This section of the FEDERAL REGISTER

contains notices to the public of the proposed

issuance of rules and regulations. The

purpose of these notices is to give interested

persons an opportunity to participate in the

rule making prior to the adoption of the final

rules.

Proposed Rules Federal Register

75455 

Vol. 79, No. 243 

Thursday, December 18, 2014 

FEDERAL ELECTION COMMISSION 

11 CFR Part 100 

[NOTICE 2014–14] 

Federal Office; Notice of Disposition of 

Petition for Rulemaking 

AGENCY: Federal Election Commission. 

ACTION: Notice of disposition of petition 

for rulemaking. 

SUMMARY: The Commission announces 

its disposition of a Petition for 

Rulemaking (‘‘Petition’’) filed on August 

28, 2014, by National Convention PBC. 

The Petition asks the Commission to 

amend 11 CFR 100.4 to revise the 

definition of ‘‘federal office’’ to include 

delegates to a constitutional convention. 

The Commission has decided not to 

initiate a rulemaking at this time. The 

Petition and other documents relating to 

this matter are available on the 

Commission’s Web site, http://

www.fec.gov/fosers/, and in the 

Commission’s Public Records Office. 

DATES: December 18, 2014. 

FOR FURTHER INFORMATION CONTACT: Ms. 

Emma K. Lewis, Office of General 

Counsel, 999 E Street NW., Washington, 

DC 20463, (202) 694–1650 or (800) 424– 

9530. 

SUPPLEMENTARY INFORMATION: On August 

28, 2014, the Commission received a 

Petition for Rulemaking from National 

Convention PBC regarding the 

Commission’s regulation defining 

‘‘federal office,’’ 11 CFR 100.4. The 

regulation provides that ‘‘Federal office 

means the office of President or Vice 

President of the United States, Senator 

or Representative in, or Delegate or 

Resident Commissioner to, the Congress 

of the United States.’’ The Petition asks 

the Commission to amend 11 CFR 100.4 

to add ‘‘a Delegate to a constitutional 

convention for proposing amendments 

to the Constitution of the United 

States.’’ 

The Commission published a Notice 

of Availability seeking comment on the 

Petition on October 2, 2014. 79 FR 

59459. The Commission received five 

comments in response to the NOA. Two 

comments, filed on behalf of a total of 

four organizations, opposed the Petition, 

primarily on the grounds that the 

regulatory change it seeks would be 

inconsistent with the applicable 

statutory definition of ‘‘federal office.’’ 

Three comments from individuals 

supported the Petition on the grounds 

that delegates to a constitutional 

convention should be bound by the 

campaign finance rules that apply to 

federal candidates (although one of 

these comments also objected to certain 

aspects of National Convention PBC’s 

proposal). 

The Commission agrees with the 

commenters who opposed the Petition. 

The definition of ‘‘federal office’’ is 

specifically set by statute: ‘‘The term 

‘Federal office’ means the office of the 

President or Vice President, or of 

Senator or Representative in, or Delegate 

or Resident Commissioner to, the 

Congress.’’ 52 U.S.C. 30101(3) (formerly 

2 U.S.C. 431(3)). The Commission’s 

regulatory definition of ‘‘federal office’’ 

uses materially indistinguishable 

language, defining a federal office as 

‘‘the office of President or Vice 

President of the United States, Senator 

or Representative in, or Delegate or 

Resident Commissioner to, the Congress 

of the United States.’’ 11 CFR 100.4. The 

Petition and the commenters who 

supported it provide certain policy 

arguments in favor of including 

delegates to a constitutional convention 

within the scope of the regulation, but 

the statutory definition of ‘‘federal 

office’’ unambiguously omits such 

delegates. In situations such as this 

where the statute contains no relevant 

ambiguity, the Commission ‘‘must give 

effect to the unambiguously expressed 

intent of Congress.’’ Chevron U.S.A., 

Inc. v. Natural Res. Def. Council, Inc., 

467 U.S. 837, 842–43 (1984). 

The Commission therefore declines to 

commence a rulemaking to add 

delegates to a constitutional convention 

to the definition of ‘‘federal office’’ in 11 

CFR 100.4. 

On behalf of the Commission, 

Dated: December 11, 2014. 

Lee E. Goodman, 

Chairman, Federal Election Commission. 

[FR Doc. 2014–29601 Filed 12–17–14; 8:45 am] 

BILLING CODE 6715–01–P 

DEPARTMENT OF TREASURY 

Office of the Comptroller of the 

Currency 

12 CFR Part 3 

[Docket ID OCC–2014–0025] 

RIN 1557–AD88 

FEDERAL RESERVE SYSTEM 

12 CFR Part 217 

[Regulation Q; Docket No. R–1502] 

RIN 7100–AE 24 

FEDERAL DEPOSIT INSURANCE 

CORPORATION 

12 CFR Part 324 

RIN 3064–AE 12 

Regulatory Capital Rules: Regulatory 

Capital, Proposed Revisions 

Applicable to Banking Organizations 

Subject to the Advanced Approaches 

Risk-Based Capital Rule 

AGENCIES: Office of the Comptroller of 

the Currency, Treasury; the Board of 

Governors of the Federal Reserve 

System; and the Federal Deposit 

Insurance Corporation 

ACTION: Joint notice of proposed 

rulemaking (NPR). 

SUMMARY: The Office of the Comptroller 

of the Currency (OCC), the Board of 

Governors of the Federal Reserve 

System (Board), and the Federal Deposit 

Insurance Corporation (FDIC) 

(collectively, the agencies) are seeking 

comment on an NPR that would clarify, 

correct, and update aspects of the 

agencies’ regulatory capital rule 

applicable to banking organizations that 

are subject to the advanced approaches 

risk-based capital rule (advanced 

approaches banking organizations). The 

proposed revisions are largely driven by 

observations made by the agencies 

during the parallel-run review process 

of advanced approaches banking 

organizations. They are also intended to 

enhance consistency of the U.S. 

regulations with international standards 

for use of the advanced approaches rule. 

DATES: Comments must be received no 

later than February 17, 2015. 

ADDRESSES: Comments should be 

directed to: 

mstockstill on DSK4VPTVN1PROD with PROPOSALS

75456 Federal Register / Vol. 79, No. 243 / Thursday, December 18, 2014 / Proposed Rules 

OCC: Because paper mail in the 

Washington, DC area and at the OCC is 

subject to delay, commenters are 

encouraged to submit comments by the 

Federal eRulemaking Portal or email, if 

possible. Please use the title ‘‘Regulatory 

Capital Rules: Regulatory Capital, 

Proposed Revisions Applicable to 

Banking Organizations Subject to the 

Advanced Approaches Risk-Based 

Capital Rule’’ to facilitate the 

organization and distribution of the 

comments. You may submit comments 

by any of the following methods: 

• Federal eRulemaking ortal— 

‘‘regulations.gov’’: Go to http://

www.regulations.gov. Enter ‘‘Docket ID 

OCC–2014–0025’’ in the Search Box and 

click ‘‘Search’’. Results can be filtered 

using the filtering tools on the left side 

of the screen. Click on ‘‘Comment Now’’ 

to submit public comments. 

• Click on the ‘‘Help’’ tab on the 

Regulations.gov home page to get 

information on using Regulations.gov, 

including instructions for submitting 

public comments. 

• Email: regs.comments@

occ.treas.gov. 

• Mail: Legislative and Regulatory 

Activities Division, Office of the 

Comptroller of the Currency, 400 7th 

Street SW., Suite 3E–218, Mail Stop 

9W–11, Washington, DC 20219. 

• Hand Delivery/Courier: 400 7th 

Street SW., Suite 3E–218, Mail Stop 

9W–11, Washington, DC 20219. 

• Fax: (571) 465–4326. 

Instructions: You must include 

‘‘OCC’’ as the agency name and ‘‘Docket 

ID OCC–2014–0025’’ in your comment. 

In general, OCC will enter all comments 

received into the docket and publish 

them on the Regulations.gov Web site 

without change, including any business 

or personal information that you 

provide such as name and address 

information, email addresses, or phone 

numbers. Comments received, including 

attachments and other supporting 

materials, are part of the public record 

and subject to public disclosure. Do not 

enclose any information in your 

comment or supporting materials that 

you consider confidential or 

inappropriate for public disclosure. 

You may review comments and other 

related materials that pertain to this 

rulemaking action by any of the 

following methods: 

• Viewing Comments Electronically: 

Go to http://www.regulations.gov. Enter 

‘‘Docket ID OCC–2014–0025’’ in the 

Search box and click ‘‘Search’’. 

Comments can be filtered by Agency 

using the filtering tools on the left side 

of the screen. 

• Click on the ‘‘Help’’ tab on the 

Regulations.gov home page to get 

information on using Regulations.gov, 

including instructions for viewing 

public comments, viewing other 

supporting and related materials, and 

viewing the docket after the close of the 

comment period. 

• Viewing Comments Personally: You 

may personally inspect and photocopy 

comments at the OCC, 400 7th Street 

SW., Washington, DC. For security 

reasons, the OCC requires that visitors 

make an appointment to inspect 

comments. You may do so by calling 

(202) 649–6700. Upon arrival, visitors 

will be required to present valid 

government-issued photo identification 

and to submit to security screening in 

order to inspect and photocopy 

comments. 

• Docket: You may also view or 

request available background 

documents and project summaries using 

the methods described above. 

Board: When submitting comments, 

please consider submitting your 

comments by email or fax because paper 

mail in the Washington, DC area and at 

the Board may be subject to delay. You 

may submit comments, identified by 

Docket No. R–1502 and RIN 7100–AE 

24, by any of the following methods: 

• Agency Web site: http://

www.federalreserve.gov. Follow the 

instructions for submitting comments at 

http://www.federalreserve.gov/apps/

foia/ProposedRegs.aspx. 

• Federal eRulemaking Portal: http:// 

www.regulations.gov. Follow the 

instructions for submitting comments. 

• Email: regs.comments@

federalreserve.gov. Include docket 

number in the subject line of the 

message. 

• Fax: (202) 452–3819 or (202) 452– 

3102. 

• Mail: Robert de V. Frierson, 

Secretary, Board of Governors of the 

Federal Reserve System, 20th Street and 

Constitution Avenue NW., Washington, 

DC 20551. 

All public comments are available 

from the Board’s Web site at http://

www.federalreserve.gov/apps/foia/

ProposedRegs.aspx as submitted, unless 

modified for technical reasons. 

Accordingly, your comments will not be 

edited to remove any identifying or 

contact information. Public comments 

may also be viewed electronically or in 

paper form in Room MP–500 of the 

Board’s Martin Building (20th and C 

Streets NW., Washington, DC 20551) 

between 9:00 a.m. and 5:00 p.m. on 

weekdays. 

FDIC: You may submit comments, 

identified by RIN 3064–AE 12, by any 

of the following methods: 

Agency Web site: http://www.fdic.gov/ 

regulations/laws/federal/propose.html. 

Follow instructions for submitting 

comments on the Agency Web site. 

• Email: Comments@fdic.gov. Include 

the RIN 3064–AE 12 on the subject line 

of the message. 

• Mail: Robert E. Feldman, Executive 

Secretary, Attention: Comments, Federal 

Deposit Insurance Corporation, 550 17th 

Street NW., Washington, DC 20429. 

• Hand Delivery: Comments may be 

hand delivered to the guard station at 

the rear of the 550 17th Street Building 

(located on F Street) on business days 

between 7:00 a.m. and 5:00 p.m. 

Public Inspection: All comments 

received must include the agency name 

and RIN 3064–AE01 for this rulemaking. 

All comments received will be posted 

without change to http://www.fdic.gov/ 

regulations/laws/federal/propose.html, 

including any personal information 

provided. Paper copies of public 

comments may be ordered from the 

FDIC Public Information Center, 3501 

North Fairfax Drive, Room E–1002, 

Arlington, VA 22226 by telephone at 

(877) 275–3342 or (703) 562–2200. 

FOR FURTHER INFORMATION CONTACT: 

OCC: Margot Schwadron, Senior Risk 

Expert (202) 649–6982; or Mark 

Ginsberg, Principal Risk Expert (202) 

649–6983, Capital Policy; or Carl 

Kaminski, Counsel; or Kevin 

Korzeniewski, Attorney, Legislative and 

Regulatory Activities Division, (202) 

649–5490, for persons who are deaf or 

hard of hearing, TTY, (202) 649–5597, 

Office of the Comptroller of the 

Currency, 400 7th Street SW., 

Washington, DC 20219. 

Board: Constance M. Horsley, 

Assistant Director, (202) 452–5239; 

Thomas Boemio, Manager, (202) 452– 

2982; Andrew Willis, Supervisory 

Financial Analyst, (202) 912–4323, 

Matthew McQueeney, Senior Financial 

Analyst, (202) 425–2942, or Justyna 

Milewski, Financial Analyst, (202) 452– 

3607, Capital and Regulatory Policy, 

Division of Banking Supervision and 

Regulation; or Christine Graham, 

Counsel (202) 452–3005; or David W. 

Alexander, Counsel (202) 452–2877, 

Legal Division, Board of Governors of 

the Federal Reserve System, 20th and C 

Streets NW., Washington, DC 20551. For 

the hearing impaired only, 

Telecommunication Device for the Deaf 

(TDD), (202) 263–4869. 

FDIC: Bobby R. Bean, Associate 

Director, bbean@fdic.gov; Ryan 

Billingsley, Chief, Capital Policy 

Section, rbillingsley@fdic.gov; or 

Benedetto Bosco, Capital Markets Policy 

Analyst, bbosco@fdic.gov; Capital 

Markets Branch, Division of Risk 

Management Supervision, (202) 898– 

6888; or Michael Phillips, Counsel, 

mstockstill on DSK4VPTVN1PROD with PROPOSALS

Federal Register / Vol. 79, No. 243 / Thursday, December 18, 2014 / Proposed Rules 75457 

1The term banking organizations includes 

national banks, state member banks, state 

nonmember banks, savings associations, and toptier bank holding companies domiciled in the 

United States not subject to the Board’s Small Bank 

Holding Company Policy Statement (12 CFR part 

225, appendix C), as well as top-tier savings and 

loan holding companies domiciled in the United 

States, except for certain savings and loan holding 

companies that are substantially engaged in 

insurance underwriting or commercial activities. 

2The Board and the OCC issued a joint final rule 

on October 11, 2013 (78 FR 62018) and the FDIC 

issued a substantially identical interim final rule on 

September 10, 2013 (78 FR 55340). In April 2014, 

the FDIC adopted the interim final rule as a final 

rule with no substantive changes. 79 FR 20754 

(April 14, 2014). 

3 12 CFR part 3 (OCC), 12 CFR part 217 (Board), 

and 12 CFR part 324 (FDIC). 

4 12 CFR 3.100(b)(1) (OCC), 12 CFR 217.100(b)(1) 

(Board), and 12 CFR 324.100(b)(1) (FDIC). 

5 12 CFR 3.121(c) (OCC), 12 CFR 217.121(c) 

(Board), and 12 CFR 324.121(c) (FDIC). 

6 12 CFR 3.121(d) (OCC), 12 CFR 217.121(d) 

(Board), and 12 CFR 324.121(d) (FDIC). 

7See, 12 U.S.C. 5371. 

8Prior to January 1, 2015, the term ‘‘generally 

applicable risk-based capital rules’’ refers to the 

risk-based capital rules set forth at 12 CFR part 3, 

appendix A and 12 CFR part 167 (OCC); 12 CFR pt. 

208 and 12 CFR part 225, appendix A (Federal 

Reserve); and 12 CFR part 325, appendix A, and 12 

CFR part 390, subpart Z (FDIC). As of January 1, 

2015, and thereafter, the term ‘‘generally applicable 

risk-based capital rules’’ will refer to the risk-based 

capital rules set forth at 12 CFR part 3, subparts A, 

B, C, and D (OCC); 12 CFR part 217, subparts A, 

B, C, and D (Board); and 12 CFR part 324, subparts 

A, B, C, and D (FDIC). 

9This data is reported on the FFIEC 101, 

Regulatory Capital Reporting for Institutions 

Subject to the Advanced Capital Adequacy 

Framework, available at http://www.ffiec.gov/

forms101.htm. 

10This provision is explicit in the regulatory 

capital framework definition of residential mortgage 

exposure for an exposure with an original and 

outstanding amount of $1 million or less that is 

primarily secured by a first or subsequent lien on 

residential property that is not one-to-four family. 

11See 12 CFR 3.122(b)(3) (OCC), 12 CFR 

217.122(b)(3) (Board), and 12 CFR 324.122(b)(3) 

(FDIC). 

mphillips@fdic.gov; Rachel Ackmann, 

Senior Attorney, rackmann@fdic.gov; 

Grace Pyun, Senior Attorney, gpyun@

fdic.gov; Supervision Branch, Legal 

Division, Federal Deposit Insurance 

Corporation, 550 17th Street NW., 

Washington, DC 20429. 

SUPPLEMENTARY INFORMATION: 

I. Background 

In 2013, the Office of the Comptroller 

of the Currency (OCC), the Board of 

Governors of the Federal Reserve 

System (Board), and the Federal Deposit 

Insurance Corporation (FDIC) 

(collectively, the agencies) 

comprehensively revised and 

strengthened the capital requirements 

applicable to banking organizations 1

(regulatory capital framework).2 Among 

other changes, the regulatory capital 

framework revised elements of the 

advanced approaches risk-based capital 

requirements (advanced approaches 

rule) now located at subpart E of the 

agencies’ revised regulatory capital 

framework.3

The advanced approaches rule applies 

to large, internationally active banking 

organizations, generally those with $250 

billion or more in total consolidated 

assets or $10 billion or more in total onbalance sheet foreign exposure, 

depository institution subsidiaries of 

those banking organizations that use the 

advanced approaches rule, and banking 

organizations that elect to use the 

advanced approaches (advanced 

approaches banking organizations).4

Before an advanced approaches banking 

organization may use the advanced 

approaches rule to determine its riskbased capital requirements, it must 

conduct a satisfactory trial, or parallel 

run.5 During the parallel run period, 

which must be at least four consecutive 

calendar quarters, an advanced 

approaches banking organization must 

demonstrate to the satisfaction of its 

primary Federal supervisor that it has 

implemented risk-measurement and 

risk-management systems that are 

consistent with the advanced 

approaches rule and are appropriate 

given the banking organization’s size 

and level of complexity. After the 

primary Federal supervisor determines 

that the banking organization fully 

complies with all the qualification 

requirements, has conducted a 

satisfactory parallel run, and has an 

adequate process to ensure ongoing 

compliance, then the banking 

organization will be required to use the 

advanced approaches to calculate its 

risk-based capital requirements.6

Consistent with section 171 of the 

Dodd-Frank Act,7 an advanced 

approaches banking organization that is 

required to calculate its risk-based 

capital requirements under the 

advanced approaches rule also must 

determine its risk-based capital 

requirements under the generally 

applicable risk-based capital rule.8 The 

lower ratio (i.e., the more binding ratio) 

for each risk-based capital requirement 

is the ratio the banking organization 

must use to determine its compliance 

with minimum regulatory capital 

requirements. 

In February 2014, the agencies 

permitted certain banking organizations 

to exit parallel run and to begin 

calculating their risk-based capital 

requirements using the advanced 

approaches rule, beginning with the 

second quarter of 2014.9 Supervisory 

review of advanced approaches systems 

conducted as part of the parallel run 

exit review process has highlighted 

certain areas of the advanced 

approaches rule qualification 

requirements that would benefit from 

clarification. In addition, the agencies 

are proposing to make technical 

revisions to address typographical 

errors, such as incorrect references, in 

the regulatory capital framework. The 

agencies are also proposing 

clarifications that are intended to 

enhance the consistency of the U.S. 

regulations with international standards 

for use of the advanced approaches. The 

proposed amendments in this NPR 

affect only provisions that apply to 

advanced approaches banking 

organizations. The agencies are seeking 

comment on all aspects of the proposed 

rule. 

II. Proposed Rule Corrections and 

Clarifications 

Since publishing the regulatory 

capital framework, the agencies have 

identified typographical and technical 

errors in several provisions, including 

provisions of subpart E of the regulatory 

capital framework. The agencies have 

also identified provisions that warrant 

clarification or updating in light of 

revisions to other rules. The agencies 

are, therefore, proposing to revise the 

regulatory capital framework as 

described below. 

Definition of Residential Mortgage 

Exposure 

The definition of residential mortgage 

exposure in section 2 of the regulatory 

capital framework was intended to 

provide that, for purposes of the 

advanced approaches rule, an exposure 

secured by a first or subsequent lien on 

one-to-four family residential property 

must be managed as part of a segment 

of exposures with homogenous risk 

characteristics, and not on an individual 

basis, to be considered a residential 

mortgage exposure.10 Under the 

advanced approaches, for retail 

exposures, a banking organization must 

have an internal system that groups 

retail exposures into the appropriate 

retail exposure subcategory and groups 

the retail exposures in each retail 

exposure subcategory into separate 

segments with homogenous risk 

characteristics.11 As currently written, 

however, the definition of residential 

mortgage exposure does not provide that 

advanced approaches banking 

organizations must group exposures 

secured by a first or subsequent lien on 

one-to-four family residential property 

into separate segments with 

homogenous risk characteristics, as 

required under the retail framework of 

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75458 Federal Register / Vol. 79, No. 243 / Thursday, December 18, 2014 / Proposed Rules 

12 72 FR 69288 (December 7, 2007). 

13Available at http://www.ffiec.gov/forms009_

009a.htm. 

14Available at http://www.bis.org/publ/

bcbs282.pdf. 

the advanced approaches. Accordingly, 

the agencies propose to revise the 

definition of residential mortgage 

exposure to provide that, for the 

purpose of calculating capital 

requirements under the advanced 

approaches, any exposure secured by a 

lien on residential property must be 

managed as part of a segment of 

exposures with homogenous risk 

characteristics, and not on an individual 

basis, to be considered a residential 

mortgage exposure. This change would 

make the definition consistent with the 

definition used in the 2007 advanced 

capital adequacy framework 

implementing Basel II 12 (2007 rule). 

Calculation of Total On-Balance Sheet 

Foreign Exposure 

The criteria set forth in section 100(b) 

of the regulatory capital framework, 

which describe which banking 

organizations are required to use the 

advanced approaches rule, include an 

explanation of how a banking 

organization determines whether it 

meets the $10 billion total on-balance 

sheet foreign exposure threshold. The 

advanced approaches rule currently 

references line-item descriptions from a 

version of the FFIEC 009 Regulatory 

Report that has since been modified to 

adjust or rename those line items. The 

agencies therefore propose to update the 

methodology for calculating this 

measure in section 100(b)(ii) to reflect 

the relevant line-item descriptions and 

instructions from the most recent 

version of the FFIEC 009 Regulatory 

Report.13

Disclosure Requirements for Advanced 

Approaches Banking Organizations 

Section 173 of the regulatory capital 

framework requires advanced 

approaches banking organizations that 

have completed the parallel run process 

and have received notification from 

their primary Federal supervisor 

pursuant to section 121(d) of subpart E 

to provide timely disclosure of the 

information in the applicable tables in 

that section. 

Table 6 of section 173 of the 

regulatory capital framework requires 

firms to explain and review the 

structure of internal ratings systems and 

the relation between internal and 

external ratings. Section 939A of the 

Dodd-Frank Act generally requires the 

Federal banking agencies to remove any 

reference to, or any requirement 

involving, the reliance on external 

credit ratings to assess the 

creditworthiness of a security or money 

market instrument. As a result, the 

agencies are proposing to amend table 6 

of section 173 to clarify that the use of 

external ratings is not required for the 

purpose of an advanced approaches 

banking organization’s internal rating 

assessment. 

For the purpose of the disclosures 

required in table 6 of section 173, to the 

extent that the advanced approaches 

banking organization considers external 

ratings in its internal ratings process, it 

must include an explanation of the 

relation between the internal and 

external ratings. An advanced 

approaches banking organization that 

does not use or consider external ratings 

would not be required to make such a 

disclosure. 

Table 9 in section 173 of the 

regulatory capital framework describes 

information related to securitization 

exposures that certain advanced 

approaches banking organizations are 

required to disclose. In the regulatory 

capital framework, the agencies revised 

the risk-based capital treatment of these 

items, but did not revise Table 9 to 

reflect the revisions. The agencies 

propose to update line (i)(2) under 

quantitative disclosures to appropriately 

reflect the current treatment under the 

regulatory capital framework of creditenhancing interest only strips (CEIOs) 

and after-tax gain-on-sale resulting from 

a securitization. Specifically, under the 

regulatory capital framework, an aftertax gain-on-sale resulting from a 

securitization is deducted from common 

equity tier 1 capital, rather than from 

tier 1 capital as was the case under the 

2007 rule. Also, under the regulatory 

capital framework, CEIOs that do not 

constitute after-tax gain-on-sale are riskweighted at 1,250 percent, rather than 

deducted from total capital, as was the 

case under the 2007 rule. 

Collateral Posted by a Clearing Member 

Client Banking Organization and 

Clearing Member Banking Organization 

Sections 133(b)(4)(ii) and 133(c)(4)(ii) 

of the regulatory capital framework 

require a clearing member client 

banking organization or a clearing 

member banking organization, 

respectively, to calculate a riskweighted asset amount for any collateral 

provided to a central counterparty 

(CCP), clearing member, or custodian in 

connection with a cleared transaction in 

accordance with the requirements under 

section 131. The agencies note that 

section 131 only provides for the riskweighting of wholesale and retail 

exposures whereas collateral posted to a 

CCP, clearing member, or custodian may 

also be in the form of a securitization 

exposure, equity exposure, or a covered 

position. Therefore, the agencies are 

proposing to amend sections 

133(b)(4)(ii) and 133(c)(4)(ii) to replace 

the cross reference to section 131 with 

a broader cross reference, as applicable, 

to subpart E, which provides the riskweighting methodology for wholesale, 

retail, securitization and equity 

exposures, or subpart F, which provides 

the risk weighting methodology for 

covered positions, so that the clearing 

member client banking organization and 

clearing member banking organization 

can determine the correct risk weight for 

the collateral provided. 

Risk Weight for Certain Client Cleared 

Transactions 

Under the regulatory capital 

framework, a clearing member banking 

organization must assign a 2 percent 

risk weight to the trade exposure 

amount for a cleared transaction with a 

qualifying central counterparty (QCCP) 

and a risk weight according to section 

32 to the trade exposure amount for a 

cleared transaction with a CCP that is 

not a QCCP. The definition of cleared 

transaction includes a derivative 

contract or repo-style transaction 

between a CCP and a clearing member 

banking organization where the banking 

organization is acting as a financial 

intermediary on behalf of its clearing 

member client and the transaction 

offsets a derivative contract or repo-style 

transaction between the clearing 

member banking organization and its 

client that meets the requirements of 

section 3(a) of the regulatory capital 

framework. The agencies are proposing, 

consistent with the Basel Committee’s 

capital requirements for bank exposures 

to central counterparties capital 

framework,14 to permit clearing member 

banking organizations to assign a zero 

percent risk weight under subpart E to 

the trade exposure amount of a cleared 

transaction that arises when a clearing 

member banking organization does not 

guarantee the performance of the CCP 

and has no payment obligation to the 

clearing member client in the event of 

a CCP default. In these circumstances, 

requiring the clearing member banking 

organization to include a trade exposure 

amount to the CCP in credit riskweighted assets would generally result 

in an overstatement of its total riskweighted assets under the advanced 

approaches rule. However, if a clearing 

member banking organization does 

guarantee the performance of the CCP to 

the clearing member client, then a 

clearing member banking organization 

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Federal Register / Vol. 79, No. 243 / Thursday, December 18, 2014 / Proposed Rules 75459 

15 79 FR 57725, 57735 (Sept. 26, 2014). 

16The agencies published a joint final rule in the 

Federal Register on September 26, 2014 (79 FR 

57725) that revised the definition of the 

denominator of the supplementary leverage ratio 

(2014 SLR rule) that the agencies had adopted in 

the regulatory capital framework. 

17Section 172(d) was added to the regulatory 

capital framework as part of the 2014 SLR rule. 

18 Disclosure requirements in this section apply 

only to banking organizations that are not a 

consolidated subsidiary of a BHC, covered SLHC, or 

depository institution that is subject to these 

disclosure requirements or a subsidiary of a nonU.S. banking organization that is subject to 

comparable public disclosure requirements in its 

home jurisdiction. 

would assign a risk weight of 2 percent 

to its trade exposure amount for a 

cleared transaction with a QCCP or a 

risk weight according to section 32 of 

the regulatory capital framework to its 

trade exposure amount (as defined in 

section 133) for a cleared transaction 

with a CCP that is not a QCCP. 

This proposed approach would align 

the risk-based capital requirements for 

client-cleared transactions with recently 

finalized revisions to the treatment of 

those transactions under the agencies’ 

supplementary leverage ratio rule.15

When calculating the supplementary 

leverage ratio, the agencies do not 

require a clearing member banking 

organization to include the exposure to 

the CCP for a client-cleared transaction 

in total leverage exposure if the clearing 

member banking organization does not 

guarantee the performance of the CCP to 

the clearing member client. 

Application and Disclosure of the 

Supplementary Leverage Ratio 

Section 10(c) of the regulatory capital 

framework requires advanced 

approaches banking organizations that 

have completed the parallel run process 

to calculate the supplementary leverage 

ratio as described under section 

10(c)(4).16 The agencies are proposing to 

clarify in this rulemaking that the 

supplementary leverage ratio described 

in section 10(c)(4) applies to a banking 

organization that becomes subject to the 

advanced approaches pursuant to 

section 100(b)(1), regardless of the status 

of its parallel run process. Specifically, 

the supplementary leverage ratio 

described in section 10(c)(4) would 

apply to a banking organization 

immediately following the quarter in 

which the banking organization become 

subject to the advanced approaches 

pursuant to section 100(b)(1). 

Advanced approaches banking 

organizations are subject to 

supplementary leverage ratio disclosure 

requirements described in sections 172 

and 173 of the regulatory capital 

framework.17 The agencies propose to 

revise sections 172 and 173 of the 

regulatory capital framework, consistent 

with the revisions proposed for section 

10(c)(4). Specifically, the agencies are 

proposing to amend section 172(d) to 

clarify that the supplementary leverage 

ratio disclosure requirements described 

in section 172 apply without regard to 

whether the banking organization has 

completed the parallel run process. 

Under this proposal, any banking 

organization that becomes an advanced 

approaches banking organization 

pursuant to section 100(b)(1) before 

January 1, 2015, must publicly disclose 

its supplementary leverage ratio and the 

components thereof (that is, tier 1 

capital and total leverage exposure) 

quarterly, beginning with the first 

quarter in 2015. A banking 

organizations that becomes an advanced 

approaches banking organization 

pursuant to section 100(b)(1) on or after 

January 1, 2015, must publicly disclose 

its supplementary leverage ratio and 

components thereof, beginning with the 

calendar quarter immediately following 

the calendar quarter in which the 

banking organization becomes an 

advanced approaches banking 

organization. For example, a banking 

organization that becomes subject to the 

advanced approaches because it has 

$250 billion or more in consolidated 

total assets as of year-end 2015 pursuant 

to section 100(b)(1)(i) would begin 

disclosing its supplementary leverage 

ratio as of March 31, 2016. 

In addition, the agencies are 

proposing to revise section 173 to clarify 

that a top-tier 18 advanced approaches 

banking organization, regardless of its 

parallel run status, is required to 

publicly disclose Table 13 for twelve 

consecutive quarters or a shorter period, 

as applicable, beginning on January 1, 

2015. For example, for a banking 

organization that becomes subject to the 

supplementary leverage ratio disclosure 

requirements on January 1, 2015, 

reporting for the first quarter of 2015 

would include data for one quarter, 

reporting for the second quarter of 2015 

would include data for two quarters, 

and reporting for the fourth quarter of 

2017 would include data for 12 quarters. 

Exposure at Default Adjustment for 

Recognized Credit Valuation 

Adjustment (CVA) 

Under subpart E of the regulatory 

capital framework, an advanced 

approaches banking organization that 

has received supervisory approval to 

calculate exposure at default (EAD) for 

derivative contracts using the internal 

models methodology (IMM) is permitted 

to reduce effective expected positive 

exposure (effective EPE) by the CVA 

recognized on the advanced approaches 

banking organization’s balance sheet to 

reflect the fair value adjustment for 

counterparty credit risk in the valuation 

of a group of over-the-counter (OTC) 

derivative transactions in a netting set. 

The recognized CVA on the OTC 

derivative netting set deducted from 

effective EPE must not include any 

adjustments made by the advanced 

approaches banking organization to 

common equity tier 1 capital 

attributable to changes in the fair value 

of the banking organization’s liabilities 

that are due to changes in its own credit 

risk since the inception of the derivative 

transaction with the counterparty. 

Similarly, the agencies are proposing to 

allow advanced approaches banking 

organizations to reduce the EAD for 

OTC derivative contracts calculated 

according to the current exposure 

methodology in section 132(c) for the 

purpose of calculating advanced 

approaches total risk-weighted assets. 

The agencies note that in determining 

the fair value of a derivative on a 

banking organization’s balance sheet, 

the recognized CVA on the netting set 

of OTC derivative contracts is intended 

to reflect the credit quality of the 

counterparty. 

As noted in the preamble to the 

regulatory capital framework, the CVA 

capital charge in section 132(e) 

addresses fair value losses resulting 

from the deterioration of a 

counterparty’s credit quality short of 

default. The proposal to permit 

advanced approaches banking 

organizations to reduce EAD by the 

recognized CVA on an OTC derivative 

netting set would prevent the double 

counting of the counterparty credit risk, 

which is already included in advanced 

approaches total risk-weighted assets 

through the CVA capital charge. 

Consistent with the Basel Committee’s 

Basel III capital standards and the 

treatment of recognized CVA in the 

calculation of EAD for OTC derivatives 

according to the IMM, the agencies are 

proposing to amend section 132(c)(1) to 

permit an advanced approaches banking 

organization to reduce the EAD 

calculated according to the current 

exposure methodology by the 

recognized CVA on the OTC derivative 

netting set. The agencies note that, for 

the purpose of calculating standardized 

total risk-weighted assets, advanced 

approaches banking organizations 

would not be permitted to reduce the 

EAD calculated according to the current 

exposure methodology because the 

standardized total risk-weighted assets 

calculation does not include the CVA 

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75460 Federal Register / Vol. 79, No. 243 / Thursday, December 18, 2014 / Proposed Rules 

19Board Press Release http://www.federalreserve.

gov/newsevents/press/bcreg/20140221a.htm; OCC 

Press release http://www.occ.gov/news-issuances/

news-releases/2014/nr-ia-2014-21.html. 

20 12 CFR 3.22(b)(1)(iii) (OCC), 12 CFR 

217.22(b)(1)(iii) (Board), and 12 CFR 

324.22(b)(1)(iii) (FDIC). 

capital charge calculated in section 

132(e). 

Margin Period of Risk in the Internal 

Models Methodology (IMM) 

Section 132(d)(5)(iii)(B) of the 

regulatory capital framework includes 

upward adjustments to the margin 

period of risk in the IMM for large 

netting sets, netting sets involving 

illiquid collateral or OTC derivatives 

that cannot easily be replaced, or netting 

sets with two or more margin disputes 

with the counterparty over the previous 

two quarters that last for a certain length 

of time. The regulatory capital 

framework inadvertently required an 

upward adjustment to the margin period 

of risk for cleared transactions based 

solely on the fact that they are part of 

a large netting set. The agencies are 

therefore proposing to amend this 

provision to clarify that cleared 

transactions that are part of a netting set 

subject to a collateral agreement that 

exceeds 5,000 trades at any time during 

the previous quarter are not subject to 

the twenty business day margin-periodof-risk requirement unless the netting 

set contains illiquid collateral, OTC 

derivatives that cannot easily be 

replaced, or the banking organization 

had two or more margin disputes with 

the counterparty over the previous two 

quarters that last for a certain length of 

time. As noted in the preamble to the 

regulatory capital framework, the 5,000 

trade threshold is one indicator that a 

set of transactions may require a lengthy 

period to close out in the event of a 

default of a counterparty. The agencies 

believe that unlike a large netting set of 

over-the-counter derivatives, a large 

netting set of cleared transactions would 

not require a lengthy period to close out 

in the event of a default of the CCP. In 

addition, the proposed amendment 

would conform the provision to the 

similar provision in section 37 of 

subpart D. However, for any netting set 

that involves illiquid collateral or OTC 

derivatives that cannot easily be 

replaced, or that has two or more margin 

disputes within a netting set over the 

previous two quarters that last for a 

certain length of time, the margin period 

of risk would require adjustments, as 

specified under section 132(d)(5)(iii)(B), 

regardless of whether the netting set 

consists of cleared transactions. 

Qualification Requirements and 

Mechanics for Calculating RiskWeighted Assets of Wholesale and 

Retail Exposures Under the Advanced 

Approaches 

In February, 2014, the OCC and Board 

granted permission to a number of 

banking organizations to begin 

calculating their risk-based capital 

requirements under the advanced 

approaches.19 During the parallel run 

evaluation process, the agencies 

concluded that several areas of the 

advanced approaches rule should be 

revised to (1) clarify the qualification 

requirements and mechanics for 

calculating risk-weighted assets under 

the advanced approaches rule and (2) 

promote international consistency by 

more clearly aligning the U.S. 

regulations with international standards 

for use of the advanced approaches rule. 

Sections 122 and 131 of the regulatory 

capital framework set forth the 

qualification requirements for the 

internal ratings-based approach (IRB) for 

advanced approaches banking 

organizations and describe the 

mechanics for calculating risk-weighted 

assets for wholesale and retail exposures 

under the advanced approaches. When 

the agencies initially adopted the 

advanced approaches rule in the 2007 

rule, they viewed certain elements of 

the international Basel framework as 

being more akin to supervisory 

guidance, and therefore incorporated 

these elements into the supervisory 

review process rather than the advanced 

approaches rule. However, the agencies 

believe elements of sections 122 and 

131 of the regulatory capital framework 

should be clarified to ensure that 

advanced approaches banking 

organizations appropriately: (i) Obtain 

and consider all relevant and material 

information to estimate probability of 

default (PD), loss given default (LGD), 

and EAD; (ii) quantify risk parameters 

for wholesale and retail exposures; and 

(iii) establish internal requirements for 

collateral and risk management 

processes. 

Accordingly, the agencies are 

proposing language to add specificity 

and enhance transparency regarding the 

qualification process for the IRB 

approach, as well as the mechanics used 

to calculate total wholesale and retail 

risk-weighted assets. More specifically, 

the NPR would amend sections 122 and 

131 of the regulatory capital framework 

to clarify requirements associated with: 

(i) The frequency for reviewing risk 

rating systems, (ii) the independence of 

the systems’ development, design, and 

implementation, (iii) time horizons for 

default and loss data when estimating 

risk parameters, (iv) changes in banking 

organizations’ lending, payment 

processing, and account monitoring 

practices, (v) the use of all relevant 

available data for assigning risk ratings, 

and (vi) the need for internal 

requirements for collateral management 

and risk management processes. These 

modifications are consistent with the 

current overarching principles in 

sections 122 and 131 of the regulatory 

capital framework that advanced 

approaches banking organizations must 

have an internal risk rating and 

segmentation system that accurately and 

reliably differentiates among degrees of 

credit risk for wholesale and retail 

exposures, as well as a comprehensive 

risk-parameter quantification process 

that produces accurate, timely, and 

reliable risk-parameter estimates. The 

agencies emphasize that the proposed 

revisions are intended to clarify, but not 

change, existing requirements. In fact, 

many of these clarifications are already 

included in agency guidance or 

examination materials. Therefore, 

because they have demonstrated that 

they comply with the existing 

requirements, the agencies would 

expect that advanced approaches 

banking organizations that have already 

exited parallel run have demonstrated 

that they would meet the proposed 

requirements. 

Fair Value of Liabilities 

Section 22 of the regulatory capital 

framework requires a banking 

organization to adjust its common 

equity tier 1 capital for changes in the 

fair value of liabilities due to changes in 

the banking organization’s own credit 

risk. The adjustment is made by 

deducting from common equity tier 1 

capital any net gain and adding to 

common equity tier 1 capital any net 

loss to offset the capital effect of the 

changes in fair value of liabilities due to 

changes in the banking organization’s 

own credit risk.20 Additionally, the 

regulatory capital framework requires 

advanced approaches banking 

organizations to deduct the credit 

spread premium over the risk-free rate 

for derivatives that are liabilities. 

The agencies recognize that the 

regulatory capital framework is unclear 

as to whether the deduction of the credit 

spread premium for advanced 

approaches banking organizations is in 

addition to the adjustment for net gains 

or losses associated with changes in the 

value of liabilities attributed to changes 

in the banking organization’s own credit 

risk. Therefore, the agencies are 

clarifying that for derivative liabilities, 

an advanced approaches banking 

organization would make the deduction 

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Federal Register / Vol. 79, No. 243 / Thursday, December 18, 2014 / Proposed Rules 75461 

21The OCC calculated the number of small 

entities using the SBA’s size thresholds for 

commercial banks and savings institutions, and 

trust companies, which are $550 million and $38.5 

million, respectively. Consistent with the General 

Principles of Affiliation, 13 CFR 121.103(a), the 

OCC counted the assets of affiliated financial 

institutions when determining whether to classify 

a national bank or Federal savings association as a 

small entity. The OCC used December 31, 2013, to 

determine size because a ‘‘financial institution’s 

assets are determined by averaging the assets 

reported on its four quarterly financial statements 

for the preceding year.’’ See footnote 8 of the U.S. 

Small Business Administration’s Table of Size 

Standards. 

22See 13 CFR 121.201. Effective July 14, 2014, the 

Small Business Administration revised the size 

standards for banking organizations to $550 million 

in assets from $500 million in assets. 79 FR 33647 

(June 12, 2014). 

of the credit spread premium over the 

risk-free rate as the adjustment for 

changes in the fair value of those 

derivative liabilities due to changes in 

the banking organization’s own credit 

risk. 

Technical Corrections 

In addition to the revisions discussed 

above, the proposed rule would also 

make certain technical corrections. Most 

of the proposed corrections to these 

technical errors are self-explanatory 

and, therefore, do not warrant specific 

discussion in this preamble. In addition, 

there are several reference errors that 

the agencies propose to correct in an 

effort to better clarify the rule 

requirements. For example, the 

proposed rule would correct the 

following internal cross-references in 

the regulatory capital framework. 

• In section 131(e)(3)(vi), 

amendments to reference section 22(d) 

and not section 22(a)(7); 

• In Table 1 of section 132, 

amendments to the reference in the 

column heading to state that ‘‘Nonsovereign issuers risk weight under this 

section (in percent)’’ and ‘‘Sovereign 

issuers risk weight under this section (in 

percent)’’ actually are found in section 

32. 

• In section 132(d)(7)(iv)(B), 

amendments to reference section 

132(b)(2) and not section 131(b)(2); 

• In section 132(d)(9)(ii), 

amendments to reference section 

132(e)(6) and not section 132(e)(3); 

• In section 133(b)(3)(i)(B), 

amendments to reference section 

133(b)(3)(i)(A) and not section 

132(b)(3)(i)(A); and 

• In section 136(e)(2)(i) and 

136(e)(2)(ii), amendments to reference 

section 136(e)(1) and (e)(2) and not 

section 135(e)(1) and (e)(2). 

III. Regulatory Analyses 

A. Paperwork Reduction Act (PRA) 

In accordance with the requirements 

of the Paperwork Reduction Act of 1995 

(44 U.S.C. 3501–3521) (PRA), the 

agencies may not conduct or sponsor, 

and a respondent is not required to 

respond to, an information collection 

unless it displays a currently valid 

Office of Management and Budget 

(OMB) control number. The agencies 

reviewed the proposed rule and 

determined that it would not introduce 

any new collection of information 

pursuant to the PRA. 

B. Regulatory Flexibility Act Analysis 

OCC: The Regulatory Flexibility Act, 

5 U.S.C. 601 et seq. (RFA), requires an 

agency, in connection with a proposed 

rule, to prepare an Initial Regulatory 

Flexibility Analysis describing the 

impact of the proposed rule on small 

entities (defined by the Small Business 

Administration for purposes of the RFA 

to include banking entities with total 

assets of $550 million or less) or to 

certify that the proposed rule would not 

have a significant economic impact on 

a substantial number of small entities. 

Using the SBA’s size standards, as of 

December 31, 2013, the OCC supervised 

1,231 small entities.21

As described in the SUPPLEMENTARY

INFORMATION section of the preamble, the 

proposed rule would apply only to 

advanced approaches banking 

organizations. Advanced approaches 

banking organization is defined to 

include a national bank or Federal 

savings association that has, or is a 

subsidiary of, a bank holding company 

or savings and loan holding company 

that has total consolidated assets of 

$250 billion or more, total consolidated 

on-balance sheet foreign exposure of 

$10 billion or more, or that has elected 

to use the advanced approaches 

framework. After considering the SBA’s 

size standards and General Principles of 

Affiliation to identify small entities, the 

OCC determined that no small national 

banks or Federal savings associations 

are advanced approaches banking 

organizations. Because the proposed 

rule would apply only to advanced 

approaches banking organizations, it 

would not impact any OCC-supervised 

small entities. Therefore, the OCC 

certifies that the proposed rule would 

not have a significant economic impact 

on a substantial number of OCCsupervised small entities. 

FDIC: The Regulatory Flexibility Act, 

5 U.S.C. 601 et seq. (RFA), requires an 

agency, in connection with a notice of 

proposed rulemaking, to prepare an 

Initial Regulatory Flexibility Act 

analysis describing the impact of the 

proposed rule on small entities (defined 

by the Small Business Administration 

for purposes of the RFA to include 

banking entities with total assets of $550 

million or less) or to certify that the 

proposed rule will not have a significant 

economic impact on a substantial 

number of small entities. 

Using the SBA’s size standards, as of 

June 30, 2014, the FDIC supervised 

3,573 small entities. As described in the 

SUPPLEMENTARY INFORMATION section of 

the preamble, however, the proposed 

rule would apply only to advanced 

approaches banking organizations. 

Advanced approaches banking 

organization is defined to include a 

state nonmember bank or a state savings 

association that has, or is a subsidiary 

of, a bank holding company or savings 

and loan holding company that has total 

consolidated assets of $250 billion or 

more, total consolidated on-balance 

sheet foreign exposure of $10 billion or 

more, or that has elected to use the 

advanced approaches framework. As of 

June 30, 2014, based on a $550 million 

threshold, 2 (out of 3,267) small state 

nonmember banks and no (out of 306) 

small state savings associations were 

under the advanced approaches 

framework. Therefore, the FDIC does 

not believe that the proposed rule will 

result in a significant economic impact 

on a substantial number of small entities 

under its supervisory jurisdiction. 

The FDIC certifies that the proposed 

rule would not have a significant 

economic impact on a substantial 

number of small FDIC-supervised 

institutions. 

Board: The Board is providing an 

initial regulatory flexibility analysis 

with respect to this proposed rule. As 

discussed above, this proposed rule 

would clarify, correct, and update 

aspects of the agencies’ regulatory 

capital framework applicable to banking 

organizations that are subject to the 

advanced approaches. The proposed 

revisions are largely driven by 

observations made by the agencies 

during the parallel-run review process 

of advanced approaches banking 

organizations as well as a recent 

assessment of the regulatory capital 

framework. 

Under regulations issued by the Small 

Business Administration, a small entity 

includes a depository institution, bank 

holding company, or savings and loan 

holding company with total assets of 

$550 million or less (a small banking 

organization).22 As of June 30, 2014, 

there were approximately 657 small 

state member banks, 3,719 small bank 

holding companies, and 254 small 

savings and loan holding companies. 

The proposed rule would apply only 

to advanced approaches banking 

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75462 Federal Register / Vol. 79, No. 243 / Thursday, December 18, 2014 / Proposed Rules 

organizations, which, generally, are 

banking organizations with total 

consolidated assets of $250 billion or 

more, that have total consolidated onbalance sheet foreign exposure of $10 

billion or more, are a subsidiary of an 

advanced approaches depository 

institution, or that elect to use the 

advanced approaches framework. 

Currently, no small top-tier bank 

holding company, top-tier savings and 

loan holding company, or state member 

bank is an advanced approaches 

banking organization, so there would be 

no additional projected compliance 

requirements imposed on small bank 

holding companies, savings and loan 

holding companies, or state member 

banks. The Board expects that any small 

bank holding company, savings and 

loan holding company, or state member 

bank that would be covered by this 

proposed rule would rely on its parent 

banking organization for compliance 

and would not bear additional costs. 

The Board is aware of no other federal 

rules that duplicate, overlap, or conflict 

with the proposed rule. The Board 

believes that the proposed rule will not 

have a significant economic impact on 

small banking organizations supervised 

by the Board and therefore believes that 

there are no significant alternatives to 

the proposed rule that would reduce the 

economic impact on small banking 

organizations supervised by the Board. 

The Board welcomes comment on all 

aspects of its analysis. A final regulatory 

flexibility analysis will be conducted 

after consideration of comments 

received during the public comment 

period. 

C. OCC Unfunded Mandates Reform Act 

of 1995 Determination 

The OCC has analyzed the notice of 

proposed rulemaking under the factors 

set forth in the Unfunded Mandates 

Reform Act of 1995 (UMRA) (2 U.S.C. 

1532). Under this analysis, the OCC 

considered whether the proposed rule 

includes a Federal mandate that may 

result in the expenditure by State, local, 

and Tribal governments, in the 

aggregate, or by the private sector, of 

$100 million or more in any one year 

(adjusted annually for inflation). 

The proposed rule includes 

clarifications, corrections, and updates 

for certain aspects of the agencies’ 

regulatory capital rules applicable to 

national banks and Federal savings 

associations subject to the OCC’s 

advanced approaches risk-based capital 

rule. 

Because the proposed rule is designed 

to clarify, correct, and update existing 

rules, and does not introduce any new 

requirements, the OCC has determined 

that it would not result in expenditures 

by State, local, and Tribal governments, 

or by the private sector, of $100 million 

or more. Accordingly, the OCC has not 

prepared a written statement to 

accompany its proposed rule. 

D. Plain Language 

Section 722 of the Gramm-LeachBliley Act requires the Federal banking 

agencies to use plain language in all 

proposed and final rules published after 

January 1, 2000. The agencies have 

sought to present the proposed rule in 

a simple and straightforward manner, 

and invite comment on the use of plain 

language. For example: 

• Have the agencies organized the 

material to suit your needs? If not, how 

could they present the proposed rule 

more clearly? 

• Are the requirements in the 

proposed rule clearly stated? If not, how 

could the proposed rule be more clearly 

stated? 

• Do the regulations contain technical 

language or jargon that is not clear? If 

so, which language requires 

clarification? 

• Would a different format (grouping 

and order of sections, use of headings, 

paragraphing) make the regulation 

easier to understand? If so, what 

changes would achieve that? 

• Is this section format adequate? If 

not, which of the sections should be 

changed and how? 

• What other changes can the 

agencies incorporate to make the 

regulation easier to understand? 

List of Subjects 

12 CFR Part 3 

Administrative practice and 

procedure, Capital, National banks, 

Reporting and recordkeeping 

requirements, Risk. 

12 CFR Part 217 

Administrative practice and 

procedure, Banks, Banking, Capital, 

Federal Reserve System, Holding 

companies, Reporting and 

recordkeeping requirements, Securities. 

12 CFR Part 324 

Administrative practice and 

procedure, Banks, banking, Capital 

Adequacy, Reporting and recordkeeping 

requirements, Savings associations, 

State non-member banks. 

DEPARTMENT OF THE TREASURY 

Office of the Comptroller of the 

Currency 

12 CFR Chapter I 

Authority and Issuance 

For the reasons set forth in the 

common preamble and under the 

authority of 12 U.S.C. 93a, 1462, 1462a, 

1463, 1464, 3907, 3909, 1831o, and 

5412(b)(2)(B), the Office of the 

Comptroller of the Currency proposes to 

amend part 3 of chapter I of title 12, 

Code of Federal Regulations as follows: 

PART 3—CAPITAL ADEQUACY 

STANDARDS 

■ 1. The authority citation for part 3 

continues to read as follows: 

Authority: 12 U.S.C. 93a, 161, 1462, 1462a, 

1463, 1464, 1818, 1828(n), 1828 note, 1831n 

note, 1835, 3907, 3909, and 5412(b)(2)(B). 

■ 2. Section 3.2 is amended by revising 

the definition of ‘‘Residential mortgage 

exposure’’ to read as follows: 

§ 3.2 Definitions. 

* * * * * 

Residential mortgage exposure means 

an exposure (other than a securitization 

exposure, equity exposure, statutory 

multifamily mortgage, or presold 

construction loan) that is: 

(1)(i) An exposure that is primarily 

secured by a first or subsequent lien on 

one-to-four family residential property; 

or 

(ii) An exposure with an original and 

outstanding amount of $1 million or less 

that is primarily secured by a first or 

subsequent lien on residential property 

that is not one-to-four family; and 

(2) For purposes of calculating capital 

requirements under subpart E of this 

part, managed as part of a segment of 

exposures with homogeneous risk 

characteristics and not on an individualexposure basis. 

* * * * * 

■ 3. Section 3.10 is amended by revising 

paragraph (c) introductory text to read 

as follows: 

§ 3.10 Minimum capital requirements. 

* * * * * 

(c) Advanced approaches capital ratio 

calculations. An advanced approaches 

national bank or Federal savings 

association that has completed the 

parallel run process and received 

notification from the OCC pursuant to 

§ 3.121(d) must determine its regulatory 

capital ratios as described in paragraphs 

(c)(1) through (3) of this section. An 

advanced approaches national bank or 

Federal savings association must 

determine its supplementary leverage 

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ratio in accordance with paragraph 

(c)(4) of this section, beginning with the 

calendar quarter immediately following 

the quarter in which the national bank 

or Federal savings association meets any 

of the criteria in § 3.100(b)(1). 

* * * * * 

■ 4. Section 3.22 is amended by revising 

paragraph (b)(1)(iii) to read as follows: 

§ 3.22 Regulatory capital adjustments and 

deductions. 

* * * * * 

(b) * * * 

(1) * * * 

(iii) A national bank or Federal 

savings association must deduct any net 

gain and add any net loss related to 

changes in the fair value of liabilities 

that are due to changes in the national 

bank’s or Federal savings association’s 

own credit risk. An advanced 

approaches national bank or Federal 

savings association must deduct the 

difference between its credit spread 

premium and the risk-free rate for 

derivatives that are liabilities as part of 

this adjustment. 

* * * * * 

■ 5. Section 3.100 is amended by 

revising paragraph (b)(1)(ii) to read as 

follows: 

§ 3.100 Purpose, applicability, and 

principle of conservatism. 

* * * * * 

(b) * * * 

(1) * * * 

(ii) Has consolidated total on-balance 

sheet foreign exposure on its most 

recent year-end Call Report equal to $10 

billion or more (where total on-balance 

sheet foreign exposure equals total 

foreign countries cross-border claims on 

an ultimate-risk basis, plus total foreign 

countries claims on local residents on 

an ultimate-risk basis, plus total foreign 

countries fair value of foreign exchange 

and derivative products), calculated in 

accordance with the Federal Financial 

Institutions Examination Council 

(FFIEC) 009 Country Exposure Report; 

* * * * * 

■ 6. Section 3.122 is amended by: 

■ a. Revising paragraphs (a)(3) and 

(b)(1); 

■ b. Adding paragraph (b)(2)(iii); 

■ c. Revising paragraphs (b)(3) and (5) 

and (c)(1), (2), (5), and (6); 

■ d. Redesignating paragraphs (c)(9) and 

(10) as paragraphs (c)(10) and (11), 

revising them, and adding a new 

paragraph (c)(9); and 

■ e. Revising paragraph (i)(5). 

The revisions and additions read as 

follows: 

§ 3.122 Qualification requirements. 

(a) * * * 

(3) Each national bank or Federal 

savings association must have an 

appropriate infrastructure with risk 

measurement and management 

processes that meet the qualification 

requirements of this section and are 

appropriate given the national bank’s or 

Federal savings association’s size and 

level of complexity. Regardless of 

whether the systems and models that 

generate the risk parameters necessary 

for calculating a national bank’s or 

Federal savings association’s risk-based 

capital requirements are located at any 

affiliate of the national bank or Federal 

savings association, the national bank or 

Federal savings association itself must 

ensure that the risk parameters and 

reference data used to determine its 

risk-based capital requirements are 

representative of long run experience 

with respect to its own credit risk and 

operational risk exposures. 

(b) Risk rating and segmentation 

systems for wholesale and retail 

exposures. (1)(i) A national bank or 

Federal savings association must have 

an internal risk rating and segmentation 

system that accurately, reliably, and 

meaningfully differentiates among 

degrees of credit risk for the national 

bank’s or Federal savings association’s 

wholesale and retail exposures. When 

assigning an internal risk rating, a 

national bank or Federal savings 

association may consider a third-party 

assessment of credit risk, provided that 

the national bank’s or Federal savings 

association’s internal risk rating 

assignment does not rely solely on the 

external assessment. 

(ii) If a national bank or Federal 

savings association uses multiple rating 

or segmentation systems, the national 

bank’s or Federal savings association’s 

rationale for assigning an obligor or 

exposure to a particular system must be 

documented and applied in a manner 

that best reflects the obligor’s or 

exposure’s level of risk. A national bank 

or Federal savings association must not 

inappropriately allocate obligors or 

exposures across systems to minimize 

regulatory capital requirements. 

(iii) In assigning ratings to wholesale 

obligors and exposures, including loss 

severity ratings grades to wholesale 

exposures, and assigning retail 

exposures to retail segments, a national 

bank or Federal savings association 

must use all relevant and material 

information and ensure that the 

information is current. 

(iv) When assigning an obligor to a PD 

rating or retail exposure to a PD 

segment, a national bank or Federal 

savings association must assess the 

obligor or retail borrower’s ability and 

willingness to contractually perform, 

taking a conservative view of projected 

information. 

(2) * * * 

(iii) A national bank or Federal 

savings association must have an 

effective process to obtain and update in 

a timely manner relevant and material 

information on obligor and exposure 

characteristics that affect PD, LGD and 

EAD. 

(3) For retail exposures: 

(i) A national bank or Federal savings 

association must have an internal 

system that groups retail exposures into 

the appropriate retail exposure 

subcategory and groups the retail 

exposures in each retail exposure 

subcategory into separate segments with 

homogeneous risk characteristics that 

provide a meaningful differentiation of 

risk. The national bank’s or Federal 

savings association’s system must 

identify and group in separate segments 

by subcategories exposures identified in 

§ 3.131(c)(2)(ii) and (iii). 

(ii) A national bank or Federal savings 

association must have an internal 

system that captures all relevant 

exposure risk characteristics, including 

borrower credit score, product and 

collateral types, as well as exposure 

delinquencies, and must consider crosscollateral provisions, where present. 

(iii) The national bank or Federal 

savings association must review and, if 

appropriate, update assignments of 

individual retail exposures to segments 

and the loss characteristics and 

delinquency status of each identified 

risk segment. These reviews must occur 

whenever the national bank or Federal 

savings association receives new 

material information, but generally no 

less frequently than quarterly, and, in 

all cases, at least annually. 

* * * * * 

(5) The national bank’s or Federal 

savings association’s internal risk rating 

system for wholesale exposures must 

provide for the review and update (as 

appropriate) of each obligor rating and 

(if applicable) each loss severity rating 

whenever the national bank or Federal 

savings association obtains relevant and 

material information on the obligor or 

exposure that affect PD, LGD and EAD, 

but no less frequently than annually. 

(c) Quantification of risk parameters 

for wholesale and retail exposures. (1) 

The national bank or Federal savings 

association must have a comprehensive 

risk parameter quantification process 

that produces accurate, timely, and 

reliable estimates of the risk parameters 

on a consistent basis for the national 

bank’s or Federal savings association’s 

wholesale and retail exposures. 

(2) A national bank’s or Federal 

savings association’s estimates of PD, 

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LGD, and EAD must incorporate all 

relevant, material, and available data 

that is reflective of the national bank’s 

or Federal savings association’s actual 

wholesale and retail exposures and of 

sufficient quality to support the 

determination of risk-based capital 

requirements for the exposures. In 

particular, the population of exposures 

in the data used for estimation 

purposes, and lending standards in use 

when the data were generated, and other 

relevant characteristics, should closely 

match or be comparable to the national 

bank’s or Federal savings association’s 

exposures and standards. In addition, a 

national bank or Federal savings 

association must: 

(i) Demonstrate that its estimates are 

representative of long run experience, 

including periods of economic 

downturn conditions, whether internal 

or external data are used; 

(ii) Take into account any changes in 

lending practice or the process for 

pursuing recoveries over the observation 

period; 

(iii) Promptly reflect technical 

advances, new data, and other 

information as they become available; 

(iv) Demonstrate that the data used to 

estimate risk parameters support the 

accuracy and robustness of those 

estimates; and 

(v) Demonstrate that its estimation 

technique performs well in out-ofsample tests whenever possible. 

* * * * * 

(5) The national bank or Federal 

savings association must be able to 

demonstrate which variables have been 

found to be statistically significant with 

regard to EAD. The national bank’s or 

Federal savings association’s EAD 

estimates must reflect its specific 

policies and strategies with regard to 

account management, including account 

monitoring and payment processing, 

and its ability and willingness to 

prevent further drawdowns in 

circumstances short of payment default. 

The national bank or Federal savings 

association must have adequate systems 

and procedures in place to monitor 

current outstanding amounts against 

committed lines, and changes in 

outstanding amounts per obligor and 

obligor rating grade and per retail 

segment. The national bank or Federal 

savings association must be able to 

monitor outstanding amounts on a daily 

basis. 

(6) At a minimum, PD estimates for 

wholesale obligors and retail segments 

must be based on at least five years of 

default data. LGD estimates for 

wholesale exposures must be based on 

at least seven years of loss severity data, 

and LGD estimates for retail segments 

must be based on at least five years of 

loss severity data. EAD estimates for 

wholesale exposures must be based on 

at least seven years of exposure amount 

data, and EAD estimates for retail 

segments must be based on at least five 

years of exposure amount data. If the 

national bank or Federal savings 

association has relevant and material 

reference data that span a longer period 

of time than the minimum time periods 

specified above, the national bank or 

Federal savings association must 

incorporate such data in its estimates, 

provided that it does not place undue 

weight on periods of favorable or benign 

economic conditions relative to periods 

of economic downturn conditions. 

* * * * * 

(9) If a national bank or Federal 

savings association uses internal data 

obtained prior to becoming subject to 

this subpart E or external data to arrive 

at PD, LGD, or EAD estimates, the 

national bank or Federal savings 

association must demonstrate to the 

OCC that the national bank or Federal 

savings association has made 

appropriate adjustments if necessary to 

be consistent with the definition of 

default in § 3.101. Internal data obtained 

after the national bank or Federal 

savings association becomes subject to 

this subpart E must be consistent with 

the definition of default in § 3.101. 

(10) The national bank or Federal 

savings association must review and 

update (as appropriate) its risk 

parameters and its risk parameter 

quantification process at least annually. 

(11) The national bank or Federal 

savings association must, at least 

annually, conduct a comprehensive 

review and analysis of reference data to 

the national bank’s or Federal savings 

association’s exposures, quality of 

reference data to support PD, LGD, and 

EAD estimates, and consistency of 

reference data to the definition of 

default in § 3.101. 

* * * * * 

(i) * * * 

(5) The national bank or Federal 

savings association must have an 

internal audit function or equivalent 

function that is independent of 

business-line management that at least 

annually: 

(i) Reviews the national bank’s or 

Federal savings association’s advanced 

systems and associated operations, 

including the operations of its credit 

function and estimations of PD, LGD, 

and EAD; 

(ii) Assesses the effectiveness of the 

controls supporting the national bank’s 

or Federal savings association’s 

advanced systems; and 

(iii) Documents and reports its 

findings to the national bank’s or 

Federal savings association’s board of 

directors (or a committee thereof). 

* * * * * 

■ 7. Section 3.131 is amended by: 

■ a. Revising paragraphs (d)(5)(ii) and 

(iii); and 

■ b. In paragraph (e)(3)(vi), removing 

‘‘§ 3.22(a)(7)’’ and adding ‘‘§ 3.22(d)’’ in 

its place. 

The revisions read as follows: 

§ 3.131 Mechanics for calculating total 

wholesale and retail risk-weighted assets. 

* * * * * 

(d) * * * 

(5) * * * 

(ii) A national bank or Federal savings 

association may take into account the 

risk reducing effects of guarantees and 

credit derivatives in support of retail 

exposures in a segment when 

quantifying the PD and LGD of the 

segment. In doing so, a national bank or 

Federal savings association must 

consider all relevant available 

information. 

(iii) Except as provided in paragraph 

(d)(6) of this section, a national bank or 

Federal savings association may take 

into account the risk reducing effects of 

collateral in support of a wholesale 

exposure when quantifying the LGD of 

the exposure, and may take into account 

the risk reducing effects of collateral in 

support of retail exposures when 

quantifying the PD and LGD of the 

segment. In order to do so, a national 

bank or Federal savings association 

must have established internal 

requirements for collateral management, 

legal certainty, and risk management 

processes. 

* * * * * 

■ 8. Section 3.132 is amended by: 

■ a. In Table 1 to § 3.132, removing 

‘‘this section’’ and adding ‘‘§ 3.32’’ in its 

place, wherever it appears; 

■ b. Revising paragraphs (c)(1) and 

(d)(5)(iii)(B); 

■ c. In paragraph (d)(7)(iv)(B), removing 

‘‘§ 3.131(b)(2)’’ and adding 

‘‘§ 3.132(b)(2)’’ in its place; and 

■ d. In paragraph (d)(9)(ii), removing 

‘‘paragraph (e)(3)’’ and adding 

‘‘paragraph (e)(6)’’ in its place. 

The revisions read as follows: 

§ 3.132 Counterparty credit risk of repostyle transactions, eligible margin loans, 

and OTC derivative contracts. 

* * * * * 

(c) EAD for OTC derivative 

contracts—(1) OTC derivative contracts 

not subject to a qualifying master 

netting agreement. A national bank or 

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Federal savings association must 

determine the EAD for an OTC 

derivative contract that is not subject to 

a qualifying master netting agreement 

using the current exposure methodology 

in paragraph (c)(5) of this section or 

using the internal models methodology 

described in paragraph (d) of this 

section. A national bank or Federal 

savings association may reduce the EAD 

calculated according to paragraphs (c)(5) 

or (d) of this section by the credit 

valuation adjustment that the national 

bank or Federal savings association has 

recognized in its balance sheet valuation 

of any OTC derivative contracts in the 

netting set. For purposes of this 

paragraph (c), the credit valuation 

adjustment does not include any 

adjustments to common equity tier 1 

capital attributable to changes in the fair 

value of the national bank’s or Federal 

savings association’s liabilities that are 

due to changes in its own credit risk 

since the inception of the transaction 

with the counterparty. 

* * * * * 

(d) * * * 

(5) * * * 

(iii) * * * 

(B) Twenty business days if the 

number of trades in a netting set 

exceeds 5,000 at any time during the 

previous quarter (except if the national 

bank or Federal savings association is 

calculating EAD for a cleared 

transaction under § 3.133) or contains 

one or more trades involving illiquid 

collateral or any derivative contract that 

cannot be easily replaced. If over the 

two previous quarters more than two 

margin disputes on a netting set have 

occurred that lasted more than the 

margin period of risk, then the national 

bank or Federal savings association 

must use a margin period of risk for that 

netting set that is at least two times the 

minimum margin period of risk for that 

netting set. If the periodicity of the 

receipt of collateral is N-days, the 

minimum margin period of risk is the 

minimum margin period of risk under 

this paragraph (d) plus N minus 1. This 

period should be extended to cover any 

impediments to prompt re-hedging of 

any market risk. 

* * * * * 

■ 9. Section 3.133 is amended by: 

■ a. In paragraph (b)(3)(i)(B) removing 

‘‘§ 3.132(b)(3)(i)(A)’’ and adding 

‘‘§ 3.133(b)(3)(i)(A)’’ in its place; 

■ b. In paragraph (b)(4)(ii) removing 

‘‘§ 3.131’’ and adding ‘‘subparts E or F 

of this part, as applicable’’ in its place; 

■ c. Adding paragraph (c)(3)(iii); and 

■ d. In paragraph (c)(4)(ii) removing 

‘‘§ 3.131’’ and adding ‘‘subparts E or F 

of this part, as applicable’’ in its place. 

The addition reads as follows: 

§ 3.133 Cleared transactions. 

* * * * * 

(c) * * * 

(3) * * * 

(iii) Notwithstanding paragraphs 

(c)(3)(i) and (ii) of this section, a 

clearing member national bank or 

Federal savings association may apply a 

risk weight of 0 percent to the trade 

exposure amount for a cleared 

transaction with a CCP where the 

clearing member national bank or 

Federal savings association is acting as 

a financial intermediary on behalf of a 

clearing member client, the transaction 

offsets another transaction that satisfies 

the requirements set forth in § 3.3(a), 

and the clearing member national bank 

or Federal savings association is not 

obligated to reimburse the clearing 

member client in the event of the CCP 

default. 

* * * * * 

§ 3.136 [Amended] 

■ 10. Section 3.136 is amended by: 

■ a. In paragraph (e)(2)(i), removing 

‘‘§ 3.135(e)(1) and (e)(2)’’ and adding 

‘‘§ 3.136(e)(1) and (2)’’ in its place; and 

■ b. In paragraph (e)(2)(ii), removing 

‘‘§§ 3.135(e)(1) and (e)(2)’’ and adding 

‘‘§ 3.136(e)(1) and (2)’’ in its place. 

■ 11. Section 3.172 is amended by 

revising paragraph (d), as added at 79 

FR 57743, September 26, 2014, effective 

January 1, 2015, to read as follows: 

§ 3.172 Disclosure requirements. 

* * * * * 

(d)(1) A national bank or Federal 

savings association that meets any of the 

criteria in § 3.100(b)(1) before January 1, 

2015, must publicly disclose each 

quarter its supplementary leverage ratio 

and the components thereof (that is, tier 

1 capital and total leverage exposure) as 

calculated under subpart B of this part, 

beginning with the first quarter in 2015. 

This disclosure requirement applies 

without regard to whether the national 

bank or Federal savings association has 

completed the parallel run process and 

received notification from the OCC 

pursuant to § 3.121(d). 

(2) A national bank or Federal savings 

association that meets any of the criteria 

in § 3.100(b)(1) on or after January 1, 

2015, must publicly disclose each 

quarter its supplementary leverage ratio 

and the components thereof (that is, tier 

1 capital and total leverage exposure) as 

calculated under subpart B of this part 

beginning with the calendar quarter 

immediately following the quarter in 

which the national bank or Federal 

savings association becomes an 

advanced approaches national bank or 

Federal savings association. This 

disclosure requirement applies without 

regard to whether the national bank or 

Federal savings association has 

completed the parallel run process and 

has received notification from the OCC 

pursuant to § 3.121(d). 

■ 12. Section 3.173 is amended by: 

■ a. Redesignating paragraph (a) 

introductory text, as revised at 79 FR 

57743, September 26, 2014, effective 

January 1, 2015, as paragraph (a)(1) and 

revising it; 

■ b. Adding paragraphs (a)(2) and (3); 

■ c. Revising the entry for (a)(1) in Table 

6 to § 3.173; and 

■ d. Revising the entry for (i)(2) in Table 

9 to § 3.173. 

The revisions and additions read as 

follows: 

§ 3.173 Disclosures by certain advanced 

approaches national banks or Federal 

savings associations. 

(a)(1) An advanced approaches 

national bank or Federal savings 

association described in § 3.172(b) must 

make the disclosures described in 

Tables 1 through 12 to § 3.173. 

(2) An advanced approaches national 

bank or Federal savings association that 

is required to publicly disclose its 

supplementary leverage ratio pursuant 

to § 3.172(d) must make the disclosures 

required under Table 13 to § 3.173, 

unless the national bank or Federal 

savings association is a consolidated 

subsidiary of a bank holding company, 

savings and loan holding company, or 

depository institution that is subject to 

these disclosures requirements or a 

subsidiary of a non-U.S. banking 

organization that is subject to 

comparable public disclosure 

requirements in its home jurisdiction. 

(3) The disclosures described in 

Tables 1 through 12 to § 3.173 must be 

made publicly available for twelve 

consecutive quarters beginning on 

January 1, 2014, or a shorter period, as 

applicable, for the quarters after the 

national bank or Federal savings 

association has completed the parallel 

run process and received notification 

from the OCC pursuant to § 121(d) of 

subpart E of this part. The disclosures 

described in Table 13 to § 3.173 must be 

made publicly available for twelve 

consecutive quarters beginning on 

January 1, 2015, or a shorter period, as 

applicable, for the quarters after the 

national bank or Federal savings 

association becomes subject to the 

disclosure of the supplementary 

leverage ratio pursuant to § 3.172(d). 

* * * * * 

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TABLE 6 TO § 3.173—CREDIT RISK: DISCLOSURES FOR PORTFOLIOS SUBJECT TO IRB RISK-BASED CAPITAL FORMULA

Qualitative disclosures .......................... (a) .............................. * * * 

(1) Structure of internal rating systems and if the national bank or Federal savings association considers external ratings, the relation between internal 

and external ratings; 

* * * * * * * 

* * * * * 

TABLE 9 TO § 3.173—SECURITIZATION

*******

Quantitative disclosures ........... * * * 

(i) ................. * * * 

(2) Aggregate amount disclosed separately by type of underlying exposure in the pool of any: 

(A) After-tax gain-on-sale on a securitization that has been deducted from common equity 

tier 1 capital; and (B) Credit-enhancing interest-only strip that is assigned a 1,250 percent 

risk weight. 

* * * * * * * 

* * * * * 

Board of Governors of the Federal 

Reserve System 

12 CFR Chapter II 

Authority and Issuance 

For the reasons set forth in the 

common preamble, part 217 of chapter 

II of title 12 of the Code of Federal 

Regulations is proposed to be amended 

as follows: 

PART 217—CAPITAL ADEQUACY OF 

BANK HOLDING COMPANIES, 

SAVINGS AND LOAN HOLDING 

COMPANIES, AND STATE MEMBER 

BANKS (REGULATION Q) 

■ 13. The authority citation for part 217 

continues to read as follows: 

Authority: 12 U.S.C. 248(a), 321–338a, 

481–486, 1462a, 1467a, 1818, 1828, 1831n, 

1831o, 1831p–l, 1831w, 1835, 1844(b), 1851, 

3904, 3906–3909, 4808, 5365, 5368, 5371. 

■ 14. Section 217.2 is amended by 

revising the definition of ‘‘Residential 

mortgage exposure’’ to read as follows: 

§ 217.2 Definitions. 

* * * * * 

Residential mortgage exposure means 

an exposure (other than a securitization 

exposure, equity exposure, statutory 

multifamily mortgage, or presold 

construction loan) that is: 

(1)(i) An exposure that is primarily 

secured by a first or subsequent lien on 

one-to-four family residential property; 

or 

(ii) An exposure with an original and 

outstanding amount of $1 million or less 

that is primarily secured by a first or 

subsequent lien on residential property 

that is not one-to-four family; and 

(2) For purposes of calculating capital 

requirements under subpart E of this 

part, managed as part of a segment of 

exposures with homogeneous risk 

characteristics and not on an individualexposure basis. 

* * * * * 

■ 15. Section 217.10 is amended by 

revising paragraph (c) introductory text 

to read as follows: 

§ 217.10 Minimum capital requirements. 

* * * * * 

(c) Advanced approaches capital ratio 

calculations. An advanced approaches 

Board-regulated institution that has 

completed the parallel run process and 

received notification from the Board 

pursuant to § 217.121(d) must determine 

its regulatory capital ratios as described 

in paragraphs (c)(1) through (3) of this 

section. An advanced approaches 

Board-regulated institution must 

determine its supplementary leverage 

ratio in accordance with paragraph 

(c)(4) of this section, beginning with the 

calendar quarter immediately following 

the quarter in which the Boardregulated institution meets any of the 

criteria in § 217.100(b)(1). 

* * * * * 

■ 16. Section 217.22 is amended by 

revising paragraph (b)(1)(iii) to read as 

follows: 

§ 217.22 Regulatory capital adjustments 

and deductions. 

* * * * * 

(b) * * * 

(1) * * * 

(iii) A Board-regulated institution 

must deduct any net gain and add any 

net loss related to changes in the fair 

value of liabilities that are due to 

changes in the Board-regulated 

institution’s own credit risk. An 

advanced approaches Board-regulated 

institution must deduct the difference 

between its credit spread premium and 

the risk-free rate for derivatives that are 

liabilities as part of this adjustment. 

* * * * * 

■ 17. Section 217.100 is amended by 

revising paragraph (b)(1)(ii)(B) to read as 

follows: 

§ 217.100 Purpose, applicability, and 

principle of conservatism 

* * * * * 

(b) * * * 

(1) * * * 

(ii) * * * 

(B) Has consolidated total on-balance 

sheet foreign exposure on its most 

recent year-end Call Report, for a state 

member bank, or FR Y–9C, for a bank 

holding company or savings and loan 

holding company, as applicable, equal 

to $10 billion or more (where total onbalance sheet foreign exposure equals 

total foreign countries cross-border 

claims on an ultimate-risk basis, plus 

total foreign countries claims on local 

residents on an ultimate-risk basis, plus 

total foreign countries fair value of 

foreign exchange and derivative 

products), calculated in accordance 

with the Federal Financial Institutions 

Examination Council (FFIEC) 009 

Country Exposure Report; 

* * * * * 

■ 18. Section 217.122 is amended by: 

■ a. Revising paragraphs (a)(3) and 

(b)(1); 

■ b. Adding paragraph (b)(2)(iii); 

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■ c. Revising paragraphs (b)(3) and (5) 

and (c)(1), (2), (5), and (6); 

■ d. Redesignating paragraphs (c)(9) and 

(10) as paragraphs (c)(10) and (11), 

revising them, and, adding a new 

paragraph (c)(9); and 

■ e. Revising paragraph (i)(5). 

The revisions and additions read as 

follows: 

§ 217.122 Qualification requirements. 

(a) * * * 

(3) Each Board-regulated institution 

must have an appropriate infrastructure 

with risk measurement and management 

processes that meet the qualification 

requirements of this section and are 

appropriate given the Board-regulated 

institution’s size and level of 

complexity. Regardless of whether the 

systems and models that generate the 

risk parameters necessary for calculating 

a Board-regulated institution’s riskbased capital requirements are located 

at any affiliate of the Board-regulated 

institution, the Board-regulated 

institution itself must ensure that the 

risk parameters and reference data used 

to determine its risk-based capital 

requirements are representative of long 

run experience with respect to its own 

credit risk and operational risk 

exposures. 

(b) Risk rating and segmentation 

systems for wholesale and retail 

exposures. (1)(i) A Board-regulated 

institution must have an internal risk 

rating and segmentation system that 

accurately, reliably, and meaningfully 

differentiates among degrees of credit 

risk for the Board-regulated institution’s 

wholesale and retail exposures. When 

assigning an internal risk rating, a 

Board-regulated institution may 

consider a third-party assessment of 

credit risk, provided that the Boardregulated institution’s internal risk 

rating assignment does not rely solely 

on the external assessment. 

(ii) If a Board-regulated institution 

uses multiple rating or segmentation 

systems, the Board-regulated 

institution’s rationale for assigning an 

obligor or exposure to a particular 

system must be documented and 

applied in a manner that best reflects 

the obligor or exposure’s level of risk. A 

Board-regulated institution must not 

inappropriately allocate obligors across 

systems to minimize regulatory capital 

requirements. 

(iii) In assigning ratings to wholesale 

obligors and exposures, including loss 

severity ratings grades to wholesale 

exposures, and assigning retail 

exposures to retail segments, a Boardregulated institution must use all 

relevant and material information and 

ensure that the information is current. 

(iv) When assigning an obligor to a PD 

rating or retail exposure to a PD 

segment, a Board-regulated institution 

must assess the obligor or retail 

borrower’s ability and willingness to 

contractually perform, taking a 

conservative view of projected 

information. 

(2) * * * 

(iii) A Board-regulated institution 

must have an effective process to obtain 

and update in a timely manner relevant 

and material information on obligor and 

exposure characteristics that affect PD, 

LGD and EAD. 

(3) For retail exposures: 

(i) A Board-regulated institution must 

have an internal system that groups 

retail exposures into the appropriate 

retail exposure subcategory and groups 

the retail exposures in each retail 

exposure subcategory into separate 

segments with homogeneous risk 

characteristics that provide a 

meaningful differentiation of risk. The 

Board-regulated institution’s system 

must identify and group in separate 

segments by subcategories exposures 

identified in § 217.131(c)(2)(ii) and (iii). 

(ii) A Board-regulated institution must 

have an internal system that captures all 

relevant exposure risk characteristics, 

including borrower credit score, product 

and collateral types, as well as exposure 

delinquencies, and must consider crosscollateral provisions, where present. 

(iii) The Board-regulated institution 

must review and, if appropriate, update 

assignments of individual retail 

exposures to segments and the loss 

characteristics and delinquency status 

of each identified risk segment. These 

reviews must occur whenever the 

Board-regulated institution receives new 

material information, but generally no 

less frequently than quarterly, and, in 

all cases, at least annually. 

* * * * * 

(5) The Board-regulated institution’s 

internal risk rating system for wholesale 

exposures must provide for the review 

and update (as appropriate) of each 

obligor rating and (if applicable) each 

loss severity rating whenever the Boardregulated institution obtains relevant 

and material information on the obligor 

or exposure that affect PD, LGD and 

EAD, but no less frequently than 

annually. 

(c) Quantification of risk parameters 

for wholesale and retail exposures. (1) 

The Board-regulated institution must 

have a comprehensive risk parameter 

quantification process that produces 

accurate, timely, and reliable estimates 

of the risk parameters on a consistent 

basis for the Board-regulated 

institution’s wholesale and retail 

exposures. 

(2) A Board-regulated institution’s 

estimates of PD, LGD, and EAD must 

incorporate all relevant, material, and 

available data that is reflective of the 

Board-regulated institution’s actual 

wholesale and retail exposures and of 

sufficient quality to support the 

determination of risk-based capital 

requirements for the exposures. In 

particular, the population of exposures 

in the data used for estimation 

purposes, and lending standards in use 

when the data were generated, and other 

relevant characteristics, should closely 

match or be comparable to the Boardregulated institution’s exposures and 

standards. In addition, a Boardregulated institution must: 

(i) Demonstrate that its estimates are 

representative of long run experience, 

including periods of economic 

downturn conditions, whether internal 

or external data are used; 

(ii) Take into account any changes in 

lending practice or the process for 

pursuing recoveries over the observation 

period; 

(iii) Promptly reflect technical 

advances, new data, and other 

information as they become available; 

(iv) Demonstrate that the data used to 

estimate risk parameters support the 

accuracy and robustness of those 

estimates; and 

(v) Demonstrate that its estimation 

technique performs well in out-ofsample tests whenever possible. 

* * * * * 

(5) The Board-regulated institution 

must be able to demonstrate which 

variables have been found to be 

statistically significant with regard to 

EAD. The Board-regulated institution’s 

EAD estimates must reflect its specific 

policies and strategies with regard to 

account management, including account 

monitoring and payment processing, 

and its ability and willingness to 

prevent further drawdowns in 

circumstances short of payment default. 

The Board-regulated institution must 

have adequate systems and procedures 

in place to monitor current outstanding 

amounts against committed lines, and 

changes in outstanding amounts per 

obligor and obligor rating grade and per 

retail segment. The Board-regulated 

institution must be able to monitor 

outstanding amounts on a daily basis. 

(6) At a minimum, PD estimates for 

wholesale obligors and retail segments 

must be based on at least five years of 

default data. LGD estimates for 

wholesale exposures must be based on 

at least seven years of loss severity data, 

and LGD estimates for retail segments 

must be based on at least five years of 

loss severity data. EAD estimates for 

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wholesale exposures must be based on 

at least seven years of exposure amount 

data, and EAD estimates for retail 

segments must be based on at least five 

years of exposure amount data. If the 

Board-regulated institution has relevant 

and material reference data that span a 

longer period of time than the minimum 

time periods specified above, the Boardregulated institution must incorporate 

such data in its estimates, provided that 

it does not place undue weight on 

periods of favorable or benign economic 

conditions relative to periods of 

economic downturn conditions. 

* * * * * 

(9) If a Board-regulated institution 

uses internal data obtained prior to 

becoming subject to this subpart E or 

external data to arrive at PD, LGD, or 

EAD estimates, the Board-regulated 

institution must demonstrate to the 

Board that the Board-regulated 

institution has made appropriate 

adjustments if necessary to be consistent 

with the definition of default in 

§ 217.101. Internal data obtained after 

the Board-regulated institution becomes 

subject to this subpart E must be 

consistent with the definition of default 

in § 217.101. 

(10) The Board-regulated institution 

must review and update (as appropriate) 

its risk parameters and its risk 

parameter quantification process at least 

annually. 

(11) The Board-regulated institution 

must, at least annually, conduct a 

comprehensive review and analysis of 

reference data to the Board-regulated 

institution’s exposures, quality of 

reference data to support PD, LGD, and 

EAD estimates, and consistency of 

reference data to the definition of 

default in § 217.101. 

* * * * * 

(i) * * * 

(5) The Board-regulated institution 

must have an internal audit function or 

equivalent function that is independent 

of business-line management that at 

least annually: 

(i) Reviews the Board-regulated 

institution’s advanced systems and 

associated operations, including the 

operations of its credit function and 

estimations of PD, LGD, and EAD; 

(ii) Assesses the effectiveness of the 

controls supporting the Board-regulated 

institution’s advanced systems; and 

(iii) Documents and reports its 

findings to the Board-regulated 

institution’s board of directors (or a 

committee thereof). 

* * * * * 

■ 19. Section 217.131 is amended by: 

■ a. Revising paragraphs (d)(5)(ii) and 

(iii); and 

■ b. In paragraph (e)(3)(vi), removing 

‘‘§ 217.22(a)(7)’’ and adding 

‘‘§ 217.22(d)’’ in its place. 

The revisions read as follows: 

§ 217.131 Mechanics for calculating total 

wholesale and retail risk-weighted assets. 

* * * * * 

(d) * * * 

(5) * * * 

(ii) A national bank or Federal savings 

association may take into account the 

risk reducing effects of guarantees and 

credit derivatives in support of retail 

exposures in a segment when 

quantifying the PD and LGD of the 

segment. In doing so, a national bank or 

Federal savings association must 

consider all relevant available 

information. 

(iii) Except as provided in paragraph 

(d)(6) of this section, a national bank or 

Federal savings association may take 

into account the risk reducing effects of 

collateral in support of a wholesale 

exposure when quantifying the LGD of 

the exposure, and may take into account 

the risk reducing effects of collateral in 

support of retail exposures when 

quantifying the PD and LGD of the 

segment. In order to do so, a national 

bank or Federal savings association 

must have established internal 

requirements for collateral management, 

legal certainty, and risk management 

processes. 

* * * * * 

■ 20. Section 217.132 is amended by: 

■ a. In Table 1 to § 217.132, removing 

‘‘this section’’ and adding ‘‘§ 217.32’’ in 

its place, wherever it appears; 

■ b. Revising paragraphs (c)(1) and 

(d)(5)(iii)(B); 

■ c. In paragraph (d)(7)(iv)(B), removing 

‘‘§ 217.131(b)(2)’’ and adding 

‘‘§ 217.132(b)(2)’’ in its place; and 

■ d. In paragraph (d)(9)(ii), removing 

‘‘paragraph (e)(3)’’ and adding 

‘‘paragraph (e)(6)’’ in its place. 

The revisions read as follows: 

§ 217.132 Counterparty credit risk of repostyle transactions, eligible margin loans, 

and OTC derivative contracts. 

* * * * * 

(c) EAD for OTC derivative 

contracts—(1) OTC derivative contracts 

not subject to a qualifying master 

netting agreement. A Board-regulated 

institution must determine the EAD for 

an OTC derivative contract that is not 

subject to a qualifying master netting 

agreement using the current exposure 

methodology in paragraph (c)(5) of this 

section or using the internal models 

methodology described in paragraph (d) 

of this section. A Board-regulated 

institution may reduce the EAD 

calculated according to paragraphs (c)(5) 

or (d) of this section by the credit 

valuation adjustment that the Boardregulated institution has recognized in 

its balance sheet valuation of any OTC 

derivative contracts in the netting set. 

For purposes of this paragraph (c), the 

credit valuation adjustment does not 

include any adjustments to common 

equity tier 1 capital attributable to 

changes in the fair value of the Boardregulated institution’s liabilities that are 

due to changes in its own credit risk 

since the inception of the transaction 

with the counterparty. 

* * * * * 

(d) * * * 

(5) * * * 

(iii) * * * 

(B) Twenty business days if the 

number of trades in a netting set 

exceeds 5,000 at any time during the 

previous quarter (except if the Boardregulated institution is calculating EAD 

for a cleared transaction under 

§ 217.133) or contains one or more 

trades involving illiquid collateral or 

any derivative contract that cannot be 

easily replaced. If over the two previous 

quarters more than two margin disputes 

on a netting set have occurred that 

lasted more than the margin period of 

risk, then the Board-regulated 

institution must use a margin period of 

risk for that netting set that is at least 

two times the minimum margin period 

of risk for that netting set. If the 

periodicity of the receipt of collateral is 

N-days, the minimum margin period of 

risk is the minimum margin period of 

risk under this paragraph (d) plus N 

minus 1. This period should be 

extended to cover any impediments to 

prompt re-hedging of any market risk. 

* * * * * 

■ 21. Section 217.133 is amended by: 

■ a. In paragraph (b)(3)(i)(B), removing 

‘‘§ 217.132(b)(3)(i)(A)’’ and adding 

‘‘§ 217.133(b)(3)(i)(A)’’ in its place. 

■ b. In paragraph (b)(4)(ii) removing 

‘‘§ 217.131’’ and adding ‘‘subparts E or 

F of this part, as applicable’’ in its place. 

■ c. Adding paragraph (c)(3)(iii); and 

■ d. In paragraph (c)(4)(ii) removing 

‘‘§ 217.131’’ and adding ‘‘subparts E or 

F of this part, as applicable.’’ in its 

place. 

The revisions and additions read as 

follows: 

§ 217.133 Cleared transactions. 

* * * * * 

(c) * * * 

(3) * * * 

(iii) Notwithstanding paragraphs 

(c)(3)(i) and (ii) of this section, a 

clearing member Board-regulated 

institution may apply a risk weight of 0 

percent to the trade exposure amount 

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for a cleared transaction with a CCP 

where the clearing member Boardregulated institution is acting as a 

financial intermediary on behalf of a 

clearing member client, the transaction 

offsets another transaction that satisfies 

the requirements set forth in § 217.3(a), 

and the clearing member Boardregulated institution is not obligated to 

reimburse the clearing member client in 

the event of the CCP default. 

* * * * * 

§ 217.136 [Amended] 

■ 22. Section 217.136 is amended by: 

■ a. In paragraph (e)(2)(i) removing 

‘‘§ 217.135(e)(1) and (e)(2)’’ and adding 

‘‘§ 217.136(e)(1) and (2)’’ in its place; 

and 

■ b. In paragraph (e)(2)(ii) removing 

‘‘§§ 217.135(e)(1) and (e)(2)’’ and adding 

‘‘§ 217.136(e)(1) and (2)’’ in its place. 

■ 23. Section 217.172 is amended by 

revising paragraph (d), as added at 79 

FR 57746, September 26, 2014, effective 

January 1, 2015, to read as follows: 

§ 217.172 Disclosure requirements. 

* * * * * 

(d)(1) A Board-regulated institution 

that meets any of the criteria in 

§ 217.100(b)(1) before January 1, 2015, 

must publicly disclose each quarter its 

supplementary leverage ratio and the 

components thereof (that is, tier 1 

capital and total leverage exposure) as 

calculated under subpart B of this part, 

beginning with the first quarter in 2015. 

This disclosure requirement applies 

without regard to whether the Boardregulated institution has completed the 

parallel run process and received 

notification from the Board pursuant to 

§ 217.121(d). 

(2) A Board-regulated institution that 

meets any of the criteria in 

§ 217.100(b)(1) on or after January 1, 

2015, must publicly disclose each 

quarter its supplementary leverage ratio 

and the components thereof (that is, tier 

1 capital and total leverage exposure) as 

calculated under subpart B of this part 

beginning with the calendar quarter 

immediately following the quarter in 

which the Board-regulated institution 

becomes an advanced approaches 

Board-regulated institution. This 

disclosure requirement applies without 

regard to whether the Board-regulated 

institution has completed the parallel 

run process and has received 

notification from the Board pursuant to 

§ 217.121(d). 

■ 24. Section 217.173 is amended by: 

■ a. Designating paragraph (a) 

introductory text, as revised at 79 FR 

57746, September 26, 2014, effective 

January 1, 2015, as (a)(1) and revising it; 

■ b. Adding paragraphs (a)(2) and (3); 

■ c. Revising the entry for (a)(1) in Table 

6 to § 217.173; and 

■ d. Revising the entry for (i)(2) in Table 

9 to § 217.173. 

The revisions and additions read as 

follows: 

§ 217.173 Disclosures by certain advanced 

approaches Board-regulated institutions. 

(a)(1) An advanced approaches Boardregulated institution described in 

§ 217.172(b) must make the disclosures 

described in Tables 1 through 12 to 

§ 217.173. 

(2) An advanced approaches Boardregulated institution that is required to 

publicly disclose its supplementary 

leverage ratio pursuant to § 217.172(d) 

must make the disclosures required 

under Table 13 to § 217.173, unless the 

Board-regulated institution is a 

consolidated subsidiary of a bank 

holding company, savings and loan 

holding company, or depository 

institution that is subject to these 

disclosures requirements or a subsidiary 

of a non-U.S. banking organization that 

is subject to comparable public 

disclosure requirements in its home 

jurisdiction. 

(3) The disclosures described in 

Tables 1 through 12 to § 217.173 must 

be made publicly available for twelve 

consecutive quarters beginning on 

January 1, 2014, or a shorter period, as 

applicable, for the quarters after the 

Board-regulated institution has 

completed the parallel run process and 

received notification from the Board 

pursuant to section 121(d) of subpart E 

of this part. The disclosures described 

in Table 13 to § 217.173 must be made 

publicly available for twelve 

consecutive quarters beginning on 

January 1, 2015, or a shorter period, as 

applicable, for the quarters after the 

Board-regulated institution becomes 

subject to the disclosure of the 

supplementary leverage ratio pursuant 

to § 217.172(d). 

* * * * * 

TABLE 6 TO § 217.173—CREDIT RISK: DISCLOSURES FOR PORTFOLIOS SUBJECT TO IRB RISK-BASED CAPITAL FORMULA

Qualitative disclosures .......................... (a) .............................. * * * 

(1) Structure of internal rating systems and if the Board-regulated institution 

considers external ratings, the relation between internal and external ratings; 

* * * * * * * 

* * * * * 

TABLE 9 TO § 217.173—SECURITIZATION

Quantitative Disclosures ........................ * * * 

* * * * * * * 

(i) ................................. * * * 

(2) Aggregate amount disclosed separately by type of underlying exposure 

in the pool of any: (A) After-tax gain-on-sale on a securitization that has 

been deducted from common equity tier 1 capital; and (B) Credit-enhancing interest-only strip that is assigned a 1,250 percent risk weight. 

* * * * * * * 

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* * * * * 

Federal Deposit Insurance Corporation 

12 CFR Chapter III 

Authority and Issuance 

For the reasons stated in the 

preamble, the Federal Deposit Insurance 

Corporation proposes to amend part 324 

of chapter III of Title 12, Code of Federal 

Regulations as follows: 

PART 324—CAPITAL ADEQUACY 

■ 25. The authority citation for part 324 

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; 5371; 5412; Pub. L. 102–233, 105 Stat. 

1761, 1789, 1790 (12 U.S.C. 1831n note); Pub. 

L. 102–242, 105 Stat. 2236, 2355, as amended 

by Pub. L. 103–325, 108 Stat. 2160, 2233 (12 

U.S.C. 1828 note); Pub. L. 102–242, 105 Stat. 

2236, 2386, as amended by Pub. L. 102–550, 

106 Stat. 3672, 4089 (12 U.S.C. 1828 note); 

Pub. L. 111–203, 124 Stat. 1376, 1887 (15 

U.S.C. 78o–7 note). 

■ 26. Section 324.2 is amended by 

revising the definition of ‘‘Residential 

mortgage exposure’’ to read as follows: 

§ 324.2 Definitions. 

* * * * * 

Residential mortgage exposure means 

an exposure (other than a securitization 

exposure, equity exposure, statutory 

multifamily mortgage, or presold 

construction loan) that is: 

(1)(i) An exposure that is primarily 

secured by a first or subsequent lien on 

one-to-four family residential property; 

or 

(ii) An exposure with an original and 

outstanding amount of $1 million or less 

that is primarily secured by a first or 

subsequent lien on residential property 

that is not one-to-four family; and 

(2) For purposes of calculating capital 

requirements under subpart E of this 

part, managed as part of a segment of 

exposures with homogeneous risk 

characteristics and not on an individualexposure basis. 

* * * * * 

■ 27. Section 324.10 is amended by 

revising paragraph (c) introductory text 

to read as follows: 

§ 324.10 Minimum capital requirements. 

* * * * * 

(c) Advanced approaches capital ratio 

calculations. An advanced approaches 

FDIC-supervised institution that has 

completed the parallel run process and 

received notification from the FDIC 

pursuant to § 324.121(d) must determine 

its regulatory capital ratios as described 

in paragraphs (c)(1) through (3) of this 

section. An advanced approaches FDICsupervised institution must determine 

its supplementary leverage ratio in 

accordance with paragraph (c)(4) of this 

section, beginning with the calendar 

quarter immediately following the 

quarter in which the FDIC-supervised 

institution meets any of the criteria in 

§ 324.100(b)(1). 

* * * * * 

■ 28. Section 324.22 is amended by 

revising paragraph (b)(1)(iii) to read as 

follows: 

§ 324.22 Regulatory capital adjustments 

and deductions. 

* * * * * 

(b) * * * 

(1) * * * 

(iii) An FDIC-supervised institution 

must deduct any net gain and add any 

net loss related to changes in the fair 

value of liabilities that are due to 

changes in the FDIC-supervised 

institution’s own credit risk. An 

advanced approaches FDIC-supervised 

institution must deduct the difference 

between its credit spread premium and 

the risk-free rate for derivatives that are 

liabilities as part of this adjustment. 

* * * * * 

■ 29. Section 324.100 is amended by 

revising paragraph (b)(1)(ii) to read as 

follows: 

§ 324.100 Purpose, applicability, and 

principle of conservatism. 

* * * * * 

(b) * * * 

(1) * * * 

(ii) Has consolidated total on-balance 

sheet foreign exposure on its most 

recent year-end Call Report equal to $10 

billion or more (where total on-balance 

sheet foreign exposure equals total 

foreign countries cross-border claims on 

an ultimate-risk basis, plus total foreign 

countries claims on local residents on 

an ultimate-risk basis, plus total foreign 

countries fair value of foreign exchange 

and derivative products), calculated in 

accordance with the Federal Financial 

Institutions Examination Council 

(FFIEC) 009 Country Exposure Report; 

* * * * * 

■ 30. Section 324.122 is amended by: 

■ a. Revising paragraphs (a)(3) and 

(b)(1); 

■ b. Adding paragraph (b)(2)(iii); 

■ c. Revising paragraphs (b)(3) and (5) 

and (c)(1), (2), (5), and (6); 

■ d. Redesignating paragraphs (c)(9) and 

(10) as paragraphs (c)(10) and (11), 

revising them, and adding a new 

paragraph (c)(9). 

■ e. Revising paragraph (i)(5). 

The revisions and additions read as 

follows: 

§ 324.122 Qualification requirements. 

(a) * * * 

(3) Each FDIC-supervised institution 

must have an appropriate infrastructure 

with risk measurement and management 

processes that meet the qualification 

requirements of this section and are 

appropriate given the FDIC-supervised 

institution’s size and level of 

complexity. Regardless of whether the 

systems and models that generate the 

risk parameters necessary for calculating 

an FDIC-supervised institution’s riskbased capital requirements are located 

at any affiliate of the FDIC-supervised 

institution, the FDIC-supervised 

institution itself must ensure that the 

risk parameters and reference data used 

to determine its risk-based capital 

requirements are representative of long 

run experience with respect to its own 

credit risk and operational risk 

exposures. 

(b) Risk rating and segmentation 

systems for wholesale and retail 

exposures. (1)(i) An FDIC-supervised 

institution must have an internal risk 

rating and segmentation system that 

accurately, reliably, and meaningfully 

differentiates among degrees of credit 

risk for the FDIC-supervised 

institution’s wholesale and retail 

exposures. When assigning an internal 

risk rating, an FDIC-supervised 

institution may consider a third-party 

assessment of credit risk, provided that 

the FDIC-supervised institution’s 

internal risk rating assignment does not 

rely solely on the external assessment. 

(ii) If an FDIC-supervised institution 

uses multiple rating or segmentation 

systems, the FDIC-supervised 

institution’s rationale for assigning an 

obligor or exposure to a particular 

system must be documented and 

applied in a manner that best reflects 

the obligor or exposure’s level of risk. 

An FDIC-supervised institution must 

not inappropriately allocate obligors 

across systems to minimize regulatory 

capital requirements. 

(iii) In assigning ratings to wholesale 

obligors and exposures, including loss 

severity ratings grades to wholesale 

exposures, and assigning retail 

exposures to retail segments, an FDICsupervised institution must use all 

relevant and material information and 

ensure that the information is current. 

(iv) When assigning an obligor to a PD 

rating or retail exposure to a PD 

segment, an FDIC-supervised institution 

must assess the obligor or retail 

borrower’s ability and willingness to 

contractually perform, taking a 

conservative view of projected 

information. 

(2) * * * 

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(iii) An FDIC-supervised institution 

must have an effective process to obtain 

and update in a timely manner relevant 

and material information on obligor and 

exposure characteristics that affect PD, 

LGD and EAD. 

(3) For retail exposures: 

(i) An FDIC-supervised institution 

must have an internal system that 

groups retail exposures into the 

appropriate retail exposure subcategory 

and groups the retail exposures in each 

retail exposure subcategory into 

separate segments with homogeneous 

risk characteristics that provide a 

meaningful differentiation of risk. The 

FDIC-supervised institution’s system 

must identify and group in separate 

segments by subcategories exposures 

identified in § 324.131(c)(2)(ii) and (iii). 

(ii) An FDIC-supervised institution 

must have an internal system that 

captures all relevant exposure risk 

characteristics, including borrower 

credit score, product and collateral 

types, as well as exposure 

delinquencies, and must consider crosscollateral provisions, where present. 

(iii) The FDIC-supervised institution 

must review and, if appropriate, update 

assignments of individual retail 

exposures to segments and the loss 

characteristics and delinquency status 

of each identified risk segment. These 

reviews must occur whenever the FDICsupervised institution receives new 

material information, but generally no 

less frequently than quarterly, and, in 

all cases, at least annually. 

* * * * * 

(5) The FDIC-supervised institution’s 

internal risk rating system for wholesale 

exposures must provide for the review 

and update (as appropriate) of each 

obligor rating and (if applicable) each 

loss severity rating whenever the FDICsupervised institution obtains relevant 

and material information on the obligor 

or exposure that affect PD, LGD and 

EAD, but no less frequently than 

annually. 

(c) Quantification of risk parameters 

for wholesale and retail exposures. (1) 

The FDIC-supervised institution must 

have a comprehensive risk parameter 

quantification process that produces 

accurate, timely, and reliable estimates 

of the risk parameters on a consistent 

basis for the FDIC-supervised 

institution’s wholesale and retail 

exposures. 

(2) An FDIC-supervised institution’s 

estimates of PD, LGD, and EAD must 

incorporate all relevant, material, and 

available data that is reflective of the 

FDIC-supervised institution’s actual 

wholesale and retail exposures and of 

sufficient quality to support the 

determination of risk-based capital 

requirements for the exposures. In 

particular, the population of exposures 

in the data used for estimation 

purposes, and lending standards in use 

when the data were generated, and other 

relevant characteristics, should closely 

match or be comparable to the FDICsupervised institution’s exposures and 

standards. In addition, an FDICsupervised institution must: 

(i) Demonstrate that its estimates are 

representative of long run experience, 

including periods of economic 

downturn conditions, whether internal 

or external data are used; 

(ii) Take into account any changes in 

lending practice or the process for 

pursuing recoveries over the observation 

period; 

(iii) Promptly reflect technical 

advances, new data, and other 

information as they become available; 

(iv) Demonstrate that the data used to 

estimate risk parameters support the 

accuracy and robustness of those 

estimates; and 

(v) Demonstrate that its estimation 

technique performs well in out-ofsample tests whenever possible. 

* * * * * 

(5) The FDIC-supervised institution 

must be able to demonstrate which 

variables have been found to be 

statistically significant with regard to 

EAD. The FDIC-supervised institution’s 

EAD estimates must reflect its specific 

policies and strategies with regard to 

account management, including account 

monitoring and payment processing, 

and its ability and willingness to 

prevent further drawdowns in 

circumstances short of payment default. 

The FDIC-supervised institution must 

have adequate systems and procedures 

in place to monitor current outstanding 

amounts against committed lines, and 

changes in outstanding amounts per 

obligor and obligor rating grade and per 

retail segment. The FDIC-supervised 

institution must be able to monitor 

outstanding amounts on a daily basis. 

(6) At a minimum, PD estimates for 

wholesale obligors and retail segments 

must be based on at least five years of 

default data. LGD estimates for 

wholesale exposures must be based on 

at least seven years of loss severity data, 

and LGD estimates for retail segments 

must be based on at least five years of 

loss severity data. EAD estimates for 

wholesale exposures must be based on 

at least seven years of exposure amount 

data, and EAD estimates for retail 

segments must be based on at least five 

years of exposure amount data. If the 

FDIC-supervised institution has relevant 

and material reference data that span a 

longer period of time than the minimum 

time periods specified above, the FDICsupervised institution must incorporate 

such data in its estimates, provided that 

it does not place undue weight on 

periods of favorable or benign economic 

conditions relative to periods of 

economic downturn conditions. 

* * * * * 

(9) If an FDIC-supervised institution 

uses internal data obtained prior to 

becoming subject to this subpart E or 

external data to arrive at PD, LGD, or 

EAD estimates, the FDIC-supervised 

institution must demonstrate to the 

FDIC that the FDIC-supervised 

institution has made appropriate 

adjustments if necessary to be consistent 

with the definition of default in 

§ 324.101. Internal data obtained after 

the FDIC-supervised institution 

becomes subject to this subpart E must 

be consistent with the definition of 

default in § 324.101. 

(10) The FDIC-supervised institution 

must review and update (as appropriate) 

its risk parameters and its risk 

parameter quantification process at least 

annually. 

(11) The FDIC-supervised institution 

must, at least annually, conduct a 

comprehensive review and analysis of 

reference data to the FDIC-supervised 

institution’s exposures, quality of 

reference data to support PD, LGD, and 

EAD estimates, and consistency of 

reference data to the definition of 

default in § 324.101. 

* * * * * 

(i) * * * 

(5) The FDIC-supervised institution 

must have an internal audit function or 

equivalent function that is independent 

of business-line management that at 

least annually: 

(i) Reviews the FDIC-supervised 

institution’s advanced systems and 

associated operations, including the 

operations of its credit function and 

estimations of PD, LGD, and EAD; 

(ii) Assesses the effectiveness of the 

controls supporting the FDIC-supervised 

institution’s advanced systems; and 

(iii) Documents and reports its 

findings to the FDIC-supervised 

institution’s board of directors (or a 

committee thereof). 

* * * * * 

■ 31 Section 324.131 is amended by: 

■ a. Revising paragraph (d)(5)(ii) and 

(iii); and 

■ b. In paragraph (e)(3)(vi), removing 

‘‘§ 324.22(a)(7)’’ and adding 

‘‘§ 324.22(d)’’ in its place. 

The revisions read as follows: 

§ 324.131 Mechanics for calculating total 

wholesale and retail risk-weighted assets. 

* * * * * 

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(d) * * * 

(5) * * * 

(ii) An FDIC-supervised institution 

may take into account the risk reducing 

effects of guarantees and credit 

derivatives in support of retail 

exposures in a segment when 

quantifying the PD and LGD of the 

segment. In doing so, an FDICsupervised institution must consider all 

relevant available information. 

(iii) Except as provided in paragraph 

(d)(6) of this section, an FDICsupervised institution may take into 

account the risk reducing effects of 

collateral in support of a wholesale 

exposure when quantifying the LGD of 

the exposure, and may take into account 

the risk reducing effects of collateral in 

support of retail exposures when 

quantifying the PD and LGD of the 

segment. In order to do so, an FDICsupervised institution must have 

established internal requirements for 

collateral management, legal certainty, 

and risk management processes. 

* * * * * 

■ 32. Section 324.132 is amended by: 

■ a. In Table 1 to § 324.132, removing 

‘‘this section’’ and adding ‘‘§ 324.32’’ in 

its place, wherever it appears; 

■ b. Revising paragraphs (c)(1) and 

(d)(5)(iii)(B); 

■ c. In paragraph (d)(7)(iv)(B), removing 

‘‘§ 324.131(b)(2)’’ and adding 

‘‘§ 324.132(b)(2)’’ in its place; and 

■ d. In paragraph (d)(9)(ii), removing 

‘‘paragraph (e)(3)’’ and adding 

‘‘paragraph (e)(6)’’ in its place. 

The revisions read as follows: 

§ 324.132 Counterparty credit risk of repostyle transactions, eligible margin loans, 

and OTC derivative contracts. 

* * * * * 

(c) EAD for OTC derivative 

contracts—(1) OTC derivative contracts 

not subject to a qualifying master 

netting agreement. An FDIC-supervised 

institution must determine the EAD for 

an OTC derivative contract that is not 

subject to a qualifying master netting 

agreement using the current exposure 

methodology in paragraph (c)(5) of this 

section or using the internal models 

methodology described in paragraph (d) 

of this section. An FDIC-supervised 

institution may reduce the EAD 

calculated according to paragraphs (c)(5) 

or (d) of this section by the credit 

valuation adjustment that the FDICsupervised institution has recognized in 

its balance sheet valuation of any OTC 

derivative contracts in the netting set. 

For purposes of this paragraph (c), the 

credit valuation adjustment does not 

include any adjustments to common 

equity tier 1 capital attributable to 

changes in the fair value of the FDICsupervised institution’s liabilities that 

are due to changes in its own credit risk 

since the inception of the transaction 

with the counterparty. 

* * * * * 

(d) * * * 

(5) * * * 

(iii) * * * 

(B) Twenty business days if the 

number of trades in a netting set 

exceeds 5,000 at any time during the 

previous quarter (except if the FDICsupervised institution is calculating 

EAD for a cleared transaction under 

§ 324.133) or contains one or more 

trades involving illiquid collateral or 

any derivative contract that cannot be 

easily replaced. If over the two previous 

quarters more than two margin disputes 

on a netting set have occurred that 

lasted more than the margin period of 

risk, then the FDIC-supervised 

institution must use a margin period of 

risk for that netting set that is at least 

two times the minimum margin period 

of risk for that netting set. If the 

periodicity of the receipt of collateral is 

N-days, the minimum margin period of 

risk is the minimum margin period of 

risk under this paragraph (d) plus N 

minus 1. This period should be 

extended to cover any impediments to 

prompt re-hedging of any market risk. 

* * * * * 

■ 33. Section 324.133 is amended by: 

■ a. In paragraph (b)(3)(i)(B), removing 

‘‘§ 324.132(b)(3)(i)(A)’’ and adding 

‘‘§ 324.133(b)(3)(i)(A)’’ in its place; 

■ b. In paragraphs (b)(4)(ii) removing 

‘‘§ 324.131’’ and adding ‘‘subparts E or 

F of this part, as applicable’’ in its place; 

■ c. Adding paragraph (c)(3)(iii); and 

■ d. In paragraph (c)(4)(ii) removing 

‘‘§ 324.131’’ and adding ‘‘subparts E or 

F of this part, as applicable’’ in its place. 

The addition reads as follows: 

§ 324.133 Cleared transactions. 

* * * * * 

(c) * * * 

(3) * * * 

(iii) Notwithstanding paragraphs 

(c)(3)(i) and (ii) of this section, a 

clearing member FDIC-supervised 

institution may apply a risk weight of 0 

percent to the trade exposure amount 

for a cleared transaction with a CCP 

where the clearing member FDICsupervised institution is acting as a 

financial intermediary on behalf of a 

clearing member client, the transaction 

offsets another transaction that satisfies 

the requirements set forth in § 324.3(a), 

and the clearing member FDICsupervised institution is not obligated to 

reimburse the clearing member client in 

the event of the CCP default. 

* * * * * 

§ 324.136 [Amended] 

■ 34. Section 324.136 is amended by, 

■ a. In paragraph (e)(2)(i) removing 

‘‘§ 324.135(e)(1) and (e)(2)’’ and adding 

‘‘§ 324.136(e)(1) and (2)’’ in its place; 

and 

■ b. In paragraph (e)(2)(ii), removing 

‘‘§§ 324.135(e)(1) and (e)(2)’’ and adding 

‘‘§ 324.136(e)(1) and (2)’’ in its place. 

■ 34. Section 324.172 is amended by 

revising paragraphs (d), as added at 79 

FR 57750, September 26, 2014, effective 

January 1, 2015, to read as follows: 

§ 324.172 Disclosure requirements. 

* * * * * 

(d)(1) An FDIC-supervised institution 

that meets any of the criteria in 

§ 324.100(b)(1) before January 1, 2015, 

must publicly disclose each quarter its 

supplementary leverage ratio and the 

components thereof (that is, tier 1 

capital and total leverage exposure) as 

calculated under subpart B of this part, 

beginning with the first quarter in 2015. 

This disclosure requirement applies 

without regard to whether the FDICsupervised institution has completed 

the parallel run process and received 

notification from the FDIC pursuant to 

§ 324.121(d). 

(2) An FDIC-supervised institution 

that meets any of the criteria in 

§ 324.100(b)(1) on or after January 1, 

2015, must publicly disclose each 

quarter its supplementary leverage ratio 

and the components thereof (that is, tier 

1 capital and total leverage exposure) as 

calculated under subpart B of this part 

beginning with the calendar quarter 

immediately following the quarter in 

which the FDIC-supervised institution 

becomes an advanced approaches FDICsupervised institution. This disclosure 

requirement applies without regard to 

whether the FDIC-supervised institution 

has completed the parallel run process 

and has received notification from the 

FDIC pursuant to § 324.121(d). 

■ 35. Section 324.173 is amended by: 

■ a. Designating paragraph (a), as 

revised at 79 FR 57750, September 26, 

2014, effective January 1, 2015, as 

paragraph (a)(1) and revising it; 

■ b. Adding paragraphs (a)(2) and (3); 

■ c. Revising the entry for (a)(1) in Table 

6 to § 324.173; and 

■ d. Revising the entry for (i)(2) in Table 

9 to § 324.173. 

The revisions and additions read as 

follows: 

§ 324.173 Disclosures by certain advanced 

approaches FDIC-supervised institutions. 

(a)(1) An advanced approaches FDICsupervised institution described in 

§ 324.172(b) must make the disclosures 

described in Tables 1 through 12 to 

§ 324.173. 

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Federal Register / Vol. 79, No. 243 / Thursday, December 18, 2014 / Proposed Rules 75473 

(2) An advanced approaches FDICsupervised institution that is required to 

publicly disclose its supplementary 

leverage ratio pursuant to § 324.172(d) 

must make the disclosures required 

under Table 13 to § 324.173, unless the 

FDIC-supervised institution is a 

consolidated subsidiary of a bank 

holding company, savings and loan 

holding company, or depository 

institution that is subject to these 

disclosures requirements or a subsidiary 

of a non-U.S. banking organization that 

is subject to comparable public 

disclosure requirements in its home 

jurisdiction. 

(3) The disclosures described in 

Tables 1 through 12 to § 324.173 must 

be made publicly available for twelve 

consecutive quarters beginning on 

January 1, 2014, or a shorter period, as 

applicable, for the quarters after the 

FDIC-supervised institution has 

completed the parallel run process and 

received notification from the FDIC 

pursuant to section 121(d) of subpart E 

of this part. The disclosures described 

in Table 13 to § 324.173 must be made 

publicly available for twelve 

consecutive quarters beginning on 

January 1, 2015, or a shorter period, as 

applicable, for the quarters after the 

FDIC-supervised institution becomes 

subject to the disclosure of the 

supplementary leverage ratio pursuant 

to § 324.172(d). 

* * * * * 

TABLE 6 TO § 324.173—CREDIT RISK: DISCLOSURES FOR PORTFOLIOS SUBJECT TO IRB RISK-BASED CAPITAL FORMULA

Qualitative disclosures ........................... (a) ................................ * * * 

(1) Structure of internal rating systems and if the national bank or the FDICsupervised institution considers external ratings, the relation between internal and external ratings; 

* * * 

* * * * * * * 

* * * * * 

TABLE 9 TO § 324.173—SECURITIZATION

*******

Quantitative disclosures ......................... * * * ............................ * * * 

(i) ................................. * * * 

(2) Aggregate amount disclosed separately by type of underlying exposure 

in the pool of any: (A) After-tax gain-on-sale on a securitization that has 

been deducted from common equity tier 1 capital; and (B) Credit-enhancing interest-only strip that is assigned a 1,250 percent risk weight. 

* * * * * * * 

* * * * * 

Dated: November 18, 2014. 

Thomas J. Curry, 

Comptroller of the Currency. 

By order of the Board of Governors of the 

Federal Reserve System, December 2, 2014. 

Robert deV. Frierson, 

Secretary of the Board. 

Dated at Washington, DC, this 18th day of 

November, 2014. 

By order of the Board of Directors. 

Federal Deposit Insurance Corporation. 

Robert E. Feldman, 

Executive Secretary. 

[FR Doc. 2014–28690 Filed 12–17–14; 8:45 am] 

BILLING CODE P 

FEDERAL RESERVE SYSTEM 

12 CFR Part 217 

[Regulation Q; Docket No. R–1505] 

RIN 7100 AE–26 

Risk-Based Capital Guidelines: 

Implementation of Capital 

Requirements for Global Systemically 

Important Bank Holding Companies 

AGENCY: Board of Governors of the 

Federal Reserve System. 

ACTION: Notice of proposed rulemaking. 

SUMMARY: The Board of Governors of the 

Federal Reserve System (Board) is 

inviting public comment on a 

framework to establish risk-based 

capital surcharges for the largest, most 

interconnected U.S.-based bank holding 

companies pursuant to section 165 of 

the Dodd-Frank Wall Street Reform and 

Consumer Protection Act. The proposal 

is based upon the international standard 

adopted by the Basel Committee on 

Banking Supervision, modified to reflect 

systemic risk concerns specific to the 

funding structures of large U.S. bank 

holding companies. 

The proposed framework would 

require a U.S. top-tier bank holding 

company with $50 billion or more in 

total consolidated assets to calculate a 

measure of its systemic importance and 

would identify a subset of those 

companies as global systemically 

important bank holding companies 

based on that measure. A global 

systemically important bank holding 

company would be subject to a riskbased capital surcharge that would 

increase its capital conservation buffer 

under the Board’s regulatory capital 

rule. The proposed framework would be 

phased in beginning on January 1, 2016 

through year-end 2018, becoming fully 

effective on January 1, 2019. The 

proposal would also revise the 

terminology used to identify the firms 

subject to the enhanced supplementary 

leverage ratio standards to ensure 

consistency of the scopes of application 

of both rulemakings. 

DATES: Comments must be received no 

later than March 2, 2015. 

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