[Federal Register Volume 75, Number 250 (Thursday, December 30, 2010)]
[Proposed Rules]
[Pages 82317-82323]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-32190]
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Proposed Rules
Federal Register
________________________________________________________________________
This section of the FEDERAL REGISTER contains notices to the public of
the proposed issuance of rules and regulations. The purpose of these
notices is to give interested persons an opportunity to participate in
the rule making prior to the adoption of the final rules.
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Federal Register / Vol. 75, No. 250 / Thursday, December 30, 2010 /
Proposed Rules
[[Page 82317]]
DEPARTMENT OF THE TREASURY
Office of the Comptroller of the Currency
12 CFR Part 3
[Docket No. OCC-2010-0009]
RIN 1557-AD33
FEDERAL RESERVE SYSTEM
12 CFR Parts 208 and 225
[Regulations H and Y; Docket No. R-1402]
RIN 7100-AD62
FEDERAL DEPOSIT INSURANCE CORPORATION
12 CFR Part 325
RIN 3064-AD58
Risk-Based Capital Standards: Advanced Capital Adequacy
Framework--Basel II; Establishment of a Risk-Based Capital Floor
AGENCY: Office of the Comptroller of the Currency, Treasury; Board of
Governors of the Federal Reserve System; and the Federal Deposit
Insurance Corporation.
ACTION: Joint notice of proposed rulemaking.
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SUMMARY: The Office of the Comptroller of the Currency (OCC), Board of
Governors of the Federal Reserve System (Board), and the Federal
Deposit Insurance Corporation (FDIC) (collectively, the agencies)
propose to: Amend the advanced risk-based capital adequacy standards
(advanced approaches rules) \1\ to be consistent with certain
provisions of the Dodd-Frank Wall Street Reform and Consumer Protection
Act (the Act) \2\ and amend the general risk-based capital rules \3\ to
provide limited flexibility consistent with section 171(b) of the Act
for recognizing the relative risk of certain assets generally not held
by depository institutions.
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\1\ 12 CFR part 3, Appendix C (OCC); 12 CFR part 208, Appendix F
and 12 CFR part 225, Appendix G (Board); and 12 CFR part 325
Appendix D (FDIC).
\2\ Public Law 111-203, Sec. 171, 124 Stat. 1376, 1435-38
(2010).
\3\ 12 CFR part 3, Appendix A (OCC); 12 CFR parts 208 and 225,
Appendix A (Board); 12 CFR part 325, Appendix A (FDIC).
DATES: Comments on this notice of proposed rulemaking must be received
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by February 28, 2011.
ADDRESSES: Comments should be directed to:
OCC: Because paper mail in the Washington, DC area and at the
Agencies is subject to delay, commenters are encouraged to submit
comments by the Federal eRulemaking Portal or e-mail, if possible.
Please use the title ``Advanced Capital Adequacy Framework--Basel II;
Establishment of a Risk-Based Capital Floor'' to facilitate the
organization and distribution of the comments. You may submit comments
by any of the following methods:
Federal eRulemaking Portal--``regulations.gov'': Go to
http://www.regulations.gov. Select ``Document Type'' of ``Proposed
Rules,'' and in ``Enter Keyword or ID Box,'' enter Docket ID ``OCC-
2010-0009,'' and click ``Search.'' On ``View By Relevance'' tab at
bottom of screen, in the ``Agency'' column, locate the proposed rule
for OCC, in the ``Action'' column, click on ``Submit a Comment'' or
``Open Docket Folder'' to submit or view public comments and to view
supporting and related materials for this rulemaking action.
Click on the ``Help'' tab on the Regulations.gov home page
to get information on using Regulations.gov, including instructions for
submitting or viewing public comments, viewing other supporting and
related materials, and viewing the docket after the close of the
comment period.
E-mail: [email protected].
Mail: Office of the Comptroller of the Currency, 250 E
Street, SW., Mail Stop 2-3, Washington, DC 20219.
Fax: (202) 874-5274.
Hand Delivery/Courier: 250 E Street, SW., Mail Stop 2-3,
Washington, DC 20219.
Instructions: You must include ``OCC'' as the agency name and
``Docket ID OCC-2010-0009'' in your comment. In general, OCC will enter
all comments received into the docket and publish them on the
Regulations.gov Web site without change, including any business or
personal information that you provide such as name and address
information, e-mail addresses, or phone numbers. Comments received,
including attachments and other supporting materials, are part of the
public record and subject to public disclosure. Do not enclose any
information in your comment or supporting materials that you consider
confidential or inappropriate for public disclosure.
You may review comments and other related materials that pertain to
this proposed rule by any of the following methods:
Viewing Comments Electronically: Go to http://www.regulations.gov. Select ``Document Type'' of ``Public
Submissions,'' in ``Enter Keyword or ID Box,'' enter Docket ID ``OCC-
2010-0009,'' and click ``Search.'' Comments will be listed under ``View
By Relevance'' tab at bottom of screen. If comments from more than one
agency are listed, the ``Agency'' column will indicate which comments
were received by the OCC.
Viewing Comments Personally: You may personally inspect
and photocopy comments at the OCC, 250 E Street, SW., Washington, DC.
For security reasons, the OCC requires that visitors make an
appointment to inspect comments. You may do so by calling (202) 874-
4700. Upon arrival, visitors will be required to present valid
government-issued photo identification and to submit to security
screening in order to inspect and photocopy comments.
Docket: You may also view or request available background
documents and project summaries using the methods described above.
Board: You may submit comments, identified by Docket No. R-1402 and
RIN No. 7100-AD62, by any of the following methods:
Agency Web Site: http://www.federalreserve.gov. Follow the
instructions for submitting comments at http://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm.
Federal eRulemaking Portal: http://www.regulations.gov.
Follow the instructions for submitting comments.
E-mail: [email protected]. Include docket
number in the subject line of the message.
[[Page 82318]]
FAX: (202) 452-3819 or (202) 452-3102.
Mail: Jennifer J. Johnson, Secretary, Board of Governors
of the Federal Reserve System, 20th Street and Constitution Avenue,
NW., Washington, DC 20551.
All public comments are available from the Board's Web site at
http://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm as
submitted, unless modified for technical reasons. Accordingly, your
comments will not be edited to remove any identifying or contact
information. Public comments may also be viewed electronically or in
paper form in Room MP-500 of the Board's Martin Building (20th and C
Streets, NW.) between 9 a.m. and 5 p.m. on weekdays.
FDIC: You may submit by any of the following methods:
Federal eRulemaking Portal: http://www.regulations.gov.
Follow the instructions for submitting comments.
Agency Web site: http://www.FDIC.gov/regulations/laws/federal/propose.html.
Mail: Robert E. Feldman, Executive Secretary, Attention:
Comments/Legal ESS, Federal Deposit Insurance Corporation, 550 17th
Street, NW., Washington, DC 20429.
Hand Delivered/Courier: The guard station at the rear of
the 550 17th Street Building (located on F Street), on business days
between 7 a.m. and 5 p.m.
E-mail: [email protected].
Instructions: Submissions received must include ``FDIC'' and ``PIN
XXXX-XXXX.'' Comments received will be posted without change to http://www.FDIC.gov/regulations/laws/federal/propose.html, including any
personal information provided.
FOR FURTHER INFORMATION CONTACT:
OCC: Mark Ginsberg, Risk Expert, (202) 874-5070, Capital Policy
Division; or Carl Kaminski, Senior Attorney, or Stuart Feldstein,
Director, Legislative and Regulatory Activities, (202) 874-5090.
Board: Anna Lee Hewko, (202) 530-6260, Assistant Director, or
Brendan Burke, (202) 452-2987 Supervisory Financial Analyst, Division
of Banking Supervision and Regulation, or April C. Snyder, (202) 452-
3099, Counsel, or Benjamin W. McDonough, (202) 452-2036, Counsel, Legal
Division. For the hearing impaired only, Telecommunication Device for
the Deaf (TDD), (202) 263-4869.
FDIC: George French, Deputy Director, Policy, (202) 898-3929, Nancy
Hunt, Associate Director, Capital Markets Branch, (202) 898-6643, or
Bobby Bean, Chief, Policy Section (202) 898-6705, Division of
Supervision and Consumer Protection; or Mark Handzlik, Counsel (202)
898-3990, or Michael Phillips, Counsel (202) 898-3581, Supervision and
Legislation Branch, Legal Division.
SUPPLEMENTARY INFORMATION:
I. Background
A. The Dodd-Frank Wall Street Reform and Consumer Protection Act
Section 171(b)(2) of the Dodd-Frank Wall Street Reform and Consumer
Protection Act (the Act) \4\ states that the agencies \5\ shall
establish minimum risk-based capital requirements applicable to insured
depository institutions, depository institution holding companies, and
nonbank financial companies supervised by the Federal Reserve (covered
institutions). In particular, and as described in more detail below,
sections 171(b)(1) and (2) specify that the minimum leverage and risk-
based capital requirements established under section 171 shall not be
less than ``generally applicable'' capital requirements, which shall
serve as a floor for any capital requirements the agencies may require.
Moreover, sections 171(b)(1) and (2) specify that the Federal banking
agencies may not establish leverage or risk-based capital requirements
for covered institutions that are quantitatively lower than the
generally applicable leverage or risk-based capital requirements in
effect for insured depository institutions as of the date of enactment
of the Act.
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\4\ Public Law 111-203, Sec. 171, 124 Stat. 1376, 1435-38
(2010).
\5\ Even though the Office of Thrift Supervision (OTS) is not
issuing this notice of proposed rulemaking (NPR), OTS plans to issue
an NPR that parallels the substance of this notice to amend its
capital regulations at 12 CFR part 567. OTS's parallel notice is
subject to review by the Office of Management and Budget pursuant to
Executive Order 12866.
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B. Advanced Approaches Rules
On December 7, 2007, the agencies implemented the advanced
approaches rules, which are mandatory for U.S. depository institutions
and bank holding companies (collectively, banking organizations)
meeting certain thresholds for total consolidated assets or foreign
exposure.\6\ The advanced approaches rules incorporate a series of
proposals released by the Basel Committee on Banking Supervision (Basel
Committee or BCBS), including the Basel Committee's comprehensive June
2006 release entitled ``International Convergence of Capital
Measurement and Capital Standards: A Revised Framework'' (New
Accord).\7\
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\6\ 72 FR 69288 (December 7, 2007). Subject to prior supervisory
approval, other banking organizations can opt to use the advanced
approaches rules. See 72 FR 69397 (December 7, 2007).
\7\ The BCBS is a committee of banking supervisory authorities
established by the central bank governors of the G-10 countries in
1975. The BCBS issued the New Accord to modernize its first capital
Accord, which was endorsed by the BCBS members in 1988 and
implemented by the agencies in 1989. The New Accord, the 1988
Accord, and other documents issued by the BCBS are available through
the Bank for International Settlements' Web site at http://www.bis.org.
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The advanced approaches rules establish a series of transitional
floors to provide a smooth transition to the advanced approaches rules
and to limit temporarily the amount by which a banking organization's
risk-based capital requirements could decline relative to the general
risk-based capital rules over a period of at least three years
following completion of a satisfactory parallel run. The advanced
approaches rules place limits on the amount by which a banking
organization's risk-based capital requirements may decline. Under the
advanced approaches rules, the banking organization must take the risk-
based capital ratios equal to the lesser of (i) the organization's
ratios calculated under the advanced approaches rules and (ii) its
ratios calculated under the general risk-based capital rules,\8\ with
risk-weighted assets multiplied by 95 percent, 90 percent, and 85
percent during the first, second, and third transitional floor periods,
respectively and compare these ratios to its minimum risk-based capital
ratio requirements under section 3 of the advanced approaches rules.\9\
Under this approach, banking organizations that use the advanced
approaches rule could operate with lower minimum risk-based capital
requirements during a transitional floor period, and potentially
thereafter, than would be required under the general risk-based capital
rules. At this time, no banking organization has entered a transitional
floor period and all organizations are required to compute their risk-
based capital requirements using the general risk-based capital rules.
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\8\ 12 CFR part 3, Appendix A (OCC); 12 CFR parts 208 and 225,
Appendix A (Board); and 12 CFR part 325, appendix A (FDIC).
\9\ Under the advanced approaches rules, the minimum tier 1
risk-based capital requirement is 4 percent and the total risk-based
capital requirement is 8 percent. See 12 CFR part 3, Appendix C
(OCC); 12 CFR part 208, Appendix F and 12 CFR part 225, Appendix G
(Board); and 12 CFR part 325 Appendix D (FDIC).
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C. Requirements of Section 171 of the Act
Section 171(a)(2) of the Act defines the term ``generally
applicable risk-based capital requirements'' to mean:
[[Page 82319]]
``(A) the risk-based capital requirements, as established by the
appropriate Federal banking agencies to apply to insured depository
institutions under the prompt corrective action regulations
implementing section 38 of the Federal Deposit Insurance Act,
regardless of total consolidated asset size or foreign financial
exposure; and (B) includes the regulatory capital components in the
numerator of those capital requirements, the risk-weighted assets in
the denominator of those capital requirements, and the required ratio
of the numerator to the denominator.'' Section 171(b)(2) of the Act
further provides that ``[t]he appropriate Federal banking agencies
shall establish minimum risk-based capital requirements on a
consolidated basis for insured depository institutions, depository
institution holding companies, and nonbank financial companies
supervised by the Board of Governors. The minimum risk-based capital
requirements established under this paragraph shall not be less than
the generally applicable risk-based capital requirements, which shall
serve as a floor for any capital requirements that the agency may
require, nor quantitatively lower than the generally applicable risk-
based capital requirements that were in effect for insured depository
institutions as of the date of enactment of this Act.''
In accordance with section 38 of the Federal Deposit Insurance
Act,\10\ the Federal banking agencies established minimum leverage and
risk-based capital requirements for insured depository institutions for
prompt corrective action (PCA rules). All insured institutions,
regardless of their total consolidated assets or foreign exposure, must
compute their minimum risk-based capital requirements for PCA purposes
using the general risk-based capital rules, which currently are the
``generally applicable risk-based capital requirements'' defined by
Section 171(a)(2) of the Act.
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\10\ See Public Law 102-242; 105 Stat. 2242 (1991).
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D. Effect on Applications by Foreign Banking Organizations
In approving an application by a foreign bank to establish a branch
or agency in the United States or to make a bank or nonbank
acquisition, the Board considers, among other factors, whether the
capital of the foreign bank is equivalent to the capital that would be
required of a U.S. banking organization.\11\ Similarly, in order to
make effective a foreign bank's declaration under the BHC Act to be
treated as an FHC, the Board must apply comparable capital and
management standards to the foreign bank ``giving due regard to the
principle of national treatment and equality of competitive
opportunity.'' \12\ National treatment generally means treatment that
is no less favorable than that provided to domestic institutions that
are in like circumstances. The Board has broad discretion to take any
relevant factors into account in determining standards that are both
comparable and provide national treatment.
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\11\ See 12 U.S.C. 1842(c); 1843(j); and 3105(d)(3)(B), (j)(2).
In addition, in approving an application to establish an interstate
branch, the OCC must make a similar capital equivalency
determination. See 12 U.S.C. 3103(a)(3)(B)(i).
\12\ 12 U.S.C. 1843(l)(3). A foreign bank that operates a
branch, agency or commercial lending company in the United States
and any company that owns such a foreign bank, is subject to the BHC
Act as if it were a bank holding company. The BHC Act, as amended by
the Gramm-Leach Bliley Act, provides that a bank holding company may
become a FHC if its depository institutions meet certain capital and
management standards. See 12 U.S.C. 1843(l)(1); 12 CFR 225. Under
Sec. 606 of the Act, this requirement will be modified to require
the bank holding company to be well capitalized and well managed.
See the Act Sec. 606.
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The Board has been making capital equivalency findings for foreign
banks under the International Banking Act and the Bank Holding Company
Act since 1992 pursuant to guidelines developed as part of a joint
study by the Board and Treasury on capital equivalency.\13\ The study
acknowledged the Basel Committee on Banking Supervision's 1988 capital
accord (Basel I) \14\ as the prevailing capital standard for
internationally active banks and found that implementation of Basel I
was broadly equivalent across countries. Until 2007, the Board
generally accepted as equivalent the capital of foreign banks from
countries adhering to Basel I within the bounds of national discretion
allowed under the Basel I framework. For foreign banks that have begun
operating under the New Accord's capital standards in making capital
equivalency determinations, the Board has evaluated the capital of the
foreign bank as reported in compliance with the New Accord, while also
taking into account a range of factors including compliance with the
New Accord's capital requirement floors linked to Basel I, where
applicable.
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\13\ ``Capital Equivalency Report,'' Board of Governors of the
Federal Reserve System and Secretary of the U.S. Department of the
Treasury (June 19, 1992). See 12 U.S.C. Sec. 3105(j).
\14\ International Convergence of Capital Measurement and
Capital Standard, 1988.
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At this time, many foreign bank applicants are operating under
Basel II advanced approaches that have been implemented by their home
country authorities. In many cases, home country authorities have
adopted floors based on Basel I standards using discretion and
flexibility as provided in the Accord. However, in some cases, Basel I
floors are no longer in effect, or are expected to be phased out in the
near term.
Question 1. How should the proposed rule be applied to foreign
banks in evaluating capital equivalency in the context of applications
to establish branches or make bank or nonbank acquisitions in the
United States, and in evaluating capital comparability in the context
of foreign bank FHC declarations?
E. Effect of Section 171 of the Act on Certain Institutions and Their
Assets
Certain covered institutions may not previously have been subject
to consolidated risk-based capital requirements. Some of these
companies are likely to be similar in nature to most depository
institutions and bank holding companies subject to the general risk-
based capital rules. Others, may be different, with exposure types and
risks that were not contemplated when the general risk-based capital
rules were developed. The Financial Stability Oversight Council has not
yet designated any nonbank financial companies to be supervised by the
Board; over time it is conceivable that it will designate one or more
companies whose activities are quite different than those addressed in
the general risk-based capital rules. The Board will be supervising
these institutions for the first time and expects that there will be
cases when it needs to evaluate the risk-based capital treatment of
specific exposures not typically held by depository institutions, and
that do not have a specific risk weight under the generally applicable
risk-based capital requirements.
Under the general risk-based capital rules, exposures are generally
assigned to five risk weight categories, that is, 0 percent, 20
percent, 50 percent, 100 percent, and 200 percent, according to their
relative riskiness. Assets not explicitly included in a lower risk
weight category are assigned to the 100 percent risk weight category.
Going forward, there may be situations where exposures of a depository
institution holding company or a nonbank financial company supervised
by the Board not only do not wholly fit within the terms of a risk
weight category, but also impose risks that are not commensurate with
the risk weight otherwise specified in the generally applicable risk-
based capital requirements.
[[Page 82320]]
For example, there are some material exposures of insurance
companies that, while not riskless, would be assigned to a 100 percent
risk weight category because they are not explicitly assigned to a
lower risk weight category. An automatic assignment to the 100 percent
risk weight category without consideration of an exposure's economic
substance could overstate the risk of the exposure and produce
uneconomic capital requirements for a covered institution.
II. Proposed Rule
A. Generally Applicable Risk-Based Capital Requirement Floor
The OCC, Board, and FDIC are proposing to modify their respective
advanced approaches rules consistent with section 171(b)(2). In
particular, the agencies are proposing to revise the advanced
approaches rules by replacing the transitional floors in section 21(e)
of the advanced approaches rule with a permanent floor equal to the
tier 1 and total risk-based capital requirements under the current
generally applicable risk-based capital rules. Thus, the agencies are
proposing to require each banking organization subject to the advanced
approaches rules to maintain the systems and records necessary to
calculate its required minimum risk-based capital requirements under
both the general risk-based capital rules and the advanced approaches
rules. Each quarter, each banking organization subject to the advanced
approaches rules must calculate and compare its minimum tier 1 and
total risk-based capital ratios as calculated under the general risk-
based capital rules and the advanced approaches risk-based capital
rules. The banking organization would then compare the lower of the two
tier 1 risk-based capital ratios and the lower of the two total risk-
based capital ratios to the minimum tier 1 ratio requirement of 4
percent and total risk-based capital ratio requirement of 8 percent in
section 3 of the advanced approaches rules \15\ to determine if it met
its minimum capital requirements. For bank holding companies, the
proposal also incorporates the phase-in of restrictions on the
regulatory capital treatment of debt or equity instruments issued
before May 19, 2010 as described in section 171(b)(4)(B) of the Act.
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\15\ 12 CFR part 3, Appendix C, Sec. 3 (OCC); 12 CFR part 208,
Appendix F, Sec. 3 and 12 CFR part 225, Appendix G, Sec. 3
(Board); and 12 CFR part 325, Sec. 3 Appendix D (FDIC).
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The agencies are also proposing to eliminate the paragraphs of the
advanced approaches rules dealing with the transitional floor periods,
and the interagency study. These parts of the advanced approaches rules
no longer serve a purpose.
Question 2: The agencies seek comment generally on the impact of a
permanent floor on the minimum risk-based capital requirements for
banking organizations subject to the advanced approaches rules, and on
the manner in which the agencies are proposing to implement the
provisions of section 171(b) of the Act.
B. Change to Generally Applicable Risk-Based Capital Requirements
The proposed floor, consistent with the requirements of section
171(b)(2), is based on the generally applicable risk-based capital
requirements for depository institutions. To address the appropriate
capital requirement for low risk assets that non-depository
institutions may hold and for which there is no explicit capital
treatment in the general risk-based capital rules, the agencies propose
that such exposures receive the capital treatment applicable under the
capital guidelines for bank holding companies under limited
circumstances. The circumstances are intended to allow for an
appropriate capital requirement for low risk nonbanking exposures
without creating unintended new opportunities for depository
institutions to engage in capital arbitrage. The agencies therefore
propose to limit this treatment to cases in which a depository
institution is not authorized to hold the asset under applicable law
other than under debt previously contracted or similar authority, and
the risks associated with the asset are substantially similar to the
risks of assets that receive a lower risk weight. The agencies
therefore propose a change to the general risk-based capital rules for
depository institutions to permit this limited flexibility to
appropriately address exposures of depository institution holding
companies and nonbank financial companies supervised by the Board. The
agencies request comment on this change to the general risk-based
capital rules.
Question 3. For what specific types of exposures do commenters
believe this treatment is appropriate? Does the proposal provide
sufficient flexibility to address the exposures of depository
institution holding companies and nonbank financial companies
supervised by the Federal Reserve? If not, how should the proposal be
changed to recognize the considerations outlined in this section?
Consistent with the joint efforts of the U.S. banking agencies and
the Basel Committee to enhance the regulatory capital rules, the
agencies anticipate that the generally applicable risk-based capital
requirements and advanced approaches rule will be amended from time to
time. These amendments would reflect advances in risk sensitivity and
other potentially substantive changes to fundamental aspects of the New
Accord such as the definition of capital, treatment of counterparty
credit risk, and new regulatory capital elements such as an
international leverage ratio and prudential capital buffers.
The agencies will consider each proposed change to the risk-based
capital rules and determine whether it is appropriate to implement the
change by rulemaking based on the implications of each proposal for the
capital adequacy of banking organizations, the implementation costs of
such proposals, and the nature of any unintended consequences or
competitive issues. The generally applicable risk-based capital
requirements and generally applicable leverage capital requirements
that the agencies may establish in the future would, as required under
the Act, become the minimum leverage and risk-based capital
requirements for all banking organizations. Furthermore, as provided
under the Act, any future amendments to the leverage requirements or
risk-based capital requirements established by the agencies may not
result in capital requirements that are ``quantitatively lower'' than
the generally applicable leverage requirements or risk-based capital
requirements in effect as of the date of enactment of the Act.
To comply with this provision of the Act, the agencies propose to
perform a quantitative analysis of the likely effect on capital
requirements as part of developing future amendments to the capital
rules to ensure that any new capital framework is not quantitatively
lower than the requirements in effect as of the date of enactment of
the Act. The agencies therefore would not anticipate proposing to
require banking organizations to compute two sets of generally
applicable capital requirements from current and historic frameworks as
the generally applicable requirements are amended over time. The
agencies have not yet determined the quantitative method for measuring
the equivalence of current, historic, and proposed future capital
frameworks.
Question 4: The agencies request comment on the most appropriate
method of conducting the aforementioned analysis. What are potential
quantitative methods for comparing future capital requirements to
ensure that any new capital
[[Page 82321]]
framework is not quantitatively lower than the requirements in effect
as of the date of the enactment of the Act?
The agencies anticipate addressing aspects of Section 171 not
addressed in this proposed rule in a subsequent rulemaking.
Question 5: The agencies seek comment on all other aspects of this
proposed rule, including the costs and benefits. What, if any, changes
should the agencies make to the proposed rule or the risk-based capital
framework to better balance costs and benefits?
Regulatory Flexibility Act Analysis
Pursuant to section 605(b) of the Regulatory Flexibility Act,\16\
(RFA), the regulatory flexibility analysis otherwise required under
section 604 of the RFA is not required if an agency certifies that the
rule will not have a significant economic impact on a substantial
number of small entities (defined for purposes of the RFA to include
banks with assets less than or equal to $175 million) and publishes its
certification and a short, explanatory statement in the Federal
Register along with its rule.
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\16\ 5 U.S.C. 605(b).
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This proposal would affect bank holding companies, national banks,
State member banks, and State nonmember banks, that use the advanced
approaches rules to calculate their risk-based capital requirements
according to certain internal ratings-based and internal model
approaches. A bank holding company or bank must use the advanced
approaches rules only if: (i) It has consolidated total assets (as
reported on its most recent year-end regulatory report) equal to $250
billion or more; (ii) it has consolidated total on-balance sheet
foreign exposures at the most recent year-end equal to $10 billion or
more; or (iii) it is a subsidiary of a bank holding company or bank
that would be required to use the advanced approaches rules to
calculate its risk-based capital requirements.
With respect to the proposed changes to the general risk-based
capital rules, the proposal has the potential to affect the risk
weights applicable only to assets that generally are impermissible for
banks to hold. These proposed changes are accordingly unlikely to have
a significant impact on banking organizations. The agencies also note
that the changes to the general risk-based capital rules would not
impose any additional obligations, restrictions, burdens, or reporting,
recordkeeping or compliance requirements on banks including small
banking organizations, nor do they duplicate, overlap or conflict with
other Federal rules.
The agencies estimate that zero small bank holding companies (out
of a total of approximately 2,561 small bank holding companies), one
small national bank (out of a total of approximately 678 small national
banks), one small State member bank (out of a total of approximately
400 small State member banks), and one small State nonmember bank (out
of a total of approximately 2,708 small State nonmember banks) are
required to use the advanced approaches rules.\17\ In addition, each of
the small banks that is required to use the advanced approaches rules
is a subsidiary of a bank holding company with over $250 billion in
consolidated total assets or over $10 billion in consolidated total on-
balance sheet foreign exposures. Therefore, the agencies believe that
the proposed rule will not result in a significant economic impact on a
substantial number of small entities.
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\17\ All totals are as of June 30, 2010.
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OCC Unfunded Mandates Reform Act of 1995 Determinations
Section 202 of the Unfunded Mandates Reform Act of 1995, Public Law
104-4 (UMRA) requires that an agency prepare a budgetary impact
statement before promulgating a rule that includes a Federal mandate
that may result in the expenditure by State, local, and Tribal
governments, in the aggregate, or by the private sector of $100 million
or more (adjusted annually for inflation) in any one year. If a
budgetary impact statement is required, section 205 of the UMRA also
requires an agency to identify and consider a reasonable number of
regulatory alternatives before promulgating a rule. The OCC has
determined that its proposed rule will not result in expenditures by
State, local, and Tribal governments, or by the private sector, of $100
million or more. Accordingly, the OCC has not prepared a budgetary
impact statement or specifically addressed the regulatory alternatives
considered.
Paperwork Reduction Act
In accordance with the requirements of the Paperwork Reduction Act
of 1995,\18\ the agencies may not conduct or sponsor, and the
respondent is not required to respond to, an information collection
unless it displays a currently valid Office of Management and Budget
(OMB) control number. Each of the agencies has an established
information collection for the paperwork burden imposed by the advanced
approaches rule.\19\ This notice of proposed rulemaking would replace
the transitional floors in section 21(e) of the advanced approaches
rule with a permanent floor equal to the tier 1 and total risk-based
capital requirements under the current generally applicable risk-based
capital rules. The proposed change to transitional floors would change
the basis for calculating a data element that must be reported to the
agencies under an existing requirement. However, it would have no
impact on the frequency or response time for the reporting requirement
and, therefore, does not constitute a substantive or material change
subject to OMB review.
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\18\ 44 U.S.C. 3501-3521.
\19\ See Risk-Based Capital Reporting for Institutions Subject
to the Advanced Capital Adequacy Framework, FFIEC 101, OCC OMB
Number 1557-0239, Federal Reserve OMB Number 7100-0319, FDIC OMB
Number 3064-0159.
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Plain Language
Section 722 of the Gramm-Leach-Bliley Act requires the agencies to
use plain language in all proposed and final rules published after
January 1, 2000. In light of this requirement, the agencies have sought
to present the proposed rule in a simple and straightforward manner.
The agencies invite comment on whether the agencies could take
additional steps to make the proposed rule easier to understand.
List of Subjects
12 CFR Part 3
Administrative practice and procedure, Banks, Banking, Capital,
National banks, Reporting and recordkeeping requirements, Risk.
12 CFR Part 208
Confidential business information, Crime, Currency, Federal Reserve
System, Mortgages, Reporting and recordkeeping requirements, Risk.
12 CFR Part 225
Administrative practice and procedure, Banks, banking, Federal
Reserve System, Holding companies, Reporting and recordkeeping
requirements, Securities.
12 CFR Part 325
Administrative practice and procedure, Banks, banking, Capital
Adequacy, Reporting and recordkeeping requirements, Savings
associations, State nonmember banks.
[[Page 82322]]
Department of the Treasury
Office of the Comptroller of the Currency
12 CFR Chapter I
Authority and Issuance
For the reasons stated in the common preamble, the Office of the
Comptroller of the Currency proposes to amend part 3 of chapter I of
Title 12, Code of Federal Regulations as follows:
PART 3--MINIMUM CAPITAL RATIOS; ISSUANCE OF DIRECTIVES
1. The authority citation for part 3 continues to read as follows:
Authority: 12 U.S.C. 93a, 161, 1818, 1828(n), 1828 note, 1831n
note, 1835, 3907, and 3909.
2. In Appendix A to part 3, in section 3, add new paragraph
(a)(4)(xi) as follows:
Appendix A to Part 3--Risk-Based Capital Guidelines
* * * * *
Section 3. Risk Categories/Weights for On-Balance Sheet Assets and
Off-Balance Sheet Items
* * * * *
(xi) Subject to the requirements below, a bank may assign an
asset not included in the categories above to the risk weight
category applicable under the capital guidelines for bank holding
companies,\12b\ provided that all of the following conditions apply:
---------------------------------------------------------------------------
\12b\ See 12 CFR part 225, appendix A.
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(A) The bank is not authorized to hold the asset under
applicable law other than debt previously contracted or similar
authority; and
(B) The risks associated with the asset are substantially
similar to the risks of assets that are otherwise assigned to a risk
weight category less than 100 percent under this appendix.
3. In Appendix C to part 3:
a. Revise Part I, section 3 to read as set forth below.
b. Remove section 21(e).
Appendix C to Part 3--Capital Adequacy Guidelines for Banks: Internal
Ratings-Based and Advanced Measurement Approaches
Part I. General Provisions
* * * * *
Section 3. Minimum Risk-Based Capital Requirements
(a)(1) Except as modified by paragraph (c) of this section or by
section 23 of this appendix, each bank must meet a minimum:
(i) Total risk-based capital ratio of 8.0 percent; and
(ii) Tier 1 risk-based capital ratio of 4.0 percent.
(2) A bank's total risk-based capital ratio is the lower of:
(i) Its total qualifying capital to total risk-weighted assets;
and
(ii) Its total risk-based capital ratio as calculated under
Appendix A of this part.
(3) A bank's tier 1 risk-based capital ratio is the lower of:
(i) Its tier 1 capital to total risk-weighted assets; and
(ii) Its tier 1 risk-based capital ratio as calculated under
Appendix A of this part.
(b) Each bank must hold capital commensurate with the level and
nature of all risks to which the bank is exposed.
(c) When a bank subject to 12 CFR part 3, Appendix B, calculates
its risk-based capital requirements under this appendix, the bank
must also refer to 12 CFR part 3, Appendix B, for supplemental rules
to calculate risk-based capital requirements adjusted for market
risk.
* * * * *
Federal Reserve System
12 CFR Chapter II
Authority and Issuance
For the reasons set forth in the common preamble, parts 208 and 225
of chapter II of title 12 of the Code of Federal Regulations are
proposed to be amended as follows:
PART 208--MINIMUM CAPITAL RATIOS; ISSUANCE OF DIRECTIVES
4. The authority citation for part 208 continues to read as
follows:
Authority: Subpart A of Regulation H (12 CFR part 208, Subpart
A) is issued by the Board of Governors of the Federal Reserve System
(Board) under 12 U.S.C. 24, 36; sections 9, 11,21,25 and 25A of the
Federal Reserve Act (12 U.S.C. 321-338a, 248(a), 248(c), 481-486,
601 and 611); sections 1814, 1816, 1818, 1831o, 1831p-l, 1831r-l and
1835a of the Federal Deposit Insurance Act (FDI Act) (12 U.S.C.
1814, 1816, 1818, 1831o, 1831p-l, 1831r-l and 1835); and 12 U.S.C.
3906-3909.
5. In Appendix A to part 208, revise section III.C. 4.a and add
section III.C. 4.e to read as follows:
Appendix A to Part 208--Capital Adequacy Guidelines for State Member
Banks: Risk-Based Measure
* * * * *
III. Procedures for Computing Weighted Risk Assets and Off-Balance
Sheet Items
* * * * *
C. Risk Weights
* * * * *
4. Category 4: 100 percent. a. Except as provided in section
III.C. 4.e, all assets not included in the categories above are
assigned to this category, which comprises standard risk assets. The
bulk of the assets typically found in a loan portfolio would be
assigned to the 100 percent category.
* * * * *
e. Subject to the requirements below, a bank, may assign an
asset not included in the categories above to the risk weight
category applicable under the capital guidelines for bank holding
companies,\45\ provided that all of the following conditions apply:
---------------------------------------------------------------------------
\45\ See 12 CFR part 225, appendix A.
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i. The bank is not authorized to hold the asset under applicable
law other than under debt previously contracted or other similar
authority; and
ii. The risks associated with the asset are substantially
similar to the risks of assets that are otherwise assigned to a risk
weight category of less than 100 percent under this appendix.
* * * * *
6. In Appendix F to part 208:
a. Revise section 3 to read as set forth below; and
b. Remove section 21(e).
Appendix F to Part 208--Capital Adequacy Guidelines for Banks: Internal
Ratings-Based and Advanced Measurement Approaches
Part I. General Provisions
* * * * *
Section 3. Minimum Risk-Based Capital Requirements
(a)(1) Except as modified by paragraph (c) of this section or by
section 23 of this appendix, each bank must meet a minimum:
(i) Total risk-based capital ratio of 8.0 percent; and
(ii) Tier 1 risk-based capital ratio of 4.0 percent.
(2) A bank's total risk-based capital ratio is the lower of:
(i) Its total qualifying capital to total risk-weighted assets,
and
(ii) Its total risk-based capital ratio as calculated under
Appendix A of this part.
(3) A bank's tier 1 risk-based capital ratio is the lower of:
(i) Its tier 1 capital to total risk-weighted assets, and
(ii) Its tier 1 risk-based capital ratio as calculated under
Appendix A of this part.
(b) Each bank must hold capital commensurate with the level and
nature of all risks to which the bank is exposed.
(c) When a bank subject to [the market risk rule] calculates its
risk-based capital requirements under this appendix, the bank must
also refer to [the market risk rule] for supplemental rules to
calculate risk-based capital requirements adjusted for market risk.
* * * * *
PART 225--BANK HOLDING COMPANIES AND CHANGE IN BANK CONTROL
(REGULATION Y)
7. The authority citation for part 225 continues to read as
follows:
Authority: 12 U.S.C. 1817(j)(13), 1818, 1828(o), 1831i, 1831p-1,
1843(c)(8), 1844(b), 1972(1), 3106, 3108, 3310, 3331-3351, 3907, and
3909; 15 U.S.C. 6801 and 6805.
8. In Appendix G to part 225:
a. Revise section 3 to read as set forth below; and
[[Page 82323]]
b. Remove section 21(e).
Appendix G to Part 225--Capital Adequacy Guidelines for Bank Holding
Companies: Internal Ratings-Based and Advanced Measurement Approaches
Part I. General Provisions
* * * * *
Section 3. Minimum Risk-Based Capital Requirements
(a)(1) Except as modified by paragraph (c) of this section or by
section 23 of this appendix, each bank holding company must meet a
minimum:
(i) Total risk-based capital ratio of 8.0 percent; and
(ii) Tier 1 risk-based capital ratio of 4.0 percent.
(2) A bank holding company's total risk-based capital ratio is
the lower of:
(i) Its total qualifying capital to total risk-weighted assets,
and
(ii) Its total risk-based capital ratio as calculated under 12
CFR part 208, appendix A, as adjusted to include certain debt or
equity instruments issued before May 19, 2010 as described in
section 171(b)(4)(B) of the Dodd-Frank Wall Street Reform and
Consumer Protection Act (Dodd-Frank Act).
(3) A bank holding company's tier 1 risk-based capital ratio is
the lower of:
(i) Its tier 1 capital to total risk-weighted assets, and
(ii) Its tier 1 risk-based capital ratio as calculated under 12
CFR part 208, appendix A, as adjusted to include certain debt or
equity instruments issued before May 19, 2010 as described in
section 171(b)(4)(B) of the Dodd-Frank Act.
(b) Each bank holding company must hold capital commensurate
with the level and nature of all risks to which the bank holding
company is exposed.
(c) When a bank holding company subject to [the market risk
rule] calculates its risk-based capital requirements under this
appendix, the bank holding company must also refer to [the market
risk rule] for supplemental rules to calculate risk-based capital
requirements adjusted for market risk.
* * * * *
Federal Deposit Insurance Corporation
12 CFR Chapter III
Authority for Issuance
For the reasons stated in the common preamble, the Federal Deposit
Insurance Corporation proposes to amend Part 325 of Chapter III of
Title 12, Code of the Federal Regulations as follows:
PART 325--CAPITAL MAINTENANCE
9. The authority citation for part 325 continues to read as
follows:
Authority: 12 U.S.C. 1815(a), 1815(b), 1816, 1818(a), 1818(b),
1818(c), 1818(t), 1819(Tenth), 1828(c), 1828(d), 1828(i), 1828(n),
1828(o), 1831o, 1835, 3907, 3909, 4808; Pub. L. 102-233, 105 Stat.
1761, 1789, 1790, (12 U.S.C. 1831n note); Pub. L. 102-242, 105 Stat.
2236, as amended by Pub. L. 103-325, 108 Stat. 2160, 2233 (12 U.S.C.
1828 note); Pub. L. 102-242, 105 Stat. 2236, 2386, as amended by
Pub. L. 102-550, 106 Stat. 3672, 4089 (12 U.S.C. 1828 note).
10. Amend Appendix A to part 325 as follows:
a. In section II.C, revise the first sentence of the introductory
text;
b. In sections II.D, and II.E, redesignate footnotes 45 through 50
as footnotes 46 through 51.
c. In section II.C, Category 4, add new paragraph (d) and a new
footnote 45.
Appendix A to Part 325--Statement of Policy on Risk-Based Capital
* * * * *
II. Procedures for Computing Risk-Weighted Assets
* * * * *
C. Risk Weights for Balance Sheet Assets (see Table II)
The risk based capital framework contains five risk weight
categories--0 percent, 20 percent, 50 percent, 100 percent, and 200
percent. * * *
* * * * *
Category 4--100 Percent Risk Weight. * * *
(d) Subject to the requirements below, a bank may assign an
asset not included in the categories above to the risk weight
category applicable under the capital guidelines for bank holding
companies,\45\ provided that all of the following conditions apply:
---------------------------------------------------------------------------
\45\ See 12 CFR part 225, appendix A.
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(1) The bank is not authorized to hold the asset under
applicable law other than debt previously contracted or similar
authority; and
(2) The risks associated with the asset are substantially
similar to the risks of assets that are otherwise assigned to a risk
weight category less than 100 percent under this appendix.
* * * * *
11. In Appendix D to part 325:
a. Revise section 3 to read as set forth below; and
b. Remove section 21(e).
Appendix D to Part 325--Capital Adequacy Guidelines for Banks: Internal
Ratings-Based and Advanced Measurement Approaches
Part I. General Provisions
* * * * *
Section 3. Minimum Risk-Based Capital Requirements
(a) (1) Except as modified by paragraph (c) of this section or
by section 23 of this appendix, each bank must meet a minimum:
(i) Total risk-based capital ratio of 8.0 percent; and
(ii) Tier 1 risk-based capital ratio of 4.0 percent.
(2) A bank's total risk-based capital ratio is the lower of:
(i) Its total qualifying capital to total risk-weighted assets,
and
(ii) Its total risk-based capital ratio as calculated under
appendix A of this part.
(3) A bank's tier 1 risk-based capital ratio is the lower of:
(i) Its tier 1 capital to total risk-weighted assets, and
(ii) Its tier 1 risk-based capital ratio as calculated under
appendix A of this part.
(b) Each bank must hold capital commensurate with the level and
nature of all risks to which the bank is exposed.
(c) When a bank subject to appendix C of this part calculates
its risk-based capital requirements under this appendix, the bank
must also refer to appendix C of this part for supplemental rules to
calculate risk-based capital requirements adjusted for market risk.
* * * * *
Dated: December 15, 2010.
John Walsh,
Comptroller of the Currency.
By order of the Board of Governors of the Federal Reserve
System, December 14, 2010.
Robert deV. Frierson,
Deputy Secretary of the Board.
Dated at Washington, DC, this 14th day of December 2010.
By order of the Board of Directors.
Robert E. Feldman,
Executive Secretary, Federal Deposit Insurance Corporation.
[FR Doc. 2010-32190 Filed 12-29-10; 8:45 am]
BILLING CODE 4810-33-P; 6210-01-P; 6714-01-P; 6720-01-P