Circular
Agencies Issue Final Rule on Capital Requirements for Asset-Backed Commercial Paper Programs
July 22, 2004
Circular No. 11626

To All Depository Institutions and Others Concerned in the Second Federal Reserve District:

In a press release, the federal banking and thrift regulatory agencies issued a final rule amending their risk-based capital standards. The rule permits sponsoring banks, bank holding companies, and thrifts (banking organizations) to continue to exclude from their risk-weighted asset base for purpose of calculating the risk-based capital ratios asset-backed commercial paper (ABCP) program assets that are consolidated onto sponsoring banking organizations’ balance sheets as a result of Financial Accounting Standards Board Interpretation No. 46, Consolidation of Variable Interest Entities, as revised (FIN 46-R). This provision of the final rule will make permanent an existing interim final rule.

The final rule also requires banking organizations to hold risk-based capital against eligible ABCP liquidity facilities with an original maturity of one year or less that provide liquidity support to ABCP by imposing a 10 percent credit conversion factor on such facilities. Eligible ABCP liquidity facilities with an original maturity exceeding one year remain subject to current 50 percent credit conversion factor. Ineligible liquidity facilities are treated as direct credit substitutes or recourse obligations and are subject to a 100 percent credit conversion factor. The resulting credit equivalent amount is then risk weighted according to the underlying assets, after consideration of any collateral, guarantees, or external ratings, if applicable. All liquidity facilities that provide liquidity support to ABCP will be treated as eligible liquidity facilities for one-year transition period.

The rule will become effective on September 30, 2004.

Press release OFFSITE
Agencies final rule OFFSITE PDF

Contact:
Dianne Dobbeck
Assistant Vice President
Financial Sector Policy and Analysis
dianne.dobbeck@ny.frb.org