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Federal Crop Insurance Corporation, USDA.
Final rule.
The Federal Crop Insurance Corporation (FCIC) finalizes the Common Crop Insurance Regulations, Peach Crop Insurance Provisions. The intended effect of this action is to provide policy changes, to clarify existing policy provisions to better meet the needs of insured producers, and to reduce vulnerability to program fraud, waste, and abuse. The changes will apply for the 2013 and succeeding crop years.
This rule is effective August 30, 2012.
Tim Hoffmann, Director, Product Administration and Standards Division, Risk Management Agency, United States Department of Agriculture, Beacon Facility, Stop 0812, Room 421, P.O. Box 419205, Kansas City, MO 64141–6205, telephone (816) 926–7730.
This rule has been determined to be non-significant for the purposes of Executive Order 12866 and, therefore, it has not been reviewed by the Office of Management and Budget (OMB).
Pursuant to the provisions of the Paperwork Reduction Act of 1995 (44 U.S.C. chapter 35), the collections of information in this rule have been approved by OMB under control number 0563–0053.
FCIC is committed to complying with the E-Government Act of 2002, to promote the use of the Internet and other information technologies to provide increased opportunities for citizen access to Government information and services, and for other purposes.
Title II of the Unfunded Mandates Reform Act of 1995 (UMRA), establishes requirements for Federal agencies to assess the effects of their regulatory actions on State, local, and tribal governments and the private sector. This rule contains no Federal mandates (under the regulatory provisions of title II of the UMRA) for State, local, and tribal governments or the private sector. Therefore, this rule is not subject to the requirements of sections 202 and 205 of UMRA.
It has been determined under section 1(a) of Executive Order 13132, Federalism, that this rule does not have sufficient implications to warrant consultation with the States. The provisions contained in this rule will not have a substantial direct effect on States, or on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government.
This rule has been reviewed in accordance with the requirements of Executive Order 13175, Consultation and Coordination with Indian Tribal Governments. The review reveals that this regulation will not have substantial and direct effects on Tribal governments and will not have significant Tribal implications.
FCIC certifies that this regulation will not have a significant economic impact on a substantial number of small entities. Program requirements for the Federal crop insurance program are the same for all producers regardless of the size of their farming operation. For instance, all producers are required to submit an application and acreage report to establish their insurance guarantees and compute premium amounts, and all producers are required to submit a notice of loss and production information to determine the amount of an indemnity payment in the event of an insured cause of crop loss. Whether a producer has 10 acres or 1000 acres, there is no difference in the kind of information collected. To ensure crop insurance is available to small entities, the Federal Crop Insurance Act authorizes FCIC to waive collection of administrative fees from limited resource farmers. FCIC believes this waiver helps to ensure that small entities are given the same opportunities as large entities to manage their risks through the use of crop insurance. A Regulatory Flexibility Analysis has not been prepared since this regulation does not have an impact on small entities, and, therefore, this regulation is exempt from the provisions of the Regulatory Flexibility Act (5 U.S.C. 605).
This program is listed in the Catalog of Federal Domestic Assistance under No. 10.450.
This program is not subject to the provisions of Executive Order 12372, which require intergovernmental consultation with State and local officials. See the Notice related to 7 CFR part 3015, subpart V, published at 48 FR 29115, June 24, 1983.
This final rule has been reviewed in accordance with Executive Order 12988 on civil justice reform. The provisions of this rule will not have a retroactive effect. The provisions of this rule will preempt State and local laws to the extent such State and local laws are inconsistent herewith. With respect to any direct action taken by FCIC or to require the insurance provider to take specific action under the terms of the crop insurance policy, the administrative appeal provisions published at 7 CFR part 11 CFR part 400, subpart J, for the informal administrative review process of good farming practices as applicable, must be exhausted before any action against FCIC for judicial review may be brought.
This action is not expected to have a significant economic impact on the quality of the human environment, health, or safety. Therefore, neither an Environmental Assessment nor an Environmental Impact Statement is needed.
This rule finalizes changes to the Common Crop Insurance Regulations (7 CFR part 457) 457.153 Peach Crop Insurance Provisions that were published by FCIC on January 24, 2012, as a notice of proposed rulemaking in the
The public comments received regarding the proposed rule and FCIC's responses to the comments are as follows:
ARPA created a yield adjustment option and mandated that in the event of a significant crop loss or zero production on a given insurance unit, the producer would be able to replace the low yield with 60 percent of the transitional yield. Recent procedural changes regarding downward trending as applied to the peach crop insurance program prohibits producers from selecting the yield adjustment option when there are two consecutive years of crop losses recorded on a particular insurance unit regardless of the reason for the loss. This change negatively affects APH and is in direct contradiction of the ARPA. Additionally downward trending allows RMA to reduce the APH to 75 percent of its value. Currently, by definition and application, a 6 year old block entering its prime production years could be subject to downward trending if it has losses in 2 of the last 3 years due to climatic weather events. In such a case losing the yield adjustment option directly refutes the ARPA intention of Congress in 2000 and dramatically lowers the producer's APH. Therefore this rule should be removed or, at the very minimum, be applied to orchards that are 10 years of age.
In addition to the changes described above, FCIC has made minor typographical and punctuation changes.
Good cause is shown to make this rule effective less than 30 days after publication in the
With respect to the provision for this rule, it would be contrary to public interest to delay implementation because public interest is served by improving the insurance product as follows: (1) Increasing insurance flexibility by providing for separate optional units by fresh and processing; (2) allowing different coverage levels for all fresh peach acreage in the county and for all processing peach acreage in the count; and (3) providing simplification and clarity to the peach crop insurance program.
If FCIC is required to delay the implementation of this rule 30 days after the date it is published, the provisions of this rule could not be implemented unit the 2014 crop year. This would mean the affected producers would be without the benefits described above for an additional year.
For the reasons stated above, good cause exists to make these policy changes effective less than 30 days after publication in the
Crop insurance, Peach, Reporting and recordkeeping requirements.
Accordingly, as set forth in the preamble, the Federal Crop Insurance Corporation amends 7 CFR part 457 effective for the 2013 and succeeding crop years as follows:
7 U.S.C. 1506(l), 1506(o).
The revised and added text reads as follows:
1. Definitions.
(1) Is sold, or could be sold, for human consumption without undergoing any change in the basic form, such as peeling, juicing, crushing, etc.
(2) Grades at least U.S. Extra No. 1 or better, and consisting of a 2
(3) Is from acreage that is designated as fresh peaches on the acreage report;
(4) Follows the recommended cultural practices generally in use for fresh peach acreage in the area in a manner generally recognized by agricultural experts;
(5) Is from acreage that you certify, and if requested by us, provide verifiable records to support, that at least 50 percent of the total production from acreage reported as fresh peach acreage was sold as fresh peaches in one or more of the four most recent crop years; and
(6) Is sold or could have been sold for a price that is not less than the applicable fresh peach price election for the applicable crop year in the actuarial documents. If the fresh peach production is sold or could have been sold for a price less than the applicable fresh peach price election for the applicable crop year in the actuarial documents, you must provide verifiable records to show that the price received was at least the amount paid by buyers for fresh peaches in the area in which you sell your peaches.
(i) Sold, or could be sold, for the purpose of undergoing a change to its basic structure such as peeling, juicing, crushing, etc.; or
(ii) From acreage designated as processing peaches on the acreage report.
2. Unit Division.
In addition to the requirements contained in section 34 of the Basic Provisions, optional units may be established if each optional unit is:
(a) Located on non-contiguous land; or
(b) By fresh and processing as specified in the Special Provisions.
3. Insurance Guarantees, Coverage Levels, and Prices for Determining Indemnities.
(a) You may select a separate coverage level for all fresh peach acreage and for all processing peach acreage. For example, if you choose the 55 percent coverage level for all fresh peach acreage, you may choose the 75 percent coverage level for all processing peach acreage.
(1) Notwithstanding paragraph (a) of this section, if you elect the Catastrophic Risk Protection (CAT) level of coverage for fresh peach acreage or processing peach acreage, the CAT level of coverage will be applicable to all insured peach acreage in the county of both fresh and processing peaches.
(2) If you only have fresh peach acreage designated on your acreage report and processing peach acreage is added after the sales closing date, we will assign a coverage level equal to the coverage level you selected for your fresh peach acreage.
(3) If you only have processing peach acreage designated on your acreage report and fresh peach acreage is added after the sales closing date, we will assign a coverage level equal to the coverage level you selected for your processing peach acreage.
(b) You may select only one price election for all the peaches in the county insured under this policy unless the Special Provisions provide different price elections by fresh and processing peaches. If the Special Provisions allow
(c) You must report, not later than the production reporting date designated in section 3 of the Basic Provisions, separately by fresh and processing peach acreage, as applicable:
(1) Any event or action that could impact the yield potential of the insured crop including, interplanting of a perennial crop, removal of trees, any tree damage, change in practices, or any other circumstance that may reduce the expected yield upon which the insurance guarantee is based, and the number of affected acres;
(2) * * *
(3) The age of trees, variety, and the planting pattern; and
(4) * * *
(ii) The variety;
(d) We will reduce the yield used to establish your production guarantee, as necessary, based on our estimate of the effect of any situation listed in sections 3(c)(1) through (4). If the situation occurred:
(1) Before the beginning of the insurance period, we will reduce the yield used to establish your production guarantee for the current crop year as necessary. If you fail to notify us of any circumstance that may reduce your yields from previous levels, we will reduce your production guarantee at any time we become aware of the circumstance;
(2) Or may occur after the beginning of the insurance period and you notify us by the production reporting date, the yield used to establish your production guarantee is due to an uninsured cause of loss;
(3) Or may occur after the beginning of the insurance period and you fail to notify us by the production reporting date, production lost due to uninsured causes equal to the amount of the reduction in yield used to establish your production guarantee will be applied in determining any indemnity (see section 12(c)(1)(ii). We will reduce the yield used to establish your production guarantee for the subsequent crop year.
6. Report of Acreage.
In addition to the requirements contained in section 6 of the Basic Provisions, you must report and designate all acreage of peaches as fresh or processing peaches by the acreage reporting date. Any acreage not meeting all the requirements to qualify for fresh peach production must be designated on the acreage report as processing peach production.
7. Insured Crop.
* * *
(f) That are grown for:
(1) Fresh peach production; or
(2) Processing peach production.
11. Duties In the Event of Damage or Loss.
(a) In accordance with the requirements of section 14 of the Basic Provisions, you must leave representative samples in accordance with our procedures.
12. Settlement of Claim.
(b) * * *
(1) Multiplying the insured acreage for fresh and processing peaches, as applicable, by the respective production guarantee;
(2) Multiplying each result in section 12(b)(1) by the respective price election;
(3) Totaling the results in section 12(b)(2);
(4) Multiplying the total production of fresh and processing peaches to be counted, as applicable (see subsection 12(c)) by the respective price election;
(5) Totaling the results in section 12(b)(4);
(6) Subtracting the total in section 12(b)(5) from the total in section 12(b)(3); and
(7) Multiplying the result in section 12(b)(6) by your share.
Example:
You have a 100 percent share in one basic unit with 10 acres of fresh peaches and 5 acres of processing peaches designated on your acreage report, with a 300 bushel per acre production guarantee for both fresh and processing peaches, and you select 100 percent of the price election of $15.50 per bushel for fresh peaches and $6.50 per bushel for processing peaches. You harvest 2,500 bushels of fresh peaches and 500 bushels of processing peaches. Your indemnity will be calculated as follows:
(A) 10 acres × 300 bushels = 3,000-bushel production guarantee of fresh peaches;
5 acres × 300 bushels = 1,500-bushel production guarantee of processing peaches;
(B) 3,000-bushel production guarantee × $15.50 price election = $46,500 value of the production guarantee for fresh peaches; 1,500-bushel production guarantee × $6.50 price election = $9,750 value of the production guarantee for processing peaches;
(C) $46,500 value of the production guarantee for fresh peaches + $9,750 value of the production guarantee for processing peaches = $56,250 total value of the production guarantee;
(D) 2,500 bushels of fresh peach production to count × $15.50 price election = $38,750 value of the fresh peach production to count; 500 bushels of processing peach production to count × $6.50 price election = $3,250 value of the processing peach production to count;
(E) $38,750 value of the fresh peach production to count + $3,250 value of the processing peach production to count = $42,000 total value of the production to count;
(F) $56,250 total value of the production guarantee—$42,000 total value of the production to count = $14,250 value of loss; and
(G) $14,250 value of loss × 100 percent share = $14,250 indemnity payment.
[End of Example]
(c) * * *
(1) All appraised production as follows:
(i) * * *
(B) From which production is sold by direct marketing if you fail to meet the requirements contained in section 11.
* * *
(iii) Unharvested peach production that would be marketable if harvested;
* * *
(2) All harvested marketable peach production from the insurable acreage.
(3) * * *
(i) For fresh peaches by:
(A) Dividing the value of the damaged peaches minus the post production cost specified in the Special Provisions, by the fresh peach price election; and
(B) Multiplying the result of section 12(c)(3)(i)(A) (not to exceed 1.00) by the number of bushels of the damaged fresh peaches.
(ii) For processing peaches by:
(A) Dividing the value of the damaged peaches minus the post production cost specified in the Special Provisions, by the processing peach price election; and
(B) Multiplying the result of section 12(c)(3)(ii)(A) (not to exceed 1.00) by the number of bushels of the damaged processing peaches.
Agricultural Marketing Service, USDA.
Interim rule with request for comments.
This rule revises the reporting requirements currently prescribed under the marketing order that regulates the handling of cranberries grown in the States of Massachusetts, Rhode Island, Connecticut, New Jersey, Wisconsin, Michigan, Minnesota, Oregon, Washington, and Long Island in the State of New York (order). The order is administered locally by the Cranberry Marketing Committee (Committee). This rule changes the dates covered by the third reporting period and the date by which the Handler Inventory Report (Form HIR) is due to the Committee. These changes will help ensure the Committee has current and complete information available for its discussions during its annual August meeting, while providing handlers sufficient time to submit their reports.
Effective August 31, 2012; comments received by October 29, 2012 will be considered prior to issuance of a final rule.
Interested persons are invited to submit written comments concerning this rule. Comments must be sent to the Docket Clerk, Marketing Order and Agreement Division, Fruit and Vegetable Program, AMS, USDA, 1400 Independence Avenue SW., STOP 0237, Washington, DC 20250–0237; Fax: (202) 720–8938; or Internet:
Doris Jamieson, Marketing Specialist, or Christian D. Nissen, Regional Manager, Southeast Marketing Field Office, Marketing Order and Agreement Division, Fruit and Vegetable Program, AMS, USDA; Telephone: (863) 324–3375, Fax: (863) 325–8793, or Email:
Small businesses may request information on complying with this regulation by contacting Laurel May, Marketing Order and Agreement Division, Fruit and Vegetable Program, AMS, USDA, 1400 Independence Avenue SW., STOP 0237, Washington, DC 20250–0237; Telephone: (202) 720–2491, Fax: (202) 720–8938, or Email:
This rule is issued under Marketing Agreement and Order No. 929, both as amended (7 CFR part 929), regulating the handling of cranberries produced in States of Massachusetts, Rhode Island, Connecticut, New Jersey, Wisconsin, Michigan, Minnesota, Oregon, Washington, and Long Island in the State of New York, hereinafter referred to as the “order.” The order is effective under the Agricultural Marketing Agreement Act of 1937, as amended (7 U.S.C. 601–674), hereinafter referred to as the “Act.”
The Department of Agriculture (USDA) is issuing this rule in conformance with Executive Order 12866.
This rule has been reviewed under Executive Order 12988, Civil Justice Reform. This rule is not intended to have retroactive effect.
The Act provides that administrative proceedings must be exhausted before parties may file suit in court. Under section 608c(15)(A) of the Act, any handler subject to an order may file with USDA a petition stating that the order, any provision of the order, or any obligation imposed in connection with the order is not in accordance with law and request a modification of the order or to be exempted therefrom. A handler is afforded the opportunity for a hearing on the petition. After the hearing, USDA would rule on the petition. The Act provides that the district court of the United States in any district in which the handler is an inhabitant, or has his or her principal place of business, has jurisdiction to review USDA's ruling on the petition, provided an action is filed not later than 20 days after the date of the entry of the ruling.
This rule revises the reporting requirements currently prescribed under the order. This rule changes the dates covered by the third reporting period and the date by which the Handler Inventory Report (Form HIR) is due to the Committee. These changes will help ensure the Committee has current and complete information available for its discussions during its annual August meeting, while providing handlers sufficient time to submit their report. These changes were unanimously recommended by the Committee at a meeting on August 31, 2011.
Section 929.62 of the cranberry marketing order provides, in part, that each handler engaged in the handling of cranberries or cranberry products shall, upon request of the Committee, report as to the quantity of cranberries acquired and handled during any designated period or periods. This section also provides that handlers report cranberries or cranberry products held in inventory on such date as the Committee may designate.
Currently, § 929.105 provides that certified reports shall be filed with the Committee, on a form provided by the Committee, by each handler not later than January 20, May 20, and August 20 of each fiscal period and by September 20 of the succeeding fiscal period. This Handler Inventory Report (Form HIR) must show the total quantity of cranberries acquired and the total quantity of cranberries and
In 2010, the Committee recommended changing the dates when handler reports were due in order to provide handlers with additional time to submit their report (75 FR 5898). Under that action, the due dates were changed from January 5, May 5, and August 5 of each fiscal period and by September 5 of the
After changing the due dates of the report, the Committee realized that given the new due dates, the handler report due by August 20 may not be received prior to the Committee's annual August meeting. In discussing this issue, the Committee recognized that having as current industry information as possible available for the August meeting is important for administering the order. Further, it is particularly significant as the Committee is required to make decisions regarding the need to establish a volume regulation using a handler withholding not later than August 31 each year.
Consequently, the Committee unanimously voted to change the due date for the third reporting period from August 20 to July 20. To accommodate the new due date, this rule also adjusts the timeframes covered under third period reporting by adjusting the end date from July 31 to June 30 for cranberries acquired and handled and for reporting inventory held changes August 1 to June 30. With these changes, handler information from the third reporting period will be received and compiled into reports prior to the Committee's meeting in August. These changes will help ensure that the Committee has current and complete information available for its discussions, while providing handlers sufficient time to submit their reports.
Pursuant to requirements set forth in the Regulatory Flexibility Act (RFA) (5 U.S.C. 601–612), the Agricultural Marketing Service (AMS) has considered the economic impact of this action on small entities. Accordingly, AMS has prepared this initial regulatory flexibility analysis.
The purpose of the RFA is to fit regulatory actions to the scale of business subject to such actions in order that small businesses will not be unduly or disproportionately burdened. Marketing orders issued pursuant to the Act, and the rules issued thereunder, are unique in that they are brought about through group action of essentially small entities acting on their own behalf.
There are approximately 55 handlers of cranberries who are subject to regulation under the marketing order and approximately 1,200 cranberry producers in the regulated area. Small agricultural service firms are defined by the Small Business Administration (SBA) as those having annual receipts of less than $7,000,000, and small agricultural producers are defined as those having annual receipts of less than $750,000 (13 CFR 121.201).
Based on Committee data and information from the National Agricultural Statistics Service, the average annual f.o.b. price of cranberries during the 2010 season was approximately $46.50 per barrel and total shipments were approximately 6.8 million barrels. As a percentage, about 18 percent of the handlers shipped approximately 6.5 million barrels of cranberries. Using the average f.o.b. price and shipment data, about 82 percent of cranberry handlers could be considered small businesses under SBA's definition. In addition, based on production and producer prices, and the total number of cranberry growers, the average grower revenue is less than $750,000. Therefore, the majority of growers and handlers of cranberries may be considered small entities.
This rule revises the reporting requirements currently prescribed under the cranberry marketing order. This rule revises § 929.105 by changing the due date for the third reporting period from August 20 to July 20. To accommodate the new due date, this rule also adjusts the end date for the timeframe covered under the third period reporting from July 31 to June 30 for cranberries acquired and handled, and changes August 1 to June 30 for reporting inventory held. These changes will help ensure the Committee has current and complete information available for discussion during its annual August meeting, while providing handlers sufficient time to submit their Handler Inventory Report (Form HIR). The authority for these actions is provided in § 929.62. These changes were unanimously recommended by the Committee at a meeting on August 31, 2011.
It is not anticipated that this action will impose any additional costs on the industry nor will it change the reporting and recordkeeping burden on handlers. Having current and complete information available during the Committee's August meeting will assist the Committee when making decisions regarding the administration of the order. The benefits of this rule are not expected to be disproportionately greater or less for small handlers or growers than for large entities.
The Committee considered one alternative to these changes, making no changes to the reporting requirements. The Committee recognized making no changes to the reporting requirements could mean that current and complete information for the third reporting period may not be available for discussion during the August meeting. Therefore, this alternative was rejected.
In accordance with the Paperwork Reduction Act of 1995, (44 U.S.C. chapter 35), the order's information collection requirements have been approved by the Office of Management and Budget (OMB) and assigned OMB No. 0581–0189, Generic Fruit Crops. Because this revision changes neither the content of the Handler Inventory Report (Form HIR) nor its calculated burden, no changes in OMB requirements as a result of this action are necessary. Should any changes become necessary, they would be submitted to OMB for approval.
This rule will not impose any additional reporting or recordkeeping requirements on either small or large cranberry handlers. As with all Federal marketing order programs, reports and forms are periodically reviewed to reduce information requirements and duplication by industry and public sector agencies.
AMS is committed to complying with the E-Government Act, to promote the use of the Internet and other information technologies to provide increased opportunities for citizen access to Government information and services, and for other purposes.
In addition, USDA has not identified any relevant Federal rules that duplicate, overlap or conflict with this rule.
Further, the Committee's meeting was widely publicized throughout the cranberry industry and all interested persons were invited to attend the meeting and participate in Committee deliberations. Like all Committee meetings, the August 31, 2011, meeting was a public meeting and all entities, both large and small, were able to express their views on this issue. Finally, interested persons are invited to submit comments on this interim rule, including the regulatory and informational impacts of this action on small businesses.
A small business guide on complying with fruit, vegetable, and specialty crop marketing agreements and orders may be viewed at:
This rule invites comments on changes to the reporting requirements currently prescribed under the
After consideration of all relevant material presented, including the Committee's recommendation, and other information, it is found that this interim rule, as hereinafter set forth, will tend to effectuate the declared policy of the Act.
Pursuant to 5 U.S.C. 553, it is also found and determined upon good cause that it is impracticable, unnecessary, and contrary to the public interest to give preliminary notice prior to putting this rule into effect and that good cause exists for not postponing the effective date of this rule until 30 days after publication in the
Cranberries, Marketing agreements, Reporting and recordkeeping requirements.
For the reasons set forth in the preamble, 7 CFR part 929 is amended as follows:
7 U.S.C. 601–674.
(b) Certified reports shall be filed with the committee, on a form provided by the committee, by each handler not later than January 20, May 20, and July 20 of each fiscal period and by September 20 of the succeeding fiscal period showing:
(1) The total quantity of cranberries the handler acquired and the total quantity of cranberries and
(2) The respective quantities of cranberries and
Agricultural Marketing Service, USDA.
Final rule.
This final rule expands the contracting authority of the Beef Promotion and Research Order (Order). The Beef Research and Information Act (Act) requires that the Beef Promotion Operating Committee (BPOC) enter into contracts with established national non-profit industry-governed organizations including the Federation of State Beef Councils to implement programs of promotion, research, consumer information, and industry information. The Act does not define “national non-profit industry governed organization,” however, the Order states that these organizations must be governed by a board of directors representing the cattle or beef industry on a national basis and that they were active and ongoing prior to enactment of the Act. This final rule changes the date requirement in the Order so that organizations otherwise qualified could be eligible to contract with the BPOC for the implementation and conduct of Beef Checkoff programs if they have been active and ongoing for at least two years.
Effective August 31, 2012.
Craig Shackelford, Agricultural Marketing Specialist, Marketing Programs Division, on 202/720–1115, fax 202/720–1125, or by email at
The Office of Management and Budget has waived the review process required by Executive Order 12866 for this action.
This final rule has been reviewed under Executive Order 12988, Civil Justice Reform. It is not intended to have a retroactive effect.
Section 11 of the Act provides that nothing in the Act may be construed to preempt or supersede any other program relating to beef promotion organized and operated under the laws of the United States or any State. There are no administrative proceedings that must be exhausted prior to any judicial challenge to the provisions of this rule.
Pursuant to the requirements set forth in the Regulatory Flexibility Act (RFA) (5 U.S.C. 601–612), the Administrator of the Agricultural Marketing Service (AMS) has considered the economic effect of this action on small entities and has determined that this final rule will not have a significant economic impact on a substantial number of small entities. The purpose of RFA is to fit regulatory actions to the scale of businesses subject to such actions in order that small businesses will not be unduly burdened.
In the February 2011 publication of “Farms, Land in Farms, and Livestock Operations,” the U.S. Department of Agriculture's (USDA) National Agricultural Statistics Service (NASS) estimates that in 2010 the number of operations in the United States with cattle totaled approximately 935,000. The majority of these operations that are subject to the Order may be classified as small entities.
The final rule imposes no new burden on the industry. It merely expands the contracting authority as established under section 1260.168(b) within the Order to permit a greater number of organizations to perform work on behalf of the BPOC.
The Order is authorized by the Act of 1985 [7 U.S.C. 2901–2918]. The Act was passed as part of the 1985 Farm Bill [Pub. L. 99–198]. The program became effective on July 18, 1986, when the Order was issued [51 FR 26132]. Assessments began on October 1, 1986.
Section 5(6) of the Act provides that the BPOC, to insure coordination and efficient use of funds, shall enter into contracts or agreements for implementing any activities, which it
Previously, section 1260.113 of the Order defined “established national non-profit industry-governed organizations” as organizations which: (a) Are non-profit organizations pursuant to sections 501(c)(3), (5) or (6) of the Internal Revenue Code (26 U.S.C. 501(c)(3), (5), and (6)); (b) are governed by a board of directors representing the cattle or beef industry on a national basis; and (c) were active and ongoing before enactment of the Act. This final rule amends section 1260.113 of the Order by replacing the existing language under paragraph (c), “were active and ongoing before the enactment of the Act” with “have been active and ongoing for at least two years.”
In 2006, the National Cattlemen's Beef Association (NCBA) and the American Farm Bureau Federation (AFBF) initiated the Industry-Wide Beef Checkoff Taskforce (Taskforce) to review, study, and recommend enhancements to the Beef Checkoff program for the purpose of strengthening the Beef Checkoff Program for the common good of the beef industry. The Taskforce included producer and industry representatives and representatives from national organizations, while USDA took on an advisory role during meetings. The Taskforce issued a report in September 2006, which included a recommendation to eliminate section 1260.113(c) in order to make the Beef Checkoff more inclusive. USDA believes that permitting a greater number of organizations to contract with the BPOC could bring new perspectives to the contracting process.
In February 2008 at the Cattle Industry Annual Convention, leaders of the Cattlemen's Beef Board (Board) asked AMS officials if the Board could conduct a program review. The industry officials believed that it would be in the best interest of the Beef Checkoff Program to conduct a review of the operations to determine if there are any changes that need to or could be made in program operations, the Act, or Order that would facilitate a more effective Beef Checkoff Program. Included in the Board's subsequent January 2009 recommendations to AMS was a recommendation for a statutory amendment intended to result in an expansion of the contracting authority to organizations created after the 1986 enactment of the Act.
Finally, a meeting was held in Minneapolis, Minnesota on September 27, 2011, attended by many industry stakeholders and co-hosted by the U.S. Cattlemen's Association and the National Farmers Union as requested by the Secretary. The goal of the meeting was to bring more broad-based producer support to the Beef Checkoff program through a discussion of issues regarding Beef Checkoff administration and to provide the Secretary with recommendations that would enhance support for the Beef Checkoff. Many major Beef Checkoff industry stakeholders attended, including the American National Cattlewomen, American Veal Association, Livestock Marketing Association, NCBA, National Livestock Producers Association, and Ranchers-Cattlemen Action Legal Fund, United Stockgrowers of America (R–CALF). Representatives from the AMS also attended the meeting, as did the Chief Executive Officer and Producer Chairman of the Board.
As a result of that meeting, the Secretary received a joint letter signed by most of the organizations in attendance. The letter requested that USDA amend Beef Checkoff regulations to expand the contracting authority as authorized under the Act and Order by permitting organizations that are active and ongoing for at least two years to contract with the BPOC.
A greater number of beef industry organizations exist now than did at the time the Order was issued. The Beef Checkoff Program could benefit from the perspectives and skills of some of these organizations that are ineligible solely because they were formed after the enactment of the Act. For several years, the beef industry has been recommending expanding the eligibility of organizations to contract with the BPOC in order to enhance the Beef Checkoff Program. Amending the Order will allow the BPOC to contract with organizations possessing the requisite experience, skills and information related to the marketing of beef and beef products, as is intended under the Act.
On March 2, 2012, USDA published in the
USDA received 20 timely comments associated with the proposed rule for expansion of the contracting authority. Ten comments were submitted by individual cattle ranchers or members of the general public. Ten comments were received from cattle industry organizations. No untimely comments were received and no new information was obtained that was not already provided in the timely comments that are considered below.
Twelve commenters directly expressed support of the expansion of the contracting authority and for the provision requiring that otherwise qualified organizations must have been active and ongoing for at least 2 years.
One commenter provided background information on how the Order came to have its current contracting provisions and compared this to the current proposal. This commenter fully supported the expansion of the contracting authority and the requirement that qualifying contracting organizations be active and ongoing for at least 2 years.
Several commenters offered ideas and suggestions that were pertinent to the Program but were outside the scope of this final rule. One commenter suggested that farmers and ranchers who pay into the Beef Checkoff should be given the opportunity to vote on Beef Checkoff promotion programs every five years. Six commenters suggested that AMS should reinstate the eligibility requirement contained in its proposed rule dated March 14, 1986 (51 FR 8984) that such organizations must be governed by a board of directors composed of a majority of producers. Eight commenters suggested that AMS should add a new provision to the Order that would restrict any contracting organization from receiving more than a specified percentage of the Beef Checkoff annual program funding. Five commenters suggested that the Beef Checkoff should promote U.S. produced beef. One commenter suggested that AMS should reopen the comment period and propose a plan to make improvements to the administration and operation of the Program. These comments were all beyond the scope of this rulemaking and therefore no changes were incorporated into this final rule based on these comments.
One commenter raised a number of points regarding AMS and the beef industry as a whole that are not pertinent to the proposal and therefore are not addressed.
Administrative practice and procedure, Advertising, Agricultural research, Imports, Marketing agreement, Meat and meat products, Reporting and recordkeeping requirements.
For reasons set forth in the preamble, 7 CFR part 1260 is amended as follows:
7 U.S.C. 2901–2911 and 7 U.S.C. 7401.
(c) Have been active and ongoing for at least two years.
Coast Guard, DHS.
Notice of temporary deviation from regulations.
The Coast Guard has issued a temporary deviation from the operating regulation that governs the Tower Drawbridge across Sacramento River, mile 59.0, at Sacramento, CA. The deviation is necessary to allow the community to participate in the A.L.S. 5K walk and run event. This deviation allows the bridge to remain in the closed-to-navigation position during the event.
This deviation is effective from 11 a.m. to 2 p.m., on October 6, 2012.
Documents mentioned in this preamble as being available in the docket are part of the docket USCG–2012–0679 and are available online by going to
If you have questions on this rule, call or email David H. Sulouff, Chief, Bridge Section, Eleventh Coast Guard District; telephone 510–437–3516, email
The California Department of Transportation has requested a temporary change to the operation of the Tower Drawbridge, mile 59.0, over Sacramento River, at Sacramento, CA. The drawbridge navigation span provides a vertical clearance of 30 feet above Mean High Water in the closed-to-navigation position. The draw opens on signal from May 1 through October 31 from 6 a.m. to 10 p.m. and from November 1 through April 30 from 9 a.m. to 5 p.m. At all other times the draw shall open on signal if at least four hours notice is given, as required by 33 CFR 117.189(a). Navigation on the waterway is commercial and recreational.
The drawspan will be secured in the closed-to-navigation position from 11 a.m. to 2 p.m. on October 6, 2012 to allow the community to participate in the A.L.S. 5K walk and run event. This temporary deviation has been coordinated with waterway users. There are no scheduled river boat cruises or anticipated levee maintenance during this deviation period. No objections to the proposed temporary deviation were raised. Vessels that can transit the bridge, while in the closed-to-navigation position, may continue to do so at any time. In the event of an emergency the drawspan can be opened without delay.
In accordance with 33 CFR 117.35(e), the drawbridge must return to its regular operating schedule immediately at the end of the designated time period. This deviation from the operating regulations is authorized under 33 CFR 117.35.
Coast Guard, DHS.
Interim rule with request for comments.
The Coast Guard is modifying the operating schedule that governs the Berkley (I–264) Bridge, at mile 0.4, across the Eastern Branch of the Elizabeth River, Norfolk, VA. The current temporary regulation for the Berkley Bridge is scheduled to end on October 5, 2012. This regulation will make the provisions of the temporary regulation permanent. This change to the regulation is necessary to alleviate heavy vehicular traffic delays throughout the day and secondary congestion during the afternoon rush hour, while still providing for the reasonable needs of navigation.
This interim rule is effective at 5 a.m. on October 6, 2012. Comments and related material must reach the Coast Guard on or before October 1, 2012.
You may submit comments identified by docket number USCG–2012–0357 using any one of the following methods:
(1)
(2)
(3)
Department of Transportation, West Building Ground Floor, Room W12–140, 1200 New Jersey Avenue SE., Washington, DC, 20590–0001.
(4)
See the “Public Participation and Request for Comments” portion of the
If you have questions on this proposed rule, call or email Terrance A. Knowles, Environmental Protection Specialist, Fifth Coast Guard District, at (757) 398–6587,
We encourage you to participate in this rulemaking by submitting comments and related material. All comments received will be posted, without change to
If you submit a comment, please include the docket number for this rulemaking (USCG–2012–0357), indicate the specific section of this document to which each comment applies, and provide a reason for each suggestion or recommendation. You may submit your comments and material online (
To submit your comment online, go to
To view comments, as well as documents mentioned in this preamble as being available in the docket, go to
Anyone can search the electronic form of comments received into any of our dockets by the name of the individual submitting the comment (or signing the comment, if submitted on behalf of an association, business, labor union, etc.). You may review a Privacy Act notice regarding our public dockets in the January 17, 2008, issue of the
We do not now plan to hold a public meeting. But you may submit a request for one using one of the four methods specified under
The Coast Guard is issuing this interim final rule without prior notice and opportunity to comment pursuant to authority under section 4(a) of the Administrative Procedure Act (APA)(5 U.S.C. 553(b)). This provision authorizes an agency to issue a rule without prior notice and opportunity to comment when the agency for good cause finds that those procedures are “impracticable, unnecessary, or contrary to the public interest.” Under 5 U.S.C. 553(b), the Coast Guard finds that good cause exists for not publishing a notice of proposed rulemaking (NPRM) with respect to this rule for the following reasons:
On October 9, 2009, we published a notice of temporary deviation request for comments entitled; “Drawbridge Operation Regulations; Elizabeth River, Eastern Branch, Norfolk, VA” in the
On March 3, 2010, we published a notice of temporary deviation request for comments entitled; “Drawbridge Operation Regulations; Elizabeth River, Eastern Branch, Norfolk, VA” in the
On August 6, 2010, we published a final rule entitled “Drawbridge Operation Regulations; Elizabeth River, Eastern Branch, Norfolk, VA” in the
The establishment of this regulation, effective since September 4, 2010, does not place any additional constraints on the waterway users because mariners have been using the temporary schedule for almost two years and can still plan their trips in accordance with the scheduled bridge openings. Any delay in the issuance of this rule after October 5, 2012 will result in the bridge operating schedule reverting back to the previous on-demand operation of the bridge that produced a tremendous amount of delay. These delays were unpredictable for motorists, and will continue to increase with population growth and any increase in associated traffic. We, therefore, believe to avoid any increased traffic delays and since this rule makes permanent an already existing bridge schedule, it is unnecessary and contrary to the public interest to publish an NPRM.
On behalf of the Cities of Chesapeake and Norfolk Virginia, the Virginia Department of Transportation (VDOT), which owns and operates the bascule-type Berkley Bridge, has requested a permanent change to the bridge regulations. The proposed regulation would implement and make permanent those temporary regulations currently in effect.
The Berkley Bridge is the principle arterial route in and out of the City of Norfolk and serves as the major evacuation highway in the event of emergencies. In the closed to navigation position, the Berkley Bridge has a vertical clearance of 48 feet above mean high water. Vessel traffic on this portion of the Elizabeth River waterway consists of pleasure craft, tug and barge traffic, and ships with assist tugs seeking repairs. There is no alternate waterway route.
The regulation set out in Title 33 CFR 117.1007 (b) and (c) allows the Berkley Bridge, mile 0.4, in Norfolk, Virginia to remain closed one hour prior to the published start of a scheduled marine event regulated under § 100.501, and remain closed until one hour following the completion of the event unless the Patrol Commander designated under § 100.501 allows the bridge to open for commercial vessel traffic. In addition, the bridge shall open on signal any time, except from 5 a.m. to 9 a.m. and from 3 p.m. to 7 p.m., Monday through Friday, except Federal holidays, and shall open at any time for vessels with a draft of 18 feet or more, provided that at least 6 hours advance notice has been given to the Berkley Bridge Traffic Control Room at (757) 494–2490 as required by 33 CFR 117.1007(b) and (c).
The temporary regulation, which modified the above schedule, is effective from 9 a.m. on September 4, 2010 until 2:30 p.m. on October 5, 2012. During the temporary regulation, the draw shall remain closed one hour prior to the published start of a scheduled marine event regulated under § 100.501, and remain closed until one hour following the completion of the event unless the Patrol Commander designated under § 100.501 allows the bridge to open for commercial vessel traffic. The draw shall open on signal at any time for vessels carrying, in bulk, cargoes regulated by 46 CFR subchapters D or O, or Certain Dangerous Cargoes as defined in 33 CFR 160.204. For all other vessels, the draw shall open on signal at any time, except from 5 a.m. to 7 p.m., Monday through Friday, except Federal holidays. During these times, the draw shall open for commercial vessels with a draft of 18 feet or more, provided at least 6 hours notice was given to the Berkley Bridge Traffic Control room at (757) 494–2490; open on signal at 9 a.m., 11 a.m., 1 p.m. and 2:30 p.m.; and if the bridge is not opened during a particular scheduled opening and a vessel has made prior arrangements for a delayed opening, the draw tender may provide a single opening up to 30 minutes past that scheduled opening time for that signaling vessel, except at 2:30 p.m. The draw tender may provide a single opening up to 20 minutes past the 2:30 p.m. scheduled opening time for a signaling vessel that made prior arrangements for a delayed opening. A vessel may make prior arrangements for a delayed opening by contacting the Berkley Bridge Traffic Control room at (757) 494–2490.
The temporary regulation, detailed in the immediately preceding paragraph, is scheduled to expire on October 5, 2012. This new Interim Final Rule would make those temporary opening procedures permanent. By imposing the temporary regulation as permanent; we anticipate less vehicular traffic congestion between 9 a.m. and 3 p.m., while causing fewer secondary back-ups during rush hours, as compared to increased traffic when the bridge opens on signal.
In 2008, prior to implementing the temporary regulation, a Test Deviation published in the
The traffic counts revealed that from October 2008 to December 2008, the Berkley Bridge experienced a seven percent (or 23,560-car) increase in vehicular traffic flow. The Coast Guard believes that the increase was due to the previously referenced temporary closure of two Norfolk-area bridges and that vehicular traffic will subside when those bridges return to service.
The Coast Guard received 861 comments on both the temporary deviation and NPRM originally proposed in 2009. A large majority of the responses from commuters were in support of the scheduled opening set-up. However, the local maritime community expressed some objections to the schedule change to vessels.
After review of all of the comments and bridge-related data received, the Coast Guard had determined that an alternative proposal should be considered.
From September 3, 2010 to October 5, 2012, an alternative proposal was offered with changes made that allowed for the draw of the Berkley Bridge to open on signal for the proposed drawbridge openings (scheduled during the daytime) which expected to similarly cause a decrease in traffic congestion. Concurrent with the publication of the Supplemental Notice of Proposed Rulemaking (SNPRM), another Test Deviation was issued to allow VDOT to test another proposed schedule and to acquire additional data and public comments.
The Coast Guard received four responses to the SNPRM and the second temporary deviation, one each by letter and to the Web site at
The Virginia Maritime Association (VMA), which represents waterborne commerce in the Port of Hampton Roads, responded in writing with its support of the revised regulation and its statement that the current operating regulation incorporates the minimum degree of flexibility that the maritime industry can accept. VDOT also indicated that the new Berkley Bridge operating regulation had improved the flow of vehicular traffic while still meeting the minimum needs of navigation.
VMA, VDOT and two private citizens expressed concerns about unscheduled openings that caused vehicular traffic congestion. The unscheduled openings were provided for Government vessels, vessels with a draft of 18 feet or more that provided at least 6 hours advance notice and for vessels hauling dangerous cargo.
The Coast Guard reviewed the bridge data supplied by VDOT. The information indicated that during the deviation test period (from March 3, 2010 to July 1, 2010), that a total of 260 potential bridge openings for vessels could have been provided Monday through Friday, except Federal holidays, at 9 a.m., 11 a.m., 1 p.m. and 2:30 p.m. The data showed the bridge only opened 88 times of the 260 potential
Since October 2010, according to recent data provided by VDOT, the Berkley Bridge average daily traffic volume is approximately 106,000 vehicles per day which ranks it among the most heavily traveled routes in the region (See Table B).
The temporary regulation schedule provides four bridge lift opportunities each weekday between 9 a.m. and 3 p.m. This equates to a maximum of 88 lifts per month (assuming 22 workdays per month). Since October 2010, there has been an average of only 24 requested lifts per month—a usage rate of only 27% of capacity (See Table C).
Prior to execution of the temporary deviation and temporary regulation periods, the average duration of a bridge lift was approximately 15 minutes. Throughout the same periods, the average duration of bridge lifts has been 9.6 minutes—a reduction of 5.4 minutes per lift.
The temporary closures of two Norfolk-area bridges, forced increased use of the Berkley Bridge by vehicular traffic. Now with those bridges near completion, the Berkley Bridge and its approaches still experience back-ups, delays, and congestion, due to increased traffic and population. The Hampton Roads Planning District Commission projected a population growth of 31% by 2034. This continued increase in traffic volume in Norfolk and at the Berkley Bridge is not expected to decrease in the future. The temporary rule draw opening schedule has helped to decrease the average bridge opening times, and the rule has led to only 27% of the available opening time being utilized by mariners. Continuing this schedule as proposed in the Interim Final Rule will help to mitigate future adverse impacts caused by the increased traffic congestion.
Assuming no reduction in maritime traffic volume, this reduction in lift duration has resulted in a significant efficiency increase in the use of time the bridge is actually opened for vessels and a significant reduction in delays to vehicular traffic during vessel openings. The reduction in lift duration combined with the predictability of scheduled lifts optimally balances the competing demands of both road and waterway users.
The Coast Guard is amending the regulations governing the Berkley Bridge, mile 0.4, at Norfolk, Virginia, at 33 CFR § 117.1007, by revising paragraph (b)(2) to read as follows: The draw shall open on signal at any time for vessels carrying, in bulk, cargoes regulated by 46 CFR subchapters D or O, or Certain Dangerous Cargoes as defined in 33 CFR 160.204; For all other vessels, the draw shall open on signal at any time, except from 5 a.m. to 7 p.m., Monday through Friday, except Federal holidays. During these times, the draw shall open for commercial vessels with a draft of 18 feet or more, provided at least 6 hours notice was given to the Berkley Bridge Traffic Control room at (757) 494–2490; open on signal at 9 a.m., 11 a.m., 1 p.m. and 2:30 p.m.; and if the bridge is not opened during a particular scheduled opening and a vessel has made prior arrangements for a delayed opening, the draw tender may provide a single opening up to 30 minutes past that scheduled opening time for that signaling vessel, except at 2:30 p.m. The draw tender may provide a single opening up to 20 minutes past the 2:30 p.m. scheduled opening time
The Coast Guard believes that this permanent change is necessary to reduce vehicular traffic congestion throughout the day and during rush hour time periods. Results of studies conducted since the temporary regulation went into effect in September 2010 confirm that scheduled lifts have decreased congestion without negatively impacting waterway users. Scheduled lifts, according to the statistics, are currently being utilized well under capacity by the maritime public. Furthermore, waterway users are accustomed to this schedule, as it has been in effect since September 2010.
We developed this interim rule after considering numerous statutes and executive orders related to rulemaking. Below we summarize our analyses based on a number of these statutes or executive orders.
This rule is not a “significant regulatory action” under section 3(f) of Executive Order 12866, Regulatory Planning and Review, as supplemented by Executive Order 13563, Improving Regulation and Regulatory Review, and does not require an assessment of potential costs and benefits under section 6(a)(3) of Order 12866 or under section 1 of Executive Order 13563. The Office of Management and Budget has not reviewed it under those Orders.
We reached this conclusion based on the fact that the changes have only a minimal impact on maritime traffic transiting the bridge. Mariners can plan their trips in accordance with the scheduled bridge openings, to minimize delays.
The Regulatory Flexibility Act of 1980 (RFA), (5 U.S.C. 601–612), as amended, requires federal agencies to consider the potential impact of regulations on small entities during rulemaking. The Coast Guard received no comments from the Small Business Administration on this rule. The Coast Guard certifies under 5 U.S.C. 605(b) that this interim rule will not have a significant economic impact on a substantial number of small entities.
This action will not have a significant economic impact on a substantial number of small entities because the rule only adds minimal restrictions to the movement of navigation, in allowing four scheduled openings during the day, outside of the advance notice request opening. Mariners who plan their transits in accordance with the scheduled bridge openings can minimize delay. And, vessels that can pass under the bridge without a bridge opening may do so at all times. Before the effective period, we will issue maritime advisories widely available to users of the river.
Under section 213(a) of the Small Business Regulatory Enforcement Fairness Act of 1996 (Pub. L. 104–121), we want to assist small entities in understanding this rule. If the rule would affect your small business, organization, or governmental jurisdiction and you have questions concerning its provisions or options for compliance, please contact the person listed in the
Small businesses may send comments on the actions of Federal employees who enforce, or otherwise determine compliance with, Federal regulations to the Small Business and Agriculture Regulatory Enforcement Ombudsman and the Regional Small Business Regulatory Fairness Boards. The Ombudsman evaluates these actions annually and rates each agency's responsiveness to small business. If you wish to comment on actions by employees of the Coast Guard, call 1–888–REG–FAIR (1–888–734–3247). The Coast Guard will not retaliate against small entities that question or complain about this proposed rule or any policy or action of the Coast Guard.
This rule would call for no new collection of information under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501–3520.).
A rule has implications for federalism under Executive Order 13132, Federalism, if it has a substantial direct effect on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government. We have analyzed this rule under that Order and have determined that it does not have implications for federalism.
The Coast Guard respects the First Amendment rights of protesters. Protesters are asked to contact the person listed in the
The Unfunded Mandates Reform Act of 1995 (2 U.S.C. 1531–1538) requires Federal agencies to assess the effects of their discretionary regulatory actions. In particular, the Act addresses actions that may result in the expenditure by a State, local, or tribal government, in the aggregate, or by the private sector of $100,000,000 (adjusted for inflation) or more in any one year. Though this rule will not result in such an expenditure, we do discuss the effects of this rule elsewhere in this preamble.
This rule would not cause a taking of private property or otherwise have taking implications under Executive Order 12630, Governmental Actions and Interference with Constitutionally Protected Property Rights.
This rule meets applicable standards in sections 3(a) and 3(b)(2) of Executive Order 12988, Civil Justice Reform, to minimize litigation, eliminate ambiguity, and reduce burden.
We have analyzed this rule under Executive Order 13045, Protection of Children from Environmental Health Risks and Safety Risks. This rule is not an economically significant rule and would not create an environmental risk to health or risk to safety that might disproportionately affect children.
This rule does not have tribal implications under Executive Order 13175, Consultation and Coordination with Indian Tribal Governments, because it would not have a substantial direct effect on one or more Indian tribes, on the relationship between the Federal Government and Indian tribes, or on the distribution of power and responsibilities between the Federal Government and Indian tribes.
This proposed rule is not a “significant energy action” under Executive Order 13211, Actions Concerning Regulations That Significantly Affect Energy Supply, Distribution, or Use because it is not a “significant regulatory action” under Executive Order 12866 and is not likely to have a significant adverse effect on
This rule does not use technical standards. Therefore, we did not consider the use of voluntary consensus standards.
We have analyzed this rule under Department of Homeland Security Management Directive 023–01, and Commandant Instruction M16475.lD which guides the Coast Guard in complying with the National Environmental Policy Act of 1969 (NEPA) (42 U.S.C. 4321–4370f), and have made a preliminary determination that this action is one of a category of actions which do not individually or cumulatively have a significant effect on the human environment. This rule simply promulgates the operating regulations or procedures for drawbridges. This rule is categorically excluded under figure 2–1, paragraph (32)(e), of the Instruction.
Under figure 2–1 paragraph (32)(e), of the Instruction, an environmental analysis checklist and a categorical exclusion determination are not required for this rule.
Bridges.
For the reasons discussed in the preamble, the Coast Guard amends 33 CFR part 117 as follows:
33 U.S.C. 499; 33 CFR 1.05–1; and Department of Homeland Security Delegation No. 0170.1.
(b) The draw of the Berkley Bridge, mile 0.4 in Norfolk:
(1) Shall remain closed one hour prior to the published start of a scheduled marine event regulated under § 100.501 of this chapter, and shall remain closed until one hour following the completion of the event unless the Patrol Commander designated under § 100.501 of this chapter allows the bridge to open for commercial vessel traffic.
(2) Shall open on signal at any time for vessels carrying, in bulk, cargoes regulated by 46 CFR subchapters D or O, or Certain Dangerous Cargoes as defined in 33 CFR 160.204.
(3) For all other vessels, the draw shall open on signal at any time, except from 5 a.m. to 7 p.m., Monday through Friday, except Federal holidays. During these times, the draw shall:
(i) Open for commercial vessels with a draft of 18 feet or more, provided at least 6 hours notice was given to the Berkley Bridge Traffic Control room at (757) 494–2490.
(ii) Open on signal at 9 a.m., 11 a.m., 1 p.m. and 2:30 p.m.
(4) If the bridge is not opened during a particular scheduled opening per paragraph (b)(3)(ii) of this section and a vessel has made prior arrangements for a delayed opening, the draw tender may provide a single opening up to 30 minutes past that scheduled opening time for that signaling vessel, except at 2:30 p.m. The draw tender may provide a single opening up to 20 minutes past the 2:30 p.m. scheduled opening time for a signaling vessel that made prior arrangements for a delayed opening. A vessel may make prior arrangements for a delayed opening by contacting the Berkley Bridge Traffic Control room at (757) 494–2490.
Coast Guard, DHS.
Notice of enforcement of regulation.
The Coast Guard will enforce two fireworks display safety zones in the Sector Long Island Sound area of responsibility on various dates and times listed in the table below. This action is necessary to provide for the safety of life on navigable waterways during these fireworks displays. During the enforcement period, no person or vessel may enter the safety zones without permission of the Captain of the Port (COTP) Sector Long Island Sound or designated representative.
The regulations in 33 CFR 165.151 will be enforced during the dates and time shown in Table 1 in the
If you have questions on this notice, call or email Petty Officer Joseph Graun Prevention Department U.S. Coast Guard Sector Long Island Sound (203) 468–4544,
The Coast Guard will enforce the safety zones listed in 33 CFR 165.151 on the specified dates and times as indicated in tables above. If the event is delayed by inclement weather, the regulation will be enforced on the rain date indicated in tables below. These regulations were published in the
Under the provisions of 33 CFR 165.151, the fireworks displays listed above are established as safety zones. During these enforcement periods, persons and vessels are prohibited from entering into, transiting through, mooring, or anchoring within the safety zones unless they receive permission from the COTP or designated representative.
This notice is issued under authority of 33 CFR part 165 and 5 U.S.C. 552(a). In addition to this notice in the
Environmental Protection Agency (EPA).
Final rule; correction.
This document corrects errors in the final rule document published on August 2, 2012 announcing EPA's final approval of several revisions to the Maryland State Implementation Plan (SIP) pertaining to preconstruction requirements under the Prevention of Significant Deterioration (PSD) and nonattainment New Source Review (NSR) programs. The correction of these errors neither changes EPA's final action to approve these regulations nor the September 4, 2012 effective date of that final approval.
David Talley, (215) 814–2117 or by email at
On August 2, 2012 (77 FR 45949), EPA published a final rulemaking action announcing its approval of revisions to the Maryland SIP pertaining to preconstruction requirements under the PSD and nonattainment NSR programs. In this document, a reference on page 45953 to the approval of Maryland's October 24, 2007 SIP revision submittal was inadvertently omitted. The document also inadvertently provided an incorrect state effective date on page 45954 regarding the addition of an entry to paragraph 52.1070(c) for COMAR 26.11.01.01. Finally, the document inadvertently neglected to remove 40 CFR 52.1073(h) containing the Federally-promulgated “Narrowing Rule” for greenhouse gas (GHG) emissions. In its March 19, 2012 notice of proposed rulemaking (77 FR 15985, 15989), EPA stated, “With the regulations submitted in the proposed SIP revision, Maryland has adopted EPA's tailoring approach.” In view of its August 2, 2012 final approval of Maryland's SIP revision, EPA has determined that section 52.1073(h) is redundant and should have been removed from the CFR. EPA is correcting that oversight with this corrective action.
In rule document 2012–18656, published in the
1. On page 45952, in the first column, the first sentence under “IV. Final Action” is revised to read, “EPA is approving MDE's October 24, 2007, July 31, 2009 and June 23, 2011 SIP submittals as a revision to the Maryland SIP.”
Section 553 of the Administrative Procedure Act, 5 U.S.C. 553(b)(3)(B), provides that, when an agency for good cause finds that notice and public procedure are impracticable, unnecessary or contrary to the public interest, the agency may issue a rule without providing notice and an opportunity for public comment. EPA has determined that there is good cause for making today's rule final without prior proposal and opportunity for comment because it merely corrects an incorrect citation in a previous action. Thus, notice and public procedure are unnecessary. EPA finds that this constitutes good cause under 5 U.S.C. 553(b)(3)(B).
Under Executive Order (E.O.) 12866 (58 FR 51735, October 4, 1993), this action is not a “significant regulatory action” and is therefore not subject to review by the Office of Management and Budget. For this reason, this action is also not subject to Executive Order 13211, “Actions Concerning Regulations That Significantly Affect Energy Supply, Distribution, or Use” (66 FR 28355 (May 22, 2001)). Because the agency has made a “good cause” finding that this action is not subject to notice-and-comment requirements under the Administrative Procedures Act or any other statute as indicated in the Supplementary Information section above, it is not subject to the regulatory flexibility provisions of the Regulatory Flexibility Act (5 U.S.C. 601
Environmental Protection Agency (EPA).
Direct final rule.
EPA is approving into the Indiana State Implementation Plan (SIP) the addition of a new rule that sets limits on the amount of volatile organic compounds (VOC) in architectural and industrial maintenance (AIM) coatings that are sold, supplied, manufactured, or offered for sale in the State.
This direct final rule will be effective October 29, 2012, unless EPA receives adverse comments by October 1, 2012. If adverse comments are received, EPA will publish a timely withdrawal of the direct final rule in the
Submit your comments, identified by Docket ID No. EPA–R05–OAR–2010–1047, by one of the following methods:
1.
2.
3.
4.
5.
Anthony Maietta, Environmental Protection Specialist, Control Strategies Section, Air Programs Branch (AR–18J), Environmental Protection Agency, Region 5, 77 West Jackson Boulevard, Chicago, Illinois 60604, (312) 353–8777,
Throughout this document whenever “we,” “us,” or “our” is used, we mean EPA. This supplementary information section is arranged as follows:
AIM coatings are generally paints, varnishes, and other similar materials that are meant for use on external surfaces of buildings, pavements and other outside structures. On December 7, 2010, the Indiana Department of Environmental Management submitted to EPA a request to approve into the Indiana SIP a new rule within Title 326, Article 8 “Volatile Organic Compound Rules” that limits the VOC content in AIM coatings. The rule is located within the Indiana Administrative Code (IAC) at Title 326 IAC 8–14. Titled “Architectural and Industrial Maintenance (AIM) Coatings,” it consists of seven sections that include the following components:
The VOC limits for consumer products and AIM coatings in 326 IAC 8–14 are based on a model rule developed by the Ozone Transport Commission (OTC) establishing VOC limits for adhesives, sealants and primers. In addition, the limits are at least as stringent as, and in some cases are more stringent than, EPA's national AIM rule, “National Volatile Organic Compound Emission Standards for Architectural Coatings,” 40 CFR part 59, subpart D. As a result, the new rule at 326 IAC 8–14 is approvable into the Indiana SIP. It should be noted that Indiana is not an OTC member state. By adopting a rule that mirrors the OTC model rule, however, Indiana is strengthening its SIP through enforceable VOC limits for AIM coatings with corresponding recordkeeping and reporting requirements.
The following is a summary of each section of 326 IAC–8–14 “Architectural and Industrial Maintenance (AIM) Coatings,” as submitted on December 7, 2010, and a discussion of why each section is approvable into the State's SIP.
This section makes 326 IAC 8–14 applicable to any person who sells, supplies, offers for sale, or manufactures AIM coatings within the State of Indiana. This section makes clear that AIM coatings that are sold or manufactured for use outside the State, shipped to other manufacturers for reformulation or repackaging, or sold in a container with a volume of one liter or less are exempt. Further, any aerosol coating product is exempt from this rule. The applicability for the rule as outlined in this section is consistent with model OTC language, and therefore is approvable for inclusion in Indiana's SIP.
This section provides definitions of products, terms, acronyms, and other language that is unique and/or specific to this rule. This section is consistent with the OTC model rule, and therefore is approvable for inclusion in Indiana's SIP.
This section codifies VOC limits for each category of AIM coatings affected by 326 IAC 8–14. This section also includes additional requirements for certain product categories, including:
This section is consistent with the OTC model rule, and therefore is approvable for inclusion in Indiana's SIP.
This section sets standards for product labeling for AIM coatings subject to 326 IAC 8–14. Under this section, container labels must prominently display, among other things:
This section is consistent with the OTC model rule, and is approvable for inclusion in Indiana's SIP.
This section outlines the recordkeeping and reporting requirements that manufacturers of products regulated under this rule must meet. Manufacturers of products subject to a VOC content limit within 326 IAC 8–14–3 must keep and make available to Indiana or EPA information about their product, including:
These records shall be kept by the manufacturer for no less than five years and be made available to Indiana for inspection within 90 days of request.
Manufacturers of products subject to VOC content limits within 326 IAC 8–14–3 must also make available to the State within 90 days of a request the following distribution and sales information:
This section also lays out recordkeeping and reporting requirements for AIM coatings that contain perchloroethylene or methylene chloride. These requirements state that a manufacturer must provide to the State certain information about the product sold in Indiana, but within a shorter response time frame (30 days) than other paragraphs in this section.
Manufacturers of recycled coatings must provide the State with certification of their status as a recycled paint manufacturer, as well as total sales during the past year to the nearest gallon and the method used for determining those sales.
Finally, this section lays out recordkeeping and reporting requirements for manufacturers of bituminous roof coatings or bituminous roof primers. Manufacturers of these coatings must, within 30 days of a State request, provide the past year's sales in gallons, as well as the method used to determine those sales.
The recordkeeping and reporting requirements in this section are consistent with the OTC model rule for these coatings. Therefore this section is approvable into Indiana's SIP.
This section outlines methods that must be used to determine compliance with the VOC content limits within 326 IAC 8–14–3. Two formulas for determining VOC content of an AIM coating are listed: one of these formulas for most coatings, and a second formula for low-solids coatings.
In addition to these formulas, this section codifies EPA and other acceptable methods available to determine the physical properties of a coating in order to perform the VOC content limit calculation discussed above.
This section also allows the use of alternative compliance calculations, so long as those calculations are reviewed and approved in writing by the State and EPA. Finally, this section makes clear that manufacturers of methacrylate multicomponent coatings used for traffic markings must use a modification of EPA Reference Method 24 at 40 CFR part 60, appendix A. This section is consistent with the OTC model rule for AIM coatings and is therefore approvable into Indiana's SIP.
This section limits the application of traffic marking materials during Indiana's ozone season (defined in the rule as May 1 through September 30) to only coatings that meet the VOC limits set forth in 326 IAC 8–14–3. Further, this section limits field-reacted (non-liquid) traffic marking materials, or traffic marking materials that cannot be measured as a liquid at the time of application to 3.6 kilograms per stripe-kilometer, or 12.2 pounds per stripe-mile. This section is consistent with the OTC model rule for these coatings and therefore is approvable into Indiana's SIP.
EPA is approving into the Indiana SIP Title 326 IAC 8–14 as adopted by the State of Indiana and as submitted to EPA on December 7, 2010. We are publishing this action without prior proposal because we view this as a noncontroversial amendment and anticipate no adverse comments. However, in the proposed rules section of this
Under the Clean Air Act, the Administrator is required to approve a SIP submission that complies with the provisions of the Clean Air Act and applicable Federal regulations. 42 U.S.C. 7410(k); 40 CFR 52.02(a). Thus, in reviewing SIP submissions, EPA's role is to approve state choices, provided that they meet the criteria of the Clean Air Act. Accordingly, this action merely approves state law as meeting Federal requirements and does not impose additional requirements beyond those imposed by state law. For that reason, this action:
• Is not a “significant regulatory action” subject to review by the Office of Management and Budget under Executive Order 12866 (58 FR 51735, October 4, 1993);
• Does not impose an information collection burden under the provisions of the Paperwork Reduction Act (44 U.S.C. 3501
• Is certified as not having a significant economic impact on a substantial number of small entities under the Regulatory Flexibility Act (5 U.S.C. 601
• Does not contain any unfunded mandate or significantly or uniquely affect small governments, as described in the Unfunded Mandates Reform Act of 1995 (Pub. L. 104–4);
• Does not have Federalism implications as specified in Executive Order 13132 (64 FR 43255, August 10, 1999);
• Is not an economically significant regulatory action based on health or safety risks subject to Executive Order 13045 (62 FR 19885, April 23, 1997);
• Is not a significant regulatory action subject to Executive Order 13211 (66 FR 28355, May 22, 2001);
• Is not subject to requirements of Section 12(d) of the National Technology Transfer and Advancement Act of 1995 (15 U.S.C. 272 note) because application of those requirements would be inconsistent with the Clean Air Act; and
• Does not provide EPA with the discretionary authority to address, as appropriate, disproportionate human health or environmental effects, using
In addition, this rule does not have tribal implications as specified by Executive Order 13175 (65 FR 67249, November 9, 2000), because the SIP is not approved to apply in Indian country located in the state, and EPA notes that it will not impose substantial direct costs on tribal governments or preempt tribal law.
The Congressional Review Act, 5 U.S.C. 801
Under section 307(b)(1) of the Clean Air Act, petitions for judicial review of this action must be filed in the United States Court of Appeals for the appropriate circuit by October 29, 2012. Filing a petition for reconsideration by the Administrator of this final rule does not affect the finality of this action for the purposes of judicial review nor does it extend the time within which a petition for judicial review may be filed, and shall not postpone the effectiveness of such rule or action. Parties with objections to this direct final rule are encouraged to file a comment in response to the parallel notice of proposed rulemaking for this action published in the proposed rules section of today's
Environmental protection, Air pollution control, Incorporation by reference, Intergovernmental relations, Reporting and recordkeeping requirements, Volatile organic compounds.
40 CFR part 52 is amended as follows:
42 U.S.C. 7401
(c) * * *
Environmental Protection Agency (EPA).
Final rule.
This final rule clarifies the distinction between “isolates” and “strains,” and clarifies the requirements applicable to new isolates, which are considered to be new active ingredients under the Federal Insecticide, Fungicide, and Rodenticide Act (FIFRA). Additional revisions to regulatory text include several minor corrections to words and references. Finally, EPA is announcing the availability of a final microbial pesticide test guideline that further explains the existing data requirement to deposit a sample in a nationally recognized culture collection. Collectively, the final rule clarifications and revisions, as well as the final microbial pesticide test guideline, are expected to enhance the ability of industry to efficiently manage its microbial pesticide registration submissions.
This final rule is effective October 29, 2012.
The docket for this action, identified by docket identification (ID) number EPA–HQ–OPP–2010–0670, is available either electronically through
Rose Kyprianou, Field and External Affairs Division (7506P), Office of Pesticide Programs, Environmental Protection Agency, 1200 Pennsylvania Ave. NW., Washington, DC 20460–0001; telephone number: (703) 305–5354; fax number: (703) 305–5884; email address:
You may be potentially affected by this action if you are a producer or registrant of a microbial pesticide product. This action also may affect any person or company who might petition EPA for a tolerance or an exemption from the requirement of a tolerance for residues of a microbial pesticide, holds a pesticide registration with an existing tolerance or tolerance exemption for a microbial pesticide, or is interested in obtaining or retaining a tolerance or tolerance exemption in the absence of a registration (i.e., a tolerance or tolerance exemption for an imported microbial pesticide). The North American Industrial Classification System (NAICS) codes have been provided to assist you and others in determining whether this action might apply to certain entities. Potentially affected entities may include, but are not limited to:
• Pesticide and Other Agricultural Chemical Manufacturing (NAICS code 325320), e.g., pesticide manufacturers or formulators of pesticide products, importers, or any person or company who seeks to register a pesticide or to obtain a tolerance or tolerance exemption for a pesticide.
• Crop Production (NAICS code 111).
• Animal Production (NAICS code 112).
• Food Manufacturing and Processing (NAICS code 311).
This listing is not intended to be exhaustive, but rather provides a guide for readers regarding entities likely to be affected by this action. Other types of entities not listed in this unit could also be affected. If you have any questions regarding the applicability of this action to a particular entity, consult the person listed under
In the
To address these questions, in the
EPA is finalizing most of the changes and corrections proposed. Although no comments were received, EPA has revised a few of the originally proposed changes and corrections to further clarify the regulatory text being modified. These changes are not substantive in nature. The specific changes being promulgated with this action and the anticipated benefits of such changes are described in this final rule and the rationale supporting the revisions can be found in the proposed rule (see Unit IV. of the April 15, 2011 proposed rule).
Specifically, EPA is making several changes and corrections to the Microbial Pesticides data requirements (40 CFR part 158, subpart V). First, EPA is revising 40 CFR 158.2100(c)(2) to reduce confusion over the distinction between “isolates” and “strains” and exactly how EPA views both of these terms. To this end, EPA substitutes “active ingredient” for “strain.” The
Second, in conjunction with the changes detailed for 40 CFR 158.2100(c)(2), EPA is announcing the availability of a final microbial pesticide test guideline under Series 885, entitled “Deposition of a Sample in a Nationally Recognized Culture Collection” and identified as OCSPP Test Guideline 885.1250. This OCSPP test guideline is intended to explain the existing data requirement to deposit a sample in a nationally recognized culture collection found in the tables in 40 CFR 158.2120(c) and 40 CFR 158.2171(c). Additionally, to clarify this microbial deposition data requirement, EPA is adding a test note to 40 CFR 158.2120(d) and 40 CFR 158.2171(d), emphasizing the need for the continuing maintenance of a culture deposit to ensure that it remains available for the duration of an associated registration or experimental use permit in case EPA requests a sample. This requirement already applies to all isolates; thus, the reference to “new isolates” in the proposed rulemaking was an oversight and is just “isolates” in this final rule.
Finally, to correct several minor errors, EPA is replacing “part” with “subpart” in 40 CFR 158.2100(c)(1) and removing references to a non-existing paragraph (e) that appears in 40 CFR 158.2120 and 40 CFR 158.2171.
The improved clarity and transparency resulting from the insertion of this information in 40 CFR part 158, subpart V, are expected to enhance the ability of industry to efficiently manage its microbial pesticide registration submissions. Applicants may save time and money from an improved understanding of the standards and interpretations of the definitions for the data that are needed. Having all required studies and information available to EPA at the time of application may also reduce potential delays in the registration process, thereby enabling registration of microbial pesticides sooner and allowing microbial pesticide products to enter the market sooner.
This final rule is issued under the authority of FIFRA sections 3, 5, 10, 12, and 25 (7 U.S.C. 136
To access the OSCPP test guidelines referenced in this final rule electronically, please go to
Pursuant to FIFRA sections 25(a) and (d), EPA has submitted a draft of this final rule to the Committee on Agriculture in the House of Representatives; the Committee on Agriculture, Nutrition, and Forestry in the United States Senate; the United States Department of Agriculture (USDA); and the FIFRA Scientific Advisory Panel (SAP). FIFRA SAP and USDA waived review of this final rule.
This action only clarifies existing regulatory text to allow EPA and stakeholders a clearer understanding of 40 CFR part 158, subpart V. It does not otherwise impose any other requirements, involve any significant policy or legal issues, or increase existing costs. As such, EPA is not required to make special considerations or evaluations under the following statutory and Executive Order review requirements.
This is not a “significant regulatory action” under Executive Order 12866 (58 FR 51735, October 4, 1993) and was therefore not reviewed by the Office of Management and Budget (OMB) under Executive Orders 12866 and 13563 (76 FR 3821, January 21, 2011).
This action does not impose or change any information collection burden that requires additional review by OMB under the provisions of PRA (44 U.S.C. 3501
The revisions in this final rule involve existing information collection activities that are already approved by OMB under PRA. Specifically, the submission of data to EPA in order to establish a tolerance or an exemption from the requirement of a tolerance are currently approved under OMB Control No. 2070–0024 (EPA ICR No. 0597); the activities associated with the application for a new or amended registration of a pesticide are currently approved under OMB Control No. 2070–0060 (EPA ICR No. 0277); the activities associated with the application for an experimental use permit are currently approved under OMB Control No. 2070–0040 (EPA ICR No. 0276); and the activities associated with the generation of data for regulatory review programs are currently approved under OMB Control No. 2070–0174 (EPA ICR No. 2288).
Pursuant to RFA section 605(b) (5 U.S.C. 601
This action only clarifies existing regulatory text to allow EPA and stakeholders a clearer understanding of
State, local, and Tribal governments are rarely pesticide applicants or registrants, so this final rule is not expected to affect these governments and is not expected to adversely affect the private sector. Accordingly, pursuant to Title II of UMRA (2 U.S.C. 1531–1538), EPA has determined that this action is not subject to the requirements in UMRA sections 202 and 205 because it does not contain a Federal mandate that may result in expenditures of $100 million or more for State, local, and Tribal governments, in the aggregate, or for the private sector in any 1 year. In addition, this action does not significantly or uniquely affect small governments or impose a significant intergovernmental mandate, as described in UMRA sections 203 and 204.
This action will not have federalism implications because it is not expected to have a substantial direct effect on States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government, as specified in Executive Order 13132 (64 FR 43255, August 10, 1999). Thus, Executive Order 13132 does not apply to this action.
EPA is not aware of any Tribal governments that are pesticide registrants. This action will not, therefore, have Tribal implications because it is not expected to have substantial direct effects on Indian Tribes, will not significantly or uniquely affect the communities of Indian Tribal governments, and does not involve or impose any requirements that affect Indian Tribes, as specified in Executive Order 13175 (65 FR 67249, November 9, 2000). Accordingly, the requirements of Executive Order 13175 do not apply to this action.
EPA interprets Executive Order 13045 (62 FR 19885, April 23, 1997) as applying only to those regulatory actions that concern health or safety risks, such that the analysis required under section 5–501 of the Executive Order has the potential to influence the regulation. This action is not subject to Executive Order 13045 because it does not establish an environmental standard intended to mitigate health or safety risks, nor is it an “economically significant regulatory action” as defined by Executive Order 12866.
This action is not subject to Executive Order 13211 (66 FR 28355, May 22, 2001) because it is not a significant regulatory action under Executive Order 12866, nor will it affect energy supply, distribution, or use.
This action does not involve technical standards that would require the consideration of voluntary consensus standards pursuant to NTTAA section 12(d) (15 U.S.C. 272 note).
This action does not have disproportionately high and adverse human health or environmental effects on minority or low-income populations because it does not affect the level of protection provided to human health or the environment. Therefore, this action does not involve special consideration of environmental justice-related issues as specified in Executive Order 12898 (59 FR 7629, February 16, 1994).
Pursuant to CRA (5 U.S.C. 801
Environmental protection, Administrative practice and procedure, Agricultural commodities, Pesticides and pests, Reporting and recordkeeping requirements.
Therefore, 40 CFR chapter I is amended as follows:
7 U.S.C. 136–136y; 21 U.S.C. 346a.
(c) * * *
(1) This subpart applies to microbial pesticides as specified in paragraphs (c)(2), (c)(3), and (c)(4) of this section.
(2) Each new isolate of a microbial pesticide is a new active ingredient and must be registered independently of any similarly designated and already registered microbial pesticide active ingredient. Each new isolate for which registration is sought must have a unique identifier following the taxonomic name of the microorganism, and the registration application must be supported by data required in this subpart. This does not preclude the possibility of using data from another isolate, provided sufficient similarity is established, to support registration.
The amendments read as follows:
(a)
(b)
(c)
(d) * * *
1. Required for each isolate of a microbial pesticide. Isolates must be deposited with an agreement to ensure that the sample will be maintained and will not be discarded for the duration of the associated registration(s).
The amendments read as follows:
(a)
(b)
(c)
(d) * * *
3. Required for each isolate of a microbial pesticide. Isolates must be deposited with an agreement to ensure that the sample will be maintained and will not be discarded for the duration of the associated experimental use permit(s).
Centers for Medicare & Medicaid Services (CMS), Department of Health and Human Services (HHS).
Amendment to interim final rule with request for comments.
This document contains an amendment regarding program eligibility to the interim final regulation implementing the Pre-Existing Condition Plan program under provisions of the Patient Protection and Affordable Care Act. In light of a new process recently announced by the Department of Homeland Security, eligibility for the program is being amended so that the program does not inadvertently expand the scope of that process.
Written comments may be submitted to any of the addresses specified below. Please do not submit duplicates.
All comments will be made available to the public.
In commenting, please refer to file code CMS–9995–IFC2. Because of staff and resource limitations, we cannot accept comments by facsimile (FAX) transmission. You may submit comments in one of four ways (please choose only one of the ways listed):
1.
2.
Please allow sufficient time for mailed comments to be received before the close of the comment period.
3.
Please allow sufficient time for mailed comments to be received before the close of the comment period.
4.
a. For delivery in Washington, DC—Centers for Medicare & Medicaid Services, Department of Health and Human Services, Room 445–G, Hubert H. Humphrey Building, 200 Independence Avenue SW., Washington, DC 20201.
(Because access to the interior of the Hubert H. Humphrey Building is not readily available to persons without Federal government identification, commenters are encouraged to leave their comments in the CMS drop slots located in the main lobby of the building. A stamp-in clock is available for persons wishing to retain a proof of filing by stamping in and retaining an extra copy of the comments being filed.)
b. For delivery in Baltimore, MD—Centers for Medicare & Medicaid Services, Department of Health and Human Services, 7500 Security Boulevard, Baltimore, MD 21244–1850.
If you intend to deliver your comments to the Baltimore address, call telephone number (410) 786–4492 in advance to schedule your arrival with one of our staff members.
Comments received timely will also be available for public inspection as they are received, generally beginning approximately three weeks after publication of a document, at the headquarters of the Centers for Medicare & Medicaid Services, 7500 Security Boulevard, Baltimore, Maryland 21244, Monday through Friday of each week from 8:30 a.m. to 4 p.m. EST. To schedule an appointment to view public comments, phone 1–800–743–3951.
Alexis Ahlstrom, Centers for Medicare & Medicaid Services, Department of Health and Human Services, at (202) 690–7506.
The Patient Protection and Affordable Care Act, Public Law 111–148, was enacted on March 23, 2010; the Health Care and Education Reconciliation Act of 2010 (Reconciliation Act), Public Law 111–152, was enacted on March 30, 2010 (collectively, “Affordable Care Act”). Section 1201 of the Affordable Care Act prohibits issuers of non-grandfathered health insurance coverage from denying coverage or inflating rates based on health status or medical history in policy years beginning on or after January 1, 2014. In light of the fact that these protections will not take effect until 2014, section 1101 of the Affordable Care Act directs the Secretary of Health and Human Services to establish, either directly or through contracts with states or nonprofit private entities, a temporary high risk health insurance pool program to provide immediate access to coverage for eligible uninsured Americans with pre-existing conditions. (Hereafter, we generally refer to this program as the Pre-Existing Condition Insurance Plan program, or the PCIP program.) The PCIP program provides coverage to eligible uninsured Americans with pre-existing conditions until 2014, when the protections under section 1201 of the Affordable Care Act referenced above take effect and coverage is available through the Affordable Insurance Exchanges established under section 1311 or 1321 of the Act.
HHS previously issued an interim final regulation implementing section 1101 of the Affordable Care Act. This interim final rule was published in the
The interim final rule issued on July 30, 2010, provided information on the administration of the PCIP program, eligibility for and enrollment in the program, program benefits, program oversight, program funding, coordination with state laws and programs, and the transition to coverage through the Affordable Insurance Exchanges. Under section 1101(d) of the Affordable Care Act and codified by the July 30, 2010 interim final rule at 45 CFR 152.14(a)(1) through (3), an individual is eligible to enroll in a PCIP if he or she: (1) Is a citizen or national of the United States or is lawfully present in the United States (as determined in accordance with section 1411 of the Affordable Care Act
In the interim final rule, HHS defined “lawfully present” as having a similar meaning as that given to “lawfully residing” in Medicaid and the Children's Health Insurance Program (CHIP), as set forth in a State Health Official letter issued by the Centers for Medicare & Medicaid Services (CMS) on July 1, 2010.
Subsequent regulations implementing the Affordable Insurance Exchanges, 45 CFR 155.20 (77 FR 18310, March 27, 2012), and the premium tax credits, 26 CFR 1.36B–1(g) (77 FR 30377, May 23, 2012), issued by HHS and the Department of the Treasury respectively, define “lawfully present” by a cross-reference to the definition in § 152.2.
On June 15, 2012, the Department of Homeland Security (DHS) announced that it will consider providing temporary relief from removal by exercising deferred action on a case-by-case basis with respect to certain individuals under age 31 who meet DHS's guidelines, including that he or she came to the United States as children and does not present a risk to national security or public safety.
As DHS has explained, the DACA process is designed to ensure that governmental resources for the removal of individuals are focused on high priority cases, including those involving a danger to national security or a risk to public safety, and not on low priority cases.
Under the amended rule, individuals with deferred action under the DACA process are not eligible to enroll in the PCIP program. As the PCIP program definition of “lawfully present” is incorporated into the rules governing the Affordable Insurance Exchanges and the premium tax credits, individuals whose cases are deferred under the DACA process also will not be eligible to enroll in coverage through the Affordable Insurance Exchanges and, therefore, will not receive coverage that
We invite comment on the determination to exclude these individuals from eligibility for the PCIP program and from eligibility for coverage through the Affordable Insurance Exchanges, with the consequences noted above with respect to the premium tax credits and the cost-sharing reductions.
Under the Administrative Procedure Act (APA) (5 U.S.C. 551,
HHS has determined that issuing this regulation in proposed form, such that it would not become effective until after public comment, would be contrary to the public interest. Because the PCIP program—a temporary program with limited funding—is currently enrolling eligible individuals and providing benefits for such enrollees, it is important that we provide clarity with respect to eligibility for this new and unforeseen group of individuals as soon as possible, before anyone with deferred action under the DACA process applies to enroll in the PCIP program.
HHS is issuing this amendment as an interim final rule with comment so as to provide the public with an opportunity for comment on the amendment, including to gather public comment on the implications of the amendment.
The APA also generally requires that a final rule be effective no sooner than 30 days after the date of publication in the
For the same reason that we are issuing an interim final rule, we are making it effective immediately; that is, because the PCIP program—a temporary program with limited funding—is currently enrolling eligible individuals and providing benefits for such enrollees, it is important that we provide clarity with respect to the eligibility of this new and unforeseen group of individuals as soon as possible, before anyone with deferred action under the DACA process applies to enroll in the PCIP program.
Executive Orders 13563 and 12866 direct agencies to assess all costs and benefits of available regulatory alternatives and, if regulation is necessary, to select regulatory approaches that maximize net benefits (including potential economic, environmental, public health, and safety effects, distributive impacts, and equity). Executive Order 13563 emphasizes the importance of quantifying both costs and benefits, of reducing costs, of harmonizing rules, and of promoting flexibility. This rule has been designated a “significant regulatory action,” although not economically significant, under section 3(f) of Executive Order 12866. Accordingly, the rule has been reviewed by the Office of Management and Budget.
The amendment to the interim final regulation is adopted pursuant to the authority contained in section 1101 of the Patient Protection and Affordable Care Act (Pub. L. 111–148).
Administrative practice and procedure, Health care, Health insurance, Penalties, Reporting and recordkeeping requirements.
For the reasons stated in the preamble, the Department of Health and Human Services amends 45 CFR part 152 as follows:
Sec. 1101 of the Patient Protection and Affordable Care Act (Pub. L. 111–148).
(8)
Federal Communications Commission.
Final rule.
In this Order, the Wireline Competition Bureau (Bureau) clarifies certain rules relating to Phase I of the Connect America Fund. Commission staff have received informal inquiries from price cap companies on certain implementation aspects of the rules governing Connect America Fund Phase I. The Bureau also makes an amendment to one of the Commission's rules to fix a clerical error relating to the support for carriers serving remote areas of Alaska.
Effective October 1, 2012.
Joseph Cavender, Wireline Competition Bureau, (202) 418–7400 or TTY: (202) 418–0484.
This is a summary of the Wireline Competition Bureau Order in WC Docket Nos. 10–90, 07–135, 05–337, 03–109; GN Docket No. 09–51; CC Docket Nos. 01–92, 96–45; WT Docket No. 10–208; DA 12–1155, released on July 18, 2012. The full text
1. In this Order, the Wireline Competition Bureau (Bureau) clarifies certain rules relating to Phase I of the Connect America Fund. Commission staff have received informal inquiries from price cap companies on certain implementation aspects of the rules governing Connect America Fund Phase I. The Bureau also makes an amendment to one of the Commission's rules to fix a clerical error relating to the support for carriers serving remote areas of Alaska.
2. In the
3. Participation in the Connect America Fund Phase I incremental support program is optional. But carriers that accept funding are required to deploy broadband to a number of locations, currently unserved by fixed broadband, equal to the amount of incremental support the carrier accepts divided by $775. Each carrier accepting funding must identify the areas, by wire center and census block, in which it intends to deploy broadband to meet its obligation, when it files its notice of acceptance. Carriers are required to complete deployment to no fewer than two-thirds of the required number of locations within two years and all required locations within three years, and they must certify that they have done so as part of their annual certifications under § 54.313 of the Commission's rules. The Commission also provided that “[c]arriers failing to meet a deployment milestone will be required to return the incremental support distributed in connection with that deployment obligation and will be potentially subject to other penalties, including additional forfeitures, as the Commission deems appropriate.” However, the Commission continued, “[i]f a carrier fails to meet the two-thirds deployment milestone within two years and returns the incremental support provided, and then meets its full deployment obligation associated with that support by the third year, it will be eligible to have support it returned restored to it.”
4. First, the Bureau clarifies how to calculate the amount of support a carrier must return for failing to meet its deployment requirements. Specifically, if a carrier fails to meet its deployment obligations, it will be required to return to the Commission an amount equal to $775 multiplied by the number of locations to which the carrier was required to deploy to but did not, but a carrier will not be required to “pay twice” for any failure to meet a requirement. For example, if a carrier accepted $6,975,000 and committed to deploying to 9,000 locations over three years, but only deployed to 5,800 by the end of two years, rather than the 6,000 required at that milestone, the carrier would be required to return $155,000 of its incremental support (200 locations times $775). Similarly, a carrier that accepted the same amount and deployed to all 6,000 locations by the second year but deployed to only 8,900 by the end of the third year would be required to return $77,500 (100 locations times $775). However, if the same carrier deployed to 5,800 of its required 6,000 locations by the second year, returned the $155,000 required, and then continued its deployment, reaching 8,900 by the end of the third year, it would have $77,500 of its returned support restored. The Bureau notes that this discussion does not address any additional penalties that the Commission may choose to impose on any carrier that fails to meet its deployment obligation, as stated in the
5. Second, the Bureau clarifies that when a carrier files its notice of acceptance of funding, identifying the wire centers and census blocks in which it intends to deploy, it is not binding itself to deploy only in those areas, nor is it committing to deploy to every unserved location in those areas. The Bureau clarifies that carriers are expected to make a good faith effort to identify where they will deploy when they file their notices of acceptance. The Bureau observes, in this regard, that there are a number of practical obstacles that may make it difficult for carriers to commit irrevocably to a particular deployment plan by July 24th. For example, carriers may not have perfect information now about the number of locations in every potential area, the number of locations in an area may change over time, and the aggressive schedule for identifying intended buildout locations may make it difficult for carriers to gain complete information about potential deployments prior to filing their notices of acceptance. Accordingly, the Bureau clarifies that carriers may, in satisfaction of their deployment requirement, deploy to eligible locations not identified in their notices of acceptance, but will be required to identify subsequently where deployment actually occurred. Similarly, if a carrier finds that deploying to an area it intended to deploy to would be impractical, it will not be subject to penalties on account of its failure to deploy broadband to that particular area.
6. Third, the Bureau clarifies that the certification associated with carriers' two- and three-year deployment milestones, which carriers must include as part of their annual filings under § 54.313(b) of the Commission's rules, must specify the number of locations in a census block-wire center combination to which they have actually built. Carriers must identify the precise number of locations so that appropriate adjustments, if any, can be made to support previously provided, if a carrier fails to meet its deployment obligation. To facilitate the ability of USAC and the Commission to validate that carriers have, in fact, met their deployment obligations, carriers must be prepared, upon request, to provide sufficient information regarding the location of actual deployment to confirm the availability of service at that location.
7. Fourth, the Bureau clarifies that the certifications each carrier makes when it accepts incremental support—that the locations to be deployed to are shown on the National Broadband Map as unserved by fixed broadband by any provider other than the certifying entity
8. Fifth, the Bureau clarifies that when a carrier certifies that the locations to which it will deploy are shown as unserved by fixed broadband on the “current” version of the National Broadband Map, the “current” version of the National Broadband Map is the version that was publicly available on the National Broadband Map Web site on the date eligible support amounts were announced. The Commission intended for carriers to have 90 days to determine how much incremental support they would accept and which wire centers and census blocks they would deploy to in order to meet their Connect America Phase I commitments. To the extent the National Broadband Map data is updated during the 90-day period in which carriers are evaluating how much incremental support they will accept, that could leave carriers with less time to evaluate the updated version of the map. Potentially altering Connect America Phase I incremental support deployment plans before the deadline for them to accept funding would be unreasonable and contrary to the Commission's framework for Connect America Phase I funding, and we clarify the requirement to ensure that carriers have a full 90 days to make their Connect America I Phase plans.
9. Sixth, the Bureau further clarifies that the term “fixed broadband” for the purposes of Connect America Phase I includes any technology identified on the then-current version of the National Broadband map that is not identified as a mobile technology or a satellite-based technology. In this regard, the Bureau observes that the technologies reported on the National Broadband Map at the time the
10. Finally, the Bureau corrects § 54.307(e)(5) of the Commission's rules. Paragraph 180 of the first erratum to the
11. This document does not contain new or modified information collection requirements subject to the Paperwork Reduction Act of 1995 (PRA), Public Law 104–13. Therefore, it does not contain any new or modified information collection burden for small business concerns with fewer than 25 employees, pursuant to the Small Business Paperwork Relief Act of 2002, Public Law 107–198, see 44 U.S.C. 3506(c)(4).
12. The Regulatory Flexibility Act of 1980, as amended (RFA), requires that a regulatory flexibility analysis be prepared for rulemaking proceedings, unless the agency certifies that “the rule will not have a significant economic impact on a substantial number of small entities.” The RFA generally defines “small entity” as having the same meaning as the terms “small business,” “small organization,” and “small governmental jurisdiction.” In addition, the term “small business” has the same meaning as the term “small business concern” under the Small Business Act. A small business concern is one which: (1) Is independently owned and operated; (2) is not dominant in its field of operation; and (3) satisfies any additional criteria established by the Small Business Administration (SBA).
13. This Order clarifies, but does not otherwise modify, the
14. The Commission will send a copy of this Order to Congress and the Government Accountability Office pursuant to the Congressional Review Act.
15. Accordingly,
Federal Communications Commission.
For the reasons discussed in the preamble, the Federal Communications Commission amends 47 CFR part 54 to read as follows:
47 U.S.C. 151, 154(i), 201, 205, 214, 219, 220, 254, 303(r), 403, and 1302 unless otherwise noted.
(e) * * *
(5)
National Highway Traffic Safety Administration (NHTSA), Department of Transportation (DOT).
Final rule.
NHTSA has a regulation that permits motor vehicle dealers and repair businesses to install retrofit on-off switches for air bags in vehicles owned by or used by persons whose request for a switch has been approved by the agency. This regulation is only available for motor vehicles manufactured before September 1, 2012. This document extends the availability of this regulation for three additional years, so that it applies to motor vehicles manufactured before September 1, 2015.
Any petitions for reconsideration should refer to the docket number of this document and be submitted to: Administrator, National Highway Traffic Safety Administration, U.S. Department of Transportation, 1200 New Jersey Avenue SE., West Building, Washington, DC 20590.
To prevent or mitigate the risk of injuries or fatalities in frontal crashes, Federal Motor Vehicle Safety Standard (FMVSS) No. 208, “Occupant crash protection” (49 CFR 571.208), requires that vehicles be equipped with seat belts and frontal air bags.
In the 1990s, while air bags proved to be highly effective in reducing fatalities from frontal crashes, they were found to cause a small number of fatalities, especially to unrestrained, out-of-position children, in relatively low speed crashes.
Under the procedures set forth in the 1997 rule, vehicle owners can request a retrofit air bag on-off switch by completing an agency request form (Appendix B of Part 595) and submitting the form to the agency. Owners must certify that they have read the information brochure, in Appendix A of Part 595, discussing air bag safety and risks. The brochure describes the steps that the vast majority of people can take to minimize the risk of serious injuries from air bags while preserving the benefits of air bags, without going to the expense of buying an on-off switch. The agency developed the brochure to enable owners to determine whether they are, or a user of their vehicle is, in one of the groups of people at risk of a serious air bag injury and to make a careful, informed decision about requesting an on-off switch.
If NHTSA approves a request, the agency will send the owner a letter authorizing the installation of one or more on-off switches in the owner's vehicle. The owner may give the authorization letter to a dealer or repair business, which may then install an on-off switch for the driver or passenger air bag or both, as approved by the agency. The retrofit air bag on-off switch must meet certain criteria, such as being equipped with a telltale light to alert vehicle occupants when an air bag has been turned off. The dealer or repair
On May 12, 2000, NHTSA published in the
In the preamble to the May 2000 advanced air bag final rule, the agency decided to continue the exemption procedures for retrofit air bag on-off switches for vehicles manufactured through August 31, 2012. This provided time to allow manufacturers to perfect the suppression and low-risk deployment systems for air bags in all of their vehicles. It also provided a number of years to verify the reliability of advanced air bags based on real-world experience.
NHTSA also indicated in the advanced air bag final rule that there would be a need for deactivation of some sort (via on-off switch or permanently) for at-risk individuals who cannot be accommodated through sensors or other suppression technology (such as individuals with disabilities or certain medical conditions). The agency stated at that time that it believed such needs could be best accommodated through the authorization system for deactivation of air bags in current use by NHTSA (65 FR at 30722).
In addition to the exemption provided by subpart B of Part 595, on February 27, 2001, NHTSA published a final rule in the
On June 8, 2012, the agency published a Notice of Proposed Rulemaking (NPRM) to extend the availability of the existing regulation (Subpart B of 49 CFR part 595) that permits motor vehicle dealers and repair businesses to install retrofit on-off switches for air bags in vehicles owned by or used by persons whose request for a switch has been approved by the agency. The proposed extension was for three additional years, so that it would apply to motor vehicles manufactured before September 1, 2015 (77 FR 33998; Docket No. NHTSA–2012–0078).
The NPRM stated that the agency plans to use the three-year extension to evaluate several aspects of the regulation. Specifically, the agency would evaluate the criteria for granting the retrofit on-off switches (at-risk groups) in light of the existence of advanced air bag technology and the retrofit switch brochures and forms that were included in Part 595. The agency would also consider other topics that have arisen over the years such as our continued use of prosecutorial discretion for circumstances not covered by Part 595 (e.g., the application of retrofit switches for emergency and law enforcement vehicles).
The NPRM also explained that given the imminence of the September 1, 2012 date, it would not be possible for the agency to complete the necessary evaluation and possible rulemaking before that time, and the extension would avoid any gap in the availability of the retrofit on-off air bag switches while the agency considers further rulemaking that could permanently allow such switches in specified circumstances. The agency expects to be able to fully analyze the issues surrounding such a rulemaking within these three additional years.
The comment period for the NPRM closed on July 9, 2012. The agency received two comments. Advocates for Highway and Auto Safety (Advocates) supported the proposed extension.
The National Automobile Dealer Association (NADA), an organization representing automobile and truck dealers, urged NHTSA to conduct a more expeditious evaluation of the air bag on-off exemption regulation than the three-year period proposed in the NPRM.
The agency has considered NADA's comments urging a more expeditious evaluation period than the three year period proposed in the NPRM. However, the agency declines to adopt NADA's suggestion. NADA's reasoning is that a review of the number and nature of requests for exemptions should not take long, asserting that the organization's anecdotal evidence indicates a drop in demand for such exemptions.
First, the agency would like to emphasize that the demand for retrofit switches is certainly a factor that the agency will consider as we evaluate subpart B of part 595, but it is not the only factor the agency will be examining. We will also reexamine the at-risk groups in light of advanced air bag technology, the brochures and forms included in Part 595, and the need for the continued use of prosecutorial discretion for circumstances not covered by Part 595, among other things. Accordingly, the time needed to examine the demand for retrofit on-off switches does not reflect the total time needed to evaluate the issue.
Additionally, as explained in the NPRM, the three-year extension period is intended not only to provide the agency time to evaluate this issue, but to potentially conduct rulemaking to update subpart B. Finally, NADA did not describe any benefits that would result from a shorter extension period or any consequences associated with the three-year period proposed in the
NHTSA has considered the impact of this rulemaking action under Executive Orders 12866 and 13563, and the Department of Transportation's regulatory policies and procedures (44 FR 11034 (Feb. 26, 1979)). This action was not reviewed by the Office of Management and Budget under these executive orders. It is not considered to be significant under the Department's regulatory policies and procedures.
This document delays the sunset date of an existing exemption for retrofit on-off switches for frontal air bags. They are currently available, under specified circumstances, for vehicles manufactured before September 1, 2012. We are extending that date so that they will be available for vehicles manufactured before September 1, 2015.
This final rule does not require a motor vehicle manufacturer, dealer or repair business to take any action or bear any costs except in instances in which a dealer or repair business agrees to install an on-off switch for an air bag. For consumers, the purchasing and installation of on-off switches is permissive, not prescriptive.
When an eligible consumer obtains the agency's authorization for the installation of a retrofit on-off switch and a dealer or repair business agrees to install the switch, there will be costs associated with that action. The agency estimates that the installation of an on-off switch would typically require less than one hour of shop time, at the average national labor rate of approximately $80 per hour. NHTSA estimates that the cost of an air bag on-off switch for one seating position is $51 to $84 and the cost of an on-off switch for two seating positions is $68 to $101. The agency estimates that approximately 500 air bag on-off switch requests are received and authorized annually. However, we are uncertain about how many people actually pay to get them installed after we authorize it. Given the relatively low number of vehicle owners who will ultimately get the retrofit air bag on-off switches installed and the above estimated costs, the annual net economic impact of the actions taken under this final rule will not exceed $100 million per year.
Moreover, given the above, the fact that this has been a longstanding exemption available for consumers and since the agency is merely extending the availability of this exemption for an additional three years of vehicle production, the impacts are so minimal that a full regulatory evaluation is not needed.
Pursuant to the Regulatory Flexibility Act (5 U.S.C. 601
I hereby certify that this final rule will not have a significant economic impact on a substantial number of small entities. This final rule would merely extend the sunset provision in Subpart B of Part 595. No other changes are being made in this document. Small organizations and small governmental units will not be significantly affected since the potential cost impacts associated with this action will be insignificant.
NHTSA has examined today's rule pursuant to Executive Order 13132 (64 FR 43255, August 10, 1999) and concluded that no additional consultation with States, local governments or their representatives is mandated beyond the rulemaking process. The agency has concluded that the rulemaking does not have sufficient federalism implications to warrant consultation with State and local officials or the preparation of a federalism summary impact statement. The final rule does not have “substantial direct effects on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government.” Today's final rule does not impose any additional requirements. Instead, it delays the sunset date of an existing exemption for retrofit on-off switches for frontal air bags, thereby lessening burdens on the exempted entities.
NHTSA rules can preempt in two ways. First, the National Traffic and Motor Vehicle Safety Act contains an express preemption provision: when a motor vehicle safety standard is in effect under this chapter, a State or a political subdivision of a State may prescribe or continue in effect a standard applicable to the same aspect of performance of a motor vehicle or motor vehicle equipment only if the standard is identical to the standard prescribed under this chapter. 49 U.S.C. 30103(b)(1). It is this statutory command by Congress that preempts any non-identical State legislative and administrative law addressing the same aspect of performance. This provision is not relevant to this final rule as this final rule does not involve the establishing, amending or revoking of a Federal motor vehicle safety standard. However, general principles of preemption law could apply so as to displace any conflicting state law or regulations. We are unaware of any State law or action that would prohibit the actions that this exemption would permit.
This second way that NHTSA rules can preempt is dependent upon there being an actual conflict between a NHTSA regulation and the higher standard that would effectively be imposed on regulated entities if someone obtained a State common law tort judgment against a regulated entity, notwithstanding the regulated entity's compliance with the NHTSA regulation. Because most NHTSA standards established by an FMVSS are minimum standards, a State common law tort cause of action that seeks to impose a higher standard on regulated entities will generally not be preempted. However, if and when such a conflict does exist—for example, when the standard at issue is both a minimum and a maximum standard—the State common law tort cause of action is impliedly preempted. See
Although this final rule does not establish, amend, or revoke an FMVSS,
To this end, the agency has examined the nature (e.g., the language and structure of the regulatory text) and objectives of today's final rule and finds that this final rule would increase flexibility for certain exempted entities. As such, NHTSA does not intend that this final rule would preempt state tort law that would effectively impose a higher standard on regulated entities than that would be established by today's rule. Establishment of a higher standard by means of State tort law would not conflict with the exemption. Without any conflict, there could not be any implied preemption of a State common law tort cause of action.
The Unfunded Mandates Reform Act of 1995 (UMRA) requires Federal agencies to prepare a written assessment of the costs, benefits and other effects of proposed or final rules that include a Federal mandate likely to result in the expenditure by State, local or tribal governments, in the aggregate, or by the private sector, of more than $100 million annually (adjusted annually for inflation, with base year of 1995). UMRA also requires an agency issuing a final rule subject to the Act to select the “least costly, most cost-effective or least burdensome alternative that achieves the objectives of the rule.” This final rule will not result in a Federal mandate that will likely result in the expenditure by State, local or tribal governments, in the aggregate, or by the private sector, of more than $100 million annually (adjusted annually for inflation, with base year of 1995).
NHTSA has analyzed this final rule for the purposes of the National Environmental Policy Act. The agency has determined that implementation of this action will not have any significant impact on the quality of the human environment.
When promulgating a regulation, agencies are required under Executive Order 12988 to make every reasonable effort to ensure that the regulation, as appropriate: (1) Specifies in clear language the preemptive effect; (2) specifies in clear language the effect on existing Federal law or regulation, including all provisions repealed, circumscribed, displaced, impaired, or modified; (3) provides a clear legal standard for affected conduct rather than a general standard, while promoting simplification and burden reduction; (4) specifies in clear language the retroactive effect; (5) specifies whether administrative proceedings are to be required before parties may file suit in court; (6) explicitly or implicitly defines key terms; and (7) addresses other important issues affecting clarity and general draftsmanship of regulations.
Pursuant to this Order, NHTSA notes as follows. The preemptive effect of this final rule is discussed above. NHTSA notes further that there is no requirement that individuals submit a petition for reconsideration or pursue other administrative proceeding before they may file suit in court.
Under the Paperwork Reduction Act of 1995, a person is not required to respond to a collection of information by a Federal agency unless the collection displays a valid OMB control number. Several of the conditions placed by this exemption from the make inoperative prohibition are considered to be information collection requirements as defined by the OMB in 5 CFR part 1320. Specifically, this exemption from the make inoperative prohibition for motor vehicle dealers and repair businesses is conditioned upon vehicle owners filling out and submitting a request form to the agency, obtaining an authorization letter from the agency and then presenting the letter to a dealer or repair business. The exemption is also conditioned upon the dealer or repair business filling in information about itself and the installation of the retrofit on-off switch in the form provided for that purpose in the authorization letter and then returning the form to NHTSA. These information collection requirements in Part 595 have been approved by OMB (OMB Control No. 2127–0588) through June 30, 2013, pursuant to the requirements of the Paperwork Reduction Act (44 U.S.C. 3501
Under the National Technology Transfer and Advancement Act of 1995 (NTTAA) (Pub. L. 104–113), all Federal agencies and departments shall use technical standards that are developed or adopted by voluntary consensus standards bodies, using such technical standards as a means to carry out policy objectives or activities determined by the agencies and departments. Voluntary consensus standards are technical standards (e.g., materials specifications, test methods, sampling procedures, and business practices) that are developed or adopted by voluntary consensus standards bodies, such as the International Organization for Standardization (ISO) and the Society of Automotive Engineers (SAE). The NTTAA directs us to provide Congress, through OMB, explanations when we decide not to use available and applicable voluntary consensus standards. There are no voluntary consensus standards developed by voluntary consensus standards bodies pertaining to this rule.
Executive Order 12866 requires each agency to write all rules in plain language. Application of the principles of plain language includes consideration of the following questions:
• Have we organized the material to suit the public's needs?
• Are the requirements in the rule clearly stated?
• Does the rule contain technical language or jargon that isn't clear?
• Would a different format (grouping and order of sections, use of headings, paragraphing) make the rule easier to understand?
• Would more (but shorter) sections be better?
• Could we improve clarity by adding tables, lists, or diagrams?
• What else could we do to make the rule easier to understand?
NHTSA has considered these questions and attempted to use plain language in promulgating this final rule.
The Department of Transportation assigns a regulation identifier number (RIN) to each regulatory action listed in the Unified Agenda of Federal Regulations. The Regulatory Information Service Center publishes the Unified Agenda in April and October of each year. You may use the RIN contained in the heading at the beginning of this document to find this action in the Unified Agenda.
Petitions for reconsideration will be placed in the docket. Anyone is able to search the electronic form of all petitions received into any of our dockets by the name of the individual submitting the petition (or signing the
Imports, Motor vehicle safety, Motor vehicles.
In consideration of the foregoing, NHTSA is amending 49 CFR part 595 as follows:
49 U.S.C. 322, 30111, 30115, 30117, 30122 and 30166; delegation of authority at 49 CFR 1.50.
(a) Beginning January 19, 1998, a dealer or motor vehicle repair business may modify a motor vehicle manufactured before September 1, 2015, by installing an on-off switch that allows an occupant of the vehicle to turn off an air bag in that vehicle, subject to the conditions in paragraphs (b)(1) through (5) of this section.
National Marine Fisheries Service (NMFS), National Oceanic and Atmospheric Administration (NOAA), Commerce.
Temporary rule; trip limit reduction.
NMFS reduces the trip limit for the commercial sector of king mackerel in the eastern zone of the Gulf of Mexico (Gulf) in the northern Florida west coast subzone to 500 lb (227 kg) of king mackerel per day in or from the exclusive economic zone (EEZ). This trip limit reduction is necessary to protect the Gulf king mackerel resource.
This rule is effective 12:01 a.m., local time, August 30, 2012, through June 30, 2013, unless changed by further notice in the
Susan Gerhart, telephone: 727–824–5305, email:
The fishery for coastal migratory pelagic fish (king mackerel, Spanish mackerel, and cobia) is managed under the Fishery Management Plan for the Coastal Migratory Pelagic Resources of the Gulf of Mexico and South Atlantic (FMP). The FMP was prepared by the Gulf of Mexico and South Atlantic Fishery Management Councils (Councils) and is implemented under the authority of the Magnuson-Stevens Fishery Conservation and Management Act (Magnuson-Stevens Act) by regulations at 50 CFR part 622.
On April 27, 2000, NMFS implemented the final rule (65 FR 16336, March 28, 2000) that divided the king mackerel Gulf migratory group's Florida west coast subzone of the Gulf eastern zone into northern and southern subzones, and established their separate quotas. The quota for the northern Florida west coast subzone is 197,064 lb (89,397 kg) (50 CFR 622.42(c)(1)(i)(A)(
The regulations at 50 CFR 622.44(a)(2)(ii)(B)(
NMFS has projected that 75 percent of the quota for Gulf group king mackerel from the northern Florida west coast subzone will be reached by August 30, 2012. Accordingly, a 500-lb (227-kg) trip limit applies to vessels in the commercial sector for king mackerel in or from the EEZ in the northern Florida west coast subzone effective 12:01 a.m., local time, August 30, 2012. The 500-lb (227-kg) trip limit will remain in effect until the fishery closes or until the end of the current fishing year (June 30, 2013), whichever occurs first.
The Florida west coast subzone is that part of the eastern zone located south and west of 25°20.4′ N. lat. (a line directly east from the Miami-Dade/Monroe County, FL boundary) along the west coast of Florida to 87°31.1′ W. long. (a line directly south from the Alabama/Florida boundary). The Florida west coast subzone is further divided into northern and southern subzones. The northern subzone is that part of the Florida west coast subzone that is between 26°19.8′ N. lat. (a line directly west from the Lee/Collier County, FL boundary) and 87°31.1′ W. long. (a line directly south from the Alabama/Florida boundary).
This action responds to the best available information recently obtained from the fishery. The Assistant Administrator for Fisheries, NOAA, (AA), finds that the need to immediately implement this trip limit reduction for the commercial sector constitutes good cause to waive the requirements to provide prior notice and opportunity for public comment pursuant to the authority set forth in 5 U.S.C. 553(b)(B), as such procedures would be unnecessary and contrary to the public interest. Such procedures would be unnecessary because the rule itself already has been subject to notice and comment, and all that remains is to notify the public of the trip limit reduction.
Allowing prior notice and opportunity for public comment is contrary to the public interest because the capacity of the fishing fleet allows for rapid harvest of the quota. Prior notice and opportunity for public comment could result in a harvest well in excess of the established quota. Immediate implementation of this action is needed to protect the fishery.
For the aforementioned reasons, the AA also finds good cause to waive the 30-day delay in effectiveness of this action under 5 U.S.C. 553(d)(3).
This action is taken under 50 CFR 622.43(a) and is exempt from review under Executive Order 12866.
16 U.S.C. 1801
National Marine Fisheries Service (NMFS), National Oceanic and Atmospheric Administration (NOAA), Commerce.
Temporary rule; inseason adjustment.
NMFS adjusts the 2012 Winter II commercial scup quota. This action complies with Framework Adjustment 3 to the Summer Flounder, Scup, and Black Sea Bass Fishery Management Plan, which established a process to allow the rollover of unused commercial scup quota from the Winter I period to the Winter II period.
Effective August 30, 2012, through December 31, 2012.
Carly Bari, Fishery Management Specialist, (978) 281–9224.
NMFS published a final rule in the
For 2012, the initial Winter II quota is 4,448,627 lb (2,018 mt), and the best available landings information indicates that 7,186,694 lb (3,259 mt) remain of the Winter I quota of 12,589,558 lb (5,710 mt). Consistent with the intent of Framework 3, the full amount of unused 2012 Winter I quota is transferred to Winter II, resulting in a revised 2012 Winter II quota of 11,635,321 lb (5,277 mt). Because the amount transferred is greater than 2,000,000 lb (907 mt), the possession limit per trip will increase to 8,000 lb (3,629 kg) during the Winter II quota period, consistent with the final rule Winter I to Winter II possession limit increase table published in the 2012 final scup specifications Table 3, (77 FR 24151, April 23, 2012).
This action is required by 50 CFR part 648 and is exempt from review under Executive Order 12866.
The Assistant Administrator for Fisheries, NOAA (AA), finds good cause pursuant to 5 U.S.C. 553(b)(B) to waive prior notice and the opportunity for public comment on this in-season adjustment because it is impracticable and contrary to the public interest. The landings data upon which this action is based are not available on a real-time basis and were compiled only a short time before the determination was made that this action is warranted. If implementation of this in-season action is delayed to solicit prior public comment, the objective of the fishery management plan to achieve the optimum yield from the fishery could be compromised; deteriorating weather conditions during the later part of the fishery year will reduce fishing effort and could result in the annual quota from being fully harvested. This would conflict with the agency's legal obligation under the Magnuson-Stevens Fishery Conservation and Management Act to achieve the optimum yield from a fishery on a continuing basis, resulting in a negative economic impact on vessels permitted to fish in this fishery.
16 U.S.C. 1801
Consumer Product Safety Commission.
Comment request.
The U.S. Consumer Product Safety Commission (“Commission” or “we”) has received a petition (CP12–3) requesting that the Commission initiate rulemaking to replace the testing procedures for glazing materials in certain architectural products set forth in our regulations, with those testing procedures contained in ANSI Z97.1, “American National Standard for Safety Glazing Materials Used in Building—Safety Performance Specifications and Methods of Test.” We invite written comments concerning the petition.
The Office of the Secretary must receive comments on the petition by October 29, 2012.
You may submit comments, identified by Docket No. CPSC–2012–0049, by any of the following methods:
Submit electronic comments in the following way:
To ensure timely processing of comments, the Commission is no longer accepting comments submitted by electronic mail (email), except through
Submit written submissions in the following way:
Mail/Hand delivery/Courier (for paper, disk, or CD–ROM submissions), preferably in five copies, to: Office of the Secretary, U.S. Consumer Product Safety Commission, Room 820, 4330 East-West Highway, Bethesda, MD 20814; telephone (301) 504–7923.
Rochelle Hammond, Office of the Secretary, U.S. Consumer Product Safety Commission, Room 820, 4330 East-West Highway, Bethesda, MD 20814; telephone (301) 504–6833.
The Commission has received a submission from William M. Hannay, Attorney at Law, Counsel for Safety Glazing Certification Council (“petitioner”), dated June 26, 2012, requesting that the Commission initiate a rulemaking to replace the current testing procedures for glazing materials codified at 16 CFR 1201.4, with those contained in ANSI Z97.1, “American National Standard for Safety Glazing Materials Used in Building—Safety Performance Specifications and Methods of Test.” The Commission is docketing this request as a petition under the Consumer Product Safety Act (CPSA). 15 U.S.C. 2056 and 2058. The current standard for architectural glazing materials applies to glazing materials used or intended to be used in the architectural products subject to the standard, i.e., storm doors or combination doors, doors, bathtub doors and enclosures, shower doors and enclosures and sliding glass doors. The testing procedures set forth in Section 1201.4 require impact tests and accelerated environment durability tests which are intended to determine if glazing materials used in these architectural products meet safety requirements designed to reduce or eliminate unreasonable risks of death or serious injury to consumers when glazing material is broken by human contact. The testing procedures further describe the testing equipment and apparatus required to be used, and the test result interpretation methodology to be employed in determining if the glazing materials being tested meet the safety requirements of the standard.
Petitioner asserts that consumers and the glazing industry would be better served by replacing the test procedures for glazing materials used in the above-referenced architectural products in 16 CFR 1201.4 with ANSI Z97.1's purportedly more efficient and more modern procedures. Petitioner notes that the testing procedures set forth in Section 1201.4 were promulgated in 1977 and have not been updated or clarified since their original adoption by the Commission. Petitioner points out that the ANSI standard for glazing materials has been updated periodically (in 1984, 1994, 2004 and 2009) since the mandatory standard was promulgated, and that these updates include modifications in testing equipment and procedures that provide better protection for consumers.
Petitioner asserts that the absence of updates to the mandatory standard during a period in which the ANSI standard was revised four times has resulted in different testing methods and qualifying procedures that has created confusion in the industry regarding which test methodology must be used in what circumstance. Petitioner claims that the existence of overlapping but divergent mandatory and voluntary standards has created confusion for manufacturers in determining which standard applies, and resulted in manufacturers being required to pay for dual qualification testing, because different specifying agencies reference one or both standards. Petitioner also includes the proposed language that would replace the current Section 1201.4, directing manufacturers and private labelers of glazing material to test and certify the compliance of their products to the current ANSI standard.
By this notice, we seek comments concerning this petition. Interested parties may obtain a copy of the petition by writing or calling the Office of the Secretary, U.S. Consumer Product Safety Commission, Room 820, 4330
Environmental Protection Agency (EPA).
Proposed rule.
The Environmental Protection Agency (EPA) is proposing to determine that the New York-N. New Jersey-Long Island, NY-NJ-CT fine particle (PM
Comments must be received on or before October 1, 2012.
Submit your comments, identified by Docket ID number EPA–R02–OAR–2012–0504, by one of the following methods:
•
•
•
•
•
If you have questions concerning today's proposed action related to New York or New Jersey, please contact Gavin Lau, Air Programs Branch, Environmental Protection Agency, 290 Broadway, 25th Floor, New York, New York 10007–1866, telephone number (212) 637–3708, fax number (212) 637–3901, email
If you have questions concerning today's proposed action related to Connecticut, please contact Alison C. Simcox, Air Quality Planning Unit, Environmental Protection Agency, EPA New England Regional Office, 5 Post Office Square—Suite 100, Mail Code OEP05–02, Boston, MA 02109–3912, telephone number (617) 918–1684, fax number (617) 918–0684, email
For detailed information regarding this proposal, EPA prepared a Technical Support Document (TSD). The TSD can be viewed at
The following table of contents describes the format of this notice:
EPA is proposing to determine that the New York-N. New Jersey-Long Island, NY-NJ-CT PM
EPA received requests from the States of Connecticut, New Jersey, and New York (States) for the determination of attainment for the 2006 24-hour PM
The proposed determination, if finalized, under the provisions of EPA's PM
If this rulemaking is finalized and EPA subsequently determines, after notice-and-comment rulemaking in the
The determination that EPA proposes with this
This proposed action, if finalized, is limited to a determination that the NY-NJ-CT PM
If this proposed determination is made final and the NY-NJ-CT PM
On September 21, 2006, EPA established a 24-hour PM
On November 15, 2010 (75 FR 69589), EPA made the determination that the NY-NJ-CT PM
On March 2, 2012, EPA provided implementation guidance for the 2006 24-hour PM
EPA has reviewed the ambient air monitoring data for PM
Under EPA regulations at 40 CFR 50.13(c): The 24-hour primary and secondary PM
Table 1 shows the design values by county (
EPA's review
Data handling conventions and computations necessary for determining whether areas have met the PM
The statistical method used addressed less than complete data by determining if a monitor would have been in attainment of the NAAQS had it operated to completeness from 2007–2009 and 2008–2010. The approach summarized in this section, and further described in the TSD, may or may not be appropriate for other areas with less than complete data. EPA will determine the appropriateness of this analytical approach for each area with less than complete data on a case-by-case basis. In this case, EPA has determined that it is appropriate to use this statistical method for the NY-NJ-CT PM
EPA determined the adequacy of the monitoring network by examining the number and placement of monitors located in the nonattainment area through annual monitoring reviews and approval of network plans. The NY-NJ-CT PM
The method used to determine the design value for monitors with incomplete data involves establishing a linear relationship between incomplete monitors and another site in the NY-NJ-CT PM
The result of the analysis determined that the design value for 5 monitoring sites that: (1) Had incomplete monitoring data during 2006–2008, 2007–2009, and/or 2008–2010, (2) had previously violated the 2006 annual PM
EPA is proposing to determine that the NY-NJ-CT PM
This action proposes to make a determination based on air quality data, and would, if finalized, result in the suspension of certain Federal requirements. For that reason, this proposed action:
Is not a significant regulatory action subject to review by the Office of Management and Budget under Executive Order 12866 (58 FR 51735, October 4, 1993);
Does not impose an information collection burden under the provisions of the Paperwork Reduction Act (44 U.S.C. 3501
Is certified as not having a significant economic impact on a substantial number of small entities under the Regulatory Flexibility Act (5 U.S.C. 601
Does not contain any unfunded mandate or significantly or uniquely affect small governments, as described in the Unfunded Mandates Reform Act of 1995 (Pub. L. 104–4);
Does not have Federalism implications as specified in Executive Order 13132 (64 FR 43255, August 10, 1999);
Is not an economically significant regulatory action based on health or safety risks subject to Executive Order 13045 (62 FR 19885, April 23, 1997);
Is not a significant regulatory action subject to Executive Order 13211 (66 FR 28355, May 22, 2001);
Is not subject to requirements of Section 12(d) of the National Technology Transfer and Advancement Act of 1995 (15 U.S.C. 272 note) because application of those requirements would be inconsistent with the CAA; and
Does not provide EPA with the discretionary authority to address, as appropriate, disproportionate human health or environmental effects, using practicable and legally permissible methods, under Executive Order 12898 (59 FR 7629, February 16, 1994).
In addition, this rule does not have Tribal implications, as specified by Executive Order 13175 (65 FR 67249, November 9, 2000), because the SIP is not approved to apply in Indian country located in the State, and EPA notes that it will not impose substantial direct costs on Tribal governments or preempt Tribal law.
Environmental protection, Air pollution control, Particulate matter, Reporting and recordkeeping requirements.
42 U.S.C. 7401
Environmental Protection Agency (EPA).
Proposed rule.
EPA is proposing to approve into the Indiana State Implementation Plan (SIP) the addition of a new rule that sets emissions limits on the amount of volatile organic compounds in architectural and industrial maintenance coatings that are sold, supplied, manufactured, or offered for sale in the state.
Comments must be received on or before October 1, 2012.
Submit your comments, identified by Docket ID No. EPA–R05–OAR–2010–1047, by one of the following methods:
1.
2.
3.
4.
5.
Please see the direct final rule which is located in the Rules section of this
Anthony Maietta, Environmental Protection Specialist, Air Programs Branch (AR–18J), Environmental Protection Agency, Region 5, 77 West Jackson Boulevard, Chicago, Illinois 60604, (312) 353–8777,
In the Final Rules section of this
Environmental Protection Agency (“EPA”).
Proposed rule.
EPA is proposing to update a portion of the Outer Continental Shelf (“OCS”) Air Regulations. Requirements applying to OCS sources located within 25 miles of States' seaward boundaries must be updated periodically to remain consistent with the requirements of the corresponding onshore area (“COA”), as mandated by section 328(a)(1) of the Clean Air Act, as amended in 1990 (“the Act”). The portion of the OCS air regulations that is being updated pertains to the requirements for OCS sources for which the Santa Barbara County Air Pollution Control District (“Santa Barbara APCD” or “District”) is the designated COA. The intended effect of approving the OCS requirements for the Santa Barbara APCD is to regulate emissions from OCS sources in accordance with the requirements onshore. The changes to the existing requirements discussed below are proposed to be incorporated by reference into the Code of Federal Regulations and listed in the appendix to the OCS air regulations.
Any comments must arrive by October 1, 2012.
Submit comments, identified by docket number OAR–2004–0091, by one of the following methods:
1.
2.
3.
Cynthia G. Allen, Air Division (Air-4), U.S. EPA Region 9, 75 Hawthorne Street, San Francisco, CA 94105, (415) 947–4120,
On September 4, 1992, EPA promulgated 40 CFR part 55,
Pursuant to section 55.12 of the OCS rule, consistency reviews will occur (1) At least annually; (2) upon receipt of a Notice of Intent under section 55.4; or (3) when a state or local agency submits a rule to EPA to be considered for incorporation by reference in part 55. This proposed action is being taken in response to the submittal of requirements by the Santa Barbara County APCD. Public comments received in writing within 30 days of publication of this document will be considered by EPA before publishing a final rule.
Section 328(a) of the Act requires that EPA establish requirements to control air pollution from OCS sources located within 25 miles of States' seaward boundaries that are the same as onshore requirements. To comply with this statutory mandate, EPA must incorporate applicable onshore rules into part 55 as they exist onshore. This limits EPA's flexibility in deciding which requirements will be incorporated into part 55 and prevents EPA from making substantive changes to the requirements it incorporates. As a result, EPA may be incorporating rules into part 55 that do not conform to all of EPA's state implementation plan (SIP) guidance or certain requirements of the Act. Consistency updates may result in the inclusion of state or local rules or regulations into part 55, even though the same rules may ultimately be disapproved for inclusion as part of the SIP. Inclusion in the OCS rule does not imply that a rule meets the requirements of the Act for SIP approval, nor does it imply that the rule will be approved by EPA for inclusion in the SIP.
In updating 40 CFR part 55, EPA reviewed the rules submitted for inclusion in part 55 to ensure that they are rationally related to the attainment or maintenance of federal or state ambient air quality standards or part C of title I of the Act, that they are not designed expressly to prevent exploration and development of the OCS and that they are applicable to OCS sources. 40 CFR 55.1. EPA has also evaluated the rules to ensure they are not arbitrary or capricious. 40 CFR 55.12(e). EPA has excluded rules that regulate toxics, which are not related to the attainment and maintenance of federal and state ambient air quality standards.
EPA is soliciting public comments on the issues discussed in this document or on other relevant matters. EPA will consider these comments before taking final action. Interested parties may participate in the Federal rulemaking procedure by submitting written comments to the EPA Region IX Office listed in the
1. After review of the requirements submitted by the Santa Barbara County APCD against the criteria set forth above and in 40 CFR part 55, EPA is proposing to make the following District requirements applicable to OCS sources. Earlier versions of these District rules are currently implemented on the OCS:
The District also submitted the following new rule which is not currently in effect on the OCS, for incorporation into Part 55. We are proposing to incorporate this rule into part 55:
Under the Clean Air Act, the Administrator is required to establish requirements to control air pollution from OCS sources located within 25 miles of States' seaward boundaries that are the same as onshore air control requirements. To comply with this statutory mandate, EPA must incorporate applicable onshore rules into part 55 as they exist onshore. 42 U.S.C. 7627(a)(1); 40 CFR 55.12. Thus, in promulgating OCS consistency updates, EPA's role is to maintain consistency between OCS regulations and the regulations of onshore areas, provided that they meet the criteria of
• Is not a “significant regulatory action” subject to review by the Office of Management and Budget under Executive Order 12866 (58 FR 51735, October 4, 1993);
• Is certified as not having a significant economic impact on a substantial number of small entities under the Regulatory Flexibility Act (5 U.S.C. 601
• Does not contain any unfunded mandate or significantly or uniquely affect small governments, as described in the Unfunded Mandates Reform Act of 1995 (Pub. L. 104–4);
• Does not have Federalism implications as specified in Executive Order 13132 (64 FR 43255, August 10, 1999);
• Is not an economically significant regulatory action based on health or safety risks subject to Executive Order 13045 (62 FR 19885, April 23, 1997);
• Is not a significant regulatory action subject to Executive Order 13211 (66 FR 28355, May 22, 2001);
• Is not subject to requirements of Section 12(d) of the National Technology Transfer and Advancement Act of 1995 (15 U.S.C. 272 note) because application of those requirements would be inconsistent with the Clean Air Act; and
• Does not provide EPA with the discretionary authority to address, as appropriate, disproportionate human health or environmental effects, using practicable and legally permissible methods, under Executive Order 12898 (59 FR 7629, February 16, 1994).
In addition, this proposed rule does not have tribal implications as specified by Executive Order 13175 (65 FR 67249, November 9, 2000), because it does not have a substantial direct effect on one or more Indian tribes, on the relationship between the Federal Government and Indian tribes, or on the distribution of power and responsibilities between the Federal Government and Indian tribes, nor does it impose substantial direct compliance costs on tribal governments, nor preempt tribal law.
Under the provisions of the Paperwork Reduction Act, 44 U.S.C. 3501
Environmental protection, Administrative practice and procedure, Air pollution control, Hydrocarbons, Incorporation by reference, Intergovernmental relations, Nitrogen dioxide, Nitrogen oxides, Outer Continental Shelf, Ozone, Particulate matter, Permits, Reporting and recordkeeping requirements, Sulfur oxides.
Title 40 of the Code of Federal Regulations, Part 55, is proposed to be amended as follows:
1. The authority citation for part 55 continues to read as follows:
Section 328 of the Clean Air Act (42 U.S.C. 7401
2. Section 55.14 is amended by revising paragraph (e)(3)(ii)(F) to read as follows:
(e) * * *
(3) * * *
(ii) * * *
(F)
3. Appendix A to CFR part 55 is amended by revising paragraph (b)(6) under the heading “California” to read as follows:
(b) * * *
(6) The following requirements are contained in
Environmental Protection Agency (EPA).
Notice of public meeting.
The U. S. Environmental Protection Agency (EPA) is holding a public meeting and webcast to share information with the public related to treatment technologies, analytical methods and other information pertaining to the development of a proposed National Primary Drinking Water Regulation for Perchlorate.
The public meeting and webcast will be held on September 20, 2012 (10 a.m. to 4 p.m., Eastern Time (ET)). Persons wishing to attend the meeting or webcast must register in advance as described in the
The meeting will be held at EPA, Potomac Yards South, first floor conference room located at 2777 South Crystal Drive, Arlington, VA 22202. A government issued photo ID is required to obtain access to the building.
More information on Perchlorate is available at the following Web site:
To participate in the in-person meeting, you must register in advance no later than 5 p.m., Eastern Time (ET) on September 17, 2012, by contacting Junie Percy of IntelliTech by email to
To participate in the webcast, you must register in advance at the following Web address:
During the meeting and webcast, there will be a segment for public questions and input. EPA encourages public input and will allocate time to receive verbal statements on a first-come, first-serve basis. Participants will be provided with a set time frame for their statements. To ensure adequate time for public input, individuals or organizations interested in presenting an oral statement should notify Junie Percy by email at
Federal Communications Commission.
Notice of proposed rulemaking.
This document seeks comment on post-reconfiguration 800 MHz band channel plans along the U.S.-Mexico border. The Public Safety and Homeland Security Bureau (Bureau), by this action, affords interested parties an opportunity to submit comments and reply comments on proposals for establishing and implementing reconfigured 800 MHz channel plans along the U.S.-Mexico border.
Comments are due on or before October 1, 2012 and reply comments are due on or before October 15, 2012.
You may submit comments, identified by WT Docket 02–55, by any of the following methods:
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•
For detailed instructions for submitting comments and additional information on the rulemaking process, see the
Brian Marenco, Policy and Licensing Division, Public Safety and Homeland Security Bureau, (202) 418–0838.
This is a summary of the Commission's Fourth Further Notice of Proposed Rulemaking, DA 12–1343, released on August 17, 2012. The document is available for download at
1. In a July 2004 Report and Order, the Commission reconfigured the 800 MHz band to eliminate interference to public safety and other land mobile communication systems operating in the band, 69 FR 67823, November 22, 2004. However, the Commission deferred consideration of band reconfiguration plans for the border areas, noting that “implementing the band plan in areas of the United States bordering Mexico and Canada will require modifications to international agreements for use of the 800 MHz band in the border areas.” The Commission stated that “the details of the border plans will be determined in our ongoing discussions with the Mexican and Canadian governments.”
2. In a Second Memorandum Opinion and Order, adopted in May 2007, the Commission delegated authority to Public Safety and Homeland Security Bureau to propose and adopt border area band plans once agreements are reached with Canada and Mexico, 72 FR 39756, July 20, 2007. Specifically, the Commission noted that “once those discussions are completed, and any necessary modifications to our international agreements have been made, we will need to amend our rules to implement the agreements and identify the portions of the 800 MHz band that will be available to U.S. licensees on a primary basis. In addition, we will need to adopt a band plan for the border regions that specifies the ESMR and non-ESMR portions of the band and the distribution of channels to public safety, B/ILT, and SMR licensees.”
3. On June 8, 2012, the United States and Mexico signed an agreement modifying the international apportionment of 800 MHz spectrum in the U.S.-Mexico border region, which enables the U.S. to proceed with 800 MHz band reconfiguration along the U.S.-Mexico border. In the Fourth Further Notice of Proposed Rulemaking, the Public Safety and Homeland Security Bureau, on delegated authority, seeks comment on proposals for establishing and implementing reconfigured 800 MHz channel plans along the U.S.-Mexico border.
4. Pursuant to §§ 1.415 and 1.419 of the Commission's rules, 47 CFR 1.415, 1.419, interested parties may file comments and reply comments on or before the dates indicated on the first page of this document. All filings related to this
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•
5. Filings can be sent by hand or messenger delivery, by commercial overnight courier, or by first-class or overnight U.S. Postal Service mail. All filings must be addressed to the Commission's Secretary, Office of the Secretary, Federal Communications Commission.
• All hand-delivered or messenger-delivered paper filings for the Commission's Secretary must be delivered to FCC Headquarters at 445 12th St. SW., Room TW–A325, Washington, DC 20554. The filing hours are 8:00 a.m. to 7:00 p.m. All hand deliveries must be held together with rubber bands or fasteners. Any envelopes and boxes must be disposed of before entering the building.
• Commercial overnight mail (other than U.S. Postal Service Express Mail and Priority Mail) must be sent to 9300 East Hampton Drive, Capitol Heights, MD 20743.
• U.S. Postal Service first-class, Express, and Priority mail must be addressed to 445 12th Street SW., Washington, DC 20554.
6. Interested parties may view documents filed in this proceeding on the Commission's Electronic Comment Filing System (ECFS) using the following steps: (1) Access ECFS at
7.
8. Commenters who file information that they believe should be withheld from public inspection may request confidential treatment pursuant to Section 0.459 of the Commission's rules. Commenters should file both their original comments for which they request confidentiality and redacted comments, along with their request for confidential treatment. Commenters should not file proprietary information electronically.
9. This proceeding shall be treated as a “permit-but-disclose” proceeding in accordance with the Commission's ex parte rules. Persons making ex parte presentations must file a copy of any written presentation or a memorandum summarizing any oral presentation within two business days after the presentation (unless a different deadline applicable to the Sunshine period applies). Persons making oral ex parte presentations are reminded that memoranda summarizing the presentation must (1) list all persons attending or otherwise participating in the meeting at which the ex parte presentation was made, and (2) summarize all data presented and arguments made during the presentation. If the presentation consisted in whole or in part of the presentation of data or arguments already reflected in the presenter's written comments, memoranda or other filings in the proceeding, the presenter may provide citations to such data or arguments in his or her prior comments, memoranda, or other filings (specifying the relevant page and/or paragraph numbers where such data or arguments can be found) in lieu of summarizing them in the memorandum. Documents shown or given to Commission staff during ex parte meetings are deemed to be written ex parte presentations and must be filed consistent with 47 CFR 1.1206(b). In proceedings governed by 47 CFR 1.49(f) or for which the Commission has made available a method of electronic filing, written ex parte presentations and memoranda summarizing oral ex parte presentations, and all attachments thereto, must be filed through the electronic comment filing system available for that proceeding, and must be filed in their native format (e.g., .doc, .xml, .ppt, searchable .pdf). Participants in this proceeding should familiarize themselves with the Commission's ex parte rules.
10. Pursuant to the Regulatory Flexibility Act (RFA), the Federal Communications Commission's Public Safety and Homeland Security Bureau (Bureau) has prepared an Initial Regulatory Flexibility Analysis (IRFA) of the possible significant economic impact on small entities by the proposals considered in this
11. This document proposes no additional information collection(s) subject to the Paperwork Reduction Act of 1995 (PRA), Public Law 104–13 beyond those already approved for this proceeding.
12. As required by the Regulatory Flexibility Act of 1980, as amended (RFA), the Federal Communications Commission's Public Safety and Homeland Security Bureau (Bureau) has prepared this Initial Regulatory Flexibility Analysis (IRFA) of the possible significant economic impact on small entities by the policies and rules proposed in this
13. In the
14. The proposed action is authorized under Sections 4(i), 301, 302, 303(e), 303(f), 303(r), 304 and 307 of the Communications Act of 1934, as amended, 47 U.S.C. Sections 154(i), 301, 302, 303(e), 303(f), 303(r), 304 and 307.
15. The RFA directs agencies to provide a description of and, where feasible, an estimate of the number of small entities that may be affected by the proposed rules, if adopted. The RFA generally defines the term “small entity” as having the same meaning as the terms “small business,” “small organization,” and “small governmental jurisdiction.” In addition, the term “small business” has the same meaning as the term “small business concern” under the Small Business Act. A small business concern is one which: (1) Is independently owned and operated; (2) is not dominant in its field of operation; and (3) satisfies any additional criteria established by the SBA. Pursuant to 5 U.S.C. 601(3), the statutory definition of a small business applies “unless an agency, after consultation with the Office of Advocacy of the Small Business Administration and after opportunity for public comment, establishes one or more definitions of such term which are appropriate to the activities of the agency and publishes such definition(s) in the
16.
17. As of May 2012, there were approximately 220 PLMR licensees operating in the PLMR band between 806–824/851–869 MHz along the U.S.—Mexico border. We note that many government and commercial actors are eligible to hold a PLMR license, and that any revised rules in this context could therefore potentially impact small entities covering a great variety of industries.
18. The
19. The RFA requires an agency to describe any significant alternatives that it has considered in reaching its proposed approach, which may include the following four alternatives (among others): (1) The establishment of differing compliance or reporting requirements or timetables that take into account the resources available to small entities; (2) the clarification, consolidation, or simplification of compliance or reporting requirements under the rule for small entities; (3) the use of performance, rather than design, standards; and (4) an exemption from coverage of the rule, or any part thereof, for small entities.
20. The
21. None.
22. Accordingly,
23.
Pipeline and Hazardous Materials Safety Administration (PHMSA), DOT.
Notice of proposed rulemaking (NPRM).
PHMSA is proposing to revise the Hazardous Materials Regulations applicable to the approval of Division 1.4G consumer fireworks (UN0336 Fireworks) and establish DOT-approved fireworks certification agencies that will provide an alternative to the approval process for Division 1.4G consumer fireworks. PHMSA is also proposing to revise procedural regulations pertaining to certification agencies. These proposed actions, if adopted, will clarify regulations with respect to PHMSA's fireworks approval process and provide regulatory flexibility in seeking authorization for the transportation of Division 1.4G consumer fireworks.
Comments must be received by October 29, 2012. To the extent possible, PHMSA will consider late-filed comments as a final rule is developed.
You may submit comments by identification of the docket number (PHMSA–2010–0320 (HM–257)) by any of the following methods:
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Rob Benedict, or Lisa O'Donnell, Standards and Rulemaking Division, Office Hazardous Materials Safety, Pipeline and Hazardous Materials Safety Administration, U.S. Department of Transportation, 1200 New Jersey Avenue SE., Washington, DC 20590, at (202) 366–8553.
The pyrotechnic industry is a global logistics supply chain comprised of mostly foreign fireworks manufacturers and domestic importers, retailers, distributors, and consumers. Prior to the transportation into and throughout the U.S., all explosives, including Division 1.4 consumer fireworks, must be classed, approved, and issued a DOT EX classification approval number (EX number) by PHMSA. The EX number is a unique identifier that indicates a firework device has been classed and approved for transportation into and throughout the U.S.
PHMSA is committed to maintaining the exemplary transportation safety record that Division 1.4G consumer fireworks have displayed over the past forty years, but seeks to reduce burden and increase flexibility for the regulated community by providing an alternative to PHMSA's approval process. PHMSA has conducted an intensive retrospective review of the fireworks approval program and has determined that there is a delay in the processing of EX approval applications under the current regulatory scheme. PHMSA proposes an alternative option for Division 1.4G consumer fireworks in which applicants will submit applications for certification to a Fireworks Certification Agency (FCA), in lieu of submitting applications for approval to PHMSA. To ensure oversight of the proposed FCAs, this proposal includes reporting and recordkeeping requirements.
Additionally, PHMSA is proposing to define consumer fireworks and clarify the approval process for designation as a certification agency.
This NPRM affects the following entities and proposes the following requirements:
To monetize the costs and benefits of the proposals in this NPRM, PHMSA used a number of assumptions to develop a base case. The overall costs and benefits of the proposals are dependent on the assumption that all affected entities are currently complying with the regulations and that 50 to 90 percent of applicants will choose a DOT-approved FCA to certify that Division 1.4G consumer fireworks complies with the American Pyrotechnics Association's (APA) Standard 87–1 (IBR, see § 171.7), in lieu of filing an approval application with PHMSA.
Costs associated with the proposals are primarily comprised of fees that FCAs may assess on manufacturers of Division 1.4G fireworks. There may also be costs associated with proposed recordkeeping requirements.
If the proposals in this NPRM are adopted, PHMSA estimates total annual benefits will be between approximately $14.5 million and $26.5 million, and total annual costs will be between $4 million and $7 million, resulting in total annual net benefits of between $11 million and $19 million. The table below summarizes the calculated cost and benefits associated with the NPRM.
PHMSA estimates the 10-year present value of the net benefits is about $80 million to $143 million (discounted at a 3 percent rate) or $55 million to $98 million (discounted at a 7 percent rate). PHMSA concludes that the aggregate benefits justify the aggregate costs. A summary of the range of expected annual costs and benefits is provided in the table below.
PHMSA requests specific comments on the analysis underlying these estimates, including the percentage of entities that will choose to have their 1.4G consumer fireworks certified by FCAs instead of being approved by PHMSA, the manner in which records will be kept (i.e., electronic or paper), the estimated cost of the recordkeeping requirements, the number of affected entities (e.g., manufacturers and importers), and the estimated fee an FCA would charge for certification. We are also asking for general comments or suggestions regarding approaches to reduce the costs of this rule while maintaining or increasing the benefits. Additionally, PHMSA seeks comments on possible changes that might improve the rule and increase regulatory flexibility.
The requirements for the classification and packaging of Class 1 explosive materials are specified in Subpart C of Part 173 of the Hazardous Materials Regulations (HMR; 49 CFR parts 171—180). Fireworks are considered a Class 1 explosive material and must be classified under one of five hazard divisions and compatibility groups (1.1G, 1.2G, 1.3G, 1.4G, and 1.4S). As currently specified in Subpart C of Part 173 of the HMR, prior to transportation into and within the U.S., all explosives, including fireworks, must be approved and assigned a classification by PHMSA based on actual testing. Division 1.3 and 1.4 fireworks may also be approved in accordance with the American Pyrotechnics Association (APA) Standard 87–1.
Division 1.1 fireworks must be examined by a DOT-approved explosives test laboratory and assigned a recommended shipping description, division, and compatibility group in accordance with §§ 173.56(b), 173.56(f) or 173.56(i). Division 1.3 and 1.4 fireworks may either be approved in accordance with §§ 173.56(b), 173.56(f) or 173.56(i), or in accordance with § 173.56(j), which provides an option for obtaining an EX number and approval without prior testing by a DOT-approved explosives test laboratory.
Section 173.56(j) requires that the firework device is manufactured in accordance with APA Standard 87–1 and passes a thermal stability test. An applicant requesting PHMSA approval based on § 173.56(j) submits an application that contains required information specified in APA Standard 87–1. For example, the standard requires that the size of the device, as well as the various formulas and weights of each type of chemical composition contained in the device must be specified in the application. Only formulas containing chemicals identified in APA Standard 87–1, Table of “Standard Fireworks Chemicals” can be approved under the provisions of APA Standard 87–1. PHMSA has expanded on the Table of “Standard Fireworks Chemicals” to further detail chemicals that are permitted and prohibited in consumer fireworks devices.
While both §§ 173.56(b) and 173.56(j) require the applicant to submit an application to PHMSA's Approvals and Permits Division for approval, the HMR provides a couple of alternatives. Under § 173.56(i), if experience or other data demonstrates that the hazard of a firework device containing an explosive chemical composition is greater or less than indicated according to the definition and criteria specified in §§ 173.50, 173.56, and 173.58, the Associate Administrator may specify a classification (including determining that it is forbidden from transportation), or except the device from the HMR. The HMR also permits the transport of firework devices the Associate Administrator approves on the basis of an approval issued by the competent authority of a foreign government, or when examination of the explosive by a person approved by the Associate Administrator is impracticable, on the basis of reports of tests conducted by disinterested third parties, as specified in § 173.56(f).
On May 10, 2012, President Obama issued Executive Order 13610 (Identifying and Reducing Regulatory Burdens) reaffirming the goals of Executive Order 13563 (Improving Regulation and Regulatory Review) issued January 18, 2011, and Executive Order 12866 (Regulatory Planning and Review) issued September 30, 1993. Executive Order 13610 directs agencies to prioritize “those initiatives that will produce significant quantifiable monetary savings or significant quantifiable reductions in paperwork burdens while protecting public health, welfare, safety, and our environment.” Executive Order 13610 further instructs agencies to give consideration to the cumulative effects of their regulations, including cumulative burdens, and prioritize reforms that will significantly reduce burdens.
Executive Order 13563, which supplements Executive Order 12866, directs federal agencies to periodically review existing significant regulations, retrospectively analyze rules that may be outmoded, ineffective, insufficient, or excessively burdensome, and modify, streamline, expand, or repeal regulatory requirements that are no longer justified. Agencies are also directed to consider regulatory approaches that reduce burdens and maintain flexibility and freedom of choice for the public.
In light of these Executive Orders and the President's continued efforts to streamline government regulations, we have evaluated our fireworks approval program to identify areas where we can improve efficiency, reduce burdens, and increase regulatory flexibility without diminishing safety. Specifically, we analyzed the timeline for reviewing applications for approval of fireworks devices. We found that over the past two years, PHMSA has reviewed roughly 30,000 applications for approval of fireworks devices. Approximately seventy-five percent of these applications sought approval for Division 1.4G consumer fireworks devices.
Due to the high volume of applications submitted for Division 1.4G consumer fireworks devices, the approximate review time per application is 120 days. Review time may be extended if applications are rejected for minor flaws, such as mathematical errors, or denied for safety issues. If an application is rejected, the applicant often resubmits the application placing it at the end of the review queue. If an application is denied, the applicant may file for reconsideration and subsequently may appeal to the Administrator; thereby delaying the final disposition of the application.
Consequently, the delay in processing applications can have an economic impact on the fireworks industry. For example, the lengthy approval process interrupts the supply chain and delays devices from reaching retail stores, which results in substantial revenue losses for U.S. importers, distributors and retail stores, many of whom are small businesses. Also, manufacturers of fireworks devices often charge U.S. purchasers storage fees for devices purchased that are pending approval and cannot be transported into and throughout the U.S.
After significant review of our fireworks program, we have identified areas that should be modified to decrease the delay in processing approvals. PHMSA is proposing to revise the HMR to provide an alternative option that will expedite the process for obtaining authorization to transport Division 1.4G consumer fireworks into and throughout the U.S., without compromising the current level of safety. PHMSA believes the revisions proposed in this NPRM will reduce burdens and enhance flexibility for the regulated community, while maintaining an equivalent level of safety provided in the HMR.
In an effort to reduce regulatory burden and provide regulatory flexibility, without diminishing safety, PHMSA proposes structural changes to the regulations relating to PHMSA's fireworks program. Under the proposed revision, PHMSA will continue to approve Division 1.4G consumer fireworks in accordance with the current requirements specified in §§ 173.56(b), 173.56(f), 173.56(i), or 173.56(j). In addition to the current approval process, PHMSA proposes a new alternative that will permit manufacturers to apply to a DOT-approved Fireworks Certification Agency (FCA) to review and certify that Division 1.4G consumer fireworks comply with APA Standard 87–1 and are safe for transportation in commerce. To provide oversight of the DOT-approved FCAs, PHMSA is proposing reporting and recordkeeping requirements. PHMSA is also proposing to revise subpart E of part 107 to clarify the approval process for designation as a certification agency and provide for reconsideration of decisions to modify, terminate, or suspend a designation.
The proposed alternative process for Division 1.4G consumer fireworks will parallel the current requirements under § 173.56(j), except that, rather than submitting an approval application to PHMSA, the manufacturer or their U.S. designated agent will submit a certification application to a DOT-approved FCA to review and certify that the firework devices match the chemical compositions, sizes, and weights detailed in the application and that they meet the defining criteria set forth in APA Standard 87–1 to be classified as a Division 1.4G consumer firework.
In addition, PHMSA proposes to require the DOT-approved FCA conduct a physical examination of a sample of the Division 1.4G consumer firework design. This proposal is consistent with the requirements for other DOT-approved certification agencies. A DOT-approved FCA will be analogous to lighter certification agencies, which certify lighter designs, and independent
To become a DOT-approved FCA, the applicant will be required to submit an application with all procedures it will use to review and certify Division 1.4G consumer fireworks, in accordance with the provisions in subpart E of part 107. These procedures will be designed by the applicant; however, PHMSA will review the applicant's procedures to determine whether they are adequate to certify compliance with APA-Standard 87–1 and whether they provide an equivalent or greater level of safety to the current approval process. PHMSA plans to develop a guidance document for FCAs addressing standard procedures for the certification of Division 1.4G consumer fireworks.
Any domestic or foreign entity may apply to become a DOT-approved FCA provided that it is not directly or indirectly controlled by, or have a financial involvement with, any entity that manufactures, transports, or imports fireworks, except for providing services as an FCA. To qualify as a DOT-approved FCA, each applicant must: (1) Meet specific criteria designed to ensure that the FCA is an impartial, independent, unbiased, and qualified entity; (2) submit an application, including certification procedures; and (3) successfully complete a facility inspection performed by PHMSA. To meet the specific qualification criteria, the applicant will be required to demonstrate knowledge of the applicable regulations, including subpart C of part 173 of the HMR and the APA standard 87–1, the ability to review and evaluate design drawings and applications in accordance with the APA standard 87–1, and the ability to review and evaluate the qualifications of materials and fabrication procedures. If approved, PHMSA will issue an approval and an identifying number unique to that FCA. This number will provide traceability and enable PHMSA to seek corrective action or suspend or terminate certification authority if the requirements of the HMR or the FCA approval are not met.
Currently, all Division 1.4G fireworks devices are approved by PHMSA and assigned an EX number that represents that the fireworks article or device is in compliance with the classification requirements of the HMR. A current EX number approval begins with the letters “EX” followed by the year of issuance (e.g. 2012), the month of issuance, (e.g. 07), and the approval number issued that month, where “0001” indicates the first approval of the month. An example of the entire string of numbers appears as follows: “EX2012070001.”
To differentiate between an approval issued by PHMSA and a DOT-approved FCA certification, PHMSA proposes to use an FX numbering scheme. Instead of issuing an EX number and approval through PHMSA for a fireworks device, which is an inherently governmental function that cannot be reassigned, the DOT-approved FCA will issue a unique identifier (FX number) for devices it certifies as Division 1.4G consumer fireworks. The FX number will identify the DOT-approved FCA, the device, and the manufacturer. An example of an FX number would be “FX123–456.” In this example “123” will correspond to the DOT-approved FCA conducting the review and certification. This portion of the numbering sequence will be issued to the FCA by PHMSA. The “456” will represent a unique certification identifier traceable to both the manufacturer of the Division 1.4G consumer firework device and the device itself. This portion of the numbering sequence will be issued by the DOT-approved FCA. Each Division 1.4G consumer firework certified in this manner will be required to be marked and labeled in accordance with subpart D and E of part 172. As with EX numbers, marking the package with the FX number will not be required provided the FX number for each fireworks device is indicated on an accompanying shipping paper. The introduction of the FX numbering scheme will result in some Division 1.4G consumer fireworks being assigned an EX number when approved by PHMSA, and others being assigned an FX number when certified by a DOT-approved FCA.
Given the long history and wide recognition of the EX numbering scheme, PHMSA seeks specific comments on the supply chain implications, the economic impact and safety concerns associated with the proposed FX numbering system, as well as comments on how to implement the changes if they are adopted. For example, will the use of different alpha designators (i.e., EX and FX) pose complications or confusion within the transportation system?
PHMSA also seeks comments regarding alternative methods that may be used to identify Division 1.4G consumer fireworks devices that have been certified by a DOT-approved FCA, including suggestions in the alpha-numeric sequence that will facilitate transport while providing a clear distinction between PHMSA approved devices and devices certified by an FCA as compliant with APA standard 87–1.
PHMSA is proposing specific reporting and recordkeeping requirements to ensure that the DOT-approved FCAs are correctly certifying Division 1.4G consumer fireworks and are in compliance with the HMR and the FCA approval. As a condition of the FCA approval, each DOT-approved FCA will be required to submit to PHMSA electronic reports of the results of all devices submitted for certification on a schedule specified in the approval.
Additionally, for each firework device certified and issued an FX number, the DOT-approved FCA that reviewed the application, the manufacturer, and the importer will be required to maintain the device's thermal stability test report and a copy of the application. Currently, most consumer fireworks manufactured or assembled in the U.S. and those imported into the U.S. are voluntarily tested to ensure that they comply with the Consumer Product Safety Commission (CPSC) requirements. The testing facility, the manufacturers, and the importers utilizing this voluntary process are required to maintain records of these tests for three years.
PHMSA recognizes that under the proposed system manufacturers or their U.S. designated agents may attempt to submit duplicate applications to both a DOT-approved FCA and to PHMSA concurrently. As this new process is designed to promote efficiency while maintaining safety, the submission of duplicate applications under both processes may result in confusion, slower processing, and diminished safety. With this in mind, PHMSA proposes to require a signed certification statement on all applications submitted to either PHMSA or a DOT-approved FCA stating that an application was not submitted to any other entity. PHMSA will be able to verify that duplicative applications are not being submitted by reviewing the certification reports the DOT-approved FCAs will be required to submit to PHMSA. If a manufacturer or its U.S. designated agent submits identical applications to both a DOT-approved FCA and PHMSA, the manufacturer and its U.S. designated agent will be in violation of the HMR and the approval and may be fined under 18 United States Code, or imprisoned for not more than 5 years, or both, except the maximum amount of imprisonment may be 10 years in any case in which the violation involves the release of a hazardous material which results in death or bodily injury to any person (See § 107.333).
PHMSA anticipates that the proposed alternative certification process will reduce the processing time that it takes to evaluate an application. As a result, economic burdens caused by a delay in processing approvals will be reduced. Further, it may also promote innovation and potentially create new jobs, as currently no DOT-approved FCAs exist. Additionally, PHMSA will continue to require that Division 1.4G consumer fireworks comply with all other requirements in the HMR, including the shipping paper, marking, labeling, placarding, and incident reporting requirements to ensure safety is not diminished.
Should the proposed alternative option be adopted in a future rulemaking, PHMSA plans to develop a guidance document addressing standard operating procedures for the certification of Division 1.4G consumer fireworks. The publication of this guidance document will coincide with the final rule publication.
PHMSA seeks general comments on the proposed changes to the fireworks program. PHMSA seeks specific comments on the need for revision of the fireworks program, the economic impact of the proposed changes, safety concerns associated with the proposed changes, as well as comments on how to implement the changes if they are adopted. PHMSA also seeks comments on whether the proposed record retention period of five years is adequate or if the retention period should be expanded to address the longer shelf life of some consumer fireworks. In addition, PHMSA invites all stakeholders and affected entities, including the CPSC, the Bureau of Alcohol, Tobacco, Firearms and Explosives, Customs and Border Patrol, and state and/or local fire and police departments to comment on the proposals.
In an effort to reduce regulatory burden and provide industry more flexibility, we are proposing structural changes to the regulations relating to PHMSA's fireworks program. Specifically, PHMSA proposes to revise the requirements in five sections (§§ 107.402, 107.403, 172.320, 173.56 and 173.59), add two new sections (§§ 173.64 and 173.65), and reserve one section (§ 107.405). The specific revisions and additions to these sections are detailed below by topic.
We propose moving the current requirements of § 173.56(j) to a standalone new § 173.64 entitled “Exceptions for Division 1.3 and 1.4 Fireworks.” In addition, we propose the addition of a new § 173.65 entitled “Exceptions for Division 1.4G Consumer Fireworks” that will detail the alternative certification process for Division 1.4G consumer fireworks. To correspond to the changes proposed in this NPRM, we will revise the entry “UN0336 Fireworks” in § 172.101 Hazardous Materials Table. Further, a definition for “consumer firework” will be added to § 173.59. No modifications are proposed for §§ 173.56(f) and 173.56(i).
The hazard communication requirements for Division 1.4G consumer fireworks will be specified in paragraph (c) of the new § 173.65 and the revised § 172.320. Specifically, § 172.320 will be revised to reflect the addition of FX numbers.
The process for applying for an approval to operate as a DOT-approved FCA will be found in the proposed revised § 107.402 entitled “Application for designation as a certification agency.” General application requirements for designation as a certification agency will be moved to § 107.402(b). No new general application requirements are being proposed in this NPRM. Application requirements specific to Packing and Lighter Certification Agencies will be moved to § 107.402(c). No new application requirements specific to Packing and Lighter Certification Agencies are being proposed in this NPRM. Application requirements to become a DOT-approved FCA will be found in the proposed § 107.402(d).
To clarify and provide consistency in the procedural process for designation as a certification agency, the subpart E heading will be entitled “Designation of Certification Agencies.” The words “as an approval or” will be removed from § 107.402. The word “approval” will be replaced with “certification” in the § 107.403 heading.
Reconsideration for a denial of designation as a fireworks certification agency will be found in § 107.403(c), which will be revised to provide that the procedural requirements of subpart H of this part apply to the process for reconsideration of denials of designations. A new subparagraph (d) will be added to § 107.403 to provide that the procedural requirements of subpart H of this part will also apply to the process for modification, suspension, and termination of designations. Section 107.405 will be deleted and reserved.
An overview of the proposed process to be recognized by PHMSA as a DOT-approved FCA is detailed in Figure 1 below.
The procedures for a manufacturer of Division 1.4G consumer fireworks or its U.S. designated agent to submit an application for certification to a DOT-approved FCA will be specified in the new § 173.65(a). These requirements parallel those currently in § 173.56(j); however, they address certification by a DOT-approved FCA, as opposed to PHMSA approval, and describe that fireworks utilizing this review process will be issued an FX number, in lieu of an EX number. The current approval process will continue to be available; however, manufacturers and their U.S. designated agents may voluntarily use the FCA process as an alternative.
Diagrams of the current (Figure 2) and proposed (Figure 3) consumer fireworks application processes are shown below.
DOT-approved FCA reporting requirements on certification activities will be found in § 107.402(d)(8). Recordkeeping requirements requiring the manufacturer, importer, and fireworks certification agency to maintain a record or an electronic image of the record demonstrating compliance with § 173.65 will be found in § 173.65(b).
This notice of proposed rulemaking (NPRM) is published under the authority of the Federal Hazardous Materials Transportation Law, 49 U.S.C. 5101
This NPRM is not considered a significant regulatory action under section 3(f) Executive Order 12866 and, therefore, was not reviewed by the Office of Management and Budget (OMB). The proposed rule is not considered a significant rule under the Regulatory Policies and Procedures order issued by the U.S. Department of Transportation (44 FR 11034).
Executive Order 13563 is supplemental to and reaffirms the principles, structures, and definitions governing regulatory review that were established in Executive Order 12866 Regulatory Planning and Review of September 30, 1993. Executive Order 13563, issued January 18, 2011, notes that our nation's current regulatory system must not only protect public health, welfare, safety, and our environment but also promote economic growth, innovation, competitiveness, and job creation.
Executive Order 13610, issued May 10, 2012, urges agencies to conduct retrospective analyses of existing rules to examine whether they remain justified and whether they should be modified or streamlined in light of changed circumstances, including the rise of new technologies.
By building off of each other, these three Executive Orders require agencies to regulate in the “most cost-effective manner,” to make a “reasoned determination that the benefits of the intended regulation justify its costs,” and to develop regulations that “impose the least burden on society.”
PHMSA has evaluated our fireworks approval program for effectiveness and identified areas that could be modified to enhance the program and increase flexibility for the regulated community. In this NPRM, the proposed amendments to the HMR will not impose increased compliance costs on the regulated industry. By proposing to amend the HMR to allow for an alternative to the approval process for Division 1.4G consumer firework devices, PHMSA will reduce regulatory burden and increase flexibility to industry, while maintaining an equivalent level of safety.
A summary of the regulatory evaluation used to support the proposals presented in this NPRM are discussed below.
For the regulatory evaluation of this NPRM, PHMSA assumes:
• Between 50 and 90 percent of applicants will choose to file a Division 1.4G consumer fireworks application with a DOT-approved FCA instead of filing an application with PHMSA.
• Domestic manufacturers and importers of Division 1.4G fireworks that participate in the voluntary CPSC Domestic Testing Program will choose certification by a DOT-approved FCA.
• The existing DOT-approved explosive test laboratories will likely apply for approval as a DOT-approved FCA.
• A 10-year timeframe to outline, quantify, and monetize the costs and benefits of the proposal and to demonstrate the net effects of the proposal
PHMSA's current fireworks approval process has proven effective in achieving a high level of transportation safety. This high level of transportation safety is demonstrated by the fact that no transportation incidents resulting in death or serious injury have been attributed to the transport of consumer fireworks in the past 40 years. While continuing to maintain this high level of safety, we expect the implementation of the proposals in this NPRM will result in the benefits outweighing the costs.
We anticipate the primary costs will be (1) costs attributed to the proposed five year recordkeeping requirement; and (2) potential fees assessed by the DOT-approved FCAs for certification services. The recordkeeping costs will apply to DOT-approved FCAs, manufactures that choose certification by a DOT-approved FCA, and importers of fireworks certified by a DOT-approved FCA. The proposed recordkeeping requirement is similar to the requirement that requires participants in the voluntary CPSC Domestic Testing Program keep a certification of compliance with CPSC standards for three years. This documentation contains much of the same information PHMSA proposes to require. Assuming the domestic manufacturers and importers of Division 1.4G consumer fireworks that participate in the voluntary CPSC Domestic Testing Program will choose certification by a DOT-approved FCA, we anticipate the recordkeeping costs will be minimal. While the proposed recordkeeping requirement is similar to CPSC's recordkeeping requirement, PHMSA acknowledges that the retention requirement being two years longer than CPSC's requirement may impose some cost. Also, there may be recordkeeping costs for those who do not participate in the voluntary CPSC Domestic Testing Program.
PHMSA assumes that a DOT-approved FCA will likely assess an explicit cost for its certification services and fireworks manufacturers will individually consider their business' potential to benefit from expedited processing against the expected costs of this certification fee. PHMSA anticipates the benefits of certification derived from the expedited processing of consumer fireworks applications,
Total annual benefits derived from this NPRM are expected to be approximately between $14.5 and 26.5 million, and total annual costs are expected to be approximately between $4 and $7 million with total annual net benefits of approximately between $11 and $19 million. Based on this net positive value, we conclude that adopting the proposed requirements will result in an increase in overall societal welfare.
The 10-year present value of the net benefits is approximately $80 million to $143 million (discounted at a 3 percent rate) or $55 million to $98 million (discounted at a 7 percent rate). We expect adopting this proposal will make regulation of hazardous materials more efficient, provide regulatory relief to industry, and have no negative effect on the safe transportation of hazardous materials in the United States. A summary of the annual costs and benefits and calculated annual net benefits is displayed in the table below.
This proposed rule
The Federal hazardous materials transportation law, 49 U.S.C. 5101–5128, contains an express preemption provision (49 U.S.C. 5125 (b)) that preempts State, local, and Indian tribe requirements on the following subjects:
(1) The designation, description, and classification of hazardous materials;
(2) The packing, repacking, handling, labeling, marking, and placarding of hazardous materials;
(3) The preparation, execution, and use of shipping documents related to hazardous materials and requirements related to the number, contents, and placement of those documents;
(4) The written notification, recording, and reporting of the unintentional release in transportation of hazardous material; and
(5) The design, manufacture, fabrication, marking, maintenance, recondition, repair, or testing of a packaging or container represented, marked, certified, or sold as qualified for use in transporting hazardous material.
This proposed rule addresses all the covered subject areas above. If adopted as final, this rule will preempt any State, local, or Indian tribe requirements concerning these subjects unless the non-Federal requirements are “substantively the same” as the Federal requirements. Furthermore, this proposed rule is necessary to update, clarify, and provide relief from regulatory requirements.
Federal hazardous materials transportation law provides at § 5125(b)(2) that, if DOT issues a regulation concerning any of the covered subjects, DOT must determine and publish in the
This NPRM has been analyzed in accordance with the principles and criteria contained in Executive Order 13175 (“Consultation and Coordination with Indian Tribal Governments”). Because this NPRM does not significantly or uniquely affect the communities of the Indian tribal governments and does not impose substantial direct compliance costs, the funding and consultation requirements of Executive Order 13175 do not apply.
The Regulatory Flexibility Act (5 U.S.C. 601
The proposed rule provides an additional, voluntary option for manufacturers to apply to a DOT-approved FCA for certification of Division 1.4 consumer fireworks, in lieu of submitting an application to PHMSA for approval. The expected costs associated with this rulemaking relate to recordkeeping since copies of documentation will have to be retained for two additional years over current practice (for U.S. importers and fireworks manufacturers who elect to examine and certify new devices with an FCA instead of seeking an approval from PHMSA). Fireworks manufacturers may pay fees assessed by FCAs for certification services. PHMSA assumes that most will see the benefits of FCA certification as justifying the fees involved. However, the costs are voluntary costs.
Benefits of the proposed certification option will be derived from the expedited processing of consumer fireworks applications, resulting in faster time to market for each firework device. Benefits may be realized from the reduction in PHMSA's approvals application workload, which allows for administrative cost savings and more resources for PHMSA Approvals and Permits staff. These resources may allow for additional scrutiny to higher risk hazardous materials approvals applications. Total annual benefits are expected to be between approximately $14.5 million and $26.5 million, and total annual costs are expected to be approximately between $4 and $7 million, resulting in total annual net benefits of between approximately $11 million and $19 million.
Overall, by proposing increased regulatory flexibility, this proposed rule should reduce the compliance burden on the regulated industry, including small entities, without compromising transportation safety. Therefore, we certify that this proposed rulemaking will not have a significant or negative economic impact on a substantial number of small entities. Further information on the estimates and assumptions used to evaluate the potential impacts to small entities is available in the Regulatory Impact Assessment that has been placed in the public docket for this rulemaking. In this notice, PHMSA is soliciting comments on the number of affected entities and the preliminary conclusion that the proposals in this NPRM will not cause a significant economic impact on a substantial number of small entities.
This notice has been developed in accordance with Executive Order 13272 (“Proper Consideration of Small Entities in Agency Rulemaking”) and DOT's procedures and policies to promote compliance with the Regulatory Flexibility Act to ensure that potential impacts of draft rules on small entities are properly considered.
PHMSA currently has an approved information collection under OMB Control Number 2137–0557, entitled “Approvals for Hazardous Materials,” with an expiration date of May 31, 2014. While this NPRM may result in a slight increase in the annual burden and cost to OMB Control Number 2137–0557 for proposed minor record-keeping requirements under §§ 173.64 and 173.65, this NPRM should result in a decrease in the burden on the fireworks industry by increasing regulatory flexibility, which will provide manufacturers of Division 1.4 consumer fireworks with an alternative that should be more efficient than the current approval process.
Under the Paperwork Reduction Act of 1995, no person is required to respond to an information collection unless it has been approved by OMB and displays a valid OMB control number. Section 1320.8(d), title 5, Code of Federal Regulations requires that PHMSA provide interested members of the public and affected agencies an opportunity to comment on information and recordkeeping requests.
This notice identifies revised information collection requests that PHMSA will submit to OMB for approval based on the requirements in this proposed rule. PHMSA has developed burden estimates to reflect changes in this proposed rule and estimates that the information collection and recordkeeping burdens will be revised as follows:
PHMSA specifically requests comments on the information collection and recordkeeping burdens associated with developing, implementing, and maintaining these requirements for approval under this proposed rule.
Requests for a copy of this information collection should be directed to Steven Andrews or T. Glenn Foster, Office of Hazardous Materials Standards (PHH–12), Pipeline and Hazardous Materials Safety Administration, 1200 New Jersey Avenue SE., Washington, DC 20590–0001, Telephone (202) 366–8553.
Address written comments to the Dockets Unit as identified in the
A regulation identifier number (RIN) is assigned to each regulatory action listed in the Unified Agenda of Federal Regulations. The Regulatory Information Service Center publishes the Unified Agenda in April and October of each year. The RIN contained in the heading of this document can be used to cross-reference this action with the Unified Agenda.
This proposed rule does not impose unfunded mandates under the Unfunded Mandates Reform Act of 1995. It does not result in costs of $141.3 million or more to either state, local or tribal governments, in the aggregate, or to the private sector, and is the least burdensome alternative that achieves the objective of the rule.
The National Environmental Policy Act of 1969 (NEPA), as amended (42 U.S.C. 4321–4347), and implementing regulations by the Council on Environmental Quality (40 CFR part 1500) require Federal agencies to consider the consequences of Federal actions and prepare a detailed statement on actions that significantly affect the quality of the human environment.
The purpose of this rulemaking is to allow for an alternative to the approval process for Division 1.4G consumer fireworks. The alternatives considered in the environmental analysis include: (1) the proposed action, that is, permitting an alternative process for Division 1.4G consumer fireworks to be certified by a DOT-approved FCA; and (2) the “no action” alternative, meaning that the regulatory scheme will stay the same and the proposed new alternative will not be implemented. PHMSA believes that both alternatives present little or no environmental impact on the quality of the human environment because both alternatives deal with the processing of applications. Furthermore, the proposed amendments only affect the authorization process that deems Division 1.4G consumer fireworks safe for transport and has no impact on any other transport requirements (e.g. packaging, hazard communication, etc.). The proposed action would provide an additional application process that would not impact the exemplary safety record that Division 1.4G consumer fireworks have demonstrated over the past forty years. Therefore, PHMSA has initially determined that the implementation of the proposed rule will not have any significant impact on the quality of the human environment. PHMSA, however, invites comments about environmental impacts that the proposed rule might pose.
Anyone is able to search the electronic form of all comments received into any of our dockets by the name of the individual submitting the comment (or signing the comment, if submitted on behalf of an association, business, labor union, etc.). You may review DOT's complete Privacy Act Statement in the
Under E.O. 13609, agencies must consider whether the impacts associated with significant variations between domestic and international regulatory approaches are unnecessary or may impair the ability of American business to export and compete internationally. In meeting shared challenges involving health, safety, labor, security, environmental, and other issues, international regulatory cooperation can identify approaches that are at least as protective as those that are or will be adopted in the absence of such cooperation. International regulatory cooperation can also reduce, eliminate, or prevent unnecessary differences in regulatory requirements.
Similarly, the Trade Agreements Act of 1979 (Pub. L. 96–39), as amended by the Uruguay Round Agreements Act (Pub. L. 103–465), prohibits Federal agencies from establishing any standards or engaging in related activities that create unnecessary obstacles to the foreign commerce of the United States. For purposes of these requirements, Federal agencies may participate in the establishment of international standards, so long as the standards have a legitimate domestic objective, such as providing for safety, and do not operate to exclude imports that meet this objective. The statute also requires consideration of international standards and, where appropriate, that they be the basis for U.S. standards.
PHMSA participates in the establishment of international standards in order to protect the safety of the American public. We have assessed the effects of the proposed rule, and find that because the proposed alternative process mirrors the current approval process, it will not cause unnecessary obstacles to foreign trade. Accordingly, this rulemaking is consistent with Executive Order 13609 and PHMSA's obligations under the Trade Agreement Act, as amended.
The National Technology Transfer and Advancement Act of 1995 (15 U.S.C. 272 note) directs federal agencies to use voluntary consensus standards in their regulatory activities unless doing so would be inconsistent with applicable law or otherwise impractical. Voluntary consensus standards are technical standards (e.g. specification of materials, test methods, or performance requirements) that are developed or adopted by voluntary consensus standard bodies.
This proposed rulemaking involves one technical standard: American Pyrotechnics Association (APA), APA Standard 87–1 Standard for Construction and Approval for Transportation of Fireworks, Novelties, and Theatrical Pyrotechnics, December 1, 2001 version. This technical standard is listed in 49 CFR 171.7.
Administrative practice and procedure, Hazardous materials transportation, Penalties, Reporting and recordkeeping requirements.
Education, Hazardous materials transportation, Hazardous waste, Labeling, Markings, Packaging and containers, Reporting and recordkeeping requirements.
Hazardous materials transportation, Packaging and containers, Radioactive materials, Reporting and recordkeeping requirements, Uranium.
In consideration of the foregoing, 49 CFR chapter I is proposed to be amended as follows:
1. The authority citation for part 107 continues to read as follows:
49 U.S.C. 5101–5128, 44701; Pub. L. 101–410 section 4 (28 U.S.C. 2461 note), Pub. L. 104–121 sections 212–213; Pub. L. 104–134 section 31001; 49 CFR 1.45 and 1.53.
2. In Part 107, revise subpart E to read as follows:
(a) Any person seeking designation as a certification agency must apply in writing to the Associate Administrator for Hazardous Materials Safety (PHH–32), Department of Transportation, East Building, 1200 New Jersey Avenue SE., Washington, DC 20590–0001. Alternatively, the application with any attached supporting documentation in an appropriate format may be submitted by facsimile (fax) to: (202) 366–3753 or (202) 366–3308 or by electronic mail (email) to:
(b) Each application for designation as a certification agency must be in English and include the following information:
(1) Name and address of the applicant, including place of incorporation if a corporation. In addition, if the applicant is not a resident of the United States, the name and address of a permanent resident of the United States designated in accordance with § 105.40 to serve as agent for service of process.
(2) A statement that the applicant will allow the Associate Administrator or a designated official to inspect its records and facilities in so far as they relate to the certification activities and will cooperate in the conduct of such inspections.
(3) Any additional information relevant to the applicant's qualifications, if requested by the Associate Administrator.
(4) Information required by the provisions in subpart H of this part.
(c) Packaging and Lighter Certification Agencies. In addition to the requirements in (b), the application must include the following information:
(1) A listing, by DOT specification (or special permit) number, or U.N. designation, of the types of packagings for which certification authority is sought.
(2) A personnel qualifications plan listing the qualifications that the applicant will require of each person to be used in the performance of each packaging certification function. As a minimum, these qualifications must include:
(i) The ability to review and evaluate design drawings, design and stress calculations;
(ii) A knowledge of the applicable regulations of subchapter C of this chapter and, when applicable, U.N. standards; and
(iii) The ability to conduct or monitor and evaluate test procedures and results; and
(iv) The ability to review and evaluate the qualifications of materials and fabrication procedures.
(3) A statement that the applicant will perform its functions independent of the manufacturers and owners of the packagings concerned.
(4) If the applicant's principal place of business is in a country other than the United States, a copy of the designation from the Competent Authority of that country delegating to the applicant an approval or designated agency authority for the type of packaging for which a DOT designation is sought, and a statement that the Competent Authority also delegates similar authority to U.S. Citizens or organizations having designations under this subpart from PHMSA.
(d) Fireworks Certification Agency. Prior to reviewing, and certifying Division 1.4G consumer fireworks for compliance with APA Standard 87–1 as specified in part 173 of this chapter, a person must apply to, and be approved by, the Associate Administrator to act as a firework certification agency. A person approved as a firework certification agency is not a PHMSA agent or representative. In addition to (b), the application must include the following information:
(1) Name, address, and country of each facility where Division 1.4G consumer fireworks test results and application materials are reviewed and certified;
(2) Detailed description of the applicant's qualifications and ability to inspect, review, and certify that the requirements specified by part 173 of this chapter have been meet. At a minimum, these qualifications must include ability to:
(i) Review and evaluate design drawings, fabrication procedures, and applications to certify that they are in accordance with the APA Standard 87–1; and
(ii) Evaluate thermal stability test procedures and results.
(3) Detailed description of the operating procedures to be used by the firework certification agency to review, and certify that a Division 1.4G consumer fireworks application meets the requirements specified by part 173 of this chapter;
(4) Name, address, and principal business activity of each person having any direct or indirect ownership interest in the applicant greater than three percent and any direct or indirect ownership interest in each subsidiary or division of the applicant;
(5) Name and a statement of qualifications of each individual the applicant proposes to employ to inspect, review, and certify test results and certify that application materials comply with APA Standard 87–1;
(6) A statement that the applicant will perform its functions independent of the manufacturers, transporters, importers, and owners of the fireworks; and
(7) A signed certification declaring that the information provided in the approval application is true and correct and the application has not been submitted to any other entity, and the date on which this certification was signed.
(8) If approved, the results of fireworks certification evaluation must be submitted to PHMSA on a schedule and in a manner specified in the DOT-issued designation approval.
(c) Within 30 days of an initial denial of an application under paragraph (b) of this section, the application may file an amended application. If the application for designation is denied, the applicant may file for reconsideration in accordance with the provisions in subpart H of this part.
(d) The provisions in subpart H will apply to the modification, suspension, and termination of an approval submitted under this subpart.
3. The authority citation for part 172 continues to read as follows:
49 U.S.C. 5101–5128, 44701; 49 CFR 1.53.
4. In § 172.101, the Hazardous Materials Table is amended by revising entries under “[REVISE]” in the appropriate alphabetical sequence to read as follows:
5. In § 172.320, paragraph (b) and paragraph (d) are revised to read as follows:
(b) Except for fireworks approved in accordance with § 173.64 of this subchapter, a package of Class 1 materials may be marked as follows, in lieu of the EX number required by paragraph (a) of this section:
(1) With a national stock number issued by the Department of Defense or identifying information, such as a product code required by regulations for commercial explosives specified in 27 CFR part 555, if the national stock number or identifying information can be specifically associated with the EX number assigned; or
(2) For Division 1.4G consumer fireworks, with a FX number issued by a fireworks certification agency approved in accordance with 49 CFR part 107 subpart E and classified in accordance with § 173.65.
(d) The requirements of this section do not apply if the EX number, FX number, product code or national stock number of each explosive item described under a proper shipping description is shown in association with the shipping description required by § 172.202(a) of this part. Product codes and national stock numbers must be traceable to the specific EX number assigned by the Associate Administrator or FX number assigned by a DOT approved fireworks certification agency.
6. The authority citation for part 173 continues to read as follows:
49 U.S.C. 5101–5128, 44701; 49 CFR 1.45, 1.53.
7. In § 173.56, the introductory text for paragraph (b) is revised to read as follows, and paragraph (j) is removed and reserved.
(b) Examination, classification and approval. Except as provided in §§ 173.64 and 173.65 of this subpart, no person may offer a new explosive for transportation unless that person has specified to the examining agency the ranges of composition of ingredients and compounds, showing the intended manufacturing tolerances in the composition of substances or design of articles which will be allowed in that material or device, and unless it has been examined, classed and approved as follows:
(j)
8. In § 173.59, add new definition for “consumer firework” in appropriate alphabetical sequence to read as follows:
9. Add new section § 173.64 to read as follows:
(a) Notwithstanding the requirements of § 173.56(b), Division 1.3 and 1.4 fireworks (see § 173.65 for Division 1.4G consumer fireworks) may be classed and approved by the Associate Administrator without prior examination and offered for transportation if the following conditions are met:
(1) The fireworks are manufactured in accordance with the applicable requirements in APA Standard 87–1 (IBR, see § 171.7 of this subchapter);
(2) The device must pass a thermal stability test conducted by a third-party laboratory, or the manufacturer. The test must be performed by maintaining the device, or a representative prototype of a large device such as a display shell, at a temperature of 75 °C (167 °F) for 48 consecutive hours. When a device contains more than one component, those components that could be in physical contact with each other in the finished device must be placed in contact with each other during the thermal stability test;
(3) The manufacturer applies in writing to the Associate Administrator following the applicable requirements in APA Standard 87–1, and is notified in writing by the Associate
10. Add new section § 173.65 to read as follows.
(a) Notwithstanding the requirements of paragraphs §§ 173.56(b), 173.56(f), 173.56(i), and 173.64, Division 1.4G consumer fireworks may be offered for transportation provided the following conditions are met:
(1) The fireworks are manufactured in accordance with the applicable requirements in APA Standard 87–1 (IBR, see § 171.7 of this subchapter);
(2) The device must pass a thermal stability test. The test must be performed by maintaining the device, or a representative prototype of the device at a temperature of 75 °C (167 °F) for 48 consecutive hours. When a device contains more than one component, those components that could be in physical contact with each other in the finished device must be placed in contact with each other during the thermal stability test;
(3) The manufacturer of the Division 1.4G consumer firework applies in writing to a DOT-approved fireworks certification agency, and is notified in writing by the fireworks certification agency that the firework has been:
(i) Evaluated, and examined, as required, for a Division 1.4G consumer firework;
(ii) Certified that it complies with APA Standard 87–1, and meets the requirements of this section; and
(iii) Assigned an FX number followed by a corresponding certification report identifier (e.g., FX–XXX–YYY, where XXX represents the firework certification agency and YYY represents the certification report identifier that is traceable to the specific manufacturer and firework device transported).
(4) The manufacturer's application must be complete and include relevant background data, copies of all applicable drawings, test results, and any other pertinent information on each device for which certification is being requested. The manufacturer must sign the application and certify that the device for which certification is requested conforms to APA Standard 87–1, that the descriptions and technical information contained in the application are complete and accurate, and that no duplicate applications have been submitted to PHMSA. If the application is denied, the DOT-approved fireworks certification agency must notify the manufacturer in writing of the reasons for the denial. Following the issuance of a denial from a DOT-approved fireworks certification agency, a manufacturer may submit the denial and original application to PHMSA for reconsideration in accordance with subpart H.
(b)
(1) The FX number of the entity that certified that the firework device complies with APA Standard 87–1, including a certification report identifier that is traceable to the manufacturer and specific firework device transported;
(2) A copy of the approval application submitted to the DOT-approved fireworks certification agency; and
(3) A copy of any certification documentation completed by the fireworks certification agency in accordance with the DOT-approved procedures.
(c)
Fish and Wildlife Service, Interior.
Notice of 12-month petition finding.
We, the U.S. Fish and Wildlife Service (Service), announce a 12-month finding on a petition to list the Platte River caddisfly (
The finding announced in this document was made on August 30, 2012.
This finding is available on the Internet at
Michael D. George, Field Supervisor, Nebraska Field Office (see
Section 4(b)(3)(B) of the Endangered Species Act of 1973, as amended (Act) (16 U.S.C. 1531
On July 30, 2007, we received a petition dated July 24, 2007, from Forest Guardians (now WildEarth Guardians), requesting that 206 species in the Mountain-Prairie Region, including the Platte River caddisfly, be listed as an endangered or threatened species under the Act, and critical habitat be designated. Included in the petition were analyses, references, and documentation provided by NatureServe in its online database at
We published a partial 90-day finding for 38 of the petition's 206 species in the
The Platte River caddisfly (
Like several caddisfly species, Platte River caddisfly larvae construct a case around the abdomen (Mackay and Wiggins 1979, p. 186). All caddisflies produce silk from modified salivary glands, and case-making caddisfly larvae use this silk to fuse together organic or mineral material from the surrounding environment (Mackay and Wiggins 1979, pp. 185–186; Holzenthal
Platte River caddisfly larvae have a light brown head and thorax and a yellowish to whitish abdomen (Vivian 2010, pers. obs.), much like the larvae of
The Platte River caddisfly was formally described as a new species in the order Trichoptera (caddisflies) in 2000 by Alexander and Whiles (2000, p. 2). The Platte River caddisfly is in the family Limnephilidae, or the northern caddisflies, subfamily Dicosmoceniae, and genus
The caddisfly family Limnephilidae is considered to be the most ecologically diverse family of Trichoptera (Holzenthal
The
The Platte River caddisfly is thought to be most closely related to
The Platte River caddisfly was discovered in 1997, in a warm-water slough (backwater area or marsh that is groundwater fed) in south-central Nebraska along the Platte River on Mormon Island (hereafter type locality), which is land owned by the Platte River Whooping Crane Maintenance Trust (hereafter Crane Trust (a conservation organization)) southwest of Grand Island, Nebraska (Whiles
Intermittent wetlands, such as the type locality, have been described as any water body that holds water for about 8 to 10 months during the year (Wiggins
Since the Platte River caddisfly was discovered, surveys have mostly found the caddisfly in sloughs with intermittent hydroperiods; however, the caddisfly has also been found in sloughs with permanent hydroperiods (Goldowitz 2004, p. 5; Meyer and Whiles 2008, p. 632; Vivian 2010, p. 54; Geluso
In general, the intermittent wetlands where the caddisfly occurs are found along the floodplains of the Platte, Loup, and Elkhorn Rivers in central Nebraska (LaGrange 2004, p. 15) and are shallow, linear depressions that are historical channel remnants of these river systems (Friesen
Sloughs with the Platte River caddisfly are typically described as lentic (with little to no flow) (Whiles
Because it is an inhabitant of intermittent waters, the Platte River caddisfly is tolerant of large fluctuations in water chemistry (Williams 1996, p. 634; Whiles
Vegetation in sloughs occupied by the caddisfly is typical wetland flora, such as
The Platte River caddisfly lifecycle was characterized by Whiles
While in its aquatic stage, the Platte River caddisfly is considered a shredder and largely feeds upon senescent (aged) plant tissue (Whiles
The Platte River caddisfly likely has a lifecycle adapted to the intermittent wetlands found along the Platte, Loup, and Elkhorn River systems (Whiles
While most caddisflies have an entirely aquatic larval phase, all
Data collection on the range of the Platte River caddisfly began in 1999, shortly after it was discovered, and continued in 2004 (Goldowitz 2004, p. 3). Surveys were conducted at 48 locations along the Platte and Loup Rivers, and the Platte River caddisfly was found at 9 of these sites (Goldowitz 2004, p. 5). These populations occupied an approximately 100-km (60-mi) stretch of the central Platte River that extends from south of Gibbon, Nebraska (Kearney County), to Central City, Nebraska (Merrick County). Surveys for the caddisfly on the Loup River were negative (Goldowitz 2004, p. 9). Monitoring efforts in 2004 did not find the caddisfly at the type locality, despite a consistent adult emergence pattern in the preceding 7 years and the species' prior abundance at that site (Goldowitz 2004, p. 8). Because of its apparent rarity, the caddisfly was designated a Tier 1 species in Nebraska as per the State's natural legacy plan (Schneider
Through 2004, the Platte River caddisfly was only known from the Platte River (Goldowitz 2004, p. 9). However, surveys for new Platte River caddisfly populations resulted in the discovery of the species on the Loup and Elkhorn Rivers in Nebraska in 2009 and 2010 (Vivian 2010, p. 50). Close visual examination of adults and larvae at sites on the Loup and Elkhorn Rivers demonstrated that the species was not
The Platte River is formed at the confluence of the North Platte and South Platte Rivers in west-central Nebraska, just east of North Platte, and generally flows east until it meets the Missouri River along the eastern edge of Nebraska (Williams 1978, pp. 1–2). The North Platte River originates in the Rocky Mountains of Colorado, flows north through central Wyoming and then southeast into Nebraska (Williams 1978, p. 1); the South Platte River originates in Colorado and flows northeast until it meets the Platte River at North Platte, Nebraska (Simons and Associates 2000, p. 2). Platte River flows are largely dependent upon snowmelt from the Rocky Mountains and local precipitation events (Simons and Associates 2000, pp. 2–5).
The Loup and Elkhorn Rivers are tributaries of the Platte River system. The Loup River contains several tributaries, including the North Loup, Middle Loup, South Loup, and Cedar Rivers in Nebraska. The Loup River is
In Nebraska, there is a gradient of precipitation from west to east. Just east of the Rocky Mountains in central Nebraska there is a predominant rain shadow effect that results in low amounts of precipitation in western Nebraska. Precipitation generally increases as one travels east towards Nebraska's eastern border (Simon and Associates 2000, p. 2).
Surveys for the Platte River caddisfly between 2009 and 2011 identified 35 caddisfly populations out of 115 sites visited, including 5 of the 9 sites identified by Goldowitz (2004, entire) (Vivian 2010, p. 46; Geluso
From recent survey efforts, one site near Shelton, Nebraska, is presumed extirpated (Riens and Hoback 2008, p. 1; Vivian 2010, p. 48). Also, the Platte River caddisfly was observed at the type locality in 2010 (Geluso
Aside from the Cedar River, it appears that more surveys for the Platte River caddisfly could result in the discovery of additional populations on other river drainages in Nebraska, including the Niobrara and Republican Rivers. More survey work on the Platte, Loup, and Elkhorn drainages would likely result in the discovery of new populations on these systems as well. Between 2009
At the type locality, the Platte River caddisfly was considered an abundant component of the slough ecosystem. In 1997–1998, an average of 805 ± 194 larvae per square meter (m
In May of 2009 and 2010, aquatic larval densities were measured at 18 sites with a Platte River caddisfly population on the Platte River only, and larval densities ranged from zero to 125.7 individuals per m
The aquatic and terrestrial larval densities reported by Vivian (2010, pp. 40–41) are not directly comparable to Whiles
Although population densities have been reported for over half of all known Platte River caddisfly populations, there is a lack of general information on population trends for this species, with the exception of a few sites, including the type locality, Wild Rose Slough, one site near Shelton, Nebraska, and one site near Chapman, Nebraska, where restoration work conducted by the Service in 2007 resulted in a population decline at that site. Sites with lower population densities may always remain naturally low. Therefore, with the information available and the increase in the number of known populations, it is difficult to discern if the number of Platte River caddisfly individuals and populations is remaining steady, increasing, or decreasing.
Section 4 of the Act (16 U.S.C. section 1533) and implementing regulations (50 CFR part 424) set forth procedures for adding species to, removing species from, or reclassifying species on the Federal Lists of Endangered and Threatened Wildlife and Plants. Under section 4(a)(1) of the Act, a species may be determined to be an endangered or threatened species based on any of the following five factors:
(A) The present or threatened destruction, modification, or curtailment of its habitat or range;
(B) Overutilization for commercial, recreational, scientific, or educational purposes;
(C) Disease or predation;
(D) The inadequacy of existing regulatory mechanisms; or
(E) Other natural or manmade factors affecting its continued existence.
In making this finding, information pertaining to the Platte River caddisfly in relation to the five factors provided in section 4(a)(1) of the Act is discussed below. In considering what factors might constitute threats to a species, we must look beyond the exposure of the species to a particular factor to evaluate whether the species may respond to that factor in a way that causes actual impacts to the species. If there is exposure to a factor and the species responds negatively, the factor may be a threat and, during the status review, we attempt to determine how significant a threat it is. The threat is significant if it drives, or contributes to, the risk of extinction of the species such that the species warrants listing as endangered or threatened as those terms are defined in the Act. However, the identification of factors that could impact a species negatively may not be sufficient to compel a finding that the species warrants listing. The information must include evidence sufficient to suggest that these factors are operative threats that act on the species to the point that the species may meet the definition of an endangered or threatened species under the Act.
Reductions in groundwater levels or river flows as a result of water development can adversely impact aquatic habitats and their associated macroinvertebrate communities. Existing and future water development along the Platte, Loup, and Elkhorn Rivers could adversely impact the Platte River caddisfly and its habitat. Adverse impacts could occur through the loss of water during critical life stages or changes in hydrology that result in intermittent wetlands becoming too ephemeral to support the Platte River caddisfly. We examine this topic in detail below.
Hydroperiod can be an important factor in determining the composition of macroinvertebrate communities in wetlands. For instance, Whiles and Goldowitz (2005, p. 466) found that slough hydroperiod influenced macroinvertebrate taxa diversity and abundance, with more taxa present in intermittent sloughs than in sloughs with more ephemeral or permanent hydroperiods. Sloughs with intermittent hydroperiods typically have fewer predators than permanent wetlands and can offer safe refugia for various taxa if they can withstand habitat drying (Williams 1996, p. 634; Wissinger
The type locality from which the Platte River caddisfly was described had an intermittent hydroperiod (Whiles
The caddisfly occurs in higher densities in intermittent sloughs than in sloughs with permanent hydroperiods. For instance, the type locality and Wild Rose Slough have intermittent hydroperiods (Vivian 2010, pers. obs.) and have supported or currently support the largest known larval densities of the Platte River caddisfly (Whiles
Overall, landscape-level changes in hydrology that result from reservoir construction, river channel diversions, and groundwater withdrawal for irrigation could adversely impact the Platte River caddisfly and its habitat through the loss of water during critical life stages or degradation of its habitat. Since European settlement in the 1850s, the Platte, Loup, and Elkhorn Rivers have all experienced some degree of water development for various purposes; the Platte River has experienced the largest amount of modification of these systems. Starting in the mid-1800s, the tributaries of the Platte River were gradually developed to deliver water for irrigation via main and lateral canals, and eventually larger water storage projects along the main channels of the river were constructed (Eschner
Several hundred storage reservoirs and six principal dams are present in the Platte River Basin, and together they impound more than 7.6 million acre-feet of water for irrigation (Simons and Associates 2000, p. 8). Each reservoir project contains several miles of associated canals (Simons and Associates 2000, p. 13). Because of dams and diversions along the Platte Basin, over 70 percent of the Platte River flow is estimated to be diverted before it reaches Lexington, Nebraska (Currier
The Loup River has also been impacted by water development projects. The Loup Basin includes the North, Middle, and South Loup Rivers, and within the basin there are four mainstem diversion dams (U.S. Bureau of Reclamation (USBR) 2011, entire). The largest diversion dam, the Loup Diversion Dam, diverts around 69 percent of the Loup River flow away from the main channel for a distance of 35 miles in Nance and Platte Counties in Nebraska (Loup Power District and HDR Engineering 2008, p. 4–39). Each diversion dam has several miles of associated lateral canals to divert water to irrigated farmland (USBR 2011, entire). Also, three impoundments are present along tributaries of the Loup River Basin (Loup Power District and HDR Engineering 2008, pp. 3–5), but the system lacks mainstem dams. The Elkhorn River is generally free of impoundments and diversions (LaGrange 2004, p. 21; Peterson
Dams and diversion projects are known to result in changes in hydrological, geophysical, and ecological characteristics of river systems (Simons and Associates 2000, p. 15; Schramm
As a result of reduced flow through the Platte River system, the main channel of the Platte River narrowed by about 65 to 80 percent between the mid-19th century and 1969 (Williams 1978, p. 8; Eschner
Historically, channel narrowing on the Platte and Loup River systems resulting from water development likely resulted in direct losses of suitable Platte River caddisfly habitat prior to the species' discovery in the late-1990s. During recent survey efforts, the Platte River caddisfly was not found between Hershey and Elm Creek, Nebraska, despite 24 surveys being conducted in this reach (Vivian 2010, p. 50). We do not know if the caddisfly ever occurred in this stretch of river, but it is present upstream and downstream of Hershey and Elm Creek, Nebraska, respectively (Vivian 2010, p. 50), and this stretch is likely one of the most dewatered and incised (disconnect of a river from its floodplain as a result of a decline in river bed elevation) portions of the Platte River (Murphy
Aside from the draining of adjacent wetlands, channel narrowing has resulted in an increase in woody vegetation cover along the Platte River (Johnson 1994, entire). Downstream of Kearney, Nebraska, channel narrowing continues to reduce the amount of active channel area, and the amount of forest cover continues to increase (Murphy
Aside from channel narrowing, impoundments and diversions can contribute to the downstream degradation of river systems, and these projects can have lasting impacts. Impacts to the Platte River resulting from past water development projects, which may affect the caddisfly, are ongoing. For instance, reduced sediment loads resulting from impoundments that block the passage of sediments and water discharges below diversion returns and dams are known to impact river systems and result in channel bed degradation. The North Platte River historically provided the majority of the sandy sediment to the Platte River system, but the amount of sediment inputs to the river greatly declined with the closing of the mainstem dams on the North Platte River (Murphy
As a result of impoundments and diversion returns, less sediment flows into the Platte River than flows out, and this contributes to the erosion and a lowering of elevation of the river bed (Murphy
The effects of channel degradation and its impacts on the Platte River caddisfly and its habitat can be observed downstream of the J–2 return. Diversion returns, like the J–2 return, that put clear water directly into the main channel of the Platte River, can contribute to the downcutting of the river bed and subsequent draining of adjacent floodplain wetlands. For instance, in 2010, surveys for the Platte River caddisfly were conducted downstream of the J–2 return near Overton, Nebraska, at Dogwood Wildlife Management Area (WMA). Within the WMA, several linear depressions were observed, and these areas were dry but showed signs of past beaver (
The effects of the J–2 return can be observed up to 29 km (18 mi) downstream of the return, although these effects are most pronounced closest to the return (Murphy
It is likely that channel incision has contributed to a loss in available Platte River caddisfly slough habitat in the past and could adversely affect the remaining sloughs on the central Platte River (Lexington, Nebraska to Chapman, Nebraska, where several populations of the Platte River caddisfly occur) in the future. The impacts of channel degradation on Platte River caddisfly habitat are best demonstrated by the effects observed at Dogwood WMA and
Currently, the Crane Trust area supports the highest known densities of the Platte River caddisfly (Whiles
Although Harner and Whited (2011) demonstrated an ongoing trend in channel degradation within the central Platte River near the Crane Trust at Alda, Nebraska, the Platte River caddisfly is still present at the type locality and Wild Rose Slough more than 10 years following 1999 (year of reference used in the study). There are also extant Platte River caddisfly populations upstream of the Crane Trust, where the effects of channel degradation are more pronounced, such as near Elm Creek, Nebraska, where the channel bed incised by 0.76-meter (2.5 feet) between 1989 and 2002 (Murphy
If left unchecked, future channel degradation could result in future losses in slough habitat and subsequent extirpation of the Platte River caddisfly from the central Platte River. However, various programs and entities are acting to maintain current habitat conditions on the central Platte River. The central Platte River is actively managed by several organizations to benefit endangered (E) and threatened (T) species (whooping crane (
PRRIP was established in 2006, by an agreement between the Bureau of Reclamation, the Service, and the States of Colorado, Wyoming, and Nebraska to manage Platte River flows and habitat to meet the needs of endangered and threatened species that use the Platte River. For instance, PRRIP plans to clear and lower vegetated islands in the river to create a more open channel to benefit endangered species, and this action would increase the amount of sediment in the river (Murphy
As mentioned previously, water development on the Loup and Elkhorn Rivers has not been as extensive as it has along the Platte River. While there are diversions in place along the Loup River, these diversions have not resulted in extensive channel incision and degradation as has been observed along the Platte River. This can be demonstrated by the lack of vegetation encroachment onto the active river bed. Channel narrowing downstream of diversion projects on the Loup River Basin has likely resulted in a loss of slough habitat in the past. However, the Platte River caddisfly is present immediately upstream of Kent Diversion Dam, and the species is present immediately downstream of the Loup Diversion Dam. The populations in the vicinity of these projects appear secure, because there appears to be ample slough habitat to support the caddisfly at these sites (Vivian 2010, pers. obs.). Potentially suitable habitat that has not been surveyed is also present downstream of all four main diversion projects in the Loup River Basin (Vivian 2012, pers. obs.). Meanwhile, no large-scale projects on the Loup or Elkhorn Rivers are planned. Because of ongoing efforts to maintain present channel conditions in the central Platte River, which is the most degraded portion of the range of the Platte River caddisfly, and because of a general lack of channel degradation on the Loup and Elkhorn Rivers, we conclude that channel degradation does not pose a threat to the Platte River caddisfly.
An altered hydrograph (graph of stream flow through time) can result
At this time, there is no available information to indicate that an altered hydrograph is adversely affecting any populations of the Platte River caddisfly or has resulted in population losses throughout its range. Therefore, we do not consider a changed hydrograph to pose a threat to the Platte River caddisfly.
Along the Platte River, changes in hydrology have contributed significantly to the encroachment of woody and exotic vegetation onto what used to be the active river bed (Currier
In the United States, there are introduced and native varieties of
Both
Following dam construction in the Platte Basin, irrigation demands were met through the pumping of groundwater (Eschner
Groundwater pumping can result in a lowering of the water table and contribute to subsequent wetland drying and loss (van der Kamp and Hayashi 1998, p. 51; LaGrange 2004, p. 13). It is possible that pumping groundwater for
Along the eastern portion of the central Platte River (east of Buffalo County line), groundwater levels in some isolated areas near the river declined 1.5 to 3.0 meters (5 to 10 feet) between pre-development (1950 or later for some parts of Nebraska) (McGuire 2011, pp. 1, 4) and spring
Aside from a few small, isolated areas where groundwater levels declined close to the Loup River, between 1950 and 2011, groundwater levels increased by at least 1.5 meters (5 feet) throughout most of the Loup and part of the Elkhorn Basins (UNL–SNR 2011b, entire). Elsewhere in the Elkhorn Basin, there was no change in observed groundwater levels between 1950 and 2011 (UNL–SNR 2011b, entire). It is unlikely that observed increases in the groundwater table along the Loup and Elkhorn Rivers have contributed to losses in the amount of slough habitat available to the caddisfly.
Where groundwater levels have dropped within the range of the Platte River caddisfly, it is possible that a loss in slough habitat has occurred through the loss of inundated wetland acres. However, since the species was described, drops in the groundwater table due to pumping are not known to have resulted in extirpations of any caddisfly populations. Also, the amount of loss in slough habitat is likely limited, because the groundwater table dropped in only three isolated areas within the range of the caddisfly between 1950 and 2011 (UNL–SNR 2011b, entire). Only one of these areas overlaps with extant Platte River caddisfly populations, and this area is along the central Platte River. The other two areas near where groundwater levels have declined since pre-development support slough habitat that has not yet been surveyed for the caddisfly.
There is the potential for ongoing and future groundwater withdrawals to adversely impact the Platte River caddisfly and its habitat in the future, particularly given the recent increase in demand for grain. For instance, in the Lower Loup Natural Resources District (LLNRD), which encompasses the Loup River and its tributaries upstream of Columbus, Nebraska, to the west end of Loup and Custer Counties, 10,000 additional acres were approved to be added to the amount of irrigated acres between 2010 and 2013 (Lower Loup Natural Resources District 2011, entire), and so the groundwater table in that region may see declines with the increase in irrigation. Within the Central Platte Natural Resources District (CPNRD), 2,500 new acres were opened for development in 2012 downstream of Chapman, Nebraska. Future declines in the amount of slough habitat on the Platte, Loup, and Elkhorn Rivers associated with the increased demand for groundwater usage may occur.
Although the amount of slough habitat available to the caddisfly has the potential to decline in the future concomitant with the increase in grain production across at least some of the species' range, existing regulations are likely to limit the extent to which this can occur. Along most of the central Platte River, we have determined that groundwater sources are relatively secure, because, presently, there is a moratorium on new groundwater wells that pump more than 50 gallons per minute, and no new well permits can be issued unless the amount of consumptive water use is offset (retired elsewhere in the basin) (CPNRD 2011, pp. 3–4). Therefore, current conditions are not anticipated to worsen with respect to groundwater pumping in the central Platte Basin, which is considered to be the most degraded portion of the species' range. Also, because the sloughs along the Platte River are closely tied to surface water flows within 0.8 km (0.5 mi) of the river (Hurr 1981, p. H7), efforts to increase shortages to target flows in the Platte River under the PRRIP should maintain current conditions in sloughs along the river. Elsewhere in the Loup and Elkhorn Basins, groundwater and surface water resources are being managed by Nebraska's natural resources districts, and by State law, these areas cannot exceed the fully appropriated designation.
As part of Nebraska State law LB 962, passed by the State legislature in 2004, groundwater well permits and surface water permits are carefully managed so that river flows do not reach the over-appropriated designation, because it has been recognized that surface flows are tied to groundwater levels near the river and vice versa. Nebraska State law requires that there be a balanced use of ground and surface waters in Nebraska to ensure the long-term sustainability of these supplies (Peterson
Since the Platte River caddisfly was described in 2000, no information has become available to indicate that any net loss in slough habitat has occurred as a result of groundwater pumping. At this time, the Service does not have data showing that the quantity of water has been lowered or that the current water withdrawals are impacting the Platte River caddisfly habitat or will impact the Platte River caddisfly in the near future. Declines in the groundwater table due to drought resulted in two localized caddisfly extirpations; however, the species is now found again at the type locality, and the groundwater table has since rebounded in that area. If habitat loss has occurred, we estimate that the amount has been negligible, because groundwater declines between 1950 and 2011 have occurred only within a small portion of the species' range. The Platte River caddisfly is extant in the area of the Platte River where the largest documented drops in the groundwater table have occurred. The species is also present in the area
Current moratoria in the Platte Basin, which includes a moratorium on new surface water diversions (NDNR 2008, entire), should prevent current conditions from worsening throughout the most degraded portion of the species' range along the central Platte River. Current State law and management by the State's various natural resources districts on the Loup and Elkhorn Rivers should maintain the groundwater table at sustainable levels in those areas. For instance, the Loup and Elkhorn River Basins are subject to limited surface water appropriations, because the NDNR has to ensure adequate flows exist in the Lower Platte Basin for endangered species, such as the pallid sturgeon (NDNR 2006, p. E–11). Overall, we have determined that groundwater withdrawal does not pose a threat to the species. However, additional stress from water demand is likely to be placed on Nebraska's river systems in the future as a result of climate change and projected increases in floods and droughts (discussed below).
Global climate change is a concern, because it has the potential to reconfigure the spatial distribution of species and their habitats worldwide throughout the 21st century and beyond. Our analyses under the Act include consideration of ongoing and projected changes in climate. The terms “climate” and “climate change” are defined by the Intergovernmental Panel on Climate Change (IPCC). The term “climate” refers to the mean and variability of different types of weather conditions over time, with 30 years being a typical period for such measurements, although shorter or longer periods also may be used (IPCC 2007a, p. 78). The term “climate change” thus refers to a change in the mean or variability of one or more measures of climate (e.g., temperature or precipitation) that persists for an extended period, typically decades or longer, whether the change is due to natural variability, human activity, or both (IPCC 2007a, p. 78).
Scientific measurements spanning several decades demonstrate that changes in climate are occurring, and that the rate of change has been faster since the 1950s. Examples include warming of the global climate system, and substantial increases in precipitation in some regions of the world and decreases in other regions (IPCC 2007a, p. 30; Solomon
Scientists use a variety of climate models, which include consideration of natural processes and variability, as well as various scenarios of potential levels and timing of GHG emissions, to evaluate the causes of changes already observed and to project future changes in temperature and other climate conditions (e.g., Meehl
Various changes in climate may have direct or indirect effects on species. These effects may be positive, neutral, or negative, and they may change over time, depending on the species and other relevant considerations, such as interactions of climate with other variables (e.g., habitat fragmentation) (IPCC 2007a, pp. 8–14, 18–19). Identifying likely effects often involves aspects of climate change vulnerability analysis. Vulnerability refers to the degree to which a species (or system) is susceptible to, and unable to cope with, adverse effects of climate change, including climate variability and extremes. Vulnerability is a function of the type, magnitude, and rate of climate change and variation to which a species is exposed, its sensitivity, and its adaptive capacity (IPCC 2007a, p. 89; see also Glick
As is the case with all stressors that we assess, even if we conclude that a species is currently affected or is likely to be affected in a negative way by one or more climate-related impacts, it does not necessarily follow that the species meets the definition of an “endangered species” or a “threatened species” under the Act. If a species is listed as endangered or threatened, knowledge regarding the vulnerability of the species to, and known or anticipated impacts from, climate-associated changes in environmental conditions can be used to help devise appropriate strategies for its recovery.
The effects of climate change, such as an increase in the global average air surface temperature since 1970, are already being felt in North America and around the world (U.S. Global Change Research Program (USGCRP) 2009, pp. 9, 17). In the Rocky Mountains and Northern Hemisphere, there has been a decrease in overall snowpack cover over the past 100 years (IPCC 2007, p. 30), and the proportion of precipitation falling as snow is decreasing (USGCRP 2009, p. 43). More precipitation now falls in the form of extreme rain events (Rieman and Isaak 2010, p. 4). A decrease in annual snowpack is projected to lead to earlier spring snowmelt and runoff, reduced runoff and stream flow, decreased recharge of
In the Great Plains, the average annual temperature has increased by 0.83 °C (1.5 °F) since the 1970s and is expected to increase 2.5 °C (4.5 °F) by 2050 (USGCRP 2009, p. 123) and between 4.2 °C (8 °F) and 5.0 °C (9 °F) by the 2080s across the range of the Platte River caddisfly (The Nature Conservancy 2007, entire). Should GHG continue at the current rate, average annual precipitation is expected to remain steady or decrease by 5 percent from today's levels across the range of the Platte River caddisfly by 2050 (The Nature Conservancy 2007, entire).
Between the 1930s and 2011, average maximum temperatures have remained steady in the Lower Platte Basin (downstream of the North Platte/South Platte confluence), while there has been an increase in average maximum temperatures in the Upper Platte Basin (upstream of the confluence) for the same time period (Stamm 2012, pers. comm.). During the same time period, there has been a wetting trend in the Lower Platte Basin and a drying trend in the Upper Platte Basin (Stamm 2012, pers. comm.). Meanwhile, average minimum temperatures increased across the entire Platte Basin between the 1930s and the decade ending in 2011 (Stamm 2012, pers. comm.). Available models for the Loup and Elkhorn River Basins demonstrate similar trends (
Should worldwide GHG emissions remain the same as today's levels, starting in 2030, average temperatures are projected to increase dramatically across the entire Platte Basin and continue increasing through at least 2050, and precipitation is projected to remain steady or decrease slightly compared to the decade ending in 2011 (
Compared to the decade ending in 2011, by 2030, fall and winter precipitation is projected to remain steady or slightly decrease; spring precipitation could decline by 20–30 mm, and summer precipitation is projected to decrease by 50–60 mm for the Lower Platte Basin (
Although some models indicate parts of the range of the Platte River caddisfly could experience wetter winters and springs, projected increases in temperature could negate the effects of increased precipitation through increases in evaporation and transpiration (evaporation of water from plant leaves), particularly in the summer months (Sorenson
The Great Plains system is known for its extensive inter-annual climate variability (Ojima
Despite the projected increase in the frequency of droughts, projected increase in temperature, and projected decrease in hydroperiod length, the Platte River caddisfly presumably survived historical drought periods, particularly through the Dust Bowl (1930s). In 2004, following a dry spring, the type locality for the caddisfly was dry by early April, and adults were not found at that site in the fall of 2004, despite consistent emergence in the 7 years prior (Goldowitz 2004, p. 8). Platte River caddisfly adults were also not observed during surveys between 2007 and 2009 (Riens and Hoback 2008, p. 1; Vivian 2010, p. 48). In 2007 and 2009, the Platte River caddisfly was not observed at one site near Shelton, Nebraska, following the drought in central Nebraska in the early 2000s, and this site is still presumed to be extirpated (Riens and Hoback 2008, p. 1; Vivian 2010, p. 48). Following wetter years in 2008 and 2009, the caddisfly was found at the type locality in 2010 (Geluso
In normal years, the Platte River caddisfly is able to withstand normal summer dry periods through aestivation (Whiles
Recent modeling efforts demonstrated the potential effects of shorter periods of slough inundation on the Platte River caddisfly. Using long-term well data, Harner and Whited (2011, entire) created a model that demonstrated that during a dry period in the record (2000–2003), the type locality slough held water for approximately 249 days, whereas during a wet period (1997–1999), the slough was wet for approximately 340 days (Harner and Whited 2011, p. 21). Most of this drying occurred in summer and fall, and adults were observed in 2003. Larvae were also present at the type locality in the spring of 2004; however, the slough dried more than 2 months earlier in 2004 than what had been observed in years prior, and adults were not observed in the autumn of 2004 (Goldowitz 2004, p. 9). Therefore, droughts that result in sloughs drying too early would likely be more detrimental to the caddisfly than prolonged drying into the autumn and could lead to localized extirpations.
Drought has been implicated in at least the temporary loss of two Platte River caddisfly populations, one of them being the formerly robust type locality. Following the drought, the caddisfly is now again present at the type locality (Geluso
Hotter and drier summers in the future are likely to result in increases in evapotranspiration, which may also lead to drier soil conditions (Sorenson
The frequency and intensity of floods are projected to increase with the onset of climate change (Saunders and Maxwell 2005, p. 1). However, flooding is not likely to pose a significant threat to the Platte River caddisfly and could be of some benefit. Flooding events can scour aquatic organisms downstream in some systems (Feminella and Resh 1990, p. 2083), but the velocity at which Platte River caddisfly larvae are moved downstream is unknown. The caddisfly may not be subject to scouring flows, because it is found in lentic waters.
Even if mortality of larvae were to occur due to scouring, flooding is likely important in the creation of backwater habitats and the subsequent increase in habitat availability to the Platte River caddisfly. Downstream larval drift is considered an important means of dispersal (Neves 1979, p. 58), but only in habitats that are connected by water (Petersen
As previously mentioned, historical water development in the Platte Basin contributed to a decline in the active floodplain, and opened up former wet bottomlands for crop development (Currier
Concurrent with the increase in the planting of more acres of corn in Nebraska, ongoing wetland modification may result from the conversion of adjacent grasslands to row crops at a limited number of sites. In 2011, we consulted with the NRCS on approximately 70 sodbuster applications received from Nebraska landowners. Sodbuster applications are submitted by individuals who desire to convert highly erodible grassland into crop production. The increase in sodbuster applications demonstrates that grassland habitats are continually vulnerable to the development of row crops.
The Platte River caddisfly was discovered in a large, grassland complex. At the type locality and Wild Rose Slough, the caddisfly uses adjacent grassland habitat in which to aestivate and complete adult emergence. However, most Platte River caddisfly populations occur in forested sloughs adjacent to the main river channel, and these areas are thought to be buffered against conversion into row crops. Sloughs adjacent to the river also appear to be too deep to be suitable for filling and conversion for agriculture, and these sloughs are also protected from fill under the U.S. Army Corps of Engineers (Corps) 404 program (discussed under Factor D). Therefore, there is not likely to be much overlap between the ongoing conversion of grassland into corn and Platte River caddisfly habitat. As a result, we do not consider wetland conversion to constitute a threat to the species.
Several nongovernmental organizations (NGOs) are actively restoring degraded wetlands in the central Platte region (Whiles and Goldowitz 2005, p. 462); however, restored wetlands often do not equal natural wetlands in terms of floral and faunal diversity (Galatowitsch and van der Walk 1996, entire). Differences in wetland hydrology between natural and restored wetlands can affect the outcomes of restoration projects (Galatowitsch and van der Walk 1996, entire; Meyer and Whiles 2008, entire). For instance, in central Nebraska, it has been shown that some aquatic taxa are missing entirely from restored sloughs as compared to natural sloughs (Meyer and Whiles, 2008, entire).
Restored wetlands, although beneficial in providing habitat for some species, may not immediately provide suitable habitat for the Platte River caddisfly. Between 2009 and 2010, 12 restored sloughs were surveyed for the Platte River caddisfly, and only one slough had evidence of caddisfly presence (Vivian 2010, p. 46). One discarded case was found at this site, and it is unknown whether there is an extant population at this location, as no live individuals were found (Vivian 2010, p. 17). When surveyed, restoration work had occurred 4 years prior to the survey (Schroeder 2011, pers. comm.), and it is unknown if the caddisfly was present before the restoration work had occurred. One other restored slough on Crane Trust property was previously found to support the Platte River caddisfly, but the site supported a low number of individuals. This site was near the type locality (Meyer and Whiles 2008, p. 632; Meyer 2009, pers. comm.), which may represent a source population. These observations suggest that restored sloughs may not be immediately suitable to the caddisfly but could become more suitable over time as the restored sloughs become established.
To date, only one restoration project is known to have resulted in adverse impacts to the Platte River caddisfly. At Bader Park near Chapman, Nebraska, a 2007 restoration project within a slough where the caddisfly was known to occur resulted in a decline in larval densities at that site (Harms 2009, pers. comm.). The caddisfly still occurs at that site, but at a density of less than one individual per m
It is likely that urbanization of the Platte River valley has impacted the habitat of the Platte River caddisfly in the past. For instance, 14 bridges span the North Platte and Platte Rivers between Chapman, Nebraska, and Lewellen, Nebraska, a distance of about 380 km (240 mi) (Currier
Beginning in the 1980s, the Federal Highway Administration (FHWA) implemented new requirements for bridges to prevent the encroachment of bridge embankments into river channels (Murphy
Along Interstate 80, several sandpit lakes were created to extract gravel used for interstate construction in the 1960s (Currier
Bank stabilization and armoring projects constructed to protect property against erosion can also cause the localized scouring of a river channel and have the potential to lead to the drying of adjacent wetlands. Bank stabilization efforts, particularly under the Corps' nationwide permitting process, are ongoing throughout Nebraska and have the potential to impact occupied sloughs. However, only one of 35 sites with the caddisfly is currently adjacent to a bank stabilization project, and this site is just upstream of a bridge and does not appear to be degrading the quality of the slough (Vivian 2009, pers. obs.). We have no evidence to indicate that bank armoring along the Platte, Loup, and Elkhorn Rivers is occurring at a large enough scale to adversely impact the caddisfly and its habitat. We do not know of any current or future bank stabilization projects that are scheduled to occur near areas where the caddisfly has been found. Most Platte River caddisfly populations are considered to be protected from bank armoring projects, as 21 out of 35 sites with the caddisfly occur on protected lands.
Overall, most impacts from urbanization and infrastructure projects largely occurred in the past and are localized in their effects. Since the Platte River caddisfly was described in 2000, there is no available information that suggests any habitat losses as a result of bridge construction, road, sandpit, or bank armoring development have occurred. We are not aware of planned projects within caddisfly habitat, and therefore we conclude that urbanization and infrastructure are not likely to pose threats to the Platte River caddisfly.
The Platte River caddisfly and its habitat could be adversely impacted by some cattle grazing regimes. Cattle have a strong affinity for riparian areas because of the availability of water, shade, and high-quality forage (Kauffman and Krueger 1984, p. 431). Cattle can impact wetlands through the reduction of vegetation cover along wetland bottoms and shorelines, increased sedimentation and erosion, increased nutrient and organic inputs from urine and manure, increased water temperatures, and degraded water quality, particularly when cattle have unrestricted access to streams (Schulz and Leininger 1990, pp. 297–298; Fleischner 1994, pp. 631–636; Evans and Norris 1997, p. 627; Downes
A study conducted at Wild Rose Slough to investigate the effects of grazing on the Platte River caddisfly found vegetation productivity to be lower in grazed plots than in ungrazed plots 6 months following the removal of cattle from the study site in spring 2010 (Harner and Geluso 2012, p. 391). In September 2010, fewer adult caddisflies were observed in grazed plots than in ungrazed plots, and in 2011, lower densities of aquatic caddisfly larvae were found in grazed plots than in ungrazed plots (Harner and Geluso 2012, pp. 391–392). Meanwhile, a positive relationship between vegetation productivity and larval densities was observed (Harner and Geluso 2012, pp. 391–392).
Results from the cattle grazing study demonstrated that although cattle were not allowed access to the study area in 2011, the effects of grazing on caddisfly larval densities could still be observed up to one year after grazing occurred (Harner and Geluso 2012, p. 392). These data also suggest that reduced vegetation cover contributed to decreased larval densities in intensely grazed areas within the study plots (Harner and Geluso 2012, p. 392). However, because larvae were not eliminated in grazed areas, this study demonstrates that intense grazing may not be detrimental to the caddisfly for short time periods or under a rotational grazing regime (Harner and Geluso 2012, p. 392) and that this species can likely withstand moderate amounts of grazing, particularly at sites where larval densities are relatively high. Continuous grazing in areas where the caddisfly is less abundant could contribute to localized extirpations, and the caddisfly has not been found at sites that show signs of intense grazing (e.g., more than 40 percent of the bank exposed) (Braccia and Voshell 2006a, p. 271; Vivian 2010, p. 52). However, none of the six sites with the Platte River caddisfly where grazing occurs show signs of overgrazing (Vivian 2010, pers. obs.). Therefore, we have determined that grazing is not likely to pose a threat to the caddisfly.
Corn and soybean fields dominate the river valleys of Nebraska, and both represent potential sources of pesticide exposure to the Platte River caddisfly and its habitat. Should insecticides and herbicides enter occupied habitats of the Platte River caddisfly through runoff, they have the potential to directly impact the species through mortality or indirectly through mortality of aquatic vegetation in the aquatic environment (Fleeger
There have been no studies to evaluate the potential effects of pesticide exposure on the Platte River caddisfly. Past studies have demonstrated mortality in other species of caddisflies exposed to pesticides (Liess and Schulz 1996, entire) and documented the absence of caddisflies from polluted waters (Ketelaars and Frantzen 1995, entire). Reduced abundances of aquatic insect species considered sensitive to poor water quality have been observed in habitat adjacent to agricultural areas (Liess and Von Der Ohe 2005, entire) that would presumably contain pesticide runoff.
Aside from agricultural runoff, one potential source of herbicides in Platte River caddisfly habitat is chemicals used for the control of exotic vegetation, such as
Despite potential adverse impacts to the caddisfly, there is no evidence that population declines or extirpations have occurred as a result of pesticide or herbicide exposure. Following the spraying of
In addition to existing regulatory mechanisms and provisions (discussed under Factor D, below), 60 percent (21 of 35) of Platte River caddisfly populations occur on nongovernmental organization or State lands that are protected for conservation or managed as wilderness areas. These conservation efforts may afford protection of Platte River caddisfly habitat now and into the future. Such examples include Nebraska's Wildlife Management Areas (WMAs) and land owned and managed by the Headwaters Corporation, the group responsible for implementing and overseeing PRRIP. To date, Headwaters has been involved in several discussions with the Service on ways to avoid adverse impacts to the caddisfly with projects in and near Platte River caddisfly habitat. Currently, three Platte River caddisfly populations occur on Headwaters lands, and these sites are likely to be protected from future development by way of a conservation easement. Two other populations occur along roadsides in areas managed by the Nebraska Department of Roads (NDOR), and the Service works with NDOR to avoid and minimize impacts to wetlands on road projects.
The Crane Trust is another entity whose lands provide protection for the Platte River caddisfly. The Trust manages 10,000 acres of land in the central Platte region that have been set aside for wildlife in perpetuity. Four Platte River caddisfly populations are known to occur on land owned by the Crane Trust, and these sites support the largest Platte River caddisfly larval densities currently known. In addition, two Platte River caddisfly populations occur on land owned by The Nature Conservancy (TNC), and the organization is aware of these populations and has taken measures to avoid adverse impacts to the species at these sites.
In areas not protected for conservation, many agencies and organizations have been kept apprised of the Platte River caddisfly and have been engaged with the Service on ways to avoid and minimize impacts to the species and its habitat. For instance, the Federal Highway Administration has coordinated with the Service on ways to avoid and minimize impacts during a bridge reconstruction project near potentially suitable habitat (where the caddisfly was thought to occur) near Fullerton, Nebraska (Vivian 2010, pers. obs.). Also, PFW has noted they are willing to consider the Platte River caddisfly in their wetland restoration work that occurs on public and private lands (Schroeder 2012, pers. comm.). In 2011, PFW and TNC involved the Service in discussions on how to avoid adverse impacts to the caddisfly during restoration work at a site on TNC property. In 2010, the Service's Nebraska Field Office held a workshop for personnel from various local, State, and Federal agencies and organizations on the Platte River caddisfly, its habitat, and survey methodology. This workshop equipped agencies outside the Service with the knowledge to be able to avoid impacts to the caddisfly and its habitat.
PRRIP is a program that affords the Platte River caddisfly protection now and into the future throughout the most degraded portion of its range. Objectives of PRRIP that may benefit the Platte River caddisfly include: (1) Preventing the need to list more basin-associated (Platte River) species under the Act; (2) offsetting through mitigation any adverse impacts of new water-related activities on Service-targeted flows in the Platte River basin (target flows are comprised of species flows and annual pulse flows, which have been identified as flows needed to maintain survival of four target species and wildlife that use the Platte River, and to maintain present channel width and keep islands unvegetated (USDOI 2006, pp. 3–11, 3–12)); (3) using available resources to manage program lands for the benefit of non-listed species of concern, like the Platte River caddisfly; (4) providing sufficient water in the central Platte River (Lexington, Nebraska to Chapman, Nebraska) for the benefit of PRRIP's target species (whooping crane, Interior least tern, piping plover, pallid sturgeon) through water conservation projects; and (5) protecting and restoring 29,000 acres of habitat in the central Platte River for the benefit of the four target species (USDOI 2006, pp., 1–3, 1–17). This agreement was put in place to specifically benefit other endangered and threatened species, but should help maintain the backwaters where the Platte River caddisfly occurs, particularly through PRRIP's goal of maintaining current flows in the central Platte River.
Overall, existing programs and organizations that manage land for conservation provide adequate protection for the species and its habitat. Proactive planning efforts with Federal, State, and local agencies, as well as nongovernmental organizations, also help to avoid and minimize impacts to the caddisfly.
Changes in hydrology resulting from water development and its associated effects, including channel degradation and narrowing, invasive species encroachment, urbanization, cropland conversion, groundwater withdrawal, cattle grazing, climate change, pesticides, and floods and droughts, all occur or are likely to occur within the range of the Platte River caddisfly. These environmental stressors will likely continue in the future on each of the river systems where the Platte River caddisfly is known to occur. However, while these stressors are ongoing, when considered individually and collectively, we have determined that they do not pose a threat to the Platte River caddisfly.
The Platte River caddisfly has life-history traits that enable it to survive in an extreme environment, such as the
We also conclude that the aforementioned stressors do not pose a threat to the species, because the Platte River caddisfly occurs in more than one habitat type and on multiple river systems. Surveys have shown that the caddisfly occupies intermittent and permanent sloughs, forested sloughs, and sloughs with an open canopy. While the type locality and intermittent sloughs most likely represent ideal Platte River caddisfly habitat, the species is found in permanent sloughs, and these may be important during times of drought, as they are likely to hold water longer and serve as a refuge during extended dry periods. Forested canopies may offer an additional source of protection against a warmer and drier climate.
Currently, available information does not indicate whether Platte River caddisfly population levels are increasing or decreasing, or if the amount of potential habitat is increasing or decreasing. Overall, we have documented that the species is more common than previously thought and likely is more abundant now than during the drought in the early 2000s. Also, an increase in surveys is likely to result in an increase in the known range of the caddisfly, given the amount of potential habitat that has yet to be surveyed. Additional survey work would likely result in populations being found on more river systems, such as the Cedar, Niobrara, and Republican Rivers in Nebraska.
Currently, the Platte River caddisfly is known from three river systems, and most of the potential threats occur along the Platte River. Historically, the species likely occupied a much greater portion of the Platte River than today. However, despite all of the water development that has occurred on the Platte River system, the caddisfly still occurs along the majority of the reach surveyed between 2009 and 2011. While ongoing degradation poses a threat to the river and the remaining slough habitat available to the caddisfly, several agencies and nongovernmental entities are working to stem future habitat losses. Therefore, conditions are not anticipated to deteriorate on the Platte River, and we consider the majority of caddisfly populations on the river to be secure.
Currently, the Loup and Elkhorn Rivers have less water development and are less degraded than the Platte River, and the best available information indicates that there is sufficient habitat available (including sloughs not yet surveyed) to sustain the Platte River caddisfly on these systems. Future changes to these river systems are anticipated to occur through increasing sodbusting activities and groundwater withdrawal; however, these activities have little overlap with Platte River caddisfly habitat, and current laws and regulations, such as Nebraska State law LB 962, limit the extent to which this can occur.
After a review of the best available information, we have determined that the present or threatened destruction, modification, or curtailment of its habitat or range does not pose a threat to the Platte River caddisfly.
There is no indication that the Platte River caddisfly is being over collected by hobbyists or researchers, or will be in the future. Collecting of Platte River caddisfly larvae has occurred for scientific purposes (e.g., identification, museum archiving, lab experiments, and genetic analyses), but this has been limited, and largely done at sites supporting the greatest densities of the insect (Alexander and Whiles 2000, p. 1; Vivian 2010, pp. 74–77; Geluso
Insect collectors have not been known to take Platte River caddisfly adults for their collections, likely because caddisfly adults are not as showy as other groups of insects, such as butterflies. Also, caddisfly adults are active during a narrow window (i.e., 3 weeks), and the sites where the species occurs are isolated from urban areas and difficult to access.
There is no evidence that overutilization presents a threat to the Platte River caddisfly. Although small, isolated collections of larvae will likely continue for research purposes, we have determined that these collections do not constitute a threat to the species because, to date, these collections have only been conducted at sites with relatively high larval densities. Therefore, we conclude that the best scientific and commercial information available does not indicate that overutilization for commercial, recreational, scientific, or educational purposes is a threat to the Platte River caddisfly.
Disease and predation play important roles in the natural dynamics of populations and ecosystems. Natural predators of the Platte River caddisfly evolved in conjunction with the caddisfly and do not normally pose a threat to the survival of the species in the absence of other threats. The Platte River caddisfly could be a prey item for predators that are commonly observed in its habitat during its aquatic, terrestrial, and adult stages. Predators of caddisflies in temporary habitats may include large aquatic insects (dragonflies, beetles), amphibians (frogs, salamanders) (Batzer and Wissinger 1996, entire; Wellborn
Despite having mineral cases that can withstand crushing, the brook stickleback (
In addition to the brook stickleback, the Platte River caddisfly has been found to occur with other fish predators, including the redear sunfish (
The Platte River caddisfly is likely impacted by predation in its terrestrial larval and adult stages. Several caddisfly cases have been recovered that show signs of predation possibly by ants or beetles and small mammals, such as shrews. Signs of predation include tears in the cases or holes at the posterior end of the case (Vivian 2009, pers. obs.). However, the sand-grained larval case likely offers some protection to terrestrial larvae through camouflage and defense against crushing (Otto and Svensson 1980, p. 857). Adults are likely eaten by migratory birds and waterfowl (Whiles
Given the small number of individuals at some sites, it is possible that disease could pose a threat to the Platte River caddisfly. However, we have no evidence to suggest that any disease is currently affecting the Platte River caddisfly.
Although the Platte River caddisfly is likely a prey item for various predators (native and non-native), there is no evidence that suggests current levels of predation or disease on the Platte River caddisfly are currently affecting populations or will in the future. Therefore, we conclude that the best scientific and commercial information available indicates that neither disease nor predation poses a threat to the Platte River caddisfly.
Existing Federal, State, and local laws; regulations; and policies that may provide a moderate level of protection for the Platte River caddisfly and its habitat include: The National Environmental Policy Act (NEPA; 42 U.S.C. 4321
For all federally funded or authorized projects, Federal actions, or projects occurring on Federal lands, an Environmental Assessment or Environmental Impact Statement is required under NEPA. NEPA is a procedural statute that requires federal agencies to consider the environmental impacts of a proposed project and reasonable alternatives to project actions. It also requires full disclosure of all direct, indirect, and cumulative environmental impacts of the project. However, NEPA does not require protection of a particular species or its habitat, nor does it require the selection of a particular course of action. Therefore, NEPA may only provide a limited amount of protection to the caddisfly in situations where NEPA was applicable.
NEPA does not apply to non-Federal projects on private lands or privately funded projects, and about 34 percent (12 of 35 sites) of the known populations of the Platte River caddisfly occur on private lands or near road ditches. Projects occurring on public hunting grounds or access areas, land under the management of conservation groups, and roadsides often receive Federal dollars, and, therefore, NEPA would apply to 66 percent of sites with the Platte River caddisfly. However, as stated above, NEPA does not provide protection to species. There is no available information regarding any development projects, private or otherwise, occurring within Platte River caddisfly habitat. Overall, we conclude that NEPA would provide some protection to the Platte River caddisfly in the event that development projects and slough habitat overlap in the future.
FWCA requires that proponents of Federal water development projects, including those involving stream diversion, channel deepening, impoundment construction, and/or general modifications to water bodies, consider their impacts to fish and wildlife resources. FWCA also requires that impacts to water bodies be offset through mitigation measures developed in coordination with the Service and the appropriate State wildlife agency. FWCA would provide adequate protection to the Platte River caddisfly in the event that water development projects and Platte River caddisfly habitat overlap. However, there is currently no information regarding any current or planned water development projects within the range of the Platte River caddisfly. Should future water development projects occur within Platte River caddisfly habitat, we have determined that FWCA would adequately protect the caddisfly and its habitat, because the Service would be provided an opportunity to address potential concerns with fish and wildlife resources, including the caddisfly.
The U.S. Army Corps of Engineers (Corps), acting under the authority of section 404 of the CWA, regulates the placement of fill materials into waters under Federal jurisdiction, including the filling of wetlands. Historically, according to a 1977 Corps definition, waters under Federal jurisdiction applied to “waters of the United States,” and included intermittent streams, wetlands, sloughs, prairie potholes, and wet meadows. This definition provided protection to nearly all wetlands in the United States (Petrie
Currently, most Corps permit applications in central Nebraska are for
Most sloughs that support a Platte River caddisfly population occur in areas directly connected to or adjacent to the main channel of the Platte, Loup, and Elkhorn Rivers. Adjacency under CWA is easily determined for these sloughs. Four of the 35 sites occur in more off-channel areas, and adjacency for these sloughs may not be as easily determined. Despite occurring in more off-channel areas, these four sloughs still likely receive protection from fill. For instance, two sites on the Elkhorn River occur along roadsides, and FHWA and the Nebraska Department of Roads notifies the Service when work within or near wetland areas is scheduled to occur. If these areas become subject to fill activities in the future, the Service would have an opportunity to recommend ways to avoid and minimize impacts to the wetlands. Meanwhile, Wild Rose Slough and the type locality on Crane Trust property are protected from fill activities by way of a conservation easement. Overall, 23 of 35 caddisfly populations occur within WMAs or lands managed for conservation or roadsides and are protected from most fill and development activities in wetlands (with the exception of restoration work). Thus, the CWA adequately protects the Platte River caddisfly and its habitat from fill and development activities now and into the future, because: (1) The CWA would apply to the majority of populations should such activities occur in the future; (2) 66 percent of populations occur in protected areas; and (3) the Service and Corps have engaged in proactive planning efforts so as to avoid impact to the caddisfly and its habitat.
Several governmental and nongovernmental agencies are working to secure water rights for environmental benefits and endangered and threatened species in Nebraska; however, instream flow appropriations do not ensure a stream will always contain water (Czaplewski 2009, entire). Instream appropriations only ensure that the minimum flow needs of species will be met before any future water development projects can occur (Czaplewski 2009, entire). Therefore, in times of drought and low flows, pre-existing water rights will be met before the minimum flow needs of fish and wildlife species are met. However, we previously determined that the Platte River caddisfly can withstand drought to a certain degree even when coupled with existing water development projects.
The Central Platte Natural Resources District (CPNRD) and NGPC each have protected instream flow rights along the Platte River; however, these are not enough to cover “target flows” outlined by the PRRIP (NGPC 2008, p. 7). The PRRIP is working to address shortages to target flows by managing an environmental account from reservoirs along the Platte River in Nebraska and leasing water rights from willing landowners. The PRRIP also has a goal of offsetting new depletions to the system that occurred after July 1997 and restoring flows to the river by 130,000 to 150,000 acre-feet per year between 2007 and 2019. Efforts to augment current Platte River flows should provide adequate protection for the Platte River caddisfly populations along the Platte River, possibly with the exception of the type locality and Wild Rose Slough. For instance, as discussed under Factor A, even with more water in the river channel, the type locality and Wild Rose Slough may not become inundated or remain inundated long enough to meet the needs of the Platte River caddisfly (Harner and Whited 2011, entire). Furthermore, the PRRIP seeks to augment sediment inputs to the central Platte River, which should also help prevent future channel degradation from impacting sloughs where the caddisfly occurs.
Passed in 2004, Nebraska State law LB 962 requires the Nebraska Department of Natural Resources to work with each of the 23 Nebraska Natural Resource Districts (NRDs) to address surface water and groundwater appropriations in fully or over-appropriated basins. Basins designated as fully appropriated are required to place a moratorium on any new groundwater wells until an integrated management plan to address depletion issues can be developed (NGPC 2008, p. 18). The law does not prevent new groundwater wells from being drilled outside fully appropriated basins, such as some areas on the Loup River. Future groundwater well construction could contribute to some future loss in slough habitat on the Loup and Elkhorn Rivers as has been observed on the Platte, leading to future caddisfly habitat loss. However, we estimate that the amount of habitat that could be impacted is small, because new development is done on a limited basis, and each NRD monitors groundwater and stream levels annually to ensure water resources are not being depleted.
Given that 66 percent of Platte River caddisfly populations occur on protected lands, and current laws and regulations provide adequate protection for slough habitat on private lands should future activities occur within slough habitat, we conclude that the inadequacy of existing regulatory mechanisms does not pose a threat to the Platte River caddisfly.
Small insect populations may be vulnerable to extirpation as a result of random genetic drift, naturally occurring stochastic events, or demographic stochasticity (Pimm
We do not know the true population size of any of the known Platte River caddisfly populations, but we do have information on the numbers of individuals at 18 sites with the caddisfly. We previously discussed that some sites support relatively low densities of the Platte River caddisfly, but determined that finding low numbers of individuals at a site is typical of the
The adult stage likely represents the most probable means of dispersal (Williams 1996, p. 644; Petersen
Genetics techniques can be used to assess a species' dispersal ability in the absence of direct observations of significant dispersal events (Kelly
The amount of genetic variability observed in the Platte River caddisfly (Cavallaro
Although it has been identified that the Platte River caddisfly is a poor disperser, this is a natural life-history trait. This behavior would be detrimental to the species if the existing populations remained isolated from one another. However, we have not identified that habitat loss is presently occurring to the extent that the fragmentation of Platte River caddisfly populations poses a threat to the species. While sloughs on the different river systems and on both sides of the 155-km (93-mi) distribution gap between Hershey and Elm Creek, Nebraska, are isolated from one another, there is evidence of gamete (male and female reproductive cells) exchange across river systems given the similarity between the sites near Gibbon and Loup City and between Kearney and Sutherland. Furthermore, there have been live individuals or cases found at two restored sites. These observations indicate that there is a limited amount of dispersal occurring within relatively short time periods across short distances.
In summary, although small population size and limited dispersal ability have the potential to adversely impact the Platte River caddisfly, there is no evidence that this is occurring or is likely to occur in the near future. For instance, there are no known caddisfly population extirpations that have occurred as a result of small population size. We previously established that the Platte River caddisfly has the ability to recolonize sloughs following stochastic events and is well adapted to the environmental extremes found in the Great Plains. Therefore, we conclude that other natural or manmade factors do not pose a threat to the species.
Some of the threats discussed in this finding can work in concert with one another to cumulatively create situations that will impact the Platte River caddisfly beyond the scope of each individual threat. For example, as mentioned under Factor A, the impacts of water development on Platte River caddisfly habitat could be exacerbated by the effects of drought and the projected increases in drought resulting from climate change. In the absence of water development projects across the landscape, the Platte River caddisfly is naturally tolerant of drought because of its semi-terrestrial lifecycle and ability to recolonize sloughs once they become inundated again following extended dry periods. However, in the presence of water development, projects that remove water from the Platte, Loup, and Elkhorn Rivers have the potential to reduce the amount of available habitat across the landscape to the point that, during drought, enough refugia may not be available to sustain existing populations. Also, because of climate change, the frequency of droughts is expected to increase, and this will likely be exacerbated by ongoing water development. Water development has the ability to exacerbate the effects of drought (climate change-related or otherwise), because less water is flowing through the system than what there would be in the absence of water development. Future, extreme droughts and climate change are also expected to facilitate the spread of non-native vegetation, and this could result in a loss in habitat due to the encroachment of exotic vegetation in sloughs. Because of these relationships, we will analyze the cumulative impact of drought (as a result of climate change), water development (human-caused water reduction), and invasive species.
As mentioned previously, under normal conditions and otherwise, the Platte River caddisfly has the ability to withstand drought, because it enters into a dormant phase during the typical summer dry period. However, extreme drought can adversely impact the caddisfly to the point that it results in localized extirpations. For instance, extreme drought resulted in the extirpation of the type locality and one
The drought in the early 2000s occurred during a time when water development projects, such as dams and diversions, were prevalent across the landscape, particularly along the Platte River. The Platte River is considered to be the most degraded portion of the range of the caddisfly, but no new, large water projects have been implemented since 1956. Under current laws and regulations, we anticipate that current conditions with respect to water development are not anticipated to deteriorate along the Platte River or appreciably diminish on the Loup and Elkhorn Rivers.
The caddisfly has already been shown to withstand the combined effects of extreme drought and water-related impacts to its habitat. The species is also still present following the proliferation of invasive species along the Platte River during the drought in the early 2000s. Meanwhile, there are no new, large-scale water development projects planned within the range of the caddisfly. Therefore, the amount of habitat available to the caddisfly is not anticipated to greatly diminish because of water development now or into the future. While future, extreme droughts could result in extirpations of the caddisfly at a local scale, from examining satellite imagery to identify slough habitat, we find there is sufficient habitat available surrounding current populations to serve as refugia for the species during drought. Thus, there is no information to suggest that future, extreme droughts resulting from climate change and current water development projects will reduce the ability of existing caddisfly populations to sustain themselves under a warmer and drier climate.
We previously identified that at three Platte River caddisfly sites along the Platte River,
As required by the Act, we considered the five factors in assessing whether the Platte River caddisfly is endangered or threatened throughout all of its range. We examined the best scientific and commercial information available regarding the past, present, and future threats faced by the Platte River caddisfly. We reviewed the petition, information available in our files, other available published and unpublished information, and we consulted with recognized caddisfly, slough, and hydrology experts and other Federal, State, and nongovernmental entities. On the basis of the best scientific and commercial information available, we find that the Platte River caddisfly is not in danger of extinction (endangered species) now or likely to become an endangered species within the foreseeable future (threatened species), throughout all or a significant portion of its range. Therefore, we find that listing the Platte River caddisfly as an endangered or threatened species is not warranted throughout its range at this time.
The Platte River caddisfly is currently known from 35 locations across three river systems, and the number of populations would most likely increase with additional survey efforts, because potentially suitable habitat has been identified but has not been surveyed. Meanwhile, with the exception of the type locality, there is a lack of information on population trends. It appears that the caddisfly naturally occurs at varying densities depending on habitat type and may even be classified as a habitat generalist. Because the species occurs in more than one habitat type on three different river systems, the caddisfly is well-represented across the landscape and is resilient to the various stressors present throughout its range.
In this finding, we identified a number of potential stressors under Factor A. The stressor most likely to constitute a threat to the Platte River caddisfly and its habitat in the future is landscape-level changes in hydrology. The Platte River is one of the most managed river systems in the United States and contains several impoundments, diversions, and groundwater withdrawals that have resulted in hydrological and morphological changes to the floodplain. The dewatering of the Platte River likely resulted in historical losses of Platte River caddisfly habitat. Nonetheless, we have established that most remaining populations are likely to remain adequately protected across this portion of the species' range because of programs, such as PRRIP and PFW, and the existence of protected areas where many Platte River caddisfly populations occur. Although ongoing and future Platte River channel degradation could potentially affect the Platte River caddisfly and its habitat in the future, particularly at the Crane Trust, restoration efforts are ongoing along the central Platte River to stem this trend. These efforts should protect caddisfly populations along the Platte River, where most stressors are concentrated, now and into the future.
Climate change is a concern and is likely to render the range of the Platte River caddisfly hotter and drier. Nonetheless, we have determined that the species should withstand future climatic changes because of various life-history traits that are common among semi-terrestrial caddisflies and because of the distribution of its habitat across the landscape. We have determined that the present or threatened destruction, modification, or curtailment of its habitat or range (Factor A) is not a threat to the Platte River caddisfly at this time.
We have determined that overutilization for commercial, recreational, or scientific use (Factor B) is not a threat to the species at this time. Neither disease nor predation (Factor C) is known or expected to be a threat to the species. We have determined that the inadequacy of existing regulatory mechanisms (Factor D) is not a threat to the Platte River caddisfly, and that regulatory mechanisms currently in place provide protection to the species. Regarding other natural or manmade factors affecting its continued existence (Factor E), we do not consider small population size or limited dispersal ability to constitute a threat to the species. The available information does not indicate that the caddisfly is being impacted genetically, or in any other way, as a result of small population size or limited dispersal ability, or that it will become an endangered or threatened species in the foreseeable future due to stochastic events. We have also examined the cumulative impact of various stressors acting together and whether those pose a threat to the caddisfly. We have determined that, when examined together, the cumulative impact of various stressors does not pose a threat to the caddisfly.
Having determined that the Platte River caddisfly is not an endangered or threatened species throughout its range, we must next consider whether there are any significant portions of its range where the species is in danger of extinction or is likely to become an endangered species in the foreseeable future. The Act defines “endangered species” as any species which is “in danger of extinction throughout all or a significant portion of its range,” and “threatened species” as any species which is “likely to become an endangered species within the foreseeable future throughout all or a significant portion of its range.” The phrase “significant portion of its range” (SPR) is not defined by the statute, and we have no regulation governing SPR.
We interpret the phrase “significant portion of its range” in the Act's definitions of “endangered species” and “threatened species” to provide an independent basis for listing; thus, there are two situations (or factual bases) under which a species would qualify for listing: A species may be an endangered or threatened species throughout all of its range; or a species may be an endangered or threatened species in only a significant portion of its range. If a species is in danger of extinction throughout an SPR, the species is an “endangered species.” The same analysis applies to “threatened species.” Based on this interpretation and supported by existing case law, the consequence of finding that a species is an endangered or threatened species in only a significant portion of its range is that the entire species will be listed as an endangered or threatened species, respectively, and the Act's protections will be applied across the species' entire range. Because “significant portion of its range” provides an independent basis for listing and protecting the entire species, we next turn to the meaning of “significant” to determine the threshold for when such an independent basis for listing exists.
Although there are potentially many ways to determine whether a portion of a species' range is “significant,” the significance of the portion of the range should be determined based on its biological contribution to the conservation of the species. For this reason, we describe the threshold for “significant” in terms of an increase in the risk of extinction for the species. We conclude that a biologically based definition of “significant” best conforms to the purposes of the Act, is consistent with judicial interpretations, and best ensures species' conservation. Thus, as explained further below, a portion of the range of a species is “significant” if its contribution to the viability of the species is so important that without that portion, the species would be in danger of extinction.
We evaluate biological significance based on the principles of conservation biology using the concepts of redundancy, resiliency, and representation.
We determine if a portion's biological contribution is so important that the portion qualifies as “significant” by asking whether
We recognize that this definition of “significant” (a portion of the range of a species is “significant” if its contribution to the viability of the species is so important that without that portion, the species would be in danger of extinction) establishes a threshold that is relatively high. On the one hand, given that the consequences of finding a species to be an endangered or threatened species in an SPR would be listing the species throughout its entire range, it is important to use a threshold for “significant” that is robust. It would not be meaningful or appropriate to establish a very low threshold whereby a portion of the range can be considered “significant” even if only a negligible increase in extinction risk would result from its loss. Because nearly any portion of a species' range can be said to contribute some increment to a species' viability, use of such a low threshold would require us to impose restrictions and expend conservation resources disproportionately to achieve conservation benefits. This would result in the listing being rangewide, even if only a portion of the range of minor conservation importance to the species is imperiled. On the other hand, it would be inappropriate to establish a threshold for “significant” that is too high. This would be the case if the standard were, for example, that a portion of the range can be considered “significant” only if threats in that portion result in the entire species' being currently endangered or threatened. Such a high bar would not give the SPR phrase independent meaning, as the Ninth Circuit held in
The definition of “significant” used in this finding carefully balances these concerns. By setting a relatively high threshold, we minimize the degree to which restrictions will be imposed or resources expended that do not contribute substantially to species conservation. But we have not set the threshold so high that the phrase “in a significant portion of its range” loses independent meaning. Specifically, we have not set the threshold as high as it was under the interpretation presented by the Service in the
The range of a species can theoretically be divided into portions in an infinite number of ways. However, there is no purpose to analyzing portions of the range that have no reasonable potential to be significant or to analyzing portions of the range in which there is no reasonable potential for the species to be an endangered or threatened species. To identify only those portions that warrant further consideration, we determine whether there is substantial information indicating that: (1) The portions may be “significant,”
To determine whether the Platte River caddisfly could be considered an endangered or threatened species in a “significant portion of its range”, we reviewed the best scientific information with respect to the geographic concentration of threats and the significance of portions of the range to the conservation of the species. We first evaluated whether substantial information indicated (i) the threats are so concentrated in any portion of the species' range that the species may be currently in danger of extinction in that portion; and (ii) if so, whether those portions may be significant to the conservation of the species. Our rangewide review of the species concluded that the Platte River caddisfly is not an endangered or threatened species. As described above, to establish whether any areas may warrant further consideration, we reviewed our analysis of the five listing factors to determine whether any of the potential threats identified were so concentrated among the 35 populations that some portion of the range of the Platte River caddisfly may be in danger of extinction now or in the foreseeable future.
We found that most potential threats evaluated in this rule were concentrated on the Platte River, and we have determined that these potential threats, including but not limited to: landscape level changes in hydrology, invasive species, climate change, drought, flooding, grazing, inadequacy of existing regulatory mechanisms, and poor dispersal ability, are not resulting in current losses of slough habitat or losses of any of the 28 populations of the Platte River caddisfly along the Platte River, nor are they likely to do so in the foreseeable future. In addition, we find that the Platte River portion of the range of the caddisfly is not endangered or threatened because of existing programs and entities that are striving to protect current channel conditions. There is also no information to indicate that the potential threats analyzed under the five factors are contributing to a decline in the number of Platte River caddisfly populations or amount of slough habitat available along the central Platte River. For instance, we analyzed projected increases in the frequency of droughts in central Nebraska and how this could impact the Platte River caddisfly and its habitat. We also considered how the effects of climate change may be compounded by current levels of water development and have determined that these threats are not likely to pose a threat to the Platte River caddisfly across its range. Therefore, based on our review, the available information does not indicate that any of the potential threats we evaluated in all the factors under the Act were so concentrated in any portion of the species' range as to find that the Platte River caddisfly may currently be in danger of extinction in that portion of its range. Because we find that the Platte River caddisfly is not an endangered species in any portion of its range now or in the foreseeable future, we need not address the question of whether any portion may be significant.
Our review of the information pertaining to the five factors does not support the assertion that there are threats acting on the species or its habitat that have rendered the Platte River caddisfly to be in danger of extinction or likely to become so in the foreseeable future, throughout all or a significant portion of its range. Therefore, listing the Platte River caddisfly as an endangered or threatened species under the Act is not warranted at this time.
We request that you submit any new information concerning the status of, or threats to, the Platte River caddisfly to our Nebraska Field Office (see
A complete list of references cited is available on the Internet at
The primary authors of this notice are the staff members of the Nebraska Field Office.
The authority for this action is section 4 of the Endangered Species Act of 1973, as amended (16 U.S.C. 1531
National Marine Fisheries Service (NMFS), National Oceanic and Atmospheric Administration (NOAA), Commerce.
Notice of a public scoping meeting for an environmental impact statement; request for written comments.
NMFS, in coordination with the North Pacific Fishery Management Council (NPFMC), will hold a public scoping meeting and accept written comments from the public to determine the issues of concern; the appropriate range of management alternatives; and the direct, indirect, and cumulative impacts to be addressed in the Environmental Impact Statement (EIS) for the Steller Sea Lion Protection Measures for the Groundfish Fisheries in the Bering Sea and Aleutian Islands Management Area (BSAI). The EIS is being prepared in accordance with the National Environmental Policy Act of 1969 (NEPA). The proposed action would restrict groundfish fishing in the BSAI to ensure the groundfish fisheries are not likely to result in jeopardy of continued existence or adverse modification or destruction of designated critical habitat (JAM) for the western distinct population segment (DPS) of Steller sea lions. The western DPS of Steller sea lions is listed as endangered under the Endangered Species Act (ESA), and NMFS must ensure that the groundfish fisheries are not likely to result in JAM for this DPS. NMFS intends to work with stakeholders to develop fisheries restrictions that avoid the likelihood of JAM and minimize the potential economic impact on the fishing industry to the extent practicable while meeting the requirements of the ESA. The analysis in the EIS will determine the impacts to the human environment resulting from this proposed action and the alternatives.
Written comments must be received by October 15, 2012. A scoping meeting will be held on Tuesday, October 2, 2012, from 5:30 to 7:30 p.m., Alaska local time.
The scoping meeting will be held in the Dillingham/Katmai room at the Hilton Hotel, 500 West 3rd Street, Anchorage, AK.
You may submit comments on this action, identified by NOAA–NMFS–2012–0013, by any of the following methods:
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• Hand delivery during the October 2, 2012 scoping meeting to Melanie Brown, NMFS.
Electronic copies of the 2010 environmental assessment and biological opinion prepared for the Steller sea lion protection measures are available from
Melanie Brown, (907) 586–7228.
A description of the legal authority, history of the Steller sea lion protection measures, litigation, potential alternatives, and issues for analysis are in the
NMFS is seeking written public comments on the scope of issues that should be addressed in the EIS and alternatives that should be considered in revising the Steller sea lion protection measures. NMFS will accept comments in writing at the address above (see
The public is invited to attend the scoping meeting on Tuesday, October 2, 2012, in Anchorage, AK, which will be held in coordination with the NPFMC meeting. At the scoping meeting, NMFS will present background on the development of the EIS and scoping issues that have been identified. The public will have the opportunity to ask questions of NMFS staff regarding the EIS and may submit written comments at that time (see
Please visit the NMFS Alaska Region Web page at
These meetings are physically accessible to people with disabilities. Requests for sign language interpretation or other auxiliary aids should be directed to Gail Bendixen, NPFMC, 907–271–2809, at least five days prior to the meeting date.
16 U.S.C. 1801
The Department of Agriculture has submitted the following information collection requirement(s) to OMB for review and clearance under the Paperwork Reduction Act of 1995, Public Law 104–13. Comments regarding (a) Whether the collection of information is necessary for the proper performance of the functions of the agency, including whether the information will have practical utility; (b) the accuracy of the agency's estimate of burden including the validity of the methodology and assumptions used; (c) ways to enhance the quality, utility and clarity of the information to be collected; (d) ways to minimize the burden of the collection of information on those who are to respond, including through the use of appropriate automated, electronic, mechanical, or other technological collection techniques or other forms of information technology should be addressed to: Desk Officer for Agriculture, Office of Information and Regulatory Affairs, Office of Management and Budget (OMB),
An agency may not conduct or sponsor a collection of information unless the collection of information displays a currently valid OMB control number and the agency informs potential persons who are to respond to the collection of information that such persons are not required to respond to the collection of information unless it displays a currently valid OMB control number.
The Department of Agriculture will submit the following information collection requirement(s) to OMB for review and clearance under the Paperwork Reduction Act of 1995, Public Law 104–13 on or after the date of publication of this notice. Comments regarding (a) Whether the collection of information is necessary for the proper performance of the functions of the agency, including whether the information will have practical utility; (b) the accuracy of the agency's estimate of burden including the validity of the methodology and assumptions used; (c) ways to enhance the quality, utility and clarity of the information to be collected; (d) ways to minimize the burden of the collection of information on those who are to respond, including through the use of appropriate automated, electronic, mechanical, or other technological collection techniques or other forms of information technology should be addressed to: Desk Officer for Agriculture, Office of Information and Regulatory Affairs, Office of Management and Budget (OMB), New Executive Office Building, Washington, DC;
Comments regarding these information collections are best assured of having their full effect if received by October 1, 2012. Copies of the submission(s) may be obtained by calling (202) 720–8681.
An agency may not conduct or sponsor a collection of information unless the collection of information displays a currently valid OMB control number and the agency informs potential persons who are to respond to the collection of information that such persons are not required to respond to the collection of information unless it displays a currently valid OMB control number.
Agricultural Marketing Service, USDA.
Notice of meeting.
In accordance with the Federal Advisory Committee Act, as amended, (5 U.S.C. App.), the Agricultural Marketing Service (AMS) is announcing an upcoming meeting of the National Organic Standards Board (NOSB). Written public comments are invited in advance of the meeting, and the meeting will include scheduled time for oral comments from the public.
The meeting will be held October 15–18, 2012, from 8 a.m. to 6 p.m. each day. The deadline for public comments in advance of the meeting is Monday, September 24, 2012.
The meeting will take place at the Biltmore Hotel, 11 Dorrance Street, Providence, RI 02903. Information and instructions pertaining to the meeting are posted at the following Web site address:
Ms. Michelle Arsenault, Special Assistant, National Organic Standards Board, USDA–AMS–NOP, 1400 Independence Ave. SW., Room 2648-So., Mail Stop 0268, Washington, DC 20250–0268; Phone: (202) 720–3252; Email:
The purpose of the NOSB is to make recommendations about whether a substance should be allowed or prohibited in organic production or handling, to assist in the development of standards for organic production, and to advise the Secretary on other aspects of the implementation of the Organic Foods Production Act (7 U.S.C. 6501–6522). The NOSB currently has seven subcommittees working on various aspects of the organic program. The subcommittees are: Compliance, Accreditation, and Certification; Crops; Handling; Livestock; Materials; Policy Development; and the ad hoc Genetically Modified Organisms (GMO).
The primary purpose of NOSB meetings is to provide an opportunity for the organic community to weigh in on proposed NOSB recommendations and discussion items. These meetings also allow the NOSB to receive updates from the USDA National Organic Program (NOP) on issues pertaining to organic agriculture.
The meeting will be open to the public. The meeting agenda, NOSB proposals and discussion documents, instructions for submitting and viewing public comments, and instructions for requesting a time slot for oral comments are available on the NOP Web site at
Written public comments will be accepted through September 24, 2012 via
The NOSB has scheduled time for oral comments from the public, and will accommodate as many individuals and organizations as possible during these sessions. Individuals and organizations wishing to make oral presentations at the meeting must pre-register to request
Notice is hereby given, pursuant to the provisions of the rules and regulations of the U.S. Commission on Civil Rights (Commission), and the Federal Advisory Committee Act (FACA), that a briefing meeting of the Wisconsin Advisory Committee to the Commission will convene at 6 p.m. and adjourn at 9 p.m. on September 12, 2012, at the Sikh Temple of Wisconsin, 7512 South Howell Avenue, Oak Creek, WI. The purpose of the meeting is to gather testimony on the civil rights issues confronting the Sikh community in Wisconsin. Members of the Sikh community and scholars in the field will be giving presentations on the topic.
Members of the public are entitled to submit written comments; the comments must be received in the regional office by October 12, 2012. The address is 55 W. Monroe St., Suite 410, Chicago, IL 60603. Persons wishing to email their comments, or to present their comments verbally at the meeting, or who desire additional information should contact Carolyn Allen, Administrative assistant, (312) 353–8311 or by email:
Hearing-impaired persons who will attend the meeting and require the services of a sign language interpreter should contact the Regional Office at least ten (10) working days before the scheduled date of the meeting.
Records generated from this meeting may be inspected and reproduced at the Midwestern Regional Office, as they become available, both before and after the meeting. Persons interested in the work of this advisory committee are advised to go to the Commission's Web site,
The meeting will be conducted pursuant to the provisions of the rules and regulations of the Commission and FACA.
Bureau of the Census, Department of Commerce.
Notice of public meeting.
The Bureau of the Census (U.S. Census Bureau) is giving notice of a meeting of the Census Scientific Advisory Committee (C–SAC). The Committee will address policy, research, and technical issues relating to a full range of Census Bureau programs and activities, including communications, decennial, demographic, economic, field operations, geographic, information technology, and statistics. Last minute changes to the agenda are possible, which could prevent giving advance public notice of schedule adjustments.
September 20 and 21, 2012. On September 20, the meeting will begin at approximately 9 a.m. and adjourn at approximately 5 p.m. On September 21, the meeting will begin at approximately 9 a.m. and adjourn at 12:45 p.m.
The meeting will be held at the U.S. Census Bureau Conference Center, 4600 Silver Hill Road, Suitland, Maryland 20746.
Jeri Green, Committee Liaison Officer, Department of Commerce, U.S. Census Bureau, Room 8H182, 4600 Silver Hill Road, Washington, DC 20233, telephone 301–763–6590. For TTY callers, please use the Federal Relay Service 1–800–877–8339.
Members of the C–SAC are appointed by the Director, U.S. Census Bureau. The Committee provides scientific and technical expertise, as appropriate, to address Census Bureau program needs and objectives. The Committee has been established in accordance with the Federal Advisory Committee Act (Title 5, United States Code, Appendix 2, Section 10).
The meeting is open to the public, and a brief period is set aside for public comments and questions. Persons with extensive questions or statements must submit them in writing at least three days before the meeting to the Committee Liaison Officer named above. If you plan to attend the meeting, please register by Monday, September 17, 2012. You may access the online registration form with the following link:
This meeting is physically accessible to people with disabilities. Requests for sign language interpretation or other auxiliary aids should also be directed to the Committee Liaison Officer as soon as known, and preferably two weeks prior to the meeting.
Boundary County, grantee of FTZ 242, submitted a notification of proposed production activity on behalf of AREVA Enrichment Services, LLC (AES), located in Bonneville County, Idaho. The notification conforming to the requirements of the regulations of the Board (15 CFR 400.22) was received on August 21, 2012.
A separate application for subzone status at the AES facility was submitted and will be processed under Section 400.31 of the Board's regulations. FTZ authority is being requested for the storage, manipulation, assembly and installation of gas centrifuge production equipment. Production under FTZ
Components and materials sourced from abroad include: plastic tubing, plastic pipework, centrifuge floor-mounting elements, UF6 pipework/fittings, parts of cascades, vacuum pumps, UF6 pumps, heat exchange units, autoclaves, stations, parts of stations, machinery parts, UF6 valves and centrifuge drive systems (duty rate ranges from duty-free to 5.7%).
Public comment is invited from interested parties. Submissions shall be addressed to the Board's Executive Secretary at the address below. The closing period for their receipt is October 9, 2012.
A copy of the notification will be available for public inspection at the Office of the Executive Secretary, Foreign-Trade Zones Board, Room 21013, U.S. Department of Commerce, 1401 Constitution Avenue NW., Washington, DC 20230–0002, and in the “Reading Room” section of the Board's Web site, which is accessible via
For further information, contact Elizabeth Whiteman at
Pursuant to its authority under the Foreign-Trade Zones Act of June 18, 1934, as amended (19 U.S.C. 81a–81u), the Foreign-Trade Zones Board (the Board) adopts the following Order:
The application to reorganize and expand FTZ 219 under the alternative site framework is approved, subject to the FTZ Act and the Board's regulations, including Section 400.13, to the Board's standard 2,000-acre activation limit for the zone, to a five-year ASF sunset provision for magnet sites that would terminate authority for Site 2 and Site 4 if not activated by August 31, 2017, and to a three-year ASF sunset provision for usage-driven sites that would terminate authority for Site 5 if no foreign-status merchandise is admitted for a
Pursuant to its authority under the Foreign-Trade Zones Act of June 18, 1934, as amended (19 U.S.C. 81a–81u), the Foreign-Trade Zones Board (the Board) adopts the following Order:
The application to reorganize and expand FTZ 87 is approved, subject to the FTZ Act and the Board's regulations, including Section 400.13, and further subject to the Board's standard 2,000-acre activation limit.
This is a decision consolidated pursuant to Section 6(c) of the Educational, Scientific, and Cultural Materials Importation Act of 1966 (Pub. L. 89–651, as amended by Pub. L. 106–36; 80 Stat. 897; 15 CFR part 301). Related records can be viewed between 8:30 a.m. and 5 p.m. in Room 3720, U.S. Department of Commerce, 14th and Constitution Avenue NW., Washington, DC
Import Administration, International Trade Administration, Department of Commerce.
As a result of the determinations by the Department of Commerce (“Department”) and the International Trade Commission (“ITC”) that revocation of the antidumping duty order on tapered roller bearings and parts thereof, finished and unfinished (“TRBs”), from the People's Republic of China (“PRC”) would likely lead to a continuation or recurrence of dumping and material injury to an industry in the United States, the Department is publishing a notice of continuation of the antidumping duty order.
Lindsey Novom, AD/CVD Operations, Office 8, Import Administration, International Trade Administration, U.S. Department of Commerce, 14th Street and Constitution Avenue NW., Washington, DC 20230; telephone: (202) 482–5256.
On August 1, 2011, the Department initiated the third sunset review of the antidumping duty order on TRBs from the PRC pursuant to section 751(c) of the Tariff Act of 1930, as amended (“Act”).
As a result of its review, the Department determined that revocation of the antidumping duty order on TRBs from the PRC would likely lead to a continuation or recurrence of dumping and, therefore, notified the ITC of the magnitude of the margins likely to prevail should the order be revoked.
On July 31, 2012, the ITC determined, pursuant to section 751(c) of the Act, that revocation of the antidumping duty order on TRBs from the PRC would likely lead to a continuation or recurrence of material injury to an industry in the United States within a reasonably foreseeable time.
The products covered by the order are tapered roller bearings and parts thereof, finished and unfinished, from the PRC; flange, take up cartridge, and hanger units incorporating tapered roller bearings; and tapered roller housings (except pillow blocks) incorporating tapered rollers, with or without spindles, whether or not for automotive use. These products are currently classifiable under Harmonized Tariff Schedule of the United States (“HTSUS”) item numbers 8482.20.00, 8482.91.00.50, 8482.99.15, 8482.99.45, 8483.20.40, 8483.20.80, 8483.30.80, 8483.90.20, 8483.90.30, 8483.90.80, 8708.99.80.15
As a result of these determinations by the Department and the ITC that revocation of the antidumping duty order on TRBs would likely lead to a continuation or recurrence of dumping and material injury to an industry in the United States, pursuant to section 751(d)(2) of the Act, the Department hereby orders the continuation of the antidumping duty order on TRBs from the PRC. U.S. Customs and Border Protection will continue to collect antidumping duty cash deposits at the rates in effect at the time of entry for all imports of subject merchandise. The effective date of the continuation of the order will be the date of publication in the
This five-year sunset review and this notice are in accordance with section
This is a decision pursuant to Section 6(c) of the Educational, Scientific, and Cultural Materials Importation Act of 1966 (Pub. L. 89–651, as amended by Pub. L. 106–36; 80 Stat. 897; 15 CFR part 301). Related records can be viewed between 8:30 a.m. and 5 p.m. in Room 3720, U.S. Department of Commerce, 14th and Constitution Ave. NW., Washington, DC
Import Administration, International Trade Administration, Department of Commerce.
On August 21, 2012, the U.S. Trade Representative (“USTR”) instructed the Department of Commerce (“Department”) to implement its determinations under section 129 of the Uruguay Round Agreements Act (“URAA”) regarding the antidumping and countervailing duty investigations on certain new pneumatic off-the-road tires (“OTR Tires”) from the People's Republic of China (“PRC”), circular welded carbon quality steel pipe (“CWP”) from the PRC, laminated woven sacks (“Sacks”) from the PRC, and light-walled rectangular pipe and tube (“LWRPT”) from the PRC, which renders them not inconsistent with the World Trade Organization (“WTO”) dispute settlement findings in
Daniel Calhoun, Christopher Mutz, or Mark Hoadley, U.S. Department of Commerce, 14th Street and Constitution Avenue NW., Washington, DC 20230; telephone: (202) 482–1439, (202) 482–0235, or (202) 482–3148, respectively.
On August 22, 2011, the Department informed interested parties that it was initiating proceedings under section 129 of the URAA to implement the findings of the WTO dispute settlement panel in DS 379 with regard to the countervailing duty (“CVD”) investigations on OTR Tires and Sacks from the PRC. On September 27, 2011, the Department informed interested parties that it was initiating proceedings under section 129 of the URAA to implement the findings of the WTO dispute settlement panel in DS 379 with regard to the CVD investigations on CWP and LWRPT from the PRC. On May 14, 2012, the Department informed interested parties that it was initiating proceedings under section 129 of the URAA to implement the findings of the WTO dispute settlement panel in DS 379 with regard to the antidumping duty (“AD”) investigations on CWP, LWRPT, OTR Tires, and Sacks from the PRC.
Given the number and complexity of the issues involved, the Department addressed the Dispute Settlement Body's findings through separate preliminary determination memoranda with respect to each of the issues addressed in WTO DS 379. Specifically, the Department issued the preliminary determinations regarding:
A. Loan benchmarks on April 6, 2012;
B. Trading companies on April 6, 2012;
C. Land specificity on April 9, 2012;
D. Facts available on May 18, 2012;
E. Public bodies on May 18, 2012;
F. Double remedies on May 31, 2012.
(1) “Section 129 Determination of the Countervailing Duty Investigation of Certain New Pneumatic Off-the-Road Tires from the People's Republic of China: `Double Remedies' Analysis Pursuant to the WTO Appellate Body Findings in WTO DS 379,” dated May 31, 2012;
(2) “Section 129 Proceeding Pursuant to the WTO Appellate Body's Findings in WTO DS 379 Regarding the Antidumping Duty Investigation of Certain New Pneumatic Off-the-Road Tires (OTR Tires) from the People's Republic of China: Preliminary Determination of Adjustments to the Antidumping Duty Cash Deposit Rates,” dated May 31, 2012;
(3) “Section 129 Determination of the Countervailing Duty Investigation of Circular Welded Carbon Quality Steel Pipe from the People's Republic of China: `Double Remedies' Analysis Pursuant to the WTO Appellate Body Findings in WTO DS 379,” dated May 31, 2012;
(4) “Section 129 Proceeding Pursuant to the WTO Appellate Body's Findings in WTO DS 379 Regarding the Antidumping Duty Investigation of Circular Welded Carbon Quality Steel Pipe from the People's Republic of China: Preliminary Determination of Adjustments to the Antidumping Duty Cash Deposit Rates,” dated May 31, 2012;
(5) “Section 129 Determination of the Countervailing Duty Investigation of Certain New Pneumatic Laminated Woven Sacks from the People's Republic of China: `Double Remedies' Analysis Pursuant to the WTO Appellate Body Findings in WTO DS 379,” dated May 31, 2012;
(6) “Section 129 Proceeding Pursuant to the WTO Appellate Body's Findings in WTO DS 379 Regarding the Antidumping Duty Investigation of Laminated Woven Sacks from the People's Republic of China: Preliminary Determination of Adjustments to the Antidumping Duty Cash Deposit Rates,” dated May 31, 2012;
(7) “Section 129 Determination of the Countervailing Duty Investigation of Light Walled Rectangular Pipe and Tube from the People's Republic of China: `Double Remedies' Analysis Pursuant to the WTO Appellate Body Findings in WTO DS 379,” dated May 31, 2012; and
(8) “Section 129 Proceeding Pursuant to the WTO Appellate Body's Findings in WTO DS 379 Regarding the Antidumping Duty Investigation of Light Walled Rectangular Pipe and Tube from the People's Republic of China from the People's Republic of China: Preliminary Determination of Adjustments to the Antidumping Duty Cash Deposit Rates,” dated May 31, 2012.
The Department invited interested parties to comment on each of the section 129 preliminary determinations. After receiving comments and rebuttal comments from the interested parties, the Department issued its final results for the section 129 determinations on July 31, 2012.
In its August 21, 2012, letter, the USTR notified the Department that, consistent with section 129(b)(3) of the URAA, consultations with the Department and the appropriate congressional committees with respect to the July 31, 2012, determinations have been completed. Also on August 21, 2012, in accordance with section 129(b)(4) of the URAA, the USTR directed the Department to implement these determinations.
Section 129 of the URAA governs the nature and effect of determinations issued by the Department to implement findings by WTO dispute settlement panels and the Appellate Body. Specifically, section 129(b)(2) of the URAA provides that “notwithstanding any provision of the Tariff Act of 1930,” upon a written request from the USTR, the Department shall issue a determination that would render its actions not inconsistent with an adverse finding of a WTO panel or the Appellate Body.
The issues raised in the comments and rebuttal comments submitted by interested parties to these proceedings are addressed in the respective final determinations. The issues included in the respective final determinations are as follows: (1) Loan benchmarks (OTR Tires); (2) trading companies (OTR Tires); (3) land specificity (Sacks); (4) adverse facts available (CWP and LWRPT); (5) public bodies (CWP, LWRPT, OTR Tires, and Sacks); and (6) double remedies (CWP, LWRPT, OTR Tires, and Sacks). The final determinations are public documents and are on file electronically via Import Administration's Antidumping and Countervailing Duty Centralized Electronic Service System (“IA ACCESS”). Access to IA ACCESS is available to registered users at
The recalculated CVD rates, as included in the final determinations and
The recalculated AD cash deposit rates, as included in the final determinations and which remain unchanged from the preliminary determinations for each company, are as follows:
On August 21, 2012, in accordance
Import Administration, International Trade Administration, Department of Commerce.
The Department of Commerce (“the Department”) has received requests to conduct administrative reviews of various antidumping and countervailing duty orders and findings with July anniversary dates. In accordance with the Department's regulations, we are initiating those administrative reviews. The Department also received a request to revoke one antidumping duty order in part.
Brenda E. Waters, Office of AD/CVD Operations, Customs Unit, Import Administration, International Trade Administration, U.S. Department of Commerce, 14th Street and Constitution Avenue NW., Washington, DC 20230, telephone: (202) 482–4735.
The Department has received timely requests, in accordance with 19 CFR 351.213(b), for administrative reviews of various antidumping and countervailing
All deadlines for the submission of various types of information, certifications, or comments or actions by the Department discussed below refer to the number of calendar days from the applicable starting time.
If a producer or exporter named in this notice of initiation had no exports, sales, or entries during the period of review (“POR”), it must notify the Department within 60 days of publication of this notice in the
In the event the Department limits the number of respondents for individual examination for administrative reviews, the Department intends to select respondents based on U.S. Customs and Border Protection (“CBP”) data for U.S. imports during the POR. We intend to release the CBP data under Administrative Protective Order (“APO”) to all parties having an APO within seven days of publication of this initiation notice and to make our decision regarding respondent selection within 21 days of publication of this
In the event the Department decides it is necessary to limit individual examination of respondents and conduct respondent selection under section 777A(c)(2) of the Act:
In general, the Department has found that determinations concerning whether particular companies should be “collapsed” (
Pursuant to 19 CFR 351.213(d)(1), a party that has requested a review may withdraw that request within 90 days of the date of publication of the notice of initiation of the requested review. The regulation provides that the Department may extend this time if it is reasonable to do so. In order to provide parties additional certainty with respect to when the Department will exercise its discretion to extend this 90-day deadline, interested parties are advised that, with regard to reviews requested on the basis of anniversary months on or after August 2011, the Department does not intend to extend the 90-day deadline unless the requestor demonstrates that an extraordinary circumstance has prevented it from submitting a timely withdrawal request. Determinations by the Department to extend the 90-day deadline will be made on a case-by-case basis.
In proceedings involving non-market economy (“NME”) countries, the Department begins with a rebuttable presumption that all companies within the country are subject to government control and, thus, should be assigned a single antidumping duty deposit rate. It is the Department's policy to assign all exporters of merchandise subject to an administrative review in an NME country this single rate unless an exporter can demonstrate that it is sufficiently independent so as to be entitled to a separate rate.
To establish whether a firm is sufficiently independent from government control of its export activities to be entitled to a separate rate, the Department analyzes each entity exporting the subject merchandise under a test arising from the
All firms listed below that wish to qualify for separate rate status in the administrative reviews involving NME countries must complete, as appropriate, either a separate rate application or certification, as described below. For these administrative reviews, in order to demonstrate separate rate eligibility, the Department requires entities for whom a review was requested, that were assigned a separate rate in the most recent segment of this proceeding in which they participated, to certify that they continue to meet the criteria for obtaining a separate rate. The Separate Rate Certification form will be available on the Department's Web site at
Entities that currently do not have a separate rate from a completed segment of the proceeding
For exporters and producers who submit a separate-rate status application or certification and subsequently are selected as mandatory respondents, these exporters and producers will no longer be eligible for separate rate status unless they respond to all parts of the questionnaire as mandatory respondents.
In accordance with 19 CFR 351.221(c)(1)(i), we are initiating administrative reviews of the following antidumping and countervailing duty orders and findings. We intend to issue the final results of these reviews not later than July 31, 2013.
None.
During any administrative review covering all or part of a period falling between the first and second or third and fourth anniversary of the publication of an antidumping duty order under 19 CFR 351.211 or a determination under 19 CFR 351.218(f)(4) to continue an order or suspended investigation (after sunset review), the Secretary, if requested by a domestic interested party within 30 days of the date of publication of the notice of initiation of the review, will determine, consistent with
For the first administrative review of any order, there will be no assessment of antidumping or countervailing duties on entries of subject merchandise entered, or withdrawn from warehouse, for consumption during the relevant provisional-measures “gap” period, of the order, if such a gap period is applicable to the period of review.
Interested parties must submit applications for disclosure under administrative protective orders in accordance with 19 CFR 351.305. On January 22, 2008, the Department published
Any party submitting factual information in an antidumping duty or countervailing duty proceeding must certify to the accuracy and completeness of that information.
These initiations and this notice are in accordance with section 751(a) of the Act (19 U.S.C. 1675(a)) and 19 CFR 351.221(c)(1)(i).
National Institute of Standards and Technology (NIST), Commerce.
Notice and Request for Comments.
The National Institute of Standards and Technology (NIST) seeks additional comments on specific sections of Federal Information Processing Standard 140–3 (Second Draft),
Comments must be received on or before October 1, 2012.
Written comments may be sent to: Chief, Computer Security Division, Information Technology Laboratory, Attention: Dr. Michaela Iorga, 100 Bureau Drive, Mail Stop 8930, National Institute of Standards and Technology, Gaithersburg, MD 20899–8930. Electronic comments may also be sent to:
The current FIPS 140–2 standard can be found at:
Dr. Michaela Iorga, Computer Security Division, 100 Bureau Drive, Mail Stop 8930, National Institute of Standards and Technology, Gaithersburg, MD 20899–8930, Telephone (301) 975–8431.
FIPS 140–1,
In 2005, NIST announced that it planned to develop FIPS 140–3 and solicited public comments on new and revised requirements for cryptographic systems. On January 12, 2005, a notice was published in the
Using the comments received in response to the July 13, 2007, notice and the feedback on requirements for software cryptographic modules obtained during the March 18, 2008, “FIPS 140–3 Software Security Workshop,” NIST developed the “Revised Draft FIPS 140–3” (hereafter referred to as “2009 Draft”), that was announced in the
The comments received in response to the December 11, 2009, request for comments suggested either modifying requirements or applying the requirements at a different security level. Some comments asked for clarification of the text of the standard, and some recommended editorial and formatting changes. None of the comments received opposed the approval of a revised standard.
During the process of addressing the public comments received in response to the Request for Comments published in the
4.2.2 Trusted Channel—the comments suggested that NIST should not mandate the implementation of a trusted channel at Security Level 3 and
4.3.1 Trusted Role—the comments raised a variety of different concerns, reflecting different interpretations of the purpose of the Trusted Role. To address these concerns NIST is proposing the deletion of the Trusted Role and replacement with a Self-initiated Cryptographic Capability, configured and activated by the Crypto Officer that would be preserved over rebooting or power cycling of the module. The capability would provide the module with the ability to perform cryptographic operations including Approved and Allowed security functions without external operator request. NIST would appreciate comments on the proposed approach.
4.7 Physical Security—Non-Invasive Attacks—the comments received suggest substantial changes that would either weaken or strengthen the impact of these requirements. Comments received included stronger security requirements for Security Level 3 and 4, making the section mandatory for all cryptographic modules, including the Security Level for this section as part of the overall Security Level, while other comments suggested not addressing non-invasive attacks within the standard. NIST would appreciate general and specific comments on the requirements to address non-invasive attacks.
4.8.4 Sensitive Security Parameter (SSP) Entry and Output—the comments received raised a variety of different concerns, reflecting different interpretations of the requirements on SSPs that are entered into or output from a module. SSP entry and output requirements depend on whether the SSP is entered or output manually or electronically, and whether the SSP is distributed manually or electronically. New technologies have called into question this taxonomy of SSP entry and output methods. NIST would appreciate comments on the most appropriate way to categorize these methods, and the appropriate requirements for each method.
Annex B, Section: Operator Authentication Mechanisms—the comments received indicated that the specification for the strength of the operator's authentication method was incomplete, particularly with respect to biometrics. For biometric authentication, NIST proposes the use of a Liveness Detection method associated with the Session False Match Rate for one attempt and the Generalized False Accept Rate for multiple attempts in one minute. NIST would appreciate comments on the proposed approach.
Comments on sections not specifically listed in this notice will not be considered.
Prior to the submission of the FIPS 140–3 to the Secretary of Commerce for review and approval, it is essential that consideration is given to the needs and views of the public, users, the information technology industry, and Federal, State and local government organizations. The purpose of this notice is to solicit such views on specific sections of the “2009 Draft.”
National Institute of Standards and Technology, Commerce.
Notice; request for comments.
The National Institute of Standards and Technology (NIST) seeks comments concerning U.S. technical participation in the 14th Conference of the International Organization of Legal Metrology (OIML). This conference is held once every four years and was last held in 2008.
Interested parties are requested to review and submit comments on the 24 OIML Recommendations and Documents on legal measuring instruments that will be presented for ratification by the Conference. Comments may also be submitted on other issues relevant to the Conference.
Written comments should be submitted to the NIST International Legal Metrology Program no later than Friday, September 21, 2012, at 5 p.m. Eastern Time. The 14th OIML International Conference of Legal Metrology will be held in Bucharest, Romania, Wednesday, October 3 through Thursday, October 4, 2012.
Written comments should be sent to the International Legal Metrology Program, Office of Weights and Measures, National Institute of Standards and Technology, 100 Bureau Drive, Mail Stop 2600, Gaithersburg, MD 20899–2600. Comments may also be submitted via email to
Mr. Ralph Richter, International Legal Metrology Program, Office of Weights and Measures, National Institute of Standards and Technology, 100 Bureau Drive, Mail Stop 2600, Gaithersburg, MD 20899–2600; telephone: 301/975–3997; fax: 301/975–8091; email:
The International Organization of Legal Metrology (OIML) is an intergovernmental treaty organization in which the United States and 56 other nations are members. Its principal purpose is to harmonize national laws and regulations pertaining to testing and verifying the performance of legal measuring instruments used for equity in commerce, for public and worker health and safety, and for monitoring and protecting the environment. The harmonized results promote the international trade of measuring instruments and products affected by measurement.
The U.S. Department of State has delegated technical participation in OIML to the National Institute of Standards and Technology. NIST coordinates participation of U.S. manufacturers, users of weighing and measuring instruments, legal metrology officials and other U.S. stakeholders in the technical work of OIML by circulating draft voluntary standards
All parties with an interest in the work of the OIML are requested to review and submit comments on any or all of the 24 Recommendations and Documents that will be presented for ratification by the Conference. All submitted comments will be reviewed and considered by NIST staff in the development of U.S. positions that will be put forward at the 14th Conference of OIML. Within two weeks of the comment submission deadline established in the
Each of the 24 Recommendations and Documents that will be presented for ratification by the Conference has already gone through a multi-year development and review-process involving technical experts and legal metrology experts from the United States and around the world. Ratification by the Conference is the final step in this process. The Recommendations and Documents have been divided into two categories—Category 1: those already approved by the International Committee of Legal Metrology (CIML) between 2009 and 2011, and Category 2: those that are expected to be submitted directly to the Conference for ratification. Because the Recommendations and Documents in Category 2 have not yet received CIML approval, comments received on these Recommendations and Documents are of additional importance to NIST staff. The 24 Recommendations and Documents and the OIML-member nations holding the secretariat responsible for their development are listed below:
• R14, “Polarimetric saccharimeters graduated in accordance with the ICUMSA International Sugar Scale” (Russian Federation);
• R35, “Material Measures of Length for General Use” (United Kingdom);
• R48, “Tungsten ribbon lamps for the calibration of radiation thermometers” (Russian Federation);
• R75, “Heat meters” (Germany);
• R80, “Road and rail tankers with level gauging” (Germany);
• R84, “Platinum, copper, and nickel resistance thermometers (for industrial and commercial use)” (Russian Federation);
• R92, “Wood moisture meters—Verification methods and equipment: general provisions” (P.R. China and United States);
• R120, “Standard capacity measures for testing measuring systems for liquids other than water” (Switzerland);
• R124, “Refractometers for the measurement of the sugar content of grape musts” (Russian Federation);
• R127, “Radiochromic film dosimetry system for ionizing radiation processing of materials and Products” (United States);
• R131, “Polymethylmethacrylate (PMMA) dosimetry systems for ionizing radiation processing of materials and products” (United States);
• R132, “Alanine EPR dosimetry systems for ionizing radiation processing of materials and products” (United States);
• R133, “Liquid-in-glass thermometers” (United States);
• R134, “Automatic instruments for weighing road vehicles in motion and measuring axle loads” (United Kingdom);
• R137, “Gas Meters” (Netherlands);
• Amendment to R138, “Vessels for commercial transactions” (Japan);
• R143, “Instruments for the continuous measurement of SO
• B3, “OIML Basic Certificate System for OIML Type Evaluation of Measuring Instruments” (United States);
• B10, “Framework for a Mutual Acceptance Arrangement on OIML Type Evaluations” (United States); and
• D16, “Principles of assurance of metrological control” (Czech Republic).
• R46. “Active electrical energy meters” (Australia);
• R106, “Automatic rail-weighbridges” (United Kingdom);
• R126, “Evidential Breath Analyzers” (France); and
• D1, “Considerations for a law on metrology” (United States).
Parties with an expressed interest in particular topics may obtain copies of the OIML Conference technical agenda, including copies of the Recommendations to be ratified, from the OIML International Conference Web site at
National Marine Fisheries Service (NMFS), National Oceanic and Atmospheric Administration (NOAA), Commerce.
Notice; receipt of application.
Notice is hereby given that the Georgia Aquarium Inc., 225 Baker Street, Atlanta, GA 30313, has applied in due form for a permit to import eighteen (18) beluga whales (
Written, telefaxed, or electronic comments must be received on or before October 29, 2012.
The application and related documents are available for review online at
You may submit comments on this document, identified by NOAA–NMFS–2012–0158, by any of the following methods:
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NMFS will hold a public meeting to inform interested parties of the permitting process and solicit comments on the application and accompanying draft environmental assessment. The meeting will be held on October 12, 2012, from 2 p.m. to 5 p.m. The meeting will be held at the NOAA Silver Spring Metro Center Complex, NOAA Science Center, 1301 East-West Highway, Silver Spring, MD 20910. This meeting is accessible to people with disabilities. Requests for sign language interpretation or other auxiliary aids should be directed to Jennifer Skidmore, (301)427–8401 (voice) or (301)713–0376 (fax), at least five days before the scheduled meeting date.
Jennifer Skidmore or Kristy Beard, (301)427–8401.
The subject permit is requested under the authority of the Marine Mammal Protection Act of 1972, as amended (MMPA; 16 U.S.C. 1361
Georgia Aquarium requests authorization to import 18 wild caught beluga whales from the Utrish Marine Mammal Research Station in Russia to the United States for the purpose of public display. All 18 beluga whales were collected in Sakhalin Bay of the Sea of Okhotsk in 2006, 2010, and 2011. Approximately six (6) animals would be transported to the Georgia Aquarium facility in Atlanta, GA, and the remaining animals would be transported to four other U.S. partner facilities; Sea World of Florida, Sea World of Texas, Sea World of California, and Shedd Aquarium pursuant to breeding loans. Georgia Aquarium and its U.S. partners are: (1) Open to the public on regularly scheduled basis with access that is not limited or restricted other than by charging for an admission fee; (2) offer conservation and educational programs based on professionally accepted standards of the Alliance of Marine Mammal Parks and Aquariums and the Association of Zoos and Aquariums; and (3) hold Exhibitor's Licenses by the U.S. Department of Agriculture under the Animal Welfare Act (7 U.S.C. 2131–59).
In addition to determining whether the applicant meets the three public display criteria, NMFS must determine whether the applicant has demonstrated that the proposed activity is humane and does not represent any unnecessary risks to the health and welfare of marine mammals; that the proposed activity by itself, or in combination with other activities, will not likely have a significant adverse impact on the species or stock; and that the applicant's expertise, facilities and resources are adequate to accomplish successfully the objectives and activities stated in the application.
A draft environmental assessment (EA) has been prepared in compliance with the National Environmental Policy Act of 1969 (42 U.S.C. 4321
Concurrent with the publication of this notice in the
National Marine Fisheries Service (NMFS), National Oceanic and Atmospheric Administration (NOAA), Commerce.
Notice of a public meeting.
The Mid-Atlantic Fishery Management Council's (Council) Spiny Dogfish Advisory Panel (AP) will meet in Philadelphia, PA.
The meeting will be held on September 18, 2012 from 10 a.m. until 3 p.m.
The meeting will be at the Embassy Suites Philadelphia Airport, 9000 Bartram Avenue, Philadelphia, PA 19153; telephone: (215) 365–4500.
Christopher M. Moore Ph.D., Executive Director, Mid-Atlantic Fishery Management Council, 800 N. State Street, Suite 201, Dover, DE 19901; telephone: (302) 526–5255.
The purpose of this meeting is to review fishery performance and create an AP Fishery Performance Report for Spiny Dogfish.
Although non-emergency issues not contained in this agenda may come before this group for discussion, in accordance with the Magnuson-Stevens Fishery Conservation and Management Act (Magnuson-Stevens Act), those issues may not be the subject of formal action during this meeting. Actions will be restricted to those issues specifically identified in this notice and any issues arising after publication of this notice that require emergency action under Section 305(c) of the Magnuson-Stevens Act, provided the public has been notified of the Council's intent to take final action to address the emergency.
The meeting is physically accessible to people with disabilities. Requests for sign language interpretation or other auxiliary aids should be directed to M. Jan Saunders at the Mid-Atlantic Council Office, (302) 526–5251, at least 5 days prior to the meeting date.
National Oceanic and Atmospheric Administration, Commerce.
Notice of public meeting.
This notice sets forth the schedule and proposed agenda of a
The announced meeting is scheduled 8 a.m.–5 p.m. AKDT Sunday, September 16 and 8:30 a.m.–12:30 p.m. AKDT Monday, September 17, 2012.
The meeting will be held at Hotel Alyeska, 1000 Arlberg Avenue, Girdwood, AK 99587.
Ms. Elizabeth Ban, Designated Federal Officer, National Sea Grant College Program, National Oceanic and Atmospheric Administration, 1315 East-West Highway, Room 11843, Silver Spring, Maryland 20910, (301) 734–1082.
The Board, which consists of a balanced representation from academia, industry, state government and citizens groups, was established in 1976 by Section 209 of the Sea Grant Improvement Act (Pub. L. 94–461, 33 U.S.C. 1128). The Board advises the Secretary of Commerce and the Director of the National Sea Grant College Program with respect to operations under the Act, and such other matters as the Secretary refers to them for review and advice.
The agenda for this meeting will be available at
Department of Defense (DOD), General Services Administration (GSA), and National Aeronautics and Space Administration (NASA).
Notice of request for public comments regarding an extension of an existing OMB clearance.
Under the provisions of the Paperwork Reduction Act, the Regulatory Secretariat will be submitting to the Office of Management and Budget (OMB) a request to review and approve an extension of a previously approved information collection requirement concerning drug-free workplace.
Public comments are particularly invited on: Whether this collection of information is necessary for the proper performance of functions of the Federal Acquisition Regulations (FAR), and whether it will have practical utility; whether our estimate of the public burden of this collection of information is accurate, and based on valid assumptions and methodology; ways to enhance the quality, utility, and clarity of the information to be collected; and ways in which we can minimize the burden of the collection of information on those who are to respond, through the use of appropriate technological collection techniques or other forms of information technology.
Submit comments on or before October 29, 2012.
Submit comments identified by Information Collection 9000–0101, Drug-Free Workplace, by any of the following methods:
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Ms. Marissa Petrusek, Procurement Analyst, Office of Acquisition Policy, GSA (202) 501–0136 or email
FAR clause 52.223–6, Drug-Free Workplace, requires (1) Contractor employees to notify their employer of any criminal drug statute conviction for a violation occurring in the workplace; and (2) Government contractors, after receiving notice of such conviction, to notify the contracting officer. The clause is not applicable to commercial items, contracts at or below simplified acquisition threshold (unless awarded to an individual), and contracts performed outside the United States or by law enforcement agencies. The clause implements the Drug-Free Workplace Act of 1988 (Pub. L. 100–690).
The information provided to the Government is used to determine contractor compliance with the statutory requirements to maintain a drug-free workplace.
Based on Fiscal Year 2011 (FY11) data from the Federal Procurement Data
Department of Defense (DOD), General Services Administration (GSA), and National Aeronautics and Space Administration (NASA).
Notice of request for public comments regarding an extension to an existing OMB clearance.
Under the provisions of the Paperwork Reduction Act, the Regulatory Secretariat will be submitting to the Office of Management and Budget (OMB) a request to review and approve an extension of a previously approved information collection requirement concerning delivery schedules. A notice was published in the
Public comments are particularly invited on: whether this collection of information is necessary for the proper performance of functions of the Federal Acquisition Regulation (FAR), and whether it will have practical utility; whether our estimate of the public burden of this collection of information is accurate, and based on valid assumptions and methodology; ways to enhance the quality, utility, and clarity of the information to be collected; and ways in which we can minimize the burden of the collection of information on those who are to respond, through the use of appropriate technological collection techniques or other forms of information technology.
Submit comments on or before October 1, 2012.
Submit comments identified by Information Collection 9000–0043, Delivery Schedules by any of the following methods:
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Ms. Marissa Petrusek, Procurement Analyst, Federal Acquisition Policy Division, GSA (202) 501–0136 or via email at
The time of delivery or performance is an essential contract element and must be clearly stated in solicitations and contracts. The contracting officer may set forth a required delivery schedule or may allow an offeror to propose an alternate delivery schedule, for other than those for construction and architect-engineering, by inserting in solicitations and contracts a clause substantially the same as either FAR 52.211–8, Time of Delivery, or FAR 52.211–9, Desired and Required Time of Delivery. These clauses allow the contractor to fill-in their proposed delivery schedule. The information is needed to assure supplies or services are obtained in a timely manner.
One respondent submitted public comments on the extension of the previously approved information collection. The analysis of the public comments is summarized as follows:
The burden is prepared taking into consideration the necessary criteria in OMB guidance for estimating the paperwork burden put on the entity submitting the information. For example, consideration is given to an entity reviewing instructions; using technology to collect, process, and disclose information; adjusting existing practices to comply with requirements; searching data sources; completing and reviewing the response; and transmitting or disclosing information. The estimated burden hours for a collection are based on an average between the hours that a simple disclosure by a very small business might require and the much higher numbers that might be required for a very complex disclosure by a major corporation. Also, the estimated burden hours should only include projected hours for those actions which a company would not undertake in the normal course of business. Careful consideration went into assessing the estimated burden hours for this collection, and it is determined that an upward adjustment is not required at this time. However, at any point, members of the public may submit comments for further consideration, and are encouraged to provide data to support their request for an adjustment.
Defense Security Cooperation Agency, Department of Defense.
Notice.
The Department of Defense is publishing the unclassified text of a section 36(b)(1) arms sales notification. This is published to fulfill the requirements of section 155 of Public Law 104–164 dated July 21, 1996.
Ms. B. English, DSCA/DBO/CFM, (703) 601–3740.
The following is a copy of a letter to the Speaker of the House of Representatives, Transmittals 12–44 with attached transmittal, policy justification, and Sensitivity of Technology.
(i)
(ii)
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(vi)
(vii)
(viii)
The Government of Indonesia has requested a possible sale of 18 AGM–
This proposed sale will contribute to the foreign policy and national security of the United States by helping to improve the security of a friendly country which has been, and continues to be, an important force for political stability and economic progress in Southeast Asia.
The Indonesian Air Force (IAF) needs these missiles to train its F–16 pilots in basic air-to-ground weapons employment. The quantities in the proposed sale will support the IAF's existing fleet of 10 F–16s, as well as the 24 F–16s being provided as Excess Defense Articles. The proposed sale will foster continued cooperation between the U.S. and Indonesia, making Indonesia a more valuable regional partner in an important area of the world.
The proposed sale of this equipment will not alter the basic military balance in the region.
The principal contractors will be Raytheon Missile Systems in Tucson, Arizona. There are no known offset agreements proposed in connection with this potential sale.
Implementation of this proposed sale will not require the assignment of additional U.S. Government or contractor representatives to Indonesia.
There will be no adverse impact on U.S. defense readiness as a result of this proposed sale.
(vii)
1. The AGM–65K MAVERICK is an air-to-ground tactical missile designed for close air support. The missile hardware is Unclassified, but has an overall classification of Secret. The Secret aspects of the MAVERICK system are tactics, information revealing its vulnerability to countermeasures, and counter-countermeasures. Manuals and technical documents that are necessary for operational use and organizational maintenance have portions that are classified Confidential. Performance and operating logic of the countermeasures circuits are Secret.
2. If a technologically advanced adversary were to obtain knowledge of the specific hardware and software elements, the information could be used to develop countermeasures which might reduce weapon system effectiveness or be used in the development of a system with similar or advanced capabilities.
Defense Acquisition University (DAU), DoD.
Meeting notice; cancellation.
On August 16, 2012 (77 FR 49439), the Defense Acquisition University Board of Visitors announced a meeting to be held Wednesday, September 12, 2012, from 8:30 a.m. to 1 p.m. at the Defense Acquisition University Headquarters, 9820 Belvoir Road in Fort Belvoir, Virginia.
Pursuant to the Federal Advisory Committee Act of 1972 (5 U.S.C., Appendix, as amended), the Government in the Sunshine Act of 1976 (5 U.S.C. 552b, as amended), and 41 CFR 102–3.150, the Department of Defense announces that this meeting is cancelled due to scheduling conflicts.
Christen Goulding, Protocol Director, DAU; Phone: 703–805–5134, Fax: 703–805–5940, Email:
Department of Defense, DoD.
Reestablishment of Federal Advisory Committee.
Under the provisions of 10 U.S.C. 2166(e), the Federal Advisory Committee Act of 1972 (5 U.S.C. Appendix), the Government in the Sunshine Act of 1976 (5 U.S.C. 552b), and 41 CFR 102–3.50(a), the Department of Defense gives notice that it is reestablishing the charter for the Board of Visitors, National Defense University (hereafter referred to as “the Board”).
The Board shall provide independent advice and recommendations on the overall management and governance of the National Defense University in achieving its mission.
The Board shall report to the Deputy Secretary of Defense and Secretary of Defense through the Chairman of the Joint Chiefs of Staff and the President of the National Defense University. The Chairman of the Joint Chiefs of Staff may act upon the Board's advice and recommendations. The Board shall be comprised of no more than twelve members, who are appointed by the Secretary of Defense. The members are eminent authorities in the fields of defense, management, leadership, academia, national military strategy or joint planning at all levels of war, joint doctrine, joint command and control, or joint requirements and development. The Secretary of Defense may approve the appointment of Board members for one to four year terms of service, with annual renewals; however, no member, unless authorized by the Secretary of Defense, may serve more than two consecutive terms of service. This same term of service limitation also applies to any DoD authorized subcommittees. Board members appointed by the Secretary of Defense, who are not full-time or permanent part-time federal employees, shall be appointed to serve as experts and consultants under the authority of 5 U.S.C. 3109, and to serve as special government employees. In addition, all Board members, with the exception of travel and per diem for official travel, shall serve without compensation. Each Board member is appointed to provide advice on behalf of the government on the basis of his or her best judgment without representing any particular point of view and in a manner that is free from conflict of interest.
The Board Membership shall present recommendations for the Board's Chairperson and the Co-Chairperson from the total Board membership to the Chairman of the Joint Chiefs of Staff, and these individuals shall serve at the discretion of the Secretary of Defense. The Chairman of the Joint Chiefs of Staff may invite other distinguished Government officers to serve as non-voting observers of the Board. In
The Department, when necessary and consistent with the Board's mission and DoD policies and procedures, may establish subcommittees, task groups, or working groups to support the Board. Establishment of subcommittees will be based upon a written determination, to include terms of reference, by the Secretary of Defense, the Deputy Secretary of Defense, or the Board's sponsor.
These subcommittees shall not work independently of the chartered Board and shall report all of their recommendations and advice to the Board for full deliberation and discussion. Subcommittees have no authority to make decisions on behalf of the chartered Board nor can any subcommittee or any of its members update or report directly to the Department of Defense or to any Federal officers or employees.
All subcommittee members shall be appointed in the same manner as the Board members; that is, the Secretary of Defense shall appoint subcommittee members even if the member in question is already a Board member. Subcommittee members, with the approval of the Secretary of Defense, may serve a term of service on the subcommittee of one to four years; however, no member shall serve more than two consecutive terms of service on the subcommittee. Such individuals shall be appointed to serve as experts and consultants under the authority of 5 U.S.C. 3109, and serve as special government employees, whose appointments must be renewed by the Secretary of Defense on an annual basis. With the exception of travel and per diem for official travel, subcommittee members shall serve without compensation.
All subcommittees operate under the provisions of FACA, the Government in the Sunshine Act, governing Federal statutes and regulations, and governing DoD policies/procedures.
Jim Freeman, Deputy Advisory Committee Management Officer for the Department of Defense, 703–692–5952.
The Board shall meet at the call of the Designated Federal Officer, in consultation with the Board's Chairperson. The estimated number of Board meetings is two per year.
In addition, the Designated Federal Officer is required to be in attendance at all Board and subcommittee meetings for the entire duration of each and every meeting; however, in the absence of the Designated Federal Officer, the Alternate Designated Federal Officer shall attend the entire duration of the Board or subcommittee meeting.
Pursuant to 41 CFR 102–3.105(j) and 102–3.140, the public or interested organizations may submit written statements to the Board membership about the Board's mission and functions. Written statements may be submitted at any time or in response to the stated agenda of planned meeting of the Board.
All written statements shall be submitted to the Designated Federal Officer, and this individual will ensure that the written statements are provided to the membership for their consideration. Contact information for the Board's Designated Federal Officer can be obtained from the GSA's FACA Database—
The Designated Federal Officer, pursuant to 41 CFR 102–3.150, will announce planned meetings of the Board. The Designated Federal Officer, at that time, may provide additional guidance on the submission of written statements that are in response to the stated agenda for the planned meeting in question.
Department of the Army, DoD.
Notice of meeting.
In accordance with Section 10(a)(2) of the Federal Advisory Committee Act (Pub. L. 92–463), announcement is made of the following committee meeting:
8:30 a.m. to 12:50 p.m. (September 19, 2012).
8 a.m. to 12 p.m. (September 20, 2012).
Inquiries and notice of intent to attend the meeting may be addressed to COL Kevin J. Wilson, Executive Secretary, U.S. Army Engineer Research and Development Center, Waterways Experiment Station, 3909 Halls Ferry Road, Vicksburg, MS 39180–6199.
The Board provides broad policy guidance and review of plans and fund requirements for the conduct of research and development of research projects in consonance with the needs of the coastal engineering field and the objectives of the Chief of Engineers.
On Wednesday morning, September 19, 2012, panel presentations dealing with Challenges to the Ecosystem include St. Johns River Water Supply Impact Study, Jacksonville Mile Point—Beneficial Use of Dredged Material for Ecosystem Restoration/Mitigation, Martin County Turtle Friendly Beach Design, Wilmington Offshore Fisheries Enhancement Structure, and Engineering with Nature. There will be an optional field trip Wednesday afternoon evening.
The Board will meet in Executive Session to discuss ongoing initiatives and actions on Thursday morning, September 20, 2012.
These meetings are open to the public. Participation by the public is scheduled for 11 a.m. on Wednesday, September 19, 2012.
The entire meeting and field trip are open to the public, but since seating capacity is limited, advance notice of attendance is required. Oral participation by public attendees is encouraged during the time scheduled on the agenda; written statements may be submitted prior to the meeting or up to 30 days after the meeting.
Department of the Navy, DoD.
Notice.
The United States Department of the Navy (DoN), after carefully weighing the operational and environmental consequences of the proposed action, announces its decision to improve the availability and quality of training opportunities at the DoN's Silver Strand Training Complex (SSTC), CA. The DoN has decided to implement the preferred alternative, Alternative 1, Increase Training and Access to SSTC Training Areas, as described in the SSTC Final Environmental Impact Statement (FEIS) dated January 2011. Alternative 1 is the environmentally preferred alternative because it implements the mitigation and management measures needed to protect the environment while allowing DoN and DoD to meet current and near-term training and test and evaluation requirements.
The complete text of the Record of Decision is available for public viewing on the project Web site at
The Early Childhood Longitudinal Study, Kindergarten Class of 2010–11 (ECLS–K:2011), is a survey that focuses on children's early school experiences beginning with kindergarten and continuing through the fifth grade. It includes the collection of data from parents, teachers, school administrators, and non-parental care providers, as well as direct child assessments. Like the Early Childhood Longitudinal Study, Kindergarten Class of 1998–99 (ECLS–K),
Interested persons are invited to submit comments on or before October 1, 2012.
Written comments regarding burden and/or the collection activity requirements should be electronically mailed to
Individuals who use a telecommunications device for the deaf (TDD) may call the Federal Information Relay Service (FIRS) at 1–800–877–8339.
Section 3506 of the Paperwork Reduction Act of 1995 (44 U.S.C. Chapter 35) requires that Federal agencies provide interested parties an early opportunity to comment on information collection requests. The Director, Information Collection Clearance Division, Privacy, Information and Records Management Services, Office of Management, publishes this notice containing proposed information collection requests at the beginning of the Departmental review of the information collection. The Department of Education is especially interested in public comment addressing the following issues: (1) Is this collection necessary to the proper functions of the Department; (2) will this information be processed and used in a timely manner; (3) is the estimate of burden accurate; (4) how might the Department enhance the quality, utility, and clarity of the information to be collected; and (5) how might the Department minimize the burden of this collection on the respondents, including through the use
The Preauthorized Debit Account (PDA) Application is used to establish electronic debiting for individuals who have requested to have their defaulted federal education debt payments debited from their bank accounts.
Interested persons are invited to submit comments on or before October 1, 2012.
Written comments regarding burden and/or the collection activity requirements should be electronically mailed to
Individuals who use a telecommunications device for the deaf (TDD) may call the Federal Information Relay Service (FIRS) at 1–800–877–8339.
Section 3506 of the Paperwork Reduction Act of 1995 (44 U.S.C. Chapter 35) requires that Federal agencies provide interested parties an early opportunity to comment on information collection requests. The Director, Information Collection Clearance Division, Privacy, Information and Records Management Services, Office of Management, publishes this notice containing proposed information collection requests at the beginning of the Departmental review of the information collection. The Department of Education is especially interested in public comment addressing the following issues: (1) Is this collection necessary to the proper functions of the Department; (2) will this information be processed and used in a timely manner; (3) is the estimate of burden accurate; (4) how might the Department enhance the quality, utility, and clarity of the information to be collected; and (5) how might the Department minimize the burden of this collection on the respondents, including through the use of information technology. Please note that written comments received in response to this notice will be considered public records.
The authority for the PDA option is provided under the Deficit Reduction Act of 1984, Public Law 98–368, and 31 CFR part 202, Depositaries and Financial Agents of the Government. Operating rules and regulations approved and published by the National Automated Clearing House Association (NACHA) and 31 CFR part 210 also govern the use of the PDA Application. Finally, Regulation E, issued and maintained by the Board of Governors of the Federal Reserve System, implements Title IX of the Consumer Credit Protection Act, as amended in 15 U.S.C. 1601. This regulation is designed to implement the act, which primarily serves to protect the interests of the individual consumer participating in electronic transfers. ED has used the collection of information on the currently approved PDA Application to establish electronic debiting for individuals who have requested to have their defaulted federal education debt payments debited from their bank accounts.
The Early Childhood Longitudinal Study, Kindergarten Class of 2010–11 (ECLS–K:2011), sponsored by the National Center for Education Statistics (NCES) within the Institute of Education Sciences (IES) of the U.S. Department of Education (ED), is a survey that focuses on children's early school experiences beginning with kindergarten and continuing through the fifth grade. It includes the collection of data from parents, teachers, school administrators, and non-parental care providers, as well as direct child assessments. Like its sister study, the Early Childhood Longitudinal Study, Kindergarten Class of 1998–99 (ECLS–K), the ECLS–K:2011 is exceptionally broad in its scope and coverage of child development, early learning, and school progress, drawing together information from multiple sources to provide rich data about the population of children who were kindergartners in the 2010–11 school year. This submission requests OMB's clearance for (1) A spring 2013 second-grade national data collection; (2) recruitment for the spring 2014 third-grade data collection, and (3) tracking students for the spring 2014 third-grade and spring 2015 fourth-grade data collection.
Interested persons are invited to submit comments on or before October 1, 2012.
Written comments regarding burden and/or the collection activity requirements should be electronically mailed to
Individuals who use a telecommunications device for the deaf (TDD) may call the Federal Information Relay Service (FIRS) at 1–800–877–8339.
Section 3506 of the Paperwork Reduction Act of 1995 (44 U.S.C. Chapter 35) requires that Federal agencies provide interested parties an early opportunity to comment on information collection requests. The Director, Information Collection Clearance Division, Privacy, Information and Records Management Services, Office of Management, publishes this notice containing proposed information collection requests at the beginning of the Departmental review of the information collection. The Department of Education is especially interested in public comment addressing the following issues: (1) Is this collection necessary to the proper functions of the Department; (2) will this information be processed and used in a timely manner; (3) is the estimate of burden accurate; (4) how might the Department enhance the quality, utility, and clarity of the information to be collected; and (5) how might the Department minimize the burden of this collection on the respondents, including through the use of information technology. Please note that written comments received in response to this notice will be considered public records.
On September 23, 2011, the U.S. Department of Education (ED) invited State educational agencies (SEAs) to request flexibility pursuant to the authority in section 9401 of ESEA, which allows the Secretary of Education to waive, with certain exceptions, any statutory or regulatory requirement of the ESEA for an SEA that receives funds under a program authorized by the ESEA and requests a waiver. In order to ensure that SEAs receiving ESEA flexibility are continuing to meet the intent and purpose of Title I of ESEA, including meeting the educational needs of low-achieving students, closing achievement gaps, and holding schools, local educational agencies, and SEAs accountable for improving the academic achievement of all students, ED will continue to collect all data related to student proficiency rates as well as performance against the annual measurable objectives. This collection will be applicable to SEAs with approved flexibility requests.
Interested persons are invited to submit comments on or before October 1, 2012.
Written comments regarding burden and/or the collection activity requirements should be electronically mailed to
Individuals who use a telecommunications device for the deaf (TDD) may call the Federal Information Relay Service (FIRS) at 1–800–877–8339.
Section 3506 of the Paperwork Reduction Act of 1995 (44 U.S.C. Chapter 35) requires that Federal agencies provide interested parties an early opportunity to comment on information collection requests. The Director, Information Collection Clearance Division, Privacy, Information and Records Management Services, Office of Management, publishes this notice containing proposed information collection requests at the beginning of the Departmental review of the information collection. The Department of Education is especially interested in public comment addressing the following issues: (1) Is this collection necessary to the proper functions of the Department; (2) will this information be processed and used in a timely manner; (3) is the estimate of burden accurate; (4) how might the Department enhance the quality, utility, and clarity of the information to be collected; and (5) how might the Department minimize the burden of this collection on the respondents, including through the use of information technology. Please note that written comments received in response to this notice will be considered public records.
The Federal Perkins Loan Program allows for assignment of certain defaulted loans from schools to continued collection efforts when the school has exhausted all of its efforts in recovering an outstanding loan. The Perkins Assignment Form serves as the transmittal document in the assignment of such loans to the Federal Government. Schools participating in the Federal Perkins Loan Program, formerly the National Direct/Defense Student Loan Program (NDSL), currently use this form to assign defaulted loans to the U.S. Department of Education (the Department) for collection. These defaulted loans may, as outlined in 20 U.S.C. 1087cc and under program regulations 34 CFR 674.50, be assigned to the Federal government (i.e., U.S. Department of Education) for collection when the school has exhausted all efforts in the recovery of the outstanding loan. In addition, schools use this form to assign loans for which a school has approved a total and permanent disability discharge request, in accordance with 34 CFR 674.61(b)(2)(v).
Interested persons are invited to submit comments on or before October 1, 2012.
Written comments regarding burden and/or the collection activity requirements should be electronically mailed to
Individuals who use a telecommunications device for the deaf (TDD) may call the Federal Information Relay Service (FIRS) at 1–800–877–8339.
Section 3506 of the Paperwork Reduction Act of 1995 (44 U.S.C. Chapter 35) requires that Federal agencies provide interested parties an early opportunity to comment on information collection requests. The Director, Information Collection Clearance Division, Privacy, Information and Records Management Services, Office of Management, publishes this
The needs assessment consists of an online survey of a sample of school board members, district administrators, principals, and teachers in Illinois, Indiana, Iowa, Michigan, Minnesota, Ohio, and Wisconsin. The purpose of the sample survey is to assess: the importance these populations attach to the four issues identified in advance by REL Midwest as priorities for the region; for each issue, the types of data and analysis supports, and research and evaluation needs which respondents anticipate would be of particular value; and what factors would increase the likelihood respondents and the populations they represent would turn to the REL for data and analysis supports, or research and evaluation needs in the future. The results of the survey will be used to prioritize the assistance that REL Midwest provides to educators in the region for utilizing their longitudinal data systems, conducting high quality research and evaluation; learning about the best education research; and incorporating data into policy and practice.
Interested persons are invited to submit comments on or before October 29, 2012.
Written comments regarding burden and/or the collection activity requirements should be electronically mailed to
Individuals who use a telecommunications device for the deaf (TDD) may call the Federal Information Relay Service (FIRS) at 1–800–877–8339.
Section 3506 of the Paperwork Reduction Act of 1995 (44 U.S.C. Chapter 35) requires that Federal agencies provide interested parties an early opportunity to comment on information collection requests. The Director, Information Collection Clearance Division, Privacy, Information and Records Management Services, Office of Management, publishes this notice containing proposed information collection requests at the beginning of the Departmental review of the information collection. The Department of Education is especially interested in public comment addressing the following issues: (1) Is this collection necessary to the proper functions of the Department; (2) will this information be processed and used in a timely manner; (3) is the estimate of burden accurate; (4) how might the Department enhance the quality, utility, and clarity of the information to be collected; and (5) how might the Department minimize the burden of this collection on the respondents, including through the use of information technology. Please note that written comments received in response to this notice will be considered public records.
This study is intended to assist the Department in making decisions about how to structure future grant competitions; how to support evaluation and performance reporting activities among funded grantees, including technical assistance to improve the quality of evaluations and performance reporting; and how to make the best possible use of grantee evaluation findings.
Interested persons are invited to submit comments on or before October 1, 2012.
Written comments regarding burden and/or the collection activity requirements should be electronically mailed to
Individuals who use a telecommunications device for the deaf (TDD) may call the Federal Information Relay Service (FIRS) at 1–800–877–8339.
Section 3506 of the Paperwork Reduction Act of 1995 (44 U.S.C. Chapter 35) requires that Federal agencies provide interested parties an early opportunity to comment on information collection requests. The Director, Information Collection Clearance Division, Privacy, Information and Records Management Services, Office of Management, publishes this notice containing proposed information collection requests at the beginning of the Departmental review of the information collection. The Department of Education is especially interested in public comment addressing the following issues: (1) Is this collection necessary to the proper functions of the Department; (2) will this information be processed and used in a timely manner; (3) is the estimate of burden accurate; (4) how might the Department enhance the quality, utility, and clarity of the information to be collected; and (5) how might the Department minimize the burden of this collection on the respondents, including through the use of information technology. Please note that written comments received in response to this notice will be considered public records.
Office of Management, Department of Education.
Notice.
The Secretary announces the members of the Performance Review Board (PRB) for the Department of Education for the Senior Executive Service (SES). Under 5 U.S.C. 4314(c)(1) through (5), each agency is required to establish one or more PRBs.
The PRB of the Department of Education is composed of career and non-career senior executives.
The PRB reviews and evaluates the initial appraisal of each senior executive's performance, along with any comments by that senior executive and by any higher-level executive or executives. The PRB makes recommendations to the appointing authority relative to the performance of the senior executive, including recommendations on performance awards. The Department of Education's PRB also makes recommendations on SES pay adjustments for career senior executives.
The Secretary has selected the following executives of the Department of Education for the specified SES performance cycle: Chair: Winona H. Varnon, Thomas Skelly, Danny Harris, James Manning, Linda Stracke, Joe Conaty, Sue Betka, Russlyn Ali, and Martha Kanter.
Andrea Burckman, Director, Executive Resources Division, Human Capital and Client Services, Office of Management, U.S. Department of Education, 400 Maryland Avenue SW., room 2C150, Washington, DC 20202–4573. Telephone: (202) 401–0853.
If you use a telecommunications device for the deaf (TDD) or text telephone, you may call the Federal Relay Service (FRS) at 1–800–877–8339.
Individuals with disabilities can obtain this document in an alternative format (e.g., braille, large print, audiotape, or compact disc) on request to the contact person listed under
You may also access documents of the Department published in the
Bonneville Power Administration (BPA), DOE.
30-Day notice of submission of information collection approval from the Office of Management and Budget (OMB) and request for comments.
As part of a Federal Government-wide effort to streamline the process to seek feedback from the public on service delivery, the Bonneville Power Administration has submitted a Generic Information Collection request (Generic ICR): “Generic Clearance for the Collection of Qualitative Feedback on Agency Service Delivery” to the Office of Management and Budget (OMB) for approval under the Paperwork Reduction Act (PRA) (44 U.S.C.
Comments must be submitted by September 30, 2012.
Written comments may be submitted to: DOE Desk Officer, Office of Information and Regulatory Affairs, Office of Management and Budget, New Executive Office Building, Room 10102, 735 17th Street NW., Washington, DC 20503.
To request additional information: Information Collection Clearance Officer, Christopher M. Frost, Governance and Internal Controls, DGC–7, Bonneville Power Administration, 905 NE. 11th Avenue, Portland, Oregon 97232.
Feedback collected under this generic clearance will provide useful information, but it will not yield data that can be generalized to the overall population. This type of generic clearance for qualitative information will not be used for quantitative information collections that are designed to yield reliable actionable results, such as monitoring trends over time or documenting program performance. Such data uses require more rigorous designs that address: The target population to which generalizations will be made, the sampling frame, the sample design (including stratification and clustering), the precision requirements or power calculations that justify the proposed sample size, the expected response rate, methods for assessing potential non-response bias, the protocols for data collection, and any testing procedures that were or will be undertaken prior to fielding the study. Depending on the degree of influence the results are likely to have, such collections may still be eligible for submission for other generic mechanisms that are designed to yield qualitative results.
The 60-day notice was published in the
Below we provide the BPA projected average estimates for the next three years:
An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless it displays a currently valid Office of Management and Budget control number.
U.S. Energy Information Administration (EIA), Department of Energy.
Notice and request for OMB review and comment.
EIA has submitted a request to revise a currently-approved data collection under the provisions of the Paperwork Reduction Act of 1995 to the Office of Management and Budget (OMB). EIA proposes changes to the data collection requirements for the Forms EIA–861, “Annual Electric Power Industry Report,” EIA–923, “Power Plant Operations Report,” and the proposed creation of the Form EIA–861S, “Annual Electric Power Industry Report (Short).” All collection instruments are under OMB Control Number 1905–0129. The Form EIA–861 proposal is to modify the survey frame from a census of approximately 3,300 entities to a sample of approximately 2,200 entities and to estimate the total sales, revenues, and customer counts by sector. The Form EIA–861S proposal will collect data from the approximately
The Form EIA–923 proposal involves modifying the reporting requirements for only Schedule 2, which collects cost and quality data of fossil fuel purchases at electricity generating plants. The proposal is to raise the reporting threshold to 200 megawatts (MW) of nameplate capacity for power plants primarily fueled by natural gas, petroleum coke, distillate fuel oil, and residual fuel oil. EIA will remove the reporting requirement for self-produced and minor fuels, i.e., blast furnace gas, other manufactured gases, kerosene, jet fuel, propoane, and waste oils. The reporting threshold for coal plants will remain at 50 MW of nameplate capacity.
Comments regarding this proposed information collection must be received on or before October 1, 2012. If you anticipate that you will be submitting comments, but find it difficult to do so within the period of time allowed by this notice, please advise the DOE Desk Officer at OMB of your intention to make a submission as soon as possible. The Desk Officer may be telephoned at 202–395–4718 or contacted by email at
Written comments should be sent to:
Requests for additional information or copies of the information collection instrument and instructions should be directed to Rebecca A. Peterson,
This information collection request contains: (1)
Section 13(b) of the Federal Energy Administration Act of 1974, 93, codified at 15 U.S.C. 772(b).
Take notice that the following hydroelectric application has been filed with the Commission and is available for public inspection.
a.
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d.
e.
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i.
j.
Motions to intervene, protests, comments, recommendations, preliminary terms and conditions, and preliminary fishway prescriptions may be filed electronically via the Internet. See 18 CFR 385.2001(a)(1)(iii) and the instructions on the Commission's Web site
The Commission's Rules of Practice require all intervenors filing documents with the Commission to serve a copy of that document on each person on the official service list for the project. Further, if an intervenor files comments or documents with the Commission relating to the merits of an issue that may affect the responsibilities of a particular resource agency, they must also serve a copy of the document on that resource agency.
k. This application has been accepted for filing and is now is ready for environmental analysis.
l.
The Monroe Powerhouse operates in a run-of-river mode (i.e., outflow from the powerhouse equals inflow from the Loup Canal). The maximum hydraulic capacity of the canal at the Monroe Powerhouse is 3,500 cubic feet per second (cfs). The Monroe Powerhouse spans the canal and functions as an energy-producing canal drop structure.
The Columbus Powerhouse operates as a daily peaking facility. The water levels in Lake Babcock and Lake North are generally drawn down about 2 to 3 feet a day to produce power during times of peak electrical demand. In off-peak hours, when there is less demand for electricity, the turbines are turned down or shut off, which allows Lake Babcock and Lake North to refill. The hydraulic capacity of the canal at the Columbus Powerhouse is 4,800 cfs.
Loup Power District proposes to remove three parcels of land from the project boundary that it finds are not necessary for project operations or purposes. In addition, Loup Power District proposes to add three parcels of land to the project boundary that it finds are needed for project purposes.
m. A copy of the application is available for review at the Commission in the Public Reference Room or may be viewed on the Commission's Web site at
Register online at
n. Anyone may submit comments, a protest, or a motion to intervene in accordance with the requirements of Rules of Practice and Procedure, 18 CFR 385.210, .211, and .214. In determining the appropriate action to take, the Commission will consider all protests or other comments filed, but only those who file a motion to intervene in accordance with the Commission's Rules may become a party to the proceeding. Any comments, protests, or motions to intervene must be received on or before the specified comment date for the particular application.
All filings must (1) Bear in all capital letters the title “PROTEST,” “MOTION TO INTERVENE,” “COMMENTS,” “REPLY COMMENTS,” “RECOMMENDATIONS,” “PRELIMINARY TERMS AND CONDITIONS,” or “PRELIMINARY FISHWAY PRESCRIPTIONS;” (2) set forth in the heading the name of the applicant and the project number of the application to which the filing responds; (3) furnish the name, address, and telephone number of the person protesting or intervening; and (4) otherwise comply with the requirements of 18 CFR 385.2001 through 385.2005. All comments, recommendations, terms and conditions or prescriptions must set forth their evidentiary basis and otherwise comply with the requirements of 18 CFR 4.34(b). Agencies may obtain copies of the application directly from the applicant. A copy of any protest or motion to intervene must be served upon each representative of the applicant specified in the particular application. A copy of all other filings in reference to this application must be accompanied by proof of service on all persons listed in the service list prepared by the Commission in this proceeding, in accordance with 18 CFR 4.34(b) and 385.2010.
o.
The application will be processed according to the following revised Hydro Licensing Schedule. Revisions to the schedule may be made as appropriate.
p. Final amendments to the application must be filed with the Commission no later than 30 days from the issuance date of this notice.
q.
Take notice that the following hydroelectric application has been filed with the Commission and is available for public inspection:
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b.
c.
d.
e.
f.
g.
h.
i.
j.
All documents may be filed electronically via the Internet. See, 18 CFR 385.2001(a)(1)(iii) and the instructions on the Commission's Web site at
k.
l.
m. Individuals desiring to be included on the Commission's mailing list should so indicate by writing to the Secretary of the Commission.
n.
o.
Take notice that the following hydroelectric application and offer of settlement has been filed with the Commission and is available for public inspection.
a.
b.
c.
d.
e.
f.
g.
h.
i.
j.
Motions to intervene, protests, comments, recommendations, preliminary terms and conditions, and preliminary fishway prescriptions may be filed electronically via the Internet. See 18 CFR 385.2001(a)(1)(iii) and the instructions on the Commission's Web site
The Commission's Rules of Practice require all intervenors filing documents with the Commission to serve a copy of that document on each person on the official service list for the project. Further, if an intervenor files comments or documents with the Commission relating to the merits of an issue that may affect the responsibilities of a particular resource agency, they must also serve a copy of the document on that resource agency.
k. This application has been accepted for filing and is now ready for environmental analysis.
l.
The offer of settlement involves use of Sabine National Forest lands and water quality and aquatic resources in the lower Sabine River.
m. A copy of the application and offer of settlement is available for review at the Commission in the Public Reference Room or may be viewed on the Commission's Web site at
Register online at
n. Anyone may submit comments, a protest, or a motion to intervene in accordance with the requirements of Rules of Practice and Procedure, 18 CFR 385.210, .211, .214. In determining the appropriate action to take, the Commission will consider all protests or other comments filed, but only those who file a motion to intervene in accordance with the Commission's Rules may become a party to the proceeding. Any comments, protests, or motions to intervene must be received on or before the specified comment date for the particular application.
All filings must (1) Bear in all capital letters the title “PROTEST,” “MOTION TO INTERVENE,” “COMMENTS,” “REPLY COMMENTS,” “RECOMMENDATIONS,” “PRELIMINARY TERMS AND CONDITIONS,” or “PRELIMINARY FISHWAY PRESCRIPTIONS”; (2) set forth in the heading the name of the applicant and the project number of the application to which the filing responds; (3) furnish the name, address, and telephone number of the person protesting or intervening; and (4) otherwise comply with the requirements of 18 CFR 385.2001 through 385.2005. All comments, recommendations, terms and conditions or prescriptions must set forth their evidentiary basis and otherwise comply with the requirements of 18 CFR 4.34(b). Agencies may obtain copies of the application directly from the applicant. A copy of any protest or motion to intervene must be served upon each representative of the applicant specified in the particular application. A copy of all other filings in reference to this application must be accompanied by proof of service on all persons listed in the service list prepared by the Commission in this proceeding, in accordance with 18 CFR 4.34(b) and 385.2010.
o.
p. Final amendments to the application must be filed with the Commission no later than 30 days from the issuance date of this notice.
q.
Take notice that the Commission has received the following Natural Gas Pipeline Rate and Refund Report filings:
Any person desiring to intervene or protest in any of the above proceedings must file in accordance with Rules 211 and 214 of the Commission's Regulations (18 CFR 385.211 and 385.214) on or before 5 p.m. Eastern time on the specified comment date. Protests may be considered, but intervention is necessary to become a party to the proceeding.
The filings are accessible in the Commission's eLibrary system by clicking on the links or querying the docket number.
eFiling is encouraged. More detailed information relating to filing requirements, interventions, protests, and service can be found at:
Take notice that on August 17, 2012, PetroLogistics Natural Gas Storage, LLC (PetroLogistics), 4470 Bluebonnet Blvd., Baton Rouge, LA 70809, filed in Docket No. CP12–502–000, an application pursuant to Sections 157.205 and 157.213 of the Commission's Regulations under the Natural Gas Act (NGA) as amended, to increase its maximum daily deliverability rate at the Choctaw Gas Storage Hub, located in Iberville Parish, Louisiana, under PetroLogistics' blanket certificate issued in Docket No. CP07–427–000, et al.
PetroLogistics proposes to increase its maximum daily deliverability rate from 450 MMcf per day to 550 MMcf per day, at the Choctaw Gas Storage Hub, in order to allow full utilization of its existing facility. PetroLogistics states that the increase will not require any construction or modification of any existing facility, nor any revision of the system operating pressures.
Any questions concerning this application may be directed to Kevin M. Miller PetroLogistics Natural Gas Storage, LLC, 4470 Bluebonnet Blvd., Baton Rouge, LA 70809, or via telephone at (225) 706–7690, or at
This filing is available for review at the Commission or may be viewed on
Any person or the Commission's staff may, within 60 days after issuance of the instant notice by the Commission, file pursuant to Rule 214 of the Commission's Procedural Rules (18 CFR 385.214) a motion to intervene or notice of intervention and pursuant to Section 157.205 of the regulations under the NGA (18 CFR 157.205), a protest to the request. If no protest is filed within the time allowed therefore, the proposed activity shall be deemed to be authorized effective the day after the time allowed for filing a protest. If a protest is filed and not withdrawn within 30 days after the allowed time for filing a protest, the instant request shall be treated as an application for authorization pursuant to Section 7 of the NGA.
The Federal Energy Regulatory Commission hereby gives notice that members of the Commission's staff may attend the following meeting related to the transmission planning activities of the PJM Interconnection, L.L.C. (PJM):
The above-referenced meeting will be held over conference call.
The above-referenced meeting is open to stakeholders.
Further information may be found at
The discussions at the meeting described above may address matters at issue in the following proceedings:
For more information, contact Jonathan Fernandez, Office of Energy Market Regulation, Federal Energy Regulatory Commission at (202) 502–6604 or
Take notice that on August 17, 2012, pursuant to section 292.205(c) of the Commission's Rules of Practices and Procedures, 18 CFR 292.205(c) (2011) and the amended Public Utility Regulatory Policies Act of 1978, Applied Energy LLC (Applied Energy) requested a limited waiver of the efficiency standard set forth in section 292.205(a)(2)(B) of the Commission's regulations for the topping-cycle cogeneration facility owned and operated by Applied Energy located at the United States Naval Station in San Diego, California (“Facility”). Specifically, Applied Energy requests waiver of the efficiency standard for calendar year 2012.
Any person desiring to intervene or to protest in this proceedings must file in accordance with Rules 211 and 214 of the Commission's Rules of Practice and Procedure (18 CFR 385.211 and 385.214) on or before 5 p.m. Eastern time on the specified comment date. Protests will be considered by the Commission in determining the appropriate action to be taken, but will not serve to make protestants parties to the proceeding. Anyone filing a motion to intervene or protest must serve a copy of that document on the Petitioner.
The Commission encourages electronic submission of protests and interventions in lieu of paper, using the FERC Online links at
Persons unable to file electronically should submit an original and 14 copies of the intervention or protest to the Federal Energy Regulatory Commission,
The filings in the above proceedings are accessible in the Commission's eLibrary system by clicking on the appropriate link in the above list. They are also available for review in the Commission's Public Reference Room in Washington, DC. There is an eSubscription link on the Web site that enables subscribers to receive email notification when a document is added to a subscribed docket(s). For assistance with any FERC Online service, please email
Notice document 12–21066 was inadvertently omitted from the issue of Monday, August 27, 2012. It is being printed in its entirety in today's issue.
Environmental Protection Agency (EPA).
Notice.
EPA is seeking comment on letters requesting a waiver of the renewable fuel standard and matters relevant to EPA's consideration of those requests. Governors of the States of Arkansas and North Carolina submitted separate requests for a waiver. Section 211(o)(7)(A) of the Clean Air Act allows the Administrator of the EPA to waive the national volume requirements of the renewable fuel standard program in whole or in part if implementation of those requirements would severely harm the economy or environment of a State, a region, or the United States, or if the Administrator determines that there is inadequate domestic supply of renewable fuel.
Submit your comments, identified by Docket ID No. EPA–HQ–OAR–2012–0632, by one of the following methods:
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Dallas Burkholder, Office of Transportation and Air Quality, Environmental Protection Agency, National Vehicle and Fuel Emissions Laboratory, 2565 Plymouth Road, Ann Arbor, MI 48105; telephone number: (734) 214–4766; fax number: (734) 214–4050; email address:
EPA has established a public docket for this Notice under Docket ID No. EPA–HQ–OAR–2012–0632 which is available for online viewing at
Use
The Renewable Fuel Standard (RFS) program began in 2006 pursuant to the Energy Policy Act of 2005 (EPAct), which added provisions in section 211(o) of the Clean Air Act (CAA, or “Act”), for a renewable fuel program, commonly referred to as RFS1. The statutory provisions for the RFS program were subsequently modified through the Energy Independence and Security Act of 2007 (EISA), and EPA published revised regulatory requirements on March 26, 2010 (75 FR 14670) (referred to as RFS2). The transition from the RFS1 requirements of EPAct to the RFS2 requirements of EISA generally occurred on July 1, 2010. EISA establishes annual national renewable fuel volumes required through 2022 for four categories of renewable fuel: cellulosic biofuel, biomass based diesel, advanced biofuel, and total renewable fuel. Though EISA establishes a schedule of increasing national volume mandates over time, it also requires the Administrator to set the specific volume requirements for refiners and importers annually. The applicable volume standards under the RFS program for the 2012 compliance year were published in the
Under the RFS program, obligated parties, typically gasoline or diesel refiners or importers, are required to meet specific applicable percentage standards to be in compliance. Renewable identification numbers, or RINs, are assigned by the renewable fuel producer to each gallon of qualifying renewable fuel and serve as a means for demonstrating compliance by the obligated parties. Aside from using sufficient current-year RINs to demonstrate compliance in a given year, obligated parties may also choose (a) to use available RINs from the prior year towards the current year's requirement, up to a 20 percent cap, and/or (b) to carry forward a deficit into the next compliance year.
Section 211(o)(7) of the Act allows the Administrator, in consultation with the Secretary of Agriculture and the Secretary of Energy, to waive the national volume requirements of the RFS, in whole or in part, upon petition by one or more States, or by any party subject to the requirements of the RFS program. The Administrator may also waive the volume requirements on her own motion. A waiver may be issued if the Administrator determines, after public notice and opportunity for comment, that implementation of the RFS volume requirement would severely harm the economy or environment of a State, a region, or the United States, or that there is an inadequate domestic supply. If a waiver is granted, it can last no longer than one year but may be renewed by the Administrator after consultation with the Secretary of Agriculture and the Secretary of Energy.
Governors of the States of Arkansas and North Carolina submitted separate letters requesting a waiver of required volumes of renewable fuel under the RFS program. EPA is seeking comment on the requests and matters relevant to EPA's consideration of the requests. Section 211(o) of the Act requires the Administrator, in consultation with the Secretary of Agriculture and the Secretary of Energy, to approve or disapprove a petition for a waiver of the RFS volume requirements within 90 days after the date on which the petition is received by the Administrator.
The Governor of Arkansas submitted a letter dated August 13, 2012 requesting EPA “waive an appropriate volume of renewable fuel, pursuant to Section 211(o)(7)” of the Act. The letter includes statements regarding this year's drought, crop price increases, and impacts in various economic sectors, including the poultry and cattle sectors. The letter submitted by the Governor of North Carolina, dated August 14, 2012, requests that “the applicable volume of renewable fuel be waived” under the Act and also includes statements regarding drought conditions in the United States and economic impacts in the State.
Other organizations and individuals—including among others the Governors of the States of Delaware and Maryland, the National Pork Producers Council, the Dairy Farmers of America, and various Members of Congress—have also submitted letters either requesting the Administrator utilize her authority to waive RFS volume requirements or expressing support for the granting of a volume waiver. All of these letters are available in the docket; any additional similar requests submitted to EPA will also be docketed and considered together with requests already received.
EPA is issuing this notice to solicit comments and information on the waiver requests, and the views of the public on whether the statutory basis for a waiver of the national RFS requirements has been met and, if so, whether EPA should exercise its discretion to grant a waiver.
In 2008, the Governor of the State of Texas requested a fifty percent waiver of the national volume requirements for the RFS. EPA denied Texas' waiver request because the evidence in that case did not support a determination that implementation of the RFS mandate during the time period at issue (September 1, 2008 through August 31, 2009) would have severely harmed the economy of a State, region, or the United States (73 FR 47168, August 13, 2008). EPA's 2008 denial of a waiver discusses the analytical approach used to make the determination, our legal interpretation of the relevant statutory language, and other information that may be useful to commenters. It also provides additional discussion of the types of information we would expect in a waiver request.
EPA's determination in response to Texas' waiver request was supported by technical analysis conducted using a model developed by researchers at Iowa State University (ISU). The 2008 analysis evaluated the impact of a waiver of the volume standard by comparing the circumstances with and without a waiver, to identify the impact associated with implementation of the RFS program in the relevant time period. The 2008 Texas waiver determination discusses the reasons EPA utilized the ISU model and provides a brief description of how it operates.
The 2008 Texas waiver determination was the first EPA action in response to a petition under 211(o)(7) of the Act, and as a result the 2008 decision addresses a number of questions regarding the scope of that authority. This includes a discussion of how EPA interpreted the provision's language regarding severe economic harm. We encourage interested parties to review that discussion and provide comment on our interpretation in the context of the 2012 waiver requests.
EPA requests comment on any matter that might be relevant to EPA's review of and actions in response to the requests, specifically including (but not limited to) information on:
(a) Whether compliance with the RFS would severely harm the economy of Arkansas, North Carolina, other States, a region, or the United States;
(b) whether the relief requested will remedy the harm;
(c) to what extent, if any, a waiver would change demand for ethanol and affect prices of corn, other feedstocks, feed, and food;
(d) the amount of ethanol that is likely to be consumed in the U.S. during the relevant time period, based on its value to refiners for octane and other characteristics and other market conditions in the absence of the RFS volume requirements; and
(e) if a waiver were appropriate, the amount of required renewable fuel volume appropriate to waive, the date on which any waiver should commence and end, and to which compliance years it would apply.
Commenters should include data or specific examples in support of their comments in order to aid the Administrator in evaluating the requests for a waiver and determining what action if any is appropriate in light of all of the circumstances.
Notice document 2012–21066 was inadvertently omitted from the issue of Monday, August 27, 2012. It is being printed in its entirety in today's issue.
Environmental Protection Agency (EPA).
Notice of a final decision on a no migration petition reissuance.
Notice is hereby given that a reissuance of an exemption to the land disposal Restrictions, under the 1984 Hazardous and Solid Waste Amendments to the Resource Conservation and Recovery Act, has been granted to Cornerstone for four Class I injection wells located at Waggaman, Louisiana. The company has adequately demonstrated to the satisfaction of the Environmental Protection Agency by the petition reissuance application and supporting documentation that, to a reasonable degree of certainty, there will be no migration of hazardous constituents from the injection zone for as long as the waste remains hazardous. This final decision allows the continued underground injection by Cornerstone, of the specific restricted hazardous wastes identified in this exemption, into Class I hazardous waste injection Wells 2, 3 4B and 5 at the Waggaman, Louisiana facility until June 30, 2016, unless EPA moves to terminate this exemption. Additional conditions included in this final decision may be reviewed by contacting the Region 6 Ground Water/UIC Section. A public notice was issued June 28, 2012. The public comment period closed on August 13, 2012, and no comments were received. This decision constitutes final Agency action and there is no Administrative appeal. This decision may be reviewed/appealed in compliance with the Administrative Procedure Act.
This action was effective as of August 20, 2012.
Copies of the petition and all pertinent information relating thereto are on file at the following location: Environmental Protection Agency, Region 6, Water Quality Protection Division, Source Water Protection Branch (6WQ–S), 1445 Ross Avenue, Dallas, Texas 75202–2733.
Philip Dellinger, Chief Ground Water/UIC Section, EPA—Region 6, telephone (214) 665–8324.
Export-Import Bank of the U.S.
Submission for OMB Review and Comments Request.
The Export-Import Bank of the United States (Ex-Im Bank), as a part of its continuing effort to reduce paperwork and respondent burden, invites the general public and other Federal Agencies to comment on the proposed information collection, as required by the Paperwork Reduction Act of 1995.
This collection allows insured/guaranteed parties and insurance brokers to report overdue payments from the borrower and/or guarantor. Ex-Im Bank customers will submit this form electronically through Ex-Im Online, replacing paper reporting. Ex-Im Bank has simplified reporting of payment defaults in this form by including checkboxes and providing for many fields to be self-populated. Ex-Im Bank provides insurance, loans, and guarantees for the financing of exports of goods and services.
Comments should be received on or before October 1, 2012 to be assured of consideration.
Comments may be submitted through
Stacy Lee, Export Import Bank, 811 Vermont Avenue NW., Washington, DC 20571.
Export-Import Bank of the United States.
Submission for OMB Review and Comments Request.
The Export-Import Bank of the United States (Ex-Im Bank), as a part of its continuing effort to reduce paperwork and respondent burden, invites the general public and other Federal Agencies to comment on the proposed information collection, as required by the Paperwork Reduction Act of 1995.
The “Application for Financial Institution Short Term Single Buyer Insurance” form will be used by entities involved in the export of US goods and services, to provide Ex-Im Bank with the information necessary to obtain legislatively required assurance of repayment and fulfills other statutory requirements.
The application can be reviewed at:
Comments should be received on or before October 1, 2012 to be assured of consideration.
Comments may be submitted electronically on
Federal Communications Commission.
Notice; request for comments.
As part of its continuing effort to reduce paperwork burden and as required by the Paperwork Reduction Act (PRA) of 1995 (44 U.S.C. 3502–3520), the Federal Communications Commission invites the general public and other Federal agencies to take this opportunity to comment on the following information collection(s). Comments are requested concerning: whether the proposed collection of information is necessary for the proper performance of the functions of the Commission, including whether the information shall have practical utility; the accuracy of the Commission's burden estimates; ways to enhance the quality, utility, and clarity of the information collected; ways to minimize the burden of the collection of information on the respondents, including the use of automated collection techniques or other forms of information technology; and ways to further reduce the information collection burden on small business concerns with fewer than 25 employees.
The FCC may not conduct or sponsor a collection of information unless it displays a currently valid OMB control number. No person shall be subject to any penalty for failing to comply with a collection of information subject to the Paperwork Reduction Act (PRA) that does not display a valid OMB control number.
Written Paperwork Reduction Act (PRA) comments should be submitted on or before October 1, 2012. If you anticipate that you will be submitting PRA comments, but find it difficult to do so within the period of time allowed by this notice, you should advise the FCC contact listed below as soon as possible.
Submit your PRA comments to Nicholas A. Fraser, Office of Management and Budget (OMB), via fax at 202–395–5167 or via Internet at
Judith B. Herman, Office of Managing Director, FCC, at 202–418–0214.
Eligible Telecommunications Carriers (ETCs) are permitted to receive universal service support reimbursement for offering certain services to qualifying low-income customers. On February 6, 2012, the Commission released a Report and Order and Further Notice of Proposed Rulemaking, Lifeline and Link Up Reform and Modernization, Federal-State Joint Board on Universal Service, FCC 12–11, intended to take immediate action to address potential waste, fraud and abuse in the universal service low income program. For specific details of the proposed information collection requirements and other requirements adopted see 77 FR 29241.
Federal Deposit Insurance Corporation (FDIC).
Notice and request for comment.
The FDIC, as part of its continuing effort to reduce paperwork and respondent burden, invites the general public and other Federal agencies to comment on this proposed information collection, as required by the Paperwork Reduction Act of 1995. An agency may not conduct or sponsor, and a respondent is not required to respond to, an information collection unless it displays a currently valid
Comments must be received by October 29, 2012
You may submit written comments by any of the following methods:
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Additionally, please send a copy of your comments to: By mail to the U.S. Office of Management and Budget, 725 17th Street NW., #10235, Washington, DC 20503 or by facsimile to 202.395.6974, Attention: Federal Banking Agency Desk Officer.
You can request additional information from Gary Kuiper, 202.898.3877, Legal Division, Federal Deposit Insurance Corporation, 550 17th Street NW., NYA–5046, Washington, DC 20429. In addition, copies of the templates referenced in this notice can be found on the FDIC's Web site (
The FDIC is requesting comment on the following new proposed information collection:
The FDIC intends to use the data collected through this proposal to assess the reasonableness of the company-run stress test results and to provide forward-looking information to the FDIC regarding a covered bank's capital adequacy. The FDIC also may use the results of the stress tests to determine whether additional analytical techniques and exercises could be appropriate to identify, measure, and monitor risks at the covered bank. The stress test results are expected to support ongoing improvement in a covered bank's stress testing practices with respect to its internal assessments of capital adequacy and overall capital planning.
The Dodd-Frank Act stress testing requirements apply to all covered banks, but the FDIC recognizes that many covered banks with consolidated total assets of $50 billion or more have been subject to stress testing requirements under the Board's Comprehensive Capital Analysis and Review (CCAR) or Capital Plan Review (CapPR). The FDIC also recognizes that these banks' stress tests will be applied to more complex portfolios and therefore warrant a broader set of reports to adequately capture the results of the company-run stress tests. These reports will necessarily require more detail than would be appropriate for smaller, less complex banks. Therefore, the FDIC will propose simplified and separate reporting templates for covered banks with total consolidated assets more than $10 billion and less than $50 billion and for covered banks with total consolidated assets of $50 billion or more. In cases where a covered bank with assets less than $50 billion is affiliated with an organization with assets of $50 billion or more, the FDIC reserves the authority to require that covered bank use the reporting template for larger banks. The FDIC may also, on a case-by-case basis, require a covered bank to report stress test results using a simpler format to be specified by the FDIC. The reporting templates for banks with assets of $50 billion or more are described below.
The FDIC has worked closely with the Board and the Office of the Comptroller of the Currency (OCC) to make the agencies' respective rules implementing annual stress testing under the Dodd-Frank Act consistent and comparable by requiring similar standards for scope of application, scenarios, data collection and reporting forms. The FDIC has worked to minimize any potential duplication of effort related to the annual stress test requirements. The FDIC also recognizes that many covered banks with total consolidated assets of $50 billion or more are required to submit reports using CCAR reporting form FR Y–14A.
The FDIC DFAST–14A Summary Schedule includes data collection worksheets necessary for the FDIC to assess the company-run stress test results for baseline, adverse and severely adverse scenarios as well as any other scenario specified in accordance with regulations specified by the FDIC. The DFAST–14A Summary Schedule includes worksheets that collect information on the following areas:
1. Income Statement;
2. Balance Sheet;
3. Capital Statement;
4. Retail Risk;
5. Available-for-Sale/Held to Maturity Securities (AFS/HTM);
6. Trading;
7. Counterparty Credit Risk;
8. Operational Risk; and
9. Pre-Provision Net Revenue (PPNR).
Each covered bank reporting to the FDIC using this form would be required to submit to the FDIC a separate DFAST–14A Summary Schedule for each scenario provided to covered banks in accordance with regulations implementing Section 165(i)(2) as specified by the FDIC.
This income statement collects data for the quarter preceding the planning horizon and for each quarter of the planning horizon for the stress test on projected losses and revenues in the following categories.
1. Loan losses;
2. Losses due to contingent commitments and liabilities;
3. Other Than Temporary Impairments (OTTI) on assets held to maturity and available for sale;
4. Trading account losses;
5. Allowance for loan and lease losses;
6. Pre-provision net revenue; and
7. Repurchase reserve/liability for reps and warranties.
The balance sheet statement collects data for the quarter preceding the planning horizon and for each quarter of the planning horizon for the stress test on projected equity capital, as well as on assets and liabilities in the following categories.
1. HTM securities;
2. AFS securities;
3. Loans;
4. Trading Assets;
5. Intangibles;
6. Deposits; and
7. Trading Liabilities.
The capital statement collects data for the quarter preceding the planning horizon and for each quarter of the planning horizon for the stress test on the following areas:
1. Changes to Equity Capital;
2. Changes to Regulatory capital; and
3. Capital Actions.
The Retail projections worksheets collects data for each quarter of the planning horizon for the stress test on projected balances and losses for major retail portfolios: Residential real estate, credit card, automobile, student loans, small business loans, and other consumer. For residential real estate, the worksheets collect data for first lien mortgages, home equity lines of credit, and home equity loans. For all major retail portfolios, the worksheets contain separate segments for domestic and international loans for various product types. Within each broad product-type segment, the reporting for the portfolio is divided into a number of sub-segments that embody unique risk characteristics. This modular product-type design of the Retail worksheet allows for a targeted data collection that encompasses only the material portfolios in a given product area for a particular covered bank. A covered bank with total consolidated assets of $50 billion or more would be required to complete only the segments and sub-segments material for that bank. This design is intended to limit burden while maximizing the supervisory information produced from the collection.
The
The Operational Risk worksheets collect data on covered banks' with total consolidated assets of $50 billion or more projections of operational losses for each quarter of planning horizon for the stress test. Operational losses are defined as losses arising from inadequate or failed internal processes, people, and systems or from external events including legal losses. Some examples of operational loss events are losses related to improper business practices (including class action lawsuits), execution errors, and fraud. Additional detail may be requested in order to translate the respondent covered banks' historical loss experience into operational loss projections. Additional detail also may be requested and on any budgeting processes used to project operational losses.
Completion of the Operational Risk schedule would be required only for those banks subject to advanced approaches risk-based capital rules.
For the PPNR schedule, covered banks with total consolidated assets of $50 billion or more must provide projections for the three major components of PPNR (net interest income, non-interest income, and non-interest expense) for each quarter of the planning horizon. Collection of these data in this format is based on the assumption that the revenues generated by different business lines are affected differently by different stress scenarios, and such a view facilitates a more robust analysis of the resulting projections.
The CCR schedule collects, on various worksheets, data to identify credit valuation adjustment (CVA), exposures, and CVA sensitivities for the respondent covered bank's top counterparties along a number of dimensions, including current CVA, stressed CVA, net current exposure, and gross current exposure. Covered banks with total consolidated assets of $50 billion or more also must submit aggregate CVA, exposures, and CVA sensitivities by ratings categories. The
Completion of the Counterparty Credit Risk/CVA schedule would be required only for those banks subject to the market shock provided by the FDIC.
The Basel III & Dodd-Frank schedule collects projections of Tier 1 Common Equity, Tier 1 Capital, Risk-Weighted Assets (RWA), and Leverage Exposures (along with granular components of those elements) for each quarter of the planning horizon for the stress test under baseline, adverse and severely adverse scenarios, based on the Basel III framework promulgated by the Basel Committee on Bank Supervision. Covered banks with total consolidated assets of $50 billion or more also are required to include data on the projected impact of any significant actions planned in response to Basel III and the Dodd-Frank Act (for example, asset sales, asset winddowns, and data collection and modeling enhancements).
To conduct the stress test required under this rule, a respondent covered bank may need to project additional economic and financial variables to estimate losses or revenues for some or all of its portfolios. In such a case, the covered bank is required to complete the DFAST–14A Company Variables schedule for each scenario where such additional variables are used to conduct the stress test. Each scenario worksheet collects the variable name (matching that reported on the Scenario Variable Definitions worksheet), the actual value of the variable during the third quarter of the reporting year, and the projected value of the variable for nine future quarters.
Covered banks with total consolidated assets of $50 billion or more must submit clear documentation in support of the projections included in the worksheets to support efficient and timely review of annual stress test results by the FDIC. The supporting documentation should be submitted electronically and is not expected to be reported in the workbooks used for required data reporting. This supporting documentation must clearly describe the methodology used to produce the stress test projections, and must include how the macroeconomic factors were translated into a covered bank's projections, as well as technical details of any underlying statistical methods used. Where company-specific assumptions are made that differ from the broad macro-economic assumptions incorporated in stress scenarios provided by the FDIC, the documentation must also describe such assumptions and how those assumptions relate to reported projections. Where historical relationships are relied upon, the respondent covered banks must describe the historical data and provide the basis for the expectation that these relationships would be maintained in each scenario, particularly under adverse and severely adverse conditions.
Comments submitted in response to this notice will be summarized and included in the request for OMB approval. All comments will become a matter of public record. Comments are invited on:
(a) Whether the collection of information is necessary for the proper performance of the functions of the FDIC, including whether the information has practical utility;
(b) The accuracy of the FDIC's estimate of the burden of the collection of information;
(c) Ways to enhance the quality, utility, and clarity of the information to be collected;
(d) Ways to minimize the burden of the collection on respondents, including through the use of automated collection techniques or other forms of information technology;
(e) Estimates of capital or start-up costs and costs of operation, maintenance, and purchase of services to provide information; and
(f) The ability of FDIC-supervised banks and thrifts with assets greater than $50 billion to provide the requested information to the FDIC by January, 2013.
Appraisal Subcommittee of the Federal Financial Institutions Examination Council
Proposed policy statements and request for comments.
The Appraisal Subcommittee (ASC) of the Federal Financial Institutions Examination Council requests public comment on a proposal to revise ASC Policy Statements (proposed Policy Statements). The proposed Policy Statements provide guidance to ensure State appraiser regulatory programs (Program)
Comments must be received on or before October 29, 2012.
You may submit comments, identified by any of the following methods:
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James R. Park, Executive Director, at (202) 595–7575, or Alice M. Ritter, General Counsel, at (202) 595–7577, via Internet email at
Title XI of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989, as amended (Title XI), established the ASC.
• Determine its compliance, or lack thereof, with Title XI, and
• Assess its implementation of the
The ASC originally adopted the Policy Statements in 1993. In 1997, the ASC added Policy Statements governing temporary practice and reciprocity. Since 1997, the Policy Statements have remained largely unchanged with the exception of amendments made by the ASC in 2008 to Policy Statement 10,
1. Passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act); and
2. ASC implementation of its revised Compliance Review process in 2009.
States have already begun the process of implementing numerous statutory changes brought about by the Dodd-Frank Act.
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2.
The proposed Policy Statements are intended to provide States with the necessary information to maintain their Programs in compliance with Title XI. Further, the proposed Policy Statements address the ASC's authority to evaluate a State Program for compliance with Title XI and to take sanctions against a State when its Program does not comply with Title XI. The proposal also excludes provisions from the current Policy Statements that have become outdated or lack enforceability. Additionally, the proposal reflects consideration of recent amendments to the Uniform Standards of Professional Appraisal Practice (USPAP) and the AQB Criteria.
Proposed Policy Statements 1 thru 7 correspond with the seven categories evaluated during the ASC's Compliance Review process and included in the ASC Compliance Review Report to a State. Proposed Policy Statement 8 sets forth procedures in the event the ASC imposes interim sanctions against a State. The proposal also includes four appendices:
1. Appendix A provides an overview of the Compliance Review process and a revised rating system;
2. Appendix B provides a summary of requirements and related implementation standards for each Policy Statement;
3. Appendix C provides a glossary of terms; and
4. Appendix D contains previously issued ASC Bulletins and Supplements that provided States with guidance on compliance with the self-enabling provisions of the Dodd-Frank Act, including the effective date by which a State needed to take action.
The following provides a statement-by-statement analysis highlighting the changes to the current Policy Statements reflected in the proposal.
The proposal's introduction and purpose statement provides a brief overview of the ASC's authority and its monitoring function of State Programs to determine compliance, or lack thereof, with Title XI. Much of the explanatory language in the current Policy Statements, regarding functions of the ASC and the establishment of State Programs, is well known and presented in the ASC Annual Report to Congress and, therefore, is being omitted from the proposal. The proposal focuses rather on the Policy Statements' goal to provide States with necessary information to maintain their Programs in compliance with Title XI.
Proposed Policy Statement 1 will consolidate and replace the first four current Policy Statements (
Since State Programs are now established, much of the language in the
The proposal addresses attendance by ASC Policy Managers at States' closed/executive sessions. The proposal explains how attendance at such meetings, except in the case of “quasi-judicial” proceedings specifically authorized by State statute, is an essential part of the ASC's monitoring function.
Proposed Policy Statement 2 will replace the current Policy Statement 5 (
Proposed Policy Statement 2 provides a clear explanation of what the ASC will consider to determine whether a State's fees or requirements are excessive or burdensome to an appraiser's ability to work in a State on a temporary basis relative to the State's cost of processing and issuing a temporary practice credential. Burdensome requirements are specified separately for the “Home State agency” and the “Host State.” The proposal reflects that a fee for an initial permit and one extension in excess of $250 is an excessive fee. The ASC acknowledges that the current Policy Statement set the maximum fee of $150 in 1997 and recognizes that States' costs have increased over time. Using the Consumer Price Index Inflation Calculator from the U.S. Department of Labor, Bureau of Labor Statistics, the change in prices of all goods and services at a $150 fee in 1997 equaled about a $215 fee as of July 2012. The ASC considered this information and based the proposed maximum fee of $250 on revised Policy Statement 2 becoming final in 2012, and remaining in effect for several years.
The language in current Policy Statement 5 concerning the requirements of an appraiser to register for temporary practice in a State to perform a “technical review” is not included in the proposal. The ASC believes that text is outdated and unnecessary.
Proposed Policy Statement 3 will replace the current Policy Statement 8 (
Proposed Policy Statement 3 addresses several Dodd-Frank Act amendments to Title XI concerning appraiser classifications and States' ASC National Registry reporting requirements. Several provisions in the current Policy Statements concerning the ASC National Registry are being updated or removed to reflect current ASC procedures. The proposal includes a discussion on the ASC National Registry's extranet application and security requirements for States (including designation of an Authorized Registry Official and adoption of a written policy to adequately protect the right of access, as well as the ASC issued UserName and Password). The proposal preserves the critical nature of information sharing among the States with regard to disciplinary actions taken against appraisers. The proposal requires States to notify the ASC as soon as practicable if it is determined that a credential holder listed on the National Registry does not, or did not, qualify for the credential held. The proposal also requires States to notify the ASC as soon as practicable in the event of voluntary surrenders, suspensions and revocations, or any action that interrupts a credential holder's ability to practice. Further, the proposal requires States to submit all “disciplinary actions” (as defined in the proposed Policy Statement) to the ASC via the extranet application for inclusion on the National Registry as of July 1, 2013.
Proposed Policy Statement 4 will replace numerous provisions in the current Policy Statement 10 (
Proposed Policy Statement 4 addresses requirements for:
(1) State's general processing of applications for an appraiser credential;
(2) An appraiser's qualifying education, including a State's verification that an applicant's education complies with AQB Criteria, and for verification and audit of an appraiser's continuing education credits for license and certification renewals;
(3) An applicant's compliance with AQB Criteria experience requirements, including the State's review and validation of an applicant's experience claims on initial credential or upgrade applications; and
(4) State's use and administration of an appropriate AQB-approved qualifying examination.
The proposed Policy Statement 4 is structured according to the type of application being processed (that is, an initial, upgrade, reinstatement, or renewal application). The proposal also includes a discussion on the procedures that a State should have concerning the verification, validation and audit of information in applications.
Proposed Policy Statement 5 will replace current Policy Statement 6 (
Proposed Policy Statement 5 sets forth the new reciprocity requirements mandated by the Dodd-Frank Act, and consequences to a State that fails to comply. Policy Statement 5 also provides examples of a State's implementation of a reciprocity process.
Title XI now requires that in order for a State's appraisers to be eligible to perform appraisals for federally related transactions, the State must have a reciprocity policy in place that will require issuance of a reciprocal credential IF:
1. the appraiser is coming from a State that is “in compliance”;
2. the appraiser holds a valid credential from that State; and
3. the credentialing requirements of that State (as they currently exist) meet or exceed those of the reciprocal credentialing State (as they currently exist).
Therefore, the proposal explains that appraisers relying on a credential from a State that does not have a compliant reciprocity policy in place are not eligible to perform appraisals for federally related transactions. A State may have a more lenient or more open door policy; however, States cannot impose additional impediments to issuance of reciprocal credentials. For purposes of implementing the Dodd-Frank Act's reciprocity requirements and considering the proposed rating criteria in Appendix A, States with an ASC Finding
Proposed Policy Statement 6 adds new discussion that is not in the current Policy Statements and will address the sixth area of review in the ASC Compliance Review process of a State Program's administration of education requirements for compliance with AQB Criteria and Title XI.
Proposed Policy Statement 6 provides States with specific requirements regarding course approval, including the approval of distance education courses (e.g., on-line courses), and refers to discussion in proposed Policy Statement 4 concerning qualifying and continuing education in the application process. As required by the Dodd-Frank Act, the proposal encourages States to accept courses approved by the AQB's Course Approval Program.
Proposed Policy Statement 7 will replace several provisions in current Policy Statement 10 (
Proposed Policy Statement 7 provides States with specific requirements to demonstrate that they are operating an effective and compliant enforcement program in addressing complaints against an appraiser. The proposed Policy Statement 7 addresses expectations for enforcement regarding: (1) Timeliness of complaint investigations and initiating enforcement action; (2) effectiveness of a State's enforcement process; (3) consistent and equitable treatment of an appraiser in the State's enforcement process; and (4) appropriate complaint documentation in a State's enforcement records, including specific requirements for tracking complaints of alleged appraiser misconduct or wrongdoing using an electronic complaint log.
Proposed Policy Statement 8 establishes a new ASC policy that addresses interim sanction authority the Dodd-Frank Act granted the ASC, and outlines due process considerations in the event the ASC exercises such authority.
Pursuant to the Dodd-Frank Act, the ASC has the authority to impose interim actions and suspensions against a State agency as an alternative to or in advance of a non-recognition proceeding against a State agency that fails to have an effective Program.
The proposal includes four appendices. Proposed Appendix A provides an overview of the Compliance Review process, including revised ASC Compliance Review Findings (referred to as ASC Findings in this appendix) for rating a State's compliance, or lack thereof, with Title XI. The proposed ASC Findings rating criteria places particular emphasis on whether the State is maintaining an effective regulatory Program in compliance with Title XI. At the conclusion of the Compliance Review process, the ASC would assign the State's Program one of the five proposed ASC Findings (that is, a State's Program would be either “Excellent,” “Good,” “Needs Improvement,” “Not Satisfactory,” or “Poor”). As proposed, the ASC also would use the ASC Finding to establish the Review Cycle for that State. Proposed Appendix B provides a summary of requirements and related implementation standards for each of the proposed Policy Statements. Proposed Appendix C provides a glossary of terms to aid in the reading of the proposed Policy Statements. Proposed Appendix D will contain the ASC Bulletins and Supplements that have already been issued to assist States in understanding and complying with the self-enabling provisions of the Dodd-Frank Act.
The ASC seeks comment on all aspects of the revised Policy Statements, including any potential burden or cost to the States to comply with these Policy Statements. In addition, the ASC requests comments on the following specific questions:
1. Do the proposed rating criteria in Appendix A provide sufficient clarity to understand the differences among the ASC Finding categories?
2. Do the ASC Finding categories appropriately identify the degree of perceived risk of a Program's potential failure?
3. Do the ASC Finding rating criteria provide enough information to explain the judgment factors that the ASC will use to assess whether a State is in compliance with Title XI?
4. Do the revised Policy Statements achieve the ASC's goal in improving the understandability and enforceability of Title XI and the AQB Criteria?
5. Do the revised Policy Statements provide State Programs with the necessary information to understand the ASC's expectations of the Program during a Compliance Review?
The text of the proposed Policy Statements is as follows:
Title XI of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA), as amended (Title XI), established the Appraisal Subcommittee of the Federal Financial Institutions Examination Council (ASC).
Pursuant to Title XI, one of the ASC's core functions is to monitor the requirements established by the States
Pursuant to authority granted to the ASC under Title XI, the ASC is issuing these Policy Statements
Title XI requires the ASC to monitor State agencies for the purpose of determining whether they have policies, practices and procedures consistent with Title XI.
States should maintain an organizational structure for appraiser certification, licensing and supervision that avoids conflicts of interest with other real estate-related professions. A State agency may be headed by a board, commission or an individual. State board
The Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) amended Title XI to require the ASC to determine whether States have sufficient funding and staffing to meet their Title XI requirements.
Title XI requires States to adopt and/or implement all relevant AQB Criteria. Historically, requirements established by a State for certified residential or certified general classifications have been required to meet or exceed AQB Criteria. Effective July 1, 2013, requirements established by a State for licensed appraisers, as well as for trainee and supervisory appraisers, must also meet or exceed the AQB Criteria, as required by the Dodd-Frank Act.
“State certified appraisers” means those individuals who have satisfied the requirements for residential or general certification in a State whose criteria for certification meet or exceed the minimum AQB Criteria. Permitted scope of practice and designation for State certified residential or certified general appraisers must be consistent with State and Federal laws, including regulations and supplementary guidance.
As of July 1, 2013, “State licensed appraisers” means those individuals who have satisfied the requirements for licensing in a State whose criteria for licensing meet or exceed the minimum AQB Criteria.
As of July 1, 2013, any minimum qualification requirements established by a State for individuals in the position of “trainee appraiser” and “supervisory appraiser” must meet or exceed the minimum AQB Criteria.
Any State or Federal agency may impose additional appraiser qualification requirements for State licensed, certified residential or certified general classifications, or for trainee and supervisor classifications, if they consider such requirements necessary to carry out their responsibilities under Federal and/or State statutes and regulations, so long as the additional qualification requirements do not conflict with AQB Criteria.
States using non-federally recognized credentials or designations
Title XI and the Federal financial institutions regulatory agencies' regulations mandate that all appraisals performed in connection with federally related transactions be in written form, prepared in accordance with generally accepted appraisal standards as promulgated by the Appraisal Standards Board (ASB) in the Uniform Standards of Professional Appraisal Practice (USPAP), and subject to review for compliance with USPAP.
Any State or Federal agency may impose additional appraisal standards if they consider such standards necessary to carry out their responsibilities, so long as additional appraisal standards do not conflict with USPAP for work performed for federally related transactions.
Title XI prohibits excluding appraisers from consideration for an assignment solely by virtue of their lack of membership in a nationally recognized professional appraisal organization.
Title XI and the Federal financial institutions regulatory agencies' regulations specifically require the use of only State certified or licensed appraisers in connection with the appraisal of certain real estate-related financial transactions.
As part of the on-site Compliance Review process, ASC staff regularly attends State board meetings, including executive and/or closed sessions. States are expected to permit ASC staff to attend State board meetings except in the case of closed sessions for “quasi-judicial” proceedings specifically authorized and defined by State statute or regulation. The efficacy of the ASC's Compliance Review process rests on the ASC's ability to obtain reliable information about all areas of a State's Program. ASC staff is obligated to protect information obtained during the Compliance Review process concerning
Appendix B provides a summary of requirements and related implementation standards for each Policy Statement. The summary of requirements and implementation standards sets forth expectations for a State to demonstrate that its Program meets Title XI mandates.
Title XI requires State agencies to recognize, on a temporary basis, the certification or license of an out-of-State appraiser entering the State for the purpose of completing an appraisal assignment
State agencies may establish by statute or regulation a policy that places reasonable limits on the number of times an out-of-State certified or licensed appraiser may exercise his or her temporary practice rights in a given year. If a State does not have an established policy, a State agency may choose to refuse to honor an out-of-State certified or licensed appraiser's temporary practice rights when a State has determined that the appraiser is abusing his or her temporary practice rights and is regularly engaging in real estate appraisal within the State.
Title XI prohibits States from imposing excessive fees or burdensome requirements, as determined by the ASC, for temporary practice.
1. Host State agencies must:
a. Issue temporary practice permits on an assignment basis;
b. Issue temporary practice permits within five business days of receipt of a completed application, or notify the applicant and document the file as to the circumstances justifying delay or other action;
c. Issue temporary practice permits designating the actual date of issuance;
d. Take regulatory responsibility for a temporary practitioner's unethical, incompetent and/or fraudulent practices performed while in the State;
e. Notify the appraiser's home State agency
f. Allow at least one temporary practice permit extension through a streamlined process.
2. Host State agencies may not:
a. Limit the valid time period of a temporary practice permit to less than 6 months, except in the case of an appraiser not holding a credential in active status for at least that period of time;
b. Limit an appraiser to one temporary practice permit per calendar year;
c. Charge a temporary practice permit fee exceeding $250, including one extension fee;
d. Impose State appraiser qualification requirements upon temporary practitioners that exceed AQB Criteria for the credential held;
e. Require temporary practitioners to obtain a certification or license in the State of temporary practice;
f. Require temporary practitioners to affiliate with an in-State licensed or certified appraiser;
g. Refuse to register licensed or certified appraisers seeking temporary practice in a State that does not have a licensed or certified level credential; or
h. Prohibit temporary practice.
3. Home State agencies may not:
a. Delay the issuance of a written “letter of good standing” or similar document for more than five business days after receipt of a request; or
b. Fail to take disciplinary action, if appropriate, when one of its certified or licensed appraisers is disciplined by another State agency for unethical, incompetent or fraudulent practices under a temporary practice permit.
Appendix B provides a summary of requirements and related implementation standards for each Policy Statement. The summary of requirements and implementation standards sets forth expectations for a State to demonstrate that its Program meets Title XI mandates.
Title XI requires the ASC to maintain a National Registry of State certified and licensed appraisers who are eligible to perform appraisals in federally related transactions.
Roster and Registry fee requirements apply to all individuals who receive State certifications or licenses, originally or by reciprocity, whether or not the individuals are, in fact, performing or planning to perform appraisals in federally related transactions. If an appraiser is certified or licensed in more than one State, the appraiser is required to be on each State's roster of certified or licensed appraisers, and a Registry fee is due from each State in which the appraiser is certified or licensed.
Only AQB-compliant certified appraisers in active status on the
Some States may give State certified or licensed appraisers an option to not pay the Registry fee. If a State certified or licensed appraiser chooses not to pay the Registry fee, then the Program must ensure that any potential user of that appraiser's services is aware that the appraiser's certificate or license is limited to performing appraisals in connection with non-federally related transactions.
The ASC extranet application allows States to update their appraiser credential information directly to the National Registry. Only Authorized Registry Officials are allowed to request access for their State personnel (see section C below). The ASC will issue a UserName and Password to the designated State personnel responsible for that State's National Registry entries. Designated State personnel are required to protect the right of access, and not share their UserName or Password with anyone. State agencies must adopt and implement a written policy to adequately protect the right of access, as well as the ASC issued UserName and Password.
For those States not using the ASC extranet application, the ASC has provided detailed specifications regarding the data elements on the National Registry and reporting procedures.
The ASC creates a National Registry number for each appraiser and protects each appraiser's privacy rights. The unique identification number is provided to appropriate State and Federal regulatory agencies to simplify multi-State queries regarding specific appraisers.
Each State must remit to the ASC the annual Registry fee, as set by the ASC, for State certified or licensed appraisers within the State to be listed on the National Registry.
The ASC Web site provides free access to the public portion of the National Registry at
Access to the full database, which includes some non-public data (e.g., certain disciplinary action information), is restricted to authorized State and Federal regulatory agencies. States must designate a high ranking officer, such as an executive director, to serve as the State's Authorized Registry Official, and provide to the ASC, in writing, information regarding the designated Authorized Registry Official. States should ensure that the authorization information provided to the ASC is updated and accurate.
Information sharing (routine exchange of certain information among lenders, governmental entities, State agencies and the ASC) is essential for carrying out Title XI. Title XI requires the ASC, any other Federal agency or instrumentality, or any federally recognized entity to report any action of a State certified or licensed appraiser that is contrary to the purposes of Title XI to the appropriate State agency for disposition. The ASC believes that full implementation of this Title XI requirement is vital to the integrity of the system of State appraiser regulation.
The National Registry's value and usefulness are largely dependent on the quality and frequency of State's data submissions. Accurate and frequent data submissions from all States are necessary to maintain an up-to-date National Registry. States must submit appraiser data to the ASC at least monthly. If there are no changes to the data, the State agency must notify the ASC of that fact in writing. States are encouraged to submit data as frequently as possible.
State agencies must report expeditiously any disciplinary action
Title XI contemplates the reasonably free movement of certified and licensed appraisers across State lines. This freedom of movement assumes, however, that certified and licensed appraisers are, in all cases, held accountable and responsible for their actions while performing appraisal activities. To ensure this accountability, States should establish routine ways to communicate with each other regarding matters of mutual interest, including the activities and status of persons who are certified or licensed in multiple States.
Appendix B provides a summary of requirements and related implementation standards for each Policy Statement. The summary of requirements and implementation standards sets forth expectations for a State to demonstrate that its Program meets Title XI mandates.
AQB Criteria sets forth the minimum education, experience and examination requirements for credentialing of real property appraisers. In the application process, States must, at a minimum, employ a reliable means of validating both education and experience credit claimed by applicants for credentialing.
States must process applications in a consistent, equitable and well-documented manner.
States must ensure appraiser credential applications submitted for processing do not contain expired examinations as established by AQB Criteria (24-month examination validity period).
Applications for credentialing should be timely processed by State agencies (within 90 days). Any delay in the processing of applications should be sufficiently documented in the file to justify the delay.
States must verify that:
(1) The applicant's claimed education courses are acceptable under AQB Criteria; and
(2) The applicant has successfully completed courses consistent with AQB Criteria for the appraiser credential sought.
Documentation must be provided by applicants to support education claimed by applicants for initial credentialing or upgrade.
States may not accept an affidavit for education claimed from applicants for certification.
Effective July 1, 2013, States may not accept an affidavit for education claimed from applicants for any federally recognized credential.
States must maintain adequate documentation to support verification of claimed education by applicants.
States must verify that:
(1) The applicant's claimed continuing education courses are acceptable under AQB Criteria; and
(2) The applicant has successfully completed all continuing education consistent with AQB Criteria for reinstatement of the appraiser credential sought.
Documentation must be provided by applicants to support continuing education claimed by applicants for reinstatement.
States may not accept an affidavit for continuing education claimed from applicants for reinstatement.
States must maintain adequate documentation to support verification of claimed education.
States must ensure that continuing education courses for renewal of an appraiser credential are consistent with AQB Criteria.
States must ensure that continuing education hours required for renewal of an appraiser credential were completed consistent with AQB Criteria.
States may accept affidavits for continuing education credit claimed for credential renewal so long as the State implements a reliable validation procedure that adheres to the following objectives and requirements:
(1) Validation must include a prompt post-approval audit. Each audit of an affidavit for continuing education credit claimed must be completed within 60 days from the date the renewed credential is issued;
(2) States must audit the continuing education-related affidavit for each credentialed appraiser selected in the sampling procedure;
(3) The State must determine that the education courses claimed conform to AQB Criteria and that the appraiser successfully completed each course;
(4) When a State determines that an appraiser's continuing education does not meet AQB Criteria, the State must take appropriate action to suspend the appraiser's eligibility to perform appraisals in federally related transactions until such time that the requisite continuing education has been completed. Also, upon such a determination, the State must notify the ASC as soon as practicable in order for the appraiser's record on the National Registry to be updated appropriately; and
(5) If more than ten percent of the audited appraisers fail to meet the AQB Criteria, the State must take remedial action
(1) A State may conduct an additional audit using a higher percentage of audited appraisers; or
(2) a State may publically post action taken to sanction non-compliant appraisers to increase awareness in the appraiser community of the importance of compliance with continuing education requirements.
States must ensure that appraiser experience logs conform to AQB Criteria.
States may not accept an affidavit for experience credit claimed from applicants for certification.
Effective July 1, 2013, States may not accept an affidavit for experience credit claimed from applicants for any federally recognized credential.
States must implement a reliable validation procedure to verify that each applicant's:
(1) Experience meets AQB Criteria;
(2) Experience is USPAP compliant; and
(3) Experience hours have been successfully completed consistent with AQB Criteria.
Program staff or State board members must select the work product to be analyzed for USPAP compliance; applicants may not have any role in selection of work product. States must analyze a representative sample of the applicant's work product.
For appraisal experience to be acceptable under AQB Criteria, it must be USPAP compliant. States must exercise due diligence in determining whether submitted documentation of experience or work product demonstrates compliance with USPAP.
Persons analyzing work product for USPAP compliance must have sufficient knowledge to make that determination.
When measuring the experience time period required by AQB Criteria, States must review each appraiser's experience log and note the dates of the first and last acceptable appraisal activity performed by the applicant. At a minimum, the time period spanned between those appraisal activities must comply with the AQB Criteria.
States must maintain adequate documentation to support validation methods. The applicant's file, either electronic or paper, must include the information necessary to identify each appraisal assignment selected and analyzed by the State, notes, letters and/or reports prepared by the official(s) evaluating the report for USPAP compliance, and any correspondence exchanged with the applicant regarding the appraisals submitted. This supporting documentation may be discarded upon the completion of the first ASC Compliance Review performed after the credential issuance or denial for that applicant.
States must ensure that an appropriate AQB-approved qualifying examination is administered for each of the federally recognized appraiser classifications requiring an examination.
Appendix B provides a summary of requirements and related implementation standards for each Policy Statement. The summary of requirements and implementation standards sets forth expectations for a State to demonstrate that its Program meets Title XI mandates.
Title XI contemplates the reasonably free movement of certified and licensed appraisers across State lines. Beginning July 1, 2013, the ASC will monitor Programs for compliance with the reciprocity provision of Title XI as amended by the Dodd-Frank Act.
a. The appraiser is coming from a State that is “in compliance”; and
b. (i) The appraiser holds a valid credential from that State; and
(ii) The credentialing requirements of that State (as they currently exist) meet or exceed those of the reciprocal credentialing State (as they currently exist).
An appraiser relying on a credential from a State that does not have such a policy in place may not perform appraisals for federally related transactions. A State may be more lenient in the issuance of reciprocal credentials by implementing a more open door policy. However, States cannot impose additional impediments to issuance of reciprocal credentials.
For purposes of implementing the reciprocity policy, States with an ASC Finding
In order to assist States in implementing reciprocity in a manner that complies with Title XI, the following provides further illustration of the reciprocity policy through examples of application.
The examples refer to the reciprocity policy requiring issuance of a reciprocal credential IF:
a. The appraiser is coming from a State that is “in compliance”; AND
b. (i) The appraiser holds a valid credential from that State; AND
(ii) The credentialing requirements of that State (as they currently exist) meet or exceed those of the reciprocal credentialing State (as they currently exist).
STATE A requires that prior to issuing a reciprocal credential, the applicant must certify that disciplinary proceedings are not pending against that applicant in any jurisdiction. Under b(ii) above, if this requirement is not imposed by STATE A on its own applicants for credentialing, STATE A cannot impose this requirement on applicants for reciprocal credentialing.
An appraiser is seeking a reciprocal credential in STATE A. The appraiser holds a valid credential in STATE Z, even though it was issued in 2007. This satisfies b(i) above. However in order to satisfy b(ii), STATE A would evaluate STATE Z's credentialing requirements as they currently exist to determine whether they meet or exceed STATE A's current requirements for credentialing.
Appraisers granted reciprocity must comply with the home State agencies' and reciprocating States' policies, rules and statutes governing appraisers, including requirements for payment of certification and licensing fees, as well as continuing education. An appraiser must pay a National Registry fee for each State in which a credential is held.
Appendix B provides a summary of requirements and related implementation standards for each Policy Statement. The summary of
AQB Criteria sets forth minimum requirements for appraiser education courses. This Policy Statement addresses proper administration of education requirements for compliance with AQB Criteria. (For requirements concerning qualifying and continuing education in the application process, see Policy Statement 4,
States must ensure that approved appraiser education courses are consistent with AQB Criteria.
States must maintain sufficient documentation to support that approved appraiser education courses conform to AQB Criteria.
States should ensure that course approval expiration dates assigned by the State coincide with the endorsement period assigned by the AQB's Course Approval Program and/or International Distance Education Certification Center (IDECC), or any other AQB-approved organization providing approval of course design and delivery.
States should ensure that educational providers are afforded equal treatment in all respects.
(1) Consent agreements requiring additional education may not specify a particular course provider, thereby discriminating against other providers on the State's approved course listing offering the same course; or
(2) courses from professional organizations may not be automatically approved and/or approved in a manner that is less burdensome than the State's normal approval process.
States must ensure that distance education courses meet AQB Criteria.
States must ensure the delivery mechanism for distance education courses offered by a non-academic provider has been approved by an AQB-approved organization (e.g. IDECC) providing approval of course design and delivery.
Appendix B provides a summary of requirements and related implementation standards for each Policy Statement. The summary of requirements and implementation standards sets forth expectations for a State to demonstrate that its Program meets Title XI mandates.
Title XI requires the ASC to monitor the States for the purpose of determining whether the State processes complaints and completes investigations in a reasonable time period, appropriately disciplines sanctioned appraisers and maintains an effective regulatory program.
States must ensure that the system for processing and investigating complaints
States must process complaints of appraiser misconduct or wrongdoing in a timely manner to ensure effective supervision of appraisers, and when appropriate, that incompetent or unethical appraisers are not allowed to continue their appraisal practice. Absent special documented circumstances,
Effective enforcement requires that States investigate allegations of appraiser misconduct or wrongdoing, and if allegations are proven, take appropriate disciplinary or remedial action. Dismissal of an alleged violation solely due to an “absence of harm to the public” is inconsistent with Title XI. Financial loss or the lack thereof is not an element in determining whether there is a violation. The extent of such loss, however, may be a factor in determining the appropriate level of discipline.
Persons analyzing complaints for USPAP compliance must be knowledgeable about appraisal practice and USPAP.
States must analyze each complaint to determine whether additional violations, especially those relating to USPAP, should be added to the complaint.
Closure of a complaint based on a State's statute of limitations results in dismissal of a complaint without the investigation of the merits of the complaint, and is inconsistent with the Title XI requirement that States assure effective supervision of the activities of credentialed appraisers.
Absent specific documented facts or considerations, substantially similar cases within a State should result in similar dispositions.
“Well-documented” means that States obtain and maintain sufficient relevant documentation pertaining to a matter so as to enable understanding of the facts and determinations in the matter and the reasons for those determinations.
Complaint files must:
• Include documentation outlining the progress of the investigation;
• Demonstrate that appraisal reports are analyzed and all USPAP violations are identified;
• Include rationale for the final outcome of the case (i.e. dismissal or imposition of discipline);
• Include documentation explaining any delay in processing, investigation or adjudication;
• Contain documentation that all ordered or agreed upon discipline, such as probation, fine, or completion of education is tracked and that completion of all terms is confirmed; and
• Be organized in a manner that allows understanding of the steps taken throughout the complaint, investigation, and adjudicatory process.
States must track all complaints using a complaint log. The complaint log must record all complaints, regardless of their procedural status in the investigation and/or resolution process, including complaints pending before the State board, Office of the Attorney General, other law enforcement agencies, and/or Offices of Administrative Hearings. The complaint log must include the following information in an electronic, sortable spreadsheet format:
Appendix B provides a summary of requirements and related implementation standards for each Policy Statement. The summary of requirements and implementation standards sets forth expectations for a State to demonstrate that its Program meets Title XI mandates.
Title XI as amended by the Dodd-Frank Act states that the ASC shall have the authority to impose interim actions and suspensions, as an alternative to or in advance of a non-recognition proceeding,
Title XI as amended by the Dodd-Frank Act grants the ASC authority to remove a State licensed or certified appraiser from the National Registry on an interim basis, not to exceed 90 days, pending State agency action on licensing, certification, registration, or disciplinary proceedings.
The ASC shall provide the State agency with:
1. Written notice of intention to impose an interim sanction; and
2. Opportunity to respond or to correct the conditions causing such notice to the State. Notice and opportunity to respond or correct the conditions shall be in accordance with section D,
This section prescribes the ASC's procedures which will be followed in arriving at a decision by the ASC to impose an interim sanction against a State agency.
The ASC shall provide a written Notice of intention to impose an interim sanction (Notice) to the State agency. The Notice shall contain the ASC's analysis as required by Title XI of the State's licensing and certification of appraisers, the issuance of temporary licenses and certifications for appraisers, the receiving and tracking of submitted complaints against appraisers, the investigation of complaints, and enforcement actions against appraisers.
Within 15 days of receipt of the Notice, the State may submit a response to the ASC's Executive Director. Alternatively, a State may submit a Notice Not to Contest with the ASC's Executive Director. The filing of a Notice Not to Contest shall not constitute a waiver of the right to a judicial review of the ASC's decision, findings and conclusions. Failure to file a Response within 15 days shall constitute authorization for the ASC to find the facts to be as presented in the Notice and analysis. The ASC, for good cause shown, may permit the filing of a Response after the prescribed time.
Within 45 days after the date of receipt by the State agency of the Notice as published in the
Within 45 days after the date of receipt by the State agency of the Notice as published in the
(a)
(b)
(c)
(d)
Within 90 days after the date of receipt by the State agency of the Notice as published in the
Time computation is based on business days. The date of the act, event or default from which the designated period of time begins to run is not included. The last day is included unless it is a Saturday, Sunday, or Federal holiday, in which case the period runs until the end of the next day which is not a Saturday, Sunday or Federal holiday.
Unless otherwise provided by statute, all documents, papers and exhibits filed in connection with any proceeding, other than those that may be withheld from disclosure under applicable law, shall be placed by the ASC's Executive Director in the proceeding's file and will be available for public inspection and copying.
A decision of the ASC under this section shall be subject to judicial review. The form of proceeding for judicial review may include any applicable form of legal action, including actions for declaratory judgments, writs of prohibitory or mandatory injunction in a court of competent jurisdiction.
The ASC monitors State Programs for compliance with Title XI. The monitoring of a State Program is largely accomplished through on-site visits known as a Compliance Review (Review). A Review is conducted over a two- to four-day period, and is scheduled to coincide with a meeting of the Program's decision-making body whenever possible. ASC staff reviews the seven compliance areas addressed in Policy Statements 1 through 7. Sufficient documentation demonstrating compliance must be maintained by a State and made available for inspection during the Review. ASC staff reviews a sampling of documentation in each of the seven compliance areas. The sampling is intended to be representative of the State Program in its entirety.
Based on the Review, ASC staff provides the State with an ASC staff report detailing preliminary findings. The State is given 60 days to respond to the ASC staff report. At the conclusion of the Review, a Compliance Review Report (Report) is issued to the State with the ASC Finding on the Program's overall compliance, or lack thereof, with Title XI. Deficiencies resulting in non-compliance in any of the seven compliance areas are cited in the Report. “Areas of Concern”
The following chart provides an explanation of the ASC Findings and rating criteria for each ASC Finding category. The ASC Finding places particular emphasis on whether the State is maintaining an effective regulatory Program in compliance with Title XI.
The ASC has two primary Review Cycles: Two-year and one-year. Most States are scheduled on a two-year Review Cycle. States may be moved to a one-year Review Cycle if the ASC determines more frequent on-site Reviews are needed to ensure that the State maintains an effective Program. Generally, States are placed on a one-year Review Cycle because of non-compliance issues or serious areas of concerns that warrant more frequent on-site visits. Both two-year and one-year Review Cycles include a review of all aspects of the State's Program.
The ASC may conduct Follow-up Reviews. A Follow-up Review focuses only on specific areas identified during the previous on-site Review. Follow-up Reviews usually occur within 6–12 months of the previous Review. In addition, as a risk management tool, ASC staff identifies State Programs that may have a significant impact on the nation's appraiser regulatory system in the event of Title XI compliance issues. For States that represent a significant percentage of the credentials on the National Registry, ASC staff performs annual on-site Priority Contact visits. The primary purpose of the Priority Contact visit is to review topical issues, evaluate regulatory compliance issues, and maintain a close working relationship with the State. This is not a complete Review of the Program. The ASC will also schedule a Priority Contact visit for a State when a specific concern is identified that requires special attention.
This Appendix B provides a summary of requirements and related implementation standards for Policy Statements 1 through 7. The summary of requirements and implementation standards sets forth expectations for a State to demonstrate that its Program meets Title XI mandates.
1. States must require that appraisals be performed in accordance with the latest version of USPAP.
2. States must adopt and/or implement all relevant AQB Criteria.
3. States must have policies, practices and procedures consistent with Title XI.
4. States must have funding and staffing sufficient to carry out their Title XI-related duties.
5. States must use proper designations and permitted scope of practice for certified residential or certified general classifications, and as of July 1, 2013, a State must use the proper designations and permitted scope of practice for the licensed classification, and trainee and supervisor classifications.
6. State board members, and any persons in policy or decision-making positions, must perform their responsibilities consistent with Title XI.
7. States' certification and licensing requirements must meet the minimum requirements set forth in Title XI.
8. State agencies must be granted adequate authority by the State to maintain an effective regulatory Program in compliance with Title XI.
1. States must recognize, on a temporary basis, appraiser credentials issued by another State if the property to be appraised is part of a federally related transaction.
2. State agencies must adhere to mandates and prohibitions as determined by the ASC that deter the imposition of excessive fees or burdensome requirements for temporary practice.
1. States must reconcile and pay National Registry invoices in a timely manner.
2. States must submit all disciplinary actions
3. As of July 1, 2013, all States will be required to report disciplinary action via the extranet application as soon as practicable.
4. States must designate a high ranking officer, such as an executive director, who will serve as the State's Authorized Registry Official, and must ensure that non-public data is appropriately protected.
5. The State must provide to the ASC, in writing, information regarding the selected Authorized Registry Official, and any individual(s) authorized to act on their behalf, and should ensure that the authorization information provided to the ASC is kept current.
6. States using the ASC extranet application must ensure that designated personnel with UserName and Password access protect the right of access, and not share the UserName or Password with anyone.
7. States must adopt and implement a written policy to adequately protect the right of access, as well as the ASC issued UserName and Password.
8. States must proactively minimize risk of clerical error that may result in inaccurate entries to the National Registry.
9. States must submit appraiser data to the ASC at least monthly. If a State's data does not change during the month, the State agency must notify the ASC of that fact in writing.
10. States must notify the ASC as soon as practicable if it is determined that a credential holder listed on the National Registry does not, or did not, qualify for the credential held.
11. States must notify the ASC as soon as practicable in the event of voluntary surrenders, suspensions and revocations, or any action that interrupts a credential holder's ability to practice in order for the ASC to inactivate the appraiser's status on the National Registry.
12. If a State certified or licensed appraiser chooses not to pay the Registry fee, then the Program must ensure that any potential user of that appraiser's services is aware that the appraiser's certificate or license is limited to performing appraisals in connection with non-federally related transactions.
1. States must process applications in a consistent, equitable and well-documented manner.
2. States must ensure appraiser credential applications submitted for processing do not contain expired examinations as established by AQB Criteria (24-month examination validity period).
1. States must verify that the applicant's claimed education courses are acceptable under AQB Criteria, whether for initial credentialing, renewal, upgrade or reinstatement.
2. States must verify that the applicant has successfully completed courses consistent with AQB Criteria for the appraiser credential sought, whether for initial credentialing, renewal, upgrade or reinstatement.
3. States must maintain adequate documentation to support verification.
4. States may not accept an affidavit for education claimed from applicants for certification.
5. Effective July 1, 2013, States may not accept an affidavit for education claimed from applicants for any federally recognized credential.
6. States may not accept an affidavit for continuing education claimed from applicants for reinstatement.
7. States may accept affidavits for continuing education credit claimed for credential renewal so long as the State implements a reliable validation procedure.
8. Audits of affidavits for continuing education credit claimed must be completed within 60 days from the date the renewed credential is issued.
9. States are required to take remedial action when it is determined that more than ten percent of audited appraiser's affidavits for continuing education credit claimed fail to meet the minimum AQB Criteria.
10. States must require the 7-hour National USPAP Update Course for renewals consistent with AQB Criteria.
1. States may not accept an affidavit for experience credit claimed from applicants for certification.
2. Effective July 1, 2013, States may not accept an affidavit for experience credit claimed from applicants for any federally recognized credential.
3. States must ensure that appraiser experience logs conform to AQB Criteria.
4. States must use a reliable means of validating appraiser experience claims on all initial or upgrade applications for appraiser credentialing.
5. States must select the work product to be analyzed for USPAP compliance on all initial or upgrade applications for appraiser credentialing.
6. States must analyze a representative sample of the applicant's work product on all initial or upgrade applications for appraiser credentialing.
7. States must exercise due diligence in determining whether submitted documentation of experience or work product demonstrates compliance with USPAP on all initial applications for appraiser credentialing.
8. Persons analyzing work product for USPAP compliance must have sufficient knowledge to make that determination.
1. States must ensure that an appropriate AQB-approved qualifying examination is administered for each of the federally recognized credentials requiring an examination.
1. Effective July 1, 2013, in order for a State's appraisers to be eligible to perform appraisals for federally related transactions, the State must have a reciprocity policy in place for issuing a reciprocal credential to an appraiser from another State under the conditions specified in Title XI.
2. States may be more lenient in the issuance of reciprocal credentials by implementing a more open door policy; however, States may not impose additional impediments to issuance of reciprocal credentials.
1. States must ensure that appraiser education courses are consistent with AQB Criteria.
2. States must maintain sufficient documentation to support that approved appraiser courses conform to AQB Criteria.
3. States must ensure the delivery mechanism for distance education courses offered by a non-academic provider has been approved by an AQB-approved organization providing approval of course design and delivery (e.g. IDECC).
1. States must maintain relevant documentation to enable understanding of the facts and determinations in the matter and the reasons for those determinations.
2. States must resolve all complaints filed against appraisers within one year (12 months) of the complaint filing date, except for special documented circumstances.
3. States must ensure that the system for processing and investigating complaints and sanctioning appraisers is administered in an effective, consistent, equitable, and well-documented manner.
4. States must track complaints of alleged appraiser misconduct or wrongdoing using an electronic complaint log.
5. States must appropriately document enforcement files and include rationale.
6. States must regulate, supervise and discipline their credentialed appraisers.
7. Persons analyzing complaints for USPAP compliance must be knowledgeable about appraisal practice and USPAP.
a. Revocation of credential
b. Suspension of credential
c. Written consent agreements, orders or reprimands
d. Probation or any other restriction on the use of a credential
e. Fine
f. Voluntary surrender in lieu of disciplinary action
g. Other acts as defined by State statute or regulation as disciplinary
With the exception of voluntary surrender, suspension or revocation, such action may be exempt from reporting to the National Registry if defined by State statute, regulation or written policy as “non-disciplinary.”
(a) A federal financial institutions regulatory agency engages in, contracts for, or regulates; and
(b) Requires the services of an appraiser. (See Title XI § 1121(4), 12 U.S.C. 3350.)
(a) The sale, lease, purchase, investment in or exchange of real property, including interests in property, or the financing thereof;
(b) The refinancing of real property or interests in real property; and
(c) The use of real property or interests in property as security for a loan or investment, including mortgage-backed securities. (See Title XI § 1121(5), 12 U.S.C. 3350.)
[Appendix D will contain the following ASC Bulletins and Supplements that were issued to assist States in understanding and complying with the self-enabling provisions of the Dodd-Frank Act.]
By the Appraisal Subcommittee,
The Commission gives notice that the following applicants have filed an application for an Ocean Transportation Intermediary (OTI) license as a Non-Vessel-Operating Common Carrier (NVO) and/or Ocean Freight Forwarder (OFF) pursuant to section 40901 of the Shipping Act of 1984 (46 U.S.C. 40101). Notice is also given of the filing of applications to amend an existing OTI license or the Qualifying Individual (QI) for a licensee.
Interested persons may contact the Office of Ocean Transportation Intermediaries, Federal Maritime Commission, Washington, DC 20573, by telephone at (202) 523–5843 or by email at
By the Commission.
The Commission gives notice that the following Ocean Transportation Intermediary licenses have been revoked pursuant to section 40901 of the Shipping Act of 1984 (46 U.S.C. 40101) effective on the date shown.
The notificants listed below have applied under the Change in Bank Control Act (12 U.S.C. 1817(j)) and § 225.41 of the Board's Regulation Y (12 CFR 225.41) to acquire shares of a bank or bank holding company. The factors that are considered in acting on the notices are set forth in paragraph 7 of the Act (12 U.S.C. 1817(j)(7)).
The notices are available for immediate inspection at the Federal Reserve Bank indicated. The notices also will be available for inspection at the offices of the Board of Governors. Interested persons may express their views in writing to the Reserve Bank indicated for that notice or to the offices of the Board of Governors. Comments must be received not later than September 17, 2012.
A. Federal Reserve Bank of Cleveland (Nadine Wallman, Vice President) 1455 East Sixth Street, Cleveland, Ohio 44101–2566:
1.
Board of Governors of the Federal Reserve System.
The companies listed in this notice have applied to the Board for approval, pursuant to the Bank Holding Company Act of 1956 (12 U.S.C. 1841
The applications listed below, as well as other related filings required by the Board, are available for immediate inspection at the Federal Reserve Bank indicated. The applications will also be available for inspection at the offices of the Board of Governors. Interested persons may express their views in writing on the standards enumerated in the BHC Act (12 U.S.C. 1842(c)). If the proposal also involves the acquisition of a nonbanking company, the review also includes whether the acquisition of the nonbanking company complies with the standards in section 4 of the BHC Act (12 U.S.C. 1843). Unless otherwise noted, nonbanking activities will be conducted throughout the United States.
Unless otherwise noted, comments regarding each of these applications must be received at the Reserve Bank indicated or the offices of the Board of Governors not later than September 25, 2012.
A. Federal Reserve Bank of Richmond (Adam M. Drimer, Assistant Vice President) 701 East Byrd Street, Richmond, Virginia 23261–4528:
1.
The companies listed in this notice have applied to the Board for approval, pursuant to the Bank Holding Company Act of 1956 (12 U.S.C. 1841
The applications listed below, as well as other related filings required by the Board, are available for immediate inspection at the Federal Reserve Bank indicated. The applications will also be available for inspection at the offices of the Board of Governors. Interested persons may express their views in writing on the standards enumerated in the BHC Act (12 U.S.C. 1842(c)). If the proposal also involves the acquisition of a nonbanking company, the review also includes whether the acquisition of the nonbanking company complies with the standards in section 4 of the BHC Act (12 U.S.C. 1843). Unless otherwise noted, nonbanking activities will be conducted throughout the United States.
Unless otherwise noted, comments regarding each of these applications must be received at the Reserve Bank indicated or the offices of the Board of Governors not later than
A. Federal Reserve Bank of Richmond (Adam M. Drimer, Assistant Vice President) 701 East Byrd Street, Richmond, Virginia 23261–4528:
1.
Board of Governors of the Federal Reserve System, August 27, 2012.
Department of Defense (DOD), General Services Administration (GSA), and National Aeronautics and Space Administration (NASA).
Notice of request for public comments regarding an extension to an existing OMB clearance.
Under the provisions of the Paperwork Reduction Act, the Regulatory Secretariat will be submitting to the Office of Management and Budget (OMB) a request to review and approve an extension of a previously approved information collection requirement concerning claims and appeals. A notice was published in the
Public comments are particularly invited on: Whether this collection of information is necessary for the proper performance of functions of the FAR, and whether it will have practical utility; whether our estimate of the public burden of this collection of information is accurate, and based on valid assumptions and methodology; ways to enhance the quality, utility, and clarity of the information to be collected; and ways in which we can minimize the burden of the collection of information on those who are to respond, through the use of appropriate technological collection techniques or other forms of information technology.
Submit comments on or before October 1, 2012.
Submit comments identified by Information Collection 9000–0035, Claims and Appeals by any of the following methods:
•
•
•
Ms. Marissa Petrusek, Procurement Analyst, Federal Acquisition Policy Division, GSA, (202) 502–0136 or via email at
It is the Government's policy to try to resolve all contractual issues by mutual agreement at the contracting officer's level without litigation. Reasonable efforts should be made to resolve controversies prior to submission of a contractor's claim. The Contract Disputes Act of 1978 (41 U.S.C. 7103) requires that claims exceeding $100,000 must be accompanied by a certification that (1) The claim is made in good faith; (2) supporting data are accurate and complete; and (3) the amount requested accurately reflects the contract adjustment for which the contractor believes the Government is liable. The information, as required by FAR clause 52.233–1, Disputes, is used by a contracting officer to decide or resolve the claim. Contractors may appeal the contracting officer's decision by submitting written appeals to the appropriate officials.
One respondent submitted public comments on the extension of the previously approved information collection. The analysis of the public comments is summarized as follows:
The burden is prepared taking into consideration the necessary criteria in OMB guidance for estimating the paperwork burden put on the entity submitting the information. For example, consideration is given to an entity reviewing instructions; using technology to collect, process, and disclose information; adjusting existing practices to comply with requirements; searching data sources; completing and reviewing the response; and transmitting or disclosing information. The estimated burden hours for a collection are based on an average between the hours that a simple disclosure by a very small business might require and the much higher numbers that might be required for a very complex disclosure by a major corporation. Also, the estimated burden hours should only include projected hours for those actions which a company would not undertake in the normal course of business. Careful consideration went into assessing the estimated burden hours for this collection, and it is determined that an upward adjustment is not required at this time. However, at any point, members of the public may submit comments for further consideration, and are encouraged to provide data to support their request for an adjustment.
Department of Defense (DOD), General Services Administration (GSA), and National Aeronautics and Space Administration (NASA).
Notice of request for public comments regarding an extension to an existing OMB clearance.
Under the provisions of the Paperwork Reduction Act, the Regulatory Secretariat will be submitting to the Office of Management and Budget (OMB) a request to review and approve an extension of a previously approved information collection requirement concerning Integrity of Unit Prices.
Public comments are particularly invited on: Whether this collection of information is necessary; whether it will have practical utility; whether our estimate of the public burden of this collection of information is accurate, and based on valid assumptions and methodology; ways to enhance the quality, utility, and clarity of the information to be collected; and ways in which we can minimize the burden of the collection of information on those who are to respond, through the use of appropriate technological collection techniques or other forms of information technology.
Submit comments on or before October 29, 2012.
Submit comments identified by Information Collection 9000–0080, Integrity of Unit Prices by any of the following methods:
•
Submit comments via the Federal eRulemaking portal by searching the OMB control number. Select the link “Submit a Comment” that corresponds with “Information Collection 9000–0080, Integrity of Unit Prices”. Follow the instructions provided at the “Submit a Comment” screen. Please include your name, company name (if any), and “Information Collection 9000–0080, Integrity of Unit Prices” on your attached document.
•
•
Mr. Edward Loeb, Procurement Analyst, Office of Acquisition Policy, GSA, (202) 501–0650 or email
The clause at FAR 52.215–14, Integrity of Unit Prices, requires offerors and contractors under Federal contracts that are to be awarded without adequate price competition to identify in their proposals those supplies which they will not manufacture or to which they will not contribute significant value. The policies included in the FAR are required by 41 U.S.C. 3503 (a)(1)(A)(for the civilian agencies) and 10.U.S.C 2306a(b)(1)(A)(i)(for DOD and NASA). The rule contains no reporting requirements on contracts below the simplified acquisition threshold, construction and architect-engineering services, utility services, service contracts where supplies are not required, commercial items, and contracts for petroleum products.
The Centers for Disease Control and Prevention (CDC) publishes a list of information collection requests under review by the Office of Management and Budget (OMB) in compliance with the Paperwork Reduction Act (44 U.S.C. Chapter 35). To request a copy of these requests, call (404) 639–7570 or send an email to
Standardized National Hypothesis Generating Questionnaire—New—National Center for Emerging and Zoonotic Infectious Diseases (NCEZID), Centers for Disease Control and Prevention (CDC).
It is estimated that each year roughly 1 in 6 Americans gets sick, 128,000 are hospitalized, and 3,000 die of foodborne diseases. CDC and partners ensure rapid and coordinated surveillance, detection, and response to multistate outbreaks, to limit the number of illnesses, and to learn how to prevent similar outbreaks from happening in the future.
Conducting interviews during the initial hypothesis-generating phase of multistate foodborne disease outbreaks presents numerous challenges. In the U.S. there is not a standard, national form or data collection system for illnesses caused by many enteric pathogens. Data elements for hypothesis generation must be developed and agreed upon for each investigation. This process can take several days to weeks and may cause interviews to occur long after a person becomes ill.
CDC requests OMB approval to collect standardized information, called the Standardized National Hypothesis-Generating Questionnaire, from individuals who have become ill during a multistate foodborne disease event. Since the questionnaire is designed to be administered by public health officials as part of multistate hypothesis-generating interview activities, this questionnaire is not expected to entail significant burden to respondents.
The Standardized National Hypothesis-Generating Core Elements Project was established with the goal to define a core set of data elements to be used for hypothesis generation during multistate foodborne investigations. These elements represent the minimum set of information that should be available for all outbreak-associated cases identified during hypothesis generation. The core elements would ensure that similar exposures would be ascertained across many jurisdictions, allowing for rapid pooling of data to improve the timeliness of hypothesis-generating analyses and shorten the time to pinpoint how and where contamination events occur.
The Standardized National Hypothesis Generating Questionnaire was designed as a data collection tool for the core elements, to be used when a multistate cluster of enteric disease infections is identified. The questionnaire is designed to be administered over the phone by public health officials to collect core elements data from case-patients or their proxies. Both the content of the questionnaire (the core elements) and the format were developed through a series of working groups comprised of local, state, and federal public health partners.
Burden hours are calculated by approximately 4,000 individuals identified during the hypothesis-generating phase of outbreak investigations x 45 minutes/response. There are no costs to respondents other than their time. The total estimated annualized burden is 3,000 hours.
Food and Drug Administration, HHS.
Notice; withdrawal.
The Food and Drug Administration (FDA) is announcing the withdrawal of Compliance Policy Guide (CPG) Sec. 420.300 Changes in Compendial Specifications and New Drug Application (NDA) Supplements. CPG Sec. 420.300 is included in FDA's Compliance Policy Guides Manual available on the Agency's Web site at
The withdrawal is effective August 30, 2012.
Larry A. Ouderkirk, Center for Drug Evaluation and Research, Food and Drug Administration, 10903 New Hampshire Ave., Silver Spring, MD 20993, 301–796–1585.
This CPG was originally issued on October 1, 1980, in the Agency's Manual of Compliance Policy Guides. FDA is withdrawing CPG Sec. 420.300 because it is obsolete. Current guidance to FDA staff and industry regarding application requirement for changes in compendial specifications is provided in 21 CFR 314.70 and the Agency's Guidance for Industry: Changes to an Approved NDA or Abbreviated New Drug Application, which is available on the Internet at
Food and Drug Administration, HHS.
Notice of public workshop; request for comments.
The Food and Drug Administration (FDA) is announcing the following public workshop entitled “MDEpiNet 2012 Annual Meeting: The Medical Device Epidemiology Network as a Partnership for Building Global Medical Device Epidemiology and Surveillance Capabilities.” The topic to be discussed is setting strategic priorities and implementing an action plan for sustainable partnership toward improving regulatory science and the public health.
The public workshop will be held on September 11, 2012, from 8 a.m. to 5 p.m.
The public workshop will be held at the Greenbelt Marriott Hotel, 6400 Ivy Lane, Greenbelt, MD 20770, 301–441–3700.
Danica Marinac-Dabic, Center for Devices and Radiological Health, Food and Drug Administration, 10903 New Hampshire Ave., Bldg. 66, Rm. 4110, Silver Spring, MD 20993, 301–796–6689, email:
If you need special accommodations due to a disability, please contact Joyce Raines, Center for Devices and Radiological Health, Food and Drug Administration, 10903 New Hampshire Ave., Bldg. 66, rm. 4319, Silver Spring, MD 20993, 301–796–5709, email:
To register for the public workshop, please visit FDA's Medical Devices News & Events—Workshops & Conferences calendar at
Regardless of attendance at the meeting, interested persons may submit either written comments regarding this document to the Division of Dockets Management (HFA–305), Food and Drug Administration, 5630 Fishers Lane, Rm. 1061, Rockville, MD 20852 or electronic comments to
MDEpiNet is a collaborative program through which the Center for Devices and Radiological Health and external partners share information and resources to enhance our understanding of how well medical devices work (
Accomplishing MDEpiNet's mission will require leveraging of resources, skills, and expertise from a variety of partners, and we encourage participation from all stakeholders, including other Government Agencies, academia, health care industry organizations, and patient and consumer groups. The purpose of the public workshop is to facilitate discussion among these key stakeholders in the scientific community on issues related to medical device epidemiology methodology and infrastructure as it relates to evidence generation and synthesis across the Total Product Life Cycle. This public workshop is open to all interested parties. The target audience is professionals from other Government Agencies, academia, professional societies, health care industry organizations, patient and consumer groups, and other professionals in the scientific community interested in advancing the infrastructure and methodology for epidemiologic understanding of medical devices and procedures.
We intend to discuss a large number of issues at the public workshop, including but not limited to the following: (1) Status and updates from MDEpiNet Methodology and Infrastructure Centers; (2) proposed partnership structure and governance; (3) MDEpiNet as a framework for medical device postmarket surveillance and its relation to the Sentinel provision in the FDA Safety and Innovation Act (calling for the expansion of the postmarket risk identification and analysis system to include devices); and (4) action plan and prioritization of MDEpiNet partnership efforts for the upcoming year.
Food and Drug Administration, HHS.
Notice of public meeting; request for comments.
The Food and Drug Administration (FDA) is announcing the following public meeting entitled “Public Meeting—Strengthening the National Medical Device Postmarket Surveillance System.” The purpose of the meeting is to solicit public feedback regarding the medical device postmarket surveillance system in the United States.
The public meeting will be held on September 10, 2012, from 9 a.m. to 4 p.m.
The public meeting will be held at the Greenbelt Marriott Hotel, 6400 Ivy Lane, Greenbelt, MD 20770, 301–441–3700.
Anita Rayner, Center for Devices and Radiological Health, Food and Drug Administration, 10903 New Hampshire Ave., Bldg. 66, Rm. 3316, Silver Spring, MD 20993, 301–796–6002, email:
If you need special accommodations due to a disability, please contact Joyce Raines Center for Devices and Radiological Health, Food and Drug Administration, 10903 New Hampshire Ave., Bldg. 66, Rm. 4319, Silver Spring, MD 20993, 301–796–5709, email:
To register for the public meeting, please visit FDA's Medical Devices News & Events—Workshops & Conferences calendar at
Regardless of attendance at the meeting, interested persons may submit either written comments regarding this document to the Division of Dockets Management (HFA–305), Food and Drug Administration, 5630 Fishers Lane, Rm. 1061, Rockville, MD 20852 or electronic comments to
FDA's Center for Devices and Radiological Health (CDRH) is responsible for protecting the public health by assuring the safety and effectiveness of medical devices and safe radiation-emitting products. A key part of this mission is to monitor medical devices and radiological products for continued safety and effectiveness after they are in use and to help the public get the accurate, science-based information they need to improve their health.
Several high-profile device performance concerns have led some to question whether CDRH's current postmarket surveillance system is optimally structured to meet the challenges of rapidly evolving medical devices and the changing nature of health care delivery and information technology. In their report entitled “Medical Devices and the Public's Health: The FDA 510(k) Clearance Process at 35 Years” published in July 2011, the Institute of Medicine recommended that FDA develop and implement a comprehensive medical device postmarket surveillance strategy to collect, analyze, and act on medical device postmarket performance information. As part of the process of developing and implementing this strategy, FDA is holding a public meeting to discuss the current and future state of medical device postmarket surveillance. Prior to this public meeting, FDA intends to issue a preliminary report on CDRH's plan to strengthen the medical device postmarket surveillance system in the United States. FDA intends to solicit public feedback regarding the report contents.
We intend to solicit public feedback regarding the medical device postmarket surveillance system in the United States. Specific topics of interest include, but are not limited to, the following: (1) The unique device identifier system and its incorporation into health-related electronic records; (2) national and international device registries for selected products; (3) adverse event reporting and analysis; and (4) developing and using new methods for evidence generation synthesis and appraisal. These topics will also be discussed in relation to the Sentinel provision in the FDA Safety and Innovation Act calling for the expansion of the postmarket risk identification and analysis system to include devices. Key questions for feedback include:
• Are these the right efforts?
• What principles should drive these efforts?
• What are the attributes of an effective “active surveillance” system for devices?
• How can the device active surveillance system leverage existing systems (e.g., Sentinel)?
Following public comment, FDA intends to have a moderated discussion session regarding strengthening the national medical device postmarket surveillance system.
Food and Drug Administration, HHS.
Notice.
This notice announces a forthcoming meeting of a public advisory committee of the Food and Drug Administration (FDA). The meeting will be open to the public.
FDA intends to make background material available to the public no later than 2 business days before the meeting. If FDA is unable to post the background material on its Web site prior to the meeting, the background material will be made publicly available at the location of the advisory committee meeting, and the background material will be posted on FDA's Web site after the meeting. Background material is available at
Persons attending FDA's advisory committee meetings are advised that the Agency is not responsible for providing access to electrical outlets.
FDA welcomes the attendance of the public at its advisory committee meetings and will make every effort to accommodate persons with physical disabilities or special needs. If you require special accommodations due to a disability, please contact Glendolynn S. Johnson at least 7 days in advance of the meeting.
FDA is committed to the orderly conduct of its advisory committee meetings. Please visit our Web site at
Notice of this meeting is given under the Federal Advisory Committee Act (5 U.S.C. app. 2).
Food and Drug Administration, HHS.
Notice of meeting.
The Food and Drug Administration's (FDA) Office of Orphan Products Development is announcing the following meeting: Food and Drug Administration/European Medicines Agency Orphan Product Designation and Grant Workshop. This 1-day workshop is intended to provide valuable information about the FDA and European Medicines Agency (EMA) Orphan Drug Designation programs, the FDA Humanitarian Use Device (HUD) Designation program, the FDA Orphan Products Grant program, and the European Union (EU) rare disease research programs to participants representing pharmaceutical, biotechnology, and device companies, as well as academics.
The workshop will consist of two simultaneous morning sessions. The first will provide an overview of the EMA and FDA Orphan Drug
The afternoon session will provide an opportunity for appropriately registered on-site participants to have one-on-one meetings with FDA or EMA staff members to discuss the specifics on how to apply for an orphan product grant, EU rare disease research assistance program, a HUD designation, or orphan drug designation. Participants requesting one-on-one meetings will need to undergo a second registration process with FDA, and are expected to bring information for at least one candidate orphan drug or device that holds promise for the treatment of a rare disease or condition in order to discuss the processes for putting together an application. In addition, participants of the HUD or orphan drug designation one-one-one sessions are highly encouraged to come prepared with a working draft submission of their particular promising therapy in order to maximize the utility of the one-on-one meetings. The FDA/EMA Orphan Product Designation and Grant Workshop is supported by the FDA and the EMA, and is being conducted in partnership with the European Organisation for Rare Disease (EURODIS), Genetic Alliance, and the National Organization for Rare Diseases (NORD).
Food and Drug Administration, HHS.
Notice of public workshop; request for comments.
The Food and Drug Administration (FDA) is announcing the following public workshop entitled “Leveraging Registries With Medical Device Data for Postmarket Surveillance and Evidence Appraisal Throughout the Total Product Life Cycle.” The topic to be discussed is best practices for use of registries with medical device data for postmarket surveillance, clinical studies, and evidence appraisal.
The public workshop will be held on September 12, 2012, from 8 a.m. to 5 p.m. and September 13, 2012, from 8 a.m. to 5 p.m.
The public workshop will be held at the Greenbelt Marriott Hotel, 6400 Ivy Lane, Greenbelt, MD 20770, 301–441–3700.
Danica Marinac-Dabic, Center for Devices and Radiological Health, Food and Drug Administration, 10903 New Hampshire Ave., Bldg. 66, Rm. 4110, Silver Spring, MD 20993, 301–796–6689, email:
If you need special accommodations due to disability, please contact Cynthia Garris, Center for Devices and Radiological Health, Food and Drug Administration, 10903 New Hampshire Ave., Bldg. 66, Rm. 4321, Silver Spring, MD 20993, 301–796–5861, email:
To register for the public workshop, please visit FDA's Medical Devices News & Events—Workshops & Conferences calendar at
Regardless of attendance at the meeting, interested persons may submit either written comments regarding this document to the Division of Dockets Management (HFA–305), Food and Drug Administration, 5630 Fishers Lane, rm. 1061, Rockville, MD 20852 or electronic comments to
Registries with medical device data collect data on patients who have been exposed to a medical device. Medical device postmarket surveillance presents unique challenges, related to the diversity and complexity of these products, the iterative nature of product development, the learning curve associated with technology adoption, and the relatively short, product life-cycle. For these reasons, FDA's Center for Devices and Radiological Health (CDRH) uses registries to assess the real-world performance of medical products and procedures; to determine the clinical effectiveness and safety of a test, medical device, procedure, or treatment; to describe the natural history of a problem or disease; and to examine trends of disease, treatment, or product use over time.
To be useful for postmarket device surveillance and assessment of benefits and risks, registries must contain sufficiently detailed patient, device, and procedural data and be linked to meaningful clinical outcomes. CDRH currently engages with more than a dozen registry efforts across a number of device areas, including cardiovascular, orthopedic, ophthalmic, and general surgery products. However, it is not practical or feasible to establish registries for each individual medical device. Development and maintenance of registries with medical device data and consortia of registries needs to be strategic, focused on product areas of high importance, utilize methodologies that integrate data collection into clinical practice, and maximize robust data collection while minimizing resource intensity.
CDRH believes that registry development in targeted product areas will both provide needed postmarket data to enhance public health and be cost-effective for industry, health care providers, and payers. In order to best leverage use of registries with medical device data, participation from all stakeholders, including other government Agencies, academia, professional societies, health care industry organizations, and patient and consumer groups, is needed. The purpose of the public workshop is to facilitate discussion among these key stakeholders in the scientific community on issues related to best practices for medical device registries for use across the Total Product Life Cycle. This public workshop is open to all interested parties. The target audience is professionals in general (academic, healthcare, payers, industry) interested in leveraging registries with medical device data as data and infrastructure for surveillance and studies.
We intend to discuss a large number of issues at the public workshop, including but not limited to the following: (1) Current utilization of registries with medical device data; (2) use of registries with medical device data for postmarket surveillance; (3) registries in relation to the Sentinel provision in the FDA Safety and Innovation Act calling for the expansion of the postmarket risk identification and analysis system to include devices; (4) challenges and opportunities for using registries with medical device data for regulated studies; (5) best practices for governance and structure of registries; (6) business models for sustainable efforts; and (7) strategies and priorities for future use of registries with medical device data.
Food and Drug Administration, HHS.
Notice of public workshop; request for abstracts for poster presentation.
The Food and Drug Administration (FDA) is announcing the following public workshop entitled “Medical Countermeasures (MCM) for a Burn Mass Casualty Incident.” The purpose of this public workshop is to describe medical countermeasure requirements for burn injuries of radiological, nuclear, or chemical origin in a scarce resources environment; identify gaps in the product landscape so as to articulate a consensus-based needs assessment; discuss testing approaches and regulatory pathways; and to educate workshop attendees on the concept of medical utilization and response integration. The overall goal is to engage stakeholders across the public and private sector in strategic dialogue related to development, evaluation, deployment, and monitoring of medical countermeasures to mitigate the adverse health consequences arising from public health emergencies, specifically those involving radiological, nuclear, or chemical threats.
If you need special accommodations due to a disability, please contact Cindy Garris, email:
To register for the public workshop, please visit FDA's Medical Devices News & Events—Workshops & Conferences calendar at
Regardless of attendance at the public workshop, interested persons may submit either electronic or written comments. Submit electronic comments to
The Public Health Emergency Medical Countermeasures Enterprise (PHEMCE) was established by the Department of Health and Human Services (HHS) in 2006 as a Federal inter-Agency coordinating body responsible for providing recommendations to the Secretary of HHS on medical countermeasure priorities, development and acquisition activities, and strategies for distributing and using medical countermeasures held in the Strategic National Stockpile (SNS) to prevent or mitigate potential health effects from exposure to chemical, biological, radiological, and nuclear agents and other terrorist threats. The PHEMCE mission is therefore to advance national preparedness for natural, accidental, and intentional threats by coordinating medical countermeasure-related efforts within HHS and in cooperation with PHEMCE inter-Agency partners.
The 2012 PHEMCE Strategy has established the following 4 goals over the next 5 years: (1) Identify, create, develop, manufacture, and procure critical medical countermeasures; (2) establish and communicate clear regulatory pathways to facilitate medical countermeasures development and use; (3) develop logistics and operational plans for optimized use of medical countermeasures at all levels of response; and (4) address medical countermeasure gaps for all sectors of the American population. This is a complex mission space and many Federal Agencies, including FDA, have responsibilities that are critical to its success.
FDA is hosting this public workshop to address topics specific to national preparedness for a burn mass casualty incident of radiological, nuclear, or chemical origin. The blast and subsequent fires from such weapons could inflict serious thermal burns. With respect to a nuclear detonation, these injuries could affect hundreds to thousands of people. In such an attack, stabilizing individuals with burns and concomitant injuries becomes an immediate priority. Medical care for burns in a mass casualty incident would require the ready availability of large quantities of medical countermeasures for resuscitation, wound management, pain relief, and nutritional- and airway/breathing support in the initial post-injury period. The overall response is further complicated by the complex, expensive, and resource-intensive needs that extend over the longer-term treatment period for serious burns compounded by burn care expertise being in short supply.
There are approximately 1,850 burn beds in 126 burn units across the United States. The American Burn Association estimates that 700–800 of these beds may be occupied at any given time. To respond to a mass casualty incident such as a nuclear detonation—whereupon an estimated 10,000 or more individuals could require specialized burn care—patients may need to be transferred to specialized burn centers throughout the country because there may be relatively few dedicated burn beds available in the region. Also, patients may need to be treated in other care sites, such as local or regional trauma centers, if specialized burn centers are filled to capacity. The short supply of specialized burn experts and facilities may need to be considered one driver in regard to burn care product(s) design and development, enabling versatile use in the hands of nonspecialists as well.
The workshop sessions will focus on the following general topics: Product (drug, device, biologic, and combination products) development challenges; clinical study design considerations for new products; regulatory pathways to market; challenges related to the organization and delivery of burn care
Indian Health Service, HHS.
Notice.
In compliance with Section 3506(c)(2)(A) of the Paperwork Reduction Act of 1995 which requires 60 days for public comment on proposed information collection projects, the Indian Health Service (IHS) is publishing for comment a summary of a proposed information collection to be submitted to the Office of Management and Budget (OMB) for review.
All information submitted is on a voluntary basis; no legal requirement exists for collection of this information. The information collected will enable the Director's Three Initiative program to: (a) Identify evidence based approaches to prevention programs among the I/T/Us when no system is currently in place, and (b) Allow the program managers to review BPPPLE occurring among the I/T/Us when considering program planning for their communities.
There are no Capital Costs, Operating Costs, and/or Maintenance Costs to report.
Indian Health Service, HHS.
Notice.
In compliance with Section 3506(c)(2)(A) of the Paperwork Reduction Act of 1995, which requires 30 days for public comment on proposed information collection projects, the Indian Health Service (IHS) is publishing for comment a summary of a proposed information collection to be submitted to the Office of Management and Budget (OMB) for review. This proposed information collection project was previously published in the
The table below provides: Types of data collection instruments, Estimated number of respondents, Number of responses per respondent, Average burden hour per response, and Total annual burden hour(s).
There are no Capital Costs, Operating Costs, and/or Maintenance Costs to report.
Pursuant to section 10(d) of the Federal Advisory Committee Act, as amended (5 U.S.C. App.), notice is hereby given of the following meetings.
The meetings will be closed to the public in accordance with the provisions set forth in sections 552b(c)(4) and 552b(c)(6), Title 5 U.S.C., as amended. The grant applications and the discussions could disclose confidential trade secrets or commercial property such as patentable material, and personal information concerning individuals associated with the grant applications, the disclosure of which would constitute a clearly unwarranted invasion of personal privacy.
Pursuant to section 10(d) of the Federal Advisory Committee Act, as amended (5 U.S.C. App.), notice is hereby given of a meeting of the National Advisory Council for Complementary and Alternative Medicine.
The meeting will be open to the public as indicated below, with attendance limited to space available. Individuals who plan to attend and need special assistance, such as sign language interpretation or other reasonable accommodations, should notify the Contact Person listed below in advance of the meeting.
The meeting will be closed to the public in accordance with the provisions set forth in sections 552b(c)(4) and 552b(c)(6), Title 5 U.S.C., as amended. The grant applications and the discussions could disclose confidential trade secrets or commercial property such as patentable material, and personal information concerning individuals associated with the grant applications, the disclosure of which would constitute a clearly unwarranted invasion of personal privacy.
Any interested person may file written comments with the committee by forwarding the statement to the Contact Person listed on this notice. The statement should include the name, address, telephone number and when applicable, the business or professional affiliation of the interested person.
In the interest of security, NIH has instituted stringent procedures for entrance onto the NIH campus. All visitor vehicles, including taxicabs, hotel, and airport shuttles will be inspected before being allowed on campus. Visitors will be asked to show one form of identification (for example, a government-issued photo ID, driver's license, or passport) and to state the purpose of their visit.
Information is also available on the Institute's/Center's home page:
Pursuant to section 10(d) of the Federal Advisory Committee Act, as amended (5 U.S.C. App), notice is hereby given of the following meeting.
The meeting will be closed to the public in accordance with the provisions set forth in sections 552b(c)(4) and 552b(c)(6), Title 5 USC, as amended. The grant applications and the discussions could disclose confidential trade secrets or commercial property such as patentable materials, and personal information concerning individuals associated with the grant applications, the disclosure of which would constitute a clearly unwarranted invasion of personal privacy.
Pursuant to section 10(d) of the Federal Advisory Committee Act, as amended (5 U.S.C. App.), notice is hereby given of the following meeting.
The meeting will be closed to the public in accordance with the provisions set forth in sections 552b(c)(4) and 552b(c)(6), Title 5 U.S.C., as amended. The grant applications and the discussions could disclose confidential trade secrets or commercial property such as patentable material, and personal information concerning individuals associated with the grant applications, the disclosure of which would constitute a clearly unwarranted invasion of personal privacy.
Pursuant to section 10(d) of the Federal Advisory Committee Act, as amended (5 U.S.C. App.), notice is hereby given of the following meetings.
The meetings will be closed to the public in accordance with the provisions set forth in sections 552b(c)(4) and 552b(c)(6), Title 5 U.S.C., as amended. The grant applications and the discussions could disclose confidential trade secrets or commercial property such as patentable material, and personal information concerning individuals associated with the grant applications, the disclosure of which would constitute a clearly unwarranted invasion of personal privacy.
Pursuant to section 10(d) of the Federal Advisory Committee Act, as amended (5 U.S.C. App.), notice is hereby given of a meeting of the National Advisory Council on Drug Abuse.
The meeting will be open to the public as indicated below, with attendance limited to space available. Individuals who plan to attend and need special assistance, such as sign language interpretation or other reasonable accommodations, should notify the Contact Person listed below in advance of the meeting.
The meeting will be closed to the public in accordance with the provisions set forth in sections 552b(c)(4) and 552b(c)(6), Title 5 U.S.C., as amended. The grant applications and the discussions could disclose confidential trade secrets or commercial property such as patentable material, and personal information concerning individuals associated with the grant applications, the disclosure of which would constitute a clearly unwarranted invasion of personal privacy.
This notice is being published less than 15 days prior to the meeting due to the timing limitations imposed by the review and funding cycle.
Any member of the public interested in presenting oral comments to the committee may notify the Contact Person listed on this notice at least 10 days in advance of the meeting. Interested individuals and representatives of organizations may submit a letter of intent, a brief description of the organization represented, and a short description of the oral presentation. Only one representative of an organization may be allowed to present oral comments and if accepted by the committee, presentations may be limited to five minutes. Both printed and electronic copies are requested for the record. In addition, any interested person may file written comments with the committee by forwarding their statement to the Contact Person listed on this notice. The statement should include the name, address, telephone number and when applicable, the business or professional affiliation of the interested person.
Information is also available on the Institute's/Center's home page:
Office of Refugee Resettlement, ACF, HHS.
Notice of awards.
The Office of Refugee Resettlement, Administration for Children and Families (ACF), announces the allocation of Refugee Social Services formula awards to States and Wilson/Fish Alternative Project grantees. The purpose of the Social Services program is to provide employment, English language, orientation, and other resettlement services to refugees, Amerasians, asylees, Cuban and Haitian entrants, victims of trafficking, and Iraqis and Afghans with Special Immigrant Visas. The awards are determined by the number of the eligible populations residing in the State during the two-year period from October 1, 2009, to September 30, 2011. States with allocations under $100,000 through this calculation instead receive floor allocations ranging from $75,000 to $100,000 depending on the number of the eligible population in each State. The purpose of the floor allocations is to ensure that all participating States receive an award sufficient to maintain a program of resettlement services.
The FY 2012 formula allocations for Social Services are available on ORR's Web site at:
The awards are effective immediately. Funds must be obligated by September 30, 2013, and funds must be expended by September 30, 2014.
Henley Portner, Office of the Director, Office of Refugee Resettlement, (202) 401–5363,
Sections 412(c)(1)(B) of the Immigration and Nationality Act (INA) (8 U.S.C. 1522(c)(1)(B)).
Federal Emergency Management Agency, DHS.
Notice.
This notice amends the notice of a major disaster declaration for State of New Hampshire (FEMA–4065–DR), dated June 15, 2012, and related determinations.
Peggy Miller, Office of Response and Recovery, Federal Emergency Management Agency, 500 C Street SW., Washington, DC 20472, (202) 646–3886.
The Federal Emergency Management Agency (FEMA) hereby gives notice that pursuant to the authority vested in the Administrator, under Executive Order 12148, as amended, Mark H. Landry, of FEMA is appointed to act as the Federal Coordinating Officer for this disaster.
This action terminates the appointment of James N. Russo as Federal Coordinating Officer for this disaster.
The following Catalog of Federal Domestic Assistance Numbers (CFDA) are to be used for reporting and drawing funds: 97.030, Community Disaster Loans; 97.031, Cora Brown Fund; 97.032, Crisis Counseling; 97.033, Disaster Legal Services; 97.034, Disaster Unemployment Assistance (DUA); 97.046, Fire Management Assistance Grant; 97.048, Disaster Housing Assistance to Individuals and Households In Presidentially Declared Disaster Areas; 97.049, Presidentially Declared Disaster Assistance—Disaster Housing Operations for Individuals and Households; 97.050, Presidentially Declared Disaster Assistance to Individuals and Households—Other Needs; 97.036, Disaster Grants—Public Assistance (Presidentially Declared Disasters); 97.039, Hazard Mitigation Grant.
Federal Emergency Management Agency, DHS.
Notice.
This notice amends the notice of a major disaster declaration for State of Vermont (FEMA–4022–DR), dated September 1, 2011, and related determinations.
Peggy Miller, Office of Response and Recovery, Federal Emergency Management Agency, 500 C Street SW., Washington, DC 20472, (202) 646–3886.
The Federal Emergency Management Agency (FEMA) hereby gives notice that pursuant to the authority vested in the Administrator, under Executive Order 12148, as amended, Mark H. Landry, of FEMA is appointed to act as the Federal Coordinating Officer for this disaster.
This action terminates the appointment of James N. Russo as Federal Coordinating Officer for this disaster.
The following Catalog of Federal Domestic Assistance Numbers (CFDA) are to be used for reporting and drawing funds: 97.030, Community Disaster Loans; 97.031, Cora Brown Fund; 97.032, Crisis Counseling; 97.033, Disaster Legal Services; 97.034, Disaster Unemployment Assistance (DUA); 97.046, Fire Management Assistance Grant; 97.048, Disaster Housing Assistance to Individuals and Households In Presidentially Declared Disaster Areas; 97.049, Presidentially Declared Disaster Assistance—Disaster Housing Operations for Individuals and Households; 97.050, Presidentially Declared Disaster Assistance to Individuals and Households—Other Needs; 97.036, Disaster Grants—Public Assistance (Presidentially Declared Disasters); 97.039, Hazard Mitigation Grant.
U.S. Customs and Border Protection, Department of Homeland Security (DHS).
Notice of trade symposium.
This document announces that CBP will convene the second of this year's two trade symposia on Monday, October 29 and Tuesday, October 30, 2012. The East Coast Trade Symposium will be held in Washington, DC and will feature panel discussions involving agency personnel, members of the trade community and other government agencies, on the agency's role in international trade initiatives and programs. This year marks our twelfth year hosting trade symposia. Members of the international trade and transportation communities and other interested parties are encouraged to attend.
Monday, October 29, 2012, (opening remarks, breakout sessions, and panel discussions 1 p.m.–5:40 p.m.). Tuesday, October 30, 2012, (opening remarks, panel discussions, and closing remarks 8:45 a.m.–5:30 p.m.).
The CBP 2012 East Coast Trade Symposium will be held at the Renaissance DC Hotel, at 999 9th Street, NW., Washington, DC 20001, Renaissance Ballroom.
The Office of Trade Relations at (202) 344–1440, or at
In a document published in the
This document announces that CBP will convene the second of this year's two trade symposia—the East Coast Symposium on Monday, October 29 and
The agenda for the 2012 East Coast Trade Symposium and the keynote speakers will be announced at a later date on the CBP Web site (
Due to the overwhelming interest to attend past symposiums, each company is requested to limit their company's registrations to no more than three participants, in order to afford equal representation from all members of the international trade community. If a company exceeds the limitation, any additional names submitted for registration will automatically be placed on the waiting list.
As an alternative to on-site attendance, access to live webcasting of the event will be available for a fee of $131.00. This includes the broadcast and historical access to recorded sessions for a period of time after the event.
Hotel accommodations will be announced at a later date on the CBP Web site (
Fish and Wildlife Service, Interior.
Notice of intent, request for comments.
We, the U.S. Fish and Wildlife Service (Service), advise the public that we, in coordination with our planning partners, intend to prepare the Midwest Wind Energy Multi-Species Habitat Conservation Plan (MSHCP) under the Endangered Species Act of 1973, as amended (ESA). The planning partners are currently considering for inclusion in the MSHCP certain species that are federally listed, as well as other species likely to become listed, within the eight-State planning area. Planning partners in this effort include the conservation agencies for the eight states, The Conservation Fund, and the American Wind Energy Association (AWEA). We provide this notice to (1) Describe the proposal; (2) advise other Federal and State agencies, potentially affected tribal interests, and the public of our intent to prepare the MSHCP; (3) seek public input, suggestions, and information on any issues pertaining to this planning process; (4) and to seek public input on what the permit area should be within the eight-State planning area.
To ensure consideration, we request written comments on or before October 1, 2012.
Send your comments or request information by any one of the following methods:
Rick Amidon, (612) 713–5164.
Section 9 of the ESA (16 U.S.C. 1538) and its implementing regulations prohibit take of species listed as endangered or threatened. The definition of take under the ESA includes to “harass, harm, pursue, hunt, shoot, wound, kill, trap, capture, or collect listed species or to attempt to engage in such conduct” (16 U.S.C. 1532(19)). Section 10 of the ESA (16 U.S.C. 1539) establishes a program whereby persons seeking to pursue activities that are otherwise legal, but could result in take of federally protected species, may receive an incidental take permit (ITP).
The planning area encompasses the Midwest Region of the Service and includes all or portions of the following eight States: Illinois, Indiana, Iowa, Michigan, Minnesota, Missouri, Ohio, and Wisconsin. The specific land that the MSHCP will cover (“covered land or permit area”) have yet to be determined and could be all or portions of the eight States. Once identified, the “covered land” will be the general locations where future ITPs could be issued under the MSHCP. Land not identified as “covered land” will not be eligible for an ITP under this planning effort; however, individual take authorizations could be developed for those areas outside of this planning effort.
The activities proposed to be covered (“covered activities”) under the MSHCP include the siting, construction, operation, maintenance, and decommissioning of wind energy facilities within all or portions of the eight-State planning area. Activities associated with the management of mitigation land would also be covered. We anticipate that this MSHCP will include new and existing small-scale wind energy facilities, such as single-turbine demonstration projects, as well as large, multi-turbine commercial wind facilities.
The planning partners are currently considering, for inclusion in the MSHCP, certain species that are federally listed or likely to become listed, and have the potential to be taken by wind energy facilities within the planning area. Those “covered species” include the endangered Indiana bat (
The eight State conservation agencies participating in the development of this MSHCP are the Illinois Department of Natural Resources, Indiana Division of Fish and Wildlife, Iowa Department of Natural Resources, Michigan Department of Natural Resources, Minnesota Department of Natural Resources, Missouri Department of Conservation, Ohio Department of Natural Resources, and Wisconsin Department of Natural Resources.
AWEA is a national trade association for the wind industry and is representing the interests of a group of wind energy companies in the development of this MSHCP. This consortium of companies is known as the Wind Energy Bat Action Team (WEBAT). Member companies at this time include Acciona Wind Energy; Akuo Energy USA; Apex Wind Energy; BP Wind Energy; Clipper Windpower Development Company, LLC; Duke Energy Renewables; EDP Renewables; Element Power; enXco; E.ON Climate & Renewables; EverPower Wind Holdings, Inc.; Iberdrola Renewables; Invenergy LLC; NextEra Energy Resources; Nordex USA; Tradewind Energy LLC; US Mainstream Renewable Power; and Wind Capital Group.
The Conservation Fund is a nonprofit organization headquartered in Arlington, Virginia, with offices throughout the United States. The Conservation Fund would serve as the administrative agent on behalf of the States overseeing the development of the MSHCP and the accompanying environmental impact statement (EIS). Moreover, The Conservation Fund would develop a regional framework of conservation lands to be used as a decision support tool for the selection of appropriate mitigation options required for offsetting incidental take of the “covered species”.
In 2009, the eight States that make up the planning area submitted an application for and were awarded a grant under Section 6 of the ESA (16 U.S.C. 1535) to develop the MSHCP and an incidental take permitting program. The States' grant application envisioned that the MSHCP would be developed as a template/umbrella MSHCP or as a programmatic MSHCP. Under the template approach, the Service would issue individual ITPs to applicants that agree to implement the MSHCP, whereas under the programmatic approach, each State agency would apply for and receive an ITP and would issue certificates of inclusion to wind energy companies that agreed to implement the MSHCP at their facility. At this time it is anticipated that the issuance of individual ITPs would be the permitting approach under this MSHCP. Currently there are additional permit structure options being considered; however, under any permit structure, the MSHCP would meet all ITP issuance criteria found at 50 CFR 13.21, 17.22(b), and 17.32(b), and would be evaluated under the National Environmental Policy Act (NEPA) and Section 7 of the ESA (16 U.S.C. 1536). The partners envision that under any permit approach, no additional NEPA or Section 7 analysis would occur, and “No Surprises” assurances would apply to the MSHCP. Evaluation of the MSHCP and permitting program would include public review by all interested parties. In the event that the MSHCP might need to be amended in the future (e.g., to add a species or consider an activity not previously evaluated), further public review would occur.
The Service is requesting information and comment from interested government agencies, Native American Tribes, the scientific community, industry, or other interested parties concerning the planning process, our permitting approach, biological aspects of the interaction of wind facilities and species, scientific data that may help inform the MSHCP or monitoring of impacts, and any other information that interested parties would like to offer.
Please note that comments merely stating support for, or opposition to, the MSHCP under consideration without providing supporting information, although noted, will not provide information useful in determining relevant issues and impacts. The public will receive additional opportunity to provide comments on the draft EIS and draft MSHCP when they are completed. The Service will solicit comments by publishing notice in the
You may submit your comments and supporting documentation by any of the methods described in
The Service is responsible for ensuring NEPA (42 U.S.C. 4321
Fish and Wildlife Service, Interior.
Notice.
Under the Endangered Species Act (Act), we, the U.S. Fish and Wildlife Service, announce the receipt and availability of a proposed habitat conservation plan (HCP) and accompanying documents for private development projects and municipal infrastructure improvements (activities) regulated or authorized by the Escambia County Board of Commissioners (Applicant). The activities would result in take of six federally-listed species on Perdido Key in Escambia County, Florida. The HCP analyzes the take incidental to activities conducted or permitted by the Applicant. We invite public comments on these documents.
We must receive any written comments at our Regional Office (see
Documents are available for public inspection by appointment during normal business hours at the Fish and Wildlife Service's Regional Office, 1875 Century Boulevard, Suite 200, Atlanta, GA 30345; or the Panama City Field Office, Fish and Wildlife Service, 1601 Balboa Avenue, Panama City, FL 32405.
Mr. David Dell, Regional HCP Coordinator, (see
We announce the availability of the proposed HCP, accompanying
We specifically request information, views, and opinions from the public via this notice on our proposed Federal action, including identification of any other aspects of the human environment not already identified in the EA pursuant to National Environmental Policy Act (NEPA) regulations in the Code of Federal Regulations (CFR) at 40 CFR 1506.6. Further, we specifically solicit information regarding the adequacy of the HCP per 50 CFR parts 13 and 17.
The EA assesses the likely environmental impacts associated with the implementation of the activities, including the environmental consequences of the no-action alternative and the proposed action. The proposed action alternative is issuance of the ITP and implementation of the HCP as submitted by the Applicant. The HCP covers activities conducted or permitted by the Applicant, including private residential and commercial development activities as well as development and infrastructure improvements on Escambia County-owned lands. Avoidance, minimization and mitigation measures include: Informing the Perdido Key property owners of the sensitive nature of the habitat and listed species on Perdido Key by developing a public awareness program and brochure; siting a project to maximize the best habitat conservation and incorporating appropriate connectivity and buffers between developments; designing homes and other structures to reduce their vulnerability to storm damage; minimizing impervious surfaces; maximizing use of vegetation native to Perdido Key; developing and implementing guidelines to minimize disturbances to sea turtles, shorebirds, and their nests caused by the operation of official vehicles involved in public safety, beach maintenance, law enforcement, HCP implementation, and other official business on Perdido Key; and implementing an effective monitoring program for all species covered by the ITP to identify and ameliorate factors impeding their recovery.
Before including your address, phone number, email address, or other personal identifying information in your comment, you should be aware that your entire comment—including your personal identifying information—may be made publicly available at any time. While you can ask us in your comment to withhold your personal identifying information from public review, we cannot guarantee that we will be able to do so.
If you wish to comment, you may submit comments by any one of several methods. Please reference TE46592A–0 in such comments. You may mail comments to the Fish and Wildlife Service's Regional Office (see
Finally, you may hand-deliver comments to either of our offices listed under
Perdido Key, a barrier island 16.9 miles long, constitutes the entire historic range of the Perdido Key beach mouse. The area encompassed by the HCP and ITP application consists of privately owned and Escambia County-owned lands from Gulf Islands National Seashore to the Florida-Alabama state line.
We will evaluate the ITP application, including the HCP and any comments we receive, to determine whether the application meets the requirements of section 10(a)(1)(B) of the Act. We will also evaluate whether issuance of a section 10(a)(1)(B) ITP complies with section 7 of the Act by conducting an intra-Service section 7 consultation. We will use the results of this consultation, in combination with the above findings, in our final analysis to determine whether or not to issue the ITP. If we determine that the requirements are met, we will issue the ITP for the incidental take of Perdido Key beach mouse, Loggerhead, Green, Leatherback and Kemp's Ridley sea turtles and the Piping Plover.
We provide this notice under section 10 of the Act (16 U.S.C. 1531
Bureau of Land Management, Interior.
Notice of availability.
In accordance with the National Environmental Policy Act of 1969, the Bureau of Land Management (BLM) announces the availability of the Record of Decision (ROD) for the Maysdorf II Coal Lease-by-Application (LBA) included in the South Gillette Area Coal Lease Applications Final Environmental Impact Statement (EIS).
The document is available electronically on the following Web site:
• Bureau of Land Management, Wyoming State Office, 5353 Yellowstone Road, Cheyenne, Wyoming 82009; and
• Bureau of Land Management, Wyoming High Plains District Office, 2987 Prospector Drive, Casper, Wyoming 82604.
Ms. Kathy Muller Ogle, Coal Program Coordinator, at 307–775–6206, or Ms. Teresa Johnson, EIS Project Manager, at 307–261–7510. Ms. Ogle's office is located at the BLM Wyoming State Office, 5353 Yellowstone Road, Cheyenne, Wyoming 82009. Ms. Johnson's office is located at the BLM Wyoming High Plains District Office, 2987 Prospector Drive, Casper, Wyoming 82604. Persons who use a
The ROD covered by this Notice of Availability (NOA) is for the Maysdorf II Coal Tract and addresses leasing Federal coal in Campbell County, Wyoming, administered by the BLM Wyoming High Plains District Office. The BLM approves Alternative 3, the preferred alternative for this LBA in the South Gillette Area Coal Final EIS. Under Alternative 3, the Maysdorf II coal LBA area, as modified by the BLM, will be divided into two separate LBA tracts referred to as the Maysdorf II North Tract and the Maysdorf II South Tract. The Maysdorf II North Tract (WYW173360), as modified by the BLM, includes 1,338.37 acres, more or less, and contains an estimated 167 million tons of in-place Federal coal reserves. The Maysdorf II South Tract (WYW180711), as modified by the BLM, includes 2,305.90 acres, more or less, and contains an estimated 271 million tons of in-place Federal coal reserves. The BLM will announce two competitive coal lease sales in the
National Park Service, Interior.
Notice; request for comments.
We (National Park Service) will ask the Office of Management and Budget (OMB) to approve the information collection (IC) described below. To comply with the Paperwork Reduction Act of 1995 and as a part of our continuing efforts to reduce paperwork and respondent burden, we invite the general public and other Federal agencies to comment on this IC. This IC is scheduled to expire on March 31, 2013. We may not conduct or sponsor and a person is not required to respond to a collection unless it displays a currently valid OMB control number.
Please submit your comment on or before October 29, 2012.
Please send your comments on the IC to Michael J. Auer, NPS Heritage Preservation Services, 1849 C St. NW. (2255), Washington, DC 20240; via fax at 202/371–1616; or via email at
Michael J. Auer, NPS Heritage Preservation Services, 1849 C St. NW. (2255), Washington, DC 20240. You may send an email to
Section 47 of the Internal Revenue Code requires that the Secretary of the Interior certify to the Secretary of the Treasury upon application by owners of historic properties for Federal tax benefits: (a) The historic character of the property, and (b) that the rehabilitation work is consistent with that historic character. The NPS administers the program with the Internal Revenue Service. The NPS uses the Historic Preservation Certification Application to evaluate the condition and historic significance of buildings undergoing rehabilitation for continued use, and to evaluate whether the rehabilitation work meets the Secretary of the Interior's Standards for Rehabilitation. The Department of the Interior regulation 36 CFR part 67 contains a requirement for completion of an application form. The information required on the application form is needed to allow the authorized officer to determine if the applicant is qualified to obtain historic preservation certifications from the Secretary of the Interior. These certifications are necessary in order for an applicant to receive substantial Federal tax incentives authorized by Section 47 of the Internal Revenue Code. These incentives include 20% Federal income tax credit for the rehabilitation of historic buildings and an income tax deduction for the donation of easements on historic properties. The Internal Revenue Code also provides 10% Federal income tax credit for the rehabilitation of non-historic buildings built before 1936, and owners of non-historic buildings in historic districts must also use the application to obtain a certification from the Secretary of the Interior that their building does not contribute to the significance of the historic district before they claim this lesser tax credit for rehabilitation.
We invite comments concerning this IC on:
• Whether or not the collection of information is necessary, including whether or not the information will have practical utility;
• The accuracy of our estimate of the burden for this collection of information;
• Ways to enhance the quality, utility, and clarity of the information to be collected; and
• Ways to minimize the burden of the collection of information on respondents.
Please note that the comments submitted in response to this notice are a matter of public record. Before including your address, phone number, email address, or other personal
Bureau of Reclamation, Interior.
Notice of renewal and request for comments.
The Bureau of Reclamation has forwarded the following Information Collection Request to the Office of Management and Budget (OMB) for review and approval: Reclamation Rural Water Supply Program, OMB Control Number: 1006–0029. Title 43 CFR part 404 requires entities interested in participating in the Rural Water Supply Program (Rural Water Program) to submit information to allow the Bureau of Reclamation to evaluate and prioritize requests for financial or technical assistance.
OMB has up to 60 days to approve or disapprove this information collection, but may respond after 30 days; therefore, public comments must be received on or before October 1, 2012.
Send written comments to the Desk Officer for the Department of the Interior at the Office of Management and Budget, Office of Information and Regulatory Affairs, via facsimile to (202) 395–5806, or email to
Christopher Perry at 303–445–2887. You may also view the Information Collection Request at
The purpose of the Rural Water Program is to provide assistance to small communities of 50,000 inhabitants or less, including tribes and tribal organizations, to plan the design and construction of projects to serve rural areas with industrial, municipal, and residential water. Specifically, the Bureau of Reclamation (Reclamation) is authorized to provide financial and technical assistance to conduct appraisal investigations and feasibility studies for rural water supply projects. Reclamation's regulation, 43 CFR part 404, establishes criteria governing how the program will be implemented, including eligibility and prioritization criteria, and criteria to evaluate appraisal and feasibility studies. Entities interested in participating in the Rural Water Program are requested to submit information regarding proposed appraisal investigation and feasibility studies, to allow Reclamation to evaluate and prioritize requests for financial or technical assistance under the program. Reclamation will apply the program criteria to the information provided to determine whether the entity seeking assistance is eligible, whether the project is eligible for assistance, and to what extent the project meets Reclamation's prioritization criteria. Requests for assistance under the Rural Water Program will be made on a voluntary basis. There is no form associated with this information collection.
We invite your comments on:
(a) Whether the proposed collection of information is necessary for the proper performance of our functions, including whether the information will have practical use;
(b) The accuracy of our burden estimate for the proposed collection of information;
(c) Ways to enhance the quality, usefulness, and clarity of the information to be collected; and
(d) Ways to minimize the burden of the information collection on respondents, including the use of automated collection techniques or other forms of information technology.
An agency may not conduct or sponsor, and a person is not required to respond to a collection of information unless it displays a currently valid OMB control number. A 60-day comment period soliciting comments on this collection of information was published in the
Before including your address, phone number, email address, or other personal identifying information in your comment, you should be aware that your entire comment—including your personal identifying information—may be made publicly available at any time. While you can ask us in your comment to withhold your personal identifying information from public review, we cannot guarantee that we will be able to do so.
On the basis of the record
The Commission instituted this investigation effective July 14, 2011, following receipt of a petition filed with the Commission and Commerce by ABB Inc., Cary, NC; Delta Star Inc., Lynchburg, VA; and Pennsylvania Transformer Technology Inc., Canonsburg, PA. The final phase of the investigation was scheduled by the Commission following notification of a preliminary determination by Commerce that imports of large power transformers from Korea were being sold at LTFV within the meaning of section 733(b) of the Act (19 U.S.C. 1673b(b)). Notice of the scheduling of the final phase of the Commission's investigation and of a public hearing to be held in connection therewith was given by posting copies of the notice in the Office of the Secretary, U.S. International Trade Commission, Washington, DC, and by publishing the notice in the
The Commission transmitted its determination in this investigation to the Secretary of Commerce on August 24, 2012. The views of the Commission are contained in USITC Publication 4346 (August 2012), entitled
By order of the Commission.
U.S. International Trade Commission.
Notice.
Notice is hereby given that the U.S. International Trade Commission has found no violation of 337 of the Tariff Act of 1930, 19 U.S.C. 1337, in the above-captioned investigation with respect to U.S. Patent Nos. 6,272,333 (“the '333 patent”); 6,246,697 (“the '697 patent”); and 5,636,223 (“the '223 patent”). The investigation is remanded to the presiding administrative law judge (“ALJ”) with respect to U.S. Patent No. 6,246,862 (“the '862 patent”).
Megan M. Valentine, Office of the General Counsel, U.S. International Trade Commission, 500 E Street SW., Washington, DC 20436, telephone (202) 708–2301. Copies of non-confidential documents filed in connection with this investigation are or will be available for inspection during official business hours (8:45 a.m. to 5:15 p.m.) in the Office of the Secretary, U.S. International Trade Commission, 500 E Street SW., Washington, DC 20436, telephone (202) 205–2000. General information concerning the Commission may also be obtained by accessing its Internet server at
The Commission instituted this investigation on November 8, 2010, based on a complaint filed by Motorola Mobility, Inc. of Libertyville, Illinois (“Motorola”). 75 FR 68619–20 (Nov. 8, 2010). The complaint alleges violations of section 337 of the Tariff Act of 1930, as amended, 19 U.S.C. 1337 (“section 337”), in the importation into the United States, the sale for importation, and the sale within the United States after importation of certain wireless communication devices, portable music and data processing devices, computers and components thereof by reason of infringement of certain claims of the '333 patent, the '862 patent, the '697 patent, U.S. Patent No. 5,359,317 (“the '317 patent”), the '223 patent, and U.S. Patent No. 7,751,826 (“the '826 patent”). The complaint further alleges the existence of a domestic industry. The Commission's notice of investigation named Apple Inc. of Cupertino, California (“Apple”) as respondent. The Office of Unfair Import Investigation (“OUII”) was named as a participating party, however, on July 29, 2011, OUII withdrew from further participation in the investigation.
On April 24, 2012, the ALJ issued his final ID, finding a violation of section 337 as to the '697 patent and finding no violation as to the '223, '333, and '697 patents. On May 9, 2012, the ALJ issued his recommended determination on remedy and bonding. In his final ID, the ALJ found that the products accused of infringing the '697 patent literally infringe claims 1–4 of that patent, and that Apple induces others to infringe the asserted claims of the '697 patent. The ALJ also found that the asserted claims of the '697 patent are not invalid as anticipated under 35 U.S.C. 102, as obvious under 35 U.S.C. 103, or for failure to satisfy the written description requirement or the best mode requirement of 35 U.S.C. 112. The ALJ also found that the '697 patent is not unenforceable for unclean hands. The ALJ further found that Motorola has satisfied the domestic industry requirement for the '697 patent. The ALJ found that the products accused of infringing the '223 patent literally infringe the asserted claim of that patent and that Apple induces others to infringe the claim 1 of the '223 patent. The ALJ further found, however, that the asserted claim of the '223 patent is invalid as anticipated under 35 U.S.C. 102. The ALJ also found that Motorola has satisfied the domestic industry requirement for the '223 patent. The ALJ found that the products accused of infringing the '333 patent do not literally infringe claim 12 of that patent. The ALJ also found that the asserted claim of the '333 patent is not invalid as anticipated under 35 U.S.C. 102 or for obviousness under 35 U.S.C. 103. The ALJ further found that Motorola has not satisfied the domestic industry requirement for the '333 patent. The ALJ found that claim 1 of the '862 patent is invalid as indefinite under 35 U.S.C. 112, ¶ 2 and, therefore, that the products accused of infringing the '862 patent do not literally infringe the asserted claim of that patent and that Motorola has not satisfied the domestic industry requirement for the '862 patent.
On May 7, 2012, Motorola filed a joint petition for review and contingent petition for review of certain aspects of the final ID's findings concerning claim construction, infringement, validity, and domestic industry. Also on May 7, 2012, Apple filed a joint petition for review and contingent petition for review of certain aspects of the final ID's findings
On June 6, 2012, Apple filed a post-RD statement on the public interest pursuant to Commission Rule 201.50(a)(4). Also on June 6, 2012, several non-parties filed public interest statements in response to the post-RD Commission Notice issued on May 15, 2012.
On June 25, 2012, the Commission determined to review the final ID in part and requested briefing on the issues it determined to review, remedy, the public interest, and bonding. 77 FR 38826–29 (June 29, 2012). Specifically, with respect to the '223 patent the Commission determined to review the ID's construction of the limitation “access priority value” in claim 1. The Commission also determined to review the ID with respect to the validity of claim 1 of the '223 patent under 35 U.S.C. 102 in light of U.S. Patent No. 5,453,987 to Tran (“Tran '987) and U.S. Patent No. 5,657,317 to Mahany et al. (“Mahany '317”) and under 35 U.S.C. 103 in light of Tran '987 in combination with Mahany '317. The Commission further determined to review the ID's finding that the 802.11n standard necessarily practices claim 1 of the '223 patent, and thus, the ID's findings concerning infringement and the technical prong of the domestic industry requirement with respect to the '223 patent.
With respect to the '697 patent, the Commission determined to review the ID's construction of the limitation “selecting a chip time in a complex PN [pseudonoise] sequence generator” in claim 1. The Commission also determined to review the ID's construction of the limitation “restricting a phase difference between a previous complex PN chip and a next complex PN chip to a preselected phase angle.” The Commission further determined to review the ID's findings with respect to the validity of claims 1–4 of the '697 patent under 35 U.S.C. 102 in light of prior art π/2-shift BPSK modulation and under 35 U.S.C. 103 in light of the combination of prior art QPSK and π/2-shift BPSK modulation schemes. The Commission also determined to review the ID's finding of direct and induced infringement with respect to the '697 patent. The Commission further determined to review the ID's finding that Motorola has satisfied the technical prong of the domestic industry requirement for the '697 patent.
With respect to the '862 patent, the Commission determined to review the ID's construction of the limitation “close proximity to a user” in claim 1 and his finding that claim 1 is indefinite.
With respect to the '333 patent, the Commission determined to review the ID's construction of the limitation “a list of all software applications that are currently accessible to the subscriber unit” in claim 12. The Commission further determined to review the ALJ's finding that claim 12 is not invalid under 35 U.S.C. 102 in light of U.S. Patent Nos. 5,502,831 to Grube
With respect to whether Motorola has satisfied the economic prong of the domestic industry requirement, the Commission determined to review the ID's finding that Motorola has not satisfied the economic prong as to the '333 patent under section 337(a)(3)(C) by its investments in licensing. The Commission also determined to review in part the ID's finding that Motorola has satisfied the economic prong with respect to the '223 and '697 patents under section 337(a)(3)(A) and (B). The Commission determined not to review the remaining issues decided in the ID.
On July 9, 2012, the Motorola and Apple filed initial written submissions regarding the issues on review, remedy, the public interest, and bonding. On July 16, 2012, the parties filed response submissions. Also on July 9, 2012, several non-parties filed submissions concerning the public interest. On July 16, 2012, several non-parties filed response submissions.
Having examined the record of this investigation, including the ALJ's final ID and the parties' submissions, the Commission has determined to affirm the final ID's finding of no violation as to the '223 and '333 patents and to reverse the finding of violation as to the '697 patent. The Commission has also determined remand the investigation to the ALJ with respect to the '862 patent.
Specifically, the Commission has determined to affirm the ID's finding of no violation with respect to the '223 patent with modifications. In particular, the Commission has determined to modify the ID's claim construction of the claim limitation “access priority value” in claim 1 to mean “a value based on information available to the terminal, or based on information available to the terminal and information received from the infrastructure, used to determine relative priority among multiple terminals for access to a data communications system.” The Commission has determined to affirm the ID's finding that claim 1 of the '223 patent is anticipated by Mahany '317 and Tran '987. The Commission also finds that claim 1 of the '223 patent is obvious in light of Tran '987 in combination with Mahany '317. The Commission has determined to reverse the ID's finding that products compliant with the 802.11n standard necessarily practice claim 1 of the '223 patent. The Commission, therefore, finds that the accused products do not infringe claim 1 of the '233 patent and that Motorola has not satisfied the technical prong of the domestic industry requirement with respect to the '223 patent.
With respect to the '697 patent, the Commission has determined to reverse the ID's finding of violation of section 337. In particular, the Commission has determined to affirm, with modified reasoning, the ID's construction of the limitation “selecting every chip time” of claim 1 of the '697 patent. The Commission also finds that the limitation “restricting a phase difference between a previous complex PN chip and a next complex PN chip to a preselected phase angle” in claim 1 means “at the selected chip time, the next complex PN chip is limited to a predetermined phase transition,” with the understanding that the phrase “preselected phase angle” requires a single unique angle with a predetermined direction and magnitude at a particular “selected chip time,” but that the phase transition need not be the same at every chip time. The Commission further finds that claim 1 is limited to π/2 BPSK modulation “at selected chip times,” and thus, that the claimed “phase difference” must be ±90° “at selected chip times.” The Commission affirms the ID's finding that claims 1–4 of the '697 patent are not anticipated by prior art π/2-shift BPSK modulation. The Commission also affirms the ID's finding that claims 1–4 are not obviousness in light of the
With respect to the '862 patent, the Commission has determined to reverse the ID's finding that claim 1 is indefinite. The Commission remands the investigation to the ALJ to consider the issues of infringement, validity, and the domestic industry requirement for the '862 patent.
With respect to the '333 patent, the Commission has determined to affirm the ID's finding of no violation of section 337 with modifications. In particular, the Commission finds that the limitation “a list of all software applications that are currently accessible to the subscriber unit” of claim 12 means “a list of all software applications that are available and enabled for present use by the subscriber.” The Commission affirms the ID's finding that claim 12 of the '333 patent is not anticipated by Grube '831, DeLuca '737 or DeLuca '682, and is not rendered obvious by Grube '831 in view of DeLuca '682. The Commission also affirms, with modified reasoning, the ALJ's finding of non-infringement of claim 12 of the '333 patent. The Commission further affirms, with modified reasoning, the ID's finding that Motorola's domestic industry product does not practice claim 12 of the '333 patent.
With respect to whether Motorola has satisfied the economic prong of the domestic industry requirement, the Commission has determined to affirm-in-part the ID's finding that Motorola has satisfied the economic prong of the domestic industry requirement under section 337(a)(3)(A) and (B) by making substantial investments in its CliqXT and Droid 2 products, and further finds that these investments satisfy the economic prong requirement as to the `223, `697, and `333 patents. In addition to its investments in seedstock for its CliqXT and Droid 2 products, the Commission also finds that Motorola's expenditures relating to the creation of prototypes for its CliqXT and Droid 2 products and its costs associated with post-assembly loading of vendor-specific software and testing of those products are sufficient to support a finding that Motorola has satisfied the economic prong under section 337(a)(3)(A) and (B). The Commission vacates and takes no further position on the ID's finding that Motorola has not satisfied the economic prong as to the '333 patent under section 337(a)(3)(C) for its investments in licensing.
The authority for the Commission's determination is contained in section 337 of the Tariff Act of 1930, as amended (19 U.S.C. 1337), and in sections 210.42–.50 of the Commission's Rules of Practice and Procedure (19 CFR 210.42–.50).
By order of the Commission.
Notice is hereby given that on August 23, 2012, two proposed Consent Decrees (“Decrees”) in
The Consent Decrees require the Defendants to pay a combined $30.2 million to settle their liability at the Site. Cyprus Mines Corporation, Cyprus Amax Minerals Company, Inc., and Blue Tee Corp. will pay a total of $26 million. Homestake Mining Company of California will pay $4.2 million. The money will be used to help pay for response costs related to the cleanup at the Site.
The United States and the State of South Dakota filed a Complaint simultaneous with the Consent Decrees alleging that the Defendants are jointly and severally liable for response costs related to the cleanup at the Site. 42 U.S.C. 9607(a), 9613(g)(2). The Consent Decrees would resolve the claims against the Defendants as described in the Complaint.
The Department of Justice will receive for a period of thirty (30) days from the date of this publication comments relating to the Decrees. Comments should be addressed to the Assistant Attorney General, Environment and Natural Resources Division, and either emailed to the
The Decrees may be examined at the Office of the United States Attorney, District of South Dakota, 515 Ninth Street, Suite 201, Rapid City, South Dakota 57701. They also may be examined at the offices of U.S. EPA Region 8, 1595 Wynkoop Street, Denver, Colorado 80202. During the public comment period, the Decrees may be examined on the following Department of Justice Web site,
A copy of the Decrees may be obtained by mail from the Consent Decree Library, P.O. Box 7611, U.S. Department of Justice, Washington, DC 20044–7611 or by faxing or emailing a request to “Consent Decree Copy” (
In accordance with 28 CFR 50.7, 38 FR 19029, notice is hereby given that on August 23, 2012, a Modified Consent Decree was lodged with the United States District Court for the District of Massachusetts in
For a period of thirty (30) days from the date of this publication, the United States Department of Justice will receive comments relating to the proposed Consent Decree. Comments should be addressed to the Assistant Attorney General for the Environment and Natural Resources Division, and should either be emailed to
During the public comment period, the proposed Consent Decree may be examined at the office of the United States Attorney, Suite 9200, 1 Courthouse Way, Boston, Massachusetts 02110, and at the Region I office of the Environmental Protection Agency, One Congress Street, Suite 1100, Boston, Massachusetts 02114. The proposed Consent Decree may also be obtained at the following Department of Justice Web site:
Notice.
The Department of Labor (DOL) is submitting the Employment and Training Administration (ETA) sponsored information collection request (ICR) titled, “Unemployment Compensation for Federal Employees Handbook No. 391,” to the Office of Management and Budget (OMB) for review and approval for continued use in accordance with the Paperwork Reduction Act (PRA) of 1995 (44 U.S.C. 3501
Submit comments on or before October 1, 2012.
A copy of this ICR with applicable supporting documentation; including a description of the likely respondents, proposed frequency of response, and estimated total burden may be obtained from the RegInfo.gov Web site,
Submit comments about this request to the Office of Information and Regulatory Affairs, Attn: OMB Desk Officer for DOL–ETA, Office of Management and Budget, Room 10235, 725 17th Street NW., Washington, DC 20503, Telephone: 202–395–6929/Fax: 202–395–6881 (these are not toll-free numbers), email:
Michel Smyth by telephone at 202–693–4129 (this is not a toll-free number) or by email at
44 U.S.C. 3507(a)(1)(D).
The Unemployment Compensation for Federal Employees Act, 5 U.S.C. 8501,
This information collection is subject to the PRA. A Federal agency generally cannot conduct or sponsor a collection of information, and the public is generally not required to respond to an information collection, unless it is approved by the OMB under the PRA and displays a currently valid OMB Control Number. In addition, notwithstanding any other provisions of law, no person shall generally be subject to penalty for failing to comply with a collection of information if the collection of information does not display a valid Control Number.
Interested parties are encouraged to send comments to the OMB, Office of Information and Regulatory Affairs at the address shown in the
• Evaluate whether the proposed collection of information is necessary for the proper performance of the functions of the agency, including whether the information will have practical utility;
• Evaluate the accuracy of the agency's estimate of the burden of the proposed collection of information, including the validity of the methodology and assumptions used;
• Enhance the quality, utility, and clarity of the information to be collected; and
• Minimize the burden of the collection of information on those who are to respond, including through the use of appropriate automated, electronic, mechanical, or other technological collection techniques or other forms of information technology, e.g., permitting electronic submission of responses.
Notice.
The Department of Labor (DOL) is submitting the Occupational Safety and Health Administration (OSHA) sponsored information collection request (ICR) titled, “Reports of Injuries to Employees Operating Mechanical Power Presses,” to the Office of Management and Budget (OMB) for review and approval for continued use in accordance with the Paperwork Reduction Act (PRA) of 1995 (44 U.S.C. 3501
Submit comments on or before October 1, 2012.
A copy of this ICR with applicable supporting documentation; including a description of the likely respondents, proposed frequency of response, and estimated total burden may be obtained from the
Submit comments about this request to the Office of Information and Regulatory Affairs, Attn: OMB Desk Officer for DOL–OSHA, Office of Management and Budget, Room 10235, 725 17th Street NW., Washington, DC 20503, Telephone: 202–395–6929/Fax: 202–395–6881 (these are not toll-free numbers), email:
Michel Smyth by telephone at 202–693–4129 (this is not a toll-free number) or by email at
44 U.S.C. 3507(a)(1)(D).
In the event a worker is injured while operating a mechanical power press, Regulations 29 CFR 1910.217(g) makes it mandatory for an employer to report, within 30 days of the occurrence, all point-of-operation injuries to operators or other employees either to the Director of the Directorate of Standards or to the State Agency administering a plan approved by the Assistant Secretary of Labor for Occupational Safety and Health. Particularly, this information identifies the equipment used and conditions associated with these injuries. These reports are a source of up-to-date information on power press machines.
This information collection is subject to the PRA. A Federal agency generally cannot conduct or sponsor a collection of information, and the public is generally not required to respond to an information collection, unless it is approved by the OMB under the PRA and displays a currently valid OMB Control Number. In addition, notwithstanding any other provisions of law, no person shall generally be subject to penalty for failing to comply with a collection of information if the collection of information does not display a valid Control Number.
Interested parties are encouraged to send comments to the OMB, Office of Information and Regulatory Affairs at the address shown in the
• Evaluate whether the proposed collection of information is necessary for the proper performance of the functions of the agency, including whether the information will have practical utility;
• Evaluate the accuracy of the agency's estimate of the burden of the proposed collection of information, including the validity of the methodology and assumptions used;
• Enhance the quality, utility, and clarity of the information to be collected; and
• Minimize the burden of the collection of information on those who are to respond, including through the use of appropriate automated, electronic, mechanical, or other technological collection techniques or other forms of information technology, e.g., permitting electronic submission of responses.
Notice.
The Department of Labor, as part of its continuing effort to reduce paperwork and respondent burden, conducts a preclearance consultation program to provide the general public and Federal agencies with an opportunity to comment on proposed and/or continuing collections of information in accordance with the Paperwork Reduction Act of 1995 (PRA95) [44 U.S.C. 3506(c)(2)(A)]. This program helps to ensure that requested data can be provided in the desired format, reporting burden (time and financial resources) is minimized, collection instruments are clearly understood, and the impact of collection requirements on respondents can be properly assessed. Currently, the Office of Workers' Compensation Programs is soliciting comments concerning its proposal to extend OMB approval of the information collection: Request for Employment Information (CA–1027). A copy of the proposed information collection request can be obtained by contacting the office listed below in the addresses section of this Notice.
Written comments must be submitted to the office listed in the addresses section below on or before October 29, 2012.
Ms. Yoon Ferguson, U.S. Department of Labor, 200 Constitution Ave. NW., Room S–3201, Washington, DC 20210, telephone (202) 693–0701, fax (202) 693–2447, Email
Payment of compensation for partial disability to injured Federal workers is required by 5 U.S.C. 8106. That section also requires the Office of Workers' Compensation Programs (OWCP) to obtain information regarding a claimant's earnings during a period of eligibility to compensation. The CA–1027, Request for Employment Information, is the form used to obtain information for an individual who is employed by a private employer. This information is used to determine the claimant's entitlement to compensation benefits. This information collection is currently approved for use through December 31, 2012.
The Department of Labor is particularly interested in comments which:
* Evaluate whether the proposed collection of information is necessary for the proper performance of the functions of the agency, including whether the information will have practical utility;
* Evaluate the accuracy of the agency's estimate of the burden of the proposed collection of information, including the validity of the methodology and assumptions used;
* Enhance the quality, utility and clarity of the information to be collected; and
* Minimize the burden of the collection of information on those who are to respond, including through the use of appropriate automated, electronic, mechanical, or other technological collection techniques or other forms of information technology, e.g., permitting electronic submissions of responses.
The Department of Labor seeks the approval for the extension of this currently approved information collection in order to determine a claimant's eligibility for compensation benefits.
Comments submitted in response to this notice will be summarized and/or included in the request for Office of Management and Budget approval of the information collection request; they will also become a matter of public record.
All meetings are held at 2:30 p.m.:
Board Agenda Room, No. 11820, 1099 14th St. NW., Washington, DC 20570.
Closed.
Pursuant to § 102.139(a) of the Board's Rules and Regulations, the Board or a panel thereof will consider “the issuance of a subpoena, the Board's participation in a civil action or proceeding or an arbitration, or the initiation, conduct, or disposition * * * of particular representation or unfair labor practice proceedings under section 8, 9, or 10 of the [National Labor Relations] Act, or any court proceedings collateral or ancillary thereto.” See also 5 U.S.C. 552b(c)(10).
Lester A. Heltzer, (202) 273–1067.
National Science Foundation.
Notice of a permit modification issued under the Antarctic Conservation Act of 1978, Public Law 95–541.
The National Science Foundation (NSF) is required to publish notice of permit modifications issued under the Antarctic Conservation Act of 1978. This is the required notice.
Nadene G. Kennedy, Permit Office, Office of Polar Programs, Rm. 755, National Science Foundation, 4201 Wilson Boulevard, Arlington, VA 22230.
On June 21, 2012, the National Science
Dominion Nuclear Connecticut, Inc., (the licensee, Dominion) is the holder of Renewed Facility Operating License No. NPF–49, which authorizes operation of the Millstone Power Station, Unit 3 (MPS3). The license provides, among other things, that the facility is subject to all rules, regulations, and orders of the Nuclear Regulatory Commission (NRC, the Commission) now or hereafter in effect.
MPS3 shares the site with Millstone Power Station Unit 1, a permanently defueled boiling water reactor nuclear unit, and Millstone Power Station Unit 2, a pressurized water reactor. The facility is located in Waterford, Connecticut, approximately 3.2 miles west southwest of New London, CT. This exemption applies to MPS3 only. The other units, Units 1 and 2, are not part of this exemption.
Section 50.46 of Title 10 of the
Both of the above requirements require the use of zircaloy or ZIRLO
In summary, by letter dated November 17, 2011, (Agencywide Documents Access and Management System (ADAMS), Accession No. ML11329A003), the licensee requested an exemption from the requirements of 10 CFR 50.46 and Appendix K to 10 CFR part 50. The reason for the exemption is to allow the use of Optimized ZIRLO
Pursuant to 10 CFR 50.12, the Commission may, upon application by any interested person or upon its own initiative, grant exemptions from the requirements of 10 CFR part 50 when (1) the exemptions are authorized by law, will not present an undue risk to public health or safety, and are consistent with the common defense and security; and (2) when special circumstances are present. These circumstances include the special circumstances that application of the regulation is not necessary to achieve the underlying purpose of the rule.
This exemption would allow the licensee to use Optimized ZIRLO
The underlying purpose of 10 CFR 50.46 is to establish acceptance criteria for adequate ECCS performance. By letter dated June 10, 2005 (ADAMS Accession No. ML051670408), the NRC staff issued a safety evaluation (SE) approving Addendum 1 to Westinghouse Topical Report WCAP–12610–P–A and CENPD–404–P–A, “Optimized ZIRLO
The underlying purpose of 10 CFR Part 50, Appendix K, Section I.A.5, “Metal-Water Reaction Rate,” is to ensure that cladding oxidation and hydrogen generation are appropriately limited during a LOCA and conservatively accounted for in the ECCS evaluation model. Appendix K states that the rates of energy release, hydrogen concentration, and cladding oxidation from the metal-water reaction shall be calculated using the Baker-Just equation. Since the Baker-Just equation presumes the use of zircaloy clad fuel, strict application of the rule would not permit use of the equation for Optimized ZIRLO
Based on the above, no new accident precursors are created by using Optimized ZIRLO
The proposed exemption would allow the use of Optimized ZIRLO
Special circumstances, in accordance with 10 CFR 50.12(a)(2)(ii), are present whenever application of the regulation in the particular circumstances is not necessary to achieve the underlying purpose of the rule. The underlying purpose of 10 CFR 50.46 and Appendix K to 10 CFR part 50 is to establish acceptance criteria for ECCS performance and to ensure that cladding oxidation and hydrogen generation are appropriately limited during a LOCA and conservatively accounted for in the ECCS evaluation model. The wording of the regulations in 10 CFR 50.46 and Appendix K is not directly applicable to Optimized ZIRLO
Accordingly, the Commission has determined that, pursuant to 10 CFR 50.12, the exemption is authorized by law, will not present an undue risk to the public health and safety, and is consistent with the common defense and security. Also, special circumstances are present. Therefore, the Commission hereby grants Dominion an exemption from certain requirements of 10 CFR 50.46 and Appendix K to 10 CFR part 50, to allow the use of Optimized ZIRLO
Pursuant to 10 CFR 51.32, the Commission has determined that the granting of this exemption will not have a significant effect on the quality of the human environment (77 FR 50533).
This exemption is effective upon issuance.
For the Nuclear Regulatory Commission.
Thursday, September 13, 2012, 9:30 a.m. (Open Portion); 10 a.m. (Closed Portion).
Offices of the Corporation, Twelfth Floor Board Room, 1100 New York Avenue NW., Washington, DC.
Meeting OPEN to the Public from 9:30 a.m. to 10 a.m. Closed portion will commence at 10 a.m. (approx.).
1. President's Report.
2. Confirmation: John F. Moran as Vice President, Insurance.
3. Minutes of the Open Session of the June 14, 2012 Board of Directors Meeting.
(Closed to the Public 10 a.m.):
1. Finance Project—Jordan.
2. Finance Project—South Africa.
3. Finance Project—Turkey.
4. Insurance Project—Ghana.
5. Insurance Project—Egypt, Jordan and Pakistan.
6. Insurance Project—Ghana.
7. Finance Project—Pan-Africa.
8. Finance Project—Indonesia.
9. Finance Project—Russia.
10. Finance Project—India.
11. Finance Project—India.
12. Minutes of the Closed Session of the June 14, 2012 Board of Directors Meeting.
13. Reports.
14. Pending Major Projects.
Written summaries of the projects to be presented have been posted on OPIC's Web site.
Information on the meeting may be obtained from Connie M. Downs at (202) 336–8438.
Securities and Exchange Commission.
Notice of roundtable discussion; request for comment.
The Securities and Exchange Commission will host a one day roundtable entitled “Technology and Trading: Promoting Stability in Today's Markets” to discuss ways to promote stability in markets that rely on highly automated systems. The roundtable will focus on the relationship between the operational stability and integrity of our securities market and the ways in which market participants design, implement, and manage complex and inter-connected trading technologies.
The roundtable discussion will be held in the multi-purpose room of the Securities and Exchange Commission headquarters at 100 F Street NE., in Washington, DC on September 14, 2012 from 10 a.m. to approximately 4 p.m. The public is invited to observe the roundtable discussion. Seating will be available on a first-come, first-served basis. The roundtable discussion also will be available via webcast on the Commission's Web site at
The roundtable will consist of two panels. The morning panel will focus on error prevention—where technology experts will discuss current best practices and practical constraints for creating, deploying, and operating mission-critical systems, including those that are used to automatically generate and route orders, match trades, confirm transactions, and disseminate data. The afternoon panel will focus on error response—where panelists will discuss how the market might employ independent filters, objective tests, and other real-time processes or crisis-management procedures to detect, limit, and possibly terminate erroneous market activities when they do occur, thereby limiting the impact of such errors.
The roundtable discussion will take place on September 14, 2012. The Commission will accept comments
Comments may be submitted by any of the following methods:
• Use the Commission's Internet comment form (
• Send an email to
• Send paper comments in triplicate to Elizabeth M. Murphy, Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549–1090.
Arisa Tinaves, Special Counsel, at (202) 551–5676, Division of Trading and Markets, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549–7010.
By the Commission.
Pursuant to Section 19(b)(1)
The Exchange proposes to offer certain proprietary options data products. The text of the proposed rule change is available on the Exchange's Web site at
In its filing with the Commission, the self-regulatory organization included statements concerning the purpose of, and basis for, the proposed rule change and discussed any comments it received on the proposed rule change. The text of those statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant parts of such statements.
The Exchange proposes to offer certain proprietary options data products. Specifically, the products are ArcaBook for Amex Options—Trades, ArcaBook for Amex Options—Top of Book, ArcaBook for Amex Options—Depth of Book, ArcaBook for Amex Options—Complex, ArcaBook for Amex Options—Series Status, and ArcaBook for Amex Options—Order Imbalance.
ArcaBook for Amex Options—Trades would make available NYSE Amex Options last sale information on a real-time basis as it is reported to the Options Price Reporting Authority (“OPRA”) and disseminated on a consolidated basis under the OPRA Plan.
The OPRA Plan provides for the collection and dissemination of last sale and quotation information on options that are traded on the participant exchanges. Section 5.2(c) of the OPRA Plan also permits OPRA Plan participants to disseminate unconsolidated market information to certain of their members under certain circumstances. The manner in which the Exchange proposes to disseminate the proposed products would comply with Section 5.2(c).
ArcaBook for Amex Options—Top of Book would make available NYSE Amex Options best bids and offers (“BBO”) (including orders and quotes) on a real-time basis as it is reported to OPRA and disseminated on a consolidated basis under the OPRA Plan. Other exchanges also offer this product.
ArcaBook for Amex Options—Depth of Book would make available NYSE Amex Options quotes and orders at the first five price levels in each series on a real-time basis as it is reported to OPRA and disseminated on a consolidated basis under the OPRA Plan. One exchange offers an identical
ArcaBook for Amex Options—Complex would make available NYSE Amex Options quote and trade information (including orders/quotes, requests for responses, and trades) for the complex order book on a real-time basis.
ArcaBook for Amex Options—Series Status would make available series status messages for each individual options series in the event of a delayed opening or trading halt. The equity trading facility of NYSE Arca, Inc. (“NYSE Arca Equities”) currently makes this information available via one of its market data products.
Finally, ArcaBook for Amex Options—Order Imbalance would make available a data feed that includes order imbalance information prior to the opening and closing of the market, a data product that is offered by NYSE Arca Equities
Each of these options data products will be offered through the Exchange's Liquidity Center Network (“LCN”), a local area network in the Exchange's Mahwah, New Jersey data center that is available to users of the Exchange's co-location services. The Exchange would also offer the products through the Exchange's Secure Financial Transaction Infrastructure (“SFTI”) network, through which all other Users and member organizations access the Exchange's trading and execution systems and other proprietary market data products.
The Exchange will submit a separate rule filing to establish fees for the data products.
The proposed rule change is consistent with Section 6(b)
In adopting Regulation NMS, the Commission granted self-regulatory organizations and broker-dealers increased authority and flexibility to offer new and unique market data to consumers of such data. It was believed that this authority would expand the amount of data available to users and consumers of such data and also spur innovation and competition for the provision of market data. The Exchange believes that the options data products proposed herein are precisely the sort of market data products that the Commission envisioned when it adopted Regulation NMS. The Commission concluded that Regulation NMS—by lessening regulation of the market in proprietary data—would itself further the Act's goals of facilitating efficiency and competition:
[E]fficiency is promoted when broker-dealers who do not need the data beyond the prices, sizes, market center identifications of the NBBO and consolidated last sale information are not required to receive (and pay for) such data. The Commission also believes that efficiency is promoted when broker-dealers may choose to receive (and pay for) additional market data based on their own internal analysis of the need for such data.
By removing “unnecessary regulatory restrictions” on the ability of exchanges to sell their own data, Regulation NMS advanced the goals of the Act and the principles reflected in its legislative history.
The Exchange further notes that the existence of alternatives to the Exchange's products, including real-time consolidated data, free delayed consolidated data, and proprietary data from other sources, ensures that the Exchange is not unreasonably discriminatory because vendors and subscribers can elect these alternatives.
The proposed options data products will help to protect a free and open market by providing additional data to the marketplace and give investors greater choices. In addition, the proposal would not permit unfair discrimination because the products will be available to all of the Exchange's customers and broker-dealers through both the LCN and SFTI.
The Exchange does not believe that the proposed rule change will impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. The market for proprietary data products is currently competitive and inherently contestable because there is fierce competition for the inputs necessary to the creation of proprietary data. Numerous exchanges compete with each other for listings, trades, and market data itself, providing virtually limitless opportunities for entrepreneurs who wish to produce and distribute their own market data. This proprietary data is produced by each individual exchange, as well as other entities (such as internalizing broker-dealers and various forms of alternative trading systems, including dark pools and electronic communication networks), in a vigorously competitive market. It is common for market participants to further and exploit this competition by sending their order flow and transaction reports to multiple markets, rather than providing them all to a single market.
No written comments were solicited or received with respect to the proposed rule change.
The Exchange has filed the proposed rule change pursuant to Section 19(b)(3)(A)(iii) of the Act
A proposed rule change filed under Rule 19b–4(f)(6)
At any time within 60 days of the filing of such proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act.
Interested persons are invited to submit written data, views and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods:
• Use the Commission's Internet comment form (
• Send an email to
• Send paper comments in triplicate to Elizabeth M. Murphy, Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549.
For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.
Pursuant to Section 19(b)(1)
The Exchange proposes to rule change will have any direct effect, or any significant indirect effect, on any other Exchange rule in effect at the time of this filing. [sic] The text of the proposed rule change is available on the Exchange's Web site at
In its filing with the Commission, the self-regulatory organization included statements concerning the purpose of, and basis for, the proposed rule change and discussed any comments it received on the proposed rule change. The text of those statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant parts of such statements.
The Exchange proposes to offer certain proprietary options data products. Specifically, the products are ArcaBook for Arca Options—Trades, ArcaBook for Arca Options—Top of Book, ArcaBook for Arca Options—Depth of Book, ArcaBook for Arca Options—Complex, ArcaBook for Arca Options—Series Status, and ArcaBook for Arca Options—Order Imbalance. Each of these products, which are described in more detail below, is either identical or substantially similar to products offered by other exchanges.
ArcaBook for Arca Options—Trades would make available NYSE Arca Options last sale information on a real-time basis as it is reported to the Options Price
Reporting Authority (“OPRA”) and disseminated on a consolidated basis
The OPRA Plan provides for the collection and dissemination of last sale and quotation information on options that are traded on the participant exchanges. Section 5.2(c) of the OPRA Plan also permits OPRA Plan participants to disseminate unconsolidated market information to certain of their members under certain circumstances. The manner in which the Exchange proposes to disseminate the proposed products would comply with Section 5.2(c).
ArcaBook for Arca Options—Top of Book would make available NYSE Arca Options best bids and offers (“BBO”) (including orders and quotes) on a real-time basis as it is reported to OPRA and disseminated on a consolidated basis under the OPRA Plan. Other exchanges also offer this product.
ArcaBook for Arca Options—Depth of Book would make available NYSE Arca Options quotes and orders at the first five price levels in each series on a real-time basis as it is reported to OPRA and disseminated on a consolidated basis under the OPRA Plan. One exchange offers an identical product; other exchanges also offer similar products.
ArcaBook for Arca Options—Complex would make available NYSE Arca Options quote and trade information (including orders/quotes, requests for responses, and trades) for the complex order book on a real-time basis.
ArcaBook for Arca Options—Series Status would make available series status messages for each individual options series in the event of a delayed opening or trading halt. The Exchange's equity trading facility currently makes this information available via one of its market data products.
Finally, ArcaBook for Arca Options—Order Imbalance would make available a data feed that includes order imbalance information prior to the opening and closing of the market, a data product that is offered by the Exchange's equity trading facility
Each of these options data products will be offered through the Exchange's Liquidity Center Network (“LCN”), a local area network in the Exchange's Mahwah, New Jersey data center that is available to users of the Exchange's co-location services. The Exchange would also offer the products through the Exchange's Secure Financial Transaction Infrastructure (“SFTI”) network, through which all other Users and member organizations access the Exchange's trading and execution systems and other proprietary market data products.
The Exchange will submit a separate rule filing to establish fees for the data products.
The proposed rule change is consistent with Section 6(b)
In adopting Regulation NMS, the Commission granted self-regulatory organizations and broker-dealers increased authority and flexibility to offer new and unique market data to consumers of such data. It was believed that this authority would expand the amount of data available to users and consumers of such data and also spur innovation and competition for the provision of market data. The Exchange believes that the options data products proposed herein are precisely the sort of market data products that the Commission envisioned when it adopted Regulation NMS. The Commission concluded that Regulation NMS—by lessening regulation of the market in proprietary data—would itself further the Act's goals of facilitating efficiency and competition:
[E]fficiency is promoted when broker-dealers who do not need the data beyond the prices, sizes, market center identifications of the NBBO and consolidated last sale information are not required to receive (and pay for) such data. The Commission also believes that efficiency is promoted when broker-dealers may choose to receive (and pay for) additional market data based on their own internal analysis of the need for such data.
By removing “unnecessary regulatory restrictions” on the ability of exchanges to sell their own data, Regulation NMS advanced the goals of the Act and the principles reflected in its legislative history.
The Exchange further notes that the existence of alternatives to the Exchange's products, including real-time consolidated data, free delayed consolidated data, and proprietary data from other sources, ensures that the Exchange is not unreasonably discriminatory because vendors and subscribers can elect these alternatives.
The proposed options data products will help to protect a free and open market by providing additional data to the marketplace and give investors greater choices. In addition, the proposal would not permit unfair discrimination because the products will be available to all of the Exchange's customers and broker-dealers through both the LCN and SFTI.
The Exchange does not believe that the proposed rule change will impose any burden on competition that is not
No written comments were solicited or received with respect to the proposed rule change.
The Exchange has filed the proposed rule change pursuant to Section 19(b)(3)(A)(iii) of the Act
A proposed rule change filed under Rule 19b–4(f)(6)
At any time within 60 days of the filing of such proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act.
Interested persons are invited to submit written data, views and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods:
• Use the Commission's Internet comment form (
• Send an email to
• Send paper comments in triplicate to Elizabeth M. Murphy, Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549.
For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.
On June 26, 2012, EDGA Exchange, Inc. (“Exchange”) filed with the Securities and Exchange Commission (“Commission”), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”)
The Exchange proposed to add a new order type, the Route Peg Order.
Route Peg Orders would be able to be entered, cancelled and cancelled/replaced prior to and during Regular Trading Hours.
After careful review, the Commission finds that the proposed rule change is consistent with the requirements of the Act and the rules and regulations thereunder applicable to a national securities exchange.
The Exchange notes that the Route Peg Order is designed to incentivize Users
Further, the Exchange believes that these benefits of the Route Peg Order would be realized only if they interact with orders that are eligible for routing, as they are characteristic of public customers who desire to execute at the best price. In contrast, notes the Exchange, professional traders typically expect to post to the book, execute immediately against the Exchange's best bid or offer, or ferret out hidden liquidity at or inside the NBBO and use non-routable orders to achieve these ends. The Exchange believes that Users would be reluctant to post liquidity through the Route Peg Order if such orders could interact with professional traders. Finally, the Exchange highlights that any User can place a routable order that is eligible for execution against a Route Peg Order.
Based on the Exchange's statements, the Commission believes that the proposed rule change is consistent with Section 6(b)(5) of the Act.
For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.
On June 26, 2012, EDGX Exchange, Inc. (“Exchange”) filed with the Securities and Exchange Commission (“Commission”), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”)
The Exchange proposed to add a new order type, the Route Peg Order.
Route Peg Orders would be able to be entered, cancelled and cancelled/replaced prior to and during Regular Trading Hours.
After careful review, the Commission finds that the proposed rule change is consistent with the requirements of the Act and the rules and regulations thereunder applicable to a national securities exchange.
The Exchange notes that the Route Peg Order is designed to incentivize Users
Further, the Exchange believes that these benefits of the Route Peg Order would be realized only if they interact with orders that are eligible for routing, as they are characteristic of public customers who desire to execute at the best price. In contrast, notes the Exchange, professional traders typically
Based on the Exchange's statements, the Commission believes that the proposed rule change is consistent with Section 6(b)(5) of the Act.
For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.
Pursuant to Section 19(b)(1)
The Exchange proposes to amend NYSE Arca Rule 6.47, “Crossing” Orders—OX. The text of the proposed rule change is available on the Exchange's Web site at
In its filing with the Commission, the self-regulatory organization included statements concerning the purpose of, and basis for, the proposed rule change and discussed any comments it received on the proposed rule change. The text of those statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant parts of such statements.
The Exchange proposes to amend NYSE Arca Rule 6.47 to adopt a new procedure that provides for the execution of Customer-to-Customer Crosses on the Trading Floor. The proposal is based on a nearly identical customer-to-customer cross functionality provided in NYSE Amex Rule 934NY(a).
NYSE Arca Options Rule 6.47 currently provides procedures for executing four different cross order types: (i) Non-Facilitation Cross (Regular way Cross); (ii) Facilitation Cross; (iii) Solicited Order Cross; and (iv) Mid-Point Cross.
Currently, if a Floor Broker intends to cross customer orders, to buy and sell the same option contract, the orders are executed pursuant to the Non-Facilitation Cross procedures.
The Exchange proposes to make available a new crossing procedure for Customer orders in situations when a Floor Broker who holds a Customer order to buy and a Customer order to sell the same option contract.
The Exchange notes that the Customer-to-Customer Cross procedure is almost identical to the existing Non-Facilitation Cross; except that in contrast to the procedures for executing a Non-Facilitation Cross as detailed above, when a Customer-to-Customer Cross is properly announced, and after the execution price is established, the Customer orders will have priority over equal priced bids/offers in the Trading Crowd and would be executed against each other.
The Exchange believes that Customers will benefit by have [sic] another method to execute their transactions on the Trading Floor, while allowing them to benefit from price improvement from the Trading Crowds quotes. While the Exchange currently has four crossing procedures to meet the execution needs of its market participants, the Exchange does not have one that is narrowly tailored to Customer only transactions that other competing options market have. The Exchange believes that having the ability to offer similar functionality on the Exchange will help the Exchange compete for Customer orders and facilitate transitions on the Exchange in the competitive marketplace for order flow. In addition, the Exchange believes that all market participants will benefit from the enhanced liquidity from facilitating the execution of these transactions on the Exchange. The Exchange notes that this proposal raises no novel issues and that several other options exchanges have similar crossing functionality.
The proposed rule change is consistent with Section 6(b) of the Securities Exchange Act of 1934 (the “Act”),
The new Customer-to-Customer Cross procedure will provide a new method for Customers to get executions on the Trading Floor, while allowing them to benefit from price improvement from the Trading Crowd's quotes in a manner designed to promote just and equitable principles of trade on the Exchange. The Customer-to-Customer Cross will allow Customers an additional opportunity to trade their orders in situations where they do not want the risk of their order being broken-up and thus facilitate additional transactions on the Exchange and boost liquidity for all market participants.
The Exchange does not believe that the proposed rule change will impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act.
No written comments were solicited or received with respect to the proposed rule change.
The Exchange has filed the proposed rule change pursuant to Section 19(b)(3)(A)(iii) of the Act
A proposed rule change filed under Rule 19b–4(f)(6)
At any time within 60 days of the filing of such proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act.
Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods:
• Use the Commission's Internet comment form (
• Send an email to
• Send paper comments in triplicate to Elizabeth M. Murphy, Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549–1090.
For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Act” or “Exchange Act”)
The Exchange proposes to list and trade under NYSE Arca Equities Rule 5.2(j)(3), Commentary .02, the shares of the following two series of iShares Trust: iShares 2018 S&P AMT-Free Municipal Series and iShares 2019 S&P AMT-Free Municipal Series. The text of the proposed rule change is available on the Exchange's Web site at
In its filing with the Commission, the Exchange included statements concerning the purpose of, and basis for, the proposed rule change and discussed any comments it received on the proposed rule change. The text of those statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant parts of such statements.
The Exchange proposes to list and trade shares (“Shares”) of the following two series of iShares Trust (“Trust”) under NYSE Arca Equities Rule 5.2(j)(3), Commentary .02, which governs the listing and trading of Investment Company Units (“Units”) based on fixed income securities indexes: iShares 2018 S&P AMT-Free Municipal Series (“2018 Fund”) and iShares 2019 S&P AMT-Free Municipal Series
Blackrock Fund Advisors (“BFA”) is the investment adviser for the Funds. SEI Investments Distribution Co. is the Funds' distributor (“Distributor”).
The 2018 Fund will seek investment results that correspond generally to the price and yield performance, before fees and expenses, of the S&P AMT-Free Municipal Series 2018 Index
According to the 2018 Registration Statement, the 2018 Index measures the performance of investment-grade U.S. municipal bonds maturing in 2018. As of May 1, 2012, there were 1,443 issues in the 2018 Index.
The 2018 Index includes municipal bonds primarily from issuers that are state or local governments or agencies (including the Commonwealth of Puerto Rico and U.S. territories such as the U.S. Virgin Islands and Guam) such that the interest on the bonds is exempt from U.S. federal income taxes and the federal alternative minimum tax (“AMT”). Each bond must have a rating of at least BBB− by S&P, Baa3 by Moody's Investors Service, Inc. (“Moody's”), or BBB− by Fitch, Inc. and must have a minimum maturity par amount of $2 million to be eligible for inclusion in the 2018 Index. To remain in the 2018 Index, bonds must maintain a minimum par amount greater than or equal to $2 million as of each rebalancing date. All bonds in the 2018 Index will mature between June 1 and August 31 of 2018. When a bond matures in the 2018 Index, an amount representing its value at maturity will be included in the 2018 Index throughout the remaining life of the 2018 Index, and any such amount will be assumed to earn a rate equal to the performance of the S&P's Weekly High Grade Index, which consists of Moody's Investment Grade-1 municipal tax-exempt notes that are not subject to federal AMT. By August 31, 2018, the 2018 Index is expected to consist entirely of cash carried in this manner. The 2018 Index is a market value weighted index and is rebalanced after the close on the last business day of each month.
The Exchange is submitting this proposed rule change because the 2018 Index for the 2018 Fund does not meet all of the “generic” listing requirements of Commentary .02(a) to NYSE Arca Equities Rule 5.2(j)(3) applicable to the listing of Units based on fixed income securities indexes. The 2018 Index meets all such requirements except for those set forth in Commentary .02(a)(2).
The 2018 Fund generally will invest at least 80% of its assets in the securities of the 2018 Index, except during the last months of such Fund's operations, as described below. The 2018 Fund may at times invest up to 20% of its assets in cash and cash equivalents (including money market funds affiliated with BFA), as well as in municipal bonds not included in the 2018 Index, but which BFA believes will help the 2018 Fund track the 2018 Index. For example, the 2018 Fund may invest in municipal bonds not included in the 2018 Index in order to reflect prospective changes in the 2018 Index (such as 2018 Index reconstitutions, additions, and deletions). The 2018 Fund will generally hold municipal bond securities issued by state and local municipalities whose interest payments are exempt from U.S. federal income tax, the federal AMT and, effective beginning in 2013, a federal Medicare contribution tax of 3.8% on “net investment income,” including dividends, interest, and capital gains. In addition, the 2018 Fund may invest any cash assets in one or more affiliated municipal money market funds. In the last months of operation, as the bonds held by the 2018 Fund mature, the proceeds will not be reinvested in bonds but instead will be held in cash and cash equivalents, including without limitation, AMT-free tax-exempt municipal notes, variable rate demand notes and obligations, tender option bonds, and municipal commercial paper. These cash equivalents may not be included in the 2018 Index. On or about August 31, 2018, the 2018 Fund will wind up and terminate, and its net assets will be distributed to then-current shareholders.
As of May 1, 2012, 81.50% of the weight of the 2018 Index components was comprised of individual maturities that were part of an entire municipal bond offering with a minimum original principal amount outstanding of $100 million or more for all maturities of the offering. In addition, the total dollar amount outstanding of issues in the 2018 Index was approximately $16.59 billion and the average dollar amount outstanding of issues in the 2018 Index was approximately $11.50 million. Further, the most heavily weighted component represents 4.06% of the weight of the 2018 Index, and the five most heavily weighted components represent 8.20% of the weight of the 2018 Index.
In addition, the average daily notional trading volume for 2018 Index components for the period April 1, 2011 to April 30, 2012 was $12,417,528, and the sum of the notional trading volumes for the same period was approximately $3.38 billion. As of May 1, 2012, 54.78% of the 2018 Index weight consisted of issues with a rating of AA/Aa2 or higher.
The 2018 Index value, calculated and disseminated at least once daily, as well as the components of the 2018 Index and their percentage weightings, will be available from major market data vendors. In addition, the portfolio of securities held by the 2018 Fund will be disclosed on the Fund's Web site at
The 2019 Fund will seek investment results that correspond generally to the price and yield performance, before fees and expenses, of the S&P AMT-Free Municipal Series 2019 Index
According to the 2019 Registration Statement, the 2019 Index measures the performance of investment-grade U.S. municipal bonds maturing in 2019. As of May 1, 2012, there were 1,157 issues in the 2019 Index.
The 2019 Index includes municipal bonds primarily from issuers that are state or local governments or agencies
The Exchange is submitting this proposed rule change because the 2019 Index for the 2019 Fund does not meet all of the “generic” listing requirements of Commentary .02(a) to NYSE Arca Equities Rule 5.2(j)(3) applicable to listing of Units based on fixed income securities indexes. The 2019 Index meets all such requirements except for those set forth in Commentary .02(a)(2).
The 2019 Fund generally will invest at least 80% of its assets in the securities of the 2019 Index, except during the last months of the 2019 Fund's operations, as described below. The Fund may at times invest up to 20% of its assets in cash and cash equivalents (including money market funds affiliated with BFA), as well as in municipal bonds not included in the 2019 Index, but which BFA believes will help the 2019 Fund track the 2019 Index. For example, the 2019 Fund may invest in municipal bonds not included in the 2019 Index in order to reflect prospective changes in the 2019 Index (such as 2019 Index reconstitutions, additions, and deletions). The 2019 Fund will generally hold municipal bond securities issued by state and local municipalities whose interest payments are exempt from U.S. federal income tax, the federal AMT and, effective beginning in 2013, a federal Medicare contribution tax of 3.8% on “net investment income,” including dividends, interest, and capital gains. In addition, the 2019 Fund may invest any cash assets in one or more affiliated municipal money market funds. In the last months of operation, as the bonds held by the 2019 Fund mature, the proceeds will not be reinvested in bonds but instead will be held in cash and cash equivalents, including without limitation, AMT-free tax-exempt municipal notes, variable rate demand notes and obligations, tender option bonds, and municipal commercial paper. These cash equivalents may not be included in the 2019 Index. On or about August 31, 2019, the 2019 Fund will wind up and terminate, and its net assets will be distributed to then-current shareholders.
As of May 1, 2012, 81.66% of the weight of the 2019 Index components was comprised of individual maturities that were part of an entire municipal bond offering with a minimum original principal amount outstanding of $100 million or more for all maturities of the offering. In addition, the total dollar amount outstanding of issues in the 2019 Index was approximately $13.50 billion, and the average dollar amount outstanding of issues in the 2019 Index was approximately $11.67 million. Further, the most heavily weighted component represents 3.67% of the weight of the 2019 Index, and the five most heavily weighted components represent 9.62% of the weight of the 2019 Index.
In addition, the average daily notional trading volume for 2019 Index components for the period April 1, 2011 to April 30, 2012 was $14,434,454, and the sum of the notional trading volumes for the same period was approximately $3.93 billion. As of May 1, 2012, 52.52% of the 2019 Index weight consisted of issues with a rating of AA/Aa2 or higher.
The 2019 Index value, calculated and disseminated at least once daily, as well as the components of the 2019 Index and their percentage weightings, will be available from major market data vendors. In addition, the portfolio of securities held by the 2019 Fund will be disclosed on the Fund's Web site at
According to the Registration Statements, BFA expects that, over time, each Fund's tracking error will not exceed 5%. “Tracking error” is the difference between the performance (return) of a Fund's portfolio and that of the applicable Underlying Index.
The Exchange represents that: (1) Except for Commentary .02(a)(2) to NYSE Arca Equities Rule 5.2(j)(3), the Shares of the Funds currently satisfy all of the generic listing standards under NYSE Arca Equities Rule 5.2(j)(3); (2) the continued listing standards under NYSE Arca Equities Rules 5.2(j)(3) and 5.5(g)(2) applicable to Units shall apply to the Shares; and (3) the Trust is required to comply with Rule 10A–3 under the Exchange Act
The current value of the 2018 Index and 2019 Index will be widely disseminated by one or more major market data vendors at least once per day, as required by NYSE Arca Equities Rule 5.2(j)(3), Commentary .02(b)(ii). The IIV for Shares of each Fund will be disseminated by one or more major market data vendors, updated at least every 15 seconds during the Exchange's Core Trading Session, as required by NYSE Arca Equities Rule 5.2(j)(3), Commentary .02(c).
With respect to each of the Funds, BFA represents that the nature of the municipal bond market and municipal bond instruments makes it feasible to categorize individual issues represented by CUSIPs (
BFA represents that iShares municipal bond funds are managed utilizing the principle that municipal bond issues are generally fungible in nature when sharing common characteristics, and specifically make use of the four categories referred to above. In addition, this principle is used in, and consistent with, the portfolio construction process for other iShares funds—namely, portfolio optimization. These portfolio optimization techniques are designed to facilitate the creation and redemption process, and to enhance liquidity (among other benefits, such as reducing transaction costs), while still allowing each fund to closely track its reference index.
In addition, individual CUSIPs within the 2018 and 2019 Indexes that share characteristics with other CUSIPs based on the four categories described above have a high yield to maturity correlation, and frequently have a correlation of one or close to one. Such correlation demonstrates that the CUSIPs within their respective category behave similarly; this reinforces the fungible nature of municipal bond issues for purposes of developing an investment strategy.
The following examples, which are based on the top 100 index constituents in the 2018 Index and 2019 Index, respectively, by weight and sampling of each category, reflect the yield to maturity correlation among CUSIPs in each Index.
According to the Registration Statements, the Funds will issue and redeem Shares on a continuous basis at the net asset value per Share (“NAV”) only in a large specified number of Shares called a “Creation Unit,” or multiples thereof, with each Creation Unit consisting of 50,000 Shares, provided, however, that from time to time a Fund may change the number of Shares (or multiples thereof) required for each Creation Unit, if such Fund determines such a change would be in the best interests of such Fund.
The consideration for purchase of Creation Units of each Fund generally will consist of the in-kind deposit of a designated portfolio of securities (including any portion of such securities for which cash may be substituted) (
The portfolio of securities required for purchase of a Creation Unit may not be identical to the portfolio of securities the respective Fund will deliver upon redemption of Fund shares. The Deposit Securities and Fund Securities (as defined below), as the case may be, in connection with a purchase or redemption of a Creation Unit, generally will correspond pro rata, to the extent practicable, to the securities held by such Fund. As the planned termination date of a Fund approaches, and particularly as the bonds held by the respective Fund begin to mature, such Fund would expect to effect both creations and redemptions increasingly for cash.
The Cash Component will be an amount equal to the difference between the NAV of the respective Shares (per Creation Unit) and the “Deposit Amount,” which will be an amount equal to the market value of the Deposit Securities, and serve to compensate for any differences between the NAV per Creation Unit and the Deposit Amount. Each Fund currently will offer Creation Units for in-kind deposits but reserves the right to utilize a “cash” option in lieu of some or all of the applicable Deposit Securities for creation of Shares.
BFA will make available through the National Securities Clearing Corporation (“NSCC”) on each business day, prior to the opening of business on the Exchange, the list of names and the required number or par value of each Deposit Security and the amount of the Cash Component to be included in the current Fund Deposit (based on information as of the end of the previous business day) for each Fund.
The identity and number or par value of the Deposit Securities will change pursuant to changes in the composition of the respective Fund's portfolio and as rebalancing adjustments and corporate action events will be reflected from time to time by BFA with a view to the investment objective of each Fund. The composition of the Deposit Securities may also change in response to adjustments to the weighting or composition of the component securities constituting the applicable Underlying Index.
Each Fund reserves the right to permit or require the substitution of a “cash in lieu” amount to be added to the Cash Component to replace any Deposit Security that may not be available in sufficient quantity for delivery or that may not be eligible for transfer through the Depository Trust Company (“DTC”).
Creation Units may be purchased only by or through a DTC participant that has entered into an “Authorized Participant Agreement” (as described in the Registration Statements) with the Distributor (“Authorized Participant”). Except as noted below, all creation orders must be placed for one or more Creation Units and must be received by the Distributor in proper form no later than the closing time of the regular trading session of the Exchange (normally 4 p.m. Eastern Time) in each case on the date such order is placed in order for creation of Creation Units to be effected based on the NAV of Shares of the respective Fund as next determined on such date after receipt of the order in proper form. Orders requesting substitution of a “cash in lieu” amount generally must be received by the Distributor no later than 2 p.m. Eastern Time. On days when the Exchange or the bond markets close earlier than normal, the Funds may require orders to create Creation Units to be placed earlier in the day.
Fund Deposits must be delivered through the Federal Reserve System (for cash and government securities) and through DTC (for corporate and municipal securities) by an Authorized Participant. The Fund Deposit transfer must be ordered by the DTC
A standard creation transaction fee will be imposed to offset the transfer and other transaction costs associated with the issuance of Creation Units.
Shares of the Funds may be redeemed only in Creation Units at their NAV next determined after receipt of a redemption request in proper form by the
Unless cash redemptions are available or specified for the respective Fund, the redemption proceeds for a Creation Unit generally will consist of a specified amount of cash, Fund Securities, plus additional cash in an amount equal to the difference between the NAV of the Shares being redeemed, as next determined after the receipt of a request in proper form, and the value of the specified amount of cash and Fund Securities, less a redemption transaction fee. Each Fund currently will redeem Shares for Fund Securities, but each Fund reserves the right to utilize a “cash” option for redemption of Shares.
A standard redemption transaction fee will be imposed to offset transfer and other transaction costs that may be incurred by the Funds.
Redemption requests for Creation Units of the Funds must be submitted to the Distributor by or through an Authorized Participant no later than 4 p.m. Eastern Time on any business day, in order to receive that day's NAV. The Authorized Participant must transmit the request for redemption in the form required by each Fund to the Distributor in accordance with procedures set forth in the Authorized Participant Agreement.
Detailed descriptions of the Funds, the Underlying Indexes, procedures for creating and redeeming Shares, transaction fees and expenses, dividends, distributions, taxes, risks, and reports to be distributed to beneficial owners of the Shares can be found in the Registration Statements or on the Web site for the Funds (
The basis under the Exchange Act for this proposed rule change is the requirement under Section 6(b)(5)
The Exchange believes that the proposed rule change is designed to prevent fraudulent and manipulative acts and practices in that the Shares will be listed and traded on the Exchange pursuant to the initial and continued listing criteria in NYSE Arca Equities Rule 5.2(j)(3). The Exchange has in place surveillance procedures that are adequate to properly monitor trading in the Shares in all trading sessions and to deter and detect violations of Exchange rules and applicable federal securities laws. The Exchange may obtain information via the Intermarket Surveillance Group (“ISG”) from other exchanges that are members of ISG or with which the Exchange has entered into a comprehensive surveillance sharing agreement. The Index Provider is not a broker-dealer or affiliated with a broker-dealer and has implemented procedures designed to prevent the use and dissemination of material, non-public information regarding the Underlying Indexes. With respect to the 2018 Fund, as of May 1, 2012, there were 1,443 issues in the 2018 Index. As of May 1, 2012, 81.50% of the weight of the 2018 Index components was comprised of individual maturities that were part of an entire municipal bond offering with a minimum original principal amount outstanding of $100 million or more for all maturities of the offering. In addition, the total dollar amount outstanding of issues in the 2018 Index was approximately $16.59 billion and the average dollar amount outstanding of issues in the 2018 Index was approximately $11.50 million. Further, the most heavily weighted component represents 4.06% of the weight of the 2018 Index and the five most heavily weighted components represent 8.20% of the weight of the 2018 Index. Therefore, the 2018 Index is sufficiently broad-based and sufficiently liquid to deter potential manipulation. With respect to the 2019 Fund, as of May 1, 2012, there were 1,157 issues in the 2019 Index. As of May 1, 2012, 81.66% of the weight of the 2019 Index components was comprised of individual maturities that were part of an entire municipal bond offering with a minimum original principal amount outstanding of $100 million or more for all maturities of the offering. In addition, the total dollar amount outstanding of issues in the 2019 Index was approximately $13.50 billion and the average dollar amount outstanding of issues in the 2019 Index was approximately $11.67 million. Further, the most heavily weighted component represents 3.67% of the weight of the 2019 Index and the five most heavily weighted components represent 9.62% of the weight of the 2019 Index. Therefore, the 2019 Index is sufficiently broad-based and sufficiently liquid to deter potential manipulation. The 2018 Index value and 2019 Index value, calculated and disseminated at least once daily, as well as the components of the 2018 Index and 2019 Index and their respective percentage weightings, will be available from major market data vendors. In addition, the portfolio of securities held by the 2018 Fund and 2019 Fund will be disclosed on the Funds' Web site at
The proposed rule change is designed to promote just and equitable principles of trade and to protect investors and the public interest. In addition, a large amount of information is publicly available regarding the Funds and the Shares, thereby promoting market transparency. The Funds' portfolio holdings will be disclosed on the Funds' Web site daily after the close of trading on the Exchange and prior to the opening of trading on the Exchange the following day. Moreover, the IIV will be widely disseminated by one or more major market data vendors at least every 15 seconds during the Exchange's Core Trading Session. The current value of the Underlying Indexes will be disseminated by one or more major market data vendors at least once per day. Information regarding market price and trading volume of the Shares will be continually available on a real-time basis throughout the day on brokers' computer screens and other electronic
The proposed rule change is designed to perfect the mechanism of a free and open market and, in general, to protect investors and the public interest in that it will facilitate the listing and trading of additional types of exchange-traded funds that will enhance competition among market participants, to the benefit of investors and the marketplace. As noted above, the Exchange has in place surveillance procedures relating to trading in the Shares and may obtain information via ISG from other exchanges that are members of ISG or with which the Exchange has entered into a comprehensive surveillance sharing agreement. In addition, investors will have ready access to information regarding the IIV and quotation and last-sale information for the Shares.
The Exchange does not believe that the proposed rule change will impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act.
No written comments were solicited or received with respect to the proposed rule change.
Within 45 days of the date of publication of this notice in the
(A) By order approve or disapprove such proposed rule change, or
(B) Institute proceedings to determine whether the proposed rule change should be disapproved.
Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods:
• Use the Commission's Internet comment form (
• Send an email to
• Send paper comments in triplicate to Elizabeth M. Murphy, Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549–1090.
All submissions should refer to File Number SR–NYSEArca–2012–92. This file number should be included on the subject line if email is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission's Internet Web site (
For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.
Pursuant to the section 7045(a) of the Department of State, Foreign Operations, and Related Programs Appropriations Act, 2012 (Div. I, Pub. L. 112–74) (“FY 2012 SFOAA”) and Delegation of Authority 245–1, I hereby certify and report that the Colombian Armed Forces and the Government of Colombia are meeting the conditions contained in section 7045 of the Joint Explanatory Statement that accompanies the FY 2012 SFOAA.
This Certification shall be published in the
Notice is hereby given of the following determinations: Pursuant to the authority vested in me by the Act of October 19, 1965 (79 Stat. 985; 22 U.S.C. 2459), Executive Order 12047 of March 27, 1978, the Foreign Affairs Reform and Restructuring Act of 1998 (112 Stat. 2681,
For further information, including a list of the exhibit objects, contact Paul W. Manning, Attorney-Adviser, Office of the Legal Adviser, U.S. Department of State (telephone: 202–632–6469). The mailing address is U.S. Department of State, SA–5, L/PD, Fifth Floor (Suite 5H03), Washington, DC 20522–0505.
Notice is hereby given of the following determinations: Pursuant to the authority vested in me by the Act of October 19, 1965 (79 Stat. 985; 22 U.S.C. 2459), Executive Order 12047 of March 27, 1978, the Foreign Affairs Reform and Restructuring Act of 1998 (112 Stat. 2681,
For further information, including a list of the exhibit objects, contact Julie Simpson, Attorney-Adviser, Office of the Legal Adviser, U.S. Department of State (telephone: 202–632–6467). The mailing address is U.S. Department of State, SA–5, L/PD, Fifth Floor (Suite 5H03), Washington, DC 20522–0505.
Notice is hereby given of the following determinations: Pursuant to the authority vested in me by the Act of October 19, 1965 (79 Stat. 985; 22 U.S.C. 2459), Executive Order 12047 of March 27, 1978, the Foreign Affairs Reform and Restructuring Act of 1998 (112 Stat. 2681,
For further information, including a list of the exhibit objects, contact Julie Simpson, Attorney-Adviser, Office of the Legal Adviser, U.S. Department of State (telephone: 202–632–6467). The mailing address is U.S. Department of State, SA–5, L/PD, Fifth Floor (Suite 5H03), Washington, DC 20522–0505.
Based upon a review of the Administrative Record assembled pursuant to Section 219(a)(4)(C) of the Immigration and Nationality Act, as amended (8 U.S.C. 1189(a)(4)(C)) (“INA”), and in consultation with the Attorney General and the Secretary of the Treasury, I conclude that the circumstances that were the basis for the
Therefore, I hereby determine that the designation of the aforementioned organization as a foreign terrorist organization, pursuant to Section 219 of the INA (8 U.S.C. 1189), shall be maintained.
This determination shall be published in the
The Department of State's Advisory Committee on Private International Law (ACPIL) will hold its annual meeting on developments in private international law on Thursday, October 11 and Friday, October 12, 2012 in Washington, DC. The meeting will be held at the Michael K. Young Faculty Conference Center, George Washington University Law School, 2000 H Street NW., Washington, DC 20052. The program is scheduled to run from 9:30 a.m. to 5 p.m. on Thursday and from 9 a.m. to 2 p.m. on Friday.
Time permitting, we expect that the discussion will focus on developments in a number of areas, e.g., international family law; federalism issues in implementing the Hague Convention on Choice of Court Agreements; international contract law; developments in major PIL organizations; agricultural finance and food security; and simplified incorporation and other initiatives to promote the growth of microenterprises and small and medium-sized enterprises. We also expect to discuss possible future work in the PIL field and solicit suggestions in that regard.
Documents on these subjects are available at
Please advise as early as possible if you plan to attend. The meeting is open to the public up to the capacity of the conference facility, and space will be reserved on a first come, first served basis. Persons who wish to have their views considered are encouraged, but not required, to submit written comments in advance. Those who are unable to attend are also encouraged to submit written views. Comments should be sent electronically to
Federal Highway Administration (FHWA), DOT.
Final notice.
The FHWA has approved a request from Maryland Transportation Authority (MDTA) to temporarily close a portion of I–395 (just south of Conway Street in Baltimore City) from approximately 6 p.m. on Wednesday, August 29, until approximately 6 a.m. on Tuesday, September 4. The closure is requested to accommodate the construction and operation of the Baltimore Grand Prix (BGP), which will use the streets of downtown Baltimore as a race course.
The approval is granted in accordance with the provisions of 23 CFR 658.11 which authorizes the deletion of segments of the federally designated routes that make up the National Network designated in Appendix A of 23 CFR part 658. The FHWA published a Notice and Request for Comment on July 9, 2012, seeking comments from the general public on this request submitted by the MDTA for a deletion in accordance with 23 CFR 658.11(d). No public comments were received.
Mr. John Nicholas, Truck Size and Weight Program Manager in the Office of Freight Management, (202) 366–2317; Mr. William Winne, Office of the Chief Counsel, (202) 366–0791, Federal Highway Administration, 1200 New Jersey Avenue, SE., Washington, DC 20590; and Mr. Gregory Murrill, FHWA Division Administrator—DELMAR Division, (410) 962–4440. Office hours for the FHWA are from 8 a.m. to 4:30 p.m., e.t., Monday through Friday, except Federal holidays.
You may retrieve a copy of the Notice and Request for Comment, comments submitted to the docket, and a copy of this final notice through the Federal eRulemaking portal at:
An electronic copy of this document may also be downloaded from Office of the Federal Register's home page at:
The MDTA submitted a request to the FHWA for approval of the temporary closure of I–395 just south of Conway Street in the city of Baltimore from the period beginning Wednesday, August 29, at approximately 6 p.m. through Tuesday, September 4, at around 6 a.m., encompassing the Labor Day holiday. This closure will be undertaken in support of the BGP which will use the streets of downtown Baltimore as a race course. The MDTA is the owner and operator of I–395 and I–95 within the city of Baltimore.
The FHWA is responsible for enforcing the Federal regulations applicable to the National Network of highways that can safely and efficiently accommodate the large vehicles authorized by provisions of the Surface Transportation Assistance Act of 1982, as amended, designated in accordance with 23 CFR part 658 and listed in Appendix A. In accordance with 23 CFR 658.11, the FHWA may approve
The FHWA published a Notice and Request for Comment on July 9, seeking comments from the general public on this request submitted by the MDTA for a deletion in accordance with 23 CFR 658.11(d). The comment period closed on August 9. No public comments were received.
The FHWA sought comments on this request for temporary deletion from the National Network in accordance with 23 CFR 658.11(d). Specifically, the request is for approval of the temporary closure of I–395 just south of Conway Street in the city of Baltimore from the period beginning Wednesday August 29, at approximately 6 p.m. through Tuesday, September 4, at around 6 a.m., encompassing the Labor Day holiday. This closure will be undertaken in support of the BGP which will use the streets of downtown Baltimore as a race course. It is anticipated the BGP event will be hosted in the city of Baltimore for the next 4 consecutive years. The inaugural event occurred September 2 through September 4, 2011. The event is expected to attract 160,000 spectators over a 3–4 day period, not including the event organizer workforce and volunteers, the racing organizations and their respective personnel, or media and vendors. Event planners expect spectators from within a 400-mile radius of the city, with a large portion traveling the I–95 corridor. It is anticipated that the attendance for the peak day (Sunday) will reach 70,000 people with most arriving by private vehicle.
The construction and operation of the race course will create safety concerns by obstructing access from the I–395 northern terminus to the local street system including Howard Street, Conway Street, and Lee Street. However, an existing connection from I–395 to Martin Luther King, Jr. Boulevard will remain open throughout the event. In addition, access to and from I–95 into and out of the city along alternative access routes, including US 1, US 40, Russell Street, and Washington Boulevard will be maintained. The BGP and the city plan to update the 2011 signing plan to inform and guide motorists to, through, and around the impacted downtown area. The statewide transportation operations system, the Coordinated Highways Action Response Team, will provide real-time traffic information to motorists through dynamic message signs and highway advisory radio. The MDTA states that the temporary closure of this segment of I–395 to general traffic should have no impact on Interstate commerce. I–95, the main north-south Interstate route in the region, will remain open during the time period of the event. There are five additional I–95 interchanges, just to the north or south of I–395, with connections to the local street system including the arterials servicing the city's downtown area. A sign and supplemental traffic control systems plan was developed as part of the 2011 event's Traffic Management Plan (TMP). In addition, I–695 (Baltimore Beltway) will provide motorists traveling through the region the ability to bypass the impact area by circling around the city.
Commercial motor vehicles of the dimensions and configurations described in 23 CFR 658.13 and 658.15 which serve the impacted area, may use the alternate routes listed above. Vehicles servicing the businesses bordering the impacted area will still be able to do so by also using the alternative routes noted above to circulate around the restricted area. In addition, vehicles not serving businesses in the restricted area but, currently using I–395 and the local street system to reach their ultimate destinations, will be able to use the I–95 interchanges north and south of I–395 to access the alternative routes. A map depicting the alternative routes is available electronically at the docket established for this notice at
The original plan uses a credentialing process for access through designated gates with access to specific loading areas. This request to temporarily close I–395 was prepared for the MDTA by the BGP and the city. In addition, the city has reached out to the Federal, State, and local agencies to collaborate and coordinate efforts to address the logistical challenges of hosting the BGP. The BGP and the city have worked extensively with the businesses and residential communities in the city that could be affected by the event. These efforts include the formation of Task Forces and event Sub-Committees, to guide the development of plans for event security, transportation management, public safety and more.
The FHWA did not receive any comments in response to the Notice and Request for Comment. After full consideration of the MDTA request discussed in this final notice and determining that the request meets the requirements of 23 CFR 658.11(d), FHWA approves the deletion as proposed.
23 U.S.C. 127, 315 and 49 U.S.C. 31111, 31112, and 31114; 23 CFR part 658.
The Department of the Treasury will submit the following information collection request to the Office of Management and Budget (OMB) for review and clearance in accordance with the Paperwork Reduction Act of 1995, Public Law 104–13, on or after the date of publication of this notice.
Comments should be received on or before October 1, 2012 to be assured of consideration.
Send comments regarding the burden estimate, or any other aspect of the information collection, including suggestion for reducing the burden, to (1) Office of Information and Regulatory Affairs, Office of Management and Budget, Attention: Desk Officer for Treasury, New Executive Office Building, Room 10235, Washington, DC 20503, or email at
Copies of the submission(s) may be obtained by calling (202) 927–5331, email at
The Department of the Treasury will submit the following information collection request to the Office of Management and Budget (OMB) for review and clearance in accordance with the Paperwork Reduction Act of 1995, Public Law 104–13, on or after the date of publication of this notice.
Comments should be received on or before October 1, 2012 to be assured of consideration.
Send comments regarding the burden estimate, or any other aspect of the information collection, including suggestion for reducing the burden, to (1) Office of Information and Regulatory Affairs, Office of Management and Budget, Attention: Desk Officer for Treasury, New Executive Office Building, Room 10235, Washington, DC 20503, or email at
Copies of the submission(s) may be obtained by calling (202) 927–5331, email at
Office of the Comptroller of the Currency, Treasury; the Board of Governors of the Federal Reserve System; and the Federal Deposit Insurance Corporation.
Joint notice of proposed rulemaking.
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
Comments must be submitted on or before October 22, 2012.
Comments should be directed to:
• 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.
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You may review comments and other related materials that pertain to this notice by any of the following methods:
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All public comments are available from the Board's Web site at
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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
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.
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.
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).
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. 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.
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.
Other than bank holding companies subject to the Board's Small Bank Holding Company Policy Statement
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. 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
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
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.
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.
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.
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.
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.
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.
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.
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. 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.
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. 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.
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
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. 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.
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.
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.
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).
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.
In 2004, the BCBS introduced a new international capital adequacy framework (Basel II) that was intended
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.
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.
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. 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.
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.
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. 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.
To facilitate the implementation of Basel III, the BCBS issued a series of releases in 2011 in the form of frequently asked questions.
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.
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. 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.
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.
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
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.
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.
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;
(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. 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.
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.
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.
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. 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).
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.
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.
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.
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
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.
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. 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 organizations, and that banking organizations subject to the advanced approaches rule would calculate the buffer using advanced approaches total risk-weighted assets. Under the proposed approach, internationally active U.S. banking organizations using the advanced approaches would face capital conservation buffers determined in a manner comparable to those of their foreign competitors. Depending on the difference in risk-weighted assets calculated under the two approaches, capital distributions and bonus restrictions applied to an advanced approaches banking organization could be more or less stringent than if its capital conservation buffer were based on risk-weighted assets as calculated by all banking organizations.
Under Basel III, the countercyclical capital buffer is designed to take into account the macro-financial environment in which banking organizations function and to protect the banking system from the systemic vulnerabilities that may build-up during periods of excessive credit growth, then potentially unwind in a disorderly way that may cause disruptions to financial institutions and ultimately economic activity. As proposed and consistent with Basel III, the countercyclical capital buffer would serve as an extension of the capital conservation buffer.
The agencies propose to apply the countercyclical capital buffer only to advanced approaches banking organizations, because large banking organizations generally are more interconnected with other institutions in the financial system. Therefore, the marginal benefits to financial stability from a countercyclical buffer function should be greater with respect to such institutions. Application of the countercyclical buffer to advanced approaches banking organizations also reflects the fact that making cyclical adjustments to capital requirements is costly for institutions to implement and the marginal costs are higher for smaller institutions.
The countercyclical capital buffer aims to protect the banking system and reduce systemic vulnerabilities in two ways. First, the accumulation of a capital buffer during an expansionary phase could increase the resilience of the banking system to declines in asset prices and consequent losses that may occur when the credit conditions weaken. Specifically, when the credit cycle turns following a period of excessive credit growth, accumulated capital buffers would act to absorb the above-normal losses that a banking organization would likely face. Consequently, even after these losses are realized, banking organizations would remain healthy and able to access funding, meet obligations, and continue to serve as credit intermediaries. Countercyclical capital buffers may also reduce systemic vulnerabilities and protect the banking system by mitigating excessive credit growth and increases in asset prices that are not supported by fundamental factors. By increasing the amount of capital required for further credit extensions, countercyclical capital buffers may limit excessive credit extension.
Consistent with Basel III, the agencies propose a countercyclical capital buffer that would augment the capital conservation buffer under certain circumstances, upon a determination by the agencies.
The countercyclical capital buffer amount in the U.S. would initially be set to zero, but it could increase if the agencies determine that there is excessive credit in the markets, possibly leading to subsequent wide-spread market failures.
To provide banking organizations with time to adjust to any changes, the agencies expect to announce an increase in the countercyclical capital buffer amount up to12 months prior to implementation. If the agencies determine that a more immediate implementation would be necessary based on economic conditions, the agencies may announce implementation of a countercyclical capital buffer in less than 12 months. The agencies would make their determination and announcement in accordance with any applicable legal requirements. The agencies would follow the same procedures in adjusting the countercyclical capital buffer applicable for exposures located in foreign jurisdictions.
A decrease in the countercyclical capital buffer amount would become effective the day following announcement or the earliest date permitted by applicable law or regulation. In addition, the countercyclical capital buffer amount would return to zero percent 12 months after its effective date, unless an agency announces a decision to maintain the adjusted countercyclical capital buffer amount or adjust it again before the expiration of the 12-month period.
In the United States, the countercyclical capital buffer would augment the capital conservation buffer by up to 2.5 percent of a banking organization's total risk-weighted assets. For other jurisdictions, an advanced approaches banking organization would determine its countercyclical capital buffer amount by calculating the weighted average of the countercyclical capital buffer amounts established for the national jurisdictions where the banking organization has private sector credit exposures, as defined below in this section. The contributing weight assigned to a jurisdiction's countercyclical capital buffer amount would be calculated by dividing the total risk-weighted assets for the banking organization's private sector credit exposures located in the jurisdiction by the total risk-weighted assets for all of the banking organization's private sector credit exposures.
As proposed, a private sector credit exposure would be defined as an exposure to a company or an individual that is included in credit risk-weighted assets, not including an exposure to a sovereign, the Bank for International Settlements, the European Central Bank, the European Commission, the International Monetary Fund, a multilateral development bank (MDB), a public sector entity (PSE), or a government sponsored entity (GSE).
The geographic location of a private sector credit exposure (that is not a securitization exposure) would be the national jurisdiction where the borrower is located (that is, where the borrower
Table 4 illustrates how an advanced approaches banking organization would calculate the weighted average countercyclical capital buffer. In the following example, the countercyclical capital buffer established in the various jurisdictions in which the banking organization has private sector credit exposures is reported in column A. Column B contains the banking organization's risk-weighted asset amounts for the private sector credit exposures in each jurisdiction. Column C shows the contributing weight for each countercyclical buffer amount, which is calculated by dividing each of the rows in column B by the total for column B. Column D shows the contributing weight applied to each countercyclical capital buffer amount, calculated as the product of the corresponding contributing weight (column C) and the countercyclical capital buffer set by each jurisdiction's national supervisor (column A). The sum of the rows in column D shows the banking organization's weighted average countercyclical capital buffer, which is 1.4 percent of risk-weighted assets.
A banking organization's maximum payout ratio for purposes of its capital conservation buffer would vary depending on its countercyclical buffer amount. For instance, if its countercyclical capital buffer amount is equal to zero percent of total risk-weighted assets, the banking organization that held only U.S. credit exposures would need to hold a combined capital conservation buffer of at least 2.5 percent to avoid restrictions on its capital distributions and certain discretionary bonus payments. However, if its countercyclical capital buffer amount is equal to 2.5 percent of total risk-weighted assets, the banking organization whose assets consist of only U.S. credit exposures would need to hold a combined capital conservation and countercyclical buffer of at least 5 percent to avoid restrictions on its capital distributions and discretionary bonus payments.
Section 38 of the Federal Deposit Insurance Act directs the federal banking agencies to take prompt corrective action (PCA) to resolve the problems of insured depository institutions at the least cost to the Deposit Insurance Fund.
All insured depository institutions, regardless of total asset size or foreign exposure, are required to compute PCA capital levels using the agencies' general risk-based capital rules, as supplemented by the market risk capital rule. Under this NPR, the agencies are proposing to augment the PCA capital categories by introducing a common equity tier 1 capital measure for four of the five PCA categories (excluding the critically undercapitalized PCA category).
The proposed changes to the current minimum PCA thresholds and the introduction of a new common equity tier 1 capital measure would take effect January 1, 2015. Consistent with transition provisions in Basel III, the proposed amendments to the current PCA leverage measure for advanced approaches depository institutions would take effect on January 1, 2018. In contrast, changes to the definitions of the individual capital components that are used to calculate the relevant capital measures under PCA would coincide with the transition arrangements discussed in section V of the preamble, or with the transition provisions of other capital regulations, as applicable. Thus, the changes to these definitions, including any deductions or modifications to capital, automatically would flow through to the definitions in the PCA framework.
Table 5 sets forth the current risk-based and leverage capital thresholds for each of the PCA capital categories for insured depository institutions.
Table 6 sets forth the proposed risk-based and leverage capital thresholds for each of the PCA capital categories for insured depository institutions that are not advanced approaches banks. For each PCA category except critically undercapitalized, an insured depository institution would be required to meet a minimum common equity tier 1 capital ratio, in addition to a minimum tier 1 risk-based capital ratio, total risk-based capital ratio, and leverage ratio.
To be well capitalized, an insured depository institution would be required to maintain a total risk-based capital ratio equal to or greater than 10 percent; a tier 1 capital ratio equal to or greater than 8 percent; a common equity tier 1 capital ratio equal to or greater than 6.5 percent; and a leverage ratio equal to or greater than 5 percent. An adequately capitalized depository institution would be required to maintain a total risk-based capital ratio equal to or greater than 8 percent; a tier 1 capital ratio equal to or greater than 6 percent; common equity tier 1 capital ratio equal to or greater than 4.5 percent; and a leverage ratio equal to or greater than 4 percent.
An insured depository institution would be considered undercapitalized under the proposal if its total capital ratio were less than 8 percent, or if its tier 1 capital ratio were less than 6 percent, if its common equity tier 1 ratio were less than 4.5 percent, or if its leverage ratio were less than 4 percent. If an institution's tier 1 capital ratio were less than 4 percent, or if its common equity tier 1 ratio were less than 3 percent, it would be considered significantly undercapitalized. The other numerical capital ratio thresholds for being significantly undercapitalized would be unchanged.
Table 7 sets forth the proposed risk-based and leverage thresholds for advanced approaches depository institutions. As indicated in the table, in addition to the PCA requirements and categories described above, the leverage measure for advanced approaches depository institutions in the adequately capitalized and undercapitalized PCA capital categories would include a supplementary leverage ratio based on the Basel III leverage ratio.
As discussed above, the agencies believe that the supplementary leverage ratio is an important measure of an advanced approaches depository institution's ability to support its on-and off-balance sheet exposures, and advanced approaches institutions tend to have significant amounts of off-balance sheet exposures that are not captured by the current leverage ratio. Consistent with other minimum ratio requirements, the agencies propose that the minimum requirement for the supplementary leverage ratio in section 10 of the proposal would be the minimum supplementary leverage ratio a banking organization would need to maintain in order to be adequately capitalized. With respect to the other PCA categories (other than critically undercapitalized), the agencies are proposing ranges of minimum thresholds for comment. The agencies intend to specify the minimum threshold for each of those categories when the proposed PCA requirements are finalized.
Under the proposed PCA framework, for each measure other than the leverage measure, an advanced approaches depository institution would be well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, or critically undercapitalized on the same basis as all other insured depository institutions. An advanced approaches bank would also be subject to the same thresholds with respect to the leverage ratio on the same basis as other insured depository institutions. In addition, with respect to the supplementary leverage ratio, in order to be adequately capitalized, an advanced approaches depository institution would be required to maintain a supplementary leverage ratio of greater than or equal to 3 percent. An advanced approaches depository institution would be undercapitalized if its supplementary leverage ratio were less than 3 percent.
As discussed in section II of this preamble, the current PCA framework permits an insured depository institution that is rated composite 1 under the CAMELS rating system and not experiencing or anticipating significant growth to maintain a 3 percent ratio of tier 1 capital to average total consolidated assets (leverage ratio) rather than the 4.0 percent minimum
The proposal would increase some of the existing PCA capital requirements while maintaining the structure of the current PCA framework. For example, similar to the current PCA requirements, the risk-based capital ratios for well capitalized banking organizations would be two percentage points higher than the ratios for adequately capitalized banking organizations. The tier 1 leverage ratio for well capitalized banking organizations would be one percentage point higher than for adequately capitalized banking organizations. While the PCA levels do not explicitly incorporate the capital conservation buffer, the agencies believe that the PCA and capital conservation buffer frameworks will complement each other to ensure that banking organizations hold an adequate amount of common equity tier 1 capital.
The determination of whether an insured depository institution is critically undercapitalized for PCA purposes is based on its ratio of tangible equity to total assets. This is a statutory requirement within the PCA framework, and the experience of the recent financial crisis has confirmed that tangible equity is of critical importance in assessing the viability of an insured depository institution. Tangible equity for PCA purposes is currently defined as including core capital elements, which consist of (1) Common stock holder's equity, (2) qualifying noncumulative perpetual preferred stock (including related surplus), and (3) minority interest in the equity accounts of consolidated subsidiaries; plus outstanding cumulative preferred perpetual stock; minus all intangible assets except mortgage servicing rights that are included in tier 1 capital. The current PCA definition of tangible equity does not address the treatment of DTAs in determining whether an insured depository institution is critically undercapitalized.
The agencies propose to clarify the calculation of the capital measures for the critically undercapitalized PCA category by revising the definition of tangible equity to consist of tier 1 capital, plus outstanding perpetual preferred stock (including related surplus) not included in tier 1 capital. The revised definition would more appropriately align the calculation of tangible equity with the calculation of tier 1 capital generally for regulatory capital requirements. Assets included in a banking organization's equity account under GAAP, such as DTAs, would be included in tangible equity only to the extent that they are included in tier 1 capital. This modification should promote consistency and provide for clearer boundaries across and between the various PCA categories. In connection with this modification to the definition of tangible equity, the agencies propose to retain the current critically undercapitalized capital category threshold for insured depository institutions of less than 2 percent tangible equity to total assets. Based on the proposed new definition of tier 1 capital, the agencies believe the proposed critically undercapitalized threshold is at least as stringent as the agencies' current approach.
In addition to the changes described in this section, the OCC is proposing the following amendments to 12 CFR part 6 to integrate the rules governing national banks and federal savings associations. Under the proposal, part 6 would be applicable to federal savings associations. The OCC also would make various non-substantive, technical amendments to part 6. In addition, the OCC proposes to rescind the current PCA rules in part 165 governing federal savings associations, with the exception of sections 165.8, Procedures for reclassifying a federal savings association based on criteria other than capital, and 165.9, Order to dismiss a director or senior executive officer; and to make non-substantive, technical amendments to sections 165.8 and 165.9. Any substantive issues regarding sections 165.8 and 165.9 will be addressed as part of a separate integration rulemaking.
Capital helps to ensure that individual banking organizations can continue to serve as credit intermediaries even during times of stress, thereby promoting the safety and soundness of the overall U.S. banking system. The agencies' current capital rules indicate that the capital requirements are minimum standards based on broad credit-risk considerations. The risk-based capital ratios do not explicitly take account of the quality of individual asset portfolios or the range of other types of risk to which banking organizations may be exposed, such as interest-rate, liquidity, market, or operational risks.
A banking organization is generally expected to have internal processes for assessing capital adequacy that reflect a full understanding of its risks and to ensure that it holds capital corresponding to those risks to maintain overall capital adequacy.
In light of these considerations, as a prudential matter, a banking organization is generally expected to operate with capital positions well above the minimum risk-based ratios and to hold capital commensurate with the level and nature of the risks to which it is exposed, which may entail holding capital significantly above the minimum requirement. For example, banking organizations contemplating significant expansion proposals are expected to maintain strong capital levels substantially above the minimum ratios and should not allow significant diminution of financial strength below these strong levels to fund their expansion plans. Banking organizations with high levels of risk are also expected to operate even further above minimum standards. In addition to evaluating the appropriateness of a banking organization's capital level given its overall risk profile, the supervisory assessment takes into account the quality and trends in a banking organization's capital composition, including the share of common and non-common-equity capital elements.
Section 10(d) of the proposal would maintain and reinforce these supervisory expectations by requiring that a banking organization maintain capital commensurate with the level
The supervisory evaluation of a banking organization's capital adequacy, including compliance with section 10(d), may include such factors as whether the banking organization is newly chartered, entering new activities, or introducing new products. The assessment would also consider whether a banking organization is receiving special supervisory attention, has or is expected to have losses resulting in capital inadequacy, has significant exposure due to risks from concentrations in credit or nontraditional activities, or has significant exposure to interest rate risk, operational risk, or could be adversely affected by the activities or condition of a banking organization's holding company.
In addition, a banking organization should have an appropriately rigorous process for assessing its overall capital adequacy in relation to its risk profile and a comprehensive strategy for maintaining an appropriate level of capital, consistent with the longstanding approach employed by the agencies in their supervision of banking organizations. Supervisors also would evaluate the comprehensiveness and effectiveness of a banking organization's capital planning in light of its activities and capital levels. An effective capital planning process would require a banking organization to assess the risks to which it is exposed and its processes for managing and mitigating those risks, evaluate its capital adequacy relative to its risks, and consider potential impact on its earnings and capital base from current and prospective economic conditions.
While the elements of supervisory review of capital adequacy would be similar across banking organizations, evaluation of the level of sophistication of an individual banking organization's capital adequacy process would be commensurate with the banking organization's size, sophistication, and risk profile, similar to the current supervisory practice.
As part of the OCC's overall effort to integrate the regulatory requirements for national banks and federal savings associations, the OCC is proposing to include a tangible capital requirement for Federal savings associations in this NPR.
After reviewing HOLA, the OCC has determined that a unique regulatory definition of tangible capital is not necessary to satisfy the requirement of the statute. Therefore, the OCC is proposing to define “tangible capital” as the amount of tier 1 capital plus the amount of outstanding perpetual preferred stock (including related surplus) not included in tier 1 capital. This definition mirrors the proposed definition of “tangible equity” for PCA purposes.
While OCC recognizes that the terms used are not identical (“capital” as compared to “equity”), the OCC believes that this revised definition of tangible capital would reduce the computational burden on federal savings associations in complying with this statutory mandate, as well as being consistent with both the purposes of HOLA and PCA. Similarly, the FDIC also is proposing to include a tangible capital requirement for state savings associations as part of this proposal.
Under this proposal, a banking organization's common equity tier 1 capital would be the sum of its outstanding common equity tier 1 capital instruments and related surplus (net of treasury stock), retained earnings, accumulated other comprehensive income (AOCI), and common equity tier 1 minority interest subject to the provisions set forth in section 21 of the proposal, minus regulatory adjustments and deductions specified in section 22 of the proposal.
To ensure that a banking organization's common equity tier 1 capital is available to absorb losses as they occur, consistent with Basel III, the agencies propose to require that common equity tier 1 capital instruments issued by a banking organization satisfy the following criteria:
(1) The instrument is paid in, issued directly by the banking organization, and represents the most subordinated claim in a receivership, insolvency, liquidation, or similar proceeding of the banking organization.
(2) The holder of the instrument is entitled to a claim on the residual assets of the banking organization that is proportional with the holder's share of the banking organization's issued capital after all senior claims have been satisfied in a receivership, insolvency, liquidation, or similar proceeding. That is, the holder has an unlimited and variable claim, not a fixed or capped claim.
(3) The instrument has no maturity date, can only be redeemed via discretionary repurchases with the prior approval of the agency, and does not contain any term or feature that creates an incentive to redeem.
(4) The banking organization did not create at issuance of the instrument through any action or communication an expectation that it will buy back, cancel, or redeem the instrument, and the instrument does not include any term or feature that might give rise to such an expectation.
(5) Any cash dividend payments on the instrument are paid out of the banking organization's net income and retained earnings and are not subject to
(6) The banking organization has full discretion at all times to refrain from paying any dividends and making any other capital distributions on the instrument without triggering an event of default, a requirement to make a payment-in-kind, or an imposition of any other restrictions on the banking organization.
(7) Dividend payments and any other capital distributions on the instrument may be paid only after all legal and contractual obligations of the banking organization have been satisfied, including payments due on more senior claims.
(8) The holders of the instrument bear losses as they occur equally, proportionately, and simultaneously with the holders of all other common stock instruments before any losses are borne by holders of claims on the banking organization with greater priority in a receivership, insolvency, liquidation, or similar proceeding.
(9) The paid-in amount is classified as equity under GAAP.
(10) The banking organization, or an entity that the banking organization controls, did not purchase or directly or indirectly fund the purchase of the instrument.
(11) The instrument is not secured, not covered by a guarantee of the banking organization or of an affiliate of the banking organization, and is not subject to any other arrangement that legally or economically enhances the seniority of the instrument.
(12) The instrument has been issued in accordance with applicable laws and regulations. In most cases, the agencies, understand that the issuance of these instruments would require the approval of the board of directors of the banking organization or, where applicable, of the banking organization's shareholders or of other persons duly authorized by the banking organization's shareholders.
(13) The instrument is reported on the banking organization's regulatory financial statements separately from other capital instruments.
These proposed criteria have been designed to ensure that common equity tier 1 capital instruments do not possess features that would cause a banking organization's condition to further weaken during periods of economic and market stress. For example, the proposed requirement that a banking organization have full discretion on the amount and timing of distributions and dividend payments would enhance the ability of the banking organization to absorb losses during periods of stress. The agencies believe that most existing common stock instruments previously issued by U.S. banking organizations fully satisfy the proposed criteria.
The criteria would also apply to instruments issued by banking organizations where ownership of the company is neither freely transferable, nor evidenced by certificates of ownership or stock, such as mutual banking organizations. For these entities, instruments that would be considered common equity tier 1 capital would be those that are fully equivalent to common stock instruments in terms of their subordination and availability to absorb losses, and that do not possess features that could cause the condition of the company to weaken as a going concern during periods of market stress.
The agencies believe that stockholders' voting rights generally are a valuable corporate governance tool that permits parties with an economic interest at stake to take part in the decision-making process through votes on establishing corporate objectives and policy, and in electing the banking organization's board of directors. For that reason, the agencies continue to expect under the proposal that voting common stockholders' equity (net of the adjustments to and deductions from common equity tier 1 capital proposed under the rule) should be the dominant element within common equity tier 1 capital. To the extent that a banking organization issues non-voting common shares or common shares with limited voting rights, such shares should be identical to the banking organization's voting common shares in all respects except for any limitations on voting rights.
Under the agencies' general risk-based capital rules, unrealized gains and losses on AFS debt securities are not included in regulatory capital, unrealized losses on AFS equity securities are included in tier 1 capital, and unrealized gains on AFS equity securities are partially included in tier 2 capital.
The agencies believe this proposed treatment would better reflect an institution's actual risk. In particular, while unrealized gains and losses on AFS securities might be temporary in nature and might reverse over a longer time horizon, (especially when they are primarily attributable to changes in a benchmark interest rate), unrealized losses could materially affect a banking organization's capital position at a particular point in time and associated risks should be reflected in its capital ratios. In addition, the proposed treatment would be consistent with the common market practice of evaluating a firm's capital strength by measuring its tangible common equity.
Accordingly, the agencies propose to require unrealized gains and losses on all AFS securities to flow through to common equity tier 1 capital. However, the agencies recognize that including unrealized gains and losses related to certain debt securities whose valuations primarily change as a result of fluctuations in a benchmark interest rate could introduce substantial volatility in a banking organization's regulatory capital ratios. The potential increased volatility could significantly change a banking organization's risk-based capital ratios, in some cases, due primarily to fluctuations in a benchmark interest rate and could result in a change in the banking organization's PCA category. Likewise, the agencies recognize that such volatility could discourage some banking organizations from holding highly liquid instruments with very low levels of credit risk even where prudent for liquidity risk management.
The agencies seek comment on alternatives to the proposed treatment of unrealized gains and losses on AFS securities, including an approach where the unrealized gains and losses related to debt securities whose valuations primarily change as a result of fluctuations in a benchmark interest rate would be excluded from a banking organization's regulatory capital. In particular, the agencies seek comment on an approach that would not include in regulatory capital unrealized gains and losses on U.S. government and agency debt obligations, U.S. GSE debt obligations and other sovereign debt obligations that would qualify for a zero
Consistent with Basel III, under the proposal, additional tier 1 capital would be the sum of: Additional tier 1 capital instruments that satisfy certain criteria, related surplus, and tier 1 minority interest that is not included in a banking organization's common equity tier 1 capital (subject to the limitations on minority interests set forth in section 21 of the proposal); less applicable regulatory adjustments and deductions. Under the agencies' existing capital rules, non-cumulative perpetual preferred stock, which currently qualifies as tier 1 capital, generally would continue to qualify as additional tier 1 capital under the proposal. The proposed criteria for qualifying additional tier 1 capital instruments, consistent with Basel III criteria, are:
(1) The instrument is issued and paid in.
(2) The instrument is subordinated to depositors, general creditors, and subordinated debt holders of the banking organization in a receivership, insolvency, liquidation, or similar proceeding.
(3) The instrument is not secured, not covered by a guarantee of the banking organization or of an affiliate of the banking organization, and not subject to any other arrangement that legally or economically enhances the seniority of the instrument.
(4) The instrument has no maturity date and does not contain a dividend step-up or any other term or feature that creates an incentive to redeem.
(5) If callable by its terms, the instrument may be called by the banking organization only after a minimum of five years following issuance, except that the terms of the instrument may allow it to be called earlier than five years upon the occurrence of a regulatory event (as defined in the agreement governing the instrument) that precludes the instrument from being included in additional tier 1 capital or a tax event. In addition:
(i) The banking organization must receive prior approval from the agency to exercise a call option on the instrument.
(ii) The banking organization does not create at issuance of the instrument, through any action or communication, an expectation that the call option will be exercised.
(iii) Prior to exercising the call option, or immediately thereafter, the banking organization must either:
(A) Replace the instrument to be called with an equal amount of instruments that meet the criteria under section 20(b) or (c) of the proposal (replacement can be concurrent with redemption of existing additional tier 1 capital instruments); or
(B) Demonstrate to the satisfaction of the agency that following redemption, the banking organization will continue to hold capital commensurate with its risk.
(6) Redemption or repurchase of the instrument requires prior approval from the agency.
(7) The banking organization has full discretion at all times to cancel dividends or other capital distributions on the instrument without triggering an event of default, a requirement to make a payment-in-kind, or an imposition of other restrictions on the banking organization except in relation to any capital distributions to holders of common stock.
(8) Any capital distributions on the instrument are paid out of the banking organization's net income and retained earnings.
(9) The instrument does not have a credit-sensitive feature, such as a dividend rate that is reset periodically based in whole or in part on the banking organization's credit quality, but may have a dividend rate that is adjusted periodically independent of the banking organization's credit quality, in relation to general market interest rates or similar adjustments.
(10) The paid-in amount is classified as equity under GAAP.
(11) The banking organization, or an entity that the banking organization controls, did not purchase or directly or indirectly fund the purchase of the instrument.
(12) The instrument does not have any features that would limit or discourage additional issuance of capital by the banking organization, such as provisions that require the banking organization to compensate holders of the instrument if a new instrument is issued at a lower price during a specified time frame.
(13) If the instrument is not issued directly by the banking organization or by a subsidiary of the banking organization that is an operating entity, the only asset of the issuing entity is its investment in the capital of the banking organization, and proceeds must be immediately available without limitation to the banking organization or to the banking organization's top-tier holding company in a form which meets or exceeds all of the other criteria for additional tier 1 capital instruments.
(14) For an advanced approaches banking organization, the governing agreement, offering circular, or prospectus of an instrument issued after January 1, 2013 must disclose that the holders of the instrument may be fully subordinated to interests held by the U.S. government in the event that the banking organization enters into a receivership, insolvency, liquidation, or similar proceeding.
The proposed criteria are designed to ensure that additional tier 1 capital instruments are available to absorb losses on a going concern basis. Trust preferred securities and cumulative perpetual preferred securities, which are eligible for limited inclusion in tier 1 capital under the general risk-based capital rules for bank holding companies, would generally not qualify for inclusion in additional tier 1
The agencies recognize that instruments classified as liabilities for accounting purposes could potentially be included in additional tier 1 capital under Basel III. However, as proposed, an instrument classified as a liability under GAAP would not qualify as additional tier 1 capital. The agencies believe that allowing only the inclusion of instruments classified as equity under GAAP in tier 1 capital would help strengthen the loss-absorption capabilities of additional tier 1 capital instruments, further increasing the quality of the capital base of U.S. banking organizations.
The agencies are also proposing to allow banking organizations to include in additional tier 1 capital instruments that were (1) issued under the Small Business Jobs Act of 2010 or, prior to October 4, 2010, under the Emergency Economic Stabilization Act of 2008, and (2) included in tier 1 capital under the agencies' current general risk-based capital rules.
Some banking organizations may want or need to limit their capital distributions during a particular payout period, but may opt to pay a penny dividend instead of fully cancelling dividends to common shareholders because certain institutional investors only hold stocks that pay a dividend. The agencies believe that the payment of a penny dividend on common stock should not preclude a banking organization from canceling (or making marginal) dividend payments on additional tier 1 capital instruments. The agencies are therefore considering a revision to criterion (7) of additional tier 1 capital instruments that would require a banking organization to have the ability to cancel or substantially reduce dividend payments on additional tier 1 capital instruments during a period of time when the banking organization is paying a penny dividend to its common shareholders.
The agencies believe that such a requirement could substantially increase the loss-absorption capacity of additional tier 1 capital instruments. To maintain the hierarchy of the capital structure under these circumstances, banking organizations would have the ability to pay the holders of additional tier 1 capital instruments the equivalent of what they pay out to common shareholders.
Under the proposal, tier 2 capital would be the sum of: Tier 2 capital instruments that satisfy certain criteria, related surplus, total capital minority interests not included in a banking organization's tier 1 capital (subject to the limitations and requirements on minority interests set forth in section 21 of the proposal), and limited amounts of the allowance for loan and lease losses (ALLL); less any applicable regulatory adjustments and deductions. Consistent with the general risk-based capital rules, when calculating its standardized total capital ratio, a banking organization would be able to include in tier 2 capital the amount of ALLL that does not exceed 1.25 percent of its total standardized risk-weighted assets not including any amount of the ALLL (a banking organization subject to the market risk capital rules would exclude its standardized market risk-weighted assets from the calculation).
When calculating its advanced approaches total capital ratio, rather than including in tier 2 capital the amount of ALLL described previously, an advanced approaches banking organization may include the excess of eligible credit reserves over its total expected credit losses (ECL) to the extent that such amount does not exceed 0.6 percent of its total credit risk weighted-assets.
The proposed criteria for tier 2 capital instruments, consistent with Basel III, are:
(1) The instrument is issued and paid in.
(2) The instrument is subordinated to depositors and general creditors of the banking organization.
(3) The instrument is not secured, not covered by a guarantee of the banking organization or of an affiliate of the banking organization, and not subject to any other arrangement that legally or economically enhances the seniority of the instrument in relation to more senior claims.
(4) The instrument has a minimum original maturity of at least five years. At the beginning of each of the last five years of the life of the instrument, the amount that is eligible to be included in tier 2 capital is reduced by 20 percent of the original amount of the instrument (net of redemptions) and is excluded from regulatory capital when remaining maturity is less than one year. In addition, the instrument must not have any terms or features that require, or create significant incentives for, the banking organization to redeem the instrument prior to maturity.
(5) The instrument, by its terms, may be called by the banking organization only after a minimum of five years following issuance, except that the terms of the instrument may allow it to be called sooner upon the occurrence of an event that would preclude the instrument from being included in tier 2 capital, or a tax event. In addition:
(i) The banking organization must receive the prior approval of the agency to exercise a call option on the instrument.
(ii) The banking organization does not create at issuance, through action or communication, an expectation the call option will be exercised.
(iii) Prior to exercising the call option, or immediately thereafter, the banking organization must either:
(A) Replace any amount called with an equivalent amount of an instrument that meets the criteria for regulatory capital under this section,
(B) Demonstrate to the satisfaction of the agency that following redemption, the banking organization would continue to hold an amount of capital that is commensurate with its risk.
(6) The holder of the instrument must have no contractual right to accelerate payment of principal or interest on the instrument, except in the event of a receivership, insolvency, liquidation, or similar proceeding of the banking organization.
(7) The instrument has no credit-sensitive feature, such as a dividend or interest rate that is reset periodically based in whole or in part on the banking organization's credit standing, but may have a dividend rate that is adjusted periodically independent of the banking organization's credit standing, in relation to general market interest rates or similar adjustments.
(8) The banking organization, or an entity that the banking organization controls, has not purchased and has not directly or indirectly funded the purchase of the instrument.
(9) If the instrument is not issued directly by the banking organization or by a subsidiary of the banking organization that is an operating entity, the only asset of the issuing entity is its investment in the capital of the banking organization, and proceeds must be immediately available without limitation to the banking organization or the banking organization's top-tier holding company in a form that meets or exceeds all the other criteria for tier 2 capital instruments under this section.
(10) Redemption of the instrument prior to maturity or repurchase requires the prior approval of the agency.
(11) For an advanced approaches banking organization, the governing agreement, offering circular, or prospectus of an instrument issued after January 1, 2013 must disclose that the holders of the instrument may be fully subordinated to interests held by the U.S. government in the event that the banking organization enters into a receivership, insolvency, liquidation, or similar proceeding.
As explained previously, under the proposed eligibility criteria for additional tier 1 capital instruments, trust preferred securities and cumulative perpetual preferred securities would not qualify for inclusion in additional tier 1 capital. However, many of these instruments could qualify for inclusion in tier 2 capital under the proposed eligibility criteria for tier 2 capital instruments.
Given that as proposed, unrealized gains and losses on AFS securities would flow through to common equity tier 1 capital, the agencies propose to eliminate the inclusion of a portion of certain unrealized gains on AFS equity securities in tier 2 capital.
As a result of the proposed new minimum common equity tier 1 capital requirement, higher tier 1 capital requirement, and the broader goal of simplifying the definition of tier 2 capital, the agencies are proposing to eliminate some existing limits related to tier 2 capital. Specifically, there would be no limit on the amount of tier 2 capital that could be included in a banking organization's total capital. Likewise, existing limitations on term subordinated debt, limited-life preferred stock and trust preferred securities within tier 2 would also be eliminated.
For the reasons explained previously with respect to tier 1 capital instruments, the agencies propose to allow an instrument that qualified as tier 2 capital under the general risk-based capital rules and that was issued under the Small Business Jobs Act of 2010 or, prior to October 4, 2010, under the Emergency Economic Stabilization Act of 2008, to continue to be includable in tier 2 capital regardless of whether it meets all of the proposed qualifying criteria.
Most of the capital of mutual banking organizations is generally in the form of retained earnings (including retained earnings surplus accounts) and the agencies believe that mutual banking organizations generally should be able to meet the proposed regulatory capital requirements.
Consistent with Basel III, the proposed criteria for regulatory capital instruments would potentially permit the inclusion in regulatory capital of certain capital instruments issued by mutual banking organizations (for example, non-withdrawable accounts, pledged deposits, or mutual capital certificates), provided that the instruments meet all the proposed eligibility criteria of the relevant capital component.
However, some previously-issued mutual capital instruments that were includable in the regulatory capital of mutual banking organizations may not meet all of the relevant criteria for capital instruments under the proposal. For example, instruments that are liabilities or that are cumulative would not meet the criteria for additional tier 1 capital instruments. However, these instruments would be subject to the proposed transition provisions and excluded from capital over time.
Under Basel III, capital investments in a banking organization made before September 12, 2010 by the government where the banking organization is domiciled are grandfathered until January 1, 2018. However, as described above with respect to qualifying criteria for tier 1 and tier 2 instruments, the agencies are proposing a different grandfathering treatment for the capital investments by the U.S. government, consistent with the Dodd-Frank Act.
As discussed above, as proposed, capital investments by the U.S.
The agencies expect that most existing common stock instruments that banking organizations currently include in tier 1 capital would meet the proposed eligibility criteria for common equity tier 1 capital instruments. In addition, the agencies expect that most existing non-cumulative perpetual preferred stock instruments that banking organizations currently include in tier 1 capital and most existing subordinated debt instruments they include in tier 2 capital would meet the proposed eligibility criteria for additional tier 1 and tier 2 capital instruments, respectively. However, the agencies recognize that over time, capital instruments that are equivalent in quality and loss-absorption capacity to existing instruments may be created to satisfy different market needs and are proposing to consider the eligibility of such instruments on a case-by-case basis.
Accordingly, the agencies propose to require a banking organization request approval from its primary federal supervisor before it may include a capital element in regulatory capital, unless:
(i) Such capital element is currently included in regulatory capital under the agencies' general risk-based capital and leverage rules and the underlying instrument complies with the applicable proposed eligibility criteria for regulatory capital instruments; or
(ii) The capital element is equivalent in terms of capital quality and loss-absorption capabilities to an element described in a previous decision made publicly available by the banking organization's primary federal supervisor.
The agency that is considering a request to include a new capital element in regulatory capital would consult with the other agencies when determining whether the element should be included in common equity tier 1, additional tier 1, or tier 2 capital. Once an agency determines that a capital element may be included in a banking organization's common equity tier 1, additional tier 1, or tier 2 capital, the agency would make its decision publicly available, including a brief description of the element and the rationale for the conclusion.
During the recent financial crisis, in the United States and other countries, governments lent to, and made capital investments in, distressed banking organizations. These investments helped to stabilize the recipient banking organizations and the financial sector as a whole. However, because of the investments, the recipient banking organizations' existing tier 2 capital instruments, and (in some cases) tier 1 capital instruments, did not absorb the banking organizations' credit losses consistent with the purpose of regulatory capital. At the same time, taxpayers became exposed to those losses.
On January 13, 2011, the BCBS issued international standards for all additional tier 1 and tier 2 capital instruments issued by internationally active banking organizations, to ensure that such regulatory capital instruments fully absorb losses before taxpayers are exposed to such losses (Basel non-viability standard). Under the Basel non-viability standard, all non-common stock regulatory capital instruments issued by an internationally active banking organization must include terms that subject the instruments to write-off or conversion to common equity at the point that either (1) the write-off or conversion of those instruments occurs or (2) a government (or public sector) injection of capital would be necessary to keep the banking organization solvent. Alternatively, if the governing jurisdiction of the banking organization has established laws that require such tier 1 and tier 2 capital instruments to be written off or otherwise fully absorb losses before tax payers are exposed to loss, the standard is already met. If the governing jurisdiction has such laws in place, the Basel non-viability standard states that documentation for such instruments should disclose that information to investors and market participants, and should clarify that the holders of such instruments would fully absorb losses before taxpayers are exposed to loss.
The agencies believe that U.S. law generally is consistent with the Basel non-viability standard. The resolution regime established in Title 2, section 210 of the Dodd-Frank Act provides the FDIC with the authority necessary to place failing financial companies that pose a significant risk to the financial stability of the United States into receivership.
Furthermore, consistent with the Basel non-viability standard, under the proposal, additional tier 1 and tier 2 capital instruments issued by advanced approaches banking organizations after the proposed requirements for capital instruments are finalized would be required to include a disclosure that the holders of the instrument may be fully subordinated to interests held by the U.S. government in the event that the banking organization enters into receivership, insolvency, liquidation, or similar proceeding.
Investments by third parties in a consolidated subsidiary of a banking organization may significantly improve the overall capital adequacy of that subsidiary. However, as became apparent during the financial crisis, while capital issued by consolidated subsidiaries and not owned by the
Under the proposal, a banking organization would be allowed to include in its consolidated capital limited amounts of minority interests, if certain requirements are met. Minority interest would be classified as a common equity tier 1, tier 1, or total capital minority interest depending on the underlying capital instrument and on the type of subsidiary issuing such instrument. Any instrument issued by the consolidated subsidiary to third parties would need to meet the relevant eligibility criteria under section 20 of the proposal in order for the resulting minority interest to be included in the banking organization's common equity tier 1, additional tier 1 or tier 2 capital elements, as appropriate. In addition, common equity tier 1 minority interest would need to be issued by a depository institution or foreign bank that is a consolidated subsidiary of a banking organization.
The limits on the amount of minority interest that may be included in the consolidated capital of a banking organization would be based on the amount of capital held by the consolidated subsidiary, relative to the amount of capital the subsidiary would have to hold in order to avoid any restrictions on capital distributions and discretionary bonus payments under the capital conservation buffer framework, as provided in section 11 of the proposal.
For example, if a subsidiary needs to maintain a common equity tier 1 capital ratio of more than 7 percent to avoid limitations on capital distributions and discretionary bonus payments, and the subsidiary's common equity tier 1 capital ratio is 8 percent, the subsidiary would be considered to have “surplus” common equity tier 1 capital and, at the consolidated level, the banking organization would not be able to include the portion of such surplus common equity tier 1 capital held by third party investors.
The steps for determining the amount of minority interest includable in a banking organization's regulatory capital are described in this section below and are illustrated in a numerical example that follows. For example, the amount of common equity tier 1 minority interest includable in the common equity tier 1 capital of a banking organization under the proposal would be: the common equity tier 1 minority interest of the subsidiary minus the ratio of the subsidiary's common equity tier 1 capital owned by third parties to the total common equity tier 1 capital of the subsidiary, multiplied by the difference between the common equity tier 1 capital of the subsidiary and the lower of: (1) The amount of common equity tier 1 capital the subsidiary must hold to avoid restrictions on capital distributions and discretionary bonus payments, or (2) the total risk-weighted assets of the banking organization that relate to the subsidiary, multiplied by the common equity tier 1 capital ratio needed by the banking organization subsidiary to avoid restrictions on capital distributions and discretionary bonus payments. If the subsidiary were not subject to the same minimum regulatory capital requirements or capital conservation buffer framework of the banking organization, the banking organization would need to assume, for purposes of the calculation described above, that the subsidiary is subject to the minimum capital requirements and to the capital conservation buffer framework of the banking organization.
To determine the amount of tier 1 minority interest includable in the tier 1 capital of the banking organization and the total capital minority interest includable in the total capital of the banking organization, a banking organization would follow the same methodology as the one outlined previously for common equity tier 1 minority interest. Section 21 of the proposal sets forth the precise calculations. The amount of tier 1 minority interest that can be included in the additional tier 1 capital of the banking organization is equivalent to the banking organization's tier 1 minority interest, subject to the limitations outlined above, less any tier 1 minority interest that is included in the banking organization's common equity tier 1 capital. Likewise, the amount of total capital minority interest that can be included in the tier 2 capital of the banking organization is equivalent to its total capital minority interest, subject to the limitations outlined previously, less any tier 1 minority interest that is included in the banking organization's tier 1 capital.
As proposed, minority interest related to qualifying common or noncumulative perpetual preferred stock directly issued by a consolidated U.S. depository institution or foreign bank subsidiary, which are eligible for inclusion in tier 1 capital under the general risk-based capital rules without limitation, would generally qualify for inclusion in common equity tier 1 and additional tier 1 capital, respectively, subject to the appropriate limits under section 21 of the proposed rule. Likewise, under the proposed rule, minority interest related to qualifying cumulative perpetual preferred stock directly issued by a consolidated U.S. depository institution or foreign bank subsidiary, which are eligible for limited inclusion in tier 1 capital under the general risk-based capital rules, would generally not qualify for inclusion in additional tier 1 capital under the proposal.
For purposes of the example in table 8, assume a consolidated depository institution subsidiary has common equity tier 1, additional tier 1 and tier 2 capital of $80, $30, and $20, respectively, and third parties own 30 percent of the common equity tier 1 capital ($24), 50 percent of the additional tier 1 capital ($15) and 75 percent of the tier 2 capital ($15). If the subsidiary has $1000 of total risk-weighted assets, the sum of its minimum common equity tier 1 capital requirement (4.5 percent) plus the capital conservation buffer (2.5 percent) (assuming a countercyclical capital buffer amount of zero) is 7 percent ($70), the sum of its minimum tier 1 capital requirement (6.0 percent) plus the capital conservation buffer (2.5 percent) is 8.5 percent ($85), and the sum of its minimum total capital requirement (8 percent) plus the capital conservation buffer (2.5 percent) is 10.5 percent ($105).
In this example, the surplus common equity tier 1 capital of the subsidiary equals $10 ($80 − $70), the amount of the surplus common equity tier 1 minority interest is equal to $3 ($10*$24/$80), and therefore the amount of common equity tier 1 minority interest that may be included at the consolidated level is equal to $21 ($24 − $3).
The surplus tier 1 capital of the subsidiary is equal to $25 ($110 − $85), the amount of the surplus tier 1 minority interest is equal to $8.9 ($25*$39/$110), and therefore the amount of tier 1 minority interest that may be included in the banking organization is equal to $30.1 ($39 − $8.9). Since the banking organization already includes $21 of common equity tier 1 minority interest in its common equity tier 1 capital, it would include $9.1 ($30.1 − $21) of such tier 1 minority interest in its additional tier 1 capital.
The surplus total capital of the subsidiary is equal to $25 ($130 − $105), the amount of the surplus total capital minority interest is equal to $10.4 ($25*$54/$130), and therefore the amount of total capital minority interest that may be included in the banking organization is equal to $43.6 ($54 − $10.4). Since the banking organization already includes $30.1 of tier 1 minority interest in its tier 1 capital, it would include $13.5 ($43.6 − $30.1) of such total capital minority interest in its tier 2 capital.
Question 26: The agencies solicit comments on the proposed qualitative restrictions and quantitative limits for including minority interest in regulatory capital. What is the potential impact of these restrictions and limitations on the issuance of certain types of capital instruments (for example, subordinated debt) by depository institution subsidiaries of banking organizations? Please provide data to support your answer.
A Real Estate Investment Trust (REIT) is a company that is required to invest in real estate and real estate-related assets and make certain distributions in order to maintain a tax-advantaged status. Some banking organizations have consolidated subsidiaries that are REITs, and such REITs may have issued capital instruments to be included in the regulatory capital of the consolidated banking organization as minority interest.
Under the agencies' general risk-based capital rules, preferred shares issued by a REIT subsidiary generally may be included in a banking organization's tier 1 capital as minority interest if the preferred shares meet the eligibility requirements for tier 1 capital.
Under the proposed rule, the limitations described previously on the inclusion of minority interest in regulatory capital would apply to capital instruments issued by consolidated REIT subsidiaries. Specifically, REIT preferred shares issued by a REIT subsidiary that meets the proposed definition of an operating entity would qualify for inclusion in the regulatory capital of a banking organization subject to the limitations outlined in section 21 of the proposed rule only if the REIT preferred shares meet the criteria for additional tier 1 or tier 2 capital instruments outlined in section 20 of the proposed rule. Under the proposal, an operating entity is a subsidiary of the banking organization set up to conduct business with clients with the intention of earning a profit in its own right.
Because a REIT must distribute 90 percent of its earnings in order to maintain its beneficial tax status, a banking organization might be reluctant to cancel dividends on the REIT preferred shares. However, for a capital instrument to qualify as additional tier 1 capital, which must be available to absorb losses, the issuer must have the ability to cancel dividends. In cases where a REIT could maintain its tax status by declaring a consent dividend and has the ability to do so, the agencies generally would consider REIT preferred shares to satisfy criterion (7) of the proposed eligibility criteria for additional tier 1 capital instruments under the proposed rule.
Question 27: The agencies are seeking comment on the proposed treatment of REIT preferred capital. Specifically, how would the proposed minority interest limitations and interpretation of criterion (7) of the proposed eligibility criteria for additional tier 1 capital instruments affect the future issuance of REIT preferred capital instruments?
The proposed rule would require a banking organization to make the deductions described in this section from the sum of its common equity tier 1 capital elements. Amounts deducted would be excluded from the banking organization's risk-weighted assets and leverage exposure.
Goodwill and other intangible assets have long been either fully or partially excluded from regulatory capital in the U.S. because of the high level of uncertainty regarding the ability of the banking organization to realize value from these assets, especially under adverse financial conditions.
Accordingly, under the proposal, goodwill and other intangible assets other than MSAs (for example, purchased credit card relationships (PCCRs) and non-mortgage servicing assets), net of associated deferred tax liabilities (DTLs), would be deducted from common equity tier 1 capital elements. Goodwill for purposes of this deduction would include any goodwill embedded in the valuation of significant investments in the capital of an unconsolidated financial institution in the form of common stock. Such deduction of embedded goodwill would apply to investments accounted for under the equity method. Under GAAP, if there is a difference between the initial cost basis of the investment and the amount of underlying equity in the net assets of the investee, the resulting difference should be accounted for as if the investee were a consolidated subsidiary (which may include imputed goodwill). Consistent with Basel III, these deductions would be taken from common equity tier 1 capital. Although MSAs are also intangibles, they are subject to a different treatment under Basel III and the proposal, as explained in this section.
As proposed, consistent with Basel III, a banking organization would deduct DTAs that arise from operating loss and tax credit carryforwards net of any related valuation allowances (and net of DTLs calculated as outlined in section 22(e) of the proposal) from common equity tier 1 capital elements because of the high degree of uncertainty regarding the ability of the banking organization to realize value from such DTAs.
DTAs arising from temporary differences that the banking organization could not realize through net operating loss carrybacks net of any related valuation allowances and net of DTLs calculated as outlined in section 22(e) of the proposal (for example, DTAs resulting from the banking organization's ALLL), would be subject to strict limitations described in section 22(d) of the proposal because of concerns regarding a banking organization's ability to realize such DTAs.
DTAs arising from temporary differences that the banking organization could realize through net operating loss carrybacks are not subject to deduction, and instead receive a 100 percent risk weight. For a banking organization that is a member of a consolidated group for tax purposes, the amount of DTAs that could be realized through net operating loss carrybacks may not exceed the amount that the banking organization could reasonably expect to have refunded by its parent holding company.
A banking organization would deduct from common equity tier 1 capital elements any after-tax gain-on-sale associated with a securitization exposure. Under this proposal, gain-on-sale means an increase in the equity capital of a banking organization resulting from the consummation or issuance of a securitization (other than an increase in equity capital resulting from the banking organization's receipt of cash in connection with the securitization).
As proposed, defined benefit pension fund liabilities included on the balance sheet of a banking organization would be fully recognized in common equity tier 1 capital (that is, common equity tier 1 capital cannot be increased via the de-recognition of these liabilities). However, under the proposal, defined benefit pension fund assets (defined as excess assets of the pension fund that are reported on the banking organization's balance sheet due to its overfunded status), net of any associated DTLs, would be deducted in the calculation of common equity tier 1 capital given the high level of uncertainty regarding the ability of the banking organization to realize value from such assets.
Consistent with Basel III, under the proposal, with supervisory approval, a banking organization would not be required to deduct a defined benefit fund assets to which the banking organization has unrestricted and unfettered access. In this case, the banking organization would assign to such assets the risk weight they would receive if they were directly owned by the banking organization. Under the proposal, unrestricted and unfettered access would mean that a banking organization is not required to request and receive specific approval from pension beneficiaries each time it would access excess funds in the plan.
The FDIC has unfettered access to the excess assets of an insured depository institution's pension plan in the event of receivership. Therefore, the agencies have determined that generally an insured depository institution would not be required to deduct any assets associated with a defined benefit pension plan from common equity tier 1 capital. Similarly, a holding company would not need to deduct any assets associated with a subsidiary insured depository institution's defined benefit pension plan from capital.
As part of the OCC's overall effort to integrate the regulatory requirements for national banks and federal savings associations, the OCC is proposing to incorporate in the proposal a deduction requirement specifically applicable to federal savings association subsidiaries that engage in activities impermissible for national banks. Similarly, the FDIC is proposing to incorporate in the proposal a deduction requirement specifically applicable to state savings association subsidiaries that engage in activities impermissible for national banks. Section 5(t)(5)
The OCC is proposing to carry over the general regulatory treatment of includable subsidiaries, with some technical modifications, by adding a new paragraph to section 22(a) of the proposal. The OCC notes that such treatment is consistent with how a national bank deducts its equity investments in financial subsidiaries. Under this proposal, investments (both debt and equity) by a federal savings association in a subsidiary that is not an “includable subsidiary” are required to be deducted (with certain exceptions) from the common equity tier 1 capital of the federal savings association. Among other things, includable subsidiary is defined as a subsidiary of a federal savings association that engages solely in activities not impermissible for a national bank. Aside from a few technical modifications, this proposal is intended to carry over the current general regulatory treatment of includable subsidiaries for federal savings associations into the proposal.
Consistent with Basel III, the agencies are proposing that unrealized gains and losses on cash flow hedges that relate to the hedging of items that are not recognized at fair value on the balance sheet (including projected cash flows) be excluded from regulatory capital. That is, if the banking organization has an unrealized-net-cash-flow-hedge gain, it would deduct it from common equity tier 1 capital, and if it has an unrealized-net-cash-flow-hedge loss it would add it back to common equity tier 1 capital, net of applicable tax effects. That is, if the amount of the cash flow hedge is positive, a banking organization would deduct such amount from common equity tier 1 capital elements, and if the amount is negative, a banking organization would add such amount to common equity tier 1 capital elements.
This proposed regulatory adjustment would reduce the artificial volatility that can arise in a situation where the unrealized gain or loss of the cash flow hedge is included in regulatory capital but any change in the fair value of the hedged item is not. However, the agencies recognize that in a regulatory capital framework where unrealized gains and losses on AFS securities flow through to common equity tier 1 capital, the exclusion of unrealized cash flow hedge gains and losses might have an adverse effect on banking organizations that manage their interest rate risk by using cash flow hedges to hedge items that are not recognized on the balance sheet at fair value (for example, floating rate liabilities) and that are used to fund the banking organizations' AFS investment portfolios. In this scenario, a banking organization's regulatory capital could be adversely affected by fluctuations in a benchmark interest rate even if the banking organization's interest rate risk is effectively hedged because its unrealized gains and losses on the AFS securities would flow through to regulatory capital while its unrealized gains and losses on the cash flow hedges would not, resulting in a regulatory capital asymmetry.
The agencies believe that it would be inappropriate to allow banking organizations to increase their capital ratios as a result of a deterioration in their own creditworthiness, and are therefore proposing, consistent with Basel III, that banking organizations not be allowed to include in regulatory capital any change in the fair value of a liability that is due to changes in their own creditworthiness. Therefore, a banking organization would be required to deduct any unrealized gain from and add back any unrealized loss to common equity tier 1 capital elements due to changes in a banking organization's own creditworthiness. An advanced approaches banking organization would deduct from common equity tier 1 capital elements any unrealized gains associated with derivative liabilities resulting from the widening of a banking organization's credit spread premium over the risk free rate.
To avoid the double-counting of regulatory capital, under the proposal a banking organization would be required to deduct the amount of its investments in its own capital instruments, whether held directly or indirectly, to the extent such investments are not already derecognized from regulatory capital. Specifically, a banking organization would deduct its investment in its own common equity tier 1, own additional tier 1 and own tier 2 capital instruments from the sum of its common equity tier 1, additional tier 1, and tier 2 capital elements, respectively. In addition, any common equity tier 1, additional tier 1 or tier 2 capital instrument issued by a banking organization which the banking organization could be contractually obliged to purchase would also be deducted from its common equity tier 1, additional tier 1 or tier 2 capital elements, respectively. If a banking organization already deducts its investment in its own shares (for example, treasury stock) from its common equity tier 1 capital elements, it does not need to make such deduction twice.
A banking organization would be required to look through its holdings of index securities to deduct investments in its own capital instruments. Gross long positions in investments in its own regulatory capital instruments resulting from holdings of index securities may be netted against short positions in the same underlying index. Short positions in indexes that are hedging long cash or synthetic positions may be decomposed to recognize the hedge. More specifically, the portion of the index that is composed of the same underlying exposure that is being hedged may be used to offset the long position only if both the exposure being hedged and the short position in the index are positions
Consistent with Basel III, the proposal would require banking organizations to deduct investments in the capital of unconsolidated financial institutions where those investments exceed certain thresholds, as described further below. These deduction requirements are one of the measures included in Basel III designed to address systemic risk arising out of interconnectedness between banking organizations.
Under the proposal, “financial institution” would mean bank holding companies, savings and loan holding companies, non-bank financial institutions supervised by the Board under Title I of the Dodd-Frank Act, depository institutions, foreign banks, credit unions, insurance companies, securities firms, commodity pools (as defined in the Commodity Exchange Act), covered funds under section 619 of the Dodd-Frank Act (and regulations issued thereunder), benefit plans, and other companies predominantly engaged in certain financial activities, as set forth in the proposal. See the definition of “financial institution” in section 2 of the proposed rules.
The proposed definition is designed to include entities whose primary business is financial activities and therefore could contribute to risk in the financial system, including entities whose primary business is banking, insurance, investing, and trading, or a combination thereof. The proposed definition is also designed to align with similar definitions and concepts included in other rulemakings, including those funds that are covered by the restrictions of section 13 of the Bank Holding Company Act. The proposed definition also includes a standard for “predominantly engaged” in financial activities similar to the standard from the Board's proposed rule to define “predominantly engaged in financial activities” for purposes of Title I of the Dodd-Frank Act.
The proposal incorporates the Basel III corresponding deduction approach for the deductions from regulatory capital related to reciprocal cross holdings, non-significant investments in the capital of unconsolidated financial institutions, and non-common stock significant investments in the capital of unconsolidated financial institutions. Under this approach a banking organization would be required to make any such deductions from the same component of capital for which the underlying instrument would qualify if it were issued by the banking organization itself. If a banking organization does not have a sufficient amount of a specific regulatory capital component to effect the deduction, the shortfall would be deducted from the next higher (that is, more subordinated) regulatory capital component. For example, if a banking organization does not have enough additional tier 1 capital to satisfy the required deduction from additional tier 1 capital, the shortfall would be deducted from common equity tier 1 capital.
If the banking organization invests in an instrument issued by a non-regulated financial institution, the banking organization would treat the instrument as common equity tier 1 capital if the instrument is common stock (or if it is otherwise the most subordinated form of capital of the financial institution) and as additional tier 1 capital if the instrument is subordinated to all creditors of the financial institution except common shareholders. If the investment is in the form of an instrument issued by a regulated financial institution and the instrument does not meet the criteria for any of the regulatory capital components for banking organizations, the banking organization would treat the instrument as (1) Common equity tier 1 capital if the instrument is common stock included in GAAP equity or represents the most subordinated claim in liquidation of the financial institution; (2) additional tier 1 capital if the instrument is GAAP equity and is subordinated to all creditors of the financial institution and is only senior in liquidation to common shareholders; and (3) tier 2 capital if the instrument is not GAAP equity but it is considered regulatory capital by the primary regulator of the financial institution.
A reciprocal cross holding results from a formal or informal arrangement between two financial institutions to swap, exchange, or otherwise intend to hold each other's capital instruments. The use of reciprocal cross holdings of capital instruments to artificially inflate the capital positions of each of the banking organizations involved would undermine the purpose of regulatory capital, potentially affecting the stability of such banking organizations as well as the financial system.
Under the agencies' general risk-based capital rules, reciprocal holdings of capital instruments of banking organizations are deducted from regulatory capital. Consistent with Basel III, the proposal would require a banking organization to deduct reciprocal holdings of capital instruments of other financial institutions, where these investments are made with the intention of artificially inflating the capital positions of the banking organizations involved. The deductions would be made by using the corresponding deduction approach.
Under the proposal, the exposure amount of an investment in the capital of an unconsolidated financial institution would refer to a net long position in an instrument that is recognized as capital for regulatory purposes by the primary supervisor of an unconsolidated regulated financial institution or in an instrument that is part of the GAAP equity of an unconsolidated unregulated financial
The net long position would be the gross long position in the exposure (including covered positions under the market risk capital rules) net of short positions in the same exposure where the maturity of the short position either matches the maturity of the long position or has a residual maturity of at least one year. The long and short positions in the same index without a maturity date would be considered to have matching maturities. For covered positions under the market risk capital rules, if a banking organization has a contractual right or obligation to sell a long position at a specific point in time, and the counterparty in the contract has an obligation to purchase the long position if the banking organization exercises its right to sell, this point in time may be treated as the maturity of the long position. Therefore, if these conditions are met, the maturity of the long position and the short position would be deemed to be matched even if the maturity of the short position is less than one year.
Gross long positions in investments in the capital instruments of unconsolidated financial institutions resulting from holdings of index securities may be netted against short positions in the same underlying index. However, short positions in indexes that are hedging long cash or synthetic positions may be decomposed to recognize the hedge. More specifically, the portion of the index that is composed of the same underlying exposure that is being hedged may be used to offset the long position as long as both the exposure being hedged and the short position in the index are positions subject to the market risk rule, the positions are fair valued on the banking organization's balance sheet, and the hedge is deemed effective by the banking organization's internal control processes assessed by the primary supervisor of the banking organization. Also, instead of looking through and monitoring its exact exposure to the capital of other financial institutions included in an index security, a banking organization may be permitted, with the prior approval of its primary federal supervisor, to use a conservative estimate of the amount of its investments in the capital instruments of other financial institutions through the index security.
An indirect exposure would result from the banking organization's investment in an unconsolidated entity that has an exposure to a capital instrument of a financial institution. A synthetic exposure results from the banking organization's investment in an instrument where the value of such instrument is linked to the value of a capital instrument of a financial institution. Examples of indirect and synthetic exposures would include: (1) An investment in the capital of an unconsolidated entity that has an investment in the capital of an unconsolidated financial institution; (2) a total return swap on a capital instrument of another financial institution; (3) a guarantee or credit protection, provided to a third party, related to the third party's investment in the capital of another financial institution; (4) a purchased call option or a written put option on the capital instrument of another financial institution; and (5) a forward purchase agreement on the capital of another financial institution.
Investments, including indirect and synthetic exposures, in the capital of unconsolidated financial institutions would be subject to the corresponding deduction approach if they surpass certain thresholds described below. With the prior written approval of the primary federal supervisor, for the period of time stipulated by the supervisor, a banking organization would not be required to deduct investments in the capital of unconsolidated financial institutions described in this section if the investment is made in connection with the banking organization providing financial support to a financial institution in distress. Likewise, a banking organization that is an underwriter of a failed underwriting can request approval from its primary federal supervisor to exclude underwriting positions related to such failed underwriting for a longer period of time.
Under the proposal, non-significant investments in the capital of unconsolidated financial institutions would be investments where a banking organization owns 10 percent or less of the issued and outstanding common shares of an unconsolidated financial institution.
Under the proposal, if the aggregate amount of a banking organization's non-significant investments in the capital of unconsolidated financial institutions exceeds 10 percent of the sum of the banking organization's common equity tier 1 capital elements, minus certain applicable deductions and other regulatory adjustments to common equity tier 1 capital (the 10 percent threshold for non-significant investments), the banking organization would have to deduct the amount of the non-significant investments that are above the 10 percent threshold for non-significant investments, applying the corresponding deduction approach.
The amount to be deducted from a specific capital component would be equal to the amount of a banking organization's non-significant investments in the capital of unconsolidated financial institutions exceeding the 10 percent threshold for non-significant investments multiplied by the ratio of (1) the amount of non-significant investments in the capital of
For example, if a banking organization has a total of $200 in non-significant investments in the capital of unconsolidated financial institutions (of which 50 percent is in the form of common stock, 30 percent is in the form of an additional tier 1 capital instrument, and 20 percent is in the form of tier 2 capital subordinated debt) and $100 of these investments exceed the 10 percent threshold for non-significant investments, the banking organization would need to deduct $50 from its common equity tier 1 capital elements, $30 from its additional tier 1 capital elements and $20 from its tier 2 capital elements.
Under the proposal, a significant investment of a banking organization in the capital of an unconsolidated financial institution would be an investment where the banking organization owns more than 10 percent of the issued and outstanding common shares of the unconsolidated financial institution. Significant investments in the capital of unconsolidated financial institutions that are not in the form of common stock would be deducted applying the corresponding deduction approach described previously. Significant investments in the capital of unconsolidated financial institutions that are in the form of common stock would be subject to the common equity deduction threshold approach described in section III.B.4 of this preamble.
Section 121 of the Graham-Leach-Bliley Act (GLBA) allows national banks and insured state banks to establish entities known as financial subsidiaries.
Under the NPR, investments by a national bank or insured state bank in financial subsidiaries would be deducted entirely from the bank's common equity tier 1 capital.
Under the proposal, a banking organization would deduct from the sum of its common equity tier 1 capital elements the amount of each of the following items that individually exceeds the 10 percent common equity tier 1 capital deduction threshold described below: (1) DTAs arising from temporary differences that could not be realized through net operating loss carrybacks (net of any related valuation allowances and net of DTLs, as described in section 22(e) of the proposal); (2) MSAs net of associated DTLs; and (3) significant investments in the capital of financial institutions in the form of common stock (referred to herein as items subject to the threshold deductions).
A banking organization would calculate the 10 percent common equity tier 1 capital deduction threshold by taking 10 percent of the sum of a banking organization's common equity tier 1 elements, less adjustments to, and deductions from common equity tier 1 capital required under sections 22(a) through (c) of the proposal.
As mentioned above, banking organizations would deduct from common equity tier 1 capital elements any goodwill embedded in the valuation of significant investments in the capital of unconsolidated financial institutions in the form of common stock. Therefore, a banking organization would be allowed to net such embedded goodwill against the exposure amount of such significant investment. For example, if a banking organization has deducted $10 of goodwill embedded in a $100 significant investment in the capital of an unconsolidated financial institution in the form of common stock, the banking organization would be allowed to net such embedded goodwill against the exposure amount of such significant investment (that is, the value of the investment would be $90 for purposes of the calculation of the amount that would be subject to deduction under this part of the proposal).
In addition, the aggregate amount of the items subject to the threshold deductions that are not deducted as a result of the 10 percent common equity tier 1 capital deduction threshold described above would not be permitted to exceed 15 percent of a banking organization's common equity tier 1 capital, as calculated after applying all regulatory adjustments and deductions required under the proposal (the 15 percent common equity tier 1 capital deduction threshold). That is, a banking organization would be required to deduct the amounts of the items subject to the threshold deductions that exceed 17.65 percent (the proportion of 15 percent to 85 percent) of common equity tier 1 capital elements, less all regulatory adjustments and deductions required for the calculation of the 10 percent common equity tier 1 capital deduction threshold mentioned above, and less the items subject to the 10 and 15 percent common equity tier 1 capital
Under section 475 of the Federal Deposit Insurance Corporation Improvement Act of 1991 (12 U.S.C. 1828 note), the amount of readily marketable MSAs that a banking organization may include in regulatory capital cannot be valued at more than 90 percent of their fair market value
Under the proposal, the netting of DTLs against assets (other than DTAs) that are subject to deduction under section 22 of the proposal would be permitted provided the DTL is associated with the asset and the DTL would be extinguished if the associated asset becomes impaired or is derecognized under GAAP. Likewise, banking organizations would be prohibited from using the same DTL for netting purposes more than once. This practice would be generally consistent with the approach that the agencies currently take with respect to the netting of DTLs against goodwill.
With respect to the netting of DTLs against DTAs, the amount of DTAs that arise from operating loss and tax credit carryforwards, net of any related valuation allowances, and the amount of DTAs arising from temporary differences that the banking organization could not realize through net operating loss carrybacks, net of any related valuation allowances, would be allowed to be netted against DTLs if the following conditions are met. First, only the DTAs and DTLs that relate to taxes levied by the same taxation authority and that are eligible for offsetting by that authority would be offset for purposes of this deduction. And second, the amount of DTLs that the banking organization would be able to net against DTAs that arise from operating loss and tax credit carryforwards, net of any related valuation allowances, and against DTAs arising from temporary differences that the banking organization could not realize through net operating loss carrybacks, net of any related valuation allowances, would be allocated in proportion to the amount of DTAs that arise from operating loss and tax credit carryforwards (net of any related valuation allowances, but before any offsetting of DTLs) and of DTAs arising from temporary differences that the banking organization could not realize through net operating loss carrybacks (net of any related valuation allowances, but before any offsetting of DTLs), respectively.
Section 619 of the Dodd-Frank Act (the Volcker Rule) contains a number of restrictions and other prudential requirements applicable to any “banking entity”
Section 13(d)(3) of the Bank Holding Company Act, as added by the Volcker Rule, provides that the agencies “shall * * * adopt rules imposing additional capital requirements and quantitative limitations, including diversification requirements, regarding activities permitted under the Volcker Rule if the appropriate Federal banking agencies, the Securities and Exchange Commission, and the Commodity Future Trading Commission determine that additional capital and quantitative limitations are appropriate to protect the safety and soundness of banking entities engaged in such activities.”
The Volcker Rule also added section 13(d)(4)(B)(iii) to the Bank Holding Company Act, which pertains to ownership interests in a hedge fund or private equity fund organized and offered by a banking entity (or an affiliate or subsidiary thereof) and provides, “For the purposes of determining compliance with the applicable capital standards under paragraph (3), the aggregate amount of the outstanding investments by a banking entity under this paragraph, including retained earnings, shall be deducted from the assets and tangible equity of the banking entity, and the amount of the deduction shall increase commensurate with the leverage of the hedge fund or private equity fund.”
In October 2011, the agencies and the SEC issued a proposal to implement the Volcker Rule (the Volcker Rule proposal).
Under the Volcker Rule proposal, a banking organization subject to the Volcker Rule
The agencies believe that this proposed capital requirement, as it applies to banking organizations, should be considered within the context of the agencies' entire regulatory capital framework, so that its potential interaction with all other regulatory capital requirements is assessed fully. The agencies intend to avoid prescribing overlapping regulatory capital requirements for the same exposures. Therefore, once the regulatory capital requirements prescribed by the Volcker Rule are finalized, the Federal banking agencies expect to amend the regulatory capital treatment for investments in the capital of an unconsolidated financial institution—currently set forth in section 22 of the proposal—to include the deduction that would be required under the Volcker Rule. Exposures subject to that deduction would not also be subject to the capital requirements for investments in the capital of an unconsolidated financial institution nor would they be considered for the purpose of determining the relevant thresholds for the deductions from regulatory capital required for investments in the capital of an unconsolidated financial institution.
Consistent with Basel III, for purposes of calculating total risk-weighted assets, the proposal would require a banking organization to assign a 250 percent risk weight to (1) MSAs, (2) DTAs arising from temporary differences that a banking organization could not realize through net operating loss carrybacks (net of any related valuation allowances and net of DTLs, as described in section 22(e) of the proposal), and (3) significant investments in the capital of unconsolidated financial institutions in the form of common stock that are not deducted from tier 1 capital pursuant to section 22 of the proposal.
Basel III also requires banking organizations to apply a 1,250 percent risk weight to certain exposures that are deducted from total capital under the general risk-based capital rules. Accordingly, for purposes of calculating total risk-weighted assets, the proposal would require a banking organization to apply a 1,250 percent risk weight to the portion of a credit-enhancing interest-only strips that does not constitute an after-tax-gain-on-sale. A banking organization would not be required to deduct such exposures from regulatory capital.
The main goal of the transition provisions is to give banking organizations sufficient time to adjust to the proposal while minimizing the potential impact that implementation could have on their ability to lend. The proposed transition provisions have been designed to ensure compliance with the Dodd-Frank Act. As a result, they could, in certain circumstances, be more stringent than the transitional arrangements proposed in Basel III.
The transition provisions would apply to the following areas: (1) The minimum regulatory capital ratios; (2) the capital conservation and countercyclical capital buffers; (3) the regulatory capital adjustments and deductions; and (4) non-qualifying capital instruments. In the Standardized Approach NPR, the agencies are proposing changes to the calculation of risk-weighted assets that would be effective January 1, 2015, with an option to early adopt.
The transition period for the minimum common equity tier 1 and tier 1 capital ratios is from January 1, 2013 to December 31, 2014 as set forth below.
The minimum common equity tier 1 and tier 1 capital ratios, as well as the minimum total capital ratio, will be calculated during the transition period using the definitions for the respective capital components in section 20 of the proposed rule and using the proposed transition provisions for the regulatory adjustments and deductions and for the non-qualifying capital instruments described in this section.
As explained in more detail in section 11 of the proposed rule, a banking organization's applicable capital conservation buffer would be the lowest of the following three ratios: the banking organization's common equity tier 1, tier 1 and total capital ratio less its minimum common equity tier 1, tier 1 and total capital ratio requirement, respectively. Table 10 shows the regulatory capital levels banking organizations would generally need to meet during the transition period to avoid becoming subject to limitations on capital distributions and discretionary bonus payments from January 1, 2016 until January 1, 2019.
Banking organizations would not be subject to the capital conservation and the countercyclical capital buffer until January 1, 2016. From January 1, 2016 through December 31, 2018, banking organizations would be subject to transitional arrangements with respect to the capital conservation and countercyclical capital buffers as outlined in more detail in table 11.
As illustrated in table 11, from January 1, 2016 through December 31, 2016, a banking organization would be able to make capital distributions and discretionary bonus payments without limitation under this section as long as it maintains a capital conservation buffer greater than 0.625 percent (plus for an advanced approaches banking organization, any applicable countercyclical capital buffer amount). From January 1, 2017 through December 31, 2017, a banking organization would be able to make capital distributions and discretionary bonus payments without limitation under this section as long as it maintains a capital conservation buffer greater than 1.25 percent (plus for an advanced approaches banking organization, any applicable countercyclical capital buffer amount). From January 1, 2018 through December 31, 2018, a banking organization would be able to make capital distributions and discretionary bonus payments without limitation under this section as long as it maintains a capital conservation buffer greater than 1.875 percent (plus for an advanced approaches banking organization, any applicable countercyclical capital buffer amount). From January 1, 2019 onward, a banking organization would be able to make capital distributions and discretionary bonus payments without limitation under this section as long as it maintains a capital conservation buffer greater than 2.5 percent (plus for an advanced approaches banking organization, 100 percent of the applicable countercyclical capital buffer amount).
For example, if a banking organization's capital conservation buffer is 1.0 percent (for example, its common equity tier 1 capital ratio is 5.5 percent or its tier 1 capital ratio is 7.0 percent) as of December 31, 2017, the banking organization's maximum payout ratio during the first quarter of 2018 would be 60 percent. If a banking organization has a capital conservation buffer of 0.25 percent as of December 31, 2017, the banking organization would not be allowed to make capital distributions and discretionary bonus payments during the first quarter of 2018 under the proposed transition provisions. If a banking organization has a capital conservation buffer of 1.5 percent as of December 31, 2017, it would not have any restrictions under this section on the amount of capital distributions and discretionary bonus payments during the first quarter of 2018.
If applicable, the countercyclical capital buffer would be phased-in according to the transition schedule described in table 11 by proportionately expanding each of the quartiles in the table by the countercyclical capital buffer amount. The maximum countercyclical capital buffer amount would be 0.625 percent on January 1, 2016 and would increase each subsequent year by an additional 0.625
Banking organizations are currently subject to a series of deductions from and adjustments to regulatory capital, most of which apply at the tier 1 capital level, including deductions for goodwill, MSAs, certain DTAs, and adjustments for net unrealized gains and losses on AFS securities and for accumulated net gains and losses on cash flow hedges and defined benefit pension obligations. Under section 22 of the proposed rule, banking organizations would become subject to a series of deductions and adjustments, the bulk of which will be applied at the common equity tier 1 capital level. In order to give sufficient time to banking organizations to adapt to the new regulatory capital adjustments and deductions, the proposed rule incorporates transition provisions for such adjustments and deductions. From January 1, 2013 through December 31, 2017, a banking organization would be required to make the regulatory capital adjustments to and deductions from regulatory capital in section 22 of the proposed rule in accordance with the proposed transition provisions for such adjustments and deductions outlined below. Starting on January 1, 2018, banking organizations would apply all regulatory capital adjustments and deductions as outlined in section 22 of the proposed rule.
From January 1, 2013 through December 31, 2017, a banking organization would deduct from common equity tier 1 or from tier 1 capital elements goodwill (section 22(a)(1)), DTAs that arise from operating loss and tax credit carryforwards (section 22(a)(3)), gain-on-sale associated with a securitization exposure (section 22(a)(4)), defined benefit pension fund assets (section 22(a)(5)), and expected credit loss that exceeds eligible credit reserves for the case of banking organizations subject to subpart E of the proposed rule (section 22(a)(6)), in accordance with table 12 below. During this period, any of these items that are not deducted from common equity tier 1 capital, are deducted from tier 1 capital instead.
In accordance with table 12, starting in 2013, banking organizations would be required to deduct the full amount of goodwill (net of any associated DTLs), including any goodwill embedded in the valuation of significant investments in the capital of unconsolidated financial institutions, from common equity tier 1 capital elements. This approach is stricter than that under Basel III, which transitions the goodwill deduction from common equity tier 1 capital in line with the rest of the deductible items. Under U.S. law, goodwill cannot be included in a banking organization's regulatory capital. Additionally, the agencies believe that fully deducting goodwill from common equity tier 1 capital elements starting on January 1, 2013 would result in a more meaningful common equity tier 1 capital ratio from a supervisory and market perspective.
For example, from January 1, 2014 through December 31, 2014, a banking organization would deduct 100 percent of goodwill from common equity tier 1 capital elements. However, during that same period, only 20 percent of the aggregate amount of DTAs that arise from operating loss and tax credit carryforwards, gain-on-sale associated with a securitization exposure, defined benefit pension fund assets, and expected credit loss that exceeds eligible credit reserves (for a banking organization subject to subpart E of the proposed rule), would be deducted from common equity tier 1 capital elements while 80 percent of such aggregate amount would be deducted from tier 1 capital elements. Starting on January 1, 2018, 100 percent of the items in section 22(a) of the proposed rule would be fully deducted from common equity tier 1 capital elements.
For intangibles other than goodwill and MSAs, including PCCRs (section 22(a)(2) of the proposal), the transition arrangement is outlined in table 13. During this transition period, any of these items that are not deducted would be subject to a risk weight of 100 percent.
For example, from January 1, 2014 through December 31, 2014, 20 percent of the aggregate amount of the deductions that would be required under section 22(a)(2) of the proposed rule for intangibles other than goodwill and MSAs would be applied to common equity tier 1 capital, while any such intangibles that are not deducted from capital during the transition period would be risk-weighted at 100 percent.
From January 1, 2013 through December 31, 2017, banking organizations would apply the regulatory adjustments under section 22(b)(2) of the proposed rule related to changes in the fair value of liabilities due to changes in the banking organization's own credit risk to common equity tier 1 or tier 1 capital in accordance with table 14. During this period, any of the adjustments related to this item that are not applied to common equity tier 1 capital are applied to tier 1 capital instead.
For example, from January 1, 2013 through December 31, 2013, no regulatory adjustments to common equity tier 1 capital related to changes in the fair value of liabilities due to changes in the banking organization's own credit risk would be applied to common equity tier 1 capital, but 100 percent of such adjustments would be applied to tier 1 capital (that is, if the aggregate amount of these adjustments is positive, 100 percent would be deducted from tier 1 capital elements and if such aggregate amount is negative, 100 percent would be added back to tier 1 capital elements). Likewise, from January 1, 2014 through December 31, 2014, 20 percent of the aggregate amount of the regulatory adjustments to common equity tier 1 capital related to this item would be applied to common equity tier 1 capital and 80 percent would be applied to tier 1 capital. Starting on January 1, 2018, 100 percent of the regulatory capital adjustments related to changes in the fair value of liabilities due to changes in the banking organization's own credit risk would be applied to common equity tier 1 capital.
Until December 31, 2017, the aggregate amount of net unrealized gains and losses on AFS debt securities, accumulated net gains and losses related to defined benefit pension obligations, unrealized gains on AFS equity securities, and accumulated net gains and losses on cash flow hedges related to items that are reported on the balance sheet at fair value included in AOCI (transition AOCI adjustment amount) is treated as set forth in table 15 below. Specifically, if a banking organization's transition AOCI adjustment amount is positive, it would need to adjust its common equity tier 1 capital by deducting the appropriate percentage of such aggregate amount in accordance with table 15 below and if such amount is negative, it would need to adjust its common equity tier 1 capital by adding back the appropriate percentage of such aggregate amount in accordance with table 15 below.
For example, if during calendar year 2013 a banking organization's transition AOCI adjustment amount is positive 100 percent would be deducted from common equity tier 1 capital elements and if such aggregate amount is negative 100 percent would be added back to common equity tier 1 capital elements. Starting on January 1, 2018, there would be no adjustment for net unrealized gains and losses on AFS securities or for accumulated net gains and losses on cash flow hedges related to items that are reported on the balance sheet at fair value included in AOCI.
A banking organization would gradually decrease the amount of unrealized gains on AFS equity securities it currently holds in tier 2 capital during the transition period in accordance with table 16.
For example, during calendar year 2014, banking organizations would include up to 36 percent (80 percent of 45 percent) of unrealized gains on AFS equity securities in tier 2 capital; during calendar years 2015, 2016, 2017, and 2018 (and thereafter) these percentages would go down to 27, 18, 9 and zero, respectively.
From January 1, 2013 through December 31, 2017, a banking organization would calculate the appropriate deductions under sections 22(c) and 22(d) of the proposed rule related to investments in capital instruments and to the items subject to the 10 and 15 percent common equity tier 1 capital deduction thresholds (that is, MSAs, DTAs arising from temporary differences that the banking organization could not realize through net operating loss carrybacks, and significant investments in the capital of unconsolidated financial institutions in the form of common stock) as set forth in table 17. Specifically, during such transition period, the banking organization would make the percentage of the aggregate common equity tier 1 capital deductions related to these items in accordance with the percentages outlined in table 17 and would apply a 100 percent risk-weight to the aggregate amount of such items that are not deducted under this section. Beginning on January 1, 2018, a banking organization would be required to apply a 250 percent risk-weight to the aggregate amount of the items subject to the 10 and 15 percent common equity tier 1 capital deduction thresholds that are not deducted from common equity tier 1 capital.
However, banking organizations would not be subject to the methodology to calculate the 15 percent common equity deduction threshold for DTAs arising from temporary differences that the banking organization could not realize through net operating loss carrybacks, MSAs, and significant investments in the capital of unconsolidated financial institutions in the form of common stock described in section 22(d) of the proposed rule from January 1, 2013 through December 31, 2017. During this transition period, a banking organization would be required to deduct from its common equity tier 1 capital elements a specified percentage of the amount by which the aggregate sum of the items subject to the 10 and 15 percent common equity tier 1 capital deduction thresholds exceeds 15 percent of the sum of the banking organization's common equity tier 1 capital elements after making the deductions required under sections 22(a) through (c) of the proposed rule. These deductions include goodwill, intangibles other than goodwill and MSAs, DTAs that arise from operating loss and tax credit carryforwards cash flow hedges associated with items that are not fair valued, excess ECLs (for advanced approaches banking organizations), gains-on-sale on certain securitization exposures, defined benefit pension fund net assets for banks that are not insured by the FDIC, and reciprocal cross holdings, gains (or adding back losses) due to changes in own credit risk on fair valued financial liabilities, and after applying the
Notwithstanding the transition provisions for the items under sections 22(c) and 22(d) of the proposed rule described above, if the amount of MSAs a banking organization deducts after the application of the appropriate thresholds is less than 10 percent of the fair value of its MSAs, the banking organization must deduct an additional amount of MSAs so that the total amount of MSAs deducted is at least 10 percent of the fair value of its MSAs.
Beginning January 1, 2018, the aggregate amount of the items subject to the 10 and 15 percent common equity tier 1 capital deduction thresholds would not be permitted to exceed 15 percent of the banking organization's common equity tier 1 capital after all deductions. That is, as of January 1, 2018, the banking organization would be required to deduct, from common equity tier 1 capital elements the items subject to the 10 and 15 percent common equity tier 1 capital deduction thresholds that exceed 17.65 percent of common equity tier 1 capital elements less the regulatory adjustments and deductions mentioned in the previous paragraph and less the aggregate amount of the items subject to the 10 and 15 percent common equity tier 1 capital deduction thresholds in full.
For example, during calendar year 2014, 20 percent of the aggregate amount of the deductions required for the items subject to the 10 and 15 percent common equity tier 1 capital deduction thresholds would be applied to common equity tier 1 capital, while any such items not deducted would be risk weighted at 100 percent. Starting on January 1, 2018, 100 percent of the appropriate aggregate deductions described in sections 22(c) and 22(d) of the proposed rule would be fully applied, while any of the items subject to the 10 and 15 percent common equity tier 1 capital deduction thresholds that are not deducted would be risk weighted at 250 percent.
The following example illustrates the potential impact from regulatory capital adjustments and deductions on the common equity tier 1 capital ratios of a banking organization. As outlined in table 18, the banking organization in this example has common equity tier 1 capital elements (before any deductions) and total risk weighted assets of $200 and $1000 respectively, and also has goodwill, DTAs that arise from operating loss and tax credit carryforwards, non-significant investments in the capital of unconsolidated financial institutions, DTAs arising from temporary differences that could not be realized through net operating loss carrybacks, MSAs, and significant investments in the capital of unconsolidated financial institutions in the form of common stock of $40, $30, $10, $30, $20, and $10, respectively. For simplicity, this example only focuses on common equity tier 1 capital and assumes that the risk weight applied to all assets is 100 percent (the only exception being the 250 percent risk weight applied in 2018 to the “items subject to an aggregate 15% threshold”).
Table 19 below illustrates the process to calculate the deductions while showing the potential impact of the deductions on the common equity tier 1 capital ratio of the banking organization during the transition period.
To establish the starting point (or “base case”) for the deductions, the banking organization calculates the fully phased-in deductions, except in the case of the 15 percent deduction threshold, which is calculated during the transition period as described above. Common equity tier 1 capital elements, after the deduction of items that are not subject to the threshold deductions are $160, $154, $148, $142, and $136, and $130 as of January 1, 2013, January 1, 2014, January 1, 2015, January 1, 2016, January 1, 2017, and January 1, 2018, respectively. In this particular example, these numbers are obtained after fully deducting goodwill, and after deducting the base case deduction for DTAs that arise from operating loss and tax credit carryforwards multiplied by the appropriate percentage under the transition arrangement for deductions outlined in table 12 of this section. That is, after deducting from common equity tier 1 capital elements 100 percent of goodwill and 20 percent of the base case deduction for DTAs that arise from operating loss and tax credit carryforwards during 2014, 40 percent during 2015, 60 percent during 2016, 80 percent during 2017, and 100 percent during 2018).
After applying the required deduction as a result of the 10 and 15 percent common equity tier 1 deduction thresholds outlined in table 17 of this section and after making the additional $2 deduction of MSAs during 2013 as a result of the MSA minimum statutory deduction (that is, 10 percent of the fair value of the MSAs), the common equity tier 1 capital elements would be $158, $146, $132, $118, $104, and $82 as of January 1, 2013, January 1, 2014, January 1, 2015, January 1, 2016, January 1, 2017, and January 1, 2018, respectively. After adjusting the total risk weighted assets measure as a result of the numerator deductions, the common equity tier 1 capital ratios would be 17.0 percent, 15.8 percent, 14.4 percent, 13.0 percent, 11.5 percent and 9.1 percent as of January 1, 2013, January 1, 2014, January 1, 2015, January 1, 2016, January 1, 2017, and January 1, 2018, respectively. Any DTAs arising from temporary differences that could not be realized through net operating loss carrybacks, MSAs, or significant investments in the capital of unconsolidated financial institutions in the form of common stock that are not deducted from common equity tier 1 capital elements as a result of the transitional arrangements would be risk weighted at 100 percent during the transition period and would be risk weighted at 250 percent starting on 2018.
Under the NPR, non-qualifying capital instruments, including instruments that are part of minority interest, would be phased out from regulatory capital depending on the size of the issuing banking organization and the type of capital instrument involved. Under the proposed rule, and in line with the requirements under the Dodd-Frank Act, instruments like cumulative perpetual preferred stock and trust preferred securities, which bank holding companies have historically included (subject to limits) in tier 1 capital under the “restricted core capital elements” bucket generally would not comply with either the eligibility criteria for additional tier 1 capital instruments outlined in section 20 of the proposed rule or the general risk-based capital rules for depository institutions and therefore would be phased out from tier 1 capital as outlined in more detail below. However, these instruments would generally be included without limits in tier 2 capital if they meet the eligibility criteria for tier 2 capital instruments outlined in section 20 of the proposed rule.
Under section 171 of the Dodd-Frank Act, depository institution holding companies with total consolidated assets greater than or equal to $15 billion as of December 31, 2009 (depository institution holding companies of $15 billion or more) would be required to phase out their non-qualifying capital instruments as set forth in table 20 below. In the case of depository institution holding companies of $15 billion or more, non-qualifying capital instruments are debt or equity instruments issued before May 19, 2010, that do not meet the criteria in section 20 of the proposed rule and were included in tier 1 or tier 2 capital as of May 19, 2010. Table 20 would apply separately to additional tier 1 and tier 2 non-qualifying capital instruments but the amount of non-qualifying capital instruments that would be excluded from additional tier 1 capital under this section would be included in tier 2
Accordingly, under the proposed rule a depository institution holding company of $15 billion or more would be allowed to include only 75 percent of non-qualifying capital instruments in regulatory capital as of January 1, 2013, 50 percent as of January 1, 2014, 25 percent as of January 1, 2015, and zero percent as of January 1, 2016 and thereafter.
Under the proposed rule, non-qualifying capital instruments of depository institutions and of depository institution holding companies under $15 billion and 2010 MHCs (issued before September 12, 2010), that were outstanding as of January 1, 2013 would be included in capital up to the percentage of the outstanding principal amount of such non-qualifying capital instruments as of December 31, 2013 indicated in table 21. Table 21 applies separately to additional tier 1 and tier 2 non-qualifying capital instruments but the amount of non-qualifying capital instruments that would be excluded from additional tier 1 capital under this section would be included in the tier 2 capital, provided the instruments meet the eligibility criteria for tier 2 capital instruments under section 20 of the proposed rule.
For example, a banking organization that issued a tier 1 non-qualifying capital instrument in August 2010 would be able to count 90 percent of the notional outstanding amount of the instrument as of January 1, 2013 during calendar year 2013 and 80 percent during calendar year 2014. As of January 1, 2022, no tier 1 non-qualifying capital instruments would be recognized in tier 1 capital.
From January 1, 2013 through December 31, 2018, a banking organization would be allowed to include in regulatory capital a portion of the common equity tier 1, tier 1, or total capital minority interest that would be disqualified from regulatory capital as a result of the requirements and limitations outlined in section 21 (surplus minority interest). If a banking organization has surplus minority interest outstanding as of January 1, 2013, such surplus minority interest would be subject to the phase-out schedule outlined in table 22. For example, if a banking organization has $10 of surplus common equity tier 1 minority interest as of January 1, 2013, it would be allowed to include all such
In addition, under the Standardized Approach NPR, beginning on January 1, 2015, a banking organization would be required to calculate risk-weighted assets using the proposed new approaches described in that NPR. The Standardized Approach NPR proposes that until then, the banking organization may calculate risk-weighted assets using the current methodologies unless it decides to early adopt the proposed changes. Notwithstanding the transition provisions in the Standardized Approach NPR, the banking organization would be subject to the transition provisions described in this Basel III NPR.
The agencies are proposing to apply the supplementary leverage ratio beginning in 2018. However, beginning on January 1, 2015, advanced approaches banking organizations would be required to calculate and report the supplementary leverage ratio using the proposed definition of tier 1 capital and total exposure measure.
In addition to the changes described above, the OCC is proposing to redesignate subpart C, Establishment of Minimum Capital Ratios for an Individual Bank, subpart D, Enforcement, and subpart E, Issuance of a Directive, as subparts H, I, and J, respectively. The OCC is also proposing to redesignate section 3.100, Capital and Surplus, as subpart K, Capital and Surplus. The OCC is carrying over redesignated subpart K, which includes definitions of the terms “capital” and “surplus” and related definitions that are used for determining statutory limits applicable to national banks that are based on capital and surplus. The agencies have systematically adopted a definition of capital and surplus that is based on tier 1 and tier 2 capital. The OCC believes that the definitions in redesignated subpart K may no longer be necessary and is considering whether to delete these definitions in the final rule. Finally, as part of the integration of the rules governing national banks and federal savings associations, the OCC proposes to make part 3 applicable to federal savings associations, make other non-substantive, technical amendments, and rescind part 167, Capital.
In the final rule, the OCC may need to make additional technical and conforming amendments to other OCC rules, such as § 5.46, subordinated debt, which contains cross references to Part 3 that we propose to change pursuant to this rule. Cross references to appendices A, B, or C will also need to be amended because we propose to replace those appendices with subparts A through H.
The Regulatory Flexibility Act, 5 U.S.C. 601
The agencies are separately publishing initial regulatory flexibility analyses for the proposals as set forth in this NPR.
As discussed previously in the Supplementary Information, the Board is proposing in this NPR to revise its capital requirements to promote safe and sound banking practices, implement Basel III, and codify its capital requirements. The proposals also satisfy certain requirements under the Dodd-Frank Act by imposing new or revised minimum capital requirements on certain depository institution holding companies.
Under regulations issued by the Small Business Administration,
The proposal would not apply to small bank holding companies that are not engaged in significant nonbanking activities, do not conduct significant off-balance sheet activities, and do not have a material amount of debt or equity securities outstanding that are registered with the SEC. These small bank holding companies remain subject to the Board's Small Bank Holding Company Policy Statement (Policy Statement).
Small state member banks and small savings and loan holding companies (covered small banking organizations) would be subject to the proposals in this NPR.
The proposals may impact covered small banking organizations in several ways. The proposals would affect covered small banking organizations' regulatory capital requirements. They would change the qualifying criteria for regulatory capital, including required deductions and adjustments, and modify the risk weight treatment for some exposures. They also would require covered small banking organizations to meet new minimum common equity tier 1 to risk-weighted assets ratio of 4.5 percent and an increased minimum tier 1 capital to risk-weighted assets risk-based capital ratio of 6 percent. Under the proposals, all banking organizations would remain subject to a 4 percent minimum tier 1 leverage ratio.
In addition, as described above, the proposals would impose limitations on capital distributions and discretionary bonus payments for covered small banking organizations that do not hold a buffer of common equity tier 1 capital above the minimum ratios. As a result of these new requirements, some covered small banking organizations may have to alter their capital structure (including by raising new capital or increasing retention of earnings) in order to achieve compliance.
Most small state member banks already hold capital in excess of the proposed minimum risk-based regulatory ratios. Therefore, the proposed requirements are not expected to significantly impact the capital structure of most covered small state member banks. Comparing the capital requirements proposed in this NPR and the Standardized Approach NPR on a fully phased-in basis to minimum requirements of the current rules, the capital ratios of approximately 1–2 percent of small state member banks would fall below at least one of the proposed minimum risk-based capital requirements. Thus, the Board believes that the proposals in this NPR and the Standardized NPR would affect an insubstantial number of small state member banks.
Because the Board has not fully implemented reporting requirements for savings and loan holding companies, it is unable to determine the impact of the proposed requirements on small savings and loan holding companies. The Board seeks comment on the potential impact of the proposed requirements on small savings and loan holding companies.
Covered small banking organizations that would have to raise additional capital to comply with the requirements of the proposals may incur certain costs, including costs associated with issuance of regulatory capital instruments. The Board has sought to minimize the burden of raising additional capital by providing for transitional arrangements that phase-in the new capital requirements over several years, allowing banking organizations time to accumulate additional capital through retained earnings as well as raising capital in the market. While the proposals would establish a narrower definition of capital, a minimum common equity tier 1 capital ratio and a minimum tier 1 capital ratio that is higher than under the general risk-based capital rules, the majority of capital instruments currently held by small covered banking organizations under existing capital rules, such as common stock and noncumulative perpetual preferred stock, would remain eligible as regulatory capital instruments under the proposed requirements.
As discussed above, the proposals would modify criteria for regulatory capital, deductions and adjustments to capital, and risk weights for exposures, as well as calculation of the leverage ratio. Accordingly, covered small banking organizations would be required to change their internal reporting processes to comply with these changes. These changes may require some additional personnel training and expenses related to new systems (or modification of existing systems) for calculating regulatory capital ratios.
For small savings and loan holding companies, the compliance burdens described above may be greater than for those of other covered small banking organizations. Small savings and loan holding companies previously were not subject to regulatory capital requirements and reporting requirements tied regulatory capital requirements. Small savings and loan holding companies may therefore need to invest additional resources in establishing internal systems (including purchasing software or hiring personnel) or raising capital to come into compliance with the proposed requirements.
For those covered small banking organizations that would not immediately meet the proposed minimum requirements, this NPR provides transitional arrangements for banking organizations to make adjustments and to come into compliance. Small covered banking organizations would be required to meet the proposed minimum capital ratio requirements beginning on January 1, 2013 thorough to December 31, 2014. On January 1, 2015, small covered banking organizations would be required to comply with the proposed minimum capital ratio requirements.
The Board is unaware of any duplicative, overlapping, or conflicting federal rules. As noted above, the Board anticipates issuing a separate proposal to implement reporting requirements that are tied to (but do not overlap or duplicate) the proposed requirements. The Board seeks comments and information regarding any such rules that are duplicative, overlapping, or otherwise in conflict with the proposed requirements.
The Board has sought to incorporate flexibility and provide alternative treatments in this NPR and the Standardized NPR to lessen burden and complexity for smaller banking organizations wherever possible, consistent with safety and soundness and applicable law, including the Dodd-Frank Act. These alternatives and flexibility features include the following:
• Covered small banking organizations would not be subject to the proposed enhanced disclosure requirements.
• Covered small banking organizations would not be subject to possible increases in the capital conservation buffer through the countercyclical buffer.
• Covered small banking organizations would not be subject to the new supplementary leverage ratio.
• Covered small institutions that have issued capital instruments to the U.S. Treasury through the Small Business Lending Fund (a program for banking organizations with less than $10 billion in consolidated assets) or under the Emergency Economic Stabilization Act of 2008 prior to October 4, 2010, would be able to continue to include those
• Covered small banking organizations that issued capital instruments that could no longer be included in tier 1 capital or tier 2 capital under the proposed requirements would have a longer transition period for removing the instruments from tier 1 or tier 2 capital (as applicable).
The Board welcomes comment on any significant alternatives to the proposed requirements applicable to covered small banking organizations that would minimize their impact on those entities, as well as on all other aspects of its analysis. A final regulatory flexibility analysis will be conducted after consideration of comments received during the public comment period.
In accordance with section 3(a) of the Regulatory Flexibility Act (5 U.S.C. 601
The OCC welcomes comment on all aspects of the summary of its IRFA. A final regulatory flexibility analysis will be conducted after consideration of comments received during the public comment period.
As discussed in the Supplementary Information section above, the agencies are proposing to revise their capital requirements to promote safe and sound banking practices, implement Basel III, and harmonize capital requirements across charter type. Federal law authorizes each of the agencies to prescribe capital standards for the banking organizations that it regulates.
Under regulations issued by the Small Business Administration,
This NPR includes changes to the general risk-based capital requirements that affect small banking organizations. Under this NPR, the changes to minimum capital requirements that would impact small national banks and federal savings associations include a more conservative definition of regulatory capital, a new common equity tier 1 capital ratio, a higher minimum tier 1 capital ratio, new thresholds for prompt corrective action purposes, and a new capital conservation buffer. To estimate the impact of this NPR on national banks' and federal savings associations' capital needs, the OCC estimated the amount of capital the banks will need to raise to meet the new minimum standards relative to the amount of capital they currently hold. To estimate new capital ratios and requirements, the OCC used currently available data from banks' quarterly Consolidated Report of Condition and Income (Call Reports) to approximate capital under the proposed rule, which shows that most banks have raised their capital levels well above the existing minimum requirements. After comparing existing levels with the proposed new requirements, the OCC has determined that 28 small institutions that it regulates would fall short of the proposed increased capital requirements. Together, those institutions would need to raise approximately $82 million in regulatory capital to meet the proposed minimum requirements. The OCC estimates that the cost of lost tax benefits associated with increasing total capital by $82 million will be approximately $0.5 million per year. Averaged across the 28 affected institutions, the cost is approximately $18,000 per institution per year.
To determine if a proposed rule has a significant economic impact on small entities, we compared the estimated annual cost with annual noninterest expense and annual salaries and employee benefits for each small entity. Based on this analysis, the OCC has concluded for purposes of this IRFA that the changes described in this NPR, when considered without regard to other changes to the capital requirements that the agencies simultaneously are proposing, would not result in a significant economic impact on a substantial number of small entities.
However, as discussed in the Supplementary Information section above, the changes proposed in this NPR also should be considered together with changes proposed in the separate Standardized Approach NPR also published in today's
1. Changing the denominator of the risk-based capital ratios by revising the asset risk weights;
2. Revising the treatment of counterparty credit risk;
3. Replacing references to credit ratings with alternative measures of creditworthiness;
4. Providing more comprehensive recognition of collateral and guarantees; and
5. Providing a more favorable capital treatment for transactions cleared through qualifying central counterparties.
These changes are designed to enhance the risk-sensitivity of the calculation of risk-weighted assets. Therefore, capital requirements may go down for some assets and up for others. For those assets with a higher risk weight under this NPR, however, that increase may be large in some instances,
The Basel Committee on Banking Supervision has been conducting periodic reviews of the potential quantitative impact of the Basel III framework.
To comply with the proposed rules in the Standardized Approach NPR, covered small banking organizations would be required to change their internal reporting processes. These changes would require some additional personnel training and expenses related to new systems (or modification of existing systems) for calculating regulatory capital ratios.
Additionally, covered small banking organizations that hold certain exposures would be required to obtain additional information under the proposed rules in order to determine the applicable risk weights. Covered small banking organizations that hold exposures to sovereign entities other than the United States, foreign depository institutions, or foreign public sector entities would have to acquire Country Risk Classification ratings produced by the OECD to determine the applicable risk weights. Covered small banking organizations that hold residential mortgage exposures would need to have and maintain information about certain underwriting features of the mortgage as well as the LTV ratio in order to determine the applicable risk weight. Generally, covered small banking organizations that hold securitization exposures would need to obtain sufficient information about the underlying exposures to satisfy due diligence requirements and apply either the simplified supervisory formula or the gross-up approach described in section _.43 of the Standardized Approach NPR to calculate the appropriate risk weight, or be required to assign a 1,250 percent risk weight to the exposure.
Covered small banking organizations typically do not hold significant exposures to foreign entities or securitization exposures, and the agencies expect any additional burden related to calculating risk weights for these exposures, or holding capital against these exposures, would be relatively modest. The OCC estimates that, for small national banks and federal savings associations, the cost of implementing the alternative measures of creditworthiness will be approximately $36,125 per institution.
Some covered small banking organizations may hold significant residential mortgage exposures. However, if the small banking organization originated the exposure, it should have sufficient information to determine the applicable risk weight under the proposed rule. If the small banking organization acquired the exposure from another institution, the information it would need to determine the applicable risk weight is consistent with information that it should normally collect for portfolio monitoring purposes and internal risk management.
Covered small banking organizations would not be subject to the disclosure requirements in subpart D of the proposed rule. However, the agencies expect to modify regulatory reporting requirements that apply to covered small banking organizations to reflect the changes made to the agencies' capital requirements in the proposed rules. The agencies expect to propose these changes to the relevant reporting forms in a separate notice.
To determine if a proposed rule has a significant economic impact on small entities the OCC compared the estimated annual cost with annual noninterest expense and annual salaries and employee benefits for each small entity. If the estimated annual cost was greater than or equal to 2.5 percent of total noninterest expense or 5 percent of annual salaries and employee benefits the OCC classified the impact as significant. As noted above, the OCC has concluded for purposes of this IRFA that the proposed rules in this NPR, when considered without regard to changes in the Standardized NPR, would not exceed these thresholds and therefore would not result in a significant economic impact on a substantial number of small entities. However, the OCC has concluded that the proposed rules in the Standardized Approach NPR would have a significant impact on a substantial number of small entities. The OCC estimates that together, the changes proposed in this NPR and the Standardized Approach NPR will exceed these thresholds for 500 small national banks and 253 small federally chartered private savings institutions. Accordingly, when considered together, this NPR and the Standardized Approach NPR appear to have a significant economic impact on a substantial number of small entities.
The OCC is unaware of any duplicative, overlapping, or conflicting federal rules. As noted previously, the OCC anticipates issuing a separate proposal to implement reporting requirements that are tied to (but do not overlap or duplicate) the requirements of the proposed rules. The OCC seeks comments and information regarding any such federal rules that are duplicative, overlapping, or otherwise in conflict with the proposed rule.
The agencies have sought to incorporate flexibility into the proposed rule and lessen burden and complexity for smaller banking organizations wherever possible, consistent with safety and soundness and applicable law, including the Dodd-Frank Act. The agencies are requesting comment on potential options for simplifying the rule and reducing burden, including whether to permit certain small banking organizations to continue using portions of the current general risk-based capital rules to calculate risk-weighted assets. Additionally, the agencies proposed the following alternatives and flexibility features:
• Covered small banking organizations are not subject to the enhanced disclosure requirements of the proposed rules.
• Covered small banking organizations would continue to apply a 100 percent risk weight to corporate exposures (as described in section _.32 of the Standardized Approach NPR).
• Covered small banking organizations may choose to apply the simpler gross-up method for securitization exposures rather than the Simplified Supervisory Formula Approach (SSFA) (as described in section _.43 of the Standardized Approach NPR).
• The proposed rule offers covered small banking organizations a choice between a simpler and more complex methods of risk weighting equity exposures to investment funds (as described in section _.53 of the Standardized Approach NPR).
The agencies welcome comment on any significant alternatives to the proposed rules applicable to covered small banking organizations that would minimize their impact on those entities.
In accordance with section 3(a) of the Regulatory Flexibility Act (5 U.S.C. 601
The FDIC welcomes comment on all aspects of the summary of its IRFA. A final regulatory flexibility analysis will be conducted after consideration of comments received during the public comment period.
As discussed in the Supplementary Information section above, the agencies are proposing to revise their capital requirements to promote safe and sound banking practices, implement Basel III and certain aspects of the Dodd-Frank Act, and harmonize capital requirements across charter type. Federal law authorizes each of the agencies to prescribe capital standards for the banking organizations that it regulates.
Under regulations issued by the Small Business Administration,
This NPR includes changes to the general risk-based capital requirements that affect small banking organizations. Under this NPR, the changes to minimum capital requirements that would impact small banks and savings associations include a more conservative definition of regulatory capital, a new common equity tier 1 capital ratio, a higher minimum tier 1 capital ratio, new thresholds for prompt corrective action purposes, and a new capital conservation buffer. To estimate the impact of this NPR on the capital needs of small banks and savings associations, the FDIC estimated the amount of capital such institutions will need to raise to meet the new minimum standards relative to the amount of capital they currently hold. To estimate new capital ratios and requirements, the FDIC used currently available data from the quarterly Consolidated Report of Condition and Income (Call Reports) filed by small banks and savings associations to approximate capital under the proposed rule. The Call Reports show that most small banks and savings associations have raised their capital to levels well above the existing minimum requirements. After comparing existing levels with the proposed new requirements, the FDIC has determined that 62 small banks and savings associations that it regulates would fall short of the proposed increased capital requirements. Together, those institutions would need to raise approximately $164 million in regulatory capital to meet the proposed minimum requirements. The FDIC estimates that the cost of lost tax benefits associated with increasing total capital by $164 million will be approximately $0.9 million per year. Averaged across the 62 affected institutions, the cost is approximately $15,000 per institution per year.
To determine if the proposed rule has a significant economic impact on small entities we compared the estimated annual cost with annual noninterest expense and annual salaries and employee benefits for each small entity. Based on this analysis, the FDIC has concluded for purposes of this IRFA that the changes described in this NPR, when considered without regard to other changes to the capital requirements that the agencies simultaneously are proposing, would not result in a significant economic impact on a substantial number of small entities.
However, as discussed in the Supplementary Information section above, the changes proposed in this NPR also should be considered together with changes proposed in the separate Standardized Approach NPR also published in today's
1. Changing the denominator of the risk-based capital ratios by revising the asset risk weights;
2. Revising the treatment of counterparty credit risk;
3. Replacing references to credit ratings with alternative measures of creditworthiness;
4. Providing more comprehensive recognition of collateral and guarantees; and
5. Providing a more favorable capital treatment for transactions cleared through qualifying central counterparties.
These changes are designed to enhance the risk-sensitivity of the calculation of risk-weighted assets. Therefore, capital requirements may go down for some assets and up for others. For those assets with a higher risk weight under this NPR, however, that increase may be large in some instances, for example, the equivalent of a dollar-for-dollar capital charge for some securitization exposures.
In order to estimate the impact of the Standardized Approach NPR on small banks and savings associations, the FDIC used currently available data from the quarterly Consolidated Report of Condition and Income (Call Reports) filed by small banks and savings associations to approximate the change in capital under the proposed rule. After comparing the existing risk-based capital rules with the proposed rule, the FDIC estimates that risk-weighted assets may increase by 10 percent under the proposed rule. Using this assumption, the FDIC estimates that a total of 76 small national banks and federally chartered savings associations will need to raise additional capital to meet their regulatory minimums. The FDIC estimates that this total projected shortfall will be $34 million and that the cost of lost tax benefits associated with increasing total capital by $34 million will be approximately $0.2 million per year. Averaged across the 76 affected institutions, the cost is approximately $2,500 per institution per year.
To comply with the proposed rules in the Standardized Approach NPR, covered small banking organizations would be required to change their internal reporting processes. These changes would require some additional personnel training and expenses related to new systems (or modification of existing systems) for calculating regulatory capital ratios.
Additionally, small banks and savings associations that hold certain exposures would be required to obtain additional information under the proposed rules in order to determine the applicable risk weights. For example, small banks and savings associations that hold exposures to sovereign entities other than the United States, foreign depository institutions, or foreign public sector entities would have to acquire Country Risk Classification ratings produced by the OECD to determine the applicable risk weights. Small banks and savings
Small banks and savings associations typically do not hold significant exposures to foreign entities or securitization exposures, and the agencies expect any additional burden related to calculating risk weights for these exposures, or holding capital against these exposures, would be relatively modest. The FDIC estimates that, for small banks and savings associations, the cost of implementing the alternative measures of creditworthiness will be approximately $39,000 per institution.
Small banks and savings associations may hold significant residential mortgage exposures. If the institution originated the exposure, it should have sufficient information to determine the applicable risk weight under the proposed rule. However, if the exposure is acquired from another institution, the information that would be needed to determine the applicable risk weight is consistent with information that should normally be collected for portfolio monitoring purposes and internal risk management.
Small banks and savings associations would not be subject to the disclosure requirements in subpart D of the proposed rule. However, the agencies expect to modify regulatory reporting requirements that apply to such institutions to reflect the changes made to the agencies' capital requirements in the proposed rules. The agencies expect to propose these changes to the relevant reporting forms in a separate notice.
To determine if a proposed rule has a significant economic impact on small entities the FDIC compared the estimated annual cost with annual noninterest expense and annual salaries and employee benefits for each small bank and savings association. If the estimated annual cost was greater than or equal to 2.5 percent of total noninterest expense or 5 percent of annual salaries and employee benefits the FDIC classified the impact as significant. As noted above, the FDIC has concluded for purposes of this IRFA that the proposed rules in this NPR, when considered without regard to changes in the Standardized NPR, would not exceed these thresholds and therefore would not result in a significant economic impact on a substantial number of small banks and savings associations. However, the FDIC has concluded that the proposed rules in the Standardized Approach NPR would have a significant impact on a substantial number of small banks and savings associations. The FDIC estimates that together, the changes proposed in this NPR and the Standardized Approach NPR will exceed these thresholds for 2,413 small state nonmember banks, 114 small savings banks, and 45 small savings associations. Accordingly, when considered together, this NPR and the Standardized Approach NPR appear to have a significant economic impact on a substantial number of small entities.
The FDIC is unaware of any duplicative, overlapping, or conflicting federal rules. As noted previously, the FDIC anticipates issuing a separate proposal to implement reporting requirements that are tied to (but do not overlap or duplicate) the requirements of the proposed rules. The FDIC seeks comments and information regarding any such federal rules that are duplicative, overlapping, or otherwise in conflict with the proposed rule.
The agencies have sought to incorporate flexibility into the proposed rule and lessen burden and complexity for small bank and savings associations wherever possible, consistent with safety and soundness and applicable law, including the Dodd-Frank Act. The agencies are requesting comment on potential options for simplifying the rule and reducing burden, including whether to permit certain small banking organizations to continue using portions of the current general risk-based capital rules to calculate risk-weighted assets. Additionally, the agencies proposed the following alternatives and flexibility features:
• Small banks and savings associations are not subject to the enhanced disclosure requirements of the proposed rules.
• Small banks and savings associations would continue to apply a 100 percent risk weight to corporate exposures (as described in section _.32 of the Standardized Approach NPR).
• Small banks and savings associations may choose to apply the simpler gross-up method for securitization exposures rather than the SSFA (as described in section _.43 of the Standardized Approach NPR).
• The proposed rule offers small banks and savings associations a choice between a simpler and more complex methods of risk weighting equity exposures to investment funds (as described in section _.53 of the Standardized Approach NPR).
The agencies welcome comment on any significant alternatives to the proposed rules applicable to small banks and savings associations that would minimize their impact on those entities.
In accordance with the requirements of the Paperwork Reduction Act (PRA) of 1995, 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. The agencies are requesting comment on a proposed information collection.
The information collection requirements contained in this joint notice of proposed rulemaking (NPR) have been submitted by the OCC and FDIC to OMB for review under the PRA, under OMB Control Nos. 1557–0234 and 3064–0153. In accordance with the PRA (44 U.S.C. 3506; 5 CFR part 1320, Appendix A.1), the Board has reviewed the NPR under the authority delegated by OMB. The Board's OMB Control No. is 7100–0313. The requirements are found in §§ _.2.
The agencies have published two other NPRs in this issue of the
Comments are invited on:
(a) Whether the collection of information is necessary for the proper performance of the Agencies' functions,
(b) The accuracy of the estimates of the burden of the information collection, including the validity of the methodology and assumptions used;
(c) Ways to enhance the quality, utility, and clarity of the information to be collected;
(d) Ways to minimize the burden of the information collection on respondents, including through the use of automated collection techniques or other forms of information technology; and
(e) Estimates of capital or start up costs and costs of operation, maintenance, and purchase of services to provide information.
All comments will become a matter of public record. Comments should be addressed to:
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Section 722 of the Gramm-Leach-Bliley Act requires the Federal banking agencies to use plain language in all proposed and final rules published after January 1, 2000. The agencies have sought to present the proposed rule in a simple and straightforward manner, and invite comment on the use of plain language.
Section 202 of the Unfunded Mandates Reform Act of 1995 (UMRA) (2 U.S.C. 1532
Under this NPR, the changes to minimum capital requirements include a new common equity tier 1 capital ratio, a higher minimum tier 1 capital ratio, a supplementary leverage ratio for advanced approaches banks, new thresholds for prompt corrective action purposes, a new capital conservation buffer, and a new countercyclical capital buffer for advanced approaches banks. To estimate the impact of this NPR on bank capital needs, the OCC estimated the amount of capital banks will need to raise to meet the new minimum standards relative to the amount of capital they currently hold. To estimate new capital ratios and requirements, the OCC used currently available data from banks' quarterly Consolidated Report of Condition and Income (Call Reports) to approximate capital under the proposed rule. Most banks have raised their capital levels well above the existing minimum requirements and, after comparing existing levels with the proposed new requirements, the OCC has determined that its proposed rule will not result in expenditures by State, local, and Tribal governments, or by the private sector, of $100 million or more. Accordingly, the UMRA does not require that a written statement accompany this NPR.
The agencies are issuing a notice of proposed rulemaking (NPR, proposal, or proposed rule) to revise the general risk-based capital rules to incorporate certain revisions by the Basel Committee on Banking Supervision to the Basel capital framework (Basel III). The proposed rule would:
• Revise the definition of regulatory capital components and related calculations;
• Add a new regulatory capital component: common equity tier 1 capital;
• Increase the minimum tier 1 capital ratio requirement;
• Impose different limitations to qualifying minority interest in regulatory capital than those currently applied;
• Incorporate the new and revised regulatory capital requirements into the Prompt Corrective Action (PCA) capital categories;
• Implement a new capital conservation buffer framework that would limit payment of capital distributions and certain discretionary bonus payments to executive officers and key risk takers if the banking organization does not hold certain amounts of common equity tier 1 capital in addition to those needed to meet its minimum risk-based capital requirements; and
• Provide for a transition period for several aspects of the proposed rule, including a phase-out period for certain non-qualifying capital instruments, the new minimum capital ratio requirements, the capital conservation buffer, and the regulatory capital adjustments and deductions.
This addendum presents a summary of the proposed rule that is more relevant for smaller, non-complex banking organizations that are
The NPR proposes definitions of common equity tier 1 capital, additional tier 1 capital, and total capital. These proposed definitions would alter the existing definition of capital by imposing, among other requirements, additional constraints on including minority interests, mortgage servicing assets (MSAs), deferred tax assets (DTAs) and certain investments in unconsolidated financial institutions in regulatory capital. In addition, the NPR would require that most regulatory capital deductions be made from common equity tier 1 capital. The NPR would also require that most of a banking organization's accumulated other comprehensive income (AOCI) be included in regulatory capital.
Under the NPR, a banking organization would maintain the following minimum capital requirements:
(1) A ratio of common equity tier 1capital to total risk-weighted assets of 4.5 percent.
(2) A ratio of tier 1 capital to total risk-weighted assets of 6 percent.
(3) A ratio of total capital to total risk-weighted assets of 8 percent.
(4) A ratio of tier 1 capital to adjusted average total assets of 4 percent.
The new minimum capital requirements would be implemented over a transition period, as outlined in the proposed rule. For a summary of the transition period, refer to section 7 of this Addendum. As noted in the NPR, banking organizations are generally expected, as a prudential matter, to operate well above these minimum regulatory ratios, with capital commensurate with the level and nature of the risks they hold.
In addition to these minimum capital requirements, the NPR would establish a capital conservation buffer. Specifically, banking organizations would need to hold common equity tier 1 capital in excess of their minimum risk-based capital ratios by at least 2.5 percent of risk-weighted assets in order to avoid limits on capital distributions (including dividend payments, discretionary payments on tier 1 instruments, and share buybacks) and certain discretionary bonus payments to executive officers, including heads of major business lines and similar employees.
Under the NPR, a banking organization's capital conservation buffer would be the smallest of the following ratios: a) its common equity tier 1 capital ratio (in percent) minus 4.5 percent; b) its tier 1 capital ratio (in percent) minus 6 percent;or c) its total capital ratio (in percent) minus 8 percent.
To the extent a banking organization's capital conservation buffer falls short of 2.5 percent of risk-weighted assets, the banking organization's maximum payout amount for capital distributions and discretionary bonus payments (calculated as the maximum payout ratio multiplied by the sum of eligible retained income, as defined in the NPR) would decline. The following table shows the maximum payout ratio, depending on the banking organization's capital conservation buffer.
Eligible retained income for purposes of the proposed rule would mean a banking organization's net income for the four calendar quarters preceding the current calendar quarter, based on the banking organization's most recent quarterly regulatory reports, net of any capital distributions and associated tax effects not already reflected in net income.
Under the NPR, the 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 Table 1.
The proposed rule would prohibit a banking organization from making capital distributions or certain discretionary bonus payments during the current calendar quarter if: (A) its eligible retained income is negative;
The NPR does not diminish the agencies' authority to place additional limitations on capital distributions.
The NPR proposes to revise the PCA capital category thresholds to levels that reflect the new capital ratio requirements. The NPR also proposes to introduce the common equity tier 1 capital ratio as a PCA capital category threshold. In addition, the NPR proposes to revise the existing definition of tangible equity. Under the NPR, tangible equity would be defined as tier 1 capital (composed of common equity tier 1 and additional tier 1 capital) plus any outstanding perpetual preferred stock (including related surplus) that is not already included in tier 1 capital.
The NPR proposes to revise the definition of capital to include the following regulatory capital components: common equity tier 1 capital, additional tier 1 capital, and tier 2 capital. These are summarized below (see summary table attached). Section 20 of the proposed rule describes the capital components and eligibility criteria for regulatory capital instruments. Section 20 also describes the criteria that each primary federal supervisor would consider when determining whether a capital instrument should be included in a specific regulatory capital component.
The NPR defines common equity tier 1 capital as the sum of the common equity tier 1 elements, less applicable regulatory adjustments and deductions. Common equity tier 1 capital elements would include:
1. Common stock instruments (that satisfy specified criteria in the proposed rule) and related surplus (net of any treasury stock);
2. Retained earnings;
3. Accumulated other comprehensive income (AOCI); and
4. Common equity minority interest (as defined in the proposed rule) subject to the limitations outlined in section 21 of the proposed rule.
The NPR would define additional tier 1 capital as the sum of additional tier 1 capital elements and related surplus, less applicable regulatory adjustments and deductions. Additional tier 1 capital elements would include:
1. Noncumulative perpetual preferred stock (that satisfy specified criteria in the proposed rule) and related surplus;
2. Tier 1 minority interest (as defined in the proposed rule), subject to limitations described in section 21 of the proposed rule, not included in the banking organization's common equity tier 1 capital; and
3. Instruments that currently qualify as tier 1 capital under the agencies' general risk-based capital rules and that were issued under the Small Business Job's Act of 2010, or, prior to October 4, 2010, under the Emergency Economic Stabilization Act of 2008.
The proposed rule would define tier 2 capital as the sum of tier 2 capital elements and related surplus, less regulatory adjustments and deductions. The tier 2 capital elements would include:
1. Subordinated debt and preferred stock (that satisfy specified criteria in the proposed rule). This will include most of the subordinated debt currently included in tier 2 capital according to the agencies' existing risk-based capital rules;
2. Total capital minority interest (as defined in the proposed rule), subject to the limitations described in section 21 of the proposed rule, and not included in the banking organization's tier 1 capital;
3. Allowance for loan and lease losses (ALLL) not exceeding 1.25 percent of the banking organization's total risk-weighted assets; and
4. Instruments that currently qualify as tier 2 capital under the agencies' general risk-based capital rules and that were issued under the Small Business Job's Act of 2010, or, prior to October 4, 2010, under the Emergency Economic Stabilization Act of 2008.
The NPR proposes a calculation method that limits the amount of minority interest in a subsidiary that is not owned by the banking organization that may be included in regulatory capital.
Under the NPR,
1. The instrument giving rise to the minority interest would, if issued by the banking organization itself, meet all of the criteria for common stock instruments.
2. The subsidiary is itself a depository institution.
If not recognized in common equity tier 1, the minority interest may be eligible for inclusion in additional tier 1 capital or tier 2 capital.
For a capital instrument that meets all of the criteria for common stock instruments, the amount of common equity minority interest includable in the banking organization's common equity tier 1 capital is equal to:
For
For
The NPR would require that a banking organization deduct the following from the sum of its common equity tier 1 capital elements:
○ Goodwill and all other intangible assets (other than MSAs), net of any associated deferred tax liabilities (DTLs). Goodwill for purposes of this deduction includes any goodwill embedded in the valuation of a significant investment in the capital of an unconsolidated financial institution in the form of common stock.
○ DTAs that arise from operating loss and tax credit carryforwards net of any valuation allowance and net of DTLs (see section 22 of the proposed rule for the requirements on the netting of DTLs).
○ Any gain-on-sale associated with a securitization exposure.
○ Any defined benefit pension fund net asset
The NPR would require that for the following items, a banking organization deduct any associated unrealized gain and add any associated unrealized loss to the sum of common equity tier 1 capital elements:
○ Unrealized gains and losses on cash flow hedges included in AOCI that relate to the hedging of items that are not recognized at fair value on the balance sheet.
○ Unrealized gains and losses that have resulted from changes in the fair value of liabilities that are due to changes in the banking organization's own credit risk.
Under the NPR, a banking organization would be required to make the following deductions with respect to investments in its own capital instruments:
○ Deduct from common equity tier 1 elements investments in the banking organization's own common stock instruments (including any contractual obligation to purchase), whether held directly or indirectly.
○ Deduct from additional tier 1 capital elements, investments in (including any contractual obligation to purchase) the banking organization's own additional tier 1 capital instruments, whether held directly or indirectly.
○ Deduct from tier 2 capital elements, investments in (including any contractual obligation to purchase) the banking organization's own tier 2 capital instruments, whether held directly or indirectly.
Under the NPR, a banking organization would use the corresponding deduction approach to calculate the required deductions from regulatory capital for:
○ Reciprocal cross-holdings;
○ Non-significant investments in the capital of unconsolidated financial institutions; and
○ Non-common stock significant investments in the capital of unconsolidated financial institutions.
Under the corresponding deduction approach, a banking organization would be required to make any such deductions from the same component of capital for which the underlying instrument would qualify if it were issued by the banking organization itself. In addition, if the banking organization does not have a sufficient amount of such component of capital to effect the deduction, the shortfall will be deducted from the next higher (that is, more subordinated) component of regulatory capital (for example, if the exposure may be deducted from additional tier 1 capital but the banking organization does not have sufficient additional tier 1 capital, it would take the deduction from common equity tier 1 capital). The NPR provides additional information regarding the corresponding deduction approach for those banking organizations with such holdings and investments.
○ The amount to be deducted from a specific capital component is equal to (i) the amount of a banking organization's non-significant investments exceeding the 10 percent threshold for non-significant investments
○ The banking organization's non-significant investments in the capital of unconsolidated financial institutions not exceeding the 10 percent threshold for non-significant investments must be assigned the appropriate risk weight under the Standardized Approach NPR.
The NPR would require a banking organization to deduct from common equity tier 1 capital elements each of the following assets (together, the threshold deduction items) that, individually, are above 10 percent of the sum of the banking organization's common equity tier 1 capital elements, less all required adjustments and deductions required under sections 22(a) through 22(c) of the proposed rule (the 10
○ DTAs arising from temporary differences that the banking organization could not realize through net operating loss carrybacks, net of any associated valuation allowance, and DTLs, subject to the following limitations:
Only the DTAs and DTLs that relate to taxes levied by the same taxation authority and that are eligible for offsetting by that authority may be offset for purposes of this deduction.
The DTLs offset against DTAs must exclude amounts that have already been netted against other items that are either fully deducted (such as goodwill) or subject to deduction (such as MSA).
○ MSAs, net of associated DTLs.
○ Significant investments in the capital of unconsolidated financial institutions in the form of common stock.
In addition, the aggregate amount of the threshold deduction items in this section cannot exceed 15 percent of the banking organization's common equity tier 1 capital net of all deductions (the 15 percent common equity deduction threshold). That is, the banking organization must deduct from common equity tier 1 capital elements, the amount of the threshold deduction items that are not deducted after the application of the 10 percent common equity deduction threshold, and that, in aggregate, exceed 17.65 percent of the sum of the banking organization's common equity tier 1 capital elements, less all required adjustments and deductions required under sections 22(a) through 22(c) of the proposed rule and less the threshold deduction items in full.
The amounts of the threshold deduction items within the limits and not deducted, as described above, would be included in the risk-weighted assets of the banking organization and assigned a risk weight of 250 percent. In addition, certain exposures that are currently deducted under the general risk-based capital rules, for example certain credit enhancing interest-only strips, would receive a 1,250% risk weight.
The NPR would provide for a multi-year implementation as summarized in the table below:
As provided in Basel III, capital instruments that no longer qualify as additional tier 1 or tier 2 capital will be phased out over a 10 year horizon beginning in 2013. However, trust preferred securities are phased out as required under the Dodd-Frank Act.
Attached to this Addendum I is a summary of the proposed revision to the components of capital introduced by the NPR.
(a)
(b)
(c)
(2)
(3)
(ii) Each advanced approaches [BANK] must use the methodologies in subpart E (and subpart F of this part for a market risk [BANK]) to calculate advanced approaches total risk-weighted assets.
(4)
(ii) Each market risk [BANK] must make the public disclosures described in subparts D and F of this part.
(iii) Each advanced approaches [BANK] must make the public disclosures described in subpart E of this part.
(d)
(2)
(3)
(4)
(5)
(6)
(e)
(1) The sum of:
(i) Credit-risk-weighted assets;
(ii) Credit Valuation Adjustment (CVA) risk-weighted assets;
(iii) Risk-weighted assets for operational risk; and
(iv) For a market risk [BANK] only, advanced market risk-weighted assets; minus
(2) Excess eligible credit reserves not included in the [BANK]'s tier 2 capital.
(1) Establishes an ABCP program;
(2) Approves the sellers permitted to participate in an ABCP program;
(3) Approves the exposures to be purchased by an ABCP program; or
(4) Administers the ABCP program by monitoring the underlying exposures, underwriting or otherwise arranging for the placement of debt or other obligations issued by the program, compiling monthly reports, or ensuring compliance with the program documents and with the program's credit and investment policy.
(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 [BANK]; or
(5) Any similar transaction that the [AGENCY] determines to be in substance a distribution of capital.
(1) The duration of the mortgage exposure does not exceed 30 years;
(2) The terms of the mortgage exposure provide for regular periodic payments that do not:
(i) Result in an increase of the principal balance;
(ii) Allow the borrower to defer repayment of principal of the residential mortgage exposure; or
(iii) Result in a balloon payment;
(3) The standards used to underwrite the residential mortgage exposure:
(i) Took into account all of the borrower's obligations, including for mortgage obligations, principal, interest, taxes, insurance (including mortgage guarantee insurance), and assessments; and
(ii) Resulted in a conclusion that the borrower is able to repay the exposure using:
(A) The maximum interest rate that may apply during the first five years after the date of the closing of the residential mortgage exposure transaction; and
(B) The amount of the residential mortgage exposure is the maximum possible contractual exposure over the life of the mortgage as of the date of the closing of the transaction;
(4) The terms of the residential mortgage exposure allow the annual rate of interest to increase no more than two percentage points in any twelve-month period and no more than six percentage points over the life of the exposure;
(5) For a first-lien home equity line of credit (HELOC), the borrower must be qualified using the principal and interest payments based on the maximum contractual exposure under the terms of the HELOC;
(6) The determination of the borrower's ability to repay is based on documented, verified income;
(7) The residential mortgage exposure is not 90 days or more past due or on non-accrual status; and
(8) The residential mortgage exposure is
(i) Not a junior-lien residential mortgage exposure, and
(ii) If the residential mortgage exposure is a first-lien residential mortgage exposure held by a single banking organization and secured by first and junior lien(s) where no other party holds an intervening lien, each residential mortgage exposure must have the characteristics of a category 1 residential mortgage exposure as set forth in this definition. Notwithstanding paragraphs (1) through (8) of this definition, the [AGENCY] may determine that a residential mortgage exposure that is not prudently underwritten does not qualify as a category 1 residential mortgage exposure.
(1) A transaction between a CCP and a [BANK] that is a clearing member of the CCP where the [BANK] enters into the transaction with the CCP for the [BANK]'s own account;
(2) A transaction between a CCP and a [BANK] that is a clearing member of the CCP where the [BANK] is acting as a financial intermediary on behalf of a clearing member client and the transaction offsets a transaction that satisfies the requirements of paragraph (3) of this definition.
(3) A transaction between a clearing member client [BANK] and a clearing member where the clearing member acts as a financial intermediary on behalf of the clearing member client and enters into an offsetting transaction with a CCP provided that:
(i) The offsetting transaction is identified by the CCP as a transaction for the clearing member client;
(ii) The collateral supporting the transaction is held in a manner that prevents the [BANK] from facing any loss due to the default, receivership, or insolvency of either the clearing member or the clearing member's other clients;
(iii) The [BANK] has conducted sufficient legal review to conclude with a well-founded basis (and maintains sufficient written documentation of that legal review) that in the event of a legal challenge (including one resulting from a default or receivership, insolvency, liquidation, or similar proceeding) the relevant court and administrative authorities would find the arrangements of paragraph (3)(ii) of this definition to be legal, valid, binding and enforceable under the law of the relevant jurisdictions; and
(iv) The offsetting transaction with a clearing member is transferable under the transaction documents or applicable laws in the relevant jurisdiction(s) to another clearing member should the clearing member default, become insolvent, or enter receivership, insolvency, liquidation, or similar proceeding.
(4) A transaction between a clearing member client and a CCP where a clearing member guarantees the performance of the clearing member client to the CCP and the transaction meets the requirements of paragraphs (3)(ii) and (iii) of this definition.
(5) A cleared transaction does not include the exposure of a [BANK] that is a clearing member to its clearing member client where the [BANK] is either acting as a financial intermediary and enters into an offsetting transaction with a CCP or where the [BANK] provides a guarantee to the CCP on the performance of the client.
(1) A consolidated subsidiary of a [BANK]; and
(2) Not owned by the [BANK].
(1) Owns, controls, or holds with power to vote 25 percent or more of a class of voting securities of the company; or
(2) Consolidates the company for financial reporting purposes.
(1) An exposure to a sovereign, the Bank for International Settlements, the European Central Bank, the European Commission, the International Monetary Fund, a multi-lateral development bank (MDB), a depository institution, a foreign bank, a credit union, or a public sector entity (PSE);
(2) An exposure to a government-sponsored entity (GSE);
(3) A residential mortgage exposure;
(4) A pre-sold construction loan;
(5) A statutory multifamily mortgage;
(6) A high volatility commercial real estate (HVCRE) exposure;
(7) A cleared transaction;
(8) A default fund contribution;
(9) A securitization exposure;
(10) An equity exposure; or
(11) An unsettled transaction.
(1) Represents a contractual right to receive some or all of the interest and no more than a minimal amount of principal due on the underlying exposures of a securitization; and
(2) Exposes the holder of the CEIO to credit risk directly or indirectly associated with the underlying exposures that exceeds a pro rata share of the holder's claim on the underlying exposures, whether through subordination provisions or other credit-enhancement techniques.
(1) Total wholesale and retail risk-weighted assets;
(2) Risk-weighted assets for securitization exposures; and
(3) Risk-weighted assets for equity exposures.
(1) The [BANK] retains discretion as to whether to make, and the amount of, the payment until the payment is awarded to the executive officer;
(2) The amount paid is determined by the [BANK] without prior promise to, or agreement with, the executive officer; and
(3) The executive officer has no contractual right, whether express or implied, to the bonus payment.
(1) Is triggered solely by events not directly related to the performance of the underlying exposures or the originating [BANK] (such as material changes in tax laws or regulations); or
(2) Leaves investors fully exposed to future draws by borrowers on the underlying exposures even after the provision is triggered.
(1) Is exercisable solely at the discretion of the originating [BANK] or servicer;
(2) Is not structured to avoid allocating losses to securitization exposures held by investors or otherwise structured to provide credit enhancement to the securitization; and
(3)(i) For a traditional securitization, is only exercisable when 10 percent or less of the principal amount of the underlying exposures or securitization exposures (determined as of the inception of the securitization) is outstanding; or
(ii) For a synthetic securitization, is only exercisable when 10 percent or less of the principal amount of the reference portfolio of underlying exposures (determined as of the inception of the securitization) is outstanding.
(1) The contract meets the requirements of an eligible guarantee and has been confirmed by the protection purchaser and the protection provider;
(2) Any assignment of the contract has been confirmed by all relevant parties;
(3) If the credit derivative is a credit default swap or nth-to-default swap, the contract includes the following credit events:
(i) Failure to pay any amount due under the terms of the reference exposure, subject to any applicable minimal payment threshold that is consistent with standard market practice and with a grace period that is closely in line with the grace period of the reference exposure; and
(ii) Receivership, insolvency, liquidation, conservatorship or inability of the reference exposure issuer to pay its debts, or its failure or admission in writing of its inability generally to pay its debts as they become due, and similar events;
(4) The terms and conditions dictating the manner in which the contract is to be settled are incorporated into the contract;
(5) If the contract allows for cash settlement, the contract incorporates a robust valuation process to estimate loss reliably and specifies a reasonable period for obtaining post-credit event valuations of the reference exposure;
(6) If the contract requires the protection purchaser to transfer an exposure to the protection provider at settlement, the terms of at least one of the exposures that is permitted to be transferred under the contract provide that any required consent to transfer may not be unreasonably withheld;
(7) If the credit derivative is a credit default swap or nth-to-default swap, the contract clearly identifies the parties responsible for determining whether a credit event has occurred, specifies that this determination is not the sole responsibility of the protection provider, and gives the protection purchaser the right to notify the protection provider of the occurrence of a credit event; and
(8) If the credit derivative is a total return swap and the [BANK] records net payments received on the swap as net income, the [BANK] records offsetting deterioration in the value of the hedged exposure (either through reductions in fair value or by an addition to reserves).
(1) Is written;
(2) Is either:
(i) Unconditional, or
(ii) A contingent obligation of the U.S. government or its agencies, the enforceability of which is dependent upon some affirmative action on the part of the beneficiary of the guarantee or a third party (for example, meeting servicing requirements);
(3) Covers all or a pro rata portion of all contractual payments of the obligated party on the reference exposure;
(4) Gives the beneficiary a direct claim against the protection provider;
(5) Is not unilaterally cancelable by the protection provider for reasons other than the breach of the contract by the beneficiary;
(6) Except for a guarantee by a sovereign, is legally enforceable against the protection provider in a jurisdiction where the protection provider has sufficient assets against which a judgment may be attached and enforced;
(7) Requires the protection provider to make payment to the beneficiary on the occurrence of a default (as defined in the guarantee) of the obligated party on the reference exposure in a timely manner without the beneficiary first having to take legal actions to pursue the obligor for payment;
(8) Does not increase the beneficiary's cost of credit protection on the
(9) Is not provided by an affiliate of the [BANK], unless the affiliate is an insured depository institution, foreign bank, securities broker or dealer, or insurance company that:
(i) Does not control the [BANK]; and
(ii) Is subject to consolidated supervision and regulation comparable to that imposed on depository institutions, U.S. securities broker-dealers, or U.S. insurance companies (as the case may be).
(1) A sovereign, the Bank for International Settlements, the International Monetary Fund, the European Central Bank, the European Commission, a Federal Home Loan Bank, Federal Agricultural Mortgage Corporation (Farmer Mac), a multilateral development bank (MDB), a depository institution, a bank holding company, a savings and loan holding company, a credit union, or a foreign bank; or
(2) An entity (other than a special purpose entity):
(i) That at the time the guarantee is issued or anytime thereafter, has issued and outstanding an unsecured debt security without credit enhancement that is investment grade;
(ii) Whose creditworthiness is not positively correlated with the credit risk of the exposures for which it has provided guarantees; and
(iii) That is not an insurance company engaged predominately in the business of providing credit protection (such as a monoline bond insurer or re-insurer).
(1) The extension of credit is collateralized exclusively by liquid and readily marketable debt or equity securities, or gold;
(2) The collateral is marked-to-market daily, and the transaction is subject to daily margin maintenance requirements;
(3) The extension of credit is conducted under an agreement that provides the [BANK] the right to accelerate and terminate the extension of credit and to liquidate or set-off collateral promptly upon an event of default (including upon an event of receivership, insolvency, liquidation, conservatorship, or similar proceeding) of the counterparty, provided that, in any such case, any exercise of rights under the agreement will not be stayed or avoided under applicable law in the relevant jurisdictions;
(4) The [BANK] has conducted sufficient legal review to conclude with a well-founded basis (and maintains sufficient written documentation of that legal review) that the agreement meets the requirements of paragraph (3) of this definition and is legal, valid, binding, and enforceable under applicable law in the relevant jurisdictions, other than in receivership, conservatorship, resolution under the Federal Deposit Insurance Act, Title II of the Dodd-Frank Act, or under any similar insolvency law applicable to GSEs.
(1) The servicer is entitled to full reimbursement of advances, except that a servicer may be obligated to make non-reimbursable advances for a particular underlying exposure if any such advance is contractually limited to an insignificant amount of the outstanding principal balance of that exposure;
(2) The servicer's right to reimbursement is senior in right of payment to all other claims on the cash flows from the underlying exposures of the securitization; and
(3) The servicer has no legal obligation to, and does not make advances to the securitization if the servicer concludes the advances are unlikely to be repaid.
(1) A security or instrument (whether voting or non-voting) that represents a direct or an indirect ownership interest in, and is a residual claim on, the assets and income of a company, unless:
(i) The issuing company is consolidated with the [BANK] under GAAP;
(ii) The [BANK] is required to deduct the ownership interest from tier 1 or tier 2 capital under this [PART];
(iii) The ownership interest incorporates a payment or other similar obligation on the part of the issuing company (such as an obligation to make periodic payments); or
(iv) The ownership interest is a securitization exposure;
(2) A security or instrument that is mandatorily convertible into a security or instrument described in paragraph (1) of this definition;
(3) An option or warrant that is exercisable for a security or instrument described in paragraph (1) of this definition; or
(4) Any other security or instrument (other than a securitization exposure) to the extent the return on the security or instrument is based on the performance of a security or instrument described in paragraph (1) of this definition.
(1) For a wholesale exposure to a non-defaulted obligor or segment of non-defaulted retail exposures that is carried at fair value with gains and losses flowing through earnings or that is classified as held-for-sale and is carried at the lower of cost or fair value with losses flowing through earnings, zero.
(2) For all other wholesale exposures to non-defaulted obligors or segments of non-defaulted retail exposures, the product of the probability of default (PD) times the loss given default (LGD) times the exposure at default (EAD) for the exposure or segment.
(3) For a wholesale exposure to a defaulted obligor or segment of defaulted retail exposures, the [BANK]'s impairment estimate for allowance purposes for the exposure or segment.
(4) Total ECL is the sum of expected credit losses for all wholesale and retail exposures other than exposures for which the [BANK] has applied the double default treatment in § __.135 of subpart E of this part.
(1) For the on-balance sheet component of an exposure (other than an OTC derivative contract; a repo-style transaction or an eligible margin loan
(2) For the off-balance sheet component of an exposure (other than an OTC derivative contract; a repo-style transaction or an eligible margin loan for which the [BANK] calculates the exposure amount under § __.37 of subpart D of this part; cleared transaction, default fund contribution or a securitization exposure), exposure amount means the notional amount of the off-balance sheet component multiplied by the appropriate credit conversion factor (CCF) in § __.33 of subpart D of this part.
(3) If the exposure is an OTC derivative contract or derivative contract that is a cleared transaction, the exposure amount determined under § __.34 of subpart D of this part.
(4) If the exposure is an eligible margin loan or repo-style transaction (including a cleared transaction) for which the [BANK] calculates the exposure amount as provided in § __.37 of subpart D of this part, the exposure amount determined under § __.37 of subpart D.
(5) If the exposure is a securitization exposure, the exposure amount determined under § __.42 of subpart D of this part.
(1) In the form of:
(i) Cash on deposit with the [BANK] (including cash held for the [BANK] by a third-party custodian or trustee);
(ii) Gold bullion;
(iii) Long-term debt securities that are not resecuritization exposures and that are investment grade;
(iv) Short-term debt instruments that are not resecuritization exposures and that are investment grade;
(v) Equity securities that are publicly-traded;
(vi) Convertible bonds that are publicly-traded; or
(vii) Money market fund shares and other mutual fund shares if a price for the shares is publicly quoted daily; and
(2) In which the [BANK] has a perfected, first-priority security interest or, outside of the United States, the legal equivalent thereof (with the exception of cash on deposit and notwithstanding the prior security interest of any custodial agent).
(1)(i) A bank holding company, savings and loan holding company, nonbank financial institution supervised by the Board under Title I of the Dodd-Frank Act, depository institution, foreign bank, credit union, insurance company, or securities firm;
(ii) A commodity pool as defined in section 1a(10) of the Commodity Exchange Act (7 U.S.C. 1a(10));
(iii) An entity that is a covered fund for purposes of section 13 of the Bank Holding Company Act (12 U.S.C. 1851(h)(2)) and regulations issued thereunder;
(iv) An employee benefit plan as defined in paragraphs (3) and (32) of section 3 of the Employee Retirement Income and Security Act of 1974 (29 U.S.C. 1002) (other than an employee benefit plan established by [BANK] for the benefit of its employees or the employees of its affiliates);
(v) Any other company predominantly engaged in the following activities:
(A) Lending money, securities or other financial instruments, including servicing loans;
(B) Insuring, guaranteeing, indemnifying against loss, harm, damage, illness, disability, or death, or issuing annuities;
(C) Underwriting, dealing in, making a market in, or investing as principal in securities or other financial instruments;
(D) Asset management activities (not including investment or financial advisory activities); or
(E) Acting as a futures commission merchant.
(vi) Any entity not domiciled in the United States (or a political subdivision thereof) that would be covered by any of paragraphs (1)(i) through (v) of this definition if such entity were domiciled in the United States; or
(vii) Any other company that the [AGENCY] may determine is a financial institution based on the nature and scope of its activities.
(2) For the purposes of this definition, a company is “predominantly engaged” in an activity or activities if:
(i) 85 percent or more of the total consolidated annual gross revenues (as determined in accordance with applicable accounting standards) of the company in either of the two most recent calendar years were derived, directly or indirectly, by the company on a consolidated basis from the activities; or
(ii) 85 percent or more of the company's consolidated total assets (as determined in accordance with applicable accounting standards) as of the end of either of the two most recent calendar years were related to the activities.
(3) For the purpose of this [PART], “financial institution” does not include the following entities:
(i) GSEs;
(ii) Entities described in section 13(d)(1)(E) of the Bank Holding Company Act (12 U.S.C. 1851(d)(1)(E)) and regulations issued thereunder (exempted entities) and entities that are predominantly engaged in providing advisory and related services to exempted entities; and
(iii) Entities designated as Community Development Financial Institutions (CDFIs) under 12 U.S.C. 4701
(1) One- to four-family residential properties; or
(2) Commercial real estate projects in which:
(i) The loan-to-value ratio is less than or equal to the applicable maximum supervisory loan-to-value ratio in the [AGENCY]'s real estate lending standards at 12 CFR part 34, subpart D and 12 CFR part 160, subparts A and B (OCC); 12 CFR part 208, Appendix C (Board); 12 CFR part 365, subpart D and 12 CFR 390.264 and 390.265 (FDIC);
(ii) The borrower has contributed capital to the project in the form of cash or unencumbered readily marketable assets (or has paid development expenses out-of-pocket) of at least 15 percent of the real estate's appraised “as completed” value; and
(iii) The borrower contributed the amount of capital required by paragraph (2)(ii) of this definition before the [BANK] advances funds under the credit facility, and the capital contributed by the borrower, or internally generated by the project, is contractually required to remain in the project throughout the life of the project. The life of a project concludes only when the credit facility is converted to permanent financing or is sold or paid in full. Permanent financing may be provided by the [BANK] that provided the ADC facility as long as the permanent financing is subject to the [BANK]'s underwriting criteria for long-term mortgage loans.
(1) Where all or substantially all of the assets of the company are financial assets; and
(2) That has no material liabilities.
(1) The net long position is the gross long position in the exposure to the capital of the financial institution (including covered positions under subpart F of this part) net of short positions in the same exposure where the maturity of the short position either matches the maturity of the long position or has a residual maturity of at least one year;
(2) Long and short positions in the same index without a maturity date are considered to have matching maturity. Gross long positions in investments in the capital instruments of unconsolidated financial institutions resulting from holdings of index securities may be netted against short positions in the same underlying index. However, short positions in indexes that are hedging long cash or synthetic positions can be decomposed to provide recognition of the hedge. More specifically, the portion of the index that is composed of the same underlying exposure that is being hedged may be used to offset the long position as long as both the exposure being hedged and the short position in the index are positions subject to the market risk rule, the positions are fair valued on the banking organization's balance sheet, and the hedge is deemed effective by the banking organization's internal control processes assessed by the primary supervisor of the banking organization; and
(3) Instead of looking through and monitoring its exact exposure to the capital of unconsolidated financial institutions included in an index security, a [BANK] may, with the prior approval of the [AGENCY], use a conservative estimate of the amount of its investment in the capital of unconsolidated financial institutions held through the index security.
(1) That is not subject to such a master netting agreement or
(2) Where the [BANK] has identified specific wrong-way risk is its own netting set.
(1) For a commitment that is not subject to extension or renewal, the stated expiration date of the commitment; or
(2) For a commitment that is subject to extension or renewal, the earliest date on which the [BANK] can, at its option, unconditionally cancel the commitment.
(1) Directly or indirectly originated or securitized the underlying exposures included in the securitization; or
(2) Serves as an ABCP program sponsor to the securitization.
(1) Between a [BANK] that is a clearing member and a counterparty where the [BANK] is acting as a financial intermediary and enters into a cleared transaction with a CCP that offsets the transaction with the counterparty; or
(2) In which a [BANK] that is a clearing member provides a CCP a guarantee on the performance of the counterparty to the transaction.
(1) The loan is made in accordance with prudent underwriting standards;
(2) The purchaser is an individual(s) that intends to occupy the residence and is not a partnership, joint venture, trust, corporation, or any other entity (including an entity acting as a sole proprietorship) that is purchasing one or more of the residences for speculative purposes;
(3) The purchaser has entered into a legally binding written sales contract for the residence;
(4) The purchaser has not terminated the contract; however, if the purchaser terminates the sales contract the [BANK] must immediately apply a 100 percent risk weight to the loan and report the revised risk weight in [BANK]'s next quarterly [REGULATORY REPORT];
(5) The purchaser of the residence has a firm written commitment for permanent financing of the residence upon completion;
(6) The purchaser has made a substantial earnest money deposit of no less than 3 percent of the sales price, which is subject to forfeiture if the purchaser terminates the sales contract; provided that, the earnest money deposit shall not be subject to forfeiture by reason of breach or termination of the sales contract on the part of the builder;
(7) The earnest money deposit must be held in escrow by the [BANK] or an independent party in a fiduciary capacity, and the escrow agreement must provide that in the event of default the escrow funds shall be used to defray any cost incurred by [BANK] relating to any cancellation of the sales contract by the purchaser of the residence;
(8) The builder must incur at least the first 10 percent of the direct costs of construction of the residence (that is, actual costs of the land, labor, and material) before any drawdown is made under the loan;
(9) The loan may not exceed 80 percent of the sales price of the presold residence; and
(10) The loan is not more than 90 days past due, or on nonaccrual.
(1) Any exchange registered with the SEC as a national securities exchange under section 6 of the Securities Exchange Act; or
(2) Any non-U.S.-based securities exchange that:
(i) Is registered with, or approved by, a national securities regulatory authority; and
(ii) Provides a liquid, two-way market for the instrument in question.
(1) Is a designated financial market utility (FMU) under Title VIII of the Dodd-Frank Act;
(2) If not located in the United States, is regulated and supervised in a manner equivalent to a designated FMU; or
(3) Meets the following standards:
(i) The central counterparty requires all parties to contracts cleared by the counterparty to be fully collateralized on a daily basis;
(ii) The [BANK] demonstrates to the satisfaction of the [AGENCY] that the central counterparty:
(A) Is in sound financial condition;
(B) Is subject to supervision by the Board, the CFTC, or the Securities Exchange Commission (SEC), or if the central counterparty is not located in the United States, is subject to effective oversight by a national supervisory authority in its home country; and
(C) Meets or exceeds:
(
(
(4) Provides the [BANK] with the central counterparty's hypothetical capital requirement or the information necessary to calculate such hypothetical capital requirement, and other information the [BANK] is required to obtain under § __.35(d)(3) of this part;
(5) Makes available to the [AGENCY] and the CCP's regulator the information described in paragraph (4) of this definition; and
(6) Has not otherwise been determined by the [AGENCY] to not be QCCP due to its financial condition, risk profile, failure to meet supervisory risk management standards, or other weaknesses or supervisory concerns that are inconsistent with the risk weight assigned to qualifying central counterparties under § __.35 of subpart D of this part; and
(7) If a [BANK] determines that a CCP ceases to be a QCCP due to the failure of the CCP to satisfy one or more of the requirements set forth at paragraphs (1) through (6) of this definition, the [BANK] may continue to treat the CCP as a QCCP for up to three months following the determination. If the CCP fails to remedy the relevant deficiency within three months after the initial determination, or the CCP fails to satisfy the requirements set forth in paragraphs (1) through (6) of this definition continuously for a three month period after remedying the relevant deficiency, a [BANK] may not treat the CCP as a QCCP for the purposes of this [PART] until after the [BANK] has determined that the CCP has satisfied the requirements in paragraphs (1) through (6) of this definition for three continuous months.
(1) The agreement creates a single legal obligation for all individual transactions covered by the agreement upon an event of default, including receivership, insolvency, liquidation, or similar proceeding, of the counterparty;
(2) The agreement provides the [BANK] the right to accelerate, terminate, and close-out on a net basis all transactions under the agreement and to liquidate or set-off collateral promptly upon an event of default, including upon an event of receivership, insolvency, liquidation, or similar proceeding, of the counterparty, provided that, in any such case, any exercise of rights under the agreement will not be stayed or avoided under applicable law in the relevant jurisdictions, other than in receivership, conservatorship, resolution under the Federal Deposit Insurance Act, Title II of the Dodd-Frank Act, or under any similar insolvency law applicable to GSEs;
(3) The [BANK] has conducted sufficient legal review to conclude with a well-founded basis (and maintains sufficient written documentation of that legal review) that:
(i) The agreement meets the requirements of paragraph (2) of this definition; and
(ii) In the event of a legal challenge (including one resulting from default or from receivership, insolvency, liquidation, or similar proceeding) the relevant court and administrative authorities would find the agreement to be legal, valid, binding, and enforceable under the law of the relevant jurisdictions;
(4) The [BANK] establishes and maintains procedures to monitor possible changes in relevant law and to ensure that the agreement continues to satisfy the requirements of this definition; and
(5) The agreement does not contain a walkaway clause (that is, a provision that permits a non-defaulting counterparty to make a lower payment than it otherwise would make under the agreement, or no payment at all, to a defaulter or the estate of a defaulter, even if the defaulter or the estate of the defaulter is a net creditor under the agreement).
(1) The transaction is based solely on liquid and readily marketable securities, cash, or gold;
(2) The transaction is marked-to-market daily and subject to daily margin maintenance requirements;
(3)(i) The transaction is a “securities contract” or “repurchase agreement” under section 555 or 559, respectively, of the Bankruptcy Code (11 U.S.C. 555 or 559), a qualified financial contract under section 11(e)(8) of the Federal Deposit Insurance Act, or a netting contract between or among financial institutions under sections 401–407 of the Federal Deposit Insurance Corporation Improvement Act or the Federal Reserve Board's Regulation EE (12 CFR part 231); or
(ii) If the transaction does not meet the criteria set forth in paragraph (3)(i) of this definition, then either:
(A) The transaction is executed under an agreement that provides the [BANK] the right to accelerate, terminate, and close-out the transaction on a net basis and to liquidate or set-off collateral promptly upon an event of default (including upon an event of receivership, insolvency, liquidation, or similar proceeding) of the counterparty, provided that, in any such case, any exercise of rights under the agreement will not be stayed or avoided under applicable law in the relevant jurisdictions, other than in receivership, conservatorship, resolution under the Federal Deposit Insurance Act, Title II of the Dodd-Frank Act, or under any similar insolvency law applicable to GSEs; or
(B) The transaction is:
(
(
(4) The [BANK] has conducted sufficient legal review to conclude with a well-founded basis (and maintains sufficient written documentation of that legal review) that the agreement meets the requirements of paragraph (3) of this definition and is legal, valid, binding, and enforceable under applicable law in the relevant jurisdictions.
(1) An on- or off-balance sheet exposure to a resecuritization;
(2) An exposure that directly or indirectly references a resecuritization exposure.
(3) An exposure to an asset-backed commercial paper program is not a resecuritization exposure if either:
(i) The program-wide credit enhancement does not meet the definition of a resecuritization exposure; or
(ii) The entity sponsoring the program fully supports the commercial paper through the provision of liquidity so that the commercial paper holders effectively are exposed to the default risk of the sponsor instead of the underlying exposures.
(1) An exposure that is primarily secured by a first or subsequent lien on one-to-four family residential property; or
(2)(i) An exposure with an original and outstanding amount of $1 million or less that is primarily secured by a first or subsequent lien on residential property that is not one-to-four family; and
(ii) For purposes of calculating capital requirements under subpart E, is managed as part of a segment of exposures with homogeneous risk characteristics and not on an individual-exposure basis.
(1) An on-balance sheet or off-balance sheet credit exposure (including credit-enhancing representations and warranties) that arises from a traditional securitization or synthetic securitization (including a resecuritization), or
(2) An exposure that directly or indirectly references a securitization exposure described in paragraph (1) of this definition.
(1) A direct exposure to a sovereign; or
(2) An exposure directly and unconditionally backed by the full faith and credit of a sovereign.
(1) The counterparty and issuer of the collateral supporting the transaction; or
(2) The counterparty and the reference asset of the transaction, are affiliates or are the same entity.
(1) The sum of:
(i) Total risk-weighted assets for general credit risk as calculated under § __.31 of subpart D of this part;
(ii) Total risk-weighted assets for cleared transactions and default fund contributions as calculated under § __.35 of subpart D of this part;
(iii) Total risk-weighted assets for unsettled transactions as calculated under § __.38 of subpart D of this part;
(iv) Total risk-weighted assets for securitization exposures as calculated under § __.42 of subpart D of this part;
(v) Total risk-weighted assets for equity exposures as calculated under § __.52 and § __.53 of subpart D of this part; and
(vi) For a market risk [BANK] only, standardized market risk-weighted assets; minus
(2) Any amount of the [BANK]'s allowance for loan and lease losses that is not included in tier 2 capital.
(1) The loan is made in accordance with prudent underwriting standards;
(2) The loan-to-value (LTV) ratio of the loan, calculated in accordance with § __.32(g)(3) of subpart D of this part, does not exceed 80 percent (or 75 percent if the loan is based on an interest rate that changes over the term of the loan);
(3) All principal and interest payments on the loan must have been made on time for at least one year prior to applying a 50 percent risk weight to the loan, or in the case where an existing owner is refinancing a loan on the property, all principal and interest payments on the loan being refinanced must have been made on time for at least one year prior to applying a 50 percent risk weight to the loan;
(4) Amortization of principal and interest on the loan must occur over a period of not more than 30 years and the minimum original maturity for repayment of principal must not be less than 7 years;
(5) Annual net operating income (before debt service on the loan) generated by the property securing the loan during its most recent fiscal year must not be less than 120 percent of the loan's current annual debt service (or 115 percent of current annual debt service if the loan is based on an interest rate that changes over the term of the
(6) The loan is not more than 90 days past due, or on nonaccrual.
(1) All or a portion of the credit risk of one or more underlying exposures is transferred to one or more third parties through the use of one or more credit derivatives or guarantees (other than a guarantee that transfers only the credit risk of an individual retail exposure);
(2) The credit risk associated with the underlying exposures has been separated into at least two tranches reflecting different levels of seniority;
(3) Performance of the securitization exposures depends upon the performance of the underlying exposures; and
(4) All or substantially all of the underlying exposures are financial exposures (such as loans, commitments, credit derivatives, guarantees, receivables, asset-backed securities, mortgage-backed securities, other debt securities, or equity securities).
(1) The balance sheet carrying value of all of the [BANK]'s on-balance sheet assets,
(2) The potential future exposure amount for each derivative contract to which the [BANK] is a counterparty (or each single-product netting set of such transactions) determined in accordance with § __.34 of this part;
(3) 10 percent of the notional amount of unconditionally cancellable commitments made by the [BANK]; and
(4) The notional amount of all other off-balance sheet exposures of the [BANK] (excluding securities lending, securities borrowing, reverse repurchase transactions, derivatives and unconditionally cancellable commitments).
(1) All or a portion of the credit risk of one or more underlying exposures is transferred to one or more third parties other than through the use of credit derivatives or guarantees;
(2) The credit risk associated with the underlying exposures has been separated into at least two tranches reflecting different levels of seniority;
(3) Performance of the securitization exposures depends upon the performance of the underlying exposures;
(4) All or substantially all of the underlying exposures are financial exposures (such as loans, commitments, credit derivatives, guarantees, receivables, asset-backed securities, mortgage-backed securities, other debt securities, or equity securities);
(5) The underlying exposures are not owned by an operating company;
(6) The underlying exposures are not owned by a small business investment company described in section 302 of the Small Business Investment Act;
(7) The underlying exposures are not owned by a firm an investment in which qualifies as a community development investment under section 24 (Eleventh) of the National Bank Act;
(8) The [AGENCY] may determine that a transaction in which the underlying exposures are owned by an investment firm that exercises substantially unfettered control over the size and composition of its assets, liabilities, and off-balance sheet exposures is not a traditional securitization based on the transaction's leverage, risk profile, or economic substance;
(9) The [AGENCY] may deem a transaction that meets the definition of a traditional securitization, notwithstanding paragraph (5), (6), or (7) of this definition, to be a traditional securitization based on the transaction's leverage, risk profile, or economic substance; and
(10) The transaction is not:
(i) An investment fund;
(ii) A collective investment fund (as defined in 12 CFR 208.34 (Board), 12 CFR 9.18 (OCC), and 12 CFR 344.3 (FDIC));
(iii) A pension fund regulated under the ERISA or a foreign equivalent thereof; or
(iv) Regulated under the Investment Company Act of 1940 (15 U.S.C. 80a–1) or a foreign equivalent thereof.
(a)
(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.
(4) A leverage ratio of 4 percent.
(5) For advanced approaches [BANK]s, a supplementary leverage ratio of 3 percent.
(b)
(1)
(2)
(3)
(4)
(c)
(i) The ratio of the [BANK]'s common equity tier 1 capital to standardized total risk-weighted assets; and
(ii) The ratio of the [BANK]'s common equity tier 1 capital to advanced approaches total risk-weighted assets.
(2)
(i) The ratio of the [BANK]'s tier 1 capital to standardized total risk-weighted assets; and
(ii) The ratio of the [BANK]'s tier 1 capital to advanced approaches total risk-weighted assets.
(3)
(i) The ratio of the [BANK]'s total capital to standardized total risk-weighted assets; and
(ii) The ratio of the [BANK]'s advanced-approaches-adjusted total capital to advanced approaches total risk-weighted assets. A [BANK]'s advanced-approaches-adjusted total capital is the [BANK]'s total capital after being adjusted as follows:
(A) An advanced approaches [BANK] must deduct from its total capital any allowance for loan and lease losses included in its tier 2 capital in accordance with § __.20(d)(3) of subpart C of this part; and
(B) An advanced approaches [BANK] must add to its total capital any eligible credit reserves that exceed the [BANK]'s total expected credit losses to the extent that the excess reserve amount does not exceed 0.6 percent of the [BANK]'s credit risk-weighted assets.
(4)
(d)
(2) A [BANK] must have a process for assessing its overall capital adequacy in relation to its risk profile and a comprehensive strategy for maintaining an appropriate level of capital.
(a)
(2)
(i)
(ii)
(iii)
(3)
(i) The [BANK]'s common equity tier 1 capital ratio minus the [BANK]'s minimum common equity tier 1 capital ratio requirement under § __.10 of this part;
(ii) The [BANK]'s tier 1 capital ratio minus the [BANK]'s minimum tier 1 capital ratio requirement under § __.10 of this part; and
(iii) The [BANK]'s total capital ratio minus the [BANK]'s minimum total capital ratio requirement under § __.10 of this part.
(iv) If the [BANK]'s common equity tier 1, tier 1 or total capital ratio is less than or equal to the [BANK]'s minimum common equity tier 1, tier 1 or total capital ratio requirement under § __.10 of this part, respectively, the [BANK]'s capital conservation buffer is zero.
(4)
(ii) A [BANK] with a capital conservation buffer that is greater than 2.5 percent plus 100 percent of its applicable countercyclical buffer, in accordance with paragraph (b) of this section, is not subject to a maximum payout amount under this section.
(iii)
(A) Eligible retained income is negative; and
(B) Capital conservation buffer was less than 2.5 percent as of the end of the previous calendar quarter.
(iv)
(v)
(b)
(i)
(ii)
(iii)
(iv)
(B) If, in accordance with subpart D or subpart E of this part, the [BANK] has assigned to a private sector credit exposure a risk weight associated with a protection provider on a guarantee or credit derivative, the location of the exposure is the national jurisdiction where the protection provider is located.
(C) The location of a securitization exposure is the location of the borrowers of underlying exposures in a single jurisdiction with the largest aggregate unpaid principal balance.
(2)
(ii)
(iii)
(iv)
(v)
(B)
(vi)
(3)
(a)
(2) Additional tier 1 capital; and
(3) Tier 2 capital.
(b)
(1) Any common stock instruments (plus any related surplus) issued by the [BANK], net of treasury stock, that meet all the following criteria:
(i) The instrument is paid-in, issued directly by the [BANK], and represents the most subordinated claim in a receivership, insolvency, liquidation, or similar proceeding of the [BANK].
(ii) The holder of the instrument is entitled to a claim on the residual assets of the [BANK] that is proportional with the holder's share of the [BANK]'s issued capital after all senior claims have been satisfied in a receivership, insolvency, liquidation, or similar proceeding.
(iii) The instrument has no maturity date, can only be redeemed via discretionary repurchases with the prior approval of the [AGENCY], and does not contain any term or feature that creates an incentive to redeem.
(iv) The [BANK] did not create at issuance of the instrument through any action or communication an expectation that it will buy back, cancel, or redeem the instrument, and the instrument does not include any term or feature that might give rise to such an expectation.
(v) Any cash dividend payments on the instrument are paid out of the [BANK]'s net income and retained earnings and are not subject to a limit imposed by the contractual terms governing the instrument.
(vi) The [BANK] has full discretion at all times to refrain from paying any dividends and making any other capital distributions on the instrument without triggering an event of default, a requirement to make a payment-in-kind, or an imposition of any other restrictions on the [BANK].
(vii) Dividend payments and any other capital distributions on the instrument may be paid only after all legal and contractual obligations of the [BANK] have been satisfied, including payments due on more senior claims.
(viii) The holders of the instrument bear losses as they occur equally, proportionately, and simultaneously with the holders of all other common stock instruments before any losses are borne by holders of claims on the [BANK] with greater priority in a receivership, insolvency, liquidation, or similar proceeding.
(ix) The paid-in amount is classified as equity under GAAP.
(x) The [BANK], or an entity that the [BANK] controls, did not purchase or directly or indirectly fund the purchase of the instrument.
(xi) The instrument is not secured, not covered by a guarantee of the [BANK] or of an affiliate of the [BANK], and is not subject to any other arrangement that legally or economically enhances the seniority of the instrument.
(xii) The instrument has been issued in accordance with applicable laws and regulations.
(xiii) The instrument is reported on the [BANK]'s regulatory financial statements separately from other capital instruments.
(2) Retained earnings.
(3) Accumulated other comprehensive income.
(4) Common equity tier 1 minority interest subject to the limitations in § __.21(a) of this part.
(c)
(1) Instruments (plus any related surplus) that meet the following criteria:
(i) The instrument is issued and paid in.
(ii) The instrument is subordinated to depositors, general creditors, and subordinated debt holders of the [BANK] in a receivership, insolvency, liquidation, or similar proceeding.
(iii) The instrument is not secured, not covered by a guarantee of the [BANK] or of an affiliate of the [BANK], and not subject to any other arrangement that legally or economically enhances the seniority of the instrument.
(iv) The instrument has no maturity date and does not contain a dividend step-up or any other term or feature that creates an incentive to redeem.
(v) If callable by its terms, the instrument may be called by the [BANK] only after a minimum of five years following issuance, except that the terms of the instrument may allow it to be called earlier than five years upon the occurrence of a regulatory event that precludes the instrument from being included in additional tier 1 capital or a tax event. In addition:
(A) The [BANK] must receive prior approval from the [AGENCY] to exercise a call option on the instrument.
(B) The [BANK] does not create at issuance of the instrument, through any action or communication, an expectation that the call option will be exercised.
(C) Prior to exercising the call option, or immediately thereafter, the [BANK] must either:
(
(
(vi) Redemption or repurchase of the instrument requires prior approval from the [AGENCY].
(vii) The [BANK] has full discretion at all times to cancel dividends or other capital distributions on the instrument without triggering an event of default, a requirement to make a payment-in-kind, or an imposition of other restrictions on the [BANK] except in relation to any capital distributions to holders of common stock.
(viii) Any capital distributions on the instrument are paid out of the [BANK]'s net income and retained earnings.
(ix) The instrument does not have a credit-sensitive feature, such as a dividend rate that is reset periodically based in whole or in part on the [BANK]'s credit quality, but may have a dividend rate that is adjusted periodically independent of the [BANK]'s credit quality, in relation to general market interest rates or similar adjustments.
(x) The paid-in amount is classified as equity under GAAP.
(xi) The [BANK], or an entity that the [BANK] controls, did not purchase or directly or indirectly fund the purchase of the instrument.
(xii) The instrument does not have any features that would limit or discourage additional issuance of capital by the [BANK], such as
(xiii) If the instrument is not issued directly by the [BANK] or by a subsidiary of the [BANK] that is an operating entity, the only asset of the issuing entity is its investment in the capital of the [BANK], and proceeds must be immediately available without limitation to the [BANK] or to the [BANK]'s top-tier holding company in a form which meets or exceeds all of the other criteria for additional tier 1 capital instruments.
(xiv) For an advanced approaches [BANK], the governing agreement, offering circular, or prospectus of an instrument issued after January 1, 2013 must disclose that the holders of the instrument may be fully subordinated to interests held by the U.S. government in the event that the [BANK] enters into a receivership, insolvency, liquidation, or similar proceeding.
(2) Tier 1 minority interest, subject to the limitations in § __.21(b) of this part, that is not included in the [BANK]'s common equity tier 1 capital.
(3) Any and all instruments that qualified as tier 1 capital under the [AGENCY]'s general risk-based capital rules under 12 CFR part 3, appendix A, 12 CFR 167 (OCC); 12 CFR part 208, appendix A, 12 CFR part 225, appendix A (Board); and 12 CFR part 325, appendix A, 12 CFR part 390, subpart Z (FDIC) as then in effect, that were issued under the Small Business Jobs Act of 2010
(d)
(1) Instruments (plus related surplus) that meet the following criteria:
(i) The instrument is issued and paid in.
(ii) The instrument is subordinated to depositors and general creditors of the [BANK].
(iii) The instrument is not secured, not covered by a guarantee of the [BANK] or of an affiliate of the [BANK], and not subject to any other arrangement that legally or economically enhances the seniority of the instrument in relation to more senior claims.
(iv) The instrument has a minimum original maturity of at least five years. At the beginning of each of the last five years of the life of the instrument, the amount that is eligible to be included in tier 2 capital is reduced by 20 percent of the original amount of the instrument (net of redemptions) and is excluded from regulatory capital when remaining maturity is less than one year. In addition, the instrument must not have any terms or features that require, or create significant incentives for, the [BANK] to redeem the instrument prior to maturity.
(v) The instrument, by its terms, may be called by the [BANK] only after a minimum of five years following issuance, except that the terms of the instrument may allow it to be called sooner upon the occurrence of an event that would preclude the instrument from being included in tier 2 capital, or a tax event. In addition:
(A) The [BANK] must receive the prior approval of the [AGENCY] to exercise a call option on the instrument.
(B) The [BANK] does not create at issuance, through action or communication, an expectation the call option will be exercised.
(C) Prior to exercising the call option, or immediately thereafter, the [BANK] must either:
(
(
(vi) The holder of the instrument must have no contractual right to accelerate payment of principal or interest on the instrument, except in the event of a receivership, insolvency, liquidation, or similar proceeding of the [BANK].
(vii) The instrument has no credit-sensitive feature, such as a dividend or interest rate that is reset periodically based in whole or in part on the [BANK]'s credit standing, but may have a dividend rate that is adjusted periodically independent of the [BANK]'s credit standing, in relation to general market interest rates or similar adjustments.
(viii) The [BANK], or an entity that the [BANK] controls, has not purchased and has not directly or indirectly funded the purchase of the instrument.
(ix) If the instrument is not issued directly by the [BANK] or by a subsidiary of the [BANK] that is an operating entity, the only asset of the issuing entity is its investment in the capital of the [BANK], and proceeds must be immediately available without limitation to the [BANK] or the [BANK]'s top-tier holding company in a form that meets or exceeds all the other criteria for tier 2 capital instruments under this section.
(x) Redemption of the instrument prior to maturity or repurchase requires the prior approval of the [AGENCY].
(xi) For an advanced approaches [BANK], the governing agreement, offering circular, or prospectus of an instrument issued after January 1, 2013 must disclose that the holders of the instrument may be fully subordinated to interests held by the U.S. government in the event that the [BANK] enters into a receivership, insolvency, liquidation, or similar proceeding.
(2) Total capital minority interest, subject to the limitations set forth in § __.21(c) of this part, that is not included in the [BANK]'s tier 1 capital.
(3) Allowance for loan and lease losses (ALLL) up to 1.25 percent of the [BANK]'s standardized total risk-weighted assets not including any amount of the ALLL (and excluding in the case of a market risk [BANK], its standardized market risk-weighted assets).
(4) Any instrument that qualified as tier 2 capital under the [AGENCY]'s general risk-based capital rules under 12 CFR part 3, appendix A, 12 CFR 167 (OCC); 12 CFR part 208, appendix A, 12 CFR part 225, appendix A (Board); 12 CFR part 325, appendix A, 12 CFR part 390 (FDIC) as then in effect, that were issued under the Small Business Jobs Act of 2010 (Pub. L. 111–240; 124 Stat. 2504 (2010)) or prior to October 4, 2010, under the Emergency Economic Stabilization Act of 2008 (Pub. L. 110–343, 122 Stat. 3765 (2008)).
(e) [
(2) A [BANK] must receive [AGENCY] prior approval to include a capital element (as listed in this section) in its common equity tier 1 capital, additional tier 1 capital, or tier 2 capital unless the element:
(i) Was included in a [BANK]'s tier 1 capital or tier 2 capital as of May 19,
(ii) Is equivalent in terms of capital quality and ability to absorb credit losses with respect to all material terms to a regulatory capital element described in a decision made publicly available under paragraph (e)(3) of this section by the [AGENCY].
(3) When considering whether a [BANK] may include a regulatory capital element in its common equity tier 1 capital, additional tier 1 capital, or tier 2 capital, the [AGENCY] will consult with the other federal banking agencies.
(4) After determining that a regulatory capital element may be included in a [BANK]'s common equity tier 1 capital, additional tier 1 capital, or tier 2 capital, the [AGENCY] will make its decision publicly available, including a brief description of the material terms of the regulatory capital element and the rationale for the determination.
(a)
(1) The common equity tier 1 minority interest of the subsidiary; minus
(2) The percentage of the subsidiary's common equity tier 1 capital that is not owned by the [BANK], multiplied by the difference between the common equity tier 1 capital of the subsidiary and the lower of:
(i) The amount of common equity tier 1 capital the subsidiary must hold to not be subject to restrictions on capital distributions and discretionary bonus payments under § __.11 of subpart B of this part or equivalent regulations established by the subsidiary's home country supervisor, or
(ii)(A) The standardized total risk-weighted assets of the [BANK] that relate to the subsidiary multiplied by
(B) The common equity tier 1 capital ratio the subsidiary must maintain to not be subject to restrictions on capital distributions and discretionary bonus payments under § __.11 of subpart B of this part or equivalent regulations established by the subsidiary's home country supervisor.
(b)
(1) The tier 1 minority interest of the subsidiary; minus
(2) The percentage of the subsidiary's tier 1 capital that is not owned by the [BANK] multiplied by the difference between the tier 1 capital of the subsidiary and the lower of:
(i) The amount of tier 1 capital the subsidiary must hold to not be subject to restrictions on capital distributions and discretionary bonus payments under § __.11 of subpart B of this part or equivalent standards established by the subsidiary's home country supervisor, or
(ii)(A) The standardized total risk-weighted assets of the [BANK] that relate to the subsidiary multiplied by
(B) The tier 1 capital ratio the subsidiary must maintain to avoid restrictions on capital distributions and discretionary bonus under § __.11 of subpart B of this part or equivalent standards established by the subsidiary's home country supervisor.
(c)
(1) The total capital minority interest of the subsidiary; minus
(2) The percentage of the subsidiary's total capital that is not owned by the [BANK] multiplied by the difference between the total capital of the subsidiary and the lower of:
(i) The amount of total capital the subsidiary must hold to not be subject to restrictions on capital distributions and discretionary bonus payments under § __.11 of subpart B of this part or equivalent standards established by the subsidiary's home country supervisor, or
(ii)(A) The standardized total risk-weighted assets of the [BANK] that relate to the subsidiary multiplied by
(B) The total capital ratio the subsidiary must maintain to avoid restrictions on capital distributions and discretionary bonus payments under § __.11 of subpart B of this part or equivalent standards established by the subsidiary's home country supervisor.
(a)
(1) Goodwill, net of associated deferred tax liabilities (DTLs), in accordance with paragraph (e) of this section, and goodwill embedded in the valuation of a significant investment in the capital of an unconsolidated financial institution in the form of common stock, in accordance with paragraph (d) of this section.
(2) Intangible assets, other than MSAs, net of associated DTLs, in accordance with paragraph (e) of this section.
(3) Deferred tax assets (DTAs) that arise from operating loss and tax credit carryforwards net of any related valuation allowances and net of DTLs, in accordance with paragraph (e) of this section.
(4) Any gain-on-sale associated with a securitization exposure.
(5) For a [BANK] that is not an insured depository institution, any defined benefit pension fund asset, net of any associated DTL, in accordance with paragraph (e) of this section. With the prior approval of the [AGENCY], the [BANK] may reduce the amount to be deducted by the amount of assets of the defined benefit pension fund to which it has unrestricted and unfettered access, provided that the [BANK] includes such assets in its risk-weighted assets as if the [BANK] held them directly.
(6) For a [BANK] subject to subpart E of this [PART], the amount of expected credit loss that exceeds its eligible credit reserves.
(7) Financial subsidiaries:
(i) A [BANK] must deduct the aggregate amount of its outstanding equity investment, including retained earnings, in its financial subsidiaries (as defined in 12 CFR 5.39 (OCC); 12 CFR 208.77 (Board); and 12 CFR 362.17 (FDIC)) and may not consolidate the assets and liabilities of a financial subsidiary with those of the national bank.
(ii) No other deduction is required under paragraph (c) of this section for investments in the capital instruments of financial subsidiaries.
(b)
(1) Deduct any unrealized gain and add any unrealized loss on cash flow hedges included in accumulated other comprehensive income (AOCI), net of applicable tax effects, that relate to the hedging of items that are not recognized at fair value on the balance sheet.
(2) Deduct any unrealized gain and add any unrealized loss related to changes in the fair value of liabilities that are due to changes in the [BANK]'s own credit risk. Advanced approaches [BANK]s must deduct the credit spread premium over the risk free rate for derivatives that are liabilities.
(c)
(i) A [BANK] must deduct investments in (including any contractual obligation to purchase) its own common stock instruments, whether held directly or indirectly, from its common equity tier 1 capital elements to the extent such instruments are not excluded from regulatory capital under § __.20(b)(1) of this part.
(ii) A [BANK] must deduct investments in (including any contractual obligation to purchase) its own additional tier 1 capital instruments, whether held directly or indirectly, from its additional tier 1 capital elements.
(iii) A [BANK] must deduct investments in (including any contractual obligation to purchase) its own tier 2 capital instruments, whether held directly or indirectly, from its tier 2 capital elements.
(iv) For any deduction required under this section, gross long positions may be deducted net of short positions in the same underlying instrument only if the short positions involve no counterparty risk.
(v) For any deduction required under this section, a [BANK] must look through any holdings of index securities to deduct investments in its own capital instruments. In addition:
(A) Gross long positions in investments in a [BANK]'s own regulatory capital instruments resulting from holdings of index securities may be netted against short positions in the same index;
(B) Short positions in index securities that are hedging long cash or synthetic positions can be decomposed to recognize the hedge; and
(C) The portion of the index that is composed of the same underlying exposure that is being hedged may be used to offset the long position if both the exposure being hedged and the short position in the index are covered positions under subpart F of this part, and the hedge is deemed effective by the banking organization's internal control processes.
(2)
(i) If the [BANK] does not have a sufficient amount of a specific component of capital to effect the required deduction, the shortfall must be deducted from the next higher (that is, more subordinated) component of regulatory capital.
(ii) If the investment is in the form of an instrument issued by a non-regulated financial institution, the [BANK] must treat the instrument as:
(A) A common equity tier 1 capital instrument if it is common stock or represents the most subordinated claim in liquidation of the financial institution; and
(B) An additional tier 1 capital instrument if it is subordinated to all creditors of the financial institution and is only senior in liquidation to common shareholders.
(iii) If the investment is in the form of an instrument issued by a regulated financial institution and the instrument does not meet the criteria for common equity tier 1, additional tier 1 or tier 2 capital instruments under § __.20 of this part, the [BANK] must treat the instrument as:
(A) A common equity tier 1 capital instrument if it is common stock included in GAAP equity or represents the most subordinated claim in liquidation of the financial institution;
(B) An additional tier 1 capital instrument if it is included in GAAP equity, subordinated to all creditors of the financial institution, and senior in a receivership, insolvency, liquidation, or similar proceeding only to common shareholders; and
(C) A tier 2 capital instrument if it is not included in GAAP equity but considered regulatory capital by the primary regulator of the financial institution.
(3)
(4)
(ii) The amount to be deducted under this section from a specific capital component is equal to:
(A) The amount of a [BANK]'s non-significant investments exceeding the 10 percent threshold for non-significant investments multiplied by
(B) The ratio of the non-significant investments in unconsolidated financial institutions in the form of such capital component to the amount of the [BANK]'s total non-significant investments in unconsolidated financial institutions.
(iii) Any non-significant investments in the capital of unconsolidated financial institutions that do not exceed the 10 percent threshold for non-significant investments under this section must be assigned the appropriate risk weight under subpart D, E, or F of this part, as applicable.
(5)
(d)
(i) DTAs arising from temporary differences that the [BANK] could not realize through net operating loss carrybacks, net of any related valuation allowances and net of DTLs, in accordance with paragraph (e) of this section.
(ii) MSAs net of associated DTLs, in accordance with paragraph (e) of this section.
(iii) Significant investments in the capital of unconsolidated financial institutions in the form of common stock net of associated DTLs, in accordance with paragraph (e) of this section.
(2) A [BANK] must deduct from common equity tier 1 capital elements the amount of the items listed in paragraph (d)(1) of this section that are not deducted as a result of the application of the 10 percent common equity tier 1 capital deduction threshold, and that, in aggregate, exceeds 17.65 percent of the sum of the [BANK]'s common equity tier 1 capital elements, minus adjustments to and deductions from common equity tier 1 capital required under paragraphs (a) through (c) of this section, minus the items listed in paragraph (d)(1) of this section (the 15 percent common equity tier 1 capital deduction threshold).
(3) If the total amount of MSAs deducted under paragraphs (d)(1) and (2) of this section is less than 10 percent of the fair value of MSAs, a [BANK] must deduct an additional amount of MSAs equal to the difference between 10 percent of the fair value of MSAs and the amount of MSAs deducted under paragraphs (d)(1) and (2).
(4) The amount of the items in paragrapn (d)(1) of this section that is not deducted from common equity tier 1 capital pursuant to this section must be included in the risk-weighted assets of the [BANK] and assigned a 250 percent risk weight.
(e)
(i) The DTL is associated with the asset.
(ii) The DTL would be extinguished if the associated asset becomes impaired or is derecognized under GAAP.
(2) A DTL can only be netted against a single asset.
(3) The amount of DTAs that arise from operating loss and tax credit carryforwards, net of any related valuation allowances, and of DTAs arising from temporary differences that the [BANK] could not realize through net operating loss carrybacks, net of any related valuation allowances, may be netted against DTLs (that have not been netted against assets subject to deduction pursuant to paragraph (e)(1) of this section subject to the following conditions:
(i) Only the DTAs and DTLs that relate to taxes levied by the same taxation authority and that are eligible for offsetting by that authority may be offset for purposes of this deduction.
(ii) The amount of DTLs that the [BANK] nets against DTAs that arise from operating loss and tax credit carryforwards, net of any related valuation allowances, and against DTAs arising from temporary differences that the [BANK] could not realize through net operating loss carrybacks, net of any related valuation allowances, must be allocated in proportion to the amount of DTAs that arise from operating loss and tax credit carryforwards (net of any related valuation allowances, but before any offsetting of DTLs) and of DTAs arising from temporary differences that the [BANK] could not realize through net operating loss carrybacks (net of any related valuation allowances, but before any offsetting of DTLs), respectively.
(f)
(g)
(a)
(b)
(1) From January 1, 2013 through December 31, 2015, a [BANK] is not subject to limits on capital distributions and discretionary bonus payments under § __.11 of subpart B of this part notwithstanding the amount of its capital conservation buffer.
(2) From January 1, 2016 through December 31, 2018:
(i) A [BANK] that maintains a capital conservation buffer above 0.625 percent during calendar year 2016, above 1.25 percent during calendar year 2017, and above 1.875 percent during calendar year 2018 is not subject to limits on capital distributions and discretionary bonus payments under § __.11 of subpart B.
(ii) A [BANK] that maintains a capital conservation buffer that is less than 0.625 percent during calendar year 2016, less than 1.25 percent during calendar year 2017, and less than 1.875 percent during calendar year 2018 cannot make capital distributions and discretionary bonus payments above the maximum payout amount (as defined under § __.11 of subpart B of this part) as described in Table 2.
(c)
(1)
(i) A [BANK] must deduct goodwill (§ __.22(a)(1) of subpart C of this part), DTAs that arise from operating loss and tax credit carryforwards (§ __.22(a)(3) of subpart C), gain-on-sale associated with a securitization exposure (§ __.22(a)(4) of subpart C), defined benefit pension fund assets (§ __.22(a)(5) of subpart C), and expected credit loss that exceeds eligible credit reserves (for [BANK]s subject to subpart E of this [PART]) (§ __.22(a)(6) of subpart C), from common equity tier 1 and additional tier 1 capital in accordance with the percentages set forth in Table 3.
(ii) A [BANK] must deduct from common equity tier 1 capital any intangible assets other than goodwill and MSAs in accordance with the percentages set forth in Table 4.
(iii) A [BANK] must apply a 100 percent risk-weight to the aggregate amount of intangible assets other than goodwill and MSAs that are not required to be deducted from common equity tier 1 capital under this section.
(2)
(i) If the aggregate amount of the adjustment is positive, the [BANK] must allocate the deduction between common equity tier 1 and tier 1 capital in accordance with Table 5.
(ii) If the aggregate amount of the adjustment is negative, the [BANK] must add back the adjustment to common equity tier 1 capital or to tier 1 capital, in accordance with Table 5.
(3)
(i) Unrealized gains on AFS equity securities, plus
(ii) Net unrealized gains or losses on AFS debt securities, plus
(iii) Accumulated net unrealized gains and losses on defined benefit pension obligations, plus
(iv) Accumulated net unrealized gains or losses on cash flow hedges related to items that are reported on the balance sheet at fair value included in AOCI (the transition AOCI adjustment amount) as reported on the [BANK's] [REGULATORY REPORT] as follows:
(A) If the transition AOCI adjustment amount is positive, the appropriate amount must be deducted from common equity tier 1 capital in accordance with Table 6.
(B) If the transition AOCI adjustment amount is negative, the appropriate amount must be added back to common equity tier 1 capital in accordance with Table 6.
(iii) A [BANK] may include a certain amount of unrealized gains on AFS equity securities in tier 2 capital during the transition period in accordance with Table 7.
(4)
(ii) From January 1, 2013 through December 31, 2017, a [BANK] must apply a 100 percent risk-weight to the aggregate amount of the items subject to the 10 and 15 percent common equity tier 1 capital deduction thresholds that are not deducted under this section. As set forth in § __.22(d)(4) of subpart C of this part, beginning on January 1, 2018, a [BANK] must apply a 250 percent risk-weight to the aggregate amount of the items subject to the 10 and 15 percent common equity tier 1 capital deduction thresholds that are not deducted from common equity tier 1 capital.
(iii) For purposes of calculating the transition deductions in this section, from January 1, 2013 through December 31, 2017, a [BANK]'s 15 percent common equity tier 1 capital deduction threshold for MSAs, DTAs arising from temporary differences that the [BANK] could not realize through net operating loss carrybacks, and significant investments in the capital of unconsolidated financial institutions in the form of common stock is equal to 15 percent of the sum of the [BANK]'s common equity tier 1 elements, after deductions required under § __.22(a) through (c) of subpart C of this part (transition 15 percent common equity tier 1 capital deduction threshold).
(iv) If the amount of MSAs the [BANK] deducts after the application of the appropriate thresholds is less than 10 percent of the fair value of the [BANK]'s MSAs, the [BANK] must deduct an additional amount of MSAs so that the total amount of MSAs deducted is at least 10 percent of the fair value of the [BANK]'s MSAs.
(v) Beginning on January 1, 2018, a [BANK] must calculate the 15 percent common equity tier 1 capital deduction threshold in accordance with § __.22(d) of subpart C of this part.
(d)
(i) The [BANK] must apply Table 9 separately to additional tier 1 and tier 2 non-qualifying capital instruments.
(ii) The amount of non-qualifying capital instruments that may not be included in additional tier 1 capital under this section may be included in tier 2 capital without limitation, provided the instrument meets the criteria for tier 2 capital under § __.20(d) of subpart C of this part.
(iii) A depository institution holding company of $15 billion or more that acquires either a depository institution holding company with total consolidated assets of less than $15 billion as of December 31, 2009 (depository institution holding company under $15 billion) or a depository institution holding company that was a mutual holding company as of May 19, 2010, may include in regulatory capital non-qualifying capital instruments issued prior to May 19, 2010, by the acquired organization only to the extent provided in Table 9.
(iv) If a depository institution holding company under $15 billion acquires a depository institution holding company under $15 billion or a 2010 MHC and the resulting organization has total consolidated assets of $15 billion or more as reported on the resulting organization's FR Y–9C for the period in which the transaction occurred, the resulting organization may include in regulatory capital non-qualifying capital instruments issued prior to May 19, 2010 (2010 MHC) to the extent provided in Table 9.
(2) Depository institution holding companies under $15 billion, depository institutions, and 2010 MHCs that are not subject to paragraph (d)(1)(iii) of this section may include in regulatory capital non-qualifying capital instruments issued prior to May 19, 2010 subject to the transition
(i) Non-qualifying capital instruments issued before September 12, 2010, that were outstanding as of January 1, 2013 may be included in a [BANK]'s capital up to the percentage of the outstanding principal amount of such non-qualifying capital instruments as of January 1, 2013 in accordance with Table 10.
(ii) Table 10 applies separately to additional tier 1 and tier 2 non-qualifying capital instruments.
(iii) The amount of non-qualifying capital instruments that cannot be included in additional tier 1 capital under this section may be included in the tier 2 capital, provided the instruments meet the criteria for tier 2 capital instruments under § __.20(d) of subpart C of this part.
(3)
(ii)
Administrative practice and procedure, Capital, National banks, Reporting and recordkeeping requirements, Risk.
Administrative practice and procedure, National banks, Reporting and recordkeeping requirements, Securities.
National banks.
Administrative practice and procedure, Savings associations.
Capital, Reporting and recordkeeping requirements, Risk, Savings associations.
Confidential business information, Crime, Currency, Federal Reserve System, Mortgages, reporting and recordkeeping requirements, Securities.
Administrative practice and procedure, Banks, banking, Federal Reserve System, Holding companies, Reporting and recordkeeping requirements, Securities.
Administrative practice and procedure, Banks, banking, Federal Reserve System, Holding companies, Reporting and recordkeeping requirements, Securities.
Administrative practice and procedure, Banks, banking, Capital Adequacy, Reporting and recordkeeping requirements, Savings associations, State non-member banks.
Administrative practice and procedure, Authority delegations (Government agencies), Bank deposit insurance, Banks, banking, Investments, Reporting and recordkeeping requirements.
The adoption of the final common rules by the agencies, as modified by the agency-specific text, is set forth below:
For the reasons set forth in the common preamble and under the authority of 12 U.S.C. 93a and 5412(b)(2)(B), the Office of the Comptroller of the Currency proposes to amend part 3 of chapter I of title 12, Code of Federal Regulations as follows:
1. The authority citation for part 3 is revised to read as follows:
12 U.S.C. 93a, 161, 1462, 1462a, 1463, 1464, 1818, 1828(n), 1828 note, 1831n note, 1835, 3907, 3909, and 5412(b)(2)(B).
2a. Revise the heading of part 3 to read as set forth above.
2b. Remove subpart A, consisting of §§ 3.1 through 3.4.
2c. Remove subpart B, consisting of §§ 3.5 through 3.8.
3. Redesignate subparts C through E as subparts H through J.
4. Add subparts A through C and G as set forth at the end of the common preamble.
5a. Redesignate § 3.100 in newly redesignated subpart J as § 3.600.
5b. Add subpart K, consisting of newly redesignated § 3.600, with the heading set forth above.
6. Remove appendices A through C.
7. Subparts A through C and G, as set forth at the end of the common preamble, are amended as set follows:
i. Remove “[AGENCY]” and add “OCC” in its place, wherever it appears;
ii. Remove “[BANK]” and add “national bank or Federal savings association” in its place, wherever it appears;
iii. Remove “[BANKS]” and “[BANK]s” and add “national banks and Federal savings associations” in their places, wherever they appear;
iv. Remove “[BANK]'s” and “[BANK'S]” and add “national bank's and Federal savings association's” in their places, wherever they appear;
v. Remove “[PART]” and add “Part 3” in its place, wherever it appears; and
vi. Remove “[REGULATORY REPORT]” and add “Call Report” in its place, wherever it appears.
8. Section 3.2, as set forth at the end of the common preamble, is amended by adding the following definitions in alphabetical order:
9. Section 3.10, as set forth at the end of the common preamble, is amended by adding paragraphs (a)(6), (b)(5), and (c)(5) to read as follows:
(a) * * *
(6) For Federal savings associations, a tangible capital ratio of 1.5 percent.
(b) * * *
(5)
(c) * * *
(5)
10. Section 3.22, as set forth at the end of the common preamble, is amended by adding paragraph (a)(8) to read as follows:
(a) * * *
(8)(i) A Federal savings association must deduct the aggregate amount of its outstanding investments, (both equity and debt) as well as retained earnings in subsidiaries that are not includable subsidiaries as defined in paragraph (a)(8)(iv) of this section (including those subsidiaries where the Federal savings association has a minority ownership interest) and may not consolidate the assets and liabilities of the subsidiary with those of the Federal savings association. Any such deductions shall be deducted from common equity tier 1 except as provided in paragraphs (a)(8)(ii) and (iii) of this section.
(ii) If a Federal savings association has any investments (both debt and equity) in one or more subsidiaries engaged in any activity that would not fall within the scope of activities in which includable subsidiaries as defined in paragraph (a)(8)(iv) of this section may engage, it must deduct such investments from assets and, thus, common equity tier 1 in accordance with paragraph (a)(8)(i) of this section. The Federal savings association must first deduct from assets and, thus, common equity tier 1 the amount by which any investments in such subsidiary(ies) exceed the amount of such investments held by the Federal savings association as of April 12, 1989. Next the Federal savings association must deduct from assets and, thus, common equity tier 1 the Federal savings association's investments in and extensions of credit to the subsidiary on the date as of which the savings association's capital is being determined.
(iii) If a Federal savings association holds a subsidiary (either directly or through a subsidiary) that is itself a domestic depository institution, the OCC may, in its sole discretion upon determining that the amount of Common Equity Tier 1 that would be required would be higher if the assets and liabilities of such subsidiary were consolidated with those of the parent Federal savings association than the amount that would be required if the parent Federal savings association's investment were deducted pursuant to paragraphs (a)(8)(i) and (ii) of this section, consolidate the assets and liabilities of that subsidiary with those of the parent Federal savings association in calculating the capital adequacy of the parent Federal savings association, regardless of whether the subsidiary would otherwise be an includable subsidiary as defined in paragraph (a)(8)(iv) of this section.
(iv) For purposes of this section, the term includable subsidiary means a subsidiary of a Federal savings association that is:
(A) Engaged solely in activities not impermissible for a national bank;
(B) Engaged in activities not permissible for a national bank, but only if acting solely as agent for its customers and such agency position is clearly documented in the Federal savings association's files;
(C) Engaged solely in mortgage-banking activities;
(D)(
(
(E) A subsidiary of any Federal savings association existing as a Federal savings association on August 9, 1989 that
(
(
11. Revise the heading of newly redesignated subpart H as set forth above.
12. Amend § 3.300, as set forth at the end of the common preamble, by:
a. Removing the word “bank”, wherever it appears, and adding in its
b. Removing “§ 3.6”, wherever it appears, and adding in its place the phrase “subpart B of this part”.
13. Amend § 3.301, as set forth at the end of the common preamble, by removing the word “bank”, wherever it appears, and adding in its place the phrase “national bank or Federal savings association”.
14. Amend § 3.302, as set forth at the end of the common preamble, by:
a. Removing the word “bank”, wherever it appears, and adding in its place the phrase “national bank or Federal savings association”; and
b. Removing the word “bank's”, wherever it appears, and adding in its place the phrase “national bank's or Federal savings association's”.
15. Amend § 3.303, as set forth at the end of the common preamble, by:
a. Removing from paragraph (a)”§ 3.6” and adding in its place “subpart B of this part”;
b. Removing the word “bank”, wherever it appears, and adding in its place the phrase “national bank or Federal savings association”;
c. Removing the word “bank's”, wherever it appears, and adding in its place the phrase “national bank's or Federal savings association's”;
d. Removing the word “Office”, wherever it appears, and adding in its place the word “OCC”;
e. Removing the word “Office's”, wherever it appears, and adding in its place the word “OCC's”; and
16. Amend § 3.304, as set forth at the end of the common preamble, by:
a. Removing the word “bank” and adding in its place the phrase “national bank or Federal savings association”; and
b. Adding the phrase “for national banks and 12 CFR 109.1 through 109.21 for Federal savings associations” after “19.21”.
17. Section 3.400, as set forth at the end of the common preamble, is amended:
a. In the first sentence, by removing the word “bank”, wherever it appears, and adding in its place the phrase “national bank or Federal savings association”, and removing the phrase “subpart C” and adding in its place the phrase “subpart H”; and
b. In the second sentence, by removing the phrase “subpart E” and adding in its place the phrase “subpart J”; and
c. In the third sentence by adding the phrase “or Federal savings association's” after the word “bank's”, and removing the phrase “§ 3.6(a) or (b)” and adding in its place “subpart B of this part”.
18. Amending § 3.500, as set forth at the end of the common preamble, by:
a. Removing the word “bank”, wherever it appears, and adding in its place the phrase “national bank or Federal savings association”;
b. Removing the word “Office”, wherever it appears, and adding in its place the word “OCC”; and
c. In the introductory text, removing the phrase “subpart C” and adding in its place the phrase “subpart H”.
19. Amending, as set forth at the end of the common preamble, § 3.501 by:
a. Removing the word “bank”, and adding in its place the phrase “national bank or Federal savings association”; and
b. Removing the word “Office”, and adding in its place the word “OCC”.
20. Amending, as set forth at the end of the common preamble, § 3.502 by:
a. Removing the word “bank”, and adding in its place the phrase “national bank or Federal savings association”; and
b. Removing the word “Office”, and adding in its place the word “OCC”.
21. Amending, as set forth at the end of the common preamble, § 3.503 by:
a. Removing the word “bank's”, wherever it appears, and adding in its place the phrase “national bank's or Federal savings association's”; and
b. Removing the word “Office”, and adding in its place the word “OCC”.
22a. Amend, as set forth at the end of the common preamble, § 3.504 by:
a. Removing the word “bank”, wherever it appears, and adding in its place the phrase “national bank or Federal savings association”;
b. Removing the word “bank's”, wherever it appears, and adding in its place the phrase “national bank's or Federal savings association's”; and
c. Removing the word “Office”, wherever it appears, and adding in its place the word “OCC”.
22b. Amend § 3.505, as set forth at the end of the common preamble, by:
a. Removing the word “bank”, wherever it appears, and adding in its place the phrase “national bank or Federal savings association”;
b. Removing the word “bank's”, wherever it appears, and adding in its place the phrase “national bank's or Federal savings association's”; and
c. Removing the word “Office”, wherever it appears, and adding in its place the word “OCC”.
22c. Amend, as set forth at the end of the common preamble, § 3.506 by:
a. Removing the word “bank”, wherever it appears, and adding in its place the phrase “national bank or Federal savings association”;
b. Removing the word “bank's”, wherever it appears, and adding in its place the phrase “national bank's or Federal savings association's”; and
c. Removing the word “Office”, wherever it appears, and adding in its place the word “OCC”.
23. Amend newly redesignated § 3.600:
a. In paragraphs (a) through (d), by removing the phrase “national banking associations”, wherever it appears, and adding in its place the phrase “national banks”;
b. By removing the word “bank”, wherever it appears, and adding in its place the phrase “national bank”;
c. In paragraph (a), by removing the word “bank's” and adding in its place the phrase “national bank's”, and removing “§ 3.2” and adding in its place the phrase “subparts A–J of this part”; and
d. In paragraph (e)(7), by removing the word “bank-owned” and adding in its place the word “national bank-owned”.
24. The authority citation for part 5 continues to read as follows:
12 U.S.C. 1
20. Section 5.39 is amended by revising paragraph (h)(1) and republishing paragraph (h)(2) for reader reference to read as follows:
(h) * * *
(1) For purposes of determining regulatory capital the national bank may
(2) Any published financial statement of the national bank shall, in addition to providing information prepared in accordance with generally accepted accounting principles, separately present financial information for the bank in the manner provided in paragraph (h)(1) of this section;
21. Part 6 is revised to read as follows:
12 U.S.C. 93a, 1831o, 5412(b)(2)(B).
(a)
(b)
(c)
(d)
(e)
For purposes of section 38 and this part, the definitions in part 3 of this chapter shall apply. In addition, except as modified in this section or unless the context otherwise requires, the terms used in this subpart have the same meanings as set forth in section 38 and section 3 of the FDI Act.
(2)
(3)
(a)
(b)
(1) A Consolidated Report of Condition and Income (Call Report) is required to be filed with the OCC;
(2) A final report of examination is delivered to the national bank or Federal savings association; or
(3) Written notice is provided by the OCC to the national bank or Federal savings association of its capital category for purposes of section 38 of the FDI Act and this part or that the national bank's or Federal savings association's capital category has changed as provided in paragraph (c) of this section or § 6.1 of this subpart and subpart M of part 19 of this chapter with respect to national banks and § 165.8 with respect to Federal savings associations.
(c)
(2)
(a)
(i) Total Risk-Based Capital Measure: the total risk-based capital ratio;
(ii) Tier 1 Risk-Based Capital Measure: the tier 1 risk-based capital ratio; and
(iii) Leverage Measure: the leverage ratio.
(2)
(i) Total Risk-Based Capital Measure: the total risk-based capital ratio;
(ii) Tier 1 Risk-Based Capital Measure: the tier 1 risk-based capital ratio;
(iii) Common Equity Tier 1 Capital Measure: the common equity tier 1 risk-based capital ratio; and
(iv) The Leverage Measure: (A) the leverage ratio, and (B) with respect to an advanced approaches national bank or advanced approaches Federal savings association, on January 1, 2018, and thereafter, the supplementary leverage ratio.
(b)
(1) “Well capitalized” if:
(i) Total Risk-Based Capital Measure: the national bank or Federal savings association has a total risk-based capital ratio of 10.0 percent or greater;
(ii) Tier 1 Risk-Based Capital Measure: the bank or Federal savings association has a tier 1 risk-based capital ratio of 6.0 percent or greater;
(iii) Leverage Measure: the national bank or Federal savings association has a leverage ratio of 5.0 percent or greater; and
(iv) The national bank or Federal savings association is not subject to any written agreement, order or capital directive, or prompt corrective action directive issued by the OCC pursuant to section 8 of the FDI Act, the International Lending Supervision Act of 1983 (12 U.S.C. 3907), the Home Owners' Loan Act (12 U.S.C. 1464(t)(6)(A)(ii)), or section 38 of the FDI Act, or any regulation thereunder, to meet and maintain a specific capital level for any capital measure.
(2) “Adequately capitalized” if:
(i) Total Risk-Based Capital Measure: the national bank or Federal savings association has a total risk-based capital ratio of 8.0 percent or greater;
(ii) Tier 1 Risk-Based Capital Measure: the national bank or Federal savings association has a tier 1 risk-based capital ratio of 4.0 percent or greater;
(iii) Leverage Measure:
(A) The national bank or Federal savings association has a leverage ratio of 4.0 percent or greater; or
(B) The national bank or Federal savings association has a leverage ratio of 3.0 percent or greater if the national bank or Federal savings association is rated composite 1 under the CAMELS rating system in the most recent examination of the national bank and or
(iv) Does not meet the definition of a “well capitalized” national bank or Federal savings association.
(3) “Undercapitalized” if:
(i) Total Risk-Based Capital Measure: the national bank or Federal savings association has a total risk-based capital ratio of less than 8.0 percent; or
(ii) Tier 1 Risk-Based Capital Measure: the national bank or Federal savings association has a tier 1 risk-based capital ratio of less than 4.0 percent; or
(iii) Leverage Measure:
(A) Except as provided in paragraph (b)(2)(iii)(B) of this section, the national bank or Federal savings association has a leverage ratio of less than 4.0 percent; or
(iv) The national bank or Federal savings association has a leverage ratio of less than 3.0 percent, if the national bank or Federal savings association is rated composite 1 under the CAMELS rating system in the most recent examination of the national bank or Federal savings association and is not experiencing or anticipating significant growth.
(4) “Significantly undercapitalized” if:
(i) Total Risk-Based Capital Measure: the national bank or Federal savings association has a total risk-based capital ratio of less than 6.0 percent; or
(ii) Tier 1 Risk-Based Capital Measure: the national bank or Federal savings association has a tier 1 risk-based capital ratio of less than 3.0 percent; or
(iii) Leverage Measure: the national bank or Federal savings association has a leverage ratio of less than 3.0 percent.
(5) “Critically undercapitalized” if the national bank or Federal savings association has a ratio of tangible equity to total assets that is equal to or less than 2.0 percent.
(c)
(1) “Well capitalized” if:
(i) Total Risk-Based Capital Measure: the national bank or Federal savings association has a total risk-based capital ratio of 10.0 percent or greater;
(ii) Tier 1 Risk-Based Capital Measure: the national bank or Federal savings association has a tier 1 risk-based capital ratio of 8.0 percent or greater;
(iii) Common Equity Tier 1 Capital Measure: the national bank or Federal savings association has a common equity tier 1 risk-based capital ratio of 6.5 percent or greater;
(iv) Leverage Measure: the national bank or Federal savings association has a leverage ratio of 5.0 or greater; and
(iv) The national bank or Federal savings association is not subject to any written agreement, order or capital directive, or prompt corrective action directive issued by the OCC pursuant to section 8 of the FDI Act, the International Lending Supervision Act of 1983 (12 U.S.C. 3907), the Home Owners' Loan Act (12 U.S.C. 1464(t)(6)(A)(ii)), or section 38 of the FDI Act, or any regulation thereunder, to meet and maintain a specific capital level for any capital measure.
(2) “Adequately capitalized” if:
(i) Total Risk-Based Capital Measure: the national bank or Federal savings association has a total risk-based capital ratio of 8.0 percent or greater;
(ii) Tier 1 Risk-Based Capital Measure: the national bank or Federal savings association has a tier 1 risk-based capital ratio of 6.0 percent or greater;
(iii) Common Equity Tier 1 Capital Measure: the national bank or Federal savings association has a common equity tier 1 risk-based capital ratio of 4.5 percent or greater;
(iv) Leverage Measure:
(A) The national bank or Federal savings association has a leverage ratio of 4.0 percent or greater; and
(B) With respect to an advanced approaches national bank or advanced approaches Federal savings association, on January 1, 2018 and thereafter, the national bank or Federal savings association has a supplementary leverage ratio of 3.0 percent or greater; and
(v) The national bank or Federal savings association does not meet the definition of a “well capitalized” national bank or Federal savings association.
(3) “Undercapitalized” if:
(i) Total Risk-Based Capital Measure: the national bank or Federal savings association has a total risk-based capital ratio of less than 8.0 percent;
(ii) Tier 1 Risk-Based Capital Measure: the national bank or Federal savings association has a tier 1 risk-based capital ratio of less than 6.0 percent;
(iii) Common Equity Tier 1 Capital Measure: the national bank or Federal savings association has a common equity tier 1 risk-based capital ratio of less than 4.5 percent; or
(iv) Leverage Measure: (A) The national bank or Federal savings association has a leverage ratio of less than 4.0 percent; or
(B) With respect to an advanced approaches national bank or advanced approaches Federal savings association, on January 1, 2018, and thereafter, the national bank or Federal savings association has a supplementary leverage ratio of less than 3.0 percent.
(4) “Significantly undercapitalized” if:
(i) Total Risk-Based Capital Measure: the national bank or Federal savings association has a total risk-based capital ratio of less than 6.0 percent;
(ii) Tier 1 Risk-Based Capital Measure: the national bank or Federal savings association has a tier 1 risk-based capital ratio of less than 4.0 percent;
(iii) Common Equity Tier 1 Capital Measure: the national bank or Federal savings association has a common equity tier 1 risk-based capital ratio of less than 3.0 percent; or
(iv) Leverage Measure: the national bank or Federal savings association has a leverage ratio of less than 3.0 percent.
(5) “Critically undercapitalized” if the national bank or Federal savings association has a ratio of tangible equity to total assets that is equal to or less than 2.0 percent.
(d)
(1)
(i) Maintains the pledge of assets required under 12 CFR 347.209; and
(ii) Maintains the eligible assets prescribed under 12 CFR 347.210 at 108 percent or more of the preceding quarter's average book value of the insured branch's third-party liabilities; and
(iii) Has not received written notification from:
(A) The OCC to increase its capital equivalency deposit pursuant to § 28.15 of this chapter, or to comply with asset maintenance requirements pursuant to § 28.20 of this chapter; or
(B) The FDIC to pledge additional assets pursuant to 12 CFR 346.209 or to maintain a higher ratio of eligible assets pursuant to 12 CFR 346.210.
(2)
(i) Maintains the pledge of assets prescribed under 12 CFR 346.209; and
(ii) Maintains the eligible assets prescribed under 12 CFR 346.210 at 106 percent or more of the preceding quarter's average book value of the insured branch's third-party liabilities; and
(iii) Does not meet the definition of a well capitalized insured federal branch.
(3)
(i) Fails to maintain the pledge of assets required under 12 CFR 346.209; or
(ii) Fails to maintain the eligible assets prescribed under 12 CFR 346.210 at 106 percent or more of the preceding quarter's average book value of the insured branch's third-party liabilities.
(4)
(5)
(e)
(1)
(2)
(a)
(2)
(b)
(c)
(d)
(e)
(f)
(g)
(h)
(i)
(A) An amount equal to 5.0 percent of the national bank's or Federal savings association's total assets at the time the national bank or Federal savings association was notified or deemed to have notice that the national bank or Federal savings association was undercapitalized; or
(B) The amount necessary to restore the relevant capital measures of the national bank or Federal savings association to the levels required for the national bank or Federal savings association to be classified as adequately capitalized, as those capital measures and levels are defined at the time that the national bank or Federal savings association initially fails to comply with a capital restoration plan under this subpart.
(ii)
(iii)
(2)
(3)
(j)
(a)
(2)
(i) Restricting payment of capital distributions and management fees (section 38(d));
(ii) Requiring that the OCC monitor the condition of the national bank or Federal savings association (section 38(e)(1));
(iii) Requiring submission of a capital restoration plan within the schedule established in this subpart (section 38(e)(2));
(iv) Restricting the growth of the national bank's or Federal savings association's assets (section 38(e)(3)); and
(v) Requiring prior approval of certain expansion proposals (section 38(e)(4)).
(3)
(4)
(i) Restricting the activities of the national bank or Federal savings association (section 38 (h)(1)); and
(ii) Restricting payments on subordinated debt of the national bank or Federal savings association (section 38 (h)(2)).
(b)
The rules and procedures set forth in this subpart apply to insured national banks, insured federal branches, Federal savings associations, and senior executive officers and directors of national banks and Federal savings associations that are subject to the provisions of section 38 of the Federal Deposit Insurance Act (section 38) and subpart A of this part.
(a)
(2)
(b)
(1) A statement of the national bank's or Federal savings association's capital measures and capital levels;
(2) A description of the restrictions, prohibitions or affirmative actions that the OCC proposes to impose or require;
(3) The proposed date when such restrictions or prohibitions would be effective or the proposed date for completion of such affirmative actions; and
(4) The date by which the national bank or Federal savings association subject to the directive may file with the OCC a written response to the notice.
(a)
(b)
(1) An explanation why the action proposed by the OCC is not an appropriate exercise of discretion under section 38;
(2) Any recommended modification of the proposed directive; and
(3) Any other relevant information, mitigating circumstances, documentation, or other evidence in support of the position of the national bank or Federal savings association regarding the proposed directive.
(c)
(a)
(1) Issue the directive as proposed or in modified form;
(2) Determine not to issue the directive and so notify the national bank or Federal savings association; or
(3) Seek additional information or clarification of the response from the national bank or Federal savings association, or any other relevant source.
(b) [Reserved]
Any national bank or Federal savings association that is subject to a directive under this subpart may, upon a change in circumstances, request in writing that the OCC reconsider the terms of the directive, and may propose that the directive be rescinded or modified. Unless otherwise ordered by the OCC, the directive shall continue in place while such request is pending before the OCC.
(a)
(b)
(c)
22. The authority citation for part 165 continues to read as follows:
12 U.S.C. 1831o, 5412(b)(2)(B).
23. Sections 165.1—165.7 and 165.10 are removed.
24. Section 165.8 is amended in paragraphs (a)(1)(i)(A) introductory text and (a)(1)(ii) by removing the phrases “§ 165.4(c) of this part” and “§ 165.4(c)(1)” respectively, and adding in their place the phrase “12 CFR 6.4(d)”.
25. Under the authority of 12 U.S.C. 93a and 5412(b)(2)(B), part 167 is removed.
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 proposed to be amended as follows:
26. The authority citation for part 208 is revised to read as follows:
12 U.S.C. 24, 36, 92a, 93a, 248(a), 248(c), 321–338a, 371d, 461, 481–486, 601, 611, 1814, 1816, 1818, 1820(d)(9), 1833(j), 1828(o), 1831, 1831o, 1831p–1, 1831r–1, 1831w, 1831x, 1835a, 1882, 2901–2907, 3105, 3310, 3331–3351, 3905–3909, and 5371; 15 U.S.C. 78b, 78I(b), 78l(i), 780–4(c)(5), 78q, 78q–1, and 78w, 1681s, 1681w, 6801, and 6805; 31 U.S.C. 5318; 42 U.S.C. 4012a, 4104a, 4104b, 4106 and 4128.
27. In § 208.2, revise paragraph (d) to read as follows:
(d)
28. Revise § 208.4 to read as follows:
(a)
(b)
29. In § 208.23, revise paragraph (c) to read as follows:
(c)
30. The authority citation for subpart D continues to read as follows:
Subpart D of Regulation H (12 CFR part 208, Subpart D) is issued by the Board of Governors of the Federal Reserve System (Board) under section 38 (section 38) of the FDI Act as added by section 131 of the Federal Deposit Insurance Corporation Improvement Act of 1991 (Pub. L. 102–242, 105 Stat. 2236 (1991)) (12 U.S.C. 1831o).
31. Revise § 208.41 to read as follows:
For purposes of this subpart, except as modified in this section or unless the context otherwise requires, the terms used have the same meanings as set forth in section 38 and section 3 of the FDI Act.
(a)
(b)
(c)
(d)
(e)
(2)
(3)
(f)
(g)
(h)
(i)
(j)
(k)
(l)
(m)
(n)
(o)
(p)
32. In § 208.43, revise paragraphs (a) and (b), redesignate paragraph (c) as paragraph (d), and add a new paragraph (c) to read as follows:
(a)
(i) Total Risk-Based Capital Measure: The total risk-based capital ratio;
(ii) Tier 1 Risk-Based Capital Measure: The tier 1 risk-based capital ratio; and
(iii) Leverage Measure: The leverage ratio.
(2) Capital measures applicable on and after January 1, 2015. On January 1, 2015 and thereafter, for purposes of section 38 and this subpart, the relevant capital measures are:
(i) Total Risk-Based Capital Measure: The total risk-based capital ratio;
(ii) Tier 1 Risk-Based Capital Measure: The tier 1 risk-based capital ratio;
(iii) Common Equity Tier 1 Capital Measure: The common equity tier 1 risk-based capital ratio; and
(iv) Leverage Measure:
(A) The leverage ratio, and
(B) With respect to an advanced approaches bank, on January 1, 2018, and thereafter, the supplementary leverage ratio.
(b)
(1) “Well capitalized” if:
(i) Total Risk-Based Capital Measure: The bank has a total risk-based capital ratio of 10.0 percent or greater;
(ii) Tier 1 Risk-Based Capital Measure: The bank has a tier 1 risk-based capital ratio of 6.0 percent or greater;
(iii) Leverage Measure: The bank has a leverage ratio of 5.0 percent or greater; and
(iv) The bank is not subject to any written agreement, order, capital directive, or prompt corrective action directive issued by the Board pursuant to section 8 of the FDI Act, the International Lending Supervision Act of 1983 (12 U.S.C. 3907), or section 38 of the FDI Act, or any regulation thereunder, to meet and maintain a specific capital level for any capital measure.
(2) “Adequately capitalized” if:
(i) Total Risk-Based Capital Measure: The bank has a total risk-based capital ratio of 8.0 percent or greater;
(ii) Tier 1 Risk-Based Capital Measure: The bank has a tier 1 risk-based capital ratio of 4.0 percent or greater;
(iii) Leverage Measure:
(A) The bank has a leverage ratio of 4.0 percent or greater; or
(B) The bank has a leverage ratio of 3.0 percent or greater if the bank is rated composite 1 under the CAMELS rating system in the most recent examination of the bank and is not experiencing or anticipating any significant growth; and
(iv) Does not meet the definition of a “well capitalized” bank.
(3) “Undercapitalized” if:
(i) Total Risk-Based Capital Measure: The bank has a total risk-based capital ratio of less than 8.0 percent; or
(ii) Tier 1 Risk-Based Capital Measure: The bank has a tier 1 risk-based capital ratio of less than 4.0 percent; or
(iii) Leverage Measure:
(A) Except as provided in paragraph (b)(2)(iii)(B) of this section, the bank has a leverage ratio of less than 4.0 percent; or
(B) The bank has a leverage ratio of less than 3.0 percent, if the bank is rated composite 1 under the CAMELS rating system in the most recent examination of the bank and is not experiencing or anticipating significant growth.
(4) “Significantly undercapitalized” if:
(i) Total Risk-Based Capital Measure: The bank has a total risk-based capital ratio of less than 6.0 percent; or
(ii) Tier 1 Risk-Based Capital Measure: The bank has a tier 1 risk-based capital ratio of less than 3.0 percent; or
(iii) Leverage Measure: The bank has a leverage ratio of less than 3.0 percent.
(5) “Critically undercapitalized” if the bank has a ratio of tangible equity to total assets that is equal to or less than 2.0 percent.
(c)
(1) “Well capitalized” if:
(i) Total Risk-Based Capital Measure: The bank has a total risk-based capital ratio of 10.0 percent or greater;
(ii) Tier 1 Risk-Based Capital Measure: The bank has a tier 1 risk-based capital ratio of 8.0 percent or greater;
(iii) Common Equity Tier 1 Capital Measure: The bank has a common equity tier 1 risk-based capital ratio of 6.5 percent or greater;
(iv) Leverage Measure: The bank has a leverage ratio of 5.0 or greater; and
(iv) The bank is not subject to any written agreement, order, capital directive, or prompt corrective action directive issued by the Board pursuant to section 8 of the FDI Act, the International Lending Supervision Act of 1983 (12 U.S.C. 3907), or section 38 of the FDI Act, or any regulation thereunder, to meet and maintain a specific capital level for any capital measure.
(2) “Adequately capitalized” if:
(i) Total Risk-Based Capital Measure: The bank has a total risk-based capital ratio of 8.0 percent or greater;
(ii) Tier 1 Risk-Based Capital Measure: The bank has a tier 1 risk-based capital ratio of 6.0 percent or greater;
(iii) Common Equity Tier 1 Capital Measure: The bank has a common equity tier 1 risk-based capital ratio of 4.5 percent or greater;
(iv) Leverage Measure:
(A) The bank has a leverage ratio of 4.0 percent or greater; and
(B) With respect to an advanced approaches bank, on January 1, 2018, and thereafter, the bank has a supplementary leverage ratio of 3.0 percent or greater; and
(v) The bank does not meet the definition of a “well capitalized” bank.
(3) “Undercapitalized” if:
(i) Total Risk-Based Capital Measure: The bank has a total risk-based capital ratio of less than 8.0 percent;
(ii) Tier 1 Risk-Based Capital Measure: The bank has a tier 1 risk-based capital ratio of less than 6.0 percent;
(iii) Common Equity Tier 1 Capital Measure: The bank has a common equity tier 1 risk-based capital ratio of less than 4.5 percent; or
(iv) Leverage Measure:
(A) The bank has a leverage ratio of less than 4.0 percent; or
(B) With respect to an advanced approaches bank, on January 1, 2018, and thereafter, the bank has a supplementary leverage ratio of less than 3.0 percent.
(4) “Significantly undercapitalized” if:
(i) Total Risk-Based Capital Measure: The bank has a total risk-based capital ratio of less than 6.0 percent;
(ii) Tier 1 Risk-Based Capital Measure: The bank has a tier 1 risk-based capital ratio of less than 4.0 percent;
(iii) Common Equity Tier 1 Capital Measure: The bank has a common equity tier 1 risk-based capital ratio of less than 3.0 percent; or
(iv) Leverage Measure: The bank has a leverage ratio of less than 3.0 percent.
(5) “Critically undercapitalized” if the bank has a ratio of tangible equity to total assets that is equal to or less than 2.0 percent.
33. In § 208.73, revise paragraph (a) introductory text to read as follows:
(a)
34. In § 208.77, remove and reserve paragraph (c).
35. Amend appendix A by removing “appendix E to this part” and add “12 CFR part 217, subpart F” in its place wherever it appears; and by removing “appendix E of this part” and adding in its place “12 CFR part 217, subpart F” in its place wherever it appears.
36. Effective January 1, 2015, appendix A to part 208 is removed and reserved.
37. Appendix B to part 208 is removed and reserved.
38. In Appendix C to part 208, Note 2 is revised to read as follows:
39. Appendix E to part 208 is removed and reserved.
40. Appendix F to part 208 is removed and reserved.
41. The authority citation for part 217 shall read as follows:
12 U.S.C. 248(a), 321–338a, 481–486, 1462a, 1467a, 1818, 1828, 1831n, 1831o, 1831p–l, 1831w, 1835, 1844(b), 1851, 3904, 3906–3909, 4808, 5365, 5371.
42. Part 217 is added as set forth at the end of the common preamble.
43. Part 217 is amended as set forth below:
i. Remove “[AGENCY]” and add “Board” in its place wherever it appears.
ii. Remove “[BANK]” and add “Board-regulated institution” in its place wherever it appears.
iii. Remove “[PART]” and add “part” wherever it appears.
44. In § 217.1, redesignate paragraphs (c)(1) through (c)(4) as paragraphs (c)(2) through (c)(5) respectively, add new paragraph (c)(1), and revise paragraph (e) to read as follows:
(c)(1)
(i) A state member bank;
(ii) A bank holding company domiciled in the United States that is not subject to 12 CFR part 225, Appendix C, provided that the Board may by order subject any bank holding company to this part, in whole or in part, based on the institution's size, level of complexity, risk profile, scope of operations, or financial condition; or
(iii) A savings and loan holding company domiciled in the United States.
(e)
45. In § 217.2:
i. Add definitions of Board, Board-regulated institution, non-guaranteed separate account, policy loan, separate account, state bank, and state member bank or member bank;
ii. Add paragraphs (12) and (13) to the definition of corporate exposure, and
iii. Revise the definition of gain-on-sale, paragraph (2)(i) of the definition of high volatility commercial real estate (HVCRE) exposure, paragraph (4) of the definition of pre-sold construction loan, and paragraph (1) of the definition of total leverage exposure, to read as follows:
(12) A policy loan; or
(13) A separate account.
(2) * * *
(i) The loan-to-value ratio is less than or equal to the applicable maximum supervisory loan-to-value ratio in the Board's real estate lending standards at 12 CFR part 208, Appendix C;
(1) Does not contractually guarantee either a minimum return or account value to the contract holder; and
(2) Is not required to hold reserves (in the general account) pursuant to its contractual obligations to a policyholder.
(1) A cash loan, including a loan resulting from early payment benefits or accelerated payment benefits, on an insurance contract when the terms of contract specify that the payment is a policy loan secured by the policy; and
(2) An automatic premium loan, which is a loan that is made in accordance with policy provisions which provide that delinquent premium payments are automatically paid from the cash value at the end of the established grace period for premium payments.
(4) The purchaser has not terminated the contract; however, if the purchaser terminates the sales contract, the Board must immediately apply a 100 percent risk weight to the loan and report the revised risk weight in the next quarterly Call Report, for a state member bank, or the FR Y–9C, for a bank holding company or savings and loan holding company, as applicable,
(1) The account must be legally recognized under applicable law;
(2) The assets in the account must be insulated from general liabilities of the insurance company under applicable law in the event of the company's insolvency;
(3) The insurance company must invest the funds within the account as directed by the contract holder in designated investment alternatives or in accordance with specific investment objectives or policies, and
(4) All investment gains and losses, net of contract fees and assessments, must be passed through to the contract holder, provided that the contract may specify conditions under which there may be a minimum guarantee but must not include contract terms that limit the maximum investment return available to the policyholder.
(1) The balance sheet carrying value of all of the Board-regulated institution's on-balance sheet assets, as reported on the Call Report, for a state member bank, or the FR Y–9C, for a bank holding company or savings and loan holding company,
46. In § 217.10, revise paragraph (b)(4) to read as follows:
(b) * * *
(4)
47. In § 217.11, revise paragraphs (a)(2)(i) and (a)(3) as follows
(a) * * *
(2)
(i)
(3)
48. In § 217.22, revise paragraph (a)(7) and add paragraph (b)(3) to read as follows:
(a) * * *
(7)
(ii) No other deduction is required under § 217.22(c) for investments in the capital instruments of financial subsidiaries.
(b) * * *
(3) Regulatory capital requirement of insurance underwriting subsidiary. A bank holding company or savings and loan holding company must deduct an amount equal to the minimum regulatory capital requirement established by the regulator of any insurance underwriting subsidiary of the holding company. For U.S.-based
49. In § 217.300, revise paragraph (c)(3) introductory text and add new paragraph (e) to read as follows:
(3)
(e) Until July 21, 2015, this part will not apply to any bank holding company subsidiary of a foreign banking organization that is currently relying on Supervision and Regulation Letter SR 01–01 issued by the Board (as in effect on May 19, 2010).
42. The authority citation for part 225 continues to read as follows:
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. 1681s, 1681w, 6801 and 6805.
50. In § 225.1, on January 1, 2015, remove and reserve paragraphs (c)(12), (c)(13) and (c)(15) to read as follows:
(c)
(12) [Reserved]
(14) [Reserved]
(15) [Reserved]
51. In § 225.2, revise paragraphs (r)(1)(i) and (ii) to read as follows:
(r) * * *
(1) * * *
(i) On a consolidated basis, the bank holding company maintains a total risk-based capital ratio of 10.0 percent or greater, as defined in 12 CFR 217.10;
(ii) On a consolidated basis, the bank holding company maintains a tier 1 risk-based capital ratio of 6.0 percent or greater, as defined in 12 CFR 217.10; and
52. In § 225.4, revise paragraph (b)(4)(ii) to read as follows:
(b) * * *
(4) * * *
(ii) In determining whether a proposal constitutes an unsafe or unsound practice, the Board shall consider whether the bank holding company's financial condition, after giving effect to the proposed purchase or redemption, meets the financial standards applied by the Board under section 3 of the BHC Act, including 12 CFR part 217 and the Board's Policy Statement for Small Bank Holding Companies (appendix C of this part).
53. In § 225.8, revise paragraphs (c)(5) and (c)(7) through (c)(10) to read as follows:
(c) * * *
(5)
(7)
(8)
(9)
(10)
54. In § 225.12, revise paragraph (d)(2)(iv) to read as follows:
(d) * * *
(2) * * *
(iv) Both before and after the transaction, the acquiring bank holding company meets the requirements of 12 CFR part 217;
55. In § 225.22, revise paragraph (d)(8)(v) to read as follows:
(d) * * *
(8) * * *
(v) The acquiring company, after giving effect to the transaction, meets the requirements of 12 CFR part 217, and the Board has not previously notified the acquiring company that it may not acquire assets under the exemption in this paragraph (d).
56. In § 225.172, revise paragraph (b)(6)(i)(A) to read as follows:
(b) * * *
(6) * * *
(i) * * *
(A) Higher than the maximum marginal tier 1 capital charge applicable under part 217 to merchant banking
57. Amend appendix A to remove “appendix E of this part” and add “12 CFR part 217, subpart F” in its place wherever it appears.
58. On January 1, 2015, appendix A to part 225 is removed and reserved.
59. Appendix B to part 225 is removed and reserved.
60. Appendix D to part 225 is removed and reserved.
61. Appendix E to part 225 is removed and reserved.
62. Appendix G to part 225 is removed and reserved.
For the reasons set forth in the common preamble, the Federal Deposit Insurance Corporation amends chapter III of title 12 of the Code of Federal Regulations as follows:
63. The authority citation for part 324 is added to read as follows:
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; 5371; 5412; Pub. L. 102–233, 105 Stat. 1761, 1789, 1790 (12 U.S.C. 1831n note); Pub. L. 102–242, 105 Stat. 2236, 2355, 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); Pub. L. 111–203, 124 Stat. 1376, 1887 (15 U.S.C. 78o–7 note).
64. Subparts A, B, C, and G of part 324 are added as set forth at the end of the common preamble.
65. Subparts A, B, C, and G of part 324 are amended as set forth below:
a. Remove “[AGENCY]” and add “FDIC” in its place, wherever it appears;
b. Remove “[BANK]” and add “bank and state savings association” in its place, wherever it appears in the phrase “Each [BANK]” or “each [BANK]”;
c. Remove “[BANK]” and add “bank or state savings association” in its place, wherever it appears in the phrases “A [BANK]”, “a [BANK]”, “The [BANK]”, or “the [BANK]”;
d. Remove “[BANKS]” and add “banks and state savings associations” in its place, wherever it appears;
e. Remove “[PART]” and add “Part 324” in its place, wherever it appears;
f. Remove “[AGENCY]” and add “FDIC” in its place, wherever it appears; and
g. Remove “[REGULATORY REPORT]” and add “Call Report” in its place, wherever it appears.
66. New § 324.2 is amended by adding the following definitions in alphabetical order:
67. New § 324.10 is amended by adding paragraphs (a)(6), (b)(5), and (c)(5) to read as follows:
(a) * * *
(6) For state savings associations, a tangible capital ratio of 1.5 percent.
(b) * * *
(5)
(c) * * *
(5)
68. New § 324.22 is amended to add new paragraph (a)(8), to read as follows:
(a) * * *
(8) (i) A state savings association must deduct the aggregate amount of its outstanding investments, (both equity and debt) as well as retained earnings in subsidiaries that are not includable subsidiaries as defined in paragraph 7(iv) of this section (including those subsidiaries where the state savings association has a minority ownership interest) and may not consolidate the assets and liabilities of the subsidiary with those of the state savings association. Any such deductions shall be deducted from common equity tier 1 capital, except as provided in paragraphs (a)(7)(ii) and (a)(7)(iii) of this section.
(ii) If a state savings association has any investments (both debt and equity) in one or more subsidiaries engaged in any activity that would not fall within the scope of activities in which includable subsidiaries as defined in paragraph 7(iv) of this section may engage, it must deduct such investments from assets and common equity tier 1
(iii) If a state savings association holds a subsidiary (either directly or through a subsidiary) that is itself a [insured] domestic depository institution, the FDIC may, in its sole discretion upon determining that the amount of common equity tier 1 capital that would be required would be higher if the assets and liabilities of such subsidiary were consolidated with those of the parent state savings association than the amount that would be required if the parent state savings association's investment were deducted pursuant to paragraphs (c)(6)(i) and (c)(6)(ii) of this section, consolidate the assets and liabilities of that subsidiary with those of the parent state savings association in calculating the capital adequacy of the parent state savings association, regardless of whether the subsidiary would otherwise be an includable subsidiary as defined in paragraph (c)(7)(iv) of this section.
(iv) For purposes of this section, the term includable subsidiary means a subsidiary of a state savings association that is:
(A) Engaged solely in activities that are permissible for a national bank;
(B) Engaged in activities not permissible for a national bank, but only if acting solely as agent for its customers and such agency position is clearly documented in the state savings association's files;
(C) Engaged solely in mortgage-banking activities;
(D)(
(
(E) A subsidiary of any state savings association existing as a state savings association on August 9, 1989 that —
(
(
69. Subpart H is added to part 324 to read as follows:
(a)
(b)
(c)
(d)
(e)
(a)
(b)
(1) A Consolidated Report of Condition and Income or Thrift Financial Report (Call Report) is required to be filed with the FDIC;
(2) A final report of examination is delivered to the bank or state savings association; or
(3) Written notice is provided by the FDIC to the bank or state savings association of its capital category for purposes of section 38 of the FDI Act and this subpart or that the bank's or
(c)
(2)
(a)
(1) The total risk-based capital ratio;
(2) The Tier 1 risk-based capital ratio; and
(3) The common equity tier 1 ratio;
(4) The leverage ratio;
(5) The tangible equity to total assets ratio; and
(6) Beginning on January 1, 2018, the supplementary leverage ratio calculated in accordance with § 324.11 of subpart B of this part for banks or state savings associations that are subject to subpart E of part 324.
(b)
(1) “Well capitalized” if the bank or state savings association:
(i) Has a total risk-based capital ratio of 10.0 percent or greater; and
(ii) Has a Tier 1 risk-based capital ratio of 8.0 percent or greater; and
(iii) Has a common equity tier 1 capital ratio of 6.5 percent or greater; and
(iv) Has a leverage ratio of 5.0 percent or greater; and
(v) Is not subject to any written agreement, order, capital directive, or prompt corrective action directive issued by the FDIC pursuant to section 8 of the FDI Act (12 U.S.C. 1818), the International Lending Supervision Act of 1983 (12 U.S.C. 3907), or the Home Owners' Loan Act (12 U.S.C. 1464(t)(6)(A)(ii)), or section 38 of the FDI Act (12 U.S.C. 1831o), or any regulation thereunder, to meet and maintain a specific capital level for any capital measure.
(2) “Adequately capitalized” if the bank or state savings association:
(i) Has a total risk-based capital ratio of 8.0 percent or greater; and
(ii) Has a Tier 1 risk-based capital ratio of 6.0 percent or greater; and
(iii) Has a common equity tier 1 capital ratio of 4.5 percent or greater; and
(iv) Has a leverage ratio of 4.0 percent or greater; and
(v) Does not meet the definition of a well capitalized bank.
(vi) Beginning January 1, 2018, an advanced approaches bank or state savings association will be deemed to be “adequately capitalized” if the bank or state savings association satisfies paragraphs (b)(2)(i) through (v) of this section and has a supplementary leverage ratio of 3.0 percent or greater, as calculated in accordance with § 324.11 of subpart B of this part.
(3) “Undercapitalized” if the bank or state savings association:
(i) Has a total risk-based capital ratio that is less than 8.0 percent; or
(ii) Has a Tier 1 risk-based capital ratio that is less than 6.0 percent; or
(iii) Has a common equity tier 1 capital ratio that is less than 4.5 percent; or
(iv) Has a leverage ratio that is less than 4.0 percent.
(v) Beginning January 1, 2018, an advanced approaches bank or state savings association will be deemed to be “undercapitalized” if the bank or state savings association has a supplementary leverage ratio of less than 3.0 percent, as calculated in accordance with § 324.11 of subpart B of this part.
(4) “Significantly undercapitalized” if the bank or state savings association has:
(i) A total risk-based capital ratio that is less than 6.0 percent; or
(ii) A Tier 1 risk-based capital ratio that is less than 4.0 percent; or
(iii) A common equity tier 1 capital ratio that is less than 3.0 percent; or
(iv) A leverage ratio that is less than 3.0 percent.
(5) “Critically undercapitalized” if the insured depository institution has a ratio of tangible equity to total assets that is equal to or less than 2.0 percent.
(c)
(1) “Well capitalized” if the insured branch:
(i) Maintains the pledge of assets required under § 347.209 of this chapter; and
(ii) Maintains the eligible assets prescribed under § 347.210 of this chapter at 108 percent or more of the preceding quarter's average book value of the insured branch's third-party liabilities; and
(iii) Has not received written notification from:
(A) The OCC to increase its capital equivalency deposit pursuant to 12 CFR 28.15(b), or to comply with asset maintenance requirements pursuant to 12 CFR 28.20; or
(B) The FDIC to pledge additional assets pursuant to § 347.209 of this chapter or to maintain a higher ratio of eligible assets pursuant to § 347.210 of this chapter.
(2) “Adequately capitalized” if the insured branch:
(i) Maintains the pledge of assets required under § 347.209 of this chapter; and
(ii) Maintains the eligible assets prescribed under § 347.210 of this chapter at 106 percent or more of the preceding quarter's average book value of the insured branch's third-party liabilities; and
(iii) Does not meet the definition of a well capitalized insured branch.
(3) “Undercapitalized” if the insured branch:
(i) Fails to maintain the pledge of assets required under § 347.209 of this chapter; or
(ii) Fails to maintain the eligible assets prescribed under § 347.210 of this chapter at 106 percent or more of the preceding quarter's average book value of the insured branch's third-party liabilities.
(4) “Significantly undercapitalized” if it fails to maintain the eligible assets prescribed under § 347.210 of this chapter at 104 percent or more of the preceding quarter's average book value of the insured branch's third-party liabilities.
(5) “Critically undercapitalized” if it fails to maintain the eligible assets prescribed under § 347.210 of this chapter at 102 percent or more of the preceding quarter's average book value of the insured branch's third-party liabilities.
(d)
(1)
(2)
(a)
(2)
(b)
(c)
(d)
(e)
(f)
(g)
(h)
(A) An amount equal to 5.0 percent of the bank or state savings association's total assets at the time the bank or state savings association was notified or deemed to have notice that the bank or state savings association was undercapitalized; or
(B) The amount necessary to restore the relevant capital measures of the bank or state savings association to the levels required for the bank or state savings association to be classified as adequately capitalized, as those capital measures and levels are defined at the time that the bank or state savings association initially fails to comply with a capital restoration plan under this subpart.
(ii)
(iii)
(2)
(3)
(a)
(2)
(i) Restricting payment of capital distributions and management fees (section 38(d) of the FDI Act);
(ii) Requiring that the FDIC monitor the condition of the bank or state savings association (section 38(e)(1) of the FDI Act);
(iii) Requiring submission of a capital restoration plan within the schedule established in this subpart (section 38(e)(2) of the FDI Act);
(iv) Restricting the growth of the bank or state savings association's assets (section 38(e)(3) of the FDI Act); and
(v) Requiring prior approval of certain expansion proposals (section 38(e)(4) of the FDI Act).
(3)
(4)
(A) Entering into any material transaction other than in the usual course of business, including any investment, expansion, acquisition, sale of assets, or other similar action with respect to which the depository institution is required to provide notice to the appropriate Federal banking agency;
(B) Extending credit for any highly leveraged transaction;
(C) Amending the institution's charter or bylaws, except to the extent necessary to carry out any other requirement of any law, regulation, or order;
(D) Making any material change in accounting methods;
(E) Engaging in any covered transaction (as defined in section 23A(b) of the Federal Reserve Act (12 U.S.C. 371c(b)));
(F) Paying excessive compensation or bonuses;
(G) Paying interest on new or renewed liabilities at a rate that would increase the institution's weighted average cost of funds to a level significantly exceeding the prevailing rates of interest on insured deposits in the institution's normal market areas; and
(H) Making any principal or interest payment on subordinated debt beginning 60 days after becoming critically undercapitalized except that this restriction shall not apply, until July 15, 1996, with respect to any subordinated debt outstanding on July 15, 1991, and not extended or otherwise renegotiated after July 15, 1991.
(ii) In addition, the FDIC may further restrict the activities of any critically undercapitalized institution to carry out the purposes of section 38 of the FDI Act.
(5) Exception for certain savings associations. The restrictions in paragraph (a)(4) of this section shall not apply, before July 1, 1994, to any insured savings association if:
(i) The savings association had submitted a plan meeting the requirements of section 5(t)(6)(A)(ii) of the Home Owners' Loan Act (12 U.S.C. 1464(t)(6)(A)(ii)) prior to December 19, 1991;
(ii) The Director of Office of Thrift Supervision (OTS) had accepted the plan prior to December 19, 1991; and
(iii) The savings association remains in compliance with the plan or is operating under a written agreement with the appropriate federal banking agency.
(b) Discretionary supervisory actions. In taking any action under section 38 of the FDI Act that is within the FDIC's discretion to take in connection with:
(1) An insured depository institution that is deemed to be undercapitalized, significantly undercapitalized, or critically undercapitalized, or has been reclassified as undercapitalized, or significantly undercapitalized; or
(2) An officer or director of such institution, the FDIC shall follow the procedures for issuing directives under §§ 308.201 and 308.203 of this chapter, unless otherwise provided in section 38 of the FDI Act or this subpart.
70. The authority citation for part 362 continues to read as follows:
12 U.S.C. 1816, 1818, 1819(a)(Tenth), 1828(j), 1828(m), 1828a, 1831a, 1831e, 1831w, 1843(l).
71. Revise § 362.18(a)(3) to read as follows:
(a) * * *
(3) The insured state nonmember bank will deduct the aggregate amount of its outstanding equity investment, including retained earnings, in all financial subsidiaries that engage in activities as principal pursuant to section 46(a) of the Federal Deposit Act (12 U.S.C. 1831w(a)), from the bank's total assets and tangible equity and deduct such investment from common equity tier 1 capital in accordance with 12 CFR part 324, subpart C.
By order of the Board of Directors.
By order of the Board of Governors of the Federal Reserve System, July 3, 2012.
Office of the Comptroller of the Currency, Treasury; Board of Governors of the Federal Reserve System; and the Federal Deposit Insurance Corporation.
Joint notice of proposed rulemaking.
The Office of the Comptroller of the Currency (OCC), the 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 (NPRs) that would revise and replace the agencies' current capital rules.
This NPR (Standardized Approach NPR) includes proposed changes to the agencies' general risk-based capital requirements for determining risk-weighted assets (that is, the calculation of the denominator of a banking organization's risk-based capital ratios). The proposed changes would revise and harmonize the agencies' rules for calculating risk-weighted assets to enhance risk-sensitivity and address weaknesses identified over recent years, including by incorporating certain international capital standards of the Basel Committee on Banking Supervision (BCBS) set forth in the standardized approach of the “International Convergence of Capital Measurement and Capital Standards: A Revised Framework” (Basel II), as revised by the BCBS between 2006 and 2009, and other proposals addressed in recent consultative papers of the BCBS.
In this NPR, the agencies also propose alternatives to credit ratings for calculating risk-weighted assets for certain assets, consistent with section 939A of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act). The revisions include methodologies for determining risk-weighted assets for residential mortgages, securitization exposures, and counterparty credit risk. The changes in the Standardized Approach NPR are proposed to take effect on January 1, 2015, with an option for early adoption. 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. 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
Comments must be submitted on or before October 22, 2012.
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The Office of the Comptroller of the Currency (OCC), the 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 (NPRs) that would revise and replace the agencies' current capital rules.
This NPR (Standardized Approach NPR) includes proposed changes to the agencies' general risk-based capital requirements for determining risk-weighted assets (that is, the calculation of the denominator of a banking organization's risk-based capital ratios). The proposed changes would revise and harmonize the agencies' rules for calculating risk-weighted assets to enhance risk-sensitivity and address weaknesses identified over recent years, including by incorporating certain international capital standards of the Basel Committee on Banking Supervision (BCBS) set forth in the standardized approach of the “International Convergence of Capital Measurement and Capital Standards: A Revised Framework” (Basel II), as revised by the BCBS between 2006 and 2009, and other proposals addressed in recent consultative papers of the BCBS.
In this NPR, the agencies also propose alternatives to credit ratings for calculating risk-weighted assets for certain assets, consistent with section 939A of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act). The revisions include methodologies for determining risk-weighted assets for residential mortgages, securitization exposures, and counterparty credit risk. The changes in this Standardized Approach NPR are proposed to take effect on January 1, 2015, with an option for early adoption. 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.
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
The proposals in this NPR and the Basel III 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), 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, which are applicable only to the largest internationally active banking organizations, consistent with Basel III
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 (NPRs). In this NPR (Standardized Approach NPR), the agencies are proposing to revise certain aspects of the general risk-based capital requirements that address the calculation of risk-weighted assets. The agencies believe the proposed changes included in this NPR would both enhance the overall risk-sensitivity of the calculation of a banking organization's total risk-weighted assets and be consistent with relevant provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act).
This NPR contains a standardized approach for determining risk-weighted assets. This 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 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 a separate NPR (Basel III NPR), the agencies are proposing to revise their capital regulations to incorporate 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 Basel III NPR would revise the definition of regulatory capital and minimum capital ratios, establish capital buffers, create a supplementary leverage ratio for advanced approach banking organizations, and revise the agencies' Prompt Corrective Action (PCA) regulations.
The agencies are proposing in a third NPR (Advanced Approaches and Market Risk NPR) to incorporate additional aspects of the Basel III framework into the advanced approaches risk-based capital rule (advanced approaches rule). Additionally, in the Advanced Approaches and Market Risk NPR, the Board proposes to apply the advanced approaches rule to savings and loan holding companies, and the Board, FDIC, and OCC propose to apply the market risk capital rule (market risk rule) to savings and loan holding companies and to state and federal
All banking organizations, including organizations subject to the advanced approaches rule, should review both the Basel III NPR and the Standardized Approach NPR. The requirements proposed in the Basel III NPR and the Standardized Approach NPR are proposed to become the “generally applicable” capital requirements for purposes of section 171 of the Dodd-Frank Act because they would be the capital requirements for insured depository institutions under section 38 of the Federal Deposit Insurance Act, without regard to asset size or foreign financial exposure.
The agencies believe that it is important to publish all of the proposed capital rules at the same time so that banking organizations can evaluate the overall potential impact of the proposals on their operations. The proposals are divided into 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 proposals would apply to which banking organizations, and to help interested parties better focus their comments on areas of particular interest. Additionally, the agencies believe that separating the proposed requirements 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 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. The agencies believe that the proposed changes contained in the three NPRs will result in capital requirements that will improve institutions' ability to withstand periods of economic stress and better reflect their risk profiles. 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 wherever possible.
This NPR proposes new methodologies for determining risk-weighted assets in the agencies' general capital rules, incorporating elements of the Basel II standardized approach
Some of the proposed changes in this NPR are not specifically included in the Basel capital framework. However, the agencies believe that these proposed changes are generally consistent with the goals of that framework. For example, the Basel capital framework seeks to enhance the risk-sensitivity of the international risk-based capital requirements by mapping capital requirements for certain exposures to credit ratings provided by credit rating agencies. Instead of mapping risk weights to credit ratings, the agencies are proposing alternative standards of creditworthiness to assign risk weights to certain exposures, including exposures to sovereigns, companies, and securitization exposures, in a manner consistent with section 939A of the Dodd-Frank Act.
Table 1 summarizes key proposed requirements in this NPR and illustrates how these changes compare to the agencies' general risk-based capital rules.
This NPR proposes that, beginning on January 1, 2015, a banking organization would be required to calculate risk-weighted assets using the methodologies described herein. Until then, the banking organization may calculate risk-weighted assets using the methodologies in the current general risk-based capital rules.
Some of the proposed requirements in this NPR 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 Basel III NPR provide, as addenda to the corresponding preambles, a summary of the proposed changes in those NPRs as they would generally apply to smaller, less complex banking organizations. This NPR also contains a second addendum to the preamble, which directs the reader to the definitions proposed under the Basel III NPR because they are applicable to the Standardized Approach NPR as well.
For example, under this type of alternative approach, community banking organizations would be subject to the proposed new PCA thresholds, a capital conservation buffer, and other Basel III revisions to the capital framework including the definition of capital, as well as any changes related to section 939A of the Dodd-Frank Act.
Under this approach, banking organizations other than community banking organizations would use the proposed standardized approach risk weights to calculate the denominator of the risk-based capital ratio. The agencies request comment on the criteria they should consider when determining which banking organizations, if any, should be permitted to continue to calculate their risk-weighted assets using the methodology in the current general risk-based capital rules (revised as described above). Which banking organizations, consistent with section 171 of the Dodd-Frank Act, should be required to use the standardized approach?
Similar to the current general risk-based capital rules, under the proposal, a banking organization would calculate its total risk-weighted assets by adding together its on- and off-balance sheet risk-weighted asset amounts and making any relevant adjustments to incorporate required capital deductions.
A banking organization would determine its standardized total risk-weighted assets by calculating the sum of: (1) Its risk-weighted assets for general credit risk, cleared transactions, default fund contributions, unsettled transactions, securitization exposures, and equity exposures, each as defined below,
Under this NPR, total risk-weighted assets for general credit risk is the sum of the risk-weighted asset amounts as calculated under section 31(a) of the proposal. As proposed, general credit risk exposures would include a banking organization's on-balance sheet exposures, over-the-counter (OTC) derivative contracts, off-balance sheet commitments, trade and transaction-related contingencies, guarantees, repo-style transactions, financial standby letters of credit, forward agreements, or other similar transactions. General credit risk exposures would generally exclude unsettled transactions, cleared transactions, default fund contributions, securitization exposures, and equity exposures, each as the agencies propose to define. Section 32 describes the proposed risk weights that would apply to sovereign exposures; exposures to certain supranational entities and multilateral development banks (MDBs); exposures to government-sponsored entities (GSEs); exposures to depository institutions, foreign banks, and credit unions; exposures to public sector entities (PSEs); corporate exposures; residential mortgage exposures; pre-sold residential construction loans; statutory multifamily mortgages; high volatility commercial real estate (HVCRE) exposures; past due exposures; and other assets (including cash, gold bullion, certain mortgage servicing assets (MSAs) and deferred tax assets (DTAs)).
Generally, the exposure amount for the on-balance sheet component of an exposure is the banking organization's carrying value for the exposure as determined under generally accepted accounting principles (GAAP). The exposure amount for an off-balance sheet component of an exposure is typically determined by multiplying the notional amount of the off-balance sheet component by the appropriate CCF as determined under section 33. The exposure amount for an OTC derivative contract or cleared transaction that is a derivative would be determined under section 34 while exposure amounts for collateralized OTC derivative contracts, collateralized cleared transactions that are derivatives, repo-style transactions, and eligible margin loans would be determined under section 37 of the proposal.
The agencies propose to retain the current rules' risk weights for exposures to and claims directly and unconditionally guaranteed by the U. S. government or its agencies.
The agencies' general risk-based capital rules generally assign risk weights to direct exposures to sovereigns and exposures directly guaranteed by sovereigns based on whether the sovereign is a member of the Organization for Economic Co-operation and Development (OECD) and, as applicable, whether the exposure is unconditionally or conditionally guaranteed by the sovereign.
Under the proposal, a sovereign would be defined as a central government (including the U.S. government) or an agency, department, ministry, or central bank of a central government. The risk weight for a sovereign exposure would be determined using OECD Country Risk Classifications (CRCs) (the CRC methodology).
The agencies believe that use of CRCs in the proposal is permissible under section 939A of the Dodd-Frank Act and that section 939A was not intended to apply to assessments of creditworthiness of organizations such as the OECD. Section 939A is part of Subtitle C of Title IX of the Dodd-Frank Act, which, among other things, enhances regulation by the U.S. Securities and Exchange Commission (SEC) of credit rating agencies, including Nationally Recognized Statistical Rating Organizations (NRSROs) registered with the SEC. Section 939, in Subtitle C of Title IX, removes references to credit ratings and NRSROs from federal statutes. In the introductory “findings” section to Subtitle C, which is entitled “Improvements to the Regulation of Credit Ratings Agencies,” Congress characterized credit rating agencies as organizations that play a critical “gatekeeper” role in the debt markets and perform evaluative and analytical services on behalf of clients, and whose activities are fundamentally commercial in character.
The CRC methodology, established in 1999, classifies countries into categories based on the application of two basic components: the country risk assessment model (CRAM), which is an econometric model that produces a quantitative assessment of country credit risk, and the qualitative assessment of the CRAM results, which integrates political risk and other risk factors not fully captured by the CRAM. The two components of the CRC methodology are combined and result in countries being classified into one of eight risk categories (0–7), with countries assigned to the zero category having the lowest possible risk assessment and countries assigned to the 7 category having the highest possible risk assessment.
The OECD regularly updates CRCs for more than 150 countries and makes the assessments publicly available on its Web site.
The agencies recognize that CRCs have certain limitations. Although the OECD has published a general description of the methodology for CRC determinations, the methodology is largely principles-based and does not provide details regarding the specific information and data considered to support a CRC. Additionally, while the OECD reviews qualitative factors for each sovereign on a monthly basis, quantitative financial and economic information used to assign CRCs is available only annually in some cases, and payment performance is updated quarterly. Also, OECD-member sovereigns that are defined to be “high-income countries” by the World Bank are assigned a CRC of zero, the most favorable classification.
The agencies also propose to require a banking organization to apply a 150 percent risk weight to sovereign exposures immediately upon determining that an event of sovereign default has occurred or if an event of sovereign default has occurred during the previous five years. Sovereign default would be defined as a noncompliance by a sovereign with its external debt service obligations or the inability or unwillingness of a sovereign government to service an existing loan according to its original terms, as evidenced by failure to pay principal and interest timely and fully, arrearages, or restructuring. A default would include a voluntary or involuntary restructuring that results in a sovereign not servicing an existing obligation in accordance with the obligation's original terms.
The agencies are proposing to map risk weights to CRCs in a manner consistent with the Basel II standardized approach, which provides risk weights for foreign sovereigns based on country risk scores. The proposed risk weights for sovereign exposures are set forth in table 2.
If a banking supervisor in a sovereign jurisdiction allows banking organizations in that jurisdiction to apply a lower risk weight to an exposure to that sovereign than table 2 provides, a U.S. banking organization would be able to assign the lower risk weight to an exposure to that sovereign, provided
Under the general risk-based capital rules, exposures to certain supranational entities and multilateral development banks (MDB) receive a 20 percent risk weight. Consistent with the Basel framework's treatment of exposures to supranational entities, the agencies propose to apply a zero percent risk weight to exposures to the Bank for International Settlements, the European Central Bank, the European Commission, and the International Monetary Fund.
Similarly, the agencies propose to apply a zero percent risk weight to exposures to an MDB in accordance with the Basel framework. The proposal would define an MDB to include the International Bank for Reconstruction and Development, the Multilateral Investment Guarantee Agency, the International Finance Corporation, the Inter-American Development Bank, the Asian Development Bank, the African Development Bank, the European Bank for Reconstruction and Development, the European Investment Bank, the European Investment Fund, the Nordic Investment Bank, the Caribbean Development Bank, the Islamic Development Bank, the Council of Europe Development Bank, and any other multilateral lending institution or regional development bank in which the U.S. government is a shareholder or contributing member or which the primary federal supervisor determines poses comparable credit risk.
The agencies believe this treatment is appropriate in light of the generally high-credit quality of MDBs, their strong shareholder support, and a shareholder structure comprised of a significant proportion of sovereign entities with strong creditworthiness. Exposures to regional development banks and multilateral lending institutions that are not covered under the definition of MDB generally would be treated as corporate exposures.
The agencies are proposing to assign a 20 percent risk weight to exposures to GSEs that are not equity exposures and a 100 percent risk weight to preferred stock issued by a GSE. While this is consistent with the current treatment under the FDIC and Board's rules, it would represent a change to the OCC's general risk-based capital rules for national banks, which currently allow a banking organization to apply a 20 percent risk weight to GSE preferred stock.
Although the GSEs currently are in the conservatorship of the Federal Housing Finance Agency and receive capital support from the U.S. Treasury, they remain privately-owned corporations, and their obligations do not have the explicit guarantee of the full faith and credit of the United States. The agencies have long held the view that obligations of the GSEs should not be accorded the same treatment as obligations that carry the explicit guarantee of the U.S. government. Therefore, the agencies propose to continue to apply a 20 percent risk weight to debt exposures to GSEs.
The general risk-based capital rules assign a 20 percent risk weight to all exposures to U.S. depository institutions and foreign banks incorporated in an OECD country. Short-term exposures to foreign banks incorporated in a non-OECD country receive a 20 percent risk weight and long-term exposures to such entities receive a 100 percent risk weight. The Basel II standardized approach allows for risk weights for a claim on a bank to be one risk weight category higher than the risk weight assigned to the sovereign exposures of a bank's home country. As described below, the agencies' propose treatment for depository institutions, foreign banks, and credit unions that is consistent with this approach.
Under the proposal, exposures to U.S. depository institutions and credit unions would be assigned a 20 percent risk weight.
Exposures to a depository institution or foreign bank that are includable in the regulatory capital of that entity would receive a risk weight of 100 percent, unless the exposure is (i) An equity exposure, (ii) a significant investment in the capital of an unconsolidated financial institution in the form of common stock under section 22 of the proposal, (iii) an exposure that is deducted from regulatory capital under section 22 of the proposal, or (iv) an exposure that is subject to the 150 percent risk weight under section 32 of the proposal.
In 2011, the BCBS revised certain aspects of the Basel capital framework to address potential adverse effects of the framework on trade finance in low income countries.
The Basel capital framework treats exposures to securities firms that meet certain requirements like exposures to depository institutions. However, the agencies do not believe that the risk profile of these firms is sufficiently similar to depository institutions to justify that treatment. Accordingly, the agencies propose to require banking organizations to treat exposures to securities firms as corporate exposures, which parallels the treatment of bank holding companies and savings and loan holding companies, as described in section II.B.6 of this preamble.
The agencies' general risk-based capital rules assign a 20 percent risk weight to general obligations of states and other political subdivisions of OECD countries.
The agencies are proposing to apply the same risk weights to exposures to U.S. states and municipalities as the general risk-based capital rules apply. Under the proposal, these political subdivisions would be included in the definition of public sector entity PSE. Consistent with both the current rules and the Basel capital framework, the agencies propose to define a PSE as a state, local authority, or other governmental subdivision below the level of a sovereign. This definition would not include government-owned commercial companies that engage in activities involving trade, commerce, or profit that are generally conducted or performed in the private sector.
Under the proposal, a banking organization would assign a 20 percent risk weight to a general obligation exposure to a PSE that is organized under the laws of the United States or any state or political subdivision thereof and a 50 percent risk weight to a revenue obligation exposure to such a PSE. A general obligation would be defined as a bond or similar obligation that is backed by the full faith and credit of a PSE. A revenue obligation would be defined as a bond or similar obligation that is an obligation of a PSE, but which the PSE is committed to repay with revenues from a specific project financed rather than general tax funds.
Similar to the Basel framework's use of home country risk weights to assign a risk weight to a PSE exposure, the agencies propose to require a banking organization to apply a risk weight to an exposure to a non-U.S. PSE based on (1) the CRC applicable to the PSE's home country and (2) whether the exposure is a general obligation or a revenue obligation, in accordance with table 4.
The risk weights assigned to revenue obligations would be higher than the risk weights assigned to a general obligation issued by the same PSE, as set forth in table 4. Similar to exposures to a foreign bank, exposures to a non-U.S. PSE in a country that does not have a CRC rating would receive a 100 percent risk weight. Exposures to a non-U.S. PSE in a country that has defaulted on any outstanding sovereign exposure or that has defaulted on any sovereign exposure during the previous five years would receive a 150 percent risk weight. Table 4 illustrates the proposed risk weights for exposures to non-U.S. PSEs.
In certain cases, under the general risk-based capital rules, the agencies have allowed a banking organization to rely on the risk weight that a foreign banking supervisor allows to assign to PSEs in that supervisor's country. Consistent with that approach, the agencies propose to allow a banking organization to apply a risk weight to an exposure to a non-U.S. PSE according to the risk weight that the foreign banking organization supervisor allows to assign to it. In no event, however, may the risk weight for an exposure to a non-U.S. PSE be lower than the risk weight assigned to direct exposures to that PSE's home country.
Under the agencies' general risk-based capital rules, credit exposures to companies that are not depository institutions or securitization vehicles generally are assigned to the 100 percent risk weight category. A 20 percent risk weight is assigned to claims on, or guaranteed by, a securities firm incorporated in an OECD country, that satisfy certain conditions.
The proposed requirements would be generally consistent with the general risk-based capital rules and require banking organizations to assign a 100 percent risk weight to all corporate exposures. The proposal would define a corporate exposure as an exposure to a company that is not an exposure to a sovereign, the Bank for International Settlements, the European Central Bank, the European Commission, the International Monetary Fund, an MDB, a depository institution, a foreign bank, or a credit union, a PSE, a GSE, a residential mortgage exposure, a pre-sold construction loan, a statutory multifamily mortgage, an HVCRE exposure, a cleared transaction, a default fund contribution, a securitization exposure, an equity exposure, or an unsettled transaction. In contrast to the agencies' general risk-based capital rules, securities firms would be subject to the same treatment as corporate exposures.
The agencies evaluated a number of alternatives to credit ratings to provide a more granular risk weight treatment for corporate exposures.
The general risk-based capital rules assign exposures secured by one-to-four family residential properties to either the 50 percent or the 100 percent risk-weight category. Exposures secured by a first lien on a one-to-four family residential property that meet certain prudential underwriting criteria and that are paying according to their terms generally receive a 50 percent risk weight.
During the recent market turmoil, the U.S. housing market experienced significant deterioration and unprecedented levels of mortgage loan defaults and home foreclosures. The causes for the significant increase in loan defaults and home foreclosures included inadequate underwriting standards; the proliferation of high-risk mortgage products, such as so-called pay-option adjustable rate mortgages, which provide for negative amortization and significant payment shock to the borrower; the practice of issuing mortgage loans to borrowers with unverified or undocumented income; and a precipitous decline in housing prices coupled with a rise in unemployment. Given the characteristics of the U.S. residential mortgage market and this recent experience, the agencies believe that a wider range of risk weights based on key risk factors is more appropriate for the U.S. residential mortgage market. Therefore, the agencies are proposing a risk-weight framework that is different from both the general risk-based capital rules and the Basel capital framework.
The proposed definition of a residential mortgage exposure would be an exposure that is primarily secured by a first or subsequent lien on one-to-four family residential property (and not a securitization exposure, equity exposure, statutory multifamily mortgage, or presold construction loan). The definition of residential mortgage exposure also would include an exposure that is primarily secured by a first or subsequent lien on residential property that is not one-to-four family if the original and outstanding amount of the exposure is $1 million or less. A first-lien residential mortgage exposure would be a residential mortgage exposure secured by a first lien or by first and junior lien(s) where no other party holds an intervening lien. A junior-lien residential mortgage exposure would be a residential mortgage exposure that is not a first-lien residential mortgage exposure.
The NPR would maintain the current risk-based capital treatment for residential mortgage exposures that are guaranteed by the U.S. government or its agency. Accordingly, residential mortgage exposures that are unconditionally guaranteed by the U.S. government or a U.S. agency would receive a zero percent risk weight, and residential mortgage exposures that are conditionally guaranteed by the U.S. government or a U.S. agency would receive a 20 percent risk weight.
Under the NPR, a banking organization would divide residential mortgage exposures that are not guaranteed by the U.S. government or one of its agencies into two categories. The agencies propose to apply relatively low risk weights for residential mortgage exposures that do not have product features associated with higher credit risk, and higher risk weights for nontraditional loans that present greater risk. As described further below, the risk weight assigned to a residential mortgage exposure will also depend on the loan's loan-to-value ratio.
The standards for category 1 residential mortgage exposures reflect those underwriting and product features that have demonstrated a lower risk of default both through supervisory experience and observations from the recent foreclosure crisis. Thus, the definition generally excludes mortgage products that include terms or other characteristics that the agencies have found to be indicative of higher risk. For example, the standards include consideration and documentation of a borrower's ability to repay, and would exclude certain higher risk product features, such as deferral of principal and balloon loans. Category 1 residential mortgages also would not include any junior lien mortgages. All residential mortgages that would not meet the definition of category 1 residential mortgage would be category 2 residential mortgages. See section 2 of the proposed rules for the definitions of “category 1 residential mortgage” in the related notice titled “Regulatory Capital Rules: Regulatory Capital, Implementation of Basel III, Minimum Regulatory Capital Ratios, Capital Adequacy, Transition Provisions, and Prompt Corrective Action.”
The agencies believe that the proposed divergence in risk weights for category 1 and category 2 residential mortgage exposures appropriately reflects differences in risk between mortgages in the two categories. Because category 2 residential mortgage exposures generally are of higher risk than category 1 residential mortgage exposures, the minimum proposed risk weight for a category 2 residential mortgage exposure is 100 percent.
Under the general risk-based capital rules, a banking organization must assign a minimum 100 percent risk weight to an exposure secured by a junior lien on residential property, unless the banking organization also
Except as described in the preceding paragraph, under this NPR, a banking organization would classify all junior-lien residential mortgage exposures as category 2 residential mortgage exposures in light of the increased risk associated with junior liens demonstrated in the recent foreclosure crisis.
The proposed risk weighting would depend on not only the mortgage exposure's status as a category 1 or category 2 residential mortgage exposure, but also on the mortgage exposure's LTV ratio. The amount of equity a borrower has in a residential property is highly correlated with default risk, and the agencies believe that it is appropriate that LTV be an important component in assigning risk weights to residential mortgage exposures. However, the agencies stress that the use of LTV ratios to assign risk weights to residential mortgage exposures is not a substitute for, and does not otherwise release a banking organization from, its responsibility to have prudent loan underwriting and risk management practices consistent with the size, type, and risk of its mortgage business.
The agencies are proposing in this NPR to require a banking organization to calculate the LTV ratios of a residential mortgage exposure as follows. The denominator of the LTV ratio, that is, the value of the property, would be equal to the lesser of the actual acquisition cost for the property (for a purchase transaction) or the estimate of a property's value at the origination of the loan or at the time of restructuring or modification. The estimate of value would be based on an appraisal or evaluation of the property in conformance with the agencies' appraisal regulations
The loan amount for a first-lien residential mortgage exposure is the unpaid principal balance of the loan unless the first-lien residential mortgage exposure was a combination of a first and junior lien. In that case, the loan amount would be the sum of the unpaid principal balance of the first lien and the maximum contractual principal amount of the junior lien. The loan amount of a junior-lien residential mortgage exposure is the maximum contractual principal amount of the exposure, plus the maximum contractual principal amounts of all senior exposures secured by the same residential property on the date of origination of the junior-lien residential mortgage exposure.
As proposed, a banking organization would not calculate a separate risk-weighted asset amount for the funded and unfunded portions of a residential mortgage exposure. Instead, the proposal would require only the calculation of a single LTV ratio representing a combined funded and unfunded amount when calculating the LTV ratio. Thus, the loan amount of a first-lien residential mortgage exposure would equal the funded principal amount (or combined exposures provided there is no intervening lien) plus the exposure amount of any unfunded commitment (that is, the unfunded amount of the maximum contractual amount of any commitment multiplied by the appropriate CCF). The loan amount of a junior-lien residential mortgage exposure would equal the sum of: (1) The funded principal amount of the exposure, (2) the exposure amount of any undrawn commitment associated with the junior-lien exposure, and (3) the exposure amount of any senior exposure held by a third party on the date of origination of the junior-lien exposure. If a senior exposure held by a third party includes an undrawn commitment, such as a HELOC or a negative amortization feature, the loan amount for a junior-lien residential mortgage exposure would include the maximum contractual amount of that commitment.
The agencies believe that the LTV information should be readily available from the mortgage loan documents and thus should not present an issue for banking organizations in calculating the risk-based capital under the proposed requirements.
A banking organization would not be able to recognize private mortgage insurance (PMI) when calculating the LTV ratio of a residential mortgage exposure. The agencies believe that, due to the varying degree of financial strength of mortgage providers, it would not be prudent to recognize PMI for purposes of the general risk-based capital rules.
As proposed, a banking organization would determine the risk weight for a residential mortgage exposure using table 5 based on the loan's LTV ratio and whether it is a category 1 or category 2 residential mortgage exposure.
As an example risk weight calculation, a category 1 residential mortgage loan that has a loan amount of $100,000 and a property value of $125,000 at origination would result in an LTV of 80 percent and would be assigned a risk weight of 50 percent. If, at the time of restructuring the loan at a later date, the loan amount is $92,000 and the value of the property is determined to be $110,000, the LTV would be 84 percent and the applicable risk weight would be 75 percent.
Under the current general risk-based capital rules, a residential mortgage may be assigned to the 50 percent risk weight category only if it is performing in accordance with its original terms or not restructured. The recent crises and ongoing problems in the housing market have demonstrated the profound negative effect foreclosures have on homeowners and their communities. Where practicable, modification or restructuring of a residential mortgage can be an effective means for a borrower to avoid default and foreclosure and for a banking organization to reduce risk of loss.
The agencies have recognized the importance of the prudent use of mortgage restructuring and modification in a banking organization's risk management and believe that restructuring or modification can reduce the risk of a residential mortgage exposure. Therefore, in this NPR, the agencies are not proposing to automatically raise the risk weight for a residential mortgage exposure if it is restructured or modified. Instead, under this NPR, a banking organization would categorize a modified or restructured residential mortgage exposure as a category 1 or category 2 residential mortgage exposure in accordance with the terms and characteristics of the exposure after the modification or restructuring.
Additionally, to ensure that the banking organization applies a risk weight to a restructured or modified mortgage that most accurately reflects its risk profile, a banking organization could only apply (1) a risk weight lower than 100 percent to a category 1 residential mortgage exposure or (2) a risk weight lower than 200 percent to a category 2 residential mortgage exposure if the banking organization updated the LTV ratio of the exposure at the time of the modification or restructuring.
In further recognition of the importance of residential mortgage modifications and restructuring, a residential mortgage exposure modified or restructured on a permanent or trial basis solely pursuant to the U.S. Treasury's Home Affordable Mortgage Program (HAMP) would not be restructured or modified under the proposed requirements and would receive the risk weight provided in table 5.
The agencies believe that treating mortgage loans modified pursuant to HAMP in this manner is appropriate in light of the special and unique incentive features of HAMP, and the fact that the program is offered by the U.S. government to achieve the public policy objective of promoting sustainable loan modifications for homeowners at risk of foreclosure in a way that balances the interests of borrowers, servicers, and lenders. The program includes specific debt-to-income ratio requirements, which should better ensure the borrower's ability to repay the modified loan, and it provides for the U.S. Treasury Department to match reductions in monthly payments dollar-for-dollar to reduce the borrower's front-end debt-to-income ratio.
Additionally, the program provides financial incentives for servicers and lenders to take actions to reduce the likelihood of defaults, as well as for servicers and borrowers designed to help borrowers remain current on modified loans. The structure and amount of these cash payments align the financial incentives of servicers, lenders, and borrowers to encourage and increase the likelihood of participating borrowers remaining current on their mortgages. Each of these incentives is important to the agencies' determination with respect to the appropriate regulatory capital treatment of mortgage loans modified under HAMP.
The general risk-based capital rules assign either a 50 percent or a 100 percent risk weight to certain one-to-four family residential pre-sold construction loans and to multifamily residential loans, consistent with the Resolution Trust Corporation Refinancing, Restructuring, and Improvement Act of 1991 (RTCRRI Act).
Under this NPR, a pre-sold construction loan would be subject to a 50 percent risk weight unless the purchase contract is cancelled. This NPR would define a pre-sold construction loan as any one-to-four family residential construction loan to a builder that meets the requirements of section 618(a)(1) or (2) of the RTCRRI Act and the agencies' existing regulations. A multifamily mortgage that does not meet the proposed definition of a statutory multifamily mortgage would be treated as a corporate exposure. The proposed definitions are in section 2 of the proposed rules in the related notice titled “Regulatory Capital Rules: Regulatory Capital, Implementation of Basel III, Minimum Regulatory Capital Ratios, Capital Adequacy, Transition Provisions, and Prompt Corrective Action.”
In this NPR, the agencies are including a new risk-based capital treatment for certain commercial real estate exposures that currently receive a 100 percent risk weight under the general risk-based capital rules. Supervisory experience has demonstrated that certain acquisition, development, and construction (ADC) loans exposures present unique risks for which the agencies believe banking organizations should hold additional capital. Accordingly, the agencies propose to require banking organizations to assign a 150 percent risk weight to any High Volatility Commercial Real Estate Exposure (HVCRE). The proposal would define an HVCRE exposure to include any credit facility that finances or has financed the acquisition, development, or construction (ADC) of real property, unless the facility finances one- to four-family residential mortgage property, or commercial real estate projects that meet certain prudential criteria, including with respect to the LTV ratio and capital contributions or expense contributions of the borrower. See the definition of “high volatility commercial real estate exposure” in section 2 of the proposed rules in the related notice entitled “Regulatory Capital Rules: Regulatory Capital, Implementation of Basel III, Minimum Regulatory Capital Ratios, Capital Adequacy, Transition Provisions, and Prompt Corrective Action”.
A commercial real estate loan that is not an HVCRE exposure would be treated as a corporate exposure.
Under the general risk-based capital rules, the risk weight of a loan does not change if the loan becomes past due, with the exception of certain residential mortgage loans. The Basel II standardized approach provides risk weights ranging from 50 to 150 percent for loans that are more than 90 days past due to reflect the increased risk of loss. The agencies believe that a higher risk is appropriate for past due exposures to reflect the increased risk associated with such exposures
Accordingly, consistent with the Basel capital framework and to reflect impaired credit quality of such exposures, the agencies propose that a banking organization assign a risk weight of 150 percent to an exposure that is not guaranteed or not secured (and that is not a sovereign exposure or a residential mortgage exposure) if it is 90 days or more past due or on nonaccrual. A banking organization may assign a risk weight to the collateralized or guaranteed portion of the past due exposure if the collateral, guarantee, or credit derivative meets the proposed requirements for recognition described in sections 36 and 37.
In this NPR, the agencies propose to apply the following risk weights for exposures not otherwise assigned to a specific risk weight category, which are generally consistent with the risk weights in the general risk-based capital rules:
(1) A zero percent risk weight to cash owned and held in all of a banking organization's offices or in transit; gold bullion held in the banking organization's own vaults, or held in another depository institution's vaults on an allocated basis to the extent gold bullion assets are offset by gold bullion liabilities; and to exposures that arise from the settlement of cash transactions (such as equities, fixed income, spot foreign exchange and spot commodities) with a central counterparty where there is no assumption of ongoing counterparty credit risk by the central counterparty after settlement of the trade and associated default fund contributions;
(2) A 20 percent risk weight to cash items in the process of collection; and
(3) A 100 percent risk weight to all assets not specifically assigned a different risk weight under this NPR (other than exposures that would be deducted from tier 1 or tier 2 capital).
In addition, subject to proposed transition arrangements, a banking organization would assign:
(1) A 100 percent risk weight to DTAs arising from temporary differences that the banking organization could realize through net operating loss carrybacks; and
(2) A 250 percent risk weight to MSAs and DTAs arising from temporary differences that the banking organization could not realize through net operating loss carrybacks that are not deducted from common equity tier 1 capital pursuant to section 22(d) of the proposal.
The proposed requirements would provide limited flexibility to address situations where exposures of a depository institution holding company or nonbank financial company supervised by the Board, that are not exposures typically held by depository institutions, do not fit wholly within the terms of another risk-weight category. Under the proposal, such exposures could be assigned to the risk weight category applicable under the capital rules for bank holding companies, provided that (1) the depository institution holding company or nonbank financial company 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 of less than 100 percent under subpart D of the proposal.
Under this NPR, as under the general risk-based capital rules, a banking organization would calculate the exposure amount of an off-balance sheet item by multiplying the off-balance sheet component, which is usually the notional amount, by the applicable credit conversion factor (CCF). This treatment would be applied to off-balance sheet items, such as commitments, contingent items, guarantees, certain repo-style transactions, financial standby letters of credit, and forward agreements.
Also similar to the general risk-based capital rules, a banking organization would apply a zero percent CCF to the unused portion of commitments that are unconditionally cancelable by the banking organization. For purposes of this NPR, a commitment would mean any legally binding arrangement that obligates a banking organization to extend credit or to purchase assets.
The agencies propose to increase a CCF from zero percent to 20 percent for commitments with an original maturity of one year or less that are not unconditionally cancelable by a banking organization, as consistent with the Basel II standardized approach. The proposed requirements would maintain the 20 percent CCF for self-liquidating, trade-related contingent items that arise from the movement of goods with an original maturity of one year or less.
As under the general risk-based capital rules, a banking organization would apply a 50 percent CCF to commitments with an original maturity of more than one year that are not unconditionally cancelable by the banking organization; and to transaction-related contingent items, including performance bonds, bid bonds, warranties, and performance standby letters of credit.
Under this NPR, a banking organization would be required to apply a 100 percent CCF to off-balance sheet guarantees, repurchase agreements, securities lending or borrowing transactions, financial standby letters of credit; forward agreements, and other similar exposures. The off-balance sheet component of a repurchase agreement would equal the sum of the current market values of all positions the banking organization has sold subject to repurchase. The off-balance sheet component of a securities lending transaction would be the sum of the current market values of all positions the banking organization has lent under the transaction. For securities borrowing transactions, the off-balance sheet component would be the sum of the current market values of all non-cash positions the banking organization has posted as collateral under the transaction. In certain circumstances, a banking organization may instead determine the exposure amount of the transaction as described in section II.F.2 of this preamble and section 37 of the proposal.
The calculation of the off-balance sheet component for repurchase agreements, and securities lending and borrowing transactions described above represents a change to the general risk-based capital treatment for such transactions. Under the general risk-based capital rules, capital is required for any on-balance sheet exposure that arises from a repo-style transaction (that is, a repurchase agreement, reverse repurchase agreement, securities lending transaction, and securities borrowing transaction). For example, capital is required against the cash receivable that a banking organization generates when it borrows a security and posts cash collateral to obtain the security. However, a banking organization faces counterparty credit risk on a repo-style transaction, regardless of whether the transaction generates an on-balance sheet exposure. Therefore, in contrast to the general risk-based capital rules, this NPR would require a banking organization to hold risk-based capital against all repo-style transactions, regardless of whether they generate on-balance sheet exposures, as described in section 37 of the proposal.
Under the general risk-based capital rules, a banking organization is subject to a risk-based capital requirement when it provides credit-enhancing representations and warranties on assets sold or otherwise transferred to third parties as such positions are considered recourse arrangements.
Under this NPR, if a banking organization provides a credit-enhancing representation or warranty on assets it sold or otherwise transferred to third parties, including in cases of early default clauses or premium-refund clauses, the banking organization would treat such an arrangement as an off-balance sheet guarantee and apply a 100 percent credit conversion factor (CCF) to the exposure amount. The agencies are proposing a different treatment than the one under the general risk-based capital rules because the agencies believe that a banking organization should hold capital for such exposures while credit-enhancing representations and warranties are in place.
The proposed risk-based capital treatment for off-balance sheet items is consistent with section 165(k) of the Dodd-Frank Act which provides that, in the case of a bank holding company with $50 billion or more in total consolidated assets the computation of capital for purposes of meeting capital requirements shall take into account any off-balance-sheet activities of the company.
In this NPR, the agencies propose generally to retain the treatment of over-the-counter (OTC) derivatives provided under the general risk-based capital rules, which is similar to the current exposure method for determining the exposure amount for OTC derivative contracts contained in the Basel II standardized approach.
Under the proposed requirements, as under the general risk-based capital rules, a banking organization would be required to hold risk-based capital for counterparty credit risk for OTC derivative contracts. As defined in this NPR, a derivative contract is a financial contract whose value is derived from the values of one or more underlying assets, reference rates, or indices of asset values or reference rates. A derivative contract would include an interest rate, exchange rate, equity, or a commodity derivative contract, a credit derivative, and any other instrument that poses similar counterparty credit risks. Under the proposal, derivative contracts also would include unsettled securities, commodities, and foreign exchange transactions with a contractual settlement or delivery lag that is longer than the lesser of the market standard for the particular instrument or five business days. This applies, for example, to mortgage-backed securities transactions that the GSEs conduct in the To-Be-Announced market.
An OTC derivative contract would not include a derivative contract that is a cleared transaction, which would be subject to a specific treatment as described in section II.E of this preamble. OTC derivative contracts would, however, include an exposure of a banking organization that is a clearing member to its clearing member client where the banking organization is either acting as a financial intermediary and enters into an offsetting transaction with a central counterparty (CCP) or where the banking organization provides a guarantee to the CCP on the performance of the client. These transactions may not be treated as cleared transactions because the banking organization remains exposed directly to the risk of the individual counterparty.
To determine the risk-weighted asset amount for an OTC derivative contract under the proposal, a banking organization would first determine its exposure amount for the contract and then apply to that amount a risk weight based on the counterparty, eligible guarantor, or recognized collateral.
For a single OTC derivative contract that is not subject to a qualifying master netting agreement (as defined further below in this section), the exposure amount would be the sum of (1) the banking organization's current credit exposure, which would be the greater of the mark-to-market value or zero, and (2) PFE, which would be calculated by multiplying the notional principal amount of the OTC derivative contract by the appropriate conversion factor, in accordance with table 6 below.
Under this NPR, the conversion factor matrix would be revised to include the additional categories of OTC derivative contracts as illustrated in table 6. For an OTC derivative contract that does not fall within one of the specified categories in table 6, the PFE would be calculated using the appropriate
For multiple OTC derivative contracts subject to a qualifying master netting agreement, the exposure amount would be calculated by adding the net current credit exposure and the adjusted sum of the PFE amounts for all OTC derivative contracts subject to the qualifying master netting agreement. The net current credit exposure would be the greater of zero and the net sum of all positive and negative mark-to-market values of the individual OTC derivative contracts subject to the qualifying master netting agreement. The adjusted sum of the PFE amounts would be calculated as described in section 34(a)(2)(ii) of the proposal.
Under the general risk-based capital rules, a banking organization must enter into a bilateral master netting agreement with its counterparty and obtain a written and well-reasoned legal opinion of the enforceability of the netting agreement for each of its netting agreements that cover OTC derivative contracts to recognize the netting benefit. Similarly, under this NPR, to recognize netting of multiple OTC derivative contracts, the contracts would be required to be subject to a qualifying master netting agreement; however, for most transactions, a banking organization may rely on sufficient legal review instead of an opinion on the enforceability of the netting agreement as described below. Under this NPR, a qualifying master netting agreement would be defined as any written, legally enforceable netting agreement, that creates a single legal obligation for all individual transactions covered by the agreement upon an event
The legal review must be sufficient so that the banking organization may conclude with a well-founded basis that, among other things the contract would be found legal, binding, and enforceable under the law of the relevant jurisdiction and that the contract meets the other requirements of the definition. In some cases, the legal review requirement could be met by reasoned reliance on a commissioned legal opinion or an in-house counsel analysis. In other cases, for example, those involving certain new derivative transactions or derivative counterparties in jurisdictions where a banking organization has little experience, the banking organization would be expected to obtain an explicit, written legal opinion from external or internal legal counsel addressing the particular situation. See the definition of “qualifying master netting agreement” in section 2 of the proposed rules in the related notice titled “Regulatory Capital Rules: Regulatory Capital, Implementation of Basel III, Minimum Regulatory Capital Ratios, Capital Adequacy, Transition Provisions, and Prompt Corrective Action.”
If an OTC derivative contract is collateralized by financial collateral, a banking organization would first determine the exposure amount of the OTC derivative contract as described in this section. Next, to recognize the credit risk mitigation benefits of the financial collateral, a banking organization could use the simple approach for collateralized transactions as described in section 37(b) of the proposal. Alternatively, if the financial collateral is marked-to-market on a daily basis and subject to a daily margin maintenance requirement, a banking organization could adjust the exposure amount of the contract using the collateral haircut approach described in section 37(c) of the proposal.
Under this NPR, a banking organization would be required to treat an equity derivative contract as an equity exposure and compute its risk-weighted asset amount according to the proposed calculation requirements described in section 52 (unless the contract is a covered position under subpart F of the proposal). If the banking organization risk weights a contract under the Simple Risk-Weight Approach described in section 52, it may choose not to hold risk-based capital against the counterparty risk of the equity contract, so long as it does so for all such contracts. Where the OTC equity contracts are subject to a qualified master netting agreement, a banking organization would either include or exclude all of the contracts from any measure used to determine counterparty credit risk exposures. If the banking organization is treating an OTC equity derivative contract as a covered position under subpart F, it would calculate a risk-based capital requirement for counterparty credit risk of the contract under section 34.
Similarly, if a banking organization purchases a credit derivative that is recognized under section 36 of the proposal as a credit risk mitigant for an exposure that is not a covered position under subpart F of the proposal, it would not be required to compute a separate counterparty credit risk capital requirement for the credit derivative, provided it does so consistently for all such credit derivative contracts. Further, where these credit derivative contracts are subject to a qualifying master netting agreement, the banking organization would either include them all or exclude them all from any measure used to determine the counterparty credit risk exposure to all relevant counterparties for risk-based capital purposes.
In addition, if a banking organization provides protection through a credit derivative that is not a covered position under subpart F of the proposal, it would treat the credit derivative as an exposure to the underlying reference asset and compute a risk-weighted asset amount for the credit derivative under section 32 of the proposal. The banking organization would not be required to compute a counterparty credit risk capital requirement for the credit derivative, as long as it does so consistently and either includes all or excludes all such credit derivatives that are subject to a qualifying master netting contract from any measure used to determine counterparty credit risk exposure to all relevant counterparties for risk-based capital purposes.
Where the banking organization provides protection through a credit derivative treated as a covered position under subpart F of the proposal, it would compute a supplemental counterparty credit risk capital requirement using an amount determined under section 34 for OTC credit derivatives or section 35 for credit derivatives that are cleared transactions. In either case, the PFE of the protection provider would be capped at the net present value of the amount of unpaid premiums.
Under the general risk-based capital rules, the risk weight applied to an OTC derivative contract is limited to 50 percent even if the counterparty or guarantor would otherwise receive a higher risk weight. Under this NPR, the risk weight for OTC derivative transactions would not be subject to any specific ceiling, consistent with the Basel capital framework. The agencies believe that as the market for derivatives has developed, the types of counterparties acceptable to participants have expanded to include counterparties that merit a risk weight greater than 50 percent.
The BCBS and the agencies support clearing derivative and repo-style transactions
In general, CCPs help improve the safety and soundness of the derivatives market through the multilateral netting of exposures, establishment and enforcement of collateral requirements, and promoting market transparency. Under Basel II, exposures to a CCP arising from cleared transactions, posted collateral, clearing deposits or guaranty funds could be assigned an exposure amount of zero. However, when developing Basel III, the BCBS recognized that as more transactions move to central clearing, the potential for risk concentration and systemic risk increases. To address these concerns, the BCBS has sought comment on a more risk-sensitive approach for determining a capital requirement for a banking organization's exposures to a
Consistent with the proposals the Basel Committee has made on these issues and the IOSCO standards, the agencies are seeking comment on specific risk-based capital requirements for derivative and repo-style transactions that are cleared on CCPs designed to incentivize the use of CCPs, help reduce counterparty credit risk, and promote strong risk management of CCPs to mitigate their potential for systemic risk. In contrast to the general risk-based capital rules, which permit a banking organization to exclude certain derivative contracts traded on an exchange from the risk-based capital calculation, the agencies would require a banking organization to hold risk-based capital for an outstanding derivative contract or a repo-style transaction that has been entered into with all CCPs, including exchanges. Specifically, the proposal would define a cleared transaction as an outstanding derivative contract or repo-style transaction that a banking organization or clearing member has entered into with a central counterparty (that is, a transaction that a central counterparty has accepted).
Derivative transactions that are not cleared transactions would be OTC derivative transactions. In addition, if a transaction submitted to a CCP is not accepted by a CCP because the terms of the transaction do not match or other operational issues were identified by the CCP, the transaction would not meet the definition of a cleared transaction and would be an OTC derivative transaction. If the counterparties to the transaction resolved the issues and resubmit the transaction, and if it is accepted, the transaction could then be a cleared transaction if it satisfies all the criteria described above.
Under the proposal, a cleared transaction would include a transaction between a CCP and a clearing member banking organization for the banking organization's own account. In addition, it would include a transaction between a CCP and a clearing member banking organization acting on behalf of its client, and a transaction between a client banking organization and a clearing member where the clearing member acts on behalf of the banking organization and enters into an offsetting transaction with a CCP. A cleared transaction also includes one between a clearing member client and a CCP where a clearing member banking organization guarantees the performance of the clearing member client to the CCP. Transactions must also satisfy additional criteria provided in the definition of CCP in the proposed rule text.
Under the proposal, a cleared transaction would not include an exposure of a banking organization that is a clearing member to its clearing member client where the banking organization is either acting as a financial intermediary and enters into an offsetting transaction with a CCP or where the banking organization provides a guarantee to the CCP on the performance of the client. Such a transaction would be treated as an OTC derivative transaction with the exposure amount calculated according to section 34 of the proposal. However, the agencies recognize that this treatment may create a disincentive for banking organizations to act as intermediaries and provide access to CCPs for clients. As a result, the agencies are considering approaches that could address this disincentive while at the same time appropriately reflect the risks of these transactions. For example, one approach would allow banking organizations that are clearing members to adjust the exposure amount calculated under section 34 downward by a certain percentage or, for advanced approaches banking organizations using the internal models method, to adjust the margin period of risk. The international discussions are ongoing on this issue and the agencies expect to revisit this issue once the Basel capital framework is revised. See also the definition of “cleared transaction” in section 2 of the proposed rules in the related notice titled “Regulatory Capital Rules: Regulatory Capital, Implementation of Basel III, Minimum Regulatory Capital Ratios, Capital Adequacy, Transition Provisions, and Prompt Corrective Action.”
As proposed in this NPR, to determine the risk-weighted asset amount for a cleared transaction, a clearing member client or a clearing member would multiply the trade exposure amount for the cleared transaction by the appropriate risk weight, determined as described below. The trade exposure amount would be calculated as follows:
(1) For a derivative contract that is a cleared transaction, the trade exposure amount would equal the exposure amount for the derivative contract, calculated using the current exposure methodology for OTC derivative contracts under section 34 of the proposal, plus the fair value of the collateral posted by the clearing member banking organization that is held by the CCP in a manner that is not bankruptcy remote;
(2) For a repo-style transaction that is a cleared transaction, the trade exposure amount would equal the exposure amount calculated under the collateral
The trade exposure amount would not include any collateral posted by a clearing member banking organization that is held by a custodian in a manner that is bankruptcy remote from the CCP or any collateral posted by a clearing member client that is held by a custodian in a manner that is bankruptcy remote from the CCP, clearing members and other counterparties of the clearing member. In addition to the capital requirement for the cleared transaction, the banking organization would remain subject to a capital requirement for any collateral provided to a CCP, a clearing member, or a custodian in connection with a cleared transaction in accordance with section 32.
Consistent with the Basel capital framework, the agencies propose that the risk weight for a cleared transaction depends on whether the CCP is a qualifying CCP (QCCP). As proposed, central counterparties that are designated financial market utilities (FMUs) and foreign entities regulated and supervised in a manner equivalent to designated FMUs would be QCCPs. In addition, a central counterparty could be a QCCP under the proposal if it was in sound financial condition and met certain standards that are consistent with BCBS expectations for QCCPs, as set forth in the proposed definition. See the definition of “qualified central counterparty” in section 2 of the proposed rules in the related notice titled “Regulatory Capital Rules: Regulatory Capital, Implementation of Basel III, Minimum Regulatory Capital Ratios, Capital Adequacy, Transition Provisions, and Prompt Corrective Action”.
Under the proposal, a clearing member banking organization would apply a 2 percent risk weight to its trade exposure amount with a QCCP. A banking organization that is a clearing member client would apply a 2 percent risk weight to the trade exposure amount only if:
(1) The collateral posted by the banking organization to the QCCP or clearing member is subject to an arrangement that prevents any losses to the clearing member due to the joint default or a concurrent insolvency, liquidation, or receivership proceeding of the clearing member and any other clearing member clients of the clearing member, and
(2) The clearing member client banking organization has conducted sufficient legal review to conclude with a well-founded basis (and maintains sufficient written documentation of that legal review) that in the event of a legal challenge (including one resulting from default or a liquidation, insolvency, or receivership proceeding) the relevant court and administrative authorities would find the arrangements to be legal, valid, binding, and enforceable under the law of the relevant jurisdiction.
The agencies believe that omnibus accounts (that is, accounts that are generally set up by clearing entities for non-clearing members) in the United States would satisfy these requirements because of the protections afforded client accounts under certain regulations of the SEC
For a cleared transaction with a CCP that is not a QCCP, a clearing member and a banking organization that is a clearing member client would risk weight the trade exposure amount to the CCP according to the treatment for the CCP under section 32 of the proposal. In addition, collateral posted by a clearing member banking organization that is held by a custodian in a manner that is bankruptcy remote from the CCP would not be subject to a capital requirement for counterparty credit risk. Collateral posted by a clearing member client that is held by a custodian in a manner that is bankruptcy remote from the CCP, clearing member, and other clearing member clients of the clearing member would not be subject to a capital requirement for counterparty credit risk.
One of the benefits of clearing a transaction through a CCP is the protection provided to the CCP clearing members by the margin requirements imposed by the CCP, as well as by the CCP members' default fund contributions, and the CCP's own capital and contribution to the default fund. Default funds make CCPs safer and are an important source of collateral in case of counterparty default. However, CCPs independently determine default fund contributions from members. The BCBS therefore has proposed to establish a risk-sensitive approach for risk weighting a banking organization's exposure to a default fund.
Consistent with the CCP consultative release, the agencies are proposing to require a banking organization that is a clearing member of a CCP to calculate the risk-weighted asset amount for its default fund contributions at least quarterly or more frequently if there is a material change, in the opinion of the banking organization or the primary federal supervisor, in the financial condition of the CCP. A default fund contribution would mean the funds contributed or commitments made by a clearing member to a CCP's mutualized loss-sharing arrangement.
As under the CCP consultative release, a banking organization would calculate a risk-weighted asset amount for its default fund contribution to a QCCP by using a three-step process. The first step is to calculate the QCCP's hypothetical capital requirement (K
As a first step, for purposes of calculating K
In the second step, K
In the third step, the total of all the clearing members' capital requirements (K
Banking organizations use a number of techniques to mitigate credit risks. For example, a banking organization may collateralize exposures with first-priority claims, cash or securities; a third party may guarantee a loan exposure; a banking organization may buy a credit derivative to offset an exposure's credit risk; or a banking organization may net exposures with a counterparty under a netting agreement. The general risk-based capital rules recognize these techniques to some extent. This section describes how a banking organization would recognize the risk-mitigation effects of guarantees, credit derivatives, and collateral for risk-based capital purposes under the proposal. Similar to the general risk-based capital rules, a banking organization that is not engaged in complex financial activities generally would be able to use a substitution approach to recognize the credit risk-mitigation effect of an eligible guarantee from an eligible guarantor and the simple approach to recognize the effect of collateral.
To recognize credit risk mitigants, all banking organizations should have operational procedures and risk management processes that ensure that all documentation used in collateralizing or guaranteeing a transaction is legal, valid, binding, and enforceable under applicable law in the relevant jurisdictions. A banking organization should conduct sufficient legal review to reach a well-founded conclusion that the documentation meets this standard as well as conduct additional reviews as necessary to ensure continuing enforceability.
Although the use of credit risk mitigants may reduce or transfer credit risk, it simultaneously may increase other risks, including operational, liquidity, or market risk. Accordingly, a banking organization should employ robust procedures and processes to control risks, including roll-off and concentration risks, and monitor the implications of using credit risk mitigants for the banking organization's overall credit risk profile.
The general risk-based capital rules generally recognize third-party guarantees provided by central governments, GSEs, PSEs in the OECD countries, multilateral lending institutions and regional development banking organizations, U.S. depository institutions, foreign banks, and qualifying securities firms in OECD countries.
Under this NPR, guarantees and credit derivatives would be required to meet specific eligibility requirements to be recognized for credit risk mitigation purposes. Under the proposal an eligible guarantee would be defined as a guarantee from an eligible guarantor that is written and meets certain standards and conditions, including with respect to its enforceability. For example, an eligible guarantee must either be unconditional or a contingent obligation of the U.S. government or its agencies (the enforceability of which is dependent on some affirmative action on the part of the beneficiary of the guarantee or a third party, such as servicing requirements). See the definition of “eligible guarantee” in section 2 of the proposed rules in the related notice titled “Regulatory Capital Rules: Regulatory Capital, Implementation of Basel III, Minimum Regulatory Capital Ratios, Capital Adequacy, Transition Provisions, and Prompt Corrective Action.”
An eligible credit derivative would be defined as a credit derivative in the form of a credit default swap, nth-to-default swap, total return swap, or any other form of credit derivative approved by the primary federal supervisor,
Under this NPR, a banking organization would be permitted to recognize the credit risk mitigation benefits of an eligible credit derivative that hedges an exposure that is different from the credit derivative's reference exposure used for determining the derivative's cash settlement value, deliverable obligation, or occurrence of a credit event if (1) the reference exposure ranks
When a banking organization has a group of hedged exposures with different residual maturities that are covered by a single eligible guarantee or eligible credit derivative, a banking organization would treat each hedged exposure as if it were fully covered by a separate eligible guarantee or eligible credit derivative.
Under the proposed substitution approach, if the protection amount (as defined below) of an eligible guarantee or eligible credit derivative is greater than or equal to the exposure amount of the hedged exposure, a banking organization would substitute the risk weight applicable to the guarantor or credit derivative protection provider for the risk weight assigned to the hedged exposure.
If the protection amount of the eligible guarantee or eligible credit derivative is less than the exposure amount of the hedged exposure, a banking organization would treat the hedged exposure as two separate exposures (protected and unprotected) to recognize the credit risk mitigation benefit of the guarantee or credit derivative. In such cases, a banking organization would calculate the risk-weighted asset amount for the protected exposure under section 36 (using a risk weight applicable to the guarantor or credit derivative protection provider and an exposure amount equal to the protection amount of the guarantee or credit derivative). The banking organization would calculate its risk-weighted asset amount for the unprotected exposure under section 36 of the proposal (using the risk weight assigned to the exposure and an exposure amount equal to the exposure amount of the original hedged exposure minus the protection amount of the guarantee or credit derivative).
The protection amount of an eligible guarantee or eligible credit derivative would mean the effective notional amount of the guarantee or credit derivative (reduced to reflect any currency mismatch, maturity mismatch, or lack of restructuring coverage, as described in this section below). The effective notional amount for an eligible guarantee or eligible credit derivative would be the lesser of the contractual notional amount of the credit risk mitigant and the exposure amount of the hedged exposure, multiplied by the percentage coverage of the credit risk mitigant. For example, the effective notional amount of a guarantee that covers, on a pro rata basis, 40 percent of any losses on a $100 bond would be $40.
The following sections addresses credit risk mitigants with maturity mismatches, lack of restructuring coverage, currency mismatches, and multiple credit risk mitigants. A banking organization that is not engaged in complex financial transactions is unlikely to have credit risk mitigant with a currency mismatch, maturity mismatch, or lack of restructuring coverage, or multiple credit risk mitigants. In such a case, a banking organization should refer to section II.F.2 below which describes the treatment of collateralized transactions.
Under the proposed requirements, a banking organization that recognizes an eligible guarantee or eligible credit derivative to adjust the effective notional amount of the credit risk mitigant to reflect any maturity mismatch between the hedged exposure and the credit risk mitigant. A maturity mismatch occurs when the residual maturity of a credit risk mitigant is less than that of the hedged exposure(s).
The residual maturity of a hedged exposure would be the longest possible remaining time before the obligated party of the hedged exposure is scheduled to fulfil its obligation on the hedged exposure. A banking organization would be required to take into account any embedded options that may reduce the term of the credit risk mitigant so that the shortest possible residual maturity for the credit risk mitigant would be used to determine the potential maturity mismatch. If a call is at the discretion of the protection provider, the residual maturity of the credit risk mitigant would be at the first call date. If the call is at the discretion of the banking organization purchasing the protection, but the terms of the arrangement at origination of the credit risk mitigant contain a positive incentive for the banking organization to call the transaction before contractual maturity, the remaining time to the first call date would be the residual maturity of the credit risk mitigant. For example, if there is a step-up in the cost of credit protection in conjunction with a call feature or if the effective cost of protection increases over time even if credit quality remains the same or improves, the residual maturity of the credit risk mitigant would be the remaining time to the first call date. Under this NPR, a banking organization would be permitted to recognize a credit risk mitigant with a maturity mismatch only if its original maturity is greater than or equal to one year and the residual maturity is greater than three months.
Assuming that the credit risk mitigant may be recognized, a banking organization would be required to apply the following adjustment to reduce the effective notional amount of the credit risk mitigant: Pm = E x [(t-0.25)/(T–0.25)], where:
Under the proposal, a banking organization that seeks to recognize an eligible credit derivative that does not include a restructuring of the hedged exposure as a credit event under the
Under this proposal, if a banking organization recognizes an eligible guarantee or eligible credit derivative that is denominated in a currency different from that in which the hedged exposure is denominated, the banking organization would apply the following formula to the effective notional amount of the guarantee or credit derivative: P
A banking organization would be required to use a standard supervisory haircut of 8 percent for H
If multiple credit risk mitigants (for example, two eligible guarantees) cover a single exposure, the agencies propose to permit a banking organization disaggregate the exposure into portions covered by each credit risk mitigant (for example, the portion covered by each guarantee) and calculate separately a risk-based capital requirement for each portion, consistent with the Basel capital framework. In addition, when credit risk mitigants provided by a single protection provider have differing maturities, the mitigants should be subdivided into separate layers of protection.
The general risk-based capital rules recognize limited types of collateral, such as cash on deposit; securities issued or guaranteed by central governments of the OECD countries; securities issued or guaranteed by the U.S. government or its agencies; and securities issued by certain multilateral development banks.
As proposed, financial collateral would mean collateral in the form of: (1) Cash on deposit with the banking organization (including cash held for the banking organization by a third-party custodian or trustee); (2) gold bullion; (3) short- and long-term debt securities that are not resecuritization exposures and that are investment grade; (4) equity securities that are publicly-traded; (5) convertible bonds that are publicly-traded; or (6) money market fund shares and other mutual fund shares if a price for the shares is publicly quoted daily. With the exception of cash on deposit, the banking organization would also be required to have a perfected, first-priority security interest or, outside of the United States, the legal equivalent thereof, notwithstanding the prior security interest of any custodial agent. A banking organization would be permitted to recognize partial collateralization of an exposure.
Under this NPR, a banking organization would be able to recognize the risk-mitigating effects of financial collateral using the simple approach, described in section II.F.2(c) below, for any exposure where the collateral is subject to a collateral agreement for at least the life of the exposure; the collateral must be revalued at least every six months; and the collateral (other than gold) and the exposure must be denominated in the same currency. For repo-style transactions, eligible margin loans, collateralized derivative contracts, and single-product netting sets of such transactions, a banking organization could alternatively use the collateral haircut approach described in section II.F.2(d) below. A banking organization would be required to use the same approach for similar exposures or transactions.
Before a banking organization recognizes collateral for credit risk mitigation purposes, it should: (1) CONDUCt sufficient legal review to ensure, at the inception of the collateralized transaction and on an ongoing basis, that all documentation used in the transaction is binding on all parties and legally enforceable in all relevant jurisdictions; (2) consider the correlation between risk of the underlying direct exposure and collateral risk in the transaction; and (3) fully take into account the time and cost needed to realize the liquidation proceeds and the potential for a decline in collateral value over this time period.
A banking organization also should ensure that the legal mechanism under which the collateral is pledged or transferred ensures that the banking organization has the right to liquidate or take legal possession of the collateral in a timely manner in the event of the default, insolvency, or bankruptcy (or other defined credit event) of the counterparty and, where applicable, the custodian holding the collateral.
In addition, a banking organization should ensure that it (1) Has taken all steps necessary to fulfill any legal requirements to secure its interest in the collateral so that it has and maintains an enforceable security interest; (2) has set up clear and robust procedures to ensure observation of any legal conditions required for declaring the default of the borrower and prompt
Under the proposed simple approach, which is similar to the general risk-based capital rules, the collateralized portion of the exposure would receive the risk weight applicable to the collateral. The collateral would be required to meet the definition of financial collateral, provided that a banking organization could recognize any collateral for a repo-style transaction that is included in the banking organization's Value-at-Risk (VaR)-based measure under the market risk capital rule. For repurchase agreements, reverse repurchase agreements, and securities lending and borrowing transactions, the collateral would be the instruments, gold, and cash that a banking organization has borrowed, purchased subject to resale, or taken as collateral from the counterparty under the transaction. As noted above, in all cases, (1) The terms of the collateral agreement would be required to be equal to or greater than the life of the exposure; (2) the banking organization would be required to revalue the collateral at least every six months; and (3) the collateral (other than gold) and the exposure would be required to be denominated in the same currency.
Generally, the risk weight assigned to the collateralized portion of the exposure would be no less than 20 percent. However, the collateralized portion of an exposure could be assigned a risk weight of less than 20 percent for the following exposures. OTC derivative contracts that are marked-to-market on a daily basis and subject to a daily margin maintenance agreement, which would receive (1) a zero percent risk weight to the extent that they are collateralized by cash on deposit, or (2) a 10 percent risk weight to the extent that the contracts are collateralized by an exposure to a sovereign or a PSE that qualifies for a zero percent risk weight under section 32 of the proposal. In addition, a banking organization may assign a zero percent risk weight to the collateralized portion of an exposure where the financial collateral is cash on deposit; or the financial collateral is an exposure to a sovereign that qualifies for a zero percent risk weight under section 32 of the proposal, and the banking organization has discounted the market value of the collateral by 20 percent.
The agencies would permit a banking organization to use a collateral haircut approach with supervisory haircuts or, with prior written approval of the primary federal supervisor, its own estimates of haircuts to recognize the risk-mitigating effect of financial collateral that secures an eligible margin loan, a repo-style transaction, collateralized derivative contract, or single-product netting set of such transactions, as well as any collateral that secures a repo-style transaction that is included in the banking organization's VaR-based measure under the market risk capital rule. A netting set would refer to a group of transactions with a single counterparty that are subject to a qualifying master netting agreement or a qualifying cross-product master netting agreement.
The proposal would define a repo-style transaction as a repurchase or reverse repurchase transaction, or a securities borrowing or securities lending transaction (including a transaction in which a banking organization acts as agent for a customer and indemnifies the customer against loss), provided that the transaction meets certain standards and conditions, including with respect to its legal status and the assets backing the transaction. For example, the transaction must be a “securities contract,” “repurchase agreement” under the Bankruptcy Code or a qualified financial contract under certain provisions of U.S. banking laws, as specified in the definition. In addition, the contract must meet certain enforceability standards and a legal review of the contract must be conducted. See the definition of “repo-style transaction” in section 2 of the proposed rules in the related notice titled “Regulatory Capital Rules: Regulatory Capital, Implementation of Basel III, Minimum Regulatory Capital Ratios, Capital Adequacy, Transition Provisions, and Prompt Corrective Action.”:
Under the proposal, an eligible margin loan would be defined as an extension of credit where certain standards and conditions are met, including with respect to collateral securing the loan and events of default in the agreements governing the loan. See the definition of “eligible margin loan” in section 2 of the proposed rules in the related notice titled “Regulatory Capital Rules: Regulatory Capital, Implementation of Basel III, Minimum Regulatory Capital Ratios, Capital Adequacy, Transition Provisions, and Prompt Corrective Action.”
Under the collateral haircut approach, a banking organization would determine the exposure amount using standard supervisory haircuts or its own estimates of haircuts and risk weight the exposure amount according to the counterparty or guarantor if applicable. A banking organization would set the exposure amount for an eligible margin loan, repo-style transaction, collateralized derivative contract, or a netting set of such transactions equal to the greater of zero and the sum of the following three quantities:
(1) The value of the exposure less the value of the collateral. For eligible margin loans, repo-style transactions and netting sets thereof, the value of the exposure is the sum of the current market values of all instruments, gold, and cash the banking organization has lent, sold subject to repurchase, or posted as collateral to the counterparty under the transaction or netting set. For collateralized OTC derivative contracts and netting sets thereof, the value of the exposure is the exposure amount that is calculated under section 34 of the proposal. The value of the collateral would equal the sum of the current market values of all instruments, gold and cash the banking organization has borrowed, purchased subject to resale, or taken as collateral from the counterparty under the transaction or netting set;
(2) The absolute value of the net position in a given instrument or in gold (where the net position in a given instrument or in gold equals the sum of the current market values of the instrument or gold the banking organization has lent, sold subject to repurchase, or posted as collateral to the counterparty minus the sum of the current market values of that same instrument or gold that the banking organization has borrowed, purchased subject to resale, or taken as collateral from the counterparty) multiplied by the market price volatility haircut appropriate to the instrument or gold; and
(3) The absolute values of the net position of instruments and cash in a currency that is different from the settlement currency (where the net position in a given currency equals the sum of the current market values of any instruments or cash in the currency the banking organization has lent, sold
For purposes of the collateral haircut approach, a given instrument would include, for example, all securities with a single Committee on Uniform Securities Identification Procedures (CUSIP) number and would not include securities with different CUSIP numbers, even if issued by the same issuer with the same maturity date.
Under this NPR, a banking organization would use an 8 percent haircut for each currency mismatch and would use the market price volatility haircut appropriate to each security as provided in table 7. The market price volatility haircuts are based on the ten-business-day holding period for eligible margin loans and derivative contracts and may be multiplied by the square root of
For example, if a banking organization has extended an eligible margin loan of $100 that is collateralized by five-year U.S. Treasury notes with a market value of $100, the value of the exposure less the value of the collateral would be zero, and the net position in the security ($100) times the supervisory haircut (.02) would be $2. There is no currency mismatch. Therefore, the exposure amount would be $0 + $2 = $2.
During the financial crisis, many financial institutions experienced significant delays in settling or closing out collateralized transactions, such as repo-style transactions and collateralized OTC derivatives. The assumed holding period for collateral in the collateral haircut approach under Basel II proved to be inadequate for certain transactions and netting sets and did not reflect the difficulties and delays that institutions had when settling or liquidating collateral during a period of financial stress.
Accordingly, consistent with the revised Basel capital framework, for netting sets where: (1) The number of trades exceeds 5,000 at any time during the quarter; (2) one or more trades involves illiquid collateral posted by the counterparty; or (3) the netting set includes any OTC derivatives that cannot be easily replaced, this NPR would require a banking organization to assume a holding period of 20 business days for the collateral under the collateral haircut approach. When determining whether collateral is illiquid or an OTC derivative cannot be easily replaced for these purposes, a banking organization should assess whether, during a period of stressed market conditions, it could obtain multiple price quotes within two days or less for the collateral or OTC derivative that would not move the market or represent a market discount (in the case of collateral) or a premium (in the case of an OTC derivative).
If over the two previous quarters more than two margin disputes on a netting set have occurred that lasted longer than the holding period, then the banking organization would use a holding period for that netting set that is at least two times the minimum holding period that would otherwise be used for that netting set. Margin disputes may occur when the banking organization and its counterparty do not agree on the value of collateral or on the eligibility of the collateral provided. Margin disputes also can occur when the banking organization and its counterparty disagree on the amount of margin that is required, which could result from differences in the valuation of a transaction, or from errors in the calculation of the net exposure of a portfolio, for instance, if a transaction is incorrectly included or excluded from the portfolio. In this NPR, the agencies propose to incorporate these adjustments to the holding period in the collateral haircut approach. However, consistent with the Basel capital framework, a banking organization would not be required to adjust the holding period upward for cleared transactions.
In this NPR, the agencies are proposing to allow banking organizations to calculate market price volatility and foreign exchange volatility using own internal estimates with prior written approval of the banking organization's primary federal supervisor. The banking organization's primary federal supervisor would base approval to use internally estimated haircuts on the satisfaction of certain minimum qualitative and quantitative standards, including the requirements that a banking organization would: (1) Use a 99th percentile one-tailed confidence interval and a minimum five-business-day holding period for repo-style transactions and a minimum ten-business-day holding period for all other transactions; (2) adjust holding periods upward where and as appropriate to take into account the
Under the proposed requirements, a banking organization would be required to have policies and procedures that describe how it determines the period of significant financial stress used to calculate the bank's own internal estimates, and to be able to provide empirical support for the period used. These policies and procedures would address (1) how the banking organization links the period of significant financial stress used to calculate the own internal estimates to the composition and directional bias of the banking organization's current portfolio; and (2) the banking organization's process for selecting, reviewing, and updating the period of significant financial stress used to calculate the own internal estimates and for monitoring the appropriateness of the 12-month period in light of the bank's current portfolio. The banking organization would be required to obtain the prior approval of its primary federal supervisor for these policies and procedures and notify its primary federal supervisor if the banking organization makes any material changes to them. A banking organization's primary federal supervisor may require it to use a different period of significant financial stress in the calculation of the banking organization's own internal estimates.
Under the proposal, a banking organization would be allowed to use internally estimated haircuts for categories of debt securities under certain conditions. The banking organization would be allowed to calculate internally estimated haircuts for categories of debt securities that are investment grade exposures. The haircut for a category of securities would have to be representative of the internal volatility estimates for securities in that category that the banking organization has lent, sold subject to repurchase, posted as collateral, borrowed, purchased subject to resale, or taken as collateral.
In determining relevant categories, the banking organization would, at a minimum, take into account (1) The type of issuer of the security; (2) the investment grade of the security; (3) the maturity of the security; and (4) the interest rate sensitivity of the security. A banking organization would calculate a separate internally estimated haircut for each individual non-investment grade debt security and for each individual equity security. In addition, a banking organization would estimate a separate currency mismatch haircut for its net position in each mismatched currency based on estimated volatilities for foreign exchange rates between the mismatched currency and the settlement currency where an exposure or collateral (whether in the form of cash or securities) is denominated in a currency that differs from the settlement currency.
Under this NPR, a banking organization would not be permitted to use the simple value-at-risk (VaR) to calculate exposure amounts for eligible margin loans and repo-style transactions. However, the Basel standardized approach does incorporate the simple VaR approach for credit risk mitigants. Therefore, the agencies are considering whether to implement the simple VaR approach consistent with the requirements described below.
Under the simple VaR approach (which is not included in the NPR), with the prior written approval of its primary federal supervisor, a banking organization could be allowed to estimate the exposure amount for repo-style transactions and eligible margin loans subject to a single-product qualifying master netting agreement using a VaR model (simple VaR approach). Under the simple VaR approach, a banking organization's exposure amount for transactions subject to such a netting agreement would be equal to the value of the exposures minus the value of the collateral plus a VaR-based estimate of the PFE. The value of the exposures would be the sum of the current market values of all instruments, gold, and cash the banking organization has lent, sold subject to repurchase, or posted as collateral to a counterparty under the netting set. The value of the collateral would be the sum of the current market values of all instruments, gold, and cash the banking organization has borrowed, purchased subject to resale, or taken as collateral from a counterparty under the netting set. The VaR-based estimate of the PFE would be an estimate of the banking organization's maximum exposure on the netting set over a fixed time horizon with a high level of confidence.
To qualify for the simple VaR approach, a banking organization's VaR model would have to estimate the banking organization's 99th percentile, one-tailed confidence interval for an increase in the value of the exposures minus the value of the collateral (∑E–∑C) over a five-business-day holding period for repo-style transactions or over a ten-business-day holding period for eligible margin loans using a minimum one-year historical observation period of price data representing the instruments that the banking organization has lent, sold subject to repurchase, posted as collateral, borrowed, purchased subject to resale, or taken as collateral. The main ongoing qualification requirement for using a VaR model is that the banking organization would have to validate its VaR model by establishing and maintaining a rigorous and regular backtesting regime.
The advanced approaches rule include an internal models methodology for the calculation of the exposure amount for the counterparty credit exposure for OTC derivatives, eligible margin loans, and repo-style transactions.
Although the internal models methodology is not part of this proposal, the Basel standardized approach does incorporate an internal models methodology for credit risk mitigants. Therefore, the agencies are considering whether to implement the internal models methodology in a final rule consistent with the requirements in the advanced approaches rule as modified by the companion NPR.
In this NPR, the agencies propose to provide for a separate risk-based capital requirement for transactions involving securities, foreign exchange instruments, and commodities that have a risk of delayed settlement or delivery. The proposed capital requirement would not, however, apply to certain types of transactions, including: (1) Cleared transactions that are marked-to-market daily and subject to daily receipt and payment of variation margin; (2) repo-style transactions, including unsettled repo-style transactions; (3) one-way cash payments on OTC derivative contracts; or (4) transactions with a contractual settlement period that is longer than the normal settlement period (which the proposal defines as the lesser of the market standard for the particular instrument or five business days).
This NPR proposes separate treatments for delivery-versus-payment (DvP) and payment-versus-payment (PvP) transactions with a normal settlement period, and non-DvP/non-PvP transactions with a normal settlement period. A DvP transaction would refer to a securities or commodities transaction in which the buyer is obligated to make payment only if the seller has made delivery of the securities or commodities and the seller is obligated to deliver the securities or commodities only if the buyer has made payment. A PvP transaction would mean a foreign exchange transaction in which each counterparty is obligated to make a final transfer of one or more currencies only if the other counterparty has made a final transfer of one or more currencies. A transaction would be considered to have a normal settlement period if the contractual settlement period for the transaction is equal to or less than the market standard for the instrument underlying the transaction and equal to or less than five business days.
A banking organization would be required to hold risk-based capital against a DvP or PvP transaction with a normal settlement period if the banking organization's counterparty has not made delivery or payment within five business days after the settlement date. The banking organization would determine its risk-weighted asset amount for such a transaction by multiplying the positive current exposure of the transaction for the banking organization by the appropriate risk weight in table 8. The positive current exposure from an unsettled transaction of a banking organization would be the difference between the transaction value at the agreed settlement price and the current market price of the transaction, if the difference results in a credit exposure of the banking organization to the counterparty.
A banking organization would hold risk-based capital against any non-DvP/non-PvP transaction with a normal settlement period if the banking organization delivered cash, securities, commodities, or currencies to its counterparty but has not received its corresponding deliverables by the end of the same business day. The banking organization would continue to hold risk-based capital against the transaction until it has received the corresponding deliverables. From the business day after the banking organization has made its delivery until five business days after the counterparty delivery is due, the banking organization would calculate the risk-weighted asset amount for the transaction by risk weighting the current market value of the deliverables owed to the banking organization, using the risk weight appropriate for an exposure to the counterparty in accordance with section 32. If a banking organization has not received its deliverables by the fifth business day after the counterparty delivery due date, the banking organization would assign a 1,250 percent risk weight to the current market value of the deliverables owed.
Under the general risk-based capital rules, a banking organization may use external ratings issued by NRSROs to assign risk weights to certain recourse obligations, residual interests, direct credit substitutes, and asset- and mortgage-backed securities. Such exposures to securitization transactions may also be subject to capital requirements that can result in effective risk weights of 1,250 percent, or a dollar-for-dollar capital requirement. A banking organization must deduct certain credit-enhancing interest-only strips (CEIOs) from tier 1 capital.
As noted in the introduction section of this preamble, the Basel capital framework has maintained the use and reliance on credit ratings in the
The proposed securitization framework is designed to address the credit risk of exposures that involve the tranching of the credit risk of one or more underlying financial exposures. The agencies believe that requiring all or substantially all of the underlying exposures of a securitization be financial exposures creates an important boundary between the general credit risk framework and the securitization framework. Examples of financial exposures include loans, commitments, credit derivatives, guarantees, receivables, asset-backed securities, mortgage-backed securities, other debt securities, or equity securities. Based on their cash flow characteristics, for purposes of this proposal, the agencies also would consider asset classes such as lease residuals and entertainment royalties to be financial assets.
The securitization framework is designed to address the tranching of the credit risk of financial exposures and is not designed, for example, to apply to tranched credit exposures to commercial or industrial companies or nonfinancial assets. Accordingly, under this NPR, a specialized loan to finance the construction or acquisition of large-scale projects (for example, airports or power plants), objects (for example, ships, aircraft, or satellites), or commodities (for example, reserves, inventories, precious metals, oil, or natural gas) generally would not be a securitization exposure because the assets backing the loan typically are nonfinancial assets (the facility, object, or commodity being financed).
Proposed definition of securitization exposure would include on- or off-balance sheet credit exposure (including credit-enhancing representations and warranties) that arises from a traditional or synthetic securitization (including a resecuritization), or an exposure that directly or indirectly references a securitization exposure. A traditional securitization means a transaction in which credit risk has been transferred to one or more third parties, the credit risk associated with the underlying exposures has been separated into at least two tranches reflecting different levels of seniority, and certain other conditions are met, such as a measurement that all or substantially all of the underlying exposures are financial exposures. See the definition of “traditional securitization” in section 2 of the proposed rules in the related notice titled “Regulatory Capital Rules: Regulatory Capital, Implementation of Basel III, Minimum Regulatory Capital Ratios, Capital Adequacy, Transition Provisions, and Prompt Corrective Action.”
Paragraph (10) of the proposed definition would specifically exclude from the definition exposures to investment funds (as defined in the proposal) and collective investment and pension funds (as defined in relevant regulations and set forth in the proposed definition of “traditional securitization”). These specific exemptions provided in paragraph (10) serve to narrow the potential scope of the securitization framework. Investment funds, collective investment funds, pension funds regulated under ERISA and their foreign equivalents, and transactions regulated under the Investment Company Act of 1940 and their foreign equivalents are exempted from the definition because these entities and transactions are tightly regulated and subject to strict leverage requirements. For purposes of this proposal, an investment fund is a company (1) where all or substantially all of the assets of the fund are financial assets; and (2) that has no material liabilities. In addition, the agencies believe that the capital requirements for an extension of credit to, or an equity holding in these transactions are more appropriately calculated under the rules for corporate and equity exposures, and that the securitization framework was not intended to apply to such transactions.
Under the proposal, an operating company would not fall under the definition of a traditional securitization (even if substantially all of its assets are financial exposures). For purposes of the proposed definition of a traditional securitization, operating companies generally would refer to companies that are set up to conduct business with clients with the intention of earning a profit in their own right and generally produce goods or provide services beyond the business of investing, reinvesting, holding, or trading in financial assets. Accordingly, an equity investment in an operating company, such as a banking organization, generally would be an equity exposure under the proposal. In addition, investment firms that generally do not produce goods or provide services beyond the business of investing, reinvesting, holding, or trading in financial assets, would not be operating companies for purposes of this proposal and would not qualify for this general exclusion from the definition of traditional securitization.
To address the treatment of investment firms, the primary federal supervisor of a banking organization, under paragraph (8) of the definition of traditional securitization, would have discretion to exclude from the definition of a traditional securitization those transactions in which the underlying exposures are owned by an investment firm that exercise substantially unfettered control over the size and composition of its assets, liabilities, and off-balance sheet exposures. The agencies would consider a number of factors in the exercise of this discretion, including the assessment of the transaction's leverage, risk profile, and economic substance. This supervisory exclusion would give the primary federal supervisor discretion to distinguish structured finance transactions, to which the securitization framework was designed to apply, from those of flexible investment firms such as certain hedge funds and private equity funds. Only investment firms that can easily change the size and composition of their capital structure, as well as the size and composition of their assets and off-balance sheet exposures, would be eligible for the exclusion from the definition of traditional securitization under this provision. The agencies do not consider managed collateralized debt obligation vehicles, structured investment vehicles, and similar structures, which allow considerable management discretion regarding asset composition but are subject to substantial restrictions regarding capital structure, to have substantially unfettered control. Thus, such transactions would meet the definition of traditional securitization.
The agencies are concerned that the line between securitization exposures and non-securitization exposures may be difficult to draw in some circumstances. In addition to the supervisory exclusion from the definition of traditional securitization described above, the primary federal supervisor may scope certain transactions into the securitization
Both the designation of exposures as securitization (or resecuritization) exposures and the calculation of risk-based capital requirements for securitization exposures would be guided by the economic substance of a transaction rather than its legal form. Provided there is a tranching of credit risk, securitization exposures could include, among other things, asset-backed and mortgage-backed securities, loans, lines of credit, liquidity facilities, financial standby letters of credit, credit derivatives and guarantees, loan servicing assets, servicer cash advance facilities, reserve accounts, credit-enhancing representations and warranties, and CEIOs. Securitization exposures also could include assets sold with retained tranches. Mortgage-backed pass-through securities (for example, those guaranteed by FHLMC or FNMA) do not meet the proposed definition of a securitization exposure because they do not involve a tranching of credit risk. Only those mortgage-backed securities that involve tranching of credit risk would be securitization exposures.
Under the proposal, a synthetic securitization would mean a transaction in which: (1) All or a portion of the credit risk of one or more underlying exposures is transferred to one or more third parties through the use of one or more credit derivatives or guarantees (other than a guarantee that transfers only the credit risk of an individual retail exposure); (2) the credit risk associated with the underlying exposures has been separated into at least two tranches reflecting different levels of seniority; (3) performance of the securitization exposures depends upon the performance of the underlying exposures; and (4) all or substantially all of the underlying exposures are financial exposures (such as loans, commitments, credit derivatives, guarantees, receivables, asset-backed securities, mortgage-backed securities, other debt securities, or equity securities).
Consistent with 2009 Enhancements, this NPR would define a resecuritization exposure as an on- or off-balance sheet exposure to a resecuritization; or an exposure that directly or indirectly references a resecuritization exposure. An exposure to an asset-backed commercial paper program (ABCP) would not be a resecuritization exposure if either: (1) The program-wide credit enhancement does not meet the definition of a resecuritization exposure; or (2) the entity sponsoring the program fully supports the commercial paper through the provision of liquidity so that the commercial paper holders effectively are exposed to the default risk of the sponsor instead of the underlying exposures. A resecuritization would mean a securitization in which one or more of the underlying exposures is a securitization exposure. If a transaction involves a traditional multi-seller ABCP, also discussed in more detail below, a banking organization would need to determine whether the transaction should be considered a resecuritization exposure. For example, assume that an ABCP conduit acquires securitization exposures where the underlying assets consist of wholesale loans and no securitization exposures. As is typically the case in multi-seller ABCP conduits, each seller provides first-loss protection by over-collateralizing the conduit to which it sells its loans. To ensure that the commercial paper issued by each conduit is highly-rated, a banking organization sponsor provides either a pool-specific liquidity facility or a program-wide credit enhancement such as a guarantee to cover a portion of the losses above the seller-provided protection.
The pool-specific liquidity facility generally would not be treated as a resecuritization exposure under this proposal because the pool-specific liquidity facility represents a tranche of a single asset pool (that is, the applicable pool of wholesale exposures), which contains no securitization exposures. However, a sponsor's program-wide credit enhancement that does not cover all losses above the seller-provided credit enhancement across the various pools generally would constitute tranching of risk of a pool of multiple assets containing at least one securitization exposure, and therefore would be treated as a resecuritization exposure.
In addition, if the conduit in this example funds itself entirely with a single class of commercial paper, then the commercial paper generally would not be considered a resecuritization exposure if either (1) the program-wide credit enhancement did not meet the proposed definition of a resecuritization exposure or (2) the commercial paper was fully supported by the sponsoring banking organization. When the sponsoring banking organization fully supports the commercial paper, the commercial paper holders effectively would be exposed to default risk of the sponsor instead of the underlying exposures, and the external rating of the commercial paper would be expected to be based primarily on the credit quality of the banking organization sponsor, thus ensuring that the commercial paper does not represent a tranched risk position.
During the recent financial crisis, it became apparent that many banking organizations relied exclusively on NRSRO ratings and did not perform their own credit analysis of the securitization exposures. Accordingly, and consistent with the Basel capital framework, banking organizations would be required under the proposal to satisfy specific due diligence requirements for securitization exposures. Specifically, a banking organization would be required to demonstrate, to the satisfaction of its primary federal supervisor, a comprehensive understanding of the features of a securitization exposure that would materially affect the performance of the exposure. The banking organization's analysis would be required to be commensurate with the complexity of the exposure and the materiality of the exposure in relation to capital. If the banking organization is not able to demonstrate a comprehensive understanding of a securitization exposure to the satisfaction of its primary federal supervisor, the banking organization would be required to assign a risk weight of 1,250 percent to the exposure.
Under the proposal, to demonstrate a comprehensive understanding of a securitization exposure a banking organization would have to conduct and document an analysis of the risk characteristics of the exposure prior to acquisition and periodically thereafter. This analysis would consider:
(1) Structural features of the securitization that would materially impact the performance of the exposure, for example, the contractual cash flow waterfall, waterfall-related triggers, credit enhancements, liquidity
(2) Relevant information regarding the performance of the underlying credit exposure(s), for example, the percentage of loans 30, 60, and 90 days past due; default rates; prepayment rates; loans in foreclosure; property types; occupancy; average credit score or other measures of creditworthiness; average LTV ratio; and industry and geographic diversification data on the underlying exposure(s);
(3) Relevant market data of the securitization, for example, bid-ask spread, most recent sales price and historical price volatility, trading volume, implied market rating, and size, depth and concentration level of the market for the securitization; and
(4) For resecuritization exposures, performance information on the underlying securitization exposures, for example, the issuer name and credit quality, and the characteristics and performance of the exposures underlying the securitization exposures.
On an ongoing basis (no less frequently than quarterly), a banking organization would be required to evaluate, review, and update as appropriate the analysis required under section 41(c)(1) for each securitization exposure.
In a traditional securitization, an originating banking organization typically transfers a portion of the credit risk of exposures to third parties by selling them to a securitization special purpose entity (SPE) (as defined in the proposal).
Under the proposal, a banking organization that transfers exposures it has originated or purchased to a securitization SPE or other third party in connection with a traditional securitization may exclude the underlying exposures from the calculation of risk-weighted assets only if each of the following conditions are met: (1) The exposures are not reported on the banking organization's consolidated balance sheet under GAAP; (2) the banking organization has transferred to one or more third parties credit risk associated with the underlying exposures; and (3) any clean-up calls relating to the securitization are eligible clean-up calls (as discussed below). An originating banking organization that meets these conditions would hold risk-based capital against any securitization exposures it retains in connection with the securitization. An originating banking organization that fails to meet these conditions would be required to hold risk-based capital against the transferred exposures as if they had not been securitized and would deduct from common equity tier 1 capital any after-tax gain-on-sale resulting from the transaction.
In addition, if a securitization includes one or more underlying exposures in which (1) the borrower is permitted to vary the drawn amount within an agreed limit under a line of credit, and (2) contains an early amortization provision, the originating banking organization would be required to hold risk-based capital against the transferred exposures as if they had not been securitized and deduct from common equity tier 1 capital any after-tax gain-on-sale resulting from the transaction.
In general, the proposal's treatment of synthetic securitizations is similar to that of traditional securitizations. The operational requirements for synthetic securitizations, however, are more rigorous to ensure that the originating banking organization has truly transferred credit risk of the underlying exposures to one or more third parties.
For synthetic securitizations, an originating banking organization would recognize for risk-based capital purposes the use of a credit risk mitigant to hedge underlying exposures only if each of the conditions in the proposed definition of “synthetic securitization” is satisfied. These conditions include requirements with respect to the type and contractual governance of the credit risk mitigant used in the transaction. For example, the credit risk associated with the underlying exposures must be separated into at least two tranches reflecting different levels of seniority and all or substantially all of the underlying exposures are financial exposures. See the definition of “synthetic securitization” in section 2 of the proposed rules in the related notice titled “Regulatory Capital Rules: Regulatory Capital, Implementation of Basel III, Minimum Regulatory Capital Ratios, Capital Adequacy, Transition Provisions, and Prompt Corrective Action.”
Failure to meet these operational requirements for a synthetic securitization would prevent a banking organization from using the proposed securitization framework and would require the banking organization to hold risk-based capital against the underlying exposures as if they had not been synthetically securitized. A banking organization that provides credit protection to a synthetic securitization would use the securitization framework to compute risk-based capital requirements for its exposures to the synthetic securitization even if the originating banking organization failed to meet one or more of the operational requirements for a synthetic securitization.
To satisfy the operational requirements for securitizations and enable an originating banking organization to exclude the underlying exposures from the calculation of its risk-based capital requirements, any clean-up call associated with a securitization would need to be an eligible clean-up call. The proposal would define a clean-up call as a contractual provision that permits an originating banking organization or servicer to call securitization exposures before their stated maturity or call date. In the case of a traditional securitization, a clean-up call generally is accomplished by repurchasing the remaining securitization exposures once the amount of underlying exposures or outstanding securitization exposures falls below a specified level. In the case of a synthetic securitization, the clean-up call may take the form of a clause that extinguishes the credit protection once the amount of underlying exposures has fallen below a specified level.
Under the proposal, an eligible clean-up call would be a clean-up call that (1) Is exercisable solely at the discretion of the originating banking organization or servicer; (2) is not structured to avoid allocating losses to securitization exposures held by investors or otherwise structured to provide credit enhancement to the securitization (for example, to purchase non-performing underlying exposures); and (3) for a traditional securitization, is only exercisable when 10 percent or less of the principal amount of the underlying exposures or securitization exposures (determined as of the inception of the securitization) is outstanding; or, for a synthetic securitization, is only exercisable when 10 percent or less of the principal amount of the reference portfolio of underlying exposures (determined as of the inception of the securitization) is outstanding. Where a securitization SPE is structured as a master trust, a clean-up call with respect to a particular series or tranche issued by the master trust would meet criteria (3) of the definition of “eligible clean-up call” as long as the outstanding principal amount in that series was 10 percent or less of its original amount at the inception of the series.
Under the proposed securitization framework, a banking organization generally would calculate a risk-weighted asset amount for a securitization exposure by applying either (1) the simplified supervisory formula approach (SSFA), described in section II.H.4 of this preamble, or (2) for banking organizations that are not subject to the market risk rule, a gross-up approach similar to an approach provided under the general risk-based capital rules. A banking organization would be required to apply either the gross-up approach or the SSFA consistently across all of its securitization exposures. Alternatively, a banking organization may choose to apply a 1,250 percent risk weight to any of its securitization exposures. In addition, the proposal provides for alternative treatment of securitization exposures to ABCP liquidity facilities and certain gains-on-sales and CEIO exposures. The proposed requirements, similar to the general risk-based capital rules, would include exceptions for interest-only mortgage-backed securities, certain statutorily exempted assets, and certain derivatives as described below. In all cases, the minimum risk weight for securitization exposures would be 20 percent.
For synthetic securitizations, which typically employ credit derivatives, a banking organization would apply the securitization framework when calculating risk-based capital requirements. Under this NPR, a banking organization may use the securitization CRM rules to adjust the capital requirement under the securitization framework for an exposure to reflect the CRM technique used in the transaction.
Under this proposal, the exposure amount of an on-balance sheet securitization exposure that is not a repo-style transaction, eligible margin loan, OTC derivative contract or derivative that is a cleared transaction (other than a credit derivative) would be the banking organization's carrying value of the exposure. The exposure amount of an off-balance sheet securitization exposure that is not an eligible ABCP liquidity facility, a repo-style transaction, eligible margin loan, an OTC derivative contract, or a derivative that is a cleared transaction (other than a credit derivative) would be the notional amount of the exposure.
For purposes of calculating the exposure amount of off-balance sheet exposure to an ABCP securitization exposure, such as a liquidity facility, the notional amount may be reduced to the maximum potential amount that the banking organization could be required to fund given the ABCP program's current underlying assets (calculated without regard to the current credit quality of those assets). Thus, if $100 is the maximum amount that could be drawn given the current volume and current credit quality of the program's assets, but the maximum potential draw against these same assets could increase to as much as $200 under some scenarios if their credit quality were to deteriorate, then the exposure amount is $200. This NPR would define an ABCP program as a program established primarily for the purpose of issuing commercial paper that is investment grade and backed by underlying exposures held in a securitization SPE. An eligible ABCP liquidity facility would be defined as a liquidity facility supporting ABCP, in form or in substance, that is subject to an asset quality test at the time of draw that precludes funding against assets that are 90 days or more past due or in default. Notwithstanding these eligibility requirements, a liquidity facility would be an eligible ABCP liquidity facility if the assets or exposures funded under the liquidity facility that do not meet the eligibility requirements are guaranteed by a sovereign entity that qualifies for a 20 percent risk weight or lower.
The exposure amount of an eligible ABCP liquidity facility that is subject to the SSFA would be the notional amount of the exposure multiplied by a 100 percent CCF. The exposure amount of an eligible ABCP liquidity facility that is not subject to the SSFA would be the notional amount of the exposure multiplied by a 50 percent CCF. The proposed CCF for eligible ABCP liquidity facilities with an original maturity of less than one year is greater than the 10 percent CCF prescribed under the general risk-based capital rules.
The exposure amount of a securitization exposure that is a repo-style transaction, eligible margin loan, an OTC derivative or derivative that is a cleared transaction (other than a credit derivative) would be the exposure amount of the transaction as calculated in section 34 or section 37 as applicable.
Under this NPR and the Basel III NPR, a banking organization would deduct from common equity tier 1 capital any after-tax gain-on-sale resulting from a securitization and would apply a 1,250 percent risk weight to the portion of a credit-enhancing interest-only strip (CEIO) that does not constitute an after-tax gain-on-sale. The agencies believe this treatment is appropriate given historical supervisory concerns with the
There are several exceptions to the general provisions in the securitization framework that parallel the general risk-based capital rules. First, a banking organization would be required to assign a risk weight of at least 100 percent to an interest-only mortgage-backed security. The agencies believe that a minimum risk weight of 100 percent is prudent in light of the uncertainty implied by the substantial price volatility of these securities. Second, as required by federal statute, a special set of rules would continue to apply to securitizations of small-business loans and leases on personal property transferred with retained contractual exposure by well-capitalized depository institutions.
This NPR includes provisions to limit the double counting of risks in situations involving overlapping securitization exposures. If a banking organization has multiple securitization exposures that provide duplicative coverage to the underlying exposures of a securitization (such as when a banking organization provides a program-wide credit enhancement and multiple pool-specific liquidity facilities to an ABCP program), the banking organization would not be required to hold duplicative risk-based capital against the overlapping position. Instead, the banking organization would apply to the overlapping position the applicable risk-based capital treatment under the securitization framework that results in the highest risk-based capital requirement.
A traditional securitization typically employs a servicing banking organization that, on a day-to-day basis, collects principal, interest, and other payments from the underlying exposures of the securitization and forwards such payments to the securitization SPE or to investors in the securitization. Servicing banking organizations often provide a facility to the securitization under which the servicing banking organization may advance cash to ensure an uninterrupted flow of payments to investors in the securitization, including advances made to cover foreclosure costs or other expenses to facilitate the timely collection of the underlying exposures. These servicer cash advance facilities are securitization exposures.
A banking organization would either apply the SSFA or the gross-up approach, as described below, or a 1,250 percent risk weight to its exposure under the facility. The treatment of the undrawn portion of the facility would depend on whether the facility is an eligible servicer cash advance facility. An eligible servicer cash advance facility would be defined as a servicer cash advance facility in which: (1) The servicer is entitled to full reimbursement of advances, except that a servicer may be obligated to make non-reimbursable advances for a particular underlying exposure if any such advance is contractually limited to an insignificant amount of the outstanding principal balance of that exposure; (2) the servicer's right to reimbursement is senior in right of payment to all other claims on the cash flows from the underlying exposures of the securitization; and (3) the servicer has no legal obligation to, and does not make, advances to the securitization if the servicer concludes the advances are unlikely to be repaid.
Consistent with the general risk-based capital rules with respect to the treatment of residential mortgage servicer cash advances, a servicing banking organization would not be required to hold risk-based capital against the undrawn portion of an eligible servicer cash advance facility. A banking organization that provides a non-eligible servicer cash advance facility would determine its risk-based capital requirement for the notional amount of the undrawn portion of the facility in the same manner as the banking organization would determine its risk-based capital requirement for any other off-balance sheet securitization exposure.
This NPR specifies consequence for a banking organization's risk-based capital requirements if the banking organization provides support to a securitization in excess of the banking organization's predetermined contractual obligation (implicit support). First, similar to the general risk-based capital rules, a banking organization that provides such implicit support would include in risk-weighted assets all of the underlying exposures associated with the securitization as if the exposures had not been securitized, and deduct from common equity tier 1 capital any after-tax gain-on-sale resulting from the securitization.
For purposes of this proposal, and consistent with the approach provided for assigning specific risk-weighting factors to securitization exposures under subpart F, the agencies have developed a simplified version of the advanced approaches supervisory formula approach (SFA to assign risk weights to securitization exposures.
Similar to the SFA under the advanced approaches rule, the proposed SSFA is a formula that starts with a baseline derived from the capital requirements that apply to all exposures underlying a securitization and then assigns risk weights based on the subordination level of an exposure. The proposed SSFA was designed to apply relatively higher capital requirements to the more risky junior tranches of a securitization that are the first to absorb losses, and relatively lower requirements to the most senior exposures.
The SSFA methodology begins with “K
The SSFA as proposed would apply a 1,250 percent risk weight to securitization exposures that absorb losses up to the amount of capital that would be required for the underlying exposures under subpart D had those exposures been held directly by a banking organization. In addition, agencies are proposing a supervisory risk-weight floor or minimum risk-weight for a given securitization of 20 percent. The agencies believe that a 20 percent floor is reasonably prudent given recent performance of securitization structures during times of stress, and will maintain this floor in the final rule.
At the inception of a securitization, the SSFA as proposed would require more capital on a transaction-wide basis than would be required if the pool of assets had not been securitized. That is, if the banking organization held every tranche of a securitization, its overall capital charge would be greater than if the banking organization held the underlying assets in portfolio. The agencies believe this overall outcome is important in reducing the likelihood of regulatory capital arbitrage through securitizations.
To make the SSFA risk-sensitive and forward-looking, the agencies are proposing to adjust K
K
The agencies believe that, with the delinquent exposure calibration parameter set equal to 0.5, the overall capital requirement would be sufficiently responsive and prudent to ensure sufficient capital for pools that demonstrate credit weakness. The entire specification of the SSFA in the final rule is as follows:
Substituting this value into the equation yields:
As an alternative to the SSFA, banking organizations that are not subject to subpart F may assign risk-based capital requirements to securitization exposures by implementing a gross-up approach described in section 43 of the proposal, which is similar to an approach provided under the general risk-based capital rules. If the banking organization chooses to apply the gross-up approach, it would be required to apply this approach to all of its securitization exposures, except as otherwise provided for certain securitization exposures under sections 44 and 45 of the proposal.
The gross-up approach assigns risk-based capital requirements based on the full amount of the credit-enhanced assets for which the banking organization directly or indirectly assumes credit risk. To calculate risk-weighted assets under the gross-up approach, a banking organization would determine four inputs: the pro rata share, the exposure amount, the enhanced amount, and the applicable risk weight. The pro rata share is the par value of the banking organization's exposure as a percentage of the par value of the tranche in which the securitization exposure resides. The enhanced amount is the value of all the tranches that are more senior to the tranche in which the exposure resides. The applicable risk weight is the weighted-average risk weight of the underlying exposures in the securitization pool as calculated under subpart D.
Under the gross-up approach, a banking organization would be required to calculate the credit equivalent amount, which equals the sum of the exposure of the banking organization's securitization exposure and the pro rata share multiplied by the enhanced amount. To calculate risk-weighted assets for a securitization exposure under the gross-up approach, a banking organization would be required to assign the applicable risk weight to the gross-up credit equivalent amount. As noted above, in all cases, the minimum risk weight for securitization exposures would be 20 percent.
Under the NPR, a banking organization generally would assign a 1,250 percent risk weight to all securitization exposures to which the banking organization does not apply the SSFA or the gross-up approach. However, the NPR provides alternative treatments for certain types of securitization exposures described below, provided that the banking
In this NPR, consistent with the Basel capital framework, a banking organization would be permitted to determine the exposure amount of an eligible asset-backed commercial paper (ABCP) liquidity facility by multiplying the exposure amount by the highest risk weight applicable to any of the individual underlying exposures covered by the facility. The proposal would define an eligible ABCP liquidity facility to mean a liquidity facility supporting ABCP, in form or in substance, that is subject to an asset quality test at the time of draw that precludes funding against assets that are 90 days or more past due or in default. Notwithstanding the preceding sentence, a liquidity facility is an eligible ABCP liquidity facility if the assets or exposures funded under the liquidity facility that do not meet the eligibility requirements are guaranteed by a sovereign that qualifies for a 20 percent risk weight or lower.
Under the proposal, a banking organization may determine the risk-weighted asset amount of a securitization exposure that is in a second loss position or better to an ABCP program by multiplying the exposure amount by the higher of 100 percent and the highest risk weight applicable to any of the individual underlying exposures of the ABCP program,
(1) The exposure is not a first priority securitization exposure or an eligible ABCP liquidity facility;
(2) The exposure is economically in a second loss position or better, and the first loss position provides significant credit protection to the second loss position;
(3) The exposure qualifies as investment grade; and
(4) The banking organization holding the exposure does not retain or provide protection for the first-loss position.
The agencies believe that this approach, which is consistent with the Basel capital framework, appropriately and conservatively assesses the credit risk of non-first-loss exposures to ABCP programs.
As proposed, the treatment of credit risk mitigation for securitization exposures would differ slightly from the treatment for other exposures. In general, to recognize the risk mitigating effects of financial collateral or an eligible guarantee or an eligible credit derivative from an eligible guarantor, a banking organization would use the approaches for collateralized transactions under section 37 of the proposal, the substitution treatment for guarantees and credit derivatives described in section 36 of the proposal.
Under section 45 of the proposal, a banking organization would be permitted to recognize an eligible guarantee or eligible credit derivative only from an eligible guarantor. In addition, when an eligible guarantee or eligible credit derivative covers multiple hedged exposures that have different residual maturities, the banking organization would be required to use the longest residual maturity of any of the hedged exposures as the residual maturity of all the hedged exposures.
The agencies propose that the capital requirement for protection provided through an nth-to-default derivative be determined either by using the SSFA, or applying a 1,250 percent risk weight. A banking organization would determine its exposure in the nth-to-default credit derivative as the largest notional amount of all the underlying exposures.
When applying the SSFA, the attachment point (parameter A) is the ratio of the sum of the notional amounts of all underlying exposures that are subordinated to the banking organization's exposure to the total notional amount of all underlying exposures. In the case of a first-to-default credit derivative, there are no underlying exposures that are subordinated to the banking organization's exposure. In the case of a second-or-subsequent-to default credit derivative, the smallest (n-1) underlying exposure(s) are subordinated to the banking organization`s exposure.
Under the SSFA, the detachment point (parameter D) is the sum of the attachment point and the ratio of the notional amount of the banking organization's exposure to the total notional amount of the underlying exposures. A banking organization that does not use the SSFA to calculate a risk weight for an nth-to-default credit derivative would assign a risk weight of 1,250 percent to the exposure.
For protection purchased through a first-to-default derivative, a banking organization that obtains credit protection on a group of underlying exposures through a first-to-default credit derivative that meets the rules of recognition for guarantees and credit derivatives under section 36(b) would determine its risk-based capital requirement for the underlying exposures as if the banking organization synthetically securitized the underlying exposure with the smallest risk-weighted asset amount and had obtained no credit risk mitigant on the other underlying exposures. A banking organization must calculate a risk-based capital requirement for counterparty credit risk according to section 34 for a first-to-default credit derivative that does not meet the rules of recognition of section 36(b).
For second-or-subsequent-to default credit derivatives, a banking organization that obtains credit protection on a group of underlying exposures through a nth-to-default credit derivative that meets the rules of recognition of section 36(b) (other than a first-to-default credit derivative) may recognize the credit risk mitigation benefits of the derivative only if the banking organization also has obtained credit protection on the same underlying exposures in the form of first-through-(n-1)-to-default credit derivatives; or if n-1 of the underlying exposures have already defaulted. If a banking organization satisfies these requirements, the banking organization would determine its risk-based capital requirement for the underlying exposures as if the banking organization had only synthetically securitized the underlying exposure with the smallest risk-weighted asset amount. For a nth-to-default credit derivative that does not meet the rules of recognition of section 36(b), a banking organization would calculate a risk-based capital requirement for counterparty credit risk according to the treatment of OTC derivatives under section 34.
Under the general risk-based capital rules, a banking organization must deduct a portion of non-financial equity investments from tier 1 capital, based on the aggregate adjusted carrying value of all non-financial equity investments held directly or indirectly by the banking organization as a percentage of its tier 1 capital.
Consistent with the Basel capital framework, in this NPR, the agencies are proposing to require a banking organization to apply the simple risk-weight approach (SRWA) for equity exposures that are not exposures to an investment fund and apply certain look-through approaches to assign risk-weighted asset amounts to equity exposures to an investment fund. In some cases, such as equity exposures to the Federal Home Loan Bank, the treatment under the proposal would remain unchanged from the general risk-based capital rules. However, this NPR introduces changes to the treatment of equity exposures, which are consistent with the treatment for equity exposures under the advanced approaches rule, to improve risk sensitivity of the general risk-based capital requirements. For example, the proposal would differentiate between publicly-traded and non-publicly-traded equity exposures, while the general risk-based capital rules do not make such a distinction.
Under this NPR, the definition of equity exposure would include ownership interests that are residual claims on the assets and income of a company, unless the company is consolidated by the banking organization under GAAP, and options and warrants for securities or instruments that would be equity exposures. The definition would exclude securitization exposures. Additionally. certain other criteria would need to be met for an exposure to be an “equity exposure,” as set forth in the proposed definition. See the definition of “equity exposure” in section 2 of the proposed rules in the related notice titled “Regulatory Capital Rules: Regulatory Capital, Implementation of Basel III, Minimum Regulatory Capital Ratios, Capital Adequacy, Transition Provisions, and Prompt Corrective Action.”
Under the proposal, a banking organization would be required to determine the adjusted carrying value for each equity exposure based on the approaches described below. For the on-balance sheet component of an equity exposure, the adjusted carrying value would be a banking organization's carrying value of the exposure. For a commitment to acquire an equity exposure that is unconditional, the adjusted carrying value would be the effective notional principal amount of the exposure multiplied by a 100 percent conversion factor. For a commitment to acquire an equity exposure that is conditional, the adjusted carrying value would be the effective notional principal amount of the commitment multiplied by (1) a 20 percent conversion factor, for a commitment with an original maturity of one year or less or (2) a 50 percent conversion factor, for a commitment with an original maturity of over one year. For the off-balance sheet component of an equity exposure that is not an equity commitment, the adjusted carrying value would be the effective notional principal amount of the exposure, the size of which is equivalent to a hypothetical on-balance sheet position in the underlying equity instrument that would evidence the same change in fair value (measured in dollars) for a given small change in the price of the underlying equity instrument, minus the adjusted carrying value of the on-balance sheet component of the exposure.
As described in the hedged transactions section below, exposure amounts may have different treatments in the case of hedged equity exposures. The agencies created the concept of the effective notional principal amount of the off-balance sheet portion of an equity exposure to provide a uniform method for banking organizations to measure the on-balance sheet equivalent of an off-balance sheet exposure. For example, if the value of a derivative contract referencing the common stock of company X changes the same amount as the value of 150 shares of common stock of company X, for a small change (for example, 1.0 percent) in the value of the common stock of company X, the effective notional principal amount of the derivative contract is the current value of 150 shares of common stock of company X, regardless of the number of shares the derivative contract references. The adjusted carrying value of the off-balance sheet component of the derivative is the current value of 150 shares of common stock of company X minus the adjusted carrying value of any on-balance sheet amount associated with the derivative.
Under the proposed SRWA, set forth in section 52 of the proposal, a banking organization would determine the risk-weighted asset amount for each equity exposure, other than an equity exposure to an investment fund, by multiplying the adjusted carrying value of the equity exposure, or the effective portion and ineffective portion of a hedge pair as described below, by the lowest applicable risk weight in table 9. A banking organization would determine the risk-weighted asset amount for an equity exposure to an investment fund under section 53 of the proposal. A banking organization would sum risk-weighted asset amounts for all of its equity exposures to calculate its aggregate risk-weighted asset amount for its equity exposures. The proposed SRWA is summarized in table 9 and described in more detail below:
Under
This proposal defines publicly-traded as traded on: (1) any exchange registered with the SEC as a national securities exchange under section 6 of the Securities Exchange Act of 1934 (15 U.S.C. 78f); or (2) any non-U.S.-based securities exchange that is registered with, or approved by, a national securities regulatory authority and that provides a liquid, two-way market for the instrument in question. A two-way market would refer to a market where there are independent bona fide offers to buy and sell so that a price reasonably related to the last sales price or current bona fide competitive bid and offer quotations can be determined within one day and settled at that price within a relatively short time frame conforming to trade custom.
The proposal would require banking organizations to assign a 600 percent risk weight to an equity exposure to an investment firm, provided that the investment firm (1) would meet the definition of a traditional securitization were it not for the primary federal supervisor's application of paragraph (8) of that definition and (2) has greater than immaterial leverage. As discussed in the securitizations section, the agencies would have discretion under this proposal to exclude from the definition of a traditional securitization those investment firms that exercise substantially unfettered control over the size and composition of their assets, liabilities, and off-balance sheet exposures. Equity exposures to investment firms that would otherwise be traditional securitizations were it not for the specific primary federal supervisor's exclusion are leveraged exposures to the underlying financial assets of the investment firm. The agencies believe that equity exposure to such firms with greater than immaterial leverage warrant a 600 percent risk weight under the SRWA, due to their particularly high risk. Moreover, the agencies believe that the 100 percent risk weight assigned to non-significant equity exposures is inappropriate for equity exposures to investment firms with greater than immaterial leverage.
Under this NPR, a banking organization would be permitted to apply a 100 percent risk weight to certain equity exposures deemed non-significant. Non-significant equity exposures would mean an equity exposure to the extent that the aggregate adjusted carrying value of the exposures does not exceed 10 percent of the banking organization's total capital.
To compute the aggregate adjusted carrying value of a banking organization's equity exposures for determining their non-significance, this proposal provides that the banking organization may exclude (1) Equity exposures that receive less than a 300 percent risk weight under the SRWA (other than equity exposures determined to be non-significant); (2) the equity exposure in a hedge pair with the smaller adjusted carrying value; and (3) a proportion of each equity exposure to an investment fund equal to the proportion of the assets of the investment fund that are not equity exposures or (4) exposures that qualify as community development equity exposures. If a banking organization does not know the actual holdings of the investment fund, the banking organization may calculate the proportion of the assets of the fund that are not equity exposures based on the terms of the prospectus, partnership agreement, or similar contract that defines the fund's permissible investments. If the sum of the investment limits for all exposure classes within the fund exceeds 100 percent, the banking organization would assume that the investment fund invests to the maximum extent possible in equity exposures.
To determine which of a banking organization's equity exposures qualify for a 100 percent risk weight based on non-significance, the banking organization first would include equity exposures to unconsolidated small business investment companies, or those held through consolidated small business investment companies described in section 302 of the Small Business Investment Act of 1958. Next, it would include publicly-traded equity exposures (including those held indirectly through investment funds), and then it would include non-publicly-traded equity exposures (including
The treatment of non-significant equity exposures in this proposal is consistent with the advanced approaches rule. However, in light of significant volatility in equity values since publication of the advanced approaches rule in 2007, and the BCBS revisions to the Basel capital framework, the agencies are considering whether a more simple treatment of banking organizations' non-significant equity exposures is appropriate.
One alternative would assign a 100 percent risk weight to a banking organization's equity exposures to small business investment companies and to stock that a banking organization acquires in satisfaction of debts previously contracted (DPC), consistent with the proposed treatment of community development investments and the effective portion of hedge pairs. The full amount of a banking organization's equity exposure to a small business investment company and the full amount of its DPC equity exposures (together with community development investments and the effective portion of hedge pairs) would receive a 100 percent risk weight, not just the “non-significant” portion of such equity exposures.
If the agencies assign a 100 percent risk weight to equity exposures to a small business investment company and to DPC equity exposures, the agencies would consider what other types of equity exposures, if any, would continue to be exempt from the calculation of the “non-significant” amount of equity exposures for risk-based capital purposes and what capital treatment would be appropriate for such exposures. For example, the agencies could reduce the threshold for non-significant equity exposure calculation from 10 percent of tier 1 capital and tier 2 capital to 5 percent of tier 1 and tier 2 capital.
In this NPR, the agencies are proposing the following treatment for recognizing hedged equity exposures. For purposes of determining risk-weighted assets under the SRWA, a banking organization could identify hedge pairs. Hedge pairs would be defined as two equity exposures that form an effective hedge, as long as each equity exposure is publicly-traded or has a return that is primarily based on a publicly-traded equity exposure. Under the NPR, a banking organization may risk weight only the effective and ineffective portions of a hedge pair rather than the entire adjusted carrying value of each exposure that makes up the pair.
Two equity exposures form an effective hedge if the exposures either have the same remaining maturity or each has a remaining maturity of at least three months; the hedge relationship is formally documented in a prospective manner (that is, before the banking organization acquires at least one of the equity exposures); the documentation specifies the measure of effectiveness (E) the banking organization would use for the hedge relationship throughout the life of the transaction; and the hedge relationship has an E greater than or equal to 0.8. A banking organization would measure E at least quarterly and would use one of three measures of E described in the next section: the dollar-offset method, the variability-reduction method, or the regression method.
It is possible that only part of a banking organization's exposure to a particular equity instrument is part of a hedge pair. For example, assume a banking organization has equity exposure A with a $300 adjusted carrying value and chooses to hedge a portion of that exposure with equity exposure B with an adjusted carrying value of $100. Also assume that the combination of equity exposure B and $100 of the adjusted carrying value of equity exposure A form an effective hedge with an E of 0.8. In this situation, the banking organization would treat $100 of equity exposure A and $100 of equity exposure B as a hedge pair, and the remaining $200 of its equity exposure A as a separate, stand-alone equity position. The effective portion of a hedge pair would be calculated as E multiplied by the greater of the adjusted carrying values of the equity exposures forming the hedge pair. The ineffective portion of a hedge pair would be calculated as (1−E) multiplied by the greater of the adjusted carrying values of the equity exposures forming the hedge pair. In the above example, the effective portion of the hedge pair would be 0.8 × $100 = $80, and the ineffective portion of the hedge pair would be (1−0.8) × $100 = $20.
As stated above, a banking organization could determine effectiveness using any one of three methods: the dollar-offset method, the variability-reduction method, or the regression method. Under the dollar-offset method, a banking organization would determine the ratio of the cumulative sum of the changes in value of one equity exposure to the cumulative sum of the changes in value of the other equity exposure, termed the ratio of value change (RVC). If the changes in the values of the two exposures perfectly offset each other, the RVC would be −1. If RVC is positive, implying that the values of the two equity exposures move in the same direction, the hedge is not effective and E equals 0. If RVC is negative and greater than or equal to −1 (that is, between zero and −1), then E would equal the absolute value of RVC. If RVC is negative and less than −1, then E would equal 2 plus RVC.
The variability-reduction method of measuring effectiveness compares changes in the value of the combined position of the two equity exposures in the hedge pair (labeled X in the equation below) to changes in the value of one exposure as though that one exposure were not hedged (labeled A). This measure of E expresses the time-series variability in X as a proportion of the variability of A. As the variability described by the numerator becomes small relative to the variability described by the denominator, the measure of effectiveness improves, but is bounded from above by a value of one. E would be computed as:
The value of t would range from zero to T, where T is the length of the observation period for the values of A and B, and is comprised of shorter values each labeled t.
The regression method of measuring effectiveness is based on a regression in which the change in value of one exposure in a hedge pair is the dependent variable and the change in value of the other exposure in the hedge pair is the independent variable. E would equal the coefficient of determination of this regression, which is the proportion of the variation in the dependent variable explained by variation in the independent variable. However, if the estimated regression coefficient is positive, then the value of E is zero. The closer the relationship between the values of the two exposures, the higher E would be.
Under the general risk-based capital rules, exposures to investments funds are captured through one of two methods. These methods are similar to the alternative modified look-through approach and the simple modified look-through approach described below. The agencies propose an additional option in this NPR, the full look-through approach.
The agencies propose a separate treatment for equity exposures to an investment fund to ensure that banking organizations do not receive a punitive risk-based capital requirement for equity exposures to investment funds that hold only low-risk assets, and to prevent banking organizations from arbitraging the proposed risk-based capital requirements for certain high-risk exposures.
As proposed, a banking organization would determine the risk-weighted asset amount for equity exposures to investment funds using one of three approaches: the full look-through approach, the simple modified look-through approach, or the alternative modified look-through approach, unless the equity exposure to an investment fund is a community development equity exposure. Such community development equity exposures would be subject to a 100 percent risk weight. If an equity exposure to an investment fund is part of a hedge pair, a banking organization would use the ineffective portion of the hedge pair as the adjusted carrying value for the equity exposure to the investment fund. The risk-weighted asset amount of the effective portion of the hedge pair would be equal to its adjusted carrying value. A banking organization could choose which approach to apply for each equity exposure to an investment fund.
A banking organization may use the full look-through approach only if the banking organization is able to calculate a risk-weighted asset amount for each of the exposures held by the investment fund. Under the proposal, a banking organization would be required to calculate the risk-weighted asset amount for each of the exposures held by the investment fund (as calculated under subpart D of the proposal) as if the exposures were held directly by the banking organization. The banking organization's risk-weighted asset amount for the fund would be equal to the aggregate risk-weighted asset amount of the exposures held by the fund as if they were held directly by the banking organization multiplied by the banking organization's proportional ownership share of the fund.
Under the proposed simple modified look-through approach, a banking organization would set the risk-weighted asset amount for its equity exposure to an investment fund equal to the adjusted carrying value of the equity exposure multiplied by the highest risk weight assigned according to subpart D of the proposal that applies to any exposure the fund is permitted to hold under the prospectus, partnership agreement, or similar agreement that defines the fund's permissible investments. The banking organization may exclude derivative contracts held by the fund that are used for hedging, rather than for speculative purposes, and do not constitute a material portion of the fund's exposures.
Under the proposed alternative modified look-through approach, a banking organization may assign the adjusted carrying value of an equity exposure to an investment fund on a pro rata basis to different risk weight categories under subpart D of the proposal based on the investment limits in the fund's prospectus, partnership agreement, or similar contract that defines the fund's permissible investments.
The risk-weighted asset amount for the banking organization's equity exposure to the investment fund would be equal to the sum of each portion of the adjusted carrying value assigned to an exposure type multiplied by the applicable risk weight. If the sum of the investment limits for all exposures within the fund exceeds 100 percent, the banking organization would assume that the fund invests to the maximum extent permitted under its investment limits in the exposure type with the highest applicable risk weight under the proposed requirements and continues to make investments in the order of the exposure category with the next highest risk weight until the maximum total investment level is reached. If more than one exposure category applies to an exposure, the banking organization would use the highest applicable risk
The agencies propose to apply consolidated capital requirements to savings and loan holding companies, consistent with the transfer of supervisory responsibilities to the Board under Title III of the Dodd-Frank Act, as well as the requirements in section 171 of the Dodd-Frank Act. Savings and loan holding companies have not been subject to consolidated quantitative capital requirements prior to this proposal.
In the Notice of Intent published in April 2011 (2011 notice of intent), the Board discussed the possibility of applying to savings and loan holding companies the same consolidated risk-based and leverage capital requirements as those proposed for bank holding companies.
The Board received comment letters on the 2011 notice of intent as well as on other notices issued in 2011 pertaining to savings and loan companies.
A number of commenters suggested that the Board defer its oversight of savings and loan holding companies, in part or in whole, to functional regulators or impose the same capital standards required by insurance regulators. Other commenters suggested that certain savings and loan holding companies should be exempt from the Board's regulatory capital requirements in cases where depository institution activity constitutes only a small part of the consolidated organization's assets and revenues. The Board believes both of these approaches would be inconsistent with the requirements set out in section 171 of the Dodd-Frank Act. Further, the Board believes it is important to apply consolidated risk-based and leverage capital requirements to insurance-based holding companies because the insurance risk-based capital requirements are not imposed on a consolidated basis and are based on different considerations, such as solvency concerns, rather than broad categories of credit risk.
The Board considered all the comments received and believes that the proposed requirements for savings and loan holding companies appropriately take into consideration their unique characteristics, risks, and activities while ensuring compliance with the requirements of the Dodd-Frank Act. Further, a uniform approach for all holding companies would mitigate potential competitive equity issues, limit opportunities for regulatory arbitrage, and facilitate comparable treatment of similar risks.
In 2011, the agencies amended the general risk-based capital rules to provide that low-risk assets not held by depository institutions may receive the capital treatment applicable under the capital guidelines for bank holding companies under limited circumstances.
The proposed requirements that are unique to savings and loan holding companies or bank holding companies are discussed below, including provisions pertaining to the determination of risk-weighted assets for nonbanking exposures unique to insurance underwriting activities (whether conducted by a bank holding company or savings and loan holding company).
A policy loan would be defined as a loan to policyholders under the provisions of an insurance contract that are secured by the cash surrender value or collateral assignment of the related policy or contract. A policy loan would include: (1) A cash loan, including a loan resulting from early payment or accelerated payment benefits, on an insurance contract when the terms of contract specify that the payment is a policy loan secured by the policy; and (2) an automatic premium loan, which is a loan made in accordance with policy provisions which provide that delinquent premium payments are automatically paid from the cash value at the end of the established grace period for premium payments.
Under the proposal, a policy loan would be assigned a 20 percent risk. Such treatment is similar to the treatment of a cash-secured loan. The Board believes this treatment is appropriate in light of the fact that should a borrower default, the resulting loss to the insurance company is mitigated by the right to access the cash surrender value or collateral assignment of the related policy.
A separate account is a legally segregated pool of assets owned and held by an insurance company and maintained separately from its general account assets for the benefit of an individual contract holder, subject to certain conditions. To qualify as a separate account, the following conditions generally must be met: (1) The account must be legally recognized under applicable law; (2) the assets in the account must be insulated from general liabilities of the insurance company under applicable law and protected from the insurance company's general creditors in the event of the insurer's insolvency; (3) the insurance company must invest the funds within the account as directed by the contract holder in designated investment alternatives or in accordance with specific investment objectives or
Under the general risk-based capital rules, assets held in separate accounts are assigned to risk-weight categories based on the risk weight of the underlying assets. However, the agencies propose to assign a zero percent risk weight to assets held in non-guaranteed separate accounts where all the losses are passed on to the contract holders. To qualify as a non-guaranteed separate account, the insurance company could not contractually guarantee a minimum return or account value to the contract holder, and the insurance company would not be required to hold reserves for these separate account assets pursuant to its contractual obligations on an associated policy. The proposal would maintain the current risk-weighting treatment for assets held in a separate account that does not qualify as a non-guaranteed separate account.
The agencies believe the proposed treatment for non-guaranteed separate account assets is appropriate, even though the proposed definition of non-guaranteed separate accounts is more restrictive than the one used by insurance regulators. The proposed criteria for non-guaranteed separate accounts are designed to ensure that a zero percent risk weight is applied only to the assets for which contract holders, and not an insurance company, would bear all the losses.
Deferred acquisition costs (DAC) represent certain costs incurred in the acquisition of a new contract or renewal insurance contract that are capitalized pursuant to GAAP. Value of business acquired (VOBA) refers to assets that reflect revenue streams from insurance policies purchased by an insurance company. The Board proposes to risk weight these assets at 100 percent, similar to other assets not specifically assigned a different risk weight under this NPR.
A surplus note is a financial instrument issued by an insurance company that is included in surplus for statutory accounting purposes as prescribed or permitted by state laws and regulations. A surplus note generally has the following features: (1) The applicable state insurance regulator approves in advance the form and content of the note; (2) the instrument is subordinated to policyholders, to claimant and beneficiary claims, and to all other classes of creditors other than surplus note holders; and (3) the applicable state insurance regulator is required to approve in advance any interest payments and principal repayments on the instrument.
The Board believes that surplus notes do not meet the proposal's eligibility criteria for tier 1 capital. In particular, surplus notes are not perpetual instruments but represent debt instruments that are treated as equity for insurance regulatory capital purposes. Surplus notes are long-term, unsecured obligations, subordinated to all senior debt holders and policy claims. The main equity characteristics of surplus notes are the loss absorbency feature and the need to obtain prior approval from insurance regulators before issuance.
Some commenters on the Board's savings and loan holding company-related proposals issued in 2011 recommended that all outstanding surplus note issuances should be grandfathered and considered eligible as additional tier 1 capital instruments. Other commenters believed the Basel III framework provided sufficient flexibility to include surplus notes in tier 1 capital given the BCBS's recognition that Basel III should accommodate the specific needs of non-joint stock companies, such as mutual and cooperatives, which are unable to issue common stock. The Board believes generally that including surplus notes in tier 1 capital would be inconsistent with the proposed eligibility criteria for regulatory capital instruments and with overall safety and soundness concerns because surplus notes generally do not reflect the required loss absorbency characteristics of tier 1 instruments under the proposal. A surplus note could be eligible for inclusion in tier 2 capital provided the note meets the proposed tier 2 capital eligibility criteria. The Board has sought to incorporate reasonable transition provisions in the first NPR for instruments that would no longer meet the eligibility criteria for tier 2 capital.
Consistent with the current treatment under the advanced approaches rule, the Basel III NPR would require bank holding companies and savings and loan holding companies to consolidate and deduct the minimum regulatory capital requirement of insurance underwriting subsidiaries (generally 200 percent of the subsidiary's authorized control level as established by the appropriate state insurance regulator) from total capital to reflect the capital needed to cover insurance risks. The proposed deduction treatment recognizes that capital requirements imposed by the functional regulator to cover the various risks that insurance risk-based capital captures reflect capital needs at the particular subsidiary and that this capital is therefore not generally available to absorb losses in other parts of the organization. The deduction would be 50 percent from tier 1 capital and 50 percent from tier 2 capital.
The agencies have long supported meaningful public disclosure by banking organizations with the objective of improving market discipline and encouraging sound risk-management practices. As noted above, the BCBS introduced public disclosure requirements under Pillar 3 of Basel II, which is designed to complement the minimum capital requirements and the supervisory review process by encouraging market discipline through enhanced and meaningful public disclosure.
The public disclosure requirements under this NPR would apply only to banking organizations representing the top consolidated level of the banking group with $50 billion or more in total consolidated assets that are not advanced approaches banking organizations making public disclosures pursuant to section 172 of the proposal.
A banking organization's exposure to risks and the techniques that it uses to identify, measure, monitor, and control those risks are important factors that market participants consider in their assessment of the banking organization. Accordingly, as proposed, a banking organization would have a formal disclosure policy approved by its board of directors that addresses the banking organization's approach for determining the disclosures it should make. The policy should address the associated internal controls, disclosure controls, and procedures. The board of directors and senior management would ensure the appropriate review of the disclosures and that effective internal controls, disclosure controls, and procedures are maintained. One or more senior officers of the banking organization must attest that the disclosures meet the requirements of this proposal.
A banking organization would decide the relevant disclosures based on a materiality concept. Information would be regarded as material if its omission or misstatement could change or influence the assessment or decision of a user relying on that information for the purpose of making investment decisions.
Consistent with the agencies' longstanding requirements for robust quarterly disclosures in regulatory reports, and considering the potential for rapid changes in risk profiles, this NPR would require that quantitative disclosures are made quarterly. However, qualitative disclosures that provide a general summary of a banking organization's risk-management objectives and policies, reporting system, and definitions may be disclosed annually, provided any significant changes are disclosed in the interim.
The proposal would require that the disclosures are timely. The agencies acknowledge that the timing of disclosures under the federal banking laws may not always coincide with the timing of disclosures required under other federal laws, including disclosures required under the federal securities laws and their implementing regulations by the SEC. For calendar quarters that do not correspond to fiscal year-end, the agencies would consider those disclosures that are made within 45 days as timely. In general, where a banking organization's fiscal year end coincides with the end of a calendar quarter, the agencies would consider disclosures to be timely if they are made no later than the applicable SEC disclosure deadline for the corresponding Form 10–K annual report. In cases where an institution's fiscal year-end does not coincide with the end of a calendar quarter, the primary federal supervisor would consider the timeliness of disclosures on a case-by-case basis. In some cases, management may determine that a significant change has occurred, such that the most recent reported amounts do not reflect the banking organization's capital adequacy and risk profile. In those cases, a banking organization would need to disclose the general nature of these changes and briefly describe how they are likely to affect public disclosures going forward. A banking organization would make these interim disclosures as soon as practicable after the determination that a significant change has occurred.
The disclosures required by the proposal would have to be publicly available (for example, included on a public Web site) for each of the last three years or such shorter time period beginning when the proposal comes into effect. Except as discussed below, management would have some discretion to determine the appropriate medium and location of the disclosure. Furthermore, a banking organization would have flexibility in formatting its public disclosures.
The agencies encourage management to provide all of the required disclosures in one place on the entity's public Web site and the agencies anticipate that the public Web site address would be reported in a banking organization's regulatory report. Alternatively, banking organizations would be permitted to provide the disclosures in more than one place, as some of them may be included in public financial reports (for example, in Management's Discussion and Analysis included in SEC filings) or other regulatory reports. The agencies would encourage such banking organizations to provide a summary table on their public Web site that specifically indicates where all the disclosures may be found (for example, regulatory report schedules, page numbers in annual reports).
Disclosures of common equity tier 1, tier 1, and total capital ratios would be tested by external auditors as part of the financial statement audit. Disclosures that are not included in the footnotes to the audited financial statements are not subject to external audit reports for financial statements or internal control reports from management and the external auditor.
The agencies believe that the proposed requirements strike an appropriate balance between the need for meaningful disclosure and the protection of proprietary and confidential information.
The public disclosure requirements are designed to provide important information to market participants on the scope of application, capital, risk exposures, risk assessment processes, and, thus, the capital adequacy of the institution. The agencies note that the substantive content of the tables is the focus of the disclosure requirements, not the tables themselves. The table numbers below refer to the table numbers in the proposal.
A banking organization would make the disclosures described in tables 14.1 through 14.10. The banking organization would make these disclosures publicly available for each of the last three years or such shorter time period beginning when the proposed requirements come into effect.
Table 14.1 disclosures, “Scope of Application,” would name the top corporate entity in the group to which subpart D of the proposal would apply; include a brief description of the differences in the basis for consolidating entities for accounting and regulatory purposes, as well as a description of any restrictions, or other major impediments, on transfer of funds or total capital within the group. These disclosures provide the basic context underlying regulatory capital calculations.
Table 14.2 disclosures, “Capital Structure,” would provide summary information on the terms and conditions of the main features of regulatory capital instruments, which would allow for an evaluation of the quality of the capital available to absorb losses within a banking organization. A banking organization also would disclose the total amount of common equity tier 1, tier 1 and total capital, with separate disclosures for deductions and adjustments to capital. The agencies expect that many of these disclosure requirements would be captured in revised regulatory reports.
Table 14.3 disclosures, “Capital Adequacy,” would provide information on a banking organization's approach for categorizing and risk-weighting its exposures, as well as the amount of total risk-weighted assets. The table would also include common equity tier 1, and tier 1 and total risk-based capital ratios for the top consolidated group; and for each depository institution subsidiary.
Table 14.4 disclosures, “Capital Conservation Buffer,” would require a banking organization to disclose the capital conservation buffer, the eligible retained income and any limitations on capital distributions and certain discretionary bonus payments, as applicable.
Tables 14.5, 14.6 and 14.7 disclosures, related to credit risk, counterparty credit risk and credit risk mitigation, respectively, would provide market participants with insight into different types and concentrations of credit risk to which a banking organization is exposed and the techniques it uses to measure, monitor, and mitigate those risks. These disclosures are intended to enable market participants to assess the credit risk exposures of the banking organization without revealing proprietary information.
Table 14.8 disclosures, “Securitization,” would provide information to market participants on the amount of credit risk transferred and retained by a banking organization through securitization transactions, the types of products securitized by the organization, the risks inherent in the organization's securitized assets, the organization's policies regarding credit risk mitigation, and the names of any entities that provide external credit assessments of a securitization. These disclosures would provide a better understanding of how securitization transactions impact the credit risk of a bank. For purposes of these disclosures, “exposures securitized” include underlying exposures originated by a banking organization, whether generated by the banking organization or purchased from third parties, and third-party exposures included in sponsored programs. Securitization transactions in which the originating banking organization does not retain any securitization exposure would be shown separately and would only be reported for the year of inception.
Table 14.9 disclosures, “Equities Not Subject to Subpart F of the [proposal],” would provide market participants with an understanding of the types of equity securities held by the banking organization and how they are valued. The table would also provide information on the capital allocated to different equity products and the amount of unrealized gains and losses.
Table 14.10 disclosures, “Interest Rate Risk for Non-trading Activities,” would require banking organization to provide certain quantitative and qualitative disclosures regarding the banking organization's management of interest rate risks.
The Regulatory Flexibility Act, 5 U.S.C. 601
The agencies are separately publishing initial regulatory flexibility analyses for the proposals as set forth in this NPR.
As discussed in the Supplementary Information above, the Board is proposing to revise its capital requirements to promote safe and sound banking practices, implement Basel III and other aspects of the Basel capital framework, and codify its capital requirements.
The proposals in this NPR and the Basel III NPR would implement provisions consistent with certain requirements of the Dodd-Frank Act because they would (1) revise regulatory capital requirements to remove all references to, and requirements of reliance on, credit ratings,
Additionally, under section 38(c)(1) of the Federal Deposit Insurance Act, the agencies may prescribe capital standards for depository institutions that they regulate.
Under regulations issued by the Small Business Administration,
The proposed requirements would not apply to small bank holding companies that are not engaged in significant nonbanking activities, do not conduct significant off-balance sheet activities, and do not have a material amount of debt or equity securities outstanding that are registered with the SEC. These small bank holding companies remain subject to the Board's Small Bank Holding Company Policy Statement (Policy Statement).
Small state member banks and small savings and loan holding companies (covered small banking organizations) would be subject to the proposals in this NPR.
The proposed requirements in the Basel III NPR and this NPR may impact covered small banking organizations in several ways, including both recordkeeping and compliance requirements. As explained in the Basel III NPR, the proposals therein would change the minimum capital ratios and
Most small state member banks already hold capital in excess of the proposed minimum risk-based regulatory ratios. Therefore, the proposed requirements are not expected to significantly impact the capital structure of most covered small state member banks. Comparing the capital requirements proposed in this NPR and the Basel III NPR on a fully phased-in basis to minimum requirements of the current rules, the capital ratios of approximately 1–2 percent of small state member banks would fall below at least one of the proposed minimum risk-based capital requirements. Thus, the Board believes that the proposals in this NPR and the Basel III NPR would affect an insubstantial number of small state member banks.
Because the Board has not fully implemented reporting requirements for savings and loan holding companies, it is unable to determine the impact of the proposed requirements on small savings and loan holding companies. The Board seeks comment on the potential impact of the proposed requirements on small savings and loan holding companies.
Covered small banking organizations that would have to raise additional capital to comply with the requirements of the proposal may incur certain costs, including costs associated with issuance of regulatory capital instruments. The Board has sought to minimize the burden of raising additional capital by providing for transitional arrangements that phase-in the new capital requirements over several years, allowing banking organizations time to accumulate additional capital through retained earnings as well as raising capital in the market.
As discussed above, the proposed requirements would modify risk weights for exposures, as well as calculation of the leverage ratio. Accordingly, covered small banking organizations would be required to change their internal reporting processes to comply with these changes. These changes may require some additional personnel training and expenses related to new systems (or modification of existing systems) for calculating regulatory capital ratios.
Additionally, covered small banking organizations that hold certain exposures would be required to obtain additional information under the proposed rules in order to determine the applicable risk weights. Covered small banking organizations that hold exposures to sovereign entities other than the United States, foreign depository institutions, or foreign public sector entities would have to acquire Country Risk Classification ratings produced by the OECD to determine the applicable risk weights. Covered small banking organizations that hold residential mortgage exposures would need to have and maintain information about certain underwriting features of the mortgage as well as the LTV ratio in order to determine the applicable risk weight. Generally, covered small banking organizations that hold securitization exposures would need to obtain sufficient information about the underlying exposures to satisfy due diligence requirements and apply the simplified supervisory formula described above to calculate the appropriate risk weight, or be required to assign a 1,250 percent risk weight to the exposure.
Covered small banking organizations typically do not hold significant exposures to foreign entities or securitization exposures, and the Board expects any additional burden related to calculating risk weights for these exposures, or holding capital against these exposures, would be modest. Some covered small banking organizations may hold significant residential mortgage exposures. However, if the small banking organization originated the exposure, it should have sufficient information to determine the applicable risk weight under the proposal. If the small banking organization acquired the exposure from another institution, the information it would need to determine the applicable risk weight is consistent with information that it should normally collect for portfolio monitoring purposes and internal risk management.
Covered small banking organizations would not be subject to the disclosure requirements in subpart D of the proposal. However, the Board expects to modify regulatory reporting requirements that apply to covered small banking organizations to reflect the changes made to the Board's capital requirements in the proposal. The Board expects to propose these changes to the relevant reporting forms in a separate notice.
For small savings and loan holding companies, the compliance burdens described above may be greater than for those of other covered small banking organizations. Small savings and loan holding companies previously were not subject to regulatory capital requirements and reporting requirements tied regulatory capital requirements. Small savings and loan holding companies may therefore need to invest additional resources in establishing internal systems (including purchasing software or hiring personnel) or raising capital to come into compliance with the proposed rules.
For those covered small banking organizations that would not immediately meet the proposed minimum requirements, the NPR provides transitional arrangements for banking organizations to make adjustments and to come into compliance. Small covered banking organizations would be required to meet the proposed minimum capital ratio requirements beginning on January 1, 2013 thorough to December 31, 2014. On January 1, 2015, small covered banking organizations would be required to comply with the new Prompt Corrective Action capital ratio requirements proposed in the Basel III NPR. January 1, 2015 is also the proposed effective date for small covered companies to begin calculating risk-weighted assets according to the methodologies in this NPR.
The Board is unaware of any duplicative, overlapping, or conflicting federal rules. As noted above, the Board anticipates issuing a separate proposal to implement reporting requirements that are tied to (but do not overlap or duplicate) the requirements of the proposed rules. The Board seeks comments and information regarding any such rules that are duplicative, overlapping, or otherwise in conflict with the proposed rules.
The Board has sought to incorporate flexibility into the proposals in this NPR and provide alternative treatments to lessen burden and complexity for smaller banking organizations wherever possible, consistent with safety and soundness and applicable law, including the Dodd-Frank Act. These alternatives and flexibility features include the following:
• Covered small banking organizations would not be subject to the enhanced disclosure requirements of the proposed rules.
• Covered small banking organizations could choose to apply the gross-up approach for securitization exposures rather than the SSFA.
The proposal also offers covered small banking organizations a choice between a simpler and more complex methods of risk weighting equity exposures to investment funds.
The Board welcomes comment on any significant alternatives to the proposed rules applicable to covered small banking organizations that would minimize their impact on those entities, as well as on all other aspects of its analysis. A final regulatory flexibility analysis will be conducted after consideration of comments received during the public comment period.
In accordance with section 3(a) of the Regulatory Flexibility Act (5 U.S.C. 601
The OCC welcomes comment on all aspects of the summary of its IRFA. A final regulatory flexibility analysis will be conducted after consideration of comments received during the public comment period.
As discussed in the Supplementary Information section above, the agencies are proposing to revise their capital requirements to promote safe and sound banking practices, implement Basel III, and harmonize capital requirements across charter type. This NPR also satisfies certain requirements under the Dodd-Frank Act by revising regulatory capital requirements to remove all references to, and requirements of reliance on, credit ratings. Federal law authorizes each of the agencies to prescribe capital standards for the banking organizations it regulates.
Under regulations issued by the Small Business Administration,
This NPR includes changes to the general risk-based capital requirements that address the calculation of risk-weighted assets and affect small banking organizations. The proposed rules in this NPR that would affect small banking organizations include:
1. Changing the denominator of the risk-based capital ratios by revising the asset risk weights;
2. Revising the treatment of counterparty credit risk;
3. Replacing references to credit ratings with alternative measures of creditworthiness;
4. Providing more comprehensive recognition of collateral and guarantees; and
5. Providing a more favorable capital treatment for transactions cleared through qualifying central counterparties.
These changes are designed to enhance the risk-sensitivity of the calculation of risk-weighted assets. Therefore, capital requirements may go down for some assets and up for others. For those assets with a higher risk weight under this NPR, however, that increase may be large in some instances,
The Basel Committee on Banking Supervision has been conducting periodic reviews of the potential quantitative impact of the Basel III framework.
To comply with the proposed rules in this NPR, covered small banking organizations would be required to change their internal reporting processes. These changes would require some additional personnel training and expenses related to new systems (or modification of existing systems) for calculating regulatory capital ratios.
Additionally, covered small banking organizations that hold certain exposures would be required to obtain additional information under the proposed rules in order to determine the applicable risk weights. Covered small banking organizations that hold exposures to sovereign entities other than the United States, foreign depository institutions, or foreign public sector entities would have to acquire Country Risk Classification ratings produced by the OECD to determine the applicable risk weights. Covered small banking organizations that hold residential mortgage exposures would need to have and maintain information about certain underwriting features of the mortgage as well as the LTV ratio in order to determine the applicable risk weight. Generally, covered small banking organizations that hold securitization exposures would need to obtain sufficient information about the underlying exposures to satisfy due diligence requirements and apply either the simplified supervisory formula or the gross-up approach described in section ___.43 of this NPR to calculate the appropriate risk weight, or be required to assign a 1,250 percent risk weight to the exposure.
Covered small banking organizations typically do not hold significant exposures to foreign entities or securitization exposures, and the agencies expect any additional burden related to calculating risk weights for these exposures, or holding capital against these exposures, would be relatively modest. The OCC estimates that, for small national banks and federal savings associations, the cost of implementing the alternative measures of creditworthiness will be approximately $36,125 per institution.
Some covered small banking organizations may hold significant residential mortgage exposures.
Covered small banking organizations would not be subject to the disclosure requirements in subpart D of the proposed rule. However, the agencies expect to modify regulatory reporting requirements that apply to covered small banking organizations to reflect the changes made to the agencies' capital requirements in the proposed rules. The agencies expect to propose these changes to the relevant reporting forms in a separate notice.
To determine if a proposed rule has a significant economic impact on small entities we compared the estimated annual cost with annual noninterest expense and annual salaries and employee benefits for each small entity. If the estimated annual cost was greater than or equal to 2.5 percent of total noninterest expense or 5 percent of annual salaries and employee benefits we classified the impact as significant. The OCC has concluded that the proposals included in this NPR would exceed this threshold for 500 small national banks and 253 small federally chartered private savings institutions. Accordingly, for the purposes of this IRFA, the OCC has concluded that the changes proposed in this NPR, when considered without regard to other changes to the capital requirements that the agencies simultaneously are proposing, would have a significant economic impact on a substantial number of small entities.
Additionally, as discussed in the Supplementary Information section above, the changes proposed in this NPR should be considered together with changes proposed in the separate Basel III NPR also published in today's
The OCC is unaware of any duplicative, overlapping, or conflicting federal rules. As noted previously, the OCC anticipates issuing a separate proposal to implement reporting requirements that are tied to (but do not overlap or duplicate) the requirements of the proposed rules. The OCC seeks comments and information regarding any such federal rules that are duplicative, overlapping, or otherwise in conflict with the proposed rule.
The agencies have sought to incorporate flexibility into the proposed rule and lessen burden and complexity for smaller banking organizations wherever possible, consistent with safety and soundness and applicable law, including the Dodd-Frank Act. The agencies are requesting comment on potential options for simplifying the rule and reducing burden, including whether to permit certain small banking organizations to continue using portions of the current general risk-based capital rules to calculate risk-weighted assets. Additionally, the agencies proposed the following alternatives and flexibility features:
• Covered small banking organizations are not subject to the enhanced disclosure requirements of the proposed rules.
• Covered small banking organizations would continue to apply a 100 percent risk weight to corporate exposures (as described in section __.32 of this NPR).
• Covered small banking organizations may choose to apply the simpler gross-up method for securitization exposures rather than the Simplified Supervisory Formula Approach (SSFA) (as described in section __.43 of this NPR).
• The proposed rule offers covered small banking organizations a choice between a simpler and more complex methods of risk weighting equity exposures to investment funds (as described in section __.53 of this NPR).
The agencies welcome comment on any significant alternatives to the proposed rules applicable to covered small banking organizations that would minimize their impact on those entities.
In accordance with the requirements of the Paperwork Reduction Act (PRA) of 1995, 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. The Agencies are requesting comment on a proposed information collection.
The information collection requirements contained in this joint notice of proposed rulemaking (NPRs) have been submitted by the OCC and FDIC to OMB for review under the PRA, under OMB Control Nos. 1557–0234 and 3064–0153. In accordance with the PRA (44 U.S.C. 3506; 5 CFR part 1320, Appendix A.1), the Board has reviewed the NPR under the authority delegated by OMB. The Board's OMB Control No. is 7100–0313. The requirements are
The Agencies have published two other NPRs in this issue of the
Comments are invited on:
(a) Whether the collection of information is necessary for the proper performance of the Agencies' functions, including whether the information has practical utility;
(b) The accuracy of the estimates of the burden of the information collection, including the validity of the methodology and assumptions used;
(c) Ways to enhance the quality, utility, and clarity of the information to be collected;
(d) Ways to minimize the burden of the information collection on respondents, including through the use of automated collection techniques or other forms of information technology; and
(e) Estimates of capital or start up costs and costs of operation, maintenance, and purchase of services to provide information.
All comments will become a matter of public record.
Comments should be addressed to:
OCC: Communications Division, Office of the Comptroller of the Currency, Public Information Room, Mail stop 1–5, Attention: 1557–0234, 250 E Street SW., Washington, DC 20219. In addition, comments may be sent by fax to 202–874–4448, or by electronic mail to
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All public comments are available from the Board's Web site at
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The agencies are still considering whether to revise these information collections or to implement a new information collection for the regulatory reporting requirements. In either case, a separate notice would be published for comment on the regulatory reporting requirements.
Abstract:
The recordkeeping requirements are found in sections _.35, _.37, _ and .41. The disclosure requirements are found in sections _.42, _.62, and _.63. These recordkeeping and disclosure requirements are necessary for the agencies' assessment and monitoring of
Section _.35 sets forth requirements for cleared transactions. Section _.35(b)(3)(i)(A) would require for a cleared transaction with a qualified central counterparty (QCCP) that a client bank apply a risk weight of 2 percent, provided that the collateral posted by the bank to the QCCP is subject to certain arrangements and the client bank has conducted a sufficient legal review (and maintains sufficient written documentation of the legal review) to conclude with a well-founded basis that the arrangements, in the event of a legal challenge, would be found to be legal, valid, binding and enforceable under the law of the relevant jurisdictions. The agencies estimate that respondents would take on average 2 hours to reprogram and update systems with the requirements outlined in this section. In addition, the agencies estimate that, on a continuing basis, respondents would take on average 2 hours annually to maintain their internal systems.
Section _.37 addresses requirements for collateralized transactions. Section _.37(c)(4)(i)(E) would require that a bank have policies and procedures describing how it determines the period of significant financial stress used to calculate its own internal estimates for haircuts and be able to provide empirical support for the period used. The agencies estimate that respondents would take on average 80 hours (two business weeks) to reprogram and update systems with the requirements outlined in this section. In addition, the agencies estimate that, on a continuing basis, respondents would take on average 16 hours annually to maintain their internal systems.
Section _.41 addresses operational requirements for securitization exposures. Section _.41(b)(3) would allow for synthetic securitizations a bank's recognition, for risk-based capital purposes, of a credit risk mitigant to hedge underlying exposures if certain conditions are met, including the bank's having obtained a well-reasoned opinion from legal counsel that confirms the enforceability of the credit risk mitigant in all relevant jurisdictions. Section _.41(c)(2)(i) would require that a bank support a demonstration of its comprehensive understanding of a securitization exposure by conducting and documenting an analysis of the risk characteristics of each securitization exposure prior to its acquisition, taking into account a number of specified considerations. The agencies estimate that respondents would take on average 40 hours (one business week) to reprogram and update systems with the requirements outlined in this section. In addition, the agencies estimate that, on a continuing basis, respondents would take on average 2 hours annually to maintain their internal systems.
Section _.42 addresses risk-weighted assets for securitization exposures. Section _.42(e)(2) would require that a bank publicly disclose that is has provided implicit support to the securitization and the risk-based capital impact to the bank of providing such implicit support.
Section _.62 sets forth disclosure requirements related to a bank's capital requirements. Section _.62(a) specifies a quarterly frequency for the disclosure of information in the applicable tables set out in section 63 and, if a significant change occurs, such that the most recent reported amounts are no longer reflective of the bank's capital adequacy and risk profile, section _.62(a) also would require the bank to disclose as soon as practicable thereafter, a brief discussion of the change and its likely impact. Section 62(a) would allow for annual disclosure of qualitative information that typically does not change each quarter, provided that any significant changes are disclosed in the interim. Section _.62(b) would require that a bank have a formal disclosure policy approved by the board of directors that addresses its approach for determining the disclosures it makes. The policy would be required to address the associated internal controls and disclosure controls and procedures. Section 62(c) would require a bank with total consolidated assets of $50 billion or more that is not an advanced approaches bank, if it concludes that specific commercial or financial information required to be disclosed under section _.62 would be exempt from disclosure by the agency under the Freedom of Information Act (5 U.S.C. 552), to disclose more general information about the subject matter of the requirement and the reason the specific items of information have not been disclosed.
Section _.63 sets forth disclosure requirements for banks with total consolidated assets of $50 billion or more that are not advanced approaches banks. Section _.63(a) would require a bank to make the disclosures in Tables 14.1 through 14.10 and in section _.63(b) for each of the last three years beginning on the effective date of the rule. Section _.63(b) would require quarterly disclosure of a bank's common equity tier 1 capital, additional tier 1 capital, tier 2 capital, tier 1 and total capital ratios, including the regulatory capital elements and all the regulatory adjustments and deductions needed to calculate the numerator of such ratios; total risk-weighted assets, including the different regulatory adjustments and deductions needed to calculate total risk-weighted assets; regulatory capital ratios during any transition periods, including a description of all the regulatory capital elements and all regulatory adjustments and deductions needed to calculate the numerator and denominator of each capital ratio during any transition period; and a reconciliation of regulatory capital elements as they relate to its balance sheet in any audited consolidated financial statements. Table 14.1 sets forth scope of application qualitative and quantitative disclosure requirements; Table 14.2 sets forth capital structure qualitative and quantitative disclosure requirements; Table 14.3 sets forth capital adequacy qualitative and quantitative disclosure requirements; Table 14.4 sets forth capital conservation buffer qualitative and quantitative disclosure requirements; Table 14.5 sets forth general qualitative and quantitative disclosure requirements for credit risk; Table 14.6 sets forth general qualitative and quantitative disclosure requirements for counterparty credit risk-related exposures; Table 14.7 sets forth qualitative and quantitative disclosure requirements for credit risk mitigation; Table 14.8 sets forth qualitative and quantitative disclosure requirements for securitizations; Table 14.9 sets forth qualitative and quantitative disclosure requirements for equities not subject to Subpart F of the rule; and Table 14.10 sets forth qualitative and quantitative disclosure requirements for interest rate risk for non-trading activities.
The agencies estimate that respondents would take on average 226.25 hours to reprogram and update systems with the requirements outlined in these sections. In addition, the agencies estimate that, on a continuing basis, respondents would take on average 131.25 hours annually to maintain their internal systems.
Section 722 of the Gramm-Leach-Bliley Act requires the Federal banking agencies to use plain language in all
Section 202 of the Unfunded Mandates Reform Act of 1995 (UMRA) (2 U.S.C. 1532
Under this NPR, the OCC is proposing changes to their minimum capital requirements that address the calculation of risk-weighted assets. The proposed rule would:
1. Change denominator of the risk-based capital ratios by revising the methodologies for calculating risk weights;
2. Revise the treatment of counterparty credit risk;
3. Replace references to credit ratings with alternative measures of creditworthiness;
4. Provide more comprehensive recognition of collateral and guarantees;
5. Provide a more favorable capital treatment for transactions cleared through qualifying central counterparties; and
6. Introduce disclosure requirements for banking organizations with assets of $50 billion or more.
To estimate the impact of this NPR on national banks and federal savings associations, the OCC estimated the amount of capital banks will need to raise to meet the new minimum standards relative to the amount of capital they currently hold, as well as the compliance costs associated with establishing the infrastructure to determine correct risk weights using the new alternative measures of creditworthiness and the compliance costs associated with new disclosure requirements. The OCC has determined that its NPR will not result in expenditures by State, local, and Tribal governments, or by the private sector, of $100 million or more (adjusted annually for inflation). Accordingly, the UMRA does not require that a written statement accompany this NPR.
The agencies are issuing a notice of proposed rulemaking (NPR, proposal, or proposed rule) to harmonize and address shortcomings in the measurement of risk-weighted assets that became apparent during the recent financial crisis, in part by implementing in the United States changes made by the Basel Committee on Banking Supervision (BCBS) to international regulatory capital standards and by implementing aspects of the Dodd-Frank Act. Among other things, the proposed rule would:
• Revise risk weights for residential mortgages based on loan-to-value ratios and certain product and underwriting features;
• Increase capital requirements for past-due loans, high volatility commercial real estate exposures, and certain short-term loan commitments;
• Expand the recognition of collateral and guarantors in determining risk-weighted assets;
• Remove references to credit ratings; and
• Establish due diligence requirements for securitization exposures.
The following exposures would receive a zero percent risk weight under the proposal:
• Cash;
• Certain gold bullion;
• Direct and unconditional claims on the U.S. government, its central bank, or a U.S. government agency;
• Exposures unconditionally guaranteed by the U.S. government, its central bank, or a U.S. government agency;
• Claims on certain supranational entities (such as the International Monetary Fund) and certain multilateral development banking organizations; and
• Claims on and exposures unconditionally guaranteed by sovereign entities that meet certain criteria (as discussed below).
The following exposures would receive a twenty percent risk weight under the proposal:
• Cash items in the process of collection;
• Exposures conditionally guaranteed by the U.S. government, its central bank, or a U.S. government agency;
• Claims on government-sponsored entities (GSEs);
• Claims on U.S. depository institutions and National Credit Union Administration (NCUA)-insured credit unions;
• General obligation claims on, and claims guaranteed by the full faith and credit of state and local governments (and any other public sector entity, as defined in the proposal) in the United States; and
• Claims on and exposures guaranteed by foreign banks and public sector entities if the sovereign of incorporation of the foreign bank or public sector entity meets certain criteria (as described below).
A conditional guarantee is one that requires the satisfaction of certain conditions, for example servicing requirements.
The following exposures would receive a 50 percent risk weight under the proposal:
• “Statutory” multifamily mortgage loans meeting certain criteria;
• Presold residential construction loans meeting certain criteria;
• Revenue bonds issued by state and local governments in the United States; and
• Claims on and exposures guaranteed by sovereign entities, foreign banks, and foreign public sector entities that meet certain criteria (as described below).
The criteria for multifamily loans and presold residential construction loans are generally the same as in the existing general risk-based capital rules. These criteria are required under federal law.
Under the proposed rule, 1–4 family residential mortgages would be separated into two risk categories (“category 1 residential mortgage exposures” and “category 2 residential mortgage exposures”) based on certain product and underwriting characteristics. The proposed definition of category 1 residential mortgage exposures would generally include traditional, first-lien, prudently underwritten mortgage loans. The proposed definition of category 2 residential mortgage exposures would generally include junior-liens and non-traditional mortgage products.
The proposal would not
The table below shows the proposed risk weights for 1–4 family residential mortgage loans, based on the LTV ratio and risk category of the exposure:
The
If a banking organization holds a first mortgage and junior-lien mortgage on the same residential property and there is no intervening lien, the proposal treats the combined exposure as a single first-lien mortgage exposure.
If a banking organization holds two or more mortgage loans on the same residential property, and one of the loans is category 2, then the banking organization would be required to treat all of the loans on the property as category 2.
The proposal would assign a 150 percent risk weight to loans and other exposures that are 90 days or more past due. This applies to all exposure categories
The proposal would assign a 150 percent risk weight to HVCRE exposures.
The proposal would assign a 100 percent risk weight to all corporate exposures. The definition of a corporate exposure would exclude exposures that are specifically covered elsewhere in the proposal, such as HVCRE, pre-sold residential construction loans, and statutory multifamily mortgages.
Under the proposed rule, consumer loans and credit cards would continue to receive a 100 percent risk weight. The proposal does not specifically list these assets, but they fall into the “other assets” category that would receive a 100 percent risk weight.
As described in the Basel III NPR, the amounts of the threshold deduction items (mortgage servicing assets, certain deferred tax assets, and investments in the common equity of financial institutions) that are not deducted would be assigned a risk weight of 250 percent. In addition, certain high-risk exposures such as credit-enhancing interest-only (CEIO) strips would receive 1,250 percent risk weight.
Where the proposal does not assign a specific risk weight to an asset or exposure type, the applicable risk weight would be 100 percent. For example, premises, fixed assets, and other real estate owned receive a risk weight of 100 percent. Section 32(m) of the proposal for bank holding companies and savings and loan holding companies provides specific risk weights for certain insurance-related assets.
Similar to the current rules, under the proposal, a banking organization would be required to calculate the exposure amount of an off-balance sheet exposure using the credit conversion factors (CCFs) below. The proposal increases the CCR for commitments with an original maturity of one year or less from zero percent to 20 percent.
The proposal provides a method for determining the risk-based capital requirement for a derivative contract that is similar to the general risk-based capital rules. Under the proposed rule, the banking organization would determine the exposure amount and then assign a risk weight based on the counterparty or collateral. The exposure amount is the sum of current exposures plus potential future credit exposures (PFEs). In contrast to the general risk-based capital rules, which place a 50 percent risk weight cap on derivatives, the proposal does not include a risk weight cap and introduces specific credit conversion factors for credit derivatives.
The current credit exposure is the greater of zero or the mark-to-market value of the derivative contract.
The PFE is generally the notional amount of the derivative contract multiplied by a credit conversion factor for the type of derivative contract. The table below shows the credit conversion factors for derivative contracts:
Section 42 of the proposal introduces due diligence requirements for banking organizations that own, originate or purchase securitization exposures and introduces a new definition of securitization exposure. If a banking organization is unable to demonstrate to the satisfaction of its primary federal supervisor a comprehensive understanding of the features of a securitization exposure that would materially affect the performance of the exposure, the banking organization would be required to assign the securitization exposure a risk weight of 1,250 percent. The banking organization's analysis would be required to be commensurate with the complexity of the securitization exposure and the materiality of the exposure in relation to capital.
Note that mortgage-backed pass-through securities (for example, those guaranteed by Federal Home Loan Mortgage Corporation (FHLMC) or Federal National Mortgage Association (FNMA) do not meet the proposed definition of a securitization exposure because they do not involve a tranching of credit risk. Rather, only those mortgage-backed securities that involve tranching of credit risk would be securitization exposures. For securitization exposures guaranteed by the U.S. Government or GSEs, there are no changes relative to the existing treatment:
The risk-based capital requirements for securitizations under the proposed rule would be as follows:
For privately-issued mortgage securities and all other securitization exposures, a banking organization would be able choose among the following approaches, provided that the banking organization consistently applies such approach to all securitization exposures:
Alternatively, a banking organization may apply a 1,250 percent risk weight to any of its securitization exposures.
Under section 52 of the proposal, a banking organization would apply a simple risk-weight approach (SRWA) to determine the risk weight for equity exposures that are not exposures to an investment fund. The following table indicates the risk weights that would apply to equity exposures under the SRWA:
The proposals described in this section would apply to equity exposures to investment funds such as mutual funds, but not to hedge funds or other leveraged investment funds (refer to section above). For exposures to investment funds other than community development exposures, a banking organization must use one of three risk-weighting approaches described below:
1.
For this two-step approach, a banking organization would be required to obtain information regarding the asset pool underlying the investment fund as of the date of the calculation, as well as the banking organization's proportional share of ownership in the fund. For the first step the banking organization would assign risk weights to the assets of the entire investment fund and calculates the sum of those risk-weighted assets. For the second step, the banking organization would multiply the sum of the fund's risk-weighted assets by the banking organization's proportional ownership in the fund.
2.
Similar to the current capital rules, under this approach a banking organization would multiply the adjusted carrying value of its investment in the fund by the highest risk weight that applies to any exposure the fund is permitted to hold as described in the prospectus or fund documents.
3.
Similar to the current capital rules, under this approach a banking organization would assign the adjusted carrying value of an equity exposure to an investment fund on a pro rata basis to different risk-weight categories based on the investment limits described in the fund's prospectus. The banking organization's risk-weighted asset amount is the sum of each portion of the adjusted carrying value assigned to an exposure type multiplied by the applicable risk weight under section 32 of the proposal. For purposes of the calculation the banking organization must assume the fund is invested in assets with the highest risk weight permitted by its prospectus and to the maximum amounts permitted.
For community development exposures, a banking organization's risk-weighted asset amount is equal to its adjusted carrying value for the fund.
The proposal would allow a banking organization to substitute the risk weight of an eligible guarantor for the risk weight otherwise applicable to the guaranteed exposure. This treatment would apply only to
Under the proposal, eligible guarantors would include sovereign entities, certain supranational entities such as the International Monetary Fund, Federal Home Loan Banks, Farmer Mac, a multilateral development bank, a depository institution, a bank holding company, a savings and loan holding company, a foreign bank, or an entity that has investment-grade debt, whose creditworthiness is not positively correlated with the credit risk of the exposures for which it provides guarantees. Eligible guarantors
To be an
The proposal allows banking organizations to recognize the risk mitigating benefits of financial collateral in risk-weighted assets, and defines financial collateral to include:
In all cases the banking organization would be required to have a perfected, first priority interest in the financial collateral.
1.
2.
A banking organization may use standard haircuts based on the table below and a standard foreign exchange rate haircut of 8 percent.
The proposal introduces a specific capital treatment for exposures to central counterparties (CCPs), including certain transactions conducted through clearing members by banking organizations that are not themselves clearing members of a CCP. Section 35 of the proposal describes the capital treatment of cleared transactions and of default fund exposures to CCPs, including more favorable capital treatment for cleared transactions through CCPs that meet certain criteria.
The proposal provides for a separate risk-based capital requirement for transactions involving securities, foreign exchange instruments, and commodities that have a risk of delayed settlement or delivery. The proposed capital requirement would not, however, apply to certain types of transactions, including cleared transactions that are marked-to-market daily and subject to daily receipt and payment of variation margin. The proposal contains separate treatments for delivery-versus-payment (DvP) and payment-versus-payment (PvP) transactions with a normal settlement period, and non-DvP/non-PvP transactions with a normal settlement period.
Under the proposal a banking organization would risk weight an exposure to a foreign government, foreign public sector entity (PSE), and a foreign bank based on the Country Risk Classification (CRC) that is applicable to the foreign government, or the home country of the foreign PSE or foreign bank.
The risk weights for foreign sovereigns, foreign banks, and foreign PSEs are shown in the tables below:
The following is a table summarizing the proposed changes to the general risk-based capital rules for risk weighting assets.
Definitions of the terms used in this proposal can be found in Part [__] CAPITAL ADEQUACY OF [BANK]s, Subpart A-General, Text § __.2 Definitions, of the related document entitled “
(a) A market risk [BANK] must exclude from its calculation of risk-weighted assets under this subpart the risk-weighted asset amounts of all covered positions, as defined in subpart F of this part (except foreign exchange positions that are not trading positions, over-the-counter (OTC) derivative positions, cleared transactions, and unsettled transactions).
(b) On January 1, 2015, and thereafter, a [BANK] must calculate risk-weighted assets under subpart D of this part. On or before December 31, 2014, the [BANK] must calculate risk-weighted assets under either:
(i) The methodology described in the general risk-based capital rules under 12 CFR part 3, appendix A, 12 CFR part 167 (OCC); 12 CFR part 208, appendix A, 12 CFR part 225, appendix A (Board); 12 CFR part 325, appendix A, and 12 CFR part 390 (FDIC); or
(ii) Subpart D of this part.
(c) Notwithstanding paragraph (b) of this section, a [BANK] is subject to the transition provisions under § __.300.
(a)
(1) A [BANK] must determine the exposure amount of each on-balance sheet exposure, each OTC derivative contract, and each off-balance sheet commitment, trade and transaction-related contingency, guarantee, repo-style transaction, financial standby letter of credit, forward agreement, or other similar transaction that is not:
(i) An unsettled transaction subject to § __.38;
(ii) A cleared transaction subject to § __.35;
(iii) A default fund contribution subject to § __.35;
(iv) A securitization exposure subject to §§ __.41 through __.45; or
(v) An equity exposure (other than an equity OTC derivative contract) subject to §§ __.51 through __.53.
(2) The [BANK] must multiply each exposure amount by the risk weight appropriate to the exposure based on the exposure type or counterparty, eligible guarantor, or financial collateral to determine the risk-weighted asset amount for each exposure.
(b) Total risk-weighted assets for general credit risk equals the sum of the risk-weighted asset amounts calculated under this section.
(a)
(A) An exposure to the U.S. government, its central bank, or a U.S. government agency; and
(B) The portion of an exposure that is directly and unconditionally guaranteed by the U.S. government, its central bank, or a U.S. government agency.
(ii) A [BANK] must assign a 20 percent risk weight to the portion of an exposure that is conditionally guaranteed by the U.S. government, its central bank, or a U.S. government agency.
(2)
(3)
(i) The exposure is denominated in the sovereign's currency;
(ii) The [BANK] has at least an equivalent amount of liabilities in that currency; and
(iii) The risk weight is not lower than the risk weight that the sovereign allows [BANK]s under its jurisdiction to assign to the same exposures to the sovereign.
(4)
(5)
(b)
(c)
(2) A [BANK] must assign a 100 percent risk weight to preferred stock issued by a GSE.
(d)
(2)
(ii) A [BANK] must assign a 100 percent risk weight to an exposure to a foreign bank whose home country does not have a CRC, with the exception of self-liquidating, trade-related contingent items that arise from the movement of goods, and that have a maturity of three months or less, which may be assigned a 20 percent risk weight.
(iii) A [BANK] must assign a 150 percent risk weight to an exposure to a foreign bank immediately upon determining that an event of sovereign default has occurred in the bank's home country, or if an event of sovereign default has occurred in the foreign bank's home country during the previous five years.
(3) A [BANK] must assign a 100 percent risk weight to an exposure to a financial institution that is includable in that financial institution's capital unless the exposure is:
(i) An equity exposure;
(ii) A significant investment in the capital of an unconsolidated financial institution in the form of common stock pursuant to § __.22(d)(iii);
(iii) Is deducted from regulatory capital under § __.22 of the proposal; and
(iv) Subject to a 150 percent risk weight under Table 2 of paragraph (d)(2) of this section.
(e)
(ii) A [BANK] must assign a 50 percent risk weight to a revenue obligation exposure to a PSE that is organized under the laws of the United States or any state or political subdivision thereof.
(2)
(ii) Except as provided in paragraphs (e)(1) and (e)(3) of this section, a [BANK] must assign a risk weight to a revenue obligation exposure to a PSE based on the CRC that corresponds to the PSE's home country, as set forth in Table 4.
(3) A [BANK] may assign a lower risk weight than would otherwise apply under Table 3 and 4 to an exposure to a foreign PSE if:
(i) The PSE's home country allows banks under its jurisdiction to assign a lower risk weight to such exposures; and
(ii) The risk weight is not lower than the risk weight that corresponds to the PSE's home country in accordance with Table 1.
(4) A [BANK] must assign a 100 percent risk weight to an exposure to a PSE whose home country does not have a CRC.
(5) A [BANK] must assign a 150 percent risk weight to a PSE exposure immediately upon determining that an event of sovereign default has occurred in a PSE's home country or if an event of sovereign default has occurred in the PSE's home country during the previous five years.
(f)
(g)
(2)
(ii) A [BANK] may assign a risk weight lower than 100 percent to a category 1 residential mortgage exposure after the exposure has been modified or restructured only if:
(A) The residential mortgage exposure continues to meet category 1 criteria; and
(B) The [BANK] updates the LTV ratio at the time of restructuring, as provided under paragraph (g)(3) of this section.
(iii) A [BANK] may assign a risk weight lower than 200 percent to a category 2 residential mortgage
(3)
(i)
(B)
(ii)
(B) A [BANK] must base all estimates of a property's value on an appraisal or evaluation of the property that satisfies 12 CFR part 34, subpart C, 12 CFR part 164 (OCC); 12 CFR part 208, subpart E (Board); 12 CFR part 323, 12 CFR 390.442 (FDIC).
(4)
(h)
(i)
(j)
(k)
(1) A [BANK] must assign a 150 percent risk weight to the portion of the exposure that is not guaranteed or that is unsecured.
(2) A [BANK] may assign a risk weight to the collateralized portion of a past due exposure based on the risk weight that applies under § __.37 if the collateral meets the requirements of that section.
(3) A [BANK] may assign a risk weight to the guaranteed portion of a past due exposure based on the risk weight that applies under § __.36 if the guarantee or credit derivative meets the requirements of that section.
(l)
(2) A [BANK] must assign a 20 percent risk weight to cash items in the process of collection.
(3) A [BANK] must assign a 100 percent risk weight to DTAs arising from temporary differences that the [BANK] could realize through net operating loss carrybacks.
(4) A [BANK] must assign a 250 percent risk weight to MSAs and DTAs arising from temporary differences that the [BANK] could not realize through net operating loss carrybacks that are not deducted from common equity tier 1 capital pursuant to § __.22(d).
(5) A [BANK] must assign a 100 percent risk weight to all assets not specifically assigned a different risk weight under this subpart (other than exposures that are deducted from tier 1 or tier 2 capital).
(6) Notwithstanding the requirements of this section, a [BANK] may assign an asset that is not included in one of the categories provided in this section to the risk weight category applicable under the capital rules applicable to bank holding companies and savings and loan holding companies at 12 CFR part 217, provided that all of the following conditions apply:
(i) The [BANK] is not authorized to hold the asset under applicable law other than debt previously contracted or 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 subpart.
(a)
(2) Where a [BANK] commits to provide a commitment, the [BANK] may apply the lower of the two applicable CCFs.
(3) Where a [BANK] provides a commitment structured as a syndication or participation, the [BANK] is only
(b)
(2)
(i) Commitments with an original maturity of one year or less that are not unconditionally cancelable by the [BANK].
(ii) Self-liquidating, trade-related contingent items that arise from the movement of goods, with an original maturity of one year or less.
(3)
(i) Commitments with an original maturity of more than one year that are not unconditionally cancelable by the [BANK].
(ii) Transaction-related contingent items, including performance bonds, bid bonds, warranties, and performance standby letters of credit.
(4)
(i) Guarantees;
(ii) Repurchase agreements (the off-balance sheet component of which equals the sum of the current market values of all positions the [BANK] has sold subject to repurchase);
(iii) Off-balance sheet securities lending transactions (the off-balance sheet component of which equals the sum of the current market values of all positions the [BANK] has lent under the transaction);
(iv) Off-balance sheet securities borrowing transactions (the off-balance sheet component of which equals the sum of the current market values of all non-cash positions the [BANK] has posted as collateral under the transaction);
(v) Financial standby letters of credit; and
(vi) Forward agreements.
(a)
(i)
(ii)
(B) For purposes of calculating either the PFE under this paragraph or the gross PFE under paragraph (a)(2) of this section for exchange rate contracts and other similar contracts in which the notional principal amount is equivalent to the cash flows, notional principal amount is the net receipts to each party falling due on each value date in each currency.
(C) For an OTC derivative contract that does not fall within one of the specified categories in Table 7, the PFE must be calculated using the appropriate “other” conversion factor.
(D) A [BANK] must use an OTC derivative contract's effective notional principal amount (that is, the apparent or stated notional principal amount multiplied by any multiplier in the OTC derivative contract) rather than the apparent or stated notional principal amount in calculating PFE.
(E) The PFE of the protection provider of a credit derivative is capped at the net present value of the amount of unpaid premiums.
(2)
(i)
(ii)
(A) Agross = the gross PFE (that is, the sum of the PFE amounts (as determined under paragraph (a)(1)(ii) of this section for each individual derivative contract subject to the qualifying master netting agreement); and
(B) Net-to-gross Ratio (NGR) = the net to gross ratio (that is, the ratio of the net current credit exposure to the gross current credit exposure). In calculating the NGR, the gross current credit exposure equals the sum of the positive
(b)
(2) As an alternative to the simple approach, a [BANK] may recognize the credit risk mitigation benefits of financial collateral that secures such a contract or netting set if the financial collateral is marked-to-market on a daily basis and subject to a daily margin maintenance requirement by applying a risk weight to the exposure as if it is uncollateralized and adjusting the exposure amount calculated under paragraph (a)(1)(i) or (ii) of this section using the collateral haircut approach in § __.37(c). The [BANK] must substitute the exposure amount calculated under paragraph (a)(1)(i) or (ii) of this section for ∑E in the equation in § __.37(c)(2).
(c)
(2)
(ii) The provisions of paragraph (c)(2) of this section apply to all relevant counterparties for risk-based capital purposes unless the [BANK] is treating the OTC credit derivative as a covered position under subpart F, in which case the [BANK] must compute a supplemental counterparty credit risk capital requirement under this section.
(d)
(2) In addition, the [BANK] must also calculate a risk-based capital requirement for the counterparty credit risk of an OTC equity derivative contract under this section if the [BANK] is treating the contract as a covered position under subpart F.
(3) If the [BANK] risk weights the contract under the Simple Risk-Weight Approach (SRWA) in § __.52, the [BANK] may choose not to hold risk-based capital against the counterparty credit risk of the OTC equity derivative contract, as long as it does so for all such contracts. Where the OTC equity derivative contracts are subject to a qualified master netting agreement, a [BANK] using the SRWA must either include all or exclude all of the contracts from any measure used to determine counterparty credit risk exposure.
(a)
(2) A [BANK] that is a clearing member must use the methodologies described in paragraph (c) of this section to calculate its risk-weighted assets for cleared transactions and paragraph (d) of this section to calculate its risk-weighted assets for its default fund contribution to a CCP.
(b)
(ii) A clearing member client [BANK]'s total risk-weighted assets for cleared transactions is the sum of the risk-weighted asset amounts for all its cleared transactions.
(2)
(A) The exposure amount for the derivative contract or netting set of derivative contracts, calculated using the methodology used to calculate exposure amount for OTC derivative contracts under § __.34, plus
(B) The fair value of the collateral posted by the clearing member client [BANK] and held by the CCP or a clearing member in a manner that is not bankruptcy remote.
(ii) For a cleared transaction that is a repo-style transaction, the trade exposure amount equals:
(A) The exposure amount for the repo-style transaction calculated using the methodologies under § __.37(c), plus
(B) The fair value of the collateral posted by the clearing member client and held by the CCP or a clearing member in a manner that is not bankruptcy remote.
(3)
(A) 2 percent if the collateral posted by the [BANK] to the QCCP or clearing member is subject to an arrangement that prevents any losses to the clearing member client due to the joint default or a concurrent insolvency, liquidation, or receivership proceeding of the clearing member and any other clearing member clients of the clearing member; and the clearing member client [BANK] has conducted sufficient legal review to conclude with a well-founded basis (and maintains sufficient written documentation of that legal review) that in the event of a legal challenge (including one resulting from default or from liquidation, insolvency, or receivership proceeding) the relevant court and administrative authorities would find the arrangements to be legal, valid, binding and enforceable under the law of the relevant jurisdictions; or
(B) 4 percent in all other circumstances.
(ii) For a cleared transaction with a CCP that is not a QCCP, a clearing member client [BANK] must apply the risk weight appropriate for the CCP according to § __.32.
(4)
(ii) A [BANK] must calculate a risk-weighted asset amount for any collateral provided to a CCP, clearing member or a custodian in connection with a cleared transaction in accordance with the requirements under § __.32.
(c)
(ii) A clearing member [BANK]'s total risk-weighted assets for cleared transactions is the sum of the risk-weighted asset amounts for all of its cleared transactions.
(2)
(i) For a derivative contract that is a cleared transaction, the trade exposure amount equals:
(A) The exposure amount for the derivative contract, calculated using the methodology to calculate exposure amount for OTC derivative contracts under § __.34, plus
(B) The fair value of the collateral posted by the clearing member [BANK] and held by the CCP in a manner that is not bankruptcy remote.
(ii) For a repo-style transaction that is a cleared transaction, trade exposure amount equals:
(A) The exposure amount for repo-style transactions calculated using methodologies under § __.37(c), plus
(B) The fair value of the collateral posted by the clearing member [BANK] and held by the CCP in a manner that is not bankruptcy remote.
(3)
(ii) For a cleared transaction with a CCP that is not a QCCP, a clearing member [BANK] must apply the risk weight appropriate for the CCP according to § __.32.
(4)
(ii) A [BANK] must calculate a risk-weighted asset amount for any collateral provided to a CCP, clearing member or a custodian in connection with a cleared transaction in accordance with requirements under § __.32.
(d)
(2)
(3)
(i) The hypothetical capital requirement of a QCCP (K
(ii) For a [BANK] that is a clearing member of a QCCP with a default fund supported by funded commitments, K
(B) For a [BANK] that is a clearing member of a QCCP with a default fund supported by unfunded commitments and is unable to calculate K
(4)
(a)
(2) This section applies to exposures for which:
(i) Credit risk is fully covered by an eligible guarantee or eligible credit derivative; or
(ii) Credit risk is covered on a pro rata basis (that is, on a basis in which the [BANK] and the protection provider share losses proportionately) by an eligible guarantee or eligible credit derivative.
(3) Exposures on which there is a tranching of credit risk (reflecting at least two different levels of seniority) generally are securitization exposures subject to §§ __.41 through __.45.
(4) If multiple eligible guarantees or eligible credit derivatives cover a single exposure described in this section, a [BANK] may treat the hedged exposure as multiple separate exposures each covered by a single eligible guarantee or eligible credit derivative and may calculate a separate risk-weighted asset amount for each separate exposure as described in paragraph (c) of this section.
(5) If a single eligible guarantee or eligible credit derivative covers multiple hedged exposures described in paragraph (a)(2) of this section, a [BANK] must treat each hedged exposure as covered by a separate eligible guarantee or eligible credit derivative and must calculate a separate risk-weighted asset amount for each exposure as described in paragraph (c) of this section.
(b)
(2) A [BANK] may only recognize the credit risk mitigation benefits of an eligible credit derivative to hedge an exposure that is different from the credit derivative's reference exposure used for determining the derivative's cash settlement value, deliverable obligation, or occurrence of a credit event if:
(i) The reference exposure ranks
(ii) The reference exposure and the hedged exposure are to the same legal entity, and legally enforceable cross-default or cross-acceleration clauses are in place to ensure payments under the credit derivative are triggered when the obligated party of the hedged exposure fails to pay under the terms of the hedged exposure.
(c)
(2)
(i) The [BANK] may calculate the risk-weighted asset amount for the protected exposure under § __.32, where the applicable risk weight is the risk weight applicable to the guarantor or credit derivative protection provider. (ii) The [BANK] must calculate the risk-weighted asset amount for the unprotected exposure under § __.32, where the applicable risk weight is that of the unprotected portion of the hedged exposure.
(ii) The treatment provided in this section is applicable when the credit risk of an exposure is covered on a partial pro rata basis and may be applicable when an adjustment is made to the effective notional amount of the guarantee or credit derivative under paragraphs (d), (e), or (f) of this section.
(d)
(2) A maturity mismatch occurs when the residual maturity of a credit risk mitigant is less than that of the hedged exposure(s).
(3) The residual maturity of a hedged exposure is the longest possible remaining time before the obligated party of the hedged exposure is scheduled to fulfil its obligation on the hedged exposure. If a credit risk mitigant has embedded options that may reduce its term, the [BANK] (protection purchaser) must use the shortest possible residual maturity for the credit risk mitigant. If a call is at the discretion of the protection provider, the residual maturity of the credit risk mitigant is at the first call date. If the call is at the discretion of the [BANK]
(4) A credit risk mitigant with a maturity mismatch may be recognized only if its original maturity is greater than or equal to one year and its residual maturity is greater than three months.
(5) When a maturity mismatch exists, the [BANK] must apply the following adjustment to reduce the effective notional amount of the credit risk mitigant: Pm = E × (t−0.25)/(T−0.25), where:
(i) Pm = effective notional amount of the credit risk mitigant, adjusted for maturity mismatch;
(ii) E = effective notional amount of the credit risk mitigant;
(iii) t = the lesser of T or the residual maturity of the credit risk mitigant, expressed in years; and
(iv) T = the lesser of five or the residual maturity of the hedged exposure, expressed in years.
(e)
(1) Pr = effective notional amount of the credit risk mitigant, adjusted for lack of restructuring event (and maturity mismatch, if applicable); and
(2) Pm = effective notional amount of the credit risk mitigant (adjusted for maturity mismatch, if applicable).
(f)
(i) Pc = effective notional amount of the credit risk mitigant, adjusted for currency mismatch (and maturity mismatch and lack of restructuring event, if applicable);
(ii) Pr = effective notional amount of the credit risk mitigant (adjusted for maturity mismatch and lack of restructuring event, if applicable); and
(iii) H
(2) A [BANK] must set H
(3) A [BANK] must adjust H
(a)
(i) The simple approach in paragraph (b) of this section for any exposure.
(ii) The collateral haircut approach in paragraph (c) of this section for repo-style transactions, eligible margin loans, collateralized derivative contracts, and single-product netting sets of such transactions.
(2) A [BANK] may use any approach described in this section that is valid for a particular type of exposure or transaction; however, it must use the same approach for similar exposures or transactions.
(b)
(ii) To qualify for the simple approach, the collateral must meet the following requirements:
(A) The collateral must be subject to a collateral agreement for at least the life of the exposure;
(B) The collateral must be revalued at least every six months; and
(C) The collateral (other than gold) and the exposure must be denominated in the same currency.
(2)
(ii) A [BANK] must apply a risk weight to the unsecured portion of the exposure based on the risk weight assigned to the exposure under this subpart.
(3)
(i) A [BANK] may assign a zero percent risk weight to an exposure to an OTC derivative contract that is marked-to-market on a daily basis and subject to a daily margin maintenance requirement, to the extent the contract is collateralized by cash on deposit.
(ii) A [BANK] may assign a 10 percent risk weight to an exposure to an OTC derivative contract that is marked-to-market daily and subject to a daily margin maintenance requirement, to the extent that the contract is collateralized by an exposure to a sovereign that qualifies for a zero percent risk weight under § __.32.
(iii) A [BANK] may assign a zero percent risk weight to the collateralized portion of an exposure where:
(A) The financial collateral is cash on deposit; or
(B) The financial collateral is an exposure to a sovereign that qualifies for a zero percent risk weight under § __.32, and the [BANK] has discounted the market value of the collateral by 20 percent.
(c)
(2)
(i)(A) For eligible margin loans and repo-style transactions and netting sets thereof, ∑E equals the value of the exposure (the sum of the current market values of all instruments, gold, and cash the [BANK] has lent, sold subject to repurchase, or posted as collateral to the counterparty under the transaction (or netting set)); and
(B) For collateralized derivative contracts and netting sets thereof, ∑E equals the exposure amount of the OTC derivative contract (or netting set) calculated under §§ __.34 (c) or (d).
(ii) ∑C equals the value of the collateral (the sum of the current market values of all instruments, gold and cash the [BANK] has borrowed, purchased subject to resale, or taken as collateral from the counterparty under the transaction (or netting set));
(iii) Es equals the absolute value of the net position in a given instrument or in gold (where the net position in the instrument or gold equals the sum of the current market values of the instrument or gold the [BANK] has lent, sold subject to repurchase, or posted as collateral to the counterparty minus the sum of the current market values of that same instrument or gold the [BANK] has borrowed, purchased subject to resale, or taken as collateral from the counterparty);
(iv) Hs equals the market price volatility haircut appropriate to the instrument or gold referenced in Es;
(v) Efx equals the absolute value of the net position of instruments and cash in a currency that is different from the settlement currency (where the net position in a given currency equals the sum of the current market values of any instruments or cash in the currency the [BANK] has lent, sold subject to repurchase, or posted as collateral to the counterparty minus the sum of the current market values of any instruments or cash in the currency the [BANK] has borrowed, purchased subject to resale, or taken as collateral from the counterparty); and
(vi) Hfx equals the haircut appropriate to the mismatch between the currency referenced in Efx and the settlement currency.
(3)
(ii) For currency mismatches, a [BANK] must use a haircut for foreign exchange rate volatility (Hfx) of 8.0 percent, as adjusted in certain circumstances under paragraphs (c)(3)(iii) and (iv) of this section.
(iii) For repo-style transactions, a [BANK] may multiply the standard supervisory haircuts provided in paragraphs (c)(3)(i) and (ii) of this section by the square root of ½ (which equals 0.707107).
(iv) If the number of trades in a netting set exceeds 5,000 at any time during a quarter, a [BANK] must adjust the supervisory haircuts provided in paragraphs (c)(3)(i) and (ii) of this section upward on the basis of a holding period of twenty business days for the following quarter except in the calculation of the exposure amount for purposes of § ___.35. If a netting set contains one or more trades involving illiquid collateral or an OTC derivative that cannot be easily replaced, a [BANK] must adjust the supervisory haircuts upward on the basis of a holding period of twenty business days. If over the two previous quarters more than two margin disputes on a netting set have occurred
(v) If the instrument a [BANK] has lent, sold subject to repurchase, or posted as collateral does not meet the definition of financial collateral, the [BANK] must use a 25.0 percent haircut for market price volatility (H
(4)
(i) To receive [AGENCY] approval to use its own internal estimates, a [BANK] must satisfy the following minimum standards:
(A) A [BANK] must use a 99th percentile one-tailed confidence interval.
(B) The minimum holding period for a repo-style transaction is five business days and for an eligible margin loan is ten business days except for transactions or netting sets for which paragraph (c)(4)(i)(C) of this section applies. When a [BANK] calculates an own-estimates haircut on a T
(C) If the number of trades in a netting set exceeds 5,000 at any time during a quarter, a [BANK] must calculate the haircut using a minimum holding period of twenty business days for the following quarter except in the calculation of the exposure amount for purposes of § __.35. If a netting set contains one or more trades involving illiquid collateral or an OTC derivative that cannot be easily replaced, a [BANK] must calculate the haircut using a minimum holding period of twenty business days. If over the two previous quarters more than two margin disputes on a netting set have occurred that lasted more than the holding period, then the [BANK] must calculate the haircut for transactions in that netting set on the basis of a holding period that is at least two times the minimum holding period for that netting set.
(D) A [BANK] is required to calculate its own internal estimates with inputs calibrated to historical data from a continuous 12-month period that reflects a period of significant financial stress appropriate to the security or category of securities.
(E) A [BANK] must have policies and procedures that describe how it determines the period of significant financial stress used to calculate the [BANK]'s own internal estimates for haircuts under this section and must be able to provide empirical support for the period used. The [BANK] must obtain the prior approval of the [AGENCY] for, and notify the [AGENCY] if the [BANK] makes any material changes to, these policies and procedures.
(F) Nothing in this section prevents the [AGENCY] from requiring a [BANK] to use a different period of significant financial stress in the calculation of own internal estimates for haircuts.
(G) A [BANK] must update its data sets and calculate haircuts no less frequently than quarterly and must also reassess data sets and haircuts whenever market prices change materially.
(ii) With respect to debt securities that are investment grade, a [BANK] may calculate haircuts for categories of securities. For a category of securities, the [BANK] must calculate the haircut on the basis of internal volatility estimates for securities in that category that are representative of the securities in that category that the [BANK] has lent, sold subject to repurchase, posted as collateral, borrowed, purchased subject to resale, or taken as collateral. In determining relevant categories, the [BANK] must at a minimum take into account:
(A) The type of issuer of the security;
(B) The credit quality of the security;
(C) The maturity of the security; and
(D) The interest rate sensitivity of the security.
(iii) With respect to debt securities that are not investment grade and equity securities, a [BANK] must calculate a separate haircut for each individual security.
(iv) Where an exposure or collateral (whether in the form of cash or securities) is denominated in a currency that differs from the settlement currency, the [BANK] must calculate a separate currency mismatch haircut for its net position in each mismatched currency based on estimated volatilities of foreign exchange rates between the mismatched currency and the settlement currency.
(v) A [BANK]'s own estimates of market price and foreign exchange rate volatilities may not take into account the correlations among securities and foreign exchange rates on either the exposure or collateral side of a transaction (or netting set) or the correlations among securities and foreign exchange rates between the exposure and collateral sides of the transaction (or netting set).
(a)
(1) Delivery-versus-payment (DvP) transaction means a securities or commodities transaction in which the buyer is obligated to make payment only if the seller has made delivery of the securities or commodities and the seller is obligated to deliver the securities or commodities only if the buyer has made payment.
(2) Payment-versus-payment (PvP) transaction means a foreign exchange transaction in which each counterparty is obligated to make a final transfer of one or more currencies only if the other counterparty has made a final transfer of one or more currencies.
(3) Normal settlement period: a transaction has a normal settlement period if the contractual settlement period for the transaction is equal to or less than the market standard for the instrument underlying the transaction and equal to or less than five business days.
(4) Positive current exposure of a [BANK] for a transaction is the difference between the transaction value at the agreed settlement price and the current market price of the transaction, if the difference results in a credit exposure of the [BANK] to the counterparty.
(b)
(1) Cleared transactions that are marked-to-market daily and subject to daily receipt and payment of variation margin;
(2) Repo-style transactions, including unsettled repo-style transactions;
(3) One-way cash payments on OTC derivative contracts; or
(4) Transactions with a contractual settlement period that is longer than the normal settlement period (which are treated as OTC derivative contracts as provided in § __.34).
(c)
(d)
(e)
(2) From the business day after the [BANK] has made its delivery until five business days after the counterparty delivery is due, the [BANK] must calculate the risk-weighted asset amount for the transaction by treating the current market value of the deliverables owed to the [BANK] as an exposure to the counterparty and using the applicable counterparty risk weight under § __.32.
(3) If the [BANK] has not received its deliverables by the fifth business day after counterparty delivery was due, the [BANK] must assign a 1,250 percent risk weight to the current market value of the deliverables owed to the [BANK].
(f)
(a)
(1) The exposures are not reported on the [BANK]'s consolidated balance sheet under GAAP;
(2) The [BANK] has transferred to one or more third parties credit risk associated with the underlying exposures; and
(3) Any clean-up calls relating to the securitization are eligible clean-up calls.
(4) The securitization does not:
(i) Include one or more underlying exposures in which the borrower is permitted to vary the drawn amount within an agreed limit under a line of credit; and
(ii) Contain an early amortization provision.
(b)
(1) The credit risk mitigant is financial collateral, an eligible credit derivative, or an eligible guarantee;
(2) The [BANK] transfers credit risk associated with the underlying exposures to one or more third parties, and the terms and conditions in the credit risk mitigants employed do not include provisions that:
(i) Allow for the termination of the credit protection due to deterioration in the credit quality of the underlying exposures;
(ii) Require the [BANK] to alter or replace the underlying exposures to improve the credit quality of the pool of underlying exposures;
(iii) Increase the [BANK]'s cost of credit protection in response to deterioration in the credit quality of the underlying exposures;
(iv) Increase the yield payable to parties other than the [BANK] in response to a deterioration in the credit quality of the underlying exposures; or
(v) Provide for increases in a retained first loss position or credit enhancement provided by the [BANK] after the inception of the securitization;
(3) The [BANK] obtains a well-reasoned opinion from legal counsel that confirms the enforceability of the credit risk mitigant in all relevant jurisdictions; and
(4) Any clean-up calls relating to the securitization are eligible clean-up calls.
(c)
(2) A [BANK] must demonstrate its comprehensive understanding of a securitization exposure under paragraph (c)(1) of this section, for each securitization exposure by:
(i) Conduct an analysis of the risk characteristics of a securitization exposure prior to acquiring the exposure, and document such analysis within three business days after acquiring the exposure, considering:
(A) Structural features of the securitization that would materially impact the performance of the exposure, for example, the contractual cash flow waterfall, waterfall-related triggers, credit enhancements, liquidity enhancements, market value triggers, the performance of organizations that service the exposure, and deal-specific definitions of default;
(B) Relevant information regarding the performance of the underlying credit exposure(s), for example, the percentage of loans 30, 60, and 90 days past due; default rates; prepayment rates; loans in foreclosure; property types; occupancy; average credit score or other measures of creditworthiness; average LTV ratio; and industry and geographic diversification data on the underlying exposure(s);
(C) Relevant market data of the securitization, for example, bid-ask spread, most recent sales price and historic price volatility, trading volume, implied market rating, and size, depth and concentration level of the market for the securitization; and
(D) In addition, for resecuritization exposures, performance information on the underlying securitization exposures, for example, the issuer name and credit quality, and the characteristics and performance of the exposures underlying the securitization exposures.
(ii) On an on-going basis (no less frequently than quarterly), evaluating, reviewing, and updating as appropriate the analysis required under paragraph (c)(1) of this section for each securitization exposure.
(a)
(1) A [BANK] must deduct from common equity tier 1capital any after-tax gain-on-sale resulting from a securitization and apply a 1,250 percent risk weight to the portion of a CEIO that does not constitute after-tax gain-on-sale.
(2) If a securitization exposure does not require deduction under paragraph (a)(1) of this section, a [BANK] may assign a risk weight to the securitization exposure using the simplified supervisory formula approach (SSFA) in accordance with §§ __.43(a) through __.43(d). Alternatively, a [BANK] that is not subject to subpart F may assign a risk weight to the securitization exposure using the gross-up approach in accordance with § __.43(e). The [BANK] must apply either the SSFA or the gross-up approach consistently across all of its securitization exposures.
(3) If a securitization exposure does not require deduction under paragraph (a)(1) of this section and the [BANK] cannot, or chooses not to apply the SSFA or the gross-up approach to the exposure, the [BANK] must assign a risk weight to the exposure as described in § __.44.
(4) If a securitization exposure is a derivative contract (other than a credit derivative) that has a first priority claim on the cash flows from the underlying exposures (notwithstanding amounts due under interest rate or currency derivative contracts, fees due, or other similar payments), with approval of the [AGENCY], a [BANK] may choose to set the risk-weighted asset amount of the exposure equal to the amount of the exposure as determined in paragraph (c) of this section.
(b)
(c)
(2)
(ii) A [BANK] must determine the exposure amount of an eligible ABCP liquidity facility for which the SSFA does not apply by multiplying the notional amount of the exposure by a CCF of 50 percent.
(iii) A [BANK] must determine the exposure amount of an eligible ABCP liquidity facility for which the SSFA applies by multiplying the notional amount of the exposure by a CCF of 100 percent.
(3)
(d)
(e)
(1) The [BANK] must include in risk-weighted assets all of the underlying exposures associated with the securitization as if the exposures had not been securitized and must deduct from common equity tier 1 capital any after-tax gain-on-sale resulting from the securitization; and
(2) The [BANK] must disclose publicly:
(i) That it has provided implicit support to the securitization; and
(ii) The risk-based capital impact to the [BANK] of providing such implicit support.
(f)
(g)
(h)
(i) The transaction must be treated as a sale under GAAP.
(ii) The [BANK] establishes and maintains, pursuant to GAAP, a non-capital reserve sufficient to meet the [BANK]'s reasonably estimated liability under the contractual obligation.
(iii) The small business obligations are to businesses that meet the criteria for a small-business concern established by the Small Business Administration under section 3(a) of the Small Business Act.
(iv) The [BANK] is well capitalized, as defined in the [AGENCY]'s prompt corrective action regulation. For purposes of determining whether a [BANK] is well capitalized for purposes of this paragraph, the [BANK]'s capital ratios must be calculated without regard to the capital treatment for transfers of small-business obligations under this paragraph.
(2) The total outstanding amount of contractual exposure retained by a [BANK] on transfers of small-business obligations receiving the capital treatment specified in paragraph (h)(1) of this section cannot exceed 15 percent of the [BANK]'s total capital.
(3) If a [BANK] ceases to be well capitalized or exceeds the 15 percent capital limitation provided in paragraph (h)(2) of this section, the capital treatment under paragraph (h)(1) of this section will continue to apply to any transfers of small-business obligations with retained contractual exposure that occurred during the time that the [BANK] was well capitalized and did not exceed the capital limit.
(4) The risk-based capital ratios of the [BANK] must be calculated without regard to the capital treatment for transfers of small-business obligations specified in paragraph (h)(1) of this section for purposes of:
(i) Determining whether a [BANK] is adequately capitalized, undercapitalized, significantly undercapitalized, or critically undercapitalized under the [AGENCY]'s prompt corrective action regulations; and
(ii) Reclassifying a well-capitalized [BANK] to adequately capitalized and requiring an adequately capitalized [BANK] to comply with certain mandatory or discretionary supervisory actions as if the [BANK] were in the next lower prompt-corrective-action category.
(i)
(2) For purposes of determining the risk weight for an nth-to-default credit derivative using the SSFA, the [BANK] must calculate the attachment point and detachment point of its exposure as follows:
(i) The attachment point (parameter A) is the ratio of the sum of the notional amounts of all underlying exposures that are subordinated to the [BANK]'s exposure to the total notional amount of all underlying exposures. In the case of a first-to-default credit derivative, there are no underlying exposures that are subordinated to the [BANK]'s exposure. In the case of a second-or-subsequent-to-default credit derivative, the smallest (n-1) notional amounts of the underlying exposure(s) are subordinated to the [BANK]'s exposure.
(ii) The detachment point (parameter D) equals the sum of parameter A plus the ratio of the notional amount of the [BANK]'s exposure in the nth-to-default credit derivative to the total notional amount of all underlying exposures.
(3) A [BANK] that does not use the SSFA to determine a risk weight for its nth-to-default credit derivative must assign a risk weight of 1,250 percent to the exposure.
(4)
(ii)
(
(
(B) If a [BANK] satisfies the requirements of paragraph (i)(4)(ii)(A) of this section, the [BANK] must determine its risk-based capital requirement for the underlying exposures as if the [BANK] had only synthetically securitized the underlying exposure with the smallest risk-weighted asset amount.
(C) A [BANK] must calculate a risk-based capital requirement for counterparty credit risk according to § _.34 for a nth-to-default credit derivative that does not meet the rules of recognition of § _.36(b).
(j)
(2)
(ii) If a [BANK] cannot, or chooses not to, recognize a credit derivative that references a securitization exposure as a credit risk mitigant under § _.45, the [BANK] must determine its capital requirement only for counterparty credit risk in accordance with § __.31.
(a)
(b)
(1) K
(2) Parameter W is expressed as a decimal value between zero and one. Parameter W is the ratio of the sum of the dollar amounts of any underlying exposures within the securitized pool that meet any of the criteria as set forth in paragraphs (b)(2)(i) through (vi) of this section to the ending balance, measured in dollars, of underlying exposures:
(i) Ninety days or more past due,
(ii) Subject to a bankruptcy or insolvency proceeding,
(iii) In the process of foreclosure,
(iv) Held as real estate owned;
(v) Has contractually deferred interest payments for 90 days or more; or
(vi) Is in default.
(3) Parameter A is the attachment point for the exposure, which represents the threshold at which credit losses will first be allocated to the exposure. Parameter A equals the ratio of the current dollar amount of underlying exposures that are subordinated to the exposure of the [BANK] to the current dollar amount of underlying exposures. Any reserve account funded by the accumulated cash flows from the underlying exposures that is subordinated to the [BANK]'s securitization exposure may be included in the calculation of parameter A to the extent that cash is present in the account. Parameter A is expressed as a decimal value between zero and one.
(4) Parameter D is the detachment point for the exposure, which represents the threshold at which credit losses of principal allocated to the exposure would result in a total loss of principal. Parameter D equals parameter A plus the ratio of the current dollar amount of the securitization exposures that are
(5) A supervisory calibration parameter, p, is equal to 0.5 for securitization exposures that are not resecuritization exposures and equal to 1.5 for resecuritization exposures.
(c)
(1) When the detachment point, parameter D, for a securitization exposure is less than or equal to K
(2) When the attachment point, parameter A, for a securitization exposure is greater than or equal to K
(3) When A is less than K
(e)
(2) To use the gross-up approach, a [BANK] must calculate the following four inputs:
(i) Pro rata share, which is the par value of the [BANK]'s securitization exposure as a percent of the par value of the tranche in which the securitization exposure resides;
(ii) Enhanced amount, which is the value of tranches that are more senior to the tranche in which the [BANK]'s securitization resides;
(iii) Exposure amount of the [BANK]'s securitization exposure calculated under § __.42(c); and
(iv) Risk weight, which is the weighted-average risk weight of underlying exposures in the securitization pool as calculated under this subpart.
(3)
(4)
(f)
(a)
(b)
(c)
(i) 100 percent; and
(ii) The highest risk weight applicable to any of the individual underlying exposures of the ABCP program.
(2)
(ii) The exposure must be economically in a second loss position or better, and the first loss position must provide significant credit protection to the second loss position;
(iii) The exposure qualifies as investment grade; and
(iv) The [BANK] holding the exposure must not retain or provide protection to the first loss position.
(a)
(2) An investing [BANK] that has obtained a credit risk mitigant to hedge a securitization exposure may recognize the credit risk mitigant under §§ __.36 or __.37, but only as provided in this section.
(b)
(c)
(a)
(b)
(1) For the on-balance sheet component of an equity exposure, the [BANK]'s carrying value of the exposure and
(2) For the off-balance sheet component of an equity exposure that is not an equity commitment, the effective notional principal amount of the exposure, the size of which is equivalent to a hypothetical on-balance sheet position in the underlying equity instrument that would evidence the same change in fair value (measured in dollars) given a small change in the price of the underlying equity instrument, minus the adjusted carrying value of the on-balance sheet component of the exposure as calculated in paragraph (b)(1) of this section.
(3) For a commitment to acquire an equity exposure (an equity commitment), the effective notional principal amount of the exposure is multiplied by the following conversion factors (CFs):
(i) Conditional equity commitments with an original maturity of one year or less receive a CF of 20 percent.
(ii) Conditional equity commitments with an original maturity of over one year receive a CF of 50 percent.
(iii) Unconditional equity commitments receive a CF of 100 percent.
(a)
(b)
(1)
(2)
(3)
(i)
(A) For [BANK]s, savings and loan holding companies, and bank holding companies, an equity exposure that qualifies as a community development investment under § __.24 (Eleventh) of the National Bank Act, excluding equity exposures to an unconsolidated small business investment company and equity exposures held through a consolidated small business investment company described in section 302 of the Small Business Investment Act.
(B) For savings associations, an equity exposure that is designed primarily to promote community welfare, including the welfare of low- and moderate-income communities or families, such as by providing services or employment, and excluding equity exposures to an unconsolidated small business investment company and equity
(ii)
(iii)
(A) To compute the aggregate adjusted carrying value of a [BANK]'s equity exposures for purposes of this section, the [BANK] may exclude equity exposures described in paragraphs (b)(1), (b)(2), (b)(3)(i), and (b)(3)(ii) of this section, the equity exposure in a hedge pair with the smaller adjusted carrying value, and a proportion of each equity exposure to an investment fund equal to the proportion of the assets of the investment fund that are not equity exposures or that meet the criterion of paragraph (b)(3)(i) of this section. If a [BANK] does not know the actual holdings of the investment fund, the [BANK] may calculate the proportion of the assets of the fund that are not equity exposures based on the terms of the prospectus, partnership agreement, or similar contract that defines the fund's permissible investments. If the sum of the investment limits for all exposure classes within the fund exceeds 100 percent, the [BANK] must assume for purposes of this section that the investment fund invests to the maximum extent possible in equity exposures.
(B) When determining which of a [BANK]'s equity exposures qualify for a 100 percent risk weight under this paragraph, a [BANK] first must include equity exposures to unconsolidated small business investment companies or held through consolidated small business investment companies described in section 302 of the Small Business Investment Act, then must include publicly-traded equity exposures (including those held indirectly through investment funds), and then must include nonpublicly-traded equity exposures (including those held indirectly through investment funds).
(4)
(5)
(6)
(7)
(i) Would meet the definition of a traditional securitization were it not for the application of paragraph (8) of that definition; and
(ii) Has greater than immaterial leverage.
(c)
(2)
(i) Under the dollar-offset method of measuring effectiveness, the [BANK] must determine the ratio of value change (RVC). The RVC is the ratio of the cumulative sum of the changes in value of one equity exposure to the cumulative sum of the changes in the value of the other equity exposure. If RVC is positive, the hedge is not effective and E equals 0. If RVC is negative and greater than or equal to −1 (that is, between zero and −1), then E equals the absolute value of RVC. If RVC is negative and less than −1, then E equals 2 plus RVC.
(ii) Under the variability-reduction method of measuring effectiveness:
(A)
(B)
(C)
(iii) Under the regression method of measuring effectiveness, E equals the coefficient of determination of a regression in which the change in value of one exposure in a hedge pair is the dependent variable and the change in value of the other exposure in a hedge pair is the independent variable. However, if the estimated regression coefficient is positive, then E equals zero.
(3) The effective portion of a hedge pair is E multiplied by the greater of the adjusted carrying values of the equity exposures forming a hedge pair.
(4) The ineffective portion of a hedge pair is (1−E) multiplied by the greater of the adjusted carrying values of the equity exposures forming a hedge pair.
(a)
(2) The risk-weighted asset amount of an equity exposure to an investment fund that meets the requirements for a community development equity exposure in § __.52(b)(3)(i) is its adjusted carrying value.
(3) If an equity exposure to an investment fund is part of a hedge pair and the [BANK] does not use the Full Look-Through Approach, the [BANK] may use the ineffective portion of the hedge pair as determined under § __.52(c) as the adjusted carrying value for the equity exposure to the investment fund. The risk-weighted asset amount of the effective portion of the hedge pair is equal to its adjusted carrying value.
(b)
(1) The aggregate risk-weighted asset amounts of the exposures held by the fund as if they were held directly by the [BANK]; and
(2) The [BANK]'s proportional ownership share of the fund.
(c)
(d)
Sections __.61–__.63 of this subpart establish public disclosure requirements related to the capital requirements described in Subpart B for a [BANK] with total consolidated assets of $50 billion or more that is not an advanced approaches [BANK] making public disclosures pursuant to § __.172. Such a [BANK] must comply with § __.62 of this part unless it is a consolidated subsidiary of a bank holding company, savings and loan holding company, or depository institution that is subject to these disclosure requirements or a subsidiary of a non-U.S. banking organization that is subject to comparable public disclosure requirements in its home jurisdiction. For purposes of this section, total consolidated assets are determined based on the average of the [BANK]'s total consolidated assets in the four most recent quarters as reported on the [REGULATORY REPORT]; or the average of the [BANK]'s total consolidated assets in the most recent consecutive quarters as reported quarterly on the [BANK]'s [REGULATORY REPORT] if the [BANK] has not filed such a report for each of the most recent four quarters.
(a) A [BANK] described in § __.61 must provide timely public disclosures each calendar quarter of the information in the applicable tables in § __.63. If a significant change occurs, such that the most recent reported amounts are no longer reflective of the [BANK]'s capital adequacy and risk profile, then a brief discussion of this change and its likely impact must be disclosed as soon as practicable thereafter. Qualitative disclosures that typically do not change each quarter (for example, a general summary of the [BANK]'s risk management objectives and policies, reporting system, and definitions) may be disclosed annually, provided that any significant changes are disclosed in the interim. The [BANK]'s management is encouraged to provide all of the disclosures required by §§ __.61 through __.63 of this part in one place on the [BANK]'s public Web site.
(b) A [BANK] described in § __.61 must have a formal disclosure policy approved by the board of directors that addresses its approach for determining the disclosures it makes. The policy must address the associated internal controls and disclosure controls and procedures. The board of directors and senior management are responsible for establishing and maintaining an effective internal control structure over financial reporting, including the disclosures required by this subpart, and must ensure that appropriate review of the disclosures takes place. One or more senior officers of the [BANK] must attest that the disclosures meet the requirements of this subpart.
(c) If a [BANK] described in § __.61 concludes that specific commercial or financial information that it would otherwise be required to disclose under this section would be exempt from disclosure by the [AGENCY] under the Freedom of Information Act (5 U.S.C. 552), then the [BANK] is not required to disclose that specific information pursuant to this section, but must disclose more general information about the subject matter of the requirement, together with the fact that, and the reason why, the specific items of information have not been disclosed.
(a) Except as provided in § __.62, a [BANK] described in § __.61 must make the disclosures described in Tables 14.1 through 14.10 of this section. The [BANK] must make these disclosures publicly available for each of the last three years (that is, twelve quarters) or such shorter period beginning on the effective date of this subpart D.
(b) A [BANK] must publicly disclose each quarter the following:
(1) Common equity tier 1 capital, additional tier 1 capital, tier 2 capital, tier 1 and total capital ratios, including the regulatory capital elements and all the regulatory adjustments and deductions needed to calculate the numerator of such ratios;
(2) Total risk-weighted assets, including the different regulatory adjustments and deductions needed to calculate total risk-weighted assets;
(3) Regulatory capital ratios during any transition periods, including a description of all the regulatory capital elements and all regulatory adjustments and deductions needed to calculate the numerator and denominator of each capital ratio during any transition period; and
(4) A reconciliation of regulatory capital elements as they relate to its balance sheet in any audited consolidated financial statements.
For each separate risk area described in tables 14.5 through 14.10, the [BANK] must describe its risk management objectives and policies, including: strategies and processes; the structure and organization of the relevant risk management function; the scope and nature of risk reporting and/or measurement systems; policies for hedging and/or mitigating risk and strategies and processes for monitoring the continuing effectiveness of hedges/mitigants.
Administrative practices and procedure, Capital, National banks, Reporting and recordkeeping requirements, Risk.
Banks, banking, Federal Reserve System, Holding companies, Reporting and recordkeeping requirements, Securities.
Administrative practice and procedure, Banks, banking, Capital Adequacy, Reporting and recordkeeping requirements, Savings associations, State non-member banks.
The adoption of the proposed common rules by the agencies, as modified by agency-specific text, is set forth below:
For the reasons set forth in the common preamble and under the authority of 12 U.S.C. 93a and 5412(b)(2)(B), the Office of the Comptroller of the Currency proposes to further amend part 3 of chapter I of title 12, Code of Federal Regulations as proposed to be amended elsewhere in this issue of the
1. The authority citation for part 3 is revised to read as follows:
12 U.S.C. 93a, 161, 1462, 1462a, 1463, 1464, 1818, 1828(n), 1828 note, 1831n note, 1835, 3907, 3909, and 5412(b)(2)(B).
2. Designate the text set forth at the end of the common preamble as subpart D of part 3.
3. Newly designated subpart D is amended as set forth below:
i. Remove “[AGENCY]” and add “OCC” in its place, wherever it appears;
ii. Remove “[BANK]” and add “national bank or Federal savings association” in its place, wherever it appears;
iii. Remove “[BANK]s” and add “national banks and Federal savings associations” in its place, wherever it appears;
iv. Remove “[BANK]'s” and add “national bank's and Federal savings association's” in its place, wherever it appears;
v. Remove “[PART]” and add “Part 3” in its place, wherever it appears; and
vi. Remove “[REGULATORY REPORT]” and add “Call Report” in its place, wherever it appears.
For the reasons set forth in the common preamble, part 217 of chapter II of title 12 of the Code of Federal Regulations is proposed to be amended as follows:
1. The authority citation for part 217 continues to read as follows:
12 U.S.C. 248(a), 321–338a, 481–486, 1462a, 1467a, 1818, 1828, 1831n, 1831o, 1831p–l, 1831w, 1835, 1844(b), 3904, 3906–3909, 4808, 5365, 5371.
2. Subpart D is added as set forth at the end of the common preamble.
3. Subpart D is amended as set forth below:
a. Remove “[AGENCY]” and add “Board” in its place wherever it appears.
b. Remove “[BANK]” and add “Board-regulated institution” in its place wherever it appears.
c. Remove “[BANK]s” and add “Board-regulated institutions” in its place, wherever it appears;
d. Remove “[BANK]'s” and add “Board-regulated institution's” in its place, wherever it appears;
e. Remove “[REGULATORY REPORT]” wherever it appears and add in its place “Consolidated Reports of Condition and Income (Call Report), for a state member bank, or the Consolidated Financial Statements for Bank Holding Companies (FR Y–9C), for a bank holding company or savings and loan holding company, as applicable” the first time it appears and “Call Report, for a state member bank, or FR Y–9C, for a bank holding company or savings and loan holding company, as applicable” every time thereafter;
f. Remove “[PART]” and add “part” in its place wherever it appears.
4. In § 217.30, revise paragraph (b)(1)(i) to read as follows:
(b) * * *
(1) * * *
(i) The methodology described in the general risk-based capital rules under 12 CFR part 208, appendix A, 12 CFR part 225, appendix A (Board); or
5. In § 217.32, revise paragraphs (g)(3)(ii)(B), (k) introductory text, (l)(1) and (l)(6) introductory text, and add new paragraph (m) to read as follows:
(g) * * *
(3) * * *
(ii) * * *
(B) A Board-regulated institution must base all estimates of a property's value on an appraisal or evaluation of the property that satisfies subpart E of 12 CFR part 208.
(k)
(l)
(ii) A state member bank must assign a zero percent risk weight to cash owned and held in all offices of the state member bank or in transit; to gold bullion held in the state member bank's own vaults or held in another depository institution's vaults on an allocated basis, to the extent the gold bullion assets are offset by gold bullion liabilities; and to exposures that arise from the settlement of cash transactions (such as equities, fixed income, spot foreign exchange and spot commodities) with a central counterparty where there is no assumption of ongoing counterparty credit risk by the central counterparty after settlement of the trade and associated default fund contributions.
(6) Notwithstanding the requirements of this section, a state member bank may assign an asset that is not included in one of the categories provided in this section to the risk weight category applicable under the capital rules applicable to bank holding companies and savings and loan holding companies under this part, provided that all of the following conditions apply:
(m)
(ii) A bank holding company or savings and loan holding company must assign a zero percent risk weight to an asset that is held in a non-guaranteed separate account.
(2)
6. In § 217. 42, revise paragraph (h)(1)(iv) to read as follows:
(h) * * *
(1) * * *
(iv) In the case of a state member bank, the bank is well capitalized, as defined in 12 CFR 208.43. For purposes of determining whether a state member bank is well capitalized for purposes of this paragraph, the state member bank's capital ratios must be calculated without regard to the capital treatment for transfers of small-business obligations under this paragraph.
(B) In the case of a bank holding company or savings and loan holding company, the bank holding company or savings and loan holding company is well capitalized, as defined in 12 CFR 225.2. For purposes of determining whether a bank holding company or savings and loan holding company is well capitalized for purposes of this paragraph, the bank holding company or savings and loan holding company's capital ratios must be calculated without regard to the capital treatment for transfers of small-business obligations with recourse specified in paragraph (k)(1) of this section.
7. In § 217.52, revise paragraph (b)(3)(i) to read as follows:
(b) * * *
(3) * * *
(i)
(A) For state member banks and bank holding companies, an equity exposure that qualifies as a community development investment under 12 U.S.C. 24 (Eleventh), excluding equity exposures to an unconsolidated small business investment company and equity exposures held through a consolidated small business investment company described in section 302 of the Small Business Investment Act of 1958 (15 U.S.C. 682).
(B) For savings and loan holding companies, an equity exposure that is designed primarily to promote community welfare, including the welfare of low- and moderate-income communities or families, such as by providing services or employment, and excluding equity exposures to an unconsolidated small business investment company and equity exposures held through a small business investment company described in section 302 of the Small Business Investment Act of 1958 (15 U.S.C. 682).
For the reasons set forth in the common preamble, the Federal Deposit Insurance Corporation proposes to amend part 324 of chapter III of title 12 of the Code of Federal Regulations as follows:
1. The authority citation for part 324 continues to read as follows:
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; 5371; 5412; Pub. L. 102–233, 105 Stat. 1761, 1789, 1790 (12 U.S.C. 1831n note); Pub. L. 102–242, 105 Stat. 2236, 2355, 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); Pub. L. 111–203, 124 Stat. 1376, 1887 (15 U.S.C. 78o–7 note).
2. Subpart D is added as set forth at the end of the common preamble.
3. Subpart D is amended as set forth below:
a. Remove “[AGENCY]” and add “FDIC” in its place, wherever it appears;
b. Remove “[BANK]” and add “bank and state savings association” in its place, wherever it appears in the phrase “Each [BANK]” or “each [BANK]”;
c. Remove “[BANK]” and add “bank or state savings association” in its place,
d. Remove “[BANK]S” and add “banks and state savings associations” in its place, wherever it appears;
e. Remove “[BANK]'S” and add “banks and state savings associations'” in its place, wherever it appears;
f. Remove “[PART]” and add “Part 324” in its place, wherever it appears;
g. Remove “[REGULATORY REPORT]” and add “Consolidated Reports of Condition and Income (Call Report)” in its place the first time it appears, and add “Call Report” in its place, wherever it appears every time thereafter.
By order of the Board of Governors of the Federal Reserve System, July 3, 2012.
By order of the Board of Directors.
Office of the Comptroller of the Currency, Treasury; the Board of Governors of the Federal Reserve System; and the Federal Deposit Insurance Corporation.
Joint notice of proposed rulemaking.
The Office of the Comptroller of the Currency (OCC), the 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 (NPRs) that would revise and replace the agencies' current capital rules.
In this NPR (Advanced Approaches and Market Risk NPR) the agencies are proposing to revise the advanced approaches risk-based capital rule to incorporate certain aspects of “Basel III: A Global Regulatory Framework for More Resilient Banks and Banking Systems” (Basel III) that the agencies would apply only to advanced approach banking organizations. This NPR also proposes other changes to the advanced approaches rule that the agencies believe are consistent with changes by the Basel Committee on Banking Supervision (BCBS) to its “International Convergence of Capital Measurement and Capital Standards: A Revised Framework” (Basel II), as revised by the BCBS between 2006 and 2009, and recent consultative papers published by the BCBS. The agencies also propose to revise the advanced approaches risk-based capital rule to be consistent with Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act). These revisions include replacing references to credit ratings with alternative standards of creditworthiness consistent with section 939A of the Dodd-Frank Act.
Additionally, the OCC and FDIC are proposing that the market risk capital rule 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 that meet the applicable thresholds. In addition, this NPR would codify the market risk rule consistent with the proposed codification of the other regulatory capital rules across the three proposals.
Comments must be submitted on or before October 22, 2012.
Comments should be directed to:
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All public comments are available from the Board's Web site at
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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
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 standardized framework in Basel II, and providing 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.
The proposed requirements in the Basel III NPR and 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 (collectively, banking organizations).
The proposals are being 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.
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 issuing this notice of proposed rulemaking (NPR, proposal, or proposed rule) to revise the advanced approaches risk-based capital rule (advanced approaches rule) to incorporate certain aspects of “Basel III: A global regulatory framework for more resilient banks and banking systems” (Basel III). This NPR also proposes to revise the advanced approaches rule to incorporate other revisions to the Basel capital framework published by the Basel Committee on Banking Supervision (BCBS) in a series of documents between 2009 and 2011
In this NPR, the Board also proposes applying the advanced approaches rule and the market risk rule to savings and loan holding companies, and the Board, FDIC, and OCC propose applying the market risk capital rule to savings and loan holding companies and to state and federal savings associations, respectively. In addition, this NPR would codify the market risk rule in a manner similar to the other regulatory capital rules in the three proposals. In a separate
Consistent with Basel III, the proposal seeks to ensure that counterparty credit risk, credit valuation adjustments (CVA), and wrong-way risk are incorporated adequately into the agencies' regulatory capital requirements. More specifically, the NPR would establish a capital requirement for the market value of counterparty credit risk; propose a more risk-sensitive approach for certain transactions with central counterparties, including the treatment of default fund contributions to central counterparties; and make certain adjustments to the methodologies used to calculate counterparty credit risk requirements. In addition, consistent with the “2009 Enhancements,” the agencies propose strengthening the risk-based capital requirements for certain securitization exposures by requiring banking organizations that are subject to the advanced approaches rule to conduct more rigorous credit analysis of securitization exposures and enhancing the disclosure requirements related to these exposures.
In addition to the incorporation of the BCBS standards, the agencies are proposing changes to the advanced approaches rule in a manner consistent with the Dodd-Frank Act, by removing references to, or requirements of reliance on, credit ratings from their regulations.
In addition, in today's
The notice titled “Regulatory Capital Rules: Standardized Approach for Risk-Weighted Assets; Market Discipline and Disclosure Requirements” (Standardized Approach NPR) would also apply to all banking organizations. In the 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' Basel II standardized framework, changes proposed in recent consultative papers published by the BCBS and 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
The requirements proposed in the Basel III NPR and Standardized Approach NPR, as well as the market risk capital rule in this proposal, are proposed to become the “generally applicable” capital requirements for purposes of section 171 of the Dodd-Frank Act because they would be the capital requirements applied to insured depository institutions under section 38 of the Federal Deposit Insurance Act, without regard to asset size or foreign financial exposure. Banking organizations that are or would be subject to the advanced approaches rule (advanced approaches banking organizations) or the market risk rule should also review the Basel III NPR and Standardized Approach NPR.
The recent financial crisis highlighted certain aspects of the treatment of counterparty credit risk under the Basel II framework that were inadequate and of banking organizations' risk management of counterparty credit risk that were insufficient. The Basel III revisions would address both areas of weakness by ensuring that all material on- and off-balance sheet counterparty risks, including those associated with derivative-related exposures, are appropriately incorporated into banking organizations' risk-based capital ratios. In addition, new risk management requirements in Basel III strengthen the oversight of counterparty credit risk exposures. The agencies are proposing the counterparty credit risk revisions in a manner generally consistent with Basel III, modified to incorporate alternative standards to the use of credit ratings. The discussion below highlights these revisions.
The exposure-at-default (EAD) adjustment approach under section 132 of the proposed rules permits a banking organization to recognize the credit risk mitigation benefits of eligible financial collateral by adjusting the EAD to the counterparty. Such approaches include the collateral haircut approach, simple Value-at-Risk (VaR) approach and the internal models methodology (IMM).
Consistent with Basel III, the agencies are proposing to modify the definition of financial collateral so that resecuritizations would no longer qualify as eligible financial collateral under the advanced approaches rule. Thus, resecuritization collateral could not be used to adjust the EAD of an exposure. The agencies believe that this treatment is appropriate because resecuritizations have been shown to have more market value volatility than other collateral types. During the recent financial crisis, the market volatility of resecuritization exposures made it difficult for resecuritizations to serve as a source of liquidity because banking organizations were unable to sell those positions without incurring substantial loss or to use them as collateral for secured lending transactions.
Under the proposal, a securitization in which one or more of the underlying exposures is a securitization position would be considered a resecuritization. A resecuritization position under the proposal means an on- or off-balance sheet exposure to a resecuritization, or an exposure that directly or indirectly references a resecuritization exposure.
Consistent with these changes excluding less liquid collateral from the definition of financial collateral, the agencies also propose that conforming residential mortgages no longer qualify as financial collateral under the advanced approaches rule. As a result, under this proposal, a banking organization would no longer be able to recognize the credit risk mitigation benefit of such instruments through an adjustment to EAD. In addition, also consistent with the Basel framework, the agencies propose to exclude all debt securities that are not investment grade from the definition of financial collateral. As discussed in section II (B) of this preamble, the agencies are proposing to revise the definition of “investment grade” for both the advanced approaches rule and market risk capital rule.
As reflected in Basel III, securitization exposures have increased levels of volatility relative to other collateral types. To address this issue, Basel III incorporates new standardized supervisory haircuts for securitization exposures in the EAD adjustment approach based on the credit rating of the exposure. Consistent with section 939A of the Dodd Frank Act, the agencies are proposing an alternative approach to assigning standard supervisory haircuts for securitization exposures, and are also proposing to amend the standard supervisory haircuts for other types of financial collateral to remove the references to credit ratings.
Under the proposal, as outlined in table 1 below, the standard supervisory market price volatility haircuts would be revised based on the applicable risk weight of the exposure calculated under the standardized approach. Supervisory haircuts for exposures to sovereigns, government-sponsored entities, public sector entities, depository institutions, foreign banks, credit unions, and corporate issuers would be calculated based upon the risk weights for such exposures described under section 32 of the Standardized Approach NPR. The proposed table for the standard supervisory market price volatility haircuts would be revised as follows:
The agencies are also proposing to clarify that if a banking organization lends instruments that do not meet the definition of financial collateral used in the Standardized Approach NPR and the advanced approaches rule (as modified by the proposal), such as non-investment grade corporate debt securities or resecuritization exposures, the haircut applied to the exposure would be the same as the haircut for equity that is publicly traded but which is not part of a main index.
During the financial crisis, many financial institutions experienced significant delays in settling or closing-out collateralized transactions, such as repo-style transactions and collateralized over-the-counter (OTC) derivatives. The assumed holding period for collateral in the collateral haircut and simple VaR approaches and the margin period of risk in the IMM under Basel II proved to be inadequate for certain transactions and netting sets.
Under Basel II, the minimum assumed holding period for collateral and margin period of risk are five days for repo-style transactions, and ten days for other collateralized transactions where liquid financial collateral is posted under a daily margin maintenance requirement. Under Basel III, a banking organization must assume a holding period of 20 business days under the collateral haircut or simple VaR approaches, or must assume a margin period of risk under the IMM of 20 business days for netting sets where: (1) The number of trades exceeds 5,000 at any time during the quarter (except if the counterparty is a central counterparty (CCP) or the netting set consists of cleared transactions with a clearing member); (2) one or more trades involves illiquid collateral posted by the counterparty; or (3) the netting set includes any OTC derivatives that cannot be easily replaced.
For purposes of determining whether collateral is illiquid or an OTC derivative cannot be easily replaced for these purposes, a banking organization could, for example, assess whether, during a period of stressed market conditions, it could obtain multiple price quotes within two days or less for the collateral or OTC derivative that would not move the market or represent a market discount (in the case of collateral) or a premium (in the case of an OTC derivative).
If, over the two previous quarters, more than two margin disputes on a netting set have occurred that lasted longer than the holding period or margin period of risk used in the EAD calculation, then a banking organization would use a holding period or a margin period of risk for that netting set that is at least two times the minimum holding period that would otherwise be used for that netting set. Margin disputes occur when the banking organization and its counterparty do not agree on the value of collateral or on the eligibility of the collateral provided. In addition, such disputes also can occur when a banking organization and its counterparty disagree on the amount of margin that is required, which could result from differences in the valuation of a transaction, or from errors in the calculation of the net exposure of a portfolio (for instance, if a transaction is incorrectly included or excluded from the portfolio).
Consistent with Basel III, the agencies propose to amend the advanced approaches rule to incorporate these adjustments to the holding period in the collateral haircut and simple VaR approaches, and to the margin period of risk in the IMM that a banking organization may use to determine its capital requirement for repo-style transactions, OTC derivative transactions, or eligible margin loans. For cleared transactions, which are discussed below, the agencies propose that a banking organization not be required to adjust the holding period or margin period of risk upward when determining the capital requirement for its counterparty credit risk exposures to the central counterparty, which is also consistent with Basel III.
During the recent financial crisis, increased volatility in the value of derivative positions and collateral led to higher counterparty exposures than amounts estimated by banking organizations' internal models. To address this issue, under Basel III, when
Under the proposal, an IMM exposure would be defined as a repo-style transaction, eligible margin loan, or OTC derivative for which a banking organization calculates its EAD using the IMM. A banking organization would be required to demonstrate to the satisfaction of the banking organization's primary federal supervisor at least quarterly that the stress period coincides with increased credit default swap (CDS) spreads, or other credit spreads of its counterparties and have procedures to evaluate the effectiveness of its stress calibration. These procedures would be required to include a process for using benchmark portfolios that are vulnerable to the same risk factors as the banking organization's portfolio. In addition, the primary federal supervisor could require a banking organization to modify its stress calibration if the primary federal supervisor believes that another calibration would better reflect the actual historic losses of the portfolio.
Consistent with Basel III, the agencies are proposing to require a banking organization to subject its internal models to an initial validation and annual model review process. As part of the model review process, the agencies propose that a banking organization would need to have a backtesting program for its model that includes a process by which unacceptable model performance would be identified and remedied. In addition, the agencies propose that when a banking organization multiplies expected positive exposure (EPE) by the default scaling factor alpha of 1.4 when calculating EAD, the primary federal supervisor may require the banking organization to set that alpha higher based on the performance of the banking organization's internal model.
The agencies also are proposing to require a banking organization to have policies for the measurement, management, and control of collateral, including the reuse of collateral and margin amounts, as a condition of using the IMM. Under the proposal, a banking organization would be required to have a comprehensive stress testing program that captures all credit exposures to counterparties and incorporates stress testing of principal market risk factors and the creditworthiness of its counterparties.
Under Basel II, a banking organization was permitted to capture within its internal model the effect on EAD of a collateral agreement that requires receipt of collateral when the exposure to the counterparty increases. Basel II also contained a “shortcut” method to provide a banking organization whose internal model did not capture the effects of collateral agreements with a method to recognize some benefit from the collateral agreement. Basel III modifies that “shortcut” method by setting effective EPE to a counterparty as the lesser of the following two exposure calculations: (1) The exposure without any held or posted margining collateral, plus any collateral posted to the counterparty independent of the daily valuation and margining process or current exposure, or (2) an add-on that reflects the potential increase of exposure over the margin period of risk plus the larger of (i) the current exposure of the netting set reflecting all collateral received or posted by the banking organization excluding any collateral called or in dispute; or (ii) the largest net exposure (including all collateral held or posted under the margin agreement) that would not trigger a collateral call. The add-on would be computed as the largest expected increase in the netting set's exposure over any margin period of risk in the next year. The agencies propose to include the Basel III modification of the “shortcut” method in this NPR.
The financial crisis also highlighted the interconnectedness of large financial institutions through an array of complex transactions. To recognize this interconnectedness and to mitigate the risk of contagion from the banking sector to the broader financial system and the general economy, Basel III includes enhanced requirements for the recognition and treatment of wrong-way risk in the IMM. The proposed rule would define wrong-way risk as the risk that arises when an exposure to a particular counterparty is positively correlated with the probability of default of such counterparty itself.
The agencies are proposing enhancements to the advanced approaches rule that would require banking organizations' risk management procedures to identify, monitor, and control wrong-way risk throughout the life of an exposure. These risk management procedures should include the use of stress testing and scenario analysis. In addition, where a banking organization has identified an IMM exposure with specific wrong-way risk, the banking organization would be required to treat that transaction as its own netting set. Specific wrong-way risk is a type of wrong way risk that arises when either the counterparty and issuer of the collateral supporting the transaction, or the counterparty and the reference asset of the transaction, are affiliates or are the same entity.
In addition, where a banking organization has identified an OTC derivative transaction, repo-style transaction, or eligible margin loan with specific wrong-way risk for which the banking organization would otherwise apply the IMM, the banking organization would insert the probability of default (PD) of the counterparty and a loss given default (LGD) equal to 100 percent into the appropriate risk-based capital formula specified in table 1 of section 131 of the proposed rule, then multiply the output of the formula (K) by an alternative EAD based on the transaction type, as follows:
(1) For a purchased credit derivative, EAD would be the fair value of the underlying reference asset of the credit derivative contract;
(2) For an OTC equity derivative,
(3) For an OTC bond derivative (that is, a bond option, bond future, or any other instrument linked to a bond that gives rise to similar counterparty credit risks), EAD would be the smaller of the notional amount of the underlying reference asset and the maximum amount that the banking organization could lose if the fair value of the underlying reference asset decreased to zero; and
(4) For repo-style transactions and eligible margin loans, EAD would be calculated using the formula in the collateral haircut approach of section 132 and with the estimated value of the collateral substituted for the parameter C in the equation.
To recognize the correlation of financial institutions' creditworthiness attributable to similar sensitivities to common risk factors, the agencies are proposing to incorporate the Basel III increase in the correlation factor used in the formula provided in table 1 of section 131 of the proposed rule for certain wholesale exposures. Under the proposed rule, banking organizations would apply a multiplier of 1.25 to the correlation factor for wholesale exposures to unregulated financial institutions that generate a majority of their revenue from financial activities, regardless of asset size. This category would include highly leveraged entities such as hedge funds and financial guarantors. In addition, banking organizations would apply a multiplier of 1.25 to the correlation factor for wholesale exposures to regulated financial institutions with consolidated assets of greater than or equal to $100 billion.
The proposed definitions of “financial institution” and “regulated financial institution” are set forth and discussed in the Basel III NPR.
CVA is the fair value adjustment to reflect counterparty credit risk in the valuation of an OTC derivative contract. The BCBS reviewed the treatment of counterparty credit risk and found that roughly two-thirds of counterparty credit risk losses during the crisis were due to marked-to-market losses from CVA, while one-third of counterparty credit risk losses resulted from actual defaults. Basel II addressed counterparty credit risk as a combination of default risk and credit migration risk. Credit migration risk accounts for market value losses resulting from deterioration of counterparties' credit quality short of default and is addressed in Basel II via the maturity adjustment multiplier. However, the maturity adjustment multiplier in Basel II was calibrated for loan portfolios and may not be suitable for addressing CVA risk. Accordingly, Basel III requires banking organizations to directly reflect CVA risk through an additional capital requirement.
The Basel III CVA capital requirement would reflect the CVA due to changes of counterparties' credit spreads, assuming fixed expected exposure (EE) profiles. Basel III provides two approaches for calculating the CVA capital requirement: the simple approach and the advanced CVA approach. The agencies are proposing both approaches for calculating the CVA capital requirement (subject to certain requirements discussed below), but without references to credit ratings.
Only a banking organization that is subject to the market risk capital rule and has obtained prior approval from its primary federal supervisor to calculate both the EAD for OTC derivative contracts using the IMM described in section 132 of the proposed rule, and the specific risk add-on for debt positions using a specific risk model described in section 207(b) of subpart F would be eligible to use the advanced CVA approach. A banking organization that receives such approval would continue to use the advanced CVA approach until it notifies its primary federal supervisor in writing that it expects to begin calculating its CVA capital requirement using the simple CVA approach. The notice would include an explanation from the banking organization as to why it is choosing to use the simple CVA approach and the date when the banking organization would begin to calculate its CVA capital requirement using the simple CVA approach.
Under the proposal, when calculating a CVA capital requirement, a banking organization would be permitted to recognize the hedging benefits of single name CDS, single name contingent CDS, index CDS (CDS
To convert the CVA capital requirement to a risk-weighted asset amount, a banking organization would multiply its CVA capital requirement by 12.5. Under the proposal, because the CVA capital requirement reflects market risk, the CVA risk-weighted asset amount would not be a component of credit risk-weighted assets and therefore would not be subject to the 1.06 multiplier for credit risk-weighted assets.
The agencies are proposing the Basel III formula for the simple CVA approach to calculate the CVA capital requirement (K
• All credit spreads have a flat term structure;
• All credit spreads at the time horizon have a lognormal distribution;
• Each single name credit spread is driven by the combination of a single systematic factor and an idiosyncratic factor;
• The correlation between any single name credit spread and the systematic factor is equal to 0.5;
• All credit indices are driven by the single systematic factor; and
• The time horizon is short (the square root of time scaling to 1 year is applied in the end).
A banking organization would calculate K
In Formula 1, w
EAD
M
B
Under the advanced CVA approach, a banking organization would use the VaR model it uses to calculate specific risk under section 205(b) of subpart F or another model that meets the quantitative requirements of sections 205(b) and 207(b) of subpart F to calculate its CVA capital requirement for a counterparty by modeling the impact of changes in the counterparty's credit spreads, together with any recognized CVA hedges on the CVA for the counterparty. A banking organization's total capital requirement for CVA equals the sum of the CVA capital requirements for each counterparty.
The agencies are proposing that the VaR model incorporate only changes in the counterparty's credit spreads, not changes in other risk factors. The banking organization would not be required to capture jump-to-default risk in its VaR model. A banking organization would be required to include any immaterial OTC derivative portfolios for which it uses the current exposure methodology by using the EAD calculated under the current exposure methodology as a constant EE in the formula for the calculation of CVA and setting the maturity equal to the greater of half of the longest maturity occurring in the netting set and the notional weighted average maturity of all transactions in the netting set.
In order for a banking organization to receive approval to use the advanced CVA approach, under the NPR, the
The CVA capital requirement under the advanced CVA approach would be equal to the general market risk capital requirement of the CVA exposure using the ten-business-day time horizon of the revised market risk framework. The capital requirement would not include the incremental risk requirement of subpart F. The agencies propose to require a banking organization to use the Basel III formula for the advanced CVA approach to calculate K
Under the proposal, if a banking organization's VaR model is not based on full repricing, the banking organization would use either Formula 4 or Formula 5 to calculate credit spread sensitivities. If the VaR model is based on credit spread sensitivities for specific tenors, the banking organization would calculate each credit spread sensitivity according to Formula 4:
If the VaR
To calculate the CVA
To calculate the CVA
Under the NPR, a banking organization's VaR model would be required to capture the basis between the spreads of the index that is used as the hedging instrument and the hedged counterparty exposure over various time periods, including benign and stressed environments. If the VaR model does not capture that basis, the banking organization would be permitted to reflect only 50 percent of the notional amount of the CDS
CCPs help improve the safety and soundness of the derivatives and repo-style transaction markets through the multilateral netting of exposures, establishment and enforcement of collateral requirements, and market transparency. Under the current advanced approaches rule, exposures to qualifying central counterparties (QCCPs) received a zero percent risk weight. However, when developing Basel III, the BCBS recognized that as more derivatives and repo-style transactions move to CCPs, the potential for systemic risk increases. To address these concerns, the BCBS has sought comment on a specific capital requirement for such transactions with CCPs and a more risk-sensitive approach for determining a capital requirement for a banking organization's contributions to the default funds of these CCPs. The BCBS also has sought comment on a preferential capital treatment for exposures arising from derivative and repo-style transactions with, and related default fund contributions to, CCPs that meet the standards established by the Committee on Payment and Settlement Systems (CPSS) and International Organization of Securities Commissions (IOSCO).
A banking organization that is a clearing member, a term that is defined in the Basel III NPR as a member of, or direct participant in, a CCP that is entitled to enter into transactions with the CCP, or a clearing member client, proposed to be defined as a party to a cleared transaction associated with a CCP in which a clearing member acts either as a financial intermediary with respect to the party or guarantees the performance of the party to the CCP, would first calculate its trade exposure for a cleared transaction. The trade exposure amount for a cleared transaction would be determined as follows:
(1) For a cleared transaction that is a derivative contract or netting set of derivative contracts, the trade exposure amount equals:
(i) The exposure amount for the derivative contract or netting set of derivative contracts, calculated using the methodology used to calculate exposure amount for OTC derivative contracts under section 132(c) or 132(d) of this NPR, plus
(ii) The fair value of the collateral posted by the banking organization and held by the CCP or a clearing member in a manner that is not bankruptcy remote.
(2) For a cleared transaction that is a repo-style transaction, the trade exposure amount equals:
(i) The exposure amount for the repo-style transaction calculated using the methodologies under sections 132(b)(2), 132(b)(3) or 132(d) of this NPR, plus
(ii) The fair value of the collateral posted by the banking organization and held by the CCP or a clearing member in a manner that is not bankruptcy remote.
When the banking organization calculates EAD under the IMM, EAD would be calculated using the most recent three years of historical data, that is, EAD
Under the proposal, a clearing member banking organization would apply a risk weight of 2 percent to its trade exposure amount with a QCCP. The proposed definition of QCCP is discussed in the Standardized Approach NPR preamble. A banking organization that is a clearing member client would apply a 2 percent risk weight to the trade exposure amount if:
(1) The collateral posted by the banking organization to the QCCP or clearing member is subject to an arrangement that prevents any losses to the clearing member due to the joint default or a concurrent insolvency, liquidation, or receivership proceeding of the clearing member and any other clearing member clients of the clearing member; and
(2) The clearing member client has conducted sufficient legal review to conclude with a well-founded basis (and maintains sufficient written documentation of that legal review) that in the event of a legal challenge (including one resulting from default or a receivership, insolvency, or liquidation proceeding) the relevant court and administrative authorities
The agencies believe that omnibus accounts (that is, accounts that are generally established by clearing entities for non-clearing members) in the United States would satisfy these requirements because of the protections afforded client accounts under certain regulations of the Securities and Exchange Commission (SEC) and Commodities Futures Trading Commission (CFTC).
For a cleared transaction with a CCP that is not a QCCP, a clearing member and a banking organization that is a clearing member client would risk weight the trade exposure according to the risk weight applicable to the CCP under the Standardized Approach NPR.
Collateral posted by a clearing member or clearing member client banking organization that is held in a manner that is bankruptcy remote from the CCP would not be subject to a capital requirement for counterparty credit risk. As with all posted collateral, the banking organization would continue to have a capital requirement for any collateral provided to a CCP or a custodian in connection with a cleared transaction.
Under the proposal, a cleared transaction would not include an exposure of a banking organization that is a clearing member to its clearing member client where the banking organization is either acting as a financial intermediary and enters into an offsetting transaction with a CCP or where the banking organization provides a guarantee to the CCP on the performance of the client. Such a transaction would be treated as an OTC derivative transaction. However, the agencies recognize that this treatment may create a disincentive for banking organizations to act as intermediaries and provide access to CCPs for clients. As a result, the agencies are considering approaches that could address this disincentive while at the same time appropriately reflect the risks of these transactions. For example, one approach would allow banking organizations that are clearing members to adjust the EAD calculated under section 132 downward by a certain percentage or, for banking organizations using the IMM, to adjust the margin period of risk. International discussions are ongoing on this issue, and the agencies would expect to revisit the treatment of these transactions in the event that the BCBS revises its treatment of these transactions.
The agencies are proposing that, under the advanced approaches rule, a banking organization that is a clearing member of a CCP calculate its capital requirement for its default fund contributions at least quarterly or more frequently upon material changes to the CCP. Banking organizations seeking more information on the proposed risk-based capital treatment of default fund contributions should refer to the preamble of the Standardized Approach NPR.
Under the collateral haircut approach in the advanced approaches rule, banking organizations that receive prior approval from their primary federal supervisory may calculate market price and foreign exchange volatility using own internal estimates. To receive approval to use such an approach, banking organizations are required to base own internal estimates on a historical observation period of at least one year, among other criteria. During the financial crisis, increased volatility in the value of collateral led to higher counterparty exposures than estimated by banking organizations. In response, the agencies are proposing in this NPR to modify the quantitative standards for approval by requiring banking organizations to base own internal estimates of haircuts on a historical observation period that reflects a continuous 12-month period of significant financial stress appropriate to the security or category of securities. As described in the Standardized Approach NPR preamble, a banking organization would also be required to have policies and procedures that describe how it determines the period of significant financial stress used to calculate the banking organization's own internal estimates, and to be able to provide empirical support for the period used. To ensure an appropriate level of conservativeness, in certain circumstances a primary federal supervisor may require a banking organization to use a different period of significant financial stress in the calculation of own internal estimates for haircuts.
Consistent with section 939A of the Dodd-Frank Act, the agencies are proposing a number of changes to the definitions in the advanced approaches rule that currently reference credit ratings.
The agencies propose to use an “investment grade” standard that does not rely on credit ratings as an alternative standard in a number of requirements under the advanced approaches rule, as explained below. Under this NPR and the Standardized Approach NPR, investment grade would mean that the entity to which the banking organization is exposed through a loan or security, or the reference entity with respect to a credit derivative, has adequate capacity to meet financial commitments for the projected life of the asset or exposure. Such an entity or reference entity has adequate capacity to meet financial commitments if the risk
Under the current advanced approaches rule, guarantors are required to meet a number of criteria in order to be considered as eligible guarantors under the securitization framework. For example, the entity must have issued and outstanding an unsecured long-term debt security without credit enhancement that has a long-term applicable external rating in one of the three highest investment-grade rating categories. The agencies are proposing to replace the term “eligible securitization guarantor” with the term “eligible guarantor,” which includes certain entities that have issued and outstanding an unsecured debt security without credit enhancement that is investment grade. Other modifications to the definition of eligible guarantor are discussed in subpart C of this preamble.
Under this proposal, the term “eligible double default guarantor,” with respect to a guarantee or credit derivative obtained by a banking organization, means:
(1)
(2)
Under this proposal and Standardized Approach NPR, the agencies propose to retain the metrics used to calculate the potential future exposure (PFE) for derivative contracts (as set forth in table 3 of the proposed rule), and apply the proposed definition of “investment grade.”
Previously, under the advanced approaches money market fund approach, banking organizations were permitted to assign a 7 percent risk weight to exposures to money market funds that were subject to SEC rule 2a-7 and that had an applicable external rating in the highest investment grade rating category. In this NPR, the agencies propose to eliminate the money market fund approach. The agencies believe it is appropriate to eliminate the preferential risk weight for money market fund investments due to the agencies' and banking organizations' experience with them during the recent financial crisis, in which they demonstrated, at times, elevated credit risk. As a result of the proposed changes, a banking organization would use one of the three alternative approaches under section 154 of this proposal to determine the risk weight for its exposures to a money market fund, subject to a 20 percent floor.
Under the proposal, risk weights for equity exposures under the simple modified look-through approach would be based on the highest risk weight assigned according to subpart D of the Standardized Approach NPR based on the investment limits in the fund's prospectus, partnership agreement, or similar contract that defines the fund's permissible investments.
Under section 161 of the proposal, a banking organization may adjust its estimate of operational risk exposure to reflect qualifying operational risk mitigants. Previously, for insurance to be considered as a qualifying operational risk mitigant, it was required to be provided by an unaffiliated company rated in the three highest rating categories by a nationally recognized statistical ratings organization (NRSRO). Under the proposal, qualifying operational risk mitigants, among other criteria, would be required to be provided by an unaffiliated company that the banking organization deems to have strong capacity to meet its claims payment obligations and the obligor rating category to which the banking organization assigns the company is assigned a PD equal to or less than 10 basis points.
Consistent with the
The definition of a securitization exposure would be broadened to include an exposure that directly or indirectly references a securitization exposure. Specifically, a securitization exposure would be defined as an on-balance sheet or off-balance sheet credit exposure (including credit-enhancing representations and warranties) that arises from a traditional securitization or synthetic securitization exposure (including a resecuritization), or an exposure that directly or indirectly references a securitization exposure. The agencies are proposing to define a resecuritization exposure as (1) an on- or off-balance sheet exposure to a resecuritization; or (2) an exposure that directly or indirectly references a resecuritization exposure. An exposure to an asset-backed commercial paper (ABCP) program would not be a resecuritization exposure if either: the program-wide credit enhancement does not meet the definition of a resecuritization exposure; or the entity sponsoring the program fully supports the commercial paper through the provision of liquidity so that the commercial paper holders effectively are exposed to the default risk of the sponsor instead of the underlying exposures. Resecuritization would mean a securitization in which one or more of the underlying exposures is a securitization exposure.
The recent financial crisis demonstrated that resecuritization exposures, such as collateralized debt obligations (CDOs) comprised of asset-backed securities (ABS), generally present greater levels of risk relative to
The following is an example of how to evaluate whether a transaction involving a traditional multi-seller ABCP conduit would be considered a resecuritization exposure under the proposed rule. In this example, an ABCP conduit acquires securitization exposures where the underlying assets consist of wholesale loans and no securitization exposures. As is typically the case in multi-seller ABCP conduits, each seller provides first-loss protection by over-collateralizing the conduit to which it sells its loans. To ensure that the commercial paper issued by each conduit is highly-rated, a banking organization sponsor provides either a pool-specific liquidity facility or a program-wide credit enhancement such as a guarantee to cover a portion of the losses above the seller-provided protection.
The pool-specific liquidity facility generally would not be treated as a resecuritization exposure under this proposal because the pool-specific liquidity facility represents a tranche of a single asset pool (that is, the applicable pool of wholesale exposures), which contains no securitization exposures. However, a sponsor's program-wide credit enhancement that does not cover all losses above the seller-provided credit enhancement across the various pools generally would constitute tranching of risk of a pool of multiple assets containing at least one securitization exposure, and therefore would be treated as a resecuritization exposure.
In addition, if the conduit from the example funds itself entirely with a single class of commercial paper, then the commercial paper generally would not be considered a resecuritization exposure if either the program-wide credit enhancement did not meet the proposed definition of a resecuritization exposure, or the commercial paper was fully guaranteed by the sponsoring banking organization. When the sponsoring banking organization fully guarantees the commercial paper, the commercial paper holders effectively would be exposed to the default risk of the sponsor instead of the underlying exposures, thus ensuring that the commercial paper does not represent a tranched risk position.
Since issuing the advanced approaches rules in 2007, the agencies have received feedback from banking organizations that the existing definition of traditional securitization is inconsistent with their risk experience and market practice. The agencies have reviewed this definition in light of this feedback and agree with commenters that changes to it may be appropriate. The agencies are proposing to exclude from the definition of traditional securitization exposures to investment funds, collective investment funds, pension funds regulated under the Employee Retirement Income Security Act (ERISA) and their foreign equivalents, and transactions regulated under the Investment Company Act of 1940 and their foreign equivalents, because these entities are generally prudentially regulated and subject to strict leverage requirements. Moreover, the agencies believe that the capital requirements for an extension of credit to, or an equity holding in these transactions would be more appropriately calculated under the rules for corporate and equity exposures, and that the securitization framework was not designed to apply to such transactions.
Accordingly, the agencies propose to amend the definition of a traditional securitization by excluding any fund that is (1) An investment fund, as defined under the rule, (2) a pension fund regulated under ERISA or a foreign equivalent, or (3) a company regulated under the Investment Company Act of 1940 or a foreign equivalent. Under the current rule, the definition of investment fund, which the agencies are not proposing to amend, means a company all or substantially all of the assets of which are financial assets; and that has no material liabilities.
Under the current advanced approaches rule, the definition of eligible securitization guarantor includes, among other entities, any entity (other than a securitization special purpose entity (SPE)) that has issued and has outstanding an unsecured long-term debt security without credit enhancement that has a long-term applicable external rating in one of the three highest investment-grade rating categories, or has a PD assigned by the banking organization that is lower than or equal to the PD associated with a long-term external rating in the third highest investment grade category. The agencies are proposing to remove the existing references to ratings from the definition of an eligible guarantor (the proposed new term for an eligible securitization guarantor). As revised, the definition for an eligible guarantor would include:
(1) A sovereign, the Bank for International Settlements, the International Monetary Fund, the European Central Bank, the European Commission, a Federal Home Loan Bank, Federal Agricultural Mortgage Corporation (Farmer Mac), a multilateral development bank, a depository institution, a bank holding company, a savings and loan holding company (as defined in 12 U.S.C. 1467a), a credit union, or a foreign bank; or
(2) An entity (other than an SPE):
(i) That at the time the guarantee is issued or anytime thereafter, has issued and outstanding an unsecured debt security without credit enhancement that is investment grade;
(ii) Whose creditworthiness is not positively correlated with the credit risk of the exposures for which it has provided guarantees; and
(iii) That is not an insurance company engaged predominately in the business of providing credit protection (such as a monoline bond insurer or re-insurer).
During the financial crisis, certain guarantors of securitization exposures had difficulty honoring those guarantees as the financial condition of the guarantors deteriorated at the same time as the guaranteed exposures experienced losses. Therefore, the agencies are proposing to add the requirement related to the correlation between the guarantor's creditworthiness and the credit risk of the exposures it has guaranteed to address this concern.
Section 41 of the current advanced approaches rule includes operational criteria for recognizing the transfer of risk. Under the criteria, a banking organization that transfers exposures that it has originated or purchased to a securitization SPE or other third party in connection with a traditional securitization may exclude the exposures from the calculation of risk-weighted assets only if certain conditions are met. Among the criteria listed is that the transfer is considered a sale under the Generally Accepted Accounting Principles (GAAP).
The purpose of the criterion that the transfer be considered a sale under GAAP was to ensure that the banking organization that transferred the exposures was not required under GAAP to consolidate the exposures on its balance sheet. Given changes in GAAP since the rule was published in 2007, the agencies propose to amend paragraph (a)(1) of section 41 of the advanced approaches rule to require that the transferred exposures are not reported on the banking organization's balance sheet under GAAP.
Consistent with section 939A of the Dodd-Frank Act, the agencies are proposing to remove the advanced approaches rule's ratings-based approach (RBA) and internal assessment approach (IAA) for securitization exposures. Under the proposal, the hierarchy for securitization exposures would be modified as follows:
(1) A banking organization would be required to deduct from common equity tier 1 capital any after-tax gain-on-sale resulting from a securitization and apply a 1,250 percent risk weight to the portion of a credit-enhancing interest-only strip (CEIO) that does not constitute after-tax gain-on-sale.
(2) If a securitization exposure does not require deduction, a banking organization would be required to assign a risk weight to the securitization exposure using the supervisory formula approach (SFA). The agencies expect banking organizations to use the SFA rather than the SSFA in all instances where data to calculate the SFA is available.
(3) If the banking organization cannot apply the SFA because not all the relevant qualification criteria are met, it would be allowed to apply the SSFA. A banking organization should be able to explain and justify (e.g., based on data availability) to its primary federal regulator any instances in which the banking organization uses the SSFA rather than the SFA for its securitization exposures.
If the banking organization does not apply the SSFA to the exposure, the banking organization would be required to assign a 1,250 percent risk weight, unless the exposure qualifies for a treatment available to certain ABCP exposures under section 44 of Standardized Approach NPR.
The SSFA, described in detail in the Standardized Approach NPR, is similar in construct and function to the SFA. A banking organization would need several inputs to calculate the SSFA. The first input is the weighted-average capital requirement under the requirements described in Standardized Approach NPR that would be applied to the underlying exposures if they were held directly by the banking organization. The second and third inputs indicate the position's level of subordination and relative size within the securitization. The fourth input is the level of delinquencies experienced on the underlying exposures. A bank would apply the hierarchy of approaches in section 142 of this proposed rule to determine which approach it would apply to a securitization exposure.
Banking organizations using the advanced approaches rule should note that the Standardized Approach NPR would require the use of the SSFA for certain securitizations subject to the advanced approaches rule.
The advanced approaches rule includes methods for calculating risk-weighted assets for nth-to-default credit derivatives, including first-to-default credit derivatives and second-or-subsequent-to-default credit derivatives.
For a guarantee or credit derivative (other than an nth-to-default credit derivative), the proposal would require a banking organization to determine the risk-based capital requirement for the guarantee or credit derivative as if it directly holds the portion of the reference exposure covered by the guarantee or credit derivative. The banking organization would calculate its risk-based capital requirement for the guarantee or credit derivative by applying either (1) the SFA as provided in section 143 of the proposal to the reference exposure if the bank and the reference exposure qualify for the SFA; or (2) the SSFA as provided in section 144 of the proposal. If the guarantee or credit derivative and the reference securitization exposure would not qualify for the SFA, or the SSFA, the bank would be required to assign a 1,250 percent risk weight to the notional amount of protection provided under the guarantee or credit derivative.
The proposal also would modify the advanced approaches rule to clarify how a banking organization may recognize a guarantee or credit derivative (other than an nth-to-default credit derivative) purchased as a credit risk mitigant for a securitization exposure held by the banking organization. In addition, the proposal adds a provision that would require a banking organization to use section 131 of the proposal instead of the approach required under the hierarchy of approaches in section 142 to calculate the risk-based capital requirements for a credit protection purchased by a banking organization in the form of a guarantee or credit derivative (other than an nth-to-default credit derivative) that references a securitization exposure that a banking organization does not hold. Credit protection purchased that references a securitization exposure not held by a banking organization subjects the banking organization to counterparty credit risk with respect to the credit protection but not credit risk to the securitization exposure.
As the recent financial crisis unfolded, weaknesses in exposures underlying securitizations became apparent and resulted in NRSROs downgrading many securitization exposures held by banks. The agencies found that many banking organizations relied on NRSRO ratings as a proxy for the credit quality of securitization exposures they purchased and held without conducting their own sufficient independent credit analysis. As a result, some banking organizations did not have sufficient capital to absorb the losses attributable to these exposures. Accordingly, consistent with the
The agencies propose that a banking organization that provides credit protection through an nth-to-default derivative assign a risk weight to the derivative using the SFA or the SSFA. In the case of credit protection sold, a banking organization would determine its exposure in the nth-to-default credit derivative as the largest notional dollar amount of all the underlying exposures.
When applying the SSFA to protection provided in the form of an nth-to-default credit derivative, the attachment point (parameter A) is the ratio of the sum of the notional amounts of all underlying exposures that are subordinated to the banking organization's exposure to the total notional amount of all underlying exposures. For purposes of applying the SFA, parameter A would be set equal to the credit enhancement level (L) used in the SFA formula. In the case of a first-to-default credit derivative, there are no underlying exposures that are subordinated to the banking organization's exposure. In the case of a second-or-subsequent-to default credit derivative, the smallest (n-1) underlying exposure(s) are subordinated to the banking organization's exposure.
Under the SSFA, the detachment point (parameter D) would be the sum of the attachment point and the ratio of the notional amount of the banking organization's exposure to the total notional amount of the underlying exposures. Under the SFA, Parameter D would be set to equal L plus the thickness of the tranche (T) under the SFA formula. A banking organization that does not use the SFA or SSFA to calculate a risk weight for an nth-to-default credit derivative would assign a risk weight of 1,250 percent to the exposure.
For the treatment of protection purchased through an nth-to-default, a banking organization would determine its risk-based capital requirement for the underlying exposures as if the banking organization had synthetically securitized the underlying exposure with the lowest risk-based capital requirement and had obtained no credit risk mitigant on the underlying exposures. A banking organization would calculate a risk-based capital requirement for counterparty credit risk according to section 132 of the proposal for a first-to-default credit derivative that does not meet the rules of recognition for guarantees and credit derivatives under section 134(b).
A banking organization that obtains credit protection on a group of underlying exposures through a nth-to-default credit derivative that meets the rules of recognition of section 134(b) of the proposal (other than a first-to-default credit derivative) would be permitted to recognize the credit risk mitigation benefits of the derivative only if the banking organization also has obtained credit protection on the same underlying exposures in the form of first-through-(n-1)-to-default credit derivatives; or if n-1 of the underlying exposures have already defaulted. If a banking organization satisfies these requirements, the banking organization would determine its risk-based capital requirement for the underlying exposures as if the banking organization had only synthetically securitized the underlying exposure with the nth lowest risk-based capital requirement and had obtained no credit risk mitigant on the other underlying exposures. A banking organization that does not fulfill these requirements would calculate a risk-based capital requirement for counterparty credit risk according to section 132 of the proposal for a nth-to-default credit derivative that does not meet the rules of recognition of section 134(b) of the proposal.
For a guarantee or credit derivative (other than an nth-to-default credit derivative) provided by a banking organization that covers the full amount or a pro rata share of a securitization exposure's principal and interest, the banking organization would risk weight the guarantee or credit derivative as if it holds the portion of the reference exposure covered by the guarantee or credit derivative.
As a protection purchaser, if a banking organization chooses (and is able) to recognize a guarantee or credit derivative (other than an nth-to-default credit derivative) that references a securitization exposure as a credit risk mitigant, where applicable, the banking organization must apply section 145 of the proposal for the recognition of credit risk mitigants. If a banking organization cannot, or chooses not to, recognize a credit derivative that references a securitization exposure as a credit risk mitigant under section 145, the banking organization would determine its capital requirement only for counterparty credit risk in accordance with section 131 of the proposal.
Under the current advanced approaches rule, a banking organization must deduct certain exposures from total capital, including securitization exposures such as CEIOs, low-rated securitization exposures, and high-risk securitization exposures subject to the SFA; eligible credit reserves shortfall; and certain failed capital markets transactions.
The agencies note that such treatment is not equivalent to a deduction from tier 1 capital, as the effect of a 1,250 percent risk weight would depend on an individual banking organization's current risk-based capital ratios. Specifically, when a risk-based capital ratio (either tier 1 or total risk-based capital) exceeds 8.0 percent, the effect on that risk-based capital ratio of assigning an exposure a 1,250 percent risk weight would be more conservative than a deduction from total capital. The more a risk-based capital ratio exceeds 8.0 percent, the harsher is the effect of a 1,250 percent risk weight on risk-based capital ratios. Conversely, the effect of a 1,250 percent risk weight would be less harsh than a deduction from total capital for any risk-based capital ratio that is below 8.0 percent. Unlike a deduction from total capital, however, a bank's leverage ratio would not be affected by assigning an exposure a 1,250 percent risk weight.
The agencies are not proposing to apply a 1,250 percent risk weight to those exposures currently deducted from tier 1 capital under the advanced approaches rule. For example, the agencies are proposing that gain-on-sale that is deducted from tier 1 under the advanced approaches rule be deducted from common equity tier 1 under the proposed rule. In this regard, the agencies also clarify that any asset deducted from common equity tier 1, tier 1, or tier 2 capital under the advanced approaches rule would not be included in the measure of risk-weighted assets under the advanced approaches rule.
The agencies are proposing other amendments to the advanced approaches rule that are designed to refine and clarify certain aspects of the rule's implementation. Each of these revisions is described below.
In order to be recognized as an eligible guarantee under the advanced approaches rule, the guarantee, among other criteria, must be unconditional. The agencies note that this definition would exclude certain guarantees provided by the U.S. Government or its agencies that would require some action on the part of the bank or some other third party. However, based on their risk perspective, the agencies believe that these guarantees should be recognized as eligible guarantees. Therefore, the agencies are proposing to amend the definition of eligible guarantee so that it explicitly includes a contingent obligation of the U.S. Government or an agency of the U.S. Government, the validity of which is dependent on some affirmative action on the part of the beneficiary or a third party (for example, servicing requirements) irrespective of whether such contingent obligation would otherwise be considered a conditional guarantee. A corresponding provision is included in section 36 of the Standardized Approach NPR.
A banking organization is subject to the advanced approaches rule if it has consolidated assets greater than or equal to $250 billion, or if it has total consolidated on-balance sheet foreign exposures of at least $10 billion.
The agencies are proposing to revise the advanced approaches rule to comport with changes to the Federal Financial Institutions Examination Council (FFIEC) Country Exposure Report (FFIEC 009) that occurred after the issuance of the advanced approaches rule in 2007. Specifically, the FFIEC 009 replaced the term “local country claims” with the term “foreign-office claims.” Accordingly, the agencies have made a similar change under section 100, the section of the advanced approaches rule that makes the rules applicable to a banking organization that has consolidated total on-balance sheet foreign exposures equal to $10 billion or more. As a result, to determine total on-balance sheet foreign exposure, a bank would sum its adjusted cross-border claims, local country claims, and cross-border revaluation gains calculated in accordance with FFIEC 009. Adjusted cross-border claims would equal total cross-border claims less claims with the head office or guarantor located in another country, plus redistributed guaranteed amounts to the country of the head office or guarantor.
The agencies believe it would not be appropriate for banking organizations to move in and out of the scope of the advanced approaches rule based on fluctuating asset sizes. As a result, the agencies are proposing to amend the advanced approaches rule to clarify that once a banking organization is subject to the advanced approaches rule, it would remain subject to the rule until its primary federal supervisor determines that application of the rule would not be appropriate in light of the banking organization's asset size, level of complexity, risk profile, or scope of operations. In connection with the consideration of a banking organization's level of complexity, risk profile, and scope of operations, the agencies also may consider a banking organization's interconnectedness and other relevant risk-related factors.
The advanced approaches rule requires an upward adjustment to estimated PD for segments of retail exposures for which seasoning effects are material. The rationale underlying this requirement was the seasoning pattern displayed by some types of retail
Since the issuance of the advanced approaches rule, the agencies have found the seasoning provision to be problematic. First, it is difficult to ensure consistency across institutions, given that there is no guidance or criteria for determining when seasoning is “material” or what magnitude of upward adjustment to PD is “appropriate.” Second, the advanced approaches rule lacks flexibility by requiring an upward PD adjustment whenever there is a significant relationship between a segment's default rate and its age (since origination). For example, the upward PD adjustment may be inappropriate in cases where (1) The outstanding balance of a segment is falling faster over time (due to defaults and prepayments) than the default rate is rising; (2) the age (since origination) distribution of a portfolio is stable over time; or (3) where the loans in a segment are intended, with a high degree of certainty, to be sold or securitized within a short time period.
Therefore, the agencies are proposing to delete the regulatory (Pillar 1) seasoning provision and instead to treat seasoning under Pillar 2. In addition to the difficulties in applying the advanced approaches rule's seasoning requirements discussed above, the agencies believe that the consideration of seasoning belongs more appropriately in Pillar 2 First, seasoning involves the determination of minimum required capital for a period in excess of the 12-month time horizon of Pillar 1. It thus falls more appropriately under longer-term capital planning and capital adequacy, which are major focal points of the internal capital adequacy assessment process component of Pillar 2. Second, seasoning is a major issue only where a banking organization has a concentration of unseasoned loans. The capital treatment of loan concentrations of all kinds is omitted from Pillar 1; however, it is dealt with explicitly in Pillar 2.
Previously under the advanced approaches rule issued in 2007, cash items in the process of collection were not assigned a risk-based capital treatment and, as a result, would have been subject to a 100 percent risk weight. Under the proposed rule, the agencies are revising the advanced approaches rule to risk weight cash items in the process of collection at 20 percent of the carrying value, as the agencies have concluded that this treatment would be more commensurate with the risk of these exposures. A corresponding provision is included in section 32 of the Standardized Approach NPR.
The agencies are proposing to modify the definition of Qualified Revolving Exposure (QRE) such that certain unsecured and unconditionally cancellable exposures where a banking organization consistently imposes in practice an upper exposure limit of $100,000 and requires payment in full every cycle will now qualify as QRE. Under the current definition, only unsecured and unconditionally cancellable revolving exposures with a pre-established maximum exposure amount of $100,000 (such as credit cards) are classified as QRE. Unsecured, unconditionally cancellable exposures that require payment in full and have no communicated maximum exposure amount (often referred to as “charge cards”) are instead classified as “other retail.” For regulatory capital purposes, this classification is material and would generally result in substantially higher minimum required capital to the extent that the exposure's asset value correlation (AVC) will differ if classified as QRE (where it is assigned an AVC of 4 percent) or other retail (where AVC varies inversely with through-the-cycle PD estimated at the segment level and can go as high as almost 16 percent for very low PD segments).
The proposed definition would allow certain charge card products to qualify as QRE. Charge card exposures may be viewed as revolving in that there is an ability to borrow despite a requirement to pay in full. Where a banking organization consistently imposes in practice an upper exposure limit of $100,000 the agencies believe that charge cards are more closely aligned from a risk perspective with credit cards than with any type of “other retail” exposure and are therefore proposing to amend the definition of QRE in order to allow such products to qualify as QRE.
The agencies also have considered the appropriate treatment of hybrid cards. Hybrid cards have characteristics of both charge and credit cards. The agencies are uncertain whether it would be prudent to allow hybrid cards to qualify as QREs at this time. Hybrid cards are a relatively new product, and there is limited information available about them including data on their market and risk characteristics.
In 2011, the BCBS revised the Basel II advanced internal ratings-based approach to remove the one-year maturity floor for trade finance instruments. Consistent with this revision, this proposed rule would specify that an exposure's effective maturity must be no greater than five years and no less than one year, except that an exposure's effective maturity must be no less than one day if the exposure is a trade-related letter of credit, or if the exposure has an original maturity of less than one year and is not part of a banking organization's ongoing financing of the obligor.
A corresponding provision is included in section 33 of the Standardized Approach NPR.
Under the proposed rule, a banking organization is required to provide certain qualitative and quantitative disclosures on a quarterly, or in some cases, annual basis, and these disclosures must be “timely.” In the preamble to the advanced approaches rule issued in 2007, the agencies indicated that quarterly disclosures would be timely if they were provided within 45 days after calendar quarter-end. The preamble did not specify
The agencies understand that the deadline for certain SEC financial reports is more than 45 calendar days after calendar quarter-end. Therefore, the agencies are proposing to clarify in this NPR that, where a banking organization's fiscal year-end coincides with the end of a calendar quarter, the requirement for timely disclosure would be no later than the applicable reporting deadlines for regulatory reports (for example, FR Y–9C) and financial reports (for example, SEC Forms 10–Q and 10–K). When these deadlines differ, banking organizations would adhere to the later deadline. In cases where a banking organization's fiscal year-end does not coincide with the end of a calendar quarter, the agencies would consider those disclosures that are made within 45 days as timely.
In view of the significant contribution of securitization exposures to the financial crisis, the agencies believe that enhanced disclosure requirements are appropriate. Consistent with the disclosures introduced by the 2009 Enhancements, the agencies are proposing to amend the qualitative section for Table 11.8 disclosures (Securitization) to include the following:
The nature of the risks inherent in a banking organization's securitized assets,
A description of the policies that monitor changes in the credit and market risk of a banking organization's securitization exposures,
A description of a banking organization's policy regarding the use of credit risk mitigation for securitization exposures,
A list of the special purpose entities a banking organization uses to securitize exposures and the affiliated entities that a bank manages or advises and that invest in securitization exposures or the referenced SPEs, and
A summary of the banking organization's accounting policies for securitization activities.
To the extent possible, the agencies are proposing the disclosure requirements included in the 2009 Enhancements. However, due to the prohibition on the use of credit ratings in the risk-based capital rules required by the Dodd-Frank Act, the proposed tables do not include those disclosure requirements related to the use of ratings.
Section 71 of the current advanced approaches rule requires banking organizations to include in their public disclosures a discussion of “important policies covering the valuation of and accounting for equity holdings in the banking book.” Since “banking book” is not a defined term under the advanced approaches rule, the agencies propose to refer to such exposures as equity holdings that are not covered positions.
In today's
As a general matter, a banking organization subject to the market risk capital rule will not include assets held for trading purposes when calculating its risk-weighted assets for the purpose of the other risk-based capital rules. Instead, the banking organization must determine an appropriate capital requirement for such assets using the methodologies set forth in the final market risk capital rule. The banking organization then must multiply its market risk capital requirement by 12.5 to determine a risk-weighted asset amount for its market risk exposures and then add that amount to its credit risk-weighted assets to arrive at its total risk-weighted asset amount.
As described in the preamble to the market risk capital rule, the agencies revised their respective market risk rules to better capture positions subject to market risk, reduce pro-cyclicality in market risk capital requirements, enhance the rule's sensitivity to risks that were not adequately captured under the prior regulatory measurement methodologies, and increase transparency through enhanced disclosures.
The market risk capital rules is designed to determine capital requirements for trading assets based on general and specific market risk associated with these assets. General market risk is the risk of loss in the market value of positions resulting from broad market movements, such as changes in the general level of interest rates, equity prices, foreign exchange rates, or commodity prices. Specific market risk is the risk of loss from changes in the market value of a position due to factors other than broad market movements, including event risk (changes in market price due to unexpected events specific to a particular obligor or position) and default risk.
The agencies' current market risk capital rules do not apply to savings associations or savings and loan holding companies. The Board has previously expressed its intention to assess the condition, performance, and activities of savings and loan holding companies (SLHCs) on a consolidated risk-based basis in a manner that is consistent with the Board's established approach regarding bank holding company supervision while considering any unique characteristics of SLHCs and the requirements of the Home Owners' Loan Act.
As a general matter, savings associations and savings and loan holding companies do not engage in trading activity to a substantial degree. However, the agencies believe that any savings association or savings and loan holding company whose trading activity grows to the extent that it meets the thresholds should hold capital commensurate with the risk of the trading activity and should have in place the prudential risk management systems and processes required under the market risk capital rule. Therefore, the agencies believe it would be necessary and appropriate to expand the scope of the market risk rule to apply to savings associations and savings and loan holding companies.
Application of the market risk capital rule to all banking organizations with material exposure to market risk would be particularly important because of banking organizations' increased exposure to traded credit products, such as credit default swaps, asset-backed securities and other structured products, as well as other less liquid products. In fact, many of the revisions to the final market risk capital rule were made in response to concerns that arose during the financial crisis when certain trading assets suffered substantial losses, causing banking organizations holding those assets to suffer substantial losses. For example, in addition to a market risk capital requirement to account for general market risk, the revised rules apply more conservative standardized specific risk capital requirements to most securitization positions, implement an additional incremental risk capital requirement for a banking organization that models specific risk for one or more portfolios of debt or, if applicable, equity positions. Additionally, to address concerns about the appropriate treatment of traded positions that have limited price transparency, a banking organization subject to the market risk capital rule must have a well-defined valuation process for all covered positions.
The Regulatory Flexibility Act, 5 U.S.C. 601
The Board is providing an initial regulatory flexibility analysis with respect to this NPR. The OCC and FDIC are certifying that the proposals in this NPR will not have a significant economic impact on a substantial number of small entities.
Under regulations issued by the Small Business Administration,
As discussed previously in the Supplementary Information, the Board is proposing to revise its capital requirements to promote safe and sound banking practices, implement Basel III, and other aspects of the Basel capital framework, and codify its capital requirements.
The proposals also satisfy certain requirements under the Dodd-Frank Act by imposing new or revised minimum capital requirements on certain depository institution holding companies.
The proposed requirements in this NPR generally would not apply to small bank holding companies that are not engaged in significant nonbanking activities, do not conduct significant off-balance sheet activities, and do not have a material amount of debt or equity securities outstanding that are registered with the SEC. These small bank holding companies remain subject to the Board's Small Bank Holding Company Policy Statement (Policy Statement).
The proposals in this NPR would generally not apply to other small banking organizations. Those small banking organizations that would be subject to the proposed modifications to the advanced approaches rules would only be subject to those requirements because they are a subsidiary of a large banking organization that meets the criteria for advanced approaches. The Board expects that all such entities would rely on the systems developed by their parent banking organizations and would have no additional compliance costs. The Board also expects that the parent banking organization would remedy any capital shortfalls at such a subsidiary that would occur due to the proposals in this NPR.
The Board welcomes comment on all aspects of its analysis. A final regulatory flexibility analysis will be conducted after consideration of comments received during the public comment period.
Pursuant to section 605(b) of the Regulatory Flexibility Act, (RFA), 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
As of March 31, 2012, there were approximately 599 small national banks and 284 small federally chartered savings associations. The proposed changes to OCC's minimum risk-based capital requirements included in this NPR would impact only those small national banks and federal savings associations that are subsidiaries of large internationally active banking organizations that use the advanced approaches risk-based capital rules, and those small federal savings associations that meet the threshold criteria for application of the market risk rule. Only six small institutions would be subject to the advanced approaches risk-based capital rules, and no small federal savings associations satisfy the threshold criteria for application of the market risk rule. Therefore, the OCC does not believe that the proposed rule will result in a significant economic impact on a substantial number of small entities.
Pursuant to section 605(b) of the Regulatory Flexibility Act, (RFA), 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
As of March 31, 2012, there were approximately 2,433 small state nonmember banks, 115 small state savings banks, and 45 small state savings associations (collectively, small banks and savings associations). The proposed changes to FDIC's minimum risk-based capital requirements included in this NPR would impact only those small banks and savings associations that are subsidiaries of large, internationally-active banking organizations that use the advanced approaches risk-based capital rules, and those small state savings associations that meet the threshold criteria for application of the market risk rule. There are no small banks and savings associations subject to the advanced approaches risk-based capital rules, and no small state savings associations satisfy the threshold criteria for application of the market risk rule. Therefore, the FDIC does not believe that the proposed rule will result in a significant economic impact on a substantial number of small entities.
In accordance with the requirements of the Paperwork Reduction Act (PRA) of 1995, 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. The Agencies are requesting comment on a proposed information collection.
The information collection requirements contained Subpart E of this joint notice of proposed rulemaking (NPR) have been submitted by the OCC and FDIC to OMB for review under the PRA, under OMB Control Nos. 1557–0234 and 3064–0153. The information collection requirements contained in Subpart F of this NPR have been submitted by the OCC and FDIC to OMB for review under the PRA. In accordance with the PRA (44 U.S.C. 3506; 5 CFR part 1320, Appendix A.1), the Board has reviewed the NPR under the authority delegated by OMB. The Board's OMB Control Number for the information collection requirements contained Subpart E of this NPR is 7100–0313 and for the information collection requirements contained Subpart F of this NPR is 7100–0314. The requirements in Subpart E are found in proposed sections __.121, __.122, __.123, __.124, __.132, __.141, __.142, __.152, __.173. The requirements in Subpart F are found in proposed sections __.203, __.204, __.205, __.206, __.207, __.208, __.209, __.210, and __.212.
The Agencies have published two other NPRs in this issue of the
Comments are invited on:
(a) Whether the collection of information is necessary for the proper performance of the Agencies' functions, including whether the information has practical utility;
(b) The accuracy of the estimates of the burden of the information collection, including the validity of the methodology and assumptions used;
(c) Ways to enhance the quality, utility, and clarity of the information to be collected;
(d) Ways to minimize the burden of the information collection on respondents, including through the use of automated collection techniques or other forms of information technology; and
(e) Estimates of capital or start up costs and costs of operation, maintenance, and purchase of services to provide information.
All comments will become a matter of public record.
Comments should be addressed to:
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All public comments are available from the Board's Web site at
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The PRA burden associated with reporting, recordkeeping, and disclosure requirements of Subpart E that are found in proposed sections __.121, __.122, __.123, __.124, __.132(b)(2)(iii), __.132(b)(3), __.132 (d)(1), __.132(d)(1)(iii), __.141(b)(3), __.142(h)(2), __.152(c)(2), __.173 (tables: 11.1, 11.2, 11.3, 11.6, 11.7, 11.8, 11.10, and 11.11) are currently accounted for under the Agencies' existing information collections (ICs).
The PRA burden associated with recordkeeping and disclosure requirements found in proposed sections __.132(b)(2)(iii)(A), __.132(d)(2)(iv), __.132(d)(3)(vi), __.132(d)(3)(viii), __.132(d)(3)(ix), __.132(d)(3)(x), __.132(d)(3)(xi), __.141(c)(2)(i), __.141(c)(2)(ii), __.173 (tables: 11.4, 11.5, 11.9, and 11.12) would revise the Agencies' existing ICs and are described below.
Under proposed section __.132(b)(2)(iii)(A), counterparty credit risk of repo-style transactions, eligible margin loans, and OTC derivative contracts, Own internal estimates for haircuts. With the prior written approval of the [AGENCY], a [BANK] may calculate haircuts (Hs and Hfx) using its own internal estimates of the volatilities of market prices and foreign exchange rates. To receive [AGENCY] approval to use its own internal estimates, a [BANK] must satisfy the minimum quantitative standards outlined in this section. The agencies estimate that respondents would take on average 80 hours (two business weeks) to reprogram and update systems with the requirements outlined in this section. In addition, the agencies estimate that, on a continuing basis, respondents would take on average 16 hours annually to maintain their internal systems.
Under proposed section __.132(d)(2)(iv), counterparty credit risk of repo-style transactions, eligible margin loans, and OTC derivative contracts, Risk-weighted assets using IMM—Under the IMM, a [BANK] uses an internal model to estimate the expected exposure (EE) for a netting set and then calculates EAD based on that EE. A [BANK] must calculate two EEs and two EADs (one stressed and one unstressed) for each netting as outlined
Under proposed section __.132(d)(3)(vi), counterparty credit risk of repo-style transactions, eligible margin loans, and OTC derivative contracts. To obtain [AGENCY] approval to calculate the distributions of exposures upon which the EAD calculation is based, the [BANK] must demonstrate to the satisfaction of the [AGENCY] that it has been using for at least one year an internal model that broadly meets the minimum standards, with which the [BANK] must maintain compliance. The [BANK] must have procedures to identify, monitor, and control wrong-way risk throughout the life of an exposure. The procedures must include stress testing and scenario analysis. The agencies estimate that respondents would take on average 80 hours (two business weeks) to implement a model with the requirements outlined in this section.
Under proposed section __.132(d)(3)(viii), counterparty credit risk of repo-style transactions, eligible margin loans, and OTC derivative contracts. When estimating model parameters based on a stress period, the [BANK] must use at least three years of historical data that include a period of stress to the credit default spreads of the [BANK]'s counterparties. The [BANK] must review the data set and update the data as necessary, particularly for any material changes in its counterparties. The [BANK] must demonstrate at least quarterly that the stress period coincides with increased CDS or other credit spreads of the [BANK]'s counterparties. The [BANK] must have procedures to evaluate the effectiveness of its stress calibration that include a process for using benchmark portfolios that are vulnerable to the same risk factors as the [BANK]'s portfolio. The [AGENCY] may require the [BANK] to modify its stress calibration to better reflect actual historic losses of the portfolio. The agencies estimate that respondents would take on average 80 hours (two business weeks) to implement procedures with the requirements outlined in this section.
Under proposed section __.132(d)(3)(ix), counterparty credit risk of repo-style transactions, eligible margin loans, and OTC derivative contracts. A [BANK] must subject its internal model to an initial validation and annual model review process. The model review should consider whether the inputs and risk factors, as well as the model outputs, are appropriate. As part of the model review process, the [BANK] must have a backtesting program for its model that includes a process by which unacceptable model performance will be determined and remedied. The agencies estimate that respondents would take on average 40 hours (one business week) to implement a model with the requirements outlined in this section. In addition, the agencies estimate that, on a continuing basis, respondents would take on average 40 hours annually to maintain their internal model.
Under proposed section __.132(d)(3)(x), counterparty credit risk of repo-style transactions, eligible margin loans, and OTC derivative contracts. A [BANK] must have policies for the measurement, management and control of collateral and margin amounts. The agencies estimate that respondents would take on average 20 hours to implement policies with the requirements outlined in this section.
Under proposed section __.132(d)(3)(xi), counterparty credit risk of repo-style transactions, eligible margin loans, and OTC derivative contracts. A [BANK] must have a comprehensive stress testing program that captures all credit exposures to counterparties, and incorporates stress testing of principal market risk factors and creditworthiness of counterparties. The agencies estimate that respondents would take on average 40 hours (one business week) to implement a program with the requirements outlined in this section. In addition, the agencies estimate that, on a continuing basis, respondents would take on average 40 hours annually to maintain their program.
Under proposed sections __.141(c)(2)(i) and (ii), operational criteria for recognizing the transfer of risk. A [BANK] must demonstrate its comprehensive understanding of a securitization exposure under section 141(c)(1), for each securitization exposure by conducting an analysis of the risk characteristics of a securitization exposure prior to acquiring the exposure and document such analysis within three business days after acquiring the exposure. On an on-going basis (no less frequently than quarterly), evaluate, review, and update as appropriate the analysis required under this section for each securitization exposure. The agencies estimate that respondents would take on average 40 hours (one business week) to implement a program with the requirements outlined in this section. The agencies estimate that, on a continuing basis, respondents would take on average 10 hours quarterly to evaluate, review, and update the program requirements.
Under proposed section __.173, disclosures by banks that are advanced approaches banks that have successfully completed parallel run. A [BANK] that is an advanced approaches bank must make the disclosures described in Tables 11.1 through 11.12. The [BANK] must make these disclosures publicly available for each of the last three years (that is, twelve quarters) or such shorter period beginning on the effective date of this subpart E.
Under proposed table 11.4—Capital Conservation and Countercyclical Buffers. The [BANK] must comply with the qualitative and quantitative public disclosures outlined in this table. The agencies estimate that respondents would take on average 80 hours (two business weeks) to comply with the disclosure requirements outlined in this table. The agencies estimate that, on a continuing basis, respondents would take on average 40 hours annually comply with the disclosure requirements outlined in this table.
Under proposed table 11.5—Credit Risk: General Disclosures. The [BANK] must comply with the qualitative and quantitative public disclosures outlined in this table. The agencies estimate that respondents would take on average 80 hours (two business weeks) to comply with the disclosure requirements outlined in this table. The agencies estimate that, on a continuing basis, respondents would take on average 40 hours annually to comply with the disclosure requirements outlined in this table.
Under proposed table 11.9—Securitization. The [BANK] must comply with the qualitative and quantitative public disclosures outlined in this table. The agencies estimate that respondents would take on average 60 hours to comply with the disclosure requirements outlined in this table. The agencies estimate that, on a continuing basis, respondents would take on average 30 hours annually comply with the disclosure requirements outlined in this table.
Under proposed Table 11.12—Interest Rate Risk for Non-trading Activities. The [BANK] must comply with the qualitative and quantitative public disclosures outlined in this table. The agencies estimate that respondents would take on average 60 hours to comply with the disclosure
The PRA burden associated with reporting, recordkeeping, and disclosure requirements of Subpart F that are found in proposed sections __.203, __.204, __.205, __.206, __.207, __.208, __.209, __.210, and __.212. They would enhance risk sensitivity and introduce requirements for public disclosure of certain qualitative and quantitative information about a savings association's or a savings and loan holding company's market risk. The collection of information is necessary to ensure capital adequacy according to the level of market risk.
Section __lowbarm;__lowbarm;.203 sets forth the requirements for applying the market risk framework. Section __.203(a)(1) requires clearly defined policies and procedures for determining which trading assets and trading liabilities are trading positions, which of its trading positions are correlation trading positions, and specifies what must be taken into account. Section __.203(a)(2) requires a clearly defined trading and hedging strategy for trading positions approved by senior management and specifies what each strategy must articulate. Section __.203(b)(1) requires clearly defined policies and procedures for actively managing all covered positions and specifies the minimum that they must require. Sections __.203(c)(4) through __.203(c)(10) require the annual review of internal models and include certain requirements that the models must meet. Section __.203(d)(4) requires an annual report to the board of directors on the effectiveness of controls supporting market risk measurement systems.
Section __.204(b) requires quarterly backtesting. Section __.205(a)(5) requires institutions to demonstrate to the agencies the appropriateness of proxies used to capture risks within value-at- risk models. Section __.205(c) requires institutions to retain value-at-risk and profit and loss information on sub-portfolios for two years. Section __.206(b)(3) requires policies and procedures for stressed value-at-risk models and prior approvals on determining periods of significant financial stress.
Section __.207(b)(1) specifies what internal models for specific risk must include and address. Section 208(a) requires prior written approval for incremental risk. Section __.209(a) requires prior approval for comprehensive risk models. Section __.209(c)(2) requires retaining and making available the results of supervisory stress testing on a quarterly basis. Section __.210(f) requires documentation quarterly for analysis of risk characteristics of each securitization position it holds. Section __.212 requires quarterly quantitative disclosures, annual qualitative disclosures, and a formal disclosure policy approved by the board of directors that addresses the bank's approach for determining the market risk disclosures it makes.
Section 722 of the Gramm-Leach-Bliley Act requires the Federal banking agencies to use plain language in all proposed and final rules published after January 1, 2000. The agencies have sought to present the proposed rule in a simple and straightforward manner, and invite comment on the use of plain language.
Section 202 of the Unfunded Mandates Reform Act of 1995 (UMRA) (2 U.S.C. 1532
This NPR would incorporate revisions to the Basel Committee's capital framework into the banking agencies' advanced approaches risk-based capital rules and remove references to credit ratings consistent with section 939A of the Dodd-Frank Act. This NPR would modify various elements of the advanced approached risk-based capital rules regarding the determination of risk-weighted assets. These changes would (1) Modify treatment of counterparty credit risk, (2) remove references to credit ratings, (3) modify the treatment of securitization exposures, and (4) modify the treatment of exposures subject to deduction from capital. The NPR also would enhance disclosure requirements, especially with regard to securitizations, and would amend the advanced approaches so that capital requirements using the internal models methodology take into consideration stress in calibration data, stress testing, initial validation, collateral management, and annual model review. The NPR rule also would require national banks and federal savings associations subject to the advanced approaches risk-based capital rules to identify, monitor, and control wrong-way risk.
Finally, the NPR would expand the scope of the agencies' market risk capital rule to savings associations that meet certain thresholds.
To estimate the impact of this NPR on national banks and federal savings associations, the OCC estimated the amount of capital banks will need to raise to meet the new requirements relative to the amount of capital they
(a)
(1) Minimum qualifying criteria for [BANK]s using [BANK]-specific internal risk measurement and management processes for calculating risk-based capital requirements; and
(2) Methodologies for such [BANK]s to calculate their total risk-weighted assets.
(b)
(i) Has consolidated total assets, as reported on the most recent year-end [Regulatory Reports] equal to $250 billion or more;
(ii) Has consolidated total on-balance sheet foreign exposure at the most recent year-end equal to $10 billion or more (where total on-balance sheet foreign exposure equals total cross-border claims less claims with a head office or guarantor located in another country plus redistributed guaranteed amounts to the country of head office or guarantor plus local country claims on local residents plus revaluation gains on foreign exchange and derivative products, calculated in accordance with the Federal Financial Institutions Examination Council (FFIEC) 009 Country Exposure Report);
(iii) Is a subsidiary of a depository institution that uses the advanced approaches pursuant to subpart E of 12 CFR part 3 (OCC), 12 CFR part 217 (Board), or 12 CFR part 325 (FDIC) to calculate its total risk-weighted assets;
(iv) Is a subsidiary of a bank holding company or savings and loan holding company that uses the advanced approaches pursuant to 12 CFR part 217 to calculate its total risk-weighted assets; or
(v) Elects to use this subpart to calculate its total risk-weighted assets.
(2) A bank that is subject to this subpart shall remain subject to this subpart unless the [AGENCY] determines in writing that application of this subpart is not appropriate in light of the [BANK]'s asset size, level of complexity, risk profile, or scope of operations. In making a determination under this paragraph, the [AGENCY] will apply notice and response procedures in the same manner and to the same extent as the notice and response procedures in 12 CFR 3.12 (OCC), 12 CFR 263.202 (Board), and 12 CFR 325.6(c) (FDIC).
(3) A market risk [BANK] must exclude from its calculation of risk-weighted assets under this subpart the risk-weighted asset amounts of all covered positions, as defined in subpart F of this part (except foreign exchange positions that are not trading positions, over-the-counter derivative positions, cleared transactions, and unsettled transactions).
(c)
(1) The [BANK] can demonstrate on an ongoing basis to the satisfaction of the [AGENCY] that not applying the provision would, in all circumstances, unambiguously generate a risk-based capital requirement for each such exposure greater than that which would otherwise be required under this subpart;
(2) The [BANK] appropriately manages the risk of each such exposure;
(3) The [BANK] notifies the [AGENCY] in writing prior to applying this principle to each such exposure; and
(4) The exposures to which the [BANK] applies this principle are not, in the aggregate, material to the [BANK].
(a) Terms set forth in § __.2 and used in this subpart have the definitions assigned thereto in § __.2.
(b) For the purposes of this subpart, the following terms are defined as follows:
(1)
(A) The exposure is 180 days past due, in the case of a residential mortgage exposure or revolving exposure;
(B) The exposure is 120 days past due, in the case of retail exposures that are not residential mortgage exposures or revolving exposures; or
(C) The [BANK] has taken a full or partial charge-off, write-down of principal, or material negative fair value adjustment of principal on the exposure for credit-related reasons.
(ii) Notwithstanding paragraph (1)(i) of this definition, for a retail exposure held by a non-U.S. subsidiary of the [BANK] that is subject to an internal ratings-based approach to capital adequacy consistent with the Basel Committee on Banking Supervision's “International Convergence of Capital Measurement and Capital Standards: A Revised Framework” in a non-U.S. jurisdiction, the [BANK] may elect to use the definition of default that is used in that jurisdiction, provided that the [BANK] has obtained prior approval from the [AGENCY] to use the definition of default in that jurisdiction.
(iii) A retail exposure in default remains in default until the [BANK] has reasonable assurance of repayment and performance for all contractual principal and interest payments on the exposure.
(2)
(A) The [BANK] determines that the obligor is unlikely to pay its credit obligations to the [BANK] in full, without recourse by the [BANK] to actions such as realizing collateral (if held); or
(B) The obligor is past due more than 90 days on any material credit obligation(s) to the [BANK].
(ii) An obligor in default remains in default until the [BANK] has reasonable assurance of repayment and performance for all contractual principal and interest payments on all exposures of the [BANK] to the obligor (other than exposures that have been fully written-down or charged-off).
(1) For wholesale exposures other than repo-style transactions, eligible margin loans, and OTC derivative contracts described in paragraph (2) or (3) of this definition:
(i) The weighted-average remaining maturity (measured in years, whole or fractional) of the expected contractual cash flows from the exposure, using the undiscounted amounts of the cash flows as weights; or
(ii) The nominal remaining maturity (measured in years, whole or fractional) of the exposure.
(2) For repo-style transactions, eligible margin loans, and OTC derivative contracts subject to a qualifying master netting agreement for which the [BANK] does not apply the internal models approach in section 132(d), the weighted-average remaining maturity (measured in years, whole or fractional) of the individual transactions subject to the qualifying master netting agreement, with the weight of each individual transaction set equal to the notional amount of the transaction.
(3) For repo-style transactions, eligible margin loans, and OTC derivative contracts for which the [BANK] applies the internal models approach in § __.132(d), the value determined in § __.132(d)(4).
(1)
(2)
(1) Are generated by internal business practices to absorb highly predictable and reasonably stable operational losses, including reserves calculated consistent with GAAP; and
(2) Are available to cover expected operational losses with a high degree of certainty over a one-year horizon.
(1) The [BANK] or securitization SPE purchased from an unaffiliated seller and did not directly or indirectly originate;
(2) Was generated on an arm's-length basis between the seller and the obligor (intercompany accounts receivable and receivables subject to contra-accounts between firms that buy and sell to each other do not satisfy this criterion);
(3) Provides the [BANK] or securitization SPE with a claim on all proceeds from the exposure or a pro rata interest in the proceeds from the exposure;
(4) Has an M of less than one year; and
(5) When consolidated by obligor, does not represent a concentrated exposure relative to the portfolio of purchased wholesale exposures.
(1) For the on-balance sheet component of a wholesale exposure or segment of retail exposures (other than an OTC derivative contract, a repo-style transaction or eligible margin loan for which the [BANK] determines EAD under § __.132, a cleared transaction, or default fund contribution), EAD means the [BANK]'s carrying value (including net accrued but unpaid interest and fees) for the exposure or segment less any allocated transfer risk reserve for the exposure or segment.
(2) For the off-balance sheet component of a wholesale exposure or segment of retail exposures (other than an OTC derivative contract, a repo-style transaction or eligible margin loan for which the [BANK] determines EAD under § __.132, cleared transaction, or default fund contribution) in the form of a loan commitment, line of credit, trade-related letter of credit, or transaction-related contingency, EAD means the [BANK]'s best estimate of net additions to the outstanding amount owed the [BANK], including estimated future additional draws of principal and accrued but unpaid interest and fees, that are likely to occur over a one-year horizon assuming the wholesale exposure or the retail exposures in the segment were to go into default. This estimate of net additions must reflect what would be expected during economic downturn conditions. For the purposes of this definition:
(i) Trade-related letters of credit are short-term, self-liquidating instruments that are used to finance the movement of goods and are collateralized by the underlying goods.
(ii) Transaction-related contingencies relate to a particular transaction and include, among other things, performance bonds and performance-based letters of credit.
(3) For the off-balance sheet component of a wholesale exposure or segment of retail exposures (other than an OTC derivative contract, a repo-style transaction, or eligible margin loan for which the [BANK] determines EAD under § __.132, cleared transaction, or default fund contribution) in the form of anything other than a loan commitment, line of credit, trade-related letter of credit, or transaction-related contingency, EAD means the notional amount of the exposure or segment.
(4) EAD for OTC derivative contracts is calculated as described in § __.132. A [BANK] also may determine EAD for repo-style transactions and eligible margin loans as described in § __.132.
(1) For a wholesale exposure, the greatest of:
(i) Zero;
(ii) The [BANK]'s empirically based best estimate of the long-run default-weighted average economic loss, per dollar of EAD, the [BANK] would expect to incur if the obligor (or a typical obligor in the loss severity grade assigned by the [BANK] to the exposure) were to default within a one-year horizon over a mix of economic conditions, including economic downturn conditions; or
(iii) The [BANK]'s empirically based best estimate of the economic loss, per dollar of EAD, the [BANK] would expect to incur if the obligor (or a typical obligor in the loss severity grade assigned by the [BANK] to the exposure) were to default within a one-year horizon during economic downturn conditions.
(2) For a segment of retail exposures, the greatest of:
(i) Zero;
(ii) The [BANK]'s empirically based best estimate of the long-run default-weighted average economic loss, per dollar of EAD, the [BANK] would expect to incur if the exposures in the segment were to default within a one-year horizon over a mix of economic conditions, including economic downturn conditions; or
(iii) The [BANK]'s empirically based best estimate of the economic loss, per dollar of EAD, the [BANK] would expect to incur if the exposures in the segment were to default within a one-year horizon during economic downturn conditions.
(3) The economic loss on an exposure in the event of default is all material credit-related losses on the exposure (including accrued but unpaid interest or fees, losses on the sale of collateral, direct workout costs, and an appropriate allocation of indirect workout costs). Where positive or negative cash flows on a wholesale exposure to a defaulted obligor or a defaulted retail exposure (including proceeds from the sale of collateral, workout costs, additional extensions of credit to facilitate
(1) Exposures to the same legal entity or natural person denominated in different currencies;
(2)(i) An income-producing real estate exposure for which all or substantially all of the repayment of the exposure is reliant on the cash flows of the real estate serving as collateral for the exposure; the [BANK], in economic substance, does not have recourse to the borrower beyond the real estate collateral; and no cross-default or cross-acceleration clauses are in place other than clauses obtained solely out of an abundance of caution; and
(ii) Other credit exposures to the same legal entity or natural person; and
(3)(i) A wholesale exposure authorized under section 364 of the U.S. Bankruptcy Code (11 U.S.C. 364) to a legal entity or natural person who is a debtor-in-possession for purposes of Chapter 11 of the Bankruptcy Code; and
(ii) Other credit exposures to the same legal entity or natural person.
(1) Internal fraud, which means the operational loss event type category that comprises operational losses resulting from an act involving at least one internal party of a type intended to defraud, misappropriate property, or circumvent regulations, the law, or company policy excluding diversity- and discrimination-type events.
(2) External fraud, which means the operational loss event type category that comprises operational losses resulting from an act by a third party of a type intended to defraud, misappropriate property, or circumvent the law. Retail credit card losses arising from non-contractual, third-party-initiated fraud (for example, identity theft) are external fraud operational losses. All other third-party-initiated credit losses are to be treated as credit risk losses.
(3) Employment practices and workplace safety, which means the operational loss event type category that comprises operational losses resulting from an act inconsistent with employment, health, or safety laws or agreements, payment of personal injury claims, or payment arising from diversity- and discrimination-type events.
(4) Clients, products, and business practices, which means the operational loss event type category that comprises operational losses resulting from the nature or design of a product or from an unintentional or negligent failure to meet a professional obligation to specific clients (including fiduciary and suitability requirements).
(5) Damage to physical assets, which means the operational loss event type category that comprises operational losses resulting from the loss of or damage to physical assets from natural disaster or other events.
(6) Business disruption and system failures, which means the operational loss event type category that comprises operational losses resulting from disruption of business or system failures.
(7) Execution, delivery, and process management, which means the operational loss event type category that comprises operational losses resulting from failed transaction processing or process management or losses arising from relations with trade counterparties and vendors.
(1) An exposure to an individual for non-business purposes; or
(2) An exposure to an individual or company for business purposes if the [BANK]'s consolidated business credit exposure to the individual or company is $1 million or less.
(1) For a wholesale exposure to a non-defaulted obligor, the [BANK]'s empirically based best estimate of the long-run average one-year default rate for the rating grade assigned by the [BANK] to the obligor, capturing the average default experience for obligors in the rating grade over a mix of economic conditions (including economic downturn conditions) sufficient to provide a reasonable estimate of the average one-year default rate over the economic cycle for the rating grade.
(2) For a segment of non-defaulted retail exposures, the [BANK]'s empirically based best estimate of the long-run average one-year default rate for the exposures in the segment, capturing the average default experience for exposures in the segment over a mix of economic conditions (including economic downturn conditions) sufficient to provide a reasonable estimate of the average one-year default rate over the economic cycle for the segment.
(3) For a wholesale exposure to a defaulted obligor or segment of defaulted retail exposures, 100 percent.
(1) The underlying financial transactions are OTC derivative contracts, eligible margin loans, or repo-style transactions; and
(2) The [BANK] obtains a written legal opinion verifying the validity and enforceability of the agreement under applicable law of the relevant jurisdictions if the counterparty fails to perform upon an event of default, including upon receivership, insolvency, liquidation, or similar proceeding.
(1) Is revolving (that is, the amount outstanding fluctuates, determined largely by the borrower's decision to
(2) Is unsecured and unconditionally cancelable by the [BANK] to the fullest extent permitted by Federal law; and
(3) Has a maximum contractual exposure amount (drawn plus undrawn) of up to $100,000, or the [BANK] consistently imposes in practice an upper limit of $100,000.
(1) The sum of:
(i) Risk-weighted assets for wholesale exposures that are not IMM exposures, cleared transactions, or default fund contributions to non-defaulted obligors and segments of non-defaulted retail exposures;
(ii) Risk-weighted assets for wholesale exposures to defaulted obligors and segments of defaulted retail exposures;
(iii) Risk-weighted assets for assets not defined by an exposure category;
(iv) Risk-weighted assets for non-material portfolios of exposures;
(v) Risk-weighted assets for IMM exposures (as determined in § __.132(d));
(vi) Risk-weighted assets for cleared transactions and risk-weighted assets for default fund contributions (as determined in § __.133); and
(vii) Risk-weighted assets for unsettled transactions (as determined in § __.136); minus
(2) Any amounts deducted from capital pursuant to § __.22.
(a)
(2) A [BANK] that elects to be subject to this appendix under § __.100(b)(1)(v) must adopt a written implementation plan.
(b)
(i) Comprehensively address the qualification requirements in § __.122 for the [BANK] and each consolidated subsidiary (U.S. and foreign-based) of the [BANK] with respect to all portfolios and exposures of the [BANK] and each of its consolidated subsidiaries;
(ii) Justify and support any proposed temporary or permanent exclusion of business lines, portfolios, or exposures from the application of the advanced approaches in this subpart (which business lines, portfolios, and exposures must be, in the aggregate, immaterial to the [BANK]);
(iii) Include the [BANK]'s self-assessment of:
(A) The [BANK]'s current status in meeting the qualification requirements in § __.122; and
(B) The consistency of the [BANK]'s current practices with the [AGENCY]'s supervisory guidance on the qualification requirements;
(iv) Based on the [BANK]'s self-assessment, identify and describe the areas in which the [BANK] proposes to undertake additional work to comply with the qualification requirements in § __.122 or to improve the consistency of the [BANK]'s current practices with the [AGENCY]'s supervisory guidance on the qualification requirements (gap analysis);
(v) Describe what specific actions the [BANK] will take to address the areas identified in the gap analysis required by paragraph (b)(1)(iv) of this section;
(vi) Identify objective, measurable milestones, including delivery dates and a date when the [BANK]'s implementation of the methodologies described in this subpart will be fully operational;
(vii) Describe resources that have been budgeted and are available to implement the plan; and
(viii) Receive approval of the [BANK]'s board of directors.
(2) The [BANK] must submit the implementation plan, together with a copy of the minutes of the board of directors' approval, to the [AGENCY] at least 60 days before the [BANK] proposes to begin its parallel run, unless the [AGENCY] waives prior notice.
(c)
(d)
(1) The [BANK] fully complies with all the qualification requirements in § __.122;
(2) The [BANK] has conducted a satisfactory parallel run under paragraph (c) of this section; and
(3) The [BANK] has an adequate process to ensure ongoing compliance with the qualification requirements in § __.122.
(a)
(2) The systems and processes used by a [BANK] for risk-based capital purposes under this subpart must be consistent with the [BANK]'s internal risk management processes and management information reporting systems.
(3) Each [BANK] must have an appropriate infrastructure with risk measurement and management processes that meet the qualification requirements of this section and are appropriate given the [BANK]'s size and level of complexity. Regardless of whether the systems and models that generate the risk parameters necessary for calculating a [BANK]'s risk-based capital requirements are located at any affiliate of the [BANK], the [BANK] itself must ensure that the risk parameters and reference data used to determine its risk-based capital requirements are representative of its own credit risk and operational risk exposures.
(b)
(2) For wholesale exposures:
(i) A [BANK] must have an internal risk rating system that accurately and reliably assigns each obligor to a single rating grade (reflecting the obligor's likelihood of default). A [BANK] may elect, however, not to assign to a rating grade an obligor to whom the [BANK] extends credit based solely on the financial strength of a guarantor, provided that all of the [BANK]'s exposures to the obligor are fully covered by eligible guarantees, the [BANK] applies the PD substitution approach in § __.134(c)(1) to all exposures to that obligor, and the [BANK] immediately assigns the obligor to a rating grade if a guarantee can no longer be recognized under this subpart. The [BANK]'s wholesale obligor rating system must have at least seven discrete rating grades for non-defaulted obligors and at least one rating grade for defaulted obligors.
(ii) Unless the [BANK] has chosen to directly assign LGD estimates to each wholesale exposure, the [BANK] must have an internal risk rating system that accurately and reliably assigns each wholesale exposure to a loss severity rating grade (reflecting the [BANK]'s estimate of the LGD of the exposure). A [BANK] employing loss severity rating grades must have a sufficiently granular loss severity grading system to avoid grouping together exposures with widely ranging LGDs.
(3) For retail exposures, a [BANK] must have an internal system that groups retail exposures into the appropriate retail exposure subcategory, groups the retail exposures in each retail exposure subcategory into separate segments with homogeneous risk characteristics, and assigns accurate and reliable PD and LGD estimates for each segment on a consistent basis. The [BANK]'s system must identify and group in separate segments by subcategories exposures identified in § __.131(c)(2)(ii) and (iii).
(4) The [BANK]'s internal risk rating policy for wholesale exposures must describe the [BANK]'s rating philosophy (that is, must describe how wholesale obligor rating assignments are affected by the [BANK]'s choice of the range of economic, business, and industry conditions that are considered in the obligor rating process).
(5) The [BANK]'s internal risk rating system for wholesale exposures must provide for the review and update (as appropriate) of each obligor rating and (if applicable) each loss severity rating whenever the [BANK] receives new material information, but no less frequently than annually. The [BANK]'s retail exposure segmentation system must provide for the review and update (as appropriate) of assignments of retail exposures to segments whenever the [BANK] receives new material information, but generally no less frequently than quarterly.
(c)
(2) Data used to estimate the risk parameters must be relevant to the [BANK]'s actual wholesale and retail exposures, and of sufficient quality to support the determination of risk-based capital requirements for the exposures.
(3) The [BANK]'s risk parameter quantification process must produce appropriately conservative risk parameter estimates where the [BANK] has limited relevant data, and any adjustments that are part of the quantification process must not result in a pattern of bias toward lower risk parameter estimates.
(4) The [BANK]'s risk parameter estimation process should not rely on the possibility of U.S. government financial assistance, except for the financial assistance that the U.S. government has a legally binding commitment to provide.
(5) Where the [BANK]'s quantifications of LGD directly or indirectly incorporate estimates of the effectiveness of its credit risk management practices in reducing its exposure to troubled obligors prior to default, the [BANK] must support such estimates with empirical analysis showing that the estimates are consistent with its historical experience in dealing with such exposures during economic downturn conditions.
(6) PD estimates for wholesale obligors and retail segments must be based on at least five years of default data. LGD estimates for wholesale exposures must be based on at least seven years of loss severity data, and LGD estimates for retail segments must be based on at least five years of loss severity data. EAD estimates for wholesale exposures must be based on at least seven years of exposure amount data, and EAD estimates for retail segments must be based on at least five years of exposure amount data.
(7) Default, loss severity, and exposure amount data must include periods of economic downturn conditions, or the [BANK] must adjust its estimates of risk parameters to compensate for the lack of data from periods of economic downturn conditions.
(8) The [BANK]'s PD, LGD, and EAD estimates must be based on the definition of default in § __.101.
(9) The [BANK] must review and update (as appropriate) its risk parameters and its risk parameter quantification process at least annually.
(10) The [BANK] must, at least annually, conduct a comprehensive review and analysis of reference data to determine relevance of reference data to the [BANK]'s exposures, quality of reference data to support PD, LGD, and EAD estimates, and consistency of reference data to the definition of default in § __.101.
(d)
(e)
(f)
(g)
(i) Have an operational risk management function that:
(A) Is independent of business line management; and
(B) Is responsible for designing, implementing, and overseeing the [BANK]'s operational risk data and assessment systems, operational risk quantification systems, and related processes;
(ii) Have and document a process (which must capture business environment and internal control factors affecting the [BANK]'s operational risk profile) to identify, measure, monitor, and control operational risk in [BANK] products, activities, processes, and systems; and
(iii) Report operational risk exposures, operational loss events, and other relevant operational risk information to business unit management, senior management, and the board of directors (or a designated committee of the board).
(2)
(i) Be structured in a manner consistent with the [BANK]'s current business activities, risk profile, technological processes, and risk management processes; and
(ii) Include credible, transparent, systematic, and verifiable processes that incorporate the following elements on an ongoing basis:
(A)
(
(
(
(B)
(C)
(D)
(3)
(A) Must generate estimates of the [BANK]'s operational risk exposure using its operational risk data and assessment systems;
(B) Must employ a unit of measure that is appropriate for the [BANK]'s range of business activities and the variety of operational loss events to which it is exposed, and that does not combine business activities or operational loss events with demonstrably different risk profiles within the same loss distribution;
(C) Must include a credible, transparent, systematic, and verifiable approach for weighting each of the four elements, described in paragraph (g)(2)(ii) of this section, that a [BANK] is required to incorporate into its operational risk data and assessment systems;
(D) May use internal estimates of dependence among operational losses across and within units of measure if the [BANK] can demonstrate to the satisfaction of the [AGENCY] that its process for estimating dependence is sound, robust to a variety of scenarios, and implemented with integrity, and allows for uncertainty surrounding the estimates. If the [BANK] has not made such a demonstration, it must sum operational risk exposure estimates across units of measure to calculate its total operational risk exposure; and
(E) Must be reviewed and updated (as appropriate) whenever the [BANK] becomes aware of information that may have a material effect on the [BANK]'s estimate of operational risk exposure, but the review and update must occur no less frequently than annually.
(ii) With the prior written approval of the [AGENCY], a [BANK] may generate an estimate of its operational risk exposure using an alternative approach to that specified in paragraph (g)(3)(i) of this section. A [BANK] proposing to use such an alternative operational risk quantification system must submit a proposal to the [AGENCY]. In determining whether to approve a [BANK]'s proposal to use an alternative operational risk quantification system, the [AGENCY] will consider the following principles:
(A) Use of the alternative operational risk quantification system will be allowed only on an exception basis, considering the size, complexity, and risk profile of the [BANK];
(B) The [BANK] must demonstrate that its estimate of its operational risk exposure generated under the alternative operational risk quantification system is appropriate and can be supported empirically; and
(C) A [BANK] must not use an allocation of operational risk capital requirements that includes entities other than depository institutions or the benefits of diversification across entities.
(h)
(2) A [BANK] must retain data using an electronic format that allows timely retrieval of data for analysis, validation, reporting, and disclosure purposes.
(3) A [BANK] must retain sufficient data elements related to key risk drivers to permit adequate monitoring, validation, and refinement of its advanced systems.
(i)
(2) The [BANK]'s board of directors (or a designated committee of the board) must at least annually review the
(3) A [BANK] must have an effective system of controls and oversight that:
(i) Ensures ongoing compliance with the qualification requirements in this section;
(ii) Maintains the integrity, reliability, and accuracy of the [BANK]'s advanced systems; and
(iii) Includes adequate governance and project management processes.
(4) The [BANK] must validate, on an ongoing basis, its advanced systems. The [BANK]'s validation process must be independent of the advanced systems' development, implementation, and operation, or the validation process must be subjected to an independent review of its adequacy and effectiveness. Validation must include:
(i) An evaluation of the conceptual soundness of (including developmental evidence supporting) the advanced systems;
(ii) An ongoing monitoring process that includes verification of processes and benchmarking; and
(iii) An outcomes analysis process that includes backtesting.
(5) The [BANK] must have an internal audit function independent of business-line management that at least annually assesses the effectiveness of the controls supporting the [BANK]'s advanced systems and reports its findings to the [BANK]'s board of directors (or a committee thereof).
(6) The [BANK] must periodically stress test its advanced systems. The stress testing must include a consideration of how economic cycles, especially downturns, affect risk-based capital requirements (including migration across rating grades and segments and the credit risk mitigation benefits of double default treatment).
(j)
(a)
(b)
(2) The [BANK] must establish and submit a plan satisfactory to the [AGENCY] to return to compliance with the qualification requirements.
(3) In addition, if the [AGENCY] determines that the [BANK]'s advanced approaches total risk-weighted assets are not commensurate with the [BANK]'s credit, market, operational, or other risks, the [AGENCY] may require such a [BANK] to calculate its advanced approaches total risk-weighted assets with any modifications provided by the [AGENCY].
(a)
(b)
(2) If the acquiring [BANK] is not subject to the advanced approaches in this subpart at the time of acquisition or merger, during the period when subpart D of this part applies to the acquiring [BANK], the ALLL associated with the exposures of the merged or acquired company may not be directly included in tier 2 capital. Rather, any excess eligible credit reserves associated with the merged or acquired company's exposures may be included in the [BANK]'s tier 2 capital up to 0.6 percent of the credit-risk-weighted assets associated with those exposures.
(a)
(1) Phase 1—categorization of exposures;
(2) Phase 2—assignment of wholesale obligors and exposures to rating grades and segmentation of retail exposures;
(3) Phase 3—assignment of risk parameters to wholesale exposures and segments of retail exposures; and
(4) Phase 4—calculation of risk-weighted asset amounts.
(b)
(c)
(i) The [BANK] must assign each obligor of a wholesale exposure to a single obligor rating grade and must assign each wholesale exposure to which it does not directly assign an LGD estimate to a loss severity rating grade.
(ii) The [BANK] must identify which of its wholesale obligors are in default.
(2)
(ii) The [BANK] must identify which of its retail exposures are in default. The [BANK] must segment defaulted retail exposures separately from non-defaulted retail exposures.
(iii) If the [BANK] determines the EAD for eligible margin loans using the approach in § __.132(b), the [BANK] must identify which of its retail exposures are eligible margin loans for which the [BANK] uses this EAD approach and must segment such eligible margin loans separately from other retail exposures.
(3)
(d)
(i) Associate a PD with each wholesale obligor rating grade;
(ii) Associate an LGD with each wholesale loss severity rating grade or assign an LGD to each wholesale exposure;
(iii) Assign an EAD and M to each wholesale exposure; and
(iv) Assign a PD, LGD, and EAD to each segment of retail exposures.
(2)
(3)
(4)
(5)
(ii) A [BANK] may take into account the risk reducing effects of guarantees and credit derivatives in support of retail exposures in a segment when quantifying the PD and LGD of the segment.
(iii) Except as provided in paragraph (d)(6) of this section, a [BANK] may take into account the risk reducing effects of collateral in support of a wholesale exposure when quantifying the LGD of the exposure, and may take into account the risk reducing effects of collateral in support of retail exposures when quantifying the PD and LGD of the segment.
(6)
(7)
(i) Has a legal and practical ability not to renew or roll over the exposure in the event of credit deterioration of the obligor;
(ii) Makes an independent credit decision at the inception of the exposure and at every renewal or roll over; and
(iii) Has no substantial commercial incentive to continue its credit relationship with the obligor in the event of credit deterioration of the obligor.
(8)
(e)
(i) A [BANK] must calculate the dollar risk-based capital requirement for each of its wholesale exposures to a non-defaulted obligor (except for eligible guarantees and eligible credit derivatives that hedge another wholesale exposure, IMM exposures, cleared transactions, default fund contributions, unsettled transactions,
(ii) The sum of all the dollar risk-based capital requirements for each wholesale exposure to a non-defaulted obligor and segment of non-defaulted retail exposures calculated in paragraph (e)(1)(i) of this section and in § __.135(e) equals the total dollar risk-based capital requirement for those exposures and segments.
(iii) The aggregate risk-weighted asset amount for wholesale exposures to non-defaulted obligors and segments of non-defaulted retail exposures equals the total dollar risk-based capital
(2)
(i) The dollar risk-based capital requirement for each wholesale exposure to a defaulted obligor equals 0.08 multiplied by the EAD of the exposure.
(ii) The dollar risk-based capital requirement for a segment of defaulted retail exposures equals 0.08 multiplied by the EAD of the segment.
(iii) The sum of all the dollar risk-based capital requirements for each wholesale exposure to a defaulted obligor calculated in paragraph (e)(2)(i) of this section plus the dollar risk-based capital requirements for each segment of defaulted retail exposures calculated in paragraph (e)(2)(ii) of this section equals the total dollar risk-based capital requirement for those exposures and segments.
(iv) The aggregate risk-weighted asset amount for wholesale exposures to defaulted obligors and segments of defaulted retail exposures equals the total dollar risk-based capital requirement calculated in paragraph (e)(2)(iii) of this section multiplied by 12.5.
(3)
(ii) A [BANK] must assign a risk weighted asset amount equal to 20 percent of the carrying value of cash items in the process of collection.
(iii) The risk-weighted asset amount for the residual value of a retail lease exposure equals such residual value.
(iv) The risk-weighted asset amount for DTAs arising from temporary differences that the [BANK] could realize through net operating loss carrybacks equals the carrying value, netted in accordance with § __.22.
(v) The risk-weighted asset amount for MSAs, DTAs arising from temporary timing differences that the [BANK] could not realize through net operating loss carrybacks, and significant investments in the capital of unconsolidated financial institutions in the form of common stock that are not deducted pursuant to § __.22(a)(7) equals the amount not subject to deduction multiplied by 250 percent.
(vi) The risk-weighted asset amount for any other on-balance-sheet asset that does not meet the definition of a wholesale, retail, securitization, IMM, or equity exposure, cleared transaction, or default fund contribution equals the carrying value of the asset.
(4)
(a)
(i) The collateral haircut approach set forth in paragraph (b)(2) of this section;
(ii) The internal models methodology set forth in paragraph (d) of this section; and
(iii) For single product netting sets of repo-style transactions and eligible margin loans, the simple VaR methodology set forth in paragraph (b)(3) of this section.
(2) A [BANK] may use any combination of the three methodologies for collateral recognition; however, it must use the same methodology for transactions in the same category.
(3) A [BANK] must use the methodology in paragraph (c) of this section, or with prior [AGENCY] approval, the internal model methodology in paragraph (d) of this section, to calculate EAD for an OTC derivative contract or a set of OTC derivative contracts subject to a qualifying master netting agreement. To estimate EAD for qualifying cross-product master netting agreements, a [BANK] may only use the internal models methodology in paragraph (d) of this section.
(4) A [BANK] must also use the methodology in paragraph (e) of this section for calculating the risk-weighted asset amounts for CVA for OTC derivatives.
(b)
(i) The collateral haircut approach described in paragraph (b)(2) of this section;
(ii) For netting sets only, the simple VaR methodology described in paragraph (b)(3) of this section; or
(iii) The internal models methodology described in paragraph (d) of this section.
(2)
(A) ΣE equals the value of the exposure (the sum of the current market values of all instruments, gold, and cash the [BANK] has lent, sold subject to repurchase, or posted as collateral to the counterparty under the transaction (or netting set));
(B) ΣC equals the value of the collateral (the sum of the current market values of all instruments, gold, and cash the [BANK] has borrowed, purchased subject to resale, or taken as collateral from the counterparty under the transaction (or netting set));
(C) E
(D) H
(E) E
(F) H
(ii)
(
(
(
(
(
(iii)
(A) To receive [AGENCY] approval to use its own internal estimates, a [BANK] must satisfy the following minimum quantitative standards:
(
(
(
(
(
(
(
(B) With respect to debt securities that are investment grade, a [BANK] may calculate haircuts for categories of securities. For a category of securities, the [BANK] must calculate the haircut on the basis of internal volatility estimates for securities in that category that are representative of the securities in that category that the [BANK] has lent, sold subject to repurchase, posted as collateral, borrowed, purchased subject to resale, or taken as collateral. In determining relevant categories, the [BANK] must at a minimum take into account:
(
(
(
(
(C) With respect to debt securities that are not investment grade and equity securities, a [BANK] must calculate a separate haircut for each individual security.
(D) Where an exposure or collateral (whether in the form of cash or securities) is denominated in a currency that differs from the settlement currency, the [BANK] must calculate a separate currency mismatch haircut for its net position in each mismatched currency based on estimated volatilities of foreign exchange rates between the mismatched currency and the settlement currency.
(E) A [BANK]'s own estimates of market price and foreign exchange rate volatilities may not take into account the correlations among securities and foreign exchange rates on either the exposure or collateral side of a transaction (or netting set) or the correlations among securities and foreign exchange rates between the exposure and collateral sides of the transaction (or netting set).
(3)
(i) ΣE equals the value of the exposure (the sum of the current market values of all instruments, gold, and cash the [BANK] has lent, sold subject to repurchase, or posted as collateral to the counterparty under the netting set);
(ii) ΣC equals the value of the collateral (the sum of the current market values of all instruments, gold, and cash the [BANK] has borrowed, purchased subject to resale, or taken as collateral from the counterparty under the netting set); and
(iii) PFE (potential future exposure) equals the [BANK]'s empirically based best estimate of the 99th percentile, one-tailed confidence interval for an increase in the value of (ΣE− ΣC) over a five-business-day holding period for repo-style transactions, or over a ten-business-day holding period for eligible margin loans except for netting sets for which paragraph (b)(3)(iv) of this section applies using a minimum one-year historical observation period of price data representing the instruments that the [BANK] has lent, sold subject to repurchase, posted as collateral, borrowed, purchased subject to resale, or taken as collateral. The [BANK] must validate its VaR model by establishing and maintaining a rigorous and regular backtesting regime.
(iv) If the number of trades in a netting set exceeds 5,000 at any time during a quarter, a [BANK] must use a twenty-business-day holding period for the following quarter (except when a [BANK] is calculating EAD for a cleared transaction under § __.133). If a netting set contains one or more trades involving illiquid collateral, a [BANK] must use a twenty-business-day holding period. If over the two previous quarters more than two margin disputes on a netting set have occurred that lasted more than the holding period, then the [BANK] must set its PFE for that netting set equal to an estimate over a holding period that is at least two times the minimum holding period for that netting set.
(c)
(2) A [BANK] must determine the EAD for multiple OTC derivative contracts that are subject to a qualifying master netting agreement using the current exposure methodology in § __.132(c)(6) or using the internal models methodology described in paragraph (d) of this section.
(3)
(i) A [BANK] that purchases a credit derivative that is recognized under § __.134 or § __.135 as a credit risk mitigant for an exposure that is not a covered position under subpart F of this part is not required to calculate a separate counterparty credit risk capital requirement under this section so long as the [BANK] does so consistently for all such credit derivatives and either includes or excludes all such credit derivatives that are subject to a master netting agreement from any measure used to determine counterparty credit risk exposure to all relevant counterparties for risk-based capital purposes.
(ii) A [BANK] that is the protection provider in a credit derivative must treat the credit derivative as a wholesale exposure to the reference obligor and is not required to calculate a counterparty
(4)
(5)
(i)
(ii)
(6)
(i)
(A) The net sum of all positive and negative mark-to-market values of the individual OTC derivative contracts subject to the qualifying master netting agreement; or
(B) Zero.
(ii)
(A) A
(B) NGR = the net to gross ratio (that is, the ratio of the net current credit exposure to the gross current credit exposure). In calculating the NGR, the gross current credit exposure equals the sum of the positive current credit exposures (as determined under paragraph (c)(6)(i) of this section) of all individual derivative contracts subject to the qualifying master netting agreement.
(7)
(d)
(i) The [BANK] effectively integrates the risk mitigating effects of cross-product netting into its risk management and other information technology systems; and
(ii) The [BANK] obtains the prior written approval of the [AGENCY].
(2)
(i) EAD
(ii) EAD
(iii) The [BANK] must use its internal model's probability distribution for changes in the market value of a netting set that are attributable to changes in market variables to determine EE.
(iv) Under the internal models methodology, EAD = Max (0, α × effective EPE − CVA), or, subject to [AGENCY] approval as provided in paragraph (d)(10) of this section, a more conservative measure of EAD.
(A) CVA equals the credit valuation adjustment that the [BANK] has recognized in its balance sheet valuation of any OTC derivative contracts in the netting set. For purposes of this paragraph, CVA does not include any adjustments to common equity tier 1 capital attributable to changes in the fair value of the [BANK]'s liabilities that are due to changes in its own credit risk since the inception of the transaction with the counterparty.
(
(
(C) α = 1.4 except as provided in paragraph (d)(5) of this section, or when the [AGENCY] has determined that the [BANK] must set α higher based on the [BANK]'s specific characteristics of counterparty credit risk or model performance.
(v) A [BANK] may include financial collateral currently posted by the counterparty as collateral (but may not include other forms of collateral) when calculating EE.
(vi) If a [BANK] hedges some or all of the counterparty credit risk associated with a netting set using an eligible credit derivative, the [BANK] may take the reduction in exposure to the counterparty into account when estimating EE. If the [BANK] recognizes this reduction in exposure to the counterparty in its estimate of EE, it must also use its internal model to estimate a separate EAD for the [BANK]'s exposure to the protection provider of the credit derivative.
(3) To obtain [AGENCY] approval to calculate the distributions of exposures upon which the EAD calculation is based, the [BANK] must demonstrate to the satisfaction of the [AGENCY] that it has been using for at least one year an internal model that broadly meets the following minimum standards, with which the [BANK] must maintain compliance:
(i) The model must have the systems capability to estimate the expected exposure to the counterparty on a daily basis (but is not expected to estimate or report expected exposure on a daily basis).
(ii) The model must estimate expected exposure at enough future dates to reflect accurately all the future cash flows of contracts in the netting set.
(iii) The model must account for the possible non-normality of the exposure distribution, where appropriate.
(iv) The [BANK] must measure, monitor, and control current counterparty exposure and the exposure to the counterparty over the whole life of all contracts in the netting set.
(v) The [BANK] must be able to measure and manage current exposures gross and net of collateral held, where appropriate. The [BANK] must estimate expected exposures for OTC derivative contracts both with and without the effect of collateral agreements.
(vi) The [BANK] must have procedures to identify, monitor, and control wrong-way risk throughout the life of an exposure. The procedures must include stress testing and scenario analysis.
(vii) The model must use current market data to compute current exposures. The [BANK] must estimate model parameters using historical data from the most recent three-year period and update the data quarterly or more frequently if market conditions warrant. The [BANK] should consider using model parameters based on forward-looking measures, where appropriate.
(viii) When estimating model parameters based on a stress period, the [BANK] must use at least three years of historical data that include a period of
(ix) A [BANK] must subject its internal model to an initial validation and annual model review process. The model review should consider whether the inputs and risk factors, as well as the model outputs, are appropriate. As part of the model review process, the [BANK] must have a backtesting program for its model that includes a process by which unacceptable model performance will be determined and remedied.
(x) A [BANK] must have policies for the measurement, management and control of collateral and margin amounts.
(xi) A [BANK] must have a comprehensive stress testing program that captures all credit exposures to counterparties, and incorporates stress testing of principal market risk factors and creditworthiness of counterparties.
(4)
(B) df
(C) Δ
(ii) If the remaining maturity of the exposure or the longest-dated contract in the netting set is one year or less, the [BANK] must set M for the exposure or netting set equal to one year, except as provided in section§ __.131(d)(7).
(iii) Alternatively, a [BANK] that uses an internal model to calculate a one-sided credit valuation adjustment may use the effective credit duration estimated by the model as M(EPE) in place of the formula in paragraph (d)(4)(i) of this section.
(5)
(i) With prior written approval from the [AGENCY], a [BANK] may include the effect of a collateral agreement within its internal model used to calculate EAD. The [BANK] may set EAD equal to the expected exposure at the end of the margin period of risk. The margin period of risk means, with respect to a netting set subject to a collateral agreement, the time period from the most recent exchange of collateral with a counterparty until the next required exchange of collateral, plus the period of time required to sell and realize the proceeds of the least liquid collateral that can be delivered under the terms of the collateral agreement and, where applicable, the period of time required to re-hedge the resulting market risk upon the default of the counterparty. The minimum margin period of risk is set according to paragraph (d)(5)(iii) of this section.
(ii) A [BANK] that can model EPE without collateral agreements but cannot achieve the higher level of modeling sophistication to model EPE with collateral agreements can set effective EPE for a collateralized netting set equal to the lesser of:
(A) An add-on that reflects the potential increase in exposure of the netting set over the margin period of risk, plus the larger of:
(
(
(B) Effective EPE without a collateral agreement plus any collateral the [BANK] posts to the counterparty that exceeds the required margin amount.
(iii) The margin period of risk for a netting set subject to a collateral agreement is:
(A) Five business days for repo-style transactions subject to daily remargining and daily marking-to-market, and ten business days for other transactions when liquid financial collateral is posted under a daily margin maintenance requirement, or
(B) Twenty business days if the number of trades in a netting set exceeds 5,000 at any time during the previous quarter or contains one or more trades involving illiquid collateral or any derivative contract that cannot be easily replaced (except if the [BANK] is calculating EAD for a cleared transaction under § __.133). If over the two previous quarters more than two margin disputes on a netting set have occurred that lasted more than the margin period of risk, then the [BANK] must use a margin period of risk for that netting set that is at least two times the minimum margin period of risk for that netting set. If the periodicity of the receipt of collateral is N-days, the minimum margin period of risk is the minimum margin period of risk under this paragraph plus N minus 1. This period should be extended to cover any impediments to prompt re-hedging of any market risk.
(6)
(i) The [BANK]'s own estimate of alpha must capture in the numerator the effects of:
(A) The material sources of stochastic dependency of distributions of market values of transactions or portfolios of transactions across counterparties;
(B) Volatilities and correlations of market risk factors used in the joint simulation, which must be related to the credit risk factor used in the simulation to reflect potential increases in volatility or correlation in an economic downturn, where appropriate; and
(C) The granularity of exposures (that is, the effect of a concentration in the proportion of each counterparty's exposure that is driven by a particular risk factor).
(ii) The [BANK] must assess the potential model uncertainty in its estimates of alpha.
(iii) The [BANK] must calculate the numerator and denominator of alpha in a consistent fashion with respect to modeling methodology, parameter specifications, and portfolio composition.
(iv) The [BANK] must review and adjust as appropriate its estimates of the numerator and denominator of alpha on at least a quarterly basis and more frequently when the composition of the portfolio varies over time.
(7)
(i) For an equity derivative contract, by multiplying:
(A) K, calculated using the appropriate risk-based capital formula specified in Table 1 of § __.131 using the PD of the counterparty and LGD equal to 100 percent, by
(B) The maximum amount the [BANK] could lose on the equity derivative.
(ii) For a purchased credit derivative by multiplying:
(A) K, calculated using the appropriate risk-based capital formula specified in Table 1 of § __.131 using the PD of the counterparty and LGD equal to 100 percent, by
(B) The fair value of the reference asset of the credit derivative.
(iii) For a bond option, by multiplying:
(A) K, calculated using the appropriate risk-based capital formula specified in Table 1 of § __.131 using the PD of the counterparty and LGD equal to 100 percent, by
(B) The smaller of the notional amount of the underlying reference asset and the maximum potential loss under the bond option contract.
(iv) For a repo-style transaction or eligible margin loan by multiplying:
(A) K, calculated using the appropriate risk-based capital formula specified in Table 1 of § __.131 using the PD of the counterparty and LGD equal to 100 percent, by
(B) The EAD of the transaction determined according to the EAD equation in § __.131(b)(2), substituting the estimated value of the collateral assuming a default of the counterparty for the value of the collateral in Σ
(8)
(9)
(ii) The [BANK] must insert the assigned risk parameters for each wholesale obligor and netting set into the appropriate formula specified in Table 1 of § __.131 and multiply the output of the formula by the EAD
(iii) The [BANK]'s dollar risk-based capital requirement under the internal models methodology equals the larger of K
(10)
(A) For material portfolios of new OTC derivative products, the [BANK] may assume that the current exposure methodology in paragraphs (c)(5) and (c)(6) of this section meets the conservatism requirement of this section for a period not to exceed 180 days.
(B) For immaterial portfolios of OTC derivative contracts, the [BANK] generally may assume that the current exposure methodology in paragraphs (c)(5) and (c)(6) of this section meets the conservatism requirement of this section.
(ii) To calculate risk-weighted assets under this approach, the [BANK] must insert the assigned risk parameters for each counterparty and netting set into the appropriate formula specified in Table 1 of § __.131, multiply the output of the formula by the EAD for the exposure as specified above, and multiply by 12.5.
(e)
(2)
(i) Determine EAD for OTC derivative contracts using the internal models methodology described in paragraph (d) of this section; and
(ii) Determine its specific risk add-on for debt positions issued by the counterparty using a specific risk model described in § __.207(b) of subpart F of this part.
(3)
(ii) A [BANK] shall not recognize as a CVA hedge any tranched or nth-to-default credit derivative.
(4)
(5)
(ii) The [BANK] may treat the notional amount of the index attributable to a counterparty as a single name hedge of counterparty i (B
(6)
(A) The VaR model must incorporate only changes in the counterparty's credit spreads, not changes in other risk factors. It is not required that the VaR model capture jump-to-default risk.
(B) A [BANK] that qualifies to use the advanced CVA approach must include in that approach any immaterial OTC derivative portfolios for which it uses the current exposure methodology in paragraph (c) of this section according to paragraph (e)(6)(viii) of this section.
(C) A [BANK] must have the systems capability to calculate the CVA capital requirement for a counterparty on a daily basis (but is not required to calculate the CVA capital requirement on a daily basis).
(ii) Under the advanced CVA approach, the CVA capital requirement, K
(G) Exp is the exponential function.
(iii) A [BANK] must use the formulas in paragraph (e)(6)(iii)(A) or (e)(6)(iii)(B) of this section to calculate credit spread sensitivities if its VaR model is not based on full repricing.
(A) If the VaR model is based on credit spread sensitivities for specific tenors, the [BANK] must calculate each credit spread sensitivity according to the following formula:
(B) If the
(iv) To calculate the CVA
(A) Use the EE
(B) Use the historical observation period required under § __.205(b)(2) of subpart F.
(v) To calculate the CVA
(A) Use the EE
(B) Calibrate VaR model inputs to historical data from the most severe twelve-month stress period contained within the three-year stress period used to calculate EE
(vi) If a [BANK] captures the effect of a collateral agreement on EAD using the method described in paragraph (d)(5)(ii) of this section, for purposes of paragraph (e)(6)(ii) of this section, the [BANK] must calculate EE
(A) Half of the longest maturity of a transaction in the netting set, and
(B) The notional weighted average maturity of all transactions in the netting set.
(vii) The [BANK]'s VaR model must capture the basis between the spreads of any CDS
(viii) If a [BANK] uses the current exposure methodology described in paragraphs (c)(5) and (c)(6) of this section to calculate the EAD for any immaterial portfolios of OTC derivative contracts, the [BANK] must use that EAD as a constant EE in the formula for the calculation of CVA with the maturity equal to the maximum of:
(A) Half of the longest maturity of a transaction in the netting set, and
(B) The notional weighted average maturity of all transactions in the netting set.
(a)
(2) A [BANK] that is a clearing member must use the methodologies set forth in paragraph (c) of this section to calculate its risk-weighted assets for cleared transactions and paragraph (d) of this section to calculate its risk-weighted assets for its default fund contribution to a CCP.
(b)
(i) To determine the risk-weighted asset amount for a cleared transaction, a clearing member client [BANK] must multiply the trade exposure amount for the cleared transaction, calculated in accordance with paragraph (b)(2) of this section, by the risk weight appropriate for the cleared transaction, determined in accordance with paragraph (b)(3) of this section .
(ii) A clearing member client [BANK]'s total risk-weighted assets for cleared transactions is the sum of the risk-weighted asset amounts for all of its cleared transactions.
(2)
(ii) For a cleared transaction that is a repo-style transaction, trade exposure amount equals the EAD for the repo-style transaction calculated using the methodology set forth in § __.132(b)(2), (b)(3), or (d), plus the fair value of the collateral posted by the clearing member client [BANK] and held by the CCP or a clearing member in a manner that is not bankruptcy remote. When the [BANK] calculates EAD for the cleared transaction under § __.132(d), EAD equals EAD
(3)
(A) Two percent if the collateral posted by the [BANK] to the QCCP or clearing member is subject to an arrangement that prevents any loss to the clearing member client [BANK] due to the joint default or a concurrent insolvency, liquidation, or receivership proceeding of the clearing member and any other clients of the clearing member; and the clearing member client [BANK] has conducted sufficient legal review to conclude with a well-founded basis (and maintains sufficient written documentation of that legal review) that in the event of a legal challenge (including one resulting from default or from liquidation, insolvency, receivership or similar proceeding) the relevant court and administrative authorities would find the arrangements to be legal, valid, binding and enforceable under the law of the relevant jurisdictions.
(B) Four percent, if the requirements of § __.132(b)(3)(i)(A) are not met.
(ii) For a cleared transaction with a CCP that is not a QCCP, a clearing member client [BANK] must apply the risk weight applicable to the CCP under § __.32.
(iii) Notwithstanding any other requirement of this section, collateral posted by a clearing member client [BANK] that is held by a custodian in a manner that is bankruptcy remote from the CCP, clearing member, and other clearing member clients of the clearing member, is not subject to a capital requirement under this section. A [BANK] must calculate a risk-weighted asset amount for any collateral provided to a CCP, clearing member or a custodian in connection with a cleared transaction according to § __.131.
(c)
(ii) A clearing member [BANK]'s total risk-weighted assets for cleared transactions is the sum of the risk-weighted asset amounts for all of its cleared transactions.
(2)
(i) For a cleared transaction that is a derivative contract, trade exposure amount equals the EAD calculated using the methodology used to calculate EAD for OTC derivative contracts set forth in § __.132(c) or § __.132(d), plus the fair value of the collateral posted by the [BANK] and held by the CCP in a manner that is not bankruptcy remote. When the [BANK] calculates EAD for the cleared transaction using the methodology in § __.132(d), EAD equals EAD
(ii) For a cleared transaction that is a repo-style transaction, trade exposure amount equals the EAD calculated under sections § __.132(b)(2), § __.132(b)(3), or § __.132(d), plus the fair value of the collateral posted by the clearing member [BANK] and held by the CCP in a manner that is not bankruptcy remote. When the [BANK] calculates EAD for the cleared transaction under § __.132(d), EAD equals EAD
(3)
(ii) For a cleared transaction with a CCP that is not a QCCP, a clearing member [BANK] must apply the risk weight applicable to the CCP according to § __.32 of subpart D of this part.
(iii) Notwithstanding any other requirement of this section, collateral posted by a clearing member [BANK] that is held by a custodian in a manner that is bankruptcy remote from the CCP is not subject to a capital requirement under this section. A [BANK] must calculate a risk-weighted asset amount for any collateral provided to a CCP or a custodian in connection with a cleared transaction according to § __.131.
(d)
(2)
(3)
(i) The hypothetical capital requirement of a QCCP (K
(ii) For a [BANK] that is a clearing member of a QCCP with a default fund supported by funded commitments, K
(iii) For a [BANK] that is a clearing member of a QCCP with a default fund supported by unfunded commitments, K
(D) For a [BANK] that is a clearing member of a QCCP with a default fund supported by unfunded commitments and that is unable to calculate K
(iv)
(a)
(i) Credit risk is fully covered by an eligible guarantee or eligible credit derivative; or
(ii) Credit risk is covered on a pro rata basis (that is, on a basis in which the [BANK] and the protection provider share losses proportionately) by an eligible guarantee or eligible credit derivative.
(2) Wholesale exposures on which there is a tranching of credit risk (reflecting at least two different levels of seniority) are securitization exposures subject to § __.141 through § __.145.
(3) A [BANK] may elect to recognize the credit risk mitigation benefits of an eligible guarantee or eligible credit derivative covering an exposure described in paragraph (a)(1) of this section by using the PD substitution approach or the LGD adjustment approach in paragraph (c) of this section or, if the transaction qualifies, using the double default treatment in § __.135. A [BANK]'s PD and LGD for the hedged exposure may not be lower than the PD and LGD floors described in § __.131(d)(2) and (d)(3).
(4) If multiple eligible guarantees or eligible credit derivatives cover a single exposure described in paragraph (a)(1) of this section, a [BANK] may treat the hedged exposure as multiple separate exposures each covered by a single eligible guarantee or eligible credit
(5) If a single eligible guarantee or eligible credit derivative covers multiple hedged wholesale exposures described in paragraph (a)(1) of this section, a [BANK] must treat each hedged exposure as covered by a separate eligible guarantee or eligible credit derivative and must calculate a separate risk-based capital requirement for each exposure as described in paragraph (a)(3) of this section.
(6) A [BANK] must use the same risk parameters for calculating ECL as it uses for calculating the risk-based capital requirement for the exposure.
(b)
(2) A [BANK] may only recognize the credit risk mitigation benefits of an eligible credit derivative to hedge an exposure that is different from the credit derivative's reference exposure used for determining the derivative's cash settlement value, deliverable obligation, or occurrence of a credit event if:
(i) The reference exposure ranks
(ii) The reference exposure and the hedged exposure are exposures to the same legal entity, and legally enforceable cross-default or cross-acceleration clauses are in place to assure payments under the credit derivative are triggered when the obligor fails to pay under the terms of the hedged exposure.
(c)
(1)
(ii)
(A) The [BANK] must calculate its risk-based capital requirement for the protected exposure under § __.131, where PD is the protection provider's PD, LGD is determined under paragraph (c)(1)(iii) of this section, and EAD is P. If the [BANK] determines that full substitution leads to an inappropriate degree of risk mitigation, the [BANK] may use a higher PD than that of the protection provider.
(B) The [BANK] must calculate its risk-based capital requirement for the unprotected exposure under § __.131, where PD is the obligor's PD, LGD is the hedged exposure's LGD (not adjusted to reflect the guarantee or credit derivative), and EAD is the EAD of the original hedged exposure minus P.
(C) The treatment in paragraph (c)(1)(ii) is applicable when the credit risk of a wholesale exposure is covered on a partial pro rata basis or when an adjustment is made to the effective notional amount of the guarantee or credit derivative under paragraphs (d), (e), or (f) of this section.
(iii)
(A) The lower of the LGD of the hedged exposure (not adjusted to reflect the guarantee or credit derivative) and the LGD of the guarantee or credit derivative, if the guarantee or credit derivative provides the [BANK] with the option to receive immediate payout upon triggering the protection; or
(B) The LGD of the guarantee or credit derivative, if the guarantee or credit derivative does not provide the [BANK] with the option to receive immediate payout upon triggering the protection.
(2)
(A) The risk-based capital requirement for the exposure as calculated under § __.131, with the LGD of the exposure adjusted to reflect the guarantee or credit derivative; or
(B) The risk-based capital requirement for a direct exposure to the protection provider as calculated under § __.131, using the PD for the protection provider, the LGD for the guarantee or credit derivative, and an EAD equal to the EAD of the hedged exposure.
(ii)
(A) The [BANK]'s risk-based capital requirement for the protected exposure would be the greater of:
(
(
(B) The [BANK] must calculate its risk-based capital requirement for the unprotected exposure under § __.131, where PD is the obligor's PD, LGD is the hedged exposure's LGD (not adjusted to reflect the guarantee or credit derivative), and EAD is the EAD of the original hedged exposure minus P.
(3)
(d)
(2) A maturity mismatch occurs when the residual maturity of a credit risk mitigant is less than that of the hedged exposure(s).
(3) The residual maturity of a hedged exposure is the longest possible remaining time before the obligor is scheduled to fulfil its obligation on the exposure. If a credit risk mitigant has embedded options that may reduce its term, the [BANK] (protection purchaser) must use the shortest possible residual
(4) A credit risk mitigant with a maturity mismatch may be recognized only if its original maturity is greater than or equal to one year and its residual maturity is greater than three months.
(5) When a maturity mismatch exists, the [BANK] must apply the following adjustment to the effective notional amount of the credit risk mitigant: P
(i) P
(ii) E = effective notional amount of the credit risk mitigant;
(iii) t = the lesser of T or the residual maturity of the credit risk mitigant, expressed in years; and
(iv) T = the lesser of five or the residual maturity of the hedged exposure, expressed in years.
(e)
(1) P
(2) P
(f)
(i) P
(ii) P
(iii) H
(2) A [BANK] must set H
(i) The own-estimates haircuts in § __.132(b)(2)(iii);
(ii) The simple VaR methodology in § __.132(b)(3); or
(iii) The internal models methodology in § __.132(d).
(3) A [BANK] must adjust H
(a)
(1) The hedged exposure is fully covered or covered on a pro rata basis by:
(i) An eligible guarantee issued by an eligible double default guarantor; or
(ii) An eligible credit derivative that meets the requirements of § __.134(b)(2) and that is issued by an eligible double default guarantor.
(2) The guarantee or credit derivative is:
(i) An uncollateralized guarantee or uncollateralized credit derivative (for example, a credit default swap) that provides protection with respect to a single reference obligor; or
(ii) An n
(3) The hedged exposure is a wholesale exposure (other than a sovereign exposure).
(4) The obligor of the hedged exposure is not:
(i) An eligible double default guarantor or an affiliate of an eligible double default guarantor; or
(ii) An affiliate of the guarantor.
(5) The [BANK] does not recognize any credit risk mitigation benefits of the guarantee or credit derivative for the hedged exposure other than through application of the double default treatment as provided in this section.
(6) The [BANK] has implemented a process (which has received the prior, written approval of the [AGENCY]) to detect excessive correlation between the creditworthiness of the obligor of the hedged exposure and the protection provider. If excessive correlation is present, the [BANK] may not use the double default treatment for the hedged exposure.
(b)
(c)
(1) For the protected exposure, the [BANK] must set EAD equal to P and calculate its risk-weighted asset amount as provided in paragraph (e) of this section.
(2) For the unprotected exposure, the [BANK] must set EAD equal to the EAD of the original exposure minus P and then calculate its risk-weighted asset amount as provided in § __.131.
(d)
(e)
(a)
(1) Delivery-versus-payment (DvP) transaction means a securities or commodities transaction in which the buyer is obligated to make payment only if the seller has made delivery of the securities or commodities and the seller is obligated to deliver the securities or commodities only if the buyer has made payment.
(2) Payment-versus-payment (PvP) transaction means a foreign exchange transaction in which each counterparty is obligated to make a final transfer of one or more currencies only if the other counterparty has made a final transfer of one or more currencies.
(3) Normal settlement period. A transaction has a normal settlement period if the contractual settlement period for the transaction is equal to or less than the market standard for the instrument underlying the transaction and equal to or less than five business days.
(4) Positive current exposure. The positive current exposure of a [BANK] for a transaction is the difference between the transaction value at the agreed settlement price and the current market price of the transaction, if the difference results in a credit exposure of the [BANK] to the counterparty.
(b)
(1) Cleared transactions that are subject to daily marking-to-market and daily receipt and payment of variation margin;
(2) Repo-style transactions, including unsettled repo-style transactions (which are addressed in §§ __.131 and 132);
(3) One-way cash payments on OTC derivative contracts (which are addressed in §§ __.131 and 132); or
(4) Transactions with a contractual settlement period that is longer than the normal settlement period (which are treated as OTC derivative contracts and addressed in §§ __.131 and 132).
(c)
(d)
(e)
(2) From the business day after the [BANK] has made its delivery until five business days after the counterparty delivery is due, the [BANK] must calculate its risk-based capital requirement for the transaction by treating the current market value of the deliverables owed to the [BANK] as a wholesale exposure.
(i) A [BANK] may use a 45 percent LGD for the transaction rather than estimating LGD for the transaction provided the [BANK] uses the 45 percent LGD for all transactions described in § __.135(e)(1) and (e)(2).
(ii) A [BANK] may use a 100 percent risk weight for the transaction provided the [BANK] uses this risk weight for all transactions described in sections 135(e)(1) and (e)(2).
(3) If the [BANK] has not received its deliverables by the fifth business day after the counterparty delivery was due, the [BANK] must apply a 1,250 percent risk weight to the current market value of the deliverables owed to the [BANK].
(f)
(a)
(1) The exposures are not reported on the [BANK]'s balance sheet under GAAP;
(2) The [BANK] has transferred to third parties credit risk associated with the underlying exposures;
(3) Any clean-up calls relating to the securitization are eligible clean-up calls; and
(4) The securitization does not:
(i) Include one or more underlying exposures in which the borrower is permitted to vary the drawn amount within an agreed limit under a line of credit; and
(ii) Contain an early amortization provision.
(b)
(1) The credit risk mitigant is financial collateral, an eligible credit derivative from an eligible guarantor or an eligible guarantee from an eligible guarantor;
(2) The [BANK] transfers credit risk associated with the underlying exposures to third parties, and the terms and conditions in the credit risk mitigants employed do not include provisions that:
(i) Allow for the termination of the credit protection due to deterioration in the credit quality of the underlying exposures;
(ii) Require the [BANK] to alter or replace the underlying exposures to improve the credit quality of the pool of underlying exposures;
(iii) Increase the [BANK]'s cost of credit protection in response to deterioration in the credit quality of the underlying exposures;
(iv) Increase the yield payable to parties other than the [BANK] in response to a deterioration in the credit quality of the underlying exposures; or
(v) Provide for increases in a retained first loss position or credit enhancement provided by the [BANK] after the inception of the securitization;
(3) The [BANK] obtains a well-reasoned opinion from legal counsel that confirms the enforceability of the credit risk mitigant in all relevant jurisdictions; and
(4) Any clean-up calls relating to the securitization are eligible clean-up calls.
(c)
(2) A [BANK] must demonstrate its comprehensive understanding of a securitization exposure under paragraph (c)(1) of this section, for each securitization exposure by:
(i) Conduct an analysis of the risk characteristics of a securitization exposure prior to acquiring the exposure and document such analysis within three business days after acquiring the exposure, considering:
(A) Structural features of the securitization that would materially impact the performance of the exposure, for example, the contractual cash flow waterfall, waterfall-related triggers, credit enhancements, liquidity enhancements, market value triggers, the performance of organizations that service the position, and deal-specific definitions of default;
(B) Relevant information regarding the performance of the underlying credit exposure(s), for example, the percentage of loans 30, 60, and 90 days past due; default rates; prepayment rates; loans in foreclosure; property types; occupancy; average credit score or other measures of creditworthiness; average loan-to-value ratio; and industry and geographic diversification data on the underlying exposure(s);
(C) Relevant market data of the securitization, for example, bid-ask spreads, most recent sales price and historical price volatility, trading volume, implied market rating, and size, depth and concentration level of the market for the securitization; and
(D) For resecuritization exposures—
(
(
(a)
(1) A [BANK] must deduct from common equity tier 1 capital any after-tax gain-on-sale resulting from a securitization and must apply a 1,250 percent risk weight to the portion of any CEIO that does not constitute after tax gain-on-sale.
(2) If a securitization exposure does not require deduction or a 1,250 percent risk weight under paragraph (a)(1) of this section, the [BANK] must apply the supervisory formula approach in § __.143 to the exposure if the [BANK] and the exposure qualify for the supervisory formula approach according to § __.143(a).
(3) If a securitization exposure does not require deduction or a 1,250 percent risk weight under paragraph (a)(1) of this section and does not qualify for the supervisory formula approach, the [BANK] may apply the simplified supervisory formula approach under § __.144.
(4) If a securitization exposure does not require deduction or a 1,250 percent risk weight under paragraph (a)(1) of this section, does not qualify for the supervisory formula approach, and the [BANK] does not apply the simplified supervisory formula approach, the
(5) If a securitization exposure is a derivative contract (other than a credit derivative) that has a first priority claim on the cash flows from the underlying exposures (notwithstanding amounts due under interest rate or currency derivative contracts, fees due, or other similar payments), with approval of the [AGENCY], a [BANK] may choose to set the risk-weighted asset amount of the exposure equal to the amount of the exposure as determined in paragraph (e) of this section rather than apply the hierarchy of approaches described in paragraphs (a)(1) through (4) of this section.
(b)
(c)
(d)
(1) The [BANK]'s total risk-based capital requirement for the underlying exposures calculated under this subpart as if the [BANK] directly held the underlying exposures; and
(2) The total ECL of the underlying exposures calculated under this subpart.
(e)
(2) The amount of an off-balance sheet securitization exposure that is not an OTC derivative contract or cleared transaction (other than a credit derivative) is the notional amount of the exposure. For an off-balance-sheet securitization exposure to an ABCP program, such as an eligible ABCP liquidity facility, the notional amount may be reduced to the maximum potential amount that the [BANK] could be required to fund given the ABCP program's current underlying assets (calculated without regard to the current credit quality of those assets).
(3) The amount of a securitization exposure that is a repo-style transaction, eligible margin loan, or OTC derivative contract or cleared transaction (other than a credit derivative) is the EAD of the exposure as calculated in § __.132 or § __.133.
(f)
(g)
(1) Must deduct from common equity tier 1 capital any after-tax gain-on-sale resulting from the securitization and apply a 1,250 percent risk weight to the portion of any CEIO that does not constitute gain-on-sale, if the [BANK] is an originating [BANK];
(2) May apply the simplified supervisory formula approach in § __.144 to the exposure, if the securitization exposure does not require deduction or a 1,250 percent risk weight under paragraph (g)(1) of this section;
(3) Must assign a 1,250 percent risk weight to the exposure if the securitization exposure does not require deduction or a 1,250 percent risk weight under paragraph (g)(1) of this section, does not qualify for the supervisory formula approach, and the [BANK] does not apply the simplified supervisory formula approach to the exposure.
(h)
(1) The [BANK] must calculate a risk-weighted asset amount for underlying exposures associated with the securitization as if the exposures had not been securitized and must deduct from common equity tier 1 capital any after-tax gain-on-sale resulting from the securitization; and
(2) The [BANK] must disclose publicly:
(i) That it has provided implicit support to the securitization; and
(ii) The regulatory capital impact to the [BANK] of providing such implicit support.
(i)
(j)
(k)
(i) The transaction is a sale under GAAP.
(ii) The [BANK] establishes and maintains, pursuant to GAAP, a non-capital reserve sufficient to meet the [BANK]'s reasonably estimated liability under the recourse arrangement.
(iii) The loans and leases are to businesses that meet the criteria for a small-business concern established by the Small Business Administration under section 3(a) of the Small Business Act.
(iv) The [BANK] is well capitalized, as defined in[the [AGENCY]'s [prompt corrective action regulation]—12 CFR part 6 (for national banks), 12 CFR part 208, subpart D (for state member banks or bank holding companies), 12 CFR part 325, subpart B (for state nonmember banks), and 12 CFR part 165 (for savings associations)]. For purposes of determining whether a [BANK] is well capitalized for purposes of this paragraph, the [BANK]'s capital ratios must be calculated without regard to the capital treatment for transfers of small-business obligations with recourse specified in paragraph (k)(1) of this section.
(2) The total outstanding amount of recourse retained by a [BANK] on transfers of small-business obligations receiving the capital treatment specified in paragraph (k)(1) of this section cannot exceed 15 percent of the [BANK]'s total capital.
(3) If a [BANK] ceases to be well capitalized or exceeds the 15 percent capital limitation, the preferential capital treatment specified in paragraph (k)(1) of this section will continue to apply to any transfers of small-business obligations with recourse that occurred during the time that the [BANK] was well capitalized and did not exceed the capital limit.
(4) The risk-based capital ratios of the [BANK] must be calculated without regard to the capital treatment for transfers of small-business obligations with recourse specified in paragraph (k)(1) of this section .
(l)
(2) For purposes of determining the risk weight for an nth-to-default credit derivative using the SFA or the SSFA, the [BANK] must calculate the attachment point and detachment point of its exposure as follows:
(i) The attachment point (parameter A) is the ratio of the sum of the notional amounts of all underlying exposures that are subordinated to the [BANK]'s exposure to the total notional amount of all underlying exposures. For purposes of using the SFA to calculate the risk weight for its exposure in an nth-to-default credit derivative, parameter A must be set equal to the credit enhancement level (L) input to the SFA formula. In the case of a first-to-default credit derivative, there are no underlying exposures that are subordinated to the [BANK]'s exposure. In the case of a second-or-subsequent-to-default credit derivative, the smallest (n-1) risk-weighted asset amounts of the underlying exposure(s) are subordinated to the [BANK]'s exposure.
(ii) The detachment point (parameter D) equals the sum of parameter A plus the ratio of the notional amount of the [BANK]'s exposure in the nth-to-default credit derivative to the total notional amount of all underlying exposures. For purposes of using the SFA to calculate the risk weight for its exposure in an nth-to-default credit derivative, parameter D must be set to equal L plus the thickness of tranche T input to the SFA formula.
(3) A [BANK] that does not use the SFA or the SSFA to determine a risk weight for its exposure in an nth-to-default credit derivative must assign a risk weight of 1,250 percent to the exposure.
(4)
(ii)
(
(
(B) If a [BANK] satisfies the requirements of paragraph (l)(3)(ii)(A) of this section, the [BANK] must determine its risk-based capital requirement for the underlying exposures as if the bank had only synthetically securitized the underlying exposure with the nth lowest risk-based capital requirement and had obtained no credit risk mitigant on the other underlying exposures.
(C) A [BANK] must calculate a risk-based capital requirement for counterparty credit risk according to § __.132 for a nth-to-default credit derivative that does not meet the rules of recognition of § __.134(b).
(m)
(2)
(ii) If a [BANK] cannot, or chooses not to, recognize a credit derivative that references a securitization exposure as a credit risk mitigant under § __.145, the [BANK] must determine its capital requirement only for counterparty credit risk in accordance with § __.131.
(a)
(b)
(c)
(2) If K
(i) F × T (where F is 0.016 for all securitization exposures); or
(ii) S[L + + T] − S[L].
(3) If K
(i) F × (T − (K
(ii) S[L + + T] − S[K
(d)
(11) In these expressions, β[Y; a, b] refers to the cumulative beta distribution with parameters a and b evaluated at Y. In the case where N = 1 and EWALGD = 100 percent, S[Y] in formula (1) must be calculated with K[Y] set equal to the product of K
(e)
(2)
(3)
(i) K
(A) The sum of the risk-based capital requirements for the underlying exposures plus the expected credit losses of the underlying exposures (as determined under this subpart E as if the underlying exposures were directly held by the [BANK]); to
(B) UE.
(ii) The calculation of K
(iii) All assets related to the securitization are treated as underlying exposures, including assets in a reserve account (such as a cash collateral account).
(4)
(A) The amount of all securitization exposures subordinated to the tranche that contains the [BANK]'s securitization exposure; to
(B) UE.
(ii) A [BANK] must determine L before considering the effects of any tranche-specific credit enhancements.
(iii) Any gain-on-sale or CEIO associated with the securitization may not be included in L.
(iv) Any reserve account funded by accumulated cash flows from the underlying exposures that is subordinated to the tranche that contains the [BANK]'s securitization exposure may be included in the numerator and denominator of L to the extent cash has accumulated in the account. Unfunded reserve accounts (that is, reserve accounts that are to be funded from future cash flows from the underlying exposures) may not be included in the calculation of L.
(v) In some cases, the purchase price of receivables will reflect a discount that provides credit enhancement (for example, first loss protection) for all or certain tranches of the securitization.
(5)
(i) The amount of the tranche that contains the [BANK]'s securitization exposure; to
(ii) UE.
(6)
(ii) Multiple exposures to one obligor must be treated as a single underlying exposure.
(iii) In the case of a re-securitization, the [BANK] must treat each underlying exposure as a single underlying exposure and must not look through to the originally securitized underlying exposures.
(7)
(f)
(i) h = 0; and
(ii) v = 0.
(2) Under the conditions in sections 143(f)(3) and (f)(4), a [BANK] may employ a simplified method for calculating N and EWALGD.
(3) If C
(4) Alternatively, if only C
(a)
(b)
(1) K
(2) Parameter W is expressed as a decimal value between zero and one. Parameter W is the ratio of the sum of the dollar amounts of any underlying exposures within the securitized pool that meet any of the criteria as set forth in paragraphs (b)(2)(i) through (vi) of this section to the ending balance, measured in dollars, of underlying exposures.
(i) Ninety days or more past due;
(ii) Subject to a bankruptcy or insolvency proceeding;
(iii) In the process of foreclosure;
(iv) Held as real estate owned;
(v) Has contractually deferred interest payments for 90 days or more; or
(vi) Is in default.
(3) Parameter A is the attachment point for the exposure, which represents the threshold at which credit losses will first be allocated to the exposure. Parameter A equals the ratio of the current dollar amount of underlying exposures that are subordinated to the exposure of the [BANK] to the current dollar amount of underlying exposures. Any reserve account funded by the accumulated cash flows from the underlying exposures that is subordinated to the [BANK]'s securitization exposure may be included in the calculation of parameter A to the extent that cash is present in the account. Parameter A is expressed as a decimal value between zero and one.
(4) Parameter D is the detachment point for the exposure, which represents the threshold at which credit losses of principal allocated to the exposure would result in a total loss of principal. Parameter D equals parameter A plus the ratio of the current dollar amount of the securitization exposures that are
(5) A supervisory calibration parameter, p, is equal to 0.5 for securitization exposures that are not resecuritization exposures and equal to 1.5 for resecuritization exposures.
(c)
(1) When the detachment point, parameter D, for a securitization exposure is less than or equal to K
(2) When the attachment point, parameter A, for a securitization exposure is greater than or equal to K
(3) When A is less than K
(a)
(b)
(i) SE* = max {0, [SE−C × (1−Hs−Hfx)]};
(ii) SE = the amount of the securitization exposure calculated under § __.142(e);
(iii) C = the current market value of the collateral;
(iv) Hs = the haircut appropriate to the collateral type; and
(v) Hfx = the haircut appropriate for any currency mismatch between the collateral and the exposure.
(2)
(3)
(i) A [BANK] must use the collateral type haircuts (Hs) in Table 2;
(ii) A [BANK] must use a currency mismatch haircut (Hfx) of 8 percent if the exposure and the collateral are denominated in different currencies;
(iii) A [BANK] must multiply the supervisory haircuts obtained in paragraphs (b)(3)(i) and (ii) of this section by the square root of 6.5 (which equals 2.549510); and
(iv) A [BANK] must adjust the supervisory haircuts upward on the basis of a holding period longer than 65 business days where and as appropriate to take into account the illiquidity of the collateral.
(4)
(c)
(2)
(i) Calculate ECL for the protected portion of the exposure using the same risk parameters that it uses for calculating the risk-weighted asset amount of the exposure as described in paragraph (c)(3) of this section; and
(ii) Add the exposure's ECL to the [BANK]'s total ECL.
(3)
(i)
(ii)
(A)
(B)
(
(4)
(a)
(b)
(1) For the on-balance sheet component of an equity exposure, the [BANK]'s carrying value of the exposure; and
(2) For the off-balance sheet component of an equity exposure, the effective notional principal amount of the exposure, the size of which is equivalent to a hypothetical on-balance sheet position in the underlying equity instrument that would evidence the same change in fair value (measured in dollars) for a given small change in the price of the underlying equity instrument, minus the adjusted carrying value of the on-balance sheet component of the exposure as calculated in paragraph (b)(1) of this section. For unfunded equity commitments that are unconditional, the effective notional principal amount is the notional amount of the commitment. For unfunded equity commitments that are conditional, the effective notional principal amount is the [BANK]'s best estimate of the amount that would be funded under economic downturn conditions.
(a)
(b)
(1)
(2)
(3)
(i)
(ii)
(iii)
(A) To compute the aggregate adjusted carrying value of a [BANK]'s equity exposures for purposes of this section, the [BANK] may exclude equity exposures described in paragraphs (b)(1), (b)(2), (b)(3)(i), and (b)(3)(ii) of this section, the equity exposure in a hedge pair with the smaller adjusted carrying value, and a proportion of each equity exposure to an investment fund equal to the proportion of the assets of the investment fund that are not equity exposures or that meet the criterion of paragraph (b)(3)(i) of this section. If a [BANK] does not know the actual holdings of the investment fund, the [BANK] may calculate the proportion of the assets of the fund that are not equity exposures based on the terms of the prospectus, partnership agreement, or similar contract that defines the fund's permissible investments. If the sum of the investment limits for all exposure classes within the fund exceeds 100 percent, the [BANK] must assume for purposes of this section that the investment fund invests to the maximum extent possible in equity exposures.
(B) When determining which of a [BANK]'s equity exposures qualifies for a 100 percent risk weight under this section, a [BANK] first must include equity exposures to unconsolidated small business investment companies or held through consolidated small business investment companies described in section 302 of the Small Business Investment Act, then must include publicly-traded equity exposures (including those held indirectly through investment funds), and then must include non-publicly-traded equity exposures (including those held indirectly through investment funds).
(4)
(5)
(6)
(7)
(i) Would meet the definition of a traditional securitization were it not for the [AGENCY]'s application of paragraph (8) of that definition in § __.2; and
(ii) Has greater than immaterial leverage is assigned a 600 percent risk weight.
(c)
(2)
(i) Under the dollar-offset method of measuring effectiveness, the [BANK] must determine the ratio of value change (RVC). The RVC is the ratio of the cumulative sum of the periodic changes in value of one equity exposure to the cumulative sum of the periodic changes in the value of the other equity exposure. If RVC is positive, the hedge is not effective and E equals zero. If RVC is negative and greater than or equal to −1 (that is, between zero and −1), then E equals the absolute value of RVC. If RVC is negative and less than −1, then E equals 2 plus RVC.
(ii) Under the variability-reduction method of measuring effectiveness:
(iii) Under the regression method of measuring effectiveness, E equals the coefficient of determination of a regression in which the change in value of one exposure in a hedge pair is the dependent variable and the change in value of the other exposure in a hedge pair is the independent variable. However, if the estimated regression coefficient is positive, then the value of E is zero.
(3) The effective portion of a hedge pair is E multiplied by the greater of the adjusted carrying values of the equity exposures forming a hedge pair.
(4) The ineffective portion of a hedge pair is (1–E) multiplied by the greater of the adjusted carrying values of the equity exposures forming a hedge pair.
(a)
(b)
(1) The [BANK] must have one or more models that:
(i) Assess the potential decline in value of its modeled equity exposures;
(ii) Are commensurate with the size, complexity, and composition of the [BANK]'s modeled equity exposures; and
(iii) Adequately capture both general market risk and idiosyncratic risk.
(2) The [BANK]'s model must produce an estimate of potential losses for its modeled equity exposures that is no less than the estimate of potential losses produced by a VaR methodology employing a 99.0 percent, one-tailed confidence interval of the distribution of quarterly returns for a benchmark portfolio of equity exposures comparable to the [BANK]'s modeled equity exposures using a long-term sample period.
(3) The number of risk factors and exposures in the sample and the data period used for quantification in the [BANK]'s model and benchmarking exercise must be sufficient to provide confidence in the accuracy and robustness of the [BANK]'s estimates.
(4) The [BANK]'s model and benchmarking process must incorporate data that are relevant in representing the risk profile of the [BANK]'s modeled equity exposures, and must include data from at least one equity market cycle containing adverse market movements relevant to the risk profile of the [BANK]'s modeled equity exposures. In addition, the [BANK]'s benchmarking exercise must be based on daily market prices for the benchmark portfolio. If the [BANK]'s model uses a scenario methodology, the [BANK] must demonstrate that the model produces a conservative estimate of potential losses on the [BANK]'s modeled equity exposures over a relevant long-term market cycle. If the [BANK] employs risk factor models, the [BANK] must demonstrate through empirical analysis the appropriateness of the risk factors used.
(5) The [BANK] must be able to demonstrate, using theoretical arguments and empirical evidence, that any proxies used in the modeling process are comparable to the [BANK]'s modeled equity exposures and that the [BANK] has made appropriate adjustments for differences. The [BANK] must derive any proxies for its modeled equity exposures and benchmark portfolio using historical market data that are relevant to the [BANK]'s modeled equity exposures and benchmark portfolio (or, where not, must use appropriately adjusted data), and such proxies must be robust estimates of the risk of the [BANK]'s modeled equity exposures.
(c)
(1) The risk-weighted asset amount of each equity exposure that qualifies for a 0 percent, 20 percent, or 100 percent risk weight under §§ __.152(b)(1) through (b)(3)(i) (as determined under § __.152) and each equity exposure to an investment fund (as determined under § __.154); and
(2) The greater of:
(i) The estimate of potential losses on the [BANK]'s equity exposures (other than equity exposures referenced in paragraph (c)(1) of this section) generated by the [BANK]'s internal equity exposure model multiplied by 12.5; or
(ii) The sum of:
(A) 200 percent multiplied by the aggregate adjusted carrying value of the [BANK]'s publicly-traded equity exposures that do not belong to a hedge pair, do not qualify for a 0 percent, 20 percent, or 100 percent risk weight under §§ __.152(b)(1) through (b)(3)(i), and are not equity exposures to an investment fund;
(B) 200 percent multiplied by the aggregate ineffective portion of all hedge pairs; and
(C) 300 percent multiplied by the aggregate adjusted carrying value of the [BANK]'s equity exposures that are not publicly-traded, do not qualify for a 0 percent, 20 percent, or 100 percent risk weight under §§ __.152(b)(1) through (b)(3)(i), and are not equity exposures to an investment fund.
(d)
(1) The risk-weighted asset amount of each equity exposure that qualifies for a 0 percent, 20 percent, or 100 percent risk weight under §§ __.152(b)(1) through (b)(3)(i) (as determined under § __.152), each equity exposure that qualifies for a 400 percent risk weight under § __.152(b)(5) or a 600 percent risk weight under § __.152(b)(6) (as determined under § __.152), and each equity exposure to an investment fund (as determined under § __.154); and
(2) The greater of:
(i) The estimate of potential losses on the [BANK]'s equity exposures (other than equity exposures referenced in paragraph (d)(1) of this section) generated by the [BANK]'s internal equity exposure model multiplied by 12.5; or
(ii) The sum of:
(A) 200 percent multiplied by the aggregate adjusted carrying value of the [BANK]'s publicly-traded equity exposures that do not belong to a hedge pair, do not qualify for a 0 percent, 20 percent, or 100 percent risk weight under §§ __.152(b)(1) through (b)(3)(i), and are not equity exposures to an investment fund; and
(B) 200 percent multiplied by the aggregate ineffective portion of all hedge pairs.
(a)
(2) The risk-weighted asset amount of an equity exposure to an investment fund that meets the requirements for a community development equity exposure in § __.152(b)(3)(i) is its adjusted carrying value.
(3) If an equity exposure to an investment fund is part of a hedge pair and the [BANK] does not use the Full Look-Through Approach, the [BANK] may use the ineffective portion of the hedge pair as determined under § __.152(c) as the adjusted carrying value for the equity exposure to the investment fund. The risk-weighted asset amount of the effective portion of the hedge pair is equal to its adjusted carrying value.
(b)
(1) Set the risk-weighted asset amount of the [BANK]'s exposure to the fund equal to the product of:
(i) The aggregate risk-weighted asset amounts of the exposures held by the fund as if they were held directly by the [BANK]; and
(ii) The [BANK]'s proportional ownership share of the fund; or
(2) Include the [BANK]'s proportional ownership share of each exposure held by the fund in the [BANK]'s IMA.
(c)
(d)
(a) Under the IMA, in addition to holding risk-based capital against an equity derivative contract under this [PART], a [BANK] must hold risk-based capital against the counterparty credit risk in the equity derivative contract by also treating the equity derivative contract as a wholesale exposure and computing a supplemental risk-weighted asset amount for the contract under § __.132.
(b) Under the SRWA, a [BANK] may choose not to hold risk-based capital against the counterparty credit risk of equity derivative contracts, as long as it does so for all such contracts. Where the equity derivative contracts are subject to a qualified master netting agreement, a [BANK] using the SRWA must either include all or exclude all of the contracts from any measure used to determine counterparty credit risk exposure.
(a)
(1) The [BANK]'s operational risk quantification system is able to generate an estimate of the [BANK]'s operational risk exposure (which does not incorporate qualifying operational risk mitigants) and an estimate of the [BANK]'s operational risk exposure adjusted to incorporate qualifying operational risk mitigants; and
(2) The [BANK]'s methodology for incorporating the effects of insurance, if the [BANK] uses insurance as an operational risk mitigant, captures through appropriate discounts to the amount of risk mitigation:
(i) The residual term of the policy, where less than one year;
(ii) The cancellation terms of the policy, where less than one year;
(iii) The policy's timeliness of payment;
(iv) The uncertainty of payment by the provider of the policy; and
(v) Mismatches in coverage between the policy and the hedged operational loss event.
(b)
(1) Insurance that:
(i) Is provided by an unaffiliated company that the [BANK] deems to have strong capacity to meet its claims payment obligations and the obligor rating category to which the [BANK] assigns the company is assigned a PD equal to or less than 10 basis points;
(ii) Has an initial term of at least one year and a residual term of more than 90 days;
(iii) Has a minimum notice period for cancellation by the provider of 90 days;
(iv) Has no exclusions or limitations based upon regulatory action or for the receiver or liquidator of a failed depository institution; and
(v) Is explicitly mapped to a potential operational loss event;
(2) Operational risk mitigants other than insurance for which the [AGENCY] has given prior written approval. In evaluating an operational risk mitigant other than insurance, the [AGENCY] will consider whether the operational risk mitigant covers potential operational losses in a manner equivalent to holding total capital.
(a) If a [BANK] does not qualify to use or does not have qualifying operational risk mitigants, the [BANK]'s dollar risk-based capital requirement for operational risk is its operational risk exposure minus eligible operational risk offsets (if any).
(b) If a [BANK] qualifies to use operational risk mitigants and has qualifying operational risk mitigants, the [BANK]'s dollar risk-based capital requirement for operational risk is the greater of:
(1) The [BANK]'s operational risk exposure adjusted for qualifying operational risk mitigants minus eligible operational risk offsets (if any); or
(2) 0.8 multiplied by the difference between:
(i) The [BANK]'s operational risk exposure; and
(ii) Eligible operational risk offsets (if any).
(c) The [BANK]'s risk-weighted asset amount for operational risk equals the [BANK]'s dollar risk-based capital requirement for operational risk determined under sections 162(a) or (b) multiplied by 12.5.
Sections __.171 through __.173 establish public disclosure requirements related to the capital requirements of a [BANK] that is an advanced approaches bank.
(a) A [BANK] that is an advanced approaches bank must publicly disclose each quarter its total and tier 1 risk-based capital ratios and their components as calculated under this subpart (that is, common equity tier 1 capital, additional tier 1 capital, tier 2 capital, total qualifying capital, and total risk-weighted assets).
(b) A [BANK] that is an advanced approaches bank must comply with paragraph (c) of this section unless it is a consolidated subsidiary of a bank holding company, savings and loan holding company, or depository institution that is subject to these disclosure requirements or a subsidiary of a non-U.S. banking organization that is subject to comparable public disclosure requirements in its home jurisdiction.
(c)(1) A [BANK] described in paragraph (b) of this section and that has successfully completed its parallel run must provide timely public disclosures each calendar quarter of the information in the applicable tables in § __.173. If a significant change occurs, such that the most recent reported amounts are no longer reflective of the [BANK]'s capital adequacy and risk profile, then a brief discussion of this change and its likely impact must be disclosed as soon as practicable thereafter. Qualitative disclosures that typically do not change each quarter (for example, a general summary of the [BANK]'s risk management objectives and policies, reporting system, and definitions) may be disclosed annually, provided that any significant changes to these are disclosed in the interim. Management is encouraged to provide all of the disclosures required by this subpart in one place on the [BANK]'s public Web site.
(2) A [BANK] described in paragraph (b) of this section must have a formal disclosure policy approved by the board of directors that addresses its approach for determining the disclosures it makes. The policy must address the associated internal controls and disclosure controls and procedures. The board of directors and senior management are responsible for establishing and maintaining an effective internal control structure over financial reporting, including the disclosures required by this subpart, and must ensure that appropriate review of the disclosures takes place. One or more senior officers of the [BANK] must attest that the disclosures meet the requirements of this subpart.
(3) If a [BANK] described in paragraph (b) of this section believes that disclosure of specific commercial or financial information would prejudice seriously its position by making public information that is either proprietary or confidential in nature, the [BANK] is not required to disclose those specific items, but must disclose more general information about the subject matter of the requirement, together with the fact that, and the reason why, the specific items of information have not been disclosed.
Except as provided in § __.172(b), a [BANK] that is an advanced approaches bank must make the disclosures described in Tables 11.1 through 11.12 below. The [BANK] must make these disclosures publicly available for each of the last three years (that is, twelve quarters) or such shorter period beginning on the effective date of this subpart E.
For each separate risk area described in Tables 11.5 through 11.12, the [BANK] must describe its risk management objectives and policies, including:
• Strategies and processes;
• The structure and organization of the relevant risk management function;
• The scope and nature of risk reporting and/or measurement systems; and
• Policies for hedging and/or mitigating risk and strategies and processes for monitoring the continuing effectiveness of hedges/mitigants.
(a)
(b)
(i) 10 percent or more of quarter-end total assets as reported on the most recent quarterly [Call Report or FR Y–9C]; or
(ii) $1 billion or more.
(2) The [AGENCY] may apply this subpart to any [BANK] if the [AGENCY] deems it necessary or appropriate because of the level of market risk of the [BANK] or to ensure safe and sound banking practices.
(3) The [AGENCY] may exclude a [BANK] that meets the criteria of paragraph (b)(1) of this section from application of this subpart if the [AGENCY] determines that the exclusion is appropriate based on the level of market risk of the [BANK] and is consistent with safe and sound banking practices.
(c)
(2) If the [AGENCY] determines that the risk-based capital requirement calculated under this subpart by the [BANK] for one or more covered positions or portfolios of covered positions is not commensurate with the risks associated with those positions or portfolios, the [AGENCY] may require the [BANK] to assign a different risk-based capital requirement to the positions or portfolios that more accurately reflects the risk of the positions or portfolios.
(3) The [AGENCY] may also require a [BANK] to calculate risk-based capital requirements for specific positions or portfolios under this subpart, or under subpart D or subpart E of this part, as appropriate, to more accurately reflect the risks of the positions.
(4) Nothing in this subpart limits the authority of the [AGENCY] under any other provision of law or regulation to take supervisory or enforcement action, including action to address unsafe or unsound practices or conditions, deficient capital levels, or violations of law.
(a) Terms set forth in § __.2 and used in this subpart have the definitions assigned thereto in § __.2.
(b) For the purposes of this subpart, the following terms are defined as follows:
(1) A securitization position for which all or substantially all of the value of the underlying exposures is based on the credit quality of a single company for which a two-way market exists, or on commonly traded indices based on such exposures for which a two-way market exists on the indices; or
(2) A position that is not a securitization position and that hedges a position described in paragraph (1) of this definition; and
(3) A correlation trading position does not include:
(i) A resecuritization position;
(ii) A derivative of a securitization position that does not provide a pro rata share in the proceeds of a securitization tranche; or
(iii) A securitization position for which the underlying assets or reference exposures are retail exposures, residential mortgage exposures, or commercial mortgage exposures.
(1) A trading asset or trading liability (whether on- or off-balance sheet),
(i) The position is a trading position or hedges another covered position;
(ii) The position is free of any restrictive covenants on its tradability or the [BANK] is able to hedge the material risk elements of the position in a two-way market;
(2) A foreign exchange or commodity position, regardless of whether the position is a trading asset or trading liability (excluding any structural foreign currency positions that the [BANK] chooses to exclude with prior supervisory approval); and
(3) Notwithstanding paragraphs (1) and (2) of this definition, a covered position does not include:
(i) An intangible asset, including any servicing asset;
(ii) Any hedge of a trading position that the [AGENCY] determines to be outside the scope of the [BANK]'s hedging strategy required in paragraph (a)(2) of § __.203;
(iii) Any position that, in form or substance, acts as a liquidity facility that provides support to asset-backed commercial paper;
(iv) A credit derivative the [BANK] recognizes as a guarantee for risk-weighted asset amount calculation purposes under subpart D or subpart E of this part;
(v) Any position that is recognized as a credit valuation adjustment hedge under § __.132(e)(5) or § __.132(e)(6), except as provided in § __.132(e)(6)(vii);
(vi) Any equity position that is not publicly traded, other than a derivative that references a publicly traded equity;
(vii) Any position a [BANK] holds with the intent to securitize; or
(viii) Any direct real estate holding.
(1) An on- or off-balance sheet exposure to a resecuritization; or
(2) An exposure that directly or indirectly references a resecuritization exposure in paragraph (1) of this definition.
(1) All or a portion of the credit risk of one or more underlying exposures is transferred to one or more third parties;
(2) The credit risk associated with the underlying exposures has been separated into at least two tranches that reflect different levels of seniority;
(3) Performance of the securitization exposures depends upon the performance of the underlying exposures;
(4) All or substantially all of the underlying exposures are financial exposures (such as loans, commitments, credit derivatives, guarantees, receivables, asset-backed securities, mortgage-backed securities, other debt securities, or equity securities);
(5) For non-synthetic securitizations, the underlying exposures are not owned by an operating company;
(6) The underlying exposures are not owned by a small business investment company described in section 302 of the Small Business Investment Act;
(7) The underlying exposures are not owned by a firm an investment in which qualifies as a community development investment under section 24 (Eleventh) of the National Bank Act;
(8) The [AGENCY] may determine that a transaction in which the underlying exposures are owned by an investment firm that exercises substantially unfettered control over the size and composition of its assets, liabilities, and off-balance sheet
(9) The [AGENCY] may deem an exposure to a transaction that meets the definition of a securitization, notwithstanding paragraph (5), (6), or (7) of this definition, to be a securitization based on the transaction's leverage, risk profile, or economic substance; and
(10) The transaction is not:
(i) An investment fund;
(ii) A collective investment fund (as defined in 12 CFR 208.34 (Board), 12 CFR 9.18 (OCC), and 12 CFR 344.3 (FDIC);
(iii) A pension fund regulated under the ERISA or a foreign equivalent thereof; or
(iv) Regulated under the Investment Company Act of 1940 (15 U.S.C. 80a–1) or a foreign equivalent thereof.
(1) An on-balance sheet or off-balance sheet credit exposure (including credit-enhancing representations and warranties) that arises from a securitization (including a resecuritization); or
(2) An exposure that directly or indirectly references a securitization exposure described in paragraph (1) of this definition.
(1) Subordinated debt, equity, or minority interest in a consolidated subsidiary that is denominated in a foreign currency;
(2) Capital assigned to foreign branches that is denominated in a foreign currency;
(3) A position related to an unconsolidated subsidiary or another item that is denominated in a foreign currency and that is deducted from the [BANK]'s tier 1 or tier 2 capital; or
(4) A position designed to hedge a [BANK]'s capital ratios or earnings against the effect on paragraphs (1), (2), or (3) of this definition of adverse exchange rate movements.
(a)
(i) The extent to which a position, or a hedge of its material risks, can be marked-to-market daily by reference to a two-way market; and
(ii) Possible impairments to the liquidity of a position or its hedge.
(2)
(i) The trading strategy must articulate the expected holding period of, and the market risk associated with, each portfolio of trading positions.
(ii) The hedging strategy must articulate for each portfolio of trading positions the level of market risk the [BANK] is willing to accept and must detail the instruments, techniques, and strategies the [BANK] will use to hedge the risk of the portfolio.
(b)
(i) Marking positions to market or to model on a daily basis;
(ii) Daily assessment of the [BANK]'s ability to hedge position and portfolio risks, and of the extent of market liquidity;
(iii) Establishment and daily monitoring of limits on positions by a risk control unit independent of the trading business unit;
(iv) Daily monitoring by senior management of information described in paragraphs (b)(1)(i) through (b)(1)(iii) of this section;
(v) At least annual reassessment of established limits on positions by senior management; and
(vi) At least annual assessments by qualified personnel of the quality of market inputs to the valuation process, the soundness of key assumptions, the reliability of parameter estimation in pricing models, and the stability and accuracy of model calibration under alternative market scenarios.
(2)
(c)
(2) A [BANK] must meet all of the requirements of this section on an ongoing basis. The [BANK] must promptly notify the [AGENCY] when:
(i) The [BANK] plans to extend the use of a model that the [AGENCY] has approved under this subpart to an additional business line or product type;
(ii) The [BANK] makes any change to an internal model approved by the [AGENCY] under this subpart that would result in a material change in the [BANK]'s risk-weighted asset amount for a portfolio of covered positions; or
(iii) The [BANK] makes any material change to its modeling assumptions.
(3) The [AGENCY] may rescind its approval of the use of any internal model (in whole or in part) or of the determination of the approach under § __.209(a)(2)(ii) for a [BANK]'s modeled correlation trading positions and determine an appropriate capital requirement for the covered positions to which the model would apply, if the [AGENCY] determines that the model no longer complies with this subpart or fails to reflect accurately the risks of the [BANK]'s covered positions.
(4) The [BANK] must periodically, but no less frequently than annually, review its internal models in light of developments in financial markets and modeling technologies, and enhance those models as appropriate to ensure
(5) The [BANK] must incorporate its internal models into its risk management process and integrate the internal models used for calculating its VaR-based measure into its daily risk management process.
(6) The level of sophistication of a [BANK]'s internal models must be commensurate with the complexity and amount of its covered positions. A [BANK]'s internal models may use any of the generally accepted approaches, including but not limited to variance-covariance models, historical simulations, or Monte Carlo simulations, to measure market risk.
(7) The [BANK]'s internal models must properly measure all the material risks in the covered positions to which they are applied.
(8) The [BANK]'s internal models must conservatively assess the risks arising from less liquid positions and positions with limited price transparency under realistic market scenarios.
(9) The [BANK] must have a rigorous and well-defined process for re-estimating, re-evaluating, and updating its internal models to ensure continued applicability and relevance.
(10) If a [BANK] uses internal models to measure specific risk, the internal models must also satisfy the requirements in paragraph (b)(1) of § __.207.
(d)
(2) The [BANK] must validate its internal models initially and on an ongoing basis. The [BANK]'s validation process must be independent of the internal models' development, implementation, and operation, or the validation process must be subjected to an independent review of its adequacy and effectiveness. Validation must include:
(i) An evaluation of the conceptual soundness of (including developmental evidence supporting) the internal models;
(ii) An ongoing monitoring process that includes verification of processes and the comparison of the [BANK]'s model outputs with relevant internal and external data sources or estimation techniques; and
(iii) An outcomes analysis process that includes backtesting. For internal models used to calculate the VaR-based measure, this process must include a comparison of the changes in the [BANK]'s portfolio value that would have occurred were end-of-day positions to remain unchanged (therefore, excluding fees, commissions, reserves, net interest income, and intraday trading) with VaR-based measures during a sample period not used in model development.
(3) The [BANK] must stress test the market risk of its covered positions at a frequency appropriate to each portfolio, and in no case less frequently than quarterly. The stress tests must take into account concentration risk (including but not limited to concentrations in single issuers, industries, sectors, or markets), illiquidity under stressed market conditions, and risks arising from the [BANK]'s trading activities that may not be adequately captured in its internal models.
(4) The [BANK] must have an internal audit function independent of business-line management that at least annually assesses the effectiveness of the controls supporting the [BANK]'s market risk measurement systems, including the activities of the business trading units and independent risk control unit, compliance with policies and procedures, and calculation of the [BANK]'s measures for market risk under this subpart. At least annually, the internal audit function must report its findings to the [BANK]'s board of directors (or a committee thereof).
(e)
(f)
(a)
(2)
(i)
(A) The previous day's VaR-based measure as calculated under § __.205; or
(B) The average of the daily VaR-based measures as calculated under § __.205 for each of the preceding 60 business days multiplied by three, except as provided in paragraph (b) of this section.
(ii)
(A) The most recent stressed VaR-based measure as calculated under § __.206; or
(B) The average of the stressed VaR-based measures as calculated under § __.206 for each of the preceding 12 weeks multiplied by three, except as provided in paragraph (b) of this section.
(iii)
(iv)
(v)
(vi)
(A) The absolute value of the market value of those
(B) With the prior written approval of the [AGENCY], the capital requirement for any
(b)
(1) Once each quarter, the [BANK] must identify the number of exceptions (that is, the number of business days for which the actual daily net trading loss, if any, exceeds the corresponding daily VaR-based measure) that have occurred over the preceding 250 business days.
(2) A [BANK] must use the multiplication factor in table 1 that corresponds to the number of exceptions identified in paragraph (b)(1) of this section to determine its VaR-based capital requirement for market risk under paragraph (a)(2)(i) of this section and to determine its stressed VaR-based capital requirement for market risk under paragraph (a)(2)(ii) of this section until it obtains the next quarter's backtesting results, unless the [AGENCY] notifies the [BANK] in writing that a different adjustment or other action is appropriate.
(a)
(1) The [BANK]'s internal models for calculating its VaR-based measure must use risk factors sufficient to measure the market risk inherent in all covered positions. The market risk categories must include, as appropriate, interest rate risk, credit spread risk, equity price risk, foreign exchange risk, and commodity price risk. For material positions in the major currencies and markets, modeling techniques must incorporate enough segments of the yield curve—in no case less than six—to capture differences in volatility and less than perfect correlation of rates along the yield curve.
(2) The VaR-based measure may incorporate empirical correlations within and across risk categories, provided the [BANK] validates and demonstrates the reasonableness of its process for measuring correlations. If the VaR-based measure does not incorporate empirical correlations across risk categories, the [BANK] must add the separate measures from its internal models used to calculate the VaR-based measure for the appropriate market risk categories (interest rate risk, credit spread risk, equity price risk, foreign exchange rate risk, and/or commodity price risk) to determine its aggregate VaR-based measure.
(3) The VaR-based measure must include the risks arising from the nonlinear price characteristics of options positions or positions with embedded optionality and the sensitivity of the market value of the positions to changes in the volatility of the underlying rates, prices, or other material risk factors. A [BANK] with a large or complex options portfolio must measure the volatility of options positions or positions with embedded optionality by different maturities and/or strike prices, where material.
(4) The [BANK] must be able to justify to the satisfaction of the [AGENCY] the omission of any risk factors from the calculation of its VaR-based measure that the [BANK] uses in its pricing models.
(5) The [BANK] must demonstrate to the satisfaction of the [AGENCY] the appropriateness of any proxies used to capture the risks of the [BANK]'s actual positions for which such proxies are used.
(b)
(2) The VaR-based measure must be based on a historical observation period of at least one year. Data used to determine the VaR-based measure must be relevant to the [BANK]'s actual exposures and of sufficient quality to support the calculation of risk-based capital requirements. The [BANK] must update data sets at least monthly or more frequently as changes in market conditions or portfolio composition warrant. For a [BANK] that uses a weighting scheme or other method for the historical observation period, the [BANK] must either:
(i) Use an effective observation period of at least one year in which the average time lag of the observations is at least six months; or
(ii) Demonstrate to the [AGENCY] that its weighting scheme is more effective than a weighting scheme with an average time lag of at least six months representing the volatility of the [BANK]'s trading portfolio over a full business cycle. A [BANK] using this option must update its data more frequently than monthly and in a manner appropriate for the type of weighting scheme.
(c) A [BANK] must divide its portfolio into a number of significant subportfolios approved by the [AGENCY] for subportfolio backtesting purposes. These subportfolios must be sufficient to allow the [BANK] and the [AGENCY] to assess the adequacy of the VaR model at the risk factor level; the [AGENCY] will evaluate the
(1) A daily VaR-based measure for the subportfolio calibrated to a one-tail, 99.0 percent confidence level;
(2) The daily profit or loss for the subportfolio (that is, the net change in price of the positions held in the portfolio at the end of the previous business day); and
(3) The p-value of the profit or loss on each day (that is, the probability of observing a profit that is less than, or a loss that is greater than, the amount reported for purposes of paragraph (c)(2) of this section based on the model used to calculate the VaR-based measure described in paragraph (c)(1) of this section).
(a)
(b)
(2) The stressed VaR-based measure must be calculated at least weekly and be no less than the [BANK]'s VaR-based measure.
(3) A [BANK] must have policies and procedures that describe how it determines the period of significant financial stress used to calculate the [BANK]'s stressed VaR-based measure under this section and must be able to provide empirical support for the period used. The [BANK] must obtain the prior approval of the [AGENCY] for, and notify the [AGENCY] if the [BANK] makes any material changes to, these policies and procedures. The policies and procedures must address:
(i) How the [BANK] links the period of significant financial stress used to calculate the stressed VaR-based measure to the composition and directional bias of its current portfolio; and
(ii) The [BANK]'s process for selecting, reviewing, and updating the period of significant financial stress used to calculate the stressed VaR-based measure and for monitoring the appropriateness of the period to the [BANK]'s current portfolio.
(4) Nothing in this section prevents the [AGENCY] from requiring a [BANK] to use a different period of significant financial stress in the calculation of the stressed VaR-based measure.
(a)
(b)
(1)
(A) Explain the historical price variation in the portfolio;
(B) Be responsive to changes in market conditions;
(C) Be robust to an adverse environment, including signaling rising risk in an adverse environment; and
(D) Capture all material components of specific risk for the debt and equity positions in the portfolio. Specifically, the internal models must:
(
(
(ii) If a [BANK] calculates an incremental risk measure for a portfolio of debt or equity positions under section 208 of this subpart, the [BANK] is not required to capture default and credit migration risks in its internal models used to measure the specific risk of those portfolios.
(2)
(c)
(2) A [BANK] must calculate a specific risk add-on under the standardized measurement method as described in § __.210 for all of its securitization positions that are not modeled under § __.209.
(a)
(b)
(1) Measure incremental risk over a one-year time horizon and at a one-tail, 99.9 percent confidence level, either under the assumption of a constant level of risk, or under the assumption of constant positions.
(i) A constant level of risk assumption means that the [BANK] rebalances, or rolls over, its trading positions at the beginning of each liquidity horizon over the one-year horizon in a manner that maintains the [BANK]'s initial risk level. The [BANK] must determine the
(ii) A constant position assumption means that the [BANK] maintains the same set of positions throughout the one-year horizon. If a [BANK] uses this assumption, it must do so consistently across all portfolios.
(iii) A [BANK]'s selection of a constant position or a constant risk assumption must be consistent between the [BANK]'s incremental risk model and its comprehensive risk model described in section 209 of this subpart, if applicable.
(iv) A [BANK]'s treatment of liquidity horizons must be consistent between the [BANK]'s incremental risk model and its comprehensive risk model described in section 209, if applicable.
(2) Recognize the impact of correlations between default and migration events among obligors.
(3) Reflect the effect of issuer and market concentrations, as well as concentrations that can arise within and across product classes during stressed conditions.
(4) Reflect netting only of long and short positions that reference the same financial instrument.
(5) Reflect any material mismatch between a position and its hedge.
(6) Recognize the effect that liquidity horizons have on dynamic hedging strategies. In such cases, a [BANK] must:
(i) Choose to model the rebalancing of the hedge consistently over the relevant set of trading positions;
(ii) Demonstrate that the inclusion of rebalancing results in a more appropriate risk measurement;
(iii) Demonstrate that the market for the hedge is sufficiently liquid to permit rebalancing during periods of stress; and
(iv) Capture in the incremental risk model any residual risks arising from such hedging strategies.
(7) Reflect the nonlinear impact of options and other positions with material nonlinear behavior with respect to default and migration changes.
(8) Maintain consistency with the [BANK]'s internal risk management methodologies for identifying, measuring, and managing risk.
(c)
(1) The average of the incremental risk measures over the previous 12 weeks; or
(2) The most recent incremental risk measure.
(a)
(2) A [BANK] that measures the price risk of a portfolio of correlation trading positions using internal models must calculate at least weekly a comprehensive risk measure that captures all price risk according to the requirements of this section. The comprehensive risk measure is either:
(i) The sum of:
(A) The [BANK]'s modeled measure of all price risk determined according to the requirements in paragraph (b) of this section; and
(B) A surcharge for the [BANK]'s modeled correlation trading positions equal to the total specific risk add-on for such positions as calculated under section 210 of this subpart multiplied by 8.0 percent; or
(ii) With approval of the [AGENCY] and provided the [BANK] has met the requirements of this section for a period of at least one year and can demonstrate the effectiveness of the model through the results of ongoing model validation efforts including robust benchmarking, the greater of:
(A) The [BANK]'s modeled measure of all price risk determined according to the requirements in paragraph (b) of this section; or
(B) The total specific risk add-on that would apply to the bank's modeled correlation trading positions as calculated under section 210 of this subpart multiplied by 8.0 percent.
(b)
(1) The internal model must measure comprehensive risk over a one-year time horizon at a one-tail, 99.9 percent confidence level, either under the assumption of a constant level of risk, or under the assumption of constant positions.
(2) The model must capture all material price risk, including but not limited to the following:
(i) The risks associated with the contractual structure of cash flows of the position, its issuer, and its underlying exposures;
(ii) Credit spread risk, including nonlinear price risks;
(iii) The volatility of implied correlations, including nonlinear price risks such as the cross-effect between spreads and correlations;
(iv) Basis risk;
(v) Recovery rate volatility as it relates to the propensity for recovery rates to affect tranche prices; and
(vi) To the extent the comprehensive risk measure incorporates the benefits of dynamic hedging, the static nature of the hedge over the liquidity horizon must be recognized. In such cases, a [BANK] must:
(A) Choose to model the rebalancing of the hedge consistently over the relevant set of trading positions;
(B) Demonstrate that the inclusion of rebalancing results in a more appropriate risk measurement;
(C) Demonstrate that the market for the hedge is sufficiently liquid to permit rebalancing during periods of stress; and
(D) Capture in the comprehensive risk model any residual risks arising from such hedging strategies;
(3) The [BANK] must use market data that are relevant in representing the risk profile of the [BANK]'s correlation trading positions in order to ensure that the [BANK] fully captures the material risks of the correlation trading positions in its comprehensive risk measure in accordance with this section; and
(4) The [BANK] must be able to demonstrate that its model is an appropriate representation of comprehensive risk in light of the historical price variation of its correlation trading positions.
(c)
(i) Default rates;
(ii) Recovery rates;
(iii) Credit spreads;
(iv) Correlations of underlying exposures; and
(v) Correlations of a correlation trading position and its hedge.
(2)
(ii) A [BANK] must report to the [AGENCY] promptly any instances where the stress tests indicate any material deficiencies in the comprehensive risk model.
(d)
(1) The average of the comprehensive risk measures over the previous 12 weeks; or
(2) The most recent comprehensive risk measure.
(a)
(1) The specific risk add-on for an individual debt or securitization position that represents sold credit protection is capped at the notional amount of the credit derivative contract. The specific risk add-on for an individual debt or securitization position that represents purchased credit protection is capped at the current market value of the transaction plus the absolute value of the present value of all remaining payments to the protection seller under the transaction. This sum is equal to the value of the protection leg of the transaction.
(2) For debt, equity, or securitization positions that are derivatives with linear payoffs, a [BANK] must assign a specific risk-weighting factor to the market value of the effective notional amount of the underlying instrument or index portfolio, except for a securitization position for which the [BANK] directly calculates a specific risk add-on using the SFA in paragraph (b)(2)(vii)(B) of this section. A swap must be included as an effective notional position in the underlying instrument or portfolio, with the receiving side treated as a long position and the paying side treated as a short position. For debt, equity, or securitization positions that are derivatives with nonlinear payoffs, a [BANK] must risk weight the market value of the effective notional amount of the underlying instrument or portfolio multiplied by the derivative's delta.
(3) For debt, equity, or securitization positions, a [BANK] may net long and short positions (including derivatives) in identical issues or identical indices. A [BANK] may also net positions in depositary receipts against an opposite position in an identical equity in different markets, provided that the [BANK] includes the costs of conversion.
(4) A set of transactions consisting of either a debt position and its credit derivative hedge or a securitization position and its credit derivative hedge has a specific risk add-on of zero if:
(i) The debt or securitization position is fully hedged by a total return swap (or similar instrument where there is a matching of swap payments and changes in market value of the debt or securitization position);
(ii) There is an exact match between the reference obligation of the swap and the debt or securitization position;
(iii) There is an exact match between the currency of the swap and the debt or securitization position; and
(iv) There is either an exact match between the maturity date of the swap and the maturity date of the debt or securitization position; or, in cases where a total return swap references a portfolio of positions with different maturity dates, the total return swap maturity date must match the maturity date of the underlying asset in that portfolio that has the latest maturity date.
(5) The specific risk add-on for a set of transactions consisting of either a debt position and its credit derivative hedge or a securitization position and its credit derivative hedge that does not meet the criteria of paragraph (a)(4) of this section is equal to 20.0 percent of the capital requirement for the side of the transaction with the higher specific risk add-on when:
(i) The credit risk of the position is fully hedged by a credit default swap or similar instrument;
(ii) There is an exact match between the reference obligation of the credit derivative hedge and the debt or securitization position;
(iii) There is an exact match between the currency of the credit derivative hedge and the debt or securitization position; and
(iv) There is either an exact match between the maturity date of the credit derivative hedge and the maturity date of the debt or securitization position; or, in the case where the credit derivative hedge has a standard maturity date:
(A) The maturity date of the credit derivative hedge is within 30 business days of the maturity date of the debt or securitization position; or
(B) For purchased credit protection, the maturity date of the credit derivative hedge is later than the maturity date of the debt or securitization position, but is no later than the standard maturity date for that instrument that immediately follows the maturity date of the debt or securitization position. The maturity date of the credit derivative hedge may not exceed the maturity date of the debt or securitization position by more than 90 calendar days.
(6) The specific risk add-on for a set of transactions consisting of either a debt position and its credit derivative hedge or a securitization position and its credit derivative hedge that does not meet the criteria of either paragraph (a)(4) or (a)(5) of this section, but in which all or substantially all of the price risk has been hedged, is equal to the specific risk add-on for the side of the transaction with the higher specific risk add-on.
(b)
(2) For the purpose of this section, the appropriate specific risk-weighting factors include: (i)
(B) Notwithstanding paragraph (b)(2)(i)(A) of this section, a [BANK] may assign to a sovereign debt position a specific risk-weighting factor that is lower than the applicable specific risk-weighting factor in table 2 if:
(
(
(
(C) A [BANK] must assign a 12.0 percent specific risk-weighting factor to a sovereign debt position immediately upon determination a default has occurred; or if a default has occurred within the previous five years.
(D) A [BANK] must assign an 8.0 percent specific risk-weighting factor to a sovereign debt position if the sovereign entity does not have a CRC assigned to it, unless the sovereign debt position must be assigned a higher specific risk-weighting factor under paragraph (b)(2)(i)(C) of this section.
(ii)
(iii)
(iv)
(B) A [BANK] must assign a specific risk-weighting factor of 8.0 percent to a debt position that is an exposure to a depository institution or a foreign bank that is includable in the depository institution's or foreign bank's regulatory capital and that is not subject to deduction as a reciprocal holding under § __.22.
(C) A [BANK] must assign a 12.0 percent specific risk-weighting factor to a debt position that is an exposure to a foreign bank immediately upon determination that a default by the foreign bank's home country has occurred or if a default by the foreign bank's home country has occurred within the previous five years.
(v)
(B) A [BANK] may assign a lower specific risk-weighting factor than would otherwise apply under tables 4 and 5 of this section to a debt position that is an exposure to a foreign PSE if:
(
(
(C) A [BANK] must assign a 12.0 percent specific risk-weighting factor to a PSE debt position immediately upon determination that a default by the PSE's home country has occurred or if a default by the PSE's home country has occurred within the previous five years.
(vi)
(A)
(
(B)
(
(vii)
(
(
(B)
(C)
(D)
(
(
(
(
(c)
(1) The sum of the [BANK]'s specific risk add-ons for each net long correlation trading position calculated under this section; or
(2) The sum of the [BANK]'s specific risk add-ons for each net short correlation trading position calculated under this section.
(d)
(1) The sum of the [BANK]'s specific risk add-ons for each net long securitization position calculated under this section; or
(2) The sum of the [BANK]'s specific risk add-ons for each net short securitization position calculated under this section.
(e)
(1) The [BANK] must multiply the absolute value of the current market value of each net long or net short equity position by a specific risk-weighting factor of 8.0 percent. For equity positions that are index contracts comprising a well-diversified portfolio of equity instruments, the absolute value of the current market value of each net long or net short position is multiplied by a specific risk-weighting factor of 2.0 percent.
(2) For equity positions arising from the following futures-related arbitrage strategies, a [BANK] may apply a 2.0 percent specific risk-weighting factor to one side (long or short) of each position with the opposite side exempt from an additional capital requirement:
(i) Long and short positions in exactly the same index at different dates or in different market centers; or
(ii) Long and short positions in index contracts at the same date in different, but similar indices.
(3) For futures contracts on main indices that are matched by offsetting positions in a basket of stocks comprising the index, a [BANK] may apply a 2.0 percent specific risk-weighting factor to the futures and stock basket positions (long and short), provided that such trades are deliberately entered into and separately controlled, and that the basket of stocks is comprised of stocks representing at least 90.0 percent of the capitalization of the index. A main index refers to the Standard & Poor's 500 Index, the FTSE All-World Index, and any other index for which the [BANK] can demonstrate to the satisfaction of the [AGENCY] that the equities represented in the index have liquidity, depth of market, and size of bid-ask spreads comparable to equities in the Standard & Poor's 500 Index and FTSE All-World Index.
(f)
(2) A [BANK] must demonstrate its comprehensive understanding for each securitization position by:
(i) Conduct an analysis of the risk characteristics of a securitization position prior to acquiring the position and document such analysis within three business days after acquiring position, considering:
(A) Structural features of the securitization that would materially impact the performance of the position, for example, the contractual cash flow waterfall, waterfall-related triggers, credit enhancements, liquidity enhancements, market value triggers, the performance of organizations that service the position, and deal-specific definitions of default;
(B) Relevant information regarding the performance of the underlying credit exposure(s), for example, the percentage of loans 30, 60, and 90 days past due; default rates; prepayment rates; loans in foreclosure; property types; occupancy; average credit score or other measures of creditworthiness; average loan-to-value ratio; and industry and geographic diversification data on the underlying exposure(s);
(C) Relevant market data of the securitization, for example, bid-ask spreads, most recent sales price and historical price volatility, trading volume, implied market rating, and size, depth and concentration level of the market for the securitization; and
(D) For resecuritization positions, performance information on the underlying securitization exposures, for example, the issuer name and credit quality, and the characteristics and performance of the exposures underlying the securitization exposures; and
(ii) On an on-going basis (no less frequently than quarterly), evaluating, reviewing, and updating as appropriate the analysis required under paragraph (f)(1) of this section for each securitization position.
(a)
(b)
(1) K
(2) Parameter W is expressed as a decimal value between zero and one. Parameter W is the ratio of the sum of the dollar amounts of any underlying exposures within the securitized pool that meet any of the criteria are set forth in paragraphs (i) through (vi) of this paragraph (b)(2) to the ending balance, measured in dollars, of underlying exposures:
(i) Ninety days or more past due;
(ii) Subject to a bankruptcy or insolvency proceeding;
(iii) In the process of foreclosure;
(iv) Held as real estate owned;
(v) Has contractually deferred interest payments for 90 days or more; or
(vi) Is in default.
(3) Parameter A is the attachment point for the position, which represents the threshold at which credit losses will first be allocated to the position. Parameter A equals the ratio of the current dollar amount of underlying exposures that are subordinated to the position of the [BANK] to the current dollar amount of underlying exposures. Any reserve account funded by the accumulated cash flows from the underlying exposures that is subordinated to the position that contains the [BANK]'s securitization exposure may be included in the calculation of parameter A to the extent that cash is present in the account. Parameter A is expressed as a decimal value between zero and one.
(4) Parameter D is the detachment point for the position, which represents the threshold at which credit losses of principal allocated to the position would result in a total loss of principal. Parameter D equals parameter A plus the ratio of the current dollar amount of the securitization positions that are
(5) A supervisory calibration parameter, p, is equal to 0.5 for securitization positions that are not resecuritization positions and equal to 1.5 for resecuritization positions.
(c)
(1) When the detachment point, parameter D, for a securitization position is less than or equal to K
(2) When the attachment point, parameter A, for a securitization
(3) When A is less than K
(a)
(b)
(c)
(i) The high, low, and mean VaR-based measures over the reporting period and the VaR-based measure at period-end;
(ii) The high, low, and mean stressed VaR-based measures over the reporting period and the stressed VaR-based measure at period-end;
(iii) The high, low, and mean incremental risk capital requirements over the reporting period and the incremental risk capital requirement at period-end;
(iv) The high, low, and mean comprehensive risk capital requirements over the reporting period and the comprehensive risk capital requirement at period-end, with the period-end requirement broken down into appropriate risk classifications (for example, default risk, migration risk, correlation risk);
(v) Separate measures for interest rate risk, credit spread risk, equity price risk, foreign exchange risk, and commodity price risk used to calculate the VaR-based measure; and
(vi) A comparison of VaR-based estimates with actual gains or losses experienced by the [BANK], with an analysis of important outliers.
(2) In addition, the [BANK] must disclose publicly the following information at least quarterly:
(i) The aggregate amount of on-balance sheet and off-balance sheet securitization positions by exposure type; and
(ii) The aggregate amount of correlation trading positions.
(d)
(1) The composition of material portfolios of covered positions;
(2) The [BANK]'s valuation policies, procedures, and methodologies for covered positions including, for securitization positions, the methods and key assumptions used for valuing such positions, any significant changes since the last reporting period, and the impact of such change;
(3) The characteristics of the internal models used for purposes of this subpart. For the incremental risk capital requirement and the comprehensive risk capital requirement, this must include:
(i) The approach used by the [BANK] to determine liquidity horizons;
(ii) The methodologies used to achieve a capital assessment that is consistent with the required soundness standard; and
(iii) The specific approaches used in the validation of these models;
(4) A description of the approaches used for validating and evaluating the accuracy of internal models and modeling processes for purposes of this subpart;
(5) For each market risk category (that is, interest rate risk, credit spread risk, equity price risk, foreign exchange risk, and commodity price risk), a description of the stress tests applied to the positions subject to the factor;
(6) The results of the comparison of the [BANK]'s internal estimates for purposes of this subpart with actual outcomes during a sample period not used in model development;
(7) The soundness standard on which the [BANK]'s internal capital adequacy assessment under this subpart is based, including a description of the methodologies used to achieve a capital adequacy assessment that is consistent with the soundness standard;
(8) A description of the [BANK]'s processes for monitoring changes in the credit and market risk of securitization positions, including how those processes differ for resecuritization positions; and
(9) A description of the [BANK]'s policy governing the use of credit risk mitigation to mitigate the risks of securitization and resecuritization positions.
Administrative practices and procedure, Capital, National banks, Reporting and recordkeeping requirements, Risk.
Banks, banking, Federal Reserve System, Holding companies, Reporting and recordkeeping requirements, Securities.
Administrative practice and procedure, Banks, banking, Capital Adequacy, Reporting and recordkeeping requirements, Savings associations, State non-member banks.
The adoption of the proposed common rules by the agencies, as modified by agency-specific text, is set forth below:
12 CFR Chapter I
For the reasons set forth in the common preamble, the Office of the Comptroller of the Currency proposes to further amend part 3 of chapter I of title 12 of the Code of Federal Regulations is proposed to be amended elsewhere in this issue of the
1. The authority citation for part 3 continues to read as follows:
12 U.S.C. 93a, 161, 1462, 1462a, 1463, 1464, 1818, 1828(n), 1828 note, 1831n note, 1835, 3907 and 3909, and 5412(b)(2)(B).
2. Designate the text set forth at the end of the common preamble as part 3, subparts E and F.
3. Newly designated subparts E and F of part 3 are amended as set forth below:
i. Remove “[AGENCY]” and add “OCC” in its place, wherever it appears;
ii. Remove “[BANK]” and add “national bank or Federal savings association” in its place, wherever it appears;
iii. Remove “[BANKS]” and “[BANK]s” and add “national banks and Federal savings associations” in their places, wherever they appear;
iv. Remove “[BANK]'s” and add “national bank's and Federal savings association's” in its place, wherever it appears;
v. Remove “[PART]” and add “Part 3” in its place, wherever it appears; and
vi. Remove “[Regulatory Reports]” and add “Call Report” in its place, wherever it appears; and
vii. Remove “[regulatory report]” and add “Call Reports” in its place, wherever it appears.
For the reasons set forth in the common preamble, part 217 of chapter II of title 12 of the Code of Federal
1. The authority citation for part 217 continues to read as follows:
12 U.S.C. 248(a), 321–338a, 481–486, 1462a, 1467a, 1818, 1828, 1831n, 1831o, 1831p–l, 1831w, 1835, 1844(b), 3904, 3906–3909, 4808, 5365, 5371.
2. Designate the text set forth at the end of the common preamble as part 217, subparts E and F.
3. Part 217 is amended as set forth below:
a. Remove “[AGENCY]” and add “Board” in its place wherever it appears.
b. Remove “[BANK]” and add “Board-regulated institution” in its place wherever it appears.
c. Remove “[PART]” and add “part” in its place wherever it appears.
d. Remove “[Regulatory Reports]” and add in its place “Consolidated Reports of Condition and Income (Call Report), for a state member bank, or Consolidated Financial Statements for Bank Holding Companies (FR Y–9C), for a bank holding company or savings and loan holding company, as applicable” the first time it appears; and
e. Remove “[regulatory report]” and add in its place “Call Report, for a state member bank or FR Y–9C, for a bank holding company or savings and loan holding company, as applicable”.
4. In § 217.100, revise paragraph (b)(1) to read as follows:
(b)
(i) A top-tier bank holding company or savings and loan holding company domiciled in the United States that:
(A) Is not a consolidated subsidiary of another bank holding company or savings and loan holding company that uses 12 CFR part 217, subpart E, to calculate its risk-based capital requirements; and
(B) That:
(
(
(
(ii) A state member bank that:
(A) Has total consolidated assets, as reported on the most recent year-end Consolidated Report of Condition and Income (Call Report), equal to $250 billion or more;
(B) Has consolidated total on-balance sheet foreign exposure at the most recent year-endequal to $10 billion or more (where total on-balance sheet foreign exposure equals total cross-border claims less claims with head office or guarantor located in another country plus redistributed guaranteed amounts to the country of head office or guarantor plus local country claims on local residents plus revaluation gains on foreign exchange and derivative products, calculated in accordance with the Federal Financial Institutions Examination Council (FFIEC) 009 Country Exposure Report);
(C) Is a subsidiary of a depository institution that uses 12 CFR part 3, subpart E (OCC), 12 CFR part 217, subpart E (Board), or 12 CFR part 325, subpart E (FDIC) to calculate its risk-based capital requirements; or
(D) Is a subsidiary of a bank holding company that uses 12 CFR part 217, subpart E, to calculate its risk-based capital requirements; and
(iii) Any Board-regulated institution that elects to use this subpart to calculate its risk-based capital requirements.
5. In § 217.121, revise paragraph (a) to read as follows:
(a)
(2) A Board-regulated institution that elects to be subject to this subpart under § 217.101(b)(1)(iii) must adopt a written implementation plan.
6. In § 217.122(g), revise paragraph (g)(3)(ii) to read as follows:
(g) * * *
(3) * * *
(ii)(A) With the prior written approval of the Board, a state member bank may generate an estimate of its operational risk exposure using an alternative approach to that specified in paragraph (g)(3)(i) of this section. A state member bank proposing to use such an alternative operational risk quantification system must submit a proposal to the Board. In determining whether to approve a state member bank's proposal to use an alternative operational risk quantification system, the Board will consider the following principles:
(A) Use of the alternative operational risk quantification system will be allowed only on an exception basis, considering the size, complexity, and risk profile of the state member bank;
(B) The state member bank must demonstrate that its estimate of its operational risk exposure generated under the alternative operational risk quantification system is appropriate and can be supported empirically; and
(C) A state member bank must not use an allocation of operational risk capital requirements that includes entities other than depository institutions or the benefits of diversification across entities.
7. In § 217.131, revise paragraph (b) and paragraphs (e)(3)(i) and (ii), and add a new paragraph (e)(5) to read as follows:
(b)
(e) * * *
(3) * * *
(i) A bank holding company or savings and loan holding company may assign a risk-weighted asset amount of zero to cash owned and held in all offices of subsidiary depository institutions or in transit; and for gold bullion held in a subsidiary depository institution's own vaults, or held in another depository institution's vaults on an allocated basis, to the extent the gold bullion assets are offset by gold bullion liabilities.
(ii) A state member bank may assign a risk-weighted asset amount to cash owned and held in all offices of the state member bank or in transit and for gold bullion held in the state member bank's own vaults, or held in another depository institution's vaults on an allocated basis, to the extent the gold bullion assets are offset by gold bullion liabilities.
(5)
8. In § 217.142, revise paragraph (k)(1)(iv) to read as follows:
(k) * * *
(1) * * *
(iv) * * *
(A) In the case of a state member bank, the bank is well capitalized, as defined in 12 CFR 208.43. For purposes of determining whether a state member bank is well capitalized for purposes of this paragraph, the state member bank's capital ratios must be calculated without regard to the capital treatment for transfers of small-business obligations with recourse specified in paragraph (k)(1) of this section.
(B) In the case of a bank holding company or savings and loan holding company, the bank holding company or savings and loan holding company is well capitalized, as defined in 12 CFR 225.2. For purposes of determining whether a bank holding company or savings and loan holding company is well capitalized for purposes of this paragraph, the bank holding company or savings and loan holding company's capital ratios must be calculated without regard to the capital treatment for transfers of small-business obligations with recourse specified in paragraph (k)(1) of this section.
9. In § 217.152, revise paragraph (b)(3)(i) to read as follows:
(b) * * *
(3) * * *
(i)
(B) For savings and loan holding companies, an equity exposure that is designed primarily to promote community welfare, including the welfare of low- and moderate-income communities or families, such as by providing services or employment, and excluding equity exposures to an unconsolidated small business investment company and equity exposures held through a small business investment company described in section 302 of the Small Business Investment Act of 1958 (15 U.S.C. 682).
10. In § 217.201, revise paragraph (b)(1) introductory text to read as follows:
(b)
11. In § 217.202, amend paragraph (b) by revising paragraph (1) of the definition of “Covered position” to read as follows:
(1) A trading asset or trading liability (whether on- or off-balance sheet),
12 CFR Chapter III
For the reasons set forth in the common preamble, the Federal Deposit Insurance Corporation proposes to amend part 324 of chapter III of title 12 of the Code of Federal Regulations as follows:
1. The authority citation for part 324 continues to read as follows:
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; 5371; 5412; Pub. L. 102–233, 105 Stat. 1761, 1789, 1790 (12 U.S.C. 1831n note); Pub. L. 102–242, 105 Stat. 2236, 2355, as amended by Pub. L. 103–325, 108 Stat. 2160, 2233 (12
2. Subparts E and F are added as set forth at the end of the common preamble.
3. Subparts E and F are amended as set forth below:
a. Remove “[AGENCY]” and add “FDIC” in its place, wherever it appears;
b. Remove “[Agency]” and add “FDIC” in its place, wherever it appears;
c. Remove “[12 CFR 3.12, 12 CFR 263.202, 12 CFR 325.6(c), 12 CFR 567.3(d)]” and add “12 CFR 325.6” in its place, wherever it appears;
d. Remove “[BANK]” and add “bank or state savings association” in its place, wherever it appears in the phrases “A [BANK]”, “a [BANK]”, “The [BANK]”, or “the [BANK]”;
e. Remove “[BANK]” and add “bank and state savings association” in its place, wherever it appears in the phrases “Each [BANK]” or “each [BANK]”;
f. Remove “[BANKS]” and “[BANK]s” and add “banks and state savings associations” in their place, wherever they appear;
g. Remove “[PART]” and add “Part 324” in its place, wherever it appears;
h. Remove “[Regulatory Reports]” and add “Consolidated Report of Condition and Income (Call Report)” in its place;
i. Remove “of 12 CFR part 3 (OCC), 12 CFR part 208 (Board), or 12 CFR part 325 (FDIC)” and add “of 12 CFR part 324” in its place, wherever it appears;
j. Remove “[prompt corrective action regulation]” and add “Subpart H of this part” in its place, wherever it appears;
k. Remove “banking organization” and add “bank and/or state savings associations, as”
l. Remove “[Regulatory Reports]” and add “Consolidated Report of Condition and Income (Call Report)” in its place; and
m. Remove “[regulatory report]” and add “Call Report” in its place wherever it appears; and
4. The authority citation for part 325 continues to read as follows:
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, 2355, 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).
5. Appendix D to part 325 is removed and reserved.
By order of the Board of Governors of the Federal Reserve System, July 3, 2012.
By order of the Board of Directors.
Office of the Comptroller of the Currency, Department of the Treasury; Board of Governors of the Federal Reserve System; and Federal Deposit Insurance Corporation.
Joint final rule.
The Office of the Comptroller of the Currency (OCC), Board of Governors of the Federal Reserve System (Board), and Federal Deposit Insurance Corporation (FDIC) are revising their market risk capital rules to better capture positions for which the market risk capital rules are appropriate; reduce procyclicality; enhance the rules' sensitivity to risks that are not adequately captured under current methodologies; and increase transparency through enhanced disclosures. The final rule does not include all of the methodologies adopted by the Basel Committee on Banking Supervision for calculating the standardized specific risk capital requirements for debt and securitization positions due to their reliance on credit ratings, which is impermissible under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. Instead, the final rule includes alternative methodologies for calculating standardized specific risk capital requirements for debt and securitization positions.
The final rule is effective January 1, 2013.
The first international capital framework for banks
In June 2004, the BCBS issued a document entitled
Basel II retained much of the MRA; however, after its release, the BCBS announced that it would develop improvements to the market risk framework, especially with respect to the treatment of specific risk, which refers to the risk of loss on a position due to factors other than broad-based movements in market prices. As a result, in July 2005, the BCBS and the International Organization of Securities Commissions (IOSCO) jointly published
The BCBS began work on significant changes to the market risk framework in 2007 and developed reforms aimed at addressing issues highlighted by the financial crisis. These changes were published in the BCBS's
The 2009 revisions place additional prudential requirements on banks' internal models for measuring market risk and require enhanced qualitative and quantitative disclosures, particularly with respect to banks' securitization activities. The revisions also introduce an incremental risk capital requirement to capture default and credit quality migration risk for non-securitization credit products. With respect to securitizations, the 2009 revisions require banks to apply a standardized measurement method for specific risk to these positions, except for “correlation trading” positions (described further below), for which banks may choose to model all material price risks. The 2009 revisions also add a stressed Value-at-Risk (VaR)-based capital requirement to banks' existing general VaR-based capital requirement. In June 2010, the BCBS published additional revisions to the market risk framework including a floor on the risk-based capital requirement for modeled correlation trading positions (2010 revisions).
Both the 2005 and 2009 revisions include provisions that reference credit ratings. The 2005 revisions also expanded the “government” category of debt positions to include all sovereign debt and changed the standardized specific risk-weighting factor for sovereign debt from zero percent to a range of zero to 12.0 percent based on the credit rating of the obligor and the remaining contractual maturity of the debt position.
The 2009 revisions include changes to the specific risk-weighting factors for rated and unrated securitization positions. For rated securitization positions, the revisions assign a specific risk-weighting factor based on the credit rating of a position, and whether such rating represents a long-term credit rating or a short-term credit rating. In addition, the 2009 revisions provide for the application of higher specific risk-weighting factors to rated resecuritization positions relative to similarly-rated securitization exposures. Under the 2009 revisions, unrated securitization positions were to be deducted from total capital, except when the unrated position was held by a bank that had approval and ability to use the supervisory formula approach (SFA) to determine the specific risk add-on for the unrated position. Finally, under
On January 11, 2011, the agencies issued a joint notice of proposed rulemaking (January 2011 proposal) that sought public comment on revisions to the agencies' market risk capital rules to implement the 2005, 2009, and 2010 revisions.
When publishing the January 2011 proposal, the agencies did not propose to implement those aspects of the 2005 and 2009 revisions that rely on the use of credit ratings due to certain provisions of the Dodd-Frank Wall
The agencies received six comment letters on the January 2011 proposal and 30 comment letters on the December 2011 amendment from banking organizations, trade associations representing the banking or financial services industry, and other interested parties. This section of the preamble highlights commenters' main concerns and briefly describes how the agencies have responded to comments received in the final rule. A more detailed discussion of comments on specific provisions of the final rule is provided in section III of this preamble.
While commenters expressed general support for the proposed revisions to the agencies' market risk capital rules, many noted that the BCBS's market risk framework required further improvement in certain areas. For example, some commenters expressed concern about certain duplications in the capital requirements, such as the requirement for both a VaR-based measure and a stressed VaR-based measure, because such redundancies would result in excessive capital requirements and distortions in risk management. A different commenter noted that the use of numerous risk measures with different time horizons and conceptual approaches may encourage excessive risk taking.
Although commenters characterized the conceptual overlap of certain provisions of the January 2011 proposal as resulting in duplicative capital requirements, the agencies believe that these provisions provide a prudent level of conservatism in the market risk capital rule.
One commenter noted that the rule's VaR-based measure has notable shortcomings because it may encourage procyclical behavior and regulatory arbitrage. This commenter also asserted that because marked-to-market assets can experience significant price volatility, the proposal's required capital levels may not be sufficient to address this volatility. The agencies are concerned about these issues but believe that the January 2011 proposal addressed these concerns, for example, through the addition of a stressed VaR-based measure.
Commenters generally encouraged the agencies to continue work on the fundamental review of the market risk framework recently published as a consultative document through the BCBS, and one asserted that the agencies should wait until this work is completed before revising the agencies' market risk capital rules.
Commenters also expressed concern that the January 2011 proposal differs from the 2005 and 2009 revisions in some respects, such as excluding from the definition of covered position a hedge that is not within the scope of the bank's hedging strategy, providing a more restrictive definition of two-way market, and establishing a surcharge for correlation trading position equal to 15 percent of the specific risk capital requirements for such positions. Commenters expressed concern that such differences could place U.S. banks at a competitive disadvantage to certain foreign banking organizations. In response to commenters' concerns, the agencies have revised the definition of two-way market and adjusted the surcharge as discussed more fully in sections II.3 and II.12, respectively, of this preamble.
While many commenters responding to the December 2011 amendment commended the agencies' efforts to develop viable alternatives to credit ratings, most commenters indicated that the amendment did not strike a reasonable balance between accurate measurement of risk and implementation burden. Commenters' general concerns with the December 2011 amendment include its overall lack of risk sensitivity and its complexity. The agencies have incorporated a number of changes into the final rule based on feedback received from commenters, including modifications to the approaches for determining capital requirements for corporate debt positions and securitization positions proposed in the December 2011 amendment. These changes are intended to increase the risk sensitivity of the approaches as well as simplify and reduce the difficulty of implementing the approaches.
A few commenters asserted that the proposal exceeded the intent of the Dodd-Frank Act because the Dodd-Frank Act was limited to the replacement of credit ratings and did not include provisions that, in their estimation, would significantly increase capital requirements and thus negatively affect the economy. While the agencies acknowledge that capital requirements may generally increase under the final rule, the agencies also believe that the approach provides a prudent level of conservatism to address factors such as modeling uncertainties and that changes to the current rules are necessary to address significant shortcomings in the measurement and capitalization of market risk.
One commenter suggested that the agencies allow banks a transition period of at least one year to implement the market risk capital rule after incorporation of alternatives to credit ratings. The agencies believe that a one-year transition period is not necessary for banks to implement the credit ratings alternatives in the final rule. The agencies have determined based on comments and discussions with commenters that the information required for calculation of capital requirements under the final rule will
Several commenters requested extensions of the comment period citing the complexity of the December 2011 amendment and resulting difficulty of assessing its impact in the time period given as well as the considerable burden faced by banks in evaluating various regulations related to the Dodd-Frank Act within similar time periods. The agencies considered these requests but believe that sufficient time was provided between the agencies' announcement of the proposed amendment on December 7, 2011, and the close of the comment period on February 3, 2012, to allow for adequate analysis of the proposal. The agencies also met with a number of industry participants during the comment period and thereafter in order to clarify the intent of the comments. Accordingly, the agencies chose not to extend the comment period on the December 2011 amendment.
The market risk capital rule supplements both the agencies' general risk-based capital rules and the advanced capital adequacy guidelines (advanced approaches rules) (collectively, the credit risk capital rules)
Consistent with the January 2011 proposal, under the final rule, the primary federal supervisor of a bank that does not meet the threshold criteria would be still be able to apply the market risk capital rule to a bank. Conversely, the primary federal supervisor may exclude a bank from application of the rule if the supervisor were to deem it necessary or appropriate given the level of market risk of the bank or to ensure safe and sound banking practices.
The January 2011 proposal contained a reservation of authority that affirmed the authority of a bank's primary federal supervisor to require the bank to hold an overall amount of capital greater than would otherwise be required under the rule if that supervisor determined that the bank's capital requirement for market risk under the rule was not commensurate with the market risk of the bank's covered positions. In addition, the agencies anticipated that there may be instances when the January 2011 proposal would generate a risk-based capital requirement for a specific covered position or portfolio of covered positions that is not commensurate with the risks of the covered position or portfolio. In these circumstances, a bank's primary federal supervisor could require the bank to assign a different risk-based capital requirement to the covered position or portfolio of covered positions that more accurately reflects the risk of the position or portfolio. The January 2011 proposal also provided authority for a bank's primary federal supervisor to require the bank to calculate capital requirements for specific positions or portfolios using either the market risk capital rule or the credit risk capital rules, depending on which outcome more appropriately reflected the risks of the positions. The agencies did not receive any comment on the proposed reservation of authority and have adopted it without change in the final rule.
The January 2011 proposal modified the definition of a covered position to include trading assets or trading liabilities (as reported on schedule RC–D of the Call Report or Schedule HC–D of the Consolidated Financial Statements for Bank Holding Companies) that are trading positions. The January 2011 proposal defined a trading position as a position that is held by the bank for the purpose of short-term resale or with the intent of benefiting from actual or expected short-term price movements or to lock in arbitrage profits. Therefore, the characterization of an asset or liability as “trading” for purposes of U.S. Generally Accepted Accounting Principles (U.S. GAAP) would not on its own determine whether the asset or liability is a “trading position” for purposes of the January 2011 proposal. That is, being reported as a trading asset or trading liability on the regulatory reporting schedules is a necessary, but not sufficient, condition for meeting this aspect of the covered position definition under the January 2011 proposal. Such a position would also need to be either a trading position or hedge another covered position. In addition, the trading asset or trading liability must be free of any restrictive covenants on its tradability or the bank must be able to hedge the material risk elements of the position in a two-way market.
One commenter was concerned that this and other references to a two-way market in the January 2011 proposal could be construed to require that there be a two-way market for every covered position. The January 2011 proposal did not require that there be a two-way market for every covered position but did use that standard for defining some covered positions, such as certain correlation trading positions. Rather, in identifying its trading positions, a bank's policies and procedures must take into account the extent to which a position, or a hedge of its material risks, can be marked-to-market daily by reference to a two-way market.
The January 2011 proposal defined a two-way market as a market where there are independent bona fide offers to buy and sell so that a price reasonably related to the last sales price or current bona fide competitive bid and offer quotations can be determined within one day and settled at that price within five business days. Commenters expressed concern about the proposed definition of a two-way market including a requirement for settlement within five business days because it would automatically exclude a number of markets where settlement periods are longer than this time frame. In light of commenters' concerns, the agencies have modified this aspect of the definition in the final rule to require settlement within a “relatively short time frame conforming to trade custom.”
Another commenter requested clarification regarding whether securities held as available for sale under U.S. GAAP may be treated as covered positions under the rule. This commenter also indicated that a narrow reading of the definitions of trading position and covered position could be interpreted to require banks to move positions between treatment under the market risk and the credit risk capital rules during periods of market stress. In particular, the commenter expressed concern about changes in capital treatment due to changes in a bank's short-term trading intent or the lack of a two-way market during periods of market stress that might be temporary. The commenter suggested that a bank should be able to continue to treat a position as a covered position if it met the definitional requirements when the position was established, notwithstanding changes in markets that led to a longer than expected time horizon for sale or hedging.
The agencies note that under section 3 of the final rule, as under the proposed rule, a bank must have clearly defined policies and procedures that determine which of its positions are trading positions. With respect to the frequency of movement of positions, consistent with the requirements under U.S. GAAP, the agencies generally would expect re-designations of positions as trading or non-trading to be rare. Thus, in general, the agencies would not expect temporary market movements as described by the commenter to result in re-designations. In those limited circumstances where a bank re-designates a covered position, the bank should document the reasons for such action.
Commenters suggested allowing a bank to treat as a covered position any hedge that is outside of the bank's hedging strategy. The proposed definition of covered position included hedges that offset the risk of trading positions. The agencies are concerned that a bank could craft its hedging strategies to recognize as covered positions certain non-trading positions that are more appropriately treated under the credit risk capital rules. For example, mortgage-backed securities that are not held with the intent to trade, but are hedged with interest rate swaps, would not be covered positions. The agencies will review a bank's hedging strategies to ensure that they are not being manipulated in an inappropriate manner. Consistent with the concerns raised above, the agencies continue to believe that a position that hedges a trading position must be within the scope of a bank's hedging strategy as described in the rule. Thus, the final rule retains the treatment that hedges outside of a bank's hedging strategy as described in the final rule are not covered positions.
Other commenters sought clarification as to whether an internal hedge (between a banking unit and a trading unit of the same bank) could be treated as a covered position if it materially or completely offset the risk of a non-covered position or set of positions, provided the hedge meets the definition of a covered position. The agencies note that internal hedges are not recognized for regulatory capital purposes because they are eliminated in consolidation.
Commenters inquired as to whether the phrase “restrictive covenants on its tradability,” in the covered position definition, applies to securities transferable only to qualified institutional buyers as required under Rule 144A of the Securities Act of 1933. The agencies do not believe an instrument's designation as a 144A security in and of itself would preclude the instrument from meeting the definition of covered position. Another commenter asked whether level 3 securities could be treated as covered positions.
One commenter requested clarification as to whether the rule would permit a bank to determine at the portfolio level whether a set of positions satisfies the definition of covered position, provided the bank is able to demonstrate a sufficiently robust process for making this determination. Another commenter found it confusing and operationally challenging that the definition of covered position had requirements both at the position level, for example, specific exclusions, and at the portfolio level, in regard to hedging strategies. The commenter felt that many of the definitional requirements are better suited to assessment at a portfolio level based on robust policies and procedures. The agencies require that the covered position determination be made at the individual position level. The requirements for policies and procedures for identifying trading positions, defining hedging strategies, and management of covered positions are requirements for application of the market risk capital rule broadly.
The January 2011 proposal included within the definition of a covered position any foreign exchange or commodity position, regardless of whether it is a trading asset or trading liability. With prior supervisory approval, a bank could exclude from its covered positions any structural position in a foreign currency, which was defined as a position that is not a trading position and that is (1) Subordinated debt, equity, or minority interest in a consolidated subsidiary that is denominated in a foreign currency; (2) capital assigned to a foreign branch that is denominated in a foreign currency; (3) a position related to an unconsolidated subsidiary or another item that is denominated in a foreign currency and that is deducted from the bank's tier 1 and tier 2 capital; or (4) a position designed to hedge a bank's capital ratios or earnings against the effect of adverse exchange rate movements on (1), (2), or (3).
Also, the proposed definition of covered position had several explicit exclusions. It explicitly excluded any position that, in form or substance, acts as a liquidity facility that provides support to asset-backed commercial paper, as well as all intangible assets, including servicing assets. Intangible assets were excluded because their risks are explicitly addressed in the credit risk capital rules, often through a deduction from capital. The agencies received no comment on these exclusions and have incorporated them into the final rule.
The definition of covered positions also excluded any hedge of a trading
Under the final rule and as proposed, the covered position definition excludes any equity position that is not publicly traded, other than a derivative that references a publicly traded equity; any direct real estate holding; and any position that a bank holds with the intent to securitize. Equity positions that are not publicly traded include private equity investments, most hedge fund investments, and other such closely-held and non-liquid investments that are not easily marketable. Direct real estate holdings include real estate for which the bank holds title, such as “other real estate owned” held from foreclosure activities, and bank premises used by a bank as part of its ongoing business activities. With respect to such real estate holdings, the determination of marketability and liquidity can be difficult or even impractical because the assets are an integral part of the bank's ongoing business. Indirect investments in real estate, such as through real estate investment trusts or special purpose vehicles, must meet the definition of a trading position to be a covered position. One commenter sought clarification that indirect real estate holdings (such as an exposure to a real estate investment trust) could qualify as a covered position. The agencies note that such an indirect investment may qualify, provided the position otherwise meets the definition of a covered position.
Commenters requested clarification regarding whether hedge fund exposures that hedge a covered position are within the scope of a bank's hedging strategy qualify for inclusion in the definition of a covered position. Generally, hedge fund exposures are not covered positions because they typically are equity positions (as defined under the final rule) that are not publicly traded. The fact that a bank has a hedging strategy for excluded equity positions would not alone qualify such positions to be treated as covered positions under the rule.
Positions that a bank holds with the intent to securitize include a “pipeline” or “warehouse” of loans being held for securitization. The agencies do not view the intent to securitize these positions as synonymous with the intent to trade them. Consistent with the 2009 revisions, the agencies believe the positions excluded from the covered position definition have significant constraints in terms of a bank's ability to liquidate them readily and value them reliably on a daily basis.
The covered position definition also excludes a credit derivative that a bank recognizes as a guarantee for purposes of calculating its risk-weighted assets under the agencies' credit risk capital rules if the credit derivative is used to hedge a position that is not a covered position (for example, a credit derivative hedge of a loan that is not a covered position). This treatment requires the bank to include the credit derivative in its risk-weighted assets for credit risk and exclude it from its VaR-based measure for market risk. This treatment of a credit derivative hedge avoids the mismatch that arises when the hedged position (for example, a loan) is not a covered position and the credit derivative hedge is a covered position. This mismatch has the potential to overstate the VaR-based measure of market risk because only one side of the transaction would be reflected in that measure. Accordingly, the final rule adopts this aspect of the proposed definition of covered position without change.
Under the January 2011 proposal, in addition to commodities and foreign exchange positions, a covered position includes debt positions, equity positions, and securitization positions. Consistent with the January 2011 proposal, the final rule defines a debt position as a covered position that is not a securitization position or a correlation trading position and that has a value that reacts primarily to changes in interest rates or credit spreads. Examples of debt positions include corporate and government bonds, certain nonconvertible preferred stock, certain convertible bonds, and derivatives (including written and purchased options) for which the underlying instrument is a debt position.
The final rule defines an equity position as a covered position that is not a securitization position or a correlation trading position and that has a value that reacts primarily to changes in equity prices. Examples of equity positions include voting or nonvoting common stock, certain convertible bonds, commitments to buy or sell equity instruments, equity indices, and a derivative for which the underlying instrument is an equity position.
Under the final rule as under the January 2011 proposal, a securitization is defined as a transaction in which (1) All or a portion of the credit risk of one or more underlying exposures is transferred to one or more third parties; (2) the credit risk associated with the underlying exposures has been separated into at least two tranches that reflect different levels of seniority; (3) performance of the securitization exposures depends upon the performance of the underlying exposures; (4) all or substantially all of the underlying exposures are financial exposures (such as loans, commitments, credit derivatives, guarantees, receivables, asset-backed securities, mortgage-backed securities, other debt securities, or equity securities); (5) for non-synthetic securitizations, the underlying exposures are not owned by an operating company;
Under the final rule, a bank's primary federal supervisor may determine that a transaction in which the underlying exposures are owned by an investment firm that exercises substantially unfettered control over the size and composition of its assets, liabilities, and off-balance sheet exposures is not a securitization based on the transaction's leverage, risk profile, or economic substance. Generally, the agencies would consider investment firms that can easily change the size and composition of their capital structure, as well as the size and composition of their assets and off-balance sheet exposures, as eligible for exclusion from the securitization definition.
Based on a particular transaction's leverage, risk profile, or economic substance, a bank's primary federal supervisor may also deem an exposure to a transaction to be a securitization exposure, even if the exposure does not meet the criteria in provisions (5), (6), or (7) above. A securitization position is a covered position that is (1) an on-balance sheet or off-balance sheet credit exposure (including credit-enhancing representations and warranties) that arises from a securitization (including a resecuritization) or (2) an exposure that directly or indirectly references a
Under the final rule as under the January 2011 proposal, a securitization position includes nth-to-default credit derivatives and resecuritization positions. The rule defines an nth-to-default credit derivative as a credit derivative that provides credit protection only for the nth-defaulting reference exposure in a group of reference exposures. In addition, a resecuritization is defined as a securitization in which one or more of the underlying exposures is a securitization exposure. A resecuritization position is (1) an on- or off-balance sheet exposure to a resecuritization or (2) an exposure that directly or indirectly references a resecuritization exposure described in (1).
Some commenters expressed the desire to align the proposed definition of securitization in the market risk capital rule with the Basel II definition. For instance, one commenter suggested excluding from the definition of a securitization exposures that do not resemble what is customarily thought of as a securitization. The agencies note that the proposed definition is consistent with the definition contained in the agencies' advanced approaches rules and believe that remaining consistent is important in order to reduce regulatory capital arbitrage opportunities across the rules.
The January 2011 proposal and the final rule define a correlation trading position as (1) a securitization position for which all or substantially all of the value of the underlying exposures is based on the credit quality of a single company for which a two-way market exists, or on commonly traded indices based on such exposures for which a two-way market exists on the indices; or (2) a position that is not a securitization position and that hedges a position described in (1) above. Under this definition, a correlation trading position does not include a resecuritization position, a derivative of a securitization position that does not provide a pro rata share in the proceeds of a securitization tranche, or a securitization position for which the underlying assets or reference exposures are retail exposures, residential mortgage exposures, or commercial mortgage exposures. Correlation trading positions may include collateralized debt obligation (CDO) index tranches, bespoke CDO tranches, and nth-to-default credit derivatives. Standardized CDS indices and single-name CDSs are examples of instruments used to hedge these positions. While banks typically hedge correlation trading positions, hedging frequently does not reduce a bank's net exposure to a position because the hedges often do not perfectly match the position. The agencies are adopting the definition of a debt, equity, securitization, and correlation trading position in the final rule as proposed.
The agencies note that certain aspects of the final rule, including the definition of “covered position,” are substantially similar to the definitions of similar terms used in the agencies' proposed rule that would implement section 619 of the Dodd-Frank Act, familiarly referred to as the “Volcker rule.” The agencies intend to promote consistency across regulations employing similar concepts to increase regulatory effectiveness and reduce unnecessary burden.
Section 619 of the Dodd-Frank Act contains certain prohibitions and restrictions on the ability of a bank (or nonbank financial company supervised by the Board under Title I of the Dodd-Frank Act) to engage in proprietary trading and have certain interests in, or relationships with, a covered fund as defined under section 619 of the Dodd-Frank Act and applicable regulations or private equity fund. Section 619 defines proprietary trading to mean engaging as a principal for the trading account, as defined under section 619(h)(6), of a bank (or relevant nonbank) in the purchase or sale of securities and other financial instruments.
In November 2011, the agencies, together with the SEC sought comment on an NPR that would implement section 619 of the Dodd-Frank Act (the Volcker NPR). The Volcker NPR includes in the definition of “trading account” all exposures of a bank subject to the market risk capital rule that fall within the definition of “covered position,” except for certain foreign exchange and commodity positions, unless they otherwise are in an account that meets the other prongs of the Volcker NPR “trading account” definition. Those prongs focus on determining whether a banking entity subject to section 619 of the Dodd-Frank Act is acquiring or taking a position in securities or other covered instruments principally for the purpose of short-term trading. Specifically, the definition of “trading account” under the Volcker NPR would include any account that is used by a bank to acquire or take one or more covered financial positions for the purpose of (1) Short-term resale, (2) benefitting from actual or expected short-term price movements, (3) realizing short-term arbitrage profits, or (4) hedging one or more such positions.
These standards correspond with the definition of “trading position” under the final market risk capital rule and are generally the type of positions to which the proprietary trading restrictions of section 13 of the BHC Act, which implements section 619 of the Dodd-Frank Act, were intended to apply. Thus, the Volcker NPR would cover all positions of a bank that receive trading position treatment under the final market risk capital rule because they meet a nearly identical standard regarding short-term trading intent, thereby eliminating the potential for inconsistency or regulatory arbitrage in which a bank might characterize a position as “trading” for regulatory capital purposes but not for purposes of the Volcker NPR.
Covered positions generally would be subject to the Volcker NPR unless they are foreign exchange or commodity positions that would not otherwise fall into the definition of “trading account” under the Volcker NPR or would otherwise be eligible for one of the exemptions to the prohibitions under the Volcker NPR and section 619 of the Dodd-Frank Act.
Section 3 of the January 2011 proposal introduced new requirements for the identification of trading positions and the management of covered positions. These new requirements would enhance prudent capital management to address the issues that arise when banks include more credit risk-related, less liquid, and less actively traded products in their covered positions. The risks of these positions may not be fully reflected in the requirements of the market risk capital rule and may be more appropriately captured under credit risk capital rules.
Consistent with the January 2011 proposal, the final rule requires a bank to have clearly defined policies and procedures for determining which of its trading assets and trading liabilities are trading positions as well as which of its trading positions are correlation trading positions. In determining the scope of trading positions, the bank must consider (1) the extent to which a position (or a hedge of its material risks) can be marked to market daily by reference to a two-way market; and (2) possible impairments to the liquidity of a position or its hedge.
In addition, a bank must have clearly defined trading and hedging strategies. The bank's trading and hedging strategies for its trading positions must
Also consistent with the January 2011 proposal, the final rule requires a bank to have clearly defined policies and procedures for actively managing all covered positions. In the context of non-traded commodities and foreign exchange positions, active management includes managing the risks of those positions within the bank's risk limits. For all covered positions, these policies and procedures, at a minimum, must require (1) Marking positions to market or model on a daily basis; (2) assessing on a daily basis the bank's ability to hedge position and portfolio risks and the extent of market liquidity; (3) establishment and daily monitoring of limits on positions by a risk control unit independent of the trading business unit; (4) daily monitoring by senior management of the information described in (1) through (3) above; (5) at least annual reassessment by senior management of established limits on positions; and (6) at least annual assessments by qualified personnel of the quality of market inputs to the valuation process, the soundness of key assumptions, the reliability of parameter estimation in pricing models, and the stability and accuracy of model calibration under alternative market scenarios.
The January 2011 proposal introduced new requirements for the prudent valuation of covered positions, including maintaining policies and procedures for valuation, marking positions to market or to model, independent price verification, and valuation adjustments or reserves. Under the proposal, a bank's valuation of covered positions would be required to consider, as appropriate, unearned credit spreads, close-out costs, early termination costs, investing and funding costs, future administrative costs, liquidity, and model risk. These valuation requirements reflect the agencies' concerns about deficiencies in banks' valuation of less liquid trading positions, especially in light of the prior focus of the market risk capital rule on a 10-business-day time horizon and a one-tail, 99.0 percent confidence level, which has proven at times to be inadequate in reflecting the full extent of the market risk of less liquid positions.
Several commenters expressed concern about including consideration of future administrative costs in the valuation process because they believe calculation of this estimate would be difficult and arbitrary and would result in only a minor increase in total costs. In response to commenters' concern, the agencies removed this requirement from the final rule. In all other respects, the agencies are adopting the proposed requirements for the valuation of covered positions.
One commenter on the January 2011 proposal inquired as to whether models used by the bank, but developed by parties outside of the bank (commonly referred to as vendor models), are permissible for calculating market risk capital requirements given approval from the bank's primary federal supervisor. The agencies believe that a vendor model may be acceptable for purposes of calculating a bank's risk-based capital requirements if it otherwise meets the requirements of the rule and is properly understood and implemented by the bank.
The final rule, consistent with the January 2011 proposal, requires a bank to notify its primary federal supervisor promptly if it makes any change to an internal model that would result in a material change in the amount of risk-weighted assets for a portfolio of covered positions or when the bank makes any material change to its modeling assumptions. The bank's primary federal supervisor may rescind its approval, in whole or in part, of the use of any internal model and determine an appropriate regulatory capital requirement for the covered positions to which the model would apply, if it determines that the model no longer complies with the market risk capital rule or fails to reflect accurately the risks of the bank's covered positions. For example, if adverse market events or other developments reveal that a material assumption in an approved model is flawed, the bank's primary federal supervisor may require the bank to revise its model assumptions and resubmit the model specifications for review. In the final rule, the agencies made minor modifications to this provision in section 3(c)(3) to improve clarity and correct a cross-reference.
Financial markets evolve rapidly, and internal models that were state-of-the-art at the time they were approved for use in risk-based capital calculations can become less effective as the risks of covered positions evolve and as the industry develops more sophisticated modeling techniques that better capture material risks. Therefore, under the final rule, as under the January 2011 proposal, a bank must review its internal models periodically, but no less frequently than annually, in light of developments in financial markets and modeling technologies, and to enhance those models as appropriate to ensure that they continue to meet the agencies' standards for model approval and employ risk measurement methodologies that are, in the bank's judgment, most appropriate for the bank's covered positions. It is essential that a bank continually review, and as appropriate, make adjustments to its models to help ensure that its market risk capital requirement reflects the risk of the bank's covered positions. A bank's primary federal supervisor will closely review the bank's model review practices as a matter of safety and soundness. The agencies are adopting these requirements in the final rule.
Also consistent with the January 2011 proposal, the final rule requires validation to include an evaluation of the conceptual soundness of the internal models. This should include an evaluation of empirical evidence and documentation supporting the methodologies used; important model assumptions and their limitations; adequacy and robustness of empirical data used in parameter estimation and model calibration; and evidence of a model's strengths and weaknesses.
Validation also must include an ongoing monitoring process that includes a review of all model processes and verification that these processes are functioning as intended and the comparison of the bank's model outputs with relevant internal and external data sources or estimation techniques. The results of this comparison provide a valuable diagnostic tool for identifying potential weaknesses in a bank's models. As part of this comparison, the bank should investigate the source of any differences between the model estimates and the relevant internal or external data or estimation techniques and whether the extent of the differences is appropriate.
Validation of internal models must include an outcomes analysis process that includes backtesting. Consistent with the 2009 revisions, the January 2011 proposal required a bank's validation process for internal models used to calculate its VaR-based measure to include an outcomes analysis process that includes a comparison of the changes in the bank's portfolio value that would have occurred were end-of-day positions to remain unchanged (therefore, excluding fees, commissions, reserves, net interest income, and intraday trading) with VaR-based measures during a sample period not used in model development.
The final rule, consistent with the January 2011 proposal, requires a bank to stress test the market risk of its covered positions at a frequency appropriate to each portfolio and in no case less frequently than quarterly. The stress tests must take into account concentration risk, illiquidity under stressed market conditions, and other risks arising from the bank's trading activities that may not be captured adequately in the bank's internal models. For example, it may be appropriate for a bank to include in its stress testing large price movements, one-way markets, nonlinear or deep out-of-the-money products, jumps-to-default, and significant changes in correlation. Relevant types of concentration risk include concentration by name, industry, sector, country, and market. Market concentration occurs when a bank holds a position that represents a concentrated share of the market for a security and thus requires a longer than usual liquidity horizon to liquidate the position without adversely affecting the market. A bank's primary federal supervisor will evaluate the robustness and appropriateness of any bank stress tests required under the final rule through the supervisory review process.
One commenter advocated an exemption from the proposed backtesting requirements for vendor models, and stated that banks using the same vendor model would be duplicating their efforts. The agencies believe that each bank must be responsible for ensuring that its market risk capital requirement reflects the risks of its covered positions. Each bank generally customizes some aspects of a vendor model and has a unique trading profile. Therefore, effective backtesting of either a vendor-provided or internally-developed model requires reference to a bank's experience with its own positions, which is consistent with guidance issued by the OCC and the Board with respect to the use of internal and third-party models.
Consistent with the January 2011 proposal, the final rule requires a bank to have an internal audit function independent of business-line management that at least annually assesses the effectiveness of the controls supporting the bank's market risk measurement systems, including the activities of the business trading units and independent risk control unit, compliance with policies and procedures, and the calculation of the bank's measure for market risk. The internal audit function should review the bank's validation processes, including validation procedures, responsibilities, results, timeliness, and responsiveness to findings. Further, the internal audit function should evaluate the depth, scope, and quality of the risk management system review process and conduct appropriate testing to ensure that the conclusions of these reviews are well-founded. At least annually, the internal audit function must report its findings to the bank's board of directors (or a committee thereof). The final rule adopts the January 2011 proposal's requirements pertaining to control, oversight, and validation mechanisms.
Consistent with the January 2011 proposal, the final rule requires a bank to calculate its risk-based capital ratio denominator as the sum of its adjusted risk-weighted assets and market risk equivalent assets. However, the agencies are making changes to this calculation
To calculate general market risk equivalent assets, a bank must multiply its general measure for market risk by 12.5. A bank subject to the advanced approaches rules also must calculate its advanced market risk equivalent assets by multiplying its advanced measure for market risk by 12.5. The final rule requires a bank's general and advanced measures for market risk to equal the sum of its VaR-based capital requirement, its stressed VaR-based capital requirement, specific risk add-ons, incremental risk capital requirement, comprehensive risk capital requirement, and capital requirement for
The final rule requires a bank to include in its measure for market risk any specific risk add-on as required under section 7 of the rule, determined using the standardized measurement methods described in section 10 of the rule. For a bank subject to the advanced approaches rules, these standardized measurement methods may include the SFA for securitization positions as discussed further below, where both the securitization position and the bank would meet the requirements to use the SFA. Such a bank must use the SFA in all instances where possible to calculate specific risk add-ons for its securitization positions. The agencies expect banks to use the SFA rather than the simplified supervisory formula approach (SSFA) in all instances where the data to calculate the SFA is available. The agencies expect a bank to apply the SFA on a consistent basis for a given position. For instance, if a bank is able to calculate a specific risk add-on for a securitization position using the SFA, the agencies would expect the bank to continue to have access to the information needed to perform this calculation on an ongoing basis for that position. If the bank were to change the methodology it used for calculating the specific risk add-on for such a securitization position, it should be able to explain and justify the change in approach (e.g., based on data availability) to its primary federal supervisor.
As described above, a bank subject to the advanced approaches rules must calculate two market risk equivalent asset amounts: a general measure for market risk and an advanced measure for market risk. A bank subject to the advanced approaches rules may not use the SFA to calculate its general measure for market risk, because this methodology is not available under the general risk-based capital rules.
The final rule requires a bank to include in both its general measure for market risk and its advanced measure for market risk its capital requirement for
As proposed, the final rule requires a bank's VaR-based capital requirement to equal the greater of (1) the previous day's VaR-based measure, or (2) the average of the daily VaR-based measures for each of the preceding 60 business days multiplied by three, or such higher multiplication factor required based on backtesting results determined according to section 4 of the rule and as discussed further below. Similarly, the final rule requires a bank's stressed VaR-based capital requirement to equal the greater of (1) the most recent stressed VaR-based measure; or (2) the average of the weekly stressed VaR-based measures for each of the preceding 12 weeks multiplied by three, or such higher multiplication factor as required based on backtesting results determined according to section 4 of the rule. The multiplication factor applicable to the stressed-VaR based measure for purposes of this calculation is based on the backtesting results for the bank's VaR-based measure; there is no separate backtesting requirement for the stressed VaR-based measure for purposes of calculating a bank's measure for market risk.
The agencies sought comment on any challenges banks may face in formulating the proposed measure of trading loss, particularly whether any excluded components described above would present difficulties and the nature of those difficulties. Commenters expressed concern about challenges in calculating trading loss net of the above excluded components, noting that many banks only have trading gain and loss data which includes these components. According to commenters, because historical data are not always available for the components excluded from trading losses, it would be difficult to immediately create historical trading gains and losses that exclude these components. Commenters also indicated that banks will need to make changes to their systems to support this requirement. Because of these concerns, commenters requested additional time to come into compliance with the new requirement.
The agencies acknowledge these implementation concerns and recognize that banks may not be able to immediately implement the new backtesting requirements. Therefore, the agencies have specified in the final rule that banks will be allowed up to one year after the later of either January 1, 2013, or the date on which a bank becomes subject to the rule, to begin backtesting as required under the final rule. In the interim, consistent with safety and soundness principles, a bank subject to the rule as of January 1, 2013, should continue to follow their current regulatory backtesting procedures, in accordance with its primary federal supervisor's expectations.
One commenter expressed concern with the proposed backtesting requirements. In particular, the commenter described the frequency of calculations required for determining the number of exceptions as burdensome and unnecessary. The agencies believe that the comparison of daily trading loss to the corresponding daily VaR-based measure is a critical part of a bank's ongoing risk management. Such comparisons improve a bank's ability to make prompt adjustment to its market risk management to address factors such as changing market conditions and model deficiencies. A high number of exceptions could indicate modeling issues and warrants an increase in capital requirements by a higher multiplication factor. Accordingly, the agencies believe the multiplication factor and associated backtesting requirements provide appropriate incentives for banks to regularly update their VaR-based models and have adopted the proposed approach for determining the number of daily backtesting exceptions. With the exception of the timing consideration discussed above for calculating daily trading losses, the final rule retains the proposed backtesting requirements.
Consistent with the January 2011 proposal, section 5 of the final rule requires a bank to use one or more internal models to calculate a daily VaR-based measure that reflects general market risk for all covered positions. The daily VaR-based measure also may reflect the bank's specific risk for one or more portfolios of debt or equity positions and must reflect the specific risk for any portfolios of correlation trading positions that are modeled under section 9 of the rule. The rule defines general market risk as the risk of loss that could result from broad market movements, such as changes in the general level of interest rates, credit spreads, equity prices, foreign exchange rates, or commodity prices. Specific risk is the risk of loss on a position that could result from factors other than broad market movements and includes event and default risk as well as idiosyncratic risk.
Under the final rule, a term repo-style transaction is defined as a repurchase or reverse repurchase transaction, or a securities borrowing or securities lending transaction, including a transaction in which the bank acts as agent for a customer and indemnifies the customer against loss, that has an original maturity in excess of one business day, provided that it meets certain requirements, including being based solely on liquid and readily marketable securities or cash and subject to daily marking-to-market and daily margin maintenance requirements.
As in the January 2011 proposal, the final rule adds credit spread risk to the list of risk categories to be captured in a bank's VaR-based measure (that is, in addition to interest rate risk, equity price risk, foreign exchange rate risk, and commodity price risk). The VaR-based measure may incorporate empirical correlations within and across risk categories, provided the bank validates its models and justifies the reasonableness of its process for measuring correlations. If the VaR-based measure does not incorporate empirical correlations across market risk categories, the bank must add the separate measures from its internal models used to calculate the VaR-based measure to determine the bank's aggregate VaR-based measure. The final rule, as proposed, requires models to include risks arising from the nonlinear price characteristics of option positions or positions with embedded optionality.
Consistent with the 2009 revisions and the proposed rule, the final rule requires a bank to be able to justify to the satisfaction of its primary federal supervisor the omission of any risk factors from the calculation of its VaR-based measure that the bank includes in its pricing models. In addition, a bank must demonstrate to the satisfaction of its primary federal supervisor the appropriateness of any proxies used to capture the risks of the actual positions for which such proxies are used.
Consistent with the January 2011 proposal, the final rule requires a bank's VaR-based measure to be based on data relevant to the bank's actual exposures and of sufficient quality to support the calculation of its risk-based capital requirements. The bank must update its data sets at least monthly or more frequently as changes in market conditions or portfolio composition warrant. For banks that use a weighting scheme or other method to identify the appropriate historical observation period, the bank must either (1) use an effective observation period of at least one year in which the average time lag of the observations is at least six months or (2) demonstrate to its primary federal supervisor that the method used is more effective than that described in (1) at representing the volatility of the bank's trading portfolio over a full business cycle. In the latter case, a bank must update its data more frequently than monthly and in a manner appropriate for the type of weighting scheme. In general, a bank using a weighting scheme should update its data daily. Because the most recent observations typically are the most heavily weighted, it is important for a bank to include these observations in its VaR-based measure.
Also consistent with the January 2011 proposal, the final rule requires a bank to retain and make available to its primary federal supervisor model performance information on significant subportfolios. Taking into account the value and composition of a bank's covered positions, the subportfolios must be sufficiently granular to inform a bank and its supervisor about the ability of the bank's VaR-based model to reflect risk factors appropriately. A bank's primary federal supervisor must approve the number of significant subportfolios the bank uses for subportfolio backtesting. While the final rule does not prescribe the basis for determining significant subportfolios, the primary federal supervisor may consider the bank's evaluation of factors such as trading volume, product types and number of distinct traded products, business lines, and number of traders or trading desks.
The final rule, consistent with the January 2011 proposal, requires a bank to retain and make available to its primary federal supervisor, with no more than a 60-day lag, information for each subportfolio for each business day over the previous two years (500 business days) that includes (1) A daily VaR-based measure for the subportfolio calibrated to a one-tail, 99.0 percent confidence level; (2) the daily profit or loss for the subportfolio (that is, the net change in price of the positions held in the portfolio at the end of the previous business day); and (3) the p-value of the profit or loss on each day (that is, the probability of observing a profit less than or a loss greater than reported in (2) above, based on the model used to calculate the VaR-based measure described in (1) above).
Daily information on the probability of observing a loss greater than that which occurred on any given day is a useful metric for banks and supervisors to assess the quality of a bank's VaR model. For example, if a bank that used a historical simulation VaR model using the most recent 500 business days experienced a loss equal to the second worst day of the 500, it would assign a probability of 0.004 (2/500) to that loss based on its VaR model. Applying this process many times over a long interval provides information about the adequacy of the VaR model's ability to characterize the entire distribution of losses, including information on the size and number of backtesting exceptions. The requirement to create and retain this information at the subportfolio level may help identify particular products or business lines for which the model does not adequately measure risk.
The agencies solicited comment on whether the proposed subportfolio backtesting requirements would present any challenges and, if so, the specific nature of such challenges. In addition, the agencies sought comment on how to determine an appropriate number of subportfolios for purposes of these requirements. The agencies also requested comment on whether the p-value is a useful statistic for evaluating the efficacy of the VaR model in gauging market risk, as well as whether the agencies should consider other statistics and, if so, why.
Several commenters urged the agencies to provide discretion and flexibility in identifying significant subportfolios. In particular, the commenters asked the agencies to allow banks to identify subportfolios based on the internal management structure of the bank. Notwithstanding these comments, the agencies believe the final rule, like the January 2011 proposal, provides an appropriate level of flexibility, as it does not prescribe a specific basis or parameters for determining significant subportfolios. Some commenters urged the agencies to be sensitive to the operational challenges associated with meeting subportfolio backtesting requirements that would be caused by organizational changes and model enhancements. The agencies recognize the operational challenges involved in meeting these requirements and will consider them as part of the ongoing evaluation of a bank's compliance with the backtesting requirements. Some commenters stated that the p-value statistic does not add sufficient explanatory power to warrant the calculation effort, and instead recommended the use of “band breaks” to detect VaR model deficiencies.
The agencies believe that the p-value statistic adds significant explanatory power and will facilitate a more appropriate evaluation of the VaR models by both banks and supervisors. The agencies believe that the so-called band-break methodology generally fails to recognize modeling deficiencies comprehensively and view the p-value as an improvement over this methodology. VaR models and the break-band methodology evaluate only one statistic at the tail of the profit and loss distribution while the p-values provide information to banks and supervisors regarding the appropriateness of the entire profit and loss distribution. The agencies have thus decided to adopt the proposed subportfolio backtesting requirements in the final rule as proposed.
Like the January 2011 proposal, section 6 of the final rule requires a bank to calculate at least weekly a stressed VaR-based measure using the same internal model(s) used to calculate its VaR-based measure. The stressed VaR-based measure supplements the VaR-based measure, which, due to inherent limitations, proved inadequate in producing capital requirements appropriate to the level of losses incurred at many banks during the financial market crisis that began in mid-2007. The stressed VaR-based
One commenter pointed out that one interpretation of the January 2011 proposal could be inconsistent with a BCBS interpretation, which appears to indicate that a weighting scheme should not be used for the stressed VaR-based measure. The final rule requires a bank to use the same internal model for its VaR-based measure and its stressed VaR-based measure. In general, if a bank chooses to use a weighting scheme for its VaR-based measure, the agencies expect this weighting scheme to also be used for its stressed VaR-based measure. Where there is not consistent use of weighting schemes across both measures, the bank should document and be able to explain its approach to its primary federal supervisor.
The final rule also requires a bank to have policies and procedures that describe how it determines the period of significant financial stress used to calculate the bank's stressed VaR-based measure and to be able to provide empirical support for the period used. These policies and procedures must address (1) how the bank links the period of significant financial stress used to calculate the stressed VaR-based measure to the composition and directional bias of the bank's current portfolio; and (2) the bank's process for selecting, reviewing, and updating the period of significant financial stress used to calculate the stressed VaR-based measure and for monitoring the appropriateness of the 12-month period in light of the bank's current portfolio. The bank must obtain the prior approval of its primary federal supervisor for these policies and procedures and must notify its primary federal supervisor if the bank makes any material changes to them. A bank's primary federal supervisor may require it to use a different period of significant financial stress in the calculation of the bank's stressed VaR-based measure. The final rule retains the proposed quantitative requirements for the stressed VaR-based measure.
Consistent with the January 2011 proposal, the final rule allows a bank to use one or more internal models to measure the specific risk of a portfolio of debt or equity positions with specific risk. A bank is required to use one or more internal models to measure the specific risk of a portfolio of correlation trading positions with specific risk that are modeled under section 9 of the final rule. However, a bank is not permitted to model the specific risk of securitization positions that are not modeled under section 9 of the rule. This treatment addresses regulatory arbitrage concerns as well as deficiencies in the modeling of securitization positions that became more evident during the course of the financial market crisis that began in mid-2007.
Under the final rule and consistent with the January 2011 proposal, the internal models for specific risk are required to explain the historical price variation in the portfolio, be responsive to changes in market conditions, be robust to an adverse environment, and capture all material aspects of specific risk for debt and equity positions. Specifically, the final rule requires that a bank's internal models capture event risk and idiosyncratic risk; capture and demonstrate sensitivity to material differences between positions that are similar but not identical, and to changes in portfolio composition and concentrations. If a bank calculates an incremental risk measure for a portfolio of debt or equity positions under section 8 of the proposed rule, the bank is not required to capture default and credit migration risks in its internal models used to measure the specific risk of those portfolios.
Commenters asked for guidance or examples regarding the types of events captured by the definition of “event risk.” In response, the agencies have clarified the definition of event risk in the final rule as the risk of loss on equity or hybrid equity positions as a result of a financial event, such as the announcement or occurrence of a company merger, acquisition, spin-off or dissolution.
The January 2011 proposal required a bank that does not have an approved internal model that captures all material aspects of specific risk for a particular portfolio of debt, equity, or correlation trading positions to use the standardized measurement method to calculate a specific risk add-on for that portfolio. This requirement was intended to provide banks with incentive to model specific risk more robustly. However, due to concerns about the ability of a bank to model the specific risk of certain securitization positions, the January 2011 proposal required a bank to calculate a specific risk add-on using the standardized measurement method for all of its securitization positions that are not correlation trading positions modeled under section 9 of the proposed rule. The agencies note that not all debt, equity, or securitization positions (for example, certain interest rate swaps) have specific risk. Therefore, there would be no specific risk capital requirement for positions without specific risk. A bank should have clear policies and procedures for determining whether a position has specific risk.
While the January 2011 proposal continued to provide for flexibility and a combination of approaches to measure market risk, including the use of different models to measure the general market risk and the specific risk of one or more portfolios of debt and equity positions, the agencies strongly encourage banks to develop and implement VaR-based models for both general market risk and specific risk. A bank's use of a combination of approaches is subject to supervisory review to ensure that the overall capital requirement for market risk is commensurate with the risks of the bank's covered positions. Except for the revision to the definition of event risk described above, the final rule retains the proposed requirements pertaining to modeling standards for specific risk.
The final rule, like the January 2011 proposal, requires a bank to calculate a total specific risk add-on for each portfolio of debt and equity positions for which the bank's VaR-based measure does not capture all material aspects of specific risk and for all of its securitization positions that is not modeled under section 9 of the rule. The final rule requires a bank to calculate each specific risk add-on in accordance with the requirements of the final rule and add the total specific risk add-on for each portfolio to the applicable measure(s) for market risk.
Some commenters asserted that the capital requirement for a given covered position should not exceed the maximum loss a bank could incur on
For debt, equity, and securitization positions that are derivatives with linear payoffs (for example, futures and equity swaps), the final rule, consistent with the January 2011 proposal, requires a bank to apply a specific risk-weighting factor that is included in the calculation of a specific risk add-on to the market value of the effective notional amount of the underlying instrument or index portfolio (except where a bank would instead directly calculate a specific risk add-on for the position using the SFA). For debt, equity, and securitization positions that are derivatives with nonlinear payoffs (for example, options, interest rate caps, tranched positions), a bank must risk-weight the market value of the effective notional amount of the underlying instrument or instruments multiplied by the derivative's delta (that is, the change of the derivative's value relative to changes in the price of the underlying instrument or instruments). For a standard interest rate derivative, the effective notional amount refers to the apparent or stated notional principal amount. If the contract contains a multiplier or other leverage enhancement, the apparent or stated notional principal amount must be adjusted to reflect the effect of the multiplier or leverage enhancement in order to determine the effective notional amount.
A swap must be included as an effective notional position in the underlying debt, equity, or securitization instrument or portfolio, with the receiving side treated as a long position and the paying side treated as a short position. A bank may net long and short positions (including derivatives) in identical issues or identical indices. A bank may also net positions in depository receipts against an opposite position in an identical equity in different markets, provided that the bank includes the costs of conversion.
Like the January 2011 proposal, the final rule expands the recognition of credit derivative hedging effects for debt and securitization positions. A set of transactions consisting of either a debt position and its credit derivative hedge or a securitization position and its credit derivative hedge has a specific risk add-on of zero if the debt or securitization position is fully hedged by a total return swap (or similar instrument where there is a matching of swap payments and changes in market value of the position) and there is an exact match between the reference obligation, the maturity, and the currency of the swap and the debt or securitization position.
The agencies are clarifying in the final rule that in cases where a total return swap references a portfolio of positions with different maturity dates, the total return swap maturity date must match the maturity date of the underlying asset in that portfolio that has the latest maturity date.
The January 2011 proposal also specified that if a set of transactions consisting of either a debt position and its credit derivative hedge or a securitization position and its credit derivative hedge does not meet the criteria for no specific risk add-on described above, the specific risk add-on for the set of transactions is equal to 20.0 percent of the specific risk add-on for the side of the transaction with the higher specific risk add-on, provided that: (1) The credit risk of the position is fully hedged by a credit default swap (or similar instrument); (2) there is an exact match between the reference obligation and currency of the credit derivative hedge and the debt or securitization position; and (3) there is an exact match between the maturity date of the credit derivative hedge and the maturity date of the debt or securitization position.
A commenter noted that credit derivatives are traded on market conventions based on standard maturity dates, whereas debt or securitization instruments may not have standard maturity dates. In response, in the final rule the agencies provide clarification regarding the circumstances under which a bank could consider a credit derivative hedge with a standard maturity date and the debt or securitization position that the credit derivative hedges to have matched maturity dates. In particular, the maturity date of the credit derivative hedge must be within 30 business days of the maturity date of the debt or securitization position in the case of sold credit protection. In the case of purchased credit protection, the maturity date of the credit derivative hedge must be later than the maturity date of the debt or securitization position, but no later than the standard maturity date for that instrument that immediately follows the maturity date of the debt or securitization position. In this case, the maturity date of the credit derivative hedge may not exceed the maturity date of the debt or securitization position by more than 90 calendar days.
Some commenters asked for clarification regarding whether the 20.0 percent add-on treatment described above would apply to a credit derivative that fully hedges the credit risk of a debt or securitization position, provided there is an exact match as to the obligor or issuer but not necessarily an exact match as to the specific security or obligation. The agencies note that a credit derivative may allow delivery of more than one reference obligation in the event of default of an obligor. In that case, for purposes of determining the specific risk add-on, the criteria of an exact match in reference obligation is satisfied if the debt or securitization position is included among the deliverable obligations provided in the credit derivative documentation.
For a set of transactions that consists of either a debt position and its credit derivative hedge or a securitization position and its credit derivative hedge that does not meet the criteria for full offset or the 80.0 percent offset described above (for example, there is a mismatch in the maturity of the credit derivative hedge and that of the debt or securitization position), but in which all or substantially all of the price risk has been hedged, the specific risk add-on is equal to the specific risk add-on for the side of the transaction with the higher specific risk add-on.
With respect to calculating the specific risk add-on for securitization products under the standardized measurement method of section 10 of the January 2011 proposal, commenters indicated that a bank should be permitted to de-construct the components of tranched securitization
A commenter indicated that the agencies should permit banks to use a look-through approach for untranched indices that would allow netting at the individual issuer level of index positions against individual issuer credit derivative exposures. The agencies believe such treatment is appropriate in this case as netting of exposures between the individual issuer level and the index is possible, as changes in the market value of certain components of an index can be matched with individual issuer exposures. However, matching of positions at the individual issuer level with tranched index positions is difficult, as it is unlikely that changes in market value of the tranched index would reasonably match market value changes in tranched index positions. Therefore, the matching of such positions would also not meet the definition of a hedge under the final rule.
Another commenter suggested specific treatments for various permutations of cash, synthetic, tranched, and untranched positions with different offsetting considerations. The agencies decided not to modify the final rule to accommodate these variations and believe the netting benefits and treatment of credit derivative hedges of debt and securitization positions as provided for in the final rule are consistent with the MRA.
One commenter noted that a pay-as-you-go CDS should receive the same full hedge recognition as a total return swap for purposes of determining the specific risk add-on under the January 2011 proposal's standardized measurement method. While pay-as-you-go CDSs share several characteristics with total return swaps, the agencies do not believe the swap payments are sufficiently aligned with the changes in the market value of associated debt or securitization positions to warrant full offsetting treatment. If a credit derivative hedge does not have payments that match changes in the market value of the debt or securitization position, then it does not meet the criteria for no specific risk add-on. However, this hedge still may meet the criteria for a partial offset if it fully hedges the credit risk of the debt or securitization position.
Another commenter suggested permitting banks to measure the specific risk of non-securitization positions that hedge securitization positions by using internal models rather than requiring use of the standardized measurement method for specific risk for these hedge positions. The commenter also requested that the agencies clarify whether securitization positions and their hedges or correlation trading positions and their hedges should be evaluated collectively or separately with regard to specific risk treatment under the January 2011 proposal.
In the case of a non-securitization position that hedges a securitization position that is not a correlation trading position, a bank is permitted to measure the specific risk of the hedge using either an approved internal model or the standardized measurement method. For the securitization position itself, a bank is required to use the standardized measurement method to calculate the specific risk add-on. Thus, in this case, the securitization position and its hedge are not necessarily treated collectively for purposes of measuring specific risk. In the case of a non-securitization position that hedges a correlation trading position, this same treatment applies to the extent the bank is not using a comprehensive risk model to measure the price risk of these positions. However, if a bank is using a comprehensive risk model for a portfolio of correlation trading positions, then the bank must use models to measure the specific risk of positions in that portfolio, inclusive of any hedges. That is, the portfolio is treated collectively when a bank is using a comprehensive risk model. The bank must also determine the total specific risk add-on for all positions in the portfolio using the standardized measurement method for purposes of determining the comprehensive risk measure. The final rule clarifies that a position that is a correlation trading position under paragraph (2) of that definition and that otherwise meets the definition of a debt position or an equity position shall be considered a debt position or an equity position, respectively, for purposes of section 10 of the final rule.
Another commenter suggested permitting a bank the option of not using a derivative's delta to determine the effective notional amount of a derivative with a nonlinear payoff. The agencies expect an institution engaged in such derivatives activity to be able to calculate a delta and therefore have retained the delta calculation requirement in the final rule. The agencies believe this requirement provides the appropriate factor to convert the reference notional amount into an effective notional amount. While the final rule does not require supervisory approval to use the standardized measurement method, the model used to generate the delta value is subject to the model validation requirements under the final rule.
The proposed alternative standards would set specific risk-weighting factors for various covered positions, including positions that are exposures to sovereign entities, depository institutions, public sector entities (PSEs), financial and non-financial companies, and securitization transactions. Each proposed standard (including alternatives to the proposed standards that the agencies requested
Under the December 2011 amendment, a bank would determine specific risk-weighting factors for sovereign debt positions based on the Organization for Economic Co-operation and Development (OECD) Country Risk Classifications (CRCs).
The CRC methodology was established in 1999 and classifies countries into categories based on the application of two basic components (1) the country risk assessment model (CRAM), which is an econometric model that produces a quantitative assessment of country credit risk; and (2) the qualitative assessment of the CRAM results, which integrates political risk and other risk factors not fully captured by the CRAM. The two components of the CRC methodology are combined and result in countries being classified into one of eight risk categories (0–7), with countries assigned to the 0 category having the lowest possible risk assessment and countries assigned to the 7 category having the highest. The OECD regularly updates CRCs for over 150 countries. Also, CRCs are recognized by the BCBS as an alternative to credit ratings.
In the December 2011 amendment, the agencies proposed to assign specific risk-weighting factors to CRCs in a manner consistent with the assignment of risk weights to CRCs under the Basel II standardized framework, as set forth in table 1.
Similar to the 2005 revisions, the proposed specific risk-weighting factors for sovereign debt positions would range from zero percent for those assigned a CRC of 0 or 1 to 12.0 percent for sovereign debt positions assigned a CRC of 7. Sovereign debt positions that are backed by the full faith and credit of the United States are to be treated as having a CRC of zero. Also similar to the 2005 revisions, the specific risk-weighting factor for certain sovereigns that are deemed to be of low credit risk based on their CRC would vary depending on the remaining contractual maturity of the position. The specific risk-weighting factors for sovereign debt positions are shown in table 2.
Consistent with the general risk-based capital rules, in the December 2011 amendment the agencies proposed to permit banks to assign a sovereign debt position a specific risk-weighting factor that is lower than the applicable specific risk-weighting factor in table 2 if the position is denominated in the sovereign entity's currency, the bank has at least an equivalent amount of liabilities in that currency and the sovereign entity allows banks under its jurisdiction to assign the lower specific risk-weighting factor to the same exposure to the sovereign entity. The agencies have included these provisions in the final rule. As a supplement to the CRC methodology, to ensure that current sovereign defaults and sovereign defaults in the recent past are treated appropriately under the market risk capital rule, the agencies proposed applying a 12.0 percent specific risk-weighting factor to sovereign debt positions in the event the sovereign has defaulted during the previous five years, regardless of its CRC. The agencies proposed to define default by a sovereign entity as noncompliance with its external debt service obligations or its inability or unwillingness to service an existing obligation according to its terms, as evidenced by failure to make
The December 2011 amendment also discussed the potential use of two market-based indicators, in particular CDS spreads or bond spreads, as alternatives or possible supplements to the proposed CRC methodology. The agencies indicated that CDS spreads for a given sovereign could be used to assign specific risk-weighting factors, with higher CDS spreads resulting in assignments of higher specific risk-weighting factors. Similarly, the agencies indicated that sovereign bond spreads could be used to assign specific risk-weighting factors, with higher bond credit spreads for a given sovereign resulting in higher specific risk-weighting factors. The agencies described potential difficulties in implementing each of these market-based alternatives and solicited comment regarding potential solutions to these limitations.
A number of commenters criticized the agencies' proposal to use CRCs for assigning specific risk-weighting factors, questioning the accuracy, reliability, and transparency of the CRC methodology. Two commenters raised policy concerns with respect to the purpose of section 939A around using measurements produced by the CRCs. One of these commenters expressed concern about the OECD having its own political and economic agenda. The other commenter noted that CRC ratings provide the most favorable rating to OECD members that are designated as high-income countries, without differentiating the varying risks among these countries.
Commenters also suggested that the CRC methodology was not created by the OECD as sovereign risk classifications and should not be used for the purpose of measuring sovereign credit risk because they measure irrelevant factors such as transfer and convertibility risk. Others noted the technical challenges in using the CRC methodology as a result of its limited history that make correlation and probability of default difficult to calculate. Several commenters questioned the logic of replacing one third-party ratings system with another that has shortcomings, such as a lack of risk sensitivity. A few commenters also suggested that the increase in the specific risk-weighting factor due to default would not sufficiently address the lack of risk sensitivity of CRC ratings.
Several commenters encouraged the agencies to further develop the market-based alternatives to the CRC methodology the agencies discussed in the proposal. One commenter indicated that either of the market-based indicators would be superior to the CRC approach and should be developed further. Another commenter suggested an approach using CDS spreads in place of, or as a supplement to, the CRC methodology. One commenter indicated that sovereign bond spreads are not a reliable basis for the purpose of assigning specific risk-weighting factors because they can be affected by factors other than credit risk.
While recognizing that CRCs have certain limitations, the agencies consider CRCs to be a reasonable alternative to credit ratings and to be a more granular measure of risk than the current treatment based on OECD membership. The proposed definition of default by a sovereign entity was in part meant to address concerns regarding a lack of differentiation among the OECD “high-income” countries. In addition, more than 10 years of historical data is available for CRCs, which the agencies believe is a sufficient basis to evaluate this information. While the two market-based indicators have some conceptual merit, as noted by certain commenters the application of either would require considerably more evaluation in order to mitigate potential CDS or bond spread volatility and other major operational difficulties. As the agencies believe practical application of these market-based indicators would require further study before they could be used in a prudential framework such as a final rule, the agencies are adopting the proposed CRC-based methodology in the final rule.
In the final rule, the agencies made technical changes to section 10(b)(2)(i) in order to improve clarity regarding when sovereign default will result in assignment of a 12.0 percent specific risk-weighting factor. The language “immediately upon determination that the sovereign entity has defaulted on any outstanding sovereign debt position” has been replaced with “immediately upon determination that a default has occurred.” The language “if the sovereign entity has defaulted on any sovereign debt position during the previous five years” has been replaced with “if a default has occurred within the previous five years.”
Also, because the specific risk-weighting factors for debt positions that are exposures to a PSE, depository institution, foreign bank or credit union are tied to the CRC of the sovereign, the agencies have made clarifying and conforming changes to the specific risk-weighting factor tables for these exposures. A bank must assign an 8.0 percent specific risk-weighting factor to a sovereign debt position if the sovereign entity does not have a CRC assigned to it, unless the sovereign debt position must otherwise be assigned a higher specific risk-weighting factor. For each table, the agencies have added a “Default by the Sovereign Entity” category with a corresponding 12.0 percent specific risk-weighting factor.
The December 2011 amendment proposed assigning a specific risk-weighting factor of zero to exposures to certain supranational entities and multilateral development banks. Consistent with the December 2011 amendment, the final rule defines an MDB to include the International Bank for Reconstruction and Development, the Multilateral Investment Guarantee Agency, the International Finance Corporation, the Inter-American Development Bank, the Asian Development Bank, the African Development Bank, the European Bank for Reconstruction and Development, the European Investment Bank, the European Investment Fund, the Nordic Investment Bank, the Caribbean Development Bank, the Islamic Development Bank, the Council of Europe Development Bank, and any other multilateral lending institution or regional development bank in which the U.S. government is a shareholder or contributing member or which the bank's primary federal supervisor determines poses comparable credit risk.
Consistent with the treatment of exposures to certain supranational entities under Basel II, the final rule assigns a zero percent specific risk-weighting factor to debt positions that
Also, generally consistent with the Basel framework, debt positions that are exposures to MDBs as defined in the final rule receive a zero percent specific risk-weighting factor under the final rule. This treatment is based on these MDBs' generally high-credit quality, strong shareholder support, and a shareholder structure comprised of a significant proportion of sovereign entities with strong creditworthiness.
Debt positions that are exposures to other regional development banks and multilateral lending institutions that do not meet these requirements would generally be treated as corporate debt positions and would be subject to the methodology described below. The agencies received no comments on the proposed treatment of MDBs and are adopting the proposed treatment in the final rule.
A few commenters suggested that the agencies treat debt positions that are exposures to GSEs as explicitly backed by the full faith and credit of the United States and assign them the same specific risk-weighting factor as sovereign debt positions backed by the full faith and credit of the United States, which is zero. Although Fannie Mae and Freddie Mac are currently in government conservatorship and have certain capital support commitments from the U.S. Treasury, GSE obligations are not explicitly backed by the full faith and credit of the United States. Therefore, the agencies have adopted the proposed treatment of exposures to GSEs without change.
Consistent with the treatment under the general risk-based capital rules, debt positions that are exposures to a depository institution or foreign bank that are includable in the regulatory capital of that entity but that are not subject to deduction as a reciprocal holding would be assigned a specific risk-weighting factor of at least 8.0 percent.
A few commenters discussed the use of the CRC-based methodology to assign specific risk-weighting factors to positions that are exposures to depository institutions, foreign banks, and credit unions. Some of these commenters expressed concern that the CRC approach does not recognize differences in relative risk between individual entities under a given sovereign. One commenter suggested using a CDS spread methodology to increase risk sensitivity and decrease procyclicality, or where CDS spread data are unavailable, using asset swap or bond spreads as a proxy. Although there is a lack of risk differentiation among these entities in a given sovereign of incorporation, this approach allows for a consistent, standardized application of capital requirements to these positions and, like the Basel capital framework and the current market risk capital rule, links the ultimate credit risk associated with these entities to that of the sovereign entity. In contrast to the current treatment, however, the CRC-based methodologies allow for greater differentiation of risk among exposures. Also, market-based methodologies proposed for depository institutions would require further study to determine feasibility. Therefore, the agencies are adopting the CRC-based methodology as proposed.
In addition, as discussed above, the agencies are clarifying in the final rule that a bank must assign a 12.0 percent specific risk-weighting factor to a debt position that is an exposure to a foreign bank either upon determination that an event of sovereign default has occurred in the foreign bank's sovereign of incorporation, or if a sovereign default has occurred in the foreign bank's sovereign of incorporation within the previous five years.
Under the December 2011 amendment, a general obligation would be defined as a bond or similar obligation that is guaranteed by the full faith and credit of a state or other political subdivisions of a sovereign entity. A revenue obligation would be defined as a bond or similar obligation that is an obligation of a state or other political subdivision of a sovereign entity but which the government entity is committed to repay with revenues from a specific project or activity versus general tax funds.
The proposed specific risk-weighting factors for debt positions that are exposures to general obligations and revenue obligations of PSEs, based on the PSE's sovereign of incorporation, are shown in tables 4 and 5, respectively.
In certain cases, the agencies have allowed a bank to use specific risk-weighting factors assigned by a foreign banking supervisor to debt positions that are exposures to PSEs in that supervisor's home country. Therefore, the agencies proposed to allow a bank to assign a specific risk-weighting factor to a debt position that is an exposure to a foreign PSE according to the specific risk-weighting factor that the foreign banking supervisor assigns. In no event, however, would the specific risk-weighting factor for such a position be lower than the lowest specific risk-weighting factor assigned to that PSE's sovereign of incorporation. The agencies have made a conforming change to the final rule, to more clearly indicate that the above treatment regarding exposures to PSEs in a supervisor's home country applies to both PSE general obligation and revenue obligation debt positions.
Few commenters expressed views related to the treatment of positions that are exposures to PSEs. Several commenters expressed concern with the proposed approach noting that the methodology does not recognize differences in the relative risks of PSEs of the same sovereign. These commenters expressed support for the use of either CDS or bond spreads instead of the CRC-based approach. For the reasons discussed above with respect to the CRC methodology generally, the agencies have decided to finalize the proposed specific risk-weighting factors for PSEs. In addition, as for depository institutions, foreign banks and credit unions, the agencies are clarifying that a bank must assign a 12.0 percent specific risk-weighting factor to a debt position that is an exposure to a PSE either upon
In the December 2011 amendment, the agencies proposed to allow a bank to assign specific risk-weighting factors to corporate debt positions using a methodology that incorporates market-based information and historical accounting information (indicator-based methodology) to assign specific risk-weighting factors to corporate debt positions that are exposures to publicly-traded entities that are not financial institutions, and to assign a specific risk-weighting factor of 8.0 percent to all other corporate debt positions. Financial institutions were categorized separately from other entities because of the differences in their balance sheet structures. As an alternative to this methodology, the agencies proposed a simple methodology under which a bank would assign an 8.0 percent specific risk-weighting factor to all its corporate debt positions.
In developing the December 2011 amendment, the agencies considered a number of alternatives to credit ratings for assigning specific risk-weighting factors to debt positions that are exposures to financial institutions. However, each of these alternatives was viewed as either having significant drawbacks or as not being sufficiently developed to propose. Thus, the agencies proposed to assign a specific risk-weighting factor of 8.0 percent to all corporate debt positions that are exposures to financial institutions.
In the December 2011 amendment, the agencies requested comment on using bond spreads as an alternative approach to assign specific risk-weighting factors to both financial and non-financial corporate debt positions. This type of approach would be forward-looking and may be useful for assigning specific risk-weighting factors to financial institutions.
Another alternative that the agencies discussed in the December 2011 amendment would permit banks to determine a specific risk-weighting factor for a corporate debt position based on whether the position is “investment grade,” which would be defined in a manner generally consistent with the OCC's proposed revisions to its regulations at 12 CFR 1.2(d). The OCC proposed to revise its investment securities regulations to remove references to Nationally Recognized Statistical Rating Organization credit ratings, consistent with section 939A of the Dodd-Frank Act.
Several commenters expressed concerns that the proposed indicator-based methodology for non-financial publicly traded company debt positions is over-simplified, not risk sensitive, and procyclical. These commenters indicated that the methodology does not distinguish risks across different industries nor does it reflect detailed debt characteristics that could affect creditworthiness, such as term structure. These commenters also stated that the methodology is excessively conservative and results in much higher capital requirements for corporate debt positions with minimal credit risk than required by the MRA. Several commenters also noted that the indicators tend to be backward-looking when capital requirements are intended to protect against the risk of possible future events.
Some commenters supported the agencies' use of market data in assigning specific risk-weighting factors to corporate debt positions but also acknowledged that alternatives based on market data would require further study and refinement. These commenters suggested modifications to the proposed alternatives to be used to calculate specific risk capital requirements for corporate debt positions, such as recalibrating the indicator-based methodology, or using an approach based on relative CDS or bond spreads. Commenters acknowledged the agencies' concerns with using CDS or bond spreads and agreed that these approaches are imperfect but viewed these alternatives with refinement as potentially superior to the proposed indicator-based methodology.
Specifically, several commenters suggested that a number of shortcomings of the proposed alternatives the agencies discussed in the December 2011 amendment could be addressed through technical modifications. These modifications include using rolling averages of CDS or bond spreads to reduce volatility, placing less reliance on inputs with illiquid underlying instruments, normalizing spreads against a more suitable benchmark, and possibly reducing the buckets to a binary “low risk” and “high risk” distinction to improve stability over time.
With respect to assigning specific risk-weighting factors based on the OCC's investment grade approach, a few commenters expressed reservations about such an approach. While acknowledging that the approach would be simpler than the proposed indicator-based methodology, commenters noted that this approach would be subjective and could result in different banks arriving at different assessments of creditworthiness for similar exposures.
The agencies continue to have significant reservations with the market-based alternatives, as bond markets may sometimes misprice risk and bond spreads may reflect factors other than credit risk. The agencies also are concerned that such an approach could introduce undue volatility into the risk-based capital requirements. The agencies have not identified a market-based alternative that they believe would provide sufficient risk sensitivity, transparency, and feasibility as a methodology for assigning specific risk-weighting factors to corporate debt positions. While certain suggested modifications of proposed alternatives
The agencies have considered the commenters' concerns regarding the indicator-based methodology. The agencies have concluded that concerns about the feasibility and efficacy of the indicator-based methodology, as expressed by commenters, outweigh policy considerations for implementing it and have decided not to include the approach in the final rule. Instead, the agencies have adopted in the final rule an investment grade methodology for assigning specific risk-weighting factors to all corporate debt positions of entities that have issued and outstanding public debt instruments, revised to include a maturity factor consistent with the current rules. Adoption of the investment grade methodology is in response to the significant shortcomings of the indicator- and market-based methodologies noted by commenters, and the need for an alternative that is reasonably risk sensitive and simple to implement. Banks must apply the investment grade methodology to all applicable corporate debt positions as described below. Additionally, the agencies have not included the proposed “simple methodology,” which would assign a specific risk-weighting factor of 8.0 percent to all corporate debt positions, in the final rule. This alternative was introduced to allow banks an option that would mitigate calculation burden, but the agencies have determined that it is not necessary to include it in the final rule, as discussed below.
The agencies acknowledge concerns regarding potential disparity between banks in their investment grade designation for similar corporate debt positions. However, the agencies believe that ongoing regulatory supervision of banks' credit risk assessment practices should address such disparities and that, on balance, the investment grade methodology would allow banks to calculate a more risk sensitive specific risk capital requirement for corporate debt positions, including those that are exposures to non-depository financial institutions. The agencies observe that this approach should be straightforward to implement because many banks would already be required to make similar investment grade determinations based on the OCC's revised investment permissibility standards. In addition, the agencies believe that concerns regarding potential disparate treatment would be addressed through ongoing supervision of bank's credit risk assessment practices.
Under the final rule, except as provided below, for corporate debt positions of entities that have issued and outstanding publicly traded instruments, a bank will first need to determine whether or not a given corporate debt position meets the definition of investment grade. To be considered investment grade under the final rule, the entity to which the bank is exposed through a loan or security, or the reference entity (with respect to a credit derivative), must have adequate capacity to meet financial commitments for the projected life of the asset or exposure. An entity is considered to have adequate capacity to meet financial commitments if the risk of its default is low and the full and timely repayment of principal and interest is expected. Corporations with issued and outstanding public instruments generally have to meet significant public disclosure requirements which should facilitate a bank's ability to obtain information necessary to make an investment grade determination for such entities. In contrast, banks are less likely to have access to such information for an entity with no issued and outstanding public instruments. Therefore, banks will not be allowed to use the investment grade methodology for the positions of such “private” corporations, and positions that are exposures to such corporations will be assigned an 8.0 percent specific risk-weighting factor.
Based on the bank's determination of whether a corporate debt position eligible for treatment under the investment grade methodology is investment grade, the bank must assign a specific risk-weighting factor based on the category and remaining contractual maturity of the position, in accordance with table 6 below. In general, there is a positive correlation between relative credit risk and the length of a corporate debt position's remaining contractual maturity. Therefore, corporate debt positions deemed investment grade with a shorter remaining contractual maturity are generally assigned a lower specific risk-weighting factor. Corporate debt positions not deemed investment grade must be assigned a specific risk-weighting factor of 12.0 percent.
Consistent with the proposed rule, under the final rule, a bank must assign a specific risk-weighting factor of at least 8.0 percent to an interest-only mortgage-backed security that is not a securitization position. Also, because the ultimate economic condition of corporations is significantly dependent upon the economic conditions of their sovereign of incorporation, a bank shall not assign a corporate debt position a specific risk-weighting factor that is lower than the specific risk-weighting factor that corresponds to the CRC of the issuer's sovereign of incorporation.
Similar to the SFA, the proposed SSFA is a formula that starts with a baseline capital requirement derived from the capital requirements that apply to all exposures underlying a securitization and then assigns specific risk-weighting factors based on the subordination level of a position. The proposed SSFA was designed to apply relatively higher capital requirements to the more risky junior tranches of a securitization that are the first to absorb losses, and relatively lower requirements to the most senior positions. As proposed in the December 2011 amendment, the SSFA makes use of a parameter “K
The SSFA as proposed would apply a 100 percent specific risk-weighting factor (equivalent to a 1,250 percent risk weight) to securitization positions that absorb losses up to the amount of capital that would be required for the underlying exposures under the agencies' general risk-based capital rules had those exposures been held directly by a bank.
In addition, the December 2011 amendment proposed a supervisory specific risk-weighting factor floor (flexible floor) that would have increased from 1.6 percent to as high as 100 percent when cumulative losses on the underlying assets of the securitization exceeded 150 percent of K
The agencies received significant comment on the proposed SSFA. Most commenters criticized the SSFA as proposed. Some commenters asserted that the application of the SSFA would result in prohibitively high capital requirements, which could lead to restricted credit access and place U.S. banks at a competitive disadvantage relative to non-U.S. banks. Commenters also stated that excessively high capital requirements for residential and commercial mortgage securitizations would stifle the growth of private residential mortgage-backed securitization and commercial real estate markets.
Many commenters expressed concerns that the SSFA inputs lacked risk sensitivity. In particular, commenters stated that K
In order to maintain uniform treatment between the final rule and the general risk-based capital rules, and minimize capital arbitrage, the agencies have maintained the definition of K
Commenters were concerned particularly with the flexible floor, which, as explained above, would increase the minimum specific risk-weighting factor for a securitization position if losses on the underlying exposures reached certain levels. Several commenters noted that the proposed flexible floor would not take into consideration the lag between rapidly rising delinquencies and realized losses, which may lead to underestimation of market risk capital required to protect a bank against the actual risk of a position. In its place, commenters suggested using more forward-looking indicators, such as the level of delinquencies of a securitization's underlying exposures. Commenters also noted that in combination with a risk-insensitive K
Commenters also requested that the agencies clarify the definition of attachment point, because the proposed rule indicated that the attachment point may include a reserve account to the extent that cash is present in the account, but the preamble to the proposal indicated that credit enhancements, such as excess spread would not be recognized. In addition, commenters stated that the attachment point should recognize the carrying value of a securitization position if the position is held at a discount from par, because the cushion created by such a discount should be an important factor in determining the amount of risk-based capital a bank must hold against a securitization position. The agencies have considered whether discounts from par should be recognized as credit enhancement. The agencies are concerned about the uncertainty of valuing securitization positions and as a result have decided not to recognize discounts from par as credit enhancements for purposes of calculating specific risk add-ons for these positions.
Commenters also stated that the proposed 20 percent absolute floor for specific risk-weighting factors assigned to securitization positions would be out of alignment with international standards and could place U.S. banks at a competitive disadvantage relative to non-U.S. banks. The agencies believe that a 20 percent floor is reasonably prudent given recent performance of securitization structures during times of stress and have retained this floor in the final rule.
Some commenters suggested that instead of applying the SSFA, the agencies should allow banks to “look through” senior-most securitization positions and use the risk weight applicable to the underlying assets of the securitization under the general risk-based capital rules. Given the considerable variability of tranche thickness for any given securitization, the agencies believe there is an opportunity for regulatory capital arbitrage with respect to the other approaches specified in the final rule. Therefore, the agencies have not included this alternative in the final rule.
As noted above, in the final rule, K
Substituting this value into the equation yields:
In the December 2011 amendment, the agencies described several possible alternative approaches to, or modifications of, the SSFA. These included alternative calibrations for the SSFA, a concentration ratio, a credit spread approach, a third-party vendor approach, and the use of the SFA for banks subject to the advanced approaches rules to calculate the specific risk-weighting factors for their securitization positions under the market risk capital rule. The agencies also requested comment on possible alterations to certain parameters in the SSFA, to better align specific risk-weighting factors produced by the SSFA with the specific risk-weighting factors that would otherwise be generated by the Basel Committee's market risk framework.
Several commenters did not support adoption of the alternative market-based approaches or the vendor approach described in the December 2011 amendment, and stated that an analytical assessment of creditworthiness such as the SSFA would be preferable. In addition, several commenters strongly supported using the SFA as permitted under the advanced approaches rules, particularly for correlation trading positions.
The agencies also have concerns about using a credit spread-based measure. These concerns relate particularly to the significant technical obstacles that would need to be overcome to make use of market based alternatives. The agencies therefore have decided to not include such measures as part of the final rule. Also, the agencies believe the vendor approach would require further study in order to implement it as part of a prudential framework.
However, in response to favorable comments regarding inclusion of the SFA, the agencies are incorporating the SFA into the final rule.
For first-to-default credit derivatives, the specific risk add-on would be the lesser of (1) the sum of the specific risk add-ons for the individual reference credit exposures in the group of reference exposures and (2) the maximum possible credit event payment under the credit derivative contract. Where a bank has a risk position in one of the reference credit exposures underlying a first-to-default credit derivative and the credit derivative hedges the bank's risk position, the bank would be allowed to reduce both the specific risk add-on for the reference credit exposure and that part of the specific risk add-on for the credit derivative that relates to the reference credit exposure such that its specific risk add-on for the pair reflects the bank's net position in the reference credit exposure. Where a bank has multiple risk positions in reference credit exposures underlying a first-to-default credit derivative, this offset would be allowed only for the underlying exposure having the lowest specific risk add-on.
For second-or-subsequent-to-default credit derivatives, the specific risk add-on would be the lesser of (1) the sum of the specific risk add-ons for the individual reference credit exposures in the group of reference exposures but disregarding the (n-1) obligations with the lowest specific risk add-ons; or (2) the maximum possible credit event payment under the credit derivative contract. For second-or-subsequent-to-default credit derivatives, no offset of the specific risk add-on with an underlying exposure would have been allowed under the proposed rule.
Nth-to-default derivatives meet the definition of securitizations. To simplify the overall framework for securitizations while maintaining similar risk sensitivity and to provide for a more uniform capital treatment of all securitizations including nth-to-default derivatives the final rule requires that a bank determine a specific risk add-on using the SFA for, or assign a specific risk-weighting factor using the SSFA to an nth-to-default credit derivative. A bank that does not use the SFA or SSFA for its positions in an nth-to-default credit derivative must assign a specific risk-weighting factor of 100 percent to the position. A bank must either calculate a specific risk add-on or assign a specific risk-weighting factor to an nth-to-default derivative, irrespective of whether the bank is a net protection buyer or seller. A bank must determine its position in the nth-to-default credit derivative as the largest notional dollar amount of all the underlying exposure. This treatment should reduce the complexity of calculating specific risk capital requirements across a banking organization's securitization positions while aligning these requirements with the market risk of the positions in a consistent manner.
When applying the SFA or the SSFA to nth-to-default derivatives, the attachment point (parameter A) is the ratio of the sum of the notional amounts of all underlying exposures that are subordinated to the bank's position to the total notional amount of all underlying exposures. For purposes of using the SFA to calculate the specific risk add-on for the bank's position in an nth-to-default derivative, parameter A must be set equal to the
For the SFA and the SSFA, the detachment point (parameter
For a bank's securitization positions that are not correlation trading positions and for securitization positions that are correlation trading positions not modeled under section 9 of the final rule, the total specific risk add-on would be the greater of: (1) The sum of the bank's specific risk add-ons for each net long securitization position calculated using the standardized measurement method, or (2) the sum of the bank's specific risk add-ons for each net short securitization position calculated using the standardized measurement method. This treatment would be consistent with the BCBS's revisions to the market risk framework and has been adopted in the final rule as proposed. With respect to securitization positions that are not correlation trading positions, the BCBS's June 2010 revisions provided a transitional period for this treatment. The agencies anticipate potential reconsideration of this provision at a future date.
Consistent with the 2009 revisions, the final rule requires a bank to multiply the absolute value of the current market value of each net long or short equity position by a risk-weighting factor of 8.0 percent. For equity positions that are index contracts comprising a well-diversified portfolio of equity instruments, the absolute value of the current market value of each net long or short position is multiplied by a risk-weighting factor of 2.0 percent. A portfolio is well-diversified if it contains a large number of individual equity positions, with no single position representing a substantial portion of the portfolio's total market value.
The final rule, like the proposal retains the specific risk treatment in the current market risk capital rule for equity positions arising from futures-related arbitrage strategies where long and short positions are in exactly the same index at different dates or in different market centers or where long and short positions are in index contracts at the same date in different but similar indices. The final rule also retains the current treatment for futures contracts on main indices that are
In order to meet the proposed due diligence requirements, a bank must be able to demonstrate, to the satisfaction of its primary federal supervisor, a comprehensive understanding of the features of a securitization position that would materially affect its performance by conducting and documenting the analysis described below of the risk characteristics of each securitization position. The bank's analysis must be commensurate with the complexity of the securitization position and the materiality of the position in relation to the bank's capital.
The final rule requires a bank to conduct and document an analysis of the risk characteristics of each securitization position prior to acquiring the position, considering (1) Structural features of the securitization that would materially impact performance, for example, the contractual cash flow waterfall, waterfall-related triggers, credit enhancements, liquidity enhancements, market value triggers, the performance of organizations that service the position, and deal-specific definitions of default; (2) relevant information regarding the performance of the underlying credit exposure(s), for example, the percentage of loans 30, 60, and 90 days past due; default rates; prepayment rates; loans in foreclosure; property types; occupancy; average credit score or other measures of creditworthiness; average loan-to-value ratio; and industry and geographic diversification data on the underlying exposure(s); (3) relevant market data of the securitization, for example, bid-ask spreads, most recent sales price and historical price volatility, trading volume, implied market rating, and size, depth and concentration level of the market for the securitization; and (4) for resecuritization positions, performance information on the underlying securitization exposures, for example, the issuer name and credit quality, and the characteristics and performance of the exposures underlying the securitization exposures. On an on-going basis, but no less frequently than quarterly, the bank must also evaluate, review, and update as appropriate the analysis required above for each securitization position.
The agencies sought comment on the challenges involved in meeting the proposed due diligence requirements and how the agencies might address these challenges while ensuring that a bank conducts an appropriate level of due diligence commensurate with the risks of its securitization positions. Several commenters agreed with the underlying purpose of the proposed due diligence requirements, which is to avoid undue reliance on credit ratings. However, they also stated that banks should still be allowed to consider credit ratings as a factor in the due diligence process. The agencies note that the rule does not preclude banks from considering the credit rating of a position as part of its due diligence. However, reliance on credit ratings alone is insufficient and not consistent with the expectations of the due diligence requirements.
One commenter criticized the proposed requirements as excessive for “low risk” securitizations, and others requested clarification as to whether the extent of due diligence would be determined by the relative risk of a position. Other commenters expressed concern that the proposed requirement to document the bank's analysis of the position would be very difficult to accomplish prior to acquisition of a position. As an alternative, some commenters suggested revising the documentation requirements to require completion by the end of the day, except for newly originated securities where banks should be allowed up to three days to satisfy the documentation requirement. Other commenters suggested a transition period for implementation of the proposed due diligence requirements, together with a provision that grandfathers positions acquired prior to the rule's effective date. The agencies appreciate these concerns and have revised the final rule to allow banks up to three business days after the acquisition of a securitization position to document its due diligence. Positions acquired before the final rule becomes effective will not be subject to this documentation requirement, but the agencies expect each bank to understand and actively manage the risks associated with all of its positions.
Aside from changes noted above, the agencies have adopted in the final rule the due diligence requirements for securitizations as proposed.
Consistent with the proposed rule, under section 8 of the final rule, a bank that measures the specific risk of a portfolio of debt positions using internal models must calculate an incremental risk measure for that portfolio using an internal model (incremental risk model). Incremental risk consists of the default risk and credit migration risk of a position. Default risk means the risk of loss on a position that could result from the failure of an obligor to make timely payments of principal or interest on its debt obligation, and the risk of loss that could result from bankruptcy, insolvency, or similar proceeding. Credit migration risk means the price risk that arises from significant changes in the underlying credit quality of the position. With the prior approval of its primary federal supervisor, a bank may also include portfolios of equity positions in its incremental risk model, provided that it consistently includes such equity positions in a manner that is consistent with how the bank internally measures and manages the incremental risk for such positions at the portfolio level. For purposes of the incremental risk capital requirement, default is deemed to occur with respect to an equity position that is included in the bank's incremental risk model upon the default of any debt of the issuer of the equity position. A bank may not include correlation trading positions or securitization positions in its incremental risk model.
Under the final rule, a bank's incremental risk model must meet certain requirements and be approved by the bank's primary federal supervisor before the bank may use it to calculate its risk-based capital requirement. The model must measure incremental risk over a one-year time horizon and at a one-tail, 99.9 percent confidence level, under the assumption of either a constant level of risk or of constant positions.
The liquidity horizon of a position is the time that would be required for a bank to reduce its exposure to, or hedge all of the material risks of, the position in a stressed market. The liquidity horizon for a position may not be less than the shorter of three months or the contractual maturity of the position.
A position's liquidity horizon is a key risk attribute for purposes of calculating the incremental risk measure under the assumption of a constant level of risk because it puts into context a bank's overall risk exposure to an actively managed portfolio. A constant level of risk assumption assumes that the bank rebalances, or rolls over, its trading positions at the beginning of each liquidity horizon over a one-year horizon in a manner that maintains the bank's initial risk level. The bank must
Several commenters expressed concern that the proposed liquidity horizon of the shorter of three months or the contractual maturity of the position for the incremental risk measure would be excessively long for certain highly liquid exposures, including sovereign debt. A three-month horizon is the minimum standard established by the BCBS for exposures with longer or no contractual maturities, and the agencies believe that it is important to establish a minimum liquidity horizon to address risks associated with stressed market conditions. Therefore, the agencies have not modified this requirement in the final rule.
Under the January 2011 proposal, a bank could instead calculate the incremental risk measure under the assumption of constant positions. A constant position assumption assumes that a bank maintains the same set of positions throughout the one-year horizon. If a bank uses this assumption, it must do so consistently across all portfolios for which it models incremental risk. A bank has flexibility in whether it chooses to use a constant risk or constant position assumption in its incremental risk model; however, the agencies expect that the assumption will remain fairly constant once selected. As with any material change to modeling assumptions, the proposed rule would require a bank to promptly notify its primary federal supervisor if it changes from a constant risk to a constant position assumption or vice versa. Further, to the extent a bank estimates a comprehensive risk measure under section 9 of the proposed rule, the bank's selection of a constant position or a constant risk assumption must be consistent between the bank's incremental risk model and comprehensive risk model. Similarly, the bank's treatment of liquidity horizons must be consistent between a bank's incremental risk model and comprehensive risk model. The final rule adopts these aspects of the proposal without change.
Consistent with the proposal, the final rule requires a bank's incremental risk model to recognize the impact of correlations between default and credit migration events among obligors. In particular, the presumption of the existence of a macro-economically driven credit cycle implies some degree of correlation between default and credit migration events across different issuers. The degree of correlation between default and credit migration events of different issuers may also depend on issuer attributes such as industry sector or region of domicile. The model must also reflect the effect of issuer and market concentrations, as well as concentrations that can arise within and across product classes during stressed conditions.
A bank's incremental risk model must reflect netting only of long and short positions that reference the same financial instrument and must also reflect any material mismatch between a position and its hedge. Examples of such mismatches include maturity mismatches as well as mismatches between an underlying position and its hedge (for example, the use of an index position to hedge a single name security).
A bank's incremental risk model must also recognize the effect that liquidity horizons have on dynamic hedging strategies. In such cases, the bank must (1) Choose to model the rebalancing of the hedge consistently over the relevant set of trading positions; (2) demonstrate that inclusion of rebalancing results in more appropriate risk measurement; (3) demonstrate that the market for the hedge is sufficiently liquid to permit rebalancing during periods of stress; and (4) capture in the incremental risk model any residual risks arising from such hedging strategies.
An incremental risk model must reflect the nonlinear impact of options and other positions with material nonlinear behavior with respect to default and credit migration changes. In light of the one-year horizon of the incremental risk measure and the extremely high confidence level required, it is important that nonlinearities be explicitly recognized. Price changes resulting from defaults or credit migrations can be large and the resulting nonlinear behavior of the position can be material. The bank's incremental risk model also must be consistent with the bank's internal risk management methodologies for identifying, measuring, and managing risk.
A bank that calculates an incremental risk measure under section 8 of the rule must calculate its incremental risk capital requirement at least weekly. This capital requirement is the greater of (1) the average of the incremental risk measures over the previous 12 weeks and (2) the most recent incremental risk measure. The final rule adopts the proposed requirements for incremental risk without change.
Consistent with the January 2011 proposal, section 9 of the final rule permits a bank that has received prior approval from its primary federal supervisor, to measure all material price risks of one or more portfolios of correlation trading positions (comprehensive risk measure) using an internal model (comprehensive risk model). If the bank uses a comprehensive risk model for a portfolio of correlation trading positions, the bank must also measure the specific risk of that portfolio using internal models that meet the requirements in section 7(b) of the final rule. If the bank does not use a comprehensive risk model to calculate the price risk of a portfolio of correlation trading positions, it must calculate a specific risk add-on for the portfolio as would be required under section 7(c) of the final rule, determined using the standardized measurement method for specific risk described in section 10 of the final rule.
A bank's comprehensive risk model must meet several requirements. The model must measure comprehensive risk (that is, all price risk) consistent with a one-year time horizon and at a one-tail, 99.9 percent confidence level, under the assumption either of a constant level of risk or of constant positions. As noted above, while a bank has flexibility in whether it chooses to use a constant risk or constant position assumption, the agencies expect that the assumption will remain fairly constant once selected. The bank's selection of a constant position assumption or a constant risk assumption must be consistent between the bank's comprehensive risk model and its incremental risk model. Similarly, the bank's treatment of liquidity horizons must be consistent between the bank's comprehensive risk model and its incremental risk model.
The final rule requires a bank's comprehensive risk model to capture all material price risk, including, but not limited to (1) The risk associated with the contractual structure of cash flows of the position, its issuer, and its underlying exposures (for example, the risk arising from multiple defaults, including the ordering of defaults, in tranched products); (2) credit spread risk, including nonlinear price risks; (3) volatility of implied correlations, including nonlinear price risks such as the cross-effect between spreads and correlations; (4) basis risks (for example, the basis between the spread of an index and the spread on its constituents and the basis between implied correlation of an index tranche and that of a bespoke tranche); (5) recovery rate volatility as it relates to the propensity for recovery rates to affect tranche prices; and (6) to the extent the comprehensive risk measure incorporates benefits from dynamic hedging, the static nature of the hedge over the liquidity horizon.
The risks above have been identified as particularly important for correlation trading positions. However, the comprehensive risk model is intended to capture all material price risks related to those correlation trading positions that are included in the comprehensive risk model. Accordingly, additional risks that are not explicitly discussed above but are a material source of price risk must be included in the comprehensive risk model.
The final rule also requires a bank to have sufficient market data to ensure that it fully captures the material price risks of the correlation trading positions in its comprehensive risk measure. Moreover, the bank must be able to demonstrate that its model is an appropriate representation of comprehensive risk in light of the historical price variation of its correlation trading positions. The agencies will scrutinize the positions a bank identifies as correlation trading positions and will also review whether the correlation trading positions have sufficient market data available to support reliable modeling of material risks. If there is insufficient market data to support reliable modeling for certain positions (such as new products), the agencies may require the bank to exclude these positions from the comprehensive risk model and, instead, require the bank to calculate specific risk add-ons for these positions under the standardized measurement method for specific risk. The final rule also requires a bank to promptly notify its primary federal supervisor if the bank plans to extend the use of a model that has been approved by the supervisor to an additional business line or product type.
A bank approved to measure comprehensive risk for one or more portfolios of correlation trading positions must calculate at least weekly a comprehensive risk measure. Under the January 2011 proposal, the comprehensive risk measure was equal to the sum of the output from the bank's approved comprehensive risk model plus a surcharge on the bank's modeled correlation trading positions. The agencies proposed setting the surcharge equal to 15.0 percent of the total specific risk add-on that would apply to the bank's modeled correlation trading positions under the standardized measurement method for specific risk in section 10 of the rule but have modified the surcharge in the final rule as described below.
Under the final rule, a bank must initially calculate the comprehensive risk measure under the surcharge approach while banks and supervisors gain experience with the banks' comprehensive risk models. Over time, with approval from its primary federal supervisor, a bank may be permitted to use a floor approach to calculate its comprehensive risk measure as the greater of (1) the output from the bank's approved comprehensive risk model; or (2) 8.0 percent of the total specific risk add-on that would apply to the bank's modeled correlation trading positions under the standardized measurement method for specific risk, provided that certain conditions are met. These conditions are that the bank has met the comprehensive risk modeling requirements in the final rule for a period of at least one year and can demonstrate the effectiveness of its comprehensive risk model through the results of ongoing validation efforts, including robust benchmarking. Such results may incorporate a comparison of the bank's internal model results to those from an alternative model for certain portfolios and other relevant data. The agencies may also consider a benchmarking approach that uses banks' internal models to determine capital requirements for a portfolio specified by the supervisors to allow for a relative assessment of models across banks. A bank's primary federal supervisor will monitor the appropriateness of the floor approach on an ongoing basis and may rescind its approval of this approach if it determines that the bank's comprehensive risk model does not sufficiently reflect the risks of the bank's modeled correlation trading positions.
One commenter criticized the interim surcharge approach. The commenter stated that it is excessive, risk insensitive, and inconsistent with what the commenter viewed as a more customary practice of phasing in capital charges over time. The commenter, therefore, recommended that the agencies eliminate the surcharge provision and only adopt the floor approach discussed above. Several commenters also noted that the floor approach could eliminate a bank's incentive to hedge its risks, to the extent the floor is a binding constraint. Commenters suggested clarifications and modifications to the treatment of correlation trading positions, including applying a floor that is consistent with the MRA and recognizing hedges to avoid situations where unhedged positions are subjected to lower capital requirements than hedged positions.
Notwithstanding these concerns, many banks have limited ability to perform robust validation of their comprehensive risk model using standard backtesting methods. Accordingly, the agencies believe it is appropriate to include a surcharge as an interim prudential measure until banks are better able to validate their comprehensive risk models and as an incentive for a bank to make ongoing model improvements. Accordingly, the agencies will maintain a surcharge in the rule but at a lower level of 8 percent. The agencies believe that a surcharge at this level helps balance the concerns raised by commenters regarding the proposed 15 percent surcharge and concerns about deficiencies in comprehensive risk models as mentioned above. Commenters also requested clarification as to whether multiple correlation trading portfolios can be treated on a combined basis for purposes of the comprehensive risk measure and floor calculations. The final rule clarifies that the floor applies to the aggregate comprehensive risk measure of all modeled portfolios.
In addition to these requirements, the final rule, consistent with the proposal, requires a bank to at least weekly apply to its portfolio of correlation trading positions a set of specific, supervisory stress scenarios that capture changes in default rates, recovery rates, and credit spreads; correlations of underlying exposures; and correlations of a correlation trading position and its hedge. A bank must retain and make available to its primary federal supervisor the results of the supervisory stress testing, including comparisons with the capital requirements generated by the bank's comprehensive risk model. A bank also must promptly report to its primary federal supervisor any instances where the stress tests
The agencies included various options for stress scenarios in the preamble to the proposed rule, including an approach that involved specifying stress scenarios based on credit spread shocks to certain correlation trading positions (for example, single-name CDSs, CDS indices, index tranches), which may replicate historically observed spreads. Another approach would require a bank to calibrate its existing valuation model to certain specified stress periods by adjusting credit-related risk factors to reflect a given stress period. The credit-related risk factors, as adjusted, would then be used to revalue the bank's correlation trading portfolio under one or more stress scenarios.
The agencies sought comment on the benefits and drawbacks of the supervisory stress scenario requirements described above, and suggestions for possible specific stress scenario approaches for the correlation trading portfolio. One commenter suggested providing more specific requirements for the supervisory stress scenarios in the rule, particularly with regard to the time periods used to benchmark the shocks and candidate risk factors for banks to use in specifying the scenarios. This commenter believed that use of the same specifications across banks would improve supervisory benchmarking capabilities.
Other commenters encouraged banks and supervisors to continue to work together to enhance stress test standards and approaches. These commenters also suggested that supervisors allow banks flexibility in stress testing their portfolios of correlation trading positions and recommended more benchmarking exercises through the use of so-called “test portfolio” exercises.
The agencies believe that benchmarking across banks is a worthwhile exercise, but wish to retain the proposed rule's level of specificity because appropriate factors, such as time periods and particular shock events, will likely vary over time and may be more appropriately specified through a different mechanism. The agencies appreciate the need to work with banks to improve stress testing, and expect to do so as part of the ongoing supervisory process. The agencies have evaluated the appropriate bases for supervisory stress scenarios to be applied to a bank's portfolio of correlation trading positions. There are inherent difficulties in prescribing stress scenarios that would be universally applicable and relevant across all banks and across all products contained in banks' correlation trading portfolios. The agencies believe a level of comparability is important for assessing the sufficiency and appropriateness of banks' comprehensive risk models, but also recognize that specific scenarios may not be relevant for certain products or for certain modeling approaches. The agencies have considered these comments and have retained the proposed stress testing requirements for the comprehensive risk measure in the final rule. Therefore, the final rule does not include supervisory stress scenarios.
Several commenters expressed concern regarding how comprehensive risk models will be assessed by supervisors. One commenter expressed concern that it would be very difficult to benchmark against actual results of a comprehensive risk model, given that it is designed to capture “deep tail loss” over a relatively long time horizon. Instead, the commenter suggested comparing the distribution of shocks that produce the comprehensive risk measure to historical experiences or evaluating the pricing or market risk factor technique to determine if there is any reason to think that a deeper tail or longer horizon of the comprehensive risk measure is not supportable. The agencies believe that the techniques described by the commenter should be part of a robust benchmarking process. The agencies may use various methods including standard supervisory examinations, benchmarking exercises using test portfolios, and other relevant techniques to evaluate the models. The agencies recognize that backtesting models calibrated to long time horizons and higher percentiles is less informative than backtesting of standard VaR models. As a result, banks likely will need to use indirect model validation methods, such as stress tests, scenario analysis or other methods to assess their models.
As under the proposal, under the final rule a bank that calculates a comprehensive risk measure under section 9 of the final rule is required to calculate its comprehensive risk capital requirement at least weekly. This capital requirement is the greater of (1) the average of the comprehensive risk measures over the previous 12 weeks or (2) the most recent comprehensive risk measure.
Like the January 2011 proposal, the final rule adopts disclosure requirements designed to increase transparency and improve market discipline on the top-tier consolidated legal entity that is subject to the market risk capital rule. The disclosure requirements include a breakdown of certain components of a bank's market risk capital requirement, information on a bank's modeling approaches, and qualitative and quantitative disclosures relating to a bank's securitization activities.
Consistent with the approach taken in the agencies' advanced approaches rules, the final rule requires a bank to comply with the disclosure requirements under section 12 of the rule unless it is a consolidated subsidiary of another depository institution or bank holding company that is subject to the disclosure requirements. A bank subject to section 12 is required to adopt a formal disclosure policy approved by its board of directors that addresses the bank's approach for determining the disclosures it makes. The policy must address the associated internal controls and disclosure controls and procedures. The board of directors and senior management must ensure that appropriate verification of the bank's disclosures takes place and that effective internal controls and disclosure controls and procedures are maintained. One or more senior officers must attest that the disclosures meet the requirements, and the board of directors and senior management are responsible for establishing and maintaining an effective internal control structure over financial reporting, including the information required under section 12 of the final rule.
The proposed rule would have required a bank, at least quarterly, to disclose publicly for each material portfolio of covered positions (1) The high, low, and mean VaR-based measures over the reporting period and the VaR-based measure at period-end; (2) the high, low, and mean stressed VaR-based measures over the reporting period and the stressed VaR-based measure at period-end; (3) the high, low, and mean incremental risk capital requirements over the reporting period and the incremental risk capital requirement at period-end; (4) the high, low, and mean comprehensive risk capital requirements over the reporting period and the comprehensive risk capital requirement at period-end; (5) separate measures for interest rate risk, credit spread risk, equity price risk, foreign exchange rate risk, and commodity price risk used to calculate the VaR-based measure; and (6) a comparison of VaR-based measures with actual results and an analysis of important outliers. In addition, a bank would have been required to publicly disclose the following information at least quarterly (1) the aggregate amount
The proposed rule also would have required a bank to make qualitative disclosures at least annually, or more frequently in the event of material changes, of the following information for each material portfolio of covered positions (1) The composition of material portfolios of covered positions; (2) the bank's valuation policies, procedures, and methodologies for covered positions including, for securitization positions, the methods and key assumptions used for valuing such positions, any significant changes since the last reporting period, and the impact of such change; (3) the characteristics of its internal models, including, for the bank's incremental risk capital requirement and the comprehensive risk capital requirement, the approach used by the bank to determine liquidity horizons; the methodologies used to achieve a capital assessment that is consistent with the required soundness standard; and the specific approaches used in the validation of these models; (4) a description of its approaches for validating the accuracy of its internal models and modeling processes; (5) a description of the stress tests applied to each market risk category; (6) the results of a comparison of the bank's internal estimates with actual outcomes during a sample period not used in model development; (7) the soundness standard on which its internal capital adequacy assessment is based, including a description of the methodologies used to achieve a capital adequacy assessment that is consistent with the soundness standard and the requirements of the market risk capital rule; (8) a description of the bank's processes for monitoring changes in the credit and market risk of securitization positions, including how those processes differ for resecuritization positions; and (9) a description of the bank's policy governing the use of credit risk mitigation to mitigate the risks of securitization and resecuritization positions.
Several commenters expressed concerns that certain disclosure requirements, and in particular the requirement to disclose the median for various risk measures, exceeded those required under the 2009 revisions. Upon consideration of such concerns, the agencies have removed this disclosure requirement from the final rule.
Some commenters also asked for clarification as to whether banks have flexibility to determine or identify what constitutes a “portfolio” and determine and disclose risk measures most meaningful for these portfolios. The final rule clarifies that the disclosure requirements apply to each material portfolio of covered positions. The market risk capital calculations should generally be the basis for disclosure content. A bank should provide further disclosure as needed for material portfolios or relevant risk measures.
Some commenters also expressed concern that the proposed requirement to disclose information regarding stress test scenarios and their results could lead to the release of proprietary information. In response, the agencies note that the final rule, like the proposed rule, would allow a bank to withhold from disclosure any information that is proprietary or confidential if the bank believes that disclosure of specific commercial or financial information would prejudice seriously its position. Instead, the bank must disclose more general information about the subject matter of the requirement, together with the fact that, and the reason why, the specific items of information have not been disclosed. In implementing this requirement, the agencies will work with banks on a case-by-case basis to address any questions about the types of more general information that would satisfy the final rule.
Another commenter supported strengthening disclosure requirements regarding validation procedures and the stressed VaR-based measure, particularly correlation and valuation assumptions. The commenter believed such enhancements would provide the market more detailed information to assess a given bank's relative risk. The agencies recognize the importance of market discipline in encouraging sound risk management practices and fostering financial stability. However, requirements for greater information disclosure need to be balanced with the burden it places on banks providing the information. The agencies believe the rule's disclosure requirements (in alignment with the 2009 revisions) strike a reasonable balance in this respect.
Some commenters expressed concern that certain disclosures would not improve transparency. Specifically, some commenters noted that the proposed requirement to report separate VaR-based measures for covered positions for market risk capital purposes and for public accounting standards is likely to cause market confusion. Another commenter believed that certain types of disclosures, particularly those relating to model outputs, will not necessarily lead to greater understanding of positions and risks, as they are either overly superficial or difficult to compare accurately between banks. Commenters also expressed concern that the timing of the proposal's required disclosures does not align with the timing of required disclosures under the advanced approaches rules and believed that the two disclosure regimes should become effective at the same time.
The agencies believe that public disclosures allow the market to better understand the risks of a given bank and encourage banks to provide sufficient information to provide appropriate context to their public disclosures. In terms of the timing of market risk capital rule disclosures aligning with those required under the advanced approaches rules, the agencies note that certain banks subject to the market risk capital rule are not subject to the advanced approaches rules. Further, the implementation framework under the advanced approaches rules varies sufficiently from that of the market risk capital rule that required disclosures under the market risk capital rule could be unnecessarily delayed depending on a bank's implementation status under the advanced approaches rules. For these reasons, the agencies have not aligned the timing of the disclosure requirements across the rules.
Except for the removal of the median measures in the quantitative disclosure requirements, described above, the final rule retains the proposed disclosure requirements. Many of the disclosure requirements reflect information already disclosed publicly by the banking industry. Banks are encouraged, but not required, to provide access to these disclosures in a central location on their Web sites.
The Regulatory Flexibility Act, 5 U.S.C. 601
As discussed above, the final rule applies only if a bank holding company or bank has aggregated trading assets and trading liabilities equal to 10 percent or more of quarter-end total assets or $1 billion or more. No small bank holding companies or banks satisfy these criteria. Therefore, no small entities would be subject to this rule.
The Unfunded Mandates Reform Act of 1995 (UMRA) requires federal agencies to 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. The current inflation-adjusted expenditure threshold is $126.4 million. 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.
In conducting the regulatory analysis, UMRA requires each federal agency to provide:
• The text of the draft regulatory action, together with a reasonably detailed description of the need for the regulatory action and an explanation of how the regulatory action will meet that need;
• An assessment of the potential costs and benefits of the regulatory action, including an explanation of the manner in which the regulatory action is consistent with a statutory mandate and, to the extent permitted by law, promotes the President's priorities and avoids undue interference with State, local, and tribal governments in the exercise of their governmental functions;
• An assessment, including the underlying analysis, of benefits anticipated from the regulatory action (such as, but not limited to, the promotion of the efficient functioning of the economy and private markets, the enhancement of health and safety, the protection of the natural environment, and the elimination or reduction of discrimination or bias) together with, to the extent feasible, a quantification of those benefits;
• An assessment, including the underlying analysis, of costs anticipated from the regulatory action (such as, but not limited to, the direct cost both to the government in administering the regulation and to businesses and others in complying with the regulation, and any adverse effects on the efficient functioning of the economy, private markets (including productivity, employment, and competitiveness), health, safety, and the natural environment), together with, to the extent feasible, a quantification of those costs; and
• An assessment, including the underlying analysis, of costs and benefits of potentially effective and reasonably feasible alternatives to the planned regulation, identified by the agencies or the public (including improving the current regulation and reasonably viable nonregulatory actions), and an explanation why the planned regulatory action is preferable to the identified potential alternatives.
• An estimate of any disproportionate budgetary effects of the federal mandate upon any particular regions of the nation or particular State, local, or tribal governments, urban or rural or other types of communities, or particular segments of the private sector.
• An estimate of the effect the rulemaking action may have on the national economy, if the OCC determines that such estimates are reasonably feasible and that such effect is relevant and material.
Federal banking law directs federal banking agencies including the Office of the Comptroller of the Currency (OCC) to require banking organizations to hold adequate capital. The law authorizes federal banking agencies to set minimum capital levels to ensure that banking organizations maintain adequate capital. The law gives banking agencies broad discretion with respect to capital regulation by authorizing them to use other methods that they deem appropriate to ensure capital adequacy. As the primary supervisor of national banks and federally chartered savings associations, the OCC oversees the capital adequacy of national banks, federally chartered thrifts, and federal branches of foreign banking organizations (hereafter collectively referred to as “banks”). If banks under the OCC's supervision fail to maintain adequate capital, federal law authorizes the OCC to take enforcement action up to and including placing the bank in receivership, conservatorship, or requiring its sale, merger, or liquidation.
In 1996, the Basel Committee on Banking Supervision amended its risk-based capital standards to include a requirement that banks measure and hold capital to cover their exposure to market risk associated with foreign exchange and commodity positions and positions located in the trading account. The OCC (along with the Federal Reserve Board and the FDIC) implemented this market risk amendment (MRA) effective January 1, 1997.
The final rule would modify the current market risk capital rule by adjusting the minimum risk-based capital calculation, introducing new measures of creditworthiness for purposes of determining appropriate risk weights, and adding public disclosure requirements. The final rule would also (1) Modify the definition of covered positions to include assets that are in the trading book and held with the intent to trade; (2) introduce new requirements for the identification of trading positions and the management of covered positions; and (3) require banks to have clearly defined policies and procedures for actively managing all covered positions, for the prudent valuation of covered positions and for specific internal model validation standards. The final rule will generally apply to any bank with aggregate trading assets and liabilities that are at least 10 percent of total assets or at least $1 billion. These thresholds are the same as those currently used to determine applicability of the market risk rule.
Under current risk-based capital rules, a banking organization that is subject to the market risk capital guidelines must hold capital to support its exposure to general market risk arising from fluctuations in interest rates, equity prices, foreign exchange rates, and commodity prices, as well as its exposure to specific risk associated with certain debt and equity positions. Under current rules, covered positions include all positions in a bank's trading account
The final rule also introduces new requirements for the identification of trading positions and the management of covered positions. The final rule would require banks to have clearly defined policies and procedures for actively managing all covered positions, for the prudent valuation and stress testing of covered positions and for specific internal model validation standards. Banks must also have clearly defined trading and hedging strategies. The final rule also requires banks to have a risk control unit that is independent of its trading units and that reports directly to senior management. Under the final rule, banks must also document all material aspects of its market risk modeling and management, and publicly disclose various measures of market risk for each material portfolio of covered positions.
To be adequately capitalized, banks subject to the market risk capital guidelines must maintain an overall minimum 8.0 percent ratio of total qualifying capital (the sum of tier 1 capital and tier 2 capital, net of all deductions) to the sum of risk-weighted assets and market risk equivalent assets. Market risk equivalent assets equal the bank's measure for market risk multiplied by 12.5.
Under current rules, the measure for market risk is as follows:
The Basel Committee and the federal banking agencies designed the new components of the market risk measure to capture key risks overlooked by the current market risk measure. The incremental risk requirement gathers in default risk and migration risk for unsecuritized items in the trading book. The comprehensive risk charge considers correlation trading activities and the stressed value-at-risk (VaR) component requires banks to include a VaR assessment that is calibrated to historical data from a 12-month period that reflects a period of significant financial stress.
In addition to introducing several new components into the formula for the market risk measure, the final rule will also introduce new creditworthiness standards to meet the requirements of Section 939A of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank). Section 939A requires federal agencies to remove references to credit ratings from regulations and replace credit ratings with appropriate alternatives. Institutions subject to the market risk rule will use the alternative measures of creditworthiness described below to determine appropriate risk-weighting factors within the specific risk component of the market risk measure.
The alternative measure for securitization positions is a simplified version of the Basel II advanced approaches supervisory formula approach. The simplified supervisory formula approach (SSFA) applies a 100 percent risk-weighting factor to the junior-most portion of a securitization structure. This 100 percent factor applies to tranches that fall below the amount of capital that a bank would have to hold if it retained the entire pool on its balance sheet. For the remaining portions of the securitization pool, the SSFA uses an exponential decay function to assign a marginal capital charge per dollar of a tranche. Securitization positions for which a bank does not use the SSFA would be subject to a 100 percent risk-weighting factor. The final rule would also adjust the calibration of the SSFA based on the historical credit performance of the pool of securitized assets.
The alternative measure for corporate exposures will apply capital requirements to exposures to publicly traded corporate entities based on the remaining maturity of an exposure and whether the exposure is “investment grade,” which is defined without reference to credit ratings, consistent with the OCC's definition of “investment grade” as that term has been defined for purposes of Part 1.
The final rule would assign specific risk capital requirements to sovereign exposures based on OECD Country Risk Classifications (CRCs). The final rule would also apply a risk-weighting factor of 12 percent to sovereigns that have defaulted on any exposure during the previous five years. Default would include a restructure (whether voluntary or involuntary) that results in a sovereign entity not servicing an obligation according to its terms prior to the restructuring. Exposures to the United States government and its agencies would always carry a zero percent risk-weighting factor. Sovereign entities that have no CRC would carry an 8 percent risk-weighting factor. For sovereign exposures with a CRC rating of 2 or 3, the risk-weighting factor would also depend on the exposure's remaining maturity.
The final rule would also apply risk-weighting factors of zero percent to exposures to supranational entities and multilateral development banks. International organizations that would receive a zero percent risk-weighting factor include the Bank for International Settlements, the European Central Bank, the European Commission, and the International Monetary Fund. The final rule would apply a zero percent risk-weighting factor to exposures to 13 named multilateral development banks and any multilateral lending institution or regional development bank in which the U.S. government is a shareholder or member, or if the bank's primary federal supervisor determines that the entity poses comparable credit risk.
Government Sponsored Entities (GSEs): The proposal would apply a 1.6 percent risk-weighting factor for GSE debt positions. GSE equity exposures would receive an 8 percent risk-weighting factor.
Depository Institutions, Foreign Banks, and Credit Unions: Generally, the rule would apply a risk-weighting factor that is linked to the sovereign entity risk-weighting factor. Exposures to depository institutions with a sovereign CRC rating between zero and two would receive a risk-weighting factor between 0.25 percent and 1.6 percent depending on the remaining maturity. Depository institutions with no CRC sovereign rating or a sovereign CRC rating of 3 would receive an eight percent risk-weighting factor, and depository institutions where a sovereign default has occurred in the past five years or the sovereign CRC rating is between four and seven would receive a 12 percent risk-weighting factor.
Public Sector Entities (PSEs): A PSE is a state, local authority, or other governmental subdivision below the level of a sovereign entity. The final rule would assign a risk-weighting factor to a PSE based on the PSE's sovereign risk-weighting factor. One risk-weighting factor schedule would apply to general obligation claims and another schedule would apply to revenue obligations.
According to December 31, 2011 Call Report data, 208 FDIC-insured institutions had trading assets or trading liabilities. Of these 208 institutions, 25 institutions had trading assets and liabilities that are at least 10 percent of total assets or at least $1 billion. Aggregated to the highest holding company there are 25 banking organizations, of which, 14 are national banking organizations. One federally chartered thrift holding company also meets the market risk threshold, but it is a subsidiary of one of the 14 national banking organizations.
The key qualitative benefits of the final rule are the following:
• Makes required regulatory capital more sensitive to market risk,
• Enhances modeling requirements consistent with advances in risk management,
• Better captures trading positions for which market risk capital treatment is appropriate,
• Increases transparency through enhanced market disclosures,
• Increased market risk capital should lower the probability of catastrophic losses to the bank occurring because of market risk,
• Modified requirements should reduce the procyclicality of market risk capital.
We derive our estimates of the final rule's effect on the market risk measure from the third trading book impact study conducted by the Basel Committee on Banking Supervision in 2009 and an analysis conducted by the Federal Reserve and the OCC.
To estimate the cost to banks of this new capital requirement, we examine the effect of this requirement on capital structure and the overall cost of capital.
This increased cost would be tax benefits forgone: the capital requirement ($31.6 billion), multiplied by the interest rate on the debt displaced and by the effective marginal tax rate for the banks affected by the final rule. The effective marginal corporate tax rate is affected not only by the statutory federal and state rates, but also by the probability of positive earnings (since there is no tax benefit when earnings are negative), and for the offsetting effects of personal taxes on required bond yields. Graham (2000) considers these factors and estimates a median marginal tax benefit of $9.40 per $100 of interest. So, using an estimated interest rate on debt of 6 percent, we estimate that the annual tax benefits foregone on $31.6 billion of capital switching from debt to equity is approximately $31.6 billion * 0.06 (interest rate) * 0.094 (median marginal tax savings) = $178 million.
In addition to the revised market risk measure, the final rule includes new disclosure requirements. We estimate that the new disclosure requirements and implementation of calculations for the new market risk measures may involve some additional system costs. Because the proposed market risk rule only applies to 14 national bank holding companies and will only affect institutions already subject to the current market risk rule, we expect these additional system costs to be
The final rule will also require institutions to (1) establish systems to determine risk-weighting factors using the alternative measures of creditworthiness described in the proposal, and (2) apply these alternative measures to the bank's trading portfolio. We believe that the principal costs of this component of the rule will involve the costs of gathering and updating the information necessary to calculate the relevant risk-weighting factors, and establishing procedures and maintaining the programs that perform the calculations.
In particular, the final rule would require each affected institution to:
1. Establish and maintain a system to implement the simplified supervisory formula approach (SSFA) for securitization positions.
2. Establish and maintain a system to determine risk-weighting factors for corporate debt positions.
3. Establish and maintain a system to assign risk-weighting factors to sovereign exposures.
4. Establish and maintain systems to assign risk-weighting factors to public sector entities, depository institutions, and other positions.
Listed below are the variables banks will need to gather to calculate the risk-weighting factors under the final rule:
Securitization Positions:
Corporate Debt Positions:
Sovereign Entity Debt Positions:
Table 2 shows our estimate of the number of hours required to perform the various activities necessary to meet the requirements of the final rule. We base these estimates on the scope of work required by the final rule and the extent to which these requirements extend current business practices. Although the total cost of gathering the new variables will depend on the size of the institution's consolidated trading activity, we believe that the costs of establishing systems to match variables with exposures and calculate the appropriate risk-weighting factor will account for most of the expenses associated with the credit rating alternatives. Once a bank establishes a system, we expect the marginal cost of calculating the risk-weighting factor for each additional asset in a particular category,
We estimate that financial institutions covered by the final rule will spend approximately 1,300 hours during the first year the rule is in effect. In subsequent years, we estimate that financial institutions will spend approximately 180 hours per year on activities related to determining risk-weighting factors using the alternative measures of creditworthiness in the final rule.
Table 3 shows our overall cost estimate tied to developing alternative measures of creditworthiness under the market risk rule. Our estimate of the compliance cost of the final rule is the product of our estimate of the hours required per institution, our estimate of the number of institutions affected by the rule, and an estimate of hourly wages. To estimate hours necessary per activity, we estimate the number of employees each activity is likely to need and the number of days necessary to assess, implement, and perfect the required activity. To estimate hourly wages, we reviewed data from May 2010 for wages (by industry and occupation) from the U.S. Bureau of Labor Statistics (BLS) for depository credit intermediation (NAICS 522100). To estimate compensation costs associated with the final rule, we use $85 per hour, which is based on the average of the 90th percentile for seven occupations (
We also recognize that risk-weighting factors, and hence, market risk capital requirements may change as a result of these new measures of creditworthiness. We expect that the largest capital impact of the new risk-weighting factors will occur with securitizations, corporate debt positions, and exposures to sovereigns. The increased sensitivity to risk of the alternative measures of creditworthiness implies that specific risk capital requirements may go down for some trading assets and up for others. For those assets with a higher specific risk capital charge under the final rule, however, that increase may be large, in some instances requiring a dollar-for-dollar capital charge.
At this time we are not able to estimate the capital impact of the alternative measures of creditworthiness with any degree of precision. While we know that the impact on U.S. Treasury Securities will be zero, the impact on the other asset categories is less clear. For instance, while anecdotal evidence suggests that roughly half of “other debt securities” is corporate debt and half is non-U.S. government securities, the actual capital impact will depend on the quality of these assets as determined by the measures of creditworthiness. While we anticipate that this impact could be large, we lack information on the composition and quality of the trading portfolio that would allow us to accurately estimate a likely capital charge. The actual impact on market risk capital requirements will also depend on the extent to which institutions model specific risk.
Combining capital costs ($178 million) with the costs of applying the alternative measures of creditworthiness ($1.5 million), we estimate that the total
As the Basel Committee on Banking Supervision points out in the July 2009 paper that recommends revisions to the market risk framework, the trading book proved to be an important source of losses during the financial crisis that began in mid-2007 and an important source of the buildup of leverage that preceded the crisis.
Under the baseline scenario, the current market risk rule would continue to apply. Because the final rule affects the same institutions as the current rule, table 1 reflects the current baseline. Thus, under the baseline, required market risk capital would remain at current levels and there would be no additional cost associated with adding capital. However, the final rule's qualitative benefits of making required regulatory capital more sensitive to market risk, increased transparency, and the improved targeting of trading positions would be lost under the baseline scenario.
UMRA requires a comparison between the final rule and reasonable alternatives when the impact assessment exceeds the inflation-adjusted expenditure threshold. In this regulatory impact analysis, we compare the final rule with two alternatives that modify the size thresholds for the rule. The baseline provides a comparison between the rule and the economic environment with no modifications to the current market risk measure. For Alternative A, we assess the impact of a rule with various size thresholds. For Alternative B, we assess the impact of a rule that changes the conditional statement of the rule's thresholds from “or” to “and”. Thus, alternative B assesses the impact of a market risk rule that applies to banks with trading assets and liabilities greater than $1 billion
Under Alternative A, we consider a rule that has the same provisions as the final rule, but we alter the rule's trading book size threshold. In our analysis of alternative A, we do not alter the 10 percent threshold for the trading book to asset ratio. Rather, we only vary the $1 billion trading book threshold. Table 4 shows how changing the dollar threshold changes the number of institutions affected by the rule and the estimated cost of the rule, continuing to assume that market risk capital will increase by 200 percent. The results for the final rule are shown in bold.
Because trading assets and liabilities are concentrated in relatively few institutions, modest changes in the size thresholds have little impact on the dollar volume of trading assets affected by the market risk rule and thus little impact on the estimated cost of the rule. Changing the size threshold does affect the number of institutions affected by the rule. Table 4 suggests that the banking agencies' systemic concerns could play a role in determining the appropriate size threshold for applicability of the market risk rule. The banking agencies may select a size threshold that ensures that the market risk rule applies to appropriate institutions as this choice has little impact on aggregate costs. The banking agencies' decision to use the same threshold as applies under current rules makes sense as implementation costs could be significant for individual institutions not already subject to the market risk rule.
Under Alternative B, we consider a rule that has the same provisions as the final rule, but we change the condition of the size thresholds from “or” to “and”. With this change, the final rule would apply to institutions that have $1 billion or more in trading assets and liabilities
As Table 5 shows, making the applicability of the market risk rule contingent on meeting both size thresholds would reduce the number of banks affected by the rule to three using the current thresholds of $1 billion and 10 percent. Not surprisingly, as this alternative affects some institutions with larger trading books, the estimated cost of the rule does decrease with the number of institutions affected by the rule.
Under our baseline scenario, which reflects the current application of the market risk rule, a market risk capital charge of approximately $15.8 billion applies to 14 national banks. Under the final rule, this capital charge would continue to apply to the same 14 banks but the capital charge would likely triple. We estimate that the cost of the additional capital would be approximately $178 million per year. Our overall estimate of the cost of the final market risk rule is $179.5 million, which reflects capital costs and compliance costs associated with implementing the alternative measures of creditworthiness.
Our alternatives examine the impact of a market risk rule that uses different size thresholds in order to determine which institutions are subject to the rule. With alternative A we consider altering the $1 billion trading book threshold used currently and maintained under the final rule. Although varying the size threshold changed the number of institutions affected by the rule, the overall capital cost of the rule did not change significantly. This reflects the high concentration of trading assets and liabilities in a relatively small number of banks. As long as the final rule applies to these institutions, the additional required capital and its corresponding cost will not change considerably.
Alternative B did affect both the number of institutions subject to the final rule and the cost of the final rule by limiting the market risk rule to institutions that meet both size criteria,
The final rule changes covered positions, disclosure requirements, and methods relating to calculating the market risk measure. These changes achieve the important objectives of making required regulatory capital more sensitive to market risk, increases transparency of the trading book and market risk, and better captures trading positions for which market risk capital treatment is appropriate. The final rule carries over the current thresholds used to determine the applicability of the market risk rule. The banking agencies have determined that these size thresholds capture the appropriate institutions; those most exposed to market risk.
The large increase in required market risk capital, which we estimate to be approximately $31.6 billion under the final rule, will provide a considerable buttress to the capital position of institutions subject to the market risk rule. This additional capital should dramatically lower the likelihood of catastrophic losses from market risk occurring at these institutions, which will enhance the safety and soundness of these institutions, the banking system, and world financial markets. Although there is some concern regarding the burden of the proposed increase in market risk capital and the effect this could have on bank lending,
The OCC does not expect the revised risk-based capital guidelines to have any disproportionate budgetary effect on any particular regions of the nation or particular State, local, or tribal governments, urban or rural or other types of communities, or particular segments of the private sector.
In accordance with the requirements of the Paperwork Reduction Act (PRA) of 1995 (44 U.S.C. 3501–3521), 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. The OMB control number for the OCC and the FDIC will be assigned and the OMB control number for the Board will be 7100–0314. In conjunction with the January 2011 notice of proposed rulemaking, the OCC and the FDIC submitted the information collection requirements contained therein to OMB for review. In response, OMB filed comments with the OCC and FDIC in accordance with 5 CFR 1320.11(c) withholding PRA approval. The agencies subsequently determined that there were no additional information collection requirements in the December 2011 Amendment and, therefore, the agencies made no PRA filing in conjunction with it. In addition, this final rule contains no additional information collection requirements. The OCC and the FDIC have submitted the information collection requirements in the final rule to OMB for review and approval under 44 U.S.C. 3506 and 5 CFR part 1320. The Board reviewed the final rule under the authority delegated to the Board by OMB. The final rule contains requirements subject to the PRA. The information collection requirements are found in sections 3, 4, 5, 6, 7, 8, 9, 10, and 13 of the final rule.
No comments concerning PRA were received in response to the notice of proposed rulemaking. Therefore, the hourly burden estimates for respondents noted in the proposed rule have not changed. The burden in the proposed rule for section 10(d), which requires documentation quarterly for analysis of risk characteristics of each securitization position it holds, has been renumbered to 10(f). The burden in the proposed rule for section 11, which requires quarterly quantitative disclosures, annual qualitative disclosures, and a formal disclosure policy approved by the board of directors that addresses the bank's approach for determining the market risk disclosures it makes, has been renumbered to 13. The agencies have an ongoing interest in your comments.
Comments are invited on:
(a) Whether the collection of information is necessary for the proper performance of the agencies' functions, including whether the information has practical utility;
(b) The accuracy of the estimates of the burden of the information collection, including the validity of the methodology and assumptions used;
(c) Ways to enhance the quality, utility, and clarity of the information to be collected;
(d) Ways to minimize the burden of the information collection on respondents, including through the use of automated collection techniques or other forms of information technology; and
(e) Estimates of capital or start up costs and costs of operation, maintenance, and purchase of services to provide information.
Section 722 of the Gramm-Leach-Bliley Act requires the Federal banking agencies to use plain language in all proposed and final rules published after January 1, 2000. The agencies invited comment on whether the proposed rule was written plainly and clearly or whether there were ways the agencies could make the rule easier to understand. The agencies received no comments on these matters and believe that the final rule is written plainly and clearly in conjunction with the agencies' risk-based capital rules.
The text of the common rules appears below:
(a)
(b)
(i) 10 percent or more of quarter-end total assets as reported on the most recent quarterly [Call Report or FR Y–9C]; or
(ii) $1 billion or more.
(2) The [Agency] may apply this appendix to any [bank] if the [Agency] deems it necessary or appropriate because of the level of market risk of the [bank] or to ensure safe and sound banking practices.
(3) The [Agency] may exclude a [bank] that meets the criteria of paragraph (b)(1) of this section from application of this appendix if the [Agency] determines that the exclusion is appropriate based on the level of market risk of the [bank] and is consistent with safe and sound banking practices.
(c)
(2) If the [Agency] determines that the risk-based capital requirement calculated under this appendix by the [bank] for one or more covered positions or portfolios of covered positions is not commensurate with the risks associated with those positions or portfolios, the [Agency] may require the [bank] to assign a different risk-based capital requirement to the positions or portfolios that more accurately reflects the risk of the positions or portfolios.
(3) The [Agency] may also require a [bank] to calculate risk-based capital requirements for specific positions or portfolios under this appendix, or under [the advanced capital adequacy framework] or [the general risk-based capital rules], as appropriate, to more accurately reflect the risks of the positions.
(4) Nothing in this appendix limits the authority of the [Agency] under any other provision of law or regulation to take supervisory or enforcement action, including action to address unsafe or unsound practices or conditions, deficient capital levels, or violations of law.
For purposes of this appendix, the following definitions apply:
(1) Owns, controls, or holds with power to vote 25 percent or more of a class of voting securities of the company; or
(2) Consolidates the company for financial reporting purposes.
(1) A securitization position for which all or substantially all of the value of the underlying exposures is based on the credit quality of a single company for which a two-way market exists, or on commonly traded indices based on such exposures for which a two-way market exists on the indices; or
(2) A position that is not a securitization position and that hedges a position described in paragraph (1) of this definition; and
(3) A correlation trading position does not include:
(i) A resecuritization position;
(ii) A derivative of a securitization position that does not provide a pro rata share in the proceeds of a securitization tranche; or
(iii) A securitization position for which the underlying assets or reference exposures are retail exposures, residential mortgage exposures, or commercial mortgage exposures.
(1) A trading asset or trading liability (whether on- or off-balance sheet),
(i) The position is a trading position or hedges another covered position;
(ii) The position is free of any restrictive covenants on its tradability or the [bank] is able to hedge the material risk elements of the position in a two-way market;
(2) A foreign exchange or commodity position, regardless of whether the position is a trading asset or trading liability (excluding any structural foreign currency positions that the [bank] chooses to exclude with prior supervisory approval); and
(3) Notwithstanding paragraphs (1) and (2) of this definition, a covered position does not include:
(i) An intangible asset, including any servicing asset;
(ii) Any hedge of a trading position that the [Agency] determines to be outside the scope of the [bank]'s hedging strategy required in paragraph (a)(2) of section 3 of this appendix;
(iii) Any position that, in form or substance, acts as a liquidity facility that provides support to asset-backed commercial paper;
(iv) A credit derivative the [bank] recognizes as a guarantee for risk-weighted asset amount calculation purposes under [the advanced capital adequacy framework] or [the general risk-based capital rules];
(v) Any equity position that is not publicly traded, other than a derivative that references a publicly traded equity;
(vi) Any position a [bank] holds with the intent to securitize; or
(vii) Any direct real estate holding.
(1) Any exchange registered with the SEC as a national securities exchange under section 6 of the Securities Exchange Act of 1934 (15 U.S.C. 78f); or
(2) Any non-U.S.-based securities exchange that:
(i) Is registered with, or approved by, a national securities regulatory authority; and
(ii) Provides a liquid, two-way market for the instrument in question.
(1) The transaction is based on liquid and readily marketable securities;
(2) The transaction is marked-to-market daily;
(3) The transaction is subject to daily margin maintenance requirements; and
(4)(i) The transaction is a securities contract for the purposes of section 555 of the Bankruptcy Code (11 U.S.C. 555), a qualified financial contract for the purposes of section 11(e)(8) of the Federal Deposit Insurance Act (12 U.S.C. 1821(e)(8)), or a netting contract between or among financial institutions for the purposes of sections 401–407 of the Federal Deposit Insurance Corporation Improvement Act of 1991 (12 U.S.C. 4401–4407) or the Board's Regulation EE (12 CFR part 231); or
(ii) If the transaction does not meet the criteria in paragraph (4)(i) of this definition, either:
(A) The [bank] has conducted sufficient legal review to reach a well-founded conclusion that:
(
(
(B) The transaction is either overnight or unconditionally cancelable at any time by the [bank], and the [bank] has conducted sufficient legal review to reach a well-founded conclusion that:
(
(
Resecuritization position means a covered position that is:
(1) An on- or off-balance sheet exposure to a resecuritization; or
(2) An exposure that directly or indirectly references a resecuritization exposure in paragraph (1) of this definition.
(1) All or a portion of the credit risk of one or more underlying exposures is transferred to one or more third parties;
(2) The credit risk associated with the underlying exposures has been separated into at least two tranches that reflect different levels of seniority;
(3) Performance of the securitization exposures depends upon the performance of the underlying exposures;
(4) All or substantially all of the underlying exposures are financial exposures (such as loans, commitments, credit derivatives, guarantees, receivables, asset-backed securities, mortgage-backed securities, other debt securities, or equity securities);
(5) For non-synthetic securitizations, the underlying exposures are not owned by an operating company;
(6) The underlying exposures are not owned by a small business investment company described in section 302 of the
(7) The underlying exposures are not owned by a firm an investment in which qualifies as a community development investment under 12 U.S.C. 24 (Eleventh).
(8) The [Agency] may determine that a transaction in which the underlying exposures are owned by an investment firm that exercises substantially unfettered control over the size and composition of its assets, liabilities, and off-balance sheet exposures is not a securitization based on the transaction's leverage, risk profile, or economic substance.
(9) The [Agency] may deem an exposure to a transaction that meets the definition of a securitization, notwithstanding paragraph (5), (6), or (7) of this definition, to be a securitization based on the transaction's leverage, risk profile, or economic substance.
(1) An on-balance sheet or off-balance sheet credit exposure (including credit-enhancing representations and warranties) that arises from a securitization (including a resecuritization); or
(2) An exposure that directly or indirectly references a securitization exposure described in paragraph (1) of this definition.
(1) Subordinated debt, equity, or minority interest in a consolidated subsidiary that is denominated in a foreign currency;
(2) Capital assigned to foreign branches that is denominated in a foreign currency;
(3) A position related to an unconsolidated subsidiary or another item that is denominated in a foreign currency and that is deducted from the [bank]'s tier 1 and tier 2 capital; or
(4) A position designed to hedge a [bank]'s capital ratios or earnings against the effect on paragraphs (1), (2), or (3) of this definition of adverse exchange rate movements.
(1) The transaction is based solely on liquid and readily marketable securities or cash;
(2) The transaction is marked-to-market daily and subject to daily margin maintenance requirements;
(3) The transaction is executed under an agreement that provides the [bank] the right to accelerate, terminate, and close-out the transaction on a net basis and to liquidate or set off collateral promptly upon an event of default (including bankruptcy, insolvency, or similar proceeding) of the counterparty, provided that, in any such case, any exercise of rights under the agreement will not be stayed or avoided under applicable law in the relevant jurisdictions;
(4) The [bank] has conducted and documented sufficient legal review to conclude with a well-founded basis that the agreement meets the requirements of paragraph (3) of this definition and is legal, valid, binding, and enforceable under applicable law in the relevant jurisdictions.
(a)
(i) The extent to which a position, or a hedge of its material risks, can be marked-to-market daily by reference to a two-way market; and
(ii) Possible impairments to the liquidity of a position or its hedge.
(2)
(i) The trading strategy must articulate the expected holding period of, and the market risk associated with, each portfolio of trading positions.
(ii) The hedging strategy must articulate for each portfolio of trading positions the level of market risk the [bank] is willing to accept and must detail the instruments, techniques, and strategies the [bank] will use to hedge the risk of the portfolio.
(b)
(i) Marking positions to market or to model on a daily basis;
(ii) Daily assessment of the [bank]'s ability to hedge position and portfolio risks, and of the extent of market liquidity;
(iii) Establishment and daily monitoring of limits on positions by a risk control unit independent of the trading business unit;
(iv) Daily monitoring by senior management of information described in paragraphs (b)(1)(i) through (b)(1)(iii) of this section;
(v) At least annual reassessment of established limits on positions by senior management; and
(vi) At least annual assessments by qualified personnel of the quality of market inputs to the valuation process, the soundness of key assumptions, the reliability of parameter estimation in pricing models, and the stability and accuracy of model calibration under alternative market scenarios.
(2)
(c)
(2) A [bank] must meet all of the requirements of this section on an ongoing basis. The [bank] must promptly notify the [Agency] when:
(i) The [bank] plans to extend the use of a model that the [Agency] has approved under this appendix to an additional business line or product type;
(ii) The [bank] makes any change to an internal model approved by the [Agency] under this appendix that would result in a material change in the [bank]'s risk-weighted asset amount for a portfolio of covered positions; or
(iii) The [bank] makes any material change to its modeling assumptions.
(3) The [Agency] may rescind its approval of the use of any internal model (in whole
(4) The [bank] must periodically, but no less frequently than annually, review its internal models in light of developments in financial markets and modeling technologies, and enhance those models as appropriate to ensure that they continue to meet the [Agency]'s standards for model approval and employ risk measurement methodologies that are most appropriate for the [bank]'s covered positions.
(5) The [bank] must incorporate its internal models into its risk management process and integrate the internal models used for calculating its VaR-based measure into its daily risk management process.
(6) The level of sophistication of a [bank]'s internal models must be commensurate with the complexity and amount of its covered positions. A [bank]'s internal models may use any of the generally accepted approaches, including but not limited to variance-covariance models, historical simulations, or Monte Carlo simulations, to measure market risk.
(7) The [bank]'s internal models must properly measure all the material risks in the covered positions to which they are applied.
(8) The [bank]'s internal models must conservatively assess the risks arising from less liquid positions and positions with limited price transparency under realistic market scenarios.
(9) The [bank] must have a rigorous and well-defined process for re-estimating, re-evaluating, and updating its internal models to ensure continued applicability and relevance.
(10) If a [bank] uses internal models to measure specific risk, the internal models must also satisfy the requirements in paragraph (b)(1) of section 7 of this appendix.
(d)
(2) The [bank] must validate its internal models initially and on an ongoing basis. The [bank]'s validation process must be independent of the internal models' development, implementation, and operation, or the validation process must be subjected to an independent review of its adequacy and effectiveness. Validation must include:
(i) An evaluation of the conceptual soundness of (including developmental evidence supporting) the internal models;
(ii) An ongoing monitoring process that includes verification of processes and the comparison of the [bank]'s model outputs with relevant internal and external data sources or estimation techniques; and
(iii) An outcomes analysis process that includes backtesting. For internal models used to calculate the VaR-based measure, this process must include a comparison of the changes in the [bank]'s portfolio value that would have occurred were end-of-day positions to remain unchanged (therefore, excluding fees, commissions, reserves, net interest income, and intraday trading) with VaR-based measures during a sample period not used in model development.
(3) The [bank] must stress test the market risk of its covered positions at a frequency appropriate to each portfolio, and in no case less frequently than quarterly. The stress tests must take into account concentration risk (including but not limited to concentrations in single issuers, industries, sectors, or markets), illiquidity under stressed market conditions, and risks arising from the [bank]'s trading activities that may not be adequately captured in its internal models.
(4) The [bank] must have an internal audit function independent of business-line management that at least annually assesses the effectiveness of the controls supporting the [bank]'s market risk measurement systems, including the activities of the business trading units and independent risk control unit, compliance with policies and procedures, and calculation of the [bank]'s measures for market risk under this appendix. At least annually, the internal audit function must report its findings to the [bank]'s board of directors (or a committee thereof).
(e)
(f)
(a)
(1)
(A) General adjusted risk-weighted assets, which equals risk-weighted assets as determined in accordance with [the general risk-based capital rules] with the adjustments in paragraphs (a)(1)(ii) and, if applicable, (a)(1)(iii) of this section; and
(B) For a [bank] subject to [the advanced capital adequacy framework], advanced adjusted risk-weighted assets, which equal risk-weighted assets as determined in accordance with [the advanced capital adequacy framework] with the adjustments in paragraph (a)(1)(ii) of this section.
(ii) For purposes of calculating its general and advanced adjusted risk-weighted assets under paragraphs (a)(1)(i)(A) and (a)(1)(i)(B) of this section, respectively, the [bank] must exclude the risk-weighted asset amounts of all covered positions (except foreign exchange positions that are not trading positions and over-the-counter derivative positions).
(iii) For purposes of calculating its general adjusted risk-weighted assets under paragraph (a)(1)(i)(A) of this section, a [bank] may exclude receivables that arise from the posting of cash collateral and are associated with qualifying securities borrowing transactions to the extent the receivable is collateralized by the market value of the borrowed securities.
(2)
(i)
(A) The previous day's VaR-based measure as calculated under section 5 of this appendix; or
(B) The average of the daily VaR-based measures as calculated under section 5 of this appendix for each of the preceding 60 business days multiplied by three, except as provided in paragraph (b) of this section.
(ii)
(A) The most recent stressed VaR-based measure as calculated under section 6 of this appendix; or
(B) The average of the stressed VaR-based measures as calculated under section 6 of
(iii)
(iv)
(v)
(vi)
(A) The absolute value of the market value of those
(B) With the prior written approval of the [Agency], the capital requirement for any
(3)
(4)
(ii) A [bank] subject to [the advanced capital adequacy framework] must add advanced market risk equivalent assets (as calculated in paragraph (a)(3) of this section) to advanced adjusted risk-weighted assets (as calculated in paragraph (a)(1)(i) of this section). The resulting sum is the [bank]'s advanced risk-based capital ratio denominator.
(b)
(1) Once each quarter, the [bank] must identify the number of exceptions (that is, the number of business days for which the actual daily net trading loss, if any, exceeds the corresponding daily VaR-based measure) that have occurred over the preceding 250 business days.
(2) A [bank] must use the multiplication factor in table 1 of this appendix that corresponds to the number of exceptions identified in paragraph (b)(1) of this section to determine its VaR-based capital requirement for market risk under paragraph (a)(2)(i) of this section and to determine its stressed VaR-based capital requirement for market risk under paragraph (a)(2)(ii) of this section until it obtains the next quarter's backtesting results, unless the [Agency] notifies the [bank] in writing that a different adjustment or other action is appropriate.
(a)
(1) The [bank]'s internal models for calculating its VaR-based measure must use risk factors sufficient to measure the market risk inherent in all covered positions. The market risk categories must include, as appropriate, interest rate risk, credit spread risk, equity price risk, foreign exchange risk, and commodity price risk. For material positions in the major currencies and markets, modeling techniques must incorporate enough segments of the yield curve—in no case less than six—to capture differences in volatility and less than perfect correlation of rates along the yield curve.
(2) The VaR-based measure may incorporate empirical correlations within and across risk categories, provided the [bank] validates and demonstrates the reasonableness of its process for measuring correlations. If the VaR-based measure does not incorporate empirical correlations across risk categories, the [bank] must add the separate measures from its internal models used to calculate the VaR-based measure for the appropriate market risk categories (interest rate risk, credit spread risk, equity price risk, foreign exchange rate risk, and/or commodity price risk) to determine its aggregate VaR-based measure.
(3) The VaR-based measure must include the risks arising from the nonlinear price characteristics of options positions or positions with embedded optionality and the sensitivity of the market value of the positions to changes in the volatility of the underlying rates, prices, or other material risk factors. A [bank] with a large or complex options portfolio must measure the volatility of options positions or positions with embedded optionality by different maturities and/or strike prices, where material.
(4) The [bank] must be able to justify to the satisfaction of the [Agency] the omission of any risk factors from the calculation of its VaR-based measure that the [bank] uses in its pricing models.
(5) The [bank] must demonstrate to the satisfaction of the [Agency] the appropriateness of any proxies used to capture the risks of the [bank]'s actual positions for which such proxies are used.
(b)
(2) The VaR-based measure must be based on a historical observation period of at least one year. Data used to determine the VaR-based measure must be relevant to the [bank]'s actual exposures and of sufficient quality to support the calculation of risk-based capital requirements. The [bank] must update data sets at least monthly or more frequently as changes in market conditions or portfolio composition warrant. For a [bank] that uses a weighting scheme or other method for the historical observation period, the [bank] must either:
(i) Use an effective observation period of at least one year in which the average time lag of the observations is at least six months; or
(ii) Demonstrate to the [Agency] that its weighting scheme is more effective than a weighting scheme with an average time lag of at least six months representing the volatility of the [bank]'s trading portfolio over a full business cycle. A [bank] using this option must update its data more frequently than monthly and in a manner appropriate for the type of weighting scheme.
(c) A [bank] must divide its portfolio into a number of significant subportfolios approved by the [Agency] for subportfolio backtesting purposes. These subportfolios
(1) A daily VaR-based measure for the subportfolio calibrated to a one-tail, 99.0 percent confidence level;
(2) The daily profit or loss for the subportfolio (that is, the net change in price of the positions held in the portfolio at the end of the previous business day); and
(3) The p-value of the profit or loss on each day (that is, the probability of observing a profit that is less than, or a loss that is greater than, the amount reported for purposes of paragraph (c)(2) of this section based on the model used to calculate the VaR-based measure described in paragraph (c)(1) of this section).
(a)
(b)
(2) The stressed VaR-based measure must be calculated at least weekly and be no less than the [bank]'s VaR-based measure.
(3) A [bank] must have policies and procedures that describe how it determines the period of significant financial stress used to calculate the [bank]'s stressed VaR-based measure under this section and must be able to provide empirical support for the period used. The [bank] must obtain the prior approval of the [Agency] for, and notify the [Agency] if the [bank] makes any material changes to, these policies and procedures. The policies and procedures must address:
(i) How the [bank] links the period of significant financial stress used to calculate the stressed VaR-based measure to the composition and directional bias of its current portfolio; and
(ii) The [bank]'s process for selecting, reviewing, and updating the period of significant financial stress used to calculate the stressed VaR-based measure and for monitoring the appropriateness of the period to the [bank]'s current portfolio.
(4) Nothing in this section prevents the [Agency] from requiring a [bank] to use a different period of significant financial stress in the calculation of the stressed VaR-based measure.
(a)
(b)
(1)
(A) Explain the historical price variation in the portfolio;
(B) Be responsive to changes in market conditions;
(C) Be robust to an adverse environment, including signaling rising risk in an adverse environment; and
(D) Capture all material components of specific risk for the debt and equity positions in the portfolio. Specifically, the internal models must:
(
(
(ii) If a [bank] calculates an incremental risk measure for a portfolio of debt or equity positions under section 8 of this appendix, the [bank] is not required to capture default and credit migration risks in its internal models used to measure the specific risk of those portfolios.
(2)
(c)
(1) If the [bank]'s VaR-based measure does not capture all material aspects of specific risk for a portfolio of debt, equity, or correlation trading positions, the [bank] must calculate a specific-risk add-on for the portfolio under the standardized measurement method as described in section 10 of this appendix.
(2) A [bank] must calculate a specific risk add-on under the standardized measurement method as described in section 10 of this appendix for all of its securitization positions that are not modeled under section 9 of this appendix.
(a)
(b)
(1) Measure incremental risk over a one-year time horizon and at a one-tail, 99.9 percent confidence level, either under the assumption of a constant level of risk, or under the assumption of constant positions.
(i) A constant level of risk assumption means that the [bank] rebalances, or rolls over, its trading positions at the beginning of each liquidity horizon over the one-year horizon in a manner that maintains the [bank]'s initial risk level. The [bank] must determine the frequency of rebalancing in a manner consistent with the liquidity horizons of the positions in the portfolio. The liquidity horizon of a position or set of positions is the time required for a [bank] to reduce its exposure to, or hedge all of its material risks of, the position(s) in a stressed market. The liquidity horizon for a position or set of positions may not be less than the shorter of three months or the contractual maturity of the position.
(ii) A constant position assumption means that the [bank] maintains the same set of positions throughout the one-year horizon. If a [bank] uses this assumption, it must do so consistently across all portfolios.
(iii) A [bank]'s selection of a constant position or a constant risk assumption must be consistent between the [bank]'s incremental risk model and its comprehensive risk model described in section 9 of this appendix, if applicable.
(iv) A [bank]'s treatment of liquidity horizons must be consistent between the [bank]'s incremental risk model and its comprehensive risk model described in section 9 of this appendix, if applicable.
(2) Recognize the impact of correlations between default and migration events among obligors.
(3) Reflect the effect of issuer and market concentrations, as well as concentrations that can arise within and across product classes during stressed conditions.
(4) Reflect netting only of long and short positions that reference the same financial instrument.
(5) Reflect any material mismatch between a position and its hedge.
(6) Recognize the effect that liquidity horizons have on dynamic hedging strategies. In such cases, a [bank] must:
(i) Choose to model the rebalancing of the hedge consistently over the relevant set of trading positions;
(ii) Demonstrate that the inclusion of rebalancing results in a more appropriate risk measurement;
(iii) Demonstrate that the market for the hedge is sufficiently liquid to permit rebalancing during periods of stress; and
(iv) Capture in the incremental risk model any residual risks arising from such hedging strategies.
(7) Reflect the nonlinear impact of options and other positions with material nonlinear behavior with respect to default and migration changes.
(8) Maintain consistency with the [bank]'s internal risk management methodologies for identifying, measuring, and managing risk.
(c)
(1) The average of the incremental risk measures over the previous 12 weeks; or
(2) The most recent incremental risk measure.
(a)
(2) A [bank] that measures the price risk of a portfolio of correlation trading positions using internal models must calculate at least weekly a comprehensive risk measure that captures all price risk according to the requirements of this section. The comprehensive risk measure is either:
(i) The sum of:
(A) The [bank]'s modeled measure of all price risk determined according to the requirements in paragraph (b) of this section; and
(B) A surcharge for the [bank]'s modeled correlation trading positions equal to the total specific risk add-on for such positions as calculated under section 10 of this appendix multiplied by 8.0 percent; or
(ii) With approval of the [Agency] and provided the [bank] has met the requirements of this section for a period of at least one year and can demonstrate the effectiveness of the model through the results of ongoing model validation efforts including robust benchmarking, the greater of:
(A) The [bank]'s modeled measure of all price risk determined according to the requirements in paragraph (b) of this section; or
(B) The total specific risk add-on that would apply to the bank's modeled correlation trading positions as calculated under section 10 of this appendix multiplied by 8.0 percent.
(b)
(1) The internal model must measure comprehensive risk over a one-year time horizon at a one-tail, 99.9 percent confidence level, either under the assumption of a constant level of risk, or under the assumption of constant positions.
(2) The model must capture all material price risk, including but not limited to the following:
(i) The risks associated with the contractual structure of cash flows of the position, its issuer, and its underlying exposures;
(ii) Credit spread risk, including nonlinear price risks;
(iii) The volatility of implied correlations, including nonlinear price risks such as the cross-effect between spreads and correlations;
(iv) Basis risk;
(v) Recovery rate volatility as it relates to the propensity for recovery rates to affect tranche prices; and
(vi) To the extent the comprehensive risk measure incorporates the benefits of dynamic hedging, the static nature of the hedge over the liquidity horizon must be recognized. In such cases, a [bank] must:
(A) Choose to model the rebalancing of the hedge consistently over the relevant set of trading positions;
(B) Demonstrate that the inclusion of rebalancing results in a more appropriate risk measurement;
(C) Demonstrate that the market for the hedge is sufficiently liquid to permit rebalancing during periods of stress; and
(D) Capture in the comprehensive risk model any residual risks arising from such hedging strategies;
(3) The [bank] must use market data that are relevant in representing the risk profile of the [bank]'s correlation trading positions in order to ensure that the [bank] fully captures the material risks of the correlation trading positions in its comprehensive risk measure in accordance with this section; and
(4) The [bank] must be able to demonstrate that its model is an appropriate representation of comprehensive risk in light of the historical price variation of its correlation trading positions.
(c)
(1) A [bank] must at least weekly apply specific, supervisory stress scenarios to its portfolio of correlation trading positions that capture changes in:
(i) Default rates;
(ii) Recovery rates;
(iii) Credit spreads;
(iv) Correlations of underlying exposures; and
(v) Correlations of a correlation trading position and its hedge.
(2) Other requirements. (i) A [bank] must retain and make available to the [Agency] the results of the supervisory stress testing, including comparisons with the capital requirements generated by the [bank]'s comprehensive risk model.
(ii) A [bank] must report to the [Agency] promptly any instances where the stress tests indicate any material deficiencies in the comprehensive risk model.
(d)
(1) The average of the comprehensive risk measures over the previous 12 weeks; or
(2) The most recent comprehensive risk measure.
(a)
(1) The specific risk add-on for an individual debt or securitization position that represents sold credit protection is capped at the notional amount of the credit derivative contract. The specific risk add-on for an individual debt or securitization position that represents purchased credit protection is capped at the current market value of the transaction plus the absolute value of the present value of all remaining payments to the protection seller under the transaction. This sum is equal to the value of the protection leg of the transaction.
(2) For debt, equity, or securitization positions that are derivatives with linear payoffs, a [bank] must assign a specific risk-weighting factor to the market value of the effective notional amount of the underlying instrument or index portfolio, except for a securitization position for which the [bank] directly calculates a specific risk add-on using the SFA in paragraph (b)(2)(vii)(B) of this section. A swap must be included as an effective notional position in the underlying instrument or portfolio, with the receiving side treated as a long position and the paying side treated as a short position. For debt, equity, or securitization positions that are derivatives with nonlinear payoffs, a [bank] must risk weight the market value of the effective notional amount of the underlying instrument or portfolio multiplied by the derivative's delta.
(3) For debt, equity, or securitization positions, a [bank] may net long and short positions (including derivatives) in identical issues or identical indices. A [bank] may also net positions in depositary receipts against an opposite position in an identical equity in different markets, provided that the [bank] includes the costs of conversion.
(4) A set of transactions consisting of either a debt position and its credit derivative hedge or a securitization position and its credit derivative hedge has a specific risk add-on of zero if:
(i) The debt or securitization position is fully hedged by a total return swap (or similar instrument where there is a matching of swap payments and changes in market value of the debt or securitization position);
(ii) There is an exact match between the reference obligation of the swap and the debt or securitization position;
(iii) There is an exact match between the currency of the swap and the debt or securitization position; and
(iv) There is either an exact match between the maturity date of the swap and the maturity date of the debt or securitization position; or, in cases where a total return swap references a portfolio of positions with different maturity dates, the total return swap maturity date must match the maturity date of the underlying asset in that portfolio that has the latest maturity date.
(5) The specific risk add-on for a set of transactions consisting of either a debt position and its credit derivative hedge or a securitization position and its credit derivative hedge that does not meet the criteria of paragraph (a)(4) of this section is equal to 20.0 percent of the capital requirement for the side of the transaction with the higher specific risk add-on when:
(i) The credit risk of the position is fully hedged by a credit default swap or similar instrument;
(ii) There is an exact match between the reference obligation of the credit derivative hedge and the debt or securitization position;
(iii) There is an exact match between the currency of the credit derivative hedge and the debt or securitization position; and
(iv) There is either an exact match between the maturity date of the credit derivative hedge and the maturity date of the debt or securitization position; or, in the case where the credit derivative hedge has a standard maturity date:
(A) The maturity date of the credit derivative hedge is within 30 business days of the maturity date of the debt or securitization position; or
(B) For purchased credit protection, the maturity date of the credit derivative hedge is later than the maturity date of the debt or securitization position, but is no later than the standard maturity date for that instrument that immediately follows the maturity date of the debt or securitization position. The maturity date of the credit derivative hedge may not exceed the maturity date of the debt or securitization position by more than 90 calendar days.
(6) The specific risk add-on for a set of transactions consisting of either a debt position and its credit derivative hedge or a securitization position and its credit derivative hedge that does not meet the criteria of either paragraph (a)(4) or (a)(5) of this section, but in which all or substantially all of the price risk has been hedged, is equal to the specific risk add-on for the side of the transaction with the higher specific risk add-on.
(b)
(2) For the purpose of this section, the appropriate specific risk-weighting factors include:
(i)
(B) Notwithstanding paragraph (b)(2)(i)(A) of this section, a [bank] may assign to a sovereign debt position a specific risk-weighting factor that is lower than the applicable specific risk-weighting factor in table 2 if:
(
(
(
(C) A [bank] must assign a 12.0 percent specific risk-weighting factor to a sovereign debt position immediately upon determination that a default has occurred; or if a default has occurred within the previous five years.
(D) A [bank] must assign an 8.0 percent specific risk-weighting factor to a sovereign debt position if the sovereign entity does not have a CRC assigned to it, unless the sovereign debt position must be assigned a higher specific risk-weighting factor under paragraph (b)(2)(i)(C) of this section.
(ii)
(iii)
(iv)
(B) A [bank] must assign a specific risk-weighting factor of 8.0 percent to a debt position that is an exposure to a depository institution or a foreign bank that is includable in the depository institution's or foreign bank's regulatory capital and that is not subject to deduction as a reciprocal holding under the [general risk-based capital rules].
(C) A [bank] must assign a 12.0 percent specific risk-weighting factor to a debt position that is an exposure to a foreign bank immediately upon determination that a default by the foreign bank's sovereign of incorporation has occurred or if a default by the foreign bank's sovereign of incorporation has occurred within the previous five years.
(v)
(B) A [bank] may assign a lower specific risk-weighting factor than would otherwise apply under tables 4 and 5 to a debt position that is an exposure to a foreign PSE if:
(
(
(C) A [bank] must assign a 12.0 percent specific risk-weighting factor to a PSE debt position immediately upon determination that a default by the PSE's sovereign of incorporation has occurred or if a default by the PSE's sovereign of incorporation has occurred within the previous five years.
(vi)
(A)
(
(B)
(
(vii)
(
(
(B)
(C)
(D)
(
(
(
(
(c)
(1) The sum of the [bank]'s specific risk add-ons for each net long correlation trading position calculated under this section; or
(2) The sum of the [bank]'s specific risk add-ons for each net short correlation trading position calculated under this section.
(d)
(1) The sum of the [bank]'s specific risk add-ons for each net long securitization position calculated under this section; or
(2) The sum of the [bank]'s specific risk add-ons for each net short securitization position calculated under this section.
(e)
(1) The [bank] must multiply the absolute value of the current market value of each net long or net short equity position by a specific risk-weighting factor of 8.0 percent. For equity positions that are index contracts comprising a well-diversified portfolio of equity instruments, the absolute value of the current market value of each net long or net short position is multiplied by a specific risk-weighting factor of 2.0 percent.
(2) For equity positions arising from the following futures-related arbitrage strategies, a [bank] may apply a 2.0 percent specific risk-weighting factor to one side (long or short) of each position with the opposite side exempt from an additional capital requirement:
(i) Long and short positions in exactly the same index at different dates or in different market centers; or
(ii) Long and short positions in index contracts at the same date in different, but similar indices.
(3) For futures contracts on main indices that are matched by offsetting positions in a basket of stocks comprising the index, a [bank] may apply a 2.0 percent specific risk-weighting factor to the futures and stock basket positions (long and short), provided that such trades are deliberately entered into and separately controlled, and that the basket of stocks is comprised of stocks representing at least 90.0 percent of the capitalization of the index. A main index refers to the Standard & Poor's 500 Index, the FTSE All-World Index, and any other index for which the [bank] can demonstrate to the satisfaction of the [Agency] that the equities represented in the index have liquidity, depth of market, and size of bid-ask spreads comparable to equities in the Standard & Poor's 500 Index and FTSE All-World Index.
(f)
(2) To support the demonstration of its comprehensive understanding, for each securitization position a [bank] must:
(i) Conduct an analysis of the risk characteristics of a securitization position prior to acquiring the position and document such analysis within three business days after acquiring the position, considering:
(A) Structural features of the securitization that would materially impact the performance of the position, for example, the contractual cash flow waterfall, waterfall-related triggers, credit enhancements, liquidity enhancements, market value triggers, the performance of organizations that service the position, and deal-specific definitions of default;
(B) Relevant information regarding the performance of the underlying credit exposure(s), for example, the percentage of loans 30, 60, and 90 days past due; default rates; prepayment rates; loans in foreclosure; property types; occupancy; average credit score or other measures of creditworthiness; average loan-to-value ratio; and industry and geographic diversification data on the underlying exposure(s);
(C) Relevant market data of the securitization, for example, bid-ask spreads, most recent sales price and historical price volatility, trading volume, implied market rating, and size, depth and concentration level of the market for the securitization; and
(D) For resecuritization positions, performance information on the underlying securitization exposures, for example, the issuer name and credit quality, and the characteristics and performance of the exposures underlying the securitization exposures; and
(ii) On an on-going basis (no less frequently than quarterly), evaluate, review, and update as appropriate the analysis required under paragraph (f)(1) of this section for each securitization position.
(a)
(b)
(1) K
(2) Parameter W is expressed as a decimal value between zero and one. Parameter W is the ratio of the sum of the dollar amounts of any underlying exposures within the securitized pool that meet any of the criteria as set forth in paragraphs (i) through (vi) of this paragraph (b)(2) to the ending balance, measured in dollars, of underlying exposures:
(i) Ninety days or more past due;
(ii) Subject to a bankruptcy or insolvency proceeding;
(iii) In the process of foreclosure;
(iv) Held as real estate owned;
(v) Has contractually deferred interest payments for 90 days or more; or
(vi) Is in default.
(3) Parameter A is the attachment point for the position, which represents the threshold at which credit losses will first be allocated to the position. Parameter A equals the ratio of the current dollar amount of underlying exposures that are subordinated to the position of the [bank] to the current dollar amount of underlying exposures. Any reserve account funded by the accumulated cash flows from the underlying exposures that is subordinated to the position that contains the [bank]'s securitization exposure may be included in the calculation of parameter A to the extent that cash is present in the account. Parameter A is expressed as a decimal value between zero and one.
(4) Parameter D is the detachment point for the position, which represents the threshold at which credit losses of principal allocated to the position would result in a total loss of principal. Parameter D equals parameter A plus the ratio of the current dollar amount of the securitization positions that are
(5) A supervisory calibration parameter, p, is equal to 0.5 for securitization positions that are not resecuritization positions and equal to 1.5 for resecuritization positions.
(c)
(1) When the detachment point, parameter D, for a securitization position is less than or equal to K
(2) When the attachment point, parameter A, for a securitization position is greater than or equal to K
(3) When A is less than K
(a)
(b)
(c)
(1) For each material portfolio of covered positions, the [bank] must disclose publicly the following information at least quarterly:
(i) The high, low, and mean VaR-based measures over the reporting period and the VaR-based measure at period-end;
(ii) The high, low, and mean stressed VaR-based measures over the reporting period and the stressed VaR-based measure at period-end;
(iii) The high, low, and mean incremental risk capital requirements over the reporting period and the incremental risk capital requirement at period-end;
(iv) The high, low, and mean comprehensive risk capital requirements over the reporting period and the comprehensive risk capital requirement at period-end, with the period-end requirement broken down into appropriate risk classifications (for example, default risk, migration risk, correlation risk);
(v) Separate measures for interest rate risk, credit spread risk, equity price risk, foreign exchange risk, and commodity price risk used to calculate the VaR-based measure; and
(vi) A comparison of VaR-based estimates with actual gains or losses experienced by the [bank], with an analysis of important outliers.
(2) In addition, the [bank] must disclose publicly the following information at least quarterly:
(i) The aggregate amount of on-balance sheet and off-balance sheet securitization positions by exposure type; and
(ii) The aggregate amount of correlation trading positions.
(d)
(1) The composition of material portfolios of covered positions;
(2) The [bank]'s valuation policies, procedures, and methodologies for covered positions including, for securitization positions, the methods and key assumptions used for valuing such positions, any significant changes since the last reporting period, and the impact of such change;
(3) The characteristics of the internal models used for purposes of this appendix. For the incremental risk capital requirement and the comprehensive risk capital requirement, this must include:
(i) The approach used by the [bank] to determine liquidity horizons;
(ii) The methodologies used to achieve a capital assessment that is consistent with the required soundness standard; and
(iii) The specific approaches used in the validation of these models;
(4) A description of the approaches used for validating and evaluating the accuracy of internal models and modeling processes for purposes of this appendix;
(5) For each market risk category (that is, interest rate risk, credit spread risk, equity price risk, foreign exchange risk, and commodity price risk), a description of the stress tests applied to the positions subject to the factor;
(6) The results of the comparison of the [bank]'s internal estimates for purposes of this appendix with actual outcomes during a sample period not used in model development;
(7) The soundness standard on which the [bank]'s internal capital adequacy assessment under this appendix is based, including a description of the methodologies used to achieve a capital adequacy assessment that is consistent with the soundness standard;
(8) A description of the [bank]'s processes for monitoring changes in the credit and market risk of securitization positions, including how those processes differ for resecuritization positions; and
(8) A description of the [bank]'s policy governing the use of credit risk mitigation to mitigate the risks of securitization and resecuritization positions.
Administrative practices and procedure, Capital, National banks, Reporting and recordkeeping requirements, Risk.
Confidential business information, Crime, Currency, Federal Reserve System, Mortgages, Reporting and recordkeeping requirements, Securities.
Administrative practice and procedure, Banks, banking, Federal Reserve System, Holding companies, Reporting and recordkeeping requirements, Securities.
Administrative practice and procedure, Banks, banking, Capital Adequacy, Reporting and recordkeeping requirements, Savings associations, State non-member banks.
The adoption of the final common rules by the agencies, as modified by agency-specific text, is set forth below:
For the reasons set forth in the common preamble, part 3 of chapter I of title 12 of the Code of Federal Regulations are amended as follows:
12 U.S.C. 93a, 161, 1818, 3907 and 3909.
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:
12 U.S.C. 24, 36, 92a, 93a, 248(a), 248(c), 321–338a, 371d, 461, 481–486, 601, 611, 1814, 1816, 1818, 1820(d)(9), 1833(j), 1828(o), 1831, 1831o, 1831p–1, 1831r–1, 1831w, 1831x, 1835a, 1882, 2901–2907, 3105, 3310, 3331–3351, and 3905–3909; 15 U.S.C. 78b, 78I(b), 78l(i), 780–4(c)(5), 78q, 78q–1, and 78w, 1681s, 1681w, 6801, and 6805; 31 U.S.C. 5318; 42 U.S.C. 4012a, 4104a, 4104b, 4106 and 4128.
(c)
(2) A bank must meet all of the requirements of this section on an ongoing basis. The bank must promptly notify the Board and the appropriate Reserve Bank when:
(i) The bank plans to extend the use of a model that the Board or the appropriate Reserve Bank, with concurrence of the Board, has approved under this appendix to an additional business line or product type;
(ii) The bank makes any change to an internal model approved by the Board or the appropriate Reserve Bank, with concurrence of the Board, under this appendix that would result in a material change in the bank's risk-weighted asset amount for a portfolio of covered positions; or
(iii) The bank makes any material change to its modeling assumptions.
(3) The Board or the appropriate Reserve Bank, with concurrence of the Board, may rescind its approval of the use of any internal model (in whole or in part) or of the determination of the approach under section 9(a)(2)(ii) of this appendix for a bank's modeled correlation trading positions and determine an appropriate capital requirement for the covered positions to which the model would apply, if the Board or the appropriate Reserve Bank, with concurrence of the Board, determines that the model no longer complies with this appendix or fails to reflect accurately the risks of the bank's covered positions.
(b)
(c) A bank must divide its portfolio into a number of significant subportfolios approved by the Board or the appropriate Reserve Bank, with concurrence of the Board, for subportfolio backtesting purposes. These subportfolios must be sufficient to allow the bank and the Board or the appropriate Reserve Bank, with concurrence of the Board, to assess the adequacy of the VaR model at the risk factor level; the Board or the appropriate Reserve Bank, with concurrence of the Board, will evaluate the appropriateness of these subportfolios relative to the value and composition of the bank's covered positions. The bank must retain and make available to the Board and the appropriate Reserve Bank the following information for each subportfolio for each business day over the previous two years (500 business days), with no more than a 60-day lag:
(3) A bank must have policies and procedures that describe how it determines the period of significant financial stress used to calculate the bank's stressed VaR-based measure under this section and must be able to provide empirical support for the period used. The bank must obtain the prior approval of the Board or the appropriate Reserve Bank, with concurrence of the Board, for, and notify the Board and the appropriate Reserve Bank if the bank makes any material changes to, these policies and procedures. The policies and procedures must address:
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. 1681s, 1681w, 6801 and 6805.
(c)
(2) A bank holding company must meet all of the requirements of this section on an ongoing basis. The bank holding company must promptly notify the Board and the appropriate Reserve Bank when:
(i) The bank holding company plans to extend the use of a model that the Board or the appropriate Reserve Bank, with concurrence of the Board has approved under this appendix to an additional business line or product type;
(ii) The bank holding company makes any change to an internal model approved by the Board or the appropriate Reserve Bank, with concurrence of the Board, under this appendix that would result in a material change in the bank holding company's risk-weighted asset amount for a portfolio of covered positions; or
(iii) The bank holding company makes any material change to its modeling assumptions.
(3) The Board or the appropriate Reserve Bank, with concurrence of the Board, may rescind its approval of the use of any internal model (in whole or in part) or of the determination of the approach under section 9(a)(2)(ii) of this appendix for a bank holding company's modeled correlation trading positions and determine an appropriate capital requirement for the covered positions to which the model would apply, if the Board or the appropriate Reserve Bank, with concurrence of the Board, determines that the model no longer complies with this appendix or fails to reflect accurately the risks of the bank holding company's covered positions.
(b)
(c) A bank holding company must divide its portfolio into a number of significant subportfolios approved by the Board or the appropriate Reserve Bank, with concurrence of the Board, for subportfolio backtesting purposes. These subportfolios must be sufficient to allow the bank holding company and the Board or the appropriate Reserve Bank, with concurrence of the Board, to assess the adequacy of the VaR model at the risk factor level; the Board or the appropriate Reserve Bank, with concurrence of the Board, will evaluate the appropriateness of these subportfolios relative to the value and composition of the bank holding company's covered positions. The bank holding company must retain and make available to the Board and the appropriate Reserve Bank the following information for each subportfolio for each business day over the previous two years (500 business days), with no more than a 60-day lag:
(3) A bank holding company must have policies and procedures that describe how it determines the period of significant financial stress used to calculate the bank holding company's stressed VaR-based measure under this section and must be able to provide empirical support for the period used. The bank holding company must obtain the prior approval of the Board or the appropriate Reserve Bank, with concurrence of the Board, for, and notify the Board and the appropriate Reserve Bank if the bank holding company makes any material changes to, these policies and procedures. The policies and procedures must address:
For the reasons set forth in the common preamble, part 325 of chapter III of title 12 of the Code of Federal Regulations is amended as follows:
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,
By order of the Board of Governors of the Federal Reserve System, July 3, 2012.
Dated at Washington, DC, this 12th day of June, 2012.
By order of the Board of Directors.
Fish and Wildlife Service, Interior.
Final rule.
This rule prescribes final early-season frameworks from which the States, Puerto Rico, and the Virgin Islands may select season dates, limits, and other options for the 2012–13 migratory bird hunting seasons. Early seasons are those that generally open prior to October 1, and include seasons in Alaska, Hawaii, Puerto Rico, and the Virgin Islands. The effect of this final rule is to facilitate the selection of hunting seasons by the States and Territories to further the annual establishment of the early-season migratory bird hunting regulations.
This rule takes effect on August 30, 2012.
States and Territories should send their season selections to: Chief, Division of Migratory Bird Management, U.S. Fish and Wildlife Service, ms MBSP–4107–ARLSQ, 1849 C Street NW., Washington, DC 20240. You may inspect comments during normal business hours at the Service's office in room 4107, 4501 N. Fairfax Drive, Arlington, Virginia, or at
Ron W. Kokel, U.S. Fish and Wildlife Service, Department of the Interior, MS MBSP–4107–ARLSQ, 1849 C Street NW., Washington, DC 20240; (703) 358–1714.
On April 17, 2012, we published in the
On May 17, 2012, we published in the
On June 12, 2012, we published in the
On June 19 and 20, 2012, we held open meetings with the Flyway Council Consultants where the participants reviewed information on the current status of migratory shore and upland game birds and developed recommendations for the 2012–13 regulations for these species plus regulations for migratory game birds in Alaska, Puerto Rico, and the Virgin Islands; special September waterfowl seasons in designated States; special sea duck seasons in the Atlantic Flyway; and extended falconry seasons. In addition, we reviewed and discussed preliminary information on the status of waterfowl as it relates to the development and selection of the regulatory packages for the 2012–13 regular waterfowl seasons.
On July 20, 2012, we published in the
This document is the sixth in a series of proposed, supplemental, and final rulemaking documents. It establishes final frameworks from which States may select season dates, shooting hours, and daily bag and possession limits for the 2012–13 season. These selections will be published in the
Information on the status of waterfowl and information on the status and harvest of migratory shore and upland game birds, including detailed information on methodologies and results, is available at the address indicated under
The preliminary proposed rulemaking (April 17
We received recommendations from all four Flyway Councils. Some recommendations supported continuation of last year's frameworks. Due to the comprehensive nature of the annual review of the frameworks performed by the Councils, support for continuation of last year's frameworks is assumed for items for which no recommendations were received. Council recommendations for changes in the frameworks are summarized below.
Regarding the comment concerning our acceptance, or lack thereof, of electronic public comments, we do accept electronic comments submitted through the official Federal eRulemaking portal (
Categories used to discuss issues related to duck harvest management are: (A) General Harvest Strategy; (B) Regulatory Alternatives, including specification of framework dates, season lengths, and bag limits; (C) Zones and Split Seasons; and (D) Special Seasons/Species Management. The categories correspond to previously published issues/discussions, and only those containing substantial recommendations are discussed below.
i. Special Teal Seasons
Regarding the regulations for this year, utilizing the criteria developed for the teal season harvest strategy, this year's estimate of 9.2 million blue-winged teal from the traditional survey area indicates that a 16-day September teal season in the Atlantic, Central, and Mississippi Flyways is appropriate for 2012.
The Pacific Flyway Council recommended increasing the daily bag limit in the Pacific Flyway portion of Wyoming from two to three geese, and increasing the possession limit from four to six birds during the special September season.
Regarding the increase in the daily bag limit in Wyoming, we agree. As the Pacific Flyway Council notes in their recommendation, the 2011 Rocky Mountain Population (RMP) breeding population index (BPI) was 120,363, with a 3-year average BPI of 139,298. Further, the 2012 RMP Midwinter Index (MWI) of 166,994 showed a 38 percent increase from the previous year's index and was the highest on record. All estimates exceed levels in the management plan which allow for harvest liberalization (80,000). An increase in the daily bag limit is expected to result in minimal increases in Canada goose harvest rates and allow Wyoming to address some localized goose depredation issues.
An individual believed that the data used to support crane harvest-management decisions were insufficient, and advocated that such decisions be allowed only after a thorough scientific review of the data and publication of peer-reviewed articles.
Regarding the comments concerning the harvest of RMP cranes and questioning the validity of the data we use to promulgate annual hunting regulations, RMP sandhill cranes have been hunted in one or more States since 1981. Although abundance surveys for the RMP have been in place since 1984, we have used a fall pre-migration survey in the States of Montana, Idaho, Utah, Wyoming, and Colorado to monitor the numbers of these birds since 1987. The fall 2011 count of the RMP was 17,494 birds, which is only slightly lower than the first official fall count of 18,036 birds in 1997, and 10 percent lower than the long-term average. Additionally, because counts from surveys conducted during migration periods can be variable, depending on annual phenology and weather events, we use a 3-year average count when developing harvest regulations. The most recent 3-year average is within the range (18,295 to 21,614 birds) of 3-year average counts since 1997. Thus, we believe there is no evidence of a sustained decline in the numbers of RMP cranes.
We recognize that counts from surveys during migration can be highly variable, particularly at small scales. Thus, we believe that analyzing trends at small scales from these types of surveys can lead to inappropriate conclusions about bird status. Rather, the overall status of the birds is of primary importance, and we believe the overall survey area for the RMP is sufficiently large to encompass most of the pre-migration staging areas and provides a good index to annual abundance of the RMP.
In addition to surveys to estimate abundance, we and our partners also annually monitor the harvest and recruitment of RMP cranes. All of this information is used in calculating an annual allowable harvest for these birds to ensure that hunting mortality is commensurate with their annual population status. Although not scientifically peer-reviewed, the management plan, data collection protocols, and harvest strategy were developed by professional wildlife biologists and managers and are designed to result in a sustainable harvest. Following the harvest strategy laid out in the management plan has not resulted in any detrimental impacts to the RMP since hunting was first allowed in 1981. The allowable annual harvest for the RMP is allocated to the States using an agreed-upon formula in the management plan. Addition, or removal, of hunt areas does not change the calculation of the annual allowable harvest. Although the allocation among and within States may change in response to modifying harvest areas, overall harvest on the population is not increased as new areas are added. Thus, the addition of proposed new hunt areas in Colorado (which was subsequently withdrawn and will not be implemented this year), Idaho, and Arizona should not impact the overall status of the RMP. States periodically change hunt areas to address changes in crane use of areas, depredation, and other issues to either increase or decrease numbers of cranes in certain areas. As a result, numbers of birds at smaller (e.g., State) scales may change. If such area-specific changes occur, the States can be more restrictive than the Federal regulations.
Last year, we implemented an interim harvest strategy for woodcock for a period of 5 years (2011–15) (76 FR 19876, April 8, 2011). The interim harvest strategy provides a transparent framework for making regulatory decisions for woodcock season length and bag limit while we work to improve monitoring and assessment protocols for this species. Utilizing the criteria developed for the interim strategy, the 3-year average for the Singing Ground Survey indices and associated confidence intervals fall within the “moderate package” for both the Eastern and Central Management Regions. As such, a “moderate season” for both management regions for the 2012–13 woodcock hunting season is appropriate for 2012. Specifics of the interim harvest strategy can be found at
The Mississippi and Central Flyway Councils recommend the use of the standard (or “moderate”) season package of a 15-bird daily bag limit and a 70-day season for the 2012–13 mourning dove season in the States within the Central Management Unit. They also recommended that the Special White-winged Dove Area in Texas be expanded to Interstate Highway 37 in the 2013–14 season.
The Pacific Flyway Council recommended use of the “moderate” season framework for States in the Western Management Unit (WMU) population of doves, which represents no change from last year's frameworks.
This year, based on the interim harvest strategies and current population status, we agree with the recommended selection of the “moderate” season frameworks for doves in the Eastern, Central, and Western Management Units.
Regarding the Central Flyway Council's recommendation to expand the Special White-winged Dove Area in Texas, we support the Council's recommendation to provide additional hunting opportunities for white-winged doves. However, we believe an important tenet of special regulations is that harvest pressure be effectively directed primarily at target stocks. While we believe that the expanding white-winged dove population in Texas can support additional harvest, and support the geographic expansion of the Special White-winged Dove Area, we note that about 40 percent of the harvest in the current Special White-winged Dove Area is comprised of mourning doves. We believe this proportion is higher than that which should occur during a special season that targets white-winged doves. Therefore, to reduce the proportion of non-target species taken during this season, we will reduce the bag limit of mourning doves from 4 to 2 doves within the aggregate bag of 15 doves during this season throughout the Special White-winged Dove Area. The changes will take effect during the 2013–14 hunting season.
NEPA considerations are covered by the programmatic document “Final Supplemental Environmental Impact Statement: Issuance of Annual Regulations Permitting the Sport Hunting of Migratory Birds (FSES 88–14),” filed with the Environmental Protection Agency on June 9, 1988. We published a notice of availability in the
In a notice published in the September 8, 2005,
Section 7 of the Endangered Species Act, as amended (16 U.S.C. 1531–1543; 87 Stat. 884), provides that, “The Secretary shall review other programs administered by him and utilize such programs in furtherance of the purposes of this Act” (and) shall “insure that any action authorized, funded, or carried out * * * is not likely to jeopardize the continued existence of any endangered species or threatened species or result in the destruction or adverse modification of [critical] habitat * * *.” Consequently, we conducted formal consultations to ensure that actions resulting from these regulations would not likely jeopardize the continued existence of endangered or threatened species or result in the destruction or adverse modification of their critical habitat. Findings from these consultations are included in a biological opinion, which concluded that the regulations are not likely to jeopardize the continued existence of any endangered or threatened species. Additionally, these findings may have caused modification of some regulatory measures previously proposed, and the final frameworks reflect any such modifications. Our biological opinions resulting from this section 7 consultation are public documents available for public inspection at the address indicated under
Executive Order 12866 provides that the Office of Information and Regulatory Affairs (OIRA) will review all significant rules. The Office of Information and Regulatory Affairs has determined that this rule is significant because it will have an annual effect of $100 million or more on the economy.
Executive Order 13563 reaffirms the principles of E.O. 12866 while calling for improvements in the nation's regulatory system to promote predictability, to reduce uncertainty, and to use the best, most innovative, and least burdensome tools for achieving regulatory ends. The executive order directs agencies to consider regulatory approaches that reduce burdens and maintain flexibility and freedom of choice for the public where these approaches are relevant, feasible, and consistent with regulatory objectives. E.O. 13563 emphasizes further that regulations must be based on the best available science and that the rulemaking process must allow for public participation and an open exchange of ideas. We have developed this rule in a manner consistent with these requirements.
An economic analysis was prepared for the 2008–09 season. This analysis was based on data from the 2006 National Hunting and Fishing Survey, the most recent year for which data are available (see discussion in Regulatory Flexibility Act section below). This analysis estimated consumer surplus for three alternatives for duck hunting (estimates for other species are not quantified due to lack of data). The alternatives are (1) Issue restrictive regulations allowing fewer days than those issued during the 2007–08 season, (2) Issue moderate regulations allowing more days than those in alternative 1, and (3) Issue liberal regulations identical to the regulations in the 2007–08 season. For the 2008–09 season, we chose alternative 3, with an estimated consumer surplus across all flyways of $205–$270 million. We also chose alternative 3 for the 2009–10 and the 2010–11 seasons. At this time, we are proposing no changes to the season frameworks for the 2011–12 season, and as such, we will again consider these three alternatives. However, final frameworks for waterfowl will be dependent on population status information available later this year. For these reasons, we have not conducted a new economic analysis, but the 2008–09 analysis is part of the record for this rule and is available at
The annual migratory bird hunting regulations have a significant economic impact on substantial numbers of small entities under the Regulatory Flexibility Act (5 U.S.C. 601
This rule is a major rule under 5 U.S.C. 804(2), the Small Business Regulatory Enforcement Fairness Act. For the reasons outlined above, this rule will have an annual effect on the economy of $100 million or more. However, because this rule establishes hunting seasons, we are not deferring the effective date under the exemption contained in 5 U.S.C. 808(1).
We examined these regulations under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501
We have determined and certify, in compliance with the requirements of the Unfunded Mandates Reform Act, 2 U.S.C. 1502
The Department, in promulgating this rule, has determined that this rule will not unduly burden the judicial system and that it meets the requirements of sections 3(a) and 3(b)(2) of Executive Order 12988.
In accordance with Executive Order 12630, this rule, authorized by the Migratory Bird Treaty Act, does not have significant takings implications and does not affect any constitutionally protected property rights. This rule will not result in the physical occupancy of property, the physical invasion of property, or the regulatory taking of any property. In fact, this rule allows hunters to exercise otherwise unavailable privileges and, therefore, reduce restrictions on the use of private and public property.
Executive Order 13211 requires agencies to prepare Statements of Energy Effects when undertaking certain actions. While this rule is a significant regulatory action under Executive Order 12866, it is not expected to adversely affect energy supplies, distribution, or use. Therefore, this action is not a significant energy action and no Statement of Energy Effects is required.
In accordance with the President's memorandum of April 29, 1994, “Government-to-Government Relations with Native American Tribal Governments” (59 FR 22951), Executive Order 13175, and 512 DM 2, we have evaluated possible effects on Federally-recognized Indian tribes and have determined that there are no effects on Indian trust resources. However, in the April 17
Due to the migratory nature of certain species of birds, the Federal Government has been given responsibility over these species by the Migratory Bird Treaty Act. We annually prescribe frameworks from which the States make selections regarding the hunting of migratory birds, and we employ guidelines to establish special regulations on Federal Indian reservations and ceded lands. This process preserves the ability of the States and tribes to determine which seasons meet their individual needs. Any State or Indian tribe may be more restrictive than the Federal frameworks at any time. The frameworks are developed in a cooperative process with the States and the Flyway Councils. This process allows States to participate in the development of frameworks from which they will make selections, thereby having an influence on their own regulations. These rules do not have a substantial direct effect on fiscal capacity, change the roles or responsibilities of Federal or State governments, or intrude on State policy or administration. Therefore, in accordance with Executive Order 13132, these regulations do not have significant federalism effects and do not have sufficient federalism implications to warrant the preparation of a federalism summary impact statement.
The rulemaking process for migratory game bird hunting must, by its nature, operate under severe time constraints. However, we intend that the public be given the greatest possible opportunity to comment. Thus, when the preliminary proposed rulemaking was published, we established what we believed were the longest periods possible for public comment. In doing this, we recognized that when the comment period closed, time would be of the essence. That is, if there were a delay in the effective date of these regulations after this final rulemaking, States would have insufficient time to select season dates and limits; to communicate those selections to us; and
Therefore, under authority of the Migratory Bird Treaty Act (July 3, 1918), as amended (16 U.S.C. 703–711), we prescribe final frameworks setting forth the species to be hunted, the daily bag and possession limits, the shooting hours, the season lengths, the earliest opening and latest closing season dates, and hunting areas, from which State conservation agency officials will select hunting season dates and other options. Upon receipt of season selections from these officials, we will publish a final rulemaking amending 50 CFR part 20 to reflect seasons, limits, and shooting hours for the conterminous United States for the 2012–13 season.
Exports, Hunting, Imports, Reporting and recordkeeping requirements, Transportation, Wildlife.
The rules that eventually will be promulgated for the 2012–13 hunting season are authorized under 16 U.S.C. 703–712 and 16 U.S.C. 742 a–j.
Pursuant to the Migratory Bird Treaty Act and delegated authorities, the Department of the Interior approved the following frameworks, which prescribe season lengths, bag limits, shooting hours, and outside dates within which States may select hunting seasons for certain migratory game birds between September 1, 2012, and March 10, 2013.
Dates: All outside dates noted below are inclusive.
Shooting and Hawking (taking by falconry) Hours: Unless otherwise specified, from one-half hour before sunrise to sunset daily.
Possession Limits: Unless otherwise specified, possession limits are twice the daily bag limit.
Permits: For some species of migratory birds, the Service authorizes the use of permits to regulate harvest or monitor their take by sport hunters, or both. In many cases (e.g., tundra swans, some sandhill crane populations), the Service determines the amount of harvest that may be taken during hunting seasons during its formal regulations-setting process, and the States then issue permits to hunters at levels predicted to result in the amount of take authorized by the Service. Thus, although issued by States, the permits would not be valid unless the Service approved such take in its regulations.
These Federally authorized, State-issued permits are issued to individuals, and only the individual whose name and address appears on the permit at the time of issuance is authorized to take migratory birds at levels specified in the permit, in accordance with provisions of both Federal and State regulations governing the hunting season. The permit must be carried by the permittee when exercising its provisions and must be presented to any law enforcement officer upon request. The permit is not transferrable or assignable to another individual, and may not be sold, bartered, traded, or otherwise provided to another person. If the permit is altered or defaced in any way, the permit becomes invalid.
Atlantic Flyway—includes Connecticut, Delaware, Florida, Georgia, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, North Carolina, Pennsylvania, Rhode Island, South Carolina, Vermont, Virginia, and West Virginia.
Mississippi Flyway—includes Alabama, Arkansas, Illinois, Indiana, Iowa, Kentucky, Louisiana, Michigan, Minnesota, Mississippi, Missouri, Ohio, Tennessee, and Wisconsin.
Central Flyway—includes Colorado (east of the Continental Divide), Kansas, Montana (Counties of Blaine, Carbon, Fergus, Judith Basin, Stillwater, Sweetgrass, Wheatland, and all counties east thereof), Nebraska, New Mexico (east of the Continental Divide except the Jicarilla Apache Indian Reservation), North Dakota, Oklahoma, South Dakota, Texas, and Wyoming (east of the Continental Divide).
Pacific Flyway—includes Alaska, Arizona, California, Idaho, Nevada, Oregon, Utah, Washington, and those portions of Colorado, Montana, New Mexico, and Wyoming not included in the Central Flyway.
Eastern Management Unit—All States east of the Mississippi River, and Louisiana.
Central Management Unit—Arkansas, Colorado, Iowa, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, North Dakota, Oklahoma, South Dakota, Texas, and Wyoming.
Western Management Unit—Arizona, California, Idaho, Nevada, Oregon, Utah, and Washington.
Eastern Management Region—Connecticut, Delaware, Florida, Georgia, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, North Carolina, Pennsylvania, Rhode Island, South Carolina, Vermont, Virginia, and West Virginia.
Central Management Region—Alabama, Arkansas, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Michigan, Minnesota, Mississippi, Missouri, Nebraska, North Dakota, Ohio, Oklahoma, South Dakota, Tennessee, Texas, and Wisconsin.
Other geographic descriptions are contained in a later portion of this document.
In the Atlantic Flyway States of Connecticut, Delaware, Maine, Maryland, Massachusetts, New Jersey, North Carolina, Pennsylvania, and Virginia, where Sunday hunting is prohibited Statewide by State law, all Sundays are closed to all take of migratory waterfowl (including mergansers and coots).
Outside Dates: Between September 1 and September 30, an open season on all species of teal may be selected by the following States in areas delineated by State regulations:
Hunting Seasons and Daily Bag Limits: Not to exceed 16 consecutive hunting days in the Atlantic, Mississippi, and Central Flyways. The daily bag limit is 4 teal.
Shooting Hours:
Florida, Kentucky and Tennessee: In lieu of a special September teal season, a 5-consecutive-day season may be selected in September. The daily bag limit may not exceed 4 teal and wood ducks in the aggregate, of which no more than 2 may be wood ducks.
Iowa: Iowa may hold up to 5 days of its regular duck hunting season in September. All ducks that are legal during the regular duck season may be taken during the September segment of the season. The September season segment may commence no earlier than the Saturday nearest September 20 (September 22). The daily bag and possession limits will be the same as those in effect last year but are subject to change during the late-season regulations process. The remainder of the regular duck season may not begin before October 10.
Outside Dates: States may select 2 days per duck-hunting zone, designated as “Youth Waterfowl Hunting Days,” in addition to their regular duck seasons. The days must be held outside any regular duck season on a weekend, holidays, or other non-school days when youth hunters would have the maximum opportunity to participate. The days may be held up to 14 days before or after any regular duck-season frameworks or within any split of a regular duck season, or within any other open season on migratory birds.
Daily Bag Limits: The daily bag limits may include ducks, geese, mergansers, coots, moorhens, and gallinules and will be the same as those allowed in the regular season. Flyway species and area restrictions will remain in effect.
Shooting Hours: One-half hour before sunrise to sunset.
Participation Restrictions: Youth hunters must be 15 years of age or younger. In addition, an adult at least 18 years of age must accompany the youth hunter into the field. This adult may not duck hunt but may participate in other seasons that are open on the special youth day.
Outside Dates: Between September 15 and January 31.
Hunting Seasons and Daily Bag Limits: Not to exceed 107 days, with a daily bag limit of 7, singly or in the aggregate, of the listed sea duck species, of which no more than 4 may be scoters.
Daily Bag Limits During the Regular Duck Season: Within the special sea duck areas, during the regular duck season in the Atlantic Flyway, States may choose to allow the above sea duck limits in addition to the limits applying to other ducks during the regular duck season. In all other areas, sea ducks may be taken only during the regular open season for ducks and are part of the regular duck season daily bag (not to exceed 4 scoters) and possession limits.
Areas: In all coastal waters and all waters of rivers and streams seaward from the first upstream bridge in Maine, New Hampshire, Massachusetts, Rhode Island, Connecticut, and New York; in any waters of the Atlantic Ocean and in any tidal waters of any bay which are separated by at least 1 mile of open water from any shore, island, and emergent vegetation in New Jersey, South Carolina, and Georgia; and in any waters of the Atlantic Ocean and in any tidal waters of any bay which are separated by at least 800 yards of open water from any shore, island, and emergent vegetation in Delaware, Maryland, North Carolina, and Virginia; and provided that any such areas have been described, delineated, and designated as special sea duck hunting areas under the hunting regulations adopted by the respective States.
Canada goose seasons of up to 15 days during September 1–15 may be selected for the Eastern Unit of Maryland. Seasons not to exceed 30 days during September 1–30 may be selected for Connecticut, Florida, Georgia, New Jersey, New York (Long Island Zone only), North Carolina, Rhode Island, and South Carolina. Seasons may not exceed 25 days during September 1–25 in the remainder of the Flyway. Areas open to the hunting of Canada geese must be described, delineated, and designated as such in each State's hunting regulations.
Daily Bag Limits: Not to exceed 15 Canada geese.
Shooting Hours: One-half hour before sunrise to sunset, except that during any general season, shooting hours may extend to one-half hour after sunset if all other waterfowl seasons are closed in the specific applicable area.
Canada goose seasons of up to 15 days during September 1–15 may be selected, except in the Upper Peninsula in Michigan, where the season may not extend beyond September 10, and in Minnesota, where a season of up to 22 days during September 1–22 may be selected. The daily bag limit may not exceed 5 Canada geese. Areas open to the hunting of Canada geese must be described, delineated, and designated as such in each State's hunting regulations.
A Canada goose season of up to 10 consecutive days during September 1–10 may be selected by Michigan for Huron, Saginaw, and Tuscola Counties, except that the Shiawassee National Wildlife Refuge, Shiawassee River State Game Area Refuge, and the Fish Point Wildlife Area Refuge will remain closed. The daily bag limit may not exceed 5 Canada geese.
Shooting Hours: One-half hour before sunrise to sunset, except that during September 1–15 shooting hours may extend to one-half hour after sunset if all other waterfowl seasons are closed in the specific applicable area.
In Kansas, Nebraska, Oklahoma, South Dakota, and Texas, Canada goose seasons of up to 30 days during September 1–30 may be selected. In Colorado, New Mexico, North Dakota, Montana, and Wyoming, Canada goose seasons of up to 15 days during September 1–15 may be selected. The daily bag limit may not exceed 5 Canada geese, except in Kansas, Nebraska, and Oklahoma, where the daily bag limit may not exceed 8 Canada geese and in North Dakota and South Dakota, where the daily bag limit may not exceed 15 Canada geese. Areas open to the hunting of Canada geese must be described, delineated, and designated as such in each State's hunting regulations.
Shooting Hours: One-half hour before sunrise to sunset, except that during September 1–15 shooting hours may extend to one-half hour after sunset if all other waterfowl seasons are closed in the specific applicable area.
California may select a 9-day season in Humboldt County during the period September 1–15. The daily bag limit is 2.
Colorado may select a 9-day season during the period of September 1–15. The daily bag limit is 4.
Oregon may select a special Canada goose season of up to 15 days during the period September 1–15. In addition, in the NW Goose Management Zone in Oregon, a 15-day season may be selected during the period September 1–20. Daily bag limits may not exceed 5 Canada geese.
Idaho may select a 7-day season during the period September 1–15. The daily bag limit is 2, and the possession limit is 4.
Washington may select a special Canada goose season of up to 15 days during the period September 1–15. Daily bag limits may not exceed 5 Canada geese.
Wyoming may select an 8-day season on Canada geese during the period September 1–15. This season is subject to the following conditions:
A. Where applicable, the season must be concurrent with the September portion of the sandhill crane season.
B. A daily bag limit of 3, with season and possession limits of 6, will apply to the special season.
Areas open to hunting of Canada geese in each State must be described, delineated, and designated as such in each State's hunting regulations.
Regular goose seasons may open as early as September 16 in Wisconsin and Michigan. Season lengths, bag and possession limits, and other provisions will be established during the late-season regulations process.
Outside Dates: Between September 1 and February 28.
Hunting Seasons: A season not to exceed 37 consecutive days may be selected in the designated portion of northwestern Minnesota (Northwest Goose Zone).
Daily Bag Limit: 2 sandhill cranes.
Permits: Each person participating in the regular sandhill crane season must have a valid Federal or State sandhill crane hunting permit.
Outside Dates: Between September 1 and January 31.
Hunting Seasons: A season not to exceed 30 consecutive days may be selected in Kentucky.
Daily Bag Limit: Not to exceed 2 daily and 2 per season.
Permits: Each person participating in the regular sandhill crane season must have a valid Federal or State sandhill crane hunting permit.
Other Provisions: Numbers of permits, open areas, season dates, protection plans for other species, and other provisions of seasons must be consistent with the management plan and approved by the Mississippi Flyway Council.
Outside Dates: Between September 1 and February 28.
Hunting Seasons: Seasons not to exceed 37 consecutive days may be selected in designated portions of North Dakota (Area 2) and Texas (Area 2). Seasons not to exceed 58 consecutive days may be selected in designated portions of the following States: Colorado, Kansas, Montana, North Dakota, South Dakota, and Wyoming. Seasons not to exceed 93 consecutive days may be selected in designated portions of the following States: New Mexico, Oklahoma, and Texas.
Daily Bag Limits: 3 sandhill cranes, except 2 sandhill cranes in designated portions of North Dakota (Area 2) and Texas (Area 2).
Permits: Each person participating in the regular sandhill crane season must have a valid Federal or State sandhill crane hunting permit.
Arizona, Colorado, Idaho, Montana, New Mexico, Utah, and Wyoming may select seasons for hunting sandhill cranes within the range of the Rocky Mountain Population (RMP) subject to the following conditions:
Outside Dates: Between September 1 and January 31.
Hunting Seasons: The season in any State or zone may not exceed 30 consecutive days.
Bag limits: Not to exceed 3 daily and 9 per season.
Permits: Participants must have a valid permit, issued by the appropriate State, in their possession while hunting.
Other Provisions: Numbers of permits, open areas, season dates, protection plans for other species, and other provisions of seasons must be consistent with the management plan and approved by the Central and Pacific Flyway Councils, with the following exceptions:
A. In Utah, 100 percent of the harvest will be assigned to the RMP quota;
B. In Arizona, monitoring the racial composition of the harvest must be conducted at 3-year intervals;
C. In Idaho, 100 percent of the harvest will be assigned to the RMP quota; and
D. In New Mexico, the season in the Estancia Valley is experimental, with a requirement to monitor the level and racial composition of the harvest; greater sandhill cranes in the harvest will be assigned to the RMP quota.
Outside Dates: Between September 1 and the last Sunday in January (January 27) in the Atlantic, Mississippi, and Central Flyways. States in the Pacific Flyway have been allowed to select their hunting seasons between the outside dates for the season on ducks; therefore, they are late-season frameworks, and no frameworks are provided in this document.
Hunting Seasons and Daily Bag Limits: Seasons may not exceed 70 days in the Atlantic, Mississippi, and Central Flyways. Seasons may be split into 2 segments. The daily bag limit is 15 common moorhens and purple gallinules, singly or in the aggregate of the two species.
Zoning: Seasons may be selected by zones established for duck hunting.
Outside Dates: States included herein may select seasons between September 1 and the last Sunday in January (January 27) on clapper, king, sora, and Virginia rails.
Hunting Seasons: Seasons may not exceed 70 days, and may be split into 2 segments.
Daily Bag Limits:
Clapper and King Rails—In Rhode Island, Connecticut, New Jersey, Delaware, and Maryland, 10, singly or in the aggregate of the two species. In Texas, Louisiana, Mississippi, Alabama, Georgia, Florida, South Carolina, North Carolina, and Virginia, 15, singly or in the aggregate of the two species.
Sora and Virginia Rails—In the Atlantic, Mississippi, and Central Flyways and the Pacific Flyway portions of Colorado, Montana, New Mexico, and Wyoming, 25 daily and 25 in possession, singly or in the aggregate of the two species. The season is closed in the remainder of the Pacific Flyway.
Outside Dates: Between September 1 and February 28, except in Maine, Vermont, New Hampshire, Massachusetts, Rhode Island, Connecticut, New York, New Jersey, Delaware, Maryland, and Virginia, where the season must end no later than January 31.
Hunting Seasons and Daily Bag Limits: Seasons may not exceed 107
Zoning: Seasons may be selected by zones established for duck hunting.
Outside Dates: States in the Eastern Management Region may select hunting seasons between October 1 and January 31. States in the Central Management Region may select hunting seasons between the Saturday nearest September 22 (September 22) and January 31.
Hunting Seasons and Daily Bag Limits: Seasons may not exceed 45 days in the Eastern Region and 45 days in the Central Region. The daily bag limit is 3. Seasons may be split into two segments.
Zoning: New Jersey may select seasons in each of two zones. The season in each zone may not exceed 36 days.
Outside Dates: Between September 15 and January 1.
Hunting Seasons and Daily Bag Limits: Not more than 9 consecutive days, with a daily bag limit of 2 band-tailed pigeons.
Zoning: California may select hunting seasons not to exceed 9 consecutive days in each of two zones. The season in the North Zone must close by October 3.
Outside Dates: Between September 1 and November 30.
Hunting Seasons and Daily Bag Limits: Not more than 30 consecutive days, with a daily bag limit of 5 band-tailed pigeons.
Zoning: New Mexico may select hunting seasons not to exceed 20 consecutive days in each of two zones. The season in the South Zone may not open until October 1.
Outside Dates: Between September 1 and January 15, except as otherwise provided, States may select hunting seasons and daily bag limits as follows:
Hunting Seasons and Daily Bag Limits: Not more than 70 days, with a daily bag limit of 15 mourning and white-winged doves in the aggregate.
Zoning and Split Seasons: States may select hunting seasons in each of two zones. The season within each zone may be split into not more than three periods. Regulations for bag and possession limits, season length, and shooting hours must be uniform within specific hunting zones.
For all States except Texas:
Hunting Seasons and Daily Bag Limits: Not more than 70 days, with a daily bag limit of 15 mourning and white-winged doves in the aggregate.
Zoning and Split Seasons: States may select hunting seasons in each of two zones. The season within each zone may be split into not more than three periods.
Texas:
Hunting Seasons and Daily Bag Limits: Not more than 70 days, with a daily bag limit of 15 mourning, white-winged, and white-tipped doves in the aggregate, of which no more than 2 may be white-tipped doves.
Zoning and Split Seasons: Texas may select hunting seasons for each of three zones subject to the following conditions:
A. The hunting season may be split into not more than two periods, except in that portion of Texas in which the special white-winged dove season is allowed, where a limited take of mourning and white-tipped doves may also occur during that special season (see Special White-winged Dove Area).
B. A season may be selected for the North and Central Zones between September 1 and January 25; and for the South Zone between the Friday nearest September 20 (September 21), but not earlier than September 17, and January 25.
C. Except as noted above, regulations for bag and possession limits, season length, and shooting hours must be uniform within each hunting zone.
Special White-winged Dove Area in Texas:
In addition, Texas may select a hunting season of not more than 4 days for the Special White-winged Dove Area of the South Zone between September 1 and September 19. The daily bag limit may not exceed 15 white-winged, mourning, and white-tipped doves in the aggregate, of which no more than 4 may be mourning doves and no more than 2 may be white-tipped doves.
Hunting Seasons and Daily Bag Limits:
Idaho, Nevada, Oregon, Utah, and Washington—Not more than 30 consecutive days, with a daily bag limit of 10 mourning and white-winged doves in the aggregate.
Arizona and California—Not more than 60 days, which may be split between two periods, September 1–15 and November 1–January 15. In Arizona, during the first segment of the season, the daily bag limit is 10 mourning and white-winged doves in the aggregate. During the remainder of the season, the daily bag limit is 10 mourning doves. In California, the daily bag limit is 10 mourning and white-winged doves in the aggregate.
Outside Dates: Between September 1 and January 26.
Hunting Seasons: Alaska may select 107 consecutive days for waterfowl, sandhill cranes, and common snipe in each of 5 zones. The season may be split without penalty in the Kodiak Zone. The seasons in each zone must be concurrent.
Closures: The hunting season is closed on emperor geese, spectacled eiders, and Steller's eiders.
Daily Bag and Possession Limits:
Ducks—Except as noted, a basic daily bag limit of 7 and a possession limit of 21 ducks. Daily bag and possession limits in the North Zone are 10 and 30, and in the Gulf Coast Zone, they are 8 and 24. The basic limits may include no more than 1 canvasback daily and 3 in possession and may not include sea ducks.
In addition to the basic duck limits, Alaska may select sea duck limits of 10 daily, 20 in possession, singly or in the aggregate, including no more than 6 each of either harlequin or long-tailed ducks. Sea ducks include scoters, common and king eiders, harlequin ducks, long-tailed ducks, and common and red-breasted mergansers.
Light Geese—A basic daily bag limit of 4 and a possession limit of 8.
Dark Geese—A basic daily bag limit of 4 and a possession limit of 8.
Dark-goose seasons are subject to the following exceptions: A. In Units 5 and 6, the taking of Canada geese is permitted from September 28 through December 16.
B. On Middleton Island in Unit 6, a special, permit-only Canada goose season may be offered. A mandatory goose identification class is required. Hunters must check in and check out. The bag limit is 1 daily and 1 in possession. The season will close if incidental harvest includes 5 dusky Canada geese. A dusky Canada goose is any dark-breasted Canada goose (Munsell 10 YR color value five or less) with a bill length between 40 and 50 millimeters.
C. In Units 6–B, 6–C, and on Hinchinbrook and Hawkins Islands in Unit 6–D, a special, permit-only Canada goose season may be offered. Hunters must have all harvested geese checked and classified to subspecies. The daily
D. In Units 9, 10, 17, and 18, dark goose limits are 6 per day, 12 in possession.
Brant—A daily bag limit of 2 and a possession limit of 4.
Common snipe—A daily bag limit of 8.
Sandhill cranes—Bag and possession limits of 2 and 4, respectively, in the Southeast, Gulf Coast, Kodiak, and Aleutian Zones, and Unit 17 in the Northern Zone. In the remainder of the Northern Zone (outside Unit 17), bag and possession limits of 3 and 6, respectively.
Tundra Swans—Open seasons for tundra swans may be selected subject to the following conditions:
A. All seasons are by registration permit only.
B. All season framework dates are September 1–October 31.
C. In Game Management Unit (GMU) 17, no more than 200 permits may be issued during this operational season. No more than 3 tundra swans may be authorized per permit, with no more than 1 permit issued per hunter per season.
D. In Game Management Unit (GMU) 18, no more than 500 permits may be issued during the operational season. Up to 3 tundra swans may be authorized per permit. No more than 1 permit may be issued per hunter per season.
E. In GMU 22, no more than 300 permits may be issued during the operational season. Each permittee may be authorized to take up to 3 tundra swans per permit. No more than 1 permit may be issued per hunter per season.
F. In GMU 23, no more than 300 permits may be issued during the operational season. No more than 3 tundra swans may be authorized per permit, with no more than 1 permit issued per hunter per season.
Outside Dates: Between October 1 and January 31.
Hunting Seasons: Not more than 65 days (75 under the alternative) for mourning doves.
Bag Limits: Not to exceed 15 (12 under the alternative) mourning doves.
Mourning doves may be taken in Hawaii in accordance with shooting hours and other regulations set by the State of Hawaii, and subject to the applicable provisions of 50 CFR part 20.
Outside Dates: Between September 1 and January 15.
Hunting Seasons: Not more than 60 days.
Daily Bag and Possession Limits: Not to exceed 20 Zenaida, mourning, and white-winged doves in the aggregate, of which not more than 10 may be Zenaida doves and 3 may be mourning doves. Not to exceed 5 scaly-naped pigeons.
Closed Seasons: The season is closed on the white-crowned pigeon and the plain pigeon, which are protected by the Commonwealth of Puerto Rico.
Closed Areas: There is no open season on doves or pigeons in the following areas: Municipality of Culebra, Desecheo Island, Mona Island, El Verde Closure Area, and Cidra Municipality and adjacent areas.
Outside Dates: Between October 1 and January 31.
Hunting Seasons: Not more than 55 days may be selected for hunting ducks, common moorhens, and common snipe. The season may be split into two segments.
Daily Bag Limits:
Ducks—Not to exceed 6.
Common moorhens—Not to exceed 6.
Common snipe—Not to exceed 8.
Closed Seasons: The season is closed on the ruddy duck, white-cheeked pintail, West Indian whistling duck, fulvous whistling duck, and masked duck, which are protected by the Commonwealth of Puerto Rico. The season also is closed on the purple gallinule, American coot, and Caribbean coot.
Closed Areas: There is no open season on ducks, common moorhens, and common snipe in the Municipality of Culebra and on Desecheo Island.
Outside Dates: Between September 1 and January 15.
Hunting Seasons: Not more than 60 days for Zenaida doves.
Daily Bag and Possession Limits: Not to exceed 10 Zenaida doves.
Closed Seasons: No open season is prescribed for ground or quail doves or pigeons.
Closed Areas: There is no open season for migratory game birds on Ruth Cay (just south of St. Croix).
Local Names for Certain Birds: Zenaida dove, also known as mountain dove; bridled quail-dove, also known as Barbary dove or partridge; common ground-dove, also known as stone dove, tobacco dove, rola, or tortolita; scaly-naped pigeon, also known as red-necked or scaled pigeon.
Outside Dates: Between December 1 and January 31.
Hunting Seasons: Not more than 55 consecutive days.
Daily Bag Limits: Not to exceed 6.
Closed Seasons: The season is closed on the ruddy duck, white-cheeked pintail, West Indian whistling duck, fulvous whistling duck, and masked duck.
Falconry is a permitted means of taking migratory game birds in any State meeting Federal falconry standards in 50 CFR 21.29. These States may select an extended season for taking migratory game birds in accordance with the following:
Extended Seasons: For all hunting methods combined, the combined length of the extended season, regular season, and any special or experimental seasons must not exceed 107 days for any species or group of species in a geographical area. Each extended season may be divided into a maximum of 3 segments.
Framework Dates: Seasons must fall between September 1 and March 10.
Daily Bag and Possession Limits: Falconry daily bag and possession limits for all permitted migratory game birds must not exceed 3 and 6 birds, respectively, singly or in the aggregate, during extended falconry seasons, any special or experimental seasons, and regular hunting seasons in all States, including those that do not select an extended falconry season.
Regular Seasons: General hunting regulations, including seasons and hunting hours, apply to falconry in each State listed in 50 CFR 21.29. Regular season bag and possession limits do not apply to falconry. The falconry bag limit is not in addition to gun limits.
South Zone—Baldwin, Barbour, Coffee, Covington, Dale, Escambia, Geneva, Henry, Houston, and Mobile Counties.
North Zone—Remainder of the State.
White-winged Dove Open Areas—Imperial, Riverside, and San Bernardino Counties.
Northwest Zone—The Counties of Bay, Calhoun, Escambia, Franklin, Gadsden, Gulf, Holmes, Jackson, Liberty, Okaloosa, Santa Rosa, Walton, Washington, Leon (except that portion north of U.S. 27 and east of State Road 155), Jefferson (south of U.S. 27, west of State Road 59 and north of U.S. 98), and Wakulla (except that portion south of U.S. 98 and east of the St. Marks River).
South Zone—Remainder of State.
North Zone—That portion of the State north of a line extending east from the Texas border along State Highway 12 to U.S. Highway 190, east along U.S. 190 to Interstate Highway 12, east along Interstate 12 to Interstate Highway 10, then east along Interstate Highway 10 to the Mississippi border.
South Zone—The remainder of the State.
North Zone—That portion of the State north and west of a line extending west from the Alabama State line along U.S. Highway 84 to its junction with State Highway 35, then south along State Highway 35 to the Louisiana State line.
South Zone—The remainder of Mississippi.
North Zone—That portion of the State north of a line beginning at the International Bridge south of Fort Hancock; north along FM 1088 to TX 20; west along TX 20 to TX 148; north along TX 148 to I–10 at Fort Hancock; east along I–10 to I–20; northeast along I–20 to I–30 at Fort Worth; northeast along I–30 to the Texas-Arkansas State line.
South Zone—That portion of the State south and west of a line beginning at the International Bridge south of Del Rio, proceeding east on U.S. 90 to State Loop 1604 west of San Antonio; then south, east, and north along Loop 1604 to Interstate Highway 10 east of San Antonio; then east on I–10 to Orange, Texas.
Special White-winged Dove Area in the South Zone—That portion of the State south and west of a line beginning at the International Bridge south of Del Rio, proceeding east on U.S. 90 to State Loop 1604 west of San Antonio, southeast on State Loop 1604 to Interstate Highway 35, southwest on Interstate Highway 35 to TX 44; east along TX 44 to TX 16 at Freer; south along TX 16 to FM 649 in Randado; south on FM 649 to FM 2686; east on FM 2686 to FM 1017; southeast on FM 1017 to TX 186 at Linn; east along TX 186 to the Mansfield Channel at Port Mansfield; east along the Mansfield Channel to the Gulf of Mexico.
Central Zone—That portion of the State lying between the North and South Zones.
North Zone—Alpine, Butte, Del Norte, Glenn, Humboldt, Lassen, Mendocino, Modoc, Plumas, Shasta, Sierra, Siskiyou, Tehama, and Trinity Counties.
South Zone—The remainder of the State.
North Zone—North of a line following U.S. 60 from the Arizona State line east to I–25 at Socorro and then south along I–25 from Socorro to the Texas State line.
South Zone—The remainder of the State.
Western Washington—The State of Washington excluding those portions lying east of the Pacific Crest Trail and east of the Big White Salmon River in Klickitat County.
North Zone—That portion of the State north of NJ 70.
South Zone—The remainder of the State.
North Zone—That portion of the State north of I–95.
South Zone—The remainder of the State.
Eastern Unit—Calvert, Caroline, Cecil, Dorchester, Harford, Kent, Queen Anne's, St. Mary's, Somerset, Talbot, Wicomico, and Worcester Counties; and that part of Anne Arundel County east of Interstate 895, Interstate 97 and Route 3; that part of Prince George's County east of Route 3 and Route 301; and that part of Charles County east of Route 301 to the Virginia State line.
Western Unit—Allegany, Baltimore, Carroll, Frederick, Garrett, Howard, Montgomery, and Washington Counties and that part of Anne Arundel County west of Interstate 895, Interstate 97 and Route 3; that part of Prince George's County west of Route 3 and Route 301; and that part of Charles County west of Route 301 to the Virginia State line.
Western Zone—That portion of the State west of a line extending south from the Vermont border on I–91 to MA 9, west on MA 9 to MA 10, south on MA 10 to U.S. 202, south on U.S. 202 to the Connecticut border.
Central Zone—That portion of the State east of the Berkshire Zone and west of a line extending south from the New Hampshire border on I–95 to U.S. 1, south on U.S. 1 to I–93, south on I–93 to MA 3, south on MA 3 to U.S. 6, west on U.S. 6 to MA 28, west on MA 28 to I–195, west to the Rhode Island border; except the waters, and the lands 150 yards inland from the high-water mark, of the Assonet River upstream to the MA 24 bridge, and the Taunton River upstream to the Center St.-Elm St. bridge will be in the Coastal Zone.
Coastal Zone—That portion of Massachusetts east and south of the Central Zone.
Lake Champlain Zone—The U.S. portion of Lake Champlain and that area east and north of a line extending along NY 9B from the Canadian border to U.S. 9, south along U.S. 9 to NY 22 south of Keesville; south along NY 22 to the west shore of South Bay, along and around the shoreline of South Bay to NY 22 on the east shore of South Bay; southeast along NY 22 to U.S. 4, northeast along U.S. 4 to the Vermont border.
Eastern Long Island Goose Area (North Atlantic Population (NAP) High Harvest Area)—That area of Suffolk County lying east of a continuous line extending due south from the New York-Connecticut boundary to the northernmost end of Roanoke Avenue in the Town of Riverhead; then south on Roanoke Avenue (which becomes County Route 73) to State Route 25; then west on Route 25 to Peconic Avenue; then south on Peconic Avenue to County Route (CR) 104 (Riverleigh Avenue); then south on CR 104 to CR 31 (Old Riverhead Road); then south on CR 31 to Oak Street; then south on Oak Street to Potunk Lane; then west on Stevens Lane; then south on Jessup Avenue (in Westhampton Beach) to Dune Road (CR 89); then due south to international waters.
Western Long Island Goose Area (Resident Population (RP) Area)—That area of Westchester County and its tidal waters southeast of Interstate Route 95 and that area of Nassau and Suffolk Counties lying west of a continuous line extending due south from the New York-Connecticut boundary to the northernmost end of the Sunken Meadow State Parkway; then south on
Central Long Island Goose Area (NAP Low Harvest Area)—That area of Suffolk County lying between the Western and Eastern Long Island Goose Areas, as defined above.
Western Zone—That area west of a line extending from Lake Ontario east along the north shore of the Salmon River to I–81, and south along I–81 to the Pennsylvania border.
Northeastern Zone—That area north of a line extending from Lake Ontario east along the north shore of the Salmon River to I–81, south along I–81 to NY 49, east along NY 49 to NY 365, east along NY 365 to NY 28, east along NY 28 to NY 29, east along NY 29 to I–87, north along I–87 to U.S. 9 (at Exit 20), north along U.S. 9 to NY 149, east along NY 149 to U.S. 4, north along U.S. 4 to the Vermont border, exclusive of the Lake Champlain Zone.
Southeastern Zone—The remaining portion of New York.
Southern James Bay Population (SJBP) Zone—The area north of I–80 and west of I–79, including in the city of Erie west of Bay Front Parkway to and including the Lake Erie Duck Zone (Lake Erie, Presque Isle, and the area within 150 yards of the Lake Erie Shoreline).
Lake Champlain Zone—The U.S. portion of Lake Champlain and that area north and west of the line extending from the New York border along U.S. 4 to VT 22A at Fair Haven; VT 22A to U.S. 7 at Vergennes; U.S. 7 to VT 78 at Swanton; VT 78 to VT 36; VT 36 to Maquam Bay on Lake Champlain; along and around the shoreline of Maquam Bay and Hog Island to VT 78 at the West Swanton Bridge; VT 78 to VT 2 in Alburg; VT 2 to the Richelieu River in Alburg; along the east shore of the Richelieu River to the Canadian border.
Interior Zone—That portion of Vermont east of the Lake Champlain Zone and west of a line extending from the Massachusetts border at Interstate 91; north along Interstate 91 to US 2; east along US 2 to VT 102; north along VT 102 to VT 253; north along VT 253 to the Canadian border.
Connecticut River Zone—The remaining portion of Vermont east of the Interior Zone.
Early Canada Goose Area—Baxter, Benton, Boone, Carroll, Clark, Conway, Crawford, Faulkner, Franklin, Garland, Hempstead, Hot Springs, Howard, Johnson, Lafayette, Little River, Logan, Madison, Marion, Miller, Montgomery, Newton, Perry, Pike, Polk, Pope, Pulaski, Saline, Searcy, Sebastian, Sevier, Scott, Van Buren, Washington, and Yell Counties.
North September Canada Goose Zone—That portion of the State north of a line extending west from the Indiana border along Interstate 80 to I–39, south along I–39 to Illinois Route 18, west along Illinois Route 18 to Illinois Route 29, south along Illinois Route 29 to Illinois Route 17, west along Illinois Route 17 to the Mississippi River, and due south across the Mississippi River to the Iowa border.
Central September Canada Goose Zone—That portion of the State south of the North September Canada Goose Zone line to a line extending west from the Indiana border along I–70 to Illinois Route 4, south along Illinois Route 4 to Illinois Route 161, west along Illinois Route 161 to Illinois Route 158, south and west along Illinois Route 158 to Illinois Route 159, south along Illinois Route 159 to Illinois Route 3, south along Illinois Route 3 to St. Leo's Road, south along St. Leo's road to Modoc Road, west along Modoc Road to Modoc Ferry Road, southwest along Modoc Ferry Road to Levee Road, southeast along Levee Road to County Route 12 (Modoc Ferry entrance Road), south along County Route 12 to the Modoc Ferry route and southwest on the Modoc Ferry route across the Mississippi River to the Missouri border.
South September Canada Goose Zone—That portion of the State south and east of a line extending west from the Indiana border along Interstate 70, south along U.S. Highway 45, to Illinois Route 13, west along Illinois Route 13 to Greenbriar Road, north on Greenbriar Road to Sycamore Road, west on Sycamore Road to N. Reed Station Road, south on N. Reed Station Road to Illinois Route 13, west along Illinois Route 13 to Illinois Route 127, south along Illinois Route 127 to State Forest Road (1025 N), west along State Forest Road to Illinois Route 3, north along Illinois Route 3 to the south bank of the Big Muddy River, west along the south bank of the Big Muddy River to the Mississippi River, west across the Mississippi River to the Missouri border.
South Central September Canada Goose Zone—The remainder of the State between the south border of the Central Zone and the North border of the South Zone
North Zone—That portion of the State north of U.S. Highway 20.
South Zone—The remainder of Iowa.
Cedar Rapids/Iowa City Goose Zone—Includes portions of Linn and Johnson Counties bounded as follows: Beginning at the intersection of the west border of Linn County and Linn County Road E2W; then south and east along County Road E2W to Highway 920; then north along Highway 920 to County Road E16; then east along County Road E16 to County Road W58; then south along County Road W58 to County Road E34; then east along County Road E34 to Highway 13; then south along Highway 13 to Highway 30; then east along Highway 30 to Highway 1; then south along Highway 1 to Morse Road in Johnson County; then east along Morse Road to Wapsi Avenue; then south along Wapsi Avenue to Lower West Branch Road; then west along Lower West Branch Road to Taft Avenue; then south along Taft Avenue to County Road F62; then west along County Road F62 to Kansas Avenue; then north along Kansas Avenue to Black Diamond Road; then west on Black Diamond Road to Jasper Avenue; then north along Jasper Avenue to Rohert Road; then west along Rohert Road to Ivy Avenue; then north along Ivy Avenue to 340th Street; then west along 340th Street to Half Moon Avenue; then north along Half Moon Avenue to Highway 6; then west along Highway 6 to Echo Avenue; then north along Echo Avenue to 250th Street; then east on 250th Street to Green Castle Avenue; then north along Green Castle Avenue to County Road F12; then west along County Road F12 to County Road W30; then north along County Road W30 to Highway 151; then north along the Linn–Benton County line to the point of beginning.
Des Moines Goose Zone—Includes those portions of Polk, Warren, Madison and Dallas Counties bounded as follows: Beginning at the intersection of Northwest 158th Avenue and County Road R38 in Polk County; then south along R38 to Northwest 142nd Avenue; then east along Northwest 142nd Avenue to Northeast 126th Avenue; then east along Northeast 126th Avenue to Northeast 46th Street; then south along Northeast 46th Street to Highway 931; then east along Highway 931 to Northeast 80th Street; then south along Northeast 80th Street to Southeast 6th Avenue; then west along Southeast 6th
Cedar Falls/Waterloo Goose Zone—Includes those portions of Black Hawk County bounded as follows: Beginning at the intersection of County Roads C66 and V49 in Black Hawk County, then south along County Road V49 to County Road D38, then west along County Road D38 to State Highway 21, then south along State Highway 21 to County Road D35, then west along County Road D35 to Grundy Road, then north along Grundy Road to County Road D19, then west along County Road D19 to Butler Road, then north along Butler Road to County Road C57, then north and east along County Road C57 to U.S. Highway 63, then south along U.S. Highway 63 to County Road C66, then east along County Road C66 to the point of beginning.
(a) North Zone—Same as North duck zone.
(b) Middle Zone—Same as Middle duck zone.
(c) South Zone—Same as South duck zone.
Twin Cities Metropolitan Canada Goose Zone—
A. All of Hennepin and Ramsey Counties.
B. In Anoka County, all of Columbus Township lying south of County State Aid Highway (CSAH) 18, Anoka County; all of the cities of Ramsey, Andover, Anoka, Coon Rapids, Spring Lake Park, Fridley, Hilltop, Columbia Heights, Blaine, Lexington, Circle Pines, Lino Lakes, and Centerville; and all of the city of Ham Lake except that portion lying north of CSAH 18 and east of U.S. Highway 65.
C. That part of Carver County lying north and east of the following described line: Beginning at the northeast corner of San Francisco Township; then west along the north boundary of San Francisco Township to the east boundary of Dahlgren Township; then north along the east boundary of Dahlgren Township to U.S. Highway 212; then west along U.S. Highway 212 to State Trunk Highway (STH) 284; then north on STH 284 to County State Aid Highway (CSAH) 10; then north and west on CSAH 10 to CSAH 30; then north and west on CSAH 30 to STH 25; then east and north on STH 25 to CSAH 10; then north on CSAH 10 to the Carver County line.
D. In Scott County, all of the cities of Shakopee, Savage, Prior Lake, and Jordan, and all of the Townships of Jackson, Louisville, St. Lawrence, Sand Creek, Spring Lake, and Credit River.
E. In Dakota County, all of the cities of Burnsville, Eagan, Mendota Heights, Mendota, Sunfish Lake, Inver Grove Heights, Apple Valley, Lakeville, Rosemount, Farmington, Hastings, Lilydale, West St. Paul, and South St. Paul, and all of the Township of Nininger.
F. That portion of Washington County lying south of the following described line: Beginning at County State Aid Highway (CSAH) 2 on the west boundary of the county; then east on CSAH 2 to U.S. Highway 61; then south on U.S. Highway 61 to State Trunk Highway (STH) 97; then east on STH 97 to the intersection of STH 97 and STH 95; then due east to the east boundary of the State.
Northwest Goose Zone—That portion of the State encompassed by a line extending east from the North Dakota border along U.S. Highway 2 to State Trunk Highway (STH) 32, north along STH 32 to STH 92, east along STH 92 to County State Aid Highway (CSAH) 2 in Polk County, north along CSAH 2 to CSAH 27 in Pennington County, north along CSAH 27 to STH 1, east along STH 1 to CSAH 28 in Pennington County, north along CSAH 28 to CSAH 54 in Marshall County, north along CSAH 54 to CSAH 9 in Roseau County, north along CSAH 9 to STH 11, west along STH 11 to STH 310, and north along STH 310 to the Manitoba border.
Southeast Goose Zone—That part of the State within the following described boundaries: beginning at the intersection of U.S. Highway 52 and the south boundary of the Twin Cities Metro Canada Goose Zone; then along the U.S. Highway 52 to State Trunk Highway (STH) 57; then along STH 57 to the municipal boundary of Kasson; then along the municipal boundary of Kasson County State Aid Highway (CSAH) 13, Dodge County; then along CSAH 13 to STH 30; then along STH 30 to U.S. Highway 63; then along U.S. Highway 63 to the south boundary of the State; then along the south and east boundaries of the State to the south boundary of the Twin Cities Metro Canada Goose Zone; then along said boundary to the point of beginning.
Five Goose Zone—That portion of the State not included in the Twin Cities Metropolitan Canada Goose Zone, the Northwest Goose Zone, or the Southeast Goose Zone.
West Zone—That portion of the State encompassed by a line beginning at the junction of State Trunk Highway (STH) 60 and the Iowa border, then north and east along STH 60 to U.S. Highway 71, north along U.S. 71 to I–94, then north and west along I–94 to the North Dakota border.
Middle Tennessee Zone—Those portions of Houston, Humphreys, Montgomery, Perry, and Wayne Counties east of State Highway 13; and Bedford, Cannon, Cheatham, Coffee, Davidson, Dickson, Franklin, Giles, Hickman, Lawrence, Lewis, Lincoln, Macon, Marshall, Maury, Moore, Robertson, Rutherford, Smith, Sumner, Trousdale, Williamson, and Wilson Counties.
East Tennessee Zone—Anderson, Bledsoe, Bradley, Blount, Campbell, Carter, Claiborne, Clay, Cocke, Cumberland, DeKalb, Fentress, Grainger, Greene, Grundy, Hamblen, Hamilton, Hancock, Hawkins, Jackson, Jefferson, Johnson, Knox, Loudon, Marion, McMinn, Meigs, Monroe, Morgan, Overton, Pickett, Polk, Putnam, Rhea, Roane, Scott, Sequatchie, Sevier, Sullivan, Unicoi, Union, Van Buren, Warren, Washington, and White Counties.
Early-Season Subzone A—That portion of the State encompassed by a line beginning at the intersection of U.S. Highway 141 and the Michigan border near Niagara, then south along U.S. 141 to State Highway 22, west and southwest along State 22 to U.S. 45, south along U.S. 45 to State 22, west and south along State 22 to State 110, south along State 110 to U.S. 10, south along U.S. 10 to State 49, south along State 49 to State 23, west along State 23 to State 73, south along State 73 to State
Early-Season Subzone B—The remainder of the State.
September Canada Goose Unit—That part of Nebraska bounded by a line from the Nebraska–Iowa State line west on U.S. Highway 30 to US Highway 81, then south on US Highway 81 to NE Highway 64, then east on NE Highway 64 to NE Highway 15, then south on NE Highway 15 to NE Highway 41, then east on NE Highway 41 to NE Highway 50, then north on NE Highway 50 to NE Highway 2, then east on NE Highway 2 to the Nebraska–Iowa State line.
Missouri River Canada Goose Zone—The area within and bounded by a line starting where ND Hwy 6 crosses the South Dakota border; then north on ND Hwy 6 to I–94; then west on I–94 to ND Hwy 49; then north on ND Hwy 49 to ND Hwy 200; then north on Mercer County Rd. 21 to the section line between sections 8 and 9 (T146N–R87W); then north on that section line to the southern shoreline to Lake Sakakawea; then east along the southern shoreline (including Mallard Island) of Lake Sakakawea to US Hwy 83; then south on US Hwy 83 to ND Hwy 200; then east on ND Hwy 200 to ND Hwy 41; then south on ND Hwy 41 to US Hwy 83; then south on US Hwy 83 to I–94; then east on I–94 to US Hwy 83; then south on US Hwy 83 to the South Dakota border; then west along the South Dakota border to ND Hwy 6.
Rest of State: Remainder of North Dakota.
Special Early Canada Goose Unit—Entire State of South Dakota
East Zone—Bonneville, Caribou, Fremont, and Teton Counties.
Northwest Zone—Benton, Clackamas, Clatsop, Columbia, Lane, Lincoln, Linn, Marion, Polk, Multnomah, Tillamook, Washington, and Yamhill Counties.
Southwest Zone—Coos, Curry, Douglas, Jackson, Josephine, and Klamath Counties.
East Zone—Baker, Gilliam, Malheur, Morrow, Sherman, Umatilla, Union, and Wasco Counties.
Area 1—Skagit, Island, and Snohomish Counties.
Area 2A (SW Quota Zone)—Clark County, except portions south of the Washougal River; Cowlitz County; and Wahkiakum County.
Area 2B (SW Quota Zone)—Pacific County.
Area 3—All areas west of the Pacific Crest Trail and west of the Big White Salmon River that are not included in Areas 1, 2A, and 2B.
Area 4—Adams, Benton, Chelan, Douglas, Franklin, Grant, Kittitas, Lincoln, Okanogan, Spokane, and Walla Walla Counties.
Area 5—All areas east of the Pacific Crest Trail and east of the Big White Salmon River that are not included in Area 4.
Lake Champlain Zone—The U.S. portion of Lake Champlain and that area east and north of a line extending along NY 9B from the Canadian border to U.S. 9, south along U.S. 9 to NY 22 south of Keesville; south along NY 22 to the west shore of South Bay, along and around the shoreline of South Bay to NY 22 on the east shore of South Bay; southeast along NY 22 to U.S. 4, northeast along U.S. 4 to the Vermont border.
Long Island Zone—That area consisting of Nassau County, Suffolk County, that area of Westchester County southeast of I–95, and their tidal waters.
Western Zone—That area west of a line extending from Lake Ontario east along the north shore of the Salmon River to I–81, and south along I–81 to the Pennsylvania border.
Northeastern Zone—That area north of a line extending from Lake Ontario east along the north shore of the Salmon River to I–81, south along I–81 to NY 49, east along NY 49 to NY 365, east along NY 365 to NY 28, east along NY 28 to NY 29, east along NY 29 to I–87, north along I–87 to U.S. 9 (at Exit 20), north along U.S. 9 to NY 149, east along NY 149 to U.S. 4, north along U.S. 4 to the Vermont border, exclusive of the Lake Champlain Zone.
Southeastern Zone—The remaining portion of New York.
Special Teal Season Area— Calvert, Caroline, Cecil, Dorchester, Harford, Kent, Queen Anne's, St. Mary's, Somerset, Talbot, Wicomico, and Worcester Counties; that part of Anne Arundel County east of Interstate 895, Interstate 97, and Route 3; that part of Prince Georges County east of Route 3 and Route 301; and that part of Charles County east of Route 301 to the Virginia State Line.
North Zone—That part of Indiana north of a line extending east from the Illinois border along State Road 18 to U.S. 31; north along U.S. 31 to U.S. 24; east along U.S. 24 to Huntington; southeast along U.S. 224; south along State Road 5; and east along State Road 124 to the Ohio border.
Central Zone—That part of Indiana south of the North Zone boundary and north of the South Zone boundary.
South Zone—That part of Indiana south of a line extending east from the Illinois border along U.S. 40; south along U.S. 41; east along State Road 58; south along State Road 37 to Bedford; and east along U.S. 50 to the Ohio border.
North Zone—That portion of Iowa north of a line beginning on the South Dakota-Iowa border at Interstate 29, southeast along Interstate 29 to State Highway 175, east along State Highway 175 to State Highway 37, southeast along State Highway 37 to State Highway 183, northeast along State Highway 183 to State Highway 141, east along State Highway 141 to U.S. Highway 30, and along U.S. Highway 30 to the Illinois border.
Missouri River Zone—That portion of Iowa west of a line beginning on the South Dakota-Iowa border at Interstate 29, southeast along Interstate 29 to State
South Zone—The remainder of Iowa.
North Zone: The Upper Peninsula.
Middle Zone: That portion of the Lower Peninsula north of a line beginning at the Wisconsin State line in Lake Michigan due west of the mouth of Stony Creek in Oceana County; then due east to, and easterly and southerly along the south shore of Stony Creek to Scenic Drive, easterly and southerly along Scenic Drive to Stony Lake Road, easterly along Stony Lake and Garfield Roads to Michigan Highway 20, east along Michigan 20 to U.S. Highway 10 Business Route (BR) in the city of Midland, easterly along U.S. 10 BR to U.S. 10, easterly along U.S. 10 to Interstate Highway 75/U.S. Highway 23, northerly along I–75/U.S. 23 to the U.S. 23 exit at Standish, easterly along U.S. 23 to the centerline of the Au Gres River, then southerly along the centerline of the Au Gres River to Saginaw Bay, then on a line directly east 10 miles into Saginaw Bay, and from that point on a line directly northeast to the Canadian border.
South Zone: The remainder of Michigan.
Special Teal Season Area—Lake and Chaffee Counties and that portion of the State east of Interstate Highway 25.
High Plains Zone—That portion of the State west of U.S. 283.
Early Zone—That part of Kansas bounded by a line from the Nebraska–Kansas State line south on K–128 to its junction with US–36, then east on US–36 to its junction with K–199, then south on K–199 to its junction with Republic County 30 Rd, then south on Republic County 30 Rd to its junction with K–148, then east on K–148 to its junction with Republic County 50 Rd, then south on Republic County 50 Rd to its junction with Cloud County 40th Rd, then south on Cloud County 40th Rd to its junction with K–9, then west on K–9 to its junction with US–24, then west on US–24 to its junction with US–281, then north on US–281 to its junction with US–36, then west on US–36 to its junction with US–183, then south on US–183 to its junction with US–24, then west on US–24 to its junction with K–18, then southeast on K–18 to its junction with US–183, then south on US–183 to its junction with K–4, then east on K–4 to its junction with I–135, then south on I–135 to its junction with K–61, then southwest on K–61 to McPherson County 14th Avenue, then south on McPherson County 14th Avenue to its junction with Arapaho Rd, then west on Arapaho Rd to its junction with K–61, then southwest on K–61 to its junction with K–96, then northwest on K–96 to its junction with US–56, then southwest on US–56 to its junction with K–19, then east on K–19 to its junction with US–281, then south on US–281 to its junction with US–54, then west on US–54 to its junction with US–183, then north on US–183 to its junction with US–56, then southwest on US–56 to its junction with Ford County Rd 126, then south on Ford County Rd 126 to its junction with US–400, then northwest on US–400 to its junction with US–283, then north on US–283 to its junction with the Nebraska–Kansas State line, then east along the Nebraska–Kansas State line to its junction with K–128.
Late Zone—That part of Kansas bounded by a line from the Nebraska–Kansas State line south on K–128 to its junction with US–36, then east on US–36 to its junction with K–199, then south on K–199 to its junction with Republic County 30 Rd, then south on Republic County 30 Rd to its junction with K–148, then east on K–148 to its junction with Republic County 50 Rd, then south on Republic County 50 Rd to its junction with Cloud County 40th Rd, then south on Cloud County 40th Rd to its junction with K–9, then west on K–9 to its junction with US–24, then west on US–24 to its junction with US–281, then north on US–281 to its junction with US–36, then west on US–36 to its junction with US–183, then south on US–183 to its junction with US–24, then west on US–24 to its junction with K–18, then southeast on K–18 to its junction with US–183, then south on US–183 to its junction with K–4, then east on K–4 to its junction with I–135, then south on I–135 to its junction with K–61, then southwest on K–61 to 14th Avenue, then south on 14th Avenue to its junction with Arapaho Rd, then west on Arapaho Rd to its junction with K–61, then southwest on K–61 to its junction with K–96, then northwest on K–96 to its junction with US–56, then southwest on US–56 to its junction with K–19, then east on K–19 to its junction with US–281, then south on US–281 to its junction with US–54, then west on US–54 to its junction with US–183, then north on US–183 to its junction with US–56, then southwest on US–56 to its junction with Ford County Rd 126, then south on Ford County Rd 126 to its junction with US–400, then northwest on US–400 to its junction with US–283, then south on US–283 to its junction with the Oklahoma–Kansas State line, then east along the Oklahoma–Kansas State line to its junction with US–77, then north on US–77 to its junction with Butler County, NE 150th Street, then east on Butler County, NE 150th Street to its junction with US–35, then northeast on US–35 to its junction with K–68, then east on K–68 to the Kansas–Missouri State line, then north along the Kansas–Missouri State line to its junction with the Nebraska State line, then west along the Kansas–Nebraska State line to its junction with K–128.
Southeast Zone—That part of Kansas bounded by a line from the Missouri–Kansas State line west on K–68 to its junction with US–35, then southwest on US–35 to its junction with Butler County, NE 150th Street, then west on NE 150th Street until its junction with K–77, then south on K–77 to the Oklahoma–Kansas State line, then east along the Kansas–Oklahoma State line to its junction with the Missouri State line, then north along the Kansas–Missouri State line to its junction with K–68.
Special Teal Season Area—That portion of the State south of a line beginning at the Wyoming State line; east along U.S. 26 to Nebraska Highway L62A east to U.S. 385; south to U.S. 26; east to NE 92; east along NE 92 to NE 61; south along NE 61 to U.S. 30; east along U.S. 30 to the Iowa border.
High Plains—That portion of Nebraska lying west of a line beginning at the South Dakota–Nebraska border on U.S. Hwy. 183; south on U.S. Hwy. 183 to U.S. Hwy. 20; west on U.S. Hwy. 20 to NE Hwy. 7; south on NE Hwy. 7 to NE Hwy. 91; southwest on NE Hwy. 91 to NE Hwy. 2; southeast on NE Hwy. 2 to NE Hwy. 92; west on NE Hwy. 92 to NE Hwy. 40; south on NE Hwy. 40 to NE Hwy. 47; south on NE Hwy. 47 to NE Hwy. 23; east on NE Hwy. 23 to U.S. Hwy. 283; and south on U.S. Hwy. 283 to the Kansas–Nebraska border.
Zone 1—Area bounded by designated Federal and State highways and political boundaries beginning at the South Dakota–Nebraska border west of NE Hwy. 26E Spur and north of NE Hwy. 12; those portions of Dixon, Cedar and Knox Counties north of NE Hwy. 12; that portion of Keya Paha County east of U.S. Hwy. 183; and all of Boyd County. Both banks of the Niobrara River in Keya Paha and Boyd counties east of U.S. Hwy. 183 shall be included in Zone 1.
Zone 2—The area south of Zone 1 and north of Zone 3.
Zone 3—Area bounded by designated Federal and State highways, County Roads, and political boundaries beginning at the Wyoming–Nebraska border at the intersection of the Interstate Canal; east along northern borders of Scotts Bluff and Morrill Counties to Broadwater Road; south to Morrill County Rd 94; east to County Rd 135; south to County Rd 88; southeast to County Rd 151; south to County Rd 80; east to County Rd 161; south to County Rd 76; east to County Rd 165; south to County Rd 167; south to U.S. Hwy. 26; east to County Rd 171; north to County Rd 68; east to County Rd 183; south to County Rd 64; east to County Rd 189; north to County Rd 70; east to County Rd 201; south to County Rd 60A; east to County Rd 203; south to County Rd 52; east to Keith County Line; east along the northern boundaries of Keith and Lincoln Counties to NE Hwy. 97; south to U.S. Hwy 83; south to E Hall School Rd; east to N Airport Road; south to U.S. Hwy. 30; east to Merrick County Rd 13; north to County Rd O; east to NE Hwy. 14; north to NE Hwy. 52; west and north to NE Hwy. 91; west to U.S. Hwy. 281; south to NE Hwy. 22; west to NE Hwy. 11; northwest to NE Hwy. 91; west to U.S. Hwy. 183; south to Round Valley Rd; west to Sargent River Rd; west to Sargent Rd; west to Milburn Rd; north to Blaine County Line; east to Loup County Line; north to NE Hwy. 91; west to North Loup Spur Rd; north to North Loup River Rd; east to Pleasant Valley/Worth Rd; east to Loup County Line; north to Loup–Brown county line; east along northern boundaries of Loup and Garfield Counties to Cedar River Rd; south to NE Hwy. 70; east to U.S. Hwy. 281; north to NE Hwy. 70; east to NE Hwy. 14; south to NE Hwy. 39; southeast to NE Hwy. 22; east to U.S. Hwy. 81; southeast to U.S. Hwy. 30; east to U.S. Hwy. 75; north to the Washington County line; east to the Iowa–Nebraska border; south to the Missouri–Nebraska border; south to Kansas–Nebraska border; west along Kansas–Nebraska border to Colorado–Nebraska border; north and west to Wyoming–Nebraska border; north to intersection of Interstate Canal; and excluding that area in Zone 4.
Zone 4—Area encompassed by designated Federal and State highways and County Roads beginning at the intersection of NE Hwy. 8 and U.S. Hwy. 75; north to U.S. Hwy. 136; east to the intersection of U.S. Hwy. 136 and the Steamboat Trace (Trace); north along the Trace to the intersection with Federal Levee R–562; north along Federal Levee R–562 to the intersection with the Trace; north along the Trace/Burlington Northern Railroad right-of-way to NE Hwy. 2; west to U.S. Hwy. 75; north to NE Hwy. 2; west to NE Hwy. 43; north to U.S. Hwy. 34; east to NE Hwy. 63; north to NE Hwy. 66; north and west to U.S. Hwy. 77; north to NE Hwy. 92; west to NE Hwy. Spur 12F; south to Butler County Rd 30; east to County Rd X; south to County Rd 27; west to County Rd W; south to County Rd 26; east to County Rd X; south to County Rd 21 (Seward County Line); west to NE Hwy. 15; north to County Rd 34; west to County Rd J; south to NE Hwy. 92; west to U.S. Hwy. 81; south to NE Hwy. 66; west to Polk County Rd C; north to NE Hwy. 92; west to U.S. Hwy. 30; west to Merrick County Rd 17; south to Hordlake Road; southeast to Prairie Island Road; southeast to Hamilton County Rd T; south to NE Hwy. 66; west to NE Hwy. 14; south to County Rd 22; west to County Rd M; south to County Rd 21; west to County Rd K; south to U.S. Hwy. 34; west to NE Hwy. 2; south to U.S. Hwy. I–80; west to Gunbarrel Rd (Hall/Hamilton county line); south to Giltner Rd; west to U.S. Hwy. 281; south to U.S. Hwy. 34; west to NE Hwy. 10; north to Kearney County Rd R and Phelps County Rd 742; west to U.S. Hwy. 283; south to U.S. Hwy 34; east to U.S. Hwy. 136; east to U.S. Hwy. 183; north to NE Hwy. 4; east to NE Hwy. 10; south to U.S. Hwy. 136; east to NE Hwy. 14; south to NE Hwy. 8; east to U.S. Hwy. 81; north to NE Hwy. 4; east to NE Hwy. 15; south to U.S. Hwy. 136; east to NE Hwy. 103; south to NE Hwy. 8; east to U.S. Hwy. 75.
North Zone—That portion of the State north of I–40 and U.S. 54.
South Zone—The remainder of New Mexico.
Northeastern Zone—In that portion of California lying east and north of a line beginning at the intersection of Interstate 5 with the California–Oregon line; south along Interstate 5 to its junction with Walters Lane south of the town of Yreka; west along Walters Lane to its junction with Easy Street; south along Easy Street to the junction with Old Highway 99; south along Old Highway 99 to the point of intersection with Interstate 5 north of the town of Weed; south along Interstate 5 to its junction with Highway 89; east and south along Highway 89 to Main Street Greenville; north and east to its junction with North Valley Road; south to its junction of Diamond Mountain Road; north and east to its junction with North Arm Road; south and west to the junction of North Valley Road; south to the junction with Arlington Road (A22); west to the junction of Highway 89; south and west to the junction of Highway 70; east on Highway 70 to Highway 395; south and east on Highway 395 to the point of intersection with the California–Nevada State line; north along the California–Nevada State line to the junction of the California–Nevada–Oregon State lines west along the California–Oregon State line to the point of origin.
Colorado River Zone—Those portions of San Bernardino, Riverside, and Imperial Counties east of a line extending from the Nevada border south along U.S. 95 to Vidal Junction; south on a road known as “Aqueduct Road” in San Bernardino County through the town of Rice to the San Bernardino–Riverside County line; south on a road known in Riverside County as the “Desert Center to Rice Road” to the town of Desert Center; east 31 miles on I–10 to the Wiley Well Road; south on this road to Wiley Well; southeast along the Army–Milpitas Road to the Blythe, Brawley, Davis Lake intersections; south on the Blythe–Brawley paved road to the Ogilby and Tumco Mine Road; south on this road to U.S. 80; east 7 miles on U.S. 80 to the Andrade–Algodones Road; south on this paved road to the Mexican border at Algodones, Mexico.
Southern Zone—That portion of southern California (but excluding the Colorado River Zone) south and east of a line extending from the Pacific Ocean east along the Santa Maria River to CA 166 near the City of Santa Maria; east on CA 166 to CA 99; south on CA 99 to the crest of the Tehachapi Mountains at Tejon Pass; east and north along the crest of the Tehachapi Mountains to CA 178 at Walker Pass; east on CA 178 to U.S. 395 at the town of Inyokern; south on U.S. 395 to CA 58; east on CA 58 to I–15; east on I–15 to CA 127; north on CA 127 to the Nevada border.
Southern San Joaquin Valley Temporary Zone—All of Kings and Tulare Counties and that portion of Kern County north of the Southern Zone.
Balance-of-the-State Zone—The remainder of California not included in the Northeastern, Southern, and Colorado River Zones, and the Southern San Joaquin Valley Temporary Zone.
(a) North Zone—Same as North duck zone.
(b) Middle Zone—Same as Middle duck zone.
(c) South Zone—Same as South duck zone.
Northwest Goose Zone—That portion of the State encompassed by a line extending east from the North Dakota border along U.S. Highway 2 to State Trunk Highway (STH) 32, north along STH 32 to STH 92, east along STH 92 to County State Aid Highway (CSAH) 2 in Polk County, north along CSAH 2 to CSAH 27 in Pennington County, north along CSAH 27 to STH 1, east along STH 1 to CSAH 28 in Pennington County, north along CSAH 28 to CSAH 54 in Marshall County, north along CSAH 54 to CSAH 9 in Roseau County, north along CSAH 9 to STH 11, west along STH 11 to STH 310, and north along STH 310 to the Manitoba border.
Colorado—The Central Flyway portion of the State except the San Luis Valley (Alamosa, Conejos, Costilla, Hinsdale, Mineral, Rio Grande, and Saguache Counties east of the Continental Divide) and North Park (Jackson County).
Kansas—That portion of the State west of a line beginning at the Oklahoma border, north on I–35 to Wichita, north on I–135 to Salina, and north on U.S. 81 to the Nebraska border.
Montana—The Central Flyway portion of the State except for that area south and west of Interstate 90, which is closed to sandhill crane hunting.
Regular-Season Open Area—Chaves, Curry, De Baca, Eddy, Lea, Quay, and Roosevelt Counties.
Middle Rio Grande Valley Area—The Central Flyway portion of New Mexico in Socorro and Valencia Counties.
Estancia Valley Area—Those portions of Santa Fe, Torrance and Bernallilo Counties within an area bounded on the west by New Mexico Highway 55 beginning at Mountainair north to NM 337, north to NM 14, north to I–25; on the north by I–25 east to U.S. 285; on the east by U.S. 285 south to U.S. 60; and on the south by U.S. 60 from U.S. 285 west to NM 55 in Mountainair.
Southwest Zone—Area bounded on the south by the New Mexico/Mexico border; on the west by the New Mexico/Arizona border north to Interstate 10; on the north by Interstate 10 east to U.S. 180, north to N.M. 26, east to N.M. 27, north to N.M. 152, and east to Interstate 25; on the east by Interstate 25 south to Interstate 10, west to the Luna county line, and south to the New Mexico/Mexico border.
Area 1—That portion of the State west of U.S. 281.
Area 2—That portion of the State east of U.S. 281.
Oklahoma—That portion of the State west of I–35.
South Dakota—That portion of the State west of U.S. 281.
Zone A—That portion of Texas lying west of a line beginning at the international toll bridge at Laredo, then northeast along U.S. Highway 81 to its junction with Interstate Highway 35 in Laredo, then north along Interstate Highway 35 to its junction with Interstate Highway 10 in San Antonio, then northwest along Interstate Highway 10 to its junction with U.S. Highway 83 at Junction, then north along U.S. Highway 83 to its junction with U.S. Highway 62, 16 miles north of Childress, then east along U.S. Highway 62 to the Texas–Oklahoma State line.
Zone B—That portion of Texas lying within boundaries beginning at the junction of U.S. Highway 81 and the Texas–Oklahoma State line, then southeast along U.S. Highway 81 to its junction with U.S. Highway 287 in Montague County, then southeast along U.S. Highway 287 to its junction with Interstate Highway 35W in Fort Worth, then southwest along Interstate Highway 35 to its junction with Interstate Highway 10 in San Antonio, then northwest along Interstate Highway 10 to its junction with U.S. Highway 83 in the town of Junction, then north along U.S. Highway 83 to its junction with U.S. Highway 62, 16 miles north of Childress, then east along U.S. Highway 62 to the Texas–Oklahoma State line, then south along the Texas–Oklahoma State line to the south bank of the Red River, then eastward along the vegetation line on the south bank of the Red River to U.S. Highway 81.
Zone C—The remainder of the State, except for the closed areas.
Closed areas—(A) That portion of the State lying east and north of a line beginning at the junction of U.S. Highway 81 and the Texas–Oklahoma State line, then southeast along U.S. Highway 81 to its junction with U.S. Highway 287 in Montague County, then southeast along U.S. Highway 287 to its junction with Interstate Highway 35W in Fort Worth, then southwest along Interstate Highway 35 to its junction with U.S. Highway 290 East in Austin, then east along U.S. Highway 290 to its junction with Interstate Loop 610 in Harris County, then south and east along Interstate Loop 610 to its junction with Interstate Highway 45 in Houston, then south on Interstate Highway 45 to State Highway 342, then to the shore of the Gulf of Mexico, and then north and east along the shore of the Gulf of Mexico to the Texas–Louisiana State line.
(B) That portion of the State lying within the boundaries of a line beginning at the Kleberg–Nueces County line and the shore of the Gulf of Mexico, then west along the County line to Park Road 22 in Nueces County, then north and west along Park Road 22 to its junction with State Highway 358 in Corpus Christi, then west and north along State Highway 358 to its junction with State Highway 286, then north along State Highway 286 to its junction with Interstate Highway 37, then east along Interstate Highway 37 to its junction with U.S. Highway 181, then north and west along U.S. Highway 181 to its junction with U.S. Highway 77 in Sinton, then north and east along U.S. Highway 77 to its junction with U.S. Highway 87 in Victoria, then south and east along U.S. Highway 87 to its junction with State Highway 35 at Port Lavaca, then north and east along State Highway 35 to the south end of the Lavaca Bay Causeway, then south and east along the shore of Lavaca Bay to its junction with the Port Lavaca Ship Channel, then south and east along the Lavaca Bay Ship Channel to the Gulf of Mexico, and then south and west along the shore of the Gulf of Mexico to the Kleberg–Nueces County line.
Regular Season Open Area—Campbell, Converse, Crook, Goshen, Laramie, Niobrara, Platte, and Weston Counties, and portions of Johnson and Sheridan Counties.
Riverton-Boysen Unit—Portions of Fremont County.
Park and Big Horn County Unit—All of Big Horn, Hot Springs, Park and Washakie Counties.
Special Season Area—Game Management Units 28, 30A, 30B, 31, and 32.
Special Season Area—See State regulations.
Special Season Area—See State regulations.
Special Season Area—Rich, Cache, and Unitah Counties and that portion of Box Elder County beginning on the Utah–Idaho State line at the Box Elder-Cache County line; west on the State line to the Pocatello Valley County Road; south on the Pocatello Valley County Road to I–15; southeast on I–15 to SR–83; south on SR–83 to Lamp Junction; west and south on the Promontory Point County Road to the tip of Promontory Point; south from Promontory Point to the Box Elder-Weber County line; east on the Box Elder-Weber County line to the Box Elder-Cache County line; north on the Box Elder-Cache County line to the Utah–Idaho State line.
Bear River Area—That portion of Lincoln County described in State regulations.
Salt River Area—That portion of Lincoln County described in State regulations.
Farson-Eden Area—Those portions of Sweetwater and Sublette Counties described in State regulations.
Uinta County Area—That portion of Uinta County described in State regulations.
North Zone—State Game Management Units 11–13 and 17–26.
Gulf Coast Zone—State Game Management Units 5–7, 9, 14–16, and 10 (Unimak Island only).
Southeast Zone—State Game Management Units 1–4.
Pribilof and Aleutian Islands Zone—State Game Management Unit 10 (except Unimak Island).
Kodiak Zone—State Game Management Unit 8.
Ruth Cay Closure Area—The island of Ruth Cay, just south of St. Croix.
Municipality of Culebra Closure Area—All of the municipality of Culebra.
Desecheo Island Closure Area—All of Desecheo Island.
Mona Island Closure Area—All of Mona Island.
El Verde Closure Area—Those areas of the municipalities of Rio Grande and Loiza delineated as follows: (1) All lands between Routes 956 on the west and 186 on the east, from Route 3 on the north to the juncture of Routes 956 and 186 (Km 13.2) in the south; (2) all lands between Routes 186 and 966 from the juncture of 186 and 966 on the north, to the Caribbean National Forest Boundary on the south; (3) all lands lying west of Route 186 for 1 kilometer from the juncture of Routes 186 and 956 south to Km 6 on Route 186; (4) all lands within Km 14 and Km 6 on the west and the Caribbean National Forest Boundary on the east; and (5) all lands within the Caribbean National Forest Boundary whether private or public.
Cidra Municipality and adjacent areas—All of Cidra Municipality and portions of Aguas Buenas, Caguas, Cayey, and Comerio Municipalities as encompassed within the following boundary: Beginning on Highway 172 as it leaves the municipality of Cidra on the west edge, north to Highway 156, east on Highway 156 to Highway 1, south on Highway 1 to Highway 765, south on Highway 765 to Highway 763, south on Highway 763 to the Rio Guavate, west along Rio Guavate to Highway 1, southwest on Highway 1 to Highway 14, west on Highway 14 to Highway 729, north on Highway 729 to Cidra Municipality boundary to the point of the beginning.