[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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Rules and Regulations
Federal Register
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This section of the FEDERAL REGISTER contains regulatory documents
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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.
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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
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\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.
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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.
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\5\ 78 FR 62017 (October 11, 2013).
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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\
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\6\ ``Changes agreed to the Participant Country Risk
Classification System,'' available at: http://www.oecd.org/tad/xcred/cat0.htm.
\7\ Id.
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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\
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\8\ See footnote 4.
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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.
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\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).
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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