Basle Committee on Banking Supervision
April 20, 1998
Circular No. 11050

Changes in International Accord on Minimum Capital Requirements for Banks

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 Basle Committee on Banking Supervision has issued two announcements relating to the Basle Accord, which is an international agreement setting minimum capital requirements for banks.

One announcement is an amendment to the Accord reducing the risk weight for claims on (and claims guaranteed by) certain securities firms incorporated in OECD countries from 100 percent to 20 percent. To qualify for the preferential risk weight, securities firms must be subject to supervisory and regulatory arrangements, and in particular capital requirements, that are comparable to those applied to banks under the Basle Accord.

In the United States this amendment, in general, would provide a reduced capital charge for claims on or guarantees by broker-dealers registered with the Securities and Exchange Commission and their direct subsidiaries that are subject to supervision and capital requirements. The capital requirements generally would be the SEC's net capital rule, or, for securities firms operating in Europe, the European Union's Capital Adequacy Directive. Claims on the holding companies and affiliates of such broker-dealers or securities firms not subject to capital requirements generally would retain their 100 percent risk weighting. The Federal Reserve intends to initiate a rulemaking to propose this revision to its risk-based capital rules for state member banks and bank holding companies.

The second announcement sets forth principles governing on-balance-sheet netting for capital purposes. The statement solicits industry comment by June 30, 1998.

Comments on the netting proposal may be submitted to the Basle Supervisors Committee at FAX: 011 41 61 280 9100.

If you have any questions, you may direct them, at this Bank, to Christine M. Cumming, Senior Vice President.