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Financial Institution Letters

Risk-Based Capital Rules
Final Rule on Advanced Capital Adequacy Framework – Basel II
FIL-107-2007
December 7, 2007


Summary: The federal bank and thrift regulatory agencies have jointly issued the attached final rule concerning the domestic application of selected elements of the Basel II capital framework. The final rule requires some banks, and permits other banks, to use an internal ratings-based approach to calculate regulatory capital requirements for credit risk and an advanced measurement approach to calculate regulatory capital requirements for operational risk. The final rule will take effect on April 1, 2008.

Highlights:
The attached final rule:

  • Applies to banking organizations that (1) have consolidated assets equal to $250 billion or more, (2) have consolidated total on-balance sheet foreign exposures of $10 billion or more, (3) elect to use the rule, or (4) are subsidiaries of a bank or bank holding company that uses the rule.
  • Provides that a banking organization may be exempt from applying the final rule if its primary federal supervisor determines that the application of the final rule is not appropriate in light of the banking organization's asset size, level of complexity, risk profile, or scope of operations.
  • Applies to the determination of risk-based capital requirements for wholesale, retail, equity and securitization exposures. The rule also requires a bank to determine risk-based capital requirements for operational risk.
  • Includes prudential safeguards to maintain sufficient capital in the banking system such as (1) providing that no bank can exit the third transitional floor period until the agencies publish a study finding no material deficiencies with the advanced approaches that cannot be addressed by existing tools, (2) maintaining the transitional floor period of at least three years, and (3) retaining the leverage ratio and prompt corrective action standards.

Distribution:
FDIC-Supervised Banks (Commercial and Savings)

Suggested Routing:
Chief Executive Officer
Chief Financial Officer
Chief Risk Officer

Related Topics:
Basel II
Risk-Based Capital Rules
12 CFR Part 325

Attachments:
Key Aspects of the Final Rule on Risk-Based Capital Standards: Advanced Capital Adequacy Framework – Basel II - PDF (PDF Help)
Final Rule on Risk-Based Capital Standards: Advanced Capital Adequacy Framework – Basel II - PDF 1125k (PDF Help)

Contacts:
Jason C. Cave, Associate Director, Capital Markets
Branch, at jcave@fdic.gov or (202) 898-3548,

Bobby R. Bean, Chief, Capital Markets Policy
Section, at bbean@fdic.gov or (202) 898-3575

Printable Format:
FIL-107-2007 - PDF (PDF Help)

Note:
FDIC financial institution letters (FILs) may be accessed from the FDIC's Web site at www.fdic.gov/news/news/financial/2007/index.html.

To receive FILs electronically, please visit http://www.fdic.gov/about/subscriptions/fil.html.

Paper copies of FDIC financial institution letters may be obtained through the FDIC's Public Information Center, 3501 Fairfax Drive, Room E 1002, Arlington, VA 22226 (1-877-275-3342 or 703-562-2200).




Last Updated 12/07/2007 communications@fdic.gov