Record of Policy Actions of the Board of Governors

Policy actions of the Board of Governors are presented pursuant to section 10 of the Federal Reserve Act. That section provides that the Board shall keep a record of all questions of policy determined by the Board and shall include in its annual report to Congress a full account of such actions. This chapter provides a summary of policy actions in 2014, as implemented through (1) rules and regulations, (2) policy statements and other actions, and (3) discount rates for depository institutions. Policy actions were approved by all Board members in office, unless indicated otherwise.¹ More information on the actions is available from the relevant Federal Register notices or other documents (see links in footnotes) or on request from the Board's Freedom of Information Office.

For information on the Federal Open Market Committee's policy actions relating to open market operations, see section 9, "Minutes of Federal Open Market Committee Meetings."

Rules and Regulations

Regulation H (Membership of State Banking Institutions in the Federal Reserve System) and Regulation Q (Capital Adequacy of Bank Holding Companies, Savings and Loan Holding Companies, and State Member Banks)

On April 8, 2014, the Board approved a final rule (Docket No. R-1460) to strengthen the supplementary leverage ratio standards for large, interconnected U.S. banking organizations. The rule was published jointly with the Federal Deposit Insurance Corporation and Office of the Comptroller of the Currency.² The final rule applies to any U.S. top-tier bank holding company with more than $700 billion in total consolidated assets or more than $10 trillion in assets under custody (covered bank holding companies) and to its insured depository institution subsidiaries. Currently, eight large U.S. banking organizations meet the asset threshold to be considered covered bank holding companies. Under the rule, covered bank holding companies must maintain a leverage buffer greater than 2 percentage points above the minimum supplementary leverage ratio requirement of 3 percent, for a total of more than 5 percent, to avoid restrictions on capital distributions and discretionary bonus payments. Insured depository institution subsidiaries of covered bank holding companies must maintain at least a 6 percent supplementary leverage ratio to be considered "well capitalized" under the agencies' prompt corrective action framework. The final rule is effective January 1, 2018.

Voting for this action: Chair Yellen and Governors Tarullo, Stein, and Powell.

Regulation Q (Capital Adequacy of Bank Holding Companies, Savings and Loan Holding Companies, and State Member Banks)

On July 14, 2014, the Board approved a final rule (Docket No. R-1488) to revise the definition of "eligible guarantee" to remove the requirement that this type of guarantee be made by an eligible guarantor for purposes of calculating a banking organization's regulatory capital under the advanced approaches risk-based capital rule.³ Banking organizations use eligible guarantees to reduce the credit risk of certain exposures. The final rule, published jointly with the Federal Deposit Insurance Corporation and Office of the Comptroller of the Currency, is effective October 1, 2014.

Voting for this action: Chair Yellen, Vice Chairman Fischer, and Governors Tarullo, Powell, and Brainard.

On September 3, 2014, the Board approved a final rule (Docket No. R-1487) to revise the definition of total leverage exposure used in the calculation of the supplementary leverage ratio in the agencies' 2013 revised capital rule.⁴ The final rule modifies the methodology for including off-balance-sheet items, such as credit derivatives, repo-style transactions, and lines of credit, in the denominator of the supplementary leverage ratio to more appropriately capture a banking organization's on- and off-balance-sheet exposures. The revised supplementary leverage ratio applies to all banking organizations subject to the advanced approaches risk-based capital rule. The final rule, published jointly with the Federal Deposit Insurance Corporation and Office of the Comptroller of the Currency, is effective January 1, 2015.

Voting for this action: Chair Yellen, Vice Chairman Fischer, and Governors Tarullo, Powell, and Brainard.

Regulation Q (Capital Adequacy of Bank Holding Companies, Savings and Loan Holding Companies, and State Member Banks) and Regulation WW (Liquidity Risk Measurement Standards)

On December 15, 2014, the Board approved an interim final rule (Docket No. R-1507) revising the definition of "qualifying master netting agreement" and related definitions in the regulatory capital and the liquidity coverage ratio rules.⁵ The changes are designed to ensure that the regulatory capital and liquidity treatment of certain financial transactions is not affected by the implementation of special resolution regimes in foreign jurisdictions or by contractual provisions that incorporate stays of special resolution regimes. The interim final rule, published jointly with the Office of the Comptroller of the Currency, is effective January 1, 2015. (Note: The Federal Deposit Insurance Corporation issued a separately published notice of proposed rulemaking with the same modifications.)

Voting for this action: Chair Yellen, Vice Chairman Fischer, and Governors Tarullo, Powell, and Brainard.

Regulation Y (Bank Holding Companies and Change in Bank Control) and Regulation YY (Enhanced Prudential Standards)

On February 20, 2014, the Board approved a final rule (Docket Nos. R-1463 and R-1464) revising the capital plan and stress testing rules to defer until October 1, 2015, use of the advanced approaches framework in the Board's capital plan and stress testing rules.⁶ In addition, the Board and Office of the Comptroller of the Currency permitted eight banking organizations to begin using the advanced approaches framework to determine their risk-based capital requirements. Except for the advanced approaches deferral, the final rule also maintains all the changes to the Board's capital plan rule and stress testing rules contained in two interim final rules issued in September 2013. The final rule is effective April 15, 2014.

Voting for this action: Chair Yellen and Governors Tarullo, Raskin, Stein, and Powell.

On October 16, 2014, the Board approved a final rule (Docket No. R-1492) revising the capital plan and stress testing rules to adjust the timeframe for annual submissions of capital plans and for the conduct of company-run and supervisory stress tests.⁷ For the 2015 capital plan cycle, bank holding companies with total consolidated assets of $50 billion or more are required to submit capital plans on or before January 5, 2015, which is unchanged from prior years. For subsequent cycles, beginning in 2016, participating bank holding companies will be required to submit their capital plans and stress testing results to the Federal Reserve on or before April 5. The final rule also includes other modifications to the capital plan and stress testing rules, including a limitation on the ability of a bank holding company with $50 billion or more in total consolidated assets to make capital distributions under the capital plan rule if the bank holding company's net capital issuances are less than the amount indicated in its capital plan. The final rule is effective November 26, 2014, except for the limit on net capital distributions, which is effective on April 1, 2015.

Voting for this action: Chair Yellen, Vice Chairman Fischer, and Governors Tarullo, Powell, and Brainard.

Regulation DD (Truth in Savings), Regulation P (Privacy of Consumer Information), and Regulation V (Fair Credit Reporting)

On May 20, 2014, the Board approved final rules (Docket Nos. R-1482 and R-1483) to repeal Regulations DD and P, in accordance with the transfer of rulemaking authority for a number of consumer protection laws to the Consumer Financial Protection Bureau (CFPB) under the Dodd-Frank Act.⁸ The CFPB has issued interim final rules that are substantially identical to those regulations. While the Board retains authority to issue rules for certain motor vehicle dealers, there is no evidence that any motor vehicle dealers subject to the Board's jurisdiction engage in activities covered by the Truth in Savings Act. Furthermore, pursuant to the Dodd-Frank Act, entities supervised by the Board that were previously covered by the Board's Regulation P are now subject to the privacy rules issued by the CFPB. In addition, the Board amended (Docket No. R-1484) Regulation V to reflect changes to the Fair Credit Reporting Act that limit the application of the Identity Theft Red Flags rule to only certain creditors.⁹ The final rules are effective June 30, 2014.

Voting for this action: Chair Yellen and Governors Tarullo, Stein, and Powell.

Regulation HH (Designated Financial Market Utilities) and Federal Reserve Policy on Payment System Risk

On October 24, 2014, the Board approved final amendments to Regulation HH (Docket No. R-1477) regarding the risk-management standards for financial market utilities that have been designated as systemically important by the Financial Stability Oversight Council and for which the Board has standard-setting authority under the Dodd-Frank Act.¹⁰ The Board also approved revisions to part I of the Federal Reserve Policy on Payment System Risk (Docket No. OP-1478), which applies to financial market infrastructures more generally, including those operated by the Federal Reserve Banks.¹¹ The amendments and revisions are based on 2012 international risk-management standards for financial market infrastructures. Key amendments and revisions include separate standards to address credit risk and liquidity risk, new requirements on recovery and orderly wind-down planning, a new standard on general business risk, a new standard on tiered participation arrangements, and heightened requirements on transparency and disclosure. The amendments and revisions are effective on December 31, 2014, except several of the new requirements have a later compliance date, as described in the Federal Register notices.

Voting for this action: Chair Yellen, Vice Chairman Fischer, and Governors Tarullo, Powell, and Brainard.

Regulation RR (Credit Risk Retention)

On October 22, 2014, the Board approved a final rule (Docket No. R-1411) to implement the credit risk retention requirements in the Dodd-Frank Act.¹² The final rule generally requires the sponsors of securitization transactions to retain not less than 5 percent of the credit risk of the assets they securitize. The rule also includes prohibitions on transferring or hedging the retained credit risk. The final rule provides exemptions for asset-backed securities that are collateralized exclusively by residential mortgages that qualify as qualified residential mortgages (QRMs). Under the rule, the QRM definition is aligned with that of a "qualified mortgage," as adopted by the Consumer Financial Protection Bureau. Exemptions are also available for certain other types of residential mortgage securitizations, including those guaranteed or insured by agencies of the U.S. government and those originated by state housing finance agencies. In addition, the final rule does not require risk retention for securitizations of commercial loans, commercial mortgages, or automobile loans, provided that the transactions meet specific standards for high-quality underwriting. The final rule was also approved by the Federal Deposit Insurance Corporation, Office of the Comptroller of the Currency, Federal Housing Finance Agency, Securities and Exchange Commission, and Department of Housing and Urban Development. The implementing agencies have agreed to review the QRM definition and its effect on the residential mortgage market no later than four years after the rule's effective date and periodically thereafter. The final rule is effective February 23, 2015, with compliance dates of December 24, 2015, for asset-backed securities collateralized by residential mortgages and December 24, 2016, for other types of asset-backed securities.

Voting for this action: Chair Yellen, Vice Chairman Fischer, and Governors Tarullo, Powell, and Brainard.

Regulation VV (Proprietary Trading and Certain Interests in and Relationships with Covered Funds)

On January 14, 2014, the Board approved an interim final rule (Docket No. R-1480) permitting banking entities to retain interests in, and act as sponsors to, certain collateralized debt obligations backed primarily by trust preferred securities that meet the definition of covered funds, as permitted under the grandfathering provisions for certain trust preferred securities in the Dodd-Frank Act.¹³ The interim final rule, a companion rule to the so-called Volcker rule approved in December 2013, establishes specific qualifications for the type of covered funds that may be retained. The interim final rule was published jointly with the Federal Deposit Insurance Corporation, Office of the Comptroller of the Currency, Commodity Futures Trading Commission, and Securities and Exchange Commission, and is effective April 1, 2014.

Voting for this action: Chairman Bernanke, Vice Chair Yellen, and Governors Tarullo, Raskin, Stein, and Powell.

Note: On April 3, 2014, the Board approved a statement that it stands ready to grant banking entities covered by the Volcker rule two additional one-year extensions (which together would be until July 21, 2017) to conform their investments in and sponsorship of certain collateralized loan obligations that were in place before December 31, 2013, and are considered to be covered funds under section 13 of the Bank Holding Company Act.¹⁴ On December 17, 2014, the Board approved an extension, until July 21, 2016, for banking entities to conform their investments in and relationships with covered funds and foreign funds that were in place before December 31, 2013 (legacy covered funds) with the requirements of the Volcker rule.¹⁵ The Board also announced its intention to act next year to extend the conformance period for legacy covered funds for one additional year, until July 21, 2017.

Regulation WW (Liquidity Risk Measurement Standards)

On September 3, 2014, the Board approved a final rule (Docket No. R-1466) implementing the liquidity coverage ratio (LCR), a quantitative liquidity requirement for large and internationally active banking organizations.¹⁶ The LCR is based on liquidity standards promulgated under the Basel III reform measures and also establishes an enhanced prudential liquidity standard consistent with the Dodd-Frank Act. Under the final rule, covered banking firms will be required to maintain a minimum amount of high-quality liquid assets sufficient to cover their net cash outflows over a 30-calendar-day stress period. The rule applies a less stringent LCR requirement to certain smaller depository institution holding companies. In addition, the final rule does not allow municipal securities to be designated as high-quality liquid assets. The rule does not apply to bank holding companies and savings and loan holding companies with less than $50 billion in total consolidated assets or to nonbank financial companies designated as systemically important by the Financial Stability Oversight Council (companies so designated will have their liquidity requirements established through a separate rule or order). The final rule, published jointly with the Federal Deposit Insurance Corporation and Office of the Comptroller of the Currency, is effective January 1, 2015.

Voting for this action: Chair Yellen, Vice Chairman Fischer, and Governors Tarullo, Powell, and Brainard.

Regulation XX (Concentration Limit)

On November 3, 2014, the Board approved a final rule (Docket No. R-1489) to implement the Dodd-Frank Act financial-sector concentration limit that generally prohibits a financial company from merging or consolidating with, or from acquiring, another company if the resulting company's liabilities would exceed 10 percent of the aggregate liabilities of all financial companies.¹⁷ In addition, the final rule establishes reporting requirements for financial companies that do not otherwise report consolidated financial information to the Board or another federal banking agency, in accordance with the Bank Holding Company Act. The final rule is effective January 1, 2015.

Voting for this action: Chair Yellen, Vice Chairman Fischer, and Governors Tarullo, Powell, and Brainard.

Regulation YY (Enhanced Prudential Standards)

On February 18, 2014, the Board approved a final rule (Docket No. R-1438) to implement enhanced prudential standards under the Dodd-Frank Act for bank holding companies and foreign banking organizations with $50 billion or more in total consolidated assets.¹⁸ The enhanced prudential standards include risk-based and leverage capital requirements, liquidity standards, risk-management requirements, stress testing requirements, and a debt-to-equity limit for companies that the Financial Stability Oversight Council has determined pose a grave threat to financial stability. Foreign banking organizations with U.S. nonbranch assets of $50 billion or more are also required to form a U.S. intermediate holding company that will generally be subject to the same prudential standards as U.S. bank holding companies, including capital planning and stress testing requirements. The final rule is effective June 1, 2014.

Voting for this action: Chair Yellen and Governors Tarullo, Raskin, Stein, and Powell.

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Policy Statements and Other Actions

Supervisory Guidance on Implementing Dodd-Frank Act Company-Run Stress Tests for Medium-Sized Institutions

On February 25, 2014, the Board approved final guidance (Docket No. OP-1485), published jointly with the Federal Deposit Insurance Corporation (FDIC) and Office of the Comptroller of the Currency (OCC), describing supervisory expectations and providing examples of sound practices for stress tests conducted by financial institutions with between $10 billion and $50 billion in total consolidated assets.¹⁹ These medium-sized companies are required to conduct annual, company-run stress tests under the agencies' rules and the Dodd-Frank Act. Consistent with the flexibility of these rules, the guidance takes into account the different risk profiles, sizes, business mixes, and levels of complexity in medium-sized institutions. Further, the final guidance confirms that companies in the $10 billion to $50 billion asset range are not subject to the Federal Reserve's capital plan rule, comprehensive capital analysis and review, stress tests conducted by the supervisory agencies, or related data collection requirements applicable to bank holding companies with assets of at least $50 billion. The Board's guidance is effective April 1, 2014, and final guidance from the FDIC and OCC is effective March 31, 2014.

Voting for this action: Chair Yellen and Governors Tarullo, Raskin, Stein, and Powell.

Term Deposit Facility Testing

On May 1, 2014, the Board approved a series of eight consecutive offerings through its Term Deposit Facility (TDF), with a gradually increasing individual award cap for each auction of up to $10 billion and an increase in offering rates of up to 5 basis points over the interest rate on excess reserves.²⁰ The offerings are part of the Board's ongoing TDF test operations and are also intended to familiarize eligible institutions with TDF procedures.

Voting for this action: Chair Yellen and Governors Tarullo, Stein, and Powell.

On August 18, 2014, the Board approved additional changes to the terms of its TDF testing to authorize (1) offerings of term deposits with an early withdrawal feature that allows depository institutions to obtain a return of funds before maturity, subject to forfeiture of all interest on the withdrawn term deposit plus an early withdrawal penalty, and (2) an increase of up to $20 billion in the individual award cap for TDF test operations.²¹

Voting for this action: Chair Yellen, Vice Chairman Fischer, and Governors Tarullo, Powell, and Brainard.

Addendum to the Interagency Policy Statement on Income Tax Allocation in a Holding Company Structure

On June 10, 2014, the Board approved a final addendum (Docket No. OP-1474) to the Interagency Policy Statement on Income Tax Allocation in a Holding Company Structure to ensure that insured depository institutions in a consolidated group maintain an appropriate relationship regarding the payment of taxes and treatment of tax refunds.²² The addendum, published jointly with the Federal Deposit Insurance Corporation and Office of the Comptroller of the Currency, supplements a 1998 policy statement on income tax allocation by instructing insured depository institutions and their holding companies to review their tax allocation agreements in order to confirm that the agreements expressly acknowledge the holding company receives any tax refunds as an agent for the insured depository institutions, consistent with sections 23A and 23B of the Federal Reserve Act. In addition, the addendum includes specific language that banking organizations could include in their tax allocation agreements to facilitate the agencies' instructions. Institutions and holding companies are expected to implement the addendum not later than October 31, 2014.

Voting for this action: Chair Yellen, and Governors Tarullo, Powell, and Fischer.

Federal Reserve Policy on Payment System Risk and Regulation J (Collection of Checks and Other Items by Federal Reserve Banks and Funds Transfers through Fedwire)

On November 26, 2014, the Board approved revisions to part II of the Federal Reserve Policy on Payment System Risk (PSR policy) (Docket No. OP-1472) related to the procedures for posting debit and credit entries to institutions' accounts at Federal Reserve Banks for automated clearinghouse (ACH) debit and commercial check transactions.²³ The PSR policy revisions also set principles for establishing future posting rules for Reserve Banks' same-day ACH service, clarified the Reserve Banks' administration of the policy for U.S. branches and agencies of foreign banking organizations, and made other technical corrections. In addition, the Board approved related amendments to Regulation J (Docket No. R-1473) regarding the timing of when paying banks must settle for the check transactions presented to them by the Reserve Banks.²⁴ The revisions are effective December 5, 2014, except for the policy changes to the Board's posting procedures for ACH debit and commercial check transactions and the related amendments to Regulation J, all of which are effective July 23, 2015.²⁵

Voting for this action: Chair Yellen, Vice Chairman Fischer, and Governors Tarullo, Powell, and Brainard.

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Discount Rates for Depository Institutions in 2014

Under the Federal Reserve Act, the boards of directors of the Federal Reserve Banks must establish rates on discount window loans to depository institutions at least every 14 days, subject to review and determination by the Board of Governors.

Primary, Secondary, and Seasonal Credit

Primary credit, the Federal Reserve's main lending program for depository institutions, is extended at the primary credit rate, which is set above the usual level of short-term market interest rates. It is made available, with minimal administration and for very short terms, as a backup source of liquidity to depository institutions that, in the judgment of the lending Federal Reserve Bank, are in generally sound financial condition. Throughout 2014, the primary credit rate was 3/4 percent.

Secondary credit is available in appropriate circumstances to depository institutions that do not qualify for primary credit. The secondary credit rate is set at a spread above the primary credit rate. Throughout 2014, the spread was set at 50 basis points resulting in a secondary credit rate of 1-1/4 percent. Seasonal credit is available to smaller depository institutions to meet liquidity needs that arise from regular swings in their loans and deposits. The rate on seasonal credit is calculated every two weeks as an average of selected money-market yields, typically resulting in a rate close to the federal funds rate target. At year-end, the seasonal credit rate was 0.15 percent.²⁶

Votes on Changes to Discount Rates for Depository Institutions

About every two weeks during 2014, the Board approved proposals by the 12 Reserve Banks to maintain the formulas for computing the secondary and seasonal credit rates. In 2014, the Board did not approve any changes in the primary credit rate.

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References

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