WASHINGTON — The Office of the Comptroller of the Currency announced today it has approved for publication a notice of proposed rulemaking that would implement the standardized approach of the Basel II Capital Accord. The proposal would provide an alternative approach to determining risk-based capital requirements for banks that are not required to use the advanced approaches capital framework published in the Federal Register on December 7, 2007. The advanced approaches framework is mandatory for large, internationally active banks. The standardized approach would be optional for other banks, which could also choose to remain under the Basel I risk-based capital framework.
“The proposal we approved today will provide mid-size and community banks with a more risk sensitive option to determine their risk-based capital requirement,” said Comptroller of the Currency John C. Dugan. “The development of the standardized approach is an important enhancement of our regulatory capital program for banks not adopting the advanced approaches.”
The proposal contains enhanced standards for the supervisory review of capital adequacy and public disclosures. Some of the features of the proposal that better align a bank’s risk with its capital requirement include:
- Increasing the number of risk weight categories used in the calculation of capital requirements.
- Expanding the use of external ratings in assigning risk weights to bank exposures.
- Recognition of a broader range of collateral and guarantees in the mitigation of credit risk.
- Use of a more risk sensitive approach for residential mortgages based on loan-to-value ratios.
- Adding a capital requirement for operational risk using the basic indicator approach of the Basel II Framework.
“The standardized approach proposal provides banks with a capital framework alternative that recognizes the improvements in risk management since the risk-based capital rules were first implemented without the complexity of the advanced approaches,” Comptroller Dugan said.
The OCC requests comments on the proposal within 90 days after its publication in the Federal Register.
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