District Circular Letters

April 23, 1999

REGULATIONS H and Y:
MARKET RISK

To State Member Banks, Bank
Holding Companies, Edge Act Corporations,
U.S. Branches and Agencies of Foreign Banks,
and Others Concerned
in the Twelfth Federal Reserve District

Finalization of Interim Rule Regarding Risk-Based Capital Standards (Docket R-0996)

The Office of the Comptroller of the Currency (OCC), the Board of Governors of the Federal Reserve System (Board), and the Federal Deposit Insurance Corporation (FDIC) have adopted as final an interim rule amending their respective risk-based capital standards for market risk. These standards apply to certain banks and bank holding companies with significant trading activities. The interim rule (which became effective December 31, 1997) implemented a 1997 revision to the Basle Accord reducing regulatory burden for institutions with qualifying internal models by removing the requirement that they calculate a standardized specific risk capital charge (see our letter of January 15, 1998).

Prior to the 1997 revision, an institution that measured specific risk with an internal model that adequately measured such risk was subject to a minimum capital charge. An institution's capital charge for specific risk had to be at least as large as 50 percent of a specific risk charge calculated using the standardized approach.

The final rule is effective July 1, 1999.

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 number 4184.

Additional Information

For additional information regarding Regulations H and Y, please contact our Banking Supervision and Regulation Department, at (415) 974-3007.

FEDERAL RESERVE BANK OF SAN FRANCISCO