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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

(a) General. A [bank] that uses this appendix must make the same deductions       from its tier 1 capital and tier 2 capital required in [the general       risk-based capital rules], except that:

(1) A [bank] is not required to deduct certain equity investments and CEIOs       (as explained in more detail in section 12); and 

(2) A [bank] also must make the deductions from capital required by paragraphs (b) and (c) of this section. 

(b) Deductions from tier 1 capital. A [bank] must deduct from       tier 1 capital any gain-on-sale associated with a securitization exposure       as provided in paragraph (a) of section 41 and paragraphs (a)(1),       (c), (g)(1), and (h)(1) of section 42.

(c) Deductions from tier 1 and tier 2 capital. A [bank]       must deduct the following exposures 50 percent from tier 1 capital       and 50 percent from tier 2 capital. If the amount deductible       from tier 2 capital exceeds the [bank]�s actual tier 2 capital,       however, the [bank] must deduct the shortfall amount from tier 1 capital.

(1) Credit-enhancing interest-only strips (CEIOs). In accordance       with paragraphs (a)(1) and (c) of section 42, any CEIO that       does not constitute gain-on-sale. 

(2) Non-qualifying securitization exposures. In accordance with       paragraphs (a)(4) and (c) of section 42, any securitization exposure       that does not qualify for the Ratings-Based Approach, Internal Assessment       Approach, or the Supervisory Formula Approach under sections 43, 44,       and 45, respectively. 

(3) Securitizations of non-IRB exposures. In accordance with paragraphs (c)       and (g)(3) of section 42, certain exposures to a securitization       any underlying exposure of which is not a wholesale exposure, retail exposure,       securitization exposure, or equity exposure. 

(4) Low-rated securitization exposures. In accordance with section 43       and paragraph (c) of section 42, any securitization exposure       that qualifies for and must be deducted under the Ratings-Based Approach.

(5) High-risk securitization exposures subject to the Supervisory Formula       Approach. In accordance with paragraph (b) of section 45 and paragraph (c)       of section 42, any securitization exposure that qualifies for the       Supervisory Formula Approach and has a risk weight equal to 1,250 percent       as calculated under the Supervisory Formula Approach.

(6) Eligible credit reserves shortfall. In accordance with paragraph (a)(1)       of section 13, any eligible credit reserves shortfall.

(7) Certain failed capital markets transactions. In accordance with       paragraph (e)(3) of section 35, the [bank]�s exposure on certain       failed capital markets transactions.

(a) Deduction of CEIOs. A [bank] is not required to make the deductions       from capital for CEIOs in 12 CFR part 3, Appendix A, � 2(c) (for national banks), 12 CFR part 208, Appendix A, � II.B.1.e. (for state member banks), 12 CFR part 225, Appendix A, � II.B.1.e. (for bank holding companies), 12 CFR part 325, Appendix A, � II.B.5. (for state nonmember banks), and 12 CFR 567.5(a)(2)(iii) and 567.12(e) (for savings associations).

(b) Deduction of certain equity investments. A [bank] is not required       to make the deductions from capital for nonfinancial equity investments       in 12 CFR part 3, Appendix A, � 2(c) (for national banks), 12 CFR part 208, Appendix A, � II.B.5. (for state member banks), 12 CFR part 225, Appendix A, � II.B.5. (for bank holding companies), and 12 CFR part 325, Appendix A, � II.B. (for state nonmember banks).

(a) Comparison of eligible credit reserves to expected credit losses       - (1) Shortfall of eligible credit reserves. If a [bank]�s eligible       credit reserves are less than the [bank]�s total expected credit losses,       the [bank] must deduct the shortfall amount 50 percent from tier 1       capital and 50 percent from tier 2 capital. If the amount deductible       from tier 2 capital exceeds the [bank]�s actual tier 2 capital,       the [bank] must deduct the excess amount from tier 1 capital.

(2) Excess eligible credit reserves. If a [bank]�s eligible credit       reserves exceed the [bank]�s total expected credit losses, the [bank] may include       the excess amount in tier 2 capital to the extent that the excess       amount does not exceed 0.6 percent of the [bank]�s credit-risk-weighted       assets.

(b) Treatment of allowance for loan and lease losses. Regardless       of any provision to the contrary in [general risk-based capital rules],       ALLL is included in tier 2 capital only to the extent provided in       paragraph (a)(2) of this section and paragraph (b) of section 23.

Basel II Capital AccordNotice of Proposed Rulemaking (NPR)

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