FDIC, FRB, OCC, OTS: ANPR on Revising Basel I Capital Standard

ABA Contact: Compliance staff
Published: 70 Federal Register 61068; October 20, 2005
Comments Due: January 18, 2006
Disposition: Filed

The federal bank regulatory agencies are currently considering revisions for the risk-based capital standard for the largest banks (Basel II). For all other banks, the Agencies have issued an Advance Notice of Proposed Rulemaking for discussion of how the current capital standard should be revised. ABA has been instrumental in encouraging the regulators to consider revising the risk-based capital standard that will apply to the overwhelming majority of banks. Seeing that the Basel II standard is likely to significantly lower risk-based capital requirement for adopting banks, on April 14, ABA wrote to the regulators to request the revision to maintain competitive equity within the banking industry. The regulators acknowledged our request and announced an intention to initiate a review of the rule. On May 27, ABA again wrote to the regulators to request that the Basel IA rule be installed by 2007, ahead of Basel II. For all banks, this would help preserve competitive balance within the industry. Additionally, Basel II banks would benefit from having a more accurate base to compare against during the Basel II phase-in period.

On October 6, the federal regulators jointly issued a concepts proposal or "Advance Notice of Proposed Rulemaking" (ANPR) for revising the standard. The ANPR states that the modifications under consideration are designed to:

  • modernize the risk-based capital rules to ensure that the framework remains a relevant and reliable measure of the risks present in the banking system,
  • minimize potentially material differences in capital requirements that may arise between banks that adopt Basel Ii and those banks that remain under the existing rules,
  • maintain an operationally feasible capital framework that is relatively simple to implement for banking organizations subject to the existing capital rules, and
  • use currently available data to implement required changes with the intent of minimizing the burden associated with these modifications.

This ANPR discusses modifications that would:

  • increase the number of risk-weight categories,
  • permit greater use of external ratings for externally-rated exposures,
  • expand the types of guarantees and collateral that may be recognized,
  • modify the risk weights associated with residential mortgages and other retail and commercial exposures,
  • change the credit conversion factors for certain types of commitments,
  • assign a risk-based capital charge to securitizations with early amortization provisions, and
  • assign a higher risk weight to loans that are 90 days or more past due or in nonaccrual status and to certain commercial real estate exposures.

ABA has formed a Basel IA working group of bankers to develop comments on the ANPR, but all bankers comments are solicited by ABA. Factors that the working group have identified in developing ABA comments include maintaining a balance between the burdens of information collection and capital calculation while increasing the risk sensitivity of the capital adequacy standard. The aim is to work toward development of a revised risk-based capital standard that will allow banks to modernize risk capital with limited regulatory burden while minimizing any competitive advantage of Basel II banks and other financial service companies.

The Agencies published a Notice of Proposed Rulemaking in December of 2006. Links to that NPR and to the ABA's comment letter are provided in the 2007 Regulatory Proposals Chart.

2006 Regulations Chart
Federal Register

ABA Comment Letter