[Federal Register Volume 76, Number 124 (Tuesday, June 28, 2011)]
[Rules and Regulations]
[Pages 37620-37629]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-15669]


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DEPARTMENT OF THE TREASURY

Office of the Comptroller of the Currency

12 CFR Part 3

[Docket No. -2010-0009]
RIN 1557-AD33

FEDERAL RESERVE SYSTEM

12 CFR Parts 208 and 225

[Regulations H and Y; Docket No. R-1402]
RIN 7100-AD62

FEDERAL DEPOSIT INSURANCE CORPORATION

12 CFR Part 325

RIN 3064-AD58


Risk-Based Capital Standards: Advanced Capital Adequacy 
Framework--Basel II; Establishment of a Risk-Based Capital Floor

AGENCY: Office of the Comptroller of the Currency, Treasury; Board of 
Governors of the Federal Reserve System; and the Federal Deposit 
Insurance Corporation.

ACTION: Final rule.

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SUMMARY: The Office of the Comptroller of the Currency (OCC), Board of

[[Page 37621]]

Governors of the Federal Reserve System (Board), and the Federal 
Deposit Insurance Corporation (FDIC) (collectively, the agencies) are 
amending the advanced risk-based capital adequacy standards (advanced 
approaches rules) in a manner that is consistent with certain 
provisions of the Dodd-Frank Wall Street Reform and Consumer Protection 
Act (the Act), and the general risk-based capital rules to provide 
limited flexibility consistent with section 171(b) of the Act for 
recognizing the relative risk of certain assets generally not held by 
depository institutions.

DATES: This final rule is effective July 28, 2011.

FOR FURTHER INFORMATION CONTACT: OCC: Mark Ginsberg, Risk Expert, (202) 
874-5070, Capital Policy Division; or Carl Kaminski, Senior Attorney, 
or Stuart Feldstein, Director, Legislative and Regulatory Activities, 
(202) 874-5090.
    Board: Anna Lee Hewko, (202) 530-6260, Assistant Director, or 
Brendan Burke, (202) 452-2987, Senior Supervisory Financial Analyst, 
Division of Banking Supervision and Regulation, or April C. Snyder, 
(202) 452-3099, Counsel, or Benjamin W. McDonough, (202) 452-2036, 
Counsel, Legal Division. For the hearing impaired only, 
Telecommunication Device for the Deaf (TDD), (202) 263-4869.
    FDIC: George French, Deputy Director, Policy, (202) 898-3929, Nancy 
Hunt, Associate Director, Capital Markets Branch, (202) 898-6643, 
Division of Risk Management Supervision; or Mark Handzlik, Counsel, 
(202) 898-3990, or Michael Phillips, Counsel, (202) 898-3581, 
Supervision and Legislation Branch, Legal Division.

SUPPLEMENTARY INFORMATION:

I. Background

A. Overview of the Requirements of the Act

    Section 171(b)(2) of the Act \1\ states that the agencies shall 
establish minimum risk-based capital requirements on a consolidated 
basis for insured depository institutions, depository institution 
holding companies, and nonbank financial companies supervised by the 
Federal Reserve (covered institutions).\2\ In particular, and as 
described in more detail below, sections 171(b)(1) and (2) specify that 
the minimum leverage and risk-based capital requirements established 
under section 171 shall not be less than the ``generally applicable'' 
capital requirements, which shall serve as a floor for any capital 
requirements the agencies may require. Moreover, sections 171(b)(1) and 
(2) specify that the Federal banking agencies may not establish 
leverage or risk-based capital requirements for covered institutions 
that are quantitatively lower than the generally applicable leverage or 
risk-based capital requirements in effect for insured depository 
institutions as of the date of enactment of the Act.\3\
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    \1\ Public Law 111-203, section 171, 124 Stat. 1376, 1435-38 
(2010).
    \2\ 12 U.S.C. 5371, Public Law 111-203, section 171, 124 Stat. 
1376, 1435-38 (2010).
    \3\ On March 8, 2011, in an NPR that paralleled the agencies' 
rulemaking, the Office of Thrift Supervision (OTS) issued a notice 
in which OTS proposed to amend 12 CFR part 567, which sets forth the 
capital regulations applicable to savings associations. 45 FR 12,611 
(March 8, 2011). OTS received one comment on its proposal. The Act 
specifies that the regulatory authority and other functions of OTS 
will transfer to OCC on the transfer date provided in the Act, which 
is expected to be July 21, 2011. Given that the OTS's parallel 
rulemaking is subject to a 90 day review by the Office of Management 
and Budget pursuant to Executive Order 12866, it would be 
impracticable for OTS to issue a final rule before the transfer 
date. The OTS and OCC anticipate that OCC would issue a final rule 
to amend the capital regulations applicable to savings associations, 
after the transfer date.
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B. Advanced Approaches Rules \4\
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    \4\ 12 CFR part 3, Appendix C (OCC); 12 CFR part 208, Appendix F 
and 12 CFR part 225, Appendix G (Board); and 12 CFR part 325, 
Appendix D (FDIC).
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    On December 7, 2007, the agencies published in the Federal Register 
a final rule to implement the advanced approaches rules, which are 
mandatory for banks and bank holding companies (collectively, banking 
organizations) meeting certain thresholds for total consolidated assets 
or foreign exposure.\5\ The advanced approaches rules incorporate a 
series of proposals released by the Basel Committee on Banking 
Supervision (Basel Committee or BCBS), including the Basel Committee's 
comprehensive June 2006 release entitled ``International Convergence of 
Capital Measurement and Capital Standards: A Revised Framework'' (New 
Accord).\6\
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    \5\ 72 FR 69288 (December 7, 2007). Subject to prior supervisory 
approval, other banking organizations can opt to use the advanced 
approaches rules. Id. at 69397.
    \6\ The BCBS is a committee of banking supervisory authorities 
established by the central bank governors of the G-10 countries in 
1975. The BCBS issued the New Accord to modernize its first capital 
accord (``International Convergence of Capital Measurement and 
Capital Standards'' or ``Basel I''), which was endorsed by the BCBS 
members in 1988 and implemented by the agencies in 1989. The New 
Accord, the 1988 Accord, and other documents issued by the BCBS are 
available through the Bank for International Settlements' Web site 
at http://www.bis.org.
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    To provide a smooth transition to the advanced approaches rules and 
to limit temporarily the amount by which a banking organization's risk-
based capital requirements could decline relative to the general risk-
based capital rules, the advanced approaches rules established a series 
of transitional floors over a period of at least three years following 
a banking organization's completion of a satisfactory parallel run.\7\ 
During the transitional floor periods, a banking organization's risk-
based capital ratios are equal to the lesser of (i) the organization's 
ratios calculated under the advanced approaches rules and (ii) its 
ratios calculated under the general risk-based capital rules, with tier 
1 and total risk-weighted assets as calculated under the general risk-
based capital rules multiplied by 95 percent, 90 percent, and 85 
percent during the first, second, and third transitional floor periods, 
respectively.\8\ Under this approach, a banking organization that uses 
the advanced approaches rules is permitted to operate with lower 
minimum risk-based capital requirements during a transitional floor 
period, and potentially thereafter, than would be required under the 
general risk-based capital rules. To date, no U.S.-domiciled banking 
organization has entered a transitional floor period and all U.S-
domiciled banking organizations are required to compute their risk-
based capital requirements using the general risk-based capital rules.
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    \7\ 12 CFR part 3, Appendix A (OCC); 12 CFR parts 208 and 225, 
Appendix A (Board); 12 CFR part 325, Appendix A (FDIC).
    \8\ Under the advanced approaches rules, the minimum tier 1 
risk-based capital ratio is 4 percent and the minimum total risk-
based capital ratio is 8 percent. See 12 CFR part 3, Appendix C 
(OCC); 12 CFR part 208, Appendix F and 12 CFR part 225, Appendix G 
(Board); and 12 CFR part 325 Appendix D (FDIC).
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C. Requirements of Section 171 of the Act

    Section 171(a)(2) of the Act defines the term ``generally 
applicable risk-based capital requirements'' to mean: ``(A) the risk-
based capital requirements, as established by the appropriate Federal 
banking agencies to apply to insured depository institutions under the 
prompt corrective action regulations implementing section 38 of the 
Federal Deposit Insurance Act, regardless of total consolidated asset 
size or foreign financial exposure; and (B) includes the regulatory 
capital components in the numerator of those capital requirements, the 
risk-weighted assets in the denominator of those capital requirements, 
and the required ratio of the numerator to the denominator.'' Section 
171(b)(2) of the Act further

[[Page 37622]]

provides that ``[t]he appropriate Federal banking agencies shall 
establish minimum risk-based capital requirements on a consolidated 
basis for insured depository institutions, depository institution 
holding companies, and nonbank financial companies supervised by the 
Board of Governors. The minimum risk-based capital requirements 
established under this paragraph shall not be less than the generally 
applicable risk-based capital requirements, which shall serve as a 
floor for any capital requirements that the agency may require, nor 
quantitatively lower than the generally applicable risk-based capital 
requirements that were in effect for insured depository institutions as 
of the date of enactment of this Act.''
    In accordance with section 38 of the Federal Deposit Insurance Act, 
the Federal banking agencies established minimum leverage and risk-
based capital requirements for insured depository institutions for 
prompt corrective action (PCA) rules.\9\ All insured institutions, 
regardless of their total consolidated assets or foreign exposure, must 
compute their minimum risk-based capital requirements for PCA purposes 
using the general risk-based capital rules, which currently are the 
``generally applicable risk-based capital requirements'' defined by 
Section 171(a)(2) of the Act.
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    \9\ See 12 U.S.C. 1831o, Public Law 102-242, 105 Stat. 2242 
(1991); see also 12 CFR part 208, subpart D (Board).
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D. The Proposed Rule

    By notice in the Federal Register dated December 30, 2010, the 
agencies issued a notice of proposed rulemaking \10\ (NPR) to modify 
the advanced approaches rules consistent with section 171(b)(2) of the 
Act. In particular, the agencies proposed to revise the advanced 
approaches rules by replacing the transitional floors in section 21(e) 
of the advanced approaches rules with a permanent floor equal to the 
tier 1 and total risk-based capital requirements of the generally 
applicable risk-based capital rules (``permanent floor''). Under the 
proposal, each quarter, each banking organization subject to the 
advanced approaches rules would be required to calculate and compare 
its minimum tier 1 and total risk-based capital ratios as calculated 
under the general risk-based capital rules with the same ratios as 
calculated under the advanced approaches risk-based capital rules. The 
banking organization would then compare the lower of the two tier 1 
risk-based capital ratios and the lower of the two total risk-based 
capital ratios to the minimum tier 1 ratio requirement of 4 percent and 
total risk-based capital ratio requirement of 8 percent in section 3 of 
the advanced approaches rules \11\ to determine whether it meets its 
minimum risk-based capital requirements.\12\
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    \10\ 75 FR 82317 (December 30, 2010).
    \11\ 12 CFR part 3, Appendix C, section 3 (OCC); 12 CFR part 
208, Appendix F, section 3 and 12 CFR part 225, Appendix G, section 
3 (Board); and 12 CFR part 325, section 3 Appendix D (FDIC).
    \12\ Banking organizations that use the advanced approaches 
rules are subject to the same minimum leverage requirements that 
apply to other banking organizations. That is, advanced approaches 
banks calculate only one leverage ratio using the numerator as 
calculated under the generally risk-based capital rules. 
Accordingly, the agencies did not propose any change to the 
calculation of the leverage ratio requirements for banking 
organizations that use the advanced approaches rules.
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    For bank holding companies subject to the advanced approaches rule, 
the proposal stated that in calculating their risk-based capital 
ratios, these organizations must calculate their floor requirements 
under the general risk-based capital rules for state member banks.\13\ 
However, in accordance with the Act, they may include certain debt or 
equity instruments issued before May 19, 2010 as described in section 
171(b)(4)(B) of the Dodd-Frank Act. The agencies also proposed to 
eliminate the provisions of the advanced approaches rules relating to 
transitional floor periods and the interagency study of any material 
deficiencies in the rules.\14\ If the proposed permanent floor were 
implemented, these provisions of the advanced approaches rules would no 
longer serve a purpose.
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    \13\ 12 CFR part 208, appendix A.
    \14\ Supra, section 21(e)(6) Interagency study. For any primary 
Federal supervisor to authorize any institution to exit the third 
transitional floor period, the study must determine that there are 
no such material deficiencies that cannot be addressed by then-
existing tools, or, if such deficiencies are found, they are first 
remedied by changes to this appendix.
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    The proposal also included a modification to the general risk-based 
capital rules to address the appropriate capital requirement for low-
risk assets held by depository institution holding companies \15\ or by 
nonbank financial companies supervised by the Board pursuant to a 
designation by the Financial Stability Oversight Council (FSOC), in 
situations where there is no explicit capital treatment for such 
exposures under the general risk-based capital rules. The agencies 
proposed that such exposures receive the capital treatment applicable 
under the capital guidelines for bank holding companies under limited 
circumstances. The circumstances are intended to allow for an 
appropriate capital requirement for low-risk, nonbanking exposures 
without creating unintended new opportunities for depository 
institutions to engage in capital arbitrage. Accordingly, the agencies 
proposed to limit this treatment to cases in which a depository 
institution is not authorized to hold the asset under applicable law 
other than under the authority to hold an asset in connection with the 
satisfaction of a debt previously contracted or similar authority, and 
the risks associated with the asset are substantially similar to the 
risks of assets that otherwise are assigned a risk weight of less than 
100 percent under the general risk-based capital rules.\16\
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    \15\ Section 171 of the Act defines ``depository institution 
holding company'' to mean a bank holding company or a savings and 
loan holding company (as those terms are defined in section 3 of the 
Federal Deposit Insurance Act) that is organized in the United 
States, including any bank or savings and loan holding company that 
is owned or controlled by a foreign organization, but does not 
include the foreign organization. See section 171 of the Act, 12 
U.S.C. 5371.
    \16\ See 12 U.S.C. 24 (Seventh) and 12 U.S.C. 29 (national 
banks); 12 U.S.C. 335; and 12 U.S.C. 1831a(a) (state nonmember 
banks).
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II. Comments Received

A. Overview

    The agencies collectively received 16 comments from both domestic 
and international trade associations and from individual financial 
institutions, including insurance companies. Groups representing large 
banking organizations generally argued against the proposed permanent 
floor. These commenters asserted that it would place large U.S. banking 
organizations at a disadvantage relative to their international 
competitors, increase their costs, and undermine the risk sensitivity 
of the advanced approaches capital rules. In contrast, a trade 
organization for community banks and a financial reform advocacy 
organization supported the proposal.
    Commenters representing insurance companies generally supported the 
proposed revisions to the general risk-based capital rules for selected 
nonbank assets, arguing that insurance companies have different risk 
profiles and their liabilities and assets are of different durations 
compared to banks. These commenters said it would not be appropriate to 
mechanically apply bank capital regulations to insurance companies.

B. Impact on Banking Organizations That Use the Advanced Approaches 
Rules

    In response to the agencies' question on how the proposal would 
affect U.S.

[[Page 37623]]

banking organizations that use the advanced approaches rules, several 
commenters, mostly representing the largest U.S. financial 
institutions, expressed strong concerns about the proposed permanent 
floor, while acknowledging that the agencies were acting in response to 
a statutory requirement.\17\ These commenters generally asserted that 
the proposal exceeds the requirements of the Act, and would undermine 
the risk sensitivity of the risk-based capital rules, encourage banking 
organizations to invest more in higher risk assets, and distort 
decisions regarding capital allocation. These commenters also contended 
that the proposal would put U.S. banks at a disadvantage relative to 
their foreign competitors. Some of these commenters expressed a 
preference for alternative approaches to implement section 171 of the 
Act, including a Pillar 2 supervisory approach under the New Accord.
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    \17\ Id. at 82319.
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    Some of the commenters who opposed the permanent floor also 
criticized the proposal for retaining two regulatory capital regimes, 
causing confusion, and diverting significant resources into developing 
systems to comply with the advanced rules, without a corresponding 
reduction in capital costs due to the imposition of the proposed 
permanent floor. These commenters also expressed concern and asked the 
agencies to clarify how the proposal would interact with Basel III \18\ 
(particularly, the Basel III leverage ratio and capital conservation 
buffer), prompt corrective action, and other Dodd-Frank Act provisions 
relating to capital adequacy, such as those required by section 
165.\19\ In particular, these commenters expressed concern about what 
they viewed as negative consequences of maintaining a Basel I-based 
floor after full implementation of Basel III.
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    \18\ The term ``Basel III'' refers to the new comprehensive set 
of reform measures developed by the BCBS to strengthen the 
regulation, supervision, and risk management of the banking sector. 
These releases are available on the BIS Web site, http://www.bis.org.
    \19\ See section 165 of the Act; 12 U.S.C. 5365.
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    In contrast, one commenter representing community banks and another 
representing a financial reform advocacy organization expressed strong 
support for modifying the advanced approaches rules by replacing the 
transitional floors with the permanent floor. These commenters asserted 
that it is not appropriate for the agencies to allow large banking 
organizations to determine their capital requirements based on internal 
models because it may allow them to reduce their capital levels and 
give them a competitive advantage over community banks, and could also 
increase negative procyclical outcomes.

C. Effect on Applications by Foreign Banking Organizations

    The preamble to the proposed rule noted that in approving an 
application by a foreign banking organization to establish a branch or 
agency in the United States or to make a bank or nonbank acquisition, 
the Board considers, among other factors, whether the capital of the 
foreign banking organization is equivalent to the capital that would be 
required of a U.S. banking organization.\20\ In addition, in approving 
an application by a foreign banking organization to establish a federal 
branch or agency, the OCC must make a similar capital equivalency 
determination.\21\ Similarly, in order to make effective a foreign 
banking organization's declaration under the Bank Holding Company Act 
(BHC Act) to be treated as a financial holding company (FHC), the Board 
must apply comparable capital and management standards to the foreign 
banking organization ``giving due regard to the principle of national 
treatment and equality of competitive opportunity.'' \22\ National 
treatment generally means treatment that is no less favorable than that 
provided to domestic institutions that are in like circumstances. The 
agencies have broad discretion to consider relevant factors in making 
these determinations.
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    \20\ See 12 U.S.C. 1842(c); 1843(j); and 3105(d)(3)(B), (j)(2).
    \21\ See 12 U.S.C. 3103(a)(3)(B)(i).
    \22\ 12 U.S.C. 1843(l)(3). A foreign bank that operates a 
branch, agency or commercial lending company in the United States 
and any company that owns such a foreign bank, is subject to the BHC 
Act as if it were a bank holding company. The BHC Act, as amended by 
the Gramm-Leach Bliley Act, provides that a bank holding company may 
become an FHC if its depository institutions meet certain capital 
and management standards. See 12 U.S.C. 1843(l)(1); 12 CFR 225. 
Under section 606 of the Act, this requirement will be modified to 
require the bank holding company to be well capitalized and well 
managed. See the Act, section 606.
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    The Board has been making capital equivalency findings for foreign 
banking organizations under the International Banking Act and the BHC 
Act since 1992 pursuant to guidelines developed as part of a joint 
study by the Board and Treasury on capital equivalency.\23\ The study 
acknowledged the Basel Committee on Banking Supervision's 1988 Accord 
(Basel I) as the prevailing capital standard for internationally active 
banks and found that implementation of Basel I was broadly equivalent 
across countries. Until 2007, the agencies had generally accepted as 
equivalent the capital of foreign banking organizations from countries 
adhering to Basel I within the bounds of national discretion allowed 
under the Basel I framework. For foreign banking organizations that 
have begun operating under the New Accord's capital standards, the 
agencies have evaluated the capital of the foreign banking organization 
as reported in compliance with the New Accord, while also taking into 
account a range of factors including compliance with the New Accord's 
capital requirement floors linked to Basel I, where applicable. In some 
countries, Basel I floors are no longer in effect, or are expected to 
be phased out in the near term.
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    \23\ ``Capital Equivalency Report,'' Board of Governors of the 
Federal Reserve System and Secretary of the U.S. Department of the 
Treasury (June 19, 1992). See 12 U.S.C. 3105(j).
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    The NPR sought commenters' views on how the proposed rule should be 
applied to foreign banking organizations in evaluating capital 
equivalency in the context of applications to establish branches or 
make bank or nonbank acquisitions in the United States, and in 
evaluating capital comparability in the context of foreign banking 
organization FHC declarations. In raising this question, the agencies 
recognized the challenge of administering capital equivalency 
determinations where the foreign banking organization is not subject to 
the same floor requirement as its U.S. counterpart.
    In responding to this question, most commenters asserted that 
extending U.S. capital requirements to a foreign banking organization 
operating outside of the United States would not be appropriate and 
would be inconsistent with the Board's supervisory practice regarding 
the recognition of home country capital regulations. Several commenters 
noted that subjecting a foreign banking organization to the proposed 
rule contradicts the language of the Act, which excludes foreign 
banking organizations from the requirements of section 171. Several 
commenters supported applying the proposed rule to the U.S. operations 
of foreign banking organizations operating in the United States to be 
consistent with requirements for domestic banking organizations.
    Some commenters noted that foreign banking organizations operating 
under the advanced approaches rules would receive a competitive 
advantage over U.S. banking organizations subject to the proposal's 
permanent floor requirement. In addition, several commenters expressed 
concern that the applying the proposed floor to foreign banking 
organizations may incentivize

[[Page 37624]]

home country supervisors to impose reciprocal arrangements for U.S. 
banking organizations operating abroad.
    The agencies acknowledge that section 171, by its terms, does not 
apply to foreign banking organizations. Rather, the question on capital 
equivalency and comparability determinations was intended to seek views 
on practical ways to administer such determinations in the context of 
certain foreign bank organization applications to enter or expand 
operations within the United States given the proposal's requirements 
and longstanding supervisory practice. One of the agencies' supervisory 
objectives is to establish a consistent means for making capital 
equivalency determinations in the context of foreign banking 
organization applications to establish branches or to acquire banks or 
nonbanks in the United States, and in evaluating capital comparability 
in the context of foreign banking organization FHC declarations. The 
agencies recognize the challenges of establishing a consistent process 
for evaluating capital equivalency in cases where, among other things, 
the foreign banking organization applicant operating under advanced 
approaches no longer has the Basel I floor in place in its home 
country, and therefore no longer produces financial information based 
on Basel I requirements. The agencies believe that it is important to 
take into consideration the competitive issues highlighted by 
commenters. The agencies will continue to evaluate equivalency issues 
on a case-by-case basis taking into consideration the comments 
received.

D. Proposed Capital Requirements for Certain Nonbanking Exposures

    In the NPR, the agencies sought comment on whether the proposed 
treatment of nonbanking exposures described above was appropriate, 
whether this treatment was sufficiently flexible to address the 
exposures of depository institution holding companies and nonbank 
financial companies supervised by the Board, and, if not, how the 
treatment should be modified.\24\ Most commenters generally supported 
allowing flexibility for the capital treatment of nonbanking assets and 
agreed with the agencies' observation that automatically assigning such 
assets to the 100 percent risk weight category because they are not 
explicitly assigned to a lower risk weight category may not always be 
appropriate based on the economic substance of the exposure. One 
commenter broadly agreed with the proposal but stated that the proposed 
treatment needed further clarification. Another commenter noted that 
the rule also should provide for higher capital requirements, 
particularly for those exposures that that are impermissible for banks. 
One commenter noted that the proposal's limited flexibility to allow 
certain assets to receive the capital treatment applicable under the 
capital guidelines for bank holding companies should not include the 
condition that the asset be held under debt previously contracted or 
similar authority. This commenter stated that assignment to a risk 
category should be based on the risk of the asset and not on the 
underlying authority to own the asset.
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    \24\ Id. at 82320.
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    The agencies received substantial comments from insurance companies 
about the capital requirements for these entities in general as well as 
on the proposed modifications to the general risk-based capital rules 
to address certain nonbank assets. These commenters argued that it 
would not be appropriate to apply capital requirements applicable to 
banking organizations to insurance companies because their risk 
profiles, balance sheet characteristics, and business models 
fundamentally differ. Several of these commenters were concerned that 
applying capital requirements for banking organizations to insurance 
companies without taking these differences into account is overly 
simplistic and may lead to distorted incentives, undermine efficient 
use of capital, curtail insurance underwriting capacity, and negatively 
impact insurance markets.
    Some commenters suggested that significant adjustments to the risk 
weights applicable to banking organizations' exposures would be 
necessary when considering applicability to insurance companies' 
exposures. Other commenters suggested that adjustments to risk weights 
alone would be insufficient. Several commenters suggested that the 
agencies recognize and incorporate established insurance capital 
standards into any new capital regime that may apply to insurance 
companies. Some commenters suggested that the agencies use a principle 
of equivalence to evaluate insurance companies' capital adequacy 
similar to the practice used by the Board to determine if the capital 
of a foreign bank is equivalent to the capital required of a U.S. 
banking organization. Certain insurance industry commenters provided 
specific examples of exposures that should be given consideration for a 
lower risk weight under the general risk-based capital rules, including 
non-guaranteed separate accounts based on the rationale that the 
insurance policyholder and not the institution bears the investment 
risk associated with the contract. Other assets for which commenters 
suggested consideration regarding the capital treatment included 
guaranteed separate accounts, corporate debt, and private placements.
    Some commenters expressed concern that the Board may require 
insurance companies to use U.S. generally accepted accounting 
principles for preparing financial statements instead of the statutory 
accounting principles applicable to insurance companies. These 
commenters noted the burden and costs associated with using two 
accounting systems.

E. Quantitative Methods for Comparing Capital Frameworks

    The NPR sought comment on how the agencies should, in the future, 
evaluate changes to the general risk-based capital requirements to 
ensure they are not quantitatively lower than the ``generally 
applicable capital requirements'' in effect as of the enactment of 
section 171 of the Act.\25\ Commenters generally supported looking at 
industry-wide aggregate capital levels, in order to conduct the 
analysis, rather than basing the calculation on an item-by-item 
comparison of capital requirements for each class of exposures. These 
commenters asserted that this approach would allow individual 
organizations to adjust their business models appropriately while 
satisfying the test. One commenter suggested that in comparing proposed 
changes to the generally applicable capital requirements, the agencies 
should assume a stable risk profile within the industry while assessing 
levels of capital. This commenter points out maintaining reliable 
comparative data over time could make quantitative methods for this 
purpose difficult. For example, evaluating asset categories with 
current and historic data would be difficult if banks have not 
maintained consistent tracking methods, or common definitions over 
time. This commenter also suggested that it would be misguided to 
compare future capital requirements without regard to risk.
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    \25\ 75 FR at 82320-21.
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F. Costs and Benefits and Other Comments

    Several commenters were concerned about the operational expense and 
burden associated with determining compliance with two sets of capital 
rules. One stated that requiring two sets

[[Page 37625]]

of capital rules would result in permanently higher operating costs for 
banking organizations under the advanced approaches rules. This 
commenter also suggested that the proposed risk-based capital floor 
will reduce the incentive for banking organizations considering whether 
to undertake the expense and effort necessary to adopt the advanced 
approaches rules if minimum capital levels are determined by a less 
risk-sensitive capital framework. Some commenters also expressed 
concerns about the cost of continuing to implement the advanced 
approaches rules. One said that banks already have spent hundreds of 
millions of dollars on implementing the advanced approaches rules, and 
the proposal would eliminate the opportunity for banks to realize cost 
savings from potentially lower capital requirements under the advanced 
approaches rules. Another commenter suggested the agencies consider 
exempting from the permanent floor requirement any banking organization 
whose risk-weighted assets in the trading book exceeded a certain 
percent of total risk-weighted assets. This commenter also suggested 
ways of reducing the cost of compliance under the advanced approaches 
rules by, for example, raising the materiality standards to exempt 
small, relatively low-risk portfolios to save significant time and 
money at minimal cost in terms of lessened risk sensitivity.
    Commenters generally indicated that keeping track of two sets of 
capital regulations (the advanced approaches rules and the generally 
applicable risk-based capital rules then in effect) was preferable to 
tracking three capital rules (the above two capital regimes and the 
general risk-based capital rules in effect on July 21, 2010).
    Two commenters also suggested that because the FSOC has not 
designated any systemically important nonbank financial companies, 
potential designees were not provided sufficient notice and opportunity 
to comment on the proposal.

G. Analysis of Comments

    As described in the preceding section, a number of the commenters 
expressed opinions about the appropriateness of the policy underlying 
section 171 of the Act. The agencies note that they are required by law 
to comply with the Act and sought comment in the NPR on the manner in 
which the agencies proposed to implement certain requirements of 
section 171, and on ways to mitigate banking organizations' burden in 
meeting the proposed requirements.
    In response to comments on the burden of maintaining two systems to 
calculate capital requirements under both the risk-based capital rules 
and the advanced approaches rules, the agencies note that banking 
organizations in parallel run are currently reporting their capital 
requirements under both sets of rules. The agencies recognize that 
reporting capital calculations under two capital frameworks beyond the 
transitional floor arrangement was not expected at the onset of the 
advanced approaches rules. However, as discussed above, the agencies 
are issuing the final rule to be consistent with the requirements under 
section 171(b)(2) of the Act.
    Generally commenters supported the proposal's amendment to the 
general risk-based capital rules to address the appropriate capital 
requirement for low risk assets that non-depository institutions may 
hold and for which there is no explicit capital treatment in the 
general risk-based capital rules. This change was focused on providing 
limited flexibility for future changes to the risk-based capital rules 
applicable to bank holding companies following an evaluation of the 
exposures of covered institutions that may not previously have been 
subject to consolidated risk-based capital requirements applicable to 
banking organizations. Several commenters provided specific examples of 
assets that warrant consideration for a risk weight lower than 100 
percent. The Board will consider the risk characteristics for such 
assets on a case-by-case basis as it considers potential changes to the 
risk-based capital rules applicable to bank holding companies.
    One commenter recommended that the agencies remove from this 
treatment the condition that the bank holds the asset in connection 
with the satisfaction of a debt previously contracted or similar 
authority. This commenter suggests that the assignment to a risk 
category should be based on the risk of the asset, not an authority to 
own the asset. The agencies agree that in the cases where this limited 
treatment is used, the assignment of a capital requirement in this 
situation would be based on an evaluation of the asset's risk profile. 
The condition related to legal authority is intended to limit the scope 
for assignments of capital requirements under this provision to assets 
not typically held by depository institutions, whose risks and 
characteristics were not contemplated when the general risk-based 
capital rules were developed.
    Insurance-related commenters noted that some large insurance 
companies which engage predominantly in insurance activities have 
depository institution subsidiaries or affiliates that represent a 
relatively small portion of the consolidated entity. These commenters 
highlighted fundamental differences in risk profiles, balance sheet 
characteristics, and business models between insurance companies and 
banking organizations. In response to these comments, the agencies note 
that section 171(b)(2) of the Act does not take into account the size 
or other differences between a holding company and its subsidiary 
depository institution(s). Consistent with this section of the Act, the 
``generally applicable'' capital requirements serves as a floor for any 
capital requirements the agencies may require.
    Some commenters suggested that foreign banking organizations 
operating under the advanced approaches rules could hold less capital 
and therefore, receive a competitive advantage compared to U.S banking 
organizations. The agencies agree that without the proposal's floor 
requirement, a banking organization that uses the advanced approaches 
rules could theoretically operate with lower minimum risk-based capital 
requirements than would be required under the general risk-based 
capital rules. The agencies will consider these competitive equity 
concerns when working with the BCBS and other supervisory authorities 
to mitigate potential competitive inequities across jurisdictions, as 
appropriate.
    In explaining their concern about how the proposal would interact 
with Basel III, a number of commenters focused on the proposed rule and 
future changes to regulatory capital requirements, including those 
related to U.S. implementation of Basel III. These commenters stated 
that it is not possible to understand the consequences of implementing 
section 171 without addressing the broader range of changes in capital 
regulations, such as changes to the leverage ratio and PCA provisions.
    The agencies agree that implementing section 171 will require 
careful consideration and diligence over time, as the agencies propose 
and implement various enhancements to the regulatory capital rules. 
Consistent with the joint efforts of the U.S. banking agencies and the 
Basel Committee to enhance the regulatory capital rules applicable to 
internationally active banking organizations, the agencies anticipate 
that their capital requirements will be amended, establishing different 
minimum and ``generally applicable'' capital requirements. These 
amendments would reflect advances in risk sensitivity and potentially 
other

[[Page 37626]]

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

III. Final Rule

A. Implementation of a Risk-Based Capital Floor

    The agencies have considered the comments received on the NPR, and 
continue to believe that the rule as proposed is consistent with the 
requirements of section 171 of the Act with respect to risk-based 
capital requirements. Therefore, the agencies have decided to implement 
the rule as proposed, effective July 28, 2011.
    Thus, each organization implementing the advanced approaches rules 
will continue to calculate its risk-based capital requirements under 
the agencies' general risk-based capital rules, and the capital 
requirement it computes under those rules will serve as a floor for its 
risk-based capital requirement computed under the advanced approaches 
rules. The agencies note that the effect of this rule on banking 
organizations is to preclude certain reductions in capital requirements 
that might have occurred in the future, absent the rule and absent any 
further changes to the capital rules. The agencies also note that in 
practice, the rule will not have an immediate effect on banking 
organizations' capital requirements because all organizations subject 
to the advanced approaches rules are currently computing their capital 
requirements under the general risk-based capital rules.
    For bank holding companies subject to the advanced approaches rule, 
as noted above, the final rule provides that they must calculate their 
floor requirement under the general risk-based capital rules for state 
member banks.\26\ However, in accordance with the Act, these 
organizations may include certain debt or equity instruments issued 
before May 19, 2010 as described in section 171(b)(4)(B) of the Act. 
The agencies expect the phase-in of restrictions on the regulatory 
capital treatment of the debt or equity instruments described in 
section 171(b)(4)(B) of the Act will be addressed in more detail in a 
subsequent rule. As indicated in the proposal, other aspects of section 
171 are not addressed in this final rule.
---------------------------------------------------------------------------

    \26\ 12 CFR part 208, appendix A.
---------------------------------------------------------------------------

B. Capital Requirements for Certain Nonbanking Exposures

    Commenters generally supported the agencies' proposed treatment of 
certain low-risk, nonbanking exposures. The agencies believe the 
proposed treatment provides flexibility to address situations where 
exposures of a depository institution holding company or a nonbank 
financial company supervised by the Board not only do not wholly fit 
within the terms of a risk weight category applicable to banking 
organizations, but also impose risks that are not commensurate with the 
risk weight otherwise specified in the generally applicable risk-based 
capital requirements. Therefore, the final rule retains the proposed 
rule's treatment for these assets without modification.
    As a general matter, the Board and the other federal banking 
agencies retain a reservation of authority to assign alternate risk-
based capital requirements if such action is warranted.
Regulatory Flexibility Act Analysis
    The Regulatory Flexibility Act, 5 U.S.C. 601 et seq. (RFA), 
generally requires that an agency prepare and make available for public 
comment an initial regulatory flexibility analysis in connection with a 
notice of proposed rulemaking.\27\ The regulatory flexibility analysis 
otherwise required under section 604 of the RFA is not required if an 
agency certifies that the rule will not have a significant economic 
impact on a substantial number of small entities (defined for purposes 
of the RFA to include banks with assets less than or equal to $175 
million) and publishes its certification and a short, explanatory 
statement in the Federal Register along with its rule.
---------------------------------------------------------------------------

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

    As discussed in greater detail above, the purpose of the final rule 
is to establish a risk-based capital floor for the advanced approaches 
rules in a manner that is consistent with section 171 of the Act. In 
addition, the final rule also amends the general risk-based capital 
rules for depository institutions to provide flexibility consistent 
with section 171 of the Act for addressing the appropriate capital 
requirement for low-risk assets held by depository institution holding 
companies or by nonbank financial companies supervised by the Board, in 
situations where there is no explicit capital treatment for such 
exposures under the general risk-based capital rules.
    As discussed above, the agencies solicited public comment on the 
rule in a notice of proposed rulemaking. The agencies did not receive 
any comments regarding burden to small banking organizations. After 
considering the comments on the proposal, the agencies decided to issue 
the proposed rule text as a final rule without change.

[[Page 37627]]

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

    \28\ All totals are as of December 31, 2010.
---------------------------------------------------------------------------

OCC Unfunded Mandates Reform Act of 1995 Determinations
    Section 202 of the Unfunded Mandates Reform Act of 1995, Public Law 
104-4 (UMRA) requires that an agency prepare a budgetary impact 
statement before promulgating a rule that includes a Federal mandate 
that may result in the expenditure by state, local, and tribal 
governments, in the aggregate, or by the private sector of $100 million 
or more (adjusted annually for inflation) in any one year. If a 
budgetary impact statement is required, section 205 of the UMRA also 
requires an agency to identify and consider a reasonable number of 
regulatory alternatives before promulgating a rule. The OCC has 
determined that its final rule will not result in expenditures by 
state, local, and tribal governments, or by the private sector, of $100 
million or more. Accordingly, the OCC has not prepared a budgetary 
impact statement or specifically addressed the regulatory alternatives 
considered.
Paperwork Reduction Act
    In accordance with the requirements of the Paperwork Reduction Act 
of 1995,\29\ the agencies may not conduct or sponsor, and the 
respondent is not required to respond to, an information collection 
unless it displays a currently valid Office of Management and Budget 
(OMB) control number. Each of the agencies has an established 
information collection for the paperwork burden imposed by the advanced 
approaches rule.\30\ This final rule would replace the transitional 
floors in section 21(e) of the advanced approaches rule with a 
permanent floor equal to the tier 1 and total risk-based capital 
requirements under the current generally applicable risk-based capital 
rules. The proposed change to transitional floors would change the 
basis for calculating a data element that must be reported to the 
agencies under an existing requirement. However, it would have no 
impact on the frequency or response time for the reporting requirement 
and, therefore, does not constitute a substantive or material change 
subject to OMB review.
---------------------------------------------------------------------------

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

Plain Language
    Section 722 of the Gramm-Leach-Bliley Act (Pub. L. 106-102, 113 
Stat. 1338, 1471) requires the agencies to use plain language in all 
proposed and final rules published after January 1, 2000. In light of 
this requirement, the agencies have sought to present the final rule in 
a simple and straightforward manner.

List of Subjects

12 CFR Part 3

    Administrative practice and procedure, Banks, banking, Capital, 
National banks, Reporting and recordkeeping requirements, Risk.

12 CFR Part 208

    Confidential business information, Crime, Currency, Federal Reserve 
System, Mortgages, Reporting and recordkeeping requirements, Risk.

12 CFR Part 225

    Administrative practice and procedure, Banks, banking, Federal 
Reserve System, Holding companies, Reporting and recordkeeping 
requirements, Securities.

12 CFR Part 325

    Administrative practice and procedure, Banks, banking, Capital 
adequacy, Reporting and recordkeeping requirements, Savings 
associations, State nonmember banks.

Department of the Treasury

Office of the Comptroller of the Currency

12 CFR Chapter I

Authority and Issuance
    For the reasons stated in the common preamble, the Office of the 
Comptroller of the Currency amends part 3 of chapter I of Title 12, 
Code of Federal Regulations as follows:

PART 3--MINIMUM CAPITAL RATIOS; ISSUANCE OF DIRECTIVES

0
1. The authority citation for part 3 continues to read as follows:

    Authority:  12 U.S.C. 93a, 161, 1818, 1828(n), 1828 note, 1831n 
note, 1835, 3907, and 3909.


0
2. In Appendix A to part 3, in section 3, add new paragraph (a)(4)(xi) 
as follows:

Appendix A to Part 3--Risk-Based Capital Guidelines

* * * * *


Section 3.  Risk Categories/Weights for On-Balance Sheet Assets and 
Off-Balance Sheet Items

* * * * *
    (a) * * *
    (4) * * *
    (xi) Subject to the requirements below, a bank may assign an 
asset not included in the categories above to the risk weight 
category applicable under the capital guidelines for bank holding 
companies (see 12 CFR part 225, appendix A), provided that all of 
the following conditions apply:

[[Page 37628]]

    (A) The bank is not authorized to hold the asset under 
applicable law other than debt previously contracted or similar 
authority; and
    (B) The risks associated with the asset are substantially 
similar to the risks of assets that are otherwise assigned to a risk 
weight category less than 100 percent under this appendix.
* * * * *


0
3. In Appendix C to part 3:
0
a. Revise Part I, section 3 to read as set forth below.
0
b. Remove section 21(e).

Appendix C to Part 3--Capital Adequacy Guidelines for Banks: Internal 
Ratings-Based and Advanced Measurement Approaches

Part I. General Provisions

* * * * *


Section 3.  Minimum Risk-Based Capital Requirements

    (a) (1) Except as modified by paragraph (c) of this section or 
by section 23 of this appendix, each bank must meet a minimum:
    (i) Total risk-based capital ratio of 8.0 percent; and
    (ii) Tier 1 risk-based capital ratio of 4.0 percent.
    (2) A bank's total risk-based capital ratio is the lower of:
    (i) Its total qualifying capital to total risk-weighted assets; 
and
    (ii) Its total risk-based capital ratio as calculated under 
Appendix A of this part.
    (3) A bank's tier 1 risk-based capital ratio is the lower of:
    (i) Its tier 1 capital to total risk-weighted assets; and
    (ii) Its tier 1 risk-based capital ratio as calculated under 
Appendix A of this part.
    (b) Each bank must hold capital commensurate with the level and 
nature of all risks to which the bank is exposed.
    (c) When a bank subject to 12 CFR part 3, Appendix B, calculates 
its risk-based capital requirements under this appendix, the bank 
must also refer to 12 CFR part 3, Appendix B, for supplemental rules 
to calculate risk-based capital requirements adjusted for market 
risk.
* * * * *

Federal Reserve System

12 CFR Chapter II

Authority and Issuance
    For the reasons set forth in the common preamble, parts 208 and 225 
of chapter II of title 12 of the Code of Federal Regulations are 
amended as follows:

PART 208--MINIMUM CAPITAL RATIOS; ISSUANCE OF DIRECTIVES

0
4. The authority citation for part 208 continues to read as follows:

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


0
5. In Appendix A to part 208, revise section III.C. 4.a and add section 
III.C. 4.e to read as follows:

Appendix A to Part 208--Capital Adequacy Guidelines for State Member 
Banks: Risk-Based Measure

* * * * *
    III. * * *
    C. * * *
    4. Category 4: 100 percent. a. Except as provided in section 
III.C. 4.e of this appendix, all assets not included in the 
categories above are assigned to this category, which comprises 
standard risk assets. The bulk of the assets typically found in a 
loan portfolio would be assigned to the 100 percent category.
* * * * *
    e. Subject to the requirements below, a bank may assign an asset 
not included in the categories above to the risk weight category 
applicable under the capital guidelines for bank holding companies 
(See 12 CFR part 225, appendix A), provided that all of the 
following conditions apply:
    i. The bank is not authorized to hold the asset under applicable 
law other than under debt previously contracted or other similar 
authority; and
    ii. The risks associated with the asset are substantially 
similar to the risks of assets that are otherwise assigned to a risk 
weight category of less than 100 percent under this appendix.
* * * * *


0
6. In Appendix F to part 208:
0
a. Revise section 3 to read as set forth below; and
0
b. Remove section 21(e).

Appendix F to Part 208--Capital Adequacy Guidelines for Banks: Internal 
Ratings-Based and Advanced Measurement Approaches

Part I. General Provisions

* * * * *


Section 3.  Minimum Risk-Based Capital Requirements

    (a)(1) Except as modified by paragraph (c) of this section or by 
section 23 of this appendix, each bank must meet a minimum:
    (i) Total risk-based capital ratio of 8.0 percent; and
    (ii) Tier 1 risk-based capital ratio of 4.0 percent.
    (2) A bank's total risk-based capital ratio is the lower of:

    (i) Its total qualifying capital to total risk-weighted assets, 
and
    (ii) Its total risk-based capital ratio as calculated under 
Appendix A of this part.
    (3) A bank's tier 1 risk-based capital ratio is the lower of:
    (i) Its tier 1 capital to total risk-weighted assets, and
    (ii) Its tier 1 risk-based capital ratio as calculated under 
Appendix A of this part.
    (b) Each bank must hold capital commensurate with the level and 
nature of all risks to which the bank is exposed.
    (c) When a bank subject to 12 CFR part 208, appendix E 
calculates its risk-based capital requirements under this appendix, 
the bank must also refer to 12 CFR part 208 for supplemental rules 
to calculate risk-based capital requirements adjusted for market 
risk.
* * * * *

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

0
7. The authority citation for part 225 continues to read as follows:

    Authority:  12 U.S.C. 1817(j)(13), 1818, 1828(o), 1831i, 1831p-
1, 1843(c)(8), 1844(b), 1972(1), 3106, 3108, 3310, 3331-3351, 3907, 
and 3909; 15 U.S.C. 6801 and 6805.


0
8. In Appendix G to part 225:
0
a. Revise section 3 to read as set forth below; and
0
b. Remove section 21(e).

Appendix G to Part 225--Capital Adequacy Guidelines for Bank Holding 
Companies: Internal Ratings-Based and Advanced Measurement Approaches

Part I. General Provisions

* * * * *


Section 3.  Minimum Risk-Based Capital Requirements

    (a)(1) Except as modified by paragraph (c) of this section or by 
section 23 of this appendix, each bank holding company must meet a 
minimum:
    (i) Total risk-based capital ratio of 8.0 percent; and
    (ii) Tier 1 risk-based capital ratio of 4.0 percent.
    (2) A bank holding company's total risk-based capital ratio is 
the lower of:
    (i) Its total qualifying capital to total risk-weighted assets, 
and
    (ii) Its total risk-based capital ratio as calculated under 12 
CFR part 208, appendix A, as adjusted to include certain debt or 
equity instruments issued before May 19, 2010 as described in 
section 171(b)(4)(B) of the Dodd-Frank Wall Street Reform and 
Consumer Protection Act (Dodd-Frank Act).
    (3) A bank holding company's tier 1 risk-based capital ratio is 
the lower of:
    (i) Its tier 1 capital to total risk-weighted assets, and

[[Page 37629]]

    (ii) Its tier 1 risk-based capital ratio as calculated under 12 
CFR part 208, appendix A, as adjusted to include certain debt or 
equity instruments issued before May 19, 2010 as described in 
section 171(b)(4)(B) of the Dodd-Frank Act.
    (b) Each bank holding company must hold capital commensurate 
with the level and nature of all risks to which the bank holding 
company is exposed.
    (c) When a bank holding company subject to 12 CFR part 225, 
appendix E calculates its risk-based capital requirements under this 
appendix, the bank holding company must also refer to 12 CFR part 
225, appendix E for supplemental rules to calculate risk-based 
capital requirements adjusted for market risk.
* * * * *

Federal Deposit Insurance Corporation

12 CFR Chapter III

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

PART 325--CAPITAL MAINTENANCE

0
9. The authority citation for part 325 continues to read as follows:

    Authority:  12 U.S.C. 1815(a), 1815(b), 1816, 1818(a), 1818(b), 
1818(c), 1818(t), 1819(Tenth), 1828(c), 1828(d), 1828(i), 1828(n), 
1828(o), 1831o, 1835, 3907, 3909, 4808; Pub. L. 102-233, 105 Stat. 
1761, 1789, 1790 (12 U.S.C. 1831n note); Pub. L. 102-242, 105 Stat. 
2236, as amended by Pub. L. 103-325, 108 Stat. 2160, 2233 (12 U.S.C. 
1828 note); Pub. L. 102-242, 105 Stat. 2236, 2386, as amended by 
Pub. L. 102-550, 106 Stat. 3672, 4089 (12 U.S.C. 1828 note).


0
10. Amend Appendix A to part 325 as follows:
0
a. In section II.C, revise the first sentence of the introductory text;
0
b. In sections II.D, and II.E, redesignate footnotes 45 through 50 as 
footnotes 46 through 51.
0
c. In section II.C, Category 4, add new paragraph (d) and a new 
footnote 45.

Appendix A to Part 325--Statement of Policy on Risk-Based Capital

* * * * *
    II. * * *

C. Risk Weights for Balance Sheet Assets (see Table II)

    The risk based capital framework contains five risk weight 
categories--0 percent, 20 percent, 50 percent, 100 percent, and 200 
percent. * * *
* * * * *
    Category 4--100 Percent Risk Weight. * * *
    (d) Subject to the requirements below, a bank may assign an 
asset not included in the categories above to the risk weight 
category applicable under the capital guidelines for bank holding 
companies (12 CFR part 225, appendix A), provided that all of the 
following conditions apply:
    (1) The bank is not authorized to hold the asset under 
applicable law other than debt previously contracted or similar 
authority; and
    (2) The risks associated with the asset are substantially 
similar to the risks of assets that are otherwise assigned to a risk 
weight category less than 100 percent under this appendix.
* * * * *


0
11. In Appendix D to part 325:
0
a. Revise section 3 to read as set forth below; and
0
b. Remove section 21(e).

Appendix D to Part 325--Capital Adequacy Guidelines for Banks: Internal 
Ratings-Based and Advanced Measurement Approaches

Part I. General Provisions

* * * * *


Section 3.  Minimum Risk-Based Capital Requirements

    (a)(1) Except as modified by paragraph (c) of this section or by 
section 23 of this appendix, each bank must meet a minimum:
    (i) Total risk-based capital ratio of 8.0 percent; and
    (ii) Tier 1 risk-based capital ratio of 4.0 percent.
    (2) A bank's total risk-based capital ratio is the lower of:
    (i) Its total qualifying capital to total risk-weighted assets, 
and
    (ii) Its total risk-based capital ratio as calculated under 
appendix A of this part.
    (3) A bank's tier 1 risk-based capital ratio is the lower of:
    (i) Its tier 1 capital to total risk-weighted assets, and
    (ii) Its tier 1 risk-based capital ratio as calculated under 
appendix A of this part.
    (b) Each bank must hold capital commensurate with the level and 
nature of all risks to which the bank is exposed.
    (c) When a bank subject to appendix C of this part calculates 
its risk-based capital requirements under this appendix, the bank 
must also refer to appendix C of this part for supplemental rules to 
calculate risk-based capital requirements adjusted for market risk.
* * * * *

    Dated: June 14, 2011.
John Walsh,
Comptroller of the Currency.
    By order of the Board of Governors of the Federal Reserve 
System, June 14, 2011.
Jennifer J. Johnson,
Secretary of the Board.
    Dated at Washington, DC, this 14th day of June 2011.

    By order of the Board of Directors. Federal Deposit Insurance 
Corporation.

Robert E. Feldman,
Executive Secretary.
[FR Doc. 2011-15669 Filed 6-27-11; 8:45 am]
BILLING CODE 4810-33-P; 6210-01-P; 6714-01-P