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Home > News & Events > Financial Institution Letters




Financial Institution Letters


[Federal Register: August 16, 1996 (Volume 61, Number 160)]
[Proposed Rules]               
[Page 42565-42570]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]

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DEPARTMENT OF THE TREASURY

Office of the Comptroller of the Currency

12 CFR Part 3

[Docket No. 96-16]
RIN 1557-AB14

FEDERAL RESERVE SYSTEM

12 CFR Parts 208 and 225

[Regulations H and Y; Docket No. R-0930]

FEDERAL DEPOSIT INSURANCE CORPORATION

12 CFR Part 325

RIN 3064-AB78

DEPARTMENT OF THE TREASURY

Office of Thrift Supervision

12 CFR Part 567

[Docket No. 96-58]
RIN 1550-AA98

 
Risk-Based Capital Standards; Collateralized Transactions

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.

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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) (Agencies) are proposing to amend their respective risk-based 
capital standards to make uniform the Agencies' treatments for 
transactions supported by qualifying collateral. The proposal would 
implement part of section 303 of the Riegle Community Development and 
Regulatory Improvement Act of 1994, which requires the Agencies to work 
jointly to make uniform their regulations and guidelines implementing 
common statutory or supervisory policies. The effect of the proposal 
would be to allow banks, bank

[[Page 42566]]

holding companies, and savings associations (institutions) to hold less 
capital for certain transactions collateralized by cash or qualifying 
securities.

DATES: Comments must be received on or before October 15, 1996.

ADDRESSES: Comments should be directed to:
    OCC: Comments may be submitted to Docket No. 96-16, Communications 
Division, Third Floor, Office of the Comptroller of the Currency, 250 E 
Street, S.W., Washington, D.C., 20219. Comments will be available for 
inspection and photocopying at that address. In addition, comments may 
be sent by facsimile transmission to FAX number (202) 874-5274, or by 
electronic mail to REG.COMMENTS@OCC.TREAS.GOV.
    Board: Comments directed to the Board should refer to Docket No. R-
0930 and may be mailed to William W. Wiles, Secretary, Board of 
Governors of the Federal Reserve System, 20th Street and Constitution 
Avenue, N.W., Washington D.C., 20551. Comments may also be delivered to 
Room B-2222 of the Eccles Building between 8:45 a.m. and 5:15 p.m. 
weekdays, or the guard station in the Eccles Building courtyard on 20th 
Street, N.W. (between Constitution Avenue and C Street) at any time. 
Comments may be inspected in Room MP-500 of the Martin Building between 
9 a.m. and 5 p.m. weekdays, except as provided in 12 CFR 261.8 of the 
Board's rules regarding availability of information.
    FDIC: Written comments should be sent to Jerry L. Langley, 
Executive Secretary, Attention: Room F-402, Federal Deposit Insurance 
Corporation, 550 17th Street N.W., Washington, D.C., 20429. Comments 
may be hand delivered to Room F-402, 1776 F Street N.W., Washington, 
D.C., 20429 on business days between 8:30 a.m. and 5 p.m. (Fax number 
(202) 898-3838; Internet address: comments@fdic.gov). Comments will be 
available for inspection and photocopying in Room 7118, 550 17th 
Street, N.W., Washington, D.C., 20429, between 9 a.m. and 4:30 p.m. on 
business days.
    OTS: Send comments to Manager, Dissemination Branch, Records 
Management and Information Policy, Office of Thrift Supervision, 1700 G 
Street, N.W., Washington, D.C., 20552, Attention Docket No. 96-58. 
These submissions may be hand-delivered to 1700 G Street, N.W., from 
9:00 a.m. to 5:00 p.m. on business days; they may be sent by facsimile 
transmission to FAX number (202) 906-7755. Comments will be available 
for inspection at 1700 G Street, N.W., from 9:00 a.m. until 4:00 p.m. 
on business days.

FOR FURTHER INFORMATION CONTACT:

    OCC: Roger Tufts, Senior Economic Advisor (202/874-5070), Christina 
Benson, Capital Markets Specialist (202/874-5070), Office of the Chief 
National Bank Examiner, or Ronald Shimabukuro, Senior Attorney (202/
874-5090), Legislative and Regulatory Activities Division, Office of 
the Comptroller of the Currency, 250 E Street, S.W., Washington, D.C., 
20219.
    Board: Roger Cole, Deputy Associate Director (202/452-2618), Norah 
Barger, Manager (202/452-2402), Barbara Bouchard, Supervisory Financial 
Analyst (202/452-3072), Division of Banking Supervision and Regulation. 
For the hearing impaired only, Telecommunication Device for the Deaf 
(TDD), Dorothea Thompson (202/452-3544), Board of Governors of the 
Federal Reserve System, 20th Street and Constitution Avenue, N.W., 
Washington D.C., 20551.
    FDIC: For supervisory issues, Stephen G. Pfeifer, Examination 
Specialist, Accounting Section, Division of Supervision (202/898-8904); 
for legal issues, Gerald J. Gervino, Senior Attorney, Legal Division 
(202/898-3723), Federal Deposit Insurance Corporation, 550 17th Street 
N.W., Washington, D.C., 20429.
    OTS: John F. Connolly, Senior Program Manager for Capital Policy, 
(202) 906-6465, Supervision Policy; or Deborah Dakin, Assistant Chief 
Counsel, (202) 906-6445, Regulations and Legislative Division, Office 
of the Chief Counsel, Office of Thrift Supervision, 1700 G Street, 
N.W., Washington, D.C., 20552.

SUPPLEMENTARY INFORMATION: Section 303(a)(2) of the Riegle Community 
Development and Regulatory Improvement Act of 1994, Pub. L. 103-325, 
108 Stat. 2160, 2215 (September 23, 1994), codified at 12 U.S.C. 4803, 
provides that the Agencies shall, consistent with the principles of 
safety and soundness, statutory law and policy, and the public 
interest, work jointly to make uniform all regulations and guidelines 
implementing common statutory or supervisory policies. In this regard, 
the Agencies have been reviewing, on an interagency basis, their 
capital standards to identify areas where they have substantively 
different capital treatments for particular transactions.
    Since December 1994, the four Agencies have had three different 
rules for the capital treatment of transactions that are supported by 
qualifying collateral. These rules constitute one of the more 
substantive differences among the Agencies' capital standards. The 
FDIC's and OTS's risk-based capital standards provide that the portion 
of a transaction collateralized by cash on deposit in the lending 
institution or by the market value of central government securities of 
the OECD-based group of countries 1(OECD securities) may be 
assigned to the 20 percent risk category.2 The Board's general 
rule is similar to the FDIC's and OTS's, but there is a limited 
exception. Under the Board's risk-based capital guidelines, 
transactions fully collateralized with cash or OECD securities with a 
positive margin (that is, the market value of the collateral is greater 
than the amount of the claim) may be eligible for a zero percent risk 
weight. An institution must maintain a positive margin on a daily 
basis, fully taking into account any change in the institution's 
exposure to the obligor or counterparty under a claim in relation to 
the market value of the collateral. The OCC's rule permits the portion 
of a transaction that is collateralized with a positive margin by cash 
or OECD securities, which must be marked-to-market daily, to receive a 
zero percent risk weight.
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    \1\ The OECD-based group of countries comprises all full members 
of the Organization for Economic Cooperation and Development (OECD), 
as well as countries that have concluded special lending 
arrangements with the International Monetary Fund associated with 
the Fund's General Arrangements to Borrow.
    \2\ Portions of claims collateralized by U.S. government-
sponsored agency securities are also eligible for a 20 percent risk 
weight. The Agencies are not proposing to change the risk weighting 
for these collateralized transactions.
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    The Agencies are proposing to amend their respective risk-based 
capital standards to achieve uniformity in the treatment of 
collateralized transactions. This joint proposal would permit portions 
of claims (including repurchase agreements) collateralized by cash on 
deposit with the lending institution or by securities issued or 
guaranteed by the U.S. Treasury, U.S. government agencies, or the 
central governments in other OECD countries to be eligible for a zero 
percent risk weight. To qualify for the zero percent risk category, the 
collateralized arrangement would have to specify the portion of the 
claim that will be continuously collateralized either in terms of an 
identified dollar amount or a percentage of the claim. In the case of 
off-balance-sheet derivative contracts, the collateralized portion 
could be specified in terms of an identified dollar amount or a 
percentage of the current or potential future exposure.
    Under this joint proposal, the arrangement must also require 
maintenance on a daily basis of a

[[Page 42567]]

positive margin of collateral on the specified collateralized portion, 
taking into account daily changes in the value of the institution's 
credit exposure and the market value of the collateral. The Agencies 
note that for certain transactions where the market value of the 
collateral (e.g., the redemption value of cash on deposit) is fixed and 
the value of the exposure seldom fluctuates, ensuring maintenance of a 
positive collateral margin on a daily basis may not actually entail 
daily mark-to-market calculations, such as in the case of a loan 
collateralized by a certificate of deposit. Where only a portion of a 
collateralized claim qualifies for the zero percent risk category, the 
remaining portion should be assigned to the risk category appropriate 
to the obligor, or if relevant, the guarantor or other collateral.
    In all cases, the collateralized arrangement should ensure that 
institutions maintain control over the collateral. The proposal has an 
accommodation for instances where an institution is acting as a 
customer's agent involving the lending or sale of the customer's 
securities that is collateralized by cash delivered to the institution. 
In this situation, the transaction would be deemed to be collateralized 
by cash on deposit with the lending institution provided that (a) any 
indemnification provided by the institution to the customer is limited 
to no more than the difference between the market value of the 
securities lent or sold and the cash collateral received and (b) any 
reinvestment risk associated with that cash collateral is borne by the 
customer.
    While the proposal would permit certain partially collateralized 
claims to qualify for the zero percent risk category, the Agencies 
reiterate their longstanding supervisory guidance and remind 
institutions that engaging in transactions such as securities lending 
or repurchase agreements on a less than fully collateralized basis may 
be considered an unsafe and unsound practice.

Regulatory Flexibility Act Analysis

OCC Regulatory Flexibility Act Analysis

    Pursuant to section 605(b) of the Regulatory Flexibility Act, the 
Comptroller of the Currency certifies that this proposed rule would not 
have a significant economic impact on a substantial number of small 
entities in accord with the spirit and purposes of the Regulatory 
Flexibility Act (5 U.S.C. 601 et seq.). Accordingly, a regulatory 
flexibility analysis is not required. The proposed rule would reduce 
regulatory burden by allowing banks to hold less capital for certain 
transactions collateralized by cash or qualifying securities. This 
proposed rule clarifies and makes uniform existing regulatory 
requirements for national banks. The economic impact of this proposed 
rule on banks, regardless of size, is expected to be minimal.

Board Regulatory Flexibility Act Analysis

    Pursuant to section 605(b) of the Regulatory Flexibility Act, the 
Board does not believe this proposal would have a significant impact on 
a substantial number of small business entities in accord with the 
spirit and purposes of the Regulatory Flexibility Act (5 U.S.C. 601 et 
seq.). Accordingly, a regulatory flexibility analysis is not required. 
In addition, because the risk-based capital guidelines generally do not 
apply to bank holding companies with consolidated assets of less than 
$150 million, this proposal would not affect such companies. The 
amendment concerns capital requirements for collateralized transactions 
which may be entered into by depository institutions of any size. While 
larger institutions may enter into more sophisticated transactions, the 
amendment would equally favor smaller institutions, even if their 
collateralized transactions are less complex. The effect of the 
proposal would be to reduce regulatory burden on depository 
institutions by allowing the institutions to hold less capital for 
certain transactions collateralized by cash or qualifying securities.

FDIC Regulatory Flexibility Act Analysis

    Pursuant to section 605(b) of the Regulatory Flexibility Act (Pub. 
L. 96-354, 5 U.S.C. 601 et seq.), it is certified that the proposal 
would not have a significant impact on a substantial number of small 
entities. The amendment concerns capital requirements for 
collateralized transactions which may be entered into by depository 
institutions of any size. While larger institutions may enter into more 
sophisticated transactions, the amendment would equally favor smaller 
institutions, even if their collateralized transactions are less 
complex. The effect of the proposal would be to reduce regulatory 
burden on depository institutions by allowing the institutions to hold 
less capital for certain transactions collateralized by cash or 
qualifying securities.

OTS Regulatory Flexibility Act Analysis

    Pursuant to section 605(b) of the Regulatory Flexibility Act, the 
OTS certifies that this proposed rule will not have a significant 
economic impact on a substantial number of small entities. The 
amendment concerns capital requirements for collateralized transactions 
which may be entered into by depository institutions of any size. While 
larger institutions may enter into more sophisticated transactions, the 
amendment would equally favor smaller institutions, even if their 
collateralized transactions are less complex. The effect of the 
proposal would be to reduce regulatory burden on depository 
institutions by allowing the institutions to hold less capital for 
certain transactions collateralized by cash or qualifying securities.

Paperwork Reduction Act

    The Agencies have determined that this proposal would not increase 
the regulatory paperwork burden of banking organizations pursuant to 
the provisions of the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 
et seq.).

OCC and OTS Executive Order 12866 Determination

    The Comptroller of the Currency and the Director of the OTS have 
determined that this proposed rule does not constitute a ``significant 
regulatory action'' for the purposes of Executive Order 12866.

OCC and OTS Unfunded Mandates Reform Act of 1995 Determinations

    Section 202 of the Unfunded Mandates Reform Act of 1995, Pub. L. 
104-4 (Unfunded Mandates Act) requires that an agency prepare a 
budgetary impact statement before promulgating a rule that includes a 
Federal mandate that may result in expenditure by State, local, and 
tribal governments, in the aggregate, or by the private sector, of $100 
million or more in any one year. If a budgetary impact statement is 
required, Section 205 of the Unfunded Mandates Act also requires an 
agency to identify and consider a reasonable number of regulatory 
alternatives before promulgating a rule. As discussed in the preamble, 
this proposed rule is limited to changing the risk weighting of 
transactions collateralized by cash or securities issued or 
unconditionally guaranteed by the U.S. Government or its agencies, or 
the central government of an OECD country, from the 20 percent to the 
zero percent risk weight category under the Agencies' risk-based 
capital rules. In addition, with respect to the OCC, this proposal 
clarifies and makes uniform existing regulatory requirements for 
national banks. The OCC and OTS have therefore determined that the 
proposed

[[Page 42568]]

rule will not result in expenditures by State, local, or tribal 
governments or by the private sector of $100 million or more. 
Accordingly, the OCC and OTS have not prepared a budgetary impact 
statement or specifically addressed the regulatory alternatives 
considered.

List of Subjects

12 CFR Part 3

    Administrative practice and procedure, Capital, National banks, 
Reporting and recordkeeping requirements, Risk.

12 CFR Part 208

    Accounting, Agriculture, Banks, banking, Confidential business 
information, Crime, Currency, Federal Reserve System, Mortgages, 
Reporting and recordkeeping requirements, Securities.

12 CFR Part 225

    Administrative practice and procedure, Banks, banking, Federal 
Reserve System, Holding companies, Reporting and recordkeeping 
requirements, Securities.

12 CFR Part 325

    Administrative practice and procedure, Banks, banking, Capital 
adequacy, Reporting and recordkeeping requirements, Savings 
associations, State non-member banks.

12 CFR Part 567

    Capital, Reporting and recordkeeping requirements, Savings 
associations.

Authority and Issuance

Office of the Comptroller of the Currency

12 CFR CHAPTER I

    For the reasons set out in the preamble, part 3 of chapter I of 
title 12 of the Code of Federal Regulations is proposed to be amended 
as follows:

PART 3--MINIMUM CAPITAL RATIOS; ISSUANCE OF DIRECTIVES

    1. The authority citation for part 3 continues to read as follows:

    Authority: 12 U.S.C. 93a, 161, 1818, 1828(n), 1828 note, 1831n 
note, 3907, and 3909.

    2. In appendix A to part 3, paragraph (a)(1)(viii) and footnote 15 
in paragraph (b)(1)(v) of section 3 are revised to read as follows:

Appendix A to Part 3--Risk-Based Capital Guidelines

* * * * *

Section 3. Risk Categories/Weights for On-Balance Sheet Assets and 
Off-Balance Sheet Items

* * * * *
    (a) * * *
    (1) * * *
    (viii) That portion of claims specified as collateralized by 
cash on deposit with the bank or by securities issued or 
unconditionally guaranteed by the United States Government or its 
agencies, or the central governments of an OECD country, provided 
that: 9a
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    \9a\ Claims collateralized by securities issued or guaranteed by 
the United States Government or its agencies, or the central 
government of an OECD country include securities lending 
transactions, repurchase agreements, collateralized letters of 
credit, such as reinsurance letters of credit, and other similar 
financial guarantees. Swaps, forwards, futures, and options 
transactions are also eligible, if they meet the collateral 
requirements.
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    (A) The bank specifies in the collateral agreement the 
collateralized portion of the claim either in terms of an identified 
dollar amount or a percentage of the claim (or in the case of an 
off-balance-sheet derivative contract, in terms of an identified 
dollar amount or a percentage of the current or potential future 
exposure); 9b and
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    \9b\ See footnote 22 in section 3(b)(5)(iii) of this appendix A 
(collateral held against derivative contracts).
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    (B) The bank specifies in the collateral agreement that the 
customer is obligated to maintain on a daily basis a positive margin 
of collateral on the specified portion of the claim that fully takes 
into account daily changes in the value of the bank's credit 
exposure and in the market value of the collateral.
* * * * *
    (b) * * *
    (v) * * * 15
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    \15\ * * * When the bank is acting as a customer's agent in a 
transaction involving the loan or sale of the customer's securities 
collateralized by cash delivered to the bank, the transaction is 
deemed to be collateralized by cash on deposit with the bank 
provided that any obligation by the bank to indemnify the customer 
is limited to no more than the difference between the market value 
of the securities lent or sold and the cash collateral received, and 
any reinvestment risk associated with the collateral is borne by the 
customer.
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* * * * *
    Dated: July 26, 1996.
Eugene A. Ludwig,
Comptroller of the Currency.

Federal Reserve System

12 CFR CHAPTER II

    For the reasons set forth in the preamble, parts 208 and 225 of 
chapter II of title 12 of the Code of Federal Regulations are proposed 
to be amended as follows:

PART 208--MEMBERSHIP OF STATE BANKING INSTITUTIONS IN THE FEDERAL 
RESERVE SYSTEM (REGULATION H)

    1. The authority citation for part 208 continues to read as 
follows:

    Authority: 12 U.S.C. 36, 248(a), 248(c), 321-338a, 371d, 461, 
481-486, 601, 611, 1814, 1823(j), 1828(o), 1831o, 1831p-1, 3105, 
3310, 3331-3351, and 3906-3909; 15 U.S.C. 78b, 78l(b), 78l(g), 
78l(i), 78o-4(c)(5), 78q, 78q-1, and 78w; 31 U.S.C. 5318; 42 U.S.C. 
4012a, 4104a, 4104b, 4106, and 4128.

    2. In appendix A to part 208 section III.C.1., the paragraph 
immediately following the heading is designated as paragraph a. and the 
second paragraph is designated as paragraph b. and revised to read as 
follows:

Appendix A to Part 208--Capital Adequacy Guidelines for State Member 
Banks: Risk-Based Measure

* * * * *
    III. * * *
    C. * * *
    1. Category 1: zero percent. a. * * *
    b. This category also includes the portions of claims (including 
repurchase agreements) collateralized by cash on deposit with the 
lending bank or by securities issued or unconditionally guaranteed 
by the U.S. Treasury, U.S. government agencies, or the central 
government in other OECD-based countries, provided that the 
collateralized arrangement:
    (1) Specifies the collateralized portion of the claim either in 
terms of an identified dollar amount or a percentage of the claim 
(or, in the case of an off-balance-sheet derivative contract, either 
in terms of an identified dollar amount or a percentage of the 
current or potential future exposure); and
    (2) Requires the maintenance on a daily basis of a positive 
margin of collateral on the specified portion of the claim that 
fully takes into account daily changes in the value of the bank's 
credit exposure and in the market value of the collateral.
* * * * *
    3. In appendix A to part 208, the last sentence of section 
III.D.1.i. is revised to read as follows:
* * * * *
    III. * * *
    D. * * *
    1. * * *
    i. * * * When a bank is acting as a customer's agent in a 
transaction involving the loan or sale of the customer's securities 
that is collateralized by cash delivered to the lending bank, the 
transaction is deemed to be collateralized by cash on deposit with 
the bank for purposes of determining the appropriate risk-weight 
category, provided that any indemnification is limited to no more 
than the difference between the market value of the securities lent 
or sold and the cash collateral received, and any reinvestment risk 
associated with the cash collateral is borne by the customer.
* * * * *
    4. In appendix A to part 208, Attachment III, category 1, paragraph 
5 is revised to read as follows:
 * * * * *

[[Page 42569]]

Attachment III--Summary of Risk Weights and Risk Categories for State 
Member Banks

Category 1: Zero Percent

* * * * *
    5. Portions of claims (including repurchase agreements) 
collateralized by cash on deposit with the lending bank or by 
securities issued or unconditionally guaranteed by OECD central 
governments or U.S. government agencies, provided that the 
collateralization arrangement (a) specifies the collateralized 
portion of the claim either in terms of an identified dollar amount 
or a percentage of the claim (or, in the case of an off-balance-
sheet derivative contract, either in terms of an identified dollar 
amount or a percentage of the current or potential future exposure); 
and (b) requires the maintenance of a positive collateral margin on 
a daily basis that fully takes into account daily changes in the 
value of the bank's credit exposure and in the market value of the 
collateral.
* * * * *

PART 225--BANK HOLDING COMPANIES AND CHANGE IN BANK CONTROL 
(REGULATION Y)

    1. The authority citation for part 225 continues to read as 
follows:

    Authority: 12 U.S.C. 1817(j)(13), 1818, 1828(o), 1831i, 1831p-1, 
1843(c)(8), 1844(b), 1972(1), 3106, 3108, 3310, 3331-3351, 3907, and 
3909.

    2. In appendix A to part 225 section III.C.1., the paragraph 
immediately following the heading is designated as paragraph a. and the 
second paragraph is designated as paragraph b. and revised to read as 
follows:

Appendix A to Part 225--Capital Adequacy Guidelines for Bank Holding 
Companies: Risk-Based Measure

* * * * *
    III. * * *
    C. * * *
    1. Category 1: zero percent a. * * *
    b. This category also includes the portions of claims (including 
repurchase agreements) collateralized by cash on deposit with the 
lending banking organization or by securities issued or 
unconditionally guaranteed by the U.S. Treasury, U.S. government 
agencies, or the central government in other OECD-based countries, 
provided that the collateralized arrangement:
    (1) Specifies the collateralized portion of the claim either in 
terms of an identified dollar amount or a percentage of the claim 
(or, in the case of an off-balance-sheet derivative contract, either 
in terms of an identified dollar amount or a percentage of the 
current or potential future exposure); and
    (2) Requires the maintenance on a daily basis of a positive 
margin of collateral on the specified portion of the claim that 
fully takes into account daily changes in the value of the banking 
organization's credit exposure and in the market value of the 
collateral.
* * * * *
    3. In appendix A to part 225, the last sentence in section 
III.D.1.i. is revised to read as follows:
* * * * *
    III. * * *
    D. * * *
    1. * * *
    i. * * * When a banking organization is acting as a customer's 
agent in a transaction involving the loan or sale of the customer's 
securities that is collateralized by cash delivered to the lending 
banking organization, the transaction is deemed to be collateralized 
by cash on deposit with the banking organization for purposes of 
determining the appropriate risk-weight category, provided that any 
indemnification is limited to no more than the difference between 
the market value of the securities lent or sold and the cash 
collateral received, and any reinvestment risk associated with the 
cash collateral is borne by the customer.
* * * * *
    4. In appendix A to part 225, Attachment III, category 1, paragraph 
5 is revised to read as follows:
* * * * *

Attachment III--Summary of Risk Weights and Risk Categories for Bank 
Holding Companies

Category 1: Zero Percent

* * * * *
    5. Portions of claims (including repurchase agreements) 
collateralized by cash on deposit with the lending banking 
organization or by securities issued or unconditionally guaranteed 
by OECD central governments or U.S. government agencies, provided 
that the collateralization arrangement (a) specifies the 
collateralized portion of the claim either in terms of an identified 
dollar amount or a percentage of the claim (or, in the case of an 
off-balance-sheet derivative contract, either in terms of an 
identified dollar amount or a percentage of the current or potential 
future exposure); and (b) requires the maintenance of a positive 
collateral margin on a daily basis that fully takes into account 
daily changes in the value of the banking organization's credit 
exposure and in the market value of the collateral.
* * * * *
    By order of the Board of Governors of the Federal Reserve 
System, August 8, 1996.
William W. Wiles,
Secretary of the Board.

Federal Deposit Insurance Corporation

12 CFR CHAPTER III

    For the reasons set forth in the preamble, part 325 of chapter III 
of title 12 of the Code of Federal Regulations is proposed to be 
amended as follows:

PART 325--CAPITAL MAINTENANCE

    1. The authority citation for part 325 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; Pub. L. 102-233, 105 Stat. 
1761, 1789, 1790 (12 U.S.C. 1831n note); Pub. L. 102-242, 105 Stat. 
2236, 2355, 2386 (12 U.S.C. 1828 note).

    2. In appendix A to part 325, section II.C, the first two 
paragraphs under Category 1--Zero Percent Risk Weight are designated as 
paragraphs a. and b., respectively, and a new paragraph c. is added to 
read as follows:

Appendix A to Part 325--Statement of Policy on Risk-Based Capital

* * * * *

II. Procedures for Computing Risk-Weighted Assets

* * * * *
    C. * * *
    Category 1--Zero Percent Risk Weight. a. * * *
    b. * * *
    c. This category also includes the portions of claims (including 
repurchase agreements) collateralized by cash on deposit with the 
lending bank or by securities issued or unconditionally guaranteed 
by the U.S. Treasury, U.S. government agencies, or the central 
government in other OECD countries, provided that the collateralized 
arrangement:
    (1) Specifies the collateralized portion of the claim either in 
terms of an identified dollar amount or a percentage of the claim 
(or, in the case of an off-balance-sheet derivative contract, either 
in terms of an identified dollar amount or a percentage of the 
current or potential future exposure); and
    (2) Requires the maintenance on a daily basis of a positive 
margin of collateral on the specified portion of the claim that 
fully takes into account daily changes in the value of the bank's 
credit exposure and in the market value of the collateral.
* * * * *
    3. In appendix A to part 325, section II.C., the three paragraphs 
under Category 2--20 Percent Risk Weight are designated as paragraphs 
a. through c., respectively, the phrase ``portions of claims 
collateralized by cash held in a segregated deposit account of the 
lending bank;'' is removed from the newly designated paragraph a., and 
the first sentence of the newly designated paragraph b. is revised to 
read as follows:
* * * * *
    II. * * *
    C. * * *
* * * * *
    Category 2--20 Percent Risk Weight. a. * * *
    b. This category also includes claims on, and portions of claims 
guaranteed by, U.S. Government-sponsored agencies, portions of 
claims collateralized by securities issued or guaranteed by U.S. 
Government-sponsored agencies, and the portions of claims (including 
repurchase agreements) collateralized by cash on deposit in the 
lending bank or by securities issued or guaranteed by OECD central 
governments

[[Page 42570]]

that do not qualify for the zero percent risk weight category. * * *
* * * * *
    4. In appendix A to part 325, section II.D.1, the eight paragraphs 
are designated as paragraphs a. through h., respectively, and the newly 
designated paragraph h. is amended by adding a sentence to the end of 
the paragraph to read as follows:
* * * * *
    II. * * *
    D. * * *
    1. Items with a 100 Percent Conversion Factor. a. * * *
* * * * *
    h. * * * When a bank is acting as a customer's agent in a 
transaction involving the loan or sale of the customer's securities 
that is collateralized by cash delivered to the lending bank, the 
transaction is deemed to be collateralized by cash on deposit with 
the bank for purposes of determining the appropriate risk-weight 
category, provided that any indemnification is limited to no more 
than the difference between the market value of the securities lent 
or sold and the cash collateral received, and any reinvestment risk 
associated with the cash collateral is borne by the customer.
* * * * *
    5. In appendix A to part 325 under Table II--Summary of Risk 
Weights and Risk Categories, a period is added at the end of paragraph 
(6) and a new paragraph (7) is added under Category 1--Zero Percent 
Risk Weight to read as follows:
* * * * *

Table II--Summary of Risk Weights and Risk Categories

Category 1--Zero Percent Risk Weight

* * * * *
    (7) Portions of claims (including repurchase agreements) 
collateralized by cash on deposit with the lending bank or by 
securities issued or unconditionally guaranteed by the U.S. 
Treasury, U.S. Government agencies, or the central government in 
other OECD countries, provided that the collateralization 
arrangement (a) specifies the collateralized portion of the claim 
either in terms of an identified dollar amount or a percentage of 
the claim (or, in the case of an off-balance-sheet derivative 
contract, either in terms of an identified dollar amount or a 
percentage of the current or potential future exposure); and (b) 
requires the maintenance of a positive collateral margin on a daily 
basis that fully takes into account daily changes in the value of 
the bank's credit exposure and in the market value of the 
collateral.
* * * * *
    6. In appendix A to part 325 under Table II--Summary of Risk 
Weights and Risk Categories, paragraphs (6) and (7) under Category 2--
20 Percent Risk Weight are revised to read as follows:
* * * * *

Table II--Summary of Risk Weights and Risk Categories

* * * * *

Category 2--20 Percent Risk Weight

* * * * *
    (6) Portions of claims (including repurchase agreements) 
collateralized \3\ by securities issued or guaranteed by the U.S. 
Treasury, U.S. Government agencies, or the central government in 
other OECD countries that do not qualify for the zero percent risk 
weight category, or that are collateralized by securities issued or 
guaranteed by U.S. Government-sponsored agencies.
---------------------------------------------------------------------------

    \3\ Degree of collateralization is determined by current market 
value.
---------------------------------------------------------------------------

    (7) Portions of loans and other claims collateralized by cash on 
deposit in the lending bank that do not qualify for the zero percent 
risk weight category.
* * * * *
    By order of the Board of Directors.

    Dated at Washington, D.C., this 17th day of June, 1996.

Federal Deposit Insurance Corporation
Valerie J. Best,
Assistant Executive Secretary.

Office of Thrift Supervision

12 CFR CHAPTER V

    For the reasons set forth in the preamble, part 567 of chapter V of 
title 12 of the Code of Federal Regulations is proposed to be amended 
as set forth below:

PART 567--CAPITAL

    1. The authority citation for part 567 continues to read as 
follows:

    Authority: 12 U.S.C. 1462, 1462a, 1463, 1464, 1467a, 1828 
(note).

    2. Section 567.6 is amended by:
    a. Redesignating footnotes 8, 9, 10, and 11 as footnotes 10, 11, 
12, and 13, respectively.
    b. Adding paragraph (a)(1)(i)(H); and
    c. Adding a sentence at the end of paragraph (a)(2)(i)(E).
    The additions read as follows:


Sec. 567.6   Risk-based capital credit risk-weight categories.

    (a) * * *
    (1) * * *
    (i) * * *
    (H) That portion of claims collateralized by cash on deposit with 
the lending savings association or by securities issued or 
unconditionally guaranteed by the United States Treasury, the United 
States Government or its agencies, or the central government in other 
OECD countries,8 provided that the collateralized arrangement:
---------------------------------------------------------------------------

    \8\ Claims collateralized by securities issued or guaranteed by 
the United States Treasury, the United States Government or its 
agencies, or the central government of an OECD country include 
securities lending transactions, repurchase agreements, 
collateralized letters of credit, such as reinsurance letters of 
credit, and other similar financial guarantees. Swaps, forwards, 
futures and options transactions are also eligible, if they meet the 
collateral requirements.
---------------------------------------------------------------------------

    (1) Specifies the collateralized portion of the claim either in 
terms of an identified dollar amount or a percentage of the claim (or, 
in the case of an off-balance-sheet derivative contract, either in 
terms of an identified dollar amount or a percentage of the current or 
potential future exposure); 9 and
---------------------------------------------------------------------------

    \9\ See paragraph (a)(2)(v)of this section.
---------------------------------------------------------------------------

    (2) Requires the maintenance on a daily basis of a positive margin 
of collateral on the specified portion of the claim that fully takes 
into account daily changes in the value of the savings association's 
credit exposure and in the market value of the collateral.
* * * * *
    (2) * * *
    (i) * * *
    (E) * * * When the savings association is acting as a customer's 
agent in a transaction involving the loan or sale of the customer's 
securities that is collateralized by cash delivered to the lending 
savings association, the transaction is deemed to be collateralized by 
cash on deposit with the savings association for purposes of 
determining the appropriate risk weight category, provided that any 
obligation of the savings association to indemnify the customer is 
limited to no more than the difference between the market value of the 
securities lent or sold and the cash collateral received, and any 
reinvestment risk associated with the collateral is borne by the 
customer.
* * * * *
    Dated: July 23, 1996.

Office of Thrift Supervision
Jonathan L. Fiechter,
Acting Director.
[FR Doc. 96-20639 Filed 8-15-96; 8:45 am]
BILLING CODE 4810-33-P, 6210-01-P, 6714-01-P, 6720-01-P
Last Updated 07/17/1999 communications@fdic.gov