FIL-64-96 Attachment

[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