Financial Institution Letter
FIL-20-2007
February 28, 2007
CAPITAL STANDARDS
Proposed Interagency Supervisory Guidance for Banks That Would
Operate Under the Proposed New Basel II Framework
Federal Deposit Insurance Corporation
550 17th Street NW, Washington, D.C. 20429-9990
Summary: The federal bank and thrift regulatory agencies are seeking comment on the attached
proposed guidance describing current agency expectations for banking organizations that would adopt the
Advanced Internal Ratings-Based Approach (IRB) for credit risk and the Advanced Measurement
Approaches (AMA) for operational risk under the proposed new Basel II capital framework. The proposed
guidance also establishes the process for supervisory review and the implementation of the capital
adequacy assessment process under Pillar 2 of the Basel II framework. The FDIC will accept comments on
the proposed guidance through May 29, 2007.
Distribution:
FDIC-Supervised Banks (Commercial and Savings)
Suggested Routing:
Chief Executive Officer
Chief Financial Officer
Chief Risk Officer
Related Topics:
Risk-Based Capital Rules
12 CFR Part 325
Basel II
Attachment:
Proposed Supervisory Guidance on Internal
Ratings-Based Systems for Credit Risk, Advanced
Measurement Approaches for Operational Risk,
and the Supervisory Review Process (Pillar 2)
Related to Basel II Implementation
Contact:
Pete Hirsch, Chief, Large Bank Supervision,
phirsch@fdic.gov or (202) 898-6751 (IRB)
Mark S. Schmidt, Regional Director,
maschmidt@fdic.gov or (678) 916-2189 (AMA)
Bobby R. Bean, Chief, Capital Markets Policy
Section, bbean@fdic.gov or (202) 898-3575
(Pillar 2)
Highlights:
• The proposed guidance applies only to banking
organizations that would implement the proposed Basel II
framework.
• The proposed guidance highlights regulatory standards that
are primarily principles-based to enable flexibility in
implementation, with more direction provided in instances
where prudential issues or industry standardization is of
paramount importance.
• The proposed IRB guidance is intended to provide banks
with a clear description of the essential components and
characteristics of an acceptable IRB framework.
• The proposed AMA guidance identifies supervisory
standards that banks should follow to implement and
maintain an acceptable AMA framework for regulatory
capital purposes.
• The proposed Pillar 2 guidance addresses the three
fundamental objectives in the supervisory review process
under Pillar 2: the comprehensive supervisory assessment
of capital adequacy, a bank's compliance with regulatory
capital requirements, and a bank's implementation of an
internal capital adequacy assessment process (ICAAP).
Note:
FDIC financial institution letters (FILs) may be
accessed from the FDIC's Web site at
www.fdic.gov/news/news/financial/2007/index.html. • The publication of these documents should not be construed
as the agencies' predisposition of the Basel II Notice of
Proposed Rulemaking (NPR).
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-20-2007
February 28, 2007
CAPITAL STANDARDS
Proposed Interagency Supervisory Guidance for Banks That Would
Operate Under the Proposed New Basel II Framework
Federal Deposit Insurance Corporation
550 17th Street NW, Washington, D.C. 20429-9990
Summary: The federal bank and thrift regulatory agencies are seeking comment on the attached
proposed guidance describing current agency expectations for banking organizations that would adopt the
Advanced Internal Ratings-Based Approach (IRB) for credit risk and the Advanced Measurement
Approaches (AMA) for operational risk under the proposed new Basel II capital framework. The proposed
guidance also establishes the process for supervisory review and the implementation of the capital
adequacy assessment process under Pillar 2 of the Basel II framework. The FDIC will accept comments on
the proposed guidance through May 29, 2007.
Distribution:
FDIC-Supervised Banks (Commercial and Savings)
Suggested Routing:
Chief Executive Officer
Chief Financial Officer
Chief Risk Officer
Related Topics:
Risk-Based Capital Rules
12 CFR Part 325
Basel II
Attachment:
Proposed Supervisory Guidance on Internal
Ratings-Based Systems for Credit Risk, Advanced
Measurement Approaches for Operational Risk,
and the Supervisory Review Process (Pillar 2)
Related to Basel II Implementation
Contact:
Pete Hirsch, Chief, Large Bank Supervision,
phirsch@fdic.gov or (202) 898-6751 (IRB)
Mark S. Schmidt, Regional Director,
maschmidt@fdic.gov or (678) 916-2189 (AMA)
Bobby R. Bean, Chief, Capital Markets Policy
Section, bbean@fdic.gov or (202) 898-3575
(Pillar 2)
Highlights:
• The proposed guidance applies only to banking
organizations that would implement the proposed Basel II
framework.
• The proposed guidance highlights regulatory standards that
are primarily principles-based to enable flexibility in
implementation, with more direction provided in instances
where prudential issues or industry standardization is of
paramount importance.
• The proposed IRB guidance is intended to provide banks
with a clear description of the essential components and
characteristics of an acceptable IRB framework.
• The proposed AMA guidance identifies supervisory
standards that banks should follow to implement and
maintain an acceptable AMA framework for regulatory
capital purposes.
• The proposed Pillar 2 guidance addresses the three
fundamental objectives in the supervisory review process
under Pillar 2: the comprehensive supervisory assessment
of capital adequacy, a bank's compliance with regulatory
capital requirements, and a bank's implementation of an
internal capital adequacy assessment process (ICAAP).
Note:
FDIC financial institution letters (FILs) may be
accessed from the FDIC's Web site at
www.fdic.gov/news/news/financial/2007/index.html. • The publication of these documents should not be construed
as the agencies' predisposition of the Basel II Notice of
Proposed Rulemaking (NPR).
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).
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