[Federal Register Volume 78, Number 243 (Wednesday, December 18, 2013)]
[Rules and Regulations]
[Pages 76521-76529]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-29785]



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  Federal Register / Vol. 78, No. 243 / Wednesday, December 18, 2013 / 
Rules and Regulations  

[[Page 76521]]



FEDERAL RESERVE SYSTEM

12 CFR Parts 208 and 225

[Regulations H, Q, and Y; Docket No. R-1459]
RIN 7100 AD-98


Risk-Based Capital Guidelines; Market Risk

AGENCY: Board of Governors of the Federal Reserve System.

ACTION: Final rule.

-----------------------------------------------------------------------

SUMMARY: The Board of Governors of the Federal Reserve System (Board) 
is adopting a final rule that revises its market risk capital rule 
(market risk rule) to address recent changes to the Country Risk 
Classifications (CRCs) published by the Organization for Economic 
Cooperation and Development (OECD), which are referenced in the Board's 
market risk rule; to clarify the treatment of certain traded 
securitization positions; to make a technical amendment to the 
definition of covered position; and to clarify the timing of the 
required market risk disclosures. These changes conform the Board's 
current market risk rule to the requirements in the Board's new capital 
framework and thereby allow the current market risk rule to serve as a 
bridge until the new capital framework becomes fully effective for all 
banking organizations.

DATES: Effective date: April 1, 2014. Any company subject to the rule 
may elect to adopt it before this date.

FOR FURTHER INFORMATION CONTACT: Constance Horsley, Manager, (202) 452-
5239, or Timothy Geishecker, Senior Supervisory Financial Analyst, 
(202) 475-6353, Capital and Regulatory Policy, Division of Banking 
Supervision and Regulation; or Benjamin McDonough, Senior Counsel, 
(202) 452-2036, or Mark Buresh, Attorney (202) 452-5270, Legal 
Division, Board of Governors of the Federal Reserve System, 20th and C 
Streets NW., Washington, DC 20551. For the hearing impaired only, 
Telecommunication Device for the Deaf (TDD), (202) 263-4869.

SUPPLEMENTARY INFORMATION:

I. Background

    On July 22, 2013, the Board published in the Federal Register a 
notice of proposed rulemaking (the NPR or the proposal) seeking public 
comment on the Board's proposal to revise its market risk rule.\1\ As 
indicated in the proposal, the Board had previously amended its market 
risk rule (the August 2012 final rule) \2\ to better capture positions 
for which the market risk rule is appropriate, reduce pro-cyclicality, 
enhance the rule's sensitivity to risks that were not adequately 
captured under the existing methodologies, increase transparency 
through enhanced disclosures, and implement certain provisions of the 
Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-
Frank Act), including the prohibition against including references to 
credit ratings in Federal regulations set forth in section 
939A.3 4
---------------------------------------------------------------------------

    \1\ 78 FR 43829 (July 22, 2013). The Board's current market risk 
rule is at 12 CFR parts 208 and 225, Appendix E (state member banks 
and bank holding companies, respectively).
    \2\ The Office of the Comptroller of the Currency, the Board, 
and the Federal Deposit Insurance Corporation (collectively, the 
agencies) published a final rule on August 30, 2012 to revise their 
respective market risk rules (77 FR 53059 (August 30, 2012)).
    \3\ The August 2012 final rule incorporated features of 
documents published by the Basel Committee on Bank Supervision 
(BCBS) and the International Organizations of Securities Commissions 
(IOSCO) in 2005, 2009, and 2010 that revised the market risk 
framework. The BCBS published a revised capital framework in 2004 
entitled International Convergence of Capital Measurement and 
Capital Standards: A Revised Framework (Basel II Accord) (available 
at http://www.bis.org/publ/bcbs107.htm) and, between 2005 and 2010, 
made revisions included in the 2005 publication of The Application 
of Basel II to Trading Activities and the Treatment of Double 
Default Effects (available at http://www.bis.org/publ/bcbs111.htm); 
the 2009 publications of Revisions to the Basel II Market Risk 
Framework (available at http://www.bis.org/publ/bcbs158.htm), 
Guidelines for Computing Capital for Incremental Risk in the Trading 
Book (available at http://www.bis.org/publ/bcbs159.htm), and 
Enhancements to the Basel II Framework (available at http://www.bis.org/publ/bcbs/basel2enh0901.htm); and the 2010 publication 
that established a floor on the risk-based capital requirement for 
modeled correlation trading positions (available at http://www.bis.org/press/p100618/annex.pdf). The agencies provided 
additional detail on this history in the preamble to the August 2012 
final rule (see 77 FR 53060, 53060-53062 (August 30, 2012)).
    \4\ Public Law 111-203, 124 Stat. 1376 (July 21, 2010). Section 
939A(a) of the Dodd-Frank Act provides that not later than 1 year 
after the date of enactment, each Federal agency shall: (1) Review 
any regulation issued by such agency that requires the use of an 
assessment of the credit-worthiness of a security or money market 
instrument; and (2) any references to or requirements in such 
regulations regarding credit ratings. Section 939A further provides 
that each such agency ``shall modify any such regulations identified 
by the review under subsection (a) to remove any reference to or 
requirement of reliance on credit ratings and to substitute in such 
regulations such standard of credit-worthiness as each respective 
agency shall determine as appropriate for such regulations.'' See 15 
U.S.C. 78o-7 note. The August 2012 final rule incorporated non-
credit ratings based standards for measuring specific risk capital 
requirements.
---------------------------------------------------------------------------

    The proposal would have addressed recent changes to the country 
risk classifications (CRCs) published by the Organization for Economic 
Cooperation and Development (OECD) that would affect the calculation of 
specific risk capital requirements for certain covered positions, 
clarified the treatment of certain traded securitization positions, 
made a technical amendment to the definition of covered position, and 
clarified the timing of required market risk disclosures. These 
proposed changes would have conformed the Board's current market risk 
rule to the material requirements in the Board's new capital framework 
and thereby would have allowed the current market risk rule to serve as 
a bridge until the new capital framework becomes fully effective for 
all banking organizations.\5\ The Board received no comments regarding 
the proposal and therefore, for the same reasons as discussed in the 
proposal, is finalizing the rule as proposed.
---------------------------------------------------------------------------

    \5\ 78 FR 62017 (October 11, 2013).
---------------------------------------------------------------------------

II. Description of the Final Market Risk Rule

A. Sovereign Debt Positions

    Under the current market risk rule, a sovereign entity is defined 
as a central government (including the U.S. government) or an agency, 
department, ministry, or central bank of a central government. The 
specific risk capital requirement for a sovereign debt position that is 
not backed by the full faith and credit of the United States is 
determined, in part, using CRCs based on the OECD's CRC methodology. 
The OECD's CRCs are an assessment of

[[Page 76522]]

country risk, used to set interest rates for transactions covered by 
the OECD arrangement on export credits.
    The OECD's CRC methodology was established in 1999 and classifies 
countries into categories based on the application of two basic 
components: (1) The country risk assessment model (CRAM), which is an 
econometric model that produces a quantitative assessment of country 
credit risk; and (2) the qualitative assessment of the CRAM results, 
which integrates political risk and other risk factors not fully 
captured by the CRAM. The two components of the CRC methodology are 
combined and result in countries being classified into one of eight 
risk categories (0-7), with countries assigned to the 0 category having 
the lowest possible risk assessment and countries assigned to the 7 
category having the highest. The OECD regularly updates CRCs for over 
150 countries. Also, CRCs are recognized by the BCBS as an alternative 
to credit ratings.
    As noted in the preamble to the August 2012 final rule, the 
agencies determined that the use of CRCs to measure sovereign risk for 
purposes of their respective risk-based capital regulations is 
permissible under section 939A of the Dodd-Frank Act, because section 
939A was not intended to apply to assessments made by organizations 
such as the OECD. Additionally, the agencies noted that the use of the 
CRCs was limited in scope.
    Following the publication of the August 2012 final rule, the OECD 
determined that it will no longer classify certain high-income 
countries that previously received a CRC of zero. Under the August 2012 
final rule, sovereign debt positions without a CRC generally receive a 
specific risk-weighting factor of 8 percent (the equivalent of a 100 
percent risk weight). According to the OECD, the CRAM was not used to 
categorize high-income OECD and Euro Area countries, and therefore the 
OECD determined that applying a CRC to such countries was no longer 
appropriate.\6\ The OECD also stated that such countries ``will remain 
subject to the same market credit risk pricing disciplines that are 
applied to all Category Zero countries,'' and ``[t]his means that the 
change has no practical impact on the rules that apply to the provision 
of official export credits.'' \7\
---------------------------------------------------------------------------

    \6\ ``Changes agreed to the Participant Country Risk 
Classification System,'' available at: http://www.oecd.org/tad/xcred/cat0.htm.
    \7\ Id.
---------------------------------------------------------------------------

    The Board believes that referencing CRCs in its market risk rule is 
appropriate and represents a reasonable alternative to credit ratings 
for sovereign exposures. The CRC methodology also is more granular and 
risk-sensitive than the previous risk-weighting methodology, which was 
based solely on a sovereign entity's OECD membership. Furthermore, 
referencing CRCs poses moderate additional burden for banking 
organizations, because the OECD regularly updates CRCs and makes the 
assessments available on its public Web site. Additionally, the use of 
CRCs is consistent with the treatment of sovereign debt positions in 
the Basel II Accord.\8\
---------------------------------------------------------------------------

    \8\ See footnote 4.
---------------------------------------------------------------------------

    Consistent with the August 2012 final rule, this final rule maps 
the risk weights to CRCs in a manner consistent with the Basel II 
standardized approach, which provides risk weights for exposures to 
foreign sovereigns based on CRCs. This final rule amends the Board's 
market risk rule to allow exposures to OECD member countries that are 
covered positions and that no longer receive a CRC or continue to 
receive a zero percent specific risk-weighting factor (except in cases 
of default by the sovereign entity). The revised specific risk-
weighting factors for sovereign debt positions, with the new category 
for OECD members with no CRC rating, are set forth in Table 1.

  Table 1--Specific Risk-Weighting Factors for Sovereign Debt Positions
------------------------------------------------------------------------
                                    Remaining          Risk-weighting
                              contractual maturity  factor  (in percent)
------------------------------------------------------------------------
Sovereign CRC:
    0-1.....................  ....................                  0
    2-3.....................  6 months or less....                  0.25
                              Greater than 6                        1.0
                               months and up to
                               and including 24
                               months.
                              Exceeds 24 months...                  1.6
    4-6.....................  ....................                  8.0
    7.......................  ....................                 12.0
OECD Member with No CRC.....  ....................                  0.0
Non-OECD Member with No CRC.  ....................                  8.0
Sovereign Default...........  ....................                 12.0
------------------------------------------------------------------------

    A banking organization may assign to a sovereign debt position a 
specific risk-weighting factor lower than the applicable specific risk-
weighting factor in Table 1 if the position is denominated in the 
sovereign entity's currency, the banking organization has at least an 
equivalent amount of liabilities in that foreign currency, and the 
sovereign entity allows banks under its jurisdiction to assign the 
lower specific risk-weighting factor to the same exposures to the 
sovereign entity.
    The specific risk-weighting factors for debt positions that are 
exposures to a public sector entity (PSE), depository institution, 
foreign bank, or credit union will continue to be tied to the CRC of 
the applicable sovereign entity. Therefore, under this final rule, a 
banking organization must assign a specific risk-weighting factor of 
0.25, 1.0, or 1.6 percent (depending on the remaining contractual 
maturity of the position), to a debt position that is an exposure to a 
PSE, depository institution, foreign bank, or credit union, if the 
applicable sovereign entity does not have a CRC but is a member of the 
OECD, unless the sovereign debt position must otherwise be assigned a 
higher specific risk-weighting factor (for example, in the case of 
default by the sovereign entity). For each applicable table of specific 
risk-weighting factors in the rule, the final rule adds an ``OECD 
Member with No CRC'' category and revises the current ``No CRC'' 
category to read ``Non-OECD Member with No CRC,'' each with appropriate 
corresponding specific risk-weighting factors. This additional category 
addresses those situations, discussed above, where a sovereign entity 
that had received a CRC of zero will no longer

[[Page 76523]]

receive a CRC going forward. This approach to an exposure to a 
sovereign entity, PSE, depository institution, foreign bank, or credit 
union is consistent with the approach that the Board has adopted in the 
new capital framework.
    The final rule, as well as the current rule, defines default by a 
sovereign entity as noncompliance by the sovereign entity with its 
external debt service obligations or the inability or unwillingness of 
a sovereign government to service an existing loan according to its 
original terms, as evidenced by failure to pay principal and interest 
timely and fully, arrearages, or restructuring. A default includes a 
voluntary or involuntary restructuring that results in a sovereign not 
servicing an existing obligation in accordance with the obligation's 
original terms.

B. Securitization Positions--Simplified Supervisory Formula Approach

    A banking organization subject to the market risk rule generally 
must assign a 100 percent specific risk-weighting factor to its 
securitization positions or apply the so-called Simplified Supervisory 
Formula Approach (SSFA), which takes into account the nature and 
quality of the underlying collateral of the securitization and was 
designed to apply relatively higher capital requirements to the more 
risky junior tranches of a securitization that are the first to absorb 
losses and relatively lower requirements to the most senior positions. 
Consistent with the proposal, this final rule clarifies the treatment 
of certain securitization positions under the SSFA with regard to 
determining the delinquency of the underlying exposures as discussed 
below.
    Among the inputs to the SSFA is the ``W'' parameter, which 
increases the capital requirements for a securitization exposure when 
delinquencies in the underlying assets of the securitization grow. The 
parameter W equals the ratio of (1) the sum of the dollar amounts of 
any underlying exposures of the securitization that meet certain 
criteria to (2) the balance, measured in dollars, of underlying 
exposures. The criteria are that the underlying exposure is 90 days or 
more past due, subject to a bankruptcy or insolvency proceeding, in the 
process of foreclosure, held as real estate owned, in default, or has 
contractually deferred interest payments for 90 days or more.
    Banking organizations subject to the market risk rule previously 
indicated that the criteria could be read to include deferrals of 
interest that are unrelated to the performance of the loan or the 
borrower and may inappropriately include certain federally guaranteed 
student loans. The Board did not intend for parameter W to be 
interpreted in this manner. The market risk rule was intended to 
capture contractual provisions present in certain instruments that 
permit borrowers to defer payments due to financial difficulties and, 
therefore, may conceal credit quality deterioration in the assets 
underlying a securitization exposure. Accordingly, the final rule 
clarifies that parameter W excludes loans with contractual provisions 
that allow deferral of principal and interest on federally-guaranteed 
student loans, in accordance with the terms of those guarantee 
programs, or on consumer loans including non-federally-guaranteed 
student loans, provided that such payments are deferred pursuant to 
provisions included in the contract at the time funds are disbursed 
that provide for periods of deferral that are not initiated based on 
changes in the creditworthiness of the borrower. This clarification 
avoids regulatory disincentives for banking organizations to invest in 
securitizations, particularly securitizations of federally-guaranteed 
student loans, where the underlying exposures include provisions that 
allow for the deferral of certain payments for non-credit related 
reasons. This clarification is consistent with the approach the Board 
finalized in the new capital framework.

C. Definition of Covered Position

    Consistent with the proposal, this final rule adopts a technical 
amendment to the definition of ``covered position.'' In the current 
market risk rule, the covered position definition excludes equity 
positions that are not publicly traded. The Board has refined this 
exclusion such that a covered position may include a position in an 
investment company, as defined in and registered with the SEC under the 
Investment Company Act of 1940 (15 U.S.C. 80a-1 et seq.) (or its non-
U.S. equivalent), provided that all the underlying equities held by the 
investment company are publicly traded. The Board believes that a 
``look-through'' approach is appropriate in these circumstances because 
of the liquidity of the underlying positions, so long as the other 
conditions of a covered position are satisfied. This modification to 
the definition of ``covered position'' is consistent with the approach 
the Board finalized in the new capital framework.

D. Timing of Market Risk Disclosures

    Also consistent with the proposal, this final rule adopts 
amendments to the market risk rule regarding the timing of market risk 
disclosures as proposed. The final rule clarifies when a banking 
organization subject to the market risk rule must make its required 
market risk disclosures. The amendments align with the Board's new 
capital framework and are consistent with the expectation that public 
disclosures should be made in a timely manner. The final rule provides 
that a banking organization must provide timely quantitative 
disclosures after each calendar quarter. In addition, the final rule 
clarifies that a banking organization is required to provide timely 
qualitative disclosures at least annually, after the end of the fourth 
calendar quarter, provided any significant changes must be disclosed in 
the interim.
    As indicated in the proposal, the timing of disclosures that are 
required by the federal banking agencies may not always coincide with 
the timing of disclosures required under other federal laws, including 
disclosures required under the federal securities laws and their 
implementing regulations by the SEC. For calendar quarters that do not 
correspond to fiscal year-end, the Board considers those disclosures 
that are made within 45 days of the end of the calendar quarter (or 
within 60 days for the limited purpose of the banking organization's 
first reporting period in which it is subject to the rule) as timely. 
In general, where a banking organization's fiscal year-end coincides 
with the end of a calendar quarter, the Board considers disclosures to 
be timely if they are made no later than the applicable SEC disclosure 
deadline for the corresponding Form 10-K annual report. In cases where 
an institution's fiscal year-end does not coincide with the end of a 
calendar quarter, the Board will consider the timeliness of disclosures 
on a case-by-case basis. In some cases, a banking organization's 
management may determine that a significant change has occurred, such 
that the most recent reported amounts do not reflect the banking 
organization's capital adequacy and risk profile. In those cases, a 
banking organization must disclose the general nature of these changes 
and briefly describe how they are likely to affect public disclosures 
going forward.

E. Effective Date of the Final Rule

    The final rule will be effective April 1, 2014; however, any bank 
holding company or state member bank subject to the market risk rule 
may elect to adopt the requirements in the final rule before the 
effective date.

[[Page 76524]]

III. Administrative Law Matters

A. Solicitation of Comments and Use of Plain Language

    Section 722 of the Gramm-Leach- Bliley Act (Pub. L. 106-102, 113 
Stat. 1338, 1471, 12 U.S.C. 4809) requires the Federal banking agencies 
to use plain language in all proposed and final rules published after 
January 1, 2000. The Board sought to present the proposed rule in a 
simple and straightforward manner and solicited comment on how to make 
the proposed rule easier to understand. No comments were received on 
the use of plain language.

B. Paperwork Reduction Act Analysis

    In accordance with the Paperwork Reduction Act of 1995 (PRA) (44 
U.S.C. 3506; 5 CFR part 1320, Appendix A.1), the Board reviewed the 
final rule under the authority delegated to the Board by Office of 
Management and Budget (OMB). No additional collections of information 
pursuant to the Paperwork Reduction Act are contained in this final 
rule.

C. Regulatory Flexibility Act Analysis

    The Regulatory Flexibility Act, 5 U.S.C. 601 et seq. (RFA) requires 
an agency to provide a final regulatory flexibility analysis with a 
final rule or to certify that the rule will not have a significant 
economic impact on a substantial number of small entities (defined for 
purposes of the RFA beginning on July 22, 2013, to include banks with 
assets less than or equal to $500 million) \9\ and publish its analysis 
or a summary, or its certification and a short, explanatory statement, 
in the Federal Register along with the final rule.
---------------------------------------------------------------------------

    \9\ See 13 CFR 121.201. Effective July 22, 2013, the Small 
Business Administration revised the size standards for banking 
organizations to $500 million in assets from $175 million in assets. 
78 FR 37409 (June 20, 2013).
---------------------------------------------------------------------------

    The Board is providing a final regulatory flexibility analysis with 
respect to this final rule. As discussed above, this final is designed 
to enhance the safety and soundness of entities with substantial 
trading activities that the Board supervises. The Board received no 
public comments on the proposed rule from members of the general public 
or from the Chief Counsel for Advocacy of the Small Business 
Administration. Thus, no issues were raised in public comments relating 
to the Board's initial regulatory flexibility act analysis and no 
changes are being made in response to such comments.
    Under regulations issued by the Small Business Administration, a 
small entity includes a depository institution or bank holding company 
with total assets of $500 million or less (a small banking 
organization). As of September 30, 2013, there were 630 small state 
member banks. As of June 30, 2013, there were approximately 3,760 small 
bank holding companies. The final rule will apply only to banking 
organizations supervised by the Board with aggregate trading assets and 
trading liabilities (as reported in the banking organizations' most 
recent quarterly regulatory reporting form) equal to 10 percent or more 
of quarter-end assets or $1 billion or more. Currently, no small state 
member bank or small banking holding company meets these threshold 
criteria, so there will be no additional projected compliance 
requirements imposed on small banking organizations supervised by the 
Board. For bank holding companies and state member banks subject to 
this final rule, this final rule is not expected to impose additional 
reporting, recordkeeping, or other compliance requirements, other than 
minimal one-time systems changes.
    The Board believes that the final rule will not have a significant 
economic impact on small banking organizations supervised by the Board 
and therefore believes that there are no significant alternatives to 
the final rule that would reduce the economic impact on small banking 
organizations supervised by the Board.

List of Subjects

12 CFR Part 208

    Confidential business information, Crime, Currency, Federal Reserve 
System, Mortgages, Reporting and recordkeeping requirements, 
Securities.

12 CFR Part 225

    Administrative practice and procedure, Banks, banking, Federal 
Reserve System, Holding companies, Reporting and recordkeeping 
requirements, Securities.

Board of Governors of the Federal Reserve System

12 CFR Chapter II

Authority and Issuance

    For the reasons set forth in the preamble, parts 208 and 225 of 
chapter II of title 12 of the Code of Federal Regulations are amended 
as follows:

PART 208--MEMBERSHIP OF STATE BANKING INSTITUTIONS IN THE FEDERAL 
RESERVE SYSTEM (REGULATION H)

0
1. The authority citation for part 208 continues to read as follows:

    Authority:  12 U.S.C. 24, 36, 92a, 93a, 248(a), 248(c), 321-
338a, 371d, 461, 481-486, 601, 611, 1814, 1816, 1818, 1820(d)(9), 
1833(j), 1828(o), 1831, 1831o, 1831p-1, 1831r-1, 1831w, 1831x, 
1835a, 1882, 2901-2907, 3105, 3310, 3331-3351, 3905-3909, and 5371; 
15 U.S.C. 78b, 78l(b), 78l(i), 780-4(c)(5), 78q, 78q-1, and 78w, 
1681s, 1681w, 6801, and 6805; 31 U.S.C. 5318; 42 U.S.C. 4012a, 
4104a, 4104b, 4106 and 4128.

0
2. Amend Appendix E, section 2, by revising paragraphs (3)(v) through 
(vii) and adding paragraph (3)(viii) in the definition of ``Covered 
position'' to read as follows:

Appendix E to Part 208--Risk-Based Capital Guidelines; Market Risk

* * * * *

Section 2. Definitions

* * * * *
    Covered position * * *
    (3) * * *
    (v) Any equity position that is not publicly traded, other than 
a derivative that references a publicly traded equity and other than 
a position in an investment company as defined in and registered 
with the SEC under the Investment Company Act of 1940 (15 U.S.C. 
80a-1 et seq.), provided that all the underlying equities held by 
the investment company are publicly traded;
    (vi) Any equity position that is not publicly traded, other than 
a derivative that references a publicly traded equity and other than 
a position in an entity not domiciled in the United States (or a 
political subdivision thereof) that is supervised and regulated in a 
manner similar to entities described in paragraph (3)(v) of this 
definition;
    (vii) Any position a bank holds with the intent to securitize; 
or
    (viii) Any direct real estate holding.
* * * * *

0
3. Amend Appendix E, section 10, by:
0
a. Revising paragraph (b)(2)(i)(A), Table 2, and paragraphs 
(b)(2)(i)(B), (C), and (D), and adding paragraph (b)(2)(i)(E);
0
b. Revising paragraph (b)(2)(iv)(A) and Table 3;
0
c. Revising paragraph (b)(2)(v), Table 4 and Table 5 to read as 
follows:

Section 10. Standardized Measurement Method for Specific Risk

* * * * *
    (b) Debt and securitization positions.* * *
    (2) * * *
    (i) Sovereign Debt Positions. (A) In accordance with table 2, a 
bank must assign a specific risk-weighting factor to a sovereign 
debt position based on the CRC applicable to the sovereign entity 
and, as applicable, the remaining contractual maturity of the 
position, or, if there is no CRC applicable to the sovereign entity, 
based on whether the sovereign entity is a member of the OECD. 
Notwithstanding any other provision in this Appendix E, sovereign 
debt positions that are backed by the full faith and credit of the 
United States are treated as having a CRC of 0.

[[Page 76525]]



                      Table 2--Specific Risk-Weighting Factors for Sovereign Debt Positions
----------------------------------------------------------------------------------------------------------------
 
----------------------------------------------------------------------------------------------------------------
                                                                  Specific risk-weighting factor
                                                                           (in percent)
----------------------------------------------------------------------------------------------------------------
                                                         0-1                          0.0
                                                ----------------------------------------------------------------
                                                               Remaining contractual maturity of            0.25
                                                                6 months or less.
                                                              --------------------------------------------------
CRC............................................          2-3   Remaining contractual maturity of            1.0
                                                                greater than 6 and up to and
                                                                including 24 months.
                                                              --------------------------------------------------
                                                               Remaining contractual maturity               1.6
                                                                exceeds 24 months.
                                                ----------------------------------------------------------------
                                                         4-6                          8.0
                                                ----------------------------------------------------------------
                                                           7                          12.0
----------------------------------------------------------------------------------------------------------------
OECD Member with No CRC........................                                0.0
----------------------------------------------------------------------------------------------------------------
Non-OECD Member with No CRC....................                                8.0
----------------------------------------------------------------------------------------------------------------
Default by the Sovereign Entity................                                12.0
----------------------------------------------------------------------------------------------------------------

    (B) Notwithstanding paragraph (b)(2)(i)(A) of this section, a 
bank may assign to a sovereign debt position a specific risk-
weighting factor that is lower than the applicable specific risk-
weighting factor in table 2 if:
    (1) The position is denominated in the sovereign entity's 
currency;
    (2) The bank has at least an equivalent amount of liabilities in 
that currency; and
    (3) The sovereign entity allows banks under its jurisdiction to 
assign the lower specific risk-weighting factor to the same 
exposures to the sovereign entity.
    (C) A bank must assign a 12.0 percent specific risk-weighting 
factor to a sovereign debt position immediately upon determination a 
default has occurred; or if a default has occurred within the 
previous five years.
    (D) A bank must assign a 0.0 percent specific risk-weighting 
factor to a sovereign debt position if the sovereign entity is a 
member of the OECD and does not have a CRC assigned to it, except as 
provided in paragraph (b)(2)(i)(C) of this section.
    (E) A bank must assign an 8.0 percent specific risk-weighting 
factor to a sovereign debt position if the sovereign entity is not a 
member of the OECD and does not have a CRC assigned to it, except as 
provided in paragraph (b)(2)(i)(C) of this section.
* * * * *
    (iv) Depository institution, foreign bank, and credit union debt 
positions. (A) Except as provided in paragraph (b)(2)(iv)(B) of this 
section, a bank must assign a specific risk-weighting factor to a 
debt position that is an exposure to a depository institution, a 
foreign bank, or a credit union in accordance with table 3, based on 
the CRC that corresponds to that entity's sovereign of incorporation 
or the OECD membership status of that entity's sovereign of 
incorporation if there is no CRC applicable to the entity's 
sovereign of incorporation, and, as applicable, the remaining 
contractual maturity of the position.

  Table 3--Specific Risk-Weighting Factors for Depository Institution,
              Foreign Bank, and Credit Union Debt Positions
------------------------------------------------------------------------
 
------------------------------------------------------------------------
                                       Specific risk-weighting factor
                                                (in percent)
------------------------------------------------------------------------
                                    Remaining                       0.25
                                     contractual
                                     maturity of 6
                                     months or less.
                                   -------------------------------------
CRC 0-2 or OECD Member with No CRC  Remaining                       1.0
                                     contractual
                                     maturity of greater
                                     than 6 and up to
                                     and including 24
                                     months.
                                   -------------------------------------
                                    Remaining                       1.6
                                     contractual
                                     maturity exceeds 24
                                     months.
------------------------------------------------------------------------
CRC 3.............................                   8.0
------------------------------------------------------------------------
CRC 4-7...........................                  12.0
------------------------------------------------------------------------
Non-OECD Member with No CRC.......                   8.0
------------------------------------------------------------------------
Default by the Sovereign Entity...                  12.0
------------------------------------------------------------------------

* * * * *
    (v) PSE debt positions. (A) Except as provided in paragraph 
(b)(2)(v)(B) of this section, a bank must assign a specific risk-
weighting factor to a debt position that is an exposure to a PSE in 
accordance with table 4 and table 5 depending on the position's 
categorization as a general obligation or revenue obligation, based 
on the CRC that corresponds to the PSE's sovereign of incorporation 
or the OECD membership status of the PSE's sovereign of 
incorporation if there is no CRC applicable to the PSE's sovereign 
of incorporation, and, as applicable, the remaining contractual 
maturity of the position.
    (B) A bank may assign a lower specific risk-weighting factor 
than would otherwise apply under tables 4 and 5 to a debt position 
that is an exposure to a foreign PSE if:
    (1) The PSE's sovereign of incorporation allows banks under its 
jurisdiction to assign a lower specific risk-weighting factor to 
such position; and
    (2) The specific risk-weighting factor is not lower than the 
risk weight that corresponds to the PSE's sovereign of incorporation 
in accordance with tables 4 and 5.
    (C) A bank must assign a 12.0 percent specific risk-weighting 
factor to a PSE debt

[[Page 76526]]

position immediately upon determination that a default by the PSE's 
sovereign of incorporation has occurred or if a default by the PSE's 
sovereign of incorporation has occurred within the previous five 
years.

Table 4--Specific Risk-Weighting Factors for PSE General Obligation Debt
                                Positions
------------------------------------------------------------------------
 
------------------------------------------------------------------------
                                      General obligation specific risk-
                                               weighting factor
                                                (in percent)
------------------------------------------------------------------------
CRC 0-2 or OECD Member with No CRC  Remaining                       0.25
                                     contractual
                                     maturity of 6
                                     months or less.
                                   -------------------------------------
                                    Remaining                       1.0
                                     contractual
                                     maturity of greater
                                     than 6 and up to
                                     and including 24
                                     months.
                                   -------------------------------------
                                    Remaining                       1.6
                                     contractual
                                     maturity exceeds 24
                                     months.
------------------------------------------------------------------------
CRC 3.............................                   8.0
------------------------------------------------------------------------
CRC 4-7...........................                  12.0
------------------------------------------------------------------------
Non-OECD Member with No CRC.......                   8.0
------------------------------------------------------------------------
Default by the Sovereign Entity...                  12.0
------------------------------------------------------------------------


Table 5--Specific Risk-Weighting Factors for PSE Revenue Obligation Debt
                                Positions
------------------------------------------------------------------------
 
------------------------------------------------------------------------
                                      Revenue obligation specific risk-
                                               weighting factor
                                                (in percent)
------------------------------------------------------------------------
                                    Remaining                       0.25
                                     contractual
                                     maturity of 6
                                     months or less.
                                   -------------------------------------
CRC 0-1 or OECD Member with No CRC  Remaining                       1.0
                                     contractual
                                     maturity of greater
                                     than 6 and up to
                                     and including 24
                                     months.
                                   -------------------------------------
                                    Remaining                       1.6
                                     contractual
                                     maturity exceeds 24
                                     months.
------------------------------------------------------------------------
CRC 2-3...........................                   8.0
------------------------------------------------------------------------
CRC 4-7...........................                  12.0
------------------------------------------------------------------------
Non-OECD Member with No CRC.......                   8.0
------------------------------------------------------------------------
Default by the Sovereign Entity...                  12.0
------------------------------------------------------------------------

* * * * *

0
4. Amend Appendix E, section 11, by revising paragraph (b)(2) to read 
as follows:

Section 11. Simplified Supervisory Formula Approach

* * * * *
    (b) SSFA parameters. * * *
    (2) Parameter W is expressed as a decimal value between zero and 
one. Parameter W is the ratio of the sum of the dollar amounts of 
any underlying exposures of the securitization that meet any of the 
criteria as set forth in paragraphs (i) through (vi) of this 
paragraph (b)(2) to the balance, measured in dollars, of underlying 
exposures:
    (i) Ninety days or more past due;
    (ii) Subject to a bankruptcy or insolvency proceeding;
    (iii) In the process of foreclosure;
    (iv) Held as real estate owned;
    (v) Has contractually deferred payments for 90 days or more, 
other than principal or interest payments deferred on:
    (A) Federally-guaranteed student loans, in accordance with the 
terms of those guarantee programs; or
    (B) Consumer loans, including non-federally-guaranteed student 
loans, provided that such payments are deferred pursuant to 
provisions included in the contract at the time funds are disbursed 
that provide for period(s) of deferral that are not initiated based 
on changes in the creditworthiness of the borrower; or
    (vi) Is in default.
* * * * *

0
5. Amend Appendix E, section 12, by:
0
a. Revising paragraph (a);
0
b. Revising paragraph (c)(1) introductory text; and
0
c. Revising paragraph (d) introductory text to read as follows:

Section 12. Market Risk Disclosures

    (a) Scope. A bank must comply with this section unless it is a 
consolidated subsidiary of a bank holding company or a depository 
institution that is subject to these requirements or of a non-U.S. 
banking organization that is subject to comparable public disclosure 
requirements in its home jurisdiction. A bank must make timely 
disclosures publicly each calendar quarter. If a significant change 
occurs, such that the most recent reporting amounts are no longer 
reflective of the bank's capital adequacy and risk profile, then a 
brief discussion of this change and its likely impact must be 
provided as soon as practicable thereafter. Qualitative disclosures 
that typically do not change each quarter may be disclosed annually, 
provided any significant changes are disclosed in the interim. If a 
bank believes that disclosure of specific commercial or financial 
information would prejudice seriously its position by making public 
certain information that is either proprietary or confidential in 
nature, the bank is not required to disclose these specific items, 
but must disclose more general information about the subject matter 
of the requirement, together with the fact that, and the reason why, 
the specific items of information have not been disclosed. The 
bank's management may provide all of the disclosures required by 
this section in one place on the bank's public Web site or may 
provide the disclosures in more than one public financial report or 
other regulatory reports, provided that the bank publicly provides a 
summary table specifically indicating the location(s) of all such 
disclosures.
* * * * *

[[Page 76527]]

    (c) * * * (1) For each material portfolio of covered positions, 
the bank must provide timely public disclosures of the following 
information at least quarterly:
* * * * *
    (d) * * * For each material portfolio of covered positions, the 
bank must provide timely public disclosures of the following 
information at least annually after the end of the fourth calendar 
quarter, or more frequently in the event of material changes for 
each portfolio:
* * * * *

PART 225--BANK HOLDING COMPANIES AND CHANGE IN BANK CONTROL 
(REGULATION Y)

0
6. The authority citation for part 225 is revised 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. 1681s, 1681w, 6801 and 6805.
0
7. Amend Appendix E, section 2, by revising paragraphs (3)(v) through 
(vii) and adding paragraph (3)(viii) in the definition of ``Covered 
position'' to read as follows:

Appendix E to Part 225--Capital Adequacy Guidelines for Bank Holding 
Companies: Market Risk

Section 2. Definitions

* * * * *
    Covered position * * *
    (3) * * *
    (v) Any equity position that is not publicly traded, other than 
a derivative that references a publicly traded equity and other than 
a position in an investment company as defined in and registered 
with the SEC under the Investment Company Act of 1940 (15 U.S.C. 
80a-1 et seq.), provided that all the underlying equities held by 
the investment company are publicly traded;
    (vi) Any equity position that is not publicly traded, other than 
a derivative that references a publicly traded equity and other than 
a position in an entity not domiciled in the United States (or a 
political subdivision thereof) that is supervised and regulated in a 
manner similar to entities described in paragraph (3)(v) of this 
definition;
    (vii) Any position a bank holds with the intent to securitize; 
or
    (viii) Any direct real estate holding.
* * * * *

0
8. Amend Appendix E, section 10, by:
0
a. Revising paragraph (b)(2)(i)(A), Table 2, and paragraphs 
(b)(2)(i)(B), (C), and (D), and adding paragraph (b)(2)(i)(E);
0
b. Revising paragraph (b)(2)(iv)(A) and Table 3;
0
c. Revising paragraph (b)(2)(v), Table 4 and Table 5 to read as 
follows:

Section 10. Standardized Measurement Method for Specific Risk

* * * * *
    (b) Debt and securitization positions.* * *
    (2) * * *
    (i) Sovereign Debt Positions. (A) In accordance with table 2, a 
bank must assign a specific risk-weighting factor to a sovereign 
debt position based on the CRC applicable to the sovereign entity 
and, as applicable, the remaining contractual maturity of the 
position, or, if there is no CRC applicable to the sovereign entity, 
based on whether the sovereign entity is a member of the OECD. 
Notwithstanding any other provision in this Appendix E, sovereign 
debt positions that are backed by the full faith and credit of the 
United States are treated as having a CRC of 0.

  Table 2--Specific Risk-Weighting Factors for Sovereign Debt Positions
------------------------------------------------------------------------
 
------------------------------------------------------------------------
                                     Specific risk-weighting factor
                                              (in percent)
------------------------------------------------------------------------
CRC:
    0-1......................                     0.0
                              ------------------------------------------
    2-3......................  Remaining contractual                0.25
                                maturity of 6 months
                                or less.
                               Remaining contractual                1.0
                                maturity of greater
                                than 6 and up to and
                                including 24 months.
                               Remaining contractual                1.6
                                maturity exceeds 24
                                months.
                              ------------------------------------------
    4-6......................                     8.0
                              ------------------------------------------
    7........................                     12.0
                              ------------------------------------------
OECD Member with No CRC......                     0.0
                              ------------------------------------------
Non-OECD Member with No CRC..                     8.0
                              ------------------------------------------
Default by the Sovereign                          12.0
 Entity.
------------------------------------------------------------------------

    (B) Notwithstanding paragraph (b)(2)(i)(A) of this section, a 
bank may assign to a sovereign debt position a specific risk-
weighting factor that is lower than the applicable specific risk-
weighting factor in table 2 if:
    (1) The position is denominated in the sovereign entity's 
currency;
    (2) The bank has at least an equivalent amount of liabilities in 
that currency; and
    (3) The sovereign entity allows banks under its jurisdiction to 
assign the lower specific risk-weighting factor to the same 
exposures to the sovereign entity.
    (C) A bank must assign a 12.0 percent specific risk-weighting 
factor to a sovereign debt position immediately upon determination a 
default has occurred; or if a default has occurred within the 
previous five years.
    (D) A bank must assign a 0.0 percent specific risk-weighting 
factor to a sovereign debt position if the sovereign entity is a 
member of the OECD and does not have a CRC assigned to it, except as 
provided in paragraph (b)(2)(i)(C) of this section.
    (E) A bank must assign an 8.0 percent specific risk-weighting 
factor to a sovereign debt position if the sovereign entity is not a 
member of the OECD and does not have a CRC assigned to it, except as 
provided in paragraph (b)(2)(i)(C) of this section.
* * * * *
    (iv) Depository institution, foreign bank, and credit union debt 
positions. (A) Except as provided in paragraph (b)(2)(iv)(B) of this 
section, a bank must assign a specific risk-weighting factor to a 
debt position that is an exposure to a depository institution, a 
foreign bank, or a credit union in accordance with table 3, based on 
the CRC that corresponds to that entity's sovereign of incorporation 
or the OECD membership status of that entity's sovereign of 
incorporation if there is no CRC applicable to the entity's 
sovereign of incorporation, and, as applicable, the remaining 
contractual maturity of the position.

[[Page 76528]]



  Table 3--Specific Risk-Weighting Factors for Depository Institution,
              Foreign Bank, and Credit Union Debt Positions
------------------------------------------------------------------------
 
------------------------------------------------------------------------
                                     Specific risk-weighting factor
                                              (in percent)
------------------------------------------------------------------------
CRC 0-2 or OECD Member with    Remaining contractual                0.25
 No CRC.                        maturity of 6 months
                                or less.
                               Remaining contractual                1.0
                                maturity of greater
                                than 6 and up to and
                                including 24 months.
                               Remaining contractual                1.6
                                maturity exceeds 24
                                months.
                              ------------------------------------------
CRC 3........................                     8.0
                              ------------------------------------------
CRC 4-7......................                     12.0
                              ------------------------------------------
Non-OECD Member with No CRC..                     8.0
                              ------------------------------------------
Default by the Sovereign                          12.0
 Entity.
------------------------------------------------------------------------

* * * * *
    (v) PSE debt positions. (A) Except as provided in paragraph 
(b)(2)(v)(B) of this section, a bank must assign a specific risk-
weighting factor to a debt position that is an exposure to a PSE in 
accordance with table 4 and table 5 depending on the position's 
categorization as a general obligation or revenue obligation, based 
on the CRC that corresponds to the PSE's sovereign of incorporation 
or the OECD membership status of the PSE's sovereign of 
incorporation if there is no CRC applicable to the PSE's sovereign 
of incorporation, and, as applicable, the remaining contractual 
maturity of the position.
    (B) A bank may assign a lower specific risk-weighting factor 
than would otherwise apply under tables 4 and 5 to a debt position 
that is an exposure to a foreign PSE if:
    (1) The PSE's sovereign of incorporation allows banks under its 
jurisdiction to assign a lower specific risk-weighting factor to 
such position; and
    (2) The specific risk-weighting factor is not lower than the 
risk weight that corresponds to the PSE's sovereign of incorporation 
in accordance with tables 4 and 5.
    (C) A bank must assign a 12.0 percent specific risk-weighting 
factor to a PSE debt position immediately upon determination that a 
default by the PSE's sovereign of incorporation has occurred or if a 
default by the PSE's sovereign of incorporation has occurred within 
the previous five years.

Table 4--Specific Risk-Weighting Factors for PSE General Obligation Debt
                                Positions
------------------------------------------------------------------------
 
------------------------------------------------------------------------
                                     General obligation specific risk-
                                              weighting factor
                                               (in percent)
------------------------------------------------------------------------
CRC 0-2 or OECD Member with No    Remaining                         0.25
 CRC.                              contractual
                                   maturity of 6
                                   months or less.
                                  Remaining                         1.0
                                   contractual
                                   maturity of
                                   greater than 6
                                   and up to and
                                   including 24
                                   months.
                                  Remaining                         1.6
                                   contractual
                                   maturity exceeds
                                   24 months.
------------------------------------------------------------------------
CRC 3...........................                    8.0
                                 ---------------------------------------
CRC 4-7.........................                   12.0
                                 ---------------------------------------
Non-OECD Member with No CRC.....                    8.0
                                 ---------------------------------------
Default by the Sovereign Entity.                   12.0
------------------------------------------------------------------------


Table 5--Specific Risk-Weighting Factors for PSE Revenue Obligation Debt
                                Positions
------------------------------------------------------------------------
 
------------------------------------------------------------------------
                                      Revenue obligation specific risk-
                                               weighting factor
                                                (in percent)
------------------------------------------------------------------------
CRC 0-1 or OECD Member with No CRC  Remaining                       0.25
                                     contractual
                                     maturity of 6
                                     months or less.
                                    Remaining                       1.0
                                     contractual
                                     maturity of greater
                                     than 6 and up to
                                     and including 24
                                     months.
                                    Remaining                       1.6
                                     contractual
                                     maturity exceeds 24
                                     months.
                                   -------------------------------------
CRC 2-3...........................                   8.0
                                   -------------------------------------
CRC 4-7...........................                  12.0
                                   -------------------------------------
Non-OECD Member with No CRC.......                   8.0
                                   -------------------------------------
Default by the Sovereign Entity...                  12.0
------------------------------------------------------------------------

* * * * *

0
9. Amend Appendix E, section 11, by revising paragraph (b)(2) to read 
as follows:

Section 11. Simplified Supervisory Formula Approach

* * * * *

[[Page 76529]]

    (b) SSFA parameters. * * *
    (2) Parameter W is expressed as a decimal value between zero and 
one. Parameter W is the ratio of the sum of the dollar amounts of 
any underlying exposures of the securitization that meet any of the 
criteria as set forth in paragraphs (i) through (vi) of this 
paragraph (b)(2) to the balance, measured in dollars, of underlying 
exposures:
    (i) Ninety days or more past due;
    (ii) Subject to a bankruptcy or insolvency proceeding;
    (iii) In the process of foreclosure;
    (iv) Held as real estate owned;
    (v) Has contractually deferred payments for 90 days or more, 
other than principal or interest payments deferred on:
    (A) Federally-guaranteed student loans, in accordance with the 
terms of those guarantee programs; or
    (B) Consumer loans, including non-federally-guaranteed student 
loans, provided that such payments are deferred pursuant to 
provisions included in the contract at the time funds are disbursed 
that provide for period(s) of deferral that are not initiated based 
on changes in the creditworthiness of the borrower; or
    (vi) Is in default.
* * * * *

0
10. Amend Appendix E, section 12, by:
0
a. Revising paragraph (a);
0
b. Revising paragraph (c)(1) introductory text and;
0
c. Revising paragraph (d) introductory text to read as follows:

Section 12. Market Risk Disclosures

    (a) Scope. A bank must comply with this section unless it is a 
consolidated subsidiary of a bank holding company or a depository 
institution that is subject to these requirements or of a non-U.S. 
banking organization that is subject to comparable public disclosure 
requirements in its home jurisdiction. A bank must make timely 
public disclosures each calendar quarter. If a significant change 
occurs, such that the most recent reporting amounts are no longer 
reflective of the bank's capital adequacy and risk profile, then a 
brief discussion of this change and its likely impact must be 
provided as soon as practicable thereafter. Qualitative disclosures 
that typically do not change each quarter may be disclosed annually, 
provided any significant changes are disclosed in the interim. If a 
bank believes that disclosure of specific commercial or financial 
information would prejudice seriously its position by making public 
certain information that is either proprietary or confidential in 
nature, the bank is not required to disclose these specific items, 
but must disclose more general information about the subject matter 
of the requirement, together with the fact that, and the reason why, 
the specific items of information have not been disclosed. The 
bank's management may provide all of the disclosures required by 
this section in one place on the bank's public Web site or may 
provide the disclosures in more than one public financial report or 
other regulatory reports, provided that the bank publicly provides a 
summary table specifically indicating the location(s) of all such 
disclosures.
* * * * *
    (c) * * * (1) For each material portfolio of covered positions, 
the bank must provide timely public disclosures of the following 
information at least quarterly:
* * * * *
    (d) * * * For each material portfolio of covered positions, the 
bank must provide timely public disclosures of the following 
information at least annually after the end of the fourth calendar 
quarter, or more frequently in the event of material changes for 
each portfolio:
* * * * *

    By order of the Board of Governors of the Federal Reserve 
System, December 11, 2013.
Robert deV. Frierson,
Secretary of the Board.
[FR Doc. 2013-29785 Filed 12-17-13; 8:45 am]
BILLING CODE 6210-01-P