To All State Member Banks, Bank Holding Companies, and Branches and Agencies of Foreign Banks, in the Second Federal Reserve District:
The following is from a statement by the Board of Governors of the Federal Reserve System:
The Federal Reserve Board has issued an interim rule and requested public comment on amendments to reduce regulatory burden in risk-based capital guidelines that apply to banking organizations with significant trading activities.
The interim rule is effective December 31, 1997.
Comment is requested by March 2, 1998.
The amendments eliminate the requirement that when an institution measures specific market risk using its internal model, the total capital charge for specific risk must equal at least 50 percent of the standard specific risk capital charge.
The amendments implement a revision to the Basle Accord that permits such treatment for an institution whose internal model adequately measures specific risk.
The rule will reduce regulatory burden for institutions with qualifying internal models because they will no longer be required to calculate a standard specific risk capital charge.