Agencies Issue Rulemaking to Amend Risk-Based Capital Treatment
September 18, 2003
Circular No. 11544

To All Depository Institutions and Others Concerned in the Second Federal Reserve District:

In a joint press release, the federal and thrift regulatory agencies requested comment on an interim final rule and a notice of proposed rulemaking (NPR) to amend their risk-based capital standards for the treatment of assets in asset-backed commercial paper (ABCP) programs. The NPR would also modify the risk-based capital treatment of certain securitizations with early amortization provisions.

The interim rule amends the risk-based capital standards to exclude from tier 1 and total capital any minority interests in ABCP programs consolidated by sponsoring banking organizations under Financial Accounting Standards Board Interpretation No. 46, Consolidation of Variable Interest Entities (FIN 46). However, these organizations must continue to include any other exposures they have to these programs, such as credit enhancements, in risk-weighted assets. This interim risk-based capital treatment will expire on April 1, 2004.

The NPR solicits comments on a permanent, risk sensitive risk-based capital treatment for the risks arising from ABCP programs. In particular, it proposes to permanently permit banking organizations to exclude from their risk-weighted asset base those assets in ABCP programs consolidated onto sponsoring banking organizations' balance sheets as a result of FIN 46. In addition, the NPR also would require banking organizations to hold risk-based capital against liquidity facilities provided to ABCP programs with an original maturity of one year or less. This treatment recognizes that such facilities, which currently are not assessed a capital requirement, expose banking organizations to credit risk.

The agencies are also proposing a risk-based capital charge for certain types of securitizations of revolving retail credit facilities (for example, credit card receivables) that incorporate early amortization provisions. The goal is to more closely align the risk-based capital requirements with the associated risk of the exposures.

The interim final rule and NPR are issued by the Federal Reserve Board, the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency and the Office of Thrift Supervision.

Comments on the interim final rule and NPR are due 45 days after their publication in the Federal Register, expected shortly.

Questions on this matter may be directed at this Bank to Dianne Dobbeck, Bank Supervision Officer, Policy Department.