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.

Proposed Rules Federal Register

82317 

Vol. 75, No. 250 

Thursday, December 30, 2010 

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). 

2Public Law 111–203, § 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). 

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. 

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. 

DATES: Comments on this notice of 

proposed rulemaking must be received 

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: 

• 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. 

• 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. 

• E-mail: 

regs.comments@occ.treas.gov. 

• Mail: Office of the Comptroller of 

the Currency, 250 E Street, SW., Mail 

Stop 2–3, Washington, DC 20219. 

• Fax: (202) 874–5274. 

• 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: 

• 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. 

• 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. 

• 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: 

• Agency Web Site: http:// 

www.federalreserve.gov. Follow the 

instructions for submitting comments at 

http://www.federalreserve.gov/ 

generalinfo/foia/ProposedRegs.cfm. 

• Federal eRulemaking Portal: http:// 

www.regulations.gov. Follow the 

instructions for submitting comments. 

• E-mail: 

regs.comments@federalreserve.gov. 

Include docket number in the subject 

line of the message. 


srobinson on DSKHWCL6B1PROD with PROPOSALS
82318 Federal Register / Vol. 75, No. 250 / Thursday, December 30, 2010 / Proposed Rules 

4Public Law 111–203, § 171, 124 Stat. 1376, 

1435–38 (2010). 

5Even 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. 

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). 

7The 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. 

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). 

9Under 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). 

• FAX: (202) 452–3819 or (202) 452– 

3102. 

• 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: 

• Federal eRulemaking Portal: http:// 

www.regulations.gov. Follow the 

instructions for submitting comments. 

• Agency Web site: http:// 

www.FDIC.gov/regulations/laws/ 

federal/propose.html. 

• Mail: Robert E. Feldman, Executive 

Secretary, Attention: Comments/Legal 

ESS, Federal Deposit Insurance 

Corporation, 550 17th Street, NW., 

Washington, DC 20429. 

• 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. 

• E-mail: comments@FDIC.gov. 

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 riskbased 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 riskbased capital requirements in effect for 

insured depository institutions as of the 

date of enactment of the Act. 

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

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 riskbased 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. 

C. Requirements of Section 171 of the 

Act 

Section 171(a)(2) of the Act defines 

the term ‘‘generally applicable riskbased capital requirements’’ to mean: 


srobinson on DSKHWCL6B1PROD with PROPOSALS
Federal Register / Vol. 75, No. 250 / Thursday, December 30, 2010 / Proposed Rules 82319 

10See Public Law 102–242; 105 Stat. 2242 (1991). 

11See 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 § 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 § 606. 

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. § 3105(j). 

14 International Convergence of Capital 

Measurement and Capital Standard, 1988. 

‘‘(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. 

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. 

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. 

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 riskbased 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 riskbased 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. 


srobinson on DSKHWCL6B1PROD with PROPOSALS
82320 Federal Register / Vol. 75, No. 250 / Thursday, December 30, 2010 / Proposed Rules 

15 12 CFR part 3, Appendix C, § 3 (OCC); 12 CFR 

part 208, Appendix F, § 3 and 12 CFR part 225, 

Appendix G, § 3 (Board); and 12 CFR part 325, § 3 

Appendix D (FDIC). 

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 riskbased 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. 

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 riskbased 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 RiskBased Capital Requirements 

The proposed floor, consistent with 

the requirements of section 171(b)(2), is 

based on the generally applicable riskbased 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 riskbased 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 


srobinson on DSKHWCL6B1PROD with PROPOSALS
Federal Register / Vol. 75, No. 250 / Thursday, December 30, 2010 / Proposed Rules 82321 

16 5 U.S.C. 605(b). 

17All totals are as of June 30, 2010. 

18 44 U.S.C. 3501–3521. 

19See 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. 

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. 

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 ratingsbased 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 onbalance 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 riskbased 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 riskbased 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. 

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. 

Plain Language 

Section 722 of the Gramm-LeachBliley 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. 


srobinson on DSKHWCL6B1PROD with PROPOSALS
82322 Federal Register / Vol. 75, No. 250 / Thursday, December 30, 2010 / Proposed Rules 

12bSee 12 CFR part 225, appendix A. 45See 12 CFR part 225, appendix A. 

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 OnBalance 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: 

(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 riskweighted 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 riskbased 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: 

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 riskweighted 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 


srobinson on DSKHWCL6B1PROD with PROPOSALS
Federal Register / Vol. 75, No. 250 / Thursday, December 30, 2010 / Proposed Rules 82323 

45See 12 CFR part 225, appendix A. 

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 riskbased capital ratio is the lower of: 

(i) Its total qualifying capital to total riskweighted 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 riskbased 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 riskbased 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: 

(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 riskweighted 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 

NATIONAL CREDIT UNION 

ADMINISTRATION 

12 CFR Part 740 

RIN 3133–AD83 

Accuracy of Advertising and Notice of 

Insured Status 

AGENCY: National Credit Union 

Administration (NCUA). 

ACTION: Proposed rule with request for 

comments. 

SUMMARY: The NCUA Board proposes to 

revise certain provisions of NCUA’s 

official advertising statement rule. 

Specifically, insured credit unions will 

be required to include the statement in 

all radio and television advertisements, 

annual reports, and statements of 

condition required to be published by 

law. The NCUA Board also proposes to 

define the term ‘‘advertisement’’ and 

clarify size requirements for the official 

advertising statement in print materials. 

DATES: Comments must be received on 

or before February 28, 2011. 

ADDRESSES: You may submit comments 

by any of the following methods (Please 

send comments by one method only): 

• Federal eRulemaking Portal: http:// 

www.regulations.gov. Follow the 

instructions for submitting comments. 


srobinson on DSKHWCL6B1PROD with PROPOSALS