[Federal Register Volume 60, Number 244 (Wednesday, December 20, 1995)]
[Rules and Regulations]
[Pages 66042-66045]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-30664]
[[Page 66041]]
_______________________________________________________________________
Part VI
Department of the Treasury
Office of the Comptroller of the Currency
12 CFR Part 3
Federal Reserve System
12 CFR Parts 208 and 225
Federal Deposit Insurance Corporation
12 CFR Part 325
_______________________________________________________________________
Capital; Capital Adequacy Guidelines; Joint Final Rule
Federal Register / Vol. 60, No. 244 / Wednesday, December 20, 1995 /
Rules and Regulations
[[Page 66042]]
DEPARTMENT OF THE TREASURY
Office of the Comptroller of the Currency
12 CFR Part 3
[Docket No. 95-28]
RIN 1557-AB14
FEDERAL RESERVE SYSTEM
12 CFR Parts 208 and 225
[Regulations H and Y; Docket No. R-0849]
FEDERAL DEPOSIT INSURANCE CORPORATION
12 CFR Part 325
RIN 3064-AB54
Capital; Capital Adequacy Guidelines
AGENCIES: Office of the Comptroller of the Currency (OCC), Treasury;
Board of Governors of the Federal Reserve System (Board); and Federal
Deposit Insurance Corporation (FDIC).
ACTION: Joint final rule.
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SUMMARY: The OCC, Board, and the FDIC (Agencies) are amending their
respective risk-based capital guidelines to modify the definition of
the OECD-based group of countries. The amendment excludes from the
OECD-based group of countries any country that has rescheduled its
external sovereign debt within the previous five years. The amendment
also clarifies that the OECD-based group of countries includes all
countries that are members of the OECD, regardless of their date of
entry into the OECD. The effect of the amendment would be to increase
the amount of capital that banks are required to hold against claims on
the governments and banks of an OECD country, in the event that the
country were to reschedule its external sovereign debt. This action is
being taken to conform with a change in the Basle Accord on risk-based
capital that was adopted by the Basle Committee on Banking Supervision
(Basle Committee) on April 15, 1995.
EFFECTIVE DATE: April 1, 1996.
FOR FURTHER INFORMATION CONTACT: OCC: Geoffrey White, Senior
International Economic Advisor, International Banking and Finance
Department, (202) 874-5235; Saumya Bhavsar, Attorney, Legislative and
Regulatory Activities Division, (202) 874-5090; Ronald Shimabukuro,
Senior Attorney, Legislative and Regulatory Activities Division, (202)
874-5090; or Roger Tufts, Senior Economic Advisor, Office of the Chief
National Bank Examiner, (202) 874-5070; Office of the Comptroller of
the Currency, 250 E Street, SW., Washington, DC 20219.
Board: Roger Cole, Deputy Associate Director, (202) 452-2618; Norah
Barger, Manager, (202) 452-2402; Robert Motyka, Supervisory Financial
Analyst, (202) 452-3621; Division of Banking Supervision and
Regulation; or Greg Baer, Managing Senior Counsel, Legal Division,
(202) 452-3236; Board of Governors of the Federal Reserve System, 20th
Street and Constitution Avenue, NW., Washington, DC 20551. For the
hearing impaired only, Telecommunication Device for the Deaf, Dorothea
Thompson, (202) 452-3544.
FDIC: For supervisory purposes, Stephen G. Pfeifer, Examination
Specialist, Accounting Section, Division of Supervision, (202) 898-
8904; for legal purposes, Dirck A. Hargraves, Attorney, Legal Division,
(202) 898-7049; Federal Deposit Insurance Corporation, 550 17th Street,
NW., Washington, DC 20429.
SUPPLEMENTARY INFORMATION:
I. Background
In 1988, the central bank governors of the Group of Ten (G-10)
countries endorsed a framework for international risk-based capital
guidelines entitled ``International Convergence of Capital Measurement
and Capital Standards'' (commonly referred to as the Basle
Accord).1 Under the framework, risk-weighted assets are calculated
by assigning assets and off-balance-sheet items to broad categories
based primarily on their credit risk: that is, the risk that a banking
organization will incur a loss due to an obligor or counterparty
default on a transaction. Risk weights range from zero percent, for
assets with minimal credit risk (such as U.S. Treasury securities), to
100 percent, which is the risk weight that applies to most private
sector claims, including commercial loans. In 1989, the Agencies
adopted risk-based capital guidelines implementing the Basle Accord for
the banking organizations they supervise.
\1\ The Basle Accord was proposed by the Basle Committee, which
comprises representatives of the central banks and supervisory
authorities from the G-10 countries (Belgium, Canada, France,
Germany, Italy, Japan, the Netherlands, Sweden, Switzerland, the
United Kingdom, and the United States) and Luxembourg.
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While the Basle Accord focuses primarily on credit risk, it also
incorporates country transfer risk considerations. Transfer risk
generally refers to the possibility that an asset cannot be serviced in
the currency of payment because of a lack of, or restraints on, the
availability of needed foreign exchange in the country of the obligor.
In addressing transfer risk, the Basle Committee members examined
several methods for assigning obligations of foreign countries to the
various risk categories. Ultimately, the Basle Committee decided to use
a defined group of countries considered to be of high credit standing
as the basis for differentiating claims on foreign governments and
banks. For this purpose, the Basle Committee determined this group to
be the full members of the Organization for Economic Cooperation and
Development (OECD), as well as countries that have concluded special
lending arrangements with the International Monetary Fund (IMF)
associated with the IMF's General Arrangements to Borrow.2 These
countries, referred to in the Agencies' risk-based capital guidelines
as the OECD-based group of countries, encompass most of the world's
major industrial countries, including all members of the G-10 and the
European Union.
\2\ The OECD is an international organization of countries which
are committed to market-oriented economic policies, including the
promotion of private enterprise and free market prices; liberal
trade policies; and the absence of exchange controls. Full members
of the OECD at the time the Basle Accord was endorsed included
Australia, Austria, Belgium, Canada, Denmark, Finland, France,
Germany, Greece, Iceland, Ireland, Italy, Japan, Luxembourg, the
Netherlands, New Zealand, Norway, Portugal, Spain, Sweden,
Switzerland, Turkey, the United Kingdom, and the United States. In
May 1994, Mexico was accepted as a full member of the OECD. In
addition, Saudi Arabia has concluded special lending arrangements
associated with the IMF's General Arrangements to Borrow.
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Under both the Basle Accord and the Agencies' risk-based capital
guidelines, claims on the governments and banks of the OECD-based group
of countries generally receive lower risk weights than corresponding
claims on the governments and banks of non-OECD countries.
Specifically, the Agencies' guidelines provide for the following
treatment:
Direct claims on, and the portions of claims that are
directly and unconditionally guaranteed by, OECD-based central
governments (including central banks) are assigned to the zero percent
risk weight category. Corresponding claims on the central government of
a country outside the OECD-based group are assigned to the zero percent
risk weight category only to the extent that the claims are denominated
in the local currency and the bank has local currency liabilities in
that country.
Claims conditionally guaranteed by OECD-based central
governments and
[[Page 66043]]
claims collateralized by securities issued or guaranteed by OECD-based
central governments generally are assigned to the 20 percent risk
weight category. The same types of claims on non-OECD countries are
assigned to the 100 percent risk category.
Long-term claims on non-OECD banks are assigned to the 100
percent risk category, rather than to the 20 percent risk category
accorded to long-term claims on OECD banks. (Short-term claims on all
banks are assigned to the 20 percent risk weight category.)
General obligation bonds that are obligations of states or
other political subdivisions of the OECD-based group of countries are
assigned to the 20 percent risk category. Revenue bonds of such
political subdivisions are assigned to the 50 percent risk category.
General obligation and revenue bonds of political subdivisions of non-
OECD countries are assigned to the 100 percent risk category.
Recently, the OECD has taken steps to expand its membership. In
light of these steps, the Basle Committee was urged to clarify an
ambiguity in the Basle Accord as to whether the OECD members qualifying
for the lower risk weights include only those members that were members
of the OECD when the Basle Accord was endorsed in 1988, or all members,
regardless of their date of entry into the OECD. The Basle Committee
also reviewed the overall appropriateness of the criteria the Basle
Accord uses to determine whether claims on a foreign government or bank
qualify for placement in a lower risk category. As part of this review,
the Basle Committee reassessed whether membership in the OECD (or the
conclusion of special lending arrangements with the IMF) would, by
itself, be sufficient to ensure that only countries with relatively low
transfer risk would qualify for lower risk weight treatment.
On July 15, 1994, the Basle Committee clarified that the reference
in the Basle Accord to OECD members applies to all current members of
the organization. The Basle Committee also stated its intention,
subject to national consultation, to amend the definition of the OECD-
based group of countries in the Basle Accord in order to exclude from
lower risk weight treatment any country within the OECD-based group of
countries that had rescheduled its external sovereign debt within the
previous five years. The Basle Committee adopted this change in the
definition of the OECD-based group of countries on April 15, 1995.
On October 14, 1994, the Board and the OCC published a joint notice
of proposed rulemaking (59 FR 52100) to make corresponding changes in
the definition of the OECD-based group of countries in their risk-based
capital guidelines. The FDIC published a similar proposal on February
15, 1995 (60 FR 8582). Under the Agencies' proposals, the OECD-based
group of countries would continue to include countries that are full
members of the OECD, regardless of entry date, as well as countries
that have concluded special lending arrangements with the IMF
associated with the IMF's General Arrangements to Borrow, but would
exclude any country within this group that had rescheduled its external
sovereign debt within the previous five years. The purpose of the
proposed modification was to clarify that membership in the OECD-based
group of countries must coincide with relatively low transfer risk in
order for a country to qualify for the lower risk-weight treatment.
Under the proposals, reschedulings of external sovereign debt
generally would include renegotiations of terms arising from a
country's inability or unwillingness to meet its external debt service
obligations. The proposals further provided that renegotiations of debt
in the normal course of business generally would not indicate transfer
risk of the kind that would preclude an OECD-based country from
qualifying for lower risk weight treatment.
The Agencies invited comment on all aspects of the proposal.
II. Comments Received
The OCC and the Board together received two public comments on
their proposal. (The FDIC did not receive any comments.) One commenter
was a regional banking organization that generally supported the
proposal. The other was a clearinghouse that opposed the proposal.
The banking organization agreed that OECD membership alone is not
sufficient to ensure that only countries with relatively low transfer
risk qualify for lower risk weight treatment, and it supported the
additional criterion as providing a good indication of a higher level
of transfer risk. The banking organization suggested that the
definition should be further revised to exclude newly-formed countries,
whose willingness and ability to meet their debt obligations were
unproven, for a period of five years. The Agencies did not adopt this
suggestion, because the process of admitting countries to the OECD is
lengthy enough that the five-year waiting period recommended by the
commenter would have little practical effect.
The clearinghouse viewed the current criteria as adequate and
commented that adding another criterion would increase the complexity
of and confusion about the risk-based capital guidelines. Although the
Agencies agree with the commenter on the need to minimize the
complexity of the risk-based capital guidelines, the Agencies do not
believe that this rule will increase their complexity significantly,
particularly since reschedulings by OECD countries tend to be extremely
rare. Until a rescheduling occurs, the change in the definition will
not have any effect on the assignment of assets to risk-weight
categories, and thus will have little or no effect on banks.
III. Final Rule
After carefully considering the comments received and deliberating
further on the issues involved, the Agencies are adopting a final rule
that amends the definition of the OECD-based group of countries in
their risk-based capital guidelines substantially as proposed.
Under the final rule, the OECD-based group of countries continues
to include countries that are full members of the OECD, regardless of
entry date, as well as countries that have concluded special lending
arrangements with the IMF associated with the IMF's General
Arrangements to Borrow, but excludes any country within this group that
has rescheduled its external sovereign debt within the previous five
years.
For purposes of this final rule, an event of rescheduling of
external sovereign debt generally would include renegotiations of terms
arising from a country's inability or unwillingness to meet its
external debt service obligations. Renegotiations of debt in the normal
course of business generally do not indicate transfer risk of the kind
that would preclude an OECD-based country from qualifying for lower
risk weight treatment. One example of such a routine renegotiation
would be a renegotiation to allow the borrower to take advantage of a
change in market conditions, such as a decline in interest rates.
This distinction between renegotiations arising from a country's
inability or unwillingness to meet its external debt service
obligations and renegotiations that reflect a change in market
conditions was discussed in the preambles of the Agencies' notices of
proposed rulemaking but was not included in the regulatory text. In
order to clarify the meaning of the final rule, the Agencies are
including language to this effect in the text of the final rule.
[[Page 66044]]
IV. Regulatory Flexibility Act Analysis
The Agencies hereby certify that this final rule will not have a
significant economic impact on a substantial number of small business
entities (in this case, small banking organizations), in accord with
the spirit and purposes of the Regulatory Flexibility Act (5 U.S.C. 601
et seq.). The impact on institutions regulated by the Agencies,
regardless of their size, will be minimal. In addition, because the
risk-based capital guidelines generally do not apply to bank holding
companies with consolidated assets of less than $150 million, this
proposal will not affect such companies. Accordingly, no regulatory
flexibility analysis is required.
V. Paperwork Reduction Act and Regulatory Burden
The Agencies have determined that this final rule will not increase
the regulatory paperwork burden of banking organizations pursuant to
the provisions of the Paperwork Reduction Act (44 U.S.C. 3501 et seq.).
Section 302 of the Riegle Community Development and Regulatory
Improvement Act of 1994 (Pub. L. 103-325, 108 Stat. 2160) provides that
the Agencies must consider the administrative burdens and benefits of
any new regulations that impose additional requirements on insured
depository institutions. Section 302 also requires such a rule to take
effect on the first day of the calendar quarter following final
publication of the rule, unless the agency, for good cause, determines
an earlier effective date is appropriate. This final rule is effective
on April 1, 1996.
VI. OCC Statement on Executive Order 12866
The OCC has determined that this final rule is not a significant
regulatory action, as that term is defined by Executive Order 12866.
VII. OCC Statement on Unfunded Mandates Act of 1995
Section 202 of the Unfunded Mandates Reform Act of 1995, Pub. L.
104-4 (Unfunded Mandates Act), signed into law on March 22, 1995,
requires that an agency prepare a budgetary impact statement before
promulgating a rule that includes a Federal mandate that may result in
expenditure by State, local, and tribal governments, in the aggregate,
or by the private sector, of $100 million or more in any one year. If a
budgetary impact statement is required, section 205 of the Unfunded
Mandates Act also requires an agency to identify and consider a
reasonable number of regulatory alternatives before promulgating a
rule. The OCC has determined that this final rule will not result in
expenditures by State, local, and tribal governments, or by the private
sector, of $100 million or more in any one year. Accordingly, the OCC
has not prepared a budgetary impact statement or specifically addressed
the regulatory alternatives considered.
List of Subjects
12 CFR Part 3
Administrative practice and procedure, Capital, National banks,
Reporting and recordkeeping requirements, Risk.
12 CFR Part 208
Accounting, Agriculture, Banks, banking, Confidential business
information, Crime, Currency, Federal Reserve System, Flood insurance,
Mortgages, Reporting and recordkeeping requirements, Securities.
12 CFR Part 225
Administrative practice and procedure, Banks, banking, Federal
Reserve System, Holding companies, Reporting and recordkeeping
requirements, Securities.
12 CFR Part 325
Bank deposit insurance, Banks, banking, Capital adequacy, Reporting
and recordkeeping requirements, Savings associations, State nonmember
banks.
Authority and Issuance
OFFICE OF THE COMPTROLLER OF THE CURRENCY
12 CFR CHAPTER I
For the reasons set out in the joint preamble, Appendix A to part 3
of title 12, chapter I of the Code of Federal Regulations is amended as
set forth below.
PART 3--MINIMUM CAPITAL RATIOS; ISSUANCE OF DIRECTIVES
1. The authority citation for part 3 continues to read as follows:
Authority: 12 U.S.C. 93a, 161, 1818, 1828(n), 1831n note, 1835,
3907, and 3909.
2. In section 1 of appendix A to part 3, footnote 1 in paragraph
(c)(19) is redesignated as footnote 1a.
3. In section 1 of appendix A to part 3, paragraph (c)(16) is
revised to read as follows:
Appendix A to Part 3--Risk-Based Capital Guidelines
Section 1. Purpose, Applicability of Guidelines, and Definitions.
* * * * * *
(c) * * *
(16) The OECD-based group of countries comprises all full
members of the Organization for Economic Cooperation and Development
(OECD) regardless of entry date, as well as countries that have
concluded special lending arrangements with the International
Monetary Fund (IMF) associated with the IMF's General Arrangements
to Borrow,1 but excludes any country that has rescheduled its
external sovereign debt within the previous five years. These
countries are hereinafter referred to as OECD countries. A
rescheduling of external sovereign debt generally would include any
renegotiation of terms arising from a country's inability or
unwillingness to meet its external debt service obligations, but
generally would not include renegotiations of debt in the normal
course of business, such as a renegotiation to allow the borrower to
take advantage of a decline in interest rates or other change in
market conditions.
1 As of November 1995, the OECD included the following
countries: Australia, Austria, Belgium, Canada, Denmark, Finland,
France, Germany, Greece, Iceland, Ireland, Italy, Japan, Luxembourg,
Mexico, the Netherlands, New Zealand, Norway, Portugal, Spain,
Sweden, Switzerland, Turkey, the United Kingdom, and the United
States; and Saudi Arabia had concluded special lending arrangements
with the IMF associated with the IMF's General Arrangements to
Borrow.
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* * * * *
Dated: August 28, 1995.
Eugene A. Ludwig,
Comptroller of the Currency.
FEDERAL RESERVE SYSTEM
12 CFR CHAPTER II
For the reasons set forth in the joint preamble, the Board of
Governors of the Federal Reserve System amends 12 CFR parts 208 and 225
as set forth below:
PART 208--MEMBERSHIP OF STATE BANKING INSTITUTIONS IN THE FEDERAL
RESERVE SYSTEM (REGULATION H)
1. The authority citation for part 208 continues to read as
follows:
Authority: 12 U.S.C. 36, 248(a), 248(c), 321-338a, 371d, 461,
481-486, 601, 611, 1814, 1823(j), 1828(o), 1831o, 1831p-1, 3105,
3310, 3331-3351, and 3906-3909; 15 U.S.C. 78b, 78l(b), 78l(g),
78l(i), 78o-4(c)(5), 78q, 78q-1, and 78w; 31 U.S.C. 5318; 42 U.S.C.
4102a, 4104a, 4104b, 4106, 4128.
2. Appendix A to part 208 is amended by revising footnote 22 in
section III.B.1. to read as follows:
Appendix A to Part 208--Capital Adequacy Guidelines for State Member
Banks: Risk-Based Measure
* * * * *
III. * * *
B. * * *
1. * * * \22\* * *
* * * * *
\22\The OECD-based group of countries comprises all full members
of the
[[Page 66045]]
Organization for Economic Cooperation and Development (OECD) regardless
of entry date, as well as countries that have concluded special
lending arrangements with the International Monetary Fund (IMF)
associated with the IMF's General Arrangements to Borrow, but
excludes any country that has rescheduled its external sovereign
debt within the previous five years. As of November 1995, the OECD
included the following countries: Australia, Austria, Belgium,
Canada, Denmark, Finland, France, Germany, Greece, Iceland, Ireland,
Italy, Japan, Luxembourg, Mexico, the Netherlands, New Zealand,
Norway, Portugal, Spain, Sweden, Switzerland, Turkey, the United
Kingdom, and the United States; and Saudi Arabia had concluded
special lending arrangements with the IMF associated with the IMF's
General Arrangements to Borrow. A rescheduling of external sovereign
debt generally would include any renegotiation of terms arising from
a country's inability or unwillingness to meet its external debt
service obligations, but generally would not include renegotiations
of debt in the normal course of business, such as a renegotiation to
allow the borrower to take advantage of a decline in interest rates
or other change in market conditions.
* * * * *
PART 225--BANK HOLDING COMPANIES AND CHANGE IN BANK CONTROL
(REGULATION Y)
1. The authority citation for part 225 continues to read as
follows:
Authority: 12 U.S.C. 1817(j)(13), 1818, 1828(o), 1831i, 1831p-1,
1843(c)(8), 1844(b), 1927(l), 3106, 3108, 3310, 3331-3351, 3907, and
3909.
2. Appendix A to part 225 is amended by revising footnote 25 in
section III.B.1. to read as follows:
Appendix A to Part 225--Capital Adequacy Guidelines for Bank Holding
Companies: Risk-Based Measure
III. * * *
B. * * *
1. * * * \25\ * * *
* * * * *
\25\The OECD-based group of countries comprises all full members
of the Organization for Economic Cooperation and Development (OECD)
regardless of entry date, as well as countries that have concluded
special lending arrangements with the International Monetary Fund
(IMF) associated with the IMF's General Arrangements to Borrow, but
excludes any country that has rescheduled its external sovereign
debt within the previous five years. As of November 1995, the OECD
included the following countries: Australia, Austria, Belgium,
Canada, Denmark, Finland, France, Germany, Greece, Iceland, Ireland,
Italy, Japan, Luxembourg, Mexico, the Netherlands, New Zealand,
Norway, Portugal, Spain, Sweden, Switzerland, Turkey, the United
Kingdom, and the United States; and Saudi Arabia had concluded
special lending arrangements with the IMF associated with the IMF's
General Arrangements to Borrow. A rescheduling of external sovereign
debt generally would include any renegotiation of terms arising from
a country's inability or unwillingness to meet its external debt
service obligations, but generally would not include renegotiations
of debt in the normal course of business, such as a renegotiation to
allow the borrower to take advantage of a decline in interest rates
or other change in market conditions.
* * * * *
By the order of the Board of Governors of the Federal Reserve
System, November 13, 1995.
William W. Wiles,
Secretary of the Board.
FEDERAL DEPOSIT INSURANCE CORPORATION
12 CFR CHAPTER III
For the reasons set forth in the joint preamble, the Board of
Directors of the Federal Deposit Insurance Corporation amends part 325
of title 12 of the Code of Federal Regulations as follows:
PART 325--CAPITAL MAINTENANCE
1. The authority citation for part 325 continues to read as
follows:
Authority: 12 U.S.C. 1815(a), 1815(b), 1816, 1818(a), 1818(b),
1818(c), 1818(t), 1819(tenth), 1828(c), 1828(d), 1828(i), 1828(n),
1828(o), 1831o, 1835, 3907, 3909, 4808; Pub. L. 102-233, 105 Stat.
1761, 1789, 1790 (12 U.S.C. 1831n note); Pub. L. 102-242, 105 Stat.
2236, 2355, 2386 (12 U.S.C. 1828 note).
2. Appendix A to part 325 is amended by revising footnote 12 in
section II.B.2. to read as follows:
Appendix A to Part 325--Statement of Policy on Risk-Based Capital
* * * * *
II. * * *
B. * * *
2. * * *12 * * *
* * * * *
12 The OECD-based group of countries comprises all full
members of the Organization for Economic Cooperation and Development
(OECD) regardless of entry date, as well as countries that have
concluded special lending arrangements with the International
Monetary Fund (IMF) associated with the IMF's General Arrangements
to Borrow, but excludes any country that has rescheduled its
external sovereign debt within the previous five years. As of
November 1995, the OECD included the following countries: Australia,
Austria, Belgium, Canada, Denmark, Finland, France, Germany, Greece,
Iceland, Ireland, Italy, Japan, Luxembourg, Mexico, the Netherlands,
New Zealand, Norway, Portugal, Spain, Sweden, Switzerland, Turkey,
the United Kingdom, and the United States; and Saudi Arabia had
concluded special lending arrangements with the IMF associated with
the IMF's General Arrangements to Borrow. A rescheduling of external
sovereign debt generally would include any renegotiation of terms
arising from a country's inability or unwillingness to meet its
external debt service obligations, but generally would not include
renegotiations of debt in the normal course of business, such as a
renegotiation to allow the borrower to take advantage of a decline
in interest rates or other change in market conditions.
* * * * *
By order of the Board of Directors.
Dated at Washington, D.C. this 26th day of October, 1995.
Federal Deposit Insurance Corporation.
Jerry L. Langley,
Executive Secretary.
[FR Doc. 95-30664 Filed 12-19-95; 8:45 am]
BILLING CODE 4810-33-P; 6210-01-P; 6714-01-P
