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Subject: Risk-Based Capital -- Simplified Framework for Non-Complex Institutions
Date: November 3, 2000
To: Chief Executive Officers of National Banks, Department and Division Heads, Examining Personnel and Other Interested Parties
Description: Advance Notice of Proposed Rulemaking
This bulletin transmits an advance notice of proposed rulemaking (ANPR) on a simplified regulatory capital framework for non-complex banking institutions published in the Federal Register on November 3, 2000.1 Comments on the ANPR are due February 1, 2001.
Currently, banks and thrifts are required to maintain minimum levels of risk-based capital under a framework established by the 1988 Capital Accord.2 However, the Agencies believe that the size, complexity, and risk profile of many banking institutions may warrant the application of a simplified capital framework that could reduce the regulatory burden associated with existing capital standards (or any future modification of those standards). Under such a framework, banks deemed non-complex would be subject to simplified capital requirements.
The ANPR describes non-complex banks as being relatively small in terms of asset size and operations, possessing a relatively simple balance sheet, being principally engaged in traditional banking activities, and not having significant off-balance-sheet exposures. It is also notes that such banks generally have regulatory capital far in excess of the required minimums. The ANPR suggests that in order to be eligible for the non-complex framework a bank should maintain a level of capital sufficiently high such that more precise risk-based measures are not necessary.
The ANPR considers the potential for using the nature of a bank's activities, its asset size, and its risk profile as determinants of eligibility for the simplified regulatory capital framework. Three options for setting minimum regulatory capital requirements for non-complex banks are presented: a risk-based ratio, a simple leverage ratio, and a modified leverage ratio that incorporates certain off-balance-sheet exposures.
The ANPR identifies some advantages and disadvantages associated with developing a regulatory capital framework for non-complex banks. The main objective is to obtain preliminary views from the industry and the public regarding such a framework. The information gathered as a result of this ANPR will assist in determining whether the concept of a simplified regulatory capital framework is worth pursuing, and, if so, how the framework should be structured and implemented.
The OCC encourages all interested parties to review and comment on the attached ANPR. Please forward all comments to the Communications Division, 250 E Street SW, Washington, DC 20219, Attention Docket No. 00-24.
For Further Information Contact:
Amrit Sekhon, risk specialist, Capital Policy Division, at (202) 874-5211, or Ron Shimabukuro, senior attorney, Legislative and Regulatory Activities Division, at (202) 874-5090.
Jonathan L. Fiechter
1 The ANPR is a joint publication of the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, and the Office of Thrift Supervision (collectively, the Agencies).
2 The Capital Accord was developed by the Basel Committee on Banking Supervision. The framework is described in a document entitled "International Convergence of Capital Measurement" issued in July 1988 (with subsequent amendments).