Financial Institution Letter
FIL-69-2008
July 29, 2008
RISK-BASED CAPITAL RULES
Notice of Proposed Rulemaking on Risk-Based Capital
Standards: Standardized Framework
Federal Deposit Insurance Corporation
550 17th Street NW, Washington, D.C. 20429-9990
Summary: The federal bank and thrift regulatory agencies have jointly issued the attached
Notice of Proposed Rulemaking (NPR) and are seeking comment on the domestic application of
the Basel II standardized framework for all domestic banks, bank holding companies, and
savings associations that are not subject to the Basel II advanced approaches rule. The FDIC will
accept comments on the NPR through October 27, 2008.
Distribution:
FDIC-Supervised Banks (Commercial and Savings)
Suggested Routing:
Chief Executive Officer
Chief Financial Officer
Chief Accounting Officer
Related Topics:
Risk-Based Capital Rules
12 CFR Part 325
Basel II
Attachment:
• “Key Aspects of the Proposed Rule on Risk-
Based Capital Guidelines: Capital Adequacy
Guidelines; Standardized Framework”
• Notice of Proposed Rulemaking, Risk-Based
Capital Guidelines; Capital Adequacy
Guidelines; Standardized Framework
Contact:
Nancy Hunt, Senior Policy Analyst, at
nhunt@fdic.gov or (202) 898-6643
Ryan D. Sheller, Capital Markets Specialist, at
rsheller@fdic.gov or (202) 898-6614
Highlights:
In the attached NPR, the agencies propose to
implement a new optional framework for calculating
risk-based capital based on the Basel II Standardized
Approach to credit risk and the Basel II Basic
Indicator Approach to operational risk. The proposal
would:
• Expand the use of credit ratings for
determining risk weights,
• Base risk weights for residential mortgages
on loan-to-value ratios,
• Expand the types of financial collateral and
guarantees available to banks to offset credit
risk,
• Offer more risk-sensitive approaches for
recognizing the benefits of mitigating credit
risk,
• Increase the risk weight for certain short-term
commitments,
• Improve the risk sensitivity of the risk-based
capital requirements for securitizations and
equity investments, and
• Institute a risk-based capital requirement for
operational risk.
The NPR includes a series of requests for comment
on the proposed implementation of the standardized
framework. The agencies are also withdrawing the
Basel 1A proposal issued on December 26, 2006.
Note:
FDIC financial institution letters (FILs) may be
accessed from the FDIC's Web site at
www.fdic.gov/news/news/financial/2008/index.html.
To receive FILs electronically, please visit
http://www.fdic.gov/about/subscriptions/fil.html.
Paper copies of FDIC financial institution letters
may be obtained through the FDIC’s Public
Information Center, 3501 Fairfax Drive, E-1002,
Arlington, VA 22226 (1-877-275-3342 or 703-
562-2200).
FIL-69-2008
July 29, 2008
RISK-BASED CAPITAL RULES
Notice of Proposed Rulemaking on Risk-Based Capital
Standards: Standardized Framework
Federal Deposit Insurance Corporation
550 17th Street NW, Washington, D.C. 20429-9990
Summary: The federal bank and thrift regulatory agencies have jointly issued the attached
Notice of Proposed Rulemaking (NPR) and are seeking comment on the domestic application of
the Basel II standardized framework for all domestic banks, bank holding companies, and
savings associations that are not subject to the Basel II advanced approaches rule. The FDIC will
accept comments on the NPR through October 27, 2008.
Distribution:
FDIC-Supervised Banks (Commercial and Savings)
Suggested Routing:
Chief Executive Officer
Chief Financial Officer
Chief Accounting Officer
Related Topics:
Risk-Based Capital Rules
12 CFR Part 325
Basel II
Attachment:
• “Key Aspects of the Proposed Rule on Risk-
Based Capital Guidelines: Capital Adequacy
Guidelines; Standardized Framework”
• Notice of Proposed Rulemaking, Risk-Based
Capital Guidelines; Capital Adequacy
Guidelines; Standardized Framework
Contact:
Nancy Hunt, Senior Policy Analyst, at
nhunt@fdic.gov or (202) 898-6643
Ryan D. Sheller, Capital Markets Specialist, at
rsheller@fdic.gov or (202) 898-6614
Highlights:
In the attached NPR, the agencies propose to
implement a new optional framework for calculating
risk-based capital based on the Basel II Standardized
Approach to credit risk and the Basel II Basic
Indicator Approach to operational risk. The proposal
would:
• Expand the use of credit ratings for
determining risk weights,
• Base risk weights for residential mortgages
on loan-to-value ratios,
• Expand the types of financial collateral and
guarantees available to banks to offset credit
risk,
• Offer more risk-sensitive approaches for
recognizing the benefits of mitigating credit
risk,
• Increase the risk weight for certain short-term
commitments,
• Improve the risk sensitivity of the risk-based
capital requirements for securitizations and
equity investments, and
• Institute a risk-based capital requirement for
operational risk.
The NPR includes a series of requests for comment
on the proposed implementation of the standardized
framework. The agencies are also withdrawing the
Basel 1A proposal issued on December 26, 2006.
Note:
FDIC financial institution letters (FILs) may be
accessed from the FDIC's Web site at
www.fdic.gov/news/news/financial/2008/index.html.
To receive FILs electronically, please visit
http://www.fdic.gov/about/subscriptions/fil.html.
Paper copies of FDIC financial institution letters
may be obtained through the FDIC’s Public
Information Center, 3501 Fairfax Drive, E-1002,
Arlington, VA 22226 (1-877-275-3342 or 703-
562-2200).
Key Aspects of the Proposed Rule on Risk-Based Capital Standards:
Standardized Framework
I. Introduction
The attached interagency Notice of Proposed Rulemaking (NPR) is based on the
capital accord entitled “International Convergence of Capital Measurement and Capital
Standards: A Revised Framework” (Basel II). The NPR explains how the federal bank
and thrift regulatory agencies (agencies) propose to implement the Basel II standardized
approach for assessing risk-based capital charges for credit risk and the Basel II basic
indicator approach for assessing risk-based capital charges for operational risk in the
United States (together, the standardized framework). In general, credit risk is the
potential that a bank borrower or counterparty will fail to meet its financial obligations in
accordance with agreed-upon terms. Operational risk generally is the risk of loss resulting
from inadequate or failed internal processes, people, and systems or from external events.
The standardized framework in this NPR would be optional for all banks and
savings associations (banks) that are not subject to the new Basel II advanced approaches
rule (core banks). Those banks that are not core banks and do not want to adopt the
standardized framework could remain under the general risk-based capital rules. The
agencies are seeking comment in the NPR regarding the extent to which core banks could
use the proposed standardized framework.
In July 2007, the agencies said that they would withdraw the Basel IA NPR and
issue a proposed rule that would provide all banks that are not core banks with the option
to adopt the standardized approach in the Basel II Accord.1 The agencies also said the
proposed standardized framework would be finalized before core banks begin the first
transition period year under the advanced approaches rule.
1 FDIC PR-64-2007, Joint Release, "Banking Agencies Reach Agreement on Basel II Implementation,"
July 20, 2007.
1
Standardized Framework
I. Introduction
The attached interagency Notice of Proposed Rulemaking (NPR) is based on the
capital accord entitled “International Convergence of Capital Measurement and Capital
Standards: A Revised Framework” (Basel II). The NPR explains how the federal bank
and thrift regulatory agencies (agencies) propose to implement the Basel II standardized
approach for assessing risk-based capital charges for credit risk and the Basel II basic
indicator approach for assessing risk-based capital charges for operational risk in the
United States (together, the standardized framework). In general, credit risk is the
potential that a bank borrower or counterparty will fail to meet its financial obligations in
accordance with agreed-upon terms. Operational risk generally is the risk of loss resulting
from inadequate or failed internal processes, people, and systems or from external events.
The standardized framework in this NPR would be optional for all banks and
savings associations (banks) that are not subject to the new Basel II advanced approaches
rule (core banks). Those banks that are not core banks and do not want to adopt the
standardized framework could remain under the general risk-based capital rules. The
agencies are seeking comment in the NPR regarding the extent to which core banks could
use the proposed standardized framework.
In July 2007, the agencies said that they would withdraw the Basel IA NPR and
issue a proposed rule that would provide all banks that are not core banks with the option
to adopt the standardized approach in the Basel II Accord.1 The agencies also said the
proposed standardized framework would be finalized before core banks begin the first
transition period year under the advanced approaches rule.
1 FDIC PR-64-2007, Joint Release, "Banking Agencies Reach Agreement on Basel II Implementation,"
July 20, 2007.
1