Regulatory Capital Rule: Regulatory Capital and Standardized Approach for Risk-weighted Assets

Summary:

The Federal Deposit Insurance Corporation, the Board of Governors of the Federal Reserve System, and the Office of the Comptroller of the Currency jointly issued a proposal that would revise certain elements of the calculation of risk-weighted assets under the standardized approach and make certain adjustments to the definition of regulatory capital.  The revised standardized approach would improve the regulatory capital framework by retaining its simplicity while improving its risk sensitivity.

Statement of Applicability: The contents of, and material referenced in, this FIL apply to FDIC-insured financial institutions that are subject to risk-based capital requirements and do not apply the expanded risk-based approach.

Highlights:

• The proposal would modify the risk weights under the current standardized approach for certain residential mortgage exposures, retail exposures, and corporate exposures.
• For certain residential mortgage exposures, the proposal would introduce a broader range of risk weights based on more granular risk factors including the use of loan-to-value ratios.
• It would also make targeted adjustments to the existing methodologies for determining exposure amounts for counterparty credit risk and risk-weighted asset amounts for securitizations, as well as for recognizing the benefits of certain synthetic risk transactions. The proposal would also adjust the recognition of credit risk mitigants.
• Category III and Category IV banking organizations would be required to include most components of AOCI in regulatory capital and would be provided with a five-year transition period.
• The proposal also would revise the treatment of mortgage servicing assets by removing the regulatory capital deduction requirement and seek comment on further changes. This revision would apply to all banking organizations, including those electing to use the community bank leverage ratio framework.
• Consistent with the expanded risk-based proposal, certain dollar-based thresholds in the capital rule would be adjusted in the future to reflect inflation, pursuant to a pre-determined indexing methodology.
• Comments are due June 18, 2026.