Circular
Risk-Based Capital Guidelines - Proposed Lower Risk Weighting for Bank Claims on Securities Firms
December 27, 2000
Circular No. 11299

To All State Member Banks and Bank Holding Companies in the Second Federal Reserve District:

The following is from a December 6th interagency press release:

The federal banking regulatory agencies today requested public comment on a proposal to amend their capital standards for banks, bank holding companies and savings associations to reduce the risk weight applied to claims on, or guaranteed by, qualifying securities firms.

The Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency and the Office of Thrift Supervision published the proposal in today's Federal Register.

The proposal would mitigate a competitive inequity for U.S. depository institutions and holding companies by lowering the risk weight applied to claims on qualifying securities firms from 100 percent to 20 percent. This change is consistent with the treatment of claims on securities firms under an April 1998 amendment to the Basel Accord [See FRBNY Circular No. 11050]. The Accord is an international framework for assessing the capital adequacy of depository institutions by risk weighting their assets and off-balance-sheet exposures and serves as a basis for the banking agencies' risk-based capital guidelines.

Under the proposal, qualifying securities firms incorporated in the United States must be registered broker-dealers subject to and in compliance with the net capital rule of the Securities and Exchange Commission, and subject to margin and other regulatory requirements applicable to registered broker-dealers. Securities firms incorporated in other countries that are members of the Organization for Economic Cooperation and Development (OECD) must be subject to supervisory and regulatory arrangements, including risk-based capital requirements, comparable to those imposed on depository institutions under the Basel Accord. Qualifying U.S. and OECD securities firms also must have a long-term credit rating in one of the three highest investment-grade credit ratings categories used by a nationally recognized statistical rating organization.

Comments are due by January 22, 2001.

The interagency proposal (pdf - 134kb) was published in the Federal Register. Comments should be sent to the Board of Governors, as specified in the notice.