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Preamble
 Table of Contents
 Introduction
				Scope
				Qualification
				Calculation of Tier 1 Capital and Total Qualifying Capital
				Calculation of Risk-Weighted Assets
				Operational Risk
				Disclosure List of Acronyms
 Regulatory Flexibility Act Analysis
 Paperwork Reduction Act
 Plain Language
 OCC Executive Order 12866
 OTS Executive Order 12866 Determination
 OCC Unfunded Mandates Reform Act of 1995 Determination
 OTS Unfunded Mandates Reform Act of 1995 Determination
  Proposed Regulatory Text
 Table of Contents
 Part I
			General Provisions

			Part II
			Qualifying Capital

			Part III
			Qualification

			Part IV
			Risk-Weighted Assets for General Credit Risk

			Part V
			Risk-Weighted Assets for Securitization Exposures

			Part VI
			Risk-Weighted Assets for Equity Exposures

			Part VII
			Risk-Weighted Assets for Operational Risk

			Part VIII
			Disclosure List of Subjects
  Authority and Issuance
 OCC
 Federal Reserve
 FDIC
 OTS
  OCC
 Federal Reserve
 FDIC
 OTS
 Billing Codes


Printable version(1,289 KB PDF)
 
 
 
 
  AGENCIES:  Office of 
   the Comptroller of the Currency, Treasury; Board of Governors of the Federal 
   Reserve System; Federal Deposit Insurance Corporation; and Office of Thrift 
   Supervision, Treasury. ACTION:  Joint notice 
   of proposed rulemaking. SUMMARY:  The Office 
   of the Comptroller of the Currency (OCC), the Board of Governors of the 
   Federal Reserve System (Board), the Federal Deposit Insurance Corporation (FDIC), 
   and the Office of Thrift Supervision (OTS) (collectively, the agencies) 
   are proposing a new risk-based capital adequacy framework that would require 
   some and permit other qualifying banks1 
   to use an internal ratings-based approach to calculate regulatory credit risk 
   capital requirements and advanced measurement approaches to calculate regulatory 
   operational risk capital requirements. The proposed rule describes the qualifying 
   criteria for banks required or seeking to operate under the proposed framework 
   and the applicable risk-based capital requirements for banks that operate 
   under the framework. DATES:  Comments must 
   be received on or before [INSERT DATE 120 DAYS AFTER PUBLICATION IN THE 
   FEDERAL REGISTER]. ADDRESSES:  Comments 
   should be directed to: OCC:  You should 
      include OCC and Docket Number 06-09 in your comment. You may 
      submit comments by any of the following methods: Federal eRulemaking Portal: http://www.regulations.gov. 
         Follow the instructions for submitting comments.
      OCC Web Site: http://www.occ.treas.gov. 
         Click on "Contact the OCC," scroll down and click on "Comments 
         on Proposed Regulations."
      E-mail address: [email protected].
      Fax: (202) 874-4448.
      Mail: Office of the Comptroller of the Currency, 250 E Street, SW, 
         Mail Stop 1-5, Washington, DC 20219.
      Hand Delivery/Courier: 250 E Street, SW, Attn: Public 
         Information Room, Mail Stop 1-5, Washington, DC 20219. Instructions: All submissions received must include 
      the agency name (OCC) and docket number or Regulatory Information 
      Number (RIN) for this notice of proposed rulemaking. In general, OCC 
      will enter all comments received into the docket without change, including 
      any business or personal information that you provide. You may review comments 
      and other related materials by any of the following methods: Viewing Comments Personally:  You may personally inspect 
         and photocopy comments at the OCC's Public Information Room, 250 E Street, SW, 
         Washington, DC. You can make an appointment to inspect comments 
         by calling (202) 874-5043. BOARD:  You may 
      submit comments, identified by Docket No. R-1261, by any of the 
      following method: 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: [email protected]. 
         Include docket number in the subject line of the message.
      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 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 in Room MP-500 
      of the Board's Martin Building (20th and C Streets, NW) 
      between 9:00 a.m. and 5:00 p.m. on weekdays. FDIC:  You may submit comments, identified by RIN number, 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, 
         Federal Deposit Insurance Corporation, 550 17th Street, NW, 
         Washington, D.C. 20429.
      Hand Delivery/Courier: Guard station at rear of the 550 17th Street 
         Building (located on F Street) on business days between 7:00 a.m. 
         and 5:00 p.m.
      E-mail: [email protected].
      Public Inspection: Comments may be inspected at the FDIC Public Information Center, Room E-1002, 3502 Fairfax Drive, 
         Arlington, VA, 22226 between 9 a.m. and 5:00 p.m. on business 
         days. Instructions: Submissions received must include 
      the agency name and RIN for this rulemaking. Comments received will be 
      posted without change to http://www.fdic.gov/regulations/laws/federal/propose.html 
      including any personal information provided. OTS:  You may submit 
      comments, identified by No. 2006-33, by any of the following 
      methods: Federal eRulemaking Portal: http://www.regulations.gov. 
         Follow the instructions for submitting comments.
      E-mail address: [email protected]. 
         Please include No. No. 2006-33 in the subject line of the 
         message and include your name and telephone number in the message.
      Fax: (202) 906-6518.
      Mail: Regulation Comments, Chief Counsel's Office, Office of 
         Thrift Supervision, 1700 G Street, NW, Washington, DC 
         20552, Attention: No. 2006-33.
      Hand Delivery/Courier: Guard's Desk, East Lobby Entrance, 1700 G Street, NW, 
         from 9:00 a.m. to 4:00 p.m. on business days, Attention: Regulation 
         Comments, Chief Counsel's Office, Attention: No. 2006-33. Instructions: All submissions received must include 
      the agency name and docket number or Regulatory Information Number (RIN) 
      for this rulemaking. All comments received will be posted without change 
      to the OTS Internet Site at http://www.ots.treas.gov/pagehtml.cfm?catNumber=67&an=1, 
      including any personal information provided. Docket: For access to the docket to read background 
      documents or comments received, go to http://www.ots.treas.gov/pagehtml.cfm?catNumber=67&an=1. 
      In addition, you may inspect comments at the Public Reading Room, 1700 G Street, NW, 
      by appointment. To make an appointment for access, call (202) 906-5922, 
      send an e-mail to [email protected], 
      or send a facsimile transmission to (202) 906-7755. (Prior notice 
      identifying the materials you will be requesting will assist us in serving 
      you.) We schedule appointments on business days between 10:00 a.m. 
      and 4:00 p.m. In most cases, appointments will be available the next 
      business day following the date we receive a request.
 FOR FURTHER INFORMATION CONTACT: OCC:  Roger Tufts, 
      Senior Economic Advisor, Capital Policy (202-874-4925) or Ron Shimabukuro, 
      Special Counsel, Legislative and Regulatory Activities Division (202-874-5090). 
      Office of the Comptroller of the Currency, 250 E Street, SW, 
      Washington, DC 20219. Board:  Barbara Bouchard, 
      Deputy Associate Director (202-452-3072 or [email protected]) 
      or Anna Lee Hewko, Senior Supervisory Financial Analyst (202-530-6260 
      or [email protected]), Division 
      of Banking Supervision and Regulation; or Mark E. Van Der Weide, 
      Senior Counsel (202-452-2263 or [email protected]), 
      Legal Division. For users of Telecommunications Device for the Deaf ("TDD") 
      only, contact 202-263-4869. FDIC:  Jason C. Cave, 
      Associate Director, Capital Markets Branch, (202) 898-3548, Bobby R. Bean, 
      Senior Quantitative Risk Analyst, Capital Markets Branch, (202) 898-3575, 
      Kenton Fox, Senior Capital Markets Specialist, Capital Markets Branch, 
      (202) 898-7119, Division of Supervision and Consumer Protection; or 
      Michael B. Phillips, Counsel, (202) 898-3581, Supervision 
      and Legislation Branch, Legal Division, Federal Deposit Insurance Corporation, 
      550 17th Street, NW, Washington, DC 20429. OTS:  Michael D. Solomon, 
      Director, Capital Policy, Supervision Policy (202) 906-5654; David W. Riley, 
      Senior Analyst, Capital Policy (202) 906-6669; or Karen Osterloh, 
      Special Counsel, Regulations and Legislation Division (202) 906-6639, 
      Office of Thrift Supervision, 1700 G Street, NW, Washington, DC 
      20552.
     Introduction
      Background
         Conceptual Overview
            The IRB framework for credit risk
               The AMA for operational riskOverview of Proposed Rule
         Structure of Proposed Rule
         Quantitative Impact Study 4 and Overall Capital Objectives
            Quantitative Impact Study 4
               Overall capital objectivesCompetitive ConsiderationsScope
   	 Core and Opt-In Banks
         U.S. Depository Institution Subsidiaries of Foreign Banks
         Reservation of Authority

   Qualification
      The Qualification Process
            In general
               Parallel run and transitional floor periodsQualification Requirements
            Process and systems requirements
               Risk rating and segmentation systems for wholesale and retail exposures 
                  Wholesale exposures
                     Retail exposures
                     Definition of default
                     Rating philosophy
                     Rating and segmentation reviews and updates
               Quantification of risk parameters for wholesale and retail 
                  exposures 
                  Probability of default (PD)
                     Loss given default (LGD) and expected 
                        loss given default (ELGD)
                     Exposure at default (EAD)
                     General quantification principles
               Optional approaches that require prior supervisory approval
               Operational risk 
                  Operational risk data and assessment system
                     Operational risk quantification system
               Data management and maintenance
               Control and oversight mechanisms 
                  Validation
                     Internal audit
                     Stress testing
               DocumentationOngoing QualificationCalculation of Tier 1 Capital and Total Qualifying 
      Capital
   Calculation of Risk-Weighted Assets
      Categorization of Exposures
            Wholesale exposures
               Retail exposures
               Securitization exposures
               Equity exposures
               Boundary between operational risk and other risks
               Boundary between the proposed rule and the market 
                  risk amendmentRisk-Weighted Assets for General Credit Risk (Wholesale Exposures, 
            Retail Exposures, On-Balance Sheet Assets that are not Defined by 
            Exposure Category, and Immaterial Credit Exposures)
            Phase 1  Categorization of exposures
               Phase 2  Assignment of wholesale obligors and exposures 
                  to rating grades and retail exposures to segments 
                  Purchased wholesale receivables
                     Wholesale lease residuals
               Phase 3  Assignment of risk parameters to wholesale 
                  obligors and exposures and retail segments
               Phase 4  Calculation of risk-weighted assets
               Statutory provisions on the regulatory capital 
                  treatment of certain mortgage loansCredit Risk Mitigation Techniques
            Collateral
               EAD for counterparty credit risk 
                  EAD for repo-style transactions and eligible 
                        margin loans
                     Collateral haircut approach
                     Standard supervisory haircuts
                     Own estimates of haircuts
                     Simple VaR methodology
               EAD for OTC derivative contracts 
                  Current exposure methodology
               Internal models methodology 
                  Maturity under the internal models methodology
                     Collateral agreements under the internal 
                        models methodology
                     Internal estimate of alpha
                     Alternative models
               Guarantees and credit derivatives that cover wholesale exposures 
                  Eligible guarantees and eligible credit 
                        derivatives
                     PD substitution approach
                     LGD adjustment approach
                     Maturity mismatch haircut
                     Restructuring haircut
                     Currency mismatch haircut
                     Example
                     Multiple credit risk mitigants
                     Double default treatment
               Guarantees and credit derivatives that cover 
                  retail exposuresUnsettled Securities, Foreign Exchange, and Commodity Transactions
         Securitization Exposures 
            Hierarchy of approaches 
                  Exceptions to the general hierarchy of 
                        approaches
                     Servicer cash advances
                     Amount of a securitization exposure
                     Implicit support
                     Operational requirements for traditional 
                        securitizations
                     Clean-up calls
               Ratings-based approach (RBA)
               Internal assessment approach (IAA)
               Supervisory formula approach (SFA) 
                  General requirements
                     Inputs to the SFA formula
               Eligible disruption liquidity facilities
               Credit risk mitigation for securitization exposures
               Synthetic securitizations 
                  Background
                     Operational requirements for synthetic 
                        securitizations
                     First-loss tranches
                     Mezzanine tranches
                     Super-senior tranches
               Nth-to-default credit derivatives
               Early amortization provisions 
                  Background
                     Controlled early amortization
                     Noncontrolled early amortizationEquity Exposures
            Introduction and exposure measurement 
                  Hedge transactions
                     Measures of hedge effectiveness
               Simple risk-weight approach (SRWA) 
                  Non-significant equity exposures
               Internal models approach (IMA) 
                  IMA qualification
                     Risk-weighted assets under the IMA
               Equity exposures to investment funds 
                  Full look-through approach
                     Simple modified look-through approach
                     Alternative modified look-through approachOperational Risk
   Disclosure
         Overview 
               Comments on ANPR
            General requirements 
               Frequency/timeliness
                  Location of disclosures and audit/certification 
                     requirements
                  Proprietary and confidential information
            Summary of specific public disclosure requirements
            Regulatory reporting
   For simplicity, and unless otherwise indicated, 
      this notice of proposed rulemaking (NPR) uses the term "bank" 
      to include banks, savings associations, and bank holding companies (BHCs). 
      The terms "bank holding company" and "BHC" refer only 
      to bank holding companies regulated by the Board and do not include savings 
      and loan holding companies regulated by the OTS.  Return to text


Basel II Capital Accord Notice of Proposed Rulemaking (NPR)  Home Banking information and regulation  Accessibility Contact us  Last update: September 25, 2006