[Federal Register Volume 75, Number 250 (Thursday, December 30, 2010)]
[Proposed Rules]
[Pages 82317-82323]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-32190]


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Proposed Rules
                                                Federal Register
________________________________________________________________________

This section of the FEDERAL REGISTER contains notices to the public of 
the proposed issuance of rules and regulations. The purpose of these 
notices is to give interested persons an opportunity to participate in 
the rule making prior to the adoption of the final rules.

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Federal Register / Vol. 75, No. 250 / Thursday, December 30, 2010 / 
Proposed Rules

[[Page 82317]]



DEPARTMENT OF THE TREASURY

Office of the Comptroller of the Currency

12 CFR Part 3

[Docket No. OCC-2010-0009]
RIN 1557-AD33

FEDERAL RESERVE SYSTEM

12 CFR Parts 208 and 225

[Regulations H and Y; Docket No. R-1402]
RIN 7100-AD62

FEDERAL DEPOSIT INSURANCE CORPORATION

12 CFR Part 325

RIN 3064-AD58


Risk-Based Capital Standards: Advanced Capital Adequacy 
Framework--Basel II; Establishment of a Risk-Based Capital Floor

AGENCY: Office of the Comptroller of the Currency, Treasury; Board of 
Governors of the Federal Reserve System; and the Federal Deposit 
Insurance Corporation.

ACTION: Joint notice of proposed rulemaking.

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SUMMARY: The Office of the Comptroller of the Currency (OCC), Board of 
Governors of the Federal Reserve System (Board), and the Federal 
Deposit Insurance Corporation (FDIC) (collectively, the agencies) 
propose to: Amend the advanced risk-based capital adequacy standards 
(advanced approaches rules) \1\ to be consistent with certain 
provisions of the Dodd-Frank Wall Street Reform and Consumer Protection 
Act (the Act) \2\ and amend the general risk-based capital rules \3\ to 
provide limited flexibility consistent with section 171(b) of the Act 
for recognizing the relative risk of certain assets generally not held 
by depository institutions.
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    \1\ 12 CFR part 3, Appendix C (OCC); 12 CFR part 208, Appendix F 
and 12 CFR part 225, Appendix G (Board); and 12 CFR part 325 
Appendix D (FDIC).
    \2\ Public Law 111-203, Sec.  171, 124 Stat. 1376, 1435-38 
(2010).
    \3\ 12 CFR part 3, Appendix A (OCC); 12 CFR parts 208 and 225, 
Appendix A (Board); 12 CFR part 325, Appendix A (FDIC).

DATES: Comments on this notice of proposed rulemaking must be received 
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by February 28, 2011.

ADDRESSES: Comments should be directed to:
    OCC: Because paper mail in the Washington, DC area and at the 
Agencies is subject to delay, commenters are encouraged to submit 
comments by the Federal eRulemaking Portal or e-mail, if possible. 
Please use the title ``Advanced Capital Adequacy Framework--Basel II; 
Establishment of a Risk-Based Capital Floor'' to facilitate the 
organization and distribution of the comments. You may submit comments 
by any of the following methods:
    <bullet> Federal eRulemaking Portal--``regulations.gov'': Go to 
http://www.regulations.gov. Select ``Document Type'' of ``Proposed 
Rules,'' and in ``Enter Keyword or ID Box,'' enter Docket ID ``OCC-
2010-0009,'' and click ``Search.'' On ``View By Relevance'' tab at 
bottom of screen, in the ``Agency'' column, locate the proposed rule 
for OCC, in the ``Action'' column, click on ``Submit a Comment'' or 
``Open Docket Folder'' to submit or view public comments and to view 
supporting and related materials for this rulemaking action.
    <bullet> Click on the ``Help'' tab on the Regulations.gov home page 
to get information on using Regulations.gov, including instructions for 
submitting or viewing public comments, viewing other supporting and 
related materials, and viewing the docket after the close of the 
comment period.
    <bullet> E-mail: <a href="/cdn-cgi/l/email-protection#b3c1d6d4c09dd0dcdeded6ddc7c0f3dcd0d09dc7c1d6d2c09dd4dcc5"><span class="__cf_email__" data-cfemail="c0b2a5a7b3eea3afadada5aeb4b380afa3a3eeb4b2a5a1b3eea7afb6">[email protected]</span></a>.
    <bullet> Mail: Office of the Comptroller of the Currency, 250 E 
Street, SW., Mail Stop 2-3, Washington, DC 20219.
    <bullet> Fax: (202) 874-5274.
    <bullet> Hand Delivery/Courier: 250 E Street, SW., Mail Stop 2-3, 
Washington, DC 20219.
    Instructions: You must include ``OCC'' as the agency name and 
``Docket ID OCC-2010-0009'' in your comment. In general, OCC will enter 
all comments received into the docket and publish them on the 
Regulations.gov Web site without change, including any business or 
personal information that you provide such as name and address 
information, e-mail addresses, or phone numbers. Comments received, 
including attachments and other supporting materials, are part of the 
public record and subject to public disclosure. Do not enclose any 
information in your comment or supporting materials that you consider 
confidential or inappropriate for public disclosure.
    You may review comments and other related materials that pertain to 
this proposed rule by any of the following methods:
    <bullet> Viewing Comments Electronically: Go to http://www.regulations.gov. Select ``Document Type'' of ``Public 
Submissions,'' in ``Enter Keyword or ID Box,'' enter Docket ID ``OCC-
2010-0009,'' and click ``Search.'' Comments will be listed under ``View 
By Relevance'' tab at bottom of screen. If comments from more than one 
agency are listed, the ``Agency'' column will indicate which comments 
were received by the OCC.
    <bullet> Viewing Comments Personally: You may personally inspect 
and photocopy comments at the OCC, 250 E Street, SW., Washington, DC. 
For security reasons, the OCC requires that visitors make an 
appointment to inspect comments. You may do so by calling (202) 874-
4700. Upon arrival, visitors will be required to present valid 
government-issued photo identification and to submit to security 
screening in order to inspect and photocopy comments.
    <bullet> Docket: You may also view or request available background 
documents and project summaries using the methods described above.
    Board: You may submit comments, identified by Docket No. R-1402 and 
RIN No. 7100-AD62, by any of the following methods:
    <bullet> Agency Web Site: http://www.federalreserve.gov. Follow the 
instructions for submitting comments at http://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm.
    <bullet> Federal eRulemaking Portal: http://www.regulations.gov. 
Follow the instructions for submitting comments.
    <bullet> E-mail: <a href="/cdn-cgi/l/email-protection#3b495e5c4815585456565e554f487b5d5e5f5e495a57495e485e494d5e155c544d"><span class="__cf_email__" data-cfemail="aad8cfcdd984c9c5c7c7cfc4ded9eacccfcecfd8cbc6d8cfd9cfd8dccf84cdc5dc">[email protected]</span></a>. Include docket 
number in the subject line of the message.

[[Page 82318]]

    <bullet> FAX: (202) 452-3819 or (202) 452-3102.
    <bullet> Mail: Jennifer J. Johnson, Secretary, Board of Governors 
of the Federal Reserve System, 20th Street and Constitution Avenue, 
NW., Washington, DC 20551.
    All public comments are available from the Board's Web site at 
http://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm as 
submitted, unless modified for technical reasons. Accordingly, your 
comments will not be edited to remove any identifying or contact 
information. Public comments may also be viewed electronically or in 
paper form in Room MP-500 of the Board's Martin Building (20th and C 
Streets, NW.) between 9 a.m. and 5 p.m. on weekdays.
    FDIC: You may submit by any of the following methods:
    <bullet> Federal eRulemaking Portal: http://www.regulations.gov. 
Follow the instructions for submitting comments.
    <bullet> Agency Web site: http://www.FDIC.gov/regulations/laws/federal/propose.html.
    <bullet> Mail: Robert E. Feldman, Executive Secretary, Attention: 
Comments/Legal ESS, Federal Deposit Insurance Corporation, 550 17th 
Street, NW., Washington, DC 20429.
    <bullet> Hand Delivered/Courier: The guard station at the rear of 
the 550 17th Street Building (located on F Street), on business days 
between 7 a.m. and 5 p.m.
    <bullet> E-mail: <a href="/cdn-cgi/l/email-protection#1c7f7371717972686f5c5a58555f327b736a"><span class="__cf_email__" data-cfemail="74171b1919111a00073432303d375a131b02">[email protected]</span></a>.
    Instructions: Submissions received must include ``FDIC'' and ``PIN 
XXXX-XXXX.'' Comments received will be posted without change to http://www.FDIC.gov/regulations/laws/federal/propose.html, including any 
personal information provided.

FOR FURTHER INFORMATION CONTACT: 
    OCC: Mark Ginsberg, Risk Expert, (202) 874-5070, Capital Policy 
Division; or Carl Kaminski, Senior Attorney, or Stuart Feldstein, 
Director, Legislative and Regulatory Activities, (202) 874-5090.
    Board: Anna Lee Hewko, (202) 530-6260, Assistant Director, or 
Brendan Burke, (202) 452-2987 Supervisory Financial Analyst, Division 
of Banking Supervision and Regulation, or April C. Snyder, (202) 452-
3099, Counsel, or Benjamin W. McDonough, (202) 452-2036, Counsel, Legal 
Division. For the hearing impaired only, Telecommunication Device for 
the Deaf (TDD), (202) 263-4869.
    FDIC: George French, Deputy Director, Policy, (202) 898-3929, Nancy 
Hunt, Associate Director, Capital Markets Branch, (202) 898-6643, or 
Bobby Bean, Chief, Policy Section (202) 898-6705, Division of 
Supervision and Consumer Protection; or Mark Handzlik, Counsel (202) 
898-3990, or Michael Phillips, Counsel (202) 898-3581, Supervision and 
Legislation Branch, Legal Division.

SUPPLEMENTARY INFORMATION: 

I. Background

A. The Dodd-Frank Wall Street Reform and Consumer Protection Act

    Section 171(b)(2) of the Dodd-Frank Wall Street Reform and Consumer 
Protection Act (the Act) \4\ states that the agencies \5\ shall 
establish minimum risk-based capital requirements applicable to insured 
depository institutions, depository institution holding companies, and 
nonbank financial companies supervised by the Federal Reserve (covered 
institutions). In particular, and as described in more detail below, 
sections 171(b)(1) and (2) specify that the minimum leverage and risk-
based capital requirements established under section 171 shall not be 
less than ``generally applicable'' capital requirements, which shall 
serve as a floor for any capital requirements the agencies may require. 
Moreover, sections 171(b)(1) and (2) specify that the Federal banking 
agencies may not establish leverage or risk-based capital requirements 
for covered institutions that are quantitatively lower than the 
generally applicable leverage or risk-based capital requirements in 
effect for insured depository institutions as of the date of enactment 
of the Act.
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    \4\ Public Law 111-203, Sec.  171, 124 Stat. 1376, 1435-38 
(2010).
    \5\ Even though the Office of Thrift Supervision (OTS) is not 
issuing this notice of proposed rulemaking (NPR), OTS plans to issue 
an NPR that parallels the substance of this notice to amend its 
capital regulations at 12 CFR part 567. OTS's parallel notice is 
subject to review by the Office of Management and Budget pursuant to 
Executive Order 12866.
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B. Advanced Approaches Rules

    On December 7, 2007, the agencies implemented the advanced 
approaches rules, which are mandatory for U.S. depository institutions 
and bank holding companies (collectively, banking organizations) 
meeting certain thresholds for total consolidated assets or foreign 
exposure.\6\ The advanced approaches rules incorporate a series of 
proposals released by the Basel Committee on Banking Supervision (Basel 
Committee or BCBS), including the Basel Committee's comprehensive June 
2006 release entitled ``International Convergence of Capital 
Measurement and Capital Standards: A Revised Framework'' (New 
Accord).\7\
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    \6\ 72 FR 69288 (December 7, 2007). Subject to prior supervisory 
approval, other banking organizations can opt to use the advanced 
approaches rules. See 72 FR 69397 (December 7, 2007).
    \7\ The BCBS is a committee of banking supervisory authorities 
established by the central bank governors of the G-10 countries in 
1975. The BCBS issued the New Accord to modernize its first capital 
Accord, which was endorsed by the BCBS members in 1988 and 
implemented by the agencies in 1989. The New Accord, the 1988 
Accord, and other documents issued by the BCBS are available through 
the Bank for International Settlements' Web site at http://www.bis.org.
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    The advanced approaches rules establish a series of transitional 
floors to provide a smooth transition to the advanced approaches rules 
and to limit temporarily the amount by which a banking organization's 
risk-based capital requirements could decline relative to the general 
risk-based capital rules over a period of at least three years 
following completion of a satisfactory parallel run. The advanced 
approaches rules place limits on the amount by which a banking 
organization's risk-based capital requirements may decline. Under the 
advanced approaches rules, the banking organization must take the risk-
based capital ratios equal to the lesser of (i) the organization's 
ratios calculated under the advanced approaches rules and (ii) its 
ratios calculated under the general risk-based capital rules,\8\ with 
risk-weighted assets multiplied by 95 percent, 90 percent, and 85 
percent during the first, second, and third transitional floor periods, 
respectively and compare these ratios to its minimum risk-based capital 
ratio requirements under section 3 of the advanced approaches rules.\9\ 
Under this approach, banking organizations that use the advanced 
approaches rule could operate with lower minimum risk-based capital 
requirements during a transitional floor period, and potentially 
thereafter, than would be required under the general risk-based capital 
rules. At this time, no banking organization has entered a transitional 
floor period and all organizations are required to compute their risk-
based capital requirements using the general risk-based capital rules.
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    \8\ 12 CFR part 3, Appendix A (OCC); 12 CFR parts 208 and 225, 
Appendix A (Board); and 12 CFR part 325, appendix A (FDIC).
    \9\ Under the advanced approaches rules, the minimum tier 1 
risk-based capital requirement is 4 percent and the total risk-based 
capital requirement is 8 percent. See 12 CFR part 3, Appendix C 
(OCC); 12 CFR part 208, Appendix F and 12 CFR part 225, Appendix G 
(Board); and 12 CFR part 325 Appendix D (FDIC).
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C. Requirements of Section 171 of the Act

    Section 171(a)(2) of the Act defines the term ``generally 
applicable risk-based capital requirements'' to mean:

[[Page 82319]]

``(A) the risk-based capital requirements, as established by the 
appropriate Federal banking agencies to apply to insured depository 
institutions under the prompt corrective action regulations 
implementing section 38 of the Federal Deposit Insurance Act, 
regardless of total consolidated asset size or foreign financial 
exposure; and (B) includes the regulatory capital components in the 
numerator of those capital requirements, the risk-weighted assets in 
the denominator of those capital requirements, and the required ratio 
of the numerator to the denominator.'' Section 171(b)(2) of the Act 
further provides that ``[t]he appropriate Federal banking agencies 
shall establish minimum risk-based capital requirements on a 
consolidated basis for insured depository institutions, depository 
institution holding companies, and nonbank financial companies 
supervised by the Board of Governors. The minimum risk-based capital 
requirements established under this paragraph shall not be less than 
the generally applicable risk-based capital requirements, which shall 
serve as a floor for any capital requirements that the agency may 
require, nor quantitatively lower than the generally applicable risk-
based capital requirements that were in effect for insured depository 
institutions as of the date of enactment of this Act.''
    In accordance with section 38 of the Federal Deposit Insurance 
Act,\10\ the Federal banking agencies established minimum leverage and 
risk-based capital requirements for insured depository institutions for 
prompt corrective action (PCA rules). All insured institutions, 
regardless of their total consolidated assets or foreign exposure, must 
compute their minimum risk-based capital requirements for PCA purposes 
using the general risk-based capital rules, which currently are the 
``generally applicable risk-based capital requirements'' defined by 
Section 171(a)(2) of the Act.
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    \10\ See Public Law 102-242; 105 Stat. 2242 (1991).
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D. Effect on Applications by Foreign Banking Organizations

    In approving an application by a foreign bank to establish a branch 
or agency in the United States or to make a bank or nonbank 
acquisition, the Board considers, among other factors, whether the 
capital of the foreign bank is equivalent to the capital that would be 
required of a U.S. banking organization.\11\ Similarly, in order to 
make effective a foreign bank's declaration under the BHC Act to be 
treated as an FHC, the Board must apply comparable capital and 
management standards to the foreign bank ``giving due regard to the 
principle of national treatment and equality of competitive 
opportunity.'' \12\ National treatment generally means treatment that 
is no less favorable than that provided to domestic institutions that 
are in like circumstances. The Board has broad discretion to take any 
relevant factors into account in determining standards that are both 
comparable and provide national treatment.
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    \11\ See 12 U.S.C. 1842(c); 1843(j); and 3105(d)(3)(B), (j)(2). 
In addition, in approving an application to establish an interstate 
branch, the OCC must make a similar capital equivalency 
determination. See 12 U.S.C. 3103(a)(3)(B)(i).
    \12\ 12 U.S.C. 1843(l)(3). A foreign bank that operates a 
branch, agency or commercial lending company in the United States 
and any company that owns such a foreign bank, is subject to the BHC 
Act as if it were a bank holding company. The BHC Act, as amended by 
the Gramm-Leach Bliley Act, provides that a bank holding company may 
become a FHC if its depository institutions meet certain capital and 
management standards. See 12 U.S.C. 1843(l)(1); 12 CFR 225. Under 
Sec.  606 of the Act, this requirement will be modified to require 
the bank holding company to be well capitalized and well managed. 
See the Act Sec.  606.
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    The Board has been making capital equivalency findings for foreign 
banks under the International Banking Act and the Bank Holding Company 
Act since 1992 pursuant to guidelines developed as part of a joint 
study by the Board and Treasury on capital equivalency.\13\ The study 
acknowledged the Basel Committee on Banking Supervision's 1988 capital 
accord (Basel I) \14\ as the prevailing capital standard for 
internationally active banks and found that implementation of Basel I 
was broadly equivalent across countries. Until 2007, the Board 
generally accepted as equivalent the capital of foreign banks from 
countries adhering to Basel I within the bounds of national discretion 
allowed under the Basel I framework. For foreign banks that have begun 
operating under the New Accord's capital standards in making capital 
equivalency determinations, the Board has evaluated the capital of the 
foreign bank as reported in compliance with the New Accord, while also 
taking into account a range of factors including compliance with the 
New Accord's capital requirement floors linked to Basel I, where 
applicable.
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    \13\ ``Capital Equivalency Report,'' Board of Governors of the 
Federal Reserve System and Secretary of the U.S. Department of the 
Treasury (June 19, 1992). See 12 U.S.C. Sec.  3105(j).
    \14\ International Convergence of Capital Measurement and 
Capital Standard, 1988.
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    At this time, many foreign bank applicants are operating under 
Basel II advanced approaches that have been implemented by their home 
country authorities. In many cases, home country authorities have 
adopted floors based on Basel I standards using discretion and 
flexibility as provided in the Accord. However, in some cases, Basel I 
floors are no longer in effect, or are expected to be phased out in the 
near term.
    Question 1. How should the proposed rule be applied to foreign 
banks in evaluating capital equivalency in the context of applications 
to establish branches or make bank or nonbank acquisitions in the 
United States, and in evaluating capital comparability in the context 
of foreign bank FHC declarations?

E. Effect of Section 171 of the Act on Certain Institutions and Their 
Assets

    Certain covered institutions may not previously have been subject 
to consolidated risk-based capital requirements. Some of these 
companies are likely to be similar in nature to most depository 
institutions and bank holding companies subject to the general risk-
based capital rules. Others, may be different, with exposure types and 
risks that were not contemplated when the general risk-based capital 
rules were developed. The Financial Stability Oversight Council has not 
yet designated any nonbank financial companies to be supervised by the 
Board; over time it is conceivable that it will designate one or more 
companies whose activities are quite different than those addressed in 
the general risk-based capital rules. The Board will be supervising 
these institutions for the first time and expects that there will be 
cases when it needs to evaluate the risk-based capital treatment of 
specific exposures not typically held by depository institutions, and 
that do not have a specific risk weight under the generally applicable 
risk-based capital requirements.
    Under the general risk-based capital rules, exposures are generally 
assigned to five risk weight categories, that is, 0 percent, 20 
percent, 50 percent, 100 percent, and 200 percent, according to their 
relative riskiness. Assets not explicitly included in a lower risk 
weight category are assigned to the 100 percent risk weight category. 
Going forward, there may be situations where exposures of a depository 
institution holding company or a nonbank financial company supervised 
by the Board not only do not wholly fit within the terms of a risk 
weight category, but also impose risks that are not commensurate with 
the risk weight otherwise specified in the generally applicable risk-
based capital requirements.

[[Page 82320]]

    For example, there are some material exposures of insurance 
companies that, while not riskless, would be assigned to a 100 percent 
risk weight category because they are not explicitly assigned to a 
lower risk weight category. An automatic assignment to the 100 percent 
risk weight category without consideration of an exposure's economic 
substance could overstate the risk of the exposure and produce 
uneconomic capital requirements for a covered institution.

II. Proposed Rule

A. Generally Applicable Risk-Based Capital Requirement Floor

    The OCC, Board, and FDIC are proposing to modify their respective 
advanced approaches rules consistent with section 171(b)(2). In 
particular, the agencies are proposing to revise the advanced 
approaches rules by replacing the transitional floors in section 21(e) 
of the advanced approaches rule with a permanent floor equal to the 
tier 1 and total risk-based capital requirements under the current 
generally applicable risk-based capital rules. Thus, the agencies are 
proposing to require each banking organization subject to the advanced 
approaches rules to maintain the systems and records necessary to 
calculate its required minimum risk-based capital requirements under 
both the general risk-based capital rules and the advanced approaches 
rules. Each quarter, each banking organization subject to the advanced 
approaches rules must calculate and compare its minimum tier 1 and 
total risk-based capital ratios as calculated under the general risk-
based capital rules and the advanced approaches risk-based capital 
rules. The banking organization would then compare the lower of the two 
tier 1 risk-based capital ratios and the lower of the two total risk-
based capital ratios to the minimum tier 1 ratio requirement of 4 
percent and total risk-based capital ratio requirement of 8 percent in 
section 3 of the advanced approaches rules \15\ to determine if it met 
its minimum capital requirements. For bank holding companies, the 
proposal also incorporates the phase-in of restrictions on the 
regulatory capital treatment of debt or equity instruments issued 
before May 19, 2010 as described in section 171(b)(4)(B) of the Act.
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    \15\ 12 CFR part 3, Appendix C, Sec.  3 (OCC); 12 CFR part 208, 
Appendix F, Sec.  3 and 12 CFR part 225, Appendix G, Sec.  3 
(Board); and 12 CFR part 325, Sec.  3 Appendix D (FDIC).
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    The agencies are also proposing to eliminate the paragraphs of the 
advanced approaches rules dealing with the transitional floor periods, 
and the interagency study. These parts of the advanced approaches rules 
no longer serve a purpose.
    Question 2: The agencies seek comment generally on the impact of a 
permanent floor on the minimum risk-based capital requirements for 
banking organizations subject to the advanced approaches rules, and on 
the manner in which the agencies are proposing to implement the 
provisions of section 171(b) of the Act.

B. Change to Generally Applicable Risk-Based Capital Requirements

    The proposed floor, consistent with the requirements of section 
171(b)(2), is based on the generally applicable risk-based capital 
requirements for depository institutions. To address the appropriate 
capital requirement for low risk assets that non-depository 
institutions may hold and for which there is no explicit capital 
treatment in the general risk-based capital rules, the agencies propose 
that such exposures receive the capital treatment applicable under the 
capital guidelines for bank holding companies under limited 
circumstances. The circumstances are intended to allow for an 
appropriate capital requirement for low risk nonbanking exposures 
without creating unintended new opportunities for depository 
institutions to engage in capital arbitrage. The agencies therefore 
propose to limit this treatment to cases in which a depository 
institution is not authorized to hold the asset under applicable law 
other than under debt previously contracted or similar authority, and 
the risks associated with the asset are substantially similar to the 
risks of assets that receive a lower risk weight. The agencies 
therefore propose a change to the general risk-based capital rules for 
depository institutions to permit this limited flexibility to 
appropriately address exposures of depository institution holding 
companies and nonbank financial companies supervised by the Board. The 
agencies request comment on this change to the general risk-based 
capital rules.
    Question 3. For what specific types of exposures do commenters 
believe this treatment is appropriate? Does the proposal provide 
sufficient flexibility to address the exposures of depository 
institution holding companies and nonbank financial companies 
supervised by the Federal Reserve? If not, how should the proposal be 
changed to recognize the considerations outlined in this section?
    Consistent with the joint efforts of the U.S. banking agencies and 
the Basel Committee to enhance the regulatory capital rules, the 
agencies anticipate that the generally applicable risk-based capital 
requirements and advanced approaches rule will be amended from time to 
time. These amendments would reflect advances in risk sensitivity and 
other potentially substantive changes to fundamental aspects of the New 
Accord such as the definition of capital, treatment of counterparty 
credit risk, and new regulatory capital elements such as an 
international leverage ratio and prudential capital buffers.
    The agencies will consider each proposed change to the risk-based 
capital rules and determine whether it is appropriate to implement the 
change by rulemaking based on the implications of each proposal for the 
capital adequacy of banking organizations, the implementation costs of 
such proposals, and the nature of any unintended consequences or 
competitive issues. The generally applicable risk-based capital 
requirements and generally applicable leverage capital requirements 
that the agencies may establish in the future would, as required under 
the Act, become the minimum leverage and risk-based capital 
requirements for all banking organizations. Furthermore, as provided 
under the Act, any future amendments to the leverage requirements or 
risk-based capital requirements established by the agencies may not 
result in capital requirements that are ``quantitatively lower'' than 
the generally applicable leverage requirements or risk-based capital 
requirements in effect as of the date of enactment of the Act.
    To comply with this provision of the Act, the agencies propose to 
perform a quantitative analysis of the likely effect on capital 
requirements as part of developing future amendments to the capital 
rules to ensure that any new capital framework is not quantitatively 
lower than the requirements in effect as of the date of enactment of 
the Act. The agencies therefore would not anticipate proposing to 
require banking organizations to compute two sets of generally 
applicable capital requirements from current and historic frameworks as 
the generally applicable requirements are amended over time. The 
agencies have not yet determined the quantitative method for measuring 
the equivalence of current, historic, and proposed future capital 
frameworks.
    Question 4: The agencies request comment on the most appropriate 
method of conducting the aforementioned analysis. What are potential 
quantitative methods for comparing future capital requirements to 
ensure that any new capital

[[Page 82321]]

framework is not quantitatively lower than the requirements in effect 
as of the date of the enactment of the Act?
    The agencies anticipate addressing aspects of Section 171 not 
addressed in this proposed rule in a subsequent rulemaking.
    Question 5: The agencies seek comment on all other aspects of this 
proposed rule, including the costs and benefits. What, if any, changes 
should the agencies make to the proposed rule or the risk-based capital 
framework to better balance costs and benefits?
Regulatory Flexibility Act Analysis
    Pursuant to section 605(b) of the Regulatory Flexibility Act,\16\ 
(RFA), the regulatory flexibility analysis otherwise required under 
section 604 of the RFA is not required if an agency certifies that the 
rule will not have a significant economic impact on a substantial 
number of small entities (defined for purposes of the RFA to include 
banks with assets less than or equal to $175 million) and publishes its 
certification and a short, explanatory statement in the Federal 
Register along with its rule.
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    \16\ 5 U.S.C. 605(b).
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    This proposal would affect bank holding companies, national banks, 
State member banks, and State nonmember banks, that use the advanced 
approaches rules to calculate their risk-based capital requirements 
according to certain internal ratings-based and internal model 
approaches. A bank holding company or bank must use the advanced 
approaches rules only if: (i) It has consolidated total assets (as 
reported on its most recent year-end regulatory report) equal to $250 
billion or more; (ii) it has consolidated total on-balance sheet 
foreign exposures at the most recent year-end equal to $10 billion or 
more; or (iii) it is a subsidiary of a bank holding company or bank 
that would be required to use the advanced approaches rules to 
calculate its risk-based capital requirements.
    With respect to the proposed changes to the general risk-based 
capital rules, the proposal has the potential to affect the risk 
weights applicable only to assets that generally are impermissible for 
banks to hold. These proposed changes are accordingly unlikely to have 
a significant impact on banking organizations. The agencies also note 
that the changes to the general risk-based capital rules would not 
impose any additional obligations, restrictions, burdens, or reporting, 
recordkeeping or compliance requirements on banks including small 
banking organizations, nor do they duplicate, overlap or conflict with 
other Federal rules.
    The agencies estimate that zero small bank holding companies (out 
of a total of approximately 2,561 small bank holding companies), one 
small national bank (out of a total of approximately 678 small national 
banks), one small State member bank (out of a total of approximately 
400 small State member banks), and one small State nonmember bank (out 
of a total of approximately 2,708 small State nonmember banks) are 
required to use the advanced approaches rules.\17\ In addition, each of 
the small banks that is required to use the advanced approaches rules 
is a subsidiary of a bank holding company with over $250 billion in 
consolidated total assets or over $10 billion in consolidated total on-
balance sheet foreign exposures. Therefore, the agencies believe that 
the proposed rule will not result in a significant economic impact on a 
substantial number of small entities.
---------------------------------------------------------------------------

    \17\ All totals are as of June 30, 2010.
---------------------------------------------------------------------------

OCC Unfunded Mandates Reform Act of 1995 Determinations
    Section 202 of the Unfunded Mandates Reform Act of 1995, Public Law 
104-4 (UMRA) requires that an agency prepare a budgetary impact 
statement before promulgating a rule that 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 (adjusted annually for inflation) in any one year. If a 
budgetary impact statement is required, section 205 of the UMRA also 
requires an agency to identify and consider a reasonable number of 
regulatory alternatives before promulgating a rule. The OCC has 
determined that its proposed rule will not result in expenditures by 
State, local, and Tribal governments, or by the private sector, of $100 
million or more. Accordingly, the OCC has not prepared a budgetary 
impact statement or specifically addressed the regulatory alternatives 
considered.
Paperwork Reduction Act
    In accordance with the requirements of the Paperwork Reduction Act 
of 1995,\18\ the agencies may not conduct or sponsor, and the 
respondent is not required to respond to, an information collection 
unless it displays a currently valid Office of Management and Budget 
(OMB) control number. Each of the agencies has an established 
information collection for the paperwork burden imposed by the advanced 
approaches rule.\19\ This notice of proposed rulemaking would replace 
the transitional floors in section 21(e) of the advanced approaches 
rule with a permanent floor equal to the tier 1 and total risk-based 
capital requirements under the current generally applicable risk-based 
capital rules. The proposed change to transitional floors would change 
the basis for calculating a data element that must be reported to the 
agencies under an existing requirement. However, it would have no 
impact on the frequency or response time for the reporting requirement 
and, therefore, does not constitute a substantive or material change 
subject to OMB review.
---------------------------------------------------------------------------

    \18\ 44 U.S.C. 3501-3521.
    \19\ See Risk-Based Capital Reporting for Institutions Subject 
to the Advanced Capital Adequacy Framework, FFIEC 101, OCC OMB 
Number 1557-0239, Federal Reserve OMB Number 7100-0319, FDIC OMB 
Number 3064-0159.
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Plain Language
    Section 722 of the Gramm-Leach-Bliley Act requires the agencies to 
use plain language in all proposed and final rules published after 
January 1, 2000. In light of this requirement, the agencies have sought 
to present the proposed rule in a simple and straightforward manner. 
The agencies invite comment on whether the agencies could take 
additional steps to make the proposed rule easier to understand.

List of Subjects

12 CFR Part 3

    Administrative practice and procedure, Banks, Banking, Capital, 
National banks, Reporting and recordkeeping requirements, Risk.

12 CFR Part 208

    Confidential business information, Crime, Currency, Federal Reserve 
System, Mortgages, Reporting and recordkeeping requirements, Risk.

12 CFR Part 225

    Administrative practice and procedure, Banks, banking, Federal 
Reserve System, Holding companies, Reporting and recordkeeping 
requirements, Securities.

12 CFR Part 325

    Administrative practice and procedure, Banks, banking, Capital 
Adequacy, Reporting and recordkeeping requirements, Savings 
associations, State nonmember banks.

[[Page 82322]]

Department of the Treasury

Office of the Comptroller of the Currency

12 CFR Chapter I

Authority and Issuance

    For the reasons stated in the common preamble, the Office of the 
Comptroller of the Currency proposes to amend part 3 of chapter I of 
Title 12, Code of Federal Regulations as follows:

PART 3--MINIMUM CAPITAL RATIOS; ISSUANCE OF DIRECTIVES

    1. The authority citation for part 3 continues to read as follows:

    Authority: 12 U.S.C. 93a, 161, 1818, 1828(n), 1828 note, 1831n 
note, 1835, 3907, and 3909.

    2. In Appendix A to part 3, in section 3, add new paragraph 
(a)(4)(xi) as follows:

Appendix A to Part 3--Risk-Based Capital Guidelines

* * * * *

Section 3. Risk Categories/Weights for On-Balance Sheet Assets and 
Off-Balance Sheet Items

* * * * *
    (xi) Subject to the requirements below, a bank may assign an 
asset not included in the categories above to the risk weight 
category applicable under the capital guidelines for bank holding 
companies,\12b\ provided that all of the following conditions apply:
---------------------------------------------------------------------------

    \12b\ See 12 CFR part 225, appendix A.
---------------------------------------------------------------------------

    (A) The bank is not authorized to hold the asset under 
applicable law other than debt previously contracted or similar 
authority; and
    (B) The risks associated with the asset are substantially 
similar to the risks of assets that are otherwise assigned to a risk 
weight category less than 100 percent under this appendix.
    3. In Appendix C to part 3:
    a. Revise Part I, section 3 to read as set forth below.
    b. Remove section 21(e).

Appendix C to Part 3--Capital Adequacy Guidelines for Banks: Internal 
Ratings-Based and Advanced Measurement Approaches

Part I. General Provisions

* * * * *

Section 3. Minimum Risk-Based Capital Requirements

    (a)(1) Except as modified by paragraph (c) of this section or by 
section 23 of this appendix, each bank must meet a minimum:
    (i) Total risk-based capital ratio of 8.0 percent; and
    (ii) Tier 1 risk-based capital ratio of 4.0 percent.
    (2) A bank's total risk-based capital ratio is the lower of:
    (i) Its total qualifying capital to total risk-weighted assets; 
and
    (ii) Its total risk-based capital ratio as calculated under 
Appendix A of this part.
    (3) A bank's tier 1 risk-based capital ratio is the lower of:
    (i) Its tier 1 capital to total risk-weighted assets; and
    (ii) Its tier 1 risk-based capital ratio as calculated under 
Appendix A of this part.
    (b) Each bank must hold capital commensurate with the level and 
nature of all risks to which the bank is exposed.
    (c) When a bank subject to 12 CFR part 3, Appendix B, calculates 
its risk-based capital requirements under this appendix, the bank 
must also refer to 12 CFR part 3, Appendix B, for supplemental rules 
to calculate risk-based capital requirements adjusted for market 
risk.
* * * * *

Federal Reserve System

12 CFR Chapter II

Authority and Issuance

    For the reasons set forth in the common preamble, parts 208 and 225 
of chapter II of title 12 of the Code of Federal Regulations are 
proposed to be amended as follows:

PART 208--MINIMUM CAPITAL RATIOS; ISSUANCE OF DIRECTIVES

    4. The authority citation for part 208 continues to read as 
follows:

    Authority: Subpart A of Regulation H (12 CFR part 208, Subpart 
A) is issued by the Board of Governors of the Federal Reserve System 
(Board) under 12 U.S.C. 24, 36; sections 9, 11,21,25 and 25A of the 
Federal Reserve Act (12 U.S.C. 321-338a, 248(a), 248(c), 481-486, 
601 and 611); sections 1814, 1816, 1818, 1831o, 1831p-l, 1831r-l and 
1835a of the Federal Deposit Insurance Act (FDI Act) (12 U.S.C. 
1814, 1816, 1818, 1831o, 1831p-l, 1831r-l and 1835); and 12 U.S.C. 
3906-3909.

    5. In Appendix A to part 208, revise section III.C. 4.a and add 
section III.C. 4.e to read as follows:

Appendix A to Part 208--Capital Adequacy Guidelines for State Member 
Banks: Risk-Based Measure

* * * * *

III. Procedures for Computing Weighted Risk Assets and Off-Balance 
Sheet Items

* * * * *

C. Risk Weights

* * * * *
    4. Category 4: 100 percent. a. Except as provided in section 
III.C. 4.e, all assets not included in the categories above are 
assigned to this category, which comprises standard risk assets. The 
bulk of the assets typically found in a loan portfolio would be 
assigned to the 100 percent category.
* * * * *
    e. Subject to the requirements below, a bank, may assign an 
asset not included in the categories above to the risk weight 
category applicable under the capital guidelines for bank holding 
companies,\45\ provided that all of the following conditions apply:
---------------------------------------------------------------------------

    \45\ See 12 CFR part 225, appendix A.
---------------------------------------------------------------------------

    i. The bank is not authorized to hold the asset under applicable 
law other than under debt previously contracted or other similar 
authority; and
    ii. The risks associated with the asset are substantially 
similar to the risks of assets that are otherwise assigned to a risk 
weight category of less than 100 percent under this appendix.
* * * * *
    6. In Appendix F to part 208:
    a. Revise section 3 to read as set forth below; and
    b. Remove section 21(e).

Appendix F to Part 208--Capital Adequacy Guidelines for Banks: Internal 
Ratings-Based and Advanced Measurement Approaches

Part I. General Provisions

* * * * *

Section 3. Minimum Risk-Based Capital Requirements

    (a)(1) Except as modified by paragraph (c) of this section or by 
section 23 of this appendix, each bank must meet a minimum:
    (i) Total risk-based capital ratio of 8.0 percent; and
    (ii) Tier 1 risk-based capital ratio of 4.0 percent.
    (2) A bank's total risk-based capital ratio is the lower of:
    (i) Its total qualifying capital to total risk-weighted assets, 
and
    (ii) Its total risk-based capital ratio as calculated under 
Appendix A of this part.
    (3) A bank's tier 1 risk-based capital ratio is the lower of:
    (i) Its tier 1 capital to total risk-weighted assets, and
    (ii) Its tier 1 risk-based capital ratio as calculated under 
Appendix A of this part.
    (b) Each bank must hold capital commensurate with the level and 
nature of all risks to which the bank is exposed.
    (c) When a bank subject to [the market risk rule] calculates its 
risk-based capital requirements under this appendix, the bank must 
also refer to [the market risk rule] for supplemental rules to 
calculate risk-based capital requirements adjusted for market risk.
* * * * *

PART 225--BANK HOLDING COMPANIES AND CHANGE IN BANK CONTROL 
(REGULATION Y)

    7. The authority citation for part 225 continues to read as 
follows:

    Authority: 12 U.S.C. 1817(j)(13), 1818, 1828(o), 1831i, 1831p-1, 
1843(c)(8), 1844(b), 1972(1), 3106, 3108, 3310, 3331-3351, 3907, and 
3909; 15 U.S.C. 6801 and 6805.

    8. In Appendix G to part 225:
    a. Revise section 3 to read as set forth below; and

[[Page 82323]]

    b. Remove section 21(e).

Appendix G to Part 225--Capital Adequacy Guidelines for Bank Holding 
Companies: Internal Ratings-Based and Advanced Measurement Approaches

Part I. General Provisions

* * * * *

Section 3. Minimum Risk-Based Capital Requirements

    (a)(1) Except as modified by paragraph (c) of this section or by 
section 23 of this appendix, each bank holding company must meet a 
minimum:
    (i) Total risk-based capital ratio of 8.0 percent; and
    (ii) Tier 1 risk-based capital ratio of 4.0 percent.
    (2) A bank holding company's total risk-based capital ratio is 
the lower of:
    (i) Its total qualifying capital to total risk-weighted assets, 
and
    (ii) Its total risk-based capital ratio as calculated under 12 
CFR part 208, appendix A, as adjusted to include certain debt or 
equity instruments issued before May 19, 2010 as described in 
section 171(b)(4)(B) of the Dodd-Frank Wall Street Reform and 
Consumer Protection Act (Dodd-Frank Act).
    (3) A bank holding company's tier 1 risk-based capital ratio is 
the lower of:
    (i) Its tier 1 capital to total risk-weighted assets, and
    (ii) Its tier 1 risk-based capital ratio as calculated under 12 
CFR part 208, appendix A, as adjusted to include certain debt or 
equity instruments issued before May 19, 2010 as described in 
section 171(b)(4)(B) of the Dodd-Frank Act.
    (b) Each bank holding company must hold capital commensurate 
with the level and nature of all risks to which the bank holding 
company is exposed.
    (c) When a bank holding company subject to [the market risk 
rule] calculates its risk-based capital requirements under this 
appendix, the bank holding company must also refer to [the market 
risk rule] for supplemental rules to calculate risk-based capital 
requirements adjusted for market risk.
* * * * *

Federal Deposit Insurance Corporation

12 CFR Chapter III

Authority for Issuance

    For the reasons stated in the common preamble, the Federal Deposit 
Insurance Corporation proposes to amend Part 325 of Chapter III of 
Title 12, Code of the Federal Regulations as follows:

PART 325--CAPITAL MAINTENANCE

    9. The authority citation for part 325 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; Pub. L. 102-233, 105 Stat. 
1761, 1789, 1790, (12 U.S.C. 1831n note); Pub. L. 102-242, 105 Stat. 
2236, 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).

    10. Amend Appendix A to part 325 as follows:
    a. In section II.C, revise the first sentence of the introductory 
text;
    b. In sections II.D, and II.E, redesignate footnotes 45 through 50 
as footnotes 46 through 51.
    c. In section II.C, Category 4, add new paragraph (d) and a new 
footnote 45.

Appendix A to Part 325--Statement of Policy on Risk-Based Capital

* * * * *

II. Procedures for Computing Risk-Weighted Assets

* * * * *

C. Risk Weights for Balance Sheet Assets (see Table II)

    The risk based capital framework contains five risk weight 
categories--0 percent, 20 percent, 50 percent, 100 percent, and 200 
percent. * * *
* * * * *
    Category 4--100 Percent Risk Weight. * * *
    (d) Subject to the requirements below, a bank may assign an 
asset not included in the categories above to the risk weight 
category applicable under the capital guidelines for bank holding 
companies,\45\ provided that all of the following conditions apply:
---------------------------------------------------------------------------

    \45\ See 12 CFR part 225, appendix A.
---------------------------------------------------------------------------

    (1) The bank is not authorized to hold the asset under 
applicable law other than debt previously contracted or similar 
authority; and
    (2) The risks associated with the asset are substantially 
similar to the risks of assets that are otherwise assigned to a risk 
weight category less than 100 percent under this appendix.
* * * * *
    11. In Appendix D to part 325:
    a. Revise section 3 to read as set forth below; and
    b. Remove section 21(e).

Appendix D to Part 325--Capital Adequacy Guidelines for Banks: Internal 
Ratings-Based and Advanced Measurement Approaches

Part I. General Provisions

* * * * *

Section 3. Minimum Risk-Based Capital Requirements

    (a) (1) Except as modified by paragraph (c) of this section or 
by section 23 of this appendix, each bank must meet a minimum:
    (i) Total risk-based capital ratio of 8.0 percent; and
    (ii) Tier 1 risk-based capital ratio of 4.0 percent.
    (2) A bank's total risk-based capital ratio is the lower of:
    (i) Its total qualifying capital to total risk-weighted assets, 
and
    (ii) Its total risk-based capital ratio as calculated under 
appendix A of this part.
    (3) A bank's tier 1 risk-based capital ratio is the lower of:
    (i) Its tier 1 capital to total risk-weighted assets, and
    (ii) Its tier 1 risk-based capital ratio as calculated under 
appendix A of this part.
    (b) Each bank must hold capital commensurate with the level and 
nature of all risks to which the bank is exposed.
    (c) When a bank subject to appendix C of this part calculates 
its risk-based capital requirements under this appendix, the bank 
must also refer to appendix C of this part for supplemental rules to 
calculate risk-based capital requirements adjusted for market risk.
* * * * *

    Dated: December 15, 2010.
John Walsh,
Comptroller of the Currency.
    By order of the Board of Governors of the Federal Reserve 
System, December 14, 2010.
Robert deV. Frierson,
Deputy Secretary of the Board.
    Dated at Washington, DC, this 14th day of December 2010.

    By order of the Board of Directors.
Robert E. Feldman,
Executive Secretary, Federal Deposit Insurance Corporation.
[FR Doc. 2010-32190 Filed 12-29-10; 8:45 am]
BILLING CODE 4810-33-P; 6210-01-P; 6714-01-P; 6720-01-P


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