SR 15-18 vs SR 15-19 vs HCR

Below, we summarize the guidance and analyze the recent revisions to the tailoring framework. We focus on CCAR Supervisory Expectations for Category I (US GSIBs) vs. Category II or III (≥ $250B total assets) banks but also mention Category IV banks and Horizontal Capital Reviews (HCRs).


1. Introduction 

A few years ago, the Federal Reserve revised guidance documents on supervisory assessment of capital planning and positions (SR 15-18 and SR 15-19) based on their tailoring framework finalized in 2019. The framework is intended to match the Board’s enhanced prudential standards (EPS) for large U.S. banking organizations with their risk profiles.  The changes significantly reduce regulatory compliance requirements on smaller firms while maintaining existing requirements for larger firms and are consistent with the Economic Growth, Regulatory Relief, and Consumer Protection Act (EGRRCPA) signed into law in May 2018.

1.A. Federal Reserve Tailoring Framework

Application of SR15-18 and 15-19 to Tier I through IV banks.

CategoryGuidanceApplication
I
SR15-18U.S. GSIBs
IISR15-19≥$750B total assets
≥$75B cross jurisdictional activity
IIISR15-19≥$250B total assets
≥$75B nonbank assets, wSTWF, or off-BS exposure
IVNone, But*
Subject to HCRs**
$100B to $250B total assets

A few things to note:

*While Category IV firms aren’t technically subject to SR 15-19, it seems that some “aspire” to those standards. Where the inspiration for the aspiration usually originates, well, we leave it to the reader’s imagination, especially for BHCs that were previously subject to it. Throughout the document, we’ll use “BUT…,” as a reminder of this situation.

**HCRs are Horizontal Capital Reviews, which per the Fed, are “…more limited in scope, includes targeted horizontal evaluations of specific areas of capital planning, and focuses on the more tailored standards set forth in supervisory guidance specific to these firms.”


1.B. How was guidance applied before the revision? 

▶   SR 15-18 was previously applied to U.S. bank holding companies and intermediate holding companies of foreign banking organizations that are either:

    1. Subject to the Federal Reserve’s Large Institution Supervision Coordinating Committee (LISCC) framework (referred to as a “LISCC Firm” in this letter) or
    2. Have total consolidated assets of $250B or more or consolidated total on-balance sheet foreign exposure of $10B or more.

However, now, the guidance has been updated to apply just to Category I firms or global systematically important banks (US GSIBs).

▶   SR 15-19 was previously applied to U.S. bank holding companies and intermediate holding companies of foreign banking organizations that:

    1. Have total consolidated assets of at least $50B but less than $250B,
    2. Have consolidated total on-balance sheet foreign exposure of less than $10B, and
    3. Are not otherwise subject to the Federal Reserve’s Large Institution Supervision Coordinating Committee (LISCC) framework.

SR 15-19 has been updated to only include Category II or III firms, which includes firms with total assets between $250B and $700B, BUT…

It is important to also note that banks subject to SR 15-18 are still held to higher expectations than banks subject to SR 15-19. What changes with the revisions is that most banks formerly subject to SR 15-18 are now subject to SR 15-19 and former SR 15-19 banks are no longer subject to either document.

The content in the SR 15-18 and SR 15-19 remains largely the same as it was originally in 2015, and the differences we wrote about then are still valid today. Firms that were subject to SR 15-19 are no longer subject to either document. BUT…

1.C. Overall, we see the differences between SR 15-18 and SR 15-19 falling into one of four types:  

  1. Codification or formalization of existing differences in treatment; CCAR expectations for Category I banks were already greater than for many Category II or III banks.
  2. Actual relaxation or loosening of standards for Category II or III banks.
  3. Scrutiny shifted to other, non-CCAR regulatory reviews for items that are not required “in its capital planning process,” e.g., SR 12-7, which applies to every bank with more than $10B in assets.
  4. Guidance (with a capital “G“) versus small “g” guidance: SR 15-19 eliminates certain explicit and specific requirements for Category II or III firms but leaves a void. It provides no official “Guidance” of its own. For those cases, the surest and most economical way to reduce regulatory uncertainty and comply with SR 15-19 may be to follow the guidance for–the additional details provided to–Category I banks in SR 15-18.

In the tabs below, we review each section and appendix of both documents, and our conclusion is that the Fed’s requirements haven’t changed, much. The message to the 15-19 banks remains the same: get the big stuff right. To do that, understand your portfolios, risks, and risk drivers. In addition, understand how your models and other approaches capture those risks and possible losses. Be prepared to justify your approaches, and be prepared to justify claims of immateriality. If you have questions or concerns, contact us or call 205.423.5668. Our expert team of former risk executives will be happy to advise you.

2. Background

In 2015, Republicans, led by Richard Shelby (AL), the chairman of the Senate Banking Committee, attempted to raise the CCAR threshold to $500B from $50B, while it seemed that the Federal Reserve was willing to accept a modest increase. Many observers believed that an increase would be part of the overall budget compromise, but it was not.

Shortly after the budget compromise in December 2015, Treasury Secretary Jack Lew stated that Dodd-Frank provided regulators with the flexibility to tailor oversight to an institution’s size. Towards the end of an interview with Bloomberg TV, the Secretary stated that $500B institutions are enormous–some of the largest financial institutions in the world. He then added that $150B – $250B institutions are almost as enormous, with the implication being both sets of institutions required oversight.

The day after the budget vote, the Federal Reserve released SR 15-18 and SR 15-19, which divided CCAR requirements between (1) large and complex firms with total consolidated assets greater than $250B, and (2) large and non-complex firms with total consolidated assets between $50B and $250B. It is tempting to view SR 15-19 as a regulatory workaround or substitute to increasing the CCAR threshold, especially, since its publication was the DAY AFTER political efforts to raise the threshold failed. Read the next section about differences in the guidance statements.

In both SR 15-18 and SR 15-19, at the end of each section and appendix, the Fed attempts to summarize the differences. We outline the differences (where there are any) in the same way, by section and appendix.

3. Differences in Sections

There is no difference in the expectations of boards of directors, and there are only minor differences in the expectations of senior managers. For example, senior managers at Category I banks must review the capital planning process at least quarterly, whereas executives at Category II or III banks can do it semi-annually. Also, executives at Category I banks must show a higher level of engagement. We know of no objective way to measure “engagement,” and consider this to be a Type I difference–formalizing existing differences.

Risk Management has two subsections with a bit of overlap between them: (1) Risk Identification and Assessment Process and (2) Risk Measurement and Risk Materiality.

B.1. Risk Identification and Assessment Process

The biggest difference is that Category I banks must have a formal risk identification process and evaluate material risks quarterly, while that bullet/expectation is missing in SR 15-19. That seems to be a lower expectation for Category II or III banks, which may have quarterly risk identification processes and committee meetings. That’s a Type II difference; however, we think the overall differences fit into Type IV, which involves less written Guidance for the smaller banks, and, therefore, more uncertainty. Besides the missing bullet, four other sentences are missing from SR 15-19. These involve identifying risks that are difficult to quantify, segmenting risks, seeking comments from stakeholders across the organization, and quarterly updates to risk assessments.2 However, the main requirements are the same:

A firm should be able to demonstrate how material risks are accounted for in its capital planning process. For risks not well captured by scenario analysis, the firm should clearly articulate how the risks are otherwise captured and addressed in the capital planning process and factored into decisions about capital needs and distributions.

We’re not sure how a firm can show that material risks are represented without considering all risks, including those that are difficult to quantify, and without seeking advice from stakeholders across the organization. The problem with showing that you’ve captured your material risks is that you must show that your other risks are immaterial–whether they are difficult to quantify, or not. So, while one could argue that Category II or III have fewer requirements, we would argue that the best way to satisfy those requirements is to still follow the guidance in SR 15-18. In summary, other than possibly reducing the frequency of processes and meetings, there’s no real change.

B.2. Risk Measurement and Risk Materiality

The main requirement–the first sentence below–is the same:

A firm should have a sound risk measurement process that informs senior management about the size and risk characteristics of exposures and business activities under both normal and stressful operating conditions. A firm is generally expected to use quantitative approaches supported by expert judgment, as appropriate, for risk measurement.

The second sentence holds for Category I firms, while the Category II or III firms “…should employ risk measurement approaches that are appropriate for its size, complexity, and risk profile.” Technically, it’s impossible to measure anything without using a quantitative approach. 3 Moreover, as with the word, “engagement,” in the Governance section, the word, “appropriate,” here, is problematic. The question is: who gets to decide what’s appropriate? Hint: it’s not firm.

The last paragraph of this subsection in 15-19 is missing in 15-18. It describes expectations for identifying and measuring risks that are inherent in the firm’s business practices as well as closely assessing assumptions about risk reduction from transfer or mitigation techniques. There’s a sentence about trading arrangements and another about asset values. (1) If your non-complex firm is reducing stress losses by applying contingent risk reduction methods, you are still going to have to defend those hypothetical actions. (2) In addition, we view this as a Type III difference: anticipate defending your risk reduction techniques in other supervisory exams.

At the end of this section’s introduction, SR 15-18 includes the following statement, which is absent from SR 15-19: “…the control framework should include an evaluation of the firm’s process for integrating the separate components of the capital planning process at the enterprise-wide level.”

When summarizing the “differences” at the end of the section, the Fed emphasizes the integration aspect. However, when read in the context of the preceding two identical paragraphs and three identical bullet points, we see no difference in requirements or expectations. The first sentence of the section and the main requirement for all CCAR banks is: “A firm should have a sound internal control framework that helps ensure that all aspects of the capital planning process are functioning as designed and result in sound assessments of the firm’s capital needs.” We’re not sure how to ensure that all aspects of the process are functioning correctly without considering their integration.

There are four subsections. We’ll review the first two, where differences exist:

  1. Comprehensive Policies, Procedures, and Documentation for Capital Planning
  2. Model Validation and Independent Review of Estimation Approaches
  3. Management Information Systems and Change Control Processes
  4. Internal Audit Function

C.1. Comprehensive Policies, Procedures, and Documentation for Capital Planning

The differences in C.1. aren’t really differences. SR 15-19 is missing a sentence and paragraph related to (i) evidence of adherence and (ii) documentation, respectively. However, in our and many others’ experiences, examiners seem to have the view that if it’s not documented, it wasn’t done. So, any executive at a Category II or III bank who views the absence of those expectations as a sign that evidentiary and documentation requirements are light-to-nonexistent and acts accordingly is taking a large institutional risk and, we would imagine, a large personal risk.

C.2. Model Validation and Independent Review of Estimation Approaches

In the first two paragraphs of C.2., SR 15-19 emphasizes the application to material models, whereas SR 15-18 is comprehensive and covers all CCAR models. That is a difference. However, remember that for banking supervisors, any categorization of immaterial requires evidence. You can’t just say something is immaterial. You have to prove it. In addition, it’s crucial that the same criteria (to determine materiality) are applied consistently across the objects of interest.

Executives at Category II or III banks should know the examiners will be watching for firms to redefine portfolios to fall beneath the firm’s materiality threshold(s). In that regard, consider the following well-used metaphor and proverb, respectively: (i) the straw that broke the camel’s back, and (ii) the Duck Test: if it looks like a duck, swims like a duck, and quacks like a duck, then it probably is a duck. In those regards, we expect that the regulators will determine materiality based on the closeness of both loss behavior and the macroeconomic correlations across portfolios. A “small” portfolio that behaves like other portfolios could be that metaphorical straw that breaks the bank, and, therefore, we would expect higher scrutiny of it. In addition, if the same macro variables are used to forecast losses in a small portfolio as in other portfolios, then that makes it harder to pass the Duck Test, so-to-speak. We view materiality as relative to the firm’s systemic risk, not in isolation or with respect to absolute size.

Both attachments include similar phrases: “… a firm should conduct a conceptual soundness review of all models prior to their use in capital planning,” with “material” replacing “all” in SR 15-19. SR 11-7 (OCC 2012-11) lists the core elements of an effective model validation framework as:

Evaluation of conceptual soundness, including developmental evidence
Ongoing monitoring, including process verification and benchmarking
Outcomes analysis, including back-testing

Note that these three elements are neither mutually exclusive nor equal in the effort required to complete them. In our experience, evaluating conceptual soundness involves at least 75% of the time and effort of complete validation. In fact, much of the developmental evidence reviewed during as assessment of conceptual soundness is (a) outcomes analysis, including back-testing performance across different design choices, and (b) process verification and benchmarking of alternative specifications. Note that (a) provides much of the answer to “is it the right math?” and (b) helps answer, “is the math right?” Answering those two questions provides much of the answer to whether a model is conceptually sound or not.

Please note that we are not criticizing the Fed’s validation framework. Instead, we’re saying that verifying conceptual soundness, only, will not give time and cost savings equaling two-thirds of a full validation. Also, verifying conceptual soundness does not mean that full validation need never be performed, nor does it mean that any exceptions process–for using an unvalidated model–need not be followed. So, overall, while the Fed may be more patient for all CCAR banks, there is no indication that it will be more lenient when reviewing model risk management. For that reason, this is a Type III difference for all firms. SR 15-19 references SR 11-7 several times and each time the standards are either reiterated or simply referenced. We see no easing of requirements for model risk management.

Regarding benchmark models – SR 15-19 excludes any mention of benchmark models, which seems to be an easing of expectations–a Type II difference. However, we consider this to be a Type IV difference, especially for Category II or III firms that already have multiple models. Benchmark models help show conceptual soundness of the model of record and provide very useful justifications for overlays and other adjustments. Depending upon one’s interpretation, they are still expected for important models in SR 11-7. For 15-19 firms that have a benchmark, unless it is no longer sound, we would maintain the model as it would be silly to throw one away.

SR 15-18 includes three bullet points that describe the elements to include in the capital policy. That is a difference, but it is a Type IV difference. When a 15-19 firm writes or rewrites its capital policy, we suggest it uses those three bullet points as additional guidance about what to include.

There are several differences in this section, but we classify them as either Type III or IV. For example, SR 15-18 includes a sentence at the end of the first paragraph that does not appear in SR 15-19:

“More generally, as part of its ongoing capital adequacy assessment, a firm should use multiple scenarios to assess a broad range of risks, stressful, conditions, or events that could impact the firm’s capital adequacy.” (We added the italics.)

In the box at the end of the section, that difference is stated: “A firm subject to Category II or III standards is not expected to use multiple firm-specific scenarios in its capital adequacy assessment.” (Again, we added the italics.) We interpret the italicized phrases to be qualifiers: SR 15-19 banks do not need to assess multiple scenarios for capital adequacy, but that requirement is lifted only for capital planning. The sentence does not mean that 15-19 banks do not need to assess multiple scenarios for risk management to comply with the separate stress testing requirements in SR 12-7.4

The subsections on Scenario Design (E.1) and Scenario Narrative are both much shorter in SR 15-19 than in SR 15-18. However, these are Type IV differences: there is less formal guidance for 15-19 firms, so following the additional SR 15-18 guidance is probably the easiest way to avoid unwanted findings. For example, in the Differences box, the Fed writes that it “expects these (Category I) firms to articulate how risks not captured by scenario analysis are otherwise addressed in the capital planning process.” That expectation is not in SR 15-19. However, given the purpose and nature of the CCAR exercise, would any responsible executive at a 15-19 firm exclude such elaboration and analysis? We think not. Moreover, this relaxation seems to be contradicted by the entire first paragraph in Section F.

In SR 15-18, this section is about one page longer than in SR 15-19; however, except for some of the expectations related to operational risk, we don’t see real differences or changes. They are Type I (codification of existing differences), and Type IV as 15-19 firms will likely follow 15-18 guidance to reduce regulatory risk.

For example, consider the first paragraph in F.1., Loss Estimation, in SR 15-19:

A firm should provide support for the assumed relationship between risk drivers and losses. A firm is expected to estimate losses by type of business activity.

Now, how could or should a firm provide support for the assumed relationships between risk drivers and losses? Look at the first paragraph in SR 15-18:

A firm should estimate losses using a sound method that relates macroeconomic and other risk drivers to losses. A firm should empirically demonstrate that a strong relationship exists between the variables used in loss estimation and prior losses. When using supervisory scenarios, a firm should project additional scenario variables beyond those included in the supervisory scenarios if the additional variables would be more directly linked to particular portfolios or exposures. A firm should include a variety of loss types in its stress tests based on the firm’s exposures and activities. Loss types should include retail and wholesale credit risk losses, credit and fair value losses on securities, market and default risk on trading and counterparty exposures, and operational-risk losses.

Consider the first sentence in 15-19.

How can a 15-19 bank provide support without using a sound method? Would sufficient support consist of using an unsound method?
Would the sound method empirically demonstrate that a relationship exists between economic variables and losses, or is actual evidence no longer needed?
Many of the SR 15-19 banks are regional. Would it make sense to for those firms to use only national variables that the Fed provides for their own bank’s regional portfolios or exposures, especially if they view CCAR as more than a regulatory exercise? We think not.

Consider the second sentence in 15-19, is there a difference between estimating losses by type of business activity and losses based on the firm’s exposures and activities, including retail and wholesale credit, securities, market risk, operational risk losses, etc?

Reading the paragraphs immediately after the italicized ones in Sections F.1.a. shows only one minor difference related to credit losses on loans and securities; 15-18 firms should account for loss timing each quarter. Otherwise, the requirements are the same:

A firm should develop sound methods to estimate credit losses under stress that take into account the type and size of portfolios, risk characteristics, and data availability. A firm should understand the key characteristics of its loss estimation approach. In addition, a firm’s reserves for each quarter of the planning horizon, including the last quarter, should be sufficient to cover estimated loan losses consistent with generally accepted accounting standards.

The first sentence says it all, which is why we interpret the italicized paragraphs of F.1., above, to have the same meaning.

SR 15-18 does include a paragraph on fair-value losses on loans and securities as well as a paragraph on market risk and trading, including counterparty exposures. If these are material for 15-19 firms, we would recommend they follow the 15-18 guidance.

Regarding operational-risk losses, both constituencies are to have sound processes, but only 15-18 firms need “a structured, transparent and repeatable framework to develop credible loss projections…” Really? And only 15-18 firms need approaches that are “well supported.” It would be great to hear an explanation of how 15-19 firms can have sound processes that are unstructured, opaque, non-repeatable, and poorly supported. Anyone?

As in the main sections, the word “material” appears in the SR 15-19 appendices, but tends to be absent in SR 15-18. Our caution remains the same: if a 15-19 bank wants to treat an item as immaterial, be prepared to document it, provide evidence of its immateriality, and ensure consistency in the threshold across the objects of interest, e.g., loan portfolios. Sometimes that’s harder to do than treating the item as material.

4. Differences in Appendices

A.1. Quantitative Approaches

In SR 15-19, this section is a single, medium-sized paragraph. In SR 15-18, it’s about five times as long. What’s the difference? The single paragraph in 15-19 seems to be a summary of the four paragraphs in 15-18. In other words, how would we comprehend the meaning of the 15-19 paragraph? We would read the details in 15-18. For example, 15-19 states:

…A firm should separately estimate losses and PPNR for portfolios or business lines that are either sensitive to different risk drivers or sensitive to risk drivers in a markedly different way, particularly during periods of stress.

First, and most importantly, how does one know if losses are sensitive to different drivers unless one does the analysis? Second, how should the losses be estimated? SR 15-18 states:

…A firm should estimate losses and PPNR at a sufficiently disaggregated level within a given portfolio or business line to capture observed variations in risk characteristics (for example, credit score or loan-to-value ratio ranges for loan portfolios) and performance across sub-portfolios or segments under changing conditions and environments. Loss and PPNR estimates should also be sufficiently granular to capture changing exposure levels over the planning horizon. However, in assessing the appropriate level of granularity of segments, a firm should factor in issues such as the availability of data or the costs and benefits of model complexity. For example, when projecting losses for a more diverse portfolio with a range of borrower risk characteristics and observed historical performance, firms should segment the portfolio more finely based on key risk attributes unless the segments lack sufficient data observations to produce reliable model estimates.

The same holds true for subsections 1.a., on the Use of Data, and 1.b., on the Use of Vendor Models. However, there is a Type III difference with vendor models. The missing paragraph on vendor management in 15-19 will be covered during vendor management compliance exams, rather than as part of the CCAR review.

A.2 Assessing Model Performance & A.3. Qualitative Approaches

15-19 ignores any mention of benchmark models, and it also excludes the following paragraph from 15-18:

A firm should employ multiple performance measures and tests, as generally no single measure or test is sufficient to assess model performance. This is particularly the case when the models are used to project outcomes in stressful circumstances. For example, assessing model performance through out-of-sample and out-of-time back testing may be challenging due to the short length of observed data series or the paucity of realized stressed outcomes against which to measure the model performance. When using multiple approaches, the firm should have a consistent framework for evaluating the results of different approaches and supporting rationale for why it chose the methods and estimates ultimately used.

As we stated above, if an executive at a Category II or III bank interprets the absence of this paragraph as a sign that CCAR model validations need not be thorough, we strongly recommend that he or she reread SR 11-07 or OCC 2011-12 as many times as necessary. Likewise, if one believes that qualitative approaches are easier to defend than models, please read the first paragraph on page 12 of SR 11-07. Moreover, if the qualitative approach generates a numerical output, then we would anticipate that it would need to be on the firm’s CCAR model inventory and, therefore, would need to be validated. Qualitative approaches may initially seem cheap, but they can get very expensive, especially relative to available and defendable quantitative approaches.

SR 15-19 excludes one and two-thirds paragraphs that appear in SR 15-18 related to (1) avoiding the extensive reliance on overlays and (2) identifying factors necessitating the use of an overlay (and how the overlay compensates for those factors or weaknesses), respectively. First, extensive reliance on overlays can indicate that a model is not conceptually sound. So, while that may be permissible for 15-19 firms, that doesn’t mean it should be done. In addition, 15-19 does require support; it uses words like, “well-supported” and “appropriate.” We’re not sure how to show the appropriateness of an overlay without identifying the factors necessitating it or how the overlay compensates for those shortcomings. Therefore, we view these as Type IV differences: how should a 15-19 show support and appropriateness? Understand and follow the more detailed 15-18 guidance.

The sections in Appendix B, (1) Process of Applying Overlays and (2) Governance of Overlays, follow the same pattern. SR 15-19 is shorter and less prescriptive, which makes it harder to interpret and increases uncertainty, if not anxiety. So, our recommendation remains the same: to understand what the terser 15-19 is requiring, read 15-18.

SR 15-18’s appendix is one page long. SR 15-19’s contains two sentences:

…a firm should use a variety of methods to assess the performance of material models and gain comfort with material model estimates. However, a firm is not expected to use benchmark models in its capital planning process.

Given that benchmarking is mentioned 11 times in SR 11-7, the need for it as part of model validation has been interpreted somewhat differently than the need for them in SR 15-19. For example, we’ve heard regulators frequently mention that methods to assess performance would include building or reviewing benchmark models. Therefore, we, again, caution 15-19 executives to ignore SR 11-7 at their own peril.

D.1. Sensitivity Analysis

There is no real difference. SR 15-19 includes “material” three times, and SR 15-18 includes a few examples. This sentence says it all for both types of CCAR firms:

Sensitivity analysis for capital planning models should be applied in a manner consistent with the expectations outlined in the Federal Reserve’s supervisory guidance on model risk management (refer to SR 11-7).

D.2. Assumptions Management

The following warning is not in SR 15-19. This is a Type IV difference as we can’t imagine that examiners would allow 15-19 banks to behave otherwise.

A firm should not always assume that historical patterns will repeat. For example, a firm should not assume that if it has suffered no or minimal losses in a certain business line or product in the past, such a pattern will continue. In addition, a firm should carefully analyze effects of any structural changes in customer base, product, and financial markets on its projections, as these changes could significantly affect a firm’s performance under stress scenarios. Furthermore, the firm should explore the potential effects of changes in assumed interrelationships among variables and the behavior of exposures. The firm should also explicitly justify, document, and appropriately challenge any assumptions about diversification benefits.

It might seem like a large, Type II difference, but we would be extremely wary of that interpretation.

E.1. Responsibilities of Audit Function

There is one relatively large difference: audit departments of 15-18 firms are expected to have internal, quantitative expertise. Many Category II or III firms have already established internal quantitative expertise while subject to SR 15-18 expectations.

Six bullets of supervisory expectations that are in 15-18 are missing from 15-19. Again, we would consider these Type IV differences and would urge 15-19 banks to consider the bullets as small “g” guidance to follow.

In this appendix’s other sections, related to E.2. Development of the Audit Plan and E.3. Briefings to Senior Management and the Board, we see analogous Type III and IV differences. For example, the audit departments of 15-18 banks must report any material deficiencies, limitations, or weaknesses related to the firm’s capital planning process to the board. That expectation is missing for 15-19 firms; however, such issues would be part of a general internal audit board report.

There is no difference in the introduction or in Section 1, Post-Stress Capital Goals. In Section 2, Dividends and Stock Repurchases, 15-18 has an additional paragraph that we classify as Type IV.

In Section 3, Contingency Plans for Capital Shortfalls, 15-19 firms need not link triggers in the capital plan to triggers in the firm’s recovery plan. That is a difference. Also, 15-18 has an additional paragraph related to detailed explanations of circumstances in which the firm would implement contingency plans as well as the ranking of possible actions across several dimensions. That is a real difference; however, if such a situation were to arise, we would imagine that regulators would require the same type of analysis before approving any capital action for any bank. Therefore, while less administratively less burdensome for 15-19 firms, planning in accordance to the paragraph makes sense to us, i.e., a Type IV difference.

SR 15-18’s appendix is a little over three times longer than is 15-19’s. However, and again, much of the extra guidance in 15-18 instructs how to perform the work required in both documents. In addition, what may not be required for capital planning purposes for 15-19 banks, e.g., multiple scenarios, is still required to satisfy SR 12-7, which we anticipate will be enforced more than it has been in the past. Again, in the Differences box, the Fed states, “A firm subject to Category II or III standards is not expected to use multiple scenarios in its capital planning process.” That qualifier, “in its capital planning process,” is very specific. SR 15-19 does not absolve firms from complying with SR 12-7’s principles.

SR 15-18’s appendix is almost five times longer than is 15-19’s. We would classify much of the difference as Type IV: 15-18 provides guidance or direction that 15-19 banks are likely to follow, too. However, 15-18 firms do have additional burdens related to providing information to assess the effect of potential changes to eight items; see page 39 of 42 for the details.

Again, SR 15-18 provides more details than SR 15-19, but for the most part, they are Type IV differences. 15-19 banks are well-advised to read 15-18 when wondering how to interpret the shorter (and seemingly easier) requirements in SR 15-19.