[Federal Register: February 15, 1995 (Volume 60, Number 31)]
[Proposed Rules]
[Page 8582-8583]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
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[[Page 8582]]
FEDERAL DEPOSIT INSURANCE CORPORATION
12 CFR Part 325
RIN 3064-AB54
Capital Maintenance
AGENCY: Federal Deposit Insurance Corporation (FDIC).
ACTION: Proposed Rule.
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SUMMARY: The FDIC is proposing to amend its risk-based capital
guidelines to modify the definition of the OECD-based group of
countries. Claims on the governments and banks of this group generally
receive lower risk weights than corresponding claims on the governments
and banks of non-OECD-based countries. The FDIC is proposing this
amendment on the basis of an announcement, made on July 15, 1994, by
the Basle Committee on Banking Supervision (Basle Committee) that,
subject to national consultation, the Basle Committee plans to
introduce a change to the Basle Accord in 1995. The effect of the
proposed modification would be to exclude from the OECD-based group of
countries which are eligible for the lower risk weights any country
that has rescheduled its external sovereign debt within the previous
five years.
DATES: Comments on the proposal must be received by March 17, 1995.
ADDRESSES: All comments should be submitted to Robert E. Feldman,
Acting Executive Secretary, Attention: Room F-402, Federal Deposit
Insurance Corporation, 550 17 Street NW., Washington, D.C. 20429.
Comments may be hand delivered to Room F-402, 1776 F Street NW.,
Washington, DC, on business days between 8:30 a.m. and 5:00 p.m. [Fax
number: (202)898-3838.] Comments will be available for inspection at
the FDIC's Reading Room, Room 7118, 550 17th Street NW., Washington,
D.C. between 9:00 a.m. and 4:30 p.m. on business days.
FOR FURTHER INFORMATION CONTACT: For supervisory purposes, Stephen G.
Pfeifer, Examination Specialist, Accounting Section, Division of
Supervision (202/898-8904); for legal purposes, Dirck A. Hargraves,
Attorney, Legal Division (202/898-7049).
SUPPLEMENTARY INFORMATION:
I. Background
In 1988 the central bank governors of the G-10 countries endorsed
international capital standards (the Basle Accord)<SUP>1 establishing a
risk-based framework for measuring the capital adequacy of
internationally-active banks. Under the framework, risk-weighted assets
are calculated by assigning assets and off-balance-sheet items to broad
categories based primarily on their credit risk; that is, the risk that
a banking organization will incur a loss due to an obligor or
counterparty default on a transaction. Risk weights range from zero
percent, for assets with minimal credit risk (such as U.S. Treasury
securities), to 100 percent, which is the risk weight that applies to
most private sector claims, including commercial loans.
\1\The Basle Accord was issued in 1988 by the Basle Committee,
which is comprised of representatives of the central banks and
supervisory authorities from the G-10 countries (Belgium, Canada,
France, Germany, Italy, Japan, the Netherlands, Sweden, Switzerland,
the United Kingdom, and the United States) and Luxembourg. In 1989
the FDIC adopted a Statement of Policy on Risk-Based Capital
(Appendix A to Part 325) to implement the Basle Accord. This risk-
based capital policy statement applies to the state nonmember banks
for which the FDIC is the appropriate federal banking agency.
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While the Basle Accord primarily focuses on credit risk, it also
incorporates country transfer risk considerations.<SUP>2 In addressing
transfer risk, the Basle Committee members examined several methods for
assigning obligations of foreign countries to the various risk
categories. Ultimately, the Basle Committee decided to use a defined
group of countries considered to be of high credit standing as the
basis for differentiating claims on foreign governments and banks. For
this purpose, the Basle Committee determined this group as the 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 (IMF) associated with
the IMF's General Arrangements to Borrow.<SUP>3 These countries are
referred to as the OECD-based group of countries and encompass most of
the major industrial countries, including all members of the G-10 and
the European Union.
\2\ Transfer risk generally refers to the possibility that an
asset cannot be serviced in the currency of payment because of a
lack of, or restraints on, the availability of needed foreign
exchange in the country of the obligor.
\3\The OECD is an international organization of countries which
are committed to market-oriented economic policies, including the
promotion of private enterprise and free market prices; liberal
trade policies; and the absence of exchange controls. Full members
of the OECD at the time the Basle Accord was endorsed included
Australia, Austria, Belgium, Canada, Denmark, Finland, France,
Germany, Greece, Iceland, Ireland, Italy, Japan, Luxembourg, the
Netherlands, New Zealand, Norway, Portugal, Spain, Sweden,
Switzerland, Turkey, the United Kingdom, and the United States. In
May 1994, Mexico was accepted as a full member of the OECD. In
addition, Saudi Arabia has concluded special lending arrangements
associated with the International Monetary Fund's General
Arrangements to Borrow.
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Under both the Basle Accord and the FDIC's risk-based capital
guidelines, claims on the governments and banks of the OECD-based group
of countries generally receive lower risk weights than corresponding
claims on the governments and banks of non-OECD countries.
Specifically, the FDIC's risk-based capital policy statement provides
for the following treatment:
<bullet> Direct claims on, and the portions of claims that are
directly and unconditionally guaranteed by, OECD-based central
governments (including central banks) are assigned to the zero percent
risk weight category. Claims on central governments outside the OECD-
based group are assigned to the zero percent risk weight category only
if such claims are denominated in the national currency (i.e., local
currency claims) and funded by liabilities in the same currency.
<bullet> Claims conditionally guaranteed by OECD-based central
governments and claims collateralized by securities issued or
guaranteed by OECD-based central governments generally are assigned to
the 20 percent risk weight category. The same types of claims on non-
OECD countries are assigned to the 100 percent risk category.
<bullet> Long-term claims on OECD banks are assigned to the 20
percent risk-weight category. Long-term claims on non-OECD banks are
assigned to the 100 percent risk category. (Short-term claims on all
banks, whether they are members of the OECD-based group of countries or
not, are assigned a 20 percent risk weight.)
<bullet> General obligation bonds that are obligations of states or
other political subdivisions of the OECD-based group of countries are
assigned to the 20 percent risk category. Revenue bonds of such
political subdivisions are assigned to the 50 percent risk category.
Both general obligation and revenue bonds of political
subdivisions of non-OECD countries are assigned to the 100
percent risk category.
Recently, the OECD has taken steps to expand its membership. In
light of these steps, the Basle Committee was urged to clarify an
ambiguity in the Basle Accord as to whether the OECD members eligible
for the lower risk weights include only those members that were in the
OECD when the Basle Accord was endorsed in 1988 or all members,
regardless of entry date into the OECD. The Basle Committee also
reviewed the overall appropriateness of the criteria the Basle Accord
uses to determine whether claims on a foreign government
[[Page 8583]] or bank qualify for placement in a lower risk category.
As part of this review, the Basle Committee reassessed whether
membership in the OECD (or the conclusion of special lending
arrangements with the IMF) would, by itself, be sufficient to ensure
that only countries with relatively low transfer risk would continue to
be eligible for lower risk weight treatment.
On July 15, 1994, the Basle Committee made an announcement to
clarify that the reference in the Basle Accord to OECD members applies
to all current members of the organization. The announcement also
stated that it is the Basle Committee's intention, subject to national
consultation, to record a change to the Basle Accord in 1995 that would
modify the definition of the OECD-based group of countries for risk-
based capital purposes. The change, if adopted, would exclude from
lower risk weight treatment any country within the OECD-based group of
countries that has rescheduled its external sovereign debt within the
previous five years. The Basle Committee announcement was endorsed by
the G-10 Governors.
II. Proposed Rule
In view of the Basle Committee's announcement, the FDIC is
proposing to amend its risk-based capital guidelines to modify the
definition of the OECD-based group of countries. Under the proposal,
the OECD-based group of countries would continue to include countries
that are currently full members of the OECD, regardless of entry date,
as well as countries that have concluded special lending arrangements
with the IMF associated with the Fund's General Arrangements to Borrow,
but would exclude any country within this group that has rescheduled
its external sovereign debt within the previous five years. The effect
of the proposed modification would be to clarify that membership in the
OECD-based group of countries must coincide with relatively low
transfer risk in order for a country to be eligible for differentiated
capital treatment.
For purposes of this proposal, an event of rescheduling of external
sovereign debt generally would include renegotiations of terms arising
from the country's inability or unwillingness to meet its external debt
service obligations. Renegotiations of debt in the normal course of
business generally do not indicate transfer risk of the kind that would
preclude an OECD-based country from qualifying for lower risk weight
treatment. One example of such a routine renegotiation would be a
renegotiation to allow the borrower to take advantage of a change in
market conditions, such as a decline in interest rates.
The FDIC invites comment on all aspects of this proposal.
III. Regulatory Flexibility Act
The Board of Directors of the FDIC hereby certifies that adoption
of this proposed amendment to part 325 will not have a significant
economic impact on a substantial number of small business entities (in
this case, small banking organizations) within the meaning of the
Regulatory Flexibility Act requirements (5 U.S.C. 601 et seq.). This
amendment will not necessitate the development of sophisticated
recordkeeping or reporting systems by small institutions nor will small
institutions need to seek out the expertise of specialized accountants,
lawyers, or managers to comply with this regulation. In light of this
certification, the Regulatory Flexibility Act requirements (at 5 U.S.C.
603, 604) to prepare initial and final regulatory flexibility analyses
do not apply.
IV. Paperwork Reduction Act
The FDIC has determined that the proposed amendment, if adopted,
would not increase the regulatory paperwork burden of state nonmember
banks pursuant to the provisions of the Paperwork Reduction Act (44
U.S.C. 3501 et seq.). Consequently, no information has been submitted
to the Office of Management and Budget for review.
List of Subjects in 12 CFR Part 325
Bank deposit insurance, Banks, Banking, Capital adequacy, Reporting
and recordkeeping requirements, Savings Associations, State nonmember
banks.
For the reasons set forth in the preamble, the Board of Directors
of the Federal Deposit Insurance Corporation proposes to amend part 325
of title 12 of the Code of Federal Regulations 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, 3907, 3909; 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. Appendix A to part 325 is amended by revising footnote 12 in
section II.B.2. to read as follows:
Appendix A to Part 325--Statement of Policy on Risk-Based Capital
* * * * *
II. * * *
B. * * *
2. * * *\12\ * * *
\12\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 (IMF) associated
with the IMF's General Arrangements to Borrow, but excludes any
country that has rescheduled its external sovereign debt within the
previous five years. The OECD includes the following countries:
Australia, Austria, Belgium, Canada, Denmark, Finland, France,
Germany, Greece, Iceland, Ireland, Italy, Japan, Luxembourg, Mexico,
the Netherlands, New Zealand, Norway, Portugal, Spain, Sweden,
Switzerland, Turkey, the United Kingdom and the United States. Saudi
Arabia has concluded special lending arrangements with the IMF
associated with the IMF's General Arrangements to Borrow.
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* * * * *
By order of the Board of Directors.
Dated at Washington, D.C. this 31st day of January, 1995.
Federal Deposit Insurance Cprporation
Robert E. Feldman,
Acting Executive Secretary.
[FR Doc. 95-3692 Filed 2-14-95; 8:45 am]
BILLING CODE 6714-01-P
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