District Circular Letters
June 11, 1998
REGULATION Y:
LEVERAGE CAPITAL STANDARDS
CREDIT RISK:
REPORT ON INTERNAL CREDIT RISK MODELS
To All State Member Banks,
Bank Holding Companies,
and Others Concerned
in the Twelfth Federal Reserve District
Final Rule Regarding Tier 1 Leverage Capital Standards (Docket
R-0948)
The Federal Reserve Board has issued a final rule amending the Tier 1
leverage capital standard for bank holding companies.
The rule is effective June 30, 1998.
The amendment to Regulation Y establishes a minimum ratio of Tier 1 capital
to total assets (leverage ratio) of 3.0 percent for bank holding companies
that either are rated composite "1" under the BOPEC rating system, or
have implemented the Board's risk-based capital market risk measure. The
minimum leverage ratio for all other bank holding companies is 4.0 percent.
Bank holding companies are expected to maintain higher-than-minimum capital
ratios if they have supervisory, financial, operational, or managerial
weaknesses, or if they are anticipating or experiencing significant growth.
System Task Force on Internal Credit Risk Models--Final Report
The Federal Reserve Board has issued a final report prepared by the System
Task Force on Internal Credit Risk Models. The Task Force was created
to assess potential uses of internal credit risk models within the supervisory
and regulatory processes. The report describes current uses of internal
models by major U.S. banking organizations, and outlines possible uses
of the models for assessing bank capital adequacy.
The report concludes that significant difficulties exist with respect
to model construction, data availability, and model validation procedures,
so that near-term uses of the models within the regulatory process are
limited. However, the report also concludes that models may, over the
somewhat longer term, become useful in at least the following two roles:
- the development of specific and practical examination guidance for
assessing the capital adequacy of large, complex banking organizations;
and
- the setting of regulatory capital requirements against selected instruments
that have largely evolved subsequent to adoption of the Basle Accord
on risk-based capital, such as credit enhancements supporting securitization
programs.
Copies
Copies of the report
of the System Task Force on Internal Credit Risk Models are available
upon request from Publications Services, Mail Stop 127, Board of Governors
of the Federal Reserve System, Washington, D.C. 20551.
Copies of the Board's notice (Docket R-0948) are available from our Corporate
Services Department. To request copies of Docket R-0948 to be sent via
mail, please call (415) 974-2748. To request copies to be sent via fax,
please call (415) 974-3333, and specify document number 4172. Board notices
are also available via the Federal Reserve Bank of San Francisco's internet
site, at / banking/bsr/regletters/.
For Additional Information
For additional information regarding these matters, please contact our
Banking Supervision and Regulation Department, at (415) 974-3177 [for
the report on internal credit risk models], and (415) 974-2927 [for Regulation
Y].
FEDERAL RESERVE BANK OF SAN FRANCISCO
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