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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/OTS Executive Order 12866

OCC/OTS Unfunded Mandates Reform Act of 1995 Determination

List of Subjects

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

Printable version (2,346 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 ##–## 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–[____], 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 17 th  Street, NW,          Washington, D.C. 20429.
      - Hand Delivery/Courier:  Guard station at rear of the 550 17 th  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 and photocopied          in the FDIC Public Information Center, Room 100, 801 17 th  Street, NW,          Washington, DC, between 9 a.m. and 4:30 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. 2005–XX, 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. 2005–XX 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. 2005–XX. 
      - 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. 2005–XX.

*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 risk 
      - Overview of Proposed Rule 
      - Structure of Proposed Rule 
      - Quantitative Impact Study 4 and Overall Capital Objectives                      - Quantitative Impact Study 4 
        - Overall capital objectives 
      - Competitive Considerations 
    - Scope        - Core and Opt-In Banks 
      - U.S. Bank Subsidiaries of Foreign Banks 
      - Reservation of Authority 
    - Qualification        - The Qualification Process                      - In general
        - Parallel run and transitional floor periods 
      - Qualification 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 
        - Documentation 
      - Ongoing Qualification 
    - Calculation 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 amendment 
      - Risk-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 loans 
      - Credit 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 exposures 
      - Unsettled 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 
        - N th -to-default credit derivatives
        - Early amortization provisions                              - Background 
          - Controlled early amortization 
          - Noncontrolled early amortization 
      - Equity 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 approach 
    - Operational 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
 

 

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    -  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 AccordNotice of Proposed Rulemaking (NPR) and Supporting Board Documents

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