Regulatory Capital: Notice of Proposed Rulemaking to Revise Requirements for Large Banking Organizations and Banking Organizations With Significant Trading Activity

Summary

On July 27, 2023, the Office of the Comptroller of the Currency (OCC), the Board of Governors of the Federal Reserve System, and the Federal Deposit Insurance Corporation (collectively, the agencies) issued a joint notice of proposed rulemaking to substantially revise the regulatory capital requirements applicable to banking organizations with total assets of $100 billion or more and their subsidiary depository institutions (large banking organizations) and banking organizations with significant trading activity. The proposed revisions would improve the calculation of risk-based capital requirements to better reflect the risks of these banking organizations’ exposures, reduce the complexity of the framework, enhance the consistency of requirements across these banking organizations, and facilitate more effective supervisory and market assessments of capital adequacy. The proposal would be consistent with international capital standards issued by the Basel Committee on Banking Supervision.

The OCC encourages stakeholders to review the proposed rule and provide comments before the close of the comment period on November 30, 2023.

Highlights

• Proposed requirements for large banking organizations:
  • The proposal contains a new framework for calculating risk-weighted assets (referred to as “the expanded risk-based approach”) that would apply to banking organizations with total assets of $100 billion or more and their subsidiary depository institutions. This new framework would replace the internal model approaches for credit and operational risk capital requirements applicable to advanced approaches banking organizations.
  • Under the proposal, a large banking organization would calculate its risk-based capital ratios under the new expanded risk-based approach and the current standardized approach (including for market risk, as applicable), and use the lower of the two for each risk-based capital ratio.
• Consistency of requirements across large banking organizations:
  • All large banking organizations would be subject to the same treatment of unrealized gains and loss on certain securities and other components of accumulated other comprehensive income (AOCI), capital deductions, and rules for minority interest.
  • The proposal would require all large banking organizations to meet the supplementary leverage ratio requirement and apply the countercyclical buffer, if activated.
• Proposed market risk requirements:
  • The revised requirements for market risk would apply to all large banking organizations. The revised requirements for market risk also would apply to other banking organizations with $5 billion or more in trading assets plus trading liabilities or for which trading assets plus trading liabilities exceed 10 percent of total assets.
  • The proposal would retain banking organizations’ ability to use internal models, with an improved models-based measure for market risk that better accounts for potential losses. The use of internal models for market risk would be subject to enhanced requirements for model approval and performance.
  • The proposal would adopt new standardized approaches for market risk and credit valuation adjustment risk that better reflect the risks of banking organizations’ exposures.
• Transition provisions:
  • The proposal includes transition provisions to provide banking organizations sufficient time to plan for changes in required capital levels while minimizing the potential adverse impact on financial intermediation.
• Overview document:
  • The agencies also released an overview of certain elements of the proposal. The overview does not provide complete coverage of the proposal.

Further Information

Please contact Venus Fan, Risk Expert, or Benjamin Pegg, Analyst, Capital Policy, at (202) 649-6370; or Carl Kaminski, Assistant Director, or Kevin Korzeniewski, Counsel, Chief Counsel’s Office, at (202) 649-5490.

Benjamin W. McDonough
Senior Deputy Comptroller and Chief Counsel

Related Links

• Regulatory Capital Rule: Amendments Applicable to Large Banking Organizations and to Banking Organizations With Significant Trading Activity (PDF)
• Interagency Overview of the Notice of Proposed Rulemaking for Amendments to the Regulatory Capital Rule (PDF)
• Fact Sheet (PDF)