66042 Federal Register / Vol. 60, No. 244 / Wednesday, December 20, 1995 / Rules and Regulations

1The Basle Accord was proposed by the Basle

Committee, which comprises representatives of the

central banks and supervisory authorities from the

G–10 countries (Belgium, Canada, France, Germany,

Italy, Japan, the Netherlands, Sweden, Switzerland,

the United Kingdom, and the United States) and

Luxembourg.

2The OECD is an international organization of

countries which are committed to market-oriented

economic policies, including the promotion of

private enterprise and free market prices; liberal

trade policies; and the absence of exchange

controls. Full members of the OECD at the time the

Basle Accord was endorsed included Australia,

Austria, Belgium, Canada, Denmark, Finland,

France, Germany, Greece, Iceland, Ireland, Italy,

Japan, Luxembourg, the Netherlands, New Zealand,

Norway, Portugal, Spain, Sweden, Switzerland,

Turkey, the United Kingdom, and the United States.

In May 1994, Mexico was accepted as a full member

of the OECD. In addition, Saudi Arabia has

concluded special lending arrangements associated

with the IMF’s General Arrangements to Borrow.

DEPARTMENT OF THE TREASURY

Office of the Comptroller of the

Currency

12 CFR Part 3

[Docket No. 95–28]

RIN 1557–AB14

FEDERAL RESERVE SYSTEM

12 CFR Parts 208 and 225

[Regulations H and Y; Docket No. R–0849]

FEDERAL DEPOSIT INSURANCE

CORPORATION

12 CFR Part 325

RIN 3064–AB54

Capital; Capital Adequacy Guidelines

AGENCIES: Office of the Comptroller of

the Currency (OCC), Treasury; Board of

Governors of the Federal Reserve

System (Board); and Federal Deposit

Insurance Corporation (FDIC).

ACTION: Joint final rule.

SUMMARY: The OCC, Board, and the

FDIC (Agencies) are amending their

respective risk-based capital guidelines

to modify the definition of the OECDbased group of countries. The

amendment excludes from the OECDbased group of countries any country

that has rescheduled its external

sovereign debt within the previous five

years. The amendment also clarifies that

the OECD-based group of countries

includes all countries that are members

of the OECD, regardless of their date of

entry into the OECD. The effect of the

amendment would be to increase the

amount of capital that banks are

required to hold against claims on the

governments and banks of an OECD

country, in the event that the country

were to reschedule its external

sovereign debt. This action is being

taken to conform with a change in the

Basle Accord on risk-based capital that

was adopted by the Basle Committee on

Banking Supervision (Basle Committee)

on April 15, 1995.

EFFECTIVE DATE: April 1, 1996.

FOR FURTHER INFORMATION CONTACT:

OCC: Geoffrey White, Senior

International Economic Advisor,

International Banking and Finance

Department, (202) 874–5235; Saumya

Bhavsar, Attorney, Legislative and

Regulatory Activities Division, (202)

874–5090; Ronald Shimabukuro, Senior

Attorney, Legislative and Regulatory

Activities Division, (202) 874–5090; or

Roger Tufts, Senior Economic Advisor,

Office of the Chief National Bank

Examiner, (202) 874–5070; Office of the

Comptroller of the Currency, 250 E

Street, SW., Washington, DC 20219.

Board: Roger Cole, Deputy Associate

Director, (202) 452–2618; Norah Barger,

Manager, (202) 452–2402; Robert

Motyka, Supervisory Financial Analyst,

(202) 452–3621; Division of Banking

Supervision and Regulation; or Greg

Baer, Managing Senior Counsel, Legal

Division, (202) 452–3236; Board of

Governors of the Federal Reserve

System, 20th Street and Constitution

Avenue, NW., Washington, DC 20551.

For the hearing impaired only,

Telecommunication Device for the Deaf,

Dorothea Thompson, (202) 452–3544.

FDIC: For supervisory purposes,

Stephen G. Pfeifer, Examination

Specialist, Accounting Section, Division

of Supervision, (202) 898–8904; for legal

purposes, Dirck A. Hargraves, Attorney,

Legal Division, (202) 898–7049; Federal

Deposit Insurance Corporation, 550 17th

Street, NW., Washington, DC 20429.

SUPPLEMENTARY INFORMATION:

I. Background

In 1988, the central bank governors of

the Group of Ten (G–10) countries

endorsed a framework for international

risk-based capital guidelines entitled

‘‘International Convergence of Capital

Measurement and Capital Standards’’

(commonly referred to as the Basle

Accord).1 Under the framework, riskweighted assets are calculated by

assigning assets and off-balance-sheet

items to broad categories based

primarily on their credit risk: that is, the

risk that a banking organization will

incur a loss due to an obligor or

counterparty default on a transaction.

Risk weights range from zero percent,

for assets with minimal credit risk (such

as U.S. Treasury securities), to 100

percent, which is the risk weight that

applies to most private sector claims,

including commercial loans. In 1989,

the Agencies adopted risk-based capital

guidelines implementing the Basle

Accord for the banking organizations

they supervise.

While the Basle Accord focuses

primarily on credit risk, it also

incorporates country transfer risk

considerations. Transfer risk generally

refers to the possibility that an asset

cannot be serviced in the currency of

payment because of a lack of, or

restraints on, the availability of needed

foreign exchange in the country of the

obligor.

In addressing transfer risk, the Basle

Committee members examined several

methods for assigning obligations of

foreign countries to the various risk

categories. Ultimately, the Basle

Committee decided to use a defined

group of countries considered to be of

high credit standing as the basis for

differentiating claims on foreign

governments and banks. For this

purpose, the Basle Committee

determined this group to be the full

members of the Organization for

Economic Cooperation and

Development (OECD), as well as

countries that have concluded special

lending arrangements with the

International Monetary Fund (IMF)

associated with the IMF’s General

Arrangements to Borrow.2 These

countries, referred to in the Agencies’

risk-based capital guidelines as the

OECD-based group of countries,

encompass most of the world’s major

industrial countries, including all

members of the G–10 and the European

Union.

Under both the Basle Accord and the

Agencies’ risk-based capital guidelines,

claims on the governments and banks of

the OECD-based group of countries

generally receive lower risk weights

than corresponding claims on the

governments and banks of non-OECD

countries. Specifically, the Agencies’

guidelines provide for the following

treatment:

• Direct claims on, and the portions

of claims that are directly and

unconditionally guaranteed by, OECDbased central governments (including

central banks) are assigned to the zero

percent risk weight category.

Corresponding claims on the central

government of a country outside the

OECD-based group are assigned to the

zero percent risk weight category only to

the extent that the claims are

denominated in the local currency and

the bank has local currency liabilities in

that country.

• Claims conditionally guaranteed by

OECD-based central governments and
Federal Register / Vol. 60, No. 244 / Wednesday, December 20, 1995 / Rules and Regulations 66043

claims collateralized by securities

issued or guaranteed by OECD-based

central governments generally are

assigned to the 20 percent risk weight

category. The same types of claims on

non-OECD countries are assigned to the

100 percent risk category.

• Long-term claims on non-OECD

banks are assigned to the 100 percent

risk category, rather than to the 20

percent risk category accorded to longterm claims on OECD banks. (Short-term

claims on all banks are assigned to the

20 percent risk weight category.)

• General obligation bonds that are

obligations of states or other political

subdivisions of the OECD-based group

of countries are assigned to the 20

percent risk category. Revenue bonds of

such political subdivisions are assigned

to the 50 percent risk category. General

obligation and revenue bonds of

political subdivisions of non-OECD

countries are assigned to the 100

percent risk category.

Recently, the OECD has taken steps to

expand its membership. In light of these

steps, the Basle Committee was urged to

clarify an ambiguity in the Basle Accord

as to whether the OECD members

qualifying for the lower risk weights

include only those members that were

members of the OECD when the Basle

Accord was endorsed in 1988, or all

members, regardless of their date of

entry into the OECD. The Basle

Committee also reviewed the overall

appropriateness of the criteria the Basle

Accord uses to determine whether

claims on a foreign government or bank

qualify for placement in a lower risk

category. As part of this review, the

Basle Committee reassessed whether

membership in the OECD (or the

conclusion of special lending

arrangements with the IMF) would, by

itself, be sufficient to ensure that only

countries with relatively low transfer

risk would qualify for lower risk weight

treatment.

On July 15, 1994, the Basle Committee

clarified that the reference in the Basle

Accord to OECD members applies to all

current members of the organization.

The Basle Committee also stated its

intention, subject to national

consultation, to amend the definition of

the OECD-based group of countries in

the Basle Accord in order to exclude

from lower risk weight treatment any

country within the OECD-based group

of countries that had rescheduled its

external sovereign debt within the

previous five years. The Basle

Committee adopted this change in the

definition of the OECD-based group of

countries on April 15, 1995.

On October 14, 1994, the Board and

the OCC published a joint notice of

proposed rulemaking (59 FR 52100) to

make corresponding changes in the

definition of the OECD-based group of

countries in their risk-based capital

guidelines. The FDIC published a

similar proposal on February 15, 1995

(60 FR 8582). Under the Agencies’

proposals, the OECD-based group of

countries would continue to include

countries that are full members of the

OECD, regardless of entry date, as well

as countries that have concluded special

lending arrangements with the IMF

associated with the IMF’s General

Arrangements to Borrow, but would

exclude any country within this group

that had rescheduled its external

sovereign debt within the previous five

years. The purpose of the proposed

modification was to clarify that

membership in the OECD-based group

of countries must coincide with

relatively low transfer risk in order for

a country to qualify for the lower riskweight treatment.

Under the proposals, reschedulings of

external sovereign debt generally would

include renegotiations of terms arising

from a country’s inability or

unwillingness to meet its external debt

service obligations. The proposals

further provided that renegotiations of

debt in the normal course of business

generally would not indicate transfer

risk of the kind that would preclude an

OECD-based country from qualifying for

lower risk weight treatment.

The Agencies invited comment on all

aspects of the proposal.

II. Comments Received

The OCC and the Board together

received two public comments on their

proposal. (The FDIC did not receive any

comments.) One commenter was a

regional banking organization that

generally supported the proposal. The

other was a clearinghouse that opposed

the proposal.

The banking organization agreed that

OECD membership alone is not

sufficient to ensure that only countries

with relatively low transfer risk qualify

for lower risk weight treatment, and it

supported the additional criterion as

providing a good indication of a higher

level of transfer risk. The banking

organization suggested that the

definition should be further revised to

exclude newly-formed countries, whose

willingness and ability to meet their

debt obligations were unproven, for a

period of five years. The Agencies did

not adopt this suggestion, because the

process of admitting countries to the

OECD is lengthy enough that the fiveyear waiting period recommended by

the commenter would have little

practical effect.

The clearinghouse viewed the current

criteria as adequate and commented that

adding another criterion would increase

the complexity of and confusion about

the risk-based capital guidelines.

Although the Agencies agree with the

commenter on the need to minimize the

complexity of the risk-based capital

guidelines, the Agencies do not believe

that this rule will increase their

complexity significantly, particularly

since reschedulings by OECD countries

tend to be extremely rare. Until a

rescheduling occurs, the change in the

definition will not have any effect on

the assignment of assets to risk-weight

categories, and thus will have little or

no effect on banks.

III. Final Rule

After carefully considering the

comments received and deliberating

further on the issues involved, the

Agencies are adopting a final rule that

amends the definition of the OECDbased group of countries in their riskbased capital guidelines substantially as

proposed.

Under the final rule, the OECD-based

group of countries continues to include

countries that are full members of the

OECD, regardless of entry date, as well

as countries that have concluded special

lending arrangements with the IMF

associated with the IMF’s General

Arrangements to Borrow, but excludes

any country within this group that has

rescheduled its external sovereign debt

within the previous five years.

For purposes of this final rule, an

event of rescheduling of external

sovereign debt generally would include

renegotiations of terms arising from a

country’s inability or unwillingness to

meet its external debt service

obligations. Renegotiations of debt in

the normal course of business generally

do not indicate transfer risk of the kind

that would preclude an OECD-based

country from qualifying for lower risk

weight treatment. One example of such

a routine renegotiation would be a

renegotiation to allow the borrower to

take advantage of a change in market

conditions, such as a decline in interest

rates.

This distinction between

renegotiations arising from a country’s

inability or unwillingness to meet its

external debt service obligations and

renegotiations that reflect a change in

market conditions was discussed in the

preambles of the Agencies’ notices of

proposed rulemaking but was not

included in the regulatory text. In order

to clarify the meaning of the final rule,

the Agencies are including language to

this effect in the text of the final rule.
66044 Federal Register / Vol. 60, No. 244 / Wednesday, December 20, 1995 / Rules and Regulations

1As of November 1995, the OECD included the

following countries: Australia, Austria, Belgium,

Canada, Denmark, Finland, France, Germany,

Greece, Iceland, Ireland, Italy, Japan, Luxembourg,

Mexico, the Netherlands, New Zealand, Norway,

Portugal, Spain, Sweden, Switzerland, Turkey, the

United Kingdom, and the United States; and Saudi

Arabia had concluded special lending arrangements

with the IMF associated with the IMF’s General

Arrangements to Borrow.

IV. Regulatory Flexibility Act Analysis

The Agencies hereby certify that this

final rule will not have a significant

economic impact on a substantial

number of small business entities (in

this case, small banking organizations),

in accord with the spirit and purposes

of the Regulatory Flexibility Act (5

U.S.C. 601 et seq.). The impact on

institutions regulated by the Agencies,

regardless of their size, will be minimal.

In addition, because the risk-based

capital guidelines generally do not

apply to bank holding companies with

consolidated assets of less than $150

million, this proposal will not affect

such companies. Accordingly, no

regulatory flexibility analysis is

required.

V. Paperwork Reduction Act and

Regulatory Burden

The Agencies have determined that

this final rule will not increase the

regulatory paperwork burden of banking

organizations pursuant to the provisions

of the Paperwork Reduction Act (44

U.S.C. 3501 et seq.).

Section 302 of the Riegle Community

Development and Regulatory

Improvement Act of 1994 (Pub. L. 103–

325, 108 Stat. 2160) provides that the

Agencies must consider the

administrative burdens and benefits of

any new regulations that impose

additional requirements on insured

depository institutions. Section 302 also

requires such a rule to take effect on the

first day of the calendar quarter

following final publication of the rule,

unless the agency, for good cause,

determines an earlier effective date is

appropriate. This final rule is effective

on April 1, 1996.

VI. OCC Statement on Executive Order

12866

The OCC has determined that this

final rule is not a significant regulatory

action, as that term is defined by

Executive Order 12866.

VII. OCC Statement on Unfunded

Mandates Act of 1995

Section 202 of the Unfunded

Mandates Reform Act of 1995, Pub. L.

104–4 (Unfunded Mandates Act), signed

into law on March 22, 1995, requires

that an agency prepare a budgetary

impact statement before promulgating a

rule that includes a Federal mandate

that may result in expenditure by State,

local, and tribal governments, in the

aggregate, or by the private sector, of

$100 million or more in any one year.

If a budgetary impact statement is

required, section 205 of the Unfunded

Mandates Act also requires an agency to

identify and consider a reasonable

number of regulatory alternatives before

promulgating a rule. The OCC has

determined that this final rule will not

result in expenditures by State, local,

and tribal governments, or by the

private sector, of $100 million or more

in any one year. Accordingly, the OCC

has not prepared a budgetary impact

statement or specifically addressed the

regulatory alternatives considered.

List of Subjects

12 CFR Part 3

Administrative practice and

procedure, Capital, National banks,

Reporting and recordkeeping

requirements, Risk.

12 CFR Part 208

Accounting, Agriculture, Banks,

banking, Confidential business

information, Crime, Currency, Federal

Reserve System, Flood insurance,

Mortgages, Reporting and recordkeeping

requirements, Securities.

12 CFR Part 225

Administrative practice and

procedure, Banks, banking, Federal

Reserve System, Holding companies,

Reporting and recordkeeping

requirements, Securities.

12 CFR Part 325

Bank deposit insurance, Banks,

banking, Capital adequacy, Reporting

and recordkeeping requirements,

Savings associations, State nonmember

banks.

Authority and Issuance

OFFICE OF THE COMPTROLLER OF THE

CURRENCY

12 CFR CHAPTER I

For the reasons set out in the joint

preamble, Appendix A to part 3 of title

12, chapter I of the Code of Federal

Regulations is amended as set forth

below.

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), 1831n note, 1835, 3907, and 3909.

2. In section 1 of appendix A to part

3, footnote 1 in paragraph (c)(19) is

redesignated as footnote 1a.

3. In section 1 of appendix A to part

3, paragraph (c)(16) is revised to read as

follows:

Appendix A to Part 3—Risk-Based

Capital Guidelines

Section 1. Purpose, Applicability of

Guidelines, and Definitions.

* * * * * *

(c) * * *

(16) The OECD-based group of countries

comprises all full members of the

Organization for Economic Cooperation and

Development (OECD) regardless of entry

date, as well as countries that have

concluded special lending arrangements with

the International Monetary Fund (IMF)

associated with the IMF’s General

Arrangements to Borrow,1 but excludes any

country that has rescheduled its external

sovereign debt within the previous five years.

These countries are hereinafter referred to as

OECD countries. A rescheduling of external

sovereign debt generally would include any

renegotiation of terms arising from a

country’s inability or unwillingness to meet

its external debt service obligations, but

generally would not include renegotiations of

debt in the normal course of business, such

as a renegotiation to allow the borrower to

take advantage of a decline in interest rates

or other change in market conditions.

* * * * *

Dated: August 28, 1995.

Eugene A. Ludwig,

Comptroller of the Currency.

FEDERAL RESERVE SYSTEM

12 CFR CHAPTER II

For the reasons set forth in the joint

preamble, the Board of Governors of the

Federal Reserve System amends 12 CFR

parts 208 and 225 as set forth below:

PART 208—MEMBERSHIP OF STATE

BANKING INSTITUTIONS IN THE

FEDERAL RESERVE SYSTEM

(REGULATION H)

1. The authority citation for part 208

continues to read as follows:

Authority: 12 U.S.C. 36, 248(a), 248(c),

321–338a, 371d, 461, 481–486, 601, 611,

1814, 1823(j), 1828(o), 1831o, 1831p–1, 3105,

3310, 3331–3351, and 3906–3909; 15 U.S.C.

78b, 78l(b), 78l(g), 78l(i), 78o–4(c)(5), 78q,

78q–1, and 78w; 31 U.S.C. 5318; 42 U.S.C.

4102a, 4104a, 4104b, 4106, 4128.

2. Appendix A to part 208 is amended

by revising footnote 22 in section III.B.1.

to read as follows:

Appendix A to Part 208—Capital

Adequacy Guidelines for State Member

Banks: Risk-Based Measure

* * * * *

III. * * *

B. * * *

1. * * * 22* * *

* * * * * 22The OECD-based group of countries

comprises all full members of the
Federal Register / Vol. 60, No. 244 / Wednesday, December 20, 1995 / Rules and Regulations 66045

Organization for Economic Cooperation and

Development (OECD) regardless of entry

date, as well as countries that have

concluded special lending arrangements with

the International Monetary Fund (IMF)

associated with the IMF’s General

Arrangements to Borrow, but excludes any

country that has rescheduled its external

sovereign debt within the previous five years.

As of November 1995, the OECD included

the following countries: Australia, Austria,

Belgium, Canada, Denmark, Finland, France,

Germany, Greece, Iceland, Ireland, Italy,

Japan, Luxembourg, Mexico, the Netherlands,

New Zealand, Norway, Portugal, Spain,

Sweden, Switzerland, Turkey, the United

Kingdom, and the United States; and Saudi

Arabia had concluded special lending

arrangements with the IMF associated with

the IMF’s General Arrangements to Borrow.

A rescheduling of external sovereign debt

generally would include any renegotiation of

terms arising from a country’s inability or

unwillingness to meet its external debt

service obligations, but generally would not

include renegotiations of debt in the normal

course of business, such as a renegotiation to

allow the borrower to take advantage of a

decline in interest rates or other change in

market conditions.

* * * * *

PART 225—BANK HOLDING

COMPANIES AND CHANGE IN BANK

CONTROL (REGULATION Y)

1. 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),

1927(l), 3106, 3108, 3310, 3331–3351, 3907,

and 3909.

2. Appendix A to part 225 is amended

by revising footnote 25 in section III.B.1.

to read as follows:

Appendix A to Part 225—Capital

Adequacy Guidelines for Bank Holding

Companies: Risk-Based Measure

III. * * *

B. * * *

1. * * * 25 * * *

* * * * * 25The OECD-based group of countries

comprises all full members of the

Organization for Economic Cooperation and

Development (OECD) regardless of entry

date, as well as countries that have

concluded special lending arrangements with

the International Monetary Fund (IMF)

associated with the IMF’s General

Arrangements to Borrow, but excludes any

country that has rescheduled its external

sovereign debt within the previous five years.

As of November 1995, the OECD included

the following countries: Australia, Austria,

Belgium, Canada, Denmark, Finland, France,

Germany, Greece, Iceland, Ireland, Italy,

Japan, Luxembourg, Mexico, the Netherlands,

New Zealand, Norway, Portugal, Spain,

Sweden, Switzerland, Turkey, the United

Kingdom, and the United States; and Saudi

Arabia had concluded special lending

arrangements with the IMF associated with

the IMF’s General Arrangements to Borrow.

A rescheduling of external sovereign debt

generally would include any renegotiation of

terms arising from a country’s inability or

unwillingness to meet its external debt

service obligations, but generally would not

include renegotiations of debt in the normal

course of business, such as a renegotiation to

allow the borrower to take advantage of a

decline in interest rates or other change in

market conditions.

* * * * *

By the order of the Board of Governors of

the Federal Reserve System, November 13,

1995.

William W. Wiles,

Secretary of the Board.

FEDERAL DEPOSIT INSURANCE

CORPORATION

12 CFR CHAPTER III

For the reasons set forth in the joint

preamble, the Board of Directors of the

Federal Deposit Insurance Corporation

amends part 325 of title 12 of the Code

of Federal Regulations as follows:

PART 325—CAPITAL MAINTENANCE

1. 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, 2355, 2386 (12 U.S.C.

1828 note).

2. Appendix A to part 325 is amended

by revising footnote 12 in section II.B.2.

to read as follows:

Appendix A to Part 325—Statement of

Policy on Risk-Based Capital

* * * * *

II. * * *

B. * * *

2. * * *12 * * *

* * * * * 12The OECD-based group of countries

comprises all full members of the

Organization for Economic Cooperation and

Development (OECD) regardless of entry

date, as well as countries that have

concluded special lending arrangements with

the International Monetary Fund (IMF)

associated with the IMF’s General

Arrangements to Borrow, but excludes any

country that has rescheduled its external

sovereign debt within the previous five years.

As of November 1995, the OECD included

the following countries: Australia, Austria,

Belgium, Canada, Denmark, Finland, France,

Germany, Greece, Iceland, Ireland, Italy,

Japan, Luxembourg, Mexico, the Netherlands,

New Zealand, Norway, Portugal, Spain,

Sweden, Switzerland, Turkey, the United

Kingdom, and the United States; and Saudi

Arabia had concluded special lending

arrangements with the IMF associated with

the IMF’s General Arrangements to Borrow.

A rescheduling of external sovereign debt

generally would include any renegotiation of

terms arising from a country’s inability or

unwillingness to meet its external debt

service obligations, but generally would not

include renegotiations of debt in the normal

course of business, such as a renegotiation to

allow the borrower to take advantage of a

decline in interest rates or other change in

market conditions.

* * * * *

By order of the Board of Directors.

Dated at Washington, D.C. this 26th day of

October, 1995.

Federal Deposit Insurance Corporation.

Jerry L. Langley,

Executive Secretary.

[FR Doc. 95–30664 Filed 12–19–95; 8:45 am]

BILLING CODE 4810–33–P; 6210–01–P; 6714–01–P