Regulatory Capital Rules: Regulatory Capital, Final Revisions Applicable to Banking Organizations Subject to the Advanced Approaches Risk-Based Capital Rule, 41409-41426 [2015-15748]

Agencies

• FEDERAL DEPOSIT INSURANCE CORPORATION
• FEDERAL RESERVE SYSTEM
• Department of Treasury
• Office of the Comptroller of the Currency

[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]



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Rules and Regulations
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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.

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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\
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    \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).
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    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\
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    \4\ 12 CFR 3.100(b)(1) (OCC), 12 CFR 217.100(b)(1) (Board), and 
12 CFR 324.100(b)(1) (FDIC).
    \5\ 12 CFR 3.121(c) (OCC), 12 CFR 217.121(c) (Board), and 12 CFR 
324.121(c) (FDIC).
    \6\ 12 CFR 3.121(d) (OCC), 12 CFR 217.121(d) (Board), and 12 CFR 
324.121(d) (FDIC).
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    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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    \7\ See 12 CFR part 3.10(c) (OCC); 12 CFR part 217.10(c) 
(Board); and 12 CFR part 324.10(c) (FDIC).
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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.
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    \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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    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.
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    \10\ See 12 CFR 3.122(b)(3) (OCC), 12 CFR 217.122(b)(3) (Board), 
and 12 CFR 324.122(b)(3) (FDIC).
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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.
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    \11\ See section 10(c)(4)(ii) of the regulatory capital 
framework and 79 FR 57725 (Sept. 26, 2014) (2014 SLR rule).
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    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.
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    \12\ Section 172(d) was added to the regulatory capital 
framework as part of the 2014 SLR rule.
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    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.
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    \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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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.
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    \15\ Section 132(d)(5)(iii)(B).
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    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.
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    \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 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.
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    \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.
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    Sections 122 and 131 of the regulatory capital framework set forth 
the qualification requirements for the internal ratings-based approach 
(IRB) for advanced approaches banking organizations and describe the 
mechanics for calculating risk-weighted assets for wholesale and retail 
exposures under the advanced approaches 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.
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    \18\ 72 FR 69288 (December 7, 2007).
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    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