FIL-90-2000 Attachment

[Federal Register: December 6, 2000 (Volume 65, Number 235)]

[Proposed Rules]

[Page 76180-76184]

From the Federal Register Online via GPO Access [wais.access.gpo.gov]

[DOCID:fr06de00-19]

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DEPARTMENT OF THE TREASURY

Office of the Comptroller of the Currency

12 CFR Part 3

[Docket No. 00-27]

RIN 1557-AB14

FEDERAL RESERVE SYSTEM

12 CFR Parts 208 and 225

[Regulations H and Y; Docket No. R-1085]

FEDERAL DEPOSIT INSURANCE CORPORATION

12 CFR Part 325

RIN 3064-AC17

DEPARTMENT OF THE TREASURY

Office of Thrift Supervision

12 CFR Part 567

[Docket No. 2000-96]

RIN 1550-AB11

Risk-Based Capital Standards: Claims on Securities Firms

AGENCIES: Office of the Comptroller of the Currency, Treasury (OCC);

Board of Governors of the Federal Reserve System (Board); Federal

Deposit Insurance Corporation (FDIC); and Office of Thrift Supervision,

Treasury (OTS).

ACTION: Joint notice of proposed rulemaking.

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SUMMARY: The Board, OCC, FDIC and OTS (collectively, the Agencies) are

proposing to amend their respective risk-based capital standards for

banks, bank holding companies, and savings associations (collectively,

institutions) with regard to the risk weighting of claims on, and

claims guaranteed by, qualifying securities firms. This proposed rule

would reduce the risk weight applied to claims on, and claims

guaranteed by, qualifying securities firms incorporated in countries

that are members of the Organization for Economic Cooperation and

Development (OECD) from 100 percent to 20 percent under the Agencies'

risk-based capital rules.

DATES: Your comments must be received by January 22, 2001.

ADDRESSES: Comments should be directed as follows:

OCC: You may send comments electronically to

regs.comments@occ.treas.gov or by mail to Docket No. 00-27, Office of

the Comptroller of the Currency, Public Information Room, 250 E Street,

SW., Mail Stop 1-5, Washington, DC 20219. In addition, you may send

comments by facsimile transmission to (202) 874-5274. You can inspect

and photocopy comments at that address. You can make an appointment to

inspect the comments by calling (202) 874-5043.

Board: Comments should refer to docket number R-1085, and should be

sent to Ms. Jennifer J. Johnson, Secretary, Board of Governors of the

Federal Reserve System, 20th Street and Constitution Avenue, NW.,

Washington, DC 20551 or mailed electronically to

regs.comments@federalreserve.gov. Comments addressed to Ms. Johnson

also may be delivered to the Board's mailroom between the hours of 8:45

a.m. and 5:15 p.m. and, outside those hours, to the Board's security

control room. Both the mailroom and the security control room are

accessible from the Eccles Building courtyard entrance, located on 20th

Street between Constitution Avenue and C Street, NW. Members of the

public may inspect comments in room MP-500 of the Martin Building

between 9 a.m. and 5 p.m. on weekdays.

FDIC: Written comments should be addressed to Robert E. Feldman,

Executive Secretary, Attention: Comments/OES, Federal Deposit Insurance

Corporation, 550 17th Street, NW., Washington, DC 20429. Comments may

be hand-delivered to the guard station at the rear of the 17th Street

Building (located on F Street), on business days between 7 a.m. and 5

p.m. (FAX number (202) 898-3838; Internet address; comments@fdic.gov).

Comments may be inspected and photocopied in the FDIC Public

Information Center, Room 100, 801 17th Street, NW., Washington, DC

20429, between 9 a.m. and 4:30 p.m. on business days.

OTS: Send comments to Manager, Dissemination Branch, Records

Management and Information Policy, Office of Thrift Supervision, 1700 G

Street, NW., Washington, DC 20552, Attention Docket No. 2000-96. Hand

deliver comments to the Guard's Desk, East Lobby Entrance, 1700 G

Street, NW., from 9 a.m. to 4 p.m. on business days, Attention Docket

No. 2000-96. Send facsimile transmissions to FAX Number (202) 906-7755,

Attention Docket No. 2000-96; or (202) 906-6956 (if comments are over

25 pages). Send e-mails to public.info@ots.treas.gov, Attention Docket

No. 2000-96, and include your name and telephone number. Interested

persons may inspect comments at the Public Reference Room, 1700 G St.

NW., from 10 a.m. until 4 p.m. on Tuesdays and Thursdays or obtain

comments and/or an index of comments by facsimile by telephoning the

Public Reference Room at (202) 906-5900 from 9 a.m. until 5 p.m. on

business days. Comments and the related index will also be posted on

the OTS Internet Site at http://www.ots.treas.gov.

FOR FURTHER INFORMATION CONTACT:

OCC: Margot Schwadron, Risk Expert (202/874-5070), Capital Policy

Division; or Ron Shimabukuro, Senior Attorney (202/874-5090),

Legislative and Regulatory Activities Division, Office of the

Comptroller of the Currency, 250 E Street, SW., Washington, DC 20219.

Board: Norah Barger, Assistant Director (202/452-2402), Barbara

Bouchard, Manager (202-452-3072), or John F. Connolly, Supervisory

Financial Analyst (202/452-3621), Division of Banking Supervision and

Regulation; or Mark E. Van Der Weide, Counsel (202/452-2263), Legal

Division. For the hearing impaired only, Telecommunication Device for

the Deaf (TDD), Janice Simms (202/872-4984), Board of Governors of the

Federal Reserve System, 20th Street and Constitution Avenue, NW.,

Washington, DC 20551.

FDIC: For supervisory issues, Stephen G. Pfeifer, Examination

Specialist (202/898-8904), Accounting Section, Division of Supervision;

for legal issues, Leslie Sallberg, Counsel, (202/898-8876), Legal

Division, Federal Deposit Insurance Corporation, 550 17th Street, NW.,

Washington, DC 20429.

OTS: David W. Riley, Project Manager, (202/906-6669), Supervision

Policy; Teresa A. Scott, Counsel, Banking and Finance (202/906-6478),

Regulations and Legislation Division, Office of the Chief Counsel,

Office of Thrift Supervision, 1700 G Street, NW., Washington, DC 20552.

SUPPLEMENTARY INFORMATION: The Agencies' risk-based capital standards

are based upon principles contained in the July 1988 agreement entitled

``International Convergence of Capital Measurement and Capital

Standards'' (Basel Accord or Accord). The Basel Accord was developed by

the Basel Committee on Banking Supervision (Basel Committee) and

endorsed by the central bank governors of the Group of Ten (G-10)

countries.\1\ The Basel Accord provides a framework for assessing the

capital adequacy of a depository institution by risk weighting

[[Page 76181]]

its assets and off-balance-sheet exposures primarily based on credit

risk.

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\1\ The G-10 countries are Belgium, Canada, France, Germany,

Italy, Japan, Netherlands, Sweden, Switzerland, the United Kingdom,

and the United States. The Basel Committee is comprised of

representatives of the central banks and supervisory authorities

from the G-10 countries and Luxembourg.

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The original Basel Accord imposed a 20 percent risk weight for

claims on banks incorporated in OECD countries \2\ and a 100 percent

risk weight for claims on securities firms and most other nonbanking

firms. In April 1998, the Basel Committee amended the Basel Accord to

lower the risk weight from 100 percent to 20 percent for claims on, and

claims guaranteed by, securities firms incorporated in OECD countries

if such firms are subject to supervisory and regulatory arrangements

that are comparable to those imposed on OECD banks. Such arrangements

must include risk-based capital requirements that are comparable to

those applied to depository institutions under the Accord and its

amendment to incorporate market risks. The term ``comparable'' is also

intended to require that qualifying securities firms (but not

necessarily their parent organizations) be subject to consolidated

regulation and supervision with respect to any of their subsidiaries.

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\2\ The OECD is an international organization of countries that

are committed to market-oriented economic policies, including the

promotion of private enterprise and free market prices, liberal

trade policies, and the absence of exchange controls. For purposes

of the Basel Accord, OECD countries are those countries that are

full members of the OECD or that have concluded special lending

arrangements associated with the International Monetary Fund's

General Arrangements to Borrow. A listing of OECD member countries

is available at http://www.oecdwash.org.

Any OECD country that has

rescheduled its external sovereign debt, however, may not receive

the preferential capital treatment generally granted to OECD

countries under the Accord for five years after such rescheduling.

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One of the primary reasons that the Basel Committee amended the

Accord was to make it consistent with the treatment of claims on

securities firms permitted under the European Union's (EU) Capital

Adequacy Directive (CAD). A number of European countries have followed

the CAD for some time. The CAD, which subjects EU depository

institutions and securities firms to the same capital requirements,

applies a 20 percent risk weight to claims on both depository

institutions and securities firms.

This proposed rule would reduce the risk weight applied to claims

on, and claims guaranteed by, qualifying securities firms from 100

percent to 20 percent under the Agencies' risk-based capital rules.

Under this proposal, qualifying securities firms must be incorporated

in an OECD country, be subject to supervisory and regulatory

arrangements that are comparable to those imposed on OECD banks, and

have a credit rating that is in one of the three highest investment

grade rating categories used by a nationally recognized statistical

rating organization (rating agency).

Qualifying U.S. securities firms must be broker-dealers registered

with the Securities and Exchange Commission (SEC). Qualifying U.S.

securities firms also must be subject to and comply with the SEC's net

capital rule,\3\ and margin and other regulatory requirements

applicable to registered broker-dealers.\4\

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\3\ The SEC's net capital rule, as set forth at 17 CFR 240.15c3-

1, requires broker-dealers to maintain continually sufficient liquid

assets to protect the interests of customers and other market

participants if a broker-dealer becomes insolvent. Under the SEC's

rules, a broker-dealer must maintain a minimum ratio of net capital

to either liabilities or customer-related receivables.

\4\ U.S. securities firms that have registered with the SEC as

over-the-counter derivatives dealers would not be qualifying

securities firms because they are subject to a less rigorous net

capital rule and are exempt from a variety of regulatory

requirements applicable to fully regulated broker-dealers, including

certain margin requirements. See 63 FR 59362 (Nov. 3, 1998).

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Qualifying securities firms incorporated in any other OECD country

must be subject to consolidated supervision and regulation (covering

their subsidiaries, but not necessarily their parent organizations)

comparable to that imposed on depository institutions in OECD

countries, including risk-based capital requirements comparable to

those applied to depository institutions under the Accord.\5\

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\5\ For example, this generally would include firms engaged in

securities activities in the EU that are subject to the CAD.

Securities firms in other OECD countries would need to demonstrate

to lending institutions and regulatory authorities that their

supervision and regulation qualify as comparable under this rule and

the Accord.

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The Agencies are of the view that supervision and regulation alone

are not necessarily sufficient indicators of creditworthiness to

warrant a 20 percent risk weight. Consequently, a qualifying securities

firm, or the parent consolidated group of a qualifying securities firm,

must have a long-term issuer credit rating,\6\ or a rating on at least

one issue of long-term (i.e., one year or longer) unsecured debt, from

a nationally recognized statistical rating organization (rating agency)

that is in one of the three highest investment grade rating categories

used by the rating agency.\7\

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\6\ A long issuer credit rating is one that assesses a firm's

overall capacity and willingness to pay on a timely basis its

unsecured financial obligations. Issuer credit ratings that are

assigned to non-broker-dealer subsidiary or affiliate of the

securities firm, or debt ratings on long-term unsecured debt issues

of such a subsidiary or affiliate of the securities firm, would not

satisfy the rating criteria to be a qualifying securities firm.

\7\ The Agencies recognize that two recent proposals used the

two highest investment grade rating categories to identify assets

that would qualify for a 20 percent risk weight. The Basel

Committee's June 1999 consultative paper entitled ``A New Capital

Adequacy Framework'' proposed that a bank, commercial firm or

securitization position rated in one of the two highest investment

grade rating categories would qualify for a 20 percent risk weight.

In addition, the Agencies' recent proposed rule on recourse and

direct credit substitutes proposed that a securitization position

rated in one of the two highest investment grade rating categories

would qualify for a 20 percent risk weight. 65 FR 12319 (March 8,

2000).

The Agencies considered proposing a rating requirement for

securities firms consistent with these other proposals, but decided

for several reasons that it would be appropriate to propose

requiring qualifying securities firms to be rated in one of the top

three rating categories of a rating agency. In addition to meeting

the rating standard, qualifying securities firms are subject to

supervision and regulation comparable to depository institutions in

OECD countries. This supervision distinguishes qualifying securities

firms from other types of entities, such as commercial firms.

Further, under the current Basel Accord, claims on OECD depository

institutions and securities firms receive a 20 percent risk weight

without satisfying a similar credit rating requirement. Thus, while

the Agencies considered both a higher rating requirement, on the one

hand, and whether any rating requirement should be imposed on

securities firms, on the other, the Agencies believe the proposed

rating requirement strikes an appropriate balance.

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Claims on, and claims guaranteed by, holding companies and other

affiliates of a qualifying securities firm, would retain their current

100 percent risk weighting under the Agencies' risk-based capital

rules. This treatment is consistent with the existing treatment for

depository institution holding companies and other affiliates of

depository institutions in consolidated holding companies. Claims on,

and claims guaranteed by, a subsidiary of a qualifying securities firm

also would retain their current 100 percent risk weight, unless such

subsidiary's obligations were guaranteed by a qualifying securities

firm (e.g., its parent qualifying securities firm).

The Agencies are proposing to revise their rules to apply a 20

percent risk weight to qualifying securities firms for several reasons.

First, claims on qualifying securities firms generally involve

relatively low credit risk because such firms are subject to

supervision and regulation, including capital requirements, comparable

to banks in OECD countries and have ratings in one of the three highest

investment grade rating categories. Second, the 100 percent risk weight

applied to claims on securities firms under the Agencies' current

capital rules is more stringent than the 20 percent capital charge

applied to claims on securities firms under the Basel Accord and the

CAD. This results in a competitive inequity for U.S. depository

institutions, which would be mitigated by this proposed rule.

[[Page 76182]]

The Agencies are seeking comment on all aspects of this rule.

Particularly, the Agencies request comment on their proposed criteria

for qualifying securities firms.

(1) Does the rating of a broker-dealer's parent consolidated

organization serve as a reliable indicator of the credit quality of

claims on, or guaranteed by, the broker-dealer?

(2) Is there a rating or other indicator of a broker-dealer's

credit quality that is more reliable and more consistent with market

practices than the proposed standard?

(3) Should claims on, and claims guaranteed by, certain

subsidiaries of qualifying securities firms be accorded a 20 percent

risk weight? If so, what should the qualifying criteria be for such

subsidiaries?

Regulatory Flexibility Act

Pursuant to section 605(b) of the Regulatory Flexibility Act, the

Agencies certify that this proposed rule would not have a significant

economic impact on a substantial number of small entities within the

meaning of the Regulatory Flexibility Act (5 U.S.C. 601 et seq.)

because it would not have a significant impact on the amount of capital

required to be held by small institutions. The proposed rule: (1) Only

covers a narrow category of assets that might be held by an

institution, (2) decreases the amount of capital that an institution

must hold for those assets, (3) does not significantly change the

amount of total capital an institution must hold, and (4) will have a

positive impact on an affected institution's capital requirements.

Accordingly, a regulatory flexibility analysis is not required.

Paperwork Reduction Act

The Agencies have determined that this proposal does not involve a

collection of information pursuant to the provisions of the Paperwork

Reduction Act of 1995 (44 U.S.C. 3501, et seq.).

Executive Order 12866

The Comptroller of the Currency and the Director of the OTS have

determined that this proposed rule is not a significant regulatory

action for purposes of Executive Order 12866. This proposed rule would

reduce the current risk weighting applied to claims on qualifying

securities firms and would not impose additional cost or burden on

institutions.

OCC and OTS--Unfunded Mandates Reform Act of 1995

Section 202 of the Unfunded Mandates Reform Act of 1995, Pub. L.

104-4 (Unfunded Mandates Act), requires that an agency prepare a

budgetary impact statement before promulgating a rule that 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 $100

million or more in any one year. If a budgetary impact statement is

required, section 205 of the Unfunded Mandates Act also requires an

agency to identify and consider a reasonable number of regulatory

alternatives before promulgating a rule. As discussed in the preamble,

this proposal would reduce the current risk-based capital charge for

claims on, and claims guaranteed by, qualifying securities firms.

Accordingly, the OCC and OTS have determined that this proposed rule

would not result in the expenditure by state, local, and tribal

governments, or by the private sector, of more than $100 million or

more in any one year. In fact, this proposed rule would impose no new

cost or burden on state, local, or tribal governments, or the private

sector. Therefore, the OCC and OTS have not prepared a budgetary impact

statement or specifically addressed the regulatory alternatives

considered.

Plain Language Requirement

Section 722 of the Gramm-Leach-Bliley Act of 1999 requires the

federal banking agencies to use ``plain language'' in all proposed and

final rules published after January 1, 2000. We invite your comments on

how to make this proposal easier to understand. For example:

(1) Have we organized the material to suit your needs?

(2) Are the requirements in the rule clearly stated?

(3) Does the rule contain technical language or jargon that isn't

clear? Would a different format (grouping and order of sections, use of

headings, paragraphing) make the rule easier to understand?

(5) Would more (but shorter) sections be better?

(6) What else could we do to make the rule easier to understand?

FDIC Assessment of Impact of Federal Regulation On Families

The FDIC has determined that this proposed rule would not affect

family well being within the meaning of section 654 of the Treasury and

General Government Appropriations Act of 1999 (Pub. L. 105-277).

List of Subjects

12 CFR Part 3

Administrative practice and procedure, Capital, National banks,

Reporting and recordkeeping requirements, Risk.

12 CFR Part 208

Accounting, Agriculture, Banks, banking, Confidential business

information, Crime, Currency, Federal Reserve System, Mortgages,

Reporting and recordkeeping requirements, Securities.

12 CFR Part 225

Administrative practice and procedure, Banks, banking, Federal

Reserve System, Holding companies, Reporting and recordkeeping

requirements, Securities.

12 CFR Part 325

Administrative practice and procedure, Banks, banking, Capital

adequacy, Reporting and recordkeeping requirements, Savings

associations, State non-member banks.

12 CFR Part 567

Capital, Reporting and recordkeeping requirements, Savings

associations.

Department of the Treasury

Office of the Comptroller of the Currency

12 CFR Chapter I

Authority and Issuance

For the reasons set out in the joint preamble, the Office of the

Comptroller of the Currency proposes to amend part 3 of chapter I of

title 12 of the Code of Federal Regulations as follows:

PART 3--MINIMUM CAPITAL RATIOS; ISSUANCE OF DIRECTIVES

1. The authority citation for part 3 continues to read as follows:

Authority: 12 U.S.C. 93a, 161, 1818, 1828(n), 1828 note, 1831n

note, 1835, 3907, and 3909.

2. In appendix A to part 3:

A. In section 1:

i. Redesignate paragraphs (c)(17) through (c)(31) as (c)(18)

through (c)(32); and

ii. Add new paragraph (c)(17).

B. In section 3:

i. Redesignate footnotes 11a and 11b as 11b and 11c;

ii. Add new paragraph (a)(2)(xiii);

iii. Add new footnote 11a to read as follows:

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Appendix A to Part 3--Risk-Based Capital Guidelines

Section 1. Purpose, Applicability of Guidelines, and Definitions.

* * * * *

(17) Nationally recognized statistical rating organization

(NRSRO) means an entity recognized by the Division of Market

Regulation of the Securities and Exchange Commission (or any

successor Division) as a nationally recognized statistical rating

organization for various purposes, including the Securities Exchange

Commission net capital requirement for brokers and dealers.

* * * * *

Section 3. Risk Categories/Weights for On-Balance Sheet Assets and

Off-Balance Sheet Items.

* * * * *

(a) * * *

(2) * * *

(xiii) Claims on, or guaranteed by, a qualifying securities firms

incorporated in an OECD country, subject to the following conditions:

(A) If the securities firm is incorporated in the United States,

then the securities firm must be a broker-dealer that is registered

with the Securities and Exchange Commission and must be subject to and

comply with the Securities Exchange Commission net capital regulation

(17 CFR 240.15c3(1)), margin regulations and other regulatory

requirements applicable to a registered broker-dealer.

(B) If the securities firm is incorporated in any other OECD

country, then the securities firm must be subject to consolidated

supervision and regulation (covering its subsidiaries, but not

necessarily its parent organization) comparable to that imposed on

depository institutions under the Basel Capital Accord.\11a\

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\11a\ See Accord on International Convergence of Capital

Measurement and Capital Standards as adopted by the Basle Committee

on Banking Regulations and Supervisory Practices (renamed as the

Basel Committee on Banking Supervision), dated July 1988.

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incorporated in the United States or another OECD country, must also

have a long-term issuer credit rating, or a credit rating on at least

one issue of long-term unsecured debt, from a nationally recognized

statistical rating organization. The credit rating must be in one of

the three highest investment grade categories used by the nationally

recognized statistical rating organization.

* * * * *

Dated: November 6, 2000.

John D. Hawke, Jr.,

Comptroller of the Currency.

Federal Reserve System

12 CFR Chapter II

For the reasons set forth in the joint preamble, parts 208 and 225

of chapter II of title 12 of the Code of Federal Regulations are

proposed to be amended as follows:

Part 208--Membership of State Banking Institutions in the Federal

Reserve System (Regulation H)

1. The authority citation for part 208 continues to read as

follows:

Authority: 12 U.S.C. 24, 36, 92a, 93a, 248(a), 248(c), 321-338a,

371d, 461, 481-486, 601, 611, 1814, 1816, 1818, 1820(d)(9), 1823(j),

1828(o), 1831, 1831o, 1831p-1, 1831r-1, 1835(a), 1882, 2901-2907,

3105, 3310, 3331-3351, and 3906-3909; 15 U.S.C. 78b, 781(b), 781(g),

781(i), 78o-4(c)(5), 78q, 78q-1, and 78w; 31 U.S.C. 5318; 42 U.S.C.

4012a, 4104a, 4104b, 4106, and 4128.

2. In appendix A to part 208, the following amendments are made:

a. In sections III. and IV., redesignate footnotes 34 through 52 as

footnotes 35 through 53;

b. In section III.C.2., the three existing paragraphs are

designated as III.C.2.a. through III.C.2.c., and a new section

III.C.2.d. is added with a new footnote 34; and

c. In Attachment III, under Category 2, a new paragraph 12. is

added. The revision and additions read as follows:

Appendix A to Part 208--Capital Adequacy Guidelines for State

Member Banks: Risk-Based Measure

* * * * *

III. * * *

C. * * *

2. * * *

d. This category also includes claims on, and claims guaranteed

by, qualifying securities firms incorporated in the OECD-based group

of countries.\34\

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\34\ With regard to securities firms incorporated in the United

States, qualifying securities firms are those securities that are

broker-dealers registered with the Securities and Exchange

Commission (SEC). They must be subject to and in compliance with the

SEC's net capital rule, 17 CFR 240.15c3-1, and subject to the margin

and other regulatory requirements applicable to registered broker-

dealers. With regard to securities firms incorporated in any other

country in the OECD-based group of countries, qualifying securities

firms are those securities firms that are subject to consolidated

supervision and regulation (covering their direct and indirect

subsidiaries, but not necessarily their parent organizations)

comparable to that imposed on banks in OECD countries. Such

regulation must include risk-based capital requirements comparable

to those applied to banks under the Accord on International

Convergence of Capital Measurement and Capital Standards (1988, as

amended in 1998) (Basel Accord). Furthermore, any qualifying

securities firm, or its parent consolidated group, must have a long-

term issuer credit rating, or a rating on at least one issue of

long-term unsecured debt, from a nationally recognized statistical

rating organization that is in one of the three highest investment

grade rating categories used by the rating agency.

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* * * * *

Attachment III--Summary of Risk Weights and Risk Categories for State

Member Banks

* * * * *

Category 2: 20 Percent * * *

12. Claims on, and claims guaranteed by, qualifying securities

firms incorporated in the OECD-based group of countries.

* * * * *

Part 225--Bank Holding Companies and Change in Bank Control

(Regulation Y)

1. The authority citation for part 225 continues to read as

follows:

Authority: 12 U.S.C. 1817(j)(13), 1818, 1828(o), 1831i, 1831p-1,

1843(c)(8), 1844(b), 1972(1), 3106, 3108, 3310, 3331-3351, 3907, and

3909.

2. In appendix A to part 225, the following amendments are made:

a. In sections III. and IV., redesignate footnotes 37 through 57 as

footnotes 38 through 58;

b. In section III.C.2., the three existing paragraphs are

designated as III.C.2.a. through III.C.2.c., and a new section

III.C.2.d. is added with a new footnote 37; and

c. In Attachment III, under Category 2, a new paragraph 12 is

added. The revision and additions read as follows:

Appendix A to Part 225--Capital Adequacy Guidelines for Bank Holding

Companies: Risk-Based Measure

* * * * *

III. * * *

C. * * *

2. * * *

d. This category also includes claims on, and claims guaranteed

by, qualifying securities firms incorporated in the OECD-based group

of countries.\37\

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\37\ With regard to securities firms incorporated in the United

States, qualifying securities firms are those securities that are

broker-dealers registered with the Securities and Exchange

Commission (SEC). They must be subject to and in compliance with the

SEC's net capital rule, 17 CFR 240.15c3-1, and subject to the margin

and other regulatory requirements applicable to registered broker-

dealers. With regard to securities firms incorporated in other

countries in the OECD-based group of countries, qualifying

securities firms are those securities firms that are subject to

consolidated supervision and regulation (covering their direct and

indirect subsidiaries, but not necessarily their parent

organizations) comparable to that imposed on banks in OECD

countries. Such regulation must include risk-based capital

requirements comparable to those applied to banks under the Accord

on International Convergence of Capital Measurement and Capital

Standards (1988, as amended in 1998) (Basel Accord). Furthermore,

any qualifying securities firm, or its parent consolidated group,

must have a long-term issuer credit rating, or a rating on at least

one issue of long-term unsecured debt, from a nationally recognized

statistical rating organization that is in one of the three highest

investment grade rating categories used by the rating agency.

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* * * * *

[[Page 76184]]

Attachment III--Summary of Risk Weights and Risk Categories for Bank

Holding Companies

* * * * *

Category 2: 20 Percent * * *

12. Claims on, and claims guaranteed by, qualifying securities

firms incorporated in the OECD-based group of countries.

* * * * *

By order of the Board of Governors of the Federal Reserve

System, November 27, 2000.

Jennifer J. Johnson,

Secretary of the Board.

Federal Deposit Insurance Corporation

12 CFR Chapter III

For the reasons set forth in the joint preamble, part 325 of

chapter III of title 12 of the Code of Federal Regulations is proposed

to be amended as follows:

PART 325--CAPITAL MAINTENANCE

1. The authority citation for part 325 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; Pub. L. 102-233, 105 Stat.

1761, 1789, 1790 (12 U.S.C. 1831n note); Pub. L. 102-242, 105 Stat.

2236, 2355, as amended by Pub. L. 103-325, 108 Stat. 2160, 2233 (12

U.S.C. 1828 note); Pub. L. 102-242, 105 Stat. 2236, 2386, as amended

by Pub. L. 102-550, 106 Stat. 3672, 4089 (12 U.S.C. 1828 note).

2. In appendix A to part 325, section II.B.3., the phrase ``U.S.

depository institutions and foreign banks'' is removed and the phrase

``U.S. depository institutions, foreign banks, and qualifying OECD-

based securities firms'' is added in its place.

3. In appendix A to part 325:

a. In section II.C., under Category 2--20 Percent Risk Weight, add

a new sentence immediately after the existing first sentence;

b. Redesignate footnotes 23 through 42 as footnotes 24 through 43;

c. Add a new footnote 23; and

d. In Table II, add a new paragraph (13) under Category 2--20

Percent Risk Weight.

Appendix A to Part 325--Statement of Policy on Risk-Based Capital

* * * * *

II. * * *

C. * * *

Category 2-20 Percent Risk Weight * * * This category also includes

claims on, and claims guaranteed by, qualifying securities firms

incorporated in the OECD-based group of countries.\23\ * * *

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\23\ With regard to securities firms incorporated in the United

States, qualifying securities firms are those securities firms that

are broker-dealers registered with the Securities and Exchange