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Federal R eserve Bank OF DALLAS ROBERT D. M C T E E R , J R . PRESIDEN T AND CHIEF EX ECUTIVE O F F IC E R September 5, 1996 D ALLAS, TE XAS 75265-5906 Notice 96-84 TO: The Chief Executive Officer of each member bank and others concerned in the Eleventh Federal Reserve District SUBJECT Interagency Request for Public Comment on a Proposal to Amend the Risk-based Capital Guidelines DETAILS The Board of Governors of the Federal Reserve System, the Comptroller of the Currency, the Federal Deposit Insurance Corporation, and the Office of Thrift Supervision (collectively, the Agencies) have requested public comment on a proposal to amend the risk-based capital guidelines for banks and bank holding companies regarding the treatment of collateralized transactions. The proposal would make uniform the Agencies’ currently differing treat ments for transactions supported by qualifying collateral and would implement part of Section 303 of the Riegle Community Development and Regulatory Improvement Act of 1994. The proposal would also permit institutions to apply a zero-percent risk weight to portions of transactions that are collateralized in accordance with the provisions of the proposal. The Board must receive comments by October 15, 1996. Please address com ments to William W. Wiles, Secretary, Board of Governors of the Federal Reserve System, 20th Street and Constitution Avenue, N.W., Washington, D.C. 20551. All comments should refer to Docket No. R-0930. ATTACHMENT A copy of the Board’s notice as it appears on pages 42565-70, Vol. 61, No. 160, of the Federal Register dated August 16, 1996, is attached. For additional copies, bankers and others are encouraged to use one of the following toll-free num bers in contacting the Federal Reserve Bank of Dallas: Dallas Office (800) 333 -4460; El Paso Branch Intrastate (800) 592-1631, Interstate (800) 351-1012; Houston Branch Intrastate (800) 392-4162, Interstate (800) 221-0363; San A ntonio Branch Intrastate (800) 292-5810. This publication was digitized and made available by the Federal Reserve Bank of Dallas' Historical Library (FedHistory@dal.frb.org) MORE INFORMATION For more information, please contact Dorsey Davis at (214) 922-6051. For additional copies of this Bank’s notice, please contact the Public Affairs Departm ent at (214) 922-5254. Sincerely yours, 42565 Proposed Rules Federal Register Vol. 61, No. 160 Friday, August 16, 1996 DEPARTMENT OF THE TREASURY Office of the Comptroller of the Currency 12 CFR Part 3 [Docket No. 96-16] RIN 1557-AB14 FEDERAL RESERVE SYSTEM 12 CFR Parts 208 and 225 [Regulations H and Y; Docket No. R-0930] FEDERAL DEPOSIT INSURANCE CORPORATION 12 CFR Part 325 RIN 3064-AB78 DEPARTMENT OF THE TREASURY Office of Thrift Supervision 12 CFR Part 567 [Docket No. 96-68] RIN 1550-AA98 Risk-Based Capital Standards; Collateralized Transactions Office of the Comptroller of the Currency, Treasury; Board of Governors of the Federal Reserve System; Federal Deposit Insurance Corporation; and Office of Thrift Supervision, Treasury. ACTION: Joint notice of proposed rulemaking. AGENCIES: The Office of the Comptroller of the Currency (OCC), the Board of Governors of the Federal Reserve System (Board), the Federal Deposit Insurance Corporation (FDIC), and the Office of Thrift Supervision (OTS) (Agencies) are proposing to amend their respective risk-based capital standards to make uniform the Agencies’ treatments for transactions supported by qualifying collateral. The proposal w ould implem ent part of section 303 of the Riegle Community Development and Regulatory Improvement Act of 1994, w hich requires the Agencies to work jointly to make uniform their regulations and guidelines implementing common statutory or supervisory policies. The effect of the proposal would be to allow banks, bank SUMMARY: 42566 Federal Register / Vol. 61, No. 160 / Friday, August 16, 1996 / Proposed Rules holding companies, and savings associations (institutions) to hold less capital for certain transactions collateralized by cash or qualifying securities. DATES: Comments m ust be received on or before October 15,1996. ADDRESSES: Comments should be directed to: OCC: Comments may be subm itted to Docket No. 96-16, Communications Division, Third Floor, Office of the Comptroller of the Currency, 250 E Street, S.W., W ashington, D.C., 20219. Comments w ill be available for inspection and photocopying at that address. In addition, comments may be sent by facsimile transm ission to FAX number (202) 874-5274, or by electronic mail to REG.COMMENTS@OCC.TREAS.GOV. Board: Comments directed to the Board should refer to Docket No. R 0930 and may be m ailed to W illiam W. Wiles, Secretary, Board of Govemors of the Federal Reserve System, 20th Street and Constitution Avenue, N.W., Washington D.C., 20551. Comments may also be delivered to Room B-2222 of the Eccles Building between 8:45 £.m. and 5:15 p.m. weekdays, or the guard station in the Eccles Building courtyard on 20th Street, N.W. (between Constitution Avenue and C Street) at any time. Comments may be inspected in Room MP-500 of the M artin Building between 9 a.m. and 5 p.m. weekdays, except as provided in 12 CFR 261.8 of the Board’s rules regarding availability of information. FDIC: W ritten comments should be sent to Jerry L. Langley, Executive Secretary, Attention: Room F-402, Federal Deposit Insurance Corporation, 550 17th Street N.W., W ashington, D.C., 20429. Comments may be hand delivered to Room F-402, 1776 F Street N.W., W ashington, D.C., 20429 on business days between 8:30 a.m. and 5 p.m. (Fax num ber (202) 898-3838; Internet address: comments@fdic.gov). Comments w ill be available for inspection and photocopying in Room 7118, 550 17th Street, N.W., Washington, D.C., 20429, between 9 a.m. and 4:30 p.m. on business days. OTS: Send comments to Manager, Dissemination Branch, Records Management and Information Policy, Office of Thrift Supervision, 1700 G Street, N.W., Washington, D.C., 20552, Attention Docket No. 96—58. These submissions may be hand-delivered to 1700 G Street, N.W., from 9:00 a.m. to 5:00 p.m. on business days; they may be sent by facsimile transmission to FAX num ber (202) 906-7755. Comments will be available for inspection at 1700 G Street, N.W., from 9:00 a.m. until 4:00 p.m. on business days. FOR FURTHER INFORMATION CONTACT: OCC: Roger Tufts, Senior Economic Advisor (202/874-5070), Christina Benson, Capital Markets Specialist (202/ 874-5070), Office of the Chief National Bank Examiner, or Ronald Shimabukuro, Senior Attorney (202/ 874-5090), Legislative and Regulatory Activities Division, Office of the Comptroller of the Currency, 250 E Street, S.W., Washington, D.C., 20219. Board: Roger Cole, Deputy Associate Director (202/452-2618), Norah Barger, Manager (202/452-2402), Barbara Bouchard, Supervisory Financial Analyst (202/452-3072), Division of Banking Supervision and Regulation. For the hearing impaired only, Telecommunication Device for the Deaf (TDD), Dorothea Thompson (202/4523544), Board of Governors of the Federal Reserve System, 20th Street and Constitution Avenue, N.W., W ashington D.C., 20551. FDIC: For supervisory issues, Stephen G. Pfeifer, Examination Specialist, Accounting Section, Division of Supervision (202/898-8904); for legal issues, Gerald J. Gervino, Senior Attorney, Legal Division (202/8983723), Federal Deposit Insurance Corporation, 550 17th Street N.W., Washington, D.C., 20429. OTS: John F. Connolly, Senior Program Manager for Capital Policy, (202) 906-6465, Supervision Policy; or Deborah Dakin, Assistant Chief Counsel, (202) 906-6445, Regulations and Legislative Division, Office of the Chief Counsel, Office of Thrift Supervision, 1700 G Street, N.W., Washington, D.C., 20552. SUPPLEMENTARY INFORMATION: Section 303(a)(2) of the Riegle Community Development and Regulatory Improvement Act of 1994, Pub. L. 103— 325,108 Stat. 2160, 2215 (September 23, 1994), codified at 12 U.S.C. 4803, provides that the Agencies shall, consistent w ith the principles of safety and soundness, statutory law and policy, and the public interest, work jointly to make uniform all regulations and guidelines implem enting common statutory or supervisory policies. In this regard, the Agencies have been reviewing, on an interagency basis, their capital standards to identify areas where they have substantively different capital treatments for particular transactions. Since December 1994, the four Agencies have had three different rules for the capital treatment of transactions that are supported by qualifying collateral. These rules constitute one of the more substantive differences among the Agencies’ capital standards. The FDIC’s and OTS’s risk-based capital standards provide that the portion of a transaction collateralized by cash on deposit in the lending institution or by the market value of central government securities of the OECD-based group of countries 1 (OECD securities) may be assigned to the 20 percent risk category.2 The Board’s general rule is similar to the FDIC’s and OTS’s, but there is a lim ited exception. Under the Board’s risk-based capital guidelines, transactions fully collateralized w ith cash or OECD securities w ith a positive margin (that is, the market value of the' collateral is greater than the amount of the claim) may be eligible for a zero percent risk weight. An institution must m aintain a positive margin on a daily basis, fully taking into account any change in the institution’s exposure to the obligor or counterparty under a claim in relation to the market value of the collateral. The OCC’s rule permits the portion of a transaction that is collateralized w ith a positive margin by cash or OECD securities, w hich m ust be marked-to-market daily, to receive a zero percent risk weight. The Agencies are proposing to amend their respective risk-based capital standards to achieve uniformity in the treatment of collateralized transactions. This joint proposal would permit portions of claims (including repurchase agreements) collateralized by cash on deposit with the lending institution or by securities issued or guaranteed by the U.S. Treasury, U.S. government agencies, or the central governments in other OECD countries to be eligible for a zero percent risk weight. To qualify for the zero percent risk category, the collateralized arrangement would have to specify the portion of the claim that w ill be continuously collateralized either in terms of an identified dollar amount or a percentage of the claim. In the case of off-balance-sheet derivative contracts, the collateralized portion could be specified in terms of an identified dollar amount or a percentage of the current or potential future exposure. Under this joint proposal, the arrangement m ust also require m aintenance on a daily basis of a 1T h e O ECD-based group o f co u n trie s c o m p r ise s a ll fu ll m em b ers o f th e O rganization for E co n o m ic C ooperation a n d D e v e lo p m e n t (OECD), a s w e ll as co u n trie s th at h a v e* co n clu d ed s p e c ia l le n d in g arrangem en ts w ith th e International M onetary F u n d a sso c ia ted w ith th e F u n d ’s G eneral A rran gem en ts to B orrow. 2 P ortion s o f c la im s co lla ter a liz ed b y U .S. g o v er n m e n t-sp o n so re d a g en cy s e cu rities are a lso elig ib le for a 20 p erc en t risk w eig h t. T h e A g e n c ie s are n o t p ro p osin g to ch an ge th e risk w e ig h tin g for t h e s e c o lla ter a liz ed tran saction s. Federal Register / Vol. 61, No. 160 / Friday, August 16, 1996 / Proposed Rules positive margin of collateral on the burden by allowing banks to hold less specified collateralized portion, taking capital for certain transactions collateralized.by cash or qualifying into account daily changes in the value securities. This proposed rule clarifies of the institution’s credit exposure and and makes uniform existing regulatory the market value of the collateral. The requirements for national banks. The Agencies note that for certain economic impact of this proposed rule transactions where the m arket value of the collateral (e.g., the redem ption value on banks, regardless of size, is expected to be minimal. of cash on deposit) is fixed and the value of the exposure seldom fluctuates, Board Regulatory F lexibility A ct ensuring m aintenance of a positive Analysis collateral margin on a daily basis may Pursuant to section 605(b) of the not actually entail daily mark-to-market Regulatory Flexibility Act, the Board calculations, such as in the case of a does not believe this proposal would loan collateralized by a certificate of have a significant impact on a deposit. Where only a portion of a substantial num ber of small business collateralized claim qualifies for the entities in accord with the spirit and zero percent risk category, the remaining portion should be assigned to purposes of the Regulatory Flexibility Act (5 U.S.C. 601 et seq.). Accordingly, the risk category appropriate to the a regulatory flexibility analysis is not obligor, or if relevant, the guarantor or required. In addition, because the riskother collateral. based capital guidelines generally do In all cases, the collateralized not apply to bank holding companies arrangement should ensure that with consolidated assets of less than institutions maintain control over the $150 m illion, this proposal would not collateral. The proposal has an affect such companies. The amendment accommodation for instances where an concerns capital requirements for institution is acting as a custom er’s collateralized transactions w hich may agent involving the lending or sale of be entered into by depository the custom er’s securities that is institutions of any size. W hile larger collateralized by cash delivered to the institutions may enter into more institution. In this situation, the sophisticated transactions, the transaction woulclbe deemed to be amendment w ould equally favor smaller collateralized by cash on deposit with the lending institution provided that (a) institutions, even if their collateralized transactions are less complex. The effect any indem nification provided by the of the proposal would be to reduce institution to the customer is lim ited to regulatory burden on depository , no more than the difference between the institutions by allowing the institutions market value of the securities lent or to hold less capital for certain sold and the cash collateral received and (b) any reinvestm ent risk associated transactions collateralized by cash or qualifying securities. with that cash collateral is borne by the customer. FDIC Regulatory Flexibility A ct Analysis While the proposal w ould permit Pursuant to section 605(b) of the certain partially collateralized claims to Regulatory Flexibility Act (Pub. L. 96qualify for the zero percent risk 354, 5 U.S.C. 601 et seq.), it is certified category, the Agencies reiterate their that the proposal would not have a longstanding supervisory guidance and significant impact on a substantial rem ind institutions that engaging in num ber of small entities. The transactions such as securities lending or repurchase agreements on a less than am endment concerns capital requirements for collateralized fully collateralized basis may be transactions w hich may be entered into considered an unsafe and unsound by depository institutions of any size. practice. While larger institutions may enter into Regulatory Flexibility Act Analysis more sophisticated transactions, the OCC Regulatory Flexibility A c t Analysis amendment would equally favor smaller institutions, even if their collateralized Pursuant to section 605(b) of the transactions are less complex. The effect Regulatory Flexibility Act, the of the proposal would be to reduce Comptroller of the Currency certifies regulatory burden on depository that this proposed rule w ould not have institutions by allowing the institutions a significant economic im pact on a to hold less capital for certain substantial number of. small entities in transactions collateralized by cash or accord w ith the spirit and purposes of qualifying securities. the Regulatory Flexibility Act (5 U.S.C. OTS Regulatory Flexibility A ct Analysis 601 et seq.). Accordingly, a regulatory flexibility analysis is not required. The Pursuant to section 605(b) of the proposed rule would reduce regulatory Regulatory Flexibility Act, the OTS 42567 certifies that this proposed rule will not have a significant economic impact on a substantial number of small entities. The amendment concerns capital requirements for collateralized transactions which may be entered into by depository institutions of any size. While larger institutions may enter into more sophisticated transactions, the amendment would equally favor smaller institutions, even if their collateralized transactions are less complex. The effect of the proposal would be to reduce regulatory burden on depository institutions by allowing the institutions to hold less capital for certain transactions collateralized by cash or qualifying securities. Paperwork Reduction Act The Agencies have determined that this proposal would not increase the regulatory paperwork burden of banking organizations pursuant to the provisions of the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq.). OCC and OTS Executive Order 12866 Determination The Comptroller of the Currency and the Director of the OTS have determined that this proposed rule does not constitute a “significant regulatory action” for the purposes of Executive Order 12866. OCC and OTS Unfunded Mandates Reform Act of 1995 Determinations Section 202 of the Unfunded Mandates Reform Act of 1995, Pub. L. 104-4 (Unfunded Mandates Act) requires that an agency 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 m illion or more in any one year. If a budgetary impact statement is required, Section 205 of the Unfunded Mandates Act also requires an agency to identify and consider a reasonable number of regulatory alternatives before promulgating a rule. As discussed in the preamble, this proposed rule is limited to changing the risk weighting of transactions collateralized by cash or securities issued or unconditionally guaranteed by the U.S. Government or its agencies, or the central government of an OECD country, from the 20 percent to the zero percent risk weight category under the Agencies’ risk-based capital rules. In addition, w ith respect to the OCC, this proposal clarifies and makes uniform existing regulatory requirements for national banks. The OCC and OTS have therefore determined that the proposed 42568 Federal Register / Vol. 61, No. 160 / Friday, August 16, 1996 / Proposed Rules rule will not result in expenditures by State, local, or tribal governments or by the private sector of $100 m illion or more. Accordingly, the OCC and OTS have not prepared a budgetary im pact statement or specifically addressed the regulatory alternatives considered. List o f Subjects 12 CFR Part 3 Administrative practice and procedure, Capital, National banks, Reporting and recordkeeping requirements, Risk. 12 CFR Part 208 Accounting, Agriculture, Banks, banking, Confidential business information, Crime, Currency, Federal Reserve System, Mortgages, Reporting and recordkeeping requirements, Securities. 12 CFR Part 225 Administrative practice and procedure, Banks, banking, Federal Reserve System, Holding companies, Reporting and recordkeeping requirements, Securities. 12 CFR Part 325 Administrative practice and procedure, Banks, banking, Capital adequacy, Reporting and recordkeeping requirements, Savings associations, State non-member banks. 12 CFR Part 567 Capital, Reporting and recordkeeping requirements, Savings associations. Authority and issuance Office of the Com ptroller o f the Currency 12 CFR CHAPTER I For the reasons set out in the preamble, part 3 of chapter I of title 12 of the Code of Federal Regulations is proposed to be am ended as follows: PART 3—MINIMUM CAPITAL RATIOS; ISSUANCE OF DIRECTIVES 1. The authority citation for part 3 continues to read as follows: Authority: 12 U.S.C. 93a, 1 61,1818, 1828(n), 1828 note, 1831n note, 3907, and 3909. 2. In appendix A to part 3, paragraph (a)(l)(viii) and footnote 15 in paragraph (b)(l)(v) of section 3 are revised to read as follows: Appendix A to Part 3— Risk-Based Capital Guidelines * * * * * Sectio n 3. R isk C ategories/W eights fo r OnB alance S h e et A sse ts a n d O ff-B alance S h eet Item s * * * * * (a) * * '* ( 1) * * * (viii) T hat p o rtion o f claim s specified as collateralized by cash on d ep osit w ith the bank or by securities issu ed or un co n d itio n ally guaran teed by the U nited States G overnm ent or its agencies, or th e central governm ents of a n OECD country, p rov ided th a t:9a (A) T he bank specifies in th e collateral agreem ent the collateralized p o rtion o f the claim eith er in term s of a n id entified dollar am o unt or a percentage of th e claim (or in the case of an off-balance-sheet derivative contract, in term s of an identified d ollar am o unt or a percentage o f th e current or p o ten tial future ex p o su re);9b and (B) T he bank specifies in th e collateral agreem ent th at the custo m er is obligated to m ain tain on a d aily basis a p o sitiv e m argin of collateral on th e specified p o rtion o f the claim th at fully takes into account daily changes in th e valu e of the b an k’s credit exposure a n d in the m arket value of the collateral. * * * * * * * (b) * * * (v j * * * * * 15 * Dated: July 26, 1996. Eugene A. Ludwig, C om ptroller o f th e Currency. Federal Reserve System 12 CFR CHAPTER II For the reasons set forth in the preamble, parts 208 and 225 of chapter II of title 12 of the Code of Federal Regulations are proposed to be amended as follows: A uthority: 12 U.S.C. 36, 248(a), 248(c), 321—338a, 371d, 461, 481-486, 601, 611, 1 8 1 4 ,1823(j), 1828(o), 1831o, 1 8 3 1 p -l, 3105, 3310, 3331-3351, a n d 3906-3909; 15 U.S.C. 78b, 781(b), 781(g), 78l(i), 78o-4(c)(5), 78q, 78q—1, a n d 78w; 31 U.S.C. 5318; 42 U.S.C. 4012a, 4104a, 4104b, 4106, a n d 4128. 2. In appendix A to part 208 section the paragraph immediately following the heading is designated as paragraph a. and the second paragraph is designated as paragraph b. and revised to read as follows: in .C .1 ., Appendix A to Part 208—Capital Adequacy Guidelines for State Member Banks: Risk-Based Measure * * h i. * * * * * * * 3. In appendix A to part 208, the last sentence of section III.D.l.i. is revised to read as follows: * 1. The authority citation for part 208 continues to read as follows: 9a C laim s c o lla ter a liz ed b y secu rities is s u e d or guaranteed by th e U n ited S tates G overn m en t or its a g en cies, or the central g o v ern m en t o f an OECD co u n try in c lu d e se c u r itie s le n d in g tran saction s, repu rch ase ag reem en ts, co lla ter a liz ed letters o f cred it, su c h as rein su ran ce letters o f cred it, an d oth er s im ilar fin a n cia l guarantees. S w a p s, forw ards, futures, a n d o p tio n s tran saction s are a lso e lig ib le , i f th ey m eet th e collatera l requ irem en ts. 9bS e e fo otn ote 22 in s e c tio n 3(b)(5)(iii) o f th is a p p e n d ix A (collatera l h e ld aga in st d eriv ative contracts). 15 * * * w h e n th e b ank is a ctin g as a c u sto m er’s agent in a tran sactio n in v o lv in g th e loan or sa le o f th e c u sto m er’s secu rities co lla ter a liz ed b y cash d eliv ere d to th e bank, th e tran saction is d e e m e d to b e co lla ter a liz ed b y cash o n d ep o sit w ith th e bank p ro v id ed that a n y o b liga tion b y th e b ank to in d e m n ify th e cu stom er is lim ite d to n o m ore th an th e d ifferen ce b e tw e e n th e m arket v a lu e o f th e secu rities le n t or s o ld a n d th e cash collateral r e ceiv e d , a n d an y r e in v estm en t risk a sso c ia te d w ith th e co llateral is b orn e b y th e cu stom er. * C. * * * 1. Category 1: zero p ercent, a. * * * b. T his category also in clu d es th e po rtion s o f claim s (includ ing repurchase agreem ents) collateralized by cash on d eposit w ith the lending bank or by securities issued or u n co n d itio n ally guaranteed by the U.S. T reasury, U.S. gbvernm ent agencies, or the central governm ent in o th er OECD-based countries, p ro v id ed th at the collateralized arrangem ent: l l ) Specifies the collateralized p o rtio n of the claim e ith er in term s of an identified do llar am o unt or a percentage of th e claim (or, in the case o f a n off-balance-sheet derivative contract, e ith er in term s of an id entified d o lla r am oun t or a percentage of the current or p otential future exposure); a n d (2) Requires th e m ainten ance o n a daily basis of a positive m argin of collateral on the specified portio n o f th e claim th at fully takes into account daily changes in the value o f the b a n k ’s credit exposure a n d in the m arket value of the collateral. * PART 208—MEMBERSHIP OF STATE BANKING INSTITUTIONS IN THE FEDERAL RESERVE SYSTEM (REGULATION H) * * * * * * III. * * * JJ * * * ^ * * * i. * * * W hen a bank is acting as a c ustom er’s agent in a transaction involving th e loan or sale of the cu stom er’s securities th at is collateralized by cash delivered to the lend ing bank, th e tran saction is deem ed to be collateralized by cash on deposit w ith th e b an k for p urp oses o f determ inin g the appropriate risk-w eight category, provided th at any in dem nification is lim ited to no m ore th an the difference betw een th e m arket value of the securities len t or sold and the cash collateral received, and any reinv estm ent risk associated w ith the cash collateral is borne by the custom er. * * " * * - * 4. In appendix A to part 208, Attachment III, category 1, paragraph 5 is revised to read as follows: * * * * * Federal Register / Vol. 61, No. 160 / Friday, August 16, 1996 / Proposed Rules Attachment III—Summary of Risk Weights and Risk Categories for State Member Banks Category 1: Z ero P ercent * * * * 3. In appendix A to part 225, the last sentence in section III.D.l.i. is revised to read as follows: * * * * * III. * * * * D. * * * 5. P ortions of claim s (includ ing repurchase I * * * agreem ents) collateralized by cash on deposit i. * * * W hen a banking organization is w ith the len d in g b ank or by securities issued acting as a cu sto m er’s agent in a transaction or un c o n d itio n ally guaranteed by OECD involving th e loan or sale of the cu sto m er’s central governm ents or U.S. governm ent securities th at is collateralized by cash agencies, p ro v id ed th at th e collateralization delivered to the lending banking arrangem ent (a) specifies the collateralized organization, the transaction is deem ed to be po rtion o f the claim either in term s o f an co llateralized by cash on d eposit w ith the id entified dollar am o unt or a percentage of banking organization for p u rp o ses of the claim (or, in the case of an off-balancedeterm ining th e app ropriate risk-w eight sheet derivative contract, e ith e r in term s of category, p ro v id ed th at an y in dem nification an id en tified dollar am o u n t o r a percentage is lim ited to no m ore th a n th e difference of the c u rren t or potential future exposure); betw een the m arket value of the securities and (b) requires the m ainten an ce of a positive lent or sold a n d th e cash collateral received, collateral m argin on a daily basis th at fully and any reinvestm ent risk associated w ith takes into accou nt daily changes in the value the cash collateral is borne by th e custom er. of th e b a n k ’s credit exposure a n d in the * * * * * m arket value of the collateral. * * * * * PART 225—BANK HOLDING COMPANIES AND CHANGE IN BANK CONTROL (REGULATION Y) 1. The authority citation for part 225 continues to read as follows: Authority: 12 U.S.C. 1817(j)(13), 1818, 1828(o), 1831i, 1831p—1, 1843(c)(8), 1844(b), 1972(1), 3106, 3108, 3310, 3331-3351, 3907, a n d 3909. 4. In appendix A to part 225, Attachment III, category 1, paragraph 5 is revised to read as follows: * * * * * Attachment III —Summary of Risk Weights and Risk Categories for Bank Holding Companies Category 1: Z ero P ercent * * * * * 5. Portions of claim s (in cluding rep urch ase agreem ents) collateralized b y cash on d epo sit w ith the len d in g banking organization o r by 2. In appendix A to part 225 section securities issu ed or u n co n d itio n ally m .C.l., the paragraph immediately guaranteed by OECD cen tral governm ents or following the heading is designated as U.S. g overnm ent agencies, p ro v id ed that the paragraph a. and the second paragraph collateralization arrangem ent (a) specifies the is designated as paragraph b. and co llateralized portio n of the claim eith er in revised to read as follows: term s of an identified d o lla r am o u n t or a percentage of the claim (or, in th e case of an Appendix A to Part 225—Capital off-balance-sheet derivative contract, either Adequacy Guidelines for Bank Holding in term s o f an identified d o lla r am o u n t or a Companies: Risk-Based Measure percentage of th e current o r p o tential future * * * * * exposure); a n d (b) requires th e m aintenance of a positive collateral m argin o n a daily III. * * * basis that fully takes into acco unt daily C. * * * changes in th e value of the banking 1. Category 1: zero p ercen t a. * * * b. T his category also in clu d e s the po rtions organization’s credit exposure a n d in th e m arket value of the collateral. of claim s (inclu din g repurchase agreem ents) * * * * * collateralized by cash on deposit w ith th e By ord er o f the Board of G overnors of the lending banking organization or b y securities Federal Reserve System , A ugust 8, 1996. issu ed or u n c o n d itio n ally guaranteed by the U.S. T reasury, U.S. governm ent agencies, or W illiam W. W iles, th e central governm ent in oth er OECD-based S ecretary o f th e Board. countries, p rovided that th e co llateralized arrangem ent: Federal Deposit Insurance Corporation (1) Specifies the collateralized portion of 12 CFR CHAPTER III the claim eith e r in term s o f an iden tified For the reasons set forth in the dollar am o unt or a percentage of the claim preamble, part 325 of chapter III of title (or, in the case of an off-balance-sheet derivative contract, either in term s o f an 12 of the Code of Federal Regulations is identified do llar am o unt or a percentage of proposed to be amended as follows: the c u rren t o r potential future exposure); an d (2) Requires the m ainten ance on a daily PART 325— CAPITAL MAINTENANCE basis of a po sitive m argin o f collateral o n the 1. The authority citation for part 325 specified p ortio n o f the claim th a t fully takes into account daily changes in th e value of the continues to read as follows: banking organization’s credit exposure a n d in Authority: 12 U.S.C. 1815(a), 1815(b), th e m arket value o f the collateral. 1 8 1 6 ,1818(a), 1818(b), 1818(c), 1818(t), * * * * * 1819(Tenth), 1828(c), 1828(d), 1828(i), 42569 1828(n), 1828(o), 18310, 1835, 3907, 3909, 4808; Pub. L. 1 0 2 -2 3 3 ,1 0 5 Stat. 1761,1789, 1790 (12 U.S.C. 1831n note); Pub. L. 1 0 2 24 2 ,1 0 5 Stat. 2236, 2355, 2386 (12 U.S.C. 1828 note). 2. In appendix A to part 325, section II.C, the first two paragraphs under Category 1— Zero Percent Risk Weight are designated as paragraphs a. and b., respectively, and a new paragraph c. is added to read as follows: Appendix A to Part 325—Statement of Policy on Risk-Based Capital * * * * * II. P rocedures fo r C om puting R isk-W eighted A ssets * * * * * C. * * * Category 1—Zero P ercent R isk W eight, a. * * * Jj * * * c. T his category also in clu d es the p ortions of claim s (includ ing repurch ase agreem ents) collateralized by cash on deposit w ith the lending bank or by securities issu ed or u n c on ditio nally guaranteed by the U.S. Treasury, U.S. governm ent agencies, or the central governm ent in oth er OECD countries, provided th at th e co llateralized arrangem ent: (1) Specifies the collateralized p ortion of the claim e ith e r in term s of an id entified .dollar am o unt or a percentage of the claim (or, in th e case o f an off-balance-sheet derivative contract, either i n term s of an identified do llar am o unt or a percentage of the cu rren t o r po tential future exposure); an d (2) Requires the m ain tenance on a daily basis of a po sitive m argin of collateral on the specified p ortio n of the claim th a t fully takes into account daily changes in the value of the b a n k ’s credit exposure and in the m arket value of the collateral. * * * * * 3. In appendix A to part 325, section II.C., the three paragraphs under Category 2— 20 Percent Risk Weight are designated as paragraphs,a. through c., respectively, the phrase “portions of claims collateralized by cash held in a ■ segregated deposit account of the lending bank;” is removed from the newly designated paragraph a., and the first sentence of the newly designated paragraph b. is revised to read as follows: * * JJ * * * * * * * * * c. * * * * * Category 2—20 P ercent R isk W eight, a. * * * b. T his category also includes claim s on, a nd portions of claim s guaranteed by, U.S. G overnm ent-sponsored agencies, p o rtio n s of claim s collateralized by securities issued or guaran teed by U.S. G overnm ent-sponsored agencies, a n d the p ortions of claim s (including rep urch ase agreem ents) collateralized by cash on d epo sit in the lending b a n k or by securities issued or guaranteed by OECD central governm ents 42570 Federal Register / Vol. 61, No. 160 / Friday, August 16, 1996 / Proposed Rules that do no t qualify for the zero percen t risk w eight category. * * * * * * * * 4. In appendix A to part 325, section II.D.l, the eight paragraphs are designated as paragraphs a. through h., respectively, and the newly designated paragraph h. is amended by adding a sentence to the end of the paragraph to read as follows: * * * * * II. * * * D. * * * 1. Item s w ith a 100 P ercent C onversion Factor, a. * * * * * * * * h. * * * W hen a bank is acting as a custo m er’s agent in a transaction involving the loan or sale o f th e custom er’s securities th at is collateralized by cash delivered to the len din g bank, th e transaction is deem ed to be co llateralized by cash on deposit w ith the bank for p urpo ses of d eterm ining the ap pro priate risk-w eight category, pro vid ed that any ind em n ification is lim ited to no m ore th an th e difference betw een the m arket value of the securities lent or sold a n d the cash collateral received, and any rein vestm ent risk associated w ith th e cash collateral is borne by the custom er. * * * * * 5. In appendix A to part 325 under Table II—Summary of Risk Weights and Risk Categories, a period is added at the end of paragraph (6) and a new paragraph (7) is added under Category 1—Zero Percent Risk Weight to read as follows: * * * * * Table II—Summary of Risk Weights and Risk Categories Category 1—Zero Percent Risk W eight * * * * * (7) Portions of claim s (including repurchase agreem ents) collateralized by cash on deposit w ith the len din g b a n k o r by securities issu ed or u n co n d itio n ally guaranteed b y th e U.S. Treasury, U.S. G overnm ent agencies, or th e central governm ent in o th er OECD countries, pro vid ed th a t th e collateralization arrangem ent (a) specifies the collateralized po rtion o f the claim either in term s o f an identified d ollar a m ou nt or a percentage of the claim (or, in the case of an off-balancesheet derivative contract, e ith er in term s of an identified d ollar am ount or a percentage of th e c u rren t o r potential future exposure); and (b) requires the m aintenance o f a positive collateral m argin on a daily basis th a t fully takes into acco unt daily changes in the value of the b a n k ’s credit exposure a n d in the m arket value of th e collateral. * * * * * * * (6) P ortions of claim s (including repurchase agreem ents) collateralized 3 by securities issu ed or guaranteed by the-U.S. T reasury, U.S. G overnm ent agencies, or the central governm ent in other OECD co untries th at do n o t qualify for the zero percent risk w eight category, or th at are collateralized by securities issu ed o r guaranteed by U.S. G overnm ent-sponsored agencies. (7) P ortions o f loans a n d other claim s collateralized by cash on deposit in the lending b a n k th at do n ot qualify for the zero percent risk w eight category. provided that the collateralized arrangement: (J) Specifies the collateralized portion of the claim either in terms of an identified dollar amount or a percentage of the claim (or, in the case of an offbalance-sheet derivative contract, either in terms of an identified dollar amount or a percentage of the current or potential future exposure);9 and (2) Requires the maintenance on a daily basis of a positive margin of collateral on the specified portion of the claim that fully takes into account daily changes in the value of the savings association’s credit exposure and in the market value of the collateral. * * * * * * * Category 2— 20 Percent R isk W eight * * * * * * * * * By order of th e Board of Directors. D ated at W ashington, D.C., th is 17th day of June, 1996. Federal D eposit Insurance C orporation Valerie J. Best, A ssista n t E xecu tive Secretary. Office of Thrift Supervision 12 CFR CHAPTER V For the reasons set forth in the preamble, part 567 of chapter V of title 12 of the Code of Federal Regulations is proposed to be amended as set forth below: PART 567—CAPITAL 1. The authority citation for part 567 continues to read as follows: Authority: 12 U.S.C. 1462, 1462a, 1463, 1464, 1467a, 1828 (note). 2. Section 567.6 is amended by: a. Redesignating footnotes 8, 9,10, and 11 as footnotes 10,11,12, and 13, respectively. b. Adding paragraph (a)(l)(i)(H); and c. Adding a sentence at the end of paragraph (a)(2)(i)(E). The additions read as follows: § 567.6 Risk-based capital credit riskweight categories. (a) * * * ( 1) * * * (i) * * * (H) That portion of claims collateralized by cash on deposit with the lending savings association or by securities issued or unconditionally guaranteed by the United States Treasury, the United States Government or its agencies, or the central government in other OECD countries,8 * 6. In appendix A to part 325 under Table II—Summary of Risk Weights and Risk Categories, paragraphs (6) and (7) under Category 2—20 Percent Risk Weight are revised to read as follows: * Table n —Sum m ary o f Risk W eights and Risk Categories * 3 D egree o f colla ter a liz a tio n is d eter m in ed by current m arket va lu e. 8 C laim s co lla ter a liz ed b y secu rities is s u e d or gu aran teed b y th e U n ite d S tates Treasury, th e U n ited S tates G ov ern m en t or its a g en cies, o r th e central g o v ern m en t o f an OECD cou n try in c lu d e secu rities le n d in g tra n saction s, rep u rchase a greem en ts, c o lla ter a liz ed letters o f cred it, s u c h as * * * ^ * (2 ) * * * (i) * * * (E) * * * W hen the savings association is acting as a customer’s agent in a transaction involving the loan or sale of the custom er’s securities that is collateralized by cash delivered to the lending savings association, the transaction is deemed to be collateralized by cash on deposit w ith the savings association for purposes of determining the appropriate risk weight category, provided that any obligation of the savings association to indemnify the customer is lim ited to no more than the difference between the market value of the securities lent or sold and the cash collateral received, and any reinvestment risk associated with the collateral is borne by the customer. * * * * * Dated: July 23,1996. Office o f T hrift Supervision Jonathan L. Fiechter, A ctin g D irector. [FR Doc. 9 6-2 063 9 F iled 8 -1 5 -9 6 ; 8:45 am] BILLING 'CODE 4810 -33 -P , 6210 -01 -P , 6714-01-P , 6720-01 - P
@FedFRASER