# FDIC FIL-25-2012: Regulatory Capital Rules: Regulatory Capital, Implementation of Basel III, Minimum Regulatory Capital Ratios, Capital Adequacy, and Transition Provisions

> Federal · Agency guidance · Superseded

URL: https://www.frixlaw.com/law-library/statutes/FDIC_FIL12025

## Section

- **Citation:** FDIC FIL-25-2012
- **Heading:** Regulatory Capital Rules: Regulatory Capital, Implementation of Basel III, Minimum Regulatory Capital Ratios, Capital Adequacy, and Transition Provisions
- **Jurisdiction:** Federal
- **Kind:** Agency guidance
- **Status:** Superseded
- **Text as of:** August 14, 2026
- **Source:** Compiled text
- **Location:** FDIC Financial Institution Letters / Regulatory Capital Rules: Regulatory Capital, Implementation of Basel III, Minimum Regulatory Capital Ratios, Capital Adequacy, and Transition Provisions

## Text

Vol. 77
Thursday,
No. 169
August 30, 2012
Part II
Department of the Treasury
Office of the Comptroller of the Currency
12 CFR Parts 3, 5, 6, et al.
Federal Reserve System
12 CFR Parts 208, 217, and 225
Federal Deposit Insurance Corporation
12 CFR Parts 324, 325, and 362
Regulatory Capital Rules: Regulatory Capital, Implementation of Basel III,
Minimum Regulatory Capital Ratios, Capital Adequacy, Transition
Provisions, and Prompt Corrective Action; Proposed Rule
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52792
Federal Register / Vol. 77, No. 169 / Thursday, August 30, 2012 / Proposed Rules
DEPARTMENT OF THE TREASURY
Office of the Comptroller of the
Currency
12 CFR Parts 3, 5, 6, 165, and 167
[Docket ID OCC–2012–0008]
RIN 1557–AD46
FEDERAL RESERVE SYSTEM
12 CFR Parts 208, 217, and 225
Regulations H, Q, and Y
[Docket No. R–1442]
RIN 7100–AD87
FEDERAL DEPOSIT INSURANCE
CORPORATION
12 CFR Parts 324, 325, and 362
RIN 3064–AD95
Regulatory Capital Rules: Regulatory
Capital, Implementation of Basel III,
Minimum Regulatory Capital Ratios,
Capital Adequacy, Transition
Provisions, and Prompt Corrective
Action
AGENCIES: Office of the Comptroller of
the Currency, Treasury; the Board of
Governors of the Federal Reserve
System; and the Federal Deposit
Insurance Corporation.
ACTION: Joint notice of proposed
rulemaking.
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 seeking
comment on three Notices of Proposed
Rulemaking (NPR) that would revise
and replace the agencies’ current capital
rules
poration.
ACTION: Joint notice of proposed
rulemaking.
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 seeking
comment on three Notices of Proposed
Rulemaking (NPR) that would revise
and replace the agencies’ current capital
rules. In this NPR, the agencies are
proposing to revise their risk-based and
leverage capital requirements consistent
with agreements reached by the Basel
Committee on Banking Supervision
(BCBS) in ‘‘Basel III: A Global
Regulatory Framework for More
Resilient Banks and Banking Systems’’
(Basel III). The proposed revisions
would include implementation of a new
common equity tier 1 minimum capital
requirement, a higher minimum tier 1
capital requirement, and, for banking
organizations subject to the advanced
approaches capital rules, a
supplementary leverage ratio that
incorporates a broader set of exposures
in the denominator measure.
Additionally, consistent with Basel III,
the agencies are proposing to apply
limits on a banking organization’s
capital distributions and certain
discretionary bonus payments if the
banking organization does not hold a
specified amount of common equity tier
1 capital in addition to the amount
necessary to meet its minimum risk-
based capital requirements. This NPR
also would establish more conservative
standards for including an instrument in
regulatory capital. As discussed in the
proposal, the revisions set forth in this
NPR are consistent with section 171 of
the Dodd-Frank Wall Street Reform and
Consumer Protection Act (Dodd-Frank
Act), which requires the agencies to
establish minimum risk-based and
leverage capital requirements.
In connection with the proposed
changes to the agencies’ capital rules in
this NPR, the agencies are also seeking
comment on the two related NPRs
published elsewhere in today’s Federal
Register
with section 171 of
the Dodd-Frank Wall Street Reform and
Consumer Protection Act (Dodd-Frank
Act), which requires the agencies to
establish minimum risk-based and
leverage capital requirements.
In connection with the proposed
changes to the agencies’ capital rules in
this NPR, the agencies are also seeking
comment on the two related NPRs
published elsewhere in today’s Federal
Register. The two related NPRs are
discussed further in the SUPPLEMENTARY
INFORMATION.
DATES: Comments must be submitted on
or before October 22, 2012.
ADDRESSES: Comments should be
directed to:
OCC: Because paper mail in the
Washington, DC area and at the OCC is
subject to delay, commenters are
encouraged to submit comments by the
Federal eRulemaking Portal or email, if
possible. Please use the title ‘‘Regulatory
Capital Rules: Regulatory Capital,
Implementation of Basel III, Minimum
Regulatory Capital Ratios, Capital
Adequacy, Transition Provisions, and
Prompt Corrective Action’’ to facilitate
the organization and distribution of the
comments. You may submit comments
by any of the following methods:
Federal eRulemaking Portal—
‘‘regulations.gov’’: Go to http://
www.regulations.gov. Click ‘‘Advanced
Search’’. Select ‘‘Document Type’’ of
‘‘Proposed Rule’’, and in ‘‘By Keyword
or ID’’ box, enter Docket ID ‘‘OCC–
2012–0008,’’ and click ‘‘Search’’. If
proposed rules for more than one
agency are listed, in the ‘‘Agency’’
column, locate the notice of proposed
rulemaking for the OCC. Comments can
be filtered by agency using the filtering
tools on the left side of the screen. In the
‘‘Actions’’ column, click on ‘‘Submit a
Comment’’ or ‘‘Open Docket Folder’’ to
submit or view public comments and to
view supporting and related materials
for this rulemaking action
than one
agency are listed, in the ‘‘Agency’’
column, locate the notice of proposed
rulemaking for the OCC. Comments can
be filtered by agency using the filtering
tools on the left side of the screen. In the
‘‘Actions’’ column, click on ‘‘Submit a
Comment’’ or ‘‘Open Docket Folder’’ to
submit or view public comments and to
view supporting and related materials
for this rulemaking action.
• Click on the ‘‘Help’’ tab on the
Regulations.gov home page to get
information on using Regulations.gov,
including instructions for submitting or
viewing public comments, viewing
other supporting and related materials,
and viewing the docket after the close
of the comment period.
• Email:
regs.comments@occ.treas.gov.
• Mail: Office of the Comptroller of
the Currency, 250 E Street SW., Mail
Stop 2–3, Washington, DC 20219.
• Fax: (202) 874–5274.
• Hand Delivery/Courier: 250 E Street
SW., Mail Stop 2–3, Washington, DC
20219.
Instructions: You must include
‘‘OCC’’ as the agency name and ‘‘Docket
ID OCC–2012–0008’’ in your comment.
In general, the OCC will enter all
comments received into the docket and
publish them on Regulations.gov
without change, including any business
or personal information that you
provide such as name and address
information, email addresses, or phone
numbers. Comments received, including
attachments and other supporting
materials, are part of the public record
and subject to public disclosure. Do not
enclose any information in your
comment or supporting materials that
you consider confidential or
inappropriate for public disclosure.
You may review comments and other
related materials that pertain to this
notice by any of the following methods:
• Viewing Comments Electronically:
Go to http://www.regulations.gov. Click
‘‘Advanced Search’’
ecord
and subject to public disclosure. Do not
enclose any information in your
comment or supporting materials that
you consider confidential or
inappropriate for public disclosure.
You may review comments and other
related materials that pertain to this
notice by any of the following methods:
• Viewing Comments Electronically:
Go to http://www.regulations.gov. Click
‘‘Advanced Search’’. Select ‘‘Document
Type’’ of ‘‘Public Submission’’ and in
‘‘By Keyword or ID’’ box enter Docket ID
‘‘OCC–2012–0008,’’ and click ‘‘Search.’’
If comments from more than one agency
are listed, the ‘‘Agency’’ column will
indicate which comments were received
by the OCC. Comments can be filtered
by Agency using the filtering tools on
the left side of the screen.
• Viewing Comments Personally: You
may personally inspect and photocopy
comments at the OCC, 250 E Street SW.,
Washington, DC 20219. For security
reasons, the OCC requires that visitors
make an appointment to inspect
comments. You may do so by calling
(202) 874–4700. Upon arrival, visitors
will be required to present valid
government-issued photo identification
and to submit to security screening in
order to inspect and photocopy
comments.
• Docket: You may also view or
request available background
documents and project summaries using
the methods described previously.
Board: When submitting comments,
please consider submitting your
comments by email or fax because paper
mail in the Washington, DC, area and at
the Board may be subject to delay. You
may submit comments, identified by
Docket No. R–1430; RIN No. 7100–
AD87, by any of the following methods:
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g your
comments by email or fax because paper
mail in the Washington, DC, area and at
the Board may be subject to delay. You
may submit comments, identified by
Docket No. R–1430; RIN No. 7100–
AD87, by any of the following methods:
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52793
Federal Register / Vol. 77, No. 169 / Thursday, August 30, 2012 / Proposed Rules
• Agency Web Site: http://
www.federalreserve.gov. Follow the
instructions for submitting comments at
http://www.federalreserve.gov/
generalinfo/foia/ProposedRegs.cfm.
• Federal eRulemaking Portal: http://
www.regulations.gov. Follow the
instructions for submitting comments.
• Email: regs.comments@
federalreserve.gov. Include docket
number in the subject line of the
message.
• Fax: (202) 452–3819 or (202) 452–
3102.
• Mail: Jennifer J. Johnson, Secretary,
Board of Governors of the Federal
Reserve System, 20th Street and
Constitution Avenue NW., Washington,
DC 20551.
All public comments are available
from the Board’s Web site at http://
www.federalreserve.gov/generalinfo/
foia/ProposedRegs.cfm as submitted,
unless modified for technical reasons.
Accordingly, your comments will not be
edited to remove any identifying or
contact information. Public comments
may also be viewed electronically or in
paper form in Room MP–500 of the
Board’s Martin Building (20th and C
Street NW., Washington, DC 20551)
between 9 a.m. and 5 p.m. on weekdays.
FDIC: You may submit comments by
any of the following methods:
• Federal eRulemaking Portal: http://
www.regulations.gov. Follow the
instructions for submitting comments.
• Agency Web site: http://
www.FDIC.gov/regulations/laws/
federal/propose.html.
• Mail: Robert E. Feldman, Executive
Secretary, Attention: Comments/Legal
ESS, Federal Deposit Insurance
Corporation, 550 17th Street NW.,
Washington, DC 20429
omments by
any of the following methods:
• Federal eRulemaking Portal: http://
www.regulations.gov. Follow the
instructions for submitting comments.
• Agency Web site: http://
www.FDIC.gov/regulations/laws/
federal/propose.html.
• Mail: Robert E. Feldman, Executive
Secretary, Attention: Comments/Legal
ESS, Federal Deposit Insurance
Corporation, 550 17th Street NW.,
Washington, DC 20429.
• Hand Delivered/Courier: The guard
station at the rear of the 550 17th Street
building (located on F Street), on
business days between 7:00 a.m. and
5:00 p.m.
• Email: comments@FDIC.gov.
• Instructions: Comments submitted
must include ‘‘FDIC’’ and ‘‘RIN 3064–
AD95.’’ Comments received will be
posted without change to http://
www.FDIC.gov/regulations/laws/
federal/propose.html, including any
personal information provided.
FOR FURTHER INFORMATION CONTACT:
OCC: Margot Schwadron, Senior Risk
Expert, (202) 874–6022; David Elkes,
Risk Expert, (202) 874–3846; Mark
Ginsberg, Risk Expert, (202) 927–4580;
or Ron Shimabukuro, Senior Counsel,
Patrick Tierney, Counsel, or Carl
Kaminski, Senior Attorney, Legislative
and Regulatory Activities Division,
(202) 874–5090, Office of the
Comptroller of the Currency, 250 E
Street SW., Washington, DC 20219.
Board: Anna Lee Hewko, Assistant
Director, (202) 530–6260, Thomas
Boemio, Manager, (202) 452–2982,
Constance M. Horsley, Manager, (202)
452–5239, or Juan C. Climent, Senior
Supervisory Financial Analyst, (202)
872–7526, Capital and Regulatory
Policy, Division of Banking Supervision
and Regulation; or Benjamin
McDonough, Senior Counsel, (202) 452–
2036, April C. Snyder, Senior Counsel,
Board: Anna Lee Hewko, Assistant
Director, (202) 530–6260, Thomas
Boemio, Manager, (202) 452–2982,
Constance M. Horsley, Manager, (202)
452–5239, or Juan C. Climent, Senior
Supervisory Financial Analyst, (202)
872–7526, Capital and Regulatory
Policy, Division of Banking Supervision
and Regulation; or Benjamin
McDonough, Senior Counsel, (202) 452–
2036, April C. Snyder, Senior Counsel,
(202) 452–3099, or Christine Graham,
Senior Attorney, (202) 452–3005, Legal
Division, Board of Governors of the
Federal Reserve System, 20th and C
Streets NW., Washington, DC 20551. For
the hearing impaired only,
Telecommunication Device for the Deaf
(TDD), (202) 263–4869.
FDIC: Bobby R. Bean, Associate
Director, bbean@fdic.gov; Ryan
Billingsley, Senior Policy Analyst,
rbillingsley@fdic.gov; Karl Reitz, Senior
Policy Analyst, kreitz@fdic.gov, Division
of Risk Management Supervision; David
Riley, Senior Policy Analyst,
dariley@fdic.gov, Division of Risk
Management Supervision, Capital
Markets Branch, (202) 898–6888; or
Mark Handzlik, Counsel,
mhandzlik@fdic.gov, Michael Phillips,
Counsel, mphillips@fdic.gov, Greg
Feder, Counsel, gfeder@fdic.gov, or
Ryan Clougherty, Senior Attorney,
rclougherty@fdic.gov; Supervision
Branch, Legal Division, Federal Deposit
Insurance Corporation, 550 17th Street
NW., Washington, DC 20429.
SUPPLEMENTARY INFORMATION: In
connection with the proposed changes
to the agencies’ capital rules in this
NPR, the agencies are also seeking
comment on the two related NPRs
published elsewhere in today’s Federal
Register
Clougherty, Senior Attorney,
rclougherty@fdic.gov; Supervision
Branch, Legal Division, Federal Deposit
Insurance Corporation, 550 17th Street
NW., Washington, DC 20429.
SUPPLEMENTARY INFORMATION: In
connection with the proposed changes
to the agencies’ capital rules in this
NPR, the agencies are also seeking
comment on the two related NPRs
published elsewhere in today’s Federal
Register. In the notice titled ‘‘Regulatory
Capital Rules: Standardized Approach
for Risk-Weighted Assets; Market
Discipline and Disclosure
Requirements’’ (Standardized Approach
NPR), the agencies are proposing to
revise and harmonize their rules for
calculating risk-weighted assets to
enhance risk sensitivity and address
weaknesses identified over recent years,
including by incorporating aspects of
the BCBS’s Basel II standardized
framework in the ‘‘International
Convergence of Capital Measurement
and Capital Standards: A Revised
Framework,’’ including subsequent
amendments to that standard, and
recent BCBS consultative papers. The
Standardized Approach NPR also
includes alternatives to credit ratings,
consistent with section 939A of the
Dodd-Frank Act. The revisions include
methodologies for determining risk-
weighted assets for residential
mortgages, securitization exposures, and
counterparty credit risk. The
Standardized Approach NPR also would
introduce disclosure requirements that
would apply to top-tier banking
organizations domiciled in the United
States with $50 billion or more in total
assets, including disclosures related to
regulatory capital instruments
logies for determining risk-
weighted assets for residential
mortgages, securitization exposures, and
counterparty credit risk. The
Standardized Approach NPR also would
introduce disclosure requirements that
would apply to top-tier banking
organizations domiciled in the United
States with $50 billion or more in total
assets, including disclosures related to
regulatory capital instruments.
The proposals in this NPR and the
Standardized Approach NPR would
apply to all banking organizations that
are currently subject to minimum
capital requirements (including national
banks, state member banks, state
nonmember banks, state and federal
savings associations, and top-tier bank
holding companies domiciled in the
United States not subject to the Board’s
Small Bank Holding Company Policy
Statement (12 CFR part 225, appendix
C)), as well as top-tier savings and loan
holding companies domiciled in the
United States (together, banking
organizations).
In the notice titled ‘‘Regulatory
Capital Rules: Advanced Approaches
Risk-Based Capital Rule; Market Risk
Capital Rule,’’ (Advanced Approaches
and Market Risk NPR) the agencies are
proposing to revise the advanced
approaches risk-based capital rules
consistent with Basel III and other
changes to the BCBS’s capital standards.
The agencies also propose to revise the
advanced approaches risk-based capital
rules to be consistent with section 939A
and section 171 of the Dodd-Frank Act.
Additionally, in the Advanced
Approaches and Market Risk NPR, the
OCC and FDIC are proposing that the
market risk capital rules be applicable to
federal and state savings associations
and the Board is proposing that the
advanced approaches and market risk
capital rules apply to top-tier savings
and loan holding companies domiciled
in the United States, in each case, if
stated thresholds for trading activity are
met
Approaches and Market Risk NPR, the
OCC and FDIC are proposing that the
market risk capital rules be applicable to
federal and state savings associations
and the Board is proposing that the
advanced approaches and market risk
capital rules apply to top-tier savings
and loan holding companies domiciled
in the United States, in each case, if
stated thresholds for trading activity are
met.
As described in this NPR, the agencies
also propose to codify their regulatory
capital rules, which currently reside in
various appendixes to their respective
regulations. The proposals are
published in three separate NPRs to
reflect the distinct objectives of each
proposal, to allow interested parties to
better understand the various aspects of
the overall capital framework, including
which aspects of the rules would apply
to which banking organizations, and to
help interested parties better focus their
comments on areas of particular
interest.
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52794
Federal Register / Vol. 77, No. 169 / Thursday, August 30, 2012 / Proposed Rules
1 Sections marked with an asterisk generally
would not apply to less-complex banking
organizations.
2 The agencies’ general risk-based capital rules are
at 12 CFR part 3, appendix A, 12 CFR part 167
(OCC); 12 CFR parts 208 and 225, appendix A
(Board); and 12 CFR part 325, appendix A, and 12
CFR part 390, subpart Z (FDIC). The agencies’
Table of Contents 1
I. Introduction
A. Overview of the Proposed Changes to
the Agencies’ Current Capital
Framework. A summary of the proposed
changes to the agencies’ current capital
framework through three concurrent
notices of proposed rulemaking,
including comparison of key provisions
of the proposals to the agencies’ general
risk-based and leverage capital rules.
B. Background
ies’
Table of Contents 1
I. Introduction
A. Overview of the Proposed Changes to
the Agencies’ Current Capital
Framework. A summary of the proposed
changes to the agencies’ current capital
framework through three concurrent
notices of proposed rulemaking,
including comparison of key provisions
of the proposals to the agencies’ general
risk-based and leverage capital rules.
B. Background. A brief review of the
evolution of the agencies’ capital rules
and the Basel capital framework,
including an overview of the rationale
for certain revisions in the Basel capital
framework.
II. Minimum Capital Requirements,
Regulatory Capital Buffer, and
Requirements for Overall Capital
Adequacy
A. Minimum Capital Requirements and
Regulatory Capital Buffer. A short
description of the minimum capital
ratios and their incorporation in the
agencies’ Prompt Corrective Action
(PCA) framework; introduction of a
regulatory capital buffer.
B. Leverage Ratio
1. Minimum Tier 1 Leverage Ratio. A
description of the minimum tier 1
leverage ratio, including the calculation
of the numerator and the denominator.
2. Supplementary Leverage Ratio for
Advanced Approaches Banking
Organizations.* A description of the new
supplementary leverage ratio for
advanced approaches banking
organizations, including the calculation
of the total leverage exposure.
C. Capital Conservation Buffer. A
description of the capital conservation
buffer, which is designed to limit capital
distributions and certain discretionary
bonus payments if a banking
organization does not hold a certain
amount of common equity tier 1 capital
in additional to the minimum risk-based
capital ratios.
D. Countercyclical Capital Buffer.* A
description of the countercyclical buffer
applicable to advanced approaches
banking organizations, which would
serve as an extension of the capital
conservation buffer.
E. Prompt Corrective Action Requirements
a banking
organization does not hold a certain
amount of common equity tier 1 capital
in additional to the minimum risk-based
capital ratios.
D. Countercyclical Capital Buffer.* A
description of the countercyclical buffer
applicable to advanced approaches
banking organizations, which would
serve as an extension of the capital
conservation buffer.
E. Prompt Corrective Action Requirements.
A description of the proposed revisions
to the agencies’ prompt corrective action
requirements, including incorporation of
a common equity tier 1 capital ratio, an
updated definition of tangible common
equity, and, for advanced approaches
banking organizations only, a
supplementary leverage ratio.
F. Supervisory Assessment of Overall
Capital Adequacy. A brief overview of
the capital adequacy requirements and
supervisory assessment of a banking
organization’s capital adequacy.
G. Tangible Capital Requirement for
Federal Savings Associations. A
discussion of a statutory capital
requirement unique to federal savings
associations.
III. Definition of Capital
A. Capital Components and Eligibility
Criteria for Regulatory Capital
Instruments
1. Common Equity Tier 1 Capital. A
description of the common equity tier 1
capital elements and a description of the
eligibility criteria for common equity tier
1 capital instruments.
2. Additional Tier 1 Capital. A description
of the additional tier 1 capital elements
and a description of the eligibility
criteria for additional tier 1 capital
instruments.
3. Tier 2 Capital. A description of the tier
2 capital elements and a description of
the eligibility criteria for tier 2 capital
instruments.
4. Capital Instruments of Mutual Banking
Organizations. A discussion of potential
issues related to capital instruments
specific to mutual banking organizations.
5. Grandfathering of Certain Capital
Instruments. A discussion of the
recognition within regulatory capital of
instruments specifically related to
certain U.S. government programs.
6
ity criteria for tier 2 capital
instruments.
4. Capital Instruments of Mutual Banking
Organizations. A discussion of potential
issues related to capital instruments
specific to mutual banking organizations.
5. Grandfathering of Certain Capital
Instruments. A discussion of the
recognition within regulatory capital of
instruments specifically related to
certain U.S. government programs.
6. Agency Approval of Capital Elements. A
description of the approval process for
new capital instruments.
7. Addressing the Point of Non-viability
Requirements under Basel III.* A
discussion of disclosure requirements for
advanced approaches banking
organizations for regulatory capital
instruments addressing the point of non-
viability requirements in Basel III.
8. Qualifying Capital Instruments Issued by
Consolidated Subsidiaries of a Banking
Organization. A description of limits on
the inclusion of minority interest in
regulatory capital, including a discussion
of Real Estate Investment Trust (REIT)
preferred securities.
B. Regulatory Adjustments and Deductions
1. Regulatory Deductions from Common
Equity Tier 1 Capital. A discussion of the
treatment of goodwill and certain other
intangible assets and certain deferred tax
assets.
2. Regulatory Adjustments to Common
Equity Tier 1 Capital. A discussion of the
adjustments to common equity tier 1 for
certain cash flow hedges and changes in
a banking organization’s own
creditworthiness.
3. Regulatory Deductions Related to
Investments in Capital Instruments. A
discussion of the treatment for capital
investments in other financial
institutions.
4. Items subject to the 10 and 15 Percent
Common Equity Tier 1 Capital Threshold
Deductions. A discussion of the
treatment of mortgage servicing assets,
certain capital investments in other
financial institutions and certain
deferred tax assets.
5. Netting of Deferred Tax Liabilities
against Deferred Tax Assets and Other
Deductible Assets
al
investments in other financial
institutions.
4. Items subject to the 10 and 15 Percent
Common Equity Tier 1 Capital Threshold
Deductions. A discussion of the
treatment of mortgage servicing assets,
certain capital investments in other
financial institutions and certain
deferred tax assets.
5. Netting of Deferred Tax Liabilities
against Deferred Tax Assets and Other
Deductible Assets. A discussion of a
banking organization’s option to net
deferred tax liabilities against deferred
tax assets if certain conditions are met
under the proposal.
6. Deduction from Tier 1 Capital of
Investments in Hedge Funds and Private
Equity Funds Pursuant to section 619 of
the Dodd-Frank Act.* A description of
the deduction from tier 1 capital for
investments in hedge funds and private
equity funds pursuant to section 619 of
the Dodd-Frank Act.
IV. Denominator Changes. A description of
the changes to the calculation of risk-
weighted asset amounts related to the
Basel III regulatory capital requirements.
V. Transition Provisions
A. Minimum Regulatory Capital Ratios. A
description of the transition provisions
for minimum regulatory capital ratios.
B. Capital Conservation and
Countercyclical Capital Buffer. A
description of the transition provisions
for the capital conservation buffer, and
for advanced approaches banking
organizations, the countercyclical capital
buffer.
C. Regulatory Capital Adjustments and
Deductions. A description of the
transition provisions for regulatory
capital adjustments and deductions.
D. Non-qualifying Capital Instruments. A
description of the transition provisions
for non-qualifying capital instruments.
E. Leverage Ratio.* A description of the
transition provisions for the new
supplementary leverage ratio for
advanced approaches banking
organizations.
VI. Additional OCC Technical Amendments.
A description of additional technical and
conforming amendments to the OCC’s
current capital framework in 12 CFR part
3.
VII. Abbreviations
VIII
provisions
for non-qualifying capital instruments.
E. Leverage Ratio.* A description of the
transition provisions for the new
supplementary leverage ratio for
advanced approaches banking
organizations.
VI. Additional OCC Technical Amendments.
A description of additional technical and
conforming amendments to the OCC’s
current capital framework in 12 CFR part
3.
VII. Abbreviations
VIII. Regulatory Flexibility Act Analysis
IX. Paperwork Reduction Act
X. Plain Language
XI. OCC Unfunded Mandates Reform Act of
1995 Determination
Addendum 1: Summary of This NPR for
Community Banking Organizations
I. Introduction
A. Overview of the Proposed Changes to
the Agencies’ Current Capital
Framework
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 proposing comprehensive
revisions to their regulatory capital
framework through three concurrent
notices of proposed rulemaking (NPR).
These proposals would revise the
agencies’ current general risk-based
rules, advanced approaches risk-based
capital rules (advanced approaches),
and leverage capital rules (collectively,
the current capital rules).2 The proposed
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).
These proposals would revise the
agencies’ current general risk-based
rules, advanced approaches risk-based
capital rules (advanced approaches),
and leverage capital rules (collectively,
the current capital rules).2 The proposed
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Federal Register / Vol. 77, No. 169 / Thursday, August 30, 2012 / Proposed Rules
current leverage rules are at 12 CFR 3.6(b), 3.6(c),
and 167.6 (OCC); 12 CFR part 208, appendix B, and
12 CFR part 225, appendix D (Board); and 12 CFR
325.3, and 390.467 (FDIC) (general risk-based
capital rules). For banks and bank holding
companies with significant trading activity, the
general risk-based capital rules are supplemented
by the agencies’ market risk rules, which appear at
12 CFR part 3, appendix B (OCC); 12 CFR part 208,
appendix E, and 12 CFR part 225, appendix E
(Board); and 12 CFR part 325, appendix C (FDIC)
(market risk rules).
The agencies’ advanced approaches rules are at
12 CFR part 3, appendix C, 12 CFR part 167,
appendix C, (OCC); 12 CFR part 208, appendix F,
and 12 CFR part 225, appendix G (Board); 12 CFR
part 325, appendix D, and 12 CFR part 390, subpart
Z, Appendix A (FDIC) (advanced approaches rules).
The advanced approaches rules are generally
mandatory for banking organizations and their
subsidiaries that have $250 billion or more in total
consolidated assets or that have consolidated total
on-balance sheet foreign exposure at the most
recent year-end equal to $10 billion or more. Other
banking organizations may use the advanced
approaches rules with the approval of their primary
federal supervisor
pproaches rules are generally
mandatory for banking organizations and their
subsidiaries that have $250 billion or more in total
consolidated assets or that have consolidated total
on-balance sheet foreign exposure at the most
recent year-end equal to $10 billion or more. Other
banking organizations may use the advanced
approaches rules with the approval of their primary
federal supervisor. See 12 CFR part 3, appendix C,
section 1(b) (national banks); 12 CFR part 167,
appendix C (federal savings associations); 12 CFR
part 208, appendix F, section 1(b) (state member
banks); 12 CFR part 225, appendix G, section 1(b)
(bank holding companies); 12 CFR part 325,
appendix D, section 1(b) (state nonmember banks);
and 12 CFR part 390, subpart Z, appendix A,
section 1(b) (state savings associations).
The market risk capital rules apply to a banking
organization if its total trading assets and liabilities
is 10 percent or more of total assets or exceeds $1
billion. See 12 CFR part 3, appendix B, section 1(b)
(national banks); 12 CFR parts 208 and 225,
appendix E, section 1(b) (state member banks and
bank holding companies, respectively); and 12 CFR
part 325, appendix C, section 1(b) (state nonmember
banks).
3 The BCBS is a committee of banking supervisory
authorities, which was established by the central
bank governors of the G–10 countries in 1975. It
currently consists of senior representatives of bank
supervisory authorities and central banks from
Argentina, Australia, Belgium, Brazil, Canada,
China, France, Germany, Hong Kong SAR, India,
Indonesia, Italy, Japan, Korea, Luxembourg, Mexico,
the Netherlands, Russia, Saudi Arabia, Singapore,
South Africa, Sweden, Switzerland, Turkey, the
United Kingdom, and the United States. Documents
issued by the BCBS are available through the Bank
for International Settlements Web site at http://
www.bis.org.
4 Public Law 111–203, 124 Stat. 1376, 1435–38
ce, Germany, Hong Kong SAR, India,
Indonesia, Italy, Japan, Korea, Luxembourg, Mexico,
the Netherlands, Russia, Saudi Arabia, Singapore,
South Africa, Sweden, Switzerland, Turkey, the
United Kingdom, and the United States. Documents
issued by the BCBS are available through the Bank
for International Settlements Web site at http://
www.bis.org.
4 Public Law 111–203, 124 Stat. 1376, 1435–38
(2010) (Dodd-Frank Act).
5 See BCBS, ‘‘International Convergence of
Capital Measurement and Capital Standards: A
Revised Framework,’’ (June 2006), available at
http://www.bis.org/publ/bcbs128.htm (Basel II).
6 See section 939A of the Dodd-Frank Act (15
U.S.C. 78o–7 note).
7 12 CFR part 225, appendix C (Small Bank
Holding Company Policy Statement).
8 Small bank holding companies would continue
to be subject to the Small Bank Holding Company
Policy Statement. Application of the proposals to
all savings and loan holding companies (including
small savings and loan holding companies) is
consistent with the transfer of supervisory
responsibilities to the Board and the requirements
of section 171 of the Dodd-Frank Act. Section 171
of the Dodd-Frank Act by its terms does not apply
to small bank holding companies, but there is no
exemption from the requirements of section 171 for
small savings and loan holding companies. See 12
U.S.C. 5371.
9 See section 171(b)(4)(E) of the Dodd-Frank Act
(12 U.S.C. 5371(b)(4)(E)); see also SR letter 01–1
(January 5, 2001), available at http://www.federal
reserve.gov/boarddocs/srletters/2001/sr0101.htm
Act by its terms does not apply
to small bank holding companies, but there is no
exemption from the requirements of section 171 for
small savings and loan holding companies. See 12
U.S.C. 5371.
9 See section 171(b)(4)(E) of the Dodd-Frank Act
(12 U.S.C. 5371(b)(4)(E)); see also SR letter 01–1
(January 5, 2001), available at http://www.federal
reserve.gov/boarddocs/srletters/2001/sr0101.htm.
revisions incorporate changes made by
the Basel Committee on Banking
Supervision (BCBS) to the Basel capital
framework, including those in ‘‘Basel
III: A Global Regulatory Framework for
More Resilient Banks and Banking
Systems’’ (Basel III).3 The proposed
revisions also would implement
relevant provisions of the Dodd-Frank
Act and restructure the agencies’ capital
rules into a harmonized, codified
regulatory capital framework.4
This notice (Basel III NPR) proposes
the Basel III revisions to international
capital standards related to minimum
requirements, regulatory capital, and
additional capital ‘‘buffers’’ to enhance
the resiliency of banking organizations,
particularly during periods of financial
stress. It also proposes transition
periods for many of the proposed
requirements, consistent with Basel III
and the Dodd-Frank Act. A second NPR
(Standardized Approach NPR) would
revise the methodologies for calculating
risk-weighted assets in the general risk-
based capital rules, incorporating
aspects of the Basel II Standardized
Approach and other changes.5 The
Standardized Approach NPR also
proposes alternative standards of
creditworthiness (to credit ratings)
consistent with section 939A of the
Dodd-Frank Act.6 A third NPR
(Advanced Approaches and Market Risk
NPR) proposes changes to the advanced
approaches rules to incorporate
applicable provisions of Basel III and
other agreements reached by the BCBS
since 2009, proposes to apply the
market risk capital rule (market risk
rule) to savings associations and savings
and loan holding companies and to
apply the advanced approach
e
Dodd-Frank Act.6 A third NPR
(Advanced Approaches and Market Risk
NPR) proposes changes to the advanced
approaches rules to incorporate
applicable provisions of Basel III and
other agreements reached by the BCBS
since 2009, proposes to apply the
market risk capital rule (market risk
rule) to savings associations and savings
and loan holding companies and to
apply the advanced approaches rule to
savings and loan holding companies,
and also removes references to credit
ratings.
Other than bank holding companies
subject to the Board’s Small Bank
Holding Company Policy Statement 7
(small bank holding companies), the
proposals in the Basel III NPR and the
Standardized Approach NPR would
apply to all banking organizations
currently subject to minimum capital
requirements, including national banks,
state member banks, state nonmember
banks, state and federal savings
associations, top-tier bank holding
companies domiciled in the United
States that are not small bank holding
companies, as well as top-tier savings
and loan holding companies domiciled
in the United States (together, banking
organizations).8 Certain aspects of these
proposals would apply only to
advanced approaches banking
organizations or banking organizations
with total consolidated assets of more
than $50 billion. Consistent with the
Dodd-Frank Act, a bank holding
company subsidiary of a foreign banking
organization that is currently relying on
the Board’s Supervision and Regulation
Letter (SR) 01–1 would not be required
to comply with the proposed capital
requirements under any of these NPRs
until July 21, 2015.9 In addition, the
Board is proposing for all three NPRs to
apply on a consolidated basis to top-tier
savings and loan holding companies
domiciled in the United States, subject
to the applicable thresholds of the
advanced approaches rules and the
market risk rules
(SR) 01–1 would not be required
to comply with the proposed capital
requirements under any of these NPRs
until July 21, 2015.9 In addition, the
Board is proposing for all three NPRs to
apply on a consolidated basis to top-tier
savings and loan holding companies
domiciled in the United States, subject
to the applicable thresholds of the
advanced approaches rules and the
market risk rules.
The agencies are publishing all the
proposed changes to the agencies’
current capital rules at the same time in
these three NPRs so that banking
organizations can read the three NPRs
together and assess the potential
cumulative impact of the proposals on
their operations and plan appropriately.
The overall proposal is being divided
into three separate NPRs to reflect the
distinct objectives of each proposal and
to allow interested parties to better
understand the various aspects of the
overall capital framework, including
which aspects of the rules will apply to
which banking organizations, and to
help interested parties better focus their
comments on areas of particular
interest. The agencies believe that
separating the proposals into three NPRs
makes it easier for banking
organizations of all sizes to more easily
understand which proposed changes are
related to the agencies’ objective to
improve the quality and increase the
quantity of capital (Basel III NPR) and
which are related to the agencies’
objective to enhance the overall risk-
sensitivity of the calculation of a
banking organization’s total risk-
weighted assets (Standardized
Approach NPR).
The agencies believe that the
proposals would result in capital
requirements that better reflect banking
organizations’ risk profiles and enhance
their ability to continue functioning as
financial intermediaries, including
during periods of financial stress,
thereby improving the overall resiliency
of the banking system
nization’s total risk-
weighted assets (Standardized
Approach NPR).
The agencies believe that the
proposals would result in capital
requirements that better reflect banking
organizations’ risk profiles and enhance
their ability to continue functioning as
financial intermediaries, including
during periods of financial stress,
thereby improving the overall resiliency
of the banking system. The agencies
have carefully considered the potential
impact of the three NPRs on all banking
organizations, including community
banking organizations, and sought to
minimize the potential burden of these
changes where consistent with
applicable law and the agencies’ goals of
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10 The Standardized Approach NPR also contains
a second addendum to the preamble, which
contains the definitions proposed under the Basel
III NPR. Many of the proposed definitions also are
applicable to the Standardized Approach NPR,
which is published elsewhere in today’s Federal
Register.
11 BCBS published Basel III in December 2010
and revised it in June 2011. The text is available
at http://www.bis.org/publ/bcbs189.htm. This NPR
does not incorporate the Basel III reforms related to
liquidity risk management, published in December
2010, ‘‘Basel III: International Framework for
Liquidity Risk Measurement, Standards and
Monitoring.’’ The agencies expect to propose rules
to implement the Basel III liquidity provisions in
a separate rulemaking.
12 Selected aspects of Basel III that would apply
only to advanced approaches banking organizations
are proposed in the Advanced Approaches and
Market Risk NPR.
13 12 CFR part 6, 12 CFR 165 (OCC); 12 CFR part
208, subpart E (Board); 12 CFR part 325 and part
390, subpart Y (FDIC)
The agencies expect to propose rules
to implement the Basel III liquidity provisions in
a separate rulemaking.
12 Selected aspects of Basel III that would apply
only to advanced approaches banking organizations
are proposed in the Advanced Approaches and
Market Risk NPR.
13 12 CFR part 6, 12 CFR 165 (OCC); 12 CFR part
208, subpart E (Board); 12 CFR part 325 and part
390, subpart Y (FDIC).
14 See BCBS, ‘‘Enhancements to the Basel II
Framework’’ (July 2009), available at http://
www.bis.org/publ/bcbs157.htm (2009
Enhancements). See also BCBS, ‘‘International
Convergence of Capital Measurement and Capital
Standards: A Revised Framework,’’ (June 2006),
available at http://www.bis.org/publ/bcbs128.htm
(Basel II).
15 The agencies’ market risk rules are revised by
a final rule published elsewhere today in the
Federal Register.
establishing a robust and
comprehensive capital framework.
In developing each of the three NPRs,
wherever possible and appropriate, the
agencies have tailored the proposed
requirements to the size and complexity
of a banking organization. The agencies
believe that most banking organizations
already hold sufficient capital to meet
the proposed requirements, but
recognize that the proposals entail
significant changes with respect to
certain aspects of the agencies’ capital
requirements. The agencies are
proposing transition arrangements or
delayed effective dates for aspects of the
revised capital requirements consistent
with Basel III and the Dodd-Frank Act.
The agencies anticipate that they
separately would seek comment on
regulatory reporting instructions to
harmonize regulatory reports with these
proposals in a subsequent Federal
Register notice.
Many of the proposed requirements in
the three NPRs are not applicable to
smaller, less complex banking
organizations
vised capital requirements consistent
with Basel III and the Dodd-Frank Act.
The agencies anticipate that they
separately would seek comment on
regulatory reporting instructions to
harmonize regulatory reports with these
proposals in a subsequent Federal
Register notice.
Many of the proposed requirements in
the three NPRs are not applicable to
smaller, less complex banking
organizations. To assist these banking
organizations in rapidly identifying the
elements of these proposals that would
apply to them, this NPR and the
Standardized Approach NPR provide, as
addenda to the corresponding
preambles, a summary of the various
aspects of each NPR designed to clearly
and succinctly describe the two NPRs as
they would typically apply to smaller,
less complex banking organizations.10
Basel III NPR
In 2010, the BCBS published Basel III,
a comprehensive reform package that is
designed to improve the quality and the
quantity of regulatory capital and to
build additional capacity into the
banking system to absorb losses in times
of future market and economic stress.11
This NPR proposes the majority of the
revisions to international capital
standards in Basel III, including a more
restrictive definition of regulatory
capital, higher minimum regulatory
capital requirements, and a capital
conservation and a countercyclical
capital buffer, to enhance the ability of
banking organizations to absorb losses
and continue to operate as financial
intermediaries during periods of
economic stress.12 The proposal would
place limits on banking organizations’
capital distributions and certain
discretionary bonuses if they do not
hold specified ‘‘buffers’’ of common
equity tier 1 capital in excess of the new
minimum capital requirements.
This NPR also includes a leverage
ratio contained in Basel III that
incorporates certain off-balance sheet
assets in the denominator
(supplementary leverage ratio)
would
place limits on banking organizations’
capital distributions and certain
discretionary bonuses if they do not
hold specified ‘‘buffers’’ of common
equity tier 1 capital in excess of the new
minimum capital requirements.
This NPR also includes a leverage
ratio contained in Basel III that
incorporates certain off-balance sheet
assets in the denominator
(supplementary leverage ratio). The
supplementary leverage ratio would
apply only to banking organizations that
use the advanced approaches rules
(advanced approaches banking
organizations). The current leverage
ratio requirement (computed using the
proposed new definition of capital)
would continue to apply to all banking
organizations, including advanced
approaches banking organizations.
In this NPR, the agencies also propose
revisions to the agencies’ prompt
corrective action (PCA) rules to
incorporate the proposed revisions to
the minimum regulatory capital ratios.13
Standardized Approach NPR
The Standardized Approach NPR
aims to enhance the risk-sensitivity of
the agencies’ capital requirements by
revising the calculation of risk-weighted
assets. It would do this by incorporating
aspects of the Basel II Standardized
Approach, including aspects of the 2009
‘‘Enhancements to the Basel II
Framework’’ (2009 Enhancements), and
other changes designed to improve the
risk-sensitivity of the general risk-based
capital requirements. The proposed
changes are described in further detail
in the preamble to the Standardized
Approach NPR.14 As compared to the
general risk-based capital rules, the
Standardized Approach NPR includes a
greater number of exposure categories
for purposes of calculating total risk-
weighted assets, provides for greater
recognition of financial collateral, and
permits a wider range of eligible
guarantors
d
changes are described in further detail
in the preamble to the Standardized
Approach NPR.14 As compared to the
general risk-based capital rules, the
Standardized Approach NPR includes a
greater number of exposure categories
for purposes of calculating total risk-
weighted assets, provides for greater
recognition of financial collateral, and
permits a wider range of eligible
guarantors. In addition, to increase
transparency in the derivatives market,
the Standardized Approach NPR would
provide a more favorable capital
treatment for derivative and repo-style
transactions cleared through central
counterparties (as compared to the
treatment for bilateral transactions) in
order to create an incentive for banking
organizations to enter into cleared
transactions. Further, to promote
transparency and market discipline, the
Standardized Approach NPR proposes
disclosure requirements that would
apply to top-tier banking organizations
domiciled in the United States with $50
billion or more in total assets that are
not subject to disclosure requirements
under the advanced approaches rule.
In the Standardized Approach NPR,
the agencies also propose to revise the
calculation of risk-weighted assets for
certain exposures, consistent with the
requirements of section 939A of the
Dodd-Frank Act by using standards of
creditworthiness that are alternatives to
credit ratings. These alternative
standards would be used to assign risk
weights to several categories of
exposures, including sovereigns, public
sector entities, depository institutions,
and securitization exposures. These
alternative standards and risk-based
capital requirements have been
designed to result in capital
requirements that are consistent with
safety and soundness, while also
exhibiting risk sensitivity to the extent
possible. Furthermore, these capital
requirements are intended to be similar
to those generated under the Basel
capital framework
nstitutions,
and securitization exposures. These
alternative standards and risk-based
capital requirements have been
designed to result in capital
requirements that are consistent with
safety and soundness, while also
exhibiting risk sensitivity to the extent
possible. Furthermore, these capital
requirements are intended to be similar
to those generated under the Basel
capital framework.
The Standardized Approach NPR
would require banking organizations to
implement the revisions contained in
that NPR on January 1, 2015; however,
the proposal would also allow banking
organizations to early adopt the
Standardized Approach revisions.
Advanced Approaches and Market Risk
NPR
The proposals in the Advanced
Approaches and Market Risk NPR
would amend the advanced approaches
rules and integrate the agencies’ revised
market risk rules into the codified
regulatory capital rules.15 The
Advanced Approaches and Market Risk
NPR would incorporate revisions to the
Basel capital framework published by
the BCBS in a series of documents
between 2009 and 2011, including the
2009 Enhancements and Basel III. The
proposals would also revise the
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Federal Register / Vol. 77, No. 169 / Thursday, August 30, 2012 / Proposed Rules
16 See 12 U.S.C. 5371.
advanced approaches rules to achieve
consistency with relevant provisions of
the Dodd-Frank Act.
Significant proposed revisions to the
advanced approaches rules include the
treatment of counterparty credit risk, the
methodology for computing risk-
weighted assets for securitization
exposures, and risk weights for
exposures to central counterparties
Proposed Rules
16 See 12 U.S.C. 5371.
advanced approaches rules to achieve
consistency with relevant provisions of
the Dodd-Frank Act.
Significant proposed revisions to the
advanced approaches rules include the
treatment of counterparty credit risk, the
methodology for computing risk-
weighted assets for securitization
exposures, and risk weights for
exposures to central counterparties. For
example, the Advanced Approaches and
Market Risk NPR proposes capital
requirements to account for credit
valuation adjustments (CVA), wrong-
way risk, cleared derivative and repo-
style transactions (similar to proposals
in the Standardized Approach NPR) and
default fund contributions to central
counterparties. The Advanced
Approaches and Market Risk NPR
would also require banking
organizations subject to the advanced
approaches rules (advanced approaches
banking organizations) to conduct more
rigorous credit analysis of securitization
exposures and implement certain
disclosure requirements.
The Advanced Approaches and
Market Risk NPR additionally proposes
to remove the ratings-based approach
and the internal assessment approach
from the current advanced approaches
rules’ securitization hierarchy
consistent with section 939A of the
Dodd-Frank Act, and to include in the
hierarchy the simplified supervisory
formula approach (SSFA) as a
methodology to calculate risk-weighted
assets for securitization exposures. The
SSFA methodology is also proposed in
the Standardized Approach NPR and is
included in the market risk rule. The
agencies also are proposing to remove
references to credit ratings from certain
defined terms under the advanced
approaches rules and replace them with
alternative standards of
creditworthiness.
Banking organizations currently
subject to the advanced approaches rule
would continue to be subject to the
advanced approaches rules
ed Approach NPR and is
included in the market risk rule. The
agencies also are proposing to remove
references to credit ratings from certain
defined terms under the advanced
approaches rules and replace them with
alternative standards of
creditworthiness.
Banking organizations currently
subject to the advanced approaches rule
would continue to be subject to the
advanced approaches rules. In addition,
the Board proposes to apply the
advanced approaches and market risk
rules to savings and loan holding
companies, and the OCC and FDIC
propose to apply the market risk rules
to federal and state savings associations
that meet the scope of application of
those rules, respectively.
For advanced approaches banking
organizations, the regulatory capital
requirements proposed in this NPR and
the Standardized Approach NPR would
be ‘‘generally applicable’’ capital
requirements for purposes of section
171 of the Dodd-Frank Act.16
Proposed Structure of the Agencies’
Regulatory Capital Framework and Key
Provisions of the Three Proposals
In connection with the changes
proposed in the three NPRs, the
agencies intend to codify their current
regulatory capital requirements under
applicable statutory authority. Under
the revised structure, each agency’s
capital regulations would include
definitions in subpart A. The minimum
risk-based and leverage capital
requirements and buffers would be
contained in Subpart B and the
definition of regulatory capital would be
included in subpart C. Subpart D would
include the risk-weighted asset
calculations required of all banking
organizations; these proposed risk-
weighted asset calculations are
described in the Standardized Approach
NPR. Subpart E would contain the
advanced approaches rules, including
changes made pursuant to the advanced
approach NPR. The market risk rule
would be contained in subpart F.
Transition provisions would be in
subpart G
e the risk-weighted asset
calculations required of all banking
organizations; these proposed risk-
weighted asset calculations are
described in the Standardized Approach
NPR. Subpart E would contain the
advanced approaches rules, including
changes made pursuant to the advanced
approach NPR. The market risk rule
would be contained in subpart F.
Transition provisions would be in
subpart G. The agencies believe that this
revision would reduce the burden
associated with multiple reference
points for applicable capital
requirements, promote consistency of
capital rules across the banking
agencies, and reduce repetition of
certain features, such as definitions,
across the rules.
Table 1 outlines the proposed
structure of the agencies’ capital rules,
as well as references to the proposed
revisions to the PCA rules.
TABLE 1—PROPOSED STRUCTURE OF THE AGENCIES’ CAPITAL RULES AND PROPOSED REVISIONS TO THE PCA
FRAMEWORK
Subpart or regulation
Description of content
Subpart A (included in the Basel III NPR) ...............................................
Purpose; applicability; reservation of authority; definitions.
Subpart B (included in the Basel III NPR) ...............................................
Minimum capital requirements; minimum leverage capital requirements;
capital buffers.
Subpart C (included in the Basel III NPR) ...............................................
Regulatory capital: Eligibility criteria, minority interest, adjustments and
deductions.
Subpart D (included in the Standardized Approach NPR) ......................
Calculation of standardized total risk-weighted assets for general credit
risk, off-balance sheet items, over the counter (OTC) derivative con-
tracts, cleared transactions and default fund contributions, unsettled
transactions, securitization exposures, and equity exposures. De-
scription of credit risk mitigation.
Subpart E (included in the Advanced Approaches and Market Risk
NPR).
Calculation of advanced approaches total risk-weighted assets
ts for general credit
risk, off-balance sheet items, over the counter (OTC) derivative con-
tracts, cleared transactions and default fund contributions, unsettled
transactions, securitization exposures, and equity exposures. De-
scription of credit risk mitigation.
Subpart E (included in the Advanced Approaches and Market Risk
NPR).
Calculation of advanced approaches total risk-weighted assets.
Subpart F (included in the Advanced Approaches and Market Risk
NPR).
Calculation of market risk-weighted assets.
Subpart G (included in the Basel III NPR) ...............................................
Transition provisions.
Subpart D of Regulation H (Board), 12 CFR part 6 (OCC), Subpart H
of part 324 (FDIC).
Revised PCA capital framework, including introduction of a common
equity tier 1 capital threshold; revision of the current PCA thresholds
to incorporate the proposed regulatory capital minimums; an update
of the definition of tangible common equity, and, for advanced ap-
proaches organizations only, a supplementary leverage ratio.
While the agencies are mindful that
the proposal will result in higher capital
requirements and costs associated with
changing systems to calculate capital
requirements, the agencies believe that
the proposed changes are necessary to
address identified weaknesses in the
agencies’ current capital rules;
strengthen the banking sector and help
reduce risk to the deposit insurance
fund and the financial system; and
revise the agencies’ capital rules
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re necessary to
address identified weaknesses in the
agencies’ current capital rules;
strengthen the banking sector and help
reduce risk to the deposit insurance
fund and the financial system; and
revise the agencies’ capital rules
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17 See ‘‘Assessing the Macroeconomic Impact of
the Transition to Stronger Capital and Liquidity
Requirements’’ (August 2010), available at http://
www.bis.org/publ/othp10.pdf; ‘‘An assessment of
the long-term economic impact of stronger capital
and liquidity requirements’’ (August 2010),
available at http://www.bis.org/publ/bcbs173.pdf.
consistent with the international
agreements and U.S. law. Accordingly,
this NPR includes transition
arrangements that aim to provide
banking organizations sufficient time to
adjust to the proposed new rules and
that are generally consistent with the
transitional arrangements of the Basel
capital framework.
In December 2010, the BCBS
conducted a quantitative impact study
of internationally active banks to assess
the impact of the capital adequacy
standards announced in July 2009 and
the Basel III proposal published in
December 2009. Overall, the BCBS
found that as a result of the proposed
changes, banking organizations
surveyed will need to hold more capital
to meet the new minimum
requirements
cember 2010, the BCBS
conducted a quantitative impact study
of internationally active banks to assess
the impact of the capital adequacy
standards announced in July 2009 and
the Basel III proposal published in
December 2009. Overall, the BCBS
found that as a result of the proposed
changes, banking organizations
surveyed will need to hold more capital
to meet the new minimum
requirements. In addition, quantitative
analysis by the Macroeconomic
Assessment Group, a working group of
the BCBS, found that the stronger Basel
capital requirements would lower the
probability of banking crises and their
associated output losses while having
only a modest negative impact on gross
domestic product and lending costs, and
that the negative impact could be
mitigated by phasing the requirements
in over time.17 The agencies believe that
the benefits of these changes to the U.S.
financial system, in terms of the
reduction of risk to the deposit
insurance fund and the financial
system, ultimately outweigh the burden
on banking organizations of compliance
with the new standards.
As part of developing this proposal,
the agencies conducted an impact
analysis using depository institution
and bank holding company regulatory
reporting data to estimate the change in
capital that banking organizations
would be required to hold to meet the
proposed minimum capital
requirements. The impact analysis
assumed the proposed definition of
capital for purposes of the numerator
and the proposed standardized risk-
weights for purposes of the
denominator, and made stylized
assumptions in cases where necessary
input data were unavailable from
regulatory reports. Based on the
agencies’ analysis, the vast majority of
banking organizations currently would
meet the fully phased-in minimum
capital requirements as of March 31,
2012, and those organizations that
would not meet the proposed minimum
requirements should have ample time to
adjust their capital levels by the end of
the transition period
input data were unavailable from
regulatory reports. Based on the
agencies’ analysis, the vast majority of
banking organizations currently would
meet the fully phased-in minimum
capital requirements as of March 31,
2012, and those organizations that
would not meet the proposed minimum
requirements should have ample time to
adjust their capital levels by the end of
the transition period.
Table 2 summarizes key changes
proposed in the Basel III and
Standardized Approach NPRs and how
these changes compare with the
agencies’ general risk-based and
leverage capital rules.
TABLE 2—KEY PROVISIONS OF THE BASEL III AND STANDARDIZED APPROACH NPRS AS COMPARED WITH THE CURRENT
RISK-BASED AND LEVERAGE CAPITAL RULES
Aspect of proposed requirements
Proposed treatment
Basel III NPR
Minimum Capital Ratios:
Common equity tier 1 capital ratio (section 10) ................................
Introduces a minimum requirement of 4.5 percent.
Tier 1 capital ratio (section 10) .........................................................
Increases the minimum requirement from 4.0 percent to 6.0 percent.
Total capital ratio (section 10) ...........................................................
Minimum unchanged (remains at 8.0 percent).
Leverage ratio (section 10) ...............................................................
Modifies the minimum leverage ratio requirement based on the new
definition of tier 1 capital. Introduces a supplementary leverage ratio
requirement for advanced approaches banking organizations.
Components of Capital and Eligibility Criteria for Regulatory Capital In-
struments (sections 20–22).
Enhances the eligibility criteria for regulatory capital instruments and
adds certain adjustments to and deductions from regulatory capital,
including increased deductions for mortgage servicing assets (MSAs)
and deferred tax assets (DTAs) and new limits on the inclusion of
minority interests in capital
of Capital and Eligibility Criteria for Regulatory Capital In-
struments (sections 20–22).
Enhances the eligibility criteria for regulatory capital instruments and
adds certain adjustments to and deductions from regulatory capital,
including increased deductions for mortgage servicing assets (MSAs)
and deferred tax assets (DTAs) and new limits on the inclusion of
minority interests in capital. Provides that unrealized gains and
losses on all available for sale (AFS) securities and gains and losses
associated with certain cash flow hedges flow through to common
equity tier 1 capital.
Capital Conservation Buffer (section 11) .................................................
Introduces a capital conservation buffer of common equity tier 1 capital
above the minimum risk-based capital requirements, which must be
maintained to avoid restrictions on capital distributions and certain
discretionary bonus payments.
Countercyclical Capital Buffer (section 11) ..............................................
Introduces for advanced approaches banking organizations a mecha-
nism to increase the capital conservation buffer during times of ex-
cessive credit growth.
Standardized Approach NPR Risk-Weighted Assets
Credit exposures to:
Unchanged.
U.S. government and its agencies.
U.S. government-sponsored entities.
U.S. depository institutions and credit unions.
U.S. public sector entities, such as states and municipalities (sec-
tion 32).
Credit exposures to:
Foreign sovereigns
Foreign banks
Foreign public sector entities (section 32)
Introduces a more risk-sensitive treatment using the Country Risk Clas-
sification measure produced by the Organization for Economic Co-
operation and Development.
Corporate exposures (section 32) ............................................................
Assigns a 100 percent risk weight to corporate exposures, including
exposures to securities firms
reign public sector entities (section 32)
Introduces a more risk-sensitive treatment using the Country Risk Clas-
sification measure produced by the Organization for Economic Co-
operation and Development.
Corporate exposures (section 32) ............................................................
Assigns a 100 percent risk weight to corporate exposures, including
exposures to securities firms.
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18 See section 165 of the Dodd-Frank Act (12
U.S.C. 5365).
19 77 FR 594 (January 5, 2012).
20 See ‘‘Global Systemically Important Banks:
Assessment Methodology and the Additional Loss
Absorbency Requirement’’ (July 2011), available at
http://www.bis.org/publ/bcbs201.pdf.
21 See 54 FR 4186 (January 27, 1989) (Board); 54
FR 4168 (January 27, 1989) (OCC); 54 FR 11500
(March 21, 1989).
22 BCBS, ‘‘International Convergence of Capital
Measurement and Capital Standards’’ (July 1988),
available at http://www.bis.org/publ/bcbs04a.htm.
TABLE 2—KEY PROVISIONS OF THE BASEL III AND STANDARDIZED APPROACH NPRS AS COMPARED WITH THE CURRENT
RISK-BASED AND LEVERAGE CAPITAL RULES—Continued
Aspect of proposed requirements
Proposed treatment
Residential mortgage exposures (section 32) ..........................................
Introduces a more risk-sensitive treatment based on several criteria, in-
cluding certain loan characteristics and the loan-to-value-ratio of the
exposure.
High volatility commercial real estate exposures (section 32) .................
Applies a 150 percent risk weight to certain credit facilities that finance
the acquisition, development or construction of real property.
Past due exposures (section 32) ............................................................
n-
cluding certain loan characteristics and the loan-to-value-ratio of the
exposure.
High volatility commercial real estate exposures (section 32) .................
Applies a 150 percent risk weight to certain credit facilities that finance
the acquisition, development or construction of real property.
Past due exposures (section 32) .............................................................
Applies a 150 percent risk weight to exposures that are not sovereign
exposures or residential mortgage exposures and that are more than
90 days past due or on nonaccrual.
Securitization exposures (sections 41–45) ..............................................
Maintains the gross-up approach for securitization exposures.
Replaces the current ratings-based approach with a formula-based ap-
proach for determining a securitization exposure’s risk weight based
on the underlying assets and exposure’s relative position in the
securitization’s structure.
Equity exposures (sections 51–53) ..........................................................
Introduces more risk-sensitive treatment for equity exposures.
Off-balance Sheet Items (sections 33) .....................................................
Revises the measure of the counterparty credit risk of repo-style trans-
actions. Raises the credit conversion factor for most short-term com-
mitments from zero percent to 20 percent.
Derivative Contracts (section 34) .............................................................
Removes the 50 percent risk weight cap for derivative contracts.
Cleared Transactions (section 35) ...........................................................
Provides preferential capital requirements for cleared derivative and
repo-style transactions (as compared to requirements for non-cleared
transactions) with central counterparties that meet specified stand-
ards. Also requires that a clearing member of a central counterparty
calculate a capital requirement for its default fund contributions to
that central counterparty
.......................
Provides preferential capital requirements for cleared derivative and
repo-style transactions (as compared to requirements for non-cleared
transactions) with central counterparties that meet specified stand-
ards. Also requires that a clearing member of a central counterparty
calculate a capital requirement for its default fund contributions to
that central counterparty.
Credit Risk Mitigation (section 36) ...........................................................
Provides a more comprehensive recognition of collateral and guaran-
tees.
Disclosure Requirements (sections 61–63) .............................................
Introduces qualitative and quantitative disclosure requirements, includ-
ing regarding regulatory capital instruments, for banking organiza-
tions with total consolidated assets of $50 billion or more that are not
subject to the separate advanced approaches disclosure require-
ments.
Under section 165 of the Dodd-Frank
Act, the Board is required to establish
the enhanced risk-based and leverage
capital requirements for bank holding
companies with total consolidated
assets of $50 billion or more and
nonbank financial companies that the
Financial Stability Oversight Council
has designated for supervision by the
Board (collectively, covered
companies).18 The Board published for
comment in the Federal Register on
January 5, 2012, a proposal regarding
the enhanced prudential standards and
early remediation requirements
companies with total consolidated
assets of $50 billion or more and
nonbank financial companies that the
Financial Stability Oversight Council
has designated for supervision by the
Board (collectively, covered
companies).18 The Board published for
comment in the Federal Register on
January 5, 2012, a proposal regarding
the enhanced prudential standards and
early remediation requirements. The
capital requirements as proposed in the
three NPRs would become a key part of
the Board’s overall approach to
enhancing the risk-based capital and
leverage standards applicable to covered
companies in accordance with section
165 of the Dodd-Frank Act.19 In
addition, the Board intends to
supplement the enhanced risk-based
capital and leverage requirements
included in its January 2012 proposal
with a subsequent proposal to
implement a quantitative risk-based
capital surcharge for covered companies
or a subset of covered companies. The
BCBS is calibrating a methodology for
assessing an additional capital
surcharge for global systemically
important banks (G–SIBs).20 The Board
intends to propose a quantitative risk-
based capital surcharge in the United
States based on the BCBS approach and
consistent with the BCBS’s
implementation time frame. The
forthcoming proposal would
contemplate adopting implementing
rules in 2014, and requiring G–SIBs to
meet the capital surcharges on a phased-
in basis from 2016–2019. The OCC also
is reviewing the BCBS proposal and is
considering whether to propose to apply
a similar surcharge for globally
significant national banks.
Question 1: The agencies solicit
comment on all aspects of the proposals
including comment on the specific
issues raised throughout this preamble.
Commenters are requested to provide a
detailed qualitative or quantitative
analysis, as appropriate, as well as any
relevant data and impact analysis to
support their positions.
B. Background
In 1989, the agencies established a
risk-based capital framework for U.S
es solicit
comment on all aspects of the proposals
including comment on the specific
issues raised throughout this preamble.
Commenters are requested to provide a
detailed qualitative or quantitative
analysis, as appropriate, as well as any
relevant data and impact analysis to
support their positions.
B. Background
In 1989, the agencies established a
risk-based capital framework for U.S.
national banks, state member and
nonmember banks, and bank holding
companies with the general risk-based
capital rules.21 The agencies based the
framework on the ‘‘International
Convergence of Capital Measurement
and Capital Standards’’ (Basel I),
released by the BCBS in 1988.22 The
general risk-based capital rules
instituted a uniform risk-based capital
system that was more risk-sensitive
than, and addressed several
shortcomings in, the regulatory capital
rules in effect prior to 1989. The
agencies’ capital rules also included a
minimum leverage measure of capital to
total assets, established in the early
1980s, to place a constraint on the
maximum degree to which a banking
organization can leverage its capital
base.
In 2004, the BCBS introduced a new
international capital adequacy
framework (Basel II) that was intended
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23 See ‘‘International Convergence of Capital
Measurement and Capital Standards: A Revised
Framework’’ (June 2006), available at http://www.
bis.org/publ/bcbs128.htm.
24 See 72 FR 69288 (December 7, 2007).
25 In July 2009, the BCBS also issued ‘‘Revisions
to the Basel II Market Risk Framework,’’ available
at http://www.bis.org/publ/bcbs193.htm. The
agencies issued an NPR in January 2011 and a
supplement in December 2011, that included
provisions to implement the market-risk related
provisions
une 2006), available at http://www.
bis.org/publ/bcbs128.htm.
24 See 72 FR 69288 (December 7, 2007).
25 In July 2009, the BCBS also issued ‘‘Revisions
to the Basel II Market Risk Framework,’’ available
at http://www.bis.org/publ/bcbs193.htm. The
agencies issued an NPR in January 2011 and a
supplement in December 2011, that included
provisions to implement the market-risk related
provisions. 76 FR 1890 (January 11, 2011); 76 FR
79380 (December 21, 2011).
to improve risk measurement and
management processes and to better
align minimum risk-based capital
requirements with risk of the underlying
exposures.23 Basel II is designed as a
‘‘three pillar’’ framework encompassing
risk-based capital requirements for
credit risk, market risk, and operational
risk (Pillar 1); supervisory review of
capital adequacy (Pillar 2); and market
discipline through enhanced public
disclosures (Pillar 3). To calculate risk-
based capital requirements for credit
risk, Basel II provides three approaches:
the standardized approach (Basel II
standardized approach), the foundation
internal ratings-based approach, and the
advanced internal ratings-based
approach. Basel II also introduces an
explicit capital requirement for
operational risk, which may be
calculated using one of three
approaches: the basic indicator
approach, the standardized approach, or
the advanced measurement approaches.
On December 7, 2007, the agencies
implemented the advanced approaches
rules that incorporated Basel II
advanced internal ratings-based
approach for credit risk and the
advanced measurement approaches for
operational risk.24
To address some of the shortcomings
in the international capital standards
exposed during the crisis, the BCBS
issued the ‘‘2009 Enhancements’’ in July
2009 to enhance certain risk-based
capital requirements and to encourage
stronger management of credit and
market risk
vanced internal ratings-based
approach for credit risk and the
advanced measurement approaches for
operational risk.24
To address some of the shortcomings
in the international capital standards
exposed during the crisis, the BCBS
issued the ‘‘2009 Enhancements’’ in July
2009 to enhance certain risk-based
capital requirements and to encourage
stronger management of credit and
market risk. The ‘‘2009 Enhancements’’
strengthen the risk-based capital
requirements for certain securitization
exposures to better reflect their risk,
increase the credit conversion factors for
certain short-term liquidity facilities,
and require that banking organizations
conduct more rigorous credit analysis of
their exposures.25
In 2010, the BCBS published a
comprehensive reform package, Basel
III, which is designed to improve the
quality and the quantity of regulatory
capital and to build additional capacity
into the banking system to absorb losses
in times of future market and economic
stress. Basel III introduces or enhances
a number of capital standards, including
a stricter definition of regulatory capital,
a minimum tier 1 common equity ratio,
the addition of a regulatory capital
buffer, a leverage ratio, and a disclosure
requirement for regulatory capital
instruments. Implementing Basel III is
the focus of this NPR, as described
below. Certain elements of Basel III are
also proposed in the Standardized
Approach NPR and the Advanced
Approaches and Market Risk NPR, as
discussed in those notices.
Quality and Quantity of Capital
The recent financial crisis
demonstrated that the amount of high-
quality capital held by banks globally
was insufficient to absorb losses during
that period. In addition, some non-
common stock capital instruments
included in tier 1 capital did not absorb
losses to the extent previously expected
proaches and Market Risk NPR, as
discussed in those notices.
Quality and Quantity of Capital
The recent financial crisis
demonstrated that the amount of high-
quality capital held by banks globally
was insufficient to absorb losses during
that period. In addition, some non-
common stock capital instruments
included in tier 1 capital did not absorb
losses to the extent previously expected.
A lack of clear and easily understood
disclosures regarding the amount of
high-quality regulatory capital and
characteristics of regulatory capital
instruments, as well as inconsistencies
in the definition of capital across
jurisdictions, contributed to the
difficulties in evaluating a bank’s capital
strength. To evaluate banks’
creditworthiness and overall stability
more accurately, market participants
increasingly focused on the amount of
banks’ tangible common equity, the
most loss-absorbing form of capital.
The crisis also raised questions about
banks’ ability to conserve capital during
a stressful period or to cancel or defer
interest payments on tier 1 capital
instruments. For example, in some
jurisdictions banks exercised call
options on hybrid tier 1 capital
instruments, even when it became
apparent that the banks’ capital
positions would suffer as a result.
Consistent with Basel III, the
proposals in this NPR would address
these deficiencies by imposing, among
other requirements, stricter eligibility
criteria for regulatory capital
instruments and increasing the
minimum tier 1 capital ratio from 4 to
6 percent. To help ensure that a banking
organization holds truly loss-absorbing
capital, the proposal also introduces a
minimum common equity tier 1 capital
to total risk-weighted assets ratio of 4.5
percent
these deficiencies by imposing, among
other requirements, stricter eligibility
criteria for regulatory capital
instruments and increasing the
minimum tier 1 capital ratio from 4 to
6 percent. To help ensure that a banking
organization holds truly loss-absorbing
capital, the proposal also introduces a
minimum common equity tier 1 capital
to total risk-weighted assets ratio of 4.5
percent. In addition, the proposals
would require that most regulatory
deductions from, and adjustments to,
regulatory capital (for example, the
deductions related to mortgage servicing
assets (MSAs) and deferred tax assets
(DTAs) be applied to common equity
tier 1 capital. The proposals would also
eliminate certain features of the current
risk-based capital rules, such as
adjustments to regulatory capital to
neutralize the effect on the capital
account of unrealized gains and losses
on AFS debt securities. To reduce the
double counting of regulatory capital,
Basel III also limits investments in the
capital of unconsolidated financial
institutions that would be included in
regulatory capital and requires
deduction from capital if a banking
organization has exposures to these
institutions that go beyond certain
percentages of its common equity tier 1
capital. Basel III also revises risk-
weights associated with certain items
that are subject to deduction from
regulatory capital.
Finally, to promote transparency and
comparability of regulatory capital
across jurisdictions, Basel III introduces
public disclosure requirements,
including those for regulatory capital
instruments, that are designed to help
market participants assess and compare
the overall stability and resiliency of
banking organizations across
jurisdictions
ect to deduction from
regulatory capital.
Finally, to promote transparency and
comparability of regulatory capital
across jurisdictions, Basel III introduces
public disclosure requirements,
including those for regulatory capital
instruments, that are designed to help
market participants assess and compare
the overall stability and resiliency of
banking organizations across
jurisdictions.
Capital Conservation and
Countercyclical Capital Buffer
As noted previously, some banking
organizations continued to pay
dividends and substantial discretionary
bonuses even as their financial
condition weakened as a result of the
recent financial crisis and economic
downturn. Such capital distributions
had a significant negative impact on the
overall strength of the banking sector.
To encourage better capital conservation
by banking organizations and to
improve the resiliency of the banking
system, Basel III and this proposal
include limits on capital distributions
and discretionary bonuses for banking
organizations that do not hold a
specified amount of common equity tier
1 capital in addition to the common
equity necessary to meet the minimum
risk-based capital requirements (capital
conservation buffer).
Under this proposal, for advanced
approaches banking organizations, the
capital conservation buffer may be
expanded by up to 2.5 percent of risk-
weighted assets if the relevant national
authority determines that financial
markets in its jurisdiction are
experiencing a period of excessive
aggregate credit growth that is
associated with an increase in system-
wide risk. The countercyclical capital
buffer is designed to take into account
the macro-financial environment in
which banking organizations function
and help protect the banking system
from the systemic vulnerabilities.
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n system-
wide risk. The countercyclical capital
buffer is designed to take into account
the macro-financial environment in
which banking organizations function
and help protect the banking system
from the systemic vulnerabilities.
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26 See, e.g., ‘‘Basel III FAQs answered by the Basel
Committee’’ (July, October, December 2011),
available at http://www.bis.org/list/press_releases/
index.htm.
27 The BCBS left unchanged the treatment of
exposures to CCPs for settlement of cash
transactions such as equities, fixed income, spot
foreign exchange and spot commodities. See
‘‘Capitalization of Banking Organization Exposures
to Central Counterparties’’ (December 2010, revised
November 2011) (CCP consultative release),
available at http://www.bis.org/publ/bcbs206.pdf.
28 Advanced approaches banking organizations
should refer to section 10 of the proposed rule text
and to the Advanced Approaches and Market Risk
NPR for a more detailed discussion of the
applicable minimum capital ratios.
29 12 U.S.C. 1831o; 12 CFR part 6, 12 CFR part
165 (OCC); 12 CFR 208.45 (Board); 12 CFR 325.105,
12 CFR 390.455 (FDIC).
Basel III Leverage Ratio
Since the early 1980s, U.S. banking
organizations have been subject to a
minimum leverage measure of capital to
total assets designed to place a
constraint on the maximum degree to
which a banking organization can
leverage its equity capital base.
However, prior to the adoption of Basel
III, the Basel capital framework did not
include a leverage ratio requirement. It
became apparent during the crisis that
some banks built up excessive on- and
off-balance sheet leverage while
continuing to present strong risk-based
capital ratios
constraint on the maximum degree to
which a banking organization can
leverage its equity capital base.
However, prior to the adoption of Basel
III, the Basel capital framework did not
include a leverage ratio requirement. It
became apparent during the crisis that
some banks built up excessive on- and
off-balance sheet leverage while
continuing to present strong risk-based
capital ratios. In many instances, banks
were forced by the markets to reduce
their leverage and exposures in a
manner that increased downward
pressure on asset prices and further
exacerbated overall losses in the
financial sector.
The BCBS introduced a leverage ratio
(the Basel III leverage ratio) to
discourage the acquisition of excess
leverage and to act as a backstop to the
risk-based capital requirements. The
Basel III leverage ratio is defined as the
ratio of tier 1 capital to a combination
of on- and off-balance sheet assets; the
minimum ratio is 3 percent. The
introduction of the leverage requirement
in the Basel capital framework should
improve the resiliency of the banking
system worldwide by providing an
ultimate limit on the amount of leverage
a banking organization may incur.
As described in section II.B of this
preamble, the agencies are proposing to
apply the Basel III leverage ratio only to
advanced approaches banking
organizations as an additional leverage
requirement (supplementary leverage
ratio). For all banking organizations, the
agencies are proposing to update and
maintain the current leverage
requirement, as revised to reflect the
proposed definition of tier 1 capital
ion II.B of this
preamble, the agencies are proposing to
apply the Basel III leverage ratio only to
advanced approaches banking
organizations as an additional leverage
requirement (supplementary leverage
ratio). For all banking organizations, the
agencies are proposing to update and
maintain the current leverage
requirement, as revised to reflect the
proposed definition of tier 1 capital.
Additional Revisions to the Basel
Capital Framework
To facilitate the implementation of
Basel III, the BCBS issued a series of
releases in 2011 in the form of
frequently asked questions.26 In
addition, in 2011, the BCBS proposed to
revise the treatment of counterparty
credit risk and specific capital
requirements for derivative and repo-
style transaction exposures to central
counterparties (CCP) to address
concerns related to the
interconnectedness and complexity of
the derivatives markets.27 The proposed
revisions provide incentives for banking
organizations to clear derivatives and
repo-style transactions through
qualifying central counterparties (QCCP)
to help promote market transparency
and improve the ability of market
participants to unwind their positions
quickly and efficiently. The agencies
have incorporated these provisions in
the Standardized Approach NPR and
the Advanced Approaches and Market
Risk NPR.
II. Minimum Regulatory Capital Ratios,
Additional Capital Requirements, and
Overall Capital Adequacy
A. Minimum Risk-Based Capital Ratios
and Other Regulatory Capital Provisions
Consistent with Basel III, the agencies
are proposing to require that banking
organizations comply with the following
minimum capital ratios: (1) A common
equity tier 1 capital ratio of 4.5 percent;
t
Risk NPR.
II. Minimum Regulatory Capital Ratios,
Additional Capital Requirements, and
Overall Capital Adequacy
A. Minimum Risk-Based Capital Ratios
and Other Regulatory Capital Provisions
Consistent with Basel III, the agencies
are proposing to require that banking
organizations comply with the following
minimum capital ratios: (1) A common
equity tier 1 capital ratio of 4.5 percent;
(2) a tier 1 capital ratio of 6 percent; (3)
a total capital ratio of 8 percent; and (4)
a tier 1 capital to average consolidated
assets of 4 percent and, for advanced
approaches banking organizations only,
an additional requirement tier 1 capital
to total leverage exposure ratio of 3
percent.28 As noted above, the common
equity tier 1 capital ratio would be a
new minimum requirement. It is
designed to ensure that banking
organizations hold high-quality
regulatory capital that is available to
absorb losses. The proposed capital
ratios would apply to a banking
organization on a consolidated basis.
Under this NPR, tier 1 capital would
equal the sum of common equity tier 1
capital and additional tier 1 capital.
Total capital would consist of three
capital components: common equity tier
1, additional tier 1, and tier 2 capital.
The definitions of each of these
categories of regulatory capital are
discussed below in section III of this
preamble. To align the proposed
regulatory capital requirements with the
agencies’ current PCA rules, this NPR
also would incorporate the proposed
revisions to the minimum capital
requirements into the agencies’ PCA
framework, as further discussed in
section II.E of this preamble.
In addition, a banking organization
would be subject to a capital
conservation buffer in excess of the risk-
based capital requirements that would
impose limitations on its capital
distributions and certain discretionary
bonuses, as described in sections II.C
and II.D of this preamble
l
requirements into the agencies’ PCA
framework, as further discussed in
section II.E of this preamble.
In addition, a banking organization
would be subject to a capital
conservation buffer in excess of the risk-
based capital requirements that would
impose limitations on its capital
distributions and certain discretionary
bonuses, as described in sections II.C
and II.D of this preamble. Because the
regulatory capital buffer would apply in
addition to the regulatory minimum
requirements, the restrictions on capital
distributions and discretionary bonus
payments associated with the regulatory
capital buffer would not give rise to any
applicable restrictions under section 38
of the Federal Deposit Insurance Act
and the agencies’ implementing PCA
rules, which apply when an insured
institution’s capital levels drop below
certain regulatory thresholds.29
As a prudential matter, the agencies
have a long-established policy that
banking organizations should hold
capital commensurate with the level
and nature of the risks to which they are
exposed, which may entail holding
capital significantly above the minimum
requirements, depending on the nature
of the banking organization’s activities
and risk profile. Section II.F of this
preamble describes the requirement for
overall capital adequacy of banking
organizations and the supervisory
assessment of an entity’s capital
adequacy.
Furthermore, consistent with the
agencies’ authority under the current
capital rules, section 10(d) of the
proposal includes a reservation of
authority that would allow a banking
organization’s primary federal
supervisor to require a banking
organization to hold a different amount
of regulatory capital than otherwise
would be required under the proposal,
if the supervisor determines that the
regulatory capital held by the banking
organization is not commensurate with
a banking organization’s credit, market,
operational, or other risks.
B. Leverage Ratio
1
nking
organization’s primary federal
supervisor to require a banking
organization to hold a different amount
of regulatory capital than otherwise
would be required under the proposal,
if the supervisor determines that the
regulatory capital held by the banking
organization is not commensurate with
a banking organization’s credit, market,
operational, or other risks.
B. Leverage Ratio
1. Minimum Tier 1 Leverage Ratio
Under the proposal, all banking
organizations would remain subject to a
4 percent tier 1 leverage ratio, which
would be calculated by dividing an
organization’s tier 1 capital by its
average consolidated assets, minus
amounts deducted from tier 1 capital.
The numerator for this ratio would be a
banking organization’s tier 1 capital as
defined in section 2 of the proposal. The
denominator would be its average total
on-balance sheet assets as reported on
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Federal Register / Vol. 77, No. 169 / Thursday, August 30, 2012 / Proposed Rules
30 Specifically, to determine average total on-
balance sheet assets, bank holding companies and
savings and loan holding companies would use the
Consolidated Financial Statements for Bank
Holding Companies (FR Y–9C); national banks,
state member banks, state nonmember banks, and
savings associations would use On-balance sheet
Reports of Condition and Income (Call Report).
31 Under the agencies’ current rules, the
minimum ratio of tier 1 capital to total assets for
strong banking organizations (that is, rated
composite ‘‘1’’ under the CAMELS system for state
nonmember and national banks, ‘‘1’’ under UFIRS
for state member banks, and ‘‘1’’ under RFI/CD for
bank holding companies) not experiencing or
anticipating significant growth is 3 percent
(Call Report).
31 Under the agencies’ current rules, the
minimum ratio of tier 1 capital to total assets for
strong banking organizations (that is, rated
composite ‘‘1’’ under the CAMELS system for state
nonmember and national banks, ‘‘1’’ under UFIRS
for state member banks, and ‘‘1’’ under RFI/CD for
bank holding companies) not experiencing or
anticipating significant growth is 3 percent. See 12
CFR 3.6, 12 CFR 167.8 (OCC); 12 CFR 208.43, 12
CFR part 225, Appendix D (Board); 12 CFR 325.3,
12 CFR 390.467 (FDIC).
32 See 12 CFR 3.6 (OCC); 12 CFR part 208,
Appendix B and 12 CFR part 225, Appendix D
(Board); and 12 CFR part 325.3 (FDIC).
the banking organization’s regulatory
report, net of amounts deducted from
tier 1 capital.30
In this NPR, the agencies are
proposing to remove the tier 1 leverage
ratio exception for banking
organizations with a supervisory
composite rating of 1 that exists under
the current leverage rules.31 This
exception provides for a 3 percent tier
1 leverage measure for such
institutions.32 The current exception
would also be eliminated for bank
holding companies with a supervisory
composite rating of 1 and subject to the
market risk rule. Accordingly, as
proposed, all banking organizations
would be subject to a 4 percent
minimum tier 1 leverage ratio.
2. Supplementary Leverage Ratio for
Advanced Approaches Banking
Organizations
Advanced approaches banking
organizations would also be required to
maintain the supplementary leverage
ratio of tier 1 capital to total leverage
exposure of 3 percent. The
supplementary leverage ratio
incorporates the Basel III definition of
tier 1 capital as the numerator and uses
a broader exposure base, including
certain off-balance sheet exposures
(total leverage exposure), for the
denominator
roaches banking
organizations would also be required to
maintain the supplementary leverage
ratio of tier 1 capital to total leverage
exposure of 3 percent. The
supplementary leverage ratio
incorporates the Basel III definition of
tier 1 capital as the numerator and uses
a broader exposure base, including
certain off-balance sheet exposures
(total leverage exposure), for the
denominator.
The agencies believe that the
supplementary leverage ratio is most
appropriate for advanced approaches
banking organizations because these
banking organizations tend to have more
significant amounts of off-balance sheet
exposures that are not captured by the
current leverage ratio. Applying the
supplementary leverage ratio rather than
the current tier 1 leverage ratio to other
banking organizations would increase
the complexity of their leverage ratio
calculation, and in many cases could
result in a reduced leverage capital
requirement. The agencies believe that,
along with the 5 percent ‘‘well-
capitalized’’ PCA leverage threshold
described in section II.E of this
preamble, the proposed leverage
requirements are, for the majority of
banking organizations that are not
subject to the advanced approaches rule,
both more conservative and simpler
than the supplementary leverage ratio.
An advanced approaches banking
organization would calculate the
supplementary leverage ratio, including
each of the ratio components, at the end
of every month and then calculate a
quarterly leverage ratio as the simple
arithmetic mean of the three monthly
leverage ratios over the reporting
quarter. As proposed, total leverage
exposure would equal the sum of the
following exposures:
(1) The balance sheet carrying value
of all of the banking organization’s on-
balance sheet assets minus amounts
deducted from tier 1 capital;
end
of every month and then calculate a
quarterly leverage ratio as the simple
arithmetic mean of the three monthly
leverage ratios over the reporting
quarter. As proposed, total leverage
exposure would equal the sum of the
following exposures:
(1) The balance sheet carrying value
of all of the banking organization’s on-
balance sheet assets minus amounts
deducted from tier 1 capital;
(2) The potential future exposure
amount for each derivative contract to
which the banking organization is a
counterparty (or each single-product
netting set for such transactions)
determined in accordance with section
34 of the proposal;
(3) 10 percent of the notional amount
of unconditionally cancellable
commitments made by the banking
organization; and
(4) The notional amount of all other
off-balance sheet exposures of the
banking organization (excluding
securities lending, securities borrowing,
reverse repurchase transactions,
derivatives and unconditionally
cancellable commitments).
The BCBS continues to assess the
Basel III leverage ratio, including
through supervisory monitoring during
a parallel run period in which the
proposed design and calibration of the
Basel III leverage ratio will be evaluated,
and the impact of any differences in
national accounting frameworks
material to the definition of the leverage
ratio will be considered. A final
decision by the BCBS on the measure of
exposure for certain transactions and
calibration of the leverage ratio is not
expected until closer to 2018.
Due to these ongoing observations and
international discussions on the most
appropriate measurement of exposure
for repo-style transactions, the agencies
are proposing to maintain the current
on-balance sheet measurement of repo-
style transactions for purposes of
calculating total leverage exposure
transactions and
calibration of the leverage ratio is not
expected until closer to 2018.
Due to these ongoing observations and
international discussions on the most
appropriate measurement of exposure
for repo-style transactions, the agencies
are proposing to maintain the current
on-balance sheet measurement of repo-
style transactions for purposes of
calculating total leverage exposure.
Under this NPR, a banking organization
would measure exposure as the value of
repo-style transactions (including
repurchase agreements, securities
lending and borrowing transactions, and
reverse repos) carried as an asset on the
balance sheet, consistent with the
measure of exposure used in the
agencies’ current leverage measure. The
agencies are participating in
international discussions and ongoing
quantitative analysis of the exposure
measure for repo-style transactions, and
will consider modifying in the future
the measurement of repo-style
transactions in the calculation of total
leverage exposure to reflect results of
these international efforts.
The agencies are proposing to apply
the supplementary leverage ratio as a
requirement for advanced approaches
banking organizations beginning in
2018, consistent with Basel III.
However, beginning on January 1, 2015,
advanced approaches banking
organizations would be required to
calculate and report their
supplementary leverage ratio.
Question 2: The agencies solicit
comments on all aspects of this
proposal, including regulatory burden
and competitive impact
requirement for advanced approaches
banking organizations beginning in
2018, consistent with Basel III.
However, beginning on January 1, 2015,
advanced approaches banking
organizations would be required to
calculate and report their
supplementary leverage ratio.
Question 2: The agencies solicit
comments on all aspects of this
proposal, including regulatory burden
and competitive impact. Should all
banking organizations, banking
organizations with total consolidated
assets above a certain threshold, or
banking organizations with certain risk
profiles (for example, concentrations in
derivatives) be required to comply with
the supplementary leverage ratio, and
why? What are the advantages and
disadvantages of the application of two
leverage ratio requirements to advanced
approaches banking organizations?
Question 3: What modifications to the
proposed supplementary leverage ratio
should be considered and why? Are
there alternative measures of exposure
for repo-style transactions that should
be considered by the agencies? What
alternative measures should be used in
cases in which the use of the current
exposure method may overstate leverage
(for example, in certain cases of
calculating derivative exposure) or
understate leverage (for example, in the
case of credit protection sold)? The
agencies request data and
supplementary analysis that would
support consideration of such
alternative measures.
Question 4: Given differences in
international accounting, particularly
the difference in how International
Financial Reporting Standards and
GAAP treat securities for securities
lending, the agencies solicit comments
on the adjustments that should be
contemplated to mitigate or offset such
differences.
Question 5: The agencies solicit
comments on the advantages and
disadvantages of including off-balance
sheet exposures in the supplementary
leverage ratio
the difference in how International
Financial Reporting Standards and
GAAP treat securities for securities
lending, the agencies solicit comments
on the adjustments that should be
contemplated to mitigate or offset such
differences.
Question 5: The agencies solicit
comments on the advantages and
disadvantages of including off-balance
sheet exposures in the supplementary
leverage ratio. The agencies seek
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Federal Register / Vol. 77, No. 169 / Thursday, August 30, 2012 / Proposed Rules
33 For purposes of the capital conservation buffer
calculations, a banking organization would be
required to use standardized total risk weighted
assets if it is a standardized approach banking
organization and it would be required to use
advanced total risk weighted assets if it is an
advanced approaches banking organization.
34 See 12 CFR 225.8.
detailed comments, with supporting
data, on the proposed method of
calculating exposures and estimates of
burden, particularly for off-balance
sheet exposures.
C. Capital Conservation Buffer
Consistent with Basel III, the proposal
incorporates a capital conservation
buffer that is designed to bolster the
resilience of banking organizations
throughout financial cycles. The buffer
would provide incentives for banking
organizations to hold sufficient capital
to reduce the risk that their capital
levels would fall below their minimum
requirements during stressful
conditions. The capital conservation
buffer would be composed of common
equity tier 1 capital and would be
separate from the minimum risk-based
capital requirements
throughout financial cycles. The buffer
would provide incentives for banking
organizations to hold sufficient capital
to reduce the risk that their capital
levels would fall below their minimum
requirements during stressful
conditions. The capital conservation
buffer would be composed of common
equity tier 1 capital and would be
separate from the minimum risk-based
capital requirements.
As proposed, a banking organization’s
capital conservation buffer would be the
lowest of the following measures: (1)
The banking organization’s common
equity tier 1 capital ratio minus its
minimum common equity tier 1 capital
ratio; (2) the banking organization’s tier
1 capital ratio minus its minimum tier
1 capital ratio; and (3) the banking
organization’s total capital ratio minus
its minimum total capital ratio.33 If the
banking organization’s common equity
tier 1, tier 1 or total capital ratio were
less than or equal to its minimum
common equity tier 1, tier 1 or total
capital ratio, respectively, the banking
organization’s capital conservation
buffer would be zero. For example, if a
banking organization’s common equity
tier 1, tier 1, and total capital ratios are
7.5, 9.0, and 10 percent, respectively,
and the banking organization’s
minimum common equity tier 1, tier 1,
and total capital ratio requirements are
4.5, 6, and 8, respectively, the banking
organization’s applicable capital
conservation buffer would be 2 percent
for purposes of establishing a 60 percent
maximum payout ratio under table 3.
Under the proposal, a banking
organization would need to hold a
capital conservation buffer in an amount
greater than 2.5 percent of total risk-
weighted assets (plus, for an advanced
approaches banking organization, 100
percent of any applicable
countercyclical capital buffer amount)
to avoid being subject to limitations on
capital distributions and discretionary
bonus payments to executive officers, as
defined under the proposal
ould need to hold a
capital conservation buffer in an amount
greater than 2.5 percent of total risk-
weighted assets (plus, for an advanced
approaches banking organization, 100
percent of any applicable
countercyclical capital buffer amount)
to avoid being subject to limitations on
capital distributions and discretionary
bonus payments to executive officers, as
defined under the proposal. The
maximum payout ratio would be the
percentage of eligible retained income
that a banking organization would be
allowed to pay out in the form of capital
distributions and certain discretionary
bonus payments during the current
calendar quarter and would be
determined by the amount of the capital
conservation buffer held by the banking
organization during the previous
calendar quarter. Under the proposal,
eligible retained income would be
defined as a banking organization’s net
income (as reported in the banking
organization’s quarterly regulatory
reports) for the four calendar quarters
preceding the current calendar quarter,
net of any capital distributions, certain
discretionary bonus payments, and
associated tax effects not already
reflected in net income.
A banking organization’s maximum
payout amount for the current calendar
quarter would be equal to the banking
organization’s eligible retained income,
multiplied by the applicable maximum
payout ratio in accordance with table 3.
A banking organization with a capital
conservation buffer that is greater than
2.5 percent (plus, for an advanced
approaches banking organization, 100
percent of any applicable
countercyclical buffer) would not be
subject to a maximum payout amount as
a result of the application of this
provision (but the agencies’ authority to
restrict capital distributions for other
reasons remains undiminished)
organization with a capital
conservation buffer that is greater than
2.5 percent (plus, for an advanced
approaches banking organization, 100
percent of any applicable
countercyclical buffer) would not be
subject to a maximum payout amount as
a result of the application of this
provision (but the agencies’ authority to
restrict capital distributions for other
reasons remains undiminished).
In a scenario where a banking
organization’s risk-based capital ratios
fall below its minimum risk-based
capital ratios plus 2.5 percent of total
risk-weighted assets, the maximum
payout ratio would also decline, in
accordance with table 3. A banking
organization that becomes subject to a
maximum payout ratio would remain
subject to restrictions on capital
distributions and certain discretionary
bonus payments until it is able to build
up its capital conservation buffer
through retained earnings, raising
additional capital, or reducing its risk-
weighted assets. In addition, as a
general matter, a banking organization
would not be able to make capital
distributions or certain discretionary
bonus payments during the current
calendar quarter if the banking
organization’s eligible retained income
is negative and its capital conservation
buffer is less than 2.5 percent as of the
end of the previous quarter.
As illustrated in table 3, the capital
conservation buffer is divided into equal
quartiles, each associated with
increasingly stringent limitations on
capital distributions and discretionary
bonus payments to executive officers as
the capital conservation buffer falls
closer to zero percent. As described in
more detail in the next section, each
quartile, associated with a certain
maximum payout ratio in table 3, would
expand proportionately for advanced
approaches banking organizations when
the countercyclical capital buffer
amount is greater than zero
ions and discretionary
bonus payments to executive officers as
the capital conservation buffer falls
closer to zero percent. As described in
more detail in the next section, each
quartile, associated with a certain
maximum payout ratio in table 3, would
expand proportionately for advanced
approaches banking organizations when
the countercyclical capital buffer
amount is greater than zero.
The agencies propose to define a
capital distribution as: (1) A reduction
of tier 1 capital through the repurchase
of a tier 1 capital instrument or by other
means; (2) a reduction of tier 2 capital
through the repurchase, or redemption
prior to maturity, of a tier 2 capital
instrument or by other means; (3) a
dividend declaration on any tier 1
capital instrument; (4) a dividend
declaration or interest payment on any
tier 2 capital instrument if such
dividend declaration or interest
payment may be temporarily or
permanently suspended at the
discretion of the banking organization;
or (5) any similar transaction that the
agencies determine to be in substance a
distribution of capital. The proposed
definition is similar in effect to the
definition of capital distribution in the
Board’s rule requiring annual capital
plan submissions for bank holding
companies with $50 billion or more in
total assets.34
The agencies propose to define a
discretionary bonus payment as a
payment made to an executive officer of
a banking organization or an individual
with commensurate responsibilities
within the organization, such as a head
of a business line, where: (1) The
banking organization retains discretion
as to the fact of the payment and as to
the amount of the payment until the
discretionary bonus is paid to the
executive officer; (2) the amount paid is
determined by the banking organization
without prior promise to, or agreement
with, the executive officer; and (3) the
executive officer has no contract right,
express or implied, to the bonus
payment
king organization retains discretion
as to the fact of the payment and as to
the amount of the payment until the
discretionary bonus is paid to the
executive officer; (2) the amount paid is
determined by the banking organization
without prior promise to, or agreement
with, the executive officer; and (3) the
executive officer has no contract right,
express or implied, to the bonus
payment.
An executive officer would be defined
as a person who holds the title or,
without regard to title, salary, or
compensation, performs the function of
one or more of the following positions:
president, chief executive officer,
executive chairman, chief operating
officer, chief financial officer, chief
investment officer, chief legal officer,
chief lending officer, chief risk officer,
or head of a major business line, and
other staff that the board of directors of
the banking organization deems to have
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Federal Register / Vol. 77, No. 169 / Thursday, August 30, 2012 / Proposed Rules
35 See 76 FR 21170 (April 14, 2011).
36 See 12 U.S.C. 56, 60, and 1831o(d)(1); 12 CFR
1467a(f); see also 12 CFR 225.8.
37 Calculations in this table are based on the
assumption that the countercyclical buffer amount
is zero.
equivalent responsibility.35 The purpose
of limiting restrictions on discretionary
bonus payments to executive officers is
to focus these measures on the
individuals within a banking
organization who could expose the
organization to the greatest risk. The
agencies note that a banking
organization may otherwise be subject
to limitations on capital distributions
under other laws or regulations.36
Table 3 shows the relationship
between the capital conservation buffer
and the maximum payout ratio
ve officers is
to focus these measures on the
individuals within a banking
organization who could expose the
organization to the greatest risk. The
agencies note that a banking
organization may otherwise be subject
to limitations on capital distributions
under other laws or regulations.36
Table 3 shows the relationship
between the capital conservation buffer
and the maximum payout ratio. The
maximum dollar amount that a banking
organization would be permitted to pay
out in the form of capital distributions
or discretionary bonus payments during
the current calendar quarter would be
equal to the maximum payout ratio
multiplied by the banking organization’s
eligible retained income. The
calculation of the maximum payout
amount would be made as of the last
day of the previous calendar quarter and
any resulting restrictions would apply
during the current calendar quarter.
TABLE 3—CAPITAL CONSERVATION BUFFER AND MAXIMUM PAYOUT RATIO 37
Capital conservation buffer
(as a percentage of total risk-weighted assets)
Maximum payout ratio
(as a percentage of eligible retained
income)
Greater than 2.5 percent ..............................................................................................................................
No payout ratio limitation applies.
Less than or equal to 2.5 percent, and greater than 1.875 percent ............................................................
60 percent.
Less than or equal to 1.875 percent, and greater than 1.25 percent ..........................................................
40 percent.
Less than or equal to 1.25 percent, and greater than 0.625 percent ..........................................................
20 percent.
Less than or equal to 0.625 percent ............................................................................................................
0 percent
ent, and greater than 1.25 percent ..........................................................
40 percent.
Less than or equal to 1.25 percent, and greater than 0.625 percent ..........................................................
20 percent.
Less than or equal to 0.625 percent ............................................................................................................
0 percent.
For example, a banking organization
with a capital conservation buffer
between 1.875 and 2.5 percent (for
example, a common equity tier 1 capital
ratio of 6.5 percent, a tier 1 capital ratio
of 8 percent, or a total capital ratio of
10 percent) as of the end of the previous
calendar quarter would be allowed to
distribute no more than 60 percent of its
eligible retained income in the form of
capital distributions or discretionary
bonus payments during the current
calendar quarter. That is, the banking
organization would need to conserve at
least 40 percent of its eligible retained
income during the current calendar
quarter.
A banking organization with a capital
conservation buffer of less than or equal
to 0.625 percent (for example, a banking
organization with a common equity tier
1 capital ratio of 5.0 percent, a tier 1
capital ratio of 6.5 percent, or a total
capital ratio of 8.5 percent) as of the end
of the previous calendar quarter would
not be permitted to make any capital
distributions or discretionary bonus
payments during the current calendar
quarter.
In contrast, a banking organization
with a capital conservation buffer of
more than 2.5 percent (for example, a
banking organization with a common
equity tier 1 capital ratio of 7.5 percent,
a tier 1 capital ratio of 9.0 percent, and
a total capital ratio of 11.0 percent) as
of the end of the previous calendar
quarter would not be subject to
restrictions on the amount of capital
distributions and discretionary bonus
payments that could be made during the
current calendar quarter
nt (for example, a
banking organization with a common
equity tier 1 capital ratio of 7.5 percent,
a tier 1 capital ratio of 9.0 percent, and
a total capital ratio of 11.0 percent) as
of the end of the previous calendar
quarter would not be subject to
restrictions on the amount of capital
distributions and discretionary bonus
payments that could be made during the
current calendar quarter. Consistent
with the agencies’ current practice with
respect to regulatory restrictions on
dividend payments and other capital
distributions, each agency would retain
its authority to permit a banking
organization supervised by that agency
to make a capital distribution or a
discretionary bonus payment, if the
agency determines that the capital
distribution or discretionary bonus
payment would not be contrary to the
purposes of the capital conservation
buffer or the safety and soundness of the
banking institution. In making such a
determination, the agency would
consider the nature and extent of the
request and the particular circumstances
giving rise to the request.
The agencies are proposing that
banking organizations that are not
subject to the advanced approaches rule
would calculate their capital
conservation buffer using total risk-
weighted assets as calculated by all
banking or

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---

Source: Frix Law Library, https://www.frixlaw.com/law-library/statutes/FDIC_FIL12025. Check the current official text before relying on it. Not legal advice.