Risk-Based Capital Guidelines; Market Risk, 76521-76529 [2013-29785]
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Rules and Regulations
Federal Register
Vol. 78, No. 243
Wednesday, December 18, 2013
This section of the FEDERAL REGISTER
contains regulatory documents having general
applicability and legal effect, most of which
are keyed to and codified in the Code of
Federal Regulations, which is published under
50 titles pursuant to 44 U.S.C. 1510.
The Code of Federal Regulations is sold by
the Superintendent of Documents. Prices of
new books are listed in the first FEDERAL
REGISTER issue of each week.
FEDERAL RESERVE SYSTEM
12 CFR Parts 208 and 225
[Regulations H, Q, and Y; Docket No.
R–1459]
RIN 7100 AD–98
Risk-Based Capital Guidelines; Market
Risk
Board of Governors of the
Federal Reserve System.
ACTION: Final rule.
AGENCY:
The Board of Governors of the
Federal Reserve System (Board) is
adopting a final rule that revises its
market risk capital rule (market risk
rule) to address recent changes to the
Country Risk Classifications (CRCs)
published by the Organization for
Economic Cooperation and
Development (OECD), which are
referenced in the Board’s market risk
rule; to clarify the treatment of certain
traded securitization positions; to make
a technical amendment to the definition
of covered position; and to clarify the
timing of the required market risk
disclosures. These changes conform the
Board’s current market risk rule to the
requirements in the Board’s new capital
framework and thereby allow the
current market risk rule to serve as a
bridge until the new capital framework
becomes fully effective for all banking
organizations.
DATES: Effective date: April 1, 2014. Any
company subject to the rule may elect
to adopt it before this date.
FOR FURTHER INFORMATION CONTACT:
Constance Horsley, Manager, (202) 452–
5239, or Timothy Geishecker, Senior
Supervisory Financial Analyst, (202)
475–6353, Capital and Regulatory
Policy, Division of Banking Supervision
and Regulation; or Benjamin
McDonough, Senior Counsel, (202) 452–
2036, or Mark Buresh, Attorney (202)
452–5270, Legal Division, Board of
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SUMMARY:
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Governors of the Federal Reserve
System, 20th and C Streets NW.,
Washington, DC 20551. For the hearing
impaired only, Telecommunication
Device for the Deaf (TDD), (202) 263–
4869.
SUPPLEMENTARY INFORMATION:
I. Background
On July 22, 2013, the Board published
in the Federal Register a notice of
proposed rulemaking (the NPR or the
proposal) seeking public comment on
the Board’s proposal to revise its market
risk rule.1 As indicated in the proposal,
the Board had previously amended its
market risk rule (the August 2012 final
rule) 2 to better capture positions for
which the market risk rule is
appropriate, reduce pro-cyclicality,
enhance the rule’s sensitivity to risks
that were not adequately captured under
the existing methodologies, increase
transparency through enhanced
disclosures, and implement certain
provisions of the Dodd-Frank Wall
Street Reform and Consumer Protection
Act (the Dodd-Frank Act), including the
prohibition against including references
to credit ratings in Federal regulations
set forth in section 939A.3 4
1 78 FR 43829 (July 22, 2013). The Board’s current
market risk rule is at 12 CFR parts 208 and 225,
Appendix E (state member banks and bank holding
companies, respectively).
2 The Office of the Comptroller of the Currency,
the Board, and the Federal Deposit Insurance
Corporation (collectively, the agencies) published a
final rule on August 30, 2012 to revise their
respective market risk rules (77 FR 53059 (August
30, 2012)).
3 The August 2012 final rule incorporated features
of documents published by the Basel Committee on
Bank Supervision (BCBS) and the International
Organizations of Securities Commissions (IOSCO)
in 2005, 2009, and 2010 that revised the market risk
framework. The BCBS published a revised capital
framework in 2004 entitled International
Convergence of Capital Measurement and Capital
Standards: A Revised Framework (Basel II Accord)
(available at https://www.bis.org/publ/bcbs107.htm)
and, between 2005 and 2010, made revisions
included in the 2005 publication of The
Application of Basel II to Trading Activities and the
Treatment of Double Default Effects (available at
https://www.bis.org/publ/bcbs111.htm); the 2009
publications of Revisions to the Basel II Market Risk
Framework (available at https://www.bis.org/publ/
bcbs158.htm), Guidelines for Computing Capital for
Incremental Risk in the Trading Book (available at
https://www.bis.org/publ/bcbs159.htm), and
Enhancements to the Basel II Framework (available
at https://www.bis.org/publ/bcbs/
basel2enh0901.htm); and the 2010 publication that
established a floor on the risk-based capital
requirement for modeled correlation trading
positions (available at https://www.bis.org/press/
p100618/annex.pdf). The agencies provided
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The proposal would have addressed
recent changes to the country risk
classifications (CRCs) published by the
Organization for Economic Cooperation
and Development (OECD) that would
affect the calculation of specific risk
capital requirements for certain covered
positions, clarified the treatment of
certain traded securitization positions,
made a technical amendment to the
definition of covered position, and
clarified the timing of required market
risk disclosures. These proposed
changes would have conformed the
Board’s current market risk rule to the
material requirements in the Board’s
new capital framework and thereby
would have allowed the current market
risk rule to serve as a bridge until the
new capital framework becomes fully
effective for all banking organizations.5
The Board received no comments
regarding the proposal and therefore, for
the same reasons as discussed in the
proposal, is finalizing the rule as
proposed.
II. Description of the Final Market Risk
Rule
A. Sovereign Debt Positions
Under the current market risk rule, a
sovereign entity is defined as a central
government (including the U.S.
government) or an agency, department,
ministry, or central bank of a central
government. The specific risk capital
requirement for a sovereign debt
position that is not backed by the full
faith and credit of the United States is
determined, in part, using CRCs based
on the OECD’s CRC methodology. The
OECD’s CRCs are an assessment of
additional detail on this history in the preamble to
the August 2012 final rule (see 77 FR 53060, 53060–
53062 (August 30, 2012)).
4 Public Law 111–203, 124 Stat. 1376 (July 21,
2010). Section 939A(a) of the Dodd-Frank Act
provides that not later than 1 year after the date of
enactment, each Federal agency shall: (1) Review
any regulation issued by such agency that requires
the use of an assessment of the credit-worthiness of
a security or money market instrument; and (2) any
references to or requirements in such regulations
regarding credit ratings. Section 939A further
provides that each such agency ‘‘shall modify any
such regulations identified by the review under
subsection (a) to remove any reference to or
requirement of reliance on credit ratings and to
substitute in such regulations such standard of
credit-worthiness as each respective agency shall
determine as appropriate for such regulations.’’ See
15 U.S.C. 78o–7 note. The August 2012 final rule
incorporated non-credit ratings based standards for
measuring specific risk capital requirements.
5 78 FR 62017 (October 11, 2013).
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country risk, used to set interest rates
for transactions covered by the OECD
arrangement on export credits.
The OECD’s CRC methodology was
established in 1999 and classifies
countries into categories based on the
application of two basic components: (1)
The country risk assessment model
(CRAM), which is an econometric
model that produces a quantitative
assessment of country credit risk; and
(2) the qualitative assessment of the
CRAM results, which integrates political
risk and other risk factors not fully
captured by the CRAM. The two
components of the CRC methodology
are combined and result in countries
being classified into one of eight risk
categories (0–7), with countries assigned
to the 0 category having the lowest
possible risk assessment and countries
assigned to the 7 category having the
highest. The OECD regularly updates
CRCs for over 150 countries. Also, CRCs
are recognized by the BCBS as an
alternative to credit ratings.
As noted in the preamble to the
August 2012 final rule, the agencies
determined that the use of CRCs to
measure sovereign risk for purposes of
their respective risk-based capital
regulations is permissible under section
939A of the Dodd-Frank Act, because
section 939A was not intended to apply
to assessments made by organizations
such as the OECD. Additionally, the
agencies noted that the use of the CRCs
was limited in scope.
Following the publication of the
August 2012 final rule, the OECD
determined that it will no longer
classify certain high-income countries
that previously received a CRC of zero.
Under the August 2012 final rule,
sovereign debt positions without a CRC
generally receive a specific riskweighting factor of 8 percent (the
equivalent of a 100 percent risk weight).
According to the OECD, the CRAM was
not used to categorize high-income
OECD and Euro Area countries, and
therefore the OECD determined that
applying a CRC to such countries was
no longer appropriate.6 The OECD also
stated that such countries ‘‘will remain
subject to the same market credit risk
pricing disciplines that are applied to
all Category Zero countries,’’ and ‘‘[t]his
means that the change has no practical
impact on the rules that apply to the
provision of official export credits.’’ 7
The Board believes that referencing
CRCs in its market risk rule is
appropriate and represents a reasonable
alternative to credit ratings for sovereign
exposures. The CRC methodology also is
more granular and risk-sensitive than
the previous risk-weighting
methodology, which was based solely
on a sovereign entity’s OECD
membership. Furthermore, referencing
CRCs poses moderate additional burden
for banking organizations, because the
OECD regularly updates CRCs and
makes the assessments available on its
public Web site. Additionally, the use of
CRCs is consistent with the treatment of
sovereign debt positions in the Basel II
Accord.8
Consistent with the August 2012 final
rule, this final rule maps the risk
weights to CRCs in a manner consistent
with the Basel II standardized approach,
which provides risk weights for
exposures to foreign sovereigns based
on CRCs. This final rule amends the
Board’s market risk rule to allow
exposures to OECD member countries
that are covered positions and that no
longer receive a CRC or continue to
receive a zero percent specific riskweighting factor (except in cases of
default by the sovereign entity). The
revised specific risk-weighting factors
for sovereign debt positions, with the
new category for OECD members with
no CRC rating, are set forth in Table 1.
TABLE 1—SPECIFIC RISK-WEIGHTING FACTORS FOR SOVEREIGN DEBT POSITIONS
Remaining contractual maturity
Sovereign CRC:
0–1 .................................................................................
2–3 .................................................................................
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4–6 .................................................................................
7 .....................................................................................
OECD Member with No CRC ...............................................
Non-OECD Member with No CRC ........................................
Sovereign Default ..................................................................
A banking organization may assign to
a sovereign debt position a specific riskweighting factor lower than the
applicable specific risk-weighting factor
in Table 1 if the position is
denominated in the sovereign entity’s
currency, the banking organization has
at least an equivalent amount of
liabilities in that foreign currency, and
the sovereign entity allows banks under
its jurisdiction to assign the lower
specific risk-weighting factor to the
same exposures to the sovereign entity.
The specific risk-weighting factors for
debt positions that are exposures to a
6 ‘‘Changes agreed to the Participant Country Risk
Classification System,’’ available at: https://
www.oecd.org/tad/xcred/cat0.htm.
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..............................................................................................
6 months or less ..................................................................
Greater than 6 months and up to and including 24 months
Exceeds 24 months .............................................................
..............................................................................................
..............................................................................................
..............................................................................................
..............................................................................................
..............................................................................................
public sector entity (PSE), depository
institution, foreign bank, or credit union
will continue to be tied to the CRC of
the applicable sovereign entity.
Therefore, under this final rule, a
banking organization must assign a
specific risk-weighting factor of 0.25,
1.0, or 1.6 percent (depending on the
remaining contractual maturity of the
position), to a debt position that is an
exposure to a PSE, depository
institution, foreign bank, or credit
union, if the applicable sovereign entity
does not have a CRC but is a member
of the OECD, unless the sovereign debt
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0
0.25
1.0
1.6
8.0
12.0
0.0
8.0
12.0
position must otherwise be assigned a
higher specific risk-weighting factor (for
example, in the case of default by the
sovereign entity). For each applicable
table of specific risk-weighting factors in
the rule, the final rule adds an ‘‘OECD
Member with No CRC’’ category and
revises the current ‘‘No CRC’’ category
to read ‘‘Non-OECD Member with No
CRC,’’ each with appropriate
corresponding specific risk-weighting
factors. This additional category
addresses those situations, discussed
above, where a sovereign entity that had
received a CRC of zero will no longer
7 Id.
8 See
Risk-weighting factor
(in percent)
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receive a CRC going forward. This
approach to an exposure to a sovereign
entity, PSE, depository institution,
foreign bank, or credit union is
consistent with the approach that the
Board has adopted in the new capital
framework.
The final rule, as well as the current
rule, defines default by a sovereign
entity as noncompliance by the
sovereign entity with its external debt
service obligations or the inability or
unwillingness of a sovereign
government to service an existing loan
according to its original terms, as
evidenced by failure to pay principal
and interest timely and fully, arrearages,
or restructuring. A default includes a
voluntary or involuntary restructuring
that results in a sovereign not servicing
an existing obligation in accordance
with the obligation’s original terms.
B. Securitization Positions—Simplified
Supervisory Formula Approach
A banking organization subject to the
market risk rule generally must assign a
100 percent specific risk-weighting
factor to its securitization positions or
apply the so-called Simplified
Supervisory Formula Approach (SSFA),
which takes into account the nature and
quality of the underlying collateral of
the securitization and was designed to
apply relatively higher capital
requirements to the more risky junior
tranches of a securitization that are the
first to absorb losses and relatively
lower requirements to the most senior
positions. Consistent with the proposal,
this final rule clarifies the treatment of
certain securitization positions under
the SSFA with regard to determining the
delinquency of the underlying
exposures as discussed below.
Among the inputs to the SSFA is the
‘‘W’’ parameter, which increases the
capital requirements for a securitization
exposure when delinquencies in the
underlying assets of the securitization
grow. The parameter W equals the ratio
of (1) the sum of the dollar amounts of
any underlying exposures of the
securitization that meet certain criteria
to (2) the balance, measured in dollars,
of underlying exposures. The criteria are
that the underlying exposure is 90 days
or more past due, subject to a
bankruptcy or insolvency proceeding, in
the process of foreclosure, held as real
estate owned, in default, or has
contractually deferred interest payments
for 90 days or more.
Banking organizations subject to the
market risk rule previously indicated
that the criteria could be read to include
deferrals of interest that are unrelated to
the performance of the loan or the
borrower and may inappropriately
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include certain federally guaranteed
student loans. The Board did not intend
for parameter W to be interpreted in this
manner. The market risk rule was
intended to capture contractual
provisions present in certain
instruments that permit borrowers to
defer payments due to financial
difficulties and, therefore, may conceal
credit quality deterioration in the assets
underlying a securitization exposure.
Accordingly, the final rule clarifies that
parameter W excludes loans with
contractual provisions that allow
deferral of principal and interest on
federally-guaranteed student loans, in
accordance with the terms of those
guarantee programs, or on consumer
loans including non-federallyguaranteed student loans, provided that
such payments are deferred pursuant to
provisions included in the contract at
the time funds are disbursed that
provide for periods of deferral that are
not initiated based on changes in the
creditworthiness of the borrower. This
clarification avoids regulatory
disincentives for banking organizations
to invest in securitizations, particularly
securitizations of federally-guaranteed
student loans, where the underlying
exposures include provisions that allow
for the deferral of certain payments for
non-credit related reasons. This
clarification is consistent with the
approach the Board finalized in the new
capital framework.
C. Definition of Covered Position
Consistent with the proposal, this
final rule adopts a technical amendment
to the definition of ‘‘covered position.’’
In the current market risk rule, the
covered position definition excludes
equity positions that are not publicly
traded. The Board has refined this
exclusion such that a covered position
may include a position in an investment
company, as defined in and registered
with the SEC under the Investment
Company Act of 1940 (15 U.S.C. 80a–1
et seq.) (or its non-U.S. equivalent),
provided that all the underlying equities
held by the investment company are
publicly traded. The Board believes that
a ‘‘look-through’’ approach is
appropriate in these circumstances
because of the liquidity of the
underlying positions, so long as the
other conditions of a covered position
are satisfied. This modification to the
definition of ‘‘covered position’’ is
consistent with the approach the Board
finalized in the new capital framework.
D. Timing of Market Risk Disclosures
Also consistent with the proposal,
this final rule adopts amendments to the
market risk rule regarding the timing of
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market risk disclosures as proposed.
The final rule clarifies when a banking
organization subject to the market risk
rule must make its required market risk
disclosures. The amendments align with
the Board’s new capital framework and
are consistent with the expectation that
public disclosures should be made in a
timely manner. The final rule provides
that a banking organization must
provide timely quantitative disclosures
after each calendar quarter. In addition,
the final rule clarifies that a banking
organization is required to provide
timely qualitative disclosures at least
annually, after the end of the fourth
calendar quarter, provided any
significant changes must be disclosed in
the interim.
As indicated in the proposal, the
timing of disclosures that are required
by the federal banking agencies may not
always coincide with the timing of
disclosures required under other federal
laws, including disclosures required
under the federal securities laws and
their implementing regulations by the
SEC. For calendar quarters that do not
correspond to fiscal year-end, the Board
considers those disclosures that are
made within 45 days of the end of the
calendar quarter (or within 60 days for
the limited purpose of the banking
organization’s first reporting period in
which it is subject to the rule) as timely.
In general, where a banking
organization’s fiscal year-end coincides
with the end of a calendar quarter, the
Board considers disclosures to be timely
if they are made no later than the
applicable SEC disclosure deadline for
the corresponding Form 10–K annual
report. In cases where an institution’s
fiscal year-end does not coincide with
the end of a calendar quarter, the Board
will consider the timeliness of
disclosures on a case-by-case basis. In
some cases, a banking organization’s
management may determine that a
significant change has occurred, such
that the most recent reported amounts
do not reflect the banking organization’s
capital adequacy and risk profile. In
those cases, a banking organization must
disclose the general nature of these
changes and briefly describe how they
are likely to affect public disclosures
going forward.
E. Effective Date of the Final Rule
The final rule will be effective April
1, 2014; however, any bank holding
company or state member bank subject
to the market risk rule may elect to
adopt the requirements in the final rule
before the effective date.
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III. Administrative Law Matters
A. Solicitation of Comments and Use of
Plain Language
Section 722 of the Gramm-LeachBliley Act (Pub. L. 106–102, 113 Stat.
1338, 1471, 12 U.S.C. 4809) requires the
Federal banking agencies to use plain
language in all proposed and final rules
published after January 1, 2000. The
Board sought to present the proposed
rule in a simple and straightforward
manner and solicited comment on how
to make the proposed rule easier to
understand. No comments were
received on the use of plain language.
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B. Paperwork Reduction Act Analysis
In accordance with the Paperwork
Reduction Act of 1995 (PRA) (44 U.S.C.
3506; 5 CFR part 1320, Appendix A.1),
the Board reviewed the final rule under
the authority delegated to the Board by
Office of Management and Budget
(OMB). No additional collections of
information pursuant to the Paperwork
Reduction Act are contained in this
final rule.
C. Regulatory Flexibility Act Analysis
The Regulatory Flexibility Act, 5
U.S.C. 601 et seq. (RFA) requires an
agency to provide a final regulatory
flexibility analysis with a final rule or
to certify that the rule will not have a
significant economic impact on a
substantial number of small entities
(defined for purposes of the RFA
beginning on July 22, 2013, to include
banks with assets less than or equal to
$500 million) 9 and publish its analysis
or a summary, or its certification and a
short, explanatory statement, in the
Federal Register along with the final
rule.
The Board is providing a final
regulatory flexibility analysis with
respect to this final rule. As discussed
above, this final is designed to enhance
the safety and soundness of entities
with substantial trading activities that
the Board supervises. The Board
received no public comments on the
proposed rule from members of the
general public or from the Chief Counsel
for Advocacy of the Small Business
Administration. Thus, no issues were
raised in public comments relating to
the Board’s initial regulatory flexibility
act analysis and no changes are being
made in response to such comments.
Under regulations issued by the Small
Business Administration, a small entity
includes a depository institution or
9 See 13 CFR 121.201. Effective July 22, 2013, the
Small Business Administration revised the size
standards for banking organizations to $500 million
in assets from $175 million in assets. 78 FR 37409
(June 20, 2013).
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bank holding company with total assets
of $500 million or less (a small banking
organization). As of September 30, 2013,
there were 630 small state member
banks. As of June 30, 2013, there were
approximately 3,760 small bank holding
companies. The final rule will apply
only to banking organizations
supervised by the Board with aggregate
trading assets and trading liabilities (as
reported in the banking organizations’
most recent quarterly regulatory
reporting form) equal to 10 percent or
more of quarter-end assets or $1 billion
or more. Currently, no small state
member bank or small banking holding
company meets these threshold criteria,
so there will be no additional projected
compliance requirements imposed on
small banking organizations supervised
by the Board. For bank holding
companies and state member banks
subject to this final rule, this final rule
is not expected to impose additional
reporting, recordkeeping, or other
compliance requirements, other than
minimal one-time systems changes.
The Board believes that the final rule
will not have a significant economic
impact on small banking organizations
supervised by the Board and therefore
believes that there are no significant
alternatives to the final rule that would
reduce the economic impact on small
banking organizations supervised by the
Board.
List of Subjects
12 CFR Part 208
Confidential business information,
Crime, Currency, Federal Reserve
System, Mortgages, Reporting and
recordkeeping requirements, Securities.
Authority: 12 U.S.C. 24, 36, 92a, 93a,
248(a), 248(c), 321–338a, 371d, 461, 481–486,
601, 611, 1814, 1816, 1818, 1820(d)(9),
1833(j), 1828(o), 1831, 1831o, 1831p–1,
1831r–1, 1831w, 1831x, 1835a, 1882, 2901–
2907, 3105, 3310, 3331–3351, 3905–3909,
and 5371; 15 U.S.C. 78b, 78l(b), 78l(i), 780–
4(c)(5), 78q, 78q–1, and 78w, 1681s, 1681w,
6801, and 6805; 31 U.S.C. 5318; 42 U.S.C.
4012a, 4104a, 4104b, 4106 and 4128.
2. Amend Appendix E, section 2, by
revising paragraphs (3)(v) through (vii)
and adding paragraph (3)(viii) in the
definition of ‘‘Covered position’’ to read
as follows:
■
Appendix E to Part 208—Risk-Based
Capital Guidelines; Market Risk
*
*
*
*
*
Section 2. Definitions
*
*
*
*
*
Covered position * * *
(3) * * *
(v) Any equity position that is not publicly
traded, other than a derivative that references
a publicly traded equity and other than a
position in an investment company as
defined in and registered with the SEC under
the Investment Company Act of 1940 (15
U.S.C. 80a–1 et seq.), provided that all the
underlying equities held by the investment
company are publicly traded;
(vi) Any equity position that is not publicly
traded, other than a derivative that references
a publicly traded equity and other than a
position in an entity not domiciled in the
United States (or a political subdivision
thereof) that is supervised and regulated in
a manner similar to entities described in
paragraph (3)(v) of this definition;
(vii) Any position a bank holds with the
intent to securitize; or
(viii) Any direct real estate holding.
Administrative practice and
procedure, Banks, banking, Federal
Reserve System, Holding companies,
Reporting and recordkeeping
requirements, Securities.
*
*
*
*
3. Amend Appendix E, section 10, by:
a. Revising paragraph (b)(2)(i)(A),
Table 2, and paragraphs (b)(2)(i)(B), (C),
and (D), and adding paragraph
(b)(2)(i)(E);
■ b. Revising paragraph (b)(2)(iv)(A) and
Table 3;
■ c. Revising paragraph (b)(2)(v), Table
4 and Table 5 to read as follows:
Board of Governors of the Federal
Reserve System
Section 10. Standardized Measurement
Method for Specific Risk
12 CFR Chapter II
(b) Debt and securitization positions.* * *
(2) * * *
(i) Sovereign Debt Positions. (A) In
accordance with table 2, a bank must assign
a specific risk-weighting factor to a sovereign
debt position based on the CRC applicable to
the sovereign entity and, as applicable, the
remaining contractual maturity of the
position, or, if there is no CRC applicable to
the sovereign entity, based on whether the
sovereign entity is a member of the OECD.
Notwithstanding any other provision in this
Appendix E, sovereign debt positions that are
backed by the full faith and credit of the
United States are treated as having a CRC
of 0.
12 CFR Part 225
Authority and Issuance
For the reasons set forth in the
preamble, parts 208 and 225 of chapter
II of title 12 of the Code of Federal
Regulations are amended as follows:
PART 208—MEMBERSHIP OF STATE
BANKING INSTITUTIONS IN THE
FEDERAL RESERVE SYSTEM
(REGULATION H)
1. The authority citation for part 208
continues to read as follows:
■
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76525
TABLE 2—SPECIFIC RISK-WEIGHTING FACTORS FOR SOVEREIGN DEBT POSITIONS
Specific risk-weighting factor
(in percent)
0–1
0.0
Remaining contractual maturity of 6 months or less ....
Remaining contractual maturity of greater than 6 and
up to and including 24 months.
2–3
1.0
Remaining contractual maturity exceeds 24 months ....
CRC ...............................................................................
0.25
1.6
4–6
8.0
7
12.0
OECD Member with No CRC ........................................
0.0
Non-OECD Member with No CRC ................................
8.0
Default by the Sovereign Entity .....................................
12.0
(B) Notwithstanding paragraph (b)(2)(i)(A)
of this section, a bank may assign to a
sovereign debt position a specific riskweighting factor that is lower than the
applicable specific risk-weighting factor in
table 2 if:
(1) The position is denominated in the
sovereign entity’s currency;
(2) The bank has at least an equivalent
amount of liabilities in that currency; and
(3) The sovereign entity allows banks
under its jurisdiction to assign the lower
specific risk-weighting factor to the same
exposures to the sovereign entity.
(C) A bank must assign a 12.0 percent
specific risk-weighting factor to a sovereign
debt position immediately upon
determination a default has occurred; or if a
default has occurred within the previous five
years.
(D) A bank must assign a 0.0 percent
specific risk-weighting factor to a sovereign
debt position if the sovereign entity is a
member of the OECD and does not have a
CRC assigned to it, except as provided in
paragraph (b)(2)(i)(C) of this section.
(E) A bank must assign an 8.0 percent
specific risk-weighting factor to a sovereign
debt position if the sovereign entity is not a
member of the OECD and does not have a
CRC assigned to it, except as provided in
paragraph (b)(2)(i)(C) of this section.
*
*
*
*
*
(iv) Depository institution, foreign bank,
and credit union debt positions. (A) Except
as provided in paragraph (b)(2)(iv)(B) of this
section, a bank must assign a specific riskweighting factor to a debt position that is an
exposure to a depository institution, a foreign
bank, or a credit union in accordance with
table 3, based on the CRC that corresponds
to that entity’s sovereign of incorporation or
the OECD membership status of that entity’s
sovereign of incorporation if there is no CRC
applicable to the entity’s sovereign of
incorporation, and, as applicable, the
remaining contractual maturity of the
position.
TABLE 3—SPECIFIC RISK-WEIGHTING FACTORS FOR DEPOSITORY INSTITUTION, FOREIGN BANK, AND CREDIT UNION DEBT
POSITIONS
Specific risk-weighting factor
(in percent)
Remaining contractual maturity of 6 months or less ................
Remaining contractual maturity of greater than 6 and up to
and including 24 months.
1.0
Remaining contractual maturity exceeds 24 months ................
CRC 0–2 or OECD Member with No CRC ...............................
0.25
1.6
CRC 3 ........................................................................................
8.0
CRC 4–7 ....................................................................................
12.0
Non-OECD Member with No CRC ............................................
8.0
Default by the Sovereign Entity .................................................
12.0
ehiers on DSK2VPTVN1PROD with RULES
*
*
*
*
*
(v) PSE debt positions. (A) Except as
provided in paragraph (b)(2)(v)(B) of this
section, a bank must assign a specific riskweighting factor to a debt position that is an
exposure to a PSE in accordance with table
4 and table 5 depending on the position’s
categorization as a general obligation or
revenue obligation, based on the CRC that
corresponds to the PSE’s sovereign of
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incorporation or the OECD membership
status of the PSE’s sovereign of incorporation
if there is no CRC applicable to the PSE’s
sovereign of incorporation, and, as
applicable, the remaining contractual
maturity of the position.
(B) A bank may assign a lower specific
risk-weighting factor than would otherwise
apply under tables 4 and 5 to a debt position
that is an exposure to a foreign PSE if:
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Fmt 4700
Sfmt 4700
(1) The PSE’s sovereign of incorporation
allows banks under its jurisdiction to assign
a lower specific risk-weighting factor to such
position; and
(2) The specific risk-weighting factor is not
lower than the risk weight that corresponds
to the PSE’s sovereign of incorporation in
accordance with tables 4 and 5.
(C) A bank must assign a 12.0 percent
specific risk-weighting factor to a PSE debt
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Federal Register / Vol. 78, No. 243 / Wednesday, December 18, 2013 / Rules and Regulations
position immediately upon determination
that a default by the PSE’s sovereign of
incorporation has occurred or if a default by
the PSE’s sovereign of incorporation has
occurred within the previous five years.
TABLE 4—SPECIFIC RISK-WEIGHTING FACTORS FOR PSE GENERAL OBLIGATION DEBT POSITIONS
General obligation specific risk-weighting factor
(in percent)
CRC 0–2 or OECD Member with No CRC ...............................
Remaining contractual maturity of 6 months or less ................
0.25
Remaining contractual maturity of greater than 6 and up to
and including 24 months.
1.0
Remaining contractual maturity exceeds 24 months ................
1.6
CRC 3 ........................................................................................
8.0
CRC 4–7 ....................................................................................
12.0
Non-OECD Member with No CRC ............................................
8.0
Default by the Sovereign Entity .................................................
12.0
TABLE 5—SPECIFIC RISK-WEIGHTING FACTORS FOR PSE REVENUE OBLIGATION DEBT POSITIONS
Revenue obligation specific risk-weighting factor
(in percent)
Remaining contractual maturity of 6 months or less ................
Remaining contractual maturity of greater than 6 and up to
and including 24 months.
1.0
Remaining contractual maturity exceeds 24 months ................
CRC 0–1 or OECD Member with No CRC ...............................
0.25
1.6
CRC 2–3 ....................................................................................
8.0
CRC 4–7 ....................................................................................
12.0
Non-OECD Member with No CRC ............................................
8.0
Default by the Sovereign Entity .................................................
12.0
*
*
*
*
*
4. Amend Appendix E, section 11, by
revising paragraph (b)(2) to read as
follows:
■
Section 11. Simplified Supervisory Formula
Approach
ehiers on DSK2VPTVN1PROD with RULES
*
*
*
*
*
(b) SSFA parameters. * * *
(2) Parameter W is expressed as a decimal
value between zero and one. Parameter W is
the ratio of the sum of the dollar amounts of
any underlying exposures of the
securitization that meet any of the criteria as
set forth in paragraphs (i) through (vi) of this
paragraph (b)(2) to the balance, measured in
dollars, of underlying exposures:
(i) Ninety days or more past due;
(ii) Subject to a bankruptcy or insolvency
proceeding;
(iii) In the process of foreclosure;
(iv) Held as real estate owned;
(v) Has contractually deferred payments for
90 days or more, other than principal or
interest payments deferred on:
(A) Federally-guaranteed student loans, in
accordance with the terms of those guarantee
programs; or
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(B) Consumer loans, including nonfederally-guaranteed student loans, provided
that such payments are deferred pursuant to
provisions included in the contract at the
time funds are disbursed that provide for
period(s) of deferral that are not initiated
based on changes in the creditworthiness of
the borrower; or
(vi) Is in default.
*
*
*
*
*
5. Amend Appendix E, section 12, by:
a. Revising paragraph (a);
b. Revising paragraph (c)(1)
introductory text; and
■ c. Revising paragraph (d) introductory
text to read as follows:
■
■
■
Section 12. Market Risk Disclosures
(a) Scope. A bank must comply with this
section unless it is a consolidated subsidiary
of a bank holding company or a depository
institution that is subject to these
requirements or of a non-U.S. banking
organization that is subject to comparable
public disclosure requirements in its home
jurisdiction. A bank must make timely
disclosures publicly each calendar quarter. If
a significant change occurs, such that the
most recent reporting amounts are no longer
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Fmt 4700
Sfmt 4700
reflective of the bank’s capital adequacy and
risk profile, then a brief discussion of this
change and its likely impact must be
provided as soon as practicable thereafter.
Qualitative disclosures that typically do not
change each quarter may be disclosed
annually, provided any significant changes
are disclosed in the interim. If a bank
believes that disclosure of specific
commercial or financial information would
prejudice seriously its position by making
public certain information that is either
proprietary or confidential in nature, the
bank is not required to disclose these specific
items, but must disclose more general
information about the subject matter of the
requirement, together with the fact that, and
the reason why, the specific items of
information have not been disclosed. The
bank’s management may provide all of the
disclosures required by this section in one
place on the bank’s public Web site or may
provide the disclosures in more than one
public financial report or other regulatory
reports, provided that the bank publicly
provides a summary table specifically
indicating the location(s) of all such
disclosures.
*
E:\FR\FM\18DER1.SGM
*
*
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*
Federal Register / Vol. 78, No. 243 / Wednesday, December 18, 2013 / Rules and Regulations
(c) * * * (1) For each material portfolio of
covered positions, the bank must provide
timely public disclosures of the following
information at least quarterly:
Appendix E to Part 225—Capital
Adequacy Guidelines for Bank Holding
Companies: Market Risk
*
Section 2. Definitions
*
*
*
*
(d) * * * For each material portfolio of
covered positions, the bank must provide
timely public disclosures of the following
information at least annually after the end of
the fourth calendar quarter, or more
frequently in the event of material changes
for each portfolio:
*
*
*
*
*
PART 225—BANK HOLDING
COMPANIES AND CHANGE IN BANK
CONTROL (REGULATION Y)
6. The authority citation for part 225
is revised to read as follows:
■
Authority: 12 U.S.C. 1817(j)(13), 1818,
1828(o), 1831i, 1831p–1, 1843(c)(8), 1844(b),
1972(1), 3106, 3108, 3310, 3331–3351, 3907,
and 3909; 15 U.S.C. 1681s, 1681w, 6801 and
6805.
7. Amend Appendix E, section 2, by
revising paragraphs (3)(v) through (vii)
and adding paragraph (3)(viii) in the
definition of ‘‘Covered position’’ to read
as follows:
■
*
*
*
*
*
Covered position * * *
(3) * * *
(v) Any equity position that is not publicly
traded, other than a derivative that references
a publicly traded equity and other than a
position in an investment company as
defined in and registered with the SEC under
the Investment Company Act of 1940 (15
U.S.C. 80a–1 et seq.), provided that all the
underlying equities held by the investment
company are publicly traded;
(vi) Any equity position that is not publicly
traded, other than a derivative that references
a publicly traded equity and other than a
position in an entity not domiciled in the
United States (or a political subdivision
thereof) that is supervised and regulated in
a manner similar to entities described in
paragraph (3)(v) of this definition;
(vii) Any position a bank holds with the
intent to securitize; or
(viii) Any direct real estate holding.
*
■
*
*
*
*
8. Amend Appendix E, section 10, by:
76527
a. Revising paragraph (b)(2)(i)(A),
Table 2, and paragraphs (b)(2)(i)(B), (C),
and (D), and adding paragraph
(b)(2)(i)(E);
■ b. Revising paragraph (b)(2)(iv)(A) and
Table 3;
■ c. Revising paragraph (b)(2)(v), Table
4 and Table 5 to read as follows:
■
Section 10. Standardized Measurement
Method for Specific Risk
*
*
*
*
*
(b) Debt and securitization positions.* * *
(2) * * *
(i) Sovereign Debt Positions. (A) In
accordance with table 2, a bank must assign
a specific risk-weighting factor to a sovereign
debt position based on the CRC applicable to
the sovereign entity and, as applicable, the
remaining contractual maturity of the
position, or, if there is no CRC applicable to
the sovereign entity, based on whether the
sovereign entity is a member of the OECD.
Notwithstanding any other provision in this
Appendix E, sovereign debt positions that are
backed by the full faith and credit of the
United States are treated as having a CRC
of 0.
TABLE 2—SPECIFIC RISK-WEIGHTING FACTORS FOR SOVEREIGN DEBT POSITIONS
Specific risk-weighting factor
(in percent)
CRC:
0–1 ...................................................................................
0.0
2–3 ...................................................................................
Remaining contractual maturity of 6 months or less .............
Remaining contractual maturity of greater than 6 and up to
and including 24 months.
Remaining contractual maturity exceeds 24 months .............
12.0
OECD Member with No CRC .................................................
0.0
Non-OECD Member with No CRC .........................................
8.0
Default by the Sovereign Entity ..............................................
1.6
8.0
7 .......................................................................................
ehiers on DSK2VPTVN1PROD with RULES
4–6 ...................................................................................
0.25
1.0
12.0
(B) Notwithstanding paragraph (b)(2)(i)(A)
of this section, a bank may assign to a
sovereign debt position a specific riskweighting factor that is lower than the
applicable specific risk-weighting factor in
table 2 if:
(1) The position is denominated in the
sovereign entity’s currency;
(2) The bank has at least an equivalent
amount of liabilities in that currency; and
(3) The sovereign entity allows banks
under its jurisdiction to assign the lower
specific risk-weighting factor to the same
exposures to the sovereign entity.
(C) A bank must assign a 12.0 percent
specific risk-weighting factor to a sovereign
debt position immediately upon
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14:56 Dec 17, 2013
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determination a default has occurred; or if a
default has occurred within the previous five
years.
(D) A bank must assign a 0.0 percent
specific risk-weighting factor to a sovereign
debt position if the sovereign entity is a
member of the OECD and does not have a
CRC assigned to it, except as provided in
paragraph (b)(2)(i)(C) of this section.
(E) A bank must assign an 8.0 percent
specific risk-weighting factor to a sovereign
debt position if the sovereign entity is not a
member of the OECD and does not have a
CRC assigned to it, except as provided in
paragraph (b)(2)(i)(C) of this section.
*
PO 00000
*
*
Frm 00007
*
Fmt 4700
*
Sfmt 4700
(iv) Depository institution, foreign bank,
and credit union debt positions. (A) Except
as provided in paragraph (b)(2)(iv)(B) of this
section, a bank must assign a specific riskweighting factor to a debt position that is an
exposure to a depository institution, a foreign
bank, or a credit union in accordance with
table 3, based on the CRC that corresponds
to that entity’s sovereign of incorporation or
the OECD membership status of that entity’s
sovereign of incorporation if there is no CRC
applicable to the entity’s sovereign of
incorporation, and, as applicable, the
remaining contractual maturity of the
position.
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Federal Register / Vol. 78, No. 243 / Wednesday, December 18, 2013 / Rules and Regulations
TABLE 3—SPECIFIC RISK-WEIGHTING FACTORS FOR DEPOSITORY INSTITUTION, FOREIGN BANK, AND CREDIT UNION DEBT
POSITIONS
Specific risk-weighting factor
(in percent)
CRC 0–2 or OECD Member with No CRC ............................
Remaining contractual maturity of 6 months or less .............
Remaining contractual maturity of greater than 6 and up to
and including 24 months.
Remaining contractual maturity exceeds 24 months .............
CRC 3 .....................................................................................
12.0
Non-OECD Member with No CRC .........................................
8.0
Default by the Sovereign Entity ..............................................
1.6
8.0
CRC 4–7 .................................................................................
0.25
1.0
12.0
*
*
*
*
*
(v) PSE debt positions. (A) Except as
provided in paragraph (b)(2)(v)(B) of this
section, a bank must assign a specific riskweighting factor to a debt position that is an
exposure to a PSE in accordance with table
4 and table 5 depending on the position’s
categorization as a general obligation or
revenue obligation, based on the CRC that
corresponds to the PSE’s sovereign of
incorporation or the OECD membership
status of the PSE’s sovereign of incorporation
if there is no CRC applicable to the PSE’s
sovereign of incorporation, and, as
applicable, the remaining contractual
maturity of the position.
(B) A bank may assign a lower specific
risk-weighting factor than would otherwise
apply under tables 4 and 5 to a debt position
that is an exposure to a foreign PSE if:
(1) The PSE’s sovereign of incorporation
allows banks under its jurisdiction to assign
a lower specific risk-weighting factor to such
position; and
(2) The specific risk-weighting factor is not
lower than the risk weight that corresponds
to the PSE’s sovereign of incorporation in
accordance with tables 4 and 5.
(C) A bank must assign a 12.0 percent
specific risk-weighting factor to a PSE debt
position immediately upon determination
that a default by the PSE’s sovereign of
incorporation has occurred or if a default by
the PSE’s sovereign of incorporation has
occurred within the previous five years.
TABLE 4—SPECIFIC RISK-WEIGHTING FACTORS FOR PSE GENERAL OBLIGATION DEBT POSITIONS
General obligation specific risk-weighting factor
(in percent)
CRC 0–2 or OECD Member with No CRC ............................
Remaining contractual maturity of 6 months or less .............
Remaining contractual maturity of greater than 6 and up to
and including 24 months.
Remaining contractual maturity exceeds 24 months .............
CRC 3 .....................................................................................
12.0
Non-OECD Member with No CRC .........................................
8.0
Default by the Sovereign Entity ..............................................
1.6
8.0
CRC 4–7 .................................................................................
0.25
1.0
12.0
TABLE 5—SPECIFIC RISK-WEIGHTING FACTORS FOR PSE REVENUE OBLIGATION DEBT POSITIONS
Revenue obligation specific risk-weighting factor
(in percent)
CRC 0–1 or OECD Member with No CRC ...............................
Remaining contractual maturity of 6 months or less ................
Remaining contractual maturity of greater than 6 and up to
and including 24 months.
Remaining contractual maturity exceeds 24 months ................
12.0
Non-OECD Member with No CRC ............................................
8.0
Default by the Sovereign Entity .................................................
1.6
8.0
CRC 4–7 ....................................................................................
ehiers on DSK2VPTVN1PROD with RULES
CRC 2–3 ....................................................................................
0.25
1.0
12.0
*
*
*
VerDate Mar<15>2010
*
*
14:56 Dec 17, 2013
9. Amend Appendix E, section 11, by
revising paragraph (b)(2) to read as
follows:
■
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PO 00000
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Fmt 4700
Sfmt 4700
Section 11. Simplified Supervisory Formula
Approach
*
E:\FR\FM\18DER1.SGM
*
*
18DER1
*
*
Federal Register / Vol. 78, No. 243 / Wednesday, December 18, 2013 / Rules and Regulations
(b) SSFA parameters. * * *
(2) Parameter W is expressed as a decimal
value between zero and one. Parameter W is
the ratio of the sum of the dollar amounts of
any underlying exposures of the
securitization that meet any of the criteria as
set forth in paragraphs (i) through (vi) of this
paragraph (b)(2) to the balance, measured in
dollars, of underlying exposures:
(i) Ninety days or more past due;
(ii) Subject to a bankruptcy or insolvency
proceeding;
(iii) In the process of foreclosure;
(iv) Held as real estate owned;
(v) Has contractually deferred payments for
90 days or more, other than principal or
interest payments deferred on:
(A) Federally-guaranteed student loans, in
accordance with the terms of those guarantee
programs; or
(B) Consumer loans, including nonfederally-guaranteed student loans, provided
that such payments are deferred pursuant to
provisions included in the contract at the
time funds are disbursed that provide for
period(s) of deferral that are not initiated
based on changes in the creditworthiness of
the borrower; or
(vi) Is in default.
*
*
*
*
*
10. Amend Appendix E, section 12,
by:
■ a. Revising paragraph (a);
■ b. Revising paragraph (c)(1)
introductory text and;
■ c. Revising paragraph (d) introductory
text to read as follows:
ehiers on DSK2VPTVN1PROD with RULES
■
Section 12. Market Risk Disclosures
(a) Scope. A bank must comply with this
section unless it is a consolidated subsidiary
of a bank holding company or a depository
institution that is subject to these
requirements or of a non-U.S. banking
organization that is subject to comparable
public disclosure requirements in its home
jurisdiction. A bank must make timely public
disclosures each calendar quarter. If a
significant change occurs, such that the most
recent reporting amounts are no longer
reflective of the bank’s capital adequacy and
risk profile, then a brief discussion of this
change and its likely impact must be
provided as soon as practicable thereafter.
Qualitative disclosures that typically do not
change each quarter may be disclosed
annually, provided any significant changes
are disclosed in the interim. If a bank
believes that disclosure of specific
commercial or financial information would
prejudice seriously its position by making
public certain information that is either
proprietary or confidential in nature, the
bank is not required to disclose these specific
items, but must disclose more general
information about the subject matter of the
requirement, together with the fact that, and
the reason why, the specific items of
information have not been disclosed. The
bank’s management may provide all of the
disclosures required by this section in one
place on the bank’s public Web site or may
provide the disclosures in more than one
public financial report or other regulatory
reports, provided that the bank publicly
VerDate Mar<15>2010
14:56 Dec 17, 2013
Jkt 232001
provides a summary table specifically
indicating the location(s) of all such
disclosures.
*
*
*
*
*
(c) * * * (1) For each material portfolio of
covered positions, the bank must provide
timely public disclosures of the following
information at least quarterly:
*
*
*
*
*
(d) * * * For each material portfolio of
covered positions, the bank must provide
timely public disclosures of the following
information at least annually after the end of
the fourth calendar quarter, or more
frequently in the event of material changes
for each portfolio:
*
*
*
*
*
By order of the Board of Governors of the
Federal Reserve System, December 11, 2013.
Robert deV. Frierson,
Secretary of the Board.
[FR Doc. 2013–29785 Filed 12–17–13; 8:45 am]
BILLING CODE 6210–01–P
DEPARTMENT OF HOMELAND
SECURITY
U.S. Customs and Border Protection
DEPARTMENT OF THE TREASURY
19 CFR Part 148
[CBP Dec. 13–19; USCBP–2012–0008]
RIN 1515–AD76
Members of a Family for Purpose of
Filing CBP Family Declaration
U.S. Customs and Border
Protection, Department of Homeland
Security; Department of the Treasury.
ACTION: Final rule.
AGENCY:
This final rule affects persons
eligible to file a single customs
declaration. The final rule expands the
definitions of family members residing
in one household. As a result of this
expansion, more U.S. returning resident
and non-resident visitor families will be
eligible to file a single customs
declaration, and correspondingly, more
U.S. returning resident family members
may group their personal duty
exemptions.
DATES: Effective January 17, 2014.
FOR FURTHER INFORMATION CONTACT:
Sophie Galvan, Program Manager,
Trusted Traveler Programs, Office of
Field Operations, (202) 344–2292.
SUPPLEMENTARY INFORMATION:
SUMMARY:
Background
On March 27, 2012, U.S. Customs and
Border Protection (CBP) published a
notice of proposed rulemaking (NPRM)
in the Federal Register (77 FR 18143)
PO 00000
Frm 00009
Fmt 4700
Sfmt 4700
76529
proposing to amend title 19 of the Code
of Federal Regulations (19 CFR)
regarding U.S. returning residents who
are eligible to file a single customs
declaration for members of a family
residing in one household and traveling
together upon arrival in the United
States. The amendments proposed in
the NPRM would expand the definition
of ‘‘members of a family residing in one
household’’ for purposes of allowing a
responsible family member to make a
joint declaration, either oral or written,
for articles acquired abroad for all
members of a family residing in one
household and traveling together on
their return to the United States.
The NPRM proposed to expand the
relationships included in the definition
of ‘‘members of a family residing in one
household’’ and to refer to the additions
as ‘‘domestic relationships.’’ As
proposed in the NPRM, ‘‘domestic
relationships’’ would include foster
children, stepchildren, half-siblings,
legal wards, other dependents, and
individuals with an in loco parentis or
guardianship relationship within the
definition of ‘‘members of a family
residing in one household.’’ ‘‘Domestic
relationships’’ would also include two
adult individuals in a committed
relationship wherein the partners share
financial assets and obligations, and are
not married to, or a partner of, anyone
else, including, but not limited to, longtime companions, and couples in civil
unions or domestic partnerships. The
proposed term ‘‘domestic relationship’’
would not extend to roommates or other
cohabitants not otherwise meeting the
above definition. Additionally, the
proposed changes would not alter the
residency requirements that, in order to
file a family declaration, members of a
family residing in one household must
have lived together in one household at
their last permanent residence and
intend to live together in one household
after their arrival in the United States.
The NPRM also proposed to remove
outdated references to ‘‘resident
servants’’ of a family and state instead
that individuals employed by the
household but not related by blood,
marriage, domestic relationship, or
adoption cannot be included in the
family declaration.
Finally, the NPRM proposed to
remove the phrase ‘‘regardless of age’’
where it currently appears in the
introductory text of §§ 148.34(b) and
148.103(b), because it would not be
consistent with the proposed definition
of ‘‘domestic relationships.’’
CBP solicited comments on the
proposed rulemaking.
E:\FR\FM\18DER1.SGM
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]]>Agencies
[Federal Register Volume 78, Number 243 (Wednesday, December 18, 2013)]
[Rules and Regulations]
[Pages 76521-76529]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-29785]
========================================================================
Rules and Regulations
Federal Register
________________________________________________________________________
This section of the FEDERAL REGISTER contains regulatory documents
having general applicability and legal effect, most of which are keyed
to and codified in the Code of Federal Regulations, which is published
under 50 titles pursuant to 44 U.S.C. 1510.
The Code of Federal Regulations is sold by the Superintendent of Documents.
Prices of new books are listed in the first FEDERAL REGISTER issue of each
week.
========================================================================
Federal Register / Vol. 78, No. 243 / Wednesday, December 18, 2013 /
Rules and Regulations
[[Page 76521]]
FEDERAL RESERVE SYSTEM
12 CFR Parts 208 and 225
[Regulations H, Q, and Y; Docket No. R-1459]
RIN 7100 AD-98
Risk-Based Capital Guidelines; Market Risk
AGENCY: Board of Governors of the Federal Reserve System.
ACTION: Final rule.
-----------------------------------------------------------------------
SUMMARY: The Board of Governors of the Federal Reserve System (Board)
is adopting a final rule that revises its market risk capital rule
(market risk rule) to address recent changes to the Country Risk
Classifications (CRCs) published by the Organization for Economic
Cooperation and Development (OECD), which are referenced in the Board's
market risk rule; to clarify the treatment of certain traded
securitization positions; to make a technical amendment to the
definition of covered position; and to clarify the timing of the
required market risk disclosures. These changes conform the Board's
current market risk rule to the requirements in the Board's new capital
framework and thereby allow the current market risk rule to serve as a
bridge until the new capital framework becomes fully effective for all
banking organizations.
DATES: Effective date: April 1, 2014. Any company subject to the rule
may elect to adopt it before this date.
FOR FURTHER INFORMATION CONTACT: Constance Horsley, Manager, (202) 452-
5239, or Timothy Geishecker, Senior Supervisory Financial Analyst,
(202) 475-6353, Capital and Regulatory Policy, Division of Banking
Supervision and Regulation; or Benjamin McDonough, Senior Counsel,
(202) 452-2036, or Mark Buresh, Attorney (202) 452-5270, Legal
Division, Board of Governors of the Federal Reserve System, 20th and C
Streets NW., Washington, DC 20551. For the hearing impaired only,
Telecommunication Device for the Deaf (TDD), (202) 263-4869.
SUPPLEMENTARY INFORMATION:
I. Background
On July 22, 2013, the Board published in the Federal Register a
notice of proposed rulemaking (the NPR or the proposal) seeking public
comment on the Board's proposal to revise its market risk rule.\1\ As
indicated in the proposal, the Board had previously amended its market
risk rule (the August 2012 final rule) \2\ to better capture positions
for which the market risk rule is appropriate, reduce pro-cyclicality,
enhance the rule's sensitivity to risks that were not adequately
captured under the existing methodologies, increase transparency
through enhanced disclosures, and implement certain provisions of the
Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-
Frank Act), including the prohibition against including references to
credit ratings in Federal regulations set forth in section
939A.3 4
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\1\ 78 FR 43829 (July 22, 2013). The Board's current market risk
rule is at 12 CFR parts 208 and 225, Appendix E (state member banks
and bank holding companies, respectively).
\2\ The Office of the Comptroller of the Currency, the Board,
and the Federal Deposit Insurance Corporation (collectively, the
agencies) published a final rule on August 30, 2012 to revise their
respective market risk rules (77 FR 53059 (August 30, 2012)).
\3\ The August 2012 final rule incorporated features of
documents published by the Basel Committee on Bank Supervision
(BCBS) and the International Organizations of Securities Commissions
(IOSCO) in 2005, 2009, and 2010 that revised the market risk
framework. The BCBS published a revised capital framework in 2004
entitled International Convergence of Capital Measurement and
Capital Standards: A Revised Framework (Basel II Accord) (available
at https://www.bis.org/publ/bcbs107.htm) and, between 2005 and 2010,
made revisions included in the 2005 publication of The Application
of Basel II to Trading Activities and the Treatment of Double
Default Effects (available at https://www.bis.org/publ/bcbs111.htm);
the 2009 publications of Revisions to the Basel II Market Risk
Framework (available at https://www.bis.org/publ/bcbs158.htm),
Guidelines for Computing Capital for Incremental Risk in the Trading
Book (available at https://www.bis.org/publ/bcbs159.htm), and
Enhancements to the Basel II Framework (available at https://www.bis.org/publ/bcbs/basel2enh0901.htm); and the 2010 publication
that established a floor on the risk-based capital requirement for
modeled correlation trading positions (available at https://www.bis.org/press/p100618/annex.pdf). The agencies provided
additional detail on this history in the preamble to the August 2012
final rule (see 77 FR 53060, 53060-53062 (August 30, 2012)).
\4\ Public Law 111-203, 124 Stat. 1376 (July 21, 2010). Section
939A(a) of the Dodd-Frank Act provides that not later than 1 year
after the date of enactment, each Federal agency shall: (1) Review
any regulation issued by such agency that requires the use of an
assessment of the credit-worthiness of a security or money market
instrument; and (2) any references to or requirements in such
regulations regarding credit ratings. Section 939A further provides
that each such agency ``shall modify any such regulations identified
by the review under subsection (a) to remove any reference to or
requirement of reliance on credit ratings and to substitute in such
regulations such standard of credit-worthiness as each respective
agency shall determine as appropriate for such regulations.'' See 15
U.S.C. 78o-7 note. The August 2012 final rule incorporated non-
credit ratings based standards for measuring specific risk capital
requirements.
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The proposal would have addressed recent changes to the country
risk classifications (CRCs) published by the Organization for Economic
Cooperation and Development (OECD) that would affect the calculation of
specific risk capital requirements for certain covered positions,
clarified the treatment of certain traded securitization positions,
made a technical amendment to the definition of covered position, and
clarified the timing of required market risk disclosures. These
proposed changes would have conformed the Board's current market risk
rule to the material requirements in the Board's new capital framework
and thereby would have allowed the current market risk rule to serve as
a bridge until the new capital framework becomes fully effective for
all banking organizations.\5\ The Board received no comments regarding
the proposal and therefore, for the same reasons as discussed in the
proposal, is finalizing the rule as proposed.
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\5\ 78 FR 62017 (October 11, 2013).
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II. Description of the Final Market Risk Rule
A. Sovereign Debt Positions
Under the current market risk rule, a sovereign entity is defined
as a central government (including the U.S. government) or an agency,
department, ministry, or central bank of a central government. The
specific risk capital requirement for a sovereign debt position that is
not backed by the full faith and credit of the United States is
determined, in part, using CRCs based on the OECD's CRC methodology.
The OECD's CRCs are an assessment of
[[Page 76522]]
country risk, used to set interest rates for transactions covered by
the OECD arrangement on export credits.
The OECD's CRC methodology was established in 1999 and classifies
countries into categories based on the application of two basic
components: (1) The country risk assessment model (CRAM), which is an
econometric model that produces a quantitative assessment of country
credit risk; and (2) the qualitative assessment of the CRAM results,
which integrates political risk and other risk factors not fully
captured by the CRAM. The two components of the CRC methodology are
combined and result in countries being classified into one of eight
risk categories (0-7), with countries assigned to the 0 category having
the lowest possible risk assessment and countries assigned to the 7
category having the highest. The OECD regularly updates CRCs for over
150 countries. Also, CRCs are recognized by the BCBS as an alternative
to credit ratings.
As noted in the preamble to the August 2012 final rule, the
agencies determined that the use of CRCs to measure sovereign risk for
purposes of their respective risk-based capital regulations is
permissible under section 939A of the Dodd-Frank Act, because section
939A was not intended to apply to assessments made by organizations
such as the OECD. Additionally, the agencies noted that the use of the
CRCs was limited in scope.
Following the publication of the August 2012 final rule, the OECD
determined that it will no longer classify certain high-income
countries that previously received a CRC of zero. Under the August 2012
final rule, sovereign debt positions without a CRC generally receive a
specific risk-weighting factor of 8 percent (the equivalent of a 100
percent risk weight). According to the OECD, the CRAM was not used to
categorize high-income OECD and Euro Area countries, and therefore the
OECD determined that applying a CRC to such countries was no longer
appropriate.\6\ The OECD also stated that such countries ``will remain
subject to the same market credit risk pricing disciplines that are
applied to all Category Zero countries,'' and ``[t]his means that the
change has no practical impact on the rules that apply to the provision
of official export credits.'' \7\
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\6\ ``Changes agreed to the Participant Country Risk
Classification System,'' available at: https://www.oecd.org/tad/xcred/cat0.htm.
\7\ Id.
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The Board believes that referencing CRCs in its market risk rule is
appropriate and represents a reasonable alternative to credit ratings
for sovereign exposures. The CRC methodology also is more granular and
risk-sensitive than the previous risk-weighting methodology, which was
based solely on a sovereign entity's OECD membership. Furthermore,
referencing CRCs poses moderate additional burden for banking
organizations, because the OECD regularly updates CRCs and makes the
assessments available on its public Web site. Additionally, the use of
CRCs is consistent with the treatment of sovereign debt positions in
the Basel II Accord.\8\
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\8\ See footnote 4.
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Consistent with the August 2012 final rule, this final rule maps
the risk weights to CRCs in a manner consistent with the Basel II
standardized approach, which provides risk weights for exposures to
foreign sovereigns based on CRCs. This final rule amends the Board's
market risk rule to allow exposures to OECD member countries that are
covered positions and that no longer receive a CRC or continue to
receive a zero percent specific risk-weighting factor (except in cases
of default by the sovereign entity). The revised specific risk-
weighting factors for sovereign debt positions, with the new category
for OECD members with no CRC rating, are set forth in Table 1.
Table 1--Specific Risk-Weighting Factors for Sovereign Debt Positions
------------------------------------------------------------------------
Remaining Risk-weighting
contractual maturity factor (in percent)
------------------------------------------------------------------------
Sovereign CRC:
0-1..................... .................... 0
2-3..................... 6 months or less.... 0.25
Greater than 6 1.0
months and up to
and including 24
months.
Exceeds 24 months... 1.6
4-6..................... .................... 8.0
7....................... .................... 12.0
OECD Member with No CRC..... .................... 0.0
Non-OECD Member with No CRC. .................... 8.0
Sovereign Default........... .................... 12.0
------------------------------------------------------------------------
A banking organization may assign to a sovereign debt position a
specific risk-weighting factor lower than the applicable specific risk-
weighting factor in Table 1 if the position is denominated in the
sovereign entity's currency, the banking organization has at least an
equivalent amount of liabilities in that foreign currency, and the
sovereign entity allows banks under its jurisdiction to assign the
lower specific risk-weighting factor to the same exposures to the
sovereign entity.
The specific risk-weighting factors for debt positions that are
exposures to a public sector entity (PSE), depository institution,
foreign bank, or credit union will continue to be tied to the CRC of
the applicable sovereign entity. Therefore, under this final rule, a
banking organization must assign a specific risk-weighting factor of
0.25, 1.0, or 1.6 percent (depending on the remaining contractual
maturity of the position), to a debt position that is an exposure to a
PSE, depository institution, foreign bank, or credit union, if the
applicable sovereign entity does not have a CRC but is a member of the
OECD, unless the sovereign debt position must otherwise be assigned a
higher specific risk-weighting factor (for example, in the case of
default by the sovereign entity). For each applicable table of specific
risk-weighting factors in the rule, the final rule adds an ``OECD
Member with No CRC'' category and revises the current ``No CRC''
category to read ``Non-OECD Member with No CRC,'' each with appropriate
corresponding specific risk-weighting factors. This additional category
addresses those situations, discussed above, where a sovereign entity
that had received a CRC of zero will no longer
[[Page 76523]]
receive a CRC going forward. This approach to an exposure to a
sovereign entity, PSE, depository institution, foreign bank, or credit
union is consistent with the approach that the Board has adopted in the
new capital framework.
The final rule, as well as the current rule, defines default by a
sovereign entity as noncompliance by the sovereign entity with its
external debt service obligations or the inability or unwillingness of
a sovereign government to service an existing loan according to its
original terms, as evidenced by failure to pay principal and interest
timely and fully, arrearages, or restructuring. A default includes a
voluntary or involuntary restructuring that results in a sovereign not
servicing an existing obligation in accordance with the obligation's
original terms.
B. Securitization Positions--Simplified Supervisory Formula Approach
A banking organization subject to the market risk rule generally
must assign a 100 percent specific risk-weighting factor to its
securitization positions or apply the so-called Simplified Supervisory
Formula Approach (SSFA), which takes into account the nature and
quality of the underlying collateral of the securitization and was
designed to apply relatively higher capital requirements to the more
risky junior tranches of a securitization that are the first to absorb
losses and relatively lower requirements to the most senior positions.
Consistent with the proposal, this final rule clarifies the treatment
of certain securitization positions under the SSFA with regard to
determining the delinquency of the underlying exposures as discussed
below.
Among the inputs to the SSFA is the ``W'' parameter, which
increases the capital requirements for a securitization exposure when
delinquencies in the underlying assets of the securitization grow. The
parameter W equals the ratio of (1) the sum of the dollar amounts of
any underlying exposures of the securitization that meet certain
criteria to (2) the balance, measured in dollars, of underlying
exposures. The criteria are that the underlying exposure is 90 days or
more past due, subject to a bankruptcy or insolvency proceeding, in the
process of foreclosure, held as real estate owned, in default, or has
contractually deferred interest payments for 90 days or more.
Banking organizations subject to the market risk rule previously
indicated that the criteria could be read to include deferrals of
interest that are unrelated to the performance of the loan or the
borrower and may inappropriately include certain federally guaranteed
student loans. The Board did not intend for parameter W to be
interpreted in this manner. The market risk rule was intended to
capture contractual provisions present in certain instruments that
permit borrowers to defer payments due to financial difficulties and,
therefore, may conceal credit quality deterioration in the assets
underlying a securitization exposure. Accordingly, the final rule
clarifies that parameter W excludes loans with contractual provisions
that allow deferral of principal and interest on federally-guaranteed
student loans, in accordance with the terms of those guarantee
programs, or on consumer loans including non-federally-guaranteed
student loans, provided that such payments are deferred pursuant to
provisions included in the contract at the time funds are disbursed
that provide for periods of deferral that are not initiated based on
changes in the creditworthiness of the borrower. This clarification
avoids regulatory disincentives for banking organizations to invest in
securitizations, particularly securitizations of federally-guaranteed
student loans, where the underlying exposures include provisions that
allow for the deferral of certain payments for non-credit related
reasons. This clarification is consistent with the approach the Board
finalized in the new capital framework.
C. Definition of Covered Position
Consistent with the proposal, this final rule adopts a technical
amendment to the definition of ``covered position.'' In the current
market risk rule, the covered position definition excludes equity
positions that are not publicly traded. The Board has refined this
exclusion such that a covered position may include a position in an
investment company, as defined in and registered with the SEC under the
Investment Company Act of 1940 (15 U.S.C. 80a-1 et seq.) (or its non-
U.S. equivalent), provided that all the underlying equities held by the
investment company are publicly traded. The Board believes that a
``look-through'' approach is appropriate in these circumstances because
of the liquidity of the underlying positions, so long as the other
conditions of a covered position are satisfied. This modification to
the definition of ``covered position'' is consistent with the approach
the Board finalized in the new capital framework.
D. Timing of Market Risk Disclosures
Also consistent with the proposal, this final rule adopts
amendments to the market risk rule regarding the timing of market risk
disclosures as proposed. The final rule clarifies when a banking
organization subject to the market risk rule must make its required
market risk disclosures. The amendments align with the Board's new
capital framework and are consistent with the expectation that public
disclosures should be made in a timely manner. The final rule provides
that a banking organization must provide timely quantitative
disclosures after each calendar quarter. In addition, the final rule
clarifies that a banking organization is required to provide timely
qualitative disclosures at least annually, after the end of the fourth
calendar quarter, provided any significant changes must be disclosed in
the interim.
As indicated in the proposal, the timing of disclosures that are
required by the federal banking agencies may not always coincide with
the timing of disclosures required under other federal laws, including
disclosures required under the federal securities laws and their
implementing regulations by the SEC. For calendar quarters that do not
correspond to fiscal year-end, the Board considers those disclosures
that are made within 45 days of the end of the calendar quarter (or
within 60 days for the limited purpose of the banking organization's
first reporting period in which it is subject to the rule) as timely.
In general, where a banking organization's fiscal year-end coincides
with the end of a calendar quarter, the Board considers disclosures to
be timely if they are made no later than the applicable SEC disclosure
deadline for the corresponding Form 10-K annual report. In cases where
an institution's fiscal year-end does not coincide with the end of a
calendar quarter, the Board will consider the timeliness of disclosures
on a case-by-case basis. In some cases, a banking organization's
management may determine that a significant change has occurred, such
that the most recent reported amounts do not reflect the banking
organization's capital adequacy and risk profile. In those cases, a
banking organization must disclose the general nature of these changes
and briefly describe how they are likely to affect public disclosures
going forward.
E. Effective Date of the Final Rule
The final rule will be effective April 1, 2014; however, any bank
holding company or state member bank subject to the market risk rule
may elect to adopt the requirements in the final rule before the
effective date.
[[Page 76524]]
III. Administrative Law Matters
A. Solicitation of Comments and Use of Plain Language
Section 722 of the Gramm-Leach- Bliley Act (Pub. L. 106-102, 113
Stat. 1338, 1471, 12 U.S.C. 4809) requires the Federal banking agencies
to use plain language in all proposed and final rules published after
January 1, 2000. The Board sought to present the proposed rule in a
simple and straightforward manner and solicited comment on how to make
the proposed rule easier to understand. No comments were received on
the use of plain language.
B. Paperwork Reduction Act Analysis
In accordance with the Paperwork Reduction Act of 1995 (PRA) (44
U.S.C. 3506; 5 CFR part 1320, Appendix A.1), the Board reviewed the
final rule under the authority delegated to the Board by Office of
Management and Budget (OMB). No additional collections of information
pursuant to the Paperwork Reduction Act are contained in this final
rule.
C. Regulatory Flexibility Act Analysis
The Regulatory Flexibility Act, 5 U.S.C. 601 et seq. (RFA) requires
an agency to provide a final regulatory flexibility analysis with a
final rule or to certify that the rule will not have a significant
economic impact on a substantial number of small entities (defined for
purposes of the RFA beginning on July 22, 2013, to include banks with
assets less than or equal to $500 million) \9\ and publish its analysis
or a summary, or its certification and a short, explanatory statement,
in the Federal Register along with the final rule.
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\9\ See 13 CFR 121.201. Effective July 22, 2013, the Small
Business Administration revised the size standards for banking
organizations to $500 million in assets from $175 million in assets.
78 FR 37409 (June 20, 2013).
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The Board is providing a final regulatory flexibility analysis with
respect to this final rule. As discussed above, this final is designed
to enhance the safety and soundness of entities with substantial
trading activities that the Board supervises. The Board received no
public comments on the proposed rule from members of the general public
or from the Chief Counsel for Advocacy of the Small Business
Administration. Thus, no issues were raised in public comments relating
to the Board's initial regulatory flexibility act analysis and no
changes are being made in response to such comments.
Under regulations issued by the Small Business Administration, a
small entity includes a depository institution or bank holding company
with total assets of $500 million or less (a small banking
organization). As of September 30, 2013, there were 630 small state
member banks. As of June 30, 2013, there were approximately 3,760 small
bank holding companies. The final rule will apply only to banking
organizations supervised by the Board with aggregate trading assets and
trading liabilities (as reported in the banking organizations' most
recent quarterly regulatory reporting form) equal to 10 percent or more
of quarter-end assets or $1 billion or more. Currently, no small state
member bank or small banking holding company meets these threshold
criteria, so there will be no additional projected compliance
requirements imposed on small banking organizations supervised by the
Board. For bank holding companies and state member banks subject to
this final rule, this final rule is not expected to impose additional
reporting, recordkeeping, or other compliance requirements, other than
minimal one-time systems changes.
The Board believes that the final rule will not have a significant
economic impact on small banking organizations supervised by the Board
and therefore believes that there are no significant alternatives to
the final rule that would reduce the economic impact on small banking
organizations supervised by the Board.
List of Subjects
12 CFR Part 208
Confidential business information, Crime, Currency, Federal Reserve
System, Mortgages, Reporting and recordkeeping requirements,
Securities.
12 CFR Part 225
Administrative practice and procedure, Banks, banking, Federal
Reserve System, Holding companies, Reporting and recordkeeping
requirements, Securities.
Board of Governors of the Federal Reserve System
12 CFR Chapter II
Authority and Issuance
For the reasons set forth in the preamble, parts 208 and 225 of
chapter II of title 12 of the Code of Federal Regulations are amended
as follows:
PART 208--MEMBERSHIP OF STATE BANKING INSTITUTIONS IN THE FEDERAL
RESERVE SYSTEM (REGULATION H)
0
1. The authority citation for part 208 continues to read as follows:
Authority: 12 U.S.C. 24, 36, 92a, 93a, 248(a), 248(c), 321-
338a, 371d, 461, 481-486, 601, 611, 1814, 1816, 1818, 1820(d)(9),
1833(j), 1828(o), 1831, 1831o, 1831p-1, 1831r-1, 1831w, 1831x,
1835a, 1882, 2901-2907, 3105, 3310, 3331-3351, 3905-3909, and 5371;
15 U.S.C. 78b, 78l(b), 78l(i), 780-4(c)(5), 78q, 78q-1, and 78w,
1681s, 1681w, 6801, and 6805; 31 U.S.C. 5318; 42 U.S.C. 4012a,
4104a, 4104b, 4106 and 4128.
0
2. Amend Appendix E, section 2, by revising paragraphs (3)(v) through
(vii) and adding paragraph (3)(viii) in the definition of ``Covered
position'' to read as follows:
Appendix E to Part 208--Risk-Based Capital Guidelines; Market Risk
* * * * *
Section 2. Definitions
* * * * *
Covered position * * *
(3) * * *
(v) Any equity position that is not publicly traded, other than
a derivative that references a publicly traded equity and other than
a position in an investment company as defined in and registered
with the SEC under the Investment Company Act of 1940 (15 U.S.C.
80a-1 et seq.), provided that all the underlying equities held by
the investment company are publicly traded;
(vi) Any equity position that is not publicly traded, other than
a derivative that references a publicly traded equity and other than
a position in an entity not domiciled in the United States (or a
political subdivision thereof) that is supervised and regulated in a
manner similar to entities described in paragraph (3)(v) of this
definition;
(vii) Any position a bank holds with the intent to securitize;
or
(viii) Any direct real estate holding.
* * * * *
0
3. Amend Appendix E, section 10, by:
0
a. Revising paragraph (b)(2)(i)(A), Table 2, and paragraphs
(b)(2)(i)(B), (C), and (D), and adding paragraph (b)(2)(i)(E);
0
b. Revising paragraph (b)(2)(iv)(A) and Table 3;
0
c. Revising paragraph (b)(2)(v), Table 4 and Table 5 to read as
follows:
Section 10. Standardized Measurement Method for Specific Risk
* * * * *
(b) Debt and securitization positions.* * *
(2) * * *
(i) Sovereign Debt Positions. (A) In accordance with table 2, a
bank must assign a specific risk-weighting factor to a sovereign
debt position based on the CRC applicable to the sovereign entity
and, as applicable, the remaining contractual maturity of the
position, or, if there is no CRC applicable to the sovereign entity,
based on whether the sovereign entity is a member of the OECD.
Notwithstanding any other provision in this Appendix E, sovereign
debt positions that are backed by the full faith and credit of the
United States are treated as having a CRC of 0.
[[Page 76525]]
Table 2--Specific Risk-Weighting Factors for Sovereign Debt Positions
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
Specific risk-weighting factor
(in percent)
----------------------------------------------------------------------------------------------------------------
0-1 0.0
----------------------------------------------------------------
Remaining contractual maturity of 0.25
6 months or less.
--------------------------------------------------
CRC............................................ 2-3 Remaining contractual maturity of 1.0
greater than 6 and up to and
including 24 months.
--------------------------------------------------
Remaining contractual maturity 1.6
exceeds 24 months.
----------------------------------------------------------------
4-6 8.0
----------------------------------------------------------------
7 12.0
----------------------------------------------------------------------------------------------------------------
OECD Member with No CRC........................ 0.0
----------------------------------------------------------------------------------------------------------------
Non-OECD Member with No CRC.................... 8.0
----------------------------------------------------------------------------------------------------------------
Default by the Sovereign Entity................ 12.0
----------------------------------------------------------------------------------------------------------------
(B) Notwithstanding paragraph (b)(2)(i)(A) of this section, a
bank may assign to a sovereign debt position a specific risk-
weighting factor that is lower than the applicable specific risk-
weighting factor in table 2 if:
(1) The position is denominated in the sovereign entity's
currency;
(2) The bank has at least an equivalent amount of liabilities in
that currency; and
(3) The sovereign entity allows banks under its jurisdiction to
assign the lower specific risk-weighting factor to the same
exposures to the sovereign entity.
(C) A bank must assign a 12.0 percent specific risk-weighting
factor to a sovereign debt position immediately upon determination a
default has occurred; or if a default has occurred within the
previous five years.
(D) A bank must assign a 0.0 percent specific risk-weighting
factor to a sovereign debt position if the sovereign entity is a
member of the OECD and does not have a CRC assigned to it, except as
provided in paragraph (b)(2)(i)(C) of this section.
(E) A bank must assign an 8.0 percent specific risk-weighting
factor to a sovereign debt position if the sovereign entity is not a
member of the OECD and does not have a CRC assigned to it, except as
provided in paragraph (b)(2)(i)(C) of this section.
* * * * *
(iv) Depository institution, foreign bank, and credit union debt
positions. (A) Except as provided in paragraph (b)(2)(iv)(B) of this
section, a bank must assign a specific risk-weighting factor to a
debt position that is an exposure to a depository institution, a
foreign bank, or a credit union in accordance with table 3, based on
the CRC that corresponds to that entity's sovereign of incorporation
or the OECD membership status of that entity's sovereign of
incorporation if there is no CRC applicable to the entity's
sovereign of incorporation, and, as applicable, the remaining
contractual maturity of the position.
Table 3--Specific Risk-Weighting Factors for Depository Institution,
Foreign Bank, and Credit Union Debt Positions
------------------------------------------------------------------------
------------------------------------------------------------------------
Specific risk-weighting factor
(in percent)
------------------------------------------------------------------------
Remaining 0.25
contractual
maturity of 6
months or less.
-------------------------------------
CRC 0-2 or OECD Member with No CRC Remaining 1.0
contractual
maturity of greater
than 6 and up to
and including 24
months.
-------------------------------------
Remaining 1.6
contractual
maturity exceeds 24
months.
------------------------------------------------------------------------
CRC 3............................. 8.0
------------------------------------------------------------------------
CRC 4-7........................... 12.0
------------------------------------------------------------------------
Non-OECD Member with No CRC....... 8.0
------------------------------------------------------------------------
Default by the Sovereign Entity... 12.0
------------------------------------------------------------------------
* * * * *
(v) PSE debt positions. (A) Except as provided in paragraph
(b)(2)(v)(B) of this section, a bank must assign a specific risk-
weighting factor to a debt position that is an exposure to a PSE in
accordance with table 4 and table 5 depending on the position's
categorization as a general obligation or revenue obligation, based
on the CRC that corresponds to the PSE's sovereign of incorporation
or the OECD membership status of the PSE's sovereign of
incorporation if there is no CRC applicable to the PSE's sovereign
of incorporation, and, as applicable, the remaining contractual
maturity of the position.
(B) A bank may assign a lower specific risk-weighting factor
than would otherwise apply under tables 4 and 5 to a debt position
that is an exposure to a foreign PSE if:
(1) The PSE's sovereign of incorporation allows banks under its
jurisdiction to assign a lower specific risk-weighting factor to
such position; and
(2) The specific risk-weighting factor is not lower than the
risk weight that corresponds to the PSE's sovereign of incorporation
in accordance with tables 4 and 5.
(C) A bank must assign a 12.0 percent specific risk-weighting
factor to a PSE debt
[[Page 76526]]
position immediately upon determination that a default by the PSE's
sovereign of incorporation has occurred or if a default by the PSE's
sovereign of incorporation has occurred within the previous five
years.
Table 4--Specific Risk-Weighting Factors for PSE General Obligation Debt
Positions
------------------------------------------------------------------------
------------------------------------------------------------------------
General obligation specific risk-
weighting factor
(in percent)
------------------------------------------------------------------------
CRC 0-2 or OECD Member with No CRC Remaining 0.25
contractual
maturity of 6
months or less.
-------------------------------------
Remaining 1.0
contractual
maturity of greater
than 6 and up to
and including 24
months.
-------------------------------------
Remaining 1.6
contractual
maturity exceeds 24
months.
------------------------------------------------------------------------
CRC 3............................. 8.0
------------------------------------------------------------------------
CRC 4-7........................... 12.0
------------------------------------------------------------------------
Non-OECD Member with No CRC....... 8.0
------------------------------------------------------------------------
Default by the Sovereign Entity... 12.0
------------------------------------------------------------------------
Table 5--Specific Risk-Weighting Factors for PSE Revenue Obligation Debt
Positions
------------------------------------------------------------------------
------------------------------------------------------------------------
Revenue obligation specific risk-
weighting factor
(in percent)
------------------------------------------------------------------------
Remaining 0.25
contractual
maturity of 6
months or less.
-------------------------------------
CRC 0-1 or OECD Member with No CRC Remaining 1.0
contractual
maturity of greater
than 6 and up to
and including 24
months.
-------------------------------------
Remaining 1.6
contractual
maturity exceeds 24
months.
------------------------------------------------------------------------
CRC 2-3........................... 8.0
------------------------------------------------------------------------
CRC 4-7........................... 12.0
------------------------------------------------------------------------
Non-OECD Member with No CRC....... 8.0
------------------------------------------------------------------------
Default by the Sovereign Entity... 12.0
------------------------------------------------------------------------
* * * * *
0
4. Amend Appendix E, section 11, by revising paragraph (b)(2) to read
as follows:
Section 11. Simplified Supervisory Formula Approach
* * * * *
(b) SSFA parameters. * * *
(2) Parameter W is expressed as a decimal value between zero and
one. Parameter W is the ratio of the sum of the dollar amounts of
any underlying exposures of the securitization that meet any of the
criteria as set forth in paragraphs (i) through (vi) of this
paragraph (b)(2) to the balance, measured in dollars, of underlying
exposures:
(i) Ninety days or more past due;
(ii) Subject to a bankruptcy or insolvency proceeding;
(iii) In the process of foreclosure;
(iv) Held as real estate owned;
(v) Has contractually deferred payments for 90 days or more,
other than principal or interest payments deferred on:
(A) Federally-guaranteed student loans, in accordance with the
terms of those guarantee programs; or
(B) Consumer loans, including non-federally-guaranteed student
loans, provided that such payments are deferred pursuant to
provisions included in the contract at the time funds are disbursed
that provide for period(s) of deferral that are not initiated based
on changes in the creditworthiness of the borrower; or
(vi) Is in default.
* * * * *
0
5. Amend Appendix E, section 12, by:
0
a. Revising paragraph (a);
0
b. Revising paragraph (c)(1) introductory text; and
0
c. Revising paragraph (d) introductory text to read as follows:
Section 12. Market Risk Disclosures
(a) Scope. A bank must comply with this section unless it is a
consolidated subsidiary of a bank holding company or a depository
institution that is subject to these requirements or of a non-U.S.
banking organization that is subject to comparable public disclosure
requirements in its home jurisdiction. A bank must make timely
disclosures publicly each calendar quarter. If a significant change
occurs, such that the most recent reporting amounts are no longer
reflective of the bank's capital adequacy and risk profile, then a
brief discussion of this change and its likely impact must be
provided as soon as practicable thereafter. Qualitative disclosures
that typically do not change each quarter may be disclosed annually,
provided any significant changes are disclosed in the interim. If a
bank believes that disclosure of specific commercial or financial
information would prejudice seriously its position by making public
certain information that is either proprietary or confidential in
nature, the bank is not required to disclose these specific items,
but must disclose more general information about the subject matter
of the requirement, together with the fact that, and the reason why,
the specific items of information have not been disclosed. The
bank's management may provide all of the disclosures required by
this section in one place on the bank's public Web site or may
provide the disclosures in more than one public financial report or
other regulatory reports, provided that the bank publicly provides a
summary table specifically indicating the location(s) of all such
disclosures.
* * * * *
[[Page 76527]]
(c) * * * (1) For each material portfolio of covered positions,
the bank must provide timely public disclosures of the following
information at least quarterly:
* * * * *
(d) * * * For each material portfolio of covered positions, the
bank must provide timely public disclosures of the following
information at least annually after the end of the fourth calendar
quarter, or more frequently in the event of material changes for
each portfolio:
* * * * *
PART 225--BANK HOLDING COMPANIES AND CHANGE IN BANK CONTROL
(REGULATION Y)
0
6. The authority citation for part 225 is revised to read as follows:
Authority: 12 U.S.C. 1817(j)(13), 1818, 1828(o), 1831i, 1831p-
1, 1843(c)(8), 1844(b), 1972(1), 3106, 3108, 3310, 3331-3351, 3907,
and 3909; 15 U.S.C. 1681s, 1681w, 6801 and 6805.
0
7. Amend Appendix E, section 2, by revising paragraphs (3)(v) through
(vii) and adding paragraph (3)(viii) in the definition of ``Covered
position'' to read as follows:
Appendix E to Part 225--Capital Adequacy Guidelines for Bank Holding
Companies: Market Risk
Section 2. Definitions
* * * * *
Covered position * * *
(3) * * *
(v) Any equity position that is not publicly traded, other than
a derivative that references a publicly traded equity and other than
a position in an investment company as defined in and registered
with the SEC under the Investment Company Act of 1940 (15 U.S.C.
80a-1 et seq.), provided that all the underlying equities held by
the investment company are publicly traded;
(vi) Any equity position that is not publicly traded, other than
a derivative that references a publicly traded equity and other than
a position in an entity not domiciled in the United States (or a
political subdivision thereof) that is supervised and regulated in a
manner similar to entities described in paragraph (3)(v) of this
definition;
(vii) Any position a bank holds with the intent to securitize;
or
(viii) Any direct real estate holding.
* * * * *
0
8. Amend Appendix E, section 10, by:
0
a. Revising paragraph (b)(2)(i)(A), Table 2, and paragraphs
(b)(2)(i)(B), (C), and (D), and adding paragraph (b)(2)(i)(E);
0
b. Revising paragraph (b)(2)(iv)(A) and Table 3;
0
c. Revising paragraph (b)(2)(v), Table 4 and Table 5 to read as
follows:
Section 10. Standardized Measurement Method for Specific Risk
* * * * *
(b) Debt and securitization positions.* * *
(2) * * *
(i) Sovereign Debt Positions. (A) In accordance with table 2, a
bank must assign a specific risk-weighting factor to a sovereign
debt position based on the CRC applicable to the sovereign entity
and, as applicable, the remaining contractual maturity of the
position, or, if there is no CRC applicable to the sovereign entity,
based on whether the sovereign entity is a member of the OECD.
Notwithstanding any other provision in this Appendix E, sovereign
debt positions that are backed by the full faith and credit of the
United States are treated as having a CRC of 0.
Table 2--Specific Risk-Weighting Factors for Sovereign Debt Positions
------------------------------------------------------------------------
------------------------------------------------------------------------
Specific risk-weighting factor
(in percent)
------------------------------------------------------------------------
CRC:
0-1...................... 0.0
------------------------------------------
2-3...................... Remaining contractual 0.25
maturity of 6 months
or less.
Remaining contractual 1.0
maturity of greater
than 6 and up to and
including 24 months.
Remaining contractual 1.6
maturity exceeds 24
months.
------------------------------------------
4-6...................... 8.0
------------------------------------------
7........................ 12.0
------------------------------------------
OECD Member with No CRC...... 0.0
------------------------------------------
Non-OECD Member with No CRC.. 8.0
------------------------------------------
Default by the Sovereign 12.0
Entity.
------------------------------------------------------------------------
(B) Notwithstanding paragraph (b)(2)(i)(A) of this section, a
bank may assign to a sovereign debt position a specific risk-
weighting factor that is lower than the applicable specific risk-
weighting factor in table 2 if:
(1) The position is denominated in the sovereign entity's
currency;
(2) The bank has at least an equivalent amount of liabilities in
that currency; and
(3) The sovereign entity allows banks under its jurisdiction to
assign the lower specific risk-weighting factor to the same
exposures to the sovereign entity.
(C) A bank must assign a 12.0 percent specific risk-weighting
factor to a sovereign debt position immediately upon determination a
default has occurred; or if a default has occurred within the
previous five years.
(D) A bank must assign a 0.0 percent specific risk-weighting
factor to a sovereign debt position if the sovereign entity is a
member of the OECD and does not have a CRC assigned to it, except as
provided in paragraph (b)(2)(i)(C) of this section.
(E) A bank must assign an 8.0 percent specific risk-weighting
factor to a sovereign debt position if the sovereign entity is not a
member of the OECD and does not have a CRC assigned to it, except as
provided in paragraph (b)(2)(i)(C) of this section.
* * * * *
(iv) Depository institution, foreign bank, and credit union debt
positions. (A) Except as provided in paragraph (b)(2)(iv)(B) of this
section, a bank must assign a specific risk-weighting factor to a
debt position that is an exposure to a depository institution, a
foreign bank, or a credit union in accordance with table 3, based on
the CRC that corresponds to that entity's sovereign of incorporation
or the OECD membership status of that entity's sovereign of
incorporation if there is no CRC applicable to the entity's
sovereign of incorporation, and, as applicable, the remaining
contractual maturity of the position.
[[Page 76528]]
Table 3--Specific Risk-Weighting Factors for Depository Institution,
Foreign Bank, and Credit Union Debt Positions
------------------------------------------------------------------------
------------------------------------------------------------------------
Specific risk-weighting factor
(in percent)
------------------------------------------------------------------------
CRC 0-2 or OECD Member with Remaining contractual 0.25
No CRC. maturity of 6 months
or less.
Remaining contractual 1.0
maturity of greater
than 6 and up to and
including 24 months.
Remaining contractual 1.6
maturity exceeds 24
months.
------------------------------------------
CRC 3........................ 8.0
------------------------------------------
CRC 4-7...................... 12.0
------------------------------------------
Non-OECD Member with No CRC.. 8.0
------------------------------------------
Default by the Sovereign 12.0
Entity.
------------------------------------------------------------------------
* * * * *
(v) PSE debt positions. (A) Except as provided in paragraph
(b)(2)(v)(B) of this section, a bank must assign a specific risk-
weighting factor to a debt position that is an exposure to a PSE in
accordance with table 4 and table 5 depending on the position's
categorization as a general obligation or revenue obligation, based
on the CRC that corresponds to the PSE's sovereign of incorporation
or the OECD membership status of the PSE's sovereign of
incorporation if there is no CRC applicable to the PSE's sovereign
of incorporation, and, as applicable, the remaining contractual
maturity of the position.
(B) A bank may assign a lower specific risk-weighting factor
than would otherwise apply under tables 4 and 5 to a debt position
that is an exposure to a foreign PSE if:
(1) The PSE's sovereign of incorporation allows banks under its
jurisdiction to assign a lower specific risk-weighting factor to
such position; and
(2) The specific risk-weighting factor is not lower than the
risk weight that corresponds to the PSE's sovereign of incorporation
in accordance with tables 4 and 5.
(C) A bank must assign a 12.0 percent specific risk-weighting
factor to a PSE debt position immediately upon determination that a
default by the PSE's sovereign of incorporation has occurred or if a
default by the PSE's sovereign of incorporation has occurred within
the previous five years.
Table 4--Specific Risk-Weighting Factors for PSE General Obligation Debt
Positions
------------------------------------------------------------------------
------------------------------------------------------------------------
General obligation specific risk-
weighting factor
(in percent)
------------------------------------------------------------------------
CRC 0-2 or OECD Member with No Remaining 0.25
CRC. contractual
maturity of 6
months or less.
Remaining 1.0
contractual
maturity of
greater than 6
and up to and
including 24
months.
Remaining 1.6
contractual
maturity exceeds
24 months.
------------------------------------------------------------------------
CRC 3........................... 8.0
---------------------------------------
CRC 4-7......................... 12.0
---------------------------------------
Non-OECD Member with No CRC..... 8.0
---------------------------------------
Default by the Sovereign Entity. 12.0
------------------------------------------------------------------------
Table 5--Specific Risk-Weighting Factors for PSE Revenue Obligation Debt
Positions
------------------------------------------------------------------------
------------------------------------------------------------------------
Revenue obligation specific risk-
weighting factor
(in percent)
------------------------------------------------------------------------
CRC 0-1 or OECD Member with No CRC Remaining 0.25
contractual
maturity of 6
months or less.
Remaining 1.0
contractual
maturity of greater
than 6 and up to
and including 24
months.
Remaining 1.6
contractual
maturity exceeds 24
months.
-------------------------------------
CRC 2-3........................... 8.0
-------------------------------------
CRC 4-7........................... 12.0
-------------------------------------
Non-OECD Member with No CRC....... 8.0
-------------------------------------
Default by the Sovereign Entity... 12.0
------------------------------------------------------------------------
* * * * *
0
9. Amend Appendix E, section 11, by revising paragraph (b)(2) to read
as follows:
Section 11. Simplified Supervisory Formula Approach
* * * * *
[[Page 76529]]
(b) SSFA parameters. * * *
(2) Parameter W is expressed as a decimal value between zero and
one. Parameter W is the ratio of the sum of the dollar amounts of
any underlying exposures of the securitization that meet any of the
criteria as set forth in paragraphs (i) through (vi) of this
paragraph (b)(2) to the balance, measured in dollars, of underlying
exposures:
(i) Ninety days or more past due;
(ii) Subject to a bankruptcy or insolvency proceeding;
(iii) In the process of foreclosure;
(iv) Held as real estate owned;
(v) Has contractually deferred payments for 90 days or more,
other than principal or interest payments deferred on:
(A) Federally-guaranteed student loans, in accordance with the
terms of those guarantee programs; or
(B) Consumer loans, including non-federally-guaranteed student
loans, provided that such payments are deferred pursuant to
provisions included in the contract at the time funds are disbursed
that provide for period(s) of deferral that are not initiated based
on changes in the creditworthiness of the borrower; or
(vi) Is in default.
* * * * *
0
10. Amend Appendix E, section 12, by:
0
a. Revising paragraph (a);
0
b. Revising paragraph (c)(1) introductory text and;
0
c. Revising paragraph (d) introductory text to read as follows:
Section 12. Market Risk Disclosures
(a) Scope. A bank must comply with this section unless it is a
consolidated subsidiary of a bank holding company or a depository
institution that is subject to these requirements or of a non-U.S.
banking organization that is subject to comparable public disclosure
requirements in its home jurisdiction. A bank must make timely
public disclosures each calendar quarter. If a significant change
occurs, such that the most recent reporting amounts are no longer
reflective of the bank's capital adequacy and risk profile, then a
brief discussion of this change and its likely impact must be
provided as soon as practicable thereafter. Qualitative disclosures
that typically do not change each quarter may be disclosed annually,
provided any significant changes are disclosed in the interim. If a
bank believes that disclosure of specific commercial or financial
information would prejudice seriously its position by making public
certain information that is either proprietary or confidential in
nature, the bank is not required to disclose these specific items,
but must disclose more general information about the subject matter
of the requirement, together with the fact that, and the reason why,
the specific items of information have not been disclosed. The
bank's management may provide all of the disclosures required by
this section in one place on the bank's public Web site or may
provide the disclosures in more than one public financial report or
other regulatory reports, provided that the bank publicly provides a
summary table specifically indicating the location(s) of all such
disclosures.
* * * * *
(c) * * * (1) For each material portfolio of covered positions,
the bank must provide timely public disclosures of the following
information at least quarterly:
* * * * *
(d) * * * For each material portfolio of covered positions, the
bank must provide timely public disclosures of the following
information at least annually after the end of the fourth calendar
quarter, or more frequently in the event of material changes for
each portfolio:
* * * * *
By order of the Board of Governors of the Federal Reserve
System, December 11, 2013.
Robert deV. Frierson,
Secretary of the Board.
[FR Doc. 2013-29785 Filed 12-17-13; 8:45 am]
BILLING CODE 6210-01-P
