AGENCIES:  Office of the Comptroller of the Currency, Treasury; Board of Governors of the Federal Reserve System; Federal Deposit Insurance Corporation; and Office of Thrift Supervision, Treasury.

ACTION:  Joint notice of proposed rulemaking.

SUMMARY:  The Office of the Comptroller of the Currency (OCC), the Board of Governors of the Federal Reserve System (Board), the Federal Deposit Insurance Corporation (FDIC), and the Office of Thrift Supervision (OTS) (collectively, the agencies) are proposing a new risk-based capital adequacy framework that would require some and permit other qualifying banks¹ to use an internal ratings-based approach to calculate regulatory credit risk capital requirements and advanced measurement approaches to calculate regulatory operational risk capital requirements. The proposed rule describes the qualifying criteria for banks required or seeking to operate under the proposed framework and the applicable risk-based capital requirements for banks that operate under the framework.

DATES:  Comments must be received on or before [INSERT DATE 120 DAYS AFTER PUBLICATION IN THE FEDERAL REGISTER].

ADDRESSES:  Comments should be directed to:

FOR FURTHER INFORMATION CONTACT:

1. Introduction
   1. Background
   2. Conceptual Overview
      1. The IRB framework for credit risk
      2. The AMA for operational risk
   3. Overview of Proposed Rule
   4. Structure of Proposed Rule
   5. Quantitative Impact Study 4 and Overall Capital Objectives
      1. Quantitative Impact Study 4
      2. Overall capital objectives
   6. Competitive Considerations
2. Scope
   1. Core and Opt-In Banks
   2. U.S. Bank Subsidiaries of Foreign Banks
   3. Reservation of Authority
3. Qualification
   1. The Qualification Process
      1. In general
      2. Parallel run and transitional floor periods
   2. Qualification Requirements
      1. Process and systems requirements
      2. Risk rating and segmentation systems for wholesale and retail exposures
         • Wholesale exposures
         • Retail exposures
         • Definition of default
         • Rating philosophy
         • Rating and segmentation reviews and updates
      3. Quantification of risk parameters for wholesale and retail exposures
         • Probability of default (PD)
         • Loss given default (LGD) and expected loss given default (ELGD)
         • Exposure at default (EAD)
         • General quantification principles
      4. Optional approaches that require prior supervisory approval
      5. Operational risk
         • Operational risk data and assessment system
         • Operational risk quantification system
      6. Data management and maintenance
      7. Control and oversight mechanisms
         • Validation
         • Internal audit
         • Stress testing
      8. Documentation
   3. Ongoing Qualification
4. Calculation of Tier 1 Capital and Total Qualifying Capital
5. Calculation of Risk-Weighted Assets
   1. Categorization of Exposures
      1. Wholesale exposures
      2. Retail exposures
      3. Securitization exposures
      4. Equity exposures
      5. Boundary between operational risk and other risks
         
      6. Boundary between the proposed rule and the market risk amendment
   2. Risk-Weighted Assets for General Credit Risk (Wholesale Exposures, Retail Exposures, On-Balance Sheet Assets that are not Defined by Exposure Category, and Immaterial Credit Exposures)
      1. Phase 1 – Categorization of exposures
      2. Phase 2 – Assignment of wholesale obligors and exposures to rating grades and retail exposures to segments
         • Purchased wholesale receivables
         • Wholesale lease residuals
      3. Phase 3 – Assignment of risk parameters to wholesale obligors and exposures and retail segments
      4. Phase 4 – Calculation of risk-weighted assets
      5. Statutory provisions on the regulatory capital treatment of certain mortgage loans
   3. Credit Risk Mitigation Techniques
      1. Collateral
      2. EAD for counterparty credit risk
         • EAD for repo-style transactions and eligible margin loans
         • Collateral haircut approach
         • Standard supervisory haircuts
         • Own estimates of haircuts
         • Simple VaR methodology
      3. EAD for OTC derivative contracts
         • Current exposure methodology
      4. Internal models methodology
         • Maturity under the internal models methodology
         • Collateral agreements under the internal models methodology
         • Internal estimate of alpha
         • Alternative models
      5. Guarantees and credit derivatives that cover wholesale exposures
         • Eligible guarantees and eligible credit derivatives
         • PD substitution approach
         • LGD adjustment approach
         • Maturity mismatch haircut
         • Restructuring haircut
         • Currency mismatch haircut
         • Example
         • Multiple credit risk mitigants
         • Double default treatment
      6. Guarantees and credit derivatives that cover retail exposures
   4. Unsettled Securities, Foreign Exchange, and Commodity Transactions
   5. Securitization Exposures
      1. Hierarchy of approaches
         • Exceptions to the general hierarchy of approaches
         • Servicer cash advances
         • Amount of a securitization exposure
         • Implicit support
         • Operational requirements for traditional securitizations
         • Clean-up calls
      2. Ratings-based approach (RBA)
      3. Internal assessment approach (IAA)
      4. Supervisory formula approach (SFA)
         • General requirements
         • Inputs to the SFA formula
      5. Eligible disruption liquidity facilities
      6. Credit risk mitigation for securitization exposures
      7. Synthetic securitizations
         • Background
         • Operational requirements for synthetic securitizations
         • First-loss tranches
         • Mezzanine tranches
         • Super-senior tranches
      8. N^th-to-default credit derivatives
      9. Early amortization provisions
         • Background
         • Controlled early amortization
         • Noncontrolled early amortization
   6. Equity Exposures
      1. Introduction and exposure measurement
         • Hedge transactions
         • Measures of hedge effectiveness
      2. Simple risk-weight approach (SRWA)
         • Non-significant equity exposures
      3. Internal models approach (IMA)
         • IMA qualification
         • Risk-weighted assets under the IMA
      4. Equity exposures to investment funds
         • Full look-through approach
         • Simple modified look-through approach
         • Alternative modified look-through approach
6. Operational Risk
7. Disclosure
   1. Overview
      • Comments on ANPR
   2. General requirements
      • Frequency/timeliness
      • Location of disclosures and audit/certification requirements
      • Proprietary and confidential information
   3. Summary of specific public disclosure requirements
   4. Regulatory reporting

1. For simplicity, and unless otherwise indicated, this notice of proposed rulemaking (NPR) uses the term "bank" to include banks, savings associations, and bank holding companies (BHCs). The terms "bank holding company" and "BHC" refer only to bank holding companies regulated by the Board and do not include savings and loan holding companies regulated by the OTS.  Return to text