Parent Company Only Financial Statements for Small Holding Companies: One-time implementation

DRAFT
July 3, 2013

SCHEDULE SC-R – REGULATORY CAPITAL COMPONENTS AND RATIOS
General Instructions
Schedule SC-R is to be completed only by top-tier savings and loan holding companies
(SLHCs) with less than $500 million in total consolidated assets that are not substantially
engaged in insurance or commercial activities (small covered SLHCs). This schedule does
not apply to small bank holding companies.
The instructions for Schedule SC-R should be read in conjunction with the regulatory capital
rules issued by the Federal Reserve Board on July 2, 2013. 1 See also the Glossary section in the
Consolidated Financial Statements for Holding Companies (FR-Y9C) instructions for the
applicable terms and definitions.
Starting on June 30, 2015, small covered SLHCs must complete Schedule SC-R using the
instructions below for line items 1 through 48, including the mandatory transition provisions
which are included in certain line items.
A top-tier SLHC is deemed to be substantially engaged in insurance activities (insurance SLHC)
if (i) the top-tier SLHC is an insurance underwriting company; 2 or (ii) as of June 30 of the
previous calendar year, it held 25 percent or more of its total consolidated assets in subsidiaries
that are insurance underwriting companies (other than assets associated with insurance for credit
risk). For purposes of determining the 25 percent threshold, the SLHC must calculate its total
consolidated assets in accordance with generally accepted accounting principles (GAAP), or if
the SLHC does not calculate its total consolidated assets under GAAP for any regulatory purpose
(including compliance with applicable securities laws), the SLHC may estimate its total
consolidated assets, subject to review and adjustment by the Board. Thus, insurance SLHCs are
not required to complete Schedule HC-R, even if they complete other schedules of FR Y-9C.
A top-tier SLHC is deemed to be substantially engaged in commercial activities (commercial
SLHC) if (i) the top-tier SLHC is a grandfathered unitary SLHC (as defined in section
10(c)(9)(A) of HOLA) and (ii) as of June 30 of the previous calendar year, it derived 50 percent
or more of its total consolidated assets or 50 percent of its total revenues on an enterprise-wide
basis (as calculated under GAAP) from activities that are not financial in nature under section
4(k) of the Bank Holding Company Act (12 U.S.C. 1842(k)).
Rules of Consolidation
SLHCs are required to prepare and file Schedule SC-R in accordance with U.S. generally
accepted accounting principles (GAAP) and these instructions. All reports shall be prepared in a
consistent manner. The SLHC’s financial records shall be maintained in such a manner and
scope so as to ensure that Schedule SC-R can be prepared and filed in accordance with these
instructions and reflect a fair presentation of the SLHC’s regulatory capital.
1

See http://www.federalreserve.gov/bcreg20130702a.pdf for the revised regulatory capital rules.
Insurance underwriting company means an insurance company as defined in section 201 of the Dodd-Frank Act
(12 U.S.C. 5381) that engages in insurance underwriting activities.
2

1

DRAFT
July 3, 2013

For purposes of Schedule SC-R, the SLHC should consolidate its subsidiaries on the same basis
as it does for its annual reports to the SEC or, for those SLHCs that do not file reports with the
SEC, on the same basis as described in GAAP. Generally, under the rules for consolidation
established by the SEC and by GAAP, SLHCs should consolidate any company in which it owns
more than 50 percent of the outstanding voting stock.
For purposes of Schedule SC-R, all offices (i.e., branches, subsidiaries, variable interest entities
(VIEs), and international banking facilities (IBFs)) that are within the scope of the consolidated
SLHC as defined above are to be reported on a consolidated basis. Unless the instructions
specifically state otherwise, this consolidation shall be on a line-by-line basis, according to the
caption shown. As part of the consolidation process, the results of all transactions and all
intercompany balances (e.g., outstanding asset/debt relationships) between offices, subsidiaries,
and other entities included in the scope of the consolidated SLHC are to be eliminated in the
consolidation and must be excluded from Schedule SC-R. (For example, eliminate in the
consolidation (1) loans made by the SLHC to a consolidated subsidiary and the corresponding
liability of the subsidiary to the SLHC, (2) a consolidated subsidiary’s deposits in another SLHC
consolidated subsidiary and the corresponding cash or interest-bearing asset balance of the
subsidiary, and (3) the intercompany interest income and expense related to such loans and
deposits of the SLHC and its consolidated subsidiary.)

2

DRAFT
July 3, 2013

Common equity tier 1 capital
Line item 1 Common stock plus related surplus, net of treasury stock and unearned
employee stock ownership plan (ESOP) shares.
Report the sum of:
(1) Common stock: report the aggregate par or stated value of common stock issued, provided it
meets the criteria for common equity tier 1 capital based on the revised regulatory capital rules of
the Federal Reserve.
(2) PLUS: related surplus: report the net amount formally transferred to the surplus account,
including capital contributions and any amount received for common stock in excess of its par or
stated value on or before the report date.
(3) LESS: treasury stock, unearned ESOP shares, and any other contra-equity components:
Report the carrying value of any treasury stock and of any unearned Employee Stock Ownership
Plan (ESOP) shares, which under generally accepted accounting principles are reported in a
contra-equity account on the balance sheet. For further information, see the Glossary entry for
“treasury stock” and ASC Subtopic 718- 40, Compensation-Stock Compensation – Employee
Stock Ownership Plans (formerly AICPA Statement of Position 93-6, Employers’ Accounting for
Employee Stock Ownership Plans).
Line item 2 Retained earnings.
Report the amount of retained earnings (undivided profits) and capital reserves. The amount of
the retained earnings and capital reserves should reflect transfers of net income, declarations of
dividends, transfers to surplus, and any other appropriate entries.
Capital reserves are segregations of retained earnings and are not to be reported as liability
accounts or as reductions of asset balances. Capital reserves may be established for such
purposes as:
(1) Reserve for undeclared stock dividends – includes amounts set aside to provide for stock
dividends (not cash dividends) not yet declared.
(2) Reserve for undeclared cash dividends – includes amounts set aside for cash dividends on
common and preferred stock not yet declared. (Do not include cash dividends declared but not
yet payable)
(3) Retirement account (for limited-life preferred stock or subordinated notes and debentures) –
includes amounts allocated under the plan for retirement of limited-life preferred stock or
subordinated notes and debentures contained in the SLHC's articles of association or in the
agreement under which such stock or notes and debentures were issued.

3

DRAFT
July 3, 2013

(4) Reserve for contingencies – includes amounts set aside for possible unforeseen or
indeterminate liabilities not otherwise reflected on the SLHC's books and not covered by
insurance. This reserve may include, for example, reserves set up to provide for possible losses
which the SLHC may sustain because of lawsuits, the deductible amount under the SLHC's
blanket bond, defaults on obligations for which the SLHC is contingently liable, or other claims
against the SLHC. A reserve for contingencies represents a segregation of retained earnings. It
should not include any element of known losses or of any probable incurred losses the amount of
which can be estimated with reasonable accuracy (see the Glossary entry for "loss contingencies"
for additional information).
Exclude from retained earnings:
(1) Any portion of the proceeds received from the sale of common stock in excess of its par or
stated value.
(2) Any portion of the proceeds received from the sale of preferred stock in excess of its par or
stated value.
(3) “Reserves” that reduce the related asset balances such as valuation allowances (e.g., the
allowance for loan and lease losses), reserves for depreciation, and reserves for bond premiums.
Line item 3 Accumulated other comprehensive income (AOCI).
Report the amount of the AOCI as reported under generally accepted accounting principles in the
U.S. (GAAP).
Line item 3(a) AOCI opt-out election.
(i) All SLHCs:
An SLHC may make a one-time election to become subject to the AOCI-related adjustments in
Schedule SC-R, items 9(a) through 9(e). That is, such SLHC may opt-out of the requirement to
include most components of the AOCI in common equity tier 1 capital (with the exception of
accumulate net gains and losses on cash flow hedges related to items that are not recognized at
fair value on the balance sheet) (AOCI opt-out election). An SLHC that makes an AOCI opt-out
election must enter 1 for “Yes” in item 3(a). There are no transition provisions for reporting
Schedule SC-R item 3 if an SLHC makes an AOCI opt-out election.
An SLHC must make its AOCI opt-out election in its first regulatory report after the SLHC
becomes subject to the revised regulatory capital rules. Each of the SLHC’s subsidiaries subject
to the revised regulatory capital rules must elect the same option as the SLHC. With prior notice
to the Federal Reserve, an SLHC resulting from a merger, acquisition, or purchase transaction
may make a new AOCI opt-out election, as described in section 22(b)(2) of the revised
regulatory capital rules.

4

DRAFT
July 3, 2013

(ii) SLHCs that do not make an AOCI opt-out election:
An SLHC that does not make an AOCI opt-out election in item 3(a) is subject to the AOCIrelated adjustment under item 9(f) and must enter “0” for “No” in item 3(a). In addition, such
SLHC must report Schedule SC-R item 3 subject to the following transition provisions:
Transition provisions: report the transition AOCI adjustment amount as follows:
(i)
Determine the aggregate amount of the following items:
(1) Unrealized gains on available-for-sale equity securities that are not preferred stock
classified as an equity security under GAAP or equity exposures, plus
(2) Net unrealized gains (losses) on available-for-sale securities that are not preferred
stock classified as an equity security under GAAP or equity exposures, plus
(3) Any amounts recorded in AOCI attributed to defined benefit postretirement plans
resulting from the initial and subsequent application of the relevant GAAP standards that
pertain to such plans (excluding, at the holding company’s option, the portion relating
to pension assets deducted in Schedule HC-R, item 10.b), plus
(4) Accumulated net gains (losses) on cash flow hedges related to items that are reported
on the balance sheet at fair value included in AOCI, plus
(5) Net unrealized gains (losses) on held-to-maturity securities that are included in AOCI.
(ii)

Multiply the amount calculated in step (i) by the appropriate percentage in Table 1 below
and report this amount in Schedule SC-R, item 3. If the amount is positive, report it as a
negative value. If the amount is negative, report it as a positive value.

Table 1—Percentage of the transition AOCI adjustment amount
Calendar year
Percentage of the transition AOCI adjustment amount to
be applied to common equity tier 1 capital
2015
60
2016
40
2017
20
2018 and thereafter
0
Line item 4
capital.

Common equity tier 1 minority interest includable in common equity tier 1

Report the aggregate amount of common equity tier 1 minority interest, calculated as described
below, consistent with section 21 of the revised regulatory capital rules. Common equity tier 1
minority interest means the common equity tier 1 capital of a depository institution or foreign
bank that is a consolidated subsidiary of the SLHC and that is not owned by the SLHC. In
addition, the capital instruments issued by the subsidiary must meet all of the criteria for
common equity tier 1 capital (qualifying common equity tier 1 capital).
The minority interest limitations apply only to the consolidated subsidiaries that have common
equity tier 1 capital in excess of capital necessary to meet the minimum capital requirements plus
the capital conservation buffer. For example, a subsidiary with a common equity tier 1 capital
ratio of 8 percent that needs to maintain a common equity tier 1 capital ratio of more than 7
5

DRAFT
July 3, 2013

percent to avoid limitations on capital distributions and discretionary bonus payments is
considered to have “surplus” common equity tier 1 capital. Thus, at the consolidated level, the
holding company may not include the portion of such surplus common equity tier 1 capital and is
required to phase out this surplus minority interest in accordance with Table 2, as described
below in this item 4.
In addition, an SLHC is required to phase-out regulatory capital instruments issued by the
subsidiaries that no longer qualify for inclusion in regulatory capital in accordance with Table 2,
as described below in this item 4.
The following example and a worksheet is intended to assist holding companies in determining
the amount of common equity tier 1 minority interest includable in common equity tier 1 capital.
Example: an SLHC may calculate the minority interest includable at the holding company level
as follows:
Assumptions:
• Risk-weighted assets of the consolidated subsidiary are the same as the risk-weighted assets
of the holding company that relate to the subsidiary ($1000);
• The subsidiary’s qualifying common equity tier 1 capital is $80;
• The subsidiary’s qualifying common equity tier 1 minority capital (that is, owned by
minority shareholders) is $24.

(1)
(2)

(3)
(4)

(5)
(6)

(7)
3

Determine the risk-weighted assets of the subsidiary. 3
Determine the risk-weighted assets of the SLHC that relate to the
subsidiary. Note that the amount in this step (2) may differ from
the amount in step (1) due to intercompany transactions and
eliminations in consolidation.
Determine the lower of (1) or (2), and multiply that amount by
7.0%. 4
Determine the dollar amount of the subsidiary’s qualifying
common equity tier 1 capital. If this amount is less than step (3),
include this amount in Schedule SC-R, item 4, as part of the
common equity tier 1 minority interest includable at the holding
company level. Otherwise, continue to step (5).
Subtract the amount in step (3) from the amount in step (4). This is
the “surplus common equity tier 1 capital of the subsidiary.”
Determine the percent of the subsidiary’s qualifying common
equity tier 1 capital owned by third parties (the minority
shareholders).
Multiply the percentage in step (6) by the dollar amount in step (5).

$1000
$1000

$1000 x 7% =
$70
$80

$80 - $70 = $10
$24/$80 = 30%

30% x $10 = $3

For purposes of the minority interest calculations, if the consolidated subsidiary issuing the capital is not subject to
capital adequacy standards similar to those of the holding company, the holding company must assume that the
capital adequacy standards of the holding company apply to the subsidiary.
4
The percentage multiplier in step (3) is the capital ratio necessary for the depository institution to avoid restrictions
on capital distributions or discretionary bonus payments.
6

DRAFT
July 3, 2013

(8)
(9)

This is the “surplus common equity tier 1 minority interest of the
subsidiary.”
Subtract the amount in step (7) from the subsidiary’s qualifying
common equity tier 1 minority capital.
This is the “common equity tier 1 minority interest includable at
the holding company level” to be included in Schedule SC-R, item
4, for this subsidiary.

$24 - $3 = $21
$21

Transition provisions for surplus minority interest and non-qualifying minority interest:
a. Surplus minority interest:
An SLHC may include in common equity tier 1 capital, tier 1 capital, or total capital the

percentage of the common equity tier 1 minority interest, tier 1 minority interest and total capital
minority interest outstanding as of January 1, 2014 that exceeds any common equity tier 1
minority interest, tier 1 minority interest or total capital minority interest includable under
section 21 of the revised regulatory capital rules (surplus minority interest) as follows:
(i)

Determine the amounts of outstanding surplus minority interest (for the case of common
equity tier 1, tier 1, and total capital).
(ii) Multiply the amounts in (i) it by the appropriate percentage in Table 2 below.
(iii) Include the amounts in (ii) in the corresponding line items (that is, Schedule HC-R, item 4,
item 22 or item 29).
In the example above, if an SLHC has $10 of surplus common equity tier 1 minority interest as
of January 1, 2014, it may include $6 (that is, $10 multiplied by 60%) in Schedule SC-R, item 4,
during calendar year 2015; $4 during calendar year 2016; $2 during calendar year 2017; and $0
starting on January 1, 2018.
b. Non-qualifying minority interest:
An SLHC may include in tier 1 capital or total capital the percentage of the tier 1 minority
interest and total capital minority interest outstanding as of January 1, 2014 that does not meet
the criteria for additional tier 1 or tier 2 capital instruments in section 20 (non-qualifying
minority interest). The SLHC must phase-out non-qualifying minority interest in accordance
with Table 2, using the following steps for each qualifying subsidiary:
(i)

Determine the amounts of the outstanding non-qualifying minority interest (in the form of
additional tier 1 and tier 2 capital).
(ii) Multiply the amounts in (i) by the appropriate percentage in Table 2 below.
(iii) Include the amounts in (ii) in the corresponding line item (that is, Schedule HC-R item 22
or item 29).
For example, if an SLHC has $10 of non-qualifying minority interest that previously qualified as
tier 1 capital, it may include $6 during calendar year 2015, $4 during calendar year 2016, $2
during calendar year 2017 and $0 starting in January 1, 2018.
7

DRAFT
July 3, 2013

Table 2—Percentage of the amount of surplus or non-qualifying minority interest
includable in regulatory capital during transition period
Calendar year
Percentage of the amount of surplus or non-qualifying
minority interest that can be included in regulatory
capital during the transition period
2015
60
2016

40

2017

20

2018 and thereafter

0

Line item 5 Common equity tier 1 capital before adjustments and deductions.
Report the sum of Schedule SC-R, items 1, 2, 3, and 4.

Common equity tier 1 capital: adjustments and deductions
Note: as described in section 22 of the revised regulatory capital rules, netting of deferred tax
liabilities (DTLs) against assets that are subject to deduction is permitted if the following
conditions are met:
(i) The DTL is associated with the asset;
(ii) The DTL would be extinguished if the associated asset becomes impaired or is derecognized
under GAAP; and
(iii) A DTL can only be netted against a single asset.
The amount of deferred tax assets (DTAs) that arise from net operating loss and tax credit
carryforwards, net of any related valuation allowances, and of DTAs arising from temporary
differences that could not be realized through net operating loss carrybacks, net of any related
valuation allowances, may be offset by DTLs (that have not been netted against assets subject to
deduction) if the following conditions are met:
(i) Only the DTAs and DTLs that relate to taxes levied by the same taxation authority and that
are eligible for offsetting by that authority may be offset for purposes of this deduction.
(ii) The amount of DTLs that the SLHC nets against DTAs that arise from operating loss and tax
credit carryforwards, net of any related valuation allowances, and against DTAs arising from
temporary differences that could not be realized through net operating loss carrybacks, net of
any related valuation allowances, must be allocated in proportion to the amount of DTAs that
arise from net operating loss and tax credit carryforwards (net of any related valuation
allowances, but before any offsetting of DTLs) and of DTAs arising from temporary
differences that could not be realized through net operating loss carrybacks (net of any
related valuation allowances, but before any offsetting of DTLs), respectively.
8

DRAFT
July 3, 2013

An SLHC may offset DTLs embedded in the carrying value of a leveraged lease portfolio
acquired in a business combination that are not recognized under GAAP against DTAs that are
subject to section 22(b) of the regulatory capital rule in accordance with section 22(e).
SLHCs must net DTLs against assets subject to deduction in a consistent manner from reporting
period to reporting period. SLHCs may change their DTL netting preference only after obtaining
the prior written approval of the agency.
Line item 6 LESS: Goodwill net of associated deferred tax liabilities (DTLs).
Report the amount (book value) of the goodwill associated with the acquisition of savings
association subsidiary(ies), nonbank subsidiary(ies), and subsidiary SLHC(s) that have not been
‘‘pushed down’’ to the books of the subsidiary(ies) for financial reporting purposes. The amount
of the goodwill associated with investment in the subsidiary(ies) should generally be equivalent
to the difference between the original cost of the shares of the subsidiary(ies) and the book value
of the SLHC’s proportionate share of the equity capital accounts of the subsidiary(ies) on the
date of acquisition.
For purposes of this item, any goodwill that has not been pushed down to the books of the
subsidiary(ies), and is included in the investment in subsidiary account on the parent’s books,
should be reported in this item. Any goodwill that has been pushed down to the books of the
subsidiary(ies) should not be reported separately in this item.
However, if the SLHC has a DTL that is specifically related to goodwill acquired in a taxable
purchase business combination that it chooses to net against the goodwill, the amount of
disallowed goodwill to be reported in this item should be reduced by the amount of the
associated DTL.
If an SLHC has significant investments in the capital of unconsolidated financial institutions in
the form of common stock, the SLHC should report in this item goodwill embedded in the
valuation of a significant investment in the capital of an unconsolidated financial institution in
the form of common stock (and that is reflected in the consolidated financial statements of the
holding company) (embedded goodwill). Such deduction of embedded goodwill would apply to
investments accounted for under the equity method. Under GAAP, if there is a difference
between the initial cost basis of the investment and the amount of underlying equity in the net
assets of the investee, the resulting difference should be accounted for as if the investee were a
consolidated subsidiary (which may include imputed goodwill).
There are no transition provisions for this item.
Line item 7 LESS: Intangible assets (other than goodwill and mortgage servicing assets
(MSAs)), net of associated DTLs.
Report all intangible assets (other than goodwill and MSAs) net of associated DTLs that do not
qualify for inclusion in common equity tier 1 capital under the regulatory capital rules.
9

DRAFT
July 3, 2013

Generally, all purchased credit card relationships (PCCRs) and non-mortgage servicing rights
and all other identifiable intangibles do not qualify for inclusion in common equity tier 1 capital
and should be included in this item.
Report the sum of:
(i)

Purchased credit card relationships (PCCRs): PCCRs represent the right to conduct
ongoing credit card business dealings with the cardholders. In general, PCCRs are an
amount paid in excess of the value of the purchased credit card receivables. Such
relationships arise when the reporting SLHC purchases existing credit card receivables and
also has the right to provide credit card services to those customers. PCCRs may also be
acquired when the reporting SLHC purchases an entire depository institution. PCCRs shall
be carried at amortized cost. Management of the institution shall review the carrying
amount at least quarterly, adequately document this review, and adjust the carrying amount
as necessary. This review should determine whether unanticipated acceleration or
deceleration of cardholder payments, account attrition, changes in fees or finance charges,
or other events or changes in circumstances indicate that the carrying amount of the
purchased credit card relationships may not be recoverable. If this review indicates that the
carrying amount may not be recoverable, the intangible asset should be tested for
recoverability, and any impairment loss should be recognized, as described in the
instruction below.
Instruction for testing for recoverability and recognition of impairment loss: Intangible
assets primarily result from business combinations accounted for under the acquisition
method in accordance with ASC Topic 805, Business Combinations (formerly FASB
Statement No. 141(R), Business Combinations), from acquisitions of portions or segments
of another institution's business such as mortgage servicing portfolios and credit card
portfolios, and from the sale or securitization of financial assets with servicing retained.
An intangible asset with a finite life (other than a servicing asset) should be amortized over
its estimated useful life and should be reviewed at least quarterly to determine whether
events or changes in circumstances indicate that its carrying amount may not be
recoverable. If this review indicates that the carrying amount may not be recoverable, the
intangible asset should be tested for recoverability (impairment) in accordance with ASC
Topic 360, Property, Plant, and Equipment (formerly FASB Statement No. 144,
Accounting for the Impairment or Disposal of Long-Lived Assets). An impairment loss
shall be recognized if the carrying amount of the intangible asset is not recoverable and this
amount exceeds the asset’s fair value. The carrying amount is not recoverable if it exceeds
the sum of the undiscounted expected future cash flows from the intangible asset. An
impairment loss is recognized by writing the intangible asset down to its fair value (which
becomes the new accounting basis of the intangible asset), with a corresponding charge to
expense. Subsequent reversal of a previously recognized impairment loss is prohibited.
An intangible asset with an indefinite useful life should not be amortized, but should be
tested for impairment at least annually in accordance with ASC Topic 350, Intangibles10

DRAFT
July 3, 2013

Goodwill and Other (formerly FASB Statement No. 142, Goodwill and Other Intangible
Assets).
(ii)

Nonmortgage servicing rights: Nonmortgage servicing assets are contracts to service
financial assets, other than loans secured by real estate (as defined below) under which the
estimated future revenues from contractually specified servicing fees, late charges, and
other ancillary revenues are expected to more than adequately compensate the servicer for
performing the servicing. A nonmortgage servicing contract is either (a) undertaken in
conjunction with selling or securitizing the nonmortgage financial assets being service or
(b) purchased or assumed separately. For nonmortgage servicing assets accounted for under
the amortization method, the carrying amount is the unamortized cost of acquiring the
nonmortgage servicing contracts, net of any related valuation allowances. For nonmortgage
servicing assets accounted for under the fair value method, the carrying amount is the fair
value of the nonmortgage servicing contracts. For further information, see the discussion
regarding “servicing assets and liabilities” in the instructions for Schedule SC-R, item 14.
Loans secured by real estate:
Loans (other than those to states and political subdivisions in the U.S.), regardless of
purpose and regardless of whether originated by the SLHC or purchased from others, that
are secured by real estate at origination as evidenced by mortgages, deeds of trust, land
contracts, or other instruments, whether first or junior liens (e.g., equity loans, second
mortgages) on real estate.
These include:
(1) Loans secured by residential properties that are guaranteed by the Farmers Home
Administration (FmHA) and extended, collected, and serviced by a party other than the
FmHA.
(2) Loans secured by properties and guaranteed by governmental entities in foreign
countries.
(3) Participations in pools of Federal Housing Administration Title I home improvement
loans that are secured by liens (generally, junior liens) on residential properties.
These do not include:
(1) Obligations (other than securities and leases) of states and political subdivisions in the
U.S. that are secured by real estate.
(2) All loans and sales contracts indirectly representing other real estate.
(3) Loans to real estate companies, real estate investment trusts, mortgage lenders, and
foreign non-governmental entities that specialize in mortgage loan originations and that
service mortgages for other lending institutions when the real estate mortgages or similar
liens on real estate are not sold to the SLHC but are merely pledged as collateral.
(4) Bonds issued by the Federal National Mortgage Association or by the Federal Home
Loan Mortgage Corporation that are collateralized by residential mortgages.
(5) Pooled residential mortgages for which participation certificates have been issued or
guaranteed by the Government National Mortgage Association, the Federal National
Mortgage Association, or the Federal Home Loan Mortgage Corporation. However, if the
reporting SLHC is the seller-servicer of the residential mortgages backing such securities
11

DRAFT
July 3, 2013

and, as a result of a change in circumstances, it must rebook any of these mortgages
because one or more of the conditions for sale accounting in ASC Topic 860, Transfers
and Servicing (formerly FASB Statement No. 140, Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities, as amended by FASB
Statement No. 166, Accounting for Transfers of Financial Assets), are no longer met, the
rebooked mortgages should be included in as loans secured by real estate.
(iii) All other identifiable intangibles: Report the carrying amount of all other specifically
identifiable intangible assets such as core deposit intangibles and favorable leasehold
rights. Exclude goodwill, which should be reported in Schedule SC-R, item 6.
Further, if the SLHC has a DTL that is specifically related to an intangible asset (other than
servicing assets and PCCRs) acquired in a nontaxable purchase business combination that
it chooses to net against the intangible asset for regulatory capital purposes, the amount of
disallowed intangibles to be reported in this item should be reduced by the amount of the
associated DTL. However, a DTL that the SLHC chooses to net against the related
intangible reported in this item may not also be netted against DTAs when the SLHC
determines the amount of DTAs that are dependent upon future taxable income and
calculates the maximum allowable amount of such DTAs for regulatory capital purposes.
Transition provisions:
(i) Calculate the amount as described in the instructions for this item, SC-R, item 7.
(ii) Multiply the amount in (i) by the appropriate percentage in accordance with Table 3 below.
Report the resulting amount in this line item, SC-R, item 7.
(iii) Subtract (ii) from (i) to calculate the balance amount which must be risk-weighted during
the transition period.
(iv) Multiply the amount in (iii) by 100 percent.
Table 3—Deduction of intangibles other than goodwill and MSAs during transition period
Calendar year
Percentage of the deductions from
common equity tier 1 capital
2015
40
2016
60
2017
80
2018 and thereafter
100
For example, in calendar year 2015, an SLHC will deduct 40 percent of intangible assets (other
than goodwill and MSAs), net of associated DTLs, from common equity tier 1 capital. The
SLHC must apply a 100 percent risk weight to the remaining 60 percent of the intangible assets
that are not deducted.
Line item 8 LESS: Deferred tax assets (DTAs) that arise from net operating loss and tax
credit carryforwards, net of any related valuation allowances and net of DTLs.
Report the amount of DTAs that arise from net operating loss and tax credit carryforwards, net of
any related valuation allowances and net of DTLs.
12

DRAFT
July 3, 2013

Transition provisions:
(i) Determine the amount as described in the instructions for this line item.
(ii) Multiply the amount in (i) by the appropriate percent in column A of Table 4 below.
Report this product as this line item amount.
(iii) Multiply the amount in (i) by the appropriate percentage in column B of Table 4 below.
Report the resulting amount as part of Schedule SC-R, item 24, “LESS: Additional tier 1
capital deductions.”
Table 4—Deduction of DTAs, gain-on-sale, defined benefit pension fund assets, changes in
fair value of liabilities, expected credit losses during transition period
Calendar
Column A: Percentage of the
Column B: Percentage of the
year
adjustments applied to common
adjustments applied to tier 1
equity tier 1 capital
capital
2015
40
60
2016
60
40
2017
80
20
2018 and
100
0
thereafter
Line item 9 AOCI-related adjustments.
SLHCs that entered “1” for Yes in item 3(a), must complete items 9(a) through 9(e) only.
SLHCs that entered “0” for “No” in item 3(a), must complete item 9(f) only.
Line item 9(a) LESS: Net unrealized gains (losses) on available-for-sale securities.
Report the amount of net unrealized holding gains (losses) on available-for-sale securities, net of
applicable taxes, that is included in AOCI. If the amount is a net gain, report it as a positive
value in this item. If the amount is a net loss, report it as a negative value in this item.
Line item 9(b) LESS: Net unrealized loss on available-for-sale preferred stock classified as
an equity security under GAAP and equity exposures.
Report as a positive value net unrealized loss on available-for-sale preferred stock classified as
an equity security under GAAP and equity exposures that is included in AOCI.
Line item 9(c) LESS: Accumulated net gains (losses) on cash flow hedges.
Report the amount of accumulated net gains (losses) on cash flow hedges that is included in
AOCI. If the amount is a net gain, report it as a positive value in this item. If the amount is a net
loss, report it as a negative value in this item.
Line item 9(d) LESS: Amounts recorded in AOCI attributed to defined benefit
postretirement plans resulting from the initial and subsequent application of the relevant
GAAP standards that pertain to such plans.
13

DRAFT
July 3, 2013

Report the amount amounts recorded in attributed to defined benefit postretirement plans
resulting from the initial and subsequent application of the relevant GAAP standards that pertain
to such plans (an SLHC may exclude the portion related to pension assets deducted in Schedule
HC-R, item 10(b)).
If the amount is a net gain, report it as a positive value in this item. If the amount is a net loss,
report it as a negative value in this item.
Line item 9(e) LESS: Net unrealized gains (losses) on held-to-maturity securities that are

included in AOCI.
Report the amount of net unrealized gains (losses) on held-to-maturity securities that are
included in AOCI.
If the amount is a net gain, report it as a positive value in this item. If the amount is a net loss,
report it as a negative value.
Line item 9(f)—only for SLHCs that entered “0” for No in Schedule SC-R, item 3(a):
LESS: Accumulated net gain (loss) on cash-flow hedges included in AOCI, net of deferred
tax effects, that relate to the hedging of items that are not recognized at fair value on the
balance sheet:
Report the amount accumulated net gain (loss) on cash flow hedges included in AOCI, net of
deferred tax effects, that relate to the hedging of items that are not recognized at fair value on the
balance sheet.
If the amount is a net gain, report it as a positive value. If the amount is a net loss, report it as a
negative value.
Line item 10 Other deductions from (additions to) common equity tier 1 capital before
threshold-based deductions.
Line item 10(a) LESS: Unrealized net gain (loss) related to changes in the fair value of
liabilities that are due to changes in own credit risk.
Report the amount of unrealized net gain (loss) related to changes in the fair value of liabilities
that are due to changes in the holding company’s own credit risk. If the amount is a net gain,
report it as a positive value in this item. If the amount is a net loss, report it as a negative value
in this item.
Advanced approaches holding companies only: include the credit spread premium over the risk
free rate for derivatives that are liabilities.
Transition provisions: follow the transition provisions in Schedule HC-R, item 8.

14

DRAFT
July 3, 2013

Line item 10(b) LESS: All other deductions from (additions to) common equity tier 1
capital before threshold-based deductions.
Report the amount of other deductions from (additions to) common equity tier 1 capital, as
described below.
(1) Gain-on-sale in connection with a securitization exposure.
Include any after-tax gain-on-sale in connection with a securitization exposure. Gain-on-sale
means an increase in the equity capital of an SLHC resulting from a securitization (other than an
increase in equity capital resulting from the SLHC’s receipt of cash in connection with the
securitization or reporting of a mortgage servicing asset).
Transition provisions: follow the transition provisions in Schedule SC-R, item 8.
(2) Defined benefit pension fund assets, net of associated DTLs.
An SLHC must deduct defined benefit pension fund assets, net of associated DTLs, held by an
SLHC. With the prior approval of the Federal Reserve, this deduction is not required for any
defined benefit pension fund net asset to the extent the SLHC has unrestricted and unfettered
access to the assets in that fund. For an insured depository institution, no deduction is required.
An SLHC must risk weight any portion of the defined benefit pension fund asset that is not
deducted as if the SLHC directly holds a proportional ownership share of each exposure in the
defined benefit pension fund.
Transition provisions: follow the transition provisions in Schedule SC-R, item 8.
(3) Investments in the SLHC’s own shares to the extent not excluded as part of treasury
stock.
Include the SLHC’s investments in (including any contractual obligation to purchase) its own
common stock instruments, including direct, indirect, and synthetic exposures to such
instruments (as defined in the revised regulatory capital rules), to the extent such instruments are
not excluded as part of treasury stock, reported in Schedule SC-R, line item 1.
If an SLHC already deducts its investment in its own shares (for example, treasury stock) from
its common equity tier 1 capital elements, it does not need to make such deduction twice.
An SLHC may deduct gross long positions net of short positions in the same underlying
instrument only if the short positions involve no counterparty credit risk.
The SLHC must look through any holdings of index securities to deduct investments in its own
capital instruments.
In addition:
15

DRAFT
July 3, 2013

(i)

Gross long positions in investments in an SLHC’s own regulatory capital instruments
resulting from holdings of index securities may be netted against short positions in the
same underlying index;
(ii) Short positions in indexes to hedge long cash or synthetic positions may be decomposed to
recognize the hedge; and
(iii) The portion of the index that is composed of the same underlying exposure that is being
hedged may be used to offset the long position if both the exposure being hedged and the
short position in the index are covered positions under the market risk capital rule, and the
hedge is deemed effective by the SLHC’s internal control processes which would have
been assessed by the Federal Reserve.
Transition provisions: follow the transition provisions in Schedule SC-R, item 11.
(4) Reciprocal crossholdings in the capital of financial institutions in the form of common
stock.
Include investments in the capital of other financial institutions (in the form of common stock)
that the SLHC holds reciprocally (this is the corresponding deduction approach). Such
reciprocal crossholdings may result from a formal or informal arrangement to swap, exchange, or
otherwise intend to hold each other’s capital instruments.
Transition provisions: follow the transition provisions in Schedule SC-R, item 11.
Line item 11 LESS: Non-significant investments in the capital of unconsolidated financial
institutions in the form of common stock that exceed the 10 percent threshold for nonsignificant investments.
An SLHC has a non-significant investment in the capital of an unconsolidated financial
institution (as defined in section 2 of the revised regulatory capital rules) if it owns 10 percent or
less of the issued and outstanding common shares of that institution.
Report the amount of non-significant investments in the capital of unconsolidated financial
institutions in the form of common stock that, in the aggregate, exceed the 10 percent threshold
for non-significant investments, calculated as described below. The SLHC may apply associated
DTLs to this deduction.
Example:
Assumptions:
• An SLHC has a total of $200 in non-significant investments in the capital of
unconsolidated financial institutions, of which $100 is in common shares. For this
example, all of the $100 in common shares is in the common stock of a publicly traded
financial institution.
• The SLHC reported $1,000 in Schedule SC-R, item 5 (common equity tier 1 capital
before adjustments and deductions).
• Assume the amounts reported in Schedule SC-R items 6 through 10(a) are $0.
16

DRAFT
July 3, 2013

(1)

(2)

(3)
(4)
(5)

(6)

Determine the aggregate amount of non-significant
investments in the capital of unconsolidated financial
institutions (including in the form of common stock,
additional tier 1, and tier 2 capital).
Determine the amount of non-significant investments in the
capital of unconsolidated financial institutions in the form
of common stock.
Subtract from Schedule SC-R item 5 the amounts in
Schedule SC-R, items 6 through 10(a).
Multiply the amount in step (3) by 10%. This is “the ten
percent threshold for non-significant investments.”
If (1) is greater than (4), subtract (4) from (1) and multiply
the result by the ratio of (2) divided by (1). Report this
amount in this item 11.
If (1) is less than (4), enter zero in this item 11.
Assign the applicable risk weight to the amount of nonsignificant investments in the capital of unconsolidated
financial institutions that does not exceed the 10 percent
threshold for non-significant investments.

$200

$100

$1,000 - $0 = $1,000
$1,000 x 10% = $100
Line (1) is greater than
line (4); therefore $200 $100 = $100. Then
($100 x 100/200) = $50
Report $50 in item 11.
Of the $100 in common
shares, $50 are deducted
for common equity tier
11 in item 11. Include
the remaining $50 in
risk- weighted assets in
Schedule SC-R. (to be
proposed in the future) 5

Transition provisions for investments in capital instruments:
(i) Calculate the amount as described in this line item’s instructions.
(ii) Multiply the amount in (i) by the appropriate percentage in Table 5 below. Report the
resulting amount in this line item, SC-R 11.
(iii) Subtract (ii) from (i); assign it the applicable risk weight; and report it as part of riskweighted assets in Schedule SC-R.
Table 5—Deductions related to investments in capital instruments
Calendar year
Percentage of the deduction
2015
2016
2017
2018 and thereafter

40
60
80
100

Line item 12 Subtotal.
Report the amount in Schedule SC-R, item 5 minus items 6 through 11.
5

In this case, $50 x 300% risk weight for publicly traded common shares = $150 in risk-weighted assets for the
portion of common shares in an unconsolidated financial institution that are not deducted.
17

DRAFT
July 3, 2013

This subtotal will be used in Schedule SC-R, items 13 through 16 to calculate the amounts of
items subject to the 10 and 15 percent common equity tier 1 capital threshold deductions
(threshold items):
• Significant investments in the capital of unconsolidated financial institutions in the form
of common stock,
• Mortgage servicing assets (MSAs) net of associated DTLs; and
• DTAs arising from temporary differences that could not be realized through net operating
loss carrybacks).
Line item 13 LESS: Significant investments in the capital of unconsolidated financial
institutions in the form of common stock, net of DTLs, that exceed the 10 percent common
equity tier 1 capital deduction threshold.
An SLHC has a significant investment in the capital of an unconsolidated financial institution
when it owns more than 10 percent of the issued and outstanding common shares of that
institution.
Report the amount of significant investments in the capital of unconsolidated financial
institutions in the form of common stock that exceed the 10 percent common equity tier 1 capital
deduction threshold, calculated as follows:
(1) Determine the amount of significant investments in the capital of unconsolidated financial
institutions in the form of common stock.
(2) If the amount in (1) is greater than 10 percent of the amount in Schedule SC-R, item 12,
report the difference as this line item.
(3) If the amount in (2) is less than 10 percent of the amount in Schedule SC-R, item 12, report
zero.
If the SLHC included embedded goodwill in Schedule SC-R, item 6, to avoid double counting,
the SLHC may net such embedded goodwill already deducted against the exposure amount of the
significant investment. For example, if an SLHC has deducted $10 of goodwill embedded in a
$100 significant investment in the capital of an unconsolidated financial institution in the form of
common stock, the SLHC is allowed to net such embedded goodwill against the exposure
amount of such significant investment (that is, the value of the investment is $90 for purposes of
the calculation of the amount that is subject to deduction).
Transition provisions for items subject to the threshold deductions:
(i) Calculate the amount as described in the appropriate line item’s instructions.
(ii) Multiply the amount in (i) by the appropriate percent in Table 6 below. Report this product
as this item amount. In addition:
(iii) From January 1, 2015 until January 1, 2018: Subtract the amount in (ii) from the amount
in (i); assign it a 100 percent risk weight; and report it in Schedule SC-R risk-weighted
assets.
(iv) Starting on January 1, 2018: Subtract the amount in (ii) from the amount in (i); assign it a
250 percent risk weight; and report it in Schedule SC-R risk-weighted assets.
18

DRAFT
July 3, 2013

Table 6—Transition provisions for items subject to the threshold deductions
Calendar year
Percentage of the deduction
2015
2016
2017
2018 and thereafter

40
60
80
100

Line item 14 LESS: MSAs, net of associated DTLs, that exceed the 10 percent common
equity tier 1 capital deduction threshold.
Report the amount of MSAs (as described below) net of associated DTLs that exceed the 10
percent common equity tier 1 capital deduction threshold as follows:
(1) Take the amount of MSAs (as described below) net of associated DTLs.
(2) If the amount in (1) is higher than 10 percent of the amount in item 12, report the difference
as this line item.
(3) If the amount in (1) is lower than 10 percent of the amount in item 12, enter zero.
Mortgage Servicing Assets (MSAs):
Report the carrying amount of MSAs, i.e., contracts to service loans secured by real estate (as
defined above in the instructions for item 7 of this schedule) under which the estimated future
revenues from contractually specified servicing fees, late charges, and other ancillary revenues
are expected to more than adequately compensate the servicer for performing the servicing. A
mortgage servicing contract is either (a) undertaken in conjunction with selling or securitizing
the mortgages being serviced or (b) purchased or assumed separately. For MSAs accounted for
under the amortization method, the carrying amount is the unamortized cost of acquiring the
mortgage servicing contracts, net of any related valuation allowances. For MSAs accounted for
under the fair value method, the carrying amount is the fair value of the mortgage servicing
contracts. Exclude servicing assets resulting from contracts to service financial assets other than
loans secured by real estate (i.e. nonmortgage servicing assets used in the calculation of Schedule
SC-R, item 7). For further information, see the below discussion on “servicing assets and
liabilities.”
Servicing Assets and Liabilities:
The accounting and reporting standards for servicing assets and liabilities are set forth in ASC
Subtopic 860-50, Transfers and Servicing – Servicing Assets and Liabilities (formerly FASB
Statement No. 140, Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities, as amended by FASB Statement No. 156, Accounting for
Servicing of Financial Assets, and FASB Statement No. 166, ), and ASC Topic 948, Financial
Services-Mortgage Banking (formerly FASB Statement No. 65, Accounting for Certain
Mortgage Banking Activities, as amended by Statement No. 140). A summary of the relevant
sections of these accounting standards follows. For further information, see ASC Subtopic 86050 and ASC Topic 948.
Servicing of mortgage loans, credit card receivables, or other financial assets includes, but is not
limited to, collecting principal, interest, and escrow payments from borrowers; paying taxes and
19

DRAFT
July 3, 2013

insurance from escrowed funds; monitoring delinquencies; executing foreclosure if necessary;
temporarily investing funds pending distribution; remitting fees to guarantors, trustees, and
others providing services; and accounting for and remitting principal and interest payments to the
holders of beneficial interests in the financial assets. Servicers typically receive certain benefits
from the servicing contract and incur the costs of servicing the assets.
Servicing is inherent in all financial assets; it becomes a distinct asset or liability for accounting
purposes only in certain circumstances as discussed below. Servicing assets result from contracts
to service financial assets under which the benefits of servicing (estimated future revenues from
contractually specified servicing fees, late charges, and other ancillary sources) are expected to
more than adequately compensate the servicer for performing the servicing. Servicing liabilities
result from contracts to service financial assets under which the benefits of servicing are not
expected to adequately compensate the servicer for performing the servicing. Contractually
specified servicing fees are all amounts that, per contract, are due to the servicer in exchange for
servicing the financial asset and would no longer be received by a servicer if the beneficial
owners of the serviced assets or their trustees or agents were to exercise their actual or potential
authority under the contract to shift the servicing to another servicer. Adequate compensation is
the amount of benefits of servicing that would fairly compensate a substitute servicer should one
be required including the profit that would be demanded by a substitute servicer in the
marketplace.
An SLHC must recognize and initially measure at fair value a servicing asset or a servicing
liability each time it undertakes an obligation to service a financial asset by entering into a
servicing contract in either of the following situations:
(1) The SLHC’s transfer of an entire financial asset, a group of entire financial assets, or a
participating interest in an entire financial asset that meets the requirements for sale
accounting; or
(2) An acquisition or assumption of a servicing obligation that does not relate to financial assets
of the SLHC or its consolidated affiliates included in the Reports of Condition and Income
being presented.
If an SLHC sells a participating interest in an entire financial asset, it only recognizes servicing
asset or servicing liability related to the participating interest sold. An SLHC that transfers its
financial assets to an unconsolidated entity in a transfer that qualifies as a sale in which the
SLHC obtains the resulting securities and classifies them as debt securities held-to-maturity in
accordance with ASC Topic 320, Investments–Debt and Equity Securities (formerly FASB
Statement No. 115, Accounting for Certain Investments in Debt and Equity Securities), may
either separately recognize its servicing assets or servicing liabilities or report those servicing
assets or servicing liabilities together with the assets being serviced.
An SLHC should account for its servicing contract that qualifies for separate recognition as a
servicing asset or servicing liability initially measured at fair value regardless of whether explicit
consideration was exchanged. An SLHC that transfers or securitizes financial assets in a
transaction that does not meet the requirements for sale accounting under ASC Topic 860 and is
20

DRAFT
July 3, 2013

accounted for as a secured borrowing with the underlying assets remaining on the SLHC’s
balance sheet must not recognize a servicing asset or a servicing liability.
After initially measuring a servicing asset or servicing liability at fair value, an SLHC should
subsequently measure each class of servicing assets and servicing liabilities using either the
amortization method or the fair value measurement method. The election of the subsequent
measurement method should be made separately for each class of servicing assets and servicing
liabilities. An SLHC must apply the same subsequent measurement method to each servicing
asset and servicing liability in a class. Each SLHC should identify its classes of servicing assets
and servicing liabilities based on (a) the availability of market inputs used in determining the fair
value of servicing assets and servicing liabilities, (b) the SLHC’s method for managing the risks
of its servicing assets or servicing liabilities, or (c) both. Different elections can be made for
different classes of servicing. For a class of servicing assets and servicing liabilities that is
subsequently measured using the amortization method, an SLHC may change the subsequent
measurement method for that class of servicing by making an irrevocable decision to elect the
fair value measurement method for that class at the beginning of any fiscal year. Once an SLHC
elects the fair value measurement method for a class of servicing, that election must not be
reversed.
Under the amortization method, all servicing assets or servicing liabilities in the class should be
amortized in proportion to, and over the period of, estimated net servicing income for assets
(servicing revenues in excess of servicing costs) or net servicing loss for liabilities (servicing
costs in excess of servicing revenues). The servicing assets or servicing liabilities should be
assessed for impairment or increased obligation based on fair value at each quarter-end report
date. The servicing assets within a class should be stratified into groups based on one or more of
the predominant risk characteristics of the underlying financial assets. If the carrying amount of a
stratum of servicing assets exceeds its fair value, the SLHC should separately recognize
impairment for that stratum by reducing the carrying amount to fair value through a valuation
allowance for that stratum. The valuation allowance should be adjusted to reflect changes in the
measurement of impairment subsequent to the initial measurement of impairment. For the
servicing liabilities within a class, if subsequent events have increased the fair value of the
liability above the carrying amount of the servicing liabilities, the SLHC should recognize the
increased obligation as a loss in current earnings.
Under the fair value measurement method, all servicing assets or servicing liabilities in a class
should be measured at fair value at each quarter-end report date. Changes in the fair value of
these servicing assets and servicing liabilities should be reported in earnings in the period in
which the changes occur.
Transition provisions: follow the transition provisions in Schedule SC-R, item 13.
Line item 15 LESS: DTAs arising from temporary differences that the holding company
could not realize through net operating loss carrybacks, net of related valuation allowances
and net of DTLs, that exceed the 10 percent common equity tier 1 capital deduction
threshold.
21

DRAFT
July 3, 2013

(1)

(2)
(3)

Report the amount of DTAs arising from temporary differences that SLHC could not
realize through net operating loss carrybacks net of any related valuation allowances and
net of associated DTLs (for example, DTAs resulting from the SLHC’s allowance for loan
and lease losses).
If the amount in (1) is higher than 10 percent of the amount in item 12, report the difference
as this line item.
If the amount in (1) is lower than 10 percent of the amount in item 12, enter zero.

DTAs arising from temporary differences that the SLHC could realize through net operating loss
carrybacks are not subject to deduction, and instead must be assigned a 100 percent risk weight.
For an SLHC that is a member of a consolidated group for tax purposes, the amount of DTAs
that could be realized through net operating loss carrybacks may not exceed the amount that the
SLHC could reasonably expect to have refunded by its parent holding company.
Transition provisions: follow the transition provisions in Schedule SC-R, line item 13.
Line item 16 LESS: Amount of significant investments in the capital of unconsolidated
financial institutions in the form of common stock; MSAs, net of associated DTLs; and
DTAs arising from temporary differences that could not be realized through net operating
loss carrybacks; that exceeds the 15 percent common equity tier 1 capital deduction
threshold.
The aggregate amount of the threshold items (that is, significant investments in the capital of
unconsolidated financial institutions in the form of common stock; MSAs, net of associated
DTLs; and DTAs arising from temporary differences that could not be realized through net
operating loss carrybacks) may not exceed 15 percent of the SLHC’s common equity tier 1
capital, net of applicable adjustments and deductions (the 15 percent common equity tier 1
capital deduction threshold).
Transition provisions:
a. From January 1, 2015 until January 1, 2018, calculate this item 16 as follows:
(i) Calculate the aggregate amount of the threshold items before deductions:
• Significant investments in the capital of unconsolidated financial institutions in the
form of common stock (Schedule SC-R, item 13, step 1);
• MSAs (Schedule SC-R, item 14, step 1); and
• DTAs arising from temporary differences that an SLHC could not realize through net
operating loss carrybacks net of any related valuation allowance and net of DTLs
(Schedule SC-R, item 15, step 1).
(ii) Multiply the amount in Schedule SC-R, item 12 by 15 percent. This is the 15 percent
common equity deduction threshold for transition purposes.
(iii) Sum the amounts reported in Schedule SC-R, items 13, 14, and 15.
(iv) Deduct the amounts (ii) and (iii) from (i).
(v) Multiply the amount in (iv) by the appropriate percentage in Table 6, Schedule SC-R, item
13. Report the resulting amount in this line item 16.
b. Starting on January 1, 2018, calculate this line item 16 using the following example:
22

DRAFT
July 3, 2013

Example:
Assumptions:
• The amount reported above on Line 12 is $130 (This amount is CET1 after all deductions
and adjustments except for deduction of the threshold items).
• Assume the following balance sheet amounts prior to deduction of these items:
o Significant investments in the common shares of unconsolidated financial institutions
= $10.
o MSAs = $20
o DTAs arising from temporary differences that could not be realized through net
operating loss carrybacks net of any related valuation allowance and net of DTLs =
$30.
(1)

(2)

(3)

Aggregate amount of threshold items before
deductions
Enter the sum of:
a. Significant investments in the capital of
unconsolidated financial institutions in the form of
common stock (Schedule SC-R, item 13, step 1);
b. MSAs (Schedule SC-R, item 14, step 1); and
c. DTAs arising from temporary differences that
could not be realized through net operating loss
carrybacks, net of any related valuation allowance
and net of DTLs (Schedule SC-R, item 15, step 1).
d. Total of a, b, and c:
Sum of threshold items not deducted as a result of the
10 percent common equity tier 1 capital deduction
threshold
Enter the sum of:
a. Significant investments in the capital of
unconsolidated financial institutions in the form of
common stock that are not deducted (that is, the
difference between the amount in step (1)(a) of
this table and the 10% of item 12)
b. MSAs that are not deducted (that is, the difference
between the amount in step (1)(b) of this table and
the 10% of item 12)
c. DTAs arising from temporary differences that
could not be realized through net operating loss
carrybacks, net of related valuation allowances and
net of DTLs that are not deducted (that is, the
difference between the amount in step (1)(c) of
this table and 10% of item 12)
d. Total of a, b, and c

$10

$20
$30

$60

$0 from item 13,
step 1.
(because $10 is
less than $13, that
is, 10% of $130)
$20 - $13 = $7

$30 - $13 = $17

$0 + $7 + $17 =
$24

The 15 percent common equity tier 1 capital deduction
threshold
23

DRAFT
July 3, 2013

Calculate as follows:
a. Subtract the amount calculated in step (1)(d) of
this table from Schedule SC-R, item 12
b. Multiply the resulting amount by 17.65%
(4)

(5)

Amount of threshold items that exceed the 15 percent
common equity tier 1 capital deduction threshold
Report as follows:
a. If the amount in step (2)(d) is greater than the
amount in step (3), then subtract (3) from (2)(d)
and report this number in line 16. (In addition, the
bank must risk-weight the items that are not
deducted at 250 percent in the risk-weighted asset
section of this form.)
b. If the amount in step (2) is less than the amount in
step (3), report zero on line 16.
If the amount in step (4) is above zero, then pro-rate
the threshold items as follows:
a. Significant investments in the capital of
unconsolidated financial institutions in the form of
common stock: multiply (4(a)) by the ratio of
(1(a)) over (1)(d).
b. MSAs net of associated DTAs: multiply (4(a)) by
the ratio of (1(b)) over (1)(d).
c. DTAs arising from temporary differences that
could not be realized through net operating loss
carrybacks: multiply (4(a)) by the ratio of (1(c))
over (1)(d).

($130 - $60) x
17.65%
=$12.36
Rounds to $12

The amount in
step 2(d) ($24) is
greater than the
amount in step 3
($12).
Therefore:
$24 - $12 = $12

a. $12 x (10/60)
= $2
b. $12 x (20/60)
= $4
c. $12 x (30/60)
= $6.

Line item 17 LESS: Deductions applied to common equity tier 1 capital due to insufficient
amount of additional tier 1 capital and tier 2 capital to cover deductions.
Report the total amount of deductions related to reciprocal cross holdings, non-significant
investments in the capital of unconsolidated financial institutions, and non-common stock
significant investments in the capital of unconsolidated financial institutions if the SLHC does
not have a sufficient amount of additional tier 1 capital and tier 2 capital to cover these
deductions in Schedule SC-R, items 24 and 33.
Line item 18 Total adjustments and deductions for common equity tier 1 capital.
Report the sum of Schedule SC-R, items 13 through 17.
Line item 19 Common equity tier 1 capital.
Report Schedule SC-R item 12 minus item 18. The amount reported in this item is the numerator
of the SLHC's common equity tier 1 risk-based capital ratio.
24

DRAFT
July 3, 2013

Additional tier 1 capital
Line item 20 Additional tier 1 capital instruments plus related surplus.
Report the portion of noncumulative perpetual preferred stock and related surplus that satisfy all
the criteria for additional tier 1 capital in the capital rules of the Federal Reserve.
Include instruments that were (i) issued under the Small Business Job’s Act of 2010, or, prior to
October 4, 2010, under the Emergency Economic Stabilization Act of 2008 and (ii) includable in
the tier 1 capital under the Federal Reserve’s general risk-based capital rules (12 CFR part 225,
appendix A, and, if applicable, appendix E) (for example, tier 1 instruments issued under the
TARP program that are grandfathered permanently). Also include additional tier 1 capital
instruments issued as part of an ESOP, provided that the repurchase of such instruments is
required solely by virtue of ERISA for a banking organization that is not publicly-traded.
Under the revised regulatory capital rules, depository institution holding companies 6 with total
consolidated assets of less than $15 billion as of December 31, 2009 may include non-qualifying
capital instruments (e.g., TruPS and cumulative perpetual preferred stock) issued prior to May
19, 2010 in additional tier 1 or tier 2 capital if the instrument was included in tier 1 or tier 2
capital, respectively, as of January 1, 2014. Such non-qualifying capital instruments includable
tier 1 capital are subject to a limit of 25 percent of tier 1 capital elements, excluding any nonqualifying capital instruments and after all regulatory capital deductions and adjustments applied
to tier 1 capital.
Line item 21 Non-qualifying capital instruments subject to phase out from additional tier
1 capital.
Report the total amount of non-qualifying capital instruments that were included in tier 1 capital
and outstanding as of January 1, 2014.
This line item is generally not applicable to non-qualifying capital instruments issued by SLHCs
with total consolidated assets of less than $15 billion prior to May 19, 2010 because these
institutions may include non-qualifying regulatory capital instruments in additional tier 1 capital
as described in Schedule SC-R, item 20.
If SLHCs have non-qualifying regulatory capital instruments in excess of 25 percent of tier 1
capital elements, excluding any non-qualifying capital instruments and after all regulatory capital
deductions and adjustments applied to tier 1 capital, such instruments must be phased out in
accordance with Table 7 below. In addition, the amount of non-qualifying capital instruments
that are excluded from additional tier 1 capital in accordance with Table 7 may be included in
tier 2 capital.

7

The percentage multiplier in step (3) is the capital ratio needed so that the subsidiary depository institution would
avoid restrictions on capital distributions or discretionary bonus payments.
25

DRAFT
July 3, 2013

Table 7 applies separately to additional tier 1 and tier 2 non-qualifying capital instruments. For
example, an SLHC may include up to 25 percent of non-qualifying capital instruments in
additional tier 1 capital and up to 25 percent of non-qualifying capital instruments in tier 2
capital for reporting periods during the calendar year 2015.
Table 7—Percentage of non-qualifying capital instruments included in additional tier 1 or
tier 2 capital
Calendar year
Percentage of non-qualifying capital instruments includable
in additional tier 1 or tier 2 capital for depository institution
holding companies of $15 billion or more
2015

25

2016 and thereafter

0

In addition, if an SLHC under $15 billion makes an acquisition and the resulting organization has
total consolidated assets of $15 billion or more, its non-qualifying capital instruments would be
subject to the phase-out schedule outlined in Table 7.
Line item 22

Tier 1 minority interest that is not included in common equity tier 1 capital.

Report the amount of tier 1 minority interest that is includable at the consolidated level, as
described below.
For each consolidated subsidiary, perform the calculations in steps (1) through (10) below. Sum
up the results from step 10 for each consolidated subsidiary and report the aggregate number in
this line item.
For tier 1 minority interest, there is no requirement that the subsidiary be a depository institution
or a foreign bank. However, the instrument that gives rise to tier 1 minority interest must meet
all the criteria for either common stock or additional tier 1 capital instrument.
Example: calculate additional tier 1 minority interest includable at holding company level as
follows:
Assumptions:
• This is a continuation of the example used for common equity tier 1 minority interest
from item 4. Given the following:
• For this example, assume that risk-weighted assets of the subsidiary are the same as the
risk-weighted assets of the SLHC that relate to the subsidiary: $1000 in each case
• Subsidiary’s qualifying tier 1 capital: $110, which is composed of subsidiary’s
qualifying common equity tier 1 capital $80 and qualifying additional tier 1 capital of
$30.
• Subsidiary’s qualifying common equity tier 1 owned by minority shareholders: $24.
• Subsidiary’s qualifying additional tier 1 capital owned by minority shareholders: $15.
• Other relevant numbers are from the example in item 4.

26

DRAFT
July 3, 2013

(1)
(2)

(3)
(4)

(5)
(6)

(7)
(8)

(9)

Determine the risk-weighted assets of the subsidiary.
Determine the risk-weighted assets of the SLHC that relate to the
subsidiary. Note that the amount in this step (2) may differ from
the amount in step (1) due to intercompany transactions and
eliminations in consolidation.
Determine the lower of (1) or (2), and multiply that amount by
8.5%. 7
Determine the dollar amount of qualifying tier 1 capital for the
subsidiary. If this amount is less than step (3), go directly to step
(9). Otherwise continue on to step (5).
Subtract the amount in step (3) from the amount in step (4). This is
the “surplus tier 1 capital of the subsidiary.”
Determine the percent of the subsidiary’s qualifying capital
instruments that are owned by third parties (the minority
shareholders).
Multiply the percentage from step (6) by the dollar amount in step
(5). This is the “surplus tier 1 minority interest of the subsidiary.”
Determine the total amount of tier 1 minority interest of the
subsidiary. Then subtract the surplus tier 1 minority interest of the
subsidiary (step 7) from this amount.
The “tier 1 minority interest includable at bank level” is the
amount from step (8) or step (4) if there is no surplus tier 1
minority interest of the subsidiary.

(10) Subtract any minority interest that is included in common equity
tier 1 capital (from line item 4). The result is the minority interest
included in additional tier 1 capital.

$1,000
$1,000

$1,000 x 8.5%
= $85
$110

$110 - $85 =
$25
$24 + 15 =
$39. Then
$39/$110 =
35.45%
35.45% x $25
= $8.86
$24 + $15 =
$39. Then $39
- $8.86 =
$30.14
$30.14 (Report
the lower of
$30.14 or $39;
therefore
report $30.14)
$30.14 - $21
(from example
in item 4) =
$9.14.

Note: As indicated, this example built onto the example under the instructions for item 4, where
the subsidiary was a depository institution, and where its common equity tier 1 minority interest
was includable in common equity tier 1 capital. However, if this were a subsidiary other than a
depository institution, none of its minority interest arising from common equity tier 1 is
includable in common equity tier 1 capital. If the example were not for a depository institution,
the full calculated amount ($30.14) is includable in additional tier 1 capital because none of it is
includable in common equity tier 1 capital.
Transition provisions: for surplus minority interest and non-qualifying minority interest, follow
the transition provision instructions in Schedule SC-R, item 4.

7

The percentage multiplier in step (3) is the capital ratio needed so that the subsidiary depository institution would
avoid restrictions on capital distributions or discretionary bonus payments.
27

DRAFT
July 3, 2013

Line item 23 Additional tier 1 capital before deductions.
Report the sum of Schedule SC-R, items 20, 21, and 22.
Line item 24 LESS: Additional tier 1 capital deductions.
Report additional tier 1 capital deductions as the sum of the following elements:
a. Investments in own additional tier 1 capital instruments:
Report the SLHC’s investments in (including any contractual obligation to purchase) its own
additional tier 1 instruments, whether held directly or indirectly.
An SLHC may deduct gross long positions net of short positions in the same underlying
instrument only if the short positions involve no counterparty risk.
The SLHC must look through any holdings of index securities to deduct investments in its own
capital instruments. In addition:
(i) Gross long positions in investments in an SLHC’s own regulatory capital instruments
resulting from holdings of index securities may be netted against short positions in the same
index;
(ii) Short positions in index securities that are hedging long cash or synthetic positions can be
decomposed to recognize the hedge; and
(iii) The portion of the index that is composed of the same underlying exposure that is being
hedged may be used to offset the long position if both the exposure being hedged and the
short position in the index are covered positions under the market risk capital rule, and the
hedge is deemed effective by the SLHC’s internal control processes.
Transition provisions: follow the transition provisions in Schedule SC-R, item 11.
b. Reciprocal cross-holdings in the capital of financial institutions.
Include investments in the additional tier 1 capital instruments of other financial institutions that
the SLHC holds reciprocally, where such reciprocal crossholdings result from a formal or
informal arrangement to swap, exchange, or otherwise intend to hold each other’s capital
instruments. If the SLHC does not have a sufficient amount of a specific component of capital to
effect the required deduction, the shortfall must be deducted from the next higher (that is, more
subordinated) component of regulatory capital.
For example, if an SLHC is required to deduct a certain amount from additional tier 1 capital and
it does not have additional tier 1 capital, then the deduction should be from common equity tier 1
capital in Schedule SC-R, item 17.
Transition provisions: follow the transition provisions in Schedule SC-R, item 11.

28

DRAFT
July 3, 2013

c. Non-significant investments in additional tier 1 capital of unconsolidated financial
institutions that exceed the 10 percent threshold for non-significant investments:
Calculate this amount as follows (similar to the calculation in Schedule SC-R, item 11):
(1) Determine the aggregate amount of non-significant investments in the capital of
unconsolidated financial institutions in the form of common stock, additional tier 1, and tier
2 capital.
(2) Determine the amount of non-significant investments in the capital of unconsolidated
financial institutions in the form of additional tier 1 capital.
(3) If the amount in (1) is greater than the 10 percent threshold for non-significant investments
(Schedule SC-R, item 11, step (4)), then multiply the difference by the ratio of (2) over (1).
Report the resulting amount in this line item.
(4) If the amount in (1) is less than the 10 percent threshold for non-significant investments,
report zero.
For example, assume an SLHC has a total of $200 in non-significant investments (step 1),
including $60 in the form of additional tier 1 capital (step 2), and its 10 percent threshold for
non-significant investments is $100 (as calculated in step 4 of item 11). Since the aggregate
amount of non-significant investments exceeds the 10 percent threshold for non-significant
investments by $100 ($200-$100), the SLHC must multiply $100 by the ratio of 60/200 (step 3).
Thus, the SLHC must deduct $30 from its additional tier 1 capital.
Transition provisions: follow the transition provisions in Schedule SC-R, item 11.
d. Significant investments in the capital of unconsolidated financial institutions not in the
form of common stock to be deducted from additional tier 1 capital:
Report the total amount of significant investments in the capital of unconsolidated financial
institutions in the form of additional tier 1 capital.
Transition provisions: follow the transition provisions in Schedule SC-R, item 11.
e. Other adjustments and deductions:
Include adjustments and deductions applied to additional tier 1 capital due to insufficient tier 2
capital to cover deductions (related to reciprocal cross holdings, non-significant investments in
the tier 2 capital of unconsolidated financial institutions, and significant investments in the tier 2
capital of unconsolidated financial institutions).
Also include adjustments and deductions related to the calculation of DTAs, gain-on-sale,
defined benefit pension fund assets, changes in fair value of liabilities due to changes in own
credit risk, and expected credit losses during the transition period as described in Schedule SCR, item 8.

29

DRAFT
July 3, 2013

Line item 25

Additional tier 1 capital.

Report the greater of Schedule SC-R item 23 minus item 24 or zero.
Line item 26

Tier 1 capital.

Report the sum of Schedule SC-R items 19 and 25.

Tier 2 capital
Line item 27

Tier 2 capital instruments plus related surplus.

Report tier 2 capital instruments that satisfy all eligibility criteria in the revised regulatory capital
rules of the Federal Reserve and related surplus.
Include instruments that were (i) issued under the Small Business Job’s Act of 2010, or, prior to
October 4, 2010, under the Emergency Economic Stabilization Act of 2008 and (ii) were
included in the tier 2 capital under the Federal Reserve’s capital rules.
In addition, an SLHC may include in tier 2 capital non-qualifying capital instruments (e.g.,
TruPS and cumulative perpetual preferred) that have been phased-out of tier 1 capital in
accordance with Table 7 in line item 21.
Line item 28 Non-qualifying capital instruments subject to phase out from tier 2 capital.
This line item is generally not applicable to small SLHCs because they may include nonqualifying capital instruments in additional tier 1 and tier 2 capital as described in Schedule SCR, item 20 and 27, respectfully.
Line item 29

Total capital minority interest that is not included in tier 1 capital.

Report the amount of total capital minority interest that is includable at the consolidated level, as
described below. For each consolidated subsidiary, perform the calculations in steps (1) through
(10) below. Sum up the results for each consolidated subsidiary and report the aggregate number
in this line item.
Example: calculate additional tier 1 minority interest includable at the holding company level as
follows:
Assumptions:
• This is a continuation of the example used in the instructions for items 4 and 22. Given
the following:
• For this example, assume that risk-weighted assets of the subsidiary are the same as the
risk-weighted assets of the SLHC that relate to the subsidiary: $1000 in each case
30

DRAFT
July 3, 2013

•
•
•
•
(1)
(2)

(3)
(4)

(5)
(6)

(7)

(8)

(9)

Subsidiary’s qualifying total capital: $130, which is composed of subsidiary’s qualifying
common equity tier 1 capital $80, and qualifying additional tier 1 capital of $30, and tier
2 capital of $20.
Subsidiary’s qualifying common equity tier 1 capital owned by minority shareholders:
$24.
Subsidiary’s qualifying additional tier 1 capital owned by minority shareholders: $15
Subsidiary’s qualifying total capital instruments owned by minority shareholders: $15
Determine the risk-weighted assets of the subsidiary.
Determine the risk-weighted assets of the bank that relate to the
subsidiary. Note that the amount in this step (2) may differ from
the amount in step (1) due to intercompany transactions and
eliminations in consolidation.
Determine the lower of (1) or (2), and multiply that amount by
10.5%. 8
Determine the dollar amount of qualifying total capital for the
subsidiary. If this amount is less than step (3), go directly to step
(9). Otherwise continue on to step (5).
Subtract the amount in step (3) from the amount in step (4). This is
the “surplus total capital of the subsidiary.”
Determine the percent of the subsidiary’s qualifying total capital
instruments that are owned by third parties (the minority
shareholders). (This amount includes instruments that qualify for
common equity tier 1 or tier 1 capital.)
Multiply the percentage from step (6) by the dollar amount in step
(5). This is the “surplus total capital minority interest of the
subsidiary”
Determine the total amount of total capital minority interest of the
subsidiary. Then subtract the surplus total capital minority interest
of the subsidiary (step 7) from this amount.
The “total capital minority interest includable at bank level” is the
amount from step (8) or step (4) if there is no surplus total capital
minority interest of the subsidiary.

(10) Subtract from (9) any minority interest that is included in common
equity tier 1 in Schedule SC-R, item 4, and additional tier 1 capital
in Schedule SC-R, item 22, for this subsidiary. The result is the
total capital minority interest includable in total capital minority
interest in this line item 29.

8

$1,000
$1,000

$1,000 x 10.5%
= $105
$130

$130 -$105
= $25
$24 + $15 + $15
= $54. Then,
$54/$130 =
41.54%
41.54% x $25 =
10.39
$24 + $15 + $15
= $54. Then $54
- $10.39 =
$43.62.
$43.62 (Report
the lesser of
$43.62 or $54;
therefore
$43.62).
$43.62 – ($21 +
$9.14) = $13.48.

The percentage multiplier in step (3) is the capital ratio needed so that the subsidiary depository institution would
not be subject to restrictions on capital distributions and discretionary bonus payments.
31

DRAFT
July 3, 2013

Transition provisions: for surplus minority interest and non-qualifying minority interest, follow
the transition provision instructions in item 4.
Line item 30 Allowance for loan and lease losses includable in tier 2 capital.
Report the portion of the SLHC's allowance for loan and lease losses that are includable in tier 2
capital. None of the SLHC's allocated transfer risk reserve, if any, is includable in tier 2 capital.
The amount reported in this item cannot exceed 1.25 percent of the SLHC’s gross risk-weighted
assets, reported in Schedule SC-R. The allowance for loan and lease losses equals:
a. Allowance for loan and lease losses.
The amount reported should reflect an evaluation by the management of a bank holding company
of the collectability of the loan and lease financing receivable portfolios, including any accrued
and unpaid interest. The amount of the allowance on the balance sheet should be adequate to
absorb anticipated losses.
b. LESS: Allocated transfer risk reserve.
Report the amount of any allocated transfer risk reserve related to loans and leases held for
investment that the reporting bank is required to establish and maintain that the bank has
included in the end-of-period balance of the allowance for loan and lease losses.
c. PLUS: Allowance for credit losses on off-balance sheet credit exposures.
Report the amount of any allowance for credit losses on off-balance sheet exposures established
in accordance with generally accepted accounting principles.
Line item 31 Unrealized gains on available-for-sale preferred stock classified as an equity
security under GAAP and equity exposures.
(i) SLHCs that entered “1” for “Yes” in Schedule SC-R, item 3(a):
Report the pretax net unrealized holding gain (i.e., the excess of fair value over historical cost), if
any, on available-for-sale preferred stock classified as an equity security under GAAP and equity
exposures that is includable in tier 2 capital subject to the limits specified in the revised
regulatory capital rules. The amount reported in this item cannot exceed 45 percent of the
SLHC's pretax net unrealized holding gain on available-for-sale preferred stock classified as an
equity security under GAAP and equity exposures.
(ii) SLHCs that entered “0” for “No” in Schedule SC-R, item 3(a):
Transition provisions for phasing out unrealized gains on available-for-sale preferred stock
classified as an equity security under GAAP and equity exposures:
(i) Determine the amount of unrealized gains on available-for-sale preferred stock classified as
an equity security under GAAP and equity exposures that an institution currently includes
in tier 2 capital.
(ii) Multiply (i) by the percentage in Table 9 and include this amount in tier 2 capital.
32

DRAFT
July 3, 2013

Table 9—Percentage of unrealized gains on available–for-sale preferred stock classified as
an equity security under GAAP and equity exposures that may be included in tier 2 capital
Calendar year
Percentage of unrealized gains on available-for-sale preferred
stock classified as an equity security under GAAP and equity
exposures that may be included in tier 2 capital
2015
27
2016
18
2017
9
2018 and thereafter
0
For example, during calendar year 2015, include up to 27 percent of unrealized gains on
available-for-sale preferred stock classified as an equity security under GAAP and equity
exposures in tier 2 capital. During calendar years 2016, 2017, and 2018 (and thereafter) these
percentages go down 18, 9, and zero, respectively.
Line item 32 Tier 2 capital before deductions.
Report the sum of Schedule SC-R, items 27 through 31.
Line item 33 LESS: Tier 2 capital deductions.
Report total tier 2 capital deductions as the sum of the following elements:
If an SLHC does not have a sufficient amount of tier 2 capital to reflect these deductions, then
the SLHC must deduct from additional tier 1 capital (Schedule SC-R, item 24) or, if there is not
enough additional tier 1 capital, from common equity tier 1 capital (Schedule SC-R, item 17).
a. Investments in own additional tier 2 capital instruments.
Report the SLHC’s investments in (including any contractual obligation to purchase) its own tier
2 instruments, whether held directly or indirectly.
An SLHC may deduct gross long positions net of short positions in the same underlying
instrument only if the short positions involve no counterparty risk.
The SLHC must look through any holdings of index securities to deduct investments in its own
capital instruments. In addition:
(i) Gross long positions in investments in an SLHC’s own regulatory capital instruments
resulting from holdings of index securities may be netted against short positions in the same
index;
(ii) Short positions in index securities that are hedging long cash or synthetic positions can be
decomposed to recognize the hedge; and
(iii) The portion of the index that is composed of the same underlying exposure that is being
hedged may be used to offset the long position if both the exposure being hedged and the
short position in the index are covered positions under the market risk capital rule, and the
hedge is deemed effective by the SLHC’s internal control processes.
33

DRAFT
July 3, 2013

Transition provisions: follow the transition provisions in Schedule SC-R, item 11.
b. Reciprocal cross-holdings in the capital of financial institutions.
Include investments in the tier 2 capital instruments of other financial institutions that the SLHC
holds reciprocally, where such reciprocal crossholdings result from a formal or informal
arrangement to swap, exchange, or otherwise intend to hold each other’s capital instruments.
Transition provisions: follow the transition provisions in Schedule SC-R, item 11.
c. Non-significant investments in tier 2 capital of unconsolidated financial institutions that
exceed the 10 percent threshold for non-significant investments.
Calculate this amount as follows (similar to Schedule SC-R, item 11):
(1) Determine the aggregate amount of non-significant investments in the capital of
unconsolidated financial institutions in the form of common stock, additional tier 1, and tier 2
capital.
(2) Determine the amount of non-significant investments in the capital of unconsolidated
financial institutions in the form of tier 2 capital.
(3) If (1) is greater than the 10 percent threshold for non-significant investments (Schedules SCR, item 11, step (4)), then, multiply the difference by the ratio of (2) over (1). Report this
product in this line item.
(4) If (1) is less than the 10 percent threshold for non-significant investments, enter zero.
For example, assume an SLHC has a total of $200 in non-significant investments (step 1),
including $40 in the form of tier 2 capital (step 2), and its 10 percent threshold for nonsignificant investments is $100 (as calculated in Schedule SC-R, item 11, step 4). Since the
aggregate amount of non-significant investments exceed the 10 percent threshold for nonsignificant investments by $100 ($200-$100), the SLHC would multiply $100 by the ratio of
40/200 (step 3). Thus, the SLHC would need to deduct $20 from its tier 2 capital.
Transition provisions: follow the transition provisions in Schedule SC-R, item 11.
d. Significant investments in the capital of unconsolidated financial institutions not in the
form of common stock to be deducted from tier 2 capital.
Report the total amount of significant investments in the capital of unconsolidated financial
institutions in the form of tier 2 capital.
Transition provisions: follow the transition provisions in Schedule SC-R, item 11.
e. Other adjustments and deductions.
Include any other applicable adjustments and deductions applied to tier 2 capital in accordance
with the regulatory capital rules.
34

DRAFT
July 3, 2013

Line item 34 Tier 2 capital.
Report the greater of Schedule SC-R, item 32 minus item 33 or zero.
Line item 35 Total capital.
Report the greater of the sum of Schedule SC-R, items 26 and 34 or zero.

Total assets for the leverage ratio
Line item 36 Average total consolidated assets.
Report average total consolidated assets in this line item. Reflect all debt securities (not held for
trading) at amortized cost, available-for-sale equity securities with readily determinable fair
values at the lower of cost or fair value, and equity securities without readily determinable fair
values at historical cost. In addition, to the extent that net deferred tax assets included in the bank
holding company’s total assets, if any, include the deferred tax effects of any unrealized holding
gains and losses on available-for-sale debt securities, these deferred tax effects may be excluded
from the determination of the average for total consolidated assets. If these deferred tax effects
are excluded, this treatment must be followed consistently over time.
For this item, report the average of the balances as of the close of business for each day for the
reporting period or an average of the balances as of the close of business on each Wednesday
during the reporting period. For days that the bank holding company (or any of its consolidated
subsidiaries or branches) is closed (e.g., Saturdays, Sundays, or holidays), use the amount
outstanding from the previous business day. An office is considered closed if there are no
transactions posted to the general ledger as of that date.
Line item 37 LESS: Deductions from common equity tier 1 capital and additional tier 1.
Report the sum of Schedule SC-R, items 6, 7, 8, and 10.b.
Line item 38 LESS: Other deductions from (additions to) assets for the leverage ratio
purposes.
Based on the regulatory capital rules, report the amount of any additions to (deductions from)
total assets for leverage capital purposes that are not included in Schedule SC-R, item 36, as
applicable.
Line item 39 Total assets for the leverage ratio.
Report Schedule SC-R, item 36 minus items 37 and 38.
35

DRAFT
July 3, 2013

Line item 40 Total risk-weighted assets.
Starting on January 1, 2015, report total risk-weighted assets calculated under the standardized
approach.
Note: an additional form and corresponding instructions for reporting risk-weighted assets
under the standardized approach will be proposed in the future.

Capital ratios
Line item 41 Common equity tier 1 capital ratio.
Report the institution’s common equity tier 1 risk-based capital ratio as a percentage, rounded to
two decimal places.
Divide Schedule SC-R, item 19 by item 40.
Line item 42 Tier 1 capital ratio.
Report the institution’s tier 1 risk-based capital ratio as a percentage, rounded to two decimal
places.
Divide Schedule SC -R, item 26 by item 40.
Line item 43 Total capital ratio.
Report the institution’s total risk-based capital ratio as a percentage, rounded to two decimal
places.
Divide Schedule SC-R, item 35 by item 40.
Line item 44 Tier 1 leverage ratio.
Report the institution’s tier 1 leverage ratio as a percentage, rounded to two decimal places.
Divide Schedule SC-R, item 26 by item 39.
Line item 45 NOT APPLICABLE.
Do not complete this line item.

36

DRAFT
July 3, 2013

Capital buffer
Report institution-specific capital buffer necessary to avoid limitations on capital distributions
and discretionary bonus payments.
Line item 46 Capital conservation buffer
Report capital conservation buffer which is equal to the lowest of the following ratios: (i)
Schedule SC-R, item 41 less 4.5 percent; (ii) Schedule SC-R, item 42 less 6 percent; or (iii)
Schedule SC-R, item 43 less 8 percent.
Note: Report items 47 and 48 if item 46 is less than or equal to 2.5 percent of the SLHC’s
total risk-weighted assets:
Line item 47 Eligible retained income.
Report the amount of eligible retained income as the SLHC’s net income for the four calendar
quarters preceding the current reporting period, based on the SLHC’s most recent regulatory
report, net of any capital distributions and associated tax effects not already reflected in net
income.
Line item 48 Capital distributions and discretionary bonus payments during the quarter.
Report the amount of capital distributions and discretionary bonus payments during the last
reporting period.

37