Risk-Based Capital Standards: Advanced Capital Adequacy Framework-Basel II; Establishment of a Risk-Based Capital Floor, 12611-12616 [2011-5011]

Download as PDF Federal Register / Vol. 76, No. 45 / Tuesday, March 8, 2011 / Proposed Rules (c) From subsection (e)(1) (Relevancy and Necessity of Information) because in the course of investigations into potential violations of Federal law, the accuracy of information obtained or introduced occasionally may be unclear, or the information may not be strictly relevant or necessary to a specific investigation. In the interests of effective law enforcement, it is appropriate to retain all information that may aid in establishing patterns of unlawful activity. (d) From subsections (e)(4)(G), (e)(4)(H), and (e)(4)(I) (Agency Requirements) and (f) (Agency Rules), because portions of this system are exempt from the individual access provisions of subsection (d) for the reasons noted above, and therefore DHS is not required to establish requirements, rules, or procedures with respect to such access. Providing notice to individuals with respect to existence of records pertaining to them in the system of records or otherwise setting up procedures pursuant to which individuals may access and view records pertaining to themselves in the system would undermine investigative efforts and reveal the identities of witnesses, and potential witnesses, and confidential informants. Dated: February 25, 2011. Mary Ellen Callahan, Chief Privacy Officer, Department of Homeland Security. [FR Doc. 2011–5094 Filed 3–7–11; 8:45 am] BILLING CODE 9110–9A–P DEPARTMENT OF THE TREASURY Office of Thrift Supervision 12 CFR Part 567 [Docket No. OTS–2011–0002] RIN 1550–AC41 Risk-Based Capital Standards: Advanced Capital Adequacy Framework—Basel II; Establishment of a Risk-Based Capital Floor Office of Thrift Supervision, Treasury. ACTION: Notice of proposed rulemaking. AGENCY: The Office of Thrift Supervision (OTS) proposes to: Amend its advanced risk-based capital adequacy standards (advanced approaches rules) 1 to be consistent with certain provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the Act) 2 and amend the general risk-based capital rules 3 to provide limited flexibility consistent with section 171(b) of the Act for recognizing the relative risk of certain mstockstill on DSKH9S0YB1PROD with PROPOSALS SUMMARY: 1 12 CFR part 567, Appendix C. Law 111–203, § 171, 124 Stat. 1376, 1435–38 (2010). 3 12 CFR part 567. 2 Public VerDate Mar<15>2010 19:07 Mar 07, 2011 Jkt 223001 assets generally not held by depository institutions. DATES: Comments on this notice of proposed rulemaking must be received by May 9, 2011. ADDRESSES: Comments should be directed to: OTS: You may submit comments, identified by OTS–2011–0002 by any of the following methods: Federal eRulemaking Portal: ‘‘Regulations.gov’’: Go to http:// www.regulations.gov and follow the instructions for submitting comments. • Mail: Regulation Comments, Chief Counsel’s Office, Office of Thrift Supervision, 1700 G Street, NW., Washington, DC 20552, Attention: OTS– 2011–0002. • Fax: (202) 906–6518. • Hand Delivery/Courier: Guard’s Desk, East Lobby Entrance, 1700 G Street, NW., from 9 a.m. to 4 p.m. on business days, Attention: Regulation Comments, Chief Counsel’s Office, Attention: OTS–2011–0002. • Instructions: All submissions received must include the agency name and docket number for this rulemaking. All comments received will be posted without change, including any personal information provided. Comments received, including attachments and other supporting materials, are part of the public record and subject to public disclosure. Do not enclose any information in your comment or supporting materials that you consider confidential or inappropriate for public disclosure. • Viewing Comments Electronically: Go to http://www.regulations.gov and follow the instructions for reading comments. • Viewing Comments On-Site: You may inspect comments at the Public Reading Room, 1700 G Street, NW., by appointment. To make an appointment for access, call (202) 906–5922, send an e-mail to public.info@ots.treas.gov, or send a facsimile transmission to (202) 906–6518. (Prior notice identifying the materials you will be requesting will assist us in serving you.) We schedule appointments on business days between 10 a.m. and 4 p.m. In most cases, appointments will be available the next business day following the date we receive a request. FOR FURTHER INFORMATION CONTACT: Sonja White, Director, Capital Policy, (202) 906–7857, Teresa A. Scott, Senior Policy Analyst, Capital Policy, (202) 906–6478, or Marvin Shaw, Senior Attorney, Regulations and Legislation Division, (202) 906–6639, Office of Thrift Supervision, 1700 G Street, NW., Washington, DC 20552. PO 00000 Frm 00003 Fmt 4702 Sfmt 4702 12611 SUPPLEMENTARY INFORMATION: I. Background A. The Dodd-Frank Wall Street Reform and Consumer Protection Act Section 171(b)(2) of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the Act) 4 states that the Federal banking agencies 5 shall establish minimum risk-based capital requirements 6 applicable to insured depository institutions, depository institution holding companies, and nonbank financial companies supervised by the Federal Reserve (covered institutions). In particular, and as described in more detail below, sections 171(b)(1) and (2) specify that the minimum leverage and risk-based capital requirements established under section 171 shall not be less than ‘‘generally applicable’’ capital requirements, which shall serve as a floor for any capital requirements the agencies may require. Moreover, sections 171(b)(1) and (2) specify that the Federal banking agencies may not establish leverage or risk-based capital requirements for covered institutions that are quantitatively lower than the generally applicable leverage or riskbased capital requirements in effect for insured depository institutions as of the date of enactment of the Act. 4 Public Law 111–203, § 171, 124 Stat. 1376, 1435–38 (2010). 5 The Office of Thrift Supervision (OTS), the Office of Comptroller of the Currency (OCC), the Board of Governors of the Federal Reserve System (Board), and the Federal Deposit Insurance Corporation (FDIC) are considered Federal banking agencies. Section 312 of the Act provides for the transfer of OTS functions to the FDIC, OCC, and Board, on the transfer date, which is July 21, 2011 (unless the Secretary of the Treasury designates a later date, but not later than January 21, 2012). More specifically, the Act transfers authority over Federal savings associations to the OCC, authority over State savings associations to the FDIC, and authority over savings and loan holding companies to the Board. OTS rulemaking authority relating to savings associations and savings and loan holding companies will be transferred to the OCC and Board, respectively. 12 U.S.C. 5412. 6 OTS’s capital regulations applicable to savings associations are set forth at 12 CFR part 567. Section 303 of the Riegle Community Development and Regulatory Improvement Act of 1994 (12 U.S.C. 4803) directs the agencies to work jointly to make uniform all regulations and guidelines implementing common statutory or supervisory policies. Accordingly, the banking agencies generally issue capital standards whose substance is as similar as possible, thereby minimizing interagency differences. Due to timing considerations, the OCC, Board, and FDIC published a notice of proposed rulemaking (Joint NPR) in the Federal Register which addressed section 171 of the Dodd-Frank Act (75 FR 82317, December 30, 2010). OTS is issuing today’s NPR which essentially parallels the substance of the joint proposal. E:\FR\FM\08MRP1.SGM 08MRP1 12612 Federal Register / Vol. 76, No. 45 / Tuesday, March 8, 2011 / Proposed Rules mstockstill on DSKH9S0YB1PROD with PROPOSALS B. Advanced Approaches Rules On December 7, 2007, the Federal banking agencies implemented the advanced approaches rules, which are mandatory for U.S. depository institutions and bank holding companies (collectively, banking organizations) meeting certain thresholds for total consolidated assets or foreign exposure.7 The advanced approaches rules incorporate a series of proposals released by the Basel Committee on Banking Supervision (Basel Committee or BCBS), including the Basel Committee’s comprehensive June 2006 release entitled ‘‘International Convergence of Capital Measurement and Capital Standards: A Revised Framework’’ (New Accord).8 The advanced approaches rules establish a series of transitional floors to provide a smooth transition to the advanced approaches rules and to limit temporarily the amount by which a banking organization’s risk-based capital requirements could decline relative to the general risk-based capital rules over a period of at least three years following completion of a satisfactory parallel run. The advanced approaches rules place limits on the amount by which a banking organization’s riskbased capital requirements may decline. Under the advanced approaches rules, the banking organization must take the risk-based capital ratios equal to the lesser of (i) the organization’s ratios calculated under the advanced approaches rules and (ii) the organization’s ratios calculated under the general risk-based capital rules,9 with risk-weighted assets multiplied by 95 percent, 90 percent, and 85 percent during the first, second, and third transitional floor periods, respectively, and compare these ratios to its minimum risk-based capital ratio requirements under section 3 of the advanced approaches rules.10 Under 7 72 FR 69288 (December 7, 2007). Subject to prior supervisory approval, other banking organizations can opt to use the advanced approaches rules. See 72 FR 69397 (December 7, 2007). 8 The BCBS is a committee of banking supervisory authorities established by the central bank governors of the G–10 countries in 1975. The BCBS issued the New Accord to modernize its first capital Accord, which was endorsed by the BCBS members in 1988 and implemented by the agencies in 1989. The New Accord, the 1988 Accord, and other documents issued by the BCBS are available through the Bank for International Settlements’ Web site at http://www.bis.org. 9 12 CFR part 567, Appendix C. See also, 12 CFR part 3, Appendix A (OCC); 12 CFR parts 208 and 225, Appendix A (Board); 12 CFR part 325, appendix A (FDIC). 10 Under the advanced approaches rules, the minimum tier 1 risk-based capital requirement is 4 percent and the total risk-based capital requirement VerDate Mar<15>2010 19:07 Mar 07, 2011 Jkt 223001 this approach, banking organizations that use the advanced approaches rule could operate with lower minimum risk-based capital requirements during a transitional floor period, and potentially thereafter, than would be required under the general risk-based capital rules. At this time, no savings association or other banking organization has entered a transitional floor period and all organizations are required to compute their risk-based capital requirements using the general risk-based capital rules. C. Requirements of Section 171 of the Act Section 171(a)(2) of the Act defines the term ‘‘generally applicable riskbased capital requirements’’ to mean: ‘‘(A) the risk-based capital requirements, as established by the appropriate Federal banking agencies to apply to insured depository institutions under the prompt corrective action regulations implementing section 38 of the Federal Deposit Insurance Act, regardless of total consolidated asset size or foreign financial exposure; and (B) includes the regulatory capital components in the numerator of those capital requirements, the risk-weighted assets in the denominator of those capital requirements, and the required ratio of the numerator to the denominator.’’ Section 171(b)(2) of the Act further provides that ‘‘[t]he appropriate Federal banking agencies shall establish minimum risk-based capital requirements on a consolidated basis for insured depository institutions, depository institution holding companies, and nonbank financial companies supervised by the Board of Governors. The minimum risk-based capital requirements established under this paragraph shall not be less than the generally applicable risk-based capital requirements, which shall serve as a floor for any capital requirements that the agency may require, nor quantitatively lower than the generally applicable risk-based capital requirements that were in effect for insured depository institutions as of the date of enactment of this Act.’’ In accordance with section 38 of the Federal Deposit Insurance Act,11 the Federal banking agencies established minimum leverage and risk-based capital requirements for insured depository institutions for prompt is 8 percent. See 12 CFR, part 567, Appendix C (OTS), See also, 12 CFR part 3, Appendix C (OCC); 12 CFR part 208, Appendix F and 12 CFR part 225, Appendix G (Board); and 12 CFR part 325 Appendix D (FDIC). 11 See Public Law 102–242; 105 Stat. 2242 (1991). PO 00000 Frm 00004 Fmt 4702 Sfmt 4702 corrective action (PCA rules).12 All insured institutions, regardless of their total consolidated assets or foreign exposure, must compute their minimum risk-based capital requirements for PCA purposes using the general risk-based capital rules, which currently are the ‘‘generally applicable risk-based capital requirements’’ defined by Section 171(a)(2) of the Act. D. Effect of Section 171 of the Act on Certain Institutions and Their Assets As explained in the Joint NPR, certain covered institutions may not previously have been subject to consolidated riskbased capital requirements. Some of these companies are likely to be similar in nature to most depository institutions and bank holding companies subject to the general risk-based capital rules. Other covered institutions may be different with exposure types and risks that were not contemplated when the general risk-based capital rules were developed. The Financial Stability Oversight Council has not yet designated any nonbank financial companies to be supervised by the Board; over time it is conceivable that it will designate one or more companies whose activities are quite different than those addressed in the general riskbased capital rules. As noted in the Joint NPR, the Board will be supervising these institutions for the first time and expects that there will be cases when it needs to evaluate the risk-based capital treatment of specific exposures not typically held by depository institutions, and that do not have a specific risk weight under the generally applicable risk-based capital requirements. Under the general risk-based capital rules, exposures are generally assigned to five risk weight categories, that is, 0 percent, 20 percent, 50 percent, 100 percent, and 200 percent, according to their relative riskiness. Assets not explicitly included in a lower risk weight category are assigned to the 100 percent risk weight category. Going forward, there may be situations where exposures of a depository institution holding company or a nonbank financial company supervised by the Board not only do not wholly fit within the terms of a risk weight category, but also impose risks that are not commensurate with the risk weight otherwise specified in the generally applicable risk-based capital requirements. For example, there are some material exposures of insurance companies that, while not riskless, would be assigned to a 100 percent risk weight category 12 12 E:\FR\FM\08MRP1.SGM CFR part 565 (OTS). 08MRP1 Federal Register / Vol. 76, No. 45 / Tuesday, March 8, 2011 / Proposed Rules because they are not explicitly assigned to a lower risk weight category. An automatic assignment to the 100 percent risk weight category without consideration of an exposure’s economic substance could overstate the risk of the exposure and produce uneconomic capital requirements for a covered institution. mstockstill on DSKH9S0YB1PROD with PROPOSALS II. Proposed Rule A. Generally Applicable Risk-Based Capital Requirement Floor Consistent with the Joint NPR, the OTS is proposing to modify its advanced approaches rule consistent with section 171(b)(2). In particular, like the other agencies, OTS is proposing to revise its advanced approaches rule by replacing the transitional floors in section 21(e) of the advanced approaches rule with a permanent floor equal to the tier 1 and total risk-based capital requirements under the current generally applicable risk-based capital rules. Thus, OTS is proposing to require each banking organization subject to the advanced approaches rule to maintain the systems and records necessary to calculate its required minimum riskbased capital requirements under both the general risk-based capital rules and the advanced approaches rules. Each quarter, each banking organization subject to the advanced approaches rules must calculate and compare its minimum tier 1 and total risk-based capital ratios as calculated under the general risk-based capital rules and the advanced approaches risk-based capital rules. The banking organization would then compare the lower of the two tier 1 risk-based capital ratios and the lower of the two total risk-based capital ratios to the minimum tier 1 ratio requirement of 4 percent and total risk-based capital ratio requirement of 8 percent in section 3 of the advanced approaches rules 13 to determine if it met its minimum capital requirements. OTS is also proposing to eliminate the paragraphs of its advanced approaches rule dealing with the transitional floor periods, and the interagency study. These parts of the advanced approaches rules no longer serve a purpose. Question 1: OTS seeks comment generally on the impact of a permanent floor on the minimum risk-based capital requirements for banking organizations subject to the advanced approaches rules, and on the manner in which OTS and the other Federal banking agencies 13 12 CFR part 567 (OTS). See also, 12 CFR part 3, Appendix C, § 3 (OCC); 12 CFR part 208, Appendix F, § 3 and 12 CFR part 225, Appendix G, § 3 (Board); and 12 CFR part 325, § 3 Appendix D (FDIC). VerDate Mar<15>2010 19:07 Mar 07, 2011 Jkt 223001 are proposing to implement the provisions of section 171(b) of the Act. B. Change to Generally Applicable RiskBased Capital Requirements The proposed floor, consistent with the requirements of section 171(b)(2), is based on the generally applicable riskbased capital requirements for depository institutions. To address the appropriate capital requirement for low risk assets that non-depository institutions may hold and for which there is no explicit capital treatment in the general risk-based capital rules, consistent with the other banking agencies, OTS is proposing that such exposures receive the capital treatment applicable under the capital guidelines for bank holding companies under limited circumstances. The circumstances are intended to allow for an appropriate capital requirement for low risk nonbanking exposures without creating unintended new opportunities for depository institutions to engage in capital arbitrage. OTS therefore proposes to limit this treatment to cases in which a depository institution is not authorized to hold the asset under applicable law other than under debt previously contracted or similar authority, and the risks associated with the asset are substantially similar to the risks of assets that receive a lower risk weight. Accordingly, OTS is proposing a change to the general risk-based capital rules for depository institutions to permit this limited flexibility to appropriately address exposures of depository institution holding companies and nonbank financial companies supervised by the Board. OTS requests comment on this change to the general risk-based capital rules. Question 2: For what specific types of exposures do commenters believe this treatment is appropriate? Does the proposal provide sufficient flexibility to address the exposures of depository institution holding companies and nonbank financial companies supervised by the Federal Reserve? If not, how should the proposal be changed to recognize the considerations outlined in this section? Consistent with the joint efforts of the Federal banking agencies and the Basel Committee to enhance the regulatory capital rules, OTS anticipates that the generally applicable risk-based capital requirements and advanced approaches rule will be amended from time to time. These amendments would reflect advances in risk sensitivity and other potentially substantive changes to fundamental aspects of the New Accord such as the definition of capital, treatment of counterparty credit risk, PO 00000 Frm 00005 Fmt 4702 Sfmt 4702 12613 and new regulatory capital elements such as an international leverage ratio and prudential capital buffers. OTS will consider each proposed change to the risk-based capital rules and determine whether it is appropriate to implement the change by rulemaking based on the implications of each proposal for the capital adequacy of banking organizations, the implementation costs of such proposals, and the nature of any unintended consequences or competitive issues. The generally applicable risk-based capital requirements and generally applicable leverage capital requirements that OTS and the other agencies may establish in the future would, as required under the Act, become the minimum leverage and risk-based capital requirements for all banking organizations. Furthermore, as provided under the Act, any future amendments to the leverage requirements or risk-based capital requirements established by the Federal banking agencies may not result in capital requirements that are ‘‘quantitatively lower’’ than the generally applicable leverage requirements or risk-based capital requirements in effect as of the date of enactment of the Act. To comply with this provision of the Act, OTS along with the other Federal banking agencies anticipate performing a quantitative analysis of the likely effect on capital requirements as part of developing future amendments to the capital rules to ensure that any new capital framework is not quantitatively lower than the requirements in effect as of the date of enactment of the Act. In the Joint NPR, the OCC, FDIC, and Board stated that they would not anticipate proposing to require banking organizations to compute two sets of generally applicable capital requirements from current and historic frameworks as the generally applicable requirements are amended over time. Those agencies further stated that they have not yet determined the quantitative method for measuring the equivalence of current, historic, and proposed future capital frameworks. Question 3: OTS requests comment on the most appropriate method of conducting the aforementioned analysis. What are potential quantitative methods for comparing future capital requirements to ensure that any new capital framework is not quantitatively lower than the requirements in effect as of the date of the enactment of the Act? The Federal banking agencies anticipate addressing aspects of Section 171 not addressed in this proposed rule in a subsequent rulemaking. E:\FR\FM\08MRP1.SGM 08MRP1 12614 Federal Register / Vol. 76, No. 45 / Tuesday, March 8, 2011 / Proposed Rules Question 4: OTS seeks comment on all other aspects of this proposed rule, including the costs and benefits. What, if any, changes should OTS and the other agencies make to the proposed rule or the risk-based capital framework to better balance costs and benefits? III. Regulatory Analyses A. Executive Orders 13563 and 12866 Executive Order 13563 ‘‘Improving Regulations and Regulatory Review’’ affirms and supplements Executive Order 12866, ‘‘Regulatory Planning and Review, which requires Federal agencies to prepare a regulatory impact analysis for agency actions that are found to be ‘‘significant regulatory actions.’’ Significant regulatory actions include, among other things, rulemakings that ‘‘have an annual effect on the economy of $100 million or more or adversely affect in a material way the economy, a sector of the economy, productivity, competition, jobs, the environment, public health or safety, or State, local, or Tribal governments or communities.’’ Pursuant to Executive Order 12866, OMB’s Office of Information and Regulatory Affairs (OIRA) has designated the proposed rule to be significant. Based on initial assessment of the costs and benefits likely to be incurred to comply with this proposed rulemaking, OTS anticipates that the effect on the economy of the final rule would not exceed the $100 million annual threshold. B. OTS Regulatory Impact Assessment 1. Requirements of Proposed Regulation mstockstill on DSKH9S0YB1PROD with PROPOSALS a. Permanent Floor As noted below, the OCC, the Board, and the FDIC published a notice of proposed rulemaking (Joint NPR) that addressed section 171 of the DoddFrank Act, (75 FR 82317)(the Act), on December 30, 2010. Consistent with the Joint NPR, OTS is proposing to modify its advanced approaches rule consistent with section 171(b)(2) of the Act. In particular, like the other agencies, OTS is proposing to revise its advanced approaches rule by replacing the transitional floors in section 21(e) of the advanced approaches rule with a permanent floor equal to the tier 1 and total risk-based capital requirements under the current generally applicable risk-based capital rules. The Federal banking agencies implemented the advanced approaches rules on December 7, 2007 that are mandatory for U.S. depository institutions and bank holding companies (collectively, banking organizations) that have $250 VerDate Mar<15>2010 19:07 Mar 07, 2011 Jkt 223001 billion or more in total consolidated assets or more than $10 billion in foreign exposure. Thus, OTS is proposing to require each savings association subject to the advanced approaches rule to maintain the systems and records necessary to calculate its required minimum riskbased capital requirements under both the general risk-based capital rules and the advanced approaches rules. Each quarter, each savings association subject to the advanced approaches rules must calculate and compare its minimum tier 1 and total risk-based capital ratios as calculated under the general risk-based capital rules and the advanced approaches risk-based capital rules. The savings association would then compare the lower of the two tier 1 risk-based capital ratios and the lower of the two total risk-based capital ratios to the minimum tier 1 ratio requirement of 4 percent and total risk-based capital ratio requirement of 8 percent in section 3 of the advanced approaches rules to determine if it met its minimum capital requirements. OTS reviewed the holdings and corporate structure of 941 savings associations subject to OTS regulation. As of this analysis, only two savings associations ($1.5 billion in total assets; and $15 billion in total assets, respectively), due to their corporate ownership structure by larger banking organizations, are subject to the advanced approaches rule. Both have begun the parallel run portion of preparation for the advanced approach, and they are unlikely to enter the first transitional floor within the next six months. One other savings association may be eligible for the advance approach because its foreign exposure exceeds $10 billion. However, it has not yet submitted an implementation plan, which must be approved before the institution begins the parallel run portion of its preparation; it is not likely to do so in the next six months. Section 312 of the Act provides for the transfer of OTS functions to the FDIC, OCC, and Board, on the transfer date, which is July 21, 2011 (unless the Secretary of the Treasury designates a later date, but not later than January 21, 2012). More specifically, the Act transfers authority over Federal savings associations to the OCC, authority over State savings associations to the FDIC, and authority over savings and loan holding companies to the Board. OTS rulemaking authority relating to savings associations and savings and loan holding companies will be transferred to the OCC and Board, respectively. PO 00000 Frm 00006 Fmt 4702 Sfmt 4702 b. Implementation Costs In estimating the implementation costs to the covered institutions, OTS assumed that costs would generally fall in two areas: • Quarterly calculation costs to determine minimum risk-based capital requirements. • The costs of maintaining higher capital levels, if required. Given that OTS currently has, at most, three smaller savings associations that may be subject to the rule, the annual costs of calculating alternative minimum capital requirements are likely to be small. Two of the savings associations are subsidiaries of larger banking organizations that are required to calculate their overall risk-based capital requirements under a rule promulgated by the other banking agencies, and thus the marginal costs for the two savings association are likely to be minimal. Whether these particular institutions would be required to hold additional capital is very difficult to determine at this time. Any costs associated with holding additional capital would be offset, to some degree, by the reduced costs of borrowing, as the institution would then be better capitalized and its borrowing costs reduced because of its lowered risk. The sum of the identified costs is likely, given these three institutions, to fall well below the $100 million annual cost benchmark. 2. Risk Weights for Holding Company Assets While none of three savings associations currently hold such assets, to address the appropriate capital requirement for low risk assets that nondepository institutions may hold and for which there is no explicit capital treatment in the general risk-based capital rules, consistent with the other banking agencies and consistent with the Joint NPR, OTS is proposing that such exposures receive the capital treatment applicable under the capital guidelines for bank holding companies under limited circumstances. The circumstances are intended to allow for an appropriate capital requirement for low risk nonbanking exposures without creating unintended new opportunities for depository institutions to engage in capital arbitrage. OTS therefore proposes to limit this treatment to cases in which a depository institution is not authorized to hold the asset under applicable law other than under debt previously contracted or similar authority, and the risks associated with the asset are substantially similar to the risks of assets that receive a lower risk E:\FR\FM\08MRP1.SGM 08MRP1 Federal Register / Vol. 76, No. 45 / Tuesday, March 8, 2011 / Proposed Rules weight. Accordingly, consistent with the other banking agencies, OTS is proposing a change to the general riskbased capital rules to permit this limited flexibility to appropriately address certain exposures of depository institution holding companies and nonbank financial companies supervised by the Board. 3. Implementation Costs It is difficult to assess the benefit that this rule making would convey, as (1) it applies to certain nonbank-like exposures of depository holding companies and nonbank financial companies supervised by the Board, and (2) it is very narrow in scope but is being proposed to address unforeseen circumstances in which the absence of an existing risk weight designation would require substantially more capital than a comparability test would suggest is appropriate. 4. Conclusion D. OTS Unfunded Mandates Reform Act of 1995 Determinations Because of the limited number of institutions and the amount of assets involved, OTS concludes that the impact of this proposed rulemaking would not exceed $100 million in annual costs. mstockstill on DSKH9S0YB1PROD with PROPOSALS C. Regulatory Flexibility Act Analysis Pursuant to section 605(b) of the Regulatory Flexibility Act,14 (RFA), the regulatory flexibility analysis otherwise required under section 604 of the RFA is not required if an agency certifies that the rule will not have a significant economic impact on a substantial number of small entities (defined for purposes of the RFA to include banks with assets less than or equal to $175 million) and publishes its certification and a short, explanatory statement in the Federal Register along with its rule. The rule would affect savings associations that use the advanced approaches rules to calculate risk-based capital requirements according to certain internal ratings-based and internal model approaches. A savings association must use the advanced approaches rules only if: (i) It has consolidated total assets (as reported on its most recent year-end regulatory report) equal to $250 billion or more; (ii) it has consolidated total on-balance sheet foreign exposures at the most recent year-end equal to $10 billion or more; or (iii) it is a subsidiary of a bank holding company or bank that would be required to use the advanced approaches rules to calculate its riskbased capital requirements. 14 5 U.S.C. 605(b). VerDate Mar<15>2010 19:07 Mar 07, 2011 Jkt 223001 With respect to the proposed changes to the general risk-based capital rules, the proposal has the potential to affect the risk weights applicable only to assets that generally are impermissible for savings associations to hold. These proposed changes are accordingly unlikely to have a significant impact on savings associations. OTS also notes that the changes to the general riskbased capital rules would not impose any additional obligations, restrictions, burdens, or reporting, recordkeeping or compliance requirements on savings associations including small banking organizations, nor do they duplicate, overlap or conflict with other Federal rules. OTS estimates that no small savings associations are required to use the advanced approaches rules.15 Therefore, OTS believes that the proposed rule will not result in a significant economic impact on a substantial number of small entities. Section 202 of the Unfunded Mandates Reform Act of 1995, Public Law 104–4 (UMRA) requires that an agency prepare a budgetary impact statement before promulgating a rule that includes a Federal mandate that may result in the expenditure by State, local, and Tribal governments, in the aggregate, or by the private sector of $100 million or more (adjusted annually for inflation) in any one year. If a budgetary impact statement is required, section 205 of the UMRA also requires an agency to identify and consider a reasonable number of regulatory alternatives before promulgating a rule. The OTS has determined that its proposed rule will not result in expenditures by State, local, and Tribal governments, or by the private sector, of $100 million or more. Accordingly, OTS has not prepared a budgetary impact statement or specifically addressed the regulatory alternatives considered. E. Paperwork Reduction Act In accordance with the requirements of the Paperwork Reduction Act of 1995,16 OTS may not conduct or sponsor, and the respondent is not required to respond to, an information collection unless it displays a currently valid OMB control number. OTS has an established information collection for the paperwork burden imposed by the advanced approaches rule.17 This notice 15 All totals are as of September 30, 2010. U.S.C. 3501–3521. 17 See Risk-Based Capital Reporting for Institutions Subject to the Advanced Capital 12615 of proposed rulemaking would replace the transitional floors in section 21(e) of the advanced approaches rule with a permanent floor equal to the tier 1 and total risk-based capital requirements under the current generally applicable risk-based capital rules. The proposed change to transitional floors would change the basis for calculating a data element that must be reported to OTS under an existing requirement. However, it would have no impact on the frequency or response time for the reporting requirement and, therefore, does not constitute a substantive or material change subject to OMB review. F. Plain Language Section 722 of the Gramm-LeachBliley Act requires the agencies to use plain language in all proposed and final rules published after January 1, 2000. In light of this requirement, OTS has sought to present the proposed rule in a simple and straightforward manner. OTS invites comment on whether it could take additional steps to make the proposed rule easier to understand. List of Subjects in 12 CFR Part 567 Capital, Reporting and recordkeeping requirements, Risk, Savings associations. Authority and Issuance For the reasons stated in the preamble, the Office of Thrift Supervision proposes to amend part 567 of chapter V of Title 12, Code of Federal Regulations as follows: PART 567—CAPITAL 1. The authority citation for part 3 continues to read as follows: Authority: 12 U.S.C. 1462, 1462a, 1463, 1464, 1467a, and 1828 (note). 2. In § 567.6, add new paragraph (a)(1)(v) as follows: § 567.6 Risk-based capital credit riskweight categories. * * * * * (a) * * * (1) * * * (v) Subject to the requirements in paragraphs (a)(1)(v)(A) and (B) of this section, a savings association may assign an asset not included in the categories above to the risk weight category applicable under the capital guidelines for bank holding companies (12 CFR part 225, appendix A), provided that all of the following conditions apply: (A) The savings association is not authorized to hold the asset under 16 44 PO 00000 Frm 00007 Fmt 4702 Sfmt 4702 Adequacy Framework, FFIEC 101, OTS OMB Number 1550–0115. E:\FR\FM\08MRP1.SGM 08MRP1 12616 Federal Register / Vol. 76, No. 45 / Tuesday, March 8, 2011 / Proposed Rules applicable law other than debt previously contracted or similar authority; and (B) The risks associated with the asset are substantially similar to the risks of assets that are otherwise assigned to a risk weight category less than 100 percent under this section. * * * * * 3. In Appendix C to part 567: a. Revise Part I, section 3 to read as set forth below; and b. Remove section 21(e). Appendix C to Part 567—Risk-Based Capital Requirements—Internal Ratings-Based and Advanced Measurement Approaches * * * * Section 3. Minimum Risk-Based Capital Requirements (a)(1) Except as modified by paragraph (c) of this section or by section 23 of this appendix, each savings association must meet a minimum: (i) Total risk-based capital ratio of 8.0 percent; and (ii) Tier 1 risk-based capital ratio of 4.0 percent. (2) A savings association’s total risk-based capital ratio is the lower of: (i) Its total qualifying capital to total riskweighted assets; and (ii) Its total risk-based capital ratio as calculated under part 567. (3) A savings association’s tier 1 risk-based capital ratio is the lower of: (i) Its tier 1 capital to total risk-weighted assets; and (ii) Its tier 1 risk-based capital ratio as calculated under part 567. (b) Each savings association must hold capital commensurate with the level and nature of all risks to which the savings association is exposed. (c) When a savings association subject to any applicable market risk rule calculates its risk-based capital requirements under this appendix, the savings association must also refer to any applicable market risk rule for supplemental rules to calculate risk-based capital requirements adjusted for market risk. mstockstill on DSKH9S0YB1PROD with PROPOSALS * * * * * Dated: January 31, 2011. By the Office of Thrift Supervision. John E. Bowman, Acting Director. [FR Doc. 2011–5011 Filed 3–7–11; 8:45 am] BILLING CODE P VerDate Mar<15>2010 19:07 Mar 07, 2011 Jkt 223001 Economic Development Administration 13 CFR Chapter III [Docket No.: 110119042–1174–02] RIN 0610–XA04 Request for Comments: Review and Improvement of EDA’s Regulations Economic Development Administration, Department of Commerce. ACTION: Notice and request for comments; extending public comment deadline. AGENCY: On February 1, 2011, the Economic Development Administration (EDA) published a Federal Register notice requesting public input to improve the agency’s regulations (76 FR 5501). Because of strong interest in the agency’s efforts to streamline and update its regulations, EDA publishes this notice to extend the deadline for submitting regulatory comments. DATES: Comments must be received no later than 5 p.m. Eastern Time on April 11, 2011. ADDRESSES: Comments will continue to be accepted by the following methods: • Federal eRulemaking Portal: http:// www.regulations.gov. Follow the instructions for submitting comments. • Agency Web Site: http:// www.eda.gov/. EDA has created an online feature for submitting comments. Follow the instructions at http:// www.eda.gov/. • E-mail: regulations@eda.doc.gov. Include ‘‘Comments on EDA’s regulations’’ and Docket No. 110119042–1041–01 in the subject line of the message. • Fax: (202) 482–5671, Attention: Office of Chief Counsel. Please indicate ‘‘Comments on EDA’s regulations’’ and Docket No. 110119042–1041–01 on the cover page. • Mail: Economic Development Administration, Office of Chief Counsel, Suite D–100, U.S. Department of Commerce, 1401 Constitution Avenue, NW., Washington, DC 20230. Please indicate ‘‘Comments on EDA’s regulations’’ and Docket No. 110119042–1041–01 on the envelope. FOR FURTHER INFORMATION CONTACT: Jamie Lipsey, Attorney Advisor, U.S. Department of Commerce, Economic Development Administration, Office of Chief Counsel, 1401 Constitution Avenue, NW., Suite D–100, Washington, DC 20230; telephone: (202) 482–4687. SUPPLEMENTARY INFORMATION: EDA’s regulations, which are codified at 13 SUMMARY: Part I. General Provisions * DEPARTMENT OF COMMERCE PO 00000 Frm 00008 Fmt 4702 Sfmt 4702 CFR chapter III, provide the framework through which the agency administers its economic development assistance programs. In a Federal Register notice published on February 1, 2011 (76 FR 5501), EDA requested public feedback on any obstacles created by EDA’s current regulations and ways to improve them to help the agency better advance innovative economic development in the 21st century. Because of strong interest in this initiative and to ensure our stakeholders have ample time to comment, EDA is extending the deadline for the submission of comments from March 9, 2011, to April 11, 2011. Although EDA welcomes comments on all of its regulations, the agency requests particular input on those regulations that impact the creation and growth of Regional Innovation Clusters (RICs) and on the agency’s property management regulations. Please see the notice and request for comments, 76 FR 5501 (February 1, 2011), and EDA’s Web site at http://www.eda.gov/ for more information. As part of the Administration’s commitment to open government, EDA is interested in broad public and stakeholder participation in this effort and strives to create a simplified regulatory system that balances the agency’s fiduciary and transparency responsibilities with good, commonsense customer service to our stakeholders and the American people. Comments should be submitted to EDA as described in the ADDRESSES section of this notice. EDA strongly encourages the use of the online feature on the agency’s Web site to share comments and suggestions, which is easily accessible at http://www.eda.gov/ and offers participants an opportunity to view the comments of others. EDA will consider all comments submitted in response to this notice that are received by 5 p.m. Eastern Time on April 11, 2011, as referenced under DATES EDA will not accept public comments accompanied by a request that a part or all of the material be treated confidentially for any reason; EDA will not consider such comments and will return such comments and materials to the commenter. All public comments (including faxed or e-mailed comments) submitted in response to this notice must be in writing and will be a matter of public record. All comments submitted will be available for public inspection and copying at http:// www.regulations.gov. E:\FR\FM\08MRP1.SGM 08MRP1

Agencies

[Federal Register Volume 76, Number 45 (Tuesday, March 8, 2011)]
[Proposed Rules]
[Pages 12611-12616]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-5011]


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DEPARTMENT OF THE TREASURY

Office of Thrift Supervision

12 CFR Part 567

[Docket No. OTS-2011-0002]
RIN 1550-AC41


Risk-Based Capital Standards: Advanced Capital Adequacy 
Framework--Basel II; Establishment of a Risk-Based Capital Floor

AGENCY: Office of Thrift Supervision, Treasury.

ACTION: Notice of proposed rulemaking.

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SUMMARY: The Office of Thrift Supervision (OTS) proposes to: Amend its 
advanced risk-based capital adequacy standards (advanced approaches 
rules) \1\ to be consistent with certain provisions of the Dodd-Frank 
Wall Street Reform and Consumer Protection Act (the Act) \2\ and amend 
the general risk-based capital rules \3\ to provide limited flexibility 
consistent with section 171(b) of the Act for recognizing the relative 
risk of certain assets generally not held by depository institutions.
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    \1\ 12 CFR part 567, Appendix C.
    \2\ Public Law 111-203, Sec.  171, 124 Stat. 1376, 1435-38 
(2010).
    \3\ 12 CFR part 567.

DATES: Comments on this notice of proposed rulemaking must be received 
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by May 9, 2011.

ADDRESSES: Comments should be directed to:
    OTS: You may submit comments, identified by OTS-2011-0002 by any of 
the following methods:
    Federal eRulemaking Portal: ``Regulations.gov'': Go to http://www.regulations.gov and follow the instructions for submitting 
comments.
     Mail: Regulation Comments, Chief Counsel's Office, Office 
of Thrift Supervision, 1700 G Street, NW., Washington, DC 20552, 
Attention: OTS-2011-0002.
     Fax: (202) 906-6518.
     Hand Delivery/Courier: Guard's Desk, East Lobby Entrance, 
1700 G Street, NW., from 9 a.m. to 4 p.m. on business days, Attention: 
Regulation Comments, Chief Counsel's Office, Attention: OTS-2011-0002.
     Instructions: All submissions received must include the 
agency name and docket number for this rulemaking. All comments 
received will be posted without change, including any personal 
information provided. Comments received, including attachments and 
other supporting materials, are part of the public record and subject 
to public disclosure. Do not enclose any information in your comment or 
supporting materials that you consider confidential or inappropriate 
for public disclosure.
     Viewing Comments Electronically: Go to http://www.regulations.gov and follow the instructions for reading comments.
     Viewing Comments On-Site: You may inspect comments at the 
Public Reading Room, 1700 G Street, NW., by appointment. To make an 
appointment for access, call (202) 906-5922, send an e-mail to 
public.info@ots.treas.gov">public.info@ots.treas.gov, or send a facsimile transmission to (202) 
906-6518. (Prior notice identifying the materials you will be 
requesting will assist us in serving you.) We schedule appointments on 
business days between 10 a.m. and 4 p.m. In most cases, appointments 
will be available the next business day following the date we receive a 
request.

FOR FURTHER INFORMATION CONTACT: Sonja White, Director, Capital Policy, 
(202) 906-7857, Teresa A. Scott, Senior Policy Analyst, Capital Policy, 
(202) 906-6478, or Marvin Shaw, Senior Attorney, Regulations and 
Legislation Division, (202) 906-6639, Office of Thrift Supervision, 
1700 G Street, NW., Washington, DC 20552.

SUPPLEMENTARY INFORMATION:

I. Background

A. The Dodd-Frank Wall Street Reform and Consumer Protection Act

    Section 171(b)(2) of the Dodd-Frank Wall Street Reform and Consumer 
Protection Act (the Act) \4\ states that the Federal banking agencies 
\5\ shall establish minimum risk-based capital requirements \6\ 
applicable to insured depository institutions, depository institution 
holding companies, and nonbank financial companies supervised by the 
Federal Reserve (covered institutions). In particular, and as described 
in more detail below, sections 171(b)(1) and (2) specify that the 
minimum leverage and risk-based capital requirements established under 
section 171 shall not be less than ``generally applicable'' capital 
requirements, which shall serve as a floor for any capital requirements 
the agencies may require. Moreover, sections 171(b)(1) and (2) specify 
that the Federal banking agencies may not establish leverage or risk-
based capital requirements for covered institutions that are 
quantitatively lower than the generally applicable leverage or risk-
based capital requirements in effect for insured depository 
institutions as of the date of enactment of the Act.
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    \4\ Public Law 111-203, Sec.  171, 124 Stat. 1376, 1435-38 
(2010).
    \5\ The Office of Thrift Supervision (OTS), the Office of 
Comptroller of the Currency (OCC), the Board of Governors of the 
Federal Reserve System (Board), and the Federal Deposit Insurance 
Corporation (FDIC) are considered Federal banking agencies. Section 
312 of the Act provides for the transfer of OTS functions to the 
FDIC, OCC, and Board, on the transfer date, which is July 21, 2011 
(unless the Secretary of the Treasury designates a later date, but 
not later than January 21, 2012). More specifically, the Act 
transfers authority over Federal savings associations to the OCC, 
authority over State savings associations to the FDIC, and authority 
over savings and loan holding companies to the Board. OTS rulemaking 
authority relating to savings associations and savings and loan 
holding companies will be transferred to the OCC and Board, 
respectively. 12 U.S.C. 5412.
    \6\ OTS's capital regulations applicable to savings associations 
are set forth at 12 CFR part 567. Section 303 of the Riegle 
Community Development and Regulatory Improvement Act of 1994 (12 
U.S.C. 4803) directs the agencies to work jointly to make uniform 
all regulations and guidelines implementing common statutory or 
supervisory policies. Accordingly, the banking agencies generally 
issue capital standards whose substance is as similar as possible, 
thereby minimizing interagency differences. Due to timing 
considerations, the OCC, Board, and FDIC published a notice of 
proposed rulemaking (Joint NPR) in the Federal Register which 
addressed section 171 of the Dodd-Frank Act (75 FR 82317, December 
30, 2010). OTS is issuing today's NPR which essentially parallels 
the substance of the joint proposal.

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[[Page 12612]]

B. Advanced Approaches Rules

    On December 7, 2007, the Federal banking agencies implemented the 
advanced approaches rules, which are mandatory for U.S. depository 
institutions and bank holding companies (collectively, banking 
organizations) meeting certain thresholds for total consolidated assets 
or foreign exposure.\7\ The advanced approaches rules incorporate a 
series of proposals released by the Basel Committee on Banking 
Supervision (Basel Committee or BCBS), including the Basel Committee's 
comprehensive June 2006 release entitled ``International Convergence of 
Capital Measurement and Capital Standards: A Revised Framework'' (New 
Accord).\8\
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    \7\ 72 FR 69288 (December 7, 2007). Subject to prior supervisory 
approval, other banking organizations can opt to use the advanced 
approaches rules. See 72 FR 69397 (December 7, 2007).
    \8\ The BCBS is a committee of banking supervisory authorities 
established by the central bank governors of the G-10 countries in 
1975. The BCBS issued the New Accord to modernize its first capital 
Accord, which was endorsed by the BCBS members in 1988 and 
implemented by the agencies in 1989. The New Accord, the 1988 
Accord, and other documents issued by the BCBS are available through 
the Bank for International Settlements' Web site at http://www.bis.org.
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    The advanced approaches rules establish a series of transitional 
floors to provide a smooth transition to the advanced approaches rules 
and to limit temporarily the amount by which a banking organization's 
risk-based capital requirements could decline relative to the general 
risk-based capital rules over a period of at least three years 
following completion of a satisfactory parallel run. The advanced 
approaches rules place limits on the amount by which a banking 
organization's risk-based capital requirements may decline. Under the 
advanced approaches rules, the banking organization must take the risk-
based capital ratios equal to the lesser of (i) the organization's 
ratios calculated under the advanced approaches rules and (ii) the 
organization's ratios calculated under the general risk-based capital 
rules,\9\ with risk-weighted assets multiplied by 95 percent, 90 
percent, and 85 percent during the first, second, and third 
transitional floor periods, respectively, and compare these ratios to 
its minimum risk-based capital ratio requirements under section 3 of 
the advanced approaches rules.\10\ Under this approach, banking 
organizations that use the advanced approaches rule could operate with 
lower minimum risk-based capital requirements during a transitional 
floor period, and potentially thereafter, than would be required under 
the general risk-based capital rules. At this time, no savings 
association or other banking organization has entered a transitional 
floor period and all organizations are required to compute their risk-
based capital requirements using the general risk-based capital rules.
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    \9\ 12 CFR part 567, Appendix C. See also, 12 CFR part 3, 
Appendix A (OCC); 12 CFR parts 208 and 225, Appendix A (Board); 12 
CFR part 325, appendix A (FDIC).
    \10\ Under the advanced approaches rules, the minimum tier 1 
risk-based capital requirement is 4 percent and the total risk-based 
capital requirement is 8 percent. See 12 CFR, part 567, Appendix C 
(OTS), See also, 12 CFR part 3, Appendix C (OCC); 12 CFR part 208, 
Appendix F and 12 CFR part 225, Appendix G (Board); and 12 CFR part 
325 Appendix D (FDIC).
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C. Requirements of Section 171 of the Act

    Section 171(a)(2) of the Act defines the term ``generally 
applicable risk-based capital requirements'' to mean: ``(A) the risk-
based capital requirements, as established by the appropriate Federal 
banking agencies to apply to insured depository institutions under the 
prompt corrective action regulations implementing section 38 of the 
Federal Deposit Insurance Act, regardless of total consolidated asset 
size or foreign financial exposure; and (B) includes the regulatory 
capital components in the numerator of those capital requirements, the 
risk-weighted assets in the denominator of those capital requirements, 
and the required ratio of the numerator to the denominator.'' Section 
171(b)(2) of the Act further provides that ``[t]he appropriate Federal 
banking agencies shall establish minimum risk-based capital 
requirements on a consolidated basis for insured depository 
institutions, depository institution holding companies, and nonbank 
financial companies supervised by the Board of Governors. The minimum 
risk-based capital requirements established under this paragraph shall 
not be less than the generally applicable risk-based capital 
requirements, which shall serve as a floor for any capital requirements 
that the agency may require, nor quantitatively lower than the 
generally applicable risk-based capital requirements that were in 
effect for insured depository institutions as of the date of enactment 
of this Act.''
    In accordance with section 38 of the Federal Deposit Insurance 
Act,\11\ the Federal banking agencies established minimum leverage and 
risk-based capital requirements for insured depository institutions for 
prompt corrective action (PCA rules).\12\ All insured institutions, 
regardless of their total consolidated assets or foreign exposure, must 
compute their minimum risk-based capital requirements for PCA purposes 
using the general risk-based capital rules, which currently are the 
``generally applicable risk-based capital requirements'' defined by 
Section 171(a)(2) of the Act.
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    \11\ See Public Law 102-242; 105 Stat. 2242 (1991).
    \12\ 12 CFR part 565 (OTS).
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D. Effect of Section 171 of the Act on Certain Institutions and Their 
Assets

    As explained in the Joint NPR, certain covered institutions may not 
previously have been subject to consolidated risk-based capital 
requirements. Some of these companies are likely to be similar in 
nature to most depository institutions and bank holding companies 
subject to the general risk-based capital rules. Other covered 
institutions may be different with exposure types and risks that were 
not contemplated when the general risk-based capital rules were 
developed. The Financial Stability Oversight Council has not yet 
designated any nonbank financial companies to be supervised by the 
Board; over time it is conceivable that it will designate one or more 
companies whose activities are quite different than those addressed in 
the general risk-based capital rules. As noted in the Joint NPR, the 
Board will be supervising these institutions for the first time and 
expects that there will be cases when it needs to evaluate the risk-
based capital treatment of specific exposures not typically held by 
depository institutions, and that do not have a specific risk weight 
under the generally applicable risk-based capital requirements.
    Under the general risk-based capital rules, exposures are generally 
assigned to five risk weight categories, that is, 0 percent, 20 
percent, 50 percent, 100 percent, and 200 percent, according to their 
relative riskiness. Assets not explicitly included in a lower risk 
weight category are assigned to the 100 percent risk weight category. 
Going forward, there may be situations where exposures of a depository 
institution holding company or a nonbank financial company supervised 
by the Board not only do not wholly fit within the terms of a risk 
weight category, but also impose risks that are not commensurate with 
the risk weight otherwise specified in the generally applicable risk-
based capital requirements.
    For example, there are some material exposures of insurance 
companies that, while not riskless, would be assigned to a 100 percent 
risk weight category

[[Page 12613]]

because they are not explicitly assigned to a lower risk weight 
category. An automatic assignment to the 100 percent risk weight 
category without consideration of an exposure's economic substance 
could overstate the risk of the exposure and produce uneconomic capital 
requirements for a covered institution.

II. Proposed Rule

A. Generally Applicable Risk-Based Capital Requirement Floor

    Consistent with the Joint NPR, the OTS is proposing to modify its 
advanced approaches rule consistent with section 171(b)(2). In 
particular, like the other agencies, OTS is proposing to revise its 
advanced approaches rule by replacing the transitional floors in 
section 21(e) of the advanced approaches rule with a permanent floor 
equal to the tier 1 and total risk-based capital requirements under the 
current generally applicable risk-based capital rules. Thus, OTS is 
proposing to require each banking organization subject to the advanced 
approaches rule to maintain the systems and records necessary to 
calculate its required minimum risk-based capital requirements under 
both the general risk-based capital rules and the advanced approaches 
rules. Each quarter, each banking organization subject to the advanced 
approaches rules must calculate and compare its minimum tier 1 and 
total risk-based capital ratios as calculated under the general risk-
based capital rules and the advanced approaches risk-based capital 
rules. The banking organization would then compare the lower of the two 
tier 1 risk-based capital ratios and the lower of the two total risk-
based capital ratios to the minimum tier 1 ratio requirement of 4 
percent and total risk-based capital ratio requirement of 8 percent in 
section 3 of the advanced approaches rules \13\ to determine if it met 
its minimum capital requirements.
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    \13\ 12 CFR part 567 (OTS). See also, 12 CFR part 3, Appendix C, 
Sec.  3 (OCC); 12 CFR part 208, Appendix F, Sec.  3 and 12 CFR part 
225, Appendix G, Sec.  3 (Board); and 12 CFR part 325, Sec.  3 
Appendix D (FDIC).
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    OTS is also proposing to eliminate the paragraphs of its advanced 
approaches rule dealing with the transitional floor periods, and the 
interagency study. These parts of the advanced approaches rules no 
longer serve a purpose.
    Question 1: OTS seeks comment generally on the impact of a 
permanent floor on the minimum risk-based capital requirements for 
banking organizations subject to the advanced approaches rules, and on 
the manner in which OTS and the other Federal banking agencies are 
proposing to implement the provisions of section 171(b) of the Act.

B. Change to Generally Applicable Risk-Based Capital Requirements

    The proposed floor, consistent with the requirements of section 
171(b)(2), is based on the generally applicable risk-based capital 
requirements for depository institutions. To address the appropriate 
capital requirement for low risk assets that non-depository 
institutions may hold and for which there is no explicit capital 
treatment in the general risk-based capital rules, consistent with the 
other banking agencies, OTS is proposing that such exposures receive 
the capital treatment applicable under the capital guidelines for bank 
holding companies under limited circumstances. The circumstances are 
intended to allow for an appropriate capital requirement for low risk 
nonbanking exposures without creating unintended new opportunities for 
depository institutions to engage in capital arbitrage. OTS therefore 
proposes to limit this treatment to cases in which a depository 
institution is not authorized to hold the asset under applicable law 
other than under debt previously contracted or similar authority, and 
the risks associated with the asset are substantially similar to the 
risks of assets that receive a lower risk weight. Accordingly, OTS is 
proposing a change to the general risk-based capital rules for 
depository institutions to permit this limited flexibility to 
appropriately address exposures of depository institution holding 
companies and nonbank financial companies supervised by the Board. OTS 
requests comment on this change to the general risk-based capital 
rules.
    Question 2: For what specific types of exposures do commenters 
believe this treatment is appropriate? Does the proposal provide 
sufficient flexibility to address the exposures of depository 
institution holding companies and nonbank financial companies 
supervised by the Federal Reserve? If not, how should the proposal be 
changed to recognize the considerations outlined in this section?
    Consistent with the joint efforts of the Federal banking agencies 
and the Basel Committee to enhance the regulatory capital rules, OTS 
anticipates that the generally applicable risk-based capital 
requirements and advanced approaches rule will be amended from time to 
time. These amendments would reflect advances in risk sensitivity and 
other potentially substantive changes to fundamental aspects of the New 
Accord such as the definition of capital, treatment of counterparty 
credit risk, and new regulatory capital elements such as an 
international leverage ratio and prudential capital buffers.
    OTS will consider each proposed change to the risk-based capital 
rules and determine whether it is appropriate to implement the change 
by rulemaking based on the implications of each proposal for the 
capital adequacy of banking organizations, the implementation costs of 
such proposals, and the nature of any unintended consequences or 
competitive issues. The generally applicable risk-based capital 
requirements and generally applicable leverage capital requirements 
that OTS and the other agencies may establish in the future would, as 
required under the Act, become the minimum leverage and risk-based 
capital requirements for all banking organizations. Furthermore, as 
provided under the Act, any future amendments to the leverage 
requirements or risk-based capital requirements established by the 
Federal banking agencies may not result in capital requirements that 
are ``quantitatively lower'' than the generally applicable leverage 
requirements or risk-based capital requirements in effect as of the 
date of enactment of the Act.
    To comply with this provision of the Act, OTS along with the other 
Federal banking agencies anticipate performing a quantitative analysis 
of the likely effect on capital requirements as part of developing 
future amendments to the capital rules to ensure that any new capital 
framework is not quantitatively lower than the requirements in effect 
as of the date of enactment of the Act. In the Joint NPR, the OCC, 
FDIC, and Board stated that they would not anticipate proposing to 
require banking organizations to compute two sets of generally 
applicable capital requirements from current and historic frameworks as 
the generally applicable requirements are amended over time. Those 
agencies further stated that they have not yet determined the 
quantitative method for measuring the equivalence of current, historic, 
and proposed future capital frameworks.
    Question 3: OTS requests comment on the most appropriate method of 
conducting the aforementioned analysis. What are potential quantitative 
methods for comparing future capital requirements to ensure that any 
new capital framework is not quantitatively lower than the requirements 
in effect as of the date of the enactment of the Act?
    The Federal banking agencies anticipate addressing aspects of 
Section 171 not addressed in this proposed rule in a subsequent 
rulemaking.

[[Page 12614]]

    Question 4: OTS seeks comment on all other aspects of this proposed 
rule, including the costs and benefits. What, if any, changes should 
OTS and the other agencies make to the proposed rule or the risk-based 
capital framework to better balance costs and benefits?

III. Regulatory Analyses

A. Executive Orders 13563 and 12866

    Executive Order 13563 ``Improving Regulations and Regulatory 
Review'' affirms and supplements Executive Order 12866, ``Regulatory 
Planning and Review, which requires Federal agencies to prepare a 
regulatory impact analysis for agency actions that are found to be 
``significant regulatory actions.'' Significant regulatory actions 
include, among other things, rulemakings that ``have an annual effect 
on the economy of $100 million or more or adversely affect in a 
material way the economy, a sector of the economy, productivity, 
competition, jobs, the environment, public health or safety, or State, 
local, or Tribal governments or communities.'' Pursuant to Executive 
Order 12866, OMB's Office of Information and Regulatory Affairs (OIRA) 
has designated the proposed rule to be significant.
    Based on initial assessment of the costs and benefits likely to be 
incurred to comply with this proposed rulemaking, OTS anticipates that 
the effect on the economy of the final rule would not exceed the $100 
million annual threshold.

B. OTS Regulatory Impact Assessment

1. Requirements of Proposed Regulation
a. Permanent Floor
    As noted below, the OCC, the Board, and the FDIC published a notice 
of proposed rulemaking (Joint NPR) that addressed section 171 of the 
Dodd-Frank Act, (75 FR 82317)(the Act), on December 30, 2010. 
Consistent with the Joint NPR, OTS is proposing to modify its advanced 
approaches rule consistent with section 171(b)(2) of the Act. In 
particular, like the other agencies, OTS is proposing to revise its 
advanced approaches rule by replacing the transitional floors in 
section 21(e) of the advanced approaches rule with a permanent floor 
equal to the tier 1 and total risk-based capital requirements under the 
current generally applicable risk-based capital rules. The Federal 
banking agencies implemented the advanced approaches rules on December 
7, 2007 that are mandatory for U.S. depository institutions and bank 
holding companies (collectively, banking organizations) that have $250 
billion or more in total consolidated assets or more than $10 billion 
in foreign exposure.
    Thus, OTS is proposing to require each savings association subject 
to the advanced approaches rule to maintain the systems and records 
necessary to calculate its required minimum risk-based capital 
requirements under both the general risk-based capital rules and the 
advanced approaches rules. Each quarter, each savings association 
subject to the advanced approaches rules must calculate and compare its 
minimum tier 1 and total risk-based capital ratios as calculated under 
the general risk-based capital rules and the advanced approaches risk-
based capital rules. The savings association would then compare the 
lower of the two tier 1 risk-based capital ratios and the lower of the 
two total risk-based capital ratios to the minimum tier 1 ratio 
requirement of 4 percent and total risk-based capital ratio requirement 
of 8 percent in section 3 of the advanced approaches rules to determine 
if it met its minimum capital requirements.
    OTS reviewed the holdings and corporate structure of 941 savings 
associations subject to OTS regulation. As of this analysis, only two 
savings associations ($1.5 billion in total assets; and $15 billion in 
total assets, respectively), due to their corporate ownership structure 
by larger banking organizations, are subject to the advanced approaches 
rule. Both have begun the parallel run portion of preparation for the 
advanced approach, and they are unlikely to enter the first 
transitional floor within the next six months. One other savings 
association may be eligible for the advance approach because its 
foreign exposure exceeds $10 billion. However, it has not yet submitted 
an implementation plan, which must be approved before the institution 
begins the parallel run portion of its preparation; it is not likely to 
do so in the next six months. Section 312 of the Act provides for the 
transfer of OTS functions to the FDIC, OCC, and Board, on the transfer 
date, which is July 21, 2011 (unless the Secretary of the Treasury 
designates a later date, but not later than January 21, 2012). More 
specifically, the Act transfers authority over Federal savings 
associations to the OCC, authority over State savings associations to 
the FDIC, and authority over savings and loan holding companies to the 
Board. OTS rulemaking authority relating to savings associations and 
savings and loan holding companies will be transferred to the OCC and 
Board, respectively.
b. Implementation Costs
    In estimating the implementation costs to the covered institutions, 
OTS assumed that costs would generally fall in two areas:
     Quarterly calculation costs to determine minimum risk-
based capital requirements.
     The costs of maintaining higher capital levels, if 
required.
    Given that OTS currently has, at most, three smaller savings 
associations that may be subject to the rule, the annual costs of 
calculating alternative minimum capital requirements are likely to be 
small. Two of the savings associations are subsidiaries of larger 
banking organizations that are required to calculate their overall 
risk-based capital requirements under a rule promulgated by the other 
banking agencies, and thus the marginal costs for the two savings 
association are likely to be minimal. Whether these particular 
institutions would be required to hold additional capital is very 
difficult to determine at this time. Any costs associated with holding 
additional capital would be offset, to some degree, by the reduced 
costs of borrowing, as the institution would then be better capitalized 
and its borrowing costs reduced because of its lowered risk. The sum of 
the identified costs is likely, given these three institutions, to fall 
well below the $100 million annual cost benchmark.
2. Risk Weights for Holding Company Assets
    While none of three savings associations currently hold such 
assets, to address the appropriate capital requirement for low risk 
assets that non-depository institutions may hold and for which there is 
no explicit capital treatment in the general risk-based capital rules, 
consistent with the other banking agencies and consistent with the 
Joint NPR, OTS is proposing that such exposures receive the capital 
treatment applicable under the capital guidelines for bank holding 
companies under limited circumstances. The circumstances are intended 
to allow for an appropriate capital requirement for low risk nonbanking 
exposures without creating unintended new opportunities for depository 
institutions to engage in capital arbitrage. OTS therefore proposes to 
limit this treatment to cases in which a depository institution is not 
authorized to hold the asset under applicable law other than under debt 
previously contracted or similar authority, and the risks associated 
with the asset are substantially similar to the risks of assets that 
receive a lower risk

[[Page 12615]]

weight. Accordingly, consistent with the other banking agencies, OTS is 
proposing a change to the general risk-based capital rules to permit 
this limited flexibility to appropriately address certain exposures of 
depository institution holding companies and nonbank financial 
companies supervised by the Board.
3. Implementation Costs
    It is difficult to assess the benefit that this rule making would 
convey, as (1) it applies to certain nonbank-like exposures of 
depository holding companies and nonbank financial companies supervised 
by the Board, and (2) it is very narrow in scope but is being proposed 
to address unforeseen circumstances in which the absence of an existing 
risk weight designation would require substantially more capital than a 
comparability test would suggest is appropriate.
4. Conclusion
    Because of the limited number of institutions and the amount of 
assets involved, OTS concludes that the impact of this proposed 
rulemaking would not exceed $100 million in annual costs.

C. Regulatory Flexibility Act Analysis

    Pursuant to section 605(b) of the Regulatory Flexibility Act,\14\ 
(RFA), the regulatory flexibility analysis otherwise required under 
section 604 of the RFA is not required if an agency certifies that the 
rule will not have a significant economic impact on a substantial 
number of small entities (defined for purposes of the RFA to include 
banks with assets less than or equal to $175 million) and publishes its 
certification and a short, explanatory statement in the Federal 
Register along with its rule.
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    \14\ 5 U.S.C. 605(b).
---------------------------------------------------------------------------

    The rule would affect savings associations that use the advanced 
approaches rules to calculate risk-based capital requirements according 
to certain internal ratings-based and internal model approaches. A 
savings association must use the advanced approaches rules only if: (i) 
It has consolidated total assets (as reported on its most recent year-
end regulatory report) equal to $250 billion or more; (ii) it has 
consolidated total on-balance sheet foreign exposures at the most 
recent year-end equal to $10 billion or more; or (iii) it is a 
subsidiary of a bank holding company or bank that would be required to 
use the advanced approaches rules to calculate its risk-based capital 
requirements.
    With respect to the proposed changes to the general risk-based 
capital rules, the proposal has the potential to affect the risk 
weights applicable only to assets that generally are impermissible for 
savings associations to hold. These proposed changes are accordingly 
unlikely to have a significant impact on savings associations. OTS also 
notes that the changes to the general risk-based capital rules would 
not impose any additional obligations, restrictions, burdens, or 
reporting, recordkeeping or compliance requirements on savings 
associations including small banking organizations, nor do they 
duplicate, overlap or conflict with other Federal rules.
    OTS estimates that no small savings associations are required to 
use the advanced approaches rules.\15\ Therefore, OTS believes that the 
proposed rule will not result in a significant economic impact on a 
substantial number of small entities.
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    \15\ All totals are as of September 30, 2010.
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D. OTS Unfunded Mandates Reform Act of 1995 Determinations

    Section 202 of the Unfunded Mandates Reform Act of 1995, Public Law 
104-4 (UMRA) requires that an agency prepare a budgetary impact 
statement before promulgating a rule that includes a Federal mandate 
that may result in the expenditure by State, local, and Tribal 
governments, in the aggregate, or by the private sector of $100 million 
or more (adjusted annually for inflation) in any one year. If a 
budgetary impact statement is required, section 205 of the UMRA also 
requires an agency to identify and consider a reasonable number of 
regulatory alternatives before promulgating a rule. The OTS has 
determined that its proposed rule will not result in expenditures by 
State, local, and Tribal governments, or by the private sector, of $100 
million or more. Accordingly, OTS has not prepared a budgetary impact 
statement or specifically addressed the regulatory alternatives 
considered.

E. Paperwork Reduction Act

    In accordance with the requirements of the Paperwork Reduction Act 
of 1995,\16\ OTS may not conduct or sponsor, and the respondent is not 
required to respond to, an information collection unless it displays a 
currently valid OMB control number. OTS has an established information 
collection for the paperwork burden imposed by the advanced approaches 
rule.\17\ This notice of proposed rulemaking would replace the 
transitional floors in section 21(e) of the advanced approaches rule 
with a permanent floor equal to the tier 1 and total risk-based capital 
requirements under the current generally applicable risk-based capital 
rules. The proposed change to transitional floors would change the 
basis for calculating a data element that must be reported to OTS under 
an existing requirement. However, it would have no impact on the 
frequency or response time for the reporting requirement and, 
therefore, does not constitute a substantive or material change subject 
to OMB review.
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    \16\ 44 U.S.C. 3501-3521.
    \17\ See Risk-Based Capital Reporting for Institutions Subject 
to the Advanced Capital Adequacy Framework, FFIEC 101, OTS OMB 
Number 1550-0115.
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F. Plain Language

    Section 722 of the Gramm-Leach-Bliley Act requires the agencies to 
use plain language in all proposed and final rules published after 
January 1, 2000. In light of this requirement, OTS has sought to 
present the proposed rule in a simple and straightforward manner. OTS 
invites comment on whether it could take additional steps to make the 
proposed rule easier to understand.

List of Subjects in 12 CFR Part 567

    Capital, Reporting and recordkeeping requirements, Risk, Savings 
associations.

Authority and Issuance

    For the reasons stated in the preamble, the Office of Thrift 
Supervision proposes to amend part 567 of chapter V of Title 12, Code 
of Federal Regulations as follows:

PART 567--CAPITAL

    1. The authority citation for part 3 continues to read as follows:

    Authority:  12 U.S.C. 1462, 1462a, 1463, 1464, 1467a, and 1828 
(note).

    2. In Sec.  567.6, add new paragraph (a)(1)(v) as follows:


Sec.  567.6  Risk-based capital credit risk-weight categories.

* * * * *
    (a) * * *
    (1) * * *
    (v) Subject to the requirements in paragraphs (a)(1)(v)(A) and (B) 
of this section, a savings association may assign an asset not included 
in the categories above to the risk weight category applicable under 
the capital guidelines for bank holding companies (12 CFR part 225, 
appendix A), provided that all of the following conditions apply:
    (A) The savings association is not authorized to hold the asset 
under

[[Page 12616]]

applicable law other than debt previously contracted or similar 
authority; and
    (B) The risks associated with the asset are substantially similar 
to the risks of assets that are otherwise assigned to a risk weight 
category less than 100 percent under this section.
* * * * *
    3. In Appendix C to part 567:
    a. Revise Part I, section 3 to read as set forth below; and
    b. Remove section 21(e).

Appendix C to Part 567--Risk-Based Capital Requirements--Internal 
Ratings-Based and Advanced Measurement Approaches

Part I. General Provisions

* * * * *

Section 3. Minimum Risk-Based Capital Requirements

    (a)(1) Except as modified by paragraph (c) of this section or by 
section 23 of this appendix, each savings association must meet a 
minimum:
    (i) Total risk-based capital ratio of 8.0 percent; and
    (ii) Tier 1 risk-based capital ratio of 4.0 percent.
    (2) A savings association's total risk-based capital ratio is 
the lower of:
    (i) Its total qualifying capital to total risk-weighted assets; 
and
    (ii) Its total risk-based capital ratio as calculated under part 
567.
    (3) A savings association's tier 1 risk-based capital ratio is 
the lower of:
    (i) Its tier 1 capital to total risk-weighted assets; and
    (ii) Its tier 1 risk-based capital ratio as calculated under 
part 567.
    (b) Each savings association must hold capital commensurate with 
the level and nature of all risks to which the savings association 
is exposed.
    (c) When a savings association subject to any applicable market 
risk rule calculates its risk-based capital requirements under this 
appendix, the savings association must also refer to any applicable 
market risk rule for supplemental rules to calculate risk-based 
capital requirements adjusted for market risk.
* * * * *

    Dated: January 31, 2011.

    By the Office of Thrift Supervision.
John E. Bowman,
Acting Director.
[FR Doc. 2011-5011 Filed 3-7-11; 8:45 am]
BILLING CODE P