Regulatory Capital Rules: Regulatory Capital, Proposed Revisions Applicable to Banking Organizations Subject to the Advanced Approaches Risk-Based Capital Rule, 75455-75473 [2014-28690]
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75455
Proposed Rules
Federal Register
Vol. 79, No. 243
Thursday, December 18, 2014
This section of the FEDERAL REGISTER
contains notices to the public of the proposed
issuance of rules and regulations. The
purpose of these notices is to give interested
persons an opportunity to participate in the
rule making prior to the adoption of the final
rules.
FEDERAL ELECTION COMMISSION
11 CFR Part 100
[NOTICE 2014–14]
Federal Office; Notice of Disposition of
Petition for Rulemaking
Federal Election Commission.
ACTION: Notice of disposition of petition
for rulemaking.
AGENCY:
The Commission announces
its disposition of a Petition for
Rulemaking (‘‘Petition’’) filed on August
28, 2014, by National Convention PBC.
The Petition asks the Commission to
amend 11 CFR 100.4 to revise the
definition of ‘‘federal office’’ to include
delegates to a constitutional convention.
The Commission has decided not to
initiate a rulemaking at this time. The
Petition and other documents relating to
this matter are available on the
Commission’s Web site, https://
www.fec.gov/fosers/, and in the
Commission’s Public Records Office.
DATES: December 18, 2014.
FOR FURTHER INFORMATION CONTACT: Ms.
Emma K. Lewis, Office of General
Counsel, 999 E Street NW., Washington,
DC 20463, (202) 694–1650 or (800) 424–
9530.
SUPPLEMENTARY INFORMATION: On August
28, 2014, the Commission received a
Petition for Rulemaking from National
Convention PBC regarding the
Commission’s regulation defining
‘‘federal office,’’ 11 CFR 100.4. The
regulation provides that ‘‘Federal office
means the office of President or Vice
President of the United States, Senator
or Representative in, or Delegate or
Resident Commissioner to, the Congress
of the United States.’’ The Petition asks
the Commission to amend 11 CFR 100.4
to add ‘‘a Delegate to a constitutional
convention for proposing amendments
to the Constitution of the United
States.’’
The Commission published a Notice
of Availability seeking comment on the
Petition on October 2, 2014. 79 FR
59459. The Commission received five
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comments in response to the NOA. Two
comments, filed on behalf of a total of
four organizations, opposed the Petition,
primarily on the grounds that the
regulatory change it seeks would be
inconsistent with the applicable
statutory definition of ‘‘federal office.’’
Three comments from individuals
supported the Petition on the grounds
that delegates to a constitutional
convention should be bound by the
campaign finance rules that apply to
federal candidates (although one of
these comments also objected to certain
aspects of National Convention PBC’s
proposal).
The Commission agrees with the
commenters who opposed the Petition.
The definition of ‘‘federal office’’ is
specifically set by statute: ‘‘The term
‘Federal office’ means the office of the
President or Vice President, or of
Senator or Representative in, or Delegate
or Resident Commissioner to, the
Congress.’’ 52 U.S.C. 30101(3) (formerly
2 U.S.C. 431(3)). The Commission’s
regulatory definition of ‘‘federal office’’
uses materially indistinguishable
language, defining a federal office as
‘‘the office of President or Vice
President of the United States, Senator
or Representative in, or Delegate or
Resident Commissioner to, the Congress
of the United States.’’ 11 CFR 100.4. The
Petition and the commenters who
supported it provide certain policy
arguments in favor of including
delegates to a constitutional convention
within the scope of the regulation, but
the statutory definition of ‘‘federal
office’’ unambiguously omits such
delegates. In situations such as this
where the statute contains no relevant
ambiguity, the Commission ‘‘must give
effect to the unambiguously expressed
intent of Congress.’’ Chevron U.S.A.,
Inc. v. Natural Res. Def. Council, Inc.,
467 U.S. 837, 842–43 (1984).
The Commission therefore declines to
commence a rulemaking to add
delegates to a constitutional convention
to the definition of ‘‘federal office’’ in 11
CFR 100.4.
On behalf of the Commission,
Dated: December 11, 2014.
Lee E. Goodman,
Chairman, Federal Election Commission.
[FR Doc. 2014–29601 Filed 12–17–14; 8:45 am]
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DEPARTMENT OF TREASURY
Office of the Comptroller of the
Currency
12 CFR Part 3
[Docket ID OCC–2014–0025]
RIN 1557–AD88
FEDERAL RESERVE SYSTEM
12 CFR Part 217
[Regulation Q; Docket No. R–1502]
RIN 7100–AE 24
FEDERAL DEPOSIT INSURANCE
CORPORATION
12 CFR Part 324
RIN 3064–AE 12
Regulatory Capital Rules: Regulatory
Capital, Proposed Revisions
Applicable to Banking Organizations
Subject to the Advanced Approaches
Risk-Based Capital Rule
Office of the Comptroller of
the Currency, Treasury; the Board of
Governors of the Federal Reserve
System; and the Federal Deposit
Insurance Corporation
ACTION: Joint notice of proposed
rulemaking (NPR).
AGENCIES:
The Office of the Comptroller
of the Currency (OCC), the Board of
Governors of the Federal Reserve
System (Board), and the Federal Deposit
Insurance Corporation (FDIC)
(collectively, the agencies) are seeking
comment on an NPR that would clarify,
correct, and update aspects of the
agencies’ regulatory capital rule
applicable to banking organizations that
are subject to the advanced approaches
risk-based capital rule (advanced
approaches banking organizations). The
proposed revisions are largely driven by
observations made by the agencies
during the parallel-run review process
of advanced approaches banking
organizations. They are also intended to
enhance consistency of the U.S.
regulations with international standards
for use of the advanced approaches rule.
DATES: Comments must be received no
later than February 17, 2015.
ADDRESSES: Comments should be
directed to:
SUMMARY:
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OCC: Because paper mail in the
Washington, DC area and at the OCC is
subject to delay, commenters are
encouraged to submit comments by the
Federal eRulemaking Portal or email, if
possible. Please use the title ‘‘Regulatory
Capital Rules: Regulatory Capital,
Proposed Revisions Applicable to
Banking Organizations Subject to the
Advanced Approaches Risk-Based
Capital Rule’’ to facilitate the
organization and distribution of the
comments. You may submit comments
by any of the following methods:
• Federal eRulemaking ortal—
‘‘regulations.gov’’: Go to https://
www.regulations.gov. Enter ‘‘Docket ID
OCC–2014–0025’’ in the Search Box and
click ‘‘Search’’. Results can be filtered
using the filtering tools on the left side
of the screen. Click on ‘‘Comment Now’’
to submit public comments.
• Click on the ‘‘Help’’ tab on the
Regulations.gov home page to get
information on using Regulations.gov,
including instructions for submitting
public comments.
• Email: regs.comments@
occ.treas.gov.
• Mail: Legislative and Regulatory
Activities Division, Office of the
Comptroller of the Currency, 400 7th
Street SW., Suite 3E–218, Mail Stop
9W–11, Washington, DC 20219.
• Hand Delivery/Courier: 400 7th
Street SW., Suite 3E–218, Mail Stop
9W–11, Washington, DC 20219.
• Fax: (571) 465–4326.
Instructions: You must include
‘‘OCC’’ as the agency name and ‘‘Docket
ID OCC–2014–0025’’ in your comment.
In general, OCC will enter all comments
received into the docket and publish
them on the Regulations.gov Web site
without change, including any business
or personal information that you
provide such as name and address
information, email addresses, or phone
numbers. Comments received, including
attachments and other supporting
materials, are part of the public record
and subject to public disclosure. Do not
enclose any information in your
comment or supporting materials that
you consider confidential or
inappropriate for public disclosure.
You may review comments and other
related materials that pertain to this
rulemaking action by any of the
following methods:
• Viewing Comments Electronically:
Go to https://www.regulations.gov. Enter
‘‘Docket ID OCC–2014–0025’’ in the
Search box and click ‘‘Search’’.
Comments can be filtered by Agency
using the filtering tools on the left side
of the screen.
• Click on the ‘‘Help’’ tab on the
Regulations.gov home page to get
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information on using Regulations.gov,
including instructions for viewing
public comments, viewing other
supporting and related materials, and
viewing the docket after the close of the
comment period.
• Viewing Comments Personally: You
may personally inspect and photocopy
comments at the OCC, 400 7th Street
SW., Washington, DC. For security
reasons, the OCC requires that visitors
make an appointment to inspect
comments. You may do so by calling
(202) 649–6700. Upon arrival, visitors
will be required to present valid
government-issued photo identification
and to submit to security screening in
order to inspect and photocopy
comments.
• Docket: You may also view or
request available background
documents and project summaries using
the methods described above.
Board: When submitting comments,
please consider submitting your
comments by email or fax because paper
mail in the Washington, DC area and at
the Board may be subject to delay. You
may submit comments, identified by
Docket No. R–1502 and RIN 7100–AE
24, by any of the following methods:
• Agency Web site: https://
www.federalreserve.gov. Follow the
instructions for submitting comments at
https://www.federalreserve.gov/apps/
foia/ProposedRegs.aspx.
• Federal eRulemaking Portal: https://
www.regulations.gov. Follow the
instructions for submitting comments.
• Email: regs.comments@
federalreserve.gov. Include docket
number in the subject line of the
message.
• Fax: (202) 452–3819 or (202) 452–
3102.
• Mail: Robert de V. Frierson,
Secretary, Board of Governors of the
Federal Reserve System, 20th Street and
Constitution Avenue NW., Washington,
DC 20551.
All public comments are available
from the Board’s Web site at https://
www.federalreserve.gov/apps/foia/
ProposedRegs.aspx as submitted, unless
modified for technical reasons.
Accordingly, your comments will not be
edited to remove any identifying or
contact information. Public comments
may also be viewed electronically or in
paper form in Room MP–500 of the
Board’s Martin Building (20th and C
Streets NW., Washington, DC 20551)
between 9:00 a.m. and 5:00 p.m. on
weekdays.
FDIC: You may submit comments,
identified by RIN 3064–AE 12, by any
of the following methods:
Agency Web site: https://www.fdic.gov/
regulations/laws/federal/propose.html.
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Follow instructions for submitting
comments on the Agency Web site.
• Email: Comments@fdic.gov. Include
the RIN 3064–AE 12 on the subject line
of the message.
• Mail: Robert E. Feldman, Executive
Secretary, Attention: Comments, Federal
Deposit Insurance Corporation, 550 17th
Street NW., Washington, DC 20429.
• Hand Delivery: Comments may be
hand delivered to the guard station at
the rear of the 550 17th Street Building
(located on F Street) on business days
between 7:00 a.m. and 5:00 p.m.
Public Inspection: All comments
received must include the agency name
and RIN 3064–AE01 for this rulemaking.
All comments received will be posted
without change to https://www.fdic.gov/
regulations/laws/federal/propose.html,
including any personal information
provided. Paper copies of public
comments may be ordered from the
FDIC Public Information Center, 3501
North Fairfax Drive, Room E–1002,
Arlington, VA 22226 by telephone at
(877) 275–3342 or (703) 562–2200.
FOR FURTHER INFORMATION CONTACT:
OCC: Margot Schwadron, Senior Risk
Expert (202) 649–6982; or Mark
Ginsberg, Principal Risk Expert (202)
649–6983, Capital Policy; or Carl
Kaminski, Counsel; or Kevin
Korzeniewski, Attorney, Legislative and
Regulatory Activities Division, (202)
649–5490, for persons who are deaf or
hard of hearing, TTY, (202) 649–5597,
Office of the Comptroller of the
Currency, 400 7th Street SW.,
Washington, DC 20219.
Board: Constance M. Horsley,
Assistant Director, (202) 452–5239;
Thomas Boemio, Manager, (202) 452–
2982; Andrew Willis, Supervisory
Financial Analyst, (202) 912–4323,
Matthew McQueeney, Senior Financial
Analyst, (202) 425–2942, or Justyna
Milewski, Financial Analyst, (202) 452–
3607, Capital and Regulatory Policy,
Division of Banking Supervision and
Regulation; or Christine Graham,
Counsel (202) 452–3005; or David W.
Alexander, Counsel (202) 452–2877,
Legal Division, Board of Governors of
the Federal Reserve System, 20th and C
Streets NW., Washington, DC 20551. For
the hearing impaired only,
Telecommunication Device for the Deaf
(TDD), (202) 263–4869.
FDIC: Bobby R. Bean, Associate
Director, bbean@fdic.gov; Ryan
Billingsley, Chief, Capital Policy
Section, rbillingsley@fdic.gov; or
Benedetto Bosco, Capital Markets Policy
Analyst, bbosco@fdic.gov; Capital
Markets Branch, Division of Risk
Management Supervision, (202) 898–
6888; or Michael Phillips, Counsel,
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mphillips@fdic.gov; Rachel Ackmann,
Senior Attorney, rackmann@fdic.gov;
Grace Pyun, Senior Attorney, gpyun@
fdic.gov; Supervision Branch, Legal
Division, Federal Deposit Insurance
Corporation, 550 17th Street NW.,
Washington, DC 20429.
SUPPLEMENTARY INFORMATION:
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I. Background
In 2013, the Office of the Comptroller
of the Currency (OCC), the Board of
Governors of the Federal Reserve
System (Board), and the Federal Deposit
Insurance Corporation (FDIC)
(collectively, the agencies)
comprehensively revised and
strengthened the capital requirements
applicable to banking organizations 1
(regulatory capital framework).2 Among
other changes, the regulatory capital
framework revised elements of the
advanced approaches risk-based capital
requirements (advanced approaches
rule) now located at subpart E of the
agencies’ revised regulatory capital
framework.3
The advanced approaches rule applies
to large, internationally active banking
organizations, generally those with $250
billion or more in total consolidated
assets or $10 billion or more in total onbalance sheet foreign exposure,
depository institution subsidiaries of
those banking organizations that use the
advanced approaches rule, and banking
organizations that elect to use the
advanced approaches (advanced
approaches banking organizations).4
Before an advanced approaches banking
organization may use the advanced
approaches rule to determine its riskbased capital requirements, it must
conduct a satisfactory trial, or parallel
run.5 During the parallel run period,
which must be at least four consecutive
calendar quarters, an advanced
approaches banking organization must
1 The term banking organizations includes
national banks, state member banks, state
nonmember banks, savings associations, and toptier bank holding companies domiciled in the
United States not subject to the Board’s Small Bank
Holding Company Policy Statement (12 CFR part
225, appendix C), as well as top-tier savings and
loan holding companies domiciled in the United
States, except for certain savings and loan holding
companies that are substantially engaged in
insurance underwriting or commercial activities.
2 The Board and the OCC issued a joint final rule
on October 11, 2013 (78 FR 62018) and the FDIC
issued a substantially identical interim final rule on
September 10, 2013 (78 FR 55340). In April 2014,
the FDIC adopted the interim final rule as a final
rule with no substantive changes. 79 FR 20754
(April 14, 2014).
3 12 CFR part 3 (OCC), 12 CFR part 217 (Board),
and 12 CFR part 324 (FDIC).
4 12 CFR 3.100(b)(1) (OCC), 12 CFR 217.100(b)(1)
(Board), and 12 CFR 324.100(b)(1) (FDIC).
5 12 CFR 3.121(c) (OCC), 12 CFR 217.121(c)
(Board), and 12 CFR 324.121(c) (FDIC).
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demonstrate to the satisfaction of its
primary Federal supervisor that it has
implemented risk-measurement and
risk-management systems that are
consistent with the advanced
approaches rule and are appropriate
given the banking organization’s size
and level of complexity. After the
primary Federal supervisor determines
that the banking organization fully
complies with all the qualification
requirements, has conducted a
satisfactory parallel run, and has an
adequate process to ensure ongoing
compliance, then the banking
organization will be required to use the
advanced approaches to calculate its
risk-based capital requirements.6
Consistent with section 171 of the
Dodd-Frank Act,7 an advanced
approaches banking organization that is
required to calculate its risk-based
capital requirements under the
advanced approaches rule also must
determine its risk-based capital
requirements under the generally
applicable risk-based capital rule.8 The
lower ratio (i.e., the more binding ratio)
for each risk-based capital requirement
is the ratio the banking organization
must use to determine its compliance
with minimum regulatory capital
requirements.
In February 2014, the agencies
permitted certain banking organizations
to exit parallel run and to begin
calculating their risk-based capital
requirements using the advanced
approaches rule, beginning with the
second quarter of 2014.9 Supervisory
review of advanced approaches systems
conducted as part of the parallel run
exit review process has highlighted
certain areas of the advanced
approaches rule qualification
requirements that would benefit from
clarification. In addition, the agencies
are proposing to make technical
revisions to address typographical
errors, such as incorrect references, in
6 12 CFR 3.121(d) (OCC), 12 CFR 217.121(d)
(Board), and 12 CFR 324.121(d) (FDIC).
7 See, 12 U.S.C. 5371.
8 Prior to January 1, 2015, the term ‘‘generally
applicable risk-based capital rules’’ refers to the
risk-based capital rules set forth at 12 CFR part 3,
appendix A and 12 CFR part 167 (OCC); 12 CFR pt.
208 and 12 CFR part 225, appendix A (Federal
Reserve); and 12 CFR part 325, appendix A, and 12
CFR part 390, subpart Z (FDIC). As of January 1,
2015, and thereafter, the term ‘‘generally applicable
risk-based capital rules’’ will refer to the risk-based
capital rules set forth at 12 CFR part 3, subparts A,
B, C, and D (OCC); 12 CFR part 217, subparts A,
B, C, and D (Board); and 12 CFR part 324, subparts
A, B, C, and D (FDIC).
9 This data is reported on the FFIEC 101,
Regulatory Capital Reporting for Institutions
Subject to the Advanced Capital Adequacy
Framework, available at https://www.ffiec.gov/
forms101.htm.
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75457
the regulatory capital framework. The
agencies are also proposing
clarifications that are intended to
enhance the consistency of the U.S.
regulations with international standards
for use of the advanced approaches. The
proposed amendments in this NPR
affect only provisions that apply to
advanced approaches banking
organizations. The agencies are seeking
comment on all aspects of the proposed
rule.
II. Proposed Rule Corrections and
Clarifications
Since publishing the regulatory
capital framework, the agencies have
identified typographical and technical
errors in several provisions, including
provisions of subpart E of the regulatory
capital framework. The agencies have
also identified provisions that warrant
clarification or updating in light of
revisions to other rules. The agencies
are, therefore, proposing to revise the
regulatory capital framework as
described below.
Definition of Residential Mortgage
Exposure
The definition of residential mortgage
exposure in section 2 of the regulatory
capital framework was intended to
provide that, for purposes of the
advanced approaches rule, an exposure
secured by a first or subsequent lien on
one-to-four family residential property
must be managed as part of a segment
of exposures with homogenous risk
characteristics, and not on an individual
basis, to be considered a residential
mortgage exposure.10 Under the
advanced approaches, for retail
exposures, a banking organization must
have an internal system that groups
retail exposures into the appropriate
retail exposure subcategory and groups
the retail exposures in each retail
exposure subcategory into separate
segments with homogenous risk
characteristics.11 As currently written,
however, the definition of residential
mortgage exposure does not provide that
advanced approaches banking
organizations must group exposures
secured by a first or subsequent lien on
one-to-four family residential property
into separate segments with
homogenous risk characteristics, as
required under the retail framework of
10 This provision is explicit in the regulatory
capital framework definition of residential mortgage
exposure for an exposure with an original and
outstanding amount of $1 million or less that is
primarily secured by a first or subsequent lien on
residential property that is not one-to-four family.
11 See 12 CFR 3.122(b)(3) (OCC), 12 CFR
217.122(b)(3) (Board), and 12 CFR 324.122(b)(3)
(FDIC).
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the advanced approaches. Accordingly,
the agencies propose to revise the
definition of residential mortgage
exposure to provide that, for the
purpose of calculating capital
requirements under the advanced
approaches, any exposure secured by a
lien on residential property must be
managed as part of a segment of
exposures with homogenous risk
characteristics, and not on an individual
basis, to be considered a residential
mortgage exposure. This change would
make the definition consistent with the
definition used in the 2007 advanced
capital adequacy framework
implementing Basel II 12 (2007 rule).
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Calculation of Total On-Balance Sheet
Foreign Exposure
The criteria set forth in section 100(b)
of the regulatory capital framework,
which describe which banking
organizations are required to use the
advanced approaches rule, include an
explanation of how a banking
organization determines whether it
meets the $10 billion total on-balance
sheet foreign exposure threshold. The
advanced approaches rule currently
references line-item descriptions from a
version of the FFIEC 009 Regulatory
Report that has since been modified to
adjust or rename those line items. The
agencies therefore propose to update the
methodology for calculating this
measure in section 100(b)(ii) to reflect
the relevant line-item descriptions and
instructions from the most recent
version of the FFIEC 009 Regulatory
Report.13
Disclosure Requirements for Advanced
Approaches Banking Organizations
Section 173 of the regulatory capital
framework requires advanced
approaches banking organizations that
have completed the parallel run process
and have received notification from
their primary Federal supervisor
pursuant to section 121(d) of subpart E
to provide timely disclosure of the
information in the applicable tables in
that section.
Table 6 of section 173 of the
regulatory capital framework requires
firms to explain and review the
structure of internal ratings systems and
the relation between internal and
external ratings. Section 939A of the
Dodd-Frank Act generally requires the
Federal banking agencies to remove any
reference to, or any requirement
involving, the reliance on external
credit ratings to assess the
12 72
FR 69288 (December 7, 2007).
at https://www.ffiec.gov/forms009_
009a.htm.
13 Available
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creditworthiness of a security or money
market instrument. As a result, the
agencies are proposing to amend table 6
of section 173 to clarify that the use of
external ratings is not required for the
purpose of an advanced approaches
banking organization’s internal rating
assessment.
For the purpose of the disclosures
required in table 6 of section 173, to the
extent that the advanced approaches
banking organization considers external
ratings in its internal ratings process, it
must include an explanation of the
relation between the internal and
external ratings. An advanced
approaches banking organization that
does not use or consider external ratings
would not be required to make such a
disclosure.
Table 9 in section 173 of the
regulatory capital framework describes
information related to securitization
exposures that certain advanced
approaches banking organizations are
required to disclose. In the regulatory
capital framework, the agencies revised
the risk-based capital treatment of these
items, but did not revise Table 9 to
reflect the revisions. The agencies
propose to update line (i)(2) under
quantitative disclosures to appropriately
reflect the current treatment under the
regulatory capital framework of creditenhancing interest only strips (CEIOs)
and after-tax gain-on-sale resulting from
a securitization. Specifically, under the
regulatory capital framework, an aftertax gain-on-sale resulting from a
securitization is deducted from common
equity tier 1 capital, rather than from
tier 1 capital as was the case under the
2007 rule. Also, under the regulatory
capital framework, CEIOs that do not
constitute after-tax gain-on-sale are riskweighted at 1,250 percent, rather than
deducted from total capital, as was the
case under the 2007 rule.
Collateral Posted by a Clearing Member
Client Banking Organization and
Clearing Member Banking Organization
Sections 133(b)(4)(ii) and 133(c)(4)(ii)
of the regulatory capital framework
require a clearing member client
banking organization or a clearing
member banking organization,
respectively, to calculate a riskweighted asset amount for any collateral
provided to a central counterparty
(CCP), clearing member, or custodian in
connection with a cleared transaction in
accordance with the requirements under
section 131. The agencies note that
section 131 only provides for the riskweighting of wholesale and retail
exposures whereas collateral posted to a
CCP, clearing member, or custodian may
also be in the form of a securitization
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exposure, equity exposure, or a covered
position. Therefore, the agencies are
proposing to amend sections
133(b)(4)(ii) and 133(c)(4)(ii) to replace
the cross reference to section 131 with
a broader cross reference, as applicable,
to subpart E, which provides the riskweighting methodology for wholesale,
retail, securitization and equity
exposures, or subpart F, which provides
the risk weighting methodology for
covered positions, so that the clearing
member client banking organization and
clearing member banking organization
can determine the correct risk weight for
the collateral provided.
Risk Weight for Certain Client Cleared
Transactions
Under the regulatory capital
framework, a clearing member banking
organization must assign a 2 percent
risk weight to the trade exposure
amount for a cleared transaction with a
qualifying central counterparty (QCCP)
and a risk weight according to section
32 to the trade exposure amount for a
cleared transaction with a CCP that is
not a QCCP. The definition of cleared
transaction includes a derivative
contract or repo-style transaction
between a CCP and a clearing member
banking organization where the banking
organization is acting as a financial
intermediary on behalf of its clearing
member client and the transaction
offsets a derivative contract or repo-style
transaction between the clearing
member banking organization and its
client that meets the requirements of
section 3(a) of the regulatory capital
framework. The agencies are proposing,
consistent with the Basel Committee’s
capital requirements for bank exposures
to central counterparties capital
framework,14 to permit clearing member
banking organizations to assign a zero
percent risk weight under subpart E to
the trade exposure amount of a cleared
transaction that arises when a clearing
member banking organization does not
guarantee the performance of the CCP
and has no payment obligation to the
clearing member client in the event of
a CCP default. In these circumstances,
requiring the clearing member banking
organization to include a trade exposure
amount to the CCP in credit riskweighted assets would generally result
in an overstatement of its total riskweighted assets under the advanced
approaches rule. However, if a clearing
member banking organization does
guarantee the performance of the CCP to
the clearing member client, then a
clearing member banking organization
14 Available at https://www.bis.org/publ/
bcbs282.pdf.
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would assign a risk weight of 2 percent
to its trade exposure amount for a
cleared transaction with a QCCP or a
risk weight according to section 32 of
the regulatory capital framework to its
trade exposure amount (as defined in
section 133) for a cleared transaction
with a CCP that is not a QCCP.
This proposed approach would align
the risk-based capital requirements for
client-cleared transactions with recently
finalized revisions to the treatment of
those transactions under the agencies’
supplementary leverage ratio rule.15
When calculating the supplementary
leverage ratio, the agencies do not
require a clearing member banking
organization to include the exposure to
the CCP for a client-cleared transaction
in total leverage exposure if the clearing
member banking organization does not
guarantee the performance of the CCP to
the clearing member client.
Application and Disclosure of the
Supplementary Leverage Ratio
Section 10(c) of the regulatory capital
framework requires advanced
approaches banking organizations that
have completed the parallel run process
to calculate the supplementary leverage
ratio as described under section
10(c)(4).16 The agencies are proposing to
clarify in this rulemaking that the
supplementary leverage ratio described
in section 10(c)(4) applies to a banking
organization that becomes subject to the
advanced approaches pursuant to
section 100(b)(1), regardless of the status
of its parallel run process. Specifically,
the supplementary leverage ratio
described in section 10(c)(4) would
apply to a banking organization
immediately following the quarter in
which the banking organization become
subject to the advanced approaches
pursuant to section 100(b)(1).
Advanced approaches banking
organizations are subject to
supplementary leverage ratio disclosure
requirements described in sections 172
and 173 of the regulatory capital
framework.17 The agencies propose to
revise sections 172 and 173 of the
regulatory capital framework, consistent
with the revisions proposed for section
10(c)(4). Specifically, the agencies are
proposing to amend section 172(d) to
clarify that the supplementary leverage
ratio disclosure requirements described
FR 57725, 57735 (Sept. 26, 2014).
agencies published a joint final rule in the
Federal Register on September 26, 2014 (79 FR
57725) that revised the definition of the
denominator of the supplementary leverage ratio
(2014 SLR rule) that the agencies had adopted in
the regulatory capital framework.
17 Section 172(d) was added to the regulatory
capital framework as part of the 2014 SLR rule.
in section 172 apply without regard to
whether the banking organization has
completed the parallel run process.
Under this proposal, any banking
organization that becomes an advanced
approaches banking organization
pursuant to section 100(b)(1) before
January 1, 2015, must publicly disclose
its supplementary leverage ratio and the
components thereof (that is, tier 1
capital and total leverage exposure)
quarterly, beginning with the first
quarter in 2015. A banking
organizations that becomes an advanced
approaches banking organization
pursuant to section 100(b)(1) on or after
January 1, 2015, must publicly disclose
its supplementary leverage ratio and
components thereof, beginning with the
calendar quarter immediately following
the calendar quarter in which the
banking organization becomes an
advanced approaches banking
organization. For example, a banking
organization that becomes subject to the
advanced approaches because it has
$250 billion or more in consolidated
total assets as of year-end 2015 pursuant
to section 100(b)(1)(i) would begin
disclosing its supplementary leverage
ratio as of March 31, 2016.
In addition, the agencies are
proposing to revise section 173 to clarify
that a top-tier 18 advanced approaches
banking organization, regardless of its
parallel run status, is required to
publicly disclose Table 13 for twelve
consecutive quarters or a shorter period,
as applicable, beginning on January 1,
2015. For example, for a banking
organization that becomes subject to the
supplementary leverage ratio disclosure
requirements on January 1, 2015,
reporting for the first quarter of 2015
would include data for one quarter,
reporting for the second quarter of 2015
would include data for two quarters,
and reporting for the fourth quarter of
2017 would include data for 12 quarters.
Exposure at Default Adjustment for
Recognized Credit Valuation
Adjustment (CVA)
Under subpart E of the regulatory
capital framework, an advanced
approaches banking organization that
has received supervisory approval to
calculate exposure at default (EAD) for
derivative contracts using the internal
models methodology (IMM) is permitted
to reduce effective expected positive
15 79
16 The
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18 Disclosure requirements in this section apply
only to banking organizations that are not a
consolidated subsidiary of a BHC, covered SLHC, or
depository institution that is subject to these
disclosure requirements or a subsidiary of a nonU.S. banking organization that is subject to
comparable public disclosure requirements in its
home jurisdiction.
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exposure (effective EPE) by the CVA
recognized on the advanced approaches
banking organization’s balance sheet to
reflect the fair value adjustment for
counterparty credit risk in the valuation
of a group of over-the-counter (OTC)
derivative transactions in a netting set.
The recognized CVA on the OTC
derivative netting set deducted from
effective EPE must not include any
adjustments made by the advanced
approaches banking organization to
common equity tier 1 capital
attributable to changes in the fair value
of the banking organization’s liabilities
that are due to changes in its own credit
risk since the inception of the derivative
transaction with the counterparty.
Similarly, the agencies are proposing to
allow advanced approaches banking
organizations to reduce the EAD for
OTC derivative contracts calculated
according to the current exposure
methodology in section 132(c) for the
purpose of calculating advanced
approaches total risk-weighted assets.
The agencies note that in determining
the fair value of a derivative on a
banking organization’s balance sheet,
the recognized CVA on the netting set
of OTC derivative contracts is intended
to reflect the credit quality of the
counterparty.
As noted in the preamble to the
regulatory capital framework, the CVA
capital charge in section 132(e)
addresses fair value losses resulting
from the deterioration of a
counterparty’s credit quality short of
default. The proposal to permit
advanced approaches banking
organizations to reduce EAD by the
recognized CVA on an OTC derivative
netting set would prevent the double
counting of the counterparty credit risk,
which is already included in advanced
approaches total risk-weighted assets
through the CVA capital charge.
Consistent with the Basel Committee’s
Basel III capital standards and the
treatment of recognized CVA in the
calculation of EAD for OTC derivatives
according to the IMM, the agencies are
proposing to amend section 132(c)(1) to
permit an advanced approaches banking
organization to reduce the EAD
calculated according to the current
exposure methodology by the
recognized CVA on the OTC derivative
netting set. The agencies note that, for
the purpose of calculating standardized
total risk-weighted assets, advanced
approaches banking organizations
would not be permitted to reduce the
EAD calculated according to the current
exposure methodology because the
standardized total risk-weighted assets
calculation does not include the CVA
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capital charge calculated in section
132(e).
Margin Period of Risk in the Internal
Models Methodology (IMM)
Section 132(d)(5)(iii)(B) of the
regulatory capital framework includes
upward adjustments to the margin
period of risk in the IMM for large
netting sets, netting sets involving
illiquid collateral or OTC derivatives
that cannot easily be replaced, or netting
sets with two or more margin disputes
with the counterparty over the previous
two quarters that last for a certain length
of time. The regulatory capital
framework inadvertently required an
upward adjustment to the margin period
of risk for cleared transactions based
solely on the fact that they are part of
a large netting set. The agencies are
therefore proposing to amend this
provision to clarify that cleared
transactions that are part of a netting set
subject to a collateral agreement that
exceeds 5,000 trades at any time during
the previous quarter are not subject to
the twenty business day margin-periodof-risk requirement unless the netting
set contains illiquid collateral, OTC
derivatives that cannot easily be
replaced, or the banking organization
had two or more margin disputes with
the counterparty over the previous two
quarters that last for a certain length of
time. As noted in the preamble to the
regulatory capital framework, the 5,000
trade threshold is one indicator that a
set of transactions may require a lengthy
period to close out in the event of a
default of a counterparty. The agencies
believe that unlike a large netting set of
over-the-counter derivatives, a large
netting set of cleared transactions would
not require a lengthy period to close out
in the event of a default of the CCP. In
addition, the proposed amendment
would conform the provision to the
similar provision in section 37 of
subpart D. However, for any netting set
that involves illiquid collateral or OTC
derivatives that cannot easily be
replaced, or that has two or more margin
disputes within a netting set over the
previous two quarters that last for a
certain length of time, the margin period
of risk would require adjustments, as
specified under section 132(d)(5)(iii)(B),
regardless of whether the netting set
consists of cleared transactions.
Qualification Requirements and
Mechanics for Calculating RiskWeighted Assets of Wholesale and
Retail Exposures Under the Advanced
Approaches
In February, 2014, the OCC and Board
granted permission to a number of
banking organizations to begin
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calculating their risk-based capital
requirements under the advanced
approaches.19 During the parallel run
evaluation process, the agencies
concluded that several areas of the
advanced approaches rule should be
revised to (1) clarify the qualification
requirements and mechanics for
calculating risk-weighted assets under
the advanced approaches rule and (2)
promote international consistency by
more clearly aligning the U.S.
regulations with international standards
for use of the advanced approaches rule.
Sections 122 and 131 of the regulatory
capital framework set forth the
qualification requirements for the
internal ratings-based approach (IRB) for
advanced approaches banking
organizations and describe the
mechanics for calculating risk-weighted
assets for wholesale and retail exposures
under the advanced approaches. When
the agencies initially adopted the
advanced approaches rule in the 2007
rule, they viewed certain elements of
the international Basel framework as
being more akin to supervisory
guidance, and therefore incorporated
these elements into the supervisory
review process rather than the advanced
approaches rule. However, the agencies
believe elements of sections 122 and
131 of the regulatory capital framework
should be clarified to ensure that
advanced approaches banking
organizations appropriately: (i) Obtain
and consider all relevant and material
information to estimate probability of
default (PD), loss given default (LGD),
and EAD; (ii) quantify risk parameters
for wholesale and retail exposures; and
(iii) establish internal requirements for
collateral and risk management
processes.
Accordingly, the agencies are
proposing language to add specificity
and enhance transparency regarding the
qualification process for the IRB
approach, as well as the mechanics used
to calculate total wholesale and retail
risk-weighted assets. More specifically,
the NPR would amend sections 122 and
131 of the regulatory capital framework
to clarify requirements associated with:
(i) The frequency for reviewing risk
rating systems, (ii) the independence of
the systems’ development, design, and
implementation, (iii) time horizons for
default and loss data when estimating
risk parameters, (iv) changes in banking
organizations’ lending, payment
processing, and account monitoring
practices, (v) the use of all relevant
19 Board Press Release https://www.federalreserve.
gov/newsevents/press/bcreg/20140221a.htm; OCC
Press release https://www.occ.gov/news-issuances/
news-releases/2014/nr-ia-2014-21.html.
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available data for assigning risk ratings,
and (vi) the need for internal
requirements for collateral management
and risk management processes. These
modifications are consistent with the
current overarching principles in
sections 122 and 131 of the regulatory
capital framework that advanced
approaches banking organizations must
have an internal risk rating and
segmentation system that accurately and
reliably differentiates among degrees of
credit risk for wholesale and retail
exposures, as well as a comprehensive
risk-parameter quantification process
that produces accurate, timely, and
reliable risk-parameter estimates. The
agencies emphasize that the proposed
revisions are intended to clarify, but not
change, existing requirements. In fact,
many of these clarifications are already
included in agency guidance or
examination materials. Therefore,
because they have demonstrated that
they comply with the existing
requirements, the agencies would
expect that advanced approaches
banking organizations that have already
exited parallel run have demonstrated
that they would meet the proposed
requirements.
Fair Value of Liabilities
Section 22 of the regulatory capital
framework requires a banking
organization to adjust its common
equity tier 1 capital for changes in the
fair value of liabilities due to changes in
the banking organization’s own credit
risk. The adjustment is made by
deducting from common equity tier 1
capital any net gain and adding to
common equity tier 1 capital any net
loss to offset the capital effect of the
changes in fair value of liabilities due to
changes in the banking organization’s
own credit risk.20 Additionally, the
regulatory capital framework requires
advanced approaches banking
organizations to deduct the credit
spread premium over the risk-free rate
for derivatives that are liabilities.
The agencies recognize that the
regulatory capital framework is unclear
as to whether the deduction of the credit
spread premium for advanced
approaches banking organizations is in
addition to the adjustment for net gains
or losses associated with changes in the
value of liabilities attributed to changes
in the banking organization’s own credit
risk. Therefore, the agencies are
clarifying that for derivative liabilities,
an advanced approaches banking
organization would make the deduction
20 12 CFR 3.22(b)(1)(iii) (OCC), 12 CFR
217.22(b)(1)(iii) (Board), and 12 CFR
324.22(b)(1)(iii) (FDIC).
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of the credit spread premium over the
risk-free rate as the adjustment for
changes in the fair value of those
derivative liabilities due to changes in
the banking organization’s own credit
risk.
Technical Corrections
In addition to the revisions discussed
above, the proposed rule would also
make certain technical corrections. Most
of the proposed corrections to these
technical errors are self-explanatory
and, therefore, do not warrant specific
discussion in this preamble. In addition,
there are several reference errors that
the agencies propose to correct in an
effort to better clarify the rule
requirements. For example, the
proposed rule would correct the
following internal cross-references in
the regulatory capital framework.
• In section 131(e)(3)(vi),
amendments to reference section 22(d)
and not section 22(a)(7);
• In Table 1 of section 132,
amendments to the reference in the
column heading to state that ‘‘Nonsovereign issuers risk weight under this
section (in percent)’’ and ‘‘Sovereign
issuers risk weight under this section (in
percent)’’ actually are found in section
32.
• In section 132(d)(7)(iv)(B),
amendments to reference section
132(b)(2) and not section 131(b)(2);
• In section 132(d)(9)(ii),
amendments to reference section
132(e)(6) and not section 132(e)(3);
• In section 133(b)(3)(i)(B),
amendments to reference section
133(b)(3)(i)(A) and not section
132(b)(3)(i)(A); and
• In section 136(e)(2)(i) and
136(e)(2)(ii), amendments to reference
section 136(e)(1) and (e)(2) and not
section 135(e)(1) and (e)(2).
III. Regulatory Analyses
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A. Paperwork Reduction Act (PRA)
In accordance with the requirements
of the Paperwork Reduction Act of 1995
(44 U.S.C. 3501–3521) (PRA), the
agencies may not conduct or sponsor,
and a respondent is not required to
respond to, an information collection
unless it displays a currently valid
Office of Management and Budget
(OMB) control number. The agencies
reviewed the proposed rule and
determined that it would not introduce
any new collection of information
pursuant to the PRA.
B. Regulatory Flexibility Act Analysis
OCC: The Regulatory Flexibility Act,
5 U.S.C. 601 et seq. (RFA), requires an
agency, in connection with a proposed
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rule, to prepare an Initial Regulatory
Flexibility Analysis describing the
impact of the proposed rule on small
entities (defined by the Small Business
Administration for purposes of the RFA
to include banking entities with total
assets of $550 million or less) or to
certify that the proposed rule would not
have a significant economic impact on
a substantial number of small entities.
Using the SBA’s size standards, as of
December 31, 2013, the OCC supervised
1,231 small entities.21
As described in the SUPPLEMENTARY
INFORMATION section of the preamble, the
proposed rule would apply only to
advanced approaches banking
organizations. Advanced approaches
banking organization is defined to
include a national bank or Federal
savings association that has, or is a
subsidiary of, a bank holding company
or savings and loan holding company
that has total consolidated assets of
$250 billion or more, total consolidated
on-balance sheet foreign exposure of
$10 billion or more, or that has elected
to use the advanced approaches
framework. After considering the SBA’s
size standards and General Principles of
Affiliation to identify small entities, the
OCC determined that no small national
banks or Federal savings associations
are advanced approaches banking
organizations. Because the proposed
rule would apply only to advanced
approaches banking organizations, it
would not impact any OCC-supervised
small entities. Therefore, the OCC
certifies that the proposed rule would
not have a significant economic impact
on a substantial number of OCCsupervised small entities.
FDIC: The Regulatory Flexibility Act,
5 U.S.C. 601 et seq. (RFA), requires an
agency, in connection with a notice of
proposed rulemaking, to prepare an
Initial Regulatory Flexibility Act
analysis describing the impact of the
proposed rule on small entities (defined
by the Small Business Administration
for purposes of the RFA to include
banking entities with total assets of $550
million or less) or to certify that the
proposed rule will not have a significant
21 The OCC calculated the number of small
entities using the SBA’s size thresholds for
commercial banks and savings institutions, and
trust companies, which are $550 million and $38.5
million, respectively. Consistent with the General
Principles of Affiliation, 13 CFR 121.103(a), the
OCC counted the assets of affiliated financial
institutions when determining whether to classify
a national bank or Federal savings association as a
small entity. The OCC used December 31, 2013, to
determine size because a ‘‘financial institution’s
assets are determined by averaging the assets
reported on its four quarterly financial statements
for the preceding year.’’ See footnote 8 of the U.S.
Small Business Administration’s Table of Size
Standards.
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economic impact on a substantial
number of small entities.
Using the SBA’s size standards, as of
June 30, 2014, the FDIC supervised
3,573 small entities. As described in the
SUPPLEMENTARY INFORMATION section of
the preamble, however, the proposed
rule would apply only to advanced
approaches banking organizations.
Advanced approaches banking
organization is defined to include a
state nonmember bank or a state savings
association that has, or is a subsidiary
of, a bank holding company or savings
and loan holding company that has total
consolidated assets of $250 billion or
more, total consolidated on-balance
sheet foreign exposure of $10 billion or
more, or that has elected to use the
advanced approaches framework. As of
June 30, 2014, based on a $550 million
threshold, 2 (out of 3,267) small state
nonmember banks and no (out of 306)
small state savings associations were
under the advanced approaches
framework. Therefore, the FDIC does
not believe that the proposed rule will
result in a significant economic impact
on a substantial number of small entities
under its supervisory jurisdiction.
The FDIC certifies that the proposed
rule would not have a significant
economic impact on a substantial
number of small FDIC-supervised
institutions.
Board: The Board is providing an
initial regulatory flexibility analysis
with respect to this proposed rule. As
discussed above, this proposed rule
would clarify, correct, and update
aspects of the agencies’ regulatory
capital framework applicable to banking
organizations that are subject to the
advanced approaches. The proposed
revisions are largely driven by
observations made by the agencies
during the parallel-run review process
of advanced approaches banking
organizations as well as a recent
assessment of the regulatory capital
framework.
Under regulations issued by the Small
Business Administration, a small entity
includes a depository institution, bank
holding company, or savings and loan
holding company with total assets of
$550 million or less (a small banking
organization).22 As of June 30, 2014,
there were approximately 657 small
state member banks, 3,719 small bank
holding companies, and 254 small
savings and loan holding companies.
The proposed rule would apply only
to advanced approaches banking
22 See 13 CFR 121.201. Effective July 14, 2014, the
Small Business Administration revised the size
standards for banking organizations to $550 million
in assets from $500 million in assets. 79 FR 33647
(June 12, 2014).
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organizations, which, generally, are
banking organizations with total
consolidated assets of $250 billion or
more, that have total consolidated onbalance sheet foreign exposure of $10
billion or more, are a subsidiary of an
advanced approaches depository
institution, or that elect to use the
advanced approaches framework.
Currently, no small top-tier bank
holding company, top-tier savings and
loan holding company, or state member
bank is an advanced approaches
banking organization, so there would be
no additional projected compliance
requirements imposed on small bank
holding companies, savings and loan
holding companies, or state member
banks. The Board expects that any small
bank holding company, savings and
loan holding company, or state member
bank that would be covered by this
proposed rule would rely on its parent
banking organization for compliance
and would not bear additional costs.
The Board is aware of no other federal
rules that duplicate, overlap, or conflict
with the proposed rule. The Board
believes that the proposed 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 proposed rule that would reduce the
economic impact on small banking
organizations supervised by the Board.
The Board welcomes comment on all
aspects of its analysis. A final regulatory
flexibility analysis will be conducted
after consideration of comments
received during the public comment
period.
C. OCC Unfunded Mandates Reform Act
of 1995 Determination
The OCC has analyzed the notice of
proposed rulemaking under the factors
set forth in the Unfunded Mandates
Reform Act of 1995 (UMRA) (2 U.S.C.
1532). Under this analysis, the OCC
considered whether the proposed rule
includes a Federal mandate that may
result in the expenditure by State, local,
and Tribal governments, in the
aggregate, or by the private sector, of
$100 million or more in any one year
(adjusted annually for inflation).
The proposed rule includes
clarifications, corrections, and updates
for certain aspects of the agencies’
regulatory capital rules applicable to
national banks and Federal savings
associations subject to the OCC’s
advanced approaches risk-based capital
rule.
Because the proposed rule is designed
to clarify, correct, and update existing
rules, and does not introduce any new
requirements, the OCC has determined
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that it would not result in expenditures
by State, local, and Tribal governments,
or by the private sector, of $100 million
or more. Accordingly, the OCC has not
prepared a written statement to
accompany its proposed rule.
DEPARTMENT OF THE TREASURY
D. Plain Language
For the reasons set forth in the
common preamble and under the
authority of 12 U.S.C. 93a, 1462, 1462a,
1463, 1464, 3907, 3909, 1831o, and
5412(b)(2)(B), the Office of the
Comptroller of the Currency proposes to
amend part 3 of chapter I of title 12,
Code of Federal Regulations as follows:
Section 722 of the Gramm-LeachBliley Act requires the Federal banking
agencies to use plain language in all
proposed and final rules published after
January 1, 2000. The agencies have
sought to present the proposed rule in
a simple and straightforward manner,
and invite comment on the use of plain
language. For example:
• Have the agencies organized the
material to suit your needs? If not, how
could they present the proposed rule
more clearly?
• Are the requirements in the
proposed rule clearly stated? If not, how
could the proposed rule be more clearly
stated?
• Do the regulations contain technical
language or jargon that is not clear? If
so, which language requires
clarification?
• Would a different format (grouping
and order of sections, use of headings,
paragraphing) make the regulation
easier to understand? If so, what
changes would achieve that?
• Is this section format adequate? If
not, which of the sections should be
changed and how?
• What other changes can the
agencies incorporate to make the
regulation easier to understand?
List of Subjects
12 CFR Part 3
Administrative practice and
procedure, Capital, National banks,
Reporting and recordkeeping
requirements, Risk.
12 CFR Part 217
Administrative practice and
procedure, Banks, Banking, Capital,
Federal Reserve System, Holding
companies, Reporting and
recordkeeping requirements, Securities.
12 CFR Part 324
Administrative practice and
procedure, Banks, banking, Capital
Adequacy, Reporting and recordkeeping
requirements, Savings associations,
State non-member banks.
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Office of the Comptroller of the
Currency
12 CFR Chapter I
Authority and Issuance
PART 3—CAPITAL ADEQUACY
STANDARDS
1. The authority citation for part 3
continues to read as follows:
■
Authority: 12 U.S.C. 93a, 161, 1462, 1462a,
1463, 1464, 1818, 1828(n), 1828 note, 1831n
note, 1835, 3907, 3909, and 5412(b)(2)(B).
2. Section 3.2 is amended by revising
the definition of ‘‘Residential mortgage
exposure’’ to read as follows:
■
§ 3.2
Definitions.
*
*
*
*
*
Residential mortgage exposure means
an exposure (other than a securitization
exposure, equity exposure, statutory
multifamily mortgage, or presold
construction loan) that is:
(1)(i) An exposure that is primarily
secured by a first or subsequent lien on
one-to-four family residential property;
or
(ii) An exposure with an original and
outstanding amount of $1 million or less
that is primarily secured by a first or
subsequent lien on residential property
that is not one-to-four family; and
(2) For purposes of calculating capital
requirements under subpart E of this
part, managed as part of a segment of
exposures with homogeneous risk
characteristics and not on an individualexposure basis.
*
*
*
*
*
■ 3. Section 3.10 is amended by revising
paragraph (c) introductory text to read
as follows:
§ 3.10
Minimum capital requirements.
*
*
*
*
*
(c) Advanced approaches capital ratio
calculations. An advanced approaches
national bank or Federal savings
association that has completed the
parallel run process and received
notification from the OCC pursuant to
§ 3.121(d) must determine its regulatory
capital ratios as described in paragraphs
(c)(1) through (3) of this section. An
advanced approaches national bank or
Federal savings association must
determine its supplementary leverage
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ratio in accordance with paragraph
(c)(4) of this section, beginning with the
calendar quarter immediately following
the quarter in which the national bank
or Federal savings association meets any
of the criteria in § 3.100(b)(1).
*
*
*
*
*
■ 4. Section 3.22 is amended by revising
paragraph (b)(1)(iii) to read as follows:
§ 3.22 Regulatory capital adjustments and
deductions.
*
*
*
*
*
(b) * * *
(1) * * *
(iii) A national bank or Federal
savings association must deduct any net
gain and add any net loss related to
changes in the fair value of liabilities
that are due to changes in the national
bank’s or Federal savings association’s
own credit risk. An advanced
approaches national bank or Federal
savings association must deduct the
difference between its credit spread
premium and the risk-free rate for
derivatives that are liabilities as part of
this adjustment.
*
*
*
*
*
■ 5. Section 3.100 is amended by
revising paragraph (b)(1)(ii) to read as
follows:
§ 3.100 Purpose, applicability, and
principle of conservatism.
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(b) * * *
(1) * * *
(ii) Has consolidated total on-balance
sheet foreign exposure on its most
recent year-end Call Report equal to $10
billion or more (where total on-balance
sheet foreign exposure equals total
foreign countries cross-border claims on
an ultimate-risk basis, plus total foreign
countries claims on local residents on
an ultimate-risk basis, plus total foreign
countries fair value of foreign exchange
and derivative products), calculated in
accordance with the Federal Financial
Institutions Examination Council
(FFIEC) 009 Country Exposure Report;
*
*
*
*
*
■ 6. Section 3.122 is amended by:
■ a. Revising paragraphs (a)(3) and
(b)(1);
■ b. Adding paragraph (b)(2)(iii);
■ c. Revising paragraphs (b)(3) and (5)
and (c)(1), (2), (5), and (6);
■ d. Redesignating paragraphs (c)(9) and
(10) as paragraphs (c)(10) and (11),
revising them, and adding a new
paragraph (c)(9); and
■ e. Revising paragraph (i)(5).
The revisions and additions read as
follows:
§ 3.122
Qualification requirements.
(a) * * *
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(3) Each national bank or Federal
savings association must have an
appropriate infrastructure with risk
measurement and management
processes that meet the qualification
requirements of this section and are
appropriate given the national bank’s or
Federal savings association’s size and
level of complexity. Regardless of
whether the systems and models that
generate the risk parameters necessary
for calculating a national bank’s or
Federal savings association’s risk-based
capital requirements are located at any
affiliate of the national bank or Federal
savings association, the national bank or
Federal savings association itself must
ensure that the risk parameters and
reference data used to determine its
risk-based capital requirements are
representative of long run experience
with respect to its own credit risk and
operational risk exposures.
(b) Risk rating and segmentation
systems for wholesale and retail
exposures. (1)(i) A national bank or
Federal savings association must have
an internal risk rating and segmentation
system that accurately, reliably, and
meaningfully differentiates among
degrees of credit risk for the national
bank’s or Federal savings association’s
wholesale and retail exposures. When
assigning an internal risk rating, a
national bank or Federal savings
association may consider a third-party
assessment of credit risk, provided that
the national bank’s or Federal savings
association’s internal risk rating
assignment does not rely solely on the
external assessment.
(ii) If a national bank or Federal
savings association uses multiple rating
or segmentation systems, the national
bank’s or Federal savings association’s
rationale for assigning an obligor or
exposure to a particular system must be
documented and applied in a manner
that best reflects the obligor’s or
exposure’s level of risk. A national bank
or Federal savings association must not
inappropriately allocate obligors or
exposures across systems to minimize
regulatory capital requirements.
(iii) In assigning ratings to wholesale
obligors and exposures, including loss
severity ratings grades to wholesale
exposures, and assigning retail
exposures to retail segments, a national
bank or Federal savings association
must use all relevant and material
information and ensure that the
information is current.
(iv) When assigning an obligor to a PD
rating or retail exposure to a PD
segment, a national bank or Federal
savings association must assess the
obligor or retail borrower’s ability and
willingness to contractually perform,
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taking a conservative view of projected
information.
(2) * * *
(iii) A national bank or Federal
savings association must have an
effective process to obtain and update in
a timely manner relevant and material
information on obligor and exposure
characteristics that affect PD, LGD and
EAD.
(3) For retail exposures:
(i) A national bank or Federal savings
association must have an internal
system that groups retail exposures into
the appropriate retail exposure
subcategory and groups the retail
exposures in each retail exposure
subcategory into separate segments with
homogeneous risk characteristics that
provide a meaningful differentiation of
risk. The national bank’s or Federal
savings association’s system must
identify and group in separate segments
by subcategories exposures identified in
§ 3.131(c)(2)(ii) and (iii).
(ii) A national bank or Federal savings
association must have an internal
system that captures all relevant
exposure risk characteristics, including
borrower credit score, product and
collateral types, as well as exposure
delinquencies, and must consider crosscollateral provisions, where present.
(iii) The national bank or Federal
savings association must review and, if
appropriate, update assignments of
individual retail exposures to segments
and the loss characteristics and
delinquency status of each identified
risk segment. These reviews must occur
whenever the national bank or Federal
savings association receives new
material information, but generally no
less frequently than quarterly, and, in
all cases, at least annually.
*
*
*
*
*
(5) The national bank’s or Federal
savings association’s internal risk rating
system for wholesale exposures must
provide for the review and update (as
appropriate) of each obligor rating and
(if applicable) each loss severity rating
whenever the national bank or Federal
savings association obtains relevant and
material information on the obligor or
exposure that affect PD, LGD and EAD,
but no less frequently than annually.
(c) Quantification of risk parameters
for wholesale and retail exposures. (1)
The national bank or Federal savings
association must have a comprehensive
risk parameter quantification process
that produces accurate, timely, and
reliable estimates of the risk parameters
on a consistent basis for the national
bank’s or Federal savings association’s
wholesale and retail exposures.
(2) A national bank’s or Federal
savings association’s estimates of PD,
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LGD, and EAD must incorporate all
relevant, material, and available data
that is reflective of the national bank’s
or Federal savings association’s actual
wholesale and retail exposures and of
sufficient quality to support the
determination of risk-based capital
requirements for the exposures. In
particular, the population of exposures
in the data used for estimation
purposes, and lending standards in use
when the data were generated, and other
relevant characteristics, should closely
match or be comparable to the national
bank’s or Federal savings association’s
exposures and standards. In addition, a
national bank or Federal savings
association must:
(i) Demonstrate that its estimates are
representative of long run experience,
including periods of economic
downturn conditions, whether internal
or external data are used;
(ii) Take into account any changes in
lending practice or the process for
pursuing recoveries over the observation
period;
(iii) Promptly reflect technical
advances, new data, and other
information as they become available;
(iv) Demonstrate that the data used to
estimate risk parameters support the
accuracy and robustness of those
estimates; and
(v) Demonstrate that its estimation
technique performs well in out-ofsample tests whenever possible.
*
*
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*
(5) The national bank or Federal
savings association must be able to
demonstrate which variables have been
found to be statistically significant with
regard to EAD. The national bank’s or
Federal savings association’s EAD
estimates must reflect its specific
policies and strategies with regard to
account management, including account
monitoring and payment processing,
and its ability and willingness to
prevent further drawdowns in
circumstances short of payment default.
The national bank or Federal savings
association must have adequate systems
and procedures in place to monitor
current outstanding amounts against
committed lines, and changes in
outstanding amounts per obligor and
obligor rating grade and per retail
segment. The national bank or Federal
savings association must be able to
monitor outstanding amounts on a daily
basis.
(6) At a minimum, PD estimates for
wholesale obligors and retail segments
must be based on at least five years of
default data. LGD estimates for
wholesale exposures must be based on
at least seven years of loss severity data,
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and LGD estimates for retail segments
must be based on at least five years of
loss severity data. EAD estimates for
wholesale exposures must be based on
at least seven years of exposure amount
data, and EAD estimates for retail
segments must be based on at least five
years of exposure amount data. If the
national bank or Federal savings
association has relevant and material
reference data that span a longer period
of time than the minimum time periods
specified above, the national bank or
Federal savings association must
incorporate such data in its estimates,
provided that it does not place undue
weight on periods of favorable or benign
economic conditions relative to periods
of economic downturn conditions.
*
*
*
*
*
(9) If a national bank or Federal
savings association uses internal data
obtained prior to becoming subject to
this subpart E or external data to arrive
at PD, LGD, or EAD estimates, the
national bank or Federal savings
association must demonstrate to the
OCC that the national bank or Federal
savings association has made
appropriate adjustments if necessary to
be consistent with the definition of
default in § 3.101. Internal data obtained
after the national bank or Federal
savings association becomes subject to
this subpart E must be consistent with
the definition of default in § 3.101.
(10) The national bank or Federal
savings association must review and
update (as appropriate) its risk
parameters and its risk parameter
quantification process at least annually.
(11) The national bank or Federal
savings association must, at least
annually, conduct a comprehensive
review and analysis of reference data to
the national bank’s or Federal savings
association’s exposures, quality of
reference data to support PD, LGD, and
EAD estimates, and consistency of
reference data to the definition of
default in § 3.101.
*
*
*
*
*
(i) * * *
(5) The national bank or Federal
savings association must have an
internal audit function or equivalent
function that is independent of
business-line management that at least
annually:
(i) Reviews the national bank’s or
Federal savings association’s advanced
systems and associated operations,
including the operations of its credit
function and estimations of PD, LGD,
and EAD;
(ii) Assesses the effectiveness of the
controls supporting the national bank’s
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or Federal savings association’s
advanced systems; and
(iii) Documents and reports its
findings to the national bank’s or
Federal savings association’s board of
directors (or a committee thereof).
*
*
*
*
*
■ 7. Section 3.131 is amended by:
■ a. Revising paragraphs (d)(5)(ii) and
(iii); and
■ b. In paragraph (e)(3)(vi), removing
‘‘§ 3.22(a)(7)’’ and adding ‘‘§ 3.22(d)’’ in
its place.
The revisions read as follows:
§ 3.131 Mechanics for calculating total
wholesale and retail risk-weighted assets.
*
*
*
*
*
(d) * * *
(5) * * *
(ii) A national bank or Federal savings
association may take into account the
risk reducing effects of guarantees and
credit derivatives in support of retail
exposures in a segment when
quantifying the PD and LGD of the
segment. In doing so, a national bank or
Federal savings association must
consider all relevant available
information.
(iii) Except as provided in paragraph
(d)(6) of this section, a national bank or
Federal savings association may take
into account the risk reducing effects of
collateral in support of a wholesale
exposure when quantifying the LGD of
the exposure, and may take into account
the risk reducing effects of collateral in
support of retail exposures when
quantifying the PD and LGD of the
segment. In order to do so, a national
bank or Federal savings association
must have established internal
requirements for collateral management,
legal certainty, and risk management
processes.
*
*
*
*
*
■ 8. Section 3.132 is amended by:
■ a. In Table 1 to § 3.132, removing
‘‘this section’’ and adding ‘‘§ 3.32’’ in its
place, wherever it appears;
■ b. Revising paragraphs (c)(1) and
(d)(5)(iii)(B);
■ c. In paragraph (d)(7)(iv)(B), removing
‘‘§ 3.131(b)(2)’’ and adding
‘‘§ 3.132(b)(2)’’ in its place; and
■ d. In paragraph (d)(9)(ii), removing
‘‘paragraph (e)(3)’’ and adding
‘‘paragraph (e)(6)’’ in its place.
The revisions read as follows:
§ 3.132 Counterparty credit risk of repostyle transactions, eligible margin loans,
and OTC derivative contracts.
*
*
*
*
*
(c) EAD for OTC derivative
contracts—(1) OTC derivative contracts
not subject to a qualifying master
netting agreement. A national bank or
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Federal savings association must
determine the EAD for an OTC
derivative contract that is not subject to
a qualifying master netting agreement
using the current exposure methodology
in paragraph (c)(5) of this section or
using the internal models methodology
described in paragraph (d) of this
section. A national bank or Federal
savings association may reduce the EAD
calculated according to paragraphs (c)(5)
or (d) of this section by the credit
valuation adjustment that the national
bank or Federal savings association has
recognized in its balance sheet valuation
of any OTC derivative contracts in the
netting set. For purposes of this
paragraph (c), the credit valuation
adjustment does not include any
adjustments to common equity tier 1
capital attributable to changes in the fair
value of the national bank’s or Federal
savings association’s liabilities that are
due to changes in its own credit risk
since the inception of the transaction
with the counterparty.
*
*
*
*
*
(d) * * *
(5) * * *
(iii) * * *
(B) Twenty business days if the
number of trades in a netting set
exceeds 5,000 at any time during the
previous quarter (except if the national
bank or Federal savings association is
calculating EAD for a cleared
transaction under § 3.133) or contains
one or more trades involving illiquid
collateral or any derivative contract that
cannot be easily replaced. If over the
two previous quarters more than two
margin disputes on a netting set have
occurred that lasted more than the
margin period of risk, then the national
bank or Federal savings association
must use a margin period of risk for that
netting set that is at least two times the
minimum margin period of risk for that
netting set. If the periodicity of the
receipt of collateral is N-days, the
minimum margin period of risk is the
minimum margin period of risk under
this paragraph (d) plus N minus 1. This
period should be extended to cover any
impediments to prompt re-hedging of
any market risk.
*
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*
■ 9. Section 3.133 is amended by:
■ a. In paragraph (b)(3)(i)(B) removing
‘‘§ 3.132(b)(3)(i)(A)’’ and adding
‘‘§ 3.133(b)(3)(i)(A)’’ in its place;
■ b. In paragraph (b)(4)(ii) removing
‘‘§ 3.131’’ and adding ‘‘subparts E or F
of this part, as applicable’’ in its place;
■ c. Adding paragraph (c)(3)(iii); and
■ d. In paragraph (c)(4)(ii) removing
‘‘§ 3.131’’ and adding ‘‘subparts E or F
of this part, as applicable’’ in its place.
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The addition reads as follows:
§ 3.133
Cleared transactions.
*
*
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*
(c) * * *
(3) * * *
(iii) Notwithstanding paragraphs
(c)(3)(i) and (ii) of this section, a
clearing member national bank or
Federal savings association may apply a
risk weight of 0 percent to the trade
exposure amount for a cleared
transaction with a CCP where the
clearing member national bank or
Federal savings association is acting as
a financial intermediary on behalf of a
clearing member client, the transaction
offsets another transaction that satisfies
the requirements set forth in § 3.3(a),
and the clearing member national bank
or Federal savings association is not
obligated to reimburse the clearing
member client in the event of the CCP
default.
*
*
*
*
*
§ 3.136
[Amended]
10. Section 3.136 is amended by:
a. In paragraph (e)(2)(i), removing
‘‘§ 3.135(e)(1) and (e)(2)’’ and adding
‘‘§ 3.136(e)(1) and (2)’’ in its place; and
■ b. In paragraph (e)(2)(ii), removing
‘‘§§ 3.135(e)(1) and (e)(2)’’ and adding
‘‘§ 3.136(e)(1) and (2)’’ in its place.
■ 11. Section 3.172 is amended by
revising paragraph (d), as added at 79
FR 57743, September 26, 2014, effective
January 1, 2015, to read as follows:
■
■
§ 3.172
Disclosure requirements.
*
*
*
*
*
(d)(1) A national bank or Federal
savings association that meets any of the
criteria in § 3.100(b)(1) before January 1,
2015, must publicly disclose each
quarter its supplementary leverage ratio
and the components thereof (that is, tier
1 capital and total leverage exposure) as
calculated under subpart B of this part,
beginning with the first quarter in 2015.
This disclosure requirement applies
without regard to whether the national
bank or Federal savings association has
completed the parallel run process and
received notification from the OCC
pursuant to § 3.121(d).
(2) A national bank or Federal savings
association that meets any of the criteria
in § 3.100(b)(1) on or after January 1,
2015, must publicly disclose each
quarter its supplementary leverage ratio
and the components thereof (that is, tier
1 capital and total leverage exposure) as
calculated under subpart B of this part
beginning with the calendar quarter
immediately following the quarter in
which the national bank or Federal
savings association becomes an
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advanced approaches national bank or
Federal savings association. This
disclosure requirement applies without
regard to whether the national bank or
Federal savings association has
completed the parallel run process and
has received notification from the OCC
pursuant to § 3.121(d).
■ 12. Section 3.173 is amended by:
■ a. Redesignating paragraph (a)
introductory text, as revised at 79 FR
57743, September 26, 2014, effective
January 1, 2015, as paragraph (a)(1) and
revising it;
■ b. Adding paragraphs (a)(2) and (3);
■ c. Revising the entry for (a)(1) in Table
6 to § 3.173; and
■ d. Revising the entry for (i)(2) in Table
9 to § 3.173.
The revisions and additions read as
follows:
§ 3.173 Disclosures by certain advanced
approaches national banks or Federal
savings associations.
(a)(1) An advanced approaches
national bank or Federal savings
association described in § 3.172(b) must
make the disclosures described in
Tables 1 through 12 to § 3.173.
(2) An advanced approaches national
bank or Federal savings association that
is required to publicly disclose its
supplementary leverage ratio pursuant
to § 3.172(d) must make the disclosures
required under Table 13 to § 3.173,
unless the national bank or Federal
savings association is a consolidated
subsidiary of a bank holding company,
savings and loan holding company, or
depository institution that is subject to
these disclosures requirements or a
subsidiary of a non-U.S. banking
organization that is subject to
comparable public disclosure
requirements in its home jurisdiction.
(3) The disclosures described in
Tables 1 through 12 to § 3.173 must be
made publicly available for twelve
consecutive quarters beginning on
January 1, 2014, or a shorter period, as
applicable, for the quarters after the
national bank or Federal savings
association has completed the parallel
run process and received notification
from the OCC pursuant to § 121(d) of
subpart E of this part. The disclosures
described in Table 13 to § 3.173 must be
made publicly available for twelve
consecutive quarters beginning on
January 1, 2015, or a shorter period, as
applicable, for the quarters after the
national bank or Federal savings
association becomes subject to the
disclosure of the supplementary
leverage ratio pursuant to § 3.172(d).
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TABLE 6 TO § 3.173—CREDIT RISK: DISCLOSURES FOR PORTFOLIOS SUBJECT TO IRB RISK-BASED CAPITAL FORMULA
Qualitative disclosures ..........................
*
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(a) ..............................
*
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(1) Structure of internal rating systems and if the national bank or Federal savings association considers external ratings, the relation between internal
and external ratings;
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TABLE 9 TO § 3.173—SECURITIZATION
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Quantitative disclosures ...........
*
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*
* * *
(i) .................
*
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Board of Governors of the Federal
Reserve System
12 CFR Chapter II
Authority and Issuance
For the reasons set forth in the
common preamble, part 217 of chapter
II of title 12 of the Code of Federal
Regulations is proposed to be amended
as follows:
PART 217—CAPITAL ADEQUACY OF
BANK HOLDING COMPANIES,
SAVINGS AND LOAN HOLDING
COMPANIES, AND STATE MEMBER
BANKS (REGULATION Q)
13. The authority citation for part 217
continues to read as follows:
■
Authority: 12 U.S.C. 248(a), 321–338a,
481–486, 1462a, 1467a, 1818, 1828, 1831n,
1831o, 1831p–l, 1831w, 1835, 1844(b), 1851,
3904, 3906–3909, 4808, 5365, 5368, 5371.
14. Section 217.2 is amended by
revising the definition of ‘‘Residential
mortgage exposure’’ to read as follows:
■
§ 217.2
Definitions.
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Residential mortgage exposure means
an exposure (other than a securitization
exposure, equity exposure, statutory
multifamily mortgage, or presold
construction loan) that is:
(1)(i) An exposure that is primarily
secured by a first or subsequent lien on
one-to-four family residential property;
or
(ii) An exposure with an original and
outstanding amount of $1 million or less
that is primarily secured by a first or
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*
* * *
(2) Aggregate amount disclosed separately by type of underlying exposure in the pool of any:
(A) After-tax gain-on-sale on a securitization that has been deducted from common equity
tier 1 capital; and (B) Credit-enhancing interest-only strip that is assigned a 1,250 percent
risk weight.
*
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*
*
subsequent lien on residential property
that is not one-to-four family; and
(2) For purposes of calculating capital
requirements under subpart E of this
part, managed as part of a segment of
exposures with homogeneous risk
characteristics and not on an individualexposure basis.
*
*
*
*
*
■ 15. Section 217.10 is amended by
revising paragraph (c) introductory text
to read as follows:
§ 217.10
Minimum capital requirements.
*
*
*
*
*
(c) Advanced approaches capital ratio
calculations. An advanced approaches
Board-regulated institution that has
completed the parallel run process and
received notification from the Board
pursuant to § 217.121(d) must determine
its regulatory capital ratios as described
in paragraphs (c)(1) through (3) of this
section. An advanced approaches
Board-regulated institution must
determine its supplementary leverage
ratio in accordance with paragraph
(c)(4) of this section, beginning with the
calendar quarter immediately following
the quarter in which the Boardregulated institution meets any of the
criteria in § 217.100(b)(1).
*
*
*
*
*
■ 16. Section 217.22 is amended by
revising paragraph (b)(1)(iii) to read as
follows:
§ 217.22 Regulatory capital adjustments
and deductions.
*
*
*
*
*
(b) * * *
(1) * * *
(iii) A Board-regulated institution
must deduct any net gain and add any
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*
*
net loss related to changes in the fair
value of liabilities that are due to
changes in the Board-regulated
institution’s own credit risk. An
advanced approaches Board-regulated
institution must deduct the difference
between its credit spread premium and
the risk-free rate for derivatives that are
liabilities as part of this adjustment.
*
*
*
*
*
■ 17. Section 217.100 is amended by
revising paragraph (b)(1)(ii)(B) to read as
follows:
§ 217.100 Purpose, applicability, and
principle of conservatism
*
*
*
*
*
(b) * * *
(1) * * *
(ii) * * *
(B) Has consolidated total on-balance
sheet foreign exposure on its most
recent year-end Call Report, for a state
member bank, or FR Y–9C, for a bank
holding company or savings and loan
holding company, as applicable, equal
to $10 billion or more (where total onbalance sheet foreign exposure equals
total foreign countries cross-border
claims on an ultimate-risk basis, plus
total foreign countries claims on local
residents on an ultimate-risk basis, plus
total foreign countries fair value of
foreign exchange and derivative
products), calculated in accordance
with the Federal Financial Institutions
Examination Council (FFIEC) 009
Country Exposure Report;
*
*
*
*
*
■ 18. Section 217.122 is amended by:
■ a. Revising paragraphs (a)(3) and
(b)(1);
■ b. Adding paragraph (b)(2)(iii);
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c. Revising paragraphs (b)(3) and (5)
and (c)(1), (2), (5), and (6);
■ d. Redesignating paragraphs (c)(9) and
(10) as paragraphs (c)(10) and (11),
revising them, and, adding a new
paragraph (c)(9); and
■ e. Revising paragraph (i)(5).
The revisions and additions read as
follows:
■
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§ 217.122
Qualification requirements.
(a) * * *
(3) Each Board-regulated institution
must have an appropriate infrastructure
with risk measurement and management
processes that meet the qualification
requirements of this section and are
appropriate given the Board-regulated
institution’s size and level of
complexity. Regardless of whether the
systems and models that generate the
risk parameters necessary for calculating
a Board-regulated institution’s riskbased capital requirements are located
at any affiliate of the Board-regulated
institution, the Board-regulated
institution itself must ensure that the
risk parameters and reference data used
to determine its risk-based capital
requirements are representative of long
run experience with respect to its own
credit risk and operational risk
exposures.
(b) Risk rating and segmentation
systems for wholesale and retail
exposures. (1)(i) A Board-regulated
institution must have an internal risk
rating and segmentation system that
accurately, reliably, and meaningfully
differentiates among degrees of credit
risk for the Board-regulated institution’s
wholesale and retail exposures. When
assigning an internal risk rating, a
Board-regulated institution may
consider a third-party assessment of
credit risk, provided that the Boardregulated institution’s internal risk
rating assignment does not rely solely
on the external assessment.
(ii) If a Board-regulated institution
uses multiple rating or segmentation
systems, the Board-regulated
institution’s rationale for assigning an
obligor or exposure to a particular
system must be documented and
applied in a manner that best reflects
the obligor or exposure’s level of risk. A
Board-regulated institution must not
inappropriately allocate obligors across
systems to minimize regulatory capital
requirements.
(iii) In assigning ratings to wholesale
obligors and exposures, including loss
severity ratings grades to wholesale
exposures, and assigning retail
exposures to retail segments, a Boardregulated institution must use all
relevant and material information and
ensure that the information is current.
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(iv) When assigning an obligor to a PD
rating or retail exposure to a PD
segment, a Board-regulated institution
must assess the obligor or retail
borrower’s ability and willingness to
contractually perform, taking a
conservative view of projected
information.
(2) * * *
(iii) A Board-regulated institution
must have an effective process to obtain
and update in a timely manner relevant
and material information on obligor and
exposure characteristics that affect PD,
LGD and EAD.
(3) For retail exposures:
(i) A Board-regulated institution must
have an internal system that groups
retail exposures into the appropriate
retail exposure subcategory and groups
the retail exposures in each retail
exposure subcategory into separate
segments with homogeneous risk
characteristics that provide a
meaningful differentiation of risk. The
Board-regulated institution’s system
must identify and group in separate
segments by subcategories exposures
identified in § 217.131(c)(2)(ii) and (iii).
(ii) A Board-regulated institution must
have an internal system that captures all
relevant exposure risk characteristics,
including borrower credit score, product
and collateral types, as well as exposure
delinquencies, and must consider crosscollateral provisions, where present.
(iii) The Board-regulated institution
must review and, if appropriate, update
assignments of individual retail
exposures to segments and the loss
characteristics and delinquency status
of each identified risk segment. These
reviews must occur whenever the
Board-regulated institution receives new
material information, but generally no
less frequently than quarterly, and, in
all cases, at least annually.
*
*
*
*
*
(5) The Board-regulated institution’s
internal risk rating system for wholesale
exposures must provide for the review
and update (as appropriate) of each
obligor rating and (if applicable) each
loss severity rating whenever the Boardregulated institution obtains relevant
and material information on the obligor
or exposure that affect PD, LGD and
EAD, but no less frequently than
annually.
(c) Quantification of risk parameters
for wholesale and retail exposures. (1)
The Board-regulated institution must
have a comprehensive risk parameter
quantification process that produces
accurate, timely, and reliable estimates
of the risk parameters on a consistent
basis for the Board-regulated
institution’s wholesale and retail
exposures.
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(2) A Board-regulated institution’s
estimates of PD, LGD, and EAD must
incorporate all relevant, material, and
available data that is reflective of the
Board-regulated institution’s actual
wholesale and retail exposures and of
sufficient quality to support the
determination of risk-based capital
requirements for the exposures. In
particular, the population of exposures
in the data used for estimation
purposes, and lending standards in use
when the data were generated, and other
relevant characteristics, should closely
match or be comparable to the Boardregulated institution’s exposures and
standards. In addition, a Boardregulated institution must:
(i) Demonstrate that its estimates are
representative of long run experience,
including periods of economic
downturn conditions, whether internal
or external data are used;
(ii) Take into account any changes in
lending practice or the process for
pursuing recoveries over the observation
period;
(iii) Promptly reflect technical
advances, new data, and other
information as they become available;
(iv) Demonstrate that the data used to
estimate risk parameters support the
accuracy and robustness of those
estimates; and
(v) Demonstrate that its estimation
technique performs well in out-ofsample tests whenever possible.
*
*
*
*
*
(5) The Board-regulated institution
must be able to demonstrate which
variables have been found to be
statistically significant with regard to
EAD. The Board-regulated institution’s
EAD estimates must reflect its specific
policies and strategies with regard to
account management, including account
monitoring and payment processing,
and its ability and willingness to
prevent further drawdowns in
circumstances short of payment default.
The Board-regulated institution must
have adequate systems and procedures
in place to monitor current outstanding
amounts against committed lines, and
changes in outstanding amounts per
obligor and obligor rating grade and per
retail segment. The Board-regulated
institution must be able to monitor
outstanding amounts on a daily basis.
(6) At a minimum, PD estimates for
wholesale obligors and retail segments
must be based on at least five years of
default data. LGD estimates for
wholesale exposures must be based on
at least seven years of loss severity data,
and LGD estimates for retail segments
must be based on at least five years of
loss severity data. EAD estimates for
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wholesale exposures must be based on
at least seven years of exposure amount
data, and EAD estimates for retail
segments must be based on at least five
years of exposure amount data. If the
Board-regulated institution has relevant
and material reference data that span a
longer period of time than the minimum
time periods specified above, the Boardregulated institution must incorporate
such data in its estimates, provided that
it does not place undue weight on
periods of favorable or benign economic
conditions relative to periods of
economic downturn conditions.
*
*
*
*
*
(9) If a Board-regulated institution
uses internal data obtained prior to
becoming subject to this subpart E or
external data to arrive at PD, LGD, or
EAD estimates, the Board-regulated
institution must demonstrate to the
Board that the Board-regulated
institution has made appropriate
adjustments if necessary to be consistent
with the definition of default in
§ 217.101. Internal data obtained after
the Board-regulated institution becomes
subject to this subpart E must be
consistent with the definition of default
in § 217.101.
(10) The Board-regulated institution
must review and update (as appropriate)
its risk parameters and its risk
parameter quantification process at least
annually.
(11) The Board-regulated institution
must, at least annually, conduct a
comprehensive review and analysis of
reference data to the Board-regulated
institution’s exposures, quality of
reference data to support PD, LGD, and
EAD estimates, and consistency of
reference data to the definition of
default in § 217.101.
*
*
*
*
*
(i) * * *
(5) The Board-regulated institution
must have an internal audit function or
equivalent function that is independent
of business-line management that at
least annually:
(i) Reviews the Board-regulated
institution’s advanced systems and
associated operations, including the
operations of its credit function and
estimations of PD, LGD, and EAD;
(ii) Assesses the effectiveness of the
controls supporting the Board-regulated
institution’s advanced systems; and
(iii) Documents and reports its
findings to the Board-regulated
institution’s board of directors (or a
committee thereof).
*
*
*
*
*
■ 19. Section 217.131 is amended by:
■ a. Revising paragraphs (d)(5)(ii) and
(iii); and
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b. In paragraph (e)(3)(vi), removing
‘‘§ 217.22(a)(7)’’ and adding
‘‘§ 217.22(d)’’ in its place.
The revisions read as follows:
■
§ 217.131 Mechanics for calculating total
wholesale and retail risk-weighted assets.
*
*
*
*
*
(d) * * *
(5) * * *
(ii) A national bank or Federal savings
association may take into account the
risk reducing effects of guarantees and
credit derivatives in support of retail
exposures in a segment when
quantifying the PD and LGD of the
segment. In doing so, a national bank or
Federal savings association must
consider all relevant available
information.
(iii) Except as provided in paragraph
(d)(6) of this section, a national bank or
Federal savings association may take
into account the risk reducing effects of
collateral in support of a wholesale
exposure when quantifying the LGD of
the exposure, and may take into account
the risk reducing effects of collateral in
support of retail exposures when
quantifying the PD and LGD of the
segment. In order to do so, a national
bank or Federal savings association
must have established internal
requirements for collateral management,
legal certainty, and risk management
processes.
*
*
*
*
*
■ 20. Section 217.132 is amended by:
■ a. In Table 1 to § 217.132, removing
‘‘this section’’ and adding ‘‘§ 217.32’’ in
its place, wherever it appears;
■ b. Revising paragraphs (c)(1) and
(d)(5)(iii)(B);
■ c. In paragraph (d)(7)(iv)(B), removing
‘‘§ 217.131(b)(2)’’ and adding
‘‘§ 217.132(b)(2)’’ in its place; and
■ d. In paragraph (d)(9)(ii), removing
‘‘paragraph (e)(3)’’ and adding
‘‘paragraph (e)(6)’’ in its place.
The revisions read as follows:
§ 217.132 Counterparty credit risk of repostyle transactions, eligible margin loans,
and OTC derivative contracts.
*
*
*
*
*
(c) EAD for OTC derivative
contracts—(1) OTC derivative contracts
not subject to a qualifying master
netting agreement. A Board-regulated
institution must determine the EAD for
an OTC derivative contract that is not
subject to a qualifying master netting
agreement using the current exposure
methodology in paragraph (c)(5) of this
section or using the internal models
methodology described in paragraph (d)
of this section. A Board-regulated
institution may reduce the EAD
calculated according to paragraphs (c)(5)
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or (d) of this section by the credit
valuation adjustment that the Boardregulated institution has recognized in
its balance sheet valuation of any OTC
derivative contracts in the netting set.
For purposes of this paragraph (c), the
credit valuation adjustment does not
include any adjustments to common
equity tier 1 capital attributable to
changes in the fair value of the Boardregulated institution’s liabilities that are
due to changes in its own credit risk
since the inception of the transaction
with the counterparty.
*
*
*
*
*
(d) * * *
(5) * * *
(iii) * * *
(B) Twenty business days if the
number of trades in a netting set
exceeds 5,000 at any time during the
previous quarter (except if the Boardregulated institution is calculating EAD
for a cleared transaction under
§ 217.133) or contains one or more
trades involving illiquid collateral or
any derivative contract that cannot be
easily replaced. If over the two previous
quarters more than two margin disputes
on a netting set have occurred that
lasted more than the margin period of
risk, then the Board-regulated
institution must use a margin period of
risk for that netting set that is at least
two times the minimum margin period
of risk for that netting set. If the
periodicity of the receipt of collateral is
N-days, the minimum margin period of
risk is the minimum margin period of
risk under this paragraph (d) plus N
minus 1. This period should be
extended to cover any impediments to
prompt re-hedging of any market risk.
*
*
*
*
*
■ 21. Section 217.133 is amended by:
■ a. In paragraph (b)(3)(i)(B), removing
‘‘§ 217.132(b)(3)(i)(A)’’ and adding
‘‘§ 217.133(b)(3)(i)(A)’’ in its place.
■ b. In paragraph (b)(4)(ii) removing
‘‘§ 217.131’’ and adding ‘‘subparts E or
F of this part, as applicable’’ in its place.
■ c. Adding paragraph (c)(3)(iii); and
■ d. In paragraph (c)(4)(ii) removing
‘‘§ 217.131’’ and adding ‘‘subparts E or
F of this part, as applicable.’’ in its
place.
The revisions and additions read as
follows:
§ 217.133
Cleared transactions.
*
*
*
*
*
(c) * * *
(3) * * *
(iii) Notwithstanding paragraphs
(c)(3)(i) and (ii) of this section, a
clearing member Board-regulated
institution may apply a risk weight of 0
percent to the trade exposure amount
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for a cleared transaction with a CCP
where the clearing member Boardregulated institution is acting as a
financial intermediary on behalf of a
clearing member client, the transaction
offsets another transaction that satisfies
the requirements set forth in § 217.3(a),
and the clearing member Boardregulated institution is not obligated to
reimburse the clearing member client in
the event of the CCP default.
*
*
*
*
*
§ 217.136
[Amended]
22. Section 217.136 is amended by:
a. In paragraph (e)(2)(i) removing
‘‘§ 217.135(e)(1) and (e)(2)’’ and adding
‘‘§ 217.136(e)(1) and (2)’’ in its place;
and
■ b. In paragraph (e)(2)(ii) removing
‘‘§§ 217.135(e)(1) and (e)(2)’’ and adding
‘‘§ 217.136(e)(1) and (2)’’ in its place.
■ 23. Section 217.172 is amended by
revising paragraph (d), as added at 79
FR 57746, September 26, 2014, effective
January 1, 2015, to read as follows:
■
■
§ 217.172
Disclosure requirements.
*
*
*
*
*
(d)(1) A Board-regulated institution
that meets any of the criteria in
§ 217.100(b)(1) before January 1, 2015,
must publicly disclose each quarter its
supplementary leverage ratio and the
components thereof (that is, tier 1
capital and total leverage exposure) as
calculated under subpart B of this part,
beginning with the first quarter in 2015.
This disclosure requirement applies
without regard to whether the Board-
regulated institution has completed the
parallel run process and received
notification from the Board pursuant to
§ 217.121(d).
(2) A Board-regulated institution that
meets any of the criteria in
§ 217.100(b)(1) on or after January 1,
2015, must publicly disclose each
quarter its supplementary leverage ratio
and the components thereof (that is, tier
1 capital and total leverage exposure) as
calculated under subpart B of this part
beginning with the calendar quarter
immediately following the quarter in
which the Board-regulated institution
becomes an advanced approaches
Board-regulated institution. This
disclosure requirement applies without
regard to whether the Board-regulated
institution has completed the parallel
run process and has received
notification from the Board pursuant to
§ 217.121(d).
■ 24. Section 217.173 is amended by:
■ a. Designating paragraph (a)
introductory text, as revised at 79 FR
57746, September 26, 2014, effective
January 1, 2015, as (a)(1) and revising it;
■ b. Adding paragraphs (a)(2) and (3);
■ c. Revising the entry for (a)(1) in Table
6 to § 217.173; and
■ d. Revising the entry for (i)(2) in Table
9 to § 217.173.
The revisions and additions read as
follows:
§ 217.173 Disclosures by certain advanced
approaches Board-regulated institutions.
(a)(1) An advanced approaches Boardregulated institution described in
§ 217.172(b) must make the disclosures
described in Tables 1 through 12 to
§ 217.173.
(2) An advanced approaches Boardregulated institution that is required to
publicly disclose its supplementary
leverage ratio pursuant to § 217.172(d)
must make the disclosures required
under Table 13 to § 217.173, unless the
Board-regulated institution is a
consolidated subsidiary of a bank
holding company, savings and loan
holding company, or depository
institution that is subject to these
disclosures requirements or a subsidiary
of a non-U.S. banking organization that
is subject to comparable public
disclosure requirements in its home
jurisdiction.
(3) The disclosures described in
Tables 1 through 12 to § 217.173 must
be made publicly available for twelve
consecutive quarters beginning on
January 1, 2014, or a shorter period, as
applicable, for the quarters after the
Board-regulated institution has
completed the parallel run process and
received notification from the Board
pursuant to section 121(d) of subpart E
of this part. The disclosures described
in Table 13 to § 217.173 must be made
publicly available for twelve
consecutive quarters beginning on
January 1, 2015, or a shorter period, as
applicable, for the quarters after the
Board-regulated institution becomes
subject to the disclosure of the
supplementary leverage ratio pursuant
to § 217.172(d).
*
*
*
*
*
TABLE 6 TO § 217.173—CREDIT RISK: DISCLOSURES FOR PORTFOLIOS SUBJECT TO IRB RISK-BASED CAPITAL FORMULA
Qualitative disclosures ..........................
*
*
*
(a) ..............................
*
*
*
* * *
(1) Structure of internal rating systems and if the Board-regulated institution
considers external ratings, the relation between internal and external ratings;
*
*
*
*
*
*
TABLE 9 TO § 217.173—SECURITIZATION
Quantitative Disclosures ........................
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(i) .................................
*
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(2) Aggregate amount disclosed separately by type of underlying exposure
in the pool of any: (A) After-tax gain-on-sale on a securitization that has
been deducted from common equity tier 1 capital; and (B) Credit-enhancing interest-only strip that is assigned a 1,250 percent risk weight.
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Federal Deposit Insurance Corporation
12 CFR Chapter III
Authority and Issuance
For the reasons stated in the
preamble, the Federal Deposit Insurance
Corporation proposes to amend part 324
of chapter III of Title 12, Code of Federal
Regulations as follows:
PART 324—CAPITAL ADEQUACY
25. The authority citation for part 324
continues to read as follows:
section. An advanced approaches FDICsupervised institution must determine
its supplementary leverage ratio in
accordance with paragraph (c)(4) of this
section, beginning with the calendar
quarter immediately following the
quarter in which the FDIC-supervised
institution meets any of the criteria in
§ 324.100(b)(1).
*
*
*
*
*
■ 28. Section 324.22 is amended by
revising paragraph (b)(1)(iii) to read as
follows:
■
Authority: 12 U.S.C. 1815(a), 1815(b),
1816, 1818(a), 1818(b), 1818(c), 1818(t),
1819(Tenth), 1828(c), 1828(d), 1828(i),
1828(n), 1828(o), 1831o, 1835, 3907, 3909,
4808; 5371; 5412; Pub. L. 102–233, 105 Stat.
1761, 1789, 1790 (12 U.S.C. 1831n note); Pub.
L. 102–242, 105 Stat. 2236, 2355, as amended
by Pub. L. 103–325, 108 Stat. 2160, 2233 (12
U.S.C. 1828 note); Pub. L. 102–242, 105 Stat.
2236, 2386, as amended by Pub. L. 102–550,
106 Stat. 3672, 4089 (12 U.S.C. 1828 note);
Pub. L. 111–203, 124 Stat. 1376, 1887 (15
U.S.C. 78o–7 note).
26. Section 324.2 is amended by
revising the definition of ‘‘Residential
mortgage exposure’’ to read as follows:
■
§ 324.2
Definitions.
*
*
*
*
*
Residential mortgage exposure means
an exposure (other than a securitization
exposure, equity exposure, statutory
multifamily mortgage, or presold
construction loan) that is:
(1)(i) An exposure that is primarily
secured by a first or subsequent lien on
one-to-four family residential property;
or
(ii) An exposure with an original and
outstanding amount of $1 million or less
that is primarily secured by a first or
subsequent lien on residential property
that is not one-to-four family; and
(2) For purposes of calculating capital
requirements under subpart E of this
part, managed as part of a segment of
exposures with homogeneous risk
characteristics and not on an individualexposure basis.
*
*
*
*
*
■ 27. Section 324.10 is amended by
revising paragraph (c) introductory text
to read as follows:
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§ 324.10
Minimum capital requirements.
*
*
*
*
*
(c) Advanced approaches capital ratio
calculations. An advanced approaches
FDIC-supervised institution that has
completed the parallel run process and
received notification from the FDIC
pursuant to § 324.121(d) must determine
its regulatory capital ratios as described
in paragraphs (c)(1) through (3) of this
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§ 324.22 Regulatory capital adjustments
and deductions.
*
*
*
*
*
(b) * * *
(1) * * *
(iii) An FDIC-supervised institution
must deduct any net gain and add any
net loss related to changes in the fair
value of liabilities that are due to
changes in the FDIC-supervised
institution’s own credit risk. An
advanced approaches FDIC-supervised
institution must deduct the difference
between its credit spread premium and
the risk-free rate for derivatives that are
liabilities as part of this adjustment.
*
*
*
*
*
■ 29. Section 324.100 is amended by
revising paragraph (b)(1)(ii) to read as
follows:
§ 324.100 Purpose, applicability, and
principle of conservatism.
*
*
*
*
*
(b) * * *
(1) * * *
(ii) Has consolidated total on-balance
sheet foreign exposure on its most
recent year-end Call Report equal to $10
billion or more (where total on-balance
sheet foreign exposure equals total
foreign countries cross-border claims on
an ultimate-risk basis, plus total foreign
countries claims on local residents on
an ultimate-risk basis, plus total foreign
countries fair value of foreign exchange
and derivative products), calculated in
accordance with the Federal Financial
Institutions Examination Council
(FFIEC) 009 Country Exposure Report;
*
*
*
*
*
■ 30. Section 324.122 is amended by:
■ a. Revising paragraphs (a)(3) and
(b)(1);
■ b. Adding paragraph (b)(2)(iii);
■ c. Revising paragraphs (b)(3) and (5)
and (c)(1), (2), (5), and (6);
■ d. Redesignating paragraphs (c)(9) and
(10) as paragraphs (c)(10) and (11),
revising them, and adding a new
paragraph (c)(9).
■ e. Revising paragraph (i)(5).
The revisions and additions read as
follows:
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§ 324.122
Qualification requirements.
(a) * * *
(3) Each FDIC-supervised institution
must have an appropriate infrastructure
with risk measurement and management
processes that meet the qualification
requirements of this section and are
appropriate given the FDIC-supervised
institution’s size and level of
complexity. Regardless of whether the
systems and models that generate the
risk parameters necessary for calculating
an FDIC-supervised institution’s riskbased capital requirements are located
at any affiliate of the FDIC-supervised
institution, the FDIC-supervised
institution itself must ensure that the
risk parameters and reference data used
to determine its risk-based capital
requirements are representative of long
run experience with respect to its own
credit risk and operational risk
exposures.
(b) Risk rating and segmentation
systems for wholesale and retail
exposures. (1)(i) An FDIC-supervised
institution must have an internal risk
rating and segmentation system that
accurately, reliably, and meaningfully
differentiates among degrees of credit
risk for the FDIC-supervised
institution’s wholesale and retail
exposures. When assigning an internal
risk rating, an FDIC-supervised
institution may consider a third-party
assessment of credit risk, provided that
the FDIC-supervised institution’s
internal risk rating assignment does not
rely solely on the external assessment.
(ii) If an FDIC-supervised institution
uses multiple rating or segmentation
systems, the FDIC-supervised
institution’s rationale for assigning an
obligor or exposure to a particular
system must be documented and
applied in a manner that best reflects
the obligor or exposure’s level of risk.
An FDIC-supervised institution must
not inappropriately allocate obligors
across systems to minimize regulatory
capital requirements.
(iii) In assigning ratings to wholesale
obligors and exposures, including loss
severity ratings grades to wholesale
exposures, and assigning retail
exposures to retail segments, an FDICsupervised institution must use all
relevant and material information and
ensure that the information is current.
(iv) When assigning an obligor to a PD
rating or retail exposure to a PD
segment, an FDIC-supervised institution
must assess the obligor or retail
borrower’s ability and willingness to
contractually perform, taking a
conservative view of projected
information.
(2) * * *
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(iii) An FDIC-supervised institution
must have an effective process to obtain
and update in a timely manner relevant
and material information on obligor and
exposure characteristics that affect PD,
LGD and EAD.
(3) For retail exposures:
(i) An FDIC-supervised institution
must have an internal system that
groups retail exposures into the
appropriate retail exposure subcategory
and groups the retail exposures in each
retail exposure subcategory into
separate segments with homogeneous
risk characteristics that provide a
meaningful differentiation of risk. The
FDIC-supervised institution’s system
must identify and group in separate
segments by subcategories exposures
identified in § 324.131(c)(2)(ii) and (iii).
(ii) An FDIC-supervised institution
must have an internal system that
captures all relevant exposure risk
characteristics, including borrower
credit score, product and collateral
types, as well as exposure
delinquencies, and must consider crosscollateral provisions, where present.
(iii) The FDIC-supervised institution
must review and, if appropriate, update
assignments of individual retail
exposures to segments and the loss
characteristics and delinquency status
of each identified risk segment. These
reviews must occur whenever the FDICsupervised institution receives new
material information, but generally no
less frequently than quarterly, and, in
all cases, at least annually.
*
*
*
*
*
(5) The FDIC-supervised institution’s
internal risk rating system for wholesale
exposures must provide for the review
and update (as appropriate) of each
obligor rating and (if applicable) each
loss severity rating whenever the FDICsupervised institution obtains relevant
and material information on the obligor
or exposure that affect PD, LGD and
EAD, but no less frequently than
annually.
(c) Quantification of risk parameters
for wholesale and retail exposures. (1)
The FDIC-supervised institution must
have a comprehensive risk parameter
quantification process that produces
accurate, timely, and reliable estimates
of the risk parameters on a consistent
basis for the FDIC-supervised
institution’s wholesale and retail
exposures.
(2) An FDIC-supervised institution’s
estimates of PD, LGD, and EAD must
incorporate all relevant, material, and
available data that is reflective of the
FDIC-supervised institution’s actual
wholesale and retail exposures and of
sufficient quality to support the
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determination of risk-based capital
requirements for the exposures. In
particular, the population of exposures
in the data used for estimation
purposes, and lending standards in use
when the data were generated, and other
relevant characteristics, should closely
match or be comparable to the FDICsupervised institution’s exposures and
standards. In addition, an FDICsupervised institution must:
(i) Demonstrate that its estimates are
representative of long run experience,
including periods of economic
downturn conditions, whether internal
or external data are used;
(ii) Take into account any changes in
lending practice or the process for
pursuing recoveries over the observation
period;
(iii) Promptly reflect technical
advances, new data, and other
information as they become available;
(iv) Demonstrate that the data used to
estimate risk parameters support the
accuracy and robustness of those
estimates; and
(v) Demonstrate that its estimation
technique performs well in out-ofsample tests whenever possible.
*
*
*
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*
(5) The FDIC-supervised institution
must be able to demonstrate which
variables have been found to be
statistically significant with regard to
EAD. The FDIC-supervised institution’s
EAD estimates must reflect its specific
policies and strategies with regard to
account management, including account
monitoring and payment processing,
and its ability and willingness to
prevent further drawdowns in
circumstances short of payment default.
The FDIC-supervised institution must
have adequate systems and procedures
in place to monitor current outstanding
amounts against committed lines, and
changes in outstanding amounts per
obligor and obligor rating grade and per
retail segment. The FDIC-supervised
institution must be able to monitor
outstanding amounts on a daily basis.
(6) At a minimum, PD estimates for
wholesale obligors and retail segments
must be based on at least five years of
default data. LGD estimates for
wholesale exposures must be based on
at least seven years of loss severity data,
and LGD estimates for retail segments
must be based on at least five years of
loss severity data. EAD estimates for
wholesale exposures must be based on
at least seven years of exposure amount
data, and EAD estimates for retail
segments must be based on at least five
years of exposure amount data. If the
FDIC-supervised institution has relevant
and material reference data that span a
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75471
longer period of time than the minimum
time periods specified above, the FDICsupervised institution must incorporate
such data in its estimates, provided that
it does not place undue weight on
periods of favorable or benign economic
conditions relative to periods of
economic downturn conditions.
*
*
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*
*
(9) If an FDIC-supervised institution
uses internal data obtained prior to
becoming subject to this subpart E or
external data to arrive at PD, LGD, or
EAD estimates, the FDIC-supervised
institution must demonstrate to the
FDIC that the FDIC-supervised
institution has made appropriate
adjustments if necessary to be consistent
with the definition of default in
§ 324.101. Internal data obtained after
the FDIC-supervised institution
becomes subject to this subpart E must
be consistent with the definition of
default in § 324.101.
(10) The FDIC-supervised institution
must review and update (as appropriate)
its risk parameters and its risk
parameter quantification process at least
annually.
(11) The FDIC-supervised institution
must, at least annually, conduct a
comprehensive review and analysis of
reference data to the FDIC-supervised
institution’s exposures, quality of
reference data to support PD, LGD, and
EAD estimates, and consistency of
reference data to the definition of
default in § 324.101.
*
*
*
*
*
(i) * * *
(5) The FDIC-supervised institution
must have an internal audit function or
equivalent function that is independent
of business-line management that at
least annually:
(i) Reviews the FDIC-supervised
institution’s advanced systems and
associated operations, including the
operations of its credit function and
estimations of PD, LGD, and EAD;
(ii) Assesses the effectiveness of the
controls supporting the FDIC-supervised
institution’s advanced systems; and
(iii) Documents and reports its
findings to the FDIC-supervised
institution’s board of directors (or a
committee thereof).
*
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*
■ 31 Section 324.131 is amended by:
■ a. Revising paragraph (d)(5)(ii) and
(iii); and
■ b. In paragraph (e)(3)(vi), removing
‘‘§ 324.22(a)(7)’’ and adding
‘‘§ 324.22(d)’’ in its place.
The revisions read as follows:
§ 324.131 Mechanics for calculating total
wholesale and retail risk-weighted assets.
*
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Federal Register / Vol. 79, No. 243 / Thursday, December 18, 2014 / Proposed Rules
(d) * * *
(5) * * *
(ii) An FDIC-supervised institution
may take into account the risk reducing
effects of guarantees and credit
derivatives in support of retail
exposures in a segment when
quantifying the PD and LGD of the
segment. In doing so, an FDICsupervised institution must consider all
relevant available information.
(iii) Except as provided in paragraph
(d)(6) of this section, an FDICsupervised institution may take into
account the risk reducing effects of
collateral in support of a wholesale
exposure when quantifying the LGD of
the exposure, and may take into account
the risk reducing effects of collateral in
support of retail exposures when
quantifying the PD and LGD of the
segment. In order to do so, an FDICsupervised institution must have
established internal requirements for
collateral management, legal certainty,
and risk management processes.
*
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■ 32. Section 324.132 is amended by:
■ a. In Table 1 to § 324.132, removing
‘‘this section’’ and adding ‘‘§ 324.32’’ in
its place, wherever it appears;
■ b. Revising paragraphs (c)(1) and
(d)(5)(iii)(B);
■ c. In paragraph (d)(7)(iv)(B), removing
‘‘§ 324.131(b)(2)’’ and adding
‘‘§ 324.132(b)(2)’’ in its place; and
■ d. In paragraph (d)(9)(ii), removing
‘‘paragraph (e)(3)’’ and adding
‘‘paragraph (e)(6)’’ in its place.
The revisions read as follows:
§ 324.132 Counterparty credit risk of repostyle transactions, eligible margin loans,
and OTC derivative contracts.
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(c) EAD for OTC derivative
contracts—(1) OTC derivative contracts
not subject to a qualifying master
netting agreement. An FDIC-supervised
institution must determine the EAD for
an OTC derivative contract that is not
subject to a qualifying master netting
agreement using the current exposure
methodology in paragraph (c)(5) of this
section or using the internal models
methodology described in paragraph (d)
of this section. An FDIC-supervised
institution may reduce the EAD
calculated according to paragraphs (c)(5)
or (d) of this section by the credit
valuation adjustment that the FDICsupervised institution has recognized in
its balance sheet valuation of any OTC
derivative contracts in the netting set.
For purposes of this paragraph (c), the
credit valuation adjustment does not
include any adjustments to common
equity tier 1 capital attributable to
changes in the fair value of the FDIC-
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17:58 Dec 17, 2014
Jkt 235001
supervised institution’s liabilities that
are due to changes in its own credit risk
since the inception of the transaction
with the counterparty.
*
*
*
*
*
(d) * * *
(5) * * *
(iii) * * *
(B) Twenty business days if the
number of trades in a netting set
exceeds 5,000 at any time during the
previous quarter (except if the FDICsupervised institution is calculating
EAD for a cleared transaction under
§ 324.133) or contains one or more
trades involving illiquid collateral or
any derivative contract that cannot be
easily replaced. If over the two previous
quarters more than two margin disputes
on a netting set have occurred that
lasted more than the margin period of
risk, then the FDIC-supervised
institution must use a margin period of
risk for that netting set that is at least
two times the minimum margin period
of risk for that netting set. If the
periodicity of the receipt of collateral is
N-days, the minimum margin period of
risk is the minimum margin period of
risk under this paragraph (d) plus N
minus 1. This period should be
extended to cover any impediments to
prompt re-hedging of any market risk.
*
*
*
*
*
■ 33. Section 324.133 is amended by:
■ a. In paragraph (b)(3)(i)(B), removing
‘‘§ 324.132(b)(3)(i)(A)’’ and adding
‘‘§ 324.133(b)(3)(i)(A)’’ in its place;
■ b. In paragraphs (b)(4)(ii) removing
‘‘§ 324.131’’ and adding ‘‘subparts E or
F of this part, as applicable’’ in its place;
■ c. Adding paragraph (c)(3)(iii); and
■ d. In paragraph (c)(4)(ii) removing
‘‘§ 324.131’’ and adding ‘‘subparts E or
F of this part, as applicable’’ in its place.
The addition reads as follows:
§ 324.133
Cleared transactions.
*
*
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*
*
(c) * * *
(3) * * *
(iii) Notwithstanding paragraphs
(c)(3)(i) and (ii) of this section, a
clearing member FDIC-supervised
institution may apply a risk weight of 0
percent to the trade exposure amount
for a cleared transaction with a CCP
where the clearing member FDICsupervised institution is acting as a
financial intermediary on behalf of a
clearing member client, the transaction
offsets another transaction that satisfies
the requirements set forth in § 324.3(a),
and the clearing member FDICsupervised institution is not obligated to
reimburse the clearing member client in
the event of the CCP default.
*
*
*
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§ 324.136
[Amended]
34. Section 324.136 is amended by,
a. In paragraph (e)(2)(i) removing
‘‘§ 324.135(e)(1) and (e)(2)’’ and adding
‘‘§ 324.136(e)(1) and (2)’’ in its place;
and
■ b. In paragraph (e)(2)(ii), removing
‘‘§§ 324.135(e)(1) and (e)(2)’’ and adding
‘‘§ 324.136(e)(1) and (2)’’ in its place.
■ 34. Section 324.172 is amended by
revising paragraphs (d), as added at 79
FR 57750, September 26, 2014, effective
January 1, 2015, to read as follows:
■
■
§ 324.172
Disclosure requirements.
*
*
*
*
*
(d)(1) An FDIC-supervised institution
that meets any of the criteria in
§ 324.100(b)(1) before January 1, 2015,
must publicly disclose each quarter its
supplementary leverage ratio and the
components thereof (that is, tier 1
capital and total leverage exposure) as
calculated under subpart B of this part,
beginning with the first quarter in 2015.
This disclosure requirement applies
without regard to whether the FDICsupervised institution has completed
the parallel run process and received
notification from the FDIC pursuant to
§ 324.121(d).
(2) An FDIC-supervised institution
that meets any of the criteria in
§ 324.100(b)(1) on or after January 1,
2015, must publicly disclose each
quarter its supplementary leverage ratio
and the components thereof (that is, tier
1 capital and total leverage exposure) as
calculated under subpart B of this part
beginning with the calendar quarter
immediately following the quarter in
which the FDIC-supervised institution
becomes an advanced approaches FDICsupervised institution. This disclosure
requirement applies without regard to
whether the FDIC-supervised institution
has completed the parallel run process
and has received notification from the
FDIC pursuant to § 324.121(d).
■ 35. Section 324.173 is amended by:
■ a. Designating paragraph (a), as
revised at 79 FR 57750, September 26,
2014, effective January 1, 2015, as
paragraph (a)(1) and revising it;
■ b. Adding paragraphs (a)(2) and (3);
■ c. Revising the entry for (a)(1) in Table
6 to § 324.173; and
■ d. Revising the entry for (i)(2) in Table
9 to § 324.173.
The revisions and additions read as
follows:
§ 324.173 Disclosures by certain advanced
approaches FDIC-supervised institutions.
(a)(1) An advanced approaches FDICsupervised institution described in
§ 324.172(b) must make the disclosures
described in Tables 1 through 12 to
§ 324.173.
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Federal Register / Vol. 79, No. 243 / Thursday, December 18, 2014 / Proposed Rules
(2) An advanced approaches FDICsupervised institution that is required to
publicly disclose its supplementary
leverage ratio pursuant to § 324.172(d)
must make the disclosures required
under Table 13 to § 324.173, unless the
FDIC-supervised institution is a
consolidated subsidiary of a bank
holding company, savings and loan
holding company, or depository
institution that is subject to these
disclosures requirements or a subsidiary
of a non-U.S. banking organization that
is subject to comparable public
disclosure requirements in its home
jurisdiction.
(3) The disclosures described in
Tables 1 through 12 to § 324.173 must
be made publicly available for twelve
consecutive quarters beginning on
January 1, 2014, or a shorter period, as
applicable, for the quarters after the
FDIC-supervised institution has
completed the parallel run process and
received notification from the FDIC
pursuant to section 121(d) of subpart E
of this part. The disclosures described
in Table 13 to § 324.173 must be made
publicly available for twelve
consecutive quarters beginning on
January 1, 2015, or a shorter period, as
applicable, for the quarters after the
FDIC-supervised institution becomes
subject to the disclosure of the
supplementary leverage ratio pursuant
to § 324.172(d).
*
*
*
*
*
TABLE 6 TO § 324.173—CREDIT RISK: DISCLOSURES FOR PORTFOLIOS SUBJECT TO IRB RISK-BASED CAPITAL FORMULA
Qualitative disclosures ...........................
*
*
*
(a) ................................
*
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*
*
* * *
(1) Structure of internal rating systems and if the national bank or the FDICsupervised institution considers external ratings, the relation between internal and external ratings;
* * *
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*
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*
TABLE 9 TO § 324.173—SECURITIZATION
*
*
Quantitative disclosures .........................
*
*
*
*
* * * ............................
(i) .................................
*
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[FR Doc. 2014–28690 Filed 12–17–14; 8:45 am]
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BILLING CODE P
17:58 Dec 17, 2014
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FEDERAL RESERVE SYSTEM
Dated: November 18, 2014.
Thomas J. Curry,
Comptroller of the Currency.
By order of the Board of Governors of the
Federal Reserve System, December 2, 2014.
Robert deV. Frierson,
Secretary of the Board.
Dated at Washington, DC, this 18th day of
November, 2014.
By order of the Board of Directors.
Federal Deposit Insurance Corporation.
Robert E. Feldman,
Executive Secretary.
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* * *
* * *
(2) Aggregate amount disclosed separately by type of underlying exposure
in the pool of any: (A) After-tax gain-on-sale on a securitization that has
been deducted from common equity tier 1 capital; and (B) Credit-enhancing interest-only strip that is assigned a 1,250 percent risk weight.
Jkt 235001
12 CFR Part 217
[Regulation Q; Docket No. R–1505]
RIN 7100 AE–26
Risk-Based Capital Guidelines:
Implementation of Capital
Requirements for Global Systemically
Important Bank Holding Companies
Board of Governors of the
Federal Reserve System.
ACTION: Notice of proposed rulemaking.
AGENCY:
The Board of Governors of the
Federal Reserve System (Board) is
inviting public comment on a
framework to establish risk-based
capital surcharges for the largest, most
interconnected U.S.-based bank holding
companies pursuant to section 165 of
the Dodd-Frank Wall Street Reform and
Consumer Protection Act. The proposal
is based upon the international standard
adopted by the Basel Committee on
Banking Supervision, modified to reflect
systemic risk concerns specific to the
SUMMARY:
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*
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funding structures of large U.S. bank
holding companies.
The proposed framework would
require a U.S. top-tier bank holding
company with $50 billion or more in
total consolidated assets to calculate a
measure of its systemic importance and
would identify a subset of those
companies as global systemically
important bank holding companies
based on that measure. A global
systemically important bank holding
company would be subject to a riskbased capital surcharge that would
increase its capital conservation buffer
under the Board’s regulatory capital
rule. The proposed framework would be
phased in beginning on January 1, 2016
through year-end 2018, becoming fully
effective on January 1, 2019. The
proposal would also revise the
terminology used to identify the firms
subject to the enhanced supplementary
leverage ratio standards to ensure
consistency of the scopes of application
of both rulemakings.
Comments must be received no
later than March 2, 2015.
DATES:
E:\FR\FM\18DEP1.SGM
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]]>Agencies
[Federal Register Volume 79, Number 243 (Thursday, December 18, 2014)]
[Proposed Rules]
[Pages 75455-75473]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-28690]
=======================================================================
-----------------------------------------------------------------------
DEPARTMENT OF TREASURY
Office of the Comptroller of the Currency
12 CFR Part 3
[Docket ID OCC-2014-0025]
RIN 1557-AD88
FEDERAL RESERVE SYSTEM
12 CFR Part 217
[Regulation Q; Docket No. R-1502]
RIN 7100-AE 24
FEDERAL DEPOSIT INSURANCE CORPORATION
12 CFR Part 324
RIN 3064-AE 12
Regulatory Capital Rules: Regulatory Capital, Proposed Revisions
Applicable to Banking Organizations Subject to the Advanced Approaches
Risk-Based Capital Rule
AGENCIES: Office of the Comptroller of the Currency, Treasury; the
Board of Governors of the Federal Reserve System; and the Federal
Deposit Insurance Corporation
ACTION: Joint notice of proposed rulemaking (NPR).
-----------------------------------------------------------------------
SUMMARY: The Office of the Comptroller of the Currency (OCC), the Board
of Governors of the Federal Reserve System (Board), and the Federal
Deposit Insurance Corporation (FDIC) (collectively, the agencies) are
seeking comment on an NPR that would clarify, correct, and update
aspects of the agencies' regulatory capital rule applicable to banking
organizations that are subject to the advanced approaches risk-based
capital rule (advanced approaches banking organizations). The proposed
revisions are largely driven by observations made by the agencies
during the parallel-run review process of advanced approaches banking
organizations. They are also intended to enhance consistency of the
U.S. regulations with international standards for use of the advanced
approaches rule.
DATES: Comments must be received no later than February 17, 2015.
ADDRESSES: Comments should be directed to:
[[Page 75456]]
OCC: Because paper mail in the Washington, DC area and at the OCC
is subject to delay, commenters are encouraged to submit comments by
the Federal eRulemaking Portal or email, if possible. Please use the
title ``Regulatory Capital Rules: Regulatory Capital, Proposed
Revisions Applicable to Banking Organizations Subject to the Advanced
Approaches Risk-Based Capital Rule'' to facilitate the organization and
distribution of the comments. You may submit comments by any of the
following methods:
Federal eRulemaking ortal--``regulations.gov'': Go to
https://www.regulations.gov. Enter ``Docket ID OCC-2014-0025'' in the
Search Box and click ``Search''. Results can be filtered using the
filtering tools on the left side of the screen. Click on ``Comment
Now'' to submit public comments.
Click on the ``Help'' tab on the Regulations.gov home page
to get information on using Regulations.gov, including instructions for
submitting public comments.
Email: regs.comments@occ.treas.gov.
Mail: Legislative and Regulatory Activities Division,
Office of the Comptroller of the Currency, 400 7th Street SW., Suite
3E-218, Mail Stop 9W-11, Washington, DC 20219.
Hand Delivery/Courier: 400 7th Street SW., Suite 3E-218,
Mail Stop 9W-11, Washington, DC 20219.
Fax: (571) 465-4326.
Instructions: You must include ``OCC'' as the agency name and
``Docket ID OCC-2014-0025'' in your comment. In general, OCC will enter
all comments received into the docket and publish them on the
Regulations.gov Web site without change, including any business or
personal information that you provide such as name and address
information, email addresses, or phone numbers. Comments received,
including attachments and other supporting materials, are part of the
public record and subject to public disclosure. Do not enclose any
information in your comment or supporting materials that you consider
confidential or inappropriate for public disclosure.
You may review comments and other related materials that pertain to
this rulemaking action by any of the following methods:
Viewing Comments Electronically: Go to https://www.regulations.gov. Enter ``Docket ID OCC-2014-0025'' in the Search
box and click ``Search''. Comments can be filtered by Agency using the
filtering tools on the left side of the screen.
Click on the ``Help'' tab on the Regulations.gov home page
to get information on using Regulations.gov, including instructions for
viewing public comments, viewing other supporting and related
materials, and viewing the docket after the close of the comment
period.
Viewing Comments Personally: You may personally inspect
and photocopy comments at the OCC, 400 7th Street SW., Washington, DC.
For security reasons, the OCC requires that visitors make an
appointment to inspect comments. You may do so by calling (202) 649-
6700. Upon arrival, visitors will be required to present valid
government-issued photo identification and to submit to security
screening in order to inspect and photocopy comments.
Docket: You may also view or request available background
documents and project summaries using the methods described above.
Board: When submitting comments, please consider submitting your
comments by email or fax because paper mail in the Washington, DC area
and at the Board may be subject to delay. You may submit comments,
identified by Docket No. R-1502 and RIN 7100-AE 24, by any of the
following methods:
Agency Web site: https://www.federalreserve.gov. Follow the
instructions for submitting comments at https://www.federalreserve.gov/apps/foia/ProposedRegs.aspx.
Federal eRulemaking Portal: https://www.regulations.gov.
Follow the instructions for submitting comments.
Email: regs.comments@federalreserve.gov. Include docket
number in the subject line of the message.
Fax: (202) 452-3819 or (202) 452-3102.
Mail: Robert de V. Frierson, Secretary, Board of Governors
of the Federal Reserve System, 20th Street and Constitution Avenue NW.,
Washington, DC 20551.
All public comments are available from the Board's Web site at
https://www.federalreserve.gov/apps/foia/ProposedRegs.aspx as submitted,
unless modified for technical reasons. Accordingly, your comments will
not be edited to remove any identifying or contact information. Public
comments may also be viewed electronically or in paper form in Room MP-
500 of the Board's Martin Building (20th and C Streets NW., Washington,
DC 20551) between 9:00 a.m. and 5:00 p.m. on weekdays.
FDIC: You may submit comments, identified by RIN 3064-AE 12, by any
of the following methods:
Agency Web site: https://www.fdic.gov/regulations/laws/federal/propose.html. Follow instructions for submitting comments on the Agency
Web site.
Email: Comments@fdic.gov. Include the RIN 3064-AE 12 on
the subject line of the message.
Mail: Robert E. Feldman, Executive Secretary, Attention:
Comments, Federal Deposit Insurance Corporation, 550 17th Street NW.,
Washington, DC 20429.
Hand Delivery: Comments may be hand delivered to the guard
station at the rear of the 550 17th Street Building (located on F
Street) on business days between 7:00 a.m. and 5:00 p.m.
Public Inspection: All comments received must include the agency
name and RIN 3064-AE01 for this rulemaking. All comments received will
be posted without change to https://www.fdic.gov/regulations/laws/federal/propose.html, including any personal information provided.
Paper copies of public comments may be ordered from the FDIC Public
Information Center, 3501 North Fairfax Drive, Room E-1002, Arlington,
VA 22226 by telephone at (877) 275-3342 or (703) 562-2200.
FOR FURTHER INFORMATION CONTACT:
OCC: Margot Schwadron, Senior Risk Expert (202) 649-6982; or Mark
Ginsberg, Principal Risk Expert (202) 649-6983, Capital Policy; or Carl
Kaminski, Counsel; or Kevin Korzeniewski, Attorney, Legislative and
Regulatory Activities Division, (202) 649-5490, for persons who are
deaf or hard of hearing, TTY, (202) 649-5597, Office of the Comptroller
of the Currency, 400 7th Street SW., Washington, DC 20219.
Board: Constance M. Horsley, Assistant Director, (202) 452-5239;
Thomas Boemio, Manager, (202) 452-2982; Andrew Willis, Supervisory
Financial Analyst, (202) 912-4323, Matthew McQueeney, Senior Financial
Analyst, (202) 425-2942, or Justyna Milewski, Financial Analyst, (202)
452-3607, Capital and Regulatory Policy, Division of Banking
Supervision and Regulation; or Christine Graham, Counsel (202) 452-
3005; or David W. Alexander, Counsel (202) 452-2877, Legal Division,
Board of Governors of the Federal Reserve System, 20th and C Streets
NW., Washington, DC 20551. For the hearing impaired only,
Telecommunication Device for the Deaf (TDD), (202) 263-4869.
FDIC: Bobby R. Bean, Associate Director, bbean@fdic.gov; Ryan
Billingsley, Chief, Capital Policy Section, rbillingsley@fdic.gov; or
Benedetto Bosco, Capital Markets Policy Analyst, bbosco@fdic.gov;
Capital Markets Branch, Division of Risk Management Supervision, (202)
898-6888; or Michael Phillips, Counsel,
[[Page 75457]]
mphillips@fdic.gov; Rachel Ackmann, Senior Attorney, rackmann@fdic.gov;
Grace Pyun, Senior Attorney, gpyun@fdic.gov; Supervision Branch, Legal
Division, Federal Deposit Insurance Corporation, 550 17th Street NW.,
Washington, DC 20429.
SUPPLEMENTARY INFORMATION:
I. Background
In 2013, the Office of the Comptroller of the Currency (OCC), the
Board of Governors of the Federal Reserve System (Board), and the
Federal Deposit Insurance Corporation (FDIC) (collectively, the
agencies) comprehensively revised and strengthened the capital
requirements applicable to banking organizations \1\ (regulatory
capital framework).\2\ Among other changes, the regulatory capital
framework revised elements of the advanced approaches risk-based
capital requirements (advanced approaches rule) now located at subpart
E of the agencies' revised regulatory capital framework.\3\
---------------------------------------------------------------------------
\1\ The term banking organizations includes national banks,
state member banks, state nonmember banks, savings associations, and
top-tier bank holding companies domiciled in the United States not
subject to the Board's Small Bank Holding Company Policy Statement
(12 CFR part 225, appendix C), as well as top-tier savings and loan
holding companies domiciled in the United States, except for certain
savings and loan holding companies that are substantially engaged in
insurance underwriting or commercial activities.
\2\ The Board and the OCC issued a joint final rule on October
11, 2013 (78 FR 62018) and the FDIC issued a substantially identical
interim final rule on September 10, 2013 (78 FR 55340). In April
2014, the FDIC adopted the interim final rule as a final rule with
no substantive changes. 79 FR 20754 (April 14, 2014).
\3\ 12 CFR part 3 (OCC), 12 CFR part 217 (Board), and 12 CFR
part 324 (FDIC).
---------------------------------------------------------------------------
The advanced approaches rule applies to large, internationally
active banking organizations, generally those with $250 billion or more
in total consolidated assets or $10 billion or more in total on-balance
sheet foreign exposure, depository institution subsidiaries of those
banking organizations that use the advanced approaches rule, and
banking organizations that elect to use the advanced approaches
(advanced approaches banking organizations).\4\ Before an advanced
approaches banking organization may use the advanced approaches rule to
determine its risk-based capital requirements, it must conduct a
satisfactory trial, or parallel run.\5\ During the parallel run period,
which must be at least four consecutive calendar quarters, an advanced
approaches banking organization must demonstrate to the satisfaction of
its primary Federal supervisor that it has implemented risk-measurement
and risk-management systems that are consistent with the advanced
approaches rule and are appropriate given the banking organization's
size and level of complexity. After the primary Federal supervisor
determines that the banking organization fully complies with all the
qualification requirements, has conducted a satisfactory parallel run,
and has an adequate process to ensure ongoing compliance, then the
banking organization will be required to use the advanced approaches to
calculate its risk-based capital requirements.\6\
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\4\ 12 CFR 3.100(b)(1) (OCC), 12 CFR 217.100(b)(1) (Board), and
12 CFR 324.100(b)(1) (FDIC).
\5\ 12 CFR 3.121(c) (OCC), 12 CFR 217.121(c) (Board), and 12 CFR
324.121(c) (FDIC).
\6\ 12 CFR 3.121(d) (OCC), 12 CFR 217.121(d) (Board), and 12 CFR
324.121(d) (FDIC).
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Consistent with section 171 of the Dodd-Frank Act,\7\ an advanced
approaches banking organization that is required to calculate its risk-
based capital requirements under the advanced approaches rule also must
determine its risk-based capital requirements under the generally
applicable risk-based capital rule.\8\ The lower ratio (i.e., the more
binding ratio) for each risk-based capital requirement is the ratio the
banking organization must use to determine its compliance with minimum
regulatory capital requirements.
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\7\ See, 12 U.S.C. 5371.
\8\ Prior to January 1, 2015, the term ``generally applicable
risk-based capital rules'' refers to the risk-based capital rules
set forth at 12 CFR part 3, appendix A and 12 CFR part 167 (OCC); 12
CFR pt. 208 and 12 CFR part 225, appendix A (Federal Reserve); and
12 CFR part 325, appendix A, and 12 CFR part 390, subpart Z (FDIC).
As of January 1, 2015, and thereafter, the term ``generally
applicable risk-based capital rules'' will refer to the risk-based
capital rules set forth at 12 CFR part 3, subparts A, B, C, and D
(OCC); 12 CFR part 217, subparts A, B, C, and D (Board); and 12 CFR
part 324, subparts A, B, C, and D (FDIC).
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In February 2014, the agencies permitted certain banking
organizations to exit parallel run and to begin calculating their risk-
based capital requirements using the advanced approaches rule,
beginning with the second quarter of 2014.\9\ Supervisory review of
advanced approaches systems conducted as part of the parallel run exit
review process has highlighted certain areas of the advanced approaches
rule qualification requirements that would benefit from clarification.
In addition, the agencies are proposing to make technical revisions to
address typographical errors, such as incorrect references, in the
regulatory capital framework. The agencies are also proposing
clarifications that are intended to enhance the consistency of the U.S.
regulations with international standards for use of the advanced
approaches. The proposed amendments in this NPR affect only provisions
that apply to advanced approaches banking organizations. The agencies
are seeking comment on all aspects of the proposed rule.
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\9\ This data is reported on the FFIEC 101, Regulatory Capital
Reporting for Institutions Subject to the Advanced Capital Adequacy
Framework, available at https://www.ffiec.gov/forms101.htm.
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II. Proposed Rule Corrections and Clarifications
Since publishing the regulatory capital framework, the agencies
have identified typographical and technical errors in several
provisions, including provisions of subpart E of the regulatory capital
framework. The agencies have also identified provisions that warrant
clarification or updating in light of revisions to other rules. The
agencies are, therefore, proposing to revise the regulatory capital
framework as described below.
Definition of Residential Mortgage Exposure
The definition of residential mortgage exposure in section 2 of the
regulatory capital framework was intended to provide that, for purposes
of the advanced approaches rule, an exposure secured by a first or
subsequent lien on one-to-four family residential property must be
managed as part of a segment of exposures with homogenous risk
characteristics, and not on an individual basis, to be considered a
residential mortgage exposure.\10\ Under the advanced approaches, for
retail exposures, a banking organization must have an internal system
that groups retail exposures into the appropriate retail exposure
subcategory and groups the retail exposures in each retail exposure
subcategory into separate segments with homogenous risk
characteristics.\11\ As currently written, however, the definition of
residential mortgage exposure does not provide that advanced approaches
banking organizations must group exposures secured by a first or
subsequent lien on one-to-four family residential property into
separate segments with homogenous risk characteristics, as required
under the retail framework of
[[Page 75458]]
the advanced approaches. Accordingly, the agencies propose to revise
the definition of residential mortgage exposure to provide that, for
the purpose of calculating capital requirements under the advanced
approaches, any exposure secured by a lien on residential property must
be managed as part of a segment of exposures with homogenous risk
characteristics, and not on an individual basis, to be considered a
residential mortgage exposure. This change would make the definition
consistent with the definition used in the 2007 advanced capital
adequacy framework implementing Basel II \12\ (2007 rule).
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\10\ This provision is explicit in the regulatory capital
framework definition of residential mortgage exposure for an
exposure with an original and outstanding amount of $1 million or
less that is primarily secured by a first or subsequent lien on
residential property that is not one-to-four family.
\11\ See 12 CFR 3.122(b)(3) (OCC), 12 CFR 217.122(b)(3) (Board),
and 12 CFR 324.122(b)(3) (FDIC).
\12\ 72 FR 69288 (December 7, 2007).
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Calculation of Total On-Balance Sheet Foreign Exposure
The criteria set forth in section 100(b) of the regulatory capital
framework, which describe which banking organizations are required to
use the advanced approaches rule, include an explanation of how a
banking organization determines whether it meets the $10 billion total
on-balance sheet foreign exposure threshold. The advanced approaches
rule currently references line-item descriptions from a version of the
FFIEC 009 Regulatory Report that has since been modified to adjust or
rename those line items. The agencies therefore propose to update the
methodology for calculating this measure in section 100(b)(ii) to
reflect the relevant line-item descriptions and instructions from the
most recent version of the FFIEC 009 Regulatory Report.\13\
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\13\ Available at https://www.ffiec.gov/forms009_009a.htm.
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Disclosure Requirements for Advanced Approaches Banking Organizations
Section 173 of the regulatory capital framework requires advanced
approaches banking organizations that have completed the parallel run
process and have received notification from their primary Federal
supervisor pursuant to section 121(d) of subpart E to provide timely
disclosure of the information in the applicable tables in that section.
Table 6 of section 173 of the regulatory capital framework requires
firms to explain and review the structure of internal ratings systems
and the relation between internal and external ratings. Section 939A of
the Dodd-Frank Act generally requires the Federal banking agencies to
remove any reference to, or any requirement involving, the reliance on
external credit ratings to assess the creditworthiness of a security or
money market instrument. As a result, the agencies are proposing to
amend table 6 of section 173 to clarify that the use of external
ratings is not required for the purpose of an advanced approaches
banking organization's internal rating assessment.
For the purpose of the disclosures required in table 6 of section
173, to the extent that the advanced approaches banking organization
considers external ratings in its internal ratings process, it must
include an explanation of the relation between the internal and
external ratings. An advanced approaches banking organization that does
not use or consider external ratings would not be required to make such
a disclosure.
Table 9 in section 173 of the regulatory capital framework
describes information related to securitization exposures that certain
advanced approaches banking organizations are required to disclose. In
the regulatory capital framework, the agencies revised the risk-based
capital treatment of these items, but did not revise Table 9 to reflect
the revisions. The agencies propose to update line (i)(2) under
quantitative disclosures to appropriately reflect the current treatment
under the regulatory capital framework of credit-enhancing interest
only strips (CEIOs) and after-tax gain-on-sale resulting from a
securitization. Specifically, under the regulatory capital framework,
an after-tax gain-on-sale resulting from a securitization is deducted
from common equity tier 1 capital, rather than from tier 1 capital as
was the case under the 2007 rule. Also, under the regulatory capital
framework, CEIOs that do not constitute after-tax gain-on-sale are
risk-weighted at 1,250 percent, rather than deducted from total
capital, as was the case under the 2007 rule.
Collateral Posted by a Clearing Member Client Banking Organization and
Clearing Member Banking Organization
Sections 133(b)(4)(ii) and 133(c)(4)(ii) of the regulatory capital
framework require a clearing member client banking organization or a
clearing member banking organization, respectively, to calculate a
risk-weighted asset amount for any collateral provided to a central
counterparty (CCP), clearing member, or custodian in connection with a
cleared transaction in accordance with the requirements under section
131. The agencies note that section 131 only provides for the risk-
weighting of wholesale and retail exposures whereas collateral posted
to a CCP, clearing member, or custodian may also be in the form of a
securitization exposure, equity exposure, or a covered position.
Therefore, the agencies are proposing to amend sections 133(b)(4)(ii)
and 133(c)(4)(ii) to replace the cross reference to section 131 with a
broader cross reference, as applicable, to subpart E, which provides
the risk-weighting methodology for wholesale, retail, securitization
and equity exposures, or subpart F, which provides the risk weighting
methodology for covered positions, so that the clearing member client
banking organization and clearing member banking organization can
determine the correct risk weight for the collateral provided.
Risk Weight for Certain Client Cleared Transactions
Under the regulatory capital framework, a clearing member banking
organization must assign a 2 percent risk weight to the trade exposure
amount for a cleared transaction with a qualifying central counterparty
(QCCP) and a risk weight according to section 32 to the trade exposure
amount for a cleared transaction with a CCP that is not a QCCP. The
definition of cleared transaction includes a derivative contract or
repo-style transaction between a CCP and a clearing member banking
organization where the banking organization is acting as a financial
intermediary on behalf of its clearing member client and the
transaction offsets a derivative contract or repo-style transaction
between the clearing member banking organization and its client that
meets the requirements of section 3(a) of the regulatory capital
framework. The agencies are proposing, consistent with the Basel
Committee's capital requirements for bank exposures to central
counterparties capital framework,\14\ to permit clearing member banking
organizations to assign a zero percent risk weight under subpart E to
the trade exposure amount of a cleared transaction that arises when a
clearing member banking organization does not guarantee the performance
of the CCP and has no payment obligation to the clearing member client
in the event of a CCP default. In these circumstances, requiring the
clearing member banking organization to include a trade exposure amount
to the CCP in credit risk-weighted assets would generally result in an
overstatement of its total risk-weighted assets under the advanced
approaches rule. However, if a clearing member banking organization
does guarantee the performance of the CCP to the clearing member
client, then a clearing member banking organization
[[Page 75459]]
would assign a risk weight of 2 percent to its trade exposure amount
for a cleared transaction with a QCCP or a risk weight according to
section 32 of the regulatory capital framework to its trade exposure
amount (as defined in section 133) for a cleared transaction with a CCP
that is not a QCCP.
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\14\ Available at https://www.bis.org/publ/bcbs282.pdf.
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This proposed approach would align the risk-based capital
requirements for client-cleared transactions with recently finalized
revisions to the treatment of those transactions under the agencies'
supplementary leverage ratio rule.\15\ When calculating the
supplementary leverage ratio, the agencies do not require a clearing
member banking organization to include the exposure to the CCP for a
client-cleared transaction in total leverage exposure if the clearing
member banking organization does not guarantee the performance of the
CCP to the clearing member client.
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\15\ 79 FR 57725, 57735 (Sept. 26, 2014).
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Application and Disclosure of the Supplementary Leverage Ratio
Section 10(c) of the regulatory capital framework requires advanced
approaches banking organizations that have completed the parallel run
process to calculate the supplementary leverage ratio as described
under section 10(c)(4).\16\ The agencies are proposing to clarify in
this rulemaking that the supplementary leverage ratio described in
section 10(c)(4) applies to a banking organization that becomes subject
to the advanced approaches pursuant to section 100(b)(1), regardless of
the status of its parallel run process. Specifically, the supplementary
leverage ratio described in section 10(c)(4) would apply to a banking
organization immediately following the quarter in which the banking
organization become subject to the advanced approaches pursuant to
section 100(b)(1).
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\16\ The agencies published a joint final rule in the Federal
Register on September 26, 2014 (79 FR 57725) that revised the
definition of the denominator of the supplementary leverage ratio
(2014 SLR rule) that the agencies had adopted in the regulatory
capital framework.
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Advanced approaches banking organizations are subject to
supplementary leverage ratio disclosure requirements described in
sections 172 and 173 of the regulatory capital framework.\17\ The
agencies propose to revise sections 172 and 173 of the regulatory
capital framework, consistent with the revisions proposed for section
10(c)(4). Specifically, the agencies are proposing to amend section
172(d) to clarify that the supplementary leverage ratio disclosure
requirements described in section 172 apply without regard to whether
the banking organization has completed the parallel run process. Under
this proposal, any banking organization that becomes an advanced
approaches banking organization pursuant to section 100(b)(1) before
January 1, 2015, must publicly disclose its supplementary leverage
ratio and the components thereof (that is, tier 1 capital and total
leverage exposure) quarterly, beginning with the first quarter in 2015.
A banking organizations that becomes an advanced approaches banking
organization pursuant to section 100(b)(1) on or after January 1, 2015,
must publicly disclose its supplementary leverage ratio and components
thereof, beginning with the calendar quarter immediately following the
calendar quarter in which the banking organization becomes an advanced
approaches banking organization. For example, a banking organization
that becomes subject to the advanced approaches because it has $250
billion or more in consolidated total assets as of year-end 2015
pursuant to section 100(b)(1)(i) would begin disclosing its
supplementary leverage ratio as of March 31, 2016.
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\17\ Section 172(d) was added to the regulatory capital
framework as part of the 2014 SLR rule.
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In addition, the agencies are proposing to revise section 173 to
clarify that a top-tier \18\ advanced approaches banking organization,
regardless of its parallel run status, is required to publicly disclose
Table 13 for twelve consecutive quarters or a shorter period, as
applicable, beginning on January 1, 2015. For example, for a banking
organization that becomes subject to the supplementary leverage ratio
disclosure requirements on January 1, 2015, reporting for the first
quarter of 2015 would include data for one quarter, reporting for the
second quarter of 2015 would include data for two quarters, and
reporting for the fourth quarter of 2017 would include data for 12
quarters.
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\18\ Disclosure requirements in this section apply only to
banking organizations that are not a consolidated subsidiary of a
BHC, covered SLHC, or depository institution that is subject to
these disclosure requirements or a subsidiary of a non-U.S. banking
organization that is subject to comparable public disclosure
requirements in its home jurisdiction.
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Exposure at Default Adjustment for Recognized Credit Valuation
Adjustment (CVA)
Under subpart E of the regulatory capital framework, an advanced
approaches banking organization that has received supervisory approval
to calculate exposure at default (EAD) for derivative contracts using
the internal models methodology (IMM) is permitted to reduce effective
expected positive exposure (effective EPE) by the CVA recognized on the
advanced approaches banking organization's balance sheet to reflect the
fair value adjustment for counterparty credit risk in the valuation of
a group of over-the-counter (OTC) derivative transactions in a netting
set. The recognized CVA on the OTC derivative netting set deducted from
effective EPE must not include any adjustments made by the advanced
approaches banking organization to common equity tier 1 capital
attributable to changes in the fair value of the banking organization's
liabilities that are due to changes in its own credit risk since the
inception of the derivative transaction with the counterparty.
Similarly, the agencies are proposing to allow advanced approaches
banking organizations to reduce the EAD for OTC derivative contracts
calculated according to the current exposure methodology in section
132(c) for the purpose of calculating advanced approaches total risk-
weighted assets. The agencies note that in determining the fair value
of a derivative on a banking organization's balance sheet, the
recognized CVA on the netting set of OTC derivative contracts is
intended to reflect the credit quality of the counterparty.
As noted in the preamble to the regulatory capital framework, the
CVA capital charge in section 132(e) addresses fair value losses
resulting from the deterioration of a counterparty's credit quality
short of default. The proposal to permit advanced approaches banking
organizations to reduce EAD by the recognized CVA on an OTC derivative
netting set would prevent the double counting of the counterparty
credit risk, which is already included in advanced approaches total
risk-weighted assets through the CVA capital charge. Consistent with
the Basel Committee's Basel III capital standards and the treatment of
recognized CVA in the calculation of EAD for OTC derivatives according
to the IMM, the agencies are proposing to amend section 132(c)(1) to
permit an advanced approaches banking organization to reduce the EAD
calculated according to the current exposure methodology by the
recognized CVA on the OTC derivative netting set. The agencies note
that, for the purpose of calculating standardized total risk-weighted
assets, advanced approaches banking organizations would not be
permitted to reduce the EAD calculated according to the current
exposure methodology because the standardized total risk-weighted
assets calculation does not include the CVA
[[Page 75460]]
capital charge calculated in section 132(e).
Margin Period of Risk in the Internal Models Methodology (IMM)
Section 132(d)(5)(iii)(B) of the regulatory capital framework
includes upward adjustments to the margin period of risk in the IMM for
large netting sets, netting sets involving illiquid collateral or OTC
derivatives that cannot easily be replaced, or netting sets with two or
more margin disputes with the counterparty over the previous two
quarters that last for a certain length of time. The regulatory capital
framework inadvertently required an upward adjustment to the margin
period of risk for cleared transactions based solely on the fact that
they are part of a large netting set. The agencies are therefore
proposing to amend this provision to clarify that cleared transactions
that are part of a netting set subject to a collateral agreement that
exceeds 5,000 trades at any time during the previous quarter are not
subject to the twenty business day margin-period-of-risk requirement
unless the netting set contains illiquid collateral, OTC derivatives
that cannot easily be replaced, or the banking organization had two or
more margin disputes with the counterparty over the previous two
quarters that last for a certain length of time. As noted in the
preamble to the regulatory capital framework, the 5,000 trade threshold
is one indicator that a set of transactions may require a lengthy
period to close out in the event of a default of a counterparty. The
agencies believe that unlike a large netting set of over-the-counter
derivatives, a large netting set of cleared transactions would not
require a lengthy period to close out in the event of a default of the
CCP. In addition, the proposed amendment would conform the provision to
the similar provision in section 37 of subpart D. However, for any
netting set that involves illiquid collateral or OTC derivatives that
cannot easily be replaced, or that has two or more margin disputes
within a netting set over the previous two quarters that last for a
certain length of time, the margin period of risk would require
adjustments, as specified under section 132(d)(5)(iii)(B), regardless
of whether the netting set consists of cleared transactions.
Qualification Requirements and Mechanics for Calculating Risk-Weighted
Assets of Wholesale and Retail Exposures Under the Advanced Approaches
In February, 2014, the OCC and Board granted permission to a number
of banking organizations to begin calculating their risk-based capital
requirements under the advanced approaches.\19\ During the parallel run
evaluation process, the agencies concluded that several areas of the
advanced approaches rule should be revised to (1) clarify the
qualification requirements and mechanics for calculating risk-weighted
assets under the advanced approaches rule and (2) promote international
consistency by more clearly aligning the U.S. regulations with
international standards for use of the advanced approaches rule.
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\19\ Board Press Release https://www.federalreserve.gov/newsevents/press/bcreg/20140221a.htm; OCC Press release https://www.occ.gov/news-issuances/news-releases/2014/nr-ia-2014-21.html.
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Sections 122 and 131 of the regulatory capital framework set forth
the qualification requirements for the internal ratings-based approach
(IRB) for advanced approaches banking organizations and describe the
mechanics for calculating risk-weighted assets for wholesale and retail
exposures under the advanced approaches. When the agencies initially
adopted the advanced approaches rule in the 2007 rule, they viewed
certain elements of the international Basel framework as being more
akin to supervisory guidance, and therefore incorporated these elements
into the supervisory review process rather than the advanced approaches
rule. However, the agencies believe elements of sections 122 and 131 of
the regulatory capital framework should be clarified to ensure that
advanced approaches banking organizations appropriately: (i) Obtain and
consider all relevant and material information to estimate probability
of default (PD), loss given default (LGD), and EAD; (ii) quantify risk
parameters for wholesale and retail exposures; and (iii) establish
internal requirements for collateral and risk management processes.
Accordingly, the agencies are proposing language to add specificity
and enhance transparency regarding the qualification process for the
IRB approach, as well as the mechanics used to calculate total
wholesale and retail risk-weighted assets. More specifically, the NPR
would amend sections 122 and 131 of the regulatory capital framework to
clarify requirements associated with: (i) The frequency for reviewing
risk rating systems, (ii) the independence of the systems' development,
design, and implementation, (iii) time horizons for default and loss
data when estimating risk parameters, (iv) changes in banking
organizations' lending, payment processing, and account monitoring
practices, (v) the use of all relevant available data for assigning
risk ratings, and (vi) the need for internal requirements for
collateral management and risk management processes. These
modifications are consistent with the current overarching principles in
sections 122 and 131 of the regulatory capital framework that advanced
approaches banking organizations must have an internal risk rating and
segmentation system that accurately and reliably differentiates among
degrees of credit risk for wholesale and retail exposures, as well as a
comprehensive risk-parameter quantification process that produces
accurate, timely, and reliable risk-parameter estimates. The agencies
emphasize that the proposed revisions are intended to clarify, but not
change, existing requirements. In fact, many of these clarifications
are already included in agency guidance or examination materials.
Therefore, because they have demonstrated that they comply with the
existing requirements, the agencies would expect that advanced
approaches banking organizations that have already exited parallel run
have demonstrated that they would meet the proposed requirements.
Fair Value of Liabilities
Section 22 of the regulatory capital framework requires a banking
organization to adjust its common equity tier 1 capital for changes in
the fair value of liabilities due to changes in the banking
organization's own credit risk. The adjustment is made by deducting
from common equity tier 1 capital any net gain and adding to common
equity tier 1 capital any net loss to offset the capital effect of the
changes in fair value of liabilities due to changes in the banking
organization's own credit risk.\20\ Additionally, the regulatory
capital framework requires advanced approaches banking organizations to
deduct the credit spread premium over the risk-free rate for
derivatives that are liabilities.
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\20\ 12 CFR 3.22(b)(1)(iii) (OCC), 12 CFR 217.22(b)(1)(iii)
(Board), and 12 CFR 324.22(b)(1)(iii) (FDIC).
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The agencies recognize that the regulatory capital framework is
unclear as to whether the deduction of the credit spread premium for
advanced approaches banking organizations is in addition to the
adjustment for net gains or losses associated with changes in the value
of liabilities attributed to changes in the banking organization's own
credit risk. Therefore, the agencies are clarifying that for derivative
liabilities, an advanced approaches banking organization would make the
deduction
[[Page 75461]]
of the credit spread premium over the risk-free rate as the adjustment
for changes in the fair value of those derivative liabilities due to
changes in the banking organization's own credit risk.
Technical Corrections
In addition to the revisions discussed above, the proposed rule
would also make certain technical corrections. Most of the proposed
corrections to these technical errors are self-explanatory and,
therefore, do not warrant specific discussion in this preamble. In
addition, there are several reference errors that the agencies propose
to correct in an effort to better clarify the rule requirements. For
example, the proposed rule would correct the following internal cross-
references in the regulatory capital framework.
In section 131(e)(3)(vi), amendments to reference section
22(d) and not section 22(a)(7);
In Table 1 of section 132, amendments to the reference in
the column heading to state that ``Non-sovereign issuers risk weight
under this section (in percent)'' and ``Sovereign issuers risk weight
under this section (in percent)'' actually are found in section 32.
In section 132(d)(7)(iv)(B), amendments to reference
section 132(b)(2) and not section 131(b)(2);
In section 132(d)(9)(ii), amendments to reference section
132(e)(6) and not section 132(e)(3);
In section 133(b)(3)(i)(B), amendments to reference
section 133(b)(3)(i)(A) and not section 132(b)(3)(i)(A); and
In section 136(e)(2)(i) and 136(e)(2)(ii), amendments to
reference section 136(e)(1) and (e)(2) and not section 135(e)(1) and
(e)(2).
III. Regulatory Analyses
A. Paperwork Reduction Act (PRA)
In accordance with the requirements of the Paperwork Reduction Act
of 1995 (44 U.S.C. 3501-3521) (PRA), the agencies may not conduct or
sponsor, and a respondent is not required to respond to, an information
collection unless it displays a currently valid Office of Management
and Budget (OMB) control number. The agencies reviewed the proposed
rule and determined that it would not introduce any new collection of
information pursuant to the PRA.
B. Regulatory Flexibility Act Analysis
OCC: The Regulatory Flexibility Act, 5 U.S.C. 601 et seq. (RFA),
requires an agency, in connection with a proposed rule, to prepare an
Initial Regulatory Flexibility Analysis describing the impact of the
proposed rule on small entities (defined by the Small Business
Administration for purposes of the RFA to include banking entities with
total assets of $550 million or less) or to certify that the proposed
rule would not have a significant economic impact on a substantial
number of small entities.
Using the SBA's size standards, as of December 31, 2013, the OCC
supervised 1,231 small entities.\21\
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\21\ The OCC calculated the number of small entities using the
SBA's size thresholds for commercial banks and savings institutions,
and trust companies, which are $550 million and $38.5 million,
respectively. Consistent with the General Principles of Affiliation,
13 CFR 121.103(a), the OCC counted the assets of affiliated
financial institutions when determining whether to classify a
national bank or Federal savings association as a small entity. The
OCC used December 31, 2013, to determine size because a ``financial
institution's assets are determined by averaging the assets reported
on its four quarterly financial statements for the preceding year.''
See footnote 8 of the U.S. Small Business Administration's Table of
Size Standards.
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As described in the Supplementary Information section of the
preamble, the proposed rule would apply only to advanced approaches
banking organizations. Advanced approaches banking organization is
defined to include a national bank or Federal savings association that
has, or is a subsidiary of, a bank holding company or savings and loan
holding company that has total consolidated assets of $250 billion or
more, total consolidated on-balance sheet foreign exposure of $10
billion or more, or that has elected to use the advanced approaches
framework. After considering the SBA's size standards and General
Principles of Affiliation to identify small entities, the OCC
determined that no small national banks or Federal savings associations
are advanced approaches banking organizations. Because the proposed
rule would apply only to advanced approaches banking organizations, it
would not impact any OCC-supervised small entities. Therefore, the OCC
certifies that the proposed rule would not have a significant economic
impact on a substantial number of OCC-supervised small entities.
FDIC: The Regulatory Flexibility Act, 5 U.S.C. 601 et seq. (RFA),
requires an agency, in connection with a notice of proposed rulemaking,
to prepare an Initial Regulatory Flexibility Act analysis describing
the impact of the proposed rule on small entities (defined by the Small
Business Administration for purposes of the RFA to include banking
entities with total assets of $550 million or less) or to certify that
the proposed rule will not have a significant economic impact on a
substantial number of small entities.
Using the SBA's size standards, as of June 30, 2014, the FDIC
supervised 3,573 small entities. As described in the Supplementary
Information section of the preamble, however, the proposed rule would
apply only to advanced approaches banking organizations. Advanced
approaches banking organization is defined to include a state nonmember
bank or a state savings association that has, or is a subsidiary of, a
bank holding company or savings and loan holding company that has total
consolidated assets of $250 billion or more, total consolidated on-
balance sheet foreign exposure of $10 billion or more, or that has
elected to use the advanced approaches framework. As of June 30, 2014,
based on a $550 million threshold, 2 (out of 3,267) small state
nonmember banks and no (out of 306) small state savings associations
were under the advanced approaches framework. Therefore, the FDIC does
not believe that the proposed rule will result in a significant
economic impact on a substantial number of small entities under its
supervisory jurisdiction.
The FDIC certifies that the proposed rule would not have a
significant economic impact on a substantial number of small FDIC-
supervised institutions.
Board: The Board is providing an initial regulatory flexibility
analysis with respect to this proposed rule. As discussed above, this
proposed rule would clarify, correct, and update aspects of the
agencies' regulatory capital framework applicable to banking
organizations that are subject to the advanced approaches. The proposed
revisions are largely driven by observations made by the agencies
during the parallel-run review process of advanced approaches banking
organizations as well as a recent assessment of the regulatory capital
framework.
Under regulations issued by the Small Business Administration, a
small entity includes a depository institution, bank holding company,
or savings and loan holding company with total assets of $550 million
or less (a small banking organization).\22\ As of June 30, 2014, there
were approximately 657 small state member banks, 3,719 small bank
holding companies, and 254 small savings and loan holding companies.
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\22\ See 13 CFR 121.201. Effective July 14, 2014, the Small
Business Administration revised the size standards for banking
organizations to $550 million in assets from $500 million in assets.
79 FR 33647 (June 12, 2014).
---------------------------------------------------------------------------
The proposed rule would apply only to advanced approaches banking
[[Page 75462]]
organizations, which, generally, are banking organizations with total
consolidated assets of $250 billion or more, that have total
consolidated on-balance sheet foreign exposure of $10 billion or more,
are a subsidiary of an advanced approaches depository institution, or
that elect to use the advanced approaches framework. Currently, no
small top-tier bank holding company, top-tier savings and loan holding
company, or state member bank is an advanced approaches banking
organization, so there would be no additional projected compliance
requirements imposed on small bank holding companies, savings and loan
holding companies, or state member banks. The Board expects that any
small bank holding company, savings and loan holding company, or state
member bank that would be covered by this proposed rule would rely on
its parent banking organization for compliance and would not bear
additional costs.
The Board is aware of no other federal rules that duplicate,
overlap, or conflict with the proposed rule. The Board believes that
the proposed 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 proposed rule that
would reduce the economic impact on small banking organizations
supervised by the Board.
The Board welcomes comment on all aspects of its analysis. A final
regulatory flexibility analysis will be conducted after consideration
of comments received during the public comment period.
C. OCC Unfunded Mandates Reform Act of 1995 Determination
The OCC has analyzed the notice of proposed rulemaking under the
factors set forth in the Unfunded Mandates Reform Act of 1995 (UMRA) (2
U.S.C. 1532). Under this analysis, the OCC considered whether the
proposed rule includes a Federal mandate that may result in the
expenditure by State, local, and Tribal governments, in the aggregate,
or by the private sector, of $100 million or more in any one year
(adjusted annually for inflation).
The proposed rule includes clarifications, corrections, and updates
for certain aspects of the agencies' regulatory capital rules
applicable to national banks and Federal savings associations subject
to the OCC's advanced approaches risk-based capital rule.
Because the proposed rule is designed to clarify, correct, and
update existing rules, and does not introduce any new requirements, the
OCC has determined that it would not result in expenditures by State,
local, and Tribal governments, or by the private sector, of $100
million or more. Accordingly, the OCC has not prepared a written
statement to accompany its proposed rule.
D. Plain Language
Section 722 of the Gramm-Leach-Bliley Act requires the Federal
banking agencies to use plain language in all proposed and final rules
published after January 1, 2000. The agencies have sought to present
the proposed rule in a simple and straightforward manner, and invite
comment on the use of plain language. For example:
Have the agencies organized the material to suit your
needs? If not, how could they present the proposed rule more clearly?
Are the requirements in the proposed rule clearly stated?
If not, how could the proposed rule be more clearly stated?
Do the regulations contain technical language or jargon
that is not clear? If so, which language requires clarification?
Would a different format (grouping and order of sections,
use of headings, paragraphing) make the regulation easier to
understand? If so, what changes would achieve that?
Is this section format adequate? If not, which of the
sections should be changed and how?
What other changes can the agencies incorporate to make
the regulation easier to understand?
List of Subjects
12 CFR Part 3
Administrative practice and procedure, Capital, National banks,
Reporting and recordkeeping requirements, Risk.
12 CFR Part 217
Administrative practice and procedure, Banks, Banking, Capital,
Federal Reserve System, Holding companies, Reporting and recordkeeping
requirements, Securities.
12 CFR Part 324
Administrative practice and procedure, Banks, banking, Capital
Adequacy, Reporting and recordkeeping requirements, Savings
associations, State non-member banks.
DEPARTMENT OF THE TREASURY
Office of the Comptroller of the Currency
12 CFR Chapter I
Authority and Issuance
For the reasons set forth in the common preamble and under the
authority of 12 U.S.C. 93a, 1462, 1462a, 1463, 1464, 3907, 3909, 1831o,
and 5412(b)(2)(B), the Office of the Comptroller of the Currency
proposes to amend part 3 of chapter I of title 12, Code of Federal
Regulations as follows:
PART 3--CAPITAL ADEQUACY STANDARDS
0
1. The authority citation for part 3 continues to read as follows:
Authority: 12 U.S.C. 93a, 161, 1462, 1462a, 1463, 1464, 1818,
1828(n), 1828 note, 1831n note, 1835, 3907, 3909, and 5412(b)(2)(B).
0
2. Section 3.2 is amended by revising the definition of ``Residential
mortgage exposure'' to read as follows:
Sec. 3.2 Definitions.
* * * * *
Residential mortgage exposure means an exposure (other than a
securitization exposure, equity exposure, statutory multifamily
mortgage, or presold construction loan) that is:
(1)(i) An exposure that is primarily secured by a first or
subsequent lien on one-to-four family residential property; or
(ii) An exposure with an original and outstanding amount of $1
million or less that is primarily secured by a first or subsequent lien
on residential property that is not one-to-four family; and
(2) For purposes of calculating capital requirements under subpart
E of this part, managed as part of a segment of exposures with
homogeneous risk characteristics and not on an individual-exposure
basis.
* * * * *
0
3. Section 3.10 is amended by revising paragraph (c) introductory text
to read as follows:
Sec. 3.10 Minimum capital requirements.
* * * * *
(c) Advanced approaches capital ratio calculations. An advanced
approaches national bank or Federal savings association that has
completed the parallel run process and received notification from the
OCC pursuant to Sec. 3.121(d) must determine its regulatory capital
ratios as described in paragraphs (c)(1) through (3) of this section.
An advanced approaches national bank or Federal savings association
must determine its supplementary leverage
[[Page 75463]]
ratio in accordance with paragraph (c)(4) of this section, beginning
with the calendar quarter immediately following the quarter in which
the national bank or Federal savings association meets any of the
criteria in Sec. 3.100(b)(1).
* * * * *
0
4. Section 3.22 is amended by revising paragraph (b)(1)(iii) to read as
follows:
Sec. 3.22 Regulatory capital adjustments and deductions.
* * * * *
(b) * * *
(1) * * *
(iii) A national bank or Federal savings association must deduct
any net gain and add any net loss related to changes in the fair value
of liabilities that are due to changes in the national bank's or
Federal savings association's own credit risk. An advanced approaches
national bank or Federal savings association must deduct the difference
between its credit spread premium and the risk-free rate for
derivatives that are liabilities as part of this adjustment.
* * * * *
0
5. Section 3.100 is amended by revising paragraph (b)(1)(ii) to read as
follows:
Sec. 3.100 Purpose, applicability, and principle of conservatism.
* * * * *
(b) * * *
(1) * * *
(ii) Has consolidated total on-balance sheet foreign exposure on
its most recent year-end Call Report equal to $10 billion or more
(where total on-balance sheet foreign exposure equals total foreign
countries cross-border claims on an ultimate-risk basis, plus total
foreign countries claims on local residents on an ultimate-risk basis,
plus total foreign countries fair value of foreign exchange and
derivative products), calculated in accordance with the Federal
Financial Institutions Examination Council (FFIEC) 009 Country Exposure
Report;
* * * * *
0
6. Section 3.122 is amended by:
0
a. Revising paragraphs (a)(3) and (b)(1);
0
b. Adding paragraph (b)(2)(iii);
0
c. Revising paragraphs (b)(3) and (5) and (c)(1), (2), (5), and (6);
0
d. Redesignating paragraphs (c)(9) and (10) as paragraphs (c)(10) and
(11), revising them, and adding a new paragraph (c)(9); and
0
e. Revising paragraph (i)(5).
The revisions and additions read as follows:
Sec. 3.122 Qualification requirements.
(a) * * *
(3) Each national bank or Federal savings association must have an
appropriate infrastructure with risk measurement and management
processes that meet the qualification requirements of this section and
are appropriate given the national bank's or Federal savings
association's size and level of complexity. Regardless of whether the
systems and models that generate the risk parameters necessary for
calculating a national bank's or Federal savings association's risk-
based capital requirements are located at any affiliate of the national
bank or Federal savings association, the national bank or Federal
savings association itself must ensure that the risk parameters and
reference data used to determine its risk-based capital requirements
are representative of long run experience with respect to its own
credit risk and operational risk exposures.
(b) Risk rating and segmentation systems for wholesale and retail
exposures. (1)(i) A national bank or Federal savings association must
have an internal risk rating and segmentation system that accurately,
reliably, and meaningfully differentiates among degrees of credit risk
for the national bank's or Federal savings association's wholesale and
retail exposures. When assigning an internal risk rating, a national
bank or Federal savings association may consider a third-party
assessment of credit risk, provided that the national bank's or Federal
savings association's internal risk rating assignment does not rely
solely on the external assessment.
(ii) If a national bank or Federal savings association uses
multiple rating or segmentation systems, the national bank's or Federal
savings association's rationale for assigning an obligor or exposure to
a particular system must be documented and applied in a manner that
best reflects the obligor's or exposure's level of risk. A national
bank or Federal savings association must not inappropriately allocate
obligors or exposures across systems to minimize regulatory capital
requirements.
(iii) In assigning ratings to wholesale obligors and exposures,
including loss severity ratings grades to wholesale exposures, and
assigning retail exposures to retail segments, a national bank or
Federal savings association must use all relevant and material
information and ensure that the information is current.
(iv) When assigning an obligor to a PD rating or retail exposure to
a PD segment, a national bank or Federal savings association must
assess the obligor or retail borrower's ability and willingness to
contractually perform, taking a conservative view of projected
information.
(2) * * *
(iii) A national bank or Federal savings association must have an
effective process to obtain and update in a timely manner relevant and
material information on obligor and exposure characteristics that
affect PD, LGD and EAD.
(3) For retail exposures:
(i) A national bank or Federal savings association must have an
internal system that groups retail exposures into the appropriate
retail exposure subcategory and groups the retail exposures in each
retail exposure subcategory into separate segments with homogeneous
risk characteristics that provide a meaningful differentiation of risk.
The national bank's or Federal savings association's system must
identify and group in separate segments by subcategories exposures
identified in Sec. 3.131(c)(2)(ii) and (iii).
(ii) A national bank or Federal savings association must have an
internal system that captures all relevant exposure risk
characteristics, including borrower credit score, product and
collateral types, as well as exposure delinquencies, and must consider
cross-collateral provisions, where present.
(iii) The national bank or Federal savings association must review
and, if appropriate, update assignments of individual retail exposures
to segments and the loss characteristics and delinquency status of each
identified risk segment. These reviews must occur whenever the national
bank or Federal savings association receives new material information,
but generally no less frequently than quarterly, and, in all cases, at
least annually.
* * * * *
(5) The national bank's or Federal savings association's internal
risk rating system for wholesale exposures must provide for the review
and update (as appropriate) of each obligor rating and (if applicable)
each loss severity rating whenever the national bank or Federal savings
association obtains relevant and material information on the obligor or
exposure that affect PD, LGD and EAD, but no less frequently than
annually.
(c) Quantification of risk parameters for wholesale and retail
exposures. (1) The national bank or Federal savings association must
have a comprehensive risk parameter quantification process that
produces accurate, timely, and reliable estimates of the risk
parameters on a consistent basis for the national bank's or Federal
savings association's wholesale and retail exposures.
(2) A national bank's or Federal savings association's estimates of
PD,
[[Page 75464]]
LGD, and EAD must incorporate all relevant, material, and available
data that is reflective of the national bank's or Federal savings
association's actual wholesale and retail exposures and of sufficient
quality to support the determination of risk-based capital requirements
for the exposures. In particular, the population of exposures in the
data used for estimation purposes, and lending standards in use when
the data were generated, and other relevant characteristics, should
closely match or be comparable to the national bank's or Federal
savings association's exposures and standards. In addition, a national
bank or Federal savings association must:
(i) Demonstrate that its estimates are representative of long run
experience, including periods of economic downturn conditions, whether
internal or external data are used;
(ii) Take into account any changes in lending practice or the
process for pursuing recoveries over the observation period;
(iii) Promptly reflect technical advances, new data, and other
information as they become available;
(iv) Demonstrate that the data used to estimate risk parameters
support the accuracy and robustness of those estimates; and
(v) Demonstrate that its estimation technique performs well in out-
of-sample tests whenever possible.
* * * * *
(5) The national bank or Federal savings association must be able
to demonstrate which variables have been found to be statistically
significant with regard to EAD. The national bank's or Federal savings
association's EAD estimates must reflect its specific policies and
strategies with regard to account management, including account
monitoring and payment processing, and its ability and willingness to
prevent further drawdowns in circumstances short of payment default.
The national bank or Federal savings association must have adequate
systems and procedures in place to monitor current outstanding amounts
against committed lines, and changes in outstanding amounts per obligor
and obligor rating grade and per retail segment. The national bank or
Federal savings association must be able to monitor outstanding amounts
on a daily basis.
(6) At a minimum, PD estimates for wholesale obligors and retail
segments must be based on at least five years of default data. LGD
estimates for wholesale exposures must be based on at least seven years
of loss severity data, and LGD estimates for retail segments must be
based on at least five years of loss severity data. EAD estimates for
wholesale exposures must be based on at least seven years of exposure
amount data, and EAD estimates for retail segments must be based on at
least five years of exposure amount data. If the national bank or
Federal savings association has relevant and material reference data
that span a longer period of time than the minimum time periods
specified above, the national bank or Federal savings association must
incorporate such data in its estimates, provided that it does not place
undue weight on periods of favorable or benign economic conditions
relative to periods of economic downturn conditions.
* * * * *
(9) If a national bank or Federal savings association uses internal
data obtained prior to becoming subject to this subpart E or external
data to arrive at PD, LGD, or EAD estimates, the national bank or
Federal savings association must demonstrate to the OCC that the
national bank or Federal savings association has made appropriate
adjustments if necessary to be consistent with the definition of
default in Sec. 3.101. Internal data obtained after the national bank
or Federal savings association becomes subject to this subpart E must
be consistent with the definition of default in Sec. 3.101.
(10) The national bank or Federal savings association must review
and update (as appropriate) its risk parameters and its risk parameter
quantification process at least annually.
(11) The national bank or Federal savings association must, at
least annually, conduct a comprehensive review and analysis of
reference data to the national bank's or Federal savings association's
exposures, quality of reference data to support PD, LGD, and EAD
estimates, and consistency of reference data to the definition of
default in Sec. 3.101.
* * * * *
(i) * * *
(5) The national bank or Federal savings association must have an
internal audit function or equivalent function that is independent of
business-line management that at least annually:
(i) Reviews the national bank's or Federal savings association's
advanced systems and associated operations, including the operations of
its credit function and estimations of PD, LGD, and EAD;
(ii) Assesses the effectiveness of the controls supporting the
national bank's or Federal savings association's advanced systems; and
(iii) Documents and reports its findings to the national bank's or
Federal savings association's board of directors (or a committee
thereof).
* * * * *
0
7. Section 3.131 is amended by:
0
a. Revising paragraphs (d)(5)(ii) and (iii); and
0
b. In paragraph (e)(3)(vi), removing ``Sec. 3.22(a)(7)'' and adding
``Sec. 3.22(d)'' in its place.
The revisions read as follows:
Sec. 3.131 Mechanics for calculating total wholesale and retail risk-
weighted assets.
* * * * *
(d) * * *
(5) * * *
(ii) A national bank or Federal savings association may take into
account the risk reducing effects of guarantees and credit derivatives
in support of retail exposures in a segment when quantifying the PD and
LGD of the segment. In doing so, a national bank or Federal savings
association must consider all relevant available information.
(iii) Except as provided in paragraph (d)(6) of this section, a
national bank or Federal savings association may take into account the
risk reducing effects of collateral in support of a wholesale exposure
when quantifying the LGD of the exposure, and may take into account the
risk reducing effects of collateral in support of retail exposures when
quantifying the PD and LGD of the segment. In order to do so, a
national bank or Federal savings association must have established
internal requirements for collateral management, legal certainty, and
risk management processes.
* * * * *
0
8. Section 3.132 is amended by:
0
a. In Table 1 to Sec. 3.132, removing ``this section'' and adding
``Sec. 3.32'' in its place, wherever it appears;
0
b. Revising paragraphs (c)(1) and (d)(5)(iii)(B);
0
c. In paragraph (d)(7)(iv)(B), removing ``Sec. 3.131(b)(2)'' and
adding ``Sec. 3.132(b)(2)'' in its place; and
0
d. In paragraph (d)(9)(ii), removing ``paragraph (e)(3)'' and adding
``paragraph (e)(6)'' in its place.
The revisions read as follows:
Sec. 3.132 Counterparty credit risk of repo-style transactions,
eligible margin loans, and OTC derivative contracts.
* * * * *
(c) EAD for OTC derivative contracts--(1) OTC derivative contracts
not subject to a qualifying master netting agreement. A national bank
or
[[Page 75465]]
Federal savings association must determine the EAD for an OTC
derivative contract that is not subject to a qualifying master netting
agreement using the current exposure methodology in paragraph (c)(5) of
this section or using the internal models methodology described in
paragraph (d) of this section. A national bank or Federal savings
association may reduce the EAD calculated according to paragraphs
(c)(5) or (d) of this section by the credit valuation adjustment that
the national bank or Federal savings association has recognized in its
balance sheet valuation of any OTC derivative contracts in the netting
set. For purposes of this paragraph (c), the credit valuation
adjustment does not include any adjustments to common equity tier 1
capital attributable to changes in the fair value of the national
bank's or Federal savings association's liabilities that are due to
changes in its own credit risk since the inception of the transaction
with the counterparty.
* * * * *
(d) * * *
(5) * * *
(iii) * * *
(B) Twenty business days if the number of trades in a netting set
exceeds 5,000 at any time during the previous quarter (except if the
national bank or Federal savings association is calculating EAD for a
cleared transaction under Sec. 3.133) or contains one or more trades
involving illiquid collateral or any derivative contract that cannot be
easily replaced. If over the two previous quarters more than two margin
disputes on a netting set have occurred that lasted more than the
margin period of risk, then the national bank or Federal savings
association must use a margin period of risk for that netting set that
is at least two times the minimum margin period of risk for that
netting set. If the periodicity of the receipt of collateral is N-days,
the minimum margin period of risk is the minimum margin period of risk
under this paragraph (d) plus N minus 1. This period should be extended
to cover any impediments to prompt re-hedging of any market risk.
* * * * *
0
9. Section 3.133 is amended by:
0
a. In paragraph (b)(3)(i)(B) removing ``Sec. 3.132(b)(3)(i)(A)'' and
adding ``Sec. 3.133(b)(3)(i)(A)'' in its place;
0
b. In paragraph (b)(4)(ii) removing ``Sec. 3.131'' and adding
``subparts E or F of this part, as applicable'' in its place;
0
c. Adding paragraph (c)(3)(iii); and
0
d. In paragraph (c)(4)(ii) removing ``Sec. 3.131'' and adding
``subparts E or F of this part, as applicable'' in its place.
The addition reads as follows:
Sec. 3.133 Cleared transactions.
* * * * *
(c) * * *
(3) * * *
(iii) Notwithstanding paragraphs (c)(3)(i) and (ii) of this
section, a clearing member national bank or Federal savings association
may apply a risk weight of 0 percent to the trade exposure amount for a
cleared transaction with a CCP where the clearing member national bank
or Federal savings association is acting as a financial intermediary on
behalf of a clearing member client, the transaction offsets another
transaction that satisfies the requirements set forth in Sec. 3.3(a),
and the clearing member national bank or Federal savings association is
not obligated to reimburse the clearing member client in the event of
the CCP default.
* * * * *
Sec. 3.136 [Amended]
0
10. Section 3.136 is amended by:
0
a. In paragraph (e)(2)(i), removing ``Sec. 3.135(e)(1) and (e)(2)''
and adding ``Sec. 3.136(e)(1) and (2)'' in its place; and
0
b. In paragraph (e)(2)(ii), removing ``Sec. Sec. 3.135(e)(1) and
(e)(2)'' and adding ``Sec. 3.136(e)(1) and (2)'' in its place.
0
11. Section 3.172 is amended by revising paragraph (d), as added at 79
FR 57743, September 26, 2014, effective January 1, 2015, to read as
follows:
Sec. 3.172 Disclosure requirements.
* * * * *
(d)(1) A national bank or Federal savings association that meets
any of the criteria in Sec. 3.100(b)(1) before January 1, 2015, must
publicly disclose each quarter its supplementary leverage ratio and the
components thereof (that is, tier 1 capital and total leverage
exposure) as calculated under subpart B of this part, beginning with
the first quarter in 2015. This disclosure requirement applies without
regard to whether the national bank or Federal savings association has
completed the parallel run process and received notification from the
OCC pursuant to Sec. 3.121(d).
(2) A national bank or Federal savings association that meets any
of the criteria in Sec. 3.100(b)(1) on or after January 1, 2015, must
publicly disclose each quarter its supplementary leverage ratio and the
components thereof (that is, tier 1 capital and total leverage
exposure) as calculated under subpart B of this part beginning with the
calendar quarter immediately following the quarter in which the
national bank or Federal savings association becomes an advanced
approaches national bank or Federal savings association. This
disclosure requirement applies without regard to whether the national
bank or Federal savings association has completed the parallel run
process and has received notification from the OCC pursuant to Sec.
3.121(d).
0
12. Section 3.173 is amended by:
0
a. Redesignating paragraph (a) introductory text, as revised at 79 FR
57743, September 26, 2014, effective January 1, 2015, as paragraph
(a)(1) and revising it;
0
b. Adding paragraphs (a)(2) and (3);
0
c. Revising the entry for (a)(1) in Table 6 to Sec. 3.173; and
0
d. Revising the entry for (i)(2) in Table 9 to Sec. 3.173.
The revisions and additions read as follows:
Sec. 3.173 Disclosures by certain advanced approaches national banks
or Federal savings associations.
(a)(1) An advanced approaches national bank or Federal savings
association described in Sec. 3.172(b) must make the disclosures
described in Tables 1 through 12 to Sec. 3.173.
(2) An advanced approaches national bank or Federal savings
association that is required to publicly disclose its supplementary
leverage ratio pursuant to Sec. 3.172(d) must make the disclosures
required under Table 13 to Sec. 3.173, unless the national bank or
Federal savings association is a consolidated subsidiary of a bank
holding company, savings and loan holding company, or depository
institution that is subject to these disclosures requirements or a
subsidiary of a non-U.S. banking organization that is subject to
comparable public disclosure requirements in its home jurisdiction.
(3) The disclosures described in Tables 1 through 12 to Sec. 3.173
must be made publicly available for twelve consecutive quarters
beginning on January 1, 2014, or a shorter period, as applicable, for
the quarters after the national bank or Federal savings association has
completed the parallel run process and received notification from the
OCC pursuant to Sec. 121(d) of subpart E of this part. The disclosures
described in Table 13 to Sec. 3.173 must be made publicly available
for twelve consecutive quarters beginning on January 1, 2015, or a
shorter period, as applicable, for the quarters after the national bank
or Federal savings association becomes subject to the disclosure of the
supplementary leverage ratio pursuant to Sec. 3.172(d).
* * * * *
[[Page 75466]]
Table 6 to Sec. 3.173--Credit Risk: Disclosures for Portfolios Subject to IRB Risk-Based Capital Formula
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
Qualitative disclosures................. (a).................................. * * *
(1) Structure of internal
rating systems and if the
national bank or Federal
savings association considers
external ratings, the relation
between internal and external
ratings;
* * * * * * *
----------------------------------------------------------------------------------------------------------------
* * * * *
Table 9 to Sec. 3.173--Securitization
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
* * * * * * *
Quantitative disclosures................ * * *
(i)........................ * * *
(2) Aggregate amount disclosed separately
by type of underlying exposure in the
pool of any: (A) After-tax gain-on-sale
on a securitization that has been
deducted from common equity tier 1
capital; and (B) Credit-enhancing
interest-only strip that is assigned a
1,250 percent risk weight.
* * * * * * *
----------------------------------------------------------------------------------------------------------------
* * * * *
Board of Governors of the Federal Reserve System
12 CFR Chapter II
Authority and Issuance
For the reasons set forth in the common preamble, part 217 of
chapter II of title 12 of the Code of Federal Regulations is proposed
to be amended as follows:
PART 217--CAPITAL ADEQUACY OF BANK HOLDING COMPANIES, SAVINGS AND
LOAN HOLDING COMPANIES, AND STATE MEMBER BANKS (REGULATION Q)
0
13. The authority citation for part 217 continues to read as follows:
Authority: 12 U.S.C. 248(a), 321-338a, 481-486, 1462a, 1467a,
1818, 1828, 1831n, 1831o, 1831p-l, 1831w, 1835, 1844(b), 1851, 3904,
3906-3909, 4808, 5365, 5368, 5371.
0
14. Section 217.2 is amended by revising the definition of
``Residential mortgage exposure'' to read as follows:
Sec. 217.2 Definitions.
* * * * *
Residential mortgage exposure means an exposure (other than a
securitization exposure, equity exposure, statutory multifamily
mortgage, or presold construction loan) that is:
(1)(i) An exposure that is primarily secured by a first or
subsequent lien on one-to-four family residential property; or
(ii) An exposure with an original and outstanding amount of $1
million or less that is primarily secured by a first or subsequent lien
on residential property that is not one-to-four family; and
(2) For purposes of calculating capital requirements under subpart
E of this part, managed as part of a segment of exposures with
homogeneous risk characteristics and not on an individual-exposure
basis.
* * * * *
0
15. Section 217.10 is amended by revising paragraph (c) introductory
text to read as follows:
Sec. 217.10 Minimum capital requirements.
* * * * *
(c) Advanced approaches capital ratio calculations. An advanced
approaches Board-regulated institution that has completed the parallel
run process and received notification from the Board pursuant to Sec.
217.121(d) must determine its regulatory capital ratios as described in
paragraphs (c)(1) through (3) of this section. An advanced approaches
Board-regulated institution must determine its supplementary leverage
ratio in accordance with paragraph (c)(4) of this section, beginning
with the calendar quarter immediately following the quarter in which
the Board-regulated institution meets any of the criteria in Sec.
217.100(b)(1).
* * * * *
0
16. Section 217.22 is amended by revising paragraph (b)(1)(iii) to read
as follows:
Sec. 217.22 Regulatory capital adjustments and deductions.
* * * * *
(b) * * *
(1) * * *
(iii) A Board-regulated institution must deduct any net gain and
add any net loss related to changes in the fair value of liabilities
that are due to changes in the Board-regulated institution's own credit
risk. An advanced approaches Board-regulated institution must deduct
the difference between its credit spread premium and the risk-free rate
for derivatives that are liabilities as part of this adjustment.
* * * * *
0
17. Section 217.100 is amended by revising paragraph (b)(1)(ii)(B) to
read as follows:
Sec. 217.100 Purpose, applicability, and principle of conservatism
* * * * *
(b) * * *
(1) * * *
(ii) * * *
(B) Has consolidated total on-balance sheet foreign exposure on its
most recent year-end Call Report, for a state member bank, or FR Y-9C,
for a bank holding company or savings and loan holding company, as
applicable, equal to $10 billion or more (where total on-balance sheet
foreign exposure equals total foreign countries cross-border claims on
an ultimate-risk basis, plus total foreign countries claims on local
residents on an ultimate-risk basis, plus total foreign countries fair
value of foreign exchange and derivative products), calculated in
accordance with the Federal Financial Institutions Examination Council
(FFIEC) 009 Country Exposure Report;
* * * * *
0
18. Section 217.122 is amended by:
0
a. Revising paragraphs (a)(3) and (b)(1);
0
b. Adding paragraph (b)(2)(iii);
[[Page 75467]]
0
c. Revising paragraphs (b)(3) and (5) and (c)(1), (2), (5), and (6);
0
d. Redesignating paragraphs (c)(9) and (10) as paragraphs (c)(10) and
(11), revising them, and, adding a new paragraph (c)(9); and
0
e. Revising paragraph (i)(5).
The revisions and additions read as follows:
Sec. 217.122 Qualification requirements.
(a) * * *
(3) Each Board-regulated institution must have an appropriate
infrastructure with risk measurement and management processes that meet
the qualification requirements of this section and are appropriate
given the Board-regulated institution's size and level of complexity.
Regardless of whether the systems and models that generate the risk
parameters necessary for calculating a Board-regulated institution's
risk-based capital requirements are located at any affiliate of the
Board-regulated institution, the Board-regulated institution itself
must ensure that the risk parameters and reference data used to
determine its risk-based capital requirements are representative of
long run experience with respect to its own credit risk and operational
risk exposures.
(b) Risk rating and segmentation systems for wholesale and retail
exposures. (1)(i) A Board-regulated institution must have an internal
risk rating and segmentation system that accurately, reliably, and
meaningfully differentiates among degrees of credit risk for the Board-
regulated institution's wholesale and retail exposures. When assigning
an internal risk rating, a Board-regulated institution may consider a
third-party assessment of credit risk, provided that the Board-
regulated institution's internal risk rating assignment does not rely
solely on the external assessment.
(ii) If a Board-regulated institution uses multiple rating or
segmentation systems, the Board-regulated institution's rationale for
assigning an obligor or exposure to a particular system must be
documented and applied in a manner that best reflects the obligor or
exposure's level of risk. A Board-regulated institution must not
inappropriately allocate obligors across systems to minimize regulatory
capital requirements.
(iii) In assigning ratings to wholesale obligors and exposures,
including loss severity ratings grades to wholesale exposures, and
assigning retail exposures to retail segments, a Board-regulated
institution must use all relevant and material information and ensure
that the information is current.
(iv) When assigning an obligor to a PD rating or retail exposure to
a PD segment, a Board-regulated institution must assess the obligor or
retail borrower's ability and willingness to contractually perform,
taking a conservative view of projected information.
(2) * * *
(iii) A Board-regulated institution must have an effective process
to obtain and update in a timely manner relevant and material
information on obligor and exposure characteristics that affect PD, LGD
and EAD.
(3) For retail exposures:
(i) A Board-regulated institution must have an internal system that
groups retail exposures into the appropriate retail exposure
subcategory and groups the retail exposures in each retail exposure
subcategory into separate segments with homogeneous risk
characteristics that provide a meaningful differentiation of risk. The
Board-regulated institution's system must identify and group in
separate segments by subcategories exposures identified in Sec.
217.131(c)(2)(ii) and (iii).
(ii) A Board-regulated institution must have an internal system
that captures all relevant exposure risk characteristics, including
borrower credit score, product and collateral types, as well as
exposure delinquencies, and must consider cross-collateral provisions,
where present.
(iii) The Board-regulated institution must review and, if
appropriate, update assignments of individual retail exposures to
segments and the loss characteristics and delinquency status of each
identified risk segment. These reviews must occur whenever the Board-
regulated institution receives new material information, but generally
no less frequently than quarterly, and, in all cases, at least
annually.
* * * * *
(5) The Board-regulated institution's internal risk rating system
for wholesale exposures must provide for the review and update (as
appropriate) of each obligor rating and (if applicable) each loss
severity rating whenever the Board-regulated institution obtains
relevant and material information on the obligor or exposure that
affect PD, LGD and EAD, but no less frequently than annually.
(c) Quantification of risk parameters for wholesale and retail
exposures. (1) The Board-regulated institution must have a
comprehensive risk parameter quantification process that produces
accurate, timely, and reliable estimates of the risk parameters on a
consistent basis for the Board-regulated institution's wholesale and
retail exposures.
(2) A Board-regulated institution's estimates of PD, LGD, and EAD
must incorporate all relevant, material, and available data that is
reflective of the Board-regulated institution's actual wholesale and
retail exposures and of sufficient quality to support the determination
of risk-based capital requirements for the exposures. In particular,
the population of exposures in the data used for estimation purposes,
and lending standards in use when the data were generated, and other
relevant characteristics, should closely match or be comparable to the
Board-regulated institution's exposures and standards. In addition, a
Board-regulated institution must:
(i) Demonstrate that its estimates are representative of long run
experience, including periods of economic downturn conditions, whether
internal or external data are used;
(ii) Take into account any changes in lending practice or the
process for pursuing recoveries over the observation period;
(iii) Promptly reflect technical advances, new data, and other
information as they become available;
(iv) Demonstrate that the data used to estimate risk parameters
support the accuracy and robustness of those estimates; and
(v) Demonstrate that its estimation technique performs well in out-
of-sample tests whenever possible.
* * * * *
(5) The Board-regulated institution must be able to demonstrate
which variables have been found to be statistically significant with
regard to EAD. The Board-regulated institution's EAD estimates must
reflect its specific policies and strategies with regard to account
management, including account monitoring and payment processing, and
its ability and willingness to prevent further drawdowns in
circumstances short of payment default. The Board-regulated institution
must have adequate systems and procedures in place to monitor current
outstanding amounts against committed lines, and changes in outstanding
amounts per obligor and obligor rating grade and per retail segment.
The Board-regulated institution must be able to monitor outstanding
amounts on a daily basis.
(6) At a minimum, PD estimates for wholesale obligors and retail
segments must be based on at least five years of default data. LGD
estimates for wholesale exposures must be based on at least seven years
of loss severity data, and LGD estimates for retail segments must be
based on at least five years of loss severity data. EAD estimates for
[[Page 75468]]
wholesale exposures must be based on at least seven years of exposure
amount data, and EAD estimates for retail segments must be based on at
least five years of exposure amount data. If the Board-regulated
institution has relevant and material reference data that span a longer
period of time than the minimum time periods specified above, the
Board-regulated institution must incorporate such data in its
estimates, provided that it does not place undue weight on periods of
favorable or benign economic conditions relative to periods of economic
downturn conditions.
* * * * *
(9) If a Board-regulated institution uses internal data obtained
prior to becoming subject to this subpart E or external data to arrive
at PD, LGD, or EAD estimates, the Board-regulated institution must
demonstrate to the Board that the Board-regulated institution has made
appropriate adjustments if necessary to be consistent with the
definition of default in Sec. 217.101. Internal data obtained after
the Board-regulated institution becomes subject to this subpart E must
be consistent with the definition of default in Sec. 217.101.
(10) The Board-regulated institution must review and update (as
appropriate) its risk parameters and its risk parameter quantification
process at least annually.
(11) The Board-regulated institution must, at least annually,
conduct a comprehensive review and analysis of reference data to the
Board-regulated institution's exposures, quality of reference data to
support PD, LGD, and EAD estimates, and consistency of reference data
to the definition of default in Sec. 217.101.
* * * * *
(i) * * *
(5) The Board-regulated institution must have an internal audit
function or equivalent function that is independent of business-line
management that at least annually:
(i) Reviews the Board-regulated institution's advanced systems and
associated operations, including the operations of its credit function
and estimations of PD, LGD, and EAD;
(ii) Assesses the effectiveness of the controls supporting the
Board-regulated institution's advanced systems; and
(iii) Documents and reports its findings to the Board-regulated
institution's board of directors (or a committee thereof).
* * * * *
0
19. Section 217.131 is amended by:
0
a. Revising paragraphs (d)(5)(ii) and (iii); and
0
b. In paragraph (e)(3)(vi), removing ``Sec. 217.22(a)(7)'' and adding
``Sec. 217.22(d)'' in its place.
The revisions read as follows:
Sec. 217.131 Mechanics for calculating total wholesale and retail
risk-weighted assets.
* * * * *
(d) * * *
(5) * * *
(ii) A national bank or Federal savings association may take into
account the risk reducing effects of guarantees and credit derivatives
in support of retail exposures in a segment when quantifying the PD and
LGD of the segment. In doing so, a national bank or Federal savings
association must consider all relevant available information.
(iii) Except as provided in paragraph (d)(6) of this section, a
national bank or Federal savings association may take into account the
risk reducing effects of collateral in support of a wholesale exposure
when quantifying the LGD of the exposure, and may take into account the
risk reducing effects of collateral in support of retail exposures when
quantifying the PD and LGD of the segment. In order to do so, a
national bank or Federal savings association must have established
internal requirements for collateral management, legal certainty, and
risk management processes.
* * * * *
0
20. Section 217.132 is amended by:
0
a. In Table 1 to Sec. 217.132, removing ``this section'' and adding
``Sec. 217.32'' in its place, wherever it appears;
0
b. Revising paragraphs (c)(1) and (d)(5)(iii)(B);
0
c. In paragraph (d)(7)(iv)(B), removing ``Sec. 217.131(b)(2)'' and
adding ``Sec. 217.132(b)(2)'' in its place; and
0
d. In paragraph (d)(9)(ii), removing ``paragraph (e)(3)'' and adding
``paragraph (e)(6)'' in its place.
The revisions read as follows:
Sec. 217.132 Counterparty credit risk of repo-style transactions,
eligible margin loans, and OTC derivative contracts.
* * * * *
(c) EAD for OTC derivative contracts--(1) OTC derivative contracts
not subject to a qualifying master netting agreement. A Board-regulated
institution must determine the EAD for an OTC derivative contract that
is not subject to a qualifying master netting agreement using the
current exposure methodology in paragraph (c)(5) of this section or
using the internal models methodology described in paragraph (d) of
this section. A Board-regulated institution may reduce the EAD
calculated according to paragraphs (c)(5) or (d) of this section by the
credit valuation adjustment that the Board-regulated institution has
recognized in its balance sheet valuation of any OTC derivative
contracts in the netting set. For purposes of this paragraph (c), the
credit valuation adjustment does not include any adjustments to common
equity tier 1 capital attributable to changes in the fair value of the
Board-regulated institution's liabilities that are due to changes in
its own credit risk since the inception of the transaction with the
counterparty.
* * * * *
(d) * * *
(5) * * *
(iii) * * *
(B) Twenty business days if the number of trades in a netting set
exceeds 5,000 at any time during the previous quarter (except if the
Board-regulated institution is calculating EAD for a cleared
transaction under Sec. 217.133) or contains one or more trades
involving illiquid collateral or any derivative contract that cannot be
easily replaced. If over the two previous quarters more than two margin
disputes on a netting set have occurred that lasted more than the
margin period of risk, then the Board-regulated institution must use a
margin period of risk for that netting set that is at least two times
the minimum margin period of risk for that netting set. If the
periodicity of the receipt of collateral is N-days, the minimum margin
period of risk is the minimum margin period of risk under this
paragraph (d) plus N minus 1. This period should be extended to cover
any impediments to prompt re-hedging of any market risk.
* * * * *
0
21. Section 217.133 is amended by:
0
a. In paragraph (b)(3)(i)(B), removing ``Sec. 217.132(b)(3)(i)(A)''
and adding ``Sec. 217.133(b)(3)(i)(A)'' in its place.
0
b. In paragraph (b)(4)(ii) removing ``Sec. 217.131'' and adding
``subparts E or F of this part, as applicable'' in its place.
0
c. Adding paragraph (c)(3)(iii); and
0
d. In paragraph (c)(4)(ii) removing ``Sec. 217.131'' and adding
``subparts E or F of this part, as applicable.'' in its place.
The revisions and additions read as follows:
Sec. 217.133 Cleared transactions.
* * * * *
(c) * * *
(3) * * *
(iii) Notwithstanding paragraphs (c)(3)(i) and (ii) of this
section, a clearing member Board-regulated institution may apply a risk
weight of 0 percent to the trade exposure amount
[[Page 75469]]
for a cleared transaction with a CCP where the clearing member Board-
regulated institution is acting as a financial intermediary on behalf
of a clearing member client, the transaction offsets another
transaction that satisfies the requirements set forth in Sec.
217.3(a), and the clearing member Board-regulated institution is not
obligated to reimburse the clearing member client in the event of the
CCP default.
* * * * *
Sec. 217.136 [Amended]
0
22. Section 217.136 is amended by:
0
a. In paragraph (e)(2)(i) removing ``Sec. 217.135(e)(1) and (e)(2)''
and adding ``Sec. 217.136(e)(1) and (2)'' in its place; and
0
b. In paragraph (e)(2)(ii) removing ``Sec. Sec. 217.135(e)(1) and
(e)(2)'' and adding ``Sec. 217.136(e)(1) and (2)'' in its place.
0
23. Section 217.172 is amended by revising paragraph (d), as added at
79 FR 57746, September 26, 2014, effective January 1, 2015, to read as
follows:
Sec. 217.172 Disclosure requirements.
* * * * *
(d)(1) A Board-regulated institution that meets any of the criteria
in Sec. 217.100(b)(1) before January 1, 2015, must publicly disclose
each quarter its supplementary leverage ratio and the components
thereof (that is, tier 1 capital and total leverage exposure) as
calculated under subpart B of this part, beginning with the first
quarter in 2015. This disclosure requirement applies without regard to
whether the Board-regulated institution has completed the parallel run
process and received notification from the Board pursuant to Sec.
217.121(d).
(2) A Board-regulated institution that meets any of the criteria in
Sec. 217.100(b)(1) on or after January 1, 2015, must publicly disclose
each quarter its supplementary leverage ratio and the components
thereof (that is, tier 1 capital and total leverage exposure) as
calculated under subpart B of this part beginning with the calendar
quarter immediately following the quarter in which the Board-regulated
institution becomes an advanced approaches Board-regulated institution.
This disclosure requirement applies without regard to whether the
Board-regulated institution has completed the parallel run process and
has received notification from the Board pursuant to Sec. 217.121(d).
0
24. Section 217.173 is amended by:
0
a. Designating paragraph (a) introductory text, as revised at 79 FR
57746, September 26, 2014, effective January 1, 2015, as (a)(1) and
revising it;
0
b. Adding paragraphs (a)(2) and (3);
0
c. Revising the entry for (a)(1) in Table 6 to Sec. 217.173; and
0
d. Revising the entry for (i)(2) in Table 9 to Sec. 217.173.
The revisions and additions read as follows:
Sec. 217.173 Disclosures by certain advanced approaches Board-
regulated institutions.
(a)(1) An advanced approaches Board-regulated institution described
in Sec. 217.172(b) must make the disclosures described in Tables 1
through 12 to Sec. 217.173.
(2) An advanced approaches Board-regulated institution that is
required to publicly disclose its supplementary leverage ratio pursuant
to Sec. 217.172(d) must make the disclosures required under Table 13
to Sec. 217.173, unless the Board-regulated institution is a
consolidated subsidiary of a bank holding company, savings and loan
holding company, or depository institution that is subject to these
disclosures requirements or a subsidiary of a non-U.S. banking
organization that is subject to comparable public disclosure
requirements in its home jurisdiction.
(3) The disclosures described in Tables 1 through 12 to Sec.
217.173 must be made publicly available for twelve consecutive quarters
beginning on January 1, 2014, or a shorter period, as applicable, for
the quarters after the Board-regulated institution has completed the
parallel run process and received notification from the Board pursuant
to section 121(d) of subpart E of this part. The disclosures described
in Table 13 to Sec. 217.173 must be made publicly available for twelve
consecutive quarters beginning on January 1, 2015, or a shorter period,
as applicable, for the quarters after the Board-regulated institution
becomes subject to the disclosure of the supplementary leverage ratio
pursuant to Sec. 217.172(d).
* * * * *
Table 6 to Sec. 217.173--Credit Risk: Disclosures for Portfolios Subject to IRB Risk-Based Capital Formula
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
Qualitative disclosures................. (a).................................. * * *
(1) Structure of internal
rating systems and if the
Board-regulated institution
considers external ratings,
the relation between internal
and external ratings;
* * * * * * *
----------------------------------------------------------------------------------------------------------------
* * * * *
Table 9 to Sec. 217.173--Securitization
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
Quantitative Disclosures.............................. * * *
* * * * * * *
(i)............................... * * *
(2) Aggregate amount
disclosed
separately by type
of underlying
exposure in the
pool of any: (A)
After-tax gain-on-
sale on a
securitization that
has been deducted
from common equity
tier 1 capital; and
(B) Credit-
enhancing interest-
only strip that is
assigned a 1,250
percent risk
weight.
* * * * * * *
----------------------------------------------------------------------------------------------------------------
[[Page 75470]]
* * * * *
Federal Deposit Insurance Corporation
12 CFR Chapter III
Authority and Issuance
For the reasons stated in the preamble, the Federal Deposit
Insurance Corporation proposes to amend part 324 of chapter III of
Title 12, Code of Federal Regulations as follows:
PART 324--CAPITAL ADEQUACY
0
25. The authority citation for part 324 continues to read as follows:
Authority: 12 U.S.C. 1815(a), 1815(b), 1816, 1818(a), 1818(b),
1818(c), 1818(t), 1819(Tenth), 1828(c), 1828(d), 1828(i), 1828(n),
1828(o), 1831o, 1835, 3907, 3909, 4808; 5371; 5412; Pub. L. 102-233,
105 Stat. 1761, 1789, 1790 (12 U.S.C. 1831n note); Pub. L. 102-242,
105 Stat. 2236, 2355, as amended by Pub. L. 103-325, 108 Stat. 2160,
2233 (12 U.S.C. 1828 note); Pub. L. 102-242, 105 Stat. 2236, 2386,
as amended by Pub. L. 102-550, 106 Stat. 3672, 4089 (12 U.S.C. 1828
note); Pub. L. 111-203, 124 Stat. 1376, 1887 (15 U.S.C. 78o-7 note).
0
26. Section 324.2 is amended by revising the definition of
``Residential mortgage exposure'' to read as follows:
Sec. 324.2 Definitions.
* * * * *
Residential mortgage exposure means an exposure (other than a
securitization exposure, equity exposure, statutory multifamily
mortgage, or presold construction loan) that is:
(1)(i) An exposure that is primarily secured by a first or
subsequent lien on one-to-four family residential property; or
(ii) An exposure with an original and outstanding amount of $1
million or less that is primarily secured by a first or subsequent lien
on residential property that is not one-to-four family; and
(2) For purposes of calculating capital requirements under subpart
E of this part, managed as part of a segment of exposures with
homogeneous risk characteristics and not on an individual-exposure
basis.
* * * * *
0
27. Section 324.10 is amended by revising paragraph (c) introductory
text to read as follows:
Sec. 324.10 Minimum capital requirements.
* * * * *
(c) Advanced approaches capital ratio calculations. An advanced
approaches FDIC-supervised institution that has completed the parallel
run process and received notification from the FDIC pursuant to Sec.
324.121(d) must determine its regulatory capital ratios as described in
paragraphs (c)(1) through (3) of this section. An advanced approaches
FDIC-supervised institution must determine its supplementary leverage
ratio in accordance with paragraph (c)(4) of this section, beginning
with the calendar quarter immediately following the quarter in which
the FDIC-supervised institution meets any of the criteria in Sec.
324.100(b)(1).
* * * * *
0
28. Section 324.22 is amended by revising paragraph (b)(1)(iii) to read
as follows:
Sec. 324.22 Regulatory capital adjustments and deductions.
* * * * *
(b) * * *
(1) * * *
(iii) An FDIC-supervised institution must deduct any net gain and
add any net loss related to changes in the fair value of liabilities
that are due to changes in the FDIC-supervised institution's own credit
risk. An advanced approaches FDIC-supervised institution must deduct
the difference between its credit spread premium and the risk-free rate
for derivatives that are liabilities as part of this adjustment.
* * * * *
0
29. Section 324.100 is amended by revising paragraph (b)(1)(ii) to read
as follows:
Sec. 324.100 Purpose, applicability, and principle of conservatism.
* * * * *
(b) * * *
(1) * * *
(ii) Has consolidated total on-balance sheet foreign exposure on
its most recent year-end Call Report equal to $10 billion or more
(where total on-balance sheet foreign exposure equals total foreign
countries cross-border claims on an ultimate-risk basis, plus total
foreign countries claims on local residents on an ultimate-risk basis,
plus total foreign countries fair value of foreign exchange and
derivative products), calculated in accordance with the Federal
Financial Institutions Examination Council (FFIEC) 009 Country Exposure
Report;
* * * * *
0
30. Section 324.122 is amended by:
0
a. Revising paragraphs (a)(3) and (b)(1);
0
b. Adding paragraph (b)(2)(iii);
0
c. Revising paragraphs (b)(3) and (5) and (c)(1), (2), (5), and (6);
0
d. Redesignating paragraphs (c)(9) and (10) as paragraphs (c)(10) and
(11), revising them, and adding a new paragraph (c)(9).
0
e. Revising paragraph (i)(5).
The revisions and additions read as follows:
Sec. 324.122 Qualification requirements.
(a) * * *
(3) Each FDIC-supervised institution must have an appropriate
infrastructure with risk measurement and management processes that meet
the qualification requirements of this section and are appropriate
given the FDIC-supervised institution's size and level of complexity.
Regardless of whether the systems and models that generate the risk
parameters necessary for calculating an FDIC-supervised institution's
risk-based capital requirements are located at any affiliate of the
FDIC-supervised institution, the FDIC-supervised institution itself
must ensure that the risk parameters and reference data used to
determine its risk-based capital requirements are representative of
long run experience with respect to its own credit risk and operational
risk exposures.
(b) Risk rating and segmentation systems for wholesale and retail
exposures. (1)(i) An FDIC-supervised institution must have an internal
risk rating and segmentation system that accurately, reliably, and
meaningfully differentiates among degrees of credit risk for the FDIC-
supervised institution's wholesale and retail exposures. When assigning
an internal risk rating, an FDIC-supervised institution may consider a
third-party assessment of credit risk, provided that the FDIC-
supervised institution's internal risk rating assignment does not rely
solely on the external assessment.
(ii) If an FDIC-supervised institution uses multiple rating or
segmentation systems, the FDIC-supervised institution's rationale for
assigning an obligor or exposure to a particular system must be
documented and applied in a manner that best reflects the obligor or
exposure's level of risk. An FDIC-supervised institution must not
inappropriately allocate obligors across systems to minimize regulatory
capital requirements.
(iii) In assigning ratings to wholesale obligors and exposures,
including loss severity ratings grades to wholesale exposures, and
assigning retail exposures to retail segments, an FDIC-supervised
institution must use all relevant and material information and ensure
that the information is current.
(iv) When assigning an obligor to a PD rating or retail exposure to
a PD segment, an FDIC-supervised institution must assess the obligor or
retail borrower's ability and willingness to contractually perform,
taking a conservative view of projected information.
(2) * * *
[[Page 75471]]
(iii) An FDIC-supervised institution must have an effective process
to obtain and update in a timely manner relevant and material
information on obligor and exposure characteristics that affect PD, LGD
and EAD.
(3) For retail exposures:
(i) An FDIC-supervised institution must have an internal system
that groups retail exposures into the appropriate retail exposure
subcategory and groups the retail exposures in each retail exposure
subcategory into separate segments with homogeneous risk
characteristics that provide a meaningful differentiation of risk. The
FDIC-supervised institution's system must identify and group in
separate segments by subcategories exposures identified in Sec.
324.131(c)(2)(ii) and (iii).
(ii) An FDIC-supervised institution must have an internal system
that captures all relevant exposure risk characteristics, including
borrower credit score, product and collateral types, as well as
exposure delinquencies, and must consider cross-collateral provisions,
where present.
(iii) The FDIC-supervised institution must review and, if
appropriate, update assignments of individual retail exposures to
segments and the loss characteristics and delinquency status of each
identified risk segment. These reviews must occur whenever the FDIC-
supervised institution receives new material information, but generally
no less frequently than quarterly, and, in all cases, at least
annually.
* * * * *
(5) The FDIC-supervised institution's internal risk rating system
for wholesale exposures must provide for the review and update (as
appropriate) of each obligor rating and (if applicable) each loss
severity rating whenever the FDIC-supervised institution obtains
relevant and material information on the obligor or exposure that
affect PD, LGD and EAD, but no less frequently than annually.
(c) Quantification of risk parameters for wholesale and retail
exposures. (1) The FDIC-supervised institution must have a
comprehensive risk parameter quantification process that produces
accurate, timely, and reliable estimates of the risk parameters on a
consistent basis for the FDIC-supervised institution's wholesale and
retail exposures.
(2) An FDIC-supervised institution's estimates of PD, LGD, and EAD
must incorporate all relevant, material, and available data that is
reflective of the FDIC-supervised institution's actual wholesale and
retail exposures and of sufficient quality to support the determination
of risk-based capital requirements for the exposures. In particular,
the population of exposures in the data used for estimation purposes,
and lending standards in use when the data were generated, and other
relevant characteristics, should closely match or be comparable to the
FDIC-supervised institution's exposures and standards. In addition, an
FDIC-supervised institution must:
(i) Demonstrate that its estimates are representative of long run
experience, including periods of economic downturn conditions, whether
internal or external data are used;
(ii) Take into account any changes in lending practice or the
process for pursuing recoveries over the observation period;
(iii) Promptly reflect technical advances, new data, and other
information as they become available;
(iv) Demonstrate that the data used to estimate risk parameters
support the accuracy and robustness of those estimates; and
(v) Demonstrate that its estimation technique performs well in out-
of-sample tests whenever possible.
* * * * *
(5) The FDIC-supervised institution must be able to demonstrate
which variables have been found to be statistically significant with
regard to EAD. The FDIC-supervised institution's EAD estimates must
reflect its specific policies and strategies with regard to account
management, including account monitoring and payment processing, and
its ability and willingness to prevent further drawdowns in
circumstances short of payment default. The FDIC-supervised institution
must have adequate systems and procedures in place to monitor current
outstanding amounts against committed lines, and changes in outstanding
amounts per obligor and obligor rating grade and per retail segment.
The FDIC-supervised institution must be able to monitor outstanding
amounts on a daily basis.
(6) At a minimum, PD estimates for wholesale obligors and retail
segments must be based on at least five years of default data. LGD
estimates for wholesale exposures must be based on at least seven years
of loss severity data, and LGD estimates for retail segments must be
based on at least five years of loss severity data. EAD estimates for
wholesale exposures must be based on at least seven years of exposure
amount data, and EAD estimates for retail segments must be based on at
least five years of exposure amount data. If the FDIC-supervised
institution has relevant and material reference data that span a longer
period of time than the minimum time periods specified above, the FDIC-
supervised institution must incorporate such data in its estimates,
provided that it does not place undue weight on periods of favorable or
benign economic conditions relative to periods of economic downturn
conditions.
* * * * *
(9) If an FDIC-supervised institution uses internal data obtained
prior to becoming subject to this subpart E or external data to arrive
at PD, LGD, or EAD estimates, the FDIC-supervised institution must
demonstrate to the FDIC that the FDIC-supervised institution has made
appropriate adjustments if necessary to be consistent with the
definition of default in Sec. 324.101. Internal data obtained after
the FDIC-supervised institution becomes subject to this subpart E must
be consistent with the definition of default in Sec. 324.101.
(10) The FDIC-supervised institution must review and update (as
appropriate) its risk parameters and its risk parameter quantification
process at least annually.
(11) The FDIC-supervised institution must, at least annually,
conduct a comprehensive review and analysis of reference data to the
FDIC-supervised institution's exposures, quality of reference data to
support PD, LGD, and EAD estimates, and consistency of reference data
to the definition of default in Sec. 324.101.
* * * * *
(i) * * *
(5) The FDIC-supervised institution must have an internal audit
function or equivalent function that is independent of business-line
management that at least annually:
(i) Reviews the FDIC-supervised institution's advanced systems and
associated operations, including the operations of its credit function
and estimations of PD, LGD, and EAD;
(ii) Assesses the effectiveness of the controls supporting the
FDIC-supervised institution's advanced systems; and
(iii) Documents and reports its findings to the FDIC-supervised
institution's board of directors (or a committee thereof).
* * * * *
0
31 Section 324.131 is amended by:
0
a. Revising paragraph (d)(5)(ii) and (iii); and
0
b. In paragraph (e)(3)(vi), removing ``Sec. 324.22(a)(7)'' and adding
``Sec. 324.22(d)'' in its place.
The revisions read as follows:
Sec. 324.131 Mechanics for calculating total wholesale and retail
risk-weighted assets.
* * * * *
[[Page 75472]]
(d) * * *
(5) * * *
(ii) An FDIC-supervised institution may take into account the risk
reducing effects of guarantees and credit derivatives in support of
retail exposures in a segment when quantifying the PD and LGD of the
segment. In doing so, an FDIC-supervised institution must consider all
relevant available information.
(iii) Except as provided in paragraph (d)(6) of this section, an
FDIC-supervised institution may take into account the risk reducing
effects of collateral in support of a wholesale exposure when
quantifying the LGD of the exposure, and may take into account the risk
reducing effects of collateral in support of retail exposures when
quantifying the PD and LGD of the segment. In order to do so, an FDIC-
supervised institution must have established internal requirements for
collateral management, legal certainty, and risk management processes.
* * * * *
0
32. Section 324.132 is amended by:
0
a. In Table 1 to Sec. 324.132, removing ``this section'' and adding
``Sec. 324.32'' in its place, wherever it appears;
0
b. Revising paragraphs (c)(1) and (d)(5)(iii)(B);
0
c. In paragraph (d)(7)(iv)(B), removing ``Sec. 324.131(b)(2)'' and
adding ``Sec. 324.132(b)(2)'' in its place; and
0
d. In paragraph (d)(9)(ii), removing ``paragraph (e)(3)'' and adding
``paragraph (e)(6)'' in its place.
The revisions read as follows:
Sec. 324.132 Counterparty credit risk of repo-style transactions,
eligible margin loans, and OTC derivative contracts.
* * * * *
(c) EAD for OTC derivative contracts--(1) OTC derivative contracts
not subject to a qualifying master netting agreement. An FDIC-
supervised institution must determine the EAD for an OTC derivative
contract that is not subject to a qualifying master netting agreement
using the current exposure methodology in paragraph (c)(5) of this
section or using the internal models methodology described in paragraph
(d) of this section. An FDIC-supervised institution may reduce the EAD
calculated according to paragraphs (c)(5) or (d) of this section by the
credit valuation adjustment that the FDIC-supervised institution has
recognized in its balance sheet valuation of any OTC derivative
contracts in the netting set. For purposes of this paragraph (c), the
credit valuation adjustment does not include any adjustments to common
equity tier 1 capital attributable to changes in the fair value of the
FDIC-supervised institution's liabilities that are due to changes in
its own credit risk since the inception of the transaction with the
counterparty.
* * * * *
(d) * * *
(5) * * *
(iii) * * *
(B) Twenty business days if the number of trades in a netting set
exceeds 5,000 at any time during the previous quarter (except if the
FDIC-supervised institution is calculating EAD for a cleared
transaction under Sec. 324.133) or contains one or more trades
involving illiquid collateral or any derivative contract that cannot be
easily replaced. If over the two previous quarters more than two margin
disputes on a netting set have occurred that lasted more than the
margin period of risk, then the FDIC-supervised institution must use a
margin period of risk for that netting set that is at least two times
the minimum margin period of risk for that netting set. If the
periodicity of the receipt of collateral is N-days, the minimum margin
period of risk is the minimum margin period of risk under this
paragraph (d) plus N minus 1. This period should be extended to cover
any impediments to prompt re-hedging of any market risk.
* * * * *
0
33. Section 324.133 is amended by:
0
a. In paragraph (b)(3)(i)(B), removing ``Sec. 324.132(b)(3)(i)(A)''
and adding ``Sec. 324.133(b)(3)(i)(A)'' in its place;
0
b. In paragraphs (b)(4)(ii) removing ``Sec. 324.131'' and adding
``subparts E or F of this part, as applicable'' in its place;
0
c. Adding paragraph (c)(3)(iii); and
0
d. In paragraph (c)(4)(ii) removing ``Sec. 324.131'' and adding
``subparts E or F of this part, as applicable'' in its place.
The addition reads as follows:
Sec. 324.133 Cleared transactions.
* * * * *
(c) * * *
(3) * * *
(iii) Notwithstanding paragraphs (c)(3)(i) and (ii) of this
section, a clearing member FDIC-supervised institution may apply a risk
weight of 0 percent to the trade exposure amount for a cleared
transaction with a CCP where the clearing member FDIC-supervised
institution is acting as a financial intermediary on behalf of a
clearing member client, the transaction offsets another transaction
that satisfies the requirements set forth in Sec. 324.3(a), and the
clearing member FDIC-supervised institution is not obligated to
reimburse the clearing member client in the event of the CCP default.
* * * * *
Sec. 324.136 [Amended]
0
34. Section 324.136 is amended by,
0
a. In paragraph (e)(2)(i) removing ``Sec. 324.135(e)(1) and (e)(2)''
and adding ``Sec. 324.136(e)(1) and (2)'' in its place; and
0
b. In paragraph (e)(2)(ii), removing ``Sec. Sec. 324.135(e)(1) and
(e)(2)'' and adding ``Sec. 324.136(e)(1) and (2)'' in its place.
0
34. Section 324.172 is amended by revising paragraphs (d), as added at
79 FR 57750, September 26, 2014, effective January 1, 2015, to read as
follows:
Sec. 324.172 Disclosure requirements.
* * * * *
(d)(1) An FDIC-supervised institution that meets any of the
criteria in Sec. 324.100(b)(1) before January 1, 2015, must publicly
disclose each quarter its supplementary leverage ratio and the
components thereof (that is, tier 1 capital and total leverage
exposure) as calculated under subpart B of this part, beginning with
the first quarter in 2015. This disclosure requirement applies without
regard to whether the FDIC-supervised institution has completed the
parallel run process and received notification from the FDIC pursuant
to Sec. 324.121(d).
(2) An FDIC-supervised institution that meets any of the criteria
in Sec. 324.100(b)(1) on or after January 1, 2015, must publicly
disclose each quarter its supplementary leverage ratio and the
components thereof (that is, tier 1 capital and total leverage
exposure) as calculated under subpart B of this part beginning with the
calendar quarter immediately following the quarter in which the FDIC-
supervised institution becomes an advanced approaches FDIC-supervised
institution. This disclosure requirement applies without regard to
whether the FDIC-supervised institution has completed the parallel run
process and has received notification from the FDIC pursuant to Sec.
324.121(d).
0
35. Section 324.173 is amended by:
0
a. Designating paragraph (a), as revised at 79 FR 57750, September 26,
2014, effective January 1, 2015, as paragraph (a)(1) and revising it;
0
b. Adding paragraphs (a)(2) and (3);
0
c. Revising the entry for (a)(1) in Table 6 to Sec. 324.173; and
0
d. Revising the entry for (i)(2) in Table 9 to Sec. 324.173.
The revisions and additions read as follows:
Sec. 324.173 Disclosures by certain advanced approaches FDIC-
supervised institutions.
(a)(1) An advanced approaches FDIC-supervised institution described
in Sec. 324.172(b) must make the disclosures described in Tables 1
through 12 to Sec. 324.173.
[[Page 75473]]
(2) An advanced approaches FDIC-supervised institution that is
required to publicly disclose its supplementary leverage ratio pursuant
to Sec. 324.172(d) must make the disclosures required under Table 13
to Sec. 324.173, unless the FDIC-supervised institution is a
consolidated subsidiary of a bank holding company, savings and loan
holding company, or depository institution that is subject to these
disclosures requirements or a subsidiary of a non-U.S. banking
organization that is subject to comparable public disclosure
requirements in its home jurisdiction.
(3) The disclosures described in Tables 1 through 12 to Sec.
324.173 must be made publicly available for twelve consecutive quarters
beginning on January 1, 2014, or a shorter period, as applicable, for
the quarters after the FDIC-supervised institution has completed the
parallel run process and received notification from the FDIC pursuant
to section 121(d) of subpart E of this part. The disclosures described
in Table 13 to Sec. 324.173 must be made publicly available for twelve
consecutive quarters beginning on January 1, 2015, or a shorter period,
as applicable, for the quarters after the FDIC-supervised institution
becomes subject to the disclosure of the supplementary leverage ratio
pursuant to Sec. 324.172(d).
* * * * *
Table 6 to Sec. 324.173--Credit Risk: Disclosures for Portfolios Subject to IRB Risk-Based Capital Formula
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
Qualitative disclosures............................... (a)............................... * * *
(1) Structure of
internal rating
systems and if the
national bank or
the FDIC-supervised
institution
considers external
ratings, the
relation between
internal and
external ratings;
* * *
* * * * * * *
----------------------------------------------------------------------------------------------------------------
* * * * *
Table 9 to Sec. 324.173--Securitization
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
* * * * * * *
Quantitative disclosures.............................. * * *............................. * * *
(i)............................... * * *
(2) Aggregate amount
disclosed
separately by type
of underlying
exposure in the
pool of any: (A)
After-tax gain-on-
sale on a
securitization that
has been deducted
from common equity
tier 1 capital; and
(B) Credit-
enhancing interest-
only strip that is
assigned a 1,250
percent risk
weight.
* * * * * * *
----------------------------------------------------------------------------------------------------------------
* * * * *
Dated: November 18, 2014.
Thomas J. Curry,
Comptroller of the Currency.
By order of the Board of Governors of the Federal Reserve
System, December 2, 2014.
Robert deV. Frierson,
Secretary of the Board.
Dated at Washington, DC, this 18th day of November, 2014.
By order of the Board of Directors.
Federal Deposit Insurance Corporation.
Robert E. Feldman,
Executive Secretary.
[FR Doc. 2014-28690 Filed 12-17-14; 8:45 am]
BILLING CODE P
