Joint Release
Board of Governors of the Federal Reserve System
Federal Deposit Insurance Corporation
Office of the Comptroller of the Currency
Office of Thrift Supervision
For immediate release February 17, 2000
Agencies Propose Revision Of Risk-Based Capital Rules'
Treatment Of Recourse And Direct-Credit Substitutes
The four federal banking agencies today released proposed revisions to their risk-based
capital requirements for certain obligations related to securitized transactions.
The proposal by the Federal Reserve Board, Federal Deposit Insurance Corporation,
Office of the Comptroller of the Currency and Office of Thrift Supervision is intended to
produce more consistent capital treatment for credit risks associated with exposures
arising from securitization transactions. It would amend the risk-based capital
requirements for asset-backed securities as well as recourse obligations and direct
credit substitutes.
Public comment is requested by May 26, 2000.
In securitizations, assets such as residential and commercial mortgages, credit-card
receivables and automobile loans are pooled and reconstituted into securities.
Securitizations typically carve up the credit risks from underlying assets and redistribute
them to different parties. Sellers of assets into a securitization may retain part of the risk
of credit loss through recourse arrangements. Sellers also may arrange for a third party,
such as a banking organization, to accept some of the credit risk through guarantees,
referred to as direct credit substitutes.
The proposed revisions would:
• Assign a risk-based charge to positions in securitized transactions according to
the relative credit risk of those positions, as measured by credit ratings received
from nationally recognized rating agencies.
• Treat recourse obligations and direct credit substitutes more consistently under
risk-based capital rules.
• Define "recourse" and revise the definition of "direct credit substitute."
• Permit the limited use of an institution's internal risk-rating system and other
alternative approaches in determining the risk-based capital requirement for
unrated direct credit substitutes associated with asset-backed commercial paper
Board of Governors of the Federal Reserve System
Federal Deposit Insurance Corporation
Office of the Comptroller of the Currency
Office of Thrift Supervision
For immediate release February 17, 2000
Agencies Propose Revision Of Risk-Based Capital Rules'
Treatment Of Recourse And Direct-Credit Substitutes
The four federal banking agencies today released proposed revisions to their risk-based
capital requirements for certain obligations related to securitized transactions.
The proposal by the Federal Reserve Board, Federal Deposit Insurance Corporation,
Office of the Comptroller of the Currency and Office of Thrift Supervision is intended to
produce more consistent capital treatment for credit risks associated with exposures
arising from securitization transactions. It would amend the risk-based capital
requirements for asset-backed securities as well as recourse obligations and direct
credit substitutes.
Public comment is requested by May 26, 2000.
In securitizations, assets such as residential and commercial mortgages, credit-card
receivables and automobile loans are pooled and reconstituted into securities.
Securitizations typically carve up the credit risks from underlying assets and redistribute
them to different parties. Sellers of assets into a securitization may retain part of the risk
of credit loss through recourse arrangements. Sellers also may arrange for a third party,
such as a banking organization, to accept some of the credit risk through guarantees,
referred to as direct credit substitutes.
The proposed revisions would:
• Assign a risk-based charge to positions in securitized transactions according to
the relative credit risk of those positions, as measured by credit ratings received
from nationally recognized rating agencies.
• Treat recourse obligations and direct credit substitutes more consistently under
risk-based capital rules.
• Define "recourse" and revise the definition of "direct credit substitute."
• Permit the limited use of an institution's internal risk-rating system and other
alternative approaches in determining the risk-based capital requirement for
unrated direct credit substitutes associated with asset-backed commercial paper
programs and other structured finance programs.
• Require banking organizations to hold additional risk-based capital against risks
presented by the early amortization feature of revolving asset securitizations.
The interagency proposal published today incorporates many of the industry comments
received in response to an earlier version published in November 1997. A consultative
paper issued in June 1999 by the Basel Committee on Banking Supervision considers a
similar approach to that contained in this proposal.
# # #
Attachment: Risk-Based Capital Standards; Recourse and Direct Credit Substitutes
Media Contacts
Federal Reserve: Dave Skidmore (202) 452-3204
FDIC: David Barr (202) 898-6992
OCC: Kevin Mukri (202) 874-5770
OTS: Patricia Cinelli (202) 906-6688
FDIC-PR-11-2000
• Require banking organizations to hold additional risk-based capital against risks
presented by the early amortization feature of revolving asset securitizations.
The interagency proposal published today incorporates many of the industry comments
received in response to an earlier version published in November 1997. A consultative
paper issued in June 1999 by the Basel Committee on Banking Supervision considers a
similar approach to that contained in this proposal.
# # #
Attachment: Risk-Based Capital Standards; Recourse and Direct Credit Substitutes
Media Contacts
Federal Reserve: Dave Skidmore (202) 452-3204
FDIC: David Barr (202) 898-6992
OCC: Kevin Mukri (202) 874-5770
OTS: Patricia Cinelli (202) 906-6688
FDIC-PR-11-2000