49984 Federal Register / Vol. 82, No. 207 / Friday, October 27, 2017 / Proposed Rules 

DEPARTMENT OF THE TREASURY 

Office of the Comptroller of the 

Currency 

12 CFR Part 3 

[Docket ID OCC–2017–0018] 

RIN 1557–AE10 

FEDERAL RESERVE SYSTEM 

12 CFR Part 217 

[Regulation Q; Docket No. R–1576] 

RIN 7100 AE–74 

FEDERAL DEPOSIT INSURANCE 

CORPORATION 

12 CFR Part 324 

RIN 3064–AE59 

Simplifications to the Capital Rule 

Pursuant to the Economic Growth and 

Regulatory Paperwork Reduction Act 

of 1996 

AGENCY: Office of the Comptroller of the 

Currency, Treasury; the Board of 

Governors of the Federal Reserve 

System; and the Federal Deposit 

Insurance Corporation. 

ACTION: Notice of proposed rulemaking. 

SUMMARY: In March 2017, the Office of 

the Comptroller of the Currency, the 

Board of Governors of the Federal 

Reserve System, and the Federal Deposit 

Insurance Corporation (collectively, the 

agencies) submitted a report to Congress 

pursuant to the Economic Growth and 

Regulatory Paperwork Reduction Act of 

1996, in which they committed to 

meaningfully reduce regulatory burden, 

especially on community banking 

organizations. Consistent with that 

commitment, the agencies are inviting 

public comment on a notice of proposed 

rulemaking that would simplify 

compliance with certain aspects of the 

capital rule. A majority of the proposed 

simplifications would apply solely to 

banking organizations that are not 

subject to the advanced approaches 

capital rule (non-advanced approaches 

banking organizations). Specifically, the 

agencies are proposing that nonadvanced approaches banking 

organizations apply a simpler regulatory 

capital treatment for: Mortgage servicing 

assets; certain deferred tax assets arising 

from temporary differences; investments 

in the capital of unconsolidated 

financial institutions; and capital issued 

by a consolidated subsidiary of a 

banking organization and held by third 

parties (minority interest). More 

generally, the proposal also includes 

revisions to the treatment of certain 

acquisition, development, or 

construction exposures that are 

designed to address comments regarding 

the current definition of high volatility 

commercial real estate exposure under 

the capital rule’s standardized 

approach. Under the standardized 

approach, the proposed revisions to the 

treatment of acquisition, development, 

or construction exposures would not 

apply to existing exposures that are 

outstanding or committed prior to any 

final rule’s effective date. 

In addition to the proposed 

simplifications, the agencies also are 

proposing various additional 

clarifications and technical amendments 

to the agencies’ capital rule, which 

would apply to both non-advanced 

approaches banking organizations and 

advanced approaches banking 

organizations. 

DATES: Comments must be received by 

December 26, 2017. 

ADDRESSES: Comments should be 

directed to: 

OCC: Because paper mail in the 

Washington, DC area and at the OCC is 

subject to delay, commenters are 

encouraged to submit comments 

through the Federal eRulemaking Portal 

or email, if possible. Please use the title 

‘‘Simplifications to the Capital Rule 

Pursuant to the Economic Growth and 

Regulatory Paperwork Reduction Act of 

1996’’ to facilitate the organization and 

distribution of the comments. You may 

submit comments by any of the 

following methods: 

• Federal eRulemaking Portal— 

‘‘regulations.gov’’: Go to 

www.regulations.gov. Enter ‘‘Docket ID 

OCC–2017–0018’’ in the Search Box and 

click ‘‘Search.’’ 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–2017–0018’’ in your comment. 

In general, the 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 

include 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 www.regulations.gov. Enter 

‘‘Docket ID OCC–2017–0018’’ in the 

Search box and click ‘‘Search.’’ Click on 

‘‘Open Docket Folder’’ on the right side 

of the screen and then ‘‘Comments.’’ 

Comments can be filtered by clicking on 

‘‘View All’’ and then 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. 

Supporting materials may be viewed by 

clicking on ‘‘Open Docket Folder’’ and 

then clicking on ‘‘Supporting 

Documents.’’ The docket may be viewed 

after the close of the comment period in 

the same manner as during the comment 

period. 

Viewing Comments Personally: You 

may personally inspect and photocopy 

comments at the OCC, 400 7th Street 

SW., Washington, DC 20219. For 

security reasons, the OCC requires that 

visitors make an appointment to inspect 

comments. You may do so by calling 

(202) 649–6700 or, for persons who are 

deaf or hearing impaired, TTY, (202) 

649–5597. Upon arrival, visitors will be 

required to present valid governmentissued photo identification and submit 

to security screening in order to inspect 

and photocopy comments. 

Board: You may submit comments, 

identified by Docket No. R–1576; RIN 

7100 AE–74, by any of the following 

methods: 

• Agency Web site: http://

www.federalreserve.gov. Follow the 

instructions for submitting comments at 

http://www.federalreserve.gov/

generalinfo/foia/ProposedRegs.cfm. 

• Federal eRulemaking Portal: http:// 

www.regulations.gov. Follow the 

instructions for submitting comments. 

• Email: regs.comments@

federalreserve.gov. Include docket 

number in the subject line of the 

message. 

• Fax: (202) 452–3819 or (202) 452– 

3102. 

• Mail: Ann E. Misback, Secretary, 

Board of Governors of the Federal 


asabaliauskas on DSKBBXCHB2PROD with PROPOSALS
Federal Register / Vol. 82, No. 207 / Friday, October 27, 2017 / Proposed Rules 49985 

1The 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). 

2Banking organizations subject to the agencies’ 

capital rule include national banks, state member 

banks, state nonmember banks, savings 

associations, and top-tier bank holding companies 

and savings and loan 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), but excluding certain savings 

and loan holding companies that are substantially 

engaged in insurance underwriting or commercial 

activities or that are estate trusts, and bank holding 

companies and savings and loan holding companies 

that are employee stock ownership plans. 

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

12 CFR part 324 (FDIC). 

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/

generalinfo/foia/ProposedRegs.cfm as 

submitted, unless modified for technical 

reasons. Accordingly, 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 

3515, 1801 K Street NW. (between 18th 

and 19th Streets NW.), Washington, DC 

20006 between 9:00 a.m. and 5:00 p.m. 

on weekdays. FDIC: You may submit 

comments, identified by RIN 3064– 

AE59 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. 

• Mail: Robert E. Feldman, Executive 

Secretary, Attention: Comments/Legal 

ESS, Federal Deposit Insurance 

Corporation, 550 17th Street NW., 

Washington, DC 20429. 

• Hand Delivered/Courier: 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. 

• Email: comments@FDIC.gov. 

Include the RIN 3064–AE59 on the 

subject line of the message. 

• Public Inspection: All comments 

received must include the agency name 

and RIN 3064–AE66 for this rulemaking. 

All comments received will be posted 

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

regulations/laws/federal/, 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: Mark Ginsberg, Senior Risk 

Expert (202) 649–6983; or Benjamin 

Pegg, Risk Expert (202) 649–7146, 

Capital and Regulatory Policy; or Carl 

Kaminski, Special Counsel, or Rima 

Kundnani, Attorney, Legislative and 

Regulatory Activities Division, (202) 

649–5490, for persons who are deaf or 

hearing impaired, TTY, (202) 649–5597, 

Office of the Comptroller of the 

Currency, 400 7th Street SW., 

Washington, DC 20219. 

Board: Constance M. Horsley, Deputy 

Associate Director, (202) 452–5239; Juan 

Climent, Manager, (202) 872–7526; 

Elizabeth MacDonald, Manager, (202) 

475–6316; Andrew Willis, Supervisory 

Financial Analyst, (202) 912–4323; Sean 

Healey, Supervisory Financial Analyst, 

(202) 912–4611 or Matthew McQueeney, 

Senior Financial Analyst, (202) 452– 

2942, Division of Supervision and 

Regulation; or Benjamin McDonough, 

Assistant General Counsel (202) 452– 

2036; David W. Alexander, Counsel 

(202) 452–2877, or Mark Buresh, Senior 

Attorney (202) 452–5270, 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: Benedetto Bosco, Chief, Capital 

Policy Section; bbosco@fdic.gov; David 

Riley, Senior Policy Analyst, Capital 

Policy Section; dariley@fdic.gov; 

Michael Maloney, Senior Policy 

Analyst, mmaloney@fdic.gov; Stephanie 

Efron, Senior Policy Analyst, sefron@

fdic.gov; regulatorycapital@fdic.gov; 

Capital Markets Branch, Division of Risk 

Management Supervision, (202) 898– 

6888; or Catherine Wood, Counsel, 

cawood@fdic.gov; Rachel Ackmann, 

Counsel, rackmann@fdic.gov; Michael 

Phillips, Counsel, mphillips@fdic.gov; 

Supervision Branch, Legal Division, 

Federal Deposit Insurance Corporation, 

550 17th Street NW., Washington, DC 

20429. 

SUPPLEMENTARY INFORMATION: 

Table of Contents 

I. Introduction and Summary of the Proposed 

Simplifications of the Capital Rule 

II. Proposed Simplifications of and Revisions 

to the Capital Rule 

A. HVADC Exposures 

1. Background 

2. Scope of the HVADC Exposure 

Definition 

3. Exemptions From the HVADC Exposure 

Definition 

a. Removal of the Contributed Capital 

Exemption Under HVADC Exposure 

b. One- to Four-Family Residential 

Properties 

c. Community Development Projects 

d. Agricultural Exposures 

4. Permanent Loans 

5. Risk Weight for HVADC Exposures 

6. Retaining the HVCRE Exposure 

Definition Under the Advanced 

Approaches Rule 

7. Frequently Asked Questions (FAQs) 

B. MSAs, Temporary Difference DTAs, and 

Investments in the Capital of 

Unconsolidated Financial Institutions 

1. Background 

2. Simplifying the Capital Treatment for 

MSAs, Temporary Difference DTAs, and 

Investments in the Capital of 

Unconsolidated Financial Institutions 

a. MSAs and Temporary Difference DTAs 

b. Investments in the Capital of 

Unconsolidated Financial Institutions 

c. Regulatory Treatment for Advanced 

Approaches Banking Organizations 

C. Minority Interest 

1. Background 

2. Simplifying the Regulatory Capital 

Limitations for Minority Interest 

III. Technical Amendments to the Capital 

Rule 

IV. Abbreviations 

V. Regulatory Analyses 

A. Paperwork Reduction Act 

B. Regulatory Flexibility Act Analysis 

C. Plain Language 

D. OCC Unfunded Mandates Reform Act of 

1995 Determination 

E. Riegle Community Development and 

Regulatory Improvement Act of 1994 

I. Introduction and Summary of the 

Proposed Simplifications of the Capital 

Rule 

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 issuing this notice of 

proposed rulemaking (proposal or 

proposed rule) with the goal of reducing 

regulatory compliance burden, 

particularly on community banking 

organizations, by simplifying certain 

aspects of the agencies’ rules revising 

their risk-based and leverage capital 

requirements (capital rule).1

In 2013, the agencies adopted the 

capital rule to address weaknesses that 

became apparent during the financial 

crisis of 2007–08. Principally, the 

capital rule strengthened the capital 

requirements applicable to banking 

organizations 2 supervised by the 

agencies by improving both the quality 

and quantity of banking organizations’ 

regulatory capital, and increasing the 

risk-sensitivity of the capital rule.3

The capital rule provides two 

methodologies for determining riskweighted assets: (i) The standardized 

approach and (ii) the advanced 

approaches, which include both the 

internal ratings-based approach and the 

advanced measurement approach (the 


asabaliauskas on DSKBBXCHB2PROD with PROPOSALS
49986 Federal Register / Vol. 82, No. 207 / Friday, October 27, 2017 / Proposed Rules 

4 12 CFR part 217, subparts D & E; 12 CFR part 

3 (OCC), Subparts D & E; 12 CFR part 324, subparts 

D & E (FDIC). 

5 12 CFR 217.1(c), 12 CFR 217.100(b) (Board); 12 

CFR 3.1(c), 12 CFR 3.100(b) (OCC); 12 CFR 324.1(c), 

12 CFR 324.100(b) (FDIC). Those smaller and less 

complex banking organizations that do not apply 

the advanced approaches are referred to as ‘‘nonadvanced approaches banking organizations’’ in 

this proposal. 

6EGRPRA requires that regulations prescribed by 

the agencies be reviewed at least once every 10 

years. The purpose of this review is to identify, 

with input from the public, outdated or 

unnecessary regulations and consider how to 

reduce regulatory burden on insured depository 

institutions while, at the same time, ensuring their 

safety and soundness and the safety and soundness 

of the financial system. Public Law 104–208, 110 

Stat. 3009 (1996). 

7 79 FR 32172 (June 4, 2014); 80 FR 7980 

(February 13, 2015); 80 FR 32046 (June 5, 2015); 

and 80 FR 79724 (December 23, 2015). 

8Comments received during the EGRPRA review 

process and transcripts of outreach meetings can be 

found at http://egrpra.ffiec.gov/. 

9 82 FR 15900 (March 30, 2017). 

10 12 CFR 217.22(c) and (d) (Board); 12 CFR 

3.22(c) and (d) (OCC); 12 CFR 324.22 (c) and (d) 

(FDIC). 

advanced approaches).4 The 

standardized approach applies to all 

banking organizations that are subject to 

the agencies’ risk-based capital 

regulations, whereas the advanced 

approaches apply only to certain large 

or internationally active banking 

organizations (advanced approaches 

banking organizations).5

The agencies have received numerous 

questions regarding various aspects of 

the capital rule since its adoption in 

2013. In addition, in connection with 

the agencies’ review under the 

Economic Growth and Regulatory 

Paperwork Reduction Act of 1996 

(EGRPRA),6 for which the agencies 

sought comment through Federal 

Register notices published in 2014 and 

2015, the agencies received over 230 

comment letters from insured 

depository institutions, trade 

associations, consumer and community 

groups, and other interested parties.7

The agencies also received numerous 

oral and written comments from 

panelists and the public at outreach 

meetings.8 Some of these comments 

were similar to the comments that the 

agencies had already received regarding 

the capital rule, including, for example, 

that the capital rule is unduly 

burdensome and complex. The agencies 

thoroughly reviewed these comments 

and issued a Joint Report to Congress: 

Economic Growth and Regulatory 

Paperwork Reduction Act (the 2017 

EGRPRA report) in March 2017.9 In the 

2017 EGRPRA report, the agencies 

highlighted their intent to meaningfully 

reduce regulatory burden, especially on 

community banking organizations, 

while at the same time maintaining 

safety and soundness and the quality 

and quantity of regulatory capital in the 

banking system. 

In particular, the agencies indicated 

in the 2017 EGRPRA report that they 

would develop a proposed rule to 

simplify the capital rule by considering 

amendments to (i) replace the 

standardized approach’s treatment of 

high volatility commercial real estate 

(HVCRE) exposures with a simpler 

treatment for most acquisition, 

development, or construction 

exposures; and, for non-advanced 

approaches banking organizations, to (ii) 

simplify the current regulatory capital 

treatment for mortgage servicing assets 

(MSAs), deferred tax assets (DTAs) 

arising from temporary differences that 

an institution could not realize through 

net operating loss carrybacks (temporary 

difference DTAs), and investments in 

the capital of unconsolidated financial 

institutions; and (iii) simplify the 

calculation for the amount of capital 

that can count toward regulatory 

requirements in cases in which a 

banking organization’s consolidated 

subsidiary has issued capital that is held 

by third parties (minority interest). 

Consistent with the 2017 EGRPRA 

report, the agencies are proposing a 

number of modifications to the capital 

rule that are aimed at reducing 

regulatory burden. First, the agencies 

are proposing to replace the existing 

HVCRE exposure category as applied in 

the standardized approach with a newly 

defined exposure category called high 

volatility acquisition, development, or 

construction (HVADC) exposure. The 

proposed HVADC exposure definition is 

intended to be substantially simpler to 

implement as it removes the most 

complex exclusion contained in the 

current HVCRE exposure definition. In 

addition, the proposed rule simplifies 

and clarifies certain exemptions, and 

clarifies the scope of exposures captured 

by the HVADC exposure definition. 

While some of the simplifications and 

clarifications may increase the scope 

and others may decrease it, in the 

aggregate, it is likely that more 

acquisition, development, or 

construction loans would be captured 

under the proposed HVADC exposure 

definition than under the current 

HVCRE exposure definition. 

Accordingly, the agencies are proposing 

to apply a lower risk weight to the 

proposed HVADC exposure category. 

The proposed risk weight for HVADC 

exposures would be 130 percent, a 

reduction from the 150 percent risk 

weight that currently applies to HVCRE 

exposures under the capital rule’s 

standardized approach. The new 

HVADC exposure definition would only 

apply to exposures originated on or after 

the final rule’s effective date. As 

described further below, the proposed 

rule would not revise the treatment of 

HVCRE exposures for purposes of 

calculating the amount of capital 

required under the advanced 

approaches. However, for purposes of 

calculating their capital requirements 

going forward under the standardized 

approach, advanced approaches banking 

organizations would use the proposed 

HVADC exposure category. 

Second, the agencies are proposing to 

simplify the current regulatory capital 

treatment of MSAs, temporary 

difference DTAs, and investments in the 

capital of unconsolidated financial 

institutions for non-advanced 

approaches banking organizations. As 

explained further below, for these 

banking organizations, the proposal 

would eliminate (i) the capital rule’s 10 

percent common equity tier 1 capital 

deduction threshold that applies 

individually to MSAs, temporary 

difference DTAs, and significant 

investments in the capital of 

unconsolidated financial institutions in 

the form of common stock; (ii) the 

aggregate 15 percent common equity tier 

1 capital deduction threshold that 

subsequently applies on a collective 

basis across such items; (iii) the 10 

percent common equity tier 1 capital 

deduction threshold for non-significant 

investments in the capital of 

unconsolidated financial institutions; 

and (iv) the deduction treatment for 

significant investments in the capital of 

unconsolidated financial institutions 

not in the form of common stock.10

Under the proposal, for non-advanced 

approaches banking organizations, the 

capital rule would no longer have 

distinct treatments for significant and 

non-significant investments in the 

capital of unconsolidated financial 

institutions. 

Instead of imposing these complex 

treatments for MSAs, temporary 

difference DTAs, and investments in the 

capital of unconsolidated financial 

institutions, the proposal would require 

that non-advanced approaches banking 

organizations deduct from common 

equity tier 1 capital any amount of 

MSAs, temporary difference DTAs, and 

investments in the capital of 

unconsolidated financial institutions 

that individually exceeds 25 percent of 

common equity tier 1 capital (the 25 

percent common equity tier 1 capital 

deduction threshold). Consistent with 

the capital rule, under the proposal, a 

banking organization would continue to 


asabaliauskas on DSKBBXCHB2PROD with PROPOSALS
Federal Register / Vol. 82, No. 207 / Friday, October 27, 2017 / Proposed Rules 49987 

11The agencies note that they are not proposing 

to change the current treatment of DTAs arising 

from timing differences that could be realized 

through net operating loss carrybacks. Such DTAs 

are not subject to deduction and are assigned a 100 

percent risk weight. 

12 12 CFR 217.21(Board); 12 CFR 3.21 (OCC); 12 

CFR 324.21 (FDIC). 13 82 FR 40495 (August 25, 2017). 

apply a 250 percent risk weight to any 

MSAs or temporary DTAs not 

deducted.11 However, for investments 

in the capital of unconsolidated 

financial institutions that are not 

deducted, the proposal would require a 

banking organization to risk weight each 

non-deducted exposure according to the 

exposure category of the investment. 

Advanced approaches banking 

organizations, however, would be 

required to continue to apply the 

deduction and risk-weighting treatments 

in the capital rule for MSAs, temporary 

difference DTAs, and investments in the 

capital of unconsolidated financial 

institutions. 

Third, the agencies are proposing a 

significantly simpler methodology for 

non-advanced approaches banking 

organizations to calculate minority 

interest limitations.12 The existing 

capital rule’s limitations for common 

equity tier 1 minority interest, tier 1 

minority interest, and total capital 

minority interest are based on the 

capital requirements and capital ratios 

of each of a banking organization’s 

consolidated subsidiaries that has 

issued capital instruments that are held 

by third parties. The proposal would 

require that non-advanced approaches 

banking organizations limit minority 

interest based on the banking 

organization’s capital levels rather than 

on its subsidiaries’ capital ratios. 

Specifically, a non-advanced 

approaches banking organization would 

be allowed to include common equity 

tier 1, tier 1, and total capital minority 

interest up to and including 10 percent 

of the banking organization’s common 

equity tier 1, tier 1, and total capital 

(before the inclusion of any minority 

interest), respectively. Advanced 

approaches banking organizations, 

however, would be required to continue 

to apply the treatment of minority 

interest provided in the existing capital 

rule. 

The agencies anticipate that the 

simplifications described above would 

lead to a reduction of regulatory 

reporting burden for non-advanced 

approaches banking organizations. 

Following the publication of this 

proposed rule, the agencies would 

propose for public comment 

corresponding changes to regulatory 

reporting forms and instructions. 

The proposed rule would also make 

certain technical changes to the capital 

rule, including some changes to the 

advanced approaches rule, such as 

clarifying revisions, updating crossreferences, and correcting typographical 

errors. 

In August 2017, in anticipation of this 

proposal, the agencies invited public 

comment on a proposed rule to extend 

the capital rule’s transitional provisions 

for MSAs, temporary difference DTAs, 

and investments in the capital of 

consolidated financial institutions and 

certain minority interest requirements 

(transitions NPR).13 If the transitions 

NPR is finalized substantially as 

proposed, the capital treatment 

proposed in the transitions NPR would 

remain effective until such time as the 

changes proposed in this proposal 

would be finalized and become effective 

or the finalized transitions NPR is 

otherwise superseded. 

II. Proposed Simplifications of and 

Revisions to the Capital Rule 

A. HVADC Exposures 

1. Background 

The capital rule currently defines an 

HVCRE exposure as any credit facility 

that, prior to conversion to permanent 

financing, finances or has financed the 

acquisition, development, or 

construction of real property, unless the 

facility finances one- to four-family 

residential properties, certain 

agricultural or community development 

exposures, or commercial real estate 

projects where the borrower meets 

certain contributed capital requirements 

and other prudential criteria. In the 

preamble to the capital rule, the 

agencies noted that their supervisory 

experience had demonstrated that these 

exposures, compared to other 

commercial real estate exposures, 

presented heightened risks for which 

banking organizations should hold 

additional capital, and accordingly 

adopted a 150 percent risk weight for 

HVCRE exposures under the 

standardized approach. 

Since the adoption of the capital rule, 

the agencies have received numerous 

questions regarding various aspects of 

the HVCRE exposure definition. 

Community banking organizations, in 

particular, have asserted that the 

definition is unclear, overly complex, 

burdensome to implement, and not 

applied consistently across banking 

organizations. For example, banking 

organizations submitted comments and 

questions to the agencies regarding the 

treatment of multi-purpose loan 

facilities under the HVCRE exposure 

definition, including loans used to 

finance both the purchase of equipment 

and the acquisition, development, or 

construction of real property. Banking 

organizations also asked for clarification 

regarding the various exemptions from 

the HVCRE exposure definition, 

including the exemptions for (i) one- to 

four-family residential properties, (ii) 

community development exposures, 

and (iii) exposures where borrowers met 

the contributed capital requirements (as 

discussed in more detail in section 

II.A.3.a. below). 

After evaluating the comments and 

questions from the industry following 

the publication of the capital rule, as 

well as the feedback from the public 

received during the review process 

leading to the 2017 EGRPRA report, the 

agencies are proposing to amend the 

treatment in the standardized approach 

for credit facilities that finance 

acquisition, development, or 

construction activities, with the goal of 

simplifying the treatment of these 

exposures. The agencies are proposing 

to replace the HVCRE exposure category 

as applied in the standardized approach 

with a newly defined exposure category 

termed HVADC exposure that would 

apply to credit facilities that finance 

acquisition, development, or 

construction activities. As compared to 

the HVCRE exposure definition, the 

proposed HVADC exposure definition 

would not include the contributed 

capital exemption. Additionally, the 

proposed definition of HVADC exposure 

provides greater clarity on which 

acquisition, development, or 

construction exposures have relatively 

more risk and merit a higher risk weight 

than the current definition of HVCRE 

exposure by including a ‘‘primarily 

finances’’ test. The HVADC exposure 

definition also includes a definition of 

‘‘permanent loan’’ to clearly articulate 

when an exposure ceases being an 

HVADC exposure under the propose 

rule. Both the ‘‘primarily finances’’ test 

and the definition of ‘‘permanent loan’’ 

are explained in more detail below. 

With the introduction of a ‘‘primarily 

finances’’ test and ‘‘permanent loan’’ 

definition, the scope of included or 

excluded exposures under the proposed 

HVADC exposure definition will likely 

be different from those captured under 

the current HVCRE exposure definition 

and will vary across individual banking 

organizations. In total, the agencies 

believe that the simpler HVADC 

exposure definition likely would 

capture more acquisition, development, 

or construction exposures than are 

currently captured by the definition of 


asabaliauskas on DSKBBXCHB2PROD with PROPOSALS
49988 Federal Register / Vol. 82, No. 207 / Friday, October 27, 2017 / Proposed Rules 

14 12 CFR part 208, subpart J, Appendix C 

(Board); 12 CFR part 34, subpart D, Appendix A 

(OCC); 12 CFR part 365, subpart A, Appendix A 

(FDIC). 

HVCRE exposure. In recognition of the 

potentially expanded scope, the 

agencies are proposing to reduce the 

standardized approach risk weight for 

HVADC exposures, relative to the 

current risk weight for HVCRE 

exposures. 

Under the proposed rule, an HVADC 

exposure would receive a 130 percent 

risk weight as opposed to the 150 

percent risk weight assigned to HVCRE 

exposures under the existing 

standardized approach. The proposed 

rule would require higher risk weights 

for certain acquisition, development, or 

construction exposures and lower risk 

weights for others. Additionally, to 

mitigate the potential burden on 

banking organizations of having to reevaluate all of their acquisition, 

development, or construction exposures 

against the new HVADC exposure 

definition, the proposal, under the 

standardized approach, would contain a 

grandfathering provision to retain the 

capital rule’s treatment for acquisition, 

development, or construction exposures 

outstanding or committed as of the 

effective date of any final rule (as 

discussed in more detail in section 

II(A)(5)). The proposed revisions to the 

standardized approach are intended to 

be responsive to concerns about the 

difficulties of implementing the HVCRE 

exposure definition, while maintaining 

capital requirements commensurate 

with the risk profiles of different credit 

facilities that finance acquisition, 

development, or construction activities. 

2. Scope of the HVADC Exposure 

Definition 

Under the proposed rule, the capital 

rule would define an HVADC exposure 

as a credit facility that primarily 

finances or refinances: (i) The 

acquisition of vacant or developed land; 

(ii) the development of land to prepare 

to erect new structures, including, but 

not limited to, the laying of sewers or 

water pipes and demolishing existing 

structures; or (iii) the construction of 

buildings or dwellings, or other 

improvements including additions or 

alterations to existing structures. Like 

the current HVCRE exposure definition, 

the proposed HVADC exposure 

definition is purpose-based. Therefore, 

an acquisition, development, or 

construction exposure that is not 

secured by real property could be 

considered an HVADC exposure if the 

purpose of the facility is primarily to 

finance any of the aforementioned 

activities. For purposes of the proposed 

HVADC exposure definition, an 

exposure would be classified as an 

HVADC exposure only if the lending 

facility ‘‘primarily finances’’ 

acquisition, development, or 

construction activities, meaning that 

more than 50 percent of the funds (e.g., 

loan proceeds) will be used for 

acquisition, development, or 

construction activities. In order to make 

this determination, a banking 

organization would review the proposed 

use of the funds, and if more than 50 

percent of the funds is intended for 

acquisition, development, or 

construction activities, then the facility 

would meet the ‘‘primarily finances’’ 

requirement and would fall within the 

scope of the HVADC exposure 

definition, unless one or more of the 

exemption criteria are met. 

For example, assume a borrower 

intends to use part of an $8 million loan 

to acquire and develop a tract of land for 

a real estate project. Of the $8 million 

total, $4.5 million will be disbursed for 

acquisition, development, or 

construction purposes (e.g., buying and 

developing the land and building the 

structure) and $3.5 million will be used 

to purchase equipment to be used in the 

completed structure. Because more than 

half of the funds are used for 

acquisition, development, or 

construction purposes, the loan would 

be considered an HVADC exposure. Any 

funds or land contributed by the 

borrower would not impact this 

determination, as the determination is 

based on the use of the loan proceeds. 

The agencies note that the inclusion of 

the ‘‘primarily finances’’ test may also 

lead banking organizations to exclude 

certain multi-purpose credit facilities 

which finance construction and other 

activities, such as equipment financing, 

from the definition of an HVADC 

exposure. As a general matter, the 

agencies expect every acquisition, 

development, or construction 

transaction to be supported by the 

documentation of sources and uses of 

funds tailored to the specific project, 

and the agencies expect each banking 

organization to have a process in place 

to review the intended use of funds for 

an acquisition, development, or 

construction project, consistent with 

prudent underwriting practices. 

Question 1: The agencies seek 

comment on whether the scope of the 

HVADC exposure definition presents 

operational concerns and is clear. 

Specifically, what, if any, operational 

challenges would banking organizations 

expect when determining whether more 

than 50 percent of the loan proceeds 

will be used for acquisition, 

development, or construction purposes? 

3. Exemptions From the HVADC 

Exposure Definition 

a. Removal of the Contributed Capital 

Exemption Under HVADC Exposure 

Banking organizations have expressed 

concern regarding the contributed 

capital exemption under which 

exposures are not considered HVCRE 

exposures if (i) at the origination of the 

loan, the loan-to-value (LTV) ratio is 

less than or equal to the relevant 

supervisory LTV ratio standard; 14 (ii) 

before the advancement of funds, the 

borrower has contributed capital to the 

project in the form of cash (including 

cash paid for land) or readily marketable 

securities of at least 15 percent of the 

real estate’s ‘‘as-completed’’ market 

value; and (iii) any internally generated 

capital must be contractually required to 

stay in the project for the life of the 

project. Banking organizations have 

asserted that the conditions for meeting 

this exemption are unclear, complex, 

and burdensome to implement. Further, 

the agencies have received numerous 

questions from banking organizations on 

the minimum 15 percent borrower 

capital contribution requirement, which 

is measured as a percentage of a 

project’s ‘‘as completed’’ market value. 

After considering comments from 

banking organizations regarding both 

the complexity of the contributed 

capital exemption, as well as the 

potential inconsistent application of the 

exemption that results, the agencies are 

proposing to not include a contributed 

capital exemption within the HVADC 

exposure definition. The agencies 

considered various means to clarify or 

modify the contributed capital 

exemption in a manner consistent with 

the goals of simplifying the capital rule. 

However, the agencies view the 

alternative approaches that retain the 

contributed capital exemption as 

comparably complex and inconsistent 

with the goal of simplifying the capital 

rule. 

Question 2: The agencies seek 

comment on the degree to which the 

proposed HVADC exposure definition 

would simplify and enhance 

consistency in the treatment for credit 

facilities financing real estate 

acquisition, development, or 

construction. What other simplifications 

should the agencies consider to improve 

the simplicity and consistent treatment 

of these credit facilities? 


asabaliauskas on DSKBBXCHB2PROD with PROPOSALS
Federal Register / Vol. 82, No. 207 / Friday, October 27, 2017 / Proposed Rules 49989 

15 12 CFR part 25 (national banks) (OCC); 12 CFR 

part 195 (federal savings associations) (OCC); 12 

CFR part 228 (Board); 12 CFR part 345 (FDIC). 

16The proposed rule would make a minor 

clarification to the definition of HVCRE exposure by 

changing the term ‘‘non-agricultural’’ to 

‘‘commercial or residential development.’’ 

17The agencies are clarifying that a loan is 

expected to be prudently underwritten in order to 

meet the definition of a permanent loan. The 

Interagency Guidelines for Real Estate Lending 

Policies provide standards for banking 

organizations in developing such written policies, 

limits, and standards. 12 CFR part 208, subpart J, 

Appendix C (Board); 12 CFR part 34, subpart D, 

Appendix A (OCC); 12 CFR part 365, subpart A, 

Appendix A (FDIC). Banking organizations are 

required to adopt and maintain written policies that 

establish appropriate limits and standards for 

extensions of credit related to real estate. 12 CFR 

208.51 (Board); 12 CFR 34.62 (OCC); 12 CFR 365.2 

(FDIC). 

b. One- to Four-Family Residential 

Properties 

The proposed definition of an HVADC 

exposure would exempt credit facilities 

that finance the acquisition, 

development, or construction of one- to 

four-family residential properties, 

similar to the exemption in the HVCRE 

exposure definition. For purposes of 

both HVADC and HVCRE exposures, the 

financing of one- to four-family 

residential properties would include 

both loans to construct one- to fourfamily residential structures and loans 

that combine the land acquisition, 

development, or construction of one- to 

four-family structures, either with or 

without a sales contract, including lot 

development loans. Therefore, credit 

facilities financing the construction of 

one- to four-family residential structures 

for which no buyer has been identified 

would be included in the exemption for 

one- to four-family residential 

properties. 

In response to questions about 

whether the term ‘‘residential 

properties’’ for these purposes includes 

the acquisition, development, or 

construction of condominiums or 

cooperatives, the agencies are clarifying 

that, generally, a loan that finances the 

acquisition, development, or 

construction of condominiums and 

cooperatives would not qualify for the 

one- to four-family residential 

properties exemption, except in the 

instance where the project contains 

fewer than five individual dwelling 

units. Thus, condominiums, 

cooperatives, and apartment buildings 

would generally be treated as 

multifamily properties and would not 

qualify for the one- to four-family 

residential properties exemption. If each 

unit in a project is separated from other 

units by a dividing wall that extends 

from ground to roof (e.g., row houses or 

townhouses), then each unit would be 

considered a single family residential 

property and thus exempt from the 

HVADC exposure category. Further, the 

acquisition, development, or 

construction of multiple residential 

properties, each containing a one- to 

four-family dwelling unit (such as a 

loan to finance tract development), 

would qualify for the one- to four-family 

residential property exemption. Loans 

used solely to acquire undeveloped land 

would not, however, qualify for the oneto four-family residential property 

exemption. 

Question 3: The agencies request 

comment on whether the proposed 

exemption for one- to four-family 

residential properties in the HVADC 

exposure category is clear such that a 

banking organization could readily 

identify which residential loans would 

be exempt from the HVADC exposure 

category. What, if any, additional 

clarification would facilitate identifying 

one- to four-family residential properties 

for this purpose? The agencies also 

solicit comment on all aspects of the 

HVADC exposure category, including 

the proposed scope and exemptions. 

c. Community Development Projects 

The HVCRE exposure definition 

exempts community development 

projects.15 The proposed HVADC 

exposure definition would continue to 

exempt community development 

projects. However, the agencies are 

proposing to simplify the definition by 

removing the reference to the broader 

statutory citations, 12 U.S.C. 24 

(Eleventh) and 12 U.S.C. 338a. Under 

the proposed rule, all credit facilities 

financing the acquisition, development, 

or construction of real property projects 

for which the primary purpose is 

community development, as defined by 

the agencies’ Community Reinvestment 

Act rules, would be exempt from the 

HVADC exposure category. In addition, 

the agencies are proposing to remove 

the exception to the exemption for 

activities that promote economic 

development by financing businesses or 

farms that meet the size eligibility 

standards of the Small Business 

Administration’s (SBA) Development 

Company or Small Business Investment 

Company programs (13 CFR 121.301) or 

have gross annual revenues of $1 

million or less, unless they meet another 

exemption in the rule. Such loans are 

required to have a community 

development purpose under interagency 

guidance. The proposed simplified 

exemption for community development 

projects is not intended to substantively 

alter the scope of the exemption for 

community development projects set 

forth in the current HVCRE exposure 

definition. 

Question 4: The agencies seek 

comment on whether the proposed 

community development exemption is 

clear. What, if any, additional 

clarification would help banking 

organizations identify exposures that 

meet the community development 

exemption? Please describe any 

implementation challenges with the 

exemption. 

d. Agricultural Exposures 

The proposed HVADC exposure 

definition would exclude credit 

facilities that finance the purchase or 

development of agricultural land and 

would not substantively modify the 

current exemption for agricultural land 

development set forth in the current 

HVCRE exposure definition.16 The 

agencies note that the term 

‘‘agricultural’’ is broadly defined and 

would include, for example, timberland 

or fish farms. However, the term 

‘‘agricultural,’’ as it is used here, would 

not include manufacturing or processing 

plants related to agricultural products, 

such as a dairy processing plant. 

4. Permanent Loans 

The proposed HVADC exposure 

definition would exclude an exposure 

that is considered to be a permanent 

loan. In response to banking 

organizations’ requests for clarification 

of the term ‘‘permanent financing’’ as it 

is used in the current HVCRE exposure 

definition, the proposed HVADC 

exposure definition includes a 

definition of ‘‘permanent loan.’’ A 

permanent loan for purposes of the 

proposed HVADC exposure definition 

would mean a prudently underwritten 

loan 17 that has a clearly identified 

ongoing source of repayment sufficient 

to service amortizing principal and 

interest payments aside from the sale of 

the property. The proposed rule would 

not require that the current loan 

payments be amortizing in order for a 

loan to meet the definition of a 

permanent loan. 

For many acquisition, development, 

or construction projects, the source of 

repayment will be derived from the 

property once the project is completed 

and tenants begin paying rent or the 

property otherwise begins to produce 

income. Additionally, the agencies 

recognize that for loans financing 

owner-occupied acquisition, 

development, or construction projects, 

the owner may have sufficient capacity 

at origination to repay the loan from 

ongoing operations, without relying on 

proceeds from the sale or lease of the 


asabaliauskas on DSKBBXCHB2PROD with PROPOSALS
49990 Federal Register / Vol. 82, No. 207 / Friday, October 27, 2017 / Proposed Rules 

property, in which case the loan would 

be considered a permanent loan and 

thus excluded from the HVADC 

exposure definition, assuming it was 

prudently underwritten. For example, a 

prudently underwritten loan to a 

company that obtains financing to 

construct an additional facility that does 

not rely on the lease income from the 

facility to repay the loan, and instead 

relies on cash flows from other sources 

to cover amortizing principal and 

interest payments, may be considered a 

permanent loan and excluded from 

HVADC. 

The agencies are also clarifying that 

bridge loans generally would not qualify 

as permanent loans as the property is 

not generating sufficient revenue to 

make amortizing principal and interest 

payments. The agencies believe 

financing for bridge loans poses greater 

credit risk than permanent loans, and, 

therefore, should be subject to a higher 

risk weight. 

Finally, even if a credit facility does 

not meet the definition of a permanent 

loan at origination, it could 

subsequently meet the definition as the 

property generates additional revenue 

sufficient to service amortizing 

principal and interest payments. In such 

a case, the facility may become exempt 

from the HVADC exposure category, 

provided the loan was prudently 

underwritten at origination. 

Question 5: The agencies seek 

comment on the clarity of the exemption 

for permanent loans in the proposed 

HVADC exposure definition and the 

ease with which banking organizations 

can determine whether an exposure 

qualifies for this exemption. What, if 

any, additional clarification would help 

banking organizations identify 

exposures that meet the permanent loan 

exemption? 

5. Risk Weight for HVADC Exposures 

Currently, under the standardized 

approach, an HVCRE exposure receives 

a 150 percent risk weight. Under the 

proposed rule, an HVADC exposure 

would receive a 130 percent risk weight. 

The agencies believe the reduced risk 

weight for HVADC exposures is 

appropriate in recognition of the 

potentially broader scope of the 

definition, and that this change would 

not result in a significant change in the 

aggregate minimum capital required 

under the capital rule. Specifically, by 

including exposures regardless of the 

amount of the borrower’s contributed 

equity, some exposures that would be 

included in the HVADC exposure 

category may, while remaining riskier 

than other commercial real estate loans, 

have risk-reducing qualities, such as 

lower LTV ratios and higher borrowercontributed capital relative to exposures 

currently in the HVCRE exposures 

category. 

However, to mitigate the potential 

burden on banking organizations of 

having to re-evaluate all of their 

acquisition, development, or 

construction exposures against the new 

HVADC exposure definition, the 

proposal, under the standardized 

approach, would contain a 

grandfathering provision for outstanding 

acquisition, development, or 

construction exposures. The proposal, 

under the standardized approach, 

would retain the capital rule’s HVCRE 

exposure definition and exposure 

category treatment for all outstanding 

acquisition, development, or 

construction exposures as of the 

effective date of any final rule. Only 

new acquisition, development, or 

construction exposures originated on or 

after the effective date of a final rule 

would need to be evaluated against the 

new HVADC exposure definition. 

Therefore, a banking organization would 

maintain an exposure’s risk weight as 

determined prior to the effective date of 

a final rule under the HVCRE exposure 

definition. For example, if an 

outstanding acquisition, development, 

or construction exposure is classified as 

an HVCRE exposure under the capital 

rule, then the exposure would continue 

to have a 150 percent risk weight until 

the exposure is converted to permanent 

financing or is sold or paid in full. For 

the purposes of this grandfathering 

provision, permanent financing refers to 

the existing HVCRE exposure definition, 

which relies on a banking organization’s 

underwriting criteria for long-term 

mortgage loans. If an outstanding 

acquisition, development, or 

construction exposure is exempt from 

the HVCRE exposure category under the 

capital rule, then the exposure would 

continue to receive its applicable risk 

weight under the capital rule (e.g., 100 

percent risk weight), assuming the 

exposure is not past due. 

Based upon data reported on the 

Consolidated Financial Statements for 

Holding Companies (FR Y–9C) and on 

Call Reports for insured depository 

institutions as of June 30, 2017, 

approximately 80 percent of banking 

organizations report holdings of 

acquisition, development, or 

construction exposures, excluding oneto four-family residential properties, 

and approximately 40 percent of 

banking organizations report some 

holdings of HVCRE exposures risk 

weighted at 150 percent. As highlighted 

above, the proposed treatment may 

result in a 130 percent risk weight for 

certain future exposures that would 

have received either a 100 or a 150 

percent risk weight under the capital 

rule’s treatment. It may also result in 

certain loans that would have received 

a 150 percent risk weight under the 

current rule receiving a 100 percent risk 

weight under the proposed rule. At the 

individual banking organization level, a 

banking organization currently with a 

higher proportion of HVCRE exposures 

relative to its total acquisition, 

development, or construction exposures 

may see a decrease in its capital 

requirements on new acquisition, 

development, or construction loans 

going forward. Conversely, a banking 

organization that currently has a higher 

proportion of acquisition, development, 

or construction exposures deemed to be 

excluded from the HVCRE exposure 

definition may see an increase in its 

capital requirements on new 

acquisition, development, or 

construction loans to the extent those 

exposures do not otherwise qualify for 

the exemptions under the proposed 

HVADC exposure definition going 

forward. Because of the lack of granular 

data on acquisition, development, or 

construction loans in the regulatory 

reports and since agencies cannot 

predict how banking organizations may 

structure such exposures in the future, 

the agencies cannot estimate with 

precision the future impact of the 

proposed HVADC exposure definition at 

an individual banking organization 

level. The agencies further note that the 

proposed grandfathering provision, 

which may lessen regulatory 

compliance burden by preventing 

banking organizations from having to reevaluate their existing acquisition, 

development, or construction exposures 

under the new HVADC exposure 

definition, also would limit the 

potential impact of the treatment of 

acquisition, development, or 

construction exposures under the 

proposed HVADC exposures definition 

on banking organizations’ regulatory 

capital. 

Although the agencies anticipate that 

the proposed rule may lead to the 

assignment of higher risk weights to 

certain acquisition, development, or 

construction exposures going forward, 

the agencies believe that the simplified 

definition for HVADC exposures may 

lead to a reduced regulatory compliance 

burden in classifying acquisition, 

development, or construction 

exposures. The agencies also expect that 

the revised definition would result in 

increased consistency in the treatment 

of acquisition, development, or 

construction exposures. The agencies 


asabaliauskas on DSKBBXCHB2PROD with PROPOSALS
Federal Register / Vol. 82, No. 207 / Friday, October 27, 2017 / Proposed Rules 49991 

18 ‘‘Frequently Asked Questions on the 

Regulatory Capital Rule,’’ OCC Bulletin 2015–23 

(April 6, 2016), available at: https://www.occ.gov/ 

news-issuances/bulletins/2015/bulletin-2015- 

23.html. ‘‘SR 15–6: Interagency Frequently Asked 

Questions (FAQs) on the Regulatory Capital Rules’’ 

(April 5, 2015), available at: https://

www.federalreserve.gov/supervisionreg/srletters/

sr1506.htm; FDIC FIL 16–2015, available at https:// 

www.fdic.gov/news/news/financial/2015/

fil15016.html. 

19A significant investment in the capital of an 

unconsolidated financial institution is defined as an 

investment in the capital of an unconsolidated 

financial institution where the banking organization 

owns more than 10 percent of the issued and 

outstanding common stock of the unconsolidated 

financial institution (significant investment in the 

capital of an unconsolidated financial institution). 

12 CFR 217.2 (Board); 12 CFR 3.2 (OCC); 12 CFR 

324.2 (FDIC). 

20Beginning on January 1, 2018, the calculation 

of the aggregate 15 percent common equity tier 1 

capital deduction threshold for these items will 

become stricter as any amount above 15 percent of 

common equity tier 1, less the amount of those 

items already deducted as a result of the 10 percent 

common equity tier 1 capital deduction threshold, 

will be deducted from a banking organization’s 

common equity tier 1. 12 CFR 217.22(d) (Board); 12 

CFR 3.22(d) (OCC); 12 CFR 324.22(d) (FDIC). 

21See the agencies’ notice of proposed 

rulemaking that was issued on August 25, 2017 (82 

FR 40495). 

22A non-significant investment in the capital of 

an unconsolidated financial institution is defined as 

an investment in the capital of an unconsolidated 

financial institution where the institution owns 10 

percent or less of the issued and outstanding 

common stock of the unconsolidated financial 

institution (non-significant investment in the 

capital of an unconsolidated financial institution). 

12 CFR 217.2 (Board); 12 CFR 3.2 (OCC); 12 CFR 

324.2 (FDIC). 

23 12 CFR 217.22(c)(4) (Board); 12 CFR 3.22(c)(4) 

(OCC); 12 CFR 324.22(c)(4) (FDIC). 

believe that the proposed definition 

strikes an appropriate balance between 

risk-sensitivity and complexity. 

Question 6: The agencies seek 

comment on the agencies’ goal of 

achieving an appropriate balance 

between the proposed calibration and 

expanded scope of application for 

HVADC exposures. The agencies are 

interested in any additional data on the 

impact of the proposed rule’s capital 

treatment of HVCRE exposures and the 

new capital treatment of HVADC 

exposures on bank holding companies, 

savings and loan holding companies, 

and insured depository institutions, 

both in the aggregate and on an 

individual banking organization level. 

Question 7: What are the pros and 

cons of the grandfathering provision 

and does it sufficiently mitigate the 

compliance burden of having to reevaluate all acquisition, development, 

or construction exposures against the 

new HVADC exposure definition? Are 

there alternatives to the proposed 

grandfathering provision that the 

agencies should consider? 

6. Retaining the HVCRE Exposure 

Definition Under the Advanced 

Approaches 

As noted above, the agencies are not 

proposing to make substantive revisions 

to the advanced approaches as part of 

this rulemaking. The proposed 

introduction of the HVADC exposure 

category would apply only to the 

calculation of risk-weighted assets 

under the standardized approach. 

The HVCRE exposure category was 

introduced in the standardized 

approach as part of the revisions to the 

capital rule to address the agencies’ 

concern that such exposures had been 

insufficiently capitalized prior to and 

during the financial crisis of 2007–2008. 

Banking organizations have commented 

on and raised concerns about this 

exposure category and its corresponding 

150 percent risk weight in the 

standardized approach since its 

introduction, and specifically during the 

2017 EGRPRA process. Because 

concerns expressed by banking 

organizations regarding the HVCRE 

exposure definition emanated primarily 

from its implementation in the 

standardized approach, the agencies do 

not believe it is necessary to make 

corresponding changes to the definition 

in the advanced approaches. The 

advanced approaches do not rely on a 

single risk weight for HVCRE exposure, 

instead requiring banking organizations 

to categorize and assign risk parameters 

to these exposures, as well as subject 

them to higher capital requirements 

through an asset value correlation 

factor. Thus, treatment of this exposure 

category in the advanced approaches 

diverges substantially from its treatment 

in the standardized approach, and the 

agencies are not proposing to replace 

the existing HVCRE exposure definition 

under the advanced approaches. 

Accordingly, advanced approaches 

banking organizations would continue 

to use the HVCRE exposure definition to 

calculate their advanced approaches 

risk-weighted assets, while using the 

HVADC exposure definition for the 

purpose of calculating their riskweighted assets under the standardized 

approach. 

Question 8: The agencies request 

comment on whether it would be 

appropriate to replace the HVCRE 

exposure definition, as it is used in the 

advanced approaches, with the 

proposed HVADC exposure definition. 

What, if any, challenges do advanced 

approaches banking organizations face 

as a result of the agencies maintaining 

the existing HVCRE exposure definition 

for purposes of the advanced 

approaches while also proposing to 

adopt the more expansive HVADC 

exposure definition for purposes of the 

standardized approach? What, if any, 

changes should the agencies consider to 

address these challenges? 

7. Frequently Asked Questions (FAQs) 

The agencies have previously issued 

FAQs to provide clarity on the existing 

HVCRE exposure definition. If the 

agencies adopt the proposal as final, 

they will consider whether to revise or 

rescind some or all of the HVCRE 

exposure-related FAQs. As the agencies 

are considering comments received on 

this proposal, the agencies would 

consider whether to issue any updated 

guidance related to the HVCRE exposure 

definition as it pertains to its use in the 

advanced approaches.18

B. MSAs, Temporary Difference DTAs, 

and Investments in the Capital of 

Unconsolidated Financial Institutions 

1. Background 

The capital rule currently requires 

that a banking organization deduct from 

common equity tier 1 capital the 

amounts of MSAs, temporary difference 

DTAs, and significant investments in 

the capital of unconsolidated financial 

institutions in the form of common 

stock that individually exceed 10 

percent of the banking organization’s 

common equity tier 1 capital.19 In 

addition, any amount not deducted as a 

result of the individual 10 percent 

common equity tier 1 capital deduction 

threshold must be deducted from a 

banking organization’s common equity 

tier 1 capital if that amount exceeds 15 

percent of the banking organization’s 

common equity tier 1 capital. Beginning 

January 1, 2018, any amount of these 

three items that a banking organization 

does not deduct from common equity 

tier 1 capital will be risk weighted at 

250 percent (until that time, such items 

are risk weighted at 100 percent).20 21

The capital rule further requires 

deductions from regulatory capital if a 

banking organization holds (i) nonsignificant investments in the capital of 

an unconsolidated financial institution 

above a certain threshold 22 or (ii) 

significant investments in the capital of 

an unconsolidated financial institution 

that are not in the form of common 

stock. Specifically, the capital rule 

requires that a banking organization 

deduct from its regulatory capital any 

amount of the organization’s nonsignificant investments in the capital of 

unconsolidated financial institutions 

that exceeds 10 percent of the banking 

organization’s common equity tier 1 

capital (the 10 percent threshold for 

non-significant investments) 23 in 


asabaliauskas on DSKBBXCHB2PROD with PROPOSALS
49992 Federal Register / Vol. 82, No. 207 / Friday, October 27, 2017 / Proposed Rules 

24 12 CFR 217.22(c)(2) (Board); 12 CFR 3.22(c)(2) 

(OCC); 12 CFR 324.22(c)(2) (FDIC). 

25 12 CFR 217.22(c)(5) (Board); 12 CFR 3.22(c)(5) 

(OCC); 12 CFR 324.22(c)(5) (FDIC). 

26 82 FR 15908 (March 30, 2017). 

27 78 FR 62018, 62069–70 (October 13, 2013) 

(FRB, OCC); 78 FR 55340, 55388–89 (September 10, 

2013) (FDIC). 

accordance with the corresponding 

deduction approach of the capital 

rule.24 In addition, significant 

investments in the capital of 

unconsolidated financial institutions 

not in the form of common stock also 

must be deducted from regulatory 

capital in their entirety in accordance 

with the corresponding deduction 

approach.25

2. Simplifying the Capital Treatment for 

MSAs, Temporary Difference DTAs, and 

Investments in the Capital of 

Unconsolidated Financial Institutions 

As highlighted in numerous questions 

and comments received by the agencies 

through both the EGRPRA process and 

their respective supervisory processes, 

community banking organizations have 

indicated that they find the deduction 

approach for MSAs, temporary 

difference DTAs, and investments in the 

capital of unconsolidated financial 

institutions to be complex and 

burdensome. In addition, two banking 

organization commenters asserted in the 

public comment period for the EGRPRA 

process that the revisions to the 

treatment of MSAs in the capital rule 

were unduly restrictive for community 

banks.26

The agencies are proposing changes 

applicable to MSAs, temporary 

difference DTAs, and investments in the 

capital of unconsolidated financial 

institutions to simplify their treatment 

while at the same time ensuring an 

appropriate regulatory capital treatment 

to address safety and soundness 

concerns. Specifically, and consistent 

with the agencies’ statements in the 

2017 EGRPRA report, the proposed rule 

would, for non-advanced approaches 

banking organizations, replace the 

capital rule’s individual 10 percent 

common equity tier 1 capital deduction 

thresholds for MSAs, temporary 

difference DTAs, and significant 

investments in the capital of 

unconsolidated financial institutions in 

the form of common stock and eliminate 

the aggregate 15 percent common equity 

tier 1 capital deduction threshold for 

such items. The proposal would require 

that a non-advanced approaches 

banking organization deduct from 

common equity tier 1 capital any 

amounts of MSAs, temporary difference 

DTAs, and investments in the capital of 

unconsolidated financial institutions 

that, individually, exceed 25 percent of 

the banking organization’s common 

equity tier 1 capital (after certain 

deductions and adjustments) (the 25 

percent common equity tier 1 capital 

deduction threshold). The agencies 

believe that this change would 

appropriately balance risk-sensitivity 

and complexity for non-advanced 

approaches banking organizations. The 

imposition of the 25 percent common 

equity tier 1 capital deduction threshold 

is expected to avoid, in a simple 

manner, unsafe and unsound 

concentration levels of MSAs, 

temporary difference DTAs, and 

investments in the capital of 

unconsolidated financial institutions. 

Although the agencies expect that the 

proposed simplifications for the 

treatment of MSAs, temporary 

difference DTAs, and investments in the 

capital of unconsolidated financial 

institutions would reduce regulatory 

compliance burden, the agencies do not 

expect a significant impact on the 

capital ratios for most non-advanced 

approaches banking organizations as a 

result of these simplifications. Those 

non-advanced approaches banking 

organizations with relatively substantial 

holdings of MSAs or temporary 

difference DTAs could, however, 

experience a regulatory capital benefit 

as a result of the proposed 

simplifications. 

a. MSAs and Temporary Difference 

DTAs 

In addition to the proposed 25 percent 

common equity tier 1 capital deduction 

threshold, any amounts of MSAs or 

temporary difference DTAs that are not 

deducted would be risk weighted at 250 

percent, consistent with the capital rule. 

The agencies note that some banking 

organizations suggested in the public 

comments associated with the revisions 

to the capital rule that the deductions 

for MSAs and temporary difference 

DTAs were unnecessarily burdensome, 

and urged the agencies to eliminate the 

requirements altogether and revert to 

the treatment for these items under the 

capital framework that was applicable 

before 2013. Additionally, through the 

EGRPRA comment process, two 

commenters suggested raising the 

deduction threshold for MSAs from 10 

percent to 100 percent of common 

equity tier 1 capital. 

The agencies have long limited the 

inclusion of intangible and higher-risk 

assets in regulatory capital due to the 

relatively high level of uncertainty 

regarding the ability of banking 

organizations to realize value from these 

assets, especially under adverse 

financial conditions. The agencies 

believe that it is therefore important to 

retain regulatory capital restrictions for 

MSAs and temporary difference DTAs. 

Temporary difference DTAs are assets 

from which banking organizations may 

not be able to realize value, especially 

under adverse financial conditions. A 

banking organization’s ability to realize 

its temporary difference DTAs is 

dependent on future taxable income; 

thus, the proposed limitation would 

continue to protect against the 

possibility that the banking organization 

would need to establish or increase 

valuation allowances for DTAs during 

periods of financial stress. In the case of 

MSAs, the proposed treatment for MSAs 

would continue to protect banking 

organizations from sudden fluctuations 

in the value of MSAs and from the 

potential inability of such banking 

organizations to quickly divest of MSAs 

at their full estimated value during 

periods of financial stress. 

Under section 475 of the Federal 

Deposit Insurance Corporation 

Improvement Act of 1991 (FDICIA) (12 

U.S.C. 1828 note), the amount of readily 

marketable purchased mortgage 

servicing assets (PMSAs) that an insured 

depository institution may include in 

regulatory capital cannot be more than 

90 percent of the PMSAs’ fair value. 

Section 475 of FDICIA provides the 

agencies with the authority to remove 

the 90 percent limitation on PMSAs, 

subject to a joint determination by the 

agencies that its removal would not 

have an adverse effect on the deposit 

insurance fund or the safety and 

soundness of insured depository 

institutions. The agencies determined 

that the treatment of MSAs (including 

PMSAs) under the capital rule was 

consistent with a determination that the 

90 percent limitation could be removed 

because the treatment under the capital 

rule (that is, applying a 250 percent risk 

weight to any non-deducted MSAs) was 

more conservative than the FDICIA fair 

value limitation and a 100 percent risk 

weight, which was the risk weight 

applied to MSAs under the regulatory 

capital framework prior to 2013.27

Because the proposed rule would 

require that MSAs above the 25 percent 

common equity tier 1 capital deduction 

threshold be deducted from common 

equity tier 1 capital and would maintain 

the 250 percent risk weight for nondeducted MSAs (including PMSAs), the 

agencies believe that the treatment of 

MSAs under the proposed rule would 

be consistent with a determination that 

the 90 percent fair value limitation is 

not necessary. 


asabaliauskas on DSKBBXCHB2PROD with PROPOSALS
Federal Register / Vol. 82, No. 207 / Friday, October 27, 2017 / Proposed Rules 49993 

28 12 CFR 217.52 and 53 (Board); 12 CFR 3.52 and 

53 (OCC); 12 CFR 324.52 and 53 (FDIC). 

29Equity exposures that exceed, in the aggregate, 

10 percent of a non-advanced approaches banking 

organization’s total capital would then be assigned 

a risk weight based upon the approaches available 

in sections 52 and 53 of the capital rule. 12 CFR 

217.52 and 53 (Board); 12 CFR 3.52 and 53 (OCC); 

12 CFR 324.52 and 53 (FDIC). 30The agencies are making nonsubstantive 

changes to the definitions of non-significant 

investment in the capital of an unconsolidated 

financial institution and significant investment in 

the capital of an unconsolidated financial 

institution in section 2 of the capital rule in order 

to maintain the current treatment of these items for 

advanced approaches banking organizations. 

b. Investments in the Capital of 

Unconsolidated Financial Institutions 

As mentioned above, the proposal 

would impose the 25 percent common 

equity tier 1 capital deduction threshold 

on investments in the capital of 

unconsolidated financial institutions. A 

banking organization would make any 

required deduction under the 

corresponding deduction approach. 

This proposed treatment removes, for 

non-advanced approaches banking 

organizations, the distinctions among 

different categories of investments in 

the capital of unconsolidated financial 

institutions in the capital rule (namely 

non-significant investments in the 

capital of unconsolidated financial 

institutions, significant investment in 

the capital of unconsolidated financial 

institutions that are in the form of 

common stock, and significant 

investments in the capital of 

unconsolidated financial institutions 

that are not in the form of common 

stock). In order to avoid added 

complexity and regulatory burden, the 

agencies are not proposing a specific 

methodology dictating which specific 

investments a non-advanced approaches 

banking organization must deduct and 

which it must risk weight in cases 

where the firm is exceeding the 25 

percent common equity tier 1 capital 

deduction threshold for investments in 

the capital of unconsolidated financial 

institutions. The agencies believe that 

they can address any safety and 

soundness concerns that arise from this 

flexible treatment through the 

supervisory process. The agencies 

believe the proposed treatment for 

investments in the capital of 

unconsolidated financial institutions 

would reduce complexity while 

maintaining appropriate incentives to 

reduce interconnectedness among 

banking organizations. 

Under the proposed rule, nonadvanced approaches banking 

organizations would be required to risk 

weight any investments in the capital of 

unconsolidated financial institutions 

that are not deducted according to the 

relevant treatment for the exposure 

category of the investment. For example, 

the appropriate risk weight for equity 

exposures would generally be either 300 

or 400 percent, depending on whether 

the equity exposures are publicly 

traded, unless such exposures are 

assigned a preferential risk weight of 

100 percent, as described below.28

The capital rule allows banking 

organizations to apply a preferential risk 

weight of 100 percent to the aggregated 

adjusted carrying value of equity 

exposures that do not exceed 10 percent 

of a banking organization’s total capital 

(non-significant equity exposures). The 

application of this risk weight (i) 

requires a banking organization to 

follow an enumerated process for 

calculating adjusted carrying value and 

(ii) mandates the equity exposures that 

must be included first in determining 

whether the threshold has been reached. 

The capital rule currently excludes 

significant investments in the capital of 

unconsolidated financial institutions in 

the form of common stock from being 

eligible for a 100 percent risk weight. 

The proposal would eliminate this 

exclusion for non-advanced approaches 

banking organizations.29 The agencies 

believe that this revised approach 

would appropriately balance simplicity 

and risk-sensitivity for non-advanced 

approaches banking organizations by 

applying a single definition of 

investments in the capital of 

unconsolidated financial institutions 

and consolidating the different 

deduction treatments for investments in 

the capital of unconsolidated financial 

institutions. 

c. Regulatory Treatment for Advanced 

Approaches Banking Organizations 

Advanced approaches banking 

organizations would continue to apply 

the capital rule’s current treatment for 

MSAs, temporary difference DTAs, and 

investments in the capital of 

unconsolidated financial institutions.30

The agencies believe that the more 

complex capital deduction treatments in 

the capital rule are appropriate for 

advanced approaches banking 

organizations, because their size, 

complexity, and international exposure 

warrant a risk-sensitive treatment that 

more aggressively reduces potential 

interconnectedness among such firms. 

Accordingly, advanced approaches 

banking organizations would be 

required to continue applying the 

individual 10 percent common equity 

tier 1 capital deduction thresholds, as 

well as the aggregate 15 percent 

common equity tier 1 capital deduction 

threshold, for investments in MSAs, 

temporary difference DTAs, and 

significant investments in 

unconsolidated financial institutions in 

the form of common stock when 

calculating their capital requirements 

under the capital rule. Advanced 

approaches banking organizations 

would also continue to apply the capital 

rule’s treatment for non-significant 

investments in the capital of 

unconsolidated financial institutions 

and significant investments in the 

capital of unconsolidated financial 

institutions that are not in the form of 

common stock. 

Question 9: What impact would the 

agencies’ proposed changes to the 

treatment of MSAs, temporary 

difference DTAs, and investments in the 

capital of unconsolidated financial 

institutions for non-advanced 

approaches banking organizations have 

on (i) risks to the safety and soundness 

of the banking system and (ii) regulatory 

burden on non-advanced approaches 

banking organizations? If possible, 

please provide relevant data to support 

comments. 

Question 10: What are the benefits 

and drawbacks of (i) the proposed 

elimination of the 250 percent risk 

weight for significant investments in the 

capital of unconsolidated financial 

institutions in the form of common 

stock and (ii) the proposed riskweighting methodology for investments 

in the capital of unconsolidated 

financial institutions when such 

investments are in the form of equity 

exposures? 

Question 11: What, if any, operational 

challenges does the proposed treatment 

of MSAs, temporary difference DTAs, 

and investments in the capital of 

unconsolidated financial institutions 

pose? What, if any, modifications 

should the agencies consider to address 

such challenges? 

C. Minority Interest 

1. Background 

The capital rule limits the amount of 

capital issued by consolidated 

subsidiaries and not owned by the 

parent banking organization (minority 

interest) that a banking organization 

may include in regulatory capital. For 

example, tier 1 minority interest is 

created when a consolidated subsidiary 

of the banking organization issues tier 1 

capital to third parties. Given that 

minority interest is generally not 

available to absorb losses at the banking 

organization’s consolidated level, the 

agencies strongly believe that inclusion 

of minority interest in a banking 

organization’s regulatory capital should 

be limited. The restrictions in the 


asabaliauskas on DSKBBXCHB2PROD with PROPOSALS
49994 Federal Register / Vol. 82, No. 207 / Friday, October 27, 2017 / Proposed Rules 

31 12 CFR 217.22(a) and (b) (Board); 12 CFR 

3.22(a) and (b) (OCC); 12 CFR 324.22(a) and (b) 

(FDIC). 32 12 U.S.C. 3101–3111. 

33 12 CFR 217.11(a)(2)(i); 12 CFR 3.11(a)(2)(i); and 

12 CFR 324.11(a)(2)(i). 

capital rule relating to minority interest 

are currently based on the amount of 

capital held by the consolidated 

subsidiary relative to the amount of 

capital the subsidiary would need to 

hold to avoid any restrictions on capital 

distributions and discretionary bonus 

payments under the capital rule’s 

capital conservation buffer framework. 

Many community banking organizations 

have asserted that the capital rule’s 

current calculation of the minority 

interest limitation is complex and 

results in burdensome and confusing 

regulatory capital reporting instructions. 

2. Simplifying the Regulatory Capital 

Limitations for Minority Interest 

Under the proposal, the agencies 

would replace for non-advanced 

approaches banking organizations the 

existing calculations limiting the 

inclusion of minority interest in 

regulatory capital with a simpler 

calculation. Specifically, the proposed 

rule would allow non-advanced 

approaches banking organizations to 

include: (i) Common equity tier 1 

minority interest up to 10 percent of the 

parent banking organization’s common 

equity tier 1 capital; (ii) tier 1 minority 

interest up to 10 percent of the parent 

banking organization’s tier 1 capital; 

and (iii) total capital minority interest 

up to 10 percent of the parent banking 

organization’s total capital. In each case, 

the parent banking organization’s 

regulatory capital for purposes of these 

limitations would be measured before 

the inclusion of any minority interest 

and after the deductions from and 

adjustments to the regulatory capital of 

the parent banking organization 

described in sections 22(a) and (b) of the 

capital rule.31 The agencies believe that 

removing the current complex 

calculation for the amount of includable 

minority interest reduces regulatory 

burden without reducing the safety and 

soundness of non-advanced approaches 

banking organizations because the 

proposed minority interest limitations 

are simpler to calculate and still 

appropriately restrictive. The agencies 

do not expect a significant impact on 

the capital ratios for most non-advanced 

approaches banking organizations as a 

result of these simplifications. 

The agencies remain focused on 

ensuring that the capital requirements 

applied to banking organizations are 

appropriately tailored to an 

organization’s size, complexity, and risk 

profile. Accordingly, the largest and 

most internationally active banking 

organizations should be required to 

comply with stricter or more complex 

regulations, where appropriate, 

commensurate with their size, 

complexity, and risk profile. The 

agencies are therefore not proposing to 

change the more risk-sensitive minority 

interest calculation for advanced 

approaches banking organizations. 

Given the potential complexity in the 

capital structure of the largest and most 

systemically important institutions, the 

agencies believe that maintaining the 

more risk-sensitive approach for these 

firms better ensures they do not 

overstate capital ratios at the 

consolidated level as a result of 

overcapitalized subsidiaries, thereby 

protecting the safety and soundness of 

the banking sector. 

Question 12: What would be (i) the 

benefits and drawbacks and (ii) effects 

on regulatory burden of the agencies’ 

proposed revisions to the quantitative 

limits for including minority interests in 

regulatory capital for non-advanced 

approaches banking organizations? The 

agencies solicit comment on all aspects 

of the proposed changes to the inclusion 

of minority interests in regulatory 

capital for non-advanced approaches 

banking organizations. If possible, 

please provide relevant data to support 

comments. 

III. Technical Amendments to the 

Capital Rule 

The proposed rule would make 

certain technical corrections and 

clarifications to the capital rule. The 

agencies have identified typographical 

and technical errors in several 

provisions of the capital rule that 

warrant clarification or updating. The 

agencies are, therefore, proposing to 

revise the capital rule as described 

below. Most of the proposed corrections 

or technical changes are selfexplanatory. In addition, there are 

several incorrect or imprecise crossreferences that the agencies propose to 

change in an effort to better clarify the 

capital rule’s requirements, as well as 

other changes to references necessary to 

implement the simplifications described 

previously in this preamble. 

In section 1, the proposed rule would 

clarify that the capital adequacy 

standards do not apply to Federal 

branches and agencies of foreign banks 

that are regulated by the OCC. The OCC 

regulates Federal branches and agencies 

of foreign banks.32

In section 2, the proposed rule would 

correct an error in the definition of 

investment in the capital of an 

unconsolidated financial institution by 

changing the word ‘‘and’’ to ‘‘or.’’ This 

would clarify that an instrument 

qualifying for the definition can be 

either recognized as capital for 

regulatory purposes by a primary 

supervisor of an unconsolidated 

financial institution or can be part of the 

equity under U.S. generally accepted 

accounting principles (GAAP) of an 

unconsolidated unregulated financial 

institution. 

The proposed rule would add ‘‘the 

European Stability Mechanism’’ and 

‘‘the European Financial Stability 

Facility’’ to the capital rule with respect 

to (i) the definition of eligible guarantor 

in section 2, (ii) the list of entities 

eligible for a zero percent risk weight in 

section 32(b), (iii) the list of equity 

exposures eligible for a zero percent risk 

weight in section 52(b)(1), (iv) the list of 

entities eligible for assignment of a 

rating grade associated with a 

probability of default of less than 0.03 

percent in section 131(d)(2), and (v) 

certain supranational entities and 

multilateral development bank debt 

positions eligible for assignment of a 0.0 

percent specific risk weighting factor in 

section 210(b)(2)(ii). The proposed rule 

would also exclude such entities from 

the definition of (i) corporate exposure 

in section 2, (ii) private sector credit 

exposure in section 11, and (iii) 

corporate debt position in section 202. 

The agencies are making this change 

because the European Stability 

Mechanism and the European Financial 

Stability Facility were in early stages of 

operation and excluded from the capital 

rule when it was finalized in 2013. The 

proposal would update the list of 

entities included or excluded, as 

applicable, for these purposes in the 

standardized approach and advanced 

approaches of the capital rule and the 

market risk capital rule. 

The agencies are making technical 

amendments to section 11(a) of the 

capital rule, on the capital conservation 

buffer, to clarify the calculation of a 

banking organization’s maximum 

payout amount for a specific calendar 

quarter. First, the proposal would clarify 

that the eligible retained income during 

a specific current calendar quarter is the 

banking organization’s net income, 

calculated in accordance with the 

instructions for the Call Report or the 

FR Y–9C, as appropriate, for the four 

calendar quarters preceding the current 

calendar quarter.33 Second, the proposal 

would clarify that the key inputs for the 

calculation of a banking organization’s 

capital conservation buffer during the 

current calendar quarter are the banking 


asabaliauskas on DSKBBXCHB2PROD with PROPOSALS
Federal Register / Vol. 82, No. 207 / Friday, October 27, 2017 / Proposed Rules 49995 

34 12 CFR 217.11(a)(3)(i); 12 CFR 3.11(a)(3)(i); and 

12 CFR 324.11(a)(3)(i). 

35 82 FR 40495 (August 25, 2017). Items impacted 

by the transition NPR include, for non-advanced 

approaches banking institutions, (i) MSAs; (ii) 

temporary difference DTAs; (iii) significant 

investments in the capital of unconsolidated 

financial institutions in the form of common stock; 

(iv) non-significant investments in the capital of 

unconsolidated financial institutions; (v) significant 

investments in the capital of unconsolidated 

financial institutions that are not in the form of 

Continued 

organization’s regulatory capital ratios 

as of the last day of the previous 

calendar quarter.34

In section 20(d)(5) for the Board’s and 

OCC’s capital rule, the proposed rule 

would provide that the reference to 

AOCI opt-out election is section 22(b)(2) 

instead of section 20(b)(2). 

In section 20(c) of the capital rule, the 

OCC’s and FDIC’s regulations 

mistakenly provide that cash dividend 

payments on additional tier 1 capital 

instruments may not be subject to a 

‘‘limit’’ imposed by the contractual 

terms governing the instrument. This 

requirement was intended to apply only 

to common equity tier 1 capital 

instruments, and not to additional tier 1 

capital instruments. The proposed rule 

would harmonize the language of the 

agencies’ capital rule in section 20(c) by 

removing this requirement for 

additional tier 1 instruments. 

In a new section 20(f) of the Board’s 

capital rule, for purposes of clarity and 

enforceability, the proposed rule would 

create a stand-alone requirement that a 

Board-regulated banking organization 

may not repurchase or redeem any 

common equity tier 1 capital, additional 

tier 1, or tier 2 capital instrument 

without the prior approval of the Board. 

This requirement already exists in the 

capital rule as a requirement for each 

definition of common equity tier 1, 

additional tier 1, and tier 2 capital 

instruments in sections 20(b)(iii), 

20(c)(iv), and 20(d)(x), respectively. 

In section 22(g) of the capital rule, the 

proposed rule would remove specific 

references to assets to exclude from risk 

weighting if already deducted from 

regulatory capital. The effect of this 

proposed change would be to exclude 

from standardized total risk-weighted 

assets and, as applicable, advanced 

approaches total risk-weighted assets 

any items deducted from capital, not 

only the items specifically enumerated. 

In section 22(h) of the capital rule, the 

proposed rule would replace inaccurate 

terminology with the properly defined 

terms ‘‘investment in the capital of an 

unconsolidated financial institution’’ 

and ‘‘investment in the [AGENCY]- 

regulated institution’s own capital 

instrument,’’ as described in section 2. 

The proposed rule would revise, for 

purposes of clarity, the capital rule’s 

sections 32(d)(2)(iii) and (iv), and create 

a new section 32(d)(2)(v). The revised 

section 32(d)(2)(iii) would require 

banking organizations to ‘‘assign a 20 

percent risk weight to an exposure that 

is a self-liquidating, trade-related 

contingent item that arises from the 

movement of goods and that has a 

maturity of three months or less to a 

foreign bank whose home country has a 

CRC of 0, 1, 2, or 3, or is an OECD 

member with no CRC.’’ This 

requirement is currently embedded in 

section 32(d)(2)(iii) of the capital rule, 

together with rule text related to the risk 

weighting of exposures to a foreign bank 

whose home country is not a member of 

the OECD and does not have a CRC. 

This latter provision would become a 

stand-alone requirement in the revised 

section 32(d)(2)(iv) under the proposed 

rule. In addition, the proposed rule 

would reassign the current section 

32(d)(2)(iv) text as a new section 

32(d)(2)(v). 

In sections 34(c)(1) and 34(c)(2)(i) of 

the capital rule, the proposed rule 

would provide that the counterparty 

credit risk capital requirement 

references subpart D of the capital rule 

in its entirety rather than just section 32 

of subpart D. 

In sections 35(b)(3)(ii), 35(b)(4)(ii), 

35(c)(3)(ii), 35(c)(4)(ii), 36(c), 37(b)(2)(i), 

38(e)(2), 42(j)(2)(ii)(A), 133(b)(3)(ii), and 

133(c)(3)(ii) of the capital rule, the 

proposed rule would provide that the 

risk weight substitution references 

subpart D in its entirety rather than just 

section 32 of subpart D. 

In section 61 of the capital rule, the 

proposed rule would clarify the 

requirement that a non-advanced 

approaches banking organization with 

$50 billion or more in total consolidated 

assets would need to complete the 

disclosure requirements described in 

sections 62 and 63, unless it is a 

consolidated subsidiary of a bank 

holding company, savings and loan 

holding company, or depository 

institution that is subject to the 

disclosure requirements of section 62, or 

a subsidiary of a non-U.S. banking 

organization that is subject to 

comparable public disclosure 

requirements in its home jurisdiction. 

Table 8 of section 63 of the capital 

rule describes information related to 

securitization exposures that banking 

organizations are required to disclose. 

The capital rule revised the risk-based 

capital treatment of these items, 

including the regulatory capital 

treatment of after-tax gain-on-sale 

resulting from a securitization and 

credit-enhancing interest-only strips 

that do not constitute after-tax gain-onsale. Because Table 8 does not properly 

reflect these revisions, the agencies 

propose to update line (i)(2) under 

quantitative disclosures to appropriately 

reflect these revisions. 

In section 210(b)(2)(vii) of the Board’s 

capital rule, the proposed rule would 

add references to U.S. intermediate 

holding companies to clarify for these 

firms how to calculate capital 

requirements related to securitization 

positions under the Board’s market risk 

capital rule depending on whether they 

are using the advanced approaches to 

calculate risk-weighted assets. 

In table 4 of section 300 of the capital 

rule, the proposed rule would revise the 

title ‘‘Transition adjustments’’ to 

reference section 22(b)(1)(iii) rather than 

section 22(b)(2). 

In section 300(c)(2) of the Board’s 

capital rule, the proposed rule would 

clarify that the mergers and acquisitions 

that can potentially affect the inclusion 

of certain non-qualifying capital 

instruments in a Board-regulated 

banking organization’s regulatory 

capital would have occurred after 

December 31, 2013. 

As discussed, the 2013 revisions to 

the capital rule required banking 

organizations to increase both the 

quality and quantity of regulatory 

capital. As a result, some items that 

previously were included in the 

calculation of regulatory capital became 

excluded, and the amounts of required 

regulatory capital relative to certain 

exposure types increased. As part of the 

capital rule rulemaking, the agencies 

established transition provisions to 

phase in many of these requirements 

over several years in order to give 

banking organizations sufficient time to 

adjust and adapt to the requirements of 

the rule. Many of the transition 

provisions continue to be in effect, and 

include ongoing phase-ins to the 

calculation of capital. 

During the development of this 

proposal, the agencies recognized the 

capital rule would automatically enact 

stricter treatments for items potentially 

impacted by this proposal on January 1, 

2018, while the agencies are 

simultaneously working through the 

rulemaking process to provide burden 

relief to non-advanced approaches 

banking organizations for the very same 

items. To address this concern, in 

August 2017, the agencies invited 

public comment on a proposed rule to 

extend the current treatment under the 

transition provisions of the capital rule 

for certain regulatory capital deductions 

and risk weights and certain minority 

interest requirements.35 The comment 


asabaliauskas on DSKBBXCHB2PROD with PROPOSALS
49996 Federal Register / Vol. 82, No. 207 / Friday, October 27, 2017 / Proposed Rules 

common stock; and (vi) common equity tier 1 

minority interest, tier 1 minority interest, and total 

capital minority interest exceeding the limitations 

on minority interest in the capital rule. 

period for the transitions NPR expired 

on September 25, 2017. 

In the transitions NPR, the agencies 

explained that the proposed extension 

was intended to limit burden on 

banking organizations by maintaining 

the transitions in effect for 2017 while 

the agencies developed potential 

simplifications to the treatment of 

affected items under the capital rule. 

The current proposal reflects the 

simplifications referenced by the 

agencies in the transitions NPR. If the 

transition extensions proposed in the 

transitions NPR are finalized, the 

scheduled recalibrations under the 

transition provisions of the capital rule 

would be halted for the affected items 

and the treatment in effect for 2017 

would continue until further action by 

the agencies. As described in the 

transitions NPR, the agencies expect 

that the transition extensions would 

cease to be appropriate upon 

completion of the agencies’ 

simplifications rulemaking process. 

If the transition extensions are not 

finalized, all the transition provisions 

currently in the capital rule would 

remain in effect, including a final, 

stricter recalibration to the treatment of 

items discussed in the transitions NPR 

beginning January 1, 2018, for all 

banking organizations covered by the 

agencies’ capital rule. Thus, whether or 

not the transition extensions in the 

transitions NPR are implemented, the 

agencies believe that the transitions 

would cease to be appropriate upon the 

agencies’ adoption of a final rule in 

conjunction with the rulemaking 

process for the proposed 

simplifications. Accordingly, in 

connection with this simplification 

proposal, the agencies propose to 

remove the transition provisions 

applicable to MSAs, temporary 

difference DTAs, investments in the 

capital of unconsolidated financial 

institutions, and minority interest, all of 

which are currently scheduled to end in 

2018. 

Question 13: The agencies solicit 

comments on the proposed technical 

amendments to the capital rule. What, 

if any, potentially unintended 

consequences do the proposed changes 

pose and how should the agencies 

consider addressing such consequences? 

What, if any, additional technical 

amendments not already identified by 

the agencies in this proposed rule would 

be appropriate for the agencies to 

consider and why? 

Question 14: While the proposed rule 

addresses comments received during the 

EGRPRA review regarding the 

complexity of the risk based capital 

standards, the agencies seek comment 

on additional alternatives to simplify 

and streamline the regulatory capital 

rules. The agencies recognize the 

difficulties in achieving simplification of 

the risk based capital standards, 

particularly the burden related to their 

calculation and reporting, and the 

potential disparate impact to smaller 

and medium sized banks relative to 

their GSIB counterparts. 

Therefore, the agencies seek comment 

on whether they should consider a 

fundamental change to the manner in 

which banking organizations calculate 

and comply with minimum capital 

standards such as through the use of a 

simple U.S. GAAP based equity to assets 

ratio (leverage ratio) for non-GSIB 

banks. If so, what would be the 

appropriate definition and level for the 

ratio? Also, what relief should be 

realized upon implementation of this 

capital standard relative to changes in 

the call report and other reporting 

standards? 

Question 15: The agencies also seek 

comment on whether they should 

consider more comprehensive 

simplifications to the capital rule for 

small and medium-sized banking 

organizations by, for example, further 

simplifying risk-weighted assets and the 

definition of capital, or reducing the 

number of regulatory capital ratios, 

consistent with legal requirements. 

What specific simplifications should the 

agencies consider and why? 

IV. Abbreviations 

ADC Acquisition, Development, or 

Construction 

BHC Bank Holding Company 

CFR Code of Federal Regulations 

CRC Country Risk Classification 

DTA Deferred Tax Asset 

EGRPRA Economic Growth and Regulatory 

Paperwork Reduction Act of 1996 

FAQ Frequently Asked Question 

FR Federal Register 

FDIC Federal Deposit Insurance 

Corporation 

FDICIA Federal Deposit Insurance 

Corporation Improvement Act of 1991 

GAAP U.S. Generally Accepted Accounting 

Principles 

GSIB Global Systemically Important Bank 

Holding Company 

HVADC High Volatility Acquisition, 

Construction, or Development 

HVCRE High Volatility Commercial Real 

Estate 

IHC U.S. Intermediate Holding Company 

LTV Loan-to-Value 

MDB Multilateral Development Bank 

MSA Mortgage Servicing Asset 

NPR Notice of Proposed Rulemaking 

OCC Office of the Comptroller of the 

Currency 

OECD Organization for Economic 

Cooperation and Development 

OMB Office of Management and Budget 

PD Probability of Default 

PMSA Purchased Mortgage Servicing Asset 

PRA Paperwork Reduction Act 

RCDRIA Riegle Community Development 

and Regulatory Improvement Act of 1994 

RFA Regulatory Flexibility Act 

RIN Regulation Identifier Number 

SBA Small Business Administration 

SLHC Savings and Loan Holding Company 

SMB State Member Banks 

UMRA Unfunded Mandates Reform Act of 

1995 

U.S.C. United States Code 

V. Regulatory Analyses 

A. Paperwork Reduction Act 

Certain provisions of the proposed 

rule contain ‘‘collection of information’’ 

requirements within the meaning of the 

Paperwork Reduction Act (PRA) of 1995 

(44 U.S.C. 3501–3521). In accordance 

with the requirements of the PRA, the 

agencies may not conduct or sponsor, 

and the 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 revised 

disclosure requirements are found in 

section _.63 of the proposed rule. The 

OMB control number for the OCC is 

1557–0318, Board is 7100–0313, and 

FDIC is 3064–0153. These information 

collections will be extended for three 

years, with revision. The information 

collection requirements contained in 

this proposed rulemaking have been 

submitted by the OCC and FDIC to OMB 

for review and approval under section 

3507(d) of the PRA (44 U.S.C. 3507(d)) 

and section 1320.11 of the OMB’s 

implementing regulations (5 CFR 1320). 

The Board reviewed the proposed rule 

under the authority delegated to the 

Board by OMB. 

Comments are invited on: 

a. Whether the collections of 

information are necessary for the proper 

performance of the Board’s functions, 

including whether the information has 

practical utility; 

b. The accuracy or the estimate of the 

burden of the information collections, 

including the validity of the 

methodology and assumptions used; 

c. Ways to enhance the quality, 

utility, and clarity of the information to 

be collected; 

d. Ways to minimize the burden of the 

information collections on respondents, 

including through the use of automated 

collection techniques or other forms of 

information technology; and 

e. Estimates of capital or startup costs 

and costs of operation, maintenance, 


asabaliauskas on DSKBBXCHB2PROD with PROPOSALS
Federal Register / Vol. 82, No. 207 / Friday, October 27, 2017 / Proposed Rules 49997 

36The 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. 

and purchase of services to provide 

information. 

All comments will become a matter of 

public record. Comments on aspects of 

this notice that may affect reporting, 

recordkeeping, or disclosure 

requirements and burden estimates 

should be sent to the addresses listed in 

the ADDRESSES section of this document. 

A copy of the comments may also be 

submitted to the OMB desk officer by 

mail to U.S. Office of Management and 

Budget, 725 17th Street NW., #10235, 

Washington, DC 20503; facsimile to 

(202) 395–6974; or email to oira_

submission@omb.eop.gov, Attention, 

Federal Banking Agency Desk Officer. 

Proposed Information Collection 

Title of Information Collection: 

Recordkeeping and Disclosure 

Requirements Associated with Capital 

Adequacy. 

Frequency: Quarterly, annual. 

Affected Public: Businesses or other 

for-profit. 

Respondents: 

OCC: National banks, state member 

banks, state nonmember banks, and 

state and Federal savings associations. 

Board: State member banks (SMBs), 

bank holding companies (BHCs), U.S. 

intermediate holding companies (IHCs), 

savings and loan holding companies 

(SLHCs), and global systemically 

important bank holding companies 

(GSIBs). 

FDIC: State nonmember banks, state 

savings associations, and certain 

subsidiaries of those entities. 

Current Actions: Section _.63 of the 

proposed rule would (1) replace the 

standardized approach’s treatment of 

high volatility commercial real estate 

(HVCRE) exposures with a simpler 

treatment for most high volatility 

acquisition, development, or 

construction (HVADC) exposures and 

(2) break out the disclosures in Table 8 

to include (i) after-tax gain-on-sale on a 

securitization that has been deducted 

from common equity tier 1 capital and 

(ii) credit-enhancing interest-only strip 

that is assigned a 1,250 percent risk 

weight. There are no changes in burden 

associated with the proposed 

rulemaking. However, in order to be 

consistent across the agencies, the 

agencies are applying a conforming 

methodology for calculating the burden 

estimates. The agencies believe that any 

changes to the information collections 

associated with the proposed rule are 

the result of the conforming 

methodology and not the result of the 

proposed rule changes. 

PRA Burden Estimates 

OCC 

OMB control number: 1557–0318. 

Estimated number of respondents: 

1,365. 

Estimated average hours per response: 

Minimum Capital Ratios 

Recordkeeping (Ongoing)—16. 

Standardized Approach 

Recordkeeping (Initial setup)—122. 

Recordkeeping (Ongoing)—20. 

Disclosure (Initial setup)—226.25. 

Disclosure (Ongoing quarterly)— 

131.25. 

Advanced Approach 

Recordkeeping (Initial setup)—460. 

Recordkeeping (Ongoing)—540.77. 

Recordkeeping (Ongoing quarterly)— 

20. 

Disclosure (Initial setup)—280. 

Disclosure (Ongoing)—5.78. 

Disclosure (Ongoing quarterly)—35. 

Estimated annual burden hours: 1,088 

hours initial setup, 64,513 hours for 

ongoing. 

Board 

Agency form number: FR Q. 

OMB control number: 7100–0313. 

Estimated number of respondents: 

1,431. 

Estimated average hours per response: 

Minimum Capital Ratios 

Recordkeeping (Ongoing)—16. 

Standardized Approach 

Recordkeeping (Initial setup)—122. 

Recordkeeping (Ongoing)—20. 

Disclosure (Initial setup)—226.25. 

Disclosure (Ongoing quarterly)— 

131.25. 

Advanced Approach 

Recordkeeping (Initial setup)—460. 

Recordkeeping (Ongoing)—540.77. 

Recordkeeping (Ongoing quarterly)— 

20. 

Disclosure (Initial setup)—280. 

Disclosure (Ongoing)—5.78. 

Disclosure (Ongoing quarterly)—35. 

Disclosure (Table 13 quarterly)—5. 

Risk-based Capital Surcharge for GSIBs 

Recordkeeping (Ongoing)—0.5. 

Estimated annual burden hours: 1,088 

hours initial setup, 78,183 hours for 

ongoing. 

FDIC 

OMB control number: 3064–0153. 

Estimated annual burden hours: 1,088 

hours initial setup, 138,391 hours for 

ongoing. Notably, the FDIC’s estimated 

annual burden hours remain unchanged 

from its last OMB submission. A 

breakdown of the burden associated 

with the current information collection 

for 3064–0153 is contained in the 

FDIC’s notice published on July 26, 

2017 (82 FR 34668). 

The proposed rule will also require 

changes to the Consolidated Reports of 

Condition and Income (Call Reports) 

(FFIEC 031, FFIEC 041, and FFIEC 051; 

OMB No. 1557–0081, 7100–0036, and 

3064–0052), Consolidated Financial 

Statements for Holding Companies (FR 

Y–9C; OMB No. 7100–0128), and 

Capital Assessments and Stress Testing 

(FR Y–14A and Q; OMB No. 7100– 

0341), which will be addressed in a 

separate Federal Register notice. 

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 rule on small entities 

(defined by the Small Business 

Administration (SBA) for purposes of 

the RFA to include commercial banks 

and savings institutions with total assets 

of $550 million or less and trust 

companies with total assets of $38.5 

million or less) or to certify that the 

proposed rule would not have a 

significant economic impact on a 

substantial number of small entities. 

As of June 30, 2017, the OCC 

supervises 907 small entities.36

The rule would apply to all OCCsupervised entities that are not subject 

to the advanced approaches risk-based 

capital rules, and thus potentially 

affects a substantial number of small 

entities. The OCC has determined that 

153 such entities engage in affected 

activities to an extent that they would 

be impacted directly by the proposed 

rule. Although a substantial number of 

small entities would be impacted by the 

proposed rule, the OCC does not find 

that this impact is economically 

significant. To determine whether a 

proposed rule would have a significant 

effect, the OCC considers whether 

projected cost increases associated with 

the proposed rule are greater than or 

equal to either 5 percent of a small 

bank’s total annual salaries and benefits 

or 2.5 percent of an OCC-supervised 

small entity’s total non-interest expense. 

The value of the change in capital 


asabaliauskas on DSKBBXCHB2PROD with PROPOSALS
49998 Federal Register / Vol. 82, No. 207 / Friday, October 27, 2017 / Proposed Rules 

37See 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). 

38See 12 CFR 217.1(c)(1)(ii) and (iii); 12 CFR part 

225, appendix C; 12 CFR 238.9. 

39 5 U.S.C. 601 et seq. 

40 13 CFR 121.201 (as amended, effective 

December 2, 2014). 

41FDIC-supervised institutions are set forth in 12 

U.S.C. 1813(q)(2). 

exceeded these thresholds for 1 of the 

907 OCC-supervised small entities. 

Therefore, the OCC certifies that the 

proposed rule would not have a 

significant economic impact on a 

substantial number of OCC-supervised 

small entities. 

Board: The Board is providing an 

initial regulatory flexibility analysis 

with respect to this proposed rule. As 

discussed in the SUPPLEMENTARY

INFORMATION, the proposal would revise 

the treatment of certain assets under the 

capital rule and would also make 

various corrections and clarifications to 

the capital rule to address issues that 

have been identified since the rule was 

issued. The Regulatory Flexibility Act, 5 

U.S.C. 601 et seq. (RFA), generally 

requires that an agency prepare and 

make available an initial regulatory 

flexibility analysis in connection with a 

notice of proposed rulemaking. Under 

regulations issued by the Small 

Business Administration, a small entity 

includes a bank, bank holding company, 

or savings and loan holding company 

with assets of $550 million or less 

(small banking organization).37 As of 

June 30, 2017, there were approximately 

3,451 small bank holding companies, 

224 small savings and loan holding 

companies, and 566 small state member 

banks. 

Aspects of the proposed rule would 

apply to all state member banks, as well 

as all bank holding companies and 

savings and loan holding companies 

that are subject to the Board’s regulatory 

capital rule. Certain portions of the 

proposed rule would not apply to state 

member banks, bank holding 

companies, and savings and loan 

holding companies that are subject to 

the advanced approaches. In general, 

the Board’s capital rule only applies to 

bank holding companies and savings 

and loan holding companies that are not 

subject to the Board’s Small Bank 

Holding Company Policy Statement, 

which applies to bank holding 

companies and savings and loan 

holding companies with less than $1 

billion in total assets that also meet 

certain additional criteria.38 Thus, most 

bank holding companies and savings 

and loan holding companies that would 

be subject to the proposed rule exceed 

the $550 million asset threshold at 

which a banking organization would 

qualify as a small banking organization. 

Given that the proposed rule does not 

impact the recordkeeping and reporting 

requirements that affected small 

banking organizations are currently 

subject to, there would be no change to 

the information that small banking 

organizations must track and report. The 

agencies anticipate updating the 

relevant reporting forms at a later date 

to the extent necessary to align with the 

capital rule. 

For purposes of the standardized 

approach, the proposal would replace 

the exposure category HVCRE with the 

exposure category HVADC. HVADC 

exposure is expected to generally cover 

a broader range of exposures than 

HVCRE exposure. However, the 

proposal would assign a 130 percent 

risk weight to HVADC exposures, as 

opposed to the 150 percent risk weight 

currently assigned to HVCRE exposures. 

Based upon data reported on the FR Y– 

9C and on Call Report information, as of 

June 30, 2017, about 80 percent of small 

state member banks, small bank holding 

companies, and small savings and loan 

holding companies report holdings of 

acquisition, development, or 

construction exposures, excluding oneto four-family residential properties, 

and about 30 percent of state member 

banks, small bank holding companies, 

and small savings and loan holding 

companies report some holdings of 

HVCRE exposures risk weighted at 150 

percent. The Board expects that the 

expanded scope and reduced riskweight of HVADC exposure relative to 

HVCRE exposure would result in 

roughly equivalent capital requirements 

under the proposal as currently 

provided by the capital rule. 

For non-advanced approaches 

banking organizations, the proposal 

would revise the capital deductions for 

MSAs, temporary difference DTAs, and 

investments in the capital of 

unconsolidated financial institutions by 

raising the threshold at which such 

items must be deducted and simplifying 

the number and interaction of required 

deductions. The Board expects that the 

proposal would result in slightly lower 

capital requirements compared to the 

capital rule for a few small banking 

organizations that currently deduct 

MSAs, temporary difference DTAs, and/ 

or investments in the capital of 

unconsolidated financial institutions. 

Because so few banking organizations 

are currently subject to these 

deductions, the number of affected 

banking organizations appears to be 

minimal. 

Also for non-advanced approaches 

banking organizations, the proposal 

would simplify the requirements related 

to the inclusion of minority interest of 

subsidiaries in capital. The Board 

expects that the proposal would 

generally result in more minority 

interest being includable in capital than 

is permitted under the current rule. 

However, only a few small banking 

organizations currently include 

minority interest in capital and minority 

interest represents a significant portion 

of capital for very few banking 

organizations. As a result, the impact of 

this portion of the proposal is not 

expected to be significant. 

The remaining proposed revisions to 

the capital rule consist of technical 

corrections and clarifications that have 

been identified since the rule was 

issued. None of these revisions 

constitutes a significant change to the 

capital rule and the impact of these 

revisions on banking organizations is 

expected to be immaterial. 

The Board does not believe that the 

proposed rule duplicates, overlaps, or 

conflicts with any other Federal rules. 

In addition, there are no significant 

alternatives to the proposed rule other 

than retention of the current rule. In 

light of the foregoing, the Board does 

not believe that the proposed rule, if 

adopted in final form, would have a 

significant economic impact on a 

substantial number of small entities. 

Nonetheless, the Board seeks comment 

on whether the proposed rule would 

impose undue burdens on, or have 

unintended consequences for, small 

organizations, and whether there are 

ways such potential burdens or 

consequences could be minimized in a 

manner consistent with the purpose of 

the proposed rule. A final regulatory 

flexibility analysis will be conducted 

after consideration of comments 

received during the public comment 

period. 

FDIC: The Regulatory Flexibility Act 

(RFA) generally requires that, in 

connection with a notice of proposed 

rulemaking, an agency prepare and 

make available for public comment an 

initial regulatory flexibility analysis 

describing the impact of the proposed 

rule on small entities.39 The Small 

Business Administration has defined 

‘‘small entities’’ to include banking 

organizations with total assets of less 

than or equal to $550 million.40 The 

FDIC is providing an initial regulatory 

flexibility analysis with respect to this 

proposed rule. 

The FDIC supervises 3,717 depository 

institutions,41 of which, 2,990 are 


asabaliauskas on DSKBBXCHB2PROD with PROPOSALS
Federal Register / Vol. 82, No. 207 / Friday, October 27, 2017 / Proposed Rules 49999 

42FDIC Call Report, June 30, 2017. 

43For example, for as of June 30, 2017 Call Report 

data, for the 2,338 FDIC-supervised small banking 

entities included in this analysis, approximately 

24% of all non-ADC commercial real estate loans 

were secured by Farmland and approximately 36% 

were secured by Owner Occupied Nonfarm, 

Nonresidential properties (a proxy in this analysis 

for permanent loans as defined in the HVADC 

definition). If the proportion of non-ADC lending 

related to these exposure categories were to be 

assumed consistent with the amount of nonresidential ADC lending to these exposure 

categories, then as much as 60% of all nonresidential ADC loans would be excluded from the 

definition of HVADC solely based upon the 

agricultural and permanent loan exemptions alone. 

defined as small banking entities by the 

terms of the RFA.42 This proposed rule 

would replace the existing HVCRE 

exposure category with a new HVADC 

exposure category that would receive a 

130 percent risk weight. The proposed 

rule also would remove the individual 

and aggregate deduction thresholds and 

replace them with individual, higher 

deduction thresholds for: (i) MSAs; (ii) 

temporary differences DTAs; and (iii) 

investments in the capital of 

unconsolidated financial institutions. 

Finally, the proposed rule would amend 

the methodology that determines the 

amount of minority interest that is 

includable in regulatory capital. 

According to Call Report data as of June 

30, 2017, 2,589 FDIC-supervised small 

banking entities reported some amount 

of acquisition, development or 

construction loans, MSAs, DTAs, 

deductions related to investments in 

unconsolidated financial institutions, or 

minority interests that could be affected 

by this rule making. 

HVADC 

According to Call Report data as of 

June 30, 2017, there were 2,338 FDICsupervised small banking entities that 

reported approximately $14.4 billion of 

acquisition, development or 

construction loans excluding one- to 

four-family residential projects (nonresidential ADC loans). Of these entities, 

817 FDIC-supervised small banking 

entities reported that approximately 

$3.6 billion of these non-residential 

ADC loans would meet the current 

definition of an HVCRE exposure and 

would qualify for the 150 percent risk 

weight. We assume that the remainder 

of the non-residential ADC loans 

received a 100 percent risk weight as a 

result of meeting one or more of the 

currently available exemptions from the 

current definition of HVCRE. These 

exemptions relate to either the amount 

of contributed capital or because the 

exposure is an agricultural or farm loan, 

community development loan, or 

permanent financing. The FDIC is 

unable to determine the mix of 

exemptions from the HVCRE definition 

that FDIC-supervised small banking 

entities rely upon when assigning the 

100 percent risk weight because of 

limitations in the Call Report data. 

Under the proposed rule some future 

non-residential ADC loans made by a 

small banking entity that are currently 

reported as an HVCRE exposure may 

receive a 100 percent risk weight or a 

130 percent risk-weight treatment 

instead of the 150 percent risk-weight 

treatment under the current rule. 

Concurrently, some future nonresidential ADC loans made by a small 

banking entity may receive a 130 

percent risk-weight treatment instead of 

the 100 percent risk-weight treatment 

under the contributed capital 

exemption. These loans also may 

continue to receive a 100 percent risk 

weight if they qualify under other 

exemptions of the proposed rule as an 

agricultural or farm loan, community 

development loan, a permanent loan as 

that term is clarified in the proposal, or 

a loan that is not ‘‘primarily’’ to finance 

non-residential ADC as defined in the 

proposal. As with the current rule, all 

acquisition, development, or 

construction loans related to one- to 

four-family residential properties would 

continue to receive a 100 percent risk 

weight. 

In the absence of Call Report 

information about the eligibility of 

current non-residential ADC loans for 

the various proposed exemptions or 

how the structure of future nonresidential ADC loans will compare to 

current non-residential ADC loans, the 

FDIC estimates the maximum amount of 

capital that could be required under the 

proposed rule if it were applied to FDICsupervised small banking entities’ 

current portfolio of non-residential ADC 

loans (that is, ignoring the 

grandfathering provision and assuming 

FDIC-supervised small banking entities 

make no adjustments to their loan 

structures in response to the rule) and 

assuming that no non-residential ADC 

loans qualify for the exemptions as 

agricultural or farm loans, community 

development loans, or permanent loans, 

or are excluded due to the ‘‘primarily 

finances’’ test. Assuming that all 

currently held acquisition, 

development, or construction exposures 

excluding one- to four-family exposures, 

currently risk weighted at 100 percent 

will be risk-weighted at 130 percent 

(rather than remaining at 100 percent 

under potentially available exemptions), 

and that all HVCRE exposures risk 

weighted at 150 percent will be risk 

weighted at 130 percent (rather than 100 

percent under potentially available 

exemptions), the FDIC estimates that 

there could be a maximum increase in 

risk weighted assets of approximately 

$2.6 billion, or less than one percent of 

the aggregate risk weighted assets for the 

2,338 FDIC-supervised small banking 

entities. The FDIC believes that even 

this relatively small change to aggregate 

risk weighted assets is overstated 

because it is likely that a significant 

amount of small bank lending would 

meet one or more of the qualifying 

exemptions.43 As such, the FDIC 

believes that any change in capital 

requirements under the proposed 

HVADC treatment compared to the 

current HVCRE treatment would be 

modest. 

Threshold Deductions 

The proposed rule would change the 

regulatory capital treatment of MSAs, 

temporary difference DTAs, and 

investments in the capital of 

unconsolidated financial institutions for 

FDIC-supervised small banking entities. 

It does so by removing the individual 

and aggregate deduction thresholds for 

these assets and by adopting a single 25 

percent common equity tier 1 capital 

deduction threshold for each type of 

asset. According to June 30, 2017 Call 

Report data, at least 1,618 FDICsupervised small banking entities 

reported holding some MSAs, DTAs, 

and deductions due to investments in 

the capital of unconsolidated financial 

institutions. Only 45 small institutions 

reported deductions for holdings across 

these different assets. The FDIC 

estimates that the proposed rule would 

pose an immediate aggregated net 

benefit of $45.5 million in the form of 

an increase in tier 1 capital to those 

institutions that currently have to 

calculate a deduction. The FDIC expects 

that the proposed rule would yield 

future benefits to affected FDICsupervised small banking entities by 

reducing the likelihood of a regulatory 

capital deduction due to holding these 

asset types. In particular, the proposal 

would remove a significant capital 

constraint on FDIC-supervised small 

banking entities that specialize in 

mortgage servicing. The proposed 

increase in threshold deduction makes 

it less likely that a small banking entity 

would exit or reduce its activity in the 

mortgage servicing market. 

Minority Interest 

The proposed rule would remove the 

capital rule’s limitation on the inclusion 

of minority interest in regulatory 

capital. It does so by allowing FDICsupervised small banking entities to 


asabaliauskas on DSKBBXCHB2PROD with PROPOSALS
50000 Federal Register / Vol. 82, No. 207 / Friday, October 27, 2017 / Proposed Rules 

44The OCC estimates that proposed rule would 

lead to an aggregate increase in reported regulatory 

capital of $4.7 billion for national banks and 

Federal savings associations compared to the 

amount they would report if they were required to 

continue to apply the capital requirements. The 

OCC estimates that this increase in reported 

regulatory capital—which could allow banking 

organizations to increase their leverage and thus 

increase their tax deductions for interest paid on 

debt—would have a total aggregate value of 

approximately $112.8 million per year across all 

directly impacted OCC-supervised entities (that is, 

national banks and federal savings associations not 

subject to the advanced approaches risk-based 

capital rule). 

include minority interest up to 10 

percent of the parent banking 

organization’s common equity tier 1, tier 

1, or total capital, not including the 

minority interest. The FDIC estimates 

that 16 FDIC-supervised small banking 

entities would be affected by the 

proposed inclusion of minority interest 

in regulatory capital calculations. The 

FDIC estimates that these FDICsupervised small banking entities will 

likely experience a net aggregated 

benefit of $2.5 million in the form of an 

increase in tier 1 capital due to the 

inclusion of minority interest. The FDIC 

expects that the proposed rule would 

yield future benefits for affected FDICsupervised small banking entities by 

reducing the likelihood that minority 

interest would not be included in a 

small banking entity’s regulatory 

capital. 

Compliance Costs 

Finally, FDIC-supervised small 

banking entities are likely to incur some 

implementation costs in order to 

comply with the proposed rule. These 

costs would encompass changes to their 

systems designed to calculate, manage, 

and report risk-weighted assets and 

regulatory capital. Given the limited 

nature of the changes necessary to 

comply with the proposed rule, the 

implementation costs are expected to be 

minimal. Additionally, the FDIC 

believes that the proposed changes 

would help reduce some of the 

compliance costs associated with these 

regulations in the long-term by making 

them easier to apply. 

The proposed rule does not impact 

the recordkeeping and reporting 

requirements that affect FDICsupervised small banking entities and 

there would be no change to the 

information that FDIC-supervised small 

banking entities must track and report. 

The FDIC anticipates updating the 

relevant reporting forms at a later date 

to the extent necessary to align with the 

capital rule. 

Question 1. For FDIC-supervised 

small banking entities, would the 

proposed rule reduce the compliance 

costs associated with the capital rules? 

If so, how? 

Conclusion 

The threshold-deduction and 

minority-interest provisions of the 

proposed rule would increase the 

amount of eligible regulatory capital for 

a limited number of FDIC-supervised 

small banking entities currently subject 

to deductions or limitations on these 

items, as described above. The HVADC 

provisions of the proposed rules would 

affect far more FDIC-supervised small 

banking entities, with effects that will 

vary across institutions and are difficult 

to estimate. Risk weights for some new 

ADC exposures will be reduced from 

150 percent under the current HVCRE 

treatment, to 130 percent or 100 percent 

under the proposed rule if certain 

exemptions apply. Risk weights for 

other new ADC exposures will either 

remain at the currently required 100 

percent (if available exemptions apply) 

or increase to 130 percent. However, the 

Call Reports do not provide data about 

the volumes of ADC loans currently 

eligible for HVCRE exemptions for 

agriculture, community development or 

permanent financing, or that would be 

eligible going forward under the 

proposed clarification of the permanent 

financing exemption or the proposed 

‘‘primarily finances’’ test. As a result, 

the net effect on regulatory capital 

requirements of the proposed HVADC 

treatment is difficult to estimate with 

any precision. As noted earlier, 

however, the FDIC’s upper bound 

estimate (that ignores the grandfathering 

provision and gives no credit for all the 

HVADC exemptions previously 

described) is that risk-weighted assets of 

the FDIC-supervised small banking 

entities affected by the rule would 

increase less than one percent. This 

upper bound estimate gives some 

comfort that the actual regulatory 

capital effects of the proposed HVADC 

treatment are likely to be modest. The 

FDIC welcomes comments or data from 

the institutions it supervises that would 

enhance our ability to more precisely 

estimate the net effects of the proposed 

rule on regulatory capital ratios. 

The FDIC does not believe that the 

proposed rule duplicates, overlaps, or 

conflicts with any other Federal rules. 

In addition, there does not appear to be 

any significant alternatives to the 

proposed rule other than retention of 

the current rule. In light of the foregoing 

discussion, the FDIC does not believe 

that the proposed rule, if adopted in 

final form, would have a significant 

economic impact on a substantial 

number of small entities. Nonetheless, 

the FDIC seeks comment on whether the 

proposed rule would impose undue 

burdens on, or have unintended 

consequences for, small organizations, 

and whether there are ways such 

potential burdens or consequences 

could be minimized in a manner 

consistent with the purpose of the 

proposed rule. A final regulatory 

flexibility analysis will be conducted 

after consideration of comments 

received during the public comment 

period. 

C. 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? 

• Would more, but shorter, sections 

be better? If so, which sections should 

be changed? 

• What other changes can the 

agencies incorporate to make the 

regulation easier to understand? 

D. OCC Unfunded Mandates Reform Act 

of 1995 Determination 

The OCC analyzed the proposed rule 

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 for inflation). 

The OCC has determined that this 

proposed rule would not result in 

expenditures by State, local, and Tribal 

governments, or the private sector, of 

$100 million or more in any one year.44

Accordingly, the OCC has not prepared 


asabaliauskas on DSKBBXCHB2PROD with PROPOSALS
Federal Register / Vol. 82, No. 207 / Friday, October 27, 2017 / Proposed Rules 50001 

45 12 U.S.C. 4802. 

a written statement to accompany this 

proposal. 

E. Riegle Community Development and 

Regulatory Improvement Act of 1994 

The Riegle Community Development 

and Regulatory Improvement Act of 

1994 (RCDRIA) requires that each 

Federal banking agency, in determining 

the effective date and administrative 

compliance requirements for new 

regulations that impose additional 

reporting, disclosure, or other 

requirements on insured depository 

institutions, consider, consistent with 

principles of safety and soundness and 

the public interest, any administrative 

burdens that such regulations would 

place on depository institutions, 

including small depository institutions, 

and customers of depository 

institutions, as well as the benefits of 

such regulations. In addition, new 

regulations and amendments to 

regulations that impose additional 

reporting, disclosures, or other new 

requirements on insured depository 

institutions generally must take effect 

on the first day of a calendar quarter 

that begins on or after the date on which 

the regulations are published in final 

form.45

The agencies note that comment on 

these matters has been solicited in other 

sections of this SUPPLEMENTARY

INFORMATION section, and that the 

requirements of RCDRIA will be 

considered as part of the overall 

rulemaking process. In addition, the 

agencies also invite any other comments 

that further will inform the agencies’ 

consideration of RCDRIA. 

List of Subjects 

12 CFR Part 3 

Administrative practice and 

procedure, Capital, National banks, 

Risk. 

12 CFR Part 217 

Administrative practice and 

procedure, Banks, Banking, Capital, 

Federal Reserve System, Holding 

companies. 

12 CFR Part 324 

Administrative practice and 

procedure, Banks, Banking, Capital 

adequacy, Savings associations, State 

non-member banks. 

Office of the Comptroller of the 

Currency 

For the reasons set out in the joint 

preamble, the OCC proposes to amend 

12 CFR part 3 as follows. 

PART 3—CAPITAL ADEQUACY 

STANDARDS 

Subpart A—General Provisions 

■ 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 3.1 is amended by revising 

paragraph (a) to read as follows: 

§ 3.1 Purpose, applicability, reservation of 

authority, and timing. 

(a) Purpose. This part establishes 

minimum capital requirements and 

overall capital adequacy standards for 

national banks and Federal savings 

associations. This part does not apply to 

Federal branches and agencies of foreign 

banks. This part includes methodologies 

for calculating minimum capital 

requirements, public disclosure 

requirements related to the capital 

requirements, and transition provisions 

for the application of this part. 

* * * * * 

■ 3. Section 3.2 is amended by revising 

the definitions of ‘‘corporate exposure,’’ 

‘‘eligible guarantor,’’ ‘‘high volatility 

commercial real estate (HVCRE) 

exposure,’’ and ‘‘International Lending 

Supervision Act,’’ ‘‘Investment in the 

capital of an unconsolidated financial 

institution,’’ and ‘‘Significant 

investment in the capital of an 

unconsolidated financial institution’’; 

and adding in alphabetical order the 

definitions of ‘‘high volatility 

acquisition, development, or 

construction (HVADC) exposure.’’ and 

‘‘Nonsignificant investment in the 

capital of an unconsolidated financial 

institution,’’ to read as follows: 

§ 3.2 Definitions. 

* * * * * 

Corporate exposure means an 

exposure to a company that is not: 

(1) An exposure to a sovereign, the 

Bank for International Settlements, the 

European Central Bank, the European 

Commission, the International Monetary 

Fund, the European Stability 

Mechanism, the European Financial 

Stability Facility, a multi-lateral 

development bank (MDB), a depository 

institution, a foreign bank, a credit 

union, or a public sector entity (PSE); 

(2) An exposure to a GSE; 

(3) A residential mortgage exposure; 

(4) A pre-sold construction loan; 

(5) A statutory multifamily mortgage; 

(6) A high volatility acquisition, 

development, or construction (HVADC) 

exposure or a high volatility commercial 

real estate (HVCRE) exposure; 

(7) A cleared transaction; 

(8) A default fund contribution; 

(9) A securitization exposure; 

(10) An equity exposure; or 

(11) An unsettled transaction. 

(12) A policy loan; or 

(13) A separate account. 

* * * * * 

Eligible guarantor means: 

(1) A sovereign, the Bank for 

International Settlements, the 

International Monetary Fund, the 

European Central Bank, the European 

Commission, a Federal Home Loan 

Bank, Federal Agricultural Mortgage 

Corporation (Farmer Mac), the European 

Stability Mechanism, the European 

Financial Stability Facility, a 

multilateral development bank (MDB), a 

depository institution, a bank holding 

company, a savings and loan holding 

company, a credit union, a foreign bank, 

or a qualifying central counterparty; or 

(2) An entity (other than a special 

purpose entity): 

(i) That at the time the guarantee is 

issued or anytime thereafter, has issued 

and outstanding an unsecured debt 

security without credit enhancement 

that is investment grade; 

(ii) Whose creditworthiness is not 

positively correlated with the credit risk 

of the exposures for which it has 

provided guarantees; and 

(iii) That is not an insurance company 

engaged predominately in the business 

of providing credit protection (such as 

a monoline bond insurer or re-insurer). 

* * * * * 

High volatility acquisition, 

development, or construction (HVADC) 

exposure means a credit facility that is 

originated on or after [effective date] 

and that: 

(1) Primarily finances or refinances 

the: 

(i) Acquisition of vacant or developed 

land; 

(ii) Development of land to prepare to 

erect new structures including, but not 

limited to, the laying of sewers or water 

pipes and demolishing existing 

structures; or 

(iii) Construction of buildings, 

dwellings, or other improvements 

including additions or alterations to 

existing structures; and 

(2) Is not a credit facility that finances 

or refinances: 

(i) One- to four-family residential 

properties; 

(ii) Real property projects that would 

have the primary purpose of 

‘‘community development’’ as defined 

under 12 CFR part 25 (national banks) 

and 12 CFR part 195 (Federal savings 

associations); or 

(iii) The purchase or development of 

agricultural land, including, but not 


asabaliauskas on DSKBBXCHB2PROD with PROPOSALS
50002 Federal Register / Vol. 82, No. 207 / Friday, October 27, 2017 / Proposed Rules 

limited to, all land used or usable for 

agricultural purposes (such as crop and 

livestock production), provided that the 

valuation of the agricultural land is 

based on its value for agricultural 

purposes and the valuation does not 

take into consideration any potential 

use of the land for commercial or 

residential development; and 

(3) Is not a permanent loan. A 

permanent loan for purposes of this 

definition means a prudently 

underwritten loan that has a clearly 

identified ongoing source of repayment 

sufficient to service amortizing 

principal and interest payments aside 

from the sale of the property. For 

purposes of this section, a permanent 

loan does not include a loan that 

finances or refinances a stabilization 

period or unsold lots or units of for-sale 

projects. 

High volatility commercial real estate 

(HVCRE) exposure, for purposes of 

Subpart D, means a credit facility that 

is either outstanding or committed prior 

to [effective date] and, prior to 

conversion to permanent financing, 

finances or has financed the acquisition, 

development, or construction (ADC) of 

real property, unless the facility 

finances: 

(1) One- to four-family residential 

properties; 

(2) Real property that: 

(i) Would qualify as an investment in 

community development under 12 

U.S.C. 338a or 12 U.S.C. 24 (Eleventh), 

as applicable, or as a ‘‘qualified 

investment’’ under 12 CFR part 25 

(national bank), 12 CFR part 195 

(Federal savings association) and 

(ii) Is not an ADC loan to any entity 

described in 12 CFR 25.12(g)(3) 

(national banks) and 12 CFR 

195.12(g)(3) (Federal savings 

associations), unless it is otherwise 

described in paragraph (1), (2)(i), (3) or 

(4) of this definition; 

(3) The purchase or development of 

agricultural land, which includes all 

land known to be used or usable for 

agricultural purposes (such as crop and 

livestock production), provided that the 

valuation of the agricultural land is 

based on its value for agricultural 

purposes and the valuation does not 

take into consideration any potential 

use of the land for non-agricultural 

commercial development or residential 

development; or 

(4) Commercial real estate projects in 

which: 

(i) The loan-to-value ratio is less than 

or equal to the applicable maximum 

supervisory loan-to-value ratio in the 

Board’s real estate lending standards at 

12 CFR part 34, subpart D (national 

banks) and 12 CFR part 160, subparts A 

and B (Federal savings associations); 

(ii) The borrower has contributed 

capital to the project in the form of cash 

or unencumbered readily marketable 

assets (or has paid development 

expenses out-of-pocket) of at least 15 

percent of the real estate’s appraised ‘‘as 

completed’’ value; and 

(iii) The borrower contributed the 

amount of capital required by paragraph 

(4)(ii) of this definition before the 

Board-regulated institution advances 

funds under the credit facility, and the 

capital contributed by the borrower, or 

internally generated by the project, is 

contractually required to remain in the 

project throughout the life of the project. 

The life of a project concludes only 

when the credit facility is converted to 

permanent financing or is sold or paid 

in full. Permanent financing may be 

provided by the Board-regulated 

institution that provided the ADC 

facility as long as the permanent 

financing is subject to the Boardregulated institution’s underwriting 

criteria for long-term mortgage loans. 

* * * * * 

International Lending Supervision Act 

means the International Lending 

Supervision Act of 1983 (12 U.S.C. 3901 

et seq.). 

* * * * * 

Investment in the capital of an 

unconsolidated financial institution 

means a net long position calculated in 

accordance with § 3.22(h) in an 

instrument that is recognized as capital 

for regulatory purposes by the primary 

supervisor of an unconsolidated 

regulated financial institution or is an 

instrument that is part of the GAAP 

equity of an unconsolidated unregulated 

financial institution, including direct, 

indirect, and synthetic exposures to 

capital instruments, excluding 

underwriting positions held by the 

national bank or Federal savings 

association for five or fewer business 

days. 

* * * * * 

Non-significant investment in the 

capital of an unconsolidated financial 

institution means an investment by an 

advanced approaches national bank or 

Federal savings association in the 

capital of an unconsolidated financial 

institution where the advanced 

approaches national bank or Federal 

savings association owns 10 percent or 

less of the issued and outstanding 

common stock of the unconsolidated 

financial institution. 

* * * * * 

Significant investment in the capital 

of an unconsolidated financial 

institution means an investment by an 

advanced approaches national bank or 

Federal savings association in the 

capital of an unconsolidated financial 

institution where the advanced 

approaches national bank or Federal 

savings association owns more than 10 

percent of the issued and outstanding 

common stock of the unconsolidated 

financial institution. 

* * * * * 

■ 4. Section 3.10 is amended by revising 

paragraph (c)(4)(ii)(H) to read as follows: 

§ 3.10 Minimum capital requirements. 

* * * * * 

(c) * * * 

(4) * * * 

(ii) * * * 

(H) The credit equivalent amount of 

all off-balance sheet exposures of the 

national bank or Federal savings 

association, excluding repo-style 

transactions, repurchase or reverse 

repurchase or securities borrowing or 

lending transactions that qualify for 

sales treatment under U.S. GAAP, and 

derivative transactions, determined 

using the applicable credit conversion 

factor under § 3.33(b), provided, 

however, that the minimum credit 

conversion factor that may be assigned 

to an off-balance sheet exposure under 

this paragraph is 10 percent; and 

* * * * * 

■ 5. Section 3.11 is amended by revising 

paragraphs (a)(2)(i), (a)(2)(iv), (a)(3)(i), 

and Table 1 to read as follows: 

§ 3.11 Capital conservation buffer and 

countercyclical capital buffer amount. 

* * * * * 

(a) * * * 

(2) * * * 

(i) Eligible retained income. The 

eligible retained income of a national 

bank or Federal savings association is 

the national bank’s or Federal savings 

association’s net income, calculated in 

accordance with the instructions to the 

Call Report, for the four calendar 

quarters preceding the current calendar 

quarter, net of any distributions and 

associated tax effects not already 

reflected in net income. 

* * * * * 

(iv) Private sector credit exposure. 

Private sector credit exposure means an 

exposure to a company or an individual 

that is not an exposure to a sovereign, 

the Bank for International Settlements, 

the European Central Bank, the 

European Commission, the European 

Stability Mechanism, the European 

Financial Stability Facility, the 

International Monetary Fund, a MDB, a 

PSE, or a GSE. 

(3) Calculation of capital conservation 

buffer. (i) A national bank’s or Federal 

savings association’s capital 


asabaliauskas on DSKBBXCHB2PROD with PROPOSALS
Federal Register / Vol. 82, No. 207 / Friday, October 27, 2017 / Proposed Rules 50003 

conservation buffer is equal to the 

lowest of the following ratios, calculated 

as of the last day of the previous 

calendar quarter: 

(A) The national bank or Federal 

savings association’s common equity 

tier 1 capital ratio minus the national 

bank or Federal savings association’s 

minimum common equity tier 1 capital 

ratio requirement under § 3.10; 

(B) The national bank or Federal 

savings association’s tier 1 capital ratio 

minus the national bank or Federal 

savings association’s minimum tier 1 

capital ratio requirement under § 3.10; 

and 

(C) The national bank or Federal 

savings association’s total capital ratio 

minus the national bank or Federal 

savings association’s minimum total 

capital ratio requirement under § 3.10; 

or 

* * * * * 

TABLE 1 TO § 3.11—CALCULATION OF MAXIMUM PAYOUT AMOUNT

Capital conservation buffer Maximum payout ratio 

Greater than 2.5 percent plus 100 percent of the national bank’s or Federal savings association’s applicable countercyclical capital buffer amount.No payout ratio limitation 

applies. 

Less than or equal to 2.5 percent plus 100 percent of the national bank’s or Federal savings association’s applicable countercyclical capital buffer amount, and greater than 1.875 percent plus 75 percent of the national bank’s 

or Federal savings association’s applicable countercyclical capital buffer amount.

60 percent. 

Less than or equal to 1.875 percent plus 75 percent of the national bank’s or Federal savings association’s applicable countercyclical capital buffer amount, and greater than 1.25 percent plus 50 percent of the national bank’s 

or Federal savings association’s applicable countercyclical capital buffer amount.

40 percent. 

Less than or equal to 1.25 percent plus 50 percent of the national bank’s or Federal savings association’s applicable countercyclical capital buffer amount, and greater than 0.625 percent plus 25 percent of the national bank’s 

or Federal savings association’s applicable countercyclical capital buffer amount.

20 percent. 

Less than or equal to 0.625 percent plus 25 percent of the national bank’s or Federal savings association’s applicable countercyclical capital buffer amount.0 percent. 

* * * * * 

■ 6. Section 3.20 is amended by revising 

paragraphs (b)(4), (c)(1)(viii), (c)(2), 

(d)(2), and (5) as follows: 

§ 3.20 Capital components and eligibility 

criteria for regulatory capital instruments. 

* * * * * 

(b) * * * 

(4) Any common equity tier 1 

minority interest, subject to the 

limitations in § 3.21. 

* * * * * 

(c) * * * 

(1) * * * 

(viii) Any cash dividend payments on 

the instrument are paid out of the 

national bank’s or Federal savings 

association’s net income or retained 

earnings. 

* * * * * 

(2) Tier 1 minority interest, subject to 

the limitations in § 3.21, that is not 

included in the national bank’s or 

Federal savings association’s common 

equity tier 1 capital. 

* * * * * 

(d) * * * 

(2) Total capital minority interest, 

subject to the limitations set forth in 

§ 3.21, that is not included in the 

national bank’s or Federal savings 

association’s tier 1 capital. 

* * * * * 

(5) For a national bank or Federal 

savings association that makes an AOCI 

opt-out election (as defined in 

paragraph (b)(2) of § 3.22), 45 percent of 

pretax net unrealized gains on availablefor-sale preferred stock classified as an 

equity security under GAAP and 

available-for-sale equity exposures. 

* * * * * 

■ 7. Section 3.21 is revised to read as 

follows: 

§ 3.21 Minority interest. 

(a) (1) Applicability. For purposes of 

§ 3.20, a national bank or Federal 

savings association that is not an 

advanced approaches national bank or 

Federal savings association is subject to 

the minority interest limitations in this 

paragraph (a) if a consolidated 

subsidiary of the national bank or 

Federal savings association has issued 

regulatory capital that is not owned by 

the national bank or Federal savings 

association. 

(2) Common equity tier 1 minority 

interest includable in the common 

equity tier 1 capital of the national bank 

or Federal savings association. The 

amount of common equity tier 1 

minority interest that a national bank or 

Federal savings association may include 

in common equity tier 1 capital must be 

no greater than 10 percent of the sum of 

all common equity tier 1 capital 

elements of the national bank or Federal 

savings association (not including the 

common equity tier 1 minority interest 

itself), less any common equity tier 1 

capital regulatory adjustments and 

deductions in accordance with § 3.22 (a) 

and (b). 

(3) Tier 1 minority interest includable 

in the tier 1 capital of the national bank 

or Federal savings association. The 

amount of tier 1 minority interest that 

a national bank or Federal savings 

association may include in tier 1 capital 

must be no greater than 10 percent of 

the sum of all tier 1 capital elements of 

the national bank or Federal savings 

association (not including the tier 1 

minority interest itself), less any tier 1 

capital regulatory adjustments and 

deductions in accordance with § 3.22 (a) 

and (b). 

(4) Total capital minority interest 

includable in the total capital of the 

national bank or Federal savings 

association. The amount of total capital 

minority interest that a national bank or 

Federal savings association may include 

in total capital must be no greater than 

10 percent of the sum of all total capital 

elements of the national bank or Federal 

savings association (not including the 

total capital minority interest itself), less 

any total capital regulatory adjustments 

and deductions in accordance with 

§ 3.22 (a) and (b). 

(b) (1) Applicability. For purposes of 

§ 3.20, an advanced approaches national 

bank or Federal savings association is 

subject to the minority interest 

limitations in this paragraph (b) if: 

(i) A consolidated subsidiary of the 

advanced approaches national bank or 

Federal savings association has issued 

regulatory capital that is not owned by 

the national bank or Federal savings 

association; and 

(ii) For each relevant regulatory 

capital ratio of the consolidated 

subsidiary, the ratio exceeds the sum of 

the subsidiary’s minimum regulatory 

capital requirements plus its capital 

conservation buffer. 

(2) Difference in capital adequacy 

standards at the subsidiary level. For 

purposes of the minority interest 


asabaliauskas on DSKBBXCHB2PROD with PROPOSALS
50004 Federal Register / Vol. 82, No. 207 / Friday, October 27, 2017 / Proposed Rules 

23The national bank or Federal savings 

association must calculate amounts deducted under 

paragraphs (c) through (f) of this section after it 

calculates the amount of ALLL includable in tier 2 

capital under § 3.20(d)(3). 

calculations in this section, if the 

consolidated subsidiary issuing the 

capital is not subject to capital adequacy 

standards similar to those of the 

advanced approaches national bank or 

Federal savings association, the 

advanced approaches national bank or 

Federal savings association must 

assume that the capital adequacy 

standards of the advanced approaches 

national bank or Federal savings 

association apply to the subsidiary. 

(3) Common equity tier 1 minority 

interest includable in the common 

equity tier 1 capital of the national bank 

or Federal savings association. For each 

consolidated subsidiary of an advanced 

approaches national bank or Federal 

savings association, the amount of 

common equity tier 1 minority interest 

the advanced approaches national bank 

or Federal savings association may 

include in common equity tier 1 capital 

is equal to: 

(i) The common equity tier 1 minority 

interest of the subsidiary; minus 

(ii) The percentage of the subsidiary’s 

common equity tier 1 capital that is not 

owned by the advanced approaches 

national bank or Federal savings 

association, multiplied by the difference 

between the common equity tier 1 

capital of the subsidiary and the lower 

of: 

(A) The amount of common equity 

tier 1 capital the subsidiary must hold, 

or would be required to hold pursuant 

to paragraph (b) of this section, to avoid 

restrictions on distributions and 

discretionary bonus payments under 

§ 3.11 or equivalent standards 

established by the subsidiary’s home 

country supervisor; or 

(B)(1) The standardized total riskweighted assets of the advanced 

approaches national bank or Federal 

savings association that relate to the 

subsidiary multiplied by 

(2) The common equity tier 1 capital 

ratio the subsidiary must maintain to 

avoid restrictions on distributions and 

discretionary bonus payments under 

§ 3.11 or equivalent standards 

established by the subsidiary’s home 

country supervisor. 

(4) Tier 1 minority interest includable 

in the tier 1 capital of the advanced 

approaches national bank or Federal 

savings association. For each 

consolidated subsidiary of the advanced 

approaches national bank or Federal 

savings association, the amount of tier 1 

minority interest the advanced 

approaches national bank or Federal 

savings association may include in tier 

1 capital is equal to: 

(i) The tier 1 minority interest of the 

subsidiary; minus 

(ii) The percentage of the subsidiary’s 

tier 1 capital that is not owned by the 

advanced approaches national bank or 

Federal savings association multiplied 

by the difference between the tier 1 

capital of the subsidiary and the lower 

of: 

(A) The amount of tier 1 capital the 

subsidiary must hold, or would be 

required to hold pursuant to paragraph 

(b) of this section, to avoid restrictions 

on distributions and discretionary 

bonus payments under § 3.11 or 

equivalent standards established by the 

subsidiary’s home country supervisor, 

or 

(B)(1) The standardized total riskweighted assets of the advanced 

approaches national bank or Federal 

savings association that relate to the 

subsidiary multiplied by 

(2) The tier 1 capital ratio the 

subsidiary must maintain to avoid 

restrictions on distributions and 

discretionary bonus payments under 

§ 3.11 or equivalent standards 

established by the subsidiary’s home 

country supervisor. 

(5) Total capital minority interest 

includable in the total capital of the 

national bank or Federal savings 

association. For each consolidated 

subsidiary of the advanced approaches 

national bank or Federal savings 

association, the amount of total capital 

minority interest the advanced 

approaches national bank or Federal 

savings association may include in total 

capital is equal to: 

(i) The total capital minority interest 

of the subsidiary; minus 

(ii) The percentage of the subsidiary’s 

total capital that is not owned by the 

advanced approaches national bank or 

Federal savings association multiplied 

by the difference between the total 

capital of the subsidiary and the lower 

of: 

(A) The amount of total capital the 

subsidiary must hold, or would be 

required to hold pursuant to paragraph 

(b) of this section, to avoid restrictions 

on distributions and discretionary 

bonus payments under § 3.11 or 

equivalent standards established by the 

subsidiary’s home country supervisor, 

or 

(B)(1) The standardized total riskweighted assets of the advanced 

approaches national bank or Federal 

savings association that relate to the 

subsidiary multiplied by 

(2) The total capital ratio the 

subsidiary must maintain to avoid 

restrictions on distributions and 

discretionary bonus payments under 

§ 3.11 or equivalent standards 

established by the subsidiary’s home 

country supervisor. 

■ 8. Section 3.22 is amended by revising 

paragraphs (a)(1), (c), (d), (g), and (h) to 

read as follows: 

§ 3.22 Regulatory capital adjustments and 

deductions. 

(a) * * * 

(1)(i) Goodwill, net of associated 

deferred tax liabilities (DTLs) in 

accordance with paragraph (e) of this 

section; and 

(ii) For an advanced approaches 

national bank or Federal savings 

association, goodwill that is embedded 

in the valuation of a significant 

investment in the capital of an 

unconsolidated financial institution in 

the form of common stock (and that is 

reflected in the consolidated financial 

statements of the advanced approaches 

national bank or Federal savings 

association), in accordance with 

paragraph (d) of this section; 

* * * * * 

(c) Deductions from regulatory capital 

related to investments in capital 

instruments 23— 

(1) Investment in the national bank’s 

or Federal savings association’s own 

capital instruments. A national bank or 

Federal savings association must deduct 

an investment in the national bank’s or 

Federal savings association’s own 

capital instruments as follows: 

(i) A national bank or Federal savings 

association must deduct an investment 

in the national bank’s or Federal savings 

association’s own common stock 

instruments from its common equity tier 

1 capital elements to the extent such 

instruments are not excluded from 

regulatory capital under § 3.20(b)(1); 

(ii) A national bank or Federal savings 

association must deduct an investment 

in the national bank’s or Federal savings 

association’s own additional tier 1 

capital instruments from its additional 

tier 1 capital elements; and 

(iii) A national bank or Federal 

savings association must deduct an 

investment in the national bank’s or 

Federal savings association’s own tier 2 

capital instruments from its tier 2 

capital elements. 

(2) Corresponding deduction 

approach. For purposes of subpart C of 

this part, the corresponding deduction 

approach is the methodology used for 

the deductions from regulatory capital 

related to reciprocal cross holdings (as 

described in paragraph (c)(3) of this 

section), investments in the capital of 

unconsolidated financial institutions for 

a national bank or Federal savings 


asabaliauskas on DSKBBXCHB2PROD with PROPOSALS
Federal Register / Vol. 82, No. 207 / Friday, October 27, 2017 / Proposed Rules 50005 

24With the prior written approval of the OCC, for 

the period of time stipulated by the OCC, a national 

bank or Federal savings association that is not an 

advanced approaches national bank or Federal 

savings association is not required to deduct an 

investment in the capital of an unconsolidated 

financial institution pursuant to this paragraph if 

the financial institution is in distress and if such 

investment is made for the purpose of providing 

financial support to the financial institution, as 

determined by the OCC. 

25Any investments in the capital of 

unconsolidated financial institutions that do not 

exceed the 25 percent threshold for investments in 

the capital of unconsolidated financial institutions 

under this section must be assigned the appropriate 

risk weight under subparts D or F of this part, as 

applicable. 

26With the prior written approval of the OCC, for 

the period of time stipulated by the OCC, an 

advanced approaches national bank or Federal 

savings association is not required to deduct a nonsignificant investment in the capital of an 

unconsolidated financial institution pursuant to 

this paragraph if the financial institution is in 

distress and if such investment is made for the 

purpose of providing financial support to the 

financial institution, as determined by the OCC. 

27Any non-significant investments in the capital 

of unconsolidated financial institutions that do not 

exceed the 10 percent threshold for non-significant 

investments under this section must be assigned the 

appropriate risk weight under subparts D, E, or F 

of this part, as applicable. 

association that is not an advanced 

approaches national bank or Federal 

savings association (as described in 

paragraph (c)(4) of this section), nonsignificant investments in the capital of 

unconsolidated financial institutions for 

an advanced approaches national bank 

or Federal savings association (as 

described in paragraph (c)(5) of this 

section), and non-common stock 

significant investments in the capital of 

unconsolidated financial institutions for 

an advanced approaches national bank 

or Federal savings association (as 

described in paragraph (c)(6) of this 

section). Under the corresponding 

deduction approach, a national bank or 

Federal savings association must make 

deductions from the component of 

capital for which the underlying 

instrument would qualify if it were 

issued by the national bank or Federal 

savings association itself, as described 

in paragraphs (c)(2)(i)–(iii) of this 

section. If the national bank or Federal 

savings association does not have a 

sufficient amount of a specific 

component of capital to effect the 

required deduction, the shortfall must 

be deducted according to paragraph (f) 

of this section. 

(i) If an investment is in the form of 

an instrument issued by a financial 

institution that is not a regulated 

financial institution, the national bank 

or Federal savings association must treat 

the instrument as: 

(A) A common equity tier 1 capital 

instrument if it is common stock or 

represents the most subordinated claim 

in liquidation of the financial 

institution; and 

(B) An additional tier 1 capital 

instrument if it is subordinated to all 

creditors of the financial institution and 

is senior in liquidation only to common 

shareholders. 

(ii) If an investment is in the form of 

an instrument issued by a regulated 

financial institution and the instrument 

does not meet the criteria for common 

equity tier 1, additional tier 1 or tier 2 

capital instruments under § 3.20, the 

national bank or Federal savings 

association must treat the instrument as: 

(A) A common equity tier 1 capital 

instrument if it is common stock 

included in GAAP equity or represents 

the most subordinated claim in 

liquidation of the financial institution; 

(B) An additional tier 1 capital 

instrument if it is included in GAAP 

equity, subordinated to all creditors of 

the financial institution, and senior in a 

receivership, insolvency, liquidation, or 

similar proceeding only to common 

shareholders; and 

(C) A tier 2 capital instrument if it is 

not included in GAAP equity but 

considered regulatory capital by the 

primary supervisor of the financial 

institution. 

(iii) If an investment is in the form of 

a non-qualifying capital instrument (as 

defined in § 3.300(c)), the national bank 

or Federal savings association must treat 

the instrument as: 

(A) An additional tier 1 capital 

instrument if such instrument was 

included in the issuer’s tier 1 capital 

prior to May 19, 2010; or 

(B) A tier 2 capital instrument if such 

instrument was included in the issuer’s 

tier 2 capital (but not includable in tier 

1 capital) prior to May 19, 2010. 

(3) Reciprocal cross holdings in the 

capital of financial institutions. A 

national bank or Federal savings 

association must deduct investments in 

the capital of other financial institutions 

it holds reciprocally, where such 

reciprocal cross holdings result from a 

formal or informal arrangement to swap, 

exchange, or otherwise intend to hold 

each other’s capital instruments, by 

applying the corresponding deduction 

approach. 

(4) Investments in the capital of 

unconsolidated financial institutions. A 

national bank or Federal savings 

association that is not an advanced 

approaches national bank or Federal 

savings association must deduct its 

investments in the capital of 

unconsolidated financial institutions (as 

defined in § 3.2) that exceed 25 percent 

of the sum of the national bank’s or 

Federal savings association’s common 

equity tier 1 capital elements minus all 

deductions from and adjustments to 

common equity tier 1 capital elements 

required under paragraphs (a) through 

(c)(3) of this section by applying the 

corresponding deduction approach.24

The deductions described in this section 

are net of associated DTLs in accordance 

with paragraph (e) of this section. In 

addition, a national bank or Federal 

savings association that underwrites a 

failed underwriting, with the prior 

written approval of the OCC, for the 

period of time stipulated by the OCC, is 

not required to deduct an investment in 

the capital of an unconsolidated 

financial institution pursuant to this 

paragraph (c) to the extent the 

investment is related to the failed 

underwriting.25

(5) Non-significant investments in the 

capital of unconsolidated financial 

institutions. (i) An advanced approaches 

national bank or Federal savings 

association must deduct its nonsignificant investments in the capital of 

unconsolidated financial institutions (as 

defined in § 3.2) that, in the aggregate, 

exceed 10 percent of the sum of the 

advanced approaches national bank’s or 

Federal savings association’s common 

equity tier 1 capital elements minus all 

deductions from and adjustments to 

common equity tier 1 capital elements 

required under paragraphs (a) through 

(c)(3) of this section (the 10 percent 

threshold for non-significant 

investments) by applying the 

corresponding deduction approach.26

The deductions described in this section 

are net of associated DTLs in accordance 

with paragraph (e) of this section. In 

addition, an advanced approaches 

national bank or Federal savings 

association that underwrites a failed 

underwriting, with the prior written 

approval of the OCC, for the period of 

time stipulated by the OCC, is not 

required to deduct a non-significant 

investment in the capital of an 

unconsolidated financial institution 

pursuant to this paragraph (c) to the 

extent the investment is related to the 

failed underwriting.27

(ii) The amount to be deducted under 

this section from a specific capital 

component is equal to: 

(A) The advanced approaches 

national bank’s or Federal savings 

association’s non-significant 

investments in the capital of 

unconsolidated financial institutions 

exceeding the 10 percent threshold for 

non-significant investments, multiplied 

by 

(B) The ratio of the advanced 

approaches national bank’s or Federal 


asabaliauskas on DSKBBXCHB2PROD with PROPOSALS
50006 Federal Register / Vol. 82, No. 207 / Friday, October 27, 2017 / Proposed Rules 

28With prior written approval of the OCC, for the 

period of time stipulated by the OCC, an advanced 

approaches national bank or Federal savings 

association is not required to deduct a significant 

investment in the capital instrument of an 

unconsolidated financial institution in distress 

which is not in the form of common stock pursuant 

to this section if such investment is made for the 

purpose of providing financial support to the 

financial institution as determined by the OCC. 

29The amount of the items in paragraph (d)(1) of 

this section that is not deducted from common 

equity tier 1 capital must be included in the riskweighted assets of the national bank or Federal 

savings association and assigned a 250 percent risk 

weight. 

30With the prior written approval of the OCC, for 

the period of time stipulated by the OCC, an 

advanced approaches national bank or Federal 

savings association is not required to deduct a 

significant investment in the capital instrument of 

an unconsolidated financial institution in distress 

in the form of common stock pursuant to this 

section if such investment is made for the purpose 

of providing financial support to the financial 

institution as determined by the OCC. 

savings association’s non-significant 

investments in the capital of 

unconsolidated financial institutions in 

the form of such capital component to 

the advanced approaches national 

bank’s or Federal savings association’s 

total non-significant investments in 

unconsolidated financial institutions. 

(6) Significant investments in the 

capital of unconsolidated financial 

institutions that are not in the form of 

common stock. An advanced 

approaches national bank or Federal 

savings association must deduct its 

significant investments in the capital of 

unconsolidated financial institutions 

that are not in the form of common 

stock by applying the corresponding 

deduction approach.28 The deductions 

described in this section are net of 

associated DTLs in accordance with 

paragraph (e) of this section. In 

addition, with the prior written 

approval of the OCC, for the period of 

time stipulated by the OCC, an 

advanced approaches national bank or 

Federal savings association that 

underwrites a failed underwriting is not 

required to deduct a significant 

investment in the capital of an 

unconsolidated financial institution 

pursuant to this paragraph (c) if such 

investment is related to such failed 

underwriting. 

(d) MSAs and certain DTAs subject to 

common equity tier 1 capital deduction 

thresholds. 

(1) A national bank or Federal savings 

association that is not an advanced 

approaches national bank or Federal 

savings association must make 

deductions from regulatory capital as 

described in this paragraph (d)(1). 

(i) The national bank or Federal 

savings association must deduct from 

common equity tier 1 capital elements 

the amount of each of the items set forth 

in this paragraph (d)(1) that, 

individually, exceeds 25 percent of the 

sum of the national bank’s or Federal 

savings association’s common equity 

tier 1 capital elements, less adjustments 

to and deductions from common equity 

tier 1 capital required under paragraphs 

(a) through (c)(3) of this section (the 25 

percent common equity tier 1 capital 

deduction threshold).29

(ii) The national bank or Federal 

savings association must deduct from 

common equity tier 1 capital elements 

the amount of DTAs arising from 

temporary differences that the national 

bank or Federal savings association 

could not realize through net operating 

loss carrybacks, net of any related 

valuation allowances and net of DTLs, 

in accordance with paragraph (e) of this 

section. A national bank or Federal 

savings association is not required to 

deduct from the sum of its common 

equity tier 1 capital elements DTAs (net 

of any related valuation allowances and 

net of DTLs, in accordance with 

§ 3.22(e)) arising from timing differences 

that the national bank or Federal savings 

association could realize through net 

operating loss carrybacks. The national 

bank or Federal savings association 

must risk weight these assets at 100 

percent. For a national bank or Federal 

savings association that is a member of 

a consolidated group for tax purposes, 

the amount of DTAs that could be 

realized through net operating loss 

carrybacks may not exceed the amount 

that the national bank or Federal savings 

association could reasonably expect to 

have refunded by its parent holding 

company. 

(iii) The national bank or Federal 

savings association must deduct from 

common equity tier 1 capital elements 

the amount of MSAs net of associated 

DTLs, in accordance with paragraph (e) 

of this section. 

(iv) For purposes of calculating the 

amount of DTAs subject to deduction 

pursuant to paragraph (d)(1) of this 

section, a national bank or Federal 

savings association may exclude DTAs 

and DTLs relating to adjustments made 

to common equity tier 1 capital under 

paragraph (b) of this section. A national 

bank or Federal savings association that 

elects to exclude DTAs relating to 

adjustments under paragraph (b) of this 

section also must exclude DTLs and 

must do so consistently in all future 

calculations. A national bank or Federal 

savings association may change its 

exclusion preference only after 

obtaining the prior approval of the OCC. 

(2) An advanced approaches national 

bank or Federal savings association 

must make deductions from regulatory 

capital as described in this paragraph 

(d)(2). 

(i) An advanced approaches national 

bank or Federal savings association 

must deduct from common equity tier 1 

capital elements the amount of each of 

the items set forth in this paragraph 

(d)(2) that, individually, exceeds 10 

percent of the sum of the advanced 

approaches national bank’s or Federal 

savings association’s common equity 

tier 1 capital elements, less adjustments 

to and deductions from common equity 

tier 1 capital required under paragraphs 

(a) through (c) of this section (the 10 

percent common equity tier 1 capital 

deduction threshold). 

(A) DTAs arising from temporary 

differences that the advanced 

approaches national bank or Federal 

savings association could not realize 

through net operating loss carrybacks, 

net of any related valuation allowances 

and net of DTLs, in accordance with 

paragraph (e) of this section. An 

advanced approaches national bank or 

Federal savings association is not 

required to deduct from the sum of its 

common equity tier 1 capital elements 

DTAs (net of any related valuation 

allowances and net of DTLs, in 

accordance with § 3.22(e)) arising from 

timing differences that the advanced 

approaches national bank or Federal 

savings association could realize 

through net operating loss carrybacks. 

The advanced approaches national bank 

or Federal savings association must risk 

weight these assets at 100 percent. For 

a national bank or Federal savings 

association that is a member of a 

consolidated group for tax purposes, the 

amount of DTAs that could be realized 

through net operating loss carrybacks 

may not exceed the amount that the 

national bank or Federal savings 

association could reasonably expect to 

have refunded by its parent holding 

company. 

(B) MSAs net of associated DTLs, in 

accordance with paragraph (e) of this 

section. 

(C) Significant investments in the 

capital of unconsolidated financial 

institutions in the form of common 

stock, net of associated DTLs in 

accordance with paragraph (e) of this 

section.30 Significant investments in the 

capital of unconsolidated financial 

institutions in the form of common 

stock subject to the 10 percent common 

equity tier 1 capital deduction threshold 

may be reduced by any goodwill 

embedded in the valuation of such 

investments deducted by the advanced 

approaches national bank or Federal 

savings association pursuant to 


asabaliauskas on DSKBBXCHB2PROD with PROPOSALS
Federal Register / Vol. 82, No. 207 / Friday, October 27, 2017 / Proposed Rules 50007 

31The amount of the items in paragraph (d)(2) of 

this section that is not deducted from common 

equity tier 1 capital pursuant to this section must 

be included in the risk-weighted assets of the 

advanced approaches national bank or Federal 

savings association and assigned a 250 percent risk 

weight. 

paragraph (a)(1) of this section. In 

addition, with the prior written 

approval of the OCC, for the period of 

time stipulated by the OCC, an 

advanced approaches national bank or 

Federal savings association that 

underwrites a failed underwriting is not 

required to deduct a significant 

investment in the capital of an 

unconsolidated financial institution in 

the form of common stock pursuant to 

this paragraph (d)(2) if such investment 

is related to such failed underwriting. 

(ii) An advanced approaches national 

bank or Federal savings association 

must deduct from common equity tier 1 

capital elements the items listed in 

paragraph (d)(2)(i) of this section that 

are not deducted as a result of the 

application of the 10 percent common 

equity tier 1 capital deduction 

threshold, and that, in aggregate, exceed 

17.65 percent of the sum of the 

advanced approaches national bank’s or 

Federal savings association’s common 

equity tier 1 capital elements, minus 

adjustments to and deductions from 

common equity tier 1 capital required 

under paragraphs (a) through (c) of this 

section, minus the items listed in 

paragraph (d)(2)(i) of this section (the 15 

percent common equity tier 1 capital 

deduction threshold). Any goodwill that 

has been deducted under paragraph 

(a)(1) of this section can be excluded 

from the significant investments in the 

capital of unconsolidated financial 

institutions in the form of common 

stock.31

(iii) For purposes of calculating the 

amount of DTAs subject to the 10 and 

15 percent common equity tier 1 capital 

deduction thresholds, an advanced 

approaches national bank or Federal 

savings association may exclude DTAs 

and DTLs relating to adjustments made 

to common equity tier 1 capital under 

paragraph (b) of this section. An 

advanced approaches national bank or 

Federal savings association that elects to 

exclude DTAs relating to adjustments 

under paragraph (b) of this section also 

must exclude DTLs and must do so 

consistently in all future calculations. 

An advanced approaches national bank 

or Federal savings association may 

change its exclusion preference only 

after obtaining the prior approval of the 

OCC. 

* * * * * 

(g) Treatment of assets that are 

deducted. A national bank or Federal 

savings association must exclude from 

standardized total risk-weighted assets 

and, as applicable, advanced 

approaches total risk-weighted assets 

any item that is required to be deducted 

from regulatory capital. 

(h) Net long position. (1) For purposes 

of calculating an investment in the 

national bank’s or Federal savings 

association’s own capital instrument 

and an investment in the capital of an 

unconsolidated financial institution 

under this section, the net long position 

is the gross long position in the 

underlying instrument determined in 

accordance with paragraph (h)(2) of this 

section, as adjusted to recognize a short 

position in the same instrument 

calculated in accordance with paragraph 

(h)(3) of this section. 

(2) Gross long position. The gross long 

position is determined as follows: 

(i) For an equity exposure that is held 

directly, the adjusted carrying value as 

that term is defined in § 3.51(b); 

(ii) For an exposure that is held 

directly and is not an equity exposure 

or a securitization exposure, the 

exposure amount as that term is defined 

in § 3.2; 

(iii) For an indirect exposure, the 

national bank’s or Federal savings 

association’s carrying value of the 

investment in the investment fund, 

provided that, alternatively: 

(A) A national bank or Federal savings 

association may, with the prior approval 

of the Board, use a conservative estimate 

of the amount of its investment in the 

national bank’s or Federal savings 

association’s own capital instruments or 

its investment in the capital of an 

unconsolidated financial institution 

held through a position in an index; or 

(B) A national bank or Federal savings 

association may calculate the gross long 

position for investments in the national 

bank’s or Federal savings association’s 

own capital instruments or investments 

in the capital of an unconsolidated 

financial institution by multiplying the 

national bank’s or Federal savings 

association’s carrying value of its 

investment in the investment fund by 

either: 

(1) The highest stated investment 

limit (in percent) for investments in the 

national bank’s or Federal savings 

association’s own capital instruments or 

investments in the capital of 

unconsolidated financial institutions as 

stated in the prospectus, partnership 

agreement, or similar contract defining 

permissible investments of the 

investment fund; or 

(2) The investment fund’s actual 

holdings of investments in the national 

bank’s or Federal savings association’s 

own capital instruments or investments 

in the capital of unconsolidated 

financial institutions. 

(iv) For a synthetic exposure, the 

amount of the national bank’s or Federal 

savings association’s loss on the 

exposure if the reference capital 

instrument were to have a value of zero. 

(3) Adjustments to reflect a short 

position. In order to adjust the gross 

long position to recognize a short 

position in the same instrument, the 

following criteria must be met: 

(i) The maturity of the short position 

must match the maturity of the long 

position, or the short position has a 

residual maturity of at least one year 

(maturity requirement); or 

(ii) For a position that is a trading 

asset or trading liability (whether on- or 

off-balance sheet) as reported on the 

national bank’s or Federal savings 

association ’s Call Report, if the national 

bank or Federal savings association has 

a contractual right or obligation to sell 

the long position at a specific point in 

time and the counterparty to the 

contract has an obligation to purchase 

the long position if the national bank or 

Federal savings association exercises its 

right to sell, this point in time may be 

treated as the maturity of the long 

position such that the maturity of the 

long position and short position are 

deemed to match for purposes of the 

maturity requirement, even if the 

maturity of the short position is less 

than one year; and 

(iii) For an investment in the national 

bank’s or Federal savings association’s 

own capital instrument under paragraph 

(c)(1) of this section or an investment in 

the capital of an unconsolidated 

financial institution under paragraphs 

(c) and (d): 

(A) A national bank or Federal savings 

association may only net a short 

position against a long position in an 

investment in the national bank’s or 

Federal savings association’s own 

capital instrument under paragraph (c) 

of this section if the short position 

involves no counterparty credit risk. 

(B) A gross long position in an 

investment in the national bank’s or 

Federal savings association’s own 

capital instrument or an investment in 

the capital of an unconsolidated 

financial institution resulting from a 

position in an index may be netted 

against a short position in the same 

index. Long and short positions in the 

same index without maturity dates are 

considered to have matching maturities. 

(C) A short position in an index that 

is hedging a long cash or synthetic 

position in an investment in the 

national bank’s or Federal savings 

association’s own capital instrument or 

an investment in the capital of an 


asabaliauskas on DSKBBXCHB2PROD with PROPOSALS
50008 Federal Register / Vol. 82, No. 207 / Friday, October 27, 2017 / Proposed Rules 

unconsolidated financial institution can 

be decomposed to provide recognition 

of the hedge. More specifically, the 

portion of the index that is composed of 

the same underlying instrument that is 

being hedged may be used to offset the 

long position if both the long position 

being hedged and the short position in 

the index are reported as a trading asset 

or trading liability (whether on- or offbalance sheet) on the national bank’s or 

Federal savings association’s Call 

Report, and the hedge is deemed 

effective by the national bank’s or 

Federal savings association ’s internal 

control processes, which have not been 

found to be inadequate by the OCC. 

■ 9. Section 3.32 is amended by revising 

paragraphs (b), (d)(2), (d)(3)(ii), (j), (k), 

(l) to read as follows: 

§ 3.32 General risk weights. 

* * * * * 

(b) Certain supranational entities and 

multilateral development banks (MDBs). 

A national bank or Federal savings 

association must assign a zero percent 

risk weight to an exposure to the Bank 

for International Settlements, the 

European Central Bank, the European 

Commission, the International Monetary 

Fund, the European Stability 

Mechanism, the European Financial 

Stability Facility, or an MDB. 

* * * * * 

(d) * * * 

(2) Exposures to foreign banks. (i) 

Except as otherwise provided under 

paragraphs (d)(2)(iii), (d)(2)(v) and (d)(3) 

of this section, a national bank or 

Federal savings association must assign 

a risk weight to an exposure to a foreign 

bank, in accordance with Table 2 to 

§ 3.32, based on the CRC that 

corresponds to the foreign bank’s home 

country or the OECD membership status 

of the foreign bank’s home country if 

there is no CRC applicable to the foreign 

bank’s home country. 

TABLE 2 TO § 3.32—RISK WEIGHTS

FOR EXPOSURES TO FOREIGN BANKS

Risk weight 

(in percent) 

CRC: 

0–1 .................................... 20 

2 ........................................ 50 

3 ........................................ 100 

4–7 .................................... 150 

OECD Member with No CRC 20 

Non-OECD Member with No 

CRC .................................. 100 

Sovereign Default ................. 150 

(ii) A national bank or Federal savings 

association must assign a 20 percent risk 

weight to an exposure to a foreign bank 

whose home country is a member of the 

OECD and does not have a CRC. 

(iii) A national bank or Federal 

savings association must assign a 20 

percent risk-weight to an exposure that 

is a self-liquidating, trade-related 

contingent item that arises from the 

movement of goods and that has a 

maturity of three months or less to a 

foreign bank whose home country has a 

CRC of 0, 1, 2, or 3, or is an OECD 

member with no CRC. 

(iv) A national bank or Federal 

savings association must assign a 100 

percent risk weight to an exposure to a 

foreign bank whose home country is not 

a member of the OECD and does not 

have a CRC, with the exception of selfliquidating, trade-related contingent 

items that arise from the movement of 

goods, and that have a maturity of three 

months or less, which may be assigned 

a 20 percent risk weight. 

(v) A national bank or Federal savings 

association must assign a 150 percent 

risk weight to an exposure to a foreign 

bank immediately upon determining 

that an event of sovereign default has 

occurred in the bank’s home country, or 

if an event of sovereign default has 

occurred in the foreign bank’s home 

country during the previous five years. 

(3) * * * 

(ii) A significant investment in the 

capital of an unconsolidated financial 

institution in the form of common stock 

pursuant to § 3.22(d)(2)(1)(c); 

* * * * * 

(j)(1) High volatility acquisition, 

development, or construction (HVADC) 

exposures. A national bank or Federal 

savings association must assign a 130 

percent risk weight to an HVADC 

exposure. 

(2) High-volatility commercial real 

estate (HVCRE) exposures. A national 

bank or Federal savings association 

must assign a 150 percent risk weight to 

an HVCRE exposure. 

(k) Past due exposures. Except for an 

exposure to a sovereign entity or a 

residential mortgage exposure or a 

policy loan, if an exposure is 90 days or 

more past due or on nonaccrual: 

(1) A national bank or Federal savings 

association must assign a 150 percent 

risk weight to the portion of the 

exposure that is not guaranteed or that 

is unsecured; 

(2) A national bank or Federal savings 

association may assign a risk weight to 

the guaranteed portion of a past due 

exposure based on the risk weight that 

applies under § 3.36 if the guarantee or 

credit derivative meets the requirements 

of that section; and 

(3) A national bank or Federal savings 

association may assign a risk weight to 

the collateralized portion of a past due 

exposure based on the risk weight that 

applies under § 3.37 if the collateral 

meets the requirements of that section. 

(l) Other assets. (1)(i) A national bank 

or Federal savings association must 

assign a zero percent risk weight to cash 

owned and held in all offices of 

subsidiary depository institutions or in 

transit, and to gold bullion held in a 

subsidiary depository institution’s own 

vaults, or held in another depository 

institution’s vaults on an allocated 

basis, to the extent the gold bullion 

assets are offset by gold bullion 

liabilities. 

(ii) A national bank or Federal savings 

association must assign a zero percent 

risk weight to cash owned and held in 

all offices of the national bank or 

Federal savings association or in transit; 

to gold bullion held in the national 

bank’s or Federal savings association’s 

own vaults or held in another 

depository institution’s vaults on an 

allocated basis, to the extent the gold 

bullion assets are offset by gold bullion 

liabilities; and to exposures that arise 

from the settlement of cash transactions 

(such as equities, fixed income, spot 

foreign exchange and spot commodities) 

with a central counterparty where there 

is no assumption of ongoing 

counterparty credit risk by the central 

counterparty after settlement of the 

trade and associated default fund 

contributions. 

(2) A national bank or Federal savings 

association must assign a 20 percent risk 

weight to cash items in the process of 

collection. 

(3) A national bank or Federal savings 

association must assign a 100 percent 

risk weight to DTAs arising from 

temporary differences that the national 

bank or Federal savings association 

could realize through net operating loss 

carrybacks. 

(4) A national bank or Federal savings 

association must assign a 250 percent 

risk weight to the portion of each of the 

following items to the extent it is not 

deducted from common equity tier 1 

capital pursuant to § 3.22(d): 

(i) MSAs; and 

(ii) DTAs arising from temporary 

differences that the national bank or 

Federal savings association could not 

realize through net operating loss 

carrybacks. 

(5) A national bank or Federal savings 

association must assign a 100 percent 

risk weight to all assets not specifically 

assigned a different risk weight under 

this subpart and that are not deducted 

from tier 1 or tier 2 capital pursuant to 

§ 3.22. 

(6) Notwithstanding the requirements 

of this section, a national bank or 


asabaliauskas on DSKBBXCHB2PROD with PROPOSALS
Federal Register / Vol. 82, No. 207 / Friday, October 27, 2017 / Proposed Rules 50009 

Federal savings association may assign 

an asset that is not included in one of 

the categories provided in this section to 

the risk weight category applicable 

under the capital rules applicable to 

bank holding companies and savings 

and loan holding companies at 12 CFR 

part 217, provided that all of the 

following conditions apply: 

(i) The national bank or Federal 

savings association is not authorized to 

hold the asset under applicable law 

other than debt previously contracted or 

similar authority; and 

(ii) The risks associated with the asset 

are substantially similar to the risks of 

assets that are otherwise assigned to a 

risk weight category of less than 100 

percent under this subpart. 

* * * * * 

■ 10. Section 3.34 is amended by 

revising paragraph (c) to read as follows: 

§ 3.34 OTC derivative contracts. 

* * * * * 

(c) Counterparty credit risk for OTC 

credit derivatives. (1) Protection 

purchasers. A national bank or Federal 

savings association that purchases an 

OTC credit derivative that is recognized 

under § 3.36 as a credit risk mitigant for 

an exposure that is not a covered 

position under subpart F is not required 

to compute a separate counterparty 

credit risk capital requirement under 

this subpart D provided that the 

national bank or Federal savings 

association does so consistently for all 

such credit derivatives. The national 

bank or Federal savings association 

must either include all or exclude all 

such credit derivatives that are subject 

to a qualifying master netting agreement 

from any measure used to determine 

counterparty credit risk exposure to all 

relevant counterparties for risk-based 

capital purposes. 

(2) Protection providers. (i) A national 

bank or Federal savings association that 

is the protection provider under an OTC 

credit derivative must treat the OTC 

credit derivative as an exposure to the 

underlying reference asset. The national 

bank or Federal savings association is 

not required to compute a counterparty 

credit risk capital requirement for the 

OTC credit derivative under this subpart 

D, provided that this treatment is 

applied consistently for all such OTC 

credit derivatives. The national bank or 

Federal savings association must either 

include all or exclude all such OTC 

credit derivatives that are subject to a 

qualifying master netting agreement 

from any measure used to determine 

counterparty credit risk exposure. 

(ii) The provisions of this paragraph 

(c)(2) apply to all relevant 

counterparties for risk-based capital 

purposes unless the national bank or 

Federal savings association is treating 

the OTC credit derivative as a covered 

position under subpart F, in which case 

the national bank or Federal savings 

association must compute a 

supplemental counterparty credit risk 

capital requirement under this section. 

* * * * * 

■ 11. Section 3.35 is amended by 

revising paragraph (b)(3)(ii), (b)(4)(ii), 

(c)(3)(ii), and (c)(4)(ii) to read as follows: 

§ 3.35 Cleared transactions. 

* * * * * 

(b) * * * 

(3) * * * 

(ii) For a cleared transaction with a 

CCP that is not a QCCP, a clearing 

member client national bank or Federal 

savings association must apply the risk 

weight appropriate for the CCP 

according to this subpart D. 

* * * * * 

(4) * * * 

(ii) A clearing member client national 

bank or Federal savings association 

must calculate a risk-weighted asset 

amount for any collateral provided to a 

CCP, clearing member, or custodian in 

connection with a cleared transaction in 

accordance with the requirements under 

this subpart D. 

(c) * * * 

(3) * * * 

(ii) For a cleared transaction with a 

CCP that is not a QCCP, a clearing 

member national bank or Federal 

savings association must apply the risk 

weight appropriate for the CCP 

according to this subpart D. 

* * * * * 

(4) * * * 

(ii) A clearing member national bank 

or Federal savings association must 

calculate a risk-weighted asset amount 

for any collateral provided to a CCP, 

clearing member, or a custodian in 

connection with a cleared transaction in 

accordance with requirements under 

this subpart D. 

* * * * * 

■ 12. Section 3.36 is amend by revising 

paragraph (c) to read as follows: 

§ 3.36 Guarantees and credit derivatives: 

Substitution treatment. 

* * * * * 

(c) Substitution approach—(1) Full 

coverage. If an eligible guarantee or 

eligible credit derivative meets the 

conditions in paragraphs (a) and (b) of 

this section and the protection amount 

(P) of the guarantee or credit derivative 

is greater than or equal to the exposure 

amount of the hedged exposure, a 

national bank or Federal savings 

association may recognize the guarantee 

or credit derivative in determining the 

risk-weighted asset amount for the 

hedged exposure by substituting the risk 

weight applicable to the guarantor or 

credit derivative protection provider 

under this subpart D for the risk weight 

assigned to the exposure. 

(2) Partial coverage. If an eligible 

guarantee or eligible credit derivative 

meets the conditions in paragraphs (a) 

and (b) of this section and the protection 

amount (P) of the guarantee or credit 

derivative is less than the exposure 

amount of the hedged exposure, the 

national bank or Federal savings 

association must treat the hedged 

exposure as two separate exposures 

(protected and unprotected) in order to 

recognize the credit risk mitigation 

benefit of the guarantee or credit 

derivative. 

(i) The national bank or Federal 

savings association may calculate the 

risk-weighted asset amount for the 

protected exposure under this subpart 

D, where the applicable risk weight is 

the risk weight applicable to the 

guarantor or credit derivative protection 

provider. 

(ii) The national bank or Federal 

savings association must calculate the 

risk-weighted asset amount for the 

unprotected exposure under this 

subpart D, where the applicable risk 

weight is that of the unprotected portion 

of the hedged exposure. 

(iii) The treatment provided in this 

section is applicable when the credit 

risk of an exposure is covered on a 

partial pro rata basis and may be 

applicable when an adjustment is made 

to the effective notional amount of the 

guarantee or credit derivative under 

paragraphs (d), (e), or (f) of this section. 

* * * * * 

■ 13. Section 3.37 is amended by 

revising paragraph (b)(2)(i) and the 

paragraph headings for paragraphs (b) 

and (b)(2) are being reprinted for reader 

reference to read as follows: 

§ 3.37 Collateralized transactions. 

* * * * * 

(b) The simple approach. * * * 

(2) Risk weight substitution. (i) A 

national bank or Federal savings 

association may apply a risk weight to 

the portion of an exposure that is 

secured by the fair value of financial 

collateral (that meets the requirements 

of paragraph (b)(1) of this section) based 

on the risk weight assigned to the 

collateral under this subpart D. For 

repurchase agreements, reverse 

repurchase agreements, and securities 

lending and borrowing transactions, the 

collateral is the instruments, gold, and 

cash the national bank or Federal 

savings association has borrowed, 


asabaliauskas on DSKBBXCHB2PROD with PROPOSALS
50010 Federal Register / Vol. 82, No. 207 / Friday, October 27, 2017 / Proposed Rules 

purchased subject to resale, or taken as 

collateral from the counterparty under 

the transaction. Except as provided in 

paragraph (b)(3) of this section, the risk 

weight assigned to the collateralized 

portion of the exposure may not be less 

than 20 percent. 

* * * * * 

■ 14. Section 3.38 is amended by 

revising paragraph (e)(2) to read as 

follows: 

§ 3.38 Unsettled transactions. 

* * * * * 

(e) * * * 

(2) From the business day after the 

national bank or Federal savings 

association has made its delivery until 

five business days after the counterparty 

delivery is due, the national bank or 

Federal savings association must 

calculate the risk-weighted asset amount 

for the transaction by treating the 

current fair value of the deliverables 

owed to the national bank or Federal 

savings association as an exposure to 

the counterparty and using the 

applicable counterparty risk weight 

under this subpart D. 

* * * * * 

■ 15. Section 3.42 is amended by 

revising paragraph (j)(2)(ii)(A) to read as 

follows: 

§ 3.42 Risk-weighted assets for 

securitization exposures. 

* * * * * 

(j) * * * 

(2) * * * 

(ii) * * * 

(A) If the national bank or Federal 

savings association purchases credit 

protection from a counterparty that is 

not a securitization SPE, the national 

bank or Federal savings association 

must determine the risk weight for the 

exposure according to this subpart D. 

* * * * * 

■ 16. Section 3.52 is amended by 

revising paragraphs (b)(1) and (4) to read 

as follows: 

§ 3.52 Simple risk-weight approach 

(SRWA). 

* * * * * 

(b) * * * 

(1) Zero percent risk weight equity 

exposures. An equity exposure to a 

sovereign, the Bank for International 

Settlements, the European Central Bank, 

the European Commission, the 

International Monetary Fund, the 

European Stability Mechanism, the 

European Financial Stability Facility, an 

MDB, and any other entity whose credit 

exposures receive a zero percent risk 

weight under § 3.32 may be assigned a 

zero percent risk weight. 

* * * * * 

(4) 250 percent risk weight equity 

exposures. Significant investments in 

the capital of unconsolidated financial 

institutions in the form of common 

stock that are not deducted from capital 

pursuant to § 3.22(d)(2) are assigned a 

250 percent risk weight. 

* * * * * 

■ 17. Section 3.61 is amended to read as 

follows: 

§ 3.61 Purpose and scope. 

Sections 3.61 through 3.63 of this 

subpart establish public disclosure 

requirements related to the capital 

requirements described in subpart B of 

this part for a national bank or Federal 

savings association with total 

consolidated assets of $50 billion or 

more as reported on the national bank’s 

or Federal savings association’s most 

recent year-end Call Report that is not 

an advanced approaches national bank 

or Federal savings association making 

public disclosures pursuant to § 3.172. 

An advanced approaches national bank 

or Federal savings association that has 

not received approval from the OCC to 

exit parallel run pursuant to § 3.121(d) 

is subject to the disclosure requirements 

described in §§ 3.62 and 3.63. A 

national bank or Federal savings 

association with total consolidated 

assets of $50 billion or more as reported 

on the national bank’s or Federal 

savings association’s most recent yearend Call Report that is not an advanced 

approaches national bank or Federal 

savings association making public 

disclosures subject to § 3.172 must 

comply with § 3.62 unless it is a 

consolidated subsidiary of a bank 

holding company, savings and loan 

holding company, or depository 

institution that is subject to the 

disclosure requirements of § 3.62 or a 

subsidiary of a non-U.S. banking 

organization that is subject to 

comparable public disclosure 

requirements in its home jurisdiction. 

For purposes of this section, total 

consolidated assets are determined 

based on the average of the national 

bank’s or Federal savings association ’s 

total consolidated assets in the four 

most recent quarters as reported on the 

Call Report or the average of the 

national bank or Federal savings 

association’s total consolidated assets in 

the most recent consecutive quarters as 

reported quarterly on the national 

bank’s or Federal savings association ’s 

Call Report if the national bank or 

Federal savings association has not filed 

such a report for each of the most recent 

four quarters. 

■ 18. Section 3.63 is amended by 

revising Table 3 and Table 8 to read as 

follows: 

§ 3.63 Disclosures by national bank or 

Federal savings associations described in 

§ 3.61. 

* * * * * 

TABLE 3 TO § 3.63—CAPITAL ADEQUACY

Qualitative disclosures ................ (a) A summary discussion of the national bank’s or Federal savings association’s approach to assessing the 

adequacy of its capital to support current and future activities. 

Quantitative disclosures .............. (b) Risk-weighted assets for: 

(1) Exposures to sovereign entities; 

(2) Exposures to certain supranational entities and MDBs; 

(3) Exposures to depository institutions, foreign banks, and credit unions; 

(4) Exposures to PSEs; 

(5) Corporate exposures; 

(6) Residential mortgage exposures; 

(7) Statutory multifamily mortgages and pre-sold construction loans; 

(8) HVADC exposures and HVCRE exposures; 

(9) Past due loans; 

(10) Other assets; 

(11) Cleared transactions; 

(12) Default fund contributions; 

(13) Unsettled transactions; 

(14) Securitization exposures; and 

(15) Equity exposures. 

(c) Standardized market risk-weighted assets as calculated under subpart F of this part. 

(d) Common equity tier 1, tier 1 and total risk-based capital ratios: 


asabaliauskas on DSKBBXCHB2PROD with PROPOSALS
Federal Register / Vol. 82, No. 207 / Friday, October 27, 2017 / Proposed Rules 50011 

TABLE 3 TO § 3.63—CAPITAL ADEQUACY—Continued 

(1) For the top consolidated group; and 

(2) For each depository institution subsidiary. 

Total standardized risk-weighted assets. 

* * * * * 

TABLE 8 TO § 3.63—SECURITIZATION

Qualitative Disclosures ................ (a) The general qualitative disclosure requirement with respect to a securitization (including synthetic 

securitizations), including a discussion of: 

(1) The national bank’s or Federal savings association ’s objectives for securitizing assets, including the 

extent to which these activities transfer credit risk of the underlying exposures away from the national 

bank or Federal savings association to other entities and including the type of risks assumed and retained with resecuritization activity; 1

(2) The nature of the risks (e.g. liquidity risk) inherent in the securitized assets; 

(3) The roles played by the national bank or Federal savings association in the securitization process 2

and an indication of the extent of the national bank’s or Federal savings association ’s involvement in 

each of them; 

(4) The processes in place to monitor changes in the credit and market risk of securitization exposures 

including how those processes differ for resecuritization exposures; 

(5) The national bank’s or Federal savings association’s policy for mitigating the credit risk retained 

through securitization and resecuritization exposures; and 

(6) The risk-based capital approaches that the national bank or Federal savings association follows for 

its securitization exposures including the type of securitization exposure to which each approach applies. 

(b) A list of: 

(1) The type of securitization SPEs that the national bank or Federal savings association, as sponsor, 

uses to securitize third-party exposures. The national bank or Federal savings association must indicate whether it has exposure to these SPEs, either on- or off-balance sheet; and 

(2) Affiliated entities: 

(i) That the national bank or Federal savings association manages or advises; and 

(ii) That invest either in the securitization exposures that the national bank or Federal savings association has securitized or in securitization SPEs that the national bank or Federal savings association 

sponsors.3

(c) Summary of the national bank’s or Federal savings association’s accounting policies for securitization activities, including: 

(1) Whether the transactions are treated as sales or financings; 

(2) Recognition of gain-on-sale; 

(3) Methods and key assumptions applied in valuing retained or purchased interests; 

(4) Changes in methods and key assumptions from the previous period for valuing retained interests and 

impact of the changes; 

(5) Treatment of synthetic securitizations; 

(6) How exposures intended to be securitized are valued and whether they are recorded under subpart 

D of this part; and 

(7) Policies for recognizing liabilities on the balance sheet for arrangements that could require the national bank or Federal savings association to provide financial support for securitized assets. 

(d) An explanation of significant changes to any quantitative information since the last reporting period. 

Quantitative Disclosures .............. (e) The total outstanding exposures securitized by the national bank or Federal savings association in 

securitizations that meet the operational criteria provided in § 3.41 (categorized into traditional and synthetic securitizations), by exposure type, separately for securitizations of third-party exposures for which 

the bank acts only as sponsor.4

(f) For exposures securitized by the national bank or Federal savings association in securitizations that meet 

the operational criteria in § 3.41: 

(1) Amount of securitized assets that are impaired/past due categorized by exposure type; 5 and 

(2) Losses recognized by the national bank or Federal savings association during the current period categorized by exposure type.6

(g) The total amount of outstanding exposures intended to be securitized categorized by exposure type. 

(h) Aggregate amount of: 

(1) On-balance sheet securitization exposures retained or purchased categorized by exposure type; and 

(2) Off-balance sheet securitization exposures categorized by exposure type. 

(i)(1) Aggregate amount of securitization exposures retained or purchased and the associated capital requirements for these exposures, categorized between securitization and resecuritization exposures, further categorized into a meaningful number of risk weight bands and by risk-based capital approach (e.g., SSFA); 

and 

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

(i) After-tax gain-on-sale on a securitization that has been deducted from common equity tier 1 capital; 

and 

(ii) Credit-enhancing interest-only strip that is assigned a 1,250 percent risk weight. 

(j) Summary of current year’s securitization activity, including the amount of exposures securitized (by exposure type), and recognized gain or loss on sale by exposure type. 

(k) Aggregate amount of resecuritization exposures retained or purchased categorized according to: 

(1) Exposures to which credit risk mitigation is applied and those not applied; and 


asabaliauskas on DSKBBXCHB2PROD with PROPOSALS
50012 Federal Register / Vol. 82, No. 207 / Friday, October 27, 2017 / Proposed Rules 

TABLE 8 TO § 3.63—SECURITIZATION—Continued 

(2) Exposures to guarantors categorized according to guarantor creditworthiness categories or guarantor 

name. 

1The national bank or Federal savings association should describe the structure of resecuritizations in which it participates; this description 

should be provided for the main categories of resecuritization products in which the national bank or Federal savings association is active. 2For example, these roles may include originator, investor, servicer, provider of credit enhancement, sponsor, liquidity provider, or swap provider. 3Such affiliated entities may include, for example, money market funds, to be listed individually, and personal and private trusts, to be noted 

collectively. 4 ‘‘Exposures securitized’’ include underlying exposures originated by the national bank or Federal savings association, whether generated by 

them or purchased, and recognized in the balance sheet, from third parties, and third-party exposures included in sponsored transactions. 

Securitization transactions (including underlying exposures originally on the national bank’s or Federal savings association’s balance sheet and 

underlying exposures acquired by the national bank or Federal savings association from third-party entities) in which the originating bank does 

not retain any securitization exposure should be shown separately but need only be reported for the year of inception. National banks and Federal savings associations are required to disclose exposures regardless of whether there is a capital charge under this part. 5 Include credit-related other than temporary impairment (OTTI). 

6For example, charge-offs/allowances (if the assets remain on the national bank’s or Federal savings association’s balance sheet) or credit-related OTTI of interest-only strips and other retained residual interests, as well as recognition of liabilities for probable future financial support required of the national bank or Federal savings association with respect to securitized assets. 

* * * * * 

■ 19. Section 3.101 is amended by 

adding to paragraph (b) in alphabetical 

order the definition of ‘‘High volatility 

commercial real estate (HVCRE) 

exposure’’ to read as follows: 

§ 3.101 Definitions. 

* * * * * 

(b) * * * 

High volatility commercial real estate 

(HVCRE) exposure, for purposes of 

Subpart E, means a credit facility that, 

prior to conversion to permanent 

financing, finances or has financed the 

acquisition, development, or 

construction (ADC) of real property, 

unless the facility finances: 

(1) One- to four-family residential 

properties; 

(2) Real property that: 

(i) Would qualify as an investment in 

community development under 12 

U.S.C. 338a or 12 U.S.C. 24 (Eleventh), 

as applicable, or as a ‘‘qualified 

investment’’ under 12 CFR part 25 

(national banks) and 195 (Federal 

savings associations), and 

(ii) Is not an ADC loan to any entity 

described in 12 CFR 25.12(g)(3) 

(national banks) and 12 CFR 

195.12(g)(3) (Federal savings 

associations), unless it is otherwise 

described in paragraph (1), (2)(i), (3) or 

(4) of this definition; 

(3) The purchase or development of 

agricultural land, which includes all 

land known to be used or usable for 

agricultural purposes (such as crop and 

livestock production), provided that the 

valuation of the agricultural land is 

based on its value for agricultural 

purposes and the valuation does not 

take into consideration any potential 

use of the land for non-agricultural 

commercial development or residential 

development; or 

(4) Commercial real estate projects in 

which: 

(i) The loan-to-value ratio is less than 

or equal to the applicable maximum 

supervisory loan-to-value ratio in the 

OCC’s real estate lending standards at 

12 CFR part 34, subpart D (national 

banks) and 12 CFR part 160 (Federal 

savings associations); 

(ii) The borrower has contributed 

capital to the project in the form of cash 

or unencumbered readily marketable 

assets (or has paid development 

expenses out-of-pocket) of at least 15 

percent of the real estate’s appraised ‘‘as 

completed’’ value; and 

(iii) The borrower contributed the 

amount of capital required by paragraph 

(4)(ii) of this definition before the 

national bank or Federal savings 

association advances funds under the 

credit facility, and the capital 

contributed by the borrower, or 

internally generated by the project, is 

contractually required to remain in the 

project throughout the life of the project. 

The life of a project concludes only 

when the credit facility is converted to 

permanent financing or is sold or paid 

in full. Permanent financing may be 

provided by the national bank or 

Federal savings association that 

provided the ADC facility as long as the 

permanent financing is subject to the 

national bank’s or Federal savings 

association ’s underwriting criteria for 

long-term mortgage loans. 

* * * * * 

■ 20. Section 3.131 is amended by 

revising paragraph (d)(2) to read as 

follows: 

§ 3.131 Mechanics for calculating total 

wholesale and retail risk-weighted assets. 

* * * * * 

(d) * * * 

(2) Floor on PD assignment. The PD 

for each wholesale obligor or retail 

segment may not be less than 0.03 

percent, except for exposures to or 

directly and unconditionally guaranteed 

by a sovereign entity, the Bank for 

International Settlements, the 

International Monetary Fund, the 

European Commission, the European 

Central Bank, the European Stability 

Mechanism, the European Financial 

Stability Facility, or a multilateral 

development bank, to which the 

national bank or Federal savings 

association assigns a rating grade 

associated with a PD of less than 0.03 

percent. 

* * * * * 

■ 21. Section 3.133 is amended by 

revising paragraphs (b)(3)(ii) and 

(c)(3)(ii) to read as follows: 

§ 3.133 Cleared transactions. 

* * * * * 

(b) Clearing member client national 

banks or Federal savings associations 

* * * * * 

(3) * * * 

(ii) For a cleared transaction with a 

CCP that is not a QCCP, a clearing 

member client national bank or Federal 

savings association must apply the risk 

weight applicable to the CCP under 

subpart D of this part. 

* * * * * 

(c) * * * 

(3) * * * 

(ii) For a cleared transaction with a 

CCP that is not a QCCP, a clearing 

member national bank or Federal 

savings association must apply the risk 

weight applicable to the CCP according 

to subpart D of this part. 

* * * * * 

■ 22. Section 3.152 is amended by 

revising paragraph (b)(5) and (6) to read 

as follows: 

§ 3.152 Simple risk weight approach 

(SRWA). 

* * * * * 

(b) * * * 

(5) 300 percent risk weight equity 

exposures. A publicly traded equity 

exposure (other than an equity exposure 

described in paragraph (b)(7) of this 


asabaliauskas on DSKBBXCHB2PROD with PROPOSALS
Federal Register / Vol. 82, No. 207 / Friday, October 27, 2017 / Proposed Rules 50013 

section and including the ineffective 

portion of a hedge pair) is assigned a 

300 percent risk weight. 

(6) 400 percent risk weight equity 

exposures. An equity exposure (other 

than an equity exposure described in 

paragraph (b)(7) of this section) that is 

not publicly traded is assigned a 400 

percent risk weight. 

* * * * * 

■ 23. Section 3.202 is amended by 

revising the definition of ‘‘Corporate 

debt position’’ in paragraph (b) to read 

as follows: 

§ 3.202 Definitions. 

* * * * * 

(b) * * * 

Corporate debt position means a debt 

position that is an exposure to a 

company that is not a sovereign entity, 

the Bank for International Settlements, 

the European Central Bank, the 

European Commission, the International 

Monetary Fund, the European Stability 

Mechanism, the European Financial 

Stability Facility, a multilateral 

development bank, a depository 

institution, a foreign bank, a credit 

union, a public sector entity, a GSE, or 

a securitization. 

* * * * * 

■ 24. Section 3.210 is amended by 

revising paragraph (b)(2)(ii) to read as 

follows: 

§ 3.210 Standardized measurement 

method for specific risk. 

* * * * * 

(b) * * * 

(2) * * * 

(ii) Certain supranational entity and 

multilateral development bank debt 

positions. A national bank or Federal 

savings association may assign a 0.0 

percent specific risk-weighting factor to 

a debt position that is an exposure to the 

Bank for International Settlements, the 

European Central Bank, the European 

Commission, the International Monetary 

Fund, the European Stability 

Mechanism, the European Financial 

Stability Facility, or an MDB. 

* * * * * 

■ 25. Section 3.300 is amended by 

revising paragraphs (b) and (d) to read 

as follows: 

§ 3.300 Transitions. 

* * * * * 

(b) Regulatory capital adjustments 

and deductions. Beginning January 1, 

2014 for an advanced approaches 

national bank or Federal savings 

association, and beginning January 1, 

2015 for a national bank or Federal 

savings association that is not an 

advanced approaches national bank or 

Federal savings association, and in each 

case through December 31, 2017, a 

national bank or Federal savings 

association must make the capital 

adjustments and deductions in § 3.22 in 

accordance with the transition 

requirements in this paragraph (b). 

Beginning January 1, 2018, a national 

bank or Federal savings association 

must make all regulatory capital 

adjustments and deductions in 

accordance with § 3.22. 

(1) Transition deductions from 

common equity tier 1 capital. Beginning 

January 1, 2014 for an advanced 

approaches national bank or Federal 

savings association, and beginning 

January 1, 2015 for a national bank or 

Federal savings association that is not 

an advanced approaches national bank 

or Federal savings association, and in 

each case through December 31, 2017, a 

national bank or Federal savings 

association must make the deductions 

required under § 3.22(a)(1)–(7) from 

common equity tier 1 or tier 1 capital 

elements in accordance with the 

percentages set forth in Table 2 and 

Table 3 to § 3.300. 

(i) A national bank or Federal savings 

association must deduct the following 

items from common equity tier 1 and 

additional tier 1 capital in accordance 

with the percentages set forth in Table 

2 to § 3.300: Goodwill (§ 3.22(a)(1)), 

DTAs that arise from net operating loss 

and tax credit carryforwards 

(§ 3.22(a)(3)), a gain-on-sale in 

connection with a securitization 

exposure (§ 3.22(a)(4)), defined benefit 

pension fund assets (§ 3.22(a)(5)), 

expected credit loss that exceeds 

eligible credit reserves (for advanced 

approaches national banks and Federal 

savings associations that have 

completed the parallel run process and 

that have received notifications from the 

OCC pursuant to § 3.121(d) of subpart E) 

and financial subsidiaries (§ 3.22(a)(7)), 

and nonincludable subsidiaries of a 

Federal savings association 

(§ 3.22(a)(8)). 

TABLE 2 TO § 3.300 

Transition period 

Transition deductions 

under § 3.22(a)(1) and 

(7) 

Transition deductions 

under § 3.22(a)(3)–(6) 

Percentage of the 

deductions from 

common equity 

tier 1 capital 

Percentage of the 

deductions from 

common equity 

tier 1 capital 

Percentage of the 

deductions from 

tier 1 capital 

Calendar year 2014 ..................................................................... 100 20 80 

Calendar year 2015 ..................................................................... 100 40 60 

Calendar year 2016 ..................................................................... 100 60 40 

Calendar year 2017 ..................................................................... 100 80 20 

Calendar year 2018, and thereafter ............................................ 100 100 0 

(ii) A national bank or Federal savings 

association must deduct from common 

equity tier 1 capital any intangible 

assets other than goodwill and MSAs in 

accordance with the percentages set 

forth in Table 3 to § 3.300. 

(iii) A national bank or Federal 

savings association must apply a 100 

percent risk-weight to the aggregate 

amount of intangible assets other than 

goodwill and MSAs that are not 

required to be deducted from common 

equity tier 1 capital under this section. 


asabaliauskas on DSKBBXCHB2PROD with PROPOSALS
50014 Federal Register / Vol. 82, No. 207 / Friday, October 27, 2017 / Proposed Rules 

TABLE 3 TO § 3.300 

Transition period 

Transition deductions 

under § 3.22(a)(2)— 

percentage of the 

deductions from 

common equity 

tier 1 capital 

Calendar year 2014 ............................................................................................................................................................. 20 

Calendar year 2015 ............................................................................................................................................................. 40 

Calendar year 2016 ............................................................................................................................................................. 60 

Calendar year 2017 ............................................................................................................................................................. 80 

Calendar year 2018, and thereafter .................................................................................................................................... 100 

(2) Transition adjustments to common 

equity tier 1 capital. Beginning January 

1, 2014 for an advanced approaches 

national bank or Federal savings 

association, and beginning January 1, 

2015 for a national bank or Federal 

savings association that is not an 

advanced approaches national bank or 

Federal savings association, and in each 

case through December 31, 2017, a 

national bank or Federal savings 

association must allocate the regulatory 

adjustments related to changes in the 

fair value of liabilities due to changes in 

the national bank’s or Federal savings 

association’s own credit risk 

(§ 3.22(b)(1)(iii)) between common 

equity tier 1 capital and tier 1 capital in 

accordance with the percentages set 

forth in Table 4 to § 3.300. 

(i) If the aggregate amount of the 

adjustment is positive, the national bank 

or Federal savings association must 

allocate the deduction between common 

equity tier 1 and tier 1 capital in 

accordance with Table 4 to § 3.300. 

(ii) If the aggregate amount of the 

adjustment is negative, the national 

bank or Federal savings association 

must add back the adjustment to 

common equity tier 1 capital or to tier 

1 capital, in accordance with Table 4 to 

§ 3.300. 

TABLE 4 TO § 3.300 

Transition period 

Transition adjustments under § 3.22(b)(1)(iii) 

Percentage of the 

adjustment applied to 

common equity 

tier 1 capital 

Percentage of the 

adjustment applied to 

tier 1 capital 

Calendar year 2014 ................................................................................................................. 20 80 

Calendar year 2015 ................................................................................................................. 40 60 

Calendar year 2016 ................................................................................................................. 60 40 

Calendar year 2017 ................................................................................................................. 80 20 

Calendar year 2018, and thereafter ........................................................................................ 100 0

(3) Transition adjustments to AOCI 

for an advanced approaches national 

bank or Federal savings association and 

a national bank or Federal savings 

association that has not made an AOCI 

opt-out election under § 3.22(b)(2). 

Beginning January 1, 2014 for an 

advanced approaches national bank or 

Federal savings association, and 

beginning January 1, 2015 for a national 

bank or Federal savings association that 

is not an advanced approaches national 

bank or Federal savings association that 

has not made an AOCI opt-out election 

under § 3.22(b)(2), and in each case 

through December 31, 2017, a national 

bank or Federal savings association 

must adjust common equity tier 1 

capital with respect to the transition 

AOCI adjustment amount (transition 

AOCI adjustment amount): 

(i) The transition AOCI adjustment 

amount is the aggregate amount of a 

national bank’s or Federal savings 

association’s: 

(A) Unrealized gains on available-forsale securities that are preferred stock 

classified as an equity security under 

GAAP or available-for-sale equity 

exposures, plus 

(B) Net unrealized gains or losses on 

available-for-sale securities that are not 

preferred stock classified as an equity 

security under GAAP or available-forsale equity exposures, plus 

(C) Any amounts recorded in AOCI 

attributed to defined benefit 

postretirement plans resulting from the 

initial and subsequent application of the 

relevant GAAP standards that pertain to 

such plans (excluding, at the national 

bank’s or Federal savings association’s 

option, the portion relating to pension 

assets deducted under section 22(a)(5)), 

plus 

(D) Accumulated net gains or losses 

on cash flow hedges related to items 

that are reported on the balance sheet at 

fair value included in AOCI, plus 

(E) Net unrealized gains or losses on 

held-to-maturity securities that are 

included in AOCI. 

(ii) A national bank or Federal savings 

association must make the following 

adjustment to its common equity tier 1 

capital: 

(A) If the transition AOCI adjustment 

amount is positive, the appropriate 

amount must be deducted from common 

equity tier 1 capital in accordance with 

Table 5 to § 3.300. 

(B) If the transition AOCI adjustment 

amount is negative, the appropriate 

amount must be added back to common 

equity tier 1 capital in accordance with 

Table 5 to § 3.300. 


asabaliauskas on DSKBBXCHB2PROD with PROPOSALS
Federal Register / Vol. 82, No. 207 / Friday, October 27, 2017 / Proposed Rules 50015 

TABLE 5 TO § 3.300 

Transition period 

Percentage of the 

transition AOCI 

adjustment amount to 

be applied to common 

equity tier 1 capital 

Calendar year 2014 ............................................................................................................................................................. 80 

Calendar year 2015 ............................................................................................................................................................. 60 

Calendar year 2016 ............................................................................................................................................................. 40 

Calendar year 2017 ............................................................................................................................................................. 20 

Calendar year 2018 and thereafter ..................................................................................................................................... 0 

(iii) A national bank or Federal 

savings association may include in tier 

2 capital the percentage of unrealized 

gains on available-for-sale preferred 

stock classified as an equity security 

under GAAP and available-for-sale 

equity exposures as set forth in Table 6 

to § 3.300. 

TABLE 6 TO § 3.300 

Transition period 

Percentage of 

unrealized gains on 

available-for-sale 

preferred stock 

classified as an 

equity security under 

GAAP and availablefor-sale equity 

exposures that may 

be included in 

tier 2 capital 

Calendar year 2014 ............................................................................................................................................................. 36 

Calendar year 2015 ............................................................................................................................................................. 27 

Calendar year 2016 ............................................................................................................................................................. 18 

Calendar year 2017 ............................................................................................................................................................. 9 

Calendar year 2018 and thereafter ..................................................................................................................................... 0 

* * * * * 

(d) Minority interest—(1) [Reserved] 

(2) Non-qualifying minority interest. 

Beginning January 1, 2014 for an 

advanced approaches national bank or 

Federal savings association, and 

beginning January 1, 2015 for a national 

bank or Federal savings association that 

is not an advanced approaches national 

bank or Federal savings association, and 

in each case through December 31, 

2017, a national bank or federal savings 

association may include in tier 1 capital 

or total capital the percentage of the tier 

1 minority interest and total capital 

minority interest outstanding as of 

January 1, 2014 that does not meet the 

criteria for additional tier 1 or tier 2 

capital instruments in § 3.20 (nonqualifying minority interest), as set forth 

in Table 10 to § 3.300. 

TABLE 10 TO § 3.300 

Transition period 

Percentage of the 

amount of surplus or 

non-qualifying minority 

interest that can be 

included in regulatory 

capital during the 

transition period 

Calendar year 2014 ............................................................................................................................................................. 80 

Calendar year 2015 ............................................................................................................................................................. 60 

Calendar year 2016 ............................................................................................................................................................. 40 

Calendar year 2017 ............................................................................................................................................................. 20 

Calendar year 2018 and thereafter ..................................................................................................................................... 0 


asabaliauskas on DSKBBXCHB2PROD with PROPOSALS
50016 Federal Register / Vol. 82, No. 207 / Friday, October 27, 2017 / Proposed Rules 

* * * * * 

Board of Governors of the Federal 

Reserve System 

For the reasons set out in the joint 

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) 

Subpart A—General Provisions 

■ 26. 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. 

■ 27. Section 217.2 is amended by (1) 

Removing the definitions of ‘‘corporate 

exposure,’’ ‘‘eligible guarantor,’’ ‘‘high 

volatility commercial real estate 

(HVCRE),’’ ‘‘investment in the capital of 

an unconsolidated financial 

institution,’’ ‘‘non-significant 

investment in the capital of an 

unconsolidated financial institution,’’ 

and ‘‘significant investment in the 

capital of an unconsolidated financial 

institution,’’ and (2) Adding the 

definitions of ‘‘corporate exposure,’’ 

‘‘eligible guarantor,’’ ‘‘high volatility 

acquisition, development, or 

construction (HVADC),’’ ‘‘high volatility 

commercial real estate (HVCRE),’’ 

‘‘International Lending Supervision 

Act,’’ ‘‘investment in the capital of an 

unconsolidated financial institution,’’ 

‘‘non-significant investment in the 

capital of an unconsolidated financial 

institution,’’ and ‘‘significant 

investment in the capital of an 

unconsolidated financial institution’’ as 

follows: 

§ 217.2 Definitions. 

* * * * * 

Corporate exposure means an 

exposure to a company that is not: 

(1) An exposure to a sovereign, the 

Bank for International Settlements, the 

European Central Bank, the European 

Commission, the International Monetary 

Fund, the European Stability 

Mechanism, the European Financial 

Stability Facility, a multi-lateral 

development bank (MDB), a depository 

institution, a foreign bank, a credit 

union, or a public sector entity (PSE); 

(2) An exposure to a GSE; 

(3) A residential mortgage exposure; 

(4) A pre-sold construction loan; 

(5) A statutory multifamily mortgage; 

(6) A high volatility acquisition, 

development, or construction (HVADC) 

exposure or a high volatility commercial 

real estate (HVCRE) exposure; 

(7) A cleared transaction; 

(8) A default fund contribution; 

(9) A securitization exposure; 

(10) An equity exposure; or 

(11) An unsettled transaction. 

(12) A policy loan; or 

(13) A separate account. 

* * * * * 

Eligible guarantor means: 

(1) A sovereign, the Bank for 

International Settlements, the 

International Monetary Fund, the 

European Central Bank, the European 

Commission, a Federal Home Loan 

Bank, Federal Agricultural Mortgage 

Corporation (Farmer Mac), the European 

Stability Mechanism, the European 

Financial Stability Facility, a 

multilateral development bank (MDB), a 

depository institution, a bank holding 

company, a savings and loan holding 

company, a credit union, a foreign bank, 

or a qualifying central counterparty; or 

(2) An entity (other than a special 

purpose entity): 

(i) That at the time the guarantee is 

issued or anytime thereafter, has issued 

and outstanding an unsecured debt 

security without credit enhancement 

that is investment grade; 

(ii) Whose creditworthiness is not 

positively correlated with the credit risk 

of the exposures for which it has 

provided guarantees; and 

(iii) That is not an insurance company 

engaged predominately in the business 

of providing credit protection (such as 

a monoline bond insurer or re-insurer). 

* * * * * 

High volatility acquisition, 

development, or construction (HVADC) 

exposure means a credit facility that is 

originated on or after [effective date] 

and that: 

(1) Primarily finances or refinances 

the: 

(i) Acquisition of vacant or developed 

land; 

(ii) Development of land to prepare to 

erect new structures including, but not 

limited to, the laying of sewers or water 

pipes and demolishing existing 

structures; or 

(iii) Construction of buildings, 

dwellings, or other improvements 

including additions or alterations to 

existing structures; and 

(2) Is not a credit facility that finances 

or refinances: 

(i) One- to four-family residential 

properties; 

(ii) Real property projects that would 

have the primary purpose of 

‘‘community development’’ as defined 

under [12 CFR part 25 (national bank), 

12 CFR part 195 (Federal savings 

association) (OCC); 12 CFR part 228 

(Board); 12 CFR part 345 (FDIC)]; or 

(iii) The purchase or development of 

agricultural land, including, but not 

limited to, all land used or usable for 

agricultural purposes (such as crop and 

livestock production), provided that the 

valuation of the agricultural land is 

based on its value for agricultural 

purposes and the valuation does not 

take into consideration any potential 

use of the land for commercial or 

residential development; and 

(3) Is not a permanent loan. A 

permanent loan for purposes of this 

definition means a prudently 

underwritten loan that has a clearly 

identified ongoing source of repayment 

sufficient to service amortizing 

principal and interest payments aside 

from the sale of the property. For 

purposes of this section, a permanent 

loan does not include a loan that 

finances or refinances a stabilization 

period or unsold lots or units of for-sale 

projects. 

High volatility commercial real estate 

(HVCRE) exposure, for purposes of 

Subpart D, means a credit facility that 

is either outstanding or committed prior 

to [effective date] and, prior to 

conversion to permanent financing, 

finances or has financed the acquisition, 

development, or construction (ADC) of 

real property, unless the facility 

finances: 

(1) One- to four-family residential 

properties; 

(2) Real property that: 

(i) Would qualify as an investment in 

community development under 12 

U.S.C. 338a or 12 U.S.C. 24 (Eleventh), 

as applicable, or as a ‘‘qualified 

investment’’ under 12 CFR part 228, and 

(ii) Is not an ADC loan to any entity 

described in 12 CFR 208.22(a)(3) or 

228.12(g)(3), unless it is otherwise 

described in paragraph (1), (2)(i), (3) or 

(4) of this definition; 

(3) The purchase or development of 

agricultural land, which includes all 

land known to be used or usable for 

agricultural purposes (such as crop and 

livestock production), provided that the 

valuation of the agricultural land is 

based on its value for agricultural 

purposes and the valuation does not 

take into consideration any potential 

use of the land for non-agricultural 

commercial development or residential 

development; or 

(4) Commercial real estate projects in 

which: 

(i) The loan-to-value ratio is less than 

or equal to the applicable maximum 

supervisory loan-to-value ratio in the 

Board’s real estate lending standards at 

12 CFR part 208, appendix C; 


asabaliauskas on DSKBBXCHB2PROD with PROPOSALS
Federal Register / Vol. 82, No. 207 / Friday, October 27, 2017 / Proposed Rules 50017 

(ii) The borrower has contributed 

capital to the project in the form of cash 

or unencumbered readily marketable 

assets (or has paid development 

expenses out-of-pocket) of at least 15 

percent of the real estate’s appraised ‘‘as 

completed’’ value; and 

(iii) The borrower contributed the 

amount of capital required by paragraph 

(4)(ii) of this definition before the 

Board-regulated institution advances 

funds under the credit facility, and the 

capital contributed by the borrower, or 

internally generated by the project, is 

contractually required to remain in the 

project throughout the life of the project. 

The life of a project concludes only 

when the credit facility is converted to 

permanent financing or is sold or paid 

in full. Permanent financing may be 

provided by the Board-regulated 

institution that provided the ADC 

facility as long as the permanent 

financing is subject to the Boardregulated institution’s underwriting 

criteria for long-term mortgage loans. 

* * * * * 

International Lending Supervision Act 

means the International Lending 

Supervision Act of 1983 (12 U.S.C. 3901 

et seq.). 

* * * * * 

Investment in the capital of an 

unconsolidated financial institution 

means a net long position calculated in 

accordance with § 217.22(h) in an 

instrument that is recognized as capital 

for regulatory purposes by the primary 

supervisor of an unconsolidated 

regulated financial institution or is an 

instrument that is part of the GAAP 

equity of an unconsolidated unregulated 

financial institution, including direct, 

indirect, and synthetic exposures to 

capital instruments, excluding 

underwriting positions held by the 

Board-regulated institution for five or 

fewer business days. 

* * * * * 

Non-significant investment in the 

capital of an unconsolidated financial 

institution means an investment by an 

advanced approaches Board-regulated 

institution in the capital of an 

unconsolidated financial institution 

where the advanced approaches Boardregulated institution owns 10 percent or 

less of the issued and outstanding 

common stock of the unconsolidated 

financial institution. 

* * * * * 

Significant investment in the capital 

of an unconsolidated financial 

institution means an investment by an 

advanced approaches Board-regulated 

institution in the capital of an 

unconsolidated financial institution 

where the advanced approaches Boardregulated institution owns more than 10 

percent of the issued and outstanding 

common stock of the unconsolidated 

financial institution. 

* * * * * 

■ 28. Section 217.10 is amended by 

revising paragraph (c)(4)(ii)(H) to read as 

follows: 

§ 217.10 Minimum capital requirements. 

* * * * * 

(c) * * * 

(4) * * * 

(ii) * * * 

(H) The credit equivalent amount of 

all off-balance sheet exposures of the 

Board-regulated institution, excluding 

repo-style transactions, repurchase or 

reverse repurchase or securities 

borrowing or lending transactions that 

qualify for sales treatment under U.S. 

GAAP, and derivative transactions, 

determined using the applicable credit 

conversion factor under § 217.33(b), 

provided, however, that the minimum 

credit conversion factor that may be 

assigned to an off-balance sheet 

exposure under this paragraph is 10 

percent; and 

* * * * * 

■ 29. Section 217.11 is amended by 

revising paragraphs (a)(2)(i), (a)(2)(iv), 

(a)(3)(i), and revise Table 1 to read as 

follows: 

§ 217.11 Capital conservation buffer, 

countercyclical capital buffer amount, and 

GSIB surcharge. 

* * * * * 

(a) * * * 

(2) * * * 

(i) Eligible retained income. The 

eligible retained income of a Boardregulated institution is the Boardregulated institution’s net income, 

calculated in accordance with the 

instructions to the Call Report or the FR 

Y–9C, as applicable, for the four 

calendar quarters preceding the current 

calendar quarter, net of any 

distributions and associated tax effects 

not already reflected in net income. 

* * * * * 

(iv) Private sector credit exposure. 

Private sector credit exposure means an 

exposure to a company or an individual 

that is not an exposure to a sovereign, 

the Bank for International Settlements, 

the European Central Bank, the 

European Commission, the European 

Stability Mechanism, the European 

Financial Stability Facility, the 

International Monetary Fund, a MDB, a 

PSE, or a GSE. 

(3) * * * (i) A Board-regulated 

institution’s capital conservation buffer 

is equal to the lowest of the following 

ratios, calculated as of the last day of the 

previous calendar quarter: 

(A) The Board-regulated institution’s 

common equity tier 1 capital ratio 

minus the Board-regulated institution’s 

minimum common equity tier 1 capital 

ratio requirement under § 217.10; 

(B) The Board-regulated institution’s 

tier 1 capital ratio minus the Boardregulated institution’s minimum tier 1 

capital ratio requirement under 

§ 217.10; and 

(C) The Board-regulated institution’s 

total capital ratio minus the Boardregulated institution’s minimum total 

capital ratio requirement under 

§ 217.10; or 

TABLE 1 TO § 217.11—CALCULATION OF MAXIMUM PAYOUT AMOUNT

Capital conservation buffer Maximum payout ratio 

Greater than 2.5 percent plus 100 percent of the Board-regulated institution’s applicable countercyclical capital 

buffer amount and 100 percent of the Board-regulated institution’s applicable GSIB surcharge.

No payout ratio limitation 

applies. 

Less than or equal to 2.5 percent plus 100 percent of the Board-regulated institution’s applicable countercyclical 

capital buffer amount and 100 percent of the Board-regulated institution’s applicable GSIB surcharge, and greater than 1.875 percent plus 75 percent of the Board-regulated institution’s applicable countercyclical capital buffer amount and 75 percent of the Board-regulated institution’s applicable GSIB surcharge.

60 percent. 

Less than or equal to 1.875 percent plus 75 percent of the Board-regulated institution’s applicable countercyclical 

capital buffer amount and 75 percent of the Board-regulated institution’s applicable GSIB surcharge, and greater 

than 1.25 percent plus 50 percent of the Board-regulated institution’s applicable countercyclical capital buffer 

amount and 50 percent of the Board-regulated institution’s applicable GSIB surcharge.

40 percent. 

Less than or equal to 1.25 percent plus 50 percent of the Board-regulated institution’s applicable countercyclical 

capital buffer amount and 50 percent of the Board-regulated institution’s applicable GSIB surcharge, and greater 

than 0.625 percent plus 25 percent of the Board-regulated institution’s applicable countercyclical capital buffer 

amount and 25 percent of the Board-regulated institution’s applicable GSIB surcharge.

20 percent. 


asabaliauskas on DSKBBXCHB2PROD with PROPOSALS
50018 Federal Register / Vol. 82, No. 207 / Friday, October 27, 2017 / Proposed Rules 

TABLE 1 TO § 217.11—CALCULATION OF MAXIMUM PAYOUT AMOUNT—Continued 

Capital conservation buffer Maximum payout ratio 

Less than or equal to 0.625 percent plus 25 percent of the Board-regulated institution’s applicable countercyclical 

capital buffer amount and 25 percent of the Board-regulated institution’s applicable GSIB surcharge.

0 percent. 

* * * * * 

■ 30. Section 217.20 is amended by 

revising paragraphs (b)(4), (c)(2), (d)(2), 

(5) and adding a new paragraph (f) to 

read as follows: 

§ 217.20 Capital components and eligibility 

criteria for regulatory capital instruments. 

* * * * * 

(b) * * * 

(4) Any common equity tier 1 

minority interest, subject to the 

limitations in § 217.21. 

* * * * * 

(c) * * * 

(2) Tier 1 minority interest, subject to 

the limitations in § 217.21, that is not 

included in the Board-regulated 

institution’s common equity tier 1 

capital. 

* * * * * 

(d) * * * 

(2) Total capital minority interest, 

subject to the limitations set forth in 

§ 217.21, that is not included in the 

Board-regulated institution’s tier 1 

capital. 

* * * * * 

(5) For a Board-regulated institution 

that makes an AOCI opt-out election (as 

defined in paragraph (b)(2) of § 217.22), 

45 percent of pretax net unrealized 

gains on available-for-sale preferred 

stock classified as an equity security 

under GAAP and available-for-sale 

equity exposures. 

* * * * * 

(f) A Board-regulated institution may 

not repurchase or redeem any common 

equity tier 1 capital, additional tier 1, or 

tier 2 capital instrument without the 

prior approval of the Board. 

■ 31. Section 217.21 is revised to reads 

as follows: 

§ 217.21 Minority interest. 

(a)(1) Applicability. For purposes of 

§ 217.20, a Board-regulated institution 

that is not an advanced approaches 

Board-regulated institution is subject to 

the minority interest limitations in this 

paragraph (a) if a consolidated 

subsidiary of the Board-regulated 

institution has issued regulatory capital 

that is not owned by the Boardregulated institution. 

(2) Common equity tier 1 minority 

interest includable in the common 

equity tier 1 capital of the Boardregulated institution. The amount of 

common equity tier 1 minority interest 

that a Board-regulated institution may 

include in common equity tier 1 capital 

must be no greater than 10 percent of 

the sum of all common equity tier 1 

capital elements of the Board-regulated 

institution (not including the common 

equity tier 1 minority interest itself), 

less any common equity tier 1 capital 

regulatory adjustments and deductions 

in accordance with § 217.22 (a) and (b). 

(3) Tier 1 minority interest includable 

in the tier 1 capital of the Boardregulated institution. The amount of tier 

1 minority interest that a Boardregulated institution may include in tier 

1 capital must be no greater than 10 

percent of the sum of all tier 1 capital 

elements of the Board-regulated 

institution (not including the tier 1 

minority interest itself), less any tier 1 

capital regulatory adjustments and 

deductions in accordance with § 217.22 

(a) and (b). 

(4) Total capital minority interest 

includable in the total capital of the 

Board-regulated institution. The amount 

of total capital minority interest that a 

Board-regulated institution may include 

in total capital must be no greater than 

10 percent of the sum of all total capital 

elements of the Board-regulated 

institution (not including the total 

capital minority interest itself), less any 

total capital regulatory adjustments and 

deductions in accordance with § 217.22 

(a) and (b). 

(b)(1) Applicability. For purposes of 

§ 217.20, an advanced approaches 

Board-regulated institution is subject to 

the minority interest limitations in this 

paragraph (b) if: 

(i) A consolidated subsidiary of the 

advanced approaches Board-regulated 

institution has issued regulatory capital 

that is not owned by the Boardregulated institution; and 

(ii) For each relevant regulatory 

capital ratio of the consolidated 

subsidiary, the ratio exceeds the sum of 

the subsidiary’s minimum regulatory 

capital requirements plus its capital 

conservation buffer. 

(2) Difference in capital adequacy 

standards at the subsidiary level. For 

purposes of the minority interest 

calculations in this section, if the 

consolidated subsidiary issuing the 

capital is not subject to capital adequacy 

standards similar to those of the 

advanced approaches Board-regulated 

institution, the advanced approaches 

Board-regulated institution must assume 

that the capital adequacy standards of 

the advanced approaches Boardregulated institution apply to the 

subsidiary. 

(3) Common equity tier 1 minority 

interest includable in the common 

equity tier 1 capital of the Boardregulated institution. For each 

consolidated subsidiary of an advanced 

approaches Board-regulated institution, 

the amount of common equity tier 1 

minority interest the advanced 

approaches Board-regulated institution 

may include in common equity tier 1 

capital is equal to: 

(i) The common equity tier 1 minority 

interest of the subsidiary; minus 

(ii) The percentage of the subsidiary’s 

common equity tier 1 capital that is not 

owned by the advanced approaches 

Board-regulated institution, multiplied 

by the difference between the common 

equity tier 1 capital of the subsidiary 

and the lower of: 

(A) The amount of common equity 

tier 1 capital the subsidiary must hold, 

or would be required to hold pursuant 

to paragraph (b) of this section, to avoid 

restrictions on distributions and 

discretionary bonus payments under 

§ 217.11 or equivalent standards 

established by the subsidiary’s home 

country supervisor; or 

(B)(1) The standardized total riskweighted assets of the advanced 

approaches Board-regulated institution 

that relate to the subsidiary multiplied 

by 

(2) The common equity tier 1 capital 

ratio the subsidiary must maintain to 

avoid restrictions on distributions and 

discretionary bonus payments under 

§ 217.11 or equivalent standards 

established by the subsidiary’s home 

country supervisor. 

(4) Tier 1 minority interest includable 

in the tier 1 capital of the advanced 

approaches Board-regulated institution. 

For each consolidated subsidiary of the 

advanced approaches Board-regulated 

institution, the amount of tier 1 

minority interest the advanced 

approaches Board-regulated institution 

may include in tier 1 capital is equal to: 

(i) The tier 1 minority interest of the 

subsidiary; minus 

(ii) The percentage of the subsidiary’s 

tier 1 capital that is not owned by the 

advanced approaches Board-regulated 


asabaliauskas on DSKBBXCHB2PROD with PROPOSALS
Federal Register / Vol. 82, No. 207 / Friday, October 27, 2017 / Proposed Rules 50019 

23The Board-regulated institution must calculate 

amounts deducted under paragraphs (c) through (f) 

of this section after it calculates the amount of 

ALLL includable in tier 2 capital under 

§ 217.20(d)(3). 

institution multiplied by the difference 

between the tier 1 capital of the 

subsidiary and the lower of: 

(A) The amount of tier 1 capital the 

subsidiary must hold, or would be 

required to hold pursuant to paragraph 

(b) of this section, to avoid restrictions 

on distributions and discretionary 

bonus payments under § 217.11 or 

equivalent standards established by the 

subsidiary’s home country supervisor, 

or 

(B)(1) The standardized total riskweighted assets of the advanced 

approaches Board-regulated institution 

that relate to the subsidiary multiplied 

by 

(2) The tier 1 capital ratio the 

subsidiary must maintain to avoid 

restrictions on distributions and 

discretionary bonus payments under 

§ 217.11 or equivalent standards 

established by the subsidiary’s home 

country supervisor. 

(5) Total capital minority interest 

includable in the total capital of the 

Board-regulated institution. For each 

consolidated subsidiary of the advanced 

approaches Board-regulated institution, 

the amount of total capital minority 

interest the advanced approaches Boardregulated institution may include in 

total capital is equal to: 

(i) The total capital minority interest 

of the subsidiary; minus 

(ii) The percentage of the subsidiary’s 

total capital that is not owned by the 

advanced approaches Board-regulated 

institution multiplied by the difference 

between the total capital of the 

subsidiary and the lower of: 

(A) The amount of total capital the 

subsidiary must hold, or would be 

required to hold pursuant to paragraph 

(b) of this section, to avoid restrictions 

on distributions and discretionary 

bonus payments under § 217.11 or 

equivalent standards established by the 

subsidiary’s home country supervisor, 

or 

(B)(1) The standardized total riskweighted assets of the advanced 

approaches Board-regulated institution 

that relate to the subsidiary multiplied 

by 

(2) The total capital ratio the 

subsidiary must maintain to avoid 

restrictions on distributions and 

discretionary bonus payments under 

§ 217.11 or equivalent standards 

established by the subsidiary’s home 

country supervisor. 

■ 32. Section 217.22 is amended by 

revising paragraphs (a)(1)(i), paragraphs 

(c), (d), (g), and (h) to read as follows: 

§ 217.22 Regulatory capital adjustments 

and deductions. 

(a) * * * 

(1) * * * 

(i) Goodwill, net of associated 

deferred tax liabilities (DTLs) in 

accordance with paragraph (e) of this 

section; and 

(ii) For an advanced approaches 

Board-regulated institution, goodwill 

that is embedded in the valuation of a 

significant investment in the capital of 

an unconsolidated financial institution 

in the form of common stock (and that 

is reflected in the consolidated financial 

statements of the advanced approaches 

Board-regulated institution), in 

accordance with paragraph (d) of this 

section; 

* * * * * 

(c) Deductions from regulatory capital 

related to investments in capital 

instruments 23

(1) Investment in the Board-regulated 

institution’s own capital instruments. A 

Board-regulated institution must deduct 

an investment in the Board-regulated 

institution’s own capital instruments as 

follows: 

(i) A Board-regulated institution must 

deduct an investment in the Boardregulated institution’s own common 

stock instruments from its common 

equity tier 1 capital elements to the 

extent such instruments are not 

excluded from regulatory capital under 

§ 217.20(b)(1); 

(ii) A Board-regulated institution must 

deduct an investment in the Boardregulated institution’s own additional 

tier 1 capital instruments from its 

additional tier 1 capital elements; and 

(iii) A Board-regulated institution 

must deduct an investment in the 

Board-regulated institution’s own tier 2 

capital instruments from its tier 2 

capital elements. 

(2) Corresponding deduction 

approach. For purposes of subpart C of 

this part, the corresponding deduction 

approach is the methodology used for 

the deductions from regulatory capital 

related to reciprocal cross holdings (as 

described in paragraph (c)(3) of this 

section), investments in the capital of 

unconsolidated financial institutions for 

a Board-regulated institution that is not 

an advanced approaches Boardregulated institution (as described in 

paragraph (c)(4) of this section), nonsignificant investments in the capital of 

unconsolidated financial institutions for 

an advanced approaches Boardregulated institution (as described in 

paragraph (c)(5) of this section), and 

non-common stock significant 

investments in the capital of 

unconsolidated financial institutions for 

an advanced approaches Boardregulated institution (as described in 

paragraph (c)(6) of this section). Under 

the corresponding deduction approach, 

a Board-regulated institution must make 

deductions from the component of 

capital for which the underlying 

instrument would qualify if it were 

issued by the Board-regulated 

institution itself, as described in 

paragraphs (c)(2)(i)–(iii) of this section. 

If the Board-regulated institution does 

not have a sufficient amount of a 

specific component of capital to effect 

the required deduction, the shortfall 

must be deducted according to 

paragraph (f) of this section. 

(i) If an investment is in the form of 

an instrument issued by a financial 

institution that is not a regulated 

financial institution, the Boardregulated institution must treat the 

instrument as: 

(A) A common equity tier 1 capital 

instrument if it is common stock or 

represents the most subordinated claim 

in liquidation of the financial 

institution; and 

(B) An additional tier 1 capital 

instrument if it is subordinated to all 

creditors of the financial institution and 

is senior in liquidation only to common 

shareholders. 

(ii) If an investment is in the form of 

an instrument issued by a regulated 

financial institution and the instrument 

does not meet the criteria for common 

equity tier 1, additional tier 1 or tier 2 

capital instruments under § 217.20, the 

Board-regulated institution must treat 

the instrument as: 

(A) A common equity tier 1 capital 

instrument if it is common stock 

included in GAAP equity or represents 

the most subordinated claim in 

liquidation of the financial institution; 

(B) An additional tier 1 capital 

instrument if it is included in GAAP 

equity, subordinated to all creditors of 

the financial institution, and senior in a 

receivership, insolvency, liquidation, or 

similar proceeding only to common 

shareholders; and 

(C) A tier 2 capital instrument if it is 

not included in GAAP equity but 

considered regulatory capital by the 

primary supervisor of the financial 

institution. 

(iii) If an investment is in the form of 

a non-qualifying capital instrument (as 

defined in § 217.300(c)), the Boardregulated institution must treat the 

instrument as: 

(A) An additional tier 1 capital 

instrument if such instrument was 

included in the issuer’s tier 1 capital 

prior to May 19, 2010; or 


asabaliauskas on DSKBBXCHB2PROD with PROPOSALS
50020 Federal Register / Vol. 82, No. 207 / Friday, October 27, 2017 / Proposed Rules 

24With the prior written approval of the Board, 

for the period of time stipulated by the Board, a 

Board-regulated institution that is not an advanced 

approaches Board-regulated institution is not 

required to deduct an investment in the capital of 

an unconsolidated financial institution pursuant to 

this paragraph if the financial institution is in 

distress and if such investment is made for the 

purpose of providing financial support to the 

financial institution, as determined by the Board. 

25Any investments in the capital of 

unconsolidated financial institutions that do not 

exceed the 25 percent threshold for investments in 

the capital of unconsolidated financial institutions 

under this section must be assigned the appropriate 

risk weight under subparts D or F of this part, as 

applicable. 

26With the prior written approval of the Board, 

for the period of time stipulated by the Board, an 

advanced approaches Board-regulated institution is 

not required to deduct a non-significant investment 

in the capital of an unconsolidated financial 

institution pursuant to this paragraph if the 

financial institution is in distress and if such 

investment is made for the purpose of providing 

financial support to the financial institution, as 

determined by the Board. 

27Any non-significant investments in the capital 

of unconsolidated financial institutions that do not 

exceed the 10 percent threshold for non-significant 

investments under this section must be assigned the 

appropriate risk weight under subparts D, E, or F 

of this part, as applicable. 

28With prior written approval of the Board, for 

the period of time stipulated by the Board, an 

advanced approaches Board-regulated institution is 

not required to deduct a significant investment in 

the capital instrument of an unconsolidated 

financial institution in distress which is not in the 

form of common stock pursuant to this section if 

such investment is made for the purpose of 

providing financial support to the financial 

institution as determined by the Board. 

29The amount of the items in paragraph (d)(1) of 

this section that is not deducted from common 

equity tier 1 capital must be included in the riskweighted assets of the Board-regulated institution 

and assigned a 250 percent risk weight. 

(B) A tier 2 capital instrument if such 

instrument was included in the issuer’s 

tier 2 capital (but not includable in tier 

1 capital) prior to May 19, 2010. 

(3) Reciprocal cross holdings in the 

capital of financial institutions. A 

Board-regulated institution must deduct 

investments in the capital of other 

financial institutions it holds 

reciprocally, where such reciprocal 

cross holdings result from a formal or 

informal arrangement to swap, 

exchange, or otherwise intend to hold 

each other’s capital instruments, by 

applying the corresponding deduction 

approach. 

(4) Investments in the capital of 

unconsolidated financial institutions. A 

Board-regulated institution that is not 

an advanced approaches Boardregulated institution must deduct its 

investments in the capital of 

unconsolidated financial institutions (as 

defined in § 217.2) that exceed 25 

percent of the sum of the Boardregulated institution’s common equity 

tier 1 capital elements minus all 

deductions from and adjustments to 

common equity tier 1 capital elements 

required under paragraphs (a) through 

(c)(3) of this section by applying the 

corresponding deduction approach.24

The deductions described in this section 

are net of associated DTLs in accordance 

with paragraph (e) of this section. In 

addition, a Board-regulated institution 

that underwrites a failed underwriting, 

with the prior written approval of the 

Board, for the period of time stipulated 

by the Board, is not required to deduct 

an investment in the capital of an 

unconsolidated financial institution 

pursuant to this paragraph (c) to the 

extent the investment is related to the 

failed underwriting.25

(5) Non-significant investments in the 

capital of unconsolidated financial 

institutions. (i) An advanced approaches 

Board-regulated institution must deduct 

its non-significant investments in the 

capital of unconsolidated financial 

institutions (as defined in § 217.2) that, 

in the aggregate, exceed 10 percent of 

the sum of the advanced approaches 

Board-regulated institution’s common 

equity tier 1 capital elements minus all 

deductions from and adjustments to 

common equity tier 1 capital elements 

required under paragraphs (a) through 

(c)(3) of this section (the 10 percent 

threshold for non-significant 

investments) by applying the 

corresponding deduction approach.26

The deductions described in this section 

are net of associated DTLs in accordance 

with paragraph (e) of this section. In 

addition, an advanced approaches 

Board-regulated institution that 

underwrites a failed underwriting, with 

the prior written approval of the Board, 

for the period of time stipulated by the 

Board, is not required to deduct a nonsignificant investment in the capital of 

an unconsolidated financial institution 

pursuant to this paragraph (c) to the 

extent the investment is related to the 

failed underwriting.27

(ii) The amount to be deducted under 

this section from a specific capital 

component is equal to: 

(A) The advanced approaches Boardregulated institution’s non-significant 

investments in the capital of 

unconsolidated financial institutions 

exceeding the 10 percent threshold for 

non-significant investments, multiplied 

by 

(B) The ratio of the advanced 

approaches Board-regulated institution’s 

non-significant investments in the 

capital of unconsolidated financial 

institutions in the form of such capital 

component to the advanced approaches 

Board-regulated institution’s total nonsignificant investments in 

unconsolidated financial institutions. 

(6) Significant investments in the 

capital of unconsolidated financial 

institutions that are not in the form of 

common stock. An advanced 

approaches Board-regulated institution 

must deduct its significant investments 

in the capital of unconsolidated 

financial institutions that are not in the 

form of common stock by applying the 

corresponding deduction approach.28

The deductions described in this section 

are net of associated DTLs in accordance 

with paragraph (e) of this section. In 

addition, with the prior written 

approval of the Board, for the period of 

time stipulated by the Board, an 

advanced approaches Board-regulated 

institution that underwrites a failed 

underwriting is not required to deduct 

a significant investment in the capital of 

an unconsolidated financial institution 

pursuant to this paragraph (c) if such 

investment is related to such failed 

underwriting. 

(d) MSAs and certain DTAs subject to 

common equity tier 1 capital deduction 

thresholds. 

(1) A Board-regulated institution that 

is not an advanced approaches Boardregulated institution must make 

deductions from regulatory capital as 

described in this paragraph (d)(1). 

(i) The Board-regulated institution 

must deduct from common equity tier 1 

capital elements the amount of each of 

the items set forth in this paragraph 

(d)(1) that, individually, exceeds 25 

percent of the sum of the Boardregulated institution’s common equity 

tier 1 capital elements, less adjustments 

to and deductions from common equity 

tier 1 capital required under paragraphs 

(a) through (c)(3) of this section (the 25 

percent common equity tier 1 capital 

deduction threshold).29

(ii) The Board-regulated institution 

must deduct from common equity tier 1 

capital elements the amount of DTAs 

arising from temporary differences that 

the Board-regulated institution could 

not realize through net operating loss 

carrybacks, net of any related valuation 

allowances and net of DTLs, in 

accordance with paragraph (e) of this 

section. A Board-regulated institution is 

not required to deduct from the sum of 

its common equity tier 1 capital 

elements DTAs (net of any related 

valuation allowances and net of DTLs, 

in accordance with § 217.22(e)) arising 

from timing differences that the Boardregulated institution could realize 

through net operating loss carrybacks. 

The Board-regulated institution must 

risk weight these assets at 100 percent. 

For a state member bank that is a 

member of a consolidated group for tax 

purposes, the amount of DTAs that 


asabaliauskas on DSKBBXCHB2PROD with PROPOSALS
Federal Register / Vol. 82, No. 207 / Friday, October 27, 2017 / Proposed Rules 50021 

30With the prior written approval of the Board, 

for the period of time stipulated by the Board, an 

advanced approaches Board-regulated institution is 

not required to deduct a significant investment in 

the capital instrument of an unconsolidated 

financial institution in distress in the form of 

common stock pursuant to this section if such 

investment is made for the purpose of providing 

financial support to the financial institution as 

determined by the Board. 

31The amount of the items in paragraph (d)(2) of 

this section that is not deducted from common 

equity tier 1 capital pursuant to this section must 

be included in the risk-weighted assets of the 

advanced approaches Board-regulated institution 

and assigned a 250 percent risk weight. 

could be realized through net operating 

loss carrybacks may not exceed the 

amount that the state member bank 

could reasonably expect to have 

refunded by its parent holding 

company. 

(iii) The Board-regulated institution 

must deduct from common equity tier 1 

capital elements the amount of MSAs 

net of associated DTLs, in accordance 

with paragraph (e) of this section. 

(iv) For purposes of calculating the 

amount of DTAs subject to deduction 

pursuant to paragraph (d)(1) of this 

section, a Board-regulated institution 

may exclude DTAs and DTLs relating to 

adjustments made to common equity 

tier 1 capital under paragraph (b) of this 

section. A Board-regulated institution 

that elects to exclude DTAs relating to 

adjustments under paragraph (b) of this 

section also must exclude DTLs and 

must do so consistently in all future 

calculations. A Board-regulated 

institution may change its exclusion 

preference only after obtaining the prior 

approval of the Board. 

(2) An advanced approaches Boardregulated institution must make 

deductions from regulatory capital as 

described in this paragraph (d)(2). 

(i) An advanced approaches Boardregulated institution must deduct from 

common equity tier 1 capital elements 

the amount of each of the items set forth 

in this paragraph (d)(2) that, 

individually, exceeds 10 percent of the 

sum of the advanced approaches Boardregulated institution’s common equity 

tier 1 capital elements, less adjustments 

to and deductions from common equity 

tier 1 capital required under paragraphs 

(a) through (c) of this section (the 10 

percent common equity tier 1 capital 

deduction threshold). 

(A) DTAs arising from temporary 

differences that the advanced 

approaches Board-regulated institution 

could not realize through net operating 

loss carrybacks, net of any related 

valuation allowances and net of DTLs, 

in accordance with paragraph (e) of this 

section. An advanced approaches 

Board-regulated institution is not 

required to deduct from the sum of its 

common equity tier 1 capital elements 

DTAs (net of any related valuation 

allowances and net of DTLs, in 

accordance with § 217.22(e)) arising 

from timing differences that the 

advanced approaches Board-regulated 

institution could realize through net 

operating loss carrybacks. The advanced 

approaches Board-regulated institution 

must risk weight these assets at 100 

percent. For a state member bank that is 

a member of a consolidated group for 

tax purposes, the amount of DTAs that 

could be realized through net operating 

loss carrybacks may not exceed the 

amount that the state member bank 

could reasonably expect to have 

refunded by its parent holding 

company. 

(B) MSAs net of associated DTLs, in 

accordance with paragraph (e) of this 

section. 

(C) Significant investments in the 

capital of unconsolidated financial 

institutions in the form of common 

stock, net of associated DTLs in 

accordance with paragraph (e) of this 

section.30 Significant investments in the 

capital of unconsolidated financial 

institutions in the form of common 

stock subject to the 10 percent common 

equity tier 1 capital deduction threshold 

may be reduced by any goodwill 

embedded in the valuation of such 

investments deducted by the advanced 

approaches Board-regulated institution 

pursuant to paragraph (a)(1) of this 

section. In addition, with the prior 

written approval of the Board, for the 

period of time stipulated by the Board, 

an advanced approaches Boardregulated institution that underwrites a 

failed underwriting is not required to 

deduct a significant investment in the 

capital of an unconsolidated financial 

institution in the form of common stock 

pursuant to this paragraph (d)(2) if such 

investment is related to such failed 

underwriting. 

(ii) An advanced approaches Boardregulated institution must deduct from 

common equity tier 1 capital elements 

the items listed in paragraph (d)(2)(i) of 

this section that are not deducted as a 

result of the application of the 10 

percent common equity tier 1 capital 

deduction threshold, and that, in 

aggregate, exceed 17.65 percent of the 

sum of the advanced approaches Boardregulated institution’s common equity 

tier 1 capital elements, minus 

adjustments to and deductions from 

common equity tier 1 capital required 

under paragraphs (a) through (c) of this 

section, minus the items listed in 

paragraph (d)(2)(i) of this section (the 15 

percent common equity tier 1 capital 

deduction threshold). Any goodwill that 

has been deducted under paragraph 

(a)(1) of this section can be excluded 

from the significant investments in the 

capital of unconsolidated financial 

institutions in the form of common 

stock.31

(iii) For purposes of calculating the 

amount of DTAs subject to the 10 and 

15 percent common equity tier 1 capital 

deduction thresholds, an advanced 

approaches Board-regulated institution 

may exclude DTAs and DTLs relating to 

adjustments made to common equity 

tier 1 capital under paragraph (b) of this 

section. An advanced approaches 

Board-regulated institution that elects to 

exclude DTAs relating to adjustments 

under paragraph (b) of this section also 

must exclude DTLs and must do so 

consistently in all future calculations. 

An advanced approaches Boardregulated institution may change its 

exclusion preference only after 

obtaining the prior approval of the 

Board. 

* * * * * 

(g) Treatment of assets that are 

deducted. A Board-regulated institution 

must exclude from standardized total 

risk-weighted assets and, as applicable, 

advanced approaches total riskweighted assets any item that is 

required to be deducted from regulatory 

capital. 

(h) Net long position. (1) For purposes 

of calculating an investment in the 

Board-regulated institution’s own 

capital instrument and an investment in 

the capital of an unconsolidated 

financial institution under this section, 

the net long position is the gross long 

position in the underlying instrument 

determined in accordance with 

paragraph (h)(2) of this section, as 

adjusted to recognize a short position in 

the same instrument calculated in 

accordance with paragraph (h)(3) of this 

section. 

(2) Gross long position. The gross long 

position is determined as follows: 

(i) For an equity exposure that is held 

directly, the adjusted carrying value as 

that term is defined in § 217.51(b); 

(ii) For an exposure that is held 

directly and is not an equity exposure 

or a securitization exposure, the 

exposure amount as that term is defined 

in § 217.2; 

(iii) For an indirect exposure, the 

Board-regulated institution’s carrying 

value of the investment in the 

investment fund, provided that, 

alternatively: 

(A) A Board-regulated institution 

may, with the prior approval of the 

Board, use a conservative estimate of the 

amount of its investment in the BoardVerDate Sep<11>2014 19:58 Oct 26, 2017 Jkt 244001 PO 00000 Frm 00039 Fmt 4701 Sfmt 4702 E:\FR\FM\27OCP2.SGM 27OCP2

asabaliauskas on DSKBBXCHB2PROD with PROPOSALS
50022 Federal Register / Vol. 82, No. 207 / Friday, October 27, 2017 / Proposed Rules 

regulated institution’s own capital 

instruments or its investment in the 

capital of an unconsolidated financial 

institution held through a position in an 

index; or 

(B) A Board-regulated institution may 

calculate the gross long position for 

investments in the Board-regulated 

institution’s own capital instruments or 

investments in the capital of an 

unconsolidated financial institution by 

multiplying the Board-regulated 

institution’s carrying value of its 

investment in the investment fund by 

either: 

(1) The highest stated investment 

limit (in percent) for investments in the 

Board-regulated institution’s own 

capital instruments or investments in 

the capital of unconsolidated financial 

institutions as stated in the prospectus, 

partnership agreement, or similar 

contract defining permissible 

investments of the investment fund; or 

(2) The investment fund’s actual 

holdings of investments in the Boardregulated institution’s own capital 

instruments or investments in the 

capital of unconsolidated financial 

institutions. 

(iv) For a synthetic exposure, the 

amount of the Board-regulated 

institution’s loss on the exposure if the 

reference capital instrument were to 

have a value of zero. 

(3) Adjustments to reflect a short 

position. In order to adjust the gross 

long position to recognize a short 

position in the same instrument, the 

following criteria must be met: 

(i) The maturity of the short position 

must match the maturity of the long 

position, or the short position has a 

residual maturity of at least one year 

(maturity requirement); or 

(ii) For a position that is a trading 

asset or trading liability (whether on- or 

off-balance sheet) as reported on the 

Board-regulated institution’s Call 

Report, for a state member bank, or FR 

Y–9C, for a bank holding company or 

savings and loan holding company, as 

applicable, if the Board-regulated 

institution has a contractual right or 

obligation to sell the long position at a 

specific point in time and the 

counterparty to the contract has an 

obligation to purchase the long position 

if the Board-regulated institution 

exercises its right to sell, this point in 

time may be treated as the maturity of 

the long position such that the maturity 

of the long position and short position 

are deemed to match for purposes of the 

maturity requirement, even if the 

maturity of the short position is less 

than one year; and 

(iii) For an investment in the Boardregulated institution’s own capital 

instrument under paragraph (c)(1) of 

this section or an investment in the 

capital of an unconsolidated financial 

institution under paragraphs (c) and (d): 

(A) A Board-regulated institution may 

only net a short position against a long 

position in an investment in the Boardregulated institution’s own capital 

instrument under paragraph (c) of this 

section if the short position involves no 

counterparty credit risk. 

(B) A gross long position in an 

investment in the Board-regulated 

institution’s own capital instrument or 

an investment in the capital of an 

unconsolidated financial institution 

resulting from a position in an index 

may be netted against a short position 

in the same index. Long and short 

positions in the same index without 

maturity dates are considered to have 

matching maturities. 

(C) A short position in an index that 

is hedging a long cash or synthetic 

position in an investment in the Boardregulated institution’s own capital 

instrument or an investment in the 

capital of an unconsolidated financial 

institution can be decomposed to 

provide recognition of the hedge. More 

specifically, the portion of the index 

that is composed of the same underlying 

instrument that is being hedged may be 

used to offset the long position if both 

the long position being hedged and the 

short position in the index are reported 

as a trading asset or trading liability 

(whether on- or off-balance sheet) on the 

Board-regulated institution’s Call 

Report, for a state member bank, or FR 

Y–9C, for a bank holding company or 

savings and loan holding company, as 

applicable, and the hedge is deemed 

effective by the Board-regulated 

institution’s internal control processes, 

which have not been found to be 

inadequate by the Board. 

■ 33. Section 217.32 is amended by 

revising paragraphs (b), (d)(2), (d)(3)(ii), 

(j), (k), (l) to read as follows: 

§ 217.32 General risk weights. 

* * * * * 

(b) Certain supranational entities and 

multilateral development banks (MDBs). 

A Board-regulated institution must 

assign a zero percent risk weight to an 

exposure to the Bank for International 

Settlements, the European Central Bank, 

the European Commission, the 

International Monetary Fund, the 

European Stability Mechanism, the 

European Financial Stability Facility, or 

an MDB. 

* * * * * 

(d) * * * 

(2) Exposures to foreign banks. (i) 

Except as otherwise provided under 

paragraphs (d)(2)(iii), (d)(2)(v) and (d)(3) 

of this section, a Board-regulated 

institution must assign a risk weight to 

an exposure to a foreign bank, in 

accordance with Table 2 to § 217.32, 

based on the CRC that corresponds to 

the foreign bank’s home country or the 

OECD membership status of the foreign 

bank’s home country if there is no CRC 

applicable to the foreign bank’s home 

country. 

TABLE 2 TO § 217.32—RISK WEIGHTS

FOR EXPOSURES TO FOREIGN BANKS

Risk weight 

(in percent) 

CRC: 

0–1 .................................... 20 

2 ........................................ 50 

3 ........................................ 100 

4–7 .................................... 150 

OECD Member with No CRC 20 

Non-OECD Member with No 

CRC .................................. 100 

Sovereign Default ................. 150 

(ii) A Board-regulated institution must 

assign a 20 percent risk weight to an 

exposure to a foreign bank whose home 

country is a member of the OECD and 

does not have a CRC. 

(iii) A Board-regulated institution 

must assign a 20 percent risk-weight to 

an exposure that is a self-liquidating, 

trade-related contingent item that arises 

from the movement of goods and that 

has a maturity of three months or less 

to a foreign bank whose home country 

has a CRC of 0, 1, 2, or 3, or is an OECD 

member with no CRC. 

(iv) A Board-regulated institution 

must assign a 100 percent risk weight to 

an exposure to a foreign bank whose 

home country is not a member of the 

OECD and does not have a CRC, with 

the exception of self-liquidating, traderelated contingent items that arise from 

the movement of goods, and that have 

a maturity of three months or less, 

which may be assigned a 20 percent risk 

weight. 

(v) A Board-regulated institution must 

assign a 150 percent risk weight to an 

exposure to a foreign bank immediately 

upon determining that an event of 

sovereign default has occurred in the 

bank’s home country, or if an event of 

sovereign default has occurred in the 

foreign bank’s home country during the 

previous five years. 

(3) * * * 

(ii) A significant investment in the 

capital of an unconsolidated financial 

institution in the form of common stock 

pursuant to § 217.22(d)(2)(1)(c); 

(iii) and (iv) * * * 

* * * * * 

(j)(1) High volatility acquisition, 

development, or construction (HVADC) 


asabaliauskas on DSKBBXCHB2PROD with PROPOSALS
Federal Register / Vol. 82, No. 207 / Friday, October 27, 2017 / Proposed Rules 50023 

exposures. A Board-regulated institution 

must assign a 130 percent risk weight to 

an HVADC exposure. 

(2) High-volatility commercial real 

estate (HVCRE) exposures. A Boardregulated institution must assign a 150 

percent risk weight to an HVCRE 

exposure. 

(k) Past due exposures. Except for an 

exposure to a sovereign entity or a 

residential mortgage exposure or a 

policy loan, if an exposure is 90 days or 

more past due or on nonaccrual: 

(1) A Board-regulated institution must 

assign a 150 percent risk weight to the 

portion of the exposure that is not 

guaranteed or that is unsecured; 

(2) A Board-regulated institution may 

assign a risk weight to the guaranteed 

portion of a past due exposure based on 

the risk weight that applies under 

§ 217.36 if the guarantee or credit 

derivative meets the requirements of 

that section; and 

(3) A Board-regulated institution may 

assign a risk weight to the collateralized 

portion of a past due exposure based on 

the risk weight that applies under 

§ 217.37 if the collateral meets the 

requirements of that section. 

(l) Other assets. (1)(i) A bank holding 

company or savings and loan holding 

company must assign a zero percent risk 

weight to cash owned and held in all 

offices of subsidiary depository 

institutions or in transit, and to gold 

bullion held in a subsidiary depository 

institution’s own vaults, or held in 

another depository institution’s vaults 

on an allocated basis, to the extent the 

gold bullion assets are offset by gold 

bullion liabilities. 

(ii) A state member bank must assign 

a zero percent risk weight to cash 

owned and held in all offices of the state 

member bank or in transit; to gold 

bullion held in the state member bank’s 

own vaults or held in another 

depository institution’s vaults on an 

allocated basis, to the extent the gold 

bullion assets are offset by gold bullion 

liabilities; and to exposures that arise 

from the settlement of cash transactions 

(such as equities, fixed income, spot 

foreign exchange and spot commodities) 

with a central counterparty where there 

is no assumption of ongoing 

counterparty credit risk by the central 

counterparty after settlement of the 

trade and associated default fund 

contributions. 

(2) A Board-regulated institution must 

assign a 20 percent risk weight to cash 

items in the process of collection. 

(3) A Board-regulated institution must 

assign a 100 percent risk weight to 

DTAs arising from temporary 

differences that the Board-regulated 

institution could realize through net 

operating loss carrybacks. 

(4) A Board-regulated institution must 

assign a 250 percent risk weight to the 

portion of each of the following items to 

the extent it is not deducted from 

common equity tier 1 capital pursuant 

to § 217.22(d): 

(i) MSAs; and 

(ii) DTAs arising from temporary 

differences that the Board-regulated 

institution could not realize through net 

operating loss carrybacks. 

(5) A Board-regulated institution must 

assign a 100 percent risk weight to all 

assets not specifically assigned a 

different risk weight under this subpart 

and that are not deducted from tier 1 or 

tier 2 capital pursuant to § 217.22. 

(6) Notwithstanding the requirements 

of this section, a state member bank may 

assign an asset that is not included in 

one of the categories provided in this 

section to the risk weight category 

applicable under the capital rules 

applicable to bank holding companies 

and savings and loan holding 

companies under this part, provided 

that all of the following conditions 

apply: 

(i) The Board-regulated institution is 

not authorized to hold the asset under 

applicable law other than debt 

previously contracted or similar 

authority; and 

(ii) The risks associated with the asset 

are substantially similar to the risks of 

assets that are otherwise assigned to a 

risk weight category of less than 100 

percent under this subpart. 

* * * * * 

■ 34. Section 217.34 is amended by 

revising paragraph (c) to read as follows: 

§ 217.34 OTC derivative contracts. 

* * * * * 

(c) Counterparty credit risk for OTC 

credit derivatives. (1) Protection 

purchasers. A Board-regulated 

institution that purchases an OTC credit 

derivative that is recognized under 

§ 217.36 as a credit risk mitigant for an 

exposure that is not a covered position 

under subpart F is not required to 

compute a separate counterparty credit 

risk capital requirement under this 

subpart D provided that the Boardregulated institution does so 

consistently for all such credit 

derivatives. The Board-regulated 

institution must either include all or 

exclude all such credit derivatives that 

are subject to a qualifying master netting 

agreement from any measure used to 

determine counterparty credit risk 

exposure to all relevant counterparties 

for risk-based capital purposes. 

(2) Protection providers. (i) A Boardregulated institution that is the 

protection provider under an OTC credit 

derivative must treat the OTC credit 

derivative as an exposure to the 

underlying reference asset. The Boardregulated institution is not required to 

compute a counterparty credit risk 

capital requirement for the OTC credit 

derivative under this subpart D, 

provided that this treatment is applied 

consistently for all such OTC credit 

derivatives. The Board-regulated 

institution must either include all or 

exclude all such OTC credit derivatives 

that are subject to a qualifying master 

netting agreement from any measure 

used to determine counterparty credit 

risk exposure. 

(ii) The provisions of this paragraph 

(c)(2) apply to all relevant 

counterparties for risk-based capital 

purposes unless the Board-regulated 

institution is treating the OTC credit 

derivative as a covered position under 

subpart F, in which case the Boardregulated institution must compute a 

supplemental counterparty credit risk 

capital requirement under this section. 

* * * * * 

■ 35. Section 217.35 is amended by 

revising paragraph (b)(3)(ii), (b)(4)(ii), 

(c)(3)(ii), and (c)(4)(ii) to read as follows: 

§ 217.35 Cleared transactions. 

* * * * * 

(b) * * * 

(3) * * * 

(ii) For a cleared transaction with a 

CCP that is not a QCCP, a clearing 

member client Board-regulated 

institution must apply the risk weight 

appropriate for the CCP according to 

this subpart D. 

(4) * * * 

(ii) A clearing member client Boardregulated institution must calculate a 

risk-weighted asset amount for any 

collateral provided to a CCP, clearing 

member, or custodian in connection 

with a cleared transaction in accordance 

with the requirements under this 

subpart D. 

(c) * * * 

(3) * * * 

(ii) For a cleared transaction with a 

CCP that is not a QCCP, a clearing 

member Board-regulated institution 

must apply the risk weight appropriate 

for the CCP according to this subpart D. 

(4) * * * 

(ii) A clearing member Boardregulated institution must calculate a 

risk-weighted asset amount for any 

collateral provided to a CCP, clearing 

member, or a custodian in connection 

with a cleared transaction in accordance 

with requirements under this subpart D. 

* * * * * 

■ 36. Section 217.36 is amend by 

revising paragraph (c) to read as follows: 


asabaliauskas on DSKBBXCHB2PROD with PROPOSALS
50024 Federal Register / Vol. 82, No. 207 / Friday, October 27, 2017 / Proposed Rules 

§ 217.36 Guarantees and credit 

derivatives: Substitution treatment. 

* * * * * 

(c) Substitution approach—(1) Full 

coverage. If an eligible guarantee or 

eligible credit derivative meets the 

conditions in paragraphs (a) and (b) of 

this section and the protection amount 

(P) of the guarantee or credit derivative 

is greater than or equal to the exposure 

amount of the hedged exposure, a 

Board-regulated institution may 

recognize the guarantee or credit 

derivative in determining the riskweighted asset amount for the hedged 

exposure by substituting the risk weight 

applicable to the guarantor or credit 

derivative protection provider under 

this subpart D for the risk weight 

assigned to the exposure. 

(2) Partial coverage. If an eligible 

guarantee or eligible credit derivative 

meets the conditions in paragraphs (a) 

and (b) of this section and the protection 

amount (P) of the guarantee or credit 

derivative is less than the exposure 

amount of the hedged exposure, the 

Board-regulated institution must treat 

the hedged exposure as two separate 

exposures (protected and unprotected) 

in order to recognize the credit risk 

mitigation benefit of the guarantee or 

credit derivative. 

(i) The Board-regulated institution 

may calculate the risk-weighted asset 

amount for the protected exposure 

under this subpart D, where the 

applicable risk weight is the risk weight 

applicable to the guarantor or credit 

derivative protection provider. 

(ii) The Board-regulated institution 

must calculate the risk-weighted asset 

amount for the unprotected exposure 

under this subpart D, where the 

applicable risk weight is that of the 

unprotected portion of the hedged 

exposure. 

(iii) The treatment provided in this 

section is applicable when the credit 

risk of an exposure is covered on a 

partial pro rata basis and may be 

applicable when an adjustment is made 

to the effective notional amount of the 

guarantee or credit derivative under 

paragraphs (d), (e), or (f) of this section. 

* * * * * 

■ 37. Section 217.37 is amended by 

revising paragraph (b)(2)(i) to read as 

follows: 

§ 217.37 Collateralized transactions. 

* * * * * 

(b) * * * 

(2) * * * (i) A Board-regulated 

institution may apply a risk weight to 

the portion of an exposure that is 

secured by the fair value of financial 

collateral (that meets the requirements 

of paragraph (b)(1) of this section) based 

on the risk weight assigned to the 

collateral under this subpart D. For 

repurchase agreements, reverse 

repurchase agreements, and securities 

lending and borrowing transactions, the 

collateral is the instruments, gold, and 

cash the Board-regulated institution has 

borrowed, purchased subject to resale, 

or taken as collateral from the 

counterparty under the transaction. 

Except as provided in paragraph (b)(3) 

of this section, the risk weight assigned 

to the collateralized portion of the 

exposure may not be less than 20 

percent. 

* * * * * 

■ 38. Section 217.38 is amended by 

revising paragraph (e)(2) to read as 

follows: 

§ 217.38 Unsettled transactions. 

* * * * * 

(e) * * * 

(2) From the business day after the 

Board-regulated institution has made its 

delivery until five business days after 

the counterparty delivery is due, the 

Board-regulated institution must 

calculate the risk-weighted asset amount 

for the transaction by treating the 

current fair value of the deliverables 

owed to the Board-regulated institution 

as an exposure to the counterparty and 

using the applicable counterparty risk 

weight under this subpart D. 

* * * * * 

■ 39. Section 217.42 is amended by 

revising paragraph (j)(2)(ii)(A) to read as 

follows: 

§ 217.42 Risk-weighted assets for 

securitization exposures. 

* * * * * 

(j) * * * 

(2) * * * 

(ii) * * * 

(A) If the Board-regulated institution 

purchases credit protection from a 

counterparty that is not a securitization 

SPE, the Board-regulated institution 

must determine the risk weight for the 

exposure according to this subpart D. 

* * * * * 

■ 40. Section 217.52 is amended by 

revising paragraphs (b)(1) and (4) to read 

as follows: 

§ 217.52 Simple risk-weight approach 

(SRWA). 

* * * * * 

(b) * * * 

(1) Zero percent risk weight equity 

exposures. An equity exposure to a 

sovereign, the Bank for International 

Settlements, the European Central Bank, 

the European Commission, the 

International Monetary Fund, the 

European Stability Mechanism, the 

European Financial Stability Facility, an 

MDB, and any other entity whose credit 

exposures receive a zero percent risk 

weight under § 217.32 may be assigned 

a zero percent risk weight. 

* * * * * 

(4) 250 percent risk weight equity 

exposures. Significant investments in 

the capital of unconsolidated financial 

institutions in the form of common 

stock that are not deducted from capital 

pursuant to § 217.22(d)(2) are assigned a 

250 percent risk weight. 

(5) through (7) (ii) * * * 

* * * * * 

■ 41. Section 217.61 is revised to read 

as follows: 

§ 217.61 Purpose and scope. 

Sections 217.61 through 217.63 of this 

subpart establish public disclosure 

requirements related to the capital 

requirements described in subpart B of 

this part for a Board-regulated 

institution with total consolidated assets 

of $50 billion or more as reported on the 

Board-regulated institution’s 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 that is 

not an advanced approaches Boardregulated institution making public 

disclosures pursuant to § 217.172. An 

advanced approaches Board-regulated 

institution that has not received 

approval from the Board to exit parallel 

run pursuant to § 217.121(d) is subject 

to the disclosure requirements described 

in §§ 217.62 and 217.63. A Boardregulated institution with total 

consolidated assets of $50 billion or 

more as reported on the Board-regulated 

institution’s 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, that is not an advanced 

approaches Board-regulated institution 

making public disclosures subject to 

§ 217.172 must comply with § 217.62 

unless it is a consolidated subsidiary of 

a bank holding company, savings and 

loan holding company, or depository 

institution that is subject to the 

disclosure requirements of § 217.62 or a 

subsidiary of a non-U.S. banking 

organization that is subject to 

comparable public disclosure 

requirements in its home jurisdiction. 

For purposes of this section, total 

consolidated assets are determined 

based on the average of the Boardregulated institution’s total consolidated 

assets in the four most recent quarters 

as reported on the Call Report, for a 

state member bank, or FR Y–9C, for a 

bank holding company or savings and 

loan holding company, as applicable; or 


asabaliauskas on DSKBBXCHB2PROD with PROPOSALS
Federal Register / Vol. 82, No. 207 / Friday, October 27, 2017 / Proposed Rules 50025 

the average of the Board-regulated 

institution’s total consolidated assets in 

the most recent consecutive quarters as 

reported quarterly on the Boardregulated institution’s Call Report, for a 

state member bank, or FR Y–9C, for a 

bank holding company or savings and 

loan holding company, as applicable if 

the Board-regulated institution has not 

filed such a report for each of the most 

recent four quarters. 

* * * * * 

■ 42. Section 217.63 is amended by 

revising Tables 3 and 8 to read as 

follows: 

§ 217.63 Disclosures by Board-regulated 

institutions described in § 217.61. 

* * * * * 

TABLE 3 TO § 217.63—CAPITAL ADEQUACY

Qualitative disclosures ................ (a) A summary discussion of the Board-regulated institution’s approach to assessing the adequacy of its 

capital to support current and future activities. 

Quantitative disclosures .............. (b) Risk-weighted assets for: 

(1) Exposures to sovereign entities; 

(2) Exposures to certain supranational entities and MDBs; 

(3) Exposures to depository institutions, foreign banks, and credit unions; 

(4) Exposures to PSEs; 

(5) Corporate exposures; 

(6) Residential mortgage exposures; 

(7) Statutory multifamily mortgages and pre-sold construction loans; 

(8) HVADC exposures and HVCRE exposures; 

(9) Past due loans; 

(10) Other assets; 

(11) Cleared transactions; 

(12) Default fund contributions; 

(13) Unsettled transactions; 

(14) Securitization exposures; and 

(15) Equity exposures 

(c) Standardized market risk-weighted assets as calculated under subpart F of this part. 

(d) Common equity tier 1, tier 1 and total risk-based capital ratios: 

(1) For the top consolidated group; and 

(2) For each depository institution subsidiary. 

(e) Total standardized risk-weighted assets. 

* * * * * 

TABLE 8 TO § 217.63—SECURITIZATION

Qualitative Disclosures ................ (a) The general qualitative disclosure requirement with respect to a securitization (including synthetic 

securitizations), including a discussion of: 

(1) The Board-regulated institution’s objectives for securitizing assets, including the extent to which these 

activities transfer credit risk of the underlying exposures away from the Board-regulated institution to 

other entities and including the type of risks assumed and retained with resecuritization activity; 1

(2) The nature of the risks (e.g. liquidity risk) inherent in the securitized assets; 

(3) The roles played by the Board-regulated institution in the securitization process 2 and an indication of 

the extent of the Board-regulated institution’s involvement in each of them; 

(4) The processes in place to monitor changes in the credit and market risk of securitization exposures 

including how those processes differ for resecuritization exposures; 

(5) The Board-regulated institution’s policy for mitigating the credit risk retained through securitization 

and resecuritization exposures; and 

(6) The risk-based capital approaches that the Board-regulated institution follows for its securitization exposures including the type of securitization exposure to which each approach applies. 

(b) A list of: 

(1) The type of securitization SPEs that the Board-regulated institution, as sponsor, uses to securitize 

third-party exposures. The Board-regulated institution must indicate whether it has exposure to these 

SPEs, either on- or off-balance sheet; and 

(2) Affiliated entities: 

(i) That the Board-regulated institution manages or advises; and 

(ii) That invest either in the securitization exposures that the Board-regulated institution has securitized 

or in securitization SPEs that the Board-regulated institution sponsors.3

(c) Summary of the Board-regulated institution’s accounting policies for securitization activities, including: 

(1) Whether the transactions are treated as sales or financings; 

(2) Recognition of gain-on-sale; 

(3) Methods and key assumptions applied in valuing retained or purchased interests; 

(4) Changes in methods and key assumptions from the previous period for valuing retained interests and 

impact of the changes; 

(5) Treatment of synthetic securitizations; 

(6) How exposures intended to be securitized are valued and whether they are recorded under subpart 

D of this part; and 

(7) Policies for recognizing liabilities on the balance sheet for arrangements that could require the Boardregulated institution to provide financial support for securitized assets. 

(d) An explanation of significant changes to any quantitative information since the last reporting period. 

Quantitative Disclosures .............. (e) The total outstanding exposures securitized by the Board-regulated institution in securitizations that meet 

the operational criteria provided in § 217.41 (categorized into traditional and synthetic securitizations), by 

exposure type, separately for securitizations of third-party exposures for which the bank acts only as sponsor.4

(f) For exposures securitized by the Board-regulated institution in securitizations that meet the operational 

criteria in § 217.41: 


asabaliauskas on DSKBBXCHB2PROD with PROPOSALS
50026 Federal Register / Vol. 82, No. 207 / Friday, October 27, 2017 / Proposed Rules 

TABLE 8 TO § 217.63—SECURITIZATION—Continued 

(1) Amount of securitized assets that are impaired/past due categorized by exposure type; 5 and 

(2) Losses recognized by the Board-regulated institution during the current period categorized by exposure type.6

(g) The total amount of outstanding exposures intended to be securitized categorized by exposure type. 

(h) Aggregate amount of: 

(1) On-balance sheet securitization exposures retained or purchased categorized by exposure type; and 

(2) Off-balance sheet securitization exposures categorized by exposure type. 

(i) (1) Aggregate amount of securitization exposures retained or purchased and the associated capital 

requirements for these exposures, categorized between securitization and resecuritization exposures, 

further categorized into a meaningful number of risk weight bands and by risk-based capital approach 

(e.g., SSFA); and 

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

(i) After-tax gain-on-sale on a securitization that has been deducted from common equity tier 1 capital; 

and 

(ii) Credit-enhancing interest-only strip that is assigned a 1,250 percent risk weight. 

(j) Summary of current year’s securitization activity, including the amount of exposures securitized (by exposure type), and recognized gain or loss on sale by exposure type. 

(k) Aggregate amount of resecuritization exposures retained or purchased categorized according to: 

(1) Exposures to which credit risk mitigation is applied and those not applied; and 

(2) Exposures to guarantors categorized according to guarantor creditworthiness categories or guarantor 

name. 

1The Board-regulated institution should describe the structure of resecuritizations in which it participates; this description should be provided 

for the main categories of resecuritization products in which the Board-regulated institution is active. 2For example, these roles may include originator, investor, servicer, provider of credit enhancement, sponsor, liquidity provider, or swap provider. 3Such affiliated entities may include, for example, money market funds, to be listed individually, and personal and private trusts, to be noted 

collectively. 4 ‘‘Exposures securitized’’ include underlying exposures originated by the bank, whether generated by them or purchased, and recognized in 

the balance sheet, from third parties, and third-party exposures included in sponsored transactions. Securitization transactions (including underlying exposures originally on the bank’s balance sheet and underlying exposures acquired by the bank from third-party entities) in which the originating bank does not retain any securitization exposure should be shown separately but need only be reported for the year of inception. Banks 

are required to disclose exposures regardless of whether there is a capital charge under this part. 5 Include credit-related other than temporary impairment (OTTI). 

6For example, charge-offs/allowances (if the assets remain on the bank’s balance sheet) or credit-related OTTI of interest-only strips and other 

retained residual interests, as well as recognition of liabilities for probable future financial support required of the bank with respect to securitized 

assets. 

* * * * * 

■ 43. Section 217.101 paragraph (b) is 

amended by adding a definition for 

‘‘high volatility commercial real estate 

(HVCRE) exposure’’ to read as follows: 

§ 217.101 Definitions. 

* * * * * 

(b) * * * 

High volatility commercial real estate 

(HVCRE) exposure, for purposes of 

Subpart E, means a credit facility that, 

prior to conversion to permanent 

financing, finances or has financed the 

acquisition, development, or 

construction (ADC) of real property, 

unless the facility finances: 

(1) One- to four-family residential 

properties; 

(2) Real property that: 

(i) Would qualify as an investment in 

community development under 12 

U.S.C. 338a or 12 U.S.C. 24 (Eleventh), 

as applicable, or as a ‘‘qualified 

investment’’ under 12 CFR part 228, and 

(ii) Is not an ADC loan to any entity 

described in 12 CFR 208.22(a)(3) or 

228.12(g)(3), unless it is otherwise 

described in paragraph (1), (2)(i), (3) or 

(4) of this definition; 

(3) The purchase or development of 

agricultural land, which includes all 

land known to be used or usable for 

agricultural purposes (such as crop and 

livestock production), provided that the 

valuation of the agricultural land is 

based on its value for agricultural 

purposes and the valuation does not 

take into consideration any potential 

use of the land for non-agricultural 

commercial development or residential 

development; or 

(4) Commercial real estate projects in 

which: 

(i) The loan-to-value ratio is less than 

or equal to the applicable maximum 

supervisory loan-to-value ratio in the 

Board’s real estate lending standards at 

12 CFR part 208, appendix C; 

(ii) The borrower has contributed 

capital to the project in the form of cash 

or unencumbered readily marketable 

assets (or has paid development 

expenses out-of-pocket) of at least 15 

percent of the real estate’s appraised ‘‘as 

completed’’ value; and 

(iii) The borrower contributed the 

amount of capital required by paragraph 

(4)(ii) of this definition before the 

Board-regulated institution advances 

funds under the credit facility, and the 

capital contributed by the borrower, or 

internally generated by the project, is 

contractually required to remain in the 

project throughout the life of the project. 

The life of a project concludes only 

when the credit facility is converted to 

permanent financing or is sold or paid 

in full. Permanent financing may be 

provided by the Board-regulated 

institution that provided the ADC 

facility as long as the permanent 

financing is subject to the Boardregulated institution’s underwriting 

criteria for long-term mortgage loans. 

* * * * * 

■ 44. Section 217.131 is amended by 

revising paragraph (d)(2) to read as 

follows: 

§ 217.131 Mechanics for calculating total 

wholesale and retail risk-weighted assets. 

* * * * * 

(d) * * * 

(2) Floor on PD assignment. The PD 

for each wholesale obligor or retail 

segment may not be less than 0.03 

percent, except for exposures to or 

directly and unconditionally guaranteed 

by a sovereign entity, the Bank for 

International Settlements, the 

International Monetary Fund, the 

European Commission, the European 

Central Bank, the European Stability 

Mechanism, the European Financial 

Stability Facility, or a multilateral 

development bank, to which the Boardregulated institution assigns a rating 

grade associated with a PD of less than 

0.03 percent. 

* * * * * 

■ 45. Section 217.133 is amended by 

revising paragraphs (b)(3)(ii) and 

(c)(3)(ii) to read as follows: 


asabaliauskas on DSKBBXCHB2PROD with PROPOSALS
Federal Register / Vol. 82, No. 207 / Friday, October 27, 2017 / Proposed Rules 50027 

§ 217.133 Cleared transactions. 

* * * * * 

(b) * * * 

(3) * * * 

(ii) For a cleared transaction with a 

CCP that is not a QCCP, a clearing 

member client Board-regulated 

institution must apply the risk weight 

applicable to the CCP under subpart D 

of this part. 

* * * * * 

(c) * * * 

(3) * * * 

(ii) For a cleared transaction with a 

CCP that is not a QCCP, a clearing 

member Board-regulated institution 

must apply the risk weight applicable to 

the CCP according to subpart D of this 

part. 

* * * * * 

■ 46. Section 217.152 is amended by 

revising paragraph (b)(5) and (6) to read 

as follows: 

§ 217.152 Simple risk weight approach 

(SRWA). 

* * * * * 

(b) * * * 

(5) 300 percent risk weight equity 

exposures. A publicly traded equity 

exposure (other than an equity exposure 

described in paragraph (b)(7) of this 

section and including the ineffective 

portion of a hedge pair) is assigned a 

300 percent risk weight. 

(6) 400 percent risk weight equity 

exposures. An equity exposure (other 

than an equity exposure described in 

paragraph (b)(7) of this section) that is 

not publicly traded is assigned a 400 

percent risk weight. 

* * * * * 

■ 47. Section 217.202, paragraph (b) is 

amended by revising the definition of 

‘‘Corporate debt position’’ to read as 

follows: 

§ 217.202 Definitions. 

* * * * * 

(b) * * * 

Corporate debt position means a debt 

position that is an exposure to a 

company that is not a sovereign entity, 

the Bank for International Settlements, 

the European Central Bank, the 

European Commission, the International 

Monetary Fund, the European Stability 

Mechanism, the European Financial 

Stability Facility, a multilateral 

development bank, a depository 

institution, a foreign bank, a credit 

union, a public sector entity, a GSE, or 

a securitization. 

* * * * * 

■ 48. Section 217.210 is amended by 

revising paragraphs (b)(2)(ii) and 

(b)(2)(vii)(A) to read as follows: 

§ 217.210 Standardized measurement 

method for specific risk. 

* * * * * 

(b) * * * 

(2) * * * 

(ii) Certain supranational entity and 

multilateral development bank debt 

positions. A Board-regulated institution 

may assign a 0.0 percent specific riskweighting factor to a debt position that 

is an exposure to the Bank for 

International Settlements, the European 

Central Bank, the European 

Commission, the International Monetary 

Fund, the European Stability 

Mechanism, the European Financial 

Stability Facility, or an MDB. 

* * * * * 

(vii) * * * (A) General requirements. 

(1) A Board-regulated institution that is 

not an advanced approaches Boardregulated institution or is a U.S. 

intermediate holding company that is 

required to be established or designated 

pursuant to 12 CFR 252.153 and that is 

not calculating risk-weighted assets 

according to Subpart E must assign a 

specific risk-weighting factor to a 

securitization position using either the 

simplified supervisory formula 

approach (SSFA) in paragraph 

(b)(2)(vii)(C) of this section (and 

§ 217.211) or assign a specific riskweighting factor of 100 percent to the 

position. 

(2) A Board-regulated institution that 

is an advanced approaches Boardregulated institution or is a U.S. 

intermediate holding company that is 

required to be established or designated 

pursuant to 12 CFR 252.153 and that is 

calculating risk-weighted assets 

according to Subpart E must calculate a 

specific risk add-on for a securitization 

position in accordance with paragraph 

(b)(2)(vii)(B) of this section if the Boardregulated institution and the 

securitization position each qualifies to 

use the SFA in § 217.143. A Boardregulated institution that is an advanced 

approaches Board-regulated institution 

or is a U.S. intermediate holding 

company that is required to be 

established or designated pursuant to 12 

CFR 252.153 and that is calculating riskweighted assets according to Subpart E 

with a securitization position that does 

not qualify for the SFA under paragraph 

(b)(2)(vii)(B) of this section may assign 

a specific risk-weighting factor to the 

securitization position using the SSFA 

in accordance with paragraph 

(b)(2)(vii)(C) of this section or assign a 

specific risk-weighting factor of 100 

percent to the position. 

(3) A Board-regulated institution must 

treat a short securitization position as if 

it is a long securitization position solely 

for calculation purposes when using the 

SFA in paragraph (b)(2)(vii)(B) of this 

section or the SSFA in paragraph 

(b)(2)(vii)(C) of this section. 

* * * * * 

■ 49. Section 217.300 is amended by 

revising paragraphs (b), (c)(2), (3), and 

(d) to read as follows: 

§ 217.300 Transitions. 

* * * * * 

(b) Regulatory capital adjustments 

and deductions. Beginning January 1, 

2014 for an advanced approaches Boardregulated institution, and beginning 

January 1, 2015 for a Board-regulated 

institution that is not an advanced 

approaches Board-regulated institution, 

and in each case through December 31, 

2017, a Board-regulated institution must 

make the capital adjustments and 

deductions in § 217.22 in accordance 

with the transition requirements in this 

paragraph (b). Beginning January 1, 

2018, a Board-regulated institution must 

make all regulatory capital adjustments 

and deductions in accordance with 

§ 217.22. 

(1) Transition deductions from 

common equity tier 1 capital. Beginning 

January 1, 2014 for an advanced 

approaches Board-regulated institution, 

and beginning January 1, 2015 for a 

Board-regulated institution that is not 

an advanced approaches Boardregulated institution, and in each case 

through December 31, 2017, a Boardregulated institution, must make the 

deductions required under 

§ 217.22(a)(1)–(7) from common equity 

tier 1 or tier 1 capital elements in 

accordance with the percentages set 

forth in Table 2 and Table 3 to 

§ 217.300. 

(i) A Board-regulated institution must 

deduct the following items from 

common equity tier 1 and additional tier 

1 capital in accordance with the 

percentages set forth in Table 2 to 

§ 217.300: Goodwill (§ 217.22(a)(1)), 

DTAs that arise from net operating loss 

and tax credit carryforwards 

(§ 217.22(a)(3)), a gain-on-sale in 

connection with a securitization 

exposure (§ 217.22(a)(4)), defined 

benefit pension fund assets 

(§ 217.22(a)(5)), expected credit loss that 

exceeds eligible credit reserves (for 

advanced approaches Board-regulated 

institutions that have completed the 

parallel run process and that have 

received notifications from the Board 

pursuant to § 217.121(d) of subpart E) 

(§ 217.22(a)(6)), and financial 

subsidiaries (§ 217.22(a)(7)). 


asabaliauskas on DSKBBXCHB2PROD with PROPOSALS
50028 Federal Register / Vol. 82, No. 207 / Friday, October 27, 2017 / Proposed Rules 

TABLE 2 TO § 217.300 

Transition period 

Transition deductions 

under § 217.22(a)(1) 

and (7) 

Transition deductions under § 217.22(a)(3)–(6) 

Percentage of the 

deductions from 

common equity tier 1 

capital 

Percentage of the 

deductions from 

common equity tier 1 

capital 

Percentage of the 

deductions from tier 

1 capital 

Calendar year 2014 ..................................................................... 100 20 80 

Calendar year 2015 ..................................................................... 100 40 60 

Calendar year 2016 ..................................................................... 100 60 40 

Calendar year 2017 ..................................................................... 100 80 20 

Calendar year 2018, and thereafter ............................................ 100 100 0 

(ii) A Board-regulated institution must 

deduct from common equity tier 1 

capital any intangible assets other than 

goodwill and MSAs in accordance with 

the percentages set forth in Table 3 to 

§ 217.300. 

(iii) A Board-regulated institution 

must apply a 100 percent risk-weight to 

the aggregate amount of intangible 

assets other than goodwill and MSAs 

that are not required to be deducted 

from common equity tier 1 capital under 

this section. 

TABLE 3 TO § 217.300 

Transition period 

Transition 

deductions under 

§ 217.22(a)(2)— 

percentage of the 

deductions from 

common 

equity tier 1 capital 

Calendar year 2014 ............................................................................................................................................................. 20 

Calendar year 2015 ............................................................................................................................................................. 40 

Calendar year 2016 ............................................................................................................................................................. 60 

Calendar year 2017 ............................................................................................................................................................. 80 

Calendar year 2018, ............................................................................................................................................................

and thereafter ...................................................................................................................................................................... 100 

(2) Transition adjustments to common 

equity tier 1 capital. Beginning January 

1, 2014 for an advanced approaches 

Board-regulated institution, and 

beginning January 1, 2015 for a Boardregulated institution that is not an 

advanced approaches Board-regulated 

institution, and in each case through 

December 31, 2017, a Board-regulated 

institution, must allocate the regulatory 

adjustments related to changes in the 

fair value of liabilities due to changes in 

the Board-regulated institution’s own 

credit risk (§ 217.22(b)(1)(iii)) between 

common equity tier 1 capital and tier 1 

capital in accordance with the 

percentages set forth in Table 4 to 

§ 217.300. 

(i) If the aggregate amount of the 

adjustment is positive, the Boardregulated institution must allocate the 

deduction between common equity tier 

1 and tier 1 capital in accordance with 

Table 4 to § 217.300. 

(ii) If the aggregate amount of the 

adjustment is negative, the Boardregulated institution must add back the 

adjustment to common equity tier 1 

capital or to tier 1 capital, in accordance 

with Table 4 to § 217.300. 

TABLE 4 TO § 217.300 

Transition period 

Transition adjustments under § 217.22(b)(1)(iii) 

Percentage of the 

adjustment applied to 

common equity tier 

1 capital 

Percentage of the 

adjustment applied to 

tier 1 capital 

Calendar year 2014 ................................................................................................................. 20 80 

Calendar year 2015 ................................................................................................................. 40 60 

Calendar year 2016 ................................................................................................................. 60 40 

Calendar year 2017 ................................................................................................................. 80 20 

Calendar year 2018, and thereafter ........................................................................................ 100 0

(3) Transition adjustments to AOCI 

for an advanced approaches Boardregulated institution and a Boardregulated institution that has not made 

an AOCI opt-out election under 

§ 217.22(b)(2). Beginning January 1, 

2014 for an advanced approaches Boardregulated institution, and beginning 

January 1, 2015 for a Board-regulated 

institution that is not an advanced 

approaches Board-regulated institution 

that has not made an AOCI opt-out 


asabaliauskas on DSKBBXCHB2PROD with PROPOSALS
Federal Register / Vol. 82, No. 207 / Friday, October 27, 2017 / Proposed Rules 50029 

election under § 217.22(b)(2), and in 

each case through December 31, 2017, a 

Board-regulated institution must adjust 

common equity tier 1 capital with 

respect to the transition AOCI 

adjustment amount (transition AOCI 

adjustment amount): 

(i) The transition AOCI adjustment 

amount is the aggregate amount of a 

Board-regulated institution’s: 

(A) Unrealized gains on available-forsale securities that are preferred stock 

classified as an equity security under 

GAAP or available-for-sale equity 

exposures, plus 

(B) Net unrealized gains or losses on 

available-for-sale securities that are not 

preferred stock classified as an equity 

security under GAAP or available-forsale equity exposures, plus 

(C) Any amounts recorded in AOCI 

attributed to defined benefit 

postretirement plans resulting from the 

initial and subsequent application of the 

relevant GAAP standards that pertain to 

such plans (excluding, at the Boardregulated institution’s option, the 

portion relating to pension assets 

deducted under section 22(a)(5)), plus 

(D) Accumulated net gains or losses 

on cash flow hedges related to items 

that are reported on the balance sheet at 

fair value included in AOCI, plus 

(E) Net unrealized gains or losses on 

held-to-maturity securities that are 

included in AOCI. 

(ii) A Board-regulated institution must 

make the following adjustment to its 

common equity tier 1 capital: 

(A) If the transition AOCI adjustment 

amount is positive, the appropriate 

amount must be deducted from common 

equity tier 1 capital in accordance with 

Table 5 to § 217.300. 

(B) If the transition AOCI adjustment 

amount is negative, the appropriate 

amount must be added back to common 

equity tier 1 capital in accordance with 

Table 5 to § 217.300. 

TABLE 5 TO § 217.300 

Transition period 

Percentage of the 

transition AOCI 

adjustment amount to be 

applied to common 

equity 

tier 1 capital 

Calendar year 2014 ............................................................................................................................................................. 80 

Calendar year 2015 ............................................................................................................................................................. 60 

Calendar year 2016 ............................................................................................................................................................. 40 

Calendar year 2017 ............................................................................................................................................................. 20 

Calendar year 2018 and thereafter ..................................................................................................................................... 0 

(iii) A Board-regulated institution may 

include in tier 2 capital the percentage 

of unrealized gains on available-for-sale 

preferred stock classified as an equity 

security under GAAP and available-forsale equity exposures as set forth in Table 6 to § 217.300. 

TABLE 6 TO § 217.300 

Transition period 

Percentage of 

unrealized gains on 

available-for-sale 

preferred stock classified 

as an equity security 

under GAAP and 

available-for-sale 

equity exposures that 

may be included in 

tier 2 capital 

Calendar year 2014 ............................................................................................................................................................. 36 

Calendar year 2015 ............................................................................................................................................................. 27 

Calendar year 2016 ............................................................................................................................................................. 18 

Calendar year 2017 ............................................................................................................................................................. 9 

Calendar year 2018 and thereafter ..................................................................................................................................... 0 

* * * * * 

(c) * * * 

(2) Mergers and acquisitions. (i) A 

depository institution holding company 

of $15 billion or more that acquires after 

December 31, 2013 either a depository 

institution holding company with total 

consolidated assets of less than $15 

billion as of December 31, 2009 

(depository institution holding company 

under $15 billion) or a depository 

institution holding company that is a 

2010 MHC, may include in regulatory 

capital the non-qualifying capital 

instruments issued by the acquired 

organization up to the applicable 

percentages set forth in Table 8 to 

§ 217.300. 

(ii) If a depository institution holding 

company under $15 billion acquires 

after December 31, 2013 a depository 

institution holding company under $15 

billion or a 2010 MHC, and the resulting 

organization has total consolidated 

assets of $15 billion or more as reported 

on the resulting organization’s FR Y–9C 

for the period in which the transaction 

occurred, the resulting organization may 

include in regulatory capital nonqualifying instruments of the resulting 

organization up to the applicable 

percentages set forth in Table 8 to 

§ 217.300. 


asabaliauskas on DSKBBXCHB2PROD with PROPOSALS
50030 Federal Register / Vol. 82, No. 207 / Friday, October 27, 2017 / Proposed Rules 

TABLE 8 TO § 217.300 

Transition period 

(calendar year) 

Percentage of nonqualifying capital 

instruments includable in 

additional tier 1 or tier 2 

capital for a depository 

institution holding 

company of $15 billion 

or more 

Calendar year 2014 ............................................................................................................................................................. 50 

Calendar year 2015 ............................................................................................................................................................. 25 

Calendar year 2016 and thereafter ..................................................................................................................................... 0 

(3) Depository institution holding 

companies under $15 billion and 2010 

MHCs. (i) Non-qualifying capital 

instruments issued by depository 

institution holding companies under 

$15 billion and 2010 MHCs prior to May 

19, 2010, may be included in additional 

tier 1 or tier 2 capital if the instrument 

was included in tier 1 or tier 2 capital, 

respectively, as of January 1, 2014. 

(ii) Non-qualifying capital 

instruments includable in tier 1 capital 

are subject to a limit of 25 percent of tier 

1 capital elements, excluding any nonqualifying capital instruments and after 

applying all regulatory capital 

deductions and adjustments to tier 1 

capital. 

(iii) Non-qualifying capital 

instruments that are not included in tier 

1 as a result of the limitation in 

paragraph (c)(3)(ii) of this section are 

includable in tier 2 capital. 

* * * * * 

(d) * * * 

(1) [Reserved] 

(2) Non-qualifying minority interest. 

Beginning January 1, 2014 for an 

advanced approaches Board-regulated 

institution, and beginning January 1, 

2015 for a Board-regulated institution 

that is not an advanced approaches 

Board-regulated institution, and in each 

case through December 31, 2017, a 

Board-regulated institution may include 

in tier 1 capital or total capital the 

percentage of the tier 1 minority interest 

and total capital minority interest 

outstanding as of January 1, 2014 that 

does not meet the criteria for additional 

tier 1 or tier 2 capital instruments in 

§ 217.20 (non-qualifying minority 

interest), as set forth in Table 10 to 

§ 217.300. 

TABLE 10 TO § 217.300 

Transition period 

Percentage of the 

amount of surplus or 

non-qualifying minority 

interest that can be 

included in regulatory 

capital during the 

transition period 

Calendar year 2014 ............................................................................................................................................................. 80 

Calendar year 2015 ............................................................................................................................................................. 60 

Calendar year 2016 ............................................................................................................................................................. 40 

Calendar year 2017 ............................................................................................................................................................. 20 

Calendar year 2018 and thereafter ..................................................................................................................................... 0 

* * * * * 

12 CFR Part 324 

Federal Deposit Insurance Corporation 

For the reasons set out in the joint 

preamble, the FDIC proposes to amend 

12 CFR part 324 as follows. 

PART 324—CAPITAL ADEQUACY OF 

FDIC-SUPERVISED INSTITUTIONS 

Subpart A—General Provisions 

■ 50. 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). 

■ 51. Section 324.2 is amended by 

removing the definitions of ‘‘corporate 

exposure,’’ ‘‘eligible guarantor,’’ ‘‘high 

volatility commercial real estate 

(HVCRE) exposure,’’ ‘‘investment in the 

capital of an unconsolidated financial 

institution,’’ ‘‘non-significant 

investment in the capital of an 

unconsolidated financial institution,’’ 

and ‘‘significant investment in the 

capital of an unconsolidated financial 

institution,’’ and adding the definitions 

of ‘‘corporate exposure,’’ ‘‘eligible 

guarantor,’’ ‘‘high volatility acquisition, 

development, or construction (HVADC) 

exposure,’’ ‘‘high volatility commercial 

real estate (HVCRE) exposure,’’ 

‘‘investment in the capital of an 

unconsolidated financial institution,’’ 

‘‘non-significant investment in the 

capital of an unconsolidated financial 

institution,’’ and ‘‘significant 

investment in the capital of an 

unconsolidated financial institution’’ as 

follows: 

§ 324.2 Definitions. 

* * * * * 

Corporate exposure means an 

exposure to a company that is not: 

(1) An exposure to a sovereign, the 

Bank for International Settlements, the 

European Central Bank, the European 

Commission, the International Monetary 

Fund, the European Stability 

Mechanism, the European Financial 

Stability Facility, a multi-lateral 

development bank (MDB), a depository 

institution, a foreign bank, a credit 

union, or a public sector entity (PSE); 

(2) An exposure to a GSE; 

(3) A residential mortgage exposure; 


asabaliauskas on DSKBBXCHB2PROD with PROPOSALS
Federal Register / Vol. 82, No. 207 / Friday, October 27, 2017 / Proposed Rules 50031 

(4) A pre-sold construction loan; 

(5) A statutory multifamily mortgage; 

(6) A high volatility acquisition, 

development, or construction (HVADC) 

exposure or a high volatility commercial 

real estate (HVCRE) exposure; 

(7) A cleared transaction; 

(8) A default fund contribution; 

(9) A securitization exposure; 

(10) An equity exposure; or 

(11) An unsettled transaction. 

* * * * * 

Eligible guarantor means: 

(1) A sovereign, the Bank for 

International Settlements, the 

International Monetary Fund, the 

European Central Bank, the European 

Commission, a Federal Home Loan 

Bank, Federal Agricultural Mortgage 

Corporation (Farmer Mac), the European 

Stability Mechanism, the European 

Financial Stability Facility, a 

multilateral development bank (MDB), a 

depository institution, a bank holding 

company, a savings and loan holding 

company, a credit union, a foreign bank, 

or a qualifying central counterparty; or 

(2) An entity (other than a special 

purpose entity): 

(i) That at the time the guarantee is 

issued or anytime thereafter, has issued 

and outstanding an unsecured debt 

security without credit enhancement 

that is investment grade; 

(ii) Whose creditworthiness is not 

positively correlated with the credit risk 

of the exposures for which it has 

provided guarantees; and 

(iii) That is not an insurance company 

engaged predominately in the business 

of providing credit protection (such as 

a monoline bond insurer or re-insurer). 

* * * * * 

High-volatility acquisition, 

development, or construction (HVADC) 

exposure means a credit facility that is 

originated on or after [effective date] 

and that: 

(1) Primarily finances or refinances 

the: 

(i) Acquisition of vacant or developed 

land; 

(ii) Development of land to prepare to 

erect new structures including, but not 

limited to, the laying of sewers or water 

pipes and demolishing existing 

structures; or 

(iii) Construction of buildings, 

dwellings, or other improvements 

including additions or alterations to 

existing structures; and 

(2) Is not a credit facility that finances 

or refinances: 

(i) One- to four-family residential 

properties; 

(ii) Real property projects that would 

have the primary purpose of 

‘‘community development’’ as defined 

under 12 CFR part 25 (national bank), 

12 CFR part 195 (Federal savings 

association) (OCC); 12 CFR part 228 

(Board); 12 CFR part 345 (FDIC); or 

(iii) The purchase or development of 

agricultural land, including, but not 

limited to, all land used or usable for 

agricultural purposes (such as crop and 

livestock production), provided that the 

valuation of the agricultural land is 

based on its value for agricultural 

purposes and the valuation does not 

take into consideration any potential 

use of the land for commercial or 

residential development; and 

(3) Is not a permanent loan. A 

permanent loan for purposes of this 

definition means a prudently 

underwritten loan that has a clearly 

identified ongoing source of repayment 

sufficient to service amortizing 

principal and interest payments aside 

from the sale of the property. For 

purposes of this section, a permanent 

loan does not include a loan that 

finances or refinances a stabilization 

period or unsold lots or units of for-sale 

projects. 

High volatility commercial real estate 

(HVCRE) exposure, for purposes of 

Subpart D, means a credit facility that 

is either outstanding or committed prior 

to [effective date] and, prior to 

conversion to permanent financing, 

finances or has financed the acquisition, 

development, or construction (ADC) of 

real property, unless the facility 

finances: 

(1) One- to four-family residential 

properties; 

(2) Real property that: 

(i) Would qualify as an investment in 

community development under 12 

U.S.C. 338a or 12 U.S.C. 24 (Eleventh), 

as applicable, or as a ‘‘qualified 

investment’’ under 12 CFR part 345, and 

(ii) Is not an ADC loan to any entity 

described in 12 CFR 345.12(g)(3), unless 

it is otherwise described in paragraph 

(1), (2)(i), (3) or (4) of this definition; 

(3) The purchase or development of 

agricultural land, which includes all 

land known to be used or usable for 

agricultural purposes (such as crop and 

livestock production), provided that the 

valuation of the agricultural land is 

based on its value for agricultural 

purposes and the valuation does not 

take into consideration any potential 

use of the land for non-agricultural 

commercial development or residential 

development; or 

(4) Commercial real estate projects in 

which: 

(i) The loan-to-value ratio is less than 

or equal to the applicable maximum 

supervisory loan-to-value ratio in the 

FDIC’s real estate lending standards at 

12 CFR part 365, subpart A (state nonmember banks), 12 CFR 390.264 and 

390.265 (state savings associations); 

(ii) The borrower has contributed 

capital to the project in the form of cash 

or unencumbered readily marketable 

assets (or has paid development 

expenses out-of-pocket) of at least 15 

percent of the real estate’s appraised ‘‘as 

completed’’ value; and 

(iii) The borrower contributed the 

amount of capital required by paragraph 

(4)(ii) of this definition before the FDICsupervised institution advances funds 

under the credit facility, and the capital 

contributed by the borrower, or 

internally generated by the project, is 

contractually required to remain in the 

project throughout the life of the project. 

The life of a project concludes only 

when the credit facility is converted to 

permanent financing or is sold or paid 

in full. Permanent financing may be 

provided by the FDIC-supervised 

institution that provided the ADC 

facility as long as the permanent 

financing is subject to the FDICsupervised institution’s underwriting 

criteria for long-term mortgage loans. 

* * * * * 

Investment in the capital of an 

unconsolidated financial institution 

means a net long position calculated in 

accordance with § 324.22(h) in an 

instrument that is recognized as capital 

for regulatory purposes by the primary 

supervisor of an unconsolidated 

regulated financial institution or is an 

instrument that is part of the GAAP 

equity of an unconsolidated unregulated 

financial institution, including direct, 

indirect, and synthetic exposures to 

capital instruments, excluding 

underwriting positions held by the 

FDIC-supervised institution for five or 

fewer business days. 

* * * * * 

Non-significant investment in the 

capital of an unconsolidated financial 

institution means an investment by an 

advanced approaches FDIC-supervised 

institution in the capital of an 

unconsolidated financial institution 

where the advanced approaches FDICsupervised institution owns 10 percent 

or less of the issued and outstanding 

common stock of the unconsolidated 

financial institution. 

* * * * * 

Significant investment in the capital 

of an unconsolidated financial 

institution means an investment by an 

advanced approaches FDIC-supervised 

institution in the capital of an 

unconsolidated financial institution 

where the advanced approaches FDICsupervised institution owns more than 

10 percent of the issued and outstanding 


asabaliauskas on DSKBBXCHB2PROD with PROPOSALS
50032 Federal Register / Vol. 82, No. 207 / Friday, October 27, 2017 / Proposed Rules 

common stock of the unconsolidated 

financial institution. 

* * * * * 

■ 52. Section 324.10 is amended by 

revising paragraph (c)(4)(ii)(H) to read as 

follows: 

§ 324.10 Minimum capital requirements. 

* * * * * 

(c) * * * 

(4) * * * 

(ii) * * * 

(H) The credit equivalent amount of 

all off-balance sheet exposures of the 

FDIC-supervised institution, excluding 

repo-style transactions, repurchase or 

reverse repurchase or securities 

borrowing or lending transactions that 

qualify for sales treatment under U.S. 

GAAP, and derivative transactions, 

determined using the applicable credit 

conversion factor under § 324.33(b), 

provided, however, that the minimum 

credit conversion factor that may be 

assigned to an off-balance sheet 

exposure under this paragraph is 10 

percent; and 

* * * * * 

■ 53. Section 324.11 is amended by 

revising paragraphs (a)(2)(i), (a)(2)(iv), 

(a)(3)(i), and Table 1 to read as follows: 

§ 324.11 Capital conservation buffer and 

countercyclical capital buffer amount. 

(a) * * * 

(2) * * * 

(i) Eligible retained income. The 

eligible retained income of an FDICsupervised institution is the FDICsupervised institution’s net income, 

calculated in accordance with the 

instructions to the Call Report, for the 

four calendar quarters preceding the 

current calendar quarter, net of any 

distributions and associated tax effects 

not already reflected in net income. 

* * * * * 

(iv) Private sector credit exposure. 

Private sector credit exposure means an 

exposure to a company or an individual 

that is not an exposure to a sovereign, 

the Bank for International Settlements, 

the European Central Bank, the 

European Commission, the European 

Stability Mechanism, the European 

Financial Stability Facility, the 

International Monetary Fund, an MDB, 

a PSE, or a GSE. 

(3) Calculation of capital conservation 

buffer. (i) An FDIC-supervised 

institution’s capital conservation buffer 

is equal to the lowest of the following 

ratios, calculated as of the last day of the 

previous calendar quarter: 

(A) The FDIC-supervised institution’s 

common equity tier 1 capital ratio 

minus the FDIC-supervised institution’s 

minimum common equity tier 1 capital 

ratio requirement under § 324.10; 

(B) The FDIC-supervised institution’s 

tier 1 capital ratio minus the FDICsupervised institution’s minimum tier 1 

capital ratio requirement under 

§ 324.10; and 

(C) The FDIC-supervised institution’s 

total capital ratio minus the FDICsupervised institution’s minimum total 

capital ratio requirement under 

§ 324.10; or 

* * * * * 

TABLE 1 TO § 324.11—CALCULATION OF MAXIMUM PAYOUT AMOUNT

Capital conservation buffer Maximum payout ratio 

Greater than 2.5 percent plus 100 percent of the FDIC-supervised institution’s applicable countercyclical capital 

buffer amount.

No payout ratio limitation 

applies. 

Less than or equal to 2.5 percent plus 100 percent of the FDIC-supervised institution’s applicable countercyclical 

capital buffer amount, and greater than 1.875 percent plus 75 percent of the FDIC-supervised institution’s applicable countercyclical capital buffer amount.

60 percent. 

Less than or equal to 1.875 percent plus 75 percent of the FDIC-supervised institution’s applicable countercyclical 

capital buffer amount, and greater than 1.25 percent plus 50 percent of the FDIC-supervised institution’s applicable countercyclical capital buffer amount.

40 percent. 

Less than or equal to 1.25 percent plus 50 percent of the FDIC-supervised institution’s applicable countercyclical 

capital buffer amount, and greater than 0.625 percent plus 25 percent of the FDIC-supervised institution’s applicable countercyclical capital buffer amount.

20 percent. 

Less than or equal to 0.625 percent plus 25 percent of the FDIC-supervised institution’s applicable countercyclical 

capital buffer amount.

0 percent. 

* * * * * 

■ 54. Section 324.20 is amended by 

revising paragraphs (b)(4), (c)(1)(viii), 

(c)(2), and (d)(2) to read as follows: 

§ 324.20 Capital components and eligibility 

criteria for regulatory capital instruments. 

* * * * * 

(b) * * * 

(4) Any common equity tier 1 

minority interest, subject to the 

limitations in § 324.21. 

* * * * * 

(c) * * * 

(1) * * * 

(viii) Any cash dividend payments on 

the instrument are paid out of the FDICsupervised institution’s net income or 

retained earnings. An FDIC-supervised 

institution must obtain prior FDIC 

approval for any dividend payment 

involving a reduction or retirement of 

capital stock in accordance with 12 CFR 

303.241. 

* * * * * 

(2) Tier 1 minority interest, subject to 

the limitations in § 324.21, that is not 

included in the FDIC-supervised 

institution’s common equity tier 1 

capital. 

* * * * * 

(d) * * * 

(2) Total capital minority interest, 

subject to the limitations set forth in 

§ 324.21, that is not included in the 

FDIC-supervised institution’s tier 1 

capital. 

* * * * * 

■ 55. Section 324.21 is revised to reads 

as follows: 

§ 324.21 Minority interest. 

(a) (1) Applicability. For purposes of 

§ 324.20, an FDIC-supervised institution 

that is not an advanced approaches 

FDIC-supervised institution is subject to 

the minority interest limitations in this 

paragraph (a) if a consolidated 

subsidiary of the FDIC-supervised 

institution has issued regulatory capital 

that is not owned by the FDICsupervised institution. 

(2) Common equity tier 1 minority 

interest includable in the common 

equity tier 1 capital of the FDICsupervised institution. The amount of 

common equity tier 1 minority interest 

that an FDIC-supervised institution may 

include in common equity tier 1 capital 

must be no greater than 10 percent of 

the sum of all common equity tier 1 

capital elements of the FDIC-supervised 

institution (not including the common 

equity tier 1 minority interest itself), 

less any common equity tier 1 capital 


asabaliauskas on DSKBBXCHB2PROD with PROPOSALS
Federal Register / Vol. 82, No. 207 / Friday, October 27, 2017 / Proposed Rules 50033 

23The FDIC-supervised institution must calculate 

amounts deducted under paragraphs (c) through (f) 

of this section after it calculates the amount of 

Continued 

regulatory adjustments and deductions 

in accordance with § 324.22 (a) and (b). 

(3) Tier 1 minority interest includable 

in the tier 1 capital of the FDICsupervised institution. The amount of 

tier 1 minority interest that an FDICsupervised may include in tier 1 capital 

must be no greater than 10 percent of 

the sum of all tier 1 capital elements of 

the FDIC-supervised institution (not 

including the tier 1 minority interest 

itself), less any tier 1 capital regulatory 

adjustments and deductions in 

accordance with § 324.22 (a) and (b). 

(4) Total capital minority interest 

includable in the total capital of the 

FDIC-supervised institution. The 

amount of total capital minority interest 

that an FDIC-supervised institution may 

include in total capital must be no 

greater than 10 percent of the sum of all 

total capital elements of the FDICsupervised institution (not including the 

total capital minority interest itself), less 

any total capital regulatory adjustments 

and deductions in accordance with 

§ 324.22 (a) and (b). 

(b) (1) Applicability. For purposes of 

§ 324.20, an advanced approaches FDICsupervised institution is subject to the 

minority interest limitations in this 

paragraph (b) if: 

(i) A consolidated subsidiary of the 

advanced approaches FDIC-supervised 

institution has issued regulatory capital 

that is not owned by the FDICsupervised institution; and 

(ii) For each relevant regulatory 

capital ratio of the consolidated 

subsidiary, the ratio exceeds the sum of 

the subsidiary’s minimum regulatory 

capital requirements plus its capital 

conservation buffer. 

(2) Difference in capital adequacy 

standards at the subsidiary level. For 

purposes of the minority interest 

calculations in this section, if the 

consolidated subsidiary issuing the 

capital is not subject to capital adequacy 

standards similar to those of the 

advanced approaches FDIC-supervised 

institution, the advanced approaches 

FDIC-supervised institution must 

assume that the capital adequacy 

standards of the advanced approaches 

FDIC-supervised institution apply to the 

subsidiary. 

(3) Common equity tier 1 minority 

interest includable in the common 

equity tier 1 capital of the FDICsupervised institution. For each 

consolidated subsidiary of an advanced 

approaches FDIC-supervised institution, 

the amount of common equity tier 1 

minority interest the advanced 

approaches FDIC-supervised institution 

may include in common equity tier 1 

capital is equal to: 

(i) The common equity tier 1 minority 

interest of the subsidiary; minus 

(ii) The percentage of the subsidiary’s 

common equity tier 1 capital that is not 

owned by the advanced approaches 

FDIC-supervised institution, multiplied 

by the difference between the common 

equity tier 1 capital of the subsidiary 

and the lower of: 

(A) The amount of common equity 

tier 1 capital the subsidiary must hold, 

or would be required to hold pursuant 

to paragraph (b) of this section, to avoid 

restrictions on distributions and 

discretionary bonus payments under 

§ 324.11 or equivalent standards 

established by the subsidiary’s home 

country supervisor; or 

(B)(1) The standardized total riskweighted assets of the advanced 

approaches FDIC-supervised institution 

that relate to the subsidiary multiplied 

by 

(2) The common equity tier 1 capital 

ratio the subsidiary must maintain to 

avoid restrictions on distributions and 

discretionary bonus payments under 

§ 324.11 or equivalent standards 

established by the subsidiary’s home 

country supervisor. 

(4) Tier 1 minority interest includable 

in the tier 1 capital of the advanced 

approaches FDIC-supervised institution. 

For each consolidated subsidiary of the 

advanced approaches FDIC-supervised 

institution, the amount of tier 1 

minority interest the advanced 

approaches FDIC-supervised institution 

may include in tier 1 capital is equal to: 

(i) The tier 1 minority interest of the 

subsidiary; minus 

(ii) The percentage of the subsidiary’s 

tier 1 capital that is not owned by the 

advanced approaches FDIC-supervised 

institution multiplied by the difference 

between the tier 1 capital of the 

subsidiary and the lower of: 

(A) The amount of tier 1 capital the 

subsidiary must hold, or would be 

required to hold pursuant to paragraph 

(b) of this section, to avoid restrictions 

on distributions and discretionary 

bonus payments under § 324.11 or 

equivalent standards established by the 

subsidiary’s home country supervisor, 

or 

(B)(1) The standardized total riskweighted assets of the advanced 

approaches FDIC-supervised institution 

that relate to the subsidiary multiplied 

by 

(2) The tier 1 capital ratio the 

subsidiary must maintain to avoid 

restrictions on distributions and 

discretionary bonus payments under 

§ 324.11 or equivalent standards 

established by the subsidiary’s home 

country supervisor. 

(5) Total capital minority interest 

includable in the total capital of the 

FDIC-supervised institution. For each 

consolidated subsidiary of the advanced 

approaches FDIC-supervised institution, 

the amount of total capital minority 

interest the advanced approaches FDICsupervised institution may include in 

total capital is equal to: 

(i) The total capital minority interest 

of the subsidiary; minus 

(ii) The percentage of the subsidiary’s 

total capital that is not owned by the 

advanced approaches FDIC-supervised 

institution multiplied by the difference 

between the total capital of the 

subsidiary and the lower of: 

(A) The amount of total capital the 

subsidiary must hold, or would be 

required to hold pursuant to paragraph 

(b) of this section, to avoid restrictions 

on distributions and discretionary 

bonus payments under § 324.11 or 

equivalent standards established by the 

subsidiary’s home country supervisor, 

or 

(B)(1) The standardized total riskweighted assets of the advanced 

approaches FDIC-supervised institution 

that relate to the subsidiary multiplied 

by 

(2) The total capital ratio the 

subsidiary must maintain to avoid 

restrictions on distributions and 

discretionary bonus payments under 

§ 324.11 or equivalent standards 

established by the subsidiary’s home 

country supervisor. 

■ 56. Section 324.22 is amended by 

revising paragraphs (a)(1), (c), (d), (g), 

and (h) to read as follows: 

§ 324.22 Regulatory capital adjustments 

and deductions. 

(a) * * * 

(1)(i) Goodwill, net of associated 

deferred tax liabilities (DTLs) in 

accordance with paragraph (e) of this 

section; and 

(ii) For an advanced approaches FDICsupervised institution, goodwill that is 

embedded in the valuation of a 

significant investment in the capital of 

an unconsolidated financial institution 

in the form of common stock (and that 

is reflected in the consolidated financial 

statements of the advanced approaches 

FDIC-supervised institution), in 

accordance with paragraph (d) of this 

section; 

* * * * * 

(c) Deductions from regulatory capital 

related to investments in capital 

instruments 23— 


asabaliauskas on DSKBBXCHB2PROD with PROPOSALS
50034 Federal Register / Vol. 82, No. 207 / Friday, October 27, 2017 / Proposed Rules 

ALLL includable in tier 2 capital under 

§ 324.20(d)(3). 

24With the prior written approval of the FDIC, for 

the period of time stipulated by the FDIC, an FDICsupervised institution that is not an advanced 

approaches FDIC-supervised institution is not 

required to deduct an investment in the capital of 

an unconsolidated financial institution pursuant to 

this paragraph if the financial institution is in 

distress and if such investment is made for the 

purpose of providing financial support to the 

financial institution, as determined by the FDIC. 

25Any investments in the capital of 

unconsolidated financial institutions that do not 

exceed the 25 percent threshold for investments in 

the capital of unconsolidated financial institutions 

under this section must be assigned the appropriate 

risk weight under subparts D or F of this part, as 

applicable. 

26With the prior written approval of the FDIC, for 

the period of time stipulated by the FDIC, an 

advanced approaches FDIC-supervised institution is 

not required to deduct a non-significant investment 

in the capital of an unconsolidated financial 

institution pursuant to this paragraph if the 

financial institution is in distress and if such 

investment is made for the purpose of providing 

financial support to the financial institution, as 

determined by the FDIC. 

(1) Investment in the FDIC-supervised 

institution’s own capital instruments. 

An FDIC-supervised institution must 

deduct an investment in the FDICsupervised institution’s own capital 

instruments as follows: 

(i) An FDIC-supervised institution 

must deduct an investment in the FDICsupervised institution’s own common 

stock instruments from its common 

equity tier 1 capital elements to the 

extent such instruments are not 

excluded from regulatory capital under 

§ 324.20(b)(1); 

(ii) An FDIC-supervised institution 

must deduct an investment in the FDICsupervised institution’s own additional 

tier 1 capital instruments from its 

additional tier 1 capital elements; and 

(iii) An FDIC-supervised institution 

must deduct an investment in the FDICsupervised institution’s own tier 2 

capital instruments from its tier 2 

capital elements. 

(2) Corresponding deduction 

approach. For purposes of subpart C of 

this part, the corresponding deduction 

approach is the methodology used for 

the deductions from regulatory capital 

related to reciprocal cross holdings (as 

described in paragraph (c)(3) of this 

section), investments in the capital of 

unconsolidated financial institutions for 

an FDIC-supervised institution that is 

not an advanced approaches FDICsupervised institution (as described in 

paragraph (c)(4) of this section), nonsignificant investments in the capital of 

unconsolidated financial institutions for 

an advanced approaches FDICsupervised institution (as described in 

paragraph (c)(5) of this section), and 

non-common stock significant 

investments in the capital of 

unconsolidated financial institutions for 

an advanced approaches FDICsupervised institution (as described in 

paragraph (c)(6) of this section). Under 

the corresponding deduction approach, 

an FDIC-supervised institution must 

make deductions from the component of 

capital for which the underlying 

instrument would qualify if it were 

issued by the FDIC-supervised 

institution itself, as described in 

paragraphs (c)(2)(i)–(iii) of this section. 

If the FDIC-supervised institution does 

not have a sufficient amount of a 

specific component of capital to effect 

the required deduction, the shortfall 

must be deducted according to 

paragraph (f) of this section. 

(i) If an investment is in the form of 

an instrument issued by a financial 

institution that is not a regulated 

financial institution, the FDICsupervised institution must treat the 

instrument as: 

(A) A common equity tier 1 capital 

instrument if it is common stock or 

represents the most subordinated claim 

in liquidation of the financial 

institution; and 

(B) An additional tier 1 capital 

instrument if it is subordinated to all 

creditors of the financial institution and 

is senior in liquidation only to common 

shareholders. 

(ii) If an investment is in the form of 

an instrument issued by a regulated 

financial institution and the instrument 

does not meet the criteria for common 

equity tier 1, additional tier 1 or tier 2 

capital instruments under § 324.20, the 

FDIC-supervised institution must treat 

the instrument as: 

(A) A common equity tier 1 capital 

instrument if it is common stock 

included in GAAP equity or represents 

the most subordinated claim in 

liquidation of the financial institution; 

(B) An additional tier 1 capital 

instrument if it is included in GAAP 

equity, subordinated to all creditors of 

the financial institution, and senior in a 

receivership, insolvency, liquidation, or 

similar proceeding only to common 

shareholders; and 

(C) A tier 2 capital instrument if it is 

not included in GAAP equity but 

considered regulatory capital by the 

primary supervisor of the financial 

institution. 

(iii) If an investment is in the form of 

a non-qualifying capital instrument (as 

defined in § 324.300(c)), the FDICsupervised institution must treat the 

instrument as: 

(A) An additional tier 1 capital 

instrument if such instrument was 

included in the issuer’s tier 1 capital 

prior to May 19, 2010; or 

(B) A tier 2 capital instrument if such 

instrument was included in the issuer’s 

tier 2 capital (but not includable in tier 

1 capital) prior to May 19, 2010. 

(3) Reciprocal cross holdings in the 

capital of financial institutions. An 

FDIC-supervised institution must 

deduct investments in the capital of 

other financial institutions it holds 

reciprocally, where such reciprocal 

cross holdings result from a formal or 

informal arrangement to swap, 

exchange, or otherwise intend to hold 

each other’s capital instruments, by 

applying the corresponding deduction 

approach. 

(4) Investments in the capital of 

unconsolidated financial institutions. 

An FDIC-supervised institution that is 

not an advanced approaches FDICsupervised institution must deduct its 

investments in the capital of 

unconsolidated financial institutions (as 

defined in § 324.2) that exceed 25 

percent of the sum of the FDICsupervised institution’s common equity 

tier 1 capital elements minus all 

deductions from and adjustments to 

common equity tier 1 capital elements 

required under paragraphs (a) through 

(c)(3) of this section by applying the 

corresponding deduction approach.24

The deductions described in this section 

are net of associated DTLs in accordance 

with paragraph (e) of this section. In 

addition, an FDIC-supervised institution 

that underwrites a failed underwriting, 

with the prior written approval of the 

FDIC, for the period of time stipulated 

by the FDIC, is not required to deduct 

an investment in the capital of an 

unconsolidated financial institution 

pursuant to this paragraph (c) to the 

extent the investment is related to the 

failed underwriting.25

(5) Non-significant investments in the 

capital of unconsolidated financial 

institutions. (i) An advanced approaches 

FDIC-supervised institution must 

deduct its non-significant investments 

in the capital of unconsolidated 

financial institutions (as defined in 

§ 324.2) that, in the aggregate, exceed 10 

percent of the sum of the advanced 

approaches FDIC-supervised 

institution’s common equity tier 1 

capital elements minus all deductions 

from and adjustments to common equity 

tier 1 capital elements required under 

paragraphs (a) through (c)(3) of this 

section (the 10 percent threshold for 

non-significant investments) by 

applying the corresponding deduction 

approach.26 The deductions described 

in this section are net of associated 

DTLs in accordance with paragraph (e) 

of this section. In addition, an advanced 

approaches FDIC-supervised institution 

that underwrites a failed underwriting, 


asabaliauskas on DSKBBXCHB2PROD with PROPOSALS
Federal Register / Vol. 82, No. 207 / Friday, October 27, 2017 / Proposed Rules 50035 

27Any non-significant investments in the capital 

of unconsolidated financial institutions that do not 

exceed the 10 percent threshold for non-significant 

investments under this section must be assigned the 

appropriate risk weight under subparts D, E, or F 

of this part, as applicable. 

28With prior written approval of the FDIC, for the 

period of time stipulated by the FDIC, an advanced 

approaches FDIC-supervised institution is not 

required to deduct a significant investment in the 

capital instrument of an unconsolidated financial 

institution in distress which is not in the form of 

common stock pursuant to this section if such 

investment is made for the purpose of providing 

financial support to the financial institution as 

determined by the FDIC. 

29The amount of the items in paragraph (d)(1) of 

this section that is not deducted from common 

equity tier 1 capital must be included in the riskweighted assets of the FDIC-supervised institution 

and assigned a 250 percent risk weight. 

30With the prior written approval of the FDIC, for 

the period of time stipulated by the FDIC, an 

advanced approaches FDIC-supervised institution is 

not required to deduct a significant investment in 

the capital instrument of an unconsolidated 

financial institution in distress in the form of 

common stock pursuant to this section if such 

Continued 

with the prior written approval of the 

FDIC, for the period of time stipulated 

by the FDIC, is not required to deduct 

a non-significant investment in the 

capital of an unconsolidated financial 

institution pursuant to this paragraph 

(c) to the extent the investment is 

related to the failed underwriting.27

(ii) The amount to be deducted under 

this section from a specific capital 

component is equal to: 

(A) The advanced approaches FDICsupervised institution’s non-significant 

investments in the capital of 

unconsolidated financial institutions 

exceeding the 10 percent threshold for 

non-significant investments, multiplied 

by 

(B) The ratio of the advanced 

approaches FDIC-supervised 

institution’s non-significant investments 

in the capital of unconsolidated 

financial institutions in the form of such 

capital component to the advanced 

approaches FDIC-supervised 

institution’s total non-significant 

investments in unconsolidated financial 

institutions. 

(6) Significant investments in the 

capital of unconsolidated financial 

institutions that are not in the form of 

common stock. An advanced 

approaches FDIC-supervised institution 

must deduct its significant investments 

in the capital of unconsolidated 

financial institutions that are not in the 

form of common stock by applying the 

corresponding deduction approach.28

The deductions described in this section 

are net of associated DTLs in accordance 

with paragraph (e) of this section. In 

addition, with the prior written 

approval of the FDIC, for the period of 

time stipulated by the FDIC, an 

advanced approaches FDIC-supervised 

institution that underwrites a failed 

underwriting is not required to deduct 

a significant investment in the capital of 

an unconsolidated financial institution 

pursuant to this paragraph (c) if such 

investment is related to such failed 

underwriting. 

(d) MSAs and certain DTAs subject to 

common equity tier 1 capital deduction 

thresholds. 

(1) An FDIC-supervised institution 

that is not an advanced approaches 

FDIC-supervised institution must make 

deductions from regulatory capital as 

described in this paragraph (d)(1). 

(i) The FDIC-supervised institution 

must deduct from common equity tier 1 

capital elements the amount of each of 

the items set forth in this paragraph 

(d)(1) that, individually, exceeds 25 

percent of the sum of the FDICsupervised institution’s common equity 

tier 1 capital elements, less adjustments 

to and deductions from common equity 

tier 1 capital required under paragraphs 

(a) through (c)(3) of this section (the 25 

percent common equity tier 1 capital 

deduction threshold).29

(ii) The FDIC-supervised institution 

must deduct from common equity tier 1 

capital elements, as set forth in (d)(1), 

the amount of DTAs arising from 

temporary differences that the FDICsupervised institution could not realize 

through net operating loss carrybacks, 

net of any related valuation allowances 

and net of DTLs, in accordance with 

paragraph (e) of this section. An FDICsupervised institution is not required to 

deduct from the sum of its common 

equity tier 1 capital elements DTAs (net 

of any related valuation allowances and 

net of DTLs, in accordance with 

§ 324.22(e)) arising from timing 

differences that the FDIC-supervised 

institution could realize through net 

operating loss carrybacks. The FDICsupervised institution must risk weight 

these assets at 100 percent. For an FDICsupervised institution that is a member 

of a consolidated group for tax 

purposes, the amount of DTAs that 

could be realized through net operating 

loss carrybacks may not exceed the 

amount that the FDIC-supervised 

institution could reasonably expect to 

have refunded by its parent holding 

company. 

(iii) The FDIC-supervised institution 

must deduct from common equity tier 1 

capital elements the amount of MSAs 

net of associated DTLs, in accordance 

with paragraph (e) of this section. 

(iv) For purposes of calculating the 

amount of DTAs subject to deduction 

pursuant to paragraph (d)(1) of this 

section, an FDIC-supervised institution 

may exclude DTAs and DTLs relating to 

adjustments made to common equity 

tier 1 capital under paragraph (b) of this 

section. An FDIC-supervised institution 

that elects to exclude DTAs relating to 

adjustments under paragraph (b) of this 

section also must exclude DTLs and 

must do so consistently in all future 

calculations. An FDIC-supervised 

institution may change its exclusion 

preference only after obtaining the prior 

approval of the FDIC. 

(2) An advanced approaches FDICsupervised institution must make 

deductions from regulatory capital as 

described in this paragraph (d)(2). 

(i) An advanced approaches FDICsupervised institution must deduct from 

common equity tier 1 capital elements 

the amount of each of the items set forth 

in this paragraph (d)(2) that, 

individually, exceeds 10 percent of the 

sum of the advanced approaches FDICsupervised institution’s common equity 

tier 1 capital elements, less adjustments 

to and deductions from common equity 

tier 1 capital required under paragraphs 

(a) through (c) of this section (the 10 

percent common equity tier 1 capital 

deduction threshold). 

(A) DTAs arising from temporary 

differences that the advanced 

approaches FDIC-supervised institution 

could not realize through net operating 

loss carrybacks, net of any related 

valuation allowances and net of DTLs, 

in accordance with paragraph (e) of this 

section. An advanced approaches FDICsupervised institution is not required to 

deduct from the sum of its common 

equity tier 1 capital elements DTAs (net 

of any related valuation allowances and 

net of DTLs, in accordance with 

§ 324.22(e)) arising from timing 

differences that the advanced 

approaches FDIC-supervised institution 

could realize through net operating loss 

carrybacks. The advanced approaches 

FDIC-supervised institution must risk 

weight these assets at 100 percent. For 

an FDIC-supervised institution that is a 

member of a consolidated group for tax 

purposes, the amount of DTAs that 

could be realized through net operating 

loss carrybacks may not exceed the 

amount that the FDIC-supervised 

institution could reasonably expect to 

have refunded by its parent holding 

company. 

(B) MSAs net of associated DTLs, in 

accordance with paragraph (e) of this 

section. 

(C) Significant investments in the 

capital of unconsolidated financial 

institutions in the form of common 

stock, net of associated DTLs in 

accordance with paragraph (e) of this 

section.30 Significant investments in the 


asabaliauskas on DSKBBXCHB2PROD with PROPOSALS
50036 Federal Register / Vol. 82, No. 207 / Friday, October 27, 2017 / Proposed Rules 

investment is made for the purpose of providing 

financial support to the financial institution as 

determined by the FDIC. 

31The amount of the items in paragraph (d)(2) of 

this section that is not deducted from common 

equity tier 1 capital pursuant to this section must 

be included in the risk-weighted assets of the 

advanced approaches FDIC-supervised institution 

and assigned a 250 percent risk weight. 

capital of unconsolidated financial 

institutions in the form of common 

stock subject to the 10 percent common 

equity tier 1 capital deduction threshold 

may be reduced by any goodwill 

embedded in the valuation of such 

investments deducted by the advanced 

approaches FDIC-supervised institution 

pursuant to paragraph (a)(1) of this 

section. In addition, with the prior 

written approval of the FDIC, for the 

period of time stipulated by the FDIC, 

an advanced approaches FDICsupervised institution that underwrites 

a failed underwriting is not required to 

deduct a significant investment in the 

capital of an unconsolidated financial 

institution in the form of common stock 

pursuant to this paragraph (d)(2) if such 

investment is related to such failed 

underwriting. 

(ii) An advanced approaches FDICsupervised institution must deduct from 

common equity tier 1 capital elements 

the items listed in paragraph (d)(2)(i) of 

this section that are not deducted as a 

result of the application of the 10 

percent common equity tier 1 capital 

deduction threshold, and that, in 

aggregate, exceed 17.65 percent of the 

sum of the advanced approaches FDICsupervised institution’s common equity 

tier 1 capital elements, minus 

adjustments to and deductions from 

common equity tier 1 capital required 

under paragraphs (a) through (c) of this 

section, minus the items listed in 

paragraph (d)(2)(i) of this section (the 15 

percent common equity tier 1 capital 

deduction threshold). Any goodwill that 

has been deducted under paragraph 

(a)(1) of this section can be excluded 

from the significant investments in the 

capital of unconsolidated financial 

institutions in the form of common 

stock.31

(iii) For purposes of calculating the 

amount of DTAs subject to the 10 and 

15 percent common equity tier 1 capital 

deduction thresholds, an advanced 

approaches FDIC-supervised institution 

may exclude DTAs and DTLs relating to 

adjustments made to common equity 

tier 1 capital under paragraph (b) of this 

section. An advanced approaches FDICsupervised institution that elects to 

exclude DTAs relating to adjustments 

under paragraph (b) of this section also 

must exclude DTLs and must do so 

consistently in all future calculations. 

An advanced approaches FDICsupervised institution may change its 

exclusion preference only after 

obtaining the prior approval of the 

FDIC. 

* * * * * 

(g) Treatment of assets that are 

deducted. An FDIC-supervised 

institution must exclude from 

standardized total risk-weighted assets 

and, as applicable, advanced 

approaches total risk-weighted assets 

any item that is required to be deducted 

from regulatory capital. 

(h) Net long position. (1) For purposes 

of calculating an investment in the 

FDIC-supervised institution’s own 

capital instrument and an investment in 

the capital of an unconsolidated 

financial institution under this section, 

the net long position is the gross long 

position in the underlying instrument 

determined in accordance with 

paragraph (h)(2) of this section, as 

adjusted to recognize a short position in 

the same instrument calculated in 

accordance with paragraph (h)(3) of this 

section. 

(2) Gross long position. The gross long 

position is determined as follows: 

(i) For an equity exposure that is held 

directly, the adjusted carrying value as 

that term is defined in § 324.51(b); 

(ii) For an exposure that is held 

directly and is not an equity exposure 

or a securitization exposure, the 

exposure amount as that term is defined 

in § 324.2; 

(iii) For an indirect exposure, the 

FDIC-supervised institution’s carrying 

value of the investment in the 

investment fund, provided that, 

alternatively: 

(A) An FDIC-supervised institution 

may, with the prior approval of the 

FDIC, use a conservative estimate of the 

amount of its investment in the FDICsupervised institution’s own capital 

instruments or its investment in the 

capital of an unconsolidated financial 

institution held through a position in an 

index; or 

(B) An FDIC-supervised institution 

may calculate the gross long position for 

investments in the FDIC-supervised 

institution’s own capital instruments or 

investments in the capital of an 

unconsolidated financial institution by 

multiplying the FDIC-supervised 

institution’s carrying value of its 

investment in the investment fund by 

either: 

(1) The highest stated investment 

limit (in percent) for investments in the 

FDIC-supervised institution’s own 

capital instruments or investments in 

the capital of unconsolidated financial 

institutions as stated in the prospectus, 

partnership agreement, or similar 

contract defining permissible 

investments of the investment fund; or 

(2) The investment fund’s actual 

holdings of investments in the FDICsupervised institution’s own capital 

instruments or investments in the 

capital of unconsolidated financial 

institutions. 

(iv) For a synthetic exposure, the 

amount of the FDIC-supervised 

institution’s loss on the exposure if the 

reference capital instrument were to 

have a value of zero. 

(3) Adjustments to reflect a short 

position. In order to adjust the gross 

long position to recognize a short 

position in the same instrument, the 

following criteria must be met: 

(i) The maturity of the short position 

must match the maturity of the long 

position, or the short position has a 

residual maturity of at least one year 

(maturity requirement); or 

(ii) For a position that is a trading 

asset or trading liability (whether on- or 

off-balance sheet) as reported on the 

FDIC-supervised institution’s Call 

Report if the FDIC-supervised 

institution has a contractual right or 

obligation to sell the long position at a 

specific point in time and the 

counterparty to the contract has an 

obligation to purchase the long position 

if the FDIC-supervised institution 

exercises its right to sell, this point in 

time may be treated as the maturity of 

the long position such that the maturity 

of the long position and short position 

are deemed to match for purposes of the 

maturity requirement, even if the 

maturity of the short position is less 

than one year; and 

(iii) For an investment in the FDICsupervised institution’s own capital 

instrument under paragraph (c)(1) of 

this section or an investment in the 

capital of an unconsolidated financial 

institution under paragraphs (c) and (d): 

(A) An FDIC-supervised institution 

may only net a short position against a 

long position in an investment in the 

FDIC-supervised institution’s own 

capital instrument under paragraph (c) 

of this section if the short position 

involves no counterparty credit risk. 

(B) A gross long position in an 

investment in the FDIC-supervised 

institution’s own capital instrument or 

an investment in the capital of an 

unconsolidated financial institution 

resulting from a position in an index 

may be netted against a short position 

in the same index. Long and short 

positions in the same index without 

maturity dates are considered to have 

matching maturities. 

(C) A short position in an index that 

is hedging a long cash or synthetic 


asabaliauskas on DSKBBXCHB2PROD with PROPOSALS
Federal Register / Vol. 82, No. 207 / Friday, October 27, 2017 / Proposed Rules 50037 

position in an investment in the FDICsupervised institution’s own capital 

instrument or an investment in the 

capital of an unconsolidated financial 

institution can be decomposed to 

provide recognition of the hedge. More 

specifically, the portion of the index 

that is composed of the same underlying 

instrument that is being hedged may be 

used to offset the long position if both 

the long position being hedged and the 

short position in the index are reported 

as a trading asset or trading liability 

(whether on- or off-balance sheet) on the 

FDIC-supervised institution’s Call 

Report and the hedge is deemed 

effective by the FDIC-supervised 

institution’s internal control processes, 

which have not been found to be 

inadequate by the FDIC. 

* * * * * 

■ 58. Section 324.32 is amended by 

revising paragraphs (b), (d)(2), (d)(3)(ii), 

(j), (k), and (l) to read as follows: 

§ 324.32 General risk weights. 

* * * * * 

(b) Certain supranational entities and 

multilateral development banks (MDBs). 

An FDIC-supervised institution must 

assign a zero percent risk weight to an 

exposure to the Bank for International 

Settlements, the European Central Bank, 

the European Commission, the 

International Monetary Fund, the 

European Stability Mechanism, the 

European Financial Stability Facility, or 

an MDB. 

* * * * * 

(d) * * * 

(2) Exposures to foreign banks. (i) 

Except as otherwise provided under 

paragraphs (d)(2)(iii), (d)(2)(v) and (d)(3) 

of this section, an FDIC-supervised 

institution must assign a risk weight to 

an exposure to a foreign bank, in 

accordance with Table 2 to § 324.32, 

based on the CRC that corresponds to 

the foreign bank’s home country or the 

OECD membership status of the foreign 

bank’s home country if there is no CRC 

applicable to the foreign bank’s home 

country. 

TABLE 2 TO § 324.32—RISK WEIGHTS

FOR EXPOSURES TO FOREIGN BANKS

Risk weight 

(in percent) 

CRC: 

0–1 ................................. 20 

2 ..................................... 50 

3 ..................................... 100 

4–7 ................................. 150 

OECD Member with No CRC 20 

Non-OECD Member with No 

CRC .................................. 100 

Sovereign Default ................. 150 

(ii) An FDIC-supervised institution 

must assign a 20 percent risk weight to 

an exposure to a foreign bank whose 

home country is a member of the OECD 

and does not have a CRC. 

(iii) An FDIC-supervised institution 

must assign a 20 percent risk-weight to 

an exposure that is a self-liquidating, 

trade-related contingent item that arises 

from the movement of goods and that 

has a maturity of three months or less 

to a foreign bank whose home country 

has a CRC of 0, 1, 2, or 3, or is an OECD 

member with no CRC. 

(iv) An FDIC-supervised institution 

must assign a 100 percent risk weight to 

an exposure to a foreign bank whose 

home country is not a member of the 

OECD and does not have a CRC, with 

the exception of self-liquidating, traderelated contingent items that arise from 

the movement of goods, and that have 

a maturity of three months or less, 

which may be assigned a 20 percent risk 

weight. 

(v) An FDIC-supervised institution 

must assign a 150 percent risk weight to 

an exposure to a foreign bank 

immediately upon determining that an 

event of sovereign default has occurred 

in the bank’s home country, or if an 

event of sovereign default has occurred 

in the foreign bank’s home country 

during the previous five years. 

(3) * * * 

(ii) A significant investment in the 

capital of an unconsolidated financial 

institution in the form of common stock 

pursuant to § 324.22(d)(2)(i)(c); 

* * * * * 

(j)(1) High-volatility acquisition, 

development, or construction (HVADC) 

exposures. An FDIC-supervised 

institution must assign a 130 percent 

risk weight to an HVADC exposure. 

(2) High-volatility commercial real 

estate (HVCRE) exposures. A FDICsupervised institution must assign a 150 

percent risk weight to an HVCRE 

exposure 

(k) Past due exposures. Except for an 

exposure to a sovereign entity or a 

residential mortgage exposure, if an 

exposure is 90 days or more past due or 

on nonaccrual: 

(1) An FDIC-supervised institution 

must assign a 150 percent risk weight to 

the portion of the exposure that is not 

guaranteed or that is unsecured; 

(2) An FDIC-supervised institution 

may assign a risk weight to the 

guaranteed portion of a past due 

exposure based on the risk weight that 

applies under § 324.36 if the guarantee 

or credit derivative meets the 

requirements of that section; and 

(3) An FDIC-supervised institution 

may assign a risk weight to the 

collateralized portion of a past due 

exposure based on the risk weight that 

applies under § 324.37 if the collateral 

meets the requirements of that section. 

(l) Other assets. (1) An FDICsupervised institution must assign a 

zero percent risk weight to cash owned 

and held in all offices of the FDICsupervised institution or in transit; to 

gold bullion held in the FDICsupervised institution’s own vaults or 

held in another depository institution’s 

vaults on an allocated basis, to the 

extent the gold bullion assets are offset 

by gold bullion liabilities; and to 

exposures that arise from the settlement 

of cash transactions (such as equities, 

fixed income, spot foreign exchange and 

spot commodities) with a central 

counterparty where there is no 

assumption of ongoing counterparty 

credit risk by the central counterparty 

after settlement of the trade and 

associated default fund contributions. 

(2) An FDIC-supervised institution 

must assign a 20 percent risk weight to 

cash items in the process of collection. 

(3) An FDIC-supervised institution 

must assign a 100 percent risk weight to 

DTAs arising from temporary 

differences that the FDIC-supervised 

institution could realize through net 

operating loss carrybacks. 

(4) An FDIC-supervised institution 

must assign a 250 percent risk weight to 

the portion of each of the following 

items to the extent it is not deducted 

from common equity tier 1 capital 

pursuant to § 324.22(d): 

(i) MSAs; and 

(ii) DTAs arising from temporary 

differences that the FDIC-supervised 

institution could not realize through net 

operating loss carrybacks. 

(5) An FDIC-supervised institution 

must assign a 100 percent risk weight to 

all assets not specifically assigned a 

different risk weight under this subpart 

and that are not deducted from tier 1 or 

tier 2 capital pursuant to § 324.22. 

(6) Notwithstanding the requirements 

of this section, an FDIC-supervised 

institution may assign an asset that is 

not included in one of the categories 

provided in this section to the risk 

weight category applicable under the 

capital rules applicable to bank holding 

companies and savings and loan 

holding companies under 12 CFR part 

217, provided that all of the following 

conditions apply: 

(i) The FDIC-supervised institution is 

not authorized to hold the asset under 

applicable law other than debt 

previously contracted or similar 

authority; and 

(ii) The risks associated with the asset 

are substantially similar to the risks of 

assets that are otherwise assigned to a 


asabaliauskas on DSKBBXCHB2PROD with PROPOSALS
50038 Federal Register / Vol. 82, No. 207 / Friday, October 27, 2017 / Proposed Rules 

risk weight category of less than 100 

percent under this subpart. 

* * * * * 

■ 59. Section 324.34 is amended by 

revising paragraph (c) to read as follows: 

§ 324.34 OTC derivative contracts. 

* * * * * 

(c) Counterparty credit risk for OTC 

credit derivatives. (1) Protection 

purchasers. An FDIC-supervised 

institution that purchases an OTC credit 

derivative that is recognized under 

§ 324.36 as a credit risk mitigant for an 

exposure that is not a covered position 

under subpart F is not required to 

compute a separate counterparty credit 

risk capital requirement under this 

subpart D provided that the FDICsupervised institution does so 

consistently for all such credit 

derivatives. The FDIC-supervised 

institution must either include all or 

exclude all such credit derivatives that 

are subject to a qualifying master netting 

agreement from any measure used to 

determine counterparty credit risk 

exposure to all relevant counterparties 

for risk-based capital purposes. 

(2) Protection providers. (i) An FDICsupervised institution that is the 

protection provider under an OTC credit 

derivative must treat the OTC credit 

derivative as an exposure to the 

underlying reference asset. The FDICsupervised institution is not required to 

compute a counterparty credit risk 

capital requirement for the OTC credit 

derivative under this subpart D, 

provided that this treatment is applied 

consistently for all such OTC credit 

derivatives. The FDIC-supervised 

institution must either include all or 

exclude all such OTC credit derivatives 

that are subject to a qualifying master 

netting agreement from any measure 

used to determine counterparty credit 

risk exposure. 

(ii) The provisions of this paragraph 

(c)(2) apply to all relevant 

counterparties for risk-based capital 

purposes unless the FDIC-supervised 

institution is treating the OTC credit 

derivative as a covered position under 

subpart F, in which case the FDICsupervised institution must compute a 

supplemental counterparty credit risk 

capital requirement under this section. 

* * * * * 

■ 60. Section 324.35 is amended by 

revising paragraph (b)(3)(ii), (b)(4)(ii), 

(c)(3)(ii), and (c)(4)(ii) to read as follows: 

§ 324.35 Cleared transactions. 

* * * * * 

(b) * * * 

(3) * * * 

(ii) For a cleared transaction with a 

CCP that is not a QCCP, a clearing 

member client FDIC-supervised 

institution must apply the risk weight 

appropriate for the CCP according to 

this subpart D. 

* * * * * 

(4) * * * 

(ii) A clearing member client FDICsupervised institution must calculate a 

risk-weighted asset amount for any 

collateral provided to a CCP, clearing 

member, or custodian in connection 

with a cleared transaction in accordance 

with the requirements under this 

subpart D. 

* * * * * 

(c) * * * 

(3) * * * 

(ii) For a cleared transaction with a 

CCP that is not a QCCP, a clearing 

member FDIC-supervised institution 

must apply the risk weight appropriate 

for the CCP according to this subpart D. 

* * * * * 

(4) * * * 

(ii) A clearing member FDICsupervised institution must calculate a 

risk-weighted asset amount for any 

collateral provided to a CCP, clearing 

member, or a custodian in connection 

with a cleared transaction in accordance 

with requirements under this subpart D. 

* * * * * 

■ 61. Section 324.36 is amended by 

revising paragraph (c) to read as follows: 

§ 324.36 Guarantees and credit 

derivatives: Substitution treatment. 

* * * * * 

(c) Substitution approach—(1) Full 

coverage. If an eligible guarantee or 

eligible credit derivative meets the 

conditions in paragraphs (a) and (b) of 

this section and the protection amount 

(P) of the guarantee or credit derivative 

is greater than or equal to the exposure 

amount of the hedged exposure, an 

FDIC-supervised institution may 

recognize the guarantee or credit 

derivative in determining the riskweighted asset amount for the hedged 

exposure by substituting the risk weight 

applicable to the guarantor or credit 

derivative protection provider under 

this subpart D for the risk weight 

assigned to the exposure. 

(2) Partial coverage. If an eligible 

guarantee or eligible credit derivative 

meets the conditions in paragraphs (a) 

and (b) of this section and the protection 

amount (P) of the guarantee or credit 

derivative is less than the exposure 

amount of the hedged exposure, the 

FDIC-supervised institution must treat 

the hedged exposure as two separate 

exposures (protected and unprotected) 

in order to recognize the credit risk 

mitigation benefit of the guarantee or 

credit derivative. 

(i) The FDIC-supervised institution 

may calculate the risk-weighted asset 

amount for the protected exposure 

under this subpart D, where the 

applicable risk weight is the risk weight 

applicable to the guarantor or credit 

derivative protection provider. 

(ii) The FDIC-supervised institution 

must calculate the risk-weighted asset 

amount for the unprotected exposure 

under this subpart D, where the 

applicable risk weight is that of the 

unprotected portion of the hedged 

exposure. 

(iii) The treatment provided in this 

section is applicable when the credit 

risk of an exposure is covered on a 

partial pro rata basis and may be 

applicable when an adjustment is made 

to the effective notional amount of the 

guarantee or credit derivative under 

paragraphs (d), (e), or (f) of this section. 

* * * * * 

■ 62. Section 324.37 is amended by 

revising paragraph (b)(2)(i) to read as 

follows: 

§ 324.37 Collateralized transactions. 

* * * * * 

(b) * * * 

(2) Risk weight substitution. (i) An 

FDIC-supervised institution may apply a 

risk weight to the portion of an exposure 

that is secured by the fair value of 

financial collateral (that meets the 

requirements of paragraph (b)(1) of this 

section) based on the risk weight 

assigned to the collateral under this 

subpart D. For repurchase agreements, 

reverse repurchase agreements, and 

securities lending and borrowing 

transactions, the collateral is the 

instruments, gold, and cash the FDICsupervised institution has borrowed, 

purchased subject to resale, or taken as 

collateral from the counterparty under 

the transaction. Except as provided in 

paragraph (b)(3) of this section, the risk 

weight assigned to the collateralized 

portion of the exposure may not be less 

than 20 percent. 

* * * * * 

■ 63. Section 324.38 is amended by 

revising paragraph (e)(2) to read as 

follows: 

§ 324.38 Unsettled transactions. 

* * * * * 

(e) * * * 

(2) From the business day after the 

FDIC-supervised institution has made 

its delivery until five business days after 

the counterparty delivery is due, the 

FDIC-supervised institution must 

calculate the risk-weighted asset amount 

for the transaction by treating the 

current fair value of the deliverables 

owed to the FDIC-supervised institution 

as an exposure to the counterparty and 


asabaliauskas on DSKBBXCHB2PROD with PROPOSALS
Federal Register / Vol. 82, No. 207 / Friday, October 27, 2017 / Proposed Rules 50039 

using the applicable counterparty risk 

weight under this subpart D. 

* * * * * 

■ 64. Section 324.42 is amended by 

revising paragraph (j)(2)(ii)(A) to read as 

follows: 

§ 324.42 Risk-weighted assets for 

securitization exposures. 

* * * * * 

(j) * * * 

(2) * * * 

(ii) * * * 

(A) If the FDIC-supervised institution 

purchases credit protection from a 

counterparty that is not a securitization 

SPE, the FDIC-supervised institution 

must determine the risk weight for the 

exposure according to this subpart D. 

* * * * * 

■ 65. Section 324.52 is amended by 

revising paragraphs (b)(1) and (4) to read 

as follows: 

§ 324.52 Simple risk-weight approach 

(SRWA). 

* * * * * 

(b) * * * 

(1) Zero percent risk weight equity 

exposures. An equity exposure to a 

sovereign, the Bank for International 

Settlements, the European Central Bank, 

the European Commission, the 

International Monetary Fund, the 

European Stability Mechanism, the 

European Financial Stability Facility, an 

MDB, and any other entity whose credit 

exposures receive a zero percent risk 

weight under § 324.32 may be assigned 

a zero percent risk weight. 

* * * * * 

(4) 250 percent risk weight equity 

exposures. Significant investments in 

the capital of unconsolidated financial 

institutions in the form of common 

stock that are not deducted from capital 

pursuant to § 324.22(d)(2) are assigned a 

250 percent risk weight. 

* * * * * 

■ 66. Section 324.61 is revised to read 

as follows: 

§ 324.61 Purpose and scope. 

Sections 324.61 through 324.63 of this 

subpart establish public disclosure 

requirements related to the capital 

requirements described in subpart B of 

this part for an FDIC-supervised 

institution with total consolidated assets 

of $50 billion or more as reported on the 

FDIC-supervised institution’s most 

recent year-end Call Report that is not 

an advanced approaches FDICsupervised institution making public 

disclosures pursuant to § 324.172. An 

advanced approaches FDIC-supervised 

institution that has not received 

approval from the FDIC to exit parallel 

run pursuant to § 324.121(d) is subject 

to the disclosure requirements described 

in §§ 324.62 and 324.63. An FDICsupervised institution with total 

consolidated assets of $50 billion or 

more as reported on the FDICsupervised institution’s most recent 

year-end Call Report that is not an 

advanced approaches FDIC-supervised 

institution making public disclosures 

subject to § 324.172 must comply with 

§ 324.62 unless it is a consolidated 

subsidiary of a bank holding company, 

savings and loan holding company, or 

depository institution that is subject to 

the disclosure requirements of § 324.62 

or a subsidiary of a non-U.S. banking 

organization that is subject to 

comparable public disclosure 

requirements in its home jurisdiction. 

For purposes of this section, total 

consolidated assets are determined 

based on the average of the FDICsupervised institution’s total 

consolidated assets in the four most 

recent quarters as reported on the Call 

Report; or the average of the FDICsupervised institution’s total 

consolidated assets in the most recent 

consecutive quarters as reported 

quarterly on the FDIC-supervised 

institution’s Call Report if the FDICsupervised institution has not filed such 

a report for each of the most recent four 

quarters. 

* * * * * 

■ 67. Section 324.63 is amended by 

revising Table 3 and Table 8 to read as 

follows: 

§ 324.63 Disclosures by FDIC-supervised 

institutions described in § 324.61. 

* * * * * 

TABLE 3 TO § 324.63—CAPITAL ADEQUACY

Qualitative disclosures ................ (a) A summary discussion of the FDIC-supervised institution’s approach to assessing the adequacy of its 

capital to support current and future activities. 

Quantitative disclosures .............. (b) Risk-weighted assets for: 

(1) Exposures to sovereign entities; 

(2) Exposures to certain supranational entities and MDBs; 

(3) Exposures to depository institutions, foreign banks, and credit unions; 

(4) Exposures to PSEs; 

(5) Corporate exposures; 

(6) Residential mortgage exposures; 

(7) Statutory multifamily mortgages and pre-sold construction loans; 

(8) HVADC loans; 

(9) Past due loans; 

(10) Other assets; 

(11) Cleared transactions; 

(12) Default fund contributions; 

(13) Unsettled transactions; 

(14) Securitization exposures; and 

(15) Equity exposures. 

(c) Standardized market risk-weighted assets as calculated under subpart F of this part. 

(d) Common equity tier 1, tier 1 and total risk-based capital ratios: 

(1) For the top consolidated group; and 

(2) For each depository institution subsidiary. 

(e) Total standardized risk-weighted assets. 

* * * * * 


asabaliauskas on DSKBBXCHB2PROD with PROPOSALS
50040 Federal Register / Vol. 82, No. 207 / Friday, October 27, 2017 / Proposed Rules 

TABLE 8 TO § 324.63—SECURITIZATION

Qualitative Disclosures ................ (a) The general qualitative disclosure requirement with respect to a securitization (including synthetic 

securitizations), including a discussion of: 

(1) The FDIC-supervised institution’s objectives for securitizing assets, including the extent to which 

these activities transfer credit risk of the underlying exposures away from the FDIC-supervised institution to other entities and including the type of risks assumed and retained with resecuritization activity; 1

(2) The nature of the risks (e.g. liquidity risk) inherent in the securitized assets; 

(3) The roles played by the FDIC-supervised institution in the securitization process 2 and an indication 

of the extent of the FDIC-supervised institution’s involvement in each of them; 

(4) The processes in place to monitor changes in the credit and market risk of securitization exposures 

including how those processes differ for resecuritization exposures; 

(5) The FDIC-supervised institution’s policy for mitigating the credit risk retained through securitization 

and resecuritization exposures; and 

(6) The risk-based capital approaches that the FDIC-supervised institution follows for its securitization 

exposures including the type of securitization exposure to which each approach applies. 

(b) A list of: 

(1) The type of securitization SPEs that the FDIC-supervised institution, as sponsor, uses to securitize 

third-party exposures. The FDIC-supervised institution must indicate whether it has exposure to these 

SPEs, either on- or off-balance sheet; and 

(2) Affiliated entities: 

(i) That the FDIC-supervised institution manages or advises; and 

(ii) That invest either in the securitization exposures that the FDIC-supervised institution has securitized 

or in securitization SPEs that the FDIC-supervised institution sponsors.3

(c) Summary of the FDIC-supervised institution’s accounting policies for securitization activities, including: 

(1) Whether the transactions are treated as sales or financings; 

(2) Recognition of gain-on-sale; 

(3) Methods and key assumptions applied in valuing retained or purchased interests; 

(4) Changes in methods and key assumptions from the previous period for valuing retained interests and 

impact of the changes; 

(5) Treatment of synthetic securitizations; 

(6) How exposures intended to be securitized are valued and whether they are recorded under subpart 

D of this part; and 

(7) Policies for recognizing liabilities on the balance sheet for arrangements that could require the FDICsupervised institution to provide financial support for securitized assets. 

(d) An explanation of significant changes to any quantitative information since the last reporting period. 

Quantitative Disclosures .............. (e) The total outstanding exposures securitized by the FDIC-supervised institution in securitizations that meet 

the operational criteria provided in § 324.41 (categorized into traditional and synthetic securitizations), by 

exposure type, separately for securitizations of third-party exposures for which the bank acts only as sponsor.4

(f) For exposures securitized by the FDIC-supervised institution in securitizations that meet the operational 

criteria in § 324.41: 

(1) Amount of securitized assets that are impaired/past due categorized by exposure type; 5 and 

(2) Losses recognized by the FDIC-supervised institution during the current period categorized by exposure type.6

(g) The total amount of outstanding exposures intended to be securitized categorized by exposure type. 

(h) Aggregate amount of: 

(1) On-balance sheet securitization exposures retained or purchased categorized by exposure type; and 

(2) Off-balance sheet securitization exposures categorized by exposure type. 

(i) (1) Aggregate amount of securitization exposures retained or purchased and the associated capital requirements for these exposures, categorized between securitization and resecuritization exposures, further 

categorized into a meaningful number of risk weight bands and by risk-based capital approach (e.g., 

SSFA); and 

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

(i) After-tax gain-on-sale on a securitization that has been deducted from common equity tier 1 capital; 

and 

(ii) Credit-enhancing interest-only strip that is assigned a 1,250 percent risk weight. 

(j) Summary of current year’s securitization activity, including the amount of exposures securitized (by exposure type), and recognized gain or loss on sale by exposure type. 

(k) Aggregate amount of resecuritization exposures retained or purchased categorized according to: 

(1) Exposures to which credit risk mitigation is applied and those not applied; and 

(2) Exposures to guarantors categorized according to guarantor creditworthiness categories or guarantor 

name. 

1The FDIC-supervised institution should describe the structure of resecuritizations in which it participates; this description should be provided 

for the main categories of resecuritization products in which the FDIC-supervised institution is active. 2For example, these roles may include originator, investor, servicer, provider of credit enhancement, sponsor, liquidity provider, or swap provider. 3Such affiliated entities may include, for example, money market funds, to be listed individually, and personal and private trusts, to be noted 

collectively. 4 ‘‘Exposures securitized’’ include underlying exposures originated by the FDIC-supervised institution, whether generated by them or purchased, and recognized in the balance sheet, from third parties, and third-party exposures included in sponsored transactions. Securitization 

transactions (including underlying exposures originally on the FDIC-supervised institution’s balance sheet and underlying exposures acquired by 

the FDIC-supervised institution from third-party entities) in which the originating bank does not retain any securitization exposure should be 

shown separately but need only be reported for the year of inception. FDIC-supervised institutions are required to disclose exposures regardless 

of whether there is a capital charge under this part. 


asabaliauskas on DSKBBXCHB2PROD with PROPOSALS
Federal Register / Vol. 82, No. 207 / Friday, October 27, 2017 / Proposed Rules 50041 

5 Include credit-related other than temporary impairment (OTTI). 

6For example, charge-offs/allowances (if the assets remain on the FDIC-supervised institution’s balance sheet) or credit-related OTTI of interest-only strips and other retained residual interests, as well as recognition of liabilities for probable future financial support required of the FDICsupervised institution with respect to securitized assets. 

* * * * * 

■ 68. Section 324.101 is amended by 

revising paragraph (b) adding a 

definition for ‘‘high volatility 

commercial real estate (HVCRE) 

exposure’’ to read as follows: 

§ 324.101 Definitions. 

* * * * * 

(b) * * * 

High volatility commercial real estate 

(HVCRE) exposure, for purposes of 

Subpart E, means a credit facility that, 

prior to conversion to permanent 

financing, finances or has financed the 

acquisition, development, or 

construction (ADC) of real property, 

unless the facility finances: 

(1) One- to four-family residential 

properties; 

(2) Real property that: 

(i) Would qualify as an investment in 

community development under 12 

U.S.C. 338a or 12 U.S.C. 24 (Eleventh), 

as applicable, or as a ‘‘qualified 

investment’’ under 12 CFR part 345, and 

(ii) Is not an ADC loan to any entity 

described in 12 CFR 345.12(g), unless it 

is otherwise described in paragraph (1), 

(2)(i), (3) or (4) of this definition; 

(3) The purchase or development of 

agricultural land, which includes all 

land known to be used or usable for 

agricultural purposes (such as crop and 

livestock production), provided that the 

valuation of the agricultural land is 

based on its value for agricultural 

purposes and the valuation does not 

take into consideration any potential 

use of the land for non-agricultural 

commercial development or residential 

development; or 

(4) Commercial real estate projects in 

which: 

(i) The loan-to-value ratio is less than 

or equal to the applicable maximum 

supervisory loan-to-value ratio in the 

FDIC’s real estate lending standards at 

12 CFR part 365, appendix C; 

(ii) The borrower has contributed 

capital to the project in the form of cash 

or unencumbered readily marketable 

assets (or has paid development 

expenses out-of-pocket) of at least 15 

percent of the real estate’s appraised ‘‘as 

completed’’ value; and 

(iii) The borrower contributed the 

amount of capital required by paragraph 

(4)(ii) of this definition before the FDICsupervised institution advances funds 

under the credit facility, and the capital 

contributed by the borrower, or 

internally generated by the project, is 

contractually required to remain in the 

project throughout the life of the project. 

The life of a project concludes only 

when the credit facility is converted to 

permanent financing or is sold or paid 

in full. Permanent financing may be 

provided by the FDIC-supervised 

institution that provided the ADC 

facility as long as the permanent 

financing is subject to the FDICsupervised institution’s underwriting 

criteria for long-term mortgage loans. 

* * * * * 

■ 69. Section 324.131 is amended by 

revising paragraph (d)(2) to read as 

follows: 

§ 324.131 Mechanics for calculating total 

wholesale and retail risk-weighted assets. 

* * * * * 

(d) * * * 

(2) Floor on PD assignment. The PD 

for each wholesale obligor or retail 

segment may not be less than 0.03 

percent, except for exposures to or 

directly and unconditionally guaranteed 

by a sovereign entity, the Bank for 

International Settlements, the 

International Monetary Fund, the 

European Commission, the European 

Central Bank, the European Stability 

Mechanism, the European Financial 

Stability Facility, or a multilateral 

development bank, to which the FDICsupervised institution assigns a rating 

grade associated with a PD of less than 

0.03 percent. 

* * * * * 

■ 70. Section 324.133 is amended by 

revising paragraphs (b)(3)(ii) and 

(c)(3)(ii) to read as follows: 

§ 324.133 Cleared transactions. 

* * * * * 

(b) * * * 

(3) * * * 

(ii) For a cleared transaction with a 

CCP that is not a QCCP, a clearing 

member client FDIC-supervised 

institution must apply the risk weight 

applicable to the CCP under subpart D 

of this part. 

* * * * * 

(c) * * * 

(3) * * * 

(ii) For a cleared transaction with a 

CCP that is not a QCCP, a clearing 

member FDIC-supervised institution 

must apply the risk weight applicable to 

the CCP according to subpart D of this 

part. 

* * * * * 

■ 71. Section 324.152 is amended by 

revising paragraph (b)(5) and (6) to read 

as follows: 

§ 324.152 Simple risk weight approach 

(SRWA). 

* * * * * 

(b) * * * 

(5) 300 percent risk weight equity 

exposures. A publicly traded equity 

exposure (other than an equity exposure 

described in paragraph (b)(7) of this 

section and including the ineffective 

portion of a hedge pair) is assigned a 

300 percent risk weight. 

(6) 400 percent risk weight equity 

exposures. An equity exposure (other 

than an equity exposure described in 

paragraph (b)(7) of this section) that is 

not publicly traded is assigned a 400 

percent risk weight. 

* * * * * 

■ 72. Section 324.202 is amended by 

revising paragraph (b) the definition of 

‘‘Corporate debt position’’ to read as 

follows: 

§ 324.202 Definitions. 

* * * * * 

(b) * * * 

Corporate debt position means a debt 

position that is an exposure to a 

company that is not a sovereign entity, 

the Bank for International Settlements, 

the European Central Bank, the 

European Commission, the International 

Monetary Fund, the European Stability 

Mechanism, the European Financial 

Stability Facility, a multilateral 

development bank, a depository 

institution, a foreign bank, a credit 

union, a public sector entity, a GSE, or 

a securitization. 

* * * * * 

■ 73. Section 324.210 is amended by 

revising paragraph (b)(2)(ii) to read as 

follows: 

§ 324.210 Standardized measurement 

method for specific risk. 

* * * * * 

(b) * * * 

(2) * * * 

(ii) Certain supranational entity and 

multilateral development bank debt 

positions. An FDIC-supervised 

institution may assign a 0.0 percent 

specific risk-weighting factor to a debt 

position that is an exposure to the Bank 

for International Settlements, the 

European Central Bank, the European 

Commission, the International Monetary 

Fund, the European Stability 

Mechanism, the European Financial 

Stability Facility, or an MDB. 

* * * * * 


asabaliauskas on DSKBBXCHB2PROD with PROPOSALS
50042 Federal Register / Vol. 82, No. 207 / Friday, October 27, 2017 / Proposed Rules 

■ 74. Section 324.300 is amended by 

revising paragraphs (b) and (d) to read 

as follows: 

§ 324.300 Transitions. 

* * * * * 

(b) Regulatory capital adjustments 

and deductions. Beginning January 1, 

2014 for an advanced approaches FDICsupervised institution, and beginning 

January 1, 2015 for an FDIC-supervised 

institution that is not an advanced 

approaches FDIC-supervised institution, 

and in each case through December 31, 

2017, an FDIC-supervised institution 

must make the capital adjustments and 

deductions in § 324.22 in accordance 

with the transition requirements in this 

paragraph (b). Beginning January 1, 

2018, an FDIC-supervised institution 

must make all regulatory capital 

adjustments and deductions in 

accordance with § 324.22. 

(1) Transition deductions from 

common equity tier 1 capital. Beginning 

January 1, 2014 for an advanced 

approaches FDIC-supervised institution, 

and beginning January 1, 2015 for an 

FDIC-supervised institution that is not 

an advanced approaches FDICsupervised institution, and in each case 

through December 31, 2017, an FDICsupervised institution, must make the 

deductions required under 

§ 324.22(a)(1)–(7) from common equity 

tier 1 or tier 1 capital elements in 

accordance with the percentages set 

forth in Table 2 and Table 3 to 

§ 324.300. 

(i) An FDIC-supervised institution 

must deduct the following items from 

common equity tier 1 and additional tier 

1 capital in accordance with the 

percentages set forth in Table 2 to 

§ 324.300: Goodwill (§ 324.22(a)(1)), 

DTAs that arise from net operating loss 

and tax credit carryforwards 

(§ 324.22(a)(3)), a gain-on-sale in 

connection with a securitization 

exposure (§ 324.22(a)(4)), defined 

benefit pension fund assets 

(§ 324.22(a)(5)), expected credit loss that 

exceeds eligible credit reserves (for 

advanced approaches FDIC-supervised 

institutions that have completed the 

parallel run process and that have 

received notifications from the FDIC 

pursuant to § 324.121(d) of subpart E) 

(§ 324.22(a)(6)), and financial 

subsidiaries (§ 324.22(a)(7)). 

TABLE 2 TO § 324.300 

Transition period 

Transition 

deductions under 

§ 324.22(a)(1), (a)(7), 

(a)(8), and (a)(9) 

Transition deductions under § 324.22(a)(3)–(6) 

Percentage of the 

deductions from 

common equity tier 

1 capital 

Percentage of the 

deductions from 

common equity tier 

1 capital 

Percentage of the 

deductions from tier 

1 capital 

Calendar year 2014 ..................................................................... 100 20 80 

Calendar year 2015 ..................................................................... 100 40 60 

Calendar year 2016 ..................................................................... 100 60 40 

Calendar year 2017 ..................................................................... 100 80 20 

Calendar year 2018, and thereafter ............................................ 100 100 0 

(ii) An FDIC-supervised institution 

must deduct from common equity tier 1 

capital any intangible assets other than 

goodwill and MSAs in accordance with 

the percentages set forth in Table 3 to 

§ 324.300. 

(iii) An FDIC-supervised institution 

must apply a 100 percent risk-weight to 

the aggregate amount of intangible 

assets other than goodwill and MSAs 

that are not required to be deducted 

from common equity tier 1 capital under 

this section. 

TABLE 3 TO § 324.300 

Transition period 

Transition deductions 

under § 324.22(a)(2)— 

percentage of the 

deductions from 

common equity tier 

1 capital 

Calendar year 2014 ............................................................................................................................................................. 20 

Calendar year 2015 ............................................................................................................................................................. 40 

Calendar year 2016 ............................................................................................................................................................. 60 

Calendar year 2017 ............................................................................................................................................................. 80 

Calendar year 2018, and thereafter .................................................................................................................................... 100 

(2) Transition adjustments to common 

equity tier 1 capital. Beginning January 

1, 2014 for an advanced approaches 

FDIC-supervised institution, and 

beginning January 1, 2015 for an FDICsupervised institution that is not an 

advanced approaches FDIC-supervised 

institution, and in each case through 

December 31, 2017, an FDIC-supervised 

institution, must allocate the regulatory 

adjustments related to changes in the 

fair value of liabilities due to changes in 

the FDIC-supervised institution’s own 

credit risk (§ 324.22(b)(1)(iii)) between 

common equity tier 1 capital and tier 1 

capital in accordance with the 

percentages set forth in Table 4 to 

§ 324.300. 

(i) If the aggregate amount of the 

adjustment is positive, the FDICsupervised institution must allocate the 

deduction between common equity tier 

1 and tier 1 capital in accordance with 

Table 4 to § 324.300. 

(ii) If the aggregate amount of the 

adjustment is negative, the FDICsupervised institution must add back 


asabaliauskas on DSKBBXCHB2PROD with PROPOSALS
Federal Register / Vol. 82, No. 207 / Friday, October 27, 2017 / Proposed Rules 50043 

the adjustment to common equity tier 1 capital or to tier 1 capital, in accordance 

with Table 4 to § 324.300. 

TABLE 4 TO § 324.300 

Transition period 

Transition adjustments under § 324.22(b)(1)(iii) 

Percentage of the 

adjustment applied to 

common equity tier 

1 capital 

Percentage of the 

adjustment applied to 

tier 1 capital 

Calendar year 2014 ................................................................................................................. 20 80 

Calendar year 2015 ................................................................................................................. 40 60 

Calendar year 2016 ................................................................................................................. 60 40 

Calendar year 2017 ................................................................................................................. 80 20 

Calendar year 2018, and thereafter ........................................................................................ 100 0

(3) Transition adjustments to AOCI 

for an advanced approaches FDICsupervised institution and an FDICsupervised institution that has not made 

an AOCI opt-out election under 

§ 324.22(b)(2). Beginning January 1, 

2014 for an advanced approaches FDICsupervised institution, and beginning 

January 1, 2015 for an FDIC-supervised 

institution that is not an advanced 

approaches FDIC-supervised institution 

and that has not made an AOCI opt-out 

election under § 324.22(b)(2), and in 

each case through December 31, 2017, 

an FDIC-supervised institution must 

adjust common equity tier 1 capital with 

respect to the transition AOCI 

adjustment amount (transition AOCI 

adjustment amount): 

(i) The transition AOCI adjustment 

amount is the aggregate amount of an 

FDIC-supervised institution’s: 

(A) Unrealized gains on available-forsale securities that are preferred stock 

classified as an equity security under 

GAAP or available-for-sale equity 

exposures, plus 

(B) Net unrealized gains or losses on 

available-for-sale securities that are not 

preferred stock classified as an equity 

security under GAAP or available-forsale equity exposures, plus 

(C) Any amounts recorded in AOCI 

attributed to defined benefit 

postretirement plans resulting from the 

initial and subsequent application of the 

relevant GAAP standards that pertain to 

such plans (excluding, at the FDICsupervised institution’s option, the 

portion relating to pension assets 

deducted under § 324.22(a)(5)), plus 

(D) Accumulated net gains or losses 

on cash flow hedges related to items 

that are reported on the balance sheet at 

fair value included in AOCI, plus 

(E) Net unrealized gains or losses on 

held-to-maturity securities that are 

included in AOCI. 

(ii) An FDIC-supervised institution 

must make the following adjustment to 

its common equity tier 1 capital: 

(A) If the transition AOCI adjustment 

amount is positive, the appropriate 

amount must be deducted from common 

equity tier 1 capital in accordance with 

Table 5 to § 324.300. 

(B) If the transition AOCI adjustment 

amount is negative, the appropriate 

amount must be added back to common 

equity tier 1 capital in accordance with 

Table 5 to § 324.300. 

TABLE 5 TO § 324.300 

Transition period 

Percentage of the 

transition AOCI 

adjustment amount to be 

applied to common 

equity tier 1 capital 

Calendar year 2014 ............................................................................................................................................................. 80 

Calendar year 2015 ............................................................................................................................................................. 60 

Calendar year 2016 ............................................................................................................................................................. 40 

Calendar year 2017 ............................................................................................................................................................. 20 

Calendar year 2018 and thereafter ..................................................................................................................................... 0 

(iii) An FDIC-supervised institution 

may include in tier 2 capital the 

percentage of unrealized gains on 

available-for-sale preferred stock 

classified as an equity security under 

GAAP and available-for-sale equity 

exposures as set forth in Table 6 to 

§ 324.300. 


asabaliauskas on DSKBBXCHB2PROD with PROPOSALS
50044 Federal Register / Vol. 82, No. 207 / Friday, October 27, 2017 / Proposed Rules 

TABLE 6 TO § 324.300 

Transition period 

Percentage of 

unrealized gains on 

available-for-sale 

preferred stock classified 

as an equity security 

under GAAP and 

available-for-sale 

equity exposures that 

may be included in 

tier 2 capital 

Calendar year 2014 ............................................................................................................................................................. 36 

Calendar year 2015 ............................................................................................................................................................. 27 

Calendar year 2016 ............................................................................................................................................................. 18 

Calendar year 2017 ............................................................................................................................................................. 9 

Calendar year 2018 and thereafter ..................................................................................................................................... 0 

* * * * * 

(d) Minority interest— 

(1) [Reserved] 

(2) Non-qualifying minority interest. 

Beginning January 1, 2014 for an 

advanced approaches FDIC-supervised 

institution, and beginning January 1, 

2015 for an FDIC-supervised institution 

that is not an advanced approaches 

FDIC-supervised institution, and in each 

case through December 31, 2017, an 

FDIC-supervised institution may 

include in tier 1 capital or total capital 

the percentage of the tier 1 minority 

interest and total capital minority 

interest outstanding as of January 1, 

2014 that does not meet the criteria for 

additional tier 1 or tier 2 capital 

instruments in § 324.20 (non-qualifying 

minority interest), as set forth in Table 

9 to § 324.300. 

TABLE 9 TO § 324.300 

Transition period 

Percentage of the 

amount of surplus or 

non-qualifying minority 

interest that can be 

included in regulatory 

capital during the 

transition period 

Calendar year 2014 ............................................................................................................................................................. 80 

Calendar year 2015 ............................................................................................................................................................. 60 

Calendar year 2016 ............................................................................................................................................................. 40 

Calendar year 2017 ............................................................................................................................................................. 20 

Calendar year 2018 and thereafter ..................................................................................................................................... 0 

Dated: September 26, 2017. 

Keith A. Noreika, 

Acting Comptroller of the Currency. 

By order of the Board of Governors of the 

Federal Reserve System, September 27, 2017. 

Ann E. Misback, 

Secretary of the Board. 

Dated at Washington, DC, this 27th day of 

September, 2017. 

By order of the Board of Directors. 

Federal Deposit Insurance Corporation. 

Robert E. Feldman, 

Executive Secretary. 

[FR Doc. 2017–22093 Filed 10–26–17; 8:45 am] 

BILLING CODE P 


asabaliauskas on DSKBBXCHB2PROD with PROPOSALS