The proposed rule:
Applies to all banks that use the advanced approaches rules to calculate
their risk-based capital requirements.
Consistent with Section 171 of the Act, replaces the "transitional floors"
in the advanced approaches rules with a permanent floor equal to the minimum
capital requirement computed using the agencies' general risk-based capital
Amends the agencies' general risk-based capital rules to allow banks to use
the Bank Holding Company capital rules in limited circumstances to determine
the capital requirements for low-risk assets not typically held by banks.
Requests comment on how the proposed rule should be applied to foreign banks
in evaluating their capital equivalency in the context of applications to
establish branches or make bank or nonbank acquisitions in the United
States, and in evaluating capital comparability in the context of foreign
bank financial holding company declarations.
The deadline for comments is 60 days from the date of publication in The
Continuation of FIL-88-2010
FDIC-Supervised Banks (Commercial and Savings)
Chief Executive Officer
Chief Financial Officer
Chief Risk Officer
Risk-Based Capital Rules
12 CFR Part 325
Joint Notice of Proposed Rulemaking,
Risk-Based Capital Standards: Advanced Capital Adequacy
Framework—Basel II; Establishment of a Risk-Based Capital Floor -
George French, Deputy Director at email@example.com or (202) 898-3929
Nancy Hunt, Associate Director at
firstname.lastname@example.org or (202) 898-6643
FDIC financial institution letters (FILs) may be accessed from the FDIC's Web
site at www.fdic.gov/news/news/financial/2010/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, E-1002, Arlington, VA
22226 (1-877-275-3342 or 703-562-2200).
Key Aspects of the Proposed Rule on Advanced
Capital Adequacy Framework—Basel II; Establishment of a
Risk-Based Capital Floor
On December 14, 2010, the FDIC of Directors approved a joint Notice of Proposed
Rulemaking (NPR) to implement certain requirements of Section 171 of the Dodd
Frank Wall Street Reform and Consumer Protection Act. Section 171 is more
generally known as the Collins Amendment.
Section 171 requires, among other things, that the agencies' generally
applicable capital requirements serve as a floor for other capital requirements
the agencies may establish. Along with the Office of the Comptroller of the
Currency (OCC) and the Board of Governors of the Federal Reserve System (Federal
Reserve), the FDIC is proposing to modify the advanced approaches capital rule
consistent with Section 171.
Section 171 defines the "generally applicable" risk-based capital requirements
as those applied to insured institutions under the agencies' Prompt Corrective
Action regulations regardless of total consolidated assets or foreign exposure.
The agencies' general risk-based capital rules establish minimum capital
requirements pursuant to prompt corrective action for all insured institutions
regardless of size. Accordingly, the agencies' general risk-based capital rules
are the "generally applicable capital risk-based capital requirements" as that
term is defined in Section 171.
Again as specified in section 171, the generally applicable risk-based capital
requirements must serve as a floor for other capital requirements the agencies
may establish. The advanced approaches rule, however, allows banks using it to
operate with capital requirements potentially well below the requirements
generally applicable to other banks.
That is why the FDIC is joining with the OCC and the Federal Reserve in
proposing to modify the advanced approaches rule to be consistent with the
capital floor provisions of section 171. The advanced approaches rule currently
provides a series of transitional floors allowing banks using it to operate
during three transition periods with risk-based capital requirements that are 95
percent, 90 percent and 85 percent respectively of the risk-based capital
requirements computed under the general capital rules. The advanced approaches
rule also provides the potential, after these transition periods, for banks to
operate without any floor on risk-based capital requirements.
Consistent with section 171, the agencies are proposing to eliminate the
transitional floors in the advanced approach and replace them with a permanent
risk-based capital floor equal to 100 percent of the capital requirement
computed under the agencies general risk-based capital requirements.
Section 171 does not prevent the agencies from amending the generally applicable
capital requirements over time. As noted in the preamble to the NPR, however,
those new generally applicable capital requirements would become the new floor
for banking organizations using the advanced approach.
Section 171 also provides that future versions of the generally applicable
capital requirements should not be quantitatively lower than the requirements in
effect as of the enactment of the Dodd Frank Act. The preamble to the NPR notes
that the agencies would envision performing quantitative analyses designed to
avoid an impermissible reduction in capital requirements. The preamble
specifically states that the agencies would not envision, for example, requiring
banks to compute two sets of generally applicable requirements (the July 2010
requirements and some future modified set of requirements).
The agencies are also proposing to allow banks in limited circumstances to use
the capital requirements applicable to Bank Holding Companies. These
circumstances are limited to situations where a bank would not be able to hold
the asset except under special authority and the asset has a risk-profile lower
than that of other assets receiving a risk-weight of less than 100 percent. This
proposed change is intended to allow the Federal Reserve increased flexibility
to craft appropriate capital requirements for low risk nonbank assets, in a way
that is consistent with Section 171 and that does not provide material
opportunities for depository institutions to engage in capital arbitrage.
Comments on this NPR are due 60 days after its publication in The Federal
Register. The Office of Thrift Supervision (OTS) has indicated its intention to
publish a similar NPR.