Regulatory Capital Rules: Regulatory Capital, Final Revisions Applicable to Banking Organizations Subject to the Advanced Approaches Risk-Based Capital Rule, 41409-41426 [2015-15748]
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41409
Rules and Regulations
Federal Register
Vol. 80, No. 135
Wednesday, July 15, 2015
This section of the FEDERAL REGISTER
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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–AE12
Regulatory Capital Rules: Regulatory
Capital, Final 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: Final rule.
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) are
adopting a final rule to clarify, correct,
and update aspects of the regulatory
capital framework applicable to certain
large, internationally active banking
organizations. The revisions correct
technical and typographical errors and
clarify certain requirements of the
advanced approaches risk-based capital
rule based on observations made by the
agencies during the parallel run review
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SUMMARY:
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process of advanced approaches
banking organizations. The corrections
also enhance consistency of the
agencies’ advanced approaches riskbased capital rule with relevant
international standards. The agencies
proposed these changes in a notice of
proposed rulemaking that was
published in the Federal Register on
December 18, 2014. The agencies are
now adopting the proposed rule as final
with some additional clarifications and
amendments.
DATES: This rule is effective on October
1, 2015.
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 Kevin
Korzeniewski, Senior 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; Juan
Climent, Manager, (202) 872–7546;
Andrew Willis, Supervisory Financial
Analyst, (202) 912–4323, Matthew
McQueeney, Senior Financial Analyst,
(202) 425–2942, or Justyna Milewski,
Senior 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,
mphillips@fdic.gov; Rachel Ackmann,
Senior Attorney, rackmann@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
rule (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 rule (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 parallel run.5
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, the banking
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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organization will be required to use the
advanced approaches rule to calculate
its risk-based capital requirements.6
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
standardized approach in subpart D of
the agencies’ regulatory capital
framework.7 In accordance with section
171 of the Dodd-Frank Act, the lower
ratio (i.e., the more binding ratio) for
each risk-based capital requirement is
the ratio the banking organization must
use for regulatory capital purposes.
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II. Proposed Rule and Summary of
Comments
In December 2014, the agencies
invited comment on a notice of
proposed rulemaking designed to
clarify, correct, and update aspects of
the regulatory capital framework
applicable to advanced approaches
banking organizations (proposed rule).8
The proposed revisions were largely
driven by observations made by the
agencies during the parallel run review
process of advanced approaches
banking organizations, and included
corrections to typographical and
technical errors, clarifications and
updates in light of revisions to other
rules. The proposed revisions were also
intended to enhance consistency of the
agencies’ advanced approaches rule
with relevant international standards.9
The proposed amendments affect only
those provisions of the revised capital
framework that apply to advanced
approaches banking organizations.
The agencies received two comment
letters on the proposed revisions—one
from a financial services trade
association, and another from a public
advocacy nonprofit organization. The
financial services trade association
suggested that several of the proposed
changes also be applied to the
standardized approach. Both
commenters expressed views on the
proposed treatment of cleared
transactions. The financial services
trade association suggested that the
agencies expand the proposed
treatment, while the public advocacy
nonprofit organization suggested that
the proposed treatment was too
6 12 CFR 3.121(d) (OCC), 12 CFR 217.121(d)
(Board), and 12 CFR 324.121(d) (FDIC).
7 See 12 CFR part 3.10(c) (OCC); 12 CFR part
217.10(c) (Board); and 12 CFR part 324.10(c) (FDIC).
8 See 79 FR 75455 (Dec. 18, 2014).
9 See International Convergence of Capital
Measurement and Capital Standards: A Revised
Framework,’’ (June 2006) https://www.bis.org/publ/
bcbs128.htm.
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generous. In addition, the public
advocacy nonprofit organization
disagreed with the proposed exemption
for cleared transactions from the higher
capital charge applicable to large
nettings sets.
2. Disclosure Requirements
A. Disclosure Requirements for
Advanced Approaches Banking
Organizations
The proposed rule would have
revised the definition of residential
mortgage exposure in section 2 of the
regulatory capital framework to clarify
that an advanced approaches banking
organization must manage qualifying
exposures as part of a segment of
exposures with homogenous risk
characteristics, and not on an individual
basis, for purposes of classifying an
exposure as a residential mortgage
exposure under the advanced
approaches rule. This clarification was
consistent with the agencies’ intent in
adopting the proposed definition of
residential mortgage exposure, and with
the requirement that an advanced
approaches banking organization have
an internal system that groups retail
exposures into the appropriate retail
exposure subcategory and that groups
the retail exposures in each retail
exposure subcategory into separate
segments with homogenous risk
characteristics.10 The agencies did not
receive any comments on this part of the
proposed rule and are adopting it as
final, with a technical edit to correct a
grammatical error.
Section 173 of the regulatory capital
framework requires advanced
approaches banking organizations that
have completed the parallel run process
to provide qualitative and quantitative
disclosures relating to their capital
requirements. The proposed rule would
have clarified two items related to
disclosure requirements in the advanced
approaches rule.
First, the proposed rule would have
clarified that an advanced approaches
banking organization would be required
to disclose information related to
external ratings in Table 6 to section 173
only if it considered external ratings in
its internal ratings approach. An
advanced approaches banking
organization that did not use or consider
external ratings would not be required
to make such a disclosure.
Second, the proposed rule would
have updated the disclosure
requirement related to securitization
exposures in Table 9 to reflect the
treatment of credit-enhancing interest
only strips (CEIOs) and after-tax gainon-sale resulting from a securitization.
Specifically, CEIOs that do not
constitute after-tax gain-on-sale would
be risk-weighted at 1,250 percent, and
an after-tax gain-on-sale resulting from a
securitization would be deducted from
common equity tier 1 capital, rather
than from tier 1 capital. The agencies
did not receive any comments on this
part of the proposed rule and are
adopting it as final.
B. Calculation of Total On-Balance
Sheet Foreign Exposure
B. Application and Disclosure of the
Supplementary Leverage Ratio
As mentioned above, the advanced
approaches rule generally applies to a
banking organization with $250 billion
or more in total consolidated assets or
$10 billion or more in on-balance sheet
foreign exposure. The proposed rule
would have updated the method of
calculating on-balance sheet foreign
exposure to reference the current line
items on the regulatory reporting forms.
The agencies did not receive any
comments on this part of the proposed
rule and are adopting it as final, with a
technical edit to update a reference to
the Federal Financial Institutions
Examination Council (FFIEC) 009
Report instead of referencing the Call
Report.
Advanced approaches banking
organizations are subject to the
supplementary leverage ratio.11 The
agencies proposed to clarify that the
supplementary leverage ratio would
apply to an advanced approaches
banking organization, regardless of
whether it had completed its parallel
run process. The supplementary
leverage ratio described in section
10(c)(4) would begin to apply to a
banking organization immediately
following the quarter in which the
banking organization becomes subject to
the advanced approaches rule pursuant
to section 100(b)(1) of the advanced
approaches rule.
In addition, the agencies proposed to
clarify the disclosure requirements
10 See 12 CFR 3.122(b)(3) (OCC), 12 CFR
217.122(b)(3) (Board), and 12 CFR 324.122(b)(3)
(FDIC).
11 See section 10(c)(4)(ii) of the regulatory capital
framework and 79 FR 57725 (Sept. 26, 2014) (2014
SLR rule).
III. Overview of the Final Rule
1. Definitions and Applicability
A. Definition of Residential Mortgage
Exposure
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applicable to advanced approaches
banking organizations.12 The proposed
rule clarified that advanced approaches
banking organizations, not just top-tier
banking organizations, would be
required to publicly disclose the
supplementary leverage ratio and the
components thereof (that is, tier 1
capital and total leverage exposure) on
a quarterly basis. A banking
organization that qualified as an
advanced approaches banking
organization before January 1, 2015,
would be required to provide these
disclosures, beginning with the first
quarter in 2015, while a banking
organization that qualified as an
advanced approaches banking
organization on or after January 1, 2015,
would be subject to the disclosures
beginning with the calendar quarter
immediately following the calendar
quarter in which the banking
organization became an advanced
approaches banking organization. For
example, a banking organization that
becomes subject to the advanced
approaches rule as of year-end 2015
would begin disclosing its
supplementary leverage ratio and
components thereof as of March 31,
2016.
In addition to the disclosure
requirements above, the proposed rule
clarified that all top-tier 13 advanced
approaches banking organizations,
regardless of their parallel run status,
would be required to publicly disclose
the quantitative information described
in Table 13 in section 173 of the
advanced approaches rule 14 for twelve
consecutive quarters or a shorter period,
as applicable, beginning on January 1,
2015. For example, a top-tier banking
organization that became an advanced
approaches banking organization prior
to January 1, 2015 (therefore subject to
the supplementary leverage ratio
disclosure requirements beginning
January 1, 2015), and remains the toptier banking organization, would
publicly disclose supplementary
leverage ratio data for one quarter in the
first quarterly disclosure of 2015, two
quarters in the second quarterly
disclosure of 2015, and so on, disclosing
twelve quarters of supplementary
12 Section 172(d) was added to the regulatory
capital framework as part of the 2014 SLR rule.
13 Disclosure requirements in section 173 of the
advanced approaches rule 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.
14 Table 13 in section 173 of the advanced
approaches rule was adopted by the agencies in the
2014 SLR rule.
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leverage ratio data in the quarterly
disclosures for the fourth quarter of
2017. The agencies did not receive
comments on this part of the proposed
rule, and are finalizing it as proposed.
3. Risk Weights for Cleared Transactions
A. Risk Weights for Certain Client
Cleared Transactions
The agencies proposed to revise the
advanced approaches rule for clearing
member banking organizations’
exposures to a central counterparty
(CCP) where the clearing member does
not guarantee the performance of the
CCP to the clearing member client.
Under the advanced approaches rule, a
clearing member banking organization is
required to assign a two percent risk
weight to the trade exposure amount for
a cleared transaction with a qualifying
CCP (QCCP), and a risk weight
applicable to the CCP under section 32
of the regulatory capital framework for
a cleared transaction with a CCP that is
not a QCCP. This risk weight is applied
when the banking organization is acting
as a financial intermediary on behalf of
its clearing member client.
The proposed rule would have
permitted clearing member banking
organizations to assign a zero percent
risk weight under the advanced
approaches rule 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. The proposed treatment would
align the risk-based capital requirements
for client-cleared transactions with the
treatment under the agencies’ 2014 SLR
rule.
Both commenters provided views on
this provision. The public advocacy
nonprofit organization suggested that
the agencies not finalize the zero
percent risk weight, arguing that it
underestimates the clearing member’s
risk to a CCP default. Conversely, the
financial services trade association
suggested that the agencies expand the
zero percent risk weight to transactions
cleared on behalf of clients that would
not meet the eligibility criteria in
sections 3(a)(3) and (3)(a)(4) of the
regulatory capital framework for a
cleared transaction, to the extent that
the clearing member 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.
The agencies believe that requiring
the clearing member banking
organization to include in risk-weighted
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41411
assets a trade exposure amount for the
client-cleared transactions could
overstate the clearing member’s risk
where the clearing member is not
contractually obligated to perform on
the transaction to its client in the event
of a CCP failure. Furthermore, the
public advocacy nonprofit commenter’s
concerns are partially addressed by the
additional capital requirement for a
clearing member banking organization’s
exposure to the default fund of a CCP,
which considers its capitalization and
risk profile, and the nature of its default
fund. With respect to the financial
services trade association’s suggestion to
make an exception from the
requirements in sections 3(a)(3) and
3(a)(4) of the regulatory capital
framework, it is not clear that the risks
in transactions where the clearing
member advanced approaches banking
organization does not guarantee the
performance of the CCP are negligible.
Thus, the agencies are finalizing the
changes to the risk weight for certain
client-cleared transactions as proposed.
The financial services trade
association also noted that the proposed
changes should apply to the
standardized approach contained in
subpart D of the regulatory capital
framework. However, the agencies did
not seek comment on revisions to the
provisions in the standardized
approach, and banking organizations
subject to the standardized approach but
not to the advanced approaches rule
may not have had sufficient notice of
the change. Therefore, the agencies are
not adopting the change requested by
the commenter, but will consider the
suggested change in the context of
future proposed rulemakings.
B. Margin Period of Risk in the Internal
Models Methodology (IMM)
The regulatory capital framework
increases the margin period of risk in
the IMM for large netting sets, netting
sets involving illiquid collateral or overthe-counter (OTC) derivatives that
cannot easily be replaced, or netting sets
with more than two margin disputes
with the counterparty over the previous
two quarters that lasted more than the
margin period of risk.15 In the proposed
rule, the agencies proposed to clarify
that a cleared transaction would be
exempt from the higher margin period
of risk solely due to the fact that it is
part of a large netting set (i.e., a netting
set that exceeds 5,000 trades at any time
during the previous quarter). A cleared
transaction would be subject to the
higher margin period of risk if the
netting set contained illiquid collateral,
15 Section
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derivatives that could not easily be
replaced, or the banking organization
had more than two margin disputes
with the counterparty over the previous
two quarters that lasted more than the
margin period of risk.
The public advocacy nonprofit
commenter raised concerns about the
exemption of cleared transactions that
are part of a large netting set from the
twenty business day margin-period-ofrisk requirement. However, in the
agencies’ view, the fact that cleared
transactions are part of a large netting
set should not automatically subject
them to a higher capital requirement. In
order for trades to meet the regulatory
capital framework’s definition of cleared
transaction, they must involve a CCP,
which facilitates trades between
counterparties and has a proven record
of being able to efficiently process a
large volume of transactions.
Furthermore, most types of cleared
transactions must meet the operational
criteria in section 3(a) of the regulatory
capital framework, including the
portability requirement in section
3(a)(4). These factors sufficiently
mitigate the risk to warrant not applying
an increased margin-period-of-risk for a
netting set of cleared transactions solely
because of the size of the netting set. In
addition, this change promotes
international regulatory consistency by
aligning the advanced approaches rule
with international standards regarding
the requirements for netting sets
containing 5,000 or more cleared
transactions. Thus, the agencies are
finalizing the changes to the margin
period of risk in the IMM as proposed.
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C. Collateral Posted by a Clearing
Member Client Banking Organization
and a Clearing Member Banking
Organization
The agencies proposed to correct a
cross-reference related to the calculation
of exposure for cleared transactions for
clearing member banking organizations
and for clearing member client banking
organizations in section 133 of the
regulatory capital framework. Prior to
the proposed change, the provisions for
measuring the risk-weighted asset
amount for posted collateral crossreferenced only to section 131 of the
regulatory capital framework, which
contained the provisions for riskweighting wholesale and retail
exposures.16 Because collateral may be
in the form of a securitization exposure,
equity exposure, or a covered position,
16 See sections 133(b)(4)(ii) and 133(c)(4)(ii) (rules
applicable to clearing member client banking
organizations and clearing member banking
organizations, respectively).
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the proposed change would have
replaced the cross-reference to section
131 with a cross-reference to subparts E
and F.
The agencies did not receive any
comments on this proposed revision to
the advanced approaches rule, and are
adopting it as final. Notably, the
financial services trade association
commenter noted that the proposed
clarifications should be applied to the
standardized approach and suggested
that the agencies make a corresponding
change to section 35 in subpart D of the
regulatory capital framework. However,
the agencies did not seek comment on
revisions to the standardized approach,
and non-advanced approaches banking
organizations subject to the
standardized approach may not have
had sufficient notice of the change.
Therefore, the agencies are not adopting
the change requested by the commenter,
but will consider the suggested change
in the context of future proposed
rulemakings.
4. Risk Weights for Derivatives
A. Exposure at Default Adjustment for
Recognized Credit Valuation
Adjustment (CVA)
In calculating risk weights for
derivative contracts, banking
organizations may use the IMM if they
receive approval from their primary
Federal supervisor, or they may use the
current exposure methodology (CEM).
In calculating exposure at default (EAD)
for derivative contracts under the IMM,
a banking organization may reduce EAD
by the CVA that the banking
organization has recognized in the fair
value of derivative contracts reported on
its balance sheet. This adjustment
reflects the fair value adjustment for
counterparty credit risk in the valuation
of the netting set. Under the regulatory
capital framework, a banking
organization could not make a similar
adjustment under the CEM.
In the proposed rule, the agencies
proposed to adjust the CEM (section
132(c)(1)) to permit an advanced
approaches banking organization to
reduce the EAD by the recognized CVA
on the balance sheet. The agencies
noted that, for purposes of calculating
standardized total risk-weighted assets
as required under section 10 of the
regulatory capital framework, advanced
approaches banking organizations
would not be permitted to reduce the
EAD calculated according to the CEM.
The agencies did not receive comment
on this proposed revision to the
advanced approaches rule and are
adopting it as final, with an update in
section 132(c)(1) to remove a reference
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to section 132(d) and a technical edit in
section 132(c)(2) to also permit an
adjustment to EAD by the recognized
CVA for OTC derivatives subject to a
qualifying master netting agreement.
One commenter proposed that the
agencies make a corresponding change
to the standardized approach and
permit banking organizations to reduce
the EAD amount for derivative contracts
by recognized CVA. The commenter
argued that the current treatment under
the standardized approach double
counts the impact of CVA, and noted
that the adjustment to the standardized
approach would more closely align the
regulatory capital framework with
international standards. However, the
agencies did not seek comment on
revisions to the provisions in the
standardized approach, and nonadvanced approaches banking
organizations subject to the
standardized approach may not have
had sufficient notice of the change.
Therefore, the agencies are not adopting
the change requested by the commenter,
but will consider the suggested change
in the context of future proposed
rulemakings.
B. Fair Value of Liabilities due to
Changes in the Banking Organization’s
Own Credit Risk
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 agencies proposed to clarify
that, for derivative liabilities, an
advanced approaches banking
organization would deduct the
difference between its credit spread
premium and the risk-free rate as part of
this adjustment, and not in addition to
this adjustment.
The agencies did not receive any
comments on this part of the proposed
rule and are adopting it as final.
5. Requirements and Mechanics
Applicable to Banking Organizations
That Use the Advanced Approaches
Rule
In February 2014 and in March 2015,
the OCC and the Board granted
permission to a number of advanced
approaches banking organizations to
begin calculating their risk-based capital
requirements under the advanced
approaches rule.17 During the parallel
17 Board Press Releases: https://
www.federalreserve.gov/newsevents/press/bcreg/
20140221a.htm, https://www.federalreserve.gov/
newsevents/press/bcreg/20150331a.htm; OCC Press
releases: https://www.occ.gov/news-issuances/newsreleases/2014/nr-ia-2014-21.html, https://
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Federal Register / Vol. 80, No. 135 / Wednesday, July 15, 2015 / Rules and Regulations
run evaluation process for advanced
approaches banking organizations that
are calculating their risk-based capital
requirements under the advanced
approaches rule, the agencies concluded
that several areas of the advanced
approaches rule should be revised to (1)
clarify the 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.
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 rule.
When the agencies initially adopted the
advanced approaches rule in 2007,18
they incorporated these elements into
the supervisory review process rather
than into the advanced approaches rule.
However, the agencies believe that
certain elements of sections 122 and 131
of the regulatory capital framework
should be clarified to ensure that
advanced approaches banking
organizations appropriately: (1) Obtain
and consider all relevant and material
information to estimate probability of
default (PD), loss given default (LGD),
and EAD; (2) quantify risk parameters
for wholesale and retail exposures; and
(3) establish internal requirements for
collateral and risk management
processes.
Accordingly, in the proposed rule, the
agencies proposed incorporating new
rule text to add specificity and enhance
transparency regarding the IRB process
and the mechanics used to calculate
total wholesale and retail risk-weighted
assets. More specifically, the proposed
rule would have amended sections 122
and 131 of the regulatory capital
framework to clarify requirements
associated with: (1) The frequency for
reviewing risk rating systems, (2) the
independence of the systems’
development, design, and
implementation, (3) time horizons for
default and loss data when estimating
risk parameters, (4) changes in advanced
approaches banking organizations’
lending, payment processing, and
account monitoring practices, (5) the
use of all relevant available data for
assigning risk ratings, and (6) the need
for internal requirements for collateral
www.occ.gov/news-issuances/news-releases/2015/
nr-ia-2015-47.html.
18 72 FR 69288 (December 7, 2007).
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management and risk management
processes. These proposed
modifications are consistent with the
current overarching principles in
sections 122 and 131 of the regulatory
capital framework under which
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, and
must have a comprehensive riskparameter quantification process that
produces accurate, timely, and reliable
risk-parameter estimates. The agencies
emphasize that the revisions were
intended to clarify, but not change,
existing requirements. In fact, many of
these clarifications in subpart E of the
regulatory capital framework are
included in agency supervisory
guidance and examination materials.
Therefore, because they demonstrated
that they comply with the existing
requirements, advanced approaches
banking organizations that have already
exited parallel run demonstrated that
they met the proposed requirements
upon exit. The agencies did not receive
any comments on this part of the
proposed rule and are adopting the
changes as final, with a technical edit to
the rule text in section 122(c)(2)(v)(11)
to include language that was included
in the regulatory capital framework but
inadvertently omitted from the
proposed revisions.
6. Technical Corrections
In addition to the revisions discussed
above, the agencies proposed to make
the following technical corrections:
• In section 131(e)(3)(vi), the rule
would have been revised to reference
section 22(d) and not section 22(a)(7);
• In Table 1 of section 132, the
reference in the column heading would
have been corrected to state that ‘‘Nonsovereign issuers risk weight under this
section (in percent)’’ and ‘‘Sovereign
issuers risk weight under this section (in
percent)’’ are found in section 32.
• In section 132(d)(7)(iv)(B), the
agencies would have revised the rule to
reference section 132(b)(2) and not
section 131(b)(2);
• In section 132(d)(9)(ii), the agencies
would have revised the rule to reference
section 132(e)(6) and not section
132(e)(3);
• In section 133(b)(3)(i)(B), the
agencies would have revised the rule 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), the agencies would have
revised the rule to reference section
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41413
136(e)(1) and (e)(2) and not section
135(e)(1) and (e)(2).
No comments were received on the
above proposed technical corrections.
The agencies are finalizing these
changes as proposed and are correcting
an additional internal cross-reference
error in section 132 that was identified
after the publication of the proposed
rule. Specifically, the agencies are
amending section 132(d)(2)(iv)(C) to
replace the reference to paragraph (d)(5)
with the correct reference to paragraph
(d)(6).
In addition, the FDIC has added a
clarification of its prior Federal Register
instructions regarding the regulatory
capital framework. In its amendatory
rule text, the FDIC is clarifying for
Federal Register publication purposes a
certain paragraph of its prompt
corrective action (PCA) rules in 12 CFR
324.403(b). The FDIC has provided this
clarification to ensure that its PCA rules,
as published in the Federal Register, are
identical to the current PCA rules of the
Board and the OCC.
IV. 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
did not receive any comments on the
proposed rule related to PRA. The
agencies reviewed the final 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 final rule,
to prepare a Final Regulatory Flexibility
Analysis describing the impact of the
final rule on small entities, or to certify
that the final rule would not have a
significant economic impact on a
substantial number of small entities. For
purposes of the RFA, the Small Business
Administration (SBA) defines small
entities as those with $550 million or
less in assets for commercial banks and
savings institutions, and $38.5 million
or less in assets for trust companies.
As described in the SUPPLEMENTARY
INFORMATION section of the preamble, the
final rule would apply only to advanced
approaches banking organizations. No
OCC-supervised advanced approaches
banking organization qualifies as a small
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Federal Register / Vol. 80, No. 135 / Wednesday, July 15, 2015 / Rules and Regulations
entity as defined by the SBA. Therefore,
the OCC certifies that the final rule will
not have a significant economic impact
on a substantial number of OCCsupervised small entities.
FDIC: The RFA requires an agency, in
connection with a notice of final
rulemaking, to prepare a Final
Regulatory Flexibility Act analysis
describing the impact of the rule on
small entities (defined by the SBA for
purposes of the RFA to include banking
entities with total assets of $550 million
or less) or to certify that the final rule
will not have a significant economic
impact on a substantial number of small
entities.
Using the SBA’s size standards, as of
March 31, 2015, the FDIC supervised
3,407 small entities. As described in the
SUPPLEMENTARY INFORMATION section of
the preamble, however, the final rule
applies 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 March 31,
2015, based on a $550 million
threshold, zero (out of 3,119) small state
nonmember banks and zero (out of 288)
small state savings associations were
under the advanced approaches rule.
Therefore, the FDIC does not believe
that the final rule results in a significant
economic impact on a substantial
number of small entities under its
supervisory jurisdiction.
The FDIC certifies that the final rule
does not have a significant economic
impact on a substantial number of small
FDIC-supervised institutions.
Board: The Board is providing a final
regulatory flexibility analysis with
respect to this final rule. As discussed
above, this final rule would clarify,
correct, and update aspects of the
agencies’ regulatory capital framework
applicable to banking organizations that
are subject to the advanced approaches
rule. The 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 SBA,
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
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small banking organization).19 As of
March 31, 2015, there were
approximately 631 small state member
banks. As of December 31, 2014, there
were approximately 3,833 small bank
holding companies and 271 small
savings and loan holding companies.
The final rule applies only to
advanced approaches banking
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 rule. 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 final
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 final rule. The Board
believes that the final rule will not have
a significant economic impact on small
banking organizations supervised by the
Board and therefore believes that there
are no significant alternatives to the
final rule that would reduce the
economic impact on small banking
organizations supervised by the Board.
banks and Federal savings associations
subject to the OCC’s advanced
approaches rule.
Because the final 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 $143 million
or more.
C. OCC Unfunded Mandates Reform Act
of 1995 Determination
The OCC analyzed the final rule
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 final 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 ($143 million adjusted
for inflation).
The final rule includes clarifications,
corrections, and updates for certain
aspects of the agencies’ regulatory
capital framework applicable to national
Office of the Comptroller of the
Currency
■
19 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).
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).
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D. Plain Language
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 final rule in a
simple and straightforward manner, and
did not receive any comments on the
use of plain language.
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
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 amends
part 3 of chapter I of title 12, Code of
Federal Regulations as follows:
PART 3—CAPITAL ADEQUACY
STANDARDS
1. The authority citation for part 3
continues to read as follows:
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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):
(1)(i) That is primarily secured by a
first or subsequent lien on one-to-four
family residential property; or
(ii) 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
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.
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*
*
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(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
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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.
*
*
*
*
*
(b) * * *
(1) * * *
(ii) Has consolidated total on-balance
sheet foreign exposure on its most
recent year-end Federal Financial
Institutions Examination Council
(FFIEC) 009 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 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 newly redesignated paragraphs
(c)(10) and (11), 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) * * *
(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
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41415
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
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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 affects 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,
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, the 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,
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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 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.
*
*
*
*
*
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(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
determine relevance of the 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
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) * * *
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(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), (c)(2)
and (d)(5)(iii)(B);
■ c. In paragraph (d)(2)(iv)(C), removing
‘‘(d)(5)’’ and adding ‘‘(d)(6)’’ in its place;
■ d. 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.
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*
*
*
(c) EAD for OTC derivative
contracts—(1) OTC derivative contracts
not subject to a qualifying master
netting agreement. A national bank or
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 paragraph (c)(5)
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)(1), the credit valuation
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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.
(2) OTC derivative contracts subject to
a qualifying master netting agreement.
A national bank or Federal savings
association must determine the EAD for
multiple OTC derivative contracts that
are subject to a qualifying master netting
agreement using the current exposure
methodology in paragraph (c)(6) 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
paragraph (c)(6) 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)(2), 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.
*
*
*
*
*
■ 9. Section 3.133 is amended by:
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a. In paragraph (b)(3)(i)(B) removing
‘‘§ 3.132(b)(3)(i)(A)’’ and adding
paragraph (b)(3)(i)(A) of this section’’ 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.
The addition reads as follows:
■
§ 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 § 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
‘‘paragraphs (e)(1) and (2) of this
section’’ in its place: And
■ b. In paragraph (e)(2)(ii), removing
‘‘§§ 3.135(e)(1) and (e)(2)’’ and adding
‘‘paragraphs (e)(1) and (2) of this
section’’ in its place.
■ 11. Section 3.172 is amended by
revising paragraph (d) 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
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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
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 paragraph (a)(1) and
revising newly redesignated paragraph
(a)(1);
■ b. Adding paragraphs (a)(2) and (a)(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 § 3.121(d).
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) and § 3.173(a)(2).
*
*
*
*
*
TABLE 6 TO § 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 § 3.173—SECURITIZATION
*
*
Quantitative Disclosures ...........................
*
*
*
*
(i)
*
*
*
*
*
*
*
*
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 amended as follows:
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*
*
*
*
*
* * *
(2) Aggregate amount disclosed separately by type of underlying exposure in the
pool of any:
(i) After-tax gain-on-sale on a securitization that has been deducted from common
equity tier 1 capital: And
(ii) Credit-enhancing interest-only strip that is assigned a 1,250 percent risk weight.
*
*
PART 217—CAPITAL ADEQUACY OF
BANK HOLDING COMPANIES,
SAVINGS AND LOAN HOLDING
COMPANIES, AND STATE MEMBER
BANKS (REGULATION Q)
FEDERAL RESERVE SYSTEM
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*
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.
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*
*
14. Section 217.2 is amended by
revising the definition of ‘‘Residential
mortgage exposure’’ to read as follows:
■
§ 217.2
Definitions.
*
*
*
*
*
Residential mortgage exposure means
an exposure (other than a securitization
exposure, equity exposure, statutory
multifamily mortgage, or presold
construction loan):
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(1)(i) That is primarily secured by a
first or subsequent lien on one-to-four
family residential property; or
(ii) 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.
*
*
*
*
*
■ 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.
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*
*
*
*
*
(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.
*
*
*
*
*
■ 17. Section 217.100 is amended by
revising paragraphs (b)(1)(i)(B)(2) and
(b)(1)(ii)(B) to read as follows:
§ 217.100 Purpose, applicability, and
principle of conservatism.
*
*
*
(b) * * *
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*
16:42 Jul 14, 2015
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(1) * * *
(i) * * *
(B) * * *
(2) Has consolidated total on-balance
sheet foreign exposure on its most
recent year-end Federal Financial
Institutions Examination Council
(FFIEC) 009 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 FFIEC 009 Country
Exposure Report;
*
*
*
*
*
(ii) * * *
(B) Has consolidated total on-balance
sheet foreign exposure on its most
recent year-end Federal Financial
Institutions Examination Council
(FFIEC) 009 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 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);
■ 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 newly redesignated paragraphs
(c)(10) and (11), and adding a new
paragraph (c)(9); and
■ e. Revising paragraph (i)(5).
The revisions and additions read as
follows:
§ 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
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41419
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 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 Boardregulated 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
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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 affects 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, the 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;
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(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
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
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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 determine relevance of
the 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
■ 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 Board-regulated 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, a Board-regulated
institution must consider all relevant
available information.
(iii) Except as provided in paragraph
(d)(6) of this section, a Board-regulated
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
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reducing effects of collateral in support
of retail exposures when quantifying the
PD and LGD of the segment. In order to
do so, a Board-regulated institution
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), (c)(2)
and (d)(5)(iii)(B);
■ c. In paragraph (d)(2)(iv)(C), removing
‘‘(d)(5)’’ and adding ‘‘(d)(6)’’ in its place;
■ d. In paragraph (d)(7)(iv)(B), removing
‘‘§ 217.131(b)(2)’’ and adding
‘‘§ 217.132(b)(2)’’ in its place; and
■ e. 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.
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*
*
*
*
*
(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 paragraph (c)(5)
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)(1), 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.
(2) OTC derivative contracts subject to
a qualifying master netting agreement.
A Board-regulated institution must
determine the EAD for multiple OTC
derivative contracts that are subject to a
qualifying master netting agreement
using the current exposure methodology
in paragraph (c)(6) 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
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according to paragraph (c)(6) 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)(2), 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
paragraph (b)(3)(i)(A) of this section’’ 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 addition 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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41421
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
‘‘paragraphs (e)(1) and (2) of this
section’’ in its place; and
■ b. In paragraph (e)(2)(ii), removing
‘‘§§ 217.135(e)(1) and (e)(2)’’ and adding
‘‘paragraphs (e)(1) and (2) of this
section’’ in its place.
■ 23. Section 217.172 is amended by
revising paragraph (d) 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 Boardregulated 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 paragraph (a)(1) and
revising newly redesignated paragraph
(a)(1);
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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 § 217.121(d). 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)
and § 217.173(a)(2).
*
*
*
*
*
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.
*
*
(i)
*
*
*
*
*
*
*
*
*
*
*
FEDERAL DEPOSIT INSURANCE
CORPORATION
12 CFR Chapter III
Authority and Issuance
For the reasons stated in the
preamble, the Federal Deposit Insurance
Corporation amends part 324 of chapter
III of Title 12, Code of Federal
Regulations as follows:
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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.
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*
*
*
*
*
* * *
(2) Aggregate amount disclosed separately by type of underlying exposure in the
pool of any:
(i) After-tax gain-on-sale on a securitization that has been deducted from common
equity tier 1 capital; and
(ii) Credit-enhancing interest-only strip that is assigned a 1,250 percent risk weight.
*
*
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.
*
PART 324—CAPITAL ADEQUACY
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*
*
*
*
*
Residential mortgage exposure means
an exposure (other than a securitization
exposure, equity exposure, statutory
multifamily mortgage, or presold
construction loan):
(1)(i) That is primarily secured by a
first or subsequent lien on one-to-four
family residential property; or
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*
*
(ii) 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:
■
§ 324.10
Minimum capital requirements.
*
*
*
*
*
(c) Advanced approaches capital ratio
calculations. An advanced approaches
FDIC-supervised institution that has
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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
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:
§ 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.
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*
*
*
*
*
(b) * * *
(1) * * *
(ii) Has consolidated total on-balance
sheet foreign exposure on its most
recent year-end Federal Financial
Institutions Examination Council
(FFIEC) 009 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 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
(c)(10) as paragraphs (c)(10) and (c)(11),
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revising newly redesignated paragraphs
(c)(10) and (c)(11), and adding a new
paragraph (c)(9); and
■ e. Revising paragraph (i)(5).
The revisions and additions read as
follows:
§ 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 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, 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
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41423
must assess the obligor or retail
borrower’s ability and willingness to
contractually perform, taking a
conservative view of projected
information.
(2) * * *
(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 affects 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
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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, the 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.
*
*
*
*
*
(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
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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 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.
*
*
*
*
*
(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 determine relevance of
the reference data to the FDICsupervised 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).
*
*
*
*
*
■ 31. Section 324.131 is amended by:
■ a. Revising paragraphs (d)(5)(ii) and
(iii); and
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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.
*
*
*
*
*
(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.
*
*
*
*
*
■ 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), (c)(2)
and (d)(5)(iii)(B);
■ c. In paragraph (d)(2)(iv)(C), removing
‘‘(d)(5)’’ and adding ‘‘(d)(6)’’ in its place;
■ d. In paragraph (d)(7)(iv)(B), removing
‘‘§ 324.131(b)(2)’’ and adding
‘‘§ 324.132(b)(2)’’ in its place; and
■ e. 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.
*
*
*
*
*
(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 paragraph (c)(5)
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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)(1), the
credit valuation adjustment does not
include any adjustments to common
equity tier 1 capital attributable to
changes in the fair value of the FDICsupervised institution’s liabilities that
are due to changes in its own credit risk
since the inception of the transaction
with the counterparty.
(2) OTC derivative contracts subject to
a qualifying master netting agreement.
An FDIC-supervised institution must
determine the EAD for multiple OTC
derivative contracts that are subject to a
qualifying master netting agreement
using the current exposure methodology
in paragraph (c)(6) 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 paragraph (c)(6) 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)(2), the
credit valuation adjustment does not
include any adjustments to common
equity tier 1 capital attributable to
changes in the fair value of the FDICsupervised 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
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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
‘‘paragraph (b)(3)(i)(A) of this section’’
in its place;
■ b. In paragraph (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 additions read as follows:
§ 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 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.
*
*
*
*
*
■ 34. Section 324.136 is amended by,
■ a. In paragraph (e)(2)(i) removing
‘‘§ 324.135(e)(1) and (e)(2)’’ and adding
paragraphs (e)(1) and (e)(2) of this
section’’ in its place; and
■ b. In paragraph (e)(2)(ii) removing
‘‘§§ 324.135(e)(1) and (e)(2)’’ and adding
paragraphs (e)(1) and (e)(2)’’ of this
section in its place.
■ 35. Section 324.172 is amended by
revising paragraph (d) 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).
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Fmt 4700
Sfmt 4700
41425
(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).
■ 36. Section 324.173 is amended by:
■ a. Designating paragraph (a) as
paragraph (a)(1) and revising newly
redesignated paragraph (a)(1);
■ 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 in § 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.
(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 § 324.121(d). 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
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Federal Register / Vol. 80, No. 135 / Wednesday, July 15, 2015 / Rules and Regulations
institution becomes subject to the
disclosure of the supplementary
leverage ratio pursuant to § 324.172(d)
and § 324.173(a)(2).
*
*
*
*
*
TABLE 6 TO § 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 FDIC-supervised institution considers external ratings, the relation between internal and external ratings;
*
*
*
*
*
*
*
*
*
*
*
*
*
*
TABLE 9 TO § 324.173—SECURITIZATION
*
Quantitative
Disclosures.
*
*
*
(i)
*
*
*
*
*
*
*
*
37. Section 324.403(b) is revised to
read as follows:
■
mstockstill on DSK4VPTVN1PROD with RULES
§ 324.403 Capital measures and capital
category definitions.
* * *
(b) Capital categories. For purposes of
section 38 of the FDI Act and this
subpart, an FDIC-supervised institution
shall be deemed to be:
(1) ‘‘Well capitalized’’ if it:
(i) Has a total risk-based capital ratio
of 10.0 percent or greater; and
(ii) Has a Tier 1 risk-based capital
ratio of 8.0 percent or greater; and
(iii) Has a common equity tier 1
capital ratio of 6.5 percent or greater;
and
(iv) Has a leverage ratio of 5.0 percent
or greater;
(v) Is not subject to any written
agreement, order, capital directive, or
prompt corrective action directive
issued by the FDIC pursuant to section
8 of the FDI Act (12 U.S.C. 1818), the
International Lending Supervision Act
of 1983 (12 U.S.C. 3907), or the Home
Owners’ Loan Act (12 U.S.C.
1464(t)(6)(A)(ii)), or section 38 of the
FDI Act (12 U.S.C. 1831o), or any
regulation thereunder, to meet and
maintain a specific capital level for any
capital measure; and
(vi) Beginning on January 1, 2018 and
thereafter, an FDIC-supervised
institution that is a subsidiary of a
16:42 Jul 14, 2015
*
*
*
*
*
*
* * *
(2) Aggregate amount disclosed separately by type of underlying exposure in the pool of any:
(i) After-tax gain-on-sale on a securitization that has been deducted from common equity tier 1 capital; and
(ii) Credit-enhancing interest-only strip that is assigned a 1,250 percent risk weight.
*
VerDate Sep<11>2014
*
Jkt 235001
*
*
covered BHC will be deemed to be well
capitalized if the FDIC-supervised
institution satisfies paragraphs (b)(1)(i)
through (v) of this section and has a
supplementary leverage ratio of 6.0
percent or greater. For purposes of this
paragraph, a covered BHC means a U.S.
top-tier bank holding company with
more than $700 billion in total assets as
reported on the company’s most recent
Consolidated Financial Statement for
Bank Holding Companies (FR Y–9C) or
more than $10 trillion in assets under
custody as reported on the company’s
most recent Banking Organization
Systemic Risk Report (FR Y–15).
*
*
*
*
*
Dated: June 16, 2015.
Thomas J. Curry,
Comptroller of the Currency.
By order of the Board of Governors of the
Federal Reserve System, June 15, 2015.
Robert deV. Frierson,
Secretary of the Board.
Dated at Washington, DC, this 16th day of
June, 2015.
By order of the Board of Directors.
Federal Deposit Insurance Corporation.
Robert E. Feldman,
Executive Secretary.
[FR Doc. 2015–15748 Filed 7–14–15; 8:45 am]
BILLING CODE
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Fmt 4700
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*
*
DEPARTMENT OF COMMERCE
Bureau of Industry and Security
15 CFR Part 702
[Docket No. 140501396–5463–02]
RIN 0694–AG17
U.S. Industrial Base Surveys Pursuant
to the Defense Production Act of 1950
Bureau of Industry and
Security, Commerce.
ACTION: Final rule.
AGENCY:
This rule sets forth the
policies and procedures of the Bureau of
Industry and Security (BIS) for
conducting surveys to obtain
information in order to perform industry
studies assessing the U.S. industrial
base to support the national defense
pursuant to the Defense Production Act
of 1950, as amended. Specifically, this
rule provides a description of BIS’s
authority to issue surveys; the purpose
for the surveys and the manner in which
such surveys are developed; the
confidential treatment of submitted
information; and the penalties for noncompliance with surveys. This rule is
intended to facilitate compliance with
surveys, thereby resulting in stronger
and more complete assessments of the
U.S. industrial base.
DATES: This rule is effective August 14,
2015.
SUMMARY:
E:\FR\FM\15JYR1.SGM
15JYR1
Agencies
[Federal Register Volume 80, Number 135 (Wednesday, July 15, 2015)]
[Rules and Regulations]
[Pages 41409-41426]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-15748]
========================================================================
Rules and Regulations
Federal Register
________________________________________________________________________
This section of the FEDERAL REGISTER contains regulatory documents
having general applicability and legal effect, most of which are keyed
to and codified in the Code of Federal Regulations, which is published
under 50 titles pursuant to 44 U.S.C. 1510.
The Code of Federal Regulations is sold by the Superintendent of Documents.
Prices of new books are listed in the first FEDERAL REGISTER issue of each
week.
========================================================================
Federal Register / Vol. 80, No. 135 / Wednesday, July 15, 2015 /
Rules and Regulations
[[Page 41409]]
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-AE12
Regulatory Capital Rules: Regulatory Capital, Final 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: Final rule.
-----------------------------------------------------------------------
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) are adopting a final rule to
clarify, correct, and update aspects of the regulatory capital
framework applicable to certain large, internationally active banking
organizations. The revisions correct technical and typographical errors
and clarify certain requirements of the advanced approaches risk-based
capital rule based on observations made by the agencies during the
parallel run review process of advanced approaches banking
organizations. The corrections also enhance consistency of the
agencies' advanced approaches risk-based capital rule with relevant
international standards. The agencies proposed these changes in a
notice of proposed rulemaking that was published in the Federal
Register on December 18, 2014. The agencies are now adopting the
proposed rule as final with some additional clarifications and
amendments.
DATES: This rule is effective on October 1, 2015.
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
Kevin Korzeniewski, Senior 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;
Juan Climent, Manager, (202) 872-7546; Andrew Willis, Supervisory
Financial Analyst, (202) 912-4323, Matthew McQueeney, Senior Financial
Analyst, (202) 425-2942, or Justyna Milewski, Senior 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, mphillips@fdic.gov; Rachel
Ackmann, Senior Attorney, rackmann@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 rule (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 rule
(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 parallel run.\5\ 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, the banking
[[Page 41410]]
organization will be required to use the advanced approaches rule to
calculate its risk-based capital requirements.\6\
---------------------------------------------------------------------------
\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).
---------------------------------------------------------------------------
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 standardized approach in subpart D of the agencies'
regulatory capital framework.\7\ In accordance with section 171 of the
Dodd-Frank Act, the lower ratio (i.e., the more binding ratio) for each
risk-based capital requirement is the ratio the banking organization
must use for regulatory capital purposes.
---------------------------------------------------------------------------
\7\ See 12 CFR part 3.10(c) (OCC); 12 CFR part 217.10(c)
(Board); and 12 CFR part 324.10(c) (FDIC).
---------------------------------------------------------------------------
II. Proposed Rule and Summary of Comments
In December 2014, the agencies invited comment on a notice of
proposed rulemaking designed to clarify, correct, and update aspects of
the regulatory capital framework applicable to advanced approaches
banking organizations (proposed rule).\8\ The proposed revisions were
largely driven by observations made by the agencies during the parallel
run review process of advanced approaches banking organizations, and
included corrections to typographical and technical errors,
clarifications and updates in light of revisions to other rules. The
proposed revisions were also intended to enhance consistency of the
agencies' advanced approaches rule with relevant international
standards.\9\ The proposed amendments affect only those provisions of
the revised capital framework that apply to advanced approaches banking
organizations.
---------------------------------------------------------------------------
\8\ See 79 FR 75455 (Dec. 18, 2014).
\9\ See International Convergence of Capital Measurement and
Capital Standards: A Revised Framework,'' (June 2006) https://www.bis.org/publ/bcbs128.htm.
---------------------------------------------------------------------------
The agencies received two comment letters on the proposed
revisions--one from a financial services trade association, and another
from a public advocacy nonprofit organization. The financial services
trade association suggested that several of the proposed changes also
be applied to the standardized approach. Both commenters expressed
views on the proposed treatment of cleared transactions. The financial
services trade association suggested that the agencies expand the
proposed treatment, while the public advocacy nonprofit organization
suggested that the proposed treatment was too generous. In addition,
the public advocacy nonprofit organization disagreed with the proposed
exemption for cleared transactions from the higher capital charge
applicable to large nettings sets.
III. Overview of the Final Rule
1. Definitions and Applicability
A. Definition of Residential Mortgage Exposure
The proposed rule would have revised the definition of residential
mortgage exposure in section 2 of the regulatory capital framework to
clarify that an advanced approaches banking organization must manage
qualifying exposures as part of a segment of exposures with homogenous
risk characteristics, and not on an individual basis, for purposes of
classifying an exposure as a residential mortgage exposure under the
advanced approaches rule. This clarification was consistent with the
agencies' intent in adopting the proposed definition of residential
mortgage exposure, and with the requirement that an advanced approaches
banking organization have an internal system that groups retail
exposures into the appropriate retail exposure subcategory and that
groups the retail exposures in each retail exposure subcategory into
separate segments with homogenous risk characteristics.\10\ The
agencies did not receive any comments on this part of the proposed rule
and are adopting it as final, with a technical edit to correct a
grammatical error.
---------------------------------------------------------------------------
\10\ See 12 CFR 3.122(b)(3) (OCC), 12 CFR 217.122(b)(3) (Board),
and 12 CFR 324.122(b)(3) (FDIC).
---------------------------------------------------------------------------
B. Calculation of Total On-Balance Sheet Foreign Exposure
As mentioned above, the advanced approaches rule generally applies
to a banking organization with $250 billion or more in total
consolidated assets or $10 billion or more in on-balance sheet foreign
exposure. The proposed rule would have updated the method of
calculating on-balance sheet foreign exposure to reference the current
line items on the regulatory reporting forms. The agencies did not
receive any comments on this part of the proposed rule and are adopting
it as final, with a technical edit to update a reference to the Federal
Financial Institutions Examination Council (FFIEC) 009 Report instead
of referencing the Call Report.
2. Disclosure Requirements
A. 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 to provide qualitative and quantitative disclosures relating to
their capital requirements. The proposed rule would have clarified two
items related to disclosure requirements in the advanced approaches
rule.
First, the proposed rule would have clarified that an advanced
approaches banking organization would be required to disclose
information related to external ratings in Table 6 to section 173 only
if it considered external ratings in its internal ratings approach. An
advanced approaches banking organization that did not use or consider
external ratings would not be required to make such a disclosure.
Second, the proposed rule would have updated the disclosure
requirement related to securitization exposures in Table 9 to reflect
the treatment of credit-enhancing interest only strips (CEIOs) and
after-tax gain-on-sale resulting from a securitization. Specifically,
CEIOs that do not constitute after-tax gain-on-sale would be risk-
weighted at 1,250 percent, and an after-tax gain-on-sale resulting from
a securitization would be deducted from common equity tier 1 capital,
rather than from tier 1 capital. The agencies did not receive any
comments on this part of the proposed rule and are adopting it as
final.
B. Application and Disclosure of the Supplementary Leverage Ratio
Advanced approaches banking organizations are subject to the
supplementary leverage ratio.\11\ The agencies proposed to clarify that
the supplementary leverage ratio would apply to an advanced approaches
banking organization, regardless of whether it had completed its
parallel run process. The supplementary leverage ratio described in
section 10(c)(4) would begin to apply to a banking organization
immediately following the quarter in which the banking organization
becomes subject to the advanced approaches rule pursuant to section
100(b)(1) of the advanced approaches rule.
---------------------------------------------------------------------------
\11\ See section 10(c)(4)(ii) of the regulatory capital
framework and 79 FR 57725 (Sept. 26, 2014) (2014 SLR rule).
---------------------------------------------------------------------------
In addition, the agencies proposed to clarify the disclosure
requirements
[[Page 41411]]
applicable to advanced approaches banking organizations.\12\ The
proposed rule clarified that advanced approaches banking organizations,
not just top-tier banking organizations, would be required to publicly
disclose the supplementary leverage ratio and the components thereof
(that is, tier 1 capital and total leverage exposure) on a quarterly
basis. A banking organization that qualified as an advanced approaches
banking organization before January 1, 2015, would be required to
provide these disclosures, beginning with the first quarter in 2015,
while a banking organization that qualified as an advanced approaches
banking organization on or after January 1, 2015, would be subject to
the disclosures beginning with the calendar quarter immediately
following the calendar quarter in which the banking organization became
an advanced approaches banking organization. For example, a banking
organization that becomes subject to the advanced approaches rule as of
year-end 2015 would begin disclosing its supplementary leverage ratio
and components thereof as of March 31, 2016.
---------------------------------------------------------------------------
\12\ Section 172(d) was added to the regulatory capital
framework as part of the 2014 SLR rule.
---------------------------------------------------------------------------
In addition to the disclosure requirements above, the proposed rule
clarified that all top-tier \13\ advanced approaches banking
organizations, regardless of their parallel run status, would be
required to publicly disclose the quantitative information described in
Table 13 in section 173 of the advanced approaches rule \14\ for twelve
consecutive quarters or a shorter period, as applicable, beginning on
January 1, 2015. For example, a top-tier banking organization that
became an advanced approaches banking organization prior to January 1,
2015 (therefore subject to the supplementary leverage ratio disclosure
requirements beginning January 1, 2015), and remains the top-tier
banking organization, would publicly disclose supplementary leverage
ratio data for one quarter in the first quarterly disclosure of 2015,
two quarters in the second quarterly disclosure of 2015, and so on,
disclosing twelve quarters of supplementary leverage ratio data in the
quarterly disclosures for the fourth quarter of 2017. The agencies did
not receive comments on this part of the proposed rule, and are
finalizing it as proposed.
---------------------------------------------------------------------------
\13\ Disclosure requirements in section 173 of the advanced
approaches rule 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.
\14\ Table 13 in section 173 of the advanced approaches rule was
adopted by the agencies in the 2014 SLR rule.
---------------------------------------------------------------------------
3. Risk Weights for Cleared Transactions
A. Risk Weights for Certain Client Cleared Transactions
The agencies proposed to revise the advanced approaches rule for
clearing member banking organizations' exposures to a central
counterparty (CCP) where the clearing member does not guarantee the
performance of the CCP to the clearing member client. Under the
advanced approaches rule, a clearing member banking organization is
required to assign a two percent risk weight to the trade exposure
amount for a cleared transaction with a qualifying CCP (QCCP), and a
risk weight applicable to the CCP under section 32 of the regulatory
capital framework for a cleared transaction with a CCP that is not a
QCCP. This risk weight is applied when the banking organization is
acting as a financial intermediary on behalf of its clearing member
client.
The proposed rule would have permitted clearing member banking
organizations to assign a zero percent risk weight under the advanced
approaches rule 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. The proposed
treatment would align the risk-based capital requirements for client-
cleared transactions with the treatment under the agencies' 2014 SLR
rule.
Both commenters provided views on this provision. The public
advocacy nonprofit organization suggested that the agencies not
finalize the zero percent risk weight, arguing that it underestimates
the clearing member's risk to a CCP default. Conversely, the financial
services trade association suggested that the agencies expand the zero
percent risk weight to transactions cleared on behalf of clients that
would not meet the eligibility criteria in sections 3(a)(3) and
(3)(a)(4) of the regulatory capital framework for a cleared
transaction, to the extent that the clearing member 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.
The agencies believe that requiring the clearing member banking
organization to include in risk-weighted assets a trade exposure amount
for the client-cleared transactions could overstate the clearing
member's risk where the clearing member is not contractually obligated
to perform on the transaction to its client in the event of a CCP
failure. Furthermore, the public advocacy nonprofit commenter's
concerns are partially addressed by the additional capital requirement
for a clearing member banking organization's exposure to the default
fund of a CCP, which considers its capitalization and risk profile, and
the nature of its default fund. With respect to the financial services
trade association's suggestion to make an exception from the
requirements in sections 3(a)(3) and 3(a)(4) of the regulatory capital
framework, it is not clear that the risks in transactions where the
clearing member advanced approaches banking organization does not
guarantee the performance of the CCP are negligible. Thus, the agencies
are finalizing the changes to the risk weight for certain client-
cleared transactions as proposed.
The financial services trade association also noted that the
proposed changes should apply to the standardized approach contained in
subpart D of the regulatory capital framework. However, the agencies
did not seek comment on revisions to the provisions in the standardized
approach, and banking organizations subject to the standardized
approach but not to the advanced approaches rule may not have had
sufficient notice of the change. Therefore, the agencies are not
adopting the change requested by the commenter, but will consider the
suggested change in the context of future proposed rulemakings.
B. Margin Period of Risk in the Internal Models Methodology (IMM)
The regulatory capital framework increases the margin period of
risk in the IMM for large netting sets, netting sets involving illiquid
collateral or over-the-counter (OTC) derivatives that cannot easily be
replaced, or netting sets with more than two margin disputes with the
counterparty over the previous two quarters that lasted more than the
margin period of risk.\15\ In the proposed rule, the agencies proposed
to clarify that a cleared transaction would be exempt from the higher
margin period of risk solely due to the fact that it is part of a large
netting set (i.e., a netting set that exceeds 5,000 trades at any time
during the previous quarter). A cleared transaction would be subject to
the higher margin period of risk if the netting set contained illiquid
collateral,
[[Page 41412]]
derivatives that could not easily be replaced, or the banking
organization had more than two margin disputes with the counterparty
over the previous two quarters that lasted more than the margin period
of risk.
---------------------------------------------------------------------------
\15\ Section 132(d)(5)(iii)(B).
---------------------------------------------------------------------------
The public advocacy nonprofit commenter raised concerns about the
exemption of cleared transactions that are part of a large netting set
from the twenty business day margin-period-of-risk requirement.
However, in the agencies' view, the fact that cleared transactions are
part of a large netting set should not automatically subject them to a
higher capital requirement. In order for trades to meet the regulatory
capital framework's definition of cleared transaction, they must
involve a CCP, which facilitates trades between counterparties and has
a proven record of being able to efficiently process a large volume of
transactions. Furthermore, most types of cleared transactions must meet
the operational criteria in section 3(a) of the regulatory capital
framework, including the portability requirement in section 3(a)(4).
These factors sufficiently mitigate the risk to warrant not applying an
increased margin-period-of-risk for a netting set of cleared
transactions solely because of the size of the netting set. In
addition, this change promotes international regulatory consistency by
aligning the advanced approaches rule with international standards
regarding the requirements for netting sets containing 5,000 or more
cleared transactions. Thus, the agencies are finalizing the changes to
the margin period of risk in the IMM as proposed.
C. Collateral Posted by a Clearing Member Client Banking Organization
and a Clearing Member Banking Organization
The agencies proposed to correct a cross-reference related to the
calculation of exposure for cleared transactions for clearing member
banking organizations and for clearing member client banking
organizations in section 133 of the regulatory capital framework. Prior
to the proposed change, the provisions for measuring the risk-weighted
asset amount for posted collateral cross-referenced only to section 131
of the regulatory capital framework, which contained the provisions for
risk-weighting wholesale and retail exposures.\16\ Because collateral
may be in the form of a securitization exposure, equity exposure, or a
covered position, the proposed change would have replaced the cross-
reference to section 131 with a cross-reference to subparts E and F.
---------------------------------------------------------------------------
\16\ See sections 133(b)(4)(ii) and 133(c)(4)(ii) (rules
applicable to clearing member client banking organizations and
clearing member banking organizations, respectively).
---------------------------------------------------------------------------
The agencies did not receive any comments on this proposed revision
to the advanced approaches rule, and are adopting it as final. Notably,
the financial services trade association commenter noted that the
proposed clarifications should be applied to the standardized approach
and suggested that the agencies make a corresponding change to section
35 in subpart D of the regulatory capital framework. However, the
agencies did not seek comment on revisions to the standardized
approach, and non-advanced approaches banking organizations subject to
the standardized approach may not have had sufficient notice of the
change. Therefore, the agencies are not adopting the change requested
by the commenter, but will consider the suggested change in the context
of future proposed rulemakings.
4. Risk Weights for Derivatives
A. Exposure at Default Adjustment for Recognized Credit Valuation
Adjustment (CVA)
In calculating risk weights for derivative contracts, banking
organizations may use the IMM if they receive approval from their
primary Federal supervisor, or they may use the current exposure
methodology (CEM). In calculating exposure at default (EAD) for
derivative contracts under the IMM, a banking organization may reduce
EAD by the CVA that the banking organization has recognized in the fair
value of derivative contracts reported on its balance sheet. This
adjustment reflects the fair value adjustment for counterparty credit
risk in the valuation of the netting set. Under the regulatory capital
framework, a banking organization could not make a similar adjustment
under the CEM.
In the proposed rule, the agencies proposed to adjust the CEM
(section 132(c)(1)) to permit an advanced approaches banking
organization to reduce the EAD by the recognized CVA on the balance
sheet. The agencies noted that, for purposes of calculating
standardized total risk-weighted assets as required under section 10 of
the regulatory capital framework, advanced approaches banking
organizations would not be permitted to reduce the EAD calculated
according to the CEM. The agencies did not receive comment on this
proposed revision to the advanced approaches rule and are adopting it
as final, with an update in section 132(c)(1) to remove a reference to
section 132(d) and a technical edit in section 132(c)(2) to also permit
an adjustment to EAD by the recognized CVA for OTC derivatives subject
to a qualifying master netting agreement.
One commenter proposed that the agencies make a corresponding
change to the standardized approach and permit banking organizations to
reduce the EAD amount for derivative contracts by recognized CVA. The
commenter argued that the current treatment under the standardized
approach double counts the impact of CVA, and noted that the adjustment
to the standardized approach would more closely align the regulatory
capital framework with international standards. However, the agencies
did not seek comment on revisions to the provisions in the standardized
approach, and non-advanced approaches banking organizations subject to
the standardized approach may not have had sufficient notice of the
change. Therefore, the agencies are not adopting the change requested
by the commenter, but will consider the suggested change in the context
of future proposed rulemakings.
B. Fair Value of Liabilities due to Changes in the Banking
Organization's Own Credit Risk
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 agencies proposed to clarify that,
for derivative liabilities, an advanced approaches banking organization
would deduct the difference between its credit spread premium and the
risk-free rate as part of this adjustment, and not in addition to this
adjustment.
The agencies did not receive any comments on this part of the
proposed rule and are adopting it as final.
5. Requirements and Mechanics Applicable to Banking Organizations That
Use the Advanced Approaches Rule
In February 2014 and in March 2015, the OCC and the Board granted
permission to a number of advanced approaches banking organizations to
begin calculating their risk-based capital requirements under the
advanced approaches rule.\17\ During the parallel
[[Page 41413]]
run evaluation process for advanced approaches banking organizations
that are calculating their risk-based capital requirements under the
advanced approaches rule, the agencies concluded that several areas of
the advanced approaches rule should be revised to (1) clarify the
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.
---------------------------------------------------------------------------
\17\ Board Press Releases: https://www.federalreserve.gov/newsevents/press/bcreg/20140221a.htm, https://www.federalreserve.gov/newsevents/press/bcreg/20150331a.htm; OCC Press releases: https://www.occ.gov/news-issuances/news-releases/2014/nr-ia-2014-21.html,
https://www.occ.gov/news-issuances/news-releases/2015/nr-ia-2015-47.html.
---------------------------------------------------------------------------
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 rule. When the agencies
initially adopted the advanced approaches rule in 2007,\18\ they
incorporated these elements into the supervisory review process rather
than into the advanced approaches rule. However, the agencies believe
that certain elements of sections 122 and 131 of the regulatory capital
framework should be clarified to ensure that advanced approaches
banking organizations appropriately: (1) Obtain and consider all
relevant and material information to estimate probability of default
(PD), loss given default (LGD), and EAD; (2) quantify risk parameters
for wholesale and retail exposures; and (3) establish internal
requirements for collateral and risk management processes.
---------------------------------------------------------------------------
\18\ 72 FR 69288 (December 7, 2007).
---------------------------------------------------------------------------
Accordingly, in the proposed rule, the agencies proposed
incorporating new rule text to add specificity and enhance transparency
regarding the IRB process and the mechanics used to calculate total
wholesale and retail risk-weighted assets. More specifically, the
proposed rule would have amended sections 122 and 131 of the regulatory
capital framework to clarify requirements associated with: (1) The
frequency for reviewing risk rating systems, (2) the independence of
the systems' development, design, and implementation, (3) time horizons
for default and loss data when estimating risk parameters, (4) changes
in advanced approaches banking organizations' lending, payment
processing, and account monitoring practices, (5) the use of all
relevant available data for assigning risk ratings, and (6) the need
for internal requirements for collateral management and risk management
processes. These proposed modifications are consistent with the current
overarching principles in sections 122 and 131 of the regulatory
capital framework under which 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, and must have a comprehensive risk-
parameter quantification process that produces accurate, timely, and
reliable risk-parameter estimates. The agencies emphasize that the
revisions were intended to clarify, but not change, existing
requirements. In fact, many of these clarifications in subpart E of the
regulatory capital framework are included in agency supervisory
guidance and examination materials. Therefore, because they
demonstrated that they comply with the existing requirements, advanced
approaches banking organizations that have already exited parallel run
demonstrated that they met the proposed requirements upon exit. The
agencies did not receive any comments on this part of the proposed rule
and are adopting the changes as final, with a technical edit to the
rule text in section 122(c)(2)(v)(11) to include language that was
included in the regulatory capital framework but inadvertently omitted
from the proposed revisions.
6. Technical Corrections
In addition to the revisions discussed above, the agencies proposed
to make the following technical corrections:
In section 131(e)(3)(vi), the rule would have been revised
to reference section 22(d) and not section 22(a)(7);
In Table 1 of section 132, the reference in the column
heading would have been corrected to state that ``Non-sovereign issuers
risk weight under this section (in percent)'' and ``Sovereign issuers
risk weight under this section (in percent)'' are found in section 32.
In section 132(d)(7)(iv)(B), the agencies would have
revised the rule to reference section 132(b)(2) and not section
131(b)(2);
In section 132(d)(9)(ii), the agencies would have revised
the rule to reference section 132(e)(6) and not section 132(e)(3);
In section 133(b)(3)(i)(B), the agencies would have
revised the rule 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), the agencies
would have revised the rule to reference section 136(e)(1) and (e)(2)
and not section 135(e)(1) and (e)(2).
No comments were received on the above proposed technical
corrections. The agencies are finalizing these changes as proposed and
are correcting an additional internal cross-reference error in section
132 that was identified after the publication of the proposed rule.
Specifically, the agencies are amending section 132(d)(2)(iv)(C) to
replace the reference to paragraph (d)(5) with the correct reference to
paragraph (d)(6).
In addition, the FDIC has added a clarification of its prior
Federal Register instructions regarding the regulatory capital
framework. In its amendatory rule text, the FDIC is clarifying for
Federal Register publication purposes a certain paragraph of its prompt
corrective action (PCA) rules in 12 CFR 324.403(b). The FDIC has
provided this clarification to ensure that its PCA rules, as published
in the Federal Register, are identical to the current PCA rules of the
Board and the OCC.
IV. 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 did not receive any
comments on the proposed rule related to PRA. The agencies reviewed the
final 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 final rule, to prepare a Final
Regulatory Flexibility Analysis describing the impact of the final rule
on small entities, or to certify that the final rule would not have a
significant economic impact on a substantial number of small entities.
For purposes of the RFA, the Small Business Administration (SBA)
defines small entities as those with $550 million or less in assets for
commercial banks and savings institutions, and $38.5 million or less in
assets for trust companies.
As described in the SUPPLEMENTARY INFORMATION section of the
preamble, the final rule would apply only to advanced approaches
banking organizations. No OCC-supervised advanced approaches banking
organization qualifies as a small
[[Page 41414]]
entity as defined by the SBA. Therefore, the OCC certifies that the
final rule will not have a significant economic impact on a substantial
number of OCC-supervised small entities.
FDIC: The RFA requires an agency, in connection with a notice of
final rulemaking, to prepare a Final Regulatory Flexibility Act
analysis describing the impact of the rule on small entities (defined
by the SBA for purposes of the RFA to include banking entities with
total assets of $550 million or less) or to certify that the final rule
will not have a significant economic impact on a substantial number of
small entities.
Using the SBA's size standards, as of March 31, 2015, the FDIC
supervised 3,407 small entities. As described in the SUPPLEMENTARY
INFORMATION section of the preamble, however, the final rule applies
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 March 31, 2015,
based on a $550 million threshold, zero (out of 3,119) small state
nonmember banks and zero (out of 288) small state savings associations
were under the advanced approaches rule. Therefore, the FDIC does not
believe that the final rule results in a significant economic impact on
a substantial number of small entities under its supervisory
jurisdiction.
The FDIC certifies that the final rule does not have a significant
economic impact on a substantial number of small FDIC-supervised
institutions.
Board: The Board is providing a final regulatory flexibility
analysis with respect to this final rule. As discussed above, this
final rule would clarify, correct, and update aspects of the agencies'
regulatory capital framework applicable to banking organizations that
are subject to the advanced approaches rule. The 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 SBA, 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).\19\ As of March 31, 2015, there were
approximately 631 small state member banks. As of December 31, 2014,
there were approximately 3,833 small bank holding companies and 271
small savings and loan holding companies.
---------------------------------------------------------------------------
\19\ 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 final rule applies only to advanced approaches banking
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 rule. 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 final 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 final rule. The Board believes that the
final rule will not have a significant economic impact on small banking
organizations supervised by the Board and therefore believes that there
are no significant alternatives to the final rule that would reduce the
economic impact on small banking organizations supervised by the Board.
C. OCC Unfunded Mandates Reform Act of 1995 Determination
The OCC analyzed the final rule 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 final 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 ($143 million adjusted for inflation).
The final rule includes clarifications, corrections, and updates
for certain aspects of the agencies' regulatory capital framework
applicable to national banks and Federal savings associations subject
to the OCC's advanced approaches rule.
Because the final 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 $143
million or more.
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 final rule in a simple and straightforward manner, and did not
receive any comments on the use of plain language.
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 amends
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).
[[Page 41415]]
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):
(1)(i) That is primarily secured by a first or subsequent lien on
one-to-four family residential property; or
(ii) 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 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 Federal Financial Institutions Examination
Council (FFIEC) 009 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 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 newly redesignated paragraphs (c)(10) and (11), 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
[[Page 41416]]
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 affects 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, 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, the 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 determine relevance of the 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) * * *
[[Page 41417]]
(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), (c)(2) and (d)(5)(iii)(B);
0
c. In paragraph (d)(2)(iv)(C), removing ``(d)(5)'' and adding
``(d)(6)'' in its place;
0
d. 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 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 paragraph (c)(5)
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)(1), 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.
(2) OTC derivative contracts subject to a qualifying master netting
agreement. A national bank or Federal savings association must
determine the EAD for multiple OTC derivative contracts that are
subject to a qualifying master netting agreement using the current
exposure methodology in paragraph (c)(6) 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 paragraph (c)(6) 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)(2), 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 paragraph (b)(3)(i)(A) of this section'' 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 ``paragraphs (e)(1) and (2) of this section'' in its place:
And
0
b. In paragraph (e)(2)(ii), removing ``Sec. Sec. 3.135(e)(1) and
(e)(2)'' and adding ``paragraphs (e)(1) and (2) of this section'' in
its place.
0
11. Section 3.172 is amended by revising paragraph (d) 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
[[Page 41418]]
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 paragraph (a)(1)
and revising newly redesignated paragraph (a)(1);
0
b. Adding paragraphs (a)(2) and (a)(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. 3.121(d). 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) and Sec. 3.173(a)(2).
* * * * *
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:
(i) After-tax gain-on-
sale on a
securitization that
has been deducted
from common equity
tier 1 capital: And
(ii) Credit-enhancing
interest-only strip
that is assigned a
1,250 percent risk
weight.
* * * * * * *
------------------------------------------------------------------------
* * * * *
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 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):
[[Page 41419]]
(1)(i) That is primarily secured by a first or subsequent lien on
one-to-four family residential property; or
(ii) 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 paragraphs (b)(1)(i)(B)(2)
and (b)(1)(ii)(B) to read as follows:
Sec. 217.100 Purpose, applicability, and principle of conservatism.
* * * * *
(b) * * *
(1) * * *
(i) * * *
(B) * * *
(2) Has consolidated total on-balance sheet foreign exposure on its
most recent year-end Federal Financial Institutions Examination Council
(FFIEC) 009 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 FFIEC 009 Country Exposure Report;
* * * * *
(ii) * * *
(B) Has consolidated total on-balance sheet foreign exposure on its
most recent year-end Federal Financial Institutions Examination Council
(FFIEC) 009 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 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);
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 newly redesignated paragraphs (c)(10) and (11), 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 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 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
[[Page 41420]]
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
affects 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,
the 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
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
determine relevance of the 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 Board-regulated 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, a Board-regulated institution must consider all
relevant available information.
(iii) Except as provided in paragraph (d)(6) of this section, a
Board-regulated 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
[[Page 41421]]
reducing effects of collateral in support of retail exposures when
quantifying the PD and LGD of the segment. In order to do so, a Board-
regulated institution 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), (c)(2) and (d)(5)(iii)(B);
0
c. In paragraph (d)(2)(iv)(C), removing ``(d)(5)'' and adding
``(d)(6)'' in its place;
0
d. In paragraph (d)(7)(iv)(B), removing ``Sec. 217.131(b)(2)'' and
adding ``Sec. 217.132(b)(2)'' in its place; and
0
e. 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 paragraph (c)(5) 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)(1),
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.
(2) OTC derivative contracts subject to a qualifying master netting
agreement. A Board-regulated institution must determine the EAD for
multiple OTC derivative contracts that are subject to a qualifying
master netting agreement using the current exposure methodology in
paragraph (c)(6) 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
paragraph (c)(6) 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)(2), 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 paragraph (b)(3)(i)(A) of this section'' 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 addition 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 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 ``paragraphs (e)(1) and (2) of this section'' in its place;
and
0
b. In paragraph (e)(2)(ii), removing ``Sec. Sec. 217.135(e)(1) and
(e)(2)'' and adding ``paragraphs (e)(1) and (2) of this section'' in
its place.
0
23. Section 217.172 is amended by revising paragraph (d) 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 paragraph (a)(1) and
revising newly redesignated paragraph (a)(1);
[[Page 41422]]
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 Sec. 217.121(d). 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) and Sec. 217.173(a)(2).
* * * * *
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:
(i) After-tax gain-on-
sale on a
securitization that
has been deducted
from common equity
tier 1 capital; and
(ii) Credit-enhancing
interest-only strip
that is assigned a
1,250 percent risk
weight.
* * * * * * *
------------------------------------------------------------------------
* * * * *
FEDERAL DEPOSIT INSURANCE CORPORATION
12 CFR Chapter III
Authority and Issuance
For the reasons stated in the preamble, the Federal Deposit
Insurance Corporation amends 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):
(1)(i) That is primarily secured by a first or subsequent lien on
one-to-four family residential property; or
(ii) 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
[[Page 41423]]
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 Federal Financial Institutions Examination
Council (FFIEC) 009 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 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 (c)(10) as paragraphs (c)(10)
and (c)(11), revising newly redesignated paragraphs (c)(10) and
(c)(11), and adding a new paragraph (c)(9); and
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 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, 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) * * *
(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
affects 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
[[Page 41424]]
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,
the 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
determine relevance of the 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 paragraphs (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.
* * * * *
(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), (c)(2) and (d)(5)(iii)(B);
0
c. In paragraph (d)(2)(iv)(C), removing ``(d)(5)'' and adding
``(d)(6)'' in its place;
0
d. In paragraph (d)(7)(iv)(B), removing ``Sec. 324.131(b)(2)'' and
adding ``Sec. 324.132(b)(2)'' in its place; and
0
e. 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 paragraph (c)(5)
[[Page 41425]]
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)(1), 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.
(2) OTC derivative contracts subject to a qualifying master netting
agreement. An FDIC-supervised institution must determine the EAD for
multiple OTC derivative contracts that are subject to a qualifying
master netting agreement using the current exposure methodology in
paragraph (c)(6) 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
paragraph (c)(6) 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)(2), 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 ``paragraph (b)(3)(i)(A) of this section'' in its place;
0
b. In paragraph (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 additions read 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.
* * * * *
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 paragraphs (e)(1) and (e)(2) of this section'' in its place;
and
0
b. In paragraph (e)(2)(ii) removing ``Sec. Sec. 324.135(e)(1) and
(e)(2)'' and adding paragraphs (e)(1) and (e)(2)'' of this section in
its place.
0
35. Section 324.172 is amended by revising paragraph (d) 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
36. Section 324.173 is amended by:
0
a. Designating paragraph (a) as paragraph (a)(1) and revising newly
redesignated paragraph (a)(1);
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 in 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.
(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 Sec. 324.121(d). 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
[[Page 41426]]
institution becomes subject to the disclosure of the supplementary
leverage ratio pursuant to Sec. 324.172(d) and Sec. 324.173(a)(2).
* * * * *
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
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:
(i) After-tax gain-on-sale
on a securitization that
has been deducted from
common equity tier 1
capital; and
(ii) Credit-enhancing
interest-only strip that is
assigned a 1,250 percent
risk weight.
* * * * * * *
------------------------------------------------------------------------
* * * * *
0
37. Section 324.403(b) is revised to read as follows:
Sec. 324.403 Capital measures and capital category definitions.
* * *
(b) Capital categories. For purposes of section 38 of the FDI Act
and this subpart, an FDIC-supervised institution shall be deemed to be:
(1) ``Well capitalized'' if it:
(i) Has a total risk-based capital ratio of 10.0 percent or
greater; and
(ii) Has a Tier 1 risk-based capital ratio of 8.0 percent or
greater; and
(iii) Has a common equity tier 1 capital ratio of 6.5 percent or
greater; and
(iv) Has a leverage ratio of 5.0 percent or greater;
(v) Is not subject to any written agreement, order, capital
directive, or prompt corrective action directive issued by the FDIC
pursuant to section 8 of the FDI Act (12 U.S.C. 1818), the
International Lending Supervision Act of 1983 (12 U.S.C. 3907), or the
Home Owners' Loan Act (12 U.S.C. 1464(t)(6)(A)(ii)), or section 38 of
the FDI Act (12 U.S.C. 1831o), or any regulation thereunder, to meet
and maintain a specific capital level for any capital measure; and
(vi) Beginning on January 1, 2018 and thereafter, an FDIC-
supervised institution that is a subsidiary of a covered BHC will be
deemed to be well capitalized if the FDIC-supervised institution
satisfies paragraphs (b)(1)(i) through (v) of this section and has a
supplementary leverage ratio of 6.0 percent or greater. For purposes of
this paragraph, a covered BHC means a U.S. top-tier bank holding
company with more than $700 billion in total assets as reported on the
company's most recent Consolidated Financial Statement for Bank Holding
Companies (FR Y-9C) or more than $10 trillion in assets under custody
as reported on the company's most recent Banking Organization Systemic
Risk Report (FR Y-15).
* * * * *
Dated: June 16, 2015.
Thomas J. Curry,
Comptroller of the Currency.
By order of the Board of Governors of the Federal Reserve
System, June 15, 2015.
Robert deV. Frierson,
Secretary of the Board.
Dated at Washington, DC, this 16th day of June, 2015.
By order of the Board of Directors.
Federal Deposit Insurance Corporation.
Robert E. Feldman,
Executive Secretary.
[FR Doc. 2015-15748 Filed 7-14-15; 8:45 am]
BILLING CODE