Risk-Based Capital Standards: Advanced Capital Adequacy Framework-Basel II; Establishment of a Risk-Based Capital Floor, 37620-37629 [2011-15669]
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Federal Register / Vol. 76, No. 124 / Tuesday, June 28, 2011 / Rules and Regulations
assessments. The authority for this
action is provided in § 955.42 of the
order. This change amends § 955.142.
The Committee unanimously
recommended this action at its February
17, 2011, meeting.
This rule does not impose any
additional costs on handlers that are
complying with the requirements under
the order. This action only represents
additional costs for handlers who are
delinquent in submitting their reports
and assessments. A 10 day grace period
is also provided before the late penalty
is applied, giving delinquent handlers
additional time to avoid the costs
associated with the late payment charge.
In addition, the late charge and interest
rate were considered reasonable by
industry members who participated in
the discussion of this issue. Since the
late payment charge and interest rate are
percentages of amounts due, the costs,
when applicable, are proportionate and
will not place an extra burden on small
entities as compared to large entities. In
addition, the industry overall benefits if
handler reports and assessments are
collected on time and the Committee’s
compliance costs are reduced,
regardless of entity size.
The Committee discussed alternatives
to this change, including not making a
change to the delinquent assessment
requirements. However, a number of
members commented that if some
handlers are not paying on time, a
change was necessary. The Committee
also considered increasing the interest
rate accrual to daily rather than
monthly, but this option could result in
an interest charge that was
disproportionately large and considered
to be beyond the scope of what is
reasonable and customary under
marketing order programs. Thus, these
alternatives were rejected.
This action will not impose any
additional reporting or recordkeeping
requirements on either small or large
Vidalia onion handlers. As with all
Federal marketing order programs,
reports and forms are periodically
reviewed to reduce information
requirements and duplication by
industry and public sector agencies. As
noted in the Initial Regulatory
Flexibility analysis, USDA has not
identified any relevant Federal rules
that duplicate, overlap or conflict with
this final rule.
AMS is committed to complying with
the E-Government Act, to promote the
use of the Internet and other
information technologies to provide
increased opportunities for citizen
access to Government information and
services, and for other purposes.
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In addition, the Committee’s meeting
was widely publicized throughout the
Vidalia onion industry and all
interested persons were invited to
attend the meeting and participate in
Committee deliberations on all issues.
Like all Committee meetings, the
February 17, 2011, meeting was a public
meeting and all entities, both large and
small, were able to express views on
this issue.
A proposed rule concerning this
action was published in the Federal
Register on May 13, 2011 (76 FR 27919).
Copies of the rule were mailed or sent
via facsimile to all Committee members
and Vidalia onion handlers. Finally, the
rule was made available through the
Internet by USDA and the Office of the
Federal Register. A 15-day comment
period ending May 31, 2011, was
provided to allow interested persons to
respond to the proposal. No comments
were received.
A small business guide on complying
with fruit, vegetable, and specialty crop
marketing agreements and orders may
be viewed at: https://www.ams.usda.gov/
MarketingOrdersSmallBusinessGuide.
Any questions about the compliance
guide should be sent to Laurel May at
the previously mentioned address in the
Authority: 7 U.S.C. 601–674.
2. Section 955.142 is amended by
designating the first paragraph as
paragraph (a) and the second paragraph
as paragraph (b), and revising newly
designated paragraph (b) to read as
follows:
■
§ 955.142
Delinquent assessments.
*
*
*
*
*
(b) Each handler shall pay interest of
1.5 percent per month on any
assessments levied pursuant to § 955.42
and on any accrued unpaid interest
beginning the day immediately after the
date the monthly assessments were due,
until the delinquent handler’s
assessments, plus applicable interest,
have been paid in full. In addition to the
interest charge, the Committee shall
impose a late payment charge on any
handler whose assessment payment has
not been received within 10 days of the
due date. The late payment charge shall
be 10 percent of the late assessments.
Dated: June 22, 2011.
Rayne Pegg,
Administrator, Agricultural Marketing
Service.
[FR Doc. 2011–16139 Filed 6–27–11; 8:45 am]
BILLING CODE 3410–02–P
FOR FURTHER INFORMATION CONTACT
section.
After consideration of all relevant
matter presented, including the
information and recommendation
submitted by the Committee and other
available information, it is hereby found
that this rule, as hereinafter set forth,
will tend to effectuate the declared
policy of the Act.
It is further found that good cause
exists for not postponing the effective
date of this rule until 30 days after
publication in the Federal Register (5
U.S.C. 553) because handlers are already
shipping Vidalia onions from the 2011
crop and the Committee wants to
implement these changes as soon as
possible. Further, handlers are aware of
this rule, which was recommended at a
public meeting. Also, a 15-day comment
period was provided for in the proposed
rule.
List of Subjects in 7 CFR Part 955
Marketing agreements, Onions,
Reporting and recordkeeping
requirements.
For the reasons set forth in the
preamble, 7 CFR part 955 is amended as
follows:
PART 955—VIDALIA ONIONS GROWN
IN GEORGIA
1. The authority citation for 7 CFR
part 955 continues to read as follows:
■
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DEPARTMENT OF THE TREASURY
Office of the Comptroller of the
Currency
12 CFR Part 3
[Docket No. –2010–0009]
RIN 1557–AD33
FEDERAL RESERVE SYSTEM
12 CFR Parts 208 and 225
[Regulations H and Y; Docket No. R–1402]
RIN 7100–AD62
FEDERAL DEPOSIT INSURANCE
CORPORATION
12 CFR Part 325
RIN 3064–AD58
Risk-Based Capital Standards:
Advanced Capital Adequacy
Framework—Basel II; Establishment of
a Risk-Based Capital Floor
Office of the Comptroller of the
Currency, Treasury; Board of Governors
of the Federal Reserve System; and the
Federal Deposit Insurance Corporation.
ACTION: Final rule.
AGENCY:
The Office of the Comptroller
of the Currency (OCC), Board of
SUMMARY:
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Federal Register / Vol. 76, No. 124 / Tuesday, June 28, 2011 / Rules and Regulations
Governors of the Federal Reserve
System (Board), and the Federal Deposit
Insurance Corporation (FDIC)
(collectively, the agencies) are amending
the advanced risk-based capital
adequacy standards (advanced
approaches rules) in a manner that is
consistent with certain provisions of the
Dodd-Frank Wall Street Reform and
Consumer Protection Act (the Act), and
the general risk-based capital rules 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.
DATES: This final rule is effective July
28, 2011.
FOR FURTHER INFORMATION CONTACT:
OCC: Mark Ginsberg, Risk Expert, (202)
874–5070, Capital Policy Division; or
Carl Kaminski, Senior Attorney, or
Stuart Feldstein, Director, Legislative
and Regulatory Activities, (202) 874–
5090.
Board: Anna Lee Hewko, (202) 530–
6260, Assistant Director, or Brendan
Burke, (202) 452–2987, Senior
Supervisory Financial Analyst, Division
of Banking Supervision and Regulation,
or April C. Snyder, (202) 452–3099,
Counsel, or Benjamin W. McDonough,
(202) 452–2036, Counsel, Legal
Division. For the hearing impaired only,
Telecommunication Device for the Deaf
(TDD), (202) 263–4869.
FDIC: George French, Deputy
Director, Policy, (202) 898–3929, Nancy
Hunt, Associate Director, Capital
Markets Branch, (202) 898–6643,
Division of Risk Management
Supervision; or Mark Handzlik,
Counsel, (202) 898–3990, or Michael
Phillips, Counsel, (202) 898–3581,
Supervision and Legislation Branch,
Legal Division.
SUPPLEMENTARY INFORMATION:
I. Background
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A. Overview of the Requirements of the
Act
Section 171(b)(2) of the Act 1 states
that the 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 Federal
Reserve (covered institutions).2 In
particular, and as described in more
detail below, sections 171(b)(1) and (2)
specify that the minimum leverage and
1 Public Law 111–203, section 171, 124 Stat.
1376, 1435–38 (2010).
2 12 U.S.C. 5371, Public Law 111–203, section
171, 124 Stat. 1376, 1435–38 (2010).
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risk-based capital requirements
established under section 171 shall not
be less than the ‘‘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.3
B. Advanced Approaches Rules 4
On December 7, 2007, the agencies
published in the Federal Register a final
rule to implement the advanced
approaches rules, which are mandatory
for banks and bank holding companies
(collectively, banking organizations)
meeting certain thresholds for total
consolidated assets or foreign
exposure.5 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).6
To provide a smooth transition to the
advanced approaches rules and to limit
3 On March 8, 2011, in an NPR that paralleled the
agencies’ rulemaking, the Office of Thrift
Supervision (OTS) issued a notice in which OTS
proposed to amend 12 CFR part 567, which sets
forth the capital regulations applicable to savings
associations. 45 FR 12,611 (March 8, 2011). OTS
received one comment on its proposal. The Act
specifies that the regulatory authority and other
functions of OTS will transfer to OCC on the
transfer date provided in the Act, which is expected
to be July 21, 2011. Given that the OTS’s parallel
rulemaking is subject to a 90 day review by the
Office of Management and Budget pursuant to
Executive Order 12866, it would be impracticable
for OTS to issue a final rule before the transfer date.
The OTS and OCC anticipate that OCC would issue
a final rule to amend the capital regulations
applicable to savings associations, after the transfer
date.
4 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).
5 72 FR 69288 (December 7, 2007). Subject to
prior supervisory approval, other banking
organizations can opt to use the advanced
approaches rules. Id. at 69397.
6 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 (‘‘International Convergence of Capital
Measurement and Capital Standards’’ or ‘‘Basel I’’),
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.
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temporarily the amount by which a
banking organization’s risk-based
capital requirements could decline
relative to the general risk-based capital
rules, the advanced approaches rules
established a series of transitional floors
over a period of at least three years
following a banking organization’s
completion of a satisfactory parallel
run.7 During the transitional floor
periods, a banking organization’s riskbased capital ratios are equal to the
lesser of (i) the organization’s ratios
calculated under the advanced
approaches rules and (ii) its ratios
calculated under the general risk-based
capital rules, with tier 1 and total riskweighted assets as calculated under the
general risk-based capital rules
multiplied by 95 percent, 90 percent,
and 85 percent during the first, second,
and third transitional floor periods,
respectively.8 Under this approach, a
banking organization that uses the
advanced approaches rules is permitted
to operate with lower minimum riskbased capital requirements during a
transitional floor period, and potentially
thereafter, than would be required
under the general risk-based capital
rules. To date, no U.S.-domiciled
banking organization has entered a
transitional floor period and all U.Sdomiciled banking 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
7 12 CFR part 3, Appendix A (OCC); 12 CFR parts
208 and 225, Appendix A (Board); 12 CFR part 325,
Appendix A (FDIC).
8 Under the advanced approaches rules, the
minimum tier 1 risk-based capital ratio is 4 percent
and the minimum total risk-based capital ratio is 8
percent. See 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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Federal Register / Vol. 76, No. 124 / Tuesday, June 28, 2011 / Rules and Regulations
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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, the
Federal banking agencies established
minimum leverage and risk-based
capital requirements for insured
depository institutions for prompt
corrective action (PCA) rules.9 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. The Proposed Rule
By notice in the Federal Register
dated December 30, 2010, the agencies
issued a notice of proposed
rulemaking 10 (NPR) to modify the
advanced approaches rules consistent
with section 171(b)(2) of the Act. In
particular, the agencies proposed to
revise the advanced approaches rules by
replacing the transitional floors in
section 21(e) of the advanced
approaches rules with a permanent floor
equal to the tier 1 and total risk-based
capital requirements of the generally
applicable risk-based capital rules
(‘‘permanent floor’’). Under the
proposal, each quarter, each banking
organization subject to the advanced
approaches rules would be required to
calculate and compare its minimum tier
1 and total risk-based capital ratios as
calculated under the general risk-based
capital rules with the same ratios as
calculated under the advanced
approaches risk-based capital rules. The
banking organization would then
compare the lower of the two tier 1 risk9 See 12 U.S.C. 1831o, Public Law 102–242, 105
Stat. 2242 (1991); see also 12 CFR part 208, subpart
D (Board).
10 75 FR 82317 (December 30, 2010).
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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 11 to
determine whether it meets its
minimum risk-based capital
requirements.12
For bank holding companies subject
to the advanced approaches rule, the
proposal stated that in calculating their
risk-based capital ratios, these
organizations must calculate their floor
requirements under the general riskbased capital rules for state member
banks.13 However, in accordance with
the Act, they may include certain debt
or equity instruments issued before May
19, 2010 as described in section
171(b)(4)(B) of the Dodd-Frank Act. The
agencies also proposed to eliminate the
provisions of the advanced approaches
rules relating to transitional floor
periods and the interagency study of
any material deficiencies in the rules.14
If the proposed permanent floor were
implemented, these provisions of the
advanced approaches rules would no
longer serve a purpose.
The proposal also included a
modification to the general risk-based
capital rules to address the appropriate
capital requirement for low-risk assets
held by depository institution holding
companies 15 or by nonbank financial
companies supervised by the Board
pursuant to a designation by the
Financial Stability Oversight Council
(FSOC), in situations where there is no
11 12 CFR part 3, Appendix C, section 3 (OCC);
12 CFR part 208, Appendix F, section 3 and 12 CFR
part 225, Appendix G, section 3 (Board); and 12
CFR part 325, section 3 Appendix D (FDIC).
12 Banking organizations that use the advanced
approaches rules are subject to the same minimum
leverage requirements that apply to other banking
organizations. That is, advanced approaches banks
calculate only one leverage ratio using the
numerator as calculated under the generally riskbased capital rules. Accordingly, the agencies did
not propose any change to the calculation of the
leverage ratio requirements for banking
organizations that use the advanced approaches
rules.
13 12 CFR part 208, appendix A.
14 Supra, section 21(e)(6) Interagency study. For
any primary Federal supervisor to authorize any
institution to exit the third transitional floor period,
the study must determine that there are no such
material deficiencies that cannot be addressed by
then-existing tools, or, if such deficiencies are
found, they are first remedied by changes to this
appendix.
15 Section 171 of the Act defines ‘‘depository
institution holding company’’ to mean a bank
holding company or a savings and loan holding
company (as those terms are defined in section 3
of the Federal Deposit Insurance Act) that is
organized in the United States, including any bank
or savings and loan holding company that is owned
or controlled by a foreign organization, but does not
include the foreign organization. See section 171 of
the Act, 12 U.S.C. 5371.
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explicit capital treatment for such
exposures under the general risk-based
capital rules. The agencies proposed
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. Accordingly, the
agencies proposed to limit this
treatment to cases in which a depository
institution is not authorized to hold the
asset under applicable law other than
under the authority to hold an asset in
connection with the satisfaction of a
debt previously contracted or similar
authority, and the risks associated with
the asset are substantially similar to the
risks of assets that otherwise are
assigned a risk weight of less than 100
percent under the general risk-based
capital rules.16
II. Comments Received
A. Overview
The agencies collectively received 16
comments from both domestic and
international trade associations and
from individual financial institutions,
including insurance companies. Groups
representing large banking organizations
generally argued against the proposed
permanent floor. These commenters
asserted that it would place large U.S.
banking organizations at a disadvantage
relative to their international
competitors, increase their costs, and
undermine the risk sensitivity of the
advanced approaches capital rules. In
contrast, a trade organization for
community banks and a financial reform
advocacy organization supported the
proposal.
Commenters representing insurance
companies generally supported the
proposed revisions to the general riskbased capital rules for selected nonbank
assets, arguing that insurance
companies have different risk profiles
and their liabilities and assets are of
different durations compared to banks.
These commenters said it would not be
appropriate to mechanically apply bank
capital regulations to insurance
companies.
B. Impact on Banking Organizations
That Use the Advanced Approaches
Rules
In response to the agencies’ question
on how the proposal would affect U.S.
16 See 12 U.S.C. 24 (Seventh) and 12 U.S.C. 29
(national banks); 12 U.S.C. 335; and 12 U.S.C.
1831a(a) (state nonmember banks).
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Federal Register / Vol. 76, No. 124 / Tuesday, June 28, 2011 / Rules and Regulations
banking organizations that use the
advanced approaches rules, several
commenters, mostly representing the
largest U.S. financial institutions,
expressed strong concerns about the
proposed permanent floor, while
acknowledging that the agencies were
acting in response to a statutory
requirement.17 These commenters
generally asserted that the proposal
exceeds the requirements of the Act,
and would undermine the risk
sensitivity of the risk-based capital
rules, encourage banking organizations
to invest more in higher risk assets, and
distort decisions regarding capital
allocation. These commenters also
contended that the proposal would put
U.S. banks at a disadvantage relative to
their foreign competitors. Some of these
commenters expressed a preference for
alternative approaches to implement
section 171 of the Act, including a Pillar
2 supervisory approach under the New
Accord.
Some of the commenters who
opposed the permanent floor also
criticized the proposal for retaining two
regulatory capital regimes, causing
confusion, and diverting significant
resources into developing systems to
comply with the advanced rules,
without a corresponding reduction in
capital costs due to the imposition of
the proposed permanent floor. These
commenters also expressed concern and
asked the agencies to clarify how the
proposal would interact with Basel III 18
(particularly, the Basel III leverage ratio
and capital conservation buffer), prompt
corrective action, and other Dodd-Frank
Act provisions relating to capital
adequacy, such as those required by
section 165.19 In particular, these
commenters expressed concern about
what they viewed as negative
consequences of maintaining a Basel Ibased floor after full implementation of
Basel III.
In contrast, one commenter
representing community banks and
another representing a financial reform
advocacy organization expressed strong
support for modifying the advanced
approaches rules by replacing the
transitional floors with the permanent
floor. These commenters asserted that it
is not appropriate for the agencies to
allow large banking organizations to
determine their capital requirements
based on internal models because it may
17 Id.
at 82319.
term ‘‘Basel III’’ refers to the new
comprehensive set of reform measures developed
by the BCBS to strengthen the regulation,
supervision, and risk management of the banking
sector. These releases are available on the BIS Web
site, https://www.bis.org.
19 See section 165 of the Act; 12 U.S.C. 5365.
18 The
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allow them to reduce their capital levels
and give them a competitive advantage
over community banks, and could also
increase negative procyclical outcomes.
C. Effect on Applications by Foreign
Banking Organizations
The preamble to the proposed rule
noted that in approving an application
by a foreign banking organization to
establish a branch or agency in the
United States or to make a bank or
nonbank acquisition, the Board
considers, among other factors, whether
the capital of the foreign banking
organization is equivalent to the capital
that would be required of a U.S. banking
organization.20 In addition, in
approving an application by a foreign
banking organization to establish a
federal branch or agency, the OCC must
make a similar capital equivalency
determination.21 Similarly, in order to
make effective a foreign banking
organization’s declaration under the
Bank Holding Company Act (BHC Act)
to be treated as a financial holding
company (FHC), the Board must apply
comparable capital and management
standards to the foreign banking
organization ‘‘giving due regard to the
principle of national treatment and
equality of competitive opportunity.’’ 22
National treatment generally means
treatment that is no less favorable than
that provided to domestic institutions
that are in like circumstances. The
agencies have broad discretion to
consider relevant factors in making
these determinations.
The Board has been making capital
equivalency findings for foreign banking
organizations under the International
Banking Act and the BHC Act since
1992 pursuant to guidelines developed
as part of a joint study by the Board and
Treasury on capital equivalency.23 The
study acknowledged the Basel
Committee on Banking Supervision’s
1988 Accord (Basel I) as the prevailing
capital standard for internationally
20 See 12 U.S.C. 1842(c); 1843(j); and
3105(d)(3)(B), (j)(2).
21 See 12 U.S.C. 3103(a)(3)(B)(i).
22 12 U.S.C. 1843(l)(3). A foreign bank that
operates a branch, agency or commercial lending
company in the United States and any company
that owns such a foreign bank, is subject to the BHC
Act as if it were a bank holding company. The BHC
Act, as amended by the Gramm-Leach Bliley Act,
provides that a bank holding company may become
an FHC if its depository institutions meet certain
capital and management standards. See 12 U.S.C.
1843(l)(1); 12 CFR 225. Under section 606 of the
Act, this requirement will be modified to require
the bank holding company to be well capitalized
and well managed. See the Act, section 606.
23 ‘‘Capital Equivalency Report,’’ Board of
Governors of the Federal Reserve System and
Secretary of the U.S. Department of the Treasury
(June 19, 1992). See 12 U.S.C. 3105(j).
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37623
active banks and found that
implementation of Basel I was broadly
equivalent across countries. Until 2007,
the agencies had generally accepted as
equivalent the capital of foreign banking
organizations from countries adhering to
Basel I within the bounds of national
discretion allowed under the Basel I
framework. For foreign banking
organizations that have begun operating
under the New Accord’s capital
standards, the agencies have evaluated
the capital of the foreign banking
organization as reported in compliance
with the New Accord, while also taking
into account a range of factors including
compliance with the New Accord’s
capital requirement floors linked to
Basel I, where applicable. In some
countries, Basel I floors are no longer in
effect, or are expected to be phased out
in the near term.
The NPR sought commenters’ views
on how the proposed rule should be
applied to foreign banking organizations
in evaluating capital equivalency in the
context of applications to establish
branches or make bank or nonbank
acquisitions in the United States, and in
evaluating capital comparability in the
context of foreign banking organization
FHC declarations. In raising this
question, the agencies recognized the
challenge of administering capital
equivalency determinations where the
foreign banking organization is not
subject to the same floor requirement as
its U.S. counterpart.
In responding to this question, most
commenters asserted that extending
U.S. capital requirements to a foreign
banking organization operating outside
of the United States would not be
appropriate and would be inconsistent
with the Board’s supervisory practice
regarding the recognition of home
country capital regulations. Several
commenters noted that subjecting a
foreign banking organization to the
proposed rule contradicts the language
of the Act, which excludes foreign
banking organizations from the
requirements of section 171. Several
commenters supported applying the
proposed rule to the U.S. operations of
foreign banking organizations operating
in the United States to be consistent
with requirements for domestic banking
organizations.
Some commenters noted that foreign
banking organizations operating under
the advanced approaches rules would
receive a competitive advantage over
U.S. banking organizations subject to
the proposal’s permanent floor
requirement. In addition, several
commenters expressed concern that the
applying the proposed floor to foreign
banking organizations may incentivize
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home country supervisors to impose
reciprocal arrangements for U.S.
banking organizations operating abroad.
The agencies acknowledge that
section 171, by its terms, does not apply
to foreign banking organizations. Rather,
the question on capital equivalency and
comparability determinations was
intended to seek views on practical
ways to administer such determinations
in the context of certain foreign bank
organization applications to enter or
expand operations within the United
States given the proposal’s requirements
and longstanding supervisory practice.
One of the agencies’ supervisory
objectives is to establish a consistent
means for making capital equivalency
determinations in the context of foreign
banking organization applications to
establish branches or to acquire banks or
nonbanks in the United States, and in
evaluating capital comparability in the
context of foreign banking organization
FHC declarations. The agencies
recognize the challenges of establishing
a consistent process for evaluating
capital equivalency in cases where,
among other things, the foreign banking
organization applicant operating under
advanced approaches no longer has the
Basel I floor in place in its home
country, and therefore no longer
produces financial information based on
Basel I requirements. The agencies
believe that it is important to take into
consideration the competitive issues
highlighted by commenters. The
agencies will continue to evaluate
equivalency issues on a case-by-case
basis taking into consideration the
comments received.
D. Proposed Capital Requirements for
Certain Nonbanking Exposures
In the NPR, the agencies sought
comment on whether the proposed
treatment of nonbanking exposures
described above was appropriate,
whether this treatment was sufficiently
flexible to address the exposures of
depository institution holding
companies and nonbank financial
companies supervised by the Board,
and, if not, how the treatment should be
modified.24 Most commenters generally
supported allowing flexibility for the
capital treatment of nonbanking assets
and agreed with the agencies’
observation that automatically assigning
such assets to the 100 percent risk
weight category because they are not
explicitly assigned to a lower risk
weight category may not always be
appropriate based on the economic
substance of the exposure. One
commenter broadly agreed with the
24 Id.
at 82320.
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proposal but stated that the proposed
treatment needed further clarification.
Another commenter noted that the rule
also should provide for higher capital
requirements, particularly for those
exposures that that are impermissible
for banks. One commenter noted that
the proposal’s limited flexibility to
allow certain assets to receive the
capital treatment applicable under the
capital guidelines for bank holding
companies should not include the
condition that the asset be held under
debt previously contracted or similar
authority. This commenter stated that
assignment to a risk category should be
based on the risk of the asset and not on
the underlying authority to own the
asset.
The agencies received substantial
comments from insurance companies
about the capital requirements for these
entities in general as well as on the
proposed modifications to the general
risk-based capital rules to address
certain nonbank assets. These
commenters argued that it would not be
appropriate to apply capital
requirements applicable to banking
organizations to insurance companies
because their risk profiles, balance sheet
characteristics, and business models
fundamentally differ. Several of these
commenters were concerned that
applying capital requirements for
banking organizations to insurance
companies without taking these
differences into account is overly
simplistic and may lead to distorted
incentives, undermine efficient use of
capital, curtail insurance underwriting
capacity, and negatively impact
insurance markets.
Some commenters suggested that
significant adjustments to the risk
weights applicable to banking
organizations’ exposures would be
necessary when considering
applicability to insurance companies’
exposures. Other commenters suggested
that adjustments to risk weights alone
would be insufficient. Several
commenters suggested that the agencies
recognize and incorporate established
insurance capital standards into any
new capital regime that may apply to
insurance companies. Some
commenters suggested that the agencies
use a principle of equivalence to
evaluate insurance companies’ capital
adequacy similar to the practice used by
the Board to determine if the capital of
a foreign bank is equivalent to the
capital required of a U.S. banking
organization. Certain insurance industry
commenters provided specific examples
of exposures that should be given
consideration for a lower risk weight
under the general risk-based capital
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rules, including non-guaranteed
separate accounts based on the rationale
that the insurance policyholder and not
the institution bears the investment risk
associated with the contract. Other
assets for which commenters suggested
consideration regarding the capital
treatment included guaranteed separate
accounts, corporate debt, and private
placements.
Some commenters expressed concern
that the Board may require insurance
companies to use U.S. generally
accepted accounting principles for
preparing financial statements instead
of the statutory accounting principles
applicable to insurance companies.
These commenters noted the burden
and costs associated with using two
accounting systems.
E. Quantitative Methods for Comparing
Capital Frameworks
The NPR sought comment on how the
agencies should, in the future, evaluate
changes to the general risk-based capital
requirements to ensure they are not
quantitatively lower than the ‘‘generally
applicable capital requirements’’ in
effect as of the enactment of section 171
of the Act.25 Commenters generally
supported looking at industry-wide
aggregate capital levels, in order to
conduct the analysis, rather than basing
the calculation on an item-by-item
comparison of capital requirements for
each class of exposures. These
commenters asserted that this approach
would allow individual organizations to
adjust their business models
appropriately while satisfying the test.
One commenter suggested that in
comparing proposed changes to the
generally applicable capital
requirements, the agencies should
assume a stable risk profile within the
industry while assessing levels of
capital. This commenter points out
maintaining reliable comparative data
over time could make quantitative
methods for this purpose difficult. For
example, evaluating asset categories
with current and historic data would be
difficult if banks have not maintained
consistent tracking methods, or common
definitions over time. This commenter
also suggested that it would be
misguided to compare future capital
requirements without regard to risk.
F. Costs and Benefits and Other
Comments
Several commenters were concerned
about the operational expense and
burden associated with determining
compliance with two sets of capital
rules. One stated that requiring two sets
25 75
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of capital rules would result in
permanently higher operating costs for
banking organizations under the
advanced approaches rules. This
commenter also suggested that the
proposed risk-based capital floor will
reduce the incentive for banking
organizations considering whether to
undertake the expense and effort
necessary to adopt the advanced
approaches rules if minimum capital
levels are determined by a less risksensitive capital framework. Some
commenters also expressed concerns
about the cost of continuing to
implement the advanced approaches
rules. One said that banks already have
spent hundreds of millions of dollars on
implementing the advanced approaches
rules, and the proposal would eliminate
the opportunity for banks to realize cost
savings from potentially lower capital
requirements under the advanced
approaches rules. Another commenter
suggested the agencies consider
exempting from the permanent floor
requirement any banking organization
whose risk-weighted assets in the
trading book exceeded a certain percent
of total risk-weighted assets. This
commenter also suggested ways of
reducing the cost of compliance under
the advanced approaches rules by, for
example, raising the materiality
standards to exempt small, relatively
low-risk portfolios to save significant
time and money at minimal cost in
terms of lessened risk sensitivity.
Commenters generally indicated that
keeping track of two sets of capital
regulations (the advanced approaches
rules and the generally applicable riskbased capital rules then in effect) was
preferable to tracking three capital rules
(the above two capital regimes and the
general risk-based capital rules in effect
on July 21, 2010).
Two commenters also suggested that
because the FSOC has not designated
any systemically important nonbank
financial companies, potential designees
were not provided sufficient notice and
opportunity to comment on the
proposal.
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G. Analysis of Comments
As described in the preceding section,
a number of the commenters expressed
opinions about the appropriateness of
the policy underlying section 171 of the
Act. The agencies note that they are
required by law to comply with the Act
and sought comment in the NPR on the
manner in which the agencies proposed
to implement certain requirements of
section 171, and on ways to mitigate
banking organizations’ burden in
meeting the proposed requirements.
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In response to comments on the
burden of maintaining two systems to
calculate capital requirements under
both the risk-based capital rules and the
advanced approaches rules, the agencies
note that banking organizations in
parallel run are currently reporting their
capital requirements under both sets of
rules. The agencies recognize that
reporting capital calculations under two
capital frameworks beyond the
transitional floor arrangement was not
expected at the onset of the advanced
approaches rules. However, as
discussed above, the agencies are
issuing the final rule to be consistent
with the requirements under section
171(b)(2) of the Act.
Generally commenters supported the
proposal’s amendment to the general
risk-based capital rules 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. This
change was focused on providing
limited flexibility for future changes to
the risk-based capital rules applicable to
bank holding companies following an
evaluation of the exposures of covered
institutions that may not previously
have been subject to consolidated riskbased capital requirements applicable to
banking organizations. Several
commenters provided specific examples
of assets that warrant consideration for
a risk weight lower than 100 percent.
The Board will consider the risk
characteristics for such assets on a caseby-case basis as it considers potential
changes to the risk-based capital rules
applicable to bank holding companies.
One commenter recommended that
the agencies remove from this treatment
the condition that the bank holds the
asset in connection with the satisfaction
of a debt previously contracted or
similar authority. This commenter
suggests that the assignment to a risk
category should be based on the risk of
the asset, not an authority to own the
asset. The agencies agree that in the
cases where this limited treatment is
used, the assignment of a capital
requirement in this situation would be
based on an evaluation of the asset’s risk
profile. The condition related to legal
authority is intended to limit the scope
for assignments of capital requirements
under this provision to assets not
typically held by depository
institutions, whose risks and
characteristics were not contemplated
when the general risk-based capital
rules were developed.
Insurance-related commenters noted
that some large insurance companies
which engage predominantly in
PO 00000
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Fmt 4700
Sfmt 4700
37625
insurance activities have depository
institution subsidiaries or affiliates that
represent a relatively small portion of
the consolidated entity. These
commenters highlighted fundamental
differences in risk profiles, balance
sheet characteristics, and business
models between insurance companies
and banking organizations. In response
to these comments, the agencies note
that section 171(b)(2) of the Act does not
take into account the size or other
differences between a holding company
and its subsidiary depository
institution(s). Consistent with this
section of the Act, the ‘‘generally
applicable’’ capital requirements serves
as a floor for any capital requirements
the agencies may require.
Some commenters suggested that
foreign banking organizations operating
under the advanced approaches rules
could hold less capital and therefore,
receive a competitive advantage
compared to U.S banking organizations.
The agencies agree that without the
proposal’s floor requirement, a banking
organization that uses the advanced
approaches rules could theoretically
operate with lower minimum risk-based
capital requirements than would be
required under the general risk-based
capital rules. The agencies will consider
these competitive equity concerns when
working with the BCBS and other
supervisory authorities to mitigate
potential competitive inequities across
jurisdictions, as appropriate.
In explaining their concern about how
the proposal would interact with Basel
III, a number of commenters focused on
the proposed rule and future changes to
regulatory capital requirements,
including those related to U.S.
implementation of Basel III. These
commenters stated that it is not possible
to understand the consequences of
implementing section 171 without
addressing the broader range of changes
in capital regulations, such as changes
to the leverage ratio and PCA
provisions.
The agencies agree that implementing
section 171 will require careful
consideration and diligence over time,
as the agencies propose and implement
various enhancements to the regulatory
capital rules. Consistent with the joint
efforts of the U.S. banking agencies and
the Basel Committee to enhance the
regulatory capital rules applicable to
internationally active banking
organizations, the agencies anticipate
that their capital requirements will be
amended, establishing different
minimum and ‘‘generally applicable’’
capital requirements. These
amendments would reflect advances in
risk sensitivity and potentially other
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substantive changes to international
agreements on capital requirements and
capital policy changes generally.
Thus, the ‘‘generally applicable’’
capital requirements as defined under
section 171 will evolve over time, and
as they evolve, continue to serve as a
floor for all banking organizations’ riskbased capital requirements. Section 171
also requires that the minimum capital
requirements established under section
171 not be ‘‘quantitatively lower’’ than
the ‘‘generally applicable’’ capital
requirements in effect for insured
depository institutions as of the date of
the Act.
The agencies anticipate performing a
quantitative analysis of any new capital
framework developed in the future for
purposes of ensuring that future changes
to the agencies’ capital requirements
result in minimum capital requirements
that are not ‘‘quantitatively lower’’ than
the ‘‘generally applicable’’ capital
requirements for insured depository
institutions in effect as of the date of
enactment of the Act. By performing
such an analysis, the agencies would
ensure that all minimum capital
requirements established under section
171 meet this requirement, including
minimum requirements that become the
new ‘‘generally applicable’’ capital
requirements under section 171.
The agencies are currently
considering how that analysis may be
performed for anticipated changes to the
capital rules. As some commenters
noted, comparing capital requirements
on an aggregate basis is an effective way
of conducting the ‘‘quantitatively
lower’’ analysis and the agencies expect
to propose this method as appropriate in
future rulemakings. The agencies
anticipate that before proposing future
changes to their capital requirements,
the agencies will consider the
implications for the capital adequacy of
banking organizations, the
implementation costs, and the nature of
any unintended consequences or
competitive issues. The agencies note
that section 171 does not require a
‘‘permanent Basel-I based floor’’ as some
commenters have suggested. The
agencies also note that they do 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.
In addition, the agencies agree with
commenters that the relationship
between the requirements of section 171
and other aspects of the Act, including
section 165, must be considered
carefully and that all aspects of the Act
should be implemented so as to avoid
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14:42 Jun 27, 2011
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imposing conflicting or inconsistent
regulatory capital requirements.
III. Final Rule
A. Implementation of a Risk-Based
Capital Floor
The agencies have considered the
comments received on the NPR, and
continue to believe that the rule as
proposed is consistent with the
requirements of section 171 of the Act
with respect to risk-based capital
requirements. Therefore, the agencies
have decided to implement the rule as
proposed, effective July 28, 2011.
Thus, each organization
implementing the advanced approaches
rules will continue to calculate its riskbased capital requirements under the
agencies’ general risk-based capital
rules, and the capital requirement it
computes under those rules will serve
as a floor for its risk-based capital
requirement computed under the
advanced approaches rules. The
agencies note that the effect of this rule
on banking organizations is to preclude
certain reductions in capital
requirements that might have occurred
in the future, absent the rule and absent
any further changes to the capital rules.
The agencies also note that in practice,
the rule will not have an immediate
effect on banking organizations’ capital
requirements because all organizations
subject to the advanced approaches
rules are currently computing their
capital requirements under the general
risk-based capital rules.
For bank holding companies subject
to the advanced approaches rule, as
noted above, the final rule provides that
they must calculate their floor
requirement under the general riskbased capital rules for state member
banks.26 However, in accordance with
the Act, these organizations may
include certain debt or equity
instruments issued before May 19, 2010
as described in section 171(b)(4)(B) of
the Act. The agencies expect the phasein of restrictions on the regulatory
capital treatment of the debt or equity
instruments described in section
171(b)(4)(B) of the Act will be addressed
in more detail in a subsequent rule. As
indicated in the proposal, other aspects
of section 171 are not addressed in this
final rule.
B. Capital Requirements for Certain
Nonbanking Exposures
Commenters generally supported the
agencies’ proposed treatment of certain
low-risk, nonbanking exposures. The
agencies believe the proposed treatment
26 12
PO 00000
CFR part 208, appendix A.
Frm 00010
Fmt 4700
Sfmt 4700
provides flexibility to address 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 applicable to banking
organizations, but also impose risks that
are not commensurate with the risk
weight otherwise specified in the
generally applicable risk-based capital
requirements. Therefore, the final rule
retains the proposed rule’s treatment for
these assets without modification.
As a general matter, the Board and the
other federal banking agencies retain a
reservation of authority to assign
alternate risk-based capital requirements
if such action is warranted.
Regulatory Flexibility Act Analysis
The Regulatory Flexibility Act, 5
U.S.C. 601 et seq. (RFA), generally
requires that an agency prepare and
make available for public comment an
initial regulatory flexibility analysis in
connection with a notice of proposed
rulemaking.27 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.
As discussed in greater detail above,
the purpose of the final rule is to
establish a risk-based capital floor for
the advanced approaches rules in a
manner that is consistent with section
171 of the Act. In addition, the final rule
also amends the general risk-based
capital rules for depository institutions
to provide flexibility consistent with
section 171 of the Act for addressing the
appropriate capital requirement for lowrisk assets held by depository institution
holding companies or by nonbank
financial companies supervised by the
Board, in situations where there is no
explicit capital treatment for such
exposures under the general risk-based
capital rules.
As discussed above, the agencies
solicited public comment on the rule in
a notice of proposed rulemaking. The
agencies did not receive any comments
regarding burden to small banking
organizations. After considering the
comments on the proposal, the agencies
decided to issue the proposed rule text
as a final rule without change.
27 See
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The final rule would affect bank
holding companies, national banks,
state member banks, and state
nonmember banks that use the
advanced approaches rules to calculate
their risk-based capital requirements
according to certain internal ratingsbased and internal model approaches. A
bank holding company or bank 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 onbalance 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.
With respect to the changes to the
general risk-based capital rules, the final
rule has the potential to affect the risk
weights applicable only to assets that
generally are impermissible for banks to
hold. These changes are, accordingly,
unlikely to have a significant impact on
banking organizations. The agencies
also note 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 banks including small
banking organizations, nor do they
duplicate, overlap or conflict with other
Federal rules.
The agencies estimate that zero small
bank holding companies (out of a total
of approximately 4,493 small bank
holding companies), one small national
bank (out of a total of approximately 664
small national banks), one small state
member bank (out of a total of
approximately 398 small state member
banks), and one small state nonmember
bank (out of a total of approximately
2,639 small state nonmember banks) are
required to use the advanced
approaches rules.28 In addition, each of
the small banks that is required to use
the advanced approaches rules is a
subsidiary of a bank holding company
with over $250 billion in consolidated
total assets or over $10 billion in
consolidated total on-balance sheet
foreign exposures. Therefore, the
agencies believe that the final rule will
not result in a significant economic
impact on a substantial number of small
entities.
OCC Unfunded Mandates Reform Act of
1995 Determinations
Section 202 of the Unfunded
Mandates Reform Act of 1995, Public
28 All
totals are as of December 31, 2010.
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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 OCC has determined that its final
rule will not result in expenditures by
state, local, and tribal governments, or
by the private sector, of $100 million or
more. Accordingly, the OCC has not
prepared a budgetary impact statement
or specifically addressed the regulatory
alternatives considered.
Paperwork Reduction Act
In accordance with the requirements
of the Paperwork Reduction Act of
1995,29 the agencies may not conduct or
sponsor, and the respondent is not
required to respond to, an information
collection unless it displays a currently
valid Office of Management and Budget
(OMB) control number. Each of the
agencies has an established information
collection for the paperwork burden
imposed by the advanced approaches
rule.30 This final rule 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 the
agencies 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.
Section 722 of the Gramm-LeachBliley Act (Pub. L. 106–102, 113 Stat.
1338, 1471) requires the agencies to use
plain language in all proposed and final
rules published after January 1, 2000. In
light of this requirement, the agencies
have sought to present the final rule in
a simple and straightforward manner.
29 44
U.S.C. 3501–3521.
Risk-Based Capital Reporting for
Institutions Subject to the Advanced Capital
Adequacy Framework, FFIEC 101, OCC OMB
Number 1557–0239, Federal Reserve OMB Number
7100–0319, FDIC OMB Number 3064–0159.
30 See
Frm 00011
Fmt 4700
List of Subjects
12 CFR Part 3
Administrative practice and
procedure, Banks, banking, Capital,
National banks, Reporting and
recordkeeping requirements, Risk.
12 CFR Part 208
Confidential business information,
Crime, Currency, Federal Reserve
System, Mortgages, Reporting and
recordkeeping requirements, Risk.
12 CFR Part 225
Administrative practice and
procedure, Banks, banking, Federal
Reserve System, Holding companies,
Reporting and recordkeeping
requirements, Securities.
12 CFR Part 325
Administrative practice and
procedure, Banks, banking, Capital
adequacy, Reporting and recordkeeping
requirements, Savings associations,
State nonmember banks.
Department of the Treasury
Office of the Comptroller of the
Currency
12 CFR Chapter I
Authority and Issuance
For the reasons stated in the common
preamble, the Office of the Comptroller
of the Currency amends part 3 of
chapter I of Title 12, Code of Federal
Regulations as follows:
PART 3—MINIMUM CAPITAL RATIOS;
ISSUANCE OF DIRECTIVES
1. The authority citation for part 3
continues to read as follows:
■
Authority: 12 U.S.C. 93a, 161, 1818,
1828(n), 1828 note, 1831n note, 1835, 3907,
and 3909.
2. In Appendix A to part 3, in section
3, add new paragraph (a)(4)(xi) as
follows:
■
Appendix A to Part 3—Risk-Based
Capital Guidelines
Plain Language
PO 00000
37627
Sfmt 4700
*
*
*
*
*
Section 3. Risk Categories/Weights for
On-Balance Sheet Assets and Off-Balance
Sheet Items
*
*
*
*
*
(a) * * *
(4) * * *
(xi) Subject to the requirements below, a
bank may assign an asset not included in the
categories above to the risk weight category
applicable under the capital guidelines for
bank holding companies (see 12 CFR part
225, appendix A), provided that all of the
following conditions apply:
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■
Authority: Subpart A of Regulation H (12
CFR part 208, Subpart A) is issued by the
Board of Governors of the Federal Reserve
System (Board) under 12 U.S.C. 24, 36;
sections 9, 11, 21, 25 and 25A of the Federal
Reserve Act (12 U.S.C. 321–338a, 248(a),
248(c), 481–486, 601 and 611); sections 1814,
1816, 1818, 1831o, 1831p–l, 1831r–l and
1835a of the Federal Deposit Insurance Act
(FDI Act) (12 U.S.C. 1814, 1816, 1818, 1831o,
1831p–l, 1831r–l and 1835); and 12 U.S.C.
3906–3909.
■
■
Appendix C to Part 3—Capital
Adequacy Guidelines for Banks:
Internal Ratings-Based and Advanced
Measurement Approaches
Appendix A to Part 208—Capital
Adequacy Guidelines for State Member
Banks: Risk-Based Measure
(i) Its total qualifying capital to total riskweighted assets, and
(ii) Its total risk-based capital ratio as
calculated under Appendix A of this part.
(3) A bank’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 Appendix A of this part.
(b) Each bank must hold capital
commensurate with the level and nature of
all risks to which the bank is exposed.
(c) When a bank subject to 12 CFR part
208, appendix E calculates its risk-based
capital requirements under this appendix,
the bank must also refer to 12 CFR part 208
for supplemental rules to calculate risk-based
capital requirements adjusted for market risk.
*
*
Part I. General Provisions
III. * * *
C. * * *
4. Category 4: 100 percent. a. Except as
provided in section III.C. 4.e of this
appendix, all assets not included in the
categories above are assigned to this category,
which comprises standard risk assets. The
bulk of the assets typically found in a loan
portfolio would be assigned to the 100
percent category.
(A) The bank is not authorized to hold the
asset under 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
appendix.
*
*
*
*
*
3. In Appendix C to part 3:
a. Revise Part I, section 3 to read as
set forth below.
■ b. Remove section 21(e).
*
*
*
*
5. In Appendix A to part 208, revise
section III.C. 4.a and add section III.C.
4.e to read as follows:
*
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 bank 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 bank’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 Appendix A of this part.
(3) A bank’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 Appendix A of this part.
(b) Each bank must hold capital
commensurate with the level and nature of
all risks to which the bank is exposed.
(c) When a bank subject to 12 CFR part 3,
Appendix B, calculates its risk-based capital
requirements under this appendix, the bank
must also refer to 12 CFR part 3, Appendix
B, for supplemental rules to calculate riskbased capital requirements adjusted for
market risk.
*
*
*
*
*
*
*
*
*
e. Subject to the requirements below, a
bank may assign an asset not included in the
categories above to the risk weight category
applicable under the capital guidelines for
bank holding companies (See 12 CFR part
225, appendix A), provided that all of the
following conditions apply:
i. The bank is not authorized to hold the
asset under applicable law other than under
debt previously contracted or other similar
authority; and
ii. The risks associated with the asset are
substantially similar to the risks of assets that
are otherwise assigned to a risk weight
category of less than 100 percent under this
appendix.
*
*
*
*
*
6. In Appendix F to part 208:
a. Revise section 3 to read as set forth
below; and
■ b. Remove section 21(e).
■
■
Federal Reserve System
Appendix F to Part 208—Capital
Adequacy Guidelines for Banks:
Internal Ratings-Based and Advanced
Measurement Approaches
12 CFR Chapter II
Part I. General Provisions
Authority and Issuance
*
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*
*
*
*
*
For the reasons set forth in the
common preamble, parts 208 and 225 of
chapter II of title 12 of the Code of
Federal Regulations are amended as
follows:
PART 208—MINIMUM CAPITAL
RATIOS; ISSUANCE OF DIRECTIVES
4. The authority citation for part 208
continues to read as follows:
■
VerDate Mar<15>2010
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*
*
*
*
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 bank 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 bank’s total risk-based capital ratio is
the lower of:
PO 00000
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*
*
*
*
PART 225—BANK HOLDING
COMPANIES AND CHANGE IN BANK
CONTROL (REGULATION Y)
7. The authority citation for part 225
continues to read as follows:
■
Authority: 12 U.S.C. 1817(j)(13), 1818,
1828(o), 1831i, 1831p–1, 1843(c)(8), 1844(b),
1972(1), 3106, 3108, 3310, 3331–3351, 3907,
and 3909; 15 U.S.C. 6801 and 6805.
8. In Appendix G to part 225:
■ a. Revise section 3 to read as set forth
below; and
■ b. Remove section 21(e).
■
Appendix G to Part 225—Capital
Adequacy Guidelines for Bank Holding
Companies: 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 bank holding company 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 bank holding company’s total riskbased 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 12 CFR part 208, appendix
A, as adjusted to include certain debt or
equity instruments issued before May 19,
2010 as described in section 171(b)(4)(B) of
the Dodd-Frank Wall Street Reform and
Consumer Protection Act (Dodd-Frank Act).
(3) A bank holding company’s tier 1 riskbased capital ratio is the lower of:
(i) Its tier 1 capital to total risk-weighted
assets, and
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Federal Register / Vol. 76, No. 124 / Tuesday, June 28, 2011 / Rules and Regulations
37629
(ii) Its tier 1 risk-based capital ratio as
calculated under 12 CFR part 208, appendix
A, as adjusted to include certain debt or
equity instruments issued before May 19,
2010 as described in section 171(b)(4)(B) of
the Dodd-Frank Act.
(b) Each bank holding company must hold
capital commensurate with the level and
nature of all risks to which the bank holding
company is exposed.
(c) When a bank holding company subject
to 12 CFR part 225, appendix E calculates its
risk-based capital requirements under this
appendix, the bank holding company must
also refer to 12 CFR part 225, appendix E for
supplemental rules to calculate risk-based
capital requirements adjusted for market risk.
bank holding companies (12 CFR part 225,
appendix A), provided that all of the
following conditions apply:
(1) The bank is not authorized to hold the
asset under applicable law other than debt
previously contracted or similar authority;
and
(2) 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
appendix.
By order of the Board of Directors. Federal
Deposit Insurance Corporation.
*
14 CFR Part 39
*
■
*
*
*
*
Federal Deposit Insurance Corporation
12 CFR Chapter III
Authority for Issuance
For the reasons stated in the common
preamble, the Federal Deposit Insurance
Corporation amends Part 325 of Chapter
III of Title 12, Code of the Federal
Regulations as follows:
*
*
*
*
Appendix A to Part 325—Statement of
Policy on Risk-Based Capital
*
*
*
*
*
WReier-Aviles on DSKGBLS3C1PROD with RULES
II. * * *
C. Risk Weights for Balance Sheet Assets (see
Table II)
The risk based capital framework contains
five risk weight categories—0 percent, 20
percent, 50 percent, 100 percent, and 200
percent. * * *
*
*
*
*
*
Category 4—100 Percent Risk Weight.
* * *
(d) Subject to the requirements below, a
bank may assign an asset not included in the
categories above to the risk weight category
applicable under the capital guidelines for
VerDate Mar<15>2010
17:22 Jun 27, 2011
Jkt 223001
Federal Aviation Administration
Airworthiness Directives: Lycoming
Engines (Type Certificate Previously
Held by Textron Lycoming) and
Teledyne Continental Motors (TCM)
Turbocharged Reciprocating Engines
Part I. General Provisions
*
*
*
*
*
*
*
*
*
Dated: June 14, 2011.
John Walsh,
Comptroller of the Currency.
By order of the Board of Governors of the
Federal Reserve System, June 14, 2011.
Jennifer J. Johnson,
Secretary of the Board.
Dated at Washington, DC, this 14th day of
June 2011.
PO 00000
Frm 00013
Fmt 4700
Sfmt 4700
RIN 2120–AA64
Federal Aviation
Administration (FAA), DOT.
ACTION: Final rule; request for
comments.
AGENCY:
*
(a)(1) Except as modified by paragraph (c)
of this section or by section 23 of this
appendix, each bank 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 bank’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 appendix A of this part.
(3) A bank’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 appendix A of this part.
(b) Each bank must hold capital
commensurate with the level and nature of
all risks to which the bank is exposed.
(c) When a bank subject to appendix C of
this part calculates its risk-based capital
requirements under this appendix, the bank
must also refer to appendix C of this part for
supplemental rules to calculate risk-based
capital requirements adjusted for market risk.
10. Amend Appendix A to part 325 as
follows:
■ a. In section II.C, revise the first
sentence of the introductory text;
■ b. In sections II.D, and II.E,
redesignate footnotes 45 through 50 as
footnotes 46 through 51.
■ c. In section II.C, Category 4, add new
paragraph (d) and a new footnote 45.
DEPARTMENT OF TRANSPORTATION
Appendix D to Part 325—Capital
Adequacy Guidelines for Banks:
Internal Ratings-Based and Advanced
Measurement Approaches
9. The authority citation for part 325
continues to read as follows:
■
BILLING CODE 4810–33–P; 6210–01–P; 6714–01–P
[Docket No. FAA–2011–0126; Directorate
Identifier 2011–NE–03–AD; Amendment 39–
16726; AD 2011–13–03]
Section 3. Minimum Risk-Based Capital
Requirements
Authority: 12 U.S.C. 1815(a), 1815(b),
1816, 1818(a), 1818(b), 1818(c), 1818(t),
1819(Tenth), 1828(c), 1828(d), 1828(i),
1828(n), 1828(o), 1831o, 1835, 3907, 3909,
4808; Pub. L. 102–233, 105 Stat. 1761, 1789,
1790 (12 U.S.C. 1831n note); Pub. L. 102–
242, 105 Stat. 2236, as amended by Pub. L.
103–325, 108 Stat. 2160, 2233 (12 U.S.C.
1828 note); Pub. L. 102–242, 105 Stat. 2236,
2386, as amended by Pub. L. 102–550, 106
Stat. 3672, 4089 (12 U.S.C. 1828 note).
[FR Doc. 2011–15669 Filed 6–27–11; 8:45 am]
11. In Appendix D to part 325:
a. Revise section 3 to read as set forth
below; and
■ b. Remove section 21(e).
■
PART 325—CAPITAL MAINTENANCE
■
Robert E. Feldman,
Executive Secretary.
We are adopting a new
airworthiness directive (AD) for the
products listed above. This AD requires
inspecting certain Lycoming and TCM
reciprocating engines with certain
Hartzell Engine Technologies, LLC
(HET) turbochargers installed, and
disassembly and cleaning of the
turbocharger center housing and
rotating assembly (CHRA) cavities of
affected turbochargers. This AD was
prompted by a turbocharger failure due
to machining debris left in the cavities
of the CHRA during manufacture. We
are issuing this AD to prevent seizure of
the turbocharger turbine, which could
result in damage to the engine, and
smoke in the airplane cabin.
DATES: This AD is effective July 13,
2011.
The Director of the Federal Register
approved the incorporation by reference
of a certain publication listed in this AD
as of July 13, 2011.
We must receive comments on this
AD by August 12, 2011.
ADDRESSES: You may send comments by
any of the following methods:
• Federal eRulemaking Portal: Go to
https://www.regulations.gov. Follow the
instructions for submitting comments.
• Fax: 202–493–2251.
• Mail: U.S. Department of
Transportation, Docket Operations,
M–30, West Building Ground Floor,
Room W12–140, 1200 New Jersey
Avenue, SE., Washington, DC 20590.
• Hand Delivery: U.S. Department of
Transportation, Docket Operations, M–
SUMMARY:
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]]>Agencies
[Federal Register Volume 76, Number 124 (Tuesday, June 28, 2011)]
[Rules and Regulations]
[Pages 37620-37629]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-15669]
=======================================================================
-----------------------------------------------------------------------
DEPARTMENT OF THE TREASURY
Office of the Comptroller of the Currency
12 CFR Part 3
[Docket No. -2010-0009]
RIN 1557-AD33
FEDERAL RESERVE SYSTEM
12 CFR Parts 208 and 225
[Regulations H and Y; Docket No. R-1402]
RIN 7100-AD62
FEDERAL DEPOSIT INSURANCE CORPORATION
12 CFR Part 325
RIN 3064-AD58
Risk-Based Capital Standards: Advanced Capital Adequacy
Framework--Basel II; Establishment of a Risk-Based Capital Floor
AGENCY: Office of the Comptroller of the Currency, Treasury; Board of
Governors of the Federal Reserve System; and the Federal Deposit
Insurance Corporation.
ACTION: Final rule.
-----------------------------------------------------------------------
SUMMARY: The Office of the Comptroller of the Currency (OCC), Board of
[[Page 37621]]
Governors of the Federal Reserve System (Board), and the Federal
Deposit Insurance Corporation (FDIC) (collectively, the agencies) are
amending the advanced risk-based capital adequacy standards (advanced
approaches rules) in a manner that is consistent with certain
provisions of the Dodd-Frank Wall Street Reform and Consumer Protection
Act (the Act), and the general risk-based capital rules 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.
DATES: This final rule is effective July 28, 2011.
FOR FURTHER INFORMATION CONTACT: OCC: Mark Ginsberg, Risk Expert, (202)
874-5070, Capital Policy Division; or Carl Kaminski, Senior Attorney,
or Stuart Feldstein, Director, Legislative and Regulatory Activities,
(202) 874-5090.
Board: Anna Lee Hewko, (202) 530-6260, Assistant Director, or
Brendan Burke, (202) 452-2987, Senior Supervisory Financial Analyst,
Division of Banking Supervision and Regulation, or April C. Snyder,
(202) 452-3099, Counsel, or Benjamin W. McDonough, (202) 452-2036,
Counsel, Legal Division. For the hearing impaired only,
Telecommunication Device for the Deaf (TDD), (202) 263-4869.
FDIC: George French, Deputy Director, Policy, (202) 898-3929, Nancy
Hunt, Associate Director, Capital Markets Branch, (202) 898-6643,
Division of Risk Management Supervision; or Mark Handzlik, Counsel,
(202) 898-3990, or Michael Phillips, Counsel, (202) 898-3581,
Supervision and Legislation Branch, Legal Division.
SUPPLEMENTARY INFORMATION:
I. Background
A. Overview of the Requirements of the Act
Section 171(b)(2) of the Act \1\ states that the 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
Federal Reserve (covered institutions).\2\ 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 the ``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.\3\
---------------------------------------------------------------------------
\1\ Public Law 111-203, section 171, 124 Stat. 1376, 1435-38
(2010).
\2\ 12 U.S.C. 5371, Public Law 111-203, section 171, 124 Stat.
1376, 1435-38 (2010).
\3\ On March 8, 2011, in an NPR that paralleled the agencies'
rulemaking, the Office of Thrift Supervision (OTS) issued a notice
in which OTS proposed to amend 12 CFR part 567, which sets forth the
capital regulations applicable to savings associations. 45 FR 12,611
(March 8, 2011). OTS received one comment on its proposal. The Act
specifies that the regulatory authority and other functions of OTS
will transfer to OCC on the transfer date provided in the Act, which
is expected to be July 21, 2011. Given that the OTS's parallel
rulemaking is subject to a 90 day review by the Office of Management
and Budget pursuant to Executive Order 12866, it would be
impracticable for OTS to issue a final rule before the transfer
date. The OTS and OCC anticipate that OCC would issue a final rule
to amend the capital regulations applicable to savings associations,
after the transfer date.
---------------------------------------------------------------------------
B. Advanced Approaches Rules \4\
---------------------------------------------------------------------------
\4\ 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).
---------------------------------------------------------------------------
On December 7, 2007, the agencies published in the Federal Register
a final rule to implement the advanced approaches rules, which are
mandatory for banks and bank holding companies (collectively, banking
organizations) meeting certain thresholds for total consolidated assets
or foreign exposure.\5\ 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).\6\
---------------------------------------------------------------------------
\5\ 72 FR 69288 (December 7, 2007). Subject to prior supervisory
approval, other banking organizations can opt to use the advanced
approaches rules. Id. at 69397.
\6\ 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 (``International Convergence of Capital Measurement and
Capital Standards'' or ``Basel I''), 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.
---------------------------------------------------------------------------
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, the advanced approaches rules established a series
of transitional floors over a period of at least three years following
a banking organization's completion of a satisfactory parallel run.\7\
During the transitional floor periods, a banking organization's risk-
based capital ratios are equal to the lesser of (i) the organization's
ratios calculated under the advanced approaches rules and (ii) its
ratios calculated under the general risk-based capital rules, with tier
1 and total risk-weighted assets as calculated under the general risk-
based capital rules multiplied by 95 percent, 90 percent, and 85
percent during the first, second, and third transitional floor periods,
respectively.\8\ Under this approach, a banking organization that uses
the advanced approaches rules is permitted to 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. To date, no U.S.-domiciled banking
organization has entered a transitional floor period and all U.S-
domiciled banking organizations are required to compute their risk-
based capital requirements using the general risk-based capital rules.
---------------------------------------------------------------------------
\7\ 12 CFR part 3, Appendix A (OCC); 12 CFR parts 208 and 225,
Appendix A (Board); 12 CFR part 325, Appendix A (FDIC).
\8\ Under the advanced approaches rules, the minimum tier 1
risk-based capital ratio is 4 percent and the minimum total risk-
based capital ratio is 8 percent. See 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
[[Page 37622]]
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,
the Federal banking agencies established minimum leverage and risk-
based capital requirements for insured depository institutions for
prompt corrective action (PCA) rules.\9\ 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.
---------------------------------------------------------------------------
\9\ See 12 U.S.C. 1831o, Public Law 102-242, 105 Stat. 2242
(1991); see also 12 CFR part 208, subpart D (Board).
---------------------------------------------------------------------------
D. The Proposed Rule
By notice in the Federal Register dated December 30, 2010, the
agencies issued a notice of proposed rulemaking \10\ (NPR) to modify
the advanced approaches rules consistent with section 171(b)(2) of the
Act. In particular, the agencies proposed to revise the advanced
approaches rules by replacing the transitional floors in section 21(e)
of the advanced approaches rules with a permanent floor equal to the
tier 1 and total risk-based capital requirements of the generally
applicable risk-based capital rules (``permanent floor''). Under the
proposal, each quarter, each banking organization subject to the
advanced approaches rules would be required to calculate and compare
its minimum tier 1 and total risk-based capital ratios as calculated
under the general risk-based capital rules with the same ratios as
calculated under 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 \11\ to determine whether it meets its
minimum risk-based capital requirements.\12\
---------------------------------------------------------------------------
\10\ 75 FR 82317 (December 30, 2010).
\11\ 12 CFR part 3, Appendix C, section 3 (OCC); 12 CFR part
208, Appendix F, section 3 and 12 CFR part 225, Appendix G, section
3 (Board); and 12 CFR part 325, section 3 Appendix D (FDIC).
\12\ Banking organizations that use the advanced approaches
rules are subject to the same minimum leverage requirements that
apply to other banking organizations. That is, advanced approaches
banks calculate only one leverage ratio using the numerator as
calculated under the generally risk-based capital rules.
Accordingly, the agencies did not propose any change to the
calculation of the leverage ratio requirements for banking
organizations that use the advanced approaches rules.
---------------------------------------------------------------------------
For bank holding companies subject to the advanced approaches rule,
the proposal stated that in calculating their risk-based capital
ratios, these organizations must calculate their floor requirements
under the general risk-based capital rules for state member banks.\13\
However, in accordance with the Act, they may include certain debt or
equity instruments issued before May 19, 2010 as described in section
171(b)(4)(B) of the Dodd-Frank Act. The agencies also proposed to
eliminate the provisions of the advanced approaches rules relating to
transitional floor periods and the interagency study of any material
deficiencies in the rules.\14\ If the proposed permanent floor were
implemented, these provisions of the advanced approaches rules would no
longer serve a purpose.
---------------------------------------------------------------------------
\13\ 12 CFR part 208, appendix A.
\14\ Supra, section 21(e)(6) Interagency study. For any primary
Federal supervisor to authorize any institution to exit the third
transitional floor period, the study must determine that there are
no such material deficiencies that cannot be addressed by then-
existing tools, or, if such deficiencies are found, they are first
remedied by changes to this appendix.
---------------------------------------------------------------------------
The proposal also included a modification to the general risk-based
capital rules to address the appropriate capital requirement for low-
risk assets held by depository institution holding companies \15\ or by
nonbank financial companies supervised by the Board pursuant to a
designation by the Financial Stability Oversight Council (FSOC), in
situations where there is no explicit capital treatment for such
exposures under the general risk-based capital rules. The agencies
proposed 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. Accordingly, the agencies
proposed to limit this treatment to cases in which a depository
institution is not authorized to hold the asset under applicable law
other than under the authority to hold an asset in connection with the
satisfaction of a debt previously contracted or similar authority, and
the risks associated with the asset are substantially similar to the
risks of assets that otherwise are assigned a risk weight of less than
100 percent under the general risk-based capital rules.\16\
---------------------------------------------------------------------------
\15\ Section 171 of the Act defines ``depository institution
holding company'' to mean a bank holding company or a savings and
loan holding company (as those terms are defined in section 3 of the
Federal Deposit Insurance Act) that is organized in the United
States, including any bank or savings and loan holding company that
is owned or controlled by a foreign organization, but does not
include the foreign organization. See section 171 of the Act, 12
U.S.C. 5371.
\16\ See 12 U.S.C. 24 (Seventh) and 12 U.S.C. 29 (national
banks); 12 U.S.C. 335; and 12 U.S.C. 1831a(a) (state nonmember
banks).
---------------------------------------------------------------------------
II. Comments Received
A. Overview
The agencies collectively received 16 comments from both domestic
and international trade associations and from individual financial
institutions, including insurance companies. Groups representing large
banking organizations generally argued against the proposed permanent
floor. These commenters asserted that it would place large U.S. banking
organizations at a disadvantage relative to their international
competitors, increase their costs, and undermine the risk sensitivity
of the advanced approaches capital rules. In contrast, a trade
organization for community banks and a financial reform advocacy
organization supported the proposal.
Commenters representing insurance companies generally supported the
proposed revisions to the general risk-based capital rules for selected
nonbank assets, arguing that insurance companies have different risk
profiles and their liabilities and assets are of different durations
compared to banks. These commenters said it would not be appropriate to
mechanically apply bank capital regulations to insurance companies.
B. Impact on Banking Organizations That Use the Advanced Approaches
Rules
In response to the agencies' question on how the proposal would
affect U.S.
[[Page 37623]]
banking organizations that use the advanced approaches rules, several
commenters, mostly representing the largest U.S. financial
institutions, expressed strong concerns about the proposed permanent
floor, while acknowledging that the agencies were acting in response to
a statutory requirement.\17\ These commenters generally asserted that
the proposal exceeds the requirements of the Act, and would undermine
the risk sensitivity of the risk-based capital rules, encourage banking
organizations to invest more in higher risk assets, and distort
decisions regarding capital allocation. These commenters also contended
that the proposal would put U.S. banks at a disadvantage relative to
their foreign competitors. Some of these commenters expressed a
preference for alternative approaches to implement section 171 of the
Act, including a Pillar 2 supervisory approach under the New Accord.
---------------------------------------------------------------------------
\17\ Id. at 82319.
---------------------------------------------------------------------------
Some of the commenters who opposed the permanent floor also
criticized the proposal for retaining two regulatory capital regimes,
causing confusion, and diverting significant resources into developing
systems to comply with the advanced rules, without a corresponding
reduction in capital costs due to the imposition of the proposed
permanent floor. These commenters also expressed concern and asked the
agencies to clarify how the proposal would interact with Basel III \18\
(particularly, the Basel III leverage ratio and capital conservation
buffer), prompt corrective action, and other Dodd-Frank Act provisions
relating to capital adequacy, such as those required by section
165.\19\ In particular, these commenters expressed concern about what
they viewed as negative consequences of maintaining a Basel I-based
floor after full implementation of Basel III.
---------------------------------------------------------------------------
\18\ The term ``Basel III'' refers to the new comprehensive set
of reform measures developed by the BCBS to strengthen the
regulation, supervision, and risk management of the banking sector.
These releases are available on the BIS Web site, https://www.bis.org.
\19\ See section 165 of the Act; 12 U.S.C. 5365.
---------------------------------------------------------------------------
In contrast, one commenter representing community banks and another
representing a financial reform advocacy organization expressed strong
support for modifying the advanced approaches rules by replacing the
transitional floors with the permanent floor. These commenters asserted
that it is not appropriate for the agencies to allow large banking
organizations to determine their capital requirements based on internal
models because it may allow them to reduce their capital levels and
give them a competitive advantage over community banks, and could also
increase negative procyclical outcomes.
C. Effect on Applications by Foreign Banking Organizations
The preamble to the proposed rule noted that in approving an
application by a foreign banking organization to establish a branch or
agency in the United States or to make a bank or nonbank acquisition,
the Board considers, among other factors, whether the capital of the
foreign banking organization is equivalent to the capital that would be
required of a U.S. banking organization.\20\ In addition, in approving
an application by a foreign banking organization to establish a federal
branch or agency, the OCC must make a similar capital equivalency
determination.\21\ Similarly, in order to make effective a foreign
banking organization's declaration under the Bank Holding Company Act
(BHC Act) to be treated as a financial holding company (FHC), the Board
must apply comparable capital and management standards to the foreign
banking organization ``giving due regard to the principle of national
treatment and equality of competitive opportunity.'' \22\ National
treatment generally means treatment that is no less favorable than that
provided to domestic institutions that are in like circumstances. The
agencies have broad discretion to consider relevant factors in making
these determinations.
---------------------------------------------------------------------------
\20\ See 12 U.S.C. 1842(c); 1843(j); and 3105(d)(3)(B), (j)(2).
\21\ See 12 U.S.C. 3103(a)(3)(B)(i).
\22\ 12 U.S.C. 1843(l)(3). A foreign bank that operates a
branch, agency or commercial lending company in the United States
and any company that owns such a foreign bank, is subject to the BHC
Act as if it were a bank holding company. The BHC Act, as amended by
the Gramm-Leach Bliley Act, provides that a bank holding company may
become an FHC if its depository institutions meet certain capital
and management standards. See 12 U.S.C. 1843(l)(1); 12 CFR 225.
Under section 606 of the Act, this requirement will be modified to
require the bank holding company to be well capitalized and well
managed. See the Act, section 606.
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The Board has been making capital equivalency findings for foreign
banking organizations under the International Banking Act and the BHC
Act since 1992 pursuant to guidelines developed as part of a joint
study by the Board and Treasury on capital equivalency.\23\ The study
acknowledged the Basel Committee on Banking Supervision's 1988 Accord
(Basel I) as the prevailing capital standard for internationally active
banks and found that implementation of Basel I was broadly equivalent
across countries. Until 2007, the agencies had generally accepted as
equivalent the capital of foreign banking organizations from countries
adhering to Basel I within the bounds of national discretion allowed
under the Basel I framework. For foreign banking organizations that
have begun operating under the New Accord's capital standards, the
agencies have evaluated the capital of the foreign banking organization
as reported in compliance with the New Accord, while also taking into
account a range of factors including compliance with the New Accord's
capital requirement floors linked to Basel I, where applicable. In some
countries, Basel I floors are no longer in effect, or are expected to
be phased out in the near term.
---------------------------------------------------------------------------
\23\ ``Capital Equivalency Report,'' Board of Governors of the
Federal Reserve System and Secretary of the U.S. Department of the
Treasury (June 19, 1992). See 12 U.S.C. 3105(j).
---------------------------------------------------------------------------
The NPR sought commenters' views on how the proposed rule should be
applied to foreign banking organizations in evaluating capital
equivalency in the context of applications to establish branches or
make bank or nonbank acquisitions in the United States, and in
evaluating capital comparability in the context of foreign banking
organization FHC declarations. In raising this question, the agencies
recognized the challenge of administering capital equivalency
determinations where the foreign banking organization is not subject to
the same floor requirement as its U.S. counterpart.
In responding to this question, most commenters asserted that
extending U.S. capital requirements to a foreign banking organization
operating outside of the United States would not be appropriate and
would be inconsistent with the Board's supervisory practice regarding
the recognition of home country capital regulations. Several commenters
noted that subjecting a foreign banking organization to the proposed
rule contradicts the language of the Act, which excludes foreign
banking organizations from the requirements of section 171. Several
commenters supported applying the proposed rule to the U.S. operations
of foreign banking organizations operating in the United States to be
consistent with requirements for domestic banking organizations.
Some commenters noted that foreign banking organizations operating
under the advanced approaches rules would receive a competitive
advantage over U.S. banking organizations subject to the proposal's
permanent floor requirement. In addition, several commenters expressed
concern that the applying the proposed floor to foreign banking
organizations may incentivize
[[Page 37624]]
home country supervisors to impose reciprocal arrangements for U.S.
banking organizations operating abroad.
The agencies acknowledge that section 171, by its terms, does not
apply to foreign banking organizations. Rather, the question on capital
equivalency and comparability determinations was intended to seek views
on practical ways to administer such determinations in the context of
certain foreign bank organization applications to enter or expand
operations within the United States given the proposal's requirements
and longstanding supervisory practice. One of the agencies' supervisory
objectives is to establish a consistent means for making capital
equivalency determinations in the context of foreign banking
organization applications to establish branches or to acquire banks or
nonbanks in the United States, and in evaluating capital comparability
in the context of foreign banking organization FHC declarations. The
agencies recognize the challenges of establishing a consistent process
for evaluating capital equivalency in cases where, among other things,
the foreign banking organization applicant operating under advanced
approaches no longer has the Basel I floor in place in its home
country, and therefore no longer produces financial information based
on Basel I requirements. The agencies believe that it is important to
take into consideration the competitive issues highlighted by
commenters. The agencies will continue to evaluate equivalency issues
on a case-by-case basis taking into consideration the comments
received.
D. Proposed Capital Requirements for Certain Nonbanking Exposures
In the NPR, the agencies sought comment on whether the proposed
treatment of nonbanking exposures described above was appropriate,
whether this treatment was sufficiently flexible to address the
exposures of depository institution holding companies and nonbank
financial companies supervised by the Board, and, if not, how the
treatment should be modified.\24\ Most commenters generally supported
allowing flexibility for the capital treatment of nonbanking assets and
agreed with the agencies' observation that automatically assigning such
assets to the 100 percent risk weight category because they are not
explicitly assigned to a lower risk weight category may not always be
appropriate based on the economic substance of the exposure. One
commenter broadly agreed with the proposal but stated that the proposed
treatment needed further clarification. Another commenter noted that
the rule also should provide for higher capital requirements,
particularly for those exposures that that are impermissible for banks.
One commenter noted that the proposal's limited flexibility to allow
certain assets to receive the capital treatment applicable under the
capital guidelines for bank holding companies should not include the
condition that the asset be held under debt previously contracted or
similar authority. This commenter stated that assignment to a risk
category should be based on the risk of the asset and not on the
underlying authority to own the asset.
---------------------------------------------------------------------------
\24\ Id. at 82320.
---------------------------------------------------------------------------
The agencies received substantial comments from insurance companies
about the capital requirements for these entities in general as well as
on the proposed modifications to the general risk-based capital rules
to address certain nonbank assets. These commenters argued that it
would not be appropriate to apply capital requirements applicable to
banking organizations to insurance companies because their risk
profiles, balance sheet characteristics, and business models
fundamentally differ. Several of these commenters were concerned that
applying capital requirements for banking organizations to insurance
companies without taking these differences into account is overly
simplistic and may lead to distorted incentives, undermine efficient
use of capital, curtail insurance underwriting capacity, and negatively
impact insurance markets.
Some commenters suggested that significant adjustments to the risk
weights applicable to banking organizations' exposures would be
necessary when considering applicability to insurance companies'
exposures. Other commenters suggested that adjustments to risk weights
alone would be insufficient. Several commenters suggested that the
agencies recognize and incorporate established insurance capital
standards into any new capital regime that may apply to insurance
companies. Some commenters suggested that the agencies use a principle
of equivalence to evaluate insurance companies' capital adequacy
similar to the practice used by the Board to determine if the capital
of a foreign bank is equivalent to the capital required of a U.S.
banking organization. Certain insurance industry commenters provided
specific examples of exposures that should be given consideration for a
lower risk weight under the general risk-based capital rules, including
non-guaranteed separate accounts based on the rationale that the
insurance policyholder and not the institution bears the investment
risk associated with the contract. Other assets for which commenters
suggested consideration regarding the capital treatment included
guaranteed separate accounts, corporate debt, and private placements.
Some commenters expressed concern that the Board may require
insurance companies to use U.S. generally accepted accounting
principles for preparing financial statements instead of the statutory
accounting principles applicable to insurance companies. These
commenters noted the burden and costs associated with using two
accounting systems.
E. Quantitative Methods for Comparing Capital Frameworks
The NPR sought comment on how the agencies should, in the future,
evaluate changes to the general risk-based capital requirements to
ensure they are not quantitatively lower than the ``generally
applicable capital requirements'' in effect as of the enactment of
section 171 of the Act.\25\ Commenters generally supported looking at
industry-wide aggregate capital levels, in order to conduct the
analysis, rather than basing the calculation on an item-by-item
comparison of capital requirements for each class of exposures. These
commenters asserted that this approach would allow individual
organizations to adjust their business models appropriately while
satisfying the test. One commenter suggested that in comparing proposed
changes to the generally applicable capital requirements, the agencies
should assume a stable risk profile within the industry while assessing
levels of capital. This commenter points out maintaining reliable
comparative data over time could make quantitative methods for this
purpose difficult. For example, evaluating asset categories with
current and historic data would be difficult if banks have not
maintained consistent tracking methods, or common definitions over
time. This commenter also suggested that it would be misguided to
compare future capital requirements without regard to risk.
---------------------------------------------------------------------------
\25\ 75 FR at 82320-21.
---------------------------------------------------------------------------
F. Costs and Benefits and Other Comments
Several commenters were concerned about the operational expense and
burden associated with determining compliance with two sets of capital
rules. One stated that requiring two sets
[[Page 37625]]
of capital rules would result in permanently higher operating costs for
banking organizations under the advanced approaches rules. This
commenter also suggested that the proposed risk-based capital floor
will reduce the incentive for banking organizations considering whether
to undertake the expense and effort necessary to adopt the advanced
approaches rules if minimum capital levels are determined by a less
risk-sensitive capital framework. Some commenters also expressed
concerns about the cost of continuing to implement the advanced
approaches rules. One said that banks already have spent hundreds of
millions of dollars on implementing the advanced approaches rules, and
the proposal would eliminate the opportunity for banks to realize cost
savings from potentially lower capital requirements under the advanced
approaches rules. Another commenter suggested the agencies consider
exempting from the permanent floor requirement any banking organization
whose risk-weighted assets in the trading book exceeded a certain
percent of total risk-weighted assets. This commenter also suggested
ways of reducing the cost of compliance under the advanced approaches
rules by, for example, raising the materiality standards to exempt
small, relatively low-risk portfolios to save significant time and
money at minimal cost in terms of lessened risk sensitivity.
Commenters generally indicated that keeping track of two sets of
capital regulations (the advanced approaches rules and the generally
applicable risk-based capital rules then in effect) was preferable to
tracking three capital rules (the above two capital regimes and the
general risk-based capital rules in effect on July 21, 2010).
Two commenters also suggested that because the FSOC has not
designated any systemically important nonbank financial companies,
potential designees were not provided sufficient notice and opportunity
to comment on the proposal.
G. Analysis of Comments
As described in the preceding section, a number of the commenters
expressed opinions about the appropriateness of the policy underlying
section 171 of the Act. The agencies note that they are required by law
to comply with the Act and sought comment in the NPR on the manner in
which the agencies proposed to implement certain requirements of
section 171, and on ways to mitigate banking organizations' burden in
meeting the proposed requirements.
In response to comments on the burden of maintaining two systems to
calculate capital requirements under both the risk-based capital rules
and the advanced approaches rules, the agencies note that banking
organizations in parallel run are currently reporting their capital
requirements under both sets of rules. The agencies recognize that
reporting capital calculations under two capital frameworks beyond the
transitional floor arrangement was not expected at the onset of the
advanced approaches rules. However, as discussed above, the agencies
are issuing the final rule to be consistent with the requirements under
section 171(b)(2) of the Act.
Generally commenters supported the proposal's amendment to the
general risk-based capital rules 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. This change was focused on providing
limited flexibility for future changes to the risk-based capital rules
applicable to bank holding companies following an evaluation of the
exposures of covered institutions that may not previously have been
subject to consolidated risk-based capital requirements applicable to
banking organizations. Several commenters provided specific examples of
assets that warrant consideration for a risk weight lower than 100
percent. The Board will consider the risk characteristics for such
assets on a case-by-case basis as it considers potential changes to the
risk-based capital rules applicable to bank holding companies.
One commenter recommended that the agencies remove from this
treatment the condition that the bank holds the asset in connection
with the satisfaction of a debt previously contracted or similar
authority. This commenter suggests that the assignment to a risk
category should be based on the risk of the asset, not an authority to
own the asset. The agencies agree that in the cases where this limited
treatment is used, the assignment of a capital requirement in this
situation would be based on an evaluation of the asset's risk profile.
The condition related to legal authority is intended to limit the scope
for assignments of capital requirements under this provision to assets
not typically held by depository institutions, whose risks and
characteristics were not contemplated when the general risk-based
capital rules were developed.
Insurance-related commenters noted that some large insurance
companies which engage predominantly in insurance activities have
depository institution subsidiaries or affiliates that represent a
relatively small portion of the consolidated entity. These commenters
highlighted fundamental differences in risk profiles, balance sheet
characteristics, and business models between insurance companies and
banking organizations. In response to these comments, the agencies note
that section 171(b)(2) of the Act does not take into account the size
or other differences between a holding company and its subsidiary
depository institution(s). Consistent with this section of the Act, the
``generally applicable'' capital requirements serves as a floor for any
capital requirements the agencies may require.
Some commenters suggested that foreign banking organizations
operating under the advanced approaches rules could hold less capital
and therefore, receive a competitive advantage compared to U.S banking
organizations. The agencies agree that without the proposal's floor
requirement, a banking organization that uses the advanced approaches
rules could theoretically operate with lower minimum risk-based capital
requirements than would be required under the general risk-based
capital rules. The agencies will consider these competitive equity
concerns when working with the BCBS and other supervisory authorities
to mitigate potential competitive inequities across jurisdictions, as
appropriate.
In explaining their concern about how the proposal would interact
with Basel III, a number of commenters focused on the proposed rule and
future changes to regulatory capital requirements, including those
related to U.S. implementation of Basel III. These commenters stated
that it is not possible to understand the consequences of implementing
section 171 without addressing the broader range of changes in capital
regulations, such as changes to the leverage ratio and PCA provisions.
The agencies agree that implementing section 171 will require
careful consideration and diligence over time, as the agencies propose
and implement various enhancements to the regulatory capital rules.
Consistent with the joint efforts of the U.S. banking agencies and the
Basel Committee to enhance the regulatory capital rules applicable to
internationally active banking organizations, the agencies anticipate
that their capital requirements will be amended, establishing different
minimum and ``generally applicable'' capital requirements. These
amendments would reflect advances in risk sensitivity and potentially
other
[[Page 37626]]
substantive changes to international agreements on capital requirements
and capital policy changes generally.
Thus, the ``generally applicable'' capital requirements as defined
under section 171 will evolve over time, and as they evolve, continue
to serve as a floor for all banking organizations' risk-based capital
requirements. Section 171 also requires that the minimum capital
requirements established under section 171 not be ``quantitatively
lower'' than the ``generally applicable'' capital requirements in
effect for insured depository institutions as of the date of the Act.
The agencies anticipate performing a quantitative analysis of any
new capital framework developed in the future for purposes of ensuring
that future changes to the agencies' capital requirements result in
minimum capital requirements that are not ``quantitatively lower'' than
the ``generally applicable'' capital requirements for insured
depository institutions in effect as of the date of enactment of the
Act. By performing such an analysis, the agencies would ensure that all
minimum capital requirements established under section 171 meet this
requirement, including minimum requirements that become the new
``generally applicable'' capital requirements under section 171.
The agencies are currently considering how that analysis may be
performed for anticipated changes to the capital rules. As some
commenters noted, comparing capital requirements on an aggregate basis
is an effective way of conducting the ``quantitatively lower'' analysis
and the agencies expect to propose this method as appropriate in future
rulemakings. The agencies anticipate that before proposing future
changes to their capital requirements, the agencies will consider the
implications for the capital adequacy of banking organizations, the
implementation costs, and the nature of any unintended consequences or
competitive issues. The agencies note that section 171 does not require
a ``permanent Basel-I based floor'' as some commenters have suggested.
The agencies also note that they do 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.
In addition, the agencies agree with commenters that the
relationship between the requirements of section 171 and other aspects
of the Act, including section 165, must be considered carefully and
that all aspects of the Act should be implemented so as to avoid
imposing conflicting or inconsistent regulatory capital requirements.
III. Final Rule
A. Implementation of a Risk-Based Capital Floor
The agencies have considered the comments received on the NPR, and
continue to believe that the rule as proposed is consistent with the
requirements of section 171 of the Act with respect to risk-based
capital requirements. Therefore, the agencies have decided to implement
the rule as proposed, effective July 28, 2011.
Thus, each organization implementing the advanced approaches rules
will continue to calculate its risk-based capital requirements under
the agencies' general risk-based capital rules, and the capital
requirement it computes under those rules will serve as a floor for its
risk-based capital requirement computed under the advanced approaches
rules. The agencies note that the effect of this rule on banking
organizations is to preclude certain reductions in capital requirements
that might have occurred in the future, absent the rule and absent any
further changes to the capital rules. The agencies also note that in
practice, the rule will not have an immediate effect on banking
organizations' capital requirements because all organizations subject
to the advanced approaches rules are currently computing their capital
requirements under the general risk-based capital rules.
For bank holding companies subject to the advanced approaches rule,
as noted above, the final rule provides that they must calculate their
floor requirement under the general risk-based capital rules for state
member banks.\26\ However, in accordance with the Act, these
organizations may include certain debt or equity instruments issued
before May 19, 2010 as described in section 171(b)(4)(B) of the Act.
The agencies expect the phase-in of restrictions on the regulatory
capital treatment of the debt or equity instruments described in
section 171(b)(4)(B) of the Act will be addressed in more detail in a
subsequent rule. As indicated in the proposal, other aspects of section
171 are not addressed in this final rule.
---------------------------------------------------------------------------
\26\ 12 CFR part 208, appendix A.
---------------------------------------------------------------------------
B. Capital Requirements for Certain Nonbanking Exposures
Commenters generally supported the agencies' proposed treatment of
certain low-risk, nonbanking exposures. The agencies believe the
proposed treatment provides flexibility to address 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 applicable to banking
organizations, but also impose risks that are not commensurate with the
risk weight otherwise specified in the generally applicable risk-based
capital requirements. Therefore, the final rule retains the proposed
rule's treatment for these assets without modification.
As a general matter, the Board and the other federal banking
agencies retain a reservation of authority to assign alternate risk-
based capital requirements if such action is warranted.
Regulatory Flexibility Act Analysis
The Regulatory Flexibility Act, 5 U.S.C. 601 et seq. (RFA),
generally requires that an agency prepare and make available for public
comment an initial regulatory flexibility analysis in connection with a
notice of proposed rulemaking.\27\ 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.
---------------------------------------------------------------------------
\27\ See 5 U.S.C. 603(a).
---------------------------------------------------------------------------
As discussed in greater detail above, the purpose of the final rule
is to establish a risk-based capital floor for the advanced approaches
rules in a manner that is consistent with section 171 of the Act. In
addition, the final rule also amends the general risk-based capital
rules for depository institutions to provide flexibility consistent
with section 171 of the Act for addressing the appropriate capital
requirement for low-risk assets held by depository institution holding
companies or by nonbank financial companies supervised by the Board, in
situations where there is no explicit capital treatment for such
exposures under the general risk-based capital rules.
As discussed above, the agencies solicited public comment on the
rule in a notice of proposed rulemaking. The agencies did not receive
any comments regarding burden to small banking organizations. After
considering the comments on the proposal, the agencies decided to issue
the proposed rule text as a final rule without change.
[[Page 37627]]
The final rule would affect bank holding companies, national banks,
state member banks, and state nonmember banks that use the advanced
approaches rules to calculate their risk-based capital requirements
according to certain internal ratings-based and internal model
approaches. A bank holding company or bank 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 changes to the general risk-based capital
rules, the final rule has the potential to affect the risk weights
applicable only to assets that generally are impermissible for banks to
hold. These changes are, accordingly, unlikely to have a significant
impact on banking organizations. The agencies also note 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 banks including small
banking organizations, nor do they duplicate, overlap or conflict with
other Federal rules.
The agencies estimate that zero small bank holding companies (out
of a total of approximately 4,493 small bank holding companies), one
small national bank (out of a total of approximately 664 small national
banks), one small state member bank (out of a total of approximately
398 small state member banks), and one small state nonmember bank (out
of a total of approximately 2,639 small state nonmember banks) are
required to use the advanced approaches rules.\28\ In addition, each of
the small banks that is required to use the advanced approaches rules
is a subsidiary of a bank holding company with over $250 billion in
consolidated total assets or over $10 billion in consolidated total on-
balance sheet foreign exposures. Therefore, the agencies believe that
the final rule will not result in a significant economic impact on a
substantial number of small entities.
---------------------------------------------------------------------------
\28\ All totals are as of December 31, 2010.
---------------------------------------------------------------------------
OCC 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 OCC has
determined that its final rule will not result in expenditures by
state, local, and tribal governments, or by the private sector, of $100
million or more. Accordingly, the OCC has not prepared a budgetary
impact statement or specifically addressed the regulatory alternatives
considered.
Paperwork Reduction Act
In accordance with the requirements of the Paperwork Reduction Act
of 1995,\29\ the agencies may not conduct or sponsor, and the
respondent is not required to respond to, an information collection
unless it displays a currently valid Office of Management and Budget
(OMB) control number. Each of the agencies has an established
information collection for the paperwork burden imposed by the advanced
approaches rule.\30\ This final rule 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 the
agencies 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.
---------------------------------------------------------------------------
\29\ 44 U.S.C. 3501-3521.
\30\ See Risk-Based Capital Reporting for Institutions Subject
to the Advanced Capital Adequacy Framework, FFIEC 101, OCC OMB
Number 1557-0239, Federal Reserve OMB Number 7100-0319, FDIC OMB
Number 3064-0159.
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Plain Language
Section 722 of the Gramm-Leach-Bliley Act (Pub. L. 106-102, 113
Stat. 1338, 1471) requires the agencies to use plain language in all
proposed and final rules published after January 1, 2000. In light of
this requirement, the agencies have sought to present the final rule in
a simple and straightforward manner.
List of Subjects
12 CFR Part 3
Administrative practice and procedure, Banks, banking, Capital,
National banks, Reporting and recordkeeping requirements, Risk.
12 CFR Part 208
Confidential business information, Crime, Currency, Federal Reserve
System, Mortgages, Reporting and recordkeeping requirements, Risk.
12 CFR Part 225
Administrative practice and procedure, Banks, banking, Federal
Reserve System, Holding companies, Reporting and recordkeeping
requirements, Securities.
12 CFR Part 325
Administrative practice and procedure, Banks, banking, Capital
adequacy, Reporting and recordkeeping requirements, Savings
associations, State nonmember banks.
Department of the Treasury
Office of the Comptroller of the Currency
12 CFR Chapter I
Authority and Issuance
For the reasons stated in the common preamble, the Office of the
Comptroller of the Currency amends part 3 of chapter I of Title 12,
Code of Federal Regulations as follows:
PART 3--MINIMUM CAPITAL RATIOS; ISSUANCE OF DIRECTIVES
0
1. The authority citation for part 3 continues to read as follows:
Authority: 12 U.S.C. 93a, 161, 1818, 1828(n), 1828 note, 1831n
note, 1835, 3907, and 3909.
0
2. In Appendix A to part 3, in section 3, add new paragraph (a)(4)(xi)
as follows:
Appendix A to Part 3--Risk-Based Capital Guidelines
* * * * *
Section 3. Risk Categories/Weights for On-Balance Sheet Assets and
Off-Balance Sheet Items
* * * * *
(a) * * *
(4) * * *
(xi) Subject to the requirements below, a bank may assign an
asset not included in the categories above to the risk weight
category applicable under the capital guidelines for bank holding
companies (see 12 CFR part 225, appendix A), provided that all of
the following conditions apply:
[[Page 37628]]
(A) The bank is not authorized to hold the asset under
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 appendix.
* * * * *
0
3. In Appendix C to part 3:
0
a. Revise Part I, section 3 to read as set forth below.
0
b. Remove section 21(e).
Appendix C to Part 3--Capital Adequacy Guidelines for Banks: 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 bank 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 bank'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
Appendix A of this part.
(3) A bank'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
Appendix A of this part.
(b) Each bank must hold capital commensurate with the level and
nature of all risks to which the bank is exposed.
(c) When a bank subject to 12 CFR part 3, Appendix B, calculates
its risk-based capital requirements under this appendix, the bank
must also refer to 12 CFR part 3, Appendix B, for supplemental rules
to calculate risk-based capital requirements adjusted for market
risk.
* * * * *
Federal Reserve System
12 CFR Chapter II
Authority and Issuance
For the reasons set forth in the common preamble, parts 208 and 225
of chapter II of title 12 of the Code of Federal Regulations are
amended as follows:
PART 208--MINIMUM CAPITAL RATIOS; ISSUANCE OF DIRECTIVES
0
4. The authority citation for part 208 continues to read as follows:
Authority: Subpart A of Regulation H (12 CFR part 208, Subpart
A) is issued by the Board of Governors of the Federal Reserve System
(Board) under 12 U.S.C. 24, 36; sections 9, 11, 21, 25 and 25A of
the Federal Reserve Act (12 U.S.C. 321-338a, 248(a), 248(c), 481-
486, 601 and 611); sections 1814, 1816, 1818, 1831o, 1831p-l, 1831r-
l and 1835a of the Federal Deposit Insurance Act (FDI Act) (12
U.S.C. 1814, 1816, 1818, 1831o, 1831p-l, 1831r-l and 1835); and 12
U.S.C. 3906-3909.
0
5. In Appendix A to part 208, revise section III.C. 4.a and add section
III.C. 4.e to read as follows:
Appendix A to Part 208--Capital Adequacy Guidelines for State Member
Banks: Risk-Based Measure
* * * * *
III. * * *
C. * * *
4. Category 4: 100 percent. a. Except as provided in section
III.C. 4.e of this appendix, all assets not included in the
categories above are assigned to this category, which comprises
standard risk assets. The bulk of the assets typically found in a
loan portfolio would be assigned to the 100 percent category.
* * * * *
e. Subject to the requirements below, a bank may assign an asset
not included in the categories above to the risk weight category
applicable under the capital guidelines for bank holding companies
(See 12 CFR part 225, appendix A), provided that all of the
following conditions apply:
i. The bank is not authorized to hold the asset under applicable
law other than under debt previously contracted or other similar
authority; and
ii. The risks associated with the asset are substantially
similar to the risks of assets that are otherwise assigned to a risk
weight category of less than 100 percent under this appendix.
* * * * *
0
6. In Appendix F to part 208:
0
a. Revise section 3 to read as set forth below; and
0
b. Remove section 21(e).
Appendix F to Part 208--Capital Adequacy Guidelines for Banks: 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 bank 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 bank'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
Appendix A of this part.
(3) A bank'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
Appendix A of this part.
(b) Each bank must hold capital commensurate with the level and
nature of all risks to which the bank is exposed.
(c) When a bank subject to 12 CFR part 208, appendix E
calculates its risk-based capital requirements under this appendix,
the bank must also refer to 12 CFR part 208 for supplemental rules
to calculate risk-based capital requirements adjusted for market
risk.
* * * * *
PART 225--BANK HOLDING COMPANIES AND CHANGE IN BANK CONTROL
(REGULATION Y)
0
7. The authority citation for part 225 continues to read as follows:
Authority: 12 U.S.C. 1817(j)(13), 1818, 1828(o), 1831i, 1831p-
1, 1843(c)(8), 1844(b), 1972(1), 3106, 3108, 3310, 3331-3351, 3907,
and 3909; 15 U.S.C. 6801 and 6805.
0
8. In Appendix G to part 225:
0
a. Revise section 3 to read as set forth below; and
0
b. Remove section 21(e).
Appendix G to Part 225--Capital Adequacy Guidelines for Bank Holding
Companies: 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 bank holding company 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 bank holding company'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 12
CFR part 208, appendix A, as adjusted to include certain debt or
equity instruments issued before May 19, 2010 as described in
section 171(b)(4)(B) of the Dodd-Frank Wall Street Reform and
Consumer Protection Act (Dodd-Frank Act).
(3) A bank holding company's tier 1 risk-based capital ratio is
the lower of:
(i) Its tier 1 capital to total risk-weighted assets, and
[[Page 37629]]
(ii) Its tier 1 risk-based capital ratio as calculated under 12
CFR part 208, appendix A, as adjusted to include certain debt or
equity instruments issued before May 19, 2010 as described in
section 171(b)(4)(B) of the Dodd-Frank Act.
(b) Each bank holding company must hold capital commensurate
with the level and nature of all risks to which the bank holding
company is exposed.
(c) When a bank holding company subject to 12 CFR part 225,
appendix E calculates its risk-based capital requirements under this
appendix, the bank holding company must also refer to 12 CFR part
225, appendix E for supplemental rules to calculate risk-based
capital requirements adjusted for market risk.
* * * * *
Federal Deposit Insurance Corporation
12 CFR Chapter III
Authority for Issuance
For the reasons stated in the common preamble, the Federal Deposit
Insurance Corporation amends Part 325 of Chapter III of Title 12, Code
of the Federal Regulations as follows:
PART 325--CAPITAL MAINTENANCE
0
9. The authority citation for part 325 continues to read as follows:
Authority: 12 U.S.C. 1815(a), 1815(b), 1816, 1818(a), 1818(b),
1818(c), 1818(t), 1819(Tenth), 1828(c), 1828(d), 1828(i), 1828(n),
1828(o), 1831o, 1835, 3907, 3909, 4808; Pub. L. 102-233, 105 Stat.
1761, 1789, 1790 (12 U.S.C. 1831n note); Pub. L. 102-242, 105 Stat.
2236, as amended by Pub. L. 103-325, 108 Stat. 2160, 2233 (12 U.S.C
