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FDIC Federal Register Citations
Royal Bank of Scotland Group
January 16, 2006
Public Information Room
Office of the Comptroller of the Currency
250 E Street, SW
Mailstop 1-5
Washington, DC 20219
USA |
Robert E. Feldman, Executive Secretary
Federal Deposit Insurance Corporation
550 17th Street, NW
Washington, DC 20429
USA |
Jennifer J. Johnson, Secretary
Board of Governors of the
Federal Reserve System
20th Street an Constitution Avenue, NW
Washington, DC 20551
USA |
Regulation Comments
Chief Counsels Office
Office of Thrift Supervision
1700 G Street, NW
Washington, DC 20552
USA |
Dear
Sirs/Madam,
Joint Advance Notice of Prudential Rulemaking:
Possible modifications to Risk-Based Capital Guidelines
Nos. R-1238 (Federal Reserve Board), 05-16 (OCC), 2005-40 (OTS)
Thank you for the opportunity to comment on your proposals concerning the
creation of a new Basel 1a standard within the United States.
By way of background, the Royal Bank of Scotland (RBS) is the eighth
largest bank in the world, by market capitalisation. We have significant
exposure in North America, including Retail and Commercial Banking, Asset
Finance and Capital Markets operations. The largest single US business,
measured by assets, is Citizens Financial Group, Inc., a Providence-based
commercial bank holding company operates branches in 13 states including
Connecticut, Delaware, Illinois, Indiana, Massachusetts, Michigan, New
Hampshire, New Jersey, New York, Ohio, Pennsylvania, Vermont, and Rhode
Island, with non-branch offices in more than 30 states. Citizens Bank, with
over $148 billion in assets, falls outside the "top 10" group of core banks
mandated to operate the advanced approaches for credit and operational risk
by 1st January 2009.
However, Citizens, does fall into the second tier of Banks that may opt
in to the advanced approaches. The majority of the Group's other exposures
fall within the EU and will be covered by the recently agreed EU Capital
Requirements Directive (EU CRD).
With regards to your Basel 1a proposals, we have been active in the Risk
Management Association (RMA) response and support its conclusions. However,
the objective of this separate response is to highlight certain issues that
are particularly pertinent to an internationally active bank like ourselves,
expected to migrate to the Basel 2 advanced approaches.
Our key points are:
The Basel 1a proposals would benefit from a Quantitative Impact
Study: Once the final rules in this area are known, it would be very
useful to understand the likely level of regulatory capital delivered
through this approach. This would enable firms to consider the strategic
consequences of the various approaches, including any unintended
competitive implications across certain portfolios and markets. The
results of such a study would facilitate deeper discussion regarding the
various risk-weighting proposals made within the ANPR (HVCRE, residential
real estate, etc.) as well as any areas which may become unduly
burdensome should such changes be implemented.
What is the future role, if any, of Basel 1? Initially, our
expectation was that Basel 1a would replace Basel 1; however, the future
of Basel 1 and the timing of the implementation of Basel 1a remain
unclear. It would be useful to have greater clarity regarding regulatory
expectations. For example, will Basel 1 be an option should any certain
portfolio be deemed immaterial or given exemption status? Also, can firms
adopting Basel 2 retain Basel 1 for the calculation of capital floors, or
is it a requirement to implement a Basel 1a solution for this purpose?
Given that EU firms with branches in the US will be using Basel 1 to
calculate capital floors, it may make sense to use the same approach in
the US, thereby minimising international fragmentation.
Timing of implementation: irrespective of the above, we
believe there is real value in having the Basel 1a changes coming into
effect at the same time as the US authorities move to Basel 2, i.e.,
1/1/09. Larger firms are very much focused towards that objective;
Citizens Financial Group would not wish to be diverted from this goal by
having to implement a further set of standards on some different
timescale.
Basel 1a does not provide a solution to the gap year issues
relating from the change in US implementation date to 2009.
Please do not hesitate to contact me should you wish to discuss any of
these points in more detail.
Yours faithfully,
Richard Gossage
Chief Risk Officer
Royal Bank of Scotland Group
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