Document Sample
E7-21422.pdf Powered By Docstoc

                                              Proposed Rules                                                                                                    Federal Register
                                                                                                                                                                Vol. 72, No. 210

                                                                                                                                                                Wednesday, October 31, 2007

                                              This section of the FEDERAL REGISTER                    Farm Credit Administration, 1501 Farm                       3. To the extent appropriate,
                                              contains notices to the public of the proposed          Credit Drive, McLean, VA 22102–5090.                      minimize differences in regulatory
                                              issuance of rules and regulations. The                     • Fax: (703) 883–4477. Posting and                     capital requirements between System
                                              purpose of these notices is to give interested          processing of faxes may be delayed, as                    institutions and federally regulated
                                              persons an opportunity to participate in the                                                                      banking organizations; 2 and
                                              rule making prior to the adoption of the final
                                                                                                      faxes are difficult for us to process and
                                                                                                      achieve compliance with section 508 of                      4. Foster economic growth in
                                                                                                      the Rehabilitation Act. Please consider                   agriculture and rural America through
                                                                                                      another means to comment, if possible.                    the effective allocation of System
                                              FARM CREDIT ADMINISTRATION                                 You may review copies of comments                      capital.
                                                                                                      we receive at our office in McLean,                         In addition, we are withdrawing our
                                              12 CFR Part 615                                         Virginia, or on our Web site at http://                   previous ANPRM on capital, published
                                                                                                      www.fca.gov. Once you are in the Web                      in the Federal Register on June 21, 2007
                                              RIN 3052–AC25                                                                                                     (72 FR 34191), as described more fully
                                                                                                      site, select ‘‘Legal Info,’’ and then select
                                                                                                      ‘‘Public Comments.’’ We will show your                    below.
                                              Funding and Fiscal Affairs, Loan
                                              Policies and Operations, and Funding                    comments as submitted, but for                            II. Background
                                              Operations; Capital Adequacy—Basel                      technical reasons we may omit items                          The FCA’s risk-based capital
                                              Accord                                                  such as logos and special characters.                     requirements for System institutions are
                                                                                                      Identifying information that you                          contained in subparts H and K of part
                                              AGENCY: Farm Credit Administration.                     provide, such as phone numbers and                        615 of our regulations.3 Our risk-based
                                              ACTION:Advance notice of proposed                       addresses, will be publicly available.                    capital framework is based, in part, on
                                              rulemaking (ANPRM).                                     However, we will attempt to remove e-                     the ‘‘International Convergence of
                                                                                                      mail addresses to help reduce Internet                    Capital Measurement and Capital
                                              SUMMARY: The Farm Credit
                                                                                                      spam.                                                     Standards’’ (Basel I) as published by the
                                              Administration (FCA or we) is
                                              considering possible modifications to                   FOR FURTHER INFORMATION CONTACT:                          Basel Committee on Banking
                                              our risk-based capital rules for Farm                   Laurie Rea, Associate Director, Office of                 Supervision (Basel Committee) 4 and is
                                              Credit System institutions (FCS or                      Regulatory Policy, Farm Credit                            broadly consistent with the capital
                                              System) that are similar to the                         Administration, McLean, VA 22102–                         requirements of the other Federal
                                              standardized approach delineated in the                 5090, (703) 883–4232, TTY (703) 883–                      financial regulatory agencies.5 We first
                                              New Basel Capital Accord. We are                        4434, or Wade Wynn, Policy Analyst,                       adopted a risk-based capital framework
                                              seeking comments to facilitate the                      Office of Regulatory Policy, Farm Credit                  for the System as part of our 1988
                                              development of a proposed rule that                     Administration, McLean, VA 22102–                         regulatory capital revisions 6 required by
                                              would enhance our regulatory capital                    5090, (703) 883–4262, TTY (703) 883–                      the Agricultural Credit Act of 1987 7 and
                                              framework and more closely align                        4434, or Rebecca S. Orlich, Senior                        made subsequent revisions in 1997,8
                                              minimum capital requirements with                       Counsel, Office of General Counsel,                       1998 9 and 2005.10 Under the current
                                              risks taken by System institutions. We                  Farm Credit Administration, McLean,                       capital framework, each on- and off-
                                              are also withdrawing our previously                     VA 22102–5090, (703) 883–4020, TTY                        balance sheet credit exposure is
                                              published ANPRM.                                        (703) 883–4020.                                           assigned to one of five broad risk-
                                              DATES: You may send comments on or                      SUPPLEMENTARY INFORMATION:
                                                                                                                                                                weighting categories to determine the
                                              before March 31, 2008.
                                                                                                      I. Objectives                                                2 Banking organizations include commercial
                                              ADDRESSES: We offer several methods                                                                               banks, savings associations, and their respective
                                              for the public to submit comments. For                    The objective of this ANPRM is to                       bank holding companies.
                                              accuracy and efficiency reasons,                        gather information to facilitate the                         3 Our regulations can be accessed at http://

                                              commenters are encouraged to submit                     development of a comprehensive                            www.fca.gov/index.html.
                                                                                                                                                                   4 The Basel Committee on Banking Supervision
                                              comments by e-mail or through the                       proposal that would:
                                                                                                                                                                was established in 1974 by central banks with bank
                                              Agency’s Web site or the Federal                          1. Promote safe and sound banking                       supervisory authorities in major industrialized
                                              eRulemaking Portal. Regardless of the                   practices and a prudent level of                          countries. The Basel Committee formulates
                                              method you use, please do not submit                    regulatory capital for System                             standards and guidelines related to banking and
                                                                                                      institutions; 1                                           recommends them for adoption by member
                                              your comment multiple times via                                                                                   countries and others. All Basel Committee
                                              different methods. You may submit                         2. Improve the risk sensitivity of our                  documents are available at http://www.bis.org.
                                              comments by any of the following                        regulatory capital requirements while                        5 We refer collectively to the Office of the

                                              methods:                                                avoiding undue regulatory burden;                         Comptroller of the Currency, the Board of
                                                                                                                                                                Governors of the Federal Reserve System, the
                                                 • E-mail: Send us an e-mail at reg-                                                                            Federal Deposit Insurance Corporation, and the
                                              comm@fca.gov.                                             1 The System was created by Congress in 1916
                                                                                                                                                                Office of Thrift Supervision as the ‘‘other Federal
                                                 • Agency Web site: http://                           and is the oldest GSE in the United States. System        financial regulatory agencies.’’
                                                                                                      institutions provide credit and financially related
rwilkins on PROD1PC63 with PROPOSALS-1

                                              www.fca.gov. Select ‘‘Legal Info,’’ then                services to farmers, ranchers, producers or
                                                                                                                                                                   6 See 53 FR 39229 (October 6, 1988).

                                              ‘‘Pending Regulations and Notices.’’                    harvesters of aquatic products, and farmer-owned
                                                                                                                                                                   7 Pub. L. 100–233 (January 6, 1988), section 301.

                                                 • Federal eRulemaking Portal: http://                cooperatives. They also make credit available for         The 1987 Act amended many provisions of the
                                                                                                      agricultural processing and marketing activities,         Farm Credit Act of 1971, as amended, which is
                                              www.regulations.gov. Follow the                                                                                   codified at 12 U.S.C. 2001 et seq.
                                                                                                      rural housing, certain farm-related businesses,
                                              instructions for submitting comments.                   agricultural and aquatic cooperatives, rural utilities,
                                                                                                                                                                   8 See 62 FR 4429 (January 30, 1997).

                                                 • Mail: Gary K. Van Meter, Deputy                    and foreign and domestic entities in connection              9 See 63 FR 39219 (July 22, 1998).

                                              Director, Office of Regulatory Policy,                  with international agricultural trade.                       10 See 70 FR 35336 (June 17, 2005).

                                         VerDate Aug<31>2005   17:11 Oct 30, 2007   Jkt 214001   PO 00000   Frm 00001   Fmt 4702   Sfmt 4702   E:\FR\FM\31OCP1.SGM      31OCP1
                                                                  Federal Register / Vol. 72, No. 210 / Wednesday, October 31, 2007 / Proposed Rules                                                 61569

                                              risk-adjusted asset base, which is the                  capital requirement for operational                    advanced approaches before the core
                                              denominator for computing the                           risk.17                                                (and opt-in) banks begin their first
                                              permanent capital, total surplus, and                      Given the small number of core banks                transition period year under the
                                              core surplus ratios.                                    and the complexity and cost associated                 advanced approaches of Basel II.
                                                                                                      with voluntarily adopting the advanced                    The other Federal financial regulatory
                                                 For a number of years, the Basel                     approaches, only a small number of U.S.                agencies plan to replace Basel IA with
                                              Committee has worked to develop a                       banking organizations are expected to                  a proposed rule patterned after the
                                              more risk sensitive regulatory capital                  implement the advanced capital                         standardized approach under Basel II.
                                              framework that incorporates recent                      framework. As a result, a bifurcated                   Consequently, we are withdrawing our
                                              innovations in the financial services                   regulatory capital framework will be                   previous ANPRM and replacing it with
                                              industry. In June 2004, it published the                created in the United States, which                    one that is also consistent with the
                                              ‘‘International Convergence of Capital                  could result in different regulatory                   standardized approach. We intend to
                                              Measurement and Capital Standards: A                    capital charges for similar products                   develop a proposed rule that is similar
                                              Revised Framework’’ (Basel II) to                       offered by those that apply the advanced               to the capital requirements of the other
                                              promote improved risk measurement                       capital framework and those that do not.               Federal financial regulatory agencies
                                              and management processes and more                       Financial regulators, banking                          where appropriate but also tailored to fit
                                              closely align capital requirements with                 organizations, trade associations and                  the System’s distinct borrower-owned
                                              risk.11 Basel II has three pillars: (1)                 other interested parties have raised                   lending cooperative structure and
                                              Minimum capital requirements for                        concerns that the bifurcated structure                 Government-sponsored enterprise (GSE)
                                              credit risk, operational risk, and market               could create a significant competitive                 mission.
                                              risk, (2) supervision of capital adequacy,              disadvantage for those that do not apply                  The questions posed in this ANPRM
                                              and (3) market discipline through                       the advanced capital framework.                        are, for the most part, similar to the
                                              enhanced public disclosure. Banking                        In December 2006, the other Federal                 questions we asked in our previous
                                              organizations have various options for                  financial regulatory agencies addressed                ANPRM.21 We have revised the
                                              calculating the minimum capital                         these concerns by issuing an                           technical material in most places to
                                                                                                      interagency notice of proposed                         conform to the standardized approach of
                                              requirements for credit and operational
                                                                                                      rulemaking (Basel IA) to improve the                   Basel II. For example, we replaced the
                                              risk. For credit risk, the options are the
                                                                                                      risk sensitivity of the existing Basel                 risk-weight categories that were in the
                                              standardized approach, the foundation                   I-based capital framework.18                           Basel IA proposed rule with the risk-
                                              internal ratings-based approach, and the                Subsequently, the FCA issued an                        weight categories that are contained in
                                              advanced internal ratings-based                         ANPRM,19 published in June 2007,                       the standardized approach under Basel
                                              approach (A–IRB). For operational risk,                 addressing issues similar to those                     II. We ask commenters to consider the
                                              the options are the basic indicator                     addressed in Basel IA. Basel IA was                    revised material when answering the
                                              approach, the standardized approach,                    intended to help minimize the potential                following questions. We seek comments
                                              and the advanced measurement                            differences in the regulatory minimum                  from all interested parties to help us
                                              approach (AMA).                                         capital requirements of those banks                    develop a comprehensive proposal that
                                                 In September 2006, the other Federal                 applying the advanced capital                          would enhance our regulatory capital
                                              financial regulatory agencies issued an                 framework and those banks that would                   framework and increase the risk
                                              interagency notice of proposed                          not. The other Federal financial                       sensitivity of our risk-based capital rules
                                              rulemaking for implementing the                         regulatory agencies received a                         without unduly increasing regulatory
                                              advanced approaches of Basel II in the                  significant number of comments                         burden.
                                              United States (the advanced capital                     opposing their Basel IA proposal. Many
                                                                                                                                                             III. Questions
                                              framework).12 This advanced capital                     commenters argued that the benefits of
                                                                                                      complying with Basel IA did not                           When addressing the following
                                              framework would require core banks 13                                                                          questions, we ask commenters to
                                                                                                      outweigh the burdens, and many
                                              and permit opt-in banks 14 to use the A–                                                                       consider the overarching objectives of
                                                                                                      questioned why the U.S. banking
                                              IRB 15 to calculate the regulatory capital                                                                     Basel II to more closely align capital
                                                                                                      agencies were creating a separate rule
                                              requirement for credit risk and the                     that had only minor differences from the               with the specific risks taken by the
                                              AMA 16 to calculate the regulatory                      standardized approach under Basel II.                  financial institution rather than relying
                                                                                                      On July 20, 2007, the other Federal                    on a ‘‘one-size-fits-all’’ approach for
                                                 11 See http://www.bis.org/publ/bcbsca.htm for the
                                                                                                      financial regulatory agencies announced                determining regulatory minimum risk-
                                              2004 Basel II Accord as well as updates in 2005 and                                                            based capital requirements. Our
                                              2006.                                                   that they intended to replace the Basel
                                                 12 See 71 FR 55830 (September 25, 2006). This        IA proposal with a proposed rule that                  objective is to develop a more dynamic
                                              document is at http://www.federalreserve.gov/           would provide all non-core banks the                   risk-based capital framework that is
                                              generalinfo/basel2/USImplementation.htm.                option to adopt the standardized                       more sensitive to the relative risks
                                                 13 Core banks are banking organizations that have
                                                                                                      approach under Basel II.20 Their stated                inherent in System lending and other
                                              consolidated total assets of $250 billion or more or                                                           mission-related activities. We seek
                                              have consolidated on-balance sheet foreign
                                                                                                      intent is to finalize a standardized
                                              exposures of $10 billion or more.                       approach for banks that do not adopt the               comments on specific criteria that might
                                                 14 Opt-in banks are banking organizations that do                                                           be used to determine appropriate risk
                                              not meet the definition of a core bank but have the       17 The other Federal financial regulatory agencies   weights that meet this objective without
                                              risk management and measurement capabilities to         also seek comments on whether core and opt-in
                                              voluntarily implement the advanced approaches of        banks should be permitted to use other credit and         21 Questions 1, 3, 4, 5, 9 and 10 in this ANPRM
                                              Basel II with supervisory approval.                     operational risk approaches.                           are identical to those numbered questions posed in
rwilkins on PROD1PC63 with PROPOSALS-1

                                                 15 A banking organization computes internal            18 71 FR 77446 (December 26, 2006). This
                                                                                                                                                             our previous ANPRM. Questions 2, 6 and 11 are
                                              estimates of certain key risk parameters for each       document is at http://www.federalreserve.gov/          slightly different. Question 7 in this ANPRM
                                              credit exposure or pool of exposures and feeds the      generalinfo/basel2/USImplementation.htm.               replaces Questions 7 and 8 in our previous ANPRM.
                                              results into regulatory formulas to determine the         19 72 FR 34191 (June 21, 2007).
                                                                                                                                                             Questions 8, 12, and 16 are new to this ANPRM.
                                              risk-based capital requirement for credit risk.           20 Joint Press Release, ‘‘Banking Agencies Reach     Questions 13 through 15 are identical to Questions
                                                 16 Internal operational risk management systems      Agreement On Basel II Implementation,’’ (July 20,      12 through 14 in our previous ANPRM. Question
                                              and processes are used to compute risk-based            2007). This document is at http://www.occ.gov/ftp/     17 is identical to Question 15 in our previous
                                              capital requirements for operational risk.              release/2007–77.htm.                                   ANPRM.

                                         VerDate Aug<31>2005   17:11 Oct 30, 2007   Jkt 214001   PO 00000   Frm 00002   Fmt 4702   Sfmt 4702   E:\FR\FM\31OCP1.SGM   31OCP1
                                              61570                      Federal Register / Vol. 72, No. 210 / Wednesday, October 31, 2007 / Proposed Rules

                                              creating undue burden. Specifically, we                                   exposures (e.g., those below investment                      agency asset-backed securities (ABS)
                                              ask that you support your comments                                        grade).                                                      and mortgage-backed securities (MBS)
                                              with data, to the extent possible, in                                        Question 1: We seek comment on                            in the 20-percent risk-weight category.26
                                              response to our questions.22                                              what additional risk-weight categories,                      In April 2004, we expanded the use of
                                                                                                                        if any, we should consider for assigning                     NRSRO ratings to assign risk weights to
                                              A. Increase the Number of Risk-Weight                                     risk weights to System institutions’ on-                     loans to other financing institutions.27
                                              Categories                                                                and off-balance sheet exposures. If                          In June 2005, we adopted a ratings-
                                                                                                                        additional risk-weight categories are                        based approach to assign risk weights to
                                                 Our existing risk-based capital rules                                  added, what assets should be included                        recourse obligations, direct credit
                                              assign exposures to one of five risk-                                     in each new risk-weight category?                            substitutes (DCS), residual interests
                                              weight categories: 0, 20, 50, 100, and
                                                                                                                        B. Use of External Credit Ratings To                         (other than credit-enhancing interest-
                                              200 percent.23 The standardized                                                                                                        only strips), and other ABS and MBS
                                              approach of Basel II adds risk-weight                                     Assign Risk-Weight Exposures
                                                                                                                                                                                     investments.28 Furthermore, we recently
                                              categories of 35, 75, and 150 percent                                     1. Direct Exposures                                          permitted the use of NRSRO ratings to
                                              and replaces the 200-percent risk-weight                                     In recent years, the FCA has permitted                    assign risk weights to certain electric
                                              category with a 350-percent risk-weight                                   System institutions to use external                          cooperative credit exposures.29
                                              category.24 The 35-percent risk-weight                                    ratings to assign risk weights to certain                      The standardized approach of Basel II
                                              category would apply to certain                                           credit exposures linked to nationally                        expands the use of NRSRO ratings to
                                              residential mortgages. The 75-percent                                     recognized statistical rating                                determine the risk-based capital charge
                                              risk-weight category would apply to                                       organizations (NRSROs) ratings.25 For                        for long-term exposures to sovereign
                                              certain retail claims (e.g., small business                               example, in March 2003, we adopted an                        entities, non-central government public
                                              loans). The 150-percent and 350-percent                                   interim final rule that permitted System                     sector entities (PSEs), banks,30 corporate
                                              risk-weight categories would apply to                                     institutions to use NRSRO ratings to                         entities, and securitizations as displayed
                                              certain higher risk externally rated                                      place highly rated investments in non-                       in Table 1 set forth below.31

                                                                                                                                                                          PSE and bank *
                                                                                                                                                     Sovereign             risk weights           Corporate          Securitization **
                                                                               Credit assessment                                                     risk weight           (in percent)           risk weight          risk weight
                                                                                                                                                    (in percent)                                 (in percent)         (in percent)
                                                                                                                                                                        Option 1   Option 2

                                              AAA to AA¥ ................................................................................                        0            20         20                 20    20.
                                              A+ to A¥ .....................................................................................                    20            50         50                 50    50.
                                              BBB+ to BBB¥ ...........................................................................                          50           100         50                100    100.
                                              BB+ to BB¥ ................................................................................                      100           100        100                100    350.
                                              B+ to B¥ .....................................................................................                   100           100        100                150    Deduction.***
                                              Below B¥ ....................................................................................                    150           150        150                150    Deduction.***
                                              Unrated ........................................................................................                 100           100         50                100    Deduction.***
                                                 * The Standardized Approach provides two options for PSEs and bank exposures: (1) Option 1 assigns a risk weight one category below that
                                              of sovereigns; (2) Option 2 assigns a risk weight based on the individual bank rating. Option 2 also provides risk weights for short-term claims as
                                              follows: (1) AAA to BBB¥ and unrated = 20 percent; (2) BB+ to B¥= 50 percent; and (3) Below B¥= 150 percent.
                                                 ** Short-term rating categories are as follows: (1) A–1/P–1 = 20 percent; (2) A–2/P–2 = 50 percent; (3) A–3/P–3 = 100 percent; and (4) All
                                              other ratings or unrated = Deduction.
                                                 *** Banks must deduct the entire amount from capital. However, if banks originate a securitization and the most senior exposure is unrated, the
                                              bank may use the ‘‘look through’’ treatment, which is the average risk weight of the underlying exposures subject to supervisory review.

                                                System institutions provide financing                                   existing risk-based capital rules assign                     expanded use of NRSRO ratings to
                                              to agriculture and rural America                                          most agricultural and rural business 34                      assign risk weights to other externally
                                              through a variety of lending 32 and                                       loans and mission-related investment                         rated credit exposures in the System,
                                              investment 33 products. They also hold                                    assets to the 100-percent risk-weight                        such as corporate debt securities and
                                              highly rated liquid investments to                                        category unless the risk exposure is                         loans.
                                              manage liquidity, short-term surplus                                      mitigated by an acceptable guarantee or                        Question 2: We seek comments on all
                                              funds, and interest rate risk. Our                                        collateral. The FCA is considering the                       aspects of the appropriateness of using
                                                                                                                                                                                     NRSRO ratings to assign risk weights to
                                                 22 Please note that any data you submit will be                          28 These changes are consistent with those of the          affiliated associations and retail loans to
                                              made available to the public in our rulemaking file.                      other Federal financial regulatory agencies. See 70          cooperatives and other eligible borrowers.
                                                 23 FCA’s risk-weight categories are set forth in 12                    FR 35336 (June 17, 2005).                                       33 System banks and associations are permitted to

                                              CFR 615.5211.                                                               29 See ‘‘Revised Regulatory Capital Treatment for          make mission-related investments to agriculture
                                                 24 Basel IA proposed adding risk-weight                                Certain Electric Cooperatives Assets,’’ FCA                  and rural America. See ‘‘Investments in Rural
                                              categories of 35, 75, and 150 percent.                                    Bookletter BL–053 (February 12, 2007).                       America-Pilot Investment Programs,’’ FCA
                                                 25 A NRSRO is a credit rating organization that is                       30 Banks include multilateral development banks            Informational Memorandum (January 11, 2005).
                                                                                                                                                                                        34 Agricultural businesses include farmer-owned
                                                                                                                        and securities firms.
rwilkins on PROD1PC63 with PROPOSALS-1

                                              recognized by and registered with the Securities
                                                                                                                                                                                     cooperatives, food and fiber processors and
                                              and Exchange Commission (SEC) as a nationally                               31 Basel IA proposed the categories sovereign
                                                                                                                                                                                     marketers, manufacturers and distributors of
                                              recognized statistical rating organization. See 12                        entities, non-sovereign entities, and securitizations        agricultural inputs and services, and other
                                              CFR 615.5201. See also Pub. L. 109–291.                                   with different risk-weight categories.                       agricultural-related businesses. Rural businesses
                                                 26 See 68 FR 15045 (March 28, 2003).                                     32 The Farm Credit Banks provide wholesale
                                                                                                                                                                                     include electric utilities and other energy-related
                                                 27 Other financing institutions are non-System                         funding to their affiliated associations who, in turn,       businesses, communication companies, water and
                                              financial institutions that borrow from System                            make retail loans to eligible borrowers. CoBank,             waste disposal businesses, ethanol plants, and other
                                              banks. See 69 FR 29852 (May 26, 2004).                                    ACB, provides both wholesale funding to its                  rural-related businesses.

                                         VerDate Aug<31>2005         17:11 Oct 30, 2007        Jkt 214001      PO 00000        Frm 00003         Fmt 4702   Sfmt 4702   E:\FR\FM\31OCP1.SGM   31OCP1
                                                                       Federal Register / Vol. 72, No. 210 / Wednesday, October 31, 2007 / Proposed Rules                                                                                          61571

                                              credit exposures. If we expand the use                               securities issued or guaranteed by                                          it would be marked-to-market and
                                              of external ratings, how should we align                             central governments in other OECD 35                                        revalued every 6 months. Securities
                                              the risk-weight categories with NRSRO                                countries; (4) securities issued by                                         issued by sovereigns or PSEs must be
                                              ratings to determine the appropriate                                 certain multilateral lending or regional                                    rated at least BB-or its equivalent by a
                                              capital charge for externally rated credit                           development institutions; or (5)                                            NRSRO. Securities issued by other
                                              exposures? Should any externally rated                               securities issued by qualifying securities                                  entities must be rated at least BBB-or its
                                              positions be excluded from this new                                  firms.                                                                      equivalent by an NRSRO. Short-term
                                              ratings-based approach? We ask                                                                                                                   debt instruments used as collateral must
                                                                                                                      The standardized approach of Basel II
                                              commenters to consider the substantial                                                                                                           be rated at least A–3/P–3 or its
                                                                                                                   has two methods for recognizing a wider
                                              reliance on NRSRO ratings as a means                                                                                                             equivalent by an NRSRO.
                                              of evaluating the quality of debt                                    variety of collateral types for risk-
                                              investments in view of recent events in                              weighting purposes.36 Under the simple                                         Under the comprehensive approach,
                                              the subprime mortgage market.                                        approach, the collateralized portion of                                     the banking organization adjusts the
                                                                                                                   the exposure would be assigned a risk                                       value of the exposure by the discounted
                                              2. Recognized Financial Collateral                                   weight (as listed in Table 1) according                                     value of the collateral. Discount values,
                                                 Our current risk-based capital rules                              to the external rating of the collateral.                                   known as supervisory haircuts, are
                                              assign lower risk weights to exposures                               The remainder of the exposure would be                                      displayed in Table 2 set forth below. For
                                              collateralized by: (1) Cash held by a                                assigned a risk weight appropriate to the                                   example, sovereign debt rated A+ with
                                              System institution or its funding bank;                              counterparty. Collateral would be                                           a 5-year maturity used as collateral is
                                              (2) securities issued or guaranteed by                               subject to a 20-percent floor unless the                                    discounted by 3 percent, and corporate
                                              the U.S. Government, its agencies or                                 collateral is cash, certain government                                      debt rated A+ with a 5-year maturity is
                                              Government-sponsored agencies; (3)                                   securities or repurchase agreements, and                                    discounted at 6 percent.

                                                                                                                                                                                                                              Sovereigns         Other
                                                                Issue rating for debt securities                                                                Residual maturity                                             and PSEs *       issuers **
                                                                                                                                                                                                                              (in percent)   (in percent)

                                              AAA to AA¥ or A¥ .........................................................         ≤ 1 year ............................................................................                 0.5                     1
                                                                                                                                 > 1 year, ≤ 5 years ...........................................................                         2                     4
                                                                                                                                 > 5 years ..........................................................................                    4                     8
                                              A+ to BBB¥ or A–2/A–3/P–3 ..........................................               ≤ 1 year ............................................................................                   1                     2
                                                                                                                                 > 1 year, ≤ 5 years ...........................................................                         3                     6
                                                                                                                                 > 5 years ..........................................................................                    6                   12
                                              BB+ to BB¥ .....................................................................   All ......................................................................................            15    ....................
                                                 * Includes PSEs treated as sovereigns.
                                                 ** Includes PSEs not treated as sovereigns.

                                                 Question 3: We seek comment on                                    countries (short-term claims only); (6)                                       Question 4: We seek comment on
                                              whether recognizing additional types of                              certain multilateral lending and regional                                   what additional types of third party
                                              eligible collateral would improve the                                development institutions; and (7)                                           guarantees, if any, we should recognize
                                              risk sensitivity of our risk-based capital                           qualifying securities firms.                                                and what effect such guarantees should
                                              rules without being overly burdensome.                                  The standardized approach of Basel II                                    have on the risk weighting of System
                                              We also seek comment on what                                         expands the range of eligible guarantors                                    exposures.
                                              additional types of collateral, if any, we
                                                                                                                   to include sovereign entities, PSEs,                                        C. Direct Loans to System Associations
                                              should consider and what effect the
                                                                                                                   banks and securities firms that have a
                                              collateral should have on the risk                                                                                                                  The FCA is considering ways to better
                                                                                                                   lower risk weight than the
                                              weighting of System exposures.                                                                                                                   align our risk-based capital
                                                                                                                   counterparty.37 All other guarantors
                                              3. Eligible Guarantors                                               must be rated A¥ (or its equivalent) or                                     requirements for direct loans with
                                                                                                                   better by a NRSRO. The guarantee must:                                      System associations. System banks
                                                Our existing capital rules permit the                              (1) Represent a direct claim on the                                         make direct loans to their affiliated
                                              use of third party guarantees to lower                               protection provider, (2) be explicitly                                      associations who, in turn, make retail
                                              the risk weight of certain exposures.                                referenced to specific exposures or                                         loans to eligible borrowers. Our current
                                              Guarantors include: (1) The U.S.                                                                                                                 risk-based capital rules assign a 20-
                                                                                                                   pools of exposures, (3) be irrevocable,
                                              Government, its agencies or                                                                                                                      percent risk weight to direct loans at the
                                                                                                                   and (4) unconditional. The guarantor’s
                                              Government-sponsored agencies; (2)                                                                                                               bank level and another risk weight
                                                                                                                   risk weight would be substituted for the
                                              U.S. state and local governments; (3)                                                                                                            (depending upon the type of loan) to
                                                                                                                   risk weight assigned to the exposure.
                                              central governments and banks in OECD                                                                                                            retail loans at the association level.38
                                              countries; (4) central governments in                                Non-guaranteed portions of the                                              The 20-percent risk weight is intended
                                              non-OECD countries (local currency                                   exposure would be assigned to the                                           to recognize the risks to the banks
                                              exposures only); (5) banks in non-OECD                               external rating of the exposure.                                            associated with lending to their
rwilkins on PROD1PC63 with PROPOSALS-1

                                                35 OECD stands for the Organization for Economic                     36 Basel IA proposed assigning lower risk weights                         least investment grade (or issuer rating if a
                                              Cooperation and Development. The OECD is an                          to exposures collateralized by securities issued by                         sovereign).
                                              international organization of countries that are                     sovereigns or non-sovereigns that were externally                             38 Our risk-based capital rules also assign a 20-
                                              committed to democratic government and the                           rated at least investment grade.                                            percent risk weight to similar GSE and OECD
                                              market economy. An up-to-date listing of member                        37 Basel IA proposed to include guarantees from
                                              countries is available at http://www.oecd.org or                                                                                                 depository institution exposures.
                                              http://www.oecdwash.org.                                             any entity that had long-term senior debt rated at

                                         VerDate Aug<31>2005       17:11 Oct 30, 2007       Jkt 214001     PO 00000      Frm 00004       Fmt 4702       Sfmt 4702       E:\FR\FM\31OCP1.SGM                31OCP1
                                              61572               Federal Register / Vol. 72, No. 210 / Wednesday, October 31, 2007 / Proposed Rules

                                              affiliated associations. We are exploring               category. The standardized approach of                by a credit conversion factor (CCF) 43 to
                                              methods to improve the risk sensitivity                 Basel II assigns a 35-percent risk weight             determine its on-balance sheet credit
                                              of our risk-based capital rules by                      to all prudently underwritten residential             equivalent; and (2) the on-balance sheet
                                              assigning different risk weights to direct              mortgages. Basel IA had proposed to                   credit equivalent is assigned to the
                                              loan exposures based on the System                      risk-weight loans secured by first and                appropriate risk-weight category in
                                              association’s distinct risk profile.                    second liens on residential real estate               § 615.5211 according to the obligor, after
                                                 Question 5: We seek comment on                       based on LTV. We continue to believe                  considering any applicable collateral
                                              what evaluative criteria or methods we                  that LTV is a viable option for                       and guarantees.44 The standardized
                                              should use to assign risk weights to                    determining appropriate risk-weights for              approach of Basel II assigns a 0-percent
                                              direct loans to System associations.                    farm real estate and qualified residential            CCF to unconditionally cancelable
                                              How should the criteria be used to                      loans. We are also considering                        commitments,45 a 20-percent CCF to
                                              adjust the risk weight as the quality of                approaches that would combine                         short-term commitments, and a 50-
                                              the direct loan changes over time?                      borrower creditworthiness and other                   percent CCF to long-term
                                                                                                      loan characteristics in conjunction with              commitments.46
                                              D. Small Agricultural and Rural                                                                                 Question 9: We seek comment on
                                              Business Loans                                                                                                what approaches we should use to risk
                                                                                                         Question 7: We seek comment on all
                                                 Our existing risk-based capital rules                aspects of using LTV to determine the                 weight short- and long-term
                                              assign small agricultural and rural                     appropriate risk-weight for farm real                 commitments that are not
                                              business loans to the 100-percent risk-                 estate, qualified residential loans, or               unconditionally cancelable.
                                              weight category unless the credit risk is               any other asset class. We also welcome                H. Adjusting Risk Weights on Exposures
                                              mitigated by an acceptable guarantee or                 comments on other methods that could                  Over Time
                                              acceptable collateral. The standardized                 be used to improve the risk sensitivity of
                                              approach of Basel II applies a 75-percent                                                                       The FCA welcomes comment on
                                                                                                      our risk-based capital rules for these
                                              risk weight to certain retail claims 39                                                                       additional approaches or criteria that
                                                                                                      types of loans.
                                              provided: (1) The exposure is to an                                                                           might be used to adjust the risk weight
                                              individual person or persons or to a                    F. Loans 90 Days or More Past Due or                  of exposures throughout the life of the
                                              small business, (2) the exposure is in the              in Nonaccrual 42                                      asset. Our existing risk-based capital
                                              form of a revolving credit, line of credit,                                                                   rules assign a static risk weight to assets
                                                                                                         Our existing risk-based capital rules
                                              personal term loan or lease, or small                                                                         within a given asset class without
                                                                                                      assign most loans to the 100-percent
                                              business facility or commitment, (3) the                                                                      providing for risk-weight adjustments as
                                                                                                      risk-weight category unless the credit
                                              regulatory supervisor is satisfied that                                                                       asset quality improves or deteriorates.
                                                                                                      risk is mitigated by an acceptable
                                              the retail portfolio is sufficiently                                                                          For example, most loans to System
                                                                                                      guarantee or collateral. When exposures
                                              diversified to warrant such a risk                                                                            borrowers are risk-weighted at 100
                                                                                                      reach 90 days or more past due or are
                                              weight, and (4) the total credit exposure                                                                     percent throughout the life of the loan
                                                                                                      in nonaccrual status, there is a higher
                                              to the borrower does not exceed                                                                               without making risk-weight adjustments
                                                                                                      probability that the financial institution
                                              approximately $1.4 million.40                                                                                 based on credit classifications or other
                                                                                                      might incur a loss. The standardized
                                                 Question 6: We seek comment on                                                                             credit performance factors.
                                                                                                      approach of Basel II addresses this
                                              what approaches we should use to                                                                                Question 10: We seek comment on
                                                                                                      potentially higher risk of loss by
                                              improve the risk sensitivity of our risk-                                                                     what methods we should use to adjust
                                                                                                      assigning the unsecured portion of a
                                              based capital rules for small agricultural                                                                    the risk weight of credit exposures as the
                                                                                                      loan that is 90 days or more past due
                                              and rural business loans. More                                                                                asset quality or default probability
                                                                                                      (net of specific provisions) as follows:
                                              specifically, what criteria should we use                                                                     changes over time.
                                                                                                         • 150-percent risk weight when
                                              to classify an agricultural or rural                    specific provisions are less than 20                  I. Capital Charge for Operational Risk
                                              business as a small business? What                      percent of the outstanding amount of                     The FCA welcomes comments on
                                              criteria should we use to assign risk-                  the loan;                                             possible approaches for determining a
                                              weights of less than 100 percent to these                  • 100-percent risk weight when                     capital charge for operational risk. The
                                              types of loans?                                         specific provisions are 20 percent or                 broad risk-weighting categories under
                                              E. Loans Secured by Liens on Real                       more of the outstanding amount of the                 our existing capital rules are primarily
                                              Estate                                                  loan;
                                                                                                         • When specific provisions are 50                     43 A CCF is a number by which an off-balance
                                                The FCA is considering ways to use                    percent or more of the outstanding                    sheet item is multiplied to obtain a credit
                                              loan-to-value ratios (LTV) and other                    amount of the loan, the supervisor has                equivalent before placing the item in a risk-weight
                                              criteria to determine the risk-based                                                                          category.
                                                                                                      the discretion to reduce the risk weight                 44 Our existing regulations assign a 0-percent CCF
                                              capital charges for farm real estate and                to 50 percent.                                        to unused commitments with an original maturity
                                              qualified residential loans. Our existing                                                                     of 14 months or less. Unused commitments with an
                                                                                                         Question 8: We seek comment on all
                                              capital rules assign farm real estate                                                                         original maturity of greater than 14 months can also
                                                                                                      aspects related to risk-weighting
                                              loans to the 100-percent risk-weight                                                                          receive a 0-percent CCF provided the commitment
                                                                                                      exposures that reach 90 days or more                  is unconditionally cancelable and the System
                                              category and qualified residential
                                                                                                      past due or are in nonaccrual status.                 institution has the contractual right to make a
                                              loans 41 to the 50-percent risk-weight                                                                        separate credit decision before each drawing under
                                                                                                      G. Short- and Long-Term Commitments                   the lending arrangement. All other unused
                                                39 The  other Federal financial regulatory agencies                                                         commitments with an original maturity of greater
                                              stated in Basel IA that they were exploring options       Under § 615.5212, off-balance sheet                 than 14 months are assigned a 50-percent CCF.
rwilkins on PROD1PC63 with PROPOSALS-1

                                              to permit certain small business loans to qualify for   commitments are generally risk-                          45 An unconditionally cancelable commitment is
                                              a 75-percent risk weight.                               weighted in two steps: (1) The off-                   one that can be canceled for any reason at any time
                                                40 We present a comparable threshold in terms of                                                            without prior notice.
                                                                                                      balance sheet commitment is multiplied
                                              U.S. dollars. The standardized approach of Basel II                                                              46 Basel IA proposed to retain the 0-percent CCF
                                              has a threshold of ÷1 million.                                                                                for all unconditionally cancelable commitments,
                                                41 Qualified residential loans are rural home loans   producers or harvesters of aquatic products that      apply a 10-percent CCF to all other short-term
                                              (as defined by 12 CFR 613.3030) and single-family       meet the requirements listed in 12 CFR 615.5201.      commitments, and retain the 50-percent CCF for all
                                              residential loans to bona fide farmers, ranchers, or      42 This section was not in the previous ANPRM.      long-term commitments.

                                         VerDate Aug<31>2005   17:11 Oct 30, 2007   Jkt 214001   PO 00000   Frm 00005   Fmt 4702   Sfmt 4702   E:\FR\FM\31OCP1.SGM   31OCP1
                                                                  Federal Register / Vol. 72, No. 210 / Wednesday, October 31, 2007 / Proposed Rules                                                          61573

                                              designed to protect against credit or                   the disclosures it should make; 49 (2)                    net collateral ratio (NCR) 54 of 103
                                              counterparty risk. As we move toward a                  banks should implement a process for                      percent 55 but do not impose a capital
                                              more risk-sensitive capital framework, it               assessing the appropriateness of their                    leverage ratio on System associations.
                                              may be appropriate to apply an explicit                 disclosures, including validation and                     The NCR provides a level of protection
                                              capital charge for operational risk,                    frequency of them; (3) banks should                       for operating and other forms of risk at
                                              especially to cover risks associated with               decide which disclosures are relevant                     System banks, but it does not
                                              off-balance sheet activity.                             based on the materiality concept; 50 and                  differentiate higher quality from lower
                                                                                                      (4) the disclosures should be made on                     quality capital. The other Federal
                                                 Basel II defines operational risk as the
                                                                                                      a semi-annual basis, subject to certain                   financial regulatory agencies currently
                                              risk of loss resulting from inadequate or
                                                                                                      exceptions.51                                             supplement their risk-based capital
                                              failed internal processes, people,
                                                                                                                                                                rules with a leverage ratio of Tier 1
                                              systems, or from external events. This                     The other Federal financial regulatory
                                                                                                                                                                capital to total assets (Tier 1 leverage
                                              definition includes legal risk but                      agencies have proposed the following
                                                                                                                                                                ratio).56 The Tier 1 leverage ratio
                                              excludes strategic and reputational risk.               additional requirements in the advanced                   consists of only the most reliable and
                                              As previously mentioned, Basel II has                   capital framework: (1) The disclosures                    permanent forms of capital such as
                                              three methods for applying a capital                    would follow U.S. generally accepted                      common stock, non-cumulative
                                              charge for operational risk. Under the                  accounting principles, SEC mandates,                      perpetual preferred stock, and retained
                                              basic indicator approach, the                           and existing regulatory reporting                         earnings.
                                              operational capital charge is equal to 15               requirements; (2) the banks would be                         Question 13: We seek comment on
                                              percent of the 3-year average of positive               required to disclose quantitative                         whether our capital rules should
                                              annual gross income. Under the                          information on a quarterly basis                          include a minimum capital leverage
                                              standardized approach, the operational                  following SEC deadlines; (3) the                          ratio requirement for all System
                                              capital charge is equal to the sum of a                 disclosures would be made publicly                        institutions. We also seek comment on
                                              fixed percentage of the 3-year average of               available (for example, on a Web site)                    changes, if any, that should be made to
                                              the gross income of eight business                      for each of the last 3 years (that is, 12                 the existing regulatory minimum NCR
                                              lines.47 Under the AMA, the operational                 quarters); 52 (4) disclosure of key                       requirement applicable to System banks
                                              capital charge is derived from a bank’s                 financial ratios must be provided in the                  that would make it more comparable to
                                              internal operational risk management                    footnotes to the year-end audited                         the Tier 1 ratio used by the other
                                              systems and processes.                                  financial statements; 53 (5) the chief                    Federal financial regulatory agencies.
                                                 Question 11: We seek comment on                      financial officer must certify that the
                                                                                                                                                                L. Regulatory Capital Directives 57
                                              what approach we should consider, if                    disclosures are appropriate; and (6) the
                                                                                                      board of directors and senior                                We are considering whether we
                                              any, in determining a risk-based capital
                                                                                                      management are responsible for                            should modify our capital rules to
                                              charge for operational risk.
                                                                                                      establishing the internal control                         specify potential early intervention
                                              J. Disclosure 48                                        structure over financial reporting.                       criteria for the issuance of capital
                                                                                                                                                                directives. Currently, FCA has the
                                                 The FCA recognizes that market                          Question 12: We seek comment on all                    discretion to issue a capital directive 58
                                              discipline contributes to a safe and                    aspects of the Basel II public disclosure                 when an institution’s capital is
                                              sound banking environment and                           requirements. Specifically, how would                     insufficient. The FCA, however, has not
                                              enhances risk management practices.                     the System apply the public disclosure                    defined capital or other financial early
                                              Pillar III of Basel II is designed to                   requirements of Pillar III given its                      intervention thresholds to require an
                                              complement the minimum capital                          unique cooperative structure?                             institution to take corrective action as
                                              requirements and supervisory review                     K. Capital Leverage Ratio                                 described in § 615.5355. Early
                                              process by encouraging market                                                                                     intervention approaches have been used
                                              discipline through meaningful public                      We are considering whether we                           in other contexts, including the
                                              disclosure. The disclosure requirements                 should supplement our existing risk-                      System’s Market Access Agreement and
                                              are intended to allow market                            based capital rules with a minimum                        the statutory requirements applicable to
                                              participants to assess key information                  capital leverage ratio requirement for all                other regulated financial institutions.59
                                              about an institution’s risk profile and                 FCS institutions to further promote the                   An early intervention capital directive
                                              associated level of capital to better                   safety and soundness of the System. Our                   framework could provide a clearer
                                              evaluate risk management performance,                   existing capital regulations require
                                              earnings potential and financial                        System banks to maintain a minimum                          54 The net collateral ratio is a bank’s net collateral

                                                                                                                                                                as defined in 12 CFR 615.5301(c) divided by the
                                              strength.                                                                                                         bank’s adjusted total liabilities.
                                                                                                         49 Disclosure is a qualifying criterion under Pillar
                                                 Pillar III of Basel II presents the                  I to obtain lower risk weightings and/or to apply
                                                                                                                                                                  55 See 12 CFR 615.5335(a).
                                                                                                                                                                  56 See 12 CFR 3.6(b) and (c); 12 CFR part 208,
                                              following general disclosure                            specific methodologies.                                   appendix B and 12 CFR part 225, appendix D; 12
                                              requirements: (1) Banks should have a                      50 Pillar III of Basel II provides minimum
                                                                                                                                                                CFR 325.3; and 12 CFR 567.8.
                                              formal disclosure policy approved by                    disclosure requirements on capital structure and            57 12 CFR part 615, subpart M.

                                              the board of directors that addresses the               adequacy, and risk exposure and assessment on               58 A capital directive is defined in § 615.5355(a)
                                                                                                      credit risk, market risk, operational risk, equities,     as an order issued to an institution that does not
                                              institution’s approach for determining                  and interest rate risk in the banking book.               have or maintain capital at or greater than the
                                                                                                         51 Disclosure of key capital ratios should be made
                                                                                                                                                                minimum ratios set forth in 12 CFR 615.5205,
                                                47 Each business line is multiplied by a fixed        on a quarterly basis. Qualitative disclosures             615.5330, and 615.5335, or established under
                                              percentage and then summed together to determine        providing a general summary of a bank’s risk              subpart L of part 615, or by a written agreement
rwilkins on PROD1PC63 with PROPOSALS-1

                                              the annual gross income. The eight lines of business    management objective and policies, reporting              under an enforcement or supervisory action, or as
                                              are corporate finance (18 percent), trading and sales   system and definitions may be published on an             a condition of approval of an application. The
                                              (18 percent), retail banking (12 percent),              annual basis.                                             FCA’s authority is set forth in sections 4.3(b)(2) and
                                              commercial banking (15 percent), payment and               52 U.S. Basel II banks are encouraged to provide       4.3A(e) of the Farm Credit Act (12 U.S.C. 2154(b)(2)
                                              settlement (18 percent), agency services (15            this information in one place on the entity’s public      and 2154a(e)).
                                              percent), asset management (12 percent), and retail     Web site.                                                   59 See 12 U.S.C. 1831o for the prompt corrective
                                              brokerage (12 percent).                                    53 These disclosures would be tested by external       action provisions that apply to commercial banks
                                                48 This section was not in the previous ANPRM.        auditors as part of the financial statement audit.        and savings associations.

                                         VerDate Aug<31>2005   17:11 Oct 30, 2007   Jkt 214001   PO 00000   Frm 00006   Fmt 4702   Sfmt 4702   E:\FR\FM\31OCP1.SGM      31OCP1
                                              61574               Federal Register / Vol. 72, No. 210 / Wednesday, October 31, 2007 / Proposed Rules

                                              indication of when we would impose                      industry and recent best practices for                SMALL BUSINESS ADMINISTRATION
                                              additional and increasing supervisory                   economic capital modeling.
                                              oversight on an institution to address                                                                        13 CFR Part 121
                                                                                                         Question 15: We seek comment on the
                                              continuing deterioration in its financial               most appropriate risk-based capital                   RIN 3245–AF67
                                              condition and capital position from                     framework for the System and the
                                              credit, interest rate, or other financial                                                                     Small Business Size Standards; Fuel
                                                                                                      reasons we should implement one
                                              risks.                                                                                                        Oil Dealers Industries
                                                                                                      framework over another. Should we
                                                 Question 14: We seek comment on
                                                                                                      consider creating a uniform regulatory                AGENCY:  U.S. Small Business
                                              revising our current capital directive
                                                                                                      capital structure for the System or a                 Administration.
                                              regulations to include an early
                                              intervention framework. We also seek                    multi-dimensional regulatory structure                ACTION: Proposed rule.
                                              comment on potential financial                          and allow each System institution the
                                                                                                      option of choosing which capital                      SUMMARY: The U.S. Small Business
                                              thresholds, such as capital ratios or risk                                                                    Administration (SBA) proposes to
                                              measures, that would trigger an FCA                     framework it will apply? How might this
                                                                                                      new risk-based capital framework                      change the small business size standard
                                              capital directive action.                                                                                     for the Heating Oil Dealers industry
                                                                                                      increase the costs or regulatory burden
                                              M. Multi-Dimensional Regulatory                         to the System? Would the increased                    (North American Industry Classification
                                              Structure                                               costs be justified by improved risk                   System (NAICS) code 454311)) from
                                                                                                                                                            $11.5 million in average annual receipts
                                                 As stated above, one of FCA’s                        sensitivity, risk management, and more
                                                                                                                                                            to 50 employees, and the size standard
                                              objectives is to implement a revised                    efficient capital allocation?
                                                                                                                                                            for the Liquefied Petroleum Gas (Bottled
                                              capital framework that improves the risk                                                                      Gas) Dealers industry (NAICS code
                                                                                                      N. Reporting Requirements and
                                              sensitivity of our capital rules while                                                                        454312) from $6.5 million in average
                                              avoiding undue regulatory burden.                       Transition Period 60
                                                                                                                                                            annual receipts to 50 employees. Large
                                              There are currently five banks and 95                      The other Federal financial regulatory             and fluctuating increases in the prices of
                                              associations in the System with varying                 agencies have announced that they will                heating oil and propane over the past
                                              degrees of asset size, complexity of                    be replacing Basel IA with a proposed                 several years indicate that a more stable
                                              operations, and sophistication in their                 rule that would provide all non-core                  measure of firm size based on number
                                              risk management practices. Some                         banks the option of adopting the                      of employees rather than receipts is
                                              System institutions have the risk                                                                             needed for these two industries.
                                                                                                      standardized approach under Basel II.
                                              management capabilities to apply more
                                                                                                      Their stated intent is to finalize a                  DATES: SBA must receive comments to
                                              complex, risk-sensitive regulatory
                                              capital requirements than other System                  standardized approach for non-core                    this proposed rule on or before
                                              institutions. It may be appropriate for                 banks before the core banks begin their               November 30, 2007.
                                              the FCA to adopt more than one set of                   first transition period year under the                ADDRESSES: You may submit comments,
                                              capital rules to account for these                      advanced capital framework. Our                       identified by RIN 3245–AF67, by one of
                                              differences. However, this approach                     objective is to minimize, to the extent               the following methods: (1) Federal
                                              could result in different capital                       possible, the time interval between the               eRulemaking Portal: http://
                                              requirements for the same type of                       issuance of their final rule and ours. We             www.regulations.gov. Follow the
                                              transaction and increase examination                    also need a transition period to make                 instructions for submitting comments;
                                              and oversight costs.                                    appropriate modifications to the Call                 or (2) Mail/Hand Delivery/Courier: Gary
                                                 As described above, the other Federal                Reporting System to track the new risk-               M. Jackson, Assistant Director for Size
                                              financial regulatory agencies are in the                based capital requirements.                           Standards, 409 Third Street, SW., Mail
                                              process of proposing two sets of capital                                                                      Code 6530, Washington, DC 20416.
                                                                                                         Question 16: We seek comment on an                    SBA will post all comments on
                                              rules for the financial institutions they               appropriate timetable for implementing
                                              regulate. The implementation of the                                                                           www.Regulations.gov. If you wish to
                                                                                                      our new risk-based capital rules.                     submit confidential business
                                              advanced capital framework would be                     Specifically, what is an appropriate
                                              limited, for the most part, to the largest,                                                                   information (CBI) as defined in the User
                                                                                                      time interval between the issuance of                 Notice at www.Regulations.gov, please
                                              internationally active banks that meet                  the other Federal financial regulatory
                                              certain infrastructure requirements.                                                                          submit the information to Diane Heal,
                                                                                                      agencies’ final rule on the standardized              Office of Size Standards, 409 Third
                                              Other banks would implement a simpler
                                                                                                      approach of Basel II and ours? How long               Street, SW., Mail Code 6530,
                                              capital framework patterned after the
                                                                                                      should the transition period be to allow              Washington, DC 20416, or send an e-
                                              standardized approach of Basel II.
                                                                                                      System institutions to adjust to the new              mail to sizestandards@sba.gov.
                                                 While our expectation is to
                                                                                                      risk-based capital rules?                             Highlight the information that you
                                              implement a revised capital framework
                                                                                                         Question 17: Additionally, we seek                 consider to be CBI and explain why you
                                              similar to the standardized approach of
                                                                                                      comment on any other methods that                     believe SBA should hold this
                                              Basel II, we also recognize that some
                                                                                                      may be used to increase the risk                      information as confidential. SBA will
                                              aspects of the advanced approaches may
                                                                                                                                                            review the information and make the
                                              be appropriate for the larger, more                     sensitivity of our risk-based capital
                                                                                                                                                            final determination of whether it will
                                              complex System institutions. However,                   rules.
                                                                                                                                                            publish the information or not.
                                              we are still reviewing the advanced                       Dated: October 25, 2007.
                                              approaches of Basel II and its potential                                                                      FOR FURTHER INFORMATION CONTACT:
                                              application to the System. Therefore, we                Roland E. Smith,                                      Diane Heal, Office of Size Standards,
rwilkins on PROD1PC63 with PROPOSALS-1

                                              are not seeking comments on specific                    Secretary, Farm Credit Administration Board.          (202) 205–6618 or
                                              aspects of the advanced approaches at                   [FR Doc. E7–21422 Filed 10–30–07; 8:45 am]            sizestandards@sba.gov.
                                              this time. Rather, we are considering the               BILLING CODE 6705–01–P                                SUPPLEMENTARY INFORMATION:    Several
                                              overall regulatory capital framework for                                                                      small businesses, trade associations, and
                                              the System in light of the changes                                                                            Members of Congress have requested
                                              occurring in the financial services                       60 This   section was not in the previous ANPRM.    that SBA review the $11.5 million size

                                         VerDate Aug<31>2005   17:11 Oct 30, 2007   Jkt 214001   PO 00000   Frm 00007   Fmt 4702   Sfmt 4702   E:\FR\FM\31OCP1.SGM   31OCP1

Shared By: