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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

The agencies have identified three groups of banks: (i) large or internationally    active banks that would be required to adopt the advanced approaches in the    proposed rule (core banks); (ii) banks that voluntarily decide to adopt the    advanced approaches (opt-in banks); and (iii) banks that do not adopt the    advanced approaches (general banks). Each core and opt-in bank would be required    to meet certain qualification requirements to the satisfaction of its primary    Federal supervisor, in consultation with other relevant supervisors, before    the bank may use the advanced approaches for risk-based capital purposes.

Pillar I of the New Accord requires all banks subject to the New Accord to    calculate capital requirements for exposure to both credit risk and operational    risk.  The New Accord provides a bank three approaches to calculate its credit    risk capital requirement and three approaches to calculate its operational risk    capital requirement.  Outside the United States, countries that are replacing    Basel I with the New Accord generally have required all banks to comply with    the New Accord, but have provided banks the option of choosing among the New    Accord�s various approaches for calculating credit risk and operational risk    capital requirements.20   For banks in the United States,    the NPR, like the ANPR,    takes a different approach.  It would not subject all U.S. banks to the New    Accord, but instead focuses on only the largest and most internationally active    banks.  Due to the size and complexity of these banks, the NPR would require    core banks to comply with the most advanced approaches for calculating credit    and operational risk capital requirements � that is, the IRB and the AMA.  In    addition, the NPR would allow other U.S. banks to �opt in� to Basel II-based    rules, but, as with core banks, the only Basel II-based rules available to U.S.    �opt-in� banks would be the New Accord�s most advanced approaches.     Question 7:  The agencies request comment on whether U.S. banks subject to    the advanced approaches in the proposed rule (that is, core banks and opt-in    banks) should be permitted to use other credit and operational risk approaches    similar to those provided under the New Accord.  With respect to the credit    risk capital requirement, the agencies request comment on whether banks should    be provided the option of using a U.S. version of the so-called �standardized    approach� of the New Accord and on the appropriate length of time for such an    option.

A DI is a core bank if it meets either of two independent threshold criteria:    (i) consolidated total assets of $250 billion or more, as reported    on the most recent year-end regulatory reports; or (ii) consolidated    total on-balance sheet foreign exposure of $10 billion or more at the    most recent year-end. To determine total on-balance sheet foreign exposure,    a bank would sum its adjusted cross-border claims, local country claims, and    cross-border revaluation gains (calculated in accordance with the Federal    Financial Institutions Examination Council (FFIEC) Country Exposure Report    (FFIEC 009)). Adjusted cross-border claims would equal total cross-border    claims less claims with the head office/guarantor located in another country,    plus redistributed guaranteed amounts to the country of head office/guarantor.    A DI also is a core bank if it is a subsidiary of another DI or BHC that uses    the advanced approaches. 

Under the proposed rule, a U.S.-chartered BHC21    is a core bank if the BHC has: (i) consolidated total assets (excluding    assets held by an insurance underwriting subsidiary) of $250 billion    or more, as reported on the most recent year-end regulatory reports; (ii) consolidated    total on-balance sheet foreign exposure of $10 billion or more at the    most recent year-end; or (iii) a subsidiary DI that is a core bank or    opt-in bank. Currently 11 top-tier banking organizations meet these criteria.    The agencies note that, using this approach to define whether a BHC is a core    bank, it is possible that no single DI under a BHC would meet the threshold    criteria, but that all of the BHC's subsidiary DIs would be core banks.

The proposed BHC consolidated asset threshold is different from the threshold    in the ANPR, which applied to the total consolidated DI assets of a BHC. The    proposed shift to total consolidated assets (excluding assets held by an insurance    underwriting subsidiary) recognizes that BHCs can hold similar assets within    and outside of DIs and reduces potential incentives to structure BHC assets    and activities to arbitrage capital regulations. The proposed rule excludes    assets held in an insurance underwriting subsidiary of a BHC because the New    Accord was not designed to address insurance company exposures. Question 8A:    The Board seeks comment on the proposed BHC consolidated non-insurance assets    threshold relative to the consolidated DI assets threshold in the ANPR.

A bank that is subject to the proposed rule either as a core bank or as an    opt-in bank would be required to apply the rule unless its primary Federal    supervisor determines in writing that application of the rule is not appropriate    in light of the bank's asset size, level of complexity, risk profile, or scope    of operations. Question 8B: The agencies seek comment on the proposed    scope of application. In particular, the agencies seek comment on the regulatory    burden of a framework that requires the advanced approaches to be implemented    by each subsidiary DI of a BHC or bank that uses the advanced approaches.

Any U.S.-chartered DI that is a subsidiary of a foreign banking organization    is subject to the U.S. regulatory capital requirements applied to domestically-owned    U.S. DIs. Thus, if the U.S. DI subsidiary of a foreign banking organization    meets any of the threshold criteria, it would be a core bank and would be    subject to the advanced approaches. If it does not meet any of the criteria,    the U.S. DI may remain a general bank or may opt-in to the advanced approaches,    subject to the same qualification process and requirements as a domestically-owned    U.S. DI. A top-tier U.S. BHC, and its subsidiary DIs, that is owned by a foreign    banking organization also would be subject to the same threshold levels for    core bank determination as would a top-tier BHC that is not owned by a foreign    banking organization. A U.S. BHC that meets the conditions in Federal Reserve    SR letter 01-0122    and is a core bank would not be required to meet the minimum capital ratios    in the Board's capital adequacy guidelines, although it would be required    to adopt the advanced approaches, compute and report its capital ratios in    accordance with the advanced approaches, and make the required public and    regulatory disclosures. 

A DI subsidiary of such a U.S. BHC would be a core bank and would be required    to adopt the advanced approaches (unless specifically exempted from the advanced    approaches by its primary Federal supervisor) and meet the minimum capital    ratio requirements. In addition, the Board retains its supervisory authority    to require any BHC, including a U.S. BHC owned or controlled by a foreign    banking organization that is or is treated as a financial holding company (FHC),    to maintain capital levels above the regulatory minimums. Question 9:    The agencies seek comment on the application of the proposed rule to DI subsidiaries    of a U.S. BHC that meets the conditions in Federal Reserve SR letter 01-01    and on the principle of national treatment in this context.

The proposed rule would restate the authority of a bank's primary Federal    supervisor to require the bank to hold an overall amount of capital greater    than would otherwise be required under the rule if the agency determines that    the bank's risk-based capital requirements under the rule are not commensurate    with the bank's credit, market, operational, or other risks. In addition,    the agencies anticipate that there may be instances when the proposed rule    generates a risk-weighted asset amount for specific exposures that is not    commensurate with the risks posed by such exposures. In these cases, under    the proposed rule, the bank's primary Federal supervisor would retain the    authority to require the bank to use a different risk-weighted asset amount    for the exposures or to use different risk parameters (for wholesale or retail    exposures) or model assumptions (for modeled equity or securitization exposures)    than those required in the proposed rule when calculating the risk-weighted    asset amount for those exposures. Similarly, the proposed rule would provide    authority for a bank's primary Federal supervisor to require the bank to assign    a different risk-weighted asset amount for operational risk, to change elements    of its operational risk analytical framework (including distributional and    dependence assumptions), or to make other changes to the bank's operational    risk management processes, data and assessment systems, or quantification    systems if the supervisor finds that the risk-weighted asset amount for operational    risk produced by the bank under the rule is not commensurate with the operational    risks of the bank. Any agency that exercises this reservation of authority    would notify each of the other agencies of its determination.

 

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    -  Despite the options provided in national legislation       and rules, most non-U.S. banks comparable in size and complexity to U.S. core       banks are adopting some form of the advanced approaches.  For example, based on       currently available information, the vast majority of large,       internationally-active banks based outside of the United States plan to employ       an internal ratings-based approach in the calculation of credit risk capital       requirements.   Return to text
    -  OTS does not currently impose any explicit capital       requirements on savings and loan holding companies and does not propose       to apply the Basel II proposal to these holding companies.   Return to text
    -  SR 01-01, "Application of the Board's       Capital Adequacy Guidelines to Bank Holding Companies Owned by Foreign       Banking Organizations," January 5, 2001.   Return to text

Basel II Capital AccordNotice of Proposed Rulemaking (NPR)

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