OCC 2004-48                                                                      
OCC Bulletin                                                                          
                                                          
Subject:      Internal Ratings-Based Systems for Retail Credit 
              Risk for Regulatory Capital                        
Description:  Proposed Supervisory Guidance

Date:         October 27, 2004

TO:  Chief Executive Officers of All National Banks, Federal
     Branches and Agencies, Department and Division Heads, and 
     All Examining Personnel

This bulletin briefly summarizes the proposed supervisory
guidance on Internal Ratings-Based Systems for Retail Credit Risk
for Regulatory Capital that was published today for notice and
comment in the Federal Register.  The Office of the Comptroller
of the Currency, the Board of Governors of the Federal Reserve
System, the Federal Deposit Insurance Corporation, and the Office
of Thrift Supervision (the agencies) have jointly developed the
proposed guidance for banks, savings associations, and bank
holding companies that would use a proposed internal-ratings-
based (IRB) approach to determine their minimum regulatory
capital requirements.  Under the IRB approach, banks would use
internal estimates of certain risk parameters as key inputs in
the determination of their regulatory capital requirements.

The agencies described the IRB approach in general terms in the
advance notice of proposed rulemaking (ANPR) published on August
4, 2003, in the Federal Register and expect to issue a notice of
proposed rulemaking (NPR) in 2005 that would implement
comprehensively the IRB approach and other elements of the Basel
II framework.  In conjunction with the NPR, the agencies also
intend to issue comprehensive supervisory guidance for IRB that
will incorporate the requirements for retail credit.

The agencies intend for this proposed guidance to provide banks
with a description of the current views of the agencies regarding
the components and characteristics of a qualifying IRB system for
retail credit.  The guidance discusses the critical components of
the IRB approach for retail credit and includes many supervisory
standards that ultimately may become part of the NPR text as
proposed minimum qualifying requirements for using the IRB and
Advanced Measurement Approaches (AMA).  However, no such
decisions on a final rule will be made prior to a full evaluation
of the comments received on a future NPR.  The guidance contains
four chapters on segmentation, quantification, data maintenance,
and control and oversight mechanisms and emphasizes the
interdependent relationship among these four components of an IRB
system.  The agencies are soliciting comment on all aspects of
the proposed guidance.  In addition, the agencies present a
number of questions in the preamble to the proposed guidance that
focus commenters' attention on the specific issues.  The agencies
encourage comments in all areas.

For further information contact:  Mitchell Stengel, senior
expert, Basel credit risk modeling, Risk Analysis at (202) 874-
5250; Daniel L. Pearson, national bank examiner, Credit Risk at
(202) 874-5170; and Ron Shimabukuro, special counsel, Legislative
and Regulatory Activities Division at (202) 874-5190.




___________________________________
Emory W. Rushton
Senior Deputy Comptroller and Chief National Bank Examiner


Attachment: 69 FR 62747
           [http://www.occ.treas.gov/fr/fedregister/69fr62747.pdf]