District Circular Letters
January 15, 1998
REGULATIONS H AND Y:
RISK-BASED CAPITAL GUIDELINES
INTERAGENCY GUIDANCE:
INTERNAL AND OUTSOURCED AUDITING
To State Member Banks, Bank Holding Companies,
U.S. Branches and Agencies of Foreign Banks,
Edge Act Corporations, and Others Concerned
in the Twelfth Federal Reserve District
Interim Rule and Request for Comment Regarding Risk-Based Capital
Guidelines (Docket R-0996)
The Federal Reserve Board has issued an interim rule and requested public
comment on an amendment to reduce regulatory burden in risk-based capital
guidelines that apply to banking organizations with significant trading
activities. The action was issued jointly with the Office of the Comptroller
of the Currency and the Federal Deposit Insurance Corporation.
The interim rule became effective December 31, 1997.
Comment is requested by March 2, 1998.
The amendment eliminates the requirement that when an institution measures
specific market risk using its internal model, the total capital charge
for specific risk must equal at least 50 percent of the standard specific
risk capital charge.
The amendment implements a revision to the Basle Accord that permits
such treatment for an institution whose internal model adequately measures
specific risk.
The rule will reduce regulatory burden for institutions with qualifying
internal models because they will no longer be required to calculate a
standard specific risk capital charge.
Interagency Policy Statement Regarding Sound Practices for Internal
and Outsourced Auditing
The Board's Division of Banking Supervision and Regulation and the other
federal banking agencies have developed the Interagency Policy Statement
on the Internal Audit Function and its Outsourcing, enclosed with
supervisory letter SR 97-35
(SUP).
The supervisory letter and the interagency policy statement contain
important information and guidance on the responsibilities of directors
and senior management for ensuring that a banking organization's systems
of internal control, including the internal audit function, are adequate
for the nature and scope of the organization's lines of business. To properly
meet their responsibilities, directors should have in place a means for
assessing the effectiveness of the internal control process.
The policy statement also contains a major section on internal audit
outsourcing, providing guidance regarding sound practices for audit outsourcing
arrangements and helping to answer questions about the independence of
an outsourcing firm that serves as a bank's external auditor.
Copies
Copies of the Board's notice (Docket
R-0996) are available from our Corporate Services Department.
To request copies to be sent via mail, please call (415) 974-2748.
To request copies to be sent via fax, please call (415) 974-3333,
and specify document numbers 4184.
Additional Information
For additional information regarding these matters, Regulations H and
Y, please contact our Banking Supervision and Regulation Department, at
(415) 974-3007 [for Regulations H and Y] and (415)
974-2998 [for the Interagency Policy Statement on the Internal
Audit Function and its Outsourcing ].
FEDERAL RESERVE BANK OF SAN FRANCISCO
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