District Circular Letters

November 28, 2000

BANKING SUPERVISION AND REGULATION:
PROPOSAL FOR SIMPLIFIED CAPITAL
FRAMEWORK FOR NON-COMPLEX INSTITUTIONS

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

Comments Requested on Proposal to Simplify Capital Framework for Non-Complex Institutions (R-1084)

The Federal Reserve Bank and thrift regulatory agencies are requesting public comment on a proposed rule that considers the establishment of a simplified regulatory capital framework for non-complex institutions. The notice was published in the November 3, 2000, edition of the Federal Register.

Comments are due February 1, 2001.

Banks and thrifts are required to maintain minimum levels of capital set by U.S. regulators under a framework established by the Basel Accord in 1988. The U.S. and other regulators are currently revising the Accord to provide a more refined assessment of the capital requirements for large, complex, internationally active banks. The agencies seek comment on simplified capital frameworks for non-complex banks and thrifts that would conform to the underlying principles of a revised Basel Accord and maintain the principles of prudent supervision, yet would relieve unnecessary regulatory burden.

A large number of community banks and thrifts might benefit from a simpler capital framework that relieves some of the regulatory burden associated with regulatory capital calculations. The agencies suggest criteria that could be used to determine eligibility for a simplified capital framework, such as the nature of a bank's activities, its asset size, and its risk profile. The agencies seek comment on possible minimum regulatory capital requirements for non-complex institutions, including a simplified risk-based ratio, a simple leverage ratio, or a leverage ratio modified to incorporate certain off-balance sheet exposures.

The agencies seek public comment on the following issues:

• Defining a non-complex institution
• Identifying the factors for determining eligibility for a simplified capital framework
• Setting an appropriate minimum capital threshold for non-complex institutions that balances the need to maintain prudent capital levels while minimizing the regulatory burden associated with calculating that level
• Considering additional options for measuring regulatory capital at non-complex institutions
• Resolving the implementation issues associated with a simplified capital framework

Copies

Copies of the notice (Docket R-1084) 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 4239.

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/bsr/regletters/.

Additional Information

For additional information about the proposal, please contact our Banking Supervision and Regulation Department, at (415) 974-3007.

FEDERAL RESERVE BANK OF SAN FRANCISCO