OCC 2005-37
OCC Bulletin

Subject:      Risk-Based Capital: Domestic Capital Modifications                   
Description:  Advance Notice of Proposed Rulemaking

Date:         October 20, 2005

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

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 issued the attached Advance Notice of
Proposed Rulemaking (ANPR).  This bulletin briefly summarizes the
ANPR, which seeks comment on the modifications that the agencies
are considering making to their existing risk-based capital
rules.

SUMMARY

The ANPR suggests modifications to our domestic risk-based
capital rules, which are based on the 1988 Basel Accord (Basel
I).  The agencies believe that it is important to update the risk-
based standards to enhance the risk sensitivity of the capital
charges, to reflect changes in accounting standards and financial
markets, and to address competitive equity questions that have
been raised about the implementation of Basel II in the United
States.  In considering modifications to the capital rules, the
agencies seek to maintain a balance between risk sensitivity and
operational feasibility and avoid undue regulatory burden.

The ANPR seeks feedback from banking organizations, trade
associations, and others on the potential modifications to the
existing risk-based capital rules.  The modifications the
agencies are considering would:
     
*    Increase the number of risk-weight categories to which
       credit exposures may be assigned;
*    Expand the use of external credit ratings as an indicator of
     credit risk for externally rated exposures;
*    Expand the range of collateral and guarantors that may
     qualify an exposure for a lower risk weight;
*    Use loan-to-value ratios, credit assessments, and other
     broad measures of credit risk for assigning risk weights to
     residential mortgages;
*    Modify the credit conversion factor for various commitments,
     including those with an original maturity of under one year;
*    Require that certain loans 90 days or more past due or in a
     non-accrual status be assigned to a higher risk weight category;
*    Modify the risk-based capital requirements for certain
     commercial real estate exposures;
*    Increase the risk sensitivity of capital requirements for other 
     types of retail, multifamily, small-business, and commercial 
     exposures; and
*    Assess a risk-based capital charge to reflect the risks in
     securitizations backed by revolving retail exposures with early
     amortization provisions.

The ANPR also seeks comments on the regulatory burden of the
existing capital rules as required under section 2222 of the
Economic Growth and Regulatory Paperwork Reduction Act of 1996.

Finally, the ANPR includes a discussion of the retention of the
existing capital rules for certain banking organizations, which
might be based on an asset-size threshold.  Alternatively, any
modification of the capital rules might include some flexibility
to use a simple risk weighting approach or a more complex
approach based on additional data.

Comments and questions about the ANPR may be directed to: Nancy
Hunt, risk expert, Capital Policy Division at (202) 874-4923; or
Laura Goldman, counsel, Legislative and Regulatory Activities
Division at (202) 874-5090.



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


Attachment: 70 FR 61068
               [http://www.occ.treas.gov/fr/fedregister/70fr61068.pdf]