OCC 2005-12
OCC Bulletin

Subject:      Interagency Guidance for Determination of Risk-
              Based Capital for Unrated Direct Credit Substitutes
              Extended to Asset-Backed Commercial Paper Programs
Description:  Asset-Backed Commercial Paper

Date:         April 13, 2005

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


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
(agencies) jointly issued the attached interagency guidance on
March 30, 2005.  The guidance is applicable to banks using the
internal ratings approach as outlined in the agencies' capital
rules for determining the capital charge for unrated direct
credit substitutes provided to ABCP programs.1  The provisions
included in this policy statement are effective immediately.

The capital rules permit banking organizations with qualifying
internal risk rating systems to use internal ratings applied to
their unrated direct credit substitutes extended to ABCP programs
in determining the appropriate amount of regulatory capital.  The
rules set forth nine key criteria for assessing the adequacy of a
bank's internal credit risk rating system.  The guidance provides
additional information for bankers and procedures for examiners
to use in assessing whether a bank's internal risk rating system
is adequate and reasonably corresponds to the external rating
categories set forth in the agencies' risk-based capital
guidelines.

The guidance also introduces the "weakest link" approach for
calculating the risk-based capital requirement applicable to a
program-wide credit enhancement.  This approach assumes that the
risk of the program-wide credit enhancement is directly dependent
on the quality, i.e., the internal rating, of the riskiest asset
pools purchased by the ABCP program.

Questions regarding this interagency guidance or other policy
issues related to ABCP activities may be directed to Michael
Drennan, director for Treasury and Market Risk at (202) 874-5670.
Greg Coleman or Kelly Ballard can provide technical assistance at
the same number.



Kathryn E. Dick
Deputy Comptroller
Risk Evaluation


Attachment: Interagency Guidance
            [http://www.occ.treas.gov/ftp/bulletin/2005-12a.pdf]
_______________________________
1 On November 29, 2001, the Agencies amended their risk-based
capital standards by adopting a new capital framework for banking
organizations engaged in securitization activities
("Securitization Capital Rule" or the "Rule").  See 12 CFR 3,
appendix A, Section 4.  The minimum risk weight available under
the internal risk ratings approach is 100 percent for an
investment grade exposure, even if the direct credit substitute
is highly rated internally, e.g., AAA.  Direct credit substitutes
internally rated one category below investment grade (e.g., BB+
through BB-) would be assigned to the 200 percent risk weight,
whereas those internally rated more than one category below
investment grade (e.g., below BB-) would receive the "gross-up"
treatment.  The application of the "gross-up" treatment, in many
cases, will result in an effective dollar-for-dollar capital
charge on direct credit substitutes that have ratings below BB-.