The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
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consideration of this new and
significant information:
• Suspend the effectiveness, in any
new reactor licensing proceeding for
reactors that employ high-density pool
storage of spent fuel, of all regulations
approving the standardized designs for
those new reactors and all
Environmental Assessments (‘‘EAs’’)
approving Severe Accident Mitigation
Design Alternatives (‘‘SAMDAs’’);
• Suspend all new reactor licensing
decisions and license renewal decisions
pending completion of this proceeding;
and
• Suspend the effectiveness of Table
B–1, which codifies the NRC’s generic
finding that spent fuel storage in highdensity rector pools during the license
renewal term of operating reactor poses
no significant environmental impacts
and therefore, need not be considered in
individual reactor licensing decisions.
The NRC has determined that these
requests are not part of the rulemaking
process. The NRC will address in a
separate action the petitioner’s request
to suspend these actions pending the
NEPA analysis the petitioner believes to
be necessary to address new and
significant information generated by the
NRC during its post-Fukushima
proceedings.
Dated at Rockville, Maryland, this 24th day
of April, 2014.
For the Nuclear Regulatory Commission.
Annette L. Vietti-Cook,
Secretary of the Commission.
[FR Doc. 2014–10018 Filed 4–30–14; 8:45 am]
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BILLING CODE 7590–01–P
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DEPARTMENT OF TREASURY
Office of the Comptroller of the
Currency
12 CFR Part 3
[Docket ID OCC–2014–0008]
RIN 1557–AD81
FEDERAL RESERVE SYSTEM
12 CFR Part 217
[Regulation Q; Docket No. R–1487]
RIN 7100–AD AD16
FEDERAL DEPOSIT INSURANCE
CORPORATION
12 CFR Part 324
RIN 3064–AE12
Regulatory Capital Rules: Regulatory
Capital, Proposed Revisions to the
Supplementary Leverage Ratio
Office of the Comptroller of
the Currency, Treasury; the Board of
Governors of the Federal Reserve
System; and the Federal Deposit
Insurance Corporation.
ACTION: Proposed rule.
AGENCIES:
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 issuing a
notice of proposed rulemaking
(proposed rule) that would revise the
denominator of the supplementary
leverage ratio (total leverage exposure)
that the agencies adopted in July 2013
as part of comprehensive revisions to
the agencies’ regulatory capital rules
(2013 revised capital rule). Specifically,
the proposed rule would revise the
treatment of on- and off-balance sheet
exposures for purposes of determining
total leverage exposure, and more
closely align the agencies’ rules on the
calculation of total leverage exposure
with international leverage ratio
standards.
The proposed rule would incorporate
in total leverage exposure the effective
notional principal amount of credit
derivatives and other similar
instruments through which a banking
organization provides credit protection
(sold credit protection), modify the
calculation of total leverage exposure for
derivatives and repo-style transactions,
and revise the credit conversion factors
(CCFs) applied to certain off-balance
sheet exposures. The proposed rule also
would make changes to the
SUMMARY:
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methodology for calculating the
supplementary leverage ratio and to the
public disclosure requirements for the
supplementary leverage ratio.
The proposed rule would apply to all
banks, savings associations, bank
holding companies, and savings and
loan holding companies (banking
organizations) that are subject to the
agencies’ advanced approaches riskbased capital rules (advanced
approaches banking organizations), as
defined in the 2013 revised capital rule,
including advanced approaches banking
organizations that are subject to the
enhanced supplementary leverage ratio
standards that the agencies have
adopted in final form and published
elsewhere in today’s Federal Register
(the eSLR standards). Consistent with
the 2013 revised capital rule, advanced
approaches banking organizations will
be required to disclose their
supplementary leverage ratios beginning
January 1, 2015, and will be required to
comply with a minimum supplementary
leverage ratio capital requirement of 3
percent and, as applicable, the eSLR
standards beginning January 1, 2018.
The agencies are seeking comment on
all aspects of the proposed rule.
DATES: Comments must be received no
later than June 13, 2014.
ADDRESSES: Comments should be
directed to:
OCC: Because paper mail in the
Washington, DC area and at the OCC is
subject to delay, commenters are
encouraged to submit comments by the
Federal eRulemaking Portal or email, if
possible. Please use the title ‘‘Regulatory
Capital Rules: Regulatory Capital,
Proposed Revisions to the
Supplementary Leverage Ratio’’ to
facilitate the organization and
distribution of the comments. You may
submit comments by any of the
following methods:
• Federal eRulemaking Portal—
‘‘regulations.gov’’: Go to http://
www.regulations.gov. Enter ‘‘Docket ID
OCC–2014–0008’’ in the Search Box and
click ‘‘Search’’. Results can be filtered
using the filtering tools on the left side
of the screen. Click on ‘‘Comment Now’’
to submit public comments.
• Click on the ‘‘Help’’ tab on the
Regulations.gov home page to get
information on using Regulations.gov,
including instructions for submitting
public comments.
• Email: regs.comments@
occ.treas.gov.
• Mail: Legislative and Regulatory
Activities Division, Office of the
Comptroller of the Currency, 400 7th
Street SW., Suite 3E–218, Mail Stop
9W–11, Washington, DC 20219.
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Federal Register / Vol. 79, No. 84 / Thursday, May 1, 2014 / Proposed Rules
• Hand Delivery/Courier: 400 7th
Street SW., Suite 3E–218, Mail Stop
9W–11, Washington, DC 20219.
• Fax: (571) 465–4326.
Instructions: You must include
‘‘OCC’’ as the agency name and ‘‘Docket
ID OCC–2014–0008’’ in your comment.
In general, OCC will enter all comments
received into the docket and publish
them on the Regulations.gov Web site
without change, including any business
or personal information that you
provide such as name and address
information, email addresses, or phone
numbers. Comments received, including
attachments and other supporting
materials, are part of the public record
and subject to public disclosure. Do not
enclose any information in your
comment or supporting materials that
you consider confidential or
inappropriate for public disclosure.
You may review comments and other
related materials that pertain to this
rulemaking action by any of the
following methods:
• Viewing Comments Electronically:
Go to http://www.regulations.gov. Enter
‘‘Docket ID OCC–2014–0008’’ in the
Search box and click ‘‘Search’’.
Comments can be filtered by Agency
using the filtering tools on the left side
of the screen.
• Click on the ‘‘Help’’ tab on the
Regulations.gov home page to get
information on using Regulations.gov,
including instructions for viewing
public comments, viewing other
supporting and related materials, and
viewing the docket after the close of the
comment period.
• Viewing Comments Personally: You
may personally inspect and photocopy
comments at the OCC, 400 7th Street
SW., Washington, DC. For security
reasons, the OCC requires that visitors
make an appointment to inspect
comments. You may do so by calling
(202) 649–6700. Upon arrival, visitors
will be required to present valid
government-issued photo identification
and to submit to security screening in
order to inspect and photocopy
comments.
• Docket: You may also view or
request available background
documents and project summaries using
the methods described above.
Board: When submitting comments,
please consider submitting your
comments by email or fax because paper
mail in the Washington, DC area and at
the Board may be subject to delay. You
may submit comments, identified by
Docket No. R–1487 RIN AE–16, by any
of the following methods:
• Agency Web site:http://
www.federalreserve.gov. Follow the
instructions for submitting comments at
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http://www.federalreserve.gov/
generalinfo/foia/ProposedRegs.cfm.
• Federal eRulemaking Portal: http://
www.regulations.gov. Follow the
instructions for submitting comments.
• Email: regs.comments@
federalreserve.gov. Include docket
number in the subject line of the
message.
• Fax: (202) 452–3819 or (202) 452–
3102.
• Mail: Robert de V. Frierson,
Secretary, Board of Governors of the
Federal Reserve System, 20th Street and
Constitution Avenue NW., Washington,
DC 20551.
All public comments are available
from the Board’s Web site at http://
www.federalreserve.gov/generalinfo/
foia/ProposedRegs.cfm as submitted,
unless modified for technical reasons.
Accordingly, your comments will not be
edited to remove any identifying or
contact information. Public comments
may also be viewed electronically or in
paper form in Room MP–500 of the
Board’s Martin Building (20th and C
Street NW., Washington, DC 20551)
between 9:00 a.m. and 5:00 p.m. on
weekdays.
FDIC: You may submit comments,
identified by RIN 3064–AE12, by any of
the following methods:
Agency Web site: http://www.fdic.gov/
regulations/laws/federal/propose.html.
Follow instructions for submitting
comments on the Agency Web site.
• Email: Comments@fdic.gov. Include
the RIN 3064–AE12 on the subject line
of the message.
• Mail: Robert E. Feldman, Executive
Secretary, Attention: Comments, Federal
Deposit Insurance Corporation, 550 17th
Street NW., Washington, DC 20429.
• Hand Delivery: Comments may be
hand delivered to the guard station at
the rear of the 550 17th Street Building
(located on F Street) on business days
between 7:00 a.m. and 5:00 p.m.
Public Inspection: All comments
received must include the agency name
and RIN 3064–AE12 for this rulemaking.
All comments received will be posted
without change to http://www.fdic.gov/
regulations/laws/federal/propose.html,
including any personal information
provided. Paper copies of public
comments may be ordered from the
FDIC Public Information Center, 3501
North Fairfax Drive, Room E–1002,
Arlington, VA 22226 by telephone at
(877) 275–3342 or (703) 562–2200.
FOR FURTHER INFORMATION CONTACT:
OCC: Roger Tufts, Senior Economic
Advisor, (202) 649–6981; or Nicole
Billick, Risk Expert, (202) 649–7932,
Capital Policy; or Carl Kaminski,
Counsel; or Henry Barkhausen,
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24597
Attorney, Legislative and Regulatory
Activities Division, (202) 649–5490,
Office of the Comptroller of the
Currency, 400 7th Street SW.,
Washington, DC 20219.
Board: Constance M. Horsley,
Assistant Director, (202) 452–5239;
Thomas Boemio, Manager, (202) 452–
2982; or Sviatlana Phelan, Senior
Financial Analyst, (202) 912–4306,
Capital and Regulatory Policy, Division
of Banking Supervision and Regulation;
or Benjamin McDonough, Senior
Counsel, (202) 452–2036; April C.
Snyder, Senior Counsel, (202) 452–
3099; or Mark Buresh, Attorney, (202)
452–5270, Legal Division, Board of
Governors of the Federal Reserve
System, 20th and C Streets NW.,
Washington, DC 20551. For the hearing
impaired only, Telecommunication
Device for the Deaf (TDD), (202) 263–
4869.
FDIC: George French, Deputy
Director, gfrench@fdic.gov; Bobby R.
Bean, Associate Director, bbean@
fdic.gov; Ryan Billingsley, Chief, Capital
Policy Section, rbillingsley@fdic.gov;
Karl Reitz, Chief, Capital Markets
Strategies Section, kreitz@fdic.gov;
Capital Markets Branch, Division of Risk
Management Supervision,
regulatorycapital@fdic.gov or (202) 898–
6888; or Mark Handzlik, Counsel,
mhandzlik@fdic.gov; Michael Phillips,
Counsel, mphillips@fdic.gov; or Rachel
Ackmann, Attorney, rackmann@
fdic.gov; Supervision Branch, Legal
Division, Federal Deposit Insurance
Corporation, 550 17th Street NW.,
Washington, DC 20429.
SUPPLEMENTARY INFORMATION:
I. Background
In 2013, 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)
comprehensively revised and
strengthened the capital regulations
applicable to banking organizations
(2013 revised capital rule). The 2013
revised capital rule included a new
minimum supplementary leverage ratio
requirement of 3 percent.1 The
supplementary leverage ratio applies to
banking organizations that are subject to
the agencies’ advanced approaches riskbased capital rules (advanced
approaches banking organizations), as
defined in the 2013 revised capital rule,
1 The Board and the OCC published a joint final
rule in the Federal Register on October 11, 2013 (78
FR 62018) and the FDIC published a substantially
identical interim final rule on September 10, 2013
(78 FR 55340).
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and is the arithmetic mean of the ratio
of tier 1 capital to total leverage
exposure calculated as of the last day of
each month in the reporting quarter.
The supplementary leverage ratio
included in the 2013 revised capital rule
is generally consistent with the
international leverage ratio introduced
by the Basel Committee on Banking
Supervision (BCBS) in 2010 (Basel III
leverage ratio).2 The agencies indicated
in the preamble to the 2013 revised
capital rule that they would consider
revising the supplementary leverage
ratio to take into account subsequent
changes made by the BCBS to the Basel
III leverage ratio.
In January 2014, the BCBS adopted
revisions to the Basel III leverage ratio,
which include the recognition in the
denominator of the effective notional
principal amount of credit derivatives or
similar instruments through which a
banking organization provides credit
protection, modifications to the measure
of exposure for derivatives and repostyle transactions, and revisions to the
credit conversion factors (CCFs) for
certain off-balance sheet exposures
(BCBS 2014 revisions).3
The agencies believe that revising the
supplementary leverage ratio in a
manner consistent with the BCBS 2014
revisions would strengthen the
definition of total leverage exposure and
improve the measure of a banking
organization’s on- and off-balance sheet
exposures. The agencies believe that the
BCBS 2014 revisions would promote
consistency in the calculation of this
ratio across jurisdictions and are
responsive to a number of specific
concerns expressed by commenters on
the supplementary leverage ratio in the
2013 revised capital rule and on the
enhanced supplementary leverage ratio
standards proposal (eSLR standards
proposal).4 In addition, the agencies are
proposing additional supplementary
leverage ratio disclosure requirements,
consistent with the BCBS 2014
2 See BCBS, ‘‘Basel III: A Global Regulatory
Framework for More Resilient Banks and Banking
Systems’’ (December 2010 and revised in June
2011), available at http://www.bis.org/publ/
bcbs189.htm. The BCBS is a committee of banking
supervisory authorities, which was established by
the central bank governors of the G–10 countries in
1975. More information regarding the BCBS and its
membership is available at http://www.bis.org/bcbs/
about.htm. Documents issued by the BCBS are
available through the Bank for International
Settlements Web site at http://www.bis.org.
3 See BCBS, ‘‘Basel III leverage ratio framework
and disclosure requirements’’ (January 2014),
available at http://www.bis.org/publ/bcbs270.htm.
See also BCBS, ‘‘Revised Basel III leverage ratio
framework and disclosure requirements—
consultative document’’ (June 2013), available at
http://www.bis.org/publ/bcbs251.htm.
4 See 78 FR 51101 (August 20, 2013).
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revisions. The agencies believe that the
proposed disclosures would enhance
transparency and provide market
participants with important information
related to the supplementary leverage
ratio.
Elsewhere in today’s Federal Register,
the agencies have published a final rule
that applies enhanced supplementary
leverage ratio standards to the largest,
most interconnected U.S. banking
organizations (eSLR standards final
rule).
The agencies seek comment on all
aspects of the proposed rule, including
its interactions with the eSLR standards
final rule, as the proposed changes to
total leverage exposure and the
methodology for calculating the
supplementary leverage ratio also
would, if adopted, affect banking
organizations subject to the eSLR
standards final rule.
II. Proposed Rule
As discussed in further detail below,
the proposed rule would revise the
calculation of the supplementary
leverage ratio and the definition of total
leverage exposure. The proposed rule
also would address some of the
comments the agencies received
regarding the interaction of the BCBS
agreements and the agencies’ eSLR
standards proposal. In general, the
changes are designed to strengthen the
supplementary leverage ratio by more
appropriately capturing the exposure of
a banking organization’s on- and offbalance sheet items. For example, the
proposed rule would capture in total
leverage exposure the effective notional
principal amount of credit derivatives
and other similar instruments through
which a banking organization provides
credit protection (sold credit
protection), which has the effect of
increasing total leverage exposure
associated with these credit derivatives,
and introduce graduated CCFs in the
treatment of off-balance sheet
commitments that would reduce the
portion of total leverage exposure
associated with these commitments. The
proposed rule also would modify the
total leverage exposure calculation for
derivative contracts and repo-style
transactions in a manner that is
intended to ensure that the
supplementary leverage ratio
appropriately reflects the economic
exposure of these activities.
Consistent with the 2013 revised
capital rule, total leverage exposure
would continue to include:
(i) The balance sheet carrying value of
a banking organization’s on-balance
sheet assets, less amounts deducted
from tier 1 capital under sections 22(a),
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22(c), and 22(d) of the 2013 revised
capital rule;
(ii) The potential future exposure
(PFE) for each derivative contract,
including for certain cleared
transactions, to which the banking
organization is a counterparty (or each
single-product netting set of such
transactions) determined in accordance
with the treatment of derivative
contracts under the standardized
approach for risk-weighted assets, and
as set forth in section 34 of the 2013
revised capital rule. However, for
purposes of determining total leverage
exposure, a banking organization would
not be permitted to reduce the PFE by
the amount of any collateral under
section 34(b) of the 2013 revised capital
rule; 5 and
(iii) 10 percent of the notional amount
of unconditionally cancellable
commitments made by the banking
organization.
Under the proposed rule, total
leverage exposure also would include:
• Adjustments to exposure amounts
associated with derivative contracts if
cash collateral received from, or posted
to, a counterparty for derivative
contracts does not meet specified
conditions;
• The effective notional principal
amount, subject to certain reductions, of
sold credit protection that is not offset
by purchased credit protection on the
same underlying reference exposure that
meets specified conditions;
• Adjustments to the on-balance sheet
asset amounts for repo-style transactions
(including securities lending, securities
borrowing, repurchase and reverse
repurchase transactions), including a
requirement to include in total leverage
exposure the gross value of receivables
associated with repo-style transactions
that do not meet specified conditions;
• A measure of counterparty credit
risk for repo-style transactions; and
• The notional amount of all other
off-balance sheet exposures (excluding
off-balance sheet exposures associated
with securities lending, securities
borrowing, reverse repurchase
transactions, and derivatives) multiplied
by the appropriate CCF under the
standardized approach for risk-weighted
assets, and as set forth in section 33 of
the 2013 revised capital rule. However,
for purposes of determining total
leverage exposure, the minimum CCF
that may be assigned to an off-balance
sheet exposure is 10 percent.
The proposed rule also would clarify
the calculation of total leverage
5 A banking organization may choose to adjust the
PFE for certain sold credit protection as described
in part II.b of this preamble.
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exposure for a clearing member banking
organization with regard to cleared
derivative contracts that are
intermediated on behalf of a clearing
member client with a central
counterparty (CCP) to ensure that the
clearing member banking organization
does not double count these exposures.
Finally, the proposed rule would
revise the calculation of the
supplementary leverage ratio to address
some of the comments received on the
eSLR standards proposal. Specifically,
under the proposed rule, a banking
organization would calculate tier 1
capital as of the last day of each
reporting quarter, consistent with the
calculation of tier 1 capital for purposes
of the generally applicable leverage ratio
requirement,6 and total leverage
exposure would be calculated as the
arithmetic mean of the total leverage
exposure calculated as of each day of
the reporting quarter.
a. Cash Variation Margin
Under the 2013 revised capital rule,
total leverage exposure includes a
banking organization’s on-balance sheet
assets, including the carrying value, if
any, of derivative contracts on the
banking organization’s balance sheet.
For purposes of determining the
carrying value of derivative contracts,
U.S. generally accepted accounting
principles (GAAP) provide a banking
organization the option to reduce any
positive mark-to-fair value of a
derivative contract by the amount of any
cash collateral received from the
counterparty, provided the relevant
GAAP criteria for offsetting are met (the
GAAP offset option).7 Similarly, under
the GAAP offset option, a banking
organization has the option to offset the
negative mark-to-fair value of a
derivative contract with a counterparty
by the amount of any cash collateral
posted to the counterparty. Essentially,
the GAAP offset option allows a banking
organization to treat cash collateral that
the banking organization receives or
posts as a form of pre-settlement of an
obligation between itself and its
counterparty to the derivative contract.
In addition, regardless of whether a
banking organization uses the GAAP
offset option to calculate the on-balance
sheet amount of derivatives contracts,
the banking organization includes the
amount of cash collateral received from
6 The generally applicable leverage ratio under
the 2013 revised capital rule is the ratio of a
banking organization’s tier 1 capital to its average
total consolidated assets as reported on the banking
organization’s regulatory report minus amounts
deducted from tier 1 capital.
7 See Accounting Standards Codification
paragraphs 815–10–45–1 through 7.
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the counterparty in its on-balance sheet
assets, and thus in its total leverage
exposure.
The proposed rule would specify the
conditions that a banking organization’s
cash collateral received from or posted
to a counterparty to a derivative contract
(cash variation margin) would be
required to satisfy in order for the cash
collateral to not be included in the
organization’s total leverage exposure.
The proposed conditions are generally
similar to the criteria for the GAAP
offset option, and therefore, to the
treatment under the 2013 revised capital
rule. However, if a banking organization
reduces the positive mark-to-fair value
of a derivative contract with a
counterparty as permitted under the
GAAP offset option, but the cash
collateral received does not meet the
specified conditions for cash variation
margin, the banking organization would
be required to include the positive
mark-to-fair value of the derivative
contract gross of any cash collateral in
its total leverage exposure. Similarly, if
a banking organization offsets the net
negative mark-to-fair value of derivative
contracts with a counterparty by the
amount of any cash collateral posted to
the counterparty, and does not include
that cash collateral posted to the
counterparty in its on-balance sheet
assets, as permitted under the GAAP
offset option, but the cash collateral
posted does not meet the specified
conditions for cash variation margin, the
banking organization would be required
to include such cash collateral in its
total leverage exposure.
The agencies believe that the regular
and timely exchange of cash variation
margin is an effective way of protecting
both counterparties from the effects of a
counterparty default. The proposed
criteria that must be satisfied for cash
variation margin to not be included in
total leverage exposure were developed
to ensure that such cash collateral is, in
substance, a form of pre-settlement
payment on a derivative contract. This
approach is consistent with the design
of the supplementary leverage ratio,
which generally does not permit
collateral to reduce exposures for
purposes of calculating total leverage
exposure.
Under the proposed rule, cash
variation margin that satisfies the
requirements described below may be
used to reduce only the current credit
exposure amount (i.e., the replacement
cost) of a derivative contract, described
in section 34(a)(i) of the 2013 revised
capital rule, and may not be used to
reduce the PFE. Accordingly, the
proposed rule would prohibit a banking
organization from using cash variation
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margin to reduce the net-to-gross ratio
(NGR) described in section
34(a)(2)(ii)(B) of the 2013 revised capital
rule. Specifically, in the calculation of
the NGR, cash variation margin may not
reduce the net current credit exposure
or the gross current credit exposure. In
addition, the current credit exposure
amount of all derivative contracts with
a counterparty would not be allowed to
be negative.
Under the proposed rule, if a banking
organization applies the GAAP offset
option to the cash collateral exchanged
between the banking organization and
its counterparty to a derivative contract,
the banking organization would be
required to reverse the effect of the
GAAP offset option for purposes of
determining total leverage exposure,
unless the cash collateral is cash
variation margin that satisfies all of the
following conditions:
(1) For derivative contracts that are
not cleared through a qualifying central
counterparty (QCCP), the cash collateral
received by the recipient counterparty is
not segregated;
(2) Variation margin is calculated and
transferred on a daily basis based on the
mark-to-fair value of the derivative
contract;
(3) The variation margin transferred
under the derivative contract or the
governing rules for a cleared transaction
is the full amount that is necessary to
fully extinguish the current credit
exposure amount to the counterparty of
the derivative contract, subject to the
threshold and minimum transfer
amounts applicable to the counterparty
under the terms of the derivative
contract or the governing rules for a
cleared transaction;
(4) The variation margin is in the form
of cash in the same currency as the
currency of settlement set forth in the
derivative contract, provided that, for
purposes of this paragraph, currency of
settlement means any currency for
settlement specified in the qualifying
master netting agreement,8 the credit
support annex to the qualifying master
netting agreement, or in the governing
rules for a cleared transaction; and
(5) The derivative contract and the
variation margin are governed by a
qualifying master netting agreement
between the legal entities that are the
counterparties to the derivative contract
or the governing rules for a cleared
transaction. The qualifying master
netting agreement or the governing rules
for a cleared transaction must explicitly
stipulate that the counterparties agree to
settle any payment obligations on a net
8 Qualifying master netting agreement is defined
in section 2 of the 2013 revised capital rule.
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basis, taking into account any variation
margin received or provided under the
contract if a credit event involving
either counterparty occurs.
Question 1: What are the benefits and
drawbacks of the proposed treatment of
cash variation margin for purposes of
calculating total leverage exposure?
Question 2: What differences, if any,
exist between the proposed criteria for
cash variation margin for purposes of
the supplementary leverage ratio and
the treatment of cash collateral under
GAAP? Commenters are encouraged to
provide quantitative information
regarding the magnitude of any such
differences. In addition, what are
commenters’ views on an alternative
approach for cash collateral transferred
in derivative transactions that would
use only the GAAP offset option for
purposes of taking into account cash
collateral in calculation of total leverage
exposure?
Question 3: What are the operational
implications of the proposed criteria for
cash variation margin, as well as the
proposed definition of the currency of
settlement? What other concerns, if any,
do commenters have with regard to
banking organizations’ ability to satisfy
the specified criteria for cash variation
margin in light of the requirements for
qualifying master netting agreements
and cleared transactions?
b. Credit Derivatives
Under the 2013 revised capital rule,
credit derivatives are treated in the same
manner as other derivative contracts for
purposes of determining total leverage
exposure. As such, a banking
organization would calculate the
exposure amount associated with a
credit derivative using the current
exposure methodology as described in
section 34 of the 2013 revised capital
rule. This methodology captures the
counterparty credit risk arising from the
creditworthiness of the counterparty,
but not the credit risk of the underlying
reference exposure.
A banking organization that provides
credit protection in the form of a credit
derivative agrees to assume the credit
risk of the reference exposure, similar to
providing a guarantee. As such, a
provider of credit protection on an
underlying reference exposure has a
credit exposure to the underlying
reference exposure, in addition to the
counterparty credit risk exposure
associated with the counterparty. For
this reason, the agencies believe that it
is appropriate to revise the measure of
exposure for sold credit protection in a
manner that is more consistent with the
treatment of guarantees. Sold credit
protection would include, but not be
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limited to, credit default swaps and total
return swaps that reference instruments
with credit risk (e.g., a bond). This
proposed change is consistent with the
2014 BCBS revisions.
Accordingly, in addition to the
exposure amount calculated for sold
credit protection under the current
exposure methodology, the proposed
rule would include in total leverage
exposure the effective notional principal
amount (that is, the apparent or stated
notional principal amount multiplied by
any multiplier in the derivative
contract) of sold credit protection,
subject to certain reductions described
below. The use of the effective notional
principal amount is designed to capture
the potential exposure of contracts that
are leveraged or otherwise enhanced by
the structure of the transaction. For
example, a credit default swap with a
stated notional amount of $50 that pays
the purchaser of protection twice the
difference between the par value of the
reference exposure and the value of the
reference exposure at default would
have an effective notional principal
amount equal to $100.
Under the proposed rule, a banking
organization would be permitted to
reduce the effective notional principal
amount of sold credit protection by any
reduction in the mark-to-fair value of
the sold credit protection if the
reduction is recognized in common
equity tier 1 capital.
A banking organization would be
permitted to further reduce the effective
notional principal amount of sold credit
protection by the effective notional
principal amount of a credit derivative
or similar instrument through which the
banking organization has purchased
credit protection from a third party
(purchased credit protection), provided
certain requirements are satisfied as
described below.
First, the purchased credit protection
would need to have a remaining
maturity that is equal to or greater than
the remaining maturity of the sold credit
protection.
Second, to reduce the effective
notional principal amount of sold credit
protection that references a single
reference exposure, the reference
exposure of the purchased credit
protection would need to refer to the
same legal entity and rank pari passu
with, or be junior to,9 the reference
exposure of the sold credit protection.
In addition, a banking organization
may reduce the effective notional
principal amount of sold credit
9 A credit event on the senior reference exposure
must result in a credit event on the junior reference
exposure.
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protection that references a single
reference exposure by a purchased
credit protection that references
multiple exposures if the purchased
credit protection is economically
equivalent to buying credit protection
separately on each of the individual
reference exposures of the sold credit
protection. For example, this would be
the case if a banking organization were
to purchase credit protection on an
entire securitization structure or on an
entire index that includes the reference
exposure of the sold credit protection.
However, if banking organization
purchases credit protection that
references multiple exposures, but the
purchased credit protection does not
cover all of the sold credit protection’s
reference exposures (that is, the
purchased credit protection covers only
a subset of the sold credit protection’s
reference exposures, as in the case of an
nth-to-default credit derivative or a
tranche of a securitization), the
proposed rule would not allow the
banking organization to reduce the
effective notional principal amount of
the sold credit protection that references
a single exposure.
To reduce the effective notional
principal amount of sold credit
protection that references multiple
exposures, the reference exposures of
the purchased credit protection would
need to refer to the same legal entities
and rank pari passu with the reference
exposures of the sold credit protection.
In addition, the level of seniority of the
purchased credit protection would need
to rank pari passu to the level of
seniority of the sold credit protection.
Therefore, offsetting would be
recognized only when all of the
reference exposures and the level of
subordination of protection sold and
protection purchased are identical. For
example, a banking organization may
reduce the effective notional principal
amount of the sold credit protection on
an index (e.g., the CDX), or a tranche of
an index, with purchased credit
protection on such index, or a tranche
of equal seniority of such index,
respectively.
When a banking organization reduces
the effective notional principal amount
of sold credit protection by (i) a
reduction in the mark-to-fair value of
the sold credit protection (through
common equity tier 1 capital) and (ii)
purchased credit protection as described
above, the banking organization must
reduce the effective notional principal
amount of purchased credit protection
by the amount of any increase in the
mark-to-fair value of the purchased
credit protection that is recognized in
common equity tier 1 capital. Further, if
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a banking organization purchases credit
protection through a total return swap
and records the net payments received
as net income but does not record
offsetting deterioration in the mark-tofair value of the sold credit protection
on the reference exposure (either
through reductions in fair value or by
additions to reserves) in common equity
tier 1 capital, the banking organization
would not be allowed to reduce the
effective notional principal amount of
the sold credit protection.
Under the proposed rule, because sold
credit protection is included in total
leverage exposure through the effective
notional principal amount, the current
credit exposure and the PFE, a banking
organization would be permitted to
adjust the PFE for sold credit protection
to avoid double-counting of the notional
amounts of these exposures. For
example, if the sold credit protection is
governed by a qualifying master netting
agreement, a banking organization may
adjust the PFE for sold credit protection
covered by the qualifying master netting
agreement. However, a banking
organization would be allowed to adjust
only the amount Agross of the PFE
calculation for sold credit derivatives
and would not be allowed to adjust the
NGR of the PFE calculation. Finally, a
banking organization that elects to
adjust the PFE for sold credit derivatives
would be required to do so consistently
over time.
Question 4: What are commenters’
views on incorporating the effective
notional principal amount of sold credit
protection in total leverage exposure
and on the proposed criteria for
determining the exposure amount of
such sold credit protection, including
the operational burden of the
calculation?
Question 5: What specific
modifications, if any, should the
agencies consider with respect to the
proposed measure of exposure for sold
credit protection?
Question 6: What are commenters’
views on the proposed optional
adjustment of the PFE calculation for
sold credit protection?
c. Repo-Style Transactions
Under the 2013 revised capital rule,
total leverage exposure includes the onbalance sheet carrying value of repostyle transactions, but not any related
off-balance sheet exposure for such
transactions. For the purpose of
determining the on-balance sheet
carrying value of a repo-style
transaction with a counterparty, GAAP
permits the offset of gross values of
receivables due from a counterparty
under reverse repurchase agreements by
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the amount of the payments due to the
counterparty (that is, amounts
recognized as payables to the same
counterparty under repurchase
agreements), provided the relevant
accounting criteria are met (GAAP offset
for repo-style transactions).10
Consistent with the approach in the
BCBS 2014 revisions, the proposed rule
would specify the criteria for when a
banking organization would be required
to reverse the GAAP offset for repo-style
transactions and include a measure of
counterparty credit risk for repo-style
transactions in the calculation of total
leverage exposure to better capture a
banking organization’s exposure to repostyle transaction counterparties. The
proposed rule would also clarify the
calculation of exposure for repo-style
transactions where a banking
organization acts as an agent.
Under the proposed rule, if a banking
organization sells securities under a
repo-style transaction and the
transaction is treated as a sale (rather
than a secured borrowing) for
accounting purposes, the banking
organization would be required to add
the value of such securities to total
leverage exposure for as long as the
repo-style arrangement is outstanding.
While the agencies believe that such
repo-style arrangements are not
common in the United States, the
agencies are proposing this treatment,
consistent with the BCBS 2014
revisions, to capture a banking
organization’s economic exposure, even
if an accounting sales treatment is
achieved, in cases when the banking
organization may have future
contractual obligations arising under the
repo-style arrangement.
Question 7: What are commenters’
views on the proposed treatment of
repo-style arrangements where an
accounting sales treatment is achieved?
Under the proposed rule, when a
banking organization acts as a principal
in a repo-style transaction, it generally
would include in total leverage
exposure the amount of any on-balance
sheet assets recognized for repo-style
transactions (that is, after applying the
GAAP offset for repo-style transactions).
However, if the criteria described below
are not satisfied, the banking
organization would be required to
replace the on-balance sheet assets for
those repo-style transactions with the
gross value of receivables associated
with those repo-style transactions in
calculating its total leverage exposure.
That is, if a banking organization enters
into repurchase and reverse repurchase
10 See Accounting Standards Codification
paragraph 210–20–45–11.
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24601
transactions with the same counterparty
and applies the GAAP offset for repostyle transactions but does not meet the
below criteria, the banking organization
would be required to replace the onbalance sheet assets of the reverse
repurchase transactions with the gross
value of receivables for those reverse
repurchase transactions.
Specifically, under the proposed rule,
the gross value of receivables associated
with the repo-style transactions would
be included in total leverage exposure
unless all of the following criteria are
met:
(A) The offsetting transactions have
the same explicit final settlement date
under their governing agreements;
(B) The right to offset the amount
owed to the counterparty with the
amount owed by the counterparty is
legally enforceable in the normal course
of business and in the event of
receivership, insolvency, liquidation, or
similar proceeding; and
(C) Under the governing agreements,
the counterparties intend to settle net,
settle simultaneously, or settle
according to a process that is the
functional equivalent of net settlement.
That is, the cash flows of the
transactions are equivalent, in effect, to
a single net amount on the settlement
date. To achieve this result, both
transactions must be settled through the
same settlement system and the
settlement arrangements must be
supported by cash or intraday credit
facilities intended to ensure that
settlement of both transactions will
occur by the end of the business day,
and the settlement of the underlying
securities does not interfere with the net
cash settlement.
The proposed criteria have been
developed by the BCBS to ensure that
banking organizations subject to
different accounting frameworks and
using different settlement mechanisms
measure the exposure of repo-style
transactions in a consistent manner. For
example, the third proposed criterion is
designed to ensure that the cash flows
between the counterparties to repo-style
transactions are equivalent, in effect, to
a single net amount on the settlement
date. This criterion would be met if the
counterparties use securities transfer
systems or central settlement systems,
supported by cash or intraday credit
facilities, that offset repo-style
transactions using gross amounts for
each counterparty, but require the
counterparties to transfer only a net
amount owed at the end of the business
day.
The agencies observe that, as
compared to a potentially more
encompassing measure of exposure that
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would include the gross values of
receivables in reverse repurchase
transactions, the proposed approach of
allowing a limited offsetting of such
assets gives some recognition to the
arrangements that banking organizations
have to limit their effective economic
exposure from these transactions. Based
on supervisory experience with current
industry practices, the agencies believe
that the proposed criteria for repo-style
transactions would result in repo-style
transaction amounts in total leverage
exposure that are somewhat greater than
the on-balance sheet amounts and, as a
result, would increase the regulatory
capital requirement for such
transactions. The agencies also
acknowledge that there may be some
costs to banking organizations
associated with developing information
systems to ensure that banking
organizations meet the proposed criteria
for repo-style transactions.
Question 8: What are the operational
implications of the proposed netting
criteria for repo-style transactions
compared to GAAP, and the magnitude
of the change in total leverage exposure
for these transactions compared to
GAAP?
Question 9: What are the potential
costs of developing the necessary
systems to offset amounts recognized as
receivables due from a counterparty
under reverse repurchase agreements?
In a security-for-security repo-style
transaction, rather than receiving cash
as collateral against securities loaned, a
banking organization receives securities
as collateral for the securities that it
lends. Under GAAP, the receiver of the
securities lent (a securities borrower)
does not include a security borrowed on
its balance sheet unless the securities
borrower sells the security or its lender
defaults under the terms of the
transaction.11 The security that a
securities borrower transfers to its
lender (a securities lender) as collateral
would remain on the securities
borrower’s balance sheet. Consistent
with GAAP, under the proposed rule, a
securities borrower would include the
security transferred to a securities
lender in total leverage exposure and
would not include the security
borrowed in total leverage exposure,
unless it sells the security or the lender
defaults.
From the securities lender’s
perspective, under GAAP, a security
received as collateral from a securities
borrower is included on the security
11 The accounting treatment of security-forsecurity transactions is in Accounting Standards
Codification 860–30, Secured Borrowing and
Collateral.
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lender’s balance sheet as an asset. The
securities lender also would continue to
include the security that it lent on its
balance sheet, if it is treated as a secured
borrowing. Under the proposed rule, in
a security-for-security repo-style
transaction, a securities lender would be
allowed to exclude the security received
as collateral from total leverage
exposure, unless and until the securities
lender sells or re-hypothecates the
security. If the securities lender sells or
re-hypothecates the security, the
securities lender would include the
amount of cash received or, in the case
of re-hypothecation, the value of the
security pledged as collateral in total
leverage exposure. This approach is
designed to ensure that a securities
lender does not include both a security
lent and a security received in total
leverage exposure, until the securities
lender sells or re-hypothecates the
security received, to achieve a
consistent treatment of security-forsecurity repo-style transactions under
different accounting frameworks.
Question 10: What are commenters’
views regarding the operational burden
of the proposed exclusion of securities
received in a security-for-security
transaction from total leverage
exposure?
Question 11: How quantitatively
different is the proposed treatment of
repo-style transactions in total leverage
exposure compared to the treatment
under GAAP?
The proposed rule also would include
a counterparty credit risk measure in
total leverage exposure to capture a
banking organization’s exposure to the
counterparty in repo-style transactions.
To determine the counterparty exposure
for a repo-style transaction, including a
transaction in which a banking
organization acts as an agent for a
customer and indemnifies the customer
against loss, the banking organization
would subtract the fair value of the
instruments, gold, and cash received
from a counterparty from the fair value
of any instruments, gold and cash lent
to the counterparty. If the resulting
amount is greater than zero, it would be
included in total leverage exposure. For
repo-style transactions that are not
subject to a qualifying master netting
agreement or that are not cleared
transactions, the counterparty exposure
measure must be calculated on a
transaction-by-transaction basis.
However, if a qualifying master netting
agreement is in place, or the transaction
is a cleared transaction, the banking
organization could net the total fair
value of instruments, gold, and cash lent
to a counterparty against the total fair
value of instruments, gold and cash
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received from the counterparty for those
transactions.
The agencies believe that the
proposed approach recognizes that any
positive, uncollateralized portion of a
repo-style transaction (or a netting set
thereof) is, in effect, an economic
exposure for a banking organization that
warrants inclusion in total leverage
exposure.
Question 12: What are commenters’
views on the proposed treatment of
counterparty credit risk for repo-style
transactions?
Finally, consistent with the BCBS
2014 revisions, where a banking
organization acts as agent for a repostyle transaction and provides a
guarantee (indemnity) to a customer
with regard to the performance of the
customer’s counterparty that is greater
than the difference between the fair
value of the security or cash lent and the
fair value of the security or cash
borrowed, the banking organization
must include the amount of the
guarantee that is greater than this
difference in its total leverage exposure.
The agencies believe that this treatment
recognizes that such indemnifications
are effectively full or partial guarantees
of the security or cash that is lent or
borrowed.
Question 13: What clarifications may
be warranted in any final rule with
regard to the proposed treatment for
agency repo-style transactions?
d. Credit Conversion Factors for OffBalance Sheet Exposures
Under the 2013 revised capital rule,
banking organizations must apply a 100
percent CCF to all off-balance sheet
items to calculate total leverage
exposure, except for unconditionally
cancellable commitments, which are
subject to a 10 percent CCF. The
proposed rule would revise this
treatment, consistent with the BCBS
2014 revisions. The proposed rule
would retain the 10 percent CCF for
unconditionally cancellable
commitments, but it would replace the
uniform 100 percent CCF for other offbalance sheet items with the CCFs
applicable under the standardized
approach for risk-weighted assets in
section 33 of the 2013 revised capital
rule.
For example, under the proposed rule,
a banking organization would apply a
20 percent CCF to a commitment with
an original maturity of one year or less
that is not unconditionally cancellable,
as provided by section 33 of the 2013
revised capital rule. However, for a
commitment that is unconditionally
cancellable, a banking organization
would apply a 10 percent CCF even
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though such commitment receives a
zero percent CCF under the 2013
revised capital rule.
The agencies weighed a number of
supervisory and prudential
considerations in proposing this
approach. The fixed 100 percent CCF in
the 2013 revised capital rule is a
conservative measure of economic
exposure that does not differentiate
across types of off-balance sheet
commitments. However, because a
uniform 100 percent CCF treats all offbalance sheet exposures identically to
on-balance sheet exposures, such an
approach likely overstates the relative
magnitude of the effective economic
exposure created by most off-balance
sheet exposures as compared to onbalance sheet exposures. The proposed
approach is designed to incorporate offbalance sheet exposures in total leverage
exposure without overstating the
effective exposure amounts for these
items.
In addition, to ensure that all
unfunded commitments are included in
a banking organization’s total leverage
exposure, unconditionally cancellable
commitments (such as credit card lines)
would continue to be subject to a CCF
of 10 percent, consistent with the 2013
revised capital rule, rather than the zero
percent specified in the standardized
approach for risk-weighted assets. The
agencies believe that the proposed
CCFs, which are also consistent with the
internationally agreed approach of
standardized CCFs, are appropriate for
measuring total leverage exposure.
Question 14: What are commenters’
views on the proposed CCFs for offbalance sheet items? What, if any,
modifications should be made to the
proposed CCFs for any specific offbalance sheet items?
e. Central Clearing of Derivative
Transactions
The 2013 revised capital rule
incorporates over-the-counter (OTC)
derivatives and cleared derivative
transactions in total leverage exposure
in a uniform manner. The agencies are
clarifying that the calculation of total
leverage exposure must include the PFE
for both non-cleared and certain cleared
derivative transactions.
The 2013 revised capital rule provides
that a banking organization must
include in total leverage exposure the
PFE for each derivative contract to
which the banking organization is a
counterparty (or each single-product
netting set of such transactions)
calculated in accordance with section
34 (OTC derivative contracts), but
without regard to any collateral used to
reduce risk-based capital requirements
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pursuant to section 34(b) of the 2013
revised capital rule. Although cleared
transactions are generally addressed in
section 35 of the 2013 revised capital
rule, section 35 refers to section 34 for
the purpose of determining the PFE of
cleared derivative transactions. Thus,
for the purpose of measuring total
leverage exposure, the PFE for each
derivative transaction to which a
banking organization is a counterparty,
including cleared derivative
transactions, should be determined
pursuant to section 34. The agencies are
proposing to revise the description of
total leverage exposure to make this
point more clear.
In addition, the agencies are clarifying
the treatment of a cleared transaction on
behalf of a clearing member client
(client-cleared transaction). There are
two models for client-cleared
transactions—the agency model, which
is common in the United States, and the
principal model. In the agency model, a
clearing member client enters into a
derivative transaction directly with the
CCP and the clearing member banking
organization provides a guarantee of its
clearing member client’s performance to
the CCP. If the clearing member client
defaults, the clearing member banking
organization must assume its clearing
member client’s obligations to the CCP
with respect to the transaction (the
guaranteed amount). The agencies are
clarifying that the clearing member
banking organization must include the
guaranteed amount in its total leverage
exposure.
In the principal model, the clearing
member banking organization serves as
an intermediary between the clearing
member client and the CCP. The
principal model client-cleared
transaction generally has two separate
components—the clearing member
client leg between the clearing member
client and the clearing member banking
organization, and the CCP leg between
the clearing member banking
organization and the CCP. The net effect
is that, in the absence of a default, the
clearing member banking organization is
an intermediary for the exchange of cash
flows between the clearing member
client and the CCP, who are the effective
counterparties to the transaction. If the
clearing member client defaults in the
principal model, the clearing member
banking organization must generally
continue to honor the clearing member
client’s contract with the CCP (that is,
the guaranteed amount). The agencies
are clarifying that the clearing member
banking organization must include the
guaranteed amount in its total leverage
exposure.
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In addition, in either model for clientcleared transactions, a banking
organization may or may not guarantee
the performance of the CCP to a clearing
member client. When the clearing
member banking organization does not
guarantee the performance of the CCP,
the clearing member banking
organization has no payment obligation
to the clearing member client in the
event of a CCP default. In these
circumstances, requiring the clearing
member banking organization to include
an exposure to the CCP in its total
leverage exposure generally would
result in an overstatement of total
leverage exposure. Therefore, under the
proposed rule, and consistent with the
BCBS 2014 revisions, a clearing member
banking organization would not be
required to include in its total leverage
exposure an exposure to the CCP for
client-cleared transactions if the
clearing member banking organization
does not guarantee the performance of
the CCP to the clearing member client.
However, if a clearing member banking
organization does guarantee the
performance of the CCP to the clearing
member client, then a clearing member
banking organization would be required
to include an exposure to the CCP for
the client-cleared transactions in its
total leverage exposure under the
proposed rule.
Question 15: What are commenters’
views on the proposed total leverage
exposure measurement of client-cleared
transactions entered into by a clearing
member banking organization? What
other additional clarifications, if any,
are necessary to clarify the exposure
amount for client-cleared transactions?
f. Daily Averaging
The 2013 revised capital rule defines
the supplementary leverage ratio as the
arithmetic mean of the ratio of tier 1
capital to total leverage exposure
calculated as of the last day of each
month in the reporting quarter. The
agencies are proposing to revise the
calculation of the supplementary
leverage ratio as described below.
Under the proposed rule, the
numerator of the supplementary
leverage ratio, tier 1 capital, would be
calculated as of the last day of each
reporting quarter. This approach is
consistent with the calculation of the
numerator of the generally applicable
leverage ratio and would ensure that
banking organizations use the same tier
1 calculation for all of their leverage
ratio calculations as well as their tier 1
capital ratio. However, total leverage
exposure would be defined as the
arithmetic mean of the total leverage
exposure calculated for each day of the
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and banking organizations subject to the
eSLR standards.
Question 19: How does the
commenters’ estimate of the potential
regulatory capital impact under the
proposed rule, compared to the
regulatory capital impact under the
eSLR standards final rule and the 2013
revised capital rule, differ from the
agencies’ impact estimate of the
proposed rule?
Question 20: Do the proposed changes
to the definition of total leverage
exposure warrant any changes to the
calibration of the minimum ratios, or
the well-capitalized or buffer levels of
the supplementary leverage ratio?
III. Estimated Capital Impact
Quantitatively, compared to the 2013
revised capital rule, the most important
changes in total leverage exposure in the
proposed rule are (i) the proposed use
of standardized CCFs for certain offbalance sheet activities, which should
lead to a reduction in total leverage
exposure and (ii) the proposed
treatment of sold credit derivatives,
which should lead to an increase in
total leverage exposure. The actual total
leverage exposure under the proposed
rule would be especially sensitive to the
volume of sold credit derivatives
activities and whether those activities
are hedged in a manner recognized
under the proposal. Other regulatory
changes, including the implementation
of sections 619 and 716 of the DoddFrank Wall Street Reform and Consumer
Protection Act,12 also may reduce the
volume of credit derivatives generally,
in addition to increasing the extent to
which credit derivatives are hedged.
Supervisory estimates suggest that the
proposed changes to the definition of
total leverage exposure would result in
an approximately 5.5 percent aggregate
increase in total leverage exposure
compared to the definition of total
leverage exposure in the 2013 revised
capital rule for all banking organizations
subject to the revised definition.13 This
is an average figure and could vary
materially from institution to
institution. Additionally, these
estimates are especially sensitive to the
volume of credit derivatives activities
and whether those activities are hedged.
For some banking organizations, the
proposed total leverage exposure may
increase by less than the amount
estimated above, and in some cases may
result in a decrease in total leverage
exposure.
For the eight bank holding companies
subject to the eSLR standards,
supervisory estimates suggest that the
proposed changes to the definition of
total leverage exposure would result in
an approximately 8.5 percent aggregate
increase in total leverage exposure
compared to the definition of total
leverage exposure in the 2013 revised
capital rule. In order to avoid being
subject to limitations on capital
distributions and discretionary bonus
payments, these institutions would need
to raise in the aggregate over $46 billion
in tier 1 capital to exceed a 5 percent
supplementary leverage ratio under the
proposed definition of total leverage
exposure, over and above the amount
they would need to raise if the
definition of total leverage exposure in
the 2013 revised capital rule remained
unchanged.
The agencies are seeking comment on
the regulatory capital impact of the
proposed changes to total leverage
exposure on advanced approaches
banking organizations subject to the
supplementary leverage ratio standard
12 The Dodd-Frank Wall Street Reform and
Consumer Protection Act, Public Law 111–203, 124
Stat. 136. Section 619 prohibits banking entities
from engaging in proprietary trading and having
ownership interests in or sponsoring hedge funds
or private equity funds. 12 U.S.C. 1851. Section 716
restricts the ability of insured depository
institutions to engage in swaps. 12 U.S.C. 8305.
13 The estimates were generated by using
December 2013 CCAR data, December Y–9C data,
and June 2013 Quantitative Impact Study data.
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reporting quarter. In other words,
banking organizations would use the
average of the daily calculations
throughout the quarter of their total
leverage exposure without applying any
deductions. After calculating quarterend tier 1 capital, banking organizations
would subtract from the measure of total
leverage exposure the applicable
deductions from the previous quarter,
for purposes of calculating the quarterend supplementary leverage ratio.
Some commenters on the eSLR
standards proposal stated that using an
average of three month-end balances to
calculate total leverage exposure could
lead to an artificial and temporary
increase of the supplementary leverage
ratio at the end of the month. These
commenters argued that certain banking
organizations, such as custody banks,
can experience sudden substantial
deposit inflows at the end of reporting
periods or during times of financial
stress, potentially causing a temporary
increase of balance sheet assets. The
proposed rule is designed to address
this concern regarding sudden deposit
inflows and result in measuring total
leverage exposure more consistently
over time.
Question 16: What are commenters’
views on the operational burden
associated with the daily averaging of
off-balance sheet exposures, including
the PFE of derivatives, and do the
benefits of such a calculation outweigh
the costs?
Question 17: What are commenters’
views on the operational burden and
integrity of an approach where daily
averaging is required for on-balance
sheet assets only? Under such an
approach, banking organizations would
use the daily average of on-balance
sheet exposures and the quarter-end
calculation of off-balance sheet
exposures when computing total
leverage exposure.
Question 18: Are there any alternative
methods of calculating total leverage
exposure that would be appropriate for
the supplementary leverage ratio?
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IV. Disclosures
The agencies have long supported
meaningful public disclosure by
banking organizations about their
regulatory capital with a goal of
improving market discipline and
disclosing information in a comparable
and consistent manner. The agencies’
regulatory reports already incorporate
reporting of the supplementary leverage
ratio under the 2013 rule, effective
January 1, 2015. Consistent with the
BCBS 2014 revisions, the agencies are
proposing to apply additional disclosure
requirements for the calculation of the
supplementary leverage ratio to top-tier
advanced approaches banking
organizations. The agencies believe that
the proposed disclosures would
enhance the transparency and
consistency of reporting requirements
for the supplementary leverage ratio by
all internationally active banking
organizations.
Specifically, under the proposed rule,
banking organizations would complete
two parts of a supplementary leverage
ratio disclosure table. Part 1 is designed
to summarize the differences between
the total consolidated accounting assets
reported on a banking organization’s
published financial statements and
regulatory reports and the calculation of
total leverage exposure. Part 2 is
designed to collect information on the
components of total leverage exposure
in more detail, similar to the version of
FFIEC 101, Schedule A taking effect in
March 2014. The agencies plan to
reconsider the regulatory reporting
requirements of the supplementary
leverage ratio on FFIEC 101, Schedule
A, in the future, to reflect these
disclosures.
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TABLE 13 TO SECTION 173 OF THE 2013 REVISED CAPITAL RULE—SUPPLEMENTARY LEVERAGE RATIO
Dollar amounts in thousands
Tril
Bil
Mil
Part 2: Summary comparison of accounting assets and total leverage exposure
1
2
3
4
5
6
7
8
Total consolidated assets as reported in published financial statements.
Adjustment for investments in banking, financial, insurance or commercial entities that are
consolidated for accounting purposes but outside the scope of regulatory consolidation.
Adjustment for fiduciary assets recognized on balance sheet but excluded from total leverage exposure.
Adjustment for derivative exposures.
Adjustment for repo-style transactions.
Adjustment for off-balance sheet exposures (that is, conversion to credit equivalent amounts
of off-balance sheet exposures).
Other adjustments.
Total leverage exposure.
Part 2: Supplementary leverage ratio
On-balance sheet exposures
1
On-balance sheet assets (excluding on-balance sheet assets for repo-style transactions and
derivative exposures, but including cash collateral received in derivative transactions).
2 LESS: Amounts deducted from tier 1 capital.
3 Total on-balance sheet exposures (excluding on-balance sheet assets for repo-style transactions and derivative exposures, but including cash collateral received in derivative transactions) (sum of lines 1 and 2).
Derivative exposures
4
5
6
Replacement cost for derivative exposures (that is, net of cash variation margin).
Add-on amounts for potential future exposure (PFE) for derivatives exposures.
Gross-up for cash collateral posted if deducted from the on-balance sheet assets, except for
cash variation margin.
7 LESS: Deductions of receivable assets for cash variation margin posted in derivatives transactions, if included in on-balance sheet assets.
8 LESS: Exempted CCP leg of client-cleared transactions.
9 Effective notional principal amount of sold credit protection.
10 LESS: Effective notional principal amount offsets and PFE adjustments for sold credit protection.
11 Total derivative exposures (sum of lines 4 to 10).
Repo-style transactions
12 On-balance sheet assets for repo-style transactions, except include the gross value of receivables for reverse repurchase transactions. Exclude from this item the value of securities
received in a security-for-security repo-style transaction where the securities lender has not
sold or re-hypothecated the securities received. Include in this item the value of securities
sold under a repo-style arrangement.
13 LESS: Reduction of the gross value of receivables in reverse repurchase transactions by
cash payables in repurchase transactions under netting agreements.
14 Counterparty credit risk for all repo-style transactions.
15 Exposure for repo-style transactions where a banking organization acts as an agent.
16 Total exposures for repo-style transactions (sum of lines 12 to 15).
Other off-balance sheet exposures
17
18
19
Off-balance sheet exposures at gross notional amounts.
LESS: Adjustments for conversion to credit equivalent amounts.
Off-balance sheet exposures (sum of lines 17 and 18).
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Capital and total leverage exposure
20
21
Tier 1 capital.
Total leverage exposure (sum of lines 3, 11, 16 and 19).
Supplementary leverage ratio
22
Supplementary leverage ratio ..................................................................................................
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Consistent with the BCBS 2014
revisions, if a banking organization has
material differences between its total
consolidated assets as reported in
published financial statements and
regulatory reports and its reported onbalance sheet assets for purposes of
calculating the supplementary leverage
ratio, the banking organization would be
required to disclose and explain the
source of the material differences. In
addition, if a banking organization’s
supplementary leverage ratio changes
significantly from one reporting period
to another, the banking organization
would be required to explain the key
drivers of the material changes. Banking
organizations would be required to
disclose this information quarterly,
using the exact template proposed in
Table 13, and make the disclosures
publicly available.
Question 21: Would any of the
disclosure items in the table not be
relevant for U.S. banking organizations?
Question 22: What is the operational
burden of the proposed disclosure
requirements?
Question 23: What, if any,
modifications to the disclosure
requirements should the agencies
consider in order to reduce operational
burden, clarify disclosure items, or align
with other disclosure and reporting
requirements?
V. Regulatory Analyses
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A. Paperwork Reduction Act (PRA)
Certain provisions of the proposed
rule contain ‘‘collection of information’’
requirements within the meaning of the
Paperwork Reduction Act (PRA) of 1995
(44 U.S.C. 3501–3521). In accordance
with the requirements of the PRA, the
agencies may not conduct or sponsor,
and a 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 OCC and
FDIC will obtain OMB control numbers.
The OMB control number for the Board
is 7100–0313 and will be extended, with
revision. The information collection
requirements contained in this joint
notice of proposed rulemaking have
been submitted to OMB for review and
approval by the OCC and FDIC under
section 3507(d) of the PRA and section
1320.11 of OMB’s implementing
regulations (5 CFR part 1320). The
Board reviewed the proposed rule under
the authority delegated to the Board by
OMB.
The proposed rule contains
requirements subject to the PRA. The
disclosure requirements are found in
section ll.173. The disclosure
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requirements in section ll.172 are
accounted for in section ll.173. This
information collection requirement
would be consistent with the BCBS
2014 revisions to the Basel III leverage
ratio, as mentioned in the Abstract
below. The respondents are for-profit
financial institutions, not including
small businesses (see the agencies’
Regulatory Flexibility Analysis).
Comments are invited on:
(a) Whether the collections of
information are 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
collections, 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 collections 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 on aspects of
this proposed rule that may affect
reporting, recordkeeping, or disclosure
requirements and burden estimates
should be sent to the addresses listed in
the ADDRESSES section. A copy of the
comments may also be submitted to the
OMB desk officer for the agencies: By
mail to U.S. Office of Management and
Budget, 725 17th Street NW., #10235,
Washington, DC 20503; by facsimile to
202–395–6974; or by email to: oira_
submission@omb.eop.gov, Attention,
Federal Banking Agency Desk Officer.
Proposed Information Collection
Title of Information Collection:
Disclosure Requirements Associated
with Supplementary Leverage Ratio.
Frequency of Response: Quarterly.
Affected Public: Businesses or other
for-profit.
Respondents
OCC: National banks and federal
savings associations that are subject to
the OCC’s advanced approaches riskbased capital rules.
Board: State member banks, bank
holding companies, and savings and
loan holding companies that are subject
to the Board’ advanced approaches riskbased capital rules.
FDIC: Insured state nonmember banks
and state savings associations that are
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subject to the FDIC’s advanced
approaches risk-based capital rules.
Abstract: All banking organizations
that are subject to the agencies’
advanced approaches risk-based capital
rules (advanced approaches banking
organizations), as defined in the 2013
revised capital rule, are required to
disclose their supplementary leverage
ratios beginning January 1, 2015.
Advanced approaches banking
organizations must report their
supplementary leverage ratios on the
applicable regulatory reports. Under the
proposed rule, advanced approaches
banking organizations would disclose
two parts of a supplementary leverage
ratio table beginning January 1, 2015.
The proposed disclosure requirements
are consistent with the proposed
calculation of the supplementary
leverage ratio in the proposed rule and
with the 2014 BCBS revisions to the
Basel III leverage ratio. The agencies
believe that the proposed disclosures
would enhance the transparency and
consistency of reporting requirements
for the supplementary leverage ratio by
all internationally active organizations.
Disclosure Requirements
Section ll.173 states that advanced
approaches banking organizations that
have successfully completed parallel
run must make the disclosures
described in Tables 1 through 12. Under
the proposed rule, advanced approaches
banking organizations would be
required to make the disclosures
described in the proposed Table 13
beginning January 1, 2015, regardless of
the parallel run status. The agencies do
not anticipate an additional initial setup
burden for complying with the proposed
disclosure requirements because
advanced approaches banking
organizations are already subject to
reporting the supplementary leverage
ratio on the applicable regulatory
reports.
Estimated Burden per Response
Disclosure Burden
Section ll.173—5 hours.
OCC
Number of respondents: 14.
Total estimated annual burden: 280
hours.
Board
Number of respondents: 20.
Current estimated annual burden:
413,986 hours.
Proposed revisions only estimated
annual burden: 400 hours.
Total estimated annual burden:
414,386 hours.
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FDIC
Number of respondents: 8.
Total estimated annual burden: 160
hours.
B. Regulatory Flexibility Act Analysis
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OCC: The Regulatory Flexibility Act,
5 U.S.C. 601 et seq. (RFA), requires an
agency, in connection with a notice of
proposed rulemaking, to prepare an
Initial Regulatory Flexibility Act
analysis describing the impact of the
rule on small entities (defined by the
Small Business Administration for
purposes of the RFA to include banking
entities with total assets of $500 million
or less) or to certify that the rule will not
have a significant economic impact on
a substantial number of small entities.
Using the SBA’s size standards, as of
December 31, 2013, the OCC supervised
1,195 small entities.14
As described in the SUPPLEMENTARY
INFORMATION section of the preamble, the
proposed rule would apply only to
advanced approaches banking
organizations. Advanced approaches
banking organization is defined to
include a national bank or Federal
savings associations that has, or is a
subsidiary of a bank holding company
or savings and loan holding company
that has, total consolidated assets of
$250 billion or more, total consolidated
on-balance sheet foreign exposure of
$10 billion or more, or that has elected
to use the advanced approaches
framework. After considering the SBA’s
size standards and General Principals of
Affiliation to identify small entities, the
OCC determined that no small national
banks or Federal savings associations
are advanced approaches banking
organizations. Because the proposed
rule applies only to advanced
approaches banking organizations, it
does not impact any OCC-supervised
small entities. Therefore, the OCC
certifies that the proposed rule will not
have a significant economic impact on
a substantial number of OCC-supervised
small entities.
Board: The Board is providing an
initial regulatory flexibility analysis
14 The OCC calculated the number of small
entities using the SBA’s size thresholds for
commercial banks and savings institutions, and
trust companies, which are $500 million and $35.5
million, respectively. 78 FR 37409 (June 20, 2013).
Consistent with the General Principles of
Affiliation, 13 CFR 121.103(a), the OCC counted the
assets of affiliated financial institutions when
determining whether to classify a national bank or
Federal savings association as a small entity. The
OCC used December 31, 2013, to determine size
because a ‘‘financial institution’s assets are
determined by averaging the assets reported on its
four quarterly financial statements for the preceding
year.’’ See footnote 8 of the U.S. Small Business
Administration’s Table of Size Standards.
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with respect to this proposed rule. As
discussed above, this proposed rule
would amend the calculation of total
leverage exposure in sections 2 and 10
of the 2013 revised capital rule, and
amend sections 172 and 173 of the rule
by adding additional disclosure
requirements. These amendments
would implement changes in line with
the BCBS 2014 revisions.
Under regulations issued by the Small
Business Administration, a small entity
includes a depository institution, bank
holding company, or savings and loan
holding company with total assets of
$500 million or less (a small banking
organization).15 As of December 31,
2013, there were approximately 627
small state member banks. As of
December 31, 2013, there were
approximately 3,676 small bank holding
companies and approximately 268 small
savings and loan holding companies.16
The proposed rule would apply only
to advanced approaches banking
organizations, which, generally, are
banking organizations with total
consolidated assets of $250 billion or
more, that have total consolidated onbalance sheet foreign exposure of $10
billion or more, are a subsidiary of an
advanced approaches depository
institution, or that elect to use the
advanced approaches framework.
Currently, no small top-tier bank
holding company, top-tier savings and
loan holding company, or state member
bank is an advanced approaches
banking organization, so there would be
no additional projected compliance
requirements imposed on small bank
holding companies, savings and loan
holding companies, or state member
banks. The Board expects that any small
bank holding companies, savings and
loan holding companies, or state
member banks that would be covered by
this proposed rule would rely on its
parent banking organization for
compliance and would not bear
additional costs.
The Board is aware of no other
Federal rules that duplicate, overlap, or
conflict with the proposed rule. The
Board believes that the proposed rule
will not have a significant economic
impact on small banking organizations
supervised by the Board and therefore
believes that there are no significant
15 See 13 CFR 121.201. Effective July 22, 2013, the
Small Business Administration revised the size
standards for banking organizations to $500 million
in assets from $175 million in assets. 78 FR 37409
(June 20, 2013).
16 Under the prior Small Business Administration
threshold of $175 million in assets, as of March 31,
2013 the Board supervised approximately 369 small
state member banks. As of December 31, 2013, there
were approximately 2,259 small bank holding
companies.
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alternatives to the proposed rule that
would reduce the economic impact on
small banking organizations supervised
by the Board.
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.
FDIC: The RFA requires an agency to
provide an IRFA with a proposed rule
or to certify 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 banking entities with total
assets of $500 million or less).17
As described above in this preamble,
the proposed rule would amend the
definition of total leverage exposure in
section 2 of the 2013 revised capital
rule, the methodology for determining
total leverage exposure under section 10
of the 2013 revised capital rule, and add
an additional disclosure requirement in
sections 172 and 173 of the 2013 revised
capital rule. All of these changes would
apply only to advanced approaches
banking organizations. Generally, the
advanced approaches framework
applies to banking organizations that
have consolidated total assets equal to
$250 billion or more; have consolidated
total on-balance sheet foreign exposure
equal to $10 billion or more; are a
subsidiary of a depository institution
that uses the advanced approaches
framework; or elects to use the
advanced approaches framework.
As of December 31, 2013, based on a
$500 million threshold, 1 (out of 3,394)
small state nonmember banks and no
(out of 303) small state savings
associations were under the advanced
approaches framework. Therefore, the
FDIC does not believe that the proposed
rule will result in a significant economic
impact on a substantial number of small
entities under its supervisory
jurisdiction.
The FDIC certifies that the proposed
rule would not have a significant
economic impact on a substantial
number of small FDIC-supervised
institutions.
C. OCC Unfunded Mandates Reform Act
of 1995 Determination
Section 202 of the Unfunded
Mandates Reform Act of 1995, Public
Law 104–4 (Unfunded Mandates Reform
Act) provides that an agency that is
subject to the Unfunded Mandates Act
17 Effective July 22, 2013, the SBA revised the size
standards for banking organizations to $500 million
in assets from $175 million in assets. 78 FR 37409
(June 20, 2013).
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must prepare a budgetary impact
statement before promulgating a rule
that includes a Federal mandate that
may result in expenditure by State,
local, and tribal governments, in the
aggregate, or by the private sector, of
$100 million (adjusted for inflation) or
more in any one year. The current
inflation-adjusted expenditure threshold
is $141 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. The OCC has
determined this proposed rule is likely
to result in the expenditure by the
private sector of $141 million or more.
The OCC has prepared a budgetary
impact analysis and identified and
considered alternative approaches.
When the proposed rule is published in
the Federal Register, the full text of the
OCC’s analyses will available at: http://
www.regulations.gov, Docket ID: OCC–
2014–0008.
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D. Plain Language
Section 722 of the Gramm-LeachBliley 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. For example:
• Have the agencies organized the
material to suit your needs? If not, how
could they present the proposed rule
more clearly?
• Are the requirements in the
proposed rule clearly stated? If not, how
could the proposed rule be more clearly
stated?
• Do the regulations contain technical
language or jargon that is not clear? If
so, which language requires
clarification?
• Would a different format (grouping
and order of sections, use of headings,
paragraphing) make the regulation
easier to understand? If so, what
changes would achieve that?
• Is this section format adequate? If
not, which of the sections should be
changed and how?
• What other changes can the
agencies incorporate to make the
regulation easier to understand?
List of Subjects
12 CFR Part 3
Administrative practice and
procedure, Capital, National banks,
Reporting and recordkeeping
requirements, Risk.
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12 CFR Part 217
Administrative practice and
procedure, Banks, Banking, Capital,
Federal Reserve System, Holding
companies, Reporting and
recordkeeping requirements, Securities.
12 CFR Part 324
Administrative practice and
procedure, Banks, banking, Capital
Adequacy, Reporting and recordkeeping
requirements, Savings associations,
State non-member banks.
DEPARTMENT OF THE TREASURY
Office of the Comptroller of the
Currency
12 CFR Chapter I
Authority and Issuance
For the reasons set forth in the
preamble and under the authority of 12
U.S.C. 93a, 1462, 1462a, 1463, 1464,
3907, 3909, 1831o, 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:
PART 3—CAPITAL ADEQUACY
STANDARDS
1. The authority citation for part 3
continues to read as follows:
■
Authority: 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. In § 3.2, revise the definition of
‘‘total leverage exposure’’ to read as
follows:
■
§ 3.2
Definitions.
*
*
*
*
*
Total leverage exposure is defined in
§ 3.10(c)(4)(ii).
*
*
*
*
*
■ 3. Revise § 3.10(c)(4) to read as
follows:
§ 3.10.
Minimum capital requirements.
*
*
*
*
*
(c) * * *
(4) Supplementary leverage ratio. (i)
An advanced approaches national
bank’s or Federal savings association’s
supplementary leverage ratio is the ratio
of its tier 1 capital calculated as of the
last day of each reporting quarter to total
leverage exposure calculated as the
simple arithmetic mean of the total
leverage exposure calculated as of each
day of the reporting quarter, using the
applicable deductions under § 3.22(a),
(c), and (d) as of the last day of the
previous reporting quarter.
(ii) For purposes of this part, total
leverage exposure means the sum of the
items described as follows in paragraphs
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(c)(4)(ii)(A) through (c)(4)(ii)(H) of this
section, as adjusted by any applicable
requirement for clearing member
national banks and Federal savings
associations described in paragraph
(c)(4)(ii)(I):
(A) The balance sheet carrying value
of all of the national bank or Federal
savings association’s on-balance sheet
assets, plus the value of securities sold
under a repo-style arrangement that are
not included on-balance sheet, less
amounts deducted from tier 1 capital
under § 3.22(a), (c), and (d), and less the
value of securities received in securityfor-security repo-style transactions,
where the national bank or Federal
savings association acts as a securities
lender and includes the securities
received in its on-balance sheet assets
but has not sold or re-hypothecated the
securities received;
(B) The PFE for each derivative
contract (including cleared transactions
except as provided in paragraph
(c)(4)(ii)(I) of this section) to which the
national bank or Federal savings
association is a counterparty (or each
single-product netting set of such
transactions) as determined under
§ 3.34, but without regard to § 3.34(b). A
national bank or Federal savings
association may choose to adjust the
PFE for all credit derivatives or other
similar instruments through which it
provides credit protection, as included
in paragraph (c)(4)(ii)(D) of this section,
when calculating the PFE under § 3.34,
but without regard to § 3.34(b), provided
that it does not adjust the net-to-gross
ratio (NGR). A national bank or Federal
savings association that makes such
election must do so consistently over
time for the calculation of the PFE for
all credit derivative contracts or similar
instruments through which it provides
credit protection;
(C) The amount of cash collateral that
is received from a counterparty to a
derivative contract and that has offset
the mark-to-fair value of the derivative
asset, or cash collateral that is posted to
a counterparty to a derivative contract
and that has reduced the national bank
or Federal savings association’s onbalance sheet assets, except if such cash
collateral is all or part of variation
margin that satisfies the following
requirements in paragraphs
(c)(4)(ii)(C)(1) through (c)(4)(ii)(C)(5) of
this section. Cash variation margin that
satisfies the requirements in paragraphs
(c)(4)(ii)(C)(1) through (c)(4)(ii)(C)(5) of
this section may only be used to reduce
the current credit exposure of the
derivative contract, calculated as
described in § 3.34(a), and not the PFE.
In the calculation of the NGR described
in § 3.34(a)(2)(ii)(B), cash variation
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margin that satisfies the requirements in
paragraphs (c)(4)(ii)(C)(1) through (5) of
this section may not reduce the net
current credit exposure or the gross
current credit exposure.
(1) For derivative contracts that are
not cleared through a QCCP, the cash
collateral received by the recipient
counterparty is not segregated;
(2) Variation margin is calculated and
transferred on a daily basis based on the
mark-to-fair value of the derivative
contract;
(3) The variation margin transferred
under the derivative contract or the
governing rules for a cleared transaction
is the full amount that is necessary to
fully extinguish the net current credit
exposure to the counterparty of the
derivative contracts, subject to the
threshold and minimum transfer
amounts applicable to the counterparty
under the terms of the derivative
contract or the governing rules for a
cleared transaction;
(4) The variation margin is in the form
of cash in the same currency as the
currency of settlement set forth in the
derivative contract, provided that for the
purposes of this paragraph, currency of
settlement means any currency for
settlement specified in the governing
qualifying master netting agreement, the
credit support annex to the qualifying
master netting agreement, or in the
governing rules for a cleared
transaction; and
(5) The derivative contract and the
variation margin are governed by a
qualifying master netting agreement
between the legal entities that are the
counterparties to the derivative contract
or by the governing rules for a cleared
transaction. The qualifying master
netting agreement or the governing rules
for a cleared transaction must explicitly
stipulate that the counterparties agree to
settle any payment obligations on a net
basis, taking into account any variation
margin received or provided under the
contract if a credit event involving
either counterparty occurs;
(D) The effective notional principal
amount (that is, the apparent or stated
notional principal amount multiplied by
any multiplier in the derivative
contract) of a credit derivative, or other
similar instrument, through which the
national bank or Federal savings
association provides credit protection,
provided that:
(1) The national bank or Federal
savings association may reduce the
effective notional principal amount of
the credit derivative by the amount of
any reduction in the mark-to-fair value
of the credit derivative if the reduction
is recognized in common equity tier 1
capital;
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(2) The national bank or Federal
savings association may reduce the
effective notional principal amount of
the credit derivative by the effective
notional principal amount of a
purchased credit derivative or other
similar instrument, provided that the
remaining maturity of the purchased
credit derivative is equal to or greater
than the remaining maturity of the
credit derivative through which the
national bank or Federal savings
association provides credit protection
and that:
(i) With respect to a credit derivative
that references a single exposure, the
reference exposure of the purchased
credit derivative is to the same legal
entity and ranks pari passu with, or is
junior to, the reference exposure of the
credit derivative through which the
national bank or Federal savings
association provides credit protection;
or
(ii) With respect to a credit derivative
that references multiple exposures, such
as securitization exposures, the
reference exposures of the purchased
credit derivative are to the same legal
entities and rank pari passu with the
reference exposures of the credit
derivative through which the national
bank or Federal savings association
provides credit protection, and the level
of seniority of the purchased credit
derivative ranks pari passu to the level
of seniority of the credit derivative
through which the national bank or
Federal savings association provides
credit protection.
(iii) Where a national bank or Federal
savings association has reduced the
effective notional amount of a credit
derivative through which the national
bank or Federal savings association
provides credit protection in accordance
with paragraph (c)(4)(ii)(D)(1) of this
section, the national bank or Federal
savings association must also reduce the
effective notional principal amount of a
purchased credit derivative, used to
offset the credit derivative through
which the national bank or Federal
savings association provides credit
protection, by the amount of any
increase in the mark-to-fair value of the
purchased credit derivative that is
recognized in common equity tier 1
capital; and
(iv) Where the national bank or
Federal savings association purchases
credit protection through a total return
swap and records the net payments
received on a credit derivative through
which the national bank or Federal
savings association provides credit
protection in net income, but does not
record offsetting deterioration in the
mark-to-fair value of the credit
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24609
derivative through which the national
bank or Federal savings association
provides credit protection in net income
(either through reductions in fair value
or by additions to reserves), the national
bank or Federal savings association may
not use the purchased credit protection
to offset the effective notional principal
amount of the credit derivative through
which the national bank or Federal
savings association provides credit
protection.
(E) Where a national bank or Federal
savings association acting as a principal
has more than one repo-style transaction
with the same counterparty and has
applied the GAAP offset for repo-style
transactions, and the criteria in
paragraphs (c)(4)(ii)(E)(1) through (3) of
this section are not satisfied, the gross
value of receivables associated with the
repo-style transactions less any onbalance sheet receivables amount
associated with these repo-style
transactions included under paragraph
(c)(4)(ii)(A) of this section.
(1) The offsetting transactions have
the same explicit final settlement date
under their governing agreements;
(2) The right to offset the amount
owed to the counterparty with the
amount owed by the counterparty is
legally enforceable in the normal course
of business and in the event of
receivership, insolvency, liquidation, or
similar proceeding; and
(3) Under the governing agreements,
the counterparties intend to settle net,
settle simultaneously, or settle
according to a process that is the
functional equivalent of net settlement.
That is, the cash flows of the
transactions are equivalent, in effect, to
a single net amount on the settlement
date. To achieve this result, both
transactions must be settled through the
same settlement system and the
settlement arrangements must be
supported by cash or intraday credit
facilities intended to ensure that
settlement of both transactions will
occur by the end of the business day,
and the settlement of the underlying
securities does not interfere with the net
cash settlement.
(F) The counterparty credit risk of a
repo-style transaction, including where
the national bank or Federal savings
association acts as an agent for a repostyle transaction, calculated as follows:
(1) If the transaction is not subject to
a qualifying master netting agreement,
the counterparty credit risk (E*) for
transactions with a counterparty must
be calculated on a transaction by
transaction basis, such that each
transaction i is treated as its own netting
set, in accordance with the following
formula, where Ei is the fair value of the
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instruments, gold, or cash that the
national bank or Federal savings
association has lent, sold subject to
repurchase, or provided as collateral to
the counterparty, and Ci is the fair value
of the instruments, gold, or cash that the
national bank or Federal savings
association has borrowed, purchased
subject to resale, or received as
collateral from the counterparty:
Ei* = max {0, [Ei ¥ Ci]}; and
(2) If the transaction is subject to a
qualifying master netting agreement, the
counterparty credit risk (E*) must be
calculated as the greater of zero and the
total fair value of the instruments, gold,
or cash that the national bank or Federal
savings association has lent, sold subject
to repurchase or provided as collateral
to a counterparty for all transactions
included in the qualifying master
netting agreement (èEi), less the total
fair value of the instruments, gold, or
cash that the national bank or Federal
savings association borrowed,
purchased subject to resale or received
as collateral from the counterparty for
those transactions (èCi), in accordance
with the following formula:
E* = max {0, [èEi ¥ èCi]}
(G) If a national bank or Federal
savings association acting as an agent
for a repo-style transaction provides a
guarantee to a customer of the security
or cash its customer has lent or
borrowed with respect to the
performance of the customer’s
counterparty and the guarantee is not
limited to the difference between the
fair value of the security or cash its
customer has lent and the fair value of
the collateral the borrower has
provided, the amount of the guarantee
that is greater than the difference
between the fair value of the security or
cash its customer has lent and the value
of the collateral the borrower has
provided.
(H) The credit equivalent amount of
all off-balance sheet exposures of the
national bank or Federal savings
association, excluding repo-style
transactions and derivatives,
determined using the applicable credit
conversation factor under § 3.33(b),
provided, however, that the minimum
credit conversion factor that may be
assigned to an off-balance sheet
exposure under this paragraph is 10
percent.
(I) Requirements for a national bank
or Federal savings association that is a
clearing member:
(1) A clearing member national bank
or Federal savings association that
guarantees the performance of a clearing
member client with respect to a cleared
transaction must treat its exposure to
the clearing member client as a
derivative contract for purposes of
determining its total leverage exposure.
(2) A clearing member national bank
or Federal savings association that
guarantees the performance of a CCP
with respect to a transaction cleared on
behalf of a clearing member client must
treat its exposure to the CCP as a
derivative contract for purposes of
determining its total leverage exposure.
A clearing member national bank or
Federal savings association that does
not guarantee the performance of a CCP
with respect to a transaction cleared on
behalf of a clearing member client may
exclude its exposure to the CCP for
purposes of determining its total
leverage exposure.
*
*
*
*
*
■ 4. Section 3.172 is amended by adding
paragraph (d) to read as follows:
§ 3.172
Disclosure requirements.
*
*
*
*
*
(d) Except as otherwise provided in
paragraph (b) of this section, an
advanced approaches national bank or
Federal savings association must
publicly disclose each quarter its
supplementary leverage ratio and its
components as calculated under subpart
B of this part in compliance with
paragraph (c) of this section; provided,
however, the disclosures required under
this paragraph are required without
regard to whether the national bank or
Federal savings association has
completed the parallel run process and
has received notification from the OCC
pursuant to § 3.121(d).
■ 5. Section 3.173 is amended by:
■ a. Revising the introductory text of
paragraph (a); and
■ b. Adding paragraph (c) and Table 13
to § 3.173.
The revision and additions are set
forth below.
§ 3.173 Disclosures by certain advanced
approaches national banks and Federal
savings associations.
(a) Except as provided in § 3.172(b), a
national bank or Federal savings
association described in § 3.172(b) must
make the disclosures described in
Tables 1 through 13 to § 3.173. The
national bank or Federal savings
association must make the disclosures
required under Tables 1 through 12
publicly available for each of the last
three years (that is, twelve quarters) or
such shorter period beginning on
January 1, 2014. The national bank or
Federal savings association must make
the disclosures required under Table 13
publicly available beginning on January
1, 2015.
*
*
*
*
*
(c) Except as provided in § 3.172(b), a
national bank or Federal savings
association described in § 3.172(d) must
make the disclosure described in Table
13 to § 3.173; provided, however, the
disclosures required under this
paragraph are required without regard to
whether the national bank or Federal
savings association has completed the
parallel run process and has received
notification from the OCC pursuant to
§ 3.121(d). The national bank or Federal
savings association must make these
disclosures publicly available beginning
on January 1, 2015.
TABLE 13 TO § 3.173
Dollar amounts in thousands
Tril
Bil
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Part 1: Summary comparison of accounting assets and total leverage exposure
1
2
3
4
5
6
7
Total consolidated assets as reported in published financial statements.
Adjustment for investments in banking, financial, insurance or commercial entities that are
consolidated for accounting purposes but outside the scope of regulatory consolidation.
Adjustment for fiduciary assets recognized on balance sheet but excluded from total leverage exposure.
Adjustment for derivative exposures.
Adjustment for repo-style transactions.
Adjustment for off-balance sheet exposures (that is, conversion to credit equivalent amounts
of off-balance sheet exposures).
Other adjustments.
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TABLE 13 TO § 3.173—Continued
Dollar amounts in thousands
Tril
8
Bil
Mil
Thou
Total leverage exposure.
Part 2: Supplementary leverage ratio
On-balance sheet exposures
1
On-balance sheet assets (excluding on-balance sheet assets for repo-style transactions and
derivative exposures, but including cash collateral received in derivative transactions).
2 LESS: Amounts deducted from tier 1 capital.
3 Total on-balance sheet exposures (excluding on-balance sheet assets for repo-style transactions and derivative exposures, but including cash collateral received in derivative transactions) (sum of lines 1 and 2).
Derivative exposures
4
5
6
Replacement cost for derivative exposures (that is, net of cash variation margin).
Add-on amounts for potential future exposure (PFE) for derivatives exposures.
Gross-up for cash collateral posted if deducted from the on-balance sheet assets, except for
cash variation margin.
7 LESS: Deductions of receivable assets for cash variation margin posted in derivatives transactions, if included in on-balance sheet assets.
8 LESS: Exempted CCP leg of client-cleared transactions.
9 Effective notional principal amount of sold credit protection.
10 LESS: Effective notional principal amount offsets and PFE adjustments for sold credit protection.
11 Total derivative exposures (sum of lines 4 to 10).
Repo-style transactions
12 On-balance sheet assets for repo-style transactions, except include the gross value of receivables for reverse repurchase transactions. Exclude from this item the value of securities
received in a security-for-security repo-style transaction where the securities lender has not
sold or re-hypothecated the securities received. Include in this item the value of securities
sold under a repo-style arrangement.
13 LESS: Reduction of the gross value of receivables in reverse repurchase transactions by
cash payables in repurchase transactions under netting agreements.
14 Counterparty credit risk for all repo-style transactions.
15 Exposure for repo-style transactions where a banking organization acts as an agent.
16 Total exposures for repo-style transactions (sum of lines 12 to 15).
Other off-balance sheet exposures
17
18
19
Off-balance sheet exposures at gross notional amounts.
LESS: Adjustments for conversion to credit equivalent amounts.
Off-balance sheet exposures (sum of lines 17 and 18).
Capital and total leverage exposure
20
21
Tier 1 capital.
Total leverage exposure (sum of lines 3, 11, 16 and 19).
Supplementary leverage ratio
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22
Supplementary leverage ratio ..................................................................................................
Board of Governors of the Federal
Reserve System
PART 217—CAPITAL ADEQUACY OF
BOARD-RELATED INSTITUTIONS
12 CFR Chapter II
■
6. The authority citation for part 217
continues to read as follows:
Authority and Issuance
For the reasons set forth in the
preamble, part 217 of chapter II of title
12 of the Code of Federal Regulations is
proposed to be amended as follows:
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Authority: 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, 5368, 5371.
7. In § 217.2, revise the definition of
‘‘total leverage exposure’’ to read as
follows:
■
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(in percent)
§ 217.2
Definitions.
*
*
*
*
*
Total leverage exposure is defined in
§ 217.10(c)(4)(ii).
*
*
*
*
*
■ 8. Revise § 217.10(c)(4) to read as
follows:
§ 217.10
*
Minimum capital requirements.
*
*
(c) * * *
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*
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(4) Supplementary leverage ratio. (i)
An advanced approaches Boardregulated institution’s supplementary
leverage ratio is the ratio of its tier 1
capital calculated as of the last day of
each reporting quarter to total leverage
exposure calculated as the arithmetic
mean of the total leverage exposure
calculated as of each day of the
reporting quarter, using the applicable
deductions under § 217.22(a), (c), and
(d) as of the last day of the previous
reporting quarter.
(ii) For purposes of this part, total
leverage exposure means the sum of the
items described as follows in paragraphs
(c)(4)(ii)(A) through (H) of this section,
as adjusted by any applicable
requirement for a clearing member
Board-regulated institution described in
paragraph (c)(4)(ii)(I):
(A) The balance sheet carrying value
of all of the Board-regulated institution’s
on-balance sheet assets, plus the value
of securities sold under a repo-style
arrangement that are not included on
balance sheet, less amounts deducted
from tier 1 capital under § 217.22 (a),
(c), and (d), and less the value of
securities received in security-forsecurity repo-style transactions, where
the Board-regulated institution acts as a
securities lender and includes the
securities received in its on-balance
sheet assets but has not sold or rehypothecated the securities received;
(B) The PFE for each derivative
contract (including cleared transactions
except as provided in paragraph
(c)(4)(ii)(I) of this section) to which the
Board-regulated institution is a
counterparty (or each single-product
netting set of such transactions) as
determined under § 217.34, but without
regard to § 217.34(b). A Board-regulated
institution may choose to adjust the PFE
for all credit derivatives or other similar
instruments through which it provides
credit protection, as included in
paragraph (c)(4)(ii)(D) of this section,
when calculating the PFE under
§ 217.34, but without regard to
§ 217.34(b), provided that it does not
adjust the net-to-gross ratio (NGR). A
Board-regulated institution that makes
such election must do so consistently
over time for the calculation of the PFE
for all credit derivative contracts or
similar instruments through which it
provides credit protection;
(C) The amount of cash collateral that
is received from a counterparty to a
derivative contract and that has offset
the mark-to-fair value of the derivative
asset, or cash collateral that is posted to
a counterparty to a derivative contract
and that has reduced the banking
organization’s on-balance sheet assets,
except if such cash collateral is all or
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part of variation margin that satisfies the
following requirements in paragraphs
(c)(4)(ii)(C)(1) through (5) of this section.
Cash variation margin that satisfies the
requirements in paragraphs
(c)(4)(ii)(C)(1) through (5) of this section
may only be used to reduce the current
credit exposure of the derivative
contract, calculated as described in
§ 217.34(a), and not the PFE. In the
calculation of the NGR described in
§ 217.34(a)(2)(ii)(B), cash variation
margin that satisfies the requirements in
paragraphs (c)(4)(ii)(C)(1) through (5) of
this section may not reduce the net
current credit exposure or the gross
current credit exposure.
(1) For derivative contracts that are
not cleared through a QCCP, the cash
collateral received by the recipient
counterparty is not segregated;
(2) Variation margin is calculated and
transferred on a daily basis based on the
mark-to-fair value of the derivative
contract;
(3) The variation margin transferred
under the derivative contract or the
governing rules for a cleared transaction
is the full amount that is necessary to
fully extinguish the net current credit
exposure to the counterparty of the
derivative contract, subject to the
threshold and minimum transfer
amounts applicable to the counterparty
under the terms of the derivative
contract or the governing rules for a
cleared transaction;
(4) The variation margin is in the form
of cash in the same currency as the
currency of settlement set forth in the
derivative contract. For purposes of this
paragraph, currency of settlement means
any currency for settlement specified in
the governing qualifying master netting
agreement, the credit support annex to
the qualifying master netting agreement,
or in the governing rules for a cleared
transaction; and
(5) The derivative contract and the
variation margin are governed by a
qualifying master netting agreement
between the legal entities that are the
counterparties to the derivative contract
or by the governing rules for a cleared
transaction. The qualifying master
netting agreement or the governing rules
for a cleared transaction must explicitly
stipulate that the counterparties agree to
settle any payment obligations on a net
basis, taking into account any variation
margin received or provided under the
contract if a credit event involving
either counterparty occurs;
(D) The effective notional principal
amount (that is, the apparent or stated
notional principal amount multiplied by
any multiplier in the derivative
contract) of a credit derivative, or other
similar instrument, through which the
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Board-regulated institution provides
credit protection, provided that:
(1) The Board-regulated institution
may reduce the effective notional
principal amount of the credit
derivative by the amount of any
reduction in the mark-to-fair value of
the credit derivative if the reduction is
recognized in common equity tier 1
capital;
(2) The Board-regulated institution
may reduce the effective notional
principal amount of the credit
derivative by the effective notional
principal amount of a purchased credit
derivative, or other similar instrument,
provided that the remaining maturity of
the purchased credit derivative is equal
to or greater than the remaining
maturity of the credit derivative through
which the Board-regulated institution
provides credit protection and that:
(i) With respect to a credit derivative
that references a single exposure, the
reference exposure of the purchased
credit derivative is to the same legal
entity and ranks pari passu with, or is
junior to, the reference exposure of the
credit derivative through which the
Board-regulated institution provides
credit protection; or
(ii) With respect to a credit derivative
that references multiple exposures, such
as securitization exposures, the
reference exposures of the purchased
credit derivative are to the same legal
entities and rank pari passu with the
reference exposures of the credit
derivative through which the Boardregulated institution provides credit
protection, and the level of seniority of
the purchased credit derivative ranks
pari passu to the level of seniority of the
credit derivative under which the
Board-regulated institution provides
credit protection.
(iii) Where a Board-regulated
institution has reduced the effective
notional principal amount of a credit
derivative through which the Boardregulated institution provides credit
protection in accordance with paragraph
(c)(4)(ii)(D)(1) of this section, the Boardregulated institution must also reduce
the effective notional principal amount
of a purchased credit derivative, used to
offset the credit derivative through
which the Board-regulated institution
provides credit protection, by the
amount of any increase in the mark-tofair value of the purchased credit
derivative that is recognized in common
equity tier 1 capital; and
(iv) Where the Board-regulated
institution purchases credit protection
through a total return swap and records
the net payments received on a credit
derivative through which the Boardregulated institution provides credit
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protection in net income, but does not
record offsetting deterioration in the
mark-to-fair value of the credit
derivative through which the Boardregulated institution provides credit
protection in net income (either through
reductions in fair value or by additions
to reserves), the Board-regulated
institution may not use the purchased
credit protection to offset the effective
notional principal amount of the credit
derivative through which the Boardregulated institution provides credit
protection.
(E) Where a Board-regulated
institution acting as a principal has
more than one repo-style transaction
with the same counterparty and has
applied the GAAP offset for repo-style
transactions, and the criteria in
paragraphs (c)(4)(ii)(E)(1) through
(c)(4)(ii)(E)(3) of this section are not
satisfied, the gross value of receivables
associated with the repo-style
transactions less any on-balance sheet
receivables amount associated with
these repo-style transactions included
under paragraph (c)(4)(ii)(A) of this
section.
(1) The offsetting transactions have
the same explicit final settlement date
under their governing agreements;
(2) The right to offset the amount
owed to the counterparty with the
amount owed by the counterparty is
legally enforceable in the normal course
of business and in the event of
receivership, insolvency, liquidation, or
similar proceeding; and
(3) Under the governing agreements,
the counterparties intend to settle net,
settle simultaneously, or settle
according to a process that is the
functional equivalent of net settlement.
That is, the cash flows of the
transactions are equivalent, in effect, to
a single net amount on the settlement
date. To achieve this result, both
transactions must be settled through the
same settlement system and the
settlement arrangements must be
supported by cash or intraday credit
facilities intended to ensure that
settlement of both transactions will
occur by the end of the business day,
and the settlement of the underlying
securities does not interfere with the net
cash settlement.
(F) The counterparty credit risk of a
repo-style transaction, including where
the Board-regulated institution acts as
an agent for a repo-style transaction,
calculated as follows:
(1) If the transaction is not subject to
a qualifying master netting agreement,
the counterparty credit risk (E*) for
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transactions with a counterparty must
be calculated on a transaction by
transaction basis, such that each
transaction i is treated as its own netting
set, in accordance with the following
formula, where Ei is the fair value of the
instruments, gold, or cash that the
Board-regulated institution has lent,
sold subject to repurchase, or provided
as collateral to the counterparty, and Ci
is the fair value of the instruments, gold,
or cash that the Board-regulated
institution has borrowed, purchased
subject to resale, or received as
collateral from the counterparty:
Ei* = max {0, [Ei ¥ Ci]}; and
(2) If the transaction is subject to a
qualifying master netting agreement, the
counterparty credit risk (E*) must be
calculated as the greater of zero and the
total fair value of the instruments, gold,
or cash that the Board-regulated
institution has lent, sold subject to
repurchase or provided as collateral to
a counterparty for all transactions
included in the qualifying master
netting agreement (èEi), less the total
fair value of the instruments, gold, or
cash that the Board-regulated institution
borrowed, purchased subject to resale or
received as collateral from the
counterparty for those transactions
(èCi), in accordance with the following
formula:
E* = max {0, [èEi ¥ èCi]}
(G) If a Board-regulated institution
acting as an agent for a repo-style
transaction provides a guarantee to a
customer of the security or cash its
customer has lent or borrowed with
respect to the performance of the
customer’s counterparty and the
guarantee is not limited to the difference
between the fair value of the security or
cash its customer has lent and the fair
value of the collateral the borrower has
provided, the amount of the guarantee
that is greater than the difference
between the fair value of the security or
cash its customer has lent and the value
of the collateral the borrower has
provided.
(H) The credit equivalent amount of
all off-balance sheet exposures of a
Board-regulated institution, excluding
repo-style transactions and derivatives,
determined using the applicable credit
conversation factor under § 217.33(b),
provided, however, that the minimum
credit conversion factor that may be
assigned to an off-balance sheet
exposure under this paragraph is 10
percent.
(I) Requirements for a Board-regulated
institution that is a clearing member:
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(1) A clearing member Boardregulated institution that guarantees the
performance of a clearing member client
with respect to a cleared transaction
must treat its exposure to the clearing
member client as a derivative contract
for purposes of determining its total
leverage exposure.
(2) A clearing member Boardregulated institution that guarantees the
performance of a CCP with respect to a
transaction cleared on behalf of a
clearing member client must treat its
exposure to the CCP as a derivative
contract for purposes of determining its
total leverage exposure. A clearing
member Board-regulated institution that
does not guarantee the performance of a
CCP with respect to a transaction
cleared on behalf of a clearing member
client may exclude its exposure to the
CCP for purposes of determining its
total leverage exposure.
*
*
*
*
*
■ 9. Amend § 217.172 by adding a new
paragraph (d) to read as follows:
§ 217.172
Disclosure requirements.
*
*
*
*
*
(d) Except as otherwise provided in
§ 217.2 (b), an advanced approaches
Board-regulated institution must
publicly disclose each quarter its
supplementary leverage ratio and its
components as calculated under subpart
B of this part in compliance with
paragraph (c) of this section; provided,
however, the disclosures required under
this paragraph are required without
regard to whether the Board-regulated
institution has completed the parallel
run process and has received
notification from the Board pursuant to
§ 217.121(d).
■ 10. Amend § 217.173 by adding a new
paragraph (c) and Table 13 to § 217.173
to read as follows:
§ 217.173 Disclosures by certain advanced
approaches Board-regulated institutions.
*
*
*
*
*
(c) Except as otherwise provided in
§ 217.172(b), a Board-regulated
institution described in § 217.172(d)
must make the disclosures described in
Table 13 to § 217.173; provided,
however, the disclosures required under
this paragraph are required without
regard to whether the Board-regulated
institution has completed the parallel
run process and has received
notification from the Board pursuant to
§ 217.121(d). The Board-regulated
institution must make these disclosures
publicly available beginning on January
1, 2015.
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TABLE 13 TO § 217.173—SUPPLEMENTARY LEVERAGE RATIO
Dollar amounts in thousands
Tril
Bil
Mil
Part 1: Summary comparison of accounting assets and total leverage exposure
1
2
3
4
5
6
7
8
Total consolidated assets as reported in published financial statements.
Adjustment for investments in banking, financial, insurance or commercial entities that are
consolidated for accounting purposes but outside the scope of regulatory consolidation.
Adjustment for fiduciary assets recognized on balance sheet but excluded from total leverage exposure.
Adjustment for derivative exposures.
Adjustment for repo-style transactions.
Adjustment for off-balance sheet exposures (that is, conversion to credit equivalent amounts
of off-balance sheet exposures).
Other adjustments.
Total leverage exposure.
Part 2: Supplementary leverage ratio
On-balance sheet exposures
1
On-balance sheet assets (excluding on-balance sheet assets for repo-style transactions and
derivative exposures, but including cash collateral received in derivative transactions).
2 LESS: Amounts deducted from tier 1 capital.
3 Total on-balance sheet exposures (excluding on-balance sheet assets for repo-style transactions and derivative exposures, but including cash collateral received in derivative transactions) (sum of lines 1 and 2).
Derivative exposures
4
5
6
Replacement cost for derivative exposures (that is, net of cash variation margin).
Add-on amounts for potential future exposure (PFE) for derivatives exposures.
Gross-up for cash collateral posted if deducted from the on-balance sheet assets, except for
cash variation margin.
7 LESS: Deductions of receivable assets for cash variation margin posted in derivatives transactions, if included in on-balance sheet assets.
8 LESS: Exempted CCP leg of client-cleared transactions.
9 Effective notional principal amount of sold credit protection.
10 LESS: Effective notional principal amount offsets and PFE adjustments for sold credit protection.
11 Total derivative exposures (sum of lines 4 to 10).
Repo-style transactions
12 On-balance sheet assets for repo-style transactions, except include the gross value of receivables for reverse repurchase transactions. Exclude from this item the value of securities
received in a security-for-security repo-style transaction where the securities lender has not
sold or re-hypothecated the securities received. Include in this item the value of securities
sold under a repo-style arrangement.
13 LESS: Reduction of the gross value of receivables in reverse repurchase transactions by
cash payables in repurchase transactions under netting agreements.
14 Counterparty credit risk for all repo-style transactions.
15 Exposure for repo-style transactions where a banking organization acts as an agent.
16 Total exposures for repo-style transactions (sum of lines 12 to 15).
Other off-balance sheet exposures
17
18
19
Off-balance sheet exposures at gross notional amounts.
LESS: Adjustments for conversion to credit equivalent amounts.
Off-balance sheet exposures (sum of lines 17 and 18).
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Capital and total leverage exposure
20
21
Tier 1 capital.
Total leverage exposure (sum of lines 3, 11, 16 and 19).
Supplementary leverage ratio
22
Supplementary leverage ratio ..................................................................................................
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Federal Register / Vol. 79, No. 84 / Thursday, May 1, 2014 / Proposed Rules
Federal Deposit Insurance Corporation
12 CFR Chapter III
Authority and Issuance
For the reasons stated in the
preamble, the Federal Deposit Insurance
Corporation proposes to amend part 324
of chapter III of Title 12, Code of Federal
Regulations as follows:
PART 324—CAPITAL ADEQUACY
11. The authority citation for part 324
continues to read as follows:
■
Authority: 12 U.S.C. 1815(a), 1815(b),
1816, 1818(a), 1818(b), 1818(c), 1818(t),
1819(Tenth), 1828(c), 1828(d), 1828(i),
1828(n), 1828(o), 1831o, 1835, 3907, 3909,
4808; 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).
12. In § 324.2, revise the definition of
‘‘total leverage exposure’’ to read as
follows:
■
§ 324.2
Definitions.
*
*
*
*
*
Total leverage exposure is defined in
§ 324.10(c)(4)(ii).
*
*
*
*
*
■ 13. Revise § 324.10(c)(4) to read as
follows:
§ 324.10
Minimum capital requirements.
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*
*
*
*
*
(c) * * *
(4) Supplementary leverage ratio. (i)
An advanced approaches FDICsupervised institution’s supplementary
leverage ratio is the ratio of its tier 1
capital calculated as of the last day of
each reporting quarter to total leverage
exposure calculated as the arithmetic
mean of the total leverage exposure
calculated as of each day of the
reporting quarter, using the applicable
deductions under § 324.22(a), (c), and
(d) as of the last day of the previous
reporting quarter.
(ii) For purposes of this part, total
leverage exposure means the sum of the
items described as follows in paragraphs
(c)(4)(ii)(A) through (H) of this section,
as adjusted by any applicable
requirement for clearing member FDICsupervised institutions described in
paragraph (c)(4)(ii)(I):
(A) The balance sheet carrying value
of all of the FDIC-supervised
institution’s on-balance sheet assets,
plus the value of securities sold under
a repo-style arrangement that are not
included on-balance sheet, less amounts
deducted from tier 1 capital under
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§ 324.22(a), (c), and (d), and less the
value of securities received in securityfor-security repo-style transactions,
where the FDIC-supervised institution
acts as a securities lender and includes
the securities received in its on-balance
sheet assets but has not sold or rehypothecated the securities received;
(B) The PFE for each derivative
contract (including cleared transactions
except as provided in paragraph
(c)(4)(ii)(I) of this section) to which the
FDIC-supervised institution is a
counterparty (or each single-product
netting set of such transactions) as
determined under § 324.34, but without
regard to § 324.34(b). An FDICsupervised institution may choose to
adjust the PFE for all credit derivatives
or other similar instruments through
which it provides credit protection, as
included in paragraph (c)(4)(ii)(D) of
this section, when calculating the PFE
under § 324.34, but without regard to
§ 324.34(b), provided that it does not
adjust the net-to-gross ratio (NGR). An
FDIC-supervised institution that makes
such election must do so consistently
over time for the calculation of the PFE
for all credit derivative contracts or
similar instruments through which it
provides credit protection;
(C) The amount of cash collateral that
is received from a counterparty to a
derivative contract and that has offset
the mark-to-fair value of the derivative
asset, or cash collateral that is posted to
a counterparty to a derivative contract
and that has reduced the FDICsupervised institution’s on-balance
sheet assets, except if such cash
collateral is all or part of variation
margin that satisfies the following
requirements in paragraphs
(c)(4)(ii)(C)(1) through (5) of this section.
Cash variation margin that satisfies the
requirements in paragraphs
(c)(4)(ii)(C)(1) through (5) of this section
may only be used to reduce the current
credit exposure of the derivative
contract, calculated as described in
section 324.34(a)(2)(ii)(B), and not the
PFE. In the calculation of the NGR
described in § 324.34(a)(2)(ii)(B), cash
variation margin that satisfies the
requirements in paragraphs
(a)(2)(ii)(C)(1) through (5) of this section
may not reduce the net current credit
exposure or the gross current credit
exposure.
(1) For derivative contracts that are
not cleared through a QCCP, the cash
collateral received by the recipient
counterparty is not segregated;
(2) Variation margin is calculated and
transferred on a daily basis based on the
mark-to-fair value of the derivative
contract;
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(3) The variation margin transferred
under the derivative contract or the
governing rules for a cleared transaction
is the full amount that is necessary to
fully extinguish the net current credit
exposure to the counterparty of the
derivative contracts, subject to the
threshold and minimum transfer
amounts applicable to the counterparty
under the terms of the derivative
contract or the governing rules for a
cleared transaction;
(4) The variation margin is in the form
of cash in the same currency as the
currency of settlement set forth in the
derivative contract, provided that for the
purposes of this paragraph, currency of
settlement means any currency for
settlement specified in the governing
qualifying master netting agreement and
the credit support annex to the
qualifying master netting agreement, or
in the governing rules for a cleared
transaction; and
(5) The derivative contract and the
variation margin are governed by a
qualifying master netting agreement
between the legal entities that are the
counterparties to the derivative contract
or by the governing rules for a cleared
transaction. The qualifying master
netting agreement or the governing rules
for a cleared transaction must explicitly
stipulate that the counterparties agree to
settle any payment obligations on a net
basis, taking into account any variation
margin received or provided under the
contract if a credit event involving
either counterparty occurs;
(D) The effective notional principal
amount (that is, the apparent or stated
notional principal amount multiplied by
any multiplier in the derivative
contract) of a credit derivative, or other
similar instrument, through which the
FDIC-supervised institution provides
credit protection, provided that:
(1) The FDIC-supervised institution
may reduce the effective notional
principal amount of the credit
derivative by the amount of any
reduction in the mark-to-fair value of
the credit derivative if the reduction is
recognized in common equity tier 1
capital;
(2) The FDIC-supervised institution
may reduce the effective notional
principal amount of the credit
derivative by the effective notional
principal amount of a purchased credit
derivative or other similar instrument,
provided that the remaining maturity of
the purchased credit derivative is equal
to or greater than the remaining
maturity of the credit derivative through
which the FDIC-supervised institution
provides credit protection and that:
(i) With respect to a credit derivative
that references a single exposure, the
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reference exposure of the purchased
credit derivative is to the same legal
entity and ranks pari passu with, or is
junior to, the reference exposure of the
credit derivative through which the
FDIC-supervised institution provides
credit protection; or
(ii) With respect to a credit derivative
that references multiple exposures, such
as securitization exposures, the
reference exposures of the purchased
credit derivative are to the same legal
entities and rank pari passu with the
reference exposures of the credit
derivative through which the FDICsupervised institution provides credit
protection, and the level of seniority of
the purchased credit derivative ranks
pari passu to the level of seniority of the
credit derivative through which the
FDIC-supervised institution provides
credit protection.
(iii) Where an FDIC-supervised
institution has reduced the effective
notional amount of a credit derivative
through which the FDIC-supervised
institution provides credit protection in
accordance with paragraph
(c)(4)(ii)(D)(1) of this section, the FDICsupervised institution must also reduce
the effective notional principal amount
of a purchased credit derivative, used to
offset the credit derivative through
which the FDIC-supervised institution
provides credit protection, by the
amount of any increase in the mark-tofair value of the purchased credit
derivative that is recognized in common
equity tier 1 capital; and
(iv) Where the FDIC-supervised
institution purchases credit protection
through a total return swap and records
the net payments received on a credit
derivative through which the FDICsupervised institution provides credit
protection in net income, but does not
record offsetting deterioration in the
mark-to-fair value of the credit
derivative through which the FDICsupervised institution provides credit
protection in net income (either through
reductions in fair value or by additions
to reserves), the FDIC-supervised
institution may not use the purchased
credit protection to offset the effective
notional principal amount of the related
credit derivative through which the
FDIC-supervised institution provides
credit protection.
(E) Where an FDIC-supervised
institution acting as a principal has
more than one repo-style transaction
with the same counterparty and has
applied the GAAP offset for repo-style
transactions, and the criteria in
paragraphs (c)(4)(ii)(E)(1) through (3) of
this section are not satisfied, the gross
value of receivables associated with the
repo-style transactions less any on-
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balance sheet receivables amount
associated with these repo-style
transactions included under paragraph
(c)(4)(ii)(A) of this section.
(1) The offsetting transactions have
the same explicit final settlement date
under their governing agreements;
(2) The right to offset the amount
owed to the counterparty with the
amount owed by the counterparty is
legally enforceable in the normal course
of business and in the event of
receivership, insolvency, liquidation, or
similar proceeding; and
(3) Under the governing agreements,
the counterparties intend to settle net,
settle simultaneously, or settle
according to a process that is the
functional equivalent of net settlement.
That is, the cash flows of the
transactions are equivalent, in effect, to
a single net amount on the settlement
date. To achieve this result, both
transactions must be settled through the
same settlement system and the
settlement arrangements must be
supported by cash or intraday credit
facilities intended to ensure that
settlement of both transactions will
occur by the end of the business day,
and the settlement of the underlying
securities does not interfere with the net
cash settlement.
(F) The counterparty credit risk of a
repo-style transaction, including where
the FDIC-supervised institution acts as
an agent for a repo-style transaction,
calculated as follows:
(1) If the transaction is not subject to
a qualifying master netting agreement,
the counterparty credit risk (E*) for
transactions with a counterparty must
be calculated on a transaction by
transaction basis, such that each
transaction i is treated as its own netting
set, in accordance with the following
formula, where Ei is the fair value of the
instruments, gold, or cash that the FDICsupervised institution has lent, sold
subject to repurchase, or provided as
collateral to the counterparty, and Ci is
the fair value of the instruments, gold,
or cash that the FDIC-supervised
institution has borrowed, purchased
subject to resale, or received as
collateral from the counterparty:
Ei* = max {0, [Ei ¥ Ci]}; and
(2) If the transaction is subject to a
qualifying master netting agreement, the
counterparty credit risk (E*) must be
calculated as the greater of zero and the
total fair value of the instruments, gold,
or cash that the FDIC-supervised
institution has lent, sold subject to
repurchase or provided as collateral to
a counterparty for all transactions
included in the qualifying master
netting agreement (èEi), less the total
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fair value of the instruments, gold, or
cash that the FDIC-supervised
institution borrowed, purchased subject
to resale or received as collateral from
the counterparty for those transactions
(èCi), in accordance with the following
formula:
E* = max {0, [èEi ¥ èCi]}
(G) If an FDIC-supervised institution
acting as an agent for a repo-style
transaction provides a guarantee to a
customer of the security or cash its
customer has lent or borrowed with
respect to the performance of the
customer’s counterparty and the
guarantee is not limited to the difference
between the fair value of the security or
cash its customer has lent and the fair
value of the collateral the borrower has
provided, the amount of the guarantee
that is greater than the difference
between the fair value of the security or
cash its customer has lent and the value
of the collateral the borrower has
provided.
(H) The credit equivalent amount of
all off-balance sheet exposures of the
FDIC-supervised institution, excluding
repo-style transactions and derivatives,
determined using the applicable credit
conversation factor under § 324.33(b),
provided, however, that the minimum
credit conversion factor that may be
assigned to an off-balance sheet
exposure under this paragraph is 10
percent.
(I) Requirements for an FDICsupervised institution that is a clearing
member:
(1) A clearing member FDICsupervised institution that guarantees
the performance of a clearing member
client with respect to a cleared
transaction must treat its exposure to
the clearing member client as a
derivative contract for purposes of
determining its total leverage exposure.
(2) A clearing member FDICsupervised institution that guarantees
the performance of a CCP with respect
to a transaction cleared on behalf of a
clearing member client must treat its
exposure to the CCP as a derivative
contract for purposes of determining its
total leverage exposure. A clearing
member FDIC-supervised institution
that does not guarantee the performance
of a CCP with respect to a transaction
cleared on behalf of a clearing member
client may exclude its exposure to the
CCP for purposes of determining its
total leverage exposure.
■ 14. Section 324.172 is amended by
adding paragraph (d) to read as follows:
§ 324.172
Disclosure requirements.
*
*
*
*
*
(d) Except as otherwise provided in
paragraph (b) of this section, an
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advanced approaches FDIC-supervised
institution must publicly disclose each
quarter its supplementary leverage ratio
and its components as calculated under
subpart B of this part in compliance
with paragraph (c) of this section;
provided, however, the disclosures
required under this paragraph are
required without regard to whether the
FDIC-supervised institution has
completed the parallel run process and
has received notification from the FDIC
pursuant to § 324.121(d).
■ 15. Amend § 324.173 as follows:
■ a. Revise the introductory text of
paragraph (a); and
■ b. Add paragraph (c) and Table 13 to
§ 3.173.
The revision and additions are set
forth below.
§ 324.173 Disclosures by certain advanced
approaches FDIC-supervised institutions.
(a) Except as provided in § 324.172(b),
an FDIC-supervised institution
described in § 324.172(b) must make the
disclosures described in Tables 1
through 13 to § 324.173. The FDICsupervised institution must make the
disclosures required under Tables 1
through 12 publicly available for each of
the last three years (that is, twelve
quarters) or such shorter period
beginning on January 1, 2014. The FDICsupervised institution must make the
disclosures required under Table 13
publicly available beginning on January
1, 2015.
*
*
*
*
*
(c) Except as provided in § 324.172(b),
an FDIC-supervised institution
described in § 324.172(d) must make the
disclosures described in Table 13 to
§ 324.173; provided, however, the
disclosures required under this
paragraph are required without regard to
whether the FDIC-supervised institution
has completed the parallel run process
and has received notification from the
FDIC pursuant to § 324.121(d). The
FDIC-supervised institution must make
these disclosures publicly available
beginning on January 1, 2015.
TABLE 13 TO § 324.173 SUPPLEMENTARY LEVERAGE RATIO
Dollar amounts in thousands
Tril
Bil
Part 1: Summary comparison of accounting assets and total leverage exposure
1
2
3
4
5
6
7
8
Total consolidated assets as reported in published financial statements.
Adjustment for investments in banking, financial, insurance or commercial entities that are
consolidated for accounting purposes but outside the scope of regulatory consolidation.
Adjustment for fiduciary assets recognized on balance sheet but excluded from total leverage exposure.
Adjustment for derivative exposures.
Adjustment for repo-style transactions.
Adjustment for off-balance sheet exposures (that is, conversion to credit equivalent amounts
of off-balance sheet exposures).
Other adjustments.
Total leverage exposure.
Part 2: Supplementary leverage ratio
On-balance sheet exposures
1
On-balance sheet assets (excluding on-balance sheet assets for repo-style transactions and
derivative exposures, but including cash collateral received in derivative transactions).
2 LESS: Amounts deducted from tier 1 capital.
3 Total on-balance sheet exposures (excluding on-balance sheet assets for repo-style transactions and derivative exposures, but including cash collateral received in derivative transactions) (sum of lines 1 and 2).
Derivative exposures
Replacement cost for derivative exposures (that is, net of cash variation margin).
Add-on amounts for potential future exposure (PFE) for derivatives exposures.
Gross-up for cash collateral posted if deducted from the on-balance sheet assets, except for
cash variation margin.
7 LESS: Deductions of receivable assets for cash variation margin posted in derivatives transactions, if included in on-balance sheet assets.
8 LESS: Exempted CCP leg of client-cleared transactions.
9 Effective notional principal amount of sold credit protection.
10 LESS: Effective notional principal amount offsets and PFE adjustments for sold credit protection.
11 Total derivative exposures (sum of lines 4 to 10).
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4
5
6
Repo-style transactions
12 On-balance sheet assets for repo-style transactions, except include the gross value of receivables for reverse repurchase transactions. Exclude from this item the value of securities
received in a security-for-security repo-style transaction where the securities lender has not
sold or re-hypothecated the securities received. Include in this item the value of securities
sold under a repo-style arrangement.
13 LESS: Reduction of the gross value of receivables in reverse repurchase transactions by
cash payables in repurchase transactions under netting agreements.
14 Counterparty credit risk for all repo-style transactions.
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TABLE 13 TO § 324.173 SUPPLEMENTARY LEVERAGE RATIO—Continued
Dollar amounts in thousands
Tril
15
16
Bil
Mil
Thou
Exposure for repo-style transactions where a banking organization acts as an agent.
Total exposures for repo-style transactions (sum of lines 12 to 15).
Other off-balance sheet exposures
17
18
19
Off-balance sheet exposures at gross notional amounts.
LESS: Adjustments for conversion to credit equivalent amounts.
Off-balance sheet exposures (sum of lines 17 and 18).
Capital and total leverage exposure
20
21
Tier 1 capital.
Total leverage exposure (sum of lines 3, 11, 16 and 19).
Supplementary leverage ratio
22
Supplementary leverage ratio ..................................................................................................
Dated: April 8, 2014.
Thomas J. Curry,
Comptroller of the Currency.
By Order of the Board of Governors of the
Federal Reserve System, April 10, 2014.
Robert deV. Frierson,
Secretary of the Board.
Dated at Washington, DC, this 8th day of
April, 2014.
By order of the Board of Directors.
Federal Deposit Insurance Corporation.
Robert E. Feldman,
Executive Secretary.
DEPARTMENT OF TREASURY
[FR Doc. 2014–09357 Filed 4–30–14; 8:45 am]
RIN 7100 AE17
BILLING CODE P
Office of the Comptroller of the
Currency
12 CFR Part 3
[Docket ID OCC–2014–0012]
RIN 1557–AD83
FEDERAL RESERVE SYSTEM
12 CFR Part 217
[Docket No. R–1488; Regulation Q]
FEDERAL DEPOSIT INSURANCE
CORPORATION
12 CFR Part 324
RIN 3064–AE13
Regulatory Capital Rules: Advanced
Approaches Risk-Based Capital Rule,
Proposed Revisions to the Definition
of Eligible Guarantee
Office of the Comptroller of the
Currency, Treasury; the Board of
Governors of the Federal Reserve
System; and the Federal Deposit
Insurance Corporation.
ACTION: Joint notice of proposed
rulemaking.
AGENCY:
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 a notice of proposed
rulemaking (proposed rule) that would
revise the definition of eligible
guarantee as incorporated into the
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SUMMARY:
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(in percent)
agencies’ advanced approaches riskbased capital rule, adopted in the
agencies’ July 2013 regulatory capital
rule (2013 capital rule).
The agencies inadvertently limited
the recognition of guarantees of
wholesale exposures under the
advanced approaches risk-based capital
rule as incorporated into subpart E of
the 2013 capital rule (advanced
approaches). To address this matter, the
proposed rule would remove the
requirement that an eligible guarantee
be made by an eligible guarantor for
purposes of calculating the riskweighted assets of an exposure (other
than a securitization exposure) under
the advanced approaches. The proposed
change to the definition of eligible
guarantee would apply to all banks,
savings associations, bank holding
companies, and savings and loan
holding companies that are subject to
the advanced approaches.
DATES: Comments must be received no
later than June 13, 2014.
ADDRESSES: Comments should be
directed to:
OCC: Because paper mail in the
Washington, DC area and at the OCC is
subject to delay, commenters are
encouraged to submit comments by the
Federal eRulemaking Portal or email, if
possible. Please use the title ‘‘Regulatory
Capital Rules: Regulatory Capital,
Proposed Revisions to the Definition of
Eligible Guarantee’’ to facilitate the
organization and distribution of the
comments. You may submit comments
by any of the following methods:
• Federal eRulemaking Portal—
‘‘regulations.gov’’: Go to http://
www.regulations.gov. Enter ‘‘Docket ID
OCC–2014–0012’’ in the Search Box and
click ‘‘Search’’. Results can be filtered
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