678 2012-27658 Privacy Act; Systems of Records, 68140-68144 2012-27806 Interior Interior Department See Bureau of Safety and Environmental Enforcement See Land Management Bureau See National Park Service See Ocean Energy Management Bureau See Surface Mining Reclamation and Enforcement Office International Trade Adm International Trade Administration NOTICES Applications for Duty-Free Entry of Scientific Instruments:

Michigan State University, et al., 68103 2012-27782 International Trade Com International Trade Commission NOTICES Meetings; Sunshine Act, 68148 2012-27981 Justice Department Justice Department See Drug Enforcement Administration See Justice Programs Office NOTICES Agency Information Collection Activities; Proposals, Submissions, and Approvals: COPS Comparative Assessment of Cost Reduction by Agencies Survey, 68149 2012-27691 Justice Programs Justice Programs Office NOTICES Meetings:

SANE/SART AI/AN Initiative Committee, 68150-68151 2012-27789 Labor Department Labor Department See Occupational Safety and Health Administration NOTICES Agency Information Collection Activities; Proposals, Submissions, and Approvals: Main Fan Operation and Inspection, 68151-68152 2012-27759 Land Land Management Bureau NOTICES Environmental Assessments; Availability, etc.: Boise District, Land Use Plans to Clarify Lands Eligible for Disposal; Correction, 68146 2012-27772 Library Library of Congress See Copyright Office, Library of Congress NASA National Aeronautics and Space Administration NOTICES Meetings:

NASA Advisory Council; Science Committee, 68152-68153 2012-27830 National Archives National Archives and Records Administration NOTICES Meetings: Advisory Committee on Presidential Library-Foundation Partnerships, 68153 2012-27761 National Foundation National Foundation on the Arts and the Humanities NOTICES Meetings: Humanities Panel, 68153-68154 2012-27746 National Highway National Highway Traffic Safety Administration RULES 2017 and Later Model Year Light-Duty Vehicle Greenhouse Gas Emissions and Corporate Average Fuel Economy Standards, 68070 C1--2012--21972 National Institute National Institute of Standards and Technology NOTICES Meetings:

National Construction Safety Team Advisory Committee, 68103-68104 2012-27689 National Institute National Institutes of Health NOTICES Agency Information Collection Activities; Proposals, Submissions, and Approvals: National Institute of Nursing Research Summer Genetics Institute Alumni Survey, 68134 2012-27578 Meetings: Center for Scientific Review, 68137-68138 2012-27690 2012-27694 National Cancer Institute, 68136 2012-27729 National Institute of Allergy and Infectious Diseases, 68136 2012-27728 National Institute of Dental & Craniofacial Research, 68136-68137 2012-27727 National Institute of Diabetes and Digestive and Kidney Diseases, 68137 2012-27726 National Institute of Mental Health, 68134-68135 2012-27685 2012-27686 National Institute on Alcohol Abuse and Alcoholism, 68135-68136 2012-27688 Office of the Director, 68138 2012-27687 National Oceanic National Oceanic and Atmospheric Administration RULES Snapper-Grouper Fishery of the South Atlantic:

Reopening of 2012 Commercial Sector for South Atlantic Red Snapper, Gag, and South Atlantic Shallow-Water Grouper, 68071-68072 2012-27786 NOTICES Agency Information Collection Activities; Proposals, Submissions, and Approvals: Socio-economic Profile of Small-Scale Commercial Fisheries in the U.S. Caribbean, 68104-68105 2012-27707 Meetings: Fisheries of the Caribbean; Southeast Data, Assessment, and Review, etc., 68105 2012-27682 Marine Protected Areas Federal Advisory Committee, 68105-68106 2012-27735 Second Fishing Capacity Reduction Program:

Longline Catcher Processor Subsector of the Bering Sea and Aleutian Islands Non-Pollock Groundfish Fishery, 68106-68107 2012-27820 Takes of Marine Mammals Incidental to Specified Activities: Rocky Intertidal Monitoring Surveys on the South Farallon Islands, CA, 68107-68113 2012-27817 National Park National Park Service NOTICES Environmental Impact Statements; Availability, etc.: Paseo del Morro National Recreational Trail Extension, San Juan National Historic Site, San Juan, PR, 68146-68147 2012-27758 National Science National Science Foundation NOTICES Antarctic Conservation Act Permits, 68154 2012-27681 National Women's National Women's Business Council NOTICES Agency Information Collection Activities;

Proposals, Submissions, and Approvals, 68154-68155 2012-27784 Navy Navy Department NOTICES Environmental Impact Statements; Availability, etc.: Introduction of P-8A Multi-Mission Maritime Aircraft into U.S. Navy Fleet, 68113-68114 2012-27762 Military Training Activities at Naval Weapons Systems Training Facility, Boardman, OR, 68114-68115 2012-27764 Neighborhood Neighborhood Reinvestment Corporation NOTICES Meetings; Sunshine Act, 68155 2012-27859 2012-27862 Nuclear Regulatory Nuclear Regulatory Commission NOTICES License Renewal Applications:

Armed Forces Radiobiology Research Institute TRIGA Reactor Facility Operating License No. R-84; Comment Request, 68155-68160 2012-27757 Meetings: Advisory Committee on Reactor Safeguards; Subcommittee on Fukushima, 68161 2012-27754 2012-27769 Advisory Committee on Reactor Safeguards; Subcommittee on Planning and Procedures, 68160 2012-27741 Advisory Committee on Reactor Safeguards; Subcommittee on Radiation Protection and Nuclear Materials, 68161-68162 2012-27767 Advisory Committee on Reactor Safeguards;

Subcommittee on Regulatory Policies and Practices, 68160-68162 2012-27748 2012-27750 Occupational Safety Health Adm Occupational Safety and Health Administration NOTICES Meetings: UN Sub-committee of Experts on the Globally Harmonized System of Classification and Labelling of Chemicals, 68152 2012-27751 Ocean Energy Management Ocean Energy Management Bureau NOTICES Oil and Gas Lease Sales: Gulf of Mexico, Outer Continental Shelf, Western Planning Area 229, 68147-68148 2012-27755 Overseas Overseas Private Investment Corporation NOTICES Meetings;

Sunshine Act, 68162-68163 2012-27853 Personnel Personnel Management Office PROPOSED RULES Prevailing Rate Systems; Appropriated Fund Federal Wage System Wage Areas: Redefinition of St. Louis, MO, Southern MO, Cleveland, OH, and Pittsburgh, PA, 68073-68075 2012-27671 Postal Service Postal Service RULES Outbound International Mailings of Lithium Batteries, 68069-68070 2012-27842 NOTICES Meetings; Sunshine Act, 68163 2012-27840 Presidential Documents Presidential Documents PROCLAMATIONS Special Observances:

American Education Week (Proc. 8904), 68045-68046 2012-27922 World Freedom Day (Proc. 8903), 68043-68044 2012-27918 Securities Securities and Exchange Commission NOTICES Meetings; Sunshine Act, 68163 2012-27867 Self-Regulatory Organizations; Proposed Rule Changes: Chicago Stock Exchange, Inc., 68167-68169, 68183-68186 2012-27713 2012-27714 2012-27715 EDGX Exchange, Inc., 68182-68183 2012-27763 Financial Industry Regulatory Authority, Inc., 68181-68182 2012-27765 NASDAQ OMX BX, Inc., 68171-68172 2012-27778 NASDAQ OMX PHLX LLC, 68169-68170 2012-27779 New York Stock Exchange LLC, 68188-68191 2012-27717 NYSE Arca, Inc., 68163-68167, 68172-68177, 68193-68194 2012-27712 2012-27719 2012-27777 NYSE MKT LLC, 68177-68181, 68186-68188, 68191-68195 2012-27716 2012-27718 2012-27720 2012-27775 Small Business Small Business Administration NOTICES Disaster Declarations:

New York, 68195 2012-27781 Surface Mining Surface Mining Reclamation and Enforcement Office NOTICES Agency Information Collection Activities; Proposals, Submissions, and Approvals: Permanent Regulatory Program Requirements—Standards for Certification of Blasters, 68148 2012-27560 Toxic Substances and Disease Registry Agency See Agency for Toxic Substances and Disease Registry Transportation Department Transportation Department See Federal Aviation Administration See Federal Highway Administration See Federal Motor Carrier Safety Administration See Federal Railroad Administration See National Highway Traffic Safety Administration NOTICES Applications:

Certificates of Public Convenience and Necessity and Foreign Air Carrier Permits, 68196 2012-27800 2012-27801 Treasury Treasury Department See Comptroller of the Currency See Foreign Assets Control Office NOTICES Privacy Act; System of Records, 68204-68206 2012-27698 Survey of U.S. Ownership of Foreign Securities as of December 31, 2012, 68206-68207 2012-27808 Separate Parts In This Issue Part II Health and Human Services Department, Centers for Medicare & Medicaid Services, 68210-68565 2012-26902 Part III Housing and Urban Development Department, 68568-68678 2012-27658 Reader Aids Consult the Reader Aids section at the end of this page for phone numbers, online resources, finding aids, reminders, and notice of recently enacted public laws.

To subscribe to the Federal Register Table of Contents LISTSERV electronic mailing list, go to http://listserv.access.gpo.gov and select Online mailing list archives, FEDREGTOC-L, Join or leave the list (or change settings); then follow the instructions. 77 221 Thursday, November 15, 2012 Rules and Regulations DEPARTMENT OF THE TREASURY Office of the Comptroller of the Currency 12 CFR Part 46 [Docket No. OCC-2012-0016] Policy Statement on the Principles for Development and Distribution of Annual Stress Test Scenarios AGENCY:

Office of the Comptroller of the Currency (OCC), Treasury. ACTION: Interim guidance with request for public comment. SUMMARY: This interim guidance sets forth the general processes and factors to be used by the OCC in development and distributing the stress test scenarios for the annual stress test required by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 as implemented by the Annual Stress Test final rule (Stress Test Rule) published on October 9, 2012.

Under the Stress Test Rule national banks and Federal savings associations with total consolidated assets of more than $10 billion (covered institutions) are required to conduct annual stress tests using a minimum of three scenarios (baseline, adverse and severely adverse) provided by the OCC. The Stress Test Rule specified that the OCC will provide the required scenarios to the covered institutions by November 15th of each year. DATES: This interim guidance is effective November 15, 2012.

Comments must be submitted on or before January 14, 2013. ADDRESSES: Because paper mail in the Washington, DC area and at the OCC is subject to delay, commenters are encouraged to submit comments by email if possible. Please use the title “Policy Statement on Principles for Development and Distribution of Annual Stress Test Scenarios” to facilitate the organization and distribution of the comments. You may submit comments by any of the following methods: • *Email: regs.comments@occ.treas.gov.* • *Mail:* Office of the Comptroller of the Currency, 250 E Street SW., Mail Stop 2-3, Washington, DC 20219. • *Fax:*

(202)874-5274. • *Hand Delivery/Courier:* 250 E Street SW., Mail Stop 2-3, Washington, DC 20219. • *Instructions:* You must include “OCC” as the agency name and “Docket Number OCC-2012-0016” in your comment. In general, OCC will enter all comments received into the docket and publish them on the Regulations.gov Web site without change, including any business or personal information that you provide such as name and address information, email addresses, or phone numbers. Comments received, including attachments and other supporting materials, are part of the public record and subject to public disclosure. Do not enclose any information in your comment or supporting materials that you consider confidential or inappropriate for public disclosure. You may review comments and other related materials that pertain to this notice by any of the following methods: • *Viewing Comments Personally:* You may personally inspect and photocopy comments at the OCC, 250 E Street SW., Washington, DC 20219. For security reasons, the OCC requires that visitors make an appointment to inspect comments. You may do so by calling

(202)874-4700. Upon arrival, visitors will be required to present valid government-issued photo identification and to submit to security screening in order to inspect and photocopy comments. • *Docket:* You may also view or request available background documents and project summaries using the methods described above. FOR FURTHER INFORMATION CONTACT: David Nebhut, Deputy Comptroller for Economic and Policy Analysis, Economic and Policy Analysis

(202)649-5472, Arthur McMahon, Director, International Analysis and Banking Conditions

(202)649-5475, Robert Scavotto, Lead International Expert, International Analysis and Banking Condition

(202)649-5477, Henry Barkhausen, Attorney, Legislative and Regulatory Activities Division

(202)874-5090, or Ron Shimabukuro, Senior Counsel, Legislative and Regulatory Activities Division

(202)874-5090, Office of the Comptroller of the Currency, 250 E Street SW., Washington, DC 20219. SUPPLEMENTARY INFORMATION: I. Background Section 165(i)(2) of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 requires certain financial companies, including national banks and Federal savings associations with total consolidated assets of more than $10 billion (covered institutions), to conduct annual stress tests. The OCC published in the **Federal Register** on October 9, 2012, the final Annual Stress Test rule 1 implementing the requirements and setting out definitions and rules for scope of application, scenarios, reporting, and disclosure. Under the Stress Test Rule, covered institutions are required to conduct annual stress tests based on the annual stress test cycle set out in Table 1. 1 77 FR 61238 (October 9, 2012). Table 1—Process Overview of Annual Stress Test Cycles for Covered Institutions Key step Over $50 billion $10 to $50 billion 1. OCC distributes scenarios for annual stress tests By November 15 By November 15. 2. Covered institutions conduct annual stress test and submit Annual Stress Test Report to the OCC and the Board By January 5 By March 31. 3. Covered institutions make required public disclosures Between March 15 and March 31 Between June 15 and June 30. A key component of the annual stress test is the stress test scenarios. Scenarios are sets of conditions that affect the U.S. economy or the financial condition of covered institutions. Each scenario includes the values of the variables specified for each quarter over the stress test horizon. The variables specified for each scenario generally address economic activity, asset prices, and other measures of financial market conditions for the United States and key foreign countries. The OCC annually will determine scenarios that are appropriate for use for each annual stress test. The timeline in Table 1 provides that the OCC will distribute stress test scenarios to covered institutions by November 15th of each year. This document articulates the principles that the OCC will apply to develop and distribute those scenarios for covered institutions. II. Immediate Effective Date and Request for Comment This interim guidance is effective November 15, 2012 and applicable, to the extent practicable, to the annual stress test cycle beginning this year. As explained in the preamble, the Stress Test Rule was effective immediately upon publication because the stress testing framework represents a critical tool for national bank supervision and is essential for the health of covered institutions and the overall financial stability of the economy. 2 For this reason, OCC believed that it was necessary for certain national banks and Federal savings associations with consolidated assets of $50 billion or more to conduct stress tests under the Stress Test Rule this year. 2 See Id. at 61244. The stress tests conducted under the Stress Test Rule framework will provide important forward-looking information to supervisors to assist in the overall assessment of a covered institution's capital adequacy and will help determine whether additional analytical techniques and exercises are appropriate to identify, measure and monitor risk to the financial soundness of the covered institution. Moreover, the OCC believes that the stress tests will benefit the covered institutions by supporting their own forward-looking assessments of their risks and better equip them to address a range of adverse outcomes. Similarly, the OCC believes that it is necessary to make this interim guidance effective immediately. The OCC recognizes that because of timing issues many of the procedural aspects of this interim guidance will not be relevant for the development of the scenarios for this year, however, the OCC believes that it is important to give covered institutions a sense of the general processes and factors used for scenario development that the OCC expects to use going forward, as well as an opportunity to comment. The agency solicits comment on all aspects of the interim guidance. Specifically, what challenges, if any, exist in applying this guidance generally or at particular banking organizations and why? Are there any terms described by the interim guidance that require further clarification and how should they be defined? III. Paperwork Reduction Act In accordance with the Paperwork Reduction Act

(PRA)of 1995 (44 U.S.C. 3506; 5 CFR part 1320, Appendix A1, the OCC reviewed the interim guidance. The OCC may not conduct or sponsor, and an organization is not required to respond to, an information collection unless the information collection displays a currently valid OMB control number. The interim guidance contains no new collections of information under the PRA beyond those contained in OMB Control No. 1557-0311, the collection covering the Annual Stress Test rulemaking. IV. Principles for Development and Distribution of Annual Stress Test Scenarios The text of the proposed guidance is as follows. PRINCIPLES FOR DEVELOPMENT AND DISTRIBUTION OF STRESS TEST SCENARIOS I. INTRODUCTION Section 165(i)(2) of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 requires certain financial companies, including national banks and Federal savings associations with total consolidated assets of more than $10 billion (covered institutions), to conduct annual stress tests. The Office of the Comptroller of the Currency

(OCC)published in the **Federal Register** on October 9, 2012, a final rule (stress test rule) implementing the requirements and setting out definitions and rules for scope of application, scenarios, reporting, and disclosure. 1 Under the stress test rule, each year the OCC will distribute stress test scenarios to covered institutions. This document articulates the principles that the OCC will apply to develop and distribute those scenarios for covered institutions. 1 Annual Stress Test, 77 FR 61238 (October 9, 2012). II. STRESS TESTS As defined by the stress test rule, a stress test is “a process to assess the potential impact of stressful scenarios on the consolidated earnings, losses, and capital of a covered institution over the planning horizon, taking into account the covered institution's current condition, risks, exposures, strategies, and activities.” 2 2 12 CFR 46.2 (Definition of Stress Test). Stress tests help covered institutions and the OCC determine whether those institutions have capital sufficient to absorb losses that could result from adverse economic conditions. The OCC views stress test results as one source of forward-looking information that can help identify downside risks and assess the potential impact of adverse outcomes on capital adequacy. Stress tests are not the only tool the OCC uses for these purposes; a complete assessment of a covered institution's capital position typically includes review of its capital planning processes, the governance concerning those processes, and the adequacy of capital under established regulatory capital measures. The OCC expects the board of directors and senior management of each covered institution to consider the results of the annual stress test when conducting capital planning, assessing capital adequacy, and evaluating risk management practices. The OCC also may use stress test results to determine whether additional analytical techniques and exercises are appropriate for a covered institution to employ in identifying, measuring, and monitoring risks to the financial soundness of the covered institution. Under the final rule, each covered institution is required to conduct an annual stress test using its financial data as of September 30 of each year, unless the OCC requires a different “as of” date for any or all categories of financial data. The stress test must assess the potential impact of specific scenarios on the regulatory capital of the covered institution and on certain related items over a forward-looking planning horizon, taking into account all relevant exposures and activities. 3 Under the final rule, the planning horizon is at least nine quarters, consisting of the fourth quarter of the current calendar year plus all four quarters of each of the two subsequent calendar years. 3 Id. at 46.6(a). III. SCENARIOS Scenarios are sets of conditions that affect the U.S. economy or the financial condition of covered institutions. 4 The OCC annually will determine scenarios that are appropriate for use under the stress test rule. In conducting the stress test under the stress test rule, each covered institution must use the scenarios provided by the OCC. 4 Id. at 46.2 (Definition of scenarios). Each scenario includes the values of the variables specified for each quarter over the stress test horizon. The OCC expects that covered institutions may not need to use all of the variables provided and may need to estimate relationships to identify other variables, such as those reflecting local economic conditions, from the values the OCC provides. The OCC will review the appropriateness of estimation processes and resulting estimates, or other modifications of variables, through its ongoing supervisory processes. The variables specified for each scenario generally address economic activity, asset prices, and other measures of financial market conditions for the United States and key foreign countries. Variables that describe economic activity likely will include, but not be limited to, the growth rate of gross domestic product, the unemployment rate, and the inflation rate. The OCC anticipates that the path (which reflects the level and rate of change) of the unemployment rate during the planning horizon in particular will be a key variable indicating the severity of economic stress, as this variable provides a simple and widely noted gauge of the state of the U.S. economy. This point is discussed further in this statement in connection with severely adverse scenarios. Other variables may represent asset prices and financial market conditions, including interest rates. The OCC expects to specify scenarios using a fairly stable core set of variables, although variables may be added or deleted as the U.S. and global economic environment evolves. The OCC will attempt to minimize additions, redefinitions, or re-specifications from year to year, recognizing that the use of new or modified variables for stress tests may require potentially costly systems changes at covered institutions. The scenarios provided by the OCC reflect at least three sets of economic and financial conditions, described in the rule as baseline, adverse, and severely adverse. The baseline broadly corresponds to the set of conditions expected to prevail over the term of the stress tests. The adverse and severely adverse scenarios introduce hypothetical stress conditions intended to test the safety and soundness of covered institutions as well as their capital planning processes. The aim is to assess the covered institutions' ability to identify and measure the risks it faces under adverse conditions, and to ensure that appropriate amounts of capital exist to support those risks. The OCC will evaluate both the adequacy of the projections and the processes used in the company-run stress test. The OCC expects covered institutions to be able to maintain ready access to funding, continue operations, meet obligations to creditors and counterparties, and continue to serve as credit intermediaries under conditions that are significantly more adverse than expected. The *baseline* scenario establishes a benchmark set of conditions that incorporates the most current views on the macroeconomic outlook. These views are based on information obtained from government agencies, other public sector organizations, and private sector forecasters as close to the date of the annual stress test as possible. The baseline may be based on one or more of the “consensus” forecasts produced by various organizations, although the OCC may choose to depart from the consensus if necessary to provide a more appropriate baseline for the stress tests. The *adverse* scenario is a hypothetical set of conditions designed to simulate a moderate level of stress that covered companies could experience, such as a mild-to-moderate U.S. recession. The adverse scenario may also be used to investigate other risks, perhaps including operational risks, that the OCC believes should be better understood or more closely monitored. The *severely* adverse scenario is a set of quite challenging economic and financial conditions, such as those that might be experienced in a relatively severe recession. Three examples of severe recessions from recent U.S. experience may illustrate the anticipated depth of the severely adverse scenario as it relates to the unemployment rate: • The 1973-75 recession, during which the unemployment rate increased 4.1 percentage points, from 4.9 percent in 1973Q3 to 9.0 percent in 1975Q2 (one quarter after the recession ended). • The back-to-back recessions in 1980 and 1981-82, during which the unemployment rate increased 4.7 percentage points, from 6.1 percent in 1979Q4 to 10.8 percent in 1982Q4 (the last quarter of the recession). • The 2007-09 recession, during which the unemployment rate increased 5.3 percentage points, from 4.7 percent in 2007Q3 to 10.0 percent in 2009Q4 (two quarters after the recession ended). Other variables under the adverse and severely adverse scenarios would be expected to follow paths consistent with the depth and duration of previous recessions and with models of macroeconomic activity. The severely adverse scenario also may reflect other risks that are especially salient and that might not be captured by past recessions, including elevated levels of systemic risk. The scenarios distributed by the OCC for the stress tests cover at least nine quarters. In addition, the OCC will generally publish scenarios that cover one year beyond the planning horizon of the stress test, to allow for the estimation of loan losses for the year following the stress planning horizon; this additional specification allows covered institutions to determine adequate levels of loan loss reserves. The OCC believes that as a general matter all covered institutions should use the same set of scenarios and planning horizon so that the OCC can better compare results across institutions. To that end, the OCC intends to provide one set of scenarios for use by all covered institutions. However, the OCC believes there may be circumstances that would warrant the use of different or additional scenarios or a planning horizon of more than nine quarters. Thus, under the stress test rule the OCC reserves the authority to require a covered institution to use different or additional scenarios and/or planning horizons the agency may deem appropriate. For example, a covered institution may conduct business activities or have risk exposures that would encounter stress under conditions that differ materially from those that would generate stress for other institutions. The OCC expects such situations to be rare and anticipates making every effort to distribute the same scenarios to all covered institutions. In addition to the minimum three scenarios, the OCC may require a covered institution with significant trading activities to include factors related to trading and counterparty risk in its stress test. Typically, these factors might include additional shocks to specific market prices, interest rates, rate spreads, or other key market variables consistent with historical or hypothetical adverse market events. IV. DEVELOPMENT AND DISTRIBUTION As one part of the process of developing scenarios, the OCC will gather information from outside entities and develop themes for the stress test scenarios, including the identification of potentially material vulnerabilities or salient risks to the financial system, and consider potential paths for individual variables. The outside entities may include academic experts, staffs of international organizations, foreign supervisors, financial institutions that regularly provide forecasts, and other private sector risk analysts that regularly conduct stress tests based on U.S. and global economic and financial scenarios. The OCC will use the information gathered in this manner to inform its consideration of potential risks and scenarios. The OCC, the Board of Governors of the Federal Reserve System (Board), and the Federal Deposit Insurance Corporation

(FDIC)(Agencies) expect to consult closely to develop scenarios for stress testing. Absent specific supervisory concerns, the OCC anticipates that the annual stress test scenarios distributed by the OCC will be the same as or nearly identical to the scenarios developed by the Board for the supervisory stress tests conducted by the Board under Section 165(i)(1). This would mean the same economic and financial variables following the same paths as used in the scenarios for the Board's supervisory stress tests. Although the Agencies generally expect to consult closely on scenario development, they may have different views of risks that should be reflected in the stress test scenarios used by covered institutions for the annual stress test. The OCC may distribute scenarios to covered institutions that differ in certain respects from those distributed by the FDIC and the Board if necessary to better reflect specific OCC concerns. The OCC expects such situations to be extremely rare, however, and anticipates making every effort to avoid differences in the scenarios required by each agency. The OCC anticipates that the stress test scenarios will be revised annually as appropriate to ensure that each scenario remains relevant under prevailing economic and industry conditions. These yearly revisions will enable the scenarios to capture evolving risks and vulnerabilities. The need to ensure that scenarios do not become outdated because of economic and financial developments makes a lengthy process of review and comment concerning scenarios prior to distribution each year impractical. However, the process of consultation with the Board and the FDIC, as well as the ongoing interaction of OCC staff with public and private sector experts to obtain views on salient risks and to obtain suggestions for the behavior of key economic variables, should ensure that the stress conditions reflected in the scenarios are well suited to their purpose. The scenario development process culminates with the distribution of the scenarios to all covered institutions no later than November 15 of each year. The scenario descriptions provided to covered institutions will include values for economic and financial variables depicting the paths those variables follow under the scenarios. The OCC believes that distribution of the scenarios by November 15 aligns with similar processes at the FDIC and the Board. Dated: November 6, 2012. Thomas J. Curry, Comptroller of the Currency. [FR Doc. 2012-27660 Filed 11-14-12; 8:45 am]

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