Thursday,
November 29, 2001
Part II
Department of the Treasury
Office of the Comptroller of the
Currency
Office of Thrift Supervision
12 CFR Parts 3 and 567
Federal Reserve System
12 CFR Parts 208 and 225
Federal Deposit Insurance
Corporation
12 CFR Part 325
Risk-Based Capital Guidelines; Capital
Adequacy Guidelines; Capital
Maintenance: Capital Treatment of
Recourse, Direct Credit Substitutes and
Residual Interests in Asset Securitizations;
Final Rules
VerDate 11<MAY>2000 18:43 Nov 28, 2001 Jkt 197001 PO 00000 Frm 00001 Fmt 4737 Sfmt 4737 E:\FR\FM\29NOR2.SGM pfrm01 PsN: 29NOR2
November 29, 2001
Part II
Department of the Treasury
Office of the Comptroller of the
Currency
Office of Thrift Supervision
12 CFR Parts 3 and 567
Federal Reserve System
12 CFR Parts 208 and 225
Federal Deposit Insurance
Corporation
12 CFR Part 325
Risk-Based Capital Guidelines; Capital
Adequacy Guidelines; Capital
Maintenance: Capital Treatment of
Recourse, Direct Credit Substitutes and
Residual Interests in Asset Securitizations;
Final Rules
VerDate 11<MAY>2000 18:43 Nov 28, 2001 Jkt 197001 PO 00000 Frm 00001 Fmt 4737 Sfmt 4737 E:\FR\FM\29NOR2.SGM pfrm01 PsN: 29NOR2
59614 Federal Register / Vol. 66, No. 230 / Thursday, November 29, 2001 / Rules and Regulations
DEPARTMENT OF THE TREASURY
Office of the Comptroller of the
Currency
12 CFR Part 3
[Docket No. 01–24]
RIN 1557–AB14
FEDERAL RESERVE SYSTEM
12 CFR Parts 208 and 225
[Regulations H and Y; Docket No. R–1055]
FEDERAL DEPOSIT INSURANCE
CORPORATION
12 CFR Part 325
RIN 3064–AB31
DEPARTMENT OF THE TREASURY
Office of Thrift Supervision
12 CFR Part 567
[Docket No. 2001–68]
RIN 1550–AB11
Risk-Based Capital Guidelines; Capital
Adequacy Guidelines; Capital
Maintenance: Capital Treatment of
Recourse, Direct Credit Substitutes
and Residual Interests in Asset
Securitizations
AGENCIES: Office of the Comptroller of
the Currency, Treasury; Board of
Governors of the Federal Reserve
System; Federal Deposit Insurance
Corporation; and Office of Thrift
Supervision, Treasury.
ACTION: Final rule.
SUMMARY: The Office of the Comptroller
of the Currency (OCC), the Board of
Governors of the Federal Reserve
System (Board), the Federal Deposit
Insurance Corporation (FDIC), and the
Office of Thrift Supervision (OTS)
(collectively, the agencies) are changing
their regulatory capital standards to
address the treatment of recourse
obligations, residual interests and direct
credit substitutes that expose banks,
bank holding companies, and thrifts
(collectively, banking organizations)
primarily to credit risk. The final rule
treats recourse obligations and direct
credit substitutes more consistently than
the agencies’ current risk-based capital
standards and adds new standards for
the treatment of residual interests,
including a concentration limit for
credit-enhancing interest-only strips. In
addition, the agencies use credit ratings
and certain alternative approaches to
match the risk-based capital
requirement more closely to a banking
organization’s relative risk of loss for
certain positions in asset securitizations.
The final rule does not include the
proposed requirement that the sponsor
of a revolving credit securitization that
involves an early amortization feature
hold capital against the amount of assets
under management.
This rule is intended to result in a
more consistent treatment for similar
transactions among the agencies, more
consistent regulatory capital treatment
for certain transactions involving
similar risk, and capital requirements
that more closely reflect a banking
organization’s relative exposure to
credit risk.
DATES: This rule is effective January 1,
2002. Any transactions settled on or
after January 1, 2002, are subject to this
final rule. Banking organizations that
enter into transactions before January 1,
2002, may elect early adoption, as of
November 29, 2001, of any provision of
the final rule that results in a reduced
capital requirement. Conversely,
banking organizations that enter into
transactions before January 1, 2002, that
result in increased capital requirements
under the final rule may delay the
application of this rule to those
transactions until December 31, 2002.
FOR FURTHER INFORMATION CONTACT:
OCC: Amrit Sekhon, Risk Expert,
Capital Policy Division, (202) 874–5211;
Laura Goldman, Senior Attorney,
Legislative and Regulatory Activities
Division, (202) 874–5090, Office of the
Comptroller of the Currency, 250 E
Street, SW, Washington, DC 20219.
Board: Thomas R. Boemio, Senior
Supervisory Financial Analyst, (202)
452–2982, Arleen Lustig, Supervisory
Financial Analyst, (202) 452–2987, or
Barbara Bouchard, Assistant Director
(202) 452–3072, Division of Banking
Supervision and Regulation. For the
hearing impaired only,
Telecommunication Device for the Deaf
(TDD), (202) 263–4869, Board of
Governors of the Federal Reserve
System, 20th Street and Constitution
Avenue, NW, Washington, DC 20551.
FDIC: Robert F. Storch, Chief,
Accounting Section, Division of
Supervision, (202) 898–8906; Jason C.
Cave, Senior Capital Markets Specialist,
Division of Supervision, (202) 898–
3548; Miguel D. Browne, Manager,
Policy, Risk Management and
Operations, Division of Supervision,
(202) 898–6789; Marc J. Goldstrom,
Counsel, (202) 898–8807 or Michael B.
Phillips, Counsel, (202) 898–3581,
Supervision and Legislation Branch,
Legal Division, Federal Deposit
Insurance Corporation, 550 17th Street,
NW, Washington, DC 20429.
OTS: Michael D. Solomon, Senior
Program Manager for Capital Policy,
(202) 906–5654, David Riley, Project
Manager, Supervision Policy, (202) 906–
6669; Teresa Scott, Counsel (Banking
and Finance), (202) 906–6478, or Karen
Osterloh, Assistant Chief Counsel, (202)
906–6639, Office of Thrift Supervision,
1700 G Street, NW, Washington, DC
20552.
SUPPLEMENTARY INFORMATION:
I. Introduction
A. Asset Securitization
B. Residual Interests
C. The Combined Final Rule
II. Background
A. Asset Securitization
B. Risk Management of Exposures Arising
from Securitization Activities
C. Current Risk-Based Capital Treatment of
Recourse, Residual Interests and Direct
Credit Substitutes
1. Recourse and Retained Residual
Interests
2. Direct Credit Substitutes
3. Concerns Raised by Current Capital
Treatment
III. Description of the Final Rule: Treatment
of Recourse, Residual Interests and
Direct Credit Substitutes
A. The General Approach Taken in the
Final Rule
1. Combined Final Rule
2. Managed Assets Capital Charge
3. Capital Charge for Residual Interests
a. Concentration Limit Capital Charge
b. Dollar-for-Dollar Capital Charge
B. Definitions and Scope of the Final Rule
1. Recourse
2. Direct Credit Substitute
3. Residual Interests
4. Credit-Enhancing Interest-Only Strips
5. Credit Derivatives
6. Credit-Enhancing Representations and
Warranties
7. Clean-up Calls
8. Loan Servicing Arrangements
9. Interaction with Market Risk Rule
10. Reservation of Authority
11. Alternative Capital Calculation for
Small Business Obligations
C. Ratings-based Approach: Traded and
Non-traded Positions
D. Unrated Positions
1. Use of Banking Organizations’ Internal
Risk Ratings
2. Ratings of Specific Positions in
Structured Financing Programs
3. Use of Qualifying Rating Software
Mapped to Public Rating Standards
IV. Effective Date of the Final Rule
V. Miscellaneous Changes
VI. Regulatory Analysis
A. Regulatory Flexibility Act
B. Paperwork Reduction Act
C. Executive Order 12866
D. Unfunded Mandates Reform Act of 1995
E. Plain Language
I. Introduction
The agencies are amending their
regulatory capital standards to change
VerDate 11<MAY>2000 18:43 Nov 28, 2001 Jkt 197001 PO 00000 Frm 00002 Fmt 4701 Sfmt 4700 E:\FR\FM\29NOR2.SGM pfrm01 PsN: 29NOR2
DEPARTMENT OF THE TREASURY
Office of the Comptroller of the
Currency
12 CFR Part 3
[Docket No. 01–24]
RIN 1557–AB14
FEDERAL RESERVE SYSTEM
12 CFR Parts 208 and 225
[Regulations H and Y; Docket No. R–1055]
FEDERAL DEPOSIT INSURANCE
CORPORATION
12 CFR Part 325
RIN 3064–AB31
DEPARTMENT OF THE TREASURY
Office of Thrift Supervision
12 CFR Part 567
[Docket No. 2001–68]
RIN 1550–AB11
Risk-Based Capital Guidelines; Capital
Adequacy Guidelines; Capital
Maintenance: Capital Treatment of
Recourse, Direct Credit Substitutes
and Residual Interests in Asset
Securitizations
AGENCIES: Office of the Comptroller of
the Currency, Treasury; Board of
Governors of the Federal Reserve
System; Federal Deposit Insurance
Corporation; and Office of Thrift
Supervision, Treasury.
ACTION: Final rule.
SUMMARY: The Office of the Comptroller
of the Currency (OCC), the Board of
Governors of the Federal Reserve
System (Board), the Federal Deposit
Insurance Corporation (FDIC), and the
Office of Thrift Supervision (OTS)
(collectively, the agencies) are changing
their regulatory capital standards to
address the treatment of recourse
obligations, residual interests and direct
credit substitutes that expose banks,
bank holding companies, and thrifts
(collectively, banking organizations)
primarily to credit risk. The final rule
treats recourse obligations and direct
credit substitutes more consistently than
the agencies’ current risk-based capital
standards and adds new standards for
the treatment of residual interests,
including a concentration limit for
credit-enhancing interest-only strips. In
addition, the agencies use credit ratings
and certain alternative approaches to
match the risk-based capital
requirement more closely to a banking
organization’s relative risk of loss for
certain positions in asset securitizations.
The final rule does not include the
proposed requirement that the sponsor
of a revolving credit securitization that
involves an early amortization feature
hold capital against the amount of assets
under management.
This rule is intended to result in a
more consistent treatment for similar
transactions among the agencies, more
consistent regulatory capital treatment
for certain transactions involving
similar risk, and capital requirements
that more closely reflect a banking
organization’s relative exposure to
credit risk.
DATES: This rule is effective January 1,
2002. Any transactions settled on or
after January 1, 2002, are subject to this
final rule. Banking organizations that
enter into transactions before January 1,
2002, may elect early adoption, as of
November 29, 2001, of any provision of
the final rule that results in a reduced
capital requirement. Conversely,
banking organizations that enter into
transactions before January 1, 2002, that
result in increased capital requirements
under the final rule may delay the
application of this rule to those
transactions until December 31, 2002.
FOR FURTHER INFORMATION CONTACT:
OCC: Amrit Sekhon, Risk Expert,
Capital Policy Division, (202) 874–5211;
Laura Goldman, Senior Attorney,
Legislative and Regulatory Activities
Division, (202) 874–5090, Office of the
Comptroller of the Currency, 250 E
Street, SW, Washington, DC 20219.
Board: Thomas R. Boemio, Senior
Supervisory Financial Analyst, (202)
452–2982, Arleen Lustig, Supervisory
Financial Analyst, (202) 452–2987, or
Barbara Bouchard, Assistant Director
(202) 452–3072, Division of Banking
Supervision and Regulation. For the
hearing impaired only,
Telecommunication Device for the Deaf
(TDD), (202) 263–4869, Board of
Governors of the Federal Reserve
System, 20th Street and Constitution
Avenue, NW, Washington, DC 20551.
FDIC: Robert F. Storch, Chief,
Accounting Section, Division of
Supervision, (202) 898–8906; Jason C.
Cave, Senior Capital Markets Specialist,
Division of Supervision, (202) 898–
3548; Miguel D. Browne, Manager,
Policy, Risk Management and
Operations, Division of Supervision,
(202) 898–6789; Marc J. Goldstrom,
Counsel, (202) 898–8807 or Michael B.
Phillips, Counsel, (202) 898–3581,
Supervision and Legislation Branch,
Legal Division, Federal Deposit
Insurance Corporation, 550 17th Street,
NW, Washington, DC 20429.
OTS: Michael D. Solomon, Senior
Program Manager for Capital Policy,
(202) 906–5654, David Riley, Project
Manager, Supervision Policy, (202) 906–
6669; Teresa Scott, Counsel (Banking
and Finance), (202) 906–6478, or Karen
Osterloh, Assistant Chief Counsel, (202)
906–6639, Office of Thrift Supervision,
1700 G Street, NW, Washington, DC
20552.
SUPPLEMENTARY INFORMATION:
I. Introduction
A. Asset Securitization
B. Residual Interests
C. The Combined Final Rule
II. Background
A. Asset Securitization
B. Risk Management of Exposures Arising
from Securitization Activities
C. Current Risk-Based Capital Treatment of
Recourse, Residual Interests and Direct
Credit Substitutes
1. Recourse and Retained Residual
Interests
2. Direct Credit Substitutes
3. Concerns Raised by Current Capital
Treatment
III. Description of the Final Rule: Treatment
of Recourse, Residual Interests and
Direct Credit Substitutes
A. The General Approach Taken in the
Final Rule
1. Combined Final Rule
2. Managed Assets Capital Charge
3. Capital Charge for Residual Interests
a. Concentration Limit Capital Charge
b. Dollar-for-Dollar Capital Charge
B. Definitions and Scope of the Final Rule
1. Recourse
2. Direct Credit Substitute
3. Residual Interests
4. Credit-Enhancing Interest-Only Strips
5. Credit Derivatives
6. Credit-Enhancing Representations and
Warranties
7. Clean-up Calls
8. Loan Servicing Arrangements
9. Interaction with Market Risk Rule
10. Reservation of Authority
11. Alternative Capital Calculation for
Small Business Obligations
C. Ratings-based Approach: Traded and
Non-traded Positions
D. Unrated Positions
1. Use of Banking Organizations’ Internal
Risk Ratings
2. Ratings of Specific Positions in
Structured Financing Programs
3. Use of Qualifying Rating Software
Mapped to Public Rating Standards
IV. Effective Date of the Final Rule
V. Miscellaneous Changes
VI. Regulatory Analysis
A. Regulatory Flexibility Act
B. Paperwork Reduction Act
C. Executive Order 12866
D. Unfunded Mandates Reform Act of 1995
E. Plain Language
I. Introduction
The agencies are amending their
regulatory capital standards to change
VerDate 11<MAY>2000 18:43 Nov 28, 2001 Jkt 197001 PO 00000 Frm 00002 Fmt 4701 Sfmt 4700 E:\FR\FM\29NOR2.SGM pfrm01 PsN: 29NOR2