federal register
68063
Tuesday
December 30, 1997
Part V
Department of the Treasury
Office of the Comptroller of the Currency
12 CFR Part 3
Federal Reserve System
12 CFR Parts 208 and 225
Federal Deposit Insurance
Corporation
12 CFR Part 325
Risk-Based Capital Standards: Market
Risk; Interim Rule
68063
Tuesday
December 30, 1997
Part V
Department of the Treasury
Office of the Comptroller of the Currency
12 CFR Part 3
Federal Reserve System
12 CFR Parts 208 and 225
Federal Deposit Insurance
Corporation
12 CFR Part 325
Risk-Based Capital Standards: Market
Risk; Interim Rule
68064 Federal Register / Vol. 62, No. 249 / Tuesday, December 30, 1997 / Rules and Regulations
1 The G–10 countries are Belgium, Canada,
France, Germany, Italy, Japan, Netherlands,
Sweden, Switzerland, the United Kingdom, and the
United States. The Committee is comprised of
representatives of the central banks and supervisory
authorities from the G–10 countries and
Luxembourg.
2 The VAR-based capital charge is the higher of
(i) the previous day’s VAR measure, or (ii) the
average of the daily VAR measures for each of the
preceding 60 business days multiplied by a factor
DEPARTMENT OF THE TREASURY
Office of the Comptroller of the
Currency
12 CFR Part 3
[Docket No. 97–25]
RIN 1557–AB14
FEDERAL RESERVE SYSTEM
12 CFR Parts 208 and 225
[Regulations H and Y; Docket No. R–0996]
FEDERAL DEPOSIT INSURANCE
CORPORATION
12 CFR Part 325
RIN 3064–AC14
Risk-Based Capital Standards: Market
Risk
AGENCIES: Office of the Comptroller of
the Currency, Treasury; Board of
Governors of the Federal Reserve
System; and Federal Deposit Insurance
Corporation.
ACTION: Joint interim rule with request
for comment.
SUMMARY: The Office of the Comptroller
of the Currency (OCC), the Board of
Governors of the Federal Reserve
System (Board), and the Federal Deposit
Insurance Corporation (FDIC)
(collectively, the Agencies) are
amending their respective risk-based
capital standards for market risk
applicable to certain banks and bank
holding companies with significant
trading activities. The amendment
eliminates the requirement that when an
institution measures specific risk using
its internal model, the total capital
charge for specific risk must equal at
least 50 percent of the standard specific
risk capital charge. The amendment
implements a revision to the Basle
Accord that permits such treatment for
an institution whose internal model
adequately measures specific risk. The
rule will reduce regulatory burden for
institutions with qualifying internal
models because they will no longer be
required to calculate a standard specific
risk capital charge.
DATES: This interim rule is effective
December 31, 1997. Comments must be
received by March 2, 1998.
ADDRESSES: Comments should be
directed to:
OCC: Comments may be submitted to
Docket No. 97–25, Communications
Division, Third Floor, Office of the
Comptroller of the Currency, 250 E
Street, S.W., Washington DC 20219.
Comments will be available for
inspection and photocopying at that
address. In addition, comments may be
sent by facsimile transmission to FAX
number (202) 874–5274, or by electronic
mail to regs.comment@occ.treas.gov.
Board: Comments directed to the
Board should refer to Docket No. R–
0996 and may be mailed to Mr. William
W. Wiles, Secretary, Board of Governors
of the Federal Reserve System, 20th
Street and Constitution Avenue, N.W.,
Washington DC 20551. Comments
addressed to the attention of Mr. Wiles
may also be delivered to Room B–2222
of the Eccles Building between 8:45 a.m.
and 5:15 p.m. weekdays, or the security
control room in the Eccles Building
courtyard on 20th Street, N.W. (between
Constitution Avenue and C Street) at
any time. Comments may be inspected
in Room MP–500 of the Martin Building
between 9:00 a.m. and 5:00 p.m.
weekdays, except as provided in 12 CFR
261.8 of the Board’s Rules Regarding
Availability of Information.
FDIC: Send written comments to
Robert E. Feldman, Executive Secretary,
Attention: Comments/OES, Federal
Deposit Insurance Corporation, 550 17th
Street, N.W., Washington, DC 20429.
Comments may be hand-delivered to the
guard station at the rear of the 17th
Street Building (located on F Street), on
business days between 7:00 a.m. and
5:00 p.m. (FAX number (202) 898–3838;
Internet address: comments@fdic.gov).
Comments may be inspected and
photocopied in the FDIC Public
Information Center, Room 100, 801 17th
Street, N.W., Washington, DC 20429,
between 9:00 a.m. and 4:30 p.m. on
business days.
FOR FURTHER INFORMATION CONTACT:
OCC: Roger Tufts, Senior Economic
Advisor (202/874–5070), Capital Policy
Division; Margot Schwadron, Financial
Analyst (202/874–5670), Treasury and
Market Risk; or Ronald Shimabukuro,
Senior Attorney (202/874–5090),
Legislative and Regulatory Activities
Division.
Board: Roger Cole, Associate Director
(202/452–2618), James Houpt, Deputy
Associate Director (202/452–3358),
Barbara Bouchard, Senior Supervisory
Financial Analyst (202/452–3072),
Division of Banking Supervision; or
Stephanie Martin, Senior Attorney (202/
452–3198), Legal Division. For the
hearing impaired only,
Telecommunication Device for the Deaf
(TDD), Diane Jenkins (202/452–3544).
FDIC: William A. Stark, Assistant
Director (202/898–6972), Miguel
Browne, Manager (202/898–6789), John
J. Feid, Chief (202/898–8649), Division
of Supervision; Jamey Basham, Counsel
(202/898–7265), Legal Division, Federal
Deposit Insurance Corporation, 550 17th
Street, N.W., Washington DC 20429.
SUPPLEMENTARY INFORMATION:
Background
The Agencies’ risk-based capital
standards are based upon principles
contained in the July 1988 agreement
entitled ‘‘International Convergence of
Capital Measurement and Capital
Standards’’ (Accord). The Accord,
developed by the Basle Committee on
Banking Supervision (Committee) and
endorsed by the central bank governors
of the Group of Ten (G–10) countries
(G–10 Governors), provides a framework
for assessing an institution’s capital
adequacy by weighting its assets and
off-balance-sheet exposures on the basis
of counterparty credit risk.1 In
December 1995, the G–10 Governors
endorsed the Committee’s amendment
to the Accord (effective by year-end
1997) to incorporate a measure for
exposure to market risk into the capital
adequacy assessment. On September 6,
1996, the Agencies issued revisions to
their risk-based capital standards
implementing the Committee’s market
risk amendment (61 FR 47358).
Under the Agencies’ market risk rules,
banks and bank holding companies
(institutions) with significant trading
activities must measure and hold capital
for exposure to general market risk
arising from fluctuations in interest
rates, equity prices, foreign exchange
rates, and commodity prices and
exposure to specific risk associated with
debt and equity positions in the trading
portfolio. General market risk refers to
changes in the market value of on-
balance-sheet assets and off-balance-
sheet items resulting from broad market
movements. Specific risk refers to
changes in the market value of
individual positions due to factors other
than broad market movements and
includes such risks as the credit risk of
an instrument’s issuer.
Under the Agencies’ current rules, an
institution must measure its general
market risk using its internal risk
measurement model, subject to certain
qualitative and quantitative criteria, to
calculate a value-at-risk (VAR) based
capital charge.2 An institution may
1 The G–10 countries are Belgium, Canada,
France, Germany, Italy, Japan, Netherlands,
Sweden, Switzerland, the United Kingdom, and the
United States. The Committee is comprised of
representatives of the central banks and supervisory
authorities from the G–10 countries and
Luxembourg.
2 The VAR-based capital charge is the higher of
(i) the previous day’s VAR measure, or (ii) the
average of the daily VAR measures for each of the
preceding 60 business days multiplied by a factor
DEPARTMENT OF THE TREASURY
Office of the Comptroller of the
Currency
12 CFR Part 3
[Docket No. 97–25]
RIN 1557–AB14
FEDERAL RESERVE SYSTEM
12 CFR Parts 208 and 225
[Regulations H and Y; Docket No. R–0996]
FEDERAL DEPOSIT INSURANCE
CORPORATION
12 CFR Part 325
RIN 3064–AC14
Risk-Based Capital Standards: Market
Risk
AGENCIES: Office of the Comptroller of
the Currency, Treasury; Board of
Governors of the Federal Reserve
System; and Federal Deposit Insurance
Corporation.
ACTION: Joint interim rule with request
for comment.
SUMMARY: The Office of the Comptroller
of the Currency (OCC), the Board of
Governors of the Federal Reserve
System (Board), and the Federal Deposit
Insurance Corporation (FDIC)
(collectively, the Agencies) are
amending their respective risk-based
capital standards for market risk
applicable to certain banks and bank
holding companies with significant
trading activities. The amendment
eliminates the requirement that when an
institution measures specific risk using
its internal model, the total capital
charge for specific risk must equal at
least 50 percent of the standard specific
risk capital charge. The amendment
implements a revision to the Basle
Accord that permits such treatment for
an institution whose internal model
adequately measures specific risk. The
rule will reduce regulatory burden for
institutions with qualifying internal
models because they will no longer be
required to calculate a standard specific
risk capital charge.
DATES: This interim rule is effective
December 31, 1997. Comments must be
received by March 2, 1998.
ADDRESSES: Comments should be
directed to:
OCC: Comments may be submitted to
Docket No. 97–25, Communications
Division, Third Floor, Office of the
Comptroller of the Currency, 250 E
Street, S.W., Washington DC 20219.
Comments will be available for
inspection and photocopying at that
address. In addition, comments may be
sent by facsimile transmission to FAX
number (202) 874–5274, or by electronic
mail to regs.comment@occ.treas.gov.
Board: Comments directed to the
Board should refer to Docket No. R–
0996 and may be mailed to Mr. William
W. Wiles, Secretary, Board of Governors
of the Federal Reserve System, 20th
Street and Constitution Avenue, N.W.,
Washington DC 20551. Comments
addressed to the attention of Mr. Wiles
may also be delivered to Room B–2222
of the Eccles Building between 8:45 a.m.
and 5:15 p.m. weekdays, or the security
control room in the Eccles Building
courtyard on 20th Street, N.W. (between
Constitution Avenue and C Street) at
any time. Comments may be inspected
in Room MP–500 of the Martin Building
between 9:00 a.m. and 5:00 p.m.
weekdays, except as provided in 12 CFR
261.8 of the Board’s Rules Regarding
Availability of Information.
FDIC: Send written comments to
Robert E. Feldman, Executive Secretary,
Attention: Comments/OES, Federal
Deposit Insurance Corporation, 550 17th
Street, N.W., Washington, DC 20429.
Comments may be hand-delivered to the
guard station at the rear of the 17th
Street Building (located on F Street), on
business days between 7:00 a.m. and
5:00 p.m. (FAX number (202) 898–3838;
Internet address: comments@fdic.gov).
Comments may be inspected and
photocopied in the FDIC Public
Information Center, Room 100, 801 17th
Street, N.W., Washington, DC 20429,
between 9:00 a.m. and 4:30 p.m. on
business days.
FOR FURTHER INFORMATION CONTACT:
OCC: Roger Tufts, Senior Economic
Advisor (202/874–5070), Capital Policy
Division; Margot Schwadron, Financial
Analyst (202/874–5670), Treasury and
Market Risk; or Ronald Shimabukuro,
Senior Attorney (202/874–5090),
Legislative and Regulatory Activities
Division.
Board: Roger Cole, Associate Director
(202/452–2618), James Houpt, Deputy
Associate Director (202/452–3358),
Barbara Bouchard, Senior Supervisory
Financial Analyst (202/452–3072),
Division of Banking Supervision; or
Stephanie Martin, Senior Attorney (202/
452–3198), Legal Division. For the
hearing impaired only,
Telecommunication Device for the Deaf
(TDD), Diane Jenkins (202/452–3544).
FDIC: William A. Stark, Assistant
Director (202/898–6972), Miguel
Browne, Manager (202/898–6789), John
J. Feid, Chief (202/898–8649), Division
of Supervision; Jamey Basham, Counsel
(202/898–7265), Legal Division, Federal
Deposit Insurance Corporation, 550 17th
Street, N.W., Washington DC 20429.
SUPPLEMENTARY INFORMATION:
Background
The Agencies’ risk-based capital
standards are based upon principles
contained in the July 1988 agreement
entitled ‘‘International Convergence of
Capital Measurement and Capital
Standards’’ (Accord). The Accord,
developed by the Basle Committee on
Banking Supervision (Committee) and
endorsed by the central bank governors
of the Group of Ten (G–10) countries
(G–10 Governors), provides a framework
for assessing an institution’s capital
adequacy by weighting its assets and
off-balance-sheet exposures on the basis
of counterparty credit risk.1 In
December 1995, the G–10 Governors
endorsed the Committee’s amendment
to the Accord (effective by year-end
1997) to incorporate a measure for
exposure to market risk into the capital
adequacy assessment. On September 6,
1996, the Agencies issued revisions to
their risk-based capital standards
implementing the Committee’s market
risk amendment (61 FR 47358).
Under the Agencies’ market risk rules,
banks and bank holding companies
(institutions) with significant trading
activities must measure and hold capital
for exposure to general market risk
arising from fluctuations in interest
rates, equity prices, foreign exchange
rates, and commodity prices and
exposure to specific risk associated with
debt and equity positions in the trading
portfolio. General market risk refers to
changes in the market value of on-
balance-sheet assets and off-balance-
sheet items resulting from broad market
movements. Specific risk refers to
changes in the market value of
individual positions due to factors other
than broad market movements and
includes such risks as the credit risk of
an instrument’s issuer.
Under the Agencies’ current rules, an
institution must measure its general
market risk using its internal risk
measurement model, subject to certain
qualitative and quantitative criteria, to
calculate a value-at-risk (VAR) based
capital charge.2 An institution may