This section of the FEDERAL REGISTER

contains regulatory documents having general

applicability and legal effect, most of which

are keyed to and codified in the Code of

Federal Regulations, which is published under

50 titles pursuant to 44 U.S.C. 1510.

The Code of Federal Regulations is sold by

the Superintendent of Documents. Prices of

new books are listed in the first FEDERAL

REGISTER issue of each week.

Rules and Regulations Federal Register

70427 

Vol. 79, No. 228 

Wednesday, November 26, 2014 

1 79 FR 42698 (July 23, 2014). 

2 12 U.S.C. 1817(b), Pub. L. 102–242, 105 Stat. 

2236 (1991). 

3The FDIC first published a transitional rule that 

provided the industry guidance during the period 

of transition from a uniform rate to a risk-based 

assessment system. 57 FR 45263 (Oct. 1, 1992). The 

FDIC established the new risk-based assessment 

system, which became effective on January 1, 1994, 

to replace the transitional rule. 58 FR 34357 (June 

25, 1993); 12 CFR 327.3 (1993). 

4This final rule, issued by the FDIC, OCC, 

Federal Reserve, and OTS, in part, established 

capital ratios and ratio thresholds for the five 

capital categories for purposes of the PCA rules: 

Well capitalized, adequately capitalized, 

undercapitalized, significantly undercapitalized, 

and critically undercapitalized. 57 FR 44866 (Sept. 

29, 1992). The risk-based assessment system does 

not use the two lowest capital categories 

(significantly undercapitalized and critically 

undercapitalized) under the PCA rules. For 

assessment purposes, banks that would be in one 

of these capital categories are treated as 

undercapitalized. 

FEDERAL DEPOSIT INSURANCE 

CORPORATION 

12 CFR Part 327 

RIN 3064–AE16 

Assessments 

AGENCY: Federal Deposit Insurance 

Corporation (FDIC). 

ACTION: Final rule. 

SUMMARY: The FDIC is amending its 

regulations to revise the ratios and ratio 

thresholds for capital evaluations used 

in its risk-based deposit insurance 

assessment system to conform to the 

prompt corrective action capital (PCA) 

ratios and ratio thresholds adopted by 

the FDIC, the Board of Governors of the 

Federal Reserve System (Federal 

Reserve) and the Office of the 

Comptroller of the Currency (OCC) 

(collectively, the Federal banking 

agencies); revise the assessment base 

calculation for custodial banks to 

conform to the asset risk weights 

adopted by the Federal banking 

agencies; and require all highly complex 

institutions to measure counterparty 

exposure for deposit insurance 

assessment purposes using the Basel III 

standardized approach credit equivalent 

amount for derivatives (with 

modifications for certain cash collateral) 

and the Basel III standardized approach 

exposure amount for securities 

financing transactions—such as repostyle transactions, margin loans and 

similar transactions—as adopted by the 

Federal banking agencies. 

DATES: Effective date: January 1, 2015, 

except for the amendment to § 327.9 

(amendatory instruction 5), which is 

effective January 1, 2018. 

Applicability date: The incorporation 

of the supplementary leverage ratio and 

corresponding ratio thresholds into the 

definition of capital evaluations is 

applicable January 1, 2018. 

FOR FURTHER INFORMATION CONTACT: 

Munsell St. Clair, Chief, Banking and 

Regulatory Policy Section, Division of 

Insurance and Research, (202) 898– 

8967; Ashley Mihalik, Senior Financial 

Economist, Banking and Regulatory 

Policy Section, Division of Insurance 

and Research, (202) 898–3793; Nefretete 

Smith, Senior Attorney, Legal Division, 

(202) 898–6851; Tanya Otsuka, Senior 

Attorney, Legal Division, (202) 898– 

6816. 

SUPPLEMENTARY INFORMATION: 

I. Notice of Proposed Rulemaking and 

Comments 

On July 15, 2014, the FDIC’s Board of 

Directors authorized publication of a 

notice of proposed rulemaking (NPR) 

proposing to: (1) Revise the ratios and 

ratio thresholds for capital evaluations 

used in its risk-based deposit insurance 

assessment system to conform to the 

PCA capital ratios and ratio thresholds 

adopted by the Federal banking 

agencies; (2) revise the assessment base 

calculation for custodial banks to 

conform to the asset risk weights 

adopted by the Federal banking 

agencies; and (3) require all highly 

complex institutions to measure 

counterparty exposure for deposit 

insurance assessment purposes using 

the Basel III standardized approach 

credit equivalent amount for derivatives 

and the Basel III standardized approach 

exposure amount for securities 

financing transactions, such as repostyle transactions, margin loans and 

similar transactions, as adopted by the 

Federal banking agencies. These 

changes were proposed in part to 

accommodate recent changes to the 

Federal banking agencies’ capital rules 

that are referenced in portions of the 

FDIC’s assessments regulation. 

The NPR was published in the 

Federal Register on July 23, 2014.1 The 

FDIC sought comment on every aspect 

of the proposed rule and on alternatives. 

The FDIC received a total of 4 comment 

letters. The FDIC also met with one 

commenter to improve understanding of 

the issues raised in the commenter’s 

written comment letter. A summary of 

the meeting is posted on the FDIC’s Web 

site. Comments are discussed in the 

relevant sections that follow. 

II. Ratios and Ratio Thresholds 

Relating to Capital Evaluations 

A. Background 

The Federal Deposit Insurance 

Corporation Improvement Act of 1991 

(FDICIA) 2 required that the FDIC 

establish a risk-based deposit insurance 

assessment system. To implement this 

requirement, the FDIC adopted by 

regulation a system that placed all 

insured depository institutions (IDIs or 

banks) into nine risk classifications 

based on two criteria: Capital 

evaluations and supervisory ratings.3

Each bank was assigned one of three 

capital evaluations based on data 

reported in its Consolidated Report of 

Condition and Income (Call Report): 

Well capitalized, adequately capitalized, 

or undercapitalized. The capital ratios 

and ratio thresholds used to determine 

each capital evaluation were based on 

the capital ratios and ratio thresholds 

adopted for PCA purposes by the FDIC, 

the OCC, the Federal Reserve, and the 

Office of Thrift Supervision (OTS)—the 

Federal banking agencies at that time.4

In 1993, the ratios and ratio thresholds 

used to determine each capital 

evaluation for assessment purposes 

were as shown in Table 1. 

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70428 Federal Register / Vol. 79, No. 228 / Wednesday, November 26, 2014 / Rules and Regulations 

5The four risk categories are I, II, III, and IV. 

Banks posing the least risk are assigned to risk 

category I. 71 FR 69282 (Nov. 30, 2006). 

6To the extent that the definitions of components 

of the ratios—such as tier 1 capital, total capital, 

and risk-weighted assets—have changed over time 

for PCA purposes, the assessment system has 

reflected these changes. 

7 76 FR 10672 (Feb. 25, 2011). The FDIC amended 

Part 327 in a subsequent final rule by revising some 

of the definitions used to determine assessment 

rates for large and highly complex IDIs. 77 FR 

66000 (Oct. 31, 2012). The term ‘‘Assessments final 

rule’’ includes the October 2012 final rule. 

8 In 2009, the FDIC added adjustments to its riskbased pricing methods to improve the way the 

assessment system differentiates risk among insured 

institutions. The brokered deposit adjustment (one 

of the adjustments added in 2009) is applicable 

only to small institutions in risk categories II, III, 

and IV, and large institutions that are either less 

than well capitalized or have a composite CAMELS 

rating of 3, 4 or 5 (under the Uniform Financial 

Institution Rating System). The adjustment 

increases assessment rates for significant amounts 

of brokered deposits. 74 FR 9525 (Mar. 4, 2009). 

9 78 FR 55340 (Sept. 10, 2013). 

10 79 FR 20754 (Apr. 14, 2014). 

11 78 FR 62018 (Oct. 11, 2013). 

12 78 FR at 55592 (FDIC) and 78 FR at 62277 and 

62283 (OCC and Federal Reserve), codified, in part, 

at 12 CFR part 324, subpart H (FDIC); 12 CFR part 

6 (OCC); and 12 CFR part 208 (Regulation H), 

subpart D (Federal Reserve). 

13Pub. L. 111–203, sec. 171, 124 Stat. 1376, 1435 

(2010) (codified at 12 U.S.C. 5371). 

14The FDIC’s advanced approaches rule is at 12 

CFR part 324, subpart E. The advanced approaches 

rule is also supplemented by the FDIC’s risk-based 

capital requirements for banks subject to significant 

exposure to market risk (market risk rule) in 12 CFR 

part 324, subpart F. 

15As used herein, an advanced approaches bank 

means an IDI that is an advanced approaches 

national bank or Federal savings association under 

12 CFR 3.100(b)(1), an advanced approaches Boardregulated institution under 12 CFR 217.100(b)(1), or 

an advanced approaches FDIC-supervised 

institution under 12 CFR 324.100(b)(1). In general, 

an IDI is an advanced approaches bank if it has total 

consolidated assets of $250 billion or more, has 

total consolidated on-balance sheet foreign 

exposures of $10 billion or more, or elects to use 

or is a subsidiary of an IDI, bank holding company, 

or savings and loan holding company that uses the 

advanced approaches to calculate risk-weighted 

assets. 

16The FDIC’s standardized approach risk-based 

capital rule is at 12 CFR part 324, subpart D. The 

standardized-approach risk-based capital rule is 

supplemented by the FDIC’s market risk rule in 12 

CFR part 324, subpart F. 

17Before determining its risk-weighted assets 

under advanced approaches, a bank must conduct 

a satisfactory parallel run. A satisfactory parallel 

run is a period of no less than four consecutive 

calendar quarters during which the bank complies 

with the qualification requirements to the 

satisfaction of its primary Federal regulator. 

Following completion of a satisfactory parallel run, 

a bank must receive approval from its primary 

Federal regulator to calculate risk-based capital 

requirements under the advanced approaches. See 

12 CFR 324.121 (FDIC); 12 CFR 3.121 (OCC); and 

12 CFR 217.121 (Federal Reserve). 

TABLE 1—CAPITAL RATIOS USED TO DETERMINE CAPITAL EVALUATIONS FOR ASSESSMENT PURPOSES

Capital evaluations 

Total riskbased ratio 

(%) 

Tier 1 riskbased ratio 

(%) 

Tier 1 leverage ratio 

(%) 

Well Capitalized ........................................................................................................................... ≥10 ≥6 ≥5 

Adequately Capitalized * .............................................................................................................. ≥8 ≥4 ≥4 

Undercapitalized .......................................................................................................................... Does not qualify as either Well Capitalized or 

Adequately Capitalized 

* An institution is Adequately Capitalized if it is not Well Capitalized, but satisfies each of the listed capital ratio standards for Adequately 

Capitalized. 

In 2007, the nine risk classifications 

were consolidated into four risk 

categories, which continued to be based 

on capital evaluations and supervisory 

ratings; 5 the capital ratios and the 

thresholds used to determine capital 

evaluations remained unchanged.6

In 2011, the FDIC adopted a revised 

assessment system for large banks— 

generally, those with at least $10 billion 

in total assets (Assessments final rule).7

This system eliminated risk categories 

for these banks, but PCA capital 

evaluations continue to be used to 

determine whether an assessment rate is 

subject to adjustment for significant 

amounts of brokered deposits.8

The assessment system for small 

banks, generally those with less than 

$10 billion in total assets, continues to 

use risk categories based on capital 

evaluations and supervisory ratings; the 

capital ratios and the thresholds used to 

determine capital evaluations have 

remained unchanged. 

On September 7, 2013, the FDIC 

adopted an interim final rule 9 and on 

April 14, 2014, published a final rule 

that, in part, revises the definition of 

regulatory capital.10 The OCC and the 

Federal Reserve adopted a final rule in 

October 2013 that is substantially 

identical to the FDIC’s interim final rule 

and final rule.11 (The FDIC’s interim 

final rule and final rule and the OCC 

and Federal Reserve’s final rule are 

referred to collectively hereafter as the 

Basel III capital rules.) The Basel III 

capital rules revise the thresholds for 

the tier 1 risk-based capital ratio used to 

determine a bank’s capital category 

under the PCA rules (that is, whether 

the bank is well capitalized, adequately 

capitalized, undercapitalized, 

significantly undercapitalized, or 

critically undercapitalized). The Basel 

III capital rules also add a new ratio, the 

common equity tier 1 capital ratio, and 

new thresholds for that ratio to 

determine a bank’s capital category 

under the PCA rules.12 The new ratio 

and ratio thresholds will take effect on 

January 1, 2015. 

The Basel III capital rules also adopt 

changes to the regulatory capital 

requirements for banking organizations 

consistent with section 171 of the DoddFrank Wall Street Reform and Consumer 

Protection Act (Dodd-Frank Act), often 

referred to as the ‘‘Collins 

Amendment.’’ 13 Under section 171 of 

the Dodd-Frank Act, the generally 

applicable risk-based capital 

requirements serve as a risk-based 

capital floor for banking organizations 

subject to the advanced approaches riskbased capital rules 14 (advanced 

approaches banks 15). Under the Basel III 

capital rules effective January 1, 2015, 

the minimum capital requirements as 

determined by the regulatory capital 

ratios based on the standardized 

approach 16 become the ‘‘generally 

applicable’’ capital requirements under 

section 171 of the Dodd-Frank Act. 

All banks, including advanced 

approaches banks, must calculate riskweighted assets under the standardized 

approach and report these risk-weighted 

assets, for capital purposes, in Schedule 

RC–R of the Call Report effective 

January 1, 2015. Advanced approaches 

banks also must calculate risk weights 

using the advanced approaches and 

report risk-weighted assets in the RiskBased Capital Reporting for Institutions 

Subject to the Advanced Capital 

Adequacy Framework (FFIEC 101). 

Revisions to the advanced approaches 

risk-weight calculations became 

effective January 1, 2014. An advanced 

approaches bank that has successfully 

completed the parallel run process 17

must determine whether it meets its 

minimum risk-based capital 

requirements by calculating the three 

risk-based capital ratios using total riskweighted assets under the general riskbased capital rules and, separately, total 

risk-weighted assets under the advanced 

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Federal Register / Vol. 79, No. 228 / Wednesday, November 26, 2014 / Rules and Regulations 70429 

18Currently, the general risk-based capital rules 

are found at 12 CFR part 325, appendix A (as 

supplemented by the risk-based capital 

requirements for banks subject to the market risk 

rule in appendix C). Effective January 1, 2015, the 

general risk-based capital rules will be based on the 

standardized approach for calculating risk-weighted 

assets under the Basel III capital rules, 12 CFR part 

324, subpart D (as supplemented by the risk-based 

capital requirements for banks subject to the market 

risk rule in subpart F). 

19See 12 CFR 324.10(c) (FDIC); 12 CFR 3.10(c) 

(OCC); and 12 CFR 217.10(c) (Federal Reserve). 20See 12 CFR part 324, subpart H. 21The supplementary leverage ratio includes 

many off-balance sheet exposures in its 

denominator, while the generally applicable 

leverage ratio does not. 22 78 FR at 55592 (FDIC); 78 FR at 62277 (OCC 

and Federal Reserve). 23 79 FR 24528 (May 1, 2014). 24 79 FR at 24530. IDI subsidiaries of a ‘‘covered 

BHC’’ are a subset of IDIs subject to advanced 

approaches requirements. A covered BHC is any 

top-tier U.S. BHC with more than $700 billion in 

total consolidated assets or more than $10 trillion 

in assets under custody. 79 FR at 24538. The list 

of ‘‘covered BHCs’’ is consistent with the list of 

banking organizations that meet the Basel 

Committee on Banking Supervision (Basel 

Committee or BCBS) definition of a Global 

Systemically Important Bank (G–SIB), based on 

year-end 2011 data, and consistent with the revised 

list, based on year-end 2012 data. The revised list 

is available at http://www.financialstabilityboard.

org/publications/r_131111.pdf). 

25 79 FR 57725 (Sept. 26, 2014). 

26To the extent that the definitions of 

components of the ratios—such as tier 1 capital, 

total capital, and risk-weighted assets—change in 

the future for PCA purposes, the assessment system 

will automatically incorporate these changes as 

implemented under the Basel III capital rules. 

27The FDIC has identified a slight inconsistency 

in terminology between the PCA capital rules of 

parts 324 and 325 and the deposit insurance 

assessment system of part 327. Currently, the riskbased assessment system under part 327 uses the 

terms ‘‘Total risk-based ratio,’’ ‘‘Tier 1 risk-based 

ratio,’’ and ‘‘Tier 1 leverage ratio.’’ The PCA capital 

rules use the terms ‘‘total risk-based capital ratio,’’ 

‘‘tier 1 risk-based capital ratio,’’ and ‘‘leverage 

ratio’’ (emphasis added). Despite this minor 

difference in nomenclature, the underlying 

calculations for each of these three ratios are the 

same under parts 324, 325 and 327 of the FDIC 

regulations. 

approaches.18 The lower ratio for each 

risk-based capital requirement is the 

ratio that will be used to determine an 

advanced approaches bank’s 

compliance with the minimum capital 

requirements 19 and, beginning on 

January 1, 2015, for purposes of 

determining compliance with the new 

PCA requirements.20

For advanced approaches banks, the 

Basel III capital rules also introduce the 

supplementary leverage ratio and a 

threshold for that ratio that advanced 

approaches banks must meet to be 

deemed adequately capitalized.21 (The 

supplementary leverage ratio as adopted 

in the Basel III capital rules does not, 

however, establish a ratio that advanced 

approaches banks must meet to be 

deemed well capitalized.) While all 

advanced approaches banks must 

calculate and begin reporting the 

supplementary leverage ratio beginning 

in the first quarter of 2015, the 

supplementary leverage ratio does not 

become effective for PCA purposes until 

January 1, 2018.22

On May 1, 2014, the Federal banking 

agencies published a final rule (the 

Enhanced Supplementary Leverage 

Ratio final rule) that strengthens the 

supplementary leverage ratio standards 

for the largest advanced approaches 

banks.23 The Enhanced Supplementary 

Leverage Ratio final rule provides that 

an IDI that is a subsidiary of a covered 

bank holding company (BHC) must 

maintain a supplementary leverage ratio 

of at least 6 percent to be well 

capitalized under the Federal banking 

agencies’ PCA framework.24 On 

September 26, 2014, the Federal 

banking agencies published a second 

final rule that revises the definition of 

the denominator of the supplementary 

leverage ratio (total leverage 

exposure).25 Again, all advanced 

approaches banks must calculate and 

begin reporting the supplementary 

leverage ratio beginning in the first 

quarter of 2015, but the supplementary 

leverage ratio does not become effective 

for PCA purposes until January 1, 2018. 

B. The Final Rule: Capital Evaluations 

As proposed, the final rule revises the 

ratios and ratio thresholds relating to 

capital evaluations for deposit insurance 

assessment purposes to conform to the 

new PCA capital rules. This revision 

maintains the consistency between 

capital evaluations for deposit insurance 

assessment purposes and capital ratios 

and ratio thresholds for PCA purposes 

that has existed since the creation of the 

risk-based assessment system over 20 

years ago. 

Specifically, the final rule revises the 

definitions of well capitalized and 

adequately capitalized for deposit 

insurance assessment purposes to reflect 

the threshold changes for the tier 1 riskbased capital ratio, to incorporate the 

common equity tier 1 capital ratio and 

its thresholds and, for those banks 

subject to the supplementary leverage 

ratio for PCA purposes, to incorporate 

the supplementary leverage ratio and its 

thresholds.26 The definition of 

undercapitalized remains unchanged. 

The final rule revises the definitions of 

well capitalized and adequately 

capitalized for deposit insurance 

assessment purposes effective when the 

new PCA capital rules become effective. 

Therefore, some of the revisions for 

deposit insurance assessment purposes 

will become effective January 1, 2015 

and the remaining revisions will 

become effective January 1, 2018. 

Effective January 1, 2015, for deposit 

insurance assessment purposes: 

1. An institution is well capitalized if 

it satisfies each of the following capital 

ratio standards: Total risk-based capital 

ratio, 10.0 percent or greater; tier 1 riskbased capital ratio, 8.0 percent or greater 

(as opposed to the current 6.0 percent or 

greater); leverage ratio, 5.0 percent or 

greater; and common equity tier 1 

capital ratio, 6.5 percent or greater. 

2. An institution is adequately 

capitalized if it is not well capitalized 

but satisfies each of the following 

capital ratio standards: Total risk-based 

capital ratio, 8.0 percent or greater; tier 

1 risk-based capital ratio, 6.0 percent or 

greater (as opposed to the current 4.0 

percent or greater); leverage ratio, 4.0 

percent or greater; and common equity 

tier 1 capital ratio, 4.5 percent or 

greater. 

The definition of an undercapitalized 

institution remains the same: An 

institution is undercapitalized if it does 

not qualify as either well capitalized or 

adequately capitalized. 

The final rule makes a technical 

amendment to Part 327 to replace the 

terms ‘‘Total risk-based ratio,’’ ‘‘Tier 1 

risk-based ratio,’’ and ‘‘Tier 1 leverage 

ratio,’’ with ‘‘total risk-based capital 

ratio,’’ ‘‘tier 1 risk-based capital ratio,’’ 

and ‘‘leverage ratio,’’ respectively, 

wherever such terms appear.27

Table 2 summarizes the ratios and 

ratio thresholds for determining capital 

evaluations for deposit insurance 

assessment purposes, effective January 

1, 2015. 

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70430 Federal Register / Vol. 79, No. 228 / Wednesday, November 26, 2014 / Rules and Regulations 

28Pub. L. 111–203, sec. 331(b), 124 Stat. 1538 

(codified as amended at 12 U.S.C. 1817(nt)). 

29 76 FR at 10706. 

TABLE 2—CAPITAL RATIOS USED TO DETERMINE CAPITAL EVALUATIONS FOR ASSESSMENT PURPOSES, EFFECTIVE

JANUARY 1, 2015 

Capital evaluations 

Total riskbased capital 

ratio 

(%) 

Tier 1 riskbased capital 

ratio 

(%) 

Common 

equity tier 1 

capital ratio 

(%) 

Leverage ratio 

(%) 

Well Capitalized ............................................................................................... ≥10 ≥8 ≥6.5 ≥5 

Adequately Capitalized * .................................................................................. ≥8 ≥6 ≥4.5 ≥4 

Undercapitalized .............................................................................................. Does not qualify as either Well Capitalized or Adequately 

Capitalized. 

* An institution is Adequately Capitalized if it is not Well Capitalized, but satisfies each of the listed capital ratio standards for Adequately 

Capitalized. 

Effective January 1, 2018, the final 

rule adds the supplementary leverage 

ratio to its capital evaluations for 

deposit insurance assessment purposes 

to conform to the PCA capital rules. For 

assessment purposes, an advanced 

approaches bank, including an IDI 

subsidiary of a covered BHC, must have 

at least a 3.0 percent supplementary 

leverage ratio to be adequately 

capitalized, and an IDI subsidiary of a 

covered BHC must have at least a 6.0 

percent supplementary leverage ratio to 

be well capitalized. 

Table 3 summarizes the ratios and 

ratio thresholds for determining capital 

evaluations for deposit insurance 

assessment purposes, effective January 

1, 2018. 

TABLE 3—CAPITAL RATIOS USED TO DETERMINE CAPITAL EVALUATIONS FOR ASSESSMENT PURPOSES, EFFECTIVE

JANUARY 1, 2018 

Capital evaluations 

Total riskbased capital 

ratio 

(%) 

Tier 1 riskbased capital 

ratio 

(%) 

Common 

equity tier 1 

capital ratio 

(%) 

Leverage ratio 

(%) 

Supplementary 

leverage ratio 

(advanced 

approaches 

banking 

organizations) 

(%) 

Supplementary 

leverage ratio 

(subsidiary 

IDIs of 

covered 

BHCs) 

(%) 

Well Capitalized ....................................... ≥10 ≥8 ≥6.5 ≥5 Not applicable ≥6 

Adequately Capitalized * .......................... ≥8 ≥6 ≥4.5 ≥4 ≥3 ≥3 

Undercapitalized ...................................... Does not qualify as either Well Capitalized or Adequately Capitalized. 

* An institution is Adequately Capitalized if it is not Well Capitalized, but satisfies each of the listed capital ratio standards for Adequately 

Capitalized. 

C. Comments Received 

The FDIC sought comments on the 

proposed ratios and ratio thresholds 

relating to capital evaluations for 

deposit insurance assessment purposes. 

The FDIC received one written comment 

that supported the proposal to revise the 

ratios and ratio thresholds for capital 

evaluations used in the risk-based 

deposit insurance assessment system to 

conform to the new PCA capital ratios 

and ratio thresholds. 

In the NPR, the FDIC discussed an 

alternative that would leave in place the 

current terminology and capital 

evaluations for deposit insurance 

assessment purposes, but the FDIC did 

not receive any comments on the 

alternative. In any event, the FDIC 

believes that the alternative would lead 

to unnecessary complexity and 

inconsistency, which could lead to 

confusion and increase regulatory 

burden on banks. Therefore, the FDIC 

will finalize the amendments to Part 327 

as proposed. 

III. Assessment Base Calculation for 

Custodial Banks 

A. Background 

The FDIC charges IDIs an amount for 

deposit insurance equal to the IDI’s 

deposit insurance assessment base 

multiplied by its risk-based assessment 

rate. The Dodd-Frank Act directed the 

FDIC to amend its regulatory definition 

of ‘‘assessment base’’ for purposes of 

setting assessments for IDIs. 

Specifically, the Dodd-Frank Act 

required the FDIC to define the term 

‘‘assessment base’’ with respect to a 

depository institution: 

As an amount equal to— 

• The average consolidated total 

assets of the insured depository 

institution during the assessment 

period; minus 

• The sum of— 

Æ The average tangible equity of the 

insured depository institution during 

the assessment period, and 

Æ In the case of an insured depository 

institution that is a custodial bank (as 

defined by the Corporation, based on 

factors including the percentage of total 

revenues generated by custodial 

businesses and the level of assets under 

custody) . . . , an amount that the 

Corporation determines is necessary to 

establish assessments consistent with 

the definition under section 7(b)(1) of 

the Federal Deposit Insurance Act (12 

U.S.C. 1817(b)(1)) for a custodial 

bank . . .28

In February 2011, the FDIC 

implemented this requirement in the 

Assessments final rule.29 The 

Assessments final rule defines a 

custodial bank and specifies the 

additional amount to be deducted from 

a custodial bank’s average consolidated 

total assets for purposes of determining 

its assessment base. The assessment 

base deduction for custodial banks is 

defined as the daily or weekly average 

(depending upon the way the bank 

reports its average consolidated total 

assets) of a specified amount of certain 

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30Risk-weighted assets are generally determined 

by assigning assets to broad risk-weight categories. 

The amount of an asset is multiplied by its risk 

weight (for example, 0 percent or 20 percent) to 

calculate the risk-weighted asset amount. 

31See 78 FR at 55502 (FDIC); 78 FR at 62184–85 

(OCC and Federal Reserve). 

32See 78 FR at 55414 (FDIC); 78 FR at 62096 

(OCC and Federal Reserve). 

33See Pub. L. 111–203, sec. 939A, 124 Stat 1887 

(codified as amended at 15 U.S.C. 78o–7(nt)). 

34 78 FR at 55430 (FDIC); 78 FR at 62111 (OCC 

and Federal Reserve). 

35See, e.g., 78 FR at 55400–04 (FDIC); 78 FR at 

62083–87 (OCC and Federal Reserve). 

36Under the Basel III capital rules, a 

securitization exposure generally includes a credit 

exposure with more than one underlying exposure 

where the credit risk associated with the underlying 

exposures has been separated into at least two 

tranches reflecting different levels of seniority. 

Specifically, a securitization exposure is defined as 

an on- or off-balance sheet credit exposure 

(including credit-enhancing representations and 

warranties) that arises from a traditional 

securitization or a synthetic securitization 

(including a re-securitization), or an exposure that 

directly or indirectly references a securitization 

exposure. See 78 FR at 55482 (FDIC); 78 FR at 

62168 (OCC and Federal Reserve). Under the Basel 

III capital rules’ standardized approach, securitized 

assets of the type described in lines 1, 2, and 3 of 

Schedule RC of the Call Report cannot have a riskweight lower than 20 percent. 78 FR at 55515 

(FDIC); 78 FR at 62196 (OCC and Federal Reserve). 

low-risk, liquid assets, subject to the 

limitation that the daily or weekly 

average value of such assets not exceed 

the average value of deposits that are 

classified as transaction accounts and 

are identified by the bank as being 

directly linked to a fiduciary or 

custodial and safekeeping account. 

Under the Assessments final rule, a 

custodial bank may deduct all asset 

types described in the instructions to 

lines 34, 35, 36, and 37 of Schedule RC– 

R of the Call Report as of December 31, 

2010 with a risk weight of 0 percent, 

regardless of maturity, and 50 percent of 

those asset types described in the 

instructions to those same lines with a 

risk weight of 20 percent, again 

regardless of maturity.30 These assets 

include cash and balances due from 

depository institutions, securities, 

federal funds sold, and securities 

purchased under agreements to resell. 

Under the Basel III capital rules, the 

standardized approach introduces 2 

percent and 4 percent risk weights for 

cleared transactions with Qualified 

Central Counterparties (QCCPs), as 

defined in the Basel III capital rules, 

subject to certain collateral 

requirements.31 The lower risk weights 

reflect the Federal banking agencies’ 

support for ‘‘incentives designed to 

encourage clearing of derivative and 

repo-style transactions through a CCP 

[central counterparty] wherever possible 

in order to promote transparency, 

multilateral netting, and robust riskmanagement practices.’’ 32 Nonetheless, 

the new 2 percent and 4 percent risk 

weights (being greater than 0) recognize 

that, while clearing transactions through 

a CCP significantly reduces 

counterparty credit risk, the clearing 

process does not eliminate risk 

altogether and that some degree of 

residual risk is retained. 

Section 939A of the Dodd-Frank Act 

requires the removal of any regulatory 

reference to or requirement of reliance 

on credit ratings for assessing the creditworthiness of a security or money 

market instrument and the substitution 

of new standards of credit-worthiness.33

Consequently, the Basel III capital rules 

remove references to credit ratings for 

purposes of determining risk weights for 

risk-based capital calculations, and the 

standardized approach introduces a 

formula-based methodology for 

calculating risk-weighted assets for 

many securitization exposures.34 Risk 

weights under the standardized 

approach for certain other assets, 

including but not limited to exposures 

to foreign sovereigns, foreign banks, and 

foreign public sector entities, have also 

changed.35

B. The Final Rule: Assessment Base 

Calculation 

As proposed in the NPR, the final rule 

conforms the assessment base deduction 

for custodial banks to the new 

standardized approach for risk-weighted 

assets adopted in the Basel III capital 

rules. For purposes of the assessment 

base deduction for custodial banks, the 

final rule continues to use the generally 

applicable risk weights (as revised 

under the standardized approach, 

effective January 1, 2015), even for 

advanced approaches banks. 

The assessment base deduction for 

custodial banks will continue to be 

defined as the daily or weekly average 

of a certain amount of specified lowrisk, liquid assets, subject to the 

limitation that the daily or weekly 

average value of these assets cannot 

exceed the daily or weekly average 

value of deposits that are classified as 

transaction accounts and are identified 

by the bank as being directly linked to 

a fiduciary or custodial and safekeeping 

account asset. Subject to this limitation, 

effective January 1, 2015, the assessment 

base deduction will be the daily or 

weekly average of: 

1. 100 percent of those asset types 

described in the instructions to lines 1, 

2, and 3 of Schedule RC of the Call 

Report with a standardized approach 

risk weight of 0 percent, regardless of 

maturity; plus 

2. 50 percent of those asset types 

described in the instructions to lines 1, 

2, and 3 of Schedule RC of the Call 

Report, including assets that qualify as 

securitization exposures, with a 

standardized approach risk weight 

greater than 0 and up to and including 

20 percent, regardless of maturity. 

In general, the assets described in 

lines 1, 2, and 3 of Schedule RC of the 

Call Report include cash and balances 

due from depository institutions, 

securities (both held-to-maturity and 

available-for-sale), federal funds sold, 

and securities purchased under 

agreements to resell. The inclusion of 

these asset types in the assessment base 

deduction for custodial banks is 

consistent with the asset types included 

in the current adjustment. 

In response to comments, the final 

rule differs from the NPR in that it 

includes in the assessment base 

deduction for custodial banks those 

asset types described in lines 1, 2, and 

3 of Schedule RC of the Call Report that 

qualify as securitization exposures (as 

defined in the Basel III capital rules) 

and have a standardized risk weight of 

20 percent.36 Under current assessment 

rules, securitizations with a risk weight 

of 20 percent are included in the 

assessment base deduction for custodial 

banks. After further consideration, the 

FDIC has concluded that assets of this 

type appear to be sufficiently low risk 

(as reflected in the 20 percent risk 

weight) and sufficiently liquid to allow 

them to continue to be included in the 

assessment base deduction. This 

difference from the NPR conforms the 

final rule more closely with the current 

assessment rule. 

As proposed, 50 percent of assets 

described in line 3 of Schedule RC of 

the Call Report that are assigned a 2 or 

4 percent risk weight may be included 

in the assessment base deduction for 

custodial banks. In the NPR, the FDIC 

discussed, as an alternative, including 

100 percent of these asset types in the 

adjustment. The FDIC, however, 

believes that these assets are not riskfree and thus do not merit a 100 percent 

inclusion in the assessment base 

deduction for custodial banks. 

Last, the final rule makes a technical 

amendment to the definition of 

‘‘custodial bank’’ by removing any 

reference to the Call Report date of 

December 31, 2010, to ensure 

conformity with the Basel III capital 

rules. 

C. Comments Received 

The FDIC received two written 

comments on the NPR’s proposal 

regarding the assessment base deduction 

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70432 Federal Register / Vol. 79, No. 228 / Wednesday, November 26, 2014 / Rules and Regulations 

37The comments did not address another 

alternative discussed in the NPR that would 

maintain the current assessment base deduction. In 

any event, the alternative would create unnecessary 

complexity and inconsistency between the asset 

risk weights used for capital purposes and for 

deposit insurance assessment purposes, which 

would lead to confusion and increase burden. 

38One commenter also suggested an alternative if 

the FDIC determined that it is appropriate to fully 

exclude securitization exposures from the 

assessment base deduction. Under this alternative, 

the assessment base deduction for assets with a 

standardized approach risk weight of 20 percent 

would increase from 50 percent to 85 percent. The 

commenter reasoned that assets assigned this risk 

weight and that are not securitization exposures are 

characterized by strong credit risk profiles and 

robust structural liquidity that warrant more 

favorable treatment. 

The FDIC disagrees that assets assigned a 20 

percent risk weight are sufficiently low risk and 

liquid to warrant an 85 percent deduction from the 

assessment base. 

39Only one of the commenters used the term 

‘‘qualifying asset,’’ but the substance of the other 

commenter’s suggestion was substantially the same. 

40 12 U.S.C. 1817(b)(1)(C). 

41 12 U.S.C. 1817(b)(1)(D). 

42A ‘‘highly complex institution’’ is defined as: 

(1) An IDI (excluding a credit card bank) that has 

had $50 billion or more in total assets for at least 

four consecutive quarters that either is controlled 

by a U.S. parent holding company that has had 

$500 billion or more in total assets for four 

consecutive quarters, or is controlled by one or 

more intermediate U.S. parent holding companies 

that are controlled by a U.S. holding company that 

has had $500 billion or more in assets for four 

consecutive quarters; or (2) a processing bank or 

trust company. 12 CFR 327.8(g). 

43 76 FR at 10721; 12 CFR part 327, subpart A, 

App. A. 

44 Derivatives trading exposures include both 

over-the-counter (OTC) derivatives and derivative 

contracts that an IDI has entered into with a CCP. 

45SFTs include repurchase agreements, reverse 

repurchase agreements, security lending and 

borrowing, and margin lending transactions, where 

the value of the transactions depends on market 

valuations and the transactions are often subject to 

margin agreements. 

46 76 FR at 10721. Counterparty exposure 

excludes all counterparty exposure to the U.S. 

government and departments or agencies of the U.S. 

government that is unconditionally guaranteed by 

the full faith and credit of the United States. 

47For example, permitted methods for derivatives 

exposures have included the credit equivalent 

amount as calculated under the Federal banking 

agencies’ general risk-based capital rules and the 

current exposure method (CEM) under the BCBS 

Basel II framework. 

for custodial banks.37 Both commenters 

suggested that the FDIC continue to 

include low-risk securitization 

exposures in the assessment base 

deduction.38 As discussed above, the 

FDIC agrees and the change is reflected 

in the final rule. 

In addressing the alternative 

discussed in the NPR of including 100 

percent of cleared transactions with 

QCCPs in the adjustment, two 

commenters suggested a different 

weighting method under which the 

FDIC would allow custodial banks to 

deduct 100 percent of a ‘‘qualifying 

asset’’ 39 minus 21⁄2 times the asset’s 

Basel III standardized approach risk 

weight. Under this approach, for 

example, a custodial bank could deduct 

95 percent of a 2 percent risk-weighted 

qualifying asset from its assessment base 

and 25 percent of a 30 percent riskweighted qualifying asset. Commenters 

argued that this approach would take 

into account the increased granularity of 

risk weights under the Basel III 

standardized approach, where, for 

example, a securitization could receive 

a risk weight of 20.5 percent. 

In the FDIC’s view, however, this 

proposal ignores the greater risk 

reflected in higher risk-weighted assets 

because it would allow the deduction of 

assets with risk weights of up to 40 

percent. The FDIC has never allowed a 

deduction from custodial banks’ 

assessment bases for assets with risk 

weights greater than 20 percent because 

the deduction is only intended for lowrisk assets. 

IV. Calculation of Counterparty 

Exposures in the Highly Complex 

Institution Scorecard 

A. Background 

Section 7 of the Federal Deposit 

Insurance Act (FDI Act) requires the 

FDIC Board of Directors to adopt a riskbased assessment system based on the 

probability that the DIF will incur a loss 

with respect to an institution, the likely 

amount of any loss to the DIF, and the 

revenue needs of the DIF.40 Further, 

under the FDI Act the FDIC may 

establish a separate risk-based 

assessment system for large members of 

the Deposit Insurance Fund (DIF).41

In the Assessments final rule, the 

FDIC adopted a revised assessment 

system for large banks—generally, those 

with at least $10 billion in total assets. 

This system, which went into effect in 

the second quarter of 2011, uses 

scorecards that combine CAMELS 

ratings and certain financial measures to 

assess the risk a large institution poses 

to the DIF. One scorecard applies to 

most large institutions and another 

applies to highly complex institutions, 

those that are structurally and 

operationally complex or that pose 

unique challenges and risks to the DIF 

in the event of failure.42

The scorecards for both large and 

highly complex institutions use 

quantitative measures that are useful in 

predicting a large institution’s long-term 

performance. Most of the measures used 

in the highly complex institution 

scorecard are similar to the measures 

used in the large bank scorecard. The 

scorecard for highly complex 

institutions, however, includes 

additional measures, such as the ratio of 

top 20 counterparty exposures to Tier 1 

capital and reserves and the ratio of the 

largest counterparty exposure to Tier 1 

capital and reserves (collectively, the 

counterparty exposure measures). Both 

ratios are defined in the Assessments 

final rule.43

The Assessments final rule defines 

counterparty exposure as the sum of 

exposure at default (EAD) associated 

with derivatives trading 44 and 

securities financing transactions 

(SFTs) 45 and the gross lending exposure 

(including all unfunded commitments) 

for each counterparty or borrower at the 

consolidated entity level.46 Generally, 

since June 30, 2011, when highly 

complex institutions began reporting for 

scorecard purposes, they have 

determined and reported their 

counterparty exposures for assessment 

purposes using certain methods 

permitted under the Assessments final 

rule.47 The Assessments final rule 

allows use of an approach based on 

internal models (the Internal Models 

Method, or IMM) to calculate 

counterparty exposures subject to 

approval by an institution’s primary 

federal regulator, but until recently no 

highly complex institution was 

permitted to use the IMM. 

The IMM is one component of the 

advanced approaches risk-based capital 

framework. Banking organizations that 

have received approval to use the 

advanced approaches do not 

automatically have approval to use the 

IMM, which requires a separate 

approval. Seven of the nine highly 

complex institutions received approval 

from their primary federal regulators to 

use the advanced approaches for 

regulatory capital beginning in the first 

quarter of 2014. Of these seven banks, 

some, but not all, received approval 

from their primary federal regulators to 

use the IMM for calculating EAD for 

counterparty credit risk for derivatives 

beginning in the second quarter of 2014. 

Thus, some of the nine banks using the 

highly complex institution scorecard 

began calculating their counterparty 

exposure in the second quarter of 2014 

using the IMM, while the others still use 

non-IMM methods. 

Based on assessments data, the 

adoption of the IMM by itself has 

caused a significant reduction in 

measured counterparty exposure 

amounts and changed the scorecard 

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48A ‘‘netting set’’ is a group of transactions with 

a single counterparty that are subject to a qualifying 

master netting agreement or a qualifying crossproduct master netting agreement. 12 CFR 324.2. 

49For multiple OTC derivative contracts subject 

to a qualifying master netting agreement, however, 

the exposure amount equals the sum of the net 

current credit exposure and the adjusted sum of 

potential future exposure amounts for all OTC 

derivative contracts subject to the qualifying master 

netting agreement; that is, the exposure amount set 

forth in 12 CFR 324.34(a)(2) (but with no reduction 

for collateral under 12 CFR 324.34(b)). 

50 In general, the conditions are that: 

(1) For derivative contracts that are not cleared 

through a QCCP, the cash collateral received by the 

recipient counterparty is not segregated (by law, 

regulation or an agreement with the counterparty); 

(2) Variation margin is calculated and transferred 

on a daily basis based on the mark-to-fair value of 

the derivative contract; 

(3) The variation margin transferred under the 

derivative contract or the governing rules for a 

cleared transaction is the full amount that is 

necessary to fully extinguish the net current credit 

exposure to the counterparty of the derivative 

contracts, subject to the threshold and minimum 

transfer amounts applicable to the counterparty 

under the terms of the derivative contract or the 

governing rules for a cleared transaction; 

(4) The variation margin is in the form of cash 

in the same currency as the currency of settlement 

set forth in the derivative contract, provided that for 

the purposes of this paragraph, currency of 

settlement means any currency for settlement 

specified in the governing qualifying master netting 

agreement and the credit support annex to the 

qualifying master netting agreement, or in the 

governing rules for a cleared transaction; 

(5) The derivative contract and the variation 

margin are governed by a qualifying master netting 

agreement between the legal entities that are the 

counterparties to the derivative contract or by the 

governing rules for a cleared transaction, and the 

qualifying master netting agreement or the 

governing rules for a cleared transaction must 

explicitly stipulate that the counterparties agree to 

settle any payment obligations on a net basis, taking 

into account any variation margin received or 

provided under the contract if a credit event 

involving either counterparty occurs; 

(6) The variation margin is used to reduce the 

current credit exposure of the derivative contract 

and not the PFE; and 

(7) For the purpose of the calculation of the netto-gross ratio (NGR), variation margin may not 

reduce the net current credit exposure or the gross 

current credit exposure. 

The requirements are specified at 12 CFR 

324.10(c)(4)(ii)(C)(1)–(7) (FDIC); 12 CFR 

3.10(c)(4)(ii)(C)(1)–(7) (OCC); and 12 CFR 

217.10(c)(4)(ii)(C)(1)–(7) (Federal Reserve). 

51 12 CFR 324.2 (FDIC); 12 CFR 3.2 (OCC); 12 CFR 

217.2 (Federal Reserve). 

52The two trade groups argued that the FDIC’s 

statutory mandate is ‘‘that assessments be based on 

actual risk to the DIF,’’ and that ‘‘assessments [be] 

based on risk.’’ 

53 12 U.S.C. 1817(b)(1)(C). 

results in a way that significantly 

reduces deposit insurance assessments 

for the banks using the IMM. This 

significant reduction in assessments 

does not appear to be driven primarily 

by a change in risk exposure, but rather 

by a change in measurement 

methodology. Moreover, since the 

second quarter of 2014, the nine banks 

currently subject to the highly complex 

institution scorecard have been 

measuring counterparty risk in different 

ways. 

B. The Final Rule: Calculation of 

Counterparty Exposure 

Under the final rule, starting in the 

first quarter of 2015, exposure to a 

counterparty is equal to the sum of: 

Gross loans (including all unfunded 

commitments); the amount of 

derivatives exposures reduced by the 

amount of qualifying cash collateral; 

and the amount of SFT exposure. 

Derivatives exposures and SFT 

exposures are described in more detail 

below. 

Specifically, the counterparty 

exposure amount associated with 

derivatives, including OTC derivatives, 

a cleared transaction that is a derivative 

contract, or a netting set of derivative 

contracts,48 is to be calculated as the 

credit equivalent amount under the 

standardized approach without 

deduction for collateral other than 

qualifying cash collateral. The credit 

equivalent amount under the 

standardized approach is the sum of 

current credit exposure and potential 

future exposure; that is, the exposure 

amount set forth in 12 CFR 324.34(a) 

(but with no reduction for collateral 

under 12 CFR 324.34(b)).49

The NPR proposed allowing no 

deduction for collateral from a highly 

complex institution’s counterparty 

exposure amount associated with 

derivatives. Two trade groups 

recommended that the FDIC permit 

recognition of financial collateral to 

reduce the counterparty exposure 

amount associated with derivatives, as 

permitted under the Basel III 

standardized approach. The final rule 

addresses the concerns of these 

commenters to an extent by allowing 

qualifying cash collateral (but not other 

collateral) to reduce a highly complex 

institution’s derivative exposures in the 

counterparty exposure measures. To 

qualify, the cash collateral must be all 

or part of variation margin and satisfy 

the conditions that would allow the 

cash collateral to be excluded from the 

institution’s total leverage exposure for 

purposes of the supplementary leverage 

ratio.50 These conditions are designed to 

ensure that the cash collateral is in 

effect a pre-settlement payment on the 

derivatives contracts. 

The counterparty exposure amount 

associated with SFTs, including SFTs 

that are cleared transactions, is to be 

calculated using either the simple 

approach or the collateral haircut 

approach contained in 12 CFR 324.37(b) 

and (c), respectively. 

For both derivative and SFT 

exposures, the amount of counterparty 

exposure to CCPs must also include the 

default fund contribution, which is the 

funds contributed or commitments 

made by a clearing member to a CCP’s 

mutualized loss sharing arrangement.51

Counterparty exposure continues to 

exclude all counterparty exposure to the 

U.S. government and departments or 

agencies of the U.S. government that is 

unconditionally guaranteed by the full 

faith and credit of the United States. 

C. Comments Received 

The FDIC sought comments on the 

proposed calculation of counterparty 

exposure measures. The FDIC received 

a total of three written comments, two 

from trade groups and one from a bank. 

In general, the two trade groups 

contended that the change proposed in 

the NPR to the counterparty exposure 

measures is inconsistent with the FDIC’s 

statutory mandate 52 because the 

proposal does not recognize the riskmitigating benefits of financial collateral 

and the minimal risk posed by exposure 

to CCPs. 

As discussed above, in establishing a 

risk-based assessment system the FDIC 

is statutorily required to consider a 

number of factors, including the 

probability that the DIF will incur a loss 

with respect to an institution. The FDIC 

also takes into consideration the likely 

amount of any such loss and the 

revenue needs of the DIF. In 

determining the probability that the DIF 

will incur a loss, the FDIC takes into 

consideration the risks attributable to 

different categories and concentrations 

of assets and liabilities, both insured 

and uninsured, contingent and 

noncontingent, and any other factors the 

FDIC determines are relevant to 

assessing such probability.53 In the case 

of the counterparty exposure measures, 

such other factors include the need for 

a common measurement framework for 

counterparty exposure and the need to 

ensure that methodological differences 

do not determine a bank’s exposure 

relative to its peers. 

In this context, the FDIC has taken 

into account the relative risk-mitigating 

factors associated with certain financial 

collateral and the use of CCPs. The FDIC 

has concluded that it is appropriate to 

allow qualifying cash collateral to 

reduce a bank’s measured derivatives 

exposure for purposes of the 

assessments scorecard, but as discussed 

in more detail below, does not agree 

with commenters that other forms of 

collateral warrant the same recognition. 

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54The NPR discussed allowing the deduction of 

collateral in this manner as a possible alternative 

to the proposal in the NPR. 

55 79 FR 57725, 57730 (Sept. 26, 2014). The 

supplementary leverage ratio rule ‘‘generally does 

not permit banking organizations to use collateral 

to reduce exposures for purposes of calculating total 

leverage exposure,’’ but does allow reduction under 

the circumstances permitted under this final rule. 

In the NPR, the FDIC also requested comment on 

an alternative approach that would require highly 

complex institutions to use total leverage exposure, 

as defined in the supplementary leverage ratio, 

when calculating counterparty exposure measures. 

The FDIC received two brief comments, one in favor 

of the alternative approach and one opposed to it. 

While the FDIC may consider using total leverage 

exposure, as defined in the supplementary leverage 

ratio, as a general measure of counterparty exposure 

in the future, the FDIC is not persuaded that this 

alternative approach should be adopted wholesale 

now in lieu of the standardized approach. 

56As the federal banking regulators noted 

recently in amending the rules governing the 

supplementary leverage ratio, ‘‘For the purpose of 

determining the carrying value of derivative 

contracts, U.S. generally accepted accounting 

principles (GAAP) provide a banking organization 

the option to reduce any positive mark-to-fair value 

of a derivative contract by the amount of any cash 

collateral received from the counterparty, provided 

the relevant GAAP criteria for offsetting are met (the 

GAAP offset option).’’ 79 FR at 57729. 

57Basel Committee on Banking Supervision. 

(January 2014). ‘‘Basel III leverage ratio framework 

and disclosure requirements’’, available online at 

http://www.bis.org/publ/bcbs270.pdf. 

58Basel Committee on Banking Supervision. 

(November 2011). ‘‘Capitalisation of bank exposures 

to central counterparties’’, available online at 

http://www.bis.org/publ/bcbs206.pdf. 

59 76 FR at 10696. 

60 12 U.S.C. 371c; 12 CFR 223.11; 223.12; and 

223.14. 

Financial Collateral 

As stated above, two trade groups 

recommended that financial collateral 

reduce OTC derivative exposures as 

permitted when calculating riskweighted assets under the Basel III 

standardized approach.54 The final rule 

adopts another, more limited, approach, 

allowing—under certain 

circumstances—cash variation margin to 

reduce OTC derivative exposures. The 

regular and timely exchange of cash 

variation margin helps to protect both 

counterparties from the effects of a 

counterparty default. The conditions 

under which cash collateral may be 

used to offset the amount of a derivative 

contract in the supplementary leverage 

ratio are intended to ensure that such 

cash collateral ‘‘is, in substance, a form 

of pre-settlement payment on a 

derivative contract,’’ 55 such that that 

portion of the exposure has essentially 

been paid. The conditions also ensure 

that the counterparties calculate their 

exposures arising from derivative 

contracts on a daily basis and transfer 

the net amounts owed, as appropriate, 

in a timely manner. The approach in the 

final rule is consistent with the design 

of the supplementary leverage ratio and 

with U.S. generally accepted accounting 

principles (GAAP).56

In the FDIC’s view, however, it would 

be inappropriate to reduce OTC 

derivatives exposures in the 

counterparty exposure measures for all 

types of financial collateral and the final 

rule allows no reduction for collateral 

other than qualifying cash collateral. As 

the Basel Committee noted in adopting 

the Basel III leverage framework, 

‘‘Collateral received in connection with 

derivative contracts does not necessarily 

reduce the leverage inherent in a bank’s 

derivatives position, which is generally 

the case if the settlement exposure 

arising from the underlying derivative 

contract is not reduced.’’ 57

Qualifying Central Counterparties 

(QCCPs) 

Two trade groups argued that 

exposures to QCCPs should be excluded 

from the counterparty exposure 

measures. They argued that the capital 

and prudential requirements applicable 

to QCCPs ensure that they pose no risk 

to banks and that, because Congress has 

encouraged the use of QCCPs, exposures 

to QCCPs will likely increase and come 

to dominate the 20 largest total exposure 

amounts to counterparties while 

actually reducing risk. One trade group 

argued that exposures to QCCPs should 

be excluded from the measures until the 

full effect of the central clearing 

requirements are known and the 

strength of QCCPs is more fully 

understood. 

Counterparty exposures to QCCPs, 

however, are not risk-free. For example, 

the Basel Committee notes that despite 

the benefits that CCPs can bring to OTC 

derivatives markets, they can 

concentrate counterparty and 

operational risks, with a potential for 

systemic risk.58 As mentioned above, 

the counterparty exposure measures are 

concentration measures intended to 

assess a highly complex institution’s 

ability to withstand asset-related 

stress.59 Also, as one of the comments 

implies, QCCPs’ performance in times of 

stress has not been tested. For these 

reasons, the final rule continues to 

include exposures to QCCPs in the 

counterparty exposure measures. To the 

extent that derivatives exposures to 

QCCPs are secured by qualifying cash 

collateral, however, the amount of 

exposure for purposes of the 

counterparty exposure measures will be 

reduced. 

Affiliates 

Two trade groups also argued that 

exposures to affiliates should be 

excluded from the counterparty 

exposure measures on the grounds that 

Section 23A of the Federal Reserve Act 

and the Federal Reserve’s Regulation W 

effectively limit a bank’s exposure to an 

affiliate and impose collateral 

requirements.60

The FDIC disagrees. Limiting 

exposure to an affiliate, as required by 

Section 23A and Regulation W, does not 

eliminate risk, particularly during 

periods of stress. For this reason, the 

final rule continues to include 

exposures to affiliates in the 

counterparty exposure measures. To the 

extent that derivatives exposures to 

affiliates are secured by qualifying cash 

collateral, however, the amount of 

exposure for purposes of the 

counterparty exposure measures will be 

reduced. 

Non-U.S. Sovereigns 

Two trade groups also argued that 

exposures to non-U.S. sovereigns with 

high credit quality should be excluded 

from the counterparty exposure 

measures. They suggested excluding 

foreign sovereign exposures where the 

Basel III capital rules assign a zero risk 

weight based on either the Organization 

for Economic Cooperation and 

Development’s (OECD’s) Country Risk 

Classification (CRC) or the sovereign’s 

OECD membership status if no CRC 

exists, or where the foreign sovereign 

meets the criteria for obligations that 

qualify as Level 1 high quality liquid 

assets under the Liquidity Coverage 

Ratio rule. 

The FDIC again disagrees. Exposures 

to non-U.S. sovereigns pose risk, 

particularly during periods of stress. 

Consequently, the final rule treats these 

exposures as it does other derivatives 

exposures. Again, to the extent that 

derivatives exposures to non-U.S. 

sovereigns are secured by qualifying 

cash collateral, the amount of exposure 

for purposes of the counterparty 

exposure measures will be reduced. 

IMM 

In the NPR, the FDIC requested 

comment on whether highly complex 

institutions should be allowed to 

measure counterparty exposure for 

assessment purposes using the IMM. 

Two trade groups made arguments in 

favor of allowing the use of the IMM. 

The trade groups argued that the IMM 

is a better measure of counterparty 

exposure than is the standardized 

approach and that the shortcomings of 

the standardized approach ‘‘are well 

known and have been widely 

recognized,’’ citing a Basel Committee 

paper. Because, in their view, the IMM 

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61 79 FR 42698, 42705 (July 23, 2014). See Basel 

Committee on Banking Supervision. (January 2013). 

‘‘Regulatory consistency assessment programme 

(RCAP)—Analysis of risk-weighted assets for 

market risk’’, available online at http://www.bis.org/ 

publ/bcbs240.htm; Basel Committee on Banking 

Supervision. (July 2013). ‘‘Regulatory consistency 

assessment programme (RCAP)—Analysis of riskweighted assets for credit risk in the banking book,’’ 

available online at http://www.bis.org/publ/

bcbs256.htm; and Basel Committee on Banking 

Supervision. (July 2013). ‘‘The regulatory 

framework: balancing risk sensitivity, simplicity 

and comparability—discussion paper,’’ available 

online at http://www.bis.org/publ/bcbs258.htm. 

62 In the NPR, the FDIC also discussed but argued 

against an alternative in which it would recalibrate 

the conversion of counterparty exposure measures 

into scores using exposures calculated using the 

IMM approach. 63 12 U.S.C. 1817(b)(1)(C)(i)(III). 

64 76 FR at 10700; see also 77 FR at 66016. 12 CFR 

part 327, subpart A, App. A. 

65As currently provided in the FDIC’s 

assessments rules and regulations, the FDIC 

continues to reserve the general right to update the 

minimum and maximum cutoff values for all 

measures in the scorecards without additional 

notice-and-comment rulemaking. See 12 CFR part 

327, subpart A, App. A. 

is a better risk measure than the 

standardized approach, the commenters 

argued that the NPR fails to meet the 

statutory requirement that the FDIC 

adopt a risk-based assessment system 

and that, in conflict with the 

requirements of the Administrative 

Procedure Act, the FDIC has failed to 

justify elimination of the IMM. 

The FDIC has considered the issues 

the commenters raised and does not 

agree with the commenters. Specifically, 

the FDIC does not agree that, for 

assessment purposes, the IMM measures 

counterparty exposure better than the 

standardized approach does. In arguing 

that the IMM is a better measure of 

counterparty exposure than is the 

standardized approach, commenters 

ignore the Basel Committee’s 

observation (noted in the NPR) that the 

use of internal models has resulted in a 

material amount of variability between 

banks, a significant amount of which 

may be driven by banks’ individual 

modeling choices rather than by 

distinctions in portfolio risk or risk 

management practices.61 Under the 

IMM, banks may use different 

assumptions and measurement 

approaches, resulting in inconsistency. 

This variability was one of the chief 

reasons that the NPR rejected the use of 

the IMM in measuring counterparty 

exposure for assessment purposes. 

Partly for this reason, it would 

impractical for the FDIC to calibrate and 

adjust counterparty measures in a way 

that produces accurate and equitable 

assessments outcomes.62

The commenters also ignore the 

FDIC’s statutory authority to take 

consistency of risk measurement into 

account in the risk-based assessment 

system. As stated above, the FDIC Board 

of Directors must consider certain 

enumerated factors when setting a riskbased assessment system, including the 

probability that the DIF will incur a loss 

with respect to an institution. In 

determining the probability that the DIF 

will incur a loss with respect to an 

institution, the FDIC may take into 

account ‘‘any other factors the 

Corporation determines are relevant to 

assessing such probability.’’ 63 In 

proposing to use the standardized 

approach to measure counterparty 

exposure, the FDIC has taken into 

account ‘‘other factors;’’ namely, the 

need for a common measurement 

framework for counterparty exposure 

and the need to ensure that 

methodological differences do not 

determine a bank’s exposure relative to 

its peers. Consistency in the manner in 

which highly complex IDIs calculate 

counterparty exposure is an appropriate 

and necessary factor in establishing a 

risk-based assessment system. 

More broadly, existing law and 

regulation do not generally allow the 

unconstrained use of banks’ internal 

models for regulatory capital purposes, 

instead providing for the use of a 

standardized capital floor. Current law 

recognizes the standardized approach as 

a valid measure of risk for risk-based 

capital purposes. Thus, the approach 

taken in the final rule is consistent in 

spirit with this aspect of the capital 

rules. 

Two trade groups also argued that 

adopting the standardized approach for 

measuring counterparty exposure is 

premature and that the FDIC should not 

eliminate the IMM until Federal 

banking agencies determine whether to 

adopt the Basel Committee’s 

standardized approach for measuring 

exposure at default for counterparty 

credit risk (SA–CCR) for risk-based 

capital purposes. As the commenters 

acknowledged, no decision has been 

made regarding when or how (or 

whether) the SA–CCR will be adopted 

in the U.S. for capital purposes. If the 

Federal banking agencies adopt the SA– 

CCR for risk-based capital purposes, the 

FDIC will consider whether changes to 

the counterparty exposure measures are 

appropriate. The trade groups’ 

argument, however, amounts to 

indefinitely allowing the use of vastly 

different measurement methodologies 

for calculating counterparty exposure 

for assessment purposes, with the 

concomitant inequities in assessment 

rates, which the FDIC finds 

unreasonable. 

Converting Counterparty Exposure 

Measures to Scores 

In the Assessments final rule, the 

FDIC reserved the right to update the 

minimum and maximum cutoff values 

used in each scorecard annually without 

further rulemaking as long as the 

method of selecting cut-off values 

remained unchanged. Under this 

reservation, the FDIC can add new data 

for later years to its analysis and can, 

from time to time, exclude some earlier 

years from its analysis.64

In the NPR, the FDIC proposed to 

continue to reserve the right to revise 

the conversion of the counterparty 

exposures measures to scores (that is, 

recalibrate the conversion by updating 

the minimum and maximum cutoff 

values) after reviewing data reported for 

some or all of 2015 without further 

notice-and-comment rulemaking. Two 

trade groups objected to this proposal, 

arguing that the specific recalibration of 

the counterparty exposure measures 

proposed in the NPR should be 

accomplished through notice-andcomment rulemaking. After further 

consideration, the FDIC has decided 

that, for the conversion of the 

counterparty exposure measures to 

scores only, any revisions will be done 

through notice-and-comment 

rulemaking.65

Cost-Benefit Analysis 

One trade group argued that the NPR 

should not be finalized until the FDIC 

has conducted a cost-benefit analysis 

subject to public comment, and that the 

FDIC would not be able to conduct such 

a cost-benefit analysis without 

additional data that will only become 

available after the first quarter of 2015. 

For this reason, the commenter 

suggested foregoing any immediate 

changes to the counterparty exposure 

measures until additional data becomes 

available and can be evaluated. 

In developing and reviewing 

regulations, the FDIC is committed to 

continually improving the quality of its 

regulations and policies, minimizing 

regulatory burdens on the public and 

the banking industry, and generally to 

ensuring that its regulations and 

policies achieve legislative goals 

effectively and efficiently. The FDIC 

evaluates benefits and costs of 

regulations based on available 

information and the consideration of 

reasonable and possible alternatives. As 

part of the notice-and-comment process, 

the FDIC actively seeks comment on 

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70436 Federal Register / Vol. 79, No. 228 / Wednesday, November 26, 2014 / Rules and Regulations 

66See FDIC Statement of Policy on the 

Development and Review of Regulations and 

Policies, 78 FR 22771, 22772 (Apr. 17, 2013). 

67See Pub. L. 111–203, sec. 334(d), 124 Stat. 1539 

(codified as amended at 12 U.S.C. 1817(nt)). The 

FDIC is also required to charge banks with $10 

billion or more in assets for the cost of increasing 

the reserve ratio from 1.15 percent to 1.35 percent. 

Id. at sec. 334(e). 

68See 12 CFR 327.10. 

69See 5 U.S.C. 603 and 605. 

70See 5 U.S.C. 601(2). 

cost, benefits, and burdens, and 

carefully considers these comments.66

The FDIC has, in fact, evaluated the 

costs and benefits of requiring that 

highly complex institutions measure 

counterparty exposure using the 

standardized approach in the Basel III 

capital rules rather than the IMM. For 

those few banks that are already (or 

would be) using the IMM to measure 

counterparty exposure, the final rule is 

likely to increase these banks’ 

assessment rates compared to rates 

calculated using the IMM, all else equal. 

As one trade group noted in its 

comment letter, albeit in another 

context, ‘‘The credit equivalent amount 

in the U.S. Basel I-based capital rules, 

the credit equivalent amount under the 

Standardized Approach, and the Basel 

Committee’s Basel II current exposure 

method are all broadly similar.’’ 

Consequently, in the NPR, the FDIC was 

able to rely on its data on assessment 

rates before adoption of the IMM. 

Moreover, the FDIC is required by 

statute to ensure that the DIF reserve 

ratio reaches at least 1.35 percent of 

estimated insured deposits by 

September 30, 2020.67 The FDIC has 

already adopted a schedule of lower 

overall assessment rates that will go into 

effect automatically when the DIF 

reserve ratio reaches 1.15 percent.68

While a few banks will have increased 

assessment rates under the final rule, 

these higher rates will reduce the risk 

that an assessment rate increase for all 

banks will be needed for the DIF reserve 

ratio to reach 1.35 percent by the 

statutory deadline; it will also increase 

the possibility that the reserve ratio will 

reach 1.15 percent sooner than 

otherwise, at which time overall 

assessment rates will fall. 

The FDIC has also tailored its 

approach to minimize additional 

reporting burden. Under the final rule, 

highly complex institutions will 

calculate their counterparty exposure 

for deposit insurance assessment 

purposes using the standardized 

approach under the Basel III capital 

rules (modified for cash collateral for 

derivatives exposures). These banks 

must determine counterparty exposure 

using the generally applicable riskbased capital requirements, that is, the 

standardized approach under the Basel 

III capital rules, as required by the 

Collins Amendment. They must also 

calculate qualifying cash collateral for 

derivatives exposures for purposes of 

the supplementary leverage ratio. Thus, 

the final rule imposes little, if any, 

additional reporting burden. 

Rather than indefinitely allowing the 

use of methodologies that would result 

in inequitable assessments, the final 

rule takes into account potential 

burdens, benefits, alternative 

approaches, and cumulative costs of 

regulations to make assessments 

appropriately reflect relative risk. 

V. Effective Date 

A. Ratios and Thresholds Relating to 

Capital Evaluations 

Two effective dates apply to the ratios 

and ratio thresholds relating to the 

capital evaluations used in its deposit 

insurance system: January 1, 2015, for 

all ratios and ratio thresholds except the 

supplementary leverage ratio, and 

January 1, 2018, for the supplementary 

leverage ratio and ratio threshold. These 

are the effective dates of the changes to 

the PCA capital rules. 

B. Assessment Base Calculation for 

Custodial Banks 

The effective date for the assessment 

base calculation for custodial banks is 

January 1, 2015. 

C. Calculation of Counterparty 

Exposures in the Highly Complex 

Institution Scorecard 

The effective date for the calculation 

of counterparty exposures in the highly 

complex institution scorecard is January 

1, 2015. 

VI. Regulatory Analysis and Procedure 

A. Solicitation of Comments on Use of 

Plain Language 

Section 722 of the Gramm-LeachBliley Act, Public Law 106–102, 113 

Stat. 1338, 1471 (Nov. 12, 1999), 

requires the Federal banking agencies to 

use plain language in all proposed final 

rules published after January 1, 2000. 

The FDIC invited comments on how to 

make this proposal easier to understand. 

No comments addressing this issue were 

received. 

B. Regulatory Flexibility Act 

The FDIC has carefully considered the 

potential impacts on all banking 

organizations, including community 

banking organizations, and has sought 

to minimize the potential burden of 

these changes where consistent with 

applicable law and the agencies’ goals. 

The Regulatory Flexibility Act (RFA) 

requires that each Federal agency either 

certify that the final rule will not have 

a significant economic impact on a 

substantial number of small entities.69

Certain types of rules, such as rules of 

particular applicability relating to rates 

or corporate or financial structures, or 

practices relating to such rates or 

structures, are expressly excluded from 

the definition of ‘‘rule’’ for purposes of 

the RFA.70 Nonetheless, the FDIC is 

voluntarily undertaking a regulatory 

flexibility analysis. 

As of December 31, 2013, of the 6,812 

IDIs, there were 5,655 small IDIs as that 

term is defined for the purposes of the 

RFA (i.e., institutions with $550 million 

or less in total assets). Under the 

revisions to the ratios and ratio 

thresholds for capital evaluations in the 

final rule, five small IDIs (0.09 percent 

of small IDIs) would have had higher 

deposit insurance assessments as of the 

end of December 2013 (assuming that 

they had not increased their capital in 

response to the new PCA capital rules). 

None would have had lower 

assessments. In the aggregate, these five 

small IDIs would have been assessed 

approximately $1 million more in 

annual assessments under the final rule. 

In aggregate, the final rule would have 

increased small IDIs’ assessments by 

0.01 percent of all small IDIs’ income 

before taxes. 

Four additional IDIs that meet the 

RFA definition of a small IDI were 

identified as subsidiaries of custodial 

banks subject to assessments 

adjustments. The FDIC estimates that 

under the final rule, the assessments for 

these additional small IDIs would not be 

affected. 

The final rule regarding the 

calculation of counterparty exposures in 

the highly complex institution scorecard 

does not affect any small IDIs. 

Thus, the final rule does not have a 

significant economic impact on a 

substantial number of small entities. 

C. Paperwork Reduction Act 

No collections of information 

pursuant to the Paperwork Reductions 

Act (44 U.S.C. 3501 et seq.) are 

contained in the final rule. 

D. The Treasury and General 

Government Appropriations Act, 1999— 

Assessment of Federal Regulations and 

Policies on Families 

The FDIC has determined that the 

final rule does not affect family wellbeing within the meaning of section 654 

of the Treasury and General 

Government Appropriations Act, 

enacted as part of the Omnibus 

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Federal Register / Vol. 79, No. 228 / Wednesday, November 26, 2014 / Rules and Regulations 70437 

Consolidated and Emergency 

Supplemental Appropriations Act of 

1999 (Public Law 105–277, 112 Stat. 

2681). 

List of Subjects in 12 CFR Part 327 

Bank deposit insurance, Banks, 

Savings associations. 

For the reasons set forth above, the 

FDIC amends part 327 as follows: 

PART 327—ASSESSMENTS 

■ 1. The authority citation for part 327 

continues to read as follows: 

Authority: 12 U.S.C. 1441, 1813, 1815, 

1817–19, 1821. 

Subpart A—[Amended] 

■ 2. In subpart A, remove the term ‘‘Tier 

1 leverage ratio’’ and add in its place 

‘‘Leverage ratio’’ wherever it appears. 

■ 3. In § 327.5, revise paragraphs (c)(1) 

and (2) to read as follows: 

§ 327.5 Assessment base. 

* * * * * 

(c) * * * 

(1) Custodial bank defined. A 

custodial bank for purposes of 

calculating deposit insurance 

assessments shall be an insured 

depository institution with previous 

calendar-year trust assets (fiduciary and 

custody and safekeeping assets, as 

described in the instructions to 

Schedule RC–T of the Consolidated 

Report of Condition and Income) of at 

least $50 billion or an insured 

depository institution that derived more 

than 50 percent of its total revenue 

(interest income plus non-interest 

income) from trust activity over the 

previous calendar year. 

(2) Assessment base calculation for 

custodial banks. A custodial bank shall 

pay deposit insurance assessments on 

its assessment base as calculated in 

paragraph (a) of this section, but the 

FDIC will exclude from that assessment 

base the daily or weekly average 

(depending on how the bank reports its 

average consolidated total assets) of all 

asset types described in the instructions 

to lines 1, 2, and 3 of Schedule RC of 

the Consolidated Report of Condition 

and Income with a standardized 

approach risk weight of 0 percent, 

regardless of maturity, plus 50 percent 

of those asset types described in the 

instructions to lines 1, 2, and 3 of 

Schedule RC of the Consolidated Report 

of Condition and Income, with a 

standardized approach risk-weight 

greater than 0 and up to and including 

20 percent, regardless of maturity, 

subject to the limitation that the daily or 

weekly average (depending on how the 

bank reports its average consolidated 

total assets) value of all assets that serve 

as the basis for a deduction under this 

section cannot exceed the daily or 

weekly average value of those deposits 

that are classified as transaction 

accounts in the instructions to Schedule 

RC–E of the Consolidated Report of 

Condition and Income and that are 

identified by the institution as being 

directly linked to a fiduciary or 

custodial and safekeeping account asset. 

* * * * * 

■ 4. In § 327.9, revise paragraphs 

(a)(2)(i) and (ii) to read as follows: 

§ 327.9 Assessment pricing methods. 

(a) * * * 

(2) * * * 

(i) Well Capitalized. A Well 

Capitalized institution is one that 

satisfies each of the following capital 

ratio standards: Total risk-based capital 

ratio, 10.0 percent or greater; tier 1 riskbased capital ratio, 8.0 percent or 

greater; leverage ratio, 5.0 percent or 

greater; and common equity tier 1 

capital ratio, 6.5 percent or greater. 

(ii) Adequately Capitalized. An 

Adequately Capitalized institution is 

one that does not satisfy the standards 

of Well Capitalized in paragraph (a)(2)(i) 

of this section but satisfies each of the 

following capital ratio standards: Total 

risk-based capital ratio, 8.0 percent or 

greater; tier 1 risk-based capital ratio, 

6.0 percent or greater; leverage ratio, 4.0 

percent or greater; and common equity 

tier 1 capital ratio, 4.5 percent or 

greater. 

* * * * * 

■ 5. In § 327.9, effective January 1, 2018, 

revise paragraphs (a)(2)(i) and (ii) to 

read as follows: 

§ 327.9 Assessment pricing methods. 

(a) * * * 

(2) * * * 

(i) Well Capitalized. A Well 

Capitalized institution is one that 

satisfies each of the following capital 

ratio standards: Total risk-based capital 

ratio, 10.0 percent or greater; tier 1 riskbased capital ratio, 8.0 percent or 

greater; leverage ratio, 5.0 percent or 

greater; common equity tier 1 capital 

ratio, 6.5 percent or greater; and, if the 

institution is an insured depository 

institution subject to the enhanced 

supplementary leverage ratio standards 

under 12 CFR 6.4(c)(1)(iv)(B), 12 CFR 

208.43(c)(2)(iv)(B), or 12 CFR 

324.403(b)(1)(v), as each may be 

amended from time to time, a 

supplementary leverage ratio of 6.0 

percent or greater. 

(ii) Adequately Capitalized. An 

Adequately Capitalized institution is 

one that does not satisfy the standards 

of Well Capitalized in paragraph (a)(2)(i) 

of this section but satisfies each of the 

following capital ratio standards: Total 

risk-based capital ratio, 8.0 percent or 

greater; tier 1 risk-based capital ratio, 

6.0 percent or greater; leverage ratio, 4.0 

percent or greater; common equity tier 

1 capital ratio, 4.5 percent or greater; 

and, if the institution is subject to the 

advanced approaches risk-based capital 

rules under 12 CFR 6.4(c)(2)(iv)(B), 12 

CFR 208.43(c)(2)(iv)(B), or 12 CFR 

324.403(b)(2)(vi), as each may be 

amended from time to time, a 

supplementary leverage ratio of 3.0 

percent or greater. 

* * * * * 

■ 6. In Appendix A to Subpart A, in the 

table under the section heading, ‘‘VI. 

Description of Scorecard Measures,’’ 

revise the descriptions of ‘‘(2) Top 20 

Counterparty Exposure/Tier 1 Capital 

and Reserves’’ and ‘‘(3) Largest 

Counterparty Exposure/Tier 1 Capital 

and Reserves’’ under the subheading 

‘‘Concentration Measure for Highly 

Complex Institutions’’ to read as 

follows: 

Appendix A to Subpart A of Part 327— 

Method To Derive Pricing Multipliers 

and Uniform Amount 

* * * * * 

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70438 Federal Register / Vol. 79, No. 228 / Wednesday, November 26, 2014 / Rules and Regulations 

VI—DESCRIPTION OF SCORECARD MEASURES

Scorecard measures 1 Description 

*******

(2) Top 20 Counterparty Exposure/

Tier 1 Capital and Reserves.

Sum of the 20 largest total exposure amounts to counterparties divided by Tier 1 capital and reserves. The 

total exposure amount is equal to the sum of the institution’s exposure amounts to one counterparty (or 

borrower) for derivatives, securities financing transactions (SFTs), and cleared transactions, and its 

gross lending exposure (including all unfunded commitments) to that counterparty (or borrower). A 

counterparty includes an entity’s own affiliates. Exposures to entities that are affiliates of each other are 

treated as exposures to one counterparty (or borrower). Counterparty exposure excludes all counterparty 

exposure to the U.S. government and departments or agencies of the U.S. government that is unconditionally guaranteed by the full faith and credit of the United States. The exposure amount for derivatives, 

including OTC derivatives, cleared transactions that are derivative contracts, and netting sets of derivative contracts, must be calculated using the methodology set forth in 12 CFR 324.34(a), but without any 

reduction for collateral other than cash collateral that is all or part of variation margin and that satisfies 

the requirements of 12 CFR 324.10(c)(4)(ii)(C)(1)–(7). The exposure amount associated with SFTs, including cleared transactions that are SFTs, must be calculated using the standardized approach set 

forth in 12 CFR 324.37(b) or (c). For both derivatives and SFT exposures, the exposure amount to central counterparties must also include the default fund contribution.2

(3) Largest Counterparty Exposure/

Tier 1 Capital and Reserves.

The largest total exposure amount to one counterparty divided by Tier 1 capital and reserves. The total exposure amount is equal to the sum of the institution’s exposure amounts to one counterparty (or borrower) for derivatives, SFTs, and cleared transactions, and its gross lending exposure (including all unfunded commitments) to that counterparty (or borrower). A counterparty includes an entity’s own affiliates. Exposures to entities that are affiliates of each other are treated as exposures to one counterparty 

(or borrower). Counterparty exposure excludes all counterparty exposure to the U.S. government and 

departments or agencies of the U.S. government that is unconditionally guaranteed by the full faith and 

credit of the United States. The exposure amount for derivatives, including OTC derivatives, cleared 

transactions that are derivative contracts, and netting sets of derivative contracts, must be calculated 

using the methodology set forth in 12 CFR 324.34(a), but without any reduction for collateral other than 

cash collateral that is all or part of variation margin and that satisfies the requirements of 12 CFR 

324.10(c)(4)(ii)(C)(1)–(7). The exposure amount associated with SFTs, including cleared transactions 

that are SFTs, must be calculated using the standardized approach set forth in 12 CFR 324.37(b) or (c). 

For both derivatives and SFT exposures, the exposure amount to central counterparties must also include the default fund contribution.2

* * * * * * * 

1The FDIC retains the flexibility, as part of the risk-based assessment system, without the necessity of additional notice-and-comment rulemaking, to update the minimum and maximum cutoff values for all measures used in the scorecard (except for the Top 20 counterparty exposure 

to Tier 1 capital and reserves ratio and the largest counterparty exposure to Tier 1 capital and reserves ratio). The FDIC may update the minimum and maximum cutoff values for the higher-risk assets to Tier 1 capital and reserves ratio in order to maintain an approximately similar distribution of higher-risk assets to Tier 1 capital and reserves ratio scores as reported prior to April 1, 2013, or to avoid changing the overall 

amount of assessment revenue collected. 76 FR 10672, 10700 (February 25, 2011). The FDIC will review changes in the distribution of the higher-risk assets to Tier 1 capital and reserves ratio scores and the resulting effect on total assessments and risk differentiation between banks 

when determining changes to the cutoffs. The FDIC may update the cutoff values for the higher-risk assets to Tier 1 capital and reserves ratio 

more frequently than annually. The FDIC will provide banks with a minimum one quarter advance notice of changes in the cutoff values for the 

higher-risk assets to Tier 1 capital and reserves ratio with their quarterly deposit insurance invoice. 2SFTs include repurchase agreements, reverse repurchase agreements, security lending and borrowing, and margin lending transactions, 

where the value of the transactions depends on market valuations and the transactions are often subject to margin agreements. The default fund 

contribution is the funds contributed or commitments made by a clearing member to a central counterparty’s mutualized loss sharing arrangement. The other terms used in this description are as defined in 12 CFR part 324, subparts A and D, unless defined otherwise in 12 CFR part 

327. 

* * * * * 

By order of the Board of Directors. 

Dated at Washington, DC, this 18th day of 

November, 2014. 

Federal Deposit Insurance Corporation. 

Robert E. Feldman, 

Executive Secretary. 

[FR Doc. 2014–27941 Filed 11–25–14; 8:45 am] 

BILLING CODE 6714–01–P 

DEPARTMENT OF TRANSPORTATION 

Federal Aviation Administration 

14 CFR Part 39 

[Docket No. FAA–2014–0191; Directorate 

Identifier 2013–NM–256–AD; Amendment 

39–18030; AD 2014–23–14] 

RIN 2120–AA64 

Airworthiness Directives; Bombardier, 

Inc. Airplanes 

AGENCY: Federal Aviation 

Administration (FAA), Department of 

Transportation (DOT). 

ACTION: Final rule. 

SUMMARY: We are adopting a new 

airworthiness directive (AD) for certain 

Bombardier, Inc. Model DHC–8–400 

series airplanes. This AD was prompted 

by reports of swing arm assemblies of 

engine fuel feed ejector pumps 

detaching from the outlet port of the 

engine fuel feed ejector pump and 

partially blocking the engine fuel feed 

line. This AD requires installing a 

restrictor into the engine fuel feed line. 

We are issuing this AD to prevent 

blocked engine fuel flow and possible 

engine flameout. 

DATES: This AD becomes effective 

December 31, 2014. 

The Director of the Federal Register 

approved the incorporation by reference 

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