Comments Requested on Suggested Domestic Risk-Based Capital Modifications
October 25, 2005
Circular No. 11745

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

An interagency advance notice of proposed rulemaking (ANPR) regarding potential revisions to the existing risk-based capital framework has been published by 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 revisions apply to banks, bank holding companies and savings associations.

The ANPR document discusses various modifications to the U.S. risk-based capital standards including:

  • increasing the number of risk weight categories to which credit exposures may be assigned,
  • expanding the use of external credit ratings as an indicator of credit risk for externally-rated exposures,
  • expanding the range of collateral and guarantors that may qualify an exposure for lower risk weights,
  • using loan-to-value ratios, credit assessments, and other broad measures of credit risk for assigning risk-weights to residential mortgages,
  • modifying the credit conversion factor for various commitments, including those with an original maturity of under one year,
  • requiring that certain loans 90 days or more past due or in a non-accrual status be assigned to a higher risk weight category,
  • modifying the risk-based capital requirements for certain commercial real estate exposures,
  • increasing the risk sensitivity of capital requirements for other types of retail, multifamily, small business, and commercial exposures, and
  • assessing a risk-based capital charge to reflect the risks in securitizations with early amortization provisions that are backed by revolving retail exposures.

Comments must be received on or before January 18, 2006.

Press release OFFSITE
Federal Register notice OFFSITE PDF

Lance Auer
Assistant Vice President
Financial Sector Policy and Analysis
(212) 720-2847