Risk-Based Capital Standards: Advanced Capital Adequacy Framework-Basel II; Establishment of a Risk-Based Capital Floor, 12611-12616 [2011-5011]
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[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
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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
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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 https://
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 https://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.
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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.
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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 https://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
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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).
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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
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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.
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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).
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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,
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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.
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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
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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
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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.
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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
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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.
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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).
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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
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Adequacy Framework, FFIEC 101, OTS OMB
Number 1550–0115.
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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
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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: https://
www.regulations.gov. Follow the
instructions for submitting comments.
• Agency Web Site: https://
www.eda.gov/. EDA has created an
online feature for submitting comments.
Follow the instructions at https://
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
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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 https://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 https://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 https://
www.regulations.gov.
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]]>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.
-----------------------------------------------------------------------
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.
---------------------------------------------------------------------------
\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
---------------------------------------------------------------------------
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 https://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 https://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.
---------------------------------------------------------------------------
\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 https://www.bis.org.
---------------------------------------------------------------------------
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.
---------------------------------------------------------------------------
\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).
---------------------------------------------------------------------------
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.
---------------------------------------------------------------------------
\11\ See Public Law 102-242; 105 Stat. 2242 (1991).
\12\ 12 CFR part 565 (OTS).
---------------------------------------------------------------------------
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.
---------------------------------------------------------------------------
\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).
---------------------------------------------------------------------------
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.
---------------------------------------------------------------------------
\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.
---------------------------------------------------------------------------
\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
