District Circular Letters
June 25, 1999
BANKING SUPERVISION AND REGULATION:
CAPITAL ADEQUACY FRAMEWORK
Y2K SURVEY REPORT
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
Basel Committee Paper Regarding Proposed New Capital Adequacy Framework
The Basel Committee on Banking Supervision has issued a consultative paper
describing a proposed new capital adequacy framework for large internationally
active banking organizations. The proposed new framework represents a revision
of the Committee's current capital adequacy framework, which was issued
in 1998 and is commonly referred to as the Basel Capital Accord.
Comments regarding the proposal are requested by March 31, 2000.
The proposed new capital framework includes a strong, risk-sensitive regulatory
capital standard; an active supervisory program; and guidance regarding
improved bank disclosures that would allow market participants to make well
founded risk assessments.
More specifically, the proposed revisions include
- Designing a minimum capital standard to produce a more comprehensive
and sensitive treatment of credit risk. Three approaches are outlined
in the paper: a modified version of the existing approach and, going
forward, the use of banks' internal ratings and portfolio credit risk
models.
- Addressing asset securitization and incorporating external ratings
to varying degrees into the capital treatment of claims on sovereigns,
public sector entities, banks, and highly-rated corporates.
- Expanding the scope of the Basel Accord, which currently applies to
internationally active banks, so that it would apply on a consolidated
basis to holding companies that are parents of internationally active
banking groups. In this regard, the Federal Reserve notes that the Committee's
consultative paper does not make any proposals regarding the definition
of capital.
Additionally, the Committee is soliciting industry comment on the capital
treatment of certain credit risk mitigation techniques and ways to expand
coverage of the Accord to incorporate interest rate and operational risk.
The Basel Committee consultative paper regarding the proposed new capital
adequacy framework can be obtained from the Bank for International Settlements
Internet site, at http://www.bis.org.
Year 2000 Survey Report
The Federal Financial Institutions Examination Council (FFIEC) has previously
provided guidance to depository institutions on the importance of developing
Year 2000 customer awareness programs. During the first quarter of 1999,
FFIEC took the additional step of contracting with the Gallup Organization
to conduct a public survey to help gauge the effectiveness of customer awareness
campaigns to date. This information should help depository institutions
plan their own Y2K educational efforts.
During February and March, Gallup asked American adults, including fourteen
focus groups and 2,700 individuals, about their awareness of the Y2K computer
problem, their level of confidence in banks and thrifts to prevent or
minimize disruptions during the century rollover, and the actions they
might take to minimize the impact of any date change disruptions on their
own finances.
The attached FFIEC letter provides highlights
of the results of the survey and offers recommendations for actions suggested
by the findings. A report summarizing the findings of the survey in more
detail is available on the Internet, at http://www.federalreserve.gov/y2k/Y2Ksurveyreport.pdf.
Copies
In addition to their on-line availability, copies of the Basel Committee
paper regarding the proposed new capital adequacy framework and the FFIEC
Y2K survey report are available from our Corporate Services Department.
To request a copy of either publication to be sent via mail, please call
(415) 974-2748.
For Additional Information
For additional information regarding these matters, please contact our
Banking Supervision and Regulation Department, at (415) 974-3177
[for the Basel Capital Accord], and (213) 683-2738 [for
the Y2K survey].
FEDERAL RESERVE BANK OF SAN FRANCISCO
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