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OCC BULLETIN 2012-24
Subject: Regulatory Capital—Basel III and the Standardized and Advanced Approaches
Date: August 30, 2012
To: Chief Executive Officers of National Banks and Federal Savings Associations, All Department and Division Heads, All Examining Personnel, and Other Interested Parties
Description: Notices of Proposed Rulemaking
The Office of the Comptroller of the Currency(OCC), the Board of Governors of the Federal Reserve System (Board), and the Federal Deposit Insurance Corporation (FDIC) (collectively, the agencies) are seeking comment on three notices of proposed rulemaking (NPR) that propose to revise and replace the agencies’ regulatory capital rules. The proposed revisions to the capital rules were published in the Federal Register on August 30, 2012, as separate NPRs to reflect the distinct objectives of each proposal; to allow interested parties to better understand the various aspects of the proposed overall capital framework, including which aspects of the rules apply to which institutions; and to help interested parties better focus their comments on areas of particular interest.
In the first NPR, “Regulatory Capital Rules: Regulatory Capital, Implementation of Basel III, Minimum Regulatory Capital Ratios, Capital Adequacy, and Transition Provisions” (Basel III NPR), the agencies are proposing to revise their risk-based and leverage capital requirements consistent with agreements reached by the Basel Committee on Banking Supervision (Basel III). The Basel III NPR applies to all national banks and federal savings associations, collectively, banks. The Basel III NPR proposes a new common equity tier 1 minimum capital requirement, a higher minimum tier 1 capital requirement, and, for banks subject to the advanced approaches capital rules, a supplementary leverage ratio that incorporates off-balance-sheet exposures. Additionally, consistent with Basel III, the agencies propose to apply limits on a bank’s capital distributions and certain discretionary bonus payments if the bank does not hold a specified “buffer” of common equity tier 1 capital in addition to the minimum risk-based capital requirements. The revisions set forth in this NPR are consistent with section 171 of the Dodd–Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd–Frank), which requires the agencies to establish minimum risk-based and leverage capital requirements.
In the second NPR, “Regulatory Capital Rules: Standardized Approach for Risk-Weighted Assets; Market Discipline and Disclosure Requirements” (Standardized Approach NPR), the agencies propose to revise and harmonize rules for calculating risk-weighted assets to enhance risk sensitivity and address weaknesses identified over recent years. Revisions include incorporating aspects of the Basel II standardized framework and alternatives to credit ratings, consistent with section 939A of Dodd–Frank. The revisions also include methods for determining risk-weighted assets for residential mortgages, securitization exposures, and counterparty credit risk. The Standardized Approach NPR introduces disclosure requirements that would apply to U.S. bank holding companies with $50 billion or more in total assets.
The third NPR, “Regulatory Capital Rules: Advanced Approaches Risk-Based Capital Rule; Market Risk Capital Rule” (Advanced Approaches and Market Risk NPR), proposes to revise the advanced approaches risk-based capital rules consistent with Basel III and other changes to the Basel Committee’s capital standards. The agencies also propose revising the advanced approaches risk-based capital rules to be consistent with section 939A and section 171 of Dodd–Frank. Additionally in this NPR, the OCC, the FDIC, and the Board propose to expand the scope of the market risk rule to apply it to federal and state savings associations and savings and loan holding companies with significant trading activity. Generally, the advanced approaches rules would continue to apply to national banks and FSAs with $250 billion or more in consolidated assets or $10 billion or more in foreign exposure.
The Basel III and Standardized Approach NPRs include addendums that provide a summary of the proposed rules that are more relevant for community banks. The agencies intend for these addendums to act as a guide for community bankers, helping them to navigate the proposed rules and identify the changes most relevant for their institution. The addendums do not, however, by themselves provide a complete understanding of the proposed rules and the agencies expect and encourage all banks to review the proposed rules in their entirety.
Comments on the three NPRs are due by October 22, 2012.
You may direct questions or comments to Margot Schwadron, Senior Risk Expert, Capital Policy Division, at (202) 649-6370; David Elkes, Risk Expert, Capital Policy Division, at (202) 649-6370; or Ron Shimabukuro, Senior Counsel, Patrick Tierney, Counsel, or Carl Kaminski, Senior Attorney, Legislative and Regulatory Activities Division, at (202) 649-5869.
John C. Lyons Jr.