[Federal Register Volume 80, Number 135 (Wednesday, July 15, 2015)]
[Rules and Regulations]
[Pages 41409-41426]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-15748]
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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. 80, No. 135 / Wednesday, July 15, 2015 /
Rules and Regulations
[[Page 41409]]
DEPARTMENT OF TREASURY
Office of the Comptroller of the Currency
12 CFR Part 3
[Docket ID OCC-2014-0025]
RIN 1557-AD88
FEDERAL RESERVE SYSTEM
12 CFR Part 217
[Regulation Q; Docket No. R-1502]
RIN 7100-AE 24
FEDERAL DEPOSIT INSURANCE CORPORATION
12 CFR Part 324
RIN 3064-AE12
Regulatory Capital Rules: Regulatory Capital, Final Revisions
Applicable to Banking Organizations Subject to the Advanced Approaches
Risk-Based Capital Rule
AGENCIES: Office of the Comptroller of the Currency, Treasury; the
Board of Governors of the Federal Reserve System; and the Federal
Deposit Insurance Corporation.
ACTION: Final rule.
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SUMMARY: The Office of the Comptroller of the Currency (OCC), the Board
of Governors of the Federal Reserve System (Board), and the Federal
Deposit Insurance Corporation (FDIC) are adopting a final rule to
clarify, correct, and update aspects of the regulatory capital
framework applicable to certain large, internationally active banking
organizations. The revisions correct technical and typographical errors
and clarify certain requirements of the advanced approaches risk-based
capital rule based on observations made by the agencies during the
parallel run review process of advanced approaches banking
organizations. The corrections also enhance consistency of the
agencies' advanced approaches risk-based capital rule with relevant
international standards. The agencies proposed these changes in a
notice of proposed rulemaking that was published in the Federal
Register on December 18, 2014. The agencies are now adopting the
proposed rule as final with some additional clarifications and
amendments.
DATES: This rule is effective on October 1, 2015.
FOR FURTHER INFORMATION CONTACT:
OCC: Margot Schwadron, Senior Risk Expert (202) 649-6982; or Mark
Ginsberg, Principal Risk Expert (202) 649-6983, Capital Policy; or
Kevin Korzeniewski, Senior Attorney, Legislative and Regulatory
Activities Division, (202) 649-5490, for persons who are deaf or hard
of hearing, TTY, (202) 649-5597, Office of the Comptroller of the
Currency, 400 7th Street SW., Washington, DC 20219.
Board: Constance M. Horsley, Assistant Director, (202) 452-5239;
Juan Climent, Manager, (202) 872-7546; Andrew Willis, Supervisory
Financial Analyst, (202) 912-4323, Matthew McQueeney, Senior Financial
Analyst, (202) 425-2942, or Justyna Milewski, Senior Financial Analyst,
(202) 452-3607, Capital and Regulatory Policy, Division of Banking
Supervision and Regulation; or Christine Graham, Counsel (202) 452-
3005; or David W. Alexander, Counsel (202) 452-2877, 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.
FDIC: Bobby R. Bean, Associate Director, [email protected]; Ryan
Billingsley, Chief, Capital Policy Section, [email protected]; or
Benedetto Bosco, Capital Markets Policy Analyst, [email protected];
Capital Markets Branch, Division of Risk Management Supervision, (202)
898-6888; or Michael Phillips, Counsel, [email protected]; Rachel
Ackmann, Senior Attorney, [email protected]; Supervision Branch, Legal
Division, Federal Deposit Insurance Corporation, 550 17th Street NW.,
Washington, DC 20429.
SUPPLEMENTARY INFORMATION:
I. Background
In 2013, the Office of the Comptroller of the Currency (OCC), the
Board of Governors of the Federal Reserve System (Board), and the
Federal Deposit Insurance Corporation (FDIC) (collectively, the
agencies) comprehensively revised and strengthened the capital
requirements applicable to banking organizations \1\ (regulatory
capital framework).\2\ Among other changes, the regulatory capital
framework revised elements of the advanced approaches risk-based
capital rule (advanced approaches rule) now located at subpart E of the
agencies' revised regulatory capital framework.\3\
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\1\ The term banking organizations includes national banks,
state member banks, state nonmember banks, savings associations, and
top-tier bank holding companies domiciled in the United States not
subject to the Board's Small Bank Holding Company Policy Statement
(12 CFR part 225, appendix C), as well as top-tier savings and loan
holding companies domiciled in the United States, except for certain
savings and loan holding companies that are substantially engaged in
insurance underwriting or commercial activities.
\2\ The Board and the OCC issued a joint final rule on October
11, 2013 (78 FR 62018) and the FDIC issued a substantially identical
interim final rule on September 10, 2013 (78 FR 55340). In April
2014, the FDIC adopted the interim final rule as a final rule with
no substantive changes. 79 FR 20754 (April 14, 2014).
\3\ 12 CFR part 3 (OCC), 12 CFR part 217 (Board), and 12 CFR
part 324 (FDIC).
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The advanced approaches rule applies to large, internationally
active banking organizations, generally those with $250 billion or more
in total consolidated assets or $10 billion or more in total on-balance
sheet foreign exposure, depository institution subsidiaries of those
banking organizations that use the advanced approaches rule, and
banking organizations that elect to use the advanced approaches rule
(advanced approaches banking organizations).\4\ Before an advanced
approaches banking organization may use the advanced approaches rule to
determine its risk-based capital requirements, it must conduct a
satisfactory parallel run.\5\ After the primary Federal supervisor
determines that the banking organization fully complies with all the
qualification requirements, has conducted a satisfactory parallel run,
and has an adequate process to ensure ongoing compliance, the banking
[[Page 41410]]
organization will be required to use the advanced approaches rule to
calculate its risk-based capital requirements.\6\
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\4\ 12 CFR 3.100(b)(1) (OCC), 12 CFR 217.100(b)(1) (Board), and
12 CFR 324.100(b)(1) (FDIC).
\5\ 12 CFR 3.121(c) (OCC), 12 CFR 217.121(c) (Board), and 12 CFR
324.121(c) (FDIC).
\6\ 12 CFR 3.121(d) (OCC), 12 CFR 217.121(d) (Board), and 12 CFR
324.121(d) (FDIC).
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An advanced approaches banking organization that is required to
calculate its risk-based capital requirements under the advanced
approaches rule also must determine its risk-based capital requirements
under the standardized approach in subpart D of the agencies'
regulatory capital framework.\7\ In accordance with section 171 of the
Dodd-Frank Act, the lower ratio (i.e., the more binding ratio) for each
risk-based capital requirement is the ratio the banking organization
must use for regulatory capital purposes.
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\7\ See 12 CFR part 3.10(c) (OCC); 12 CFR part 217.10(c)
(Board); and 12 CFR part 324.10(c) (FDIC).
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II. Proposed Rule and Summary of Comments
In December 2014, the agencies invited comment on a notice of
proposed rulemaking designed to clarify, correct, and update aspects of
the regulatory capital framework applicable to advanced approaches
banking organizations (proposed rule).\8\ The proposed revisions were
largely driven by observations made by the agencies during the parallel
run review process of advanced approaches banking organizations, and
included corrections to typographical and technical errors,
clarifications and updates in light of revisions to other rules. The
proposed revisions were also intended to enhance consistency of the
agencies' advanced approaches rule with relevant international
standards.\9\ The proposed amendments affect only those provisions of
the revised capital framework that apply to advanced approaches banking
organizations.
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\8\ See 79 FR 75455 (Dec. 18, 2014).
\9\ See International Convergence of Capital Measurement and
Capital Standards: A Revised Framework,'' (June 2006) http://www.bis.org/publ/bcbs128.htm.
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The agencies received two comment letters on the proposed
revisions--one from a financial services trade association, and another
from a public advocacy nonprofit organization. The financial services
trade association suggested that several of the proposed changes also
be applied to the standardized approach. Both commenters expressed
views on the proposed treatment of cleared transactions. The financial
services trade association suggested that the agencies expand the
proposed treatment, while the public advocacy nonprofit organization
suggested that the proposed treatment was too generous. In addition,
the public advocacy nonprofit organization disagreed with the proposed
exemption for cleared transactions from the higher capital charge
applicable to large nettings sets.
III. Overview of the Final Rule
1. Definitions and Applicability
A. Definition of Residential Mortgage Exposure
The proposed rule would have revised the definition of residential
mortgage exposure in section 2 of the regulatory capital framework to
clarify that an advanced approaches banking organization must manage
qualifying exposures as part of a segment of exposures with homogenous
risk characteristics, and not on an individual basis, for purposes of
classifying an exposure as a residential mortgage exposure under the
advanced approaches rule. This clarification was consistent with the
agencies' intent in adopting the proposed definition of residential
mortgage exposure, and with the requirement that an advanced approaches
banking organization have an internal system that groups retail
exposures into the appropriate retail exposure subcategory and that
groups the retail exposures in each retail exposure subcategory into
separate segments with homogenous risk characteristics.\10\ The
agencies did not receive any comments on this part of the proposed rule
and are adopting it as final, with a technical edit to correct a
grammatical error.
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\10\ See 12 CFR 3.122(b)(3) (OCC), 12 CFR 217.122(b)(3) (Board),
and 12 CFR 324.122(b)(3) (FDIC).
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B. Calculation of Total On-Balance Sheet Foreign Exposure
As mentioned above, the advanced approaches rule generally applies
to a banking organization with $250 billion or more in total
consolidated assets or $10 billion or more in on-balance sheet foreign
exposure. The proposed rule would have updated the method of
calculating on-balance sheet foreign exposure to reference the current
line items on the regulatory reporting forms. The agencies did not
receive any comments on this part of the proposed rule and are adopting
it as final, with a technical edit to update a reference to the Federal
Financial Institutions Examination Council (FFIEC) 009 Report instead
of referencing the Call Report.
2. Disclosure Requirements
A. Disclosure Requirements for Advanced Approaches Banking
Organizations
Section 173 of the regulatory capital framework requires advanced
approaches banking organizations that have completed the parallel run
process to provide qualitative and quantitative disclosures relating to
their capital requirements. The proposed rule would have clarified two
items related to disclosure requirements in the advanced approaches
rule.
First, the proposed rule would have clarified that an advanced
approaches banking organization would be required to disclose
information related to external ratings in Table 6 to section 173 only
if it considered external ratings in its internal ratings approach. An
advanced approaches banking organization that did not use or consider
external ratings would not be required to make such a disclosure.
Second, the proposed rule would have updated the disclosure
requirement related to securitization exposures in Table 9 to reflect
the treatment of credit-enhancing interest only strips (CEIOs) and
after-tax gain-on-sale resulting from a securitization. Specifically,
CEIOs that do not constitute after-tax gain-on-sale would be risk-
weighted at 1,250 percent, and an after-tax gain-on-sale resulting from
a securitization would be deducted from common equity tier 1 capital,
rather than from tier 1 capital. The agencies did not receive any
comments on this part of the proposed rule and are adopting it as
final.
B. Application and Disclosure of the Supplementary Leverage Ratio
Advanced approaches banking organizations are subject to the
supplementary leverage ratio.\11\ The agencies proposed to clarify that
the supplementary leverage ratio would apply to an advanced approaches
banking organization, regardless of whether it had completed its
parallel run process. The supplementary leverage ratio described in
section 10(c)(4) would begin to apply to a banking organization
immediately following the quarter in which the banking organization
becomes subject to the advanced approaches rule pursuant to section
100(b)(1) of the advanced approaches rule.
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\11\ See section 10(c)(4)(ii) of the regulatory capital
framework and 79 FR 57725 (Sept. 26, 2014) (2014 SLR rule).
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In addition, the agencies proposed to clarify the disclosure
requirements
[[Page 41411]]
applicable to advanced approaches banking organizations.\12\ The
proposed rule clarified that advanced approaches banking organizations,
not just top-tier banking organizations, would be required to publicly
disclose the supplementary leverage ratio and the components thereof
(that is, tier 1 capital and total leverage exposure) on a quarterly
basis. A banking organization that qualified as an advanced approaches
banking organization before January 1, 2015, would be required to
provide these disclosures, beginning with the first quarter in 2015,
while a banking organization that qualified as an advanced approaches
banking organization on or after January 1, 2015, would be subject to
the disclosures beginning with the calendar quarter immediately
following the calendar quarter in which the banking organization became
an advanced approaches banking organization. For example, a banking
organization that becomes subject to the advanced approaches rule as of
year-end 2015 would begin disclosing its supplementary leverage ratio
and components thereof as of March 31, 2016.
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\12\ Section 172(d) was added to the regulatory capital
framework as part of the 2014 SLR rule.
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In addition to the disclosure requirements above, the proposed rule
clarified that all top-tier \13\ advanced approaches banking
organizations, regardless of their parallel run status, would be
required to publicly disclose the quantitative information described in
Table 13 in section 173 of the advanced approaches rule \14\ for twelve
consecutive quarters or a shorter period, as applicable, beginning on
January 1, 2015. For example, a top-tier banking organization that
became an advanced approaches banking organization prior to January 1,
2015 (therefore subject to the supplementary leverage ratio disclosure
requirements beginning January 1, 2015), and remains the top-tier
banking organization, would publicly disclose supplementary leverage
ratio data for one quarter in the first quarterly disclosure of 2015,
two quarters in the second quarterly disclosure of 2015, and so on,
disclosing twelve quarters of supplementary leverage ratio data in the
quarterly disclosures for the fourth quarter of 2017. The agencies did
not receive comments on this part of the proposed rule, and are
finalizing it as proposed.
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\13\ Disclosure requirements in section 173 of the advanced
approaches rule apply only to banking organizations that are not a
consolidated subsidiary of a BHC, covered SLHC, or depository
institution that is subject to these disclosure requirements or a
subsidiary of a non-U.S. banking organization that is subject to
comparable public disclosure requirements in its home jurisdiction.
\14\ Table 13 in section 173 of the advanced approaches rule was
adopted by the agencies in the 2014 SLR rule.
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3. Risk Weights for Cleared Transactions
A. Risk Weights for Certain Client Cleared Transactions
The agencies proposed to revise the advanced approaches rule for
clearing member banking organizations' exposures to a central
counterparty (CCP) where the clearing member does not guarantee the
performance of the CCP to the clearing member client. Under the
advanced approaches rule, a clearing member banking organization is
required to assign a two percent risk weight to the trade exposure
amount for a cleared transaction with a qualifying CCP (QCCP), and a
risk weight applicable to the CCP under section 32 of the regulatory
capital framework for a cleared transaction with a CCP that is not a
QCCP. This risk weight is applied when the banking organization is
acting as a financial intermediary on behalf of its clearing member
client.
The proposed rule would have permitted clearing member banking
organizations to assign a zero percent risk weight under the advanced
approaches rule to the trade exposure amount of a cleared transaction
that arises when a clearing member banking organization does not
guarantee the performance of the CCP and has no payment obligation to
the clearing member client in the event of a CCP default. The proposed
treatment would align the risk-based capital requirements for client-
cleared transactions with the treatment under the agencies' 2014 SLR
rule.
Both commenters provided views on this provision. The public
advocacy nonprofit organization suggested that the agencies not
finalize the zero percent risk weight, arguing that it underestimates
the clearing member's risk to a CCP default. Conversely, the financial
services trade association suggested that the agencies expand the zero
percent risk weight to transactions cleared on behalf of clients that
would not meet the eligibility criteria in sections 3(a)(3) and
(3)(a)(4) of the regulatory capital framework for a cleared
transaction, to the extent that the clearing member does not guarantee
the performance of the CCP and has no payment obligation to the
clearing member client in the event of a CCP default.
The agencies believe that requiring the clearing member banking
organization to include in risk-weighted assets a trade exposure amount
for the client-cleared transactions could overstate the clearing
member's risk where the clearing member is not contractually obligated
to perform on the transaction to its client in the event of a CCP
failure. Furthermore, the public advocacy nonprofit commenter's
concerns are partially addressed by the additional capital requirement
for a clearing member banking organization's exposure to the default
fund of a CCP, which considers its capitalization and risk profile, and
the nature of its default fund. With respect to the financial services
trade association's suggestion to make an exception from the
requirements in sections 3(a)(3) and 3(a)(4) of the regulatory capital
framework, it is not clear that the risks in transactions where the
clearing member advanced approaches banking organization does not
guarantee the performance of the CCP are negligible. Thus, the agencies
are finalizing the changes to the risk weight for certain client-
cleared transactions as proposed.
The financial services trade association also noted that the
proposed changes should apply to the standardized approach contained in
subpart D of the regulatory capital framework. However, the agencies
did not seek comment on revisions to the provisions in the standardized
approach, and banking organizations subject to the standardized
approach but not to the advanced approaches rule may not have had
sufficient notice of the change. Therefore, the agencies are not
adopting the change requested by the commenter, but will consider the
suggested change in the context of future proposed rulemakings.
B. Margin Period of Risk in the Internal Models Methodology (IMM)
The regulatory capital framework increases the margin period of
risk in the IMM for large netting sets, netting sets involving illiquid
collateral or over-the-counter (OTC) derivatives that cannot easily be
replaced, or netting sets with more than two margin disputes with the
counterparty over the previous two quarters that lasted more than the
margin period of risk.\15\ In the proposed rule, the agencies proposed
to clarify that a cleared transaction would be exempt from the higher
margin period of risk solely due to the fact that it is part of a large
netting set (i.e., a netting set that exceeds 5,000 trades at any time
during the previous quarter). A cleared transaction would be subject to
the higher margin period of risk if the netting set contained illiquid
collateral,
[[Page 41412]]
derivatives that could not easily be replaced, or the banking
organization had more than two margin disputes with the counterparty
over the previous two quarters that lasted more than the margin period
of risk.
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\15\ Section 132(d)(5)(iii)(B).
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The public advocacy nonprofit commenter raised concerns about the
exemption of cleared transactions that are part of a large netting set
from the twenty business day margin-period-of-risk requirement.
However, in the agencies' view, the fact that cleared transactions are
part of a large netting set should not automatically subject them to a
higher capital requirement. In order for trades to meet the regulatory
capital framework's definition of cleared transaction, they must
involve a CCP, which facilitates trades between counterparties and has
a proven record of being able to efficiently process a large volume of
transactions. Furthermore, most types of cleared transactions must meet
the operational criteria in section 3(a) of the regulatory capital
framework, including the portability requirement in section 3(a)(4).
These factors sufficiently mitigate the risk to warrant not applying an
increased margin-period-of-risk for a netting set of cleared
transactions solely because of the size of the netting set. In
addition, this change promotes international regulatory consistency by
aligning the advanced approaches rule with international standards
regarding the requirements for netting sets containing 5,000 or more
cleared transactions. Thus, the agencies are finalizing the changes to
the margin period of risk in the IMM as proposed.
C. Collateral Posted by a Clearing Member Client Banking Organization
and a Clearing Member Banking Organization
The agencies proposed to correct a cross-reference related to the
calculation of exposure for cleared transactions for clearing member
banking organizations and for clearing member client banking
organizations in section 133 of the regulatory capital framework. Prior
to the proposed change, the provisions for measuring the risk-weighted
asset amount for posted collateral cross-referenced only to section 131
of the regulatory capital framework, which contained the provisions for
risk-weighting wholesale and retail exposures.\16\ Because collateral
may be in the form of a securitization exposure, equity exposure, or a
covered position, the proposed change would have replaced the cross-
reference to section 131 with a cross-reference to subparts E and F.
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\16\ See sections 133(b)(4)(ii) and 133(c)(4)(ii) (rules
applicable to clearing member client banking organizations and
clearing member banking organizations, respectively).
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The agencies did not receive any comments on this proposed revision
to the advanced approaches rule, and are adopting it as final. Notably,
the financial services trade association commenter noted that the
proposed clarifications should be applied to the standardized approach
and suggested that the agencies make a corresponding change to section
35 in subpart D of the regulatory capital framework. However, the
agencies did not seek comment on revisions to the standardized
approach, and non-advanced approaches banking organizations subject to
the standardized approach may not have had sufficient notice of the
change. Therefore, the agencies are not adopting the change requested
by the commenter, but will consider the suggested change in the context
of future proposed rulemakings.
4. Risk Weights for Derivatives
A. Exposure at Default Adjustment for Recognized Credit Valuation
Adjustment (CVA)
In calculating risk weights for derivative contracts, banking
organizations may use the IMM if they receive approval from their
primary Federal supervisor, or they may use the current exposure
methodology (CEM). In calculating exposure at default (EAD) for
derivative contracts under the IMM, a banking organization may reduce
EAD by the CVA that the banking organization has recognized in the fair
value of derivative contracts reported on its balance sheet. This
adjustment reflects the fair value adjustment for counterparty credit
risk in the valuation of the netting set. Under the regulatory capital
framework, a banking organization could not make a similar adjustment
under the CEM.
In the proposed rule, the agencies proposed to adjust the CEM
(section 132(c)(1)) to permit an advanced approaches banking
organization to reduce the EAD by the recognized CVA on the balance
sheet. The agencies noted that, for purposes of calculating
standardized total risk-weighted assets as required under section 10 of
the regulatory capital framework, advanced approaches banking
organizations would not be permitted to reduce the EAD calculated
according to the CEM. The agencies did not receive comment on this
proposed revision to the advanced approaches rule and are adopting it
as final, with an update in section 132(c)(1) to remove a reference to
section 132(d) and a technical edit in section 132(c)(2) to also permit
an adjustment to EAD by the recognized CVA for OTC derivatives subject
to a qualifying master netting agreement.
One commenter proposed that the agencies make a corresponding
change to the standardized approach and permit banking organizations to
reduce the EAD amount for derivative contracts by recognized CVA. The
commenter argued that the current treatment under the standardized
approach double counts the impact of CVA, and noted that the adjustment
to the standardized approach would more closely align the regulatory
capital framework with international standards. However, the agencies
did not seek comment on revisions to the provisions in the standardized
approach, and non-advanced approaches banking organizations subject to
the standardized approach may not have had sufficient notice of the
change. Therefore, the agencies are not adopting the change requested
by the commenter, but will consider the suggested change in the context
of future proposed rulemakings.
B. Fair Value of Liabilities due to Changes in the Banking
Organization's Own Credit Risk
Section 22 of the regulatory capital framework requires a banking
organization to adjust its common equity tier 1 capital for changes in
the fair value of liabilities due to changes in the banking
organization's own credit risk. The agencies proposed to clarify that,
for derivative liabilities, an advanced approaches banking organization
would deduct the difference between its credit spread premium and the
risk-free rate as part of this adjustment, and not in addition to this
adjustment.
The agencies did not receive any comments on this part of the
proposed rule and are adopting it as final.
5. Requirements and Mechanics Applicable to Banking Organizations That
Use the Advanced Approaches Rule
In February 2014 and in March 2015, the OCC and the Board granted
permission to a number of advanced approaches banking organizations to
begin calculating their risk-based capital requirements under the
advanced approaches rule.\17\ During the parallel
[[Page 41413]]
run evaluation process for advanced approaches banking organizations
that are calculating their risk-based capital requirements under the
advanced approaches rule, the agencies concluded that several areas of
the advanced approaches rule should be revised to (1) clarify the
requirements and mechanics for calculating risk-weighted assets under
the advanced approaches rule and (2) promote international consistency
by more clearly aligning the U.S. regulations with international
standards.
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\17\ Board Press Releases: http://www.federalreserve.gov/newsevents/press/bcreg/20140221a.htm, http://www.federalreserve.gov/newsevents/press/bcreg/20150331a.htm; OCC Press releases: http://www.occ.gov/news-issuances/news-releases/2014/nr-ia-2014-21.html,
http://www.occ.gov/news-issuances/news-releases/2015/nr-ia-2015-47.html.
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Sections 122 and 131 of the regulatory capital framework set forth
the qualification requirements for the internal ratings-based approach
(IRB) for advanced approaches banking organizations and describe the
mechanics for calculating risk-weighted assets for wholesale and retail
exposures under the advanced approaches rule. When the agencies
initially adopted the advanced approaches rule in 2007,\18\ they
incorporated these elements into the supervisory review process rather
than into the advanced approaches rule. However, the agencies believe
that certain elements of sections 122 and 131 of the regulatory capital
framework should be clarified to ensure that advanced approaches
banking organizations appropriately: (1) Obtain and consider all
relevant and material information to estimate probability of default
(PD), loss given default (LGD), and EAD; (2) quantify risk parameters
for wholesale and retail exposures; and (3) establish internal
requirements for collateral and risk management processes.
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\18\ 72 FR 69288 (December 7, 2007).
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Accordingly, in the proposed rule, the agencies proposed
incorporating new rule text to add specificity and enhance transparency
regarding the IRB process and the mechanics used to calculate total
wholesale and retail risk-weighted assets. More specifically, the
proposed rule would have amended sections 122 and 131 of the regulatory
capital framework to clarify requirements associated with: (1) The
frequency for reviewing risk rating systems, (2) the independence of
the systems' development, design, and implementation, (3) time horizons
for default and loss data when estimating risk parameters, (4) changes
in advanced approaches banking organizations' lending, payment
processing, and account monitoring practices, (5) the use of all
relevant available data for assigning risk ratings, and (6) the need
for internal requirements for collateral management and risk management
processes. These proposed modifications are consistent with the current
overarching principles in sections 122 and 131 of the regulatory
capital framework under which advanced approaches banking organizations
must have an internal risk rating and segmentation system that
accurately and reliably differentiates among degrees of credit risk for
wholesale and retail exposures, and must have a comprehensive risk-
parameter quantification process that produces accurate, timely, and
reliable risk-parameter estimates. The agencies emphasize that the
revisions were intended to clarify, but not change, existing
requirements. In fact, many of these clarifications in subpart E of the
regulatory capital framework are included in agency supervisory
guidance and examination materials. Therefore, because they
demonstrated that they comply with the existing requirements, advanced
approaches banking organizations that have already exited parallel run
demonstrated that they met the proposed requirements upon exit. The
agencies did not receive any comments on this part of the proposed rule
and are adopting the changes as final, with a technical edit to the
rule text in section 122(c)(2)(v)(11) to include language that was
included in the regulatory capital framework but inadvertently omitted
from the proposed revisions.
6. Technical Corrections
In addition to the revisions discussed above, the agencies proposed
to make the following technical corrections:
In section 131(e)(3)(vi), the rule would have been revised
to reference section 22(d) and not section 22(a)(7);
In Table 1 of section 132, the reference in the column
heading would have been corrected to state that ``Non-sovereign issuers
risk weight under this section (in percent)'' and ``Sovereign issuers
risk weight under this section (in percent)'' are found in section 32.
In section 132(d)(7)(iv)(B), the agencies would have
revised the rule to reference section 132(b)(2) and not section
131(b)(2);
In section 132(d)(9)(ii), the agencies would have revised
the rule to reference section 132(e)(6) and not section 132(e)(3);
In section 133(b)(3)(i)(B), the agencies would have
revised the rule to reference section 133(b)(3)(i)(A) and not section
132(b)(3)(i)(A); and
In section 136(e)(2)(i) and 136(e)(2)(ii), the agencies
would have revised the rule to reference section 136(e)(1) and (e)(2)
and not section 135(e)(1) and (e)(2).
No comments were received on the above proposed technical
corrections. The agencies are finalizing these changes as proposed and
are correcting an additional internal cross-reference error in section
132 that was identified after the publication of the proposed rule.
Specifically, the agencies are amending section 132(d)(2)(iv)(C) to
replace the reference to paragraph (d)(5) with the correct reference to
paragraph (d)(6).
In addition, the FDIC has added a clarification of its prior
Federal Register instructions regarding the regulatory capital
framework. In its amendatory rule text, the FDIC is clarifying for
Federal Register publication purposes a certain paragraph of its prompt
corrective action (PCA) rules in 12 CFR 324.403(b). The FDIC has
provided this clarification to ensure that its PCA rules, as published
in the Federal Register, are identical to the current PCA rules of the
Board and the OCC.
IV. Regulatory Analyses
A. Paperwork Reduction Act (PRA)
In accordance with the requirements of the Paperwork Reduction Act
of 1995 (44 U.S.C. 3501-3521) (PRA), the agencies may not conduct or
sponsor, and a respondent is not required to respond to, an information
collection unless it displays a currently valid Office of Management
and Budget (OMB) control number. The agencies did not receive any
comments on the proposed rule related to PRA. The agencies reviewed the
final rule and determined that it would not introduce any new
collection of information pursuant to the PRA.
B. Regulatory Flexibility Act Analysis
OCC: The Regulatory Flexibility Act, 5 U.S.C. 601 et seq. (RFA),
requires an agency, in connection with a final rule, to prepare a Final
Regulatory Flexibility Analysis describing the impact of the final rule
on small entities, or to certify that the final rule would not have a
significant economic impact on a substantial number of small entities.
For purposes of the RFA, the Small Business Administration (SBA)
defines small entities as those with $550 million or less in assets for
commercial banks and savings institutions, and $38.5 million or less in
assets for trust companies.
As described in the SUPPLEMENTARY INFORMATION section of the
preamble, the final rule would apply only to advanced approaches
banking organizations. No OCC-supervised advanced approaches banking
organization qualifies as a small
[[Page 41414]]
entity as defined by the SBA. Therefore, the OCC certifies that the
final rule will not have a significant economic impact on a substantial
number of OCC-supervised small entities.
FDIC: The RFA requires an agency, in connection with a notice of
final rulemaking, to prepare a Final Regulatory Flexibility Act
analysis describing the impact of the rule on small entities (defined
by the SBA for purposes of the RFA to include banking entities with
total assets of $550 million or less) or to certify that the final rule
will not have a significant economic impact on a substantial number of
small entities.
Using the SBA's size standards, as of March 31, 2015, the FDIC
supervised 3,407 small entities. As described in the SUPPLEMENTARY
INFORMATION section of the preamble, however, the final rule applies
only to advanced approaches banking organizations. Advanced approaches
banking organization is defined to include a state nonmember bank or a
state savings association that has, or is a subsidiary of, a bank
holding company or savings and loan holding company that has total
consolidated assets of $250 billion or more, total consolidated on-
balance sheet foreign exposure of $10 billion or more, or that has
elected to use the advanced approaches framework. As of March 31, 2015,
based on a $550 million threshold, zero (out of 3,119) small state
nonmember banks and zero (out of 288) small state savings associations
were under the advanced approaches rule. Therefore, the FDIC does not
believe that the final rule results in a significant economic impact on
a substantial number of small entities under its supervisory
jurisdiction.
The FDIC certifies that the final rule does not have a significant
economic impact on a substantial number of small FDIC-supervised
institutions.
Board: The Board is providing a final regulatory flexibility
analysis with respect to this final rule. As discussed above, this
final rule would clarify, correct, and update aspects of the agencies'
regulatory capital framework applicable to banking organizations that
are subject to the advanced approaches rule. The revisions are largely
driven by observations made by the agencies during the parallel run
review process of advanced approaches banking organizations as well as
a recent assessment of the regulatory capital framework.
Under regulations issued by the SBA, a small entity includes a
depository institution, bank holding company, or savings and loan
holding company with total assets of $550 million or less (a small
banking organization).\19\ As of March 31, 2015, there were
approximately 631 small state member banks. As of December 31, 2014,
there were approximately 3,833 small bank holding companies and 271
small savings and loan holding companies.
---------------------------------------------------------------------------
\19\ See 13 CFR 121.201. Effective July 14, 2014, the Small
Business Administration revised the size standards for banking
organizations to $550 million in assets from $500 million in assets.
79 FR 33647 (June 12, 2014).
---------------------------------------------------------------------------
The final rule applies only to advanced approaches banking
organizations, which, generally, are banking organizations with total
consolidated assets of $250 billion or more, that have total
consolidated on-balance sheet foreign exposure of $10 billion or more,
are a subsidiary of an advanced approaches depository institution, or
that elect to use the advanced approaches rule. Currently, no small
top-tier bank holding company, top-tier savings and loan holding
company, or state member bank is an advanced approaches banking
organization, so there would be no additional projected compliance
requirements imposed on small bank holding companies, savings and loan
holding companies, or state member banks. The Board expects that any
small bank holding company, savings and loan holding company, or state
member bank that would be covered by this final rule would rely on its
parent banking organization for compliance and would not bear
additional costs.
The Board is aware of no other Federal rules that duplicate,
overlap, or conflict with the final rule. 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.
C. OCC Unfunded Mandates Reform Act of 1995 Determination
The OCC analyzed the final rule under the factors set forth in the
Unfunded Mandates Reform Act of 1995 (UMRA) (2 U.S.C. 1532). Under this
analysis, the OCC considered whether the final rule includes a Federal
mandate that may result in the expenditure by State, local, and Tribal
governments, in the aggregate, or by the private sector, of $100
million or more in any one year ($143 million adjusted for inflation).
The final rule includes clarifications, corrections, and updates
for certain aspects of the agencies' regulatory capital framework
applicable to national banks and Federal savings associations subject
to the OCC's advanced approaches rule.
Because the final rule is designed to clarify, correct, and update
existing rules, and does not introduce any new requirements, the OCC
has determined that it would not result in expenditures by State,
local, and Tribal governments, or by the private sector, of $143
million or more.
D. Plain Language
Section 722 of the Gramm-Leach-Bliley Act requires the Federal
banking agencies to use plain language in all proposed and final rules
published after January 1, 2000. The agencies have sought to present
the final rule in a simple and straightforward manner, and did not
receive any comments on the use of plain language.
List of Subjects
12 CFR Part 3
Administrative practice and procedure, Capital, National banks,
Reporting and recordkeeping requirements, Risk.
12 CFR Part 217
Administrative practice and procedure, Banks, Banking, Capital,
Federal Reserve System, Holding companies, Reporting and recordkeeping
requirements, Securities.
12 CFR Part 324
Administrative practice and procedure, Banks, Banking, Capital
Adequacy, Reporting and recordkeeping requirements, Savings
associations, State non-member banks.
DEPARTMENT OF THE TREASURY
Office of the Comptroller of the Currency
12 CFR Chapter I
Authority and Issuance
For the reasons set forth in the common preamble and under the
authority of 12 U.S.C. 93a, 1462, 1462a, 1463, 1464, 3907, 3909, 1831o,
and 5412(b)(2)(B), the Office of the Comptroller of the Currency amends
part 3 of chapter I of title 12, Code of Federal Regulations as
follows:
PART 3--CAPITAL ADEQUACY STANDARDS
0
1. The authority citation for part 3 continues to read as follows:
Authority: 12 U.S.C. 93a, 161, 1462, 1462a, 1463, 1464, 1818,
1828(n), 1828 note, 1831n note, 1835, 3907, 3909, and 5412(b)(2)(B).
[[Page 41415]]
0
2. Section 3.2 is amended by revising the definition of ``Residential
mortgage exposure'' to read as follows:
Sec. 3.2 Definitions.
* * * * *
Residential mortgage exposure means an exposure (other than a
securitization exposure, equity exposure, statutory multifamily
mortgage, or presold construction loan):
(1)(i) That is primarily secured by a first or subsequent lien on
one-to-four family residential property; or
(ii) With an original and outstanding amount of $1 million or less
that is primarily secured by a first or subsequent lien on residential
property that is not one-to-four family; and
(2) For purposes of calculating capital requirements under subpart
E of this part, managed as part of a segment of exposures with
homogeneous risk characteristics and not on an individual-exposure
basis.
* * * * *
0
3. Section 3.10 is amended by revising paragraph (c) introductory text
to read as follows:
Sec. 3.10 Minimum capital requirements.
* * * * *
(c) Advanced approaches capital ratio calculations. An advanced
approaches national bank or Federal savings association that has
completed the parallel run process and received notification from the
OCC pursuant to Sec. 3.121(d) must determine its regulatory capital
ratios as described in paragraphs (c)(1) through (3) of this section.
An advanced approaches national bank or Federal savings association
must determine its supplementary leverage ratio in accordance with
paragraph (c)(4) of this section, beginning with the calendar quarter
immediately following the quarter in which the national bank or Federal
savings association meets any of the criteria in Sec. 3.100(b)(1).
* * * * *
0
4. Section 3.22 is amended by revising paragraph (b)(1)(iii) to read as
follows:
Sec. 3.22 Regulatory capital adjustments and deductions.
* * * * *
(b) * * *
(1) * * *
(iii) A national bank or Federal savings association must deduct
any net gain and add any net loss related to changes in the fair value
of liabilities that are due to changes in the national bank's or
Federal savings association's own credit risk. An advanced approaches
national bank or Federal savings association must deduct the difference
between its credit spread premium and the risk-free rate for
derivatives that are liabilities as part of this adjustment.
* * * * *
0
5. Section 3.100 is amended by revising paragraph (b)(1)(ii) to read as
follows:
Sec. 3.100 Purpose, applicability, and principle of conservatism.
* * * * *
(b) * * *
(1) * * *
(ii) Has consolidated total on-balance sheet foreign exposure on
its most recent year-end Federal Financial Institutions Examination
Council (FFIEC) 009 Report equal to $10 billion or more (where total
on-balance sheet foreign exposure equals total foreign countries cross-
border claims on an ultimate-risk basis, plus total foreign countries
claims on local residents on an ultimate-risk basis, plus total foreign
countries fair value of foreign exchange and derivative products),
calculated in accordance with the FFIEC 009 Country Exposure Report;
* * * * *
0
6. Section 3.122 is amended by:
0
a. Revising paragraphs (a)(3) and (b)(1);
0
b. Adding paragraph (b)(2)(iii);
0
c. Revising paragraphs (b)(3) and (5) and (c)(1), (2), (5), and (6);
0
d. Redesignating paragraphs (c)(9) and (10) as paragraphs (c)(10) and
(11), revising newly redesignated paragraphs (c)(10) and (11), and
adding a new paragraph (c)(9); and
0
e. Revising paragraph (i)(5).
The revisions and additions read as follows:
Sec. 3.122 Qualification requirements.
(a) * * *
(3) Each national bank or Federal savings association must have an
appropriate infrastructure with risk measurement and management
processes that meet the qualification requirements of this section and
are appropriate given the national bank's or Federal savings
association's size and level of complexity. Regardless of whether the
systems and models that generate the risk parameters necessary for
calculating a national bank's or Federal savings association's risk-
based capital requirements are located at any affiliate of the national
bank or Federal savings association, the national bank or Federal
savings association itself must ensure that the risk parameters and
reference data used to determine its risk-based capital requirements
are representative of long run experience with respect to its own
credit risk and operational risk exposures.
(b) Risk rating and segmentation systems for wholesale and retail
exposures. (1)(i) A national bank or Federal savings association must
have an internal risk rating and segmentation system that accurately,
reliably, and meaningfully differentiates among degrees of credit risk
for the national bank's or Federal savings association's wholesale and
retail exposures. When assigning an internal risk rating, a national
bank or Federal savings association may consider a third-party
assessment of credit risk, provided that the national bank's or Federal
savings association's internal risk rating assignment does not rely
solely on the external assessment.
(ii) If a national bank or Federal savings association uses
multiple rating or segmentation systems, the national bank's or Federal
savings association's rationale for assigning an obligor or exposure to
a particular system must be documented and applied in a manner that
best reflects the obligor's or exposure's level of risk. A national
bank or Federal savings association must not inappropriately allocate
obligors or exposures across systems to minimize regulatory capital
requirements.
(iii) In assigning ratings to wholesale obligors and exposures,
including loss severity ratings grades to wholesale exposures, and
assigning retail exposures to retail segments, a national bank or
Federal savings association must use all relevant and material
information and ensure that the information is current.
(iv) When assigning an obligor to a PD rating or retail exposure to
a PD segment, a national bank or Federal savings association must
assess the obligor or retail borrower's ability and willingness to
contractually perform, taking a conservative view of projected
information.
(2) * * *
(iii) A national bank or Federal savings association must have an
effective process to obtain and update in a timely manner relevant and
material information on obligor and exposure characteristics that
affect PD, LGD and EAD.
(3) For retail exposures:
(i) A national bank or Federal savings association must have an
internal system that groups retail exposures into the appropriate
retail exposure subcategory and groups the retail exposures in each
retail exposure subcategory into separate segments with homogeneous
risk characteristics that provide a meaningful differentiation of risk.
The national bank's or Federal
[[Page 41416]]
savings association's system must identify and group in separate
segments by subcategories exposures identified in Sec. 3.131(c)(2)(ii)
and (iii).
(ii) A national bank or Federal savings association must have an
internal system that captures all relevant exposure risk
characteristics, including borrower credit score, product and
collateral types, as well as exposure delinquencies, and must consider
cross-collateral provisions, where present.
(iii) The national bank or Federal savings association must review
and, if appropriate, update assignments of individual retail exposures
to segments and the loss characteristics and delinquency status of each
identified risk segment. These reviews must occur whenever the national
bank or Federal savings association receives new material information,
but generally no less frequently than quarterly, and, in all cases, at
least annually.
* * * * *
(5) The national bank's or Federal savings association's internal
risk rating system for wholesale exposures must provide for the review
and update (as appropriate) of each obligor rating and (if applicable)
each loss severity rating whenever the national bank or Federal savings
association obtains relevant and material information on the obligor or
exposure that affects PD, LGD and EAD, but no less frequently than
annually.
(c) Quantification of risk parameters for wholesale and retail
exposures. (1) The national bank or Federal savings association must
have a comprehensive risk parameter quantification process that
produces accurate, timely, and reliable estimates of the risk
parameters on a consistent basis for the national bank's or Federal
savings association's wholesale and retail exposures.
(2) A national bank's or Federal savings association's estimates of
PD, LGD, and EAD must incorporate all relevant, material, and available
data that is reflective of the national bank's or Federal savings
association's actual wholesale and retail exposures and of sufficient
quality to support the determination of risk-based capital requirements
for the exposures. In particular, the population of exposures in the
data used for estimation purposes, the lending standards in use when
the data were generated, and other relevant characteristics, should
closely match or be comparable to the national bank's or Federal
savings association's exposures and standards. In addition, a national
bank or Federal savings association must:
(i) Demonstrate that its estimates are representative of long run
experience, including periods of economic downturn conditions, whether
internal or external data are used;
(ii) Take into account any changes in lending practice or the
process for pursuing recoveries over the observation period;
(iii) Promptly reflect technical advances, new data, and other
information as they become available;
(iv) Demonstrate that the data used to estimate risk parameters
support the accuracy and robustness of those estimates; and
(v) Demonstrate that its estimation technique performs well in out-
of-sample tests whenever possible.
* * * * *
(5) The national bank or Federal savings association must be able
to demonstrate which variables have been found to be statistically
significant with regard to EAD. The national bank's or Federal savings
association's EAD estimates must reflect its specific policies and
strategies with regard to account management, including account
monitoring and payment processing, and its ability and willingness to
prevent further drawdowns in circumstances short of payment default.
The national bank or Federal savings association must have adequate
systems and procedures in place to monitor current outstanding amounts
against committed lines, and changes in outstanding amounts per obligor
and obligor rating grade and per retail segment. The national bank or
Federal savings association must be able to monitor outstanding amounts
on a daily basis.
(6) At a minimum, PD estimates for wholesale obligors and retail
segments must be based on at least five years of default data. LGD
estimates for wholesale exposures must be based on at least seven years
of loss severity data, and LGD estimates for retail segments must be
based on at least five years of loss severity data. EAD estimates for
wholesale exposures must be based on at least seven years of exposure
amount data, and EAD estimates for retail segments must be based on at
least five years of exposure amount data. If the national bank or
Federal savings association has relevant and material reference data
that span a longer period of time than the minimum time periods
specified above, the national bank or Federal savings association must
incorporate such data in its estimates, provided that it does not place
undue weight on periods of favorable or benign economic conditions
relative to periods of economic downturn conditions.
* * * * *
(9) If a national bank or Federal savings association uses internal
data obtained prior to becoming subject to this subpart E or external
data to arrive at PD, LGD, or EAD estimates, the national bank or
Federal savings association must demonstrate to the OCC that the
national bank or Federal savings association has made appropriate
adjustments if necessary to be consistent with the definition of
default in Sec. 3.101. Internal data obtained after the national bank
or Federal savings association becomes subject to this subpart E must
be consistent with the definition of default in Sec. 3.101.
(10) The national bank or Federal savings association must review
and update (as appropriate) its risk parameters and its risk parameter
quantification process at least annually.
(11) The national bank or Federal savings association must, at
least annually, conduct a comprehensive review and analysis of
reference data to determine relevance of the reference data to the
national bank's or Federal savings association's exposures, quality of
reference data to support PD, LGD, and EAD estimates, and consistency
of reference data to the definition of default in Sec. 3.101.
* * * * *
(i) * * *
(5) The national bank or Federal savings association must have an
internal audit function or equivalent function that is independent of
business-line management that at least annually:
(i) Reviews the national bank's or Federal savings association's
advanced systems and associated operations, including the operations of
its credit function and estimations of PD, LGD, and EAD;
(ii) Assesses the effectiveness of the controls supporting the
national bank's or Federal savings association's advanced systems; and
(iii) Documents and reports its findings to the national bank's or
Federal savings association's board of directors (or a committee
thereof).
* * * * *
0
7. Section 3.131 is amended by:
0
a. Revising paragraphs (d)(5)(ii) and (iii); and
0
b. In paragraph (e)(3)(vi), removing ``Sec. 3.22(a)(7)'' and adding
``Sec. 3.22(d)'' in its place.
The revisions read as follows:
Sec. 3.131 Mechanics for calculating total wholesale and retail risk-
weighted assets.
* * * * *
(d) * * *
(5) * * *
[[Page 41417]]
(ii) A national bank or Federal savings association may take into
account the risk reducing effects of guarantees and credit derivatives
in support of retail exposures in a segment when quantifying the PD and
LGD of the segment. In doing so, a national bank or Federal savings
association must consider all relevant available information.
(iii) Except as provided in paragraph (d)(6) of this section, a
national bank or Federal savings association may take into account the
risk reducing effects of collateral in support of a wholesale exposure
when quantifying the LGD of the exposure, and may take into account the
risk reducing effects of collateral in support of retail exposures when
quantifying the PD and LGD of the segment. In order to do so, a
national bank or Federal savings association must have established
internal requirements for collateral management, legal certainty, and
risk management processes.
* * * * *
0
8. Section 3.132 is amended by:
0
a. In Table 1 to Sec. 3.132, removing ``this section'' and adding
``Sec. 3.32'' in its place, wherever it appears;
0
b. Revising paragraphs (c)(1), (c)(2) and (d)(5)(iii)(B);
0
c. In paragraph (d)(2)(iv)(C), removing ``(d)(5)'' and adding
``(d)(6)'' in its place;
0
d. In paragraph (d)(7)(iv)(B), removing ``Sec. 3.131(b)(2)'' and
adding ``Sec. 3.132(b)(2)'' in its place; and
0
d. In paragraph (d)(9)(ii), removing ``paragraph (e)(3)'' and adding
``paragraph (e)(6)'' in its place.
The revisions read as follows:
Sec. 3.132 Counterparty credit risk of repo-style transactions,
eligible margin loans, and OTC derivative contracts.
* * * * *
(c) EAD for OTC derivative contracts--(1) OTC derivative contracts
not subject to a qualifying master netting agreement. A national bank
or Federal savings association must determine the EAD for an OTC
derivative contract that is not subject to a qualifying master netting
agreement using the current exposure methodology in paragraph (c)(5) of
this section or using the internal models methodology described in
paragraph (d) of this section. A national bank or Federal savings
association may reduce the EAD calculated according to paragraph (c)(5)
of this section by the credit valuation adjustment that the national
bank or Federal savings association has recognized in its balance sheet
valuation of any OTC derivative contracts in the netting set. For
purposes of this paragraph (c)(1), the credit valuation adjustment does
not include any adjustments to common equity tier 1 capital
attributable to changes in the fair value of the national bank's or
Federal savings association's liabilities that are due to changes in
its own credit risk since the inception of the transaction with the
counterparty.
(2) OTC derivative contracts subject to a qualifying master netting
agreement. A national bank or Federal savings association must
determine the EAD for multiple OTC derivative contracts that are
subject to a qualifying master netting agreement using the current
exposure methodology in paragraph (c)(6) of this section or using the
internal models methodology described in paragraph (d) of this section.
A national bank or Federal savings association may reduce the EAD
calculated according to paragraph (c)(6) of this section by the credit
valuation adjustment that the national bank or Federal savings
association has recognized in its balance sheet valuation of any OTC
derivative contracts in the netting set. For purposes of this paragraph
(c)(2), the credit valuation adjustment does not include any
adjustments to common equity tier 1 capital attributable to changes in
the fair value of the national bank's or Federal savings association's
liabilities that are due to changes in its own credit risk since the
inception of the transaction with the counterparty.
* * * * *
(d) * * *
(5) * * *
(iii) * * *
(B) Twenty business days if the number of trades in a netting set
exceeds 5,000 at any time during the previous quarter (except if the
national bank or Federal savings association is calculating EAD for a
cleared transaction under Sec. 3.133) or contains one or more trades
involving illiquid collateral or any derivative contract that cannot be
easily replaced. If over the two previous quarters more than two margin
disputes on a netting set have occurred that lasted more than the
margin period of risk, then the national bank or Federal savings
association must use a margin period of risk for that netting set that
is at least two times the minimum margin period of risk for that
netting set. If the periodicity of the receipt of collateral is N-days,
the minimum margin period of risk is the minimum margin period of risk
under this paragraph (d) plus N minus 1. This period should be extended
to cover any impediments to prompt re-hedging of any market risk.
* * * * *
0
9. Section 3.133 is amended by:
0
a. In paragraph (b)(3)(i)(B) removing ``Sec. 3.132(b)(3)(i)(A)'' and
adding paragraph (b)(3)(i)(A) of this section'' in its place;
0
b. In paragraph (b)(4)(ii) removing ``Sec. 3.131'' and adding
``subparts E or F of this part, as applicable'' in its place;
0
c. Adding paragraph (c)(3)(iii); and
0
d. In paragraph (c)(4)(ii) removing ``Sec. 3.131'' and adding
``subparts E or F of this part, as applicable'' in its place.
The addition reads as follows:
Sec. 3.133 Cleared transactions.
* * * * *
(c) * * *
(3) * * *
(iii) Notwithstanding paragraphs (c)(3)(i) and (ii) of this
section, a clearing member national bank or Federal savings association
may apply a risk weight of 0 percent to the trade exposure amount for a
cleared transaction with a CCP where the clearing member national bank
or Federal savings association is acting as a financial intermediary on
behalf of a clearing member client, the transaction offsets another
transaction that satisfies the requirements set forth in Sec. 3.3(a),
and the clearing member national bank or Federal savings association is
not obligated to reimburse the clearing member client in the event of
the CCP default.
* * * * *
Sec. 3.136 [Amended]
0
10. Section 3.136 is amended by:
0
a. In paragraph (e)(2)(i), removing ``Sec. 3.135(e)(1) and (e)(2)''
and adding ``paragraphs (e)(1) and (2) of this section'' in its place:
And
0
b. In paragraph (e)(2)(ii), removing ``Sec. Sec. 3.135(e)(1) and
(e)(2)'' and adding ``paragraphs (e)(1) and (2) of this section'' in
its place.
0
11. Section 3.172 is amended by revising paragraph (d) to read as
follows:
Sec. 3.172 Disclosure requirements.
* * * * *
(d)(1) A national bank or Federal savings association that meets
any of the criteria in Sec. 3.100(b)(1) before January 1, 2015, must
publicly disclose each quarter its supplementary leverage ratio and the
components thereof (that is, tier 1 capital and total leverage
exposure) as calculated under subpart B of this part, beginning with
the first quarter in 2015. This disclosure requirement applies without
regard to whether the national bank or Federal savings association has
completed the parallel run process and received notification from the
OCC pursuant to Sec. 3.121(d).
(2) A national bank or Federal savings association that meets any
of the criteria
[[Page 41418]]
in Sec. 3.100(b)(1) on or after January 1, 2015, must publicly
disclose each quarter its supplementary leverage ratio and the
components thereof (that is, tier 1 capital and total leverage
exposure) as calculated under subpart B of this part beginning with the
calendar quarter immediately following the quarter in which the
national bank or Federal savings association becomes an advanced
approaches national bank or Federal savings association. This
disclosure requirement applies without regard to whether the national
bank or Federal savings association has completed the parallel run
process and has received notification from the OCC pursuant to Sec.
3.121(d).
0
12. Section 3.173 is amended by:
0
a. Redesignating paragraph (a) introductory text as paragraph (a)(1)
and revising newly redesignated paragraph (a)(1);
0
b. Adding paragraphs (a)(2) and (a)(3);
0
c. Revising the entry for (a)(1) in Table 6 to Sec. 3.173; and
0
d. Revising the entry for (i)(2) in Table 9 to Sec. 3.173.
The revisions and additions read as follows:
Sec. 3.173 Disclosures by certain advanced approaches national banks
or Federal savings associations.
(a)(1) An advanced approaches national bank or Federal savings
association described in Sec. 3.172(b) must make the disclosures
described in Tables 1 through 12 to Sec. 3.173.
(2) An advanced approaches national bank or Federal savings
association that is required to publicly disclose its supplementary
leverage ratio pursuant to Sec. 3.172(d) must make the disclosures
required under Table 13 to Sec. 3.173, unless the national bank or
Federal savings association is a consolidated subsidiary of a bank
holding company, savings and loan holding company, or depository
institution that is subject to these disclosures requirements or a
subsidiary of a non-U.S. banking organization that is subject to
comparable public disclosure requirements in its home jurisdiction.
(3) The disclosures described in Tables 1 through 12 to Sec. 3.173
must be made publicly available for twelve consecutive quarters
beginning on January 1, 2014, or a shorter period, as applicable, for
the quarters after the national bank or Federal savings association has
completed the parallel run process and received notification from the
OCC pursuant to Sec. 3.121(d). The disclosures described in Table 13
to Sec. 3.173 must be made publicly available for twelve consecutive
quarters beginning on January 1, 2015, or a shorter period, as
applicable, for the quarters after the national bank or Federal savings
association becomes subject to the disclosure of the supplementary
leverage ratio pursuant to Sec. 3.172(d) and Sec. 3.173(a)(2).
* * * * *
Table 6 to Sec. 3.173--Credit Risk: Disclosures for Portfolios Subject
to IRB Risk-Based Capital Formula
------------------------------------------------------------------------
Qualitative disclosures (a) * * *
------------------------------------------------------------------------
............... (1) Structure of internal
rating systems and if the
national bank or Federal
savings association
considers external ratings,
the relation between
internal and external
ratings;
* * * * * * *
------------------------------------------------------------------------
* * * * *
Table 9 to Sec. 3.173--Securitization
------------------------------------------------------------------------
------------------------------------------------------------------------
* * * * * * *
Quantitative Disclosures....... ............... ......................
* * * * * * *
(i) * * *
(2) Aggregate amount
disclosed separately
by type of underlying
exposure in the pool
of any:
(i) After-tax gain-on-
sale on a
securitization that
has been deducted
from common equity
tier 1 capital: And
(ii) Credit-enhancing
interest-only strip
that is assigned a
1,250 percent risk
weight.
* * * * * * *
------------------------------------------------------------------------
* * * * *
FEDERAL RESERVE SYSTEM
12 CFR CHAPTER II
Authority and Issuance
For the reasons set forth in the common preamble, part 217 of
chapter II of title 12 of the Code of Federal Regulations is amended as
follows:
PART 217--CAPITAL ADEQUACY OF BANK HOLDING COMPANIES, SAVINGS AND
LOAN HOLDING COMPANIES, AND STATE MEMBER BANKS (REGULATION Q)
0
13. The authority citation for part 217 continues to read as follows:
Authority: 12 U.S.C. 248(a), 321-338a, 481-486, 1462a, 1467a,
1818, 1828, 1831n, 1831o, 1831p-l, 1831w, 1835, 1844(b), 1851, 3904,
3906-3909, 4808, 5365, 5368, 5371.
0
14. Section 217.2 is amended by revising the definition of
``Residential mortgage exposure'' to read as follows:
Sec. 217.2 Definitions.
* * * * *
Residential mortgage exposure means an exposure (other than a
securitization exposure, equity exposure, statutory multifamily
mortgage, or presold construction loan):
[[Page 41419]]
(1)(i) That is primarily secured by a first or subsequent lien on
one-to-four family residential property; or
(ii) With an original and outstanding amount of $1 million or less
that is primarily secured by a first or subsequent lien on residential
property that is not one-to-four family; and
(2) For purposes of calculating capital requirements under subpart
E of this part, managed as part of a segment of exposures with
homogeneous risk characteristics and not on an individual-exposure
basis.
* * * * *
0
15. Section 217.10 is amended by revising paragraph (c) introductory
text to read as follows:
Sec. 217.10 Minimum capital requirements.
* * * * *
(c) Advanced approaches capital ratio calculations. An advanced
approaches Board-regulated institution that has completed the parallel
run process and received notification from the Board pursuant to Sec.
217.121(d) must determine its regulatory capital ratios as described in
paragraphs (c)(1) through (3) of this section. An advanced approaches
Board-regulated institution must determine its supplementary leverage
ratio in accordance with paragraph (c)(4) of this section, beginning
with the calendar quarter immediately following the quarter in which
the Board-regulated institution meets any of the criteria in Sec.
217.100(b)(1).
* * * * *
0
16. Section 217.22 is amended by revising paragraph (b)(1)(iii) to read
as follows:
Sec. 217.22 Regulatory capital adjustments and deductions.
* * * * *
(b) * * *
(1) * * *
(iii) A Board-regulated institution must deduct any net gain and
add any net loss related to changes in the fair value of liabilities
that are due to changes in the Board-regulated institution's own credit
risk. An advanced approaches Board-regulated institution must deduct
the difference between its credit spread premium and the risk-free rate
for derivatives that are liabilities as part of this adjustment.
* * * * *
0
17. Section 217.100 is amended by revising paragraphs (b)(1)(i)(B)(2)
and (b)(1)(ii)(B) to read as follows:
Sec. 217.100 Purpose, applicability, and principle of conservatism.
* * * * *
(b) * * *
(1) * * *
(i) * * *
(B) * * *
(2) Has consolidated total on-balance sheet foreign exposure on its
most recent year-end Federal Financial Institutions Examination Council
(FFIEC) 009 Report equal to $10 billion or more (where total on-balance
sheet foreign exposure equals total foreign countries cross-border
claims on an ultimate-risk basis, plus total foreign countries claims
on local residents on an ultimate-risk basis, plus total foreign
countries fair value of foreign exchange and derivative products),
calculated in accordance with the FFIEC 009 Country Exposure Report;
* * * * *
(ii) * * *
(B) Has consolidated total on-balance sheet foreign exposure on its
most recent year-end Federal Financial Institutions Examination Council
(FFIEC) 009 Report equal to $10 billion or more (where total on-balance
sheet foreign exposure equals total foreign countries cross-border
claims on an ultimate-risk basis, plus total foreign countries claims
on local residents on an ultimate-risk basis, plus total foreign
countries fair value of foreign exchange and derivative products),
calculated in accordance with the FFIEC 009 Country Exposure Report;
* * * * *
0
18. Section 217.122 is amended by:
0
a. Revising paragraphs (a)(3) and (b)(1);
0
b. Adding paragraph (b)(2)(iii);
0
c. Revising paragraphs (b)(3) and (5) and (c)(1), (2), (5), and (6);
0
d. Redesignating paragraphs (c)(9) and (10) as paragraphs (c)(10) and
(11), revising newly redesignated paragraphs (c)(10) and (11), and
adding a new paragraph (c)(9); and
0
e. Revising paragraph (i)(5).
The revisions and additions read as follows:
Sec. 217.122 Qualification requirements.
(a) * * *
(3) Each Board-regulated institution must have an appropriate
infrastructure with risk measurement and management processes that meet
the qualification requirements of this section and are appropriate
given the Board-regulated institution's size and level of complexity.
Regardless of whether the systems and models that generate the risk
parameters necessary for calculating a Board-regulated institution's
risk-based capital requirements are located at any affiliate of the
Board-regulated institution, the Board-regulated institution itself
must ensure that the risk parameters and reference data used to
determine its risk-based capital requirements are representative of
long run experience with respect to its own credit risk and operational
risk exposures.
(b) Risk rating and segmentation systems for wholesale and retail
exposures. (1)(i) A Board-regulated institution must have an internal
risk rating and segmentation system that accurately, reliably, and
meaningfully differentiates among degrees of credit risk for the Board-
regulated institution's wholesale and retail exposures. When assigning
an internal risk rating, a Board-regulated institution may consider a
third-party assessment of credit risk, provided that the Board-
regulated institution's internal risk rating assignment does not rely
solely on the external assessment.
(ii) If a Board-regulated institution uses multiple rating or
segmentation systems, the Board-regulated institution's rationale for
assigning an obligor or exposure to a particular system must be
documented and applied in a manner that best reflects the obligor or
exposure's level of risk. A Board-regulated institution must not
inappropriately allocate obligors or exposures across systems to
minimize regulatory capital requirements.
(iii) In assigning ratings to wholesale obligors and exposures,
including loss severity ratings grades to wholesale exposures, and
assigning retail exposures to retail segments, a Board-regulated
institution must use all relevant and material information and ensure
that the information is current.
(iv) When assigning an obligor to a PD rating or retail exposure to
a PD segment, a Board-regulated institution must assess the obligor or
retail borrower's ability and willingness to contractually perform,
taking a conservative view of projected information.
(2) * * *
(iii) A Board-regulated institution must have an effective process
to obtain and update in a timely manner relevant and material
information on obligor and exposure characteristics that affect PD, LGD
and EAD.
(3) For retail exposures:
(i) A Board-regulated institution must have an internal system that
groups retail exposures into the appropriate retail exposure
subcategory and groups the retail exposures in each retail exposure
subcategory into separate segments with homogeneous risk
characteristics that provide a meaningful differentiation of risk. The
Board-regulated institution's system must identify and group in
separate
[[Page 41420]]
segments by subcategories exposures identified in Sec.
217.131(c)(2)(ii) and (iii).
(ii) A Board-regulated institution must have an internal system
that captures all relevant exposure risk characteristics, including
borrower credit score, product and collateral types, as well as
exposure delinquencies, and must consider cross-collateral provisions,
where present.
(iii) The Board-regulated institution must review and, if
appropriate, update assignments of individual retail exposures to
segments and the loss characteristics and delinquency status of each
identified risk segment. These reviews must occur whenever the Board-
regulated institution receives new material information, but generally
no less frequently than quarterly, and, in all cases, at least
annually.
* * * * *
(5) The Board-regulated institution's internal risk rating system
for wholesale exposures must provide for the review and update (as
appropriate) of each obligor rating and (if applicable) each loss
severity rating whenever the Board-regulated institution obtains
relevant and material information on the obligor or exposure that
affects PD, LGD and EAD, but no less frequently than annually.
(c) Quantification of risk parameters for wholesale and retail
exposures. (1) The Board-regulated institution must have a
comprehensive risk parameter quantification process that produces
accurate, timely, and reliable estimates of the risk parameters on a
consistent basis for the Board-regulated institution's wholesale and
retail exposures.
(2) A Board-regulated institution's estimates of PD, LGD, and EAD
must incorporate all relevant, material, and available data that is
reflective of the Board-regulated institution's actual wholesale and
retail exposures and of sufficient quality to support the determination
of risk-based capital requirements for the exposures. In particular,
the population of exposures in the data used for estimation purposes,
the lending standards in use when the data were generated, and other
relevant characteristics, should closely match or be comparable to the
Board-regulated institution's exposures and standards. In addition, a
Board-regulated institution must:
(i) Demonstrate that its estimates are representative of long run
experience, including periods of economic downturn conditions, whether
internal or external data are used;
(ii) Take into account any changes in lending practice or the
process for pursuing recoveries over the observation period;
(iii) Promptly reflect technical advances, new data, and other
information as they become available;
(iv) Demonstrate that the data used to estimate risk parameters
support the accuracy and robustness of those estimates; and
(v) Demonstrate that its estimation technique performs well in out-
of-sample tests whenever possible.
* * * * *
(5) The Board-regulated institution must be able to demonstrate
which variables have been found to be statistically significant with
regard to EAD. The Board-regulated institution's EAD estimates must
reflect its specific policies and strategies with regard to account
management, including account monitoring and payment processing, and
its ability and willingness to prevent further drawdowns in
circumstances short of payment default. The Board-regulated institution
must have adequate systems and procedures in place to monitor current
outstanding amounts against committed lines, and changes in outstanding
amounts per obligor and obligor rating grade and per retail segment.
The Board-regulated institution must be able to monitor outstanding
amounts on a daily basis.
(6) At a minimum, PD estimates for wholesale obligors and retail
segments must be based on at least five years of default data. LGD
estimates for wholesale exposures must be based on at least seven years
of loss severity data, and LGD estimates for retail segments must be
based on at least five years of loss severity data. EAD estimates for
wholesale exposures must be based on at least seven years of exposure
amount data, and EAD estimates for retail segments must be based on at
least five years of exposure amount data. If the Board-regulated
institution has relevant and material reference data that span a longer
period of time than the minimum time periods specified above, the
Board-regulated institution must incorporate such data in its
estimates, provided that it does not place undue weight on periods of
favorable or benign economic conditions relative to periods of economic
downturn conditions.
* * * * *
(9) If a Board-regulated institution uses internal data obtained
prior to becoming subject to this subpart E or external data to arrive
at PD, LGD, or EAD estimates, the Board-regulated institution must
demonstrate to the Board that the Board-regulated institution has made
appropriate adjustments if necessary to be consistent with the
definition of default in Sec. 217.101. Internal data obtained after
the Board-regulated institution becomes subject to this subpart E must
be consistent with the definition of default in Sec. 217.101.
(10) The Board-regulated institution must review and update (as
appropriate) its risk parameters and its risk parameter quantification
process at least annually.
(11) The Board-regulated institution must, at least annually,
conduct a comprehensive review and analysis of reference data to
determine relevance of the reference data to the Board-regulated
institution's exposures, quality of reference data to support PD, LGD,
and EAD estimates, and consistency of reference data to the definition
of default in Sec. 217.101.
* * * * *
(i) * * *
(5) The Board-regulated institution must have an internal audit
function or equivalent function that is independent of business-line
management that at least annually:
(i) Reviews the Board-regulated institution's advanced systems and
associated operations, including the operations of its credit function
and estimations of PD, LGD, and EAD;
(ii) Assesses the effectiveness of the controls supporting the
Board-regulated institution's advanced systems; and
(iii) Documents and reports its findings to the Board-regulated
institution's board of directors (or a committee thereof).
* * * * *
0
19. Section 217.131 is amended by:
0
a. Revising paragraphs (d)(5)(ii) and (iii); and
0
b. In paragraph (e)(3)(vi), removing ``Sec. 217.22(a)(7)'' and adding
``Sec. 217.22(d)'' in its place.
The revisions read as follows:
Sec. 217.131 Mechanics for calculating total wholesale and retail
risk-weighted assets.
* * * * *
(d) * * *
(5) * * *
(ii) A Board-regulated institution may take into account the risk
reducing effects of guarantees and credit derivatives in support of
retail exposures in a segment when quantifying the PD and LGD of the
segment. In doing so, a Board-regulated institution must consider all
relevant available information.
(iii) Except as provided in paragraph (d)(6) of this section, a
Board-regulated institution may take into account the risk reducing
effects of collateral in support of a wholesale exposure when
quantifying the LGD of the exposure, and may take into account the risk
[[Page 41421]]
reducing effects of collateral in support of retail exposures when
quantifying the PD and LGD of the segment. In order to do so, a Board-
regulated institution must have established internal requirements for
collateral management, legal certainty, and risk management processes.
* * * * *
0
20. Section 217.132 is amended by:
0
a. In Table 1 to Sec. 217.132, removing ``this section'' and adding
``Sec. 217.32'' in its place, wherever it appears;
0
b. Revising paragraphs (c)(1), (c)(2) and (d)(5)(iii)(B);
0
c. In paragraph (d)(2)(iv)(C), removing ``(d)(5)'' and adding
``(d)(6)'' in its place;
0
d. In paragraph (d)(7)(iv)(B), removing ``Sec. 217.131(b)(2)'' and
adding ``Sec. 217.132(b)(2)'' in its place; and
0
e. In paragraph (d)(9)(ii), removing ``paragraph (e)(3)'' and adding
``paragraph (e)(6)'' in its place. The revisions read as follows:
Sec. 217.132 Counterparty credit risk of repo-style transactions,
eligible margin loans, and OTC derivative contracts.
* * * * *
(c) EAD for OTC derivative contracts--(1) OTC derivative contracts
not subject to a qualifying master netting agreement. A Board-regulated
institution must determine the EAD for an OTC derivative contract that
is not subject to a qualifying master netting agreement using the
current exposure methodology in paragraph (c)(5) of this section or
using the internal models methodology described in paragraph (d) of
this section. A Board-regulated institution may reduce the EAD
calculated according to paragraph (c)(5) of this section by the credit
valuation adjustment that the Board-regulated institution has
recognized in its balance sheet valuation of any OTC derivative
contracts in the netting set. For purposes of this paragraph (c)(1),
the credit valuation adjustment does not include any adjustments to
common equity tier 1 capital attributable to changes in the fair value
of the Board-regulated institution's liabilities that are due to
changes in its own credit risk since the inception of the transaction
with the counterparty.
(2) OTC derivative contracts subject to a qualifying master netting
agreement. A Board-regulated institution must determine the EAD for
multiple OTC derivative contracts that are subject to a qualifying
master netting agreement using the current exposure methodology in
paragraph (c)(6) of this section or using the internal models
methodology described in paragraph (d) of this section. A Board-
regulated institution may reduce the EAD calculated according to
paragraph (c)(6) of this section by the credit valuation adjustment
that the Board-regulated institution has recognized in its balance
sheet valuation of any OTC derivative contracts in the netting set. For
purposes of this paragraph (c)(2), the credit valuation adjustment does
not include any adjustments to common equity tier 1 capital
attributable to changes in the fair value of the Board-regulated
institution's liabilities that are due to changes in its own credit
risk since the inception of the transaction with the counterparty.
* * * * *
(d) * * *
(5) * * *
(iii) * * *
(B) Twenty business days if the number of trades in a netting set
exceeds 5,000 at any time during the previous quarter (except if the
Board-regulated institution is calculating EAD for a cleared
transaction under Sec. 217.133) or contains one or more trades
involving illiquid collateral or any derivative contract that cannot be
easily replaced. If over the two previous quarters more than two margin
disputes on a netting set have occurred that lasted more than the
margin period of risk, then the Board-regulated institution must use a
margin period of risk for that netting set that is at least two times
the minimum margin period of risk for that netting set. If the
periodicity of the receipt of collateral is N-days, the minimum margin
period of risk is the minimum margin period of risk under this
paragraph (d) plus N minus 1. This period should be extended to cover
any impediments to prompt re-hedging of any market risk.
* * * * *
0
21. Section 217.133 is amended by:
0
a. In paragraph (b)(3)(i)(B) removing ``Sec. 217.132(b)(3)(i)(A)'' and
adding paragraph (b)(3)(i)(A) of this section'' in its place;
0
b. In paragraph (b)(4)(ii) removing ``Sec. 217.131'' and adding
``subparts E or F of this part, as applicable'' in its place;
0
c. Adding paragraph (c)(3)(iii); and
0
d. In paragraph (c)(4)(ii) removing ``Sec. 217.131'' and adding
``subparts E or F of this part, as applicable'' in its place.
The addition read as follows:
Sec. 217.133 Cleared transactions.
* * * * *
(c) * * *
(3) * * *
(iii) Notwithstanding paragraphs (c)(3)(i) and (ii) of this
section, a clearing member Board-regulated institution may apply a risk
weight of 0 percent to the trade exposure amount for a cleared
transaction with a CCP where the clearing member Board-regulated
institution is acting as a financial intermediary on behalf of a
clearing member client, the transaction offsets another transaction
that satisfies the requirements set forth in Sec. 217.3(a), and the
clearing member Board-regulated institution is not obligated to
reimburse the clearing member client in the event of the CCP default.
* * * * *
Sec. 217.136 [Amended]
0
22. Section 217.136 is amended by:
0
a. In paragraph (e)(2)(i), removing ``Sec. 217.135(e)(1) and (e)(2)''
and adding ``paragraphs (e)(1) and (2) of this section'' in its place;
and
0
b. In paragraph (e)(2)(ii), removing ``Sec. Sec. 217.135(e)(1) and
(e)(2)'' and adding ``paragraphs (e)(1) and (2) of this section'' in
its place.
0
23. Section 217.172 is amended by revising paragraph (d) to read as
follows:
Sec. 217.172 Disclosure requirements.
* * * * *
(d)(1) A Board-regulated institution that meets any of the criteria
in Sec. 217.100(b)(1) before January 1, 2015, must publicly disclose
each quarter its supplementary leverage ratio and the components
thereof (that is, tier 1 capital and total leverage exposure) as
calculated under subpart B of this part, beginning with the first
quarter in 2015. This disclosure requirement applies without regard to
whether the Board-regulated institution has completed the parallel run
process and received notification from the Board pursuant to Sec.
217.121(d).
(2) A Board-regulated institution that meets any of the criteria in
Sec. 217.100(b)(1) on or after January 1, 2015, must publicly disclose
each quarter its supplementary leverage ratio and the components
thereof (that is, tier 1 capital and total leverage exposure) as
calculated under subpart B of this part beginning with the calendar
quarter immediately following the quarter in which the Board-regulated
institution becomes an advanced approaches Board-regulated institution.
This disclosure requirement applies without regard to whether the
Board-regulated institution has completed the parallel run process and
has received notification from the Board pursuant to Sec. 217.121(d).
0
24. Section 217.173 is amended by:
0
a. Designating paragraph (a) introductory text as paragraph (a)(1) and
revising newly redesignated paragraph (a)(1);
[[Page 41422]]
0
b. Adding paragraphs (a)(2) and (3);
0
c. Revising the entry for (a)(1) in Table 6 to Sec. 217.173; and
0
d. Revising the entry for (i)(2) in Table 9 to Sec. 217.173.
The revisions and additions read as follows:
Sec. 217.173 Disclosures by certain advanced approaches Board-
regulated institutions.
(a)(1) An advanced approaches Board-regulated institution described
in Sec. 217.172(b) must make the disclosures described in Tables 1
through 12 to Sec. 217.173.
(2) An advanced approaches Board-regulated institution that is
required to publicly disclose its supplementary leverage ratio pursuant
to Sec. 217.172(d) must make the disclosures required under Table 13
to Sec. 217.173, unless the Board-regulated institution is a
consolidated subsidiary of a bank holding company, savings and loan
holding company, or depository institution that is subject to these
disclosures requirements or a subsidiary of a non-U.S. banking
organization that is subject to comparable public disclosure
requirements in its home jurisdiction.
(3) The disclosures described in Tables 1 through 12 to Sec.
217.173 must be made publicly available for twelve consecutive quarters
beginning on January 1, 2014, or a shorter period, as applicable, for
the quarters after the Board-regulated institution has completed the
parallel run process and received notification from the Board pursuant
to Sec. 217.121(d). The disclosures described in Table 13 to Sec.
217.173 must be made publicly available for twelve consecutive quarters
beginning on January 1, 2015, or a shorter period, as applicable, for
the quarters after the Board-regulated institution becomes subject to
the disclosure of the supplementary leverage ratio pursuant to Sec.
217.172(d) and Sec. 217.173(a)(2).
* * * * *
Table 6 to Sec. 217.173--Credit Risk: Disclosures for Portfolios
Subject to IRB Risk-Based Capital Formula
------------------------------------------------------------------------
Qualitative disclosures (a) * * *
------------------------------------------------------------------------
(1) Structure of internal
rating systems and if the
Board-regulated institution
considers external ratings,
the relation between
internal and external
ratings;
* * * * * * *
------------------------------------------------------------------------
* * * * *
Table 9 to Sec. 217.173--Securitization
------------------------------------------------------------------------
------------------------------------------------------------------------
* * * * * * *
Quantitative disclosures.......
* * * * * * *
(i) * * *
(2) Aggregate amount
disclosed separately
by type of underlying
exposure in the pool
of any:
(i) After-tax gain-on-
sale on a
securitization that
has been deducted
from common equity
tier 1 capital; and
(ii) Credit-enhancing
interest-only strip
that is assigned a
1,250 percent risk
weight.
* * * * * * *
------------------------------------------------------------------------
* * * * *
FEDERAL DEPOSIT INSURANCE CORPORATION
12 CFR Chapter III
Authority and Issuance
For the reasons stated in the preamble, the Federal Deposit
Insurance Corporation amends part 324 of chapter III of Title 12, Code
of Federal Regulations as follows:
PART 324--CAPITAL ADEQUACY
0
25. The authority citation for part 324 continues to read as follows:
Authority: 12 U.S.C. 1815(a), 1815(b), 1816, 1818(a), 1818(b),
1818(c), 1818(t), 1819(Tenth), 1828(c), 1828(d), 1828(i), 1828(n),
1828(o), 1831o, 1835, 3907, 3909, 4808; 5371; 5412; Pub. L. 102-233,
105 Stat. 1761, 1789, 1790 (12 U.S.C. 1831n note); Pub. L. 102-242,
105 Stat. 2236, 2355, as amended by Pub. L. 103-325, 108 Stat. 2160,
2233 (12 U.S.C. 1828 note); Pub. L. 102-242, 105 Stat. 2236, 2386,
as amended by Pub. L. 102-550, 106 Stat. 3672, 4089 (12 U.S.C. 1828
note); Pub. L. 111-203, 124 Stat. 1376, 1887 (15 U.S.C. 78o-7 note).
0
26. Section 324.2 is amended by revising the definition of
``Residential mortgage exposure'' to read as follows:
Sec. 324.2 Definitions.
* * * * *
Residential mortgage exposure means an exposure (other than a
securitization exposure, equity exposure, statutory multifamily
mortgage, or presold construction loan):
(1)(i) That is primarily secured by a first or subsequent lien on
one-to-four family residential property; or
(ii) With an original and outstanding amount of $1 million or less
that is primarily secured by a first or subsequent lien on residential
property that is not one-to-four family; and
(2) For purposes of calculating capital requirements under subpart
E of this part, managed as part of a segment of exposures with
homogeneous risk characteristics and not on an individual-exposure
basis.
* * * * *
0
27. Section 324.10 is amended by revising paragraph (c) introductory
text to read as follows:
Sec. 324.10 Minimum capital requirements.
* * * * *
(c) Advanced approaches capital ratio calculations. An advanced
approaches FDIC-supervised institution that has
[[Page 41423]]
completed the parallel run process and received notification from the
FDIC pursuant to Sec. 324.121(d) must determine its regulatory capital
ratios as described in paragraphs (c)(1) through (3) of this section.
An advanced approaches FDIC-supervised institution must determine its
supplementary leverage ratio in accordance with paragraph (c)(4) of
this section, beginning with the calendar quarter immediately following
the quarter in which the FDIC-supervised institution meets any of the
criteria in Sec. 324.100(b)(1).
* * * * *
0
28. Section 324.22 is amended by revising paragraph (b)(1)(iii) to read
as follows:
Sec. 324.22 Regulatory capital adjustments and deductions.
* * * * *
(b) * * *
(1) * * *
(iii) An FDIC-supervised institution must deduct any net gain and
add any net loss related to changes in the fair value of liabilities
that are due to changes in the FDIC-supervised institution's own credit
risk. An advanced approaches FDIC-supervised institution must deduct
the difference between its credit spread premium and the risk-free rate
for derivatives that are liabilities as part of this adjustment.
* * * * *
0
29. Section 324.100 is amended by revising paragraph (b)(1)(ii) to read
as follows:
Sec. 324.100 Purpose, applicability, and principle of conservatism.
* * * * *
(b) * * *
(1) * * *
(ii) Has consolidated total on-balance sheet foreign exposure on
its most recent year-end Federal Financial Institutions Examination
Council (FFIEC) 009 Report equal to $10 billion or more (where total
on-balance sheet foreign exposure equals total foreign countries cross-
border claims on an ultimate-risk basis, plus total foreign countries
claims on local residents on an ultimate-risk basis, plus total foreign
countries fair value of foreign exchange and derivative products),
calculated in accordance with the FFIEC 009 Country Exposure Report;
* * * * *
0
30. Section 324.122 is amended by:
0
a. Revising paragraphs (a)(3) and (b)(1);
0
b. Adding paragraph (b)(2)(iii);
0
c. Revising paragraphs (b)(3) and (5), and (c)(1), (2), (5), and (6);
0
d. Redesignating paragraphs (c)(9) and (c)(10) as paragraphs (c)(10)
and (c)(11), revising newly redesignated paragraphs (c)(10) and
(c)(11), and adding a new paragraph (c)(9); and
0
e. Revising paragraph (i)(5).
The revisions and additions read as follows:
Sec. 324.122 Qualification requirements.
(a) * * *
(3) Each FDIC-supervised institution must have an appropriate
infrastructure with risk measurement and management processes that meet
the qualification requirements of this section and are appropriate
given the FDIC-supervised institution's size and level of complexity.
Regardless of whether the systems and models that generate the risk
parameters necessary for calculating an FDIC-supervised institution's
risk-based capital requirements are located at any affiliate of the
FDIC-supervised institution, the FDIC-supervised institution itself
must ensure that the risk parameters and reference data used to
determine its risk-based capital requirements are representative of
long run experience with respect to its own credit risk and operational
risk exposures.
(b) Risk rating and segmentation systems for wholesale and retail
exposures. (1)(i) An FDIC-supervised institution must have an internal
risk rating and segmentation system that accurately, reliably, and
meaningfully differentiates among degrees of credit risk for the FDIC-
supervised institution's wholesale and retail exposures. When assigning
an internal risk rating, an FDIC-supervised institution may consider a
third-party assessment of credit risk, provided that the FDIC-
supervised institution's internal risk rating assignment does not rely
solely on the external assessment.
(ii) If an FDIC-supervised institution uses multiple rating or
segmentation systems, the FDIC-supervised institution's rationale for
assigning an obligor or exposure to a particular system must be
documented and applied in a manner that best reflects the obligor or
exposure's level of risk. An FDIC-supervised institution must not
inappropriately allocate obligors or exposures across systems to
minimize regulatory capital requirements.
(iii) In assigning ratings to wholesale obligors and exposures,
including loss severity ratings grades to wholesale exposures, and
assigning retail exposures to retail segments, an FDIC-supervised
institution must use all relevant and material information and ensure
that the information is current.
(iv) When assigning an obligor to a PD rating or retail exposure to
a PD segment, an FDIC-supervised institution must assess the obligor or
retail borrower's ability and willingness to contractually perform,
taking a conservative view of projected information.
(2) * * *
(iii) An FDIC-supervised institution must have an effective process
to obtain and update in a timely manner relevant and material
information on obligor and exposure characteristics that affect PD, LGD
and EAD.
(3) For retail exposures:
(i) An FDIC-supervised institution must have an internal system
that groups retail exposures into the appropriate retail exposure
subcategory and groups the retail exposures in each retail exposure
subcategory into separate segments with homogeneous risk
characteristics that provide a meaningful differentiation of risk. The
FDIC-supervised institution's system must identify and group in
separate segments by subcategories exposures identified in Sec.
324.131(c)(2)(ii) and (iii).
(ii) An FDIC-supervised institution must have an internal system
that captures all relevant exposure risk characteristics, including
borrower credit score, product and collateral types, as well as
exposure delinquencies, and must consider cross-collateral provisions,
where present.
(iii) The FDIC-supervised institution must review and, if
appropriate, update assignments of individual retail exposures to
segments and the loss characteristics and delinquency status of each
identified risk segment. These reviews must occur whenever the FDIC-
supervised institution receives new material information, but generally
no less frequently than quarterly, and, in all cases, at least
annually.
* * * * *
(5) The FDIC-supervised institution's internal risk rating system
for wholesale exposures must provide for the review and update (as
appropriate) of each obligor rating and (if applicable) each loss
severity rating whenever the FDIC-supervised institution obtains
relevant and material information on the obligor or exposure that
affects PD, LGD and EAD, but no less frequently than annually.
(c) Quantification of risk parameters for wholesale and retail
exposures. (1) The FDIC-supervised institution must have a
comprehensive risk parameter quantification process that produces
accurate, timely, and reliable estimates of the risk parameters on a
consistent basis for the FDIC-supervised institution's wholesale and
retail exposures.
(2) An FDIC-supervised institution's estimates of PD, LGD, and EAD
must
[[Page 41424]]
incorporate all relevant, material, and available data that is
reflective of the FDIC-supervised institution's actual wholesale and
retail exposures and of sufficient quality to support the determination
of risk-based capital requirements for the exposures. In particular,
the population of exposures in the data used for estimation purposes,
the lending standards in use when the data were generated, and other
relevant characteristics, should closely match or be comparable to the
FDIC-supervised institution's exposures and standards. In addition, an
FDIC-supervised institution must:
(i) Demonstrate that its estimates are representative of long run
experience, including periods of economic downturn conditions, whether
internal or external data are used;
(ii) Take into account any changes in lending practice or the
process for pursuing recoveries over the observation period;
(iii) Promptly reflect technical advances, new data, and other
information as they become available;
(iv) Demonstrate that the data used to estimate risk parameters
support the accuracy and robustness of those estimates; and
(v) Demonstrate that its estimation technique performs well in out-
of-sample tests whenever possible.
* * * * *
(5) The FDIC-supervised institution must be able to demonstrate
which variables have been found to be statistically significant with
regard to EAD. The FDIC-supervised institution's EAD estimates must
reflect its specific policies and strategies with regard to account
management, including account monitoring and payment processing, and
its ability and willingness to prevent further drawdowns in
circumstances short of payment default. The FDIC-supervised institution
must have adequate systems and procedures in place to monitor current
outstanding amounts against committed lines, and changes in outstanding
amounts per obligor and obligor rating grade and per retail segment.
The FDIC-supervised institution must be able to monitor outstanding
amounts on a daily basis.
(6) At a minimum, PD estimates for wholesale obligors and retail
segments must be based on at least five years of default data. LGD
estimates for wholesale exposures must be based on at least seven years
of loss severity data, and LGD estimates for retail segments must be
based on at least five years of loss severity data. EAD estimates for
wholesale exposures must be based on at least seven years of exposure
amount data, and EAD estimates for retail segments must be based on at
least five years of exposure amount data. If the FDIC-supervised
institution has relevant and material reference data that span a longer
period of time than the minimum time periods specified above, the FDIC-
supervised institution must incorporate such data in its estimates,
provided that it does not place undue weight on periods of favorable or
benign economic conditions relative to periods of economic downturn
conditions.
* * * * *
(9) If an FDIC-supervised institution uses internal data obtained
prior to becoming subject to this subpart E or external data to arrive
at PD, LGD, or EAD estimates, the FDIC-supervised institution must
demonstrate to the FDIC that the FDIC-supervised institution has made
appropriate adjustments if necessary to be consistent with the
definition of default in Sec. 324.101. Internal data obtained after
the FDIC-supervised institution becomes subject to this subpart E must
be consistent with the definition of default in Sec. 324.101.
(10) The FDIC-supervised institution must review and update (as
appropriate) its risk parameters and its risk parameter quantification
process at least annually.
(11) The FDIC-supervised institution must, at least annually,
conduct a comprehensive review and analysis of reference data to
determine relevance of the reference data to the FDIC-supervised
institution's exposures, quality of reference data to support PD, LGD,
and EAD estimates, and consistency of reference data to the definition
of default in Sec. 324.101.
* * * * *
(i) * * *
(5) The FDIC-supervised institution must have an internal audit
function or equivalent function that is independent of business-line
management that at least annually:
(i) Reviews the FDIC-supervised institution's advanced systems and
associated operations, including the operations of its credit function
and estimations of PD, LGD, and EAD;
(ii) Assesses the effectiveness of the controls supporting the
FDIC-supervised institution's advanced systems; and
(iii) Documents and reports its findings to the FDIC-supervised
institution's board of directors (or a committee thereof).
* * * * *
0
31. Section 324.131 is amended by:
0
a. Revising paragraphs (d)(5)(ii) and (iii); and
0
b. In paragraph (e)(3)(vi), removing ``Sec. 324.22(a)(7)'' and adding
``Sec. 324.22(d)'' in its place.
The revisions read as follows:
Sec. 324.131 Mechanics for calculating total wholesale and retail
risk-weighted assets.
* * * * *
(d) * * *
(5) * * *
(ii) An FDIC-supervised institution may take into account the risk
reducing effects of guarantees and credit derivatives in support of
retail exposures in a segment when quantifying the PD and LGD of the
segment. In doing so, an FDIC-supervised institution must consider all
relevant available information.
(iii) Except as provided in paragraph (d)(6) of this section, an
FDIC-supervised institution may take into account the risk reducing
effects of collateral in support of a wholesale exposure when
quantifying the LGD of the exposure, and may take into account the risk
reducing effects of collateral in support of retail exposures when
quantifying the PD and LGD of the segment. In order to do so, an FDIC-
supervised institution must have established internal requirements for
collateral management, legal certainty, and risk management processes.
* * * * *
0
32. Section 324.132 is amended by:
0
a. In Table 1 to Sec. 324.132, removing ``this section'' and adding
``Sec. 324.32'' in its place, wherever it appears;
0
b. Revising paragraphs (c)(1), (c)(2) and (d)(5)(iii)(B);
0
c. In paragraph (d)(2)(iv)(C), removing ``(d)(5)'' and adding
``(d)(6)'' in its place;
0
d. In paragraph (d)(7)(iv)(B), removing ``Sec. 324.131(b)(2)'' and
adding ``Sec. 324.132(b)(2)'' in its place; and
0
e. In paragraph (d)(9)(ii), removing ``paragraph (e)(3)'' and adding
``paragraph (e)(6)'' in its place.
The revisions read as follows:
Sec. 324.132 Counterparty credit risk of repo-style transactions,
eligible margin loans, and OTC derivative contracts.
* * * * *
(c) EAD for OTC derivative contracts--(1) OTC derivative contracts
not subject to a qualifying master netting agreement. An FDIC-
supervised institution must determine the EAD for an OTC derivative
contract that is not subject to a qualifying master netting agreement
using the current exposure methodology in paragraph (c)(5) of this
section or using the internal models methodology described in paragraph
(d) of this section. An FDIC-supervised institution may reduce the EAD
calculated according to paragraph (c)(5)
[[Page 41425]]
of this section by the credit valuation adjustment that the FDIC-
supervised institution has recognized in its balance sheet valuation of
any OTC derivative contracts in the netting set. For purposes of this
paragraph (c)(1), the credit valuation adjustment does not include any
adjustments to common equity tier 1 capital attributable to changes in
the fair value of the FDIC-supervised institution's liabilities that
are due to changes in its own credit risk since the inception of the
transaction with the counterparty.
(2) OTC derivative contracts subject to a qualifying master netting
agreement. An FDIC-supervised institution must determine the EAD for
multiple OTC derivative contracts that are subject to a qualifying
master netting agreement using the current exposure methodology in
paragraph (c)(6) of this section or using the internal models
methodology described in paragraph (d) of this section. An FDIC-
supervised institution may reduce the EAD calculated according to
paragraph (c)(6) of this section by the credit valuation adjustment
that the FDIC-supervised institution has recognized in its balance
sheet valuation of any OTC derivative contracts in the netting set. For
purposes of this paragraph (c)(2), the credit valuation adjustment does
not include any adjustments to common equity tier 1 capital
attributable to changes in the fair value of the FDIC-supervised
institution's liabilities that are due to changes in its own credit
risk since the inception of the transaction with the counterparty.
* * * * *
(d) * * *
(5) * * *
(iii) * * *
(B) Twenty business days if the number of trades in a netting set
exceeds 5,000 at any time during the previous quarter (except if the
FDIC-supervised institution is calculating EAD for a cleared
transaction under Sec. 324.133) or contains one or more trades
involving illiquid collateral or any derivative contract that cannot be
easily replaced. If over the two previous quarters more than two margin
disputes on a netting set have occurred that lasted more than the
margin period of risk, then the FDIC-supervised institution must use a
margin period of risk for that netting set that is at least two times
the minimum margin period of risk for that netting set. If the
periodicity of the receipt of collateral is N-days, the minimum margin
period of risk is the minimum margin period of risk under this
paragraph (d) plus N minus 1. This period should be extended to cover
any impediments to prompt re-hedging of any market risk.
* * * * *
0
33. Section 324.133 is amended by:
0
a. In paragraph (b)(3)(i)(B), removing ``Sec. 324.132(b)(3)(i)(A)''
and adding ``paragraph (b)(3)(i)(A) of this section'' in its place;
0
b. In paragraph (b)(4)(ii) removing ``Sec. 324.131'' and adding
``subparts E or F of this part, as applicable'' in its place;
0
c. Adding paragraph (c)(3)(iii); and
0
d. In paragraph (c)(4)(ii) removing ``Sec. 324.131'' and adding
``subparts E or F of this part, as applicable'' in its place.
The additions read as follows:
Sec. 324.133 Cleared transactions.
* * * * *
(c) * * *
(3) * * *
(iii) Notwithstanding paragraphs (c)(3)(i) and (ii) of this
section, a clearing member FDIC-supervised institution may apply a risk
weight of 0 percent to the trade exposure amount for a cleared
transaction with a CCP where the clearing member FDIC-supervised
institution is acting as a financial intermediary on behalf of a
clearing member client, the transaction offsets another transaction
that satisfies the requirements set forth in Sec. 324.3(a), and the
clearing member FDIC-supervised institution is not obligated to
reimburse the clearing member client in the event of the CCP default.
* * * * *
0
34. Section 324.136 is amended by,
0
a. In paragraph (e)(2)(i) removing ``Sec. 324.135(e)(1) and (e)(2)''
and adding paragraphs (e)(1) and (e)(2) of this section'' in its place;
and
0
b. In paragraph (e)(2)(ii) removing ``Sec. Sec. 324.135(e)(1) and
(e)(2)'' and adding paragraphs (e)(1) and (e)(2)'' of this section in
its place.
0
35. Section 324.172 is amended by revising paragraph (d) to read as
follows:
Sec. 324.172 Disclosure requirements.
* * * * *
(d)(1) An FDIC-supervised institution that meets any of the
criteria in Sec. 324.100(b)(1) before January 1, 2015, must publicly
disclose each quarter its supplementary leverage ratio and the
components thereof (that is, tier 1 capital and total leverage
exposure) as calculated under subpart B of this part, beginning with
the first quarter in 2015. This disclosure requirement applies without
regard to whether the FDIC-supervised institution has completed the
parallel run process and received notification from the FDIC pursuant
to Sec. 324.121(d).
(2) An FDIC-supervised institution that meets any of the criteria
in Sec. 324.100(b)(1) on or after January 1, 2015, must publicly
disclose each quarter its supplementary leverage ratio and the
components thereof (that is, tier 1 capital and total leverage
exposure) as calculated under subpart B of this part beginning with the
calendar quarter immediately following the quarter in which the FDIC-
supervised institution becomes an advanced approaches FDIC-supervised
institution. This disclosure requirement applies without regard to
whether the FDIC-supervised institution has completed the parallel run
process and has received notification from the FDIC pursuant to Sec.
324.121(d).
0
36. Section 324.173 is amended by:
0
a. Designating paragraph (a) as paragraph (a)(1) and revising newly
redesignated paragraph (a)(1);
0
b. Adding paragraphs (a)(2) and (3);
0
c. Revising the entry for (a)(1) in Table 6 to Sec. 324.173; and
0
d. Revising the entry for (i)(2) in Table 9 in Sec. 324.173.
The revisions and additions read as follows:
Sec. 324.173 Disclosures by certain advanced approaches FDIC-
supervised institutions.
(a)(1) An advanced approaches FDIC-supervised institution described
in Sec. 324.172(b) must make the disclosures described in Tables 1
through 12 to Sec. 324.173.
(2) An advanced approaches FDIC-supervised institution that is
required to publicly disclose its supplementary leverage ratio pursuant
to Sec. 324.172(d) must make the disclosures required under Table 13
to Sec. 324.173, unless the FDIC-supervised institution is a
consolidated subsidiary of a bank holding company, savings and loan
holding company, or depository institution that is subject to these
disclosures requirements or a subsidiary of a non-U.S. banking
organization that is subject to comparable public disclosure
requirements in its home jurisdiction.
(3) The disclosures described in Tables 1 through 12 to Sec.
324.173 must be made publicly available for twelve consecutive quarters
beginning on January 1, 2014, or a shorter period, as applicable, for
the quarters after the FDIC-supervised institution has completed the
parallel run process and received notification from the FDIC pursuant
to Sec. 324.121(d). The disclosures described in Table 13 to Sec.
324.173 must be made publicly available for twelve consecutive quarters
beginning on January 1, 2015, or a shorter period, as applicable, for
the quarters after the FDIC-supervised
[[Page 41426]]
institution becomes subject to the disclosure of the supplementary
leverage ratio pursuant to Sec. 324.172(d) and Sec. 324.173(a)(2).
* * * * *
Table 6 to Sec. 324.173--Credit Risk: Disclosures for Portfolios
Subject to IRB Risk-Based Capital Formula
------------------------------------------------------------------------
Qualitative disclosures (a) * * *
------------------------------------------------------------------------
(1) Structure of internal
rating systems and if the
FDIC-supervised institution
considers external ratings,
the relation between
internal and external
ratings;
* * * * * * *
------------------------------------------------------------------------
* * * * *
Table 9 to Sec. 324.173--Securitization
------------------------------------------------------------------------
------------------------------------------------------------------------
* * * * * * *
Quantitative Disclosures.
* * * * * * *
(i) * * *
(2) Aggregate amount
disclosed separately by
type of underlying exposure
in the pool of any:
(i) After-tax gain-on-sale
on a securitization that
has been deducted from
common equity tier 1
capital; and
(ii) Credit-enhancing
interest-only strip that is
assigned a 1,250 percent
risk weight.
* * * * * * *
------------------------------------------------------------------------
* * * * *
0
37. Section 324.403(b) is revised to read as follows:
Sec. 324.403 Capital measures and capital category definitions.
* * *
(b) Capital categories. For purposes of section 38 of the FDI Act
and this subpart, an FDIC-supervised institution shall be deemed to be:
(1) ``Well capitalized'' if it:
(i) Has a total risk-based capital ratio of 10.0 percent or
greater; and
(ii) Has a Tier 1 risk-based capital ratio of 8.0 percent or
greater; and
(iii) Has a common equity tier 1 capital ratio of 6.5 percent or
greater; and
(iv) Has a leverage ratio of 5.0 percent or greater;
(v) Is not subject to any written agreement, order, capital
directive, or prompt corrective action directive issued by the FDIC
pursuant to section 8 of the FDI Act (12 U.S.C. 1818), the
International Lending Supervision Act of 1983 (12 U.S.C. 3907), or the
Home Owners' Loan Act (12 U.S.C. 1464(t)(6)(A)(ii)), or section 38 of
the FDI Act (12 U.S.C. 1831o), or any regulation thereunder, to meet
and maintain a specific capital level for any capital measure; and
(vi) Beginning on January 1, 2018 and thereafter, an FDIC-
supervised institution that is a subsidiary of a covered BHC will be
deemed to be well capitalized if the FDIC-supervised institution
satisfies paragraphs (b)(1)(i) through (v) of this section and has a
supplementary leverage ratio of 6.0 percent or greater. For purposes of
this paragraph, a covered BHC means a U.S. top-tier bank holding
company with more than $700 billion in total assets as reported on the
company's most recent Consolidated Financial Statement for Bank Holding
Companies (FR Y-9C) or more than $10 trillion in assets under custody
as reported on the company's most recent Banking Organization Systemic
Risk Report (FR Y-15).
* * * * *
Dated: June 16, 2015.
Thomas J. Curry,
Comptroller of the Currency.
By order of the Board of Governors of the Federal Reserve
System, June 15, 2015.
Robert deV. Frierson,
Secretary of the Board.
Dated at Washington, DC, this 16th day of June, 2015.
By order of the Board of Directors.
Federal Deposit Insurance Corporation.
Robert E. Feldman,
Executive Secretary.
[FR Doc. 2015-15748 Filed 7-14-15; 8:45 am]
BILLING CODE