20754 Federal Register /Vol. 79, No. 71/Monday, April 14 .

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20754Federal Register / Vol. 79, No. 71 / Monday, April 14, 2014 / Rules and RegulationsGovernment Paperwork Elimination Act sec.1704, (44 U.S.C. 3504 note); Energy PolicyAct of 2005, Pub. L. 109–58, 119 Stat. 788(2005).Section 72.44(g) also issued under NuclearWaste Policy Act secs. 142(b) and 148(c)–(d)(42 U.S.C. 10162(b), 10168(c)–(d)). Section72.46 also issued under Atomic Energy Actsec. 189 (42 U.S.C. 2239); Nuclear WastePolicy Act sec. 134 (42 U.S.C. 10154). Section72.96(d) also issued under Nuclear WastePolicy Act sec. 145(g) (42 U.S.C. 10165(g)).Subpart J also issued under Nuclear WastePolicy Act secs. 117(a), 141(h) (42 U.S.C.10137(a), 10161(h)). Subpart K also issuedunder Nuclear Waste Policy Act sec. 218(a)(42 U.S.C. 10198).2. In § 72.214, Certificate ofCompliance 1014 is revised to read asfollows: mstockstill on DSK4VPTVN1PROD with RULES****Certificate Number: 1014.Initial Certificate Effective Date: May31, 2000.Amendment Number 1 Effective Date:July 15, 2002.Amendment Number 2 Effective Date:June 7, 2005.Amendment Number 3 Effective Date:May 29, 2007.Amendment Number 4 Effective Date:January 8, 2008.Amendment Number 5 Effective Date:July 14, 2008.Amendment Number 6 Effective Date:August 17, 2009.Amendment Number 7 Effective Date:December 28, 2009.Amendment Number 8 Effective Date:May 2, 2012, as corrected on November16, 2012 (ADAMS Accession No.ML12213A170).Amendment Number 9 Effective Date:March 11, 2014.SAR Submitted by: HoltecInternational.SAR Title: Final Safety AnalysisReport for the HI–STORM 100 CaskSystem.Docket Number: 72–1014.Certificate Expiration Date: May 31,2020.Model Number: HI–STORM 100.*****Dated at Rockville, Maryland, this 8th dayof April, 2014.For the Nuclear Regulatory Commission.Cindy K. Bladey,Chief, Rules, Announcements, and DirectivesBranch, Division of Administrative Services,Office of Administration.VerDate Mar 15 201016:13 Apr 11, 2014Jkt 232001RIN 3064–AD95Regulatory Capital Rules: RegulatoryCapital, Implementation of Basel III,Capital Adequacy, TransitionProvisions, Prompt Corrective Action,Standardized Approach for RiskWeighted Assets, Market Disciplineand Disclosure Requirements,Advanced Approaches Risk-BasedCapital Rule, and Market Risk CapitalRuleFederal Deposit InsuranceCorporation.ACTION: Final rule.*BILLING CODE 7590–01–P12 CFR Parts 303, 308, 324, 327, 333,337, 347, 349, 360, 362, 363, 364, 365,390, and 391AGENCY:§ 72.214 List of approved spent fuelstorage casks.[FR Doc. 2014–08250 Filed 4–11–14; 8:45 am]FEDERAL DEPOSIT INSURANCECORPORATIONThe Federal DepositInsurance Corporation (FDIC) isadopting as final an interim final rulethat revised the risk-based and leveragecapital requirements for FDICsupervised institutions, with nosubstantive changes. This final rule issubstantively identical to a joint finalrule issued by the Office of theComptroller of the Currency (OCC) andthe Board of Governors of the FederalReserve System (Federal Reserve)(together, with the FDIC, the agencies).The interim final rule became effectiveon January 1, 2014; however, themandatory compliance date for FDICsupervised institutions that are notsubject to the advanced internal ratingsbased approaches (advancedapproaches) is January 1, 2015.DATES: Effective date: April 14, 2014.Mandatory compliance date: January 1,2014 for advanced approaches FDICsupervised institutions; January 1, 2015for all other FDIC-supervisedinstitutions.SUMMARY:FOR FURTHER INFORMATION CONTACT:Bobby R. Bean, Associate Director,bbean@fdic.gov; Ryan Billingsley, Chief,Capital Policy Section, rbillingsley@fdic.gov; Karl Reitz, Chief, CapitalMarkets Strategies Section, kreitz@fdic.gov; David Riley, Senior PolicyAnalyst, dariley@fdic.gov; BenedettoBosco, Capital Markets Policy Analyst,bbosco@fdic.gov, regulatorycapital@fdic.gov, Capital Markets Branch,Division of Risk ManagementSupervision, (202) 898–6888; or MarkHandzlik, Counsel, mhandzlik@fdic.gov;Michael Phillips, Counsel, mphillips@fdic.gov; Greg Feder, Counsel, gfeder@fdic.gov; or Rachel Ackmann, SeniorAttorney, rackmann@fdic.gov,Supervision Branch, Legal Division,PO 00000Frm 00002Fmt 4700Sfmt 4700Federal Deposit Insurance Corporation,550 17th Street NW., Washington, DC20429.SUPPLEMENTARY INFORMATION:I. IntroductionOn August 30, 2012, the agenciespublished in the Federal Register threejoint notices of proposed rulemakingseeking public comment on revisions totheir risk-based and leverage capitalrequirements and the methodologies forcalculating risk-weighted assets underthe standardized and advancedapproaches (each, a proposal, andtogether, the notices of proposedrulemaking (NPRs), the proposed rules,or the proposals).1 The proposed rules,in part, reflected revisions tointernational capital standards adoptedby the Basel Committee on BankingSupervision (BCBS) and described in,Basel III: A Global RegulatoryFramework for More Resilient Banksand Banking Systems (Basel III), as wellas subsequent changes to the Basel IIIframework and recent BCBSconsultative papers.2 The proposals alsoincluded certain provisions that arerequired under, or maintain consistencywith, the Dodd-Frank Wall StreetReform and Consumer Protection Act(the Dodd-Frank Act).3 Afterconsidering the public commentsreceived on the NPRs, on September 10,2013, the FDIC issued the threeproposals as a consolidated interim finalrule (Basel III interim final rule).4Concurrent with the adoption of theBasel III interim final rule, the agenciesissued a related joint notice of proposedrulemaking that would adopt enhancedsupplementary leverage ratio standardsfor large, interconnected U.S. bankingorganizations and their insureddepository institution subsidiaries(enhanced supplementary leverage ratioNPR).5 The Basel III interim final rulesought comments on the interactionbetween the Basel III interim final rule1 77 FR 52792 (August 30, 2012); 77 FR 52888(August 30, 2012); 77 FR 52978 (August 30, 2012).2 Basel III was published in December 2010 andrevised in June 2011. The text is available athttp://www.bis.org/publ/bcbs189.htm. The BCBS isa committee of banking supervisory authorities,which was established by the central bankgovernors of the G–10 countries in 1975. Moreinformation regarding the BCBS and itsmembership is available at http://www.bis.org/bcbs/about.htm. Documents issued by the BCBS areavailable through the Bank for InternationalSettlements Web site at http://www.bis.org.3 Public Law 111–203, 124 Stat. 1376, 1435–38(2010).4 78 FR 55340 (Sept. 10, 2013). The OCC and theFederal Reserve issued the three proposals as aconsolidated final rule that was substantivelyidentical to the FDIC’s Basel III interim final rule(78 FR 62018 (Oct. 11, 2013)).5 78 FR 51101 (Aug. 20, 2013).E:\FR\FM\14APR1.SGM14APR1

Federal Register / Vol. 79, No. 71 / Monday, April 14, 2014 / Rules and Regulationsand the enhanced supplementaryleverage ratio standards NPR. The FDICis now issuing as final its Basel IIIinterim final rule with no substantivechanges.mstockstill on DSK4VPTVN1PROD with RULESII. Summary of the Comments and theFinal RuleA. CommentsIn response to the Basel III interimfinal rule, the FDIC received threepublic comments from two bankingorganizations and one trade associationrepresenting the financial servicesindustry. This section of the preambleprovides a discussion of the commentletters and the FDIC’s response to them.One commenter encouraged the FDICto seek public comment earlier in thedevelopment process of newinternational capital standards.Specifically, the commenter stated thatwhile developing international capitalstandards among the BCBS members theFDIC should issue an advance notice ofproposed rulemaking describingprospective revisions to those standardsso that U.S. banking organizations canmore fully understand the implicationsfor the U.S. banking sector and the U.S.economy as a whole. The commenteralso recommended conducting anempirical study of the impact on theU.S. banking system, bank customers inparticular, and the economy in general,resulting from the U.S. implementationof any international capital standardsadopted by the BCBS. The FDIC notesthat the BCBS seeks public comment,including from U.S. bankingorganizations, in connection with itsdevelopment of international capitalstandards. As members of the BCBS theagencies are actively engaged in thisprocess, which also includesquantitative impact analyses to assessthe impact of proposed capitalstandards.Another commenter requested thatthe FDIC revise the credit conversionfactors (CCFs) for trade related, selfliquidating financing for on-balancesheet exposures for up to one year,provided that the banking organizationhas proper documentation tosubstantiate the transaction. Thiscommenter also requested that the FDICuse the same country risk classificationratings (CRC) as the OECD without anyfurther downgrades for exposures toforeign banking organizations. For thereasons stated in the Basel III interimfinal rule, the final rule adopts the CCFsand CRC methodology set forth in theinterim final rule without anysubstantive change.66 78FR 55402–55403.VerDate Mar 15 201016:13 Apr 11, 2014Jkt 232001The commenter also encouraged theFDIC to reconsider several of the issuesraised by commenters responding to thethree proposals issued in 2012. Forexample, the commenter requested thatthe FDIC reconsider the treatment underthe Basel III interim final rule for capitalinstruments issued by bankingorganizations that are organized as Scorporations; the limitation on theamount of mortgage servicing assets thatmay be included in common equity tier1 capital; the deduction of collateralizeddebt obligations supported by trustpreferred securities; the inclusion ofaccumulated other comprehensiveincome (AOCI) in common equity tier 1capital; and the 150 percent risk weightfor certain delinquent exposures. Forthe reasons stated in the Basel IIIinterim final rule, the final rule adoptsthese provisions without substantivechange.7Another commenter requested thatthe FDIC reconsider whether torecognize financial guarantee insurers asguarantors under the definition of‘‘eligible guarantor’’ set forth in theBasel III interim final rule. Thecommenter stated that such anexclusion fails to recognize the riskmitigating benefits that may beassociated with financial guaranteeinsurance. The FDIC believes thatguarantees issued by these types ofentities can exhibit wrong-way risk andthat modifying the definition of eligibleguarantor to accommodate these entitiesor entities that are not investment gradewould be contrary to one of the keyobjectives of the capital framework,which is to mitigate interconnectednessand systemic vulnerabilities within thefinancial system. Therefore, the FDIC isfinalizing the definition of ‘‘eligibleguarantor’’ with no change.B. The Final Rule 8The FDIC is adopting the Basel IIIinterim final rule as a final rule with nosubstantive changes. The only changesin this final rule are technical revisionsto conform it to the final rules issued bythe Federal Reserve and the OCC. Forexample, the final rule uses the correctcompliance date, January 1, 2015, insection 324.63(a) rather than January 1,2014 as used in the Basel III interimfinal rule. Also, several sections of thefinal rule have been clarified to read,‘‘this paragraph (x)’’, instead of ‘‘thisparagraph,’’ to match internal references7 78 FR 55354 (S-corporations), 78 FR 55388(MSAs), 78 FR 55386 (TruPs), 78 FR 55346 (AOCI);and 78 FR 55407–55408 (delinquent exposures).8 For a section-by-section summary of the finalrule see 78 FR 55340 (Sept. 10, 2013).PO 00000Frm 00003Fmt 4700Sfmt 470020755in the final rule adopted by the FederalReserve and the OCC.Consistent with the Basel III interimfinal rule, the final rule is intended toimprove both the quality and quantity ofFDIC-supervised institutions’ capital.9The final rule implements a reviseddefinition of regulatory capital, a newcommon equity tier 1 minimum capitalrequirement, a higher minimum tier 1capital requirement, and, for FDICsupervised institutions subject to theadvanced approaches, a supplementaryleverage ratio that incorporates abroader set of exposures in thedenominator measure (that is, totalleverage exposure).10 The final ruleincorporates these new requirementsinto the FDIC’s prompt corrective action(PCA) framework. In addition, the finalrule establishes limits on an FDICsupervised institution’s capitaldistributions and certain discretionarybonus payments if the institution doesnot hold a specified amount of commonequity tier 1 capital in addition to theamount necessary to meet its minimumrisk-based capital requirements. Thefinal rule amends the methodologies fordetermining risk-weighted assets for allFDIC-supervised institutions, andadopts changes to the FDIC’s regulatorycapital requirements that meet therequirements of and are consistent withsection 171 and section 939A of theDodd-Frank Act.11 In addition, the FDICnotes that while portions of the finalrule refer to circumstances where aparty becomes subject to receivership,the final rule is intended to governmatters relating to capital requirementsand should not be construed as anindication of FDIC receivership rules orpolicies.The final rule codifies the FDIC’sregulatory capital rules, which havepreviously resided in variousappendices to their respectiveregulations, into a harmonizedintegrated regulatory framework. Inaddition, the final rule amends the9 FDIC-supervised institutions include statenonmember banks and state savings associations.The term banking organizations includes nationalbanks, state member banks, state nonmember banks,state and Federal savings associations, and top-tierbank holding companies domiciled in the UnitedStates not subject to the Federal Reserve’s SmallBank Holding Company Policy Statement (12 CFRpart 225, appendix C)), as well as top-tier savingsand loan holding companies domiciled in theUnited States, except certain savings and loanholding companies that are substantially engaged ininsurance underwriting or commercial activities.10 The supplementary leverage ratio is defined asthe simple arithmetic mean of the ratio of thebanking organization’s tier 1 capital to total leverageexposure calculated as of the last day of each monthin the reporting quarter.11 Public Law 111–203, 124 Stat. 1376, 1435–38(2010).E:\FR\FM\14APR1.SGM14APR1

20756Federal Register / Vol. 79, No. 71 / Monday, April 14, 2014 / Rules and Regulationsmarket risk capital rule (market riskrule) to apply to state savingsassociations.III. Regulatory Flexibility ActIn general, section 4 of the RegulatoryFlexibility Act (5 U.S.C. 604) (RFA)requires an agency to prepare a finalregulatory flexibility analysis (FRFA) fora final rule unless the agency certifiesthat the rule will not, if promulgated,have a significant economic impact ona substantial number of small entities(defined for purposes of the RFA toinclude banking entities with totalassets of 500 million or less). Pursuantto the RFA, the agency must make theFRFA available to members of thepublic and must publish the FRFA, ora summary thereof, in the FederalRegister. The FDIC published asummary of its FRFA in the FederalRegister with the Basel III interim finalrule.12 The FDIC did not receivecomments on the FRFA provided in theinterim final rule. As such, andconsistent with the FRFA in the BaselIII interim final rule, the FDIC ispublishing the following summary of itsFRFA.13For purposes of the FRFA, the FDICanalyzed the potential economic impactof the final rule on FDIC-supervisedinstitutions with total assets of 500million or less (small FDIC-supervisedinstitutions).As discussed in more detail below,the FDIC believes that this final rulemay have a significant economic impacton a substantial number of the smallentities under its jurisdiction.A. Statement of the Need for, andObjectives of, the Final RuleAs discussed in the SupplementaryInformation section of the preamble tothis final rule, the FDIC is revising itsregulatory capital requirements topromote safe and sound bankingpractices, implement Basel III and otheraspects of the Basel capital framework,harmonize capital requirements12 78FR 55465–55468.FDIC published a summary of its initialregulatory flexibility analysis (IRFA) in connectionwith each of the proposed rules in accordance withSection 3(a) of the Regulatory Flexibility Act, 5U.S.C. 603 (RFA). In the IRFAs provided inconnection with the proposed rules, the FDICrequested comment on all aspects of the IRFAs,and, in particular, on any significant alternatives tothe proposed rules applicable to covered smallFDIC-supervised institutions that would minimizetheir impact on those entities. In the IRFA providedby the FDIC in connection with the proposal torevise the advanced approaches (77 FR 52978(August 30, 2012)), the FDIC determined that therewould not be a significant economic impact on asubstantial number of small FDIC-supervisedinstitutions and published a certification and ashort explanatory statement pursuant to section605(b) of the RFA.mstockstill on DSK4VPTVN1PROD with RULES13 TheVerDate Mar 15 201016:13 Apr 11, 2014Jkt 232001between types of FDIC-supervisedinstitutions, and codify capitalrequirements.Additionally, this final rule isconsistent with certain requirementsunder the Dodd-Frank Act by: (1)Revising regulatory capital requirementsto remove references to, andrequirements of reliance on, creditratings,14 and (2) imposing new orrevised minimum capital requirementson certain FDIC-supervisedinstitutions.15Under section 38(c)(1) of the FederalDeposit Insurance Act, the FDIC mayprescribe capital standards fordepository institutions that itregulates.16 The FDIC also mustestablish capital requirements under theInternational Lending Supervision Actfor institutions that it regulates.17B. Description and Estimate of SmallFDIC-Supervised Institutions Affectedby the Final RuleUnder regulations issued by the SmallBusiness Administration,18 a smallentity includes a depository institutionwith total assets of 500 million or less.As of December 31, 2013, the FDICsupervised approximately 3,394 smallstate nonmember banks and 303 smallstate savings associations.C. Projected Reporting, Recordkeeping,and Other Compliance RequirementsThe final rule may impact small FDICsupervised institutions in several ways.The final rule affects small FDICsupervised institutions’ regulatorycapital requirements by changing thequalifying criteria for regulatory capital,including required deductions andadjustments, and modifying the riskweight treatment for some exposures.The final rule also requires small FDICsupervised institutions to meet a newminimum common equity tier 1 capitalto risk-weighted assets ratio of 4.5percent and an increased minimum tier1 capital to risk-weighted assets ratio of6 percent. Under the final rule, all FDICsupervised institutions would remainsubject to a 4 percent minimum tier 1leverage ratio requirement.19 The finalrule imposes limitations on capitaldistributions and discretionary bonus14 See15 U.S.C. 78o–7, note.12 U.S.C. 5371.16 See 12 U.S.C. 1831o(c).17 See 12 U.S.C. 3907.18 See 13 CFR 121.201.19 Beginning on January 1, 2018, advancedapproaches FDIC-supervised institutions alsowould be required to satisfy a minimum tier 1capital to total leverage exposure ratio requirement(the supplementary leverage ratio) of 3 percent.Advanced approaches FDIC-supervised institutionsshould refer to section 10 of subpart B of the finalrule.15 SeePO 00000Frm 00004Fmt 4700Sfmt 4700payments for small FDIC-supervisedinstitutions that do not hold a minimumbuffer of common equity tier 1 capitalabove the minimum ratios.The final rule also includes changesto the general risk-based capitalrequirements that address thecalculation of risk-weighted assets.Specifically, the final rule: Introduces a higher risk weight forcertain past due exposures andacquisition, development, andconstruction real estate loans; Provides a more risk sensitiveapproach to exposures to non-U.S.sovereigns and non-U.S. public sectorentities; Replaces references to credit ratingswith new measures ofcreditworthiness; 20 Provides more comprehensiverecognition of collateral and guarantees;and Provides a more favorable capitaltreatment for transactions clearedthrough qualifying centralcounterparties.As a result of the new requirements,some small FDIC-supervised institutionsmay have to alter their capital structure(including by raising new capital orincreasing retention of earnings) inorder to achieve compliance.The FDIC has excluded from itsanalysis any burden associated withchanges to the Consolidated Reports ofIncome and Condition for small FDICsupervised institutions (FFIEC 031 and041; OMB Nos. 7100–0036, 3064–0052,1557–0081). Through the FFIEC, theFDIC and the other federal bankingagencies published informationcollection changes in the regulatoryreporting requirements to reflect therequirements of the final rule separatelythat include associated estimates ofburden.21 The FDIC, and the otherfederal banking agencies, also expects topublish additional informationcollection changes in the regulatoryreporting requirements for risk-weightedassets in the immediate future. Furtheranalysis of the projected reportingrequirements imposed by the final ruleis located in the Paperwork ReductionAct section, below.Most small FDIC-supervisedinstitutions hold capital in excess of theminimum leverage and risk-basedcapital requirements set forth in thefinal rule. Although the capitalrequirements under the final rule are20 Section 939A of the Dodd-Frank Act addressesthe use of credit ratings in Federal regulations.Accordingly, the final rule introduces alternativemeasures of creditworthiness for foreign debt,securitization positions, and resecuritizationpositions.21 79 FR 2527–2535 (Jan. 14, 2014).E:\FR\FM\14APR1.SGM14APR1

mstockstill on DSK4VPTVN1PROD with RULESFederal Register / Vol. 79, No. 71 / Monday, April 14, 2014 / Rules and Regulationsnot expected to significantly impact thecapital structure of these institutions,the FDIC expects that some may changeinternal capital allocation policies andpractices to accommodate therequirements of the final rule. Forexample, an institution may elect toraise capital to return its excess capitalposition to the levels maintained priorto implementation of the final rule.A comparison of the capitalrequirements in the final rule on a fullyimplemented basis to the minimumrequirements under the general riskbased capital rules shows thatapproximately 74 small FDICsupervised institutions with total assetsof 500 million or less currently do nothold sufficient capital to satisfy therequirements of the final rule. Thoseinstitutions, which representapproximately three percent of smallFDIC-supervised institutions,collectively would need to raiseapproximately 233 million inregulatory capital to meet the minimumcapital requirements under the finalrule.To estimate the cost to small FDICsupervised institutions of the newcapital requirement, the FDIC examinedthe effect of this requirement on capitalstructure and the overall cost ofcapital.22 The cost of financing a smallFDIC-supervised institution is theweighted average cost of its variousfinancing sources, which amounts to aweighted average cost of capitalreflecting many different types of debtand equity financing. Because interestpayments on debt are tax deductible, amore leveraged capital structure reducescorporate taxes, thereby loweringfunding costs, and the weighted averagecost of financing tends to decline asleverage increases. Thus, an increase inrequired equity capital would—all elseequal—increase the cost of capital forthat institution. This effect could beoffset to some extent if the additionalcapital protection caused the riskpremium demanded by the institution’scounterparties to decline sufficiently.The FDIC did not try to measure thiseffect. This increased cost in the mostburdensome year would be tax benefitsforegone: The capital requirement,multiplied by the interest rate on thedebt displaced and by the effectivemarginal tax rate for the small FDICsupervised institutions affected by thefinal rule. The effective marginalcorporate tax rate is affected not only bythe statutory Federal and state rates, butalso by the probability of positive22 See Merton H. Miller, (1995), ‘‘Do the M & MPropositions Apply to Banks?’’ Journal of Banking& Finance, Vol. 19, pp. 483–489.VerDate Mar 15 201016:13 Apr 11, 2014Jkt 23200120757earnings and the offsetting effects ofpersonal taxes on required bond yields.Graham (2000) considers these factorsand estimates a median marginal taxbenefit of 9.40 per 100 of interest.23So, using an estimated interest rate ondebt of 6 percent, the FDIC estimatedthat for institutions with total assets of 500 million or less, the annual taxbenefits foregone on 233 million ofcapital switching from debt to equity isapproximately 1.3 million per year( 233 million * 0.06 (interest rate) *0.094 (median marginal tax savings)).Averaged across 74 institutions, the costis approximately 18,000 per institutionper year.Working with the other agencies, theFDIC also estimated the directcompliance costs related to financialreporting as a result of the final rule.This aspect of the final rule likely willrequire additional personnel trainingand expenses related to new systems (ormodification of existing systems) forcalculating regulatory capital ratios, inaddition to updating risk weights forcertain exposures. The FDIC assumesthat small FDIC-supervised institutionswill spend approximately 43,000 perinstitution to update reporting systemand change the classification of existingexposures. Based on comments from theindustry, the FDIC increased thisestimate from the 36,125 estimate usedin the proposed rules. The FDICbelieves that this revised cost estimateis more conservative because it hasincreased even though many of thelabor-intensive provisions proposed inthe NPRs have been excluded from thefinal rule. For example, small FDICsupervised institutions have the optionto maintain the current reportingmethodology for gains and lossesclassified as Available for Sale (AFS)thus eliminating the need to updatesystems. Additionally, the exposures forwhich the risk weights are changingtypically represent a small portion ofassets (less than 5 percent) oninstitutions’ balance sheets.Additionally, small FDIC-supervisedinstitutions can maintain existing riskweights for residential mortgageexposures, eliminating the need forthose institutions to reclassify existingmortgage exposures. The FDIC estimatesthat the 43,000 in direct compliancecosts will represent a burden forapproximately 34 percent of small FDICsupervised institutions with total assetsof 500 million or less. For purposes ofthis FRFA, the FDIC defines significantburden as an estimated cost greater than2.5 percent of total non-interest expenseor 5 percent of annual salaries andemployee benefits. The directcompliance costs are the mostsignificant cost since few small FDICsupervised institutions will need toraise capital to meet the minimumratios, as noted above.23 See John R. Graham, (2000), How Big Are theTax Benefits of Debt?, Journal of Finance, Vol. 55,No. 5, pp. 1901–1941. Graham points out thatignoring the offsetting effects of personal taxeswould increase the median marginal tax rate to 31.5 per 100 of interest.24 For most non-advanced approaches FDICsupervised institutions, this will be a one-time onlyelection. However, in certain limited circumstances,such as a merger of organizations that have madedifferent elections, the FDIC may permit theresultant entity to make a new election.PO 00000Frm 00005Fmt 4700Sfmt 4700D. Steps Taken To Minimize theEconomic Impact on Small FDICSupervised Institutions; SignificantAlternativesAs discussed in the Basel III interimfinal rule, the FDIC made severalsignificant revisions to the proposals inresponse to public comments. Forexample, under the final rule, nonadvanced approaches FDIC-supervisedinstitutions will be permitted to elect toexclude amounts reported as AOCIwhen calculating regulatory capital, tothe same extent currently permittedunder the general risk-based capitalrules.24 In addition, for purposes ofcalculating risk-weighted assets underthe standardized approach, the FDIC isnot adopting the proposed treatment for1–4 family residential mortgages, whichwould have required small FDICsupervised institutions to categorizeresidential mortgage loans into one oftwo categories based on certainunderwriting standards and productfeatures, and then risk weight each loanbased on its loan-to-value ratio. TheFDIC also is retaining the 120-day safeharbor from recourse treatment for loanstransferred pursuant to an early defaultprovision. The FDIC believes that thesechanges will meaningfully reduce thecompliance burden of the final rule forsmall FDIC-supervised institutions. Forinstance, in contrast to the proposal, thefinal rule does not require small FDICsupervised institutions to reviewexisting mortgage loan files, purchasenew software to track loan-to-valueratios, train employees on the new riskweight methodology, or hold morecapital for exposures that would havebeen deemed category 2 under theproposed rule. Similarly, the option toelect to retain the current treatment ofAOCI will reduce the burden associatedwith managing the volatility inregulatory capital resulting fromchanges in the value of a small FDICsupervised institutions’ AFS debtsecurities portfolio due to shiftinginterest rate environments. The FDICE:\FR\FM\14APR1.SGM14APR1

20758Federal Register / Vol. 79, No. 71 / Monday, April 14, 2014 / Rules and Regulationsbelieves these modificationssubstantially reduce compliance burdenfor small FDIC-supervised institutions.mstockstill on DSK4VPTVN1PROD with RULESIV. Paperwork Reduction ActIn accordance with the requirementsof the Paperwork Reduction Act (PRA)of 1995 (44 U.S.C. 3501–3521), the FDICmay not conduct or sponsor, and therespondent is not required t

B. The Final Rule 8 The FDIC is adopting the Basel III interim final rule as a final rule with no substantive changes. The only changes in this final rule are technical revisions to conform it to the final rules issued by the Federal Reserve and the OCC. For example, the final rule uses the correct compliance date, January 1, 2015, in

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