# FDIC FIL-48-2011: Risk-Based Capital Standards Final Rule on Advanced Capital Adequacy Framework—Basel II; Establishment of a Risk-Based Capital Floor

> Federal · Agency guidance · Superseded

URL: https://www.frixlaw.com/law-library/statutes/FDIC_FIL11048

## Section

- **Citation:** FDIC FIL-48-2011
- **Heading:** Risk-Based Capital Standards Final Rule on Advanced Capital Adequacy Framework—Basel II; Establishment of a Risk-Based Capital Floor
- **Jurisdiction:** Federal
- **Kind:** Agency guidance
- **Status:** Superseded
- **Text as of:** August 14, 2026
- **Source:** Compiled text
- **Location:** FDIC Financial Institution Letters / Risk-Based Capital Standards Final Rule on Advanced Capital Adequacy Framework—Basel II › Establishment of a Risk-Based Capital Floor

## Text

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DEPARTMENT OF THE TREASURY

Office of the Comptroller of the Currency
12 CFR Part 3
Docket No. -2010-0009
RIN Number 1557-AD33

FEDERAL RESERVE SYSTEM
12 CFR Parts 208 and 225
Regulations H and Y; Docket No. R-1402
RIN No. 7100-AD62

FEDERAL DEPOSIT INSURANCE CORPORATION
12 CFR Part 325
RIN 3064-AD58

Risk-Based Capital Standards: Advanced Capital Adequacy Framework—Basel II;
Establishment of a Risk-Based Capital Floor
AGENCIES: Office of the Comptroller of the Currency, Treasury; Board of Governors
of the Federal Reserve System; and the Federal Deposit Insurance Corporation.
ACTION: Final rule.
SUMMARY: The Office of the Comptroller of the Currency (OCC), Board of
Governors of the Federal Reserve System (Board), and the Federal Deposit Insurance
Corporation (FDIC) (collectively, the agencies) are amending the advanced risk-based
capital adequacy standards (advanced approaches rules) in a manner that is consistent
with certain provisions of the Dodd-Frank Wall Street Reform and Consumer Protection
Act (the Act), and the general risk-based capital rules to provide limited flexibility
consistent with section 171(b) of the Act for recognizing the relative risk of certain assets
generally not held by depository institutions.
DATES: This final rule is effective [INSERT DATE 30 DAYS AFTER PUBLICATION
IN THE FEDERAL REGISTER].

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FOR FURTHER INFORMATION CONTACT:
OCC: Mark Ginsberg, Risk Expert, (202) 874-5070, Capital Policy Division; or Carl
Kaminski, Senior Attorney, or Stuart Feldstein, Director, Legislative and Regulatory
Activities, (202) 874-5090.
Board: Anna Lee Hewko, (202) 530–6260, Assistant Director, or Brendan Burke,
ule is effective [INSERT DATE 30 DAYS AFTER PUBLICATION
IN THE FEDERAL REGISTER].

2

FOR FURTHER INFORMATION CONTACT:
OCC: Mark Ginsberg, Risk Expert, (202) 874-5070, Capital Policy Division; or Carl
Kaminski, Senior Attorney, or Stuart Feldstein, Director, Legislative and Regulatory
Activities, (202) 874-5090.
Board: Anna Lee Hewko, (202) 530–6260, Assistant Director, or Brendan Burke,
(202) 452–2987 Senior Supervisory Financial Analyst, Division of Banking Supervision
and Regulation, or April C. Snyder, (202) 452–3099, Counsel, or Benjamin W.
McDonough, (202) 452–2036, Counsel, Legal Division. For the hearing impaired only,
Telecommunication Device for the Deaf (TDD), (202) 263–4869.
FDIC: George French, Deputy Director, Policy, (202) 898-3929, Nancy Hunt,
Associate Director, Capital Markets Branch, (202) 898-6643, Division of Risk
Management Supervision; or Mark Handzlik, Counsel (202) 898-3990, or Michael
Phillips, Counsel (202) 898-3581, Supervision and Legislation Branch, Legal Division.
SUPPLEMENTARY INFORMATION
I.
Background
A.
Overview of the requirements of the Act
Section 171(b)(2) of the Act1 states that the agencies shall establish minimum
risk-based capital requirements on a consolidated basis for insured depository
institutions, depository institution holding companies, and nonbank financial companies
supervised by the Federal Reserve (covered institutions).2 In particular, and as described
in more detail below, sections 171(b)(1) and (2) specify that the minimum leverage and

1 Pub. L. 111-203, section 171, 124 Stat. 1376, 1435-38 (2010).
2 12 U.S.C. 5371, Pub. L. 111-203, section 171, 124 Stat. 1376, 1435-38 (2010).
k financial companies
supervised by the Federal Reserve (covered institutions).2 In particular, and as described
in more detail below, sections 171(b)(1) and (2) specify that the minimum leverage and

1 Pub. L. 111-203, section 171, 124 Stat. 1376, 1435-38 (2010).
2 12 U.S.C. 5371, Pub. L. 111-203, section 171, 124 Stat. 1376, 1435-38 (2010).

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risk-based capital requirements established under section 171 shall not be less than the
“generally applicable” capital requirements, which shall serve as a floor for any capital
requirements the agencies may require. Moreover, sections 171(b)(1) and (2) specify that
the Federal banking agencies may not establish leverage or risk-based capital
requirements for covered institutions that are quantitatively lower than the generally
applicable leverage or risk-based capital requirements in effect for insured depository
institutions as of the date of enactment of the Act.3
B.
Advanced approaches rules4
On December 7, 2007, the agencies published in the Federal Register a final rule
to implement the advanced approaches rules, which are mandatory for banks and bank
holding companies (collectively, banking organizations) meeting certain thresholds for
total consolidated assets or foreign exposure.5 The advanced approaches rules
incorporate a series of proposals released by the Basel Committee on Banking
Supervision (Basel Committee or BCBS), including the Basel Committee’s

3 On March 8, 2011, in an NPR that paralleled the agencies’ rulemaking, the Office of
Thrift Supervision (OTS) issued a notice in which OTS proposed to amend 12 CFR part
567, which sets forth the capital regulations applicable to savings associations. 45 FR
12,611 (March 8, 2011). OTS received one comment on its proposal
the Basel Committee’s

3 On March 8, 2011, in an NPR that paralleled the agencies’ rulemaking, the Office of
Thrift Supervision (OTS) issued a notice in which OTS proposed to amend 12 CFR part
567, which sets forth the capital regulations applicable to savings associations. 45 FR
12,611 (March 8, 2011). OTS received one comment on its proposal. The Act specifies
that the regulatory authority and other functions of OTS will transfer to OCC on the
transfer date provided in the Act, which is expected to be July 21, 2011. Given that the
OTS’s parallel rulemaking is subject to a 90 day review by the Office of Management
and Budget pursuant to Executive Order 12866, it would be impracticable for OTS to
issue a final rule before the transfer date. The OTS and OCC anticipate that OCC would
issue a final rule to amend the capital regulations applicable to savings associations, after
the transfer date.
4 12 CFR part 3, Appendix C (OCC); 12 CFR part 208, Appendix F and 12 CFR part
225, Appendix G (Board); and 12 CFR part 325 Appendix D (FDIC).
5 72 FR 69288 (December 7, 2007). Subject to prior supervisory approval, other banking
organizations can opt to use the advanced approaches rules. Id. at 69397.

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comprehensive June 2006 release entitled “International Convergence of Capital
Measurement and Capital Standards: A Revised Framework” (New Accord).6
To provide a smooth transition to the advanced approaches rules and to limit
temporarily the amount by which a banking organization’s risk-based capital
requirements could decline relative to the general risk-based capital rules, the advanced
approaches rules established a series of transitional floors over a period of at least three
years following a banking organization’s completion of a satisfactory parallel run.7
During the transitional floor periods, a banking organization’s risk-based capital ratios
are equal to the lesser of (i) the organization’s ratios calculated under the advanc
ral risk-based capital rules, the advanced
approaches rules established a series of transitional floors over a period of at least three
years following a banking organization’s completion of a satisfactory parallel run.7
During the transitional floor periods, a banking organization’s risk-based capital ratios
are equal to the lesser of (i) the organization’s ratios calculated under the advanced
approaches rules and (ii) its ratios calculated under the general risk-based capital rules,
with tier 1 and total risk-weighted assets as calculated under the general risk-based
capital rules multiplied by 95 percent, 90 percent, and 85 percent during the first, second,
and third transitional floor periods, respectively.8 Under this approach, a banking
organization that uses the advanced approaches rules is permitted to operate with lower
minimum risk-based capital requirements during a transitional floor period, and
potentially thereafter, than would be required under the general risk-based capital rules.

6 The BCBS is a committee of banking supervisory authorities established by the central
bank governors of the G-10 countries in 1975. The BCBS issued the New Accord to
modernize its first capital accord (“International Convergence of Capital Measurement
and Capital Standards” or “Basel I”), which was endorsed by the BCBS members in 1988
and implemented by the agencies in 1989. The New Accord, the 1988 Accord, and other
documents issued by the BCBS are available through the Bank for International
Settlements’ Web site at www.bis.org.
7 12 CFR part 3, Appendix A (OCC); 12 CFR parts 208 and 225, Appendix A (Board);
12 CFR part 325, Appendix A (FDIC).
8 Under the advanced approaches rules, the minimum tier 1 risk-based capital ratio is 4
percent and the minimum total risk-based capital ratio is 8 percent
ther
documents issued by the BCBS are available through the Bank for International
Settlements’ Web site at www.bis.org.
7 12 CFR part 3, Appendix A (OCC); 12 CFR parts 208 and 225, Appendix A (Board);
12 CFR part 325, Appendix A (FDIC).
8 Under the advanced approaches rules, the minimum tier 1 risk-based capital ratio is 4
percent and the minimum total risk-based capital ratio is 8 percent. See 12 CFR part 3,
Appendix C (OCC); 12 CFR part 208, Appendix F and 12 CFR part 225, Appendix G
(Board); and 12 CFR part 325 Appendix D (FDIC).

5
To date, no U.S.-domiciled banking organization has entered a transitional floor period
and all U.S-domiciled banking organizations are required to compute their risk-based
capital requirements using the general risk-based capital rules.
C.
Requirements of section 171 of the Act
Section 171(a)(2) of the Act defines the term “generally applicable risk-based
capital requirements” to mean: “(A) the risk-based capital requirements, as established by
the appropriate Federal banking agencies to apply to insured depository institutions under
the prompt corrective action regulations implementing section 38 of the Federal Deposit
Insurance Act, regardless of total consolidated asset size or foreign financial exposure;
and (B) includes the regulatory capital components in the numerator of those capital
requirements, the risk-weighted assets in the denominator of those capital requirements,
and the required ratio of the numerator to the denominator.” Section 171(b)(2) of the Act
further provides that “[t]he appropriate Federal banking agencies shall establish minimum
risk-based capital requirements on a consolidated basis for insured depository
institutions, depository institution holding companies, and nonbank financial companies
supervised by the Board of Governors
uirements,
and the required ratio of the numerator to the denominator.” Section 171(b)(2) of the Act
further provides that “[t]he appropriate Federal banking agencies shall establish minimum
risk-based capital requirements on a consolidated basis for insured depository
institutions, depository institution holding companies, and nonbank financial companies
supervised by the Board of Governors. The minimum risk-based capital requirements
established under this paragraph shall not be less than the generally applicable risk-based
capital requirements, which shall serve as a floor for any capital requirements that the
agency may require, nor quantitatively lower than the generally applicable risk-based
capital requirements that were in effect for insured depository institutions as of the date
of enactment of this Act.”
In accordance with section 38 of the Federal Deposit Insurance Act, the Federal
banking agencies established minimum leverage and risk-based capital requirements for

6
insured depository institutions for prompt corrective action (PCA) rules.9 All insured
institutions, regardless of their total consolidated assets or foreign exposure, must
compute their minimum risk-based capital requirements for PCA purposes using the
general risk-based capital rules, which currently are the “generally applicable risk-based
capital requirements” defined by Section 171(a)(2) of the Act.
D.
The proposed rule
By notice in the Federal Register dated December 30, 2010, the agencies issued a
notice of proposed rulemaking10 (NPR) to modify the advanced approaches rules
consistent with section 171(b)(2) of the Act. In particular, the agencies proposed to
revise the advanced approaches rules by replacing the transitional floors in section 21(e)
of the advanced approaches rules with a permanent floor equal to the tier 1 and total risk-
based capital requirements of the generally applicable risk-based capital rules
(“permanent floor”)
advanced approaches rules
consistent with section 171(b)(2) of the Act. In particular, the agencies proposed to
revise the advanced approaches rules by replacing the transitional floors in section 21(e)
of the advanced approaches rules with a permanent floor equal to the tier 1 and total risk-
based capital requirements of the generally applicable risk-based capital rules
(“permanent floor”). Under the proposal, each quarter, each banking organization subject
to the advanced approaches rules would be required to calculate and compare its
minimum tier 1 and total risk-based capital ratios as calculated under the general risk-
based capital rules with the same ratios as calculated under the advanced approaches risk-
based capital rules. The banking organization would then compare the lower of the two
tier 1 risk-based capital ratios and the lower of the two total risk-based capital ratios to
the minimum tier 1 ratio requirement of 4 percent and total risk-based capital ratio

9 See 12 U.S.C. 1831o, Pub. L. 102-242, 105 Stat. 2242 (1991); see also 12 CFR part
208, subpart D (Board).
10 75 FR 82317 (December 30, 2010).

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requirement of 8 percent in section 3 of the advanced approaches rules11 to determine
whether it meets its minimum risk-based capital requirements.12
For bank holding companies subject to the advanced approaches rule, the proposal
stated that in calculating their risk-based capital ratios, these organizations must calculate
their floor requirements under the general risk-based capital rules for state member
banks.13 However, in accordance with the Act, they may include certain debt or equity
instruments issued before May 19, 2010 as described in section 171(b)(4)(B) of the
Dodd-Frank Act.
approaches rule, the proposal
stated that in calculating their risk-based capital ratios, these organizations must calculate
their floor requirements under the general risk-based capital rules for state member
banks.13 However, in accordance with the Act, they may include certain debt or equity
instruments issued before May 19, 2010 as described in section 171(b)(4)(B) of the
Dodd-Frank Act.. The agencies also proposed to eliminate the provisions of the
advanced approaches rules relating to transitional floor periods and the interagency study
of any material deficiencies in the rules.14 If the proposed permanent floor were
implemented, these provisions of the advanced approaches rules would no longer serve a
purpose.
The proposal also included a modification to the general risk-based capital rules
to address the appropriate capital requirement for low-risk assets held by depository

11 12 CFR part 3, Appendix C, section 3 (OCC); 12 CFR part 208, Appendix F, section 3
and 12 CFR part 225, Appendix G, section 3 (Board); and 12 CFR part 325, section 3
Appendix D (FDIC).
12 Banking organizations that use the advanced approaches rules are subject to the same
minimum leverage requirements that apply to other banking organizations. That is,
advanced approaches banks calculate only one leverage ratio using the numerator as
calculated under the generally risk-based capital rules. Accordingly, the agencies did not
propose any change to the calculation of the leverage ratio requirements for banking
organizations that use the advanced approaches rules.
13 12 CFR part 208, appendix A.
14 Supra, section 21(e)(6) Interagency study. For any primary Federal supervisor to
authorize any institution to exit the third transitional floor period, the study must
determine that there are no such material deficiencies that cannot be addressed by then-
existing tools, or, if such deficiencies are found, they are first remedied by changes to this
appendix
13 12 CFR part 208, appendix A.
14 Supra, section 21(e)(6) Interagency study. For any primary Federal supervisor to
authorize any institution to exit the third transitional floor period, the study must
determine that there are no such material deficiencies that cannot be addressed by then-
existing tools, or, if such deficiencies are found, they are first remedied by changes to this
appendix.

8
institution holding companies15 or by nonbank financial companies supervised by the
Board pursuant to a designation by the Financial Stability Oversight Council (FSOC), in
situations where there is no explicit capital treatment for such exposures under the
general risk-based capital rules. The agencies proposed that such exposures receive the
capital treatment applicable under the capital guidelines for bank holding companies
under limited circumstances. The circumstances are intended to allow for an appropriate
capital requirement for low-risk, nonbanking exposures without creating unintended new
opportunities for depository institutions to engage in capital arbitrage. Accordingly, the
agencies proposed to limit this treatment to cases in which a depository institution is not
authorized to hold the asset under applicable law other than under the authority to hold an
asset in connection with the satisfaction of a debt previously contracted or similar
authority, and the risks associated with the asset are substantially similar to the risks of
assets that otherwise are assigned a risk weight of less than 100 percent under the general
risk-based capital rules.16
II. Comments Received
A.
Overview
The agencies collectively received 16 comments from both domestic and
international trade associations and from individual financial institutions, including
insurance companies
ted with the asset are substantially similar to the risks of
assets that otherwise are assigned a risk weight of less than 100 percent under the general
risk-based capital rules.16
II. Comments Received
A.
Overview
The agencies collectively received 16 comments from both domestic and
international trade associations and from individual financial institutions, including
insurance companies. Groups representing large banking organizations generally argued

15 Section 171 of the Act defines “depository institution holding company” to mean a
bank holding company or a savings and loan holding company (as those terms are
defined in section 3 of the Federal Deposit Insurance Act) that is organized in the United
States, including any bank or savings and loan holding company that is owned or
controlled by a foreign organization, but does not include the foreign organization. See
section 171 of the Act, 12 U.S.C. 5371.
16 See 12 U.S.C. 24(Seventh) and 12 U.S.C. 29 (national banks); 12 U.S.C. § 335; and 12
U.S.C. 1831a(a) (state nonmember banks).

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against the proposed permanent floor. These commenters asserted that it would place
large U.S. banking organizations at a disadvantage relative to their international
competitors, increase their costs, and undermine the risk sensitivity of the advanced
approaches capital rules. In contrast, a trade organization for community banks and a
financial reform advocacy organization supported the proposal.
Commenters representing insurance companies generally supported the proposed
revisions to the general risk-based capital rules for selected nonbank assets, arguing that
insurance companies have different risk profiles and their liabilities and assets are of
different durations compared to banks. These commenters said it would not be
appropriate to mechanically apply bank capital regulations to insurance companies.
B
nsurance companies generally supported the proposed
revisions to the general risk-based capital rules for selected nonbank assets, arguing that
insurance companies have different risk profiles and their liabilities and assets are of
different durations compared to banks. These commenters said it would not be
appropriate to mechanically apply bank capital regulations to insurance companies.
B.
Impact on banking organizations that use the advanced approaches rules
In response to the agencies’ question on how the proposal would affect U.S.
banking organizations that use the advanced approaches rules, several commenters,
mostly representing the largest U.S. financial institutions, expressed strong concerns
about the proposed permanent floor, while acknowledging that the agencies were acting
in response to a statutory requirement.17 These commenters generally asserted that the
proposal exceeds the requirements of the Act, and would undermine the risk sensitivity of
the risk-based capital rules, encourage banking organizations to invest more in higher risk
assets, and distort decisions regarding capital allocation. These commenters also
contended that the proposal would put U.S. banks at a disadvantage relative to their
foreign competitors. Some of these commenters expressed a preference for alternative

17 Id. at 82319.

10
approaches to implement section 171 of the Act, including a Pillar 2 supervisory
approach under the New Accord.
Some of the commenters who opposed the permanent floor also criticized the
proposal for retaining two regulatory capital regimes, causing confusion, and diverting
significant resources into developing systems to comply with the advanced rules, without
a corresponding reduction in capital costs due to the imposition of the proposed
permanent floor
supervisory
approach under the New Accord.
Some of the commenters who opposed the permanent floor also criticized the
proposal for retaining two regulatory capital regimes, causing confusion, and diverting
significant resources into developing systems to comply with the advanced rules, without
a corresponding reduction in capital costs due to the imposition of the proposed
permanent floor. These commenters also expressed concern and asked the agencies to
clarify how the proposal would interact with Basel III18 (particularly, the Basel III
leverage ratio and capital conservation buffer), prompt corrective action, and other Dodd-
Frank Act provisions relating to capital adequacy, such as those required by section
165.19 In particular, these commenters expressed concern about what they viewed as
negative consequences of maintaining a Basel I-based floor after full implementation of
Basel III.
In contrast, one commenter representing community banks and another
representing a financial reform advocacy organization expressed strong support for
modifying the advanced approaches rules by replacing the transitional floors with the
permanent floor. These commenters asserted that it is not appropriate for the agencies to
allow large banking organizations to determine their capital requirements based on
internal models because it may allow them to reduce their capital levels and give them a
competitive advantage over community banks, and could also increase negative
procyclical outcomes.

18 The term “Basel III” refers to the new comprehensive set of reform measures
developed by the BCBS to strengthen the regulation, supervision, and risk management
of the banking sector. These releases are available on the BIS website, www.bis.org.
19 See section 165 of the Act; 12 U.S.C. 5365.
also increase negative
procyclical outcomes.

18 The term “Basel III” refers to the new comprehensive set of reform measures
developed by the BCBS to strengthen the regulation, supervision, and risk management
of the banking sector. These releases are available on the BIS website, www.bis.org.
19 See section 165 of the Act; 12 U.S.C. 5365.

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C.
Effect on applications by foreign banking organizations

The preamble to the proposed rule noted that in approving an application by a
foreign banking organization to establish a branch or agency in the United States or to
make a bank or nonbank acquisition, the Board considers, among other factors, whether
the capital of the foreign banking organization is equivalent to the capital that would be
required of a U.S. banking organization.20 In addition, in approving an application by a
foreign banking organization to establish a federal branch or agency, the OCC must make
a similar capital equivalency determination.21 Similarly, in order to make effective a
foreign banking organization’s declaration under the Bank Holding Company Act (BHC
Act) to be treated as a financial holding company (FHC), the Board must apply
comparable capital and management standards to the foreign banking organization
“giving due regard to the principle of national treatment and equality of competitive
opportunity.”22 National treatment generally means treatment that is no less favorable
than that provided to domestic institutions that are in like circumstances. The agencies
have broad discretion to consider relevant factors in making these determinations.
The Board has been making capital equivalency findings for foreign banking
organizations under the International Banking Act and the BHC Act since 1992 pursuant

20 See 12 U.S.C. 1842(c); 1843(j); and 3105(d)(3)(B), (j)(2).
21 See 12 U.S.C. 3103 (a)(3)(B)(i).
22 12 U.S.C. 1843(l)(3)
onsider relevant factors in making these determinations.
The Board has been making capital equivalency findings for foreign banking
organizations under the International Banking Act and the BHC Act since 1992 pursuant

20 See 12 U.S.C. 1842(c); 1843(j); and 3105(d)(3)(B), (j)(2).
21 See 12 U.S.C. 3103 (a)(3)(B)(i).
22 12 U.S.C. 1843(l)(3). A foreign bank that operates a branch, agency or commercial
lending company in the United States and any company that owns such a foreign bank, is
subject to the BHC Act as if it were a bank holding company. The BHC Act, as amended
by the Gramm-Leach Bliley Act, provides that a bank holding company may become an
FHC if its depository institutions meet certain capital and management standards. See 12
U.S.C. 1843(l)(1); 12 CFR 225. Under section 606 of the Act, this requirement will be
modified to require the bank holding company to be well capitalized and well managed.
See the Act, section 606.

12
to guidelines developed as part of a joint study by the Board and Treasury on capital
equivalency.23 The study acknowledged the Basel Committee on Banking Supervision’s
1988 Accord (Basel I) as the prevailing capital standard for internationally active banks
and found that implementation of Basel I was broadly equivalent across countries. Until
2007, the agencies had generally accepted as equivalent the capital of foreign banking
organizations from countries adhering to Basel I within the bounds of national discretion
allowed under the Basel I framework. For foreign banking organizations that have begun
operating under the New Accord’s capital standards, the agencies have evaluated the
capital of the foreign banking organization as reported in compliance with the New
Accord, while also taking into account a range of factors including compliance with the
New Accord’s capital requirement floors linked to Basel I, where applicable
l I framework. For foreign banking organizations that have begun
operating under the New Accord’s capital standards, the agencies have evaluated the
capital of the foreign banking organization as reported in compliance with the New
Accord, while also taking into account a range of factors including compliance with the
New Accord’s capital requirement floors linked to Basel I, where applicable. In some
countries, Basel I floors are no longer in effect, or are expected to be phased out in the
near term.
The NPR sought commenters’ views on how the proposed rule should be applied
to foreign banking organizations in evaluating 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 banking
organization FHC declarations. In raising this question, the agencies recognized the
challenge of administering capital equivalency determinations where the foreign banking
organization is not subject to the same floor requirement as its U.S. counterpart.

23 ‘‘Capital Equivalency Report,’’ Board of Governors of the Federal Reserve System
and Secretary of the U.S. Department of the Treasury (June 19, 1992). See 12 U.S.C.
3105(j).

13

In responding to this question, most commenters asserted that extending U.S.
capital requirements to a foreign banking organization operating outside of the United
States would not be appropriate and would be inconsistent with the Board’s supervisory
practice regarding the recognition of home country capital regulations. Several
commenters noted that subjecting a foreign banking organization to the proposed rule
contradicts the language of the Act, which excludes foreign banking organizations from
the requirements of section 171. Several commenters supported applying the proposed
rule to the U.S
inconsistent with the Board’s supervisory
practice regarding the recognition of home country capital regulations. Several
commenters noted that subjecting a foreign banking organization to the proposed rule
contradicts the language of the Act, which excludes foreign banking organizations from
the requirements of section 171. Several commenters supported applying the proposed
rule to the U.S. operations of foreign banking organizations operating in the United States
to be consistent with requirements for domestic banking organizations.

Some commenters noted that foreign banking organizations operating under the
advanced approaches rules would receive a competitive advantage over U.S. banking
organizations subject to the proposal’s permanent floor requirement. In addition, several
commenters expressed concern that the applying the proposed floor to foreign banking
organizations may incentivize home country supervisors to impose reciprocal
arrangements for U.S. banking organizations operating abroad.

The agencies acknowledge that section 171, by its terms, does not apply to
foreign banking organizations. Rather, the question on capital equivalency and
comparability determinations was intended to seek views on practical ways to administer
such determinations in the context of certain foreign bank organization applications to
enter or expand operations within the United States given the proposal’s requirements
and longstanding supervisory practice. One of the agencies’ supervisory objectives is to
establish a consistent means for making capital equivalency determinations in the context
of foreign banking organization applications to establish branches or to acquire banks or
reign bank organization applications to
enter or expand operations within the United States given the proposal’s requirements
and longstanding supervisory practice. One of the agencies’ supervisory objectives is to
establish a consistent means for making capital equivalency determinations in the context
of foreign banking organization applications to establish branches or to acquire banks or

14
nonbanks in the United States, and in evaluating capital comparability in the context of
foreign banking organization FHC declarations. The agencies recognize the challenges
of establishing a consistent process for evaluating capital equivalency in cases where,
among other things, the foreign banking organization applicant operating under advanced
approaches no longer has the Basel I floor in place in its home country, and therefore no
longer produces financial information based on Basel I requirements. The agencies
believe that it is important to take into consideration the competitive issues highlighted
by commenters. The agencies will continue to evaluate equivalency issues on a case-by-
case basis taking into consideration the comments received.
D.
Proposed capital requirements for certain nonbanking exposures

In the NPR, the agencies sought comment on whether the proposed treatment of
nonbanking exposures described above was appropriate, whether this treatment was
sufficiently flexible to address the exposures of depository institution holding companies
and nonbank financial companies supervised by the Board, and, if not, how the treatment
should be modified.24 Most commenters generally supported allowing flexibility for the
capital treatment of nonbanking assets and agreed with the agencies’ observation that
automatically assigning such assets to the 100 percent risk weight category because they
are not explicitly assigned to a lower risk weight category may not always be appropriate
based on the economic substance of the exposure
ld be modified.24 Most commenters generally supported allowing flexibility for the
capital treatment of nonbanking assets and agreed with the agencies’ observation that
automatically assigning such assets to the 100 percent risk weight category because they
are not explicitly assigned to a lower risk weight category may not always be appropriate
based on the economic substance of the exposure. One commenter broadly agreed with
the proposal but stated that the proposed treatment needed further clarification. Another
commenter noted that the rule also should provide for higher capital requirements,
particularly for those exposures that that are impermissible for banks. One commenter

24 Id. at 82320.

15
noted that the proposal’s limited flexibility to allow certain assets to receive the capital
treatment applicable under the capital guidelines for bank holding companies should not
include the condition that the asset be held under debt previously contracted or similar
authority. This commenter stated that assignment to a risk category should be based on
the risk of the asset and not on the underlying authority to own the asset.

The agencies received substantial comments from insurance companies about the
capital requirements for these entities in general as well as on the proposed modifications
to the general risk-based capital rules to address certain nonbank assets. These
commenters argued that it would not be appropriate to apply capital requirements
applicable to banking organizations to insurance companies because their risk profiles,
balance sheet characteristics, and business models fundamentally differ
nts for these entities in general as well as on the proposed modifications
to the general risk-based capital rules to address certain nonbank assets. These
commenters argued that it would not be appropriate to apply capital requirements
applicable to banking organizations to insurance companies because their risk profiles,
balance sheet characteristics, and business models fundamentally differ. Several of these
commenters were concerned that applying capital requirements for banking organizations
to insurance companies without taking these differences into account is overly simplistic
and may lead to distorted incentives, undermine efficient use of capital, curtail insurance
underwriting capacity, and negatively impact insurance markets.

Some commenters suggested that significant adjustments to the risk weights
applicable to banking organizations’ exposures would be necessary when considering
applicability to insurance companies’ exposures. Other commenters suggested that
adjustments to risk weights alone would be insufficient. Several commenters suggested
that the agencies recognize and incorporate established insurance capital standards into
any new capital regime that may apply to insurance companies. Some commenters
suggested that the agencies use a principle of equivalence to evaluate insurance
companies’ capital adequacy similar to the practice used by the Board to determine if the
one would be insufficient. Several commenters suggested
that the agencies recognize and incorporate established insurance capital standards into
any new capital regime that may apply to insurance companies. Some commenters
suggested that the agencies use a principle of equivalence to evaluate insurance
companies’ capital adequacy similar to the practice used by the Board to determine if the

16
capital of a foreign bank is equivalent to the capital required of a U.S. banking
organization. Certain insurance industry commenters provided specific examples of
exposures that should be given consideration for a lower risk weight under the general
risk-based capital rules, including non-guaranteed separate accounts based on the
rationale that the insurance policyholder and not the institution bears the investment risk
associated with the contract. Other assets for which commenters suggested consideration
regarding the capital treatment included guaranteed separate accounts, corporate debt,
and private placements.

Some commenters expressed concern that the Board may require insurance
companies to use U.S. generally accepted accounting principles for preparing financial
statements instead of the statutory accounting principles applicable to insurance
companies. These commenters noted the burden and costs associated with using two
accounting systems.
E.
Quantitative methods for comparing capital frameworks
The NPR sought comment on how the agencies should, in the future, evaluate
changes to the general risk-based capital requirements to ensure they are not
quantitatively lower than the “generally applicable capital requirements” in effect as of
the enactment of section 171 of the Act.25 Commenters generally supported looking at
industry-wide aggregate capital levels, in order to conduct the analysis, rather than basing
the calculation on an item-by-item comparison of capital requirements for each class of
exposures
ments to ensure they are not
quantitatively lower than the “generally applicable capital requirements” in effect as of
the enactment of section 171 of the Act.25 Commenters generally supported looking at
industry-wide aggregate capital levels, in order to conduct the analysis, rather than basing
the calculation on an item-by-item comparison of capital requirements for each class of
exposures. These commenters asserted that this approach would allow individual
organizations to adjust their business models appropriately while satisfying the test.

25 75 FR at 82320-21.

17
One commenter suggested that in comparing proposed changes to the generally
applicable capital requirements, the agencies should assume a stable risk profile within
the industry while assessing levels of capital. This commenter points out maintaining
reliable comparative data over time could make quantitative methods for this purpose
difficult. For example, evaluating asset categories with current and historic data would
be difficult if banks have not maintained consistent tracking methods, or common
definitions over time. This commenter also suggested that it would be misguided to
compare future capital requirements without regard to risk.
F.
Costs and benefits and other comments

Several commenters were concerned about the operational expense and burden
associated with determining compliance with two sets of capital rules. One stated that
requiring two sets of capital rules would result in permanently higher operating costs for
banking organizations under the advanced approaches rules. This commenter also
suggested that the proposed risk-based capital floor will reduce the incentive for banking
organizations considering whether to undertake the expense and effort necessary to adopt
the advanced approaches rules if minimum capital levels are determined by a less risk-
sensitive capital framework
r operating costs for
banking organizations under the advanced approaches rules. This commenter also
suggested that the proposed risk-based capital floor will reduce the incentive for banking
organizations considering whether to undertake the expense and effort necessary to adopt
the advanced approaches rules if minimum capital levels are determined by a less risk-
sensitive capital framework. Some commenters also expressed concerns about the cost of
continuing to implement the advanced approaches rules. One said that banks already
have spent hundreds of millions of dollars on implementing the advanced approaches
rules, and the proposal would eliminate the opportunity for banks to realize cost savings
from potentially lower capital requirements under the advanced approaches rules.
Another commenter suggested the agencies consider exempting from the permanent floor
requirement any banking organization whose risk-weighted assets in the trading book

18
exceeded a certain percent of total risk-weighted assets. This commenter also suggested
ways of reducing the cost of compliance under the advanced approaches rules by, for
example, raising the materiality standards to exempt small, relatively low-risk portfolios
to save significant time and money at minimal cost in terms of lessened risk sensitivity.
Commenters generally indicated that keeping track of two sets of capital
regulations (the advanced approaches rules and the generally applicable risk-based capital
rules then in effect) was preferable to tracking three capital rules (the above two capital
regimes and the general risk-based capital rules in effect on July 21, 2010).
Two commenters also suggested that because the FSOC has not designated any
systemically important nonbank financial companies, potential designees were not
provided sufficient notice and opportunity to comment on the proposal.
G
es then in effect) was preferable to tracking three capital rules (the above two capital
regimes and the general risk-based capital rules in effect on July 21, 2010).
Two commenters also suggested that because the FSOC has not designated any
systemically important nonbank financial companies, potential designees were not
provided sufficient notice and opportunity to comment on the proposal.
G.
Analysis of Comments
As described in the preceding section, a number of the commenters expressed
opinions about the appropriateness of the policy underlying section 171 of the Act. The
agencies note that they are required by law to comply with the Act and sought comment
in the NPR on the manner in which the agencies proposed to implement certain
requirements of section 171, and on ways to mitigate banking organizations’ burden in
meeting the proposed requirements.
In response to comments on the burden of maintaining two systems to calculate
capital requirements under both the risk-based capital rules and the advanced approaches
rules, the agencies note that banking organizations in parallel run are currently reporting
their capital requirements under both sets of rules. The agencies recognize that reporting
capital calculations under two capital frameworks beyond the transitional floor

19
arrangement was not expected at the onset of the advanced approaches rules. However,
as discussed above, the agencies are issuing the final rule to be consistent with the
requirements under section 171(b)(2) of the Act.
Generally commenters supported the proposal’s amendment to the general risk-
based capital rules to address the appropriate capital requirement for low risk assets that
non-depository institutions may hold and for which there is no explicit capital treatment
in the general risk-based capital rules
suing the final rule to be consistent with the
requirements under section 171(b)(2) of the Act.
Generally commenters supported the proposal’s amendment to the general risk-
based capital rules to address the appropriate capital requirement for low risk assets that
non-depository institutions may hold and for which there is no explicit capital treatment
in the general risk-based capital rules. This change was focused on providing limited
flexibility for future changes to the risk-based capital rules applicable to bank holding
companies following an evaluation of the exposures of covered institutions that may not
previously have been subject to consolidated risk-based capital requirements applicable
to banking organizations. Several commenters provided specific examples of assets that
warrant consideration for a risk weight lower than 100 percent. The Board will consider
the risk characteristics for such assets on a case-by-case basis as it considers potential
changes to the risk-based capital rules applicable to bank holding companies.
One commenter recommended that the agencies remove from this treatment the
condition that the bank holds the asset in connection with the satisfaction of a debt
previously contracted or similar authority. This commenter suggests that the assignment
to a risk category should be based on the risk of the asset, not an authority to own the
asset. The agencies agree that in the cases where this limited treatment is used, the
assignment of a capital requirement in this situation would be based on an evaluation of
the asset’s risk profile. The condition related to legal authority is intended to limit the
scope for assignments of capital requirements under this provision to assets not typically
asset, not an authority to own the
asset. The agencies agree that in the cases where this limited treatment is used, the
assignment of a capital requirement in this situation would be based on an evaluation of
the asset’s risk profile. The condition related to legal authority is intended to limit the
scope for assignments of capital requirements under this provision to assets not typically

20
held by depository institutions, whose risks and characteristics were not contemplated
when the general risk-based capital rules were developed.
Insurance-related commenters noted that some large insurance companies which
engage predominantly in insurance activities have depository institution subsidiaries or
affiliates that represent a relatively small portion of the consolidated entity. These
commenters highlighted fundamental differences in risk profiles, balance sheet
characteristics, and business models between insurance companies and banking
organizations. In response to these comments, the agencies note that section 171(b)(2) of
the Act does not take into account the size or other differences between a holding
company and its subsidiary depository institution(s). Consistent with this section of the
Act, the “generally applicable” capital requirements serves as a floor for any capital
requirements the agencies may require.
Some commenters suggested that foreign banking organizations operating under
the advanced approaches rules could hold less capital and therefore, receive a competitive
advantage compared to U.S banking organizations. The agencies agree that without the
proposal’s floor requirement, a banking organization that uses the advanced approaches
rules could theoretically operate with lower minimum risk-based capital requirements
than would be required under the general risk-based capital rules
aches rules could hold less capital and therefore, receive a competitive
advantage compared to U.S banking organizations. The agencies agree that without the
proposal’s floor requirement, a banking organization that uses the advanced approaches
rules could theoretically operate with lower minimum risk-based capital requirements
than would be required under the general risk-based capital rules. The agencies will
consider these competitive equity concerns when working with the BCBS and other
supervisory authorities to mitigate potential competitive inequities across jurisdictions, as
appropriate.
In explaining their concern about how the proposal would interact with Basel III,
a number of commenters focused on the proposed rule and future changes to regulatory

21
capital requirements, including those related to U.S. implementation of Basel III. These
commenters stated that it is not possible to understand the consequences of implementing
section 171 without addressing the broader range of changes in capital regulations, such
as changes to the leverage ratio and PCA provisions.
The agencies agree that implementing section 171 will require careful
consideration and diligence over time, as the agencies propose and implement various
enhancements to the regulatory capital rules. Consistent with the joint efforts of the U.S.
banking agencies and the Basel Committee to enhance the regulatory capital rules
applicable to internationally active banking organizations, the agencies anticipate that
their capital requirements will be amended, establishing different minimum and
“generally applicable” capital requirements. These amendments would reflect advances
in risk sensitivity and potentially other substantive changes to international agreements
on capital requirements and capital policy changes generally
le to internationally active banking organizations, the agencies anticipate that
their capital requirements will be amended, establishing different minimum and
“generally applicable” capital requirements. These amendments would reflect advances
in risk sensitivity and potentially other substantive changes to international agreements
on capital requirements and capital policy changes generally.
Thus, the “generally applicable” capital requirements as defined under
section 171 will evolve over time, and as they evolve, continue to serve as a floor for all
banking organizations’ risk-based capital requirements. Section 171 also requires that the
minimum capital requirements established under section 171 not be “quantitatively
lower” than the “generally applicable” capital requirements in effect for insured
depository institutions as of the date of the Act.
The agencies anticipate performing a quantitative analysis of any new capital
framework developed in the future for purposes of ensuring that future changes to the
agencies’ capital requirements result in minimum capital requirements that are not
“quantitatively lower” than the “generally applicable” capital requirements for insured

22
depository institutions in effect as of the date of enactment of the Act. By performing
such an analysis, the agencies would ensure that all minimum capital requirements
established under section 171 meet this requirement, including minimum requirements
that become the new “generally applicable” capital requirements under section 171.
The agencies are currently considering how that analysis may be performed for
anticipated changes to the capital rules. As some commenters noted, comparing capital
requirements on an aggregate basis is an effective way of conducting the “quantitatively
lower” analysis and the agencies expect to propose this method as appropriate in future
rulemakings
capital requirements under section 171.
The agencies are currently considering how that analysis may be performed for
anticipated changes to the capital rules. As some commenters noted, comparing capital
requirements on an aggregate basis is an effective way of conducting the “quantitatively
lower” analysis and the agencies expect to propose this method as appropriate in future
rulemakings. The agencies anticipate that before proposing future changes to their
capital requirements, the agencies will consider the implications for the capital adequacy
of banking organizations, the implementation costs, and the nature of any unintended
consequences or competitive issues. The agencies note that section 171 does not require
a “permanent Basel-I based floor” as some commenters have suggested. The agencies
also note that they do not anticipate proposing to require banking organizations to
compute two sets of generally applicable capital requirements from current and historic
frameworks as the generally applicable requirements are amended over time.
In addition, the agencies agree with commenters that the relationship between the
requirements of section 171 and other aspects of the Act, including section 165, must be
considered carefully and that all aspects of the Act should be implemented so as to avoid
imposing conflicting or inconsistent regulatory capital requirements.

III. Final Rule
A.
Implementation of a risk-based capital floor.
tion, the agencies agree with commenters that the relationship between the
requirements of section 171 and other aspects of the Act, including section 165, must be
considered carefully and that all aspects of the Act should be implemented so as to avoid
imposing conflicting or inconsistent regulatory capital requirements.

III. Final Rule
A.
Implementation of a risk-based capital floor.

23
The agencies have considered the comments received on the NPR, and continue
to believe that the rule as proposed is consistent with the requirements of section 171 of
the Act with respect to risk-based capital requirements. Therefore, the agencies have
decided to implement the rule as proposed, effective [INSERT DATE 30 DAYS AFTER
PUBLICATION IN THE FEDERAL REGISTER].
Thus, each organization implementing the advanced approaches rules will
continue to calculate its risk-based capital requirements under the agencies’ general risk-
based capital rules, and the capital requirement it computes under those rules will serve
as a floor for its risk-based capital requirement computed under the advanced approaches
rules. The agencies note that the effect of this rule on banking organizations is to
preclude certain reductions in capital requirements that might have occurred in the future,
absent the rule and absent any further changes to the capital rules. The agencies also note
that in practice, the rule will not have an immediate effect on banking organizations’
capital requirements because all organizations subject to the advanced approaches rules
are currently computing their capital requirements under the general risk-based capital
rules
ight have occurred in the future,
absent the rule and absent any further changes to the capital rules. The agencies also note
that in practice, the rule will not have an immediate effect on banking organizations’
capital requirements because all organizations subject to the advanced approaches rules
are currently computing their capital requirements under the general risk-based capital
rules.
For bank holding companies subject to the advanced approaches rule, as noted
above, the final rule provides that they must calculate their floor requirement under the
general risk-based capital rules for state member banks.26 However, in accordance with
the Act, these organizations may include certain debt or equity instruments issued before
May 19, 2010 as described in section 171(b)(4)(B) of the Act. The agencies expect the
phase-in of restrictions on the regulatory capital treatment of the debt or equity

26 12 CFR part 208, appendix A.

24
instruments described in section 171(b)(4)(B) of the Act will be addressed in more detail
in a subsequent rule. As indicated in the proposal, other aspects of section 171 are not
addressed in this final rule.
B.
Capital requirements for certain nonbanking exposures.
Commenters generally supported the agencies’ proposed treatment of certain low-
risk, nonbanking exposures. The agencies believe the proposed treatment provides
flexibility to address situations where exposures of a depository institution holding
company or a nonbank financial company supervised by the Board not only do not
wholly fit within the terms of a risk weight category applicable to banking organizations,
but also impose risks that are not commensurate with the risk weight otherwise specified
in the generally applicable risk-based capital requirements. Therefore, the final rule
retains the proposed rule’s treatment for these assets without modification
cial company supervised by the Board not only do not
wholly fit within the terms of a risk weight category applicable to banking organizations,
but also impose risks that are not commensurate with the risk weight otherwise specified
in the generally applicable risk-based capital requirements. Therefore, the final rule
retains the proposed rule’s treatment for these assets without modification.
As a general matter, the Board and the other federal banking agencies retain a
reservation of authority to assign alternate risk-based capital requirements if such action
is warranted.

Regulatory Flexibility Act Analysis
The Regulatory Flexibility Act, 5 U.S.C. 601 et seq. (RFA), generally requires
that an agency prepare and make available for public comment an initial regulatory
flexibility analysis in connection with a notice of proposed rulemaking.27 The regulatory
flexibility analysis otherwise required under section 604 of the RFA is not required if an
agency certifies that the rule will not have a significant economic impact on a substantial

27 See 5 U.S.C. 603(a).

25
number of small entities (defined for purposes of the RFA to include banks with assets
less than or equal to $175 million) and publishes its certification and a short, explanatory
statement in the Federal Register along with its rule.
As discussed in greater detail above, the purpose of the final rule is to establish a
risk-based capital floor for the advanced approaches rules in a manner that is consistent
with section 171 of the Act
s of the RFA to include banks with assets
less than or equal to $175 million) and publishes its certification and a short, explanatory
statement in the Federal Register along with its rule.
As discussed in greater detail above, the purpose of the final rule is to establish a
risk-based capital floor for the advanced approaches rules in a manner that is consistent
with section 171 of the Act. In addition, the final rule also amends the general risk-based
capital rules for depository institutions to provide flexibility consistent with section 171
of the Act for addressing the appropriate capital requirement for low-risk assets held by
depository institution holding companies or by nonbank financial companies supervised
by the Board, in situations where there is no explicit capital treatment for such exposures
under the general risk-based capital rules.
As discussed above, the agencies solicited public comment on the rule in a notice
of proposed rulemaking. The agencies did not receive any comments regarding burden to
small banking organizations. After considering the comments on the proposal, the
agencies decided to issue the proposed rule text as a final rule without change.
The final rule would affect bank holding companies, national banks, state member
banks, and state nonmember banks that use the advanced approaches rules to calculate
their risk-based capital requirements according to certain internal ratings-based and
internal model approaches. A bank holding company or bank must use the advanced
approaches rules only if: (i) it has consolidated total assets (as reported on its most recent
year-end regulatory report) equal to $250 billion or more; (ii) it has consolidated total on-
balance sheet foreign exposures at the most recent year-end equal to $10 billion or more;
certain internal ratings-based and
internal model approaches. A bank holding company or bank must use the advanced
approaches rules only if: (i) it has consolidated total assets (as reported on its most recent
year-end regulatory report) equal to $250 billion or more; (ii) it has consolidated total on-
balance sheet foreign exposures at the most recent year-end equal to $10 billion or more;

26
or (iii) it is a subsidiary of a bank holding company or bank that would be required to use
the advanced approaches rules to calculate its risk-based capital requirements.
With respect to the changes to the general risk-based capital rules, the final rule
has the potential to affect the risk weights applicable only to assets that generally are
impermissible for banks to hold. These changes are, accordingly, unlikely to have a
significant impact on banking organizations. The agencies also note that the changes to
the general risk-based capital rules would not impose any additional obligations,
restrictions, burdens, or reporting, recordkeeping or compliance requirements on banks
including small banking organizations, nor do they duplicate, overlap or conflict with
other Federal rules.
The agencies estimate that zero small bank holding companies (out of a total of
approximately 4,493 small bank holding companies), one small national bank (out of a
total of approximately 664 small national banks), one small state member bank (out of a
total of approximately 398 small state member banks), and one small state nonmember
bank (out of a total of approximately 2,639 small state nonmember banks) are required to
use the advanced approaches rules.28 In addition, each of the small banks that is required
to use the advanced approaches rules is a subsidiary of a bank holding company with
over $250 billion in consolidated total assets or over $10 billion in consolidated total on-
balance sheet foreign exposures
member
bank (out of a total of approximately 2,639 small state nonmember banks) are required to
use the advanced approaches rules.28 In addition, each of the small banks that is required
to use the advanced approaches rules is a subsidiary of a bank holding company with
over $250 billion in consolidated total assets or over $10 billion in consolidated total on-
balance sheet foreign exposures. Therefore, the agencies believe that the final rule will
not result in a significant economic impact on a substantial number of small entities.

28 All totals are as of December 31, 2010.

27
OCC Unfunded Mandates Reform Act of 1995 Determinations
Section 202 of the Unfunded Mandates Reform Act of 1995, Public Law 104-4
(UMRA) requires that an agency prepare a budgetary impact statement before
promulgating a rule that includes a Federal mandate that may result in the expenditure by
state, local, and tribal governments, in the aggregate, or by the private sector of $100
million or more (adjusted annually for inflation) in any one year. If a budgetary impact
statement is required, section 205 of the UMRA also requires an agency to identify and
consider a reasonable number of regulatory alternatives before promulgating a rule. The
OCC has determined that its final rule will not result in expenditures by state, local, and
tribal governments, or by the private sector, of $100 million or more. Accordingly, the
OCC has not prepared a budgetary impact statement or specifically addressed the
regulatory alternatives considered.
Paperwork Reduction Act

In accordance with the requirements of the Paperwork Reduction Act of 1995,29
the agencies may not conduct or sponsor, and the respondent is not required to respond
to, an information collection unless it displays a currently valid Office of Management
and Budget (OMB) control number
mpact statement or specifically addressed the
regulatory alternatives considered.
Paperwork Reduction Act

In accordance with the requirements of the Paperwork Reduction Act of 1995,29
the agencies may not conduct or sponsor, and the respondent is not required to respond
to, an information collection unless it displays a currently valid Office of Management
and Budget (OMB) control number. Each of the agencies has an established information
collection for the paperwork burden imposed by the advanced approaches rule.30 This
final rule would replace the transitional floors in section 21(e) of the advanced
approaches rule with a permanent floor equal to the tier 1 and total risk-based capital
requirements under the current generally applicable risk-based capital rules. The

29 44 U.S.C. 3501-3521
30 See Risk-Based Capital Reporting for Institutions Subject to the Advanced Capital
Adequacy Framework, FFIEC 101, OCC OMB Number 1557-0239, Federal Reserve
OMB Number 7100-0319, FDIC OMB Number 3064-0159.

28
proposed change to transitional floors would change the basis for calculating a data
element that must be reported to the agencies under an existing requirement. However, it
would have no impact on the frequency or response time for the reporting requirement
and, therefore, does not constitute a substantive or material change subject to OMB
review.
Plain Language
Section 722 of the Gramm-Leach-Bliley Act (Pub. L. 106-102, 113 Stat.
1338,1471) requires the agencies to use plain language in all proposed and final rules
published after January 1, 2000. In light of this requirement, the agencies have sought to
present the final rule in a simple and straightforward manner.
List of Subjects
12 CFR Part 3
Administrative practice and procedure, Banks, Banking, Capital, National banks,
Reporting and record keeping requirements, Risk
471) requires the agencies to use plain language in all proposed and final rules
published after January 1, 2000. In light of this requirement, the agencies have sought to
present the final rule in a simple and straightforward manner.
List of Subjects
12 CFR Part 3
Administrative practice and procedure, Banks, Banking, Capital, National banks,
Reporting and record keeping requirements, Risk.
12 CFR Part 208
Confidential business information, Crime, Currency, Federal Reserve System,
Mortgages, Reporting and record keeping requirements, Risk.
12 CFR Part 225
Administrative practice and procedure, Banks, banking, Federal Reserve System,
Holding companies, Reporting and record keeping requirements, Securities.
12 CFR Part 325
Administrative practice and procedure, Banks, banking, Capital Adequacy, Reporting and
recordkeeping requirements, Savings associations, State nonmember banks.

29

Department of the Treasury
Office of the Comptroller of the Currency
12 CFR Chapter I
Authority and Issuance

For the reasons stated in the common preamble, the Office of the Comptroller of
the Currency amends part 3 of chapter I of Title 12, Code of Federal Regulations 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, 1835,
3907, and 3909.
2. In Appendix A to part 3, in section 3, add new paragraph (a)(4)(xi) 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
*
*
*
*
*
tion for part 3 continues to read as follows:
Authority: 12 U.S.C. 93a, 161, 1818, 1828(n), 1828 note, 1831n note, 1835,
3907, and 3909.
2. In Appendix A to part 3, in section 3, add new paragraph (a)(4)(xi) 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
*
*
*
*
*
(xi) Subject to the requirements below, a bank may assign an asset not included in the
categories above to the risk weight category applicable under the capital guidelines for
bank holding companies,31 provided that all of the following conditions apply:

31 See 12 CFR part 225, appendix A.

30
(A) The bank is not authorized to hold the asset under applicable law other than debt
previously contracted or similar authority; and
(B) The risks associated with the asset are substantially similar to the risks of assets that
are otherwise assigned to a risk weight category less than 100 percent under this
appendix.
3. In Appendix C to part 3:
a. Revise Part I, section 3 to read as set forth below.
b. Remove section 21(e).

APPENDIX C TO PART 3—CAPITAL ADEQUACY GUIDELINES FOR BANKS: INTERNAL
RATINGS-BASED AND ADVANCED MEASUREMENT APPROACHES
Part I. General Provisions
*
*
*
*
*
Section 3. Minimum Risk-Based Capital Requirements
(a) (1) Except as modified by paragraph (c) of this section or by section 23 of this
appendix, each bank must meet a minimum:
(i) Total risk-based capital ratio of 8.0 percent; and
(ii) Tier 1 risk-based capital ratio of 4.0 percent.
(2) A bank’s total risk-based capital ratio is the lower of:
(i) Its total qualifying capital to total risk-weighted assets; and
(ii) Its total risk-based capital ratio as calculated under Appendix A of this part.
(3) A bank’s tier 1 risk-based capital ratio is the lower of:
inimum:
(i) Total risk-based capital ratio of 8.0 percent; and
(ii) Tier 1 risk-based capital ratio of 4.0 percent.
(2) A bank’s total risk-based capital ratio is the lower of:
(i) Its total qualifying capital to total risk-weighted assets; and
(ii) Its total risk-based capital ratio as calculated under Appendix A of this part.
(3) A bank’s tier 1 risk-based capital ratio is the lower of:
(i) Its tier 1 capital to total risk-weighted assets; and
(ii) Its tier 1 risk-based capital ratio as calculated under Appendix A of this part.

31
(b) Each bank must hold capital commensurate with the level and nature of all risks to
which the bank is exposed.
(c) When a bank subject to 12 CFR part 3, Appendix B, calculates its risk-based capital
requirements under this appendix, the bank must also refer to 12 CFR part 3, Appendix
B, for supplemental rules to calculate risk-based capital requirements adjusted for market
risk.
*
*
*
*
*
Federal Reserve System
12 CFR CHAPTER II
Authority and Issuance

For the reasons set forth in the common preamble, parts 208 and 225 of chapter II
of title 12 of the Code of Federal Regulations are amended as follows:
PART 208 – MINIMUM CAPITAL RATIOS; ISSUANCE OF DIRECTIVES

4. The authority citation for part 208 continues to read as follows:

Authority: Subpart A of Regulation H (12 CFR part 208, Subpart A) is issued by
the Board of Governors of the Federal Reserve System (Board) under 12 U.S.C. 24, 36;
sections 9, 11,21,25 and 25A of the Federal Reserve Act (12 U.S.C. 321-338a, 248(a),
248(c), 481-486, 601 and 611); sections 1814, 1816, 1818, 1831o, 1831p-l, 1831r-l and
1835a of the Federal Deposit Insurance Act (FDI Act) (12 U.S.C. 1814, 1816, 1818,
1831o, 1831p-l, 1831r-l and 1835); and 12 U.S.C. 3906-3909.
5. In Appendix A to part 208, revise section III.C. 4.a and add section III.C. 4.e
to read as follows:
nd 25A of the Federal Reserve Act (12 U.S.C. 321-338a, 248(a),
248(c), 481-486, 601 and 611); sections 1814, 1816, 1818, 1831o, 1831p-l, 1831r-l and
1835a of the Federal Deposit Insurance Act (FDI Act) (12 U.S.C. 1814, 1816, 1818,
1831o, 1831p-l, 1831r-l and 1835); and 12 U.S.C. 3906-3909.
5. In Appendix A to part 208, revise section III.C. 4.a and add section III.C. 4.e
to read as follows:

32
Appendix A to Part 208—Capital Adequacy Guidelines for State Member Banks:
Risk-Based Measure
*
*
*
*
*
III. Procedures for Computing Weighted Risk Assets and Off-Balance Sheet Items
*
*
*
*
*
C. Risk Weights
*
*
*
*
*
4. Category 4: 100 percent. a. Except as provided in section III.C. 4.e, all assets not
included in the categories above are assigned to this category, which comprises standard
risk assets. The bulk of the assets typically found in a loan portfolio would be assigned to
the 100 percent category.
*
*
*
*
*
e. Subject to the requirements below, a bank may assign an asset not included in the
categories above to the risk weight category applicable under the capital guidelines for
bank holding companies,32 provided that all of the following conditions apply:
i. The bank is not authorized to hold the asset under applicable law other than under debt
previously contracted or other similar authority; and
ii. The risks associated with the asset are substantially similar to the risks of assets that
are otherwise assigned to a risk weight category of less than 100 percent under this
appendix.
*
*
*
*
*
6. In Appendix F to part 208:

32 See 12 CFR part 225, appendix A.

33
a. Revise section 3 to read as set forth below; and
b. Remove section 21(e).
Appendix F to Part 208—Capital Adequacy Guidelines for Banks: Internal Ratings-
Based and Advanced Measurement Approaches
Part I. General Provisions
*
*
*
*
*
Section 3. Minimum Risk-Based Capital Requirements
08:

32 See 12 CFR part 225, appendix A.

33
a. Revise section 3 to read as set forth below; and
b. Remove section 21(e).
Appendix F to Part 208—Capital Adequacy Guidelines for Banks: Internal Ratings-
Based and Advanced Measurement Approaches
Part I. General Provisions
*
*
*
*
*
Section 3. Minimum Risk-Based Capital Requirements
(a) (1) Except as modified by paragraph (c) of this section or by section 23 of this
appendix, each bank must meet a minimum:
(i) Total risk-based capital ratio of 8.0 percent; and
(ii) Tier 1 risk-based capital ratio of 4.0 percent.
(2) A bank’s total risk-based capital ratio is the lower of:
(i) Its total qualifying capital to total risk-weighted assets, and
(ii) Its total risk-based capital ratio as calculated under Appendix A of this part.
(3) A bank’s tier 1 risk-based capital ratio is the lower of:
(i) Its tier 1 capital to total risk-weighted assets, and
(ii) Its tier 1 risk-based capital ratio as calculated under Appendix A of this part.
(b) Each bank must hold capital commensurate with the level and nature of all risks to
which the bank is exposed.
(c) When a bank subject to [the market risk rule] calculates its risk-based capital
requirements under this appendix, the bank must also refer to [the market risk rule] for
supplemental rules to calculate risk-based capital requirements adjusted for market risk.
*
*
*
*
*
(b) Each bank must hold capital commensurate with the level and nature of all risks to
which the bank is exposed.
(c) When a bank subject to [the market risk rule] calculates its risk-based capital
requirements under this appendix, the bank must also refer to [the market risk rule] for
supplemental rules to calculate risk-based capital requirements adjusted for market risk.
*
*
*
*
*

34
PART 225—BANK HOLDING COMPANIES AND CHANGE IN BANK
CONTROL (REGULATION Y)

7. 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; 15 U.S.C. 6801 and
6805.

8. In Appendix G to part 225:
a. Revise section 3 to read as set forth below; and
b. Remove section 21(e).
Appendix G to Part 225—Capital Adequacy Guidelines for Bank Holding
Companies: Internal Ratings-Based and Advanced Measurement Approaches
Part I. General Provisions
*
*
*
*
*
Section 3. Minimum Risk-Based Capital Requirements
(a)(1) Except as modified by paragraph (c) of this section or by section 23 of this
appendix, each bank holding company must meet a minimum:
(i) Total risk-based capital ratio of 8.0 percent; and
(ii) Tier 1 risk-based capital ratio of 4.0 percent.
(2) A bank holding company’s total risk-based capital ratio is the lower of:
(i) Its total qualifying capital to total risk-weighted assets, and
(ii) Its total risk-based capital ratio as calculated under 12 CFR part 208, appendix A, as
adjusted to include certain debt or equity instruments issued before May 19, 2010 as
described in section 171(b)(4)(B) of the Dodd-Frank Wall Street Reform and Consumer
Protection Act (Dodd-Frank Act).

35
(3) A bank holding company’s tier 1 risk-based capital ratio is the lower of:
hted assets, and
(ii) Its total risk-based capital ratio as calculated under 12 CFR part 208, appendix A, as
adjusted to include certain debt or equity instruments issued before May 19, 2010 as
described in section 171(b)(4)(B) of the Dodd-Frank Wall Street Reform and Consumer
Protection Act (Dodd-Frank Act).

35
(3) A bank holding company’s tier 1 risk-based capital ratio is the lower of:
(i) Its tier 1 capital to total risk-weighted assets, and
(ii) Its tier 1 risk-based capital ratio as calculated under 12 CFR part 208, appendix A, as
adjusted to include certain debt or equity instruments issued before May 19, 2010 as
described in section 171(b)(4)(B) of the Dodd-Frank Act.
(b) Each bank holding company must hold capital commensurate with the level and
nature of all risks to which the bank holding company is exposed.
(c) When a bank holding company subject to [the market risk rule] calculates its risk-
based capital requirements under this appendix, the bank holding company must also
refer to [the market risk rule] for supplemental rules to calculate risk-based capital
requirements adjusted for market risk.
*
*
*
*
*

Federal Deposit Insurance Corporation
12 CFR Chapter III
Authority for Issuance
For the reasons stated in the common preamble, the Federal Deposit Insurance
Corporation amends Part 325 of Chapter III of Title 12, Code of the Federal Regulations
as follows:

PART 325 – CAPITAL MAINTENANCE

9. The authority citation for part 325 continues to read as follows:
isk.
*
*
*
*
*

Federal Deposit Insurance Corporation
12 CFR Chapter III
Authority for Issuance
For the reasons stated in the common preamble, the Federal Deposit Insurance
Corporation amends Part 325 of Chapter III of Title 12, Code of the Federal Regulations
as follows:

PART 325 – CAPITAL MAINTENANCE

9. The authority citation for part 325 continues to read as follows:

36
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, as amended by Pub. L. 103-325, 108 Stat. 2160, 2233 (12 U.S.C.
1828 note); Pub. L. 102-242, 105 Stat. 2236, 2386, as amended by Pub. L. 102-550, 106
Stat. 3672, 4089 (12 U.S.C. 1828 note).

10. Amend Appendix A to part 325 as follows:
a. In section II.C, revise the first sentence of the introductory text;
b. In sections II.D, and II.E, redesignate footnotes 45 through 50 as footnotes 46
through 51.
c. In section II.C , Category 4, add new paragraph (d) and a new footnote 45.
APPENDIX A TO PART 325 – STATEMENT OF POLICY ON RISK-BASED CAPITAL
*
*
*
*
*
II. PROCEDURES FOR COMPUTING RISK-WEIGHTED ASSETS
*
*
*
*
*
C. Risk Weights for Balance Sheet Assets (see Table II)

The risk based capital framework contains five risk weight categories—0 percent,
20 percent, 50 percent, 100 percent, and 200 percent. *

*
*
*
*
*
*
*
Category 4 – 100 Percent Risk Weight.
*
*
*

37
TEMENT OF POLICY ON RISK-BASED CAPITAL
*
*
*
*
*
II. PROCEDURES FOR COMPUTING RISK-WEIGHTED ASSETS
*
*
*
*
*
C. Risk Weights for Balance Sheet Assets (see Table II)

The risk based capital framework contains five risk weight categories—0 percent,
20 percent, 50 percent, 100 percent, and 200 percent. *

*
*
*
*
*
*
*
Category 4 – 100 Percent Risk Weight.
*
*
*

37
(d) Subject to the requirements below, a bank may assign an asset not included in the
categories above to the risk weight category applicable under the capital guidelines for
bank holding companies33, provided that all of the following conditions apply:
(1) The bank is not authorized to hold the asset under applicable law other than debt
previously contracted or similar authority; and
(2) The risks associated with the asset are substantially similar to the risks of assets that
are otherwise assigned to a risk weight category less than 100 percent under this
appendix.
*
*
*
*
*
11. In Appendix D to part 325:
a. Revise section 3 to read as set forth below; and
b. Remove section 21(e).

APPENDIX D TO PART 325—CAPITAL ADEQUACY GUIDELINES FOR BANKS: INTERNAL
RATINGS-BASED AND ADVANCED MEASUREMENT APPROACHES
Part I. General Provisions
*
*
*
*
*
Section 3. Minimum Risk-Based Capital Requirements
(a) (1) Except as modified by paragraph (c) of this section or by section 23 of this
appendix, each bank must meet a minimum:
(i) Total risk-based capital ratio of 8.0 percent; and
(ii) Tier 1 risk-based capital ratio of 4.0 percent.

33 See 12 CFR part 225, appendix A.

38
(2) A bank’s total risk-based capital ratio is the lower of:
(i) Its total qualifying capital to total risk-weighted assets, and
(ii) Its total risk-based capital ratio as calculated under appendix A of this part.
(3) A bank’s tier 1 risk-based capital ratio is the lower of:
l ratio of 4.0 percent.

33 See 12 CFR part 225, appendix A.

38
(2) A bank’s total risk-based capital ratio is the lower of:
(i) Its total qualifying capital to total risk-weighted assets, and
(ii) Its total risk-based capital ratio as calculated under appendix A of this part.
(3) A bank’s tier 1 risk-based capital ratio is the lower of:
(i) Its tier 1 capital to total risk-weighted assets, and
(ii) Its tier 1 risk-based capital ratio as calculated under appendix A of this part.
(b) Each bank must hold capital commensurate with the level and nature of all risks to
which the bank is exposed.
(c) When a bank subject to appendix C of this part calculates its risk-based capital
requirements under this appendix, the bank must also refer to appendix C of this part for
supplemental rules to calculate risk-based capital requirements adjusted for market risk.
*
*
*
*
*

39

[THIS SIGNATURE PAGE RELATES TO THE FINAL RULE TITLED “RISK-
BASED
CAPITAL
STANDARDS:

ADVANCED
CAPITAL
ADEQUACY
FRAMEWORK—BASEL II; REVISIONS TO THE TRANSTIONAL FLOORS”]

Dated: June xx, 2011

John Walsh,
Comptroller of the Currency

40
[THIS SIGNATURE PAGE RELATES TO THE FINAL RULE TITLED “RISK-
BASED
CAPITAL
STANDARDS:

ADVANCED
CAPITAL
ADEQUACY
FRAMEWORK—BASEL II; REVISIONS TO THE TRANSTIONAL FLOORS”]

By order of the Board of Governors of the Federal Reserve System, June xx, 2011

Robert deV. Frierson
Deputy Secretary of the Board.

41
[THIS SIGNATURE PAGE RELATES TO THE FINAL RULE TITLED “RISK-
BASED
CAPITAL
STANDARDS:

ADVANCED
CAPITAL
ADEQUACY
FRAMEWORK—BASEL II; REVISIONS TO THE TRANSTIONAL FLOORS”]

Dated at Washington, D.C., this ___ day of ______ 2011.
By order of the Board of Directors.
Federal Deposit Insurance Corporation.

Robert E. Feldman,
Executive Secretary

42

[FR Doc. 10-_____ Filed _____]
Billing Codes 4810-33-P (25%), 6210-01-P (25%), 6714-01-P (25%), 6720-01-P (25%)

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---

Source: Frix Law Library, https://www.frixlaw.com/law-library/statutes/FDIC_FIL11048. Check the current official text before relying on it. Not legal advice.