District Circular Letters
October 18, 2000
BANKING SUPERVISION AND REGULATION:
REVISION OF CAPITAL RULES FOR THE
TREATMENT OF RESIDUAL INTERESTS
To State Member Banks, Bank
Holding Companies,
and Others Concerned,
in the Twelfth Federal Reserve District
Proposed Revisions on Capital Rules for Residual Interests (Docket
R-1080) pdf file 50.4 kb
The Office of the Comptroller of the Currency, the Board
of Governors of the Federal Reserve System,
the Federal Deposit Insurance Corporation, and the Office of Thrift Supervision
requests public comment on proposed revisions to the capital rules for
residual interests in asset securitizations or other transfers of financial
assets. The proposed rule was published in the September 27, 2000, edition
of the Federal Register.
Comments are due by December 26, 2000.
The proposal by the agencies addresses concerns with
residual interests raised in the December 1999 Interagency
Guidance on Asset Securitization. In that guidance, the agencies expressed
concern with institutions that were holding inadequate capital against
residual interests, were valuing the assets improperly, and were holding
excessive amounts of these assets in relation to capital. In that document,
the agencies indicated that they were considering limiting the amount
of certain residual interests recognized in regulatory capital.
The capital proposal is intended to apply
to balance-sheet assets retained by a seller (or transferor) that are
structured, through subordination provisions or other credit enhancement
techniques, to absorb more than a pro rata share of credit loss related
to the transferred assets.
The agencies believe that these residual interests expose
institutions to concentrated credit risk, and may present valuation and
liquidity concerns. Recent experience has shown that high concentrations
of such residual interests can threaten the safety and soundness of insured
depository institutions.
The proposed treatment would amend the leverage and risk-based
capital requirements in the following ways:
- Require that "dollar-for-dollar" risk-based capital be held against
residual interests from securitization activities or other transfers
of financial assets that are retained on the balance sheet,
even if the amount exceeds the full capital charge typically held against
the assets transferred.
- Restrict undue concentrations in such residual interests by placing
them within the 25 percent Tier 1 capital sublimit already established
for nonmortgage servicing assets and purchased credit card relationships.
Any amounts above this limit will be deducted from Tier 1 capital.
Copies
Copies of the Board's notice (Docket
R-1080) pdf file 50.4 kb are available from our Corporate
Services Department. To request copies to be sent by mail, please call
(415) 974-2060. To request copies to be sent by
fax, please call (415) 974-3333, and specify document
number 4829.
All circulars and documents are available on the Internet
through the Federal Reserve Bank of San Francisco's Internet site, at
http://www.frbsf.org/banking/letters/index.html .
Additional Information
For additional information about the proposed revisions,
please contact our Banking Supervision and Regulation Department, at (415)
974-2822.
FEDERAL RESERVE BANK OF SAN FRANCISCO
|
