Regulatory Capital Rules: Advanced Approaches Risk-Based Capital Rule, Revisions to the Definition of Eligible Guarantee
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Final rule.
CFR Part: "12 CFR Part 3"
RIN Number: "RIN 1557-AD83"
Citation: "79 FR 44120"
Document Number: "RIN 3064-AE13"
"Rules and Regulations"
SUMMARY:
DATES: This rule is effective on
FOR FURTHER INFORMATION CONTACT:
OCC:
Board:
FDIC:
SUPPLEMENTARY INFORMATION: On
FOOTNOTE 1 79 FR 24618 (
FOOTNOTE 2 78 FR 55340 (
FOOTNOTE 3 See BCBS, "Basel II: International Convergence of Capital Measurement and Capital Standards: A Revised Framework" (
The definition of eligible guarantee provided that an eligible guarantee could be provided only by an eligible guarantor. The definition of eligible guarantor includes a sovereign, the
Following the release of the 2013 capital rule, the agencies received comments raising concerns about the definition of eligible guarantee. Commenters noted that the revisions made to the definition of eligible guarantee changed the recognition of these guarantees for certain exposures under the advanced approaches wholesale framework. For example, several advanced approaches banking organizations /4/ observed that middle market and commercial real estate loans often involve guarantors that do not meet the definition of eligible guarantor. The guarantors for such transactions are often related parties such as owners or sponsors that have not issued investment grade debt securities. These commenters argued that such guarantees provide valuable credit risk mitigation that should be recognized under the advanced approaches capital requirements.
FOOTNOTE 4 Advanced approaches banking organizations generally refers to banking organizations with total consolidated assets of
As explained in the proposal, the agencies did not intend for the revisions to the definition of eligible guarantee in the 2013 capital rule to prevent advanced approaches banking organizations from recognizing the risk-mitigation benefits of the aforementioned types of guarantees. The agencies believe that these guarantees should continue to qualify as credit risk mitigants for purposes of the advanced approaches because they provide banking organizations with credit enhancement with respect to their exposures.
On
FOOTNOTE 5 72 FR 69288 (
FOOTNOTE 6 79 FR 24618 (
II. Comments
The agencies received two comment letters on the proposed change to the eligible guarantee definition, one from a trade association and the other from a monoline insurance company. The trade association fully supported the proposal, and urged timely adoption of the proposed rule without modification. The commenter also requested that the agencies provide banking organizations with the option to elect the early adoption of the proposed rule before its official effective date so that the amended definition would be available for public disclosures for advanced approaches banking organizations that have completed their parallel run and will publicly disclose their risk-based capital ratios determined using the advanced approaches beginning with the second quarter of 2014.
The monoline insurance company commented that the proposed revisions to the definition of eligible guarantee, and by extension the definition of eligible guarantor under the 2013 capital rule, should be further clarified and expanded under both the standardized approach and advanced approaches to include monoline insurance companies (monoline insurers) that meet certain conditions. According to the commenter, the agencies' definition of eligible guarantor in the 2013 capital rule intended to include monoline insurers that are subsidiaries of depository institution holding companies or nonbank financial companies supervised by the Board pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act because these subsidiaries are subject to extensive supervisory and regulatory standards. The commenter further argued that expanding the definition to include monoline insurers could reduce systemic and prudential risks by reducing interconnectedness as well as reliance on guarantees from the public sector, such as guarantees from sovereigns and government-sponsored enterprises. The commenter also sought clarification as to whether, by virtue of the definition's exclusion of monoline insurers, the agencies also inadvertently excluded from the definition of eligible guarantor depository institution holding companies and nonbank systemically important financial institutions designated by the
The definition of eligible guarantor in the 2013 capital rule explicitly states that an insurance company engaged predominately in the business of providing credit protection (such as a monoline bond insurer or re-insurer) does not qualify as an eligible guarantor. As stated in the preamble to the 2013 capital rule, the agencies believe that guarantees issued by monoline insurers, including financial guaranty and private mortgage insurers, can exhibit significant wrong-way risk. /7/ Thus, modifying the definition of eligible guarantor to include these entities would be contrary to one of the key objectives of the capital framework, which is to mitigate interconnectedness and systemic vulnerabilities within the financial system. The agencies are, therefore, retaining the 2013 capital rule's definition of eligible guarantor. The definition of eligible guarantor in the 2013 capital rule includes depository institution holding companies as well as nonbank financial companies that meet the qualifying criteria included in the definition of eligible guarantor.
FOOTNOTE 7 78 FR 62104 (
III. Final Rule
After carefully considering the comments the agencies are adopting as a final rule the eligible guarantee definition as proposed in the
IV. Early Compliance
The final rule will be effective
Subject to certain exceptions, 12 U.S.C. 4802(b) provides that new regulations and amendments to regulations prescribed by a Federal banking agency which impose additional reporting, disclosures, or other new requirements on an insured depository institution shall take effect on the first day of a calendar quarter which begins on or after the date on which the regulations are published in final form. The agencies note that this final rule does not impose any additional reporting or disclosure requirements. Instead, this final rule revises an existing requirement to remove a restriction on the recognition of guarantors for the purpose of calculating minimum risk-based capital requirements. Additionally, section 4802(b) permits persons who are subject to the Federal banking agency regulations to comply with a regulation before its effective date. Accordingly, the agencies will not object if an institution wishes to apply the provisions of this final rule beginning with the date it is published in the
V. Regulatory Analyses
A. Paperwork Reduction Act
In accordance with the requirements of the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3521) (PRA), the agencies may not conduct or sponsor, and a respondent is not required to respond to, an information collection unless it displays a currently valid
B. Regulatory Flexibility Act Analysis
OCC: The Regulatory Flexibility Act, 5 U.S.C.
Using the SBA's size standards effective on
FOOTNOTE 8 The OCC calculated the number of small entities using the SBA's size thresholds for commercial banks and savings institutions, and trust companies, which, effective
As described in the SUPPLEMENTARY INFORMATION section of the preamble, the final rule applies only to advanced approaches banking organizations. Advanced approaches banking organization is defined to include a national bank or Federal savings associations that has, or is, a subsidiary of a bank holding company or savings and loan holding company that has total consolidated assets of
Board: The Regulatory Flexibility Act, 5 U.S.C.
FOOTNOTE 9 See 13 CFR 121.201. Effective
The Board is providing a final regulatory flexibility analysis with respect to this final rule. As discussed above, this final rule would amend the definition of "eligible guarantee" in section 2 of Regulation Q (12 CFR part 217) for the purposes of calculating risk-weighted assets under the advanced approaches in Regulation Q (12 CFR part 217, subpart E). The Board received no public comments related to the initial Regulatory Flexibility Act analysis in the proposed rule from members of the general public or from the Chief Counsel for Advocacy of the
The final rule would apply only to advanced approaches banking organizations, which, generally, are banking organizations with total consolidated assets of
The Board believes that the final rule will not have a significant economic impact on small banking organizations supervised by the Board and therefore believes that there are no significant alternatives to the rule that would reduce the economic impact on small banking organizations supervised by the Board.
FDIC: The Regulatory Flexibility Act, 5 U.S.C.
As of
The FDIC certifies that the final rule will not have a significant economic impact on a substantial number of small
C. OCC Unfunded Mandates Reform Act of 1995 Determination
The OCC has analyzed the final rule under the factors in the Unfunded Mandates Reform Act of 1995 (UMRA) (2 U.S.C. 1532). Under this analysis, the OCC considered whether the rule includes a Federal mandate that may result in the expenditure by State, local, and tribal governments, in the aggregate, or by the private sector, of
This final rule does not increase the minimum capital requirements for any institutions subject to the OCC's risk-based capital rules. After comparing existing capital levels with these requirements, and considering the burden and other compliance costs associated with the changes, the OCC has determined that its final rule will not result in expenditures by State, local, and tribal governments, or by the private sector, of
D. Plain Language
Section 722 of the Gramm-Leach-Bliley Act requires the Federal banking agencies to use plain language in all proposed and final rules published after
List of Subjects
12 CFR Part 3
Administrative practice and procedure, Capital, National banks, Reporting and recordkeeping requirements, Risk.
12 CFR Part 217
Administrative practice and procedure, Banks, Banking, Capital,
12 CFR Part 324
Administrative practice and procedure, Banks, Banking, Capital Adequacy, Reporting and recordkeeping requirements, Savings associations, State non-member banks.
12 CFR Chapter I
Authority and Issuance
For the reasons set forth in the preamble and under the authority of 12 U.S.C. 93a, 1462, 1462a, 1463, 1464, 3907, 3909, 1831o, and 5412(b)(2)(B), the
PART 3--CAPITAL ADEQUACY STANDARDS
1. The authority citation for part 3 continues to read as follows:
Authority: 12 U.S.C. 93a, 161, 1462, 1462a, 1463, 1464, 1818, 1828(n), 1828 note, 1831n note, 1835, 3907, 3909, and 5412(b)(2)(B).
2. In
* * * * *
Eligible guarantee means a guarantee that:
(1) Is written;
(2) Is either:
(i) Unconditional; or
(ii) A contingent obligation of the U.S. government or its agencies, the enforceability of which is dependent upon some affirmative action on the part of the beneficiary of the guarantee or a third party (for example, meeting servicing requirements);
(3) Covers all or a pro rata portion of all contractual payments of the obligated party on the reference exposure;
(4) Gives the beneficiary a direct claim against the protection provider;
(5) Is not unilaterally cancelable by the protection provider for reasons other than the breach of the contract by the beneficiary;
(6) Except for a guarantee by a sovereign, is legally enforceable against the protection provider in a jurisdiction where the protection provider has sufficient assets against which a judgment may be attached and enforced;
(7) Requires the protection provider to make payment to the beneficiary on the occurrence of a default (as defined in the guarantee) of the obligated party on the reference exposure in a timely manner without the beneficiary first having to take legal actions to pursue the obligor for payment;
(8) Does not increase the beneficiary's cost of credit protection on the guarantee in response to deterioration in the credit quality of the reference exposure;
(9) Is not provided by an affiliate of the national bank or Federal savings association, unless the affiliate is an insured depository institution, foreign bank, securities broker or dealer, or insurance company that:
(i) Does not control the national bank or Federal savings association; and
(ii) Is subject to consolidated supervision and regulation comparable to that imposed on depository institutions, U.S. securities broker-dealers, or U.S. insurance companies (as the case may be); and
(10) For purposes of SUBSEC 3.141 through 3.145 and subpart D of this part, is provided by an eligible guarantor.
* * * * *
12 CFR Chapter II
Authority and Issuance
For the reasons set forth in the preamble, part 217 of chapter II of title 12 of the Code of Federal Regulations is amended as follows:
PART 217--CAPITAL ADEQUACY OF BANK HOLDING COMPANIES, SAVINGS AND LOAN HOLDING COMPANIES, AND STATE MEMBER BANKS (REGULATION Q)
3. The authority citation for part 217 is revised to read as follows:
Authority: 12 U.S.C. 248(a), 321-338a, 481-486, 1462a, 1467a, 1818, 1828, 1831n, 1831o, 1831p-l, 1831w, 1835, 1844(b), 1851, 3904, 3906-3909, 4808, 5365, 5368, 5371.
4. The heading of part 217 is revised to read as set forth above.
5. In
* * * * *
Eligible guarantee means a guarantee that:
(1) Is written;
(2) Is either:
(i) Unconditional, or
(ii) A contingent obligation of the U.S. government or its agencies, the enforceability of which is dependent upon some affirmative action on the part of the beneficiary of the guarantee or a third party (for example, meeting servicing requirements);
(3) Covers all or a pro rata portion of all contractual payments of the obligated party on the reference exposure;
(4) Gives the beneficiary a direct claim against the protection provider;
(5) Is not unilaterally cancelable by the protection provider for reasons other than the breach of the contract by the beneficiary;
(6) Except for a guarantee by a sovereign, is legally enforceable against the protection provider in a jurisdiction where the protection provider has sufficient assets against which a judgment may be attached and enforced;
(7) Requires the protection provider to make payment to the beneficiary on the occurrence of a default (as defined in the guarantee) of the obligated party on the reference exposure in a timely manner without the beneficiary first having to take legal actions to pursue the obligor for payment;
(8) Does not increase the beneficiary's cost of credit protection on the guarantee in response to deterioration in the credit quality of the reference exposure;
(9) Is not provided by an affiliate of the Board-regulated institution, unless the affiliate is an insured depository institution, foreign bank, securities broker or dealer, or insurance company that:
(i) Does not control the Board-regulated institution; and
(ii) Is subject to consolidated supervision and regulation comparable to that imposed on depository institutions, U.S. securities broker-dealers, or U.S. insurance companies (as the case may be); and
(10) For purposes of SUBSEC 217.141 through 217.145 and subpart D of this part, is provided by an eligible guarantor.
* * * * *
12 CFR Chapter III
Authority and Issuance
For the reasons set forth in the preamble, part 324 of chapter III of title 12 of the Code of Federal Regulations is amended as follows:
PART 324--CAPITAL ADEQUACY OF FDIC-SUPERVISED INSTITUTIONS
6. The authority citation for part 324 continues to read as follows:
Authority: 12 U.S.C. 1815(a), 1815(b), 1816, 1818(a), 1818(b), 1818(c), 1818(t), 1819(Tenth), 1828(c), 1828(d), 1828(i), 1828(n), 1828(o), 1831o, 1835, 3907, 3909, 4808; 5371; 5412; Pub. L. 102-233, 105
7. In
* * * * *
Eligible guarantee means a guarantee that:
(1) Is written;
(2) Is either:
(i) Unconditional, or
(ii) A contingent obligation of the U.S. government or its agencies, the enforceability of which is dependent upon some affirmative action on the part of the beneficiary of the guarantee or a third party (for example, meeting servicing requirements);
(3) Covers all or a pro rata portion of all contractual payments of the obligated party on the reference exposure;
(4) Gives the beneficiary a direct claim against the protection provider;
(5) Is not unilaterally cancelable by the protection provider for reasons other than the breach of the contract by the beneficiary;
(6) Except for a guarantee by a sovereign, is legally enforceable against the protection provider in a jurisdiction where the protection provider has sufficient assets against which a judgment may be attached and enforced;
(7) Requires the protection provider to make payment to the beneficiary on the occurrence of a default (as defined in the guarantee) of the obligated party on the reference exposure in a timely manner without the beneficiary first having to take legal actions to pursue the obligor for payment;
(8) Does not increase the beneficiary's cost of credit protection on the guarantee in response to deterioration in the credit quality of the reference exposure;
(9) Is not provided by an affiliate of the
(i) Does not control the
(ii) Is subject to consolidated supervision and regulation comparable to that imposed on depository institutions, U.S. securities broker-dealers, or U.S. insurance companies (as the case may be); and
(10) For purposes of SUBSEC 324.141 through 324.145 and subpart D of this part, is provided by an eligible guarantor.
* * * * *
Dated:
Comptroller of the Currency.
By order of the
Robert deV. Frierson,
Secretary of the Board.
Dated at
By order of the Board of Directors.
Executive Secretary.
[FR Doc. 2014-17858 Filed 7-29-14;
BILLING CODE P
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