OCC 2002-13
OCC Bulletin
Subject:     Risk-Based Capital
Description: Final Rule
Date:        April 9, 2002

TO:  Chief Executive Officers of All National Banks, 
     Department and Division Heads, and All Examining 
     Personnel

PURPOSE

This bulletin transmits the final rule, "Risk-Based 
Capital Standards: Claims on Securities Firms" that was 
published in the Federal Register on April 9, 2002.  The 
rule permits banks to reduce the risk weight on certain 
claims against qualifying securities firms from 100 
percent to 20 percent.

SUMMARY

For loans or other claims against a securities firm to 
qualify for the preferential risk weight, the firm must 
be incorporated in the U.S. or another Organization for 
Economic Cooperation and Development (OECD) country and 
be subject to supervisory and regulatory arrangements 
that are comparable to those imposed on banks under the 
Basel Committee on Banking Supervision's Capital Accord 
(Basel Accord).  A U.S. broker-dealer that is registered 
with the Securities and Exchange Commission (SEC) and in 
compliance with the SEC's net capital rule  would meet 
the comparable regulatory arrangement criterion.  However, 
a claim against a U.S. securities firm that is registered 
with the SEC as an over-the-counter derivatives dealer 
would not satisfy that criterion.  For a non-U.S. OECD 
securities firm to qualify, the firm must be subject to 
consolidated supervision and regulation comparable to 
that imposed on depository institutions in that country, 
including capital requirements that are comparable to 
those applied to depository institutions under the Basel 
Accord.

Additionally, the securities firm must have a long-term 
issuer credit rating or a rating on at least one issue of 
long-term (i.e., one year or longer) unsecured debt from 
a nationally recognized statistical rating organization 
that is in one of the three highest investment-grade 
rating categories, i.e., "A" or above.  If the securities 
firm is unrated, the credit rating requirement may be 
satisfied if the parent of the securities firm has a 
rating that is in one of the three highest investment-
grade rating categories and the parent guarantees the 
claim against its subsidiary securities firm.  However, 
direct claims against the parent company would not receive 
the preferential risk weight, but would continue to 
receive a 100 percent risk weight under the current risk-
based capital rules.  A claim against the parent is not 
eligible to receive a 20 percent risk weight because it is 
not a "regulated entity."  A claim against an unrated 
securities firm guaranteed by a rated parent receives the 
reduced risk weight because it meets both the regulated 
entity and credit quality requirements.
 
A claim against a qualifying securities firm that does 
not meet the credit rating or guarantee requirement 
described above could qualify for the preferential risk 
weight if it is collateralized by a debt or equity 
security.  The claim on the securities firm must be 
collateralized subject to all of the following 
requirements:

 The claim must arise from a reverse repurchase/
  repurchase agreement or securities lending/borrowing 
  contract executed using standard industry documentation.
 The collateral must consist of debt or equity securities 
  that are liquid and readily marketable.
 The claim and collateral must be marked-to-market daily.
 The claim must be subject to daily margin maintenance 
  requirements under standard industry documentation.
 The contract from which the claim arises can be 
  liquidated, terminated, or accelerated immediately in 
  bankruptcy or similar proceedings, and the security or 
  collateral agreement will not be stayed or avoided 
  under the applicable law of the relevant jurisdiction. 

FURTHER INFORMATION

For further information about this bulletin, contact 
Margot Schwadron in the Capital Policy Division at 
(202) 874-6022 or Ron Shimabukoro, Legislative and 
Regulatory Activities Division at (202) 874-5090.

Jonathan L. Fiechter
Senior Deputy Comptroller for International and 
                              Economic Affairs

Attachment  67 FR 16971
	    [http://www.occ.treas.gov/ftp/bulletin/2002-13a]