JOINT AGENCY PROPOSAL TO REVISE CAPITAL RULES FOR RESIDUAL INTERESTS.The Office of the Comptroller of the Currency The Office of the Comptroller of the Currency (or OCC) was established by the National Currency Act of 1863 and serves to charter, regulate, and supervise all national banks and the federal branches and agencies of foreign banks in the United States. , the Board of Governors of the Federal Reserve System Board of Governors of the Federal Reserve System The managing body of the Federal Reserve System, which sets policies on bank practices and the money supply. , the Federal Deposit Insurance Corporation Federal Deposit Insurance Corporation (FDIC), an independent U.S. federal executive agency designed to promote public confidence in banks and to provide insurance coverage for bank deposits up to $100,000. , and the Office of Thrift Supervision The Office of Thrift Supervision (OTS) was established as a bureau of the Treasury Department in August 1989 as part of a major Reorganization Plan of the thrift regulatory structure mandated by the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA) (12 U.S.C.A. on September 27, 2000, requested public comment on proposed revisions to their capital rules for residual interests in asset securitizations or other transfers of financial assets Financial assets Claims on real assets. . The proposal was published in the Federal Register (September 27, 2000). Comments are due 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 the 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 by instituting the following: 1. Requiring 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. 2. Restricting undue concentrations in such residual interests by placing them within the tier 1 capital Tier 1 Capital A term used to describe the capital adequacy of a bank. Tier I capital is core capital, this includes equity capital and disclosed reserves. Notes: Equity capital includes instruments that can't be redeemed at the option of the holder. sublimit sub·lim·it n. A limit or ceiling placed on a subdivision of a larger category, especially of nuclear weapons: negotiating sublimits on the number of land-based, intermediate-range missiles. of 25 percent already established for nonmortgage servicing assets and purchased credit card relationships. Any amounts above this limit will be deducted from tier 1 capital. |
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