Three agencies—the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, and Office of the Comptroller of the Currency—have jointly announced a final market risk capital rule and opened the comment period on three Notices of Proposed Rulemaking (NPRs) that would revise and replace current capital rules to align them with international Basel III agreements and the Dodd-Frank Act.
The tri-agency announcement comes on the heels of a Federal Reserve report last week that estimated U.S. banks will need $60 billion in shock-absorbing capital to meet Basel Committee on Banking Supervision (Basel III) agreements being developed by multinational regulators. These agreements will be phased in between 2013 and 2019.
The final market risk rule amends the calculation of market risk for banking organizations with aggregate trading assets and liabilities equal to 10 percent of total assets, or $1 billion or more. Under the rule, the mechanism to calculate the capital charges on securitization exposures when the underlying pool of assets demonstrates credit weakness was altered to focus on delinquent exposures rather than on cumulative losses. The final rule will be effective on Jan. 1, 2013.
Among the capital and liquidity baselines coming from Basel III is a 7 percent requirement for holding “top-quality” (Tier 1) common-equity capital as a balance to, and cushion from, risk-weighted assets (a jump from the mere 2 percent mandated under Basel II).
The first NPR, “Regulatory Capital Rules: Regulatory Capital, Implementation of Basel III, Minimum Regulatory Capital Ratios, Capital Adequacy, Transition Provisions, and Prompt Corrective Action," proposes revising risk-based and leverage capital requirements consistent with agreements reached by Basel III. Section 171 of the Dodd-Frank Act also requires the agencies to establish minimum risk-based and leverage capital requirements.
The provisions would apply to all insured banks and savings associations, top-tier bank holding companies based in the United States with more than $500 million in assets, and savings and loan holding companies that are based in the United States. It includes the implementation of Tier 1 capital requirements.
“Regulatory Capital Rules: Advanced Approaches Risk-based Capital Rule; Market Risk Capital Rule,” would revise the advanced approaches risk-based capital rules consistent with Basel III. The advanced approaches rules would apply to institutions with $250 billion or more in consolidated assets or $10 billion or more in foreign exposure; the market risk rule would apply to savings and loan holding companies with significant trading activity.
The third NPR, “Regulatory Capital Rules: Standardized Approach for Risk-weighted Assets; Market Discipline and Disclosure Requirements,” includes methods for determining risk-weighted assets for residential mortgages, securitization exposures, and counter-party credit risk. It introduces disclosure requirements that apply to U.S. banking organizations with $50 billion or more in total assets.
The deadline for comments is Sept. 7. Submissions can be submitted via the Federal eRulemaking Portal, in addition to email (firstname.lastname@example.org) and hard copy.