Approval of Final Rule on Risk-Based Capital Treatment of Cash-Collateralized Securities Borrowing Transactions
February 6, 2006
Circular No. 11764

To All State Members Banks and Bank Holding Companies
in the Second Federal Reserve District:

The Federal Reserve Board has announced the approval of a final rule for state member banks and bank holding companies that revises the risk-based capital treatment for cash collateral posted in connection with securities borrowing transactions. This final rule makes permanent, and expands the scope of, an interim final rule issued in 2000, that reduced risk-based capital requirements for certain cash-collateralized securities borrowing transactions.

Under the interim rule, a banking organization could exclude receivables associated with securities borrowing transactions that met certain criteria from its risk-weighted assets to the extent the transactions were collateralized by the market value of the securities borrowed.

The final rule is substantially similar to the interim rule, but broadens its application so that securities borrowing transactions that would not be eligible for certain exemptions from U.S. federal bankruptcy or receivership law may qualify for the beneficial risk-based capital treatment provided certain operational and legal conditions are met.

The Federal Reserve will not object if banking organizations apply the treatment set forth in the final rule in their fourth quarter 2005 regulatory reports.

The final rule is pending approval by other federal banking regulators and would take effect upon its publication in the Federal Register.

Press release  
Final rule  
Circular No. 11294 (Interim final rule) ››

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