The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
Federal R eserve Bank O F DALLAS ROBERT D. M c T E E R , J R . DALLAS, TEXAS 75265-5906 P R E S ID E N T AND C H IE F E X E C U T IV E O F F IC E R October 31, 1994 Notice 94-106 TO: The Chief Executive Officer of each member bank and others concerned in the Eleventh Federal Reserve District SUBJECT Proposed Amendments to the Capital Adequacy Guidelines DETAILS The Office of the Comptroller of the Currency and the Board of Governors of the Federal Reserve System (the agencies) are proposing to amend their respective risk-based capital guidelines to modify the definition of the Organization for Economic Cooperation and Development-based (OECD) group of countries. Claims on the governments and banks of this group generally receive lower risk weights than corre sponding claims on the governments and banks of non-OECD-based countries. The agencies are proposing this amendment on the basis of an announcement made on July 15, 1994, by the Basle Committee on Banking Supervision that, subject to national consultation, the Basle Committee plans to introduce a change to the Basle Accord in 1995. The proposed modification would exclude from the OECD-based group of countries that are eligible for the lower risk weights any country that has rescheduled its external sovereign debt within the previous five years. The Board must receive comments by December 13, 1994. Comments should be addressed 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-0849. ATTACHMENT A copy of the Board’s notice as it appears on pages 52100-02, Vol. 59, No. 198, of the Federal Register dated October 14, 1994, is attached. For additional copies, bankers and others are encouraged to use one of the following toll-free numbers 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 Antonio 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 Department at (214) 922-5254. Sincerely yours, PROPOSED AMENDMENTS TO THE CAPITAL ADEQUACY GUIDELINES (DOCKET NO. R-0849) 52100 Proposed Rules Federal Register Vol. 59, No. 198 Friday, October 14, 1994 framework for measuring the capital OCC: W ritten comments should be adequacy of intemationally-active subm itted to Docket No. 94-16, Communications Division, Ninth Floor, banks. Under the framework, riskweighted assets are calculated by Office of the Comptroller of the assigning assets and off-balance-sheet Currency, 250 E. Street, Washington, items to broad categories based D.C., 20219, Attention: Karen Carter. prim arily on their credit risk, that is, the Comments will be available for inspection and photocopying at that risk that a banking organization will incur a loss due to an obligor or address. DEPARTMENT OF THE TREASURY FRB: Comments should refer to counterparty default on a transaction. Docket No. R-0849 and may be mailed Risk weights range from zero percent, Office of the Comptroller of the to W illiam W. Wiles, Secretary, Board of for assets w ith m inimal credit risk (such Currency Governors of the Federal Reserve as U.S. Treasury securities), to 100 System, 20th Street and Constitution 12 CFR Part 3 percent, w hich is the risk weight that Avenue, N.W., W ashington, D.C. 20551. applies to m ost private sector claims, [Docket No. 94-16] including all commercial loans. Comments may also be delivered to While the Basle Accord primarily Room B-2222 of the Eccles Building RIN 1557-AB14 focuses on credit risk, it also between 8:45 a.m. and 5:15 p.m. incorporates country transfer risk FEDERAL RESERVE SYSTEM weekdays, or to the guard station in the considerations.2 In addressing transfer Eccles Building courtyard on 20th risk, the Basle Committee members 12 CFR Parts 208 and 225 Street, N.W. (between Constitution examined several methods for assigning Avenue an d C Street) at any time. [Regulations H and Y; Docket No. R-0849] obligations of foreign countries to the Comments may be inspected in Room M P-500 of the M artin Building between various risk categories. Ultimately, the Capital; Capital Adequacy Guidelines Basle Committee decided to use a 9:00 a.m. and 5:00 p.m. weekdays, defined group of countries considered to AGENCIES: The Office of the Comptroller except as provided in 12 CFR 261.8 of be of high credit standing as the basis of the Currency (OCC), Department of the Board’s Rules regarding availability for differentiating claims on foreign th e Treasury and the Board of Governors of information. governments and banks. For this o f the Federal Reserve System (FRB). FOR FURTHER INFORMATION CONTACT: purpose, the Basle Committee ACTION: Notice of proposed rulemaking. OCC: Geoffrey White, Senior determ ined this group as the full members of the Organization for SUMMARY: The OCC and FRB (the International Economic Advisor, Economic Cooperation and agencies) are proposing to am end their International Banking and Finance Development (OECD), as well as respective risk-based capital guidelines Division, (202) 874— 4730; Ronald countries that have concluded special to modify the definition of the OECDShimabukuro, Senior Attorney, Bank lending arrangements w ith the Operations and Assets Division, (202) based group of countries. Claims on the International Monetary Fund (IMF) 874— 4460; or Roger Tufts, Senior governments and banks of this group associated w ith the IMF’s General Economic Advisor, Office of the Chief generally receive lower risk weights Arrangements to Borrow.3 These National bank Examiner, (202) 874 than corresponding claims on the governments and banks of non-OECD5070. . Italy, Japan, the Netherlands, Sweden, Switzerland, FRB: Roger Cole, Deputy Associate based countries. The agencies are the United Kingdom, and the United States) and Director (202/452-2618), Norah Barger, proposing th is am endm ent on the basis Luxembourg. Manager (202/452-2402), Robert of an announcem ent, m ade on July 15, In 1989 the Board adopted risk*hased capital Motyka, Supervisory Financial Analyst 1994, by the Basle Committee on guidelines implementing the Basle Accord for state member banks and bank holding companies. Banking Supervision (Basle Committee) (202/452-3621), Division of Banking 2 Transfer risk generally refers to the possibility Supervision and Regulation; or Greg that, subject to national consultation, that an asset cannot be serviced in the currency of Baer, Managing Senior Counsel (202/ the Basle Committee plans to introduce payment because of a lack of, or restraints on, the 452-3236), Legal Division. For the a change to the Basle Accord in 1995. availability of needed foreign exchange in the country of the obligor. hearing im paired only, The effect of the proposed modification 3 The OECD is an international organization of Telecomm unication Device for the Deaf, w ould be to exclude from the OECDcountries which are committed to market-oriented Dorothea Thom pson (202)/452-3544). based group of countries w hich are economic policies, including the promotion of eligible for the lower risk weights any private enterprise and free market prices; liberal SUPPLEMENTARY INFORMATION: trade policies; and the absence of exchange country that has rescheduled its controls. Full members of the OECD at the time the I. Background external sovereign debt w ithin the Basle Accord was endorsed included Australia, previous five years. In 1988 the central bank governors of Austria, Belgium, Canada, Denmark, Finland, France, Germany, Greece, Iceland, Ireland, Italy, the G— countries endorsed 10 DATES: Comments m ust be received on Japan, Luxembourg, the Netherlands, New Zealand. international capital standards (the or before December 13,1994. Norway, Portugal, Spain, Sweden, Switzerland, Basle A ccord)1 establishing a risk-based Turkey, the United Kingdom, and the United States. ADDRESSES: Interested parties Eire In May 1994, Mexico was accepted as a full member invited to subm it w ritten comments to of the OECD. In addition, Saudi Arabia has 1 The Basle Accord was proposed by the Basle any or all of the agencies. Each agency concluded special lending arrangements associated Committee, w hich comprises representatives of the w ill share the comments that it receives central banks and supervisory authorities from the w ith the International Monetary F u nd ’s General G-10 countries (Belgium, Canada, France, Germany, Arrangements to Borrow. w ith the other agencies. This section of the FEDERAL REGISTER contains notices to the public of the proposed issuance of rules and regulations. The purpose of these notices is to give interested persons an opportunity to participate in the rule making prior to the adoption of the final rules. Federal Register / Vol. 59, No. 198 / Friday, October 14, 1994 / Proposed Rules countries are referred to as the OECDbased group of countries 4 and encompass m ost of the major industrial countries, including all members of the n _ 1 0 anH t o F i i r n n a o n T T m 'n n Under both the Basle Accord and the agencies’ guidelines, claims on the governments and banks of the OECDbased group of countries generally receive lower risk weights than corresponding claims on the governments and banks of non-OECD countries. Specifically, the agencies’ guidelines provide for the following treatment: • Direct claims on, and the portions of claims that are directly and unconditionally guaranteed by, OECDbased central governments (including central banks) are assigned to the zero percent risk weight category. Claims on central governments outside the OECDbased group are assigned to the zero percent risk weight category only if such claims are denom inated in the national currency and funded by liabilities in the same currency. • Claims conditionally guaranteed by OECD-based central governments and claims collateralized by securities issued or guaranteed by OECD-based central governments generally are assigned to the 20 percent risk weight category. The same types of claims on non-OECD countries are assigned to the 100 percent risk category. • Long-term claims on OECD banks are assigned to the 20 percent riskweight category. Long-term claims on non-OECD banks are assigned to the 100 percent risk category. (Short-term claims on all banks, w hether they are members of the OECD-based group of countries or not, are assigned a 20 percent risk weight.) • General obligation bonds that are obligations of states or other political subdivisions of the OECD-based group of countries are assigned to the 20 percent risk category. Revenue bonds of such political subdivisions are assigned to the 50 percent risk category. Both general obligation and revenue bonds of political subdivisions of non-OECD countries are assigned to the 100 percent risk category'. Recently, the OECD has taken steps to expand its membership. In light of these steps, the Basle Committee was urged to clarify an ambiguity in the Basle Accord as to w hether the OECD members eligible for the lower risk weights include only those members that were in the OECD w hen the Basle Accord was endorsed in 1988 or all members, regardless of entry date into the OECD. The Basle Committee also reviewed the overall appropriateness of the criteria the Basle Accord uses to determine whether claims on a foreign government or bank qualify for placem ent in a lower risk category. As part of this review, the Basle Committee reassessed w hether membership in the OECD (or the conclusion of special lending arrangements w ith the IMF) would, by itself, be sufficient to ensure that only countries w ith relatively low transfer risk would continue to be eligible for lower risk weight treatment. On July 15,1994, the Basle Committee made an announcem ent that clarified that the reference in the Basle Accord to OECD members applies to all current members of die organization. The announcem ent also stated that it is the Basle Committee’s intention, subject to national consultation, to record a change to the Basle Accord in 1995 that wrould modify the definition of the OECD-based group of countries for riskbased capital purposes. The change, if adopted, would exclude from lower risk weight treatm ent any country w ithin the OECD-based group of countries that has rescheduled its external sovereign debt w ithin the previous five years. The Basle Committee announcem ent was endorsed by the G-10 Governors. II. The Agencies’ Proposal In view of the Basle Committee’s announcement, the agencies are proposing to am end their respective risk-based capital guidelines to modify the definition of the OECD-based group of countries. Under the proposal, the OECD-based group of countries w ould continue to include countries that are currently full members of the OECD, regardless of entry date, as well as countries that have concluded special lending arrangements w ith the IMF associated w ith the Fu nd ’s General Arrangements to Borrow, but w ould exclude any country w ithin this group that has rescheduled its external sovereign debt w ithin the previous five years. The effect of the proposed modification w ould be to clarify that membership in the OECD-based group of countries m ust coincide w ith relatively low transfer risk in order for a country to be eligible for differentiated capital treatment. For purposes of this proposal, an 4 FRB regulations define this group as the “OECDbased group of countries." OCC regulations define event of rescheduling of external a member of this group as an “OECD-based sovereign debt generally w ould include country.” While the choice of words is slightly renegotiations of terms arising from the different, the definitions are effectively the same, country’s inability o r unw illingness to and the use of either definition in this preamble should be taken to refer to both. meet its external debt service 52101 obligations. Renegotiations of debt in the normal course of business generally does not indicate transfer risk of the kind that would preclude an OECDbased country from qualifying for lower risk weight treatment. One example of such a routine renegotiation would be a renegotiation to allow the borrower to take advantage of a change in market conditions, such as a decline in interest rates. The agencies invite comment on all aspects of this proposal. III. Regulatory Flexibility Act The agencies hereby certify that adoption of this proposal w ould have a significant economic impact on a substantial num ber of small business entities (in this case, small banking organizations), in accord with the spirit and purposes of the Regulatory Flexibility Act (5 U.S.C. 601 et seq.). In addition, because the risk-based capital standards generally do not apply to bank holding companies w ith consolidated assets of less than $150 million, this proposal will not affect such companies. Accordingly, no regulatory flexibility analysis is required. IV. Paperwork Reduction Act The agencies have determ ined that adoption of the proposed amendments would not increase the regulatory paperwork burden of banking organizations pursuant to the provisions of the Paperwork Reduction Act (44 U.S.C. 3501 et seq.). Executive Order 12866 The OCC has determined that this proposed rule is not a significant regulatory action, as that term is defined by Executive Order 12866. List of 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, Capital adequacy. Confidential business information, Currency, Federal Reserve System, Reporting and recordkeeping requirements, Securities, State member banks. 12 CFR Part 225 Administrative practice and procedure, Banks, banking, Capital adequacy, Federal Reserve System, Holding companies, Reporting and recordkeeping requirements, Securities. 52102 Federal Register / Vol. 59, No. 198 / Friday, October 14, 1994 / Proposed Rules Office of the Comptroller of the Currency Appendix A to Part 208—Capital Adequacy Guidelines for State Member Banks: Risk* Based Measure 12 CFR Chapter I * Authority and Issuance For the reasons set out in the joint preamble, title 12, chapter I, part 3 of the Code of Federal Regulations is proposed to be am ended as set forth below. PART 3—MINIMUM CAPITAL RATIOS; ISSUANCE OF DIRECTIVES 1. The authority citation for Part 3 is revised to read as follows: Authority: 12 U.S.C. 93a, 161,1818, 1828(n), 1828 note, 1831n note, 3907 and 3909. 2. In section 1 of appendix A to part 3, paragraph (c)(16) is revised to read as follows: Appendix A to Part 3—Risk-Based Capital Guidelines Section 1. Purpose, Applicability o f Guidelines, and Definitions. * * * * * * * * * * B. * 1 * * BILLING COOES: 4810-33-P; 6210-01-P ***22*** 22 The OECD-based group of countries comprises all full members of the Organization for Economic Cooperation and Development (OECD), as well as countries that have concluded special lending arrangements with the International Monetary Fund (IMF) associated with the IMF’s General Arrangements to Borrow, but excludes any country that has rescheduled its external sovereign debt within the previous five years. The OECD includes the following countries: Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Greece, Iceland, Ireland, Italy, Japan, Luxembourg, Mexico, Netherlands, New Zealand, Norway, Portugal, Spain, Sweden, Switzerland, Turkey, the United Kingdom, and the United States. Saudi Arabia has concluded special lending arrangements with the IMF associated with the IMF’s General Arrangements to Borrow. * * * * * * (c) * * * (16) OECD-based country means a member of the grouping of countries that are full members of the Organization of Economic Cooperation and Development, plus countries that have concluded special lending arrangements with the International Monetary Fund (IMF) associated with the IMF’s General Arrangements to Borrow, but excludes any country that has rescheduled its external sovereign debt within the previous five years. These countries are hereinafter referred to as “OECD countries”. * * III. * * * * Dated: October 4,1994 Eugene A. Ludwig, Comptroller o f the Currency. Federal Reserve System PART 225—BANK HOLDING COMPANIES AND CHANGE IN BANK CONTROL (REGULATION Y) 1. The authority citation for part 225 continues to read as follow^: Authority: 12 U.S.C. 1817(j)(13), 1818,1831i, 1843(c)(8), 1844(b), 1972(1), 3106, 3108, 3310, 3331-3351, 3907, and 3909. 2. A ppendix A to part 225 is amended by revising footnote 25 in section III.B.l. to read as follows: Appendix A To Part 225—Capital Adequacy Guidelines for Bank Holding Companies: Risk-Based Measure * PART 208—MEMBERSHIP OF STATE BANKING INSTITUTIONS IN THE FEDERAL RESERVE SYSTEM (REGULATION H) 1. The authority citation for part 208 is revised to read as follows: Authority: 12 U.S.C. 36, 248 (a) and (c), 321-338a, 371d, 461, 481-486, 601, 611, 1814,1823(j), 1828(o), 18310,1831p-l, 3105, 3310, 3331-3351, and 3906-3909; 15 U.S.C. 78b, 781(b), 781(g), 78l(i), 78o-4(c)(5), 78q, 78q-l and 78w; 31 U.S.C. 5318. 2. Appendix A to part 208 is am ended by revising footnote 22 in section UI.B.l. to read as follows: * * * III. * * * 12 CFR Chapter II For the reasons set forth in the joint preamble, the Board proposes to amend 12 CFR parts 208 and 225 as set forth below: * B. * I ***25*** * * 25 The OECD-based group of countries comprises all full members of the Organization for Economic Cooperation and Development (OECD), as well as countries that have concluded special lending arrangements with the International Monetary Fund (IMF) associated with the IMF’s General Arrangements to Borrow, but excludes any country that has rescheduled its external sovereign debt within the previous five years. The OECD includes the following countries: Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Greece, Iceland, Ireland, Italy, Japan, Luxembourg, Mexico, Netherlands, New Zealand, Norway, Portugal, Spain, Sweden, Switzerland, Turkey, the United Kingdom, and the United States. Saudi Arabia has concluded special lending arrangements with the IMF associated with the IMF’s General Arrangements to Borrow. • * * By the order of the Board of Governors of the Federal Reserve System, October 6,1994. Jennifer J. Johnson, Deputy Secretary o f the Board. [FR Doc. 94-25299 Filed 10-13-94; 8:45 am] * *
@FedFRASER