Comptroller of the Currency
Administrator of National Banks

This bulletin briefly summarizes an interagency Notice of Proposed Rulemaking (NPR) for a U.S. implementation of the standardized approach of the Basel II Capital Accord. The NPR was published today in the Federal Register by 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). The agencies seek comments on all aspects of the proposal.

SUMMARY

The NPR proposes a more risk-sensitive capital regime relative to the existing Basel I-based capital rules (general risk-based capital rules). In addition to proposing increased risk sensitivity in determining risk-based capital requirements for credit risk, the proposal also includes a risk-based capital requirement for operational risk – the basic indicator approach – and disclosure requirements.

The proposed capital regime would provide an alternative approach for national banks that are not required to use the advanced approaches risk-based capital rules. The proposal would permit eligible banks to choose to remain under the general risk-based capital rules or opt into the standardized approach capital framework as described in this NPR. However, a bank that chooses to opt in must adopt all aspects of the framework including the operational risk capital charge and disclosure requirements. Additionally, if one bank of a corporate group decides to apply the standardized approach, then all related banks and the bank holding company would be required to comply with the framework unless the primary federal supervisor of a related bank approves a request of that bank to remain under the general risk-based capital rules.

The NPR seeks to increase the risk sensitivity of the general risk-based capital rules by:

• Increasing the number of risk weight categories used in the calculation of capital requirements and differentiation in exposure categories.
• Expanding the use of external ratings in assigning risk weights to exposures.
• Incorporating the loan-to-value ratio of residential mortgage exposures in the determination of the risk weight.
• Expanding the recognition of credit risk mitigation techniques such as collateral and credit derivatives.
• Increasing the credit conversion factor for certain off-balance sheet commitments with an original maturity of one year or less.
• Assessing a risk-based capital charge for early amortizations in securitizations of revolving exposures.
• Removing the 50 percent limit on the risk weight for over-the-counter derivative transactions.

FURTHER INFORMATION

You may direct questions or comments to Margot Schwadron, Senior Risk Expert, Capital Policy Division, at (202) 874-6022; Ronald Shimabukuro, Special Counsel; or Carl Kaminski, Attorney, Legislative and Regulatory Activities Division, at (202) 874-5090.

/signed/                                                 Timothy W. Long Senior Deputy Comptroller for Bank Supervision Policy and Chief National Bank Examiner Because of its length, the NPR is not attached to this bulletin, but can be accessed at the link below. Attachment: Notice of Proposed Rulemaking [http://www.occ.treas.gov/fr/fedregister/73fr43982.pdf]