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Federal Deposit Insurance Corporation

Division of Supervision

550 17th Street NW, Washington, DC 20429

Market Risk
FIL-50-95
July 31, 1995
TO: CHIEF EXECUTIVE OFFICER
SUBJECT: Joint Agency Proposal to Establish a Risk-Based Capital Requirement for Market
Risk

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The FDIC, the Federal Reserve Board and the Office of the Comptroller of the Currency have
jointly issued for public comment a proposed rule that would establish a risk-based capital
requirement for market risk in foreign exchange, commodity activities and in the trading of debt
and equity instruments. The proposed rule would amend Part 325 of the FDIC's regulations. A
copy of the Federal Register notice describing the proposal is attached.

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The proposed rule would affect institutions with large trading portfolios and activities, as
determined by a measurement process explained in the attached notice. The agencies expect
that about 25 relatively large institutions and a few other smaller institutions would be affected. If
an institution is required to comply, it would have two choices for calculating its capital
requirement for market risk. One method would use an institution's internal models but include
some principal assumptions from the FDIC. The second method, referred to as the
"standardized approach," would be based on calculations that are set out in the proposed rule.
Depending on the outcome of the measurement process selected, an institution could be
required to increase its capital holdings to reflect its market risk exposure.
The FDIC will accept written comments on the proposed rule through September 18, 1995. For
more information, please contact one of the FDIC officials listed on Page 38082 of the
attached Federal Register notice.
Nicholas J. Ketcha Jr.
Acting Director

In

Attachment: PDF Format (584 kb, PDF help or hard copy), HTML Format
Distribution: FDIC-Supervised Banks (Commercial and Savings)

NOTE: Paper copies of FDIC financial institution letters may be obtained through the FDIC's Public Information
Center, 801 17th Street, NW, Room 100, Washington, DC 20434 (1-877-275-3342 or (703) 562-2200).